Q2 2025 Crescent Energy Co Earnings Call
Greetings and welcome to the Crescent energy Q2, 2025 results 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. Reed Gallagher, investor relations. Thank you. You may begin.
Good morning and thank you for joining crescent's. Second quarter of 2025 conference call. Today's prepared, remarks will come from our CEO, David rocket Charlie and our CFO Brandy Kendall, our Executive Vice President of Investments clay rent 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 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-ap Financial measures for reconciliation of historical non-gaap Financial measures to the most directly comparable. Gaap measure, please reference, our 10q and earnings press release available on the investor section, on our website with that. I will hand it over to David.
Good morning, and thank you for joining us. Yesterday Crescent posted financial and operating results for the second quarter.
In summary, it was an exceptional quarter of continued execution for our business.
As always.
I would like to begin with a few key points that I hope you take away from this call.
First Crescent continues to deliver.
This quarter, we once again posted strong free cash flow and overall performance.
Our excellent results exceeded expectations on all key metrics. And we are enhancing our outlook for the full year.
Second, we are driving long-term value through operational excellence.
Our strong free cash flow generation is the result of impressive operational execution.
with record production alongside continued Capital efficiency gains and cost-savings across our asset base
And finally, we are making the most of this Market environment and we see huge opportunity ahead for crescent.
We operate in a cyclical industry and see volatility as opportunity.
We intentionally built a lower Decline and less Capital intensive business with commodity flexibility and a consistent hedge program to generate more durable free cash flow than our peers.
Our business model allows us to see opportunity and be proactive in periods of dislocation, like we are seeing today.
Since our last call, we've successfully navigated the market to both acquire assets, including our own stock and the best assets all at compelling valuations.
Manage the business.
Strengthening the balance sheet with debt, repayment maturity, extensions and additions to our hedge position.
And we continue to simplify the positioning of Crescent stock with our transition to a single share class.
We've also been driving, operational savings through, excellent execution, across both acquisition integration and our base business.
we built this company to succeed through the inevitable cycle of our industry and our performance, this quarter demonstrates just that
Following those quick highlights, I will now discuss our results in a bit more detail.
We saw record production of 263,000 barrels of oil equivalent per day.
With 108,000 barrels of oil per day.
And generated approximately 171 million dollars of free cash flow for the quarter.
All well above Wall Street, expectations.
Our significant outperformance was driven by Capital efficiencies.
Strong. Well performance and a modest acceleration of activity.
Our talented team continues to drive, operational savings with increased efficiency of both Drilling and completions improving well costs by approximately, 15% in both the eagleford, andu basins, since last year.
With these savings. We are enhancing our outlook for the year. Reaffirming production expectations, alongside a reduction in capital and lower cash tax, expectations,
Driving increased free, cash flow.
Our operating plan for the year remains focused on maximizing free cash flow and Returns on Capital invested.
In the eagle for we are delivering on the flexible Capital program that we highlighted in our initial 2025 guidance.
Taking advantage of relative commodity pricing with gas focused activity in the back half of the year.
In Utah. We are maintaining our prudent approach to capturing the significant long-term resource opportunity. We own
the industry remains active with widespread. Positive results across the basin
Our joint venture in the Northeast portion of our position continues to show extremely strong performance.
We were not historically focused in this area, and the impressive results are giving us an exciting reason to remain patient and methodical as we continue to optimize our long-term development plan.
As we look beyond our base business for attractive investment opportunities. The AMD Market was quieter in the second quarter with continued volatility in commodity pricing.
However,
our team has been able to find pockets of compelling value and execute a creative transactions, including both Acquisitions. And domestic ches
First, we acquired attractive, minerals assets, that complement. Our existing portfolio focused in Texas and the Rockies.
We expect the acquisition to generate returns in excess of our 2 times, mlic Target, and be accretive to free cash flow.
The assets fit seamlessly into our existing minerals portfolio which proforma contributes roughly $100 million of annual cash flow to our overall business.
On the other side of the A and D Market, we closed another deveste of non-operated assets.
This accretive to vesture is a part of our ongoing plan to streamline the business and maximize the value of non-core Assets in our portfolio.
And it brings our year-to-date destitute total to roughly 110 million dollars.
I'm consistently impressed with the Focus drive and creativity that our team brings to finding compelling value opportunities.
whether that be in the A and D Market, or within our own business,
This quarter has been a great example of what execution means to us.
It means delivering free cash flow.
It means delivering strong and consistent operations.
It means delivering returns through a creative m&a.
But most of all, it means that everyone on our team is always ready.
Looking for any opportunity to deliver further value for crescent.
With that, I'll turn the call over to Brandi to provide more detail on the quarter.
thanks David Crescent pad and
For the quarter, we reported approximately $514 million of adjusted EBITDA, $265 million of capital expenditures, and approximately $171 million in levered free cash flow.
Generation.
Supported by our advantage, decline rate, lower relative Capital intensity returns focus reinvestment and consistent head strategy.
Over the last 5 years, we have generated cumulative, free cash flow roughly equal to our current market cap and we continue to trade at a compelling discount on free cash flow metric today.
And David mentioned, we have capitalized on the current market volatility a number of ways since the first quarter
Starting with the meaningful step in our Evolution as a public company with elimination of our upsie structure in early April.
And the transition to a single class of common shares, reducing complexity and making our stock easier to own.
With the significant dislocation early. In the quarter, we were purchased approximately 28 million dollars worth of stock at a weighted average price of $7.88.
Roughly 12% below, our current share price.
Our buyback program is in an opportunistic tool for us to capitalize on periods of volatility. And we evaluate opportunities to acquire our own stocks the same way we evaluate acquisition opportunities.
in addition to our repurchase activity, we announced another dividend of 12 cents per share which all together equates to an attractive 7% annualized yield
we took steps to further, strengthen our balance sheet, using cash flow to pay down, approximately hundred million dollars of debt this quarter increasing liquidity to a billion 750
We also successfully refinanced, a portion of our long-term debt to strengthen our maturity timeline. Even further relative to our peers,
on top of all that we were able to add some opportunistic oil, Hedges to our 2026 portfolio at recent highs
David for closing remarks.
Thanks Brandy.
Before we wrap up, I want to reiterate our key messages for investors.
First, we continue to deliver.
This quarter all key metrics exceeded expectations.
We are a cash flow focused company and we generated 171 million of free cash flow.
And with our strong results, we have enhanced our outlook for the year.
Second, we are driving long-term value through operational excellence.
Our team continues to outperform over many years and many transactions. We have proven our successful acquisition and integration capabilities, and we don't stop there.
We are relentlessly focused on finding the gold buried within our own business to increase free cash flow and returns for our investors.
Simply put we acquire assets and we make them better.
And finally, we are making the most of this Market environment and we are always prepared to capitalize on any opportunity ahead of us.
Our business model allows us to see opportunity and be proactive in periods of dislocation, like we are seeing today.
And this quarter's performance is a perfect example of our strategy in action.
With that.
We will 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 1 moment, please while we pull for questions.
The first question is from John Freeman from Raymond James, please go ahead.
Thanks, good morning.
We uh we continue to see the nice efficiency gains on the the DNC for foot following uh you know another 6% just from from 1 Q levels. And it looks like most of that Improvement was driven by about a 10% Improvement on the completion side. In terms of just the amount of fluids a day that are being pumped and just maybe if y'all could elaborate on that, if there was some specific change that you all made on the completion side that would have driven you know that big of an improvement.
Is it from what y'all had just put up in 1 Q.
Yeah. Hey John, it's David. Thanks for the question. Um, I would say quite simply it's just
um,
You know more execution of what we would call Best Practices. Um and in particular we would highlight that we're still bringing
Uh, simal Frac in in bigger, and bigger ways to our completion operations.
Got it. Um, and then I guess,
Maybe change the way y'all think about maybe Capital allocation decisions within the Basin going forward?
Yeah, great question. Um, just as a quick reminder uh, you know, you'll recall that we acquired that asset um, really based purely on PDP.
Value. Um, early days we were in a pretty low-risk mode drilling. Um, really just 1 form what we've seen in the last 3 plus years is a significant expansion and economic
Uh, proving up of of multiple uh, formations in that area. So, long story short, we're very excited about the resource potential. Um, we don't have any need to move too quickly out here and, and yes, we're really pleased with what I would call an expansion across our acreage of of proven economic inventory. So I think you'll see us continue to allocate Capital here, um, and we just want to do it in the right way. Given the significant stacked resource that's now been proven up over the last multiple years that we would not have um, gone after uh you know the day, we acquired the assets.
Thanks. Appreciate it. Nice quarter.
The next question is from Michael Furrow from Pickering. Energy Partners, please go ahead.
Hey, good morning. Congrats on the quarter. Uh, thanks for taking our questions.
Um, just hoping to get a little more color on.
Uh recent m&a activity, during the quarter with the uh acquisition investor. Uh metal portfolio is going to be a bit you know quite sizable uh doing a hundred million dollars of anticipated Eva Don. I think that we can all agree that you know, crescent's really not seeing that value reflected in the share price today and monitor today of that asset would likely be the quickest way to kind of recognize that value. So uh, our question is, you know, what's the justification to add to the minerals P? Portfolio here. And what are you guys seeing internally? That might not have been as clear to us on the outside. Looking at particularly on that asset package.
Hey, it's Clay. Uh,
listen first, glad you're asking about the the minerals portfolio because uh, agree with you it's going to be uh, a decent sized business. Um, you know, for us, you know, just to hit the acquisition specifically, uh, you know, super consistent with the strategy, right? It's the return metrics that we all focus on as, as you know, right, we've been building this minerals portfolio over a long time. So it's a part of the market we're active in, we understand. And, and when we see value drive by, you know,
We we thought it made sense to grab it. Super creative for the business in line with kind of how we view the world. Highly cash flow accretive. Um, so I think it as we thought of that acquisition, especially into a volatile Market, where we, we thought we could grab Great Value. We we did it.
bigger picture, look, certainly we recognize that if you put
Stop time today. Instead of we get in the value for that business today. I don't think we are, uh, and so we're certainly focused on how do we get the best long-term value? For our investors around that business? Uh, I think there's multiple tasks to do that. Um, but but something we talked about a lot um and are focused on
Which is great. I appreciate the call.
Just uh, like to hit a follow-up to your, in the balance sheet, kind of move a little different direction. Uh,
Grow stats. Still a little elevated relative to the current market cap, but it's really moving in the right direction. Leverage is quite manageable. It's really on the path to that 1, time's Target. Uh, I'd argue that the balance sheet is even stronger than those metrics coming to look at the, you know, weighted average maturity and the coupon rate. So, to us seems like to companies in a pretty strong position, to both further reduce debt and repurchase shares. So our question is, you know, how's the company doing the opportunity to buy back stock at the current valuation and and how is that being balanced with, you know, longer term leverage targets.
Hey Michael, it's Brandy. Good question. So no change fundamentally as to how we think about cap, allocation priorities, Remain the balance sheet and the fixed
Dividend. And then after that, it's all about, right? What's the best return on the capital that we can invest, whether that we're buying our stock?
It's m&a or we're we're drilling Wells. I think Q2. And, and how we allocate a capital is probably a good framework.
Uh, to think about going forward. So of the free cash flow that we generated roughly 80% went to the balance sheet. Um, so you saw us repay, $200 million of debt this quarter and the remaining 20% went back to our Equity, investors through the fixed dividend and the buyback. So, again, I think that's a an okay.
Uh, ZIP code to think about how we balance the two going forward.
That's great. Thank you. I'll turn it back.
Rising code, please go ahead.
Yes, good morning, David to you and your whole team there. Um, I wondered if you David in your prepared remarks you use the word dislocation to talk about the the A&D market right now. And I'm wondering if you could elaborate on uh you know what you're seeing to to lead you to use that that were dislocation. And if you care to offer a gas on on how that dislocation might resolve going forward,
Yeah, so, uh, great question. Um, first, I'll start by saying that, um, there's definitely what I'll call levels of dislocation. And it, it's certainly functioning so, um, maybe the simplest.
Uh, explanation. I can give you for our use of of that word. Uh despite the fact that we got a few things done is as you know we are heavily uh focused in our core area of the eagleford where we're a top 3 producer of oil and gas and have been a very active. Acquirer, we look at everything, um, you know, in the A&D Market. Uh, but including the
The highly, um, uh, what I would call transactable area in the eagleford. Um, and what we've seen so far this year was a fairly active Market early on of of assets, um, available for sale and the punch line is, uh, 75% or more of the asset sale processes. We saw in the eagleford, um, were pulled and never transacted.
Ed as a result of the volatility that we saw in Q2. So our view is the markets uh functioning, uh, right now and, and we're able to get some things done, but there's just a lot out there in our view. That's that's still sitting on the sidelines. Um and so we we like it, um, when we get a chance to look at lots of things and and uh the market environment.
um, starts to allow people to sort out where they want to focus their capital and and when when
So I think we're well prepared to succeed in that type of environment.
Got it, got it. Thank you for that. And then uh, to go back to the uh, to the earlier question about those uh,
Really I mean those tantalizing results uh in in the uh Eastern side of your uh position. Uh I again recognizing as early as but but is uh do you guys have any, you know, kind of leading hypotheses on on?
Why you're seeing such a good? Uh, such a good production response versus your. Your them viewed as it is it perhaps deeper and higher pressure or or is it um
Or is it uh, you know, a more intensive completion or a different completion design or or are you just uh, you know are you just still trying to figure it out?
Yeah, David. Again, I'd say, uh, long story short, is that, uh, we played it really safe, uh, early on. As I mentioned earlier, uh, we acquired the assets for PDP value and so we were really focused on just making sure we got what we paid for from a cash flow perspective. And
um, the industry has continued to evolve significantly. So I I think there's, um, nothing fundamentally surprising. In other words, the reservoirs are are performing very well. Uh, and yes, we we had, um, you know, a lack of certainty around what that might look like. Before we allocated some Capital there, but fundamentally much like a lot of the success across the Basin and I think we're we're very pleased and and there's nothing fancy going on here. It's uh, it's just good old-fashioned performance of strong reservoirs.
Got it. Thank you, David.
The next question is from Oliver Huang from tph and Co please go ahead.
Good morning, David, Brandy clay, and thanks for taking the questions.
Just wanted to follow up.
on the earlier, question around efficiencies, in the lower DNC, was there a deflation or a lower service cost component or did that have anything to do with where activity occurred during the quarter or was it just purely efficiency cycle, time driven and also are are there certain areas where you all see further lovers to pull cost down lower over the next year or so whether from a cash Opex or DNC perspective,
Hey Oliver, it's Brandy. I'll start, so the driver for reducing our capital guide by 3% is all...
Drilling and completion.
Efficiency. I would say from a kind of inflation deflation standpoint as we sit here today and look out for the rest of the year, I would say not seeing
a ton with respect to service cost.
Deflation, we obviously were the beneficiaries.
Stationary. So would expect.
DNC cost to creep up, maybe ten dollars a foot in the back part of the year, uh, specifically due to deflation, but that's still well within our uh, updated capital.
Guidance.
Okay, perfect. That's helpful.
And maybe just for a second question. Just on the efficiencies that you all have seen, is there any thought to potential building of ducks? If they were to kind of hold true and lead to running ahead of schedule heading into your end, or would the decision point B to slow down a bit or even pull forward some activity into 2025.
Yeah, hey, it's David. Um, I think we are are very good at, managing the business, um, through cycles and and planning, for the longer term. So, long story short, I think our outlook for the year Remains the Same. I wouldn't expect this to be doing anything, uh, different absent, you know, large Moves In in commodity prices, that impact returns.
It may be also, I'll I'll add we obviously reaffirmed our full year.
Production guidance on.
Less Capital. If we add up the capital and the tax,
Savings that equates to roughly a hundred million dollars of incremental free cash flow for the business this year and especially in a period of Market volatility. We think retaining that hundred million dollars for the benefit of our shareholders is, is a better use of
Uh, that extra cash flows and, you know, continue to put it into the ground.
Perfect. Thanks for the time.
The next question is from John Abbott from Wolfe research.
Just go ahead.
Hey, good morning, and thank you for taking our questions.
First question is on Capital, allocation.
I mean, this year, you, you are pivoted. You are allocating more Capital towards Natural Gas.
I mean, you are still expected to grow, gas volumes in the second half of the year. You do have flexibility in the eagleford. To pivots.
I guess my question is, at this point in time, if you sort of think about that flexibility, are you pretty much locked in, in terms of activity for the remainder of this half? For the remainder of this year, if we continue to see robust production for the U.S. for natural gas, that could lower pricing.
Do you have that ability to to flex and then, as you sort of look to 2026? How are you thinking about the allocation of activity between oil and gas?
Hey John. David uh here a quick answer on that is yes. I think we have um not only the flexibility in the asset base as you said. Uh We've also got
um,
The, uh, the ability a proven ability to to shift that Capital relatively quickly, as we did uh, earlier this year. Um, but I would say in terms of of timing, I think, the most important thing we highlight is we can, um,
Change the allocation of capital, and the down Market pretty quickly. So, we, we feel like we we have a lot of control over our capital and, um, the flexibility side while. Highly flexible. You know, I'd go back to what we talked about earlier in the year, you know, at the margin quickly, it t to be about 20% of the program uh that we can move pretty quickly.
So I maybe give you those 2 2 guide posts.
appreciate it, and then course,
Appreciate it for our second question.
Um, Randy this 1 is for you.
You are a beneficiary of the big 1, beautiful bill.
I mean you know, your cash taxes this year I thought you as you're going to bend as you just discussed you're going to get a benefit from this year and then I guess with the next several years you're probably not going to be paying much in the way of cash taxes. I guess the real question is how do you think about your ability to offset cash taxes post 2027 when you kind of sort of look at strip pricing?
Randy, good question.
Legislation similar to other oil and gas companies. Is we look at
Kind of the next 5 years.
Uh the expected cash, tax payments, kind of pre- legislation and post legislation. We think that's roughly 250 million dollars of
cash tax savings. So roughly a dollar.
Per share.
um, again, over the next couple of years, right assuming
Current commodity prices and a kind of a maintenance.
Level of capital programs, expect.
B 0.
Appreciate it. Thank you very much for taking our questions.
The next question is from Tim resman from keybanc Capital markets, please go ahead.
Good morning, folks, and thank you for taking my questions. I wanted to sort of follow up on a prior comments on, on the balance sheet. Um, you know, in talking with you all last night, we sent confidence on on hitting or exceeding, your your asset sale Target it comes on top of, you know, pretty strong free cash flow. Um, but when we see leverage, you know, in this price commodity price environment. We simply don't see a lot of organicity leveraging. Even if we would assume several hundred million of of asset sales that didn't have earnings. So can you talk about how realistic that 1 times? Leverage Target is over the next 1 to 2 years and maybe kind of looking at a different way. What's the appropriate? You know, debt of balance, that accompany your size should have thanks.
Yeah, hey Tim, thanks for the question. It's David.
um, as you know, uh, our stated framework is
To operate between 1 and uh 1 and a half times. Um, and as you heard earlier from from Brandy, and
in our,
Released results as well. Uh, we're obviously, uh, no change. We're focused on on managing the business, through the cycle. And
Uh, taking care of the capital structure and making sure we've got a strong balance sheet. So I think you'll continue to see us.
um,
Pay down debt out of free cash flow. Um we're at the higher end of our our range. Now I think uh that that's uh consistent with what we've we've said and to your point we do generate a lot of free cash flow uh and we're also well hedged with long-term debt. So I think we've got a a very strong path.
Uh, over time to to not to reducing debt. But also again I think we've proven we'll stay within our
Our leverage targets. Um, maybe on a little uh, more specific thoughts around. Um,
How we see the the appropriate way to leverage uh companies in the oil and gas sector. I'll I'll let Brandy cover this. But we're we're well aligned as a company strategically on how we think about um asset base and and uh and whether
Yes, I’ll add—so the David mentioned, right? We generate a lot of cash.
We're well hedged. We have a less Capital intensive business meaning. Historically we've reinvested for you to 50% of our
Cash flows. I I do think uh, inherently our, our business has a, you know, has a an ability to de-lever over time both on an absolute basis. But then also with respect to
An overall leverage metric. Uh we have roughly 250 million dollars drawn on the rbl. Today, we would expect that to be
Repaid out of cash flow as we move towards the end of the the year, and then the only maturity that exists before 2032 would be the remaining 500 million of our 2028 notes. And as we look forward, again, assuming kind of we're in a similar commodity price environment, we can kind of pay those off, again, without a cash flow. So as we move through the end of this year, and the next year,
We could be looking at uh some long-term debt that matures I can tell you between 2032 and 2034. So again, feel like we're in a really great spot. And, and really, within the, the guidelines
Of how we've operated the business for the last 12 years.
That's helpful context and it's the 1 to tie that to sort of your comments. So I'm being uh you know counter-cyclical on the A and D front. Um I appreciated the comments on, you know, the the eagleford. Um so is it safe to say you will remain Nimble and that we should think about guideposts as
You know, leverage on, um, on structure for a deal and that um, you're comfortable with net debt, going up. If something is leveraged neutral,
Is that the right way to think about opportunities?
Yeah, I think for us right from an A and D perspective, we want to earn 2 times our money or more we're focused on accretion.
And we want to make sure the pro forma of business is really strong. And for us, we're comfortable going up to 1.5.
Times. So that's how we evaluate m&a.
Thank you.
The next question is from. Michael shella from Steven sink. Please. Go ahead.
Yeah. Hi. Good morning. Um,
Anything in particular that you plan to focus on going forward?
Yeah, I think look it's our job to demonstrate to people how good this business is. So we're just going to keep doing it. I think this quarter is a great example, free cash flow, great returns and risk management. Um, and a great operating business is is what we're building here. So I think it's uh we're not going to make it harder than that. We just got to keep showing up.
Understood understood. Uh 1 1 to ask on the, you went to uh the decision to pause drilling there. When you looks like you have some really good results. I guess how do the returns between you and 10 and the eagleford compare. And if they are similar, um, can you just discuss the reason for keeping that asset cut on? Hold here for a little bit.
Yeah. Hey Stephen. Um, short answer is, I think we've talked about before the
Uh, oil weighted portfolio in the company, uh, in terms of our ability to allocate Capital, um, is similar across the eagleford, and the UA. Um, but we've gotten significantly more, uh, what I'll call call Stacked resource in the UA and we've got a larger acreage position with less uh, Development Across it. So it it's relatively straightforward to us to allocate Capital between the 2 areas on the oil side, we'll continue to do that. And all you're seeing is when we get great results,
Uh, in an area where we had not been as focused, um, we're going to stop and evaluate that and make sure we maximize the
Future development, uh, there. So we're really excited about it. Uh, we've got great resource, uh, on the oil side in both, uh, the Eagle Ford and Uintah, and I think you'll continue to see us allocate capital, um, you know, effectively across those two basins in the way.
Sounds good. Thanks Dave.
There are no further questions at this time. I would like to turn the floor back over to David Ruck, Charlie CEO, for closing comments.
Great. Thank you all again. Um, as we said, we're really pleased with how the business is performing. Uh, and we're going to continue to do that and get back to work. We look forward to talking to you next quarter.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.