What: Shares of Parsley Energy (NYSE:PE) jumped as much 12% by the mid-afternoon on Thursday. Fueling today's gains were the company's strong finish to 2015 as well as its outlook for robust growth in 2016.
So what: Parsley Energy reported a 25% sequential jump in adjusted EBITDAX despite very weak oil and gas prices during the fourth-quarter. Fueling this strong growth was 27% increase in oil production to go along with a 27% reduction in lease operating expenses and a 36% cut to general and administrative expenses.
That quarter capped a pretty remarkable year for the company, highlighted by a 55% jump in production over 2014's level, with oil production growing by an even more remarkable 69%. This was despite an unprecedented downturn in the oil market that weighed on the industry all year. In fact, despite the downturn, the company maintains a very strong balance sheet, with $770 million of liquidity and a net debt-to-annual adjusted EBITDAX ratio of just 1.5 times.
Because it has ample liquidity, Parsley Energy is planning to continue to deliver strong production growth in 2016. The company expects its overall volumes to grow by 30% to 50%, with oil production expected to jump 50% to 70% despite spending roughly the same in capex as the prior year.
Parsley Energy is one of just a handful of oil companies planning to grow production in 2016, joining fellow Permian Basin peer Pioneer Natural Resources (NYSE:PXD), which just happens to be run by the father of Parsley Energy's CEO. That similarity aside, both companies have the liquidity, the prime drilling locations, and the strong hedge position to justify growing into the currently depressed market.
Now what: Parsley Energy is in a much stronger position than most of its peers (Pioneer Natural Resources included) because it has a much stronger financial and operational position. That's why it doesn't feel the need to slam on the brakes in 2016. That being said, just because the company can grow production, doesn't mean that it's a great idea right now. There's just too much oil on the market right now, which is why there is a risk that this decision could come back to bite the company should oil continue to remain weak.