PrimeEnergy(PNRG) - 2021 Q2 - Quarterly Report

Part I Financial Statements For the six months ended June 30, 2021, the company reported a net loss of $3.9 million, an improvement from a $6.4 million loss in the same period of 2020, with total assets slightly decreasing to $198.5 million and liabilities increasing to $104.4 million Condensed Consolidated Balance Sheets As of June 30, 2021, total assets were $198.5 million, a slight decrease from $200.5 million at December 31, 2020, primarily due to a reduction in net property and equipment, while total liabilities increased to $104.4 million Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $15,673 | $8,911 | | Total Property and Equipment, Net | $182,394 | $191,053 | | Total Assets | $198,505 | $200,484 | | Total Current Liabilities | $20,666 | $14,120 | | Total Liabilities | $104,376 | $102,486 | | Total Equity | $94,129 | $97,998 | | Total Liabilities and Equity | $198,505 | $200,484 | Condensed Consolidated Statements of Operations The company reported a net loss of $2.4 million for Q2 2021, a significant improvement from the $6.8 million loss in Q2 2020, driven by increased oil, gas, and NGL sales due to higher commodity prices Condensed Consolidated Statements of Operations (in thousands) | (In thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $13,663 | $7,278 | $28,635 | $33,386 | | Total Costs and Expenses | $16,751 | $17,625 | $33,117 | $43,447 | | (Loss) from Operations | $(2,982) | $(10,265) | $(4,376) | $(9,867) | | Net (Loss) | $(2,412) | $(6,786) | $(3,869) | $(6,990) | | Net (Loss) Attributable to PrimeEnergy | $(2,403) | $(6,266) | $(3,858) | $(6,436) | | Basic (Loss) Per Common Share | $(1.20) | $(3.14) | $(1.93) | $(3.23) | Condensed Consolidated Statement of Equity Total equity decreased from $98.0 million at the end of 2020 to $94.1 million as of June 30, 2021, primarily due to the net loss incurred during the first six months of the year - The company's total equity decreased by $3.87 million in the first six months of 2021, moving from $97.998 million at December 31, 2020, to $94.129 million at June 30, 2021, primarily driven by the net loss of $3.869 million during the period[15] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash provided by operating activities was $11.4 million, an increase from $8.8 million in the prior-year period, with cash and cash equivalents increasing by $2.8 million to $3.8 million Condensed Consolidated Statements of Cash Flows (in thousands) | (In thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $11,424 | $8,803 | | Net Cash (Used in) Investing Activities | $(3,623) | $(5,852) | | Net Cash (Used in) Provided by Financing Activities | $(5,000) | $534 | | Net Increase in Cash and Cash Equivalents | $2,801 | $3,485 | | Cash and Cash Equivalents at End of Period | $3,797 | $4,500 | Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies, debt structure, and derivative instruments, including a $40 million credit facility with $32 million outstanding and a significant increase in derivative liabilities to $6.6 million - The company's credit agreement was amended in February 2021, setting the borrowing base at $40 million and extending the maturity to February 11, 2023, with $32 million outstanding and $8 million available as of June 30, 2021[25][26] - In May 2020, subsidiaries received PPP loans totaling $1.75 million, with proceeds used for qualifying expenses and an application for forgiveness submitted[27] - The fair value of commodity derivative contract liabilities increased significantly from $0.768 million at year-end 2020 to $6.64 million at June 30, 2021, with value changes recognized in earnings as these derivatives are not designated as hedges[42][47][48] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes improved Q2 2021 results to higher commodity prices, which more than offset lower production volumes, with the company maintaining liquidity through cash from operations and its revolving credit facility Overview The company's strategy focuses on developing oil and gas reserves through horizontal drilling, primarily in the Permian Basin and Oklahoma, with financial results highly dependent on volatile commodity prices managed through derivative instruments - The company's core strategy is to develop its extensive oil and gas reserves through horizontal drilling[54] - Key acreage positions are in the Permian Basin (12,460 net acres) with potential for 250 additional horizontal wells, and Oklahoma (10,300 net acres) with potential for 49 new horizontal wells[58] District Information The company operates in three main regions: Gulf Coast, Mid-Continent, and West Texas, with West Texas being the most significant, accounting for 79% of total proved reserves and the majority of daily production as of year-end 2020 Proved Reserves and Production by Region | Region | Proved Reserves (MBoe) | % of Total | Avg. Daily Production (Boe/day) | | :--- | :--- | :--- | :--- | | West Texas | 8,242 | 79% | 3,178 | | Mid-Continent | 1,670 | 16% | 788 | | Gulf Coast | 517 | 5% | 297 | Reserve Information As of December 31, 2020, total proved reserves were 10,435 MBoe, a decrease from 14,235 MBoe at year-end 2019, with the standardized measure of discounted future net cash flows significantly down to $41.6 million due to lower average commodity prices Proved Reserves and Standardized Measure | As of December 31, | Total Proved Reserves (MBoe) | Proved Undeveloped (MBoe) | Standardized Measure ($ thousands) | | :--- | :--- | :--- | :--- | | 2020 | 10,435 | 3,221 | $41,619 | | 2019 | 14,235 | 3,608 | $81,612 | | 2018 | 12,665 | 43 | $137,909 | - The average oil price used for 2020 reserve calculations was $39.57 per barrel, compared to $55.69 in 2019, while the average natural gas price was $1.985 per MMBtu, down from $2.58 in 2019[77] Recent Activities The company is actively pursuing development through joint ventures, including completing nine horizontal wells in Upton County, TX, and establishing significant joint development agreements in Reagan County, TX, and Canadian County, OK - Participated with Apache Corporation in completing nine horizontal wells in Upton County, TX, with a total net investment of approximately $27.8 million, which are currently being placed on production as of August 23, 2021[66][81] - Agreed to jointly develop approximately 3,680 gross acres with Pioneer Natural Resources in Reagan County, TX, which could facilitate up to 108 horizontal laterals with a net investment of approximately $236 million[83] - Participating in four horizontal wells in Canadian County, OK, operated by Ovintiv, with an 11.25% interest and a net investment of approximately $1.98 million[85] Liquidity and Capital Resources The company's primary liquidity sources are cash from operations, which provided $11.4 million in the first half of 2021, and its revolving credit facility, which had $8 million in availability as of August 23, 2021 - Net cash provided by operating activities was $11.4 million for the six months ended June 30, 2021, compared to $8.8 million for the same period in 2020[88] - As of August 23, 2021, the company had $32 million in outstanding borrowings under its $40 million borrowing base, with $8 million in availability, and the credit facility matures in February 2023[92] Results of Operations For Q2 2021, oil, gas, and NGL sales increased by 230.3% to $15.4 million, driven by significantly higher average sales prices that offset production declines, contributing to a narrower net loss for the six-month period Oil, Gas, and NGL Revenue and Average Prices (in thousands) | Six Months Ended June 30, | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Oil Revenue (in 000's) | $19,934 | $14,324 | 39.2% | | Average Oil Price | $60.77 | $37.89 | 60.4% | | Gas Revenue (in 000's) | $3,950 | $1,389 | 184.4% | | Average Gas Price | $2.73 | $0.77 | 254.5% | | NGL Revenue (in 000's) | $4,149 | $1,738 | 138.7% | | Average NGL Price | $21.28 | $8.16 | 160.7% | - Lease operating expense decreased by 15.9% to $10.6 million for the six months ended June 30, 2021, due to the sale or shut-in of high-cost properties[108] - General and administrative expense decreased by 50.4% to $5.1 million for the six months ended June 30, 2021, reflecting staff reductions and lower compensation[112] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, PrimeEnergy Resources Corporation is not required to provide a response for this item - The Company is a smaller reporting company and no response is required pursuant to this Item[115] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the reporting period, with no material changes to internal control over financial reporting during the first six months of 2021 - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective[116] - No changes in internal control over financial reporting occurred during the first six months of 2021 that have materially affected, or are reasonably likely to materially affect, these controls[117] Part II Legal Proceedings The company reported no legal proceedings during the period - None[120] Risk Factors As a smaller reporting company, PrimeEnergy Resources Corporation is not required to provide a response for this item - The Company is a smaller reporting company and no response is required pursuant to this Item[121] Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities or repurchase any shares under its authorized stock repurchase program during the six months ended June 30, 2021, with 147,721 shares remaining available for purchase - There were no sales of equity securities by the Company during the period covered by this report[122] - No shares were repurchased during the six months ended June 30, 2021, and the company has 147,721 shares remaining that may be purchased under its stock repurchase program[123] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[124] Other Information The company reported no other information for this item - None[124] Exhibits This section lists all exhibits filed as part of the Form 10-Q report, including the Certificate of Incorporation, Bylaws, various credit agreements and amendments, and officer certifications as required by the Sarbanes-Oxley Act - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[128] - Exhibits filed include the Sixth Amendment to the Third Amended and Restated Credit Agreement, dated February 11, 2021[127]