Crescent Energy Company M&A announcement

Reid, please go ahead. will be accurate as of the time of the replay listening or transcript reading.

In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Crescent's management. However, various risks, uncertainties and contingencies could cause our actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our annual report on Form 10-K, our current reports on Form 8-K, as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies, as well as to review additional disclosures associated with the pending acquisition.

The pending acquisition, which is currently expected to close in the fourth quarter of 2026 or early 2027, will be subject to customary closing conditions and receipt of required regulatory approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act. Now, I would like to turn the call over to David.

Good morning, and thank you for joining us. Today, Crescent announced an agreement to acquire Devon Energy's Eagle Ford assets for a net purchase price of approximately $3.85 billion. This is another logical and valuable step forward for Crescent, and it is a continuation of the same strategy we've executed consistently for more than a decade. Acquire high-quality assets at attractive returns, apply our proven operating strategy to improve performance, and create long-term value through free cash flow. By combining both investing and operating expertise, we have built Crescent into a top 10 independent operator with a world-class Eagle Ford position, where we will now be the second largest producer. We have a streamlined portfolio of scaled assets across the Eagle Ford, Permian, and Uinta Basins, and we have significant operational upside embedded in our portfolio.

You've seen us deliver on that upside so far this year with operational improvement on a unique trajectory in our sector. We are driving down well costs and enhancing margins to extend our inventory life, reduce our breakevens, and increase free cash flow and returns across our portfolio. As we highlight our operational capabilities, I want to recognize the hard work and outstanding performance of everyone on Team Crescent who has helped us deliver on our integration and operational value creation year to date. Crescent is strong and positioned, and we were ready to seize this opportunity. Our ability to acquire these assets accelerates and expands the operational value creation potential within our business today. This addition to our portfolio solidifies Crescent's position in the Eagle Ford as truly world-class. As we integrate these assets and continue to drive operational value creation, our measure of success remains the same.

We want to deliver multiples on invested capital. Crescent already presents a differentiated value proposition in the sector, and we believe this acquisition enhances our ability to achieve that goal. With that, I want to begin with a few key takeaways about the acquisition. First, the strategic fit is truly differentiated. We have owned royalties under these assets for more than a decade and have operations directly offset. We know the acreage, the geology, and the operating environment as well as any asset in our own portfolio today. The acquisition adds approximately 68,000 barrels of oil equivalent production per day, nearly 40,000 barrels of oil production per day, and more than 600 net locations in the Karnes Trough, with economics that compete with anything in the Lower 48. Second, the acquisition returns are compelling and the accretion is meaningful.

We are acquiring premier assets for approximately 3x EBITDA and adding Tier 1 inventory for less than $2 million per net location. We expect base returns in excess of our 2x multiple on invested capital target and significant accretion across all key metrics, including cash flow, free cash flow, and net asset value. Third, this acquisition accelerates and expands our operational value creation efforts that are already underway. Pro forma Crescent has lower breakeven inventory, higher margin cash flow, and lower capital intensity, all driving enhanced free cash flow generation. We see significant opportunity to make these premier assets even better and have identified approximately $140 million in annual synergy potential. Finally, this acquisition is transformational for our market-leading royalties platform. Our existing minerals ownership overlaps substantially with the acquired assets, and the transaction includes approximately $50 million of incremental royalties EBITDA.

In addition to the added scale, we will now operate a significantly higher portion of the Crescent Royalties portfolio, meaningfully improving visibility into future development and cash flow generation. Pro forma for the transaction, Crescent Royalties is a bigger, better business and well-positioned in both scale and quality versus public royalties peers. In summary, this is a very attractive addition to our portfolio, but it is more than just an asset acquisition. It is another major step on our journey to create a leading energy company. Over the last three years, Crescent has built a world-class position in the Eagle Ford. Since June 2023, we've announced nine major Eagle Ford acquisitions and realized more than $200 million of annual synergies. We have a proven track record in the basin, acquiring assets at attractive value, integrating them efficiently, and improving their operating and financial performance.

We have lowered well costs, increased lateral lengths, improved completion efficiency, optimized field operations, and captured commercial benefits from our growing scale. We have a lot more operational value creation still ahead of us. This transaction gives us the opportunity to expand our proven playbook in the heart of our core operating area. With that, I'll pass the call over to Joey.

Thanks, David, and good morning, everybody. Building on that introduction, these assets accelerate and expand Crescent's opportunity to create value through operational improvements. We're adding high-margin production and more than 600 Tier 1 net locations to our portfolio, driving a step change in capital efficiency and free cash flow generation. The Karnes Trough is one of the lowest breakeven oil resources in the Lower 48, and Devon's recent well results demonstrate the potential of these assets. Pro forma for the transaction, Crescent will have approximately 6 years of sub-$50 breakeven inventory, approximately 10 years of sub-$60 breakeven inventory, and more than 15 years of total inventory life. While these assets are extremely high quality, we see a significant opportunity to improve the performance by executing our playbook. We have identified approximately $140 million of synergy potential across drilling and completions, LOE, and marketing.

The clearest example of operational upside here is development optimization, where we see significant potential to improve well cost and increase capital efficiency through longer lateral development and surface design efficiencies. This isn't new for us. Across our 5 most recent acquisitions of scale, we've increased average lateral length by more than 25% versus previous operators, driving a step change in cost structure, increasing returns, and lowering breakevens. With this change alone, we expect to deliver approximately $100 million in annual synergies from the Devon assets. Our message today is straightforward. These are premier assets that clearly expand Crescent's upside, and our track record demonstrates our ability to make them even better. On a personal note, while today's focus is on the business merits of this transaction, I want to recognize the hard work and dedication of the Devon Eagle Ford team.

I look forward to meeting you soon and welcoming those of you who will join us here at Crescent. With that, I'll turn it over to Brandi.

Thanks, Joey. We are acquiring these assets for a net purchase price of approximately $3.85 billion, with a July 1st effective date and an expected closing in the fourth quarter of 2026 or early 2027. We expect to fund the acquisition through a balanced combination of debt and equity, designed to preserve balance sheet strength and support efficient deleveraging. As part of the equity financing, KKR, a longstanding investor and strategic partner, has committed $500 million in support of the transaction. From an investment perspective, the transaction is consistent with our disciplined underwriting framework. The existing production base provides meaningful valuation support, including approximately $2.3 billion of proved developed PV-10, plus significant royalties cash flow, while the acquired Tier 1 inventory and identified operating improvements provide additional upside.