Business Overview From DJ Basin Specialist to Diversified Operator
Civitas Resources, Inc. (CIVI) has undergone a remarkable transformation in recent years, emerging as a leading independent exploration and production company focused on the acquisition, development, and production of crude oil and liquids-rich natural gas. Headquartered in Denver, Colorado, Civitas has strategically expanded its footprint beyond its historical stronghold in the DJ Basin, solidifying its presence in the prolific Permian Basin.
Civitas Resources, Inc. was formed in 2021 through the combination of Bonanza Creek Energy, Inc. and Extraction Oil & Gas, Inc. This merger created a leading exploration and production company with a premier position in the DJ Basin and an emerging presence in the Permian Basin. The combination allowed Civitas to achieve significant operational and financial synergies while diversifying its geographic footprint and asset base.
Bonanza Creek Energy, Inc., one of Civitas' predecessor companies, was founded in 2002 as an independent exploration and production company focused on the Rocky Mountain region, particularly Colorado's DJ Basin. Over the years, Bonanza Creek expanded its operations and acreage position in the DJ Basin through strategic acquisitions.
Extraction Oil & Gas, Inc., the other predecessor company, was established in 2012 with a primary focus on the Wattenberg Field in the DJ Basin of Colorado. Extraction Oil & Gas grew its operations and asset base in the DJ Basin through both organic leasing and strategic acquisitions.
Since its formation, Civitas has continued to optimize its operations and execute on its strategy of generating significant free cash flow, maintaining a strong balance sheet, and returning capital to shareholders. The company has demonstrated its ability to adapt to challenges such as commodity price volatility and supply chain disruptions while delivering strong operational and financial performance.
In 2023, Civitas embarked on a transformative growth strategy, making a series of strategic acquisitions to expand its presence into the Permian Basin of Texas and New Mexico. The company first acquired Hibernia Energy and Tap Rock Resources, establishing a solid foothold in the Midland and Delaware sub-basins of the Permian. This was followed by the 2024 acquisition of Vencer Energy, further strengthening Civitas' Permian portfolio.
Today, Civitas operates in two premier oil and gas basins – the DJ Basin in Colorado and the Permian Basin in Texas and New Mexico. The company's asset diversification has provided it with a more balanced and resilient production profile, reducing its reliance on a single basin and enhancing its ability to generate sustainable free cash flow.
Financial Performance Delivering Consistent Results
Civitas' financial performance has been consistently strong, with the company demonstrating its ability to navigate volatile commodity price environments. In the fiscal year 2024, the company reported revenue of $5.20 billion, a 50% increase from the prior year. This revenue growth was driven by a 63% increase in total sales volumes, reaching 126.14 thousand barrels of oil equivalent per day (MBoe/d).
Despite the significant production increase, Civitas maintained tight control over its cost structure, reporting lease operating expenses of $4.96 per barrel of oil equivalent (Boe) in 2024, a testament to the company's operational efficiency. This, combined with the company's disciplined capital allocation, allowed Civitas to generate $1.27 billion in Adjusted Free Cash Flow during the year, a 60% increase from 2023.
Civitas' strong financial performance has enabled the company to maintain a healthy balance sheet and return significant capital to shareholders. In 2024, the company paid $493.8 million in dividends and repurchased $427.3 million of its common stock, representing a payout ratio of over 70% of its Adjusted Free Cash Flow.
Looking ahead, Civitas has provided guidance for 2025 that reflects its commitment to capital discipline and balance sheet optimization. The company expects to invest $1.8 billion to $1.9 billion in capital expenditures, with production levels targeted at 150,000 to 155,000 barrels of oil equivalent per day. This level-loaded capital program is designed to generate approximately $1.1 billion in free cash flow at a $70 WTI oil price, allowing Civitas to further strengthen its balance sheet and return capital to shareholders.
For the most recent fiscal year 2024, Civitas reported net income of $838.72 million and operating cash flow of $2.87 billion. Free cash flow for the year amounted to $893.36 million. In the fourth quarter of 2024, the company achieved revenue of $1.48 billion and net income of $151.11 million, representing year-over-year growth of 50% and 93%, respectively, compared to Q4 2023. Operating cash flow for Q4 2024 stood at $858 million.
Liquidity
Civitas maintains a strong liquidity position, which provides financial flexibility and supports its growth initiatives. As of the end of 2024, the company had $75.83 million in cash and cash equivalents, along with $1.75 billion available under its $2.20 billion Credit Facility, which matures in August 2028. This robust liquidity position enables Civitas to pursue strategic opportunities and navigate potential market volatility.
The company's debt-to-equity ratio stands at 0.68, while its current ratio and quick ratio are both 0.45. Civitas has set a net debt target of $4.5 billion for the end of 2025, representing an $800 million reduction from 2024 pro forma. The company plans to allocate the majority of its 2025 free cash flow after the base dividend to debt reduction.
Operational Excellence Driving Efficiency and Emissions Reductions
Civitas' operational success is underpinned by its world-class technical team and a relentless focus on efficiency and innovation. In the DJ Basin, the company has continued to push the boundaries of lateral length, completing its first four-mile wells in 2024, which became the state's highest 180-day cumulative oil producers.
In the Permian Basin, Civitas has quickly integrated its acquired assets and implemented its proven operating practices. The company has reduced Midland Basin well costs by 15% and increased daily drilling footage by nearly 20% in just one year. Additionally, daily completion throughput has increased by 50%, highlighting the team's ability to drive operational efficiencies.
Civitas' commitment to sustainability is a hallmark of its operations. The company became Colorado's first carbon-neutral operator in 2021 and has set a target to achieve carbon neutrality on its Permian Basin assets by the end of 2025. These efforts are supported by the company's investments in emissions reduction projects, the purchase of carbon credits, and the deployment of the industry's most efficient rigs and completion crews.
Product Segment and Sales Performance
Civitas Resources operates in one reportable upstream segment, encompassing all of its crude oil and natural gas activities. The company's primary revenue stream comes from the sale of crude oil, natural gas, and natural gas liquids (NGLs) produced from its operations in the DJ Basin and Permian Basin.
For the year ended December 31, 2024, Civitas reported total product revenues of $5.20 billion, consisting of $4.37 billion from crude oil sales, $168.39 million from natural gas sales, and $666.91 million from NGL sales. The company's crude oil sales volumes totaled 58.02 thousand barrels (MBbls) in 2024, a 58% increase from 36.73 MBbls in 2023, primarily driven by the Hibernia, Tap Rock, and Vencer acquisitions. Natural gas sales volumes increased 64% to 218.91 million cubic feet (MMcf) in 2024, up from 133.82 MMcf in the prior year. NGL sales volumes also grew substantially, rising 72% to 31.63 MBbls in 2024 compared to 18.40 MBbls in 2023.
While total sales volumes increased significantly year-over-year, average realized prices declined 8% for crude oil to $75.26 per barrel, 66% for natural gas to $0.77 per Mcf, and 1% for NGLs to $21.09 per barrel. These price decreases were partially offset by the higher sales volumes, resulting in the 50% increase in total product revenues.
Operating Expenses and Capital Expenditures
Civitas' primary operating expenses include lease operating expense, midstream operating expense, gathering, transportation, and processing costs, severance and ad valorem taxes, and depreciation, depletion, and amortization (DD&A).
Lease operating expense increased 92% to $577.84 million in 2024, up from $301.29 million in 2023, largely due to the addition of the Permian Basin assets. On a per-Boe basis, lease operating expense rose 18% to $4.58 per Boe. Gathering, transportation, and processing costs increased 30% to $377.68 million, though on a per-Boe basis, these expenses declined 20% to $2.99 per Boe.
Severance and ad valorem taxes grew 36% to $377.39 million in 2024, but decreased 16% to $2.99 per Boe due to a higher proportion of production from Texas, which generally has lower tax rates compared to Colorado and New Mexico. DD&A expense increased 76% to $2.06 billion in 2024, with DD&A per Boe rising 8% to $16.30 per Boe.
Overall, Civitas' total operating expenses grew 59% to $3.73 billion in 2024, but on a per-Boe basis, they declined 3% to $29.29 per Boe. The increase in absolute dollars was driven by higher sales volumes and integration of the acquired Permian Basin assets, while the per-Boe decrease was primarily attributable to changes in gathering, transportation, and processing, as well as severance and ad valorem taxes.
To develop its expanded asset base, Civitas invested $1.92 billion in capital expenditures for drilling, completion, and other activities in 2024, up from $1.35 billion in the prior year. This allowed the company to drill and complete a significant number of wells in both the DJ Basin and Permian Basin.
Human Capital and Sustainability
As of December 31, 2024, Civitas had 655 full-time employees. The company is committed to attracting, retaining, and developing a highly skilled and motivated workforce to support its operations. Civitas provides competitive compensation and benefits packages, including short-term and long-term incentives, and invests in leadership training and professional development programs to foster employee growth and engagement.
Civitas places a strong emphasis on safety, with a Total Recordable Incident Rate (TRIR) of 0.25 in 2024, below the industry average. The company also has programs in place to promote employee development, diversity and inclusion, and overall employee health and well-being.
In terms of sustainability, Civitas has integrated environmental, social, and governance (ESG) initiatives throughout its organization, with a focus on reducing greenhouse gas emissions, ensuring worker and community safety, and maintaining strong corporate governance practices. The company's Board of Directors provides oversight of Civitas' ESG efforts through a dedicated Sustainability Committee, and the company publishes an annual Corporate Sustainability Report to transparently communicate its progress on various ESG metrics and initiatives.
Industry Trends and Future Outlook
The U.S. oil and gas industry has seen a compound annual growth rate (CAGR) of approximately 5-7% in production volumes over the past 5 years, driven by advancements in horizontal drilling and hydraulic fracturing technologies. However, the industry has also faced volatility in commodity prices, which has impacted financial performance. Going forward, the industry is expected to continue focusing on operational efficiencies, cost reductions, and ESG initiatives to drive sustainable growth.
For 2025, Civitas has provided guidance that reflects its focus on disciplined growth and value creation. The company expects oil production of 150,000 to 155,000 barrels of oil per day, with a capital investment of $1.8 billion to $1.9 billion, split relatively evenly between the Permian and DJ Basins. This capital budget is approximately 5% lower than 2024, reflecting well cost savings.
Civitas expects to generate $1.1 billion of free cash flow at $70 WTI, representing a free cash flow yield of over 20%. The company is approximately 40% hedged on net oil volume for 2025 and 50% hedged on Permian gas volumes for 2025 and 2026, providing some protection against commodity price volatility.
Risks and Uncertainties
While Civitas has demonstrated its ability to navigate volatile market conditions, the company remains exposed to the inherent risks of the oil and gas industry. Fluctuations in commodity prices, regulatory changes, and competition for talent and resources can all pose challenges to the company's operations and financial performance.
Additionally, Civitas' recent expansion into the Permian Basin introduces integration risks, as the company works to align its operational practices and corporate culture across multiple basins. The company's success in the Permian will be crucial to its long-term growth and diversification strategy.
Conclusion A Diversified Leader Poised for Sustainable Growth
Civitas Resources has emerged as a diversified leader in the oil and gas industry, leveraging its operational expertise and financial discipline to generate sustainable free cash flow. The company's strategic expansion into the Permian Basin, coupled with its continued excellence in the DJ Basin, has positioned Civitas as a well-rounded operator with a strong balance sheet and a commitment to shareholder returns.
As Civitas navigates the evolving landscape of the energy industry, its focus on cost control, capital allocation, and environmental stewardship will be critical to its long-term success. With a robust development pipeline, a talented workforce, and a clear vision for the future, Civitas is well-positioned to deliver value for its shareholders in the years to come.