Earnings call transcript Q4 2022

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Operator

Good morning. My name is Chris and I will be your conference operator today. At this time, I’d like to welcome everyone to the Civitas Resources Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] I’ll now hand it over to John Wren, Director of Investor Relations.

You may begin.

John Wren

morning good and operator everyone. Thanks, joining We call. conference appreciate you our Officer. Chris by Marianella Brian Today, Sustainability joined CEO, Cain, Doyle; Chief and I am Owens; Civitas’ CFO, Matt Foschi; our COO, a By chance XX-K now, slide of website. on all are deck, you I have and to our earnings hope review release, available our which had

regarding differ risks that refer to could disclosures After cause today’s the may take will forward-looking statements make be be and can our to and brief uncertainties financial On forward-looking projections. your certain earnings statements, which read results filings XX-K and SEC leadership to materially team our questions. call, we SEC non-GAAP are Chris metrics. from of Please subject our certain non-GAAP release also and members to to our in Reconciliations We happy filings. in actual prepared full other metrics well. as may remarks, found other

one your limit time please However, question to and follow-up. one

will turn to now Chris. And the I over call

Chris Doyle

Thanks, John. morning, everyone. Good

We share points, I to of today today, shortly, our where to first, good questions for XXXX highlight to to the XXXX. and both news critical opportunity well plans as your to have strong before finish tremendous terms We’ll us. our but in which get sit of are lies want three a lot understanding as we that

XXXX. with start Let’s

is the of $X.X XX% cost We We of enterprise guidance generated delivered our business met of cash space sheet In discuss, exceeded free is on that across which we our to the based value. our balance our a about often model free record sustainably maintain premier for year significant despite service end on pillars. prioritize and inflation. should in flow, a our these As cash each ESG. return production and company shareholders, we in XXXX, cash the top billion principle lead flow, original capital strategic a that guidance

shareholders to variable to $XXX demonstrated year totaling returning about last We through cash million dividends share. and our commitment our per base $X.XX or

$XXX our stock back million bought total with sheet we $XXX maintained nearly million undrawn addition, and month. We against an last and cash, facility. balance in in million in In debt exited the $XXX year pristine

continued Civitas high school not Foundation, graduates in on equipment fund Community about a an communities. we nearby talk retrofit performance, our Civitas. commitment by it’s to ESG, our year more scholarship up for third ESG emissions the best-in-class areas end operating by our We a Lastly, living but focus of than to a initiating and reduce program the standing this and lot just

a among molecules are the We truly North single global day. exceptional the while among demand world energy operators American oil are meeting gas in every producing of group and who cleanest

Turning this consistent. our our year attention to remains XXXX, approach

are discipline. to We capital committed

we’ll capital keep shareholders. flow, and remains have service generating Utilization margins programs free sacrifice are We’re cash seen and to as commodity many meaningful pullback in to We’ve and costs high cash operators yet adjust. choosing our efficiency focused on a that return going. prices to lately, to

I America, Basin has the mistake. Civitas of Although lowest North assure in not can that make the DJ some you, breakevens will

and late action down of dropped quarter added completion crew third temporarily We started in taking DUC rig to a the ‘XX and when our we a inventory efficiency. overall third work program improve

X capital maximize of pad rigs electing and third to completion have to crews efficiency that returns. maintain we to X rig we’re in permits overall program and back, hand today Although the instead

production projected year-over-year higher returns to for capital and shareholders investments are flat. down. So be broadly be will will Cash XXXX,

So explain let this get how done. me we

program performance company be In will the turn-in-lines degradation delivered to vintaged our and production or year. This in results see deck, be our and year-over-year be by with for XX%. we in Our reinvestment in see you XXXX’s wells, to capital production similar lower investments continue than will below can cumulative we program, the that change we year, XXXX, be performance. will $XXX XX% our slide The about be updated rate flat show and a and million step to area. XXXX our same Watkins-Lowry year’s excited will XXXX, expect don’t and are relatively We delivered exit-to-exit. delivering in last

has BOE Like will our XXX,XXX to wind quarter the already below the others, per range impacted had in impact of our XXX,XXX chills, the This so Rockies first including with day. We’ve year XXX,XXX day quarter weeks fuel guide volumes far record operations, this and cold in X be year full will we weather XXX,XXX first in this per sales. expect week. X to BOE weather versus

total free At on more the than last year-over-year generate dividends XX of in cash to majority payouts $XXX shareholders. this be Due returned our roughly resilient with current unique which expect to strip year, return increase actually of and based we expect the prices, will cash to million. to billion framework flow, $X free to we months

This repurchased Our to commitment shareholders believe has the Civitas return billion excited addition And We new framework in we to industry. unwavering. January. buyback to yesterday, in $X the to were is cash authorization. a $XXX the is announce cash return most in million compelling we

field talented first help operationally quarter delivered new business secured the these a to inflation. drive shout our capital team Finally, on a selectively the any thank past our other our more than I to out to preliminary special operator them. have to We permits M&A, on received despite the be And We executed were and so numerous safely pad continue team CAP to cold thank has we team. in accretive shareholders them, quarter. after over record couple transactions. give ways our This of industry-wide state’s They I’d accomplishments. like I and with results on disciplined impressed temperatures, innovative found the approach counter in DJ. to efficiency citing. approval and executing Civitas strengthened collective fronts We We year. with our

the DJ company’s foundation driving them our Chairmen two to recognized I significant a didn’t to both I provided for would so Before Ben I these shared if by to during in Basin. Back Stech. want the proved and close, their Brian our critical Civitas. be vision contributions thank that within remiss as Dell former I be service consolidation chapter mention first of XXXX,

I differentiated Board. So getting shareholders we excited to new and our is to start and in a just welcome am Civitas chapter and the for Byers Kempen in our years van team forward our started Wouter look delivering results history to ahead. company’s Deborah The

now happy to are we Operator, questions. take

Operator

with from Thank you. first Dingmann Neal Truist [Operator Instructions] is question Securities. The

is Your open. line

Neal Dingmann

are material morning. are guess, looking specifically, I guess, quarter, am free value question this it buyback. of all I you you just versus recognizing this part what I recently is, or announced investment, at your the that was current you simply cash outstanding decisions what how looking cash Chris. the My An of PV first wondering, the I am all or other glad were company or you And deals at I just flow – investors assume call stock a you seeing process? that guess, drivers I’d

Chris Doyle

on I Yes, thanks think Neal. it. you the for hit question, Yes,

most own our front equity. things have last at stock month As been did the us attractive in know, in-basin was of down we indication we What that we million $XXX really pulling looking saw back M&A. is our of an active very you buying

$X forward ‘XX through our authorization very, a very company the and is the going at is roll simple, looking flow product model, generate. business we billion this business XXXX, excess that As into is which cash this really of and to

forward could million XXXX, investment and this into to addition opportunity really $XXX ‘XX and think, this a to good over we $XXX little that buyback at a year currently this dividends of billion going $X million looking the additional really So roll hey, shares. cash balance of we a that cash free be to compelling year, and have in

Neal Dingmann

plan am and Yes, I hear and while to specifically. is that relatively appreciate to question declines. on second And oil OFS you with touched gas I these then agree plan that. upon, high selectivity, especially costs remain operating just glad if your your

maybe you returning ramp just another back just it for return thinking asked talk you So just versus wondering to already how are maybe growth? than way, shareholder a bit I would am about you plan up what more this or about have take little

Chris Doyle

Sure. And not focused are reiterating, just start on right. we growth, by let me

of minimizing if down, are what up aggressive. while today, call you than to – focused flat the as pressure we Gas we production We was in keeping for saw it’s down so to ago a as we we rigs X Commodity XXXX were up, that just back do we sits. more prices, went less and to picked half is built to seeing we yet in utilization worked on capital inventory, can think a given it, at period, we prior ‘XX, oil the are opposite. actually still cash. We a drilled, of XX%ish. What actually and free short inflation plus have maximize and year. is are where When DUC look we short it through where XX%

costs little with is to I think, think do between commodity disconnect service thing I and this So a right with to back environment prices, the the bit. sit

better. Now what would it Those two back need to things in? take align to lean

allocate very costs capital. the disciplined we in take? so or that’s will And on that. not organic that it’s you well. will as activity, up gassier prices think just just but we a in our we long some to approach operators that’s not How names, We buybacks, be service And how commodity see of start as I investments will it’s either especially M&A, to soften pullback see, will And see bit.

Neal Dingmann

color. the for Thanks Great.

Chris Doyle

Thanks, Neal.

Operator

The next question with is Tim KeyBanc. Rezvan from

open. is line Your

Tim Rezvan

dig your everybody. the to into morning, I’d a good of Slide bit. Hi, like X deck

consistent in And do lack how of, highlighting D&C design? you’re think kind a Was these these you are curious, just results over result drilling? was it areas degradation. repeatable of results And the changes few years? You’re specific next I of the were

Chris Doyle

Tim. Thanks question, for the

is and over was in pulled what what in was program bit programs in it’s plan, at before, from area. in consistency here, at looked there a look walk-ins ago a we’ve we drilled was full step down say what the area ‘XX on in but walk-ins change everything year we’ve results. year’s of XXXX. lay And a published X.X we – consistent When weeks looked ‘XX, lay not the the would drilled what the and just XXXX starting at showing our is ‘XX. to And seen of show So XXXX Lowry just again character area then each on ‘XX. XXXX just recently ‘XX, I report to into for about the a in and shift

how but seeing a the those on focused sticks is right company we we’re I that by And a many the repeatable very do lot driven not optimizing flow. So and things, we would a say being of maximize how free returns, and that up can drill consistent, for result. year, maximize returns very cash spacing necessarily

Tim Rezvan

Okay, some okay. could know utilized an if having I repurchase is then is argued being have to That’s pivot who folks helpful. back that I actively helpful. repurchase And open-ended not not that’s the discussion. there

to it repurchases world, you $X utilize believe years? your do in next kind that open-market do So over versus with steady-state a of negotiated did a the over X fully intent, preference And of you like – you is CPPIB? billion repurchases have sort this

Chris Doyle

I’ll this some the is to intent off of billion authorization year. add $X our kick color. Nella and then And Sure. by it to with kick purchase next to end the maybe Yes,

shown thing it company. one think, again, the January, that we how be a again, we’re I equity on has do What compelling the whatever so time the time and is, overall we that, this going And to down to really at time disciplined. saw time opportunity table. tell pretty to again, one everything and shown company And of is if to and for is our we’re would shareholders attack to pull going Now a was in the not do it’s has chunk flow from a you price. team larger our maximize buyback, significant an impact and returns I

table. the the over years to of And is what like next but yet determined, everything is that be looks on so couple

Marianella Foschi

Tim, Chris’ spread that really way think the point, is. return I on all open. would mean more the I mean, to mean options are open-market add, any and are I it I is just incremental and about where out. dollar incremental like dollar, repurchases we just the

chunky. do them can’t as You

more negotiated, look is one you something If as announced we that January, in chunky. at

in very You stock January, year evaluate. was that couple relatively acquisitions July. saw At determined did stock. that than one small we a We last were those compelling. us in the asset better points, our we In deals, over of January, one our determined those

merits valuations. relative it’s value our always, and it’s look So over at of evaluation stock, those proposition a in acquisitions. just But stock of just We a and continuous the evaluation. it’s our the we asset we time, additional continuous do –

hard to just situation it’s depends be I what return it to pace or at the it’s right? So mean, the anything the – format, is say time. on best on going

Chris Doyle

will we be opportunistic. very And

Tim Rezvan

forward look seeing to I what Thank Okay. happens. you.

Chris Doyle

Thanks. Great.

Operator

question from Phillips One. with The is next Capital Johnston

Your open. line is

Phillips Johnston

Thank you.

Just about XX is from that and guidance talking setup [indiscernible] flow you of more or that, up do pulling next the agree the keep be high. two-rig it’s there than the the that forward drilling notable pretty guys to of no tail would to Obviously, pace? is about year like to ask presumably same online this early risk ‘XX. obviously, with drilling it wells to out but sort about bringing And services wells since be you’re year are to program. free I’m anything costs activity for year. I there some going need remain you if we’re at ‘XX cash robbing the rationale, wondering by of essentially but number with ramp

Chris Doyle

Thanks question, for Yes. Phillips. the

a just DUCs. exited the we year my year and company make use of of Let second company should I’ll have last up about should DUCs. was We back No What hundreds we XX. capital. no building step that In the inefficient XX be with entered me – DUCs. that’s with about opinion, saw for point

capital. down And so use that working because best ‘XX we’re it’s in of the

guidance the business The the model. is look going while is I to flat. there there, broadly into ‘XX, guidance production business keep model is As we’re no ‘XX from

so that’s that’s And XXX,XXX, XXX,XXX, fine.

your we on Now point, to service highly there, get how very depends costs.

opinion, because would to deem the my will I high. in remain prices commodity utilization think why Now service costs high? remain

so lean into And that in case, we that. would

possible, the things, efficient of over not all waiver future. model, going the our every is focusing as right year think I or as this to year the simplicity business foreseeable be on trying next to So year or

not. So is Matt, terms there about would or we you how if add think in I anything don’t know allocation of capital

Matt Owens

would or then the – down we about Chris the we for and DUCs. into Like about No, significant did XX. me, ‘XX, drawing nothing echo year but I And previous number have said, with we’re that XX of going a not enter year.

right we focusing and on it So going should number, of like that’s on of flow up massive rig what around built ish a forward. depending be we ebb just schedule. the wasn’t always we’re number, kind and But normalized the that XX

Phillips Johnston

the Okay, about larger acquire follow-up in basin. shy just sounds good. you M&A That’s good been the color. some Maybe front, the haven’t to efforts to on Neal’s your of question on guys privates

So M&A assume return us give is capital the aggressive of And just should going priority forward? less we an that maybe of update more you can a that plans means there?

Chris Doyle

the wouldn’t I appreciate I that, Yes. say Phillips. question.

the think a our the at the against back I most is And said, opportunities get out do compelling all on the to seen opportunities are own I in – will for that, to the that compete which strength or on that that the we underlying very, putting side. M&A anything do model, versus most very can, it’s continue and sheet say would without indication to model active, we’ve to it big that risk remain ESG. generate equity. an has balance how we currently of lead optimize our you is active look the business that’s cash tribute our along, your we business. to We’ve business of you small, been ways, there. shareholders and and M&A underlying as terms And

one look, to way we on Everything compete investors say, – we’re to to not the a or playing has is It’s other. just commitment a remain this field. active. So will level committed really

Phillips Johnston

Great. guys. Thanks,

Chris Doyle

Thank you.

Operator

from next Tuohy Noel The question is Parks with Brothers.

Your line is open.

Noel Parks

morning. good Hi,

Chris Doyle

Good morning.

Noel Parks

it still record couple the the assume in as curious that how sort described record was as as And was maybe release, [indiscernible] your I you was Just I just typical average a just of talked that – just the improvement. I In that. will be was was dependent highest-performing well think not X.X-mile much of being for be that a of curious or the talk of the And of elements your lateral. I process you But wondering me. will setting sort about not near-term. just if I could consistency? – for crew about the rig.

Chris Doyle

for Yes. improvement. Thank off type you It’s over then to is delivering of that that Matt’s the question. and kick team I’ll kick continuous this it Matt.

is is is us highlight plus that’s just this over asset. in to drive cycle and team of improvement I this I geared find continue thing a improvement system not XX% out other underlying efficiency commodity what cost, would Industry, we that improve me a time, capital over ways off times art, and out the is to highlights the system. for gotten for just think record. the it’s down to and I XX% the and the say XXXX, look would win slide business. that jumps ways a ‘XX, DJ The has the of continuously is a fine for cost us, that not get how a a you to and thing of time

And of what with an we is is to for last time would performance that I seen good There the in beyond team helping rig, a field, the it’s highlight very last And year incidences the with be thing – happy highest-performing the too, can performance it’s point we’re of. the our of out, the all Your is have are the crews. entire those rigs. crew rig, proud while just type what most it’s point we’ve lost we no is one.

to So Matt, add anything from you?

Matt Owens

ran year last year. this was rig would only Yes. that for just full we the I the add,

quarters, the picked last of were year. what second rig two we pace. in that And halfway terms through it’s up second behind rig anyways, we all running not far Our the year, was this of

days Now, And the been the prior year. that the over coming bullet our you down. average improvement spud-to-TD, have can X.X averages X.X-mile point well is but that Chris referenced in and earlier at see

and is average and and new would spud-to-TD quicker closer thought X goal X.X-mile are. keep bit little rewind down to XX,XXX our year. well, in a little been we were you to would have feet, So, reach. if X.X But continue little a to drilling we asked our almost if quicker closer to years that bringing ways what be I again, innovate each records thought have bit bit finding out things that days, and of done would a we a get But

Noel Parks

Great. just forward? about wanted those And a rule, all you I you And maybe And sense proved reserves. would saw the X-year wonder see ask that bit revisions, able I could the whether be numbers. to a going of you positive-type curve kind if might I with any of to assuming about am in talk immediately what improvement not visible necessarily you of have if be

Matt Owens

This Good revisions other XX But looking at the to barrels roughly, am of and Yes. if question. is that, million XX-K. the you due I are are of showing due is equivalent performance. that you that is roughly price referring the well in up assuming Matt is again. to to about half half,

that of few year-over-year type repeatable positive alluded years to also curves to well we do are ago. earlier spacing. have our attributing completion to outperformance, performance what with well designs to we and results that Chris So, what our to due lot think up has seen of a generated And a but different were compared off

that have the we results over seeing results are years. board, we up-spaced positive and X.X consistent across last from So, and generally the

Noel Parks

Thanks lot. a Great.

Chris Doyle

you. Thank

Matt Owens

Thanks.

Operator

Nicholas Seaport is question Pope next with Your from Research.

line open. Your is

Nicholas Pope

everyone. morning Good

Chris Doyle

morning. Good

Nicholas Pope

wells? that wells look how sustainable Is you as little bigger, expand in lateral for progressed I wells the you kind because big going drilling maybe you be ‘XX, I you kind the of of longer size hoping the last guess, lengths terms average keep – are last the guidance of I bit see X with that the year – and how at to on to of over the was are about miles. that of those talking a that are could you are these kind drilling is X.X years, has

Chris Doyle

Yes. for No, big thank versus move drilling you now. a on average that. That’s highlighting X.X-miles year-over-year X-milers

laterals. longer testing are We

I able very to it the the are of really wells generally production excited details? what into been don’t capital cycle again, additional being drive has That add and team do able program. is you of if about We other terms to and anything, into XXXX, to extend any – ingredient looking times efficiency broadly keep in just laterals, to lateral another how will is, efficiently Matt, longer that most we mix want know flat.

Matt Owens

our nearly it’s I Yes. is different XX,XXX can drill block, too, position longer these contiguous acreage in would especially we where where add, now, acre Watkins, laterals.

now that’s that even completed we X-mile going wells. longer you have these in drilling the drilled remember is We forward. basins down us and fast. them We area, brought to the wells anticipate the wells efficiencies drill few laterals. a to you X-mile quite get Basin got lot thing do year, one So, compared online, ability last so X-mile see other them, better will to a the to we wells DJ can different But with about more

drill dollars, about not that vertical So, to of to section only millions vertical It have save saved the other $X us section. it does in million like basins. doesn’t us

as is we but are still think lot going a quite efficient going be other it continue we some as to So, capitalize drilling more it’s not more on. basins, costs that forward to where efficiencies can – expensive,

Nicholas Pope

to little a things the and little of could ‘XX where gear on with And Where of outstanding is small Kind update switch on can know everything kind piece permitting kind kind are updates that’s you if finalizing lock kind the expectation where of of kind I of you Got process. of of great. And is it. of still – here. give a That’s on permitting. to bit on ‘XX? curious kind update up do you there a thoughts

Chris Doyle

over the appreciate I kick question. off will it Cain. then I kick Brian and to this Sure.

hard through than first And again, program. we actually are get – we you of year, work groups. that’s you of of collaboration multiple just first place preliminary year of CAP with the the the and backs this were are tail end a hard the saw we a At highlight our XXXX work the as would lots about year on XX% I way much approved citing. highlight, of team, the how with for different the ago. last So,

One of our basin followed peer us. in companies

We process are and at pace much than the certainly we a time saw seeing last work different year. this what

focused And with CAP. saw And you that so we also are us submit our CAP. second

talking We about activity. are XXXX ‘XX,

the And work front is to to the so continue team what is with out of which the exactly we well see, want rigs, in getting and COGCC. very

So, give kick additional he me you some to Cain, and details. let will it

Brian Cain

of you as And is plan permitted. XXXX Chris. Thanks said, XX% our

have the the permits obviously, because those. if to two now worth are and right Those that currently are to we essentially we to. pending. pads, left assigned choosing of in wanted We the not three wait believe run are XXXX to, that value plan they November, enough pads rigs December we Those

feel our new point XXXX permits, Xx. is in good So, that out nearly just basin would by we any nine with plan. pad XXXX, other the which you ended we than about see, more as operator And I

many last OGDP of permits, entirety end track that we received pad also environment a quarter, year. results. navigating demonstrated we pending we that’s note in would have new as as by the this record we will the So, the by with, of end of this permits, are first think the in success creating exceptional regulatory of quarter, I

flexibility like where desired so to would acceleration, to months XX those XXXX permits And in be will our the bank permits plans. have maximum drilling of would months program. provide pending going towards pad to we in new Longer term, of value XX about development hand that be that and a

owner this CAP, with will next owners about so that Elder pads a within we Lowry service XXX CAP, dissenting augmenting exciting on X,XXX goal, very be And development, no is feet. are one nameplate, and that approved our laser-focused through year, CAP. which wells And toward then Box associated the and working we our

So, we for this remain coming years. building that on laser-focused bank year

Nicholas Pope

I I to you Got that. like appreciate would target it. greenhouse detailed, the helpful. I mean That emissions guys nice very for see gas the number. to I That’s have like add, And on very it’s big slide a like that. reduction. ‘XX, I also

I all that’s have. So, Thanks.

Chris Doyle

right Yes. the appreciate the comment. what and the think thing to the see do certainly, the for that’s And No, I throughout I the excited And a question. appreciate team to company. commitment do, we it’s year. can massive

Operator

Instructions] The with [Operator question is next Tieton Dezellem from Bill Capital.

is line Your open.

Bill Dezellem

you quarter congratulations and the year. of a on outside the moving and about of years? you couple over are next thinking Thank Colorado of course good How

Chris Doyle

Sure.

to that significant take us we pillars, I And So, think going business. I would how back our to four free have really, asset of this run are we cash. an generates

to cash We significant returned have shareholders.

We in protecting are sheet, balance are our we and leading the way ESG.

has allows optimize outside model. as extend And DJ, that so business I opportunities that assets us we or would to of It be say the that to because us perhaps. that grounds look to

are into talking important about you as about so entry are asset talking well. asset that And is quality, you

opportunities. we we have to at really quite we strong down path. I in bit a options But as continue look now. know anything have as going disciplined that? if again, right and will so to have And fundamentally approach perhaps. here It’s that consider add take going very base, us out-of-basin, ensure proven to consider capital, to ourselves to to having you we adding want assets Marianella, those But we business a a don’t M&A, will deploy

Marianella Foschi

right. think I that’s

last on compete over buyback latest saw with us – are XX announcement you with we this execute months I opportunities that. to think the

everything with we has that our this to think latest signal I with buyback do announcement, clear we a making very compete stock. are that

see And January. this you do in us do $X newly to us you execution And of so saw that’s what program. that’s what billion will announced new pursuing

Bill Dezellem

both. Thank you

Chris Doyle

you. Thank

Marianella Foschi

Thank you.

Operator

Doyle this any Chris There at will questions for closing no I to it are over remarks. further time. turn

Chris Doyle

continued appreciate at Civitas. interest Sure. we out, again. looking in everyone’s you. I looking I am Thank temperature, the below zero are

and really super and group to the of especially Civitas forward the is work so of soon. making a employees, Thank morning this much that the field compelling compelling you speaking I and time for So, the this Be investment safe. hard look appreciate operations all super business.

Operator

concludes this for gentlemen, and you Ladies today’s call. participating. Thank conference

now You may disconnect.

Civitas Resources (CIVI) 23 Feb 232022 Q4 Earnings call transcript