Crescent Energy Company

Greetings and welcome to the Crescent Energy Q3 2025 results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reid Gallagher, Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Crescent's third quarter 2025 conference call. Today's prepared remarks will come from our CEO, David Rockefeller, and our CFO, Randy Kendall. Our Chief Operating Officer and Executive Vice President of Investments will also be available during Q&A. Today's call may contain projections and other forward-looking statements within the meaning of the Federal Securities Clause. 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. 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 under the investor section on our website. With that, I'll hand it over to David.

Good morning and thank you for joining us. Yesterday, Crescent posted financial and operating results for the third quarter. In short, it was another impressive quarter of execution for our business. Our investing and operating performance highlights that we continue to do what we say we will do. As always, I want to begin with a few key points that I hope you take away from this call. First, our business continues to deliver strong results. This quarter, we once again generated significant free cash flow with excellent operating performance. Our results exceeded expectations on all key metrics, and we are enhancing our full-year outlook for the second consecutive quarter. Second, we announced our transformative acquisition of Vital Energy, marking our accretive and scaled entry into the Permian Basin and establishing Crescent as a top 10 U.S. independent oil and gas producer. And finally, we are pleased to announce over $700 million of non-core divestitures signed this quarter, bringing our non-core divestiture program to more than $800 million year-to-date. With these asset sales, we are streamlining our portfolio at very attractive value, and the proceeds will go toward maintaining our strong balance sheet through significant debt reduction. With our successful divestitures and acquisition of Vital, we have enhanced and simplified Crescent's value proposition with more scale, more focus, and more opportunity. Following those key highlights, I will now discuss the quarter in more detail. We produced 253,000 barrels of oil equivalent per day, including 103,000 barrels of oil per day, and generated approximately $204 million of levered free cash flow for the quarter. demonstrating once again the strength of our operating model and our consistent focus on free cash flow generation. Our talented team continues to find ways to win, increasing well productivity alongside continued capital savings, driving even stronger returns for our investors. With these impressive capital efficiencies, we have again enhanced our outlook for the year, increasing free cash flow with flat production from less capital. In the Eagle Fern, where our activity was focused this quarter, we have achieved 15% savings per foot on our capital versus last year's program, along with an impressive rate of change on well productivity, with our 2024 and 2025 wells outperforming prior activity by 20-plus percent. In line with our guidance at the outset of this year, our capital for the remainder of the year is focused on our gassier acreage in the southern and western Eagleford. as we capitalize on the relative strength in the natural gas curve. On top of our outstanding business performance this quarter, we also made a significant step forward on our growth trajectory with our announced acquisition of Vital Energy, creating a top 10 independent U.S. oil and gas producer with line of sight to an investment grade rating. As we progress toward closing, which we expect to occur before year end, we continue to see significant value in the vital assets under our operator show. We expect the vital acquisition to generate immediate accretion across all key metrics and deliver attractive cash-on-cash investment returns exceeding two times multiple invested capital with the valuation covered by vitals existing production base. As always, and in line with our initial announcement, we will apply Crescent's consistent strategy to this acquisition. We plan to high-grade capital allocation on vitals assets by taking activity down to one to two rigs at closing, which will deliver higher free cash flow and returns for investors. This is only a small part of the synergies we outlined in our original announcement, and we now see upside beyond the $90 to $100 million of base case synergies we announced. We have proven our ability to integrate and execute, and we believe there is an opportunity for significant value creation through improved operations on the vital assets that was not included in our underwriting. The vital acquisition is a scaled entry into the Permian Basin and significantly expands Crescent's opportunity for future growth. With more than $60 billion of asset acquisition potential surrounding our pro forma footprint, We have demonstrated our playbook for accretive growth through acquisition in the Eagleford, and we are confident in our ability to continue to scale profitably across our Eagleford and Permian positions. Alongside our vital announcement, we also announced a sizable pipeline of non-core divestitures to accelerate value, streamline our business, and further strengthen our pro forma balance sheet. We are one of the most consistently active operators in the A&D market, and we are pleased to report that we have successfully signed more than $700 million of accretive divestitures this quarter, bringing our year-to-date sales to over $800 million. With the sales announced this quarter encompassing the entirety of our legacy Barnett, conventional Rockies, and mid-continent positions, we've exceeded our expectations in regards to timing as well as valuations. with the total sale value representing more than 5.5 times EBITDA and a significant premium to the year-end approved PV10. The sales also meaningfully enhance the Crescent value proposition as we emerge with a more focused asset portfolio, increased margins, improved break-evens, longer reserve life, and an even stronger balance sheet. Going forward, the combination of our continued strong operational performance The vital acquisition and our successful divestiture program positions Crescent with more scale, more focus, and an even greater opportunity than ever before. Upon closing of our announced transactions, we will operate across three core regions, the Eagleford, the Permian, and the Uinta. With scaled positions in each of these premier regions, we will continue to pursue long-term value for shareholders through strong free cash flow, operational excellence, and profitable growth. With that, I'll turn the call over to Brandi to provide more detail on the quarter.

Thanks, David. Crescent delivered another quarter of strong financial performance, generating approximately $487 million of adjusted EBITDA, $205 million of capital expenditures, and approximately $204 million of levered free cash flow. These results build on our consistent track record of impressive free cash flow generation supported by our lower capital-intensive operating model, returns-focused reinvestment approach, and consistent hedge strategy. Over the last five years, we have generated cumulative free cash flow in excess of our current market cap. With our significant free cash flow, we maintain a consistent approach to capital allocation. Priorities 1A and 1B are our attractive fixed dividends and maintaining a strong balance. To that end, we announced another dividend of $0.12 per share for the quarter, which equates to an attractive 6% annualized yield. And we returned significant capital to our investors with more than $150 million of debt repayment during the quarter. In addition to the debt repayment from our existing operations, we also expect to significantly reduce our debt outstanding upon the closing of the non-core divestitures that David covered earlier. We plan to use 100% of the proceeds to pay down our existing credit facility and vital credit facility upon close of the acquisition. During the quarter, we also successfully increased our borrowing base by 50% to 3.9 billion, extended the tenor to five years, and improved our pricing grid. This redetermination reflects the strong support from our bank group and enabled us to capture approximately 12 million or more than 10% of our announced vital synergies ahead of closing. With that, I'll turn the call back over to David for closing remarks.

Thanks, Brandi. Before we wrap up, I want to reiterate our key messages for investors. First, our business continues to deliver impressive results. This quarter, we once again posted strong free cash flow and operating performance. Our results exceeded expectations on all key metrics, and we are enhancing our outlook again for the remainder of the year. Second, we announced our transformative acquisition of Vital Energy marking our accretive entry into the Permian and establishing Crescent as the top 10 U.S. independent oil and gas producer. And finally, we have successfully executed significant non-core divestitures at very attractive value. With more than $800 million of accretive asset sales announced year to date, we have streamlined our asset portfolio and maintained our strong balance sheet. This quarter's execution is a testament to our consistent strategy as we continue to enhance and simplify our value proposition. Crescent is a compelling investment opportunity in our consolidating sector, combining significant free cash flow generation, a differentiated track record of prudent and accretive growth, and premier integration and operations expertise. We are investors and operators, and we believe our sector demands both to be successful. We have a massive opportunity ahead of us, and Crescent is extremely well-positioned to generate significant long-term value for investors as we build a leading investment-grade energy company. With that, we'll open it up for Q&A. Operator?

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question is from Neil Digman from William Blair. Please go ahead.

Good morning, David and Brandy, and nice to be back, and congrats on the solid free cash flow. David, just to jump in, my first question is really on your development plan specifically. Given now the expanded footprint that you have in the Eagle Ford and, you know, your upcoming Permian footprint, I'm just wondering, are you thinking about changing how you all target the development, you know, albeit larger pads or maybe even some larger projects? you know, or will the expected operational efficiencies you continue to talk about, you know, from the DNC improvement continue to be the key drivers?

Yeah, hey Neil, thanks for the question. The short answer is no fundamental changes in our approach. We're continuing to execute on more efficient operations and in particular drilling and completion than prior operators of assets we've acquired. So I think you'll just continue to see us have more efficiency and more effectiveness over time, but no fundamental change in strategy there. But obviously having a bigger and more scaled portfolio in those two areas is going to continue to allow us to do that.

Yeah, that'll be nice to see that development. And then secondly, just on M&A, Specifically, could you speak to kind of what, you know, you all continue to look at as your, I guess I'd call it your current parameters when considering additional assets. Is, you know, is there a scenario where you'd go to another basin if it fits this? Or, you know, what are those, you know, sort of key requirements?

Yeah, great question. I think to keep it simple, no changes in our underwriting standards. Still looking for great multiple money and quicker payouts. And then we're really excited about the opportunity that we've been going after in the Eagleford. So that's all still there. And then the addition of the Permian from our perspective also is great. So I think if you just assume more of the same, looking for great value and asset opportunity in those two areas, that's what we're looking at.

Very good. Thank you. Look forward to it.

The next question is from John Freeman from Raymond James. Please go ahead.

Thank you. Good morning. following the very successful divestiture that you all had during the quarter and now with leverage kind of pro forma with vital, you know, back to more comfortable level, it definitely seems like you've got more flexibility on kind of next steps here. But maybe if you all could kind of just walk us through kind of the way you all are thinking about those next steps toward kind of continuing to work that leverage down toward that sort of longer-term target of one times.

Hey John, it's Brandy. I think overall balance sheet's in a great spot. As you stated, we're continuing to operate the business within our leveraged targets. We've been successful pushing out maturities. We're well hedged and we generate significant free cash flow, which allows us to continue to de-lever. As we look at the Crescent standalone business, we'll have our RBL repaid before the end of the year. we would expect to use the divestiture proceeds to pay down the entirety of the vital RBL balance. So we'll have roughly $2 billion of liquidity. And then I think just as we think about using that excess free cash flow, I think we'll continue to think through how do we start attacking some of the outstanding notes that we have. So just continue to look for us to reduce absolute debt repayment from here and also our leverage metrics.

That's great. And then can you all speak to what changes the divestitures may have on sort of how you all sort of previously talked about, you know, sort of standalone Crescent in terms of kind of how you all were thinking about maintenance capexes, et cetera. I mean, obviously that was the assets you sold were obviously, you know, lower margin, higher OPEX, but did have a lower base decline rate. So just sort of how to think about the moving parts there.

Yeah. Hey, John, it's David. I'll start. Short answer is while the divestiture assets are a smaller part of the company, they do have a great impact on improving our margins, improving reserve life. So some really key important things to us. The other thing we would highlight is with the divestitures and the vital acquisition, we'll continue to pursue the same type of plan where we've got a lower reinvestment rate and a lower decline rate target than the rest of the industry. And so we think that investors just help us stay more focused on the assets we've got, and we'll continue to focus on the core tenets of the company, including leverage metrics and decline rate. In terms of the maintenance impacts, I'll let Brandy just cover that quickly.

Yeah, so quickly. And again, I won't get overly specific. on 2026, just given we're currently in our planning cycle and haven't yet closed the vital transaction. But what I would say is that the go-forward plan should look very similar to how we've historically operated our business. So that's lower capital intensity. That's a reinvestment rate of roughly 50% and significant free cash flow generation. David hit on this earlier. We do plan to significantly reduce the capital on the vital Permian So taking that down to a one to two rig program, which is roughly a 60 to 70% reduction in both rig activity and capital spend to bring those assets in line with how Crescent has historically run the business. So again, we'll provide more details when we get to closing. But again, I think the key attributes that we focus on over the last 10 years of a lower capital intensive business, a lower reinvestment business in a business that generates a lot of free cash flow will shine through in the plan that we put forward.

That sounds good. Thanks a lot. Congrats again on getting those divestitures done.

Thanks, John. The next question is from Tim Resvin from KeyBank Capital Markets. Please go ahead.

Good morning, folks. Thanks for taking my question. Brandy, I appreciate the broad strokes on 2026. I was hoping you could help us on the fourth quarter of 2025. There's a very large moving parts, you know, with vital looking like maybe 19 days of contribution. I'm trying to understand in the slide deck, it mentions a 4,000 a day impact from the recent divestitures. Should we assume that's a 16,000 a day impact in the fourth quarter? You know, can you help us, you know, kind of understand what 4-2-25 production could look like as we look ahead to the vital closing.

Hey, Tim. Good question. So, we did reaffirm our production guidance from a, you know, legacy Crescent standpoint. But as you know, the 4,000 a day impact from the divesters will equate to roughly 16,000 MBE per day impact to Q4. And then as you mentioned, I think depending on when the vital transaction ultimately goes, there will be a little bit of production, but relatively immaterial. So I'd focus on the 16 a day that would come out of Q4 as part of the sales transactions.

Okay. Okay. And would we expect a change in the oil skew as a result this quarter from these sales?

Nothing materially. I think we would guide to roughly 39% oil.

Okay, I appreciate that. And then as a follow-up, I'm excited to learn about how the dry gas drilling in South Texas goes and what's happening in this quarter. As you think about 2026 activity, how do you think of the allocation between gas and oil? I know the legacy operator was extremely nimble on sort of a pad-by-pad basis. How do you think about allocated capital there next year? Thanks.

Hey Tim, it's David. I would say two things. If you think about how we managed through this year and the discussions we had at the end of 24 and early 25, we would describe ourselves as 100% returns focused with significant flexibility and We love the portfolio we have because we can go from oil all the way to dry gas. So I think given where commodity prices are, we would also highlight we're generating strong returns right now. And so I think 2026 in the grand scheme of things looks very similar to 2025 from an allocation and commodity perspective.

Okay. Thank you.

The next question is from Michael Scialla from Steven Think. Please go ahead.

Good morning. I wanted to ask on the divestiture program where that stands now. Are you pretty much done or are there more opportunities and any of those that you would consider within your three main core areas at this point?

Yeah, hey, it's David. Short answer is we would start by saying divestiture program, highly successful. We exceeded expectations on timing and valuation, so we feel great about it. We do, to your question, still have a number of smaller assets in the portfolio today, but our view now is we can decide to sell those at the right time and the right value, and we would just say really successful program.

Okay. And I wanted to ask on slide 11, your well performance seems to be bucking the trend of degradation in the Eagleford. Can you talk about some of the reasons for that? Is it spacing, wellbore design, and where do you see that going next year? Do you expect that to start to revert back toward the industry trend anytime soon?

Yeah, great observation. I think your perspectives on the macro in the industry are exactly right, but a great reminder of Our acquisition program starts with finding great value in assets that we think we can significantly improve. So what you're seeing is that strategy in action, and we're able to take our practices, which to your point includes sometimes optimizing spacing, increasing completion intensity, changing landing zones, but overall we're getting better performance than the prior operators. So I think you should expect that that is our game plan and we'll continue to execute there, but that's how in the context of an industry that is seeing overall declining performance as the core gets drilled up, why we continue to outperform.

Thank you.

The next question is from John Abbott from Wolf Research. Please go ahead.

Hey. Good morning, and thank you for taking our questions. So, David, you just mentioned that the divestiture program was very successful from your point of view. Does that mean as regards to your minerals, doing something with that part of your business is off the table for the foreseeable future? Are there plans to sort of go out there and still look for greater value from that business? What do you think about the minerals at this point?

Yeah, great question. And, John, we'd just highlight, as I think we've said to others on previous calls, the minerals is a core business for us today. It was never part of the divestiture program, but it is an area that we believe we can continue to grow, and certainly over time we'll continue to evaluate all of our assets. But, yeah, strong core part of the business today, no plans to sell that.

Appreciate it. And the next question is for Brandy. So Brandy, with the $700 million plus of divestitures, does that impact your future cash tax situation at all and how you think about cash taxes to post-sale?

Hey, John. I would say still expect both the vital transaction and divestitures to be broadly tax neutral. So don't expect to be a significant cash taxpayer based on today's commodity prices, based on today's expected development plan over the next handful of years. I will say, though, with respect to the divestitors and them closing in the fourth quarter, we do expect to pay roughly a $30 million to $40 million tax gain. So just think about that as coming out of the gross proceeds.

Thank you very much.

The next question is from Michael Furrow from Pickering Energy Partners. Please go ahead.

Hi, good morning. Thanks for taking my questions. All the realizations were quite strong in the quarter, both relative to guidance as well as the historical differential versus the benchmark, and really helped drive the EBITDA beat. So I'm just trying to get an idea on some of the drivers of the pricing. Was there anything sort of structural here, such as maybe new marketing contracts, or was the third quarter maybe just a one-off high mark for the year?

Hey, Michael. It's Brandy. So I would say a similar theme of just buying assets and making them better. Our marketing team has done a great job of just when there's opportunities to renegotiate contracts of just continuing to improve where we can. And sometimes that's we're collecting nickels and dimes, but throw that up over time. And you can see that reflected in our financial statements as well.

All right, thanks for that. Just as a follow-up, notice that the Eagleford turning lines were a bit higher than we were expecting. The company is obviously planning some dry gas turning lines later this year, so I was just curious if there was any maybe overlap of dry gas turning lines that maybe were included in the 31 turning line count or late in the quarter. And if so, could you maybe be willing to quantify the amount?

Yeah, there were. a handful of dry gas turn in lines that came online really towards the very end of the quarter, so minimal contribution from a gas volume standpoint, but did technically come online in the third quarter.

Thank you. Appreciate it.

The next question is from Oliver Huang from TPH & Co. Please go ahead.

Good morning, David, Brandy, and thanks for taking the questions. For my first question, just wanted to ask on capital allocation. I know there isn't an official 2026 outlook out there just yet, but when we're thinking about the six rigs on a combined basis with vital initially outlined in late August, just wanted to walk through the thought process in terms of if this is still a good level to think about at the current trip. Also, what might be grounds for a step down towards maybe say five rigs?

Yeah, hey, happy to take it. I think two things, as I said a little bit earlier, at current prices, the development program that we have for this year and, you know, call it similar commodity allocations the next year looks great. And then when we think about just our business strategy and the integration of Vital, we think The company is really well positioned, both from a financial perspective with a very significant reduction on what I'll call the oil-weighted drilling that comes with the vinyl assets, but also is going to give us a chance to integrate those assets in a much less operationally intensive way with lower activity. So long story short, I think... In this current environment with the way we see things and the returns that we're we're currently seeing no change, but we're certainly able to be really flexible and in terms of moving breaks down or or. allocating differently will you know look at the same way we did last year so as of now feeling great but also ready to respond if anything requires that from returns perspective.

Okay, perfect. That's helpful, Color. And for my second question, just on adjusted cash OPEX with the divestitures getting rid of some of the higher OPEX assets in the portfolio, could you all talk about what the opportunity set looks like to continue further working that down over the next couple of years beyond that $1,150 per BOE figure referenced on a pro forma basis? And when we're thinking about that pro forma figure... Does that account for blending the vital side in at today's base level of production or at the, I guess, lower level of production that we'd see in 2026, just given the resting of declines?

Okay, Oliver, I'll start. As you mentioned, pro forma, the divestitures will realize a roughly 10% improvement on adjusted operating costs. It would expect to be roughly $1,150 when you pro forma in vital, I think will be plus or minus in a similar range. I think that's a good way to think about it on a go-forward basis. And then as we think about broader opportunities to outperform, back to the commentary that we said before of buying assets and making them better, I don't think we have a quantifiable percentage amount to give you today, but we do think that there are opportunities over time to improve operating costs.

Perfect. Thanks for the time.

There are no further questions at this time. I would like to turn the floor back over to David Rocacharli for closing comments.

Great. Thank you all again for your support and joining the call and we're really pleased with this quarter and the business performance and we're We're hard at work and look forward to catching up on our next call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.