Infinity Natural Resources, Inc. 2026 Q2 Earnings Call

Good morning, and thank you for joining Infinity Natural Resources' second quarter 2026 earnings conference call. With me today is Zack Arnold, our President and Chief Executive Officer. In a moment, Zach will present his 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 we begin, I would like to remind everybody that today's call may contain forward-looking statements. 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 these forward-looking statements.

Please review our earnings release and the risk factors discussed in our SEC filings. We will also be referring to certain non-GAAP financial measures. Please refer to our earnings release and investor presentation for more important disclosure regarding such measures, including definitions and reconciliations to the most comparable GAAP financial measures. With that, I will turn the call over to Zach.

Thanks, Tom, and good day everyone. We are glad to have you with us to review Infinity Natural Resources' second quarter results. It was a busy and productive quarter for our team, and I want to start by thanking everyone at Infinity for the work that went into it. Before we get into our operational and financial results, I would like to spend some time discussing the changes in our leadership. As we announced yesterday, David Sproule will be stepping down as our Executive Vice President and Chief Financial Officer. David is one of the founders of Infinity, and we would all like to thank David for his dedication and passion to Infinity. I would also like to take this time to welcome Cary Baetz and Andrew Judge to Infinity Natural Resources.

Effective August 12th, Cary will be assuming the responsibilities as Executive Vice President and Chief Financial Officer, and Andrew will add a layer of expertise to our existing team as Senior Vice President of Finance. Cary has a strong track record of raising capital, leading companies through significant transactions, and building the financial infrastructure to support the kind of growth we expect. Andrew brings deep in-basin upstream expertise and a proven ability to secure capital, evaluate M&A opportunities, and build strong investor relationships. We are excited to have both executives join our leadership team and, together with our recently expanded board, continue building the organizational depth and leadership necessary to execute on our long-term strategy. Now let's move on and discuss our results. The second quarter reflected continued execution of our strategy. We delivered strong production growth and our highest quarterly adjusted EBITDAX in company history at $115 million.

In addition, we transitioned from integration to active development of our recently acquired Antero assets, bringing our first wells online and beginning drilling operations on a second pad during the quarter. We have recently completed drilling the second pad and have begun drilling on a third pad. Now more than a full quarter into owning these Ohio Utica assets, we remain very encouraged by the potential to scale the upstream assets with what has been an underutilized midstream system. As we continue integrating these assets, our conviction in their long-term value only continues to grow. Our strategy remains unchanged. We continue to execute the disciplined growth plan we have consistently outlined by scaling production, increasing utilization of our integrated midstream assets, maintaining leading capital efficiency, and lowering controllable costs. At the same time, we continue to evaluate M&A opportunities that strengthen the platform and enhance its long-term cash generating capacity.

Turning to our production and operational execution during the quarter. Net production averaged 348 Mcfe per day, a year-over-year growth rate of 75%. We brought a total of 10 wells online in Ohio, including the first three rich gas wells from our Antero acquisition and seven other Volatile Oil wells. On the operating front, we spudded nine wells, including four Volatile Oil wells in Ohio, two rich gas wells in Ohio, two dry gas wells in Pennsylvania, as well as our first deep dry gas Utica well in Pennsylvania. We drilled a vertical pilot on the deep dry gas Utica, collected subsurface data for analysis, and drilled a 9,500-foot lateral. We continue to evaluate the results of the core and data we collected to refine our technical understanding, and we look forward to sharing more with you in the future.

In terms of execution, our operations team continues to raise the bar. During the second quarter, we delivered another step change in drilling and completion efficiency, increasing lateral feet drilled per day by 15% compared to our 2025 average, while maintaining 100% in-zone geosteering accuracy. We also successfully validated a revised completion design that reduced completion cost by $50 per foot in Guernsey County through higher proppant loading, extended stage spacing, and reducing the number of frac stages. These operational gains improve capital efficiency, accelerate cash flow generation, and reinforce the scalability of our integrated Appalachian development platform. As we look to the third quarter, we expect to turn in line seven wells. This includes a four-well pad we expect to turn in line in the coming days in the Volatile Oil Window, and a three-well pad we turn in line in mid-July in our dry gas-weighted Pennsylvania Marcellus acreage.

Our diversified portfolio provides the operational flexibility to allocate capital to the highest return opportunities. Our midstream infrastructure will play a critical role in the reduction of our per-unit cost as we increase system utilization. Since the end of the first quarter, our system utilization has increased approximately 30%, with approximately 70% of our current gross natural gas production flowing through our wholly owned low-cost system today. We now have approximately 1 Bcf per day of gathering capacity across our integrated midstream system, including roughly 400 million cubic feet per day of capacity in Pennsylvania and 600 million cubic feet per day in Ohio. This system is currently operating at approximately 35% total utilization, providing significant capacity to support future production growth without meaningful incremental infrastructure investment and an opportunity to attract third-party volumes. The strategic value of our midstream system extends well beyond its current utilization.

Replicating a comparable footprint today would require substantial capital, long equipment lead times, and significant execution. This infrastructure also allows us to market our production more effectively. Today, our premium market access on the gas side is largely tied to REX Zone 3. As additional in-basin sinks continue to develop, we expect to diversify the markets where we sell our gas products. Our dual commodity strategy across Ohio and Pennsylvania gives us the flexibility to direct volumes to whichever markets and end customers make the most sense. On the liquid side, we continue to see growing optionality with end customers, and as our volumes scale and we bring more marketing functions in-house, we believe we have an opportunity to capture additional margins over time. Starting in March, we began taking in-kind the majority of our propane, butane, and pentane products.

We've recognized an uplift in propane price realizations over prior periods. Getting into more operating details and our financial performance. During the second quarter, our net production averaged 348 million Mcfe per day. Oil production totaled approximately 12,400 barrels per day for the quarter, up 102% year-over-year. Natural gas production averaged approximately 217 million cubic feet per day, up 73% year-over-year, and NGL production increased 57% year-over-year to approximately 9,500 barrels per day. Natural gas represented 62% of total production, oil 21%, and NGLs 16%. Turning to second quarter financial performance, we generated approximately $171 million in revenues for the quarter and adjusted EBITDAX of $115 million, representing adjusted EBITDAX margins of approximately $3.62 per Mcfe, or roughly double that of our Appalachian peer group average. NYMEX natural gas prices during the period averaged $2.89 per MMBtu.

We realized $2.34 per Mcfe on natural gas sales, benefiting from our premium market access and transportation portfolio, including sales through the REX Zone 3 market. Our oil price realizations for the period were $85.41 per barrel, with oil differentials of approximately $7.10 per barrel. NGL realizations increased 70% year-over-year to $32.27 per barrel, reflecting a more favorable production composition and stronger NGL pricing, which supported margins during the quarter. On costs. Our controllable cash operating costs were down approximately 9% from the second quarter of 2025 and slightly down sequentially from the first quarter of 2026, excluding firm transportation costs. During this quarter, controllable cash costs totaled $1.58 per Mcfe, comprised of $0.32 per Mcfe of LOE, $0.93 per Mcfe of GP&T, $0.20 per Mcfe of recurring cash G&A, $0.07 per Mcfe of midstream operations and maintenance expenses, and $0.06 per Mcfe of production taxes.

Let me take a minute to discuss our GP&T specifically. Our reported GP&T expense increased during the quarter, primarily due to the inclusion of firm transportation costs related to the REX Zone 3 contract that we assumed in the Antero Acquisition, as well as the increase in overall volumes. Excluding firm transportation costs, GP&T expense was $0.69 per Mcfe in the second quarter, reflecting a decline in operating costs quarter-over-quarter. The other factor that contributed to our costs was an increase in liquids weighted development. As our production mix shifted toward liquids, we earned more revenue per unit, but liquids require more processing and fractionation than dry gas, so a modest piece of the increase reflects real incremental cost that comes with a more valuable production mix and margin uplift.

Looking at our full controllable cost stack, including LOE, GP&T, cash G&A, and production taxes, we expect this to decline structurally as volumes grow across our platform and the company increases its development of both the acquired Antero properties and our dry gas assets in Pennsylvania with those volumes flowing through our own midstream system. During the second quarter, capital expenditures incurred were approximately $137 million, which included $129 million on development activities and $8 million on land activities. Our strategy is to build an integrated Appalachian platform that increases in value over time. Rather than viewing each acquisition as a standalone transaction, we view each investment as another building block that strengthens the overall platform. Additional inventory extends development opportunities, producing assets increase scale, and midstream infrastructure lowers costs while creating new commercial opportunities.