PrimeEnergy(PNRG) - 2025 Q2 - Quarterly Report

FORM 10-Q Header Filing Information This document is a Quarterly Report on Form 10-Q for PrimeEnergy Resources Corporation, covering the period ended June 30, 2025 - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] - PrimeEnergy Resources Corporation's common stock is traded on NASDAQ under the symbol PNRG[4] Common Stock Outstanding as of August 13, 2025 | Class of Stock | Shares Outstanding | | :--------------- | :----------------- | | Common Stock, $0.10 par value | 1,649,000 | Index to Form 10-Q Report Structure The index outlines the Form 10-Q structure, dividing it into Part I (Financial Information) and Part II (Other Information) - The report is structured into two main parts: Part I—Financial Information and Part II—Other Information[7] - Part I includes Consolidated Balance Sheets, Statements of Income, Equity, Cash Flows, Notes to Financial Statements, Management's Discussion and Analysis, Quantitative and Qualitative Disclosures About Market Risk, and Controls and Procedures[7] - Part II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities and Use of Proceeds, Defaults Upon Senior Securities, Other Information, and Exhibits[7] Definitions of Certain Terms and Conventions Used Herein Key Industry and Financial Terminology This section defines key terms and conventions used in the report, primarily related to oil and gas measurements, industry benchmarks, and financial/regulatory terms - Key measurements defined include Bbl (barrel), BOE (barrel of oil equivalent), Mcf (thousand cubic feet), and MMBtu (million British thermal units)[11] - Industry benchmarks such as Brent, WAHA, and WTI are defined for oil and gas pricing[11] - Financial and regulatory terms like Borrowing Base, DD&A (depletion, depreciation and amortization), GAAP, PV-10 (Present Value at 10%), and Standardized Measure are explained[11][12] - Detailed definitions are provided for 'Proved reserves,' 'Proved developed reserves,' and 'Proved undeveloped reserves,' including criteria for estimation and economic conditions[11][12] CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Forward-Looking Statements and Associated Risks This section warns that the report contains forward-looking statements subject to significant risks and uncertainties beyond the Company's control - The report contains forward-looking statements identified by words like 'believes,' 'plans,' 'expects,' and 'anticipates,' which are not historical in nature[14] - These statements are based on current expectations and assumptions but involve significant risks and uncertainties that are difficult to predict and often beyond the Company's control[14] - Key risks include volatility of commodity prices, impact of armed conflicts (Ukraine, Middle East), competition, permitting delays, regulatory changes (tax, environmental), litigation, inflation, supply chain disruptions, availability of resources, transportation access, ability to replace reserves, ESG goals, access to capital, financial strength of counterparties, uncertainties in reserve estimates, and cybersecurity risks[15] - Readers are cautioned not to place undue reliance on forward-looking statements, and the Company undertakes no duty to update them except as required by law[16] PART I—FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2025, and December 31, 2024, along with detailed explanatory notes Consolidated Balance Sheets The Consolidated Balance Sheets show total assets increased by approximately $18.4 million, driven by oil and gas properties, while liabilities also rose due to higher accrued property costs and long-term bank debt Consolidated Balance Sheet Highlights (Thousands of dollars) | Item | June 30, 2025 (Unaudited) | December 31, 2024 | | :--------------------------------- | :------------------------ | :------------------ | | ASSETS | | | | Total Current Assets | $33,242 | $28,270 | | Total Property and Equipment, Net | $308,628 | $295,837 | | Total Assets | $343,026 | $324,622 | | LIABILITIES AND EQUITY | | | | Total Current Liabilities | $55,310 | $49,655 | | Long-Term Bank Debt | $12,000 | $4,000 | | Total Liabilities and Contingencies| $137,777 | $121,697 | | Total Equity | $205,249 | $202,925 | - Total Assets increased by $18.4 million (5.67%) from $324.6 million at December 31, 2024, to $343.0 million at June 30, 2025[19] - Long-Term Bank Debt increased from $4.0 million at December 31, 2024, to $12.0 million at June 30, 2025, a 200% increase[19] Consolidated Statements of Income The Consolidated Statements of Income show a significant decrease in net income for both the three and six months ended June 30, 2025, primarily due to lower oil revenues and higher DD&A expenses Consolidated Statements of Income Highlights (Thousands of dollars, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $41,983 | $64,825 | $92,039 | $107,815 | | Total costs and expenses | $37,803 | $40,150 | $76,486 | $68,797 | | Net income | $3,228 | $19,732 | $12,362 | $31,051 | | Basic Net income per share | $1.94 | $11.08 | $7.37 | $17.31 | | Diluted Net income per share | $1.33 | $7.77 | $5.07 | $12.16 | - Net income for the three months ended June 30, 2025, decreased by 83.66% to $3.2 million from $19.7 million in the prior year[21] - Net income for the six months ended June 30, 2025, decreased by 60.20% to $12.4 million from $31.1 million in the prior year[21] - Oil revenues decreased significantly, by 39.22% for the three months and 25.34% for the six months, while natural gas revenues increased by 321.67% for the six months ended June 30, 2025[21] Consolidated Statements of Equity The Consolidated Statements of Equity show an increase in total equity from $202.9 million at December 31, 2024, to $205.2 million at June 30, 2025, driven by net income partially offset by treasury stock repurchases Consolidated Statements of Equity Highlights (Thousands of dollars) | Item | Balance at Dec 31, 2024 | Balance at June 30, 2025 | | :------------------- | :---------------------- | :----------------------- | | Total Equity | $202,925 | $205,249 | | Net Income (6 months)| N/A | $12,362 | | Treasury Stock Purchases (6 months) | N/A | $(10,038) | - Total Equity increased by $2.3 million from December 31, 2024, to June 30, 2025[23] - The Company purchased 53,570 shares of treasury stock for a total cost of $10.038 million during the six months ended June 30, 2025[23][25] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows indicate a decrease in net cash provided by operating activities for the six months ended June 30, 2025, leading to a net decrease in cash and cash equivalents Consolidated Statements of Cash Flows Highlights (Thousands of dollars) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net Cash Provided by Operating Activities | $29,863 | $41,252 | | Net Cash Used in Investing Activities | $(28,010) | $(44,592) | | Net Cash Used in Financing Activities | $(2,038) | $(5,706) | | Net Decrease in Cash and Cash Equivalents | $(185) | $(9,046) | | Cash and Cash Equivalents at End of Period| $2,364 | $2,015 | - Net cash provided by operating activities decreased by $11.4 million (27.6%) from $41.3 million in 2024 to $29.9 million in 2025[25] - Property expenditures decreased from $45.2 million in 2024 to $28.6 million in 2025, leading to a lower net cash outflow from investing activities[25] - Financing activities included $52.5 million in proceeds from long-term bank debt and $44.5 million in repayments, alongside $10.0 million in treasury stock purchases for the six months ended June 30, 2025[25] Notes to Consolidated Financial Statements The notes provide essential details supporting the consolidated financial statements, covering accounting policies, balance sheet components, debt, obligations, contingencies, stock options, related party transactions, segment information, EPS, and a subsequent event (1) Basis of Presentation The interim financial statements are unaudited and prepared in accordance with SEC rules, consistent with the Company's annual Form 10-K, with management evaluating new FASB ASUs - Interim financial statements are unaudited and prepared in accordance with SEC rules, consistent with the annual Form 10-K[26] - The Company is evaluating ASU 2024-03 (Disaggregation of Income Statement Expenses, effective after Dec 15, 2026) and ASU 2023-09 (Improvements to Income Tax Disclosures, effective after Dec 15, 2024) for potential impacts[28][29] (2) Acquisitions and Dispositions In Q1 2025, the Company recognized a $619,000 gain from the disposition of a fully depreciated workover rig, following 2024 sales of acreage in New Mexico and East Texas - In Q1 2025, a gain of $619,000 was recognized on the disposition of a fully depreciated workover rig[31] - In 2024, the Company sold 60 net acres in Lea County, New Mexico, for $526,200 and farmed out East Texas acreage for $54,800[32] (3) Additional Balance Sheet Information This note details Accounts Receivable, Accounts Payable, and Accrued Liabilities, showing oil and gas sales as the largest portion of receivables and significant reductions in trade payables and accrued compensation/taxes Accounts Receivable Breakdown (Thousands of dollars) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Oil and gas sales| $26,653 | $21,211 | | Total Accounts Receivable, net | $28,919 | $24,338 | Accounts Payable Breakdown (Thousands of dollars) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Trade | $3,636 | $12,038 | | Royalty and other owners | $3,841 | $3,607 | | Total Accounts Payable | $7,797 | $16,329 | Accrued Liabilities Breakdown (Thousands of dollars) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Compensation and related expenses | $4,605 | $10,668 | | Taxes | $3,070 | $9,524 | | Total Accrued Liabilities | $12,686 | $25,514 | (4) Long-Term Debt The Company operates under a Fourth Amended and Restated Credit Agreement with a $300 million revolving line of credit, with the borrowing base reaffirmed at $115 million and no outstanding borrowings as of August 14, 2025 - The Company has a revolving line of credit up to $300 million under the 2022 Credit Agreement, with a maturity date extended to 2028[35][37] - The Borrowing Base was increased from $65 million to $85 million in February 2024, and further to $115 million in July 2024, reaffirmed at $115 million in December 2024[36][37] Long-Term Debt Status (Thousands of dollars) | Date | Outstanding Borrowings | Available Credit | Effective Rate | | :---------------- | :--------------------- | :--------------- | :------------- | | Dec 31, 2024 | $4,000 | $111,000 | 9.75% | | June 30, 2025 | $12,000 | $103,000 | 9.75% | | Aug 14, 2025 | $0 | $115,000 | N/A | (5) Other Long-Term Obligations and Commitments The Company has operating lease obligations totaling $857,000 through 2028 and an Asset Retirement Obligation (ARO) liability of $13.8 million at June 30, 2025 - Operating lease costs for the six months ended June 30, 2025, were $386,000[40] Operating Lease Payment Schedule (Thousands of dollars) | Year | Undiscounted Lease Payments | | :--- | :-------------------------- | | 2025 (remainder) | $412 | | 2026 | $291 | | 2027 | $127 | | 2028 | $27 | | Total | $857 | Asset Retirement Obligation (Thousands of dollars) | Item | June 30, 2025 | | :-------------------------------- | :------------ | | Asset retirement obligation at Dec 31, 2024 | $13,867 | | Net wells placed on production | $67 | | Liabilities settled | $(503) | | Accretion of discount | $335 | | Asset retirement obligation at June 30, 2025 | $13,766 | (6) Contingent Liabilities Management believes that future environmental expenses and legal actions will not materially adversely affect the Company's financial condition or results of operations - Management does not expect environmental expenses or legal actions to materially affect the Company's financial condition or results of operations[44][45] (7) Stock Options and Other Compensation As of June 30, 2025, two key executive officers held outstanding and exercisable non-statutory stock options for 767,500 shares with exercise prices ranging from $1.00 to $1.25 and no expiration date - 767,500 shares under non-statutory stock options were outstanding and exercisable by two key executive officers as of June 30, 2025[46] - Exercise prices for these options range from $1.00 to $1.25, and they have no expiration date[46] (8) Related Party Transactions Related party transactions primarily involve the Company acting as an agent for joint venture partners, potentially including Board members, in collecting or paying oil and gas property-related receipts or expenses - Related party transactions mainly involve the Company acting as an agent for joint venture partners (potentially including Board members) in collecting or paying oil and gas property-related receipts or expenses[47] (9) Segment Information The Company operates as a single segment focused on oil and gas exploration, development, operation, and servicing, with net income (loss) before income taxes as the primary performance measure - The Company operates in one industry segment: oil and gas exploration, development, operation, and servicing[48] - Net income (loss) before income taxes is the key performance measure reported to the Chief Executive Officer (CODM)[48] (10) Earnings Per Share Basic earnings per share are calculated by dividing net income by weighted average common shares outstanding, while diluted EPS accounts for dilutive securities, both significantly lower than the prior year Earnings Per Share (Six Months Ended June 30) | EPS Type | 2025 (Thousands of dollars, except per share) | 2024 (Thousands of dollars, except per share) | | :------- | :-------------------------------------------- | :-------------------------------------------- | | Net Income | $12,362 | $31,051 | | Basic EPS | $7.37 | $17.31 | | Diluted EPS | $5.07 | $12.16 | | Basic Weighted Average Shares Outstanding | 1,677,096 | 1,793,640 | | Dilutive Options | 763,209 | 759,507 | Earnings Per Share (Three Months Ended June 30) | EPS Type | 2025 (Thousands of dollars, except per share) | 2024 (Thousands of dollars, except per share) | | :------- | :-------------------------------------------- | :-------------------------------------------- | | Net Income | $3,228 | $19,732 | | Basic EPS | $1.94 | $11.08 | | Diluted EPS | $1.33 | $7.77 | | Basic Weighted Average Shares Outstanding | 1,661,916 | 1,780,593 | | Dilutive Options | 762,807 | 759,729 | (11) Subsequent Event The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, extending 100% first-year depreciation and modifying business interest expense limitations, expected to benefit cash flows - The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, extending 100% first-year depreciation and modifying business interest expense limitations[50] - The Company expects the OBBBA to provide a benefit to cash flows from operating activities, though not a material impact on results of operations[50] Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operation This section provides management's perspective on the Company's financial condition and operational results, detailing its business, reserves, development activities, revenue/expense changes, and liquidity Company Overview and Business Strategy PrimeEnergy is an independent oil and natural gas company focused on acquiring, developing, and producing oil and gas, primarily in Texas and Oklahoma, with revenue highly susceptible to commodity price volatility - PrimeEnergy is an independent oil and natural gas company with properties primarily in Texas and Oklahoma[52] - The Company's strategy involves acquiring producing properties, seeking operator positions, and evaluating leasehold for exploration and development to build stockholder value[53] - Revenue and cash flow are principally derived from the sale of oil, natural gas, and NGLs, making them highly susceptible to commodity price volatility[54] - The Company currently has no derivative contracts and does not intend to enter into future ones unless required or significantly beneficial for near-term price stability[55] Oil & Gas Properties and Reserves The Company is actively developing reserves in Texas (Permian Basin) and Oklahoma (Scoop/Stack Play), with total proved reserves at 26,512 MBOE as of December 31, 2024, and a PV-10 value of $345.6 million - The Company maintains approximately 17,138 gross (9,622 net) acres in the Permian Basin of West Texas, with potential for 100 additional horizontal wells[56] - In Oklahoma, the Company holds approximately 4,021 net leasehold acres in the Scoop/Stack Play[57] Oil and Gas Reserves (MBOE) | Reserve Category | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2024 | | :----------------- | :----------- | :----------- | :----------- | | Proved Developed | 10,353 | 13,558 | 20,288 | | Proved Undeveloped | 6,366 | 15,488 | 6,224 | | Total Proved | 16,719 | 29,046 | 26,512 | PV-10 and Standardized Measure (Thousands of dollars) | As of December 31, | PV-10 Value | Standardized Measure | | :----------------- | :---------- | :------------------- | | 2022 | $310,769 | $244,536 | | 2023 | $351,960 | $278,048 | | 2024 | $345,626 | $273,045 | - Average WTI oil prices used for reserve estimates decreased from $93.67/barrel in 2022 to $75.48/barrel in 2024, and Henry Hub gas prices decreased from $6.36/MMBtu in 2022 to $2.13/MMBtu in 2024[63] District Information and Recent Activity West Texas remains the primary focus, holding 88.3% of total proved reserves and experiencing significant horizontal drilling investment, with substantial capital expenditures planned for future development Proved Reserves and Production by Region (as of Dec 31, 2024) | Region | Proved Reserves (MBoe) | % of Total Proved Reserves | Average Net Daily Production (Boe per day) | | :--------------- | :--------------------- | :------------------------- | :----------------------------------------- | | Gulf Coast | 452 | 1.7% | 143 | | Mid-Continent | 2,643 | 10% | 806 | | West Texas | 23,383 | 88.3% | 13,749 | | Total | 26,512 | 100% | 14,707 | - In the Gulf Coast, the Company completed the Wing 16 well in May 2025 for $400,000, producing 240 Mcfd, 3 Bcpd, and 50 Bwpd[69] - Mid-Continent activities include participation in two 2-mile horizontal wells with Ovintiv Mid-Continent (spud March 2025, completed May 2025) with a $402,000 investment, and planned participation in two 2-mile horizontal wells with Devon in August 2025 with a $1.414 million investment[71] - In West Texas, the Company invested $113 million in 48 horizontal wells in 2024, with an additional $64 million invested in 21 horizontal wells by Q2 2025[74][75] - Anticipated future investment in West Texas horizontal drilling over the next several years is approximately $224 million, including $48 million in 2025, $100 million for Wolfcamp 'D' development, and $76 million for 25 other near-term wells[77] Results of Operations Net income significantly decreased for both the three and six months ended June 30, 2025, compared to 2024, primarily due to lower oil prices and higher DD&A expenses, despite increased gas and NGL production Net Income and EPS (Thousands of dollars, except per share) | Period | Net Income | Basic EPS | | :--------------------------------- | :--------- | :-------- | | Three months ended June 30, 2025 | $3,228 | $1.94 | | Three months ended June 30, 2024 | $19,732 | $11.08 | | Six months ended June 30, 2025 | $12,362 | $7.37 | | Six months ended June 30, 2024 | $31,051 | $17.31 | Oil, Gas, and NGL Sales Performance (Six Months Ended June 30) | Item | 2025 | 2024 | Change (YoY) | % Change (YoY) | | :--------------------------------- | :--------- | :--------- | :----------- | :------------- | | Barrels of Oil Produced | 1,057,000 | 1,126,000 | (69,000) | (6.13)% | | Average Oil Price Received | $63.24 | $79.51 | $(16.27) | (20.46)% | | Oil Revenue (In 000's) | $66,844 | $89,533 | $(22,689) | (25.34)% | | Mcf of Gas Sold | 4,815,000 | 2,886,000 | 1,929,000 | 66.84% | | Average Gas Price Received | $1.26 | $0.50 | $0.76 | 152.00% | | Gas Revenue (In 000's) | $6,072 | $1,440 | $4,632 | 321.67% | | Barrels of NGLs Sold | 835,000 | 480,000 | 355,000 | 73.96% | | Average NGL Price Received | $16.94 | $20.29 | $(3.35) | (16.50)% | | NGL Revenue (In 000's) | $14,146 | $9,739 | $4,407 | 45.25% | | Total Oil & Gas Revenue (In 000's) | $87,062 | $100,712 | $(13,650) | (13.55)% | - Depreciation, depletion and amortization expense increased by $13.5 million (48.9%) for the six months ended June 30, 2025, due to increased production from new wells and revisions to depletion rates[86] - Interest expense increased by $0.8 million (160%) for the six months ended June 30, 2025, reflecting higher borrowings under the revolving credit agreement[88] Liquidity and Capital Resources The Company's strategy focuses on developing oil and gas reserves through horizontal drilling, with a $98 million capital budget for 2025, funded by cash flow and its $115 million revolving credit facility, which currently has no outstanding borrowings - The Company's capital budget for 2025 is $98 million for 44 horizontal wells, primarily in the Midland Basin of West Texas[93] - From January 2023 through 2025, the Company will have invested approximately $307 million in horizontal development[93] - The Company's primary sources of liquidity are cash generated from operations and its $300 million reserves-based revolving credit facility, which has a current borrowing base of $115 million[97] - As of August 14, 2025, there were no outstanding borrowings under the credit facility, and the Company is in compliance with all financial and operational covenants[97] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, PrimeEnergy Resources Corporation is not required to provide disclosures under this item - The Company is a smaller reporting company and is not required to provide disclosures about market risk[99] Item 4. Controls and Procedures The Company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2025, and concluded they are effective with no material changes - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[100] - No material changes in internal control over financial reporting occurred since the last quarter of 2025[101] PART II—OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently party to any material legal proceedings - There are no legal proceedings to report[104] Item 1A. Risk Factors As a smaller reporting company, PrimeEnergy Resources Corporation is not required to provide disclosures under this item - The Company is a smaller reporting company and is not required to provide disclosures about risk factors[105] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period, but the Company continued its stock repurchase program, buying 16,970 shares for an average price of $173.43 per share during Q2 2025 - No unregistered sales of equity securities occurred during the reporting period[106] Stock Repurchase Activity (Q2 2025) | Month | Number of Shares | Average Price Paid per Share | | :---- | :--------------- | :--------------------------- | | April | 11,970 | $173.20 | | May | 2,000 | $192.17 | | June | 3,000 | $161.85 | | Total/Average | 16,970 | $173.43 | - A total of 3,890,956 shares have been repurchased under the program for $113.45 million at an average price of $29.16 per share through June 30, 2025[108] - As of June 30, 2025, 109,044 shares remain authorized for purchase under the stock repurchase program[108] Item 3. Defaults Upon Senior Securities The Company has not defaulted on any senior securities - There are no defaults upon senior securities to report[107] Item 4. Reserved This item is reserved and contains no information - This item is reserved[107] Item 5. Other Information There is no other information to report under this item - There is no other information to report[107] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including financial statements, corporate governance documents, descriptions of securities, credit agreements, and certifications - Exhibits include financial statements, corporate governance documents (Certificate of Incorporation, Bylaws), and descriptions of securities[109] - Key agreements such as the Fourth Amended and Restated Credit Agreement and its subsequent amendments (First, Second, Third, and Fourth) are filed as exhibits[109] - Certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Rules 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350) are included[110] - The report also includes Inline XBRL (eXtensible Business Reporting Language) documents for data tagging[110] Signatures Report Signatures The Form 10-Q was duly signed on August 19, 2025, by Charles E. Drimal, Jr., President and Principal Executive Officer, and Beverly A. Cummings, Executive Vice President and Principal Financial Officer - The report was signed on August 19, 2025[112] - Signatories include Charles E. Drimal, Jr., President and Principal Executive Officer, and Beverly A. Cummings, Executive Vice President and Principal Financial Officer[112]