Crescent Energy Company

Good morning, and thanks for joining Crescent's 2021 earnings call. Our brief prepared remarks today will come from our CEO, David Rocacharli, and our CFO, Brandi Kendall. Todd Falk, Chief Accounting Officer, and Ben Conner and Clay Rind, both Executive Vice Presidents, are also here today and will be available during the Q&A session. Today's call may contain projections and other forward-looking statements within the meaning of the federal security laws. These statements are subject to risks and uncertainties, including commodity price volatility, the continued impacts of COVID-19, geopolitical conflict, including in Russia and Ukraine, our business strategies, and other factors that may cause actual results to differ from those expressed or implied in these statements and our other disclosures. We disclaim any obligation to update any forward-looking statements after today's call. In addition, today's discussion may include disclosure regarding non-GAAP financial measures. For reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-K and earnings press release available on our website. With that, I will turn the call over to David.

Great. Thanks, Emily, and good morning, everyone. We appreciate your joining us today on our first earnings call as a public company. For our company, 2021 was truly a transformational year. We issued our inaugural bond offering in April. We announced the merger with Contango in June, and were publicly listed in December. Last month, we announced the accretive acquisition of EPE's Uinta Basin assets, and we continue to advance our ESG strategy. Before we discuss our 2021 results and this year's outlook, I want to take a moment to ensure you appreciate our strategy and the attractive and differentiated investment opportunity that Crescent presents. The guiding principles behind all of our decisions are quite simple. Cash flow, risk management, and returns. Our model is unique, combining an investor mindset with deep operational expertise, and we have successfully executed this strategy for nearly a decade. Cash flow is the foundation of our business. We have a large diversified and low decline producing asset base that generates significant free cash flow. I hope you've had a chance to review our 2022 outlook and recognize the scale and stability of the business. Assuming nine months contribution from the Uinta acquisition, our 2022 estimated adjusted EBITDA is nearly $1.2 billion. with $425 million of projected levered free cash flow at $75 per barrel oil. Our approved developed PV10 is more than $5 billion at SEC pricing of $66 a barrel of oil, with an industry leading PDP decline rate of only 21%. We have a proven track record in effectively managing risk to protect asset value, generate strong returns, and pursue profitable growth. We maintain low leverage and a strong balance sheet. We utilize hedging to protect cash flows and our capital investment decisions. We acquire and develop a diversified portfolio of low-risk assets and we don't pursue any exploration. We also recognize the energy market is in long-term transition and we're committed to continuous improvement on ESG measures as a core part of our strategy. Disciplined capital investments allow us to generate strong cash returns, and we have a well-defined framework of returning cash to shareholders through consistent dividends. We approach capital decisions from a risk-adjusted returns perspective for both organic and acquisition opportunities. On the organic side, we have 10 years of high return inventory in the Eagleford, and we believe the recently announced Uinta acquisition will provide a similar multi-year drilling inventory. While we have ample runway on our existing asset base, we do not simply drill to grow production. We focus on generating sustainable returns. This means we scale back our capital program when commodity prices are low or when the returns do not justify the investment. On the acquisition front, Crescent is well positioned to participate in what we believe is an attractive market for industry consolidation. On top of our stable base business and dividend, we continue to see a substantial opportunity to drive shareholder value through accretive acquisitions that add cash flow and net asset value at attractive valuations. We have completed nine transactions in the last two years, or as we think about it, approximately one per quarter. In line with our acquisition strategy, we are very excited about our accretive entry into the Uinta Basin of Utah. The assets are a great addition to our existing Rockies footprint and will add substantial cash flow while maintaining our strong balance sheet. The Uinta acquisition provides a scaled, largely contiguous 145,000 net acre position in the oil window of the Uinta Basin, with high margin oil production low operating costs, and substantial cash flow. The asset is nearly 100% operated with greater than 80% working interest. At $75 per barrel of oil, we project the assets will generate annualized 2022 adjusted EBITDA of roughly $425 million and $100 million of free cash flow. About 85% of expected EBITDA comes from existing production or drilled but uncompleted wells, providing a lot of certainty around the cash flows from the assets. We were able to acquire this asset at an attractive entry point. The $815 million purchase price represents a cash flow multiple of less than two times 2022 estimated projected adjusted EBITDA, and an approximate one times multiple to our estimated proved developed PV10 of $800 million, assuming SEC pricing of $66 per barrel of oil. In addition to substantial PDP, we also acquired a multi-year inventory of high-quality, oil-weighted, undeveloped locations and see about $1.5 billion of potential future development opportunity on the assets. The Uinta is a well-understood basin with substantial existing production and a significant amount of resource in place. Offset operators have demonstrated the potential across multiple stacked reservoirs and highlighted the opportunity to improve performance and profitability with the application of modern completion designs. The Uinta transaction aligns well with our goals for any acquisition. From a financial perspective, it is accretive, leverage-neutral, and allows us to significantly increase the scale of both our free cash flow and adjusted EBITDA. The transaction also meets our strategic goals of increasing operatorship and production from our Eagleford and Rockies regions and maintaining our industry-leading PDP decline. On a combined basis, we estimate that 70% of our 2022 production will come from the Eagleford and the Rockies regions. Before turning the call over to Brandi, let me quickly comment on our commitment to ESG and its integration into our business. We've achieved several important milestones despite only being public for three months. In December, we issued our inaugural ESG report in accordance with SASB standards and announced the formation of an ESG Advisory Council to advance our ESG efforts. In February, We joined the Oil and Gas Methane Partnership 2.0 Initiative, or OGMP 2.0. Reducing emissions is critical to slowing the impact of climate change. The first step to methane reduction is high quality measurement data, and the OGMP 2.0 framework is among the most rigorous. Our membership will aid efforts to create targeted emissions reductions programs, perform accurate reporting, and establish us as a leader in emissions reduction. We view all of this as a core part of our business strategy. With that, I'll now turn the call over to Brandi to cover our 2021 results and 2022 outlook.

Thanks, David. Before I turn to our results for the 2021 period and our 2022 outlook, I would like to provide an overview of our capital allocation strategy. Priority 1A and 1B is the dividend and balance sheet. We allocate free cash flow to our shareholders in the balance sheet before making any capital investment decisions. Today, we announced our first dividend as a public company, $0.12 per share for the fourth quarter of 2021. We target a dividend equal to 10% of adjusted EBITDAX, which we refer to as fixed within a framework given the inherent stability of our business with our low decline rate, our low leverage, and a robust hedge book. Unlike many of our peers, our dividend framework is based on a percentage of EBITDA, not free cash flow, so it is not impacted by decisions on our capital program. We've paid consistent dividends to our private investors for nine years and will continue the same consistent dividend policy as a public company. We expect our quarterly dividend will increase to $0.17 per share upon closing of the Uintah Basin transaction based on our 10% of EBITDAX framework. On the balance sheet, we exited the year at 1.3 times net leverage in line with our long-term goal of 1 times. Over the past decade, our leverage has averaged 1.2 times while making consistent acquisitions and facing volatile commodity price environments. We know the importance of a strong capital structure, and it allows us to weather the commodity price cycles inherent in this business. Only after the dividend and balance sheet do we think about reinvestment opportunities, both on our existing footprint and through potential acquisitions. Due to the stability of our business, we are uniquely positioned to evaluate all of our investment decisions on a purely risk-adjusted, returns-driven basis. Depending on broader market conditions, we can and have elected to delay drilling when single-well returns do not support our targeted return thresholds. In fact, we paused our development activity in 2020 in the first half of 2021 when commodity prices were depressed and returns didn't meet our targets. We are uniquely positioned to do this given our low base decline and high HPP nature of our inventory. We've historically invested approximately 45% of EBITDAX on average on organic development opportunities. And in stronger commodity price markets like today, we develop our low risk inventory and draw on our substantial proven resource base and strong drilling capabilities. Our hedge strategy supports our disciplined approach to capital allocation and the stability in our business. The hedge program is designed to achieve two key goals. First, we focus on protecting our balance sheet. We hedge a portion of our PDP cash flows to allow us to repay our debt with hedged cash flow within the tenor of our hedge book in a downside scenario. Second, we lock in expected returns when we commit capital to drilling or acquisitions. Consistent with this strategy, upon signing the Uinta transaction, we entered into additional oil swaps covering about 80% of our acquired Uinta PDPs for a three-year period. On a combined basis for the UENTA transaction, we are approximately 60% hedged in 2022. Our hedge book provides near-term downside protection, but also provides long-term exposure to future commodity prices, and we only have roughly 10% of our approved developed reserves are currently hedged. We achieved impressive results in 2021. Pro forma for the combination of Contango and Independence, we generated roughly $680 million of EBITDAX, and $385 million of leveraged free cash flow in 21 after $230 million of development capital. We exited the year at 1.3 times net debt to pro forma adjusted EBITDAX, and Crescent produced 116 net MBOE per day in December 2021. Turning now to the Uintah transaction and combined guidance. We plan to initially fund the transaction with borrowings on the revolver and cash on hand. Our lenders authorize an increase of the elected commitment amount under the existing revolving credit facility to $1.3 billion from $700 million contingent upon closing. We estimate the adjusted purchase price, assuming a March 31 closing date is roughly $700 million based on customary purchase price adjustments. We announced a 2022 capital budget of $600 to $700 million, assuming nine months of Uinta capital on our books. This budget reflects an approximate one-rig program in the Eagle Ford, a two-rig program in the Uinta Basin, and modest non-op activity. The operated Eagle Ford program includes 32 to 38 gross wells with greater than 90% average working interest. As I mentioned earlier, we paused Eagle Ford development in 2020 and early 21, and restarted activity in mid-21. So the 2022 budget reflects some rollover activity, and one-third of the Eagleford wells will come online toward the end of the first quarter. The impact to production will occur in Q2, and we expect our standalone ex-UENTA CapEx guidance of $400 million to be weighted towards the first half of the year. EP Energy is currently operating two rigs in the UENTA, and our pro forma capital guidance reflects this drilling phase. Like others, we are seeing inflationary pressures across the business. Our people are some of the best in the industry, and we are finding new ideas to safely offset some of these pressures. We have factored expected inflation in our outlook today. Crescent is well positioned relative to our peers to whether this inflationary period as our cash flow is weighted towards PDP production, which is less impacted by inflationary pressures than drilling and completion activities. Specifically on operating expense per BOE, I would note that our guidance includes certain costs that are indexed to commodity prices, including production taxes and certain other input costs, such as CO2 purchase costs related to our CO2 flood asset in Wyoming. Our guidance figures for OPEX per BOE are based on $75 per barrel WTI and $3.75 per MMBTU Henry Hub pricing, but a portion of these costs move in tandem with oil commodity prices. These higher costs are expected to be offset by higher price realizations. On a combined basis for the UNTA acquisition, we project 2022 production of 134 to 148 MBUE per day. Assuming $75 oil and 375 natural gas, we would generate $1.15 billion of adjusted EBITDAX and $425 million of levered free cash flow in 2022 at the midpoint of guidance. This transaction would allow us to increase the $0.12 dividend we announced today to $0.17 per share. In summary, we believe Crescent is well positioned in today's market with significant scale and industry-leading decline rate and an attractive dividend program. With that, I'll turn the call back to David.