Permian Resources Corp quarterly report, Q3 FY2023

Permian Resources Corporation — Q3 2023 Form 10-Q

Business context and reporting period. This unaudited filing covers the three and nine months ended September 30, 2023. Permian Resources is an independent oil and gas producer focused on the Delaware Basin. The results include Colgate, acquired in September 2022, but do not include Earthstone, whose merger closed November 1, 2023.

Key financial and operating metrics

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Oil and gas sales	$758.5 million	$549.8 million	$1,998.2 million	$1,369.7 million
Net income	$98.3 million	$343.5 million	$467.1 million	$551.1 million
Net income attributable to Class A	$45.4 million	$224.4 million	$221.0 million	$432.0 million
Class A diluted EPS	$0.13	$0.70	$0.64	$1.36
Operating cash flow	Not separately stated for the quarter	$1,367.5 million	$843.4 million

Q3 production averaged 171,966 Boe/d, up 87% year over year; nine-month production averaged 163,946 Boe/d, up 120%.
Q3 average realized prices, before derivative settlements, were $79.92/Bbl for oil, $1.93/Mcf for natural gas and $23.67/Bbl for NGLs. Including derivative settlements, oil was $80.61/Bbl and gas was $2.09/Mcf.
Q3 operating income was $306.7 million. Interest expense was $40.6 million, and derivative losses were $151.8 million, including a $161.7 million non-cash mark-to-market loss.
Nine-month drilling and development cash expenditures were $1,066.7 million. Operating cash flow exceeded that amount by approximately $300.8 million; this comparison excludes acquisitions and other investing uses.
At September 30, cash was $211.7 million; current assets were $565.2 million and current liabilities were $760.0 million. Long-term debt, net, was $2,254.2 million. The company had no revolver borrowings and reported $1.5 billion of available capacity, net of letters of credit.

Material changes versus comparable periods

Sales rose 38% in Q3 and 46% for the first nine months, primarily as higher production more than offset lower realized commodity prices. Q3 oil, gas and NGL production increased 85%, 83% and 97%, respectively.
Net income and Class A EPS fell substantially in both comparisons. Lower commodity prices and derivative mark-to-market losses weighed on results; Q3 2022 included a $181.3 million derivative gain, versus a $151.8 million loss in Q3 2023.
Lease operating expense per Boe rose 12% to $5.42 in Q3. DD&A per Boe increased to $14.93 from $12.94, which management attributed partly to development costs and downward reserve revisions.
Comparability is affected by acquisitions: Colgate contributed for only one month of Q3 2022, versus a full quarter in Q3 2023. The company also changed presentation of certain gathering, processing and transportation costs: some are now deducted from gas and NGL revenue rather than reported as expense.
Nine-month interest expense increased to $114.2 million from $56.3 million, mainly reflecting Colgate debt, higher revolver borrowing costs and rates, and the 2032 notes issuance.

Outlook, management commentary and risks

Management set a 2023 drilling, completion and facilities capital budget of $1.25–$1.45 billion. It expected to fund remaining 2023 capital expenditures from operating cash flow, based on anticipated production, commodity prices and hedges; spending can be deferred or accelerated.
The November 1 Earthstone merger added approximately 223,000 net acres; management said the combined company would have over 400,000 net acres and production of approximately 300,000 Boe/d. The company issued 161.0 million Class A and 49.5 million Class C shares; it assumed $1.05 billion of Earthstone senior notes plus credit-facility borrowings. The preliminary share consideration was approximately $3.0 billion. Management expects long-term accretion and synergies but cautions that integration and benefits are uncertain.
The company issued $500 million of 7.00% senior notes due 2032 in September; net proceeds were used to repay credit-facility debt. The revolver commitment increased to $2.0 billion effective at the merger closing. At September 30, the company reported compliance with applicable debt covenants.
Management’s return-of-capital program included base and variable dividends and unit repurchases. Nine-month dividends and distributions totaled $143.1 million; repurchases totaled $57.3 million. In November, the board declared a $0.12-per-share/unit return, comprising a $0.05 base and $0.07 variable amount.
Key exposures include volatile oil, gas and NGL prices, differentials, inflation and operating costs, reserve-estimation uncertainty, borrowing-base redeterminations, and merger integration. Hedging limits downside exposure but also limits potential gains; derivatives are not designated as accounting hedges, so fair-value changes affect reported earnings.
A Winter Storm Uri transportation dispute presents a reasonably possible loss of $0–$7.6 million, potentially plus interest; management identified no better estimate within that range. A New Mexico flaring order assessed a $600,000 penalty, which the company reported as paid. The $60 million contingent consideration from a water-asset divestiture may need to be repaid if specified obligations through September 2026 are not met.

Important facts for investors to verify

How Earthstone’s assumed debt, integration costs and realized synergies affect combined leverage, cash flow and per-share returns; the purchase-price allocation was not complete in this filing.
Whether the 2023 capital budget and dividend/repurchase plans remain supportable under changing commodity prices, operating costs and post-merger cash requirements.
The effects of hedge settlements and non-cash derivative revaluations on earnings, cash flow and future price exposure.
Reserve revisions and production trends underlying the higher DD&A rate, and the impact of water-disposal costs after the saltwater-disposal asset sale.
Resolution of the transportation litigation and satisfaction of the water-divestiture contingent consideration obligations.