PrimeEnergy Resources Corporation — Q1 2021 Form 10-Q
Business context and period. The unaudited filing covers the three months ended March 31, 2021, with balance-sheet comparisons to December 31, 2020. PrimeEnergy produces oil, natural gas and NGLs, operates field-service businesses, and participates in drilling and development, primarily in the Permian Basin and Oklahoma.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data and where noted.
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $14.97 | $26.11 |
| Oil, gas and NGL sales | $12.67 | $12.80 |
| Operating income (loss) | $(1.39) | $0.40 |
| Net income (loss) attributable to PrimeEnergy | $(1.46) | $(0.17) |
| Basic and diluted loss per share | $(0.73) | $(0.09) |
| Cash from operating activities | $4.73 | $7.38 |
| Capital expenditures | $0.66 | $1.58 |
| Cash and cash equivalents, period-end | $4.02 | $1.00 at December 31, 2020 |
| Current assets / current liabilities | $12.98 / $15.69 | $8.91 / $14.12 at December 31, 2020 |
| Bank debt, current and long-term balance-sheet portions | $37.71 | $38.75 at December 31, 2020 |
- Revenue fell 42.7% year over year, largely because derivative results swung from a $7.75 million net gain in Q1 2020 to a $1.12 million net loss in Q1 2021, and field-service income declined. Oil, gas and NGL sales were nearly flat as higher realized prices offset lower volumes.
- Cash from operations decreased by $2.65 million. Cash increased by $3.02 million during the quarter, reflecting operating cash flow and net financing outflows of $1.05 million, partly offset by $0.66 million of investing outflows.
- At March 31, the company had $35.95 million drawn on its revolving facility, a $40 million borrowing base and $4.05 million available. The facility matures February 11, 2023; the filing says the company was covenant-compliant and expected to remain so for the next 12 months. Its oil and gas properties secure the facility.
- Current liabilities exceeded current assets by $2.71 million at March 31 (calculated from reported balances). The balance sheet also includes $13.02 million of long-term asset retirement obligations. PPP loans totaled $1.76 million, with forgiveness applications still to be submitted.
Material changes and operating drivers
- Oil production fell 30.3% to 163,000 barrels; gas production fell 29.1% to 665,000 Mcf; and NGL volumes fell 32.3% to 86,000 barrels. Management attributed lower output to natural declines and weather-related shut-ins in Texas and Oklahoma in February.
- Realized prices increased year over year: oil to $56.87 per barrel, gas to $2.49 per Mcf and NGLs to $20.29 per barrel. Oil revenue nevertheless decreased 13.5%; gas revenue rose 96.0% and NGL revenue rose 40.4%.
- Field-service income decreased 47.4% to $2.26 million, which the company attributed to lower customer utilization and rates. Lease operating expense declined 16.7% to $5.28 million, partly due to dispositions of marginal properties. General and administrative expense declined 66% to $2.63 million, primarily following workforce reductions implemented in 2020.
- Depreciation, depletion, amortization and accretion decreased 20.7% to $6.50 million; interest expense declined 20.6% to $0.52 million.
- Year-end 2020 proved reserves were 10.435 million Boe, down from 14.235 million Boe at year-end 2019. The reported standardized measure of discounted cash flows was $41.62 million for 2020, versus $81.61 million for 2019; these are year-end reserve estimates, not Q1 results.
Outlook, risks and contingencies
- No specific full-year revenue, earnings or production guidance is provided. Management says the 2021 capital budget is based on expected cash flows and commodity prices; the filing does not provide a clear total budget amount. Spending may be adjusted, and funding shortfalls may be met with revolver borrowings.
- Nine Upton County, Texas horizontal wells—six drilled in 2020 and three in Q1 2021—were scheduled for completion and production by the end of Q2 2021. PrimeEnergy’s average interest is about 47.5%, with an expected share of the cost of approximately $27 million. The company also described substantial longer-term development potential, dependent on commodity prices, cash flow and financing availability.
- A joint development agreement covering approximately 3,680 gross acres in Reagan County was entered into in February 2021. On May 10, after quarter-end, the company agreed to participate in four Oklahoma wells, with an 11.25% interest and an expected investment of approximately $1.98 million.
- Commodity prices, production declines, weather, regional pricing and service utilization affect results. Derivatives can limit gains from higher prices, expose the company to counterparty risk and cause earnings volatility because gains and losses are marked to market without hedge accounting. The next borrowing-base review was scheduled for July 2021; a reduction could constrain borrowing or require repayment of excess debt.
- Management said it did not expect environmental matters or ordinary-course legal proceedings to materially affect financial condition or results. The filing reports no legal proceedings. Asset-retirement estimates depend on assumptions about abandonment costs, inflation, well lives and discount rates.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. The interim financial statements are unaudited.
Important facts for investors to verify
- Progress and costs for completing the nine Upton County wells, and whether they reached production on the stated schedule.
- Actual production recovery after the February freeze-related shut-ins, and whether natural declines continue to outweigh higher commodity prices.
- Results of the July 2021 borrowing-base redetermination, facility availability, covenant compliance and any required debt repayment.
- PPP loan forgiveness status and the company’s remaining repayment obligations if any portion is not forgiven.
- Derivative positions, realized and unrealized results, and the assumptions underlying Level 3 fair-value estimates.
- Funding and timing of planned drilling and development, particularly given limited revolver availability and the scale of prospective capital commitments.