Permian Resources (PR) - 2022 Q2 - Quarterly Report

Part I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements show significant revenue and net income growth driven by higher commodity prices Consolidated Balance Sheets Total assets grew to $4.22 billion, driven by increased cash, while shareholders' equity rose to $2.97 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $349,879 | $86,535 | | Cash and cash equivalents | $201,092 | $9,380 | | Total Assets | $4,224,030 | $3,804,594 | | Total Current Liabilities | $316,101 | $167,899 | | Long-term debt, net | $801,849 | $825,565 | | Total Liabilities | $1,254,462 | $1,053,874 | | Total Shareholders' Equity | $2,969,568 | $2,750,720 | Consolidated Statements of Operations A significant profitability turnaround resulted in a Q2 2022 net income of $191.8 million, driven by doubled sales revenue Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Oil and gas sales | $472,654 | $232,577 | $819,931 | $424,968 | | Total operating expenses | $189,560 | $171,453 | $371,782 | $329,856 | | Income (loss) from operations | $281,688 | $67,099 | $446,825 | $101,131 | | Net income (loss) | $191,826 | $(25,055) | $207,628 | $(59,700) | | Diluted EPS | $0.60 | $(0.09) | $0.66 | $(0.21) | Consolidated Statements of Cash Flows Net operating cash flow surged to $455.1 million for the six-month period, reflecting higher commodity prices Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $455,099 | $179,625 | | Net cash used in investing activities | $(228,603) | $(127,076) | | Net cash used in financing activities | $(34,784) | $(53,644) | | Net increase (decrease) in cash | $191,712 | $(1,095) | Notes to Consolidated Financial Statements Disclosures detail the pending Colgate merger, debt structure, hedging instruments, and key contingencies - On May 19, 2022, the company entered into a Business Combination Agreement for a merger of equals with Colgate Energy Partners III, LLC[65][67] - In February 2022, the company entered into an amended five-year secured credit facility, increasing elected commitments to $750 million and the borrowing base to $1.15 billion[72] - The company has a potential contingency loss ranging from zero to $7.6 million related to a lawsuit concerning Winter Storm Uri[158] - Subsequent to the quarter end, the company amended its Credit Agreement, increasing elected commitments to $1.5 billion and the borrowing base to $2.5 billion upon the merger's closing[168] Management's Discussion and Analysis of Financial Condition and Results of Operations Favorable market conditions drove substantial revenue growth, funding capital expenditures and debt repayment - The company entered into a merger of equals agreement with Colgate Energy Partners III, LLC, expected to close after the August 29, 2022 shareholder meeting[176][178] - During H1 2022, the company operated a two-rig drilling program, completing 31 gross operated wells[179] - A $350 million stock repurchase program was authorized in February 2022, but no repurchases have been made due to merger-related restrictions[181] - The 2022 standalone capital expenditure budget is projected between $365 million and $425 million, expected to be fully funded by operating cash flows[229] Results of Operations Q2 revenue increased 103% to $472.7 million, driven by higher realized oil prices and production volumes Q2 2022 vs Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Oil and gas sales | $472.7M | $232.6M | 103% | | Average realized oil price (per Bbl) | $104.69 | $60.99 | 72% | | Total average daily production (Boe/d) | 70,240 | 61,647 | 14% | | Net Income | $191.8M | $(25.1)M | N/A | H1 2022 vs H1 2021 Performance | Metric | H1 2022 | H1 2021 | % Change | | :--- | :--- | :--- | :--- | | Oil and gas sales | $819.9M | $425.0M | 93% | | Average realized oil price (per Bbl) | $97.42 | $57.08 | 71% | | Total average daily production (Boe/d) | 65,824 | 57,945 | 14% | | Net Income | $207.6M | $(59.7)M | N/A | - Lease Operating Expenses (LOE) per Boe increased due to higher electricity and workover costs[189][210] - Severance and ad valorem taxes as a percentage of revenue increased to 7.3% in H1 2022, driven by higher production from New Mexico[191][212] Liquidity and Capital Resources Strong operating cash flow of $455.1 million funded capital expenditures and eliminated credit facility borrowings Cash Flow and Capital Expenditure Summary (H1 2022) | Metric | Amount (in millions) | | :--- | :--- | | Net cash provided by operating activities | $455.1 | | Total capital expenditures incurred | $255.3 | | Net repayment of credit facility borrowings | $25.0 | - As of June 30, 2022, the company had no borrowings outstanding under its credit facility and an available borrowing capacity of $744.2 million[237] - The pending merger with Colgate will involve assuming $1.0 billion of Colgate's senior notes and potentially borrowing to fund the $525 million cash consideration[230] Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price volatility through derivative instruments and has limited interest rate risk - A 10% change in commodity prices would impact H1 2022 oil and gas sales by approximately $82.0 million[255] - The company uses derivative instruments to mitigate price risk, with swaps and collars in place through March 2024[256][257][258] - The company is exposed to interest rate risk through its variable-rate Credit Agreement but had no borrowings outstanding as of June 30, 2022[262][263] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[265] - No material changes occurred during the quarter that are reasonably likely to materially affect the company's internal control over financial reporting[266] Part II—OTHER INFORMATION Legal Proceedings The company faces a legal dispute related to Winter Storm Uri with a potential loss exposure of up to $7.6 million - The company is involved in a legal dispute regarding unused pipeline capacity during Winter Storm Uri, with a reasonably possible loss estimated between zero and $7.6 million[158][268] Risk Factors Key risks relate to the pending merger with Colgate, including completion uncertainty and integration challenges - The merger with Colgate is subject to closing conditions and may be terminated, potentially requiring a termination fee of $72.0 million[270][273] - The merger consideration is fixed and will not be adjusted for changes in market price, creating valuation risk[275] - The company will incur additional indebtedness to fund the $525 million cash portion of the merger and will assume $1.0 billion of Colgate's senior notes[288] - Integrating Colgate, a private company, into a public reporting structure may require significant resources and increase compliance costs[297] Exhibits This section lists filed exhibits, including the Business Combination Agreement and Credit Agreement amendments - Key exhibits filed include the Business Combination Agreement dated May 19, 2022, and the First Amendment to the Credit Agreement dated July 15, 2022[302]