Parsley Energy Announces Fourth Quarter 2018 Financial And Operating Results

AUSTIN, Texas, Feb. 21, 2019 /PRNewswire/ -- Parsley Energy, Inc. 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.

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:

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:

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.

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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.

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.

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.

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:

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:

 

 

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.

 

 

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SOURCE Parsley Energy, Inc.