Civitas Resources, Inc. (CIVI) is an independent exploration and production company focused on the acquisition, development, and production of crude oil and liquids-rich natural gas primarily in the DJ Basin in Colorado and the Permian Basin in Texas and New Mexico. The company has demonstrated its ability to drive operational efficiencies and return significant capital to shareholders, positioning it for long-term success.
Financial Highlights
In the fiscal year 2023, Civitas reported annual net income of $784.3 million, annual revenue of $3.48 billion, annual operating cash flow of $2.24 billion, and annual free cash flow of $729.6 million. These strong financial results highlight the company's ability to generate substantial cash flows and return capital to shareholders.
During the first quarter of 2024, Civitas continued its impressive performance. The company reported net income of $175.8 million and revenue of $1.33 billion, representing a 103% increase in revenue compared to the same period in the prior year. Operating cash flow for the quarter was $812.6 million, and the company generated $145.6 million in free cash flow.
Operational Efficiency Gains
A key driver of Civitas' success has been its ability to drive operational efficiencies, particularly in the Permian Basin. In the first quarter of 2024, the company reported a 5% reduction in drilling and completion costs per foot compared to the prior quarter. This was achieved through improvements in drilling and completion cycle times, as well as optimization of field-level operations.
Specifically, Civitas has increased average footage drilled per day by nearly 30% compared to prior operators in the Permian Basin. The company also reported a recent achievement of drilling a 3-mile lateral in the Midland Basin in under 10 days from spud to rig release. On the completion side, the company has increased daily fluid throughput by 20%, further reducing cycle times and costs.
These operational efficiency gains have translated to lower lease operating expenses (LOE) in the Permian Basin, with LOE coming in more than $1 per barrel of oil equivalent (BOE) below expectations in the first quarter. The company has also found ways to optimize its portfolio through asset trades, acreage swaps, and small acquisitions, further enhancing the value of its Permian assets.
DJ Basin Performance
In addition to the strong results in the Permian, Civitas' DJ Basin assets continue to perform exceptionally well. The company completed 13 4-mile laterals in the highly prolific Watkins area during the first quarter, which are the longest wells ever drilled and completed in the basin. These longer laterals allow Civitas to access additional resources while reducing surface impact.
The DJ Basin assets comprise approximately 70% of Civitas' 2024 capital investments, and the company remains encouraged by the production performance in the region. Civitas has 320 remaining development locations at Watkins, the majority of which are covered by comprehensive area plans, providing visibility into future development.
Shareholder Returns
Civitas' commitment to shareholder returns has been a hallmark of the company's strategy since its formation in 2021. During the first quarter of 2024, the company returned $215 million to shareholders through a combination of dividends and share repurchases.
Since the beginning of 2023, Civitas has repurchased $462 million of its stock at an average price of $63.30 per share, representing approximately 18% of the company's market capitalization. The company's total return, including dividends, has approached $1.3 billion over the same time frame.
Regulatory Environment
Civitas has also navigated the regulatory landscape in Colorado effectively. The company recently worked with the state government, environmental groups, and other industry participants to reach a compromise on oil and gas development regulations. This compromise provides certainty that the government will oppose any future ballot measures or legislative attempts to upend the industry's operations in the state through at least 2027.
This regulatory clarity is a significant positive for Civitas, as it removes a key risk factor and allows the company to focus on executing its operational and financial strategies without the overhang of potential near-term changes to the regulatory environment.
Outlook
Looking ahead, Civitas remains focused on maximizing free cash flow, enhancing its balance sheet, and returning capital to shareholders. The company has maintained its full-year 2024 production guidance despite the $300 million in asset sales completed during the first quarter, demonstrating the strength of its underlying asset base and operational execution.
Civitas' capital expenditure guidance for 2024 remains unchanged at $1.95 billion, with approximately 60% of that budget allocated to the Permian Basin. The company expects to spend 60% to 65% of its full-year capital budget in the first half of 2024, reflecting the strong momentum in its operations.
Conclusion
Civitas Resources has demonstrated its ability to drive operational efficiencies, navigate the regulatory landscape, and return significant capital to shareholders. The company's strong financial performance, with annual net income of $784.3 million, annual revenue of $3.48 billion, annual operating cash flow of $2.24 billion, and annual free cash flow of $729.6 million, underscores its position as a leading independent exploration and production company.
The company's focus on maximizing free cash flow, maintaining a strong balance sheet, and returning capital to shareholders through dividends and share repurchases has been well-received by investors. Civitas' ability to integrate its recent acquisitions and drive operational improvements in the Permian Basin, coupled with the continued strong performance of its DJ Basin assets, positions the company for long-term success.