Business context and reporting period
This is Centennial Resource Development, Inc.’s Form 10-K for the fiscal year ended December 31, 2020—not a filing under the name Permian Resources Corp. The company was an independent oil and gas producer concentrated in the Delaware Basin of the Permian, with approximately 81,657 net acres. Its 2020 results were shaped by the COVID-19 demand shock and oil-price volatility.
Key financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Oil and gas revenue | $580.5 million | $944.3 million |
| Net income (loss) | $(685.2) million | $16.4 million |
| Net income (loss) attributable to Class A | $(682.8) million; $(2.46) per share | $15.8 million; $0.06 per share |
| Operating cash flow | $171.4 million | $564.2 million |
| Cash and cash equivalents at year-end | $5.8 million | $10.2 million |
| Long-term debt, net | $1,068.6 million | $1,057.4 million |
| Net production | 24.6 MMBoe | 27.8 MMBoe |
| Year-end proved reserves | 298.9 MMBoe | 301.1 MMBoe |
Operating and net margins were approximately negative 134% and negative 118%, respectively, reflecting the substantial impairment charge. The filing reports total 2020 impairment and abandonment expense of $691.2 million, including a $591.8 million non-cash impairment of proved properties. Cash used in investing activities was $326.3 million, including $318.5 million of cash drilling and development expenditures. At year-end, the company had $330.0 million drawn on its revolving credit facility and $333.9 million of available borrowing capacity; the facility’s borrowing base and elected commitments were each $700 million. Reported current assets of $65.6 million were below current liabilities of $131.9 million; the credit agreement’s covenant current ratio uses specified adjustments.
Material changes versus prior period
- Revenue fell 39% year over year, principally because average realized oil and NGL prices declined and production volumes decreased. Oil sales fell 41%; oil production declined 15%, and total production declined 11%.
- The company recorded a $685.2 million net loss, compared with $16.4 million net income in 2019. The proved-property impairment was partly offset by a $143.4 million accounting gain on the debt exchange.
- Operating cash flow decreased $392.8 million. Production and development cash expenditures were reduced sharply from 2019 as the company suspended drilling and completion activity for much of the second and third quarters.
- Proved reserves decreased 0.7% to 298.9 MMBoe. Net negative revisions of 33.0 MMBoe included substantial downward price revisions, partly offset by cost-related upward revisions and 55.4 MMBoe of extensions and discoveries.
- Interest expense rose to $69.2 million from $56.0 million. The debt exchange reduced unsecured-note principal but issued $127.1 million of 8% second-lien secured notes due 2025.
Outlook, risks and unusual items
Management’s 2021 capital expenditure budget was $260–$310 million, including $250–$290 million for drilling, completion and facilities. The plan was to operate two rigs and fund capital spending from operating cash flow at then-current commodity prices. Management expected free cash flow to support further revolver paydown, while noting that spending and operations could change with prices, transportation, permits and other conditions.
Key risks include volatile commodity prices and pandemic-related demand uncertainty; concentrated Delaware Basin operations; substantial debt and dependence on borrowing-base determinations; customer concentration (BP America represented 47% and Shell Trading 20% of 2020 revenue); firm delivery and transportation commitments; and environmental, water-disposal, regulatory and climate-related requirements. The filing identifies a disputed $10 million escrow deposit tied to a terminated water-disposal-asset sale as under litigation. Management reported compliance with debt covenants at year-end and through filing; the auditor issued unqualified opinions on the financial statements and internal controls. No cash dividends had been paid, and none were anticipated in the near term.
Investor verification priorities
- Confirm the issuer identity and period: the supplied filing is Centennial Resource Development’s FY2020 10-K, not a Permian Resources Corp filing or a quarterly report.
- Review liquidity, debt maturities, borrowing availability, covenant definitions and the terms/security of the 2020 debt exchange.
- Assess the assumptions behind the $591.8 million proved-property impairment, reserve revisions and the valuation of proved reserves.
- Test whether the 2021 capital budget and planned debt reduction were achievable under actual prices, production, hedges and operating cash flow.
- Monitor the $10 million escrow dispute, firm volume commitments, customer concentration and exposure to oil and gas price differentials.