UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, ~~2021~~2022

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-37697

CENTENNIAL RESOURCE DEVELOPMENT, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware						47-5381253
(State of Incorporation)						(I.R.S. Employer Identification No.)

1001 Seventeenth Street, Suite 1800

Denver, Colorado 80202

(Registrant’s telephone number, including area code): (720) 499-1400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

~~Class A~~ Common Stock, par value $0.0001 per share

CDEV

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☐

☒

☐

☒☐

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, ~~2021,~~2022, there were ~~279,204,514~~284,992,650 shares of ~~Class A~~ Common Stock, par value $0.0001 per share outstanding.

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		Page
Glossary of Units of Measurements and Industry Terms		3

Cautionary Statement Concerning Forward-Looking Statements		5

Part I—FINANCIAL INFORMATION		7

Item 1.	Financial Statements (Unaudited)	7

	Consolidated Balance Sheets as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021	7

	Consolidated Statements of Operations for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	8

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	9

	Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	11

	Notes to Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3230

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4240

Item 4.	Controls and Procedures	4443

Part II—OTHER INFORMATION		4443

Item 1.	Legal Proceedings	4443

Item 1A.	Risk Factors	4443

Item 6.	Exhibits	4544

Signatures		4645

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GLOSSARY OF UNITS OF MEASUREMENTS AND INDUSTRY TERMS

The following are abbreviations and definitions of certain terms used in this Quarterly Report on Form 10-Q, which are commonly used in the oil and natural gas industry:

Bbl. One stock tank barrel of 42 U.S. gallons liquid volume used herein in reference to crude oil, condensate or NGLs.

Bbl/d. One Bbl per day.

Boe. One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil. This is an energy content correlation and does not reflect a value or price relationship between the commodities.

Boe/d. One Boe per day.

Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one-degree Fahrenheit.

Completion. The process of preparing an oil and gas wellbore for production through the installation of permanent production equipment, as well as perforation and fracture stimulation to initiate production.

Development well. A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

Differential. An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.

Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

Extension Well. A well drilled to extend the limits of a known reservoir.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

Formation. A layer of rock which has distinct characteristics that differs from nearby rock.

Horizontal drilling. A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

ICE Brent. Brent crude oil traded on the Intercontinental Exchange, Inc. (ICE).

LIBOR. London Interbank Offered Rate.

MBbl. One thousand barrels of crude oil, condensate or NGLs.

MBoe. One thousand Boe.

Mcf. One thousand cubic feet of natural gas.

Mcf/d. One Mcf per day.

MMBtu. One million British thermal units.

MMcf. One million cubic feet of natural gas.

NEOs. Named executive officers, which term refers to the principal executive officer, the principal financial officer, and the next three most highly paid executive officers of a company as of the end of the most recently completed fiscal year, based on total compensation as determined under Rule 402 of Regulation S-K.

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NGL. Natural gas liquids. These are naturally occurring substances found in natural gas, including ethane, butane, isobutane, propane and natural gasoline, that can be collectively removed from produced natural gas, separated into these substances and sold.

NYMEX. The New York Mercantile Exchange.

Operator. The individual or company responsible for the development and/or production of an oil or natural gas well or lease.

Proved developed reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

Proved reserves. The estimated quantities of oil, NGLs and natural gas that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

Proved undeveloped reserves or PUD. Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion.

Realized price. The cash market price less differentials.

Reserves. Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project.

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Royalty interest. An interest in an oil or gas property entitling the owner to shares of the production free of costs of exploration, development and production operations.

SOFR. Secured Overnight Funding Rate.

Spot market price. The cash market price without reduction for expected quality, location, transportation and demand adjustments.

Unproved reserves. Reserves attributable to unproved properties with no proved reserves.

Wellbore. The hole drilled by a drill bit that is equipped for oil and natural gas production once the well has been completed. Also called well or borehole.

Working interest. The interest in an oil and gas property (typically a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.

Workover. Operations on a producing well to restore or increase production.

WTI. West Texas Intermediate is a grade of crude oil used as a benchmark in oil pricing.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “goal,” “plan,” “target” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under ~~“Item~~ Item 1A. Risk ~~Factors”~~Factors in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Annual Report”) and the risk factors and other cautionary statements contained in our other filings with the United States Securities and Exchange Commission (“SEC”).

Forward-looking statements may include statements about:

•volatility of oil, natural gas and NGL prices or a prolonged period of low oil, natural gas or NGL prices and the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries (“OPEC”), such as Saudi Arabia, and other oil and natural gas producing countries, such as Russia, with respect to production levels or other matters related to the price of oil;

•the effects of excess supply of oil and natural gas resulting from the reduced demand caused by the Coronavirus Disease 2019 (“COVID-19”) pandemic and the actions by certain oil and natural gas producing countries;

•political and economic conditions in or affecting other producing regions or countries, including the Middle East, Russia, Eastern Europe, Africa and South America;

•our business strategy and future drilling plans;

•our reserves and our ability to replace the reserves we produce through drilling and property acquisitions;

•our drilling prospects, inventories, projects and programs;

•our financial strategy, leverage, liquidity and capital required for our development program;

•our realized oil, natural gas and NGL prices;

•the timing and amount of our future production of oil, natural gas and NGLs;

•our hedging strategy and results;

•our competition and government regulations;

•our ability to obtain permits and governmental approvals;

•our pending legal or environmental matters;

•the marketing and transportation of our oil, natural gas and NGLs;

•our leasehold or business acquisitions;

•cost of developing or operating our properties;

•our anticipated rate of return;

•general economic conditions;

•weather conditions in the areas where we operate;

•credit markets;

•uncertainty regarding our future operating results; and

•our plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the development, production, gathering and sale of oil and natural gas. These risks include, but are not limited to commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty

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inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks described in “Item 1A. Risk Factors” in our ~~2020~~2021 Annual Report.

~~Table of Contents~~

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

Should one or more of the risks or uncertainties described in our ~~2020~~2021 Annual Report occur, or underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statement in this section, to reflect events or circumstances after the date of this Quarterly Report.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share amounts)


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	10,936	$	5,800	Cash and cash equivalents	$	50,624	$	9,380
Accounts receivable, net	Accounts receivable, net	70,571		54,557		Accounts receivable, net	131,837		71,295

Prepaid and other current assets	Prepaid and other current assets	5,502		5,229		Prepaid and other current assets	6,973		5,860
Total current assets	Total current assets	87,009		65,586		Total current assets	189,434		86,535
Property and Equipment	Property and Equipment					Property and Equipment
Oil and natural gas properties, successful efforts method	Oil and natural gas properties, successful efforts method					Oil and natural gas properties, successful efforts method
Unproved properties	Unproved properties	1,192,712		1,209,205		Unproved properties	1,032,096		1,040,386
Proved properties	Proved properties	4,475,972		4,395,473		Proved properties	4,742,872		4,623,726
Accumulated depreciation, depletion and amortization	Accumulated depreciation, depletion and amortization	(1,940,672)		(1,877,832)		Accumulated depreciation, depletion and amortization	(2,059,679)		(1,989,489)
Total oil and natural gas properties, net	Total oil and natural gas properties, net	3,728,012		3,726,846		Total oil and natural gas properties, net	3,715,289		3,674,623
Other property and equipment, net	Other property and equipment, net	12,161		12,650		Other property and equipment, net	11,774		11,197
Total property and equipment, net	Total property and equipment, net	3,740,173		3,739,496		Total property and equipment, net	3,727,063		3,685,820
Noncurrent assets	Noncurrent assets					Noncurrent assets
Operating lease right-of-use assets	Operating lease right-of-use assets	2,381		3,176		Operating lease right-of-use assets	14,714		16,385

Other noncurrent assets	Other noncurrent assets	18,758		19,167		Other noncurrent assets	27,321		15,854
TOTAL ASSETS	TOTAL ASSETS	$	3,848,321	$	3,827,425	TOTAL ASSETS	$	3,958,532	$	3,804,594
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	144,958	$	110,439	Accounts payable and accrued expenses	$	178,940	$	130,256

Operating lease liabilities	Operating lease liabilities	2,697		3,155		Operating lease liabilities	1,728		1,413
Derivative instruments						Derivative instruments	117,689		35,150
Other current liabilities	Other current liabilities	46,536		18,274		Other current liabilities	1,370		1,080
Total current liabilities	Total current liabilities	194,191		131,868		Total current liabilities	299,727		167,899
Noncurrent liabilities	Noncurrent liabilities					Noncurrent liabilities
Long-term debt, net	Long-term debt, net	1,063,754		1,068,624		Long-term debt, net	801,203		825,565
Asset retirement obligations	Asset retirement obligations	17,158		17,009		Asset retirement obligations	17,647		17,240
Deferred income taxes	Deferred income taxes	2,589		2,589		Deferred income taxes	8,834		2,589

Operating lease liabilities	Operating lease liabilities	0		422		Operating lease liabilities	14,473		16,002
Other noncurrent liabilities	Other noncurrent liabilities	11,726		2,952		Other noncurrent liabilities	45,571		24,579
Total liabilities	Total liabilities	1,289,418		1,223,464		Total liabilities	1,187,455		1,053,874
Commitments and contingencies (Note 10)		0		0
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)	0		0
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity

Common stock, $0.0001 par value, 620,000,000 shares authorized:
Class A: 290,792,727 shares issued and 279,124,752 shares outstanding at March 31, 2021 and 290,645,623 shares issued and 278,551,901 shares outstanding at December 31, 2020		29		29

Common stock, $0.0001 par value, 620,000,000 shares authorized; 294,135,384 shares issued and 284,991,150 shares outstanding at March 31, 2022 and 294,260,623 shares issued and 284,696,972 shares outstanding at December 31, 2021						Common stock, $0.0001 par value, 620,000,000 shares authorized; 294,135,384 shares issued and 284,991,150 shares outstanding at March 31, 2022 and 294,260,623 shares issued and 284,696,972 shares outstanding at December 31, 2021	29		29
Additional paid-in capital	Additional paid-in capital	2,994,020		3,004,433		Additional paid-in capital	3,017,572		3,013,017
Retained earnings (accumulated deficit)	Retained earnings (accumulated deficit)	(435,146)		(400,501)		Retained earnings (accumulated deficit)	(246,524)		(262,326)
Total shareholders’ equity		2,558,903		2,603,961
Noncontrolling interest		0		0
Total equity		2,558,903		2,603,961
TOTAL LIABILITIES AND EQUITY		$	3,848,321	$	3,827,425
Total Shareholders' equity						Total Shareholders' equity	2,771,077		2,750,720
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY						TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	3,958,532	$	3,804,594

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
Operating revenues	Operating revenues						Operating revenues
Oil and gas sales	Oil and gas sales	$	192,391	$	192,769		Oil and gas sales	$	347,277	$	192,391
Operating expenses	Operating expenses						Operating expenses
Lease operating expenses	Lease operating expenses	25,861		32,639			Lease operating expenses	28,734		25,861
Severance and ad valorem taxes	Severance and ad valorem taxes	12,583		16,573			Severance and ad valorem taxes	25,051		12,583
Gathering, processing and transportation expenses	Gathering, processing and transportation expenses	20,625		16,939			Gathering, processing and transportation expenses	21,891		20,625
Depreciation, depletion and amortization	Depreciation, depletion and amortization	63,783		101,258			Depreciation, depletion and amortization	71,009		63,783
General and administrative expenses							General and administrative expenses	30,603		25,256
Impairment and abandonment expense	Impairment and abandonment expense	9,200		611,300			Impairment and abandonment expense	2,627		9,200
Exploration and other expenses	Exploration and other expenses	1,095		4,009			Exploration and other expenses	2,307		1,095
General and administrative expenses		25,256		18,870
Total operating expenses	Total operating expenses	158,403		801,588			Total operating expenses	182,222		158,403
Net gain (loss) on sale of long-lived assets	Net gain (loss) on sale of long-lived assets	44		245			Net gain (loss) on sale of long-lived assets	82		44

Income (loss) from operations	Income (loss) from operations	34,032		(608,574)			Income (loss) from operations	165,137		34,032

Other income (expense)	Other income (expense)						Other income (expense)
Interest expense	Interest expense	(17,485)		(16,421)			Interest expense	(13,154)		(17,485)

Net gain (loss) on derivative instruments	Net gain (loss) on derivative instruments	(51,199)		(8,505)			Net gain (loss) on derivative instruments	(129,523)		(51,199)
Other income (expense)	Other income (expense)	7		(53)			Other income (expense)	118		7
Total other income (expense)	Total other income (expense)	(68,677)		(24,979)			Total other income (expense)	(142,559)		(68,677)

Income (loss) before income taxes	Income (loss) before income taxes	(34,645)		(633,553)			Income (loss) before income taxes	22,578		(34,645)
Income tax (expense) benefit	Income tax (expense) benefit	0		83,208			Income tax (expense) benefit	(6,776)		—
Net income (loss)	Net income (loss)	(34,645)		(550,345)			Net income (loss)	$	15,802	$	(34,645)
Less: Net (income) loss attributable to noncontrolling interest		0		2,362
Net income (loss) attributable to Class A Common Stock		$	(34,645)	$	(547,983)

Income (loss) per share of Class A Common Stock:
Income (loss) per share of Common Stock:							Income (loss) per share of Common Stock:
Basic	Basic	$	(0.12)	$	(1.99)		Basic	$	0.06	$	(0.12)
Diluted	Diluted	$	(0.12)	$	(1.99)		Diluted	$	0.05	$	(0.12)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(34,645)	$	(550,345)	Net income (loss)	$	15,802	$	(34,645)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	Depreciation, depletion and amortization	63,783		101,258		Depreciation, depletion and amortization	71,009		63,783
Stock-based compensation expense - equity awards	Stock-based compensation expense - equity awards	4,585		6,409		Stock-based compensation expense - equity awards	5,545		4,585
Stock-based compensation expense - liability awards	Stock-based compensation expense - liability awards	10,414		0		Stock-based compensation expense - liability awards	13,720		10,414
Impairment and abandonment expense	Impairment and abandonment expense	9,200		611,300		Impairment and abandonment expense	2,627		9,200
Deferred tax expense (benefit)	Deferred tax expense (benefit)	0		(83,208)		Deferred tax expense (benefit)	6,776		—
Net (gain) loss on sale of long-lived assets	Net (gain) loss on sale of long-lived assets	(44)		(245)		Net (gain) loss on sale of long-lived assets	(82)		(44)
Non-cash portion of derivative (gain) loss	Non-cash portion of derivative (gain) loss	28,313		8,452		Non-cash portion of derivative (gain) loss	86,645		28,313
Amortization of debt issuance costs and discount		1,847		799
Amortization of debt issuance costs and debt discount						Amortization of debt issuance costs and debt discount	1,492		1,847

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(Increase) decrease in accounts receivable	(14,997)		41,026		(Increase) decrease in accounts receivable	(53,824)		(14,997)
(Increase) decrease in prepaid and other assets	(Increase) decrease in prepaid and other assets	(264)		(263)		(Increase) decrease in prepaid and other assets	(415)		(264)
Increase (decrease) in accounts payable and other liabilities	Increase (decrease) in accounts payable and other liabilities	4,154		(34,365)		Increase (decrease) in accounts payable and other liabilities	10,825		4,154
Net cash provided by operating activities	Net cash provided by operating activities	72,346		100,818		Net cash provided by operating activities	160,120		72,346
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisition of oil and natural gas properties	Acquisition of oil and natural gas properties	(433)		(5,795)		Acquisition of oil and natural gas properties	(1,928)		(433)
Drilling and development capital expenditures	Drilling and development capital expenditures	(46,152)		(161,895)		Drilling and development capital expenditures	(81,156)		(46,152)
Purchases of other property and equipment	Purchases of other property and equipment	(181)		(486)		Purchases of other property and equipment	(1,052)		(181)
Proceeds from sales of oil and natural gas properties	Proceeds from sales of oil and natural gas properties	168		1,200		Proceeds from sales of oil and natural gas properties	48		168
Net cash used in investing activities	Net cash used in investing activities	(46,598)		(166,976)		Net cash used in investing activities	(84,088)		(46,598)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from borrowings under revolving credit facility	Proceeds from borrowings under revolving credit facility	70,000		195,000		Proceeds from borrowings under revolving credit facility	135,000		70,000
Repayment of borrowings under revolving credit facility	Repayment of borrowings under revolving credit facility	(240,000)		(135,000)		Repayment of borrowings under revolving credit facility	(160,000)		(240,000)
Proceeds from issuance of convertible senior notes		170,000		0
Proceeds from issuance of senior notes						Proceeds from issuance of senior notes	—		170,000
Debt issuance costs	Debt issuance costs	(5,444)		0		Debt issuance costs	(8,530)		(5,444)
Premiums paid on capped call transactions	Premiums paid on capped call transactions	(14,688)		0		Premiums paid on capped call transactions	—		(14,688)

Proceeds from exercise of stock options						Proceeds from exercise of stock options	1		—
Restricted stock used for tax withholdings	Restricted stock used for tax withholdings	(477)		(208)		Restricted stock used for tax withholdings	(1,259)		(477)
Net cash (used in) provided by financing activities		(20,609)		59,792
Net cash used in financing activities						Net cash used in financing activities	(34,788)		(20,609)
Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	5,139		(6,366)		Net increase (decrease) in cash, cash equivalents and restricted cash	41,244		5,139
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	8,339		15,543		Cash, cash equivalents and restricted cash, beginning of period	9,935		8,339
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	13,478	$	9,177	Cash, cash equivalents and restricted cash, end of period	$	51,179	$	13,478

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
(in thousands)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Supplemental cash flow information	Supplemental cash flow information					Supplemental cash flow information
Cash paid for interest	Cash paid for interest	$	11,272	$	12,977	Cash paid for interest	$	8,903	$	11,272

Supplemental non-cash activity	Supplemental non-cash activity					Supplemental non-cash activity
Accrued capital expenditures included in accounts payable and accrued expenses	Accrued capital expenditures included in accounts payable and accrued expenses	$	50,333	$	108,282	Accrued capital expenditures included in accounts payable and accrued expenses	$	63,483	$	50,333
Asset retirement obligations incurred, including revisions to estimates	Asset retirement obligations incurred, including revisions to estimates	24		413		Asset retirement obligations incurred, including revisions to estimates	145		24

Reconciliation of cash, cash equivalents and restricted cash presented on the consolidated statements of cash flows for the periods presented:


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash and cash equivalents	Cash and cash equivalents	$	10,936	$	3,841	Cash and cash equivalents	$	50,624	$	10,936
Restricted cash(1)	Restricted cash(1)	2,542		5,336		Restricted cash(1)	555		2,542
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	13,478	$	9,177	Total cash, cash equivalents and restricted cash	$	51,179	$	13,478

(1) Included in Prepaid and other current assets ~~and~~ ~~Other noncurrent assets~~ ~~line items~~ in the consolidated balance ~~sheets.~~sheet as of March 31, 2022.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

(in thousands)


		Common Stock																	Common Stock						Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity
		Class A			Class C			Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)	Total Shareholders’ Equity		Non-controlling Interest			Total Equity		Shares			Amount
		Shares	Amount		Shares	Amount
Balance at December 31, 2020		290,646	$	29	0	$	0		$	3,004,433		$	(400,501)		$	2,603,961				$	0		$	2,603,961

Balance at December 31, 2021																		Balance at December 31, 2021	294,261			$	29		$	3,013,017	$	(262,326)	$	2,750,720
Restricted stock issued																		Restricted stock issued	20			—			—		—		—
Restricted stock forfeited	Restricted stock forfeited	(1)	—		—	—		—			—	—		—			—	Restricted stock forfeited	(52)			—			—		—		—
Restricted stock used for tax withholding	Restricted stock used for tax withholding	(128)	—		—	—		(477)			—	(477)		—			(477)	Restricted stock used for tax withholding	(150)			—			(1,259)		—		(1,259)
Issuance of Class A common stock under Employee Stock Purchase Plan		276	—		—	—		167			—	167		—			167
Stock option exercises																		Stock option exercises	3			—			1		—		1
Issuance of Common Stock under Employee Stock Purchase Plan																		Issuance of Common Stock under Employee Stock Purchase Plan	53			—			268		—		268
Stock-based compensation - equity awards	Stock-based compensation - equity awards	—	—		—	—		4,585			—	4,585		—			4,585	Stock-based compensation - equity awards	—			—			5,545		—		5,545
Capped call premiums		—	—		—	—		(14,688)			—	(14,688)		—			(14,688)
Net income (loss)	Net income (loss)	—	—		—	—		—			(34,645)	(34,645)		—			(34,645)	Net income (loss)	—			—			—		15,802		15,802
Balance at March 31, 2021		290,793	29		0	0		2,994,020			(435,146)	2,558,903		0			2,558,903
Balance at March 31, 2022																		Balance at March 31, 2022	294,135			29			$	3,017,572	$	(246,524)	$	2,771,077

Balance at December 31, 2019 280,650 $ 28 1,034 $ 0 $ 2,975,756 $ 282,336 $ 3,258,120 $ 12,581 $ 3,270,701
Restricted stock issued 1,305 — — — — — — — —
Restricted stock forfeited (406) — — — — — — — —
Restricted stock used for tax withholding (78) — — — (208) — (208) — (208)
Issuance of Class A common stock under Employee Stock Purchase Plan 59 — — — 230 — 230 — 230
Stock-based compensation - equity awards — — — — 6,409 — 6,409 — 6,409
Net income (loss) — — — — — (547,983) (547,983) (2,362) (550,345)
Balance at March 31, 2020 281,530 28 1,034 0 2,982,187 (265,647) 2,716,568 10,219 2,726,787





Balance at December 31, 2020	290,646	$	29	$	3,004,433	$	(400,501)	$	2,603,961

Restricted stock forfeited	(1)	—		—		—		—
Restricted stock used for tax withholding	(128)	—		(477)		—		(477)
Issuance of Common Stock under Employee Stock Purchase Plan	276	—		167		—		167
Stock-based compensation - equity awards	—	—		4,585		—		4,585
Capped call premiums	—	—		(14,688)		—		(14,688)
Net income (loss)	—	—		—		(34,645)		(34,645)
Balance at March 31, 2021	290,793	29		$	2,994,020	$	(435,146)	$	2,558,903

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Centennial Resource Development, Inc. is an independent oil and natural gas company focused on the development of ~~unconventional~~crude oil and associated liquids-rich natural gas reserves in the Permian Basin. The Company’s assets are concentrated in the Delaware Basin, a sub-basin of the Permian Basin, and its properties consist of large, contiguous acreage blocks located in West Texas and New Mexico. Unless otherwise specified or the context otherwise requires, all references in these notes to “Centennial” or the “Company” are to Centennial Resource Development, Inc. and its consolidated subsidiary, Centennial Resource Production, LLC (“CRP”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Annual Report”). Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s ~~2020~~2021 Annual Report.

In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.

The consolidated financial statements include the accounts of the Company and its subsidiary CRP, and CRP’s wholly-owned subsidiaries. Noncontrolling interest represents third-party ownership in CRP and is presented as a component of equity. As of March 31, 2020 the noncontrolling interest ownership of CRP was 0.4% but was subsequently reduced to 0 as all remaining CRP Common Units (and corresponding shares of the Company’s Class C common stock) were converted into shares of the Company’s Class A common stock (the “Common Stock”) and CRP has since been a wholly-owned subsidiary of Centennial.

Use of Estimates

The preparation of the Company’s consolidated financial statements requires the Company’s management to make various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events, and accordingly, actual results could differ from amounts previously established. Additionally, the prices received for oil, natural gas and NGL production can heavily influence the Company’s assumptions, judgments and estimates and continued volatility of oil and gas prices could have a significant impact on the Company’s estimates.

The more significant areas requiring the use of assumptions, judgments and estimates include: (i) oil and natural gas reserves; (ii) cash flow estimates used in impairment tests for long-lived assets; (iii) impairment expense of unproved properties; (iv) depreciation, depletion and amortization; (v) asset retirement obligations; (vi) determining fair value and allocating purchase price in connection with business combinations and asset acquisitions; (vii) accrued revenues and related receivables; (viii) accrued liabilities; (ix) derivative valuations; ~~and~~ (x) deferred income ~~taxes.~~taxes; and (xi) determining the fair values of certain stock-based compensation awards.

Leases

The Company has operating leases for drilling rig contracts, office rental agreements, and other wellhead equipment. There were no significant changes in operating leases during the three months ended March 31, 2022. Refer to Note 15—Leases footnote in the notes to the consolidated financial statements in Item 8 of the Company’s 2021 Annual Report.

Income Taxes

Income tax expense recognized during interim periods is based on applying an estimated annual effective income tax rate to the Company’s year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various state jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information becomes known or as the tax environment changes.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The Company has determined that it is more-likely-than-not that a portion of its deferred tax assets will not be realized. Accordingly, a valuation allowance against its deferred tax assets was recognized, which caused the Company’s provision for income taxes for both the three months ended March 31, 2021 and 2020 to differ from the amounts that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax book loss.

~~Recently Issued or Adopted Accounting Standards~~

~~In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,~~ ~~Debt—Debt with Conversion and Other Options and Derivatives and Hedging— Contracts in Entity’s Own Equity~~ ~~(“ASU 2020-06”)~~, ~~which updates the accounting requirements for convertible debt instruments and contracts in an entity’s own equity under FASB’s Accounting Standard Codification (“ASC”) Topic 470,~~ ~~Debt, ASC Topic 815,~~ ~~Derivatives and Hedging,~~ and applicable earnings-per-share guidance. The amendments in ASU 2020-06 are intended to simplify the accounting for convertible instruments by removing certain separation models in the existing debt guidance allowing convertible debt to be recorded as a single liability measured at its amortized cost. Additionally, the amendments remove certain conditions and clarify the scope of and certain requirements pertaining to derivative scope exception evaluations over such contracts and instruments. ASU 2020-06 requires retrospective application and is effective for public entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted after December 15, 2020. The Company has adopted this guidance as of January 1, 2021, and there was no impact on previously reported amounts as a result of the adoption. Refer to ~~Note 3—Long-Term Debt~~ ~~for additional information regarding its convertible debt instruments.~~

~~Note 2—Accounts Receivable, Accounts Payable and Accrued Expenses~~

~~Accounts receivable are comprised of the following:~~

(in thousands) March 31, 2021 December 31, 2020
Accrued oil and gas sales receivable, net $ 54,042 $ 41,670
Joint interest billings, net 15,218 12,770
Other 1,311 117
Accounts receivable, net $ 70,571 $ 54,557

~~Accounts payable and accrued expenses are comprised of the following:~~

(in thousands) March 31, 2021 December 31, 2020
Accounts payable $ 19,124 $ 5,052
Accrued capital expenditures 38,259 21,471
Revenues payable 32,776 42,115
Accrued interest 19,922 15,138
Accrued derivative settlements payable 10,411 3,488
Accrued employee compensation and benefits 8,173 11,516
Accrued expenses and other 16,293 11,659
Accounts payable and accrued expenses $ 144,958 $ 110,439

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2—Accounts Receivable, Accounts Payable and Accrued Expenses

Accounts receivable are comprised of the following:


(in thousands)	March 31, 2022		December 31, 2021
Accrued oil and gas sales receivable, net	$	109,689	$	57,287
Joint interest billings, net	20,882		12,449
Other	1,266		1,559
Accounts receivable, net	$	131,837	$	71,295

Accounts payable and accrued expenses are comprised of the following:


(in thousands)	March 31, 2022		December 31, 2021
Accounts payable	$	38,520	$	9,736
Accrued capital expenditures	37,305		24,377
Revenues payable	46,004		40,438
Accrued employee compensation and benefits	5,791		17,218
Accrued interest	18,628		15,259
Accrued derivative settlements payable	18,715		8,591
Accrued expenses and other	13,977		14,637
Accounts payable and accrued expenses	$	178,940	$	130,256

Note 3—Long-Term Debt

The following table provides information about the Company’s long-term debt as of the dates indicated:


(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021
Credit Facility due 2023		$	160,000	$	330,000
Credit Facility due 2027						Credit Facility due 2027	$	—	$	25,000

8.00% Senior Secured Notes due 2025		127,073		127,073
Senior Notes						Senior Notes
5.375% Senior Notes due 2026	5.375% Senior Notes due 2026	289,448		289,448		5.375% Senior Notes due 2026	289,448		289,448
6.875% Senior Notes due 2027	6.875% Senior Notes due 2027	356,351		356,351		6.875% Senior Notes due 2027	356,351		356,351
3.25% Convertible Senior Notes due 2028	3.25% Convertible Senior Notes due 2028	170,000		0		3.25% Convertible Senior Notes due 2028	170,000		170,000
Unamortized debt issuance costs on Senior Notes	Unamortized debt issuance costs on Senior Notes	(18,561)		(12,790)		Unamortized debt issuance costs on Senior Notes	(12,719)		(13,279)
Unamortized debt discount	Unamortized debt discount	(20,557)		(21,458)		Unamortized debt discount	(1,877)		(1,955)
Senior Notes, net	Senior Notes, net	903,754		738,624		Senior Notes, net	801,203		800,565

Total long-term debt, net	Total long-term debt, net	$	1,063,754	$	1,068,624	Total long-term debt, net	$	801,203	$	825,565

Credit Agreement

On February 18, 2022, CRP, the Company’s consolidated subsidiary, ~~has a~~entered into an amended and restated five-year secured credit ~~agreement~~facility (the “Credit Agreement”) with a syndicate of banks, ~~that provides for a five-year secured revolving~~which replaced our previous credit facility ~~maturing on~~that was set to mature in May ~~4, 2023 (the “Credit Agreement”).~~of 2023. The Credit Agreement increased our elected commitments to $750 million, increased our borrowing base to $1.15 billion and extended the maturity of the Credit Agreement to February 2027. As of March 31, ~~2021,~~2022, the Company had ~~$160.0 million in~~no borrowings outstanding and ~~$503.9~~$744.2 million in available borrowing capacity, which was net of ~~$4.3~~$5.8 million in letters of credit outstanding, ~~and the availability blocker~~under its new facility.

Table of ~~$31.8 million. This availability blocker was subsequently removed in connection with the Senior Secured Note redemption; refer to~~ Contents

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Note 13—Subsequent Events~~
~~for additional information regarding this redemption.~~

The amount available to be borrowed under ~~CRP’s~~the Credit Agreement is equal to the lesser of (i) the borrowing base, ~~less the availability blocker,~~ (ii) aggregate elected commitments, which ~~are currently~~is set at ~~$700.0~~$750 million, or (iii) $1.5 billion. The borrowing base is redetermined semi-annually in the spring and fall by the lenders in their sole discretion. It also allows for 2 optional borrowing base redeterminations ~~on January 1 and July 1.~~in between the scheduled redeterminations. The borrowing base depends on, among other things, the quantities of CRP’s proved oil and natural gas reserves, estimated cash flows from ~~these~~those reserves, and the Company’s commodity hedge positions. Upon a redetermination of the borrowing base, if actual borrowings outstanding exceed the revised borrowing capacity, CRP could be required to immediately repay a portion of its debt outstanding. Borrowings under the Credit Agreement are guaranteed by certain of CRP’s subsidiaries and the Company. ~~In connection with the Credit Agreement’s spring 2021 semi-annual borrowing base redetermination, the borrowing base and amount of elected commitments were reaffirmed at $700.0 million.~~

Borrowings under the Credit Agreement may be base rate loans or ~~LIBOR~~Secured Overnight Financing Rate (“SOFR”) loans. Interest is payable quarterly for base rate loans and at the end of the applicable interest period for ~~LIBOR~~SOFR loans. ~~LIBOR~~SOFR loans bear interest at ~~LIBOR (adjusted for statutory reserve requirements and subject to 1% floor)~~SOFR plus an applicable margin ~~which ranged~~ranging from ~~200~~225 to ~~300~~325 basis points, ~~as of March 31, 2021,~~ depending on the percentage of ~~the borrowing base utilized.~~elected commitments utilized, plus an additional 10 basis point credit spread adjustment. Base rate loans bear interest at a rate per annum equal to the greatest of: (i) the agent bank’s prime rate; (ii) the federal funds effective rate plus 50 basis points; or (iii) the adjusted ~~LIBOR~~Term SOFR rate for a one-month interest period plus 100 basis points, plus an applicable margin, ~~which ranged~~ranging from ~~100~~125 to ~~200~~225 basis points, ~~as of March 31, 2021,~~ depending on the percentage of the borrowing base utilized. CRP also pays a commitment fee of 37.5 to 50 basis points on unused elected commitment amounts under its facility.

~~CRP’s~~The Credit Agreement provides for, among other things, the ability to repurchase outstanding shares of the Company’s Class A common stock (the “Common Stock”) and junior debt, subject to certain leverage and elected commitment availability conditions and subject to the requirement that such repurchases are funded from our free cash flow. The Credit Agreement contains restrictive covenants that limit ~~its~~our ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make restricted payments; (v) repurchase or ~~declare dividends; (v)~~redeem junior debt; (vi) enter into commodity hedges exceeding a specified percentage of ~~the Company’s~~our expected production; ~~(vi)~~(vii) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; ~~(vii)~~(viii) incur liens; ~~(viii)~~(ix) sell assets; and ~~(ix)~~(x) engage in transactions with affiliates.

~~CRP’s~~The Credit Agreement also requires it to maintain compliance with the following financial ratios:

(i) a current ratio, which is the ratio of CRP’s consolidated current assets (including an add back of unused commitments under ~~its~~the revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding ~~any~~the current portion of long-term debt ~~due~~ under the Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0;

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

and

(ii) a ~~first lien~~ leverage ratio, as defined within the Credit Agreement as the ratio of first lien debt to EBITDAX for the rolling four fiscal quarter period, which may not exceed 2.75 to 1.00 beginning with the quarter ending June 30, 2020 and extending through the quarter ending December 31, 2021, after which the maximum ratio shall decrease to 2.50 to 1.00 for each of the quarters ending in 2022; and

~~(iii) a leverage ratio, as also defined in~~ the Credit Agreement as the ratio of total funded debt to consolidated EBITDAX for the ~~rolling~~prior four fiscal quarter period. Pursuant to amendments to the Credit Facility, the leverage ratio was suspended until March 31, 2022, at which time, the ratio may not exceed 5.0 to 1.0, with such maximum ratio declining at a ratequarters, of ~~0.25 for each succeeding quarter until March 31, 2023 when the ratio is set at~~ not greater than ~~4.0~~3.5 to 1.0.

CRP was in compliance with the covenants and the applicable financial ratios described above as of March 31, ~~2021 and through the filing of this Quarterly Report.~~2022.

Convertible Senior Notes

On March 19, 2021, CRP issued $150.0 million in aggregate principal amount of 3.25% senior unsecured convertible notes due 2028 (the “Convertible Senior Notes”). On March 26, 2021, CRP issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional Convertible Senior Notes. These issuances resulted in aggregate net proceeds to CRP of ~~$163.7~~$163.6 million, after deducting debt issuance costs of ~~$6.3~~$6.4 million. Interest is payable on the Convertible Senior Notes semi-annually in arrears on each April 1 and October 1, commencing on October 1, 2021.

Table of Contents

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Convertible Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of CRP’s current subsidiaries.

The Convertible Senior Notes will mature on April 1, 2028 unless earlier repurchased, redeemed or converted. Before January 3, 2028, noteholders have the right to convert their Convertible Senior Notes (i) upon the occurrence of certain events, (ii) if the Company’s share price exceeds 130% of the conversion price for any 20 trading days during the last 30 consecutive trading days of a calendar quarter, after June 30, 2021, or (iii) if the trading price per $1,000 principal amount of the notes is less than 98% of the Company’s share price multiplied by the conversion rate, for a 10 consecutive trading day period. In addition, after January 2, 2028, noteholders may convert their Convertible Senior Notes at any time at their election through the second scheduled trading day immediately before the April 1, 2028 maturity date.

CRP can settle conversions by paying or delivering, as applicable, cash, shares of Common Stock, or a combination of cash and shares of Common Stock, at CRP’s election. The initial conversion rate is 159.2610 shares of Common Stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $6.28 per share of Common Stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events (as defined in the indenture) which, in certain circumstances, will increase the conversion rate for a specified period of time. In the context of this issuance, we refer to the notes as convertible in accordance with ASC 470 - Debt. However, per the terms of the Convertible Senior Notes’ indenture, the Convertible Senior Notes were issued by CRP and are exchangeable into shares of Centennial Resource Development, ~~Inc’s~~Inc.’s Common Stock.

CRP has the option to redeem, in whole or in part, all of the Convertible Senior Notes at any time on or after April 7, 2025, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, but only if the last reported sale price per share of Common Stock exceeds 130% of the conversion price (i) for any 20 trading days during the 30 consecutive trading days ending on the day immediately before the date CRP sends the related redemption notice; and (ii) also on the trading day immediately before the date CRP sends such notice.

If certain corporate events occur, including certain business combination transactions involving the Company or CRP or a stock de-listing with respect to the Common Stock, noteholders may require CRP to repurchase their Convertible Senior Notes at a cash repurchase price equal to the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to the repurchase date.

Upon an Event of Default (as defined in the indenture governing the Convertible Senior Notes), the trustee or the holders of at least 25% of the aggregate principal amount of then outstanding Convertible Senior Notes may declare the Convertible Senior Notes immediately due and payable. In addition, a default resulting from certain events of bankruptcy or insolvency with respect to the Company, CRP or any of the subsidiary guarantors will automatically cause all outstanding Convertible Senior Notes to become due and payable.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

At issuance, the Company recorded a liability equal to the face value the Convertible Senior Notes, net of unamortized debt issuance costs in the line items Long-term debt, net in the consolidated balance sheets. As of March 31, ~~2021,~~2022, the net liability recorded related to the Convertible Senior Notes was ~~$163.7~~$164.4 million.

Capped Called Transactions

In connection with the issuance of the Convertible Senior Notes in March 2021, CRP entered into privately negotiated capped call spread transactions with option counterparties (the “Capped Call Transactions”). The Capped Call Transactions cover the aggregate number of shares of Common Stock that initially underlie the Convertible Senior Notes and are expected to (i) generally reduce potential dilution to the Common Stock upon a conversion of the Convertible Senior Notes, and/or (ii) offset any cash payments CRP is required to make in excess of the principal amount of the Convertible Senior Notes, subject to a cap. The Capped Call Transactions have an initial strike price of $6.28 per share of Common Stock and an initial capped price of $8.4525 per share of Common Stock, each of which are subject to certain customary adjustments upon the occurrence of certain corporate events, as defined in the capped call agreements.

The cost of the Capped Call Transactions was $14.7 million, which was funded from proceeds from the Convertible Senior Note issuance. The cost to purchase the Capped Call Transactions was recorded to additional paid-in capital in the consolidated balances sheets and will not be subject to remeasurement each reporting period.

~~Senior Unsecured Notes Debt Exchange~~

On ~~May 22, 2020~~, CRP completed its private exchange of debt pursuant to which a $254.2 million aggregate principal amount of Senior Unsecured Notes (defined below) was validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount (the “Debt Exchange”) of newly issued 8.00% second lien senior secured notes due 2025 (the “Senior Secured Notes”). The Company’s Debt Exchange was accounted for as an extinguishment of debt in accordance with ASC Topic 470-50, ~~Modifications and Extinguishments~~. As a result, a gain on the exchange of debt of $143.4 million was recognized in the consolidated statement of operations during the second quarter of 2020, which consisted of the carrying values of the Senior Unsecured Notes exchanged less the aggregate principal amount of the new Senior Secured Notes issued, net of their associated debt discount of ~~$21.0 million,~~ ~~which was based on the Senior Secured Notes’ estimated fair value on the exchange date.~~

~~Senior Secured Notes~~

~~In connection with the Debt Exchange, on May 22, 2020, the Company issued~~ ~~$127.1 million~~ aggregate principal amount of Senior Secured Notes. The Senior Secured Notes were recorded at their fair value on the date of issuance equal to 83.44% of par (a debt discount of $21.0 million) and net of their associated debt issuance costs of $4.2 million. The Senior Secured Notes bear interest at an annual rate of 8.00% and are due on June 1, 2025. Interest is payable semi-annually in arrears on each June 1 and December 1, commencing on December 1, 2020.

The Senior Secured Notes are guaranteed, subject to certain exceptions, by the Company and each of CRP’s subsidiaries and are secured on a second-priority basis (subject in priority only to certain exceptions) by substantially all of the assets of CRP and the Company, including deposit accounts and substantially all proved reserves and undeveloped acreage.

The Company has the option to redeem all (but not less than all) of the Senior Secured Notes, at any time prior to May 22, 2021 on a single occasion, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, if such redemption is made entirely with proceeds from equity offerings or the issuance of unsecured indebtedness. Subsequent to March 31, 2021, the Company redeemed all of the Senior Secured Notes, utilizing proceeds from the issuance of the Convertible Senior Notes (refer to ~~Note 13—Subsequent Events~~ ~~for additional information regarding this redemption).~~

At any time prior to June 1, 2022, the Company has the option to redeem the Senior Secured Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Secured Notes redeemed plus accrued and unpaid interest and a “make-whole” premium. The Senior Secured Notes are redeemable at the Company’s option, in whole or in part, at any time on or after June 1, 2022, at specified redemption prices, together with accrued and unpaid interest. In addition, at any time prior to June 1, 2022, the Company may redeem up to 35% of the aggregate principal amount of each of the Senior Secured Notes, including any permitted additional Senior Secured Notes, with an amount of cash not greater than the net proceeds of certain equity offerings at a redemption price equal to 108% of the principal amount of such Senior Secured Notes, plus any accrued and unpaid interest to, but excluding, the redemption date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Senior Unsecured Notes

On March 15, 2019, CRP issued $500.0 million of 6.875% senior notes due 2027 (the “2027 Senior Notes”) in a 144A private placement at a price equal to 99.235% of par that resulted in net proceeds to CRP of $489.0 million, after deducting the original issuance discount of $3.8 million and debt issuance costs of $7.2 million. Interest is payable on the 2027 Senior Notes semi-annually in arrears on each April 1 and October 1, which commenced on October 1, 2019. In May 2020 in connection with the Debt Exchange, $143.7 million aggregate principal amount of the 2027 Senior Notes was exchanged for Senior Secured Notes. As of March 31, 2021, the remaining aggregate principal amount of 2027 Senior Notes outstanding was $356.4 million.

On November 30, 2017, CRP issued at par $400.0 million of 5.375% senior notes due 2026 (the “2026 Senior Notes” and collectively with the 2027 Senior Notes, the “Senior Unsecured Notes”) in a 144A private placement that resulted in net proceeds to CRP of $391.0 million, after deducting $9.0 million in debt issuance costs. Interest is payable on the 2026 Senior Notes semi-annually in arrears on each January 15 and July 15, which commenced on July 15, 2018.

In May 2020, ~~in connection with the Debt Exchange,~~ $110.6 million aggregate principal amount of the 2026 Senior Notes ~~was~~and $143.7 million aggregate principal amount of the 2027 Senior Notes were validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount of 8.00% second lien senior secured notes, which were fully redeemed at par in connection with the Convertible Senior ~~Secured Notes.~~Notes issuance during the second quarter of 2021. As of March 31, ~~2021,~~2022, the remaining aggregate principal amount of 2027 Senior Notes and 2026 Senior Notes outstanding was $356.4 million and $289.4 ~~million.~~million, respectively.

The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of CRP’s current subsidiaries that guarantee CRP’s ~~revolving credit facility.~~Credit Agreement.

At any time prior to January 15, 2021 (for the 2026 Senior Notes) and April 1, 2022 (for the 2027 Senior Notes), the “Optional Redemption Dates,” CRP may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of either series of Senior Unsecured Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 105.375% (for the 2026 Senior Notes) and 106.875% (for the 2027 Senior Notes) of the principal amount of the Senior Unsecured Notes of the applicable series redeemed, plus any accrued and unpaid interest to the date of redemption; provided that at least 65% of the aggregate principal amount of each such series of Senior Unsecured Notes remains outstanding immediately after such redemption, and the redemption occurs within 180 days of the closing date of such equity offering.

At any time prior to the Optional Redemption Dates, CRP may, on any one or more occasions, redeem all or a part of the Senior Unsecured Notes at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes redeemed, plus a “make-whole” premium, and any accrued and unpaid interest as of the date of redemption. On and after the Optional Redemption Dates, CRP may redeem the Senior Unsecured Notes, in whole or in part, at redemption prices expressed as percentages of principal amount plus accrued and unpaid interest to the redemption date.

~~Senior Notes~~

~~The following section discusses the general terms~~If CRP experiences certain defined changes of control (and, in some cases, followed by a ratings decline), each holder of the ~~indentures applicable to the Company’s~~ Senior Unsecured Notes ~~and~~may require CRP to repurchase all or a portion of its Senior Unsecured Notes for cash at a price equal to 101% of the aggregate principal amount of such Senior ~~Secured~~Unsecured Notes, ~~(collectively,~~plus any accrued but unpaid interest to the ~~“Senior Notes”).~~date of repurchase.

The indentures governing the Senior Unsecured Notes contain covenants that, among other things and subject to certain exceptions and qualifications, limit CRP’s ability and the ability of CRP’s restricted subsidiaries to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. CRP was in compliance with these covenants as of March 31, ~~2021~~2022 and through the filing of this Quarterly Report.

Upon an Event of Default (as defined in the indentures governing the Senior Unsecured Notes), the trustee or the holders of at least 25% of the aggregate principal amount of then outstanding Senior Unsecured Notes may declare the Senior Unsecured Notes immediately due and payable. In addition, a default resulting from certain events of bankruptcy or insolvency with respect to CRP, any restricted subsidiary of CRP that is a significant subsidiary, or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Unsecured Notes to become due and payable.

If CRP experiences certain defined changes of control (and, in some cases, followed by a ratings decline), each holder of the Senior Notes may require CRP to repurchase all or a portion of its Senior Notes for cash at a price equal to 101% of the aggregate principal amount of such Senior Notes, plus any accrued but unpaid interest to the date of repurchase.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4—Asset Retirement Obligations

The following table summarizes changes in the Company’s asset retirement obligations (“ARO”) associated with its working interests in oil and gas properties for the three months ended March 31, ~~2021:~~2022:


(in thousands)
Asset retirement obligations, beginning of period	$	~~17,009~~17,240

Liabilities incurred	44237

Liabilities divested and settled	~~(129)~~—
Accretion expense	~~255~~262
Revisions to estimated cash flows	~~(21)~~(92)
Asset retirement obligations, end of period	$	~~17,158~~17,647

ARO reflect the present value of the estimated future costs associated with the plugging and abandonment of oil and gas wells, removal of equipment and facilities from leased acreage and land restoration in accordance with applicable local, state and federal laws. Inherent in the fair value calculation of ARO are numerous estimates and assumptions, including plug and abandonment settlement amounts, inflation factors, credit adjusted discount rates and timing of settlement. To the extent future revisions to these assumptions impact the value of the existing ARO liabilities, a corresponding offsetting adjustment is made to the oil and gas property balance. Changes in the liability due to the passage of time are recognized as an increase in the carrying amount of the liability with an offsetting charge to accretion expense, which is included within depreciation, depletion and amortization.

Note 5—Stock-Based Compensation

On October 7, 2016, the stockholders of the Company approved the Centennial Resource Development, Inc. 2016 Long Term Incentive Plan (the “LTIP”), which authorized an aggregate of 16,500,000 shares of Common Stock for issuance to employees and directors. On April 29, 2020, the stockholders of the Company approved the amended and restated LTIP, which, among other things, increased the number of shares of Common Stock authorized for issuance by 8,250,000 shares. ~~As of March 31, 2021, the Company had 6,601,016 shares of Common Stock available for future grants.~~ The LTIP provides for grants of restricted stock, stock options (including incentive stock options and nonqualified stock options), restricted stock units (including performance stock units), stock appreciation rights and other stock or cash-based awards.

Stock-based compensation expense is recognized within both General and administrative expenses and Exploration and other expenses in the consolidated statements of operations. The Company accounts for forfeitures of awards granted under the LTIP as they occur in determining compensation expense.

The following table summarizes stock-based compensation expense recognized for the periods presented:


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020			(in thousands)	2022		2021
Equity Awards	Equity Awards						Equity Awards
Restricted stock awards		$	3,606	$	4,354
Restricted stock							Restricted stock	$	3,439	$	3,606
Stock option awards	Stock option awards	271		984			Stock option awards	31		271
Performance stock units	Performance stock units	639		1,003			Performance stock units	2,003		639
Other stock-based compensation expense(1)	Other stock-based compensation expense(1)	69		68			Other stock-based compensation expense(1)	72		69
Total stock-based compensation - equity awards	Total stock-based compensation - equity awards	4,585		6,409			Total stock-based compensation - equity awards	5,545		4,585

Liability Awards	Liability Awards						Liability Awards
Restricted stock units	Restricted stock units	3,308		0			Restricted stock units	—		3,308
Performance stock units	Performance stock units	7,106		0			Performance stock units	13,720		7,106
Total stock-based compensation - liability awards	Total stock-based compensation - liability awards	10,414		0			Total stock-based compensation - liability awards	13,720		10,414

Total stock-based compensation expense	Total stock-based compensation expense	$	14,999	$	6,409		Total stock-based compensation expense	$	19,265	$	14,999

(1) Includes expenses related to the Company’s Employee Stock Purchase Plan (the “ESPP”). In May 2019, an aggregate of 2,000,000 shares were authorized by stockholders for issuance under the ESPP, which became effective on July 1, 2019. ~~As of March 31, 2021, the Company had 1,561,164 shares of Common Stock available for future issuance.~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Equity Awards

The Company has restricted stock, ~~awards,~~ stock options and performance stock units (“PSUs”) outstanding that were granted under the LTIP as discussed below. Each award has service-based and, in the case of the PSUs, market-based vesting requirements, and are expected to be settled in shares of Common Stock upon vesting. As a result, these awards are classified as equity-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”).

Restricted Stock

The following table provides information about restricted stock activity during the three months ended March 31, ~~2021:~~2022:


		Awards	Weighted Average Grant-Date Fair Value			Restricted Stock	Weighted Average Fair Value
Unvested balance as of December 31, 2020		12,093,723	$	2.33
Unvested balance as of December 31, 2021					Unvested balance as of December 31, 2021	10,143,687	$	2.85
Granted	Granted	0	0		Granted	20,129	6.45
Vested	Vested	(424,290)	6.21		Vested	(387,929)	5.03
Forfeited	Forfeited	(1,457)	14.28		Forfeited	(67,438)	5.51
Unvested balance as of March 31, 2021		11,667,976	2.18
Unvested balance as of March 31, 2022					Unvested balance as of March 31, 2022	9,708,449	2.75

The Company grants service-based restricted stock ~~awards~~ to executive officers and employees, which vest ratably over a three-year service period, and to directors, which vest over a one-year service period. Compensation cost for these service-based restricted stock ~~awards~~ is based on the closing market price of the Company’s Common Stock on the grant date, and such costs are recognized ratably over the applicable vesting period. ~~There were 0 restricted stock awards granted during the three months ended March 31, 2021.~~ The total fair value of restricted stock ~~awards~~ that vested during the three months ended March 31, 2022 and 2021 ~~and 2020~~ was ~~$2.6~~$2.0 million and ~~$3.8~~$2.6 million, respectively. Unrecognized compensation cost related to restricted shares that were unvested as of March 31, ~~2021~~2022 was ~~$17.4~~$18.1 million, which the Company expects to recognize over a weighted average period of ~~1.7~~2.0 years.

Stock Options

Stock options that have been granted under the LTIP expire ten years from the grant date and vest ratably over atheir three-year service period. The exercise price for an option granted under the LTIP is the closing market price of the Company’s Common Stock on the grant date.

Compensation cost for stock options is based on the grant-date fair value of the award, which is then recognized ratably over the vesting period of three years. The Company estimates the fair value using the Black-Scholes option-pricing model. Expected volatilities are based on the weighted average historical volatilities of the Company and an identified set of comparable companies. Expected term is based on the simplified method and is estimated as the mid-point between the weighted average vesting term and the time to expiration as of the grant date. The Company uses U.S. Treasury bond rates in effect at the grant date for its risk-free interest rates.

The following table summarizes the assumptions and related information used to determine the grant-date fair value of stock option awards for the three months ended March 31, 2020. NaN stock options were granted during the three months ended March 31, 2021.


	~~Three Months Ended March 31, 2020~~

~~Weighted average grant-date fair value per share~~	$	~~2.37~~
~~Expected term (in years)~~	6
~~Expected stock volatility~~	52		%
~~Dividend yield~~	0		%
~~Risk-free interest rate~~	~~1.7~~		%

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table provides information about stock option awards outstanding during the three months ended March 31, ~~2021:~~2022:


		Options	Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (in thousands)			Options	Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2020		2,363,334	$	15.07
Outstanding as of December 31, 2021								Outstanding as of December 31, 2021	2,212,798	$	15.31
Granted	Granted	0	0					Granted	—	—
Exercised	Exercised	0	0			$	0	Exercised	(2,500)	0.25			$	18
Forfeited	Forfeited	(5,000)	4.69					Forfeited	(2,500)	7.58
Expired	Expired	(15,333)	18.11					Expired	(25,832)	16.72
Outstanding as of March 31, 2021		2,343,001	15.07		6.2	$	247
Exercisable as of March 31, 2021		2,054,477	15.83		5.9	$	1
Outstanding as of March 31, 2022								Outstanding as of March 31, 2022	2,181,966	15.32		5.10	$	496
Exercisable as of March 31, 2022								Exercisable as of March 31, 2022	2,109,122	15.71		5.10	$	194

The total fair value of stock options that vested during the three months ended March 31, 2022 and 2021 was $0.2 million and ~~2020 was~~ $0.3 million, ~~and $3.5 million,~~ respectively. ~~There were 0~~The intrinsic value of the stock options exercised ~~during~~was minimal for the three months ended March 31, ~~2021~~2022 and ~~2020.~~there were no stock options exercised for the three months ended March 31, 2021. As of March 31, ~~2021,~~2022, there was ~~$0.6~~$0.1 million of unrecognized compensation cost related to unvested stock options, which the Company expects to recognize on a pro-rata basis over a weighted-average period of ~~0.9~~0.7 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Performance Stock Units

The Company grants performance stock units (“PSU”) to certain executive officers that are subject to market-based vesting criteria as well as a three-year service period. Vesting at the end of the three-year service period is subject to the condition that the Company’s stock price increases by a greater percentage, or decreases by a lesser percentage, than the average percentage increase or decrease, respectively, of the stock prices of a peer group of companies. ~~The~~These market-based conditions must be met in order for the stock awards to vest, and it is therefore possible that no shares could ultimately vest. However, the Company recognizes compensation expense for the ~~performance stock units~~PSUs subject to market conditions regardless of whether it becomes probable that these conditions will be met or not, and compensation expense is not reversed if vesting does not actually occur.

During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021 there was no ~~performance stock units~~PSU activity. As of March 31, ~~2021,~~2022, there was ~~$1.8~~$11.0 million of unrecognized compensation cost related to ~~performance stock units~~PSUs that were unvested, which the Company expects to recognize on a pro-rata basis over a weighted average period of ~~1.0 year.~~2.3 years.

Liability Awards

The Company has ~~restricted stock units and~~ performance stock units that were granted under the LTIP, which ~~will be settled~~are settleable in cash and are therefore classified as liability awards in accordance with ASC 718. The Company also had restricted stock units granted under the LTIP that were settleable in cash and that were classified as liability awards, but all such units were settled in their entirety during the third quarter of 2021. Compensation cost for ~~the~~these liability awards is based on the fair value of the units as of the balance sheet date as further discussed below, and such costs are recognized ratably over the service periods of the awards. As the fair value of liability awards is required to be re-measured each period end, stock compensation expense amounts recognized in future periods for these awards will vary. The estimated future cash payments ofassociated with these awards are presented as liabilities within~~Other current liabilities~~ ~~and~~ Other long-term liabilities in the consolidated balances sheets.

Restricted Stock Units

The Company granted 5.5 million restricted stock units during the third quarter of 2020 to certain officers (non-NEOs) and employees that ~~are~~were settleable in cash upon vesting. The restricted stock units ~~vest~~vested annually in one-third increments over a three-year service period, with the first portion vesting on September 1, 2021. After one year from the grant date, however, the remaining two-thirds of unvested restricted stock units ~~granted to non-NEOs can~~could vest immediately, on an accelerated basis, if they meet certain market-based vesting criteria equal to the maximum return percentage ~~discussed below~~ for at least 20 out of any 30 consecutive trading days. Additionally, the restricted stock units ~~include~~included maximum and minimum return amounts equal to 400% and 25%, respectively, of the closing market price of the Company’s Common Stock on the grant date. As

During the second quarter of ~~March 31,~~ 2021, ~~there was $8.0 million of unrecognized compensation cost, which represents~~ the ~~unvested~~Company amended these restricted stock unit agreements to (i) allow the units to be settleable in either cash or Common Stock upon vesting at the Company’s discretion and (ii) remove the maximum and minimum return amounts if the units are settled in Common Stock. The amended terms were effective July 1, 2021, and at that time, the Company intended to settle a portion of these restricted stock units in cash. As a result, the ~~fair value~~awards continued to be classified as liabilities in accordance with ASC 718.

During the third quarter of 2021, the maximum return event (described above) occurred resulting in an immediate vesting of all the outstanding restricted stock units on September 1, 2021. The Company settled 1.8 million of the restricted stock units in cash resulting in a $6.2 million cash payment, and ~~will be~~the remaining units were settled in Common Stock. The portion of the units that were settled in Common Stock were recognized ~~over a weighted average period~~as equity instruments on the vesting date, which resulted in $13.6 million of ~~1.6 years or sooner if~~incremental stock compensation expense being recognized during the ~~accelerated vesting event occurs.~~year ended December 31, 2021. There are no remaining restricted stock units outstanding as of March 31, 2022.

Performance Stock Units

The Company granted 5.5 million ~~performance stock units (“PSU”)~~PSUs during third quarter of 2020 to certain executive officers that will be settled in cash and are subject to market-based vesting criteria as well as a three-year service condition. Vesting at the end of the three-year service period is subject to the condition that the Company’s stock price increases by a greater percentage, or

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

decreases by a lessor percentage, than the average percentage increase or decrease, respectively, of the stock price of a peer group of companies. ~~The~~These market-based conditions must be met in order for the PSU awards to vest, and it is therefore possible that no units could ultimately vest and cumulative stock compensation expense recognized for these awards would then be reduced to zero. As of March 31, ~~2021,~~2022, there was ~~$29.8~~$28.3 million of unrecognized compensation cost that represents the unvested portion of the fair value of the PSUs at March 31, ~~2021~~2022 and will be recognized over a weighted average period of ~~2.25~~1.3 years.

Liability Awards Fair Value

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value of the ~~restricted stock units and performance stock units~~PSUs was estimated using a Monte Carlo valuation model as of the balance sheet date. The Monte Carlo valuation model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Company’s Common Stock as well as the peer companies that are specified in the PSU award agreement. The risk-free rate is based on U.S. Treasury yield curve rates with maturities consistent with the remaining vesting or performance period.

The following table summarizes the key assumptions and related information used to determine the fair value of the liability awards as of March 31, ~~2021:~~

Restricted stock units Performance stock units
Number of simulations 10,000,000 10,000,000
Expected stock volatility 133.5% 137.3%
Dividend yield 0% 0%
Risk-free interest rate 0.2% 0.2%
2022:


						Performance stock units

Number of simulations						10,000,000
Expected implied stock volatility						65.2%
Dividend yield						—%
Risk-free interest rate						1.8%

Note 6—Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations and may use derivative instruments to manage its exposure to commodity price risk from time to time.

Commodity Derivative Contracts

Historically, prices received for crude oil and natural gas production have been volatile because of supply and demand factors, worldwide political factors, general economic conditions and seasonal weather patterns. The Company may periodically use derivative instruments, such as swaps, costless collars and basis swaps, to mitigate its exposure to declines in commodity prices and to the corresponding negative impacts such declines can have on its cash flows from operations, returns on capital and other financial results. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. The Company does not enter into derivative contracts for speculative or trading purposes.

Commodity Swap and Collar Contracts. The Company may use commodity derivative instruments known as fixed price swaps to realize a known price for a specific volume of production, basis swaps to hedge the difference between the index price and a local or future index price, or costless collars to establish fixed price floors and ceilings. All transactions are settled in cash with one party paying the other for the resulting difference in price multiplied by the contract volume.

The following table summarizes the approximate volumes and average contract prices of derivative contracts the Company had in place as of March 31, 2022:


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Crude Price ($/Bbl)(1)
Crude oil swaps	April 2022 - June 2022	1,092,000	12,000	$65.28
	July 2022 - September 2022	782,000	8,500	65.46
	October 2022 - December 2022	690,000	7,500	65.63
	January 2023 - March 2023	225,000	2,500	73.51
	April 2023 - June 2023	227,500	2,500	73.25
	July 2023 - September 2023	92,000	1,000	72.98
	October 2023 - December 2023	92,000	1,000	72.98

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The following table summarizes the approximate volumes and average contract prices of derivative contracts the Company had in place as of March 31, 2021:~~

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Crude Price
($/Bbl)(1)
Crude oil swaps
NYMEX WTI April 2021 - June 2021 1,183,000 13,000 $43.18
July 2021 - September 2021 736,000 8,000 45.87
October 2021 - December 2021 644,000 7,000 45.59
ICE Brent April 2021 - June 2021 409,500 4,500 $54.98
July 2021 - September 2021 184,000 2,000 48.25
October 2021 - December 2021 184,000 2,000 48.50

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Collar Price Ranges
($/Bbl)(2)
Crude oil collars April 2021 - June 2021 227,500 2,500 $ 42.00 - $ 51.14
July 2021 - September 2021 138,000 1,500 46.33 - 55.40
October 2021 - December 2021 92,000 1,000 42.00 - 50.10

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Differential
($/Bbl)(3)
Crude oil basis differential swaps April 2021 - June 2021 1,183,000 13,000 $0.11
July 2021 - September 2021 736,000 8,000 0.26
October 2021 - December 2021 644,000 7,000 0.26


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Collar Price Ranges ($/Bbl)(2)
Crude oil collars
NYMEX WTI	April 2022 - June 2022	227,500	2,500	$63.20	-	$72.41
	July 2022 - September 2022	276,000	3,000	75.00	-	92.46
	October 2022 - December 2022	276,000	3,000	75.00	-	92.46
	January 2023 - March 2023	405,000	4,500	72.22	-	84.08
	April 2023 - June 2023	409,500	4,500	72.22	-	84.08
	July 2023 - September 2023	230,000	2,500	72.00	-	82.78
	October 2023 - December 2023	230,000	2,500	72.00	-	82.78

ICE Brent	April 2022 - June 2022	91,000	1,000	$90.00	-	$105.20


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(3)
Crude oil basis differential swaps	April 2022 - June 2022	637,000	7,000	$0.34
	July 2022 - September 2022	552,000	6,000	0.29
	October 2022 - December 2022	552,000	6,000	0.29


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(4)
Crude oil roll differential swaps	April 2022 - June 2022	910,000	10,000	$0.71
	July 2022 - September 2022	920,000	10,000	0.71
	October 2022 - December 2022	920,000	10,000	0.71

(1) These crude oil swap transactions are settled based on ~~either~~ the NYMEX WTI ~~or ICE Brent~~ index price ~~as applicable,~~ on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.

(2) These crude oil collars are settled based on the NYMEX WTI or ICE Brent index price, as applicable, on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.

(3) These crude oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable monthly settlement period.

(4) These crude oil roll swap transactions are settled based on the difference between the arithmetic average of NYMEX WTI calendar month prices and the physical crude oil delivery month price.


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Gas Price ($/MMBtu)(1)
Natural gas swaps	April 2022 - June 2022	2,730,000	30,000	$3.24
	July 2022 - September 2022	2,760,000	30,000	3.24
	October 2022 - December 2022	1,540,000	16,739	3.15

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Gas Price
($/MMBtu)(1)
Natural gas swaps April 2021 - June 2021 3,640,000 40,000 $2.89
July 2021 - September 2021 3,680,000 40,000 2.89
October 2021 - December 2021 3,680,000 40,000 2.95
January 2022 - March 2022 1,800,000 20,000 3.00

Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Differential
($/MMBtu)(2)
Natural gas basis differential swaps April 2021 - June 2021

3,640,000

40,000 $(0.30)
July 2021 - September 2021 3,680,000 40,000 (0.30)
October 2021 - December 2021 3,680,000 40,000 (0.28)
January 2022 - March 2022 1,800,000 20,000 (0.26)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Differential ($/MMBtu)(2)
Natural gas basis differential swaps	April 2022 - June 2022	1,820,000	20,000	$(0.45)
	July 2022 - September 2022	1,840,000	20,000	(0.45)
	October 2022 - December 2022	1,840,000	20,000	(0.45)
	January 2023 - March 2023	1,350,000	15,000	(0.85)
	April 2023 - June 2023	1,365,000	15,000	(0.85)
	July 2023 - September 2023	1,380,000	15,000	(0.85)
	October 2023 - December 2023	1,380,000	15,000	(0.85)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Collar Price Ranges ($/MMBtu)(3)
Natural gas collars	April 2022 - June 2022	1,820,000	20,000	$3.50	-	$3.97
	July 2022 - September 2022	1,840,000	20,000	3.50	-	3.97
	October 2022 - December 2022	2,450,000	26,630	3.87	-	5.06
	January 2023 - March 2023	2,700,000	30,000	4.00	-	5.42
	April 2023 - June 2023	1,820,000	20,000	3.13	-	4.05
	July 2023 - September 2023	1,840,000	20,000	3.13	-	4.05
	October 2023 - December 2023	1,840,000	20,000	3.21	-	4.89
	January 2024 - March 2024	1,820,000	20,000	3.25	-	5.31

(1) These natural gas swap contracts are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.

(2) These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas, during each applicable monthly settlement period.

(3) These natural gas collars are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.

Derivative Instrument Reporting. The Company’s oil and natural gas derivative instruments have not been designated as hedges for accounting purposes. Therefore, all gains and losses are recognized in the Company’s consolidated statements of operations. All derivative instruments are recorded at fair value in the consolidated balance sheets, other than derivative instruments that meet the “normal purchase normal sale” exclusion, and any fair value gains and losses are recognized in current period earnings.

The following table presents the impact of the Company’s derivative instruments in its consolidated statements of operations for the periods presented:


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020			(in thousands)	2022		2021

Net gain (loss) on derivative instruments	Net gain (loss) on derivative instruments	$	(51,199)	$	(8,505)		Net gain (loss) on derivative instruments	$	(129,523)	$	(51,199)

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Offsetting of Derivative Assets and Liabilities. The Company’s commodity derivatives are included in the accompanying consolidated balance sheets as derivative assets and liabilities. The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master netting agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The tables below ~~summarizes~~summarize the fair value amounts and the classification in the consolidated balance sheets of the Company’s derivative contracts outstanding at the respective balance dates, as well as the gross recognized derivative assets, liabilities and offset amounts:


		Balance Sheet Classification	Gross Fair Value Asset/Liability Amounts		Gross Amounts Offset(1)		Net Recognized Fair Value Assets/Liabilities			Balance Sheet Classification	Gross Fair Value Asset/Liability Amounts		Gross Amounts Offset(1)		Net Recognized Fair Value Assets/Liabilities
(in thousands)	(in thousands)		March 31, 2021						(in thousands)		March 31, 2022
Derivative Assets	Derivative Assets								Derivative Assets
Commodity contracts	Commodity contracts	Prepaid and other current assets	$	2,071	$	(2,071)	$	0	Commodity contracts	Prepaid and other current assets	$	10,541	$	(9,388)	$	1,153
										Other noncurrent assets	13,238		(11,040)		2,198
Derivative Liabilities	Derivative Liabilities								Derivative Liabilities
Commodity contracts	Commodity contracts	Other current liabilities	48,593		(2,071)		46,522		Commodity contracts	Derivative instruments	127,077		(9,388)		117,689
										Other noncurrent liabilities	18,257		(11,040)		7,217

			December 31, 2020								December 31, 2021
Derivative Assets	Derivative Assets								Derivative Assets
Commodity contracts	Commodity contracts	Prepaid and other current assets	$	6,131	$	(6,131)	$	0	Commodity contracts	Prepaid and other current assets	$	3,284	$	(3,284)	$	—
		Other noncurrent assets	152		$	(100)	52			Other noncurrent assets	585		$	(345)	240
Derivative Liabilities	Derivative Liabilities								Derivative Liabilities
Commodity contracts	Commodity contracts	Other current liabilities	$	24,392	$	(6,131)	$	18,261	Commodity contracts	Derivative instruments	$	38,434	$	(3,284)	$	35,150
		Other noncurrent liabilities	$	100	$	(100)	$	0		Other noncurrent liabilities	345		(345)		—

(1) The Company has agreements in place with each of its counterparties that allow for the financial right of offset for derivative assets against derivative liabilities at settlement or in the event of a default under the agreements or ~~contract termination.~~if contracts are terminated.

Contingent Features in Financial Derivative Instruments. None of the Company’s derivative instruments contain credit-risk-related contingent features. Counterparties to the Company’s financial derivative contracts are high credit-quality financial institutions that are primarily lenders under CRP’s ~~credit agreement.~~Credit Agreement. The Company ~~uses~~enters into new hedge arrangements only ~~credit agreement~~with participants ~~to hedge with,~~under its Credit Agreement, since these institutions are secured equally with the holders of any CRP bank debt, which eliminates the potential need to post collateral when Centennial is in a derivative liability position. As a result, the Company is not required to post letters of credit or corporate guarantees for its derivative counterparties in order to secure contract performance obligations.

In addition, the Company is exposed to credit risk associated with its derivative contracts from non-performance by its counterparties. The Company mitigates its exposure to any single counterparty by contracting with a number of financial institutions, each of which has a high credit rating and is a member under CRP’s ~~credit facility~~Credit Agreement as referenced above.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7—Fair Value Measurements

Recurring Fair Value Measurements

The Company follows ASC Topic 820, Fair Value Measurement and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

•Level 1: Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2: Significant Other Observable Inputs – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3: Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table presents, for each applicable level within the fair value hierarchy, the Company’s net derivative assets and liabilities, including both current and noncurrent portions, measured at fair value on a recurring basis:

(in thousands) Level 1 Level 2 Level 3
March 31, 2021
Total liabilities 0 46,522 0
December 31, 2020
Total assets $ 0 $ 52 $ 0
Total liabilities 0 18,261 0


(in thousands)	Level 1		Level 2		Level 3
March 31, 2022
Total assets	$	—	$	3,351	$	—
Total liabilities	—		124,906		—
December 31, 2021
Total assets	$	—	$	240	$	—
Total liabilities	—		35,150		—

Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy. There were no transfers between any of the fair value levels during any period presented.

Derivatives

The Company uses Level 2 inputs to measure the fair value of its oil and natural gas commodity derivatives. The Company uses industry-standard models that consider various assumptions including current market and contractual prices for the underlying instruments, implied market volatility, time value, nonperformance risk, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data. The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations. ~~Refer to~~ ~~Note 6—Derivative Instruments~~ ~~for details of the gross and net derivatives assets, liabilities and offset amounts presented in the consolidated balance sheets.~~

Nonrecurring Fair Value Measurements

The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its non-financial assets and liabilities, including proved oil and gas properties. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances.

Impairment of Oil and Natural Gas Properties. The Company reviews its proved oil and natural gas properties for impairment whenever events and circumstances indicate that the fair value of these assets may be below their carrying value. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows from oil and gas properties is less than the carrying amount of the assets. In this circumstance, the Company then recognizes impairment expense for the amount by which the carrying amount of proved properties exceeds their estimated fair value. The Company reviews its oil and natural gas properties on a field-by-field basis.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company calculates the estimated fair values of its oil and natural gas properties using an income approach that is based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the expected future net cash flows used for the impairment review and the related fair value measurement of oil and natural gas proved properties

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

include estimates of: (i) oil and gas reserves; (ii) future production decline rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; and (v) a market participant-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management.

Asset Retirement Obligations. The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with property, plant and equipment. Significant Level 3 inputs used in the calculation of ARO include the estimated future costs to plug and abandon oil and gas properties and reserve lives. Refer to Note 4—Asset Retirement Obligations for additional information on the Company’s ARO.

Other Financial Instruments

The carrying amounts of the Company’s cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values because of the short-term maturities and/or liquid nature of these assets and liabilities.

The Company’s senior notes and borrowings under its ~~credit agreement~~Credit Agreement are accounted for at ~~cost, and the cost basis of the Company’s Senior Secured Notes issued in the Debt Exchange was measured based on their fair value on the date of the exchange.~~cost. The following table summarizes the carrying values, principal amounts and fair values of these instruments as of the dates indicated:


		March 31, 2021						December 31, 2020							March 31, 2022						December 31, 2021
		Carrying Value		Principal Amount		Fair Value		Carrying Value		Principal Amount		Fair value			Carrying Value		Principal Amount		Fair Value		Carrying Value		Principal Amount		Fair value
Credit facility due 2023(1)		$	160,000	$	160,000	$	160,000	$	330,000	$	330,000	$	330,000
8.00% Senior Secured Notes due 2025(2)		104,916		127,073		126,438		103,901		127,073		114,366
Credit Facility due 2027(1)														Credit Facility due 2027(1)	$	—	$	—	$	—	$	25,000	$	25,000	$	25,000
5.375% Senior Notes due 2026(2)	5.375% Senior Notes due 2026(2)	285,063		289,448		254,714		284,867		289,448		206,955		5.375% Senior Notes due 2026(2)	285,874		289,448		280,765		285,666		289,448		286,554
6.875% Senior Notes due 2027(2)	6.875% Senior Notes due 2027(2)	350,064		356,351		317,152		349,856		356,351		254,791		6.875% Senior Notes due 2027(2)	350,936		356,351		356,351		350,712		356,351		361,696
3.25% Convertible Notes due 2028(2)	3.25% Convertible Notes due 2028(2)	163,711		170,000		161,772		0		0		0		3.25% Convertible Notes due 2028(2)	164,393		170,000		258,977		164,187		170,000		215,279

(1) The carrying values of the amounts outstanding under CRP’s ~~credit agreement~~Credit Agreement approximate fair value because its variable interest rates are tied to current market rates and the applicable credit spreads represent current market rates for the credit risk profile of the Company.

(2) The carrying values include associated unamortized debt issuance costs and any debt discounts as reflected in the consolidated balance sheets. The fair values are determined using quoted market prices for these debt securities, a Level 1 classification in the fair value hierarchy, and are based on the aggregate principal amount of the senior notes outstanding.

Note 8—Shareholders' Equity

Stock Repurchase Program

In February 2022, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $350 million of the Company’s outstanding Common Stock (the “Repurchase Program”), which is approved to run through April 1, 2024. The Company intends to use the Repurchase Program to reduce its shares of Common Stock outstanding and plans to fund these repurchases with cash on hand and cash flows from operations. Repurchases may be made from time to time in the open-market or via privately negotiated transactions at the Company’s discretion and will be subject to market conditions, applicable legal requirements, available liquidity, compliance with the Company’s debt and other agreements and other factors. The Repurchase Program does not require any specific number of shares to be acquired and can be modified or discontinued by the Company’s Board of Directors at any time. There were no shares purchased under the Repurchase Program during the three months ended March 31, 2022.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8—9—Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income ~~available to Class A Common Stock~~ by the weighted average shares of Common Stock outstanding during each period. Diluted EPS is calculated by dividing adjusted net income ~~available to Class A Common Stock~~ by the weighted average shares of diluted Common Stock outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for the diluted EPS calculation consists of (i) unvested equity-based restricted stock and performance stock units, outstanding stock options, withholding amounts from the employee stock purchase plan and warrants (prior to their expiration in 2021), all using the treasury stock method, and (ii) ~~the Company’s Class C common stock outstanding, prior to the conversion of remaining Class C shares in the second quarter of 2020, and~~ potential shares issuable under our Convertible Senior Notes, ~~both~~ using the “if-converted” method, which is net of tax.

The following table reflects the ~~allocation of net income to common shareholders and~~ EPS computations for the periods indicated based on a weighted average number of common shares outstanding ~~for the~~each period:

Three Months Ended March 31,
(in thousands, except per share data) 2021 2020
Net income (loss) attributable to Class A Common Stock $ (34,645) $ (547,983)
Basic weighted average shares of Class A Common Stock outstanding 278,935 275,952
Diluted weighted average shares of Class A Common Stock outstanding 278,935 275,952
Basic net earnings (loss) per share of Class A Common Stock $ (0.12) $ (1.99)
Diluted net earnings (loss) per share of Class A Common Stock $ (0.12) $ (1.99)


	Three Months Ended March 31,
(in thousands, except per share data)	2022		2021
Net income (loss)	$	15,802	$	(34,645)
Add: Interest on Convertible Senior Notes, net of tax	1,293		—
Adjusted net income (loss)	$	17,095	$	(34,645)

Basic weighted average shares of Common Stock outstanding	284,851		278,935
Add: Dilutive effects of equity awards and ESPP shares	7,755		—
Add: Dilutive effects of Convertible Senior Notes	27,074		—
Diluted weighted average shares of Common Stock outstanding	319,680		278,935

Basic net earnings (loss) per share of Common Stock	$	0.06	$	(0.12)
Diluted net earnings (loss) per share of Common Stock	$	0.05	$	(0.12)

The Company recognized a net loss during the three months ended March 31, 2021 and 2020. As a result, all potential common shares were anti-dilutive and were excluded from the calculation of diluted net earnings per share. The following table presents shares excluded from the diluted earnings per share calculation for the periods presented as their impact was anti-dilutive:


		Three Months Ended March 31,		Three Months Ended March 31,
(in thousands)	(in thousands)	2021	2020		(in thousands)	2022	2021(1)
Out-of-the-money stock options	Out-of-the-money stock options	2,294	4,782		Out-of-the-money stock options	2,097	2,294
Restricted stock	Restricted stock	9,565	5,143		Restricted stock	—	9,565
Performance stock units					Performance stock units	449	399
Employee Stock Purchase Plan	Employee Stock Purchase Plan	41	1,138		Employee Stock Purchase Plan	—	41
Weighted average shares of Class C Common Stock		0	1,034
Convertible Senior Notes					Convertible Senior Notes	—	27,074
Warrants	Warrants	8,000	8,000		Warrants	—	8,000
Performance stock units		399	0
Convertible Senior Notes		27,074	0

(1) The Company recognized a net loss during the three months ended March 31, 2021, and therefore all potentially dilutive securities were anti-dilutive and excluded from the calculation of diluted net earnings per share.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9—10—Transactions with Related Parties

Riverstone Investment Group LLC and its affiliates (“Riverstone”) beneficially own a more than 10% equity interest in the Company and are therefore considered related parties. The Company has a marketing agreement with Lucid Energy Delaware, LLC (“Lucid”), an affiliate of Riverstone. The Company believes that the terms of the marketing agreement with Lucid are no less favorable to either party than those held with unaffiliated parties.

The following table summarizes the revenues recognized and the associated processing fees incurred from this marketing agreement as included in the consolidated statements of operations for the periods indicated, as well as the related net receivables outstanding as of the balance sheet dates:


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020			(in thousands)	2022		2021
Oil and gas sales	Oil and gas sales	$	1,075	$	1,088		Oil and gas sales	$	9,483	$	1,075
Gathering, processing and transportation expenses	Gathering, processing and transportation expenses	1,205		953			Gathering, processing and transportation expenses	2,519		1,205


(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021
Accounts receivable, net(1)	Accounts receivable, net(1)	$	1,796	$	994	Accounts receivable, net(1)	$	5,220	$	5,562

(1) Represents amounts due from Lucid and are presented net of unpaid processing fees as of the indicated period end date.

~~Senior Secured Notes~~

Riverstone held $106.3 million of the Company’s Senior Secured Notes as of March 31, 2021 and December 31, 2020. No interest payments associated with the Senior Secured Notes were made to Riverstone during the three months ended March 31, 2021 or 2020.

Note ~~10—~~11—Commitments and Contingencies

Commitments

The Company routinely enters into, extends or amends operating agreements in the ordinary course of business. During the three months ended March 31, ~~2021, there~~2022, the Company entered into a two-year purchase agreement to buy frac’ sand used in its well fracture stimulation process. Under the terms of this take-or-pay agreement, the Company is obligated to purchase a minimum volume of frac’ sand at a fixed price. The obligation is $44.6 million, which represents the minimum financial commitment pursuant to the terms of the contract as of March 31, 2022. There have been no other material, non-routine changes in commitments during the three months ended March 31, ~~2021.~~2022. Please refer to Note 13—Commitments and Contingencies included in Part II, Item 8 in the Company’s ~~2020~~2021 Annual Report.

The Company has a firm crude oil sales agreement with a large integrated oil company, and in the first quarter of 2021, new pricing terms under this agreement went into effect. Utilizing this integrated oil company’s transport capacity out of the Permian Basin, the agreement provides for firm gross sales of 30,000 Bbls/d over the next 4 years and is based upon prevailing market prices of ICE Brent less contractual differentials. These pricing terms are resulting in realized prices that currently have wider differentials than those being realized under the Company’s other oil marketing agreements. However, if the oil price differential between the ICE Brent and NYMEX WTI indices widen in the future, the oil price realized under this delivery commitment will improve relative to the prices realized under the Company’s other oil sales contracts. Under-delivery of volumes that are committed under this agreement would result in a financial obligation to the Company, although the Company’s current production level (on a gross basis) is, and the Company believes its future production will be, sufficient to fulfill this physical delivery commitment.

Contingencies

The Company may at times be subject to various commercial or regulatory claims, prior period adjustments from service providers, litigation or other legal proceedings that arise in the ordinary course of business. While the outcome of these lawsuits and claims cannot be predicted with certainty, management believes it is remote that the impact of such matters, other than those discussed below, that are reasonably possible to occur will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In February 2021, the Permian Basin was impacted by record-low temperatures and a severe winter storm (“Winter Storm Uri”) that resulted in multi-day electrical outages and shortages, pipeline and infrastructure freezes, transportation disruptions, and regulatory actions in Texas, which led to significant increases in gas prices, gathering, processing and transportation fees and electrical rates during this time. As a result, many oil and gas operations, including upstream producers like the Company, as well as gas processors and purchasers, and transportation providers experienced operational disruptions. During this time, the Company was unable to utilize the entire volume of its reserved capacity on pipelines and as a result has made certain force majeure declarations. One third-party transportation provider has filed a lawsuit against the Company claiming compensation for the full amount of the reserved capacity, both utilized and unutilized. The Company has made a payment for the utilized capacity and filed a separate lawsuit against the transportation provider requesting declaratory relief for the purpose of construing the provisions of the transportation agreement relating to the unutilized capacity. At this time, the Company believes that a loss is reasonably possible in relation to these matters and such amount could range from 0zero to $7.6 million, and no amount in that range is a better estimate than any other.

Other than the matter above, management is unaware of any pending litigation brought against the Company requiring a contingent liability to be recognized as of the date of these consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note ~~11—~~12—Revenues

Revenue from Contracts with Customers

Crude oil, natural gas and NGL sales are recognized at the point that control of the product is transferred to the customer and collectability is reasonably assured. Virtually all of the Company’s contract pricing provisions are tied to a market index, with certain adjustments based on, among other factors, transportation costs to an active spot market and quality differentials. As a result, the Company’s realized prices of oil, natural gas, and NGLs fluctuate to remain competitive with other available oil, natural gas, and NGLs supplies both globally (in the case of crude oil) and locally.

Oil and gas revenues presented within the consolidated statements of operations relate to the sale of oil, natural gas and NGLs as shown below:


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
Operating revenues (in thousands):	Operating revenues (in thousands):						Operating revenues (in thousands):
Oil sales	Oil sales	$	133,726	$	170,505		Oil sales	$	262,767	$	133,726
Natural gas sales	Natural gas sales	35,451		8,358			Natural gas sales	39,018		35,451
NGL sales	NGL sales	23,214		13,906			NGL sales	45,492		23,214
Oil and gas sales	Oil and gas sales	$	192,391	$	192,769		Oil and gas sales	$	347,277	$	192,391

Oil sales

The Company’s crude oil sales contracts are generally structured whereby oil is delivered to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes title of the product. This delivery point is usually at the wellhead or at the inlet of a transportation pipeline. Revenue is recognized when control transfers to the purchaser at the delivery point based on the net price received from the purchaser. Any downstream transportation costs incurred by crude purchasers are reflected as a net reduction to oil sales revenues.

Natural gas and NGL sales

Under the Company’s natural gas processing contracts, liquids rich natural gas is delivered to a midstream gathering and processing entity at the inlet of the gas gathering system. The midstream processing entity gathers and processes the raw gas and then remits proceeds to Centennial for the resulting sales of NGLs, while the Company generally elects to take its residue gas product “in-kind” at the plant tailgate. For these contracts, the Company evaluates when control is transferred and revenue should be recognized. Where the Company has concluded that control transfers at the tailgate of the processing facility, fees incurred prior to transfer of control are presented as gathering, processing and transportation expenses (“GP&T”) within the consolidated statements of operations. Any transportation and fractionation costs incurred subsequent to the point of transfer of control are reflected as a net reduction to natural gas and NGL sales revenues presented in the table above.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Performance obligations

For all commodity products, the Company records revenue in the month production is delivered to the purchaser. Settlement statements for natural gas and NGL sales may not be received for 30 to 90 days after the date production volumes are delivered and for crude oil, generally within 30 days after delivery has occurred. However, payment is unconditional once the performance obligations have been satisfied. At such time, the volumes delivered and sales prices can be reasonably estimated and amounts due from customers are accrued in Accounts receivable, net in the consolidated balance sheets. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, such receivable balances were ~~$54.0~~$109.7 million and ~~$41.7~~$57.3 million, respectively.

The Company records any differences between its estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Historically, any identified differences between revenue estimates and actual revenue received have not been significant. For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods were not material.

Transaction price allocated to remaining performance obligations

For the Company’s product sales that have a contract term greater than one year, the Company has utilized the practical expedient in ASC Topic 606, Revenue from contracts with Customers, which states the Company is not required to disclose the transaction price allocated to the remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, monthly sales of a product generally represent a separate

Table of Contents

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

performance obligation. Therefore, future commodity volumes to be delivered and sold are wholly unsatisfied, and disclosure of the transaction price allocated to such unsatisfied performance obligations is not required.

~~Note 12—Leases~~

~~At contract inception, the Company determines whether or not an arrangement contains a lease. However, in connection with the implementation of ASC Topic 842,~~ ~~Leases~~ (“ASC 842”), this assessment was made as of the adoption date of ASC 842. Upon determination of a lease, a lease right-of-use (“ROU”) asset and related liability are recorded based on the present value of the future lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make future lease payments arising from the lease.

The Company has operating leases for drilling rig contracts, office rental agreements, and other wellhead equipment. As of March 31, 2021, these leases have remaining lease terms ranging from one month to 1 year, some of which include options to extend the lease term for up to five years, and some of which include options to early terminate. These options are considered in determining the lease term and are included in the present value of future payments that are recorded for leases when the Company is reasonably certain to exercise the option. Leases with an initial term of one year or less are not recorded in the consolidated balance sheets. Additionally, none of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants.

The present value of future lease payments is determined at the lease commencement date based upon the Company’s incremental borrowing rate. The incremental borrowing rate is calculated using a risk-free interest rate adjusted for the Company’s specific risk and the specific lease term. The table below summarizes the Company’s weighted-average discount rate and weighted-average remaining lease term as of the period presented.


	~~As of March 31, 2021~~
~~Weighted-average discount rate~~	~~5.13~~	%
~~Weighted-average remaining lease term (months)~~	10

The Company’s drilling rig contracts, office rental agreements, and wellhead equipment agreements contain both lease and non-lease components, which are combined and accounted for as a single lease component.

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Variable lease payments are recognized in the period in which they are incurred and include operating expenses related to the office rental agreements and expenses incurred on the drilling rig contracts in excess of the contractual rate. Expenses related to short-term leases are recognized on a straight-line basis over the lease term as either expenses to the consolidated statements of operations or capitalized to the consolidated balance sheets. The following table presents the components of the Company’s lease expenses for the periods presented.
Three Months Ended March 31,
(in thousands) 2021 2020
Lease costs
Operating lease cost $ 873 $ 4,305
Variable lease cost 9 1,207
Short-term lease cost 7,194 17,825
Total lease cost $ 8,076 $ 23,337

~~The following table presents supplemental cash flow information related to the Company’s leases for the periods presented.~~

Three Months Ended March 31,
(in thousands) 2021 2020
Operating lease liability payments:
Cash used in operating activities $ 873 $ 2,503
Cash used in investing activities $ 0 $ 1,802
Right-of-use assets recognized (derecognized) with offsetting operating lease liabilities $ (32) $ (829)

~~Maturities of the Company’s long-term operating lease liabilities by fiscal year as of March 31, 2021 are as follows:~~

(in thousands)
Total(2)
2021(1)
$ 2,338
2022 425
Total lease payments 2,763
Less: imputed interest (66)
Present value of lease liabilities (3)
$ 2,697

~~(1)~~ ~~Excludes payments made during the three months ended March 31, 2021.~~

~~(2)~~ ~~Total lease payments exclude variable lease payments which can be charged under the terms of the lease agreements.~~

~~(3)~~ ~~This amount is included in current liabilities in the line item~~ ~~Operating lease liabilities~~ ~~in the consolidated balance sheets as of March 31, 2021.~~

Note 13—Subsequent Events

~~Senior Secured Notes Redemption~~Amendment to LTIP

InOn April ~~2021,~~27, 2022, the shareholders of the Company ~~redeemed at par all~~approved the amended and restated LTIP, which, among other things, increased the number of ~~its $127.1 million~~ ~~aggregate principal amount~~shares of ~~Senior Secured Notes,~~ ~~which was the intended use of proceeds~~Common Stock authorized for issuance from ~~the Convertible Senior Notes offering. Additionally, the Company paid accrued interest on the Senior Secured Notes of $3.8 million in connection with the redemption. The Company plans~~24,750,000 shares to record a loss on debt extinguishment of approximately $22.2 million related to the write-off of all unamortized debt issuance costs and discount amounts associated with the Senior Secured Notes being redeemed. Further, the availability blocker of ~~$31.8 million, which had been reducing the amount available to be borrowed under the Credit Agreement, was removed as a result of this note redemption.~~

44,250,000 shares.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operation~~Operations

The following discussion and analysis of our financial condition and results of ~~operation~~operations should be read in conjunction with the accompanying consolidated financial statements and related notes. The following discussion and analysis contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, future market prices for oil, natural gas and NGLs, future production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, inflation, regulatory changes, continued and future impacts of ~~Coronavirus Disease 2019 (“COVID-19”)~~COVID-19 and other uncertainties, as well as those factors discussed ~~above~~ in “Cautionary Statement ~~Regarding~~Concerning Forward-Looking Statements” and under the heading “Item 1A. Risk Factors” in our ~~2020~~2021 Annual Report, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Overview

Centennial Resource Development, Inc. ~~(“Centennial,” “we,” “us,” or “our”)~~ is an independent oil and natural gas company focused on the development of oil and associated liquids-rich natural gas reserves in the Permian Basin. Our assets are concentrated in the Delaware Basin, a sub-basin of the Permian Basin. Our ~~capital programs are focused on projects that we believe provide the highest~~principal business objective is to increase shareholder value by efficiently developing our oil and natural gas assets in an environmentally and socially responsible way, with an overall objective of improving our rates of return ~~on capital.~~and generating sustainable free cash flow. Unless otherwise specified or the context otherwise requires, all references in these discussions to “Centennial,” “we,” “us,” or “our” are to Centennial Resource Development, Inc. and its consolidated subsidiary, Centennial Resource Production, LLC (“CRP”).

Market Conditions

The ~~2020~~demand for oil and natural gas has been significantly impacted by the worldwide outbreak of COVID-19, specifically regarding the uncertainty ~~regarding its~~surrounding the virus’s impact and because of various governmental actions taken to mitigate the ~~effects~~spread of ~~COVID-19 resulted in an unprecedented decline in~~ the ~~demand for~~virus. Concurrently, global oil and natural gas ~~throughout 2020. In addition, the decision~~supplies have been disrupted by ~~Saudi Arabia to drastically reduce export prices and increase oil~~ production ~~in March 2020 (the “Saudi-Russia oil price war”) followed by~~ curtailment agreements among the Organization of Petroleum Exporting Countries ~~(“OPEC”) and other countries such as Russia further increased uncertainty and volatility around global oil supply-demand dynamics. However, in April of 2020, the members of OPEC~~ and other oil producing countries ~~agreed to reduce their crude oil production throughout the year, while U.S. producers substantially~~(“OPEC+”) and reduced ~~or suspended~~ drilling and completion activity ~~due~~from U.S. producers. Both OPEC+ output and U.S. drilling activity has increased since 2020 levels; however, these factors have only led to ~~low~~a gradual increase in oil ~~prices~~ and ~~poor economics.~~

~~The~~gas supply, and global supply has not returned to pre-pandemic levels. Further in the first quarter of 2022, Russia’s invasion of Ukraine and global sanctions placed on Russia in response have created additional downward pressures on the supply of oil and natural gas. Meanwhile, demand for oil and ~~natural~~ gas ~~continued to remain low in early~~has risen steadily throughout 2021 ~~due to continued uncertainty regarding the impacts of COVID-19. OPEC~~ and other producing countries extended their production cuts through the first quarter of 2021 with gradual output increases expected to begin in the second quarter of 2021. Further, U.S. drilling activity only began to increase in the fourth quarter of 2020 and has continued to increase steadily since. The continued reduction in overall oil supply paired with the expectation of a recovery in global oil demand2022 due to the availability of COVID-19 vaccinations, ~~and less governmental~~fewer government mandated restrictions and the global-wide transition away from coal to natural gas. As a result, global oil inventories have continued to decline due to the resulting supply and demand imbalances. These factors, among others, have aided in the recovery of global commodity prices ~~during~~throughout 2021 and have led to heightened commodity prices in the first quarter of ~~2021.~~2022. Specifically, WTI spot prices for crude oil reached a high of ~~$66.09~~$123.70 per barrel on March ~~5, 2021~~8, 2022, from a low of negative $37.63 per barrel on April 20, ~~2020 (which was due to depressed demand and insufficient storage capacity, particularly at~~2020. Similarly, the ~~WTI physical settlement location in Cushing, Oklahoma).~~Henry Hub index price for natural gas reached a high of $6.44 on February 3, 2022, from a low of $1.33 on September 22, 2020.

The oil and natural gas industry is cyclical, and it is likely that commodity prices, as well as commodity price differentials, will continue to be volatile due to fluctuations in global supply and demand, inventory levels, the continued effects from COVID-19 and variant strains of the virus, geopolitical events, federal and state government regulations, weather conditions, the global transition to alternative energy sources, supply chain constraints and other factors. The following table highlights the quarterly average NYMEX price trends for crude oil and natural gas since the first quarter of ~~2019:~~2020:


		2019								2020								2021		2020						2021								2022
		Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1				Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1
Crude oil (per Bbl)	Crude oil (per Bbl)	$	54.90	$	59.81	$	56.45	$	56.94	$	46.19	$	28.00	$	40.93	$	42.66	$	57.84		Crude oil (per Bbl)	$	46.19	$	28.00	$	40.93	$	42.66	$	57.84	$	66.06	$	70.56	$	77.09	$	94.40
Natural gas (per MMBtu)	Natural gas (per MMBtu)	$	2.88	$	2.51	$	2.33	$	2.34	$	1.88	$	1.65	$	1.95	$	2.47	$	3.44		Natural gas (per MMBtu)	$	1.88	$	1.65	$	1.95	$	2.47	$	3.44	$	2.88	$	4.28	$	4.74	$	4.60

Lower commodity prices (including realized price differentials) and lower futures curves for oil and gas prices can result in ~~further~~ impairments of our proved oil and natural gas properties or undeveloped acreage ~~(such as the impairments incurred in the first quarter of 2020)~~ and may materially and adversely affect our ~~future business,~~operating cash flows, liquidity, financial condition, results of operations, ~~operating cash flows, liquidity~~future business, and/or our ability to finance planned capital expenditures. Lower realized prices may also reduce the borrowing base under CRP’s credit agreement, which is determined at the discretion of the lenders and is based on the collateral value of our proved reserves that have been mortgaged to the lenders. Upon a redetermination, if any borrowings in excess of the revised

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borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding under the credit agreement. Additionally, ~~the~~ lower ~~price environment and its impact to~~prices can affect our operations, which could impact our ability to comply with the covenants under our credit agreement and senior notes.

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Due to the cyclical nature of the oil and gas industry, fluctuating demand for oilfield goods and services can put pressure on the pricing structure within our industry. As commodity prices rise, the cost of oilfield goods and services generally also increase, while during periods of commodity price declines, oilfield costs typically lag and do not adjust downward as fast as oil prices do. In addition, the U.S. inflation rate has been steadily increasing during 2021 and into 2022. These inflationary pressures may also result in increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise.

COVID-19 Outbreak

The COVID-19 outbreak and its development into a pandemic in March 2020 have required that we take precautionary measures intended to help minimize the risk to our business, employees, customers, vendors, suppliers and the communities in which we operate. Our operational employees have been and are currently able to work on site, while ~~the vast majority of our~~certain non-operational employees have been working remotely orpart-time and then also reporting to our offices on a ~~limited~~part-time basis. We have taken various precautionary measures with respect to our operational employees, direct contractors and employees who returned to our offices or job sites ~~such as (i) requiring them to verify they~~and have not experienced any symptoms consistent with COVID-19, or been in close contact with someone showing such symptoms, before reporting to the work site or office, (ii) self-quarantining any employees or contractors who have shown signs or symptoms of COVID-19 (regardless of whether such person has been confirmed to be infected), (iii) imposing social distancing requirements on work sites and at our offices that are in accordance with the guidelines released by followed the Center ~~for~~of Disease Control (the “CDC”) as well as local and state authorities, (iv) requiring all employees and contractors to have a fit-test for and wear KN-95 type respirators while in our offices and work sites, and (v) encouraging all employees and contractors to follow the CDC recommended preventive measures ~~(including those mentioned above)~~ to limit the spread of COVID-19. We have continued to update our safety protocols in alignment with CDC guidance and government mandates. We have not experienced any significant operational disruptions, ~~(including~~including disruptions from our suppliers ~~and~~or service ~~providers)~~providers, as a result of the COVID-19 outbreak.

~~2021~~2022 Highlights and Future Considerations

Operational Highlights

We operated a two-rig drilling program during the first ~~quarter~~three months of ~~2021,~~2022, which enabled us to complete and bring online 1118 gross operated wells with an average effective lateral length of approximately ~~8,100~~8,500 feet.

In February 2021, the Permian Basin was impacted by record-low temperatures and a severe winter storm (“Winter Storm Uri”) that caused multi-day electrical outages and shortages, pipeline and infrastructure freezes, and transportation disruptions, which further lead to significant increases in gas prices, gathering, processing and transportation fees and electrical rates during this time. Our operations were impacted by Winter Storm Uri and lead to a partial shut-in of certain wells and associated production for about seven days during the event. Refer to the discussion below for the current impacts from the Winter Storm Uri on results of operations for the three months ended March 31, 2021.

Financing Highlights

On ~~March 19, 2021,~~February 18, 2022, we ~~issued $150.0 million of 3.25% senior convertible notes due 2028 (the “Convertible Senior Notes”) in~~closed on a public offering. On March 26, 2021, the Company issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional Convertible Senior Notes. The issuance resulted in net proceeds of $163.7 million, after deducting debt issuance costs of $6.3 million, and such proceeds were used to fund the cost of entering into capped call spread transactions of $14.7 million and repay borrowing outstanding under CRP’snew five-year revolving credit ~~facility. In April 2021, we redeemed at par all of our 2025 senior secured notes ($127.1 million)~~facility (the “Credit Agreement”), which replaced our previous credit agreement that was set to mature on May 4, 2023. The elected commitments under the ~~intended use of proceeds~~new Credit Agreement increased to $750 million from ~~the Convertible Senior Notes offering.~~

~~In connection with CRP’s credit~~$700 million under our previous facility, ~~spring 2021 semi-annual borrowing base redetermination,~~and the borrowing base increased to $1.15 billion from $700 million previously. The new Credit Agreement will mature in February 2027.

In February 2022, our Board of Directors authorized a stock repurchase program to acquire up to $350 million of our outstanding Class A common stock (“Common Stock”), which program is approved to run through April 1, 2024 (the “Repurchase Program”). We intend to use the Repurchase Program to reduce shares of our Common Stock outstanding and ~~amount of elected commitments were reaffirmed at $700.0 million.~~plan to fund these share repurchases with cash on hand and cash flows from operations.

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Results of Operations

Three Months Ended March 31, ~~2021~~2022 Compared to Three Months Ended March 31, ~~2020~~2021

The following table provides the components of our net revenues and net production (net of all royalties, overriding royalties and production due to others) for the periods indicated, as well as each period’s average prices and average daily production volumes:


		Three Months Ended March 31,				Increase/(Decrease)					Three Months Ended March 31,				Increase/(Decrease)
		2021		2020		$		%			2022		2021		$		%
Net revenues (in thousands):	Net revenues (in thousands):									Net revenues (in thousands):
Oil sales	Oil sales	$	133,726	$	170,505	$	(36,779)	(22)	%	Oil sales	$	262,767	$	133,726	$	129,041	96	%
Natural gas sales	Natural gas sales	35,451		8,358		27,093		324	%	Natural gas sales	39,018		35,451		3,567		10	%
NGL sales	NGL sales	23,214		13,906		9,308		67	%	NGL sales	45,492		23,214		22,278		96	%
Oil and gas sales	Oil and gas sales	$	192,391	$	192,769	$	(378)	—	%	Oil and gas sales	$	347,277	$	192,391	$	154,886	81	%

Average sales prices:	Average sales prices:									Average sales prices:
Oil (per Bbl)	Oil (per Bbl)	$	52.62	$	45.14	$	7.48	17	%	Oil (per Bbl)	$	89.17	$	52.62	$	36.55	69	%
Effect of derivative settlements on average price (per Bbl)	Effect of derivative settlements on average price (per Bbl)	(9.43)		(0.01)		(9.42)		(94,200)	%	Effect of derivative settlements on average price (per Bbl)	(12.82)		(9.43)		(3.39)		(36)	%
Oil net of hedging (per Bbl)	Oil net of hedging (per Bbl)	$	43.19	$	45.13	$	(1.94)	(4)	%	Oil net of hedging (per Bbl)	$	76.35	$	43.19	$	33.16	77	%

Average NYMEX price for oil (per Bbl)	Average NYMEX price for oil (per Bbl)	$	57.84	$	46.19	$	11.65	25	%	Average NYMEX price for oil (per Bbl)	$	94.40	$	57.84	$	36.56	63	%
Oil differential from NYMEX	Oil differential from NYMEX	(5.22)		(1.05)		(4.17)		(397)	%	Oil differential from NYMEX	(5.23)		(5.22)		(0.01)		—	%

Natural gas (per Mcf)	Natural gas (per Mcf)	$	3.79	$	0.78	$	3.01	386	%	Natural gas (per Mcf)	$	3.93	$	3.79	$	0.14	4	%
Effect of derivative settlements on average price (per Mcf)	Effect of derivative settlements on average price (per Mcf)	0.12		—		0.12		100	%	Effect of derivative settlements on average price (per Mcf)	(0.51)		0.12		(0.63)		(525)	%
Natural gas net of hedging (per Mcf)	Natural gas net of hedging (per Mcf)	$	3.91	$	0.78	$	3.13	401	%	Natural gas net of hedging (per Mcf)	$	3.42	$	3.91	$	(0.49)	(13)	%

Average NYMEX price for natural gas (per Mcf)	Average NYMEX price for natural gas (per Mcf)	$	3.44	$	1.88	$	1.56	83	%	Average NYMEX price for natural gas (per Mcf)	$	4.60	$	3.44	$	1.16	34	%
Natural gas differential from NYMEX	Natural gas differential from NYMEX	0.35		(1.10)		1.45		132	%	Natural gas differential from NYMEX	(0.67)		0.35		(1.02)		(291)	%

NGL (per Bbl)	NGL (per Bbl)	$	29.78	$	14.30	$	15.48	108	%	NGL (per Bbl)	$	49.37	$	29.78	$	19.59	66	%

Net production:	Net production:									Net production:
Oil (MBbls)	Oil (MBbls)	2,542		3,778		(1,236)		(33)	%	Oil (MBbls)	2,947		2,542		405		16	%
Natural gas (MMcf)	Natural gas (MMcf)	9,343		10,715		(1,372)		(13)	%	Natural gas (MMcf)	9,925		9,343		582		6	%
NGL (MBbls)	NGL (MBbls)	780		972		(192)		(20)	%	NGL (MBbls)	921		780		141		18	%
Total (MBoe)(1)	Total (MBoe)(1)	4,878		6,536		(1,658)		(25)	%	Total (MBoe)(1)	5,522		4,878		644		13	%

Average daily net production:	Average daily net production:									Average daily net production:
Oil (Bbls/d)	Oil (Bbls/d)	28,239		41,512		(13,273)		(32)	%	Oil (Bbls/d)	32,741		28,239		4,502		16	%
Natural gas (Mcf/d)	Natural gas (Mcf/d)	103,806		117,751		(13,945)		(12)	%	Natural gas (Mcf/d)	110,280		103,806		6,474		6	%
NGL (Bbls/d)	NGL (Bbls/d)	8,662		10,683		(2,021)		(19)	%	NGL (Bbls/d)	10,238		8,662		1,576		18	%
Total (Boe/d)(1)	Total (Boe/d)(1)	54,202		71,820		(17,618)		(25)	%	Total (Boe/d)(1)	61,359		54,202		7,157		13	%

(1) Calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe.

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Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the three months ended March 31, ~~2021~~2022 were ~~$0.4~~$154.9 million (or ~~0.2%~~81%) ~~lower~~higher than total net revenues for the three months ended March 31, ~~2020.~~2021. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Average realized sales prices for oil, residue gas and NGLs increased in the first quarter of ~~2021~~2022 compared to the same ~~2020~~2021 period by ~~17%~~69%, ~~386%~~4% and ~~108%~~66%, respectively. The ~~17%~~69% increase in the average realized oil price ~~before the effects of hedging~~ was mainly the result of higher (63%) NYMEX crude prices between periods (average NYMEX prices increased 25%), which was partially offset by wider oil differentials ($4.17 per Bbl wider) associated with our firm oil sales agreement that is based upon the prevailing market price of ICE Brent less contractual differentials.periods. The ~~386% increase in~~ average realized sales price of natural gas ~~before the effects of hedging was~~increased 4% due to higher (34%) NYMEX gas prices ~~(average prices increased 83%) and improved~~between periods, partially offset by wider gas differentials ($~~1.45~~1.02 per ~~Mcf)~~Mcf wider). The 66% increase in average realized NGL prices ~~of 108%~~ between periods was primarily attributable to higher Mont Belvieu spot prices for plant products in the first quarter of ~~2021~~2022 as compared to the first quarter of ~~2020.~~2021. The market prices for oil, natural gas and NGLs have all been impacted by higher global ~~demand~~supply constraints for oil and gas ~~compared to the first quarter of 2020 when prices decreased significantly as a result of COVID-19~~throughout 2021 and ~~supply disruptions from the Saudi-Russia oil price war, beginning in March 2020~~2022 as discussed in the market conditions section above. Additionally, the first quarter 2021 realized price for natural gas in the Permian Basin was impacted by Winter Storm Uri, which caused gas pipeline and supply disruptions and resulted in significant natural gas price increases in the area during this period.

Net production volumes for oil, natural gas and NGLs ~~decreased 33%~~increased 16%, ~~13%~~6% and ~~20%~~18%, ~~respectively.~~respectively, between periods. The ~~crude~~ oil production volume ~~decrease was primarily~~increase resulted from our successful drilling program in the ~~result of less drilling and completion activity over the past 12 months as a result of depressed oil and gas prices, which resulted in only 20 wells being placed on production since~~Delaware Basin. Since the first quarter of ~~2020. This~~2021, we placed 49 wells on production, which added ~~422~~1,348 MBbls of net oil production to the three months ended March 31, ~~2021~~2022 as compared to 8620 wells brought online since the first quarter of ~~2019~~2020 that added ~~1,864~~422 MBbls of net oil production to the first quarter of ~~2020. Oil~~2021. These oil volume ~~declines in the first quarter of 2021~~increases were ~~additionally impacted~~partially offset by ~~the temporary shut-in of our wells during mid-February as a result of Winter Storm Uri and~~ normal field production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically ~~resulting~~results in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold. However, as the majority of our wells drilled since the first quarter of 2021 have been in New Mexico, this has resulted in fewer gas and NGL volumes being produced relative to oil volumes because our New Mexico wells have a lower gas-to-oil ratio (“GOR”) than our Texas wells do. Additionally, the main processor of our raw gas in New Mexico operated in partial ethane-recovery during the first quarter of ~~2021, the amount of gas~~ ~~flared as a percentage of wellhead gas produced was significantly less~~2022, as compared to operating in full ethane-rejection during the ~~same 2020~~2021 period, ~~resulting~~and this resulted in ~~a higher ratio of~~fewer natural gas volumes and ~~NGL volumes produced compared to oil volumes~~more NGLs being recovered from our wet gas stream during the 2022 period.

Operating Expenses. The following table sets forth selected operating expense data for the periods indicated:


		Three Months Ended March 31,				Increase/(Decrease)					Three Months Ended March 31,						Increase/(Decrease)
		2021		2020		$		%			2022			2021			Change			%
Operating costs (in thousands):	Operating costs (in thousands):									Operating costs (in thousands):
Lease operating expenses	Lease operating expenses	$	25,861	$	32,639	$	(6,778)	(21)	%	Lease operating expenses	$	28,734		$	25,861		$	2,873		11	%
Severance and ad valorem taxes	Severance and ad valorem taxes	12,583		16,573		(3,990)		(24)	%	Severance and ad valorem taxes	25,051			12,583			12,468			99	%
Gathering, processing and transportation expenses	Gathering, processing and transportation expenses	20,625		16,939		3,686		22	%	Gathering, processing and transportation expenses	21,891			20,625			1,266			6	%
Operating costs per Boe:
Lease operating expenses		$	5.30	$	4.99	$	0.31	6	%
Severance and ad valorem taxes		2.58		2.54		0.04		2	%
Gathering, processing and transportation expenses		4.23		2.59		1.64		63	%
Operating cost metrics:										Operating cost metrics:
Lease operating expenses (per Boe)										Lease operating expenses (per Boe)	$	5.20		$	5.30		$	(0.10)		(2)	%
Severance and ad valorem taxes (% of revenue)										Severance and ad valorem taxes (% of revenue)	7.2		%	6.5		%	0.7		%	10	%
Gathering, processing and transportation expenses (per Boe)										Gathering, processing and transportation expenses (per Boe)	$	3.96		$	4.23		$	(0.27)		(6)	%

Lease Operating Expenses. Lease operating expenses (“LOE”) for the three months ended March 31, ~~2021 decreased $6.8~~2022 increased $2.9 million compared to the three months ended March 31, ~~2020. Lower~~2021. Higher LOE for the first quarter of ~~2021~~2022 was primarily related to (i) ~~a $4.6 million decrease~~higher chemical costs for treating natural gas; (ii) an increase in workover expense ~~as a result of lower workover activity~~ between periods; (ii) lower well operating expenses associated with cost reduction initiatives including moving multiple wells off generators to more cost-efficient electrical line-power and switching wells away from electric submersible pumps to more reliable and lower cost gas lift; and (iii) ~~lower~~higher fixed and variable ~~and semi-variable costs stemming from the 25% production decline between periods. These decreases were partially offset by LOE~~ costs associated with our higher well count, which increased to 422 gross operated horizontal wells as of March 31, 2022 from 397 gross operated horizontal wells as of March 31, ~~2021 from 377 gross operated horizontal wells as~~2021. These increases were partially offset by lower electricity costs between periods due to the high electricity charges incurred in the first quarter of ~~March 31, 2020~~2021 as a result of ~~our drilling activity adding 20 wells since~~ the ~~first quarter~~severe winter storm in the Permian Basin (“Winter Storm Uri”) in February of ~~2020.~~2021.

LOE per Boe was ~~$5.30~~$5.20 for the first quarter of ~~2021,~~2022, which represents ~~an increase~~a decrease of ~~$0.31~~$0.10 per Boe (or 6%2%) from the first quarter of ~~2020.~~2021. This ~~increase~~decrease was primarily driven by per ~~BOE cost increases~~Boe decreases associated with (i) lower electricity expenses between periods ~~associated with~~(discussed above); and (ii) fixed and semi-variable costs, such as monthly equipment rentals and water handling costs, that don’t ~~decrease~~increase at the same rate as ~~declines~~increases in ~~production such as monthly rental fees for compressors and other equipment, wellhead chemical costs and water handling costs.~~production. These ~~increases~~per Boe decreases were partially offset by increases in the ~~lower level of workover activity as well as cost reduction initiatives we have undertaken, both of which are discussed~~operating costs described above.

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Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the three months ended March 31, ~~2021 decreased $4.0~~2022 increased $12.5 million compared to the three months ended March 31, ~~2020.~~2021. Severance taxes are ~~primarily~~ based on the market value of our oil and gas production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of proved developed oil and ~~natural~~ gas properties and vary across the different counties in which we operate. Severance taxes for the first quarter of 2022 increased $11.5 million compared to the same 2021 period primarily due to higher oil, natural gas and NGL revenues between periods. Ad valorem taxes ~~decreased $3.3 million~~ between periods also increased $1.0 million due to ~~lower~~higher tax assessments on our oil and gas reserve values.

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Severance and ad valorem taxes ~~remained consistent between periods at 5.3%~~as a percentage of total net revenues increased to 7.2% for the three months ended March 31, 2022 as compared to 6.5% for the same prior year quarter. This increase in rate was the result of a larger portion of our oil and gas volumes being produced in New Mexico during the first quarter of ~~2021 as comparable to 5.5% during the same prior year quarter.~~2022, and New Mexico levies higher severance tax rates than Texas.

Gathering, Processing and Transportation Expenses. Gathering, processing and transportation expenses (“GP&T”) for the three months ended March 31, ~~2021~~2022 increased ~~$3.7~~$1.3 million as compared to the three months ended March 31, ~~2020. On a per Boe basis, GP&T likewise increased from $2.59 for the first quarter of 2020 to $4.23 for the first quarter of~~ 2021. ~~These increases were~~This increase is mainly ~~attributable~~due to (i) higher gas plant processing costs, ~~which are primarily~~whose variable fee portion is based on natural gas and NGL prices, both of which increased substantially between periods as discussed above, and (ii) a ~~$0.9~~$3.6 million decrease in reimbursements ~~received~~ from third parties for their usage of our available firm transport capacity. These increases were partially offset by a decrease in demand fees between periods, as the first quarter of 2021 was heavily impacted by excess demand charges during Winter Storm Uri that did not reoccur in the comparable 2022 period.

On a per Boe basis, GP&T decreased from $4.23 for the first quarter of 2021 to $3.96 for the first quarter of 2022. As discussed above, a higher portion of our 2022 total oil and gas volumes were produced from our wells in New Mexico, where our GP&T rates are lower than those incurred in Texas, and this in turn resulted in a lower total GP&T rate between periods.

Depreciation, Depletion and Amortization. The following table summarizes our depreciation, depletion and amortization (“DD&A”) for the periods indicated:


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands, except per Boe data)	(in thousands, except per Boe data)	2021		2020		(in thousands, except per Boe data)	2022		2021
Depreciation, depletion and amortization	Depreciation, depletion and amortization	$	63,783	$	101,258	Depreciation, depletion and amortization	$	71,009	$	63,783
Depreciation, depletion and amortization per Boe	Depreciation, depletion and amortization per Boe	$	13.08	$	15.49	Depreciation, depletion and amortization per Boe	$	12.86	$	13.08

For the three months ended March 31, ~~2021,~~2022, DD&A expense amounted to ~~$63.8~~$71.0 million, ~~a decrease~~an increase of ~~$37.5~~$7.2 million over the same ~~2020~~2021 period. The primary factor contributing to ~~lower~~higher DD&A expense in ~~2021~~2022 was the ~~decrease~~increase in our overall production volumes between periods, which ~~lowered our~~increased DD&A expense by ~~$25.7~~$8.4 million ~~while our lower DD&A rates between periods decreased DD&A expense by an additional $11.8 million during~~for the three months ended March 31, ~~2021.~~2022. This was partially offset by our lower DD&A rates, which decreased DD&A expense by $1.2 million between periods.

Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves. DD&A per Boe was ~~$13.08~~$12.86 for the first quarter of ~~2021~~2022 compared to ~~$15.49~~$13.08 for the same period in ~~2020~~.2021. This decrease in DD&A rate was primarily due to the proved property impairment recognized in the first quarter of 2020, which lowered the carrying value of our depletion base by $591.8 million, combined with lower finding and development costs incurred on our recently completed wells. These downward impacts were partially offset by net ~~downward~~upward revisions in our proved developed reserves since the first quarter of 2021 mainly related to higher SEC reserve pricing between periods.

General and Administrative Expenses. The following table summarizes our general and administrative (“G&A”) expenses for the periods indicated:


	Three Months Ended March 31,
(in thousands)	2022		2021
Cash general and administrative expenses	$	11,769	$	10,632
Stock-based compensation - equity awards	5,114		4,377
Stock-based compensation - liability awards	13,720		10,247

General and administrative expenses	$	30,603	$	25,256

G&A expenses for the three months ended March 31, 2022 were $30.6 million compared to $25.3 million for the three months ended March 31, 2021. Higher G&A in the first quarter of 2022 was the result of a $4.2 million increase in total stock-based compensation expense between periods. This increase was primarily related to performance stock unit grants in 2020 ~~which~~and 2021 that are ~~mainly~~recorded at their respective fair values each balance sheet date, and such fair values increased between periods. In addition, cash G&A increased $1.2 million period over period due to ~~lower SEC reserve pricing.~~higher payroll and other personnel costs.

Impairment and Abandonment Expense. During the three months ended March 31, ~~2021~~2022, impairment and abandonment expense was $2.6 million as compared to $9.2 million ~~and related to~~during the three months ended March 31, 2021. Both periods consisted solely of amortization of leasehold expiration costs associated with individually insignificant unproved properties. ~~During the three months ended March 31, 2020, impairment and abandonment expense was $611.3 million and consisted~~

Table of (i) a $591.8 million non-cash impairment of our proved oil and gas properties as a result of depressed NYMEX oil and gas forward curves as of March 31, 2020, and (ii) $19.5 million related to the amortization of leasehold expiration costs associated with individually insignificant unproved properties.Contents

Exploration and Other Expenses. The following table summarizes our exploration and other expenses for the periods indicated:


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Geological and geophysical costs	Geological and geophysical costs	$	613	$	1,993	Geological and geophysical costs	$	1,703	$	613
Rig termination fees		—		1,499

Stock-based compensation - equity awards	Stock-based compensation - equity awards	208		517		Stock-based compensation - equity awards	431		208
Stock-based compensation - liability awards	Stock-based compensation - liability awards	167		—		Stock-based compensation - liability awards	—		167

Other expenses	Other expenses	107		—		Other expenses	173		107
Exploration and other expenses	Exploration and other expenses	$	1,095	$	4,009	Exploration and other expenses	$	2,307	$	1,095

Exploration and other expenses were $2.3 million for the three months ended March 31, 2022 compared to $1.1 million for the three months ended March 31, ~~2021 compared to $4.0 million for the three months ended March 31, 2020.~~2021. Exploration and other expenses mainly consist of topographical studies, geographical and geophysical (“G&G”) projects, salaries and expenses of G&G personnel and includes other operating costs. The period over period ~~decrease~~increase was primarily related to ~~a (i) $1.5 million decrease in rig termination fees, that were incurred when we reduced our drilling program from five rigs to one in March of 2020, (ii) $0.7 million in lower ongoing~~higher G&G personnel costs ~~associated~~

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~~with the 2020 workforce reduction (as further described below under~~ ~~General and Administrative Expenses), and (iii) a $0.6 million decrease in G&G project costs and seismic studies between periods.~~

~~General and Administrative Expenses.~~ ~~The following table summarizes our general and administrative (“G&A”) expenses for the periods indicated:~~

Three Months Ended March 31,
(in thousands) 2021 2020
Cash general and administrative expenses $ 10,632 $ 12,978
Stock-based compensation - equity awards 4,377 5,892
Stock-based compensation - liability awards 10,247 —
Severance payments — —
General and administrative expenses $ 25,256 $ 18,870

~~G&A expenses for the three months ended March 31, 2021 were $25.3 million compared to $18.9 million for the three months ended March 31, 2020. The higher G&A incurred~~ in the first quarter of 2021 was primarily the result of $10.2 million in stock compensation expense related to liability awards granted to G&A employees in the third quarter of 2020 that are settleable in cash upon vesting. These liability stock-based awards are recorded at their respective fair values, and such fair values are re-measured each balance sheet date (refer to Note 5—Stock-Based Compensation for additional information regarding the liability awards). This increase was partially offset by a decrease in cash G&A primarily related to $1.8 million in lower payroll and other personnel related costs and a $1.5 million decrease in equity-based stock compensation expense between periods, both of which were primarily the result of a reduction to our workforce effective May 1, 2020.

~~Other Income and Expenses.~~2022.

Interest Expense. The following table summarizes our interest expense for the periods indicated:


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Credit facility	Credit facility	$	3,315	$	2,167	Credit facility	$	877	$	3,315
8.00% Senior Secured Notes due 2025	8.00% Senior Secured Notes due 2025	2,541		—		8.00% Senior Secured Notes due 2025	—		2,541
5.375% Senior Notes due 2026	5.375% Senior Notes due 2026	3,889		5,374		5.375% Senior Notes due 2026	3,889		3,889
6.875% Senior Notes due 2027	6.875% Senior Notes due 2027	6,125		8,594		6.875% Senior Notes due 2027	6,125		6,125
3.25% Convertible Senior Notes due 2028	3.25% Convertible Senior Notes due 2028	172		—		3.25% Convertible Senior Notes due 2028	1,381		172
Amortization of debt issuance costs and discount		1,847		799
Amortization of debt issuance costs and debt discount						Amortization of debt issuance costs and debt discount	1,492		1,847
Interest capitalized	Interest capitalized	(404)		(513)		Interest capitalized	(610)		(404)
Total	Total	$	17,485	$	16,421	Total	$	13,154	$	17,485

Interest expense ~~was $1.1~~decreased $4.3 million ~~higher~~ for the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020~~2021 primarily due to (i) $2.5 million in interest ~~incurred~~expense on our Senior Secured Notes ~~issued~~due 2025 that was incurred in May of 2020 in connection with our debt exchange; (ii) $1.1 million in increased interest expense incurred on our credit facility borrowings; and (iii) $1.0 million in higher amortization of debt issuance costs and discount between periods. These increases were partially offset by lower interest expense incurred on our Senior Unsecured Notes during the first quarter of 2021 but not in the 2022 period, as ~~$110.6~~these notes were redeemed in April of 2021, and (ii) $2.4 million ofin lower interest incurred on our Credit Agreement due to lower borrowings outstanding during the ~~2026~~2022 period. These decreases were partially offset by interest on our Convertible Senior Notes ~~and $143.7 million~~that was incurred in 2022 but only partially in the 2021 period due to their issuance in March of the 2027 Senior Notes were extinguished in our debt exchange transaction. Refer to Note 3—Long-Term Debt under Part I, Item I of this Quarterly Report for additional information on our Senior Notes and debt exchange transaction.2021.

Our weighted average borrowings outstanding under our ~~credit facility~~Credit Agreement were ~~$330.9~~$27.7 million versus ~~$233.9~~$330.9 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Our ~~credit facility’s~~Credit Agreement’s weighted average effective interest rate ~~(which is a LIBOR-based rate)~~ was ~~3.5%~~2.9% and ~~2.8%~~3.5% for the three months ended March 31, 2022 and 2021, ~~and 2020, respectively, as a result of higher LIBOR in the first quarter of 2021 versus the prior year quarter.~~

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respectively.

Net Gain (Loss) on Derivative Instruments. Net gains and losses are a function of (i) ~~fluctuations~~changes in ~~mark-to-market~~ derivative fair values associated with ~~changes~~fluctuations in the forward price curves for the commodities underlying each of our hedge contracts outstanding and (ii) monthly cash settlements on ~~our hedged derivative positions.~~any closed out hedge positions during the period.

The following table presents gains and losses on our derivative instruments for the periods indicated:


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Realized cash settlement gains (losses)	Realized cash settlement gains (losses)	$	(22,886)	$	(53)	Realized cash settlement gains (losses)	$	(42,878)	$	(22,886)
Non-cash mark-to-market derivative gain (loss)	Non-cash mark-to-market derivative gain (loss)	(28,313)		(8,452)		Non-cash mark-to-market derivative gain (loss)	(86,645)		(28,313)
Total	Total	$	(51,199)	$	(8,505)	Total	$	(129,523)	$	(51,199)

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Income Tax (Expense) Benefit. The following table summarizes our pre-tax income (loss) and income tax (expense) benefit for the periods indicated:


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Income (loss) before income taxes	Income (loss) before income taxes	$	(34,645)	$	(633,553)	Income (loss) before income taxes	$	22,578	$	(34,645)
Income tax (expense) benefit	Income tax (expense) benefit	—		83,208		Income tax (expense) benefit	(6,776)		—

Our provisions for income taxes for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 differs from the amounts that would be provided by applying the ~~statutory~~ U.S. federal ~~income tax~~statutory rate of 21% to pre-tax book income (loss) primarily due to (i) permanent differences, (ii) state income taxes, ~~(ii) permanent differences,~~ and (iii) any changes during the period in our deferred tax asset valuation allowance.

For the three months ended March 31, 2022, we generated pre-tax net income of $22.6 million and recorded income tax expense of $6.8 million. The primary factor increasing our income tax expense in excess of the U.S. statutory rate was a non-recurring change in our state apportionment rate that was reflected in the current quarter.

For the three months ended March 31, 2021, ~~and 2020,~~ we ~~recognized~~recognized a deferred tax asset valuation ~~allowances~~allowance of $12.4 million ~~and $55.6 million, respectively,~~ against net operating losses (“NOLs”) we generated during ~~those respective quarters,~~ ~~and such NOLs are estimated as unlikely to be realized~~the quarter. This change in ~~future periods. These increases in the~~our valuation allowance ~~were~~was the primary factor reducing our income tax ~~benefits (based on the U.S. statutory rate) in each respective quarter~~benefit to zero for the first quarter of ~~2021 and to $83.2 million for the first quarter of 2020.~~

2021.

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Liquidity and Capital Resources

Overview

Our drilling and completion activities require us to make significant capital expenditures. Historically, our primary sources of liquidity have been cash flows from operations, borrowings under CRP’s revolving credit facility, ~~and~~ proceeds from offerings of debt or equity ~~securities. Future~~securities, or proceeds from the sale of oil and gas properties. Our future cash flows are subject to a number of variables, including oil and natural gas prices, which have been and will likely continue to be volatile. Lower commodity prices can negatively impact our cash flows and our ability to access debt or equity markets, and sustained low oil and natural gas prices could have a material and adverse effect on our liquidity position. To date, our primary use of capital has been for drilling and development capital expenditures and the acquisition of oil and natural gas properties. The following table summarizes our capital expenditures (“capex”) incurred for the three months ended March 31, ~~2021:~~2022:


(in millions)	Three Months Ended March 31, ~~2021~~2022
Drilling, completion and facilities	$	~~70.6~~111.6
Infrastructure, land and other	~~2.3~~3.1

Total capital expenditures incurred	$	~~72.9~~114.7

We continually evaluate our capital needs and compare them to our capital resources. We operated a two-rig drilling program during the first three months of ~~2021~~2022 and plan to continue with two rigs for the remainder of the year. We expect our total capex budget for ~~2021~~2022 to be between ~~$260~~$365 million to ~~$310~~$425 million, of which ~~$250~~$350 million to ~~$290~~$400 million is allocated to drilling, completion and facilities activity. We funded our capital expenditures for the three months ended March 31, ~~2021~~2022 entirely from cash flows from operations, and we expect to fund the remainder of our ~~2021~~2022 capex budget entirely from cash flows from operations as well, given our anticipated level of oil and gas production, current commodity ~~price levels.~~prices and our commodity hedge positions in place. We were free cash flow positive during the first ~~quarter~~three months of ~~2021~~2022 such that we were able to ~~partially~~ pay down all of our borrowings under our ~~credit agreement~~Credit Agreement during the ~~period, and based~~period. Based upon current commodity prices combined with our low cost structure, we expect to continue to ~~pay down borrowings through expected~~generate free cash flow ~~generation~~ during the remainder of ~~2021.~~2022, which will allow us to fund our planned operational activities with minimal or no borrowings under our Credit Agreement. In addition, we may, from time to time, seek to retire or purchase our outstanding senior notes through cash purchases and/or exchanges for debt in open-market purchases, privately negotiated transactions or otherwise.

In February 2022, our Board of Directors authorized the Repurchase Program to acquire up to $350 million of our outstanding Common Stock. We intend to use the Repurchase Program to reduce our shares of Common Stock outstanding and plan to fund these share repurchases with cash on hand and cash flows from operations. Such repurchases would be made at terms and prices determined by us based upon prevailing market conditions, applicable legal requirements, available liquidity, compliance with our debt and other agreements and other factors.

Because we are the operator of a high percentage of our acreage, we can control the amount and timing of our capital expenditures. We can choose to defer or accelerate a portion of our planned capex depending on a variety of factors, including but not limited to: prevailing and anticipated prices for oil and natural gas; oil storage or transportation constraints; the success of our drilling activities; the availability of necessary equipment, infrastructure and capital; the receipt and timing of required regulatory permits and approvals; seasonal conditions; property or land acquisition costs; and the level of participation by other working interest owners.

We cannot ensure that cash flows from operations will be available or other sources of needed capital on acceptable terms or at all. Further, our ability to access the public or private debt or equity capital markets at economic terms in the future will be affected by general economic conditions, the domestic and global oil and financial markets, our operational and financial performance, the value and performance of our debt or equity securities, prevailing commodity prices and other macroeconomic factors outside of our control.

Moreover, to manage our future financing cash outflows and liquidity position, we issued 3.25% Convertible Senior Notes in March 2021, which resulted in net proceeds of $163.7 million. The proceeds were used to fund the cost of entering into capped call spread transactions of $14.7 million and to repay borrowings outstanding under CRP’s revolving credit facility during the first quarter of 2021. Subsequently in April 2021, we fully redeemed and repaid at par our Senior Secured Notes (defined below), which were due in 2025 and bore interest at 8.00% per year, which was the intended use of proceeds from the Convertible Senior Notes offering.

Analysis of Cash Flow Changes

The following table summarizes our cash flows for the periods indicated:


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	72,346	$	100,818	Net cash provided by operating activities	$	160,120	$	72,346
Net cash used in investing activities	Net cash used in investing activities	(46,598)		(166,976)		Net cash used in investing activities	(84,088)		(46,598)
Net cash (used in) provided by financing activities		(20,609)		59,792
Net cash used in financing activities						Net cash used in financing activities	(34,788)		(20,609)

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For the three months ended March 31, ~~2021,~~2022, we generated ~~$72.3~~$160.1 million of cash from operating activities, ~~a decrease~~an increase of ~~$28.5~~$87.8 million from the same period in ~~2020.~~2021. Cash provided by operating activities ~~decreased~~increased primarily due to ~~lower~~higher realized prices for all commodities, higher production volumes, decreased cash interest costs, and the timing of our supplier payments during the three months ended March 31, 2022. These increasing factors were partially offset by higher lease operating expenses, GP&T, ~~costs,~~cash G&A, severance and ad valorem taxes, cash settlement losses on derivatives, and the timing of our receivable collections ~~during the three~~

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months ended March 31, 2021. These declining factors were partially offset by higher realized prices for all commodities, lower lease operating expenses, production taxes, cash G&A and the timing of our supplier payments for the three months ended March 31, ~~2021~~2022 as compared to the same ~~2020~~2021 period. Refer to “Results of Operations” for more information on the impact of volumes and prices on revenues and on fluctuations in our operating ~~expenses~~costs between periods.

During the three months ended March 31, 2022, cash flows from operating activities were used to finance $81.2 million of drilling and development cash expenditures and repay net borrowings of $25.0 million under our Credit Agreement.

During the three months ended March 31, 2021, cash flows from operating activities and net proceeds from the issuance of the Convertible Senior Notes (defined below) were used to finance $46.2 million of drilling and development cash expenditures, repay net borrowings of $170.0 million under our credit facility and to fund $14.7 million in capped call spread transactions.

During the three months ended March 31, 2020, cash flows from operating activities, cash on hand, and net borrowings of $60.0 million under our credit facility were used to finance $161.9 million of drilling and development cash expenditures and to fund $5.8 million in oil and gas property acquisitions.

Credit Agreement

On February 18, 2022, CRP ~~our consolidated subsidiary, has a credit agreement~~entered into an amended and restated five-year secured Credit Agreement with a syndicate of banks, ~~that provides for a five-year secured revolving~~which replaced our previous credit facility ~~maturing on~~that was set to mature in May ~~4, 2023 (the “Credit Agreement”).~~of 2023. The Credit Agreement increased our elected commitments to $750 million, increased our borrowing base to $1.15 billion and extended the maturity of the Credit Agreement to February 2027. As of March 31, ~~2021, we~~2022, the Company had ~~$160.0 million in~~no borrowings outstanding and ~~$503.9~~$744.2 million in available borrowing capacity, which was net of ~~$4.3~~$5.8 million in letters of credit outstanding, under its new facility.

The Credit Agreement provides for, among other things, the ability to repurchase outstanding shares of Common Stock and junior debt, subject to certain leverage and elected commitment availability conditions and subject to the availability blocker of $31.8 million. In connection with the Credit Agreement’s spring 2021 semi-annual borrowing base redetermination, the borrowing base and amount of elected commitments were reaffirmed at $700.0 million.

~~CRP’s~~requirement that such repurchases are funded from our free cash flow. The Credit Agreement contains restrictive covenants that limit ~~its~~our ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make restricted payments; (v) repurchase or ~~declare dividends; (v)~~redeem junior debt; (vi) enter into commodity hedges exceeding a specified percentage of our expected production; ~~(vi)~~(vii) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; ~~(vii)~~(viii) incur liens; ~~(viii)~~(ix) sell assets; and ~~(ix)~~(x) engage in transactions with affiliates.

~~CRP’s~~The Credit Agreement also requires usit to maintain compliance with the following financial ratios:

(i) a current ratio, which is the ratio of CRP’s consolidated current assets (including an add back of unused commitments under ~~its~~the revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding ~~any~~the current portion of long-term debt ~~due~~ under the ~~credit agreement~~Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0; and

~~(iii) a leverage ratio, as defined with~~ the Credit Agreement as the ratio of total funded debt to consolidated EBITDAX for the ~~rolling~~prior four fiscal quarter period. Pursuant to the Q2 2020 Amendments, the leverage ratio is suspended until March 31, 2022, at which time, the ratio may not exceed 5.00 to 1.00, with such maximum ratio declining at a ratequarters, of ~~0.25 for each succeeding quarter until March 31, 2023 when the ratio is set at~~ not greater than ~~4.0~~3.5 to 1.0.

CRP was in compliance with the covenants and the applicable financial ratios described above as of March 31, ~~2021~~2022 and through the filing of this Quarterly Report.

For further information on the Credit Agreement, refer to Note 3—Long-Term Debt under Part I, Item I of this Quarterly Report.

Convertible Senior Notes

On March 19, 2021, CRP issued $150.0 million ~~in aggregate principal amount~~ of ~~Convertible~~3.25% senior unsecured convertible notes due 2028 (the “Convertible Senior ~~Notes.~~Notes”). On March 26, 2021, CRP issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional ~~Convertible~~notes. These issuances resulted in aggregate net proceeds to CRP of $163.6 million, which were used to repay borrowings outstanding under the Credit Agreement and to fund the cost of entering into capped call spread transactions of $14.7 million. Subsequently in April 2021, we redeemed at par all of our Senior ~~Notes. The Convertible Senior~~Secured Notes ~~bear interest at an annual rate~~(defined below), which was the intended use of ~~3.25% and are due on April 1, 2028. Interest is payable semi-annually in arrears on each April 1 and October 1, commencing on October 1, 2021. CRP can settle~~proceeds from the Convertible Senior Notes ~~by paying or delivering cash, shares of the Company’s Class A common stock (the “Common Stock”), or a combination of cash and Common Stock, at CRP’s election.~~offering.

The Convertible Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of CRP’s current subsidiaries that guarantee CRP’s outstanding Senior Unsecured Notes as defined below.

The Convertible Senior Notes bear interest at an annual rate of 3.25% and are due on April 1, 2028 unless earlier repurchased, redeemed or converted. The Convertible Senior Notes may become convertible prior to April 1, 2028, upon the occurrence of certain events or conditions being met as disclosed in Note 3—Long-Term Debt under Part I, Item I of this Quarterly Report. CRP can settle the Convertible Senior Notes by paying or delivering cash, shares of the Common Stock, or a combination of cash and Common Stock, at CRP’s election.

In connection with the Convertible Senior Notes issuance, CRP entered into privately negotiated capped call spread

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transactions (the “Capped Call Transactions”), that are expected to reduce potential dilution to our Common Stock upon a conversion and/or offset any cash payments CRP is required to make in excess of the principal amount of the Convertible Senior Notes, subject to a cap. The Capped Call Transactions have an initial strike price of $6.28 per share of Common Stock and an initial capped price of $8.4525 per share of Common Stock (each subject to certain customary adjustments per the agreements).

Senior Notes

On November 30, 2017, CRP issued $400.0 million of 5.375% senior notes due 2026 (the “2026 Senior Notes”) and on March 15, 2019, CRP issued $500.0 million of 6.875% senior notes due 2027 (the “2027 Senior Notes” and, together with the 2026 Senior Notes, the “Senior Unsecured Notes”) in 144A private placements. In May 2020, $110.6 million aggregate principal amount of the 2026 Senior Notes and $143.7 million aggregate principal amount of the 2027 Senior Notes were validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount of 8.00% second lien senior secured notes ~~due~~ (the “Senior Secured Notes”). The Senior Secured Notes were fully redeemed at par in connection with the Convertible Senior Notes issuance during the second quarter of 2021.

The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Centennial and each of CRP’s current subsidiaries that guarantee CRP’s ~~revolving credit facility.~~Credit Agreement.

The indentures governing the Senior Unsecured Notes ~~and Senior Secured Notes (collectively, the “Senior Notes”)~~ contain covenants that, among other things and subject to certain exceptions and qualifications, limit CRP’s ability and the ability of CRP’s restricted subsidiaries to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. CRP was in compliance with these covenants as of March 31, ~~2021~~2022 and through the filing of this Quarterly Report.

For further information on our Convertible Senior Notes and Senior Unsecured Notes, refer to Note 3—Long-Term Debt under Part I, Item I of this Quarterly Report.

Contractual Obligations

Our contractual obligations include operating and transportation agreements, drilling rig contracts, office and equipment leases, asset retirement obligations, long-term debt obligations and cash interest expense on long-term debt obligations, which we routinely enter into, modify or extend. Since December 31, ~~2020,~~2021, there have not been any significant, non-routine changes in our contractual obligations other than the ~~changes to certain of our operating lease commitments and principal and interest due under our Convertible Senior Notes~~new frac’ sand agreements entered into as discussed ~~above. Refer to~~in Note ~~12—Leases~~11—Commitments and Contingencies under Part I, Item I of this Quarterly ~~Report for updated contractual obligations associated with our operating leases as of March 31, 2021.~~Report.

Critical Accounting Policies and Estimates

There have been no material changes during the three months ended March 31, ~~2021~~2022 to the critical accounting ~~policies previously disclosed in our 2020 Annual Report.~~policies. Please refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates in our ~~2020~~2021 Annual Report for a discussion of our critical accounting policies and estimates.

New Accounting Pronouncements

~~Please refer to~~ ~~Note 1—Basis of Presentation and Summary of Significant Accounting Policies~~ ~~under Part I, Item 1. of this Quarterly Report for a discussion of recently adopted~~There were no significant new accounting standards ~~and the~~adopted or new accounting pronouncements that would have potential effects to us as of ~~new accounting pronouncements.~~March 31, 2022.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The term “market risk” as it applies to our business refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates, and we are exposed to market risk as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.

Commodity Price Risk

Our primary market risk exposure is in the pricing that we receive for our oil, natural gas and NGL production. Pricing for oil, natural gas and NGLs has been volatile and unpredictable for several years, and we expect this volatility to continue for the foreseeable future. Based on our production for the first three months of ~~2021,~~2022, our oil and gas sales for the three months ended March 31, ~~2021~~2022 would have moved up or down ~~$13.4~~$26.3 million for each 10% change in oil prices per Bbl, ~~$2.3~~$4.5 million for each 10% change in NGL prices per Bbl, and ~~$3.5~~$3.9 million for each 10% change in natural gas prices per Mcf.

Due to this volatility, we have historically used, and we may elect to continue to selectively use, commodity derivative instruments (such as collars, swaps and basis swaps) to mitigate price risk associated with a portion of our anticipated production. Our derivative instruments allow us to reduce, but not eliminate, the potential effects of the variability in cash flows that can emanate from ~~operations due to~~ fluctuations in oil and natural gas prices, and thereby provide increased certainty of cash flows for our drilling program and debt service requirements. These instruments provide only partial price protection against declines in oil and natural gas prices, but alternatively they ~~may~~ partially limit our potential gains from future increases in prices. Our Credit Agreement limits our ability to enter into commodity hedges covering greater than 85% of our reasonably anticipated projected production from proved properties.

The table below summarizes the terms of the derivative contracts we had in place as of March 31, ~~2021~~2022 and additional contracts entered into through April 30, ~~2021.~~2022. Refer to Note 6—Derivative Instruments in Item 1 of Part I of this Quarterly Report for open derivative positions as of March 31, ~~2021.~~2022.


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Crude Price ($/Bbl)(1)
Crude oil swaps	April 2022 - June 2022	1,092,000	12,000	$65.28
	July 2022 - September 2022	782,000	8,500	65.46
	October 2022 - December 2022	690,000	7,500	65.63
	January 2023 - March 2023	225,000	2,500	73.51
	April 2023 - June 2023	227,500	2,500	73.25
	July 2023 - September 2023	92,000	1,000	72.98
	October 2023 - December 2023	92,000	1,000	72.98


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Collar Price Ranges ($/Bbl)(2)
Crude oil collars
NYMEX WTI	April 2022 - June 2022	227,500	2,500	$63.20	-	$72.41
	July 2022 - September 2022	276,000	3,000	75.00	-	92.46
	October 2022 - December 2022	276,000	3,000	75.00	-	92.46
	January 2023 - March 2023	450,000	5,000	73.00	-	85.68
	April 2023 - June 2023	455,000	5,000	73.00	-	85.68
	July 2023 - September 2023	276,000	3,000	73.33	-	85.66
	October 2023 - December 2023	276,000	3,000	73.33	-	85.66

ICE Brent	April 2022 - June 2022	91,000	1,000	$90.00	-	$105.20

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Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Crude Price
($/Bbl)(1)
Crude oil swaps
NYMEX WTI April 2021 - June 2021 1,183,000 13,000 $43.18
July 2021 - September 2021 736,000 8,000 45.87
October 2021 - December 2021 644,000 7,000 45.59
January 2022 - March 2022 45,000 500 60.72
ICE Brent April 2021 - June 2021 409,500 4,500 $54.98
July 2021 - September 2021 184,000 2,000 48.25
October 2021 - December 2021 184,000 2,000 48.50

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Collar Price Ranges
($/Bbl)(2)
Crude oil collars April 2021 - June 2021 227,500 2,500 $42.00 - $51.14
July 2021 - September 2021 138,000 1,500 46.33 - 55.40
October 2021 - December 2021 92,000 1,000 42.00 - 50.10


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(3)
Crude oil differential basis swaps	April 2022 - June 2022	637,000	7,000	$0.34
	July 2022 - September 2022	552,000	6,000	0.29
	October 2022 - December 2022	552,000	6,000	0.29

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Differential
($/Bbl)(3)
Crude oil differential basis swaps April 2021 - June 2021 1,183,000 13,000 $0.11
July 2021 - September 2021 736,000 8,000 0.26
October 2021 - December 2021 644,000 7,000 0.26


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(4)
Crude oil roll differential swaps	April 2022 - June 2022	910,000	10,000	$0.71
	July 2022 - September 2022	920,000	10,000	0.71
	October 2022 - December 2022	920,000	10,000	0.71

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(4) These crude oil roll swap transactions are settled based on the difference between the arithmetic average of NYMEX WTI calendar month prices and the physical crude oil delivery month price.

Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Differential
($/MMBtu)(2)
Natural gas basis differential swaps April 2021 - June 2021 3,640,000 40,000 $(0.30)
July 2021 - September 2021 3,680,000 40,000 (0.30)
October 2021 - December 2021 3,680,000 40,000 (0.28)
January 2022 - March 2022 1,800,000 20,000 (0.26)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Gas Price ($/MMBtu)(1)
Natural gas swaps	April 2022 - June 2022	2,730,000	30,000	$3.24
	July 2022 - September 2022	2,760,000	30,000	3.24
	October 2022 - December 2022	1,540,000	16,739	3.15


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Differential ($/MMBtu)(2)
Natural gas basis differential swaps	April 2022 - June 2022	1,820,000	20,000	$(0.45)
	July 2022 - September 2022	1,840,000	20,000	(0.45)
	October 2022 - December 2022	1,840,000	20,000	(0.45)
	January 2023 - March 2023	2,250,000	25,000	(1.11)
	April 2023 - June 2023	2,275,000	25,000	(1.11)
	July 2023 - September 2023	2,300,000	25,000	(1.11)
	October 2023 - December 2023	2,300,000	25,000	(1.11)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Collar Price Ranges ($/MMBtu)(3)
Natural gas collars	April 2022 - June 2022	1,820,000	20,000	$3.50	-	$3.97
	July 2022 - September 2022	1,840,000	20,000	3.50	-	3.97
	October 2022 - December 2022	2,450,000	26,630	3.87	-	5.06
	January 2023 - March 2023	4,500,000	50,000	4.00	-	7.12
	April 2023 - June 2023	3,640,000	40,000	3.56	-	6.86
	July 2023 - September 2023	3,680,000	40,000	3.56	-	6.86
	October 2023 - December 2023	3,680,000	40,000	3.60	-	7.28
	January 2024 - March 2024	1,820,000	20,000	3.25	-	5.31

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Changes in the fair value of derivative contracts from December 31, ~~2020~~2021 to March 31, ~~2021,~~2022, are presented below:


(in thousands)	Commodity derivative asset (liability)
Net fair value of oil and gas derivative contracts outstanding as of December 31, ~~2020~~2021	$	~~(18,209)~~(34,910)
Commodity hedge contract settlement payments, net of any receipts	~~22,886~~42,878
Cash and non-cash mark-to-market losses on commodity hedge contracts(1)	~~(51,199)~~(129,523)
Net fair value of oil and gas derivative contracts outstanding as of March 31, ~~2021~~2022	$	~~(46,522)~~(121,555)


c

(1) At inception, new derivative contracts entered into by us have no intrinsic value.

A hypothetical upward or downward shift of 10% per Bbl in the NYMEX forward curve for crude oil as of March 31, ~~2021~~2022 would cause a ~~$21.9~~$45.8 million increase or ~~$22.2~~$45.3 million decrease, respectively, in this fair value position, and a hypothetical upward or downward shift of 10% per Mcf in the NYMEX forward curve for natural gas as of March 31, ~~2021~~2022 would cause a ~~$3.1~~$8.4 million increase or $8.2 million decrease, respectively, in this same fair value position.

Interest Rate Risk

Our ability to borrow and the rates offered by lenders can be adversely affected by deteriorations in the credit markets and/or downgrades in our credit rating. CRP’s ~~credit facility~~Credit Agreement interest rate is based on a ~~LIBOR~~SOFR spread, ~~(subject to a 1% floor),~~ which exposes us to interest rate risk ~~on our borrowings outstanding~~ to the extent ~~LIBOR increases above the floor and~~ we have borrowings outstanding. Further, LIBOR rates are expected to no longer be published beginning June 30,2023, however, due to the structure of the Credit Agreement, we do not expect the termination of LIBOR rates to have a material impact to us.

outstanding under this credit facility. As of March 31, ~~2021,~~2022, we had ~~$160.0 million of debt~~no borrowings outstanding under ~~our~~the Credit Agreement, with a weighted average interest rate of 3.0%. Assuming no change in the amount outstanding, the impact on interest expense of a 1.0% increase or decrease in the weighted average interest rate would be approximately $1.6 million per year.Agreement. We do not currently have or intend to enter into any derivative hedge contracts to protect against fluctuations in interest rates applicable to our outstanding indebtedness.

The remaining long-term debt balance of ~~$903.8~~$801.2 million consists of our ~~Senior Notes,~~senior notes, which have fixed interest rates; therefore, this balance is not affected by interest rate movements. For additional information regarding our debt instruments, see Note 3—Long-Term Debt, in Item 1 of Part I of this Quarterly Report.

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Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, ~~2021.~~2022. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, ~~2021~~2022 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in the system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the three months ended March 31, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Refer to in Item 1, Note ~~10—~~11—Commitments and Contingencies under Part I, Item 1. of this Quarterly Report for more information regarding our legal proceedings.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our ~~2020~~2021 Annual Report and the risk factors and other cautionary statements contained in our other SEC filings. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our ~~2020~~2021 Annual Report or our SEC filings.

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Item 6. Exhibits


Exhibit Number						Description of Exhibit
3.1						Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 6, 2019).
3.2						Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the SEC on May 1, 2019).
3.3						Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of October 11, 2016 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K as filed with the SEC on October 11, 2016).
3.4						Amendment No. 1 to Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of December 28, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2016).
3.5						Amendment No. 2 to Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of March 20, 2017 (incorporated by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K as filed with the SEC on March 23, 2017).
3.6						Amendment No. 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 as filed with the SEC on August 6, 2018).
~~4.1~~10.1#						~~Indenture, dated as of March 19, 2021, between Centennial Resource Production, LLC~~Second Amended and ~~UMB Bank, N.A., a trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K as filed with the SEC on March 19, 2021).~~
~~4.2~~						First Supplemental Indenture, dated as of March 19, 2021, between Centennial Resource Production, LLC, the guarantor parties thereto, and UMB Bank, N.A., a trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K as filed with the SEC on March 19, 2021).
~~10.1~~						~~Base Capped Call Transaction, dated as of March 16, 2021, between Centennial Resource Production, LLC,~~Restated Centennial Resource Development, ~~Inc, and JPMorgan Chase Bank, National Association (incorporated~~Inc. 2016 Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the ~~Company's~~Company ’s Current Report on Form 8-K as filed with the SEC on ~~March 19, 2021)~~April 28, 2022).
~~10.2~~10.2*#						~~Base Capped Call Transaction, dated as~~Form of ~~March 16, 2021, between Centennial Resource Production, LLC, Centennial Resource Development, Inc, and Mizuho Markets Americas LLC (incorporated by reference to Exhibit 10.2 to~~Performance Restricted Stock Unit Agreement under the ~~Company's Current Report on Form 8-K as filed with the SEC on March 19, 2021).~~
~~10.3~~						Base Capped Call Transaction, dated as of March 16, 2021, between Centennial Resource Production, LLC, Centennial Resource Development, Inc, and Royal Bank of Canada (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K as filed with the SEC on March 19, 2021).
~~10.4~~						Limited Consent and Fifth Amendment to Second Amended and Restated Credit Agreement, dated as of March 15, 2021, between Centennial Resource Production, LLC, the guarantor parties thereto, and Lenders party thereto; JP Morgan Chase Bank, N.A, as administrative agent for the Lenders (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K as filed with the SEC on March 19, 2021).
~~10.5#~~						Centennial Resource Development, Inc. ~~Second Amended and Restated Severance~~2016 Long Term Incentive Plan ~~(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K as filed with the SEC on February 17, 2021).~~
31.1*						Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2*						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*						Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

# Management contract or compensatory plan or agreement.

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.


			CENTENNIAL RESOURCE DEVELOPMENT, INC.

			By:			/s/ GEORGE S. GLYPHIS
						George S. Glyphis Executive Vice President and Chief Financial Officer ~~and Assistant Secretary~~

			Date:			May 5, ~~2021~~2022

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Balance at December 31, 2019	280,650	$	28	1,034	$	0	$	2,975,756	$	282,336	$	3,258,120	$	12,581	$	3,270,701
Restricted stock issued	1,305	—		—	—		—		—		—		—		—
Restricted stock forfeited	(406)	—		—	—		—		—		—		—		—
Restricted stock used for tax withholding	(78)	—		—	—		(208)		—		(208)		—		(208)
Issuance of Class A common stock under Employee Stock Purchase Plan	59	—		—	—		230		—		230		—		230
Stock-based compensation - equity awards	—	—		—	—		6,409		—		6,409		—		6,409
Net income (loss)	—	—		—	—		—		(547,983)		(547,983)		(2,362)		(550,345)
Balance at March 31, 2020	281,530	28		1,034	0		2,982,187		(265,647)		2,716,568		10,219		2,726,787


(in thousands)	Total(2)
2021(1)	$	2,338
2022	425

Total lease payments	2,763
Less: imputed interest	(66)
Present value of lease liabilities (3)	$	2,697