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Why Centennial Resource Development Stock Is Plunging Today

By Matthew DiLallo – May 5, 2020 at 12:43PM

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The oil and gas driller is struggling mightily with lower oil prices.

What happened

Shares of Centennial Resource Development (CDEV -0.94%) tumbled nearly 10% by 11:45 a.m. EDT on Tuesday. The main factor weighing on the oil stock was its weak first-quarter earnings report.

So what

Centennial Resource Development reported a loss of $548 million, or $1.99 per share. That's mainly due to a $611.3 million non-cash impairment charge on the value of its oil and gas properties because of plunging commodity prices during the quarter.

An oil pump at twilight.

Image source: Getty Images.

The crash in crude oil prices this year forced Centennial Resource to make several changes to take some of the pressure off its balance sheet. These include:

  • Slashing its capital spending plan by 60%, a further reduction from the 50% cut it announced in mid-March.
  • Suspending all near-term drilling and completion activity by reducing its rig count from five to zero.
  • Shutting down up to 40% of its production in May due to low oil prices. It will make future curtailments on a month-to-month basis, depending on commodity prices.
  • Cutting general and administrative expenses by 30%.
  • Launching a debt exchange offer to reduce debt and interest expenses.

One reason Centennial Resource had to make such deep spending cuts is that its banks slashed the borrowing base on its credit facility from $1.2 billion to $700 million. That reduced its available liquidity to $468 million as it had $235 million outstanding on that facility and $4 million of cash on hand. It also had an additional $900 million of senior notes outstanding.

Now what

Plunging crude oil prices put Centennial Resource Development in a tight spot. Unlike many peers, it didn't hedge its oil production before prices crashed, leaving it completely exposed as they cratered. That put a lot of pressure on its balance sheet, forcing the company to make deep cuts to stay afloat. If prices don't improve, and its banks cut its borrowing base again, Centennial might have to file for bankruptcy so that it can restructure its debt.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Centennial Resource Development, Inc. Stock Quote
Centennial Resource Development, Inc.
$6.30 (-0.94%) $0.06

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