Crescent Energy Q3 2026 Earnings Conference Call - SILVERBOW RESOURCES INC

Financial Performance:

• Produced 328,000 barrels of oil equivalent per day (BOPD) in Q3 2026, including 134,000 barrels of oil per day.
• Generated $786 million in adjusted EBITDA and $367 million in levered free cash flow, exceeding guidance by 23%.
• Capital expenditures were $326 million, coming in 9% below expectations.
• Ended the quarter with approximately $2 million in liquidity and a net leverage ratio of 1.5x.
• Maintained a fixed quarterly dividend of $0.12 per share.
• Fully executed planned 2027 oil hedges; began layering 2028 hedges at attractive prices, with approximately 60% of oil production hedged in H1 2027 and 50% in H2 2027.
• Pro forma for the Devon acquisition, the company targets $250 million in annualized royalties EBITDA, with 40% of total EBITDA coming from Crescent-operated assets (up from 10%).

Guidance and Future Outlook:

• Announced acquisition of Devon Energy's Eagleford assets, expected to make Crescent the second-largest operator in the basin with 600+ net locations.
• Identified $140 million in annual synergies from the acquisition, projected to grow to over $300 million with continued execution.
• Targets net leverage of approximately 1.5x by year-end 2027 and 1.0x by year-end 2028 pro forma.
• Projections indicate potential for over $7.5 billion in levered free cash flow over the next five years assuming an oil price of $70/bbl, with production reaching ~400,000 BOPD.
• Full-year capital guidance remains at $1.8 billion; expects full-year capex to finish below the midpoint of guidance due to ongoing efficiencies.
• Expects to exit 2026 at a status quo oil production of 130,000 BOPD in the Permian and maintain pro forma 170,000 BOPD maintenance level.
• No fourth-quarter guidance update will be provided due to the pending acquisition close, but management anticipates durable operational improvements continuing into Q4.

Business Segments and Product Lines:

• Permian: Achieved $295 million in annualized synergies, nearly triple the original $90-100 million target, driven by longer laterals, simulfrac usage, and supply chain optimizations.
• Eagleford: Integrated $25M well cost savings since 2023; acquiring Devon assets adds Tier 1 inventory and scale.
• Uinta: Achieved 20% cost savings year-over-year; expects continued slight growth and inventory expansion in 2027.
• Crescent Royalties: A standalone cash-generative platform growing to $250 million pro forma EBITDA; potential IPO considered to accelerate deleveraging or mark value.
• Cost Reductions: Targeting $1 million in savings per well to reduce oil break-even costs by $5-$10/bbl, significantly expanding the sub-$50 and sub-$60 inventory buckets.

Market and Competitive Landscape:

• Crescent is positioned as a top-10 independent with a world-class, concentrated portfolio in the Eagleford, Permian, and Uinta basins.
• The business benefits from a "backyard" advantage in the Eagleford, leveraging deep existing knowledge and proven execution capabilities.
• Strong investor support and constructive rating agency responses to the financing strategy reinforce market confidence.
• Management emphasizes a strategic shift toward operational execution and cost leadership rather than aggressive M&A growth, focusing on organic value creation.

Risks and Challenges:

• Commodity Price Volatility: While hedged for 2027 and partially for 2028, future results remain sensitive to oil and gas price fluctuations.
• Geopolitical & Macroeconomic Factors: Global conflicts and inflationary pressures on steel and diesel (estimated 5-7%) pose cost risks, though offset by efficiency gains.
• Acquisition Execution: Integration of Devon assets carries execution risk, though management is confident in capturing synergies based on prior Permian success.
• Regulatory/Market Constraints: Potential changes in gas marketing dynamics in the Permian (e.g., Trunk Line, LNG demand) could impact realizations.

Management Commentary and Tone:

• Tone is highly confident and optimistic, emphasizing a "fundamentally better business" with a proven track record of executing beyond targets.
• CEO David Roccacarli highlighted that the company is in its "best position ever" to create shareholder value, citing a clear path to investment-grade credit status.
• Management stressed that value creation is now "within their control" through operational excellence and cost discipline.
• CFO Randy Kendall affirmed a disciplined capital allocation framework prioritizing dividends, debt reduction, and financial flexibility.

Analyst Questions and Answers:

• Capital Allocation: Confirmed no fundamental change to strategy post-acquisition; focus remains on maintenance-to-low-growth programs based on returns.
• Synergies: Confirmed that the Permian synergy success was not a "one-off" and similar upside is expected on the Eagleford acquisition; new contract re-negotiations will flow through financials starting January 2027.
• Royalties Platform IPO: No specific timeline given; priority is finding the "best outcome" for shareholders, which could include an IPO for valuation or cash generation.
• Well Costs: Despite inflation, well costs are expected to decline in 2027 due to operational efficiencies, supply chain optimization, and longer laterals.
• Inventory Quality: Re-categorized inventory to emphasize growth in sub-$50 and sub-$60 break-even buckets; Austin Chalk is identified as a key future growth driver.
• Debt Strategy: Financing for the acquisition ($1.15B equity, ~6% cost debt) positions the company for rapid deleveraging with expected $1B pro forma liquidity at closing.

Other Key Points:

• The company has completed its previous divestiture program and is now fully focused on maximizing the value of its existing core asset base.
• Integration of automation (SCADA) and inventory management from acquired assets (Vital and Devon) is already improving operational costs.
• A significant focus is placed on "base production" improvements, targeting over 8,700 wells for optimization in artificial lift and supply chain management to reduce decline rates and operating expenses.
• Gas marketing opportunities in the Permian are highlighted, specifically moving volume from constrained Waha markets to the Gulf Coast to capture higher realizations amidst LNG demand.