Greetings, and welcome to the Crescent Energy Q3 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reid Gallagher, Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Crescent's Third Quarter 2025 Conference Call. Today's prepared remarks will come from our CEO, David Rockecharlie; and our CFO, Brandi Kendall, the Chief Operating Officer and Executive Vice President of Investment will also be available during the 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 under the Investors section on our website. With that, I'll hand it over to David.

Good morning, and thank you for joining us. Yesterday, Crescent posted financial and operating results for the third quarter. In short, it was another impressive quarter of execution for our business. Our investing and operating performance highlights that we continue to do what we say we will do. As always, I want to begin with a few key points that I hope you take away from this call. First, our business continues to deliver strong results. This quarter, we once again generated significant free cash flow with excellent operating performance. Our results exceeded expectations on all key metrics and we are enhancing our full year outlook for the second consecutive quarter. Second, we announced our transformative acquisition of Vital Energy, marking our accretive and scaled entry into the Permian Basin and establishing Crescent as a top 10 U.S. independent oil and gas producer. And finally, we are pleased to announce over $700 million of noncore divestitures signed this quarter, bringing our noncore divestiture program to more than $800 million year-to-date. With these asset sales, we are streamlining our portfolio at very attractive value, and the proceeds will go toward maintaining our strong balance sheet through significant debt reduction. With our successful divestitures and acquisition of Vital, we have enhanced and simplified Crescent's value proposition with more scale, more focus and more opportunity. Following those key highlights, I will now discuss the quarter in more detail. We produced 253,000 barrels of oil equivalent per day, including 103,000 barrels of oil per day and generated approximately $204 million of levered free cash flow for the quarter, demonstrating once again the strength of our operating model and our consistent focus on free cash flow generation. Our talented team continues to find ways to win, increasing well productivity alongside continued capital savings, driving even…

Thanks, David. Crescent delivered another quarter of strong financial performance, generating approximately $487 million of adjusted EBITDA and $205 million of capital expenditures and approximately $204 million of levered free cash flow. These results build on our consistent track record of impressive free cash flow generation supported by our lower capital-intensive operating model, returns-focused reinvestment approach and consistent hedge strategy. Over the last 5 years, we have generated cumulative free cash flow in excess of our current market cap. With our significant free cash flow, we maintain a consistent approach to capital allocation. Priorities 1A and 1B are our attractive fixed dividend and maintaining a strong balance -- to that end, we announced another dividend of $0.12 per share for the quarter, which equates to an attractive 6% annualized yield, and we returned significant capital to our investors with more than $150 million of debt repayment during the quarter. In addition to the debt repayment from our existing operations, we also expect to significantly reduce our debt outstanding upon the closing of the noncore divestitures that David covered earlier. We plan to use 100% of the proceeds to pay down our existing credit facility and Vital credit facility upon close of the acquisition. During the quarter, we also successfully increased our borrowing base by 50% to $3.9 billion, extended the tenor to 5 years and improved our pricing grid. This redetermination reflects the strong support from our bank group and enabled us to capture approximately $12 million or more than 10% of our announced Vital synergies ahead of closing. 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, our business continues to deliver impressive results. This quarter, we once again posted strong free cash flow and operating performance. Our results exceeded expectations on all key metrics, and we are enhancing our outlook again for the remainder of the year. Second, we announced our transformative acquisition of Vital Energy, marking our accretive entry into the Permian and establishing Crescent as the top 10 U.S. independent oil and gas producer. And finally, we have successfully executed significant noncore divestitures at very attractive value. With more than $800 million of accretive asset sales announced year-to-date, we have streamlined our asset portfolio and maintained our strong balance sheet. This quarter's execution is a testament to our consistent strategy as we continue to enhance and simplify our value proposition. Crescent is a compelling investment opportunity in our consolidating sector, combining significant free cash flow generation, a differentiated track record of prudent and accretive growth and premier integration and operations expertise. We are investors and operators, and we believe our sector demands both to be successful. We have a massive opportunity ahead of us, and Crescent is extremely well positioned to generate significant long-term value for investors, as we build a leading investment-grade energy company. With that, we'll open it up for Q&A. Operator?

[Operator Instructions] The first question is from Neal Dingmann from William Blair.

David, Brandi, nice to be back, and congrats on the solid free cash flow. David, just jump in. My first question is really on your development plan, specifically, given now the expanded footprint that you have in the Eagle Ford and your upcoming Permian footprint, I'm just wondering, are you thinking about changing how you all target the development, albeit larger pads or maybe even some larger projects? Or will the expected operational efficiencies you continue to talk about from the D&C improvement continue to be the key drivers.

Yes, Neal, thanks for the question. The short answer is no fundamental changes in our approach. We're continuing to execute on more efficient operations in particular, drilling and completion than prior operators of assets we've acquired. And so I think you'll just continue to see us have more efficiency and more effectiveness over time, but no fundamental change in strategy there. But obviously, having a bigger and more scaled portfolio in those 2 areas is going to continue to allow us to do that.

Yes, it will be nice to see that development. And then secondly, just on M&A. Specifically, could you speak to kind of what you all continue to look at is your, I guess, I'd call it your current parameters when considering additional assets. Is there a scenario where you'd go to another basin, if it fits this or what are those sort of key requirements?

Yes, great question. I think to keep it simple, no changes in our underwriting standards, so still looking for great multiple money and quicker payouts. And then we're really excited about the opportunity that we've been going after in the Eagle Ford. So that's all still there and then the addition of the Permian from our perspective, also is great. So I think if you just assume more of the same, looking for great value and asset opportunity in those 2 areas. That's what we're looking at.

The next question is from John Freeman from Raymond James.

Following the very successful divestitures you had during the quarter and now would leverage kind of pro forma with Vital back to a more comfortable level. It definitely seems like you have got more flexibility on kind of next steps here. But maybe if you all could kind of just walk us through kind of the way you are thinking about those next steps toward kind of continuing to work that leverage down toward that sort of longer-term target of 1x.

John, it's Brandi. So I think overall, balance sheet is in a great spot. As you stated, right, we're continuing to operate the business within our leverage targets. We've been successful pushing out maturities. We're well hedged and we generate significant free cash flow, which allows us to continue to delever. As we look at the Crescent stand-alone business, we'll have our RBL repaid before the end of the year. We would expect to use the divestiture proceeds to pay down the entirety of the Vital RBL balance. So we'll have roughly $2 billion of liquidity. And then I think just as we think about using that excess free cash flow, I think we'll continue to think through how do we start attacking some of the outstanding notes that we have. So just continue to look for us to reduce absolute debt repayment from here and also our leverage metric.

That's great. And then can you also speak to what changes the divestitures may have on sort of how you all sort of previously talked about sort of stand-alone Crescent in terms of kind of how you all were thinking about maintenance CapEx, et cetera. Obviously, that was the assets you sold were obviously lower margin, higher OpEx, but did have a lower base decline rates. So just sort of how to think about the moving parts there.

John, it's David. I'll start. Short answer is, while the divestiture assets are a smaller part of the company, they do have a great impact on improving our margins, improving reserve life, so some really key important things to us. The other thing we would highlight is with the divestitures and the Vital acquisition, we'll continue to pursue the same type of plan where we've got a lower reinvestment rate and a lower decline rate target than the rest of the industry. And so we think the divestitures just help us stay more focused on the assets we've got and we'll continue to focus on the core tenets of the company, including leverage metrics and decline rate. In terms of the maintenance impact, I'll let Brandi just cover that quickly.

Yes. So quickly, and again, I won't get overly specific on 2026, just given we're currently in our planning cycle and haven't yet closed the Vital transaction. But what I would say is that the go-forward plan should look very similar to how we've historically operated our business. So that's lower capital intensity. That's a reinvestment rate of roughly 50% and significant free cash flow generation. David hit on this earlier, we do plan to significantly reduce the capital on the Vital, Permian assets. So taking that down to a 1- to 2-rig program, which is roughly a 60% to 70% reduction in both rig activity and capital spend to bring those assets in line with how Crescent has historically run the business. So again, we'll provide more details when we get to closing. But again, I think the key attributes that we focus on over the last 10 years of lower capital-intensive business, a lower reinvestment business and a business that generates a lot of free cash flow will shine through in the plan that we put forward.

The next question is from Tim Rezvan from KeyBanc Capital Markets.

Brandi, I appreciate the broad strokes on 2026. I was hoping you could help us on the fourth quarter of 2025. There's a very large moving parts with Vital, looking like maybe 19 days of contribution. I'm trying to understand in the slide deck, it mentions a 4,000 a day impact from the recent divestitures. Should we assume that's a 16,000 a day impact in the fourth quarter? Can you help us kind of understand what 4Q '25 production could look like as we look ahead to the Vital closing?

Tim, good question. So we did reaffirm our production guidance from a legacy Crescent standpoint. But as you know, the 4,000 a day impact from the divestitures will equate to roughly 16,000 Mboe per day impact to Q4. And then as you mentioned, I think depending on when the Vital transaction ultimately goes, there will be a little bit of production but relatively immaterial. I'd focus on the 16,000 a day that would come out of Q4 as part of the sales transactions.

Okay. And would we expect a change in the oil SKU as a result this quarter from these sales?

Nothing materially. I think we would guide to roughly 39% oil in Q4.

Okay. I appreciate that. And then just as a follow-up, excited to learn about how the dry gas drilling in South Texas and know what's happening in this quarter. As you think about 2026 activity, how do you think about allocation between gas and oil? I know the legacy operator was extremely nimble on sort of a pad-by-pad basis. How do you think about allocating capital there next year?

Tim, it's David. I would say 2 things. If you think about how we manage through this year and the discussions we had at the end of '24 and early '25, we would describe ourselves as 100% returns focused with significant flexibility. We love the portfolio we have because we can go from oil all the way to dry gas. So I think given where commodity prices are, we would also highlight we're generating strong returns right now. And so I think 2026 in the grand scheme of things looks very similar to 2025 from an allocation and commodity perspective.

The next question is from Michael Scialla from Stephens Inc.

I wanted to ask on the divestiture program, where that stands now? Are you pretty much done? Or are there more opportunities? And any of those that you would consider within your 3 main core areas at this point?

Yes. It's David, the short answer is we would start by saying divestiture program, highly successful. We exceeded expectations on timing and valuation. So we feel great about it. We do, to your question, still have a number of smaller assets in the portfolio. today. But our view now is we can decide to sell those at the right time and the right value, and we would just say really successful program.

Okay. And I wanted to ask on Slide 11, your well performance seems to be bucking the trend of degradation in the Eagle Ford. Can you talk about some of the reasons for that? Is it spacing, wellbore design? Or where do you see that going next year? Do you expect that to start to revert back towards the industry trend anytime soon?

Yes, great observation. I think your perspectives on the macro in the industry are exactly right, but a great reminder, our acquisition program starts with finding great value in assets that we think we can significantly improve. So what you're seeing is that strategy in action and we're able to take our practices, which, to your point, includes sometimes optimizing spacing, increasing completion intensity, changing landing zones. But overall, we're getting better performance than the prior operator. So I think you should expect that, that is our game plan and we'll continue to execute there, but that's how in the context of an industry that is seeing overall declining performance as the core gets drilled up, why we continue to outperform.

The next question is from John Abbott from Wolfe Research.

So David, you just mentioned that the divestiture program was very successful from your point of view. Does that mean as regards to your minerals doing something with that part of your business is off the table for the foreseeable future? Are there plans to sort of go out there and look for greater value from that business? How do you think about the minerals at this point?

Yes, great question. And John, we'd just highlight as I think we've said to others on previous calls, the minerals is a core business for us today. It was never part of the divestiture program. But it is an area that we believe we can continue to grow. And certainly, over time, we'll continue to evaluate all of our assets. But yes, strong core part of the business today, no plans to sell that.

Appreciate it. And the next question is for Brandi. So Brandi, with the $700 million plus of divestitures, does that impact your future cash tax situation at all? How you think about cash taxes post the sale?

John, I would say I still expect both the Vital transaction and divestitures to be broadly tax neutral. So don't expect to be a significant cash tax payer based on today's commodity prices, based on today's expected development plan over the next handful of years. I will say that with respect to the divestitures and then closing in the fourth quarter, we do expect to pay roughly a $30 million to $40 million tax gain. So just think about that as coming out of the gross proceeds.

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

All realizations were quite strong in the quarter, both relative to guidance as well as the historical differential versus the benchmark and really help drive the EBITDA beat. So just trying to get an idea on some of the drivers of the pricing. Was there anything sort of structural here, such as maybe new marketing contracts? Or was the third quarter maybe just a one-off high mark for the year?

Michael, it's Brandi. So I would say a similar theme of just buying assets and making them better. Our marketing has done a great job of just when there's opportunities to renegotiate contracts of just continuing to improve where we can. And sometimes that's we're collecting nickels and dimes, but those add up over time. And you can see that reflected in our financial statements this quarter.

All right. Just as a follow-up, I noticed that the Eagle Ford turn-in-lines were a bit higher than we were expecting. The company is obviously planning some dry gas turn-in-lines later this year. So I was just curious if there was any maybe overlap dry gas turn-in-lines that maybe were included in the 31 turn-in-line count or late in the quarter? And if so, could you maybe be willing to quantify the amount?

Yes. There were a handful of dry gas turn-in-lines that came online really towards the very end of the quarter. So minimal contribution from a gas volume standpoint, but did technically come online in the third quarter.

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

For my first question, I just wanted to ask on capital allocation. I know there isn't an official 2026 outlook out there just yet. But when we're thinking about the 6 rigs on a combined basis with Vital initially outlined in late August, just wanted to walk through the thought process in terms of if this is still a good level to think about at the current strip, also what might be grounds for a step down towards maybe, say, 5 rigs?

Yes, happy to take it. I think 2 things as I said a little bit earlier, at current prices, the development program that we have for this year and call it similar commodity allocations to next year looks great. And then when we think about just our business strategy and the integration of Vital, we think the company is really well positioned, both from a financial perspective with a very significant reduction on what I'll call the oil-weighted drilling that comes with the Vital assets, but also is going to give us a chance to integrate those assets in a much less operationally intensive way with lower activity. So long story short, I think, in this current environment with the way we see things and the returns that we're currently seeing no change, but we're certainly able to be really flexible and in terms of moving rigs down or allocating differently, we'll look at it the same way we did last year. So as of now, feeling great, but also ready to respond if anything, requires that from a returns perspective.

Okay. Perfect. That's helpful color. And for my second question, just on adjusted cash OpEx with the divestitures getting rid of some of the higher OpEx assets in the portfolio, could you all talk about what the opportunity set looks like to continue further working that down over the next couple of years beyond that $11.50 per BOE figure referenced on a pro forma basis. And when we're thinking about that pro forma figure, does that account for blending the Vital side in at today's base level of production or at the, I guess, lower level of production that we'd see in 2026 just given the resting of declines?

Albert, I'll start. As you mentioned, pro forma, the divestitures will realize a roughly 10% improvement on adjusted operating costs. So I would expect to be roughly $11.50 when you pro forma in Vital, I think, will be plus or minus in a similar range. So I think that's a good way to think about it on a go-forward basis. And then we just -- as we think about broader opportunities to outperform back to the commentary that we said before of buying assets and making them better. I don't think we have a quantifiable percentage amount to give you today, but we do think that there are opportunities over time to improve operating costs.

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

Great. Thank you all again for your support and joining the call, and we're really pleased with this quarter and the business performance, and we're hard at work and look forward to catching up on our next call.

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