Permian Resources Announces Strong Second Quarter 2024 Results and Increased Full Year Guidance

Business Wire 6-Aug-2024 4:05 PM

Permian Resources Corporation ("Permian Resources" or the "Company") (NYSE:PR) today announced its second quarter 2024 financial and operational results and revised 2024 guidance.

Recent Financial and Operational Highlights

• Reported crude oil and total average production of 152.9 MBbls/d and 338.8 MBoe/d during the quarter
• Decreased controllable cash costs by 8% quarter-over-quarter to $7.45 per Boe, driven primarily by lower LOE
• Reduced second quarter D&C costs per foot by ~13% compared to 2023, driven by operational efficiencies
• Announced cash capital expenditures of $516 million and adjusted free cash flow¹ of $332 million ($0.43 per adjusted basic share)
• Reported total return of capital of $193 million, or $0.25 per share, including $0.06 per share base dividend, $0.15 per share variable dividend and $30 million in share repurchases
• Continued to drive shareholder value through accretive acquisitions:
  • Closed previously announced Eddy County bolt-on
  • Announced $817.5 million acquisition from Occidental, adding ~29,500 net acres and ~15,000 Boe/d directly offset existing operations
• Increased mid-point of full year standalone oil and total production guidance by ~1.5% to 152 MBbls/d and 325 MBoe/d, driven primarily by continued strong operational performance

Management Commentary

"Our team and asset base continue to perform extremely well, and our continued focus on further improving our position as the low-cost leader in the Delaware Basin has paid-off across the board, from controllable cash costs to drilling, completions and other capex," said Will Hickey, Co-CEO of Permian Resources. "This has allowed us to increase our full year oil guidance for the second consecutive quarter, while maintaining our original capital outlook."

"We are proud to continue building upon our track record of consistent operational execution and cost reduction. This allowed us to generate $0.43 per share of adjusted free cash flow, or $332 million," said James Walter, Co-CEO of Permian Resources. "Our history of strong operational performance and accretive acquisitions has allowed us to grow adjusted free cash flow per share over 60% since the first quarter 2023, and we've continued that track record with our second quarter results and the recent Barilla Draw acquisition."

Operational and Financial Results

During the second quarter, average daily crude oil production was 152,883 barrels of oil per day ("Bbls/d"), a 1% increase compared to the prior quarter. Total production was 338,761 barrels of oil equivalent per day ("Boe/d"), a 6% increase compared to the prior quarter. Oil outperformance was driven by continued strong execution, with the outperformance in total production further enhanced by higher ethane recovery during the quarter.

The Company continues to increase operational efficiencies, driving down drilling and completions costs per foot. For the second quarter, drilling and completion costs per lateral foot were approximately $830, a 13% reduction from 2023. Total cash capital expenditures ("capex") for the second quarter were $516 million. "We have built on our momentum from the prior quarter. The second quarter represents our best D&C performance to-date, including averaging approximately 1,500 feet drilled per day per rig," said Will Hickey, Co-CEO.

The Company demonstrated strong cost control in the second quarter, with total controllable cash costs (LOE, GP&T and cash G&A) decreasing 8% quarter-over-quarter to $7.45 per Boe. Second quarter LOE was $5.18 per Boe, GP&T was $1.42 per Boe and Cash G&A was $0.85 per Boe.

"Our team has done a tremendous job demonstrating cost control and synergy realization," said Will Hickey, Co-CEO. "Less than nine months after closing the Earthstone acquisition, we've driven field costs back down to legacy PR levels. This is a testament to our operations team and clear demonstration of our track-record of capturing synergies."

Realized prices for the quarter were $80.10 per barrel of oil, $0.01 per Mcf of natural gas and $22.51 per barrel of natural gas liquids ("NGLs"), excluding the effects of hedges and GP&T costs. During the quarter, regional natural gas prices in the Permian Basin were negatively impacted as a result of pipeline capacity constraints, which are expected to be alleviated as additional pipeline capacity comes online later this year.

For the second quarter, Permian Resources generated net cash provided by operating activities of $938 million, adjusted operating cash flow¹ of $849 million ($1.10 per adjusted basic share) and adjusted free cash flow¹ of $332 million ($0.43 per adjusted basic share).

Recent Acquisition

On July 29, 2024, Permian Resources announced that it had entered into a definitive agreement with Occidental (NYSE:OXY) to purchase ~29,500 net acres, ~9,900 net royalty acres and ~15,000 Boe/d in the core of the Delaware Basin for $817.5 million. The acquired assets are concentrated directly offset Permian Resources' existing position in Reeves County, Texas and Eddy County, New Mexico. Permian Resources has identified over 200 gross operated, high-NRI two-mile locations which immediately compete for capital. The Company expects to begin development on the acquired properties during the fourth quarter 2024. The acquired assets in Reeves County also include a fully integrated midstream system which consists of over 100 miles of operated oil and gas gathering pipeline and over 10,000 surface acres, in addition to complementary water infrastructure including saltwater disposal wells, a recycling facility, frac ponds and water wells. The transaction is expected to close by the end of the third quarter 2024.

2024 Operational Plan and Target Update

Based on recent operational results, Permian Resources increased its 2024 standalone oil and total production targets by approximately 1.5% to 151-153 MBbls/d and 320-330 MBoe/d, respectively, based on the mid-point of guidance. The Company is also adjusting the expected number of turn-in-lines ("TILs") for 2024 to approximately 265 gross wells, as a result of higher operational efficiencies and reduced cycle times. There are no other changes to the Company's standalone guidance ranges.

The recent Occidental acquisition noted above is expected to add approximately 15,000 Boe/d (~55% oil) of total production during the fourth quarter 2024. Notably, the potential impact of the recently announced acquisition is not included in the revised standalone guidance.

(For a detailed table summarizing Permian Resources' revised 2024 standalone operational and financial guidance, please see the Appendix of this press release.)

Financial Update

Permian Resources continues to execute on the conservative financial strategy it has pursued since formation. The Company funded the previously announced Barilla Draw bolt-on acquisition through a combination of equity and debt, issuing 26.5 million shares of Class A Common Stock to raise approximately $403 million in proceeds and $1 billion of 6.25% senior notes due 2033 at par. In addition to funding the pending Barilla Draw acquisition, the proceeds from the notes will be used to redeem the 7.75% senior notes due 2026 and fully repay the credit facility.

The Company's maturity profile was further strengthened by a cash tender offer to purchase any and all of its outstanding 7.75% Senior Notes due 2026. Subject to the completion of the tender offer, the Company intends to redeem all 7.75% Senior Notes due 2026 not purchased in the tender offer. After giving effect to recent transactions, Permian Resources' pro forma total liquidity is approximately $2.5 billion. Additionally, the Company placed additional crude oil hedges in 2025 and 2026. Giving effect to those new hedges, Permian Resources has approximately 45, 43 and 18 MBbls/d of oil hedged for the second half of 2024, 2025 and 2026, respectively.

The Company remains focused on establishing investment grade credit ratings. Since the first quarter 2024, Moody's Ratings upgraded Permian Resources to Ba2 with positive outlook and S&P Global Ratings upgraded Permian Resources to BB with stable outlook. Giving effect to these upgrades, Permian Resources is rated BB (S&P), Ba2 (Moody's) and BB (Fitch). Permian Resources continues to prioritize preserving a strong balance sheet and maintaining financial flexibility to support leading total shareholder returns. "We are proud of our financial strength and have comparable attributes to our investment grade peers. As a result, we are targeting investment grade credit ratings in 2025," said Guy Oliphint, Chief Financial Officer.

Shareholder Returns

Permian Resources announced today that its Board of Directors (the "Board") declared a quarterly base cash dividend of $0.06 per share of the Company's Class A common stock, or $0.24 per share on an annualized basis. Additionally, based upon second quarter financial results, the Board has declared a quarterly variable cash dividend of $0.15 per share of Class A common stock. Combined, the base and variable dividends represent a total cash return of $0.21 per share. The base and variable dividends are payable on August 27, 2024 to shareholders of record as of August 19, 2024. Permian Resources returned additional capital to shareholders in the second quarter by repurchasing 1.8 million shares of common stock for $30 million. The Company's second quarter total return of capital, inclusive of the base dividend, variable dividend and share repurchases, was $0.25 per share.

Quarterly Report on Form 10-Q

Permian Resources' financial statements and related footnotes will be available in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, which is expected to be filed with the Securities and Exchange Commission ("SEC") on August 7, 2024.

Conference Call and Webcast

Permian Resources will host an investor conference call on Wednesday, August 7, 2024 at 9:00 a.m. Central (10:00 a.m. Eastern) to discuss second quarter 2024 operating and financial results. Interested parties may join the call by visiting Permian Resources' website at www.permianres.com and clicking on the webcast link or by dialing (800) 267-6316 (Conference ID: PRCQ224) at least 15 minutes prior to the start of the call. A replay of the call will be available on the Company's website or by phone at (800) 925-9354 (Passcode: 24995) for a 14-day period following the call.

About Permian Resources

Headquartered in Midland, Texas, Permian Resources is an independent oil and natural gas company focused on the responsible acquisition, optimization and development of high-return oil and natural gas properties. The Company's assets and operations are concentrated in the core of the Delaware Basin, making it the second largest Permian Basin pure-play E&P. For more information, please visit www.permianres.com.

Cautionary Note Regarding Forward-Looking Statements

The information in this press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this press release, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this press release, the words "could," "may," "believe," "anticipate," "intend," "estimate," "expect," "project," "goal," "plan," "target" 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 management's current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

Forward-looking statements may include statements about:

• volatility of oil, natural gas and NGL prices or a prolonged period of low oil, natural gas or NGL prices and the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries ("OPEC"), such as Saudi Arabia, and other oil and natural gas producing countries, such as Russia, with respect to production levels or other matters related to the price of oil, natural gas and NGLs;
• political and economic conditions and events in or affecting other producing regions or countries, including the Middle East, Russia, Eastern Europe, Africa and South America;
• our business strategy and future drilling plans;
• our reserves and our ability to replace the reserves we produce through drilling and property acquisitions;
• our drilling prospects, inventories, projects and programs;
• our financial strategy, return of capital program, leverage, liquidity and capital required for our development program;
• the timing and amount of our future production of oil, natural gas and NGLs;
• our ability to identify, complete and effectively integrate acquisitions of properties, assets or businesses;
• our hedging strategy and results;
• our competition;
• our ability to obtain permits and governmental approvals;
• our compliance with government regulations, including those related to climate change as well as environmental, health and safety regulations and liabilities thereunder;
• our pending legal matters;
• the marketing and transportation of our oil, natural gas and NGLs;
• our leasehold or business acquisitions;
• cost of developing or operating our properties;
• our anticipated rate of return;
• general economic conditions;
• weather conditions in the areas where we operate;
• credit markets;
• our ability to make dividends, distributions and share repurchases;
• uncertainty regarding our future operating results;
• our plans, objectives, expectations and intentions contained in this press release that are not historical; and
• the other factors described in our most recent Annual Report on Form 10-K, and any updates to those factors set forth in our subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development, production, gathering and sale of oil, natural gas and NGLs. Factors which could cause our actual results to differ materially from the results contemplated by forward-looking statements include, but are not limited to:

• commodity price volatility (including regional basis differentials);
• uncertainty inherent in estimating oil, natural gas and NGL reserves, including the impact of commodity price declines on the economic producibility of such reserves, and in projecting future rates of production;
• geographic concentration of our operations;
• lack of availability of drilling and production equipment and services;
• lack of transportation and storage capacity as a result of oversupply, government regulations or other factors;
• risks relating to the merger (the "Earthstone Merger") of the Company with Earthstone Energy, Inc., a Delaware corporation ("Earthstone"), and its subsidiaries;
• risks related to our recent bolt-on transactions, including the risk that we may fail to complete and integrate such acquisitions on the terms and timing currently contemplated, or at all, and/or to realize the expected benefits of such acquisitions;
• competition in the oil and natural gas industry for assets, materials, qualified personnel and capital;
• drilling and other operating risks;
• environmental and climate related risks, including seasonal weather conditions;
• regulatory changes, including those that may result from the U.S. Supreme Court's recent decision overturning the Chevron deference doctrine and that may impact environmental, energy, and natural resources regulation;
• restrictions on the use of water, including limits on the use of produced water and potential restrictions on the availability to water disposal facilities;
• availability to cash flow and access to capital;
• inflation;
• changes in our credit ratings or adverse changes in interest rates;
• changes in the financial strength of counterparties to our credit agreement and hedging contracts;
• the timing of development expenditures;
• political and economic conditions and events in foreign oil and natural gas producing countries, including embargoes, continued hostilities in the Middle East and other sustained military campaigns, including the conflict in Israel and its surrounding areas, the war in Ukraine and associated economic sanctions on Russia, conditions in South America, Central America, China and Russia, and acts of terrorism or sabotage;
• changes in local, regional, national, and international economic conditions;
• security threats, including evolving cybersecurity risks such as those involving unauthorized access, denial-of-service attacks, third-party service provider failures, malicious software, data privacy breaches by employees, insiders or other with authorized access, cyber or phishing-attacks, ransomware, social engineering, physical breaches or other actions; and
• other risks described in our filings with the SEC.

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data, and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

Should one or more of the risks or uncertainties described in this press release occur, or should any underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release.

1) Adjusted Operating Cash Flow, Adjusted Free Cash Flow and Net Debt-to-LQA EBITDAX are non-GAAP financial measures. See "Non-GAAP Financial Measures" included within the Appendix of this press release for related disclosures and reconciliations to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Details of our revised 2024 operational and financial guidance are presented below:

Reconciliation of cash, cash equivalents and restricted cash presented on the Consolidated Statements of Cash Flows for the periods presented:

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with U.S. generally accepted accounting principles ("GAAP"), our earnings release contains non-GAAP financial measures as described below.

Adjusted EBITDAX

Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDAX as net income attributable to Class A Common Stock before net income attributable to noncontrolling interest, interest expense, income taxes, depreciation, depletion and amortization, impairment and abandonment expense, non-cash gains or losses on derivatives, stock-based compensation (not cash-settled), exploration and other expenses, merger and integration expense, gain/loss from the sale of long-lived assets and other non-recurring items. Adjusted EBITDAX is not a measure of net income as determined by GAAP.

Our management believes Adjusted EBITDAX is useful as it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within our 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 our operating performance or liquidity. 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. Our presentation of Adjusted EBITDAX should not be construed as an inference that our results will be unaffected by unusual or nonrecurring items. Our computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of Adjusted EBITDAX to net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP:

Net Debt-to-LQA EBITDAX

Net debt-to-LQA EBITDAX is a non-GAAP financial measure. We define net debt as long-term debt, net, plus unamortized debt discount, premium and debt issuance costs on our senior notes minus cash and cash equivalents.

We define net debt-to-LQA EBITDAX as net debt (defined above) divided by Adjusted EBITDAX (defined and reconciled in the section above) for the three months ended June 30, 2024, on an annualized basis. We refer to this metric to show trends that investors may find useful in understanding our ability to service our debt. This metric is widely used by professional research analysts, including credit analysts, in the valuation and comparison of companies in the oil and gas exploration and production industry. The following table presents a reconciliation of net debt to long-term debt, net and the calculation of net debt-to-LQA EBITDAX for the period presented:

Adjusted Shares

Adjusted basic and diluted weighted average shares outstanding ("Adjusted Basic and Diluted Shares") are non-GAAP financial measures defined as basic and diluted weighted average shares outstanding adjusted to reflect the weighted average shares of our Class C Common Stock outstanding during the period.

Our Adjusted Basic and Diluted Shares provide a comparable per share measurement when presenting results such as adjusted free cash flow and adjusted net income that include the interests of both net income attributable to Class A Common Stock and the net income attributable to our noncontrolling interest. Adjusted Basic and Diluted Shares are used in calculating several metrics that we use as supplemental financial measurements in the evaluation of our business.

The following table presents a reconciliation of Adjusted Basic and Diluted Shares to basic and diluted weighted average shares outstanding, which are the most directly comparable financial measure calculated and presented in accordance with GAAP:

Adjusted Operating Cash Flow and Adjusted Free Cash Flow

Adjusted operating cash flow and adjusted free cash flow are supplemental non-GAAP financial measures used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define adjusted operating cash flow as net cash provided by operating activities adjusted to remove changes in working capital, merger and integration and other non-recurring charges, and estimated tax distributions to our non-controlling interest owners. Adjusted operating cash flows is reduced by total cash capital expenditures to arrive at adjusted free cash flows.

Our management believes adjusted operating cash flow and adjusted free cash flow are useful indicators of the Company's ability to internally fund its future exploration and development activities, to service its existing level of indebtedness or incur additional debt, without regard to the timing of settlement of either operating assets and liabilities, its merger and integration and other non-recurring costs or estimated tax distributions to noncontrolling interest owners after funding its capital expenditures paid for the period. The Company believes that these measures, as so adjusted, present meaningful indicators of the Company's actual sources and uses of capital associated with its operations conducted during the applicable period. Our computation of adjusted operating cash flow and adjusted free cash flow may not be comparable to other similarly titled measures of other companies. Adjusted operating cash flow and adjusted free cash flow should not be considered as alternatives to, or more meaningful than, net cash provided by operating activities as determined in accordance with GAAP or as indicators of our operating performance or liquidity.

Adjusted operating cash flow and adjusted free cash flow are not financial measures that are determined in accordance with GAAP. Accordingly, the following table presents a reconciliation of adjusted operating cash flow and adjusted free cash flow to net cash provided by operating activities, which is the most directly comparable financial measure calculated and presented in accordance with GAAP:

Adjusted Net Income

Adjusted net income is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define adjusted net income as net income attributable to Class A Common Stock plus net income attributable to noncontrolling interest adjusted for non-cash gains or losses on derivatives, merger and integration expense, other nonrecurring charges, impairment and abandonment expense, gain/loss from the sale of long-lived assets and the related income tax adjustments for these items. Adjusted net income is not a measure of net income as determined by GAAP.

Our management believes adjusted net income is useful as it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers by excluding certain non-cash items that can vary significantly. Adjusted net income 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 our operating performance or liquidity. Our presentation of adjusted net income should not be construed as an inference that our results will be unaffected by unusual or nonrecurring items. Our computations of adjusted net income may not be comparable to other similarly titled measures of other companies.

Adjusted net income is not a financial measure that is determined in accordance with GAAP. Accordingly, the following table presents a reconciliation of adjusted net income to net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP:

The following table summarizes the approximate volumes and average contract prices of the hedge contracts the Company had in place as of July 31, 2024. There were no additional contracts entered into through the date of this filing:

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