Centennial Resource Development, Inc. (“Centennial” or the
“Company”) (NASDAQ: CDEV) today announced second quarter 2020
financial and operational results and issued 2020 operational plans
and targets.
Recent Financial and Operational
Highlights
- Reduced capital expenditures by 84% from the first quarter
2020
- Reduced year-to-date average well costs by over 20% compared to
2019
- Reduced LOE per unit costs for the third consecutive
quarter
- Implemented plan to significantly reduce cash G&A
expenses
- Executed debt exchange, reducing total senior note debt by $127
million
- Curtailed a portion of May production volumes as a result of
weak pricing
Updated 2020 Financial and Operational
Plan
- Currently stimulating five drilled, but uncompleted wells
- Plan to resume drilling activity with one-rig in the fourth
quarter
- Reduced total capital budget to $255 million from previous
guidance
- Expect to be essentially cash flow neutral for the remainder of
the year at current strip pricing
Financial Results
For the second quarter 2020, Centennial reported
net income of $5.3 million, or $0.02 per diluted share, compared to
$17.9 million, or $0.07 per diluted share, in the prior year
period.
Total equivalent production during the second
quarter 2020 averaged 68,245 barrels of oil equivalent per day
(“Boe/d”) compared to 76,122 Boe/d in the prior year period.
Average daily crude oil production for the quarter was 37,411
barrels of oil per day (“Bbls/d”) compared to 43,105 Bbls/d in the
prior year period.
“The second quarter was the most challenging
crude oil price environment in recent history. To protect the
balance sheet, Centennial drastically reduced capital expenditures.
We also implemented a series of cost reduction initiatives that
will continue to benefit the Company over time,” said Sean R.
Smith, Chief Executive Officer. “Going forward, we remain focused
on minimizing cash costs and have reduced both LOE and recurring
cash G&A. As the oil market recovers, we plan to resume
operational activity with a focus on enhancing our economics
through a combination of lower well costs and higher operating
margins.”
Second Quarter Operational
Results
Centennial voluntarily curtailed approximately
20% of its May production volumes in response to weak realized
prices. In order to minimize shut-in volumes, the Company continued
to produce crude oil to on-site tank batteries, ultimately selling
these stocks at materially higher prices later in the quarter. The
majority of shut-in production volumes were brought-back online
during June at essentially no incremental cost.
“We made the prudent decision to voluntarily
shut-in a portion of our production during May. Notably, we
experienced virtually no artificial lift failures or additional
workover expenses associated with returning volumes to pre-shut-in
levels,” Smith said.
Centennial has implemented numerous field-level
projects targeting lower lease operating expenses (“LOE”), which
have generated positive results. Second quarter LOE per Boe
decreased 17% compared to the prior period, despite lower
production volumes. Centennial recently completed the first phase
of its electric substation in Reeves County, Texas, enabling it to
convert more facilities from generator power to the electrical
grid. Additionally, the Company continues its ongoing transition
from electric submersible pumps to more reliable gas lift.
Centennial remains focused on these types of cost reducing projects
going forward.
“Our electrification project has reduced the
number of generators in the field by 60%, resulting in lower
equipment rental costs. Furthermore, we have significantly
increased the usage of gas lift where feasible, lowering workover
expenses,” Smith said. “Combined, these projects have lowered LOE
costs, while reducing production downtime.”
As previously announced, Centennial took a
series of actions during the quarter to lower cash general and
administrative (“G&A”) expenses, including a reduction to its
workforce, employee and executive management salaries, Board of
Director retainers and other non-payroll expenses. Excluding the
effects of one-time severance costs paid to G&A employees of
$2.9 million, Centennial’s cash G&A expenses during the quarter
were $1.75 per BOE, a reduction of 12% compared to the prior
period.
Due to recent commodity price volatility,
Centennial suspended all drilling and most completion activities in
the second quarter. As a result, total capital expenditures
incurred were $28.0 million, compared to $175.4 million in the
prior quarter. Second quarter drilling and completion (“D&C”)
capital expenditures totaled $21.4 million and were primarily
associated with the completion of four wells in early April. The
remaining $6.6 million was spent on facilities, infrastructure and
land.
2020 Operational Plans and Targets
Centennial’s estimated fiscal year 2020 total
capital budget is approximately $240 million to $270 million, a
reduction of $10 million utilizing the mid-point compared to its
previously updated guidance range. Total D&C costs are
estimated to be $200 million to $220 million, with the remaining
portion to be allocated to facilities, infrastructure and land. As
a result of the Company’s five-rig operated drilling program during
the first quarter, capital expenditures for the first half of 2020
represent approximately 80% of its updated full year budget,
implying a significant reduction in total capital to be incurred
during the second half of the year.
During the third quarter, Centennial commenced
the completion of five wells that were drilled but uncompleted in
Lea County, New Mexico. Additionally, the Company intends to resume
drilling activity with one-rig in the fourth quarter to
conservatively resume field development.
“As the price of crude oil has recovered from
record lows, we are pleased to resume D&C activity on our asset
base. Importantly, we expect our future drilling program to be
underpinned by significantly lower well costs, as a result of
higher efficiencies and structural cost improvements,” Smith said.
“Year-to-date, our operations team has successfully reduced well
costs by over 20% compared to last year, and we expect to deliver
total well costs of approximately $900 per lateral foot when
activity resumes.”
“Based on our expected activity levels through
year-end, we anticipate being cash flow neutral for the balance of
the year, assuming strip pricing and inclusive of our oil hedges.
This will enable us to prudently manage our liquidity while
resuming activity,” Smith said.
The Company expects the current operational plan
to deliver full year total equivalent production volumes of 64,000
Boe/d to 68,000 Boe/d, including crude oil volumes of 34,500 Bbls/d
to 36,500 Bbls/d. (For a detailed table summarizing Centennial’s
2020 operational and financial guidance, please see the Appendix of
this press release.)
Senior Notes Exchange Offer
Results
On May 22, 2020, Centennial completed an
exchange offer whereby holders of $254.2 million aggregate
principal amount of the Company’s $900.0 million outstanding senior
unsecured notes exchanged their notes for $127.1 million principal
amount of newly issued 8.00% second lien senior secured notes due
2025. As a result, $900.0 million in senior unsecured notes
outstanding at March 31, 2020 was reduced by $254.2 million to
$645.8 million. The debt exchange resulted in an overall reduction
to the Company’s total principal amount of notes outstanding by
$127.1 million and lowered future interest expense. A comparison
between recent periods of Centennial’s total principal amount of
debt outstanding is provided below:
($'s in millions) |
March 31, 2020 |
|
June 30, 2020 |
|
Increase / (Decrease) |
5.375% Senior Unsecured Notes Due 2026 |
$400.0 |
|
$289.4 |
|
$(110.6) |
6.875% Senior Unsecured Notes Due 2027 |
500.0 |
|
356.4 |
|
(143.6) |
Total Senior Unsecured Notes |
900.0 |
|
645.8 |
|
(254.2) |
New 8.00% Second Lien Senior Secured Notes Due 2025 |
— |
|
127.1 |
|
127.1 |
Total Principal Amount of Notes Outstanding |
$900.0 |
|
$772.9 |
|
$(127.1) |
Capital Structure and
Liquidity
As of June 30, 2020, Centennial had $7.2
million in cash on hand and $370.0 million of borrowings under its
revolving credit facility. During the quarter, the Company borrowed
$135.0 million on its credit facility primarily due to changes
in working capital associated with the slowdown in activity levels
and lower commodity prices. At June 30, 2020 Centennial’s total
liquidity was $297.2 million, based on a $700.0 million borrowing
base, the availability blocker of $31.8 million that was instituted
to accommodate the new senior secured notes issued in connection
with the debt exchange and $8.2 million in letters of credit
outstanding, plus cash on hand. As of June 30, 2020, in addition to
the revolver borrowings, the Company had $127.1 million of senior
secured notes and $645.8 million of senior unsecured notes
outstanding. The $135.0 million in credit facility borrowings for
the quarter was largely offset by the debt exchange, resulting in
only a $7.9 million increase in overall debt during the
period.
Hedge Position
Centennial recently entered into additional oil
hedges for the fourth quarter of 2020 in order to further protect
against the potential future decline in oil prices. For the third
quarter, the Company has 25,000 Bbls/d of oil hedged at a weighted
average fixed price of $26.83 per barrel. For the fourth quarter,
Centennial has 13,000 Bbls/d of oil hedged at a weighted average
fixed price of $38.89 per barrel. Also for the fourth quarter, the
Company has 2,000 Bbls/d of oil collars in place with a weighted
average floor and ceiling price of $39.00 per barrel and $44.50 per
barrel, respectively. In addition, Centennial has certain crude oil
basis swaps and natural gas hedges for 2020. The Company has a
minimal amount of oil and natural gas hedges in place for 2021 and
expects to implement additional hedges for this period over time.
(For a summary table of Centennial’s derivative contracts as of
July 31, 2020, please see the Appendix to this press release.)
“Going forward, we expect to become more
systematic in regards to our hedging program, with the goal of
limiting downside risk while preserving upside optionality,” Smith
said.
Quarterly Report on Form
10-Q
Centennial’s financial statements and related
footnotes will be available in its Quarterly Report on Form 10-Q
for the quarter ended June 30, 2020, which is expected to be
filed with the U.S. Securities and Exchange Commission (“SEC”) on
or before August 4, 2020.
Conference Call and Webcast
Centennial will host an investor conference call
on Tuesday, August 4, 2020 at 8:00 a.m. Mountain (10:00 a.m.
Eastern) to discuss second quarter 2020 operating and financial
results. Interested parties may join the webcast by visiting
Centennial’s website at www.cdevinc.com and clicking on the
webcast link or by dialing (800) 789-3525, or (442) 268-1041 for
international calls, (Conference ID: 7031059) at least 15 minutes
prior to the start of the call. A replay of the call will be
available on Centennial’s website or by phone at (855) 859-2056
(Conference ID: 7031059) for a 14-day period following the
call.
About Centennial Resource Development,
Inc.
Centennial Resource Development, Inc. is an
independent oil and natural gas company focused on the development
of unconventional oil and associated liquids-rich natural gas
reserves in the Permian Basin. The Company’s assets and operations,
which are held and conducted through Centennial Resource
Production, LLC, are concentrated in the Delaware Basin, a
sub-basin of the Permian Basin. For additional information about
the Company, please visit www.cdevinc.com.
Cautionary Note Regarding
Forward-Looking Statements
The information in this press release includes
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical fact included in this press release,
regarding our strategy, future operations, financial position,
estimated revenues and losses, projected costs, prospects, plans
and objectives of management are forward-looking statements. When
used in this press release, the words “could,” “may,” “believe,”
“anticipate,” “intend,” “estimate,” “expect,” “project,” “goal”,
“plan”, “target” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking
statements contain such identifying words. These forward-looking
statements are based on management’s current expectations and
assumptions about future events and are based on currently
available information as to the outcome and timing of future
events.
Forward-looking statements may include
statements about:
- volatility of oil, natural gas and NGL prices or a prolonged
period of low oil, natural gas or NGL prices and the effects of
actions by, or disputes among or between, members of the
Organization of Petroleum Exporting Countries (“OPEC”), such as
Saudi Arabia, and other oil and natural gas producing countries,
such as Russia, with respect to production levels or other matters
related to the price of oil;
- the effects of excess supply of oil and natural gas resulting
from the reduced demand caused by the COVID-19 pandemic and the
actions by certain oil and natural gas producing countries;
- our business strategy and future drilling plans;
- our reserves and our ability to replace the reserves we produce
through drilling and property acquisitions;
- our drilling prospects, inventories, projects and
programs;
- our financial strategy, liquidity and capital required for our
development program;
- our realized oil, natural gas and NGL prices;
- the timing and amount of our future production of oil, natural
gas and NGLs;
- our hedging strategy and results;
- our competition and government regulations;
- our ability to obtain permits and governmental approvals;
- our pending legal or environmental matters;
- the marketing and transportation of our oil, natural gas and
NGLs;
- our leasehold or business acquisitions;
- cost of developing our properties;
- our anticipated rate of return;
- general economic conditions;
- credit markets;
- uncertainty regarding our future operating results;
- our plans, objectives, expectations and intentions contained in
this press release that are not historical; and
- the other factors described in our Annual Report on Form 10-K
for the year ended December 31, 2019, and any updates to those
factors set forth in our subsequent Quarterly Reports on Form 10-Q
or Current Reports on Form 8-K.
We caution you that these forward-looking
statements are subject to all of the risks and uncertainties, most
of which are difficult to predict and many of which are beyond our
control, incident to the development, production, gathering and
sale of oil and natural gas. These risks include, but are not
limited to, commodity price volatility, inflation, lack of
availability of drilling and production equipment and services,
environmental risks, drilling and other operating risks, regulatory
changes, the uncertainty inherent in estimating reserves and in
projecting future rates of production, cash flow and access to
capital, the timing of development expenditures and the other risks
described in our filings with the SEC.
Reserve engineering is a process of estimating
underground accumulations of oil and natural gas that cannot be
measured in an exact way. The accuracy of any reserve estimate
depends on the quality of available data, the interpretation of
such data and price and cost assumptions made by reserve engineers.
In addition, the results of drilling, testing and production
activities may justify revisions of estimates that were made
previously. If significant, such revisions would change the
schedule of any further production and development drilling.
Accordingly, reserve estimates may differ significantly from the
quantities of oil and natural gas that are ultimately
recovered.
Should one or more of the risks or uncertainties
described in this press release occur, or should underlying
assumptions prove incorrect, our actual results and plans could
differ materially from those expressed in any forward-looking
statements. All forward-looking statements, expressed or implied,
included in this press release are expressly qualified in their
entirety by this cautionary statement. This cautionary statement
should also be considered in connection with any subsequent written
or oral forward-looking statements that we or persons acting on our
behalf may issue.
Except as otherwise required by applicable law,
we disclaim any duty to update any forward-looking statements, all
of which are expressly qualified by the statements in this section,
to reflect events or circumstances after the date of this press
release.
Contact:Hays MabryDirector,
Investor Relations(832) 240-3265ir@cdevinc.com
Details of our updated 2020 operational and financial guidance
are presented below:
|
Updated 2020 FY Guidance |
Net average daily production (Boe/d) |
64,000 |
— |
68,000 |
Oil net average daily
production (Bbls/d) |
34,500 |
— |
36,500 |
|
|
|
|
Production
costs |
|
|
|
Lease operating expenses
($/Boe) |
$4.60 |
— |
$5.00 |
Gathering, processing and
transportation expenses ($/Boe) |
$2.80 |
— |
$3.10 |
Depreciation, depletion, and
amortization ($/Boe) |
$14.50 |
— |
$16.50 |
Cash general and
administrative ($/Boe) |
$1.95 |
— |
$2.15 |
Non-cash stock-based
compensation ($/Boe) |
$0.80 |
— |
$1.00 |
Severance and ad valorem taxes
(% of revenue) |
7.0% |
— |
9.0% |
|
|
|
|
Capital expenditure
program ($MM) |
$240 |
— |
$270 |
Drilling and completion
capital expenditure |
$200 |
— |
$220 |
Facilities, infrastructure and
land |
$40 |
— |
$50 |
|
|
|
|
Operated drilling
program |
|
|
|
Wells spud (gross) |
17 |
— |
23 |
Wells completed (gross) |
30 |
— |
33 |
Average working interest |
|
~90% |
|
Average lateral length
(Feet) |
|
~7,500 |
|
|
|
|
|
Centennial Resource Development,
Inc.
Operating Highlights
|
Three Months Ended June 30, |
|
Six Months Ended June 30, 2020 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net revenues (in
thousands): |
|
|
|
|
|
|
|
Oil sales |
$ |
73,100 |
|
|
$ |
214,305 |
|
|
$ |
243,605 |
|
|
$ |
389,859 |
|
Natural gas sales |
8,787 |
|
|
8,088 |
|
|
17,145 |
|
|
20,585 |
|
NGL sales |
8,622 |
|
|
21,846 |
|
|
22,528 |
|
|
48,364 |
|
Oil and gas sales |
$ |
90,509 |
|
|
$ |
244,239 |
|
|
$ |
283,278 |
|
|
$ |
458,808 |
|
|
|
|
|
|
|
|
|
Average sales
prices: |
|
|
|
|
|
|
|
Oil (per Bbl) |
$ |
21.47 |
|
|
$ |
54.63 |
|
|
$ |
33.92 |
|
|
$ |
51.51 |
|
Effect of derivative settlements on average price (per Bbl) |
(1.60 |
) |
|
(0.18 |
) |
|
(0.76 |
) |
|
(0.20 |
) |
Oil net of hedging (per Bbl) |
$ |
19.87 |
|
|
$ |
54.45 |
|
|
$ |
33.16 |
|
|
$ |
51.31 |
|
|
|
|
|
|
|
|
|
Average NYMEX price for oil (per Bbl) |
$ |
28.00 |
|
|
$ |
59.81 |
|
|
$ |
37.09 |
|
|
$ |
57.36 |
|
Oil differential from NYMEX |
(6.53 |
) |
|
(5.18 |
) |
|
(3.17 |
) |
|
(5.85 |
) |
|
|
|
|
|
|
|
|
Natural gas (per Mcf) |
$ |
0.87 |
|
|
$ |
0.81 |
|
|
$ |
0.82 |
|
|
$ |
1.09 |
|
Effect of derivative settlements on average price (per Mcf) |
(0.14 |
) |
|
0.71 |
|
|
(0.07 |
) |
|
0.40 |
|
Natural gas net of hedging (per Mcf) |
$ |
0.73 |
|
|
$ |
1.52 |
|
|
$ |
0.75 |
|
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
Average NYMEX price for natural gas (per Mcf) |
$ |
1.65 |
|
|
$ |
2.51 |
|
|
$ |
1.76 |
|
|
$ |
2.69 |
|
Natural gas differential from NYMEX |
(0.78 |
) |
|
(1.70 |
) |
|
(0.94 |
) |
|
(1.60 |
) |
|
|
|
|
|
|
|
|
NGL (per Bbl) |
$ |
7.72 |
|
|
$ |
16.24 |
|
|
$ |
10.79 |
|
|
$ |
17.99 |
|
|
|
|
|
|
|
|
|
Net
production: |
|
|
|
|
|
|
|
Oil (MBbls) |
3,404 |
|
|
3,922 |
|
|
7,182 |
|
|
7,568 |
|
Natural gas (MMcf) |
10,140 |
|
|
9,954 |
|
|
20,855 |
|
|
18,918 |
|
NGL (MBbls) |
1,116 |
|
|
1,346 |
|
|
2,088 |
|
|
2,689 |
|
Total (MBoe)(1) |
6,210 |
|
|
6,927 |
|
|
12,746 |
|
|
13,410 |
|
|
|
|
|
|
|
|
|
Average daily net
production: |
|
|
|
|
|
|
|
Oil (Bbls/d) |
37,411 |
|
|
43,105 |
|
|
39,461 |
|
|
41,814 |
|
Natural gas (Mcf/d) |
111,419 |
|
|
109,392 |
|
|
114,585 |
|
|
104,521 |
|
NGL (Bbls/d) |
12,264 |
|
|
14,785 |
|
|
11,474 |
|
|
14,856 |
|
Total (Boe/d)(1) |
68,245 |
|
|
76,122 |
|
|
70,333 |
|
|
74,089 |
|
______________________
(1) Calculated
by converting natural gas to oil equivalent barrels at a ratio of
six Mcf of natural gas to one Boe.
Centennial Resource Development,
Inc.
Operating Expenses
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Operating costs (in
thousands): |
|
|
|
|
|
|
|
Lease operating expenses |
$ |
25,839 |
|
$ |
34,885 |
|
$ |
58,478 |
|
$ |
64,747 |
Severance and ad valorem taxes |
5,696 |
|
17,186 |
|
22,269 |
|
33,306 |
Gathering, processing and transportation expenses |
17,284 |
|
16,243 |
|
34,223 |
|
31,267 |
Operating costs per
Boe: |
|
|
|
|
|
|
|
Lease operating expenses |
$ |
4.16 |
|
$ |
5.04 |
|
$ |
4.59 |
|
$ |
4.83 |
Severance and ad valorem taxes |
0.92 |
|
2.48 |
|
1.75 |
|
2.48 |
Gathering, processing and transportation expenses |
2.78 |
|
2.34 |
|
2.68 |
|
2.33 |
|
|
|
|
|
|
|
|
Centennial Resource Development,
Inc.Consolidated Statements of Operations
(unaudited)(in thousands, except per share
data)
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Operating revenues |
|
|
|
|
|
|
|
Oil and gas sales |
$ |
90,509 |
|
|
$ |
244,239 |
|
|
$ |
283,278 |
|
|
$ |
458,808 |
|
Operating expenses |
|
|
|
|
|
|
|
Lease operating expenses |
25,839 |
|
|
34,885 |
|
|
58,478 |
|
|
64,747 |
|
Severance and ad valorem taxes |
5,696 |
|
|
17,186 |
|
|
22,269 |
|
|
33,306 |
|
Gathering, processing and transportation expenses |
17,284 |
|
|
16,243 |
|
|
34,223 |
|
|
31,267 |
|
Depreciation, depletion and amortization |
93,020 |
|
|
112,114 |
|
|
194,278 |
|
|
208,672 |
|
Impairment and abandonment expense |
19,425 |
|
|
4,418 |
|
|
630,725 |
|
|
35,682 |
|
Exploration expense |
4,051 |
|
|
3,861 |
|
|
8,060 |
|
|
6,377 |
|
General and administrative expenses |
17,994 |
|
|
18,435 |
|
|
36,864 |
|
|
36,553 |
|
Total operating expenses |
183,309 |
|
|
207,142 |
|
|
984,897 |
|
|
416,604 |
|
Net gain (loss) on sale of long-lived assets |
(2 |
) |
|
9 |
|
|
243 |
|
|
7 |
|
Income (loss) from operations |
(92,802 |
) |
|
37,106 |
|
|
(701,376 |
) |
|
42,211 |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
Interest expense |
(17,371 |
) |
|
(14,437 |
) |
|
(33,792 |
) |
|
(24,597 |
) |
Gain on exchange of debt |
143,443 |
|
|
— |
|
|
143,443 |
|
|
— |
|
Net gain (loss) on derivative instruments |
(29,857 |
) |
|
2,128 |
|
|
(38,362 |
) |
|
(3,743 |
) |
Other income (expense) |
1 |
|
|
133 |
|
|
(52 |
) |
|
259 |
|
Total other income (expense) |
96,216 |
|
|
(12,176 |
) |
|
71,237 |
|
|
(28,081 |
) |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
3,414 |
|
|
24,930 |
|
|
(630,139 |
) |
|
14,130 |
|
Income tax (expense) benefit |
1,916 |
|
|
(5,928 |
) |
|
85,124 |
|
|
(3,665 |
) |
Net income (loss) |
5,330 |
|
|
19,002 |
|
|
(545,015 |
) |
|
10,465 |
|
Less: Net (income) loss attributable to noncontrolling
interest |
— |
|
|
(1,125 |
) |
|
2,362 |
|
|
(700 |
) |
Net income (loss) attributable to Class A Common Stock |
$ |
5,330 |
|
|
$ |
17,877 |
|
|
$ |
(542,653 |
) |
|
$ |
9,765 |
|
|
|
|
|
|
|
|
|
Income (loss) per share of Class A Common Stock: |
|
|
|
|
|
|
|
Basic |
$ |
0.02 |
|
|
$ |
0.07 |
|
|
$ |
(1.96 |
) |
|
$ |
0.04 |
|
Diluted |
$ |
0.02 |
|
|
$ |
0.07 |
|
|
$ |
(1.96 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measure
In addition to disclosing financial results
calculated in accordance with U.S. generally accepted accounting
principles (“GAAP”), our earnings release contains non-GAAP
financial measures as described below.
Adjusted EBITDAX
Adjusted EBITDAX is a supplemental non-GAAP
financial measure that is used by management and external users of
our consolidated financial statements, such as industry analysts,
investors, lenders and rating agencies. We define Adjusted EBITDAX
as net income before interest expense, income taxes, depreciation,
depletion and amortization, exploration costs, impairment and
abandonment expenses, non-cash gains or losses on derivatives,
stock-based compensation, gain on exchange of debt, gains and
losses from the sale of assets, transaction costs and nonrecurring
workforce reduction severance payments. Adjusted EBITDAX is not a
measure of net income as determined by GAAP.
Our management believes Adjusted EBITDAX is
useful as it allows them to more effectively evaluate our operating
performance and compare the results of our operations from period
to period and against our peers without regard to our financing
methods or capital structure. We exclude the items listed above
from net income in arriving at Adjusted EBITDAX because these
amounts can vary substantially from company to company within our
industry depending upon accounting methods and book values of
assets, capital structures and the method by which the assets were
acquired. Adjusted EBITDAX should not be considered as an
alternative to, or more meaningful than, net income as determined
in accordance with GAAP or as an indicator of our operating
performance or liquidity. Certain items excluded from Adjusted
EBITDAX are significant components in understanding and assessing a
company’s financial performance, such as a company’s cost of
capital and tax structure, as well as the historic costs of
depreciable assets, none of which are components of Adjusted
EBITDAX. Our presentation of Adjusted EBITDAX should not be
construed as an inference that our results will be unaffected by
unusual or nonrecurring items. Our computations of Adjusted EBITDAX
may not be comparable to other similarly titled measures of other
companies.
The following table presents a reconciliation of
Adjusted EBITDAX to net income, our most directly comparable
financial measure calculated and presented in accordance with
GAAP:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(in
thousands) |
2020 |
|
2019 |
|
2020 |
|
2019 |
Adjusted EBITDAX
reconciliation to net income: |
|
|
|
|
|
|
|
Net income (loss) attributable to Class A Common Stock |
$ |
5,330 |
|
|
$ |
17,877 |
|
|
$ |
(542,653 |
) |
|
$ |
9,765 |
|
Net income (loss) attributable
to noncontrolling interest |
— |
|
|
1,125 |
|
|
(2,362 |
) |
|
700 |
|
Interest expense |
17,371 |
|
|
14,437 |
|
|
33,792 |
|
|
24,597 |
|
Income tax expense
(benefit) |
(1,916 |
) |
|
5,928 |
|
|
(85,124 |
) |
|
3,665 |
|
Depreciation, depletion and
amortization |
93,020 |
|
|
112,114 |
|
|
194,278 |
|
|
208,672 |
|
Impairment and abandonment
expenses |
19,425 |
|
|
4,418 |
|
|
630,725 |
|
|
35,682 |
|
Gain on exchange of debt |
(143,443 |
) |
|
— |
|
|
(143,443 |
) |
|
— |
|
Non-cash derivative loss |
22,963 |
|
|
4,260 |
|
|
31,415 |
|
|
9,754 |
|
Stock-based compensation
expense |
4,270 |
|
|
6,076 |
|
|
10,162 |
|
|
11,959 |
|
Exploration expense |
4,051 |
|
|
3,861 |
|
|
8,060 |
|
|
6,377 |
|
Workforce reduction severance
payments |
2,884 |
|
|
— |
|
|
2,884 |
|
|
— |
|
Transaction costs |
476 |
|
|
— |
|
|
476 |
|
|
— |
|
(Gain) loss on sale of
long-lived assets |
2 |
|
|
(9 |
) |
|
(243 |
) |
|
(7 |
) |
Adjusted EBITDAX |
$ |
24,433 |
|
|
$ |
170,087 |
|
|
$ |
137,967 |
|
|
$ |
311,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Debt / Book Capitalization
Ratio
Net debt / book capitalization ratio is a
supplemental non-GAAP financial measure that is used by management
and external users of our consolidated financial statements, such
as industry analysts, investors, lenders and rating agencies. We
define net debt / book capitalization ratio as net debt divided by
book capitalization (non-GAAP). Net debt is defined as long-term
debt, net, plus unamortized debt discount and issuance costs on
Senior Notes minus cash and cash equivalents. Book capitalization
(non-GAAP) is defined as long-term debt, net, plus unamortized debt
discount and debt issuance costs on Senior Notes, plus total
equity. Net debt / book capitalization ratio is not a measure
calculated in accordance with GAAP.
Our management believes net debt / book
capitalization ratio is useful as it allows them to more
effectively evaluate our capital structure and liquidity and
compare the results against our peers. Net debt / book
capitalization ratio should not be considered as an alternative to,
or more meaningful than, debt / book capitalization (GAAP) as
determined in accordance with GAAP or as an indicator of our
operating performance or liquidity. Our computations of net debt /
book capital ratio may not be comparable to other similarly titled
measures of other companies.
The following table presents a reconciliation of
our net debt / book capitalization ratio to our most directly
comparable financial measure calculated and presented in accordance
with GAAP:
(in
thousands) |
June 30, 2020 |
|
December 31, 2019 |
Total equity |
$ |
2,734,543 |
|
|
|
$ |
3,270,701 |
|
|
|
|
|
|
Long-term debt, net |
1,106,043 |
|
|
|
1,057,389 |
|
|
Unamortized debt discount and
debt issuance costs on Senior Notes |
36,829 |
|
|
|
17,611 |
|
|
Long-term debt |
1,142,872 |
|
|
|
1,075,000 |
|
|
Less: cash and cash
equivalents |
(7,214 |
) |
|
|
(10,223 |
) |
|
Net debt (Non-GAAP) |
1,135,658 |
|
|
|
1,064,777 |
|
|
|
|
|
|
Book capitalization
(GAAP)(1) |
$ |
3,840,586 |
|
|
|
$ |
4,328,090 |
|
|
|
|
|
|
Book capitalization
(non-GAAP)(2) |
$ |
3,877,415 |
|
|
|
$ |
4,345,701 |
|
|
|
|
|
|
Debt / book capitalization
(GAAP)(3) |
29 |
|
% |
|
24 |
|
% |
|
|
|
|
Net debt / book capitalization
(non-GAAP)(4) |
29 |
|
% |
|
25 |
|
% |
________________________
(1) Book capitalization (GAAP) is
calculated as total equity plus long-term debt, net.
(2) Book capitalization (non-GAAP) is
calculated as total equity plus long-term debt.
(3) Debt / book capitalization (GAAP) is
calculated as long-term debt, net divided by book capitalization
(GAAP).
(4) Net debt / book capitalization (non-GAAP)
is calculated as net debt divided by book capitalization
(non-GAAP).
The following table summarizes the approximate volumes and
average contract prices of swap contracts the Company had in place
as of June 30, 2020 and additional contracts entered into
through July 31, 2020:
|
Period |
|
Volume (Bbls) |
|
Volume (Bbls/d) |
|
Weighted Average Fixed Price $/Bbl)(1) |
Crude oil swaps |
|
|
|
|
|
|
|
NYMEX WTI |
July 2020 - September 2020 |
|
2,300,000 |
|
25,000 |
|
$ |
26.83 |
|
October 2020 - December 2020 |
|
1,196,000 |
|
13,000 |
|
38.89 |
|
|
|
|
|
|
|
|
ICE Brent |
January 2021 - March 2021 |
|
90,000 |
|
1,000 |
|
45.56 |
|
|
|
|
|
|
|
|
|
Period |
|
Volume (Bbls) |
|
Volume (Bbls/d) |
|
Weighted Average Differential ($/Bbl)(2) |
Crude oil basis swaps |
July 2020 - September 2020 |
|
1,472,000 |
|
16,000 |
|
$ |
0.52 |
|
October 2020 - December 2020 |
|
1,196,000 |
|
13,000 |
|
0.51 |
|
|
|
|
|
|
|
|
|
Period |
|
Volume (Bbls) |
|
Volume (Bbls/d) |
|
Weighted Average Collar Price Ranges(3) |
Crude oil collars |
October 2020 - December 2020 |
|
184,000 |
|
|
2,000 |
|
$39.00 - $44.50 |
_______________________
(1) These crude oil swap
transactions are settled based on the NYMEX WTI or ICE Brent oil
price on each trading day within the contracted monthly settlement
date.
(2) These oil basis swap transactions are
settled based on the difference between the arithmetic average of
ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each
applicable settlement period.
(3) These crude oil collars are settled based
on the NYMEX WTI price on each trading day within the specified
monthly settlement period and establish floor and ceiling prices
for the contractual volumes.
|
Period |
|
Volume (MMBtu) |
|
Volume (MMBtu/d) |
|
Weighted Average Fixed Price ($/MMBtu)(1) |
Natural gas swaps |
July 2020 - September 2020 |
|
2,760,000 |
|
30,000 |
|
$ |
2.03 |
|
|
October 2020 - December 2020 |
|
2,150,000 |
|
23,370 |
|
2.40 |
|
|
January 2021 - March 2021 |
|
1,800,000 |
|
20,000 |
|
2.68 |
|
|
|
|
|
|
|
|
|
|
Period |
|
Volume (MMBtu) |
|
Volume (MMBtu/d) |
|
Weighted Average Differential ($/MMBtu)(2) |
Natural gas basis swaps |
July 2020 - September 2020 |
|
2,760,000 |
|
30,000 |
|
$ |
(1.62 |
) |
|
October 2020 - December 2020 |
|
930,000 |
|
10,109 |
|
(1.62 |
) |
_______________________
(1) These natural gas swap contracts are settled
based on the NYMEX Henry Hub price on each trading day within the
contracted monthly settlement period.
(2) These natural gas basis swap contracts are
settled based on the difference between the Inside FERC’s West
Texas WAHA price and the NYMEX price of natural gas, during each
applicable settlement period.
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