Civitas Resources outlook revised to stable from positive by S&P

Investing.com -- S&P Global Ratings revised its outlook on Civitas Resources Inc. to stable from positive due to the company’s lack of debt reduction, while affirming its ratings.

The rating agency now forecasts average funds from operations (FFO) to debt of about 45% through 2026, well below its upgrade trigger of 60%. This revision reflects S&P’s lower price assumptions of $55 per barrel for West Texas Intermediate (WTI) crude in 2025 and $60 per barrel in 2026, expectations for lower production volumes, and the reinstatement of aggressive share buybacks.

Despite announced asset divestments of $435 million, S&P expects limited discretionary cash flow available for debt repayment this year. The company also announced a CEO change, with former board chairman Wouter van Kempen serving as interim CEO until a replacement is found.

Civitas produced 317,000 barrels of oil equivalent per day in the second quarter of 2025, which was 8% lower than 2024. While some organic growth is expected in the third quarter, this will be mostly offset by the announced non-core DJ basin asset divestment, which will impact about 10,000 barrels of oil equivalent per day.

The Permian basin remains the focus for development with 5 rigs and 2 frac crews running, receiving about 55% of capital expenditure spending so far in 2025. S&P assumes a production decline of about 5%-10% in 2026, reflecting limited reinvestment at lower commodity prices and uncertainty around operational plans following the recent CEO departure.

Civitas has about 60% of oil volumes hedged for the rest of the year and about 25% next year. The company’s quarterly dividend of $0.50 per share is higher than peers, with S&P estimating that Civitas would need about $55-$60 per barrel WTI to generate sufficient free cash flow to cover the dividend.

After assuming 50% of free cash flow after the fixed dividend is used for buybacks, S&P forecasts the company will generate about $50 million-$100 million of discretionary free cash flow in 2025 and 2026, limiting potential debt reduction.

S&P views Civitas’ financial policy as more aggressive compared with peers following multiple changes. In March 2025, Civitas adjusted its policy to use 100% of free cash flow after the base dividend for debt reduction, but after only one quarter, the company reinstated share buybacks ahead of achieving its stated net debt target of $4.5 billion ($5.3 billion as of June 30, 2025).

The rating agency now assesses management and governance as moderately negative due to high turnover in key roles, with Civitas set to have its third CEO since 2021.

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