Crescent Energy to Acquire Eagle Ford Assets from Devon Energy - SILVERBOW RESOURCES INC

Financial Performance:

• Acquisition of Devon Energy's Eagleford assets for a net purchase price of approximately $3.85 billion with a July 1st effective date.
• Pro forma production expected to reach ~400,000 barrels of oil equivalent (boe) per day, including ~170,000 barrels of oil per day.
• Transaction priced at ~3x EBITDA; acquired inventory at < $2 million per net location.
• Identifies ~$140 million in annual synergy potential, primarily through increased lateral lengths and scale efficiencies, expected fully captured by end of 2027.
• Pro forma capital intensity projected to be ~5% lower than standalone, with annual development capital of ~$1.8 billion.
• Free cash flow capacity supports deleveraging targets of ~1.5x leverage by year-end 2027 and ~1.0x by year-end 2028.
• Royalties EBITDA expected to increase by ~$50 million, growing the segment's cash flow by >20% to ~$250 million annually.

Guidance and Future Outlook:

• Deal expected to close in Q4 2026 or early 2027, subject to regulatory approvals including Hart-Scott-Rodino.
• Company remains focused on capital efficiency and free cash flow maximization; no immediate acceleration in rig count expected despite increased inventory.
• Long-term leverage target remains investment-grade (approaching 1.0x); current path assumes a 12-month delay due to acquisition financing but improves fundamental quality (higher margins, lower break-evens).
• Management expects no cash tax payments in 2027 or likely 2028 due to NOLs.
• Strategic outlook includes continued consolidation of the core Eagleford position and potential optimization of the Austin Chalk acreage.

Business Segments and Product Lines:

• Eagleford: Adds ~68,000 boe/d production, ~40,000 barrels of oil/d, and >600 Tier 1 net locations in the Karnes Trough; company will become the second-largest operator in the basin.
• Royalties Platform: Transformational growth in scale and operatorship; pro forma operatorship increases from ~10% to ~40% of royalties cash flow, enhancing visibility and value.
• Inventory Quality: Pro forma portfolio offers ~6 years of sub-$50/bbl break-even inventory and ~10 years of sub-$60/bbl break-even inventory.
• Development Strategy: Plans to optimize development by increasing average lateral lengths (potential step change from 6,500 to 11,500 feet) and refining surface designs.

Market and Competitive Landscape:

• Acquisition solidifies Crescent's position as a world-class, top-ten independent operator with a streamlined portfolio across Eagleford, Permian, and Uinta basins.
• Management highlights significant fragmentation in the Eagleford play, viewing the added scale as a catalyst for future bolt-on opportunities and land consolidation.
• Assets compete with the best in the lower 48, offering Tier 1 economics that enhance the company's differentiation versus public peers.

Risks and Challenges:

• Closing Conditions: Transaction subject to customary closing conditions and regulatory approvals.
• Execution Risk: Management notes the previous complex JV structure of the assets requires operational unwinding, though this is viewed as manageable given offset operations.
• Inflationary Pressures: Addressed by assuming operational improvements (cost reductions) will offset potential inflationary pressures on input costs.
• Commodity Prices: While hedge strategy protects the deleveraging path, future activity levels remain sensitive to price environments, though management targets FCF regardless of price fluctuations.

Management Commentary and Tone:

• Tone is highly confident and strategic, emphasizing "value over growth" by prioritizing capital efficiency and FCF.
• Management expressed strong conviction in the "strategic fit," citing over a decade of royalty ownership and direct operational offsets as key differentiators.
• CEO David Rockcharlie and COO Joey Hall emphasized the "proven playbook" of integrating assets to lower break-evens and increase margins.
• Leadership recognized the Devon team and the Crescent team for hard work, projecting a smooth integration.

Analyst Questions and Answers:

• Activity Levels: Management confirmed no immediate rig count acceleration; production will be maintained with higher capital efficiency to boost FCF.
• Royalties Strategy: Clarified that the deal accelerates the evaluation timeline for the royalties business (from 12-18 months to potentially faster) due to the increased scale and operatorship control.
• Refracking: Confirmed that the 600 locations are development (D&C) locations only; refracking opportunities represent significant additional upside not included in the core inventory count.
• Synergy Confidence: Management stated high confidence in the $140M synergy target, driven largely by lateral length optimization and lower LOE via scale.
• Hedging: Disclosed ~50% hedge on oil for 2027 (2/3 swaps, 1/3 call options) to protect the deleveraging pathway.
• Decline Rates: Portfolio decline rates expected to moderate toward 25% over time; assets acquired have modestly higher initial declines but will benefit from improved well designs.
• Funding: KKR committed $500M in equity (fully funded portion of the offering); remaining financing via debt and free cash flow.

Other Key Points:

• The acquisition adds ~600 net locations, all classified as Tier 1, enhancing the "investment-grade" thesis despite near-term leverage increase.
• Company maintains a fixed dividend and intends to preserve liquidity while directing excess FCF to debt reduction.
• Management reiterated commitment to the $2.3 billion PV-10 developed base as valuation support.
• No plans for additional divestitures; the portfolio is considered streamlined and core.