Crescent Energy Q3 2026 Earnings Conference Call - SILVERBOW RESOURCES INC

Explicit Guidance:

• FY2027 Capital: Maintaining a capital framework of $1.8 billion, reflecting current service cost environments and including $100 million of expected synergies from the Devon assets.
• Production Targets: Expects to exit 2026 at a status quo oil rate of 130,000 barrels per day (bpd) for Crescent; pro forma (including Devon) expects a maintenance program of 170,000 bpd of oil starting in 2027.
• Leverage Targets: Targeting consolidated leverage of approximately 1.5x at year-end 2027 and approximately 1.0x at year-end 2028, pro forma for the Devon acquisition.
• Dividends: Maintaining a fixed quarterly dividend of $0.12 per share.
• EBITDA: Pro forma annualized EBITDA for the combined royalties platform expected to reach approximately $250 million.
• Cash Flow Generation: Projected to generate more than $7.5 billion in levered free cash flow over the next five years, assuming an oil price of $70 per barrel.
• 2028 Hedging: Currently hedged at approximately 20% for the first half of 2028; open to opportunistically adding further hedges if the forward curve remains attractive.

Business-Segment Outlook:

• Eagleford (Acquisition): Acquisition adds 600+ net locations on a 10,000-foot basis, making Crescent the second-largest operator; pro forma business will have 250 million barrels of oil equivalent (Boe) inventory and a 250 million-dollar annualized EBITDA royalties platform.
• Permian: Expecting continued well cost reductions and inventory expansion; completion changes (increased lateral length, optimized spacing) and operational improvements expected to fully bake into production and cash flow in 2027.
• Uinta: Anticipating continued activity, inventory expansion, and depth creation as the asset moves from a delineation phase to an active development phase.
• Austin Chalk: Expected to represent a significant growth area (approx. 40% of South Texas program) with opportunities to expand zones and move inventory into the sub-$50 breakeven range by 2027.
• Cost Savings: Targeting 20-25% well cost savings in the Permian since 2023, 25% in the Eagleford, and 20% year-over-year in the Uinta; $1 million per well savings estimated to reduce oil break-evens by $5-$10 per barrel.
• Base Production: Intensified focus on improving base production rates and lowering decline rates across 8,700+ existing wells (4,700 in Eagleford, 4,000 in Permian) via artificial lift optimization and supply chain improvements.

Market and Competitive Outlook:

• Inventory Quality: Aimed at doubling sub-$50 break-even inventory and increasing sub-$60 break-even inventory by nearly 50% through operational efficiencies.
• Pricing & Marketing: Expecting stronger gas and NGL realizations over time, particularly for low-nitrogen gas meeting LNG demand; targeting movement of Permian volumes from the Waha market to the Gulf Coast (AD/Katy markets).
• Operational Scale: Positioning to capture more development visibility by increasing operated assets from 10% to 40% of pro forma EBITDA.
• Competitive Position: Viewing the Devon acquisition as a unique opportunity to add Tier 1 inventory with differentiated knowledge and proven value creation capabilities in the "backyard."

Macro / Industry Outlook:

• Inflation: Acknowledges 5-7% inflation pressures on steel and diesel but asserts that operational efficiencies and scale (e.g., bringing fuel/sand/chemicals in-house) will outpace these costs, allowing for continued well cost reduction in 2027.
• Commodity Prices: Increased commodity prices since the acquisition announcement provide an opportunity to deleverage faster than initial targets.
• Gas Demand: Structural demand increases from LNG and power sectors expected to support gas realizations and allow Crescent to capitalize on its low-nitrogen gas portfolio.
• Credit Rating: The current financial position supports a continued path toward an investment-grade credit rating.

Strategic Initiatives:

• Devon Acquisition: Financing secured via $1.15 billion equity issuance and debt financing at ~6% cost; expects ~$1 billion in pro forma liquidity at closing.
• Synergies: Anticipating $140 million in annual synergies from the Devon acquisition (operational and commercial), grounded in the Permian track record; total synergy target for the transaction is >$300 million.
• Royalties Platform: Actively exploring a potential IPO for the Crescent Royalties platform to accelerate deleveraging and provide a public market value marker.
• Divestitures: Completed the previously announced divestiture program; no further asset sales planned, focus is on maximizing value of existing assets.
• Capex Allocation: Steady-state capital allocation expected; potential for incremental capital to shift from the existing Eagleford to the New Eagleford, Permian, and Uinta basins post-integration.

Risks and Headwinds to Outlook:

• Commodity Price Volatility: Fluctuations in oil and gas prices could impact cash flow visibility and the ability to deleverage, though 60% of oil production is hedged for H1 2027.
• Integration Risks: Potential delays or challenges in integrating the Devon Eagleford assets and realizing synergies.
• Inflationary Pressure: Persistent inflation in steel and diesel costs could erode cost-saving gains if operational efficiencies slow.
• Operational Execution: Failure to maintain market-leading operational performance (e.g., well cost reductions, inventory expansion) could impact economic break-evens.
• Regulatory/Market Shifts: Changes in pipeline capacity (Waha) or LNG infrastructure could impact gas marketing strategies and realizations.

Management Tone on the Future:

• Confidence Level: High confidence in the "Crescent model," citing a proven track record of tripling synergy targets in the Permian and delivering results superior to market expectations.
• Strategic Continuity: No changes to the core strategy or growth plan; focus remains on operational execution, capital efficiency, and deleveraging.
• Value Creation: Describes the business as "fundamentally better" and "within our control" to compound value, emphasizing that significant embedded upside remains.
• Execution Outlook: Management expresses optimism that cost reductions and operational improvements will continue to drive down break-evens and expand economic inventory in 2027.

Miscellaneous:

• Liquidity: Ended the quarter with approximately $2 billion of liquidity and 1.5x net leverage.
• Hedging: Fully executed planned 2027 oil hedges; ~60% hedged in H1 2027, ~50% in H2 2027, and ~20% in H1 2028.
• Q4 Guidance: No updated 4Q guidance provided due to the pending acquisition close, but confirmed that Q3 operational strength is durable and expected to show up sequentially.
• Capital Efficiency: Expects to end the full year 2026 capital spending below the midpoint of guidance due to continued efficiencies.