Crescent Energy Company

Good morning, and thank you for joining Crescent's fourth quarter and full year 2022 earnings call. Our prepared remarks today will come from our CEO, David Rocacharli, and our CFO, Brandi Kendall. Todd Fulton, Chief Accounting Officer, and 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 federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict, 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 have no obligation to update any forward-looking statements after today's call. Today's discussion also 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 the 10-K and earnings release available on our website. With that, I will turn it over to David.

Good morning, and thank you for joining the call today. We are pleased to share our performance and progress with you as we close out our first full year as a public company and look ahead to 2023. While we have reached a number of milestones over the last 12 months, we continue to execute the same proven acquire and exploit strategy that we have successfully pursued over the last decade. Over this time as both a private and public company, we have managed the business through market cycles and significant volatility to deliver significant free cash flow, prudent risk management, and attractive returns on investment. I will summarize our 2022 highlights today under three key themes, financial, operational, and business scale. Our team is delivering across all of these important areas, and we will continue building on this momentum. Let's start with our recent financial performance. First, 2022 was an outstanding year for Crescent. We generated $1.2 billion of adjusted EBITDA and nearly $500 million of levered free cash flow. We demonstrated our commitment to capital allocation priorities 1A and 1B. returning cash to shareholders, and maintaining balance sheet strength. In 2022, we returned a roughly 7% yield, or $143 million to shareholders, through quarterly dividends and an opportunistic share repurchase in September, where we reduced total shares outstanding by 2%. Looking at the balance sheet, our substantial free cash flow generation allowed us to reduce approximately $300 million of net debt subsequent to closing the highly accretive Uinta Basin acquisition in the first quarter of 2022. And today, our leverage ratio is one times in line with our long-term target. In January this year, we completed a successful $400 million notes offering and use the proceeds to reduce additional RBL debt. This significant RBL repayment post-acquisition demonstrates our commitment to balance sheet strength and a preference for longer-term institutional capital. And today, we have pro forma liquidity greater than $1 billion. Our capital structure with an aggregate bond complex of over $1 billion coupled with increased business scale Access to the equity markets and consistent business execution has been recognized by the rating agencies with an upgrade from Moody's and a positive outlook from S&P earlier this year. We've continued to progress our capital market strategy and, since going public, have accessed the debt and equity markets three times to raise approximately $700 million of capital to strengthen our balance sheet and expand our public shareholder base. Our inaugural follow-on equity offering in September of last year increased our float by 15% while also expanding our institutional shareholder base. Going forward, we remain focused on establishing a prominent public presence. Now, let's move on to our operational performance. In 2022, we continue to create value from our large resource base and deliver on our business plan. Despite the industry backdrop of inflation and commodity price volatility during our integration of both the Contango and Uinta acquisitions, our production and capital investments remained within our original beginning-of-the-year guidance when adjusted for non-core asset sales. This is a big accomplishment as our team continues to find innovative ways to combat industry-wide challenges, including supply chain constraints, infrastructure maintenance, and inflation. For the year, our production averaged 138,000 barrels of oil equivalent per day. This is a more than 45% increase from 2021 levels, driven by the attractive production-based acquisitions of both Contango and the Uinta Basin assets, and incremental production from the further development of our proven resource inventory in the Uinta and Eagleford. We benefited from well productivity gains in both areas, where we are drilling longer laterals, reducing cycle times, and optimizing our well spacing and completion designs. These operational efforts help offset inflation and drive investment returns. Our capex spend in 2022 totaled approximately $625 million at the low end of our guidance. More than 80% was allocated to the development of our high return oil plays in the Uinta and Eagleford. We continue to anticipate our capital program to generate on average one to two year paybacks and over two times our invested capital, assuming current pricing and production trends. Our approved reserves increased nearly 10% year over year to 573 million barrels of oil equivalent. Importantly, oil reserves were up more than 15% and about 80% of our total reserves are approved developed. The value of our reserves reflects the increased oil percentage and our deep inventory of proven development locations, with approved PV10 value at SEC pricing of approximately $9.6 billion at year end. We maintained our industry-leading low decline rate of 22%, which provides our business increased flexibility and less reinvestment risk relative to peers. Additionally, we continue to integrate important sustainability initiatives across our business. Last year, we joined the OGMP 2.0 initiative, committing to better methane emissions measurement, and we set ambitious targets, including to reduce our absolute scope one CO2 equivalent emissions by 50% by 2027 from our 2021 asset levels. While the sector continues to consolidate into financially stronger proven operators, I am confident that our business performance and operational execution will remain differentiated and be recognized by the market over time, significantly benefiting our shareholders. Lastly, let me cover our accomplishments as we continue to scale the business and our 2023 opportunity set. Our acquire and exploit strategy remains unchanged and is a proven approach to creating value for our shareholders. We are focused on generating free cash flow, managing risks, and making attractive returns on the capital we choose to invest. Our Contango and Uinta Basin acquisitions from over a year ago were transformative. Additionally, we high-graded our portfolio, selling approximately $100 million of assets over the course of 2022. the largest of which was our subscale operated Midland Basin position. We have prudently and accretively increased our scale in production, reserves, and cash flow while maintaining a strong balance sheet and investment-grade credit metrics. And we will continue to enhance our financial and operating foundation so that we remain well-positioned to scale. As you know, we are one of the most active participants in the A&D market, In 2022, we evaluated over 150 transactions with a focus in our core areas in the Texas and the Rockies. Given the number of asset opportunities we screen each year, we have a unique and valuable understanding of the broader market dynamics. We look for a confluence of factors in our broader acquisition decision-making, including asset supply, competitive dynamics, cost and availability of capital, and oil and gas macro fundamentals. For example, we were quite active in the M&A market prior to the run-up in oil and gas prices, which occurred during 2022. However, over the last 12 months, we have been sellers, not buyers. Because of our deep, high-quality development inventory and low base production declines, we can afford to be patient. We expect the A&D market will be active this year as inflation moderates and oil prices stabilize. The progress we've made to bolster our balance sheet and successfully access the capital markets will allow us to continue to be an active and disciplined acquirer. We will continue to remain disciplined and selective when it comes to acquisitions and focus on opportunities where we can capture synergies and enhance operations in accretive transactions as we continue to scale and transform our business. With that, I'll turn the call over to Brandy to cover our fourth quarter and full year 2022 financial results and 2023 outlook. Brandy?

Thanks, David. I'll quickly cover our fourth quarter results and then turn to our 2023 outlook. For the fourth quarter, we generated $290 million in adjusted EBITDA and $113 million in levered free cash flow with 139,000 barrels of oil equivalent a day of production. Results reflected the impact of our $80 million Midland Basin divestiture, winter weather, and fewer planned turned-in lines. We estimate that weather impacts reduced volumes by approximately 1,500 barrels per day during the quarter. Our oil differentials increased modestly quarter over quarter, primarily due to higher production contribution from the Uinta, whereas gas realizations remained relatively flat. Given our sizable Rockies footprint, we are well-positioned to benefit from the increased natural gas realizations in certain West Coast markets. particularly in the first quarter of 2023, as higher gas revenues are expected to more than offset a moderate production impact from winter weather. Our operating expenses per BOE for the fourth quarter were largely in line with annual figures. Both exceeded our original guidance primarily due to inflation, commodity-linked costs, high return elective work-over projects, and weather impacts. However, we were in line with original annual guidance on production, EBITDA, CapEx, and free cash flow when adjusted for divestitures and commodity prices. Turning to 2023, we remain focused on adhering to the discipline strategy that we've pursued for over a decade in the private and public markets. One, generate significant free cash flow. Two, exercise prudent risk management. And three, produce attractive returns on the capital we choose to invest. Our 2023 guidance was constructed around these three areas. First, we prioritized free cash flow generation. Roughly 85% of our $575 million to $650 million capital program is allocated to our operated Uinta and Eagleford inventory. As a result, we expect maintenance levels of production of around 134,000 barrels of oil equivalent per day at the midpoint, while spending slightly less capital than in 2022. Today, we are running one rig in the Eagleford and one rig in the Uinta and expect to maintain this level of activity in the near term. We continue to be mindful of inflation and have incorporated our latest expectations into our capital budget and our operating cost guidance. Next, we employ prudent risk management. Both oil and natural gas prices have declined in recent months, while service costs have yet to reflect this change. This is a great time to exercise discipline, and we have the flexibility to do so with our industry-leading low decline rate and relatively less capital-intensive business. The cash flow we generate in today's commodity price environment will allow us to continue to prioritize returning capital to shareholders and balance sheet strength. Priority 1A and 1B for Crescent remains the dividend and the balance sheet. We know the importance of a sustainable cash return model for shareholders. To earn a premium valuation, cash return frameworks require a well-defined strategy and must deliver through commodity cycles. Our return of capital strategy, which is fixed as a percentage of EBITDA and is a strategy that we have pursued consistently over the past decades, inflates our investors from the impacts of capital inflation relative to a strategy defined as a percentage of free cash flow. Highlighting our commitment to shareholder returns, today we announced another 17 cents per share dividend. Third, we focus on generating attractive returns on investment. Our 2023 outlook accounts for what we believe will be an active year for M&A. We will continue to be selective and screen for creative deals that can create long-term value, but we structured our 2023 capital program to effectively balance organic DNC investments in the pursuit of attractive A&D opportunities. In summary, we are pleased with our financial results and look forward to what we anticipate will be a year of continued momentum for our business. With that, I will turn the call back over to David.