Quarterly / Earnings Reports | Third Quarter (3Q) Update | Capital Markets | Drilling Program-Rig Count | Capital Expenditure - 2020 | 2020 Guidance

Parsley Plans to Spend Over 20% More in 2020; Increase Oil Output

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   |    Tuesday,November 05,2019

Parsley Energy, Inc. reported its preliminary 2020 plans as well as its Q3 results.

Preliminary Pro Forma 2020 Outlook

Parsley is reiterating its preliminary pro forma 2020 outlook issued on October 14, 2019. Both production and capital expenditure range estimates assume a full-year of contribution from Jagged Peak.

Parsley continues to use a $50 WTI oil price assumption for its baseline capital budget in 2020.

• Capital expenditures of $1.6-$1.9 billion (21% higher at the midpoint than its 2019 plan of $1.435B)

• Aiming for oil production of 126-134 MBo per day in 2020 - they did not reveal total production estimates.

• Parsley plans to deploy 15 development rigs and four-to-five frac spreads on average in 2020. Parsley anticipates five of its development rigs will operate in the Delaware Basin, where Parsley has seen a material reduction in well costs in 2019.

Third Quarter 2019 Highlights

• Generated positive free cash flow⁽¹⁾ in 3Q19.
• Initiated dividend program in 3Q19 and declared 4Q19 quarterly dividend of $0.03 per share⁽²⁾ payable on December 20, 2019.
• Net oil production increased 6% quarter-over-quarter and 25% year-over-year to 91.7 MBo per day. Total net production averaged 150.4 MBoe per day.
• The Company registered favorable trends in lease operating expense ("LOE") and general and administrative expense ("G&A") during the third quarter of 2019, with respective costs per Boe reaching Company-low record levels.
• Parsley is tightening its 2019 capital budget guidance from $1.40-$1.49 billion to $1.40-$1.47 billion.
• The Company is increasing full-year 2019 net oil production guidance from 85.0-86.5 MBo per day to 86.4-87.4 MBo per day. At the midpoint, the updated range translates to estimated year-over-year organic growth of approximately 25%.
• Recently announced agreement to acquire Jagged Peak Energy Inc. ("Jagged Peak") in an accretive, low-premium and all-stock transaction valued at approximately $2.27 billion, inclusive of Jagged Peak's net debt of approximately $625 million as of June 30, 2019, expected to close in 1Q20.

Matt Gallagher, Parsley's President and CEO, said: "Parsley has executed with a sense of urgency throughout 2019 and the third quarter was no different. With an inflection to free cash flow and a step-change improvement in capital efficiency, we have delivered on critical objectives of our 2019 action plan, underscoring the resiliency of our Permian asset base. Furthermore, Parsley recently announced a low-premium, all-stock acquisition of Jagged Peak, which will enhance our corporate free cash flow profile and help sustain these capital efficiency gains moving forward. I am excited by the prospects of what the combination of Parsley and Jagged Peak can deliver for shareholders in 2020 and beyond."

Operational Update

Activity Overview

During the third quarter of 2019, the Company spud 34 and placed on production 35 gross operated horizontal wells. Parsley's working interest on wells placed on production was approximately 95%, with an average completed lateral length of approximately 10,000 feet. The Company placed on production 30 gross operated horizontal wells in the Midland Basin, with the remainder placed on production in the Delaware Basin.

During 3Q19, Parsley utilized three-to-four frac spreads and proactively managed its completion schedule. The Company intends to continue this practice through the end of 2019, translating to approximately 32 gross (27 net) operated horizontal wells placed on production during 4Q19. Parsley believes this steady capital investment pace through year-end will help avoid the operational friction costs associated with budget exhaustion and will facilitate strong organic growth in early 2020.

"The Parsley team has raised the bar throughout 2019 and this is being borne out by persistent capital efficiency gains," said David Dell'Osso, Parsley's COO. "Simply put, we are delivering more footage and more oil production for less capital. I am particularly pleased with the significant improvement we have achieved in our Delaware Basin cost structure over the past year. Looking forward, Parsley's collective sense of urgency is aimed at sustaining our execution momentum while working to capture synergies for our shareholders as we plan to integrate Jagged Peak's complementary asset base into our 2020 plans."

Financial Update

Healthy execution in 3Q19 translated to strong performance in key financial measures.

Profitability

During 3Q19, the Company recorded net income attributable to its stockholders of $119.7 million, or $0.43 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 3Q19 was $82.0 million, or $0.29 per share.⁽¹⁾

Adjusted earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense ("Adjusted EBITDAX") for 3Q19 was $370.7 million.⁽¹⁾

Realized Pricing

During 3Q19, Parsley reported an average unhedged oil price realization of $55.16/Bbl net of transportation costs, representing a discount of $1.28 to the average WTI Cushing price⁽³⁾ for the quarter.

Operating Costs

Parsley registered favorable trends in operating costs and margins during the third quarter of 2019. The Company reported LOE per Boe of $3.30, down 2% versus 2Q19 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 tightening full-year 2019 LOE per Boe guidance from $3.40-$3.90 to $3.40-$3.65.

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 $2.65 and $2.28, respectively, representing Company-low record levels in each case. Encouraging G&A cost trends are a function of ongoing corporate cost savings initiatives. Parsley is lowering full-year 2019 cash G&A per Boe guidance from $2.60-$2.90 to $2.50-$2.70.

Healthy realized oil pricing and favorable trends in the aforementioned cash operating costs drove a strong operating cash margin of $27.44 per Boe, or 75% of the Company's average realized price per Boe.⁽¹⁾

Capital Expenditures

Parsley reported capital expenditures of $318 million during the third quarter of 2019, comprised of $273 million for operated drilling and completion activity, $42 million for operated facilities and infrastructure, and $3 million associated with non-operated development activity. Parsley is tightening full-year 2019 capital guidance from $1.40-$1.49 billion to $1.40-$1.47 billion.

Return of Capital Program

Parsley Energy today announced that its Board of Directors declared a quarterly dividend of $0.03 per share.⁽²⁾ The dividend is payable on December 20, 2019, to shareholders of record on December 10, 2019.

Liquidity and Hedging

As of September 30, 2019, Parsley had approximately $981 million of liquidity, consisting of $5 million of cash and cash equivalents and an availability of $976 million on the Company's revolver.⁽⁴⁾

The Company also recently added to its 2020 hedge positions and, pro forma for the previously announced pending acquisition of Jagged Peak, expects that a majority of the two businesses' estimated 2020 oil production will be subject to hedge protection. 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 standalone and pro forma hedge position, please see the tables below under Supplemental Information. For details on Parsley's standalone hedge position please see, upon availability, the Company's Quarterly Report on Form 10-Q for the three months ended September 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 fourth quarter 2019 net oil production to average 88.5-92.0 MBo/d. The updated 2019 guidance does not take in effect the pending acquisition of Jagged Peak, which is expected to close in the first quarter of 2020, subject to customary closing conditions, including shareholder and regulatory approvals. For further detail, please see the table below.