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Centennial Resource Development Third Quarter 2021 Results

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   |    Wednesday,November 10,2021

Centennial Resource Development, Inc. announced third quarter 2021 financial and operational results.

Recent Financial and Operational Highlights:

  • Generated record free cash flow, a 126% increase compared to the prior quarter
  • Repaid $50 million in borrowings under the Company’s credit facility during the quarter
  • Improved leverage metrics significantly quarter-over-quarter
  • Announced pending sale of non-core asset in southern Reeves County, Texas
  • Increased daily crude oil production 5% compared to the prior quarter
  • Increased full-year oil and total company production guidance

Financial Results

For the third quarter, Centennial generated net cash from operating activities of $153.5 million and free cash flow1 of $77.2 million. The Company reported net income during the quarter of $37.1 million, or $0.12 per diluted share, compared to a net loss of $51.5 million, or $(0.19) loss per diluted share, in the prior year period.

Average daily crude oil production during the third quarter was 33,529 barrels of oil per day (“Bbls/d”) compared to 35,292 Bbls/d in the prior year period. Total equivalent production for the quarter averaged 65,121 barrels of oil equivalent per day (“Boe/d”) compared to 68,934 Boe/d in the prior year period. Third quarter average daily crude oil and total equivalent production increased 5% and 6%, respectively, quarter-over-quarter.

CEO Sean R. Smith said: “Centennial delivered a strong third quarter. Solid well results coupled with higher commodity prices drove record free cash flow and a material reduction in leverage. Assuming receipt of the proceeds from our pending divestiture and strip pricing, we anticipate ending the year with a net debt-to-LTM EBITDAX2 ratio of approximately 1.5x.”

Third Quarter Operational Results

Using multi-well pads and extended laterals, Centennial continues to efficiently develop its Delaware Basin acreage position. In Lea County, New Mexico, the three-well Crunch Berry 6 Federal Com pad (70% working interest (“WI”)) was completed in the Third Bone Spring Sand interval with average 9,500-foot laterals. The wells averaged 2,047 Boe/d, or 1,607 Bbls/d of oil, per well for the 30-day initial production (“IP”) period. “With the robust results from the Crunch Berry wells and current strip prices, we expect these wells to pay-out in less than six months,” said Smith.

Located on the western portion of Centennial’s New Mexico position, the Mozzarella Fed Com (91% WI) and Gouda Federal Com (95% WI) represent a four-well development in the Third Bone Spring Sand interval with average 10,050-foot laterals. The wells averaged 2,147 Boe/d, or 1,615 Bbls/d of oil, per well for the 30-day IP period.

Drilled in the Wolfcamp C interval in Reeves County, Texas with an approximate 8,100-foot lateral, the Highlander West Deep C09H (100% WI) was another strong result for the Company. The well delivered a 30-day IP rate of 1,793 Boe/d (77% oil), or 170 Bbls/d of oil per 1,000 foot of lateral.

Total capital expenditures incurred for the quarter were $78.9 million. Third quarter drilling, completion and facilities costs totaled $74.9 million, while infrastructure, land and other capital expenditures totaled $4.0 million.

“Our operations team has done an excellent job demonstrating capital cost control this year,” said Smith. “Going forward, we will continue to focus on driving further efficiencies, extending lateral lengths and expanding pad sizes to help offset future oilfield service cost inflation.”

Non-Core Divestiture

Centennial recently entered into a definitive agreement with affiliates of Henry Resources, LLC and Pickering Energy Partners, LP for the sale of approximately 6,200 net leasehold acres and related assets at closing for a cash purchase price of $101 million. The divested acreage is located on the southernmost portion of the Company’s Reeves County position. Third quarter estimated average net production associated with the divested acreage was approximately 1,600 Boe/d (64% oil), or less than 3% of total company production. The transaction is expected to close in December of 2021, subject to customary closing terms and conditions, and its impact is included in the Company’s updated 2021 operational targets.

“We are pleased to have monetized this acreage position given that our near-term capital is focused on other areas of our portfolio,” said Smith. “Upon closing, the net proceeds will go to reduce borrowings on the Company’s revolver.”

Updated 2021 Operational Targets

Based on recent operational results, Centennial increased its 2021 total company and oil production guidance by 3% and 2%, respectively. The Company also increased the expected number of wells spud this year due to continued operational efficiencies. As a result of higher than expected activity, Centennial has adjusted its full-year capital expenditure range. Furthermore, Centennial has updated its full-year 2021 production cost estimates. (For a summary table of Centennial’s updated 2021 operational guidance, please see the Appendix to this press release.)

Capital Structure and Liquidity

During the third quarter, Centennial repaid $50.0 million of borrowings under its revolving credit facility, leaving $205.0 million outstanding at September 30, 2021. Total debt at the end of the quarter was $1,020.8 million. Net debt-to-LTM EBITDAX2 at September 30, 2021 was 2.1x compared to 3.0x at June 30, 2021. Centennial’s total liquidity position improved by $47.8 million quarter-over-quarter to $493.5 million, based on its $700.0 million borrowing base, credit facility borrowings, $6.5 million in current letters of credit outstanding and cash on hand as of September 30, 2021.

“Year-to-date, we have repaid $125 million in borrowings under our credit facility primarily utilizing free cash flow,” said Smith. “Assuming current strip pricing and the successful closing of our pending divestiture, we expect to have minimal borrowings under our revolver at year-end. Additionally, our net debt-to-LTM EBITDAX2 metric of 2.1x represents a significant de-leveraging of the balance sheet that is expected to continue in subsequent quarters and will significantly enhance our financial flexibility over time.”

Hedge Position Update

Since its last update on August 3, 2021, the Company has added incremental oil hedges for the full-year 2022. For the first half of 2022, the Company entered into 1,757 Bbls/d of incremental oil swaps at a weighted average fixed price of $68.42 per barrel WTI. Also for this period, the Company added 2,500 Bbls/d of WTI oil collars with a weighted average floor price of $63.40 per barrel and ceiling price of $73.35 per barrel. For the second half of 2022, the Company entered into 2,000 Bbls/d of incremental oil swaps at a weighted average fixed price of $67.38 per barrel WTI. As a result, Centennial now has a total of 10,971 Bbls/d of oil hedged for the full-year 2022, consisting of approximately 89% 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 7,500 Bbls/d of oil hedged.

In addition to the 2022 hedge positions discussed above, Centennial has certain other crude oil and 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 October 31, 2021, please see the Appendix to this press release.)

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