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

Explicit Guidance:

• Deleveraging Targets: Expect to reach approximately 1.5x leverage by year-end 2027 and approach 1.0x by year-end 2028, assuming current swap pricing (SERP).
• Free Cash Flow & Capital: Expect to exit 2027 with a run rate of full synergy capture ($140 million); pro forma company to maintain ~$1.8 billion in annual development capital (maintenance-free investment rate ~5% lower than standalone).
• Tax Outlook: Do not expect to be a cash taxpayer in 2027 or likely 2028; formal guidance to be provided with the 2027 annual guidance.
• Dividend Policy: Intend to maintain the current fixed dividend and preserve strong liquidity.
• Hedging: Currently roughly 50% hedged on oil for 2027 (approx. 2/3 swaps, 1/3 call options); added incremental hedges alongside acquisition to lock in prices during debt reduction.
• Equity Financing: KKR committed $500 million in equity; transaction expected to close Q4 2026 or early 2027 with a July 1 effective date.

Business-Segment Outlook:

• Production Profile: Pro forma production of ~400,000 barrels of oil equivalent per day (boe/d), comprising ~170,000 barrels of oil per day (approx. 68,000 boe/d from acquired assets); Crescent to become the second-largest operator in the Eagleford.
• Inventory & Break-Evens: Pro forma portfolio to hold ~6 years of sub-$50/bbl break-even inventory, ~10 years of sub-$60/bbl inventory, and >15 years of total inventory life; inventory cost of < $2 million per net location.
• Royalties Platform: Transaction adds ~$50 million in incremental Royalties EBITDA, growing total cash flow by >20% (to ~$250 million); operatorship of royalties portfolio increases from 10% to 40% of position (controlling ~50% of royalties cash flow), significantly improving development visibility.
• Synergies: Identified $140 million in annual synergy potential (fully captured by end of 2027), primarily driven by drilling/completions ($100M from lateral length optimization), LOE, and marketing.
• Asset Mix: Acquired assets located in the Carnes Trough (Core Eagleford) and Austin Chalk; integration will leverage existing offset operations.

Market and Competitive Outlook:

• Operational Strategy: Will maintain activity levels at roughly the same pace as current operations (approx. 2-3 rigs equivalent) to maximize capital efficiency rather than accelerating volume growth.
• Cost Structure: Expect step-change improvement via increased lateral lengths (e.g., increasing from ~6,500 ft to 11,500 ft), surface design efficiencies, and scale optimization in the Carnes Trough.
• Decline Rates: Target a portfolio-wide decline rate moderation toward 25% over time, despite acquired assets having a modestly higher initial decline rate.
• Market Position: Solidified status as a world-class, second-largest player in the Eagleford with a streamlined, scaled portfolio; sees continued opportunity for land optimization and trades ("bolting on") to enhance position fragmentation.

Macro / Industry Outlook:

• Investment Grade Path: Increased scale, stronger free cash flow generation, and clear deleveraging pathway support progress toward an investment-grade credit profile.
• Commodity Price Sensitivity: Strategic hedging and lower break-evens provide visibility and protection; the business is structured to deliver returns and deleverage effectively even at current strip prices.
• Inflation: Management expects operational performance improvements (cost reductions) to offset inflationary pressures, preserving the $140 million synergy target.

Strategic Initiatives:

• Acquisition Execution: Acquiring Devon Energy's Eagleford assets for ~$3.85 billion; closing expected Q4 2026/early 2027 subject to HSR waiting period and regulatory approvals.
• Minerals Platform Monetization: The 12-18 month evaluation window for the minerals/royalties business (announced Q1 2024) remains active; management expects to move on the same or faster timeline given the "game changer" nature of the acquired royalty overlap and increased operatorship.
• Portfolio Optimization: No immediate plans for further divestitures or pruning of the core legacy assets; focus remains on integrating acquired Tier 1 inventory.
• Refracturing: Identified significant upside potential for refrac opportunities, though current 600 location count excludes these potential additions.

Risks and Headwinds to Outlook:

• Transaction Closing Conditions: Acquisition is subject to customary closing conditions, receipt of regulatory approvals, and expiration/termination of the HSR Act waiting period.
• Operational Integration: Success relies on the execution of the "playbook" (lateral length increases, surface design) and the integration of the Devon team; any deviation could impact the $140 million synergy realization timeline.
• Capital Allocation Flexibility: While activity is stable, management notes flexibility to adjust speed if commodity prices rise significantly to accelerate deleveraging, though the current plan prioritizes lower capital intensity.
• Timing Uncertainty: The "early 2027" closing window implies potential delays if regulatory processes extend beyond Q4 2026.

Management Tone on the Future:

• Confidence: High confidence and "strong conviction" regarding the $140 million synergy target and the ability to capture it fully by end of 2027, citing a proven track record in the Eagleford.
• Strategic Clarity: Tone is "straightforward" and focused on "multiples on invested capital"; management views the transaction as a "step change" in capital efficiency and a "transformational" enhancement of the royalties business.
• Execution Focus: Emphasis on "lower break-evens," "higher margin cash flow," and "maintenance-free" investment rates, signaling a disciplined, value-oriented growth phase rather than aggressive volume expansion.

Miscellaneous:

• Backlog/Pipeline: No specific backlog numbers provided, but identified "more than 600 net locations" in the Carnes Trough excluding refrac potential; significant development upside remains embedded in the inventory.
• Q&A Specifics: Management confirmed that the 68,000 boe/d figure is based on July estimates and assumes maintenance-level activity through closing; no net operating loss (NOL) runway extension is expected immediately beyond current shielding.