PE Parsley Energy Inc

AUSTIN, Texas, Aug. 5, 2020 /PRNewswire/ -- Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended June 30, 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

• In light of improved oil pricing and reduced volatility, Parsley is revising its baseline capital budget assumption from a $20-$30 WTI oil price to a $35 WTI oil price for the remainder of 2020. In this context, the Company is narrowing its 2020 capital budget to $650-$700 million from less than $700 million.
• With regional oil prices trading below $20 per barrel during a portion of 2Q20, Parsley suspended all new drilling and completion activity during May and June. In recent weeks, with regional oil prices trading consistently above the Company's baseline capital budget assumption of $35 per barrel, Parsley has reactivated two rigs and two frac spreads. 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 $35 WTI oil prices for the remainder of the year, is now targeting at least $350 million of free cash flow⁽¹⁾ in 2020, which is an increase of $50 million from the Company's prior target.

Recent Highlights

• Generated positive free cash flow⁽¹⁾ in 2Q20.
• Paid 2Q20 quarterly dividend of $0.05 per share on June 19, 2020 and declared 3Q20 quarterly dividend of $0.05 per share⁽²⁾ payable on September 18, 2020.
• Parsley has reduced natural gas flaring at locations previously operated by Jagged Peak Energy Inc. ("Jagged Peak") by approximately 90% since acquiring the properties in January 2020. At a corporate level, Parsley flared less than 1.5% of its gross natural gas production in 2Q20.
• Parsley's detailed preparation helped steer a collaborative effort across multiple disciplines to manage 2Q20 production curtailments in a safe, environmentally responsible, and efficient manner. The Company curtailed more than 20% of its oil production in May and restored the vast majority of these volumes in June.
• 2Q20 net oil production decreased 11% quarter-over-quarter and increased 30% year-over-year to 112.6 MBo per day. Total 2Q20 net production averaged 183.2 MBoe per day.

Summary Comment and Outlook 

"From a macro standpoint, the second quarter represented an unforgiving stress test for much of our industry," commented Matt Gallagher, Parsley's President and CEO. "The worst may be behind us - prices have found firmer footing as oil markets seek a cautious equilibrium. However, at Parsley Energy, we harbor no illusions of the difficulties facing our industry and we remain well built for that endurance test. During this challenging second quarter, our team did not merely run in place, but instead progressed our corporate sustainability efforts on multiple fronts. On the financial front, we generated robust free cash flow and remain committed to free cash flow sustainability in 2021 and beyond. On the environmental front, we reduced natural gas flaring on recently acquired properties by approximately 90% and we will continue to advance our environmental sustainability efforts with tangible goals moving forward. I am proud of the Parsley team for focusing on controlling what was within our control and for delivering on our action plan during uncertain times."

Operational Update

During January and February, Parsley operated 15 development rigs and five frac spreads before steadily dropping activity throughout March. In late April, as a result of regional oil prices trading below $20 per barrel, Parsley suspended all new drilling and completion operations and did not deploy any rigs or frac spreads during May or June.

Parsley also proactively managed production volumes through voluntary curtailments during 2Q20 based on near-term regional pricing dynamics and environmental stewardship objectives. During May, at the height of these curtailments, Parsley actively curtailed more than 20% of its net oil production. The Company restored the vast majority of these curtailed volumes in June in a safe, environmentally responsible, and efficient manner.

Parsley utilized this collective downtime to advance various environmental stewardship initiatives, including implementing various midstream solutions to mitigate natural gas flaring. Parsley closed its acquisition of Jagged Peak in January 2020, inheriting properties that had collectively flared approximately 20% of their natural gas production in 2019. After six months of operating these assets, Parsley had utilized a variety of midstream solutions to help reduce natural gas flaring by approximately 90%.

During the second quarter of 2020, the Company spud 8 and placed on production 17 gross operated horizontal wells. Parsley's average working interest on wells placed on production was approximately 85%, with an average completed lateral length of approximately 9,500 feet. The Company placed on production 13 gross operated horizontal wells in the Midland Basin, with the remainder placed on production in the Delaware Basin.

In July, Parsley reactivated two rigs and two frac spreads given more constructive oil prices consistently trading above Parsley's baseline price assumptions. Provided market fundamentals do not deteriorate, Parsley anticipates moving to a stabilized activity level of four-to-five rigs and one-to-two frac spreads in early 4Q20.

Financial Update

Healthy execution in 2Q20, under challenging conditions, translated to strong performance in key financial measures.

Profitability

During 2Q20, the Company recorded net loss attributable to its stockholders of $0.4 billion, or $0.95 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 2Q20 was $10.1 million, or $0.03 per share.⁽¹⁾

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 2Q20 was $211.6 million.⁽¹⁾

Realized Pricing

During 2Q20, Parsley reported an average hedged oil price realization of $31.47 per Bbl net of transportation costs. Given heightened volatility in regional oil prices during 2Q20, the Company elected to monetize certain financial hedges and concurrently entered into fixed price physical sales agreements with select marketers. In a rising oil price environment, this practice would result in larger realized hedge gains and lower unhedged oil price realizations, but would have no material impact to cash flow. During 2Q20, Parsley reported an average unhedged oil price realization of $18.30 per Bbl net of transportation costs. Absent any financial hedge monetization or fixed price physical agreements during 2Q20, the Company's average unhedged oil price realization would have increased by approximately $5.00 per Bbl, but there would have been no material change to the Company's average hedged oil price realization. Parsley has not entered into any additional fixed price physical agreements that would impact reported oil price realizations in the future.

Operating Costs

During the second quarter of 2020, the Company reported lease operating expense ("LOE") per Boe of $3.69, down 10% versus 1Q20 expense levels despite decreased production volumes. Favorable LOE unit cost trends were driven by supplier price reductions, the shut-in of higher per-Boe cost vertical wells, and continued utilization of the Company's integrated water handling system. Parsley is reinstating full-year 2020 LOE per Boe guidance at $3.75-$4.25, which reflects a tightening of the Company's initial guidance range of $3.50-$4.50 per Boe.

Both general and administrative expense ("G&A") per Boe and cash based G&A per Boe⁽¹⁾, which excludes stock-based compensation expense, decreased year-over-year to $2.21 and $1.81, respectively. Encouraging G&A cost trends are a function of ongoing corporate cost savings initiatives, including the expedient integration of Jagged Peak, which helped accelerate the timeline for synergy capture. Parsley is reinstating full-year 2020 cash G&A per Boe guidance at $1.80-$1.90, a 16% reduction to the Company's initial guidance range of $2.00-$2.40 per Boe at the midpoints. Parsley now expects full-year 2020 cash based G&A of approximately $125 million or less, a reduction of at least $5 million from the prior forecast and a reduction of approximately $40 million versus the midpoints of initial guidance.⁽³⁾

Capital Expenditures

Parsley reported capital expenditures of $64 million during the second quarter of 2020, comprised of $60 million for operated drilling, completion, and equipment activity, and $4 million associated with water infrastructure and non-operated development activity.

Return of Capital Program

Today Parsley Energy's Board of Directors declared a quarterly dividend of $0.05 per share.⁽²⁾ The dividend is payable on September 18, 2020, to shareholders of record on September 8, 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 June 30, 2020, Parsley had approximately $640.6 million of liquidity, consisting of $2.3 million of cash and cash equivalents and an availability of $638.3 million on the Company's revolver.⁽⁴⁾

Consistent with the Company's strategy to methodically protect its future cash flow, Parsley recently initiated a 2022 hedge position. 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 June 30, 2020.

2020 Guidance⁽⁵⁾

The Company is narrowing its 2020 capital budget to $650-$700 million (previously less than $700 million), with reported 1H20 capital expenditures of $443 million representing more than 60% of this full-year budget. Following strong operating cost control in the second quarter of 2020, Parsley is reinstating full-year 2020 guidance on unit costs. Out of an abundance of caution, the Company has not elected to reinstate detailed guidance on production and activity given ongoing uncertainty caused by the novel coronavirus 2019, or "COVID-19." 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 second quarter of 2020 on Thursday, August 6, 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 August 13, 2020 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13706311. 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 Simmons Gleneagles Virtual Conference on September 2, 2020 and the Barclays CEO Energy-Power Virtual Conference on September 9, 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) income 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) income 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, (gain) loss on early extinguishment of debt, gain on sale of property, rig termination costs, restructuring and other termination costs, accretion of asset retirement obligations, loss (gain) on derivatives, net settlements on derivative instruments, net premiums on options that settled during the period and other.

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) income attributable to Parsley Energy, Inc. stockholders for each of the periods indicated.

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, analysts and investors 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, without regard to the timing of settlement of either operating assets and liabilities or accounts payable related to capital expenditures. The Company believes that this measure, as so adjusted, presents a meaningful indicator of the Company's actual sources and uses of capital associated with its operations conducted during the applicable period. 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.

Adjusted Net Income

Adjusted net income is not a measure of net (loss) 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 loss (gain) on derivatives, net settlements on derivative instruments, net premiums on options that settled during the period, gain on sale of property, rig termination costs, restructuring and other termination costs, exploration and abandonment costs, impairment of long-lived assets, acquisition costs, change in TRA liability, (gain) loss on early extinguishment of debt, and other, 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 (loss) income, 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) income attributable to Parsley Energy, Inc. stockholders.