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Why Centennial Resource Development Stock Jumped 13% in Early Trading Today

By Reuben Gregg Brewer – Updated Oct 14, 2020 at 10:55AM

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Shares of the energy company got a quick boost from an update on its financial position.

What happened

Shares of U.S. onshore exploration and production (E&P) company Centennial Resource Development (CDEV 0.71%) rose just about 13% in the first half-hour of trading on Wednesday. The big jump came following a news release after the market close the day before. It was a pretty good update, overall.  

So what

Centennial reported that its lenders had affirmed the E&P's borrowing base, which is tied to the value of its oil and natural gas assets, at $700 million. That, in and of itself, is good to hear, since an energy company facing a reduction in its borrowing base could quickly find itself short of cash. And there was more in the release.  

Two men in silhouette with oil rigs.

Image source: Getty Images.

Centennial also noted that it had repaid roughly $15 million out of cash flow in the third quarter. At the end of the stanza, the company's borrowings were $355 million, with cash on hand sitting at $5 million. All in, taking into account restricted cash, the E&P's liquidity position was $314 million as of Sept. 30, a 6% improvement over where it stood at the end of June. That's a notable change in just three months.

In addition, management noted that it expects to continue to improve its liquidity and cash flow through the end of the year. Which hints at decent performance in the fourth quarter.  

Now what

This was indeed a positive update from Centennial Resource Development, so it makes sense that investors responded positively. But the company's top and bottom lines are still highly dependent on energy prices, and it remains heavily leveraged (though perhaps less so than before). Most long-term investors looking at the energy space would likely still be better off with a larger and financially stronger name, such as Chevron.   

Reuben Gregg Brewer 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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Centennial Resource Development, Inc. Stock Quote
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