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For the transition period from       to      

Commission File Number: 001-36463        

PARSLEY ENERGY, INC.

(Exact name of registrant as specified in its charter)

(737) 704-2300

(Registrant’s telephone number, including area code)   

(Former name, former address and former fiscal year, if changed since last report)  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol			Name of each exchange on which registered
Class A common stock, par value $0.01 per share			PE			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ý  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

ý

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐ No  ý

As of October 28, 2020, the registrant had 378,663,211 shares of Class A common stock and 34,201,316 shares of Class B common stock outstanding.

PARSLEY ENERGY, INC.

TABLE OF CONTENTS 

 

									Page
PART I. FINANCIAL INFORMATION
Item 1.						Financial Statements
						Condensed Consolidated Balance Sheets			8
						Condensed Consolidated Statements of Operations			9
						Condensed Consolidated Statements of Changes in Equity			10
						Condensed Consolidated Statements of Cash Flows			14
						Notes to Condensed Consolidated Financial Statements			15
Item 2.						Management’s Discussion and Analysis of Financial Condition and Results of Operations			43
Item 3.						Quantitative and Qualitative Disclosures About Market Risk			61
Item 4.						Controls and Procedures			63
PART II. OTHER INFORMATION
Item 1.						Legal Proceedings			64
Item 1A.						Risk Factors			64
Item 2.						Unregistered Sales of Equity Securities and Use of Proceeds			68
Item 6.						Exhibits			69
						Signatures			71

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our operations, performance, business strategy, oil and natural gas reserves, drilling program, capital expenditures, liquidity and capital resources, the timing and success of specific projects and acquisitions, outcomes and effects of litigation, claims and disputes, derivative activities, potential financing and prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “intend,” “potential,” “could,” “may,” “foresee,” “plan,” “goal” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” in this Quarterly Report, our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”), as well as the risk factors and other cautionary statements contained in our other filings with the United States Securities and Exchange Commission (“SEC”).

Our forward-looking statements address the various risks and uncertainties associated with the current market environment and the ongoing impacts of the novel coronavirus 2019 (“COVID-19”) pandemic, as well as the resulting significant impact on the global demand for oil, natural gas and natural gas liquids (“NGLs”) and the expected impact on our business, operations, earnings and results, including:

•the extent and duration of the volatility in global demand for, and prices of, oil, natural gas and NGLs;

•continued uncertainty regarding the length of time it will take for the United States and the rest of the world to slow the spread (or prevent further outbreaks) of COVID-19 to the point where the applicable governmental authorities will ease current restrictions, or will not impose additional restrictions, on various commercial and economic activities that have resulted in, and may in the future result in, significantly reduced demand for oil, natural gas and NGLs;

•the effect of an overhang of significant amounts of crude oil inventory stored in the United States and elsewhere

and the impact that such inventory overhang ultimately has on our ability to produce and sell oil, natural gas and

NGLs;

•uncertainty as to how the future actions of foreign oil producers will impact the supply of crude oil; and

•uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect the global credit markets as well as demand for oil, natural gas and NGLs.

In addition, forward-looking statements may include statements about our:

•our pending merger with Pioneer Natural Resources Company, a Delaware corporation. and the expected timing of the consummation of the merger;

•business strategy;

•reserves;

•realized oil, natural gas and NGLs prices;

•leasehold, minerals or business acquisitions or divestitures, including the Jagged Peak Acquisition (as defined herein);

•ability to achieve the anticipated synergies, operational efficiencies and returns from the Jagged Peak Acquisition;

•exploration and development drilling prospects, inventories, projects and programs;

•ability to replace the reserves we produce through drilling and property acquisitions;

•marketing of oil, natural gas and NGLs;

•financial strategy, liquidity and capital required for our development program;

•timing and amount of future production of oil, natural gas and NGLs;

•hedging strategy and results;

•future drilling plans;

•competition and government regulations;

•ability to obtain permits and governmental approvals;

•pending legal or environmental matters;

•costs of developing our properties;

•general economic conditions;

•credit markets;

•uncertainty regarding our future operating results; and

•plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

All forward-looking statements speak only as of the date of this Quarterly Report. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements. 

GLOSSARY OF CERTAIN TERMS AND CONVENTIONS USED HEREIN

The terms defined in this section may be used in this Quarterly Report:

(1)			Bbl. One stock tank barrel, of 42 U.S. gallons liquid volume, used in reference to crude oil, condensate or natural gas liquids.
(2)			Boe. One barrel of oil equivalent, with 6,000 cubic feet of natural gas being equivalent to one barrel of oil.
(3)			Boe/d. One barrel of oil equivalent per day.
(4)			British thermal unit or Btu. The heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
(5)			Completion. The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
(6)			Condensate. A mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.
(7)			Deterministic. The method of estimating reserves or resources is called deterministic when a single value for each parameter (from the geoscience, engineering, or economic data) in the reserves calculation is used in the reserves estimation procedure.
(8)			Developed acreage. Acreage spaced or assigned to productive wells, excluding undrilled acreage held by production under the terms of the applicable lease.
(9)			Development well. A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.
(10)			Dry hole. A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
(11)			Economically producible. A resource that generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. For a complete definition of economically producible, refer to the SEC’s Regulation S-X, Rule 4-10(a)(10).
(12)			Exploration costs. Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and natural gas reserves, including costs of drilling exploratory wells and exploratory-type stratigraphic test wells. Exploration costs may be incurred both before acquiring the related property and after acquiring the related property. Principal types of exploration costs, which include depreciation and applicable operating costs of support equipment and facilities and other costs of exploration activities, are:
			(i) Costs of topographical, geographical and geophysical studies, rights of access to properties to conduct those studies, and salaries and other expenses of geologists, geophysical crews, and others conducting those studies. Collectively, these are referred to as geological and geophysical costs or G&G costs.
			(ii) Costs of carrying and retaining undeveloped properties, such as delay rentals, ad valorem taxes on properties, legal costs for title defense, and the maintenance of land and lease records.
			(iii) Dry hole contributions and bottom hole contributions.
			(iv) Costs of drilling and equipping exploratory wells.
			(v) Costs of drilling exploratory type stratigraphic test wells.
(13)			Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.
(14)			Extension well. A well drilled to extend the limits of a known reservoir.
(15)			Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impervious, strata, or laterally by local geologic barriers, or by both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms structural feature and stratigraphic condition are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas-of-interest, etc.
(16)			Formation. A layer of rock which has distinct characteristics that differ from nearby rock.
(17)			Free cash flow. A non-GAAP financial measure, which we define 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.
(18)			GAAP. Accounting principles generally accepted in the United States.
(19)			Gross acres or gross wells. The total acres or wells, as the case may be, in which an entity owns a working interest.
(20)			Horizontal drilling. A drilling technique where a well is drilled vertically to a certain depth and then drilled laterally within a specified target zone.
(21)			Identified drilling locations. Potential drilling locations specifically identified by our management based on evaluation of applicable geologic and engineering data accrued over our multi-year historical drilling activities.

(22)			Lease operating expense. All direct and allocated indirect costs of lifting hydrocarbons from a producing formation to the surface constituting part of the current operating expenses of a working interest. Such costs include labor, superintendence, supplies, repairs, maintenance, allocated overhead charges, workover, insurance and other expenses incidental to production, but exclude lease acquisition or drilling or completion expenses.
(23)			LIBOR. London Interbank Offered Rate.
(24)			MBbl. One thousand barrels of crude oil, condensate or NGLs.
(25)			MBoe. One thousand barrels of oil equivalent.
(26)			Mcf. One thousand cubic feet of natural gas.
(27)			MMBoe. One million barrels of oil equivalent.
(28)			MMBtu. One million British thermal units.
(29)			MMcf. One million cubic feet of natural gas.
(30)			Natural gas liquids or NGLs. The combination of ethane, propane, butane, isobutane and natural gasolines that when removed from natural gas become liquid under various levels of higher pressure and lower temperature.
(31)			Net acres or net wells. The percentage of total acres or wells, as the case may be, an owner has out of a particular number of gross acres or wells. For example, an owner who has a 50% interest in 100 gross acres owns 50 net acres.
(32)			NYMEX. The New York Mercantile Exchange.
(33)			Operator. The entity responsible for the exploration, development and production of a well or lease.
(34)			Parsley LLC Agreement. The Limited Liability Company Agreement of Parsley LLC, dated June 11, 2013, thereafter amended and restated by the Second Amended and Restated Limited Liability Company Agreement, dated May 29, 2014, thereafter amended and restated by the Third Amended and Restated Limited Liability Company Agreement, dated February 20, 2019, thereafter amended and restated by the Fourth Amended and Restated Limited Liability Company Agreement, dated July 22, 2019, as in effect as of the applicable date.
(35)			PE Units. The single class of units that represents the membership interests in Parsley Energy, LLC.
(36)			Probabilistic. The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.
(37)			Proved developed reserves. Proved reserves that can be expected to be recovered:
			(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well; or
			(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
(38)			Proved reserves. Those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence, within a reasonable time. For a complete definition of proved oil and natural gas reserves, refer to the SEC’s Regulation S-X, Rule 4-10(a)(22).
(39)			Proved undeveloped reserves or PUDs. Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. The following rules apply to PUDs:
			(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances;
			(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time; and
			(iii) Under no circumstances shall estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.
(40)			Reasonable certainty. A high degree of confidence. For a complete definition of reasonable certainty, refer to the SEC’s Regulation S-X, Rule 4-10(a)(24).
(41)			Recompletion. The process of re-entering an existing wellbore that is either producing or not producing and completing new or existing reservoirs in an attempt to establish new production or increase existing production.

(42)			Reliable technology. A grouping of one or more technologies (including computational methods) that have been field tested and have been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.
(43)			Reserves. Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development prospects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project.
(44)			Reservoir. A porous and permeable underground formation containing a natural accumulation of producible hydrocarbons that is confined by impermeable rock or water barriers and is separate from other reservoirs.
(45)			SEC. The United States Securities and Exchange Commission.
(46)			Spacing. The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory agencies.
(47)			Undeveloped acreage. Leased acreage on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil or natural gas regardless of whether such acreage contains proved reserves.
(48)			Wellbore. The hole drilled by the bit that is equipped for oil or gas production on a completed well. Also called well or borehole.
(49)			Working interest. The right granted to the lessee of a property to explore for and to produce and own oil, natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.
(50)			Workover. Operations on a producing well to restore or increase production.
(51)			WTI. West Texas Intermediate crude oil, which is a light, sweet crude oil, characterized by an American Petroleum Institute gravity, or API gravity, between 39 and 41 and a sulfur content of approximately 0.4 weight percent that is used as a benchmark for other crude oils.