Parsley Energy Announces Fourth Quarter 2019 Financial And Operating Results

AUSTIN, Texas, Feb. 19, 2020 /PRNewswire/ -- Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended December 31, 2019. The Company has posted a presentation to its website that supplements the information in this release.

Recent Highlights

• Parsley published its inaugural Corporate Responsibility Report, outlining the Company's commitment and approach to environmental stewardship, governance, ethics, health and safety, and community engagement.
• The Company reported full-year 2019 capital expenditures of approximately $1.37 billion, which was nearly $30 million below the low end of the full-year guidance range of $1.40-$1.47 billion.
• Increased quarterly dividend in 1Q20 from $0.03 per share to $0.05 per share⁽¹⁾.
• 4Q19 net oil production increased 16% year-over-year to 89.6 MBo per day. Total 4Q19 net production averaged 146.2 MBoe per day.
• Parsley closed its acquisition of Jagged Peak Energy Inc. ("Jagged Peak") on January 10, 2020, less than 90 days after announcing the transaction.
• The Company received an Investment Grade credit rating from Fitch Ratings of BBB- with stable outlook⁽²⁾.
• Parsley lowered its cost of debt by refinancing $400MM of outstanding debt with 4.125% senior unsecured notes due 2028⁽³⁾.
• Proved reserves of 592.3 MMBoe as of December 31, 2019 represent a 14% increase versus proved reserves as of December 31, 2018. Proved developed reserves of 381.7 MMBoe as of December 31, 2019 represent a 23% increase versus proved developed reserves as of December 31, 2018.

Summary Comment and Outlook

"The fourth quarter represented a strong finish to Parsley's rigorous 2019 action plan that achieved success on multiple fronts," commented Matt Gallagher, Parsley's President and CEO. "Our team delivered a step-change improvement in capital efficiency and inflected to free cash flow generation ahead of schedule⁽⁴⁾, all while keeping our environmental and social impacts at the forefront of our decision making. As we turn to 2020, we will maintain this collective sense of urgency and accountability. Organizational excellence on all fronts is required to demonstrate integration and execution success. The Parsley team is already off to a strong start in 2020 and we look forward to delivering on our action plan in the coming quarters."

Operational Update

During the fourth quarter of 2019, the Company spud 38 and placed on production 37 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 93%, with an average completed lateral length of approximately 11,000 feet. A significant majority of completion activity was in the Midland Basin, where the Company placed on production 33 gross operated horizontal wells, with the remainder placed on production in the Delaware Basin.

Consistent improvement in drilling efficiency⁽⁵⁾ throughout the year enabled Parsley to drop from 11 development rigs to 10 development rigs during the fourth quarter. At the closing of the Jagged Peak acquisition in early January, Jagged Peak was running five development rigs. Parsley anticipates that sustained efficiency gains will facilitate a further equipment reduction from 15 to 14 development rigs in the coming months.

"Throughout 2019, the Parsley team recalibrated drilling and completion operations to a higher efficiency level," said David Dell'Osso, Parsley's COO. "This culminated in an especially strong fourth quarter that helped drive our capital spending below our full-year budgeted range. Looking into 2020, we remain excited about sustaining these capital efficiency gains across our recently expanded acreage footprint."

Financial Update

Healthy execution in 4Q19 translated to strong performance in key financial measures.

Profitability

The Company recorded net loss attributable to its stockholders of $36.4 million, or $0.13 per share, in 4Q19 and net income attributable to its stockholders of $175.2 million, or $0.63 per share, for the year. Excluding, on a tax-adjusted basis, various items, including certain items that the Company does not view as indicative of its ongoing financial performance, adjusted net income was $79.5 million, or $0.28 per share, for 4Q19 and $314.1 million, or $1.12 per share, for the year.⁽⁴⁾

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") was $380.3 million in 4Q19 and $1,420.5 million for the year.⁽⁴⁾

Realized Pricing

During 4Q19, Parsley reported an average unhedged oil price realization of $56.40/Bbl net of transportation costs, representing a discount of $0.47 to the average WTI Cushing price⁽⁶⁾ for the quarter.

Operating Costs

During the fourth quarter of 2019, the Company reported LOE per Boe of $3.54. Parsley is reiterating full-year 2020 LOE per Boe guidance of $3.50-$4.50, a modest increase from $3.45 per Boe during 2019.

Both 4Q19 general and administrative expense ("G&A") per Boe and 4Q19 cash based G&A per Boe, which excludes stock-based compensation expense, decreased year-over-year to $3.20⁽⁴⁾ and $2.81,⁽⁴⁾ respectively. Parsley expects synergies associated with the Jagged Peak acquisition to drive encouraging G&A cost trends in 2020. Parsley is reiterating full-year 2020 cash based G&A per Boe guidance of $2.00-$2.40, which would represent a decrease from 2019 levels of $2.57 per Boe.

Healthy realized oil pricing and proactive cost control drove a robust 4Q19 operating cash margin of $29.06 per Boe, or 75% of the Company's average realized price per Boe.⁽⁴⁾

Capital Expenditures

Parsley reported capital expenditures of $276 million during the fourth quarter of 2019, comprised of $274 million for drilling, completion and equipment and $2 million for other expenditures⁽⁷⁾. The Company's 4Q19 capital expenditures decreased 13% from 3Q19 levels, driven by lower well costs, conservative spending on facilities and infrastructure, and minimal non-operated activity.

Return of Capital Program

During 1Q20, Parsley's Board of Directors approved an increase to the Company's quarterly dividend from $0.03 per share to $0.05 per share⁽¹⁾. The dividend is payable on March 20, 2020, to shareholders of record on March 10, 2020.

Debt Refinancing

On February 11, 2020, Parsley Energy, LLC and Parsley Finance Corp. (the "Issuers"), subsidiaries of the Company, issued $400 million aggregate principal amount of 4.125% senior unsecured notes due 2028 in an offering that was exempt from registration under the Securities Act of 1933, as amended (the "2028 Notes Offering"). The Company intends to use the proceeds from the 2028 Notes Offering and borrowings under its revolving credit facility to redeem all of the Issuers' 6.250% senior unsecured notes due 2024 (the "2024 Notes") at a redemption price of 104.688%, plus accrued and unpaid interest to the redemption date, pursuant to the terms of the indenture relating to the 2024 Notes (the "2024 Notes Redemption"). Parsley expects the redemption date for the 2024 Notes Redemption to be March 7, 2020.

Liquidity and Hedging

As of December 31, 2019, Parsley had approximately $1.0 billion of liquidity, consisting of $20.7 million of cash and cash equivalents and an undrawn amount of $993.3 million on the Company's revolver.⁽⁸⁾  Pro forma for the closing of the Jagged Peak acquisition, the 2028 Notes Offering and the 2024 Notes Redemption, the Company's liquidity as of December 31, 2019 was approximately $674.7 million.

A significant majority of Parsley's expected 2020 oil production is subject to hedge protection. 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, 2019.

2020 Guidance

Parsley is reiterating its 2020 guidance issued in January and plans to deploy 14-15 development rigs and four-to-five frac spreads on average in 2020. Parsley's baseline capital budget assumes a $50 WTI oil price. During 1Q20, the Company expects to place approximately 50 gross operated horizontal wells on production⁽⁹⁾ with average net oil production of 123-129 MBo/d. For further detail, please see the tables below.

Year-end 2019 Reserves

Parsley posted strong reserves growth in 2019. The Company's proved reserves as of December 31, 2019 totaled 592.3 MMBoe, consisting of 326.5 MMBbls of oil, 709.2 Bcf of natural gas, and 147.7 MMBbls of natural gas liquids ("NGLs").

Proved Reserve Highlights

• Relative to proved reserves as of December 31, 2018, proved reserves as of December 31, 2019 increased 14% to 592.3 MMBoe, while proved developed reserves increased 23% to 381.7 MMBoe. Proved developed reserves as of December 31, 2019 represent 64% of total proved reserves.
• Total proved reserves increased by 70.6 MMBoe during 2019, primarily as a result of extensions and discoveries.
• Organic reserves replacement ratio of 243%.⁽¹⁰⁾
• Parsley's standardized measure of discounted future net cash flows relating to proved reserves ("Standardized Measure") at December 31, 2019 was $5.0 billion. Utilizing U.S. Securities and Exchange Commission ("SEC") pricing, the PV-10 of proved reserves was $5.7 billion at December 31, 2019.⁽⁴⁾

Changes in reserves for the year ended December 31, 2019 are summarized in the table below:

Parsley's internally prepared estimated proved reserves as of December 31, 2019 were audited by Netherland, Sewell & Associates, Inc., the Company's independent reserve engineer. These estimates have been prepared in accordance with the definitions and regulations promulgated by the SEC and, with the exception of the exclusion of future income taxes, 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 2019. Adjusting for quality, transportation fees, and market differentials, the prices used are as follows: $53.97 per barrel of oil, $15.46 per barrel of NGLs, and $0.71 per Mcf of gas. The estimates of the Company's net reserves as of December 31, 2019 are summarized in the table below:

Conference Call Information

Parsley Energy will host a conference call and webcast to discuss its results for the fourth quarter of 2019 on Thursday, February 20, 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 shortly after the call through February 27, 2020 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13698261. A live broadcast will also be available 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 Credit Suisse 25th Annual Energy Summit in Vail, Colorado on March 2-3, 2020 and the Simmons Energy 20th Annual Energy Conference in Las Vegas, Nevada on March 23-24, 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'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'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 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 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 and its subsequently filed Quarterly Reports on Form 10-Q. 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 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, stock-based compensation, acquisition costs, asset retirement obligation accretion expense, rig termination costs, gain on sale of property, restructuring and other termination costs, loss (gain) on derivatives, net settlements on derivative instruments, net premium realization on options that settled during the period, change in Tax Receivable Agreement ("TRA") liability, and other expenses.

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.

Operating Cash Margin

Operating cash margin is not a measure of operating income as determined by GAAP. Operating cash margin is a supplemental non-GAAP performance measure used by the Company as an indicator of the Company's profitability and ability to manage its operating income. The Company defines operating cash margin as net income (loss) before income tax expense, other revenues, depreciation, depletion and amortization, stock-based compensation, exploration and abandonment costs, acquisition costs, asset retirement obligation accretion expense, rig termination costs, gain on sale of property, restructuring and other termination costs, other operating expenses, net interest expense, loss (gain) on derivatives, change in TRA liability, interest income, income tax expense and other expenses. The amounts included in the calculations of operating cash margin were computed in accordance with GAAP.

Operating cash margin 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.

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 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. The Company defines free cash flow (outspend) as net cash provided by operating activities before transaction expenses related to the acquisition of Jagged Peak and changes in operating assets and liabilities, net of acquisitions, 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 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 exploration and abandonment costs, acquisition costs, rig termination costs, gain on sale of property, restructuring and other termination costs, loss (gain) on derivatives, net settlements on derivative instruments, net premiums received on options that settled during the period, change in TRA liability, and other expenses, 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 income (loss).