Crescent Energy Company

Good morning, and thank you for joining Crescent's first quarter 2022 earnings call. Our prepared remarks today will come from our CEO, David Rocacharli, and our CFO, Brandi Kendall. Todd Fault, Chief Accounting Officer, Ben Connor, and Clay Wren, both Executive Vice Presidents, are also here today and available during the Q&A. Today's call may contain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, the continued impact of COVID-19, geopolitical conflict, including in Russia and Ukraine, and our business strategy, and other factors that may cause actual results to differ from those expressed or implied in these statements and or 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 10Q and earnings press release available on our website. With that, I will turn it over to David.

Great. Thanks, Emily. And good morning, everyone. We appreciate you joining us today for our first quarter 2022 earnings call. This is our first quarter to report full consolidated results after our merger with Contango in December. We've been trading publicly as Crescent Energy for about five months, and we look forward to providing more details today on our results, as well as our outlook for the large and differentiated business we've built. We will also take your specific questions at the end of our introductory remarks. Q1 was another solid quarter for our business. We generated significant free cash flow and solid investment returns across our asset base. We maintained a strong balance sheet and remained focused on returning capital to shareholders through our fixed quarterly dividend. As a reminder, we paid our first dividend as a public company in March, equal to 12 cents per share. Additionally, we are pleased to have closed the highly accretive acquisition of assets in the Uinta Basin at the end of the quarter. The Uinta asset significantly increased our scale and added high margin oil production at a very attractive purchase price. Our comments about 2020 include the Uinta acquisition for nine months, and I would note that given the March 30 closing date, the operating results of this material and compelling acquisition will not begin to be reflected in our financial results until the second quarter of While performance is strong and Crescent continues to grow significantly, our strategy remains unchanged. We describe our strategy as focused on cash flow, risk management, and returns. We generate significant free cash flow from our large diversified and low decline producing asset base. We manage risk through a portfolio approach to asset selection and by maintaining our strong balance sheet supported by our hedge program. And we seek to deliver strong returns on invested capital, both through internal development and complementary accretive acquisitions, in order to drive profitable long-term growth for shareholders. This is the same strategy we have executed for the last decade in the private markets across multiple commodity cycles, and we're sticking to it. Turning to the market backdrop, following years of underinvestment in the oil and gas sector, we are in a period of unique volatility. which has been driven by the rapid recovery of global economies post-pandemic and exacerbated by the war in Ukraine. In terms of the conflict's impact on the commodity market, it does not fundamentally alter our view of an already tight global supply-demand balance, but it introduces additional volatility and upward price risk. Today, oil and natural gas prices are approaching near record levels. To reflect today's commodity prices, we revised our 2022 guidance to $1.35 billion of adjusted EBITDA and $575 million of levered free cash flow at the midpoint, assuming $100 WTI and $6 Henry Hub. Again, this guidance includes the UINSA assets for nine months of 2022. Our approved PP10 at 331 NYMEX pricing totals $8.2 billion, and we have an industry-leading first-year decline rate in the range of 20%. We believe the stability of production and cash flow is a key differentiator for Crescent. It lowers our capital intensity and allows us to pursue profitable growth through development of our large, low-risk resource base and opportunistic and complementary acquisitions. Consistent with our commitment to return cash to shareholders, and in the context of closing the Uintah acquisition, today we declare a 17 cents per share dividend payable in the second quarter, representing a 40% increase to last quarter's dividend. Our LTM net leverage remains low at 1.3 times, and we are generating significant free cash flow following the close of the Uintah acquisition. From an operational perspective, We continue to operate three rigs as we invest in the development of our high-return, multi-year inventory in our core Eagle Fruit and Uinta positions. Crescent's large held by production resource base provides the ability to generate strong returns on capital invested while we maintain or moderately grow our production organically. In addition to our stable base business, we continue to look for ways to drive shareholder value through opportunistic, accretive acquisitions that add cash flow and NAV at attractive valuations. While the commodity price environment has changed quickly, we continue to see an attractive backdrop for industry consolidation, as the supply of assets and subscale businesses for sale is increasing steadily, far outweighing buyer demand. As always, we will continue to be disciplined and focused on investment returns in connection with capital investments on our existing assets, as well as potential acquisitions. We believe we have proven our ability to capture attractive assets, integrate them into our portfolio, and apply our strong operating skills to find synergies and create value for shareholders. Following our December 2021 merger with Contango and subsequent Uinta acquisition, we have made significant progress on business integration while also beginning to better position our large-scale enterprise. in the capital markets as a new public company. We anticipate completing our integration efforts and continuing to execute our capital market strategy throughout the remainder of 2022. Randy will provide some more detail on both of these activities later on the call. I will now go into a little more detail on the highly accretive acquisition of our Uinta assets, as this is the most recent example of our strong M&A capabilities at work. 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 assets are 65% oil and nearly 100% operated with high margins and low operating costs, enhancing our overall asset portfolio in these areas. Consideration at closing in March was 690 million for assets with a billion dollars approved developed PV10 at NYMEX pricing as of March 31st and substantial development upside. We were able to move extremely quickly to capture these complimentary assets in a unique situation due to our familiarity with the assets, our existing operating capabilities, and our strong balance sheet. In summary, this acquisition is consistent with our strategy to drive shareholder returns through significant free cash flow generation and profitable growth from strong returns on capital invested in low-risk development and opportunistic acquisitions that are accretive to NAP. Since closing the Uinta acquisition roughly six weeks ago, we've made significant progress integrating the operations of these assets. At close, we took over operations from EP Energy and have maintained their two-rig development program. While still in the early days, the transition has been smooth thanks to our strong operational leadership and the talented field staff we gained in the acquisition. We are actively engaging with local agencies about our operating plans and practices, including on the permitting side. Continuing to discuss our assets and operations, I want to reiterate that ESG is an integral part of everything we do. We plan to issue our 2021 ESG report later this year, which will include short and long-term ESG targets with a focus on EHS and emissions. During the first quarter, we joined the Oil and Gas Methane Partnership 2.0 initiative, or OGMP 2.0. We believe reducing methane emissions is critical to slowing the impact of climate change, and the first step to methane reduction is high-quality measurement data. The rigorous OGMP 2.0 framework will aid our efforts to create targeted programs to reduce emissions, accurately report our data, and help us to be positioned as an industry leader in emissions reduction. We will continue to keep you updated on our progress in this area. I'll now turn the call over to Brandi to cover our first quarter 2022 financial results and 2022 outlook.

Thanks, David, and good morning, everyone. You're off to a great start in 2022. We remain focused on cash flow priorities 1A and 1B, shareholder returns, and the balance sheet. As David mentioned, we announced a 17 cents per share dividend, which is a 40% increase to the prior quarter. Consistent with our dividend framework of 10% of adjusted EBITDAX, we intend to pay 17 cents per share quarterly for the remainder of the year, generating an attractive 4% yield based on recent trading prices. On the balance sheet, we exited the quarter with LTM leverage at 1.3 times. On March 30th, we closed the Uinta Basin transaction for cash consideration of approximately $690 million. In conjunction with the transaction, our lenders authorized an increase of the elected commitment amount under the existing revolving credit facility to 1.3 billion from $700 million. Additionally, we issued a $200 million tack-on during the quarter with proceeds used to reduce RBL borrowings consistent with our strategy of not being overly reliant on the bank RBL market. For the first quarter of 2022, we produced 120 net MBOE per day in line with our previous guidance, excluding Uinta, and generated 195 million of adjusted EBITDA and 89 million of levered free cash flow. As a reminder, these results do not include the contribution from the Uinta assets since the transaction closed at the end of the quarter. Operating expense excluding production and other taxes of 1597 for BOE were in line with guidance adjusted for contractual commodity length costs, costs which increased in the higher commodity price environment. Recall that our guidance was originally set at $75 a barrel, roughly $20 a barrel less than the Q1 oil price. About 25 to 50 cents of our operating costs are contractually indexed to commodity prices such as CO2 prices for our Wyoming tertiary recovery assets and certain gathering and processing costs. But these higher contractual commodity-linked costs were more than offset by higher realized prices and improved margins. Our expectation for OPEX excluding taxes per BOE for the remainder of the year is in line with our expectations with the exception of these contractual commodity-linked costs. As we increased our guidance price tax from $75 per barrel to $100 per barrel for the remainder of the year, We increased our cash OPEX, excluding taxes by 50 cents per BOE. Again, this increase in cost is expected to be offset by higher realized prices. And going forward and beginning in the second quarter, we expect that Uintah assets will reduce our operating expense, excluding production and other taxes per unit by over 10%. Adjusted recurring cash G&A totaled $1.69 per BOE. in line with previous expectations, including Uintah. Going forward, we expect recurring adjusted cash G&A to be roughly $1.50, as the Uintah assets add minimal G&A . This calculation excludes certain non-recurring expenses. We incurred associated with the Contango merger, the Uintah acquisition, and the formation of Crescent Energy as a new public company. We expect an incremental $10 to $15 million of one-time expenses for the remainder of 2022. including post-merger integration and other transaction-related costs. We invested roughly $85 million in the first quarter. The nine operated Eagleford wells we brought online during the quarter are showing promising early results with an expected payback of less than 12 months and the potential to generate more than three times our investment at today's commodity prices. Our 2022 capital budget is unchanged at $600 to $700 million with more than 80% allocated to the operated development in the Eagleford and Uintah basins. Like our peers, we are seeing inflationary pressures and potential for logistical and other process delays across the business. We are closely monitoring the changing landscape as the pressures change month to month. Our people and relationships are some of the best in the industry and we continue to find new ideas to safely offset some of these pressures. Based on what we know today, we believe our capital range accurately incorporates expected inflation as our February guidance incorporated a 10 to 15% increase in capital costs year over year. We are seeing additional pressure around 5% or so in cost inflation for the remainder of the year, but believe this is covered in our guidance range. Today, we are continuing to operate one rig in the Eagleford and two rigs in the Uintah. Our planned second quarter wells are expected to commence production at the end of the quarter, which should drive modest growth in the back half of the year. We expect our capital spend cadence to be fairly even over the remainder of the year. Hedging is core to our risk management strategy, and we utilize hedging to achieve a couple of objectives. First, to protect the balance sheet. Second, to lock in expected returns when we commit capital to drilling or acquisition. And third, to maintain exposure to future commodity prices. Consistent with this strategy, upon signing the UINSA transaction, we entered into additional oil swaps covering about 80% of our acquired UINSA PDP for a three-year period to protect our expected returns on capital invested. Today, more than 50% of our current hedge book was entered into in connection with acquisitions, which means that our recent acquisitions are outperforming from a price perspective relative to how we underwrote that. For example, we hedged the U.N. to acquisition at $70 to $80 per barrel, and the current $100 per barrel oil price environment provides significant upside to our underwriting. We maintain attractive long-term exposure to future commodity prices with only 12% of our approved developed reserves hedged today. However, we are more hedged today than our mid-sized E&P peers with 60% hedge for the remainder of 2022. We know this makes our 2022 adjusted effect understated relative to peers and meets the strength of our asset base. Moving to our capital markets priorities, we continue to engage with the market to expand our followership, improve our flow, and increase equity research coverage. We recognize that the current market positioning and awareness of Crescent is not yet at a level consistent with peers of similar size. This is a key piece of our strategic plan for 2022, and we are committed to an active approach to building awareness of our story and accessibility to invest in the stock through increased liquidity over time. In summary, we believe Crescent is well positioned in today's market. We are focused on generating cash flow, making disciplined investments, maintaining a strong balance sheet, and returning cash to investors. And with that, I'll turn the call back to David.