Civitas Resources (CIVI) Valuation Update - May 20

[dan_s]

At the time of this post CIVI was trading at $28.57.

I've lowered my valuation by $3 to $69/share only because I have lowered the realized oil price in my forecast model for the rest of the year even though I believe that the WTI oil price will rebound soon after the FEAR of the Trade War fades.

The current share price compares to my Adjusted Cash Flow Per Share forecast of $28.45, which is now slightly lower than TipRanks' consensus CFPS forecast of $29.03.

There is no justification for this stock to be trading for 1X CFPS. I am using a conservative 2.25 X annualized CFPS multiple to value the stock.

Civitas is a very profitable company.
> Earnings per share were $8.93 in 2024 and $34.11 Adjusted Operating Cash Flow per share>
> Q1 2025 Net Income was $2.01 per share with Adjusted Operating Cash Flow of $7.19 per share.

The current fixed dividend of $0.50/quarter generates annual yield of 6.9% AND the Company's free cash flow is about 3X higher than the dividends they will pay out this year.
The Company's free cash flow after dividends is being used to buy back stock and pay down debt; two things that increase per share valuation.

Civitas's production was down in Q1 due to lots of well completions in early Q4 2024 that were not repeated in Q1 due to severe winter weather in January & February. Production should be up about 5% in Q2 and continue to increase in 2H 2025.

[Petroleum economist]

Dan, the reason for the faltering Civitas share price could be the lack of potential production growth.

Reserves
• Civitas 2024 proven reserves (798 M BoE) are only equivalent to 6.7 years of 2025 production. This is one of the lowest ratios in industry.
• Civitas over the four years (2021-2024) has produced far more from its reserves (274 M BoE) than it booked on new reserves (94 M BoE).
• Based on the reserves and the low Reserves replacement I expect long-term production to fall over the next few years. See chart below.

Civitas long term production.jpg (29.44 KiB) Viewed 1056 times

2025 production
• Production in Q1 2025, the Q2 outlook and the 2025 outlook all seem to confirm the falling production trend.
• Q1 production (311 K BoE/d) was 7% below Q1 2024 (335.5 K BoE/d) and 12% below Q4 2024 (352 K BoE/d). Note that the low Q1 production was a consequence of a low TIL count at the end of 2024 and in early 2025 and a modest impact of winter weather.
• Q2 outlook (320-328 K BoE/d is above Q1, but it is 4-7% below Q2 2024 (342.9 K BoE/d).
• The 2025 outlook (325-335 K BoE/d) is 3-6% below the 2024 production (345 K BoE/d).

[dan_s]

Keep in mind what the SEC 5-year rule does. Each year a large amount of probable reserves will become proved just because of the rule.

All U.S. upstream companies that hold lots of undeveloped leasehold have MUCH MORE proved reserves than their year-end reserve reports show. In the big shale plays 2P reserves are really 1P.

Civitas's production will increase into year-end. DJ Basin production often declines in Q1 due to weather.

[grimaldi]

I don't understand this new CIVI bond deal with a 9 5/8% coupon, should I buy it and/or close my position in the common? Which is more or less flat but paying about 7>2%.

[ChuckGeb]

Bond offering only available to qualified institutional investors unless you are a non-US person.