Civitas Resources, Inc.

for today's 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Please be advised that today's conference call is being recorded. I will now turn the conference call over to Brad Whitmarsh, Head of Investor Relations. Brad, please go ahead.

Thanks, Rochelle. Good morning, everyone, and thank you for joining us. Yesterday, we released our first quarter 2025 results, along with some supplemental materials and our 10Q. Hopefully, you've had a chance to look through these materials, all of which are available currently on our website. This morning, our CEO, Chris Doyle, will make our prepared remarks, and joining us for Q&A is our CFO, Mary Nalifoski, and other members of management. We will conduct a question and answer session after our opening comments, and 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, and those are subject to risk and uncertainties that could cause actual results to differ materially from our projections. Make sure you read our full disclosures regarding these statements in our most recent SEC filings. Also, we may refer to certain non-GAAP financial metrics We do provide reconciliations to the appropriate gap measures in yesterday's earnings release and 10Q as well. With that, I'll turn the call over to Chris.

Morning, everyone, and thanks for joining us. First, I'd like to welcome Clay Carroll, our new president and chief operating officer. Yesterday was his first day on the job, and Clay's here with us for this morning's call. Clay is a proven leader, and he has deep operating experience deploying best practices to safely reduce costs, improve cycle times, and lead teams to enhance productivity and margins. I'm confident that Clay will be a great addition to our team. I know he's very excited to get started. You know, establishing our original 2025 guidance, we recognize the multiple supply and demand forces causing significant uncertainty in the global economy and therefore our industry. We planned for it and removed around $150 million of CapEx as compared to 2024, focusing our attention on capital discipline and lower reinvestment rates rather than maintaining 2024's production level. This is a challenging time, yet we remain well-positioned to navigate the current environment with a foundation of high-quality, low-break-even assets. In addition, we have robust financial liquidity, a strong hedge book, and significant capital flexibility to adjust our plans as necessary. We remain confident in our full-year outlook, but at the same time, we're positioned to reduce activity levels should current market conditions deteriorate further. These conditions not only include the oil price, but also the corresponding service cost environments. Additionally, we're taking meaningful steps today to strengthen our business and improve our performance. First, we remain focused on running the business to deliver sustainable free cash flow. Yesterday, we announced a comprehensive cost optimization and efficiency plan to generate an incremental $100 million of annual free cash flow. As part of this effort, we're focusing on every opportunity to safely lower costs, enhance productivity, reduce cycle times, and optimize production operations. In addition, we see substantial opportunity to improve our cash cost structure, and our netbacks, including optimizing our commercial and midstream agreements. As an example of this, our teams recently executed a new oil gathering agreement for transport out of the DJ Basin, which will help increase free cash flow by approximately $15 million each year. In total so far, we've identified over $100 million in incremental free cash flow on a run rate basis, with approximately 40% of this amount benefiting the second half of 2025. I look forward to sharing our progress on this initiative in the months ahead. Second, we continue to prioritize protecting and strengthening the balance sheet, which we believe is necessary to sustain shareholder returns over the long haul. This is why we set up our plans to start the year prioritizing our free cash flow after the dividend to de-lever, which is even more important now with the current market. Consistent with that, we significantly expanded our hedge position and are now nearly 50% hedged on crude oil for the remainder of the year. Collectively, our hedge positions today are worth nearly $200 million. Our year-end 2025 net debt target of $4.5 billion is unchanged, and at current oil prices, we'll achieve that goal with our remaining free cash flow and our planned investment proceeds of $300 million. We were very encouraged with the interest we saw in our divestment process early this year, but the pullback in oil prices did not allow us to transact at a value we felt represented the quality of those assets. Given our diverse portfolio, we remain confident in achieving our divestment target for the year, but let me be clear, we are not price takers. We'll remain patient and solely focus on maximizing the value of our assets for our shareholders. Bolt-ons and acquisitions have been a key part of our story, and we're extremely pleased with the scale and quality of the portfolio that we've built. Today, however, we are singularly focused on execution and optimization of our assets, and we do not plan to be buyers in the asset market for the foreseeable future. Our third key priority for the year was returning cash to shareholders, a critical piece of the Civitas strategy. Their near-term focus on delivering this year's return was designed primarily to come from our robust and steady base dividend. During the quarter, we did complete our existing 10B5 repurchase program, buying back nearly 2% of our shares outstanding. As we reach our $4.5 billion net debt target, we have the opportunity to shift more of our free cash flow to additional share buybacks going forward. Turning to first quarter results, production was slightly lower than expectations on lower capital. and cash operating costs were higher than planned. On the production side, first quarter volumes show the effect of low activity levels at the end of last year into the start of 2025, particularly in the DJ. For the second quarter, we expect the oil to grow 5%, led by growth in the Permian Basin. Momentum should continue into the third quarter, benefiting from a high till count in the middle part of the year. Capital performance in the first quarter was strong, and our teams have delivered significant efficiencies to start the year. In the Permian, as we shift 40% of our activity to the Delaware, the team is drilling 10% faster than expected. On the Completion Sprunt in the Midland Basin, last quarter our teams delivered a 5% sequential increase in throughput utilizing simulfrac operations. And in the DJ, we continue to accelerate completion cycle times while also leveraging a higher percentage of local sand. All of these efforts are delivering sustainable cost savings to the business. We did shift some capital from Q1 into Q2 in the DJ, which will flow through to second quarter production as reflected in our guide. On the cash cost side, we had some operational challenges with contracted water takeaway in the Permian in the first quarter. The team did a good job of supplementing with other solutions to minimize volume impact, but this elevated our first quarter costs. We'll be pursuing cost recovery of these incremental dollars. As our volumes grow and we implement our cost optimization initiatives, cash costs on a per BOE basis will decline through the remainder of the year, which gives us confidence to maintain our full year guidance. In closing, as we navigate through a volatile market, I have great confidence in our team and what we can accomplish together, but there is important work to be done. We're taking meaningful steps today to further improve our cost structure and operations, enhancing returns, protecting our free cash flow, and protecting our balance sheet. And importantly, we maintain the flexibility to respond to changing market conditions. All of this enhances the durability and strength of Civitas. Operator, we're now ready to take questions.