Q4 2023 Crescent Energy Co Earnings Call
Greetings and welcome to the question Energy Q4, and full year 2023 results conference call. At this time, all participants are in a listen only mode.
Operator: Greetings. Welcome to the Crescent Energy Q4 and full year 2023 results conference. At this time, all participants are in a listen mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, dial zero on your telephone.
If if.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host read Gallagher principal of Investor Relations you may begin.
Operator: Please note this conference is, I'll now turn the conference over to Reed Gallagher, Principal of Investment Relations. You may begin.
Okay.
Reed Gallagher: Good morning, and thank you for joining Crescent's fourth quarter and year-end conference call. Our prepared remarks today will come from our CEO, David Rockecharlie, and CFO, Brandi Kendall. Our Chief Accounting Officer, Todd Falk, and our Executive Vice President of Investments, Clay Rynd, 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 laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflicts, 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.
Good morning, and thank you for joining <unk> fourth quarter and year end conference call. Our prepared remarks today will come from our CEO, David Robert Charlie Our CFO Randy Coleman.
Our Chief Accounting Officer, Todd, Paul and our executive Vice President of investments player and also be available during 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 global geopolitical conflicts our business strategy and other factors that may cause actual results to differ from those expressed or implied in these statements and our other disclosures.
No obligation to update any forward looking statements. After todays call. In addition, today's discussion may include disclosure regarding non-GAAP financial measures a 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 it over to our CEO David.
Reed Gallagher: 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 refer to our 10-K and earnings press release, available on our website. With that, I will turn it over to our CEO, David. Good morning, and thanks for joining us.
Good morning, and thanks for joining us we have lots of good things to discuss today and were eager to get started so I'll jump right in with three simple messages.
David C. Rockecharlie: We have lots of good things to discuss today, and we're eager to get started. So I'll jump right in with three simple messages. Number one, we're extremely proud of our 2023 performance, where we met or exceeded our goals across the board. Number two, we are very optimistic about 2024 and our ability to drive value for investors. We will stay focused on strong free cash flow generation, enhancements within our existing asset base, and execution of our accretive acquisition growth strategy. And, number three, Crescent has never been better positioned.
Number one we're extremely proud of our 2023 performance, where we met or exceeded our goals across the board.
Number two we are very optimistic about 2024, and our ability to drive value for investors. We will stay focused on strong free cash flow generation enhancements within our existing asset base and execution of our accretive acquisition growth strategy.
And number three crescent has never been better positioned we believe <unk> has the best doctors.
David C. Rockecharlie: We believe Crescent is the best stock to own for long-term exposure to oil and gas prices, as we uniquely offer the discipline and capabilities of a large-cap business combined with the value and high growth potential of a proven mid-cap company. Following that brief introduction, I will discuss these key themes in a bit more detail. Beginning with 2023 performance, we delivered on all of our strategic priorities. We had strong financial performance, raising guidance mid-year and beating the increased expectations, in particular, outperforming on production, CapEx, and free cash flow for the year. Our operations team drove significant efficiencies on our assets, doing more with less. We advance our commitment to environmental stewardship through our operations, reducing scope one greenhouse gas emissions by 27% and receiving the oil and gas methane partnership gold standard for a second consecutive year.
Long term exposure to oil and gas prices as we uniquely offer the discipline and the capabilities of a large cap business combined with the value and high growth potential proven mid cap company.
Following that brief introduction I will discuss these key themes in a bit more detail.
Beginning with 2023 performance, we delivered on all of our strategic priorities.
We had strong financial performance raising guidance mid year and beating the increased expectations in particular outperforming on production Capex and free cash flow for the year.
Our operations team drove significant efficiencies on our assets doing more with less.
We advanced our commitment to environmental stewardship through our operations, reducing scope, one greenhouse gas emissions by 27%.
Seeding the oil and gas methane partnership gold standard for a second consecutive year.
David C. Rockecharlie: We successfully executed on our growth through acquisition strategy with two accretive and complementary transactions in our core Eagleford operating area, and we continue to improve our value proposition for our investors through the capital market, significantly improving our trading liquidity, nearly doubling our public float, terming out debt, strengthening our credit ratings, and paying a consistent dividend. And last night, we announced an enhanced and simplified return of capital framework, which will now consist of a committed fixed dividend plus the authorization of a share buyback program.
We successfully executed on our growth through acquisition strategy with two accretive and complementary transactions in our core Eagle Ford operating area.
And we continue to improve our value proposition for our investors through the capital markets significantly improving our trading liquidity nearly doubling our public float terming out debt strengthening our credit ratings and paying a consistent dividend.
And last night, we announced an enhanced and simplified returns capital framework, which will now consist of a committed six dividend plus the authorization of a share buyback program.
David C. Rockecharlie: This year's impressive results highlight our consistent strategy and commitment to creating significant long-term value for our shareholders. I will now discuss more about our operations, where we've had a lot of success this year. We continue to build upon the drilling and completion efficiencies we've talked about over the past few quarters. We reduced our full-year capital guidance midway through the year, despite incremental activity from acquisitions.
This year's impressive results highlight our consistent strategy and commitment to creating significant long term value for our shareholders.
I will now discuss more about our operations, where we've had a lot of success this year.
We continue to build upon the drilling and completion efficiencies we've talked about over the past few quarters.
We reduced our full year capital guidance midway through the year, despite incremental activity from acquisitions.
David C. Rockecharlie: And with continued execution, we came in at the low end of our improved capital guidance while hitting our increased production target. The solid execution this year allowed us to generate outstanding free cash flow and improved returns on our invested capital. These efficiencies, especially associated with the acquisitions in our core areas, not only helped us perform in the second half of 2023, but they've also positioned us extremely well for continued success in 24, where we are expecting year-over-year production growth without an increase in annual CAPEX. We are extremely pleased with the portfolio we've built and what it provides to our investors. Our unique skillset, operating both conventional and shale assets, allows us to combine stable, low-decline cash flows with attractive reinvestment opportunities, positioning Crescent as one of the most capital-efficient platforms in the sector. Now, I will highlight how our operational performance can also drive M&A success, a key tenet of our growth strategy. We successfully executed on our acquisition strategy again this year with $850 million of complementary and accretive acquisitions in the Western Eagle family.
And with continued execution, we came in at the low end of our improved capital guidance, while hitting our increased production targets.
Solid execution this year allowed us to generate outstanding free cash flow and improved returns on our invested capital.
These efficiencies, especially associated with the acquisitions in our core areas not only helped us perform in the second half of 2023. They have also positioned us extremely well for continued success in 24, where we are expecting year over year production growth without an increase in annual Capex.
We are extremely pleased with the portfolio, we built and what it provides to our investors our unique skill set operating both conventional and shale assets allows us to combine stable low decline cash flows was attractive reinvestment opportunities positioning <unk> as one of the most capital efficient platforms in the sector.
Now I will highlight how our operations performance can also drive M&A success, a key tenant of our growth strategy.
We successfully executed on our acquisition strategy again, this year with $850 million of complementary and accretive acquisitions in the Western Eagle Ford.
David C. Rockecharlie: This year's acquisitions allowed us to transform an existing non-operated interest into a scaled, high-quality operated position in a core area of operation for Crescent. The acquisitions added significant production and reserves to our portfolio, which we've grown in a disciplined way at a 20% and 15% compounded annual growth rate, respectively, over the last three years. When evaluating acquisition opportunities, we have two key objectives.
This year's acquisitions allowed us to transform an existing non operated interest into a scaled high quality operated position in a core area of operations Crescent.
The acquisitions added significant production and reserves to our portfolio, which we've grown in a disciplined way at a 20% and 15% compounded annual growth rate respectively over the last three years.
When evaluating acquisition opportunities, we have two key objectives first to buy assets that fit our portfolio at attractive value targeting cash on cash returns in excess of two times, our money and.
David C. Rockecharlie: First, to buy assets that fit our portfolio at attractive values, targeting cash-on-cash returns in excess of two times our money, and second, to drive incremental returns through the application of our operating expertise. We've talked a lot about the attractive valuations on our 2023 acquisitions over the last few quarters, so I won't repeat myself. But I do want to spend a bit more time talking about the second objective, both as it relates to our recent Eagleford acquisitions, as well as our 2022 acquisition in the Uintah Basin. Now that we've had the time to integrate the assets and begin implementing our operating strategy across both areas, we are generating meaningful value above what we initially underwrote in our investment evaluation and business plan. I'll begin with the Western Eagle Fruit.
And second to drive incremental returns through the application of our operating expertise.
We've talked a lot about the attractive valuations on our 2023 acquisitions over the last few quarters. So I won't repeat myself, but I do want to spend a bit more time talking about our sector second objective both as it relates to our recent Eagle Ford acquisitions as well as our 2022 acquisition in the Uinta.
So now that we've had the time to integrate the assets and begin implementing our operating strategy across both areas, we are generating meaningful value above what we initially underwrote in our investment evaluation and business plan.
I'll begin in the Western Eagle Ford, while it is still early in our efforts the outperformance has been significant.
David C. Rockecharlie: While it is still early in our efforts, the outperformance has been significant. We talked last quarter about the immediate 15% to 20% cost savings we were seeing on the DMC side with Crescent now the operator managing development, and that has continued across all of our recent activity. Most importantly, these savings aren't coming at the cost of performance.
We talked last quarter about the immediate and 15% to 20% cost savings we were seeing on the D&C side with Crescent now the operator, managing development and that has continued across all of our recent activity.
Most importantly, these savings are coming at the cost of performance.
David C. Rockecharlie: In fact, our team is generating significantly better performance from all wells brought online since we took over operations in September. While still early in our efforts, we are seeing a 60% increase in well performance to date with 15% lower costs across the program, which represents a massive shift in capital efficiency on the asset. Over time, we expect to more clearly demonstrate the quality of the acquired assets in our hands. This improvement in well performance is only a piece of the incremental value we expect to drive from these assets under our ownership. We've also targeted and begun to capture a variety of synergies through better operating practices, including production costs and marketing, which combined with the improved well performance represent an opportunity for $30 to $50 million of incremental annual cash flow compared to our original underwriting. I will now move to our 2022 Uinta acquisition, where we've continued to drive strong performance through improved well design. When we acquired this position, the only horizontal development on the assets utilized a legacy, smaller completion design with roughly 1,500 pounds of proponent per foot.
In fact, our team is generating significantly better performance from all wells brought online since we took over operations in September.
While still early in our efforts, we are seeing a 60% increase in well performance to date with 15% lower cost across the program.
Which represents a massive shift in capital efficiency on the assets over time, we expect to more clearly demonstrate the quality of the acquired assets in our house.
This improvement in well performance is only a piece of the incremental value we expect to drive on these assets under our ownership we.
We've also targeted and begun to capture a variety of synergies through better operating practices, including production cost and marketing, which combined with the improved well performance represent an opportunity for $30 million to $50 million of incremental annual cash flow compared to our original underwriting.
I will now move to our 2022 Uinta acquisition, where we've continued to drive strong performance through improved well designs.
When we acquired disposition the only horizontal development on the assets utilized the legacy smaller completion sign with roughly 1500 pounds of proppant per foot.
David C. Rockecharlie: As we have implemented our operational approach, we are seeing significantly enhanced returns and improved capital efficiencies through larger completions, which we've doubled to roughly 3,000 pounds per foot. The early results from our updated design, which we implemented over the last nine months, are significantly better than the previous design. Importantly, in optimizing the DNC program, our team has managed to keep the new DNC costs generally flat versus the prior operator, despite the significant increase in job size. The Uinta Basin is an active area for the industry, where development was historically focused on the Utland Butte Formation.
As we have implemented our operational approach, we're seeing significantly enhanced returns and improved capital efficiencies through larger completions, which we've doubled to roughly 3000 pounds per foot.
The early results from our updated design, which we implemented over the last nine months are significantly better than the previous design importantly in optimizing the D&C program. Our team has managed to keep the new D&C costs generally flat versus the prior operator, despite the significant increase in job sauce.
The Uinta basin is an active area for the industry, where development was historically focused on the UN mute formation. It is worth noting that adjacent operators across the basin have invested significantly in derisking multiple additional productive formations beyond the UN mute it.
David C. Rockecharlie: It is worth noting that adjacent operators across the basin have invested significantly in de-risking multiple additional productive formations beyond the Utland Butte, including Douglas Creek, Wasatch, and Castle Peak. In addition to our high-quality existing inventory, we see significant runway and upside development potential on our acreage in incremental formations beyond the Utland Butte, which was the primary source of production when we underwrote and acquired the island. Looking ahead, we believe our operations team will build on these recent successes and continue driving meaningful efficiencies across our entire asset base. Importantly, we are also ready to apply our operating techniques to any new assets we acquire and integrate into the portfolio.
Including the Douglas Creek, Wasatch and Castle peak.
In addition to our high quality existing inventory, we see significant runway and upside development potential on.
On our acreage in incremental formations beyond the Union view, which was the primary source of production when we underwrote and acquired the assets.
Looking ahead, we believe our operations team will build on these recent successes and continue driving meaningful efficiencies across our entire asset base.
Importantly, we are also ready to apply our operating techniques to any new assets, we acquire and integrate into the portfolio.
David C. Rockecharlie: This is great news because we currently have one of the largest pipelines of M&A opportunities in our recent history, which gives us confidence we are well positioned for operational value creation and accretive growth in 2024 and beyond. With this in mind, I will also reiterate that we firmly believe in our ability to become an investment-grade company over time. To us, that means adding size and scale with financial discipline and a focus on compounding capital and shareholder value over time.
This is great news because we currently have one of the largest pipelines of M&A opportunity and our recent history, which gives us confidence we are well positioned for operational value creation and accretive growth in 2024 and beyond.
With this backdrop I'll also reiterate that we firmly believe in our ability to become an investment grade company over time.
To us that means adding size and scale, the financial discipline, and a focus on compounding capital and shareholder value overtime.
David C. Rockecharlie: We are investing in assets to generate attractive, full-cycle, cash-on-cash returns, and we expect to be an active participant in the ongoing wave of consolidation in the sector, particularly across our core operating areas in Texas and Iraq. We believe that we are uniquely positioned as a leading acquisition growth company employing our proven investment and operational expertise and supported by our strong balance sheet to acquire attractive assets accrably. Next, I'd like to discuss sustainability, an area that's core to our operations and long-term business strategy. We continue to make improvements in our greenhouse gas and methane emissions. And we're proud to report a 27% decrease in absolute scope one emissions in 2022 relative to our baseline. In December, we were awarded the Gold Standard Pathway Rating by the Oil and Gas-Methane Partnership for the second consecutive year. This designation is the highest reporting level under the OGMP initiative and signifies that we have a credible multi-year plan to accurately measure our methane emissions. Crescent was one of only four U.S.-based upstream companies to receive this rating for a second consecutive year.
We are investing in assets to generate an attractive full cycle cash on cash returns and we expect to be an active participant in the ongoing wave of consolidation in the sector, particularly across our core operating areas in Texas and the Rockies.
We believe we are uniquely positioned as a leading acquisition gross company employing our proven investment and operational expertise and supported by our strong balance sheet to acquire attractive assets accretively.
Next I'd like to discuss sustainability, an area, that's core to our operations and long term business strategy.
We continue to make improvements in our greenhouse gas and methane emissions.
And we're proud to report a 27% decrease in absolute scope one emissions in 2022 relative to our baseline.
In December we were awarded the gold standard pathway rating by the oil and gas methane partnership for the second consecutive year.
This designation is the highest reporting level under the O G. M. P initiatives and signifies we have incredible multi year plan to accurately measure our methane emissions.
<unk> was one of only four U S based upstream companies to receive this rating for a second consecutive year.
David C. Rockecharlie: As one of the first U.S. onshore energy companies to join OGMP 2.0 in early 2022, we firmly believe that accurate measurement of emissions is imperative as we seek to most effectively improve our emissions profile. Again, we are proud of our 2023 performance. We're optimistic about 2024, and we believe Crescent has never been better positioned. Our differentiated growth strategy, combining investment and operating expertise, continues to deliver a strong value proposition for our investors. With that, I'll turn the call over to Brandi to provide more detail on the quarter and our strengthened return of capital framework. Brandi?
One of the first U S onshore energy companies to join Oh G. M. P. 2.0 in early 2022, we firmly believe that accurate measurement of emissions is imperative as we seek to most effectively improve our emissions profile.
Again, we are proud of our 2023 performance, we're optimistic about 2024, and we believe Crescent has never been better positioned our differentiated growth strategy, combining investments and operating expertise continues to deliver a strong value proposition for our investors with that I'll turn the call over.
Brandi to provide more detail on the quarter and our strengthened return of capital framework Randy.
Thanks, David and David mentioned performance has been extremely strong with another quarter of record production and significant cash flow, averaging approximately 165000 barrels of oil equivalent per day generating 276 million of adjusted EBITDA and $102 million in Levered free cash flow. This quarter's results are the first to include the impact of <unk>.
Brandi Kendall: Thanks, David. As David mentioned, performance has been extremely strong, with another quarter of record production and significant cash flow, averaging approximately 165,000 barrels of oil equivalents per day, generating $276 million of adjusted EBITDA and $102 million in levered free cash flow. This quarter's results are the first to include the impacts of both of our two Western Eagleford acquisitions. We had 134 million in capital expenditures during the fourth quarter, which has positioned us well for 2024. During the quarter, we brought online 17 gross operated wells in Eagleford and three gross operated wells in Uinta, which are all posting strong early results and are expected to generate in excess of two times our capital invested at current commodity prices.
Both of our two western Eagle Ford acquisition.
We had 134 million of capital expenditures during the fourth quarter, which has positioned us well for 2024 during the quarter. We brought online 17 gross operated wells in the Eagle Ford and three gross operated wells in the Uinta, which are all posting strong early time results and are expected to generate in excess of two times our capital invested at current commodity.
This is.
Turning to our outlook for 2024 as David mentioned the capital efficiencies, we've achieved to date alongside our accretive acquisition set us up for continued strong performance.
Production is expected to be 155 to 160000 barrels of oil equivalent per day, which represents a roughly 6% increase relative to 2023 with consistent capital spend supported by a two to three break program.
Brandi Kendall: Turning to our outlook for 2024, as David mentioned, the capital efficiencies we've achieved to date alongside our accretive acquisitions set us up for continued strong performance. Our production is expected to be 155 to 160,000 barrels of oil equivalents per day, which represents a roughly 6% increase relative to 2023, with consistent capital expenditure supported by a two to three rate program. Maintaining capital spend at current levels despite the year-over-year production growth is a testament to the quality of our operating team and the efficiencies they've been able to drive across the asset base. At today's commodity prices, we expect to generate substantial free cash flow in 2024 and beyond. The unique stability of our asset base and cash flow generation have allowed us to return significant capital back to our shareholders with a consistent dividend for more than a decade.
Maintaining capital spend at current levels. Despite the year over year production growth is a testament to the quality of our operating team and the efficiencies they've been able to drive across the asset base.
At today's commodity prices, we expect to generate substantial free cash flow in 'twenty 'twenty four and beyond.
The unique stability of our asset base and cash flow generation have allowed us to return significant capital back to our shareholders with a consistent dividend for more than a decade. This quarter. We are excited to announce even firmer commitment to shareholder returns by transitioning our current 12 cents per share dividend into a truly fixed quarterly dividend, providing even more certainty.
Returns to our shareholders at an industry, leading yield of roughly 4%.
On top of this announcement, we also authorized up to 150 million for share buybacks, which will initially be focused on our class B shares.
At current trading levels, we believe investing in our own business offers a compelling return and focusing on the class B shares highlights our continued commitment to simplifying our corporate structure over time.
To further emphasize our progress in this regard we have successfully increased our public float by nearly 80% this year significantly improving liquidity for our public investors.
Brandi Kendall: This quarter, we are excited to announce an even firmer commitment to shareholder returns by transitioning our current 12 cents per share dividend into a truly fixed quarterly dividend, providing even more certainty of returns to our shareholders at an industry-leading yield of roughly 4 percent. On top of this announcement, we also authorized up to $150 million for share buybacks, which will initially be focused on our Class B shares.
Moving to our balance sheet, we are exiting this year from a position of strength as we look forward to another active year in M&A and A&D markets.
We exited the year with leverage at 1.3 time, and $1 3 billion of liquidity on an almost completely undrawn RV L facility.
Finally to provide a brief update on our hedging activity in line with our strategy of preserving returns on capital we layered on additional hedges alongside the finding of the two western Eagle Ford acquisition.
Brandi Kendall: At current trading levels, we believe investing in our own business offers a compelling return, and focusing on the Class B shares highlights our continued commitment to simplifying our corporate structure over time. To further emphasize our progress in this regard, we have successfully increased our public flow by nearly 80% this year, significantly improving liquidity for our public investors. Moving to our balance sheet, we are exiting this year from a position of strength as we look forward to another active year in the M&A and A&E market. We exited the year with leverage of 1.3 times and 1.3 billion of liquidity on an almost completely undrawn RBL facility.
As we look into 'twenty 'twenty, four and 'twenty 'twenty five we are well protected from the current gas market volatility with roughly 50% of our production hedged through a mix of fixed swaps and color floors around 350 to 450 per annum btu on the oil side, we're well hedged in 2024, but maintain attractive long term exposure given our long.
Duration nature of our production base.
That I will turn the call back over to David.
Thank you Randy before we wrap up there are a few things we hope you take away from today's call first our 2023 performance was extremely strong we met or exceeded our increased guidance across the board and meaningfully be on free cash flow, our 2023 activity and execution have positioned us well.
Brandi Kendall: Finally, to provide a brief update on our hedging activity, in line with our strategy of preserving returns on capital, we layered on additional hedges alongside the signing of the two Western Eagleford acquisitions. As we look into 2024 and 2025, we are well protected from the current gas market volatility with roughly 50% of our production hedged through a mix of fixed, swapped, and collar floors of around $350 to $450 per MMPG. On the oil side, we're well-hedged in 2024, but we maintain attractive long-term exposure given the long-duration nature of our production. With that, I'll turn the call back over to David. Thank you, Brandi.
For continued outperformance in 2024 and beyond.
Second we continue to execute on our growth through acquisition strategy. Our two acquisitions. This past year, plus our Uinta basin acquisition in 2022 are generating significantly more value than we underwrote and we are unlocking incremental value through our operating capabilities.
We've grown the business Accretively as production has grown at a 20% compounded annual growth rate over the last three years and we fully expect to continue on that trajectory.
<unk>.
Third we are committed to a peer leading return of capital strategy and have strengthened our framework to include a significant fixed dividend and a new share buyback program.
And lastly, we have a simple value proposition. We believe crescent is the best stock to own for long term exposure to oil and gas prices as we uniquely offer the discipline and capabilities of a large cap business combined with the value and high growth potential of our proven mid cap company.
David C. Rockecharlie: Before we wrap up, there are a few things we hope you take away from today's call. First, our 2023 performance was extremely strong. We met or exceeded our increased guidance across the board and meaningfully beat on free cash flow. Our 2023 activity and execution have positioned us well for continued outperformance in 2024 and beyond. Second, we continue to execute on our growth through acquisition strategy. Our two acquisitions this past year, plus our Uinta Basin acquisition in 2022, are generating significantly more value than we underwrote, and we are unlocking incremental value through our operating capability. We've grown the business accretively as production has grown at a 20% compounded annual growth rate over the last three years.
We have a lot of ambition and hold ourselves to a high standard, but we were pleased with what we've accomplished to date and we intend to continue to do exactly what we say, we're going to do with that I'll open it up for Q&A operator.
Thank you at this time, we will be conducting a question and answer session. If he would like to ask a question. Please 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 he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.
Before pressing the starkey.
Our first question comes from the line of Neal Dingmann with <unk> Securities. Please proceed with your question.
Hi morning, all nice quarter, David My first question for you Brandon just wondering.
Is on capital allocation, specifically could you speak to how youre thinking about the opportunistic buybacks will fit in with the continued M&A and especially if the share price remains so highly discolored as I believe it is.
David C. Rockecharlie: And we fully expect to continue on that trajectory. Third, we are committed to a peer-leading return on capital strategy and have strengthened our framework to include a significant fixed dividend and a new share buyback program. And lastly, we have a simple value proposition. We believe Crescent is the best stock to own for long-term exposure to oil and gas, as we uniquely offer the discipline and capabilities of a large-cap business combined with the value and high growth potential of a proven mid-cap.
Randy Thanks for the question I would say no change in how we think about capital allocation.
What a and one b continue to be the dividend and the balance sheet, then return generating opportunities whether that archaean C programmer or M&A, and that's really where the bulk of the opportunities that if you will and think about where spending plus or minus $600 million and we have a multibillion dollar M&A pipeline at 100.
David C. Rockecharlie: We have a lot of ambition and hold ourselves to a high standard, but we are pleased with what we've accomplished to date, and we intend to continue to do exactly what we say we're going to do. With that, I'll open it up for Q&A. Operator?
$50 million buyback is gonna be small.
In comparison, but we do think it is helpful.
Just with respect to <unk>.
Allowing us to continue to simplify our corporate structure, obviously focused on the private class B shares initially.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in. You may press star two if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset.
Got it no that makes sense and then just maybe looking at slide 12 or 13. My my second one is just a bit on operational efficiency. It seems like youre seeing nice.
Efficiencies and even the synergies that Eagle Ford after the deals I'm just wondering could you talk about are the.
Neal David Dingmann: Crescent, the, Our first question comes from the line of Neal Dingmann with Truer Securities. Please proceed with your question. Hi, morning, all.
What I'd call operational synergies you've seen is that.
Sort of balanced between seem similar upside both in the Eagle Ford and in the Uinta.
Brandi Kendall: Nice quarter. David, my first question for you, Brandi, is on capital allocations specifically. Could you speak to how you're thinking about the opportunistic buybacks will fit in with the continued M&A, especially if the share price remains so highly discounted as I believe it is? Neal, it's Brandi.
Or is it more in one and whats driving that is it just continues to be improvement in D&C or is there something else you all would point to.
Yeah, Hey, Neal it's David.
We'd say a couple of things in and as you could tell the theme is sort of enhancing and simplifying right now and to keep it simple.
Brandi Kendall: Thanks for the question. I would say there is no change in how we think about capital allocation. 1A and 1B continue to be the dividend and the balance, then return-generating opportunities, whether that's our DNC program or M&A. And that's really where the bulk of the opportunity set is, if you will. If you think about it, we're spending plus or minus $600 million, and we have a multibillion-dollar M&A pipeline. The $150 million buyback is going to be small in comparison, but we do think it's helpful just with respect to allowing us to continue to simplify our corporate structure, obviously focused on the private Class B shares. Got to know that makes sense.
We think we've got a great team and we think theyre doing their job. So we kind of wake up everyday just saying how can we be better.
How can we do our job in this case in particular, we've been able to take over assets apply.
Apply our techniques to them and that's starting to show through now that we've integrated thing so we're seeing.
The immediate kind of returns on what I'll call doing our job and on the drilling completion side.
And that's just really.
Getting more efficient.
As we get into what I'll call a regular rhythm in our program, but also just doing things better you know when we see.
The industry moving forward, where we're trying to do the best we can.
Come in first place all the time, so on the drilling side, we're drilling wells faster on.
David C. Rockecharlie: And then maybe looking at slides 12 or 13, my second one is just a bit on operational efficiency. It seems like you're seeing nice sort of efficiencies and even the synergies that you go for after the deals. I'm just wondering, could you talk about the, what I call operational synergies you're seeing, you know, is that a sort of balance between seeing similar upside, both in the Eagle Ford and in the Uintah, or is it more in one? And, you know, what's driving that? Is it just going to continue to be improvement in D and C, or is there something else you all would point to? Yeah, hey Neal, it's David.
On the completion side, we're pumping jobs quicker and more effectively.
And so I would say, it's a combination of all of those things.
But in simple terms, we're just bringing what I'll call the latest.
Technology to assets that have not been optimized and we're seeing that both on the drilling and completion side and I think you'll continue to see us as we move through the year and into next year also.
Apply better techniques to the production side of things on the assets we've acquired.
We're really pleased with what I'll call. The last three or four years of acquisition activity and everything has been integrated well and what Youre seeing is now we're getting to go to work on making everything better. So maybe too long an answer for you, but that hopefully gives you some sense of the optimism we have for four we're continuing to do.
David C. Rockecharlie: We'd say a couple things, and as you can see, the theme is sort of enhancing and simplifying right now. And to keep it simple, we think we've got a great team, and we think they're doing their job. So we kind of wake up every day just saying, how can we be better? you know, how can we do our job better.
No that makes a lot of sense, if I could sneak one last but it just seems like your baseline declines continues to be a big advantage over others could you just talk very quickly just move does that still remain as was ever.
David C. Rockecharlie: In this case, in particular, we've been able to take over assets and get the immediate kind of returns on what I'll call doing our job and on the drilling completion side, and that's just really, getting more efficient as we get into what I'll call the regular rhythm in our program, but also just doing things better. When we see the industry moving forward, we're trying to do the best we can, come in first place all the time. So on the drilling side, we're drilling wells faster. Yeah, so we're on the completion side. We're pumping out jobs quicker and more effectively. And so I'd say it's a combination of all of those things.
Yeah, it's a fundamental premise of how we invest in this sector. So I think you can expect us to continue to stay committed to managing our portfolio of assets that has that is a differentiating.
Perspective.
We're not going to go chase.
Chase, what I would call production growth through the cycle with the drill bit we think keeping the business steady in generating great returns when.
When we can is the way to go and that's just going to continue to keep us in a great place in terms of lower decline rate more.
David C. Rockecharlie: But in simple terms, you know, we're just bringing what I'll call the latest technology to assets that have not been optimized, and we're seeing that both on the drilling and completion side, and I think you'll continue to see us as we move through the year and into next year also apply better techniques to the production side of things. We're really pleased with what I'll call the last three or four years of acquisition activity, and everything's been integrated well. And what you're seeing is now we're getting to work on making everything better. So maybe that's too long an answer for you, but hopefully it gives you some sense of the optimism we have for what we're doing. No, that makes a lot of sense. If I could sneak one last one in,
More predictable.
<unk> development program, and a lower decline rate, which is frankly, just better for everybody.
Well said thank you.
Yeah.
Thank you. Our next question comes from the line of John Abbott with Bank of America. Please proceed with your question.
Hey, Thank you very much for taking our questions.
Really appreciate the efforts to further try to simplify the story.
You know just given the stock performance today, you know car that would be capital efficiency part of that may be applicable to a fixed.
Dividend and also a buybacks for it to simplify the story when you think about the stock reaction what are your thoughts about the longevity of the non economic series one preferred.
Does it still make sense to maintain that.
Yeah.
Yeah, Hey, John It's David.
I appreciate the question I'd say a couple of things.
To that.
David C. Rockecharlie: It just seems like your baseline decline continues to be a big advantage over others. Could you just talk very quickly, please? Just does that still remain as low as ever? Yeah, it's a fundamental premise of how we invest in this sector. So I think you can expect us to continue to stay committed to managing a portfolio of assets that has that as a differentiating perspective. We're not going to go chase what I would call production growth through the cycle with the drill bit. We think keeping the business steady and generating great returns when we can is the way to go, and that's just going to keep us in a great place, with a lower decline rate, more predictable development programs, and a lower decline rate, which is, frankly, just better for everybody. Well said,
One as you know the the number one thing that we are.
Proud of in terms of the business strategy is that it stayed the same and we're going to continue doing what we said we were going to do.
We feel like the business model that we've been pursuing for the last 10 plus years.
As a management team is still the right place to go and as you know the sector has kind of chase different strategies.
Throughout that time period, so when I look at our current situation at the company, we definitely want to simplify things I appreciate that you're recognizing that we're trying to do that you know every quarter.
And with regard to your specific question around the series a one preferred I'd just say two things the board of directors today at Crescent.
John Holliday Abbott: Thank you. Thank you. Our next question comes from the line of John Abbott with Bank of America. Hey, thank you very much for taking our questions. I really appreciate the effort to further try to simplify the story.
Has representatives.
Related to 40% of the stockholding and so we think there's really strong alignment there and we really like waking up every day, knowing that we've got support from the shareholders and from the board to continue to pursue the same strategy. So.
David C. Rockecharlie: You know, just given the stock performance today, part of that will be capital efficiency, part of that may be the move to fix. Dividends and also buybacks further simplify the story. What are your thoughts about the longevity of the non-economic series one preferred? Does it still make sense to maintain that? Yeah, he, John, David.
We don't we view it as a positive not a negative and I think over time as the sector continues to to chase a different strategic alternatives I think crescent being committed to a successful and stable strategy is going to be a great thing. So that's how I'd answer that question.
David C. Rockecharlie: I appreciate the question. I'd say a couple of things about that. One, as you know, the number one thing that we're proud of in terms of the business strategy is that it's stayed the same and we're going to continue doing that. We feel like the business model that we've been pursuing for the last 10 plus years as a management team is still the right place to go. And as you know, this sector has kind of chased different strategies throughout that time period. So when I look at our current situation at the company, we definitely want to simplify things. I appreciate that you're recognizing that we're trying to do that every quarter. And with regard to your specific question around the series you preferred, I'd just say two things. The board of directors today at Crescent has representatives related to 40% of the stockholding.
I appreciate the color and then when you think of cost for the second question. When you think about your.
Capex and productivity gains.
If you think about what your Capex budget is this year.
As you peer into 2025, I mean, just how do you think about it.
Spending on a year over year basis, I think they're a little bit higher this year or two how do you sort of think about tap.
Capital spend potentially carrying into 2025, just given what you've achieved.
Yeah.
Hey, John it's Brian Thanks for the question. So we would view a R 24 program is it maintenance.
Pro forma for our most recent acquisitions, that's the 155 to 116 at plus or minus $600 million of capitals that I think it's fair to assume that that's a good maintenance capital level for us going forward.
David C. Rockecharlie: And so we think there's really strong alignment there, and we really like waking up every day knowing that we've got support from the shareholders and from the board to continue to pursue the same strategy. So we view it as positive, not negative.
Our word.
Okay.
I appreciate it thank you very much and taking your questions.
Thanks, Sean.
Thank you and our next question comes from the line.
Brandi Kendall: And I think over time, as the sector continues to chase different strategic alternatives, I think Crescent being committed to it. A successful and stable strategy is going to be a great thing. So that's how I...
Correct.
With J P. Morgan. Please proceed with your question.
Hey, good morning.
Yeah.
So maybe with the transformation and the Utica design.
I'm, just wondering kind of how that changes how you think how you think about the uinta sorry.
And as a target for further acquisitions.
Brandi Kendall: And then when you think about, for the second question, when you think about your CapEx and productivity gains, and you've. If you think about where your CapEx budget is this year, as you peer into 2025, I mean, just how do you think about spending on a year-over-year basis? I mean, is it a little bit higher this year?
Yeah, Hey, Todd it's clay.
Listen I think we're obviously very encouraged about that.
The results, we're seeing with the updated completion design.
And in allergy.
You'll have more capital there this year. So we're excited about the organic opportunity on the capital side certainly it's a unique.
Place for further M&A.
Given how we won't wait game.
Brandi Kendall: How do you sort of think about capital spend potentially peering into 2025, just given what you've achieved? Hey John, it's Brandi. Thanks for the question.
The ownership of that asset today, so it's a place where paying attention to as you would expect but there is obviously a unique dynamics around it as well.
We're cognizant of so an area, we'd love to continue to invest behind.
Brandi Kendall: So we would view our 24 program as maintenance. Proforma for our most recent acquisitions, that's the $155 to $160 at plus or minus $600 million of capital. So I think it's fair to assume that that's a good maintenance capital level for us going forward.
While being prudent in terms of how we think about it.
Okay.
Got it.
And then I guess, just turning over to the new.
Capital return framework you.
You guys have always been very very thoughtful about returning capital to shareholders. So just love a little bit more context on why the decision to go from your kind of historical sort of 10% of EBITDA.
Philosophy to this new updated philosophy.
Brandi Kendall: Appreciate it. Thank you very much for taking our questions. Thank you, and our next question comes from the line of Tarek Hamid with JPL. Please. Good morning. So with the transformation in the Utica design, I was just wondering kind of how that.
Yeah, Hey, Great question, obviously, we've we've had a lot of dialogue.
Around this that the number one thing I would I would say in kind of reiterate about the way you asked your question is.
We're definitely not changing anything in terms of our strategic approach, which is take care of the balance sheet.
Tarek Hamid: Thank you. Thank you. Yeah, hey Tarek, it's Clay.
Clay Rynd: Listen, I think we're honestly very encouraged about the results we're seeing with the updated completion design and allocating, you know, half our capital there this year. So we're excited about the organic opportunity on the capital side. Certainly it's a unique, Please see the complete disclaimer at https://sites.google.com, And then, I guess, just turning over to the new.
And deliver a dividend.
We're taking care of the investors first.
We do we sort of lived as both the private and public company and had that same strategy and approach consistently for over a decade now and luxury short. We just think that this is enhancing and simplifying and so anything we can do to make things simpler make.
David C. Rockecharlie: You guys have always been very, very thoughtful on this level blog. Yeah, hey, great question. Obviously, we've had a lot of dialogue around this. The number one thing I would say, and kind of reiterate about the way you asked your question, and we're definitely not changing anything in terms of which is, you know, take care of the balance, and deliver a dividend, so that we're taking care of the investors. We've sort of lived as both a private and a public company and had that same strategy and approach consistently for over a decade now, and long story short, we just think it's about enhancing and simplifying. And so anything we can do to make things simpler, make the business more predictable, and more credible, we think is good.
To make the business more predictable and more credible. We think is good and so again, we were not in a hurry to change anything and we were were and still are a leader in return of capital.
And the sector. Both when you look at the balance sheet in the.
And the dividend policy. So we think this is just more of the same but more predictable.
And.
And more value really to the business.
So really think about just the predictability of the fixed dividend as being kind of the.
The one thing that you sort of said, making life easier for shareholders.
Yeah, I think that's right.
It's the same two though in terms of predictability for the balance sheet as well I know we would get questions. Around you know is it is it is 10% of targeted how do you think about 10%, what's the percentage and so I think just telling everybody hey, we're committed to it no change to the commitment priorities one a one b our balance sheet and.
David C. Rockecharlie: And so, again, we were not in a hurry to change anything, given we were and still are a leader in return of capital in the sector, both when you look at the balance sheet and the..., and the dividend policy. So we think this is just more of the same, but more predictable, and more value, really, at www.spreadscreenings.com. Yeah, I think that's right.
And and just making sure everybody knows we've been paying 12 cents for the last year and we feel very comfortable continuing to pay a pay that toll sense. This quarter, obviously and defining that as our framework going forward.
But other than that no change so I think the main takeaway should be.
Brandi Kendall: I think it's the same too, though, in terms of predictability for the balance sheet as well. I know we would, you know, get questions around, and the other one is, how do you think about 10%? What's the percentage?
This team has been doing the same thing as it relates to return of capital and taking care of the investors.
Both through the balance sheet and the dividend and we'll continue to do so.
Okay.
Got it. Thank you that's it for me.
Great.
Thank you.
And our next question comes from the line of handling Chang with Wells Fargo Securities. Please proceed with your question.
Brandi Kendall: And so I think just telling everybody, hey, we're committed to it, no change to the commitment, priorities 1A, 1B, balance sheet, and dividend, and just making sure everybody knows we've been paying 12 cents for the last year, and we feel very comfortable continuing to pay that $0.12 this quarter, obviously, and defining that. Framework. But other than that, you know, no change. So I think that the main takeaway should be. This team has been doing the same thing as it relates to return on capital and taking care of the investors, both through the balance sheet and the dividend. Got it, thank you, that's it for me.
Thanks for taking my question. My first question is on the Western Eagle Ford asset could you give us some colors on the Austin chalk potential do you have any testing projects planned for 2024, and what have you learned from recent offset activity.
Mhm.
Yes.
We are drilling.
For Austin Chalk wells. This year, so we have a small amount of capital.
Allocated to the Austin chalk.
We are watching others, we're excited about the opportunity on the Western Eagle Ford asset as you know, there's a lot of industry activity down there.
Tarek Hamid: Bang. And our next question comes from the line of Han-Wen Chang with Wells Fargo Securities. Please proceed. Thanks for doing my question. The first question is on Western Eagle for assets. Could you give us some color on the Austin chalk potential?
Right now.
I think.
As always.
On on kind of more on risk capital, we're going to be fast followers.
We're focused on the opportunities that I'm excited about the potential.
Thanks, Doug.
David C. Rockecharlie: Do you have any testing projects planned for 2024? And what have you learned from recent offset activities? Yeah, we are drilling four Austin Chalk wells this year. So we have a small amount of capital allocated to Austin Chalk. We're watching others.
Question.
Yeah.
On the Uinta basin, we have seen strong production growth in the.
You end up based on your 2023 or what's your overall outlook for the basin wide activity and production growth.
David C. Rockecharlie: We're excited about the opportunity on the Western Eagleford asset. As you know, there's a lot of industry activity down there right now. And so I think, as always, on kind of more risk capital, we're going to be fast followers. But we're focused on the opportunity set and excited about, Thanks. The second question is about the Uintah Basin.
In the next few years. Thank you.
Yeah, Hey, it's David.
<unk>.
I'll just cover this.
At a high level.
It's a tremendous.
Resource across the basin.
I think we're.
Industry is starting to see that.
And better performance from a level that was already good so as we mentioned.
David C. Rockecharlie: We have seen strong production growth in the Uintah Basin in 2023. What's your overall outlook for basin-wide activity and production growth in the next few years? Thank you. Yeah, hey, it's David.
Just in our opening remarks.
We're excited about how we were able to enter that basin and.
David C. Rockecharlie: I'll just cover this at a high level. It's tremendous. Source across, and I think we're, as an industry, starting to see better and better performance from a level that was already good. So as we mentioned, just in our opening remarks, we're excited about how we were able to enter that basin and the value. Thank you. We were targeting a proven area that had significant horizontal development both in our position and across others. And that's only gotten larger.
And the value that that.
Thank you.
Developed there we were targeting.
Proven area that has had significant horizontal development, both on our position and across others.
And thats only gotten gotten larger so I'd say a couple of things in specific response to your question.
We see activity continuing to accelerate.
As the resource expand so the way we think about it is as there's more production and longer reserve life in that basin than there has ever been and it looks like that's going to continue at the same time as you know.
David C. Rockecharlie: So I'd say a couple of things in specific response to your question. We see activity continuing to accelerate as the resource expands. So the way we think about it is there's more production and longer reserve life in that basin than there's ever been, and it looks like that's going to continue.
We are a business that's focused on really growth through acquisition.
And maintenance of the business with the drill bit and really mindful of capital allocation and use of cash flow. So what I would say is we see very significant opportunity here, we think others growth will outpace ours because of the different business philosophy and strategy.
David C. Rockecharlie: At the same time, as you know, We are a business that's focused on... and maintenance of the business with the drill bit, and really mindful of capital allocation. So what I would say is that we see a very significant opportunity there. We think others' growth will outpace ours because of a different business philosophy and strategy, but as Clay mentioned, we're going to get to see a lot of development around us and also participate in it, and I think that's going to be great for us. So I don't think we're going to see a step change from here, but I think continued investment and growth in that basin with us pursuing a strategy similar to the one we've pursued across the business for the last 10 years, and, likely, not leaning into growth as much as others might, but benefiting from the same resource potential and really just giving us a more predictable longer term. Thank you.
But as clay mentioned.
We're going to get to see a lot of development around US and then also participate in it and I think that's going to be great for us. So I don't think we're going to see a step change from here, but I think continued investment in growth in that basin.
With us pursuing a strategy similar to the one we pursued across the business for the last 10 years and likely.
Not leaning into growth as much as others might but benefiting from this.
The same resource potential and really just giving us a more predictable longer reserve life asset.
Thank you.
Yeah.
Thank you and we have reached the end of the question and answer session I'll now turn the call over to David Ross Charlie for closing remarks.
Operator: Thank you. And we have reached the end of the question and answer session. I'll now go on. David Rockecharlie.
Great. Thank you all again for joining us today and for supporting the company as we said.
David C. Rockecharlie: Great. Thank you all again for joining us today and for supporting the company. As we said, quite simply, we think 2023 was an outstanding performance we're proud of. We're very optimistic about what's ahead in 24 and beyond. And in our opinion, Crescent has never been in a better position than it is today to deliver, and I.E. So we look forward to staying in touch and talking to you again next quarter. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Quite simply we think 2023.
<unk> was outstanding performance, we're proud of we're very optimistic about what's ahead in 'twenty four and beyond and in our opinion Crescent has never been a better position than it is today to deliver on the value proposition. We have so we look forward to staying in touch and talking to you again next quarter. Thank you.
Yeah.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
Yes.
[music].
Okay.
[music].
[music].
Yes.