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Centennial Resource Development Second Quarter 2022 Results

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   |    Thursday,August 04,2022

Centennial Resource Development, Inc. announced second quarter 2022 financial and operational results.

2Q Highlights:

• Reported strong net cash flow from operations

• Generated record free cash flow

• Ended the quarter with approximately $200 million of cash

• Increased daily crude oil production 12% compared to the prior quarter

• Delivered four out of the top ten wells in Company history

• Reduced LOE per unit costs by 13% compared to the prior quarter

• Significantly reduced leverage quarter-over-quarter

• Announced transformational merger of equals with Colgate Energy

CEO Sean R. Smith commented: "Centennial's second quarter was highlighted by outstanding well results, strong production growth, record free cash flow and an attractive leverage profile. Additionally, our recently announced merger of equals with Colgate Energy will create a leading Delaware Basin E&P that is poised to capitalize on its high-quality scaled asset base to drive significant shareholder returns. The integration process is progressing well, and we look forward to closing this transaction shortly after the scheduled shareholder vote."

Financial Results

For the second quarter, Centennial generated net cash from operating activities of $295.0 million and free cash flow of $137.4 million. The Company reported net income during the quarter of $191.8 million, or $0.60 per diluted share, compared to a net loss of $25.1 million, or $(0.09) per diluted share, in the prior year period.

Average daily crude oil production for the second quarter was 36,696 barrels of oil per day ("Bbls/d") compared to 31,912 Bbls/d in the prior year period. Total equivalent production during the quarter averaged 70,240 barrels of oil equivalent per day ("Boe/d") compared to 61,647 Boe/d in the prior year period. Second quarter average daily crude oil and total equivalent production increased 12% and 14%, respectively, quarter-over-quarter.

Second Quarter Operational Results

Centennial continues to efficiently develop its Delaware Basin acreage position through larger well packages with extended laterals. During the quarter, the Company increased its average completed lateral length by 17% quarter-over-quarter to approximately 9,950 feet, driving enhanced economic returns. In Lea County, New Mexico, the Tostada and Gordita five-well development (average 80% working interest ("WI")) was drilled in the Third Bone Spring Sand interval with average 9,900-foot laterals. These wells delivered an average 30-day initial production ("IP") rate of 2,986 Boe/d, or 2,508 Bbls/d of oil, per well. Notably, the average maximum IP-24 hour rate for the Tostada State Com 601H and 602H and Gordita State Com 602H and 603H wells was approximately 4,800 barrels of oil per well. "Developed as one of our largest packages to date, these wells generated robust results and represent four of the top ten wells drilled in the Company's history, based on both 24-hour and 30-day IP rates," said Smith.

Also targeting the Third Bone Spring Sand interval in Lea County, the Airstream wells (average 91% WI) represent a three-well pad drilled with 9,800-foot average laterals. These wells achieved average 30-day and 60-day IP rates of 2,264 Boe/d (82% oil) and 1,750 Boe/d (82% oil) per well, respectively.

Total capital expenditures ("capex") incurred for the quarter were $140.6 million. Second quarter drilling, completion and facilities costs were $136.8 million and included four more wells spud than originally anticipated. Infrastructure, land and other capex during the quarter totaled $3.8 million.

Capital Structure and Liquidity

During the quarter, the Company increased its cash balance by $150.5 million, resulting in $201.1 million of cash on hand at June 30, 2022. Centennial had zero borrowings outstanding under its $750.0 million revolving credit facility. Total long-term debt (before unamortized debt discount or issuance costs) and total net debt at the end of the quarter were $815.8 million and $614.7 million, respectively. Net debt-to-LTM EBITDAX at June 30, 2022 was 0.7x and represents a significant reduction from 1.1x at March 31, 2022.

Hedge Position Update

For the second half of 2022, Centennial has a total of 14,000 Bbls/d of oil hedged, consisting of approximately 57% fixed price swaps with the remainder in costless collars. For fiscal year 2023, the Company has a total of 9,736 Bbls/d of oil hedged, consisting of approximately 82% costless collars. During this period, the Company currently has 7,992 Bbls/d of WTI oil collars in place with a weighted average floor and ceiling price of $75.94 per barrel and $91.83 per barrel, respectively. Also for 2023, the Company has 1,744 Bbls/d of WTI oil hedged at a fixed price of $73.26 per barrel.

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. (For a summary table of Centennial's derivative contracts as of July 31, 2022, please see the Appendix to this press release.)

Strategic Merger with Colgate Energy

On May 19, 2022, Centennial and Colgate Energy Partners III, LLC ("Colgate") announced they had entered into an agreement to combine in a merger of equals transaction, creating the largest Delaware Basin pure-play E&P company with approximately 180,000 net leasehold acres and 40,000 net royalty acres. Centennial filed its Definitive Proxy Statement with the U.S. Securities and Exchange Commission ("SEC") on July 28, 2022 and scheduled its shareholder meeting for August 29, 2022 to vote on the pending merger. The merger is expected to close shortly thereafter, subject to Centennial shareholder approval.

Environmental, Social and Governance

Centennial is committed to producing oil and natural gas in an ethical and responsible way that creates long term value for its stakeholders. For more information about Centennial's second annual 2022 Corporate Sustainably Report, please visit www.cdevinc.com/corporate-sustainability. This report describes the Company's 2021 ESG programs, initiatives and performance to its stakeholders in a transparent and measurable way.