PrimeEnergy Resources Corporation (NASDAQ:PNRG) is an independent oil and natural gas company with a rich history spanning over three decades. Founded in 1981, the company has established itself as a prominent player in the energy industry, strategically acquiring, developing, and producing oil and gas assets across the United States.
Company Overview
The company's operations are primarily concentrated in Texas and Oklahoma, with a diverse portfolio of mature properties with long-lived reserves as well as newer properties with development and exploration potential. PrimeEnergy's balanced approach to its asset base has positioned the company well to navigate the dynamic energy landscape, capitalizing on both the stability of its established assets and the growth potential of its exploration efforts.
History and Resilience
Founded in 1989, PrimeEnergy Resources Corporation has faced various challenges throughout its history, including the significant impact of the COVID-19 pandemic in 2020. The company reported a net loss of $2.3 million for the full year 2020 due to the market turmoil caused by the pandemic. However, PrimeEnergy demonstrated its resilience by returning to profitability in 2021, reporting net income of $2.1 million. This recovery was supported by the company's participation in drilling several new horizontal wells in West Texas and Oklahoma, with an investment of approximately $62 million.
Building on this momentum, PrimeEnergy continued its focused development program in 2022, participating in the drilling of an additional 8 horizontal wells. The company also actively managed its portfolio by divesting non-core assets and making strategic acquisitions to optimize its operations. These efforts contributed to a strong financial performance in 2022, with PrimeEnergy reporting net income of $48.7 million for the full year.
Diversified Operations
Throughout its history, PrimeEnergy has maintained a diversified approach to its operations. In addition to its oil and gas production activities, the company owns well-servicing equipment and a pipeline, which provide additional revenue streams. This diversification strategy has helped PrimeEnergy weather industry challenges and maintain a strong position in the market.
Operational Excellence
One of PrimeEnergy's key strengths lies in its commitment to operational excellence. The company maintains a field service group in its West Texas region, which provides well-servicing, site preparation, and construction services not only for its own operated properties but also for third-party operators in the area. This vertically integrated model allows PrimeEnergy to leverage its in-house expertise and resources to optimize efficiency and cost-effectiveness across its operations.
Financials and Liquidity
Financially, PrimeEnergy has demonstrated a strong track record of financial discipline and liquidity management. As of December 31, 2023, the company had $11.06 million in cash and cash equivalents, with a debt-to-equity ratio of just 0.068, indicating a healthy balance sheet. The company's most recent quarterly report, filed on November 14, 2024, further reinforces its financial stability, with a current ratio of 0.55 and a quick ratio of 0.55, suggesting a robust ability to meet its short-term obligations.
For the most recent fiscal year (2023), PrimeEnergy reported revenue of $123.12 million, net income of $28.10 million, operating cash flow of $109.02 million, and free cash flow of -$4.76 million. The company's performance improved significantly in the most recent quarter (Q3 2024), with revenue increasing 84.7% year-over-year to $69.455 million and net income rising 105.9% to $22.076 million. Operating cash flow for the quarter stood at $39.592 million, while free cash flow was -$2.417 million.
PrimeEnergy's liquidity position remains strong, with $1.58 million in cash and $112 million available on its credit line as of September 30, 2024. The company has a $300 million revolving credit facility with a current borrowing base of $115 million, of which only $3 million was outstanding at the end of the third quarter. The debt-to-equity ratio stands at a low 0.022, reflecting the company's conservative financial management approach.
Production and Reserves
In terms of production and reserves, PrimeEnergy has a diverse asset base that includes both oil and natural gas. As of December 31, 2023, the company's total proved reserves stood at 29.05 million barrels of oil equivalent (MBOE), with a reserve life index of approximately 11 years based on 2023 production levels. The company's production mix is weighted towards oil, with oil and natural gas liquids (NGLs) accounting for approximately 70% of total production in 2023.
Growth Strategy
PrimeEnergy's growth strategy has focused on both organic development and strategic acquisitions. In recent years, the company has aggressively expanded its horizontal drilling program in the Permian Basin, targeting the Spraberry, Jo Mill, and Wolfcamp formations. This initiative has yielded promising results, with the company completing 56 new horizontal wells in 2024 and planning to invest approximately $84 million in an additional 30 wells to be drilled and completed in 2025.
The company's acquisition strategy has also played a key role in its growth. In 2023, PrimeEnergy acquired the operations of 36 wells from DE Permian, further strengthening its presence in the Permian Basin. Additionally, the company has selectively divested non-core assets, such as its interest in 39 wells in Oklahoma in the third quarter of 2023, to optimize its portfolio and unlock value for shareholders.
Environmental, Social, and Governance (ESG) Commitment
PrimeEnergy's commitment to environmental, social, and governance (ESG) principles is another notable aspect of its operations. The company has worked to reduce its greenhouse gas emissions and flaring, while also investing in community engagement and employee development initiatives. These efforts have earned PrimeEnergy recognition as a responsible and sustainable operator in the industry.
Product Segments and Financial Metrics
Oil and Gas Operations
PrimeEnergy's primary business segment is its oil and gas operations, which include the acquisition, development, and production of crude oil and natural gas. The company's oil and gas properties are located primarily in Texas and Oklahoma.
In the third quarter of 2024, oil revenue increased 112.84% to $56.19 million, compared to $26.40 million in the prior year period. This was driven by a 134.37% increase in oil production volumes to 757,000 barrels, partially offset by a 9.18% decrease in the average realized oil price to $74.23 per barrel. Natural gas revenue decreased 74.19% to $638,000, as natural gas production volumes increased 98.41% but the average realized gas price declined 86.90% to $0.30 per Mcf. Natural gas liquids revenue increased 127.88% to $7.18 million, due to a 144.72% increase in NGL sales volumes to 394,000 barrels, partially offset by a 6.90% decrease in the average NGL price to $18.21 per barrel.
For the first nine months of 2024, oil revenue increased 135.24% to $145.73 million, natural gas revenue decreased 61.89% to $2.08 million, and NGL revenue increased 103.23% to $16.91 million, compared to the same period in 2023. Total oil, gas, and NGL sales for the nine-month period were $164.72 million, up 117.53% year-over-year.
The significant increase in oil and NGL revenues was primarily attributable to the additional wells that were placed into production during 2024, as the company continues to focus on horizontal drilling development of its acreage positions in the Permian Basin of West Texas and the SCOOP/STACK plays in Oklahoma. PrimeEnergy participated in the drilling and completion of 56 new horizontal wells in 2024, investing approximately $141 million. The company also has plans to invest an additional $84 million in 30 new horizontal wells to be drilled and completed in 2025.
Field Services
In addition to its oil and gas operations, PrimeEnergy owns well-servicing equipment that is used to service its operated properties as well as provide oilfield services to third-party operators in the West Texas region. Field service income decreased 20.38% to $2.66 million in the third quarter of 2024 and decreased 21.63% to $8.97 million for the first nine months of the year, compared to the respective prior year periods. These declines reflect decreased equipment utilization for workover rig services, hot oil treatments, saltwater hauling, and disposal. Field service expenses followed a similar trend, decreasing 1.99% to $3.10 million in Q3 2024 and 13.65% to $8.38 million year-to-date.
Other Investments
PrimeEnergy also holds a 33.3% interest in a limited partnership that owns a retail shopping center in Prattville, Alabama. This investment generated minimal interest and other income of $15,000 and $172,000 in the third quarter and first nine months of 2024, respectively.
Conclusion and Outlook
Despite the challenges posed by the COVID-19 pandemic and the subsequent volatility in energy markets, PrimeEnergy has demonstrated its resilience and adaptability. The company's diversified asset base, disciplined financial management, and strategic growth initiatives have allowed it to navigate these turbulent times and position itself for continued success.
Looking ahead, PrimeEnergy remains focused on leveraging its expertise and resources to capitalize on opportunities in the dynamic energy landscape. The company's strong balance sheet, robust production profile, and strategic growth plans position it well to deliver long-term value for its shareholders. With its ongoing focus on horizontal drilling development in the Permian Basin and SCOOP/STACK plays, PrimeEnergy is well-positioned to capitalize on the growing demand for oil and natural gas while maintaining its commitment to operational excellence and environmental stewardship.