01—Abstract
Summary
Summary of the 10-K filed March 23, 2017. Cited figures are marked; the original filing is the authoritative source.
Centennial Resource Development, Inc. completed its Business Combination with Centennial Resource Production, LLC (CRP) on October 11, 2016, acquiring approximately 89%a of CRP's membership interests, and its only significant asset is an approximate 92% membership interest in CRP following the December 28, 2016 Silverback Acquisition.
The company is an independent oil and natural gas company focused on unconventional oil and liquids-rich natural gas in the Delaware Basin of the Permian Basin in Reeves, Ward and Pecos counties, Texas. As of December 31, 2016, it had 106 operated producing horizontal wells, approximately 76,067 net acres, and total proved reserves of 82,959 MBoe, of which 70% were proved undeveloped, with a PV-10 of $427.5 millionb. The Silverback Acquisition, closed December 28, 2016 for a cash purchase price of approximately $855.0 million, added 31 operated producing horizontal wells and approximately 35,500 net acres, funded by private placements with gross proceeds of approximately $910.0 million.
Results are split into a Successor period (October 11 through December 31, 2016) showing a net loss attributable to the company of $8.1 millionc on total revenues of $29.7 million, and a Predecessor period (January 1 through October 10, 2016) showing a net loss of $218.7 million that includes $165.4 million of incentive unit compensation. Year-end 2016 cash was $134.1 million, with no borrowings under the revolving credit facility and a borrowing base of $250.0 million. The company disclosed that its 2017 capital expenditure program is guided at $500 million to $585 million, and it announced a redemption of its Public Warrants on March 31, 2017.
Riverstone and its affiliates own approximately 44.0%d of voting common stock, rising to approximately 49.96% upon conversion of the Series B Preferred Stock, which requires stockholder approval. The company stated it no longer qualifies as a controlled company under NASDAQ rules.
02—Key points
Key Highlights
- Only significant asset is an approximate 92% membership interest in CRP; Business Combination closed October 11, 2016 with approximately 89% of CRP acquired
- Silverback Acquisition closed December 28, 2016 for approximately $855.0 million cash, adding 31 operated producing horizontal wells and approximately 35,500 net acres in Reeves County
- Total proved reserves of 82,959 MBoe at December 31, 2016, up from 32,457 MBoe at December 31, 2015; 70% classified as proved undeveloped; total proved PV-10 of $427.5 million
- Successor period (October 11 to December 31, 2016) net loss attributable to the company of $8.1 million on total revenues of $29.7 million; Predecessor period included $165.4 million of incentive unit compensation
- Cash of $134.1 million at year-end 2016; no revolving credit facility borrowings; borrowing base increased to $250.0 million, with $249.6 million of capacity
- 2017 capital expenditure guidance of $500 million to $585 million, with 4 drilling rigs under contract
- Riverstone and affiliates hold approximately 44.0% of voting common stock, rising to approximately 49.96% upon Series B Preferred conversion, which requires stockholder approval
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Cash & Equivalents | $134.08M$106K | +126992.9% |
| Total Current Assets | $151.33M$106K | +143337.0% |
| Property, Plant & Equipment | $2.19M— | — |
| Total Assets | $2.65B$476K | +556744.2% |
| Accounts Payable | $11.21M— | — |
| Total Current Liabilities | $91.46M$453K | +20081.6% |
| Long-term Debt | $0— | — |
| Total Liabilities | $98.71M$453K | +21680.4% |
| Retained Earnings | -$8.93M-$2K | −446350.0% |
| Stockholders' Equity | $2.55B$23K | +11099617.4% |
05—Questions
Frequently Asked Questions
What is the company's main asset and how is it structured?
The company has no direct operations; its only significant asset is an approximate 92% membership interest in Centennial Resource Production, LLC (CRP), which is its accounting Predecessor. CRP must make pro rata distributions sufficient to cover the company's taxes and overhead, but its earnings may not be enough to pay dividends on Class A Common Stock.
How large is the company's reserve base and how much is undeveloped?
As of December 31, 2016, total proved reserves were 82,959 MBoe, consisting of 46,466 MBbls of oil, 148,344 MMcf of natural gas and 11,770 MBbls of NGLs. Proved undeveloped reserves were 57,759 MBoe, or 70% of the total, and proved developed reserves were 25,200 MBoe. Total proved PV-10 was $427.5 million, and the standardized measure was $375.1 million.
What did the company pay for the Silverback Acquisition and how was it funded?
The Silverback Acquisition, closed December 28, 2016, had a cash purchase price of approximately $855.0 million, subject to customary adjustments. It was funded with private placements of Class A Common Stock and Series B Preferred Stock that generated gross proceeds of approximately $910.0 million. Approximately $32.3 million of the purchase price remained in accounts payable at year-end pending satisfaction of title issues.
What are the main risks flagged in the filing?
Key risks include volatility in oil, natural gas and NGL prices, with the WTI spot price falling from $107.95 per Bbl in June 2014 to $26.19 in February 2016; concentration of all proved reserves in the Delaware Basin; dependence on a small number of purchasers, with Plains, Shell Trading and Permian Transport and Trading accounting for 48%, 22% and 11% of 2016 revenue; the possibility of property write-downs; and the influence of Riverstone over corporate actions.
What capital spending and liquidity does the company expect for 2017?
The company's 2017 capital expenditure guidance is $500 million to $585 million, including $440 million to $500 million for drilling and completion. Management believes cash on hand, operating cash flow and revolver borrowings will be sufficient for the current capital program, and the next borrowing base redetermination is expected in spring 2017.
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