Creating Value

With premier acreage, a leading growth profile, robust returns, abundant resource upside, and a strong financial position, Parsley Energy is poised for high-return growth across market cycles, creating value for our shareholders.

Parsley Energy Announces Fourth Quarter 2018 Financial And Operating Results

Feb 21, 2019

AUSTIN, Texas, Feb. 21, 2019 /PRNewswire/ -- Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended December 31, 2018. The Company has posted a presentation to its website that supplements the information in this release.

Fourth Quarter 2018 Highlights

  • Net oil production increased 5% quarter-over-quarter and 50% year-over-year to 77.0 MBo per day. Total net production averaged 119.8 MBoe per day.(1)
  • Parsley delivered strong operational results, highlighted by favorable trends in operating costs and completion efficiency, in addition to successfully drilling the Company's first three-mile lateral well.
    • Parsley reported lease operating expense ("LOE") per Boe of $3.61 during 4Q18, a 3% reduction versus 3Q18.
    • The Company completed over 400,000 lateral feet during 4Q18, which resulted in a new Company record for completion efficiency.(2)
    • Parsley recently drilled a three-mile lateral Wolfcamp well in its Northern Midland County area, representing one of the longest laterals ever drilled in the Permian Basin. The Company executed this technical feat in 25 days, including less than nine days spent drilling the three-mile lateral segment.
  • Proved reserves of 521.7 MMBoe as of December 31, 2018 represent a 25% increase versus proved reserves as of December 31, 2017. Proved developed reserves of 311.3 MMBoe as of December 31, 2018 represent a 49% increase versus proved developed reserves as of December 31, 2017.

Summary Comment and Outlook

"By any measure 2018 was a strong operational year for Parsley Energy, as we both expanded operating margins to Company-record levels and greatly enhanced our operational efficiency," said Matt Gallagher, Parsley's President and CEO. "As we turn to 2019, our top priorities are demonstrating meaningful progress toward sustainable free cash flow generation and recording a tangible year-over-year improvement in capital efficiency. Underpinning these key objectives is a deliberate shift in our development approach to prioritize project-level rate of return, a strategy enabled by our deep, high-quality inventory."

Operational Update

Parsley achieved improved operational efficiency during the fourth quarter of 2018.

Activity Overview

During the fourth quarter of 2018, the Company spud 38 and placed on production 43 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 96%, with an average completed lateral length of approximately 9,300 feet. Completion activity was weighted toward the Midland Basin, where the Company placed on production 37 gross operated horizontal wells, with the remainder placed on production in the Delaware Basin.

Consistent with prior commentary, Parsley reduced its activity levels from 16 development rigs and five frac spreads to 14 development rigs and four frac spreads during 4Q18. Notwithstanding this reduction in equipment, the Company completed over 400,000 lateral feet during the fourth quarter of 2018, translating to a new Company record for completion efficiency.(2)

"Recapturing the top-tier operational efficiency Parsley expects was a key focus during 2018," said David Dell'Osso, Parsley's COO. "Our teams delivered results over and above our high standards, and we expect to preserve and build upon these operational efficiency gains in 2019."

Notable Well Results

Parsley intends to increase development activity in its Northern Midland County area during 2019, a development approach made possible by close collaboration and solid execution across multiple disciplines within the organization. The Company has turned 14 wells to production in this area over the past six months, with encouraging early results. These wells included three wells on the Massey lease, which targeted the Lower Spraberry, Wolfcamp A and Wolfcamp B in a stacked configuration. Early results from these three 2.5-mile lateral wells are promising, with production averaging approximately 1,900 Boe per day (82% oil) after more than 50 days online and having not reached anticipated peak 30-day rates.

Also in its Northern Midland County area, Parsley recently drilled a three-mile lateral Wolfcamp well, representing one of the longest laterals ever drilled in the Permian Basin. The Company executed this technical feat in only 25 days, with less than nine days spent drilling the three-mile lateral segment.

Financial Update

Healthy execution in 4Q18 translated to strong performance in key financial measures.

Profitability

The Company recorded net income attributable to its stockholders of $53.8 million, or $0.19 per share, in 4Q18 and $369.1 million, or $1.35 per share, for the year. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, adjusted net income was $82.5 million, or $0.30 per share, in 4Q18 and $385.1 million, or $1.41 per share, for the year.(3)

Consistent with the Company's commitment to capital discipline and in response to recent commodity price trends, Parsley has announced reductions in rig and frac spread counts and intends to reduce its 2019 capital leasing and acquisition spending. As a result, in 4Q18, the Company recorded non-cash leasehold impairment expense of $127.0 million relating to acreage expiring in future periods because there are no current plans to drill or extend the leases prior to their expiration in 2019.

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") was $319.5 million in 4Q18 and $1,327.0 million for the year.(3)

Realized Pricing

During 4Q18, Parsley reported an average unhedged oil price realization of $54.22/Bbl net of transportation costs, representing a premium to the average Midland price(4) for the quarter. Parsley's positive pricing uplift versus Midland prices during 2018 was the product of a proactive marketing strategy to diversify regional pricing exposure beginning in mid-2017. Parsley's future firm transport agreements maintain favorable pricing elements by pricing a significant portion of the Company's barrels relative to Gulf Coast and international benchmarks.

Operating Costs

Parsley registered favorable trends in operating costs and margins during the fourth quarter of 2018. The Company reported LOE per Boe of $3.61,(1) a 3% reduction versus 3Q18. Favorable LOE cost trends were driven by lower workover activity and the divestiture of properties with higher unit cost vertical production. Parsley is initiating full-year 2019 LOE per Boe guidance of $3.50-$4.50, a modest increase from 2018 average driven in part by a higher mix of planned development activity in the northern Midland Basin.

During 4Q18, Parsley reported general and administrative expense ("G&A") per Boe and cash based G&A per Boe, which excludes stock-based compensation expense, of $3.85(1) and $3.42,(1) respectively. Parsley is initiating full-year 2019 cash G&A per Boe guidance of $2.75-$3.25, which would represent a decrease from 2018 levels. Parsley has recently implemented numerous corporate cost savings initiatives and expects to capture additional benefits from scale during 2019.

Healthy realized oil pricing and proactive cost control drove a robust operating cash margin of $30.48 per Boe, or 75% of the Company's average realized price per Boe.(3)

Capital Expenditures

Parsley reported capital expenditures of $416 million during the fourth quarter of 2018, comprised of $362 million for drilling and completion activity and $54 million for facilities and infrastructure. The Company's 4Q18 capital expenditures decreased 6% from 3Q18 levels, reflecting Parsley's efforts to accelerate progress toward sustainable free cash flow by reducing rig and frac spread counts during the quarter.

Liquidity and Hedging

As of December 31, 2018, Parsley had approximately $1.2 billion of liquidity, consisting of $163.2 million of cash and cash equivalents and an undrawn amount of $991.3 million on the Company's revolver.(5)

After recent additions to its hedge positions, a significant majority of Parsley's expected 2019 oil production is subject to hedge protection. The Company also recently added to its 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 Annual Report on Form 10-K, upon availability, for the year ended December 31, 2018.

2019 Guidance

Parsley reiterates the development plan, capital budget, and production guidance outlined in its preliminary 2019 outlook issued in mid-December. Parsley's baseline capital budget assumes a $50 WTI oil price. The Company expects first quarter 2019 net oil production to average 75.5-78.0 MBo/d. For further detail, please see the tables below.






2018A


2019E

Production




Annual net oil production (MBo/d)

69.5


80.0-85.0

Annual net total production (MBoe/d)

109.4


124.0-134.0





Capital Program




Total development expenditures ($MM)

$1,762


$1,350-$1,550

Drilling and completion  (% of total)

~85%


~85%

Facilities, Infrastructure & Other (% of total)

~15%


~15%





Activity




Gross operated horizontal POPs(6)

175


130-140

Midland Basin (% of total)

~75%


~85%

Delaware Basin (% of total)

~25%


~15%

Average lateral length

~9,100'


10,000'-10,500'

Gross operated lateral footage (000's)

~1,595'


1,350'-1,470'

Average working interest

97%


~90%





Unit Costs




Lease operating expenses ($/Boe)

$3.61


$3.50-$4.50

Cash general and administrative expenses ($/Boe)

$3.28


$2.75-$3.25

Production and ad valorem taxes (% of total revenue)

6%


6%-7%

Year-end 2018 Reserves

Parsley posted strong reserves growth in 2018. The Company's proved reserves as of December 31, 2018 totaled 521.7 MMBoe, consisting of 294.4 MMBbl of oil, 572.0 Bcf of natural gas, and 131.9 MMboe of natural gas liquids ("NGLs").

Proved Reserve Highlights

  • Relative to proved reserves as of December 31, 2017, proved reserves as of December 31, 2018 increased 25% to 521.7 MMBoe, while proved developed reserves increased 49% to 311.3 MMBoe. Proved developed reserves as of December 31, 2018 represent 60% of total proved reserves.
  • Total proved reserves increased by 105.3 MMBoe during 2018, primarily as a result of extensions and discoveries, as compared to 2018 production volumes of 39.9 MMBoe.
  • Organic reserves replacement ratio of 406%.(7)
  • Parsley's standardized measure of discounted future net cash flows relating to proved reserves ("standardized measure") at December 31, 2018 was $5.9 billion, an increase of 95% relative to the Company's standardized measure at December 31, 2017. Utilizing U.S. Securities and Exchange Commission ("SEC") pricing, the PV-10 of proved reserves was $6.8 billion at December 31, 2018, an increase of 73% relative to the corresponding measure at December 31, 2017.(3)

Changes in reserves for the year ended December 31, 2018 are summarized in the table below:



(MMBoe)

Balance, December 31, 2017


416.4


Purchases of reserves in place


5.6


Divestures of reserves in place


(22.5)


Extensions and discoveries


159.8


Revisions of previous estimates


2.3


Production


(39.9)


Balance, December 31, 2018


521.7


Parsley's internally prepared estimated proved reserves as of December 31, 2018 were audited by Netherland, Sewell & Associates, the Company's independent reserve engineer. These estimates have been prepared in accordance with the definitions and regulations promulgated by the SEC and conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities – Oil and Gas. Prices used are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December 2018. Adjusting for quality, transportation fees, and market differentials, the prices used are as follows: $61.88 per barrel of oil, $28.05 per barrel of NGLs, and $1.64 per Mcf of gas. The estimates of the Company's net reserves as of December 31, 2018 are summarized in the table below:



Net Reserves



Oil (MMbo)


Gas (Bcf)


NGLs (MMboe)


Total (MMboe)

PDP


169.8



357.4



80.6



310.0


PNP


0.7



1.3



0.4



1.3


PUD


123.9



213.3



50.9



210.4


Total Proved


294.4



572.0



131.9



521.7


Conference Call Information

Parsley Energy will host a conference call and webcast to discuss its results for the fourth quarter of 2018 on Friday, February 22 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 conference call. A telephone replay will be available shortly after the call through March 1, 2019 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13686913. A live broadcast will also be available at www.parsleyenergy.com under the "Investor Relations" 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 Raymond James 40th Annual Institutional Investors Conference in Orlando, Florida on March 5-6, 2019 and the Scotia Howard Weil 47th Annual Energy Conference in New Orleans, Louisiana on March 26-27, 2019.

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 in west Texas. 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 SEC, including its Annual Report on Form 10-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 -




(1)

Natural gas and NGLs sales and associated production volumes for the three months and years ended December 31, 2017 and December 31, 2018 reflect adjustments associated with Parsley's adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), effective January 1, 2018. Accordingly, all references to, and comparisons between and among, 4Q17, 3Q18 and 4Q18 production volumes and per Boe unit costs likewise reflect this adoption, which has the effect of increasing certain natural gas and NGLs volumes and revenues, offset by a corresponding transportation and processing cost such that there is no change to reported net income. The recognition and presentation of oil volumes and associated revenues and expenses are unaffected by the adoption of ASC 606.

For more information on ASC 606 and a reconciliation of 4Q18 production and unit costs under Accounting Standards Codification Topic 605 ("ASC 605") and as adjusted under ASC 606, please see the table and associated commentary below under Supplemental Information and/or the Company's Annual Report on Form 10-K, upon availability, for the three and twelve months ended December 31, 2018.

(2)

"Completion efficiency" is measured based on completed lateral feet per operational day. "Operational days" are measured as days equipment is active and do not include mobilization or other idle time.

(3)

"Adjusted EBITDAX", "operating cash margin", "adjusted net income", and "PV-10" are not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). For definitions and reconciliations of the non-GAAP financial measures of adjusted EBITDAX, operating cash margin, adjusted net income, and PV-10 to GAAP financial measures, please see the tables and associated commentary below under Reconciliation of Non-GAAP Financial Measures.

(4)

Midland price represents Bloomberg-sourced 4Q18 and full fiscal year 2018 average WTI Midland prices.

(5)

Fully undrawn revolver balance is net of letters of credit.

(6)

Wells placed on production.

(7)

"Organic reserves replacement" is calculated as total 2018 reserve additions and revisions (technical and pricing) divided by total 2018 production; excludes acquisitions and divestitures. Please see the Supplemental Information below for more information.


 

Parsley Energy, Inc. and Subsidiaries

Selected Operating Data

(Unaudited)



Three Months Ended

December 31,


Year Ended

December 31,


2018


2017


2018


2017

Net production volumes:








Oil (MBbls)

7,087



4,737



25,356



16,390


Natural gas (MMcf)(1)

9,696



7,221



37,365



23,326


Natural gas liquids (MBbls)(1)

2,323



1,449



8,353



4,512


Total (MBoe)

11,026



7,390



39,937



24,792


Average net daily production (Boe/d)

119,848



80,327



109,416



67,923


Average sales prices(2):








Oil, without realized derivatives (per Bbl)

$

54.22



$

53.95



$

60.59



$

48.95


Oil, with realized derivatives (per Bbl)

$

52.69



$

50.88



$

58.07



$

47.68


Natural gas, without realized derivatives (per Mcf)

$

0.90



$

2.15



$

1.37



$

2.43


Natural gas, with realized derivatives (per Mcf)

$

0.94



$

2.13



$

1.38



$

2.40


NGLs (per Bbl)

$

25.00



$

26.84



$

27.21



$

22.87


Total, without realized derivatives (per Boe)

$

40.91



$

41.94



$

45.44



$

38.80


Total, with realized derivatives (per Boe)

$

39.96



$

39.96



$

43.85



$

37.94


Average costs (per Boe)(3):








Lease operating expenses

$

3.61



$

3.44



$

3.61



$

4.12


Transportation and processing costs

$

1.03



$



$

0.82



$


Production and ad valorem taxes

$

2.38



$

3.01



$

2.71



$

2.41


Depreciation, depletion and amortization

$

14.58



$

14.23



$

14.64



$

14.21


General and administrative expenses (including stock-based compensation)

$

3.85



$

4.72



$

3.78



$

5.01


General and administrative expenses (cash based)

$

3.42



$

4.04



$

3.28



$

4.22





















(1)

Natural gas and NGLs volumes for the three months and year ended December 31, 2018 reflect adjustments associated with Parsley's adoption of ASC 606, effective January 1, 2018.

(2)

Average prices shown in the table reflect prices both before and after the effects of the Company's realized commodity hedging transactions. The Company's calculations of such effects include both realized gains and losses on cash settlements for commodity derivative transactions and premiums paid or received on options that settled during the period. Realized oil prices are net of transportation costs. Realized prices for certain gas and NGLs volumes are net of transportation, gathering, and processing costs as stipulated by ASC 606. For more information, please see associated commentary below under Supplemental Information and/or the Company's Annual Report on Form 10-K, upon availability, for the three and twelve months ended December 31, 2018.

(3)

Average costs per Boe for the three months and year ended December 31, 2018 reflect adjustments associated with Parsley's adoption of ASC 606, effective January 1, 2018.

 

Parsley Energy, Inc. and Subsidiaries

Consolidated Statements of Operations(1)

(Unaudited, in thousands, except for per share data)



Three Months Ended
December 31,


Year Ended
December 31,


2018


2017


2018


2017

REVENUES








Oil sales

$

384,267



$

255,554



$

1,536,244



$

802,230


Natural gas sales(2)

8,762



15,520



51,231



56,571


Natural gas liquids sales(2)

58,083



38,897



227,272



103,193


Other

3,768



1,517



11,684



5,050


Total revenues

454,880



311,488



1,826,431



967,044


OPERATING EXPENSES








Lease operating expenses

39,779



25,386



144,292



102,169


Transportation and processing costs(2)

11,340





32,573




Production and ad valorem taxes

26,221



22,274



108,342



59,641


Depreciation, depletion and amortization

160,754



105,143



584,857



352,247


General and administrative expenses

42,414



34,879



150,955



124,255


Exploration and abandonment costs

142,622



35,122



162,539



39,345


Acquisition costs

165



8



167



10,977


Accretion of asset retirement obligations

348



374



1,422



971


(Gain) loss on sale of property

(16)



14,332



(6,454)



14,332


Other operating expenses

9,082



2,363



19,863



10,638


Total operating expenses

432,709



239,881



1,198,556



714,575


OPERATING INCOME

22,171



71,607



627,875



252,469


OTHER INCOME (EXPENSE)








Interest expense, net

(32,880)



(32,402)



(131,460)



(97,381)


Loss on early extinguishment of debt







(3,891)


Gain (loss) on derivatives

93,115



(72,310)



50,342



(66,135)


Change in TRA liability

(355)



56,396



(437)



35,847


Interest income

600



2,374



5,464



7,936


Other (expense) income

(799)



(498)



(340)



783


Total other income (expense), net

59,681



(46,440)



(76,431)



(122,841)


INCOME BEFORE INCOME TAXES

81,852



25,167



551,444



129,628


INCOME TAX (EXPENSE) BENEFIT

(16,453)



19,830



(105,475)



(5,708)


NET INCOME

65,399



44,997



445,969



123,920


LESS: NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(11,626)



4,922



(76,842)



(17,146)


NET INCOME ATTRIBUTABLE TO PARSLEY ENERGY INC. STOCKHOLDERS

$

53,773



$

49,919



$

369,127



$

106,774










Net income per common share:








Basic

$

0.19



$

0.20



$

1.36



$

0.44


Diluted

$

0.19



$

0.16



$

1.35



$

0.42


Weighted average common shares outstanding:








Basic

278,052



249,659



272,226



240,733


Diluted

278,789



314,864



272,884



296,512

















(1)

Certain reclassifications to prior period amounts have been made to conform with current presentation.

(2)

Natural gas and NGLs sales and transportation and processing costs for the three months and year ended December 31, 2018 reflect adjustments associated with Parsley's adoption of ASC 606, effective January 1, 2018.

 

Parsley Energy, Inc. and Subsidiaries

Consolidated Balance Sheets



December 31, 2018


December 31, 2017


(In thousands, except share data)

ASSETS




CURRENT ASSETS




Cash and cash equivalents

$

163,216



$

554,189


Short-term investments



149,283


Accounts receivable, net of allowance for doubtful accounts:




Joint interest owners and other

36,062



42,174


Oil, natural gas and NGLs

138,987



123,147


Related parties

94



388


Short-term derivative instruments

191,297



41,957


Assets held for sale



1,790


Other current assets

11,056



6,558


Total current assets

540,712



919,486


PROPERTY, PLANT AND EQUIPMENT




Oil and natural gas properties, successful efforts method

9,948,246



8,551,314


Accumulated depreciation, depletion, amortization and impairment

(1,295,098)



(822,459)


Total oil and natural gas properties, net

8,653,148



7,728,855


Other property, plant and equipment net

170,739



106,587


Total property, plant and equipment, net

8,823,887



7,835,442


NONCURRENT ASSETS




Assets held for sale, net



14,985


Long-term derivative instruments

20,124



15,732


Other noncurrent assets

6,640



7,553


Total noncurrent assets

26,764



38,270


TOTAL ASSETS

$

9,391,363



$

8,793,198






LIABILITIES AND EQUITY




CURRENT LIABILITIES




Accounts payable and accrued expenses

$

364,803



$

407,698


Revenue and severance taxes payable

127,265



109,917


Current portion of long-term debt

2,413



2,352


Short-term derivative instruments

152,330



84,919


Current portion of asset retirement obligations

2,134



7,203


Total current liabilities

648,945



612,089


NONCURRENT LIABILITIES




Liabilities related to assets held for sale



405


Long-term debt

2,181,667



2,179,525


Asset retirement obligations

24,750



19,967


Deferred tax liability, net

131,523



21,403


Payable pursuant to tax receivable agreement

68,110



58,479


Long-term derivative instruments

16,633



20,624


Total noncurrent liabilities

2,422,683



2,300,403


COMMITMENTS AND CONTINGENCIES




STOCKHOLDERS' EQUITY




Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued and outstanding




Common stock




Class A, $0.01 par value, 600,000,000 shares authorized, 280,827,038 shares issued and 280,205,293 shares outstanding at December 31, 2018 and 252,419,601 shares issued and 252,260,300 shares outstanding at December 31, 2017

2,808



2,524


Class B, $0.01 par value, 125,000,000 shares authorized, 36,547,731 and 62,128,257 issued and outstanding at December 31, 2018 and December 31, 2017

366



622


Additional paid in capital

5,163,987



4,666,365


Retained earnings

412,646



43,519


Treasury stock, at cost, 621,745 shares and 159,301 at December 31, 2018 and December 31, 2017

(11,749)



(735)


Total stockholders' equity

5,568,058



4,712,295


Noncontrolling interest

751,677



1,168,411


Total equity

6,319,735



5,880,706


TOTAL LIABILITIES AND EQUITY

$

9,391,363



$

8,793,198


 

Parsley Energy, Inc. and Subsidiaries

Consolidated Statements of Cash Flows



Year Ended December 31,


2018


2017


(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$

445,969



$

123,920


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation, depletion and amortization

584,857



352,247


Leasehold abandonments

160,834



32,872


Accretion of asset retirement obligations

1,422



971


(Gain) loss on sale of property

(6,454)



14,332


Loss on early extinguishment of debt



3,891


Amortization and write off of deferred loan origination costs

4,745



4,720


Amortization of bond premium

(516)



(516)


Deferred income tax expense (benefit)

105,475



5,752


Change in TRA liability

437



(35,847)


Stock-based compensation expense

19,877



19,619


(Gain) loss on derivatives

(50,342)



66,135


Net cash received for derivative settlements

6,279



16,172


Net cash paid for option premiums

(47,644)



(28,426)


Other

3,533



1,907


Changes in operating assets and liabilities, net of acquisitions:




Accounts receivable

(12,956)



(95,239)


Accounts receivable—related parties

294



(98)


Other current assets

(689)



45,417


Other noncurrent assets

(100)



(536)


Accounts payable and accrued expenses

(13,395)



122,992


Revenue and severance taxes payable

17,348



40,465


Net cash provided by operating activities

1,218,974



690,750


CASH FLOWS FROM INVESTING ACTIVITIES:




Development of oil and natural gas properties

(1,787,673)



(1,089,256)


Acquisitions of oil and natural gas properties

(136,972)



(2,192,093)


Additions to other property and equipment

(93,457)



(54,896)


Proceeds from sale of property

233,647



30,537


Maturity of short-term investments

149,331




Purchases of short-term investments



(149,283)


Other

41,088



(1,869)


Net cash used in investing activities

(1,594,036)



(3,456,860)


CASH FLOWS FROM FINANCING ACTIVITIES:




Borrowings under long-term debt



1,152,780


Payments on long-term debt

(2,888)



(74,769)


Debt issue costs

(47)



(17,371)


Proceeds from issuance of common stock, net



2,123,344


Purchases of common stock

(11,014)



(354)


Vesting of restricted stock units




Distribution to owner of consolidated subsidiary

(1,962)




Net cash (used in) provided by financing activities

(15,911)



3,183,630


Net (decrease) increase in cash and cash equivalents

(390,973)



417,520


Cash, cash equivalents, and restricted cash at beginning of year

554,189



136,669


Cash, cash equivalents, and restricted cash at end of year

$

163,216



$

554,189


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:




Cash paid for interest

$

127,668



$

63,170


Cash paid for income taxes

$



$

350


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:




Asset retirement obligations incurred, including changes in estimate

$

2,111



$

15,428


(Reductions) additions to oil and natural gas properties - change in capital accruals

$

(25,455)



$

118,145


Additions to other property and equipment funded by capital lease borrowings

$

2,180



$

3,904


Net premiums (paid) received on options that settled during the period

$

(71,566)



$

(37,103)


Common stock issued for oil and natural gas properties

$



$

1,183,501


Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDAX

Adjusted EBITDAX is not a measure of net income as determined by GAAP. Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by 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 income (loss) before depreciation, depletion and amortization, exploration and  abandonment costs, net interest expense, interest income, income tax expense (benefit), change in Tax Receivable Agreement ("TRA") liability, stock-based compensation, acquisition costs, asset retirement obligation accretion expense, loss (gain) on sale of property, loss on early extinguishment of debt, inventory write down, loss (gain) on derivatives, net settlements on derivative instruments, net premium realization on options that settled during the period, and certain additional items.

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 income 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 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 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 income (loss) for each of the periods indicated.

Parsley Energy, Inc. and Subsidiaries

Adjusted EBITDAX(1)

(Unaudited, in thousands)



Three Months Ended
December 31,


Year Ended
December 31,


2018


2017


2018


2017

Adjusted EBITDAX reconciliation to net income (loss):








Net income attributable to Parsley Energy, Inc. stockholders

$

53,773



$

49,919



$

369,127



$

106,774


Net income (loss) attributable to noncontrolling interests

11,626



(4,922)



76,842



17,146


Depreciation, depletion and amortization

160,754



105,143



584,857



352,247


Exploration and abandonment costs

142,622



35,122



162,539



39,345


Interest expense, net

32,880



32,402



131,460



97,381


Interest income

(600)



(2,374)



(5,464)



(7,936)


Income tax expense (benefit)

16,453



(19,830)



105,475



5,708


EBITDAX

417,508



195,460



1,424,836



610,665


Change in TRA liability

355



(56,396)



437



(35,847)


Stock-based compensation

4,757



4,989



19,877



19,619


Acquisition costs

165



8



167



10,977


Accretion of asset retirement obligations

348



374



1,422



971


(Gain) loss on sale of property

(16)



14,332



(6,454)



14,332


Loss on early extinguishment of debt







3,891


Inventory write down



1,060



495



1,060


(Gain) loss on derivatives

(93,115)



72,310



(50,342)



66,135


Net settlements on derivative instruments

8,600



16



8,084



15,670


Net premium realization on options that settled during the period

(19,115)



(14,699)



(71,566)



(37,103)


Adjusted EBITDAX

$

319,487



$

217,454



$

1,326,956



$

670,370









(1)

Certain reclassifications to prior period amounts have been made to conform with current presentation.

Operating Cash Margin

Operating cash margin is not a measure of operating income as determined by GAAP. The amounts included in the calculations of operating cash margin were computed in accordance with GAAP. Operating cash margin is presented herein and reconciled to the GAAP measure of net income attributable to Parsley Energy, Inc. stockholders. The Company defines operating cash margin as net income (loss) before income tax expense (benefit), other revenues, depreciation, depletion and amortization, exploration and abandonment costs, stock-based compensation, acquisition costs, asset retirement obligation accretion expense, other operating expenses, net interest expense, (gain) loss on sale of property, prepayment premium on extinguished debt, derivative (gain) loss, change in TRA liability, interest income, and other (income) expense. The Company uses operating cash margin as an indicator of the Company's profitability and ability to manage its operating income. This measure 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 net income attributable to Parsley Energy, Inc. stockholders.

Parsley Energy, Inc. and Subsidiaries

Operating Cash Margin

(Unaudited, in thousands, except for per unit data)(1)



Three Months Ended
December 31,


Year Ended
December 31,


2018


2017


2018


2017

Net income attributable to Parsley Energy, Inc. stockholders

$

53,773



$

49,919



$

369,127



$

106,774


Net income (loss) attributable to noncontrolling interests

11,626



(4,922)



76,842



17,146


Income tax expense (benefit)

16,453



(19,830)



105,475



5,708


Other revenues

(3,768)



(1,517)



(11,684)



(5,050)


Depreciation, depletion and amortization

160,754



105,143



584,857



352,247


Exploration and abandonment costs

142,622



35,122



162,539



39,345


Stock-based compensation

4,757



4,989



19,877



19,619


Acquisition costs

165



8



167



10,977


Accretion of asset retirement obligations

348



374



1,422



971


Other operating expenses

9,082



2,363



19,863



10,638


Interest expense, net

32,880



32,402



131,460



97,381


(Gain) loss on sale of property

(16)



14,332



(6,454)



14,332


Prepayment premium on extinguishment of debt







3,891


Derivative (gain) loss

(93,115)



72,310



(50,342)



66,135


Change in TRA liability

355



(56,396)



437



(35,847)


Interest income

(600)



(2,374)



(5,464)



(7,936)


Other expense (income)

799



498



340



(783)


Operating cash margin

$

336,115



$

232,421



$

1,398,462



$

695,548


Operating cash margin per Boe

$

30.48



$

31.45



$

35.02



$

28.06










Average price per Boe, without realized derivatives

$

40.91



$

41.94



$

45.44



$

38.80


Operating cash margin percentage

75

%


75

%


77

%


72

%
















(1)

Certain reclassifications to prior period amounts have been made to conform with current presentation.

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 management to evaluate financial performance, prior to non-cash gains or losses on derivatives, net cash received for derivative settlements, net premiums received on options that settled during the period, change in TRA liability, loss (gain) on sale of property, exploration and abandonment costs, acquisition costs, inventory write down, and loss on early extinguishment of debt while adjusting for noncontrolling interest and the associated changes in estimated income tax. 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, operating income, 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.

Parsley Energy, Inc. and Subsidiaries

Adjusted Net Income and Net Income Per Share

(Unaudited, in thousands, except per share data)(1)



Three Months Ended
December 31,


Year Ended
December 31,


2018


2017


2018


2017

Net income - as reported

$

53,773



$

49,919



$

369,127



$

106,774


Adjustments:








(Gain) loss on derivatives

(93,115)



72,310



(50,342)



66,135


Net settlements on derivative instruments

8,600



16



8,084



15,670


Net premium realization on options that settled during the period

(19,115)



(14,699)



(71,566)



(37,103)


Change in TRA liability

355



(56,396)



437



(35,847)


(Gain) loss on sale of property

(16)



14,332



(6,454)



14,332


Exploration and abandonment costs

142,622



35,122



162,539



39,345


Acquisition costs

165



8



167



10,977


Inventory write down



1,060



495



1,060


Loss on early extinguishment of debt







3,891


Noncontrolling interest

(4,542)



(3,891)



(19,561)



19,225


Change in estimated income tax

(6,221)



(1,919)



(7,832)



(865)


Adjusted net income

$

82,506



$

95,862



$

385,094



$

203,594


Net income per diluted share - as reported

$

0.19



$

0.16



$

1.35



$

0.42


Adjustments:








(Gain) loss on derivatives

$

(0.33)



$

0.23



$

(0.18)



$

0.22


Net settlements on derivative instruments

0.03





0.03



0.05


Net premium realization on options that settled during the period

(0.07)



(0.05)



(0.26)



(0.13)


Change in TRA liability



(0.18)





(0.12)


(Gain) loss on sale of property



0.05



(0.02)



0.05


Exploration and abandonment costs

0.51



0.11



0.60



0.13


Acquisition costs







0.04


Inventory write down








Loss on early extinguishment of debt







0.01


Noncontrolling interest

(0.01)



(0.01)



(0.08)



0.01


Change in estimated income tax

(0.02)



(0.01)



(0.03)



0.01


Adjusted net income per diluted share

$

0.30



$

0.30



$

1.41



$

0.69










Basic weighted average shares outstanding - as reported

278,052



249,659



272,226



240,733


Effect of dilutive securities:








Class B Common Stock



63,946





54,665


Restricted Stock and Restricted Stock Units

737



1,259



658



1,114


Diluted weighted average shares outstanding - as reported(2)

278,789



314,864



272,884



296,512


Effect of dilutive securities:








Class B Common Stock








Restricted Stock and Restricted Stock Units








Diluted weighted average shares outstanding for adjusted net income(2)

278,789



314,864



272,884



296,512








(1)

Certain reclassifications to prior period amounts have been made to conform with current presentation.

(2)

For the three months and year ended December 31, 2018 the number of weighted average diluted shares used to calculate reported net income per share and adjusted net income per share is based on the fact that, under the "if converted" Class B Common Stock was not recognized because they would have been antidilutive.

PV-10

PV-10 is a non-GAAP financial measure and generally differs from the Standardized Measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net reserves. Neither PV-10 nor Standardized Measure represents an estimate of the fair market value of our oil and natural gas properties. We and others in the industry use PV-10 as a measure to compare the relative size and value of proved reserves held by companies without regard to the specific tax characteristics of such companies.

The following table provides a reconciliation of PV-10 to the GAAP financial measure of Standardized Measure as of December 31, 2018:


As of December 31, 2018


(in millions)

Standardized Measure

$

5,893.9


Present value of future income tax discounted at 10%

881.0


PV-10 of proved reserves

$

6,774.9


Supplemental Information

Impact of ASC 606 Adoption

Parsley adopted ASC 606 effective January 1, 2018 using the modified retrospective approach. As a result, the Company changed its accounting policy for revenue recognition, which resulted in the following adjustments:


Three Months Ended December 31, 2018


ASC 605


Adjustment


ASC 606

Production revenues (in thousands):






Oil sales

$

384,267



$



$

384,267


Natural gas sales

6,843



1,919



8,762


Natural gas liquids sales

48,662



9,421



58,083


Total production revenues

439,772



11,340



451,112


Operating expenses






Transportation and processing costs



11,340



11,340


Production revenues less transportation and processing costs

$

439,772



$



$

439,772








Net income attributable to Parsley Energy, Inc. stockholders (in thousands)

$

53,773



$



$

53,773








Production:






Oil (MBbls)

7,087





7,087


Natural gas (MMcf)

8,432



1,264



9,696


Natural gas liquids (MBbls)

2,027



296



2,323


Total (MBoe)

10,519



507



11,026








Average daily production volume:






Oil (Bbls)

77,033





77,033


Natural gas (Mcf)

91,652



13,739



105,391


Natural gas liquids (Bbls)

22,033



3,217



25,250


Total (Boe)

114,337



5,511



119,848








Certain unit costs (per Boe):






Lease operating expenses

$

3.78



$

(0.17)



$

3.61


Transportation and processing costs

$



$

1.03



$

1.03


Production and ad valorem taxes

$

2.49



$

(0.11)



$

2.38


Depreciation, depletion and amortization

$

15.28



$

(0.70)



$

14.58


General and administrative expenses (including stock-based compensation)

$

4.03



$

(0.18)



$

3.85


General and administrative expenses (cash based)

$

3.58



$

(0.16)



$

3.42



























Year Ended December 31, 2018


ASC 605


Adjustment


ASC 606

Production revenues (in thousands):






Oil sales

$

1,536,244



$



$

1,536,244


Natural gas sales

45,032



6,199



51,231


Natural gas liquids sales

200,898



26,374



227,272


Total production revenues

1,782,174



32,573



1,814,747


Operating expenses






Transportation and processing costs



32,573



32,573


Production revenues less transportation and processing costs

$

1,782,174



$



$

1,782,174








Net income attributable to Parsley Energy, Inc. stockholders (in thousands)

$

369,127



$



$

369,127








Production:






Oil (MBbls)

25,356





25,356


Natural gas (MMcf)

33,492



3,873



37,365


Natural gas liquids (MBbls)

7,356



997



8,353


Total (MBoe)

38,293



1,644



39,937








Average daily production volume:






Oil (Bbls)

69,468





69,468


Natural gas (Mcf)

91,759



10,611



102,370


Natural gas liquids (Bbls)

20,153



2,732



22,885


Total (Boe)

104,912



4,504



109,416








Certain unit costs (per Boe):






Lease operating expenses

$

3.77



$

(0.16)



$

3.61


Transportation and processing costs

$



$

0.82



$

0.82


Production and ad valorem taxes

$

2.83



$

(0.12)



$

2.71


Depreciation, depletion and amortization

$

15.27



$

(0.63)



$

14.64


General and administrative expenses (including stock-based compensation)

$

3.94



$

(0.16)



$

3.78


General and administrative expenses (cash based)

$

3.42



$

(0.14)



$

3.28


 

Open Derivatives Positions


Parsley Energy, Inc. and Subsidiaries

Open Crude Oil Derivatives Positions(1)



1Q19


2Q19


3Q19


4Q19


1Q20


2Q20

OPTION CONTRACTS:












CUSHING












Put Spreads - Cushing (MBbls/d)(2)

11.7



11.5



19.6



19.6






  Long Put Price ($/Bbl)

$

51.43



$

51.43



$

59.79



$

59.79






  Short Put Price ($/Bbl)

$

44.29



$

44.29



$

49.79



$

49.79






Three Way Collars - Cushing (MBbls/d)(3)

23.3



21.4



26.1



26.1






  Short Call Price ($/Bbl)

$

70.48



$

70.89



$

72.69



$

72.69






  Long Put Price ($/Bbl)

$

48.21



$

48.85



$

51.88



$

51.88






  Short Put Price ($/Bbl)

$

40.71



$

41.15



$

42.81



$

42.81






Collars - Cushing (MBbls/d)(4)

3.3



24.7



21.2



21.2






  Short Call Price ($/Bbl)

$

56.30



$

57.67



$

58.26



$

58.37






  Long Put Price ($/Bbl)

$

52.70



$

53.94



$

54.50



$

54.56






MIDLAND












Put Spreads - Midland (MBbls/d)(2)

11.7



14.8



4.9



4.9






  Long Put Price ($/Bbl)

$

50.71



$

50.56



$

60.00



$

60.00






  Short Put Price ($/Bbl)

$

40.71



$

40.56



$

50.00



$

50.00






Three Way Collars - Midland (MBbls/d)(3)





4.9



4.9






  Short Call Price ($/Bbl)





$

64.65



$

64.65






  Long Put Price ($/Bbl)





$

50.00



$

50.00






  Short Put Price ($/Bbl)





$

45.00



$

45.00






MAGELLAN EAST HOUSTON ("MEH")












Put Spreads - MEH (MBbls/d)(2)

3.3



3.3



8.2



8.2



5.0



4.9


  Long Put Price ($/Bbl)

$

70.00



$

70.00



$

64.00



$

64.00



$

70.00



$

70.00


  Short Put Price ($/Bbl)

$

60.00



$

60.00



$

54.00



$

54.00



$

60.00



$

60.00


Three Way Collars - MEH (MBbls/d)(3)









3.3



3.3


  Short Call Price ($/Bbl)









$

72.00



$

72.00


  Long Put Price ($/Bbl)









$

57.50



$

57.50


  Short Put Price ($/Bbl)









$

47.58



$

47.58


Total Option Contracts (MBbls/d)

53.3



75.7



84.9



84.9



8.3



8.2


Premium Realization ($MM)(5)

$

(6.3)



$

(10.2)



$

(14.5)



$

(14.5)



$

(2.2)



$

(2.2)


BASIS SWAPS:












Midland-Cushing Basis Swaps (MBbls/d)(6)

31.7



25.4



27.7



27.7






Swap Price ($/Bbl)

$

(7.51)



$

(5.10)



$

(1.74)



$

(0.91)






MEH-Cushing Basis Swaps (MBbls/d)(6)

2.2



2.1



2.1



2.1






Swap Price ($/Bbl)

$

5.10



$

5.10



$

5.10



$

5.10






 

Parsley Energy, Inc. and Subsidiaries

Open Natural Gas Derivatives Positions (1)



1Q19


2Q19


3Q19


4Q19

OPTION CONTRACTS:








HENRY HUB








Three Way Collars (MMBtu/d)(3)

33,333



32,967



32,609



32,609


Short Call Price ($/MMBtu)

$

3.93



$

3.93



$

3.93



$

3.93


Long Put Price ($/MMBtu)

$

3.00



$

3.00



$

3.00



$

3.00


Short Put Price ($/MMBtu)

$

2.50



$

2.50



$

2.50



$

2.50


Total MMBtu/d Hedged

33,333



32,967



32,609



32,609


BASIS SWAPS:








Waha-Henry Hub Basis Swaps (MBbls/d)(6)

28,889



32,967



32,609



32,609


Swap Price ($/Bbl)

$

(1.84)



$

(1.92)



$

(1.78)



$

(1.64)


Organic Reserves Replacement Ratio

Parsley uses the organic reserves replacement ratio as an indicator of the Company's ability to replace the reserves that it has developed and to increase its reserves over time. The ratio is not a representation of value creation and has a number of limitations that should be considered. For example, the ratio does not incorporate the costs or timing of developing future reserves. The organic reserves replacement ratio of 406% was calculated as total 2018 reserve additions and revisions (technical and pricing), divided by total 2018 production. The ratio calculation excludes acquisitions and divestitures.




(1)

As of 2/20/2019. Prices represent the weighted average price of contracts scheduled for settlement during the period.

(2)

When the reference price (WTI, Midland, or MEH) is above the long put price, Parsley receives the reference price. When the reference price is between the long put price and the short put price, Parsley receives the long put price. When the reference price is below the short put price, Parsley receives the reference price plus the difference between the short put price and the long put price.

(3)

Functions similarly to put spreads except that when the index price is at or above the call price, Parsley receives the call price.

(4)

When the reference price (WTI) is above the call price, Parsley receives the call price. When the reference price is below the long put price, Parsley receives the long put price. When the reference price is between the short call and long put prices, Parsley receives the reference price.

(5)

Premium realizations represent net premiums paid (including deferred premiums), which are recognized as income or loss in the period of settlement.

(6)

Parsley receives the swap price.

 

Parsley Energy

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/parsley-energy-announces-fourth-quarter-2018-financial-and-operating-results-300799998.html

SOURCE Parsley Energy, Inc.