PrimeEnergy Resources Corporation — Q1 2023 Form 10-Q
Business and period: Independent oil and natural gas producer with field-services operations, primarily in Texas and Oklahoma. This unaudited report covers the three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise stated. Dollar amounts below are in millions unless noted.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $22.65 | $25.93 | Down 12.7% |
| Oil, gas and NGL sales | $18.72 | $33.90 | Down 44.8% |
| Income from operations | $1.85 | $14.63 | Down 87.3% |
| Net income | $1.41 | $11.14 | Down 87.3% |
| Basic / diluted EPS | $0.75 / $0.53 | $5.62 / $4.07 | Lower |
| Operating cash flow | $30.64 | $9.36 | Up $21.28 |
| Capital expenditures, including exploration | $30.15 | $1.78 | Up $28.37 |
- Total revenue included a $0.41 net gain on derivatives in Q1 2023, versus a $10.96 net loss in Q1 2022. Q1 2023 comprised $0.98 unrealized gains and $0.57 realized losses.
- Oil and gas sales fell as oil production and realized prices declined. Oil volume was down 29.2% and average price was down 21.8%; gas and NGL average prices declined 54.6% and 38.9%, respectively.
- Operating and net margins were approximately 8.2% and 6.2% of total revenue, respectively, in Q1 2023, versus 56.4% and 43.0% in Q1 2022. Q1 2022 operating income included a $13.99 gain on asset sales; Q1 2023 included only $0.05.
- Operating cash flow benefited from a $16.70 decrease in prepaid obligations. Investing cash flow was negative $29.71; financing cash flow was negative $13.75, including $11.00 of debt repayment and $2.75 of treasury-stock purchases. Cash declined $12.82 to $13.72.
Balance sheet and liquidity
- At March 31, 2023, cash was $13.72, current assets $41.42, and current liabilities $44.24, implying a current ratio of about 0.94 and working-capital deficit of $2.82.
- No bank debt was outstanding at quarter-end. The revolving facility has $300 of aggregate commitments, subject to a $60 borrowing base; the borrowing base was reduced from $75 effective January 20, 2023. The next review was scheduled for June 2023.
- The company reported compliance with debt covenants. The facility is secured by substantially all oil and gas properties; the filing notes that a borrowing-base reduction could constrain availability or require repayment of excess borrowings.
- Total assets were $239.34 and total liabilities $100.33. Asset retirement obligations were $15.22, including $1.51 current; deferred income taxes were $40.39.
Operations, outlook, and risks
- Management said lower commodity prices and production drove the decline in oil, gas and NGL sales. Oil production fell with natural decline in West Texas and Oklahoma wells. Lower lease operating expense, DD&A and G&A partly offset the revenue decline; G&A fell 53.7%, primarily due to lower employee compensation and benefits.
- The 2023 capital program is based on expected operating cash flows, with borrowing availability as a potential backstop. Management may adjust spending, sell non-strategic assets or pursue joint ventures to preserve liquidity. It expected to drill and complete approximately 40 wells in 2023.
- The company expected to invest $78 in 25 horizontal wells, with $32 prepaid in December 2022 and about $46 of estimated remaining costs in 2023. It also described prospective West Texas development requiring approximately $200 through 2024, another $100 in 2025–2026, and roughly $400 of horizontal development investment over several years. These are plans and estimates, not guaranteed expenditures.
- Ten Hibernia-operated wells were placed on production in late April 2023. Management expected additional wells from the current program to begin production in June or by early Q3 2023. These are post-quarter developments described in the filing.
- Commodity prices, production performance, regional price differentials, weather, pipeline capacity and working capital can affect cash flow. Existing commodity derivative contracts expired in March 2023; management said it did not intend to enter new contracts unless required by the credit facility. Derivatives are not hedge-accounted, so fair-value changes can create earnings volatility.
- Management identified possible changes in asset-retirement estimates as a source of uncertainty. It expected environmental matters and ordinary-course legal actions not to have a material adverse effect; the legal-proceedings section reported none.
- Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether June 2023 borrowing-base redetermination changed the $60 borrowing base, available liquidity or covenant position.
- Actual capital spending, well completion timing, production ramp and returns relative to the disclosed drilling plans and estimates.
- How much of the increase in operating cash flow reflects working-capital timing, particularly the $16.70 prepaid-obligation decrease.
- The filing’s equity-repurchase disclosures: the statements show 31,440 shares repurchased for $2.75 in Q1, while the narrative in Item 2 says there was no purchase of equity securities during the period.
- Share-count and EPS details: the balance sheet reports 1,869,560 shares outstanding at March 31, while the cover page reports 1,850,500 as of May 16; the filing also reports diluted EPS below basic EPS due to the option dilution calculation. Confirm the applicable share and per-share figures when modeling.