Energy Prospectus

AUSTIN, Texas, Nov. 5, 2019 /PRNewswire/ -- Parsley Energy, Inc. (PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended September 30, 2019. The Company has posted a presentation to its website that supplements the information in this release.

Third Quarter 2019 Highlights

Generated positive free cash flow in 3Q19.

Initiated dividend program in 3Q19 and declared 4Q19 quarterly dividend of $0.03 per share 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. < This is VERY GOOD NEWS. My Q3 production forecast was 142,000 Boepd with 91,500 barrels of oil 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.

Summary Comment and Outlook

"Parsley has executed with a sense of urgency throughout 2019 and the third quarter was no different," said Matt Gallagher, Parsley's President and CEO. "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."

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. < Adjusted net income compares to my forecast of $104.3 million or $0.37 EPS. Operating cash flow per share of $329.1 or $1.17 was almost exactly what I forecast (I do get lucky sometimes).

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. 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.)

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.

In the last 3 months, 12 ranked analysts set 12-month price targets for PE of $19.00 to $27.00. The average price target among the analysts is $23.55.

I have updated my forecast/valuation model for PE as a stand alone company. It will be posted to the EPG website this evening.

Since the merger with Jagged Peak (JAG) is 99.9% sure to close early in 2020, I need to spend day working up the Pro Forma forecast model. It should be accretive to both earnings and operating cash flow per share, so I'm sticking with my valuation of $28.00 per share.

PE's realized natural gas prices ($0.64/mcf) and realized NGL prices ($11.08/bbl) were terrible in Q3 and they still generated solid results. Gas prices should be much better in Q4.