Parsley Energy Announces Second Quarter 2018 Financial And Operating Results; Raises Production Guidance And Lowers Unit Cost Estimates

Parsley Energy Announces Second Quarter 2018 Financial And Operating Results; Raises Production Guidance And Lowers Unit Cost Estimates

PR Newswire

AUSTIN, Texas, Aug. 7, 2018 /PRNewswire/ -- Parsley Energy, Inc. 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.

 

Parsley Energy

 

Cision View original content with multimedia:http://www.prnewswire.com/news-releases/parsley-energy-announces-second-quarter-2018-financial-and-operating-results-raises-production-guidance-and-lowers-unit-cost-estimates-300693449.html

SOURCE Parsley Energy, Inc.

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