Quarterly / Earnings Reports | Second Quarter (2Q) Update | Drilling Program-Rig Count

Parsley Details Q2 Results, Highlights; Drops One Rig Citing 'Efficiencies'

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Parsley Energy Inc. reported its Q2 2019 results.

Second Quarter 2019 Highlights

• Net oil production increased 10% quarter-over-quarter and 28% year-over-year to 86.6 MBo per day. Total net production averaged 140.1 MBoe per day.
• The Company registered favorable trends in operating costs during the second quarter of 2019.
• Parsley reported lease operating expense ("LOE") per Boe of $3.35, representing a Company-record level and an 8% reduction versus 1Q19. Parsley is lowering full-year 2019 LOE per Boe guidance from $3.50-$4.50 to $3.40-$3.90.
• Both general and administrative expense ("G&A") per Boe and cash based G&A per Boe⁽¹⁾, which excludes stock-based compensation expense, decreased quarter-over-quarter and year-over-year to $2.74 and $2.35, respectively, representing Company-record levels in each case. Parsley is lowering full-year 2019 cash G&A per Boe guidance from $2.75-$3.25 to $2.60-$2.90.
• Parsley is tightening its 2019 capital budget guidance from $1.35-$1.55 billion to $1.40-$1.49 billion.
• The Company is increasing full-year 2019 net oil production guidance from 80.0-85.0 MBo per day to 85.0-86.5 MBo per day. At the midpoint, the updated range translates to estimated year-over-year organic growth of nearly 25%.

Matt Gallagher, Parsley's President and CEO, said: "When we unveiled our 2019 development plan, we pointed to this year representing a critical next step in Parsley's corporate evolution. We set a course aiming to take a step forward to sustainable free cash flow, while delivering a step-change improvement in capital efficiency. I am proud of the strides we have made on our 2019 action plan and our updated guidance ranges reflect the high level of execution delivered across the organization. We are now positioned to generate free cash flow for the remainder of the year, which will cement a core tenet of our 2019 action plan. Furthermore, I am excited that Parsley Energy is now on a trajectory toward growing free cash flow, ultimately increasing visibility for the return of capital to shareholders."

Operational Update

Activity Overview

During the second quarter of 2019, the Company spud 41 and placed on production 39 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 99%, with an average completed lateral length of approximately 9,750 feet. Completion activity was weighted toward the Midland Basin, where the Company placed on production 33 gross operated horizontal wells, with the remainder placed on production in the Delaware Basin. Parsley expects that development activity will remain weighted to the Midland Basin for the remainder of the year, consistent with prior commentary.

Parsley maintained operational momentum during the second quarter of 2019, including an 8% improvement in drilling efficiency⁽²⁾ compared to the first quarter of 2019. These drilling efficiency gains enabled the Company to drop from 12 development rigs to 11 development rigs in mid-June. Parsley expects to run a maximum of 11 development rigs and three-to-four frac spreads through the end of 2019. Parsley intends to proactively manage its schedule to adhere to its full-year capital budget expectations and preserve operational momentum into 2020.

"Our 2019 action plan sought to build upon operational efficiency gains captured during 2018. Our teams are delivering on this key objective, and we are now generating more footage with less equipment," said David Dell'Osso, Parsley's COO. "Importantly, this incremental footage coincides with a commitment to a narrowed capital budget range, translating to a more capital efficient program in 2019. Finally, Parsley is targeting a consistent capital investment pace through the end of the year as the Company expects to carry operational momentum into next year."

Notable Well Results

Parsley's returns-focused strategy targeted increased development activity in its Upton County area during 2019. Over the past six months, Upton County has been the Company's most active area with 25 wells turned to production. These recent wells included three wells on the Hanks Family lease, which were completed in the Wolfcamp B zone with an upsized proppant loading of approximately 2,400 pounds per lateral foot. Early results from these three 6,500' lateral wells are promising, with 30-day peak production rates averaging 1,342 Boe/d (74% oil). More broadly, the Company's 2019 Upton County wells are delivering encouraging early results in the aggregate, registering a higher oil productivity than comparable 2018 wells.

Financial Update

Healthy execution in 2Q19 translated to strong performance in key financial measures.

Profitability

During 2Q19, the Company recorded net income attributable to its stockholders of $115.9 million, or $0.41 per share. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, adjusted net income for 2Q19 was $90.4 million, or $0.32 per share.⁽¹⁾

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 2Q19 was $368.4 million.⁽¹⁾

Realized Pricing

During 2Q19, Parsley reported an average unhedged oil price realization of $58.23/Bbl net of transportation costs, representing a discount of $1.68 to the average WTI Cushing price⁽³⁾ for the quarter.

Operating Costs

Parsley registered favorable trends in operating costs and margins during the second quarter of 2019. The Company reported LOE per Boe of $3.35, down 8% versus 1Q19 expense levels. Favorable LOE unit cost trends were driven by artificial lift optimization, continued utilization of the Company's integrated water handling system, and increased production volumes. Parsley is lowering full-year 2019 LOE per Boe guidance from $3.50-$4.50 to $3.40-$3.90.

Both G&A per Boe and cash based G&A per Boe⁽¹⁾, which excludes stock-based compensation expense, decreased quarter-over-quarter and year-over-year to $2.74 and $2.35, respectively, representing Company-record levels in each case. Encouraging G&A cost trends are a function of ongoing corporate cost savings initiatives, including a previously disclosed reduction in workforce. During 2Q19, Parsley incurred one-time restructuring and other termination costs of $1.6 million as part of its continuing effort to reduce future general and administrative expenses. These one-time costs are reported separately from the Company's G&A and cash based G&A. Parsley is lowering full-year 2019 cash G&A per Boe guidance from $2.75-$3.25 to $2.60-$2.90.

Healthy realized oil pricing and favorable trends in the aforementioned cash operating costs drove a strong operating cash margin of $30.38 per Boe, or 78% of the Company's average realized price per Boe.⁽¹⁾

Capital Expenditures

Parsley reported capital expenditures of $372 million during the second quarter of 2019, comprised of $290 million for operated drilling and completion activity, $76 million for operated facilities and infrastructure, and $6 million associated with non-operated development activity.

Liquidity and Hedging

As of June 30, 2019, Parsley had approximately $1.0 billion of liquidity, consisting of $64 million of cash and cash equivalents and an availability of $951 million on the Company's revolver.⁽⁴⁾

A significant majority of Parsley's expected 2019 oil production remains subject to hedge protection. The Company also recently added to its 2020 hedge positions, including new Brent contracts that further align Parsley's hedge position with its regional price exposure. Parsley's portfolio of option contracts provides significant protection for its balance sheet and anticipated cash flow while retaining meaningful exposure to higher commodity prices. For details on Parsley's hedge position, please see the tables below under Supplemental Information and/or, upon availability, the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2019.

2019 Guidance

Parsley is tightening its 2019 capital budget range, increasing its full-year 2019 net oil production guidance and decreasing its full-year 2019 unit operating cost guidance, reflecting strong execution across the organization. The Company expects third quarter 2019 net oil production to average 87-90 MBo/d. For further detail, please see the table below.