Parsley Energy Announces Third Quarter 2017 Financial And Operating Results; Provides Preliminary 2018 Outlook

AUSTIN, Texas, Nov. 7, 2017 /PRNewswire/ -- Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended September 30, 2017. The Company has posted to its website a presentation that supplements the information in this release. 

Third Quarter 2017 Highlights

• Net production averaged 71.5 MBoe per day, up 11% versus 2Q17 and 66% year-over-year. Daily net oil production increased 10% versus 2Q17 and 63% year-over-year.
• The Company continues to execute acreage trades that optimize the development potential of its Midland Basin footprint. Net of acreage traded away, Parsley added more than 1.2 million net lateral feet to the Company's horizontal drilling inventory through trades executed since its last quarterly update in August. Including this footage, Parsley has added approximately 2.6 million net lateral feet through acreage trades since announcing the acquisition of Midland Basin assets from Double Eagle Permian, LLC and certain of its affiliates in February 2017, while consolidating key development areas.
• Parsley built upon an encouraging 2Q17 result from a well utilizing a compressed stage completion design with several additional compressed stage tests during 3Q17. Relative to offset wells utilizing the Company's standard completion design, these compressed stage wells in the Midland Basin exhibit a meaningful uplift in oil production accompanied by a more modest cost increase, translating to an enhanced return profile.
• The Company amended its revolving credit agreement on October 11, 2017, thereby increasing its borrowing base to $1.8 billion while maintaining the Company's elected commitment amount of $1.0 billion. As of the end of 3Q17, pro forma for the October issuance of $700 million of senior unsecured notes due 2027, liquidity stands at approximately $1.9 billion, including $934 million of cash on hand.

Preliminary 2018 Outlook

• Parsley's preliminary 2018 capital program targets high-margin oil volume growth with top-tier capital efficiency on a steady development pace.
• The Company estimates that capital expenditures of $1.35-$1.55 billion would translate to oil production of 67.5-72.5 MBo per day.
• While almost half of the wells Parsley has drilled and completed over the past four quarters have been located in new counties, targeted new formations, and/or implemented new spacing arrangements, the Company intends to focus on relatively established areas, formations, and configurations in 2018.

"Parsley Energy's core objective is to create long-term shareholder value by investing large amounts of capital at high rates of return," said Bryan Sheffield, Parsley's Chairman and CEO. "Having added almost 100,000 net acres and essentially doubled our activity level since the beginning of the year, we intend to stabilize at a measured development pace that prioritizes operational continuity and advances our progress toward free cash flow generation. Based on the momentum we have generated and our track record of capital efficient investment, if we were to maintain our current development pace for the next two years, at current strip prices we would expect to generate free cash flow from operations by the end of 2019. In the interim, we would expect to fund the associated development program entirely with operating cash flow and current cash on hand. In addition, with services and equipment largely secured and a robust hedge position in place, we have taken steps to insure a compelling 2018 development program."

Operational Highlights

During the third quarter, the Company spud 38 and completed 36 gross horizontal wells. Parsley's working interest on completed wells was approximately 97%, with an average completed lateral length of approximately 7,700 feet. Drilling and completion activity was concentrated in the Midland Basin, where the Company spud 24 and completed 27 gross operated horizontal wells; the balance were spud and completed in the Southern Delaware Basin.

In light of enhanced lease geometry as facilitated by recent acreage trades, the Company anticipates a significant step up in the average lateral lengths of the wells it will bring online in future periods. Through the end of 2018, for example, the Company expects that the wells it turns to production will be characterized by average lateral lengths of more than 9,000 feet.

Production Trends

Parsley is replacing its one million Boe type curve (based on a 7,000 foot lateral) with a 1.6 million Boe Midland Basin reference curve (based on a 10,000 foot lateral). This revised Midland Basin curve better reflects the Company's expanded acreage footprint, recognizes the shift to higher average lateral lengths, and captures incremental gas and NGL production based on actual results. The Company is also introducing a 1.5 million Boe reference curve for the Southern Delaware Basin (likewise based on a 10,000 foot lateral). Details on these new curves can be found in the 3Q17 investor presentation posted to the Company's website.

Parsley continued to deliver solid well performance during 3Q17, helping to offset previously disclosed impacts from Hurricane Harvey-related curtailments. The 20 Midland Basin wells that achieved 30-day peak production periods since the Company's last quarterly update registered an average peak 30-day rate of 1,177 Boe per day with an average lateral length of 7,229' and an average three-stream oil cut of 72%. The four Southern Delaware wells that reached peak production since the Company's last update achieved an average 30-day initial production rate of 1,333 Boe per day with an average lateral length of 7,867' and an average three-stream oil cut of 67%.

Parsley's first well targeting the Wolfcamp C formation, the Taylor 45-33-4601H, continues to generate robust volumes, with cumulative production of over 525 MBoe (56% oil) after 240 days. The Taylor well achieved payout within six months and was still producing over 700 Bbls of oil per day after eight months on production. The Company's second Wolfcamp C well, the Paige 13A-12A-4810H, reported a peak 60-day production rate of nearly 1,600 Boe per day (~56% oil) and has generated cumulative volumes that are consistent with the Company's Midland Basin reference curve.

Parsley built upon an encouraging 2Q17 result from a well utilizing a compressed stage completion design with six additional compressed stage tests during 3Q17. These seven wells were drilled with one-mile laterals and completed with 50 stages on average, equating to 100-foot stage spacing versus Parsley's heretofore standard design of 170-foot stage spacing. Compared to the nearest offset wells using a standard stage spacing design, these seven compressed stage wells have registered a 10-25% uplift in cumulative oil production, with an incremental well cost of 5-7%. This cost/benefit relationship continues to imply a compelling economic profile, motivating additional tests during 2018.

Financial Highlights

During 3Q17, the Company recorded net loss attributable to its stockholders of $13.3 million, or $0.05 per weighted average share, compared to net income of $40.7 million, or $0.17 per weighted average share, during 2Q17. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, and adding back the non-controlling interest allocated to Class B stockholders, adjusted net income for 3Q17 was $29.3 million, or $0.12 per diluted share, compared to $12.5 million, or $0.05 per diluted share, in 2Q17.⁽¹⁾

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 3Q17 was $164.9 million, up 15% compared to 2Q17.⁽¹⁾

During the third quarter, Parsley successfully reduced production costs on recently acquired wells, leading to an 11% decrease in lease operating expense ("LOE") per Boe to $4.49 in 3Q17 from $5.03 in 2Q17. Parsley reported general and administrative expense ("G&A") per Boe of $5.10, down 5% versus 2Q17. The Company reported cash G&A per Boe, which excludes stock-based compensation expense, of $4.32, down 4% over the same period. Depreciation, depletion, and amortization expense per Boe increased to $14.41 in 3Q17 from $14.15 in 2Q17.

Parsley reported capital expenditures of $307 million during the quarter, comprised of $281 million for drilling and completion and $26 million for facilities and infrastructure. In addition to spending associated with the 38 horizontal spuds and 36 horizontal completions noted above, 3Q17 capital expenditures include expenses associated with drilling and completing three saltwater disposal wells.

Strong Balance Sheet and Robust Hedge Position

As of September 30, 2017, pro forma for the October issuance of $700 million of senior unsecured notes due 2027, the Company had approximately $1.9 billion of liquidity, consisting of $934 million of cash on hand and an undrawn amount of $997.3 million on the Company's revolver.⁽²⁾ Based on the midpoint of Parsley's preliminary 2018 oil production outlook, the Company is fully hedged through 2018 with an average floor price of approximately $50/Bbl.⁽³⁾

For details on Parsley's hedging position, please see the tables below under Supplemental Information and/or the Company's Quarterly Report on Form 10-Q, upon availability, for the three months ended September 30, 2017.

Conference Call Information

Parsley Energy will host a conference call and webcast to discuss its results for the third quarter of 2017 on Wednesday, November 8 at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). Participants should call 877-407-0672 (United States/Canada) or 412-902-0003 (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 November 15 by dialing 877-660-6853 (United States/Canada) or 201-612-7415 (International). Conference ID: 13671668. A live broadcast will also be available on the internet at www.parsleyenergy.com under the "Events & Presentations" section of the website. The Company has also posted to its website a presentation that supplements the information in this release.

About Parsley Energy, Inc.

Parsley Energy, Inc. is an independent oil and natural gas company focused on the acquisition and development of unconventional oil and natural gas reserves 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 -

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 costs, net interest expense, income tax expense (benefit), change in Tax Receivable Agreement ("TRA") liability, stock-based compensation, acquisition costs, (gain) loss on sale of property, asset retirement obligation accretion expense, loss on early extinguishment of debt, (gain) loss on derivatives, net settlements on derivative instruments, net premium realizations 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 measure of other companies. The Company believes that Adjusted EBITDAX is 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 for each of the periods indicated.

Adjusted Net Income

Adjusted net income is a 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, (gain) loss on sale of property, exploration costs, acquisition costs, loss on early extinguishment of debt, and change in TRA liability, 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 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).

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SOURCE Parsley Energy, Inc.