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Centennial (CDEV) Up 1% Since Q2 Earnings Miss Estimates

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Centennial Resource Development, Inc.’s (CDEV - Free Report) shares have been witnessing ups and downs since it reported second-quarter results on Aug 3. The market is reacting to the fact that it reported weaker-than-expected second-quarter earnings. Nonetheless, the stock has risen 1% since the results came out, as investors are slowly appreciating the company’s expectation of a massive jump in free cash flow this year, which can further reduce debt. It is to be seen in the coming days whether the company’s solid 2021 outlook sits well with investors.

It reported second-quarter 2021 adjusted earnings of 2 cents per share, missing the Zacks Consensus Estimate of 6 cents. Yet, the figure improved from the year-ago adjusted loss of 26 cents per share.

Quarterly revenues from oil and gas sales increased to $232.6 million from the prior year’s $90.5 million. Also, the top line beat the consensus mark of $194 million.

Weaker-than-expected quarterly earnings can be attributed to reduced production volumes. The negatives were partially offset by higher realized commodity prices and decreased operating costs.

Q2 Operations

Production

Overall production of 61,647 barrels of oil equivalent per day (Boe/d) declined from the year-ago period’s 68,245 Boe/d. Of the total output, 51.8% comprised crude oil.

Oil volumes deteriorated from 37,411 Bbls/d to 31,912 barrels per day (Bbls/d) for the June quarter. Also, natural gas liquids (NGLs) production totaled 10,297 Bbls/d, down from the year-ago quarter’s 12,264 Bbls/d. Nevertheless, natural gas production of 116,629 thousand cubic feet per day (Mcf/d) increased from the year-ago quarter’s 111,419 Mcf/d.

Price Realizations

Average realized crude price (excluding the effects of derivative settlements) was reported at $60.99 a barrel, up from $21.47 in second-quarter 2020. Also, the same for natural gas rose to $2.55 per Mcf from the prior year’s 87 cents. Furthermore, NGLs price rose to $30.37 per barrel for the second quarter from the year-ago level of $7.72.

Operating Costs

Centennial’s total operating costs were $171.5 million for second-quarter 2021, lower than $183.3 million in the year-ago period due to decreased exploration and other costs.

On a per Boe basis, the company’s second-quarter lease operating expenses were $4.10, lower than the year-ago level of $4.16. Yet, gathering, processing and transportation costs flared up to $3.47 per Boe from the year-ago period’s $2.78.

Capital Expenditure & Balance Sheet

For the June quarter, it incurred capital expenditure of only $83.2 million, of which $82.3 million was allocated for drilling and completion activities.

At second quarter-end, cash and cash equivalents decreased to $4.7 million from the first-quarter level of $10.9 million. Long-term net debt outstanding amounted to $1,054.3 million, down from $1,063.8 million at first quarter-end. Centennial had a net debt to capitalization of 29.3%. At second-quarter end, it had liquidity of $445.7 million.

Cash Flow & Free Cash Flow

The company’s constant focus on cost reduction helped it generate net cash of $107.3 million from operating activities against net cash used of $16.3 million in the year-ago period. Free cash flow generated during the quarter under review was $34.2 million against free cash outflow of $26.4 million in the year-ago period.

Guidance

The company boosted free cash flow guidance for 2021 to $140-$170 million from the previous guided range of $55-$75 million. It is sticking to the two-rig drilling program for 2021, despite the uptick in commodity prices. Also, the company made new oil hedging deals for the next year at an average price of $64.22 per barrel at WTI Price index.

Centennial earlier projected 2021 production in the band of 56,000-63,000 Boe/d, based on capital budget of $260-$310 million. The majority of the capital spending will be allocated for drilling and completion activities. Previously, it anticipated to complete 40-48 gross wells this year.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked stocks from the energy space include Range Resources Corporation (RRC - Free Report) , Hess Corporation (HES - Free Report) and Summit Midstream Partners, LP (SMLP - Free Report) , each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Range Resources’ earnings for 2021 is pegged at $1.53 per share, indicating a massive improvement from the year-ago loss of 9 cents.

Hess’ profits for 2021 are expected to jump 177.1% year over year.

Summit Midstream’s bottom line has witnessed two upward estimate revisions and no downward movement in the past 30 days.