425: Civitas Reports Strong Q3, Discontinues Guidance Amid SM Energy Merger

Civitas Resources exceeded third-quarter expectations with strong production and reduced costs, while announcing the discontinuation of future guidance due to its pending merger with SM Energy.

Summary

• Net income for the fiscal quarter ended September 30, 2025, was $177 million.
• Operating cash flow reached $860 million, Adjusted EBITDAX was $855 million, and Adjusted Free Cash Flow totaled $254 million.
• Oil production increased by six percent from the second quarter to more than 158 thousand barrels per day (MBbl/d).
• Total production rose six percent from the second quarter to 336 thousand barrels of oil equivalent per day (MBoe/d).
• Cash operating expenses decreased by five percent to $9.67 per barrel of oil equivalent (BOE).
• The company completed the divestment of two previously-announced non-core DJ Basin assets on August 29 and October 1.
• Net debt was reduced by $237 million, and $250 million of Civitas' stock (approximately 8% of outstanding shares) was repurchased in the third quarter.
• Permian Basin production increased six percent from the second quarter to 181 MBoe/d, with oil volumes growing four percent to 86 MBbl/d.
• DJ Basin production increased six percent from the second quarter to 155 MBoe/d, with oil volumes growing nine percent to 72 MBbl/d.
• A quarterly dividend of $0.50 per share was approved, payable on December 29, 2025, to shareholders of record as of December 15, 2025.
• Civitas has discontinued providing quarterly and annual guidance due to the pending merger with SM Energy Company.

Sentiment

Score: 8

Explanation: The company reported strong financial and operational results, exceeding expectations, with increased production, reduced costs, significant debt reduction, and share repurchases. The pending merger with SM Energy, while introducing some uncertainty, is presented as a strategic move. The discontinuation of guidance is a negative, but overall performance is robust.

Positives

• Third quarter results exceeded expectations, demonstrating strong operational and financial performance.
• Net income of $177 million, operating cash flow of $860 million, Adjusted EBITDAX of $855 million, and Adjusted Free Cash Flow of $254 million were reported.
• Oil and total production increased by six percent from the second quarter, indicating robust operational growth.
• Cash operating expenses were lower by five percent to $9.67 per BOE, reflecting improved cost efficiency.
• Successfully closed the divestment of two non-core DJ Basin assets as planned.
• Reduced net debt by $237 million, strengthening the balance sheet.
• Repurchased $250 million of Civitas' stock (approximately 8% of outstanding shares) in the third quarter, with year-to-date repurchases totaling nearly 10% of outstanding shares, returning capital to shareholders.
• Permian Basin production increased six percent, with strong well performance, including a Wolfcamp B well extending the economic boundary of the play.
• DJ Basin production increased six percent, with a company record for drilling a two-mile lateral well in 1.3 days.
• Crude oil, natural gas, and NGL revenues totaled $1.2 billion, benefiting from strong volumes and realizations.
• Realized oil prices, excluding hedging impacts, represented a $0.31 per barrel premium to the average West Texas Intermediate (WTI) oil price.
• Lease operating expense (LOE) per BOE was seven percent lower than the second quarter.
• Financial liquidity at the end of the third quarter 2025 totaled $2.2 billion.
• Reduced the revolving credit facility balance by $250 million.
• Added more than two million barrels of oil hedges covering the next 12 months, enhancing price risk management.
• Declared a quarterly dividend of $0.50 per share.

Negatives

• Natural gas realizations were impacted by continued weak Waha pricing.
• The Q3 earnings webcast and conference call were cancelled due to the merger announcement with SM Energy Company, limiting direct communication with investors.
• Discontinuation of quarterly and annual guidance removes future operational and financial visibility for investors.
• Net income for Q3 2025 ($177 million) was lower than Q3 2024 ($296 million).
• Crude oil, natural gas, and NGL sales for Q3 2025 ($1,160 million) were lower than Q3 2024 ($1,272 million).
• Total operating net revenues for Q3 2025 ($1,168 million) were lower than Q3 2024 ($1,272 million).

Risks

• Uncertainty regarding the expected timing and likelihood of completion of the merger with SM Energy, including the timing, receipt, and terms and conditions of any required governmental and regulatory approvals.
• Challenges in successfully integrating the businesses of SM Energy and Civitas, which may result in the combined company not operating as effectively and efficiently as expected.
• The occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement.
• The possibility that stockholders of SM Energy or Civitas may not approve the transaction.
• The risk that the parties may not be able to satisfy the conditions to the transaction in a timely manner or at all.
• Risks related to disruption of management time from ongoing business operations due to the transaction.
• The risk that any announcements relating to the transaction could have adverse effects on the market price of SM Energy's common stock or Civitas' common stock.
• The risk that the transaction and its announcement could have an adverse effect on the ability of SM Energy and Civitas to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally.
• The risk that the pending transaction could distract management of both entities and they will incur substantial costs.
• The risk that the combined company may be unable to achieve anticipated synergies or it may take longer than expected to achieve those synergies.

Future Outlook

Civitas Resources has discontinued providing quarterly and annual guidance due to its pending merger with SM Energy Company. Investors are cautioned not to rely on previously disclosed forward-looking statements as they were estimates only as of the date provided and subject to specific risks and uncertainties related to the merger and other factors.

Management Comments

• Third quarter results exceeded expectations, with higher production and lower cash operating expenses contributing to net income of $177 million, operating cash flow of $860 million, Adjusted EBITDAX of $855 million and Adjusted Free Cash Flow of $254 million.

Industry Context

The company's strong operational performance, including increased production and reduced operating costs, aligns with a focus on efficiency and capital discipline prevalent in the E&P sector. The premium realized on oil prices suggests effective marketing and quality assets, while weak Waha natural gas pricing reflects broader regional market challenges. The merger with SM Energy indicates a trend towards consolidation in the oil and gas industry, aiming for scale and potential synergies in a volatile energy market.

Comparison to Industry Standards

• The average peak 30-day rate of 1,200 Boe/d (80% oil) per well from the Double Stamp and Brother Nature pads in the Delaware Basin was higher than average offset results by up to 20%, indicating superior well performance compared to regional peers.
• A two-mile Wolfcamp B well in western Upton County, TX, in the Midland Basin, confirmed strong productivity with a peak 30-day production of 1,495 Boe/d (74% oil), extending the economic boundary of the play and de-risking future development, suggesting competitive or leading-edge drilling results.
• The Invicta development in Watkins (DJ Basin) surpassed one million barrels of oil equivalent (approximately 80% oil) after 105 days of production from eight wells, each drilled over four miles and completed over three miles, demonstrating highly efficient and productive pad development compared to typical industry timelines and output.
• The company achieved a record 2-mile lateral well drilled to total depth in 1.3 days in the DJ Basin, excluding surface drilling, which is a strong indicator of drilling efficiency compared to industry benchmarks.

Stakeholder Impact

• Shareholders: Positive impact from strong financial results, share repurchases, and a declared dividend. Potential for long-term value creation from the SM Energy merger, but also risks related to merger completion and integration. Discontinuation of guidance reduces near-term visibility.
• Employees: Potential for disruption and changes due to the pending merger and integration with SM Energy. Non-recurring severance charges indicate some workforce adjustments.
• Customers/Suppliers: Potential for changes in relationships and operations post-merger with SM Energy.
• Creditors: Positive impact from reduced net debt and strong financial liquidity.

Next Steps

• Completion of the merger with SM Energy Company, subject to regulatory approvals and stockholder votes.
• Integration of the businesses of Civitas and SM Energy.
• Mailing of a definitive Joint Proxy Statement/Prospectus to stockholders of SM Energy and Civitas.
• Payment of a quarterly dividend of $0.50 per share on December 29, 2025.

Key Dates

Recommendation

Civitas Resources delivered strong Q3 2025 results, exceeding expectations with robust production growth, reduced operating costs, significant debt reduction, and a substantial share repurchase program. The declared dividend further enhances shareholder returns. However, the discontinuation of future guidance due to the pending merger with SM Energy introduces a period of uncertainty regarding future performance and strategic direction. While the merger could unlock long-term synergies, the immediate focus shifts to the successful completion and integration of the two entities, which carries inherent risks. Given the strong current performance balanced against the strategic uncertainty of the merger, a 'hold' recommendation is appropriate until more clarity emerges on the merger's progress and the combined entity's post-merger outlook.

Keywords

Civitas Resources, CIVI, SM Energy, Merger, Oil and Gas, Exploration and Production, Permian Basin, DJ Basin, Financial Results, Q3 2025, Production, Net Income, EBITDAX, Free Cash Flow, Share Repurchase, Dividend, SEC Filing, Form 8-K