Q2 2023 Crescent Energy Co Earnings Call

Greetings and welcome to your question Energy second quarter 2023 results Conference call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

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It is now my pleasure to introduce Emily Newport, Senior Vice President of Finance and Investor Relations. Thank you you may begin.

Good morning, and thank you for joining us.

Good quarter.

Prepared remarks today will come from Matt Yeah, It dropped materially.

Yeah Randy.

Hi, Paul.

Officer, Ed Conner.

Okay.

That will be available for <unk>.

Today's call May projection.

Okay.

Oh I'm sorry.

These statements are subject to risks and uncertainty.

Yeah.

Bobby Kennedy.

Political conflicts business strategy and other factors.

Thank you for that.

Hi, Denise.

Okay.

We have no obligation to update them.

Forward looking statements.

In addition, this discussion.

Our non-GAAP .

A reconciliation of historical non-GAAP financial measure most directly comparable GAAP measure.

You know what.

That contract.

Yeah.

Good morning, and thank you for joining us today.

Our outstanding second quarter results continued the strong momentum that we've created since entering the public markets.

Crescent remains uniquely positioned to navigate the current energy market dynamics and we're excited.

Right and to share our recent achievements with you today.

Our second quarter results exceeded estimates across key categories due to strong operational performance and efficiencies achieved on our development program.

Our successful execution allows us to raise our full year outlook, increasing production and cash flow expectations with significantly less capital with us.

Accordingly, we achieved several strategic objectives since our last update.

Due to our scale and operating positions through the closing of the accretive Western Eagle Ford transaction, and improving our capital markets presence through increased float and it's opportunistic.

Let me discuss the quarter under three key financial operational and strategic.

First let's cover our financial results.

Our second quarter results outperformed expectations with net production of approximately 140000 barrels of oil equivalent per day and $50 million of Levered free cash flow.

We invested $150 million of capital during the quarter coming in lower than expected and beating estimates.

We need to realize efficiencies through improved cycle times, and optimized completions, both of which I'll touch on in more detail.

Improving capital efficiencies are allowing us to realize a 10% reduction in drilling and completion cost per foot relative to 2022 wells.

Additionally, we generated EBITA of $225 million also above it.

Flipping higher production through strong well performance and our oil.

Kicking higher 46%.

Our strong performance year to date has allowed us to raise our 2023 outlook.

To give you the punch line, we were doing more with less generating more production with significantly less capital.

Our revised guidance increase net production to 146000 barrels of oil equivalent per day at the midpoint Wildcat.

Capital expenditures, excluding acquisitions decreased by 10% to $600 million.

With the majority of our Capex incurred year to date at current commodity prices, we expect to generate significant free cash flow for the remainder of the year.

We intend to allocate to debt repayment and Josh.

Second I'll provide an update on operations.

We are seeing strong mill performance D&C cost reductions and sustainable capital efficient.

Improving cycle times in the Eagle Ford, which have decreased by as much as 20% are continuing to drive down costs and.

And on the completion side, while we've touched on improving efficiencies in the past, we're beginning to see those translate into cash flow.

In the Uinta, our completion designs continue to generate consistent well productivity reduce costs, increasing our return on capital.

On top of our improving efficiency, we are beginning to see some softening in the service market.

Which could lead to further upside to our capital costs.

We are well positioned to benefit due to the short term nature of our service contracts, which would allow us to more quickly realized cost efficiencies.

Sure capital savings in a deflationary environment.

Lastly, I'll touch on some of our recent strategic.

In early July we closed on the acquisition of Western Eagle Ford assets and are safely and effectively integrating the assets into our operations.

It is still early we anticipate a smooth process given our longstanding involvement in the absence of a non operated partner in our institutional knowledge from our offsetting Eagle Ford operations.

Across the market more broadly this past quarter was highly active upstream A&D and we continue to keep our pulse on the market value accretive opportunities.

We remain focused on areas, where we can add meaningful scale with an emphasis on our existing footprint across Texas and the Rockies.

We are a natural acquirer of assets in the Eagle Ford, which remains the most fragmented major basins.

Like the Western Eagle Ford acquisition any opportunity, we pursue must meet our returns driven framework.

The emphasis on cash on cash returns and accretion.

All while maintaining our strong balance sheet.

<unk> remains an excellent example of our opportunistic growth strategy to add scale long life reserves proven inventory in areas, where we have existing operations and a competitive advantage.

Relative to other opportunities on the market.

We believe this acquisition was an attractive way to our cash flow and reinvestment opportunities.

Across recent Permian transactions in particular, where many assets face steep production declines undeveloped inventory continues to see real value of allocation for buyers. We believe our expected returns can be highly competitive on a whole cycle.

I'll turn the call over to Brandi, who will discuss recent strategic accomplishments, including recent capital markets activity and an update on our balance sheet Randy.

Thanks, David we made great progress in the capital market access the equity and debt capital markets, maintaining our strong.

Everything class safety burden, which increased our public float from 29% and 45%.

The transaction online.

Alright.

Research coverage and market awareness.

I mean, I think the person to drive incremental demand.

I believe it represents a key step.

Sure.

Sure.

Fortunately there was no installation to existing shareholders. Thanks shares were distributed.

Large institutional investors and experienced managing.

The class a shares are subject to customary legal trading restriction with restricted securities.

Yeah, he ought to not participate directly in the conversion rate long term.

There are a lot better Caribbean.

Unit jointly hold there.

And our ownership.

Oh, and the closing of the Western Eagle Ford acquisition.

First we received a ratings upgrade path, whereas double D I yield index, which means that they will have on their behalf.

Awesome.

It followed the upgrade we received from Moodys earlier this year and we are pleased that the agency recognized the strength.

And execution.

Oh, yes, yes.

Outside of the $300 million.

Operating repay a portion of our borrowings.

Sure.

Over the long term remain promising.

Cool.

Great comedy.

Our scale and expertise.

Pretty quiet.

Now I'll provide an update on the balance sheet.

And a million dollar Western Eagle Ford acquisition.

Offering.

Retain our strong financial position.

That LTM leverage ratio below one five times.

My $800 million of liquidity.

Combined with our goal of remaining between one point out.

The net average.

Yeah.

That's more than $500 million of liquidity.

In fact, our strong free cash flow will allow us to further would you look at it in line with our long term target.

Yeah.

Oh on the closing of the acquisition lenders reaffirmed our $2 billion of RMB, one $3 billion now.

Now.

Our strong banking relationships have been critical in helping us navigate.

Oh no.

Hmm.

Additionally, consistent with our hedging practices added derivatives market Indianapolis Minneapolis.

The return on R&D.

Pro forma for both companies.

Actually my approximately 40.

All right.

Great Alaskan, 30% hedged for 2024.

6% of our total reserves.

We continue to like our long term model.

Lastly, we announced the second quarter after that.

For sure, which represents a 4% annualized yield.

Shareholder return.

If you compare favorably to our peer group.

Part of the value proposition we offer.

With that I'll turn it back over to David.

Thank you Brandy and thank you all for dialing in today.

In summary, our solid performance year to date sets us up well for the balance of 2023, and we expect to enter 2024 with significant momentum.

Going forward, we intend to continue to do what we've always thought that.

Execute on our long term proven strategy to deliver stable cash flow.

Opportunistically grow the business through accretive M&A, while maintaining financial strength.

In doing so we'll continue to hold ourselves to our guiding principles cash flow risk management and returns.

That we will open the call up for questions.

Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two 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 key are.

Our first question comes from the line of Neal Dingmann with tourist Securities. Please proceed with your question.

Hi morning, all nice quarter. My first question is on well productivity, specifically certainly was at a nice ramp of notice will ramp in the oil cut and just overall margins that we show just wondering could you talk maybe Dave for you or Brian . It was just wondering was this driven more than one one area over the other like you went over the Eagle Ford It.

Was there anything different operationally that drove this.

Okay.

Okay.

Yeah.

We were running one rig in those basins during the quarter as our oily.

Reservoirs.

So as you mentioned right. It really was our development program there driving the oil cut from 43% last quarter and a 46% this quarter.

Okay, great great to see I mean, certainly those will increase and then my second was just on that slide 23 really interesting to see about.

About the amount of C O two ccs related upside I'm, just wondering can you speak to the I know the sports still hypothetical a bit but just the cash flow potential of yours. You know we wouldn't look at it the C O two pipeline and storage assets and just wanted to thinking about the cash flow potential and maybe.

You know what what options are they visit to partner it looks like Theres a lot of big operators around here, how you are seeing the opportunities and potential upside.

Okay.

Alright, and you know it's clay.

You hit it.

It's clearly early up here, but there are some obvious enthusiasm around the activity.

In particular around some of the bigger operators as you know.

Or opportunity Europe , So I think the intention of putting that out with just.

The highlight is that our Rockies conventional disasters currently.

Capturing and selling C O two we're transporting yet on our pipeline and we own and work. The question for you are in fields that we operate so we're kind of at all phases of the opportunity.

I think too early for us to say specifically on cash flow, but we're moving we're moving a fair amount of the molecule and we think the combination of the infield set of assets and infrastructure.

The commercial lines at an investor.

Focus we bring to them that that positions us really well to capture opportunity here as we move forward.

Very interesting to see it thanks guys.

Our next question comes from the line of John Abbott with Bank of America. Please proceed with your question.

Good morning, and appreciate you taking our questions there.

The first question is for you there David.

Just wanted to sort of your latest thoughts you know we liked it depends on conversion of the B shares into Asia. So you did.

What are your latest thoughts on further simplifying the corporate structure at this point in time.

Yeah, Thanks, John and good.

Good to hear from you.

I think hopefully what we've demonstrated.

Since we've gone public across the whole business is that we.

Do you see opportunities to simplify as we scale. So as you know we've continued.

Continued to grow in core areas and our acquisitions and I think you can look at the.

Recent step to convert those b shares into a shares as a further demonstration that we think will simplify that.

Dual class up fee structure over time, so I think the way we've always said that it is.

This type of structure generally goes away over time, and you're seeing us take steps to do that.

It doesn't impact the business at all but we do recognize that it's valuable to continue to consolidate the business and a lot of different ways and I think you can expect that we'll continue to do that.

Appreciate it and then just for the follow up question here I mean, just given the efficiency gains that you saw during the during the quarter.

No. It's it's still kind of early but what are your sort of high level thoughts as you sort of look at 2024, and how you sort of think about production capex at those sorts of items at this point in time.

Hey, John It's Brandon I'll I'll take this and so I'll just start by caveat that it's still really early into the integration process, but then your acquisition and we still haven't finalized our 24 program, but at a high level, we'd expect our business to still be a two to three rig maintenance program across the Eagle Ford and then you went that and.

That equates to roughly a $6 million to $700 million capital program, and plus or minus 115 a M.

On on production.

Alright.

Very very helpful. Thank you.

Thanks, Sean.

There are no further questions in the queue I'd like to hand, it back to you David Rocky Charlie <unk> for closing remarks.

Great. Thank you all again for joining us and for supporting the company you can count on us to continue to execute the strategy.

But we'd set forward and continue to do what we said we're going to do so look forward to keeping updated and talk to everybody next quarter.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.