8-K: Permian Resources Announces Secondary Offering of Class A Common Stock by Major Shareholders and Management

Permian Resources has announced a secondary public offering of 48.5 million shares of Class A common stock by certain shareholders and management, with a concurrent repurchase of OpCo Units.

Summary

• Permian Resources Corporation announced a secondary public offering of 48.5 million shares of its Class A common stock.
• The shares are being offered by certain affiliates of EnCap Investments L.P., NGP Energy Capital Management L.L.C., Pearl Energy Investments, Riverstone Investment Group LLC, and certain members of the company's management.
• Permian Resources will not receive any proceeds from the offering.
• Concurrently, the company intends to purchase 2 million common units representing limited liability company interests in Permian Resources Operating, LLC from some of the selling stockholders.
• The purchase price per unit will be equal to the price per share at which the underwriter purchases shares of Class A common stock.
• The company will also cancel a corresponding number of shares of its Class C common stock held by the selling stockholders.
• The offering is not conditional on the unit purchase, but the unit purchase is conditional on the offering.
• The company's Co-Chief Executive Officers, James Walter and Will Hickey, are each offering up to 4 million shares, representing less than 20% of their aggregate ownership.
• After the offering, each CEO will still own more than 2% of the company's outstanding shares.
• The management team will collectively own approximately 6.7% of the outstanding shares, representing over $800 million of value based on the company's stock price as of March 1, 2024.

Sentiment

Score: 5

Explanation: The announcement of a secondary offering is generally neutral to slightly negative as it dilutes existing shareholders, but the concurrent repurchase of OpCo Units and the continued significant ownership by management provide some positive counterpoints.

Positives

• The company's management team will continue to have significant ownership in the company after the offering.
• The Co-CEOs are monetizing a small percentage of their ownership for personal financial and estate planning reasons, while retaining a vast majority of their net worth in the company's stock.
• The company is repurchasing OpCo Units, which could be seen as a positive use of capital.

Negatives

• The secondary offering dilutes existing shareholders' ownership.
• The fact that major shareholders and management are selling shares could be interpreted negatively by the market.
• The company will not receive any proceeds from the offering.

Risks

• The offering is subject to market conditions and may not be completed.
• The actual size and terms of the offering are not guaranteed.
• The company's future performance is subject to risks related to commodity price volatility, inflation, and availability of drilling equipment.
• The company's ability to realize the benefits of its merger with Earthstone Energy is also a risk factor.

Future Outlook

The company's future performance is subject to various risks and uncertainties, including commodity price volatility and the success of the merger with Earthstone Energy. The company does not commit to updating forward-looking statements.

Management Comments

• Messrs. Walter and Hickey informed the Company that they are electing to monetize a small percentage of their ownership positions in the Company for personal financial and estate planning reasons.
• A vast majority of their net worth will remain in the Company's common stock following this offering.
• Following the offering, they will continue to be highly aligned with our shareholders and expect to continue to receive all of their compensation in the form of equity awards.
• Each of Messrs. Walter and Hickey has advised the Company of his current expectation to retain a minimum of 12 million shares of the Company's common stock going forward.

Industry Context

Secondary offerings are a common way for large shareholders to monetize their investments, and this offering is not unusual in the oil and gas industry. The concurrent repurchase of OpCo Units is a less common but not unheard of transaction.

Comparison to Industry Standards

• Secondary offerings are a standard practice for companies with large institutional shareholders, such as EnCap, NGP, Pearl, and Riverstone, who often seek to realize gains on their investments.
• The size of the offering, 48.5 million shares, is significant but not unusual for a company of Permian Resources' size.
• The concurrent repurchase of OpCo Units is a less common transaction, but it is not unprecedented in the energy sector.
• Companies like Diamondback Energy and Pioneer Natural Resources have also conducted secondary offerings in the past, often with similar motivations from major shareholders.

Stakeholder Impact

• Shareholders will experience dilution due to the secondary offering.
• The company's management team will continue to have significant ownership and alignment with shareholders.
• The company's financial position will not be directly impacted by the offering, as it will not receive any proceeds.

Next Steps

• The company will complete the underwritten public offering of Class A common stock.
• The company will complete the concurrent purchase of OpCo Units.
• The company will monitor market conditions and update investors as needed.

Key Dates

Keywords

secondary offering, Class A common stock, OpCo Units, shareholders, management, Permian Resources, equity, underwritten offering, Delaware Basin, oil and gas