Good day and thank you for standing by. Welcome to Civitas Resources Third Quarter 2024 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise and after the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] Thank you.

Please be advised that today’s conference is being recorded. And I would now like to hand the call over to Brad Whitmarsh, Head of Investor Relations. Brad, please go ahead..

Thanks, Krista. Good morning, everyone, and thank you for joining us. Yesterday we issued our third quarter earnings release, our 10-Q and we provided some supplemental materials for your review. These items are all available on our website. I’m joined this morning by our CEO, Chris Doyle; our CFO, Marianella Foschi; and our COO, Hodge Walker.

After our remarks we will conduct a question and answer session. 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 those projections. Please make sure and read our full disclosures regarding these statements in our most recent SEC filings.

In addition, we may also refer to certain non-GAAP financial metrics. Reconciliations to the appropriate GAAP measure are also in yesterday’s SEC filings and our release. With that I’ll turn the call over to Chris..

Thanks Brad. Good morning, everybody. Welcome to our third quarter call. This morning there are three key things I want to focus on. First, I’ll quickly summarize third quarter results and expectations for the fourth quarter.

Second, I’ll share some highlights from the DJ and Permian where we continue to enhance returns through solid operational execution and sustainable capital efficiencies. And lastly, I’ll comment briefly on 2025 as it’s important that you understand that our priorities have not changed.

As with our usual practice we’ll provide our final 2025 plan in February. Over the past few months we continue to see significant volatility in commodity prices and the underlying macro environment.

The actions we’ve taken as a company over the past couple of years strengthened Civitas and positioned us to deliver long-term value to our shareholders at any point in the cycle. Our Permian acquisitions added depth and quality to our inventory doubling the size of the company.

With scaled positions now in the DJ and the Permian we have high quality diversified portfolio of opportunities in the lowest break-even basins in the U.S.

Our team continues to improve and add to that position delivering sustainable capital efficiency gains proving up new zones for development and capturing additional inventory that expands our runway of high return opportunities all while returning significant amounts of capital to our shareholders.

Let me start with our third quarter results and fourth quarter expectations. For the third quarter we delivered solid financial results with adjusted EBITDA of $910 million led by strong sales volumes, strong oil differentials and strong cost control. Our Board’s recent action to further prioritize the balance sheet and share buybacks was very timely.

During the quarter we returned $227 million to our shareholders. Based on the trailing 12-month calculation the third quarter variable return of capital totaled a $104 million. Rather than paying a variable dividend we elected to shift 100% of our third quarter variable return to buybacks completing these share repurchases in October.

We see tremendous value in our equity and will continue to prioritize share repurchases. The remaining 50% of our free cash flow went to reduce debt. On an equivalent basis third quarter volumes were slightly above expectation. Revenues benefited from strong oil realizations and solid natural gas hedging gains.

Oil volumes were a little light in the quarter due to unexpected downtime at third-party facilities in the DJ and water takeaway constraints in the Permian but these temporary issues have now been resolved.

Capital investments in the third quarter reflect facility spend pulled-forward from the fourth quarter, as well as accelerated drilling and completion activity. In yesterday’s materials we provided detailed fourth quarter guidance where you can see the lower fourth quarter capital guide.

We remain on track with all full year deliverables including volumes, CapEx, operating costs and most importantly free cash flow. On production factoring in our investments from earlier this year we’re above the mid-point of our original oil guidance for the year.

Free cash flow for the quarter should increase significantly as oil volumes are expected 3% higher quarter-over-quarter with DJ Basin growth more than offsetting expected declines in the Permian as we reduce activity into year-end. We’ve had a strong start to the final quarter of the year with October oil production averaging 165,000 barrels per day.

Let me now share a few more details from each business unit. In the Permian our team has done an outstanding job establishing an operating track record focused on driving capital efficiencies and enhancing the value of our assets.

On the productivity front we’ve begun to deliver the expected improvement in well performance as a result of our development philosophy which focuses on incremental well returns rather than an overall pad level return.

Our Permian well costs continue to trend lower driven by reduced cycle times, drilling and completion design improvements and lower oil field service costs. We’re certainly not done.

Here in the fourth quarter we’ve initiated sample fracs across our Permian program with early results in the Midland Basin highlighting a more than 30% uplift in daily fluid throughput.

Strong results from recent Wolfcamp D wells in the Southern Midland are unlocking new resource for development as higher productivity is more than offsetting modestly higher well costs.

Returns in the D are competitive with other core zones such as the Wolfcamp A and B, and we’ve identified approximately 120 Wolfcamp D locations in the inventory with mid $40 oil break evens. In addition, our ground game in the Permian is adding high-quality inventory by capturing more than 75 gross locations year-to-date.

We’ve also executed a number of beneficial acreage trades and swaps to materially extend lateral links to increase working interest in near-term core developments. All of these ground game ads immediately compete for capital and we’re working even more opportunities to add to the portfolio.

In the DJ Basin our legacy asset continues to deliver outstanding results and we’ve highlighted strong performance across the entirety of our acreage position in our materials. The prolific Watkins area in the southern part of our acreage comprises approximately two-thirds of our well count in the DJ this year.

In this area we recently commenced production on 13 4-mile laterals and the results are ahead of expectations with no per foot degradation observed as compared to our 3-milers. Of note, the unrestricted deliverability of the Blue 4AH well set a Colorado record with 90-day cumulative production of 165,000 barrels of oil.

These 4-milers are another example of our team’s ability to execute and drive returns through complex well geometries and extended reach laterals. This demonstrated capability is helping drive additional ground game opportunities to add high-quality inventory to our position.

As a reminder our Watkins oil is lower API crude than our typical DJ barrel, significant contributor to our stronger realizations of late.

Add to this the positive regulatory developments over the last couple quarters including the ballot measure stand down and the Lowry CAP approval of Watkins and we’re in a great position to continue to deliver in the DJ. Before we take your questions let me briefly talk about 2025.

As we’ve said in the past our priorities have not changed and will be guided by our strategic pillars. Generate significant free cash flow, enhance the balance sheet, return capital to shareholders and lead in ESG. Production will be an outcome of the plan not the driver as we seek to balance each of these strategic imperatives.

In 2025 we’d like to level load our capital investments through the year a bit better. Recall that we entered 2024 with very high levels of activity inherited from the three Permian acquisitions and we’ve decreased activity every quarter this year.

Establishing a more steady state operation, a level loading activity will ultimately support sustainable capital efficiencies moving forward. Given the current volatility in the forward oil strip we will remain flexible as we plan for 2025 and will respond quickly to commodity price changes. Again focus on protecting free cash flow levels.

Regardless of where things shake out we were focused on returns. That’s returns on our investments and returns of capital to our balance sheet and to our shareholders. In closing 2024 has been an important year for Civitas.

A year ago we had a demonstrated track record in the DJ and we were looking to build on that track record as we stood up a new team in the Permian. Our job is not done but Civitas is well positioned as we enter 2025.

With a scale portfolio of high quality, low break-even assets and teams in the Rockies and the Permian that are focused on driving capital efficiency to enhance returns and deliver for our shareholders through the cycle. Thank you again for your interest in Civitas. Operator we’re now ready to take questions..

Thank you. [Operator Instructions] Your first question comes from the line of Neal Dingmann with Truist Securities. Please go ahead..

Good morning, Chris and team. Nice quarter. My first question is around your future activities specifically, well, I believe you talked to investors out right now. I believe most everybody’s in agreement about little need to grow overall production.

I’m just wondering, Chris, you’ll still believe the best way going forward to create value will continue to be with a Permian versus DJ activity of maybe or a rig cap I should say 3 to 1.

Giving your potential continued advancement to Permian assets on one hand but also understanding maybe the limited value that investors seem to be giving you for your DJ.

I’m just curious about how you might shape this plan going forward?.

Yeah. Thanks, Neal. Good question. As we step back we think about how we’ve established this company and how we’ll run this company. The basic model as you know is we’re going to keep production broadly flat. We’re going to peel out as much capital as we can, get costs as low as we can and really focus in on maximizing free cash flow.

A couple tweaks right as we head into 2025. 2024 was a bit of an outlier with the front-end loaded capital as we brought in the three acquisitions. We’ve tried to get that capital down throughout the year really focusing again on free cash flow for the year.

As we head into 2025 as I said in my prepared remarks, we’ll level out activity, but really focus in on maintaining free cash flow. Your question about 3 to 1 Permian to DJ. We’re going to let returns drive us and I think the benefit of having these positions and in both the DJ and Permian gives us quite a bit of flexibility.

To your point there are a couple of other considerations. I think the compromise and the DJ is really having us focused in on let’s get all the permits we can ahead of the next three years or four years and ensure that we have that flexibility to go between basins.

We’re ending the year right now with three rigs in the Permian, one in the DJ, but that’s not a sustainable level of activity. We’ll pick that up next year again level load it as best we can and focus back in on free cash flow.

We think ultimately that is the way for to deliver long-term sustainable success for and value for our shareholders and I think when you add on the overall macro, we don’t think it’s appropriate for Civitas or others to really think about growing production into that macro until you have a better idea of what 2025 looks like and beyond..

Yeah. I can clearly agree to that. Second -- and then my second question, Chris just for you, and Marianella on the shareholder return.

Specifically, are there drivers you believe would make sense to cause you all to change your current 50% variable return component such as if leverage gets notably below 1 times or even your stock price even is further discounted even from where it is today or you see a highly accretive asset available, I’m just that’s sort of one thing on what would cause you to change that component and secondly what do you all view is sort of an adequate dividend yield?.

Yeah. Neal, thanks for the question. I mean, look, I’ll say that since our inception, I mean, you’ve followed us for a long time our current framework has always been focused on striking that right balance among our strategic pillars.

I think the if you look up at our formulation right now that LTM framework allows us to do that very well such that we’re paying more than paying that disbursing quicker at higher prices and then we’re buying counter cyclically at low prices.

We continue accelerating our balance sheet goals with the great work the team is doing in terms of taking costs out of the system. You saw us complete some asset divestitures earlier this year among a lot of other initiatives. And like I’ve said in prior quarters, I mean, in certain times we’ll obviously look to prioritize the balance sheet further.

I mean we have high-quality assets and a low-cost structure that yield a tremendous amount of free cash flow. And so I think at this point we like what we see in terms of how both of those answer are getting advanced in terms of our strategic pillars.

I’ll also note that we’re a highly aligned management team, right, and in the way the way we get compensated. So we’ll always do what’s right and in the best interest of shareholders.

And then on your second question, I mean, look, I’ll say, on the dividend yield, we’re certainly our base dividend alone as we see it it’s about twice our peers at this point and in terms of the total yield we certainly want to be peer leading, but again, at the same time, making sure we’re advancing our balance sheet goals at the pace that we want to..

Great details. Thank you both..

Thank you..

Your next question comes from the line of Zach Parham with J.P. Morgan. Please go ahead..

Thanks. First just wanted to ask a little bit more on the shareholder return program.

Can you give us some thoughts on buybacks versus variable dividends at this point? Is it fair to assume with the stock trading where it is you continue to utilize 100% of the variable return for buybacks and if so would you expect the buyback pace to increase in 4Q just given higher trailing 12-month free cash flow?.

Yeah. Look we will be price disciplined with our stock. We always are as we are with any asset acquisitions how we think about it. But just to address your question very directly, we’re pretty far from stock prices at which we do a variable dividend at this point.

And then on your second question, yes, just from the nature of the LTM formulation on free cash flow going up this year, yes, we’ll expect the variable return of capital to be higher and that would be allocated disproportionately to buybacks at this point..

Thanks for that. And then just wanted to follow up. You mentioned a little bit more level-loaded programs.

Can you talk a little bit more about that? Would you still expect to hold volumes flat year-over-year with a more level-loaded program and in a more level-loaded program how would you expect CapEx to trend year-over-year?.

Yeah. I think, as we headed into 2024 and we had a guide of $195 million capital, we knew that that was not a sustainable level of capital we were going to let that fall off through the year.

The shape of 2024 very first half weighted, you had tills really concentrated in the in the middle of the year, that’s ultimately does mean production is going to start climbing at the end of the year and into the first quarter before we pull up with tills sort of mid-quarter.

Again we’d like to have a more sustained, a more level-loaded level of activity in each of the basins just to drive additional capital efficiency.

I think as we step back and think all right if $195 million going into the year wasn’t a sustainable maintenance level of capital, what this team has done throughout the year peeling out capital efficiency drilling being much more efficient with our rigs and completions you’re starting to see the tweaks on the development come to fruition.

And I think the program as we look at it in 2025 is more efficient than we would have thought a year ago which is a real positive but it’s likely we’re much closer to that $195 million as a maintenance level and then we were certainly 12 months ago..

Got it. Thanks for that color..

Your next question comes from the line of Scott Hanold with RBC Capital Markets. Please go ahead..

Yeah. Thank you. I guess for my first question, just looking at the ways you optimize your activity and specifically the Midland Basin, I mean, you’re nearing your D&C target. So two questions.

One, how much further below that can you potentially push it and can you talk about how like the progress in the Midland compares to what you’ve seen in the Delaware so far?.

Sure. We’ve said in the past -- and thank you for the question, Scott. We’ve said in the past that most of our swings at the plate has been really focused on the on the Midland. Not surprising we’re about two-thirds Midland, one-third Delaware.

Part of that capital allocation this year I think we were 75-25 split between Midland and Delaware is really getting the Delaware position optimized extending laterals and setting us up in 2025 and future years to allocate more capital in that direction with extended laterals.

But most of the swings at the plate we’ve had this year have been on the Midland side and therefore we’ve been highlighting that.

I would say, the team has made significant progress coming into the year at 850 a foot consistent with previous operators getting to 740 a foot, some of that is a little bit on the on the service side of consumables but the majority vast majority of that is just capital efficiency, drilling completing wells much faster, getting wells on better on the back end as well.

So we’re very close to your point to the target that we out there earlier this year. I think was what gets me excited is as we look towards 2025 it started this quarter implementing simul-frac throughout the Permian program.

We see that as -- we’ve seen significant throughput increases, we see that as 150,000 a well type savings and that boom automatically right there at your target cost. So we will have -- we will continue to drive costs out of the system.

It will not just be from service costs alone, it will be from continuous improvement and love to see what the team has done. I think it’s interesting as we look at that cost structure applied to a zone that we were we were really interested to see how it do. We’ve highlighted the Wolfcamp D.

All of a sudden Wolfcamp D is 5%, 10% higher on a per foot basis, so it’s a little bit more expensive, but with the -- what we’ve seen in terms of the subsurface results all of a sudden that Wolfcamp D went from a potential something interesting to look at to something that’s going to compete for capital.

And so it’s teams that have and can establish a very strong cost structure and operating track record that that are able to pull in some of those emerging zones. So really excited what the team’s been up to and excited to see how we continue to drive costs out of the system..

I appreciate that content. And my follow-up question is back on the 2025 outlook, you all have shown probably one of the more leading strategies of being disciplined with capital and in production, I guess, production is you said the outcome.

But let’s say and I know there’s a lot of volatility out there, but look, if oil ends up being in a, I don’t call it, a mid-60s environment or even low 60s, or maybe I’ll say it this way, at what point would you feel comfortable letting oil production fall year-over-year.

Is there some sort of price where decision where you’re just going to let it fade a little bit considering the macro?.

Yeah. I think I appreciate your comment, Scott.

And I think that’s something our management team really prize ourselves in is and it gets to Marianella’s comment about being really aligned with shareholders is ultimately what we’re what we’re going to focus in on is free cash flow and so if you get oil in the low 60s, mid 60s, we take a look at, hey, let’s focus in on free cash flow, let production moderate a bit.

That’s what we’ll do. We did that back in 2023, as you might recall, not necessarily because of the commodity price, but there was a big disconnect between the service markets that were underpinned by $100 oil and you had the commodity floating down 25%, 30%. So we moderated production just a little in that scenario. So we’re going to be very flexible.

Now I would say, let’s say, it goes the other way, because you’re -- to your point, there’s a lot of volatility whether it’s geopolitical or demand side, supply side that, if it goes the other way, I don’t think you’re going to see this company lean in and start growing this platform, you’d see us start to delever much faster and return capital to our shareholders..

Good to hear. Thanks..

Thanks, Scott..

Your next question comes from the line of Gabe Daoud with TD Cowen. Please go ahead..

Hey, guys. This is Francis DiGiovanna on for Gabe.

Just given the production profile in 2024, how should we kind of think about one half 2025 declines and kind of the activity required next year to keep 2024 volumes flat?.

Yeah. So if you look at us as a company, our oil declines, call it, high 30s on an annual basis.

The way that we’ve shaped capital again focused on free cash flow and getting to a more sustainable level loaded program, you’re looking at tills a low quarter in the fourth quarter and then you’ll see us decline into that first quarter, we’ll pick back up mid quarter with the tills and an activity will pick up as well.

And so our level load for 2025 is going to be a little bit more activity than what we see in the fourth quarter, but you are going to see us drop down a little bit before coming out of that into the back half of the first quarter and second quarter..

Okay. Great. Thanks for that.

And then how are you thinking about just M&A moving forward?.

Yeah. I think, I would say, as we made the moves when we did, where we did, it was extremely important that we came in with scale, we have that scale now, it was important that we really focus on asset quality and to augment and enhance what we had. We’re still believers in adding inventory, adding duration. We believe scale is really important.

I think I said on the last call and it’s even more true today, I think of all the companies out there, where we believe the equity value just does not match the underlying asset quality and the operating team. Our hurdle to do something with our equity is very, very high.

And so while we’ll look at transactions and to an earlier question, if there’s something that really gets our attention we’ll take a look at it for sure. But what you’ve seen this team is do is with where the asset markets are related to where our equity is currently trading.

What we’re focused on is little bolt-on ground games to replace drilled inventory and wait for that to moderate a little bit and that allows us to generate more free cash and take that to the balance sheet and take it to our shareholders.

And so as long as we’re current -- we’re trading is so disconnected to what we see as an underlying value disconnected to the asset markets and disconnected to the equity markets, I think, it’s going to be really tough for us to lean in and get too excited on the M&A front..

Great. Thanks guys..

Thank you..

Your next question comes from the line of Leo Mariani with ROTH. Please go ahead..

Hey, guys. I wanted to kind of approach the maintenance question a little bit differently here.

So just kind of wanted to get a sense of kind of what you think roughly maintenance activity is, is that two DJ basin rigs, four Permian rigs, just trying to get a little bit more color around that? And then obviously you did you mentioned briefly that you’re going to start tilling more wells kind of mid first quarter, so you got some pretty low CapEx guidance in 4Q, should we expect that literally some new activity shows up kind of right around January 1 for the company, just trying to get a sense how you’re thinking about?.

Yeah. Thanks, Leo. Yeah. First on the low fourth quarter CapEx, that’s really a byproduct of pulling forward some of that capital into the third quarter, a lot of that was facility related a little bit on the D&C side, but that’s that was that resulted in a low 4Q guide. We know that’s not a sustainable level of activity.

On the maintenance level, I think, what’s really interesting for us as we in the DJ really go extended reach in the Permian, we’re extending laterals, we’re also really becoming much more efficient with the rigs that we have. That maintenance level of activity and rigs is moving around and we’re becoming much much more efficient.

I tell you that, you have two rigs in the DJ, four in the Permian, we are -- we’ll continue to look at scenarios where you lean in a little bit heavier in the DJ or a little bit lighter and in the Permian with the inventory that we’ve got being in that four or five or six rig range, those are all the scenarios we’re looking at in 2025.

And again, we’re going to be guided by free cash flow and would love to get to that level load for the year. But I’d say you’re not far off on how you started to frame it..

Okay. Appreciate that. And I just wanted to follow up a little bit on the Wolfcamp D. So what -- I think that a lot of other operators in the Midland have kind of classified the D is maybe a little bit less important and having economics that weren’t quite as good as the A and B out there.

So maybe just provide a little bit more color as to why you guys think that it’s more competitive in your portfolio and it sounds like the returns could be similar or better if I’m kind of reading the information here right that you provided?.

Yeah. Leo, I tell you we would have been -- we were one of those operators saying the same thing, the way we thought about Wolfcamp D was hey this could be pretty interesting. It’s not a zone that you’ve got to co-develop with the A’s and the B’s, and so we had it out there as a potential.

What’s changed in our view is 16 wells in is, all right, capital is a little bit lower than what we thought team executed very well and so you’re seeing a little bit 5% to 10% higher on capital that was, that was better than we were anticipating.

And then the real eye-opener was as we were turning these on and having them really compete compared to the A and B. And so we knew that that in order for the D that to compete for capital that you’d have to make up for that that additional CapEx, we just didn’t think it was going to be there and we were very surprised by it.

And so, look, we’re not going all in on the D by any stretch, we had about 10% of our 2024 spend allocated to the D. It will compete for capital is probably going to be in that 20%, 30% of the program going forward.

And so, again, I think, you go back to the call when we entered the Permian, one of the things we and all other operators in the Permian love is, this is a an oil province that continues to highlight these emerging zones and the D is just the next one that that’s starting to compete for capital and there are others out there..

Okay. Thanks..

Yeah..

Your next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Please go ahead..

Good morning, folks and thank you for taking my question.

I don’t know if this is more for Chris or Hodge, but looking at your operating areas, the most derisked one where you have built it steady backlog of permits and where you’re getting real value for your natural gas is in Colorado, with well results looking much stronger and as you look after the governor opposed.

His tenure ends 2029, there’s some uncertainty.

I know you’re focused on maximizing free cash flow, but from a pragmatic point of view, you why not pull that value forward and allocate kind of more capital there especially with the natural gas challenges in Waha?.

Yeah. Thank you for the question, Tim. And yeah, that’s exactly the exercise and the debate that we’re having internally and I think the benefit of having good strong returns in the DJ gives us the opportunity if we wanted to lean in a little bit on allocating capital to Watkins or to our greater position in the DJ, we have that opportunity.

The team’s been focused since the compromise last year or this year -- earlier this year of really underpinning a more active program to give us the flexibility in order to allocate a little bit more there.

We -- to your point we’re ultimately going to be focused on what is the most efficient use of capital in 2025 and if we can get close to that with more DJ activity than less, to your point, there is very clear markers on the value of our Permian position and less so on the DJ.

And so one of those extra considerations would be, hey, if we can allocate a little bit more to the DJ and have as an efficient a program or nearly efficient a program, it’s something that we’d lean in and -- lean in on. So I tell you that works on going right now and we’ll have the final plan here in February..

Tim, I will add….

Okay. That’s great..

…on your point on that is -- yes. We’re certainly getting stronger gas realizations in the Rockies versus zero or negative in some case in the Permian. But even then gas it’s only in the Rockies, it’s only 6%, 7% of our total revenue anyway. So oil is always within a driver economics..

Okay. That makes sense, Marianella and it’s a good segue my follow-up was intended for you. You’ve been active kind of protecting basis in West Texas. Looks like you have about $130 million a day swapped through 2026 and the outlook looks pretty bleak through that time. Is that a good amount, are you still looking to get more protection.

Just sort of curious what you can do or what you’re trying to do on the margin there? Thank you..

Yeah. For sure. We were always trying to improve our realizations and certainly not a big fan of paying for transport to take our gas away know.

I think at this point we -- as we were looking out early this year into 2025 and 2026, we decided to take that opportunistic hedging or risk off if you will in the spring, we essentially hedge half of the of the Permian gas balance of this year, the second half of this year and that’s been insanely successful, right? I mean the Q3 realizations alone were $29 million, so they improved our net back company-wide -- gas company-wide about $0.50, $0.60.

So, obviously, that that’s going to translate into increased realizations into Q4 as well. Not sure it will be that amount, we’ll see where Waha and the quarter in the year here.

In 2025, 2026, we looked at just the capacities that are coming online, there’s just not much in 2025, I mean, there’s going to be quite a bit in 2026 and seems like a lot of those are late 2026, call it, in the 7 Bcf a day range of additional capacity.

I think us and probably others were or have been a little disappointed at the uplift we’ve seen so far from Matterhorn really it hasn’t been much maybe about a $1.50 or so. And so just looking at all those pieces, we aggressively to your points and we decided to add on those positions for 2025 and 2026.

I think at this point we’re not particularly inclined to add a lot more. I mean we certainly are keeping a close pulse on the additional supply-demand dynamics in the basin.

I would say that because they’re a little bit longer term out and because our of our flexible business plan to the extent that it gets kike, again like I said earlier, gas is not a big driver. But to the extent that we can adjust activity to perhaps earlier areas or the DJ, for example, if we would like to do that that’s an option for us.

So I think at this point not particularly inclined increase that much from $1.50, but to the extent that we get a good window or some good tailwinds in the market that we see a good opportunity to continue adding we certainly would consider that..

I appreciate all the color folks. Thank you..

Yeah..

Your next question comes from the line of Oliver Huang with TPH. Please go ahead..

Good morning, all, and thanks for taking the questions. Just wanted to kind of focus on the further optimization of development in Midland.

Certainly good to see the 15% uplift you all have highlighted in your slides on your first round of iterations on this upspace tire intensity completions, but just trying to think through from here what the main levers that you all could potentially look at further tweaking on the horizon in the near-term or call the next six months to twelve months from a productivity perspective..

Yeah. Thanks, Oliver. To address your question, I point you to a couple things. One, whether it’s upspacing or spacing off existing wells, our team is really focused in, as I said in my remarks on incremental returns and just to put a fine point on that, let’s say, you’ve got a six well per section development.

We’re not looking at, hey, what are the return average for those six wells. We’re looking at what is the sixth well. How -- what is that return on that sixth well. And so that -- what that ultimately does is it leads us to be a little bit more conservative peel out of a well or so and really drive a better cash on cash return as a program.

And so that work will continue, it’s very bespoke to each DSU, everyone is it’s a little bit different.

I think as we look forward we’re always leaning in on the subsurface to understand are we targeting wells appropriately, are we staying in zone as best as we can, are there are there further optimizations on completions and that’s really just the DNA of a company that that it’s focused on continuous improvement and focused in on returns.

I think when you couple that with an operating team that is looking to deliver the best well bore as quickly and safely as possible, what you see is, a very quick from persimmon top a very quick dissension into, I would say, not top quartile yet, but clear line of sight to get there and then from here you’ll just continue to see whether it’s simul-frac or other opportunities just to peel out time cost waste out of the system.

If we got the team focused in on the right things, you’ll see that quarter-over-quarter. And so it’s going to be a ton of small little things that will continue to deliver a better more capital efficient result..

Thanks. That’s helpful color. And maybe just a quick follow-up.

Is there another leg down that you all have one aside to and kind of thinking about Q4 2025 service costs, when you’re just and anything to kind of be aware of in terms of just three contracting negotiations that are kind of going on and when you’re kind of referencing the $1.95 billion ballpark number for maintenance, how much year-over-year deflation did that kind of assume?.

Yeah. The $1.95 billion is where we started in 2024 from there to now we’ve seen some deflation in consumables, tubulars, et cetera, obviously. I would say, on the service side, the rig side we’ve seen some deflation from where we were late 2023 to now. Probably a little bit more on the rig side than we have on the on the frac side.

We’re also upgrading some of our frac fleets whether it’s going to deep fleets a little more efficient operation there. But I would say consumables were the big driver from 2024 to now. As we look forward the same volatility that we see is the volatility of the service companies see, right, and they’re trying to figure out where’s the market going.

I think we -- we’re not going to be a -- I don’t know that you’ll see us take a massive step down year-over-year. We try not to take long commitments. We try to be as close to market as possible, there’s going to be surely a noise for a quarter or two, but that allows us to be responsive to whatever the macro brings.

And so I think it’s early to think a year ahead where our service costs, because we don’t know how that macro and how the overall volatility sort of works out. But like so I think both sides of the coin are trying to figure that out..

Perfect. Thanks for the time..

Thanks, Oliver..

You next question comes from the line of John Abbott with Wolfe Research. Please go ahead..

Hey. Appreciate taking our questions here and I also appreciate the color and thought about 2025, we see commodity prices here lower. We had a bit of a discussion last night, but commodity prices this sort of are lower and you sort of think about allocation of that in a lower price environment.

There are benefits to maintaining operations in each of your areas because you do have economic positions there and you have built this momentum.

So you -- so as sort of thinking about that, how much activities do you see as necessary like in the deep and the DJ or the Midland or the Del to maintain efficiencies if we sort of see lower commodity prices..

Yeah. Thanks, John. Thanks for the question. You’re exactly right, I think, I’m excited about the operating momentum that we’ve continued in the DJ and that we’ve really established throughout the year in the Permian.

We’ve been as far down as a rig in the DJ and that allows us to maintain the cruise, maintain that momentum and then we’ll scale up or back as needed, I think that’s a pretty minimal level that would be gap down and commodity price type activity level, but that allows us to keep the momentum there on the DJ, say it -- DJ side.

On the Permian side, we’re sitting -- it’s -- how do we marry those rigs with frac crews, because that’s the other piece here and the level of three rigs or so is probably not a bad maintenance level, that’s why you’ve seen us kind of go down to that in the fourth quarter.

But to your point, we’d love to keep a base load to keep up the momentum and scale up when the market is signaling that we should.

I think the last thing I would say, John, this was so critical as we looked to how we wanted to expand this company and scale this company and diversify the company is, we had to go in and get low break-even assets and it’s for times such as you describe, if commodity prices we can further that, hey, we can deploy capital, maintain a level load of operating momentum and still generate significant returns and generate significant free cash flow for our shareholders.

So all of that will go into how responsive, how flexible we want to be as we see how the macro sort of settles out over the coming months for us..

Yeah. And then it’s been all the topics already been brought up about the variable dividend, but just sort of want to approach it slightly a different way. So the focus here right now is on buybacks, just get where the shares are.

When you sort of think about signaling to the market, I mean, there are plans out there where companies switch between variable and buybacks, doesn’t make sense ever to go back to a variable, but dividend as you say, yeah, you’re sort of making a statement about where your stock is at or you just continue to at this point in time just get where your shares are, do you continue to focus on the buyback and just manage to fix dividend, so does the variable dividend have a place going forward?.

Guys, good question, John. I would start with our commitment to returning capital to our shareholders is critical for us and in the past that that that had a variable component to it. As we look forward, yeah, I’m hopeful three months from now, six months from now, we have -- we are on this call we’re debating that very question.

We’re a long way away from having that debate however just given what we’re seeing from our asset base and how the team is executing. All of that balance also with protecting our balance sheet and keeping leverage in a manageable position. And so I think you raise an interesting question.

I would tell you that we are committed to getting capital back to our shareholders in any form. The decision that the Board made last quarter really set us up to protect the balance sheet, live up to that commitment and really take advantage of what we believe is a highly undervalued equity..

Thank you very much for taking our questions..

Thanks, John..

Your next question comes from the line of Noel Parks with Tuohy Brothers. Please go ahead..

Hi. Good morning.

I’ve been thinking about inventory and further technical advancements how that can potentially open up more inventory on existing holdings and it seems like we’re in a time where basins are seeing more divergence of what’s going on operator-by-operator in a basin as opposed to those times when everybody’s pushing higher sand content or spacing is all going one way.

And so as you think about looking at acquisitions out there, does seeing this or and yourself going after the Wolf B when other people had kind of that kind of, does that divergence make you say pickier about acquisitions or in contrast does it make you a little bit more adventurous in terms of how you might look at something that’s interesting and maybe how you value the upside -- the upside potential?.

Yeah. Thanks for the question, Noel.

I think it makes us more informed as we look at acquisitions and I think the position that we’re in today that we weren’t a year ago is we had to underwrite the transactions that we made based on previous operators’ performance and we looked at, hey, if we’re able to get our feet under us, if we’re able to build that operating momentum, if we’re able to optimize completions and development, this is what could be.

Now interestingly you’ve got an operating team that is delivering good capital efficiency that we have a view on how we’re optimizing development, not just in the A and B, but with some of the emerging zones and you have a subsurface team coupled with that technical the operating team that that really understands the assets and what this team can deliver much more -- with much more clarity today than a year ago.

And so as we look at opportunities whether it’s small ground game or acquisitions, it’s from a place of having that track record built up, which is a great place to be, we will be much more informed of what this team is able to deliver and therefore have a better view of how valuable those assets or those sticks could be in the hands of Civitas.

It’s exciting a year in to be where we are, but I would leave you with one thought and that is we’re going to be disciplined in everything that we do.

We will ultimately be a top quartile operator that will give us advantages to the assets will be better in our hands we’re not where we need to be yet but we’re getting there and in all things we’re very much aligned with shareholders and we’ll do the right thing for long-term shareholder value..

Great. Thanks. And you mentioned Matterhorn and the uplift there so far.

I have heard some operators express the opinion that when maintenance wraps up on some of the other pipelines and sort of what the ripple effects was that would look like that there’s still reason to believe that there could be some pretty significant improvement in basis appearing from what Matterhorn it just hasn’t manifested yet.

Are you sort of in that camp or do you see it a little differently?.

Hey, Noel. I would say that, look, from what we’re seeing there’s about a 1.5 Bcf flowing through Matterhorn, that’s a 2.5 Bcf pipe. I would imagine and I haven’t seen the detailed flows of the other pipes, but I would imagine it’s all very recent right Matterhorn came out a month ago.

I would imagine flows elsewhere going down, because there really just wasn’t that much gas waiting for home. So, yes, certainly some of the items you’re bringing up on maintenance are correct. We certainly haven’t seen them yet, so we’re cautiously optimistic as we said earlier we hedged away 50% well into 2020 -- late 2026 -- through the end of 2026.

So we’re cautiously optimistic, frankly not seeing it just yet..

Great. Thanks a lot..

Thanks, Noel..

And that concludes our question-and-answer session. And I will now turn the conference back over to Brad Whitmarsh for closing comments..

Yeah. Thanks, Krista, and everybody for joining us today. We’ll be around this afternoon and into next week, so if you have any follow-up questions, certainly, don’t hesitate to reach out. We hope you have a great weekend and please be safe..

This concludes today’s conference call. Thank you for your participation and you may now disconnect..