Greetings and welcome to the Crescent Energy Q2 2025 Results Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reid Gallagher from Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Crescent's Second Quarter 2025 Conference Call. Today's prepared remarks will come from our CEO, David Rockecharlie; and our CFO, Brandi Kendall. Our Executive Vice President of Investments, Clay Rynd, will also be available during Q&A. Today's call may contain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict, 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 available on the Investors section on our website. With that, I will hand it over to David.

Good morning, and thank you for joining us. Yesterday, Crescent posted financial and operating results for the second quarter. In summary, it was an exceptional quarter of continued execution for our business. As always, I would like to begin with a few key points that I hope you take away from this call. First, Crescent continues to deliver. This quarter, we once again posted strong free cash flow and overall performance. Our excellent results exceeded expectations on all key metrics, and we are enhancing our outlook for the full year. Second, we are driving long-term value through operational excellence. Our strong free cash flow generation is the result of impressive operational execution with record production alongside continued capital efficiency gains and cost savings across our asset base. And finally, we are making the most of this market environment, and we see huge opportunity ahead for Crescent. We operate in a cyclical industry and see volatility as opportunity. We intentionally built a lower decline and less capital-intensive business with commodity flexibility and a consistent hedge program to generate more durable free cash flow than our peers. Our business model allows us to see opportunity and be proactive in periods of dislocation like we are seeing today. Since our last call, we've successfully navigated the market to both acquire assets, including our own stock and divest assets, all at compelling valuations. We have continued to proactively risk-manage the business, strengthening the balance sheet with debt repayment, maturity extensions and additions to our hedge position. And we continue to simplify the positioning of Crescent stock with our transition to a single share class. We've also been driving operational savings through excellent execution across both acquisition integration and our base business. We built this company to succeed through the inevitable cycles of our industry and our performance this quarter demonstrates just that. Following those quick highlights, I will now discuss our results in a bit more detail. We saw record production of 263,000 barrels of oil equivalent per day with 108,000 barrels of oil per day and generated approximately $171 million of free cash flow for the quarter, all well above Wall Street expectations. Our significant outperformance was driven by capital efficiencies, strong well performance and a modest acceleration of activity. Our talented team continues to drive operational savings with increased efficiency of both drilling and completions, improving well costs by approximately 15% in both the Eagle Ford and Uinta Basins since last year. With these savings, we are enhancing our outlook for the year, reaffirming production expectations alongside a reduction in capital and lower cash tax expectations, driving increased free cash flow. Our operating plan for the year remains focused on maximizing free cash flow and returns on capital invested. In the Eagle Ford, we are delivering on the flexible capital program that we highlighted in our initial 2025 guidance, taking advantage of relative commodity pricing with gas-focused activity in the back half of the year. In Utah, we are maintaining our prudent approach to capturing the significant long-term resource opportunity we own. The industry remains active with widespread positive results across the basin. Our joint venture in the Northeast portion of our position continues to show extremely strong performance. We were not focused historically in this area, and the impressive results are giving us an exciting reason to remain patient and methodical as we continue to optimize our long-term development plan. As we look beyond our base business for attractive investment opportunities, the A&D market was quieter in the second quarter with continued volatility in commodity pricing. However, our team has been able to find pockets of compelling value and execute accretive transactions, including both acquisitions and divestitures. First, we acquired attractive minerals assets that complement our existing portfolio focused in Texas and the Rockies. We expect the acquisition to generate returns in excess of our 2x MOIC target and be accretive to free cash flow. The assets fit seamlessly into our existing minerals portfolio, which pro forma contributes roughly $100 million of annual cash flow to our overall business. On the other side of the A&D market, we closed another divestiture of non-operated assets. This accretive divestiture is a part of our ongoing plan to streamline the business and maximize the value of non-core assets in our portfolio, and it brings our year-to-date divestiture total to roughly $110 million. I'm consistently impressed with the focus, drive and creativity that our team brings to finding compelling value opportunities, whether that be in the A&D market or within our own business. This quarter has been a great example of what execution means to us. It means delivering free cash flow. It means delivering strong and consistent operations. It means delivering returns through accretive M&A. But most of all, it means that everyone on our team is always ready, looking for any opportunity to deliver further value for Crescent. With that, I'll turn the call over to Brandi to provide more detail on the quarter.

Thanks, David. Crescent had impressive results for the quarter with approximately $514 million of adjusted EBITDA, $265 million of capital expenditures and approximately $171 million in levered free cash flow. These results build on our strong track record of consistent and significant free cash flow generation, supported by our advantaged decline rate, lower relative capital intensity, returns-focused reinvestment and consistent hedge strategy. Over the last 5 years, we have generated cumulative free cash flow roughly equal to our current market cap, and we continue to trade at a compelling discount on free cash flow metrics today. As David mentioned, we have capitalized on the current market volatility in a number of ways since the first quarter, starting with a meaningful step in our evolution as a public company with the elimination of our Up-C structure in early April and the transition to a single class of common shares, reducing complexity and making our stock easier to own. With the significant dislocation early in the quarter, we repurchased approximately $28 million worth of stock at a weighted average price of $7.88, roughly 12% below our current share price. Our buyback program is an opportunistic tool for us to capitalize on periods of volatility, and we evaluate opportunities to acquire our own stock the same way we evaluate acquisition opportunities. In addition to our repurchase activity, we announced another dividend of $0.12 per share, which altogether equates to an attractive 7% annualized yield. We took steps to further strengthen our balance sheet, using cash flow to pay down approximately $200 million of debt this quarter, increasing liquidity to $1.750 billion. We also successfully refinanced a portion of our long-term debt to strengthen our maturity timeline even further relative to our peers. On top of all that, we were able to add some opportunistic oil hedges to our 2026 portfolio at recent highs. With that, I'll turn the call back over to David for closing remarks.

Thanks, Brandi. Before we wrap up, I want to reiterate our key messages for investors. First, we continue to deliver. This quarter, all key metrics exceeded expectations. We are a cash flow-focused company, and we generated $171 million of free cash flow. And with our strong results, we have enhanced our outlook for the year. Second, we are driving long-term value through operational excellence. Our team continues to outperform. Over many years and many transactions, we have proven our successful acquisition and integration capabilities, and we don't stop there. We are relentlessly focused on finding the gold buried within our own business to increase free cash flow and returns for our investors. Simply put, we acquire assets and we make them better. And finally, we are making the most of this market environment, and we are always prepared to capitalize on any opportunity ahead of us. Our business model allows us to see opportunity and be proactive in periods of dislocation like we are seeing today. And this quarter's performance is a perfect example of our strategy in action. With that, we'll open it up for Q&A. Operator?

The first question is from John Freeman from Raymond James.

We continue to see nice efficiency gains on the D&C per foot, falling another 6% just from Q1 levels. And it looks like most of that improvement was driven by about a 10% improvement on the completion side in terms of just the amount of fluids a day that are being pumped. And just maybe if you all could elaborate on that, if there was some specific change that you all made on the completion side that would have driven that big of an improvement from what you all had just put up in Q1?

John, it's David. Thanks for the question. I would say quite simply, it's just more execution of what we would call best practices. And in particular, we would highlight that we're still bringing simul-frac in bigger and bigger ways to our completion operations.

Got it. I was going to mention that regarding the Uinta, the well results you pointed out on Slide 11 show significant outperformance. You noted that this is an area you weren't previously focused on. Given what you're observing with those wells, although it's still early, does such a level of outperformance influence your approach to capital allocation decisions within the basin moving forward?

Yes, great question. Just as a quick reminder, you'll recall that we acquired that asset really based purely on PDP value. Early days, we were in a pretty low-risk mode, drilling really just one formation. What we've seen in the last 3-plus years is a significant expansion and economic proving up of multiple formations in that area. So long story short, we're very excited about the resource potential. We don't have any need to move too quickly out here. And yes, we're really pleased with what I would call an expansion across our acreage of proven economic inventory. So I think you'll see us continue to allocate capital here, and we just want to do it in the right way, given the significant stacked resource that's now been proven up over the last multiple years that we would not have gone after the day we acquired the asset.

Appreciate it, nice quarter.

The next question is from Michael Furrow from Pickering Energy Partners.

Congrats on the quarter. I was just hoping to get a little more color on recent M&A activity during the quarter with the acquisition and divestiture. The minerals portfolio has grown to be a bit quite sizable, doing $100 million in anticipated EBITDA. And I think that we can all agree that Crescent is really not seeing that value reflected in the share price today and monetization of that asset would likely be the quickest way to kind of recognize that value. So our question is, what's the justification to add to the minerals portfolio here? And what are you guys seeing internally that might not have been as clear to us on the outside looking in, particularly on that asset package?

It's Clay. Listen, first, glad you're asking about the minerals portfolio because I agree with you, it's grown to be a decent-sized business. For us, just to hit the acquisition specifically, super consistent with the strategy, right? Hits the return metrics that we all focus on. As you know, right? We've been building this minerals portfolio over a long time. So it's a part of the market we're active in, we understand. And when we see value drive by, we thought it made sense to grab it, super accretive for the business, in line with kind of how we view the world, highly cash flow accretive. So I think as we thought of that acquisition, especially into a volatile market where we thought we could grab great value, we did it. Bigger picture, look, certainly, we recognize that if you put stop time today and said, are we getting the value for that business today? I don't think we are. And so we're certainly focused on how do we get the best long-term value for our investors around that business. I think there's multiple paths to do that, but something we talk about a lot and are focused on.

It's great, I appreciate the color. Just likely had a follow-up here on the balance sheet kind of move a little different direction. Gross debt is still a little elevated relative to the current market cap, but it's really moving in the right direction. Leverage is quite manageable really on a path to that 1x target. I'd argue that the balance sheet is even stronger than those metrics coming to look at the weighted average maturity and the coupon rate. So to us, it seems like the company is in a pretty strong position to both further reduce debt and repurchase shares. So our question is, how is the company viewing the opportunity to buy back stock at the current valuation? And how is that being balanced with your longer-term leverage targets?

Michael, it's Brandi. Good question. So no change fundamentally as to how we think about capital allocation priorities remain the balance sheet and the fixed dividend. And then after that, it's all about, right, what's the best return on the capital that we can invest, whether that we're buying our stock, it's M&A or we're drilling wells. I think Q2 and how we allocate the capital is probably a good framework to think about going forward. So of the free cash flow that we generated, roughly 80% went to the balance sheet. So you saw us repay $200 million of debt this quarter and the remaining 20% went back to our equity investors through the fixed dividend and the buyback. So again, I think that's an okay ZIP code to think about how we balance the 2 going forward.

The next question is from Charles Meade from Johnson Rice & Co.

I would like to ask David if you could elaborate on why you chose the term dislocation to describe the current A&D market. Additionally, do you have any insights on how you think this dislocation might be resolved in the future?

Certainly. That's a great question. To start, I want to emphasize that we are experiencing various levels of market disruption, and it's definitely operational. In simple terms, while we have accomplished some transactions, we are primarily focused on our core area in the Eagle Ford, where we rank among the top three producers of oil and gas and have actively pursued acquisitions. We are examining everything in the acquisition and divestiture market, particularly in the Eagle Ford, which is highly transactable. This year, we initially observed a reasonably active market for available assets. However, the reality is that over 75% of the asset sale processes we encountered in the Eagle Ford were withdrawn and ultimately did not happen due to the volatility in the second quarter. Therefore, while the market is currently functional and we are closing some deals, we believe there is still a significant amount of activity on the sidelines. We appreciate the opportunity to explore a variety of options, and as the market begins to stabilize, it will help participants to determine where to invest their capital and how to proceed with transactions. We feel well equipped to navigate this environment successfully.

Got it. And to revisit the earlier question about the promising results in the eastern side of your Uinta position. I know it's still early, but do you have any initial thoughts on why the production response is so strong compared to your Uinta? Could it be related to greater depth and pressure, more intensive completions, or a different completion design? Or are you still in the process of figuring this out?

Yes. David again. I'd say long story short is that we played it really safe early on. As I mentioned earlier, we acquired the assets for PDP value. And so we were really focused on just making sure we got what we paid for from a cash flow perspective. And the industry has continued to evolve significantly. So I think there's nothing fundamentally surprising. In other words, the reservoirs are performing very well. And yes, we had a lack of certainty around what that might look like before we allocated some capital there. But fundamentally, much like a lot of the success across the basin, I think we're very pleased, and there's nothing fancy going on here. It's just good old-fashioned performance of strong reservoirs.

The next question is from Oliver Huang from TPH & Co.

David, Brandi, Clay. Just wanted to follow up on the earlier question around efficiencies and the lower D&C. Was there a deflation or a lower service cost component? Or did that have anything to do with where activity occurred during the quarter? Or was it just purely efficiency cycle time driven? And also, are there certain areas where you all see further levers to pull cost down lower over the next year or so, whether from a cash OpEx or D&C perspective?

Oliver, it's Brandi. I'll start. So the driver for reducing our capital guide by 3% is all drilling and completion efficiencies, I would say, from a kind of inflation, deflation standpoint, as we sit here today and look out for the rest of the year, I would say not seeing a ton with respect to service cost deflation. We obviously were the beneficiaries of significant deflation throughout 2024. And then just obviously in the obvious tariff overlay is going to be slightly inflationary. So I would expect D&C costs to creep up maybe $10 a foot in the back part of the year, specifically due to deflation, but that's still well within our updated capital guidance.

Okay. Perfect. That's helpful. And maybe just for a second question, just on the efficiencies that you all have seen. Is there any thought to potential building of DUCs if they were to kind of hold true and lead to running ahead of schedule heading into year-end? Or would the decision point be to slow down a bit or even pull forward some activity into 2025?

Yes. It's David. I think we are very good at managing the business through cycles and planning for the longer term. So long story short, I think our outlook for the year remains the same. I wouldn't expect us to be doing anything different, absent large moves in commodity prices that impact returns.

And maybe also, I'll add, we obviously reaffirmed our full year production guidance on less capital. If we add up the capital and the tax savings, that equates to roughly $100 million of incremental free cash flow for the business this year. And especially in a period of market volatility, we think retaining that $100 million for the benefit of our shareholders is a better use of that extra cash flow than continue to put it into the ground.

The next question is from John Abbott from Wolfe Research.

The first question is about capital allocation. This year, you are directing more capital towards natural gas and are still projected to increase gas volumes in the latter half of the year. You also have the flexibility in the Eagle Ford to make adjustments. My question is whether you are largely set in terms of your activities for the rest of the year, particularly if strong production in the U.S. could lead to declining prices. Do you have the capability to adjust your plans? Additionally, as you look ahead to 2026, how do you plan to allocate activities between oil and gas?

David here. A quick answer is yes, we have not only the flexibility in our asset base, but we also have a proven ability to shift that capital relatively quickly, as we demonstrated earlier this year. In terms of timing, the most important point to note is that we can change our capital allocation in a down market quite rapidly. We feel we have significant control over our capital. While we have a high degree of flexibility, I'd refer back to our earlier discussion this year—typically, about 20% of the program can be adjusted quickly. So, those are the two key points I would emphasize.

Thank you. For our second question, Brandi, this one is for you. You will benefit from the Big One Beautiful Bill. As you mentioned, your cash taxes this year will provide you with a benefit. Looking ahead, it's likely that you won't be paying much in cash taxes over the next several years. The main question is, how do you view your ability to offset cash taxes after 2027 when considering strip pricing?

John, Brandi. Good question. As you mentioned, we are a beneficiary of updated tax legislation similar to other oil and gas companies. As we look at kind of the next 5 years of expected cash tax payments kind of pre-legislation and post-legislation, we think that's roughly $250 million of cash tax savings, so roughly $1 per share. Again, over the next couple of years, right, assuming current commodity prices and a kind of a maintenance level of capital program, expect federal taxes to essentially be $0.

Next question is from Tim Rezvan from KeyBanc Capital Markets.

I wanted to sort of follow up on prior comments on the balance sheet. In talking with you all last night, we sense confidence on hitting or exceeding your asset sale target. It comes on top of pretty strong free cash flow. But when we see leverage in this commodity price environment, we simply don't see a lot of organic deleveraging even if we were to assume several hundred million of asset sales that didn't have earnings. So can you talk about how realistic that 1x leverage target is over the next 1 to 2 years? And maybe kind of looking at it a different way, what's the appropriate debt balance that a company your size should have?

Tim, thank you for your question. This is David. As you know, our framework aims for a leverage ratio between 1 and 1.5 times. As Brandi mentioned earlier in our results, there has been no change in our approach. We are committed to managing the business throughout the cycle, maintaining our capital structure, and ensuring a strong balance sheet. You'll see us continue to pay down debt using our free cash flow. We are currently at the higher end of our targeted range, which aligns with our previous statements. We generate substantial free cash flow and are well hedged with long-term debt, giving us a solid path for reducing debt while staying within our leverage targets. I will let Brandi elaborate on our strategic alignment regarding asset base and leverage in the oil and gas sector.

Yes. I'll add. So as David mentioned, right, we generate a lot of cash. We're well hedged. We have a less capital-intensive business, meaning, historically, we've reinvested 40% to 50% of our cash flows, I do think inherently, our business has an ability to delever over time, both on an absolute basis, but then also with respect to an overall leverage metric. We have roughly $250 million drawn on the RBL today. We would expect that to be repaid out of cash flow as we move towards the end of the year. And then the only maturity that exists before 2032 would be the remaining $500 million of our 2028 notes. As we look forward, again, assuming kind of we're in a similar commodity price environment, we can kind of pay those off again without a cash flow. So as we move through the end of this year into next year, we could be looking at some long-term debt that matures between 2032 and 2034. So again, I feel like we're in a really great spot and really within the guidelines of how we've operated the business for the last 12 years.

Okay. That's helpful context. And I just wanted to tie that to sort of your comments on being countercyclical on the A&D front. I appreciate the comments on the Eagle Ford. So is it safe to say you will remain nimble and that we should think about guidepost as leverage on structure for a deal and that you're comfortable with net debt going up if something is leverage-neutral. Is that the right way to think about opportunities?

Yes. I think for us, right, from an A&D perspective, we want to earn 2x our money or more. We're focused on accretion, and we want to make sure the pro forma business is really strong. And for us, we're comfortable going up to 1.5x. So that's how we evaluate M&A.

The next question is from Michael Scialla from Stephens Inc.

I want to ask just kind of high level, even after you've simplified the structure here with the elimination of the Up-C, your stock is still valued at about a 1 turn discount, at least to our mid-cap peer group. I guess what do you see as holding the stock back? Anything in particular that you plan to focus on going forward?

Yes, I believe it's our responsibility to show everyone how strong this business is. We'll continue to do just that. This quarter is a prime example. We are building a strong operating business with solid free cash flow, impressive returns, and effective risk management. We're not going to complicate things; we just need to keep demonstrating our value.

Understood. I wanted to ask on the Uinta, the decision to pause drilling there when it looks like you have some really good results. I guess how do the returns between the Uinta and the Eagle Ford compare? And if they are similar, can you just discuss the reason for keeping that asset kind of on hold here for a little bit?

Yes. It's David. The short answer is, I think we've talked about before, the oil-weighted portfolio in the company in terms of our ability to allocate capital is similar across the Eagle Ford and the Uinta. But we've got significantly more, what I'll call stacked resource in the Uinta, and we've got a larger acreage position with less development across it. So it's relatively straightforward to us to allocate capital between the two areas on the oil side. We'll continue to do that. And all you're seeing is when we get great results in an area where we have not been as focused, we're going to stop and evaluate that and make sure we maximize the future development there. So we're really excited about it. We've got great resource on the oil side in both the Eagle Ford and Uinta, and I think you'll continue to see us allocate capital effectively across those two basins in a similar way.

There are no further questions at this time. I would like to turn the floor back over to David Rockecharlie, CEO, for closing comments.

Great. Thank you all again. As we said, we're really pleased with how the business is performing, and we're going to continue to do that and get back to work and look forward to talking to you next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.