Permian Resources (US:PR)2024-05-08 20:05Glossary of Units of Measurements and Industry Terms Provides definitions for various units of measurement and industry-specific terminology used throughout the report Cautionary Statement Concerning Forward-Looking Statements Warns readers about the inherent uncertainties and risks associated with forward-looking statements contained within the report Part I—FINANCIAL INFORMATION Presents the company's comprehensive financial data, including statements, notes, management's analysis, and market risk disclosures Item 1. Financial Statements (Unaudited) Presents the unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and shareholders' equity, with detailed explanatory notes Consolidated Balance Sheets Details the company's financial position, including assets, liabilities, and equity, as of March 31, 2024, and December 31, 2023 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | Change (USD) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :----- | :--------- | | Total Assets | $15,081,309 | $14,965,578 | +$115,731 | +0.8% | | Total Liabilities | $5,733,113 | $5,735,830 | -$2,717 | -0.05% | | Total Equity | $9,348,196 | $9,229,748 | +$118,448 | +1.3% | | Cash and cash equivalents | $12,692 | $73,290 | -$60,598 | -82.7% | | Accounts receivable, net | $557,243 | $481,060 | +$76,183 | +15.8% | | Long-term debt, net | $3,909,418 | $3,848,781 | +$60,637 | +1.6% | Consolidated Statements of Operations Reports the company's revenues, expenses, and net income for the three months ended March 31, 2024, and 2023 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | Change (%) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :--------- | | Oil and gas sales | $1,242,999 | $616,268 | +$626,731 | +101.7% | | Income from operations | $469,036 | $236,200 | +$232,836 | +98.6% | | Net income attributable to Class A Common Stock | $146,575 | $102,120 | +$44,455 | +43.5% | | Basic Income per share of Class A Common Stock | $0.27 | $0.35 | -$0.08 | -22.9% | | Diluted Income per share of Class A Common Stock | $0.25 | $0.31 | -$0.06 | -19.4% | | Net gain (loss) on derivative instruments | $(121,129) | $54,512 | $(175,641) | -322.2% | Consolidated Statements of Cash Flows Outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024, and 2023 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | Change (%) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :--------- | | Net cash provided by operating activities | $647,598 | $438,213 | +$209,385 | +47.8% | | Net cash used in investing activities | $(619,348) | $(292,128) | $(327,220) | +112.0% | | Net cash provided by (used in) financing activities | $(88,835) | $(189,863) | +$101,028 | -53.2% | | Drilling and development capital expenditures | $(519,623) | $(315,285) | $(204,338) | +64.8% | | Dividends paid | $(87,194) | $(15,192) | $(72,002) | +473.9% | Consolidated Statements of Shareholders' Equity Details changes in the company's equity accounts, including noncontrolling interest, share repurchases, and dividends, for the three months ended March 31, 2024, and 2023 Shareholders' Equity Highlights (in thousands) | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | Change (USD) | | :------------------------------------ | :------------- | :---------------- | :----- | | Total equity | $9,348,196 | $9,229,748 | +$118,448 | | Noncontrolling interest | $2,390,115 | $2,893,651 | -$503,536 | | Share repurchases - Class C | $(31,492) | N/A | N/A | | Dividends | $(88,784) | N/A | N/A | | Conversion of common shares from Class C to Class A, net of tax | $559,584 | N/A | N/A | - Noncontrolling interest decreased from 30% at December 31, 2023, to 24% at March 31, 2024, primarily due to exchanges of Common Units for Class A Common Stock and Class C Common Stock repurchases153 Notes to Consolidated Financial Statements Provides detailed disclosures on accounting policies, acquisitions, debt, equity, and other financial instruments and transactions Note 1—Basis of Presentation and Summary of Significant Accounting Policies Describes the company's operational focus in the Permian Basin and outlines its significant accounting policies - Permian Resources is an independent oil and natural gas company focused on the Permian Basin, with assets primarily in West Texas and New Mexico49 - The company entered into two new three-year drilling rig contracts during Q1 2024, resulting in a $21.9 million current operating lease liability and a $43.2 million noncurrent operating lease liability54 Note 2—Acquisitions and Divestitures Details the Earthstone Merger, bolt-on acquisitions of oil and gas properties, and the divestiture of saltwater disposal wells - The Earthstone Merger was completed on November 1, 2023, with the purchase price allocation still in progress as of March 31, 20245960 - In Q1 2024, the company completed multiple bolt-on acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of $92 million, primarily consisting of undeveloped acreage65 - In March 2023, the company divested its operated saltwater disposal wells for $125 million, including $60 million in contingent consideration tied to future drilling and water connection activity68 Note 3—Accounts Receivable, Accounts Payable and Accrued Expenses Presents a breakdown of accounts receivable, joint interest billings, and accounts payable as of period-end Accounts Receivable and Payable Highlights (in thousands) | Category | March 31, 2024 (USD) | December 31, 2023 (USD) | Change (USD) | | :-------------------------------- | :------------- | :---------------- | :----- | | Accrued oil and gas sales receivable, net | $390,421 | $345,982 | +$44,439 | | Joint interest billings, net | $164,730 | $123,160 | +$41,570 | | Accounts payable and accrued expenses | $977,114 | $1,167,525 | -$190,411 | Note 4—Long-Term Debt Summarizes the company's long-term debt, including credit facility borrowings and senior notes, and compliance with covenants Long-Term Debt Summary (in thousands) | Debt Instrument | March 31, 2024 (USD) | December 31, 2023 (USD) | | :---------------------------------- | :------------- | :---------------- | | Credit Facility due 2027 | $60,000 | $0 | | Senior Notes, net | $3,849,418 | $3,848,781 | | Total long-term debt, net | $3,909,418 | $3,848,781 | - As of March 31, 2024, the company had $60.0 million in borrowings outstanding under its $4.0 billion revolving credit facility, with $1.9 billion in available borrowing capacity73 - Noteholders have the right to convert their Convertible Senior Notes during the second quarter of 2024, as certain conditions have been met84 - The company was in compliance with all credit agreement and senior unsecured notes covenants as of March 31, 202481104 Note 5—Asset Retirement Obligations Details the changes in asset retirement obligations, including liabilities incurred, acquired, divested, and accretion expense Asset Retirement Obligations (in thousands) | Category | Amount (USD) | | :---------------------------------- | :----- | | Asset retirement obligations, beginning of period | $121,417 | | Liabilities incurred | $3,507 | | Liabilities acquired | $3,640 | | Liabilities divested and settled | $(2,549) | | Accretion expense | $2,145 | | Asset retirement obligations, end of period | $128,160 | Note 6—Stock-Based Compensation Reports stock-based compensation expense and unrecognized costs, highlighting factors influencing period-over-period changes Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Total stock-based compensation expense | $9,631 | $17,871 | $(8,240) | - The decrease in stock-based compensation was primarily due to a $6.3 million additional expense in Q1 2023 related to accelerated vesting of equity awards for employees terminated in connection with the Colgate Merger113205 - Unrecognized compensation cost for restricted shares and PSUs totaled $45.0 million and $56.5 million, respectively, as of March 31, 2024, to be recognized over weighted average periods of 2.6 and 2.5 years114120 Note 7—Derivative Instruments Explains the company's use of commodity derivative instruments to manage price risk and presents net gains or losses - The company uses commodity derivative instruments (swaps, collars, basis swaps, deferred premium puts) to mitigate exposure to commodity price risk, not for speculative or trading purposes122 Net Gain (Loss) on Derivative Instruments (in thousands) | Category | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net gain (loss) on derivative instruments | $(121,129) | $54,512 | $(175,641) | | Realized cash settlement gains (losses) | $7,345 | $39,735 | $(32,390) | | Non-cash mark-to-market derivative gain (loss) | $(128,474) | $14,777 | $(143,251) | Note 8—Fair Value Measurements Discusses the fair value measurement methodologies for derivative instruments and nonrecurring valuations of oil and gas properties - Derivative instruments are measured at fair value using Level 2 inputs, which include observable market and contractual prices, implied volatility, and time value138 - Oil and gas property acquisitions and impairment tests involve nonrecurring fair value measurements using Level 3 inputs, relying on estimates of reserves, production rates, future costs, and commodity prices141143 Note 9—Shareholders' Equity and Noncontrolling Interest Details changes in shareholders' equity, including noncontrolling interest, dividends, and share repurchases - Noncontrolling interest ownership of OpCo decreased from 30% at December 31, 2023, to 24% at March 31, 2024, mainly due to common unit exchanges for Class A Common Stock and Class C Common Stock repurchases153 Dividends and Distributions Declared and Paid (in thousands) | Period | Base Dividend/Distribution per Share (USD) | Variable Dividend/Distribution per Share (USD) | Total Dividend/Distribution per Share (USD) | Total Declared and Paid (USD) | | :---------------- | :----------------------------------- | :------------------------------------- | :------------------------------------ | :---------------------- | | March 31, 2024 | $0.05 | $0.10 | $0.15 | $115,521 | | March 31, 2023 | $0.05 | $0.00 | $0.05 | $28,516 | - The company repurchased 2.0 million Common Units for $31.4 million in Q1 2024 under its stock repurchase program151 Note 10—Earnings Per Share Provides basic and diluted earnings per share figures and the dilutive effects of convertible senior notes and equity awards Earnings Per Share (EPS) (per share data) | Metric | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Basic net earnings per share of Class A Common Stock | $0.27 | $0.35 | $(0.08) | | Diluted net earnings per share of Class A Common Stock | $0.25 | $0.31 | $(0.06) | Dilutive Effects on EPS (in thousands) | Dilutive Effects | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Convertible Senior Notes | 28,355 | 27,314 | | Equity awards | 14,525 | 12,621 | Note 11—Transactions with Related Parties Identifies related parties and details transactions such as lease operating expenses and common unit repurchases - Pearl Energy Investments, EnCap Partners, Riverstone Investment Group, and NGP Energy Capital are identified as related parties due to beneficial ownership158 Related Party Transactions (in thousands) | Related Party Transaction | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Lease operating expenses with Streamline | $2,059 | $596 | +$1,463 | | Common Units repurchased from NGP | $31,400 | $29,400 | +$2,000 | Note 12—Commitments and Contingencies Discloses a net estimated liability for a lawsuit related to unutilized capacity during Winter Storm Uri - A net estimated liability of $6.5 million was recorded as of March 31, 2024, for a probable loss related to a lawsuit with a third-party transportation provider concerning unutilized capacity during Winter Storm Uri in February 2021166 Note 13—Revenues Provides a breakdown of operating revenues from oil, natural gas, and NGL sales for the reported periods Operating Revenues (in thousands) | Revenue Category | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | Change (%) | | :----------------- | :-------------------------------- | :-------------------------------- | :----- | :--------- | | Oil sales | $1,051,642 | $524,386 | +$527,256 | +100.5% | | Natural gas sales | $38,767 | $32,122 | +$6,645 | +20.7% | | NGL sales | $152,590 | $59,760 | +$92,830 | +155.3% | | Total Oil and gas sales | $1,242,999 | $616,268 | +$626,731 | +101.7% | Note 14—Subsequent Events Reports significant events occurring after the reporting period, including debt redemption, credit facility adjustments, and dividend declarations - On April 5, 2024, the company redeemed all outstanding 2027 6.875% Senior Notes for $356.4 million177 - On April 25, 2024, the Credit Agreement's elected commitments were increased to $2.5 billion from $2.0 billion, with the borrowing base reaffirmed at $4.0 billion178 - On May 7, 2024, the Board declared a total quarterly dividend of $0.20 per share ($0.06 base and $0.14 variable) payable on May 29, 2024179 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, market conditions, and strategic initiatives, highlighting increased production, revenue, dividends, and share repurchases, with strong liquidity Overview Introduces Permian Resources as an independent oil and natural gas company focused on the Permian Basin, emphasizing value creation and the impact of the Earthstone Merger - Permian Resources is an independent oil and natural gas company focused on the Permian Basin, aiming to increase shareholder value by efficiently developing assets and generating sustainable free cash flow182 - The Earthstone Merger, completed on November 1, 2023, significantly integrated Earthstone's operations into the company's financial statements183 Market Conditions Discusses the volatility of commodity prices due to global factors and their potential impact on the company's financial performance - Crude oil, natural gas, and NGL prices are volatile due to global supply/demand, geopolitical events, and economic conditions184186 Quarterly Average Commodity Prices | Commodity | Q1 2024 Average Price | Q1 2023 Average Price | Change | | :------------------ | :-------------------- | :-------------------- | :----- | | Crude oil (per Bbl) | $76.96 | $76.13 | +1.1% | | Natural gas (per MMBtu) | $2.41 | $2.67 | -9.7% | - Lower commodity prices can negatively impact cash flows, liquidity, and the borrowing base under the Credit Agreement186187 2024 Highlights and Future Considerations Summarizes key financial and operational achievements in Q1 2024, including dividends, share repurchases, debt redemption, and acquisitions - Declared and paid $115.5 million in base and variable dividends/distributions in Q1 2024189 - Repurchased 2.0 million Common Units for $31.4 million in Q1 2024 under its stock repurchase program190 - Redeemed $356.4 million of 2027 6.875% Senior Notes on April 5, 2024191 - Increased elected commitments under the Credit Agreement to $2.5 billion from $2.0 billion on April 25, 2024192 - Completed multiple bolt-on acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of $92 million in Q1 2024193 Results of Operations Analyzes the company's net revenues, production volumes, and operating expenses, highlighting the impact of new wells and the Earthstone Merger Net Revenues and Production Volumes (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | Change (%) | | :------------------------------------ | :---------- | :---------- | :------- | :--------- | | Total net revenues (in thousands USD) | $1,242,999 | $616,268 | +$626,731 | +101.7% | | Oil production (MBbls) | 13,813 | 7,050 | +6,763 | +96.0% | | Natural gas production (MMcf) | 51,802 | 23,974 | +27,828 | +116.1% | | NGL production (MBbls) | 6,629 | 2,798 | +3,831 | +136.9% | | Average realized oil price (per Bbl) | $76.13 | $74.38 | +$1.75 | +2.4% | | Average realized natural gas price (per Mcf) | $1.24 | $1.81 | $(0.57) | -31.5% | | Average realized NGL price (per Bbl) | $26.47 | $27.12 | $(0.65) | -2.4% | - Increased production volumes were primarily due to placing 212 wells online since Q1 2023 and wells acquired in the Earthstone Merger, which also contributed to a higher gas-to-oil ratio197 Operating Expenses (Q1 2024 vs Q1 2023, in thousands) | Operating Expense | Q1 2024 (USD) | Q1 2023 (USD) | Change (USD) | Change (%) | | :------------------------------------ | :---------- | :---------- | :------- | :--------- | | Lease operating expenses | $168,671 | $74,532 | +$94,139 | +126.3% | | Severance and ad valorem taxes | $96,166 | $48,509 | +$47,657 | +98.2% | | Gathering, processing and transportation expenses | $39,055 | $15,482 | +$23,573 | +152.3% | | Depreciation, depletion and amortization | $410,179 | $188,219 | +$221,960 | +117.9% | | General and administrative expenses | $37,373 | $35,474 | +$1,899 | +5.4% | | Merger and integration expense | $11,123 | $13,299 | $(2,176) | -16.4% | | Exploration and other expenses | $11,488 | $4,374 | +$7,114 | +162.7% | | Interest expense | $72,587 | $36,777 | +$35,810 | +97.4% | Liquidity and Capital Resources Discusses the company's sources of liquidity, cash flow activities, capital expenditure plans, and compliance with credit agreement covenants - The company's primary liquidity sources are cash flows from operations, borrowings under its revolving credit facility, and proceeds from debt or equity offerings215 Cash Flow Summary (in thousands) | Cash Flow Metric | Three Months Ended March 31, 2024 (USD) | Three Months Ended March 31, 2023 (USD) | Change (USD) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net cash provided by operating activities | $647,598 | $438,213 | +$209,385 | | Net cash used in investing activities | $(619,348) | $(292,128) | $(327,220) | | Net cash provided by (used in) financing activities | $(88,835) | $(189,863) | +$101,028 | - Total cash capital expenditures incurred for Q1 2024 were $519.6 million, with a full-year budget of $1.9 billion to $2.1 billion, expected to be funded by cash flows from operations216 - The company plans to return capital to shareholders through a combination of base dividends plus a variable return program, including variable dividends and share repurchases218 - The company was in compliance with all Credit Agreement covenants as of March 31, 2024, and through the filing date229240 Contractual Obligations Notes no significant non-routine changes in contractual obligations since December 31, 2023, apart from new drilling rig contracts - No significant non-routine changes in contractual obligations since December 31, 2023, apart from new drilling rig contracts242 Critical Accounting Policies and Estimates States that there have been no material changes to critical accounting policies and estimates from the 2023 Annual Report - No material changes to critical accounting policies and estimates from the 2023 Annual Report243 New Accounting Pronouncements Reports no significant new accounting standards adopted or pronouncements with potential effects as of March 31, 2024 - No significant new accounting standards adopted or pronouncements with potential effects as of March 31, 2024244 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to commodity price risk and interest rate risk, using commodity derivative instruments to mitigate price volatility, with a 10% change in crude oil prices impacting Q1 2024 sales by $105.2 million, and interest rate risk primarily from its variable-rate revolving credit facility, with a 1.0% rate change impacting interest expense by $0.6 million annually Commodity Price Risk Addresses the company's exposure to volatile commodity prices and its use of derivative instruments to mitigate this risk - The company's primary market risk exposure is in the pricing received for its oil, natural gas, and NGL production, which has been and is expected to remain volatile247 - A hypothetical 10% change in Q1 2024 oil prices would cause a $105.2 million change in oil and gas sales, $3.9 million for natural gas, and $15.3 million for NGLs247 - Commodity derivative instruments (collars, swaps, puts, and basis swaps) are used to mitigate price risk, limited to 85% of reasonably anticipated projected production from proved properties248 Crude Oil Derivative Contracts as of March 31, 2024 (through April 30, 2024) | Derivative Type | Period | Volume (Bbls/d) | Wtd. Avg. Crude Price ($/Bbl) | | :---------------------- | :--------------------- | :-------------- | :----------------------------- | | Crude oil swaps | April 2024 - June 2024 | 39,698 | $77.27 | | Crude oil collars | April 2024 - June 2024 | 2,000 | $60.00 - $76.01 | | Deferred premium puts | April 2024 - June 2024 | 2,500 | $65.00 | Natural Gas Derivative Contracts as of March 31, 2024 (through April 30, 2024) | Derivative Type | Period | Volume (MMBtu/d) | Wtd. Avg. Gas Price ($/MMBtu) | | :---------------------- | :--------------------- | :--------------- | :----------------------------- | | Natural gas swaps | April 2024 - June 2024 | 64,905 | $3.29 | | Natural gas collars | April 2024 - June 2024 | 55,095 | $2.68 - $5.04 | Interest Rate Risk Discusses the company's exposure to interest rate fluctuations on its variable-rate revolving credit facility and the impact on interest expense - The company is exposed to interest rate risk on its variable-rate revolving credit facility, with $60.0 million outstanding at a weighted average interest rate of 9.3% as of March 31, 2024255256 - A 1.0% increase or decrease in the weighted average interest rate on the credit facility would impact annual interest expense by approximately $0.6 million256 - The remaining $3.8 billion long-term debt consists of senior notes with fixed interest rates, which are not affected by interest rate movements257 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2024, providing reasonable assurance for timely and accurate financial reporting259 - There were no material changes in internal control over financial reporting during the three months ended March 31, 2024260 Part II—OTHER INFORMATION Contains additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company refers to Note 12 for details on legal proceedings, which includes a $6.5 million liability for a Winter Storm Uri-related dispute, and states it is unaware of other material environmental claims - Refer to Note 12 for details on legal proceedings, including a $6.5 million liability for a Winter Storm Uri-related dispute262166 - The company is unaware of any material environmental claims existing as of March 31, 2024, that have not been provided for or would materially impact financial statements263 Item 1A. Risk Factors There have been no material changes to the risk factors previously described in the company's 2023 Annual Report or other SEC filings - No material changes in risk factors from those described in the 2023 Annual Report or other SEC filings264 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In March 2024, the company repurchased 2.0 million shares of Class C Common Stock for $31.4 million under its $500 million stock repurchase program, with $344.197 million remaining authorized - In March 2024, the company repurchased 2.0 million shares of Class C Common Stock at a weighted average price of $15.71 per share for a total cost of $31.4 million266 - As of March 31, 2024, approximately $344.197 million remained authorized under the $500 million stock repurchase program, which is approved to run through December 31, 2024266 Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No directors or officers adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement' during the quarter ended March 31, 2024267 Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report, including the Fourth Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, and various certifications required by the Sarbanes-Oxley Act - The report includes certifications from Co-Chief Executive Officers and Chief Financial Officer pursuant to Sections 302 and 1350 of the Sarbanes-Oxley Act of 2002269 Signatures Contains the official signatures of authorized representatives, certifying the accuracy and completeness of the report