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Civitas Resources: Colorado producer on dividend steroids

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Introduction

Civitas Resources (NYSE: CIVI) is Colorado’s premier carbon-neutral oil and gas producer concentrated in Colorado’s Wattenberg field in the Denver-Julesburg Basin, referred to as the DJ Basin. The company also owns some of its midstream infrastructure.

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CIVI Intermediate (CIVI Presentation)

Last year, Bonanza Creek Energy renamed Civitas Resources through the consolidation of the other DJ Basin operators, first the all-stock merger with Extraction Oil & Gas and later Crestone Peak.

Civitas Resources had 420 MMBOE net of reserves in 2Q’22.

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CIVI 2T22 reserves (Presentation of Civitas resources)

CEO Chris Doyle said on the conference call:

As Colorado’s largest pure-play E&P company and the first carbon-neutral E&P company on a Scope 1 and Scope 2 basis, Civitas is well positioned for future success in Colorado and the industry as a whole. We are a young company. We have come together over the past 18 months and there was certainly more work to be done.

To note: Civitas is a new company to my market, “the gold and oil corner”, and my stock tracker, and this is my first quarterly earnings post for this company.

Civitas Resources released its second quarter 2022 results on August 3, 2022.

A reminder: On March 1, 2022, Civitas Resources closed its acquisition of Bison Oil & Gas II, LLCwith a total equity outlay by the company of approximately $300 million, which was funded by cash on hand.

1 – Overview of 2Q’22 results

Civitas Resources posted adjusted quarterly earnings of $4.63 per share in 2Q22, compared to $1.19 a year ago. Adjusted earnings exceeded analysts’ expectations.

GAAP net income of $468.82 million and adjusted EBITDA of $739.2 million (EBITDA of $831.57 million) for the second quarter of 2022.

Average daily sales volumes of 175.2,000 Boep/d, with oil representing 46% of total production and total capital expenditures of $238.6 million.

CIVI withdrew $100 million of senior notes and ended the second quarter of 2022 with debt of $392.51 million.

Total liquidity was $1.427 billion as of June 30, 2022, consisting of $439.3 million in cash plus funds available under the new credit facility.

2 – Stock market performance

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Data by Y-Charts

CIVI performed well year over year but slightly underperformed the group, as shown in the chart above. CIVI has grown 59% since September 2021.

3 – Investment thesis

Crude oil prices have seen a tremendous rebound a year after the 2020 oil crash. Likewise, natural gas prices, which bottomed out in April 2020, have recovered.

In 2022, oil and gas prices have soared, with crude oil trading at over $111 per barrel in June 2022. This tremendous rise has benefited oil and gas producers like Civitas Resources.

West Texas Crude Oil is beginning to retrace and is now below $90, and the the number of platforms is slowly decreasing but still much higher than a year ago.

The total rig count fell to 760 this week, which is 263 rigs more than the rig count this time in 2021.

CIVI is now following the trend and coming back from its recent high with renewed strength since its low in early July. But, with the action of the FED, we could fall into recession at the end of 2022, which will dampen the demand for oil.

Thus, Civitas Resources should be viewed as a long-term investment, and CIVI should be accumulated on any material weakness. However, the volatility attached to the oil segment should push you to trade LIFO in the short term using at least 30% of your entire position.

This two-tier strategy has prevailed in my market, “The Gold and Oil Corner”, and I believe it is the most rewarding strategy in these circumstances. Unfortunately, only US investors can use LIFO, but there is always an alternative for others. Please read my note at the end of this article.

Civitas Resources – Financials and production in 2Q22 – The raw numbers

Civitas Resources 2Q21 3Q21 4Q21 1Q22 2Q22
Total revenue in millions of dollars 156.04 189.96 510.46 817.81 1151.36
Net income in millions of dollars -25.32 40.66 163.70 91.64 468.82
EBITDA in millions of dollars 1.77 93.87 370.03 306.74 8company
Diluted PS in $/share -0.83 1.31 2.46 1.07 5.48
Cash flow from operations in millions of dollars 36.60 112.68 82.36 532.54 722.23
Capital expenditures in millions of dollars 28.91 47.04 47.85 560.82 209.97
Free cash flow in millions of dollars 7.69 65.64 34.51 -28.28 512.26
Total cash in millions of dollars 24:40 40.41 254.45 154.35 439.25
Total long-term debt in millions of dollars 199.00 160.00 491.70 492.12 392.51
Dividend $/share 0.4625 0.4625 0.4625

1.3625

1.7625
Shares outstanding (diluted) in millions 30.66 31.14 84.57 85.33 85.55

Source: Civitas Resources 10Q

* Extract from the press release:

The Company’s Board of Directors elected to pay a dividend of $1.7625 per share in the third quarter, reflecting the combination of a variable dividend of $1.3000 per share and a base fixed dividend of $0.4625 per share. This dividend will be paid on September 29, 2022 to shareholders of record on September 15, 2022.

Analysis: Revenue, Free Cash Flow, Net Debt, and Oil & Gas Production

1 – Quarterly and other revenue was $1,151.36 million in 2Q’22

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CIVI (Fun Trading) quarterly revenue history

Net crude oil, natural gas and natural gas liquids revenues for the second quarter of 2022 increased to $1,151.36 million from $817.81 million for the company in the first quarter of 2022.

The increase is attributable to higher crude oil and natural gas liquids prices from natural companies and higher sales volumes. Crude oil accounted for approximately 68% of total revenue for the quarter.

2 – Generic free cash flow was $512.26 million in 2Q’22

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CIVI (Fun Trading) Quarterly Free Cash Flow History

To note: Generic free cash flow is cash flow from operating activities less capital expenditures. The company has a different way of calculating FCF, which shows $436.6 million in 2Q22.

Operating cash flow was $722.23 million and capital expenditure was $209.97 million in 2Q22. Trailing 12-month free cash flow is now $584.13 million, with second quarter free cash flow at $1,154 million.

This excellent level of free cash flow allows the company to pay an impressive dividend in September.

CIVI pays a base quarterly dividend of $0.4625 and a variable quarterly dividend of $1.30 per share.

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CIVI Quarterly determination of the 2Q22 dividend Payable in September (Civitas Resources)

CEO Chris Doyle said on the conference call:

As the business continues to generate strong free cash flow, we will evaluate the best use of cash when it comes to reinvesting in our business through the drill, initiating buyouts shares, to extend the track with additional acquisitions or to increase dividends to our shareholders.

3 – No net debt with total cash of $439.25 million in 2Q22. Excellent profile.

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CIVI Quarterly Cash vs. Debt History (Fun Trading)

As of June 22, CIVI had approximately $439.25 million in cash and cash equivalents and $392.51 million in total debt. The company said it was targeting 0.5x debt at EBITDAX.

On April 21, 2022, the company raised the revolver to $1.7 billion with liquidity of $1.427 billion.

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CIVI balance sheet as of June 30, 2022 (Presentation Civitas Resources)

4 – Quarterly production was 175.2 boep/d in 2Q’22

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Quarterly history of oil equivalent production CIVI (Fun Trading)

Production for 2Q22 was 175,223K Boep/d, up 10.2% sequentially and significantly up from 42,323K Boep/d in the same quarter a year ago (see chart above).

Oil percentage is 46% in 2Q22, compared to 49% in 2Q21. Operating costs for 2022 are estimated at $11.22 per boe, which is very competitive. LOE plus recurring cash G&A was $3.89 per boe for the second quarter of 2022, down sequentially from $4.25 per boe in the first quarter of 2022.

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History of running costs of CIVI (Civitas Resources Presentation)

You will find below the detail of the production: Oil, NG and NGL.

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Detailed history of quarterly production CIVI (Fun Trading)

The 2Q22 average oil composite was $72.17 per boe, up from $40.37 a year ago and up 26.5% sequentially.

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CIVI Quarterly Oil Price by Boe History (Fun Trading)

CEO Chris Doyle said on the conference call:

Permitting and regulatory, our 2022 plan is largely permanent at this point. Looking ahead to 2023, approximately 20% of our programs on fully approved OGDP permits, 30% more are being submitted, the majority of those deemed complete and simply awaiting hearing dates and we will continue to submit the remainder to the approach of the year. late and in the first trimester. In total, we have 575 wells operating through what we call our permit pipelines.

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Update of CIVI permits (Presentation CIVI)

5 – New directions for 2022

This new guidance includes approximately 1,000 boep/d of additional production in 2022.

The company now expects an average crude oil price differential of approximately $4.00-5.00/bbl over WTI over the course of the year and also expects to pay $75-125 million in cash income taxes in 2022, assuming $100/bbl of WTI oil for the remainder of the year. year.

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CIVI Guide 2022 (Presentation of Civitas resources)

Technical analysis (short term) and commentary

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Short Term CIVI TA Chart (Fun Trading StockCharts)

CIVI is forming an ascending channel pattern with resistance at $73.3 and support at $65.25.

The short-term trading strategy is to trade LIFO around 40% of your position and hold your long-term base amount for a much higher payday.

The dividend payout, including the additional dividend (expected yield of 10.7%), is attractive and justifies holding a long-term core indefinitely.

I suggest selling between $73 and $74.50 and waiting for a retracement between $65.3 and $57.5 with potential support below $46.00 on an extreme retracement, which seems like little likely but cannot be ignored.

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