Posted by OilVoice Press - OilVoice
Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended September 30, 2018. The Company has posted to its website a presentation that supplements the information in this release.
Third Quarter 2018 Highlights
Summary Comment and Outlook
"Parsley Energy's development program in 2018 has centered on operational continuity, and that focus has made us a more efficient organization," said Bryan Sheffield, Parsley's Chairman and CEO. "Since stabilizing our activity levels 12 months ago, Parsley has built operational momentum while expanding operating margins to Company-record levels. Looking ahead, we intend to keep a disciplined eye on cost control and operational efficiency while maintaining a steady development pace until we are in position to fund incremental activity with operating cash flow. This plan accelerates our progress toward a self-sustaining organic growth model, and at current commodity prices we expect to generate free cash flow by the end of 2019. This is the natural next step in Parsley's corporate evolution, and I am excited that we have assembled the right team to create shareholder value from our extensive inventory of high-quality assets."
Parsley delivered healthy execution across multiple disciplines during the third quarter, highlighted by efficient development operations and the successful pursuit of transactions that streamline the Company's premier Permian Basin acreage position.
During the third quarter, the Company spud 46 and placed on production 46 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 98%, with an average completed lateral length of approximately 9,400 feet. Completion activity was weighted toward the Midland Basin, where the Company placed on production 38 gross operated horizontal wells, with the remainder placed on production in the Delaware Basin. Faster drilling and completion operations translated to a new Company record for completed lateral footage in one quarter despite deliberately reduced equipment utilization as Parsley prioritized adherence to its stated budget. Analogous decisions regarding rig and frac spread utilization may characterize fourth quarter development operations as the Company again intends to emphasize conformity with full-year capital spending expectations.
"We challenged our teams to deliver more footage with the same equipment and they have delivered throughout 2018," said Matt Gallagher, Parsley's President. "The path to strong corporate returns and robust cash flow growth runs through west Texas, and our field personnel are setting the pace for the rest of the organization as we embrace new challenges and objectives."
Parsley recently high-graded the Company's acreage portfolio by agreeing to multiple transactions that serve to divest approximately 11,850 net acres in central Reagan County, southern Upton County, and northern Howard County for combined proceeds of approximately $170 million, subject to customary post-closing adjustments. These transactions include multiple divestitures and a trade through which Parsley exchanged acreage for other acreage and cash. Production on the divested and net traded assets was approximately 1,200 net Boe per day during 3Q18. All sales are expected to close by the end of 2018.
Notable Well Results
Parsley turned six wells to production in Martin County during 3Q18, comprised of two three-well pads targeting the Wolfcamp A and Wolfcamp B zones in a staggered configuration. Early results from these two-mile lateral wells are promising, with peak 30-day production rates averaging approximately 1,500 Boe per day (77% oil). One of these projects registered the Company's strongest 30-day oil rate from a three-well pad to date.
Also in Martin County, Parsley successfully utilized recycled water from its initial recycling pilot program during completion operations on one of the aforementioned pads, with reductions in both water sourcing and disposal costs. Following this successful initiative, Parsley intends to scale up its water recycling efforts on a targeted basis over the next several quarters.
During 3Q18, Parsley reported an average unhedged oil price realization of $62.78/Bbl net of transportation costs, representing a premium of $7.43/Bbl to the average Midland price(2) for the quarter. Parsley's reduced exposure to less favorable Midland basis differentials is the product of a proactive marketing strategy that began diversifying regional pricing exposure nearly 18 months ago. Parsley has also captured recent strength in NGL prices, reporting a 3Q18 NGL realization of $31.26/Bbl, representing a 15% quarter-over-quarter increase.
Parsley finalized previously disclosed marketing agreements with large oil purchasers during 3Q18, supplementing its advantaged takeaway position. These firm transport agreements increase Parsley's crude deliverability during 2019 and maintain favorable pricing elements by pricing a significant portion of the Company's barrels relative to Gulf Coast and international benchmarks.
Healthy execution in 3Q18 translated to strong performance in key financial measures.
During 3Q18, the Company recorded net income attributable to its stockholders of $113.3 million, or $0.41 per share, compared to net income attributable to its stockholders of $119.2 million, or $0.44 per share, during 2Q18. 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 3Q18 was $126.2 million, or $0.45 per share, compared to $106.4 million, or $0.39 per share, in 2Q18.(3)
Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 3Q18 was $385.0 million, up 13% quarter-over-quarter and up more than 130% when compared to the same measure in 3Q17.(3)
Parsley registered favorable trends in operating costs and margins during the third quarter of 2018. The Company reported LOE per Boe of $3.72,(1) up only slightly versus the peer-leading expense the Company posted in 2Q18. Stable LOE costs were driven by expansion of Parsley's cost-effective water management system and lower than anticipated workover activity.
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 $3.51(1)and $3.07(1) respectively. Encouraging G&A cost trends are a function of ongoing production growth on a stable development pace following a period of increasing development activity.
Strong realized oil and NGL pricing and favorable trends in the aforementioned cash operating costs drove a robust operating cash margin of $37.13 per Boe, or 78% of the Company's average realized price per Boe.(3)
Parsley reported capital expenditures of $444 million during the quarter, comprised of $383 million for operated drilling and completion activity, $52 million for operated facilities and infrastructure, and $9 million associated with non-operated development activity. The combination of cycle time compression, longer average lateral lengths, and a higher proportion of local sand usage translated to a 9% quarter-over-quarter reduction in average drilling and completion cost per lateral foot during the third quarter.
Liquidity and Hedging
As of September 30, 2018, Parsley had approximately $1.2 billion of liquidity, consisting of $168 million of cash and cash equivalents and an undrawn amount of $991 million on the Company's revolver.(4) Pro forma for the recently announced divestiture and acreage trade, the Company had approximately $1.3 billion of liquidity, including $333 million of cash and cash equivalents.
Almost all of Parsley's expected 2018 oil production is subject to hedge protection, and the Company recently added to its 2019 and 2020 hedge positions. Parsley's portfolio of option contracts protects its balance sheet and anticipated cash flow while retaining significant exposure to higher commodity prices. The Company has also entered into various basis swaps to protect against expansion of regional oil price differentials. For details on Parsley's hedge position, please see the tables below under Supplemental Information and/or the Company's Quarterly Report on Form 10-Q, upon availability, for the three months ended September 30, 2018.
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