Shares of onshore U.S. exploration and production company Centennial Resource Development (NASDAQ:CDEV) fell 7% out of the gate on Nov. 3. Then they shot up to a gain of around 3% before turning lower again and trickling back down to a 7% price decline by roughly 2 p.m. EST. At around 3 p.m., however, the shares had recouped some ground and were off by just 3.5% or so. Here's what was going on.
After the close on Monday, Centennial Resource Development reported earnings. It wasn't particularly great reading, which isn't a surprise given the painful supply/demand imbalance that energy markets are working through. The driller's production fell roughly 10% year over year in the third quarter. Revenue was off by 35%, which was driven by lower production and lower selling prices. The company lost $0.19 per share in the third quarter compared to a loss of a penny a share in the same period of 2019. It's understandable that investors weren't too pleased at the start of the day.
But then oil prices were on the upswing today. And Centennial Resource Development noted that it was able to generate positive free cash flow in the quarter and, if energy prices remain around where they are today, it should be able to repeat the feat in the fourth quarter. These facts help explain why the stock reversed course. Except natural gas prices steadily weakened as the day wore on (the company produces both oil and gas) and while being cash flow positive is nice, it doesn't really solve the long-term problems the company faces: a heavy debt load, red ink on the bottom line, and historically low energy prices. No wonder the mood on Wall Street turned lower again.
It wouldn't be fair to describe Centennial Resource Development's third quarter as bad. In fact, it was actually OK given the circumstances, which is likely why the stock was on something of a seesaw today. But circumstances do matter, so it's understandable that investors remain uncertain about what the future holds for this relatively tiny exploration and production company. In fact, until oil prices mount a sustained recovery, this kind of up and down action is likely to continue for the foreseeable future.