Why Centennial Resource Development Stock Is Cratering Today

Investors didn't like the oil company's plan for the coming year.

Matthew DiLallo
Matthew DiLallo
Feb 26, 2019 at 11:43AM
Energy, Materials, and Utilities

What happened

Shares of Centennial Resource Development (NASDAQ:CDEV) plunged more than 21% by 11:30 a.m. EST on Tuesday. The oil producer's sell-off was fueled by its fourth-quarter results and outlook for 2019.

So what

Centennial Resource Development earned $31 million, or $0.12 per share, during the fourth quarter, which missed analysts' expectations by $0.04 per share. While oil production rose 11% compared to the third quarter, to nearly 40,000 barrels per day, lower oil prices squeezed earnings. For the full year, Centennial Resource Development grew its oil volumes 82% while living within its capital budget and delivering production costs at the low end of its guidance range.

An oil pump jack with orange sunset in the background.

Image source: Getty Images.

However, with oil prices having plunged in recent months, Centennial Resource Development is slowing down its drilling machine in 2019. CEO Mark Papa stated:

Centennial has significantly reduced its current operating plan compared to our previous high-growth estimates and plans to remain flexible in terms of drilling activity this year. In today's relatively weak commodity price environment, we value balance sheet protection and financial discipline more than production growth. We are preserving our inventory with the goal of resuming Centennial's growth trajectory when the macro environment improves.

Overall, the company plans to reduce spending by 15% to $845 million, which will result in a significantly slower production growth rate of 12% in the coming year.

Check out the latest Centennial Resource Development earnings call transcript.


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Now what

Centennial Resource Development has been growing production at a fast pace in recent years. That's why its decision to slow down in 2019 came as such a surprise to investors. However, holding back makes sense given that the market doesn't need more oil right now. In fact, the move will allow the company to preserve both its drilling inventory and liquidity so that it can reaccelerate when market conditions improve.