Energy, Automobile, EV, Renewable News | Civitas Resources Reports Second Quarter 2024 Results

Civitas Resources Reports Second Quarter 2024 Results

August 2, 2024

Capital return framework enhanced for share repurchase flexibility and balance sheet support, with buyback authorization increased to $500 million

Lower well costs driving $50 million reduction in full-year capital expectations; 2024 sales volume outlook raised 1.5%

DENVER–(BUSINESS WIRE)–Civitas Resources, Inc. (NYSE: CIVI) (the “Company” or “Civitas”) today reported its second quarter 2024 financial and operating results. A webcast and conference call is planned for 9 a.m. MT (11 a.m. ET) on Friday, August 2, 2024. Participation details are available in this release, and supplemental materials can be accessed on the Company’s website, www.civitasresources.com.

Key Second Quarter 2024 Results

	Three Months Ended June 30, 2024	Six Months Ended June 30, 2024
Net Income ($MM)	$216.0	$391.8
Adjusted Net Income ($MM)⁽¹⁾	$207.0	$478.7
Operating Cash Flow ($MM)	$359.6	$1,172.1
Adjusted EBITDAX ($MM)⁽¹⁾	$918.1	$1,846.3
Total Sales Volumes (MBoe/d)	342.9	339.2
Oil Volumes (MBbl/d)	155.3	155.7
Capital Expenditures ($MM)	$566.5	$1,216.0
Adjusted Free Cash Flow ($MM)⁽¹⁾	$235.4	$381.0

⁽¹⁾ Non-GAAP financial measure; see attached reconciliation schedules at the end of this release.

Additional Highlights

Permian Basin sales volumes increased nearly 12% from the first quarter, driven by strong production from recent Delaware and Midland Basin wells.
Well costs in the Midland Basin are currently 10% lower than at the start of the year, enhancing well-level average rates of return by more than 10% (at $70 per barrel WTI).
Total cash operating expense per BOE was $8.97, below expectation and the first quarter of 2024.
Commenced production on 13 four-mile laterals from the Watkins area of the DJ Basin (the longest laterals ever drilled and completed in Colorado) in late June 2024.
Return of capital to shareholders totaled $274 million, including dividends paid of $1.50 per share and share repurchases of $125 million, or 1,766,808 shares at an average price of $70.70 per share.
The Company amended its credit facility to increase the borrowing base by $400 million (to $3.4 billion) and its elected commitment by $350 million (to $2.2 billion) during the May 2024 redetermination.

Shareholder Return Framework Adds Flexibility for Buybacks

Civitas maintains one of the industry’s premier shareholder return programs, distributing to shareholders a strong base dividend and at least 50% of its free cash flow, after the base dividend, in the form of a variable return.

The Company’s Board of Directors recently enhanced Civitas’ shareholder return program to add flexibility in the way it returns the variable component to shareholders. Beginning with the third quarter, the variable return of capital will now be provided through a combination of common stock repurchases and dividends, with the quarterly allocation between the two determined by management and the Board. The base dividend remains unchanged at $0.50 per share quarterly.

As part of the enhanced capital return framework, the Board authorized a new share repurchase program of up to $500 million of the Company’s outstanding shares of common stock. The new share repurchase program replaces the prior share repurchase program and represents an approximately 75% increase as compared to the authorization remaining under the prior program. Civitas intends to continue its disciplined and strong share repurchase track record, as evidenced by the Company’s execution of over $510 million in buybacks at an average price of $63.80 since the beginning of 2023.

The remaining 50% of free cash flow, after the base dividend, will support the Company’s balance sheet initiatives, with a long-term leverage target unchanged at less than 0.75 times EBITDAX (earnings before interest, taxes, depreciation and exploration).

CEO Quote

“Civitas’ team and assets continue to perform very well, as demonstrated by our strong second quarter results,” said CEO Chris Doyle. “At this time last year, we transformed our Company through multiple Permian Basin acquisitions, which significantly expanded our scale, depth and quality of inventory. Since then, we’ve driven production ahead of plan, lowered drilling and completion costs, and enhanced margins through reduced operating costs, evidencing that assets are better in Civitas’ hands. In the DJ Basin, we continue to execute very well, and the regulatory environment has been derisked for multiple years into the future. In support of these results and the value we are creating, our Board has recently increased our share buyback authorization and enhanced our capital return framework by adding flexibility for us to execute repurchases in times when our equity does not reflect the underlying value of our high-quality business. I am highly confident in our execution and our focused business strategy to capture the long-term value within Civitas.”

Second Quarter 2024 Financial and Operating Results

Crude oil, natural gas, and natural gas liquids (“NGL”) sales for the second quarter of 2024 were $1.3 billion, consistent with the first quarter of 2024. Crude oil accounted for 87% of total revenue.

Sales volumes exceeded expectations at 343 MBoe/d, benefiting from continued strong well performance and accelerated turn-in-line timing. Crude oil volumes were consistent with expectations and relatively flat from the first quarter of the year, with higher natural gas and NGL volumes in the Permian Basin driving outperformance. Permian Basin sales volumes were up nearly 12% as compared to the first quarter of the year, with the increase primarily related to the impact and timing of new wells commencing production. Approximately 58% of second quarter sales volumes in the Permian Basin were from the Midland Basin, with 42% from the Delaware Basin.

Second quarter DJ Basin volumes were lower than the first quarter of the year in part due to the two previously-announced non-core asset divestments which closed in March and May 2024. Assets sold reduced second quarter average sales volumes by approximately 5 MBoe/d (~35% oil). In addition, DJ Basin sales volumes reflect the timing of new wells commencing production which were weighted to the latter part of the second quarter, as well as temporary third-party facility downtime.

In the second quarter of 2024, differentials for the Company’s crude oil and natural gas averaged a reduction of $0.16 per barrel and $1.72 per thousand cubic feet from the respective index prices. Higher than anticipated crude oil realizations were primarily related to improvement in the values obtained for the Company’s crude quality, especially Niobrara production in the DJ Basin. Natural gas differentials were significantly impacted by weak Waha pricing in the Permian Basin. NGL realizations per barrel averaged 26% of WTI crude oil in the second quarter of 2024.

The following table presents crude oil, natural gas, and NGL sales volumes by operating region as well as consolidated average sales prices for the periods presented:

	Three Months Ended
	June 30, 2024		March 31, 2024
Average sales volumes per day
Crude oil (Bbls/d)
DJ Basin		67,846		73,132
Permian Basin		87,495		83,022
Total		155,341		156,154
Natural gas (Mcf/d)
DJ Basin		315,308		343,736
Permian Basin		282,659		253,121
Total		597,967		596,857
Natural gas liquids (Bbls/d)
DJ Basin		36,648		38,473
Permian Basin		51,220		41,396
Total		87,868		79,869
Average sales volumes per day (Boe/d)
DJ Basin		157,044		168,889
Permian Basin		185,824		166,604
Total		342,868		335,493

Average sales prices (before derivatives):
Crude oil (per Bbl)	$	80.27	$	75.69
Natural gas (per Mcf)	$	0.17	$	1.60
Natural gas liquids (per Bbl)	$	20.94	$	22.73
Total (per Boe)	$	42.03	$	43.49

Realized hedging losses totaled $13 million for the second quarter of 2024. A complete listing of derivative positions can be found in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024.

Total cash operating expense per BOE, including lease operating expense, gathering, transportation and processing expenses, midstream operating expense, as well as cash general and administrative (a non-GAAP measure⁽¹⁾), for the second quarter of 2024 was $8.97. Second quarter cash operating expense benefited from continued focus on chemicals and labor optimization in the Permian Basin and the divestment of higher-cost, non-core DJ Basin assets.

Depreciation, depletion and amortization was $16.70 per BOE for the second quarter, higher than the first quarter of 2024 primarily as a result of timing differences between capital investments and reserve additions.

Interest expense of $115 million, which includes amortization on the remaining Vencer deferred payment, was in line with expectation.

As of the end of the second quarter, Civitas’ financial liquidity was $1.4 billion, consisting of cash on hand and available borrowing capacity on the Company’s credit facility. The Company’s borrowings on its revolving credit facility totaled $850 million at the end of the second quarter, increasing from the first quarter primarily as a result of working capital changes during the period, including gross Colorado ad valorem taxes paid for 2022 of nearly $400 million.

⁽¹⁾ Non-GAAP financial measure; see attached reconciliation schedules at the end of this release.

Second Quarter Capital Expenditures Benefit from Well Cost Savings

Capital expenditures for the second quarter totaled $567 million, below anticipation as a result of sustainably lower costs. Through ongoing drilling and completion efficiencies, as well as design optimization and scale savings, the Company has delivered 10% well cost reductions in the Midland Basin and three percent in each of the Delaware and DJ Basins.

During the second quarter, the Company drilled, completed, and turned to sales 34, 32, and 49 gross wells (32, 30, and 41 net), respectively, in the Permian Basin, and 23, 39, and 34 gross wells (22, 33, and 31 net), respectively, in the DJ Basin. The Company’s average lateral length completed during the quarter totaled 2.3 miles in the Permian Basin and 2.2 miles in the DJ Basin.

The following table presents capital expenditures by operating region:

	Three Months Ended
	June 30, 2024			March 31, 2024
Capital expenditures (in thousands)
DJ Basin	$	264,402		$	262,595
Permian Basin		302,587			386,234
Other/Corporate		(480	)		703
Total	$	566,509		$	649,532

2024 Outlook Enhanced Through Lower Capex and Higher Volumes

Civitas continues to find innovative ways to safely reduce well costs and enhance production. Recent accomplishments have led to a $50 million reduction in 2024 capital investment plans, with the Company’s new full-year 2024 capital guidance being $1.85 – $1.95 billion.

Full-year 2024 expected sales volumes were increased to the upper half of the Company’s original range, now expected between 335 and 345 MBoe/d. The increase in total sales volumes represents a 3% increase at the midpoint from original guidance, after adjusting for asset sales. Civitas reiterated its expectation for full-year oil volumes. Third quarter total volumes and oil are anticipated to be higher than the second quarter, with increases expected in both the Permian Basin and DJ Basin.

Updated full-year guidance, including a reduced cash operating expense outlook, can be found in the Company’s supplemental earnings presentation on the Company’s website.

Webcast / Conference Call Information

The Company plans to host a webcast and conference call at 9 a.m. MT (11 a.m. ET) on Friday, August 2, 2024. The webcast will be available on the Investor Relations section of the Company’s website at www.civitasresources.com. The dial-in number for the call is 888-510-2535, with passcode 4872770.

About Civitas Resources, Inc.

Civitas Resources, Inc. is an independent exploration and production company focused on the acquisition, development and production of crude oil and liquids-rich natural gas from its premier assets in the DJ Basin in Colorado and the Permian Basin in Texas and New Mexico. Civitas’ proven business model to maximize shareholder returns is focused on four key strategic pillars: generating significant free cash flow, maintaining a premier balance sheet, returning capital to shareholders, and demonstrating ESG leadership. For more information about Civitas, please visit www.civitasresources.com.

Cautionary Statement Regarding Forward-Looking Information

Certain statements in this press release concerning future opportunities for Civitas, future financial performance and condition, guidance, and any other statements regarding Civitas’ future expectations, beliefs, plans, objectives, financial conditions, returns to shareholders, assumptions, or future events or performance that are not historical facts are “forward-looking” statements based on assumptions currently believed to be valid. Forward-looking statements are all statements other than statements of historical facts. The words “anticipate,” “believe,” “ensure,” “expect,” “if,” “intend,” “estimate,” “probable,” “project,” “forecasts,” “predict,” “outlook,” “aim,” “will,” “could,” “should,” “would,” “potential,” “may,” “might,” “anticipate,” “likely,” “plan,” “positioned,” “strategy,” and similar expressions or other words of similar meaning, and the negatives thereof, are intended to identify forward-looking statements. Specific forward-looking statements included in this press release include statements regarding the Company’s plans and expectations with respect to the future production, capital expenditures, dividend payments, and share repurchases, and the effects of such on the Company’s results of operations, financial position, growth opportunities, reserve estimates and competitive position. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934,(the “Exchange Act”), as amended, and the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those anticipated, including, but not limited to, Civitas’ future financial condition, results of operations, strategy and plans; the ability of Civitas to realize anticipated synergies related to Civitas’ recent acquisitions in the timeframe expected or at all; changes in capital markets and the ability of Civitas to finance operations in the manner expected; the effects of commodity prices; the risks of oil and gas activities; and the fact that operating costs and business disruption may be greater than expected. Additionally, risks and uncertainties that could cause actual results to differ materially from those anticipated also include: declines or volatility in the prices we receive for our oil, natural gas, and natural gas liquids; general economic conditions, whether internationally, nationally, or in the regional and local market areas in which we do business, including any future economic downturn, the impact of continued or further inflation, disruption in the financial markets, and the availability of credit on acceptable terms; the Company’s ability to identify and select possible additional acquisition and disposition opportunities; the effects of disruption of our operations or excess supply of oil and natural gas due to world health events, and the actions by certain oil and natural gas producing countries, including Russia; the ability of our customers to meet their obligations to us; our access to capital on acceptable terms; our ability to generate sufficient cash flow from operations, borrowings, or other sources to enable us to fully develop our undeveloped acreage positions; our ability to continue to pay dividends at their current level or at all; the presence or recoverability of estimated oil and natural gas reserves and the actual future sales volume rates and associated costs; uncertainties associated with estimates of proved oil and gas reserves; the possibility that the industry may be subject to future local, state, and federal regulatory or legislative actions (including additional taxes and changes in environmental, health and safety regulation and regulations addressing climate change); environmental, health and safety risks; seasonal weather conditions, as well as severe weather and other natural events caused by climate change; lease stipulations; drilling and operating risks, including the risks associated with the employment of horizontal drilling and completion techniques; our ability to acquire adequate supplies of water for drilling and completion operations; the availability of oilfield equipment, services, and personnel; exploration and development risks; operational interruption of centralized oil and natural gas processing facilities; competition in the oil and natural gas industry; management’s ability to execute our plans to meet our goals; unforeseen difficulties encountered in operating in new geographic areas; our ability to attract and retain key members of our senior management and key technical employees; our ability to maintain effective internal controls; access to adequate gathering systems and pipeline take-away capacity; our ability to secure adequate processing capacity for natural gas we produce, to secure adequate transportation for oil, natural gas, and natural gas liquids we produce, and to sell the oil, natural gas, and natural gas liquids at market prices; costs and other risks associated with perfecting title for mineral rights in some of our properties; potential impacts following the result of the upcoming presidential election in the United States, including volatility in the political, legal, and regulatory environments; political conditions in or affecting other producing countries, including conflicts or hostilities in or relating to the Middle East (including the current events related to the Israel-Palestine conflict), South America, Russia (including the current events involving Russia and Ukraine), and the Red Sea, and other sustained military campaigns or acts of terrorism or sabotage and the effects therefrom; the effects of any pandemic or other global health epidemic; other economic, competitive, governmental, legislative, regulatory, geopolitical, and technological factors that may negatively impact our businesses, operations, or pricing; and disruptions to our business due to acquisitions and other significant transactions. Expectations regarding business outlook, including changes in revenue, pricing, capital expenditures, cash flow generation, strategies for our operations, oil and natural gas market conditions, legal, economic, and regulatory conditions, and environmental matters are only forecasts regarding these matters.

Additional information concerning other factors that could cause results to differ materially from those described above can be found under Item 1A. “Risk Factors” and “Management’s Discussion and Analysis” sections in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, subsequently filed Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings made with the Securities and Exchange Commission.

All forward-looking statements speak only as of the date they are made and are based on information available at the time they were made. The Company assumes no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Disclaimer

Civitas’ share repurchase program permits the Company to make repurchases on a discretionary basis as determined by management and the Board, subject to market conditions, applicable legal requirements, available liquidity, compliance with the Company’s debt agreements, and other appropriate factors. Repurchases under the share repurchase program are to be made through open market or privately negotiated transactions and may be made pursuant to plans entered into in accordance with Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act. The share repurchase program does not have a termination date, does not obligate Civitas to acquire any particular amount of common stock, and may be modified, extended, suspended, or discontinued at any time without prior notice. No assurance can be given that any particular amount of common stock will be repurchased.

Schedule 1: Condensed Consolidated Statements of Operations (in thousands, except for per share amounts, unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Operating net revenues:
Crude oil, natural gas, and NGL sales	$	1,311,532		$	658,840		$	2,639,288		$	1,313,681
Other operating income		1,162			1,686			2,609			2,867
Total operating net revenues		1,312,694			660,526			2,641,897			1,316,548
Operating expenses:
Lease operating expense		126,606			51,230			258,071			97,068
Midstream operating expense		11,939			13,319			25,500			23,380
Gathering, transportation, and processing		94,469			64,873			183,370			132,225
Severance and ad valorem taxes		101,913			52,443			203,819			104,805
Exploration		1,340			546			12,874			1,117
Depreciation, depletion, and amortization		521,090			232,786			987,930			434,089
Transaction costs		7,877			31,145			30,597			31,627
General and administrative expense (including $12,262, $9,895, $23,461, and $17,275, respectively, of stock-based compensation)		59,135			33,541			117,013			70,399
Other operating expense		1,458			1,199			9,024			1,337
Total operating expenses		925,827			481,082			1,828,198			896,047
Other income (expense):
Derivative gain (loss), net		7,578			4,927			(102,102	)		30,087
Interest expense		(114,897	)		(8,753	)		(224,683	)		(16,202	)
Loss on property transactions, net		—			(13	)		(1,430	)		(254	)
Other income		3,434			8,045			8,338			17,068
Total other income (expense)		(103,885	)		4,206			(319,877	)		30,699
Income from operations before income taxes		282,982			183,650			493,822			451,200
Income tax expense		(66,993	)		(44,363	)		(102,012	)		(109,452	)
Net income	$	215,989		$	139,287		$	391,810		$	341,748

Earnings per common share:
Basic	$	2.17		$	1.73		$	3.92		$	4.22
Diluted	$	2.15		$	1.72		$	3.88		$	4.18
Weighted-average common shares outstanding:
Basic		99,426			80,393			100,062			81,052
Diluted		100,245			81,144			100,865			81,824

Schedule 2: Condensed Consolidated Statements of Cash Flows (in thousands, unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Cash flows from operating activities:
Net income	$	215,989		$	139,287		$	391,810		$	341,748
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization		521,090			232,786			987,930			434,089
Stock-based compensation		12,262			9,895			23,461			17,275
Derivative (gain) loss, net		(7,578	)		(4,927	)		102,102			(30,087	)
Derivative cash settlement loss, net		(12,752	)		(1,335	)		(23,907	)		(11,885	)
Amortization of deferred financing costs and deferred acquisition consideration		13,044			1,155			25,389			2,305
Loss on property transactions, net		—			13			1,430			254
Deferred income tax expense		62,695			44,022			92,689			89,975
Other, net		(930	)		300			(1,965	)		292
Changes in operating assets and liabilities, net		(444,252	)		(84,015	)		(426,819	)		32,064
Net cash provided by operating activities		359,568			337,181			1,172,120			876,030
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(33,694	)		—			(867,596	)		—
Acquisitions of crude oil and natural gas properties		(13,984	)		(20,423	)		(13,984	)		(51,247	)
Deposits for acquisitions		—			(352,500	)		—			(352,500	)
Capital expenditures for drilling and completion activities and other fixed assets		(519,120	)		(268,560	)		(1,090,697	)		(518,949	)
Proceeds from property transactions		78,817			64			171,679			5,764
Purchases of carbon credits and renewable energy credits		(1,886	)		(5,651	)		(1,886	)		(5,651	)
Other, net		—			(527	)		—			(621	)
Net cash used in investing activities		(489,867	)		(647,597	)		(1,802,484	)		(923,204	)
Cash flows from financing activities:
Proceeds from credit facility		1,000,000			—			1,300,000			—
Payments to credit facility		(550,000	)		—			(1,200,000	)		—
Proceeds from issuance of senior notes		—			2,666,250			—			2,666,250
Payment of deferred financing costs and other		(3,789	)		(4,215	)		(5,157	)		(4,215	)
Dividends paid		(148,918	)		(174,148	)		(297,357	)		(347,524	)
Common stock repurchased and retired		(124,936	)		(20,198	)		(191,872	)		(320,305	)
Proceeds from exercise of stock options		6			4			6			444
Payment of employee tax withholdings in exchange for the return of common stock		(1,436	)		(10,492	)		(8,506	)		(12,610	)
Principal payments on finance lease obligations		(814	)		—			(1,577	)		—
Net cash provided by (used in) financing activities		170,113			2,457,201			(404,463	)		1,982,040
Net change in cash, cash equivalents, and restricted cash		39,814			2,146,785			(1,034,827	)		1,934,866
Cash, cash equivalents, and restricted cash:
Beginning of period⁽¹⁾		52,174			556,215			1,126,815			768,134
End of period⁽¹⁾	$	91,988		$	2,703,000		$	91,988		$	2,703,000