NYSE:CIVI Civitas Resources Q4 2024 Earnings Report $28.89 +0.58 (+2.05%) Closing price 05/2/2025 03:59 PM EasternExtended Trading$28.36 -0.54 (-1.85%) As of 04:00 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Civitas Resources EPS ResultsActual EPS$1.78Consensus EPS $1.98Beat/MissMissed by -$0.20One Year Ago EPSN/ACivitas Resources Revenue ResultsActual Revenue$1.29 billionExpected Revenue$1.30 billionBeat/MissMissed by -$3.44 millionYoY Revenue GrowthN/ACivitas Resources Announcement DetailsQuarterQ4 2024Date2/24/2025TimeAfter Market ClosesConference Call DateTuesday, February 25, 2025Conference Call Time8:30AM ETUpcoming EarningsCivitas Resources' Q1 2025 earnings is scheduled for Wednesday, May 7, 2025, with a conference call scheduled on Thursday, May 8, 2025 at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Civitas Resources Q4 2024 Earnings Call TranscriptProvided by QuartrFebruary 25, 2025 ShareLink copied to clipboard.PresentationSkip to Participants Operator00:00:00Good day and thank you for standing by. Welcome to the Civitas Resources Fourth Quarter twenty twenty four Earnings Conference Call and Webcast. My name is Jardine, and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. Operator00:00:27Please be advised that today's conference call is being recorded. I will now turn the call to Brad, Head of Investor Relations. Brad, please go ahead. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:00:39Thanks, operator. Good morning, everyone, and thank you for joining us. Yesterday, we released our fourth quarter and full year twenty twenty four results, provided our 2025 outlook and issued supplemental slides for your review. In addition, our 10 K was filed yesterday, and all of these items are available on our website. This morning, I'm joined by our CEO, Chris Doyle and our CFO, Marianela Foske and other members of management. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:01:04After our prepared remarks, which will come from Chris and Marianela, we will conduct a question and answer session. As always, please limit your time to one question and one follow-up so we can work through the list efficiently. We will make certain forward looking statements today, which are subject to risks and uncertainties that could cause actual results to differ materially from projections. Please make sure and read our full disclosures regarding these statements in our most recent SEC filings. We may also refer to certain non GAAP financial metrics. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:01:35Reconciliation to the appropriate GAAP measure can be found in yesterday's earnings release and our SEC filings. With that, I'll turn the call to Chris. Chris DoyleCEO at Civitas Resources00:01:43Good morning, everybody. Thanks for joining today's call. I want to start with a quick recap of 2024 before focusing most of my time on 2025 and the actions we're taking to strengthen the company. By continuing to enhance our operating performance and portfolio, reducing our costs and prioritizing the balance sheet, we're creating more durable business and better positioning Civitas to generate sustainable free cash flow for years to come. Quickly on 2024, it was a transformational year for the company. Chris DoyleCEO at Civitas Resources00:02:11Underpinned by our high quality assets and strong operational execution, our full year production was above plan and we beat original guidance for capital and operating costs. Over the past year plus, we built scale positions in the Midland and Delaware Basins, materially strengthening and diversifying our company. We Daily drilling footage is up nearly 20%. Daily completion throughput is up 50%. In addition, we derisked perspective horizons and added high value inventory across our acreage position. Chris DoyleCEO at Civitas Resources00:02:51And all of this has been accomplished while delivering excellent safety performance. Further, we strengthened both our Midland and Delaware positions through ground game initiatives, including more than 50 trade swaps and new leasing. And importantly, we did so with little to no cash. Yesterday, we announced a bolt on transaction in the Midland Basin adding 19,000 acres in 130 locations. With this announcement and to offset the purchase price, we set a $300,000,000 asset sales target for 2025, which is likely to come for the DJ Basin. Chris DoyleCEO at Civitas Resources00:03:19Effectively, this is expected to accelerate value from the DJ in support of extending our runway in the Permian. Between the Ground Game and bolt on, we've added nearly two years of future development in our Permian business unit and extended lateral lengths and working interest across our portfolio by 5%. This was done at very attractive valuations well below recent market transactions. Today, our Permian inventory stands at 1,200 development locations. While establishing a successful track record in the Permian, we didn't lose focus as the DJ Basin also had a strong year of performance. Chris DoyleCEO at Civitas Resources00:03:52In 2024, we turned in line the industry's first four mile laterals in Colorado. These were record setters, representing the state's highest one hundred and eighty day cumulative oil producers. Armed with basin leading operational capabilities, our team added high return development locations through a combination of ground game transactions in our core areas, including Watkins and through continual development optimization. Overall, free cash flow for the year was about $1,300,000,000 and we returned more than 70% of that to our shareholders through $5 a share in dividends and a repurchase of more than 7% of our outstanding shares. All in, we had a very successful year in 2024, and Civitas is a deeper, more durable business today. Chris DoyleCEO at Civitas Resources00:04:32Now let's turn to 2025 and the steps we're taking to strengthen our business. Our plan focuses on delivering the following strategic priorities. First, run the business to maximize free cash flow, built upon a leading cost structure and enhanced by sustainable capital efficiencies. Second, deploy that free cash flow to protect and strengthen the balance sheet. As Marianella will discuss further, we're prioritizing debt reduction in 2025. Chris DoyleCEO at Civitas Resources00:04:57Third, return cash to shareholders, predominantly come from a strong base dividend this year. And finally, lead in ESG and build this long term sustainable business as we execute on our target to further reduce our emissions. In 2025, we're level loading our capital investments compared to 2024, where the front loaded program led to low till counts at the end of the year. While level loading impacts near term production, this is more than offset by the long term benefits in operating and capital efficiencies. Keeping activity levels flat in 2025 will deliver full year oil production of 150,000 to 150,000 barrels of oil per day after level loading. Chris DoyleCEO at Civitas Resources00:05:36And we'll invest $1,800,000,000 to $1,900,000,000 split relatively evenly between the Permian and DJ Basins. This is approximately 5% lower than last year, reflecting the well cost savings our teams have delivered. Notably, our reinvestment rate in 2025 is consistent with 2024 despite WTI strip pricing being $5 lower year over year. As expected, our first quarter production will be low point for 2025. '80 percent of the sequential drop is related to natural declines in the DJ Basin following peak production in the fourth quarter. Chris DoyleCEO at Civitas Resources00:06:08This was driven by a low till count exiting 2024 and in the first quarter of twenty twenty five as well as severe winter weather and unplanned third party processing downtime. We expect to grow meaningfully through the middle part of the year as new tills come online. Specific to the 2025 plan, I want to mention a few other items of note. Within our Permian program, we're increasing our allocation of capital to the Delaware Basin. Today, we have four rigs running in the Permian, 2 of which are in the Delaware and a third coming shortly. Chris DoyleCEO at Civitas Resources00:06:38Nearly all of our completions in the Permian Basin will be simulfracked, leveraging the advancements our team delivered last year, improving fluid throughput by 50% versus the start of the year. And in the DJ Basin, we have two rigs running today and we'll continue to push the limits with longer levels. We're moving more of our production facilities to tankless operations and our teams are operating the most efficient, lowest emission rigs and completion crews in the basin. Our 2025 plan delivers approximately $1,100,000,000 of free cash flow at $70 WTI, a free cash flow yield of over 20%. Maintaining a culture of performance and cost leadership is critical to building a durable, sustainable enterprise. Chris DoyleCEO at Civitas Resources00:07:17To further enhance our business, we're streamlining our organizational structure with a 10% reduction in workforce throughout various levels of the company. These are tough decisions. We're committed to staying low cost, driving efficiencies and enhancing margins across all areas of the business. I'll turn it over to Marianela to discuss the steps we're taking to accelerate our balance sheet goals. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:07:38Thanks, Chris. The long term winners in this business will be the companies with a strong balance sheet and a cost structure at the low end of the cost curve. Yesterday, we took meaningful steps to prioritize and protect these two items, including rolling out a new free cash flow location strategy. Our strategy is underpinned by our 2025 net debt target of $4,500,000,000 which represents an $800,000,000 reduction to year end 2024 pro form a for the bolt on transaction. This debt reduction will further benefit our cost structure, decreasing associated interest expense by approximately $60,000,000 on an annualized basis or a 5% increase to a run rate free cash flow. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:08:16This reallocation of excess cash will allow us to reach one time leverage in late twenty twenty six. Our long term leverage target is unchanged at 0.75x EBITDA at mid cycle prices. While accelerating leverage reductions, we remain committed to our base dividend of $2 per share annually. As compared to our prior framework, any additional return of capital to shareholders will be opportunistic and consistent with our near and long term balance sheet goals. I'd be remiss not to touch on our philosophy and risk management, which further protects free cash flow. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:08:51We continue to execute our systematic oil hedge strategy, and we are approximately 40% hedged on net oil volume for 2025. As a reminder, oil accounts for approximately 80% of our unhedged revenue. Our tactical gas hedging strategy was extremely successful in 2024, especially in the back half of the year as Permian gas price volatility increased. Our Permian volumes are currently 50% hedged for 2025 and 2026, and we will continue opportunistically adding to our gas book. Ultimately, a commodity business best hedge is a low cost structure and a fortress balance sheet. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:09:28While our hedging philosophy has served us well, maintaining our top quartile cost structure and de risking our balance sheet are more material value drivers in the long term. And with that, I'll turn it back over to Chris for concluding remarks. Chris DoyleCEO at Civitas Resources00:09:41Thanks, Barry Noah. Over the next three years, at the 2025 investment and production level, Civitas will generate approximately $3,300,000,000 in cumulative free cash flow at $70 oil. That represents two thirds of our current market cap and will allow us to meet our leverage reduction goals while also returning significant capital to our shareholders. Civitas' strength rests on our proven operating teams and their track record of performance in the lowest breakeven oil basins in The U. S. Chris DoyleCEO at Civitas Resources00:10:07Our twenty twenty five plan will advance our strategy of building a long term durable business for our shareholders. Operator, we're now ready to take questions. Operator00:10:18Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Gabe Dawood from TD Cowen. Sir, please go ahead. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:10:51Thanks. Good morning, everyone. I was hoping, Chris, we can maybe start with the decision to shift your capital allocation strategy. I thought maybe you could, for lack of a better phrase, walk into gum and pay down debt and still buy back a decent amount of stock. So maybe just a bit more color there. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:11:11And you mentioned opportunistic with buybacks. What does that mean? What would you need to see to step in? Chris DoyleCEO at Civitas Resources00:11:20Sure. Thanks for the question, Gabe. As we thought about setting this business up for 2025, we had a couple of options a number of options. And as we thought about the backdrop, the macro that's in front of us, the volatility that we've seen over the past couple of months, we know that this is the plan that's best to build a long term sustainable business for Sidetas. As you mentioned, we have a business that generates significant free cash flow, dollars 1,100,000,000.0 in 2025. Chris DoyleCEO at Civitas Resources00:11:53Given the volatility that we see, we think the best use of that cash flow after our base dividend is really to direct it to our balance sheet. We'll have a little bit of opportunity to accelerate that. We mentioned the $300,000,000 divestment target to offset the acquisition that we announced yesterday. We're looking at other ways to potentially accelerate that delevering path and give us some more flexibility and optionality. But this is about setting the company up for long term success. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:12:29Got it. Thanks, Chris. That's helpful. And then as a follow-up, obviously starting 1Q, slowly and expected to ramp from here, maybe a bit more color and granularity on the ramp from here in the production trajectory. And how does that potential divestiture program impact volumes? Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:12:53I guess another way is what's the amount of production you anticipate selling with this $300,000,000 target? Thanks guys. Chris DoyleCEO at Civitas Resources00:13:01Sure. First with first quarter oil, largely as expected, reflecting low levels of activity as we mentioned in the back half of '20 '20 '4 and certainly into 2025. A lot of that drop as we mentioned is in the DJ. We've restarted the engine. We have a pretty active 1Q plant of 50 to 60 tilts followed by another active quarter in the second quarter. Chris DoyleCEO at Civitas Resources00:13:25And you'll see as we lay out on Slide 12, growth from the first half to the second half with that activity. In terms of the divestment, the $300,000,000 divestment, that's TBD. We're looking at all types of assets, some assets that don't have associated production, midstream assets, some water infrastructure assets in the Permian, they're not significant. But looking at first and foremost assets that could be more valuable in others' hands. Certainly, if we see the right value, we would look to potentially accelerate some value from operating assets and producing assets. Chris DoyleCEO at Civitas Resources00:14:06But that's certainly TBD at this point. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:14:11Understood. Thanks, Chris. Operator00:14:16Thank you. Our next question comes from the line of Zack Parram from JPMorgan. Please go ahead. Zach ParhamExecutive Director, Equity Research at JP Morgan00:14:24Thanks for taking my question. First, with the bolt on deal that you did in the Midland, can you just talk about where those acquired locations fit into your development plan? Are those assets you'll be getting to work on later this year? Or are they more longer dated locations? Maybe just talk about how that fits into the portfolio? Chris DoyleCEO at Civitas Resources00:14:44Sure. As we dug into that opportunity, certainly, we see value adjacent to our operations. We did not underwrite Styx across that entire acreage position. We see that activity really starting up later this year and but more so in 2026. The Wolfcamp A, Wolfcamp B, Wolfcamp D primary development will yield good returns that will compete for capital, but that likely doesn't set up until late this year and into next. Zach ParhamExecutive Director, Equity Research at JP Morgan00:15:26Thanks, Chris. And then my follow-up is just maybe following up on Gabe's question on capital allocation. I know the focus is now on debt reduction, but how do you think about further M and A versus potentially shifting back to a higher level of cash return? It sounds like you're going to you talked about reaching a one turn leverage target in late twenty twenty six. So it sounds like you're going to continue paying down debt versus returning cash. Zach ParhamExecutive Director, Equity Research at JP Morgan00:15:57Just kind of maybe how do you think about things over the longer term, M and A versus cash return versus debt reduction? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:16:05Hey, Zach. Thanks for the question. So look, first and foremost, our top priority is our net debt target, 2025 net debt target of $4,500,000,000 To get there, we talked about how the majority of our free cash flow after the base seven this year is going to be allocated to debt reduction. So anything we do in excess of that will be opportunistic. It will not be formulaic. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:16:28And obviously, we have a very near term eye to that one time leverage. Over and above that, you've seen us balance our allocation between buybacks and acquisitions very well. Every acquisition we've done has been at very attractive prices, certainly in a dollar per stake relative to some of the recent transactions announced there. And at the same time, we've also had a very successful buyback approach. We bought 7% of our shares last year. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:16:56That's going to underpin an 8% operating cash flow increase 2025 or 2024. So certainly, we've been very successful on both fronts and we'll continue being opportunistic about how we balance between those two to benefit of long term value. Zach ParhamExecutive Director, Equity Research at JP Morgan00:17:15Great. Thanks for taking my questions. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:17:18Thank you. Operator00:17:22Thank you. Our next question comes from the line of Josh Silverstein from UBS. Sir, please go Josh SilversteinManaging Director at UBS Group00:17:30ahead. Yes, thanks. Good morning, guys. Maybe just on the same point, as you hit your 800,000,000 net debt reduction target for this year, do you shift back to that 50% plus return of free cash flow to shareholders? Is that something that you get to? Josh SilversteinManaging Director at UBS Group00:17:46Or if gas prices are a bit higher, oil prices are a bit higher, you just accelerate deleveraging a bit more? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:17:53It's more of the latter. We will certainly look to accelerate our balance sheet goals further, Josh. And like I said earlier, we'll be opportunistic of anything in excess of that. But our top priority, again, is hitting that 4.5 with an eye to one time slate next year. Josh SilversteinManaging Director at UBS Group00:18:08Got it. Thanks. And then maybe just on the inventory front. The past quarters you've been talking about inventory in the Wolfcamp D, particularly in the Midland side. Where does that stand now? Josh SilversteinManaging Director at UBS Group00:18:18And is that in the 1,200 location count? Chris DoyleCEO at Civitas Resources00:18:21Yes. Thanks, Josh. It is in the 1,200 location count. We had about 10% of our program last year, really delineating the Wolfcamp D, North, South, East, West. Excited about the results that we've seen, just as excited with the capital performance that the team delivered, where you're seeing about 10% higher capital for 15% more productive wells. Chris DoyleCEO at Civitas Resources00:18:46And so what we're seeing is the D will compete for capital. We're stepping up our D development this year, probably about 20% of our Permian program. And so excited to see with additional swings at the plate if we can tighten those capital costs even further and continue to repeat the strong well performance. But B is certainly in there. I wouldn't say it's our primary target like the Wolfcamp A, Wolfcamp B on the Midland side and Wolfcamp A third Bone on Delaware, but it's certainly very exciting for us and happy to allocate some capital towards it in 2025. Josh SilversteinManaging Director at UBS Group00:19:25Great. Thanks guys. Operator00:19:31Our next question comes from the line of Neil Dingmann from Tuohist Securities. Sir, please go ahead. Neal DingmannManaging Director - Energy Research at Truist Securities00:19:38Hey, thanks for the time. Good morning. Chris, my first question maybe for you, Sam, just a little bit like you just talked about on the Midland side. My question is more on the Delaware side. It seems like you're just now sort of getting after that. Neal DingmannManaging Director - Energy Research at Truist Securities00:19:51Based on what you're seeing now after re permitting and doing some things there, are the opportunities there? I guess I'd say is the opportunity set as good now as ever you've seen when you were initially looking at it? Or maybe just talk about how you see that side and what type of activity we can expect maybe the latter part of this year and going into next year in the Dell? Chris DoyleCEO at Civitas Resources00:20:13Sure. Thanks for the question, Neil. As we thought about allocating capital between Midland and Delaware, we really wanted to shift to the higher return Delaware inventory, but we saw real opportunity to further optimize development. Previous operator was willing to drill shorter laterals. We had a team that got in there and said, hey, we could take a one mile well and turn it into a two and greatly increase capital efficiency and increase the returns of that program. Chris DoyleCEO at Civitas Resources00:20:44It was going to take some time, right, not only for the ground game to work itself through the system, but also then to re permit. Now that's behind us. The team's done a great job building up that position and optimizing the opportunity over there. And so we're allocating more capital to the Delaware, which is fantastic to see. As a year, last year, we had about 20% of our tills come out of the Delaware. Chris DoyleCEO at Civitas Resources00:21:09This year, about 40% of our activity is going to be pointed there. So we're leaning in there. And as you know, Lee County is where the two rigs are currently. We're really excited about the opportunities there and look forward to getting those wells online. But kudos to the team to take the time to do the right things, go through the steps to further enhance the returns and we're ready to deploy capital over there. Chris DoyleCEO at Civitas Resources00:21:35So excited what we're seeing. Neal DingmannManaging Director - Energy Research at Truist Securities00:21:38Got it. And then just lastly, just a little minor third party issue. I'm just wondering when it comes to sort of midstream infrastructure all that, do you all feel pretty good now where you sit on pretty nicely you haven't had really virtually any issues, seems like over the DJ side recently. I'm just wondering now when you look at both sides you feel pretty good about infrastructure going forward? Chris DoyleCEO at Civitas Resources00:22:02Yes. We unfortunately had the third party issue in the first quarter. Alongside weather, probably a couple thousand barrels of impact to the DJ. So we certainly hit it. But the team did a really good job of finding multiple outlets and minimizing the impact of the third party processor issue and we worked around it, but we were down for about four, six weeks. Chris DoyleCEO at Civitas Resources00:22:26And so we feel good with where we are. As you know, in the Permian, Permian is much a water and gas business with oil as a secondary product there. And so teams out front ahead of all our kills and getting our water placed and feel good about our ability to execute and deliver our 25 plan. Neal DingmannManaging Director - Energy Research at Truist Securities00:22:50Great details. Thanks, Chris. Chris DoyleCEO at Civitas Resources00:22:52Thanks, Neil. Operator00:23:00Our next question comes from the line of Scott Hanold from RBC Capital Markets. Sir, please go ahead. Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:23:09Yes. Thank you all. My first question is just on effectively the reset of the outlook in 2025 and beyond. Could you talk through the process of making the decisions you all did? Obviously, making some hard decisions here, but like what were some of the other options? Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:23:30And obviously, your path here you're taking is one option. Did you look at others like larger M and A divestitures as was discussed out in some market reports? Could you just talk about like some of the options you looked at and the decision and thought process into the 2025 plus plan? Chris DoyleCEO at Civitas Resources00:23:51Yes. Thanks for the question, Scott. So first, as we thought about setting 2025 up, we had a couple of different paths just with the business as is. As we've talked about in the past, the level of activity in 2024 was not at a maintenance level to support 160,000 barrels of oil a day. In addition to that, it was very front loaded, which really stopped the engine towards the end of the year. Chris DoyleCEO at Civitas Resources00:24:21And so one option that we had was to increase activity and maintain 160,000 barrels of oil a day. As we looked at the and consider the volatility in the macro that we're seeing currently, we didn't think it was the right thing to double down invest a couple of hundred more million dollars to maintain 160,000 barrels of oil a day. We believe the best thing for the business long term was to reset to the 150,000 to 155,000, fuel out capital and hit that maintenance level of $1,800,000 to $1,900,000. In terms of question around the larger M and A halves, won't comment specifically on any rumors out there certainly. But I will say that this is a team that is focused on long term creating a long term sustainable business that generates significant value for our shareholders. Chris DoyleCEO at Civitas Resources00:25:20If there are opportunities to accelerate some of that value and that's any asset, not just DJ or just Permian, if there's an opportunity to accelerate value for our shareholders, we will certainly take it very seriously. I will say as evidenced by the $300,000,000 investment target, we are out there looking for ways to identify assets that could be more valuable in others' hands and use that to offset what we thought was a really attractive bolt on in the Midland Basin and really a rotation to extend the runway into the Permian. So I think more to come on that front, Scott, but a lot of work and a lot of diligence to go into laying out this plan as the best path for this company long term. Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:26:09Yes. And maybe to play a little bit off some of those the latter comments there. I mean obviously potentially divestitures seem like they're going to be targeting some more so in the DJ and you've obviously bolted on to the Permian. So as you look at your inventory runway of 1,200 Permian locations, I mean, is a couple of questions here. One, how do you comfortably feel with your inventory duration of what you would view as core wells? Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:26:37And do you see yourselves becoming more of a Permian company over time? Chris DoyleCEO at Civitas Resources00:26:43Yes. I'd like to say we're a returns company and whether we get those returns from the DJ or the Permian, that's what we'll go after. We see the opportunity in the Permian really to scale our business. We saw the opportunity to scale our business and diversify it. In terms of the 1,200 locations, we're sitting about eight or nine years of stay flat inventory. Chris DoyleCEO at Civitas Resources00:27:08We've talked about wanting to extend that. Again, given the macro where it is, I feel very comfortable with where we are and our ability to really focus, refocus and send excess free cash to our balance sheet without the need to really participate in what have been extremely competitive asset transactions there in the Permian. In the DJ, it was interesting not just through ground game, but relooking at a brand new or continually improving capital operating structure and what the team has been able to do to expand tiers out more than replacing inventory that we sold and that we drilled in the year, I think was a great achievement for the team. But we're sitting there with eight plus years of state flat inventory as well. Now as we get further down the dispatch curve, is the capital efficiency of those last couple of years the same as the next five? Chris DoyleCEO at Civitas Resources00:28:13No, probably not. But we do have a team that is demonstrating the ability to drive additional efficiencies to take returns, whether it's extending laterals or optimizing completion designs to take lower returns and improve those with time. And so we feel very comfortable that this is a plan that is sustainable, that will deliver a stable free cash flow and allow us to achieve all of our balance sheet goals and at the same time return significant capital to our shareholders. Operator00:28:49Our next question comes from the line of Leo Mariani from Roth Capital. Sir, please go ahead. Leo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLC00:28:57Yes. I wanted to follow-up a little bit about some of your comments around M and A. Clearly, you talked a little about divestitures, but just curious, you mentioned very competitive Permian markets, but in kind of a perfect world, is there a pretty healthy appetite for the company to try to add inventory in the Permian through M and A? Chris DoyleCEO at Civitas Resources00:29:20Yes. I would say our number one goal for 2025 is hitting that net debt target at the end of the year, the 4.5. Five. As we're doing with the bolt on in Midland, rotating out predominantly DJ developed assets to fund that, We'll see if there are similar opportunities to do that. But our number one focus given the inventory duration that we currently have and given the macro that we see is really taking that excess cash to the balance sheet first and foremost. Chris DoyleCEO at Civitas Resources00:29:56And we'll continue to look for ways to accelerate our delevering and to accelerate our returns to our shareholders. But our number one focus this year is that $4,500,000,000 net debt target. Leo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLC00:30:10Okay. And then just jumping over to the LOE side. LOE obviously went up here in 4Q. Just trying to get a sense was a lot of this driven by the Permian or did you all also see healthy increases in the DJ? Chris DoyleCEO at Civitas Resources00:30:25Yes, you always see in the DJ and the Permian with winter LOE jump up a little bit. The 4Q really was led by higher LOE than expected in the Permian winterization projects, a little more active workover plan and we'll see that continue into the first quarter before it moderates back. But we take this very seriously and this is our cost structure as we think about cash G and A and cash LOE, that's a differentiator for any company in a commodity business. That's why we made some of the hard decisions that we made recently to reaffirm and reestablish and sustain that low cost stance. And so specific to your question on 4Q, it was really winter related and workover activity, but teams working through that and will get us back into top quartile cost structure very comfortable with that. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:31:22So substantially all the increased quarter report was driven by Permian like Chris discussed. Rockies or DJ was actually flat quarter over quarter. I think as we see as we look out, we have a cash or a LOE target that's probably going to be somewhere in between Q3 and Q4 that were, like Chris discussed, quite a bit of onetime items in the fourth quarter that won't be recurring. But all in, high 9s on a per BOE basis, which we believe is peer leading for our asset base. Leo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLC00:31:56Thank Operator00:32:00you. Our next question comes from the line of Janan Abbot from Wolfe Research. John AbbottE&P Research Vice President at Wolfe Research, LLC00:32:07Hey, good morning and thank you very much for taking our questions. So with the focus here on free cash flow, maximizing that, could you speak a little bit about the trajectory of how you see future cash taxes over the next three year period of time? And when do you see yourself paying sort of the alternative tax? What's your latest thoughts on cash taxes? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:32:30Thanks, Jean. So this year, cash tax guide is $10,000,000 to $30,000,000 It's going to be fairly flat into $2,026,000,000 dollars maybe a little bit higher, closer to the high end of this year's range next year. As far as AMT, we don't hit AMT until around $80 a barrel. So there's nothing additional to model pursuant to AMT. John AbbottE&P Research Vice President at Wolfe Research, LLC00:32:55Appreciate it. And then, Chris, I mean, the focus right now is on deleveraging the balance sheet. You're looking at the commodity environment. But as you sort of sit down and think about your inventory, let's say the commodity environment improves. And you are what is your willingness to actually grow at that period of time having lowered your oil guide at this period of time? John AbbottE&P Research Vice President at Wolfe Research, LLC00:33:20You only have so many years production. What would you do? Would you add a rig? How do you think about growth if there were if there was a change in the commodity and price environment? Chris DoyleCEO at Civitas Resources00:33:32Yes. Thanks for the question, John. If the macro completely flips and it's very bullish towards the end of this year or into next, we will be responsive to that macro environment. We like this plan as we roll it forward, the ability to generate sustainable free cash and take that to balance sheet. If we saw solidifying of the commodity price instead of backwardating into the 60s, some more solid foundation, you could see us potentially lean in a little bit on activity, but only if we're well advanced of our balance sheet targets for the year and for longer term. Chris DoyleCEO at Civitas Resources00:34:17And so this is a team that will continually look at ways to further optimize the way we allocate capital. And as things shift like that, we will be responsive and not overreact, but certainly responsive to the macro. And given the success that both the DJ and the Permian teams have had over the past year, really replacing extending inventory, we have the option to lean in a little bit. All eyes right now focused on that $4,500,000,000 year end target. John AbbottE&P Research Vice President at Wolfe Research, LLC00:34:52Appreciate it. Thank you very much for taking our questions. Chris DoyleCEO at Civitas Resources00:34:55Thanks, John. Operator00:34:59Our last question comes from the line of Noah Parks from Tuohy Brothers. Sir, please go ahead. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:35:06Hi, good morning. You did touch a bit earlier on the potential for increased oil volatility. And I think you mentioned that in a way being conservative with activity and CapEx is sort of the first line of defense against that. But do you have a general view on volatility over the next few years? I mean, leaving total black swan events aside, do you sort of anticipate increasing volatility or volatility maybe sort of settling down over the next few years? Chris DoyleCEO at Civitas Resources00:35:43Yes. I think first, I would say what we've seen is pretty significant volatility, right? Oil was $80 a month ago. Now it's backwardated into the 60s. We'll see if that continues, right? Chris DoyleCEO at Civitas Resources00:35:57And we're not going to sit here and prognosticate which way that will go. But I will say the first line of defense before even activity levels and taking a more conservative approach to capital allocation is affirming and establishing a low cost structure. Again, it's something we spend a lot of time on. And again, looking at some of the difficult decisions we've made really to solidify that peer leading cost structure, to us that is the first defense against that volatility. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:36:34Great. Thanks a lot. And just to clarify something on the guidance, some of the sensitivities shown in the slides. Since the free cash flow has so much upward sensitivity with commodity price, I just wanted to double check. The $1,100,000,000 I think it is a free cash flow estimate at $70 that would not count the $550,000,000 in delayed compensation you're paying for Vensors since that was cost incurred last year, if I have that right. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:37:09Is that right? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:37:09Yes, that's correct. That's just clean free cash flow. No, the $475,000,000 deferred acquisition with Vensors, that was already paid and that was just paying out the debt we had at the end of the year. So it's not it doesn't impact the 1.1 free cash flow anyway. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:37:25Great. Thanks a lot. Operator00:37:30Thank you. That concludes our Q and A session. I will now turn the call back to Brad for closing remarks. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:37:37Really appreciate everyone for joining us today for the Q and A session. May and I are certainly around the next several days for additional follow-up. We look forward to seeing you on the conference circuit here over the next couple of weeks, and we hope you have a great day. Operator00:37:54That concludes our conference call. Thank you for joining today and you may now disconnect.Read moreParticipantsExecutivesBrad WhitmarshVice President, Investor RelationsChris DoyleCEOMarianella FoschiChief Financial Officer & TreasurerAnalystsGabe DaoudManaging Director, Energy Equity Research at TD CowenZach ParhamExecutive Director, Equity Research at JP MorganJosh SilversteinManaging Director at UBS GroupNeal DingmannManaging Director - Energy Research at Truist SecuritiesScott HanoldManaging Director - Energy Research at RBC Capital MarketsLeo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLCJohn AbbottE&P Research Vice President at Wolfe Research, LLCNoel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research IncPowered by Conference Call Audio Live Call not available Earnings Conference CallCivitas Resources Q4 202400:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipants Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Civitas Resources Earnings HeadlinesIs Civitas Resources (CIVI) the Top Oil & Gas E&P Stock Outperforming Despite Sinking Oil Prices?April 24, 2025 | msn.comIs Civitas Resources, Inc. (CIVI) the Most Promising Long-Term Stock According to Analysts?April 22, 2025 | msn.comThe Man I Turn to In Times Like ThisA storm is brewing in the markets: new tariffs, recession warnings, and panic in the headlines. That’s when publisher Brett Aitken turns to Whitney Tilson—a man CNBC once dubbed “The Prophet.” Tilson just released a new prediction that runs counter to what mainstream finance is telling you.May 5, 2025 | Stansberry Research (Ad)Morgan Stanley Reaffirms Their Buy Rating on Civitas Resources (CIVI)April 15, 2025 | markets.businessinsider.comCivitas Resources price target lowered to $41 from $48 at Morgan StanleyApril 15, 2025 | markets.businessinsider.comCivitas Resources, Inc. Schedules First Quarter 2025 Conference Call and WebcastApril 10, 2025 | businesswire.comSee More Civitas Resources Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Civitas Resources? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Civitas Resources and other key companies, straight to your email. Email Address About Civitas ResourcesCivitas Resources (NYSE:CIVI), an exploration and production company, focuses on the acquisition, development, and production of oil and natural gas in the Rocky Mountain region, primarily in the Wattenberg Field of the Denver-Julesburg Basin of Colorado. As of December 31,2021, it had proved reserves 397.7 MMBoe comprising 143.6 MMbbls of crude oil, 106.0 MMbbls of natural gas liquids, and 888.5 Bcf of natural gas. The company was formerly known as Bonanza Creek Energy, Inc. 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PresentationSkip to Participants Operator00:00:00Good day and thank you for standing by. Welcome to the Civitas Resources Fourth Quarter twenty twenty four Earnings Conference Call and Webcast. My name is Jardine, and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. Operator00:00:27Please be advised that today's conference call is being recorded. I will now turn the call to Brad, Head of Investor Relations. Brad, please go ahead. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:00:39Thanks, operator. Good morning, everyone, and thank you for joining us. Yesterday, we released our fourth quarter and full year twenty twenty four results, provided our 2025 outlook and issued supplemental slides for your review. In addition, our 10 K was filed yesterday, and all of these items are available on our website. This morning, I'm joined by our CEO, Chris Doyle and our CFO, Marianela Foske and other members of management. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:01:04After our prepared remarks, which will come from Chris and Marianela, we will conduct a question and answer session. As always, please limit your time to one question and one follow-up so we can work through the list efficiently. We will make certain forward looking statements today, which are subject to risks and uncertainties that could cause actual results to differ materially from projections. Please make sure and read our full disclosures regarding these statements in our most recent SEC filings. We may also refer to certain non GAAP financial metrics. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:01:35Reconciliation to the appropriate GAAP measure can be found in yesterday's earnings release and our SEC filings. With that, I'll turn the call to Chris. Chris DoyleCEO at Civitas Resources00:01:43Good morning, everybody. Thanks for joining today's call. I want to start with a quick recap of 2024 before focusing most of my time on 2025 and the actions we're taking to strengthen the company. By continuing to enhance our operating performance and portfolio, reducing our costs and prioritizing the balance sheet, we're creating more durable business and better positioning Civitas to generate sustainable free cash flow for years to come. Quickly on 2024, it was a transformational year for the company. Chris DoyleCEO at Civitas Resources00:02:11Underpinned by our high quality assets and strong operational execution, our full year production was above plan and we beat original guidance for capital and operating costs. Over the past year plus, we built scale positions in the Midland and Delaware Basins, materially strengthening and diversifying our company. We Daily drilling footage is up nearly 20%. Daily completion throughput is up 50%. In addition, we derisked perspective horizons and added high value inventory across our acreage position. Chris DoyleCEO at Civitas Resources00:02:51And all of this has been accomplished while delivering excellent safety performance. Further, we strengthened both our Midland and Delaware positions through ground game initiatives, including more than 50 trade swaps and new leasing. And importantly, we did so with little to no cash. Yesterday, we announced a bolt on transaction in the Midland Basin adding 19,000 acres in 130 locations. With this announcement and to offset the purchase price, we set a $300,000,000 asset sales target for 2025, which is likely to come for the DJ Basin. Chris DoyleCEO at Civitas Resources00:03:19Effectively, this is expected to accelerate value from the DJ in support of extending our runway in the Permian. Between the Ground Game and bolt on, we've added nearly two years of future development in our Permian business unit and extended lateral lengths and working interest across our portfolio by 5%. This was done at very attractive valuations well below recent market transactions. Today, our Permian inventory stands at 1,200 development locations. While establishing a successful track record in the Permian, we didn't lose focus as the DJ Basin also had a strong year of performance. Chris DoyleCEO at Civitas Resources00:03:52In 2024, we turned in line the industry's first four mile laterals in Colorado. These were record setters, representing the state's highest one hundred and eighty day cumulative oil producers. Armed with basin leading operational capabilities, our team added high return development locations through a combination of ground game transactions in our core areas, including Watkins and through continual development optimization. Overall, free cash flow for the year was about $1,300,000,000 and we returned more than 70% of that to our shareholders through $5 a share in dividends and a repurchase of more than 7% of our outstanding shares. All in, we had a very successful year in 2024, and Civitas is a deeper, more durable business today. Chris DoyleCEO at Civitas Resources00:04:32Now let's turn to 2025 and the steps we're taking to strengthen our business. Our plan focuses on delivering the following strategic priorities. First, run the business to maximize free cash flow, built upon a leading cost structure and enhanced by sustainable capital efficiencies. Second, deploy that free cash flow to protect and strengthen the balance sheet. As Marianella will discuss further, we're prioritizing debt reduction in 2025. Chris DoyleCEO at Civitas Resources00:04:57Third, return cash to shareholders, predominantly come from a strong base dividend this year. And finally, lead in ESG and build this long term sustainable business as we execute on our target to further reduce our emissions. In 2025, we're level loading our capital investments compared to 2024, where the front loaded program led to low till counts at the end of the year. While level loading impacts near term production, this is more than offset by the long term benefits in operating and capital efficiencies. Keeping activity levels flat in 2025 will deliver full year oil production of 150,000 to 150,000 barrels of oil per day after level loading. Chris DoyleCEO at Civitas Resources00:05:36And we'll invest $1,800,000,000 to $1,900,000,000 split relatively evenly between the Permian and DJ Basins. This is approximately 5% lower than last year, reflecting the well cost savings our teams have delivered. Notably, our reinvestment rate in 2025 is consistent with 2024 despite WTI strip pricing being $5 lower year over year. As expected, our first quarter production will be low point for 2025. '80 percent of the sequential drop is related to natural declines in the DJ Basin following peak production in the fourth quarter. Chris DoyleCEO at Civitas Resources00:06:08This was driven by a low till count exiting 2024 and in the first quarter of twenty twenty five as well as severe winter weather and unplanned third party processing downtime. We expect to grow meaningfully through the middle part of the year as new tills come online. Specific to the 2025 plan, I want to mention a few other items of note. Within our Permian program, we're increasing our allocation of capital to the Delaware Basin. Today, we have four rigs running in the Permian, 2 of which are in the Delaware and a third coming shortly. Chris DoyleCEO at Civitas Resources00:06:38Nearly all of our completions in the Permian Basin will be simulfracked, leveraging the advancements our team delivered last year, improving fluid throughput by 50% versus the start of the year. And in the DJ Basin, we have two rigs running today and we'll continue to push the limits with longer levels. We're moving more of our production facilities to tankless operations and our teams are operating the most efficient, lowest emission rigs and completion crews in the basin. Our 2025 plan delivers approximately $1,100,000,000 of free cash flow at $70 WTI, a free cash flow yield of over 20%. Maintaining a culture of performance and cost leadership is critical to building a durable, sustainable enterprise. Chris DoyleCEO at Civitas Resources00:07:17To further enhance our business, we're streamlining our organizational structure with a 10% reduction in workforce throughout various levels of the company. These are tough decisions. We're committed to staying low cost, driving efficiencies and enhancing margins across all areas of the business. I'll turn it over to Marianela to discuss the steps we're taking to accelerate our balance sheet goals. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:07:38Thanks, Chris. The long term winners in this business will be the companies with a strong balance sheet and a cost structure at the low end of the cost curve. Yesterday, we took meaningful steps to prioritize and protect these two items, including rolling out a new free cash flow location strategy. Our strategy is underpinned by our 2025 net debt target of $4,500,000,000 which represents an $800,000,000 reduction to year end 2024 pro form a for the bolt on transaction. This debt reduction will further benefit our cost structure, decreasing associated interest expense by approximately $60,000,000 on an annualized basis or a 5% increase to a run rate free cash flow. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:08:16This reallocation of excess cash will allow us to reach one time leverage in late twenty twenty six. Our long term leverage target is unchanged at 0.75x EBITDA at mid cycle prices. While accelerating leverage reductions, we remain committed to our base dividend of $2 per share annually. As compared to our prior framework, any additional return of capital to shareholders will be opportunistic and consistent with our near and long term balance sheet goals. I'd be remiss not to touch on our philosophy and risk management, which further protects free cash flow. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:08:51We continue to execute our systematic oil hedge strategy, and we are approximately 40% hedged on net oil volume for 2025. As a reminder, oil accounts for approximately 80% of our unhedged revenue. Our tactical gas hedging strategy was extremely successful in 2024, especially in the back half of the year as Permian gas price volatility increased. Our Permian volumes are currently 50% hedged for 2025 and 2026, and we will continue opportunistically adding to our gas book. Ultimately, a commodity business best hedge is a low cost structure and a fortress balance sheet. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:09:28While our hedging philosophy has served us well, maintaining our top quartile cost structure and de risking our balance sheet are more material value drivers in the long term. And with that, I'll turn it back over to Chris for concluding remarks. Chris DoyleCEO at Civitas Resources00:09:41Thanks, Barry Noah. Over the next three years, at the 2025 investment and production level, Civitas will generate approximately $3,300,000,000 in cumulative free cash flow at $70 oil. That represents two thirds of our current market cap and will allow us to meet our leverage reduction goals while also returning significant capital to our shareholders. Civitas' strength rests on our proven operating teams and their track record of performance in the lowest breakeven oil basins in The U. S. Chris DoyleCEO at Civitas Resources00:10:07Our twenty twenty five plan will advance our strategy of building a long term durable business for our shareholders. Operator, we're now ready to take questions. Operator00:10:18Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Gabe Dawood from TD Cowen. Sir, please go ahead. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:10:51Thanks. Good morning, everyone. I was hoping, Chris, we can maybe start with the decision to shift your capital allocation strategy. I thought maybe you could, for lack of a better phrase, walk into gum and pay down debt and still buy back a decent amount of stock. So maybe just a bit more color there. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:11:11And you mentioned opportunistic with buybacks. What does that mean? What would you need to see to step in? Chris DoyleCEO at Civitas Resources00:11:20Sure. Thanks for the question, Gabe. As we thought about setting this business up for 2025, we had a couple of options a number of options. And as we thought about the backdrop, the macro that's in front of us, the volatility that we've seen over the past couple of months, we know that this is the plan that's best to build a long term sustainable business for Sidetas. As you mentioned, we have a business that generates significant free cash flow, dollars 1,100,000,000.0 in 2025. Chris DoyleCEO at Civitas Resources00:11:53Given the volatility that we see, we think the best use of that cash flow after our base dividend is really to direct it to our balance sheet. We'll have a little bit of opportunity to accelerate that. We mentioned the $300,000,000 divestment target to offset the acquisition that we announced yesterday. We're looking at other ways to potentially accelerate that delevering path and give us some more flexibility and optionality. But this is about setting the company up for long term success. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:12:29Got it. Thanks, Chris. That's helpful. And then as a follow-up, obviously starting 1Q, slowly and expected to ramp from here, maybe a bit more color and granularity on the ramp from here in the production trajectory. And how does that potential divestiture program impact volumes? Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:12:53I guess another way is what's the amount of production you anticipate selling with this $300,000,000 target? Thanks guys. Chris DoyleCEO at Civitas Resources00:13:01Sure. First with first quarter oil, largely as expected, reflecting low levels of activity as we mentioned in the back half of '20 '20 '4 and certainly into 2025. A lot of that drop as we mentioned is in the DJ. We've restarted the engine. We have a pretty active 1Q plant of 50 to 60 tilts followed by another active quarter in the second quarter. Chris DoyleCEO at Civitas Resources00:13:25And you'll see as we lay out on Slide 12, growth from the first half to the second half with that activity. In terms of the divestment, the $300,000,000 divestment, that's TBD. We're looking at all types of assets, some assets that don't have associated production, midstream assets, some water infrastructure assets in the Permian, they're not significant. But looking at first and foremost assets that could be more valuable in others' hands. Certainly, if we see the right value, we would look to potentially accelerate some value from operating assets and producing assets. Chris DoyleCEO at Civitas Resources00:14:06But that's certainly TBD at this point. Gabe DaoudManaging Director, Energy Equity Research at TD Cowen00:14:11Understood. Thanks, Chris. Operator00:14:16Thank you. Our next question comes from the line of Zack Parram from JPMorgan. Please go ahead. Zach ParhamExecutive Director, Equity Research at JP Morgan00:14:24Thanks for taking my question. First, with the bolt on deal that you did in the Midland, can you just talk about where those acquired locations fit into your development plan? Are those assets you'll be getting to work on later this year? Or are they more longer dated locations? Maybe just talk about how that fits into the portfolio? Chris DoyleCEO at Civitas Resources00:14:44Sure. As we dug into that opportunity, certainly, we see value adjacent to our operations. We did not underwrite Styx across that entire acreage position. We see that activity really starting up later this year and but more so in 2026. The Wolfcamp A, Wolfcamp B, Wolfcamp D primary development will yield good returns that will compete for capital, but that likely doesn't set up until late this year and into next. Zach ParhamExecutive Director, Equity Research at JP Morgan00:15:26Thanks, Chris. And then my follow-up is just maybe following up on Gabe's question on capital allocation. I know the focus is now on debt reduction, but how do you think about further M and A versus potentially shifting back to a higher level of cash return? It sounds like you're going to you talked about reaching a one turn leverage target in late twenty twenty six. So it sounds like you're going to continue paying down debt versus returning cash. Zach ParhamExecutive Director, Equity Research at JP Morgan00:15:57Just kind of maybe how do you think about things over the longer term, M and A versus cash return versus debt reduction? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:16:05Hey, Zach. Thanks for the question. So look, first and foremost, our top priority is our net debt target, 2025 net debt target of $4,500,000,000 To get there, we talked about how the majority of our free cash flow after the base seven this year is going to be allocated to debt reduction. So anything we do in excess of that will be opportunistic. It will not be formulaic. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:16:28And obviously, we have a very near term eye to that one time leverage. Over and above that, you've seen us balance our allocation between buybacks and acquisitions very well. Every acquisition we've done has been at very attractive prices, certainly in a dollar per stake relative to some of the recent transactions announced there. And at the same time, we've also had a very successful buyback approach. We bought 7% of our shares last year. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:16:56That's going to underpin an 8% operating cash flow increase 2025 or 2024. So certainly, we've been very successful on both fronts and we'll continue being opportunistic about how we balance between those two to benefit of long term value. Zach ParhamExecutive Director, Equity Research at JP Morgan00:17:15Great. Thanks for taking my questions. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:17:18Thank you. Operator00:17:22Thank you. Our next question comes from the line of Josh Silverstein from UBS. Sir, please go Josh SilversteinManaging Director at UBS Group00:17:30ahead. Yes, thanks. Good morning, guys. Maybe just on the same point, as you hit your 800,000,000 net debt reduction target for this year, do you shift back to that 50% plus return of free cash flow to shareholders? Is that something that you get to? Josh SilversteinManaging Director at UBS Group00:17:46Or if gas prices are a bit higher, oil prices are a bit higher, you just accelerate deleveraging a bit more? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:17:53It's more of the latter. We will certainly look to accelerate our balance sheet goals further, Josh. And like I said earlier, we'll be opportunistic of anything in excess of that. But our top priority, again, is hitting that 4.5 with an eye to one time slate next year. Josh SilversteinManaging Director at UBS Group00:18:08Got it. Thanks. And then maybe just on the inventory front. The past quarters you've been talking about inventory in the Wolfcamp D, particularly in the Midland side. Where does that stand now? Josh SilversteinManaging Director at UBS Group00:18:18And is that in the 1,200 location count? Chris DoyleCEO at Civitas Resources00:18:21Yes. Thanks, Josh. It is in the 1,200 location count. We had about 10% of our program last year, really delineating the Wolfcamp D, North, South, East, West. Excited about the results that we've seen, just as excited with the capital performance that the team delivered, where you're seeing about 10% higher capital for 15% more productive wells. Chris DoyleCEO at Civitas Resources00:18:46And so what we're seeing is the D will compete for capital. We're stepping up our D development this year, probably about 20% of our Permian program. And so excited to see with additional swings at the plate if we can tighten those capital costs even further and continue to repeat the strong well performance. But B is certainly in there. I wouldn't say it's our primary target like the Wolfcamp A, Wolfcamp B on the Midland side and Wolfcamp A third Bone on Delaware, but it's certainly very exciting for us and happy to allocate some capital towards it in 2025. Josh SilversteinManaging Director at UBS Group00:19:25Great. Thanks guys. Operator00:19:31Our next question comes from the line of Neil Dingmann from Tuohist Securities. Sir, please go ahead. Neal DingmannManaging Director - Energy Research at Truist Securities00:19:38Hey, thanks for the time. Good morning. Chris, my first question maybe for you, Sam, just a little bit like you just talked about on the Midland side. My question is more on the Delaware side. It seems like you're just now sort of getting after that. Neal DingmannManaging Director - Energy Research at Truist Securities00:19:51Based on what you're seeing now after re permitting and doing some things there, are the opportunities there? I guess I'd say is the opportunity set as good now as ever you've seen when you were initially looking at it? Or maybe just talk about how you see that side and what type of activity we can expect maybe the latter part of this year and going into next year in the Dell? Chris DoyleCEO at Civitas Resources00:20:13Sure. Thanks for the question, Neil. As we thought about allocating capital between Midland and Delaware, we really wanted to shift to the higher return Delaware inventory, but we saw real opportunity to further optimize development. Previous operator was willing to drill shorter laterals. We had a team that got in there and said, hey, we could take a one mile well and turn it into a two and greatly increase capital efficiency and increase the returns of that program. Chris DoyleCEO at Civitas Resources00:20:44It was going to take some time, right, not only for the ground game to work itself through the system, but also then to re permit. Now that's behind us. The team's done a great job building up that position and optimizing the opportunity over there. And so we're allocating more capital to the Delaware, which is fantastic to see. As a year, last year, we had about 20% of our tills come out of the Delaware. Chris DoyleCEO at Civitas Resources00:21:09This year, about 40% of our activity is going to be pointed there. So we're leaning in there. And as you know, Lee County is where the two rigs are currently. We're really excited about the opportunities there and look forward to getting those wells online. But kudos to the team to take the time to do the right things, go through the steps to further enhance the returns and we're ready to deploy capital over there. Chris DoyleCEO at Civitas Resources00:21:35So excited what we're seeing. Neal DingmannManaging Director - Energy Research at Truist Securities00:21:38Got it. And then just lastly, just a little minor third party issue. I'm just wondering when it comes to sort of midstream infrastructure all that, do you all feel pretty good now where you sit on pretty nicely you haven't had really virtually any issues, seems like over the DJ side recently. I'm just wondering now when you look at both sides you feel pretty good about infrastructure going forward? Chris DoyleCEO at Civitas Resources00:22:02Yes. We unfortunately had the third party issue in the first quarter. Alongside weather, probably a couple thousand barrels of impact to the DJ. So we certainly hit it. But the team did a really good job of finding multiple outlets and minimizing the impact of the third party processor issue and we worked around it, but we were down for about four, six weeks. Chris DoyleCEO at Civitas Resources00:22:26And so we feel good with where we are. As you know, in the Permian, Permian is much a water and gas business with oil as a secondary product there. And so teams out front ahead of all our kills and getting our water placed and feel good about our ability to execute and deliver our 25 plan. Neal DingmannManaging Director - Energy Research at Truist Securities00:22:50Great details. Thanks, Chris. Chris DoyleCEO at Civitas Resources00:22:52Thanks, Neil. Operator00:23:00Our next question comes from the line of Scott Hanold from RBC Capital Markets. Sir, please go ahead. Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:23:09Yes. Thank you all. My first question is just on effectively the reset of the outlook in 2025 and beyond. Could you talk through the process of making the decisions you all did? Obviously, making some hard decisions here, but like what were some of the other options? Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:23:30And obviously, your path here you're taking is one option. Did you look at others like larger M and A divestitures as was discussed out in some market reports? Could you just talk about like some of the options you looked at and the decision and thought process into the 2025 plus plan? Chris DoyleCEO at Civitas Resources00:23:51Yes. Thanks for the question, Scott. So first, as we thought about setting 2025 up, we had a couple of different paths just with the business as is. As we've talked about in the past, the level of activity in 2024 was not at a maintenance level to support 160,000 barrels of oil a day. In addition to that, it was very front loaded, which really stopped the engine towards the end of the year. Chris DoyleCEO at Civitas Resources00:24:21And so one option that we had was to increase activity and maintain 160,000 barrels of oil a day. As we looked at the and consider the volatility in the macro that we're seeing currently, we didn't think it was the right thing to double down invest a couple of hundred more million dollars to maintain 160,000 barrels of oil a day. We believe the best thing for the business long term was to reset to the 150,000 to 155,000, fuel out capital and hit that maintenance level of $1,800,000 to $1,900,000. In terms of question around the larger M and A halves, won't comment specifically on any rumors out there certainly. But I will say that this is a team that is focused on long term creating a long term sustainable business that generates significant value for our shareholders. Chris DoyleCEO at Civitas Resources00:25:20If there are opportunities to accelerate some of that value and that's any asset, not just DJ or just Permian, if there's an opportunity to accelerate value for our shareholders, we will certainly take it very seriously. I will say as evidenced by the $300,000,000 investment target, we are out there looking for ways to identify assets that could be more valuable in others' hands and use that to offset what we thought was a really attractive bolt on in the Midland Basin and really a rotation to extend the runway into the Permian. So I think more to come on that front, Scott, but a lot of work and a lot of diligence to go into laying out this plan as the best path for this company long term. Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:26:09Yes. And maybe to play a little bit off some of those the latter comments there. I mean obviously potentially divestitures seem like they're going to be targeting some more so in the DJ and you've obviously bolted on to the Permian. So as you look at your inventory runway of 1,200 Permian locations, I mean, is a couple of questions here. One, how do you comfortably feel with your inventory duration of what you would view as core wells? Scott HanoldManaging Director - Energy Research at RBC Capital Markets00:26:37And do you see yourselves becoming more of a Permian company over time? Chris DoyleCEO at Civitas Resources00:26:43Yes. I'd like to say we're a returns company and whether we get those returns from the DJ or the Permian, that's what we'll go after. We see the opportunity in the Permian really to scale our business. We saw the opportunity to scale our business and diversify it. In terms of the 1,200 locations, we're sitting about eight or nine years of stay flat inventory. Chris DoyleCEO at Civitas Resources00:27:08We've talked about wanting to extend that. Again, given the macro where it is, I feel very comfortable with where we are and our ability to really focus, refocus and send excess free cash to our balance sheet without the need to really participate in what have been extremely competitive asset transactions there in the Permian. In the DJ, it was interesting not just through ground game, but relooking at a brand new or continually improving capital operating structure and what the team has been able to do to expand tiers out more than replacing inventory that we sold and that we drilled in the year, I think was a great achievement for the team. But we're sitting there with eight plus years of state flat inventory as well. Now as we get further down the dispatch curve, is the capital efficiency of those last couple of years the same as the next five? Chris DoyleCEO at Civitas Resources00:28:13No, probably not. But we do have a team that is demonstrating the ability to drive additional efficiencies to take returns, whether it's extending laterals or optimizing completion designs to take lower returns and improve those with time. And so we feel very comfortable that this is a plan that is sustainable, that will deliver a stable free cash flow and allow us to achieve all of our balance sheet goals and at the same time return significant capital to our shareholders. Operator00:28:49Our next question comes from the line of Leo Mariani from Roth Capital. Sir, please go ahead. Leo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLC00:28:57Yes. I wanted to follow-up a little bit about some of your comments around M and A. Clearly, you talked a little about divestitures, but just curious, you mentioned very competitive Permian markets, but in kind of a perfect world, is there a pretty healthy appetite for the company to try to add inventory in the Permian through M and A? Chris DoyleCEO at Civitas Resources00:29:20Yes. I would say our number one goal for 2025 is hitting that net debt target at the end of the year, the 4.5. Five. As we're doing with the bolt on in Midland, rotating out predominantly DJ developed assets to fund that, We'll see if there are similar opportunities to do that. But our number one focus given the inventory duration that we currently have and given the macro that we see is really taking that excess cash to the balance sheet first and foremost. Chris DoyleCEO at Civitas Resources00:29:56And we'll continue to look for ways to accelerate our delevering and to accelerate our returns to our shareholders. But our number one focus this year is that $4,500,000,000 net debt target. Leo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLC00:30:10Okay. And then just jumping over to the LOE side. LOE obviously went up here in 4Q. Just trying to get a sense was a lot of this driven by the Permian or did you all also see healthy increases in the DJ? Chris DoyleCEO at Civitas Resources00:30:25Yes, you always see in the DJ and the Permian with winter LOE jump up a little bit. The 4Q really was led by higher LOE than expected in the Permian winterization projects, a little more active workover plan and we'll see that continue into the first quarter before it moderates back. But we take this very seriously and this is our cost structure as we think about cash G and A and cash LOE, that's a differentiator for any company in a commodity business. That's why we made some of the hard decisions that we made recently to reaffirm and reestablish and sustain that low cost stance. And so specific to your question on 4Q, it was really winter related and workover activity, but teams working through that and will get us back into top quartile cost structure very comfortable with that. Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:31:22So substantially all the increased quarter report was driven by Permian like Chris discussed. Rockies or DJ was actually flat quarter over quarter. I think as we see as we look out, we have a cash or a LOE target that's probably going to be somewhere in between Q3 and Q4 that were, like Chris discussed, quite a bit of onetime items in the fourth quarter that won't be recurring. But all in, high 9s on a per BOE basis, which we believe is peer leading for our asset base. Leo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLC00:31:56Thank Operator00:32:00you. Our next question comes from the line of Janan Abbot from Wolfe Research. John AbbottE&P Research Vice President at Wolfe Research, LLC00:32:07Hey, good morning and thank you very much for taking our questions. So with the focus here on free cash flow, maximizing that, could you speak a little bit about the trajectory of how you see future cash taxes over the next three year period of time? And when do you see yourself paying sort of the alternative tax? What's your latest thoughts on cash taxes? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:32:30Thanks, Jean. So this year, cash tax guide is $10,000,000 to $30,000,000 It's going to be fairly flat into $2,026,000,000 dollars maybe a little bit higher, closer to the high end of this year's range next year. As far as AMT, we don't hit AMT until around $80 a barrel. So there's nothing additional to model pursuant to AMT. John AbbottE&P Research Vice President at Wolfe Research, LLC00:32:55Appreciate it. And then, Chris, I mean, the focus right now is on deleveraging the balance sheet. You're looking at the commodity environment. But as you sort of sit down and think about your inventory, let's say the commodity environment improves. And you are what is your willingness to actually grow at that period of time having lowered your oil guide at this period of time? John AbbottE&P Research Vice President at Wolfe Research, LLC00:33:20You only have so many years production. What would you do? Would you add a rig? How do you think about growth if there were if there was a change in the commodity and price environment? Chris DoyleCEO at Civitas Resources00:33:32Yes. Thanks for the question, John. If the macro completely flips and it's very bullish towards the end of this year or into next, we will be responsive to that macro environment. We like this plan as we roll it forward, the ability to generate sustainable free cash and take that to balance sheet. If we saw solidifying of the commodity price instead of backwardating into the 60s, some more solid foundation, you could see us potentially lean in a little bit on activity, but only if we're well advanced of our balance sheet targets for the year and for longer term. Chris DoyleCEO at Civitas Resources00:34:17And so this is a team that will continually look at ways to further optimize the way we allocate capital. And as things shift like that, we will be responsive and not overreact, but certainly responsive to the macro. And given the success that both the DJ and the Permian teams have had over the past year, really replacing extending inventory, we have the option to lean in a little bit. All eyes right now focused on that $4,500,000,000 year end target. John AbbottE&P Research Vice President at Wolfe Research, LLC00:34:52Appreciate it. Thank you very much for taking our questions. Chris DoyleCEO at Civitas Resources00:34:55Thanks, John. Operator00:34:59Our last question comes from the line of Noah Parks from Tuohy Brothers. Sir, please go ahead. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:35:06Hi, good morning. You did touch a bit earlier on the potential for increased oil volatility. And I think you mentioned that in a way being conservative with activity and CapEx is sort of the first line of defense against that. But do you have a general view on volatility over the next few years? I mean, leaving total black swan events aside, do you sort of anticipate increasing volatility or volatility maybe sort of settling down over the next few years? Chris DoyleCEO at Civitas Resources00:35:43Yes. I think first, I would say what we've seen is pretty significant volatility, right? Oil was $80 a month ago. Now it's backwardated into the 60s. We'll see if that continues, right? Chris DoyleCEO at Civitas Resources00:35:57And we're not going to sit here and prognosticate which way that will go. But I will say the first line of defense before even activity levels and taking a more conservative approach to capital allocation is affirming and establishing a low cost structure. Again, it's something we spend a lot of time on. And again, looking at some of the difficult decisions we've made really to solidify that peer leading cost structure, to us that is the first defense against that volatility. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:36:34Great. Thanks a lot. And just to clarify something on the guidance, some of the sensitivities shown in the slides. Since the free cash flow has so much upward sensitivity with commodity price, I just wanted to double check. The $1,100,000,000 I think it is a free cash flow estimate at $70 that would not count the $550,000,000 in delayed compensation you're paying for Vensors since that was cost incurred last year, if I have that right. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:37:09Is that right? Marianella FoschiChief Financial Officer & Treasurer at Civitas Resources00:37:09Yes, that's correct. That's just clean free cash flow. No, the $475,000,000 deferred acquisition with Vensors, that was already paid and that was just paying out the debt we had at the end of the year. So it's not it doesn't impact the 1.1 free cash flow anyway. Noel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research Inc00:37:25Great. Thanks a lot. Operator00:37:30Thank you. That concludes our Q and A session. I will now turn the call back to Brad for closing remarks. Brad WhitmarshVice President, Investor Relations at Civitas Resources00:37:37Really appreciate everyone for joining us today for the Q and A session. May and I are certainly around the next several days for additional follow-up. We look forward to seeing you on the conference circuit here over the next couple of weeks, and we hope you have a great day. Operator00:37:54That concludes our conference call. Thank you for joining today and you may now disconnect.Read moreParticipantsExecutivesBrad WhitmarshVice President, Investor RelationsChris DoyleCEOMarianella FoschiChief Financial Officer & TreasurerAnalystsGabe DaoudManaging Director, Energy Equity Research at TD CowenZach ParhamExecutive Director, Equity Research at JP MorganJosh SilversteinManaging Director at UBS GroupNeal DingmannManaging Director - Energy Research at Truist SecuritiesScott HanoldManaging Director - Energy Research at RBC Capital MarketsLeo MarianiManaging Director, Senior Research Analyst at Roth Capital Partners, LLCJohn AbbottE&P Research Vice President at Wolfe Research, LLCNoel ParksManaging Director - Energy Research at Tuohy Brothers Investment Research IncPowered by