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Centennial (CDEV) Misses on Q2 Earnings, Lifts Output View

Zacks Equity Research

Centennial Resource Development, Inc. CDEV reported adjusted second-quarter 2019 earnings of 8 cents per share, excluding one-time items, missing the Zacks Consensus Estimate by a penny and declining from the year-ago quarter’s 24 cents.

Revenues from oil and gas sales rose to $244.2 million from $217.8 million a year ago. The top line also beat the consensus mark of $234 million.

The weak earnings were attributed to lower commodity price realization and increased lease operating expenses. However, the negatives were partially offset by a surge in production.

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Production Rises

Total production in the reported quarter averaged 76,122 barrels of oil equivalent per day (MBoe/d), up from 57,528 MBoe/d in the year-ago period. Of the total output, 56.6% were crude oil. The upside can be attributed to strong well results in the Delaware Basin. Moreover, improved well results from New Mexico and Texas attributed to the rise. Notably, in second-quarter 2019, Centennial delivered four of the top five wells in its history.

Oil production averaged 43,105 barrels per day (Bbls/d), up from 31,271 Bbls/d in second-quarter 2018. Natural gas production amounted to 109,392 thousand cubic feet per day (Mcf/d), up from the year-ago quarter’s 83,205 Mcf/d. Moreover, natural gas liquids (NGLs) production was 14,785 Bbls/d, higher than the year-ago quarter’s 12,389 Bbls/d.

Price Realization Declines

The company reported average realized crude price of $54.63 a barrel (excluding the effects of derivate settlements), down from $61.21 in the June quarter of 2018. Average natural gas price dropped to 81 cents per Mcf from $1.81 a year ago. Natural gas liquids were sold at $16.24 a barrel, down from $26.52 in second-quarter 2018.  

Total Operating Cost Rises

Centennial incurred $207.1 million in total operating costs in second-quarter 2019, higher than $141.1 million in the year-ago period. On a per Boe basis, the company’s second-quarter lease operating expenses were $5.04, much higher than the year-ago level of $3.66. Gathering processing and transportation costs declined to $2.34 per Boe from the year-ago period’s $2.92.

Capital Expenditures

In second-quarter 2019, the company incurred capital expenditure of $237.4 million, including $179.8 million in drilling and completion activities.

Balance Sheet

At the end of the quarter under review, cash balance totaled $28 million. Long-term debt summed $900 million, reflecting a net debt to book equity capitalization of 21%.    

Guidance Revised Upwards

Centennial increased its production guidance for 2019 to the range of 68,000-75,000 Boe/d from the previous expectation of 61,500-70,500 Boe/d. Oil production is now expected within 39,500-42,500 Bbls/d for full-year 2019, up from the previous projection of 36,500-41,500 Bbls/d. It expects total gross wells spud in 2019 in the range of 70-80, unchanged from the previous guidance. Notably, the company intends to decrease operated rig count in September to five from six, due to improved operational efficiencies.

While lease operating expenses for the whole year is reiterated at $4.35-$4.95 per Boe, gathering processing and transportation cost expectation is improved to the range of $2.50-$2.80 per Boe from previous prediction within $2.75-$3.25.

The company reiterated the full-year capital expenditure program of $765-$925 million.

Zacks Rank and Stocks to Consider

Currently, Centennial has a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy sector are given below:

NuStar Energy L.P. NS is one of the largest independent liquids terminal and pipeline operators in the United States. Its third-quarter earnings per unit are expected to surge more than 100% year over year. It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

World Fuel Services Corporation INT is an oil and gas refining and marketing company. The company beat estimates in the trailing four quarters, delivering average positive surprise of almost 16.4%. The company has a Zacks Rank #2 (Buy).

Dril-Quip, Inc. DRQ is a provider of oilfield services for upstream energy companies. In the trailing four quarters, the company delivered average positive earnings surprise of almost 49%. It has a Zacks Rank #2.

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