Business context and reporting period
This is Centennial Resource Development, Inc.’s (formerly Silver Run Acquisition Corporation) Form 10-Q for the quarter ended September 30, 2016—not a filing under the name Permian Resources Corp. The company was a blank-check company and had no significant operating activities or operating revenue during the reported period. Its October 11, 2016 acquisition of an approximately 89% interest in Centennial Resource Production, LLC (CRP) occurred after quarter-end.
Financial results and liquidity
- Revenue: $0 for the three and nine months ended September 30, 2016.
- Net loss: $524,077 for the quarter and $459,555 for the nine-month period. Quarterly loss reflected $777,055 of general and administrative expense, partly offset by $252,978 of trust-account investment income; nine-month amounts were $1,009,347 and $549,792, respectively. Basic and diluted loss per share was $0.04 for the quarter and $0.03 for the nine months.
- Cash and liquidity: Cash outside the trust was $137,583 at September 30; management reported working capital surplus of $198,122. Trust investments were $500.55 million, restricted principally for a business combination or permitted redemptions. Operating cash use was $1.17 million in the nine-month period.
- Balance sheet and debt: Total assets were $501.05 million, including the trust investment. Total liabilities were $17.80 million, including $17.50 million of deferred underwriting compensation. The company reported no long-term debt or off-balance-sheet arrangements at quarter-end.
- Margins and cash flow: Operating margins are not meaningful because there was no operating revenue. No operating cash flow was generated; the filing reports $1.17 million of net cash used in operating activities for the nine months.
Material changes and subsequent events
- The February 2016 public offering raised $500 million, and the sponsor’s private placement warrants raised $12 million. At September 30, 47.82 million public shares, with an aggregate redemption value of $478.25 million, were classified outside permanent equity.
- On October 11, the company completed its CRP transaction, contributed approximately $1.486 billion to CRP and CRP paid the former owners approximately $1.187 billion in cash. The former owners retained 20 million CRP units, about 11% of CRP. The company also sold 101.005 million shares in private placements for approximately $1.01 billion, used to fund part of the transaction.
- At closing, CRP’s term loans were repaid in full and its revolving-credit borrowing base increased from $140 million to $200 million. The amended facility carries interest at LIBOR plus 2.25%–3.25% and limits dividends based on liquidity and leverage requirements.
Outlook, risks and unusual items
The filing provides no operating or financial guidance for the combined business. Management expected public-company compliance and acquisition-related costs to rise. The SPAC’s trust funds were subject to redemption and creditor-claim risks; under its pre-combination charter, failure to complete a transaction within 24 months would require liquidation and redemption of public shares, subject to stated conditions. The deferred $17.5 million underwriting fee became payable upon closing and was paid from the trust. Management reported effective disclosure controls and no material change in internal control over financial reporting; no legal proceedings were reported. Post-combination risk factors were incorporated by reference from the company’s Form S-1.
Important facts for investors to verify
- Confirm the issuer and filing identity: this report is for Centennial Resource Development, Inc., not Permian Resources Corp.
- Review the transaction’s pro forma and subsequent-period financial statements; this 10-Q’s financial statements do not include CRP’s operating results.
- Verify the combined company’s debt, liquidity, borrowing-base availability, leverage-covenant compliance and interest costs after closing.
- Assess ownership dilution and potential share issuance from private-placement shares, warrants, and future redemption or exchange of retained CRP units.
- Note that the filing does not provide a clear comparable prior-year operating period for assessing year-over-year performance.