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OFFON

CENTENNIAL RESOURCE DEVELOPMENT, INC.

(CDEV)
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CENTENNIAL RESOURCE DEVELOPMENT : Management's Discussion and Analysis of Financial Condition and Results of Operation (form 10-Q)

05/05/2021 | 04:29pm EDT
The following discussion and analysis of our financial condition and results of
operation 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, market prices for oil, natural gas and NGLs, future
production volumes, estimates of proved reserves, capital expenditures, economic
and competitive conditions, regulatory changes, continued and future impacts of
Coronavirus Disease 2019 ("COVID-19") and other uncertainties, as well as those
factors discussed above in "Cautionary Statement Regarding Forward-Looking
Statements" and under the heading "Item 1A. Risk Factors" in our 2020 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
return on capital. 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 worldwide outbreak of COVID-19, the uncertainty regarding its impact
and various governmental actions taken to mitigate the effects of COVID-19
resulted in an unprecedented decline in the demand for oil and natural gas
throughout 2020. In addition, the decision 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 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 reduced or suspended drilling and completion activity
due to low oil prices and poor economics.
The demand for oil and natural gas continued to remain low in early 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 demand due to the availability of COVID-19 vaccinations and less
governmental mandated restrictions have aided in the recovery of global
commodity prices during the first quarter of 2021. Specifically, WTI spot prices
for crude oil reached a high of $66.09 per barrel on March 5, 2021 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 the WTI physical settlement
location in Cushing, Oklahoma).
  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, geopolitical events, weather conditions, the global
transition to alternative energy sources 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:
                                                                     2019                                                                2020                                       2021
                                             Q1               Q2               Q3               Q4               Q1               Q2               Q3               Q4               Q1
Crude oil (per Bbl)                      $ 54.90$ 59.81$ 56.45$ 56.94$ 46.19$ 28.00$ 40.93$ 42.66$ 57.84
Natural gas (per MMBtu)                  $  2.88$  2.51$  2.33$  2.34$  1.88$  1.65$  1.95$  2.47$  3.44


Lower commodity prices (including realized 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, financial condition, results of operations, operating cash
flows, liquidity and/or 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 our operations could impact our
ability to comply with the covenants under our credit agreement and senior
notes.
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 non-operational employees have been
working remotely or reporting to our offices on a limited 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 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 the Center for 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 not experienced any operational disruptions
(including disruptions from our suppliers and service providers) as a result of
the COVID-19 outbreak.
2021 Highlights and Future Considerations
Operational Highlights
We operated a two-rig drilling program during the first quarter of 2021, which
enabled us to complete and bring online 11 gross operated wells with an average
effective lateral length of approximately 8,100 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, we issued $150.0 million of 3.25% senior convertible notes
due 2028 (the "Convertible Senior Notes") in 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's
revolving credit facility. In April 2021, we redeemed at par all of our 2025
senior secured notes ($127.1 million), which was the intended use of proceeds
from the Convertible Senior Notes offering.
In connection with CRP's credit facility spring 2021 semi-annual borrowing base
redetermination, the borrowing base and amount of elected commitments were
reaffirmed at $700.0 million.
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Results of Operations
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
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)
                                                 2021                  2020                      $                      %
Net revenues (in thousands):
Oil sales                                 $       133,726$  170,505          $          (36,779)               (22) %
Natural gas sales                                  35,451               8,358                      27,093                324  %
NGL sales                                          23,214              13,906                       9,308                 67  %
Oil and gas sales                         $       192,391$  192,769          $             (378)                 -  %

Average sales prices:
Oil (per Bbl)                             $         52.62          $    45.14          $             7.48                 17  %
Effect of derivative settlements on
average price (per Bbl)                             (9.43)              (0.01)                      (9.42)           (94,200) %
Oil net of hedging (per Bbl)              $         43.19          $    45.13          $            (1.94)                (4) %

Average NYMEX price for oil (per Bbl) $ 57.84 $ 46.19 $

            11.65                 25  %
Oil differential from NYMEX                         (5.22)              (1.05)                      (4.17)              (397) %

Natural gas (per Mcf)                     $          3.79          $     0.78          $             3.01                386  %
Effect of derivative settlements on
average price (per Mcf)                              0.12                   -                        0.12                100  %

Natural gas net of hedging (per Mcf) $ 3.91 $ 0.78 $

             3.13                401  %

Average NYMEX price for natural gas (per
Mcf)                                      $          3.44          $     1.88          $             1.56                 83  %
Natural gas differential from NYMEX                  0.35               (1.10)                       1.45                132  %

NGL (per Bbl)                             $         29.78          $    14.30          $            15.48                108  %

Net production:
Oil (MBbls)                                         2,542               3,778                      (1,236)               (33) %
Natural gas (MMcf)                                  9,343              10,715                      (1,372)               (13) %
NGL (MBbls)                                           780                 972                        (192)               (20) %
Total (MBoe)(1)                                     4,878               6,536                      (1,658)               (25) %

Average daily net production:
Oil (Bbls/d)                                       28,239              41,512                     (13,273)               (32) %
Natural gas (Mcf/d)                               103,806             117,751                     (13,945)               (12) %
NGL (Bbls/d)                                        8,662              10,683                      (2,021)               (19) %
Total (Boe/d)(1)                                   54,202              71,820                     (17,618)               (25) %



(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 were $0.4 million (or 0.2%) lower than total net revenues
for the three months ended March 31, 2020. 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 compared to the same 2020 period by 17%, 386% and 108%
respectively. The 17% increase in the average realized oil price before the
effects of hedging was the result of higher 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. The 386% increase in average realized sales price of natural gas
before the effects of hedging was due to higher NYMEX prices (average prices
increased 83%) and improved gas differentials ($1.45 per Mcf). The 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 as compared to the first quarter of 2020. The market prices for oil,
natural gas and NGLs have all been impacted by higher global demand for oil and
gas compared to the first quarter of 2020 when prices decreased significantly as
a result of COVID-19 and supply disruptions from the Saudi-Russia oil price war,
beginning in March 2020 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%, 13% and
20%, respectively. The crude oil production volume decrease was primarily 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 the first quarter of 2020. This added 422 MBbls of
net oil production to the three months ended March 31, 2021 as compared to 86
wells brought online since the first quarter of 2019 that added 1,864 MBbls of
net oil production to the first quarter of 2020. Oil volume declines in the
first quarter of 2021 were additionally impacted 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, typically resulting in a high
correlation between fluctuations in oil quantities sold and natural gas and NGL
quantities sold. However, during the first quarter of 2021, the amount of gas
flared as a percentage of wellhead gas produced was significantly less as
compared to the same 2020 period, resulting in a higher ratio of natural gas and
NGL volumes produced compared to oil volumes during the period.
Operating Expenses. The following table sets forth selected operating expense
data for the periods indicated:
                                               Three Months Ended March 31,                      Increase/(Decrease)
                                                 2021                  2020                      $                      %
Operating costs (in thousands):
Lease operating expenses                  $        25,861$   32,639          $           (6,778)              (21) %
Severance and ad valorem taxes                     12,583              16,573                      (3,990)              (24) %
Gathering, processing and transportation
expenses                                           20,625              16,939                       3,686                22  %
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             4.23                2.59
expenses                                                                                             1.64                63  %


Lease Operating Expenses. Lease operating expenses ("LOE") for the three months
ended March 31, 2021 decreased $6.8 million compared to the three months ended
March 31, 2020. Lower LOE for the first quarter of 2021 was primarily related to
(i) a $4.6 million decrease 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
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 397 gross operated horizontal
wells as of March 31, 2021 from 377 gross operated horizontal wells as of
March 31, 2020 as a result of our drilling activity adding 20 wells since the
first quarter of 2020.
LOE per Boe was $5.30 for the first quarter of 2021, which represents an
increase of $0.31 per Boe (or 6%) from the first quarter of 2020. This increase
was primarily driven by per BOE cost increases between periods associated with
fixed and semi-variable costs that don't decrease at the same rate as declines
in production such as monthly rental fees for compressors and other equipment,
wellhead chemical costs and water handling costs. These increases were partially
offset by the lower level of workover activity as well as cost reduction
initiatives we have undertaken, both of which are discussed 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 million compared to the three months
ended March 31, 2020. Severance taxes are primarily based on the market value of
our 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. Ad valorem taxes
decreased $3.3 million between periods due to lower tax assessments on our oil
and gas reserve values. Severance taxes remained consistent between periods at
5.3% of total net revenues during the first quarter of 2021 as comparable to
5.5% during the same prior year quarter.
Gathering, Processing and Transportation Expenses. Gathering, processing and
transportation expenses ("GP&T") for the three months ended March 31, 2021
increased $3.7 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 mainly
attributable to (i) higher gas plant processing costs, which are primarily based
on natural gas and NGL prices both of which increased substantially between
periods as discussed above, and (ii) a $0.9 million decrease in reimbursements
received from third parties for their usage of our available firm transport
capacity.
Depreciation, Depletion and Amortization. The following table summarizes our
depreciation, depletion and amortization ("DD&A") for the periods indicated:
                                                                     Three Months Ended March 31,
(in thousands, except per Boe data)                                   2021                   2020
Depreciation, depletion and amortization                        $       63,783$   101,258
Depreciation, depletion and amortization per Boe                $        

13.08 $ 15.49



For the three months ended March 31, 2021, DD&A expense amounted to $63.8
million, a decrease of $37.5 million over the same 2020 period. The primary
factor contributing to lower DD&A expense in 2021 was the decrease in our
overall production volumes between periods, which lowered our DD&A expense by
$25.7 million, while our lower DD&A rates between periods decreased DD&A expense
by an additional $11.8 million during the three months ended March 31, 2021.
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 for the first quarter of
2021 compared to $15.49 for the same period in 2020. 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 revisions in our proved reserves since the first quarter of 2020,
which are mainly due to lower SEC reserve pricing.
Impairment and Abandonment Expense. During the three months ended March 31, 2021
impairment and abandonment expense was $9.2 million and related to the
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 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.
Exploration and Other Expenses. The following table summarizes our exploration
and other expenses for the periods indicated:
                                                      Three Months Ended 

March 31,

 (in thousands)                                             2021            

2020

 Geological and geophysical costs              $          613               

$ 1,993

 Rig termination fees                                       -               

1,499


 Stock-based compensation - equity awards                 208               

517

 Stock-based compensation - liability awards              167                          -
 Other expenses                                           107                          -
 Exploration and other expenses                $        1,095

$ 4,009



Exploration and other expenses were $1.1 million for the three months ended
March 31, 2021 compared to $4.0 million for the three months ended March 31,
2020. 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
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 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.
Interest Expense. The following table summarizes our interest expense for the
periods indicated:
                                                                    Three Months Ended March 31,
(in thousands)                                                        2021                   2020
Credit facility                                                $         3,315          $     2,167
8.00% Senior Secured Notes due 2025                                      2,541                    -
5.375% Senior Notes due 2026                                             3,889                5,374
6.875% Senior Notes due 2027                                             6,125                8,594
3.25% Convertible Senior Notes due 2028                                    172                    -
Amortization of debt issuance costs and discount                         1,847                  799
Interest capitalized                                                      (404)                (513)
Total                                                          $        17,485$    16,421


Interest expense was $1.1 million higher for the three months ended March 31,
2021 as compared to the three months ended March 31, 2020 primarily due to (i)
$2.5 million in interest incurred on our Senior Secured Notes issued 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, as
$110.6 million of the 2026 Senior Notes and $143.7 million 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.
Our weighted average borrowings outstanding under our credit facility were
$330.9 million versus $233.9 million for the three months ended March 31, 2021
and 2020, respectively. Our credit facility's weighted average effective
interest rate (which is a LIBOR-based rate) was 3.5% and 2.8% for the three
months ended March 31, 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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Net Gain (Loss) on Derivative Instruments. Net gains and losses are a function
of (i) fluctuations in mark-to-market derivative fair values associated with
changes in the forward price curves for the commodities underlying our hedge
contracts outstanding and (ii) monthly settlements on our hedged derivative
positions.
The following table presents gains and losses on our derivative instruments for
the periods indicated:
                                                                      Three Months Ended March 31,
(in thousands)                                                         2021                    2020
Realized cash settlement gains (losses)                         $        (22,886)$       (53)
Non-cash mark-to-market derivative gain (loss)                           (28,313)              (8,452)
Total                                                           $        (51,199)$    (8,505)

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,
       (in thousands)                                2021                   2020
       Income (loss) before income taxes   $      (34,645)              $

(633,553)

       Income tax (expense) benefit                     -                   

83,208



Our provisions for income taxes for the three months ended March 31, 2021 and
2020 differs from the amounts that would be provided by applying the statutory
U.S. federal income tax rate of 21% to pre-tax book income (loss) primarily due
to (i) 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, 2021 and 2020, we recognized deferred tax
asset valuation allowances 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 in future
periods. These increases in the valuation allowance were the primary factor
reducing our income tax benefits (based on the U.S. statutory rate) in each
respective quarter to zero for the first quarter of 2021 and to $83.2 million
for the first quarter of 2020.

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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 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:
     (in millions)                           Three Months Ended March 31, 

2021

     Drilling, completion and facilities    $                             

70.6

     Infrastructure, land and other                                       

2.3


     Total capital expenditures incurred    $                             

72.9



  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 and plan to continue with two rigs for the remainder of the year. We
expect our total capex budget for 2021 to be between $260 million to $310
million, of which $250 million to $290 million is allocated to drilling,
completion and facilities activity. We funded our capital expenditures for the
three months ended March 31, 2021 entirely from cash flows from operations, and
we expect to fund the remainder of our 2021 capex budget entirely from cash
flows from operations as well, given current commodity price levels. We were
free cash flow positive during the first quarter of 2021 such that we were able
to partially pay down borrowings under our credit agreement during the period,
and based upon current commodity prices, we expect to continue to pay down
borrowings through expected free cash flow generation during the remainder of
2021.
  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,
(in thousands)                                                       2021                   2020
Net cash provided by operating activities                      $       72,346$   100,818
Net cash used in investing activities                                 (46,598)            (166,976)
Net cash (used in) provided by financing activities                   (20,609)              59,792


For the three months ended March 31, 2021, we generated $72.3 million of cash
from operating activities, a decrease of $28.5 million from the same period in
2020. Cash provided by operating activities decreased primarily due to lower
production volumes, higher GP&T costs, 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 as compared to the same 2020 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 between periods.
During the three months ended March 31, 2021, cash flows from operating
activities and net proceeds from the issuance of the Convertible Senior Notes
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
CRP, our 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 March 31, 2021, we had $160.0
million in borrowings outstanding and $503.9 million in available borrowing
capacity, which was net of $4.3 million in letters of credit outstanding and 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 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 our 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 us 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 defined with the Credit Agreement as the ratio of
total funded debt to consolidated EBITDAX for the rolling 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 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 March 31, 2021 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 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. The Convertible Senior Notes bear interest at an annual rate 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 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.
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.
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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 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.
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 and through the filing of
this Quarterly Report.
For further information on our Convertible Senior Notes and Senior 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, 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 discussed above. Refer to Note 12-Leases under Part I, Item I of this
Quarterly Report for updated contractual obligations associated with our
operating leases as of March 31, 2021.
Critical Accounting Policies and Estimates
There have been no material changes during the three months ended March 31, 2021
to the critical accounting policies previously disclosed in our 2020 Annual
Report. 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 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 accounting standards and the potential effects of
new accounting pronouncements.
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