Ladies and gentlemen, good morning, and welcome to the Crescent Energy Third Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Emily Newport, SVP of Finance and IR. Please go ahead.

Good morning, and thank you for joining Crescent's Third Quarter Conference call. Our prepared remarks today will come from our CEO, David Rockecharlie; and CFO, Brandi Kendall. Our Chief Accounting Officer, Todd Falk; and our Executive Vice President of Investments, Clay Rynd, will also be available during the Q&A session. Today's call may contain projections and other forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflicts, 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. 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. For a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-Q and earnings press release, which are available on our website. With that, I will turn it over to our CEO, David.

Good morning, and thank you for joining us to discuss our third quarter results. Our message is simple and direct today. This was a record quarter for the business, both operationally and financially. We are doing what we said we would do, generating strong free cash flow; investing capital with discipline and great returns; delivering exceptional operating performance, including meaningful capital efficiencies and reductions in emissions with a focus on continuous improvement of our operations, including stewardship of the environment and the communities in which we operate. We're growing through accretive, opportunistic acquisitions, including the successful integration of $850 million of total transactions this year in our core Eagle Ford operating area. We're maintaining our strong balance sheet and growing capital markets presence as we continue to scale the business significantly. And we're consistently returning capital to our investors. This quarter's record results solidify that we have the right strategy, the right assets and the right execution in today's market environment to create significant, long-term value for our shareholders. Today, I plan to cover 3 key items in more detail. First, our operational performance; second, our compelling acquisitions; and third, our sustainability success. First, let's discuss operations where the business is outperforming. We've realized substantial efficiencies on the drilling and completion side as improving cycle times and completion speeds have improved well costs by 10%. You will recall that we came into the year with a focus on flexibility, and this has worked strongly in our favor. As a reminder, we reduced our full year capital guidance last quarter and with continued solid execution not only are we able to deliver our original capital program at lower cost, but also our meaningful outperformance this year in drilling and completions has had a multiplier effect. We've been able to do more with less as we are able to accelerate some activity as our drilling returns have improved while still investing less overall capital this year. These capital efficiencies are materially enhancing the returns on our development program where we are consistently earning in excess of 2x cash-on-cash returns on a full cycle basis. Importantly, these capital efficiencies have not come at the expense of well performance. Across the Uinta, in particular, our assets have materially outperformed our predecessors due to the higher completion intensity where we've improved oil recoveries by approximately 25% since taking over operatorship. Complementing our high-returning development program, our substantial, long-life producing reserve base consistently provides us with predictable performance. The cash flow stability of our low-decline balanced production base is a tremendous value proposition relative to our peers. Our unique skill set, operating both conventional and shale assets allows us to combine stable cash flows with attractive reinvestment opportunities. Today, we are the only U.S.-focused company generating more than 150,000 barrels of oil equivalent per day of production while running only a 2- to 3-rig maintenance program, which is a direct result of the lower capital intensity required to maintain production output at Crescent. This intentional portfolio construction, coupled with continuous outperformance on production and capital spend drives this quarter's record free cash flow as well as our expectations for substantial free cash flow looking ahead to 2024 and beyond. Now turning to M&A. Since the second quarter, we have closed on 2 previously announced Eagle Ford acquisitions totaling $850 million. First, through our $600 million acquisition of operatorship of the Western Eagle Ford position in July, and second, through the acquisition of incremental Western Eagle Ford working interest for $250 million in October. Together, the assets represent approximately 32,000 barrels of oil equivalent per day of liquids weighted net production with a low 16% decline rate and more than $1 billion of proved developed PV-10 value. The 2 deals doubled our Eagle Ford production and inventory and quadrupled our legacy, nonoperated interest in the Western Eagle Ford to a current operated working interest of 63%. Furthermore, we now operate greater than 90% of our interest in the Eagle Ford, adding scale and operational control in a core region for Crescent. To simplify our M&A growth strategy when evaluating opportunities, we have 2 key objectives: first, to buy assets we understand at attractive value, targeting cash-on-cash returns in excess of 2x our money; and second, to make those assets better to drive incremental return to shareholders. Regarding this first objective, in our view, the entry prices of our recent acquisitions are highly compelling for 3 key reasons. First, it's nice to buy more of what you already own at a great price. We acquired over $1 billion of proved developed PV-10 value for $850 million during this summer's pullback in commodity prices. And these assets we know well through our 6 years as a nonoperated partner. Second, the assets provide us with a significant backlog of high-returning Lower Eagle Ford inventory as well as Upper Eagle Ford and Austin Chalk upside. As outlined on Page 10 of our investor deck, this is a compelling resource base with the Lower Eagle Ford EURs on this asset having outperformed the basin average. That provides us the ability to compound our invested capital and earn in excess of 2x our money on low-risk development. In many other recent industry transactions, buyers have had to ascribe material purchase price value to undeveloped resource, which is part of full-cycle returns. And we think our disciplined and opportunistic approach to M&A gives us a leg up on full cycle economics. Third, the assets are highly complementary to our existing business, adding low-decline production, driving financial accretion and providing tangible operational synergies, which will deliver a return in excess of our underwriting expectations. Turning to the second M&A objective of our growth through acquisition strategy. We seek to bring improved operational execution to the assets we acquire. Following the closing of the Western Eagle Ford acquisition, we fully integrated the assets ahead of schedule and immediately began to realize synergies, starting with a 20% reduction in well costs relative to the previous operator. These cost savings are driven by the same improved cycle times and completions efficiencies, driving down costs across our existing Central Eagle Ford operations. The speed with which we have incorporated the assets into our portfolio and having improved our legacy well performance is a testament to both the quality of our people as well as the unique benefits of acquiring assets we know well. To summarize, the Western Eagle Ford acquisitions reflect our strategy in action, adding to our successful track record of buying assets at attractive value and making those assets better. Looking ahead, we will continue to execute on our growth strategy. We see a huge opportunity for continued, accretive acquisitions and firmly believe we have the ability to become an investment-grade company over time. To us, that means adding size and scale with financial discipline. As we pursue our disciplined growth strategy, we anticipate we will be highly active in the M&A market over the next 12 to 24 months. We expect to be an active participant in the ongoing wave of consolidation in the sector, particularly across our core operating areas in Texas and Rockies. Furthermore, we also believe that we are uniquely positioned to participate on the front and backside of energy sector consolidation activity, leveraging our broader investment and operational expertise to acquire attractive assets that may be less core to proforma companies following large-cap merger and acquisition activities. Now before handing the call back over to Brandi, I'd like to discuss sustainability, an area that's core to our long-term business strategy. Yesterday, we published our Annual Sustainability Report. We made substantial progress on our climate initiatives last year, reducing our absolute Scope 1 emissions by 27%. We monitor and evaluate all of our assets to identify opportunities for improvement, and our 2022 progress was primarily achieved through a carbon sequestration project in Wyoming and the replacement of devices. In Wyoming, we are now capturing and sequestering carbon dioxide that was previously vented and selling those volumes to an unrelated third party for use in enhanced oil recovery. In addition to materially reducing our emissions, the project supplements our existing carbon capture footprint with current operational capabilities to buy, sell, capture, inject and transport CO2 molecules. While still early, we continue to progress opportunities in our portfolio to increase cash flow from our carbon dioxide related business. Within our portfolio, we will remain particularly focused on methane emissions and further improving our measurement capabilities. As one of the first U.S. companies to join OGMP 2.0 in early 2022, our measurement efforts have increased tremendously. Last year, we implemented biannual flyovers across nearly all of our assets allowing us to both expedite and enhance our emissions measurement and detection capabilities. As a company focused on growth through acquisitions that inherently means acquiring more emissions but our organization-wide emphasis of proper stewardship ensures we will remain committed to reducing the emissions profile of the assets we own and acquire. With that, I'll turn the call over to Brandi to provide more detail on the quarter and our recent capital markets activity.

As David mentioned, we achieved record production and cash flow this quarter, averaging 157 MBoe per day, generating $290 million of adjusted EBITDA and $160 million in levered free cash flow. Importantly, this quarter's results were only inclusive of the impact of the first of our 2 Western Eagle Ford acquisition, the latter of which will be reflected in the fourth quarter. On capital, we spent $94 million, which will be our lightest quarter of the year due to the timing of wells turned to sales. During the quarter, we brought online 10 gross operated wells in the Eagle Ford, which are posting strong early time results and are expected to generate in excess of 2x our capital invested at current commodity prices. In Q4, we expect both production and capital to increase bringing our full year results near the midpoint of our capital guidance range despite the increase in activity for the year. While we are still finalizing our outlook for 2024, as David mentioned, the capital efficiencies we've achieved to date sets us up well as we expect preliminary production of 155 to 160 MBoe per day and consistent capital spend to this year, which equates to a 2- to 3-rig program. Maintaining capital spend at today's levels despite a 20% increase in year-over-year production highlights that our business requires less reinvestment to maintain our current output, which is a testament to our capital efficiencies we've realized to date and the quality of our asset base. At these levels, we expect to generate substantial free cash flow for the remainder of 2023 into 2024 and beyond. As highlighted on Pages 15 and 16 of our investor presentation, Crescent's peer-leading decline rates and capital efficiency results in significant free cash flow generation and a compelling valuation based on cash flow metrics. Our levered free cash flow over the next 5 years is greater than our current market cap, which is reflected in our approximate 25% free cash flow yield, nearly 50% higher than our peers. With that free cash flow, we expect to maintain our rigorous commitment to cash flow priorities 1A and 1B, shareholder returns and the balance sheet while continuing to grow the business opportunistically through accretive acquisitions. Alongside earnings, we announced a quarterly dividend payment of $0.12 per share, consistent with our publicly stated expectations for 2023 and generating an attractive 4% yield based on recent trading levels. From a balance sheet and capital markets perspective, we've had sustained success in raising capital to support our M&A strategy while maintaining our financial strength. We exited the quarter with leverage of 1.4x and $1.1 billion of liquidity, both well within our targets. Pro forma for closing the first Western Eagle Ford acquisition, our bank syndicate reaffirmed our $2 billion borrowing base and $1.3 billion. We feel great about where we sit from a balance sheet perspective, and we'll continue to use excess free cash flow in the near term to reduce absolute leverage. In the capital markets, we successfully raised $600 million of debt and equity in the third quarter to finance the Western Eagle Ford acquisitions. In September, we priced a $155 million primary equity offering, including the overallotment. The offering represented Crescent's inaugural primary issuance and was extremely well received as we were able to upsize the transaction 10% due to strong investor demand. The offering demonstrated increased access to the capital markets for accretive transactions, with our stock trading up 8% to 9% in the days following and the greenshoe option exercised less than a week after the shares priced. In addition, we raised $450 million of incremental 2028 senior notes during the quarter across 2 separate transactions, further enhancing our liquidity profile and in line with our stated preference for longer duration capital in lieu of the bank market. The offerings continued our momentum in the bond market, and the strong demand is reflective of the benefits from our recent upgrade to a BB credit. In summary, we are pleased with our efforts to efficiently access the capital markets to facilitate accretive growth through M&A and advance our strategic goals. Finally, to provide a brief update on our hedging activity. In line with our strategy of preserving returns on capital, we layered on additional hedges alongside the signing of the 2 recent acquisitions. As we look into 2024, we are less than 50% hedged through a mix of fixed swaps and collars. We continue to like our long-term commodity exposure, particularly given the low decline, long duration nature of our production base.

Thank you, Brandi. There are 3 things we hope you take away from today's call. First, our third quarter performance was exceptional. Record production, record cash flow. We are demonstrating operational efficiencies that will make us stronger and more profitable in 2024 and beyond. Second, we have proven our ability to grow accretively. We have captured high-value transactions and financed them in a fashion that maintains a strong balance sheet, highlighted by long-term capital, strong liquidity and credit metrics, rating agency upgrades and inclusion in the BB bond index. We created scale doubling our business in less than 3 years and are well equipped to continue to do so. And lastly, we have a simple value proposition. We believe Crescent is the best risk-adjusted stock to own for long-term exposure to oil and gas prices. We have a lot of ambition and a lot of work ahead, but we are pleased with what we have accomplished to date, and we intend to continue to do exactly what we say we're going to do. With that, I'll open it up for Q&A.

Our first question is from Michael Scialla with Stephens Inc.

It sounds like you have a lot of visibility on free cash flow over the next few years. As you look at 2024, say, absent any additional M&A, is it fair to think that the vast majority of that goes to the balance sheet and then beyond '24, you can think about returning more cash to shareholders? Or are you thinking about it differently?

Thanks for the question. It's David. I would say, number one, thanks for raising it, we're all about generating free cash flow. That's the investment proposition for the business. As you probably heard us say, our #1 capital allocation priority is return of capital to investors. And as you said, that to us means taking care of the balance sheet, so certainly debt reduction and also paying a cash dividend. We're sticking with the capital framework we have today. So yes, I guide you to sort of more of the same just sticking with the same strategy and the free cash flow certainly take care of the debt, but we are committed to making sure we maintain a dividend strategy that's appropriate for the market and the investors.

Okay. And then pretty impressive reduction in your Eagle Ford well costs, immediate 20% reduction there. Is there any color you can add? I know you have a slide in your deck talking about some of the improved efficiencies. Was any of that contractual? Or any major changes in well designs you made there?

Yes. Actually, the good news is that's pretty straightforward. We've been active in the Eagle Ford for a long time. We think we're good at what we do. And this is a great example of taking over an asset we know well and just continuing to execute the way we were on our own assets. So we've seen improvement in our business this year, and we were able to apply those improvements further to this acquisition. So I think operating really well, nothing specific other than just great execution. But also a really good example of what we're trying to do with the M&A strategy, which is get a great acquisition and value and then enhance that value by doing what we know how to do well. So nothing unusual there other than just doing a good job frankly.

Our next question is from Neal Dingmann with Truist Securities.

Nice quarter, as you said, David. My first question is on your reinvestment rating. What I want to ask is, it seems to me that your solid reinvestment rate often gets overlooked as it's driven by that low base decline and the efficiencies you'll talk about. I'm just wondering, David, could you talk about sort of maybe your future expected reinvestment rate and how this will ultimately drive the production, free cash flow and shareholder return.

Yes. I'll start and then if Brandi wants to add to it that would be great too, but really good question. I would say that generating free cash flow, maintaining a low reinvestment rate relative to peers is just core to what we do. We've done it for 10 years. We've historically been in about 40% of EBITDA reinvestment rate. It ticked a little higher recently, mostly with the, what I would call, the price run-up over the last couple of years, and it gets masked by our hedge program. As those hedges are rolling off, one, I think more cash flow for investors. But secondly, it puts the reinvestment rate more in context. So we've still maintained a 40% to 50% reinvestment rate typically. But I would expect in a levelized world, we're going to outperform peers on that just by the nature of our strategy and commitment to it. I think thinking about us at a 40% to 50% range is reasonable.

Brandi, can you add to the question we dealt.

Yes. No, I think David answered it well. I mean that 20% decline rate that we have is purely driven by that translates to really a capital efficient business. It's just much less intense relative to the broader market. I know we've talked about before, Neal, we're running a 2- to 3-rig maintenance program and that's relative to roughly 155,000 to 160,000 a day go-forward basis, which I think is pretty unique relative to the broader market.

Yes, I would agree. I have a follow-up on capital allocation. David, while I appreciate the focus on debt and the quarterly dividend, I wonder if it makes sense to consider buying back any shares given the notably low valuation and the limited float on the shares.

Yes, good question. Happy to drill down a little more there. The fundamental response, and I'll let Brandi give you some more detail, is we absolutely do consider, what I would call, share buybacks as part of a solid return of capital program. As you know, we've still got an Up-C structure with Class B shares. And so that's a place where we've historically done that. But I definitely would highlight that we do think of dividends taking care of the balance sheet, debt reduction and opportunistic buyback is something that is part of a well-rounded program. But Brandi, you may want to just address the buyback a little more directly.

Yes. We have consistently communicated our capital markets priority since going public nearly two years ago, which is to enhance our float and trading liquidity as key objectives. We have made significant progress, with half of the company now floated and trading liquidity up nearly 200%. However, we still have some way to go in terms of liquidity compared to our peers, which makes the Class A buyback less actionable in the short term. We can still repurchase our Class B private shares, which we have done in the past and plan to continue doing, achieving the same goal of reducing the total number of shares outstanding.

Our next question is from Roger Read with Wells Fargo.

Maybe a follow-up on your comments, David, in the opening on the ability to continue to do acquisitions. Maybe just give us an idea of what the market looks like out there, I mean something similar to what you've been doing, a step out into a different area as a possibility. And then as addition to that, higher interest rates than what you faced in the first couple of years of this strategy, how does that factor into how you think about funding transactions? Or are you seeing valuations adjust to a higher interest rate environment?

Thank you for the questions, Roger. I'm glad you're here. I'll begin, and Brandi and Clay are also with me and can add after I speak. There's still a very active market, consistently between $50 billion to $100 billion each year throughout my career, which continues to be the case. Increased activity by others often leads to more activity from us. One point we wanted to emphasize this time is that large-cap consolidation is likely beneficial for us. We feel optimistic about our pipeline of opportunities and like the current macroeconomic environment. Regarding our operations and your comments on our portfolio and focus, we are performing well and continuing to improve in our core areas, with much still to accomplish. You can expect us to keep expanding those core areas. We are value-driven, and if we excel at something, possess the necessary skills, and find substantial value, we believe we have the widest scope of opportunities in the sector. However, this shouldn't suggest that we will be distracted from our current focus, as we are satisfied with what we are doing. On the financial markets, we believe that if you're patient, the valuations for both equity and debt will soon impact the M&A market, and this typically occurs fairly quickly. We're beginning to see this trend. One advantage of our current position is our proven capability to access public markets; we have increased our presence there. Although borrowing costs have risen and we are now rated BB, we have managed to lower our relative cost of capital during our time as a public company. Therefore, you can expect us to continue pursuing these avenues, and we will only engage in transactions if we believe they will significantly enhance shareholder value.

Our next question is from the line of John Abbott with Bank of America.

I have two questions that focus on 2024. Regarding your production outlook, based on the results from this quarter and your guidance for 2023, when you are shifting some activity from 2024, Brandi, you mentioned a production range of 155,000 to 160,000 BOE per day for 2024. Given the increased activity in 2023, why wouldn't we expect that you would operate at the higher end of that production range?

For '23?

No, '24.

Into 2024. A lot of earnings out there. So yes. So you've accelerated activity into 2023 and your guidance range for 2024 is 155,000 to 160,000 BOE per day was the accelerated activity, why wouldn't you be at the high end of that production range?

Brandi here. As David mentioned, we've had excellent operational execution throughout the year in terms of drilling and completion. This positions us very well as we look towards 2024. Based on our preliminary budget, we believe the range of 155,000 to 160,000 is reasonable in relation to a capital program of about $600 million, which aligns with what we spent this year, even with higher base production. This range still seems fair, and if we end up somewhere within it, that would be positive. However, there is a possibility we could reach the upper end of that range, and we'll provide more formal guidance for 2024 in the coming months.

Okay. I might be stretching things a bit here, but for 2024, could you provide some insight on the production outlook? It seems you are likely to finish 4Q '23 at a peak production level.

Yes. I would expect it to be relatively consistent, both from a production and capital standpoint over the course of next year. Ultimately, it'll be impacted on when wells are coming online. But I think for now, if you modeled it fairly consistent throughout the year, I think that's a good assumption.

Thank you. As there are no further questions, the conference of Crescent Energy has now concluded. Thank you for your participation. You may now disconnect your lines.