PE Parsley Energy Inc

AUSTIN, Texas, May 4, 2020 /PRNewswire/ -- Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended March 31, 2020. Additionally, Parsley provided an update to its 2020 development program. The Company has posted a presentation to its website that supplements the information in this release. 

Updated 2020 Outlook

• On March 11, 2020, the World Health Organization declared the novel coronavirus 2019 ("COVID-19") a pandemic. COVID-19 has had a material negative impact on global economic activity and, as a result, has also caused significant global oil demand destruction. This unprecedented decline, combined with recent periods of increased production from foreign oil producers (most notably Saudi Arabia and Russia), resulted in a sharp drop in near-term oil prices.
• In light of this lower commodity price environment, Parsley is revising its baseline capital budget assumption from a $30-$35 WTI oil price to a $20-$30 WTI oil price for the remainder of 2020. In this environment, the Company is reducing its 2020 capital budget to less than $700 million, with reported 1Q20 capital expenditures of $379 million representing more than 50% of this revised full-year budget.
• With regional oil prices recently trading below $20 per barrel, Parsley has suspended all new drilling and completion activity in the near-term. Parsley's future activity plans will continue to be driven by unhedged return profiles.
• Parsley remains committed to free cash flow generation and, in the context of $20-$30 WTI oil prices for the remainder of the year, is now targeting at least $300 million of free cash flow⁽¹⁾ in 2020. In a lower oil price environment, Parsley will adjust as needed to preserve its balance sheet.

Recent Highlights

• Parsley made strides on multiple fronts over the past three months to reinforce the strength of its balance sheet:
• • In the first quarter of 2020, Parsley lowered its cost of debt and extended its debt maturity profile by refinancing its outstanding 6.250% senior unsecured notes due 2024 with 4.125% senior unsecured notes due 2028.
  • Throughout March, Parsley added to its 2020 and 2021 hedge positions, further insulating the Company's cash flow in the event of a prolonged downturn in oil prices.
  • In April, Parsley entered into an amendment to its revolving credit agreement, which reaffirmed its borrowing base at $2.7 billion, increased the elected commitment amount from $1.0 billion to $1.075 billion, and extended the maturity date by two years to October 28, 2023.
• Declared 2Q20 quarterly dividend of $0.05 per share⁽²⁾ payable on June 19, 2020.
• Parsley successfully integrated the assets of Jagged Peak Energy Inc. ("Jagged Peak"), following the acquisition closing on January 10, 2020. Parsley is reaffirming its previously disclosed synergy targets for corporate cost optimization, which were outlined when the transaction was announced in October 2019.
• 1Q20 net oil production increased 41% quarter-over-quarter and 61% year-over-year to 126.6 MBo per day. Total 1Q20 net production averaged 197.0 MBoe per day.

Summary Comment and Outlook 

"In the face of unparalleled global demand destruction, one thing of certainty is that demand will recover from recent lows, but the magnitude and timing are less clear," commented Matt Gallagher, Parsley's President and CEO. "In these challenging times, we remain focused on controlling what we can control and making sound incremental investment decisions based on the facts at hand. Parsley responded decisively on multiple fronts to adapt to rapidly changing market conditions over the past two months and our company is well built for the endurance test now facing the industry. Parsley's 2020 activity plans will remain flexible, but we remain inflexible in our commitment to allocate incremental capital based on unhedged rates of return in prevailing market conditions. Regardless of the activity scenario we pursue for the remainder of the year, we are committed to generating healthy free cash flow in 2020, exiting the year with a solid balance sheet, ample scale, a shallower oil base decline, and visibility to sustained free cash flow in 2021 and beyond. In short, we will endure with relevance."

Operational Update

During the first quarter of 2020, the Company spud 51 and placed on production 46 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 97%, with an average completed lateral length of approximately 9,400 feet. The Company placed on production 28 gross operated horizontal wells in the Midland Basin, with the remainder placed on production in the Delaware Basin.

During January and February, Parsley operated 15 development rigs and five frac spreads before steadily dropping activity throughout March. In April, as a result of regional oil prices trading below $20 per barrel, Parsley temporarily suspended all new drilling and completion operations. Parsley plans to reactivate operations at a stabilized activity level of four-to-five rigs and one-to-two frac spreads when oil market fundamentals are more constructive and in line with Parsley's baseline price assumptions. As a result of these reduced activity levels, Parsley estimates that it will record a charge of approximately $15 million during 2Q20 related to the early termination of certain rig contracts.

In mid-March, Parsley began voluntarily shutting in approximately 400 wells, most of which are vertical wells, for economic reasons. Net oil production associated with these higher per-Boe cost wells was approximately 1-2 MBo per day. In mid-April, Parsley voluntarily shut in several pads that were flaring natural gas, most of which were recently acquired from Jagged Peak in the Delaware Basin. These wells had combined net oil production of approximately 4-5 MBo per day. Throughout the first quarter, Parsley implemented various midstream solutions to mitigate flaring on the recently acquired assets and expects to significantly and more permanently mitigate flaring on these remaining Delaware Basin pads in the coming months.

In addition to the aforementioned shut-ins of 5-7 MBo per day, Parsley expects to voluntarily curtail up to 23 MBo per day of net oil production volumes in May based on near-term regional pricing dynamics. Parsley does not expect to incur any transportation-related deficiency expenses as a result of these temporary production curtailments. Parsley will continue to evaluate its voluntary curtailment level on a regular basis and will adjust production levels quickly and responsibly as market conditions evolve. 

Financial Update

Healthy execution in 1Q20 translated to strong performance in key financial measures.

Profitability

During 1Q20, the Company recorded net loss attributable to its stockholders of $3.4 billion, or $9.20 per share. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, adjusted net income for 1Q20 was $107.2 million, or $0.29 per share.⁽¹⁾

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 1Q20 was $457.2 million.⁽¹⁾

As a result of the recent fall in oil prices and Parsley's decision to significantly reduce its near-term development activity plans, the Company recognized a non-cash impairment charge of $4.4 billion for certain proved reserves during 1Q20. In addition, the Company recognized leasehold abandonment and impairment charges associated with unproved oil and natural gas properties of $557 million during 1Q20.

Realized Pricing

During 1Q20, Parsley reported an average unhedged oil price realization of $45.32 per Bbl net of transportation costs, representing a discount of $0.49 to the average WTI Cushing price⁽³⁾ for the quarter.

Operating Costs

During the first quarter of 2020, the Company reported lease operating expense ("LOE") per Boe of $4.11. Parsley expects supplier price reductions, the shut-in of higher per-Boe cost vertical wells, and continued utilization of the Company's integrated water handling system will help offset a decrease in near-term production volumes. However, given ongoing uncertainty relating to commodity prices and the Company's production volumes, which has created a uniquely challenging operating environment, Parsley is temporarily suspending its unit cost guidance.

Both general and administrative expense ("G&A") per Boe and cash based G&A per Boe⁽¹⁾, which excludes stock-based compensation expense, decreased quarter-over-quarter and year-over-year to $2.01 and $1.65, respectively, representing Company-low record levels in each case. Encouraging G&A cost trends are a function of ongoing corporate cost savings initiatives including Executive Vice Presidents and more senior officers electing to reduce their respective 2020 cash compensation by at least 50% when compared to 2019. During 1Q20, Parsley incurred restructuring and other termination costs of $34.8 million and acquisition costs of $14.4 million, largely related to severance agreements, relocation expenses and advisor fees associated with Parsley's acquisition of Jagged Peak. These one-time costs are reported separately from the Company's G&A and cash based G&A. Parsley now expects full-year 2020 cash based G&A of approximately $130 million, a reduction of approximately $35 million versus the midpoints of prior guidance.⁽⁴⁾

Healthy realized oil pricing and continued focus on cost controls drove a strong operating cash margin of $22.34 per Boe, or 72% of the Company's average realized price per Boe.⁽¹⁾

Capital Expenditures

Parsley reported capital expenditures of $379 million during the first quarter of 2020, comprised of $372 million for operated drilling, completion, and equipment activity, and $7 million associated with water infrastructure and non-operated development activity. Parsley is reducing its full-year 2020 capital guidance from less than $1.0 billion to less than $700 million.

Return of Capital Program

Parsley Energy today announced that its Board of Directors declared a quarterly dividend of $0.05 per share.⁽²⁾ The dividend is payable on June 19, 2020, to shareholders of record on June 9, 2020.

Liquidity and Hedging

The Company entered into an amendment to its revolving credit agreement on April 27, 2020, which reaffirmed its borrowing base at $2.7 billion, increased the elected commitment amount from $1.0 billion to $1.075 billion, and extended the maturity date by two years to October 28, 2023. As of March 31, 2020, Parsley had approximately $739 million of liquidity, consisting of $45 million of cash and cash equivalents and an availability of $693 million on the Company's revolver.⁽⁵⁾

In this lower commodity price environment, Parsley proactively managed its hedge position, restructuring its existing 2020 hedge positions to provide additional protection against lower oil prices using swaps and two-way collars. Additionally, Parsley has also moved aggressively to protect its 2021 cash flow by adding swap positions.

The Company now expects net settlement gains of nearly $650 million during 2Q20 through 4Q21 under a go forward $30 WTI oil price and current basis differentials.⁽⁶⁾ This represents an increase of more than $350 million in aggregate downside protection from the Company's hedge position on February 19, 2020. For details on Parsley's hedge position, please see the tables below under Supplemental Information and/or, upon availability, the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2020.

2020 Guidance⁽⁷⁾

In light of the lower commodity price environment, the Company is reducing its 2020 capital budget to less than $700 million, with reported 1Q20 capital expenditures of $379 million representing more than 50% of this revised full-year budget. Given recent market volatility and ongoing uncertainty, the Company has temporarily suspended its detailed guidance on production, activity and unit costs. For further detail, please see the table below.

Conference Call Information

Parsley Energy will host a conference call and webcast to discuss its results for the first quarter of 2020 on Tuesday, May 5, 2020 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 earnings conference call. A telephone replay will be available through May 12, 2020 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13702189. A live broadcast will also be available on the Internet at www.parsleyenergy.com under the "Investors-Events & Presentations" 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 Citi Global Energy and Utilities Virtual Conference on May 13, 2020, the RBC Global Energy and Power Executive Conference on June 2, 2020, and the 5th Annual Wells Fargo Securities West Coast Energy Conference on June 9-10, 2020.

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. 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 Securities and Exchange Commission ("SEC"), including its most recent Annual Report on Form 10-K and any subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-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 -

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDAX

Adjusted EBITDAX is not a measure of net loss as determined by GAAP. Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by the Company's 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 loss before depreciation, depletion and amortization, exploration and abandonment costs, net interest expense, interest income, income tax expense, change in Tax Receivable Agreement ("TRA") liability, stock-based compensation, acquisition costs, impairment on long-lived assets, loss on early extinguishment of debt, gain on sale of property, restructuring and other termination costs, accretion of asset retirement obligations, (gain) loss on derivatives, net settlements on derivative instruments, net premiums on options that settled during the period and other expenses.

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 loss 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 structure, and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net loss 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 loss attributable to Parsley Energy, Inc. stockholders for each of the periods indicated.

Operating Cash Margin

Operating cash margin is not a measure of operating income as determined by GAAP. Operating cash margin is a supplemental non-GAAP performance measure used by the Company as an indicator of the Company's profitability and ability to manage its operating income. The Company defines operating cash margin as net loss before income tax benefit, other revenues, depreciation, depletion and amortization, exploration and abandonment costs, stock-based compensation, impairment on long-lived assets, acquisition costs, accretion of asset retirement obligations, other operating expense, net interest expense, gain on sale of property, restructuring and other termination costs, loss on early extinguishment of debt, (gain) loss on derivatives, change in TRA liability, interest income, and other income. The amounts included in the calculations of operating cash margin were computed in accordance with GAAP.

Operating cash margin 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 the GAAP financial measure of net loss attributable to Parsley Energy, Inc. stockholders.

Free Cash Flow (Outspend)

Free cash flow (outspend) is not a measure of net cash provided by operating activities as determined by GAAP. Free cash flow (outspend) is a supplemental non-GAAP financial measure that is used by the Company as an indicator of the Company's ability to manage its operating cash flow (outspend), internally fund its exploration and development activities, pay dividends, and to service or incur additional debt. The Company defines free cash flow (outspend) as net cash provided by operating activities before changes in operating assets and liabilities, net of acquisitions and acquisition and cash restructuring costs related to the acquisition of Jagged Peak, less accrual-based development capital expenditures. The amounts included in the calculations of free cash flow (outspend) were computed in accordance with GAAP.

Free cash flow (outspend) 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 free cash flow (outspend) to the GAAP financial measure of net cash provided by operating activities.

Discretionary Cash Flow Per Share

Discretionary cash flow is not a measure of net cash provided by operating activities as determined by GAAP. Discretionary cash flow is a supplemental non-GAAP financial measure that is used by the Company as an indicator of the drivers of trends in our operating cash flows, such as production, realized sales prices and operating costs, because it disregards the timing of settlement of operating assets and liabilities. The Company defines discretionary cash flow as net cash provided by operating activities before changes in operating assets and liabilities, net of acquisitions and acquisition and cash restructuring costs related to the acquisition of Jagged Peak. The amounts included in the calculations of discretionary cash flow were computed in accordance with GAAP.

Discretionary cash flow 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 discretionary cash flow (outspend) to the GAAP financial measure of net cash provided by operating activities.

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 the Company's management to evaluate financial performance, prior to (gain) loss on derivatives, net settlements on derivative instruments, net premiums on options that settled during the period, gain on sale of property, restructuring and other termination costs, exploration and abandonment costs, impairment of long-lived assets, acquisition costs, change in TRA liability, loss on early extinguishment of debt, and other expenses, while adjusting for changes in noncontrolling interests, the associated changes in estimated income tax and changes to deferred tax asset valuation allowance. 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 (loss), operating income (loss), 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 attributable to Parsley Energy, Inc. stockholders.