Civitas Resources(CIVI) - 2023 Q2 - Quarterly Report

Cover Page and General Information Provides foundational details and forward-looking statement disclaimers for the Form 10-Q Form 10-Q Details Presents essential company and filing information for Civitas Resources, Inc.'s Form 10-Q Form 10-Q Details | Metric | Detail | | :--- | :--- | | Registrant Name | Civitas Resources, Inc. | | State of Incorporation | Delaware | | SEC File Number | 001-35371 | | Trading Symbol | CIVI | | Registered Exchange | New York Stock Exchange | | Common Stock Outstanding (as of August 2, 2023) | 93,760,666 shares | Information Regarding Forward-Looking Statements Discusses forward-looking statements and associated risks, emphasizing no obligation for updates - Forward-looking statements cover company business strategies, reserve estimates, sales volumes, capital expenditures, debt covenant compliance, government regulations (including climate change and ESG), oil and gas price fluctuations, derivative use, drilling plans, and M&A synergies[26][27][41] - Factors that could cause actual results to differ materially include: oil and gas price declines or volatility, operational disruptions, capital access, customer performance, reserve estimate uncertainties, environmental risks, regulatory or legislative actions, weather conditions, drilling and operating risks, availability of oilfield equipment and services, management's ability to execute plans, internal control effectiveness, market access, political conditions, and the ongoing impact of the COVID-19 pandemic[21][28][29][42][44][45][69] - The company assumes no obligation to update or revise these forward-looking statements unless required by law, and advises investors not to place undue reliance on them[30] Part I. Financial Information Contains the unaudited condensed consolidated financial statements and their detailed notes Item 1. Financial Statements (Unaudited) Presents the company's unaudited condensed consolidated financial statements and comprehensive notes Condensed Consolidated Balance Sheets Provides a snapshot of the company's financial position at specific quarter-end dates Condensed Consolidated Balance Sheets (as of June 30, 2023 and December 31, 2022) | Item | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 2,702,897 | 768,032 | | Total current assets | 3,413,207 | 1,328,430 | | Property and equipment, net | 6,706,840 | 6,611,105 | | Total assets | 10,170,986 | 7,971,399 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | 1,221,091 | 1,177,927 | | Total long-term liabilities | 3,903,208 | 1,419,553 | | Total stockholders' equity | 5,046,687 | 5,373,919 | | Total liabilities and stockholders' equity | 10,170,986 | 7,971,399 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income over specific periods Condensed Consolidated Statements of Operations (for the Three and Six Months Ended June 30, 2023 and 2022) | Item (in thousands) | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Oil and gas sales revenue | 660,526 | 1,151,364 | 1,316,548 | 1,969,174 | | Total operating expenses | 481,082 | 453,626 | 896,047 | 869,457 | | Derivative gain (loss) | 4,927 | (72,650) | 30,087 | (368,143) | | Interest expense | (8,753) | (8,116) | (16,202) | (17,182) | | Net income | 139,287 | 468,821 | 341,748 | 560,460 | | Basic net income per share | 1.73 | 5.52 | 4.22 | 6.60 | | Diluted net income per share | 1.72 | 5.48 | 4.18 | 6.56 | Condensed Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts over the reported periods Condensed Consolidated Statements of Stockholders' Equity (as of June 30, 2023 and June 30, 2022) | Item (in thousands) | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Balance December 31, 2022 | 5,373,919 | - | | Balance December 31, 2021 | - | 4,654,998 | | Common stock repurchased and retired | (303,455) (Q1 2023) / (20,398) (Q2 2023) | - | | Dividends declared | (176,878) (Q1 2023) / (173,358) (Q2 2023) | (104,444) (Q1 2022) / (117,151) (Q2 2022) | | Net income | 202,461 (Q1 2023) / 139,287 (Q2 2023) | 91,639 (Q1 2022) / 468,821 (Q2 2022) | | Balance June 30, 2023 | 5,046,687 | - | | Balance June 30, 2022 | - | 4,992,550 | Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (for the Six Months Ended June 30, 2023 and 2022) | Item (in thousands) | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | | Net cash provided by operating activities | 876,030 | 1,254,768 | | Net cash used in investing activities | (923,204) | (733,491) | | Net cash provided by (used in) financing activities | 1,982,040 | (336,480) | | Cash and cash equivalents, end of period | 2,703,000 | 439,353 | Notes to the Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the consolidated financial statements NOTE 1 - Summary of Significant Accounting Policies Outlines the company's core accounting principles and business operations - The company is an independent exploration and production company focused on acquiring, developing, and producing oil and associated liquids-rich natural gas in the Denver-Julesburg Basin in Colorado and the Permian Basin in Texas and New Mexico[51] - The condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and Form 10-Q instructions, including all normal recurring adjustments deemed necessary by management[52] - As of June 30, 2023, and the date of this report, there are no recently issued but not yet adopted accounting pronouncements that are expected to have a material impact on the company's financial statements and disclosures[79] NOTE 2 - Acquisitions and Divestitures Details recent acquisition activities and their accounting treatment - On August 2, 2023, the company completed the Hibernia acquisition for a total cash consideration of $2.25 billion[56] - On August 2, 2023, the company completed the Tap Rock acquisition for approximately $2.45 billion, comprising $1.5 billion in cash and 13,538,472 shares of common stock (valued at approximately $950 million)[58] - On March 1, 2022, the company completed the acquisition of Bison Oil & Gas II, LLC for approximately $280.4 million, resulting in a $13.6 million bargain purchase gain[85] Consolidated Transaction Costs (in thousands) | Period | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Consolidated transaction costs | 31,145 | 1,418 | 31,627 | 22,000 | NOTE 3 - Revenue Recognition Explains the company's revenue recognition policies and product sales breakdown - The company recognizes revenue from the sale of produced oil, natural gas, and NGLs when control transfers to the buyer, depending on applicable contract terms[61] Net Operating Revenue (in thousands) | Product | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Oil sales | 541,043 | 778,258 | 1,001,417 | 1,327,760 | | Natural gas sales | 45,364 | 205,840 | 148,919 | 319,001 | | NGL sales | 74,119 | 167,266 | 166,212 | 322,413 | | Total oil and gas sales | 660,526 | 1,151,364 | 1,316,548 | 1,969,174 | - As of June 30, 2023, and December 31, 2022, the company's accounts receivable from customers were $201.2 million and $343.5 million, respectively[89] NOTE 4 - Accounts Payable and Accrued Expenses Presents the composition of accounts payable and accrued expenses Accounts Payable and Accrued Expenses (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Trade accounts payable | 27,811 | 31,783 | | Accrued drilling and completion costs | 80,826 | 137,171 | | Accrued consolidation transaction costs | 6,252 | — | | Total accounts payable and accrued expenses | 240,555 | 295,297 | NOTE 5 - Long-Term Debt Details the company's long-term debt, including senior notes and credit facilities Senior Notes Describes the issuance and terms of the company's senior notes - On June 29, 2023, the company issued $1.35 billion of 8.375% Senior Notes due 2028 and $1.35 billion of 8.750% Senior Notes due 2031, with net proceeds of $2.67 billion, to fund acquisitions[64] Senior Notes (as of June 30, 2023, in thousands) | Note Type | Principal Amount | Unamortized Discount | Unamortized Deferred Financing Costs | Net Principal Amount | | :--- | :--- | :--- | :--- | :--- | | 2026 Senior Notes | 400,000 | — | 5,901 | 394,099 | | 2028 Senior Notes | 1,350,000 | 16,875 | 5,919 | 1,327,206 | | 2031 Senior Notes | 1,350,000 | 16,875 | 5,919 | 1,327,206 | | Total | 3,100,000 | 33,750 | 17,739 | 3,048,511 | - The company may redeem portions of the Senior Notes under specific conditions and complies with covenants restricting additional debt, liens, dividend payments, investments, and M&A activities[66][67][116] Credit Facility Outlines the company's revolving credit facility and its key terms - On April 20, 2022, the credit agreement was amended, increasing the borrowing base from $1 billion to $1.7 billion and the total commitments from $800 million to $1 billion[97] - On August 2, 2023, in conjunction with the acquisition completion, the credit agreement was further amended, increasing total commitments from $1 billion to $1.85 billion, the borrowing base from $1.85 billion to $3 billion, the maximum credit commitment from $2 billion to $4 billion, and extending the maturity date to August 2028[100] Credit Facility Available Borrowing Capacity (in thousands) | Item | August 2, 2023 | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | :--- | | Revolving credit line | 750,000 | — | — | | Letters of credit | 12,100 | 12,100 | 12,100 | | Available borrowing capacity | 1,087,900 | 987,900 | 987,900 | | Total commitments | 1,850,000 | 1,000,000 | 1,000,000 | - The credit facility includes financial covenants such as a net leverage ratio (not exceeding 3.00 to 1) and a current ratio (not less than 1.00 to 1), all of which the company complied with as of June 30, 2023[123] NOTE 6 - Commitments and Contingencies Discloses legal proceedings, regulatory actions, and contractual commitments - The company regularly evaluates legal proceedings, claims, and other legal matters to determine the probability and range of potential losses, accruing provisions in accordance with authoritative accounting guidance[102] - As of June 30, 2023, and December 31, 2022, the company accrued approximately $1 million and $0.7 million, respectively, for alleged violations related to Colorado oil and gas operating regulations and air pollution control division notices[104] Minimum Annual Payment Commitments (in thousands) | Period | Fixed Transportation Commitments | Minimum Production Commitments | | :--- | :--- | :--- | | Remainder of 2023 | 7,360 | 34,182 | | 2024 | 14,640 | 19,596 | | 2025 | 4,800 | 20,434 | | 2026 | — | 16,816 | | 2027 | — | 16,250 | | 2028 and thereafter | — | 31,460 | | Total | 26,800 | 138,738 | - The company has drilling commitment agreements with third-party midstream providers, requiring the drilling and completion of 106 qualifying wells by December 31, 2026, with potential damages for non-completion[158] NOTE 7 - Stock-Based Compensation Details the company's long-term incentive plans and related compensation expenses - The company grants Restricted Stock Units (RSUs), Deferred Stock Units (DSUs), Performance Stock Units (PSUs), and stock options to executives and employees through its 2017 and 2021 Long-Term Incentive Plans (LTIPs) and the Extraction Equity Plan[136] Stock-Based Compensation Expense (in thousands) | Incentive Type | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Restricted and Deferred Stock Units | 4,769 | 3,917 | 9,194 | 9,182 | | Performance Stock Units | 5,126 | 2,218 | 8,081 | 5,043 | | Total Stock-Based Compensation Expense | 9,895 | 6,135 | 17,275 | 14,225 | - As of June 30, 2023, total unrecognized stock-based compensation expense was $53.942 million, expected to be recognized between 2025 and 2026[161] - As of June 30, 2023, unvested RSUs and DSUs totaled 608,763 shares with a weighted-average grant date fair value of $62.50 per share; unvested PSUs totaled 429,991 shares with a weighted-average grant date fair value of $89.92 per share[139][164] NOTE 8 - Fair Value Measurements Explains fair value measurement methodologies and disclosures for assets and liabilities - The company follows accounting standards that categorize fair value measurements into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[145][168] Fair Value of Derivative Assets and Liabilities (in thousands) | Item | June 30, 2023 Level 2 | December 31, 2022 Level 2 | | :--- | :--- | :--- | | Derivative assets | 6,135 | 3,284 | | Derivative liabilities | 24,411 | 63,533 | - As of June 30, 2023, the fair values of the 2026, 2028, and 2031 Senior Notes were $377.3 million, $1.37 billion, and $1.37 billion, respectively, all classified as Level 1 fair value based on market quotes[147] - Warrants had a fair value of $77.5 million at issuance, determined using the Cox-Ross-Rubinstein binomial option pricing model with Level 3 inputs, and recorded in additional paid-in capital[171] NOTE 9 - Derivatives Describes the company's commodity derivative contracts and their financial impact - The company uses commodity derivative contracts, including swaps, call options, basis protection swaps, and put options, to hedge commodity price risk for future oil and gas production, but does not designate them as hedging instruments[173][174][202] Derivative Cash Settlements Gain (Loss) (in thousands) | Item | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Oil contracts | (2,164) | (114,778) | (5,613) | (239,940) | | Natural gas contracts | 829 | (54,091) | (6,272) | (82,875) | | NGL contracts | — | (12,762) | — | (25,394) | | Total derivative cash settlements gain (loss) | (1,335) | (181,631) | (11,885) | (348,209) | | Gain (loss) on fair value changes | 6,262 | 108,981 | 41,972 | (19,934) | | Total derivative gain (loss) | 4,927 | (72,650) | 30,087 | (368,143) | Oil Derivative Contracts (as of June 30, 2023) | Contract Type | 2023 Q3 (Bbls/Day) | 2023 Q4 (Bbls/Day) | 2024 Q1 (Bbls/Day) | 2024 Q2 (Bbls/Day) | 2024 Q3-Q4 (Bbls/Day) | | :--- | :--- | :--- | :--- | :--- | :--- | | NYMEX WTI Swaps Volume | 23,055 | 29,161 | 12,727 | 11,991 | 9,767 | | NYMEX WTI Two-Way Collars Volume | 7,334 | 9,392 | 11,913 | 10,430 | 8,914 | | NYMEX WTI Three-Way Collars Volume | 1,302 | 1,172 | 573 | — | — | | NYMEX WTI Put Options Volume | — | — | 7,942 | 6,953 | 5,943 | NOTE 10 - Asset Retirement Obligations Details the estimated liabilities for asset retirement obligations - The company accrues estimated liabilities for oil and gas asset retirement obligations based on historical experience, estimated economic lives, retirement costs, and regulatory requirements, discounted using a credit-adjusted risk-free rate[180][207] Changes in Asset Retirement Obligations (in thousands) | Item | Amount | | :--- | :--- | | Balance December 31, 2022 | 291,026 | | Liabilities incurred | 1,480 | | Accretion expense | 7,648 | | Liabilities settled | (6,231) | | Balance June 30, 2023 | 293,923 | | Current portion | 25,557 | | Long-term portion | 268,366 | NOTE 11 - Earnings Per Share Explains the calculation of basic and diluted earnings per share - Basic and diluted earnings per share are calculated using the treasury stock method, with diluted EPS reflecting the dilutive effect of unvested RSUs, DSUs, PSUs, and exercisable stock options and warrants[157][182][210] Earnings Per Share (in thousands, except per share amounts) | Item | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Net income | 139,287 | 468,821 | 341,748 | 560,460 | | Basic net income per share | 1.73 | 5.52 | 4.22 | 6.60 | | Diluted net income per share | 1.72 | 5.48 | 4.18 | 6.56 | | Weighted-average basic shares outstanding | 80,393 | 84,993 | 81,052 | 84,917 | | Dilutive effect | 751 | 561 | 772 | 536 | | Weighted-average diluted shares outstanding | 81,144 | 85,554 | 81,824 | 85,453 | NOTE 12 - Income Taxes Discloses deferred tax liabilities, prepaid taxes, and effective tax rate reconciliation - As of June 30, 2023, and December 31, 2022, net deferred tax liabilities were $409.6 million and $319.6 million, respectively; prepaid income taxes were $2.3 million and $29.6 million, respectively[185] - Income tax expense for Q2 2023 and Q2 2022 was $44.4 million and $152.5 million, respectively, with effective tax rates of 24.2% and 24.5%[213] - The difference between income tax expense and the 21% statutory federal income tax rate primarily stems from state income taxes, excess tax benefits and deficiencies from stock-based compensation, executive compensation limitations, and other permanent differences[213] - The company is evaluating the potential impact of the 15% Corporate Alternative Minimum Tax (AMT) under the Inflation Reduction Act but does not currently expect a material impact on 2023 income tax payments[214] NOTE 13 - Leases Outlines the company's operating lease assets, liabilities, and future payment schedules - The company's right-of-use assets and lease liabilities are recognized on the balance sheet based on the present value of estimated lease payments, with no finance lease agreements as of June 30, 2023, and December 31, 2022[187] Operating Lease Asset Categories (in thousands) | Asset Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Field equipment | 30,829 | 15,131 | | Corporate leases | 6,326 | 8,235 | | Vehicles | 4,417 | 759 | | Total right-of-use assets | 41,572 | 24,125 | Future Lease Payments (in thousands) | Period | Operating Leases | | :--- | :--- | | Remainder of 2023 | 12,419 | | 2024 | 18,964 | | 2025 | 7,416 | | 2026 | 3,449 | | 2027 | 2,106 | | Thereafter | 649 | | Total lease payments | 45,003 | | Less: Imputed interest | (2,768) | | Total lease liabilities | 42,235 | NOTE 14 - Supplemental Disclosures of Cash Flow Information Provides additional details on cash flows for taxes, interest, and capital expenditures Supplemental Cash Flow Information (in thousands) | Item | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | | Cash paid for / received from income taxes | 7,861 | (6,300) | | Cash paid for interest | (12,627) | (15,821) | | Changes in working capital related to capital expenditures | 56,345 | (2,666) | NOTE 15 - Stockholders' Equity Details stock repurchase programs and dividend policies - In February 2023, the Board approved a stock repurchase program authorizing up to $1 billion of common stock, later reduced to $500 million in June 2023 due to acquisitions[218] - As of June 30, 2023, the company repurchased approximately 312,800 shares under the program at a total cost of $20.2 million, with a weighted-average price of $64.55 per share[218] - The company declared quarterly base cash dividends since May 2021 and approved quarterly variable cash dividends since March 2022, with the latter equivalent to 50% of free cash flow from the preceding 12 months after base dividends[191] Dividends Declared (per share amounts, in thousands) | Period | Base Dividend | Variable Dividend | Total Dividend | Total Amount | | :--- | :--- | :--- | :--- | :--- | | Q1 2023 | 0.50 | 1.65 | 2.15 | 176,878 | | Q2 2023 | 0.50 | 1.62 | 2.12 | 173,358 | | Q1 2022 | 0.46 | 0.75 | 1.21 | 104,444 | | Q2 2022 | 0.46 | 0.90 | 1.36 | 117,151 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial performance, liquidity, and outlook Executive Summary Highlights key financial and operational performance for the quarter and strategic objectives - The company's primary goal is to maximize shareholder returns through responsible development of oil and gas resources, adhering to four pillars: generating free cash flow, maintaining an excellent balance sheet, returning free cash flow to shareholders, and demonstrating ESG leadership[195] - Crude oil equivalent sales volumes for Q2 2023 were largely consistent with the prior year period[251] - Acquisition Senior Notes were issued on June 29, 2023, with net proceeds of $2.67 billion[251] - Operating cash flow for the first half of 2023 was $876 million, compared to $1.3 billion in the same period of 2022[251] - Capital expenditures (including accrued) for the first half of 2023 totaled $463.7 million, with $24 million allocated to land and midstream capital expenditures[221] - In the first half of 2023, 5.2 million shares of common stock were repurchased at a weighted-average price of $61.21 per share[196] Current Events and Outlook Discusses macroeconomic factors influencing commodity prices and operational costs - Commodity prices continue to be influenced by macroeconomic factors, including global recovery post-COVID-19, Russia's invasion of Ukraine and related sanctions, and OPEC+ production limits, collectively driving oil prices higher[198] - Inflationary pressures and rising interest rates may lead to increased capital and operating expenses, impacting costs for oilfield services, equipment, and personnel retention[253] - The company cannot predict future commodity price volatility or oil and gas demand levels, which are subject to demand uncertainty, future monetary policy, and government low-carbon energy transition policies[199] Results of Operations - Three Months Ended June 30, 2023 and 2022 Compares the company's operational and financial performance for the second quarter Product Revenue and Sales Volumes (for the Three Months Ended June 30, 2023 and 2022) | Item | 2023 3 Months | 2022 3 Months | Change | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Product revenue (in thousands) | 658,840 | 1,150,782 | (491,942) | (43)% | | Crude oil sales volume (MBbls) | 7,677.6 | 7,308.4 | 369.2 | 5% | | Natural gas sales volume (MMcf) | 26,348.8 | 28,903.5 | (2,554.7) | (9)% | | NGL sales volume (MBbls) | 3,718.7 | 3,819.6 | (100.9) | (3)% | | Crude oil equivalent sales volume (MBoe) | 15,787.8 | 15,945.3 | (157.5) | (1)% | | Average sales price (per Bbl/Mcf/Boe) | | | | | | Crude oil (per Bbl) | 70.43 | 106.48 | (36.05) | (34)% | | Natural gas (per Mcf) | 1.67 | 7.10 | (5.43) | (76)% | | NGL (per Bbl) | 19.93 | 43.79 | (23.86) | (54)% | | Crude oil equivalent (per Boe) | 41.73 | 72.17 | (30.44) | (42)% | - Product revenue decreased by 43% to $658.8 million, primarily due to a 42% decrease in crude oil equivalent price (excluding derivative impact) of $30.44 per Boe[256] Operating Expenses (for the Three Months Ended June 30, 2023 and 2022) | Expense Item (in thousands) | 2023 3 Months | 2022 3 Months | Change | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Lease operating expenses | 51,230 | 41,877 | 9,353 | 22% | | Midstream operating expenses | 13,319 | 7,469 | 5,850 | 78% | | Gathering, transportation, and processing | 64,873 | 79,519 | (14,646) | (18)% | | Production and ad valorem taxes | 52,443 | 85,870 | (33,427) | (39)% | | Depreciation, depletion, and amortization | 232,786 | 204,519 | 28,267 | 14% | | Consolidation transaction costs | 31,145 | 1,418 | 29,727 | 2,096% | | General and administrative expenses | 33,541 | 29,666 | 3,875 | 13% | | Total operating expenses | 481,082 | 453,626 | 27,456 | 6% | - Derivative gain for Q2 2023 was $4.9 million, compared to a $72.7 million loss in Q2 2022, primarily influenced by fair value adjustments where future market prices were expected to be lower than future hedged contract prices[261] - Income tax expense for Q2 2023 was $44.4 million, with an effective tax rate of 24.2%, differing from the 21% statutory federal income tax rate mainly due to state income taxes and the tax impact of stock-based compensation[262] Results of Operations - Six Months Ended June 30, 2023 and 2022 Compares the company's operational and financial performance for the first half of the year Product Revenue and Sales Volumes (for the Six Months Ended June 30, 2023 and 2022) | Item | 2023 6 Months | 2022 6 Months | Change | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Product revenue (in thousands) | 1,313,681 | 1,967,325 | (653,644) | (33)% | | Crude oil sales volume (MBbls) | 14,138.7 | 13,431.9 | 706.8 | 5% | | Natural gas sales volume (MMcf) | 53,254.9 | 55,689.9 | (2,435.0) | (4)% | | NGL sales volume (MBbls) | 7,121.8 | 7,542.3 | (420.5) | (6)% | | Crude oil equivalent sales volume (MBoe) | 30,136.3 | 30,255.9 | (119.6) | 0% | | Average sales price (per Bbl/Mcf/Boe) | | | | | | Crude oil (per Bbl) | 70.78 | 98.81 | (28.03) | (28)% | | Natural gas (per Mcf) | 2.75 | 5.71 | (2.96) | (52)% | | NGL (per Bbl) | 23.34 | 42.75 | (19.41) | (45)% | | Crude oil equivalent (per Boe) | 43.59 | 65.02 | (21.43) | (33)% | - Product revenue decreased by 33% to $1.3 billion, primarily due to a 33% decrease in crude oil equivalent price (excluding derivative impact) of $21.43 per Boe[264] Operating Expenses (for the Six Months Ended June 30, 2023 and 2022) | Expense Item (in thousands) | 2023 6 Months | 2022 6 Months | Change | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Lease operating expenses | 97,068 | 77,896 | 19,172 | 25% | | Midstream operating expenses | 23,380 | 13,181 | 10,199 | 77% | | Gathering, transportation, and processing | 132,225 | 129,922 | 2,303 | 2% | | Production and ad valorem taxes | 104,805 | 149,174 | (44,369) | (30)% | | Depreciation, depletion, and amortization | 434,089 | 389,379 | 44,710 | 11% | | Consolidation transaction costs | 31,627 | 21,952 | 9,675 | 44% | | General and administrative expenses | 70,399 | 65,386 | 5,013 | 8% | | Total operating expenses | 896,047 | 869,457 | 26,590 | 3% | - Derivative gain for the first half of 2023 was $30.1 million, compared to a $368.1 million loss in the same period of 2022, primarily influenced by fair value adjustments where future market prices were expected to be lower than future hedged contract prices[335] - Income tax expense for the first half of 2023 was $109.5 million, with an effective tax rate of 24.3%, differing from the 21% statutory federal income tax rate mainly due to state income taxes and the tax impact of stock-based compensation[269] Liquidity and Capital Resources Analyzes the company's liquidity sources, capital needs, and funding strategies - As of June 30, 2023, the company's liquidity was $3.7 billion, including $2.7 billion in cash and $987.9 million in available borrowing capacity under its credit facility[271] - On August 2, 2023, the company completed acquisitions and amended its credit facility, increasing total commitments to $1.85 billion, the borrowing base to $3 billion, and available borrowing capacity to $1.1 billion[271] - The company expects its 2023 capital program to be funded by cash flow from operating activities, cash on hand, and available borrowing capacity under its credit facility[244] Cash Flows (for the Six Months Ended June 30, 2023 and 2022) | Item (in thousands) | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | | Net cash provided by operating activities | 876,030 | 1,254,768 | | Net cash used in investing activities | (923,204) | (733,491) | | Net cash provided by (used in) financing activities | 1,982,040 | (336,480) | Adjusted EBITDAX (in thousands) | Item | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Net income | 139,287 | 468,821 | 341,748 | 560,460 | | Depreciation, depletion, and amortization | 232,786 | 204,519 | 434,089 | 389,379 | | Interest expense | 8,753 | 8,116 | 16,202 | 17,182 | | Income tax expense | 44,363 | 152,464 | 109,452 | 175,825 | | Adjusted EBITDAX | 454,301 | 739,225 | 897,739 | 1,211,058 | Free Cash Flow (in thousands) | Item | 2023 3 Months | 2022 3 Months | 2023 6 Months | 2022 6 Months | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 337,181 | 722,227 | 876,030 | 1,254,768 | | Free cash flow | 189,231 | 429,366 | 375,711 | 635,903 | Critical Accounting Estimates States no significant changes to critical accounting policies during the quarter - During Q2 2023, there were no significant changes in the company's application of critical accounting policies[278] Material Commitments Confirms no significant changes to material commitments beyond specified notes - Except for disclosures in Note 6 (Commitments and Contingencies) and Note 13 (Leases), there have been no material changes to the company's obligations and commitments compared to the 2022 Form 10-K[279] New Accounting Pronouncements Refers to Note 1 for information on new accounting standards - Information regarding newly issued or adopted accounting pronouncements can be found in Note 1 (Summary of Significant Accounting Policies) in Part I, Item 1 of this report[277] Item 3. Quantitative and Qualitative Disclosures About Market Risk Identifies and discusses key market risks impacting the company's financial performance Oil and Natural Gas Price Risk Explains the company's exposure to volatile oil and gas market prices and hedging strategies - The company's financial condition, results of operations, and capital resources are highly dependent on volatile oil and gas market prices, which are influenced by global supply and demand, inflation, monetary policy, weather, and geopolitical factors[302] - The company uses commodity derivative contracts (such as swaps, call options, basis protection swaps, and put options) to hedge a portion of its future oil and gas production price risk to protect its balance sheet[281][338] Interest Rates Discusses the impact of floating interest rates on the company's borrowings - Borrowings under the company's credit facility bear floating interest rates tied to the Alternative Base Rate (ABR) or Secured Overnight Financing Rate (SOFR), and rising interest rates could adversely affect the company's operating results and cash flows[282] - As of June 30, 2023, there were no outstanding borrowings under the company's credit facility, but $750 million was outstanding as of the date of this report[282] Counterparty and Customer Credit Risk Addresses credit risks associated with derivative counterparties and major customers - The company faces credit risk from financial institutions in its derivative transactions; as of June 30, 2023, all derivative counterparties were members of the credit facility lending group and had investment-grade credit ratings[13] - The company also faces credit risk from oil and gas accounts receivable concentrated with specific significant customers, where failure to perform or bankruptcy could adversely affect financial results; the company reviews customer credit but generally does not require collateral[324] Marketability of Our Production Describes the reliance on third-party infrastructure for production marketability - The marketability of the company's production depends in part on the availability, proximity, and capacity of third-party refineries, trucking, pipeline, and rail infrastructure, natural gas gathering systems, and processing facilities[304] - A lack of or inadequate capacity in these systems and facilities could result in lower prices for the company's production or cause production wells to be shut-in or development plans to be delayed or curtailed[304] Item 4. Controls and Procedures Assesses the effectiveness of disclosure controls and internal controls over financial reporting - As of June 30, 2023, the company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated and concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[285][339] - During Q2 2023, no changes in internal control over financial reporting were identified that materially affected, or are reasonably likely to materially affect, the company's internal control[307] Part II. Other Information Contains additional disclosures not covered in the financial information section Item 1. Legal Proceedings Refers to Note 6 for details on the company's legal proceedings - Information regarding the company's legal proceedings is disclosed in Note 6 (Commitments and Contingencies) in Part I, Item 1 of this report[309] Item 1A. Risk Factors Highlights various risks that could materially affect the company's operations and financial results - The company's business faces numerous risks, and any risk factor could materially affect its business, financial condition, or results of operations[310] - Detailed risk factors can be found in Part I, Item 1A of the 2022 Form 10-K and Exhibit 99.2 to the Form 8-K filed on June 20, 2023[310] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Provides details on common stock repurchases during the quarter Common Stock Repurchase Information for Q2 2023 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | | :--- | :--- | :--- | :--- | :--- | | April 1 - April 30, 2023 | 11,661 | 69.57 | — | 1,000,000 | | May 1 - May 31, 2023 | 126,430 | 68.79 | — | 1,000,000 | | June 1 - June 30, 2023 | 314,570 | 64.56 | 312,766 | 479,810 | | Total | 452,661 | 65.87 | 312,766 | 479,810 | - In June 2023, the Board reduced the authorized amount for the stock repurchase program from $1 billion to $500 million[288] - Purchases not part of the repurchase plan represent shares received by the company from executives and employees to cover personal income tax withholding obligations upon RSU vesting[288] Item 3. Defaults Upon Senior Securities States that this item is not applicable, indicating no senior securities defaults - Not applicable[289][326] Item 4. Mine Safety Disclosures States that this item is not applicable, indicating no mine safety disclosures - Not applicable[312] Item 5. Other Information Discloses no Rule 10b5-1 trading arrangement adoptions or terminations by officers or directors - During Q2 2023, no directors or officers adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[290] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q report - Exhibits include the company's certificate of incorporation, senior notes indentures, acquisition agreements, credit agreement amendments, employment agreements, executive compensation agreements, CEO and CFO certifications, and XBRL data files[1] Signatures Confirms the official signing of the report by authorized company representatives - The report was signed by Chris Doyle, President and Chief Executive Officer, Marianella Foschi, Chief Financial Officer, and Sandi K. Garbiso, Chief Accounting Officer and Treasurer of Civitas Resources, Inc. on August 2, 2023[2][292][316][327][328]