Centennial Resource Development Stock To Observe A Correction?

The shares of Centennial Resource Development (NASDAQ: CDEV) have rallied from the lows of $1.50 in December 2020 to $6.62 at present, assisted by rising benchmark prices, growing domestic demand, and OPEC+ curtailments. The company is engaged in the exploration, development, and production of oil and natural gas resources in the Permian Basin with properties in West Texas and New Mexico. Despite a slump in demand and a steep fall in benchmark prices last year, the company’s total production observed an 11% contraction. While benchmark prices remain high from inventory draws, Trefis believes that CDEV stock is likely to observe correction during the latter half of the year as OPEC+ increases supply. We highlight the historical trends in revenues, earnings, and stock prices of CDEV in an interactive dashboard, Buy Or Fear Centennial Resources Stock?

Financial performance during the pandemic

Centennial Resources’ revenues declined by 38% from $944 million in 2019 to $580 million in 2020 as the pandemic lowered energy demand and triggered a fall in benchmark prices. The company suspended all drilling and completion activity in Q2 2020 as demand uncertainty trimmed capital budgets. In 2020, drilling & development capital expenditures fell by 62% (y-o-y) to assist cash preservation and maintain balance sheet strength. The company’s prudent capital investment plan limited an increase in long-term liability despite a 70% (y-o-y) reduction in operating cash. However, the total assets shrunk by 15% (y-o-y) due to $690 million in impairment charges.

Industry Outlook

Brent and WTI benchmarks surpassed $70/bbl mark in recent weeks as OPEC+ continued with previously announced production curtailments for July. Crude oil and petroleum product inventories have returned to historical levels in the U.S. and OECD countries. Given the supply restrictions by OPEC, benchmark prices are likely to remain high in the near term as rising demand puts pressure on reserves. However, the EIA expects benchmark prices to decline by next year as OPEC+ increases production.

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