Document





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K
___________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 8, 2018
___________________
Centennial Resource Development, Inc.
(Exact name of registrant as specified in its charter)
___________________
Delaware
 
001-37697
 
47- 5381253
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer Identification No.)

1001 Seventeenth Street, Suite 1800
Denver, Colorado 80202
(Address of principal executive offices, including zip code)
(720) 499-1400
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
___________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o









Item 2.02 Results of Operations and Financial Condition.
On May 8, 2018, Centennial Resource Development, Inc. (the “Company”) issued a press release announcing its financial and operational results for the first quarter of 2018. A copy of the press release is furnished as Exhibit 99.1 hereto.
The information furnished pursuant to this Item 2.02 and Item 7.01 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
Item 7.01. Regulation FD Disclosure.
The information set forth under Item 2.02 is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d)    Exhibits
Exhibit No.
Description






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
CENTENNIAL RESOURCE DEVELOPMENT, INC.
 
 
 
 
By:
/s/ GEORGE S. GLYPHIS
 
 
George S. Glyphis
Chief Financial Officer, Treasurer and Assistant Secretary
 
 
 
 
Date:
May 8, 2018




Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12238191&doc=3

Centennial Resource Development Announces First Quarter 2018 Financial and Operational Results
DENVER, CO, May 8, 2018 (GLOBE NEWSWIRE) - Centennial Resource Development, Inc. (“Centennial” or the “Company”) (NASDAQ: CDEV) today announced financial and operational results for the first quarter 2018.
Financial and Operational Highlights:
Increased daily crude oil production 15 percent quarter-over-quarter and 201 percent year-over-year
Announced strong Wolfcamp A well results including a positive test in Lea County, New Mexico
Delivered consistent well results from multiple intervals in the Delaware Basin
Decreased unit costs sequentially
Reported drilling and completion capital expenditures in line with expectations
Maintained conservative balance sheet and strong liquidity
Financial Results
First quarter net income increased 116% to $66.1 million, or $0.25 per diluted share, compared to $30.5 million, or $0.12 per diluted share, in the fourth quarter 2017.
For the quarter, average daily crude oil production increased 15 percent compared to the prior quarter and 201 percent compared to the same prior year period. Average daily total equivalent production increased 22 percent compared to the prior period. Centennial’s robust production profile enhanced overall financial performance with the reduction of unit cost metrics, including a reduction in depreciation, depletion and amortization to $13.57 per barrel of oil equivalent ("Boe") for the quarter from $14.42 per Boe in the prior quarter.
“Centennial delivered another quarter of solid operating results. This puts us on-track to deliver the 2018 goals articulated at the beginning of the year,” said Mark G. Papa, Chairman and Chief Executive Officer. “We saw consistent well performance during the quarter, with the average well producing approximately 1,200 barrels of oil per day for the initial 30-day production period. Individual wells are outperforming our expectations. These well results coupled with low unit costs were key to giving us very strong overall results for the quarter.”
Operational Update
Centennial continues to efficiently develop its acreage position in the Delaware Basin. In Lea County, New Mexico, the Juliet Federal Com 1H (85% WI) was drilled with an approximate 4,000-foot effective lateral and reported an initial 30-day production rate of 1,447 Boe/d (78% oil). The well averaged 282 Bbls/d of oil per 1,000 foot of lateral for the first 30 days and produced over 50,000 barrels of oil during its initial 60-day period.
“The Juliet is Centennial’s first operated well targeting the Wolfcamp A in Lea County. The initial results are very positive, and we believe this confirms the productivity of this interval on our acreage in the Northern Delaware,” Papa said. “Since entering this part of the basin last year, essentially every well has either met or exceeded expectations, highlighting the quality of our acreage and the expertise of our technical team.”





Centennial also reported results from new horizons on the Texas side of the Delaware Basin where it is operating a six rig drilling program. While still drilling some delineation wells across its acreage, drilling and completion operations have largely shifted to multi-well pad development where possible, leading to greater operational efficiencies and cost improvements.
In Reeves County, Texas, Centennial posted robust results from the Third Bone Spring Sand, Upper Wolfcamp A and the Wolfcamp B intervals. With 98% WI in both wells, the Carpenter State A U30H and B U39H were drilled in the Upper Wolfcamp A with approximate 6,900-foot laterals. The Carpenter State A U30H averaged 2,020 Boe/d (84% oil) for the initial 30-day production period. The Carpenter State B U39H reported an initial 30-day production rate of 1,532 Boe/d (86% oil). The Carpenter State A U30H and B U39H delivered an average initial 30-day oil production rate of 216 Bbls/d per 1,000 foot of lateral per well. Additionally, Centennial drilled and completed an extended 9,100-foot lateral, the Sieber Trust B13H (100% WI) in the Wolfcamp B formation. The well achieved an initial 30-day production rate of 1,877 Boe/d, or 1,441 Bbls/d of oil (77% oil).
“During the first quarter, the average completed lateral length increased more than 20 percent over the previous quarter. The impact of cost savings from drilling longer laterals from multi-well pads and higher well productivity is reflected in our improved bottom line,” Papa said. “Also, the encouraging results from the Sieber Trust well give us greater confidence in future upside potential of our Reeves County acreage position in the Wolfcamp B.”
As previously announced, the Weaver C T34H (86% WI) was Centennial’s first Reeves County well in the Third Bone Spring Sand, using modern completion techniques. The well, drilled with an approximate 9,350-foot effective lateral, reported an initial 30-day production rate of 2,129 Boe/d, or 1,563 Bbls/d of oil (73% oil). The well has proved the viability of the zone with results comparable to some of Centennial’s best producers from the Wolfcamp A zone.
“With 82,000 barrels of oil in the first 60 days, the Weaver well continues to demonstrate a very strong production profile,” Papa said. “The Third Bone Spring Sand extends over a significant portion of our Reeves County position and has the potential to add substantial, high rate-of-return inventory to our drilling portfolio. We expect to drill additional wells in the zone during the year.”
Drilling and completion capital expenditures incurred for the first quarter were approximately $181.8 million. Centennial’s facilities, infrastructure, land and other capital totaled approximately $56.5 million during the quarter.
“Operationally, this was a significant quarter for us. We drilled a Wolfcamp A well in Lea County, while testing longer laterals in the Wolfcamp A and B zones in Reeves County. All wells came on-line with strong oil production over the initial thirty-day period,” Papa said. “Furthermore, we now have over sixty days of production from our Third Bone Spring Sand test that continues to produce at a very healthy rate of oil production. These data points set us up nicely and confirm additional running room for the future.”
Capital Structure and Liquidity
As of March 31, 2018, Centennial had approximately $38 million in cash on hand, with zero borrowings under the revolving credit facility and $400 million of senior unsecured notes. On May 4, 2018, the Company closed a new five-year revolving credit facility. The borrowing base under the new credit facility increased by 39% to $800 million from $575 million under the Company’s prior credit facility, with a new elected commitment of $600 million. As of March 31, 2018, after giving effect to the new borrowing base and elected commitment, total liquidity was approximately $637 million, including letters of credit.
Hedge Position
As of May 8, 2018, Centennial had no fixed-price crude oil hedges. For the period April to December 2018, Centennial’s crude oil basis hedges represent approximately 27% of its expected crude oil production (using the mid-point of guidance) at a weighted average price of $(1.77) per barrel. To protect its associated rich natural gas production from





current market dynamics in the Permian Basin, Centennial also entered into additional natural gas swap and basis hedges effective 2019. (For a summary table of Centennial’s derivative contracts as of May 1, 2018, please see the Appendix of this press release.)
“As predicted, crude oil prices have responded positively to tightening global supply and demand fundamentals. At this time, we plan to remain fully unhedged on future oil production given our positive macro view,” Papa said. “We will also look to ensure adequate gas takeaway from the basin and minimize basis pricing risk for both crude oil and natural gas.”
Quarterly Report on Form 10-Q
Centennial’s financial statements and related footnotes will be available in its Quarterly Report on Form 10-Q for the three months ended March 31, 2018, which is expected be filed with the U.S. Securities and Exchange Commission (“SEC”) on May 8, 2018.
Conference Call and Webcast
Centennial will host an investor conference call on Wednesday, May 9, 2018 at 8:00 a.m. Mountain (10:00 a.m. Eastern) to discuss first quarter 2018 operating and financial results. Interested parties may join the webcast by visiting Centennial’s website at www.cdevinc.com and clicking on the webcast link or by dialing (800) 789-3525, or (442) 268-1041 for international calls, (Conference ID: 1872225) at least 15 minutes prior to the start of the call. A replay of the call will be available on Centennial’s website or by phone at (855) 859-2056 (Conference ID: 1872225) for a 14-day period following the call.
About Centennial Resource Development, Inc.
Centennial Resource Development, Inc. is an independent oil and natural gas company focused on the development of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin. The Company’s assets and operations, which are held and conducted through Centennial Resource Production, LLC, are concentrated in the Delaware Basin, a sub-basin of the Permian Basin. For additional information about the Company, please visit www.cdevinc.com.
Cautionary Note Regarding Forward-Looking Statements
The information in this press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this press release, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this press release, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
Forward-looking statements may include statements about:
our business strategy and future drilling plans;
our reserves and our ability to replace the reserves we produce through drilling and property acquisitions;
our drilling prospects, inventories, projects and programs;
our financial strategy, liquidity and capital required for our development program;
our realized oil, natural gas and NGL prices;
the timing and amount of our future production of oil, natural gas and NGLs;
our hedging strategy and results;





our competition and government regulations;
our ability to obtain permits and governmental approvals;
our pending legal or environmental matters;
our marketing of oil, natural gas and NGLs;
our leasehold or business acquisitions;
general economic conditions;
credit markets;
uncertainty regarding our future operating results;
our plans, objectives, expectations and intentions contained in this press release that are not historical; and
the other factors described in our Annual Report on Form 10-K for the year ended December 31, 2017, and any updates to those factors set forth in our subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the development, production, gathering and sale of oil and natural gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks described in our filings with the SEC.
Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.
Should one or more of the risks or uncertainties described in this press release occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release.
Contact:
Hays Mabry
Director, Investor Relations
(832) 240-3265
ir@cdevinc.com
SOURCE Centennial Resource Development, Inc.






Non-GAAP Financial Measure

Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDAX as net income before interest expense, income taxes, depreciation, depletion and amortization, exploration costs, impairment and abandonment expenses, non-cash gains or losses on derivatives, non-cash stock-based compensation, gains and losses from the sale of assets and transaction costs. Adjusted EBITDAX is not a measure of net income as determined by generally accepted accounting principles (“GAAP”).
Our management believes Adjusted EBITDAX is useful as it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. Our presentation of Adjusted EBITDAX should not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.
The following table presents a reconciliation of Adjusted EBITDAX to net income, our most directly comparable financial measure calculated and presented in accordance with GAAP:
 
For the Three Months Ended March 31,
(in thousands)
2018
 
2017
Adjusted EBITDAX reconciliation to net income:
 
 
 
Net income attributable to Class A Common Stock
$
66,090

 
$
9,823

Net income attributable to noncontrolling interest
4,682

 
884

Interest expense
5,813

 
410

Income tax expense
19,137

 

Depreciation, depletion and amortization
66,010

 
26,160

Impairment and abandonment expenses

 
(29
)
Non-cash portion of derivative gain
(7,482
)
 
(4,156
)
Stock-based compensation expense
3,952

 
2,370

Exploration expense
3,447

 
1,181

Transaction costs

 
887

(Gain) loss on sale of oil and natural gas properties
(15
)
 
(166
)
Adjusted EBITDAX
$
161,634

 
$
37,364







Centennial Resource Development, Inc.
Operating Highlights

 
For the Three Months Ended March 31,
 
Increase/(Decrease)
 
2018

2017
 
$
 
%
Operating revenues (in thousands):
 
 
 
 
 
 
 
Oil sales
$
174,841

 
$
46,681

 
$
128,160

 
275
 %
Natural gas sales
18,580

 
8,241

 
10,339

 
125
 %
NGL sales
22,477

 
6,175

 
16,302

 
264
 %
Oil and gas sales
$
215,898

 
$
61,097

 
$
154,801

 
253
 %
 
 
 
 
 
 
 
 
Average sales prices:
 
 
 
 
 
 
 
Oil (per Bbl)
$
61.53

 
$
49.45

 
$
12.08

 
24
 %
Effect of derivative settlements on average price (per Bbl)
(0.09
)
 
0.28

 
(0.37
)
 
(132
)%
Oil net of hedging (per Bbl)
$
61.44

 
$
49.73

 
$
11.71

 
24
 %
 
 
 
 
 
 
 
 
Average NYMEX price for oil (per Bbl)
$
62.91

 
$
51.82

 
$
11.09

 
21
 %
 
 
 
 
 
 
 
 
Natural gas (per Mcf)
$
2.42

 
$
2.91

 
$
(0.49
)
 
(17
)%
Effect of derivative settlements on average price (per Mcf)
(0.01
)
 
0.05

 
(0.06
)
 
(120
)%
Natural gas net of hedging (per Mcf)
$
2.41

 
$
2.96

 
$
(0.55
)
 
(19
)%
 
 
 
 
 
 
 
 
Average NYMEX price for natural gas (per Mcf)
$
3.08

 
$
3.06

 
$
0.02

 
1
 %
 
 
 
 
 
 
 
 
NGL (per Bbl)
$
30.21

 
$
25.10

 
$
5.11

 
20
 %
 
 
 
 
 
 
 
 
Net production:
 
 
 
 
 
 
 
Oil (MBbls)
2,842

 
944

 
1,898

 
201
 %
Natural gas (MMcf)
7,683

 
2,833

 
4,850

 
171
 %
NGL (MBbls)
744

 
246

 
498

 
202
 %
Total (MBoe)
4,866

 
1,662

 
3,204

 
193
 %
 
 
 
 
 
 
 
 
Average daily net production volume:
 
 
 
 
 
 
 
Oil (Bbls/d)
31,573

 
10,489

 
21,084

 
201
 %
Natural gas (Mcf/d)
85,372

 
31,478

 
53,894

 
171
 %
NGL (Bbls/d)
8,267

 
2,733

 
5,534

 
202
 %
Total (Boe/d)
54,069

 
18,469

 
35,600

 
193
 %






Centennial Resource Development, Inc.
Operating Expenses

 
For the Three Months Ended March 31,
 
Increase/(Decrease)
 
2018

2017
 
$
 
%
Operating costs (in thousands):
 
 
 
 
 
 
 
Lease operating expenses
$
16,276

 
$
7,278

 
$
8,998

 
124
 %
Severance and ad valorem taxes
14,173

 
3,187

 
10,986

 
345
 %
Gathering, processing and transportation expenses
13,828

 
5,244

 
8,584

 
164
 %
Operating costs per Boe:
 
 
 
 
 
 
 
Lease operating expenses
$
3.34

 
$
4.38

 
$
(1.04
)
 
(24
)%
Severance and ad valorem taxes
2.91

 
1.92

 
0.99

 
52
 %
Gathering, processing and transportation expenses
2.84

 
3.16

 
(0.32
)
 
(10
)%






Centennial Resource Development, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)

 
For the Three Months Ended March 31,
 
2018
 
2017
Operating revenues
 
 
 
Oil and gas sales
215,898

 
61,097

Operating expenses
 
 
 
Lease operating expenses
16,276

 
7,278

Severance and ad valorem taxes
14,173

 
3,187

Gathering, processing and transportation expenses
13,828

 
5,244

Depreciation, depletion and amortization
66,010

 
26,160

Impairment and abandonment expenses

 
(29
)
Exploration expense
3,447

 
1,181

General and administrative expenses
14,297

 
10,884

Total operating expenses
128,031

 
53,905

 
 
 
 
Income from operations
87,867

 
7,192

 
 
 
 
Other income (expense)
 
 
 
Gain (loss) on sale of oil and natural gas properties
15

 
166

Interest expense
(5,813
)
 
(410
)
Net gain (loss) on derivative instruments
7,843

 
3,759

Other income (expense)
(3
)
 

Other income (expense)
2,042

 
3,515

 
 
 
 
Income before income taxes
89,909

 
10,707

Income tax expense
19,137

 

Net income
70,772

 
10,707

Less: Net income attributable to noncontrolling interest
4,682

 
884

Net income attributable to Class A Common Stock
$
66,090

 
$
9,823

 
 
 
 
Income per share of Class A Common Stock:
 
 
 
Basic
$
0.25

 
$
0.04

Diluted
$
0.25

 
$
0.04







The following table summarizes the approximate volumes and average contract prices of swap contracts the Company had in place as of March 31, 2018 and additional contracts entered into through May 1, 2018:
Description and Production Period
Volume (Bbl)
 
Weighted Average Differential ($/Bbl) (1)
Crude Oil Basis Swaps:
 
 
 
April 2018 - June 2018
91,000

 
$
0.10

April 2018 - June 2018
91,000

 
0.20

April 2018 - June 2018
91,000

 
0.20

April 2018 - June 2018
91,000

 
0.22

April 2018 - June 2018
91,000

 
0.17

April 2018 - December 2018
137,500

 
0.00

April 2018 - December 2018
137,500

 
0.00

April 2018 - December 2018
550,000

 
0.00

April 2018 - December 2018
275,000

 
0.00

April 2018 - December 2018
275,000

 
0.00

May 2018 - March 2019
760,000

 
(5.25)

May 2018 - March 2019
190,000

 
(5.25)

June 2018 - March 2019
174,500

 
(5.50)

June 2018 - March 2019
349,000

 
(5.50)

 
(1) 
The oil basis swap transactions are settled based on the difference between the arithmetic average of the ARGUS MIDLAND WTI and ARGUS WTI CUSHING settlements, during the relevant calculation period.
Description and Production Period
Volume (MMBtu)
 
Weighted Average Fixed Price ($/MMBtu)(1)
Natural Gas Swaps:
 
 
 
January 2019 - December 2019
3,650,000

 
$
2.78

January 2019 - December 2019
3,650,000

 
2.78

January 2019 - December 2019
3,650,000

 
2.78

 
 
 
 
Description and Production Period
Volume (MMBtu)
 
Weighted Average Differential ($/MMBtu)(2)
Natural Gas Basis Swaps:
 
 
 
April 2018 - December 2018
1,375,000

 
$
(0.43
)
January 2019 - December 2019
1,825,000

 
$
(0.43
)
January 2019 - December 2019
3,650,000

 
$
(1.46
)
January 2019 - December 2019
3,650,000

 
$
(1.46
)
January 2019 - December 2019
3,650,000

 
$
(1.47
)
 
(1) 
The natural gas swap contracts are settled based on the month’s average daily NYMEX price of Henry Hub Natural Gas.
(2)
The natural gas basis swap contracts are settled based on the difference between Inside FERC’s West Texas WAHA price of natural gas and the NYMEX price of Natural Gas during the relevant calculation period.