Civitas Resources, Inc.

Good day and thank you for standing by. Welcome to Civitas Resources First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the star and number one again. Thank you. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brad Whitmarsh, Head of Investor Relations. Please, go ahead.

Thank you, Ellie. Good morning, everyone, and thank you for joining us. Yesterday, we issued our first quarter earnings release, our dividend release, and a buyback announcement, along with our 10Q, and we provided some supplemental materials. Hopefully, you've had a chance to review those items, which should all be available on our website. I'm joined today by our CEO, Chris Doyle, CFO, Mary Nalifoski, and COO, Hodge Walker. After our prepared remarks, 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 our projections. Please make sure and read our full disclosures regarding these forward-looking statements in our most recent SEC filings. We also may refer to certain non-GAAP financial metrics. Reconciliation of these items to GAAP measures can be found in yesterday's release and in our SEC filings. With that, I'll turn the call over to Chris for opening comments. Thanks, Brad.

Morning, everybody, and welcome to our first quarter call. 2023 was truly a transformational year for our company. Now in 2024, this is the first quarter that all of our new businesses are put together. Our results highlight just the beginning of Civitas' bright future ahead. Today, we're benefiting from a scaled and more diverse portfolio, and our teams are finding innovative ways to drive capital efficiency. Here are a couple key takeaways. First, our Permian team and assets are performing very well. Through successful integration, we're already reducing drilling and completion cycle times and lowering cash operating costs. Now it's only one quarter, but I'm super excited about the results this team's already delivering. Next, our teams continue to optimize development of the DJ basin, and we achieved our $300 million investment target ahead of schedule. These investments are accelerating value to Civitas, peeling away assets that simply don't compete for capital. On an annual basis, the $300 million of assets would have generated approximately $70 billion of EBITDA at $75 oil. Now connecting the dots here, these non-core assets traded at a material step-up in value from where our remaining core assets currently trade. Importantly, the quality of our portfolio, our strong operational execution, and our confidence in achieving this year's targets will allow us to maintain full-year volume guidance despite selling 5,000 DOE per day. This is essentially a 1.5% increase in our sales volume guidance for the year with no cap exchange. Also during the quarter, we continued our strong shareholder return program, returning $215 million between our peer-leading dividend and share buybacks. Hopefully you saw our press release yesterday announcing another share repurchase agreement where we're buying back more than a million shares from VTOL, who's now down to under 2% of our outstanding shares. Since the beginning of last year, we've repurchased $462 million of our stock at $63.30 per share. and our total return, including dividends, is approaching $1.3 billion over that same timeframe. That's approximately 18% of our market cap returned to shareholders in a little over a year. In addition to our capital return, we paid down debt in the first quarter, reducing our revolver borrowings by $350 million. Our first quarter operational financial performance drove a significant beat on both consensus earnings and cash flow. Sales volumes for the quarter were higher than planned, averaging 336,000 barrels of oil equivalent per day, and oil was 156,000 barrels per day, or 47% total volumes. This was driven by strong well productivity along with accelerated turn-in line timing in both DJ and Permian. Cash operating costs were in the lower half of our annual guidance at 919 per VOE. LOE was the primary driver here, doubling 431 per VOE. Capital expenditures were $650 million, or approximately a third of our annual guidance. This is slightly higher than planned, but largely due to the acceleration of drilling and completion activities in the Permian, as well as certain long lead items purchased for the DJ in the first quarter. As a reminder, we'll likely spend 60% to 65% of our full-year capex in the first half of the year. As we progress through the remainder of the year, our focus remains on maximizing free cash flow, enhancing the balance sheet, and returning capital to our shareholders as we build a long-term and sustainable business. Now let me turn to some operational highlights. starting with the Permian. We'll be investing about 60% of this year's capital in the Permian. We're continuing to show that assets are better in our hands. In today's supplemental slides, we provide a number of helpful comparisons that highlight this exact point. On the drilling side, we've increased average footage drilled per day by nearly 30% from prior operators, and according to third-party data, we drilled more footage per day per rig than any other operator in the Permian during the first quarter of the year. A particular note, we recently drilled a three-mile lateral in the Midland Basin in under 10 days by the rig release. We've also had similar achievements on the completion side. Our teams have increased daily fluid throughput by 20%. Accordingly, cycle times are coming down as are DNC costs. So far, we've captured approximately 5% cost reduction on a per-foot basis, and there's much more to come. We're also finding ways to lower cash operating costs. On the first quarter LOE, we were more than $1 below expectations driven by ongoing field level synergies primarily labor-related and the optimization of chemicals program, particularly in the Delaware. In March, we commenced production on a large number of new Delaware wells. Early production performance is in line with expectations. Production from these wells, along with additional tills through the summer, should drive oil growth in the Permian through the year. The first wells fully drilled and completed by Civitas are anticipated to commence production in the third quarter. We continue to find ways to optimize our portfolio through asset trades, acreage swaps, and small farm ends acquisitions. Our ground game is added valuable inventory, extended laterals, and increased working interest in near-term development. As a result of this success, we've now lowered our 2024 expected Permian well count by about 10, while still completing the same lateral footage as our lateral lengths have increased by more than 10%. Now switching to the DJ, the highly prolific Watkins area comprises about 70% of our 2024 DJ investments. We continue to be encouraged by performance, and you can see on our slides how production continues to track well versus our recently uplifted tide curve. During the first quarter, we completed 13 four-mile laterals in Watkins. These are the longest wells ever drilled and completed in the basin. These wells allow us to access additional resource while reducing surface impact, and we're looking forward to production results in the second half of the year. We have 320 remaining development locations in Watkins, the majority of which are covered by comprehensive area plans. The Box Elder Cap is approved and represents much of our 2024 and 2025 planned activity, and we're working on the Lowry Cap approval, which we expect to happen later this summer. Also, during the first quarter, we drilled our first U-turn wells in the DJ. It's another accomplishment in our strategy to maximize returns and resource development with longer laterals. Briefly on the Colorado regulatory front, I want to thank the governor and the legislature for their work to reach a compromise that will withdraw the competing ballot measures and in-process bills regarding oil and gas development. While the new compromise bills are not yet finalized, they're aligned with our emissions reduction commitments, and they raise important funds for low-carbon transportation options for all Coloradans. Importantly for producers, it provides certainty that the government will oppose any future ballot measure and any legislative attempt that would upend this certainty, at least through the 2027 legislative session. This is a win-win for all parties, including our shareholders, as it removes risk of near-term regulatory changes in the state into 2028. Wrapping up, our first quarter performance reflects the benefits of a high-quality portfolio and the team's ongoing ability to make the most out of our asset base. We're encouraged by the early efficiency gains and strong results we're seeing in the Permian, and the DJ Basin continues to perform exceptionally well. Civitas has all of the key ingredients to deliver long-term shareholder value. High quality assets, inventory depth, a strong balance sheet, significant free cash flow, and a track record of returning cash to owners through cycle. Thank you for your interest in Civitas. Operator, we're now happy to take questions.