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Washington, D.C. 20549
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2021
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
(Exact Name of Registrant as Specified in its Charter)
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareCDEVThe 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 October 31, 2021, there were 284,091,997 shares of Class A Common Stock, par value $0.0001 per share outstanding.


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.

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.

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.

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 1A. Risk Factors” in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 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;
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 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 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 Annual Report.

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 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.


Item 1.    Financial Statements
(in thousands, except share and per share amounts)
September 30, 2021December 31, 2020
Current assets
Cash and cash equivalents
$4,985 $5,800 
Accounts receivable, net
99,851 54,557 
Prepaid and other current assets
4,710 5,229 
Total current assets
109,546 65,586 
Property and Equipment
Oil and natural gas properties, successful efforts method
Unproved properties
1,151,552 1,209,205
Proved properties
4,662,364 4,395,473
Accumulated depreciation, depletion and amortization
Total oil and natural gas properties, net
3,725,788 3,726,846
Other property and equipment, net11,544 12,650
Total property and equipment, net
3,737,332 3,739,496 
Noncurrent assets
Operating lease right-of-use assets
17,656 3,176 
Other noncurrent assets
17,807 19,167
$3,882,341 $3,827,425 
Current liabilities
  Accounts payable and accrued expenses
$150,611 $110,439 
Operating lease liabilities1,522 3,155 
Other current liabilities
76,403 18,274 
Total current liabilities
228,536 131,868
 Noncurrent liabilities
Long-term debt, net
1,004,937 1,068,624 
Asset retirement obligations
17,710 17,009 
Deferred income taxes
2,589 2,589 
Operating lease liabilities16,689 422 
Other noncurrent liabilities
27,232 2,952 
Total liabilities
1,297,693 1,223,464
Commitments and contingencies (Note 11)
Shareholders’ equity
Common stock, $0.0001 par value, 620,000,000 shares authorized:
Class A: 294,280,467 shares issued and 284,084,602 shares outstanding at September 30, 2021 and 290,645,623 shares issued and 278,551,901 shares outstanding at December 31, 2020
29 29 
Additional paid-in capital3,007,696 3,004,433 
Retained earnings (accumulated deficit)(423,077)(400,501)
Total shareholders’ equity2,584,648 2,603,961 
Noncontrolling interest  
Total equity2,584,648 2,603,961 
TOTAL LIABILITIES AND EQUITY$3,882,341 $3,827,425 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

(in thousands, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
 Operating revenues
Oil and gas sales$288,505 $149,101 $713,473 $432,379 
Operating expenses
Lease operating expenses28,685 24,543 77,522 83,021 
Severance and ad valorem taxes17,800 7,839 46,167 30,108 
Gathering, processing and transportation expenses24,164 19,130 64,283 53,353 
Depreciation, depletion and amortization76,047 89,444 213,259 283,722 
Impairment and abandonment expense7,712 19,904 26,111 650,629 
Exploration and other expenses1,839 2,670 4,698 10,730 
General and administrative expenses35,748 17,582 89,811 54,446 
Total operating expenses191,995 181,112 521,851 1,166,009 
Net gain (loss) on sale of long-lived assets(290)145 (254)388 
Proceeds from terminated sale of assets  5,983  
Income (loss) from operations96,220 (31,866)197,351 (733,242)
Other income (expense)
Interest expense(14,690)(17,718)(47,357)(51,510)
Gain (loss) on extinguishment of debt  (22,156)143,443 
Net gain (loss) on derivative instruments(44,527)(1,968)(150,685)(40,330)
Other income (expense)121 23 271 (29)
Total other income (expense)
Income (loss) before income taxes37,124 (51,529)(22,576)(681,668)
Income tax (expense) benefit   85,124 
Net income (loss)37,124 (51,529)(22,576)(596,544)
Less: Net (income) loss attributable to noncontrolling interest
Net income (loss) attributable to Class A Common Stock$37,124 $(51,529)$(22,576)$(594,182)
Income (loss) per share of Class A Common Stock:
Basic$0.13 $(0.19)$(0.08)$(2.14)
Diluted$0.12 $(0.19)$(0.08)$(2.14)
The accompanying notes are an integral part of these unaudited consolidated financial statements.


(in thousands)
Nine Months Ended September 30,

Cash flows from operating activities:
Net income (loss)$(22,576)$(596,544)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization
213,259 283,722 
Stock-based compensation expense - equity awards
32,299 16,164 
Stock-based compensation expense - liability awards19,950  
Impairment and abandonment expense
26,111 650,629 
Deferred tax expense (benefit)
Net (gain) loss on sale of long-lived assets254 (388)
Non-cash portion of derivative (gain) loss61,490 (1,103)
Amortization of debt issuance costs and debt discount3,935 4,112 
(Gain) loss on extinguishment of debt22,156 (143,443)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable(42,998)48,139 
(Increase) decrease in prepaid and other assets1,803 (2,825)
Increase (decrease) in accounts payable and other liabilities17,449 (43,107)
Net cash provided by operating activities333,132 130,232 
Cash flows from investing activities:
Acquisition of oil and natural gas properties
Drilling and development capital expenditures
Purchases of other property and equipment
Proceeds from sales of oil and natural gas properties
4,011 1,375 
Net cash used in investing activities(216,318)(308,009)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility
450,000 490,000 
Repayment of borrowings under revolving credit facility
Proceeds from issuance of convertible senior notes170,000  
Debt issuance costs
Premiums paid on capped call transactions(14,688) 
Redemption of senior secured notes(127,073) 
Proceeds from exercise of stock options15  
Restricted stock used for tax withholdings (14,459)(598)
Net cash (used in) provided by financing activities(117,626)172,752 
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
8,339 15,543 
Cash, cash equivalents and restricted cash, end of period
$7,527 $10,518 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

(in thousands)
Nine Months Ended September 30,

Supplemental cash flow information
Cash paid for interest
$40,548 $48,331 
Supplemental non-cash activity
Accrued capital expenditures included in accounts payable and accrued expenses
$44,591 $13,593 
Asset retirement obligations incurred, including revisions to estimates
110 579 
Change in Senior Notes from debt exchange
Senior Secured Notes issued in the debt exchange, net of debt discount
2026 Senior Notes extinguished in the debt exchange, net of unamortized debt issue costs
2027 Senior Notes extinguished in the debt exchange, net of unamortized discount and debt issue costs
Reconciliation of cash, cash equivalents and restricted cash presented on the consolidated statements of cash flows for the periods presented:
Nine Months Ended September 30,
Cash and cash equivalents
$4,985 $5,177 
Restricted cash(1)
2,542 5,341 
Total cash, cash equivalents and restricted cash
$7,527 $10,518 
(1)    Included in Prepaid and other current assets and Other noncurrent assets line items in the consolidated balance sheets.

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


(in thousands)

Common Stock
Class A Additional Paid-In CapitalRetained Earnings (Accumulated Deficit)Total Shareholders’ EquityNon-controlling InterestTotal Equity
Balance at December 31, 2020290,646 $29 $3,004,433 $(400,501)$2,603,961 $ $2,603,961 
Restricted stock forfeited(1)— — — — — — 
Restricted stock used for tax withholding(128)— (477)— (477)— (477)
Issuance of Class A common stock under Employee Stock Purchase Plan276 — 167 — 167 — 167 
Stock-based compensation - equity awards— — 4,585 — 4,585 — 4,585 
Capped call premiums— — (14,688)— (14,688)— (14,688)
Net income (loss)— — — (34,645)(34,645)— (34,645)
Balance at March 31, 2021290,793 29 2,994,020 (435,146)2,558,903  2,558,903 
Restricted stock forfeited(7)— — — — — — 
Stock option exercises15 — 15 — 15 — 15 
Stock-based compensation - equity awards— — 4,481 — 4,481 — 4,481 
Net income (loss)— — — (25,055)(25,055) (25,055)
Balance at June 30, 2021290,801 29 2,998,516 (460,201)2,538,344  2,538,344 
Restricted stock issued6,075 — — — — — — 
Restricted stock forfeited(4)— — — — — — 
Stock option exercises1   —  —  
Restricted stock used for tax withholding(2,763) (13,982)— (13,982)— (13,982)
Issuance of Class A common stock under Employee Stock Purchase Plan170  (71)— (71)— (71)
Stock-based compensation - equity awards— — 23,233 — 23,233 — 23,233 
Net income (loss)— — — 37,124 37,124  37,124 
Balance at September 30, 2021294,280 $29 $3,007,696 $(423,077)$2,584,648 $ $2,584,648 


(in thousands)

Common Stock
Class A Class C Additional Paid-In CapitalRetained Earnings (Accumulated Deficit)
Total Shareholders Equity
Non-controlling InterestTotal Equity
Balance at December 31, 2019280,650 $28 1,034 $ $2,975,756 $282,336 $3,258,120 $12,581 $3,270,701 
Restricted stock issued1,305 — — — — — — — — 
Restricted stock forfeited(406)— — — — — — — — 
Restricted stock used for tax withholding(78)— — — (208)— (208)— (208)
Issuance of Class A common stock under Employee Stock Purchase Plan59 — — — 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, 2020281,530 28 1,034  2,982,187 (265,647)2,716,568 10,219 2,726,787 
Restricted stock issued80 — — — — — — — — 
Restricted stock forfeited(352)— — — — — — — — 
Restricted stock used for tax withholding(83) — — (93)— (93)— (93)
Stock-based compensation - equity awards— — — — 4,727 — 4,727 — 4,727 
Conversion of common stock from Class C to Class A, net of tax1,034  (1,034)— 8,011 — 8,011 (10,219)(2,208)
Net income (loss)— — — — — 5,330 5,330  5,330 
Balance at June 30, 2020282,209 28   2,994,832 (260,317)2,734,543  2,734,543 
Restricted stock issued8,272 1 — — (1)— — — — 
Restricted stock forfeited(104) — — — — — — — 
Restricted stock used for tax withholding(377) — — (297)— (297)— (297)
Issuance of Class A common stock under Employee Stock Purchase Plan104 — — — 78 — 78 — 78 
Stock-based compensation— — — — 5,028 — 5,028 — 5,028 
Net income (loss)— — — — — (51,529)(51,529) (51,529)
Balance at September 30, 2020290,104 $29  $ $2,999,640 $(311,846)$2,687,823 $ $2,687,823 

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



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 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 (the “2020 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 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 zero 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; (x) deferred income taxes; and (xi) determining the fair values of certain stock-based compensation awards.
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.


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 each of the three and nine months periods ended September 30, 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 4—Long-Term Debt for additional information regarding its convertible debt instruments.
Note 2—Property Divestiture
On February 24, 2020, the Company entered into a purchase and sale agreement (the “Agreement”) to sell certain of its water disposal assets. On May 15, 2020, the Agreement was terminated after the transaction failed to close by the outside date set forth in the Agreement.
The purchaser deposited $10.0 million of cash in an escrow account (the “Deposit”) which, in the event of termination, was to be distributed to the Company or the purchaser in accordance with the remedy provisions of the Agreement. In May 2021, a settlement between the Company and the purchaser was reached resulting in a partial distribution of the deposit to Centennial, which was included net of associated legal fees in the consolidated statements of operations.
Note 3—Accounts Receivable, Accounts Payable and Accrued Expenses
Accounts receivable are comprised of the following:
(in thousands)
September 30, 2021December 31, 2020
Accrued oil and gas sales receivable, net
$82,120 $41,670 
Joint interest billings, net
16,078 12,770 
1,653 117 
Accounts receivable, net
$99,851 $54,557 
Accounts payable and accrued expenses are comprised of the following:
(in thousands)
September 30, 2021December 31, 2020
Accounts payable
$26,305 $5,052 
Accrued capital expenditures
29,033 21,471 
Revenues payable
42,060 42,115 
Accrued interest
19,233 15,138 
Accrued derivative settlements payable
8,996 3,488 
Accrued employee compensation and benefits
11,192 11,516 
Accrued expenses and other
13,792 11,659 
Accounts payable and accrued expenses
$150,611 $110,439 


Note 4—Long-Term Debt
The following table provides information about the Company’s long-term debt as of the dates indicated:
(in thousands)
September 30, 2021December 31, 2020
Credit Facility due 2023
$205,000 $330,000 
Senior Notes
8.00% Senior Secured Notes due 2025
5.375% Senior Notes due 2026
289,448 289,448 
6.875% Senior Notes due 2027
356,351 356,351 
3.25% Convertible Senior Notes due 2028
Unamortized debt issuance costs on Senior Notes
Unamortized debt discount
Senior Notes, net799,937 738,624 
Total long-term debt, net
$1,004,937 $1,068,624 
Credit Agreement
CRP, the Company’s consolidated subsidiary, has a credit agreement with a syndicate of banks that provides for a five-year secured revolving credit facility, maturing on May 4, 2023 (the “Credit Agreement”). As of September 30, 2021, the Company had $205.0 million in borrowings outstanding and $488.5 million in available borrowing capacity, which was net of $6.5 million in letters of credit outstanding. From May of 2020 until April of 2021, the borrowing base had been reduced by an availability blocker of $31.8 million tied to the Senior Secured Notes. However, this availability blocker was eliminated as a result of the Senior Secured Notes redemption defined and discussed below.
The amount available to be borrowed under CRP’s Credit Agreement is equal to the lesser of (i) the borrowing base, (ii) aggregate elected commitments, which are currently set at $700.0 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 two optional borrowing base redeterminations on January 1 and July 1. The borrowing base depends on, among other things, the quantities of CRP’s proved oil and natural gas reserves, estimated cash flows from these reserves, and the Company’s commodity hedge positions. Upon a redetermination of the borrowing base, if actual borrowings 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 fall 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 loans. Interest is payable quarterly for base rate loans and at the end of the applicable interest period for LIBOR loans. LIBOR loans bear interest at LIBOR (adjusted for statutory reserve requirements and subject to 1% floor) plus an applicable margin, which ranged from 200 to 300 basis points as of September 30, 2021, depending on the percentage of the borrowing base utilized. 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 rate for a one-month interest period plus 100 basis points, plus an applicable margin, which ranged from 100 to 200 basis points as of September 30, 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 amounts under its facility.
CRP’s Credit Agreement contains restrictive covenants that limit its ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make or declare dividends; (v) enter into commodity hedges exceeding a specified percentage of the Company’s expected production; (vi) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; (vii) incur liens; (viii) sell assets; and (ix) engage in transactions with affiliates.
CRP’s 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 unused commitments under its revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding any 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;


(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 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 rate of 0.25 for each succeeding quarter until March 31, 2023 when the ratio is set at not greater than 4.0 to 1.0.
CRP was in compliance with the covenants and the applicable financial ratios described above as of September 30, 2021 and through the filing of this Quarterly Report.
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 $163.6 million, after deducting debt issuance costs of $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.
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 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.


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 September 30, 2021, the net liability recorded related to the Convertible Senior Notes was $164.0 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.
In April 2021, the Company redeemed at par all of its $127.1 million aggregate principal amount of Senior Secured Notes, which was the intended use of proceeds from the Convertible Senior Notes offering. The Company paid accrued interest of $3.8 million and recorded a loss on debt extinguishment of $22.2 million related to the write-off of all unamortized debt issuance costs and discount amounts associated with the Senior Secured Notes.
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 September 30, 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 exchanged for Senior Secured Notes. As of September 30, 2021, the remaining aggregate principal amount of 2026 Senior Notes outstanding was $289.4 million.
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.


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.
If CRP experiences certain defined changes of control (and, in some cases, followed by a ratings decline), each holder of the Senior Unsecured Notes 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 Unsecured Notes, plus any accrued but unpaid interest to the 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 September 30, 2021 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.
Note 5—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 nine months ended September 30, 2021:
(in thousands)
Asset retirement obligations, beginning of period
Liabilities incurred
Liabilities divested and settled
Accretion expense
Revisions to estimated cash flows
Asset retirement obligations, end of period
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 6—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