Filing summary
Entity and period: The source is Centennial Resource Development, Inc. (ticker CDEV), not Permian Resources Corp. It is the company’s Form 10-K for the fiscal year ended December 31, 2021; it does not provide a clear standalone fourth-quarter income statement or cash-flow summary. Amounts below are in U.S. dollars unless stated otherwise.
Business and financial performance
Centennial was an independent oil and gas producer focused on the Delaware Basin in Texas and New Mexico. At year-end it held approximately 73,675 net acres and reported proved reserves of 305.2 MMBoe.
| Metric | 2021 | 2020 |
|---|---|---|
| Oil and gas sales | $1,029.9 million | $580.5 million |
| Operating income (loss) | $370.6 million | $(780.1) million |
| Net income (loss) | $138.2 million | $(685.2) million |
| Basic / diluted EPS | $0.49 / $0.46 | $(2.46) / $(2.46) |
| Cash from operations | $525.6 million | $171.4 million |
| Capital expenditures incurred | $321.5 million | Not specified in this comparison |
| Year-end cash and cash equivalents | $9.4 million | $5.8 million |
| Year-end long-term debt, net | $825.6 million | $1,068.6 million |
Sales increased 77%, primarily reflecting higher realized commodity prices, partly offset by lower volumes. Average realized prices before hedges rose to $63.50/Bbl for oil, $3.67/Mcf for gas and $36.61/Bbl for NGLs. Total production fell 10% to 22.2 MMBoe, or 60,939 Boe/d. Operating income was approximately 36% of sales and net income approximately 13% (calculated from reported figures). The company reported a $148.8 million net derivative loss, including $132.1 million in realized settlement losses.
Cash used in investing activities was $226.5 million and cash used in financing activities was $297.5 million. At year-end, the company had $25.0 million drawn on its then-existing revolver and $669.2 million of available borrowing capacity, net of letters of credit. Debt consisted principally of $289.4 million of 2026 notes, $356.4 million of 2027 notes and $170.0 million of convertible notes due 2028.
Material changes and unusual items
- Results rebounded from the 2020 loss, when the company recorded a $591.8 million non-cash impairment of proved properties amid depressed commodity prices. No proved-property impairment was recorded in 2021; 2021 impairment and abandonment expense was $32.5 million, mainly leasehold amortization.
- Production declined despite a two-rig 2021 program that brought 42 gross operated wells online. Management attributed the decline chiefly to natural well declines, reduced 2020 drilling and completions, and temporary shut-ins during Winter Storm Uri.
- A December 2021 sale of approximately 6,200 net acres generated an unadjusted $101 million sales price and a $33.9 million net gain; proceeds were used to repay revolver borrowings.
- The company issued $170 million of 3.25% convertible notes and redeemed $127.1 million of 8% secured notes. A $22.2 million debt-extinguishment loss was recorded. Stock-based compensation rose to $64.3 million, partly due to accelerated vesting of employee awards.
- Proved reserves increased to 305.2 MMBoe from 298.9 MMBoe. Proved undeveloped reserves were 47% of the total; 31.0 MMBoe were converted to developed reserves, while revisions reduced PUDs by 6.4 MMBoe.
Outlook, risks and contingencies
Management planned to operate two rigs through 2022 and forecast 2022 capital expenditures of $365 million to $425 million, with $350 million to $400 million for drilling, completion and facilities. It expected to fund the program from operating cash flow, based on anticipated production, commodity prices and hedges. No specific production-growth or earnings guidance is provided in the filing. In February 2022, after year-end, the company entered a new revolving facility with $750 million of elected commitments, a $1.15 billion borrowing base and a February 2027 maturity. It also authorized a stock-repurchase program of up to $350 million, subject to liquidity, market conditions and debt-agreement restrictions.
- Key business exposures include volatile oil, gas and NGL prices; commodity hedges that reduce downside but limit some upside; inflation and oilfield-service costs; concentrated Delaware Basin operations; and reliance on third-party transport and a small number of purchasers. BP accounted for 50% of 2021 net revenues and Shell Trading for 22%.
- Climate, methane, hydraulic-fracturing, permitting, water-disposal and other environmental rules could increase costs, delay activity or constrain production. The company also disclosed potential operational and cost impacts from induced seismicity and water disposal restrictions.
- A transportation-provider dispute related to unused capacity during Winter Storm Uri was described as reasonably possible, with a potential loss ranging from zero to $7.6 million; no amount within that range was identified as a better estimate.
- The filing states the company was compliant with debt covenants. Its financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Confirm the issuer: this filing is for Centennial Resource Development, Inc. (CDEV), not Permian Resources Corp.
- Review 2022 realized prices, hedge settlements and production against management’s cash-flow-funded capital-spending assumptions.
- Track debt repayment, revolver availability, covenant compliance and the conditions attached to the new facility and share-repurchase authorization.
- Assess whether reserve additions and PUD conversions offset production declines, and how reserve values respond to commodity prices and development costs.
- Monitor the Winter Storm Uri transportation litigation, purchaser concentration and evolving environmental, water-disposal and methane requirements.