Centennial Resource Development, Inc. (“Centennial” or the
“Company”) (NASDAQ: CDEV) today announced third quarter 2020
financial and operational results and updated 2020 operational
targets.
Recent Financial and Operational
Highlights
- Generated free cash flow during the quarter
- Reduced LOE per unit costs for the fourth consecutive
quarter
- Lowered well cost targets and full-year unit cost guidance
- Increased full-year oil and total company production
guidance
- Borrowing base reaffirmed at $700 million and repaid $15
million of credit facility borrowings
- Increased liquidity compared to the prior quarter
- Resumed drilling and completions activity with solid
results
- Expect to be free cash flow positive in the fourth quarter at
current strip pricing
Financial Results
For the third quarter 2020, Centennial reported
a net loss of $51.5 million, or $0.19 per diluted share, compared
to a net loss of $3.6 million, or $0.01 per diluted share, in the
prior year period. Centennial’s continued focus on cost reductions
resulted in an improvement in several unit cost metrics. As a
result of its lower cost structure, the Company generated net cash
from operating activities of $45.7 million and free cash flow1 of
$10.5 million in the third quarter.
Total equivalent production during the third
quarter 2020 averaged 68,934 barrels of oil equivalent per day
(“Boe/d”) compared to 76,312 Boe/d in the prior year period.
Average daily crude oil production for the quarter was 35,292
barrels of oil per day (“Bbls/d”) compared to 42,079 Bbls/d in the
prior year period.
NGL volumes increased 21% to 14,885 Bbls/d
compared to the second quarter 2020. The increase compared to the
prior quarter was largely attributable to the Company’s primary gas
processor shifting to ethane recovery during the quarter, in
addition to higher gas capture rates.
“Centennial delivered a solid third quarter
driven by lower operating expenses and well costs. Additionally, we
increased our liquidity position organically by utilizing free cash
flow to pay down debt,” said Sean R. Smith, Chief Executive
Officer. “Underpinned by a significantly lower cost structure, we
now expect to be free cash flow positive for the second half of
2020, assuming strip pricing and inclusive of our hedges.”
Third Quarter Operational
Results
During the quarter, Centennial resumed
operational activity adding one drilling rig, while achieving lower
well costs. Additionally, the Company continued its successful
implementation of various field-level initiatives to lower lease
operating expenses (“LOE”). In July, Centennial completed the
second phase of its electric substation in Reeves County, Texas,
enabling it to convert more well-sites from generator power to the
electrical grid, significantly reducing field emissions and
equipment rental costs. Upon the pending completion of phase three,
Centennial expects to reduce the number of generators from 125 in
the third quarter 2019 to approximately 10 at year-end 2020.
Centennial also continued its transition from electric submersible
pumps to more reliable and lower cost gas lift, converting fifteen
units during the quarter. As a result of these ongoing initiatives,
third quarter LOE per unit decreased seven percent compared to the
prior quarter.
“Our recent field-level projects have positively
impacted Centennial’s economics in a number of ways. The
electrification of the field and the transition to gas lift have
dramatically lowered equipment rental costs, provided our
well-sites with a more consistent power source and reduced the
amount of workovers,” said Smith. “Combined, these programs have
improved cash flow by reducing LOE costs by 36% over the past year,
in addition to providing a more stable production base with lower
downtime.”
Also during the quarter, Centennial completed
five previously drilled but uncompleted (“DUC”) wells in Lea
County, New Mexico targeting the Third Bone Spring Sand interval.
The two-well Pac-Man pad (89% WI) was drilled with approximate
10,100-foot laterals and achieved an average initial 30-day
production rate of 2,132 Boe/d (82% oil) per well, producing over
164,000 cumulative barrels of oil during its first sixty days
online. Drilled with an average lateral length of 7,300 feet, the
two-well Donkey Kong pad (100% WI) achieved an average initial
30-day production rate of 1,715 Boe/d (82% oil) per well and
averaged 192 Bbls/d of oil per 1,000 foot of lateral per well. The
Chimichangas well (50% WI) was completed with an approximate
9,900-foot lateral and reported an initial 30-day average
production rate of 1,736 Boe/d (82% oil).
“These wells highlight the quality of our asset
base with strong 30-day initial production rates, as well as 60-day
initial production rates exceeding 1,200 barrels of oil per day on
average,” Smith said. “Importantly, we were able to deliver these
wells for an average cost of $858 per lateral foot. These results,
combined with recent efficiencies and structural cost reductions,
provide us with the confidence to further reduce our target well
cost by 11% to approximately $800 per lateral foot.”
Total capital expenditures incurred for the
quarter were $21.5 million, of which drilling and completion
(“D&C”) capital expenditures totaled $19.7 million.
Centennial’s facilities, infrastructure and other totaled $1.5
million, which was down significantly from prior quarters. The
remaining $0.3 million was spent on land during the quarter.
Updated 2020 Operational Plans and Targets
Centennial recommenced drilling activity during
the quarter and plans to continue operating a one-rig program for
the remainder of the year. Based on recent operational performance,
Centennial increased its 2020 oil production target by one percent
to 36,000 Bbls/d and total company production target by two percent
to 67,000 Boe/d. The Company also slightly reduced its full-year
capital expenditure budget, as a result of lower facilities and
infrastructure capital. Due to recent cost reduction initiatives,
Centennial lowered its full-year 2020 guidance range for LOE per
unit, in addition to G&A, DD&A, and severance & ad
valorem taxes. Furthermore, the Company adjusted its estimates for
operated wells spud and completed during the full-year.
“Based on enhanced operating margins and
structural well cost improvements, we expect to generate
incremental free cash flow in the fourth quarter, assuming strip
pricing,” Smith said.
(For a detailed table summarizing Centennial’s
updated 2020 operational and financial guidance, please see the
Appendix of this press release.)
Capital Structure and
Liquidity
As previously announced, the Company’s $700.0
million borrowing base was reaffirmed by its bank group. During the
quarter, the Company used a portion of its operating cash flow to
pay down $15.0 million in borrowings under its credit facility. As
of September 30, 2020, Centennial had approximately $5.2
million in cash on hand and $355.0 million of borrowings
outstanding under its revolving credit facility. As a result,
Centennial’s pro forma total liquidity position increased by $16.9
million compared to the prior quarter to $314.1 million, based on
its $700.0 million borrowing base, the availability blocker of
$31.8 million and $4.3 million in current letters of credit
outstanding, plus cash on hand. The Company’s current letters of
credit represent a $4.5 million reduction compared to $8.8 million
outstanding, as of September 30, 2020.
Hedge Position
For the fourth quarter of 2020, Centennial has
16,000 Bbls/d of oil hedged, consisting of approximately 80% fixed
price swaps, at a weighted average floor price of $38.97 per barrel
WTI. Centennial recently entered into additional oil and natural
gas hedges primarily for 2021 in order to further protect against
potential volatility in commodity prices. For 2021, the Company
currently has 5,718 Bbls/d of oil hedged at weighted average fixed
prices of $42.59 per barrel WTI and $47.79 per barrel Brent. In
addition, Centennial has certain crude oil basis swaps and natural
gas hedges in place for the remainder of 2020 and in 2021. Subject
to market conditions, the Company expects to implement additional
oil and natural gas hedges for 2021 over time. (For a summary table
of Centennial’s derivative contracts as of October 31, 2020,
please see the Appendix to this press release.)
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 September 30, 2020, which is expected to
be filed with the U.S. Securities and Exchange Commission (“SEC”)
on November 3, 2020.
Conference Call and Webcast
Centennial will host an investor conference call
on Tuesday, November 3, 2020 at 8:00 a.m. Mountain (10:00 a.m.
Eastern) to discuss third 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: 3692456) 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: 3692456) 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 reduced demand caused by the COVID-19 pandemic and the actions
taken in response 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 oil and gas
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 oil and gas 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.
1) Free Cash Flow is a non-GAAP financial
measure. See “Non-GAAP Financial Measures” included within the
Appendix of this press release for related disclosures and
calculations.
Contact:Hays MabryDirector,
Investor Relations(832) 240-3265ir@cdevinc.com
Details of our updated 2020 operational and financial guidance
are presented below:
|
|
2020 FY Guidance (Prior) |
|
2020 FY Guidance (Updated) |
Net average daily production (Boe/d) |
|
64,000 |
— |
68,000 |
|
66,000 |
— |
68,000 |
Oil net average daily
production (Bbls/d) |
|
34,500 |
— |
36,500 |
|
35,500 |
— |
36,500 |
|
|
|
|
|
|
|
|
|
Production
costs |
|
|
|
|
|
|
|
|
Lease operating expenses
($/Boe) |
|
$4.60 |
— |
$5.00 |
|
$4.25 |
— |
$4.50 |
Gathering, processing and
transportation expenses ($/Boe) |
|
$2.80 |
— |
$3.10 |
|
$2.90 |
— |
$3.00 |
Depreciation, depletion, and
amortization ($/Boe) |
|
$14.50 |
— |
$16.50 |
|
$14.50 |
— |
$15.50 |
Cash general and
administrative ($/Boe) |
|
$1.95 |
— |
$2.15 |
|
$1.95 |
— |
$2.10 |
Non-cash stock-based
compensation ($/Boe) |
|
$0.80 |
— |
$1.00 |
|
$0.80 |
— |
$0.90 |
Severance and ad valorem taxes
(% of revenue) |
|
7.0% |
— |
9.0% |
|
6.0% |
— |
8.0% |
|
|
|
|
|
|
|
|
|
Capital expenditure
program ($MM) |
|
$240 |
— |
$270 |
|
$240 |
— |
$265 |
Drilling and completion
capital expenditure |
|
$200 |
— |
$220 |
|
$200 |
— |
$220 |
Facilities, infrastructure and
land |
|
$40 |
— |
$50 |
|
$40 |
— |
$45 |
|
|
|
|
|
|
|
|
|
Operated drilling
program |
|
|
|
|
|
|
|
|
Wells spud (gross) |
|
17 |
— |
23 |
|
21 |
— |
24 |
Wells completed (gross) |
|
30 |
— |
33 |
|
31 |
— |
33 |
Average working interest |
|
~90% |
|
~90% |
Average lateral length
(Feet) |
|
~7,500 |
|
~7,500 |
|
|
|
|
|
|
|
|
|
|
Centennial Resource Development,
Inc.Operating Highlights |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, 2020 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net revenues (in
thousands): |
|
|
|
|
|
|
|
Oil sales |
$ |
119,966 |
|
|
$ |
200,196 |
|
|
$ |
363,571 |
|
|
$ |
590,055 |
|
Natural gas sales |
11,907 |
|
|
11,070 |
|
|
29,052 |
|
|
31,655 |
|
NGL sales |
17,228 |
|
|
17,864 |
|
|
39,756 |
|
|
66,228 |
|
Oil and gas sales |
$ |
149,101 |
|
|
$ |
229,130 |
|
|
$ |
432,379 |
|
|
$ |
687,938 |
|
|
|
|
|
|
|
|
|
Average sales
prices: |
|
|
|
|
|
|
|
Oil (per Bbl) |
$ |
36.95 |
|
|
$ |
51.71 |
|
|
$ |
34.86 |
|
|
$ |
51.58 |
|
Effect of derivative settlements on average price (per Bbl) |
(9.82 |
) |
|
(3.00 |
) |
|
(3.58 |
) |
|
(1.15 |
) |
Oil net of hedging (per Bbl) |
$ |
27.13 |
|
|
$ |
48.71 |
|
|
$ |
31.28 |
|
|
$ |
50.43 |
|
|
|
|
|
|
|
|
|
Average NYMEX price for oil (per Bbl) |
$ |
40.93 |
|
|
$ |
56.45 |
|
|
$ |
38.37 |
|
|
$ |
57.05 |
|
Oil differential from NYMEX |
(3.98 |
) |
|
(4.74 |
) |
|
(3.51 |
) |
|
(5.47 |
) |
|
|
|
|
|
|
|
|
Natural gas (per Mcf) |
$ |
1.15 |
|
|
$ |
0.96 |
|
|
$ |
0.93 |
|
|
$ |
1.04 |
|
Effect of derivative settlements on average price (per Mcf) |
(0.25 |
) |
|
0.30 |
|
|
(0.13 |
) |
|
0.36 |
|
Natural gas net of hedging (per Mcf) |
$ |
0.90 |
|
|
$ |
1.26 |
|
|
$ |
0.80 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
Average NYMEX price for natural gas (per Mcf) |
$ |
1.95 |
|
|
$ |
2.33 |
|
|
$ |
1.82 |
|
|
$ |
2.57 |
|
Natural gas differential from NYMEX |
(0.80 |
) |
|
(1.37 |
) |
|
(0.89 |
) |
|
(1.53 |
) |
|
|
|
|
|
|
|
|
NGL (per Bbl) |
$ |
12.58 |
|
|
$ |
14.47 |
|
|
$ |
11.50 |
|
|
$ |
16.88 |
|
|
|
|
|
|
|
|
|
Net
production: |
|
|
|
|
|
|
|
Oil (MBbls) |
3,247 |
|
|
3,872 |
|
|
10,429 |
|
|
11,440 |
|
Natural gas (MMcf) |
10,354 |
|
|
11,491 |
|
|
31,209 |
|
|
30,409 |
|
NGL (MBbls) |
1,370 |
|
|
1,234 |
|
|
3,458 |
|
|
3,923 |
|
Total (MBoe)(1) |
6,342 |
|
|
7,021 |
|
|
19,088 |
|
|
20,431 |
|
|
|
|
|
|
|
|
|
Average daily net
production: |
|
|
|
|
|
|
|
Oil (Bbls/d) |
35,292 |
|
|
42,079 |
|
|
38,061 |
|
|
41,903 |
|
Natural gas (Mcf/d) |
112,545 |
|
|
124,896 |
|
|
113,900 |
|
|
111,388 |
|
NGL (Bbls/d) |
14,885 |
|
|
13,417 |
|
|
12,619 |
|
|
14,371 |
|
Total (Boe/d)(1) |
68,934 |
|
|
76,312 |
|
|
69,664 |
|
|
74,839 |
|
__________________ |
(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 September 30, |
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Operating costs (in
thousands): |
|
|
|
|
|
|
|
Lease operating expenses |
$ |
24,543 |
|
$ |
42,330 |
|
$ |
83,021 |
|
$ |
107,077 |
Severance and ad valorem taxes |
7,839 |
|
12,213 |
|
30,108 |
|
45,519 |
Gathering, processing and transportation expenses |
19,130 |
|
20,853 |
|
53,353 |
|
52,120 |
Operating costs per
Boe: |
|
|
|
|
|
|
|
Lease operating expenses |
$ |
3.87 |
|
$ |
6.03 |
|
$ |
4.35 |
|
$ |
5.24 |
Severance and ad valorem taxes |
1.24 |
|
1.74 |
|
1.58 |
|
2.23 |
Gathering, processing and transportation expenses |
3.02 |
|
2.97 |
|
2.80 |
|
2.55 |
|
Centennial Resource Development,
Inc.Consolidated Statements of Operations
(unaudited)(in thousands, except per share
data) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Operating revenues |
|
|
|
|
|
|
|
Oil and gas sales |
$ |
149,101 |
|
|
$ |
229,130 |
|
|
$ |
432,379 |
|
|
$ |
687,938 |
|
Operating expenses |
|
|
|
|
|
|
|
Lease operating expenses |
24,543 |
|
|
42,330 |
|
|
83,021 |
|
|
107,077 |
|
Severance and ad valorem taxes |
7,839 |
|
|
12,213 |
|
|
30,108 |
|
|
45,519 |
|
Gathering, processing and transportation expenses |
19,130 |
|
|
20,853 |
|
|
53,353 |
|
|
52,120 |
|
Depreciation, depletion and amortization |
89,444 |
|
|
112,720 |
|
|
283,722 |
|
|
321,392 |
|
Impairment and abandonment expense |
19,904 |
|
|
6,745 |
|
|
650,629 |
|
|
42,427 |
|
Exploration and other expenses |
2,670 |
|
|
2,869 |
|
|
10,730 |
|
|
9,246 |
|
General and administrative expenses |
17,582 |
|
|
20,036 |
|
|
54,446 |
|
|
56,589 |
|
Total operating expenses |
181,112 |
|
|
217,766 |
|
|
1,166,009 |
|
|
634,370 |
|
Net gain (loss) on sale of
long-lived assets |
145 |
|
|
(22 |
) |
|
388 |
|
|
(15 |
) |
Income (loss) from
operations |
(31,866 |
) |
|
11,342 |
|
|
(733,242 |
) |
|
53,553 |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
Interest expense |
(17,718 |
) |
|
(15,246 |
) |
|
(51,510 |
) |
|
(39,843 |
) |
Gain on exchange of debt |
— |
|
|
— |
|
|
143,443 |
|
|
— |
|
Net gain (loss) on derivative instruments |
(1,968 |
) |
|
1,522 |
|
|
(40,330 |
) |
|
(2,221 |
) |
Other income (expense) |
23 |
|
|
62 |
|
|
(29 |
) |
|
321 |
|
Total other income (expense) |
(19,663 |
) |
|
(13,662 |
) |
|
51,574 |
|
|
(41,743 |
) |
|
|
|
|
|
|
|
|
Income (loss) before income
taxes |
(51,529 |
) |
|
(2,320 |
) |
|
(681,668 |
) |
|
11,810 |
|
Income tax (expense)
benefit |
— |
|
|
(1,393 |
) |
|
85,124 |
|
|
(5,058 |
) |
Net income (loss) |
(51,529 |
) |
|
(3,713 |
) |
|
(596,544 |
) |
|
6,752 |
|
Less: Net (income) loss
attributable to noncontrolling interest |
— |
|
|
128 |
|
|
2,362 |
|
|
(572 |
) |
Net income (loss) attributable
to Class A Common Stock |
$ |
(51,529 |
) |
|
$ |
(3,585 |
) |
|
$ |
(594,182 |
) |
|
$ |
6,180 |
|
|
|
|
|
|
|
|
|
Income (loss) per share of
Class A Common Stock: |
|
|
|
|
|
|
|
Basic |
$ |
(0.19 |
) |
|
$ |
(0.01 |
) |
|
$ |
(2.14 |
) |
|
$ |
0.02 |
|
Diluted |
$ |
(0.19 |
) |
|
$ |
(0.01 |
) |
|
$ |
(2.14 |
) |
|
$ |
0.02 |
|
|
Centennial Resource Development, Inc.Consolidated
Balance Sheets (unaudited)(in thousands, except share and
per share data) |
|
|
September 30, 2020 |
|
December 31, 2019 |
ASSETS |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
5,177 |
|
|
$ |
10,223 |
|
Accounts receivable, net |
51,352 |
|
|
101,912 |
|
Prepaid and other current assets |
7,980 |
|
|
7,994 |
|
Total current assets |
64,509 |
|
|
120,129 |
|
Property and Equipment |
|
|
|
Oil and natural gas properties, successful efforts method |
|
|
|
Unproved properties |
1,282,833 |
|
|
1,470,903 |
|
Proved properties |
4,319,617 |
|
|
3,962,175 |
|
Accumulated depreciation, depletion and amortization |
(1,804,014 |
) |
|
(931,737 |
) |
Total oil and natural gas properties, net |
3,798,436 |
|
|
4,501,341 |
|
Other property and equipment, net |
13,319 |
|
|
14,612 |
|
Total property and equipment, net |
3,811,755 |
|
|
4,515,953 |
|
Noncurrent assets |
|
|
|
Operating lease right-of-use assets |
4,025 |
|
|
11,841 |
|
Other noncurrent assets |
42,747 |
|
|
40,365 |
|
TOTAL ASSETS |
$ |
3,923,036 |
|
|
$ |
4,688,288 |
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
Current liabilities |
|
|
|
Accounts payable and accrued expenses |
$ |
116,377 |
|
|
$ |
244,309 |
|
Operating lease liabilities |
3,415 |
|
|
9,232 |
|
Other current liabilities |
913 |
|
|
925 |
|
Total current liabilities |
120,705 |
|
|
254,466 |
|
Noncurrent liabilities |
|
|
|
Long-term debt, net |
1,092,241 |
|
|
1,057,389 |
|
Asset retirement obligations |
18,125 |
|
|
16,874 |
|
Deferred income taxes |
2,589 |
|
|
85,504 |
|
Operating lease liabilities |
1,097 |
|
|
3,354 |
|
Other noncurrent liabilities |
456 |
|
|
— |
|
Total liabilities |
1,235,213 |
|
|
1,417,587 |
|
Commitments and contingencies
(Note 11) |
|
|
|
Shareholders’ equity |
|
|
|
Preferred stock, $0.0001 par value, 1,000,000 shares
authorized: |
|
|
|
Series A: No shares issued and outstanding at September 30, 2020
and 1 share issued and outstanding at December 31, 2019 |
— |
|
|
— |
|
Common stock, $0.0001 par value, 620,000,000 shares
authorized: |
|
|
|
Class A: 290,104,427 shares issued and 278,317,272 shares
outstanding at September 30, 2020 and 280,650,341 shares issued and
275,811,346 shares outstanding at December 31, 2019 |
29 |
|
|
28 |
|
Class C (Convertible): No shares issued and outstanding at
September 30, 2020 and 1,034,119 shares issued and outstanding at
December 31, 2019 |
— |
|
|
— |
|
Additional paid-in capital |
2,999,640 |
|
|
2,975,756 |
|
Retained earnings (accumulated deficit) |
(311,846 |
) |
|
282,336 |
|
Total shareholders’ equity |
2,687,823 |
|
|
3,258,120 |
|
Noncontrolling interest |
— |
|
|
12,581 |
|
Total equity |
2,687,823 |
|
|
3,270,701 |
|
TOTAL LIABILITIES AND
EQUITY |
$ |
3,923,036 |
|
|
$ |
4,688,288 |
|
|
Centennial Resource Development,
Inc.Consolidated Statements of Cash Flows
(unaudited)(in thousands) |
|
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
Cash flows from
operating activities: |
|
|
|
Net income (loss) |
$ |
(596,544 |
) |
|
$ |
6,752 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Depreciation, depletion and amortization |
283,722 |
|
|
321,392 |
|
Stock-based compensation expense |
16,164 |
|
|
21,351 |
|
Impairment and abandonment expense |
650,629 |
|
|
42,427 |
|
Deferred tax expense (benefit) |
(85,124 |
) |
|
5,058 |
|
Net (gain) loss on sale of long-lived assets |
(388 |
) |
|
15 |
|
Non-cash portion of derivative (gain) loss |
(1,103 |
) |
|
14 |
|
Amortization of debt issuance costs and discount |
4,112 |
|
|
2,070 |
|
Gain on exchange of debt |
(143,443 |
) |
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
(Increase) decrease in accounts receivable |
48,139 |
|
|
(47,771 |
) |
(Increase) decrease in prepaid and other assets |
(2,825 |
) |
|
(995 |
) |
Increase (decrease) in accounts payable and other liabilities |
(43,107 |
) |
|
34,562 |
|
Net cash provided by operating activities |
130,232 |
|
|
384,875 |
|
Cash flows from
investing activities: |
|
|
|
Acquisition of oil and natural gas properties |
(7,689 |
) |
|
(73,346 |
) |
Drilling and development capital expenditures |
(300,660 |
) |
|
(644,945 |
) |
Purchases of other property and equipment |
(1,035 |
) |
|
(8,207 |
) |
Proceeds from sales of oil and natural gas properties |
1,375 |
|
|
28,378 |
|
Net cash used in investing activities |
(308,009 |
) |
|
(698,120 |
) |
Cash flows from
financing activities: |
|
|
|
Proceeds from borrowings under revolving credit facility |
490,000 |
|
|
345,000 |
|
Repayment of borrowings under revolving credit facility |
(310,000 |
) |
|
(525,000 |
) |
Proceeds from issuance of senior notes |
— |
|
|
496,175 |
|
Debt exchange and debt issuance costs |
(6,650 |
) |
|
(7,200 |
) |
Restricted stock used for tax withholdings |
(598 |
) |
|
(911 |
) |
Net cash provided by financing activities |
172,752 |
|
|
308,064 |
|
Net increase (decrease) in
cash, cash equivalents and restricted cash |
(5,025 |
) |
|
(5,181 |
) |
Cash, cash equivalents and
restricted cash, beginning of period |
15,543 |
|
|
21,422 |
|
Cash, cash equivalents
and restricted cash, end of period |
$ |
10,518 |
|
|
$ |
16,241 |
|
Reconciliation of cash, cash equivalents and
restricted cash presented on the Consolidated Statements of Cash
Flows for the periods presented:
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
Cash and cash equivalents |
$ |
5,177 |
|
|
$ |
10,933 |
|
Restricted cash |
5,341 |
|
|
5,308 |
|
Total cash, cash equivalents
and restricted cash |
$ |
10,518 |
|
|
$ |
16,241 |
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
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 and other expenses,
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 September 30, |
|
Nine Months Ended September 30, |
(in
thousands) |
2020 |
|
2019 |
|
2020 |
|
2019 |
Adjusted EBITDAX
reconciliation to net income: |
|
|
|
|
|
|
|
Net income (loss) attributable to Class A Common Stock |
$ |
(51,529 |
) |
|
$ |
(3,585 |
) |
|
$ |
(594,182 |
) |
|
$ |
6,180 |
|
Net income (loss) attributable
to noncontrolling interest |
— |
|
|
(128 |
) |
|
(2,362 |
) |
|
572 |
|
Interest expense |
17,718 |
|
|
15,246 |
|
|
51,510 |
|
|
39,843 |
|
Income tax expense
(benefit) |
— |
|
|
1,393 |
|
|
(85,124 |
) |
|
5,058 |
|
Depreciation, depletion and
amortization |
89,444 |
|
|
112,720 |
|
|
283,722 |
|
|
321,392 |
|
Impairment and abandonment
expenses |
19,904 |
|
|
6,745 |
|
|
650,629 |
|
|
42,427 |
|
Gain on exchange of debt |
— |
|
|
— |
|
|
(143,443 |
) |
|
— |
|
Non-cash derivative (gain)
loss |
(32,518 |
) |
|
(9,740 |
) |
|
(1,103 |
) |
|
14 |
|
Stock-based compensation
expense |
4,772 |
|
|
7,357 |
|
|
14,934 |
|
|
19,317 |
|
Exploration and other
expenses |
2,670 |
|
|
2,869 |
|
|
10,730 |
|
|
9,246 |
|
Workforce reduction severance
payments |
582 |
|
|
— |
|
|
3,466 |
|
|
— |
|
Transaction costs |
— |
|
|
— |
|
|
476 |
|
|
— |
|
(Gain) loss on sale of
long-lived assets |
(145 |
) |
|
22 |
|
|
(388 |
) |
|
15 |
|
Adjusted EBITDAX |
$ |
50,898 |
|
|
$ |
132,899 |
|
|
$ |
188,865 |
|
|
$ |
444,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow (Deficit)
Free cash flow (deficit) 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 free
cash flow (deficit) as net cash provided by operating activities
before changes in working capital, less incurred capital
expenditures.
Our management believes free cash flow (deficit)
is a useful indicator of the Company’s ability to internally fund
its exploration and development activities and to service or incur
additional debt, without regard to the timing of settlement of
either operating assets and liabilities or accounts payable related
to capital expenditures. The Company believes that this measure, as
so adjusted, presents a meaningful indicator of the Company’s
actual sources and uses of capital associated with its operations
conducted during the applicable period. Our computations of free
cash flow (deficit) may not be comparable to other similarly titled
measures of other companies. Free cash flow (deficit) should not be
considered as an alternative to, or more meaningful than, cash
provided by operating activities as determined in accordance with
GAAP or as indicator of our operating performance or liquidity.
Free cash flow (deficit) is not a financial
measure that is determined in accordance with GAAP. Accordingly,
the following table presents a reconciliation of free cash flow
(deficit) to net cash provided by operating activities, our most
directly comparable financial measure calculated and presented in
accordance with GAAP:
|
Three Months Ended September 30, |
(in
thousands) |
2020 |
|
2019 |
Net cash provided by operating activities |
$ |
45,729 |
|
|
$ |
104,681 |
|
Changes in working
capital: |
|
|
|
Accounts receivable |
(12,074 |
) |
|
25,020 |
|
Prepaid and other assets |
2,866 |
|
|
841 |
|
Accounts payable and other liabilities |
(4,559 |
) |
|
(14,222 |
) |
Discretionary cash flow |
31,962 |
|
|
116,320 |
|
Less: total capital
expenditures incurred |
(21,500 |
) |
|
(212,100 |
) |
Free cash flow (deficit) |
$ |
10,462 |
|
|
$ |
(95,780 |
) |
|
|
|
|
|
|
|
|
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) |
September 30, 2020 |
|
December 31, 2019 |
Total equity |
$ |
2,687,823 |
|
|
$ |
3,270,701 |
|
|
|
|
|
Long-term debt, net |
1,092,241 |
|
|
1,057,389 |
|
Unamortized debt discount and
debt issuance costs on Senior Notes |
35,631 |
|
|
17,611 |
|
Long-term debt |
1,127,872 |
|
|
1,075,000 |
|
Less: cash and cash
equivalents |
(5,177 |
) |
|
(10,223 |
) |
Net debt (non-GAAP) |
1,122,695 |
|
|
1,064,777 |
|
|
|
|
|
Book capitalization
(GAAP)(1) |
$ |
3,780,064 |
|
|
$ |
4,328,090 |
|
|
|
|
|
Book capitalization
(non-GAAP)(2) |
$ |
3,815,695 |
|
|
$ |
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 (non-GAAP)
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 September 30, 2020 and additional contracts entered into
through October 31, 2020:
|
Period |
|
Volume(Bbls) |
|
Volume(Bbls/d) |
|
Weighted AverageFixed Price ($/Bbl)(1) |
Crude oil swaps |
|
|
|
|
|
|
|
NYMEX WTI |
October 2020 - December 2020 |
|
1,196,000 |
|
13,000 |
|
$38.89 |
|
January 2021 - March 2021 |
|
810,000 |
|
9,000 |
|
41.81 |
|
April 2021 - June 2021 |
|
273,000 |
|
3,000 |
|
42.89 |
|
July 2021 - September 2021 |
|
92,000 |
|
1,000 |
|
45.53 |
|
October 2021 - December 2021 |
|
92,000 |
|
1,000 |
|
45.65 |
|
|
|
|
|
|
|
|
ICE Brent |
January 2021 - March 2021 |
|
270,000 |
|
3,000 |
|
$46.85 |
|
April 2021 - June 2021 |
|
182,000 |
|
2,000 |
|
48.01 |
|
July 2021 - September 2021 |
|
184,000 |
|
2,000 |
|
48.25 |
|
October 2021 - December 2021 |
|
184,000 |
|
2,000 |
|
48.50 |
|
|
|
|
|
|
|
|
|
Period |
|
Volume(Bbls) |
|
Volume(Bbls/d) |
|
Weighted AverageDifferential ($/Bbl)(2) |
Crude oil basis swaps |
October 2020 - December 2020 |
|
1,196,000 |
|
13,000 |
|
$0.51 |
|
January 2021 - March 2021 |
|
810,000 |
|
9,000 |
|
0.01 |
|
April 2021 - June 2021 |
|
91,000 |
|
1,000 |
|
0.25 |
|
July 2021 - September 2021 |
|
92,000 |
|
1,000 |
|
0.20 |
|
October 2021 - December 2021 |
|
92,000 |
|
1,000 |
|
0.20 |
|
|
|
|
|
|
|
|
|
Period |
|
Volume(Bbls) |
|
Volume(Bbls/d) |
|
Weighted AverageCollar Price
Ranges($/Bbl)(3) |
Crude oil collars |
October 2020 - December 2020 |
|
276,000 |
|
3,000 |
|
$39.33 - $45.02 |
__________________ |
|
|
|
|
|
|
(1) These crude oil swap transactions are settled
based on the NYMEX WTI or ICE Brent oil price on each trading day
within the contracted monthly settlement period. |
(2) These oil basis swap transactions are
settled based on the difference between the arithmetic average of
ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each
applicable settlement period. |
(3) These crude oil collars are settled
based on the NYMEX WTI price on each trading day within the
specified monthly settlement period and establish floor and ceiling
prices for the contractual volumes. |
|
|
Period |
|
Volume(MMBtu) |
|
Volume(MMBtu/d) |
|
Weighted AverageFixed
Price($/MMBtu)(1) |
Natural gas swaps |
October 2020 - December 2020 |
|
3,370,000 |
|
36,630 |
|
$2.65 |
|
January 2021 - March 2021 |
|
5,400,000 |
|
60,000 |
|
2.91 |
|
April 2021 - June 2021 |
|
3,640,000 |
|
40,000 |
|
2.89 |
|
July 2021 - September 2021 |
|
3,680,000 |
|
40,000 |
|
2.89 |
|
October 2021 - December 2021 |
|
3,680,000 |
|
40,000 |
|
2.95 |
|
|
|
|
|
|
|
|
|
Period |
|
Volume(MMBtu) |
|
Volume(MMBtu/d) |
|
Weighted
AverageDifferential($/MMBtu)(2) |
Natural gas basis swaps |
October 2020 - December 2020 |
|
930,000 |
|
10,109 |
|
$(1.62) |
|
January 2021 - March 2021 |
|
1,800,000 |
|
20,000 |
|
(0.30) |
|
April 2021 - June 2021 |
|
3,640,000 |
|
40,000 |
|
(0.30) |
|
July 2021 - September 2021 |
|
3,680,000 |
|
40,000 |
|
(0.30) |
|
October 2021 - December 2021 |
|
3,680,000 |
|
40,000 |
|
(0.28) |
|
|
|
|
|
|
|
|
|
Period |
|
Volume(MMBtu) |
|
Volume(MMBtu/d) |
|
Weighted AverageCollar Price
Ranges($/MMBtu)(3) |
Natural gas collars |
October 2020 - December 2020 |
|
1,220,000 |
|
13,261 |
|
$2.90 - $3.64 |
|
January 2021 - March 2021 |
|
1,800,000 |
|
20,000 |
|
$2.90 - $3.64 |
__________________ |
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(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. |
(3) These natural gas collars are settled based
on the NYMEX Henry Hub price on each trading day within the
specified monthly settlement period and establish floor and ceiling
prices for the contractual volumes. |
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