Permian Resources Corp. — 2022 Q2 Form 10-Q Summary
Registrant clarification: The supplied filing is for Centennial Resource Development, Inc. (NASDAQ: CDEV), not Permian Resources Corp. It covers the quarter and six months ended June 30, 2022, and was filed August 4, 2022.
Business context and reporting period
Centennial was an independent oil and gas producer focused on the Delaware Basin. The unaudited statements are prepared under U.S. GAAP. Management cautions that interim results are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Oil and gas sales | $472.7 million | $232.6 million | +103% |
| Operating income | $281.7 million | $67.1 million | — |
| Net income (loss) | $191.8 million | $(25.1) million | Turned profitable |
| Diluted EPS | $0.60 | $(0.09) | — |
Q2 operating and net income were approximately 59.6% and 40.6% of sales, respectively. These are calculated ratios, not company-reported non-GAAP margins. Net derivative loss was $34.1 million in Q2, including $73.6 million of realized settlement losses partly offset by a $39.5 million non-cash mark-to-market gain. Q2 revenue growth reflected higher commodity prices and production: total net production rose 14% to 70,240 Boe/d. Average realized prices before derivative settlements increased 72% for oil, 144% for natural gas and 47% for NGLs.
For the first six months, sales were $819.9 million versus $425.0 million; net income was $207.6 million versus a $59.7 million loss. Operating cash flow was $455.1 million, compared with $179.6 million. Investing cash outflow was $228.6 million, including $224.0 million of drilling and development expenditures; financing cash outflow was $34.8 million. Cash and cash equivalents were $201.1 million at June 30, versus $9.4 million at year-end 2021.
At June 30, total debt, net, was $801.8 million, all in notes; there were no revolver borrowings. Available revolving credit capacity was $744.2 million, net of letters of credit. Current assets were $349.9 million and current liabilities $316.1 million. Shareholders’ equity was $3.0 billion. The company reported compliance with applicable credit and note covenants.
Material changes versus comparable periods
- Higher prices and production drove first-half sales up 93% year over year; first-half total production increased 14% to 65,824 Boe/d on average.
- First-half operating cash flow increased by $275.5 million. The company said higher realized prices and volumes, lower cash interest and payment timing were key contributors; higher costs, derivative cash losses and receivable timing partly offset the increase.
- Operating costs rose alongside activity and commodity prices. First-half lease operating expense per Boe increased 4% to $4.84; gathering, processing and transportation cost per Boe increased 4% to $4.00. Higher production taxes and gas-processing costs also contributed to higher expenses.
- First-half net derivative loss increased to $163.7 million from $106.2 million. G&A decreased to $40.6 million from $54.1 million, mainly due to lower liability-award compensation expense; cash G&A increased.
Outlook, management commentary, risks and unusual items
- Capital plan: Standalone 2022 capital expenditures were expected to be $365 million–$425 million, including $350 million–$400 million for drilling, completion and facilities. Management expected to fund the remaining budget from operating cash flow, based on anticipated production, commodity prices and hedges. No explicit production forecast is provided in the supplied text.
- Pending Colgate merger: Announced May 19, 2022, the merger was expected to close after an August 29 shareholder meeting, subject to approvals and other conditions. The consideration included $525 million cash and 269.3 million Class C shares with corresponding units. Management anticipated assuming approximately $1.0 billion of Colgate debt, with potential additional revolver borrowing to fund the cash consideration. The expected scale, returns and synergies are management expectations, not assured outcomes.
- Credit facility: A July 15 amendment, effective only upon merger closing, would increase elected commitments from $750 million to $1.5 billion and the borrowing base from $1.15 billion to $2.5 billion. It would terminate if the merger had not occurred by November 30, 2022.
- Hedging and market exposure: Derivatives reduce, but do not eliminate, price volatility and limit some upside. First-half oil and gas sales would have changed by $61.2 million, $10.1 million and $10.7 million for each 10% change in oil, NGL and natural gas prices, respectively, based on reported production. Commodity price declines, inflation, service availability and reserve-value changes could affect cash flow, costs and borrowing capacity.
- Other items: A $39.1 million minimum-purchase commitment for frac sand runs through March 2024. A transportation dispute related to Winter Storm Uri presents a reasonably possible loss estimated at $0–$7.6 million; no amount in that range was considered a better estimate. Merger termination under specified conditions could trigger a $72 million fee or reimbursement of up to $20 million of Colgate expenses. The $350 million share-repurchase program was paused pending merger completion or termination.
Important facts for investors to verify
- Confirm the filing’s registrant and entity mapping: this document is Centennial Resource Development, Inc., not Permian Resources Corp.
- Check whether the Colgate merger closed, its final consideration and financing, and the resulting combined-company debt and liquidity.
- Review realized commodity prices, production, hedge settlements and subsequent derivative positions; reported derivative losses materially affected earnings and cash flow.
- Compare actual 2022 capital spending and operating cash flow with the standalone budget and funding assumptions.
- Track the outcome of the Winter Storm Uri transportation litigation and the frac-sand purchase commitment.