PrimeEnergy(PNRG) - 2022 Q3 - Quarterly Report

Part I Financial Statements This section presents the unaudited condensed consolidated financial statements for the period ended September 30, 2022, including balance sheets, statements of operations, equity, and cash flows, along with accompanying notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $212,899 | $210,914 | | Cash and cash equivalents | $24,059 | $10,347 | | Total Property and Equipment, Net | $170,030 | $184,663 | | Total Liabilities | $83,521 | $111,823 | | Long-Term Bank Debt | $0 | $36,000 | | Total Equity | $129,378 | $99,091 | - The company significantly increased its cash position to $24.1 million and eliminated its long-term bank debt of $36.0 million by September 30, 2022[11] Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share amounts) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $101,562 | $42,292 | $39,651 | $17,311 | | Oil sales | $75,546 | $30,376 | $23,403 | $10,442 | | Natural gas sales | $14,762 | $7,948 | $6,359 | $3,998 | | Income (Loss) from Operations | $47,260 | ($5,248) | $18,276 | ($872) | | Net Income (Loss) Attributable to PrimeEnergy | $35,279 | ($5,021) | $13,154 | ($1,163) | | Diluted EPS | $12.96 | ($2.52) | $4.88 | ($0.58) | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $47,346 | $18,824 | | Net Cash Provided by (Used in) Investing Activities | $7,358 | ($11,190) | | Net Cash (Used in) Financing Activities | ($40,992) | ($5,006) | | Net Increase in Cash and Cash Equivalents | $13,712 | $2,628 | | Cash and Cash Equivalents at End of Period | $24,059 | $3,624 | - Financing activities in the first nine months of 2022 were primarily driven by the repayment of $36.0 million in long-term bank debt and $5.0 million in treasury stock purchases[16] Notes to Condensed Consolidated Financial Statements - During the first three quarters of 2022, the company sold a total of 1,809 net leasehold acres in Texas and 354 net acres in Oklahoma, generating gross proceeds of approximately $15.3 million[20][21][22] - On July 5, 2022, the company entered into a new Fourth Amended and Restated Credit Agreement with a maturity date of June 1, 2026, providing a revolving line of credit up to $300 million with an initial borrowing base of $75 million, with no borrowings outstanding as of September 30, 2022[28][29] - As of September 30, 2022, the company had net derivative liabilities of $3.67 million, a reduction from $5.59 million at the end of 2021[43][46] Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides an overview of the company's business, operational focus, and financial performance, detailing its asset base, development plans, reserve information, liquidity position, and a comparative analysis of operating results for 2022 versus 2021, highlighting significant increases in revenue and net income driven by higher commodity prices and production, as well as strategic asset sales and debt repayment Overview and Strategy - The company is an independent oil and natural gas producer with properties primarily in Texas and Oklahoma, focusing on developing existing properties, actively pursuing acquisitions, and managing commodity price risk through derivatives[50][51] - Existing derivative instruments are set to expire in March 2023, and the company does not intend to enter into new contracts unless required for its bank line of credit[52][53] District and Reserve Information Proved Reserves by Region as of Dec 31, 2021 (MBoe) | Region | Developed | Undeveloped | Total | | :--- | :--- | :--- | :--- | | Gulf Coast | 906 | 0 | 906 | | Mid-Continent | 2,383 | 0 | 2,383 | | West Texas | 8,957 | 0 | 8,957 | | Total | 12,252 | 0 | 12,252 | - The West Texas region, primarily in the Permian Basin, holds 73% of the company's total proved reserves as of year-end 2021 and is the focus of current horizontal drilling activities[56][64] Standardized Measure of Discounted Future Net Cash Flows (in thousands) | As of December 31, | 2021 | 2020 | | :--- | :--- | :--- | | Future Net Revenue | $275,227 | $81,232 | | Present Value of Future Net Revenue (PV10) | $171,906 | $56,539 | | Standardized Measure (after tax) | $135,806 | $41,619 | Development and Drilling Activities - In Q4 2022, the company plans to participate in drilling 15 new horizontal wells in West Texas and expects to invest approximately $87 million in a total of 26 new wells with completions expected by mid-year 2023[68] - The company completed an acreage exchange in the Midland Basin, creating a 1,200-acre contiguous block, then entered a joint development agreement to form a 2,560-acre AMI, divesting a portion of its interest for $16.1 million to fund the drilling of up to 18 new wells[67][98] - In Oklahoma, the company participated in drilling four horizontal wells in Q2 2022, which were placed on production in August, and believes its 5,800 net acres in the Scoop/Stack play could support up to 50 new horizontal wells[100][101] Liquidity and Capital Resources - Primary sources of liquidity are cash from operations, property sales, and its credit facility, with net cash from operations for the first nine months of 2022 at $47.3 million, up from $18.8 million in the prior year period[103] - The company has a $300 million credit facility with a current borrowing base of $75 million, with no outstanding borrowings as of August 15, 2022[109] - The company spent $5.0 million on its stock repurchase program in the first nine months of 2022 and expects continued spending under the program[114] Results of Operations - The company reported net income of $35.3 million for the nine months ended Sep 30, 2022, a significant turnaround from a net loss of $5.0 million in the same period of 2021, driven by higher production and commodity prices[115] Production and Revenue Analysis (Nine Months Ended Sep 30) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Oil Production (Bbls) | 752,500 | 480,000 | 56.8% | | Avg. Oil Price ($/Bbl) | $100.39 | $63.28 | 58.6% | | Oil Revenue (in 000's) | $75,546 | $30,376 | 148.7% | | Gas Production (Mcf) | 2,456,800 | 2,395,000 | 2.6% | | Avg. Gas Price ($/Mcf) | $6.01 | $3.32 | 81.0% | | Gas Revenue (in 000's) | $14,762 | $7,948 | 85.7% | | Total Oil & Gas Revenue (in 000's) | $102,785 | $46,105 | 122.9% | - Lease operating expense increased 73.9% for the nine months of 2022 compared to 2021, primarily due to higher production taxes related to increased commodity prices and workover expenses[119] Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting company, is not required to provide a response for this item - As a smaller reporting company, no response is required for this item[125] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of the end of the reporting period and concluded they were effective, with no material changes to internal controls over financial reporting occurring during the first nine months of 2022 - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[126] - No changes in internal control over financial reporting occurred during the first nine months of 2022 that have materially affected, or are reasonably likely to materially affect, the company's internal controls[127] Part II—Other Information Legal Proceedings The company reports no legal proceedings during the period - None[129] Risk Factors As a smaller reporting company, PrimeEnergy is not required to provide a response regarding risk factors in its Form 10-Q - As a smaller reporting company, no response is required for this item[130] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and provides details of its stock repurchase program, under which it purchased 61,377 shares for approximately $5.0 million during the nine months ended September 30, 2022 Common Stock Purchases (Nine Months Ended Sep 30, 2022) | Period | Number of Shares | Average Price Paid per share | | :--- | :--- | :--- | | Total | 61,377 | $81.33 | - The Board of Directors has authorized a total of 3,700,000 shares for the stock repurchase program, with 3,615,756 shares repurchased through September 30, 2022[133] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[134] Exhibits This section lists the exhibits filed as part of the 10-Q report, including corporate governance documents, credit agreements, and required certifications by the CEO and CFO - Key exhibits filed with the report include: * Fourth Amended and Restated Credit Agreement (10.22.6) * Certifications of the CEO and CFO pursuant to Rule 13(a)-14(a)/15d-14(a) (31.1, 31.2) * Certifications of the CEO and CFO pursuant to Sarbanes-Oxley Act Section 906 (32.1, 32.2) * Inline XBRL documents (101 series)[136]