CENTENNIAL RES (CDEV) Down 80.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for CENTENNIAL RES (CDEV). Shares have lost about 80.4% in that time frame, underperforming the S&P 500.

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

Centennial Resource’s Q4 Earnings Meet Estimates on Higher Output

Centennial Resource reported adjusted fourth-quarter 2019 earnings of 4 cent per share, in line with the Zacks Consensus Estimate, primarily due to higher production and oil price realization. However, the bottom line declined from the year-ago quarter’s 12 cents due to increased operating expenses, and lower natural gas and NGL prices.

Revenues from oil and gas sales rose to $256.4 million from $222.5 million a year ago. Moreover, the top line beat the consensus mark of $242 million.

Proved Reserves

As of Dec 31, 2019, Centennial’s total proved reserves of 301 million barrels of oil equivalent increased 15% year over year. Of the total proved reserves, oil contributed 50%, while natural gas and natural gas liquids accounted for 28% and 22%, respectively. Notably, its organic reserve replacement ratio was 243%.

Production Rises

Total production in the reported quarter averaged 79,734 barrels of oil equivalent per day (Boe/d), up from 69,609 Boe/d in the year-ago period. The metric also beat the Zacks Consensus Estimate of 76,000 Boe/d. Of the total output, 56.5% comprised 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.

Oil production averaged 45,031 barrels per day (Bbls/d), up from 39,978 Bbls/d in fourth-quarter 2018. Natural gas production amounted to 122,759 thousand cubic feet per day (Mcf/d), up from the year-ago quarter’s 93,641 Mcf/d. Moreover, natural gas liquids production was 14,242 Bbls/d, higher than the year-ago quarter’s 14,043 Bbls/d.

Price Realization

The company reported average realized crude price of $53.25 a barrel (excluding the effects of derivate settlements), up from $47.95 in the December quarter of 2018. However, average natural gas price dropped to $1.14 per Mcf from $1.82 a year ago. Natural gas liquids were sold at $17.47 a barrel, down from $23.60 in fourth-quarter 2018.

Operating Cost Rises

Centennial incurred $229.7 million of total operating costs in fourth-quarter 2019, higher than $173.7 million in the year-ago period. On a per Boe basis, the company’s fourth-quarter lease operating expenses were $5.30, much higher than the year-ago level of $3.77. Gathering processing and transportation costs increased to $2.82 per Boe from the year-ago period’s $1.94.

Capital Expenditure

In fourth-quarter 2019, it incurred capital expenditure of $197.2 million, including $162.8 million in drilling and completion activities. Notably, the company reduced capital spending on facilities, infrastructure and others for four straight quarters.

Balance Sheet

At the end of the quarter under review, cash balance totaled $10 million. Long-term debt amounted to $900 million, reflecting a net debt to book equity capitalization of 25%. It had a total liquidity of $634 million.

Guidance

Centennial expects 2020 production in the range of 74,500-80,500 Boe/d. Oil production is expected within 42,000-45,600 Bbls/d for full-year 2020, the mid-point of which reflects a 3% year-over-year rise. Notably, the company provided full-year 2020 capital expenditure guidance of $590-$690 million, indicating 28% decline from 2019 levels.

Centennial is currently running five rigs. Based on the oil environment, it decided to reduce the count to four in April. Three rigs will be operating in Southern (NYSE:SO) Delaware and one in Northern Delaware.

The company expects lease operating expenses for the full year in the range of $5.90-$6.50 per Boe, suggesting an increase from the 2019 level of $5.26. Gathering processing and transportation cost expectation is in the range of $3.00-$3.40, implying a rise from $2.62 in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -72.15% due to these changes.

VGM Scores

At this time, CENTENNIAL RES has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CENTENNIAL RES has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.