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Centennial Resource Development Fourth Quarter, Full Year 2021 Results

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   |    Wednesday,February 23,2022

Centennial Resource Development, Inc. announced the establishment of a share repurchase program and its 2021 financial and operational results.

Shareholder Return Program

  • Announced $350 million stock repurchase program
  • Supported by robust two-year outlook and resilient through commodity price cycles

Recent Financial and Operational Highlights

  • Generated record free cash flow1 of $85 million in the fourth quarter, and over $200 million for the full year
  • Closed the previously announced non-core asset divestiture in Reeves County for $101 million
  • Repaid $180 million in borrowings during the fourth quarter
  • Reduced leverage metrics
  • Delivered three of the top ten wells in Company history
  • Increased daily crude oil production 3% compared to the prior quarter
  • Entered into a new $750 million, five-year revolving credit facility

Financial Results

For the full year 2021, Centennial generated net cash from operating activities of $525.6 million and free cash flow of $206.7 million. The Company also reported full year net income of $138.2 million, or $0.46 per diluted share, compared to a net loss of $682.8 million, or $(2.46) loss per diluted share, in the prior year. For the fourth quarter, net income was $160.8 million, or $0.51 per diluted share, compared to a net loss of $88.7 million, or $(0.32) loss per diluted share, in the prior year period. The Company generated net cash from operating activities of $192.5 million and free cash flow of $84.8 million in the fourth quarter of 2021.

Full year total equivalent production averaged 60,939 barrels of oil equivalent per day ("Boe/d") compared to 67,161 Boe/d in the prior year. Average daily crude oil production during the full year was 32,058 barrels of oil per day ("Bbls/d") compared to 36,084 Bbls/d in the prior year. For the fourth quarter, total equivalent production was 62,649 Boe/d compared to 59,708 Boe/d in the prior year period, an increase of 5%. Average daily crude oil production for the quarter increased 14% to average 34,468 Bbls/d compared to 30,196 Bbls/d in the prior year period.

CEO Sean R. Smith said: "2021 was an excellent year for Centennial. We generated over $200 million in free cash flow, allowing us to significantly pay down debt and reduce leverage during the year. Using current strip pricing, we expect strong free cash flow and further debt reduction during 2022, while also delivering solid oil production growth. Given our enhanced financial and operational position, we are excited to begin returning capital to our shareholders in the coming quarters."

Stock Repurchase Program

Centennial announced a $350 million stock repurchase program. The program is authorized for two years and represents approximately 15% of the Company's current market capitalization. Upon achieving a net debt-to-LTM EBITDAX2 ratio of approximately 1.0x or lower, the Company plans to begin repurchasing shares.

Smith commented: "I am pleased to announce our first step in returning capital to shareholders through a disciplined share buyback program, which we believe will drive value creation in today's environment. The program is supported by a robust two-year outlook, during which we expect to generate over $775 million in free cash flow at current strip prices and deliver average crude oil production growth of over 10%."

Smith continued, "We remain focused on further balance sheet improvement and expect to initiate our share repurchase program after achieving our leverage target, which is anticipated to occur during the second quarter of this year assuming current strip prices. Importantly, the execution of this program is not contingent on current strip pricing and is resilient through commodity price cycles, all while maintaining a leverage ratio of 1.0x or less."

Repurchases under the program may be made from time to time in the open markets or in privately negotiated transactions at the Company's discretion and are subject to market conditions, applicable legal requirements, available liquidity, compliance with the Company's debt and other agreements and other factors. The program does not require any specific number of shares to be reacquired and can be modified or discontinued by the Board of Directors at any time.

Fourth Quarter Operational Results

Centennial has continued to efficiently develop its Delaware Basin acreage position with larger well packages. During the quarter, the Company completed nine wells across two separate developments, which were brought online in late October and early November. Located on the southern portion of its New Mexico position, the Juliet, Sheba and Solomon (average 89% working interest ("WI")) four-well development was drilled in the Second Bone Spring Sand interval with average 7,150-foot laterals. The wells delivered an average 30-day initial production ("IP") rate of 3,080 Boe/d (82% oil) per well and averaged 354 Bbls/d of oil per 1,000 foot of lateral per well. Notably, the average maximum IP-24 hour rate for the Juliet 514H, Sheba 506H and Solomon 505H wells was over 4,800 barrels of oil.

Smith commented: "These wells generated outstanding results and now represent three of the top ten wells drilled in the Company's history, based on 90-day rates. This development highlights the quality of our asset base and our technical expertise, averaging almost 1,700 barrels of oil per day during the first ninety days."

Also targeting the Second Bone Spring Sand, the Winnebago and Bridge wells (average 98% WI) represent a five-well development drilled with 9,760-foot average laterals. The wells averaged 1,638 Boe/d, or 1,325 Bbls/d of oil, per well for the 30-day IP period.

Total capital expenditures incurred for the quarter were $86.5 million. Fourth quarter drilling, completion and facilities ("DC&F") costs were $85.2 million and included facilities capital for wells scheduled to be completed during the first quarter of 2022. Infrastructure, land and other capital expenditures during the quarter totaled $1.3 million. For the full year, total capital expenditures were $321.5 million.

Capital Structure and Liquidity

During the fourth quarter, Centennial repaid $180 million of borrowings under its revolving credit facility, leaving $25 million outstanding at December 31, 2021. Total debt at the end of the quarter was $841 million and represents an 18% reduction from the prior quarter. Net debt-to-LTM EBITDAX at December 31, 2021 was 1.4x compared to 2.1x at September 30, 2021.

On February 18, 2022, the Company closed a new five-year revolving credit facility with elected commitments of $750 million. The borrowing base under the new credit facility increased to $1.15 billion from $700 million under the Company's prior credit facility. Additionally, the new revolving credit facility provides for, among other things, the ability to repurchase outstanding common stock and senior notes, subject to certain leverage and elected commitment availability conditions. As of December 31, 2021, after giving effect to the new elected commitments, pro forma total liquidity was approximately $729 million, including letters of credit.

Smith commented: "During 2021, we repaid $305 million in borrowings under our credit facility and reduced our net debt-to-LTM EBITDAX metric by almost three turns. Our strong leverage profile, coupled with no debt maturities until early 2026, provide Centennial with significant financial flexibility going forward."

Year-End 2021 Proved Reserves

Centennial reported year-end 2021 total proved reserves of 305 MMBoe compared to 299 MMBoe at prior year-end. At year-end 2021, proved reserves consisted of 50% oil, 32% natural gas and 18% natural gas liquids. Proved developed reserves were 163 MMBoe (53% of total proved reserves) at December 31, 2021. For 2021, Centennial's organic reserve replacement ratio was 149%. The Company's 2021 proved developed finding and development cost was $7.65 per Boe. Centennial's drill-bit finding and development cost was $9.36 per Boe for 2021. Centennial had a standardized measure of discounted future net cash flows of $3.4 billion at December 31, 2021. The pre-tax present value at 10% ("Pre-tax PV 10%", a non-GAAP financial measure reconciled within the Appendix) of Centennial's total proved reserves was $3.9 billion at year-end.

Netherland Sewell & Associates, Inc., an independent reserve engineering firm, prepared Centennial's year-end reserves estimates for the year ending December 31, 2021.

Hedge Position Update

Since its last update on November 3, 2021, the Company has added incremental oil hedges for the second half of 2022 and full year 2023. For the second half of 2022, the Company entered into 500 Bbls/d of incremental oil swaps at a weighted average fixed price of $80.35 per barrel. Also for this period, the Company added 2,000 Bbls/d of oil collars with a weighted average floor price of $75.00 per barrel and ceiling price of $89.05 per barrel. As a result, Centennial now has a total of 12,232 Bbls/d of oil hedged for the full year 2022, consisting of approximately 82% fixed price swaps with the remainder in costless collars. Notably, the Company's oil hedges are weighted towards the first half of 2022 with 14,500 Bbls/d of oil hedged during this period. For the second half of 2022, Centennial has 10,000 Bbls/d of oil hedged.

For the full year 2023, Centennial has a total of 3,740 Bbls/d of oil hedged, consisting of approximately 47% fixed price swaps. The Company currently has 1,744 Bbls/d of oil hedged at a weighted average fixed price of $73.26 per barrel. Also for 2023, the Company has 1,996 Bbls/d of oil collars in place with a weighted average floor and ceiling price of $70.00 per barrel and $80.91 per barrel, respectively. In addition to the hedge positions discussed above, Centennial has certain other natural gas hedges, crude oil and natural gas basis swaps and crude oil roll differential swaps in place.

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