Weak oil prices have taken a huge toll on Centennial Resource Development [stock_market_widget type="inline" template="generic" color="default" assets="CDEV" markup="(NASDAQ: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] this year. Shares of the oil producer have lost close to 42% of their value in 2019 even though the company has been delivering an impressive quarterly performance quarter after quarter.
Centennial started the year with disappointing guidance, but it managed to make up for that with a nice first-quarter report. Still, investors didn’t like what they saw last quarter.
Finding the Root of the Problem
In the first quarter of 2019, Centennial’s daily oil production volume increased 28% year over year thanks to the completion of twenty gross production wells. Half of those wells were placed on production in March, the final month of the quarter.
As a result of this strong production growth, Centennial was able to beat Wall Street estimates during the quarter. The company’s quarterly earnings of $0.08 per share were double of what analysts were expecting, while revenue of $214 million was also better than estimates.
However, the problem with Centennial was that its oil and gas revenue was down by 1% as compared to the prior-year period on account of weak pricing. More specifically, Centennial witnessed a 22% decline in the price of oil during the quarter to $48.15 per barrel.
Similarly, the company’s realized natural gas price also fell 43% year over year during the quarter to $1.39 per Mcf. The average realized price of natural gas liquids was down to the tune of 35% during the quarter to $19.74 per barrel.
So, the weak pricing scenario prevalent during the quarter was enough to offset the higher production recorded by Centennial. This, however, was not the only problem the company faced during the quarter.
Costs Are on the Rise
Centennial’s lease operating expenses during the first quarter of 2019 came in at $4.61 per barrel of oil equivalent, an increase of 38% as compared to the prior-year period. This increase was enough to offset the lower transportation expenses and ad valorem taxes the company incurred during the period.
The combination of higher expenses and lower prices reduced Centennial’s operating income to just $5.1 million as compared to $87.8 million in the prior-year period.
The bad news for Centennial is that oil prices aren’t showing much signs of a turnaround. WTI oil is now trading just above $52 per barrel, having fallen from the highs of $66 per barrel seen towards the end of April.
More downside in oil prices cannot be ruled out as macroeconomic uncertainty is weighing on demand. According to JBC Energy:
The IEA has also slashed its oil demand forecast for the year to the tune of 100,000 barrels. As such, Centennial Resource stock could remain under pressure in the coming months until and unless there is an improvement in oil prices.
