SEC Filing Summary
Registrant and period: The supplied filing is Centennial Resource Development, Inc. (NASDAQ: CDEV), not Permian Resources Corp. It is a Form 10-K for the fiscal year ended December 31, 2017; it is not a standalone fourth-quarter report. Centennial is an independent oil and gas producer focused on the Delaware Basin.
Comparability: Centennial acquired control of its operating subsidiary, CRP, in October 2016. The filing distinguishes “Successor” and “Predecessor” accounting periods, and 2017 results also reflect the Silverback and GMT acquisitions. Year-over-year comparisons are therefore not fully like-for-like; management provides a combined 2016 comparison for operating trends.
Financial and Operating Performance
| Metric | FY 2017 | Comparison or context |
|---|---|---|
| Revenue | $429.9 million | Up 335% versus combined 2016, reflecting higher production and realized prices, as well as acquisitions. |
| Operating income | $105.3 million | Operating margin was approximately 24.5%. |
| Net income attributable to common shareholders | $75.6 million; $0.32 per basic and diluted share | Combined 2016 included significant acquisition-related accounting and transaction effects and is not directly comparable. |
| Operating cash flow | $259.9 million | Capital expenditures were $696.4 million; operating cash flow less capital expenditures was approximately negative $436.5 million. |
| Production | 11.63 million Boe for the year; average 31,864 Boe/d | Average daily production increased 278% versus combined 2016. Oil was 19,161 Bbl/d. |
| Average realized prices, before hedge settlements | Oil $48.17/Bbl; gas $2.75/Mcf; NGLs $26.28/Bbl | Versus combined 2016: oil up 21%, gas up 9%, and NGLs up 75%. |
| Production costs | Lease operating expense $3.55/Boe; gathering, processing and transportation $2.95/Boe | LOE per Boe fell 25% versus combined 2016; gathering and related expense per Boe rose 35%. |
| Cash and liquidity | $117.3 million cash and cash equivalents; $125.9 million including restricted cash | $474.1 million available under the revolving facility, net of letters of credit. |
| Debt | $390.8 million net carrying value of long-term debt | $400 million of 5.375% senior notes due 2026; no revolver borrowings at year-end. |
| Proved reserves | 186.5 million Boe | Up from 83.0 million Boe at year-end 2016; 60% were proved undeveloped reserves. |
Material Changes and Transactions
- Production growth came from the six-rig drilling program, 70 gross operated wells placed on production, and acquired properties. The company operated 181 producing horizontal wells at year-end.
- The June 2017 GMT acquisition added approximately 11,850 net acres and producing wells in New Mexico for an unadjusted $350 million purchase price. Centennial also completed a $340.8 million equity issuance to fund most of the purchase.
- In November 2017, CRP issued $400 million of 5.375% notes due 2026. Proceeds repaid revolver borrowings and were used for general corporate purposes; the borrowing base was subsequently reduced to $475 million.
- 2017 capital expenditures were $696.4 million, including $624.1 million for drilling and completion. Cash from operations did not cover capital expenditures.
- Proved reserves increased principally through extensions and discoveries from drilling, alongside positive revisions and acquired reserves. The filing reports 66.6 million Boe of PUD additions from extensions and discoveries and $168.5 million spent to convert 18.1 million Boe of PUDs to developed reserves.
Outlook, Risks and Other Notable Items
- 2018 plan: Management budgeted capital expenditures of $885 million to $1.05 billion, including $710 million to $820 million for drilling and completion. The plan contemplated increasing from six to seven rigs and more extended laterals. Management expected operating cash flow and borrowings to fund the program, based on then-current price expectations, but cautioned that funding and results depend on commodity prices and other factors.
- Liquidity and debt: The revolver was scheduled to mature in October 2019, and the company expected to enter a new credit agreement in spring 2018. Borrowing capacity depends on lender redeterminations and reserve values; lower prices could reduce capacity or require repayment. The company reported compliance with debt covenants at year-end.
- Commodity and operating risks: Results are exposed to oil, gas and NGL price volatility, drilling and reserve-estimation uncertainty, regional infrastructure and transportation constraints, water availability and disposal, lease expirations, and regulatory and environmental requirements. Three purchasers accounted for 63% of 2017 revenue.
- Contracts and contingencies: Contractual obligations included drilling-rig commitments, minimum water-disposal and frac-sand purchases, and a natural-gas transportation commitment of 40,000 MMBtu per day or payment for deficiencies. The filing reported $658.7 million of total contractual obligations, including debt principal and estimated interest. Management said ordinary-course legal matters were not expected to have a material adverse effect.
- Tax and accounting items: The company recorded $29.9 million of income tax expense, including a $4.4 million benefit from the reduction of the federal corporate tax rate to 21%. It reported no current cash federal income taxes expected in the near term, citing intangible drilling cost deductions and NOLs. The auditor issued unqualified opinions on the financial statements and internal control; management also concluded controls were effective.
- Subsequent events: In February 2018, Centennial completed a $94.7 million acquisition of approximately 4,000 net acres and producing properties. It had agreed to sell approximately 8,600 net acres and 12 gross wells for $140.7 million, with closing expected in March 2018.
Important Facts for Investors to Verify
- Confirm the issuer and security: this filing is for Centennial Resource Development, Inc. (CDEV), not Permian Resources Corp.
- Assess cash generation against the substantial 2018 capital budget, planned rig increase, and expected reliance on borrowing.
- Review the debt terms, covenant headroom, borrowing-base redetermination exposure, and planned replacement of the revolver before its October 2019 maturity.
- Evaluate reserve quality and development requirements: 60% of proved reserves were undeveloped, with SEC timing rules and commodity prices affecting their booking and value.
- Review purchaser concentration, transportation and gathering commitments, and the economics and closing status of the announced 2018 acquisition and asset sale.
- Consider that reported growth and the 2016 comparison are affected by acquisitions and the successor/predecessor accounting basis; the periods are not fully comparable.