8%-Yield Civitas Resources Stock Could Have 38% Upside
May 9, 2024
Civitas Resources Inc Announced Transformative Acquisitions
The U.S. is one of the largest oil and natural gas producers in the world.
In 2023, the U.S. produced about 21.69 million barrels of petroleum per day. Of that, 12.9 million barrels per day was crude oil. (Source: “How Much of the Crude Oil Produced in the United States Is Consumed in the United States?” U.S. Energy Information Administration, last accessed May 7, 2024.)
Where does that oil come from? The majority is found underground in various basins. There are nine major shale plays in the lower 48 states. (Source: “Top North America Basins,” SLB, last accessed May 7, 2024.)
Civitas Resources Inc (NYSE:CIVI) is a major player in the Permian Basin and Denver-Julesburg (DJ) Basin.
The Permian Basin is located in West Texas and southeastern New Mexico. This basin is one of the oldest and best-known oil and gas-producing areas. Since the first well was drilled in the Permian Basin in 1920, more than 30 billion barrels have been recovered from the area. (Source: “Permian Basin: Ultimate Guide for Permian News, Information, Facts & Statistics,” Regulations.gov, last accessed May 7, 2024.)
The current recoverable reserves in the Permian Basin stand at 46 billion barrels, making the basin the largest oil field in terms of reserves in the U.S. (Source: “America’s Oil And Gas Reserves Double With Massive New Permian Discovery,” Forbes, December 21, 2018.)
The DJ Basin is located in South Dakota, Colorado, Nebraska, and Wyoming. It’s estimated that the DJ Basin holds up to 3.8 billion barrels of proven oil reserves and 20.7 trillion cubic feet of proven natural gas. (Source: “U.S. Oil and Gas: Major Basins and an Understanding of Reserves,” LinkedIn, July 8, 2023.)
In June 2023, Civitas Resources announced plans to acquire oil and gas operations in the Permian basin managed by private equity firm NGP Energy Capital Management, LLC for $4.7 billion. (Source: “Civitas Resources to Enter Permian Basin through Transformative Transactions,” Civitas Resources Inc, June 20, 2023.)
The deal is transformative for Civitas Resources. Before the deal, the company only had operations in the DJ Basin. Furthermore, the acquisition expands the company’s production by 60%.
In January 2024, Civitas Resources closed on its previously announced $2.1-billion acquisition of assets from Vencer Energy. (Source: “Civitas Resources Adds Accretive Bolt-On in Permian Basin,” Civitas Resources Inc, October 4, 2023.)
With this deal, Civitas Resources adds approximately 44,000 net acres in the Midland Basin (which is located within the Permian Basin) with production capacity of about 62,000 barrels of oil equivalent per day (BOE/D), of which 50% is oil.
Management Reported Strong First-Quarter Results
For the first quarter ended March 31, Civitas Resources reported operating net revenues of $1.33 billion, net income of $175.82 million, adjusted net income of $277.1 million, operating cash flow of $812.55 million, and adjusted free cash flow (FCF) of $145.59 million. (Source: “Civitas Resources Reports First Quarter 2024 Results,” Civitas Resources Inc, May 2, 2024.)
The company’s sales volumes in the DJ Basin averaged 168,896 BOE/D in the first quarter, versus roughly 172,784 BOE/D in the fourth quarter of 2023. Civitas Resources’ sales volumes in the Permian Basin averaged 166,604 BOE/D in the first quarter, up from 106,004 in the fourth quarter of 2023.
The big increase in sales volumes in the Permian Basin was primarily a result of the previously announced acquisition of assets from Vencer Energy.
Before its acquisition of those assets, Civitas Resources expected to have sales volumes of 270,000 to 290,000 BOE/D in the first quarter. Following the acquisition, it increased its forecast to 325,000 to 345,000 BOE/D. (Source: “Civitas Resources Adds Accretive Bolt-on in Permian Basin,” Civitas Resources Inc, October 4, 2023.)
Commenting on the results, Chris Doyle, Civitas Resources Inc’s CEO, said, “Civitas is off to a great start this year with strong performance across our portfolio. This quarter was the first reporting period that all our new businesses were together, and our results highlight just the beginning of Civitas’ bright future ahead.” (Source: Civitas Resources Inc, May 2, 2024, op. cit.)
CIVI Stock to Pay Special Dividend of $1.00 Per Share
Returning cash to shareholders is one of Civitas Resources Inc’s strategic pillars. Thanks to high cash flow, over the last two years, Civitas Resources stock has returned more than $1.5 billion to investors through dividends and share repurchases, representing 20% of its current market cap. (Source: “Civitas Resources, Inc. Announces Share Repurchase From NGP,” February 27, 2024.)
Each quarter, CIVI stock pays base dividends of $0.50 per share and, when times are good, special (or variable) distributions. (Source: “Dividend History,” Civitas Resources Inc, last accessed May 7, 2024.)
On May 2, the company declared a quarterly dividend of $1.50 per share, to be paid on June 26. Of that amount, $1.00 is a variable dividend. (Source: “Civitas Resources, Inc. Declares Quarterly Cash Dividend,” Civitas Resources Inc, May 2, 2024.)
As of this writing, that works out to a forward annual yield of 7.96%.
Civitas Resources Stock Popped Following Tremendous Financial Report
CIVI stock has been performing well since Civitas Resources Inc reported excellent full-year 2023 results in late February. Moreover, Civitas Resources stock popped in early May after the company reported terrific first-quarter 2024 results.
As of this writing, CIVI stock is up by 25% over the last three months, 12.5% year-to-date, and 23% year-over-year.
Chart courtesy of StockCharts.com
Wall Street analysts expect Civitas Resources stock to rally significantly over the coming quarters. They’ve provided a 12-month share-price target of $95.00 to $105.00 per share. This points to potential gains in the range of 25% to 38%.
The Lowdown on Civitas Resources Inc
There’s a lot to like about Civitas Resources, most notably how much the company has transformed over the last year.
In 2023, Civitas Resources Inc added significant scale and diversified its asset base by acquiring $7.0 billion worth of various Permian Basin assets. Combined, the transactions added approximately 160,000 BOE/D of production, 112,000 net acres, and 1,200 high-value development locations.
Also in 2023, the company returned $1.0 billion to shareholders through base and variable dividends, along with share repurchases.
In 2024, Civitas Resources Inc is looking to build on this momentum and create value for investors by maximizing FCF, returning cash to shareholders, and maintaining a solid balance sheet.
