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Parsley Energy: Management Came Up Short

May 07, 2020 1:06 PM ETParsley Energy, Inc. (PE)4 Comments


  • The management team at Parsley has made a number of wise decisions aimed at shoring up the company's financial position.
  • These are great moves that will help to preserve value, but a lot of details are missing.
  • Investors should find the lack of guidance provided by the business discouraging.
  • This certainly adds to the company's admittedly low-risk profile.
  • Looking for a helping hand in the market? Members of Crude Value Insights get exclusive ideas and guidance to navigate any climate. Get started today »

2020 has been a rough year so far. This is true for every industry just about, but it's especially the case for companies in the oil and gas industry. Soaring inventory levels, accompanied by record-low pricing caused by fears over the economic impact of COVID-19, have resulted in a lot of pain for the companies operating here. Some firms are handling this well, changing guidance to reflect a lower-priced environment. But others, like Parsley Energy (NYSE:PE), are dropping the ball. Though fundamentally solid for now, and likely to remain that way, management's recent stance on how they are adapting to market conditions is the exact opposite of awe-inspiring. Investors look toward management teams for security during times of crisis, and if they cannot get it there, pessimism will only be that much worse.

What management is doing right

Before we discuss where management is botching its job during these tough times, we should first commend them on where they are doing well. The most obvious thing management has done is to significantly reduce its capex budget for the year. Initially, the company intended to spend between $1.6 billion and $1.8 billion on capex for 2020. This has been slashed now to 'less than' $700 million. Precisely what 'less than' means is open for interpretation, but we do know that the company allocated $379 million toward its capital budget during the first quarter of 2020. This leaves, at most, $320 million for the remainder of the year.

Naturally, according to management, this will require a cessation of all drilling and completion activities moving forward. This has resulted in the company being forced to incur a $15 million charge associated with the early termination of rig contracts that will be realized in its second quarter earnings release later this year. This is painful, but it's the lesser of

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This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor. He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (4)

Dan Opp profile picture
The earnings presentation had details on production guidance.


See page 6
Daniel Jones profile picture
Check page 13 of that presentation. Sadly, their page 6 only covers net oil production, not total production. 63% of their boe production comes from oil.
Let me see that impairment charge. Proven Reserve Value 12/31/2019 $4.96B, Net Book Value $9.45 Billion, negative -$4.49 B. APPRAISED AT $53.97 Oil Price. That negative value look familiar? BUT THE FACT THAT HALF THE MONEY THEY INVESTED EVAPORATED AT $54 OIL IS NOT MANAGEMENT"S FAULT. OMG you're kidding me!!! Search impairment in the CC transcript. Good Luck
Avatar910 profile picture
Nice analysis, but the confluence of COVID-19 demand destruction and the continuing spat between Vladimir & the Saudis likely makes it difficult to offer any guidance that has a high degree of confidence. Ranges are valuable when the underlying data is sound.
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