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Civitas Resources(CIVI) - 2023 Q2 - Earnings Call Transcript
CIVICivitas Resources(CIVI)2023-08-03 19:40
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Financial Data and Key Metrics Changes - Civitas reported free cash flow of approximately 190millioninQ22023,exceedingconsensusexpectationsdrivenbystrongproductionandlowerexpenses[27]−Productionaveragedabout173,000BOEperdayinQ22023,withafirsthalfaverageofabout166,000BOEperday,aligningwithannualguidance[27][29]−Capitalexpendituresforthefullyear2023areexpectedtobearound190 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 300millioninnon−coreassetsbymid−2024toenhanceitsportfolioandreducedebt[20][37]ManagementCommentsonOperatingEnvironmentandFutureOutlook−ManagementexpressedconfidenceintheintegrationofrecentacquisitionsandtheperformanceoftheDJbusiness,highlightingtheimportanceofapremierbalancesheet[56]−Thecompanyanticipatesthatthedivestmentofnon−coreassetswillstrengthenitsfoundationandsupportfuturegrowth,evenifcommoditypricesstrengthen[48]OtherImportantInformation−Civitashasreturnedover300 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 320millioninstockyear−to−date,with320 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]