PrimeEnergy(PNRG) - 2023 Q3 - Quarterly Report

Definitions of Certain Terms and Conventions Used Herein This section defines key measurements and general terms essential for understanding the company's oil and gas operations and financial reporting - Key measurements defined include Bbl (standard barrel), BOE (barrel of oil equivalent), BOEPD (BOE per day), MBbl (one thousand Bbls), MBOE (one thousand BOEs), Mcf (one thousand cubic feet), and MMcf (one million cubic feet)[12] - General terms defined include DD&A (depletion, depreciation and amortization), ESG (environmental, social and governance), GAAP (accounting principles generally accepted in the United States of America), LNG (liquefied natural gas), NGLs (natural gas liquids), NYMEX (New York Mercantile Exchange), OPEC (Organization of Petroleum Exporting Countries), and SEC (United States Securities and Exchange Commission)[12][14] - Reserve definitions include Proved reserves (economically producible with reasonable certainty), Proved developed reserves (recoverable through existing wells), and Proved undeveloped reserves (recoverable from new wells or major recompletion)[12][14][99] Cautionary Statement Concerning Forward-Looking Statements This section cautions readers that forward-looking statements are subject to significant risks and uncertainties, advising against undue reliance - Forward-looking statements are identified by terms such as 'believes,' 'plans,' 'expects,' 'anticipates,' and are based on current expectations, assumptions, estimates, and projections[16] - Key risks and uncertainties include volatility of commodity prices, product supply and demand, impact of armed conflict, competition, regulatory actions, cost increases, and environmental risks[17] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual events and results may differ materially from anticipated results[18] Part I—Financial Information Item 1. Financial Statements This section presents PrimeEnergy's unaudited consolidated financial statements and notes for the period ended September 30, 2023 Consolidated Balance Sheets –September 30, 2023 and December 31, 2022 This section details the company's assets, liabilities, and equity as of September 30, 2023, and December 31, 2022 Consolidated Balance Sheets (Thousands) | Metric (Thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------- | :----------- | :----------- | | Total Assets | $253,575 | $247,137 | | Total Liabilities | $97,574 | $106,784 | | Total Equity | $156,001 | $140,353 | | Cash & Equivalents | $19,790 | $26,543 | | Long-term bank debt| $— | $11,000 | Consolidated Statements of Operations – For the three and nine months ended September 30, 2023 and 2022 This section presents the company's financial performance, including revenues, costs, and net income for the periods ended September 30 Consolidated Statements of Operations (Three Months Ended September 30, Thousands) | Metric (Thousands) | 2023 | 2022 | Change | % Change | | :----------------- | :---------- | :---------- | :---------- | :------- | | Total Revenues | $35,360 | $39,314 | $(3,954) | -10.1% | | Total Costs & Exp. | $24,330 | $21,532 | $2,798 | +13.0% | | Income from Ops | $13,132 | $18,276 | $(5,144) | -28.1% | | Net Income | $10,720 | $13,154 | $(2,434) | -18.5% | | Basic EPS | $5.84 | $6.79 | $(0.95) | -14.0% | | Diluted EPS | $4.13 | $4.88 | $(0.75) | -15.4% | Consolidated Statements of Operations (Nine Months Ended September 30, Thousands) | Metric (Thousands) | 2023 | 2022 | Change | % Change | | :----------------- | :---------- | :---------- | :---------- | :------- | | Total Revenues | $87,617 | $100,738 | $(13,121) | -13.0% | | Total Costs & Exp. | $67,672 | $68,808 | $(1,136) | -1.6% | | Income from Ops | $28,151 | $47,260 | $(19,109) | -40.4% | | Net Income | $22,220 | $35,279 | $(13,059) | -37.0% | | Basic EPS | $11.95 | $17.95 | $(6.00) | -33.4% | | Diluted EPS | $8.49 | $12.96 | $(4.47) | -34.5% | Consolidated Statements of Equity – For the three and nine months ended September 30, 2023 and 2022 This section details changes in the company's equity, including retained earnings and treasury stock, for the periods ended September 30 Consolidated Statements of Equity (Thousands) | Metric (Thousands) | Sep 30, 2023 | Dec 31, 2022 | Change | | :----------------- | :----------- | :----------- | :----- | | Total Equity | $156,001 | $140,353 | +$15,648 | | Retained Earnings | $199,786 | $177,566 | +$22,220 | | Treasury Stock | $(51,621) | $(45,049) | $(6,572)| - Net income for the nine months ended September 30, 2023, contributed $22,220 thousand to retained earnings[28] - Treasury stock purchases totaled $6,572 thousand for the nine months ended September 30, 2023[28] Consolidated Statements of Cash Flows – For the nine months ended September 30, 2023 and 2022 This section presents the company's cash flows from operating, investing, and financing activities for the nine months ended September 30 Consolidated Statements of Cash Flows (Nine Months Ended September 30, Thousands) | Metric (Thousands) | 2023 | 2022 | Change | | :----------------- | :---------- | :---------- | :---------- | | Net Cash from Ops | $70,724 | $47,346 | +$23,378 | | Net Cash from Inv | $(59,635) | $7,358 | $(66,993) | | Net Cash from Fin | $(17,842) | $(40,992) | +$23,150 | | Net (Decrease) Inc | $(6,753) | $13,712 | $(20,465) | | Cash End of Period | $19,790 | $24,059 | $(4,269) | - Capital expenditures significantly increased to $67,069 thousand in 2023 from $7,972 thousand in 2022[31] - Repayment of long-term bank debt decreased to $11,270 thousand in 2023 from $36,000 thousand in 2022[31] Notes to Consolidated Financial Statements – September 30, 2023 This section provides detailed explanations of accounting policies, significant transactions, debt, and financial instruments - The unaudited interim financial statements are prepared by management, consistent with the 2022 Form 10-K, and include normal recurring adjustments[33][34] - Significant acquisitions and dispositions in 2023 included selling 7.8 surface acres in Midland County, TX for $436K, acquiring 55 net acres in Reagan County, TX for $605K, selling 320 non-core acres in Reagan County for $6M, divesting interest in 39 Oklahoma wells reducing plugging liability by ~$1.5M, and acquiring operations of 36 wells and 114.52 net acres in Reagan County, TX from DE Permian[35][36][37] - The company's revolving corporate credit facility has $300 million in aggregate loan commitments, with the borrowing base adjusted from $75 million to $60 million in January 2023, then increased to $65 million in July 2023, with no outstanding borrowings as of September 30, 2023, or November 15, 2023[44][46][47][48] - The company uses futures, swaps, and options to manage commodity price risk but does not apply hedge accounting, with all derivative instruments expiring in March 2023 and no current intent for future contracts unless required by its bank line of credit[64][70][71] Fair Value of Commodity Derivative Contracts (Thousands) | (Thousands of dollars) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------- | :----------- | :----------- | | Commodity derivative contracts (Assets) | $— | $210 | | Commodity derivative contracts (Liabilities) | $— | $(1,190) | | Total derivative instruments | $— | $(980) | Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operation Management discusses financial performance, condition, and operational results, focusing on revenues, expenses, and liquidity OVERVIEW This section provides an overview of PrimeEnergy's business, asset portfolio, strategic objectives, and cash flow drivers - PrimeEnergy is an independent oil and natural gas company focused on acquiring, developing, and producing oil and natural gas primarily in Texas and Oklahoma[68] - The company's asset portfolio includes mature and horizontal oil and gas properties, a 12.5% overriding royalty interest in West Virginia, well-servicing equipment in Texas, an idle offshore pipeline, land in Oklahoma, and a 33.3% interest in a retail shopping center in Alabama[68] - The company's strategy involves actively acquiring producing properties, assuming operator positions, and evaluating leasehold acquisition, exploration, and development to build stockholder value[69] - Cash flows are dependent on oil and gas prices, success of acquisition and drilling activities, and operational performance, with derivative instruments used to manage commodity price risk, though recent contracts expired in March 2023 with no current intent for future contracts unless required by the bank[70][71] - The company is actively developing non-producing reserves in the Permian Basin of West Texas (9,266 net acres, potential for 250+ horizontal wells) and Oklahoma (4,113 net acres, potential for 43 new horizontal wells)[73] District Information This section details proved reserves, daily production, and development plans across operating regions, especially West Texas Proved Reserves and Average Net Daily Production (as of Dec 31, 2022) | Region | Proved Reserves (MBoe) | % of Total | Avg Net Daily Production (Boe/day) | | :------------ | :--------------------- | :--------- | :--------------------------------- | | Gulf Coast | 790 | 4.7% | 227 | | Mid-Continent | 2,659 | 16.0% | 897 | | West Texas | 13,257 | 79.3% | 3,257 | | Other | 13 | 0.1% | 4 | | Total | 16,719 | 100% | 4,385 | - The West Texas region, primarily in the Permian Basin, accounts for 79.3% of total proved reserves and is the primary source of natural gas liquids, with significant potential for additional horizontal drilling[76][81] - In the first three quarters of 2023, the company added 22 completed horizontal wells in West Texas (15 in Reagan, 5 in Martin, 2 in Upton counties), investing approximately $78 million with an average 32.2% working interest[82] - Future development plans include participating in 18 additional horizontal wells in Reagan County (expected production by Feb 2024, ~$27M investment), 34 more wells (20 with Double Eagle, 14 with Civitas) in Reagan County (expected production by Q2 2024, ~$84M investment), and 12 more horizontal wells in Q1 2024 (~$48M investment), totaling approximately $159 million in capital commitment by Q1 2024[83][84][85][86] Reserves This section presents oil and gas reserve estimates, including proved developed and undeveloped reserves, and their PV10 values Oil and Gas Reserves (MBoe) | As of Dec 31, | Proved Developed | Proved Undeveloped | Total Proved | | :------------ | :--------------- | :----------------- | :----------- | | 2020 | 7,214 | 3,221 | 10,435 | | 2021 | 12,252 | — | 12,252 | | 2022 | 10,353 | 6,366 | 16,719 | PV10 Value and Standardized Measure (Thousands) | As of Dec 31, | Proved Developed PV10 | Proved Undeveloped PV10 | Total PV10 | Standardized Measure | | :------------ | :-------------------- | :---------------------- | :--------- | :------------------- | | 2020 | $34,717 | $21,823 | $56,539 | $41,619 | | 2021 | $171,906 | $— | $171,906 | $135,806 | | 2022 | $192,688 | $118,081 | $310,769 | $244,536 | - Reserve estimates are evaluated by Ryder Scott Company, L.P. and overseen by the company's Engineering Data manager, with all reserves located within the continental United States[87] Average Commodity Prices Used for Reserve Evaluation (12-month average) | Year | Natural Gas (per MMBtu) | Oil (per barrel) | | :--- | :---------------------- | :--------------- | | 2020 | $1.985 | $39.57 | | 2021 | $3.598 | $66.56 | | 2022 | $6.358 | $93.67 | RECENT ACTIVITIES This section highlights recent operational activities, focusing on horizontal drilling and planned capital investments - The company's strategy focuses on developing oil and gas reserves primarily through horizontal drilling, targeting reservoirs with high initial production rates and strong expected returns[103] - Through the third quarter of 2023, 25 new horizontal wells have been brought into production, with an approximate total investment of $78 million[105][108][111] - Planned capital investments for horizontal development over the next several years total approximately $400 million, including $27 million for 18 wells currently being completed, $84 million for 34 near-term development wells, $143 million for 35 wells expected to spud in 2024, $100 million for 27 drill-sites in 2025-2026, and $40 million for additional proved and probable drill-sites[109][110][111] RESULTS OF OPERATIONS: This section analyzes financial results, including net income, sales, production volumes, and expenses for the reporting periods - Net income for the nine months ended September 30, 2023, decreased by 37% to $22.2 million ($11.95/share) from $35.3 million ($17.95/share) in 2022[112] - Total oil, gas, and NGL sales (excluding derivatives) decreased by 26.4% to $75.7 million for the nine months ended September 30, 2023, compared to $102.8 million in 2022[113] Production Volumes and Average Sales Prices (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :------- | | Barrels of Oil Produced | 813,561 | 752,500 | +61,061 | +8.1% | | Avg Oil Price Received | $76.14 | $100.39 | $(24.25) | -24.2% | | Mcf of Gas Sold | 2,766,128 | 2,456,800 | +309,328 | +12.6% | | Avg Gas Price Received | $1.97 | $6.01 | $(4.04) | -67.2% | | Barrels of NGLs Sold | 412,487 | 332,400 | +80,087 | +24.1% | | Avg NGLs Price Received | $20.18 | $37.54 | $(17.36) | -46.2% | Production Volumes and Average Sales Prices (Three Months Ended Sep 30) | Metric | 2023 | 2022 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :------- | | Barrels of Oil Produced | 323,188 | 244,500 | +78,688 | +32.2% | | Avg Oil Price Received | $81.69 | $95.72 | $(14.03) | -14.7% | | Mcf of Gas Sold | 1,080,588 | 879,800 | +200,788 | +22.8% | | Avg Gas Price Received | $2.29 | $7.23 | $(4.94) | -68.3% | | Barrels of NGLs Sold | 161,003 | 122,400 | +38,603 | +31.5% | | Avg NGLs Price Received | $19.56 | $34.35 | $(14.79) | -43.1% | - Oil and gas production expense increased by 21.5% for the three months and 1.4% for the nine months ended September 30, 2023, reflecting rising service costs and new wells, partially offset by cost savings from plugged wells[116] - Interest expense decreased by 50.0% for the nine months and 66.7% for the three months ended September 30, 2023, due to lower current borrowings under the revolving credit agreement[122] LIQUIDITY AND CAPITAL RESOURCES This section discusses financial flexibility, cash flow, credit facilities, and capital allocation strategies, including stock repurchases - The company's business strategy emphasizes maintaining a strong balance sheet, ample liquidity, and financial flexibility, with the 2023 capital budget based on expected cash flows and potential credit facility borrowings[124] - Net cash provided by operating activities and proceeds from property sales for the nine months ended September 30, 2023, was $78.1 million, an increase from $62.7 million in the prior year[126] - The company maintains a $300 million reserves-based line of credit with a current borrowing base of $65 million, with no outstanding borrowings as of November 15, 2023, and the next borrowing base review scheduled for December 2023[130] - The company spent $6.6 million on its stock repurchase program during the first nine months of 2023 and expects continued spending[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, PrimeEnergy is exempt from providing market risk disclosures in this report - The Company is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[133] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[134] - There were no material changes in the company's internal control over financial reporting during the first nine months of 2023[135] Part II - Other Information Item 1. Legal Proceedings The company reported no legal proceedings during the period covered by this report - No legal proceedings were reported for the period covered by this report[137] Item 1A. Risk Factors As a smaller reporting company, PrimeEnergy is exempt from providing a detailed discussion of risk factors in this report - The Company is a smaller reporting company and is exempt from providing a detailed discussion of risk factors[138] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities but detailed its ongoing stock repurchase program - There were no unregistered sales of equity securities or purchases of equity securities by the company during the period covered by this report[139] Stock Repurchase Program (2023 Month-by-Month) | 2023 Month | Number of Shares | Average Price Paid per share | | :-------- | :--------------- | :--------------------------- | | January | 9,500 | $90.36 | | February | 3,000 | $90.32 | | March | 18,940 | $85.44 | | April | 10,560 | $86.21 | | May | 11,000 | $86.69 | | June | 7,500 | $100.35 | | July | 4,000 | $94.00 | | August | 4,000 | $98.09 | | September | 4,000 | $109.73 | | Total/Average | 72,500 | $90.64 | - A total of 4,000,000 shares have been authorized under the stock repurchase program to date, with 3,717,956 shares repurchased for $89,053,479 at an average price of $23.95 per share through September 30, 2023[140] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[141] Item 4. Reserved This item is reserved and contains no information - This item is reserved and contains no information[141] Item 5. Other Information No other information was reported for this item - No other information was reported for this item[141] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q report, including corporate governance and certifications - Exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), agreements (Non-Statutory Option Agreements, Credit Agreements), Code of Business Conduct and Ethics, and certifications from the CEO and CFO[142] - XBRL-related documents such as the Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase, and Cover Page Interactive Data File are also filed[142] Signatures This section contains the required signatures of authorized officers, certifying the Form 10-Q filing - The report was signed by Charles E. Drimal, Jr., President and Principal Executive Officer, and Beverly A. Cummings, Executive Vice President and Principal Financial Officer[145][146] - The signing date for the report was November 17, 2023[145][146]