Crescent Energy Company 2026 Q2 Earnings Call

Thank you for joining Crescent's second quarter 2026 conference call. Today's prepared remarks will come from our CEO, David Rockecharlie, and our CFO, Brandi Kendall. Our Chief Operating Officer and Executive Vice President of Investments will also be available during Q&A. 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 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 reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures, please reference our 10-Q and earnings release available in the investor section of our website. With that, I'll hand it over to David.

Good morning. Thank you for joining us. Crescent delivered another record quarter. I want to begin by thanking our talented colleagues across the company for the focus and execution that made these results possible. Our year-to-date results demonstrate continued positive momentum across Crescent. Higher production, structurally lower costs, and record free cash flow reinforce both the strength of the business today and the long-term value creation opportunity ahead. Our business is better than it has ever been before. Recent commodity tailwinds only amplify our outperformance. As always, I want to begin with three key takeaways. First, consistent execution across the portfolio drove another quarter of outperformance and supports an enhanced full-year outlook. Oil and total production were ahead of our full-year plan. Adjusted operating expense was significantly better than expectations.

As a result, we are raising guidance for both total production and oil production and improving guidance for operating expense. Second, momentum continues to build in the Permian. Asset performance is improving, operational efficiencies are becoming increasingly visible, and synergy capture continues to exceed expectations. We are increasing our target range once again to approximately $250 million-$300 million, roughly three times our original synergy target at announcement. Third, our differentiated combination of operating and investing expertise delivered record quarterly free cash flow, providing meaningful flexibility to accelerate deleveraging and return capital to our investors. Let me now discuss the quarter in more detail. We produced approximately 335,000 barrels of oil equivalent per day during the quarter, including approximately 140,000 barrels of oil per day and generated a record $418 million of levered free cash flow. Total production was approximately 2% above the midpoint of our original full-year guidance.

Oil production was approximately 4% above the midpoint. Adjusted operating expense was nearly 10% better than the midpoint. With outperformance across production and operating costs, we are increasing our full-year production guidance and improving operating expense guidance while maintaining our development capital range. In the Eagle Ford, steady efficiency gains continue to drive strong returns and consistent free cash flow. Base production and new well performance remain strong, supported by optimized workover and artificial lift programs and solid field execution. Well costs improved approximately 5% year-over-year and are now more than 25% below 2023 levels, further improving breakevens and capital efficiency across the asset. In the Permian, early results demonstrate meaningful progress with significant upside still ahead. Following the acquisition in December, we completed the initial stabilization phase by integrating the organization, rightsizing capital intensity, and implementing our returns-focused operating approach.

We are now firmly in the optimization phase, where the Crescent investing and operating model is translating into measurable improvements in costs, efficiency, and free cash flow. When we announced the Permian acquisition, we identified an initial annual synergy opportunity of $90 million-$100 million. As we transition from integration to optimization, we continue to identify additional operational infrastructure and commercial opportunities. As a result, we have captured approximately $190 million of annualized synergies to date and are increasing our total target to $250 million-$300 million, approximately three times our original target. On a 10-year PV-10 basis, the updated synergy range represents approximately half of the original headline purchase price, underscoring the significant value we are creating through execution alone. The incremental synergy opportunity continues to come from three primary areas. First, operational optimization. We are improving field execution through better operational planning, workover strategy, vendor management, and standardized operating practices while reducing well costs by approximately 20%-25% versus the prior operator and materially improving capital efficiency.

Second, infrastructure optimization. We continue to improve operating costs through artificial lift and facilities optimization, equipment rationalization, and proactive field surveillance, creating a structurally lower and more sustainable operating cost structure. Third, commercial optimization. We are improving marketing terms, takeaway costs, and equipment contracting by implementing a more holistic commercial strategy across the asset base and leveraging the full scale of the Crescent platform. Our message today is straightforward. In the first six months following our Permian acquisition, Crescent is delivering better performance, lower costs, and more free cash flow.

Importantly, the value captured to date does not include the significant commodity tailwinds relative to our underwriting or the additional upside in our reserve base, where we see potential for expanded economic inventory, improved recoveries, and future resource delineation. What we're seeing in the Permian reinforces that the Crescent investing and operating model is repeatable. We make assets better. Over many years and even more acquisitions, we have consistently increased performance, improved costs, and created meaningful long-term value for our shareholders. These results are consistent with what we said at announcement, that the Permian assets would look materially different under Crescent's ownership. Our track record in the Eagle Ford gives us confidence in the remaining opportunity, and we believe we're still in the early days of unlocking the full value of the assets. In the Uinta, we are applying the same proven operating playbook.

Workover and artificial lift optimization are improving base production, while drilling and completion efficiencies are driving a step change in development costs. Drilling efficiency is up approximately 25% year-over-year. Completion efficiency has nearly doubled, and development costs are down nearly 20% to below $800 per foot. As we built this company through acquisition, we've implemented the Crescent investing and operating model on all of our acquired assets and driven clear and significant operational improvement across our portfolio. Through more efficient, lower cost operations and an increasing focus on our broader resource base, we see tremendous organic opportunity to meaningfully enhance and expand Crescent's inventory across all of our core basins. Our expectation is simple, both more inventory and lower breakevens. We also want to highlight that our minerals and royalties business continues to deliver strong performance, producing approximately 13,000 Mboe/d during the quarter.

The business provides high margin, capital-free exposure to organic development, and at current prices, we expect the portfolio to generate approximately $200 million of EBITDA this year. Across the portfolio, consistent execution is translating into higher production, structurally lower costs, and stronger free cash flow. That operating momentum supports an enhanced outlook both in 2026 and beyond and gives us a greater opportunity to create value through free cash flow and disciplined capital allocation. With that, I'll turn the call over to Brandi.

Thanks, David. Crescent delivered another quarter of strong financial results, generating approximately $798 million of adjusted EBITDAX and approximately $418 million of levered free cash flow. These results reflect strong operating execution and a portfolio designed to generate substantial free cash flow through cycles. Given our stronger than expected first half performance, we are enhancing our 2026 outlook. We are increasing full year total production guidance to 327,000 to 335,000 Mboe/d. We are also improving our adjusted operating expense guidance by $0.50 to $11-$12 per Boe, reflecting structural improvements across field operations, workovers, procurement, and infrastructure optimization. Development capital guidance remains unchanged at $1.325 billion-$1.425 billion. The combination of higher volumes and lower operating costs drive incremental free cash flow.

Maintaining the capital range while raising production guidance reflects the capital efficiency gains being achieved across the portfolio. Our capital allocation framework remains consistent and focused on long-term per share value creation. First, the dividend. We declared a $0.12 per share dividend for the quarter, continuing our long history of returning cash to shareholders. Second, the balance sheet. We ended the quarter with approximately $2.2 billion of liquidity, no near-term maturities, and a weighted average maturity of approximately six years. On July 31st, we redeemed the remaining $259 million of our 2029 senior notes at par, reducing absolute debt and annual interest expense while advancing our long-term leverage and investment-grade objectives. Third, our free cash flow provides significant flexibility.

At current prices, we expect to generate more than $1 billion of levered free cash flow in 2026, giving us the ability to further reduce debt, fund accretive M&A, and repurchase shares when appropriate. Our priorities remain clear: maintain the dividends, strengthen the balance sheet, and allocate excess cash to the highest return opportunities available, including opportunistic share repurchases. With record quarterly free cash flow, significant liquidity, and multiple avenues for value creation, Crescent is in its strongest financial position yet. With that, I'll turn the call back to David.