December 1, 2021

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CENTENNIAL RES (CDEV) Up 33% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for CENTENNIAL RES (CDEV). Shares have added about 33% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CENTENNIAL RES due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Centennial Resource Miss Q1 Earnings on Lower Oil Price Realizations

Centennial Resource reported adjusted first-quarter 2020 loss of 24 cents per share, wider than the Zacks Consensus Estimate of a loss of 5 cents. Moreover, the company recorded adjusted earnings of 8 cents in the year-ago period.

Revenues from oil and gas sales fell to $192.8 million from $214.6 million a year ago. Moreover, the top line missed the consensus mark of $209 million.

The weak quarterly results were primarily due to lower total production and commodity price realizations. Moreover, increased operating expenses affected the profit level.

Divestment 

The company agreed to divest its saltwater disposal wells and associated produced water infrastructure located in Reeves County to WaterBridge Resources’ subsidiary. The agreement was signed on Feb 24, 2020, and is expected to generate a total of $225 million.

Operations

Total Production Falls

Total production in the reported quarter averaged 71,820 barrels of oil equivalent per day (Boe/d), down from 72,035 Boe/d in the year-ago period. Of the total output, 57.8% comprised crude oil. The downside can be attributed to lower NGLs output. Notably, the company has reduced current operated rig count from 5 to zero, due to current market uncertainty.

Oil production averaged 41,512 barrels per day (Bbls/d), up from 40,508 Bbls/d in first-quarter 2019. Natural gas production amounted to 117,751 thousand cubic feet per day (Mcf/d), up from the year-ago quarter’s 99,596 Mcf/d. However, natural gas liquids (NGLs) production was 10,683 Bbls/d, lower than the year-ago quarter’s 14,927 Bbls/d.

Price Realization Declines

The company reported average realized crude price of $45.14 a barrel (excluding the effects of derivate settlements), down from $48.15 in the March quarter of 2019. Moreover, average natural gas price dropped to 78 cents per Mcf from $1.39 a year ago. NGLs were sold at $14.30 a barrel, down from $19.74 in first-quarter 2019. 

Operating Cost Rises

Centennial incurred $801.6 million of total operating costs in first-quarter 2020, significantly higher than $209.5 million in the year-ago period. Exploration costs rose to $4 million from year-ago level of $2.5 million. Higher impairment charges also increased costs.

On a per Boe basis, the company’s first-quarter lease operating expenses were $4.99, higher than the year-ago level of $4.61. Gathering processing and transportation costs increased to $2.59 per Boe from the year-ago period’s $2.32.

Capital Expenditure

In the first-quarter 2020, it incurred capital expenditure of $175.4 million, including $146.8 million in drilling and completion activities. Notably, the company reduced capital spending on facilities, infrastructure and others for five straight quarters.

Balance Sheet

At the end of the quarter under review, cash balance totaled $3.8 million, down from fourth-quarter level of $10.2 million. Total debt outstanding amounted to $1,135 million rising from fourth-quarter level of $1,075 million. It had a net debt to book equity capitalization of 29%. Also, the banks decreased Centennial’s borrowing base on its credit facility to $700 million from $1.2 billion. This has resulted in a decline in available liquidity to $468.1 million. Notably, it has launched a debt exchange offer to decrease total debt and interest expenses.

Guidance

Centennial intends to reduce annual general and administrative expenses by approximately 30% on an annualized basis. As such it has decreased its workforce and the salaries of the remaining workers. To navigate through the current oil price weakness, it has hedged an average of around 19,400 Bbls/d of crude for the rest of the year at a weighted average fixed price of $26.79 per barrel.

The company has suspended all short-term drilling and completion activities due to the prevailing weakness in the market. If the commodity prices fail to improve, it will reduce May production by 40%. Moreover, it has reduced the total capital expenditure budget for 2020 by 60% to $240-$290 million from the original guidance of $590-$690 million. Of the revised guidance, 85% will likely be used for drilling and completion and the rest will be used for facilities, infrastructure, land and others.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 30.97% due to these changes.

VGM Scores

Currently, CENTENNIAL RES has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise CENTENNIAL RES has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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