Permian Resources Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Permian Resources is an independent oil and gas producer focused on the Delaware Basin in West Texas and New Mexico. The September 2022 Colgate merger materially expanded the company; therefore, reported Q1 2023 results include Colgate, while Q1 2022 reported results do not.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Oil and gas sales | $616.3 million | $347.3 million | Up 77%; higher production more than offset lower realized commodity prices. |
| Net income | $219.8 million | $15.8 million | Q1 2023 included $54.5 million of derivative gains; Q1 2022 had $129.5 million of derivative losses. |
| Net income attributable to Class A common stock | $102.1 million; $0.35 basic and $0.31 diluted per share | $15.8 million; $0.06 basic and $0.05 diluted per share | Q1 2023 net income included $117.7 million attributable to noncontrolling interests. |
| Cash from operating activities | $438.2 million | $160.1 million | Increase reflected greater production, realized hedge gains, lower reported gathering costs and collection timing, partly offset by lower realized prices and higher costs. |
| Investing cash flow | $(292.1) million | $(84.1) million | Included $315.3 million of drilling and development spending and $100.8 million of property acquisitions, partly offset by asset-sale proceeds. |
| Financing cash flow | $(189.9) million | $(34.8) million | Included $100 million net repayment of revolver borrowings, $29.4 million of unit repurchases and dividends/distributions. |
| Production | 153,822 Boe/d | 61,359 Boe/d | Up 151%; the filing attributes growth to the merger and wells brought online. |
| Total long-term debt, net | $2.043 billion | $2.141 billion | Debt declined $97.9 million, primarily with a $100 million net revolver repayment. |
At quarter-end, cash and cash equivalents were $25.6 million, current assets were $444.0 million and current liabilities were $682.0 million. The company reported $1.2 billion of available borrowing capacity under its revolving credit facility, net of letters of credit. It was in compliance with credit agreement covenants and financial ratios.
Average realized prices fell year over year: oil excluding hedges was $74.38/Bbl (down 17%), natural gas was $1.81/Mcf (down 54%) and NGLs were $27.12/Bbl (down 45%). Hedging raised the reported oil price to $78.03/Bbl and gas price to $2.39/Mcf. Lease operating expense was $5.38/Boe, versus $5.20/Boe; DD&A was $13.60/Boe, versus $12.86/Boe. The filing does not provide a single headline operating margin or EBITDA figure.
Material changes, transactions and capital allocation
- Compared with Q1 2022, oil, gas and NGL production rose 139%, 142% and 204%, respectively. Production gains reflected the expanded post-merger asset base and 113 wells placed on production since Q1 2022.
- Reported results are not directly comparable because the 2022 period predates the Colgate merger. Merger-related senior notes and higher revolver rates contributed to interest expense rising to $36.8 million from $13.2 million.
- Q1 2023 included $13.3 million of merger and integration expense, primarily severance and related benefits. Accelerated vesting for terminated employees also increased stock-based compensation expense by $6.3 million.
- The company acquired approximately 4,000 net leasehold acres and 3,300 net royalty acres in Lea County, New Mexico, for an unadjusted $98 million purchase price.
- It sold Reeves County water assets for $125 million cash at closing: $65 million related to transferred assets and $60 million contingent on future activity. The contingent amount is recorded as a liability and may require repayment if specified performance obligations through September 2026 are not met. No gain or loss was recognized.
- Q1 shareholder returns included a $0.05-per-share Class A dividend and $0.05-per-unit distribution, totaling $28.1 million, and $29.4 million of repurchases of 2.75 million Class C shares/units.
Outlook, risks and contingencies
- Management expects 2023 drilling, completion and facilities capital expenditures of $1.25–$1.45 billion and anticipated funding entirely from operating cash flow, based on expected production, commodity prices and hedges. The company operated seven drilling rigs in Q1 and reported $359.8 million of capital expenditures incurred.
- Management plans shareholder returns through base dividends plus a variable-return program. A May 2023 declaration set a $0.05 base and $0.05 variable dividend per Class A share, with corresponding distributions per OpCo common unit.
- On April 24, 2023, the credit facility amendment reaffirmed the $2.5 billion borrowing base and $1.5 billion elected commitments, and expanded certain debt-incurrence flexibility. In May, the company said holders could convert its $170 million 3.25% convertible notes during Q2 2023; settlement may be in cash, shares or a combination at the company’s election.
- Commodity prices and differentials, inflation, service costs, production and reserve estimates, and access to capital remain key uncertainties. Lower prices could reduce cash flow, asset values and borrowing capacity. Hedging moderates, but does not eliminate, price exposure and can limit gains when prices rise.
- The filing estimates that a 10% price change, based on Q1 production, would change sales by approximately $52.4 million for oil, $3.2 million for natural gas and $6.0 million for NGLs. The revolver had $285 million outstanding at a 6.5% weighted average rate; a one-percentage-point rate change would alter annual interest expense by about $2.9 million, assuming unchanged borrowings.
- A lawsuit related to unused pipeline capacity during Winter Storm Uri presents a reasonably possible loss estimated at $0–$7.6 million, with no amount in the range a better estimate than another. The company reported no material change in its risk factors and no material environmental claims known as of March 31, 2023.
Most important facts for investors to verify
- How much of the reported revenue, earnings and production increase reflects Colgate and acquired assets versus underlying organic growth; consider the filing’s merger pro forma data for Q1 2022.
- Whether operating cash flow can support the $1.25–$1.45 billion capital program, debt service and planned shareholder returns under lower-price scenarios.
- The realized effects and coverage of commodity hedges, including the limits they place on upside and exposure to basis differentials.
- The conditions and potential repayment obligation attached to the $60 million contingent water-asset consideration.
- Potential dilution or cash requirements from the convertible notes, whose holders had a Q2 2023 conversion right, and the company’s intended settlement approach.
- Progress on the Uri-related litigation, the $7.6 million potential loss range, and compliance with credit facility covenants and borrowing-base terms.