Civitas Resources, Inc. (NYSE:CIVI) Q3 2023 Results Conference Call November 8, 2023 10:00 AM ET Company Participants John Wren - Director, IR Chris Doyle - CEO Marianella Foschi - CFO Hodge Walker - COO Conference Call Participants Neal Dingmann - Truist Securities Leo Mariani - Roth MKM Nicholas Pope - Seaport Research Operator Ladies and gentlemen, thank you for standing by. My name is Bhavish, and I will be your conference operator today. At this time, I would like to welcome everyone to the Civitas Res ...

• our ability to generate sufficient cash flow from operations, borrowings, or other sources to enable us to fully develop our undeveloped acreage positions; • seasonal weather conditions as well as severe weather and other natural events caused by climate change; • availability of oilfield equipment, services, and personnel; • unforeseen difficulties encountered in operating in new geographic areas; • the continuing effects of the COVID-19 pandemic, including any recurrence or the worsening thereof; | --- ...

Financial Data and Key Metrics Changes - Civitas reported free cash flow of approximately $190 million in Q2 2023, exceeding consensus expectations driven by strong production and lower expenses [27] - Production averaged about 173,000 BOE per day in Q2 2023, with a first half average of about 166,000 BOE per day, aligning with annual guidance [27][29] - Capital expenditures for the full year 2023 are expected to be around $1.3 billion at the midpoint, unchanged since the announcement of recent acquisitions [24][30] Business Line Data and Key Metrics Changes - The new Permian assets contributed to production averaging about 107,000 BOE per day in Q2, with expectations to maintain around 100,000 BOE per day in Q3 and exit the year at approximately 110,000 BOE per day [23][24] - The company plans to allocate about half of its capital to the southern area, including the Box Elder CAP and Lowry CAP, with two rigs expected to operate in this region [13][22] Market Data and Key Metrics Changes - The company noted a softening in certain service costs, including drilling and consumables, which may lead to potential savings in capital expenditures [25] - The oil mix in the Permian decreased from 54% in Q1 to 50% in Q2, with guidance indicating a range of 53% to 58% for the remainder of the year [55] Company Strategy and Development Direction - Civitas is focused on maintaining a strong balance sheet while executing a dividend plan and opportunistic share buybacks, with a target leverage ratio of less than 1x by 2024 [20][31] - The company is committed to divesting $300 million in non-core assets by mid-2024 to enhance its portfolio and reduce debt [20][37] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the integration of recent acquisitions and the performance of the DJ business, highlighting the importance of a premier balance sheet [56] - The company anticipates that the divestment of non-core assets will strengthen its foundation and support future growth, even if commodity prices strengthen [48] Other Important Information - Civitas has returned over $800 million to shareholders year-to-date, maintaining one of the highest dividend yields in the industry alongside an active stock repurchase program [19] - The company has repurchased approximately $320 million in stock year-to-date, with $480 million remaining under the buyback authorization through year-end 2024 [31] Q&A Session Summary Question: Can you provide more details on the inventory in the Watkins area? - Management indicated there are a few hundred locations in total, with significant capital allocated to the southern area, including the Watkins area [35] Question: What is the status of the $300 million divestment target? - The divestment will include both production and inventory assets that do not compete for capital against higher-priority projects [36][37] Question: How is the credit facility being managed post-acquisition? - The company plans to prioritize paying down the credit facility quickly, leveraging excess free cash flow and proceeds from asset sales [42][44] Question: Will the shareholder return plan change after debt repayment? - Management confirmed that the current plan will remain in place, focusing on maintaining balance sheet strength while executing share repurchases [63]

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Financial Data and Key Metrics Changes - The company generated approximately $186 million in free cash flow during the first quarter, starting the year with $768 million in cash on the balance sheet [30] - The total dividend of $2.12 per share will be paid on June 29, with a variable dividend of $1.62 per share approved for the second quarter, in addition to a $0.50 fixed dividend [10][24] - The company reported production of 159,000 barrels of oil equivalent (BOE) per day, at the high end of guidance, with April production averaging approximately 165,000 BOE per day [54] Business Line Data and Key Metrics Changes - The company achieved a 17% improvement in spud-to-spud cycle times and a 7% increase in throughput from the completions team in the first quarter [23] - Capital investments in the first quarter were approximately $237 million, with a focus on maintaining a two-rig and two-frac crew operational plan [55] Market Data and Key Metrics Changes - The company maintains one of the strongest balance sheets in the industry, with about $560 million in cash against $400 million in total debt [10] - Operating costs decreased by 7% quarter-over-quarter, despite slightly higher operational costs due to cold weather [31] Company Strategy and Development Direction - The company is focused on free cash flow generation, maintaining a strong balance sheet, and returning significant cash to shareholders while leading on ESG initiatives [52] - The 2023 development plan is fully permitted, with significant progress expected on the 2024 plan [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to execute and deliver on its business plan, emphasizing continuous improvement and efficiency gains [29] - The company is committed to maintaining a disciplined approach to capital allocation, especially in light of the disconnect between service costs and commodity prices [5][91] Other Important Information - The company has made a small acquisition in-basin for a little over $30 million, enhancing its DJ position [16] - The company is actively working on a comprehensive pneumatic retrofit project aimed at reducing total scope one emissions by approximately 40% by the end of the year [32] Q&A Session All Questions and Answers Question: Can you talk about any discussions you've had with the state about potential changes to the permitting process? - Management discussed ongoing relationships with the COGCC and the administration, expressing confidence in the permitting process and the company's ability to meet new environmental targets [12][37] Question: What are your thoughts on the disconnect between commodity prices and service costs? - Management acknowledged the disconnect but indicated it would not materially impact capital allocation decisions, maintaining a strong balance sheet [58] Question: Can you provide insights on the recent acquisition and the current landscape for potential deals in the DJ Basin? - The company is focused on low-risk integration acquisitions and is actively looking for opportunities within the basin, emphasizing asset quality and returns [46][81]

Part I. Financial Information [Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Civitas Resources, Inc. as of March 31, 2023, and for the three months then ended, with comparative data for prior periods. It includes the balance sheets, statements of operations, statements of stockholders' equity, and statements of cash flows, followed by detailed notes explaining the accounting policies and financial details [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in total assets from **$7.97 billion** at year-end 2022 to **$7.68 billion** as of March 31, 2023, primarily due to a reduction in cash and cash equivalents. Total liabilities remained relatively stable at approximately **$2.57 billion**, while stockholders' equity decreased from **$5.37 billion** to **$5.10 billion**, reflecting share repurchases and dividends paid Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $956,241 | $1,328,430 | | **Total Assets** | **$7,675,048** | **$7,971,399** | | **Total Current Liabilities** | $1,058,031 | $1,177,927 | | **Total Liabilities** | **$2,573,299** | **$2,597,480** | | **Total Stockholders' Equity** | **$5,101,749** | **$5,373,919** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the first quarter of 2023, the company reported net income of **$202.5 million**, a significant increase from **$91.6 million** in the same period of 2022. This was driven by a large derivative gain of **$25.2 million** in Q1 2023 compared to a **$295.5 million** loss in Q1 2022, which offset a decline in oil and gas sales revenue from **$817.8 million** to **$656.0 million** Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Oil and natural gas sales | $656,022 | $817,810 | | Total operating expenses | $414,965 | $415,831 | | Derivative gain (loss) | $25,160 | $(295,493) | | **Net income** | **$202,461** | **$91,639** | | **Diluted net income per share** | **$2.46** | **$1.07** | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased from **$5.37 billion** to **$5.10 billion** during the first quarter of 2023. The decrease was primarily driven by **$303.5 million** in common stock repurchases and **$176.9 million** in dividends declared, which were partially offset by **$202.5 million** in net income Changes in Stockholders' Equity - Q1 2023 (in thousands) | Item | Amount | | :--- | :--- | | Balance, December 31, 2022 | $5,373,919 | | Net income | $202,461 | | Dividends declared | $(176,878) | | Common stock repurchased and retired | $(303,455) | | Stock-based compensation | $7,380 | | **Balance, March 31, 2023** | **$5,101,749** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities was **$538.8 million** for Q1 2023, comparable to **$532.5 million** in Q1 2022. Investing activities used **$275.6 million**, mainly for property development. Financing activities used a significant **$475.2 million**, driven by **$300.1 million** in share repurchases and **$173.4 million** in dividend payments, leading to a net decrease in cash of **$211.9 million** Cash Flow Summary - Q1 2023 vs Q1 2022 (in thousands) | Cash Flow Category | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $538,849 | $532,541 | | Net cash used in investing activities | $(275,607) | $(516,300) | | Net cash used in financing activities | $(475,161) | $(116,346) | | **Net change in cash** | **$(211,919)** | **$(100,105)** | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies and figures presented in the financial statements. Key notes cover acquisitions, revenue recognition, long-term debt, commitments and contingencies, stock-based compensation, derivative instruments, fair value measurements, income taxes, and earnings per share calculations - The company is an **independent exploration and production company** focused on the **DJ Basin of Colorado**[61](index=61&type=chunk) - On March 1, 2022, the Company completed the **acquisition of Bison Oil & Gas II, LLC** for approximately **$280.4 million**, resulting in a **bargain purchase gain** of **$13.6 million**[64](index=64&type=chunk) - The company has **$400.0 million** in **5.0% Senior Notes due 2026** and a **$2.0 billion revolving credit facility** with a **$1.85 billion** borrowing base, which was **undrawn as of March 31, 2023**[97](index=97&type=chunk)[101](index=101&type=chunk)[121](index=121&type=chunk) - The company uses **various derivative contracts**, including swaps and collars, to **mitigate commodity price risk** for its oil and natural gas production[9](index=9&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operational results for Q1 2023. Key themes include the impact of **volatile commodity prices**, a **20% decrease** in product revenues due to lower prices, and a significant increase in net income driven by derivative gains. The discussion also covers operating expense trends, liquidity, capital resources, and reconciles non-GAAP measures like **Adjusted EBITDAX** and **Free Cash Flow** - The company's **primary objective is guided by four pillars**: **generate free cash flow**, **maintain a premier balance sheet**, **return free cash flow to shareholders**, and **demonstrate ESG leadership**[148](index=148&type=chunk) - Key financial and operational results for Q1 2023 include **flat crude oil equivalent sales volumes YoY**, a **27% increase in lease operating expense per Boe**, **payment of $173.4 million in dividends**, and **a $300 million share repurchase**[171](index=171&type=chunk) - **Commodity prices remain volatile**, influenced by global recovery from COVID-19, the Russia-Ukraine conflict, and economic uncertainty from inflation and interest rates[174](index=174&type=chunk)[175](index=175&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Product revenues decreased by **20%** in Q1 2023 compared to Q1 2022, driven by a **20% drop** in average sales price per Boe. Operating expenses saw notable increases in lease operating (**27%**), midstream operating (**76%**), and gathering/transportation (**34%**) on a per-Boe basis, attributed to the Bison acquisition, inflation, and weather. These were offset by a **17% decrease** in severance and ad valorem taxes and a significant reduction in merger-related costs Sales Volumes and Prices (Q1 2023 vs Q1 2022) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Crude oil equivalent (MBoe) | 14,348.6 | 14,310.6 | — % | | Avg. Sales Price (per Boe) | $45.64 | $57.06 | (20)% | Operating Expenses per Boe (Q1 2023 vs Q1 2022) | Expense Category | Q1 2023 ($/Boe) | Q1 2022 ($/Boe) | % Change | | :--- | :--- | :--- | :--- | | Lease operating expense | $3.19 | $2.52 | 27% | | Midstream operating expense | $0.70 | $0.40 | 75% | | Gathering, transportation, and processing | $4.69 | $3.52 | 33% | | Severance and ad valorem taxes | $3.65 | $4.42 | (17)% | | **Total Operating Expense** | **$28.91** | **$29.06** | **(1)%** | - A **derivative gain of $25.2 million** was recorded in Q1 2023, compared to a **loss of $295.5 million** in Q1 2022, due to changes in fair market value relative to contracted hedge prices[182](index=182&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2023, the company had total liquidity of **$1.5 billion**, comprising **$556.1 million** in cash and **$987.9 million** available under its credit facility. The primary source of cash is from operations, which is subject to commodity price volatility. The company expects to fund its 2023 capital program with cash flows from operations and believes it has sufficient capital for the next 12 months - Total liquidity as of March 31, 2023, was **$1.5 billion**, consisting of **$556.1 million** cash and **$987.9 million** available borrowing capacity[205](index=205&type=chunk) - The company was in compliance with all financial covenants under its Credit Facility, including a permitted net leverage ratio of **3.00 to 1** and a current ratio of **1.00 to 1**[186](index=186&type=chunk) Reconciliation of Net Income to Adjusted EBITDAX (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net income | $202,461 | $91,639 | | Adjustments (Interest, Taxes, DD&A, etc.) | $240,978 | $380,194 | | **Adjusted EBITDAX** | **$443,439** | **$471,833** | Reconciliation of Operating Cash Flow to Free Cash Flow (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $538,849 | $532,541 | | Adjustments | $(116,079) | $(93,352) | | Less: Exploration & development | $(250,389) | $(260,667) | | Less: Changes in working capital for capex | $14,099 | $28,015 | | **Free cash flow** | **$186,480** | **$206,537** | [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's **primary market risk is from volatile oil and natural gas prices**, which it manages through **commodity derivative contracts**. While these contracts reduce downside risk, they may also limit potential gains from price increases. The company also has exposure to **interest rate risk** on its credit facility (which was undrawn) and **counterparty credit risk** from derivative partners and significant customers - The company's financial results are **highly dependent on fluctuating oil and natural gas prices**, which are beyond its control[243](index=243&type=chunk) - **Derivative contracts** (swaps, collars, puts) are used to protect the balance sheet from **commodity price volatility**[244](index=244&type=chunk) - As of March 31, 2023, the company had a **zero balance** on its variable-rate Credit Facility, minimizing immediate **interest rate risk**[245](index=245&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's **disclosure controls and procedures** as of March 31, 2023, and concluded they were **effective as of March 31, 2023** at a reasonable assurance level. There were **no material changes** to the company's internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's **disclosure controls and procedures were effective as of March 31, 2023**[226](index=226&type=chunk) - **No changes in internal control over financial reporting occurred** during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[228](index=228&type=chunk) Part II. Other Information [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to **Note 6** of the financial statements for information regarding legal proceedings. **Note 6** details ongoing litigation with Boulder County and notices of alleged violations from state regulatory bodies - Information regarding legal proceedings is detailed in **Note 6 - Commitments and Contingencies**[231](index=231&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been **no material changes** to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - The company directs investors to the **risk factors section of its 2022 Form 10-K** for a discussion of potential risks and uncertainties[232](index=232&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the first quarter of 2023, the company repurchased a **total of 4,948,143 shares** of its common stock. This was dominated by a **privately-negotiated purchase of approximately 4.9 million shares** from CPPIB Crestone Peak Resources Canada Inc. for **$300.0 million** Share Repurchases for Q1 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2023 | 4,923,063 | $61.00 | | Feb 1 - Feb 28, 2023 | 24,545 | $61.99 | | Mar 1 - Mar 31, 2023 | 535 | $66.25 | | **Total** | **4,948,143** | **$61.01** | - On January 24, 2023, the company entered a **privately-negotiated agreement** to purchase **~4.9 million shares** for **$300.0 million** (**$61.00 per share**)[233](index=233&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, material contracts such as the **Share Purchase Agreement**, and **certifications by the CEO and CFO** as required by the Sarbanes-Oxley Act - The exhibits include the **Share Purchase Agreement** for the January 2023 repurchase, forms of stock unit agreements, and **CEO/CFO certifications**[238](index=238&type=chunk)

Civitas Resources, Inc. (NYSE:CIVI) Q4 2022 Earnings Conference Call February 23, 2023 10:00 AM ET Company Participants John Wren - Director, Investor Relations Chris Doyle - Chief Executive Officer Marianella Foschi - Chief Financial Officer Matt Owens - Chief Operating Officer Brian Cain - Chief Sustainability Officer Conference Call Participants Neal Dingmann - Truist Securities Tim Rezvan - KeyBanc Phillips Johnston - Capital One Noel Parks - Tuohy Brothers Nicholas Pope - Seaport Research Bill Dezellem ...

PART I [Business](index=12&type=section&id=Item%201.%20Business) Civitas Resources is an independent oil and natural gas exploration and production company focused on the DJ Basin, prioritizing free cash flow and ESG leadership - The company's primary objective is to maximize shareholder returns through generating free cash flow, maintaining a premier balance sheet, returning cash flow to shareholders, and demonstrating ESG leadership[16](index=16&type=chunk)[156](index=156&type=chunk)[126](index=126&type=chunk) - Civitas is Colorado's first carbon-neutral oil and gas operator on a Scope 1 and Scope 2 basis, employing practices like electric drilling rigs and 24/7 air monitoring, with a dedicated Board ESG Committee[5](index=5&type=chunk) 2022 Key Financial and Operational Highlights | Metric | Value | | :--- | :--- | | Net Income | ~$1.2 billion | | Cash Flow from Operating Activities | ~$2.5 billion | | Free Cash Flow | ~$1.2 billion | | Capital Reinvestment Rate | ~39% of operating cash flow | | Cash Returned to Shareholders | >$530 million | | Average Daily Sales Volume | 170.0 MBoe/d | | Gross Operated Wells Turned to Sales | 146 | - As of December 31, 2022, the company held approximately **525,900 net acres** in the Rocky Mountain region, with **89%** in the DJ Basin, operating **3,108 gross producing wells**[92](index=92&type=chunk) [Reserves](index=13&type=section&id=Reserves) Total proved reserves increased 5% to **416.0 MMBoe** as of December 31, 2022, with **83%** proved developed and a **PV-10 value of $9.8 billion** Estimated Proved Reserves as of December 31, 2022 | Reserve Category | Crude Oil (MBbls) | Natural Gas (MMcf) | NGL (MBbls) | Total (MBoe) | | :--- | :--- | :--- | :--- | :--- | | Developed | 117,768 | 750,793 | 102,004 | 344,904 | | Undeveloped | 34,834 | 116,707 | 16,830 | 71,115 | | **Total Proved** | **152,602** | **867,500** | **118,834** | **416,019** | Changes in Total Proved Reserves (MBoe) | Category | Net Reserves (MBoe) | | :--- | :--- | | Beginning of year (2022) | 397,690 | | Production | (62,063) | | Purchases of minerals in place | 27,269 | | Extensions, discoveries, and other additions | 27,904 | | Revisions to previous estimates | 25,447 | | **End of year (2022)** | **416,019** | - As of December 31, 2022, the company had **201 gross proved undeveloped (PUD) drilling locations**, a decrease from **234** at year-end 2021, with an average lateral length of approximately **2.2 miles**[137](index=137&type=chunk) - Reserve estimates were independently prepared by Ryder Scott and reviewed by the Company's Audit Committee and an in-house Senior Manager[141](index=141&type=chunk) [Production, Revenues, and Price History](index=17&type=section&id=Production%2C%20Revenues%2C%20and%20Price%20History) In 2022, total production was **62,063 MBoe** with average daily production of **170,035 Boe/d**, and average crude oil sales price of **$91.70 per barrel** Production and Average Sales Price History | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Production (MBoe)** | 62,063 | 20,445 | 9,239 | | **Average Daily Production (Boe/d)** | 170,035 | 56,015 | 25,242 | | **Avg. Oil Sales Price (per Bbl, excl. derivatives)** | $91.70 | $65.41 | $34.42 | | **Avg. Gas Sales Price (per Mcf, excl. derivatives)** | $6.15 | $3.84 | $1.45 | | **Avg. NGL Sales Price (per Bbl, excl. derivatives)** | $35.76 | $34.68 | $10.39 | | **Avg. Production Costs (per Boe)** | $3.25 | $3.41 | $4.00 | - In 2022, **three customers** accounted for a combined **72% of total revenue** (Customer A: **50%**, Customer B: **12%**, Customer C: **10%**)[144](index=144&type=chunk) [Acreage and Drilling Activity](index=19&type=section&id=Acreage%20and%20Drilling%20Activity) As of December 31, 2022, the company held **525,900 net acres**, primarily in the DJ Basin, and in 2022, drilled **176 gross wells** and turned **146 to sales** Acreage Summary as of December 31, 2022 | Basin | Developed Gross Acres | Developed Net Acres | Undeveloped Gross Acres | Undeveloped Net Acres | Total Gross Acres | Total Net Acres | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | DJ Basin | 526,600 | 396,900 | 172,200 | 73,100 | 698,800 | 470,000 | | Other Rocky Mountain | 107,800 | 42,600 | 19,900 | 13,300 | 127,700 | 55,900 | | **Total** | **634,400** | **439,500** | **192,100** | **86,400** | **826,500** | **525,900** | - In 2022, the company drilled **176 gross (152.0 net) wells**, completed **142 gross (125.2 net) wells**, and turned **146 gross (129.5 net) wells** to sales[210](index=210&type=chunk)[164](index=164&type=chunk) - Approximately **29,200 net acres**, or **5.6%** of total net acres, may expire within the next three years if production is not established or leases are not extended[209](index=209&type=chunk) [Regulation of the Oil and Natural Gas Industry](index=21&type=section&id=Regulation%20of%20the%20Oil%20and%20Natural%20Gas%20Industry) The company's operations are subject to extensive federal, state, and local regulations covering drilling, production, transportation, environmental protection, and safety, with evolving rules impacting costs and operations - Operations are substantially affected by federal, state, and local laws regulating permits, well spacing, production, surface use, water disposal, and well abandonment[216](index=216&type=chunk) - Interstate oil transportation is regulated by FERC under the Interstate Commerce Act, while intrastate transportation is regulated by state commissions[11](index=11&type=chunk) - Interstate natural gas transportation and sales are primarily regulated by FERC under the Natural Gas Act (NGA), including anti-market manipulation provisions[26](index=26&type=chunk)[220](index=220&type=chunk) - The company is subject to numerous environmental regulations, including the Clean Air Act (CAA), Clean Water Act (CWA), and RCRA, which may require significant capital expenditures for compliance[225](index=225&type=chunk)[226](index=226&type=chunk)[939](index=939&type=chunk) - Colorado Senate Bill 19-181 significantly changed state regulation, shifting the COGCC's mission to prioritize public health and the environment and granting local governments greater control over facility siting[936](index=936&type=chunk)[952](index=952&type=chunk) [Human Capital](index=34&type=section&id=Human%20Capital) As of December 31, 2022, Civitas had **353 full-time employees**, prioritizing health, safety, and diversity, achieving a **TRIR of 0.19** and **30% board diversity** - The company had **353 full-time employees** as of December 31, 2022, focused on attracting, retaining, and developing a highly qualified workforce[289](index=289&type=chunk) - Civitas prioritizes employee health and safety, achieving a **Total Recordable Incident Rate (TRIR) of 0.19** in 2022, below its target of **0.25** and the industry average[291](index=291&type=chunk) - The company met its board diversity goal of at least **30% gender and racial diversity**; as of year-end 2022, **22%** of the workforce are women and **15%** are minority group members[307](index=307&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from commodity price volatility, operational uncertainties, evolving regulatory landscape in Colorado, and financial exposures from debt and derivatives - Declines in oil, natural gas, and NGL prices are a primary risk, adversely affecting business, financial condition, and capital expenditure obligations[277](index=277&type=chunk)[326](index=326&type=chunk) - Operational risks include the high-risk nature of drilling, potential inaccuracies in reserve estimates, and challenges with horizontal drilling and completion techniques[280](index=280&type=chunk)[296](index=296&type=chunk) - Regulatory initiatives, especially in Colorado, related to hydraulic fracturing, climate change, and increased local government oversight could result in increased costs, operating restrictions, or delays[281](index=281&type=chunk)[282](index=282&type=chunk) - The concentration of operations in the DJ Basin in Colorado increases exposure to regional events, regulatory changes, and activist opposition[299](index=299&type=chunk)[400](index=400&type=chunk) - Financial risks include restrictive covenants in debt agreements, potential losses from derivative activities, and credit risks associated with counterparties and customers[278](index=278&type=chunk)[284](index=284&type=chunk) [Properties](index=62&type=section&id=Item%202.%20Properties) Information regarding the company's properties, including details on acreage, reserves, and productive wells, is provided in Item 1, Business - The information required by Item 2 is contained in Item 1. Business and is incorporated by reference[511](index=511&type=chunk) [Legal Proceedings](index=63&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, with a previously disclosed litigation with Boulder County, Colorado, resolved on substantive issues, awaiting final dismissal - Previously disclosed litigation with Boulder County regarding oil and gas operations has been resolved on all substantive issues, with final dismissal pending[512](index=512&type=chunk) - In May 2022, Boulder County alleged new legal theories and requested lease termination, with no formal action initiated, but the company intends to vigorously defend its position[537](index=537&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=64&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under "CIVI", with a dividend policy including a base dividend increased to **$0.50 per share** in Q4 2022 - The company's common stock is listed on the New York Stock Exchange under the symbol **"CIVI"**[935](index=935&type=chunk) - The company initiated a quarterly base dividend in May 2021 and a quarterly variable dividend in March 2022, with the base dividend increased to **$0.50 per share ($2.00 annually)** starting in Q4 2022[515](index=515&type=chunk) - During Q4 2022, the company acquired **7,457 shares** at an average price of **$68.62 per share** from employees to satisfy tax withholding obligations, not part of a public repurchase program[516](index=516&type=chunk)[542](index=542&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, product revenues increased **309% to $3.8 billion**, driven by volume and pricing, resulting in **$1.25 billion net income** and **$1.8 billion liquidity** - The discussion focuses on **2022 and 2021 results**, with 2020 information available in the prior year's 10-K[519](index=519&type=chunk) 2022 vs 2021 Key Metrics | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Product Revenue | $3.8 billion | $926.0 million | | Crude Oil Equivalent Sales (MBoe) | 62,062.9 | 20,445.4 | | Avg. Sales Price per Boe (before derivatives) | $61.03 | $45.29 | | Net Cash from Operating Activities | $2.5 billion | $274.6 million | | G&A Expense per Boe | $2.31 | $3.19 | - As of December 31, 2022, liquidity was **$1.8 billion**, comprising **$768.0 million in cash** and **$987.9 million** available under the credit facility[562](index=562&type=chunk) - The **2023 capital budget** is **$725 million to $825 million** for drilling and completion, plus **$75 million to $85 million** for land, midstream, and other activities including ESG[525](index=525&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=76&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is commodity price volatility; a **10% decline in SEC prices** would decrease **PV-10 value by $1.3 billion** - The company's financial results are highly dependent on oil and natural gas prices, which are subject to wide fluctuations beyond its control[634](index=634&type=chunk) - A **10% change in SEC oil and gas prices** would result in a **1% change in proved reserve volumes** and a **13% (or $1.3 billion) change** in the PV-10 value as of December 31, 2022[634](index=634&type=chunk) - The company uses derivative contracts to manage price risk; a hypothetical **10% upward shift** in the forward curve would increase derivative loss by **$20.7 million**, while a **10% downward shift** would decrease it by **$20.4 million**[611](index=611&type=chunk) - The company is exposed to counterparty credit risk from its **7 derivative counterparties** (all members of its credit facility lender group) and from its customers[638](index=638&type=chunk)[612](index=612&type=chunk) [Financial Statements and Supplementary Data](index=78&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for 2022, 2021, and 2020, along with the independent auditor's report and detailed notes - The report includes audited consolidated financial statements for the three years ended December 31, 2022, presenting fairly the financial position and results of operations in conformity with U.S. GAAP[615](index=615&type=chunk) - Deloitte & Touche LLP identified the estimation of proved oil and gas reserves as a critical audit matter due to significant judgments and assumptions, particularly regarding the five-year conversion plan for proved undeveloped reserves[617](index=617&type=chunk)[618](index=618&type=chunk) [NOTE 2 - ACQUISITIONS AND DIVESTITURES](index=90&type=section&id=NOTE%202%20-%20ACQUISITIONS%20AND%20DIVESTITURES) In 2021, the company completed three major mergers, and in 2022, acquired Bison Oil & Gas II, LLC for **$280.4 million**, resulting in a **$13.6 million bargain purchase gain** - On April 1, 2021, Civitas acquired HighPoint Resources Corporation for a total merger consideration of **$474.9 million**[734](index=734&type=chunk)[735](index=735&type=chunk) - On November 1, 2021, Civitas completed its merger with Extraction Oil & Gas, Inc. for a total merger consideration of **$1.84 billion**[706](index=706&type=chunk)[739](index=739&type=chunk) - On November 1, 2021, Civitas completed its merger with Crestone Peak for a total merger consideration of **$1.26 billion**[1000](index=1000&type=chunk)[710](index=710&type=chunk) - On March 1, 2022, the company acquired Bison Oil & Gas II, LLC for approximately **$280.4 million**, resulting in a **bargain purchase gain of $13.6 million**[770](index=770&type=chunk) [NOTE 5 - LONG-TERM DEBT](index=96&type=section&id=NOTE%205%20-%20LONG-TERM%20DEBT) As of December 31, 2022, long-term debt included **$400.0 million in 5.0% Senior Notes due 2026**, with a **$1.85 billion revolving credit facility** undrawn - The company has **$400.0 million** in aggregate principal of **5.0% Senior Notes due 2026**, with a net carrying amount of **$393.3 million** as of December 31, 2022[975](index=975&type=chunk)[752](index=752&type=chunk) - On May 1, 2022, the company redeemed all **$100.0 million** of its outstanding **7.5% Senior Notes**[750](index=750&type=chunk) - The company's revolving credit facility has a borrowing base of **$1.85 billion** and an elected commitment of **$1.0 billion**, with a zero balance outstanding and **$987.9 million** available capacity as of December 31, 2022[781](index=781&type=chunk)[782](index=782&type=chunk) [NOTE 9 - DERIVATIVES](index=105&type=section&id=NOTE%209%20-%20DERIVATIVES) The company uses commodity derivative contracts to mitigate price risk, recording a total derivative loss of **$335.2 million** in 2022, with **$63.5 million** in derivative liabilities Derivative Gain (Loss) Summary (in thousands) | Component | 2022 | 2021 | | :--- | :--- | :--- | | Derivative cash settlement loss | $(576,802) | $(275,914) | | Change in fair value gain | $241,642 | $215,404 | | **Total derivative loss** | **$(335,160)** | **$(60,510)** | - As of December 31, 2022, the company had oil and natural gas derivative contracts, primarily swaps and three-way collars, with positions extending through 2024[828](index=828&type=chunk)[852](index=852&type=chunk) - Subsequent to year-end, the company entered into natural gas basis protection swaps on all outstanding NYMEX HH positions through Q3 2024 to mitigate pricing differentials between NYMEX HH and CIG[182](index=182&type=chunk)[852](index=852&type=chunk) [NOTE 15 - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)](index=113&type=section&id=NOTE%2015%20-%20DISCLOSURES%20ABOUT%20OIL%20AND%20GAS%20PRODUCING%20ACTIVITIES%20(UNAUDITED)) Capitalized costs for oil and gas properties totaled **$1.49 billion** in 2022, with the standardized measure of discounted future net cash flows from proved reserves at **$7.93 billion** Standardized Measure of Discounted Future Net Cash Flows (in thousands) | Component | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Future net cash flows | $12,526,994 | $6,773,594 | $1,023,287 | | 10% annual discount | $(4,599,504) | $(2,361,490) | $(586,233) | | **Standardized measure** | **$7,927,490** | **$4,412,104** | **$437,054** | - Total costs incurred for property acquisition, exploration, and development were **$1.49 billion** in 2022, compared to **$5.19 billion** in 2021 (including major acquisitions)[896](index=896&type=chunk) - Positive revisions to proved reserves in 2022 totaled **25.4 MMBoe**, driven by price-related revisions of **11.8 MMBoe** and performance-related revisions of **13.6 MMBoe**[870](index=870&type=chunk) [Controls and Procedures](index=117&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[266](index=266&type=chunk) - Management assessed the company's internal control over financial reporting as effective as of December 31, 2022, with the independent auditor issuing an unqualified opinion on its effectiveness[906](index=906&type=chunk)[908](index=908&type=chunk) - No material changes in internal control over financial reporting occurred during Q4 2022[907](index=907&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership](index=120&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Information for Items 10-14 will be incorporated by reference from the company's definitive proxy statement, to be filed within 120 days of fiscal year-end - The information required by Items 10, 11, 12, 13, and 14 will be incorporated by reference from a future SEC filing within **120 days** after December 31, 2022[274](index=274&type=chunk)[288](index=288&type=chunk)[923](index=923&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=121&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Annual Report on Form 10-K, including financial statements and various exhibits, with no financial statement schedules filed - This section includes the financial statements from Item 8 and a list of all exhibits filed with the report[887](index=887&type=chunk) - No financial statement schedules were filed with this report[926](index=926&type=chunk)

Civitas Resources, Inc. (NYSE:CIVI) Q3 2022 Earnings Conference Call November 1, 2022 10:00 AM ET Company Participants John Wren - IR Chris Doyle - President and CEO Marianella Foschi - CFO Matt Owens - COO Brian Cain - Chief Sustainability Officer Conference Call Participants Neal Dingmann - Truist Securities Leo Mariani - MKM Partners Nicholas Pope - Seaport Research Phillip Johnston - Capital One Noel Parks - Tuohy Brothers Bill Dezellem - Tieton Capital Operator Good morning. My name is Julianne and I w ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ 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: 001-35371 Civitas Resources, Inc. (Exact name of registrant as specified in its charter) Delaware 61 ...