Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Civitas Resources Inc (CIVI, Financial) delivered strong financial results in the third quarter with an adjusted EBITDA of $910 million, driven by strong sales volumes and cost control.
- The company returned $227 million to shareholders in the third quarter, prioritizing share buybacks over variable dividends.
- Civitas Resources Inc (CIVI) has improved operational efficiency in the Permian Basin, with reduced cycle times and lower well costs.
- The company has successfully unlocked new resources for development in the Permian, particularly in the Wolfcamp D zone, which now competes for capital.
- In the DJ Basin, Civitas Resources Inc (CIVI) achieved strong well performance, with record production from extended reach laterals, enhancing their inventory of high-return opportunities.
Negative Points
- Civitas Resources Inc (CIVI) experienced unexpected downtime at third-party facilities in the DJ Basin and water takeaway constraints in the Permian, impacting oil volumes.
- The company faces significant volatility in commodity prices, which could affect future financial performance and strategic planning.
- There is a potential risk of reduced production if oil prices fall to the low 60s, as the company may prioritize free cash flow over maintaining production levels.
- Civitas Resources Inc (CIVI) has a high hurdle for using equity in acquisitions due to perceived undervaluation, limiting potential M&A opportunities.
- The company is cautious about the effectiveness of new pipeline capacity, such as Matterhorn, in improving natural gas realizations in the Permian.
Q & A Highlights
Q: Can you discuss your future activity plans, particularly regarding the balance between Permian and DJ Basin operations?
A: M. Christopher Doyle, CEO: Our strategy is to maintain production broadly flat while maximizing free cash flow. We are currently ending the year with three rigs in the Permian and one in the DJ Basin, but this is not a sustainable level. We will adjust activity based on returns, with flexibility to shift focus between basins as needed.
Q: What factors might influence changes to your current 50% variable return component?
A: Marianella Foschi, CFO: Our framework balances strategic pillars, allowing us to prioritize debt reduction and share buybacks. We aim to maintain a peer-leading dividend yield while advancing our balance sheet goals. Changes would depend on leverage levels, stock price, or accretive asset opportunities.
Q: How do you view buybacks versus variable dividends given the current stock price?
A: Marianella Foschi, CFO: We are price disciplined with our stock and currently prioritize buybacks over variable dividends due to the stock's undervaluation. We expect the variable return on capital to increase, allocated primarily to buybacks.
Q: Can you elaborate on your 2025 outlook and the potential impact of oil prices on production levels?
A: M. Christopher Doyle, CEO: Our focus is on free cash flow. If oil prices drop to the low 60s, we may let production moderate. Conversely, if prices rise, we would prioritize deleveraging and returning capital to shareholders rather than increasing production.
Q: How are you approaching M&A given your current equity valuation and market conditions?
A: M. Christopher Doyle, CEO: We are cautious with M&A, focusing on small bolt-on acquisitions to replace drilled inventory. Our equity is undervalued, so we are disciplined in considering larger transactions, prioritizing free cash flow and shareholder returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
