What changed in this filing

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Item 1A. Risk Factors

2020-11-03 compared with 2020-08-03 · 29 added, 34 removed, 82 unchanged (43% of the section changed)

7 unchanged sentences

At the same time, the decision by Saudi Arabia in March 2020 to drastically reduce export prices and increase oil production followed by the curtailment agreements amongst OPEC and other countries such as Russia further increased uncertainty and volatility around global oil supply-demand dynamics.

As a result, there was a significant decline in commodity prices starting at the end of the first quarter of 2020.

Subsequent commitments made by OPEC and other oil producing countries to reduce their crude oil production, taken together with U.S.

producers substantially reducing drilling and producing activities, resulted in higher commodity prices in the third quarter of 2020, but commodity prices remain volatile.

The recent increasing spread of the COVID-19 outbreak, and governmental actions taken to mitigate and control such spread, have negatively impacted commodity prices due to expected lower demand for oil and natural gas.

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.

1 unchanged sentence

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 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.

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.

All of these impacts resulting from the confluence of the COVID-19 pandemic and the price war between Saudi Arabia and Russia may adversely affect our business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures.

Due to the commodity price environment, we have postponed or eliminated a portion of our developmental drilling.

In addition, given the weakness in realized oil prices at the end of the first quarter of 2020, we voluntarily curtailed or shut-in a portion of our second quarter 2020

production volumes.

In the future, we may again curtail some or all of our production depending on market conditions, storage or transportation constraints, and contractual obligations.

Any action we take 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.

If we again curtail our production during a low commodity price environment, these impacts on our operations, together with the lower price we would 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.

All of these impacts may adversely affect our business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures.

Due to the commodity price environment, we postponed or eliminated a portion of our developmental drilling compared to our original 2020 plans.

A sustained period of weakness in oil, natural gas and NGLs prices, and the resultant effects of such prices on our drilling economics and ability to raise capital, will require us to reevaluate and further postpone or eliminate additional drilling.

1 unchanged sentence

Additionally, as of December 31, 2019, approximately 13% of our total net acreage was not held by production and we had leases representing 3,162 and 3,750 undeveloped net acres scheduled to expire during 2020 and during 2021, respectively, in each case assuming no exercise of lease extension options where applicable.

Our actions to curtail production and shut-in wells, together with any further curtailments we may implement in the future, may result in our inability to continue to hold such leases that are scheduled to expire, which may further reduce our reserves.

Any action we may implement in the future to curtail production and shut-in wells may result in our inability to continue to hold our existing leases.

Further, the suspension or reduction of our drilling and completion activity levels may result in our inability to retain leases not held by production that are scheduled to expire.

The loss of any acreage has the potential to reduce our reserves.

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.

1 unchanged sentence

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 July through March of 2021 to protect against possible, additional near-term declines in oil prices.

We have entered into fixed price oil swaps for October 2020 through December of 2021 to protect against possible, additional near-term declines in oil prices.

During this period, CRP has hedged an average of approximately 7,184 barrels per day of oil at a weighted average price of $42.54 per Bbl.

6 unchanged sentences

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.

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 in excess of our estimated expiration expectation, 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.

The Pre-Tax PV10% of our proved reserves at December 31, 2019 may not be the same as the current market value of our estimated oil, natural gas and NGLs reserves.

7 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.

11 unchanged sentences

If we cannot meet the continued listing requirements of the Nasdaq, the Nasdaq may delist our common stock, which would have an adverse impact on the trading volume, liquidity and market price of our common stock.

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”).

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.

On August 10, 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 February 6, 2021, to regain compliance.

If we do not regain compliance with the Minimum Bid Requirement by February 6, 2021, 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 remain within or regain compliance with the Minimum Bid Requirement, as necessary.

13 unchanged sentences

3 to Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of June 15, 2018 (incorporated by reference to Exhibit 3.6 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 6, 2018).

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 (incorporated by reference in Exhibit 10.1 to the Company’s Quarterly Report filed with the SEC on May 4, 2020).

Amendment no.

1 to Purchase and Sale Agreement, dated as of August 2, 2018, between Centennial Resource Production, LLC and BP North America Inc.

(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2020).

Centennial Resource Development, Inc.

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.

2016 Long Term Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 3, 2020).

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

2016 Long Term Incentive Plan.

2016 Long Term Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 3, 2020).

Fourth Amendment to Second Amended and Restated Credit Agreement, dated October 8, 2020, among Centennial Resource Production, LLC, as borrower, Centennial Resource Development, Inc., as parent guarantor, the other guarantors party thereto, JP Morgan 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 October 13, 2020).

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

November 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