Civitas Resources, Inc. (NYSE:CIVI) Q3 2023 Earnings Call Transcript
Civitas Resources, Inc. (NYSE:CIVI) Q3 2023 Earnings Call Transcript November 8, 2023
Operator: Ladies and gentlemen, thank you for standing by. My name is Bhavish, and I will be your conference operator today. At this time, I would like to welcome everyone to the Civitas Resources' Third Quarter 2023 Earnings Conference Call. [Operator Instructions] I will now hand the call over to John Wren, Director of Investor Relations. You may begin your conference.
John Wren: Thanks, operator, and good morning, everyone, and thanks for joining us. I'm joined today by our CEO, Chris Doyle; CFO, Marianella Foschi; and COO, Hodge Walker. I hope you've reviewed our earnings release, 10-Q and slide deck, all of which are available on our website. We will make forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from our projections. Please read our full disclosures regarding forward-looking statements in our 10-Q and other SEC filings. We may also refer to certain non-GAAP financial metrics. Reconciliations to certain non-GAAP metrics can be found in yesterday's release and our SEC filings. After Chris's brief prepared remarks, we'll all be available to take your questions. As always, please limit your time to one question and one follow-up as this allows us to get to more of your questions this morning. Now I'll turn the call over to Chris.
Chris Doyle: Thanks, John, and good morning, everyone. The team once again delivered strong results this quarter and our new Permian and legacy DJ businesses are performing well against our expectations. Our results continue to prove that an E&P company with high-quality assets can return significant cash to shareholders while building scale through disciplined accretive transactions. Our recently announced Vencer acquisition, which should close as expected in January, further strengthens our ability to generate free cash and return it to shareholders. This deal is part of several recent steps to transform our company, adding high-quality scale and further diversifying our portfolio. Simply put, we're more competitive and more durable enterprise today.
We recently celebrated our 2-year anniversary, which gave us an opportunity to reflect on what we've accomplished as a company and what we've delivered for our shareholders. In 2022, we paid $6.29 per share in dividends. In 2023, that number will grow to $7.60, add an additional $320 million of buybacks that have already been completed and we will return nearly $1 billion to shareholders in 2023 alone. That's 15% of our current market cap in 1 year. Our strong shareholder return program will continue to grow in 2024. At strip, we expect the dividend will increase roughly 10% furthering our track record of delivering 1 of the most reliable and significant dividends in our industry. We've accomplished all of this while maintaining an unwavering commitment to our strong balance sheet.
Our plan to sell about $300 million in non-core assets is progressing well, and we're on track to meet our mid-2024 target. Proceeds will help us reduce debt while also high-grading our portfolio. We continue to target 3 quarters of return of leverage longer term at mid-cycle prices and plan to be below 1 turn by the end of 2024, assuming $80 oil. We firmly believe that maintaining a strong capital structure is key to building a sustainable business that can deliver top shareholder returns. Let's talk about integration. Since this summer, our focus has been on integrating the new Permian assets into Civitas and standing up a new team. We've built a proven Permian leadership team with decades of experience leading capital-efficient development programs across the basin.
In addition, I continue to be impressed by the talented members of the Tap Rock and Hibernia teams, many of whom are joining Civitas. Their dedication to maintaining safe, continuous and efficient operations has allowed us to accelerate operational handover in the Midland Basin to the end of this month. That's over 2 months earlier than our original plan. Similarly in the Delaware, we're on track to accelerate the operational handover by over a month. Bottom line, come January 1, Tap Rock and Hibernia operations will be fully integrated into Civitas. Our team is now finalizing plans for the Vencer integration and optimizing our 2024 development program. As always, we will be guided by a proven business model, which focuses on maximizing free cash flow and improving cash-on-cash returns.
Now let me quickly summarize our third quarter results. Total company production was in line with expectations in the third quarter averaging 235,000 BOE per day and 114,000 barrels of oil per day. In the DJ, volumes were 168,000 BOE per day in the upper half of our original guidance range. We continue to push the limits of operational efficiency here in the DJ, recently drilling 6, 4-mile laterals and an average spud to spud of 9 days. It's a new company record. Importantly, the wells came in approximately 10% below predrill cost estimates. In the Permian, we produced 67,000 BOE per day for the quarter, which I note only reflects volumes after the transaction closed on August 2. Focusing in on August and September, Permian production averaged 101,000 BOE per day.
We closed the quarter strong, averaging approximately 111,000 BOE per day and 56,000 barrels of oil per day. Importantly, we remain on track to exit this year within our original Permian 5-month guidance range. Company-wide, we continue to target a year-end exit rate of about 280,000 BOE per day and have raised the midpoint of our full year production guidance. Capital investments in the third quarter were approximately $430 million, consistent with expectations. We ran 2 rigs in the DJ, 7 in the Permian during the quarter. And as planned, we've dropped 2 rigs in the Permian in October and will drop to 4 rigs by year-end before closing Vencer. In the DJ, we'll maintain our 2-rig program and have reduced completion activity in the fourth quarter as planned.
As we look toward the remainder of the year, we successfully increased our working interest in a few high-return pads and elected to participate in additional non-op activity in the core of the DJ Basin. As a result of these investments, combined with improved drilling cycle times, we're electing to increase our capital investments by about $60 million, midpoint to midpoint, bringing the new midpoint to $1.34 billion. These are high-return investments that set us up well heading into 2024. In closing, let me reiterate today's key takeaways. First, our legacy DJ and new Permian businesses are both performing well. Our integration is ahead of schedule, and we have the flexibility to invest capital across a portfolio of very high-return assets in multiple basins.
Second, our recent acquisitions have created a stronger, more balanced Civitas with significant duration and a peer-leading shareholder return program. As I've said before, scale matters, but so does depth and quality of inventory and efficient execution. Scale, asset quality and operational excellence are the key ingredients to sustaining and growing shareholder returns. Lastly, we know the importance of a premier balance sheet. We're advancing our noncore asset sales as planned, have a very strong outlook for free cash flow at current prices. We expect to return to our optimal leverage ratio of less than 1 turn by the end of 2024, assuming $80 oil. Thank you for your interest in Civitas. And operator, we're now happy to take questions.
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