Civitas Resources(CIVI) - 2023 Q1 - Quarterly Report

Part I. Financial Information Financial Statements (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 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 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 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 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 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] - 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] - 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][101][121] - The company uses various derivative contracts, including swaps and collars, to mitigate commodity price risk for its oil and natural gas production[9] Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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] - Commodity prices remain volatile, influenced by global recovery from COVID-19, the Russia-Ukraine conflict, and economic uncertainty from inflation and interest rates[174][175] Results of Operations 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] Liquidity and Capital Resources 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] - 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] 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 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] - Derivative contracts (swaps, collars, puts) are used to protect the balance sheet from commodity price volatility[244] - As of March 31, 2023, the company had a zero balance on its variable-rate Credit Facility, minimizing immediate interest rate risk[245] Controls and Procedures 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] - 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] Part II. Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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]