Civitas Resources(US:CIVI)2024-02-26 16:00Glossary of Crude Oil and Natural Gas Terms This section provides definitions for key technical terms essential for understanding the company's crude oil and natural gas activities - The glossary defines terms such as 'Analogous reservoir,' 'Completion,' 'Boe' (barrel of oil equivalent), 'Developed acres,' 'Development costs,' 'Dry hole,' 'Economically producible,' 'Estimated ultimate recovery (EUR),' 'Horizontal drilling,' 'Net acres,' 'Proved reserves,' 'Proved developed reserves,' 'Proved undeveloped reserves,' 'Reasonable certainty,' 'Sales volumes,' and 'Undeveloped acreage,' among others1226272833343536373839404142436061125126127128129131132133134135136137138139140141142144145146147148149151152153154156157158159160161163164165166167178179180370371372383384385386387388 PART I Item 1. Business Civitas Resources is an E&P company in the DJ and Permian Basins focused on free cash flow and shareholder returns - Civitas is an independent exploration and production company primarily operating in the Denver-Julesburg (DJ) Basin in Colorado and the Permian Basin in Texas and New Mexico170 - The company's core business strategies include generating significant Free Cash Flow, maintaining a premier balance sheet, consistently returning cash to stockholders through dividends and buybacks, and demonstrating ESG leadership by reducing GHG emissions and aiming for carbon neutrality173174181182183 - In 2023, Civitas completed the Hibernia and Tap Rock Acquisitions, expanding its operations into the Permian Basin, adding approximately 68,500 net acres and 106,000 Boe per day203 | Metric | 2023 (MBoe) | | :----- | :---------- | | Total Proved Reserves | 697,799 | | Total Net Sales Volumes | 77,430 | | Average Daily Equivalents (MBoe/d) | 273.2 | Note: Total proved reserves increased 68% from December 31, 2022, and average daily equivalent sales volumes increased 61% for the combined operations, primarily due to acquisitions - The company achieved a Total Recordable Incident Rate (TRIR) of 0.23 in 2023, below its target of 0.25, demonstrating strong safety performance264 - Civitas is subject to extensive federal, state, and local regulations, including those related to environmental protection, air emissions, hydraulic fracturing, and pipeline safety256257268276295296300303304305308309310311312313314315318321322324325328329332333334335336337338339340342343344345346347354355357358359 Item 1A. Risk Factors The company faces significant risks from commodity price volatility, operations, regulations, and financial markets - Declines or volatility in crude oil, natural gas, and NGL prices are a primary risk, directly impacting revenue, profitability, cash flows, and the economic viability of reserves1721232931363373374389390393394 - Operational risks include the high-risk nature of drilling and production, challenges with horizontal drilling, potential for substantial losses and liability claims, and the need for significant capital expenditures to develop and replace reserves3053545689909293979899100106108115116365376474475476477482483487493504505 - Acquisition-related risks include the inability to make attractive acquisitions, failure to realize anticipated benefits from mergers, and encountering new obstacles when expanding into different geographic regions like the Permian Basin1555109110112117364378381484485494495 - Regulatory and environmental risks are significant, including evolving climate change laws, increased operating costs from GHG emission restrictions, potential for litigation, and heightened activism against oil and gas development, particularly in Colorado1824314571727485352362380418420436437450497498510511512517518519520521522523524525526532534537538539540541542 - Financial risks include derivative activities potentially leading to losses, debt covenants limiting financial flexibility, and exposure to credit risks of hedging counterparties and customers51526869737577787980828688369375395396397502527528529543544 - Risks related to common stock include market price volatility, restrictions on dividend payments, and the influence of significant stockholders119120121379553554555556557558570571572573582583584585 Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments575 Item 1C. Cybersecurity The company maintains a robust cybersecurity program with Audit Committee oversight and has had no material breaches - Cybersecurity risk is overseen by the Audit Committee, with quarterly reports from management586 - The Vice President of Information Technology leads cybersecurity initiatives, reporting to the Chief Administrative Officer and Corporate Secretary, and ensures alignment with industry best practices and compliance requirements587589 - The company employs a robust system of data protection, cybersecurity resources, technology, and processes, structured according to the NIST Cybersecurity Framework, including annual training, internal/external audits, and a comprehensive incident response plan590591 - Civitas has not experienced any material information security breaches or incurred material losses from penalties/settlements related to breaches in the last three years592 Item 2. Properties Information regarding the company's properties is incorporated by reference from Item 1 - Information required by Item 2 is contained in "Item 1. Business" and is incorporated by reference593 Item 3. Legal Proceedings The company is involved in routine legal proceedings not expected to have a material adverse effect - Civitas is a party to various routine legal proceedings, disputes, and claims arising in the ordinary course of business, including those related to federal and state laws, personal injury, title, royalty, contract, contamination, and environmental claims594 - Management believes that none of these matters, if ultimately decided adversely, will have a material adverse effect on the company's financial condition, results of operations, or cash flows594 - The company has received Notices of Alleged Violations (NOAV) from the ECMC and Colorado Air Pollution Control Division, with anticipated penalties of approximately $0.6 million577 Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable579605 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, with a dividend policy tied to Free Cash Flow and an active repurchase program - Civitas's common stock is listed on the NYSE under the symbol 'CIVI'607 - The dividend policy includes quarterly base and variable cash dividends, with variable dividends equal to 50% of Free Cash Flow after the base dividend, subject to leverage targets581608 Common Stock Repurchases (Q4 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------------- | :------------------------------- | :--------------------------- | | October 1, 2023 - October 31, 2023 | 912 | $79.11 | | November 1, 2023 - November 30, 2023 | 366 | $69.03 | | December 1, 2023 - December 31, 2023 | 87 | $69.29 | | Total | 1,365 | $75.78 | - In 2023, Civitas repurchased approximately 5.2 million shares at an average price of $61.21 per share1755996031164 Item 6. [Reserved] This item is reserved and contains no information - Item 6 is reserved609 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes 2023 financial performance, highlighting increased volumes from acquisitions and lower net income due to commodity prices - In 2023, Civitas's total sales volumes increased by 25% compared to 2022, with average daily sales volumes rising to 273 MBoe/d from 170 MBoe/d, primarily driven by the Hibernia and Tap Rock acquisitions614 2023 Financial and Operating Results | Metric | 2023 | 2022 | Change (%) | | :-------------------------------- | :--------- | :--------- | :--------- | | Net Income | $784.3 million | $1,248.1 million | -37.1% | | Diluted EPS | $9.02 | $14.58 | -38.1% | | Cash Flows from Operating Activities | $2.2 billion | $2.5 billion | -12.0% | | Free Cash Flow | $795.9 million | $1.2 billion | -34.4% | | Cash Dividends Declared | $668.7 million | $541.3 million | +23.5% | | Proved Reserves (MMBoe) | 697.8 | 416.0 | +67.7% | - Total product revenues decreased by 8% to $3.5 billion in 2023, primarily due to a 26% decrease in total commodity pricing, partially offset by the 25% increase in sales volumes from acquisitions636 Average Sales Prices (Before Derivatives) | Commodity | 2023 (per unit) | 2022 (per unit) | Change (%) | | :-------------------- | :-------------- | :-------------- | :--------- | | Crude Oil (per Bbl) | $75.57 | $91.70 | -18% | | Natural Gas (per Mcf) | $2.28 | $6.15 | -63% | | NGL (per Bbl) | $21.35 | $35.76 | -40% | | Total (per Boe) | $44.86 | $61.03 | -26% | - Operating expenses increased by 29% to $2.34 billion in 2023, with lease operating expense per Boe increasing by 42% due to higher costs in the Permian Basin and inflationary pressures in the DJ Basin648700 - The 2024 capital program is projected to be between $1.8 billion and $2.1 billion, with approximately 60% allocated to the Permian Basin and 40% to the DJ Basin621645 Adjusted EBITDAX Reconciliation | Metric | 2023 (in thousands) | 2022 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | | Net Income | $784,288 | $1,248,080 | | Exploration | $2,178 | $6,981 | | Depreciation, depletion, and amortization | $1,171,192 | $816,446 | | Abandonment and impairment of unproved properties | $0 | $17,975 | | Transaction costs | $84,328 | $24,683 | | Stock-based compensation | $34,931 | $31,367 | | Derivative (gain) loss | $(9,307) | $335,160 | | Derivative cash settlement loss | $(68,246) | $(576,802) | | Interest expense | $182,740 | $32,199 | | Income tax expense | $215,166 | $405,698 | | Adjusted EBITDAX | $2,369,190 | $2,347,585 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity prices, interest rates, and counterparty credit - Civitas's financial condition is highly dependent on crude oil and natural gas market prices, which are subject to wide fluctuations404711 - A 10% decline in SEC crude oil and natural gas prices would decrease proved reserve volumes by 3% and PV-10 value by approximately 18% ($1.6 billion)404 - The company uses derivative contracts to manage commodity price risk, which can limit benefits from favorable price changes but also exposes them to financial losses395396405712 - Borrowings under the Credit Facility bear fluctuating interest rates (ABR or SOFR), exposing the company to interest rate risk713 - Civitas faces credit risk from hedging counterparties and customers, with significant concentrations in crude oil and natural gas receivables407502527543714 - Marketability of production depends on the availability and capacity of third-party infrastructure, and disruptions could reduce prices or shut-in wells715 Item 8. Financial Statements and Supplementary Data This item presents the company's audited consolidated financial statements, supplementary data, and independent auditor's report Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on the company's consolidated financial statements - Deloitte & Touche LLP provided an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2023, stating they are presented fairly in all material respects in conformity with GAAP701702 Critical Audit Matters Critical audit matters include estimating proved oil and gas reserves and valuing properties acquired in business combinations - A critical audit matter is the estimation of proved oil and gas reserve quantities, including management's assumptions for converting proved undeveloped reserves to producing properties within five years704719 - Another critical audit matter is the valuation of oil and gas properties acquired in the Hibernia and Tap Rock acquisitions, which involved significant management judgment and complex inputs722723 - Audit procedures included testing controls, comparing forecasts to historical data and industry reports, and evaluating the experience and methodologies of management's and independent experts410411412413414415416417426438721723 Consolidated Balance Sheets Total assets increased to $14.1 billion in 2023, driven by acquisitions and a corresponding rise in liabilities Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------------------- | :------------------ | :------------------ | | Total Current Assets | $2,144,412 | $1,328,430 | | Total Property and Equipment, Net | $11,820,216 | $6,611,105 | | Total Assets | $14,097,319 | $7,971,399 | | Total Current Liabilities | $1,851,887 | $1,177,927 | | Total Liabilities | $7,915,998 | $2,597,480 | | Total Stockholders' Equity | $6,181,321 | $5,373,919 | - Proved properties, net, increased significantly to $10.4 billion in 2023 from $5.6 billion in 2022, reflecting substantial investments and acquisitions429 - Long-term liabilities saw a major increase, with senior notes rising to $4.0 billion and the credit facility balance at $750.0 million in 2023, primarily to fund acquisitions429 Consolidated Statements of Operations and Comprehensive Income Net income decreased in 2023 due to lower commodity prices and higher operating costs, despite increased sales volumes Consolidated Statements of Operations Highlights (in thousands) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Crude oil, natural gas, and NGL sales | $3,479,240 | $3,791,398 | $930,614 | | Total Operating Expenses | $2,339,760 | $1,807,358 | $608,551 | | Derivative gain (loss), net | $9,307 | $(335,160) | $(60,510) | | Interest expense | $(182,740) | $(32,199) | $(9,700) | | Income tax expense | $(215,166) | $(405,698) | $(72,858) | | Net Income | $784,288 | $1,248,080 | $178,921 | | Basic EPS | $9.09 | $14.68 | $4.82 | | Diluted EPS | $9.02 | $14.58 | $4.74 | - Crude oil, natural gas, and NGL sales decreased by 8% in 2023 to $3.48 billion, primarily due to lower commodity prices, despite increased sales volumes440636 - Total operating expenses increased by 29% to $2.34 billion in 2023, driven by higher lease operating expenses, midstream operating expenses, and transaction costs440700 Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $6.18 billion in 2023, influenced by net income and stock issuance for acquisitions Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2023 | December 31, 2022 | December 31, 2021 | | :--------------------------------------- | :------------------ | :------------------ | :------------------ | | Total Stockholders' Equity | $6,181,321 | $5,373,919 | $4,654,998 | | Common Shares Outstanding | 93,774,901 | 85,120,287 | 84,572,846 | | Additional Paid-In Capital | $4,964,450 | $4,211,197 | $4,199,108 | | Retained Earnings | $1,211,867 | $1,157,804 | $450,978 | | Net Income | $784,288 | $1,248,080 | $178,921 | | Cash Dividends | $(668,669) | $(541,254) | $(61,704) | | Common Stock Repurchased and Retired | $(320,398) | $0 | $0 | - Issuance of common stock for acquisitions contributed $990.1 million to additional paid-in capital in 2023433 - Cash dividends declared totaled $668.7 million in 2023, and the company repurchased and retired $320.4 million of common stock433 Consolidated Statements of Cash Flows Operating cash flow decreased in 2023, while significant financing activities funded substantial business and property acquisitions Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Net Cash Provided by Operating Activities | $2,238,760 | $2,477,041 | $274,599 | | Net Cash Used in Investing Activities | $(5,243,155) | $(1,306,095) | $73,547 | | Net Cash Provided by (Used in) Financing Activities | $3,363,076 | $(657,368) | $(118,435) | | Net Change in Cash, Cash Equivalents, and Restricted Cash | $358,681 | $513,578 | $229,711 | | Cash, Cash Equivalents, and Restricted Cash (End of Period) | $1,126,815 | $768,134 | $254,556 | - Net cash provided by operating activities decreased by $238.3 million to $2.2 billion in 2023, mainly due to lower commodity prices and higher operating/transaction costs660 - Net cash used in investing activities was $5.2 billion in 2023, primarily for business acquisitions ($3.7 billion) and exploration/development of properties ($1.4 billion)662 - Net cash provided by financing activities was $3.4 billion in 2023, largely from $3.7 billion in senior notes issuance and $750 million in net credit facility borrowings, used to fund acquisitions665 Note 1 - Summary of Significant Accounting Policies This note outlines key accounting policies, including the successful efforts method, fair value measurements, and revenue recognition - Civitas operates in one industry segment: acquisition, development, and production of crude oil and associated liquids-rich natural gas in the continental United States448 - The company uses the successful efforts method of accounting for oil and natural gas properties, capitalizing development well costs and depleting them using the units-of-production method456705 - Unproved properties are evaluated quarterly for impairment, considering factors like lease terms, drilling plans, commodity prices, and operational results467706 - Revenue from crude oil, natural gas, and NGL sales is recognized when control transfers to the purchaser783784785 - Asset retirement obligations are recognized at fair value for future abandonment costs of oil and gas properties, discounted using a credit-adjusted risk-free rate770774 - The company periodically enters into commodity derivative contracts to mitigate exposure to adverse market changes, measuring them at fair value and recording changes in earnings763771772 Note 2 - Acquisitions and Divestitures This note details significant 2023 acquisitions that expanded the company's Permian Basin operations - On August 2, 2023, Civitas acquired Hibernia Energy III Holdings, LLC for approximately $2.2 billion in cash, adding proved properties valued at $2.14 billion802 - Also on August 2, 2023, Civitas acquired Tap Rock AcquisitionCo, LLC and related entities for approximately $2.5 billion, consisting of cash and 13.5 million shares of common stock804813814 - The Vencer Acquisition, which closed on January 2, 2024, involved acquiring oil and gas properties for approximately $2.05 billion (cash and 7.3 million shares of common stock)820 - Transaction costs related to these acquisitions were $84.3 million in 2023, expensed as incurred821 - The results of operations for Hibernia and Tap Rock contributed approximately $312.7 million and $410.4 million in revenue, respectively, to Civitas's consolidated statements of operations for the period from August 2, 2023, through December 31, 2023817826 Note 3 - Revenue Recognition This note details revenue recognition policies and provides a breakdown of operating net revenues by basin - Revenue is recognized at the point in time when control of produced crude oil, natural gas, or NGL volumes transfers to the purchaser783 Disaggregated Operating Net Revenues (in thousands) | Product | DJ Basin (2023) | Permian Basin (2023) | Total (2023) | Total (2022) | Total (2021) | | :-------------------------- | :-------------- | :------------------- | :----------- | :----------- | :----------- | | Crude oil | $2,141,936 | $634,756 | $2,776,692 | $2,536,134 | $614,811 | | Natural gas | $284,670 | $25,050 | $309,720 | $695,079 | $144,708 | | NGL | $326,675 | $66,153 | $392,828 | $560,185 | $171,095 | | Total Sales | $2,753,281 | $725,959 | $3,479,240 | $3,791,398 | $930,614 | Note 4 - Accounts Payable and Accrued Expenses This note provides a detailed breakdown of accounts payable and accrued expenses, showing significant increases in 2023 Accounts Payable and Accrued Expenses (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :--------------------------------------- | :------------------ | :------------------ | | Accounts payable trade | $55,750 | $31,783 | | Accrued drilling and completion costs | $149,520 | $137,171 | | Accrued lease operating expense | $80,423 | $18,109 | | Accrued gathering, transportation, and processing | $69,060 | $59,398 | | Accrued general and administrative expense | $30,095 | $20,054 | | Accrued transaction costs | $8,796 | $0 | | Accrued commodity derivative settlements | $1,580 | $12,514 | | Accrued interest expense | $141,401 | $5,509 | | Other accrued expenses | $29,083 | $10,759 | | Total | $565,708 | $295,297 | - Total accounts payable and accrued expenses increased by 91.6% from $295.3 million in 2022 to $565.7 million in 2023827 - Accrued interest expense saw a substantial increase from $5.5 million in 2022 to $141.4 million in 2023, reflecting higher debt levels from recent acquisitions827 Note 5 - Long-Term Debt This note details the company's long-term debt structure, including new Senior Notes issued to fund acquisitions Senior Notes Outstanding (in thousands) | Senior Notes | Interest Rate | Principal Amount | Principal Amount, Net (Dec 31, 2023) | | :------------------ | :------------ | :--------------- | :----------------------------------- | | 2026 Senior Notes | 5.000% | $400,000 | $394,929 | | 2028 Senior Notes | 8.375% | $1,350,000 | $1,328,463 | | 2030 Senior Notes | 8.625% | $1,000,000 | $984,400 | | 2031 Senior Notes | 8.750% | $1,350,000 | $1,327,940 | | Total | | $4,100,000 | $4,035,732 | - In June 2023, Civitas issued $1.35 billion each of 2028 Senior Notes and 2031 Senior Notes to fund a portion of the Hibernia and Tap Rock acquisitions834 - In October 2023, $1.0 billion of 2030 Senior Notes were issued to fund a portion of the Vencer Acquisition836 - The Credit Facility's aggregate elected commitments increased from $1.0 billion to $1.85 billion, the borrowing base increased to $3.0 billion, and the aggregate maximum credit commitment increased to $4.0 billion in August 2023848849 - As of December 31, 2023, Civitas had a $750.0 million balance on its Credit Facility and $1.1 billion of available borrowing capacity654767 - The company was in compliance with all financial and non-financial covenants under the Credit Facility and Senior Notes as of December 31, 2023655839850 Note 6 - Commitments and Contingencies This note details contractual commitments for transportation and drilling, including anticipated shortfall payments - Civitas is party to a crude oil transportation services agreement requiring delivery of 20,000 Bbls/day through December 2028, with an aggregate financial commitment of $74.9 million736 - A gas gathering and processing agreement has an annual minimum volume commitment of 13.0 billion cubic feet of natural gas through December 2029, with an aggregate financial commitment of $79.0 million742 - The company recorded $5.6 million in other operating expense in 2023 due to volume deficiencies under the gas gathering agreement and anticipates approximately $20.6 million in future shortfall payments742 - A drilling commitment agreement requires drilling and completing 106 qualifying wells by December 31, 2026744 Minimum Volume Commitments (in thousands) | Year | Firm Transportation | Minimum Volume | | :--- | :------------------ | :------------- | | 2024 | $18,932 | $29,583 | | 2025 | $6,501 | $30,952 | | 2026 | $0 | $28,774 | | 2027 | $0 | $28,720 | | 2028 and thereafter | $0 | $41,626 | | Total | $25,433 | $159,655 | Note 7 - Stock-Based Compensation This note describes the company's Long Term Incentive Plans, with total stock-based compensation expense of $34.9 million in 2023 - Civitas's LTIP includes RSUs, DSUs, PSUs, and stock options, with shares reserved under various equity plans753 Stock-Based Compensation Expense (in thousands) | Award Type | 2023 | 2022 | 2021 | | :-------------------------- | :--------- | :--------- | :--------- | | Restricted and deferred stock units | $19,502 | $19,401 | $11,895 | | Performance stock units | $15,429 | $11,966 | $3,663 | | Total | $34,931 | $31,367 | $15,558 | - PSUs granted in 2021 are expected to be released in Q1 2024 with a performance achievement of 142%860 PSU Valuation Assumptions (2023) | Metric | 2023 | | :---------------------- | :--------- | | Expected term (in years) | 3.0 | | Risk-free interest rate | 3.6% to 5.0% | | Expected daily volatility | 3.1% to 3.7% | Note 8 - Fair Value Measurements This note outlines the fair value hierarchy used for financial and non-financial assets and liabilities - The fair value hierarchy consists of Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (significant unobservable inputs)871912 - Crude oil and natural gas commodity price derivatives are measured using Level 2 inputs, based on industry-standard models and market-based inputs873 Derivative Assets and Liabilities Fair Value (in thousands) | Category | December 31, 2023 (Level 2) | December 31, 2022 (Level 2) | | :----------------------- | :-------------------------- | :-------------------------- | | Derivative assets | $43,425 | $3,284 | | Derivative liabilities | $18,096 | $63,533 | - The fair value of Senior Notes is based on quoted market prices (Level 1), while acquired oil and gas properties and impairments are measured using Level 3 inputs875879 Note 9 - Derivatives This note details the company's commodity derivative contracts used to mitigate price volatility - Civitas uses commodity derivative contracts (swaps, collars, basis protection swaps, and puts) to mitigate exposure to adverse market changes in crude oil and natural gas prices880 Crude Oil Derivatives as of December 31, 2023 (Bbl/day, $/Bbl) | Type | Q1 2024 Volumes | Q1 2024 Wtd-Avg Price | | :-------------------- | :---------------- | :-------------------- | | Swaps | 19,727 | $72.75 | | Two-Way Collars (Ceiling) | 27,913 | $88.38 | | Two-Way Collars (Floor) | 27,913 | $64.88 | | Three-Way Collars (Ceiling) | 573 | $56.25 | | Three-Way Collars (Floor) | 573 | $45.00 | | Three-Way Collars (Sold Put) | 573 | $35.00 | | Bought Puts | 7,942 | $55.00 | Natural Gas Derivatives as of December 31, 2023 (MMBtu/day, $/MMBtu) | Type | Q1 2024 Volumes | Q1 2024 Wtd-Avg Price | | :-------------------- | :---------------- | :-------------------- | | Swaps | 31,790 | $2.69 | | Two-Way Collars (Ceiling) | 736 | $3.16 | | Two-Way Collars (Floor) | 736 | $2.50 | | Three-Way Collars (Ceiling) | 1,166 | $3.50 | | Three-Way Collars (Floor) | 1,166 | $2.50 | | Three-Way Collars (Sold Put) | 1,166 | $2.00 | | Basis Protection Swaps | 33,691 | $(0.27) | Total Derivative Gain (Loss) (in thousands) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Derivative cash settlement gain (loss) | $(68,246) | $(576,802) | $(275,914) | | Change in fair value gain | $77,553 | $241,642 | $215,404 | | Total derivative gain (loss) | $9,307 | $(335,160) | $(60,510) | Note 10 - Asset Retirement Obligations This note details the company's asset retirement obligations, which increased to $336.8 million in 2023 due to acquisitions - Civitas recognizes an estimated liability for future costs associated with the abandonment of oil and gas properties, discounted using a credit-adjusted risk-free rate890893 Asset Retirement Obligation Roll-Forward (in thousands) | Metric | 2023 | 2022 | | :--------------------------------------- | :--------- | :--------- | | Balance, beginning of year | $291,026 | $225,315 | | Additional liabilities incurred with development activities and other | $7,516 | $1,919 | | Additional liabilities incurred with acquisitions | $40,373 | $1,112 | | Liabilities settled | $(19,136) | $(15,902) | | Accretion expense | $17,053 | $15,926 | | Revisions to estimate | $0 | $62,656 | | Balance, end of year | $336,832 | $291,026 | | Current portion | $31,116 | $25,557 | | Long-term portion | $305,716 | $265,469 | - Additional liabilities incurred with acquisitions significantly contributed to the increase in ARO, totaling $40.4 million in 2023891 Note 11 - Earnings Per Share This note details the calculation of basic and diluted earnings per share, with diluted EPS at $9.02 for 2023 - Basic and diluted EPS are calculated using the treasury stock method, with diluted EPS including the effect of potentially dilutive securities896 Earnings Per Common Share (in thousands, except per share amounts) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Net Income | $784,288 | $1,248,080 | $178,921 | | Basic earnings per common share | $9.09 | $14.68 | $4.82 | | Diluted earnings per common share | $9.02 | $14.58 | $4.74 | | Weighted-average shares outstanding - basic | 86,240 | 85,005 | 37,155 | | Add: dilutive effect of stock awards | 748 | 599 | 591 | | Weighted-average shares outstanding - diluted | 86,988 | 85,604 | 37,746 | - Warrants were excluded from EPS calculations for all periods presented as their exercise price exceeded the stock price, making them anti-dilutive899 Note 12 - Income Taxes This note details income tax provisions, with a total expense of $215.2 million and an effective tax rate of 21.5% for 2023 - Income taxes are accounted for under the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences789 Provision for Income Taxes (in thousands) | Category | 2023 | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Total current tax expense (benefit) | $(29,997) | $68,196 | $0 | | Total deferred tax expense | $245,163 | $337,502 | $72,858 | | Total income tax expense | $215,166 | $405,698 | $72,858 | - The effective tax rate for 2023 was 21.5%, differing from the 21% federal statutory rate due to state income taxes and other permanent differences670905 - Civitas had $2.1 billion in federal net operating loss carryforwards as of December 31, 2023, with some subject to Section 382 limitations902904 Note 13 - Leases This note details the company's lease accounting, with total lease cost in 2023 amounting to $113.9 million - Operating and finance leases with terms greater than 12 months are recognized on the balance sheets, with right-of-use assets and lease liabilities measured at the present value of lease payments471 Total Lease Cost (in thousands) | Category | 2023 | 2022 | 2021 | | :----------------------- | :--------- | :--------- | :--------- | | Operating lease cost | $32,769 | $21,050 | $15,449 | | Finance lease cost (Amortization of ROU assets) | $1,275 | $0 | $3 | | Finance lease cost (Interest on lease liabilities) | $442 | $0 | $1 | | Short-term lease cost | $79,405 | $55,059 | $3,662 | | Total lease cost | $113,891 | $76,109 | $19,115 | Right-of-Use Assets and Lease Liabilities (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :--------------------------------------- | :------------------ | :------------------ | | Operating Leases (Right-of-Use Asset) | $78,266 | $24,125 | | Operating Leases (Lease Liability) | $79,134 | $24,788 | | Finance Leases (Right-of-Use Asset) | $16,340 | $0 | | Finance Leases (Lease Liability) | $16,404 | $0 | Note 14 - Supplemental Disclosures of Cash Flow Information This note provides supplemental cash flow data, highlighting significant non-cash activities related to 2023 acquisitions Supplemental Cash Flow Information (in thousands) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Cash (paid) refunded for income taxes | $50,049 | $(97,800) | $(14,000) | | Cash paid for interest | $(37,112) | $(28,528) | $(1,829) | | Investing activities for property additions related to acquisitions of businesses | $1,049,129 | $0 | $4,911,186 | | Issuance of common stock for acquisition of businesses | $990,204 | $0 | $3,481,312 | | Right-of-use assets obtained in exchange for new operating lease obligations | $85,521 | $4,874 | $25,469 | | Right-of-use assets obtained in exchange for new finance lease obligations | $17,614 | $0 | $0 | - In 2023, significant non-cash investing activities included $1.05 billion for property additions related to business acquisitions and $990.2 million for common stock issued for acquisitions943 Note 15 - Stockholders' Equity This note details share repurchase activities and the dividend policy, with $668.7 million in dividends declared in 2023 - In January 2023, Civitas repurchased approximately 4.9 million shares of common stock for $300.0 million in a privately-negotiated transaction863 - Under its stock repurchase program, the company repurchased approximately 312,800 shares for $20.3 million in 2023, with the program's authorization reduced to $500.0 million864 - In February 2024, Civitas entered into another privately-negotiated agreement to purchase approximately 876,200 shares for $56.5 million945 Dividends Declared (in thousands, except per share amounts) | Dividend Type | 2023 (per share) | 2022 (per share) | 2021 (per share) | | :-------------------- | :--------------- | :--------------- | :--------------- | | Base dividend | $2.00 | $1.89 | $1.16 | | Variable dividend | $5.60 | $4.40 | $0 | | Total dividend | $7.60 | $6.29 | $1.16 | | Total dividend (in thousands) | $668,669 | $541,254 | $61,704 | Note 16 - Disclosures About Crude Oil and Natural Gas Producing Activities (Unaudited) This note provides unaudited disclosures on reserves, which increased significantly in 2023 due to acquisitions - Proved reserve estimates are inherently imprecise and subject to revision based on production history, development, and price changes856 Proved Reserves Roll-Forward (MBoe) | Metric | December 31, 2023 | December 31, 2022 | December 31, 2021 | | :--------------------------------------- | :------------------ | :------------------ | :------------------ | | Beginning of year | 416,019 | 397,690 | 118,192 | | Extensions, discoveries, and other additions | 21,513 | 27,904 | 36 | | Production | (77,430) | (62,063) | (8,595) | | Acquisition of reserves | 372,377 | 27,269 | 332,093 | | Revisions to previous estimates | (27,982) | 25,447 | (19,983) | | End of year | 697,799 | 416,019 | 397,690 | | Proved developed reserves (End of year) | 541,239 | 344,904 | 317,839 | | Proved undeveloped reserves (End of year) | 156,560 | 71,115 | 79,851 | - In 2023, proved reserves increased by 67.7% to 697,799 MBoe, primarily due to 372,377 MBoe from acquisitions (Hibernia and Tap Rock)189208857 - Negative revisions of 28.0 MMBoe in 2023 were driven by lower SEC prices (WTI crude oil $78.22/Bbl, HH natural gas $2.64/MMBtu), non-producing wells, and updates to production costs and well performance200916 Standardized Measure of Discounted Future Net Cash Flows (in thousands) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | :--------- | | Future cash flows | $27,947,743 | $23,225,188 | $14,401,814 | | Future production costs | $(11,038,268) | $(6,490,522) | $(5,054,695) | | Future development costs | $(2,366,582) | $(1,337,494) | $(1,107,576) | | Future income tax expense | $(1,605,756) | $(2,870,178) | $(1,465,949) | | Future net cash flows | $12,937,137 | $12,526,994 | $6,773,594 | | 10% annual discount | $(4,667,858) | $(4,599,504) | $(2,361,490) | | Standardized measure | $8,269,279 | $7,927,490 | $4,412,104 | Item 9. Disagreements with Accountants on Accounting and Financial Disclosure The company reported no disagreements with accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure925 Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023927 - Management assessed and determined that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework931 - The assessment of internal control over financial reporting excluded the internal controls of the Hibernia and Tap Rock acquisitions, which represented approximately 9% and 12% of total revenues, respectively, for 2023931938 - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2023932936 - There were no changes in internal control over financial reporting during Q4 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting933 Item 9B. Other Information This item states that there is no other information to report - No other information is reported under this item950 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item states that disclosures regarding foreign jurisdictions that prevent inspections are not applicable - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable951 PART III Item 10. Directors, Executive Officers, and Corporate Governance Information for this item will be incorporated by reference from a future proxy statement filing - Information for this item will be incorporated by reference from a future SEC filing within 120 days after December 31, 2023954 - The Board has adopted a Code of Business Conduct and Ethics applicable to all officers, directors, and employees, available on the company's website955 Item 11. Executive Compensation Information regarding executive compensation will be incorporated by reference from a future proxy statement filing - Information for this item will be incorporated by reference from a future SEC filing within 120 days after December 31, 2023956 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership will be incorporated by reference from a future proxy statement filing - Information for this item will be incorporated by reference from a future SEC filing within 120 days after December 31, 2023957 Item 13. Certain Relationships and Related Transaction and Director Independence Information regarding related transactions and director independence will be incorporated by reference from a future proxy statement filing - Information for this item will be incorporated by reference from a future SEC filing within 120 days after December 31, 2023958 Item 14. Principal Accounting Fees and Services (PCAOB ID No. 34) Information regarding principal accounting fees and services will be incorporated by reference from a future proxy statement filing - Information for this item will be incorporated by reference from a future SEC filing within 120 days after December 31, 2023959 PART IV Item 15. Exhibits and Financial Statement Schedules. This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report - The report includes financial statements as per Item 8 and lists numerous exhibits, including merger agreements, purchase agreements, indentures for senior notes, long-term incentive plans, and certifications962963964965967 Item 16. Form 10-K Summary This item indicates that no Form 10-K summary is provided - No Form 10-K Summary is provided967 Signatures This section contains the required signatures for the Annual Report on Form 10-K - The report is signed by Chris Doyle (President, CEO, and Director), Marianella Foschi (CFO and Treasurer), Kayla D. Baird (SVP and Chief Accounting Officer), and other directors, affirming compliance with Securities Exchange Act of 1934 requirements969971