Permian Resources Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company is an independent oil and gas producer focused on the Permian Basin. Results include Earthstone operations from November 1, 2023; year-over-year comparisons are therefore materially affected by the merger.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Oil and gas sales | $1.243 billion | $616.3 million; up 102% |
| Average production | 319,514 Boe/d | 153,822 Boe/d; up 108% |
| Income from operations | $469.0 million | $236.2 million |
| Net income | $229.6 million | $219.8 million |
| Net income attributable to Class A | $146.6 million | $102.1 million |
| Class A EPS | $0.27 basic; $0.25 diluted | $0.35 basic; $0.31 diluted |
| Operating cash flow | $647.6 million | $438.2 million |
| Drilling and development capital expenditures | $519.6 million | $315.3 million |
Oil sales increased 101%, natural gas sales 21% and NGL sales 155%. Production growth reflected the Earthstone assets and 212 wells placed online since Q1 2023. Average realized oil price before hedging rose 2% to $76.13/Bbl; natural gas fell 31% to $1.24/Mcf and NGLs fell 2% to $26.47/Bbl. Hedging reduced the reported average oil price by $0.12/Bbl in Q1 2024, versus adding $3.65/Bbl in Q1 2023.
Operating expenses totaled $774.1 million, versus $380.1 million. DD&A was $410.2 million, up from $188.2 million, reflecting higher production and a higher DD&A rate. LOE per Boe rose 8% to $5.80; GP&T per Boe rose 20% to $1.34. Interest expense doubled to $72.6 million, primarily from debt assumed in the Earthstone merger and the 2032 notes. Derivatives recorded a $121.1 million net loss, including a $128.5 million non-cash mark-to-market loss, compared with a $54.5 million gain in Q1 2023.
At March 31, cash and equivalents were $12.7 million; current assets were $607.4 million and current liabilities $1.112 billion. Long-term debt, net, was $3.909 billion. The revolving facility had $60 million drawn and $1.9 billion available, net of letters of credit; the company reported covenant compliance. Operating, investing and financing cash flows were respectively $647.6 million, negative $619.3 million and negative $88.8 million. Investing cash outflows included $97.0 million of property acquisitions as well as drilling and development spending.
Material changes and capital allocation
- Reported sales and production increased sharply year over year, but the comparison is not like-for-like because Earthstone results were included only from November 2023. Management’s unaudited pro forma Q1 2023 Earthstone-adjusted figures were revenue of $1.122 billion and net income of $149.7 million.
- Q1 2024 dividends and distributions were $0.05 base plus $0.10 variable per share or unit. Cash dividends and distributions paid to shareholders and common unitholders totaled $115.5 million; the cash-flow statement separately reports $87.2 million of dividends paid during the quarter.
- The company repurchased 2.0 million Class C shares/Common Units for $31.4 million. The authorized repurchase program permits up to $500 million through December 31, 2024.
- Q1 bolt-on property acquisitions cost an adjusted $92 million, principally for undeveloped acreage adjoining existing assets.
Outlook, risks and unusual items
- Management expects 2024 drilling, completion and facilities cash capital expenditures of $1.9–$2.1 billion and expects to fund the remaining budget from operating cash flows, based on anticipated production, commodity prices and hedges. It says it expects sufficient capital for requirements through the following 12 months and longer term; this is subject to market and operating risks.
- After quarter-end, the company redeemed $356.4 million principal of 6.875% notes due 2027 on April 5, 2024. The April 25 credit amendment reaffirmed the $4.0 billion borrowing base and increased elected commitments from $2.0 billion to $2.5 billion.
- On May 7, the board declared a $0.06 base and $0.14 variable quarterly dividend/distribution, totaling $0.20 per share or unit, payable May 29, 2024.
- Commodity prices, regional differentials, inflation, operating costs, transportation and water-disposal capacity, regulations, weather, reserve estimates and access to capital are significant risks. Hedges provide only partial protection and limit some upside. Q1 ending net derivative fair value was a liability of $34.9 million.
- The company accrued a $6.5 million estimated liability for a dispute over unused pipeline capacity arising from Winter Storm Uri in 2021; management says additional loss above the accrual is not expected to be material. It reported no material environmental claims unprovided for and no material changes to previously disclosed risk factors.
- Convertible noteholders had the right to convert $170 million principal of 3.25% notes during Q2 2024. Settlement may be in cash, shares or both at the issuer’s election; capped-call transactions may offset dilution or certain cash payments, subject to a cap.
- Management concluded disclosure controls were effective as of March 31, 2024. The filing says there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Assess comparable, merger-adjusted production, revenue and earnings against the reported year-over-year growth.
- Check whether operating cash flow sustains the capital program, acquisitions and shareholder returns, particularly given low quarter-end cash.
- Review debt maturities, interest costs, post-quarter note redemption, facility availability and covenant headroom.
- Monitor realized gas prices and differentials, hedge settlements and mark-to-market volatility, including the effect of hedges on future cash flows.
- Track execution of the $1.9–$2.1 billion capital budget, production performance and integration of Earthstone assets.
- Follow the pipeline-capacity litigation and the conversion or settlement outcome for the convertible notes.