Parsley Energy Announces Second Quarter 2018 Financial And Operating Results; Raises Production Guidance And Lowers Unit Cost Estimates
AUSTIN, Texas, Aug. 7, 2018 /PRNewswire/ -- Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended June 30, 2018. The Company has posted to its website a presentation that supplements the information in this release.
Second Quarter 2018 Highlights
-- Net oil production increased 14% quarter-over-quarter and 57%
year-over-year to 67.7 MBo per day. Total net production averaged 107.8
MBoe per day.((1))
-- Parsley reported an unhedged oil price realization of $64.29/Bbl net of
transportation costs during 2Q18. This represents a differential of just
$3.62 compared to the average NYMEX WTI price for the quarter,
displaying the benefits of the Company's diversified pricing exposure.
Parsley also agreed in principle to bolster its takeaway capacity
through multiple agreements with large oil purchasers that would, if all
are completed, cover up to 165,000 Bo per day of gross operated oil
production by year-end 2019.((2))
-- The Company demonstrated strong cost control during the second quarter
of 2018, driven by significant savings from the Company's growing water
infrastructure network and the execution of a stable development plan.
As a result, Parsley is lowering full-year 2018 unit cost estimates.
-- Parsley reported 2Q18 lease operating expense ("LOE") per Boe of
$3.66, up only slightly versus the peer-leading expense the Company
posted in 1Q18, and is lowering full-year 2018 LOE per Boe guidance
from $3.75-$5.00 to $3.50-$4.25.
-- Both general and administrative expense ("G&A") per Boe and cash
based G&A per Boe, which excludes stock-based compensation expense,
decreased quarter-over-quarter and year-over-year to $3.67((1)) and
$3.12,((1)) respectively. Parsley is lowering full-year 2018 cash
G&A per Boe guidance from $3.50-$4.25 to $3.25-$3.65.
-- Parsley placed 45 gross (44 net) operated horizontal wells on production
during 2Q18. This higher-than-anticipated net well count was driven by
operational efficiency gains and acreage trades that increased Parsley's
average working interest. In light of these trends, the Company is
increasing the number of operated horizontal wells it expects to place
on production in 2018 from 144 net wells to approximately 158 net
wells.((3)) These additional net wells are not predicated on the
addition of incremental rigs or completion crews.
-- Having compressed cycle times to levels last achieved in early 2017
prior to the integration of major acquisitions and the associated
activity ramp, Parsley's contemplated development program in the second
half of 2018 reflects a gradual transition back to a larger average pad
size.
-- The Company is increasing full-year 2018 net oil production guidance
from 65-70 MBo per day to 68.0-70.5 MBo per day. At the midpoint, the
updated range translates to estimated year-over-year growth of 54%.
-- Parsley is revising its 2018 capital budget as a result of shorter cycle
times and higher working interest. The Company previously indicated that
sustained oil price strength and associated service and equipment cost
inflation would bias expectations toward the upper end of its initial
guidance range of $1.35-$1.55 billion. These expectations were
confirmed, primarily as a function of labor tightness, while the
imposition of steel tariffs also translated to higher well costs.
Relative to the top of the previous range, Parsley is revising its 2018
capital budget upward by $100-$200 million to reflect the additional net
wells the Company expects to place on production this year, yielding an
updated range of $1.65-$1.75 billion.
"Parsley Energy continues to execute across the organization in 2018," said Bryan Sheffield, Parsley's Chairman and CEO. "With a steady development profile in place, our teams have found ways to boost operational efficiencies and extract more value per barrel of production. We expect these trends to continue as we implement Parsley's standard of excellence across a long-lived, high quality asset base."
Operational Update
Parsley's strong sequential production growth was driven by solid execution across multiple business units, highlighted by efficient development operations and the execution of acreage trades that increased the Company's average working interest.
Activity Overview
During the second quarter, the Company spud 43 and placed on production 45 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 97%, with an average completed lateral length of approximately 8,750 feet. Completion activity was weighted toward the Midland Basin, where the Company placed on production 37 gross operated horizontal wells, with the Delaware Basin comprising the remaining 8 gross operated horizontal wells. Parsley expects that development activity will remain weighted to the Midland Basin for the remainder of the year, consistent with prior Company commentary.
Notable Well Results
Parsley turned 14 wells to production in Glasscock County during 2Q18, representing a significant portion of the Company's total completion activity during the quarter. These wells included two wells on the Brunson lease which targeted the Wolfcamp A and Wolfcamp B zones in a stacked configuration. Early results from these two 1.5 mile lateral wells are promising, with peak 30-day production rates averaging 1,277 Boe per day (84% oil), representing the Company's strongest stacked Wolfcamp results in Glasscock County to date. More broadly, Parsley's growing portfolio of well results across Glasscock County evidences the quality of the Company's Glasscock acreage, with Wolfcamp A and Wolfcamp B results since 2017 showing steady improvement and outperforming Parsley's Midland Basin reference curve in the aggregate.
Takeaway Positioning
During 2Q18, Parsley reported an unhedged oil price realization of $64.29/Bbl net of transportation costs, representing a differential of just $3.62/Bbl compared to the average NYMEX WTI price for the quarter. Parsley's current insulation from weaker Midland basis differentials is the product of a proactive marketing strategy that sought to diversify regional pricing exposure more than 12 months ago.
Parsley has recently taken steps to supplement its advantaged takeaway position, agreeing in principle to multiple agreements with large oil purchasers. These firm transport agreements would, if all are completed, cover up to 165,000 Bo per day of gross operated oil production by year-end 2019,((2)) and also maintain favorable pricing elements by pricing a significant portion of the Company's barrels relative to Gulf Coast and international benchmarks.
"Securing flow assurance and pricing insulation were top priorities for us as we scaled up our operations 12 months ago and this foresight is now being rewarded through clear growth visibility and strong oil price realizations," said Matt Gallagher, Parsley's President and COO. "We continue to grow a crude production stream that is attractive to premier purchasers and expect to leverage these in-demand barrels to achieve favorable terms on incremental takeaway agreements. It is a distinct advantage to contemplate future development plans unencumbered by takeaway constraints or expensive long-term transportation costs."
Financial Update
Parsley's solid operational execution this quarter translated to strong performance in key financial measures.
During 2Q18, the Company recorded net income attributable to its stockholders of $119.2 million, or $0.44 per share, compared to net income attributable to its stockholders of $82.9 million, or $0.32 per share, during 1Q18. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, and adding back the non-controlling interest allocated to Class B stockholders, adjusted net income for 2Q18 was $106.4 million, or $0.39 per share, compared to $81.1 million, or $0.31 per share, in 1Q18.((4))
Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 2Q18 was $340.1 million, up 20% quarter-over-quarter and up more than 130% when compared to the same measure in 2Q17.((4))
Parsley maintained strong cost control during the second quarter of 2018. The Company reported LOE per Boe of $3.66,((1)) up only slightly versus the peer-leading expense the Company posted in 1Q18, and is lowering its full-year 2018 LOE per Boe guidance from $3.75-$5.00 to $3.50-$4.25. Favorable LOE cost trends were driven by expansion of Parsley's cost-effective water management system, as well as reduced power costs associated with the recent commissioning of an electrical substation in the Delaware Basin.
Both G&A per Boe and cash based G&A per Boe, which excludes stock-based compensation expense, decreased quarter-over-quarter and year-over-year to $3.67((1)) and $3.12,((1)) respectively. Parsley is lowering full-year 2018 cash G&A per Boe guidance from $3.50-$4.25 to $3.25-$3.65. Encouraging G&A cost trends are a function of a stable development pace following a period of accelerating development activity.
Strong realized pricing and favorable trends in the above-mentioned cash operating costs drove a robust operating cash margin of $37.25 per Boe, or 78% of the Company's average realized price per Boe.((4))
Parsley reported capital expenditures of $477 million during the quarter, comprised of $387 million for drilling and completion activity and $90 million for facilities and infrastructure. Elevated facilities and infrastructure spending is a function of a proactive build-out of Parsley's growing water infrastructure network. These efforts spanned several counties and included a water recycling pilot in Martin County with favorable initial results. Reported 2Q18 capital expenditures also include $10 million associated with non-operated development activity.
The Company is revising its 2018 capital budget as a result of shorter cycle times and higher working interest. Parsley previously indicated that sustained oil price strength and associated service and equipment cost inflation would bias expectations toward the upper end of its initial guidance range of $1.35-$1.55 billion. These expectations were confirmed, primarily as a function of labor tightness, while the imposition of steel tariffs also translated to higher well costs. Relative to the top of the previous range, Parsley is revising its 2018 capital budget upward by $100-$200 million to reflect the additional net wells the Company expects to place on production this year, yielding an updated range of $1.65-$1.75 billion.
Liquidity and Hedging
As of June 30, 2018, Parsley had approximately $1.3 billion of liquidity, consisting of $301 million of cash, cash equivalents, and short-term investments, and an undrawn amount of $991 million on the Company's revolver.((5))
Almost all of Parsley's expected 2018 oil production is subject to hedge protection, and the Company recently added to its 2019 hedge position. Parsley's hedging strategy protects its balance sheet and anticipated cash flow while retaining significant exposure to higher commodity prices. For details on Parsley's hedging position, please see the tables below under Supplemental Information and/or the Company's Quarterly Report on Form 10-Q, upon availability, for the three months ended June 30, 2018.
Full-year 2018 Guidance Update
------------------------------
2018 2018
Previous Updated
-------- -------
Production
----------
Annual net oil production (MBo/d) 65-70 68.0-70.5
Annual net production (MBoe/d) 98-108 106-111
Capital Program
---------------
Total development expenditures ($MM) $1,350-$1,550 $1,650-$1,750
Drilling and completion (% of total) 85-90% 85-90%
Facilities, Infrastructure & Other (% of total) 10-15% 10-15%
Activity
--------
Gross operated horizontal POPs ~160 ~165
Midland Basin (% of total) ~75% ~75%
Delaware Basin (% of total) ~25% ~25%
Average lateral length ~9,500' ~9,500'
Average working interest ~90% 95-97%
Net operated horizontal POPs ~144 157-160
Unit Costs
----------
Lease operating expenses ($/Boe) $3.75-$5.00 $3.50-$4.25
Cash general and administrative expenses ($/Boe) $3.50-$4.25 $3.25-$3.65
Production and ad valorem taxes (% of revenue) 6.0%-7.0% 6.0%-7.0%
Conference Call Information
Parsley Energy will host a conference call and webcast to discuss its results for the second quarter of 2018 on Wednesday, August 8 at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). Participants should call 877-407-0672 (United States/Canada) or 412-902-0003 (International) 10 minutes before the scheduled time and request the Parsley Energy conference call. A telephone replay will be available shortly after the call through August 15 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13681890. A live broadcast will also be available on the internet at www.parsleyenergy.com under the "Events & Presentations" section of the website. The Company has also posted to its website a presentation that supplements the information in this release.
About Parsley Energy, Inc.
Parsley Energy, Inc. is an independent oil and natural gas company focused on the acquisition and development of unconventional oil and natural gas reserves in the Permian Basin in West Texas. For more information, visit the Company's website at www.parsleyenergy.com.
Forward Looking Statements
Certain statements contained in this news release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Parsley Energy's expectations or beliefs concerning future events, and it is possible that the results described in this news release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Parsley Energy's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, Parsley Energy does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for Parsley Energy to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements found in the Company's filings with the SEC, including its Annual Report on Form 10-K. The risk factors and other factors noted in the Company's SEC filings could cause its actual results to differ materially from those contained in any forward-looking statement.
- Tables to Follow -
__________
(1) Natural gas and
natural gas
liquids
("NGLs") sales
and associated
production
volumes for
the three
months ended
June 30, 2018
reflect
adjustments
associated
with Parsley's
adoption of
Accounting
Standards
Codification
Topic 606,
Revenue from
Contracts with
Customers
("ASC 606"),
effective
January 1,
2018.
Accordingly,
all references
to 2Q18
production
volumes and
per Boe unit
costs likewise
reflect this
adoption,
which has the
effect of
increasing
certain
natural gas
and NGLs
volumes and
revenues,
offset by a
corresponding
transportation
and processing
cost such that
there is no
change to
reported net
income. The
recognition
and
presentation
of oil volumes
and associated
revenues and
expenses are
unaffected by
the adoption
of ASC 606.
Previously
provided full-
year guidance
for production
volumes and
unit costs
incorporated
the
anticipated
effect of the
adoption of
ASC 606.
For more
information on
ASC 606 and a
reconciliation
of 2Q18
production and
unit costs
under ASC 605
and as
adjusted under
ASC 606,
please see the
table and
associated
commentary
below under
Supplemental
Information
and/or the
Company's
Quarterly
Report on Form
10-Q, upon
availability,
for the three
and six months
ended June 30,
2018.
(2) The above-
referenced
agreements
include
executed
contracts and
one letter of
intent that
outlines
commercial
terms but has
not been
contractualized.
(3) Expected net
well count
based on
revised 2018
guidance for
gross wells
placed on
production and
average
working
interest
(midpoint of
range).
(4) "Adjusted
EBITDAX",
"operating
cash margin",
and "adjusted
net income"
are not
presented in
accordance
with generally
accepted
accounting
principles in
the United
States
("GAAP"). For
definitions
and
reconciliations
of the non-
GAAP financial
measures of
adjusted
EBITDAX,
operating cash
margin, and
adjusted net
income to GAAP
financial
measures,
please see the
tables and
associated
commentary
below under
Reconciliation
of Non-GAAP
Financial
Measures.
(5) Fully undrawn
revolver
balance is net
of letters of
credit.
Parsley Energy, Inc. and Subsidiaries
Selected Operating Data
(Unaudited)
Three Months Ended
June 30, 2018 March 31, 2018 June 30, 2017
------------- -------------- -------------
Net production volumes:
Oil (MBbls) 6,165 5,341 3,917
Natural gas (MMcf) (1) 9,235 8,556 5,421
Natural gas liquids (MBbls) (1) 2,106 1,643 1,069
Total (MBoe) 9,811 8,410 5,890
Average daily net production (Boe/d) 107,813 93,444 64,725
======= ====== ======
Average sales prices (2) :
Oil, without realized derivatives (per Bbl) $64.29 $61.99 $45.46
Oil, with realized derivatives (per Bbl) $60.11 $58.32 $45.49
Natural gas, without realized derivatives (per Mcf) $1.32 $2.04 $2.39
Natural gas, with realized derivatives (per Mcf) $1.40 $2.06 $2.36
NGLs (per Bbl) $27.20 $24.72 $19.02
Average price per Boe, without realized derivatives $47.48 $46.27 $35.89
Average price per Boe, with realized derivatives $44.92 $43.97 $35.87
====== ====== ======
Average costs (per Boe) (3):
Lease operating expenses $3.66 $3.43 $5.03
Transportation and processing costs $0.66 $0.75 $ -
Production and ad valorem taxes $2.79 $2.88 $1.93
Depreciation, depletion and amortization $14.84 $14.41 $14.15
General and administrative expenses (including stock-based compensation) $3.67 $4.16 $5.39
General and administrative expenses (cash based) $3.12 $3.56 $4.50
___________
(1) Natural gas
and NGLs
volumes for
the three
months ended
June 30 and
March 31,
2018 reflect
adjustments
associated
with
Parsley's
adoption of
ASC 606,
effective
January 1,
2018.
(2) Average prices
shown in the
table reflect
prices both
before and
after the
effects of
our realized
commodity
hedging
transactions.
Our
calculations
of such
effects
include both
realized
gains and
losses on
cash
settlements
for commodity
derivative
transactions
and premiums
paid or
received on
options that
settled
during the
period.
Realized oil
prices are
net of
transportation
costs.
Realized
prices for
certain gas
and NGLs
volumes are
net of
transportation,
gathering,
and
processing
costs as
stipulated by
ASC 606. For
more
information,
please see
associated
commentary
below under
Supplemental
Information
and/or the
Company's
Quarterly
Report on
Form 10-Q,
upon
availability,
for the three
and six
months ended
June 30,
2018.
(3) Average costs
per Boe for
the three
months ended
June 30 and
March 31,
2018 reflect
adjustments
associated
with
Parsley's
adoption of
ASC 606,
effective
January 1,
2018.
Parsley Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except for per share data)(1)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
---- ---- ---- ----
REVENUES
Oil sales $396,325 $178,066 $727,428 $347,811
Natural gas sales (2) 12,235 12,983 29,659 25,450
Natural gas liquids sales (2) 57,275 20,336 97,895 37,749
Other 1,953 2,292 5,547 3,525
----- ----- ----- -----
Total revenues 467,788 213,677 860,529 414,535
------- ------- ------- -------
OPERATING EXPENSES
Lease operating expenses 35,904 29,631 64,736 47,258
Transportation and processing costs (2) 6,471 - 12,738 -
Production and ad valorem taxes 27,331 11,397 51,517 22,559
Depreciation, depletion and amortization 145,552 83,315 266,751 152,285
General and administrative expenses
(including stock-based compensation) 35,991 31,761 70,986 55,803
Exploration and abandonment costs 3,366 2,442 8,777 5,205
Acquisition costs (2) 7,176 2 8,520
Accretion of asset retirement obligations 359 193 713 329
Other operating expenses 2,477 2,503 4,652 4,786
Total operating expenses 257,449 168,418 480,872 296,745
OPERATING INCOME 210,339 45,259 379,657 117,790
------- ------ ------- -------
OTHER INCOME (EXPENSE)
Interest expense, net (33,758) (22,764) (65,726) (42,100)
Gain on sale of property 5,166 - 5,055 -
Loss on early extinguishment of debt - - - (3,891)
(Loss) gain on derivatives (9,466) 43,514 (20,259) 68,130
Change in TRA liability - - (82) (20,549)
Interest income 1,686 2,178 3,809 4,549
Other income (expense) 234 (177) 535 773
--- ---- --- ---
Total other income (expense), net (36,138) 22,751 (76,668) 6,912
INCOME BEFORE INCOME TAXES 174,201 68,010 302,989 124,702
INCOME TAX EXPENSE (33,243) (12,216) (56,568) (30,618)
------- ------- ------- -------
NET INCOME 140,958 55,794 246,421 94,084
LESS: NET INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS (21,803) (15,048) (44,376) (23,896)
------- ------- ------- -------
NET INCOME ATTRIBUTABLE TO PARSLEY ENERGY,
INC. STOCKHOLDERS $119,155 $40,746 $202,045 $70,188
======== ======= ======== =======
Net income per common share:
Basic $0.44 $0.17 $0.76 $0.30
Diluted $0.44 $0.17 $0.76 $0.30
Weighted average common shares outstanding:
Basic 272,239 245,698 266,479 233,255
Diluted 272,846 246,792 267,043 234,315
__________
(1) Certain
reclassifications
and
adjustments to
prior period
amounts have
been made to
conform with
current
presentation.
(2) Natural gas and
NGLs sales and
transportation
and processing
costs for the
three and six
months ended
June 30, 2018
reflect
adjustments
associated
with Parsley's
adoption of
ASC 606,
effective
January 1,
2018.
Parsley Energy, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
June 30, 2018 December 31, 2017
------------- -----------------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $201,702 $554,189
Short-term investments 99,704 149,283
Accounts receivable:
Joint interest owners and other 29,721 42,174
Oil, natural gas and NGLs 178,593 123,147
Related parties 241 388
Short-term derivative instruments, net 42,780 41,957
Assets held for sale - 1,790
Other current assets 41,784 6,558
------ -----
Total current assets 594,525 919,486
------- -------
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties, successful
efforts method 9,434,570 8,551,314
Accumulated depreciation, depletion and
impairment (1,074,499) (822,459)
---------- --------
Total oil and natural gas properties, net 8,360,071 7,728,855
--------- ---------
Other property, plant and equipment, net 146,517 106,587
------- -------
Total property, plant and equipment, net 8,506,588 7,835,442
--------- ---------
NONCURRENT ASSETS
Assets held for sale, net - 14,985
Long-term derivative instruments, net 30,837 15,732
Other noncurrent assets 7,493 7,553
----- -----
Total noncurrent assets 38,330 38,270
------ ------
TOTAL ASSETS $9,139,443 $8,793,198
========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $426,677 $407,698
Revenue and severance taxes payable 134,740 109,917
Current portion of long-term debt 2,462 2,352
Short-term derivative instruments, net 68,242 84,919
Current portion of asset retirement
obligations 7,754 7,203
----- -----
Total current liabilities 639,875 612,089
NONCURRENT LIABILITIES
Liabilities related to assets held for sale - 405
Long-term debt 2,180,559 2,179,525
Asset retirement obligations 20,853 19,967
Deferred tax liability 100,392 21,403
Payable pursuant to tax receivable
agreement 62,681 58,479
Long-term derivative instruments, net 34,936 20,624
Total noncurrent liabilities 2,399,421 2,300,403
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
50,000,000 shares authorized, none issued
and outstanding - -
Common stock
Class A, $0.01 par value, 600,000,000
shares authorized, 280,106,940 shares
issued and 279,518,737 shares outstanding
at June 30, 2018 and 252,419,601 shares
issued and 252,260,300 shares outstanding
at December 31, 2017 2,801 2,524
Class B, $0.01 par value, 125,000,000
shares authorized, 37,251,738 and
62,128,157 shares issued and outstanding
at June 30, 2018 and December 31, 2017 373 622
Additional paid in capital 5,123,089 4,666,365
Retained earnings 245,564 43,519
Treasury stock, at cost, 588,203 shares and
159,301 shares at June 30, 2018 and
December 31, 2017 (11,606) (735)
------- ----
Total stockholders' equity 5,360,221 4,712,295
Noncontrolling interest 739,926 1,168,411
------- ---------
Total equity 6,100,147 5,880,706
--------- ---------
TOTAL LIABILITIES AND EQUITY $9,139,443 $8,793,198
========== ==========
Parsley Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Six Months Ended June 30,
2018 2017
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $246,421 $94,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and
amortization 266,751 152,285
Accretion of asset retirement
obligations 713 329
Gain on sale of property (5,055) -
Loss on early extinguishment
of debt - 3,891
Amortization and write off of
deferred loan origination
costs 2,374 1,803
Amortization of bond premium (258) (258)
Stock-based compensation 10,432 9,460
Deferred income tax expense 56,568 30,476
Change in TRA liability 82 20,549
Loss (gain) on derivatives 20,259 (68,130)
Net cash (paid) received for
derivative settlements (7,211) 2,115
Net cash paid for option
premiums (26,330) (13,281)
Other 8,208 261
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable (42,993) (22,575)
Accounts receivable-related
parties 147 74
Other current assets (31,419) 46,318
Other noncurrent assets (318) (842)
Accounts payable and accrued
expenses (32,213) 52,672
Revenue and severance taxes
payable 24,823 17,973
Net cash provided by operating
activities 490,981 327,204
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of oil and natural
gas properties (854,228) (361,742)
Acquisitions of oil and
natural gas properties (56,014) (2,088,286)
Additions to other property
and equipment (48,047) (19,520)
Proceeds from sales of oil and
natural gas properties 42,553 13,557
Maturity of short-term
investments 49,627 -
Other 35,018 (630)
Net cash used in investing
activities (831,091) (2,456,621)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term
debt - 452,480
Payments on long-term debt (1,461) (67,411)
Debt issuance costs (45) (9,206)
Proceeds from issuance of
common stock, net - 2,123,527
Repurchase of common stock (10,871) (137)
Net cash (used in) provided by
financing activities (12,377) 2,499,253
------- ---------
Net (decrease) increase in
cash, cash equivalents and
restricted cash (352,487) 369,836
Cash, cash equivalents and
restricted cash at beginning
of period 554,189 136,669
------- -------
Cash, cash equivalents and
restricted cash at end of
period $201,702 $506,505
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $64,047 $15,102
======= =======
Cash paid for income taxes $ - $200
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Asset retirement obligations
incurred, including changes
in estimate $940 $8,084
==== ======
Additions to oil and natural
gas properties -change in
capital accruals $46,969 $121,663
======= ========
Additions to other property
and equipment funded by
capital lease borrowings $1,175 $2,500
====== ======
Common stock issued for oil
and natural gas properties $ - $1,183,501
=== === ==========
Net premiums on options that
settled during the period $(34,598) $(9,917)
======== =======
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDAX
Adjusted EBITDAX is not a measure of net income as determined by GAAP. Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of the Company's consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines Adjusted EBITDAX as net income (loss) before depreciation, depletion and amortization, exploration and abandonment costs, net interest expense, interest income, income tax expense (benefit), change in Tax Receivable Agreement ("TRA") liability, stock-based compensation, acquisition costs, (gain) loss on sale of property, asset retirement obligation accretion expense, loss on early extinguishment of debt, inventory write down, (gain) loss on derivatives, net settlements on derivative instruments and net premiums on options that settled during the period.
Management believes Adjusted EBITDAX is useful because it allows the Company to more effectively evaluate its operating performance and compare the results of its operations from period to period without regard to its financing methods or capital structure. The Company excludes the items listed above from net income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within its industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of the Company's operating performance. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. The Company's computations of Adjusted EBITDAX may not be comparable to other similarly titled measure of other companies. The Company believes that Adjusted EBITDAX is a widely followed measure of operating performance.
The following table presents a reconciliation of Adjusted EBITDAX to the GAAP financial measure of net (loss) income for each of the periods indicated.
Parsley Energy, Inc. and Subsidiaries
Adjusted EBITDAX
(Unaudited, in thousands)(1)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
---- ---- ---- ----
Adjusted EBITDAX reconciliation to net
income:
Net income
attributable to
Parsley Energy, Inc.
stockholders $119,155 $40,746 $202,045 $70,188
Net income
attributable to
noncontrolling
interests 21,803 15,048 44,376 23,896
Depreciation,
depletion and
amortization 145,552 83,315 266,751 152,285
Exploration and
abandonment costs 3,366 2,442 8,777 5,205
Interest expense, net 33,758 22,764 65,726 42,100
Interest income (1,686) (2,178) (3,809) (4,549)
Income tax expense 33,243 12,216 56,568 30,618
EBITDAX 355,191 174,353 640,434 319,743
------- ------- ------- -------
Change in TRA
liability - - 82 20,549
Stock-based
compensation 5,363 5,251 10,432 9,460
Acquisition costs (2) 7,176 2 8,520
Gain on sale of
property (5,166) - (5,055) -
Accretion of asset
retirement
obligations 359 193 713 329
Loss on early
extinguishment of
debt - - - 3,891
Inventory write down (17) - 44 -
Loss (gain) on
derivatives 9,466 (43,514) 20,259 (68,130)
Net settlements on
derivative
instruments (7,019) 4,973 (9,892) 4,672
Net premiums on
options that settled
during the period (18,072) (5,063) (34,598) (9,917)
Adjusted EBITDAX $340,103 $143,369 $622,421 $289,117
======== ======== ======== ========
__________
(1) Certain
reclassifications
to prior
period amounts
have been made
to conform
with current
presentation.
Operating Cash Margin
The Company defines operating cash margin as net income (loss) before income tax expense, other revenues, depreciation, depletion and amortization, exploration and abandonment costs, stock-based compensation, acquisition costs, asset retirement obligation accretion expense, other operating expenses, net interest expense, (gain) loss on sale of property, prepayment premium on extinguished debt, derivative income (loss), change in TRA liability, interest income, and other income (expense). Operating cash margin is not a measure of operating income as determined by GAAP. The amounts included in the calculations of operating cash margin were computed in accordance with GAAP. Operating cash margin is presented herein and reconciled to the GAAP measure of net income attributable to Parsley Energy, Inc. stockholders. We use operating cash margin as an indicator of the Company's profitability and ability to manage its operating income. This measure is provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our condensed consolidated financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website. The following table provides a reconciliation of operating cash margin to net income attributable to Parsley Energy, Inc. stockholders.
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
---- ---- ---- ----
Net income
attributable to
Parsley Energy, Inc.
stockholders $119,155 $40,746 $202,045 $70,188
Net income
attributable to
noncontrolling
interests 21,803 15,048 44,376 23,896
Income tax expense 33,243 12,216 56,568 30,618
Other revenues (1,953) (2,292) (5,547) (3,525)
Depreciation,
depletion and
amortization 145,552 83,315 266,751 152,285
Exploration and
abandonment costs 3,366 2,442 8,777 5,205
Stock-based
compensation 5,363 5,251 10,432 9,460
Acquisition costs (2) 7,176 2 8,520
Accretion of asset
retirement
obligations 359 193 713 329
Other operating
expenses 2,477 2,503 4,652 4,786
Interest expense, net 33,758 22,764 65,726 42,100
Gain on sale of
property (5,166) - (5,055) -
Prepayment premium on
extinguishment of
debt - - - 3,891
Derivative income
(loss) 9,466 (43,514) 20,259 (68,130)
Change in TRA
liability - - 82 20,549
Interest income (1,686) (2,178) (3,809) (4,549)
Other income (expense) (234) 177 (535) (773)
---- --- ---- ----
Operating cash margin $365,501 $143,847 $665,437 $294,850
Operating cash margin
per Boe $37.25 $24.42 $36.52 $27.25
Average price per Boe,
without realized
derivatives $47.48 $35.89 $46.92 $37.98
Operating cash margin
percentage 78% 68% 78% 72%
Adjusted Net Income
Adjusted net income is not a measure of net income determined in accordance with GAAP. Adjusted net income is a supplemental non-GAAP performance measure used by management to evaluate financial performance, prior to non-cash gains or losses on derivatives, net cash received for derivative settlements, net premiums received on options that settled during the period, (gain) loss on sale of property, exploration and abandonment costs, acquisition costs, loss on early extinguishment of debt, and change in TRA liability, while adjusting for noncontrolling interest and the associated changes in estimated income tax. Management believes adjusted net income is useful because it may enhance investors' ability to assess Parsley's historical and future financial performance. Adjusted net income should not be considered an alternative to, or more meaningful than, consolidated net income, operating income, or any other measure of financial performance presented in accordance with GAAP. The following table presents a reconciliation of the non-GAAP financial measure of adjusted net income to the GAAP financial measure of net income (loss).
Parsley Energy, Inc. and Subsidiaries
Adjusted Net Income and Net Income Per Share
(Unaudited, in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
---- ---- ---- ----
Net income - as reported $119,155 $40,746 $202,045 $70,188
Adjustments:
Loss (gain) on
derivatives 9,466 (43,514) 20,259 (68,130)
Net settlements on
derivative instruments (7,019) 4,973 (9,892) 4,672
Net premiums on options
that settled during the
period (18,072) (5,063) (34,598) (9,917)
Gain on sale of property (5,166) - (5,055) -
Exploration and
abandonment costs 3,366 2,442 8,777 5,205
Acquisition costs (2) 7,176 2 8,520
Loss on early
extinguishment of debt - - - 3,891
Change in TRA liability - - 82 20,549
Noncontrolling interest 1,688 - 2,334 -
Change in estimated
income tax 2,961 5,762 3,482 11,658
Adjusted net income $106,377 $12,522 $187,436 $46,636
======== ======= ======== =======
Net income per diluted
share -as reported(1) $0.44 $0.17 $0.76 $0.30
Adjustments:
Loss (gain) on
derivatives $0.03 $(0.18) $0.08 $(0.29)
Net settlements on
derivative instruments (0.02) 0.02 (0.04) 0.02
Net premiums on options
that settled during the
period (0.07) (0.02) (0.13) (0.04)
Gain on sale of property (0.02) - (0.02) -
Exploration and
abandonment costs 0.01 0.01 0.03 0.02
Acquisition costs - 0.03 - 0.04
Loss on early
extinguishment of debt - - - 0.02
Change in TRA liability - - - 0.09
Noncontrolling interest 0.01 - 0.01 -
Change in estimated
income tax 0.01 0.02 0.01 0.04
Adjusted net income per
diluted share(2) $0.39 $0.05 $0.70 $0.20
===== ===== ===== =====
Basic weighted average
shares outstanding -as
reported(1) 272,239 245,698 266,479 233,255
Effect of dilutive securities:
Restricted Stock and
Restricted Stock Units 607 1,094 564 1,060
Diluted weighted average
shares outstanding -as
reported(1) 272,846 246,792 267,043 234,315
======= ======= ======= =======
Effect of dilutive securities:
Class B Common Stock - - - -
Restricted Stock and
Restricted Stock Units - - - -
Diluted weighted average
shares outstanding for
adjusted net income(2) 272,846 246,792 267,043 234,315
======= ======= ======= =======
____________
(1) For the
three and
six months
ended June
30, 2018
and 2017,
the number
of
weighted
average
diluted
shares
used to
calculate
actual net
income per
share is
based on
the fact
that,
under the
"if
converted"
and
treasury
stock
methods,
Class B
Common
Stock was
not
recognized
because it
would have
been
antidilutive.
(2) For
purposes
of
calculating
adjusted
net income
per
diluted
share for
the three
and six
months
ended June
30, 2018
and 2017,
Class B
Common
Stock and
restricted
stock and
restricted
stock
units were
not
recognized
because
they would
have been
antidilutive
using the
treasury
stock
method.
Supplemental Information
Impact of ASC 606 Adoption
Parsley adopted ASC 606 effective January 1, 2018 using the modified retrospective approach. As a result, we changed our accounting policy for revenue recognition, which resulted in the following adjustments:
Three Months Ended June 30, 2018
ASC 605 Adjustment ASC 606
------- ---------- -------
Production revenues (in thousands):
Oil sales $396,325 $ - $396,325
Natural gas sales 11,094 1,141 12,235
Natural gas liquids
sales 51,945 5,330 57,275
Total production
revenues 459,364 6,471 465,835
------- ----- -------
Operating expenses
Transportation and
processing costs - 6,471 6,471
Production revenues
less transportation
and processing costs $459,364 $ - $459,364
======== === === ========
Net income
attributable to
Parsley, Inc.
stockholders (in
thousands) $119,155 $ - $119,155
Production:
Oil (MBbls) 6,165 - 6,165
Natural gas (MMcf) 8,287 948 9,235
Natural gas liquids
(MBbls) 1,853 253 2,106
Total (MBoe) 9,399 412 9,811
Average daily production volume:
Oil (Bbls) 67,747 - 67,747
Natural gas (Mcf) 91,066 10,418 101,484
Natural gas liquids
(Bbls) 20,363 2,780 23,143
Total (Boe) 103,286 4,527 107,813
Certain unit costs (per Boe):
Lease operating
expenses $3.82 $(0.16) $3.66
Transportation and
processing costs $ - $0.66 $0.66
Production and ad
valorem taxes $2.91 $(0.12) $2.79
Depreciation,
depletion and
amortization $15.49 $(0.65) $14.84
General and
administrative
expenses (including
stock-based
compensation) $3.83 $(0.16) $3.67
General and
administrative
expenses (cash based) $3.26 $(0.14) $3.12
Six Months Ended June 30, 2018
ASC 605 Adjustment ASC 606
------- ---------- -------
Production revenues (in thousands):
Oil sales $727,428 $ - $727,428
Natural gas sales 26,680 2,979 29,659
Natural gas liquids
sales 88,136 9,759 97,895
------ ----- ------
Total production
revenues 842,244 12,738 854,982
------- ------ -------
Operating expenses
Transportation and
processing costs - 12,738 12,738
--- ------ ------
Production revenues
less transportation
and processing costs $842,244 $ - $842,244
======== === === ========
Net income
attributable to
Parsley, Inc.
stockholders (in
thousands) $202,045 $ - $202,045
Production:
Oil (MBbls) 11,506 - 11,506
Natural gas (MMcf) 16,269 1,522 17,791
Natural gas liquids
(MBbls) 3,317 432 3,749
Total (MBoe) 17,534 687 18,221
------ --- ------
Average daily production volume:
Oil (Bbls) 63,569 - 63,569
Natural gas (Mcf) 89,884 8,409 98,293
Natural gas liquids
(Bbls) 18,326 2,387 20,713
Total (Boe) 96,873 3,796 100,669
------ ----- -------
Certain unit costs (per Boe):
Lease operating
expenses $3.70 $(0.15) $3.55
Transportation and
processing costs $ - $0.70 $0.70
Production and ad
valorem taxes $2.94 $(0.11) $2.83
Depreciation,
depletion and
amortization $15.21 $(0.57) $14.64
General and
administrative
expenses $4.05 $(0.15) $3.90
General and
administrative
expenses (cash based) $3.46 $(0.14) $3.32
Changes to natural gas and NGLs sales were made in accordance with the control model defined in ASC 606. Under the new control model, we are required to identify and separately analyze each contract associated with revenues to determine the appropriate accounting application.
As a result of this analysis, we modified our accounting and presentation of natural gas and NGLs sales, and transportation and processing costs under certain marketing agreements. For additional information related to our adoption of ASC 606, please refer to Note 2--Summary of Accounting Policies--Impact of ASC 606 Adoption in our consolidated financial statements contained in our Quarterly Report on Form 10-Q, upon availability, for the three and six months ended June 30, 2018.
Open Derivatives Positions
Parsley Energy, Inc. and Subsidiaries
Open Crude Oil Derivatives Positions (1)
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19
---- ---- ---- ---- ---- ----
Put Spreads -
WTI (MBbls/d)
(2) 34.2 37.5 20.0 19.8 24.5 24.5
Long Put Price
($/Bbl) $49.64 $49.67 $54.17 $54.17 $58.83 $58.83
Short Put Price
($/Bbl) $39.64 $39.67 $44.17 $44.17 $48.83 $48.83
Three Way
Collars -WTI
(MBbls/d) (3) 31.0 31.0 8.3 8.2 9.8 9.8
Short Call
Price ($/Bbl) $75.65 $75.65 $80.40 $80.40 $80.33 $80.33
Long Put Price
($/Bbl) $50.00 $50.00 $50.00 $50.00 $50.83 $50.83
Short Put Price
($/Bbl) $40.00 $40.00 $40.00 $40.00 $40.83 $40.83
Collars -WTI
(MBbls/d) (4) 3.0 3.0
Short Call
Price ($/Bbl) $61.31 $61.31
Long Put Price
($/Bbl) $45.67 $45.67
MBbls/d Hedged
-WTI 68.2 71.5 28.3 28.0 34.2 34.2
Put Spreads -Midland (MBbls/
d) (2) 11.7 14.8
Long Put Price ($/Bbl) $50.71 $50.56
Short Put Price ($/Bbl) $40.71 $40.56
Mid-Cush Basis
Swaps (MBbls/
d) (5) 11.3 11.3 14.7 7.9
Swap Price
($/Bbl) $(0.86) $(0.86) $(8.95) $(9.08)
MBbls/d Hedged
-Midland 11.3 11.3 26.4 22.7
Rollfactor
Swaps (MBbl/
d) (6) 15.0 15.0
Swap Price
($/Bbl) $0.60 $0.60
Premium
Realization
($MM) (7) $(17.9) $(19.1) $(11.6) $(12.5) $(9.8) $(9.8)
Parsley Energy, Inc. and Subsidiaries
Open Natural Gas Derivatives Positions (1)
3Q18 4Q18
---- ----
Three Way Collars
(MMBtu/d) (3) 8,152 8,152
Short Call Price
($/MMBtu) $3.60 $3.60
Long Put Price
($/MMBtu) $3.00 $3.00
Short Put Price
($/MMBtu) $2.75 $2.75
Total MMBtu/d Hedged 8,152 8,152
__________
(1) As of
8/7/2018.
Prices
represent
the
weighted
average
price of
contracts
scheduled
for
settlement
during the
period.
(2) When the
NYMEX price
is above
the long
put price,
Parsley
receives
the NYMEX
price. When
the NYMEX
price is
between the
long put
price and
the short
put price,
Parsley
receives
the long
put price.
When the
NYMEX price
is below
the short
put price,
Parsley
receives
the NYMEX
price plus
the
difference
between the
short put
price and
the long
put price.
(3) Functions
similarly
to put
spreads
except that
when the
index price
is at or
above the
call price,
Parsley
receives
the call
price.
(4) When the
NYMEX price
is above
the call
price,
Parsley
receives
the call
price. When
the NYMEX
price is
below the
long put
price,
Parsley
receives
the long
put price.
When the
NYMEX price
is between
the short
call and
long put
prices,
Parsley
receives
the NYMEX
price.
(5) Parsley
receives
the swap
price.
(6) These
positions
hedge the
timing risk
associated
with
Parsley's
physical
sales.
Parsley
generally
sells crude
oil for the
delivery
month at a
sales price
based on
the average
NYMEX price
during that
month, plus
an
adjustment
calculated
as a spread
between the
weighted
average
prices of
the
delivery
month, the
next month,
and the
following
month
during the
period when
the
delivery
month is
the first
month.
(7) Premium
realizations
represent
net
premiums
paid
(including
deferred
premiums),
which are
recognized
as income
or loss in
the period
of
settlement.
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SOURCE Parsley Energy, Inc.
