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

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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. (NYSE:PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended June 30, 2018. The Company has posted to its website a presentation that supplements the information in this release.

Second Quarter 2018 Highlights

  • Net oil production increased 14% quarter-over-quarter and 57% year-over-year to 67.7 MBo per day. Total net production averaged 107.8 MBoe per day.(1)
  • Parsley reported an unhedged oil price realization of $64.29/Bbl net of transportation costs during 2Q18. This represents a differential of just $3.62 compared to the average NYMEX WTI price for the quarter, displaying the benefits of the Company's diversified pricing exposure. Parsley also agreed in principle to bolster its takeaway capacity through multiple agreements with large oil purchasers that would, if all are completed, cover up to 165,000 Bo per day of gross operated oil production by year-end 2019.(2)
  • The Company demonstrated strong cost control during the second quarter of 2018, driven by significant savings from the Company's growing water infrastructure network and the execution of a stable development plan. As a result, Parsley is lowering full-year 2018 unit cost estimates.
    • Parsley reported 2Q18 lease operating expense ("LOE") per Boe of $3.66, up only slightly versus the peer-leading expense the Company posted in 1Q18, and is lowering full-year 2018 LOE per Boe guidance from $3.75-$5.00 to $3.50-$4.25.
    • Both general and administrative expense ("G&A") per Boe and cash based G&A per Boe, which excludes stock-based compensation expense, decreased quarter-over-quarter and year-over-year to $3.67(1) and $3.12,(1) respectively. Parsley is lowering full-year 2018 cash G&A per Boe guidance from $3.50-$4.25 to $3.25-$3.65.
  • Parsley placed 45 gross (44 net) operated horizontal wells on production during 2Q18. This higher-than-anticipated net well count was driven by operational efficiency gains and acreage trades that increased Parsley's average working interest. In light of these trends, the Company is increasing the number of operated horizontal wells it expects to place on production in 2018 from 144 net wells to approximately 158 net wells.(3) These additional net wells are not predicated on the addition of incremental rigs or completion crews.
  • Having compressed cycle times to levels last achieved in early 2017 prior to the integration of major acquisitions and the associated activity ramp, Parsley's contemplated development program in the second half of 2018 reflects a gradual transition back to a larger average pad size.
  • The Company is increasing full-year 2018 net oil production guidance from 65-70 MBo per day to 68.0-70.5 MBo per day. At the midpoint, the updated range translates to estimated year-over-year growth of 54%.
  • Parsley is revising its 2018 capital budget as a result of shorter cycle times and higher working interest. The Company previously indicated that sustained oil price strength and associated service and equipment cost inflation would bias expectations toward the upper end of its initial guidance range of $1.35-$1.55 billion. These expectations were confirmed, primarily as a function of labor tightness, while the imposition of steel tariffs also translated to higher well costs. Relative to the top of the previous range, Parsley is revising its 2018 capital budget upward by $100-$200 million to reflect the additional net wells the Company expects to place on production this year, yielding an updated range of $1.65-$1.75 billion.

"Parsley Energy continues to execute across the organization in 2018," said Bryan Sheffield, Parsley's Chairman and CEO. "With a steady development profile in place, our teams have found ways to boost operational efficiencies and extract more value per barrel of production. We expect these trends to continue as we implement Parsley's standard of excellence across a long-lived, high quality asset base."

Operational Update

Parsley's strong sequential production growth was driven by solid execution across multiple business units, highlighted by efficient development operations and the execution of acreage trades that increased the Company's average working interest.

Activity Overview

During the second quarter, the Company spud 43 and placed on production 45 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 97%, with an average completed lateral length of approximately 8,750 feet. Completion activity was weighted toward the Midland Basin, where the Company placed on production 37 gross operated horizontal wells, with the Delaware Basin comprising the remaining 8 gross operated horizontal wells. Parsley expects that development activity will remain weighted to the Midland Basin for the remainder of the year, consistent with prior Company commentary.

Notable Well Results

Parsley turned 14 wells to production in Glasscock County during 2Q18, representing a significant portion of the Company's total completion activity during the quarter. These wells included two wells on the Brunson lease which targeted the Wolfcamp A and Wolfcamp B zones in a stacked configuration. Early results from these two 1.5 mile lateral wells are promising, with peak 30-day production rates averaging 1,277 Boe per day (84% oil), representing the Company's strongest stacked Wolfcamp results in Glasscock County to date. More broadly, Parsley's growing portfolio of well results across Glasscock County evidences the quality of the Company's Glasscock acreage, with Wolfcamp A and Wolfcamp B results since 2017 showing steady improvement and outperforming Parsley's Midland Basin reference curve in the aggregate.

Takeaway Positioning

During 2Q18, Parsley reported an unhedged oil price realization of $64.29/Bbl net of transportation costs, representing a differential of just $3.62/Bbl compared to the average NYMEX WTI price for the quarter. Parsley's current insulation from weaker Midland basis differentials is the product of a proactive marketing strategy that sought to diversify regional pricing exposure more than 12 months ago.

Parsley has recently taken steps to supplement its advantaged takeaway position, agreeing in principle to multiple agreements with large oil purchasers. These firm transport agreements would, if all are completed, cover up to 165,000 Bo per day of gross operated oil production by year-end 2019,(2) and also maintain favorable pricing elements by pricing a significant portion of the Company's barrels relative to Gulf Coast and international benchmarks.

"Securing flow assurance and pricing insulation were top priorities for us as we scaled up our operations 12 months ago and this foresight is now being rewarded through clear growth visibility and strong oil price realizations," said Matt Gallagher, Parsley's President and COO. "We continue to grow a crude production stream that is attractive to premier purchasers and expect to leverage these in-demand barrels to achieve favorable terms on incremental takeaway agreements. It is a distinct advantage to contemplate future development plans unencumbered by takeaway constraints or expensive long-term transportation costs."

Financial Update

Parsley's solid operational execution this quarter translated to strong performance in key financial measures.

During 2Q18, the Company recorded net income attributable to its stockholders of $119.2 million, or $0.44 per share, compared to net income attributable to its stockholders of $82.9 million, or $0.32 per share, during 1Q18. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, and adding back the non-controlling interest allocated to Class B stockholders, adjusted net income for 2Q18 was $106.4 million, or $0.39 per share, compared to $81.1 million, or $0.31 per share, in 1Q18.(4)

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 2Q18 was $340.1 million, up 20% quarter-over-quarter and up more than 130% when compared to the same measure in 2Q17.(4)

Parsley maintained strong cost control during the second quarter of 2018. The Company reported LOE per Boe of $3.66,(1) up only slightly versus the peer-leading expense the Company posted in 1Q18, and is lowering its full-year 2018 LOE per Boe guidance from $3.75-$5.00 to $3.50-$4.25. Favorable LOE cost trends were driven by expansion of Parsley's cost-effective water management system, as well as reduced power costs associated with the recent commissioning of an electrical substation in the Delaware Basin.

Both G&A per Boe and cash based G&A per Boe, which excludes stock-based compensation expense, decreased quarter-over-quarter and year-over-year to $3.67(1) and $3.12,(1) respectively. Parsley is lowering full-year 2018 cash G&A per Boe guidance from $3.50-$4.25 to $3.25-$3.65. Encouraging G&A cost trends are a function of a stable development pace following a period of accelerating development activity.

Strong realized pricing and favorable trends in the above-mentioned cash operating costs drove a robust operating cash margin of $37.25 per Boe, or 78% of the Company's average realized price per Boe.(4)

Parsley reported capital expenditures of $477 million during the quarter, comprised of $387 million for drilling and completion activity and $90 million for facilities and infrastructure. Elevated facilities and infrastructure spending is a function of a proactive build-out of Parsley's growing water infrastructure network. These efforts spanned several counties and included a water recycling pilot in Martin County with favorable initial results. Reported 2Q18 capital expenditures also include $10 million associated with non-operated development activity.

The Company is revising its 2018 capital budget as a result of shorter cycle times and higher working interest. Parsley previously indicated that sustained oil price strength and associated service and equipment cost inflation would bias expectations toward the upper end of its initial guidance range of $1.35-$1.55 billion. These expectations were confirmed, primarily as a function of labor tightness, while the imposition of steel tariffs also translated to higher well costs. Relative to the top of the previous range, Parsley is revising its 2018 capital budget upward by $100-$200 million to reflect the additional net wells the Company expects to place on production this year, yielding an updated range of $1.65-$1.75 billion.

Liquidity and Hedging

As of June 30, 2018, Parsley had approximately $1.3 billion of liquidity, consisting of $301 million of cash, cash equivalents, and short-term investments, and an undrawn amount of $991 million on the Company's revolver.(5)

Almost all of Parsley's expected 2018 oil production is subject to hedge protection, and the Company recently added to its 2019 hedge position. Parsley's hedging strategy protects its balance sheet and anticipated cash flow while retaining significant exposure to higher commodity prices. For details on Parsley's hedging position, please see the tables below under Supplemental Information and/or the Company's Quarterly Report on Form 10-Q, upon availability, for the three months ended June 30, 2018.

Full-year 2018 Guidance Update



2018


2018


Previous


Updated

Production




Annual net oil production (MBo/d)

65-70


68.0-70.5

Annual net production (MBoe/d)

98-108


106-111





Capital Program




Total development expenditures ($MM)

$1,350-$1,550


$1,650-$1,750

Drilling and completion (% of total)

85-90%


85-90%

Facilities, Infrastructure & Other (% of total)

10-15%


10-15%





Activity




Gross operated horizontal POPs

~160


~165

Midland Basin (% of total)

~75%


~75%

Delaware Basin (% of total)

~25%


~25%

Average lateral length

~9,500'


~9,500'

Average working interest

~90%


95-97%

Net operated horizontal POPs

~144


157-160





Unit Costs




Lease operating expenses ($/Boe)

$3.75-$5.00


$3.50-$4.25

Cash general and administrative expenses ($/Boe)

$3.50-$4.25


$3.25-$3.65

Production and ad valorem taxes (% of revenue)

6.0%-7.0%


6.0%-7.0%

Conference Call Information

Parsley Energy will host a conference call and webcast to discuss its results for the second quarter of 2018 on Wednesday, August 8 at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). Participants should call 877-407-0672 (United States/Canada) or 412-902-0003 (International) 10 minutes before the scheduled time and request the Parsley Energy conference call. A telephone replay will be available shortly after the call through August 15 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13681890. A live broadcast will also be available on the internet at www.parsleyenergy.com under the "Events & Presentations" section of the website. The Company has also posted to its website a presentation that supplements the information in this release.

About Parsley Energy, Inc.

Parsley Energy, Inc. is an independent oil and natural gas company focused on the acquisition and development of unconventional oil and natural gas reserves in the Permian Basin in West Texas. For more information, visit the Company's website at www.parsleyenergy.com.

Forward Looking Statements

Certain statements contained in this news release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Parsley Energy's expectations or beliefs concerning future events, and it is possible that the results described in this news release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Parsley Energy's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, Parsley Energy does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for Parsley Energy to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements found in the Company's filings with the SEC, including its Annual Report on Form 10-K. The risk factors and other factors noted in the Company's SEC filings could cause its actual results to differ materially from those contained in any forward-looking statement.

- Tables to Follow -

__________

(1)

Natural gas and natural gas liquids ("NGLs") sales and associated production volumes for the three months ended June 30, 2018 reflect adjustments associated with Parsley's adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), effective January 1, 2018. Accordingly, all references to 2Q18 production volumes and per Boe unit costs likewise reflect this adoption, which has the effect of increasing certain natural gas and NGLs volumes and revenues, offset by a corresponding transportation and processing cost such that there is no change to reported net income. The recognition and presentation of oil volumes and associated revenues and expenses are unaffected by the adoption of ASC 606.

Previously provided full-year guidance for production volumes and unit costs incorporated the anticipated effect of the adoption of ASC 606.

For more information on ASC 606 and a reconciliation of 2Q18 production and unit costs under ASC 605 and as adjusted under ASC 606, please see the table and associated commentary below under Supplemental Information and/or the Company's Quarterly Report on Form 10-Q, upon availability, for the three and six months ended June 30, 2018.

(2)

The above-referenced agreements include executed contracts and one letter of intent that outlines commercial terms but has not been contractualized.

(3)

Expected net well count based on revised 2018 guidance for gross wells placed on production and average working interest (midpoint of range).

(4)

"Adjusted EBITDAX", "operating cash margin", and "adjusted net income" are not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). For definitions and reconciliations of the non-GAAP financial measures of adjusted EBITDAX, operating cash margin, and adjusted net income to GAAP financial measures, please see the tables and associated commentary below under Reconciliation of Non-GAAP Financial Measures.

(5)

Fully undrawn revolver balance is net of letters of credit.

 

Parsley Energy, Inc. and Subsidiaries

Selected Operating Data

(Unaudited)



Three Months Ended


June 30, 2018


March 31, 2018


June 30, 2017

Net production volumes:






Oil (MBbls)

6,165



5,341



3,917


Natural gas (MMcf) (1)

9,235



8,556



5,421


Natural gas liquids (MBbls) (1)

2,106



1,643



1,069


Total (MBoe)

9,811



8,410



5,890


Average daily net production (Boe/d)

107,813



93,444



64,725


Average sales prices (2) :






Oil, without realized derivatives (per Bbl)

$

64.29



$

61.99



$

45.46


Oil, with realized derivatives (per Bbl)

$

60.11



$

58.32



$

45.49


Natural gas, without realized derivatives (per Mcf)

$

1.32



$

2.04



$

2.39


Natural gas, with realized derivatives (per Mcf)

$

1.40



$

2.06



$

2.36


NGLs (per Bbl)

$

27.20



$

24.72



$

19.02


Average price per Boe, without realized derivatives

$

47.48



$

46.27



$

35.89


Average price per Boe, with realized derivatives

$

44.92



$

43.97



$

35.87


Average costs (per Boe) (3):






Lease operating expenses

$

3.66



$

3.43



$

5.03


Transportation and processing costs

$

0.66



$

0.75



$


Production and ad valorem taxes

$

2.79



$

2.88



$

1.93


Depreciation, depletion and amortization

$

14.84



$

14.41



$

14.15


General and administrative expenses (including stock-based compensation)

$

3.67



$

4.16



$

5.39


General and administrative expenses (cash based)

$

3.12



$

3.56



$

4.50


___________

(1)

Natural gas and NGLs volumes for the three months ended June 30 and March 31, 2018 reflect adjustments associated with Parsley's adoption of ASC 606, effective January 1, 2018.

(2)

Average prices shown in the table reflect prices both before and after the effects of our realized commodity hedging transactions. Our calculations of such effects include both realized gains and losses on cash settlements for commodity derivative transactions and premiums paid or received on options that settled during the period. Realized oil prices are net of transportation costs. Realized prices for certain gas and NGLs volumes are net of transportation, gathering, and processing costs as stipulated by ASC 606. For more information, please see associated commentary below under Supplemental Information and/or the Company's Quarterly Report on Form 10-Q, upon availability, for the three and six months ended June 30, 2018.

(3)

Average costs per Boe for the three months ended June 30 and March 31, 2018 reflect adjustments associated with Parsley's adoption of ASC 606, effective January 1, 2018.

 

Parsley Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except for per share data)(1)



Three Months Ended June 30,


Six Months Ended June 30,


2018


2017


2018


2017

REVENUES








Oil sales

$

396,325



$

178,066



$

727,428



$

347,811


Natural gas sales (2)

12,235



12,983



29,659



25,450


Natural gas liquids sales (2)

57,275



20,336



97,895



37,749


Other

1,953



2,292



5,547



3,525


Total revenues

467,788



213,677



860,529



414,535


OPERATING EXPENSES








Lease operating expenses

35,904



29,631



64,736



47,258


Transportation and processing costs (2)

6,471





12,738




Production and ad valorem taxes

27,331



11,397



51,517



22,559


Depreciation, depletion and amortization

145,552



83,315



266,751



152,285


General and administrative expenses (including stock-based compensation)

35,991



31,761



70,986



55,803


Exploration and abandonment costs

3,366



2,442



8,777



5,205


Acquisition costs

(2)



7,176



2



8,520


Accretion of asset retirement obligations

359



193



713



329


Other operating expenses

2,477



2,503



4,652



4,786


Total operating expenses

257,449



168,418



480,872



296,745


OPERATING INCOME

210,339



45,259



379,657



117,790


OTHER INCOME (EXPENSE)








Interest expense, net

(33,758)



(22,764)



(65,726)



(42,100)


Gain on sale of property

5,166





5,055




Loss on early extinguishment of debt







(3,891)


(Loss) gain on derivatives

(9,466)



43,514



(20,259)



68,130


Change in TRA liability





(82)



(20,549)


Interest income

1,686



2,178



3,809



4,549


Other income (expense)

234



(177)



535



773


Total other income (expense), net

(36,138)



22,751



(76,668)



6,912


INCOME BEFORE INCOME TAXES

174,201



68,010



302,989



124,702


INCOME TAX EXPENSE

(33,243)



(12,216)



(56,568)



(30,618)


NET INCOME

140,958



55,794



246,421



94,084


LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(21,803)



(15,048)



(44,376)



(23,896)


NET INCOME ATTRIBUTABLE TO PARSLEY ENERGY, INC. STOCKHOLDERS

$

119,155



$

40,746



$

202,045



$

70,188










Net income per common share:








Basic

$

0.44



$

0.17



$

0.76



$

0.30


Diluted

$

0.44



$

0.17



$

0.76



$

0.30


Weighted average common shares outstanding:








Basic

272,239



245,698



266,479



233,255


Diluted

272,846



246,792



267,043



234,315


__________

(1)

Certain reclassifications and adjustments to prior period amounts have been made to conform with current presentation.

(2)

Natural gas and NGLs sales and transportation and processing costs for the three and six months ended June 30, 2018 reflect adjustments associated with Parsley's adoption of ASC 606, effective January 1, 2018.

 

Parsley Energy, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)



June 30, 2018


December 31, 2017


(In thousands)

ASSETS




CURRENT ASSETS




Cash and cash equivalents

$

201,702



$

554,189


Short-term investments

99,704



149,283


Accounts receivable:




Joint interest owners and other

29,721



42,174


Oil, natural gas and NGLs

178,593



123,147


Related parties

241



388


Short-term derivative instruments, net

42,780



41,957


Assets held for sale



1,790


Other current assets

41,784



6,558


Total current assets

594,525



919,486


PROPERTY, PLANT AND EQUIPMENT




Oil and natural gas properties, successful efforts method

9,434,570



8,551,314


Accumulated depreciation, depletion and impairment

(1,074,499)



(822,459)


Total oil and natural gas properties, net

8,360,071



7,728,855


Other property, plant and equipment, net

146,517



106,587


Total property, plant and equipment, net

8,506,588



7,835,442


NONCURRENT ASSETS




Assets held for sale, net



14,985


Long-term derivative instruments, net

30,837



15,732


Other noncurrent assets

7,493



7,553


Total noncurrent assets

38,330



38,270


TOTAL ASSETS

$

9,139,443



$

8,793,198






LIABILITIES AND EQUITY




CURRENT LIABILITIES




Accounts payable and accrued expenses

$

426,677



$

407,698


Revenue and severance taxes payable

134,740



109,917


Current portion of long-term debt

2,462



2,352


Short-term derivative instruments, net

68,242



84,919


Current portion of asset retirement obligations

7,754



7,203


Total current liabilities

639,875



612,089


NONCURRENT LIABILITIES




Liabilities related to assets held for sale



405


Long-term debt

2,180,559



2,179,525


Asset retirement obligations

20,853



19,967


Deferred tax liability

100,392



21,403


Payable pursuant to tax receivable agreement

62,681



58,479


Long-term derivative instruments, net

34,936



20,624


Total noncurrent liabilities

2,399,421



2,300,403


COMMITMENTS AND CONTINGENCIES




STOCKHOLDERS' EQUITY




Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued and outstanding




Common stock




Class A, $0.01 par value, 600,000,000 shares authorized, 280,106,940 shares issued and 279,518,737 shares outstanding at June 30, 2018 and 252,419,601 shares issued and 252,260,300 shares outstanding at December 31, 2017

2,801



2,524


Class B, $0.01 par value, 125,000,000 shares authorized, 37,251,738 and 62,128,157 shares issued and outstanding at June 30, 2018 and December 31, 2017

373



622


Additional paid in capital

5,123,089



4,666,365


Retained earnings

245,564



43,519


Treasury stock, at cost, 588,203 shares and 159,301 shares at June 30, 2018 and December 31, 2017

(11,606)



(735)


Total stockholders' equity

5,360,221



4,712,295


Noncontrolling interest

739,926



1,168,411


Total equity

6,100,147



5,880,706


TOTAL LIABILITIES AND EQUITY

$

9,139,443



$

8,793,198


 

Parsley Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)



Six Months Ended June 30,


2018


2017


(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$

246,421



$

94,084


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation, depletion and amortization

266,751



152,285


Accretion of asset retirement obligations

713



329


Gain on sale of property

(5,055)




Loss on early extinguishment of debt



3,891


Amortization and write off of deferred loan origination costs

2,374



1,803


Amortization of bond premium

(258)



(258)


Stock-based compensation

10,432



9,460


Deferred income tax expense

56,568



30,476


Change in TRA liability

82



20,549


Loss (gain) on derivatives

20,259



(68,130)


Net cash (paid) received for derivative settlements

(7,211)



2,115


Net cash paid for option premiums

(26,330)



(13,281)


Other

8,208



261


Changes in operating assets and liabilities, net of acquisitions:




Accounts receivable

(42,993)



(22,575)


Accounts receivable—related parties

147



74


Other current assets

(31,419)



46,318


Other noncurrent assets

(318)



(842)


Accounts payable and accrued expenses

(32,213)



52,672


Revenue and severance taxes payable

24,823



17,973


Net cash provided by operating activities

490,981



327,204


CASH FLOWS FROM INVESTING ACTIVITIES:




Development of oil and natural gas properties

(854,228)



(361,742)


Acquisitions of oil and natural gas properties

(56,014)



(2,088,286)


Additions to other property and equipment

(48,047)



(19,520)


Proceeds from sales of oil and natural gas properties

42,553



13,557


Maturity of short-term investments

49,627




Other

35,018



(630)


Net cash used in investing activities

(831,091)



(2,456,621)


CASH FLOWS FROM FINANCING ACTIVITIES:




Borrowings under long-term debt



452,480


Payments on long-term debt

(1,461)



(67,411)


Debt issuance costs

(45)



(9,206)


Proceeds from issuance of common stock, net



2,123,527


Repurchase of common stock

(10,871)



(137)


Net cash (used in) provided by financing activities

(12,377)



2,499,253


Net (decrease) increase in cash, cash equivalents and restricted cash

(352,487)



369,836


Cash, cash equivalents and restricted cash at beginning of period

554,189



136,669


Cash, cash equivalents and restricted cash at end of period

$

201,702



$

506,505


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:




Cash paid for interest

$

64,047



$

15,102


Cash paid for income taxes

$



$

200


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:




Asset retirement obligations incurred, including changes in estimate

$

940



$

8,084


Additions to oil and natural gas properties - change in capital accruals

$

46,969



$

121,663


Additions to other property and equipment funded by capital lease borrowings

$

1,175



$

2,500


Common stock issued for oil and natural gas properties

$



$

1,183,501


Net premiums on options that settled during the period

$

(34,598)



$

(9,917)


Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDAX

Adjusted EBITDAX is not a measure of net income as determined by GAAP. Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of the Company's consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines Adjusted EBITDAX as net income (loss) before depreciation, depletion and amortization, exploration and abandonment costs, net interest expense, interest income, income tax expense (benefit), change in Tax Receivable Agreement ("TRA") liability, stock-based compensation, acquisition costs, (gain) loss on sale of property, asset retirement obligation accretion expense, loss on early extinguishment of debt, inventory write down, (gain) loss on derivatives, net settlements on derivative instruments and net premiums on options that settled during the period.

Management believes Adjusted EBITDAX is useful because it allows the Company to more effectively evaluate its operating performance and compare the results of its operations from period to period without regard to its financing methods or capital structure. The Company excludes the items listed above from net income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within its industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of the Company's operating performance. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. The Company's computations of Adjusted EBITDAX may not be comparable to other similarly titled measure of other companies. The Company believes that Adjusted EBITDAX is a widely followed measure of operating performance.

The following table presents a reconciliation of Adjusted EBITDAX to the GAAP financial measure of net (loss) income for each of the periods indicated.

Parsley Energy, Inc. and Subsidiaries

Adjusted EBITDAX

(Unaudited, in thousands)(1) 



Three Months Ended June 30,


Six Months Ended June 30,


2018


2017


2018


2017

Adjusted EBITDAX reconciliation to net income:








Net income attributable to Parsley Energy, Inc. stockholders

$

119,155



$

40,746



$

202,045



$

70,188


Net income attributable to noncontrolling interests

21,803



15,048



44,376



23,896


Depreciation, depletion and amortization

145,552



83,315



266,751



152,285


Exploration and abandonment costs

3,366



2,442



8,777



5,205


Interest expense, net

33,758



22,764



65,726



42,100


Interest income

(1,686)



(2,178)



(3,809)



(4,549)


Income tax expense

33,243



12,216



56,568



30,618


EBITDAX

355,191



174,353



640,434



319,743


Change in TRA liability





82



20,549


Stock-based compensation

5,363



5,251



10,432



9,460


Acquisition costs

(2)



7,176



2



8,520


Gain on sale of property

(5,166)





(5,055)




Accretion of asset retirement obligations

359



193



713



329


Loss on early extinguishment of debt







3,891


Inventory write down

(17)





44




Loss (gain) on derivatives

9,466



(43,514)



20,259



(68,130)


Net settlements on derivative instruments

(7,019)



4,973



(9,892)



4,672


Net premiums on options that settled during the period

(18,072)



(5,063)



(34,598)



(9,917)


Adjusted EBITDAX

$

340,103



$

143,369



$

622,421



$

289,117


__________

(1)

Certain reclassifications to prior period amounts have been made to conform with current presentation.

Operating Cash Margin

The Company defines operating cash margin as net income (loss) before income tax expense, other revenues, depreciation, depletion and amortization, exploration and abandonment costs, stock-based compensation, acquisition costs, asset retirement obligation accretion expense, other operating expenses, net interest expense, (gain) loss on sale of property, prepayment premium on extinguished debt, derivative income (loss), change in TRA liability, interest income, and other income (expense). Operating cash margin is not a measure of operating income as determined by GAAP. The amounts included in the calculations of operating cash margin were computed in accordance with GAAP. Operating cash margin is presented herein and reconciled to the GAAP measure of net income attributable to Parsley Energy, Inc. stockholders. We use operating cash margin as an indicator of the Company's profitability and ability to manage its operating income. This measure is provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our condensed consolidated financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website. The following table provides a reconciliation of operating cash margin to net income attributable to Parsley Energy, Inc. stockholders.


Three Months Ended June 30,


Six Months Ended June 30,


2018


2017


2018


2017

Net income attributable to Parsley Energy, Inc. stockholders

$

119,155



$

40,746



$

202,045



$

70,188


Net income attributable to noncontrolling interests

21,803



15,048



44,376



23,896


Income tax expense

33,243



12,216



56,568



30,618


Other revenues

(1,953)



(2,292)



(5,547)



(3,525)


Depreciation, depletion and amortization

145,552



83,315



266,751



152,285


Exploration and abandonment costs

3,366



2,442



8,777



5,205


Stock-based compensation

5,363



5,251



10,432



9,460


Acquisition costs

(2)



7,176



2



8,520


Accretion of asset retirement obligations

359



193



713



329


Other operating expenses

2,477



2,503



4,652



4,786


Interest expense, net

33,758



22,764



65,726



42,100


Gain on sale of property

(5,166)





(5,055)




Prepayment premium on extinguishment of debt







3,891


Derivative income (loss)

9,466



(43,514)



20,259



(68,130)


Change in TRA liability





82



20,549


Interest income

(1,686)



(2,178)



(3,809)



(4,549)


Other income (expense)

(234)



177



(535)



(773)


Operating cash margin

$

365,501



$

143,847



$

665,437



$

294,850


Operating cash margin per Boe

$

37.25



$

24.42



$

36.52



$

27.25










Average price per Boe, without realized derivatives

$

47.48



$

35.89



$

46.92



$

37.98


Operating cash margin percentage

78

%


68

%


78

%


72

%

Adjusted Net Income

Adjusted net income is not a measure of net income determined in accordance with GAAP. Adjusted net income is a supplemental non-GAAP performance measure used by management to evaluate financial performance, prior to non-cash gains or losses on derivatives, net cash received for derivative settlements, net premiums received on options that settled during the period, (gain) loss on sale of property, exploration and abandonment costs, acquisition costs, loss on early extinguishment of debt, and change in TRA liability, while adjusting for noncontrolling interest and the associated changes in estimated income tax. Management believes adjusted net income is useful because it may enhance investors' ability to assess Parsley's historical and future financial performance. Adjusted net income should not be considered an alternative to, or more meaningful than, consolidated net income, operating income, or any other measure of financial performance presented in accordance with GAAP. The following table presents a reconciliation of the non-GAAP financial measure of adjusted net income to the GAAP financial measure of net income (loss).

Parsley Energy, Inc. and Subsidiaries

Adjusted Net Income and Net Income Per Share

(Unaudited, in thousands, except per share data)



Three Months Ended June 30,


Six Months Ended June 30,


2018


2017


2018


2017

Net income - as reported

$

119,155



$

40,746



$

202,045



$

70,188










Adjustments:








Loss (gain) on derivatives

9,466



(43,514)



20,259



(68,130)


Net settlements on derivative instruments

(7,019)



4,973



(9,892)



4,672


Net premiums on options that settled during the period

(18,072)



(5,063)



(34,598)



(9,917)


Gain on sale of property

(5,166)





(5,055)




Exploration and abandonment costs

3,366



2,442



8,777



5,205


Acquisition costs

(2)



7,176



2



8,520


Loss on early extinguishment of debt







3,891


Change in TRA liability





82



20,549


Noncontrolling interest

1,688





2,334




Change in estimated income tax

2,961



5,762



3,482



11,658


Adjusted net income

$

106,377



$

12,522



$

187,436



$

46,636










Net income per diluted share - as reported(1)

$

0.44



$

0.17



$

0.76



$

0.30










Adjustments:








Loss (gain) on derivatives

$

0.03



$

(0.18)



$

0.08



$

(0.29)


Net settlements on derivative instruments

(0.02)



0.02



(0.04)



0.02


Net premiums on options that settled during the period

(0.07)



(0.02)



(0.13)



(0.04)


Gain on sale of property

(0.02)





(0.02)




Exploration and abandonment costs

0.01



0.01



0.03



0.02


Acquisition costs



0.03





0.04


Loss on early extinguishment of debt







0.02


Change in TRA liability







0.09


Noncontrolling interest

0.01





0.01




Change in estimated income tax

0.01



0.02



0.01



0.04


Adjusted net income per diluted share(2)

$

0.39



$

0.05



$

0.70



$

0.20










Basic weighted average shares outstanding - as reported(1)

272,239



245,698



266,479



233,255


Effect of dilutive securities:








Restricted Stock and Restricted Stock Units

607



1,094



564



1,060


Diluted weighted average shares outstanding - as reported(1)

272,846



246,792



267,043



234,315










Effect of dilutive securities:








Class B Common Stock








Restricted Stock and Restricted Stock Units








Diluted weighted average shares outstanding for adjusted net income(2)

272,846



246,792



267,043



234,315


____________

(1)

For the three and six months ended June 30, 2018 and 2017, the number of weighted average diluted shares used to calculate actual net income per share is based on the fact that, under the "if converted" and treasury stock methods, Class B Common Stock was not recognized because it would have been antidilutive.

(2)

For purposes of calculating adjusted net income per diluted share for the three and six months ended June 30, 2018 and 2017, Class B Common Stock and restricted stock and restricted stock units were not recognized because they would have been antidilutive using the treasury stock method.

Supplemental Information

Impact of ASC 606 Adoption

Parsley adopted ASC 606 effective January 1, 2018 using the modified retrospective approach. As a result, we changed our accounting policy for revenue recognition, which resulted in the following adjustments:


Three Months Ended June 30, 2018


ASC 605


Adjustment


ASC 606

Production revenues (in thousands):






Oil sales

$

396,325



$



$

396,325


Natural gas sales

11,094



1,141



12,235


Natural gas liquids sales

51,945



5,330



57,275


Total production revenues

459,364



6,471



465,835


Operating expenses






Transportation and processing costs



6,471



6,471


Production revenues less transportation and processing costs

$

459,364



$



$

459,364








Net income attributable to Parsley, Inc. stockholders (in thousands)

$

119,155



$



$

119,155








Production:






Oil (MBbls)

6,165





6,165


Natural gas (MMcf)

8,287



948



9,235


Natural gas liquids (MBbls)

1,853



253



2,106


Total (MBoe)

9,399



412



9,811








Average daily production volume:






Oil (Bbls)

67,747





67,747


Natural gas (Mcf)

91,066



10,418



101,484


Natural gas liquids (Bbls)

20,363



2,780



23,143


Total (Boe)

103,286



4,527



107,813








Certain unit costs (per Boe):






Lease operating expenses

$

3.82



$

(0.16)



$

3.66


Transportation and processing costs

$



$

0.66



$

0.66


Production and ad valorem taxes

$

2.91



$

(0.12)



$

2.79


Depreciation, depletion and amortization

$

15.49



$

(0.65)



$

14.84


General and administrative expenses (including stock-based compensation)

$

3.83



$

(0.16)



$

3.67


General and administrative expenses (cash based)

$

3.26



$

(0.14)



$

3.12




Six Months Ended June 30, 2018


ASC 605


Adjustment


ASC 606

Production revenues (in thousands):






Oil sales

$

727,428



$



$

727,428


Natural gas sales

26,680



2,979



29,659


Natural gas liquids sales

88,136



9,759



97,895


Total production revenues

842,244



12,738



854,982


Operating expenses






Transportation and processing costs



12,738



12,738


Production revenues less transportation and processing costs

$

842,244



$



$

842,244








Net income attributable to Parsley, Inc. stockholders (in thousands)

$

202,045



$



$

202,045








Production:






Oil (MBbls)

11,506





11,506


Natural gas (MMcf)

16,269



1,522



17,791


Natural gas liquids (MBbls)

3,317



432



3,749


Total (MBoe)

17,534



687



18,221








Average daily production volume:






Oil (Bbls)

63,569





63,569


Natural gas (Mcf)

89,884



8,409



98,293


Natural gas liquids (Bbls)

18,326



2,387



20,713


Total (Boe)

96,873



3,796



100,669








Certain unit costs (per Boe):






Lease operating expenses

$

3.70



$

(0.15)



$

3.55


Transportation and processing costs

$



$

0.70



$

0.70


Production and ad valorem taxes

$

2.94



$

(0.11)



$

2.83


Depreciation, depletion and amortization

$

15.21



$

(0.57)



$

14.64


General and administrative expenses

$

4.05



$

(0.15)



$

3.90


General and administrative expenses (cash based)

$

3.46



$

(0.14)



$

3.32


Changes to natural gas and NGLs sales were made in accordance with the control model defined in ASC 606. Under the new control model, we are required to identify and separately analyze each contract associated with revenues to determine the appropriate accounting application.

As a result of this analysis, we modified our accounting and presentation of natural gas and NGLs sales, and transportation and processing costs under certain marketing agreements. For additional information related to our adoption of ASC 606, please refer to Note 2—Summary of Accounting Policies—Impact of ASC 606 Adoption in our consolidated financial statements contained in our Quarterly Report on Form 10-Q, upon availability, for the three and six months ended June 30, 2018.

Open Derivatives Positions

Parsley Energy, Inc. and Subsidiaries

Open Crude Oil Derivatives Positions (1)



3Q18


4Q18


1Q19


2Q19


3Q19


4Q19

Put Spreads - WTI (MBbls/d) (2)

34.2



37.5



20.0



19.8



24.5



24.5


Long Put Price ($/Bbl)

$

49.64



$

49.67



$

54.17



$

54.17



$

58.83



$

58.83


Short Put Price ($/Bbl)

$

39.64



$

39.67



$

44.17



$

44.17



$

48.83



$

48.83


Three Way Collars - WTI (MBbls/d) (3)

31.0



31.0



8.3



8.2



9.8



9.8


Short Call Price ($/Bbl)

$

75.65



$

75.65



$

80.40



$

80.40



$

80.33



$

80.33


Long Put Price ($/Bbl)

$

50.00



$

50.00



$

50.00



$

50.00



$

50.83



$

50.83


Short Put Price ($/Bbl)

$

40.00



$

40.00



$

40.00



$

40.00



$

40.83



$

40.83


Collars - WTI (MBbls/d) (4)

3.0



3.0










Short Call Price ($/Bbl)

$

61.31



$

61.31










Long Put Price ($/Bbl)

$

45.67



$

45.67










MBbls/d Hedged - WTI

68.2



71.5



28.3



28.0



34.2



34.2














Put Spreads - Midland (MBbls/d)  (2)





11.7



14.8






Long Put Price ($/Bbl)





$

50.71



$

50.56






Short Put Price ($/Bbl)





$

40.71



$

40.56






Mid-Cush Basis Swaps (MBbls/d) (5)

11.3



11.3



14.7



7.9






Swap Price ($/Bbl)

$

(0.86)



$

(0.86)



$

(8.95)



$

(9.08)






MBbls/d Hedged - Midland

11.3



11.3



26.4



22.7


















Rollfactor Swaps (MBbl/d) (6)

15.0



15.0










Swap Price ($/Bbl)

$

0.60



$

0.60






















Premium Realization ($MM) (7)

$

(17.9)



$

(19.1)



$

(11.6)



$

(12.5)



$

(9.8)



$

(9.8)


 

Parsley Energy, Inc. and Subsidiaries

Open Natural Gas Derivatives Positions (1)



3Q18


4Q18

Three Way Collars (MMBtu/d) (3)

8,152



8,152


Short Call Price ($/MMBtu)

$

3.60



$

3.60


Long Put Price ($/MMBtu)

$

3.00



$

3.00


Short Put Price ($/MMBtu)

$

2.75



$

2.75


Total MMBtu/d Hedged

8,152



8,152


__________

(1)

As of 8/7/2018. Prices represent the weighted average price of contracts scheduled for settlement during the period.

(2)

When the NYMEX price is above the long put price, Parsley receives the NYMEX price. When the NYMEX price is between the long put price and the short put price, Parsley receives the long put price. When the NYMEX price is below the short put price, Parsley receives the NYMEX price plus the difference between the short put price and the long put price.

(3)

Functions similarly to put spreads except that when the index price is at or above the call price, Parsley receives the call price.

(4)

When the NYMEX price is above the call price, Parsley receives the call price. When the NYMEX price is below the long put price, Parsley receives the long put price. When the NYMEX price is between the short call and long put prices, Parsley receives the NYMEX price.

(5)

Parsley receives the swap price.

(6)

These positions hedge the timing risk associated with Parsley's physical sales. Parsley generally sells crude oil for the delivery month at a sales price based on the average NYMEX price during that month, plus an adjustment calculated as a spread between the weighted average prices of the delivery month, the next month, and the following month during the period when the delivery month is the first month.

(7)

Premium realizations represent net premiums paid (including deferred premiums), which are recognized as income or loss in the period of settlement.

 

Parsley Energy

 

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SOURCE Parsley Energy, Inc.

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