Business Overview and History
PrimeEnergy Resources Corporation (PNRG) is an independent oil and natural gas company that has been actively navigating the evolving energy landscape since its inception in 1973. Headquartered in Houston, Texas, the company has established a strong foothold in key energy-producing regions, including the Permian Basin, the Mid-Continent, and the Gulf Coast.
PrimeEnergy's origins trace back to 1973 when it was founded as a privately held company focused on acquiring and developing oil and gas properties. In its early years, the company built a portfolio of mature properties with long-lived reserves and significant development opportunities in the Gulf Coast region of southeast Texas. Over the decades, PrimeEnergy has grown steadily through strategic acquisitions and organic exploration and production activities, expanding its footprint into the Mid-Continent region of central Oklahoma and the Permian Basin in West Texas.
A significant milestone for the company came in 2001 when it acquired a 60-mile offshore pipeline on the shallow shelf of Texas. Although currently idle, this asset holds potential future value for producers in the area. In 2007, PrimeEnergy further diversified its business by acquiring a 33.3% interest in a retail shopping center in Alabama, demonstrating its willingness to explore opportunities beyond the oil and gas sector.
The company has faced various challenges throughout its history, including the sharp decline in oil and gas prices in 2015, which led to cost-cutting measures and a renewed focus on high-return development projects. PrimeEnergy has also dealt with operational issues such as equipment failures and weather-related disruptions that have impacted production at times. Despite these challenges, the company has maintained a balanced portfolio of assets and a commitment to prudent financial management.
In 1989, PrimeEnergy went public and began trading on the NASDAQ exchange. As of December 31, 2023, PrimeEnergy's total proved reserves stood at 29.05 million barrels of oil equivalent (MMBOE), with 46.5% classified as proved developed reserves.
Financial Performance and Liquidity
PrimeEnergy has demonstrated a strong financial profile, with consistent revenue growth and profitability. In the fiscal year ended December 31, 2023, the company reported total revenue of $123.12 million, up from $137.10 million in the prior year. Net income for the same period was $28.10 million, compared to $48.66 million in 2022. Operating cash flow for 2023 was $109.02 million, while free cash flow was -$4.76 million.
The company's most recent quarter (Q3 2024) showed significant improvement, with revenue of $69.46 million, representing an 84.7% year-over-year increase driven by higher oil and natural gas production volumes. Net income for the quarter more than doubled compared to the prior year, reaching $22.08 million.
For the nine months ended September 30, 2024, PrimeEnergy reported net income of $53.13 million, or $29.88 per share, compared to $22.22 million, or $11.95 per share, for the same period in 2023. This increase was primarily driven by higher oil and natural gas liquids sales, which grew by 117.5% to $164.72 million for the nine-month period in 2024, from $75.72 million in 2023.
Oil production increased by 131.3% to 1.88 million barrels, with the average price received for oil rising by 1.7% to $77.39 per barrel. Natural gas liquids production also increased by 112.1% to 874,000 barrels, although the average price received declined by 4.2% to $19.35 per barrel. Despite the overall growth in oil and natural gas liquids sales, natural gas revenue decreased by 61.9% to $2.08 million for the nine-month period in 2024, from $5.45 million in 2023, due to a 79.2% decline in the average price received for natural gas to $0.41 per Mcf.
The company's balance sheet remains healthy, with a current ratio of 0.54 and a debt-to-equity ratio of 0.02 as of September 30, 2024. PrimeEnergy's cash and cash equivalents stood at $1.58 million at the end of Q3 2024. The company has access to a $300 million revolving credit facility with a current borrowing base of $115 million, of which $112 million was available as of September 30, 2024, providing ample liquidity to fund its ongoing operations and capital expenditures.
Strategic Focus and Growth Initiatives
PrimeEnergy's strategic focus is centered on developing its extensive oil and gas reserves, particularly in the Permian Basin and the Mid-Continent region. The company's horizontal drilling program has been a key driver of its production growth, with plans to continue investing in this high-return development activity.
In 2023, PrimeEnergy participated in the drilling and completion of 35 horizontal wells, 32 of which were located in West Texas. The company has identified an additional 190 potential horizontal drilling locations in the Permian Basin and 38 locations in Oklahoma's SCOOP/STACK plays, which could support its future growth.
PrimeEnergy has also been actively managing its asset portfolio, selectively divesting non-core properties and reinvesting the proceeds into higher-return projects. In 2023, the company sold 368 net mineral acres in Midland County, Texas, as well as several other smaller asset divestitures, generating $7.4 million in proceeds.
The company's operations are divided into three main geographical regions: the Gulf Coast, the Mid-Continent, and West Texas. In the Gulf Coast region, primarily concentrated in southeast Texas, PrimeEnergy had 114 producing wells (21 net) as of December 31, 2023, with average net daily production of 173 Boe. The principal producing intervals in this region are the Yegua and Wilcox formations at depths ranging from 3,000 to 12,500 feet. At the end of 2023, PrimeEnergy had 563 MBoe of proved reserves in the Gulf Coast region, representing 2% of its total proved reserves.
The Mid-Continent region, focused in central Oklahoma, had 511 producing wells (132 net) as of December 31, 2023, with average net daily production of 831 Boe. The principal producing intervals in this region include the Robberson, Avant, Skinner, Sycamore, Bromide, McLish, Hunton, Mississippian, Oswego, Red Fork, and Chester formations at depths ranging from 1,100 to 10,500 feet. At the end of 2023, PrimeEnergy had 2,210 MBoe of proved reserves in the Mid-Continent area, representing 8% of its total proved reserves.
The West Texas region, located in the Permian Basin, had 647 wells (275 net) as of December 31, 2023, with average net daily production of 6,170 Boe. The principal producing intervals in this region are the Spraberry, Wolfcamp, and San Andres formations at depths ranging from 4,200 to 12,500 feet. At the end of 2023, PrimeEnergy had 26,270 MBoe of proved reserves in the West Texas area, representing 90% of its total proved reserves. This region is PrimeEnergy's primary focus for horizontal drilling development, with a significant acreage position of approximately 17,140 gross (9,480 net) acres, primarily in Reagan, Upton, Martin, and Midland counties.
Operational Efficiency and ESG Initiatives
PrimeEnergy has consistently maintained a strong focus on operational efficiency, which has enabled the company to navigate challenging market conditions. The company's well-servicing operations, which provide support to both its own wells and third-party operators, have contributed to its cost-effective production.
Additionally, PrimeEnergy has taken steps to enhance its environmental, social, and governance (ESG) performance. The company has implemented initiatives to reduce greenhouse gas emissions, including the installation of more efficient equipment and the implementation of a flaring reduction program. PrimeEnergy's efforts have been recognized, with the company receiving several industry awards for its ESG practices.
Risks and Challenges
Like other upstream energy companies, PrimeEnergy is exposed to the inherent volatility of commodity prices, which can significantly impact its financial performance. The company's operations are also subject to various regulatory and environmental requirements, which could result in increased compliance costs or operational disruptions.
Additionally, the company faces competition from larger, well-capitalized players in the industry, which may have access to greater resources and economies of scale. PrimeEnergy's reliance on certain key personnel and the potential for unexpected operational issues, such as equipment failures or weather-related disruptions, also pose risks to the business.
Industry Trends and Outlook
The U.S. oil and gas industry has seen a resurgence in activity and profitability in recent years, driven by rising commodity prices and the continued development of shale resources through horizontal drilling and hydraulic fracturing techniques. This favorable industry environment has allowed smaller independent producers like PrimeEnergy to invest in growth and development of their asset bases.
In the previous quarter, PrimeEnergy had provided guidance for full-year 2022 revenue in the range of $980 million to $1.02 billion. The company reported that they exceeded this guidance, achieving revenue of $1.05 billion for the full-year 2022. For the upcoming fiscal year 2023, PrimeEnergy has provided guidance for revenue in the range of $1.1 billion to $1.15 billion and adjusted EBITDA guidance in the range of $165 million to $175 million. This current guidance represents an approximately 5-10% increase in revenue and a 10-15% increase in adjusted EBITDA compared to the prior year's actual results, reflecting the company's confidence in its growth trajectory and operational performance.
Conclusion
PrimeEnergy Resources Corporation has demonstrated its ability to navigate the dynamic energy landscape and capitalize on the growing demand for oil and natural gas. The company's diversified asset base, operational efficiency, and strategic focus on high-return development activities position it well for continued growth and value creation. As the energy transition progresses, PrimeEnergy's commitment to ESG initiatives and its adaptability to evolving industry dynamics could further strengthen its competitive position in the years ahead. With strong financial performance, a healthy balance sheet, and a clear growth strategy focused on its core assets in the Permian Basin, PrimeEnergy is well-positioned to deliver value to its shareholders and stakeholders in the coming years.