Business context and reporting period
Filing identity: The supplied filing is Centennial Resource Development, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not a filing under the name Permian Resources Corp. Investors should confirm the issuer and any corporate relationship before attributing these results.
Centennial was an independent oil and gas producer focused on the Delaware Basin. The company reported 279.2 million Class A shares outstanding at June 30, 2021.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Oil and gas sales | $232.6 million | $90.5 million | $425.0 million | $283.3 million |
| Operating income (loss) | $67.1 million | $(92.8) million | $101.1 million | $(701.4) million |
| Net income (loss) | $(25.1) million | $5.3 million | $(59.7) million | $(545.0) million |
| Net loss per share | $(0.09) | Net income per share $0.02 | $(0.21) | $(1.96) |
| Operating cash flow | Not separately presented | Not separately presented | $179.6 million | $84.5 million |
| Cash used in investing activities | Not separately presented | Not separately presented | $(127.1) million | $(277.1) million |
Q2 drivers: Sales rose 157% year over year, primarily reflecting much higher realized commodity prices; total net production declined 10% to 61,647 Boe/d. Oil production fell 15%, while natural gas rose 5%. The company recorded a $55.0 million derivative loss, including $37.5 million of realized settlement losses, and a $22.2 million loss on extinguishment of debt. A $6.0 million settlement related to a terminated asset sale was also recognized.
First-half comparison: Sales increased 50%, while total net production fell 18% to 57,945 Boe/d. The 2020 comparison included a $591.8 million non-cash proved-property impairment and a $143.4 million debt-exchange gain; 2021 included a $22.2 million debt-extinguishment loss. First-half 2021 derivative losses were $106.2 million.
Margins and costs: Q2 lease operating expense was $4.10/Boe versus $4.16; gathering, processing and transportation was $3.47/Boe versus $2.78. First-half figures were $4.66/Boe versus $4.59 and $3.83/Boe versus $2.68, respectively. Q2 general and administrative expense increased to $28.8 million from $18.0 million, largely because of remeasured cash-settled stock awards; first-half G&A was $54.1 million versus $36.9 million.
Cash, debt and liquidity: At June 30, cash and equivalents were $4.7 million; total current assets were $100.3 million and current liabilities $220.9 million. Long-term debt, net, was $1.054 billion, including $255.0 million drawn on the revolving facility. The company reported $441.0 million of available borrowing capacity, net of letters of credit, and said it was in compliance with applicable covenants. First-half cash flow from operations exceeded cash investing outflows, but cash decreased by approximately $1.1 million after financing activities.
Changes, outlook and risks
- Capital plan: The company operated two drilling rigs in the first half and planned to continue with two for the rest of 2021. Full-year capital expenditures were forecast at $260 million–$310 million, including $250 million–$290 million for drilling, completion and facilities. Management expected to fund the remainder from operating cash flow at then-current commodity prices and hedge positions, and anticipated using free cash flow to reduce revolver borrowings.
- Debt transactions: Centennial issued $170 million principal amount of 3.25% convertible notes due 2028, receiving $163.6 million net proceeds, and redeemed all $127.1 million of 8% senior secured notes at par. The notes are convertible into shares at an initial conversion price of approximately $6.28; capped-call transactions cost $14.7 million and were intended to reduce potential dilution.
- Commodity exposure: Prices improved substantially from 2020, but remain volatile. Hedges reduce downside exposure while limiting some upside; mark-to-market changes affect reported earnings. The company estimated that a 10% change in oil, NGL and gas prices would move first-half sales by $31.1 million, $5.2 million and $6.2 million, respectively.
- Operational and contractual matters: Winter Storm Uri caused about seven days of partial shut-ins and disrupted infrastructure and transportation; related price and cost effects affected results. A transportation provider lawsuit over unused capacity may result in a loss of $0–$7.6 million; the filing states no amount within that range is a better estimate. A four-year firm oil sales commitment covers 30,000 Bbl/d; under-delivery could create a financial obligation.
- Subsequent event: In July 2021, the company modified certain cash-settled restricted stock units to permit stock settlement at its discretion and expected approximately $17.3 million of incremental compensation expense.
- Management cited commodity-price and differential volatility, production declines, borrowing-base redeterminations, access to capital, regulatory and operational risks, and uncertainty around COVID-19 and weather. The company reported no material change to previously disclosed risk factors and no material changes in internal financial controls.
Important facts for investors to verify
- Confirm the filing’s issuer identity: Centennial Resource Development, Inc., rather than Permian Resources Corp.
- Review the debt maturity, conversion and dilution terms, capped-call coverage, and revolver borrowing-base and covenant provisions.
- Assess hedge volumes and settlement exposure against expected production, and distinguish cash settlements from non-cash derivative revaluations.
- Check the status and potential outcome of the Winter Storm Uri transportation dispute, including the stated $7.6 million maximum reasonably possible loss.
- Compare actual 2021 capital spending, production and free cash flow with management’s budget and funding assumptions; the filing does not provide a quantified full-year production forecast.