Q1 2022 Civitas Resources Inc Earnings Call
Caustic and international experience in the E&P and midstream businesses, having set the foundation for his career by spending over two decades at Chesapeake and Anadarko.
Chris has a strong track record of leading diversified teams and platforms across the E&P and midstream businesses.
His experience judgment perspective, and leadership qualities will be instrumental as we continue to thoughtfully grow the civitas platform with a clear objective of becoming a national leader among our peers, while advancing the principles of the new E&P business model.
<unk> Board of directors and executive management team is thrilled to have Chris join us.
And we feel confident that Chris is exactly the right person with the right mix of experience and leadership skills to take civitas to the next level as an organization.
He has already made a tremendous start this week and we look forward to all of you getting to meet with him and hearing directly from him in the coming weeks.
So joining us Chris.
Moving on to the operating results.
The first quarter of 2022 was another stellar quarter for the company execution wise with production of 159000 barrels of oil equivalent per day and 68000.
<unk> of oil per day.
And total capex of roughly $235 million.
Civitas, Matt will be our budget on oil and total production as well as on all operating and capital expenditures, including differentials.
On the G&A front, we had significant activity in <unk> related to the termination of legacy employees.
Oh transition our move to our permanent and headquarters among other nonrecurring expenses.
We are working tirelessly to continue extracting synergies of excess overhead as quickly as possible.
On the financial side, the company's balance sheet continues to be a core strength and strategic advantage that we are focused on maintaining.
As of March 31st Civies balance sheet consisted of $500 million of total debt and roughly $150 million in cash we.
We have since paid off $100 million and outstanding notes with cash on hand, and sit here today with only $400 million of debt on the balance sheet and we expect to be unlevered on a net basis by mid year.
I would note that we also recently Upsized, our credit facility borrowing base to $1 7 billion and increased our elected commitment on the facility to $1 billion, which provide us with significant amount of liquidity.
We are excited to continue to follow through on our industry, leading shareholder return policy with the announcement of a 136 to $5 per share total quarterly dividend to be payable on June 29 to shareholders on record on June 15.
This is composed of our no 0.4625 per share base dividend and how variable dividend of <unk> $9 per share this quarter.
This represents one of the highest payout ratios in the industry and that our current share price implies a top tier yield of roughly 10%.
On the permitting and regulatory front, we have two more new ODP locations with hearing date set in the near future, we expect to be approved unanimously.
Our 2022 plan is almost 100% permitted at this point with the only remaining unpermitted pad scheduled to be spud in for Q.
2023 will largely be compensated once we receive approval on our cap, which we expect to occur in the third quarter.
We believe the state of Colorado consider us to be the operator with the best understanding of permitting under the new rules and the best capacity to utilize best management practices to minimize surface impacts.
And we're seeing that evidenced in the number of permits being getting approved lately.
Our goal to become the clear ESG leader within our peer group is also very much aligned with our states environmental and community focused culture and we've provided details about our expanded ESG platform and see if it's asked his inaugural corporate sustainability report, which was published earlier this.
Weak.
We encourage everyone to take a look at the recall, which outlines the company's recent achievements.
Goals around climate leadership, delivering value to our communities and best in class corporate governance provisions.
As Colorado as largest pure play E&P and first carbon neutral E&P company on our scope, one and scope two basis, we are very excited about the company's future.
<unk> is leading the industry and executing on the new E&P business model, we have a simple business model focused on optimizing the development of our high quality assets, a relentless focus on costs.
Expanding our cash margin protecting our balance sheet and returning excess cash flow generation to shareholders.
This is also being done with an acute awareness of our environmental footprint, which we continue to minimize.
I'd like to thank you all again for joining the call. This morning, if you're interested in civitas and with that I will turn the call back to the operator for Q&A.
To ask a question. Please press star one the first question is from Neal Dingmann.
<unk> Securities. Please go ahead your line is open.
Good morning, I first want to say welcome to Christine great Great quality higher there and my first question is really just on what you were just hitting on Colorado permitting as you said certainly seems like you have more than ample permits for that this year could you remind us.
Once you get approval in those next two area.
There he is.
Either for you or Matt or the gang, what what will that take you towards led will that basically set up for all of 2003 I just wanted to try to get that down to the model.
Sure Neal I'll hand that over to Matt and he can give you a summary.
Yes, Neil Great question.
We're over 90% permitted for this year like Ben mentioned in his comments, we do have two pads that are coming up and Oh GDP hearings that we plan to spud in late fourth quarter that should put us 100% permitted through this year and those carry into the first quarter of next year right now for our development plan in 2023, a bunch of that of those locations come from there.
<unk> held their cap that we have currently pending.
With the Seo GCC, so that will be the majority of the locations. We do plan in 2023.
Just an update on that cat for everybody.
Do anticipate getting completeness determination from the GCC this quarter and that would lead to what we are hoping for a late third quarter final approval hearing and that should be we anticipate the first cap approved under the new rules in the state.
Great details thanks, Matt and then second question just on the topic Du jour on shareholder returns.
I estimate your shares are still trading at a notable discount to various peters, what's your thoughts on material buybacks. In addition to the already material dividends, you're throwing out there.
Sure.
I guess there'll be a little bit repetitive I mean, I think if you look at all uses of cash.
Our focus is obviously pay the base dividend pay the variable dividend.
And then at that point, we're looking at in basin consolidation opportunities and then how they compare.
<unk> is executing a buyback.
I think as you look at those in basin consolidation opportunities.
Vast majority of them are being done and as we get towards the back end of the year will undertake an evaluation of what to do with our excess cash.
Very good nice setup, thanks, guys.
Okay.
Your next question is from Michael <unk> of Stifel. Please go ahead. Your line is open.
Yes, good morning, everybody and.
Also like to offer my congratulations to Chris.
Wanted to follow up on Neal's question on the permitting side.
Is there a backup plan it sounds like the the tweak.
23 <unk>.
Willing depends on getting the Watkins cap.
Bruce.
I guess is there a backup plan in case something.
It goes wrong, there or are you confident enough.
That's not going to be an issue.
And also I was wondering was that.
[noise] Watkins plan reconfigured with some of the consolidation you did I believe crystal was though but wanted to submit that are initially or is that.
Going through based on that original form.
Matt you want to go on that.
Yep Yep I can I'll just throw some more stats on permitting in general.
First of all at that cap you're correct. It was submitted initially by Crestone, we amended that.
Shortly after the merger announcement last year to include some of the extraction acreage that was right on the flanks. So that already occurred a while ago and it has been part of what we submitted and have resubmitted in late February .
Other permits that's besides the cap, which I think would help answer the the backup plan that you had the company is working right now on 12 other O gdp's internally.
We have submitted.
Six of those also to the state and that includes just over 100 wells two of those are in technical review with a final hearing next month the other four in completeness review.
And those include another 75 wells and then we have about another six that were working internally for another 100 wells. So over the next several months we plan to have a couple of hundred wells about 220 wells submitted and hopefully approval is rolling through on various Oh GDP that we're working on that are in addition to.
To the box elder cap.
Currently our plan is to drill the box hill their cap, mostly in 2023, but we should have ample inventory coming through with these other <unk> that we're working on if there was some sort of delay, but I do want to say, we have close communication with the with the director often about the box elder cap.
And we're very confident that we've addressed all of the outstanding questions with our last recent middle and we do expect this to move through the process with final completeness.
Completeness determined hopefully this quarter.
Well that sounds good.
I wanted to get an update on the integration process with bison or maybe even.
For all the companies that are coming.
Come together here over the past year, just to see where you are in that process.
Sure I can give an update on that this is maybe not.
Basically done with the bison integrations with really only brought 40 full time employees as far as the I.
I guess the longer term integration that came with the merger, we're basically down to that 300 employee mark that we anticipated when we put together.
Mark just in November 1st half last year.
Pretty much it is as expected you know this is our first full quarter post merger implement acquisition perspective.
Three clean quarter I think there is certainly a little bit of work on the back office still remaining there you still have a couple.
Corporate and field offices.
To close those out in a greenfield.
Integration perspective everything.
Better than anticipated.
Yes.
Sounds good thank you.
Yes. Thank you for the question.
Your next question is from Noel Parks of Tuohy Brothers. Please go ahead. Your line is open.
Hi, good morning.
Good morning.
A couple of things I want to check on I Wonder if you could talk a little bit about where things stand.
In terms of land now that you're from.
Combined all of the companies.
Just wondering if as far as rationalization path exchanges and so forth.
You'd like to do.
Is is that effort substantially completed.
For the combined companies or is there still pretty significant ongoing task.
Of just cleaning.
Cleaning up positions in leases and so forth.
Yeah, what I would say is.
The thing is significant synergies on the land side of putting all these companies together both in terms of our ability to drill longer laterals, our ability to execute trades.
I think we're going to continue to do that the land side of the business is something we continue to evaluate day by day.
Obviously with the other major players in the basin and everyone's trying to optimize that position along with trying to infill and increase our working interest in our key Pat So it never really stops from our A&D.
<unk> side of the business and Matt and the team will be very effective in making a number of those trades to optimize our business plan.
Great Thanks and.
I was thinking about operations now with the combined companies of course, it's.
Certainly a broader regional mix and product mix, then I guess any any one of the companies had.
Before the deal.
Just wonder if you could talk about sort of your flexibility to respond to.
What's going on in the commodity markets.
Of course, if there's massive rally in both oil and gas but.
What sort of timeframe would you need if you decided you wanted to shift activities from say in the event that oil and gas prices.
Diverge and their trends from here.
Yes, maybe I'll make some opening comments and then maybe Matt can follow on I mean, first and foremost I think we set out a very clear plan of what we intend to do on a multiyear basis and I don't see it materially deviating from that plan.
I would say the commodity prices have moved around in.
Relative pricing has moved around but I don't think that's going to lead to a material shift in how we attack that does not.
When you look at the combination of the companies the great thing we've seen over the last six months.
Each company brought some really unique skill sets both on the drilling side completion side landside M&A side, and we've been out of taking the best from each of those different companies.
Hopefully build that into what the civitas culture is going forward.
Yeah.
Your next question is from Nicholas Pope at Seaport Research. Please go ahead. Your line is open.
Good morning, everyone.
Good morning.
I was hoping you guys could talk a little bit about the bigger bigger picture, where midstream stands right now and.
I'm also.
Kind of what percentage of that $70 million to $90 million of land midstream and other how much of that do you.
I'll anticipate is going towards the midstream business.
I guess, how do you all expect to expand Rocky Mountain Midstream is that is that the path forward in terms of kind of pursuing a broader midstream strategy or is it going to be more third party.
Matt you want to comment on that.
Yes sure.
For our midstream spend it's a little over $50 million for this year, the remainder of that would be coming from land.
The majority of the dollars are actually coming from expanding the Watkins so the southern area oil infrastructure that we're building out to the terminal that we now operate known and Bennett there will be some expansion to Rocky mountain midstream, but Rocky Mountain midstream for the most part has been built out only smaller.
Connections need are needed for any future pads and then some small upgrades the Cps that Bonanza Creek has already built in the past so the major construction projects for new construction any ways that we have going on are the oil alliance down south.
And the Watkins area that came with the Crestone acquisition.
Got it and is should we the way we should look at it going forward as Rocky Mountain.
Is that.
Going to kind of be.
Is that fixed or is that going to be something that.
Independent or kind of carved out entity is that kind of set in place now going forward.
I think I can address that this is Mary and I'll, let you know when you look at Rocky Mountain and really not only Rocky Mountain Bank.
The broader midstream infrastructure.
Oil asset that we have done in the southwest and the gas gathering then shutdown Watkins.
It's definitely not only material footprint at this point I'd say that Todd.
I would say if you look at the cash flow from the midstream business about 85% or so.
Eliminated in consolidation.
When you look at.
Capital to happen.
Part of why our margins are where they are in and asking all keeping our margins and cost structure.
And the point of Tennant company.
So at this point I think we don't see the need to potentially carve it out and definitely we are trying to get out.
But in the future it could be something strategic that we're not looking at it that way.
In the near term.
Got it and and just out of curiosity as you look at the basin right now.
I mean, I think part of.
The drive to carve out that midstream initially for Bonanza was was kind of line pressures in excess to two.
The capacity, where do you think the basin is right now and being able to move.
To move the crude and pipeline pressures that I think was always a frequent topic for all all the.
The company's prior to the.
The combination.
Yeah.
This is Matt I think right now the basins in pretty good shape as far as takeaway goes there is a lot of infrastructure built before everything kind of slowed down.
In 2020 for Civitas as a whole we don't have a lot of exposure for new drills less to the DCP system. There are some pads here and there that will go into that system, but for the most part.
Our new production is going to be flowing through Rmi, which has multiple offset our offtake to several different midstream providers and then a lot of our other new turn in lines down south will be going to western gas or two rocky Mountain midstream.
Which both have ample capacity available right now so on.
On the gas side, we're not too worried about them than for oil.
We have a very clear.
They are a very desirable mix of oil, where we have access to a lot of the local markets as well as having to sell down.
Cushing, so our lower gravity crude that make up a good portion of our portfolio now we do have a lot of interest for that in basin.
Got it that's that's all very helpful. I appreciate the time everyone.
Yeah.
Your next question is from Bill <unk> of Titan Capital Management. Please go ahead. Your line is open.
Thank you.
Lease operating expense.
Increased in the quarter I think it was what.
$2 52 per barrel.
Up from $2 22.
A bit surprised given that volumes went up what is it that.
That brought the LOE per barrel per barrel up on higher volumes.
Okay.
Hi, Bill this is Mary and I will start with a couple of things.
B L.
In the fourth quarter, it's just a little bit not apples to apples site to keep in mind October West Jeff.
<unk>.
And so Thats one reason the second.
I would say Q1 desk reflect March.
Production.
It was not as significant.
Necessarily to the enterprise and because of this our orderly of BMO is coming with higher <unk>.
But overall I think we beat our expectations, we are right at the low end.
The range that we try to for 2019.
Okay.
Great. Thank you.
Yeah.
We have completed the allotted time for questions I will now turn the call over to Bendel for closing remarks.
Well. Thank you for joining us today I am excited about the next chapter in <unk> future under Chris's leadership, and we look forward meeting with you all in person. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.