Q3 2025 Crescent Energy Co Earnings Call
Speaker #3: Greetings and welcome to the Crescent Energy Co Q3 2025 results conference call . At this time , all participants are in a listen only mode .
Speaker #3: 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 .
Speaker #3: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reid Gallagher, Investor Relations.
Speaker #3: Thank you . You may begin .
Speaker #4: Good morning and thank you for joining Crescent's third quarter 2025 conference Call . Today's prepared remarks will come from our CEO , David Rockecharlie and our CFO , Brandi Kendall .
Speaker #4: Our chief Operating Officer and Executive Vice President of Investments will also be available during Q&A . Today's call may contain projections and other forward looking statements within the meaning of the federal securities laws .
Speaker #4: 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 .
Speaker #4: We have no obligation to update any forward looking statements after today's call . In addition , today's discussion may include disclosure regarding non-GAAP financial measures .
Speaker #4: For of historical non-GAAP financial measures to the most directly comparable GAAP measure . Please reference our 10-q and earnings press release available under the investor section on our website .
Speaker #4: With that , I'll hand it over to David . Good morning .
Speaker #5: And thank you for joining us . Yesterday , Crescent posted financial and operating results for the third quarter . In short , it was another impressive quarter of execution for our business .
Speaker #5: Our investing and operating performance highlights that we continue to do what we say we will do . As always , I want to begin with a few key points that I hope you take away from this call .
Speaker #5: First , our business continues to deliver strong results . This quarter . We once again generated significant free cash flow with excellent operating performance .
Speaker #5: Our results exceeded expectations on all key metrics , and we are enhancing our full year outlook for the second consecutive quarter . Second , we announced our transformative acquisition of Vital Energy , marking our accretive and scaled entry into the Permian Basin and establishing Crescent as a top ten US independent oil and gas producer .
Speaker #5: And finally , we are pleased to announce over $700 million of non-core divestitures signed this quarter , bringing our non-core divestiture program to more than $800 million year to date .
Speaker #5: With these asset sales , we are streamlining our portfolio at very attractive value and the proceeds will go toward maintaining our strong balance sheet through significant debt reduction .
Speaker #5: With our successful divestitures and acquisition of vital , we have enhanced and simplified Crescent's value proposition with more scale , more focus , and more opportunity .
Speaker #5: Following those key highlights . I will now discuss the quarter and more detail we produced 253,000 barrels of oil equivalent per day , including 103,000 barrels of oil per day , and generated approximately $204 million of levered free cash flow for the quarter , demonstrating once again the strength of our operating model and our consistent focus on free cash flow generation .
Speaker #5: Our talented team continues to find ways to win , increasing well productivity continued capital savings , driving even stronger returns for our investors .
Speaker #5: With these impressive capital alongside efficiencies , we have again enhanced our outlook for the year . Increasing free cash flow with flat production from less capital in the Eagle Ford , where our activity was focused this quarter .
Speaker #5: We have achieved 15% savings per foot on our capital versus program , along with an impressive rate of change on , well , productivity .
Speaker #5: With our 2024 and 2025 wells outperforming prior activity by 20 plus percent in line with our guidance at the outset of this year .
Speaker #5: Our capital for the remainder of the year is focused on our gassier acreage in the southern and western Eagle Ford . As we capitalize on the relative strength in the natural gas curve on top of our outstanding business performance this quarter .
Speaker #5: We also made a significant step forward on our growth trajectory with our announced acquisition of Vital Energy , creating a top ten independent US last year's oil and gas producer with line of sight to an investment grade rating .
Speaker #5: As we progress toward closing , which we expect to occur before year end , we continue to see significant value in the vital assets under our Operatorship .
Speaker #5: We expect the vital acquisition to generate immediate accretion across all key metrics and deliver attractive cash on cash investment returns exceeding two times multiple of invested capital .
Speaker #5: With the valuation covered by Vital's existing production base . As always , and in line with our initial announcement , we will apply Crescent's consistent strategy to this acquisition .
Speaker #5: We plan to highgrade capital allocation on Vital's assets by taking activity down to 1 to 2 rigs at closing , which will deliver higher free cash flow and returns for investors .
Speaker #5: This is only a small part of the synergies we outlined in our original announcement , and we now see upside beyond the 90 to $100 million of base case synergies .
Speaker #5: We announced. We have proven our ability to integrate and execute, and we believe there is an opportunity for significant value creation through improved operations on the vital assets.
Speaker #5: That was not included in our underwriting . The vital acquisition is a scaled entry into the Permian Basin and significantly expands Crescent's opportunity for future growth .
Speaker #5: With more than $60 billion of asset acquisition potential surrounding our pro forma footprint . We have demonstrated our playbook for accretive growth through acquisition in the Eagle Ford , and we are confident in our ability to continue to scale profitably across our Eagle Ford and Permian positions alongside our vital announcement .
Speaker #5: We also announced a sizable pipeline of non-core divestitures to accelerate value , streamline our business and further strengthen our pro forma balance sheet .
Speaker #5: We are one of the most consistently active operators in the and market , and we are pleased to report that we have signed more than $700 million of accretive divestitures this quarter , bringing our year to date sales to over $800 million .
Speaker #5: With the sales announced this quarter encompassing the entirety of our legacy , Barnett conventional Rockies and Midcontinent positions . We've exceeded our expectations in regards to timing as well as valuation , with the total sale value representing more than five and a half times EBITDA and a significant premium to the year end proved PV ten .
Speaker #5: With the sales announced this quarter encompassing the entirety of our legacy , Barnett conventional Rockies and Midcontinent positions . We've exceeded our expectations in regards to timing as well as valuation , with the total sale value representing more than five and a half successfully The sales also meaningfully enhanced the crescent value proposition as we emerge with a more focused asset portfolio , increased margins , improved Breakevens longer reserve life and an even stronger balance sheet going forward .
Speaker #5: The combination of our continued strong operational performance , the vital acquisition and our successful divestiture program positions , Crescent with more scale , more focus and an even greater opportunity than ever before .
Speaker #5: Upon closing of our announced transactions , we will operate across three core regions the Eagle Ford , the Permian , and the Uinta with scaled positions in each of these premier regions .
Speaker #5: We will continue to pursue long term value for shareholders through strong free cash flow , operational excellence and profitable growth . With that , I'll turn the call over to Brandi to provide more detail on the quarter .
Speaker #4: Thanks , David .
Speaker #6: Crescent delivered another quarter of strong financial performance , generating approximately $487 million of adjusted EBITDA , $205 million of capital expenditures , and approximately 204 million of levered free cash flow .
Speaker #6: These results build on our consistent track record of impressive free cash flow generation , supported by our lower capital intensive operating model returns focused reinvestment approach and consistent hedge strategy .
Speaker #6: Over the last five years , we have generated cumulative free cash flow in excess of our current market cap with our significant free cash flow .
Speaker #6: We maintain a consistent approach to capital allocation priorities one A and one B are our attractive , fixed dividends and maintaining a strong balance sheet .
Speaker #6: To that end , we announced another dividend of $0.12 per share for the quarter , which equates to an attractive 6% annualized yield .
Speaker #6: And we returned significant capital to our investors with more than 150 million of debt repayment during the quarter . In addition to the debt repayment from our existing operations , we also expect to significantly reduce our debt outstanding upon the closing of the non-core divestitures that David covered earlier .
Speaker #6: We plan to use 100% of the proceeds to pay down our existing credit facility and vital credit facility upon close of the acquisition.
Speaker #6: During the quarter , we also successfully increased our borrowing base by 50% to 3.9 billion , extended the tenor to five years , and improved our pricing grid .
Speaker #6: This redetermination reflects the strong support from our bank group and enabled us to capture approximately 12 million , or more than 10% of our announced vital synergies ahead of closing .
Speaker #6: With that , I'll turn the call back over to David for closing remarks .
Speaker #5: Thanks , Brandi . Before we wrap up , I want to reiterate our key messages for investors . First , our business continues to deliver impressive results .
Speaker #5: This quarter . We once again posted strong free cash flow and operating performance . Our results exceeded expectations on all key metrics , and we are enhancing our outlook again for the remainder of the year .
Speaker #5: Second , we announced our transformative acquisition of Vital Energy , marking our accretive entry into the Permian and establishing Crescent as a top ten US independent oil and gas producer .
Speaker #5: And finally , we have successfully executed significant non-core divestitures at very attractive value with more than $800 million of accretive asset sales announced year to date .
Speaker #5: We have streamlined our asset portfolio and maintained our strong balance sheet . This quarter as execution is a testament to our consistent strategy as we continue to enhance and simplify our value proposition .
Speaker #5: Crescent is a compelling investment opportunity in our consolidating sector , combining significant free cash flow generation , a differentiated track record of prudent and accretive growth , and premier integration and operations expertise .
Speaker #5: We are investors and operators , and we believe our sector demands both to be successful . We have a massive opportunity ahead of us and Crescent is extremely well positioned to generate significant long term value for investors as we build a leading investment grade energy company .
Speaker #5: With that , we'll open it up for Q and A . Operator .
Speaker #3: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .
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Speaker #3: One moment please . While we pull for questions . The first question is from Neal Dingmann from William Blair . Please go ahead .
Speaker #7: Morning , David . Brandy and nice to be back . And congrats on the solid free cash flow . David , just jump in .
Speaker #7: My first question is really on your development plan specifically given now the expanded footprint that you have in the Eagle Ford and your upcoming Permian footprint .
Speaker #7: I'm just wondering , are you thinking about changing all how you all target the development ? You know , albeit larger pads or maybe even some some larger projects or , you know , will you or will the expected operational efficiencies you continue to talk about ?
Speaker #7: You know, from the DNC, improvement continues to be the key drivers?
Speaker #5: Yeah . Hey , Neal , thanks for the question . The short answer is no . Fundamental changes in our approach . We're continuing to execute on more efficient operations and particularly drilling and completion than prior operators of assets .
Speaker #5: We've acquired . So I think you'll just continue to see us have more efficiency and more effectiveness over , over time . But no fundamental change in strategy there .
Speaker #5: But obviously , having a bigger and more scaled portfolio in those two areas is going to continue to allow us to do that .
Speaker #7: Yeah , that'll be nice to see that development . And then secondly , just on M&A specifically , could you speak to kind of what you all continue to look at as your I guess I'd call it your current parameters when considering additional assets is , you know , is there a scenario where you'd go to another basin if it fits this or you know what , what are those ?
Speaker #7: You know , sort of key requirements ?
Speaker #5: Yeah . Great question . I think to keep it simple . No changes in our underwriting standards . So still looking for great multiple money and quicker payouts .
Speaker #5: And then we're really excited about the opportunity that we've been going after in the Eagle Ford . So that's all still there . And then the addition of the Permian from our perspective also is great .
Speaker #5: So I think if you just assume more of the same , looking for great value and asset opportunity in those two areas , that's what we're looking at .
Speaker #7: Very good . Thank you . Look forward to .
Speaker #8: It .
Speaker #3: The next question is from John Freeman from Raymond James . Please go ahead .
Speaker #9: Thank you . Good morning . Following the very successful divestitures that y'all had during the quarter , and now with leverage kind of pro forma proforma with vital , you know , back to more comfortable level , it definitely seems like you've got more flexibility on kind of next steps here .
Speaker #9: But maybe if y'all could kind of just walk us through kind of the way y'all are thinking about those next steps toward kind of continuing to work that leverage down toward that sort of longer term target of one times .
Speaker #6: Hey , John , it's Brandy . So I think overall balance sheets and integrate spot , as you stated , right . We're continuing to operate the business within our leverage targets .
Speaker #6: We've been successful pushing out maturities . We're well hedged and we generate significant free cash flow , which allows us to continue to delever as we look at the Crescent standalone business , we'll have our RBL repaid before the end of the year .
Speaker #6: We would expect to use the divestiture proceeds to pay down the entirety of the vital RBL balance . So we'll have roughly $2 billion of liquidity .
Speaker #6: And then I think just as we think about using that excess free cash flow , I think we'll continue to think through how do we start attacking some of the outstanding notes that we have .
Speaker #6: So just continue to look for us to reduce absolute debt repayment from here, and also our leverage metric.
Speaker #9: That's great . And then can you all speak to to what changes the the divestitures may have on sort of how y'all have sort of previously talked about sort of standalone Crescent in terms of kind of how y'all were thinking about maintenance CapEx , etc.
Speaker #9: . I mean , obviously , that was the asset you sold were obviously lower margin , higher opex , but did have a lower base decline rate .
Speaker #9: So just sort of how to think about the moving parts there .
Speaker #5: Yeah. Hey John, it's David. I'll start. The short answer is, while the divestiture assets are a smaller part of the company, they do have a great impact on improving our margins and improving reserve life.
Speaker #5: So some really key important things to us . The other thing we would highlight is with the divestitures and the vital acquisition , will continue to pursue the same type of plan where we've got a lower reinvestment rate and a lower decline rate target than the rest of the industry .
Speaker #5: And so we think the divestitures just help us stay more focused on the assets we've got , and we'll continue to to to focus on the core tenets of the company , including leverage metrics and decline rate in terms of the maintenance impacts .
Speaker #5: I'll let Brandi just cover that quickly.
Speaker #6: Yes . So quickly . And again , I won't get overly specific on 2026 , just given we're currently in our planning cycle and haven't yet closed the vital transaction .
Speaker #6: But what I would say is that the go forward plan should look very similar to how we've historically operated our business , so that's lower capital intensity .
Speaker #6: That's a reinvestment rate of roughly 50% and significant free cash flow generation . David hit on this earlier . We do plan to significantly reduce the capital on the vital Permian assets .
Speaker #6: So taking that down to a 1 to 2 rig program , which is roughly a 60 to 70% reduction in both rig activity and capital spend to bring those assets in line with how Crescent has historically run the business .
Speaker #6: So , you know , again , we'll provide more details when we get to closing . But again , I think the key attributes that we focus on over the last ten years of a lower capital intensive business , a lower reinvestment business in a business that generates a lot of free cash flow , will shine through in the plan that we put forward .
Speaker #9: That sounds good . Thanks a lot and congrats again on getting those divestitures done .
Speaker #6: Thanks , John .
Speaker #3: The next question is from Tim from KeyBanc Capital Markets. Please go ahead.
Speaker #10: Hey , good morning folks . Thanks for taking my question . Brandy . I appreciate the broad strokes . On 2026 , I was hoping you could you could help us on the fourth quarter of 2025 .
Speaker #10: There's a very large moving parts . You know , with vital looking like maybe 19 days of contribution . I'm trying to understand in the slide deck , it mentions a 4000 a day impact from the recent divestitures .
Speaker #10: Should we assume that's a 16,000 a day impact in the fourth quarter ? You know , can you help us kind of understand what four Q2 five production could look like as we look ahead to the vital closing ?
Speaker #6: Hey , Tim , good question . So we did reaffirm our production guidance from a , you know , legacy crescent standpoint . But as you note , the 4000 a day impact from the divestiture will equate to roughly 16,000 and BOE per day impact to Q four .
Speaker #6: And then , as you mentioned , I think depending on when the vital transaction ultimately goes , there'll be a little bit of production .
Speaker #6: But relatively in material , I'd focus on the 16 a day that would come out of Q4 as part of the sales transactions .
Speaker #10: Okay , okay . And would we expect a change in the oil skew as a result this quarter from these sales ?
Speaker #6: Nothing materially. I think we would guide to roughly 39% oil in Q4.
Speaker #8: Okay , okay .
Speaker #10: I appreciate that . And then just as a follow up , excited to to learn about how the the dry gas drilling and South Texas goes , I know it's happening this quarter .
Speaker #10: As you think about 2026 activity , how do you think about allocation between gas and oil ? I know the legacy operator was extremely nimble in sort of a pad by pad basis .
Speaker #10: How do you think about allocating capital ? There next year ? Thanks .
Speaker #5: Yeah . Hey Tim , it's David . I would say . Two things . If you think about how we managed through this year and the discussions we had at the end of 24 and early 25 .
Speaker #5: We would describe ourselves as 100% returns focused with significant flexibility . We love the portfolio . We have because we can go from oil all the way to to dry gas .
Speaker #5: So I think given where commodity prices are , we would also highlight we're generating strong returns right now . And so I think 2026 , in the grand scheme of things , looks very similar to 2025 from a allocation and commodity perspective .
Speaker #8: Okay . Thank you .
Speaker #3: The next question is from Michael Sheila from Stephens Inc. . Please go ahead .
Speaker #11: Good morning . I wanted to ask on the divestiture program where that stands now . Are you pretty much done or are there more opportunities and any of those that you would consider within your three main core areas at this point ?
Speaker #5: Yeah . Hey , it's David . Short answer is we would start by saying divestiture program highly successful . We exceeded expectations on timing and valuation .
Speaker #5: So we feel great about it . We do . Dear question . Still have a number of smaller assets in the portfolio today .
Speaker #5: But our our view now is we can decide to sell those at the right time and the right value . And we would just say really successful program .
Speaker #11: Okay . And I wanted to ask on on slide 11 , you're well , performance seems to be bucking the trend of degradation in the Eagle Ford .
Speaker #11: Can you talk about some of the reasons for that ? Is it spacing wellbore design or and where do you see that going next year .
Speaker #11: Do you expect that to start to revert back toward the industry trend anytime soon .
Speaker #5: Yeah . Great observation . I think your your perspectives on the macro in the industry are exactly right . But great reminder , our acquisition program starts with finding great value in assets that we think we can significantly improve .
Speaker #5: So what you're seeing is that strategy in action . And we're able to take our practices which to your point includes sometimes optimizing spacing , increasing completion intensity , changing landing zones .
Speaker #5: But overall we're getting better performance than the prior operator . So I think you should expect that that is our game plan . And we'll continue to execute there .
Speaker #5: But that's how in the context of an industry that is seeing overall declining performance as the core gets drilled up , why we continue to outperform .
Speaker #11: Thank you .
Speaker #3: The next question is from John Abbott from Wolfe Research . Please go ahead .
Speaker #12: Hey , good morning and thank you for taking our questions . So , David , you just mentioned that the divestiture program was very successful from your point of view , does that mean .
Speaker #12: As regards to your minerals , doing something with that , that part of your business is off the table for the foreseeable future ?
Speaker #12: Are there plans to sort of go out there and still look for greater value from that business ? How do you think about the minerals at this point ?
Speaker #5: Yeah , great . Great question . And and John , we just highlight as , as I think we've said , you know , to others on previous calls , the minerals is a core business for us .
Speaker #5: Today was never part of the divestiture program . But it is an area that we believe we can continue to grow . And certainly over time .
Speaker #5: You know , we'll continue to evaluate all of our assets . But yes , strong core part of the business today . No , no , no plans to sell that .
Speaker #12: Appreciate it . And the next question is for Brandy . So Brandy with the $700 million plus of divestitures , does that impact your future ?
Speaker #12: Cash tax situation at all ? And how you think about cash taxes post-sale ?
Speaker #6: Hey , John , I would say still expect both the vital transaction and divestitures to be broadly tax neutral . So don't expect to be a significant cash taxpayer based on today's commodity prices , based on today's expected development plan over the next handful of years , I will say , though , with respect to the divestitures and them closing in the fourth quarter , we do expect to pay roughly a 30 to $40 million tax gain .
Speaker #6: So, just think about that as coming out of the gross proceeds.
Speaker #12: Thank you very much .
Speaker #3: The next question is from Michael Furrow from Pickering Energy Partners . Please go ahead .
Speaker #13: Hi . Good morning . Thanks for taking my questions . All realizations were quite strong in the quarter . Both relative to guidance as well as the historical differential versus the benchmark , and really helped drive the EBITDA beat .
Speaker #13: So just trying to get an idea on some of the drivers of the pricing , you know , was there anything sort of structural here , such as , you know , maybe new marketing contracts or was the third quarter maybe just a one off , you know , high mark for the year ?
Speaker #6: Hey , Michael , it's Brandy . So I would say similar theme of just buying assets and making them better . Our marketing team has done a great job of just when there's opportunities to renegotiate contracts , if just continuing to improve where we can .
Speaker #6: And sometimes that's we're collecting nickels and dimes , but you know , those add up over time . And you can see that reflected in our financial statements this quarter .
Speaker #13: All right . Thanks for that . Just as a follow up notice that the Eagle Ford turning lines were a bit higher than we were expecting , the company's obviously planning some dry gas turning lines later this year .
Speaker #13: So just curious if there was any maybe overlap of dry gas turning lines that maybe were included in the 31 turn in line count or late in the quarter ?
Speaker #13: And if so , could you maybe be willing to quantify the amount ?
Speaker #6: Yeah , there were a handful of dry gas turning lines that came on online , really towards the very end of the quarter .
Speaker #6: So minimal contribution from a gas volume standpoint . But did technically come online in the third quarter .
Speaker #13: Thank you . Appreciate it .
Speaker #3: The next question is from Oliver Huang from TF and Co . Please go ahead .
Speaker #14: Good morning, David Brandy, and thanks for taking the questions. For my first question, I just wanted to ask about capital allocation.
Speaker #14: I know there isn't an official 2026 outlook out there just yet , but when we're thinking about the six rigs on a combined basis with vital initially outlined in late August , just wanted to walk through the thought process in terms of if this is still a good level to think about at the current strip .
Speaker #14: Also , what might be grounds for a step down towards maybe , say , five rigs ?
Speaker #5: Yeah . Hey , happy to take it . I think two things . As I said a little bit earlier at current prices , the development program that we have for for this year and , you know , call it similar commodity allocations next year , looks great .
Speaker #5: And then when we think about just our business strategy and the integration of vital , we think the company is really well positioned both from a financial perspective with a very significant reduction in what I'll call the oil weighted drilling that comes with the vital assets .
Speaker #5: But but also is going to give us a chance to to integrate those assets in a much less operationally intensive way with lower activity .
Speaker #5: So long story short , I think in this current environment , with the way we see things and the returns that we're we're currently seeing , no change , but we're certainly able to be really flexible .
Speaker #5: And in terms of moving rigs down or allocating differently, we'll look at it the same way we did last year. So as of now, feeling great.
Speaker #5: But also ready to to respond if anything requires that from returns perspective .
Speaker #8: Okay , perfect . That's helpful .
Speaker #14: Color . And for my second question , just on adjusted cash opex with the divestitures , getting rid of some of the higher opex assets in the portfolio , could you all talk about what the opportunity set looks like to continue further ?
Speaker #14: Working that down over the next couple of years ? Beyond that , 1150 per Boe figure referenced on a pro forma basis . And when we're thinking about that pro forma figure , does that account for blending the vital side in at today's base level of production or at the , I guess , lower level of production that we'd see in 2026 ?
Speaker #14: Just given the resting of declines .
Speaker #6: Hey , Oliver , I'll start as you mentioned , pro forma , the divestitures will realize a roughly 10% improvement on adjusted operating costs .
Speaker #6: So would expect to be roughly 1150 when you pro forma in vital . I think will be plus or minus in a similar range .
Speaker #6: So I think that's a good way to think about it on a go forward basis . And then we just as we think about broader opportunities to outperform back to the commentary that we've said before of buying assets and making them better .
Speaker #6: I don't think we have a quantifiable percentage amount to give you today, but we do think that there are opportunities over time to improve operating costs.
Speaker #14: Perfect. Thanks for the time.
Speaker #3: There are no further questions at this time . I would like to turn the floor back over to David Rockecharlie for closing comments .
Speaker #5: Great . Thank you all again for your support and joining the call . And we're really pleased with this quarter and the business performance and we're we're hard at work and look forward to catching up on our next call .