Parsley Energy Announces Fourth Quarter 2018 Financial And Operating Results
AUSTIN, Texas, Feb. 21, 2019 /PRNewswire/ -- Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended December 31, 2018. The Company has posted a presentation to its website that supplements the information in this release.
Fourth Quarter 2018 Highlights
-- Net oil production increased 5% quarter-over-quarter and 50%
year-over-year to 77.0 MBo per day. Total net production averaged 119.8
MBoe per day.((1))
-- Parsley delivered strong operational results, highlighted by favorable
trends in operating costs and completion efficiency, in addition to
successfully drilling the Company's first three-mile lateral well.
-- Parsley reported lease operating expense ("LOE") per Boe of $3.61
during 4Q18, a 3% reduction versus 3Q18.
-- The Company completed over 400,000 lateral feet during 4Q18, which
resulted in a new Company record for completion efficiency.((2))
-- Parsley recently drilled a three-mile lateral Wolfcamp well in its
Northern Midland County area, representing one of the longest
laterals ever drilled in the Permian Basin. The Company executed
this technical feat in 25 days, including less than nine days spent
drilling the three-mile lateral segment.
-- Proved reserves of 521.7 MMBoe as of December 31, 2018 represent a 25%
increase versus proved reserves as of December 31, 2017. Proved
developed reserves of 311.3 MMBoe as of December 31, 2018 represent a
49% increase versus proved developed reserves as of December 31, 2017.
Summary Comment and Outlook
"By any measure 2018 was a strong operational year for Parsley Energy, as we both expanded operating margins to Company-record levels and greatly enhanced our operational efficiency," said Matt Gallagher, Parsley's President and CEO. "As we turn to 2019, our top priorities are demonstrating meaningful progress toward sustainable free cash flow generation and recording a tangible year-over-year improvement in capital efficiency. Underpinning these key objectives is a deliberate shift in our development approach to prioritize project-level rate of return, a strategy enabled by our deep, high-quality inventory."
Operational Update
Parsley achieved improved operational efficiency during the fourth quarter of 2018.
Activity Overview
During the fourth quarter of 2018, the Company spud 38 and placed on production 43 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 96%, with an average completed lateral length of approximately 9,300 feet. Completion activity was weighted toward the Midland Basin, where the Company placed on production 37 gross operated horizontal wells, with the remainder placed on production in the Delaware Basin.
Consistent with prior commentary, Parsley reduced its activity levels from 16 development rigs and five frac spreads to 14 development rigs and four frac spreads during 4Q18. Notwithstanding this reduction in equipment, the Company completed over 400,000 lateral feet during the fourth quarter of 2018, translating to a new Company record for completion efficiency.((2))
"Recapturing the top-tier operational efficiency Parsley expects was a key focus during 2018," said David Dell'Osso, Parsley's COO. "Our teams delivered results over and above our high standards, and we expect to preserve and build upon these operational efficiency gains in 2019."
Notable Well Results
Parsley intends to increase development activity in its Northern Midland County area during 2019, a development approach made possible by close collaboration and solid execution across multiple disciplines within the organization. The Company has turned 14 wells to production in this area over the past six months, with encouraging early results. These wells included three wells on the Massey lease, which targeted the Lower Spraberry, Wolfcamp A and Wolfcamp B in a stacked configuration. Early results from these three 2.5-mile lateral wells are promising, with production averaging approximately 1,900 Boe per day (82% oil) after more than 50 days online and having not reached anticipated peak 30-day rates.
Also in its Northern Midland County area, Parsley recently drilled a three-mile lateral Wolfcamp well, representing one of the longest laterals ever drilled in the Permian Basin. The Company executed this technical feat in only 25 days, with less than nine days spent drilling the three-mile lateral segment.
Financial Update
Healthy execution in 4Q18 translated to strong performance in key financial measures.
Profitability
The Company recorded net income attributable to its stockholders of $53.8 million, or $0.19 per share, in 4Q18 and $369.1 million, or $1.35 per share, for the year. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, adjusted net income was $82.5 million, or $0.30 per share, in 4Q18 and $385.1 million, or $1.41 per share, for the year.((3))
Consistent with the Company's commitment to capital discipline and in response to recent commodity price trends, Parsley has announced reductions in rig and frac spread counts and intends to reduce its 2019 capital leasing and acquisition spending. As a result, in 4Q18, the Company recorded non-cash leasehold impairment expense of $127.0 million relating to acreage expiring in future periods because there are no current plans to drill or extend the leases prior to their expiration in 2019.
Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") was $319.5 million in 4Q18 and $1,327.0 million for the year.((3))
Realized Pricing
During 4Q18, Parsley reported an average unhedged oil price realization of $54.22/Bbl net of transportation costs, representing a premium to the average Midland price((4)) for the quarter. Parsley's positive pricing uplift versus Midland prices during 2018 was the product of a proactive marketing strategy to diversify regional pricing exposure beginning in mid-2017. Parsley's future firm transport agreements maintain favorable pricing elements by pricing a significant portion of the Company's barrels relative to Gulf Coast and international benchmarks.
Operating Costs
Parsley registered favorable trends in operating costs and margins during the fourth quarter of 2018. The Company reported LOE per Boe of $3.61,((1)) a 3% reduction versus 3Q18. Favorable LOE cost trends were driven by lower workover activity and the divestiture of properties with higher unit cost vertical production. Parsley is initiating full-year 2019 LOE per Boe guidance of $3.50-$4.50, a modest increase from 2018 average driven in part by a higher mix of planned development activity in the northern Midland Basin.
During 4Q18, Parsley reported general and administrative expense ("G&A") per Boe and cash based G&A per Boe, which excludes stock-based compensation expense, of $3.85((1)) and $3.42,((1)) respectively. Parsley is initiating full-year 2019 cash G&A per Boe guidance of $2.75-$3.25, which would represent a decrease from 2018 levels. Parsley has recently implemented numerous corporate cost savings initiatives and expects to capture additional benefits from scale during 2019.
Healthy realized oil pricing and proactive cost control drove a robust operating cash margin of $30.48 per Boe, or 75% of the Company's average realized price per Boe.((3))
Capital Expenditures
Parsley reported capital expenditures of $416 million during the fourth quarter of 2018, comprised of $362 million for drilling and completion activity and $54 million for facilities and infrastructure. The Company's 4Q18 capital expenditures decreased 6% from 3Q18 levels, reflecting Parsley's efforts to accelerate progress toward sustainable free cash flow by reducing rig and frac spread counts during the quarter.
Liquidity and Hedging
As of December 31, 2018, Parsley had approximately $1.2 billion of liquidity, consisting of $163.2 million of cash and cash equivalents and an undrawn amount of $991.3 million on the Company's revolver.((5))
After recent additions to its hedge positions, a significant majority of Parsley's expected 2019 oil production is subject to hedge protection. The Company also recently added to its 2020 hedge positions. Parsley's portfolio of option contracts protects its balance sheet and anticipated cash flow while retaining significant exposure to higher commodity prices. The Company has also entered into various basis swaps to protect against expansion of regional oil price differentials. For details on Parsley's hedge position, please see the tables below under Supplemental Information and/or the Company's Annual Report on Form 10-K, upon availability, for the year ended December 31, 2018.
2019 Guidance
Parsley reiterates the development plan, capital budget, and production guidance outlined in its preliminary 2019 outlook issued in mid-December. Parsley's baseline capital budget assumes a $50 WTI oil price. The Company expects first quarter 2019 net oil production to average 75.5-78.0 MBo/d. For further detail, please see the tables below.
2018A
2019E
Production
---
Annual net oil
production (MBo/
d) 69.5
80.0-85.0
Annual net total
production
(MBoe/d) 109.4
124.0-134.0
Capital Program
---
Total development
expenditures
($MM) $1,762
$1,350-$1,550
Drilling and
completion (%
of total) ~85% ~85%
Facilities,
Infrastructure &
Other (% of
total) ~15% ~15%
Activity
---
Gross operated
horizontal
POPs(6) 175
130-140
Midland Basin (%
of total) ~75% ~85%
Delaware Basin (%
of total) ~25% ~15%
Average lateral
length
~9,100'
10,000'-10,500'
Gross operated
lateral footage
(000's)
~1,595'
1,350'-1,470'
Average working
interest 97% ~90%
Unit Costs
---
Lease operating
expenses ($/Boe) $3.61
$3.50-$4.50
Cash general and
administrative
expenses ($/Boe) $3.28
$2.75-$3.25
Production and ad
valorem taxes (%
of total
revenue) 6% 6%-7%
Year-end 2018 Reserves
Parsley posted strong reserves growth in 2018. The Company's proved reserves as of December 31, 2018 totaled 521.7 MMBoe, consisting of 294.4 MMBbl of oil, 572.0 Bcf of natural gas, and 131.9 MMboe of natural gas liquids ("NGLs").
Proved Reserve Highlights
-- Relative to proved reserves as of December 31, 2017, proved reserves as
of December 31, 2018 increased 25% to 521.7 MMBoe, while proved
developed reserves increased 49% to 311.3 MMBoe. Proved developed
reserves as of December 31, 2018 represent 60% of total proved reserves.
-- Total proved reserves increased by 105.3 MMBoe during 2018, primarily as
a result of extensions and discoveries, as compared to 2018 production
volumes of 39.9 MMBoe.
-- Organic reserves replacement ratio of 406%.((7))
-- Parsley's standardized measure of discounted future net cash flows
relating to proved reserves ("standardized measure") at December 31,
2018 was $5.9 billion, an increase of 95% relative to the Company's
standardized measure at December 31, 2017. Utilizing U.S. Securities and
Exchange Commission ("SEC") pricing, the PV-10 of proved reserves was
$6.8 billion at December 31, 2018, an increase of 73% relative to the
corresponding measure at December 31, 2017.((3))
Changes in reserves for the year ended December 31, 2018 are summarized in the table below:
(MMBoe)
Balance, December 31, 2017 416.4
Purchases of reserves in place 5.6
Divestures of reserves in place (22.5)
Extensions and discoveries 159.8
Revisions of previous estimates 2.3
Production (39.9)
Balance, December 31, 2018 521.7
Parsley's internally prepared estimated proved reserves as of December 31, 2018 were audited by Netherland, Sewell & Associates, the Company's independent reserve engineer. These estimates have been prepared in accordance with the definitions and regulations promulgated by the SEC and conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities - Oil and Gas. Prices used are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December 2018. Adjusting for quality, transportation fees, and market differentials, the prices used are as follows: $61.88 per barrel of oil, $28.05 per barrel of NGLs, and $1.64 per Mcf of gas. The estimates of the Company's net reserves as of December 31, 2018 are summarized in the table below:
Net Reserves
Oil (MMbo) Gas (Bcf) NGLs (MMboe) Total (MMboe)
PDP 169.8 357.4 80.6 310.0
PNP 0.7 1.3 0.4 1.3
PUD 123.9 213.3 50.9 210.4
Total
Proved 294.4 572.0 131.9 521.7
Conference Call Information
Parsley Energy will host a conference call and webcast to discuss its results for the fourth quarter of 2018 on Friday, February 22 at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). Participants should call 877-709-8150 (United States/Canada) or 201-689-8354 (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 March 1, 2019 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13686913. A live broadcast will also be available at www.parsleyenergy.com under the "Investor Relations" section of the website. The Company has also posted a presentation to its website that supplements the information in this release.
Upcoming Conference Participation
Parsley plans to participate in the Raymond James 40th Annual Institutional Investors Conference in Orlando, Florida on March 5-6, 2019 and the Scotia Howard Weil 47th Annual Energy Conference in New Orleans, Louisiana on March 26-27, 2019.
About Parsley Energy, Inc.
Parsley Energy, Inc. is an independent oil and natural gas company focused on the acquisition, development, exploration, and production of unconventional oil and natural gas properties 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 NGLs
sales and
associated
production
volumes for
the three
months and
years ended
December 31,
2017 and
December 31,
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, and
comparisons
between and
among, 4Q17,
3Q18 and 4Q18
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.
For more
information
on ASC 606
and a
reconciliation
of 4Q18
production
and unit
costs under
Accounting
Standards
Codification
Topic 605
("ASC 605")
and as
adjusted
under ASC
606, please
see the table
and
associated
commentary
below under
Supplemental
Information
and/or the
Company's
Annual Report
on Form 10-K,
upon
availability,
for the three
and twelve
months ended
December 31,
2018.
(2) "Completion
efficiency"
is measured
based on
completed
lateral feet
per
operational
day.
"Operational
days" are
measured as
days
equipment is
active and do
not include
mobilization
or other idle
time.
(3) "Adjusted
EBITDAX",
"operating
cash margin",
"adjusted net
income", and
"PV-10" 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,
adjusted net
income, and
PV-10 to
GAAP
financial
measures,
please see
the tables
and
associated
commentary
below under
Reconciliation
of Non-GAAP
Financial
Measures.
(4) Midland price
represents
Bloomberg-
sourced 4Q18
and full
fiscal year
2018 average
WTI Midland
prices.
(5) Fully undrawn
revolver
balance is
net of
letters of
credit.
(6) Wells placed
on
production.
(7) "Organic
reserves
replacement"
is calculated
as total 2018
reserve
additions and
revisions
(technical
and pricing)
divided by
total 2018
production;
excludes
acquisitions
and
divestitures.
Please see
the
Supplemental
Information
below for
more
information.
Parsley Energy, Inc. and Subsidiaries
Selected Operating Data
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
---
Net production volumes:
Oil (MBbls) 7,087 4,737 25,356 16,390
Natural gas (MMcf)(1) 9,696 7,221 37,365 23,326
Natural gas liquids
(MBbls)(1) 2,323 1,449 8,353 4,512
Total (MBoe) 11,026 7,390 39,937 24,792
Average net daily
production (Boe/d) 119,848 80,327 109,416 67,923
Average sales prices(2):
Oil, without realized
derivatives (per Bbl) $
54.22 $
53.95 $
60.59 $
48.95
Oil, with realized
derivatives (per Bbl) $
52.69 $
50.88 $
58.07 $
47.68
Natural gas, without
realized derivatives
(per Mcf) $
0.90 $
2.15 $
1.37 $
2.43
Natural gas, with
realized derivatives
(per Mcf) $
0.94 $
2.13 $
1.38 $
2.40
NGLs (per Bbl) $
25.00 $
26.84 $
27.21 $
22.87
Total, without realized
derivatives (per Boe) $
40.91 $
41.94 $
45.44 $
38.80
Total, with realized
derivatives (per Boe) $
39.96 $
39.96 $
43.85 $
37.94
Average costs (per Boe)(3):
Lease operating
expenses $
3.61 $
3.44 $
3.61 $
4.12
Transportation and
processing costs $
1.03
$ $
0.82
$
Production and ad
valorem taxes $
2.38 $
3.01 $
2.71 $
2.41
Depreciation, depletion
and amortization $
14.58 $
14.23 $
14.64 $
14.21
General and
administrative
expenses (including
stock-based
compensation) $
3.85 $
4.72 $
3.78 $
5.01
General and
administrative
expenses (cash based) $
3.42 $
4.04 $
3.28 $
4.22
(1) Natural gas
and NGLs
volumes for
the three
months and
year ended
December 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
the Company's
realized
commodity
hedging
transactions.
The Company's
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
Annual Report
on Form 10-K,
upon
availability,
for the three
and twelve
months ended
December 31,
2018.
(3) Average costs
per Boe for
the three
months and
year ended
December 31,
2018 reflect
adjustments
associated
with
Parsley's
adoption of
ASC 606,
effective
January 1,
2018.
Parsley Energy, Inc. and Subsidiaries
Consolidated Statements of Operations(1)
(Unaudited, in thousands, except for per share data)
Three Months Ended
Year Ended
December 31, December 31,
2018 2017 2018 2017
---
REVENUES
Oil sales $
384,267 $
255,554 $
1,536,244 $
802,230
Natural gas sales(2) 8,762 15,520 51,231 56,571
Natural gas liquids sales(2) 58,083 38,897 227,272 103,193
Other 3,768 1,517 11,684 5,050
Total revenues 454,880 311,488 1,826,431 967,044
OPERATING EXPENSES
Lease operating expenses 39,779 25,386 144,292 102,169
Transportation and processing
costs(2) 11,340 32,573
Production and ad valorem taxes 26,221 22,274 108,342 59,641
Depreciation, depletion and
amortization 160,754 105,143 584,857 352,247
General and administrative expenses 42,414 34,879 150,955 124,255
Exploration and abandonment costs 142,622 35,122 162,539 39,345
Acquisition costs 165 8 167 10,977
Accretion of asset retirement
obligations 348 374 1,422 971
(Gain) loss on sale of property (16) 14,332 (6,454) 14,332
Other operating expenses 9,082 2,363 19,863 10,638
Total operating expenses 432,709 239,881 1,198,556 714,575
OPERATING INCOME 22,171 71,607 627,875 252,469
OTHER INCOME (EXPENSE)
Interest expense, net (32,880) (32,402) (131,460) (97,381)
Loss on early extinguishment of
debt - (3,891)
Gain (loss) on derivatives 93,115 (72,310) 50,342 (66,135)
Change in TRA liability (355) 56,396 (437) 35,847
Interest income 600 2,374 5,464 7,936
Other (expense) income (799) (498) (340) 783
Total other income (expense), net 59,681 (46,440) (76,431) (122,841)
INCOME BEFORE INCOME TAXES 81,852 25,167 551,444 129,628
INCOME TAX (EXPENSE) BENEFIT (16,453) 19,830 (105,475) (5,708)
NET INCOME 65,399 44,997 445,969 123,920
LESS: NET (INCOME) LOSS
ATTRIBUTABLE TO NONCONTROLLING
INTERESTS (11,626) 4,922 (76,842) (17,146)
NET INCOME ATTRIBUTABLE TO PARSLEY
ENERGY INC. STOCKHOLDERS $
53,773 $
49,919 $
369,127 $
106,774
Net income per common share:
Basic $
0.19 $
0.20 $
1.36 $
0.44
Diluted $
0.19 $
0.16 $
1.35 $
0.42
Weighted average common shares outstanding:
Basic 278,052 249,659 272,226 240,733
Diluted 278,789 314,864 272,884 296,512
(1) Certain
reclassifications
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 months
and year ended
December 31,
2018 reflect
adjustments
associated
with Parsley's
adoption of
ASC 606,
effective
January 1,
2018.
Parsley Energy, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2018 December 31, 2017
---
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $
163,216 $
554,189
Short-term investments - 149,283
Accounts receivable, net of allowance for doubtful
accounts:
Joint interest owners and other 36,062 42,174
Oil, natural gas and NGLs 138,987 123,147
Related parties 94 388
Short-term derivative instruments 191,297 41,957
Assets held for sale - 1,790
Other current assets 11,056 6,558
Total current assets 540,712 919,486
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties,
successful efforts method 9,948,246 8,551,314
Accumulated depreciation, depletion,
amortization and impairment (1,295,098) (822,459)
Total oil and natural gas
properties, net 8,653,148 7,728,855
Other property, plant and equipment
net 170,739 106,587
Total property, plant and equipment,
net 8,823,887 7,835,442
NONCURRENT ASSETS
Assets held for sale, net - 14,985
Long-term derivative instruments 20,124 15,732
Other noncurrent assets 6,640 7,553
Total noncurrent assets 26,764 38,270
TOTAL ASSETS $
9,391,363 $
8,793,198
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses $
364,803 $
407,698
Revenue and severance taxes payable 127,265 109,917
Current portion of long-term debt 2,413 2,352
Short-term derivative instruments 152,330 84,919
Current portion of asset retirement
obligations 2,134 7,203
Total current liabilities 648,945 612,089
NONCURRENT LIABILITIES
Liabilities related to assets held
for sale - 405
Long-term debt 2,181,667 2,179,525
Asset retirement obligations 24,750 19,967
Deferred tax liability, net 131,523 21,403
Payable pursuant to tax receivable
agreement 68,110 58,479
Long-term derivative instruments 16,633 20,624
Total noncurrent liabilities 2,422,683 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,
280,827,038 shares issued and
280,205,293 shares outstanding at
December 31, 2018 and 252,419,601
shares issued and 252,260,300
shares outstanding at December 31,
2017 2,808 2,524
Class B, $0.01 par value,
125,000,000 shares authorized,
36,547,731 and 62,128,257 issued
and outstanding at December 31,
2018 and December 31, 2017 366 622
Additional paid in capital 5,163,987 4,666,365
Retained earnings 412,646 43,519
Treasury stock, at cost, 621,745
shares and 159,301 at December 31,
2018 and December 31, 2017 (11,749) (735)
Total stockholders' equity 5,568,058 4,712,295
Noncontrolling interest 751,677 1,168,411
Total equity 6,319,735 5,880,706
TOTAL LIABILITIES AND EQUITY $
9,391,363 $
8,793,198
Parsley Energy, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31,
2018 2017
---
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $
445,969 $
123,920
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and
amortization 584,857 352,247
Leasehold abandonments 160,834 32,872
Accretion of asset
retirement obligations 1,422 971
(Gain) loss on sale of
property (6,454) 14,332
Loss on early extinguishment
of debt - 3,891
Amortization and write off
of deferred loan
origination costs 4,745 4,720
Amortization of bond premium (516) (516)
Deferred income tax expense
(benefit) 105,475 5,752
Change in TRA liability 437 (35,847)
Stock-based compensation
expense 19,877 19,619
(Gain) loss on derivatives (50,342) 66,135
Net cash received for
derivative settlements 6,279 16,172
Net cash paid for option
premiums (47,644) (28,426)
Other 3,533 1,907
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (12,956) (95,239)
Accounts receivable-related
parties 294 (98)
Other current assets (689) 45,417
Other noncurrent assets (100) (536)
Accounts payable and accrued
expenses (13,395) 122,992
Revenue and severance taxes
payable 17,348 40,465
Net cash provided by
operating activities 1,218,974 690,750
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of oil and
natural gas properties (1,787,673) (1,089,256)
Acquisitions of oil and
natural gas properties (136,972) (2,192,093)
Additions to other property
and equipment (93,457) (54,896)
Proceeds from sale of
property 233,647 30,537
Maturity of short-term
investments 149,331
Purchases of short-term
investments - (149,283)
Other 41,088 (1,869)
Net cash used in investing
activities (1,594,036) (3,456,860)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term
debt - 1,152,780
Payments on long-term debt (2,888) (74,769)
Debt issue costs (47) (17,371)
Proceeds from issuance of
common stock, net - 2,123,344
Purchases of common stock (11,014) (354)
Vesting of restricted stock
units -
Distribution to owner of
consolidated subsidiary (1,962)
Net cash (used in) provided
by financing activities (15,911) 3,183,630
Net (decrease) increase in
cash and cash equivalents (390,973) 417,520
Cash, cash equivalents, and
restricted cash at
beginning of year 554,189 136,669
Cash, cash equivalents, and
restricted cash at end of
year $
163,216 $
554,189
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $
127,668 $
63,170
Cash paid for income taxes
$ $
350
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES:
Asset retirement obligations
incurred, including changes
in estimate $
2,111 $
15,428
(Reductions) additions to
oil and natural gas
properties -change in
capital accruals $
(25,455) $
118,145
Additions to other property
and equipment funded by
capital lease borrowings $
2,180 $
3,904
Net premiums (paid) received
on options that settled
during the period $
(71,566) $
(37,103)
Common stock issued for oil
and natural gas properties
$ $
1,183,501
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, asset retirement obligation accretion expense, loss (gain) on sale of property, loss on early extinguishment of debt, inventory write down, loss (gain) on derivatives, net settlements on derivative instruments, net premium realization on options that settled during the period, and certain additional items.
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 measures of other companies. The Company believes that Adjusted EBITDAX is useful to investors as a widely followed measure of operating performance.
The following table presents a reconciliation of Adjusted EBITDAX to the GAAP financial measure of net income (loss) for each of the periods indicated.
Parsley Energy, Inc. and Subsidiaries
Adjusted EBITDAX(1)
(Unaudited, in thousands)
Three Months Ended
Year Ended
December 31, December 31,
2018 2017 2018 2017
---
Adjusted EBITDAX reconciliation to net
income (loss):
Net income
attributable to
Parsley Energy, Inc.
stockholders $
53,773 $
49,919 $
369,127 $
106,774
Net income (loss)
attributable to
noncontrolling
interests 11,626 (4,922) 76,842 17,146
Depreciation,
depletion and
amortization 160,754 105,143 584,857 352,247
Exploration and
abandonment costs 142,622 35,122 162,539 39,345
Interest expense, net 32,880 32,402 131,460 97,381
Interest income (600) (2,374) (5,464) (7,936)
Income tax expense
(benefit) 16,453 (19,830) 105,475 5,708
EBITDAX 417,508 195,460 1,424,836 610,665
Change in TRA
liability 355 (56,396) 437 (35,847)
Stock-based
compensation 4,757 4,989 19,877 19,619
Acquisition costs 165 8 167 10,977
Accretion of asset
retirement
obligations 348 374 1,422 971
(Gain) loss on sale of
property (16) 14,332 (6,454) 14,332
Loss on early
extinguishment of
debt - 3,891
Inventory write down - 1,060 495 1,060
(Gain) loss on
derivatives (93,115) 72,310 (50,342) 66,135
Net settlements on
derivative
instruments 8,600 16 8,084 15,670
Net premium
realization on
options that settled
during the period (19,115) (14,699) (71,566) (37,103)
Adjusted EBITDAX $
319,487 $
217,454 $
1,326,956 $
670,370
(1) Certain
reclassifications
to prior
period amounts
have been made
to conform
with current
presentation.
Operating Cash Margin
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. The Company defines operating cash margin as net income (loss) before income tax expense (benefit), 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 (gain) loss, change in TRA liability, interest income, and other (income) expense. The Company uses 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 the Company's condensed consolidated financial statements prepared in accordance with GAAP (including the notes), included in its SEC filings and posted on its website. The following table provides a reconciliation of operating cash margin to net income attributable to Parsley Energy, Inc. stockholders.
Parsley Energy, Inc. and Subsidiaries
Operating Cash Margin
(Unaudited, in thousands, except for per unit data)(1)
Three Months Ended
Year Ended
December 31, December 31,
2018 2017 2018 2017
---
Net income
attributable to
Parsley Energy, Inc.
stockholders $
53,773 $
49,919 $
369,127 $
106,774
Net income (loss)
attributable to
noncontrolling
interests 11,626 (4,922) 76,842 17,146
Income tax expense
(benefit) 16,453 (19,830) 105,475 5,708
Other revenues (3,768) (1,517) (11,684) (5,050)
Depreciation,
depletion and
amortization 160,754 105,143 584,857 352,247
Exploration and
abandonment costs 142,622 35,122 162,539 39,345
Stock-based
compensation 4,757 4,989 19,877 19,619
Acquisition costs 165 8 167 10,977
Accretion of asset
retirement
obligations 348 374 1,422 971
Other operating
expenses 9,082 2,363 19,863 10,638
Interest expense, net 32,880 32,402 131,460 97,381
(Gain) loss on sale of
property (16) 14,332 (6,454) 14,332
Prepayment premium on
extinguishment of
debt - 3,891
Derivative (gain) loss (93,115) 72,310 (50,342) 66,135
Change in TRA
liability 355 (56,396) 437 (35,847)
Interest income (600) (2,374) (5,464) (7,936)
Other expense (income) 799 498 340 (783)
Operating cash margin $
336,115 $
232,421 $
1,398,462 $
695,548
Operating cash margin
per Boe $
30.48 $
31.45 $
35.02 $
28.06
Average price per Boe,
without realized
derivatives $
40.91 $
41.94 $
45.44 $
38.80
Operating cash margin
percentage 75
% 75
% 77
% 72
%
(1) Certain
reclassifications
to prior
period amounts
have been made
to conform
with current
presentation.
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, change in TRA liability, loss (gain) on sale of property, exploration and abandonment costs, acquisition costs, inventory write down, and loss on early extinguishment of debt 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 loss.
Parsley Energy, Inc. and Subsidiaries
Adjusted Net Income and Net Income Per Share
(Unaudited, in thousands, except per share data)(1)
Three Months Ended
Year Ended
December 31, December 31,
2018 2017 2018 2017
---
Net income -as reported $
53,773 $
49,919 $
369,127 $
106,774
Adjustments:
(Gain) loss on
derivatives (93,115) 72,310 (50,342) 66,135
Net settlements on
derivative instruments 8,600 16 8,084 15,670
Net premium realization
on options that settled
during the period (19,115) (14,699) (71,566) (37,103)
Change in TRA liability 355 (56,396) 437 (35,847)
(Gain) loss on sale of
property (16) 14,332 (6,454) 14,332
Exploration and
abandonment costs 142,622 35,122 162,539 39,345
Acquisition costs 165 8 167 10,977
Inventory write down - 1,060 495 1,060
Loss on early
extinguishment of debt - 3,891
Noncontrolling interest (4,542) (3,891) (19,561) 19,225
Change in estimated
income tax (6,221) (1,919) (7,832) (865)
Adjusted net income $
82,506 $
95,862 $
385,094 $
203,594
Net income per diluted
share -as reported $
0.19 $
0.16 $
1.35 $
0.42
Adjustments:
(Gain) loss on
derivatives $
(0.33) $
0.23 $
(0.18) $
0.22
Net settlements on
derivative instruments 0.03 0.03 0.05
Net premium realization
on options that settled
during the period (0.07) (0.05) (0.26) (0.13)
Change in TRA liability - (0.18) (0.12)
(Gain) loss on sale of
property - 0.05 (0.02) 0.05
Exploration and
abandonment costs 0.51 0.11 0.60 0.13
Acquisition costs - 0.04
Inventory write down -
Loss on early
extinguishment of debt - 0.01
Noncontrolling interest (0.01) (0.01) (0.08) 0.01
Change in estimated
income tax (0.02) (0.01) (0.03) 0.01
Adjusted net income per
diluted share $
0.30 $
0.30 $
1.41 $
0.69
Basic weighted average
shares outstanding -as
reported 278,052 249,659 272,226 240,733
Effect of dilutive securities:
Class B Common Stock - 63,946 54,665
Restricted Stock and
Restricted Stock Units 737 1,259 658 1,114
Diluted weighted average
shares outstanding -as
reported(2) 278,789 314,864 272,884 296,512
Effect of dilutive securities:
Class B Common Stock -
Restricted Stock and
Restricted Stock Units -
Diluted weighted average
shares outstanding for
adjusted net income(2) 278,789 314,864 272,884 296,512
(1) Certain
reclassifications
to prior
period amounts
have been made
to conform
with current
presentation.
(2) For the three
months and
year ended
December 31,
2018 the
number of
weighted
average
diluted shares
used to
calculate
reported net
income per
share and
adjusted net
income per
share is based
on the fact
that, under
the "if
converted"
Class B Common
Stock was not
recognized
because they
would have
been
antidilutive.
PV-10
PV-10 is a non-GAAP financial measure and generally differs from the Standardized Measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net reserves. Neither PV-10 nor Standardized Measure represents an estimate of the fair market value of our oil and natural gas properties. We and others in the industry use PV-10 as a measure to compare the relative size and value of proved reserves held by companies without regard to the specific tax characteristics of such companies.
The following table provides a reconciliation of PV-10 to the GAAP financial measure of Standardized Measure as of December 31, 2018:
As of December 31, 2018
(in millions)
Standardized Measure $
5,893.9
Present value of future income
tax discounted at 10% 881.0
PV-10 of proved reserves $
6,774.9
Supplemental Information
Impact of ASC 606 Adoption
Parsley adopted ASC 606 effective January 1, 2018 using the modified retrospective approach. As a result, the Company changed its accounting policy for revenue recognition, which resulted in the following adjustments:
Three Months Ended December 31, 2018
ASC 605 Adjustment ASC 606
Production revenues
(in thousands):
Oil sales $
384,267
$ $
384,267
Natural gas sales 6,843 1,919 8,762
Natural gas liquids
sales 48,662 9,421 58,083
Total production
revenues 439,772 11,340 451,112
Operating expenses
Transportation and
processing costs 11,340 11,340
Production revenues
less transportation
and processing costs $
439,772
$ $
439,772
Net income
attributable to
Parsley Energy, Inc.
stockholders (in
thousands) $
53,773
$ $
53,773
Production:
Oil (MBbls) 7,087 7,087
Natural gas (MMcf) 8,432 1,264 9,696
Natural gas liquids
(MBbls) 2,027 296 2,323
Total (MBoe) 10,519 507 11,026
Average daily
production volume:
Oil (Bbls) 77,033 77,033
Natural gas (Mcf) 91,652 13,739 105,391
Natural gas liquids
(Bbls) 22,033 3,217 25,250
Total (Boe) 114,337 5,511 119,848
Certain unit costs
(per Boe):
Lease operating
expenses $
3.78 $
(0.17) $
3.61
Transportation and
processing costs
$ $
1.03 $
1.03
Production and ad
valorem taxes $
2.49 $
(0.11) $
2.38
Depreciation,
depletion and
amortization $
15.28 $
(0.70) $
14.58
General and
administrative
expenses (including
stock-based
compensation) $
4.03 $
(0.18) $
3.85
General and
administrative
expenses (cash based) $
3.58 $
(0.16) $
3.42
Year Ended December 31, 2018
ASC 605 Adjustment ASC 606
Production revenues
(in thousands):
Oil sales $
1,536,244
$ $
1,536,244
Natural gas sales 45,032 6,199 51,231
Natural gas liquids
sales 200,898 26,374 227,272
Total production
revenues 1,782,174 32,573 1,814,747
Operating expenses
Transportation and
processing costs 32,573 32,573
Production revenues
less transportation
and processing costs $
1,782,174
$ $
1,782,174
Net income
attributable to
Parsley Energy, Inc.
stockholders (in
thousands) $
369,127
$ $
369,127
Production:
Oil (MBbls) 25,356 25,356
Natural gas (MMcf) 33,492 3,873 37,365
Natural gas liquids
(MBbls) 7,356 997 8,353
Total (MBoe) 38,293 1,644 39,937
Average daily
production volume:
Oil (Bbls) 69,468 69,468
Natural gas (Mcf) 91,759 10,611 102,370
Natural gas liquids
(Bbls) 20,153 2,732 22,885
Total (Boe) 104,912 4,504 109,416
Certain unit costs
(per Boe):
Lease operating
expenses $
3.77 $
(0.16) $
3.61
Transportation and
processing costs
$ $
0.82 $
0.82
Production and ad
valorem taxes $
2.83 $
(0.12) $
2.71
Depreciation,
depletion and
amortization $
15.27 $
(0.63) $
14.64
General and
administrative
expenses (including
stock-based
compensation) $
3.94 $
(0.16) $
3.78
General and
administrative
expenses (cash based) $
3.42 $
(0.14) $
3.28
Open Derivatives Positions
Parsley Energy, Inc. and Subsidiaries
Open Crude Oil Derivatives Positions(1)
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20
---
OPTION CONTRACTS:
---
CUSHING
Put Spreads -Cushing
(MBbls/d)(2) 11.7 11.5 19.6 19.6
Long Put Price
($/Bbl) $
51.43 $
51.43 $
59.79 $
59.79
Short Put Price
($/Bbl) $
44.29 $
44.29 $
49.79 $
49.79
Three Way Collars -
Cushing (MBbls/
d)(3) 23.3 21.4 26.1 26.1
Short Call Price
($/Bbl) $
70.48 $
70.89 $
72.69 $
72.69
Long Put Price
($/Bbl) $
48.21 $
48.85 $
51.88 $
51.88
Short Put Price
($/Bbl) $
40.71 $
41.15 $
42.81 $
42.81
Collars -Cushing
(MBbls/d)(4) 3.3 24.7 21.2 21.2
Short Call Price
($/Bbl) $
56.30 $
57.67 $
58.26 $
58.37
Long Put Price
($/Bbl) $
52.70 $
53.94 $
54.50 $
54.56
MIDLAND
Put Spreads -Midland
(MBbls/d)(2) 11.7 14.8 4.9 4.9
Long Put Price
($/Bbl) $
50.71 $
50.56 $
60.00 $
60.00
Short Put Price
($/Bbl) $
40.71 $
40.56 $
50.00 $
50.00
Three Way Collars -Midland (MBbls/
d)(3) 4.9 4.9
Short Call Price ($/Bbl) $
64.65 $
64.65
Long Put Price ($/Bbl) $
50.00 $
50.00
Short Put Price ($/Bbl) $
45.00 $
45.00
MAGELLAN EAST HOUSTON ("MEH")
Put Spreads -MEH
(MBbls/d)(2) 3.3 3.3 8.2 8.2 5.0 4.9
Long Put Price
($/Bbl) $
70.00 $
70.00 $
64.00 $
64.00 $
70.00 $
70.00
Short Put Price
($/Bbl) $
60.00 $
60.00 $
54.00 $
54.00 $
60.00 $
60.00
Three Way Collars -MEH (MBbls/d)(3) 3.3 3.3
Short Call Price ($/Bbl) $
72.00 $
72.00
Long Put Price ($/Bbl) $
57.50 $
57.50
Short Put Price ($/Bbl) $
47.58 $
47.58
Total Option
Contracts (MBbls/d) 53.3 75.7 84.9 84.9 8.3 8.2
Premium Realization
($MM)(5) $
(6.3) $
(10.2) $
(14.5) $
(14.5) $
(2.2) $
(2.2)
BASIS SWAPS:
---
Midland-Cushing
Basis Swaps (MBbls/
d)(6) 31.7 25.4 27.7 27.7
Swap Price ($/Bbl) $
(7.51) $
(5.10) $
(1.74) $
(0.91)
MEH-Cushing Basis
Swaps (MBbls/d)(6) 2.2 2.1 2.1 2.1
Swap Price ($/Bbl) $
5.10 $
5.10 $
5.10 $
5.10
Parsley Energy, Inc. and Subsidiaries
Open Natural Gas Derivatives Positions (1)
1Q19 2Q19 3Q19 4Q19
---
OPTION CONTRACTS:
---
HENRY HUB
Three Way Collars
(MMBtu/d)(3) 33,333 32,967 32,609 32,609
Short Call Price
($/MMBtu) $
3.93 $
3.93 $
3.93 $
3.93
Long Put Price
($/MMBtu) $
3.00 $
3.00 $
3.00 $
3.00
Short Put Price
($/MMBtu) $
2.50 $
2.50 $
2.50 $
2.50
Total MMBtu/d Hedged 33,333 32,967 32,609 32,609
BASIS SWAPS:
---
Waha-Henry Hub Basis
Swaps (MBbls/d)(6) 28,889 32,967 32,609 32,609
Swap Price ($/Bbl) $
(1.84) $
(1.92) $
(1.78) $
(1.64)
Organic Reserves Replacement Ratio
Parsley uses the organic reserves replacement ratio as an indicator of the Company's ability to replace the reserves that it has developed and to increase its reserves over time. The ratio is not a representation of value creation and has a number of limitations that should be considered. For example, the ratio does not incorporate the costs or timing of developing future reserves. The organic reserves replacement ratio of 406% was calculated as total 2018 reserve additions and revisions (technical and pricing), divided by total 2018 production. The ratio calculation excludes acquisitions and divestitures.
(1) As of
2/20/2019.
Prices
represent
the
weighted
average
price of
contracts
scheduled
for
settlement
during the
period.
(2) When the
reference
price (WTI,
Midland, or
MEH) is
above the
long put
price,
Parsley
receives
the
reference
price. When
the
reference
price is
between the
long put
price and
the short
put price,
Parsley
receives
the long
put price.
When the
reference
price is
below the
short put
price,
Parsley
receives
the
reference
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
reference
price (WTI)
is above
the call
price,
Parsley
receives
the call
price. When
the
reference
price is
below the
long put
price,
Parsley
receives
the long
put price.
When the
reference
price is
between the
short call
and long
put prices,
Parsley
receives
the
reference
price.
(5) Premium
realizations
represent
net
premiums
paid
(including
deferred
premiums),
which are
recognized
as income
or loss in
the period
of
settlement.
(6) Parsley
receives
the swap
price.
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SOURCE Parsley Energy, Inc.
