What changed in this filing

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Item 1A. Risk Factors

2020-08-03 compared with 2020-05-04 · 24 added, 24 removed, 92 unchanged (34% of the section changed)

8 unchanged sentences

To the extent that the outbreak of COVID-19 continues to negatively impact demand and OPEC members, other oil exporting nations, and oil producers fail to implement production cuts or take other actions that are sufficient to support and stabilize commodity prices, we expect there to be excess supply of oil and natural gas for a sustained period.

This excess supply could, in turn, result in transportation and storage capacity constraints in the United States, or even the elimination of available storage, including in the Permian Basin.

This excess supply has and could, in turn, continue to result in transportation and storage capacity constraints in the United States, or even the elimination of available storage, including in the Permian Basin.

If, in the future, our transportation or storage arrangements become constrained or unavailable, we may incur significant operational costs if there is an increase in price for services or we may be required to shut-in or curtail production or flare our natural gas.

In addition, given the weakness in realized oil prices, we are actively evaluating whether to voluntarily curtail or shut-in a substantial portion of our current production volumes, and we expect to voluntarily curtail up to 40% of our production during the month of May.

In addition, given the weakness in realized oil prices, we voluntarily curtailed or shut-in a portion of our second quarter 2020 production volumes.

Further potential curtailment decisions will continue to be evaluated and made on a month-to-month basis subject to market conditions, storage or transportation constraints, and contractual obligations.

Our actions to shut-in wells may result in obligations to pay certain demand charges for gathering and processing services and firm transportation charges for pipeline capacity we have reserved.

Further, any prolonged shut-in of our

wells may result in materially decreased well productivity once we are able to resume operations, and any cessation of drilling and development of our acreage could result in the expiration, in whole or in part, of our leases.

Further, any prolonged shut-in of our wells may result in materially decreased well productivity once we are able to resume

operations, and any cessation of drilling and development of our acreage could result in the expiration, in whole or in part, of our leases.

These impacts on our operations, together with the lower price we receive for our continuing production of oil and gas, could impact our ability to comply with the covenants under CRP’s credit agreement and Senior Notes.

6 unchanged sentences

As a result, if oil, natural gas and/or NGL prices experience a sustained period of weakness, our future business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures may be materially and adversely affected.

The inability to complete our pending divestiture of our saltwater disposal wells and associated produced water infrastructure on the initial terms agreed to by the parties or in the expected time frame may adversely affect our business and financial condition.

On February 24, 2020, we entered into a purchase and sale agreement with a subsidiary of WaterBridge Resources LLC (“WaterBridge”) to divest our saltwater disposal wells and associated produced water infrastructure in Reeves County for $225.0 million, consisting of $150.0 million in cash at closing and an additional $75 million payable to us on a deferred basis upon meeting certain incentive thresholds.

We believe the uncertain macro environment for the oil and gas industry and resulting changes to commodity prices and drilling and completion activity in the Delaware Basin, increase the risk that the transaction fails to close on the original timeframe and terms agreed to between us and WaterBridge.

While the transaction currently remains pending, either party may terminate the transaction if closing does not occur on or before May 15, 2020.

If the transaction fails to close on the initial terms agreed to between us and WaterBridge, our business and financial condition may be adversely affected.

In particular, to the extent the transaction is terminated, or if we receive lower cash consideration than originally planned, then the amount of cash that we may allocate to the repayment of outstanding borrowings under our revolving credit facility or to the funding of our capital budget, and the timing of such repayment or funding, will also be affected.

Our production is not fully hedged, and we are exposed to fluctuations in oil, natural gas and NGL prices and will be affected by continuing and prolonged declines in oil, natural gas and NGL prices.

We have entered into fixed price oil swaps for April through December of 2020 to protect against possible, additional near-term declines in oil prices.

We have entered into fixed price oil swaps for July through March of 2021 to protect against possible, additional near-term declines in oil prices.

During this period, CRP has hedged an average of approximately 13,000 barrels per day of oil at a weighted average price of $31.32 per Bbl.

5 unchanged sentences

A write-down constitutes a non-cash charge to earnings.

Due to the recent depressed commodity prices, we expect to record a material non-cash impairment to the carrying value of our oil and natural gas properties, which will have an adverse effect on our results of operations.

Due to the recent depressed commodity prices, we recorded a $591.8 million non-cash impairment to the carrying value of our oil and natural gas properties, which had an adverse effect on our results of operations.

Further impairments will be required if oil and natural gas prices remain low or decline further, our undeveloped property leases expire in whole or in part, estimated proved reserve volumes are revised downward or the net capitalized cost of proved oil and gas properties otherwise exceeds the present value of estimated future net cash flows.

8 unchanged sentences

The timing of both our production and expenses incurred in connection with the development and production of oil and natural gas properties will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value.

In addition, the 10% discount factor we use when calculating Pre-Tax PV10% may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general.

In addition, the 10% discount factor we use when calculating Pre-Tax PV10% may not be the most appropriate

discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general.

Actual future prices and costs may differ materially from those used in the present value estimates included in the Annual Report, which could have a material effect on the value of our reserves.

12 unchanged sentences

On April 21, 2020, we received written notification (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for our Class A Common Stock, par value $0.0001 per share (our “Common Stock”), had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).

The Notice has no immediate effect on the listing or trading of our Common Stock on the Nasdaq Capital Market.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until October 19, 2020, to regain compliance.

However, due to recent market turmoil, Nasdaq has filed a rule change tolling the compliance periods for price-based listing requirements through June 30, 2020, extending our compliance period until December 28, 2020.

If we do not regain compliance with the Minimum Bid Requirement by December 28, 2020, we may be eligible for an additional 180 calendar day compliance period.

To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period.

However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we do not meet the other listing standards, Nasdaq could provide notice that our Common Stock will become subject to delisting.

In the event we receive notice that our Common Stock is being delisted, Nasdaq rules permit us to appeal any delisting determination by the Nasdaq staff to a Hearings Panel.

We intend to actively monitor the closing bid price of our Common Stock and will evaluate available options to regain compliance with the Minimum Bid Requirement.

There can be no assurance that we will be able to regain compliance with the Minimum Bid Requirement or maintain compliance with the other listing requirements of the Nasdaq.

Subsequently, on June 8, 2020, the Company received written notification from Nasdaq communicating that the Company has regained compliance with the Minimum Bid Requirement as a result of the Closing Stock Price remaining above $1.00 per share for 10 consecutive business days, and the matter is now closed.

However, our stock has recently fallen back below $1.00 and, unless the share price increases in the near-term, we will receive another notification of delisting.

We are required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market or cure any deficiency within the applicable timeframes.

We intend to actively monitor the closing bid price of our Common Stock and will evaluate available options to remain within or regain compliance with the Minimum Bid Requirement, as necessary.

There can be no assurance that we will be able to remain within or regain compliance with the Minimum Bid Requirement or maintain compliance with the other listing requirements of the Nasdaq.

If our Common Stock ultimately were to be delisted for any reason, it could negatively impact us as it would likely reduce the liquidity and market price of our Common Stock;

12 unchanged sentences

Description of Registrant’s Common Stock (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2020).

Indenture, dated as of May 22, 2020, by and among CRP, the guarantors party thereto and UMB Bank, N.A., as trustee and collateral agent (incorporated by reference to Exhibit 4.1 the Company’s Current Report on Form 8-K filed with the SEC on May 22, 2020).

First Supplemental Indenture (2026 Senior Notes), dated as of May 22, 2020, between Centennial Resource Development, Inc., as parent guarantor, and UMB Bank, N.A., as trustee (incorporated by reference to Exhibit 4.2 the Company’s Current Report on Form 8-K filed with the SEC on May 22, 2020).

First Supplemental Indenture (2027 Senior Notes), dated as of May 22, 2020, between Centennial Resource Development, Inc., as parent guarantor, and UMB Bank, N.A., as trustee (incorporated by reference to Exhibit 4.3 the Company’s Current Report on Form 8-K filed with the SEC on May 22, 2020).

Centennial Resource Development, Inc.

Amended and Restated Long Term Incentive Plan

Amended and Restated Long Term Incentive Plan (incorporated by reference in Exhibit 10.1 to the Company’s Quarterly Report filed with the SEC on May 4, 2020).

Amendment no.

2 unchanged sentences

Centennial Resource Development, Inc.

Third Amended and Restated Non-Employee Director Compensation Program.

Third Amended and Restated Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report filed with the SEC on May 4, 2020).

Second Amendment to Second Amended and Restated Credit Agreement, dated as of May 1, 2020, among Centennial Resource Production, LLC, as borrower, Centennial Resource Development, Inc., as parent guarantor, the other guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 4, 2020).

Third Amendment to Second Amended and Restated Credit Agreement and First Amendment to Second Amended and Restated Pledge and Security Agreement, dated as of May 1, 2020, among Centennial Resource Production, LLC, as borrower, Centennial Resource Development, Inc., as parent guarantor, the other guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 4, 2020).

Second Lien Pledge and Security Agreement, by and among CRP, the grantors party thereto and the Collateral Agent (incorporated by reference to Exhibit 10.1 the Company’s Current Report on Form 8-K filed with the SEC on May 22, 2020).

Form of Cash-Settled Performance Restricted Stock Unit Agreement under the Centennial Resource Development, Inc.

2016 Long Term Incentive Plan.

Form of Cash-Settled Restricted Stock Unit Agreement under the Centennial Resource Development, Inc.

2016 Long Term Incentive Plan.

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

16 unchanged sentences

Vice President, Chief Financial Officer and Assistant Secretary

August 3, 2020

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors