Infinity Natural Resources, Inc. Q1 FY2026 Earnings Call

Hello, everyone. Thank you for joining us and welcome to Infinity Natural Resources' first quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the call over to Mr. Tom Marchetti, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, and thank you for joining the Infinity Natural Resources first quarter 2026 earnings conference call. With me today are Zach Arnold, our President and Chief Executive Officer, and David Stroll, our Executive Vice President and Chief Financial Officer. In a moment, Zach and David will present the prepared remarks with a question and answer session to follow. An updated investor presentation has been posted to the Investor Relations section of our website, and we may reference certain slides during today's discussion. A replay of today's call will be available on our website beginning this evening. Before I re-begin, I would like to remind everyone that today's call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. All statements that are not historical facts are forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. That could cause actual results to differ materially from those forward-looking statements. Please review our earnings release and risk factors discussed in our SEC filings. We will also be referring to certain non-GAAP financial measures. Please reference our earnings release and investor presentation for important disclosures regarding such measures, including definitions and reconciliations for the most comparable GAAP financial measures. With that, I will turn the call over to Zach.

Thank you, Tom, and good morning. We appreciate everyone joining us today to review Infinity Natural Resources' first quarter results. The first quarter was pivotal for Infinity. We successfully closed the Antero Ohio Utica acquisition in late February, our largest transaction to date, and added working interest in our Pennsylvania assets through the Chase acquisition. These acquisitions immediately increased our scale, with our operated well count increasing from 154 to 395, and our midstream system expanding to over 250 miles of gathering and water pipelines, positioning Infinity for disciplined growth through the end of the decade. Importantly, we did so while preserving the quality of our balance sheet through strategic financing, including the issuance of perpetual preferred securities and senior notes. Since closing these transactions, our teams have been focused on integrating the assets into our operational platform. This includes onboarding personnel, evaluating the new inventory, and identifying opportunities to optimize operations across the acreage and associated infrastructure. The more time we spend with the ANTERO assets, the more excited we become about the opportunity, especially the midstream infrastructure, which we will discuss in more detail in a few minutes. Before that, let me review production and operating highlights from the first quarter. Net production averaged 299 million cubic feet equivalent of gas per day, a year-over-year growth rate of 88%. We turned to sales four wells in the volatile oil window with 53,000 lateral feet, two in early February and two in mid-March. On the operating front, we added a second crack crew and a second rig during the quarter, and we stimulated 11 wells and drilled 10 wells to TD, which is a company record. One of the crackers was deployed to the assets we acquired from Antero approximately 30 days after closing, near the end of 1Q, and we expect to turn these first three wells from the acquisition to sales during the second quarter. We've had one rig on legacy Infinity volatile oil window assets and one rig on legacy Infinity natural gas assets since January, and we intend to move a rig onto the newly acquired Antero assets later this quarter. As we have previously discussed, our plan for the balance of 2026 is to run one dedicated rig on legacy infinity assets, drilling both volatile oil and dry gas wells, and one rig on the newly acquired assets. As of today, we have accelerated completion activity in our volatile oil window to capture stronger near-term returns, which includes pulling four oil-weighted wells into the second quarter from later in the year with mostly unhedged barrels. That said, we retain the flexibility, as always, to quickly pivot between commodities and will lean harder into the natural gas market if conditions warrant the shift. We continue to focus on longer laterals. During the first quarter, the average lateral length turned in line was over 13,000 lateral feet. We benefit from efficient cycle times with multi-well projects continuing to reach first production within six to seven months, supporting faster capital recycling and improved returns. As an example, we started drilling on four-well, 55,000-lateral-foot oil-weighted pad in November, and we expect to turn in those wells in the coming days. Back to our newly acquired midstream infrastructure, in our minds, the scale and versatility of this unique system is vastly underappreciated, with 140 miles of gathering lines, 90 miles of water lines, six compressor stations, 43 compressors, and nearly 80,000 horsepower. This is a turnkey system with no leak time or bottlenecks that would likely take years to replicate. We have retained nearly all the field employees associated with these assets and hired additional senior leadership for midstream, including a VP at midstream. The continuity and deep expertise of our midstream bench is truly invaluable. We are excited by the value that we can unlock from this system. To put it bluntly, we believe it is poised to become a meaningful contributor to future results as we are one of the limited number of operators in the Appalachian Basin with owned midstream infrastructure. Currently, the system is underutilized, operating at less than a quarter of its currently available capacity, providing significant runway to support not only our own development, but also third-party volumes. We received third-party volumes on the system for the first time during the first quarter, and we will be focused on increasing third-party volumes on the system. As we move through the year, we expect to drive a meaningful ramp in throughput that will contribute to our financial results. This infrastructure also provides a significant structural cost advantage as we leverage existing pads and pipeline connections, significantly reducing or eliminating the need for incremental midstream capital on new development. As of today, approximately 75% of Infiniti's natural gas volumes are flowing through our own midstream system, and we expect that to increase as we ramp development. This system creates a strategic advantage for us that we expect to drive improved margins and lower break-evens over time. We'll share more over time as we continue to operate the asset system. I will now spend a few minutes on the macro. We remain constructive on the longer-term outlook for both liquids and natural gas. Oil and liquids markets in Appalachia remain strong, with a combination of domestic and international demand from refining and chemicals driving a favorable pricing environment. Beginning in April, we have increased our take-in-kind NGL volumes, which provides us greater control and optimization of the realized pricing specific to propane, butane, and pentate. For natural gas, we see a clear cadence of demand growth, with near-term strength driven by LNG exports, continued momentum from gas-fired power generation, in-basin data centers, and longer-term expansion tied to industrial development. As these demand drivers scale, we expect regional gas differentials to tighten alongside broader market growth. Given our outlook for oil and liquids, we've leveraged the flexibility of our platform to adjust our completion schedule and accelerate facilities construction to pull forward oil-weighted wells into 2Q to capture stronger price realizations. We will continue to evaluate our development plans across the portfolio with a focus on directing capital toward the highest return projects. Against this backdrop, here is where our plan stands for the second quarter. As I touched on earlier, we expect to turn in line a four-well pad in the volatile oil window in the coming days, representing 55,000 lateral feet. We also expect to bring to market our first barrels from the Antero acquisition later this quarter, a three-well pad in our rich gas area with 53,000 lateral feet. That's a total of seven wells turned in line and 109,000 lateral feet during the second quarter. With that, I will turn the call over to David to review our financial results and outlook. Thank you, Zach, and good morning.

Our financial and operational results for the first quarter reflect continued execution by our team. We anticipate that our production will increase each quarter throughout the remainder of the year. During the first quarter, our net production averaged 299 MMCFE per day. We expect the first quarter to be our lowest production total for the calendar year. In terms of the components of production, oil production totaled approximately 9,600 barrels per day for the quarter, up 16% year-over-year. Natural gas production averaged 195 mm CFE per day, up 169% year-over-year. And NGL production increased 25% year-over-year to 7,800 barrels per day. Natural gas represented 65% of our total production, with oil being 19% and NGLs being 16%. Turning to financial performance, we generated approximately $155 million in revenues for the quarter and adjusted EBITDA of $97 million, representing adjusted EBITDA margins of approximately $3.61 per MCFE, which we believe is best in class in the Appalachian Basin. The company saw improved natural gas prices during the period that averaged $4.86 per mm BTU. Our regional differentials remained steady at $0.69 per mm BTU, reflecting a greater weighting towards a lower BTU content in our gas stream.

Oil price realizations for the period were $65.77 per barrel.

First quarter oil differentials tightened to slightly less than $7 per barrel during the period. We anticipate our oil differentials to remain consistent, around $7 to $8 per barrel for the second quarter. NGL realizations were strong during the quarter, supported by better NGL composition, firm pricing and export-driven demand, contributing to the overall strength of our revenues, and reinforcing the value of liquid-to-weighted development. Turning to costs, our controllable cash operating costs during the quarter totaled $1.43 per MCFP. These costs reflected the impact of an extremely cold winter, which drove higher rental costs and snow removal, as well as true-ups for annual compensation. On a year-over-year basis, controllable cash operating costs declined approximately 18%, a reflection of the benefits of scale and improved operating leverage. As volumes grow across our Appalachian platform and we increase the utilization of our own midstream infrastructure, we expect our overall cost structure to improve further. During the first quarter, capital expenditures incurred were approximately $123 million, which included $112 million on development activities and $11 million on land activities. Our capital allocation strategy remains disciplined and focused on long-term value creation. During the quarter, we deployed completion crews to prioritize development in our volatile oil window to capture the strength of near-term oil markets. Our stimulation activities are expected to shift back toward natural gas towards the back half of this year. We continue to prioritize high return opportunities across our Utica and Marcellus assets, selectively expand our inventory through accretive acquisitions and organic leasing, and maintain a strong balance sheet with ample financial flexibility. During the quarter, we raised $550 million in senior notes, $350 million of preferred equity. The transactions enabled us to pay down all outstanding debt under our revolving credit facility and increase our liquidity position, while expanding our investor base with institutional credit investors and premier energy investors in Quantum and Carnelian. We are well positioned with financial flexibility to execute our business plan. At the border end, we had net debt of approximately $477 million and total liquidity of approximately $929 million. Our pro forma net leverage on an LTM basis was 1.3 turns during the period. We would anticipate our net leverage ratio to decline during the course of the calendar year towards our target leverage level. For 2026, we continue to expect net production to average between 345 and 375 mm CFE per day, representing growth of approximately 70% year-over-year, with gas production of approximately 235 to 255 mm CFE per day, and oil-slash-liquids production of 18,000 to 20,000 barrels per day. Development capital expenditures, which are a combination of drilling and completions and midstream capital expenditures, are expected to range between $450 million and $509 million. With that, I will turn the call back to Zach for closing remarks.

Thank you, David. As we move through 2026, we are advancing development across our assets with a continued focus on consistent operational execution, strong financial returns, and long-term shareholder value creation. Across the Ohio Utica and Pennsylvania Marcellus and Utica, our portfolio offers a deep inventory of high-quality development opportunities supported by our own midstream system. We are particularly excited about the opportunity within our midstream platform, where increasing volumes flowing through the system are not only driving incremental efficiencies and margin benefits, but also positioning MISREM to become a more meaningful contributor to earnings and cash flow. We will continue to evaluate complementary acquisitions that strengthen and expand our integrated Appalachian business, while also assessing development timing and potential hedging opportunities to optimize returns in the current commodity price environment. Operator, please open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Please limit yourself to one question and one follow-up. To withdraw your question, simply press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Scott Hanold with RBC Capital Market. Your line is open. Please go ahead.

Yeah, good morning, Zach and team. Look, I mean, obviously, as your business strategy have been, you're very flexible to change your activity pace and cadence with the commodity and the macro and pulling forward some more oil stuff. Can you just give us a sense of what should we expect on some of the cadence on some of that oil production? And, you know, obviously, you know, one or two wells, you know, can make a big difference from y'all. But, you know, it seems like should we see a bigger step up in oil? And can you kind of talk about, like, how the base decline rate works right now with y'all and what to expect?

Great question, Scott. This is Zach. I'll take the first part of that, and David can kind of chime in. We'll tag team it. But I think first and foremost, I'll address your decline question. I think we continuously are pleased and proud of our PEP and our new well performance. I think we've had very nice results, and we continue to demonstrate that. As we exited last year, we had a really big ramp into the end of the year. It was driven by a lot of turn in lines in late Q3 and early Q4. So that saw a big ramp there. And the wells that we talked about turning in line in this quarter or in second quarter production, as they came in line late in the quarter-life development, really showing in June. I'm sorry if I missed anything else in your question that you want to add back into.

Your next question comes from the line of Tim Resden with KeyBank Capital Markets. Your line is open, Tim. Please go ahead.

Good morning, folks. Thanks for taking our questions. Scott sort of stole our first one on the oil, so I appreciate the outlet there. But I did notice you have a 10,000-foot Utica test being spud this quarter. I know there's been some – it seems like it may be underway soon or it's finally going to happen here. There's no completion schedule timeline this year. I guess maybe it's more of an early 2027 event. But can you talk kind of about your pre-drill expectations for this well? Do you view this like a development well? Is it more like a science well? Is there anything specific you're kind of looking to confirm here? And just any idea on when you plan to turn it for sales would be helpful.

Yeah, all good questions, Tim. And it's a question that we get quarter for quarter. I think what we can say right now is we continue to watch offset operations and are monitoring what our peers are doing. We do have a rig on that location, and it's going to be focused on the science portion of this project. We'll do some – we'll drill a vertical pilot and collect some data there that we'll analyze. You were right in noticing that we don't intend to drill this well horizontally or complete it in this calendar year.

I guess for updates on that, I think on a big picture kind of M&A trend, we see the same thing you all see with leverage kind of going to or below one turn by the end of the year. And I know you're integrating Intero, but I like larger.

Yeah, I think, and thanks for the question, Tendence, Dave. I think for us, you know, one of the things that we were very cognizant of is both integrating and positioning the company for continued opportunity sets. And so highly active in that. We are highly selective in that environment also. So we are very well positioned to capture that we see that fit our – and so we will continue to evaluate those as they come to – across our sort of desk, if you will. But we are very selective in that. Obviously, we've integrated a very big asset here. That integration has gone extremely well and positions us to not just execute on our development plan that we have in Fargo's, but positions us to have the flexibility to evaluate other things.

I appreciate the context, folks.

Your next question comes from the line of Nicholas Pope with Roth Capital. Your line is open. Please go ahead.

Good morning, everyone. Good morning. I'd like to talk a little bit more about the integration of the Antero assets. Obviously, they haven't seen a lot of drilling in the past few years before you guys acquired them. And just as you kind of, you know, I think we're three months, almost three months into owning the asset. I'm curious kind of as you look maybe at the existing producing base, like maybe what the opportunity set looks like low-hanging fruit to kind of optimize production on that asset and maybe how that might flow through LOE kind of in the near term as you kind of look at some of that opportunity set if anything changes maybe or kind of how you're looking at that asset as you've kind of gotten in the house?

No, that's a great question. Thank you for asking. This is Zach. I'll take a first crack at it. I think first and foremost, we are identifying some low-hanging fruit and things that our production engineering team can focus on, and it's kind of small ball stuff where you're working on bottom hole assemblies and plunger lists and some things that are just really optimizing the existing legacy production there, but still it's work that you should do, and we're excited about that, and our team's focused on that. When you think about LOE impacts, we're still completely getting our mind around the optimization of these wells that we can do. I think owning our midstream is first and foremost critical, but one spot where we see some exciting near-term activity to help that is with reusing of water with the increased completion activities on these assets and our legacy assets in Wolf Run gives us a better capability to reuse water from the field, and that should have a net positive impact there on some of our...

And I guess maybe stepping back a little further on the broader LOE for the company, how do you anticipate that kind of shape over the remainder of 2026 since you kind of look at these assets?

Sure. So, you know, I think, you know, you look at the first quarter, our LOE kicked up to about 33 cents in MCFE. I think that's more of a reflection of the very, very harsh week. I think if you look at year over year, our costs have gone down significantly. We would anticipate those costs to continue to decline as they've had, you know, trendline-wise. In 2025, I would continue to anticipate that to occur in 2026. With regards to the Entero integration and the impact therein, as that kind of mentioned, with our ownership of the mystery map, that's we start with a significant head start because our GP&T cost is a raised, we continue to decline.

I appreciate the time, guys. That was very helpful.

Your next question comes to the line of Michael Schala with Stevens. Your line is open. Please go ahead.

Good morning, guys. You were able to add some acreage during the quarter. I just want to see what the opportunity set looks like there. Is it any different now with the Ontario acquisition and maybe how the cost of land has changed over the past year? Can you give any sense there, however you want to break it down in terms of cost per new drilling location, and maybe the difference between Ohio and Pennsylvania?

Yeah, we've been really proud of what our team's done to continue to add acres, especially in a quarter that was overshadowed by closing of two deals. So them adding acres, I think, was an assessment of their ability to execute two jobs at once. So very, very proud of that. We've seen nice opportunities to add acres both inside and outside of our units in both Ohio and in Pennsylvania to give them a focus, dollars effectively, in areas that we're interested in. I think with the – that we'll get developed and it costs into our inventory so that we can get the return on those lease dollars very quickly.

Appreciate that, Zach. I know you guys have talked about, you know, at some point to cash flow, maybe your latest thoughts.

I mean, I think in terms of our overall development program and the guidance that we've provided, you know, obviously this is a fairly capital-intensive year, as we've discussed, appears walking lower this year than last year, and we would anticipate that trend to continue into the coming years.

Okay, fair enough. Thanks, guys.

Just a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Your next question comes from the line of Paul Diamond with Citi. Your line is open.

Please go ahead uh thank you good morning all nice taking the call i just wanted a quick one to touch on you guys talked about shifting activity more towards dry gas in the latter half of the year i guess from production perspective how should we think about that um cadence-wise is that a pretty linear progression or would we still expect to see those kind of step change moves in terms of step change of the production paul uh yes the more the more the more chunky moves in production, you know, up on a low, down on gas, that sort of thing.

Yeah, I would expect that, you know, we will still exhibit heightened growth in every one of our hydrocarbons each quarter going forward. I think the cadence of activity would lend itself to have a really heightened third quarter with regards to turning lines relative to the overall year. I do think that adding natural gas towards it does have an impact on our overall natural gas volumes, but, again, it's sort of relative to the other components. We don't necessarily expect it to be, you know, it's a question of what is the degree of step change, but we would anticipate each quarter to be higher than the last, kind of shape the exact answer you want there, but I would tell you that we would anticipate our fourth quarter to be our highest production.

Got it. And then just let me correct more strategy questions. So, obviously, you guys have been growing the previous clip, both organically and in. Thinking about how you see that growth rate in the 27 and beyond, is there kind of a point where you see it slowing, the ocean leveling off, or is it kind of a target rate where it's like, okay, where it gets to that next level where X, Y, E can occur? I guess from a strategy perspective, where does – is how many should we expect that growth to remain?

I think, look, a lot of small – a lot of big numbers and small numbers or aspects is you can't continue to grow at a 70%, 80% at a clip. For us, as we think about 2027 and beyond, obviously, we haven't provided guidance on that. I think it's fair to say that our production growth will still be relatively elevated compared to our peers, but we would start to expect to trend down as a percent of reinvestment rate over that time period.

Understood. Appreciate the time on the answer.

Your next question comes from the line of Scott Handels with RBC Capital Market. Your line is open. Please go ahead.

Thanks. Sorry, I had my cell phone mute before when I was asked my question. But my follow-up was on the infrastructure and the infrastructure utilization. You know, obviously, you all talk about it. It's sort of being underutilized right now, and that opportunity to kind of continue to grow that. Can you speak to, like, how much of the capacity, you know, do you think you'll reserve for third parties versus keeping it for yourselves in your production growth? And, you know, what kind of third-party revenue growth could that generate here over the time?

Yeah, I'll take the portion on the first part of that question and handle that. So I think first and foremost, when we look at these assets, we're incredibly impressed in position. and walking across some of these compressor stations and realizing just the infrastructure that's in place there and how little utilized it is today gives us a lot of excitement about ways that we can continue to grow. So I think when we think about ways to lever the expertise that we're adding to the team.

Yeah, I would just add, Scott, that we're actively developing in that area, as Zach's highlighting. But we are highly incentivized.

When you send up these contracts with these third parties, are they more like, you know, spot kind of month-to-month kind of volumes, or are you, you know, locking in?

Yeah, I think at this stage we'll probably stay a little bit mute on that. I think it's a case-by-case basis on a lot of the opportunity sets that we see, but we'll probably talk a little bit more about that tool, you know, during the course of the year as we ramp up things.

As you think about modeling, right now it's a really small number, so it's not that impactful. It's really just opportunities that we're making sure that we're thoughtful with exploiting.

Appreciate it.

There are no further questions at this time. I will now turn the call back over to Zach for closing remarks. Please go ahead.

We're going to call today. We're going to be in the company, and we look forward to sharing additional results with you soon. Operator, back to you.

Thank you. This concludes today's call. Thank you for attending. you may now disconnect.