01—Abstract
Summary
Summary of the 10-K filed February 25, 2019. Cited figures are marked; the original filing is the authoritative source.
Centennial Resource Development, Inc. is an independent oil and natural gas company focused on unconventional oil and liquids-rich natural gas in the Permian Basin, with all assets concentrated in the Delaware Basin (primarily Reeves County, Texas and Lea County, New Mexico).
As of December 31, 2018, the company held approximately 80,223 net acres and operated 263 gross producing horizontal wells, running seven rigs during 2018. Total proved reserves were 261,826 MBoe, of which 56% were proved undeveloped, and the pre-tax PV 10% value was $2.98 billiona. Net production rose to 22,295 MBoe in 2018 from 11,630 MBoe in 2017, and oil and gas sales increased to $891.0 million from $429.9 million.
Financially, net income attributable to common shareholders was $199.9 millionb in 2018 versus $75.6 million in 2017, and operating cash flow was $670.0 million. Capital expenditures totaled $997.2 million in 2018, and the 2019 capital budget is set at $765 million to $925 million. Long-term debt, net, was $691.6 million at year end, comprising $300.0 million drawn on the revolving credit facility and $400.0 million of 5.375% senior notes due 2026, with $499.2 million of available borrowing capacity.
The company notes that Permian takeaway constraints widened differentials in 2018, which reduced realized natural gas prices by 28%c. Investors should weigh the strong production and revenue growth against heavy reliance on a single basin, a high proportion of undeveloped reserves, pipeline-driven price differentials, and a concentrated shareholder base in which Riverstone and its affiliates held approximately 28% of voting common stock.
02—Key points
Key Highlights
- Oil and gas sales rose 107% to $891.0 million in 2018, driven by a seven-rig drilling program that brought 80 gross operated wells online.
- Net production reached 22,295 MBoe in 2018 (61,082 Boe/d), up 92% from 2017, with oil production up 81%.
- Total proved reserves were 261,826 MBoe at year-end 2018, with a pre-tax PV 10% of $2,979.5 million; 56% of proved reserves are undeveloped.
- Net income attributable to common shareholders increased to $199.9 million from $75.6 million in 2017; operating cash flow was $670.0 million.
- Total 2018 capital expenditures were $997.2 million, and the 2019 capital budget is $765 million to $925 million, with drilling and completion reduced to a rig count of six.
- Long-term debt was $691.6 million at December 31, 2018, including $300.0 million under the revolving credit facility and $400.0 million of 5.375% senior notes due 2026; $499.2 million was available for borrowing.
- Realized natural gas prices fell 28% to $1.97 per Mcf as wider Permian differentials reflected pipeline takeaway constraints; all assets are concentrated in the Delaware Basin.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 25, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $891.04M$429.90M | +107.3% |
| Operating Expenses | $608.33M$324.62M | +87.4% |
| Operating Income | $283.19M$114.08M | +148.2% |
| Interest Expense | $26.36M$5.73M | +360.1% |
| Net Income | $199.90M$75.57M | +164.5% |
| EPS (Basic) | $0.76$0.32 | +137.5% |
| EPS (Diluted) | $0.75$0.32 | +134.4% |
| Shares Outstanding (Basic) | 263.34M235.45M | +11.8% |
| Shares Outstanding (Diluted) | 266.86M239.75M | +11.3% |
05—Questions
Frequently Asked Questions
What is driving the company's production growth?
Production growth came primarily from drilling success in the Delaware Basin and from properties acquired in the GMT Acquisition, which added 301 MBbls of incremental oil production in 2018. Eighty gross operated wells were placed on production in 2018 under a seven-rig program.
How exposed is the company to Permian pricing differentials?
Because all of its assets are in the Delaware Basin, realized prices for unhedged volumes were negatively affected by regional differentials. Oil differentials from NYMEX widened to $8.78 per Bbl in 2018 from $2.71 in 2017, and natural gas differentials widened to $1.18 per MMBtu from $0.27. The filing states that pipeline capacity is expected to increase in 2019 and 2020.
What are the company's main debt obligations and liquidity position?
At December 31, 2018, the company had $300.0 million drawn on its credit agreement, which has a borrowing base of $1.0 billion and elected commitments of $800.0 million, and $499.2 million of available capacity. It also had $400.0 million of 5.375% senior unsecured notes due 2026 issued by CRP. The company stated it was in compliance with its covenants as of December 31, 2018.
How much of the company's reserves are undeveloped, and what happened to them in 2018?
Proved undeveloped reserves were 145,326 MBoe, or 56% of total proved reserves. During 2018, 40,294 MBoe converted to proved developed reserves at a cost of $344.8 million, and extensions and discoveries added 89,996 MBoe of PUDs. Revisions removed 20,296 MBoe, mainly from locations no longer in the active development program.
Who holds significant control over the company?
Riverstone and its affiliates beneficially owned approximately 28% of the company's voting common stock as of December 31, 2018. The filing states this ownership could allow them to strongly influence corporate actions requiring stockholder approval, including director elections and any sale of substantially all assets. The company also has provisions in its charter and bylaws, along with Delaware law, that could impair a takeover.
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