Crescent Energy Company (CRGY) Q2 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to Crescent Energy Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Reid Gallagher, Investor Relations. Reid, please go ahead.

Good morning, and 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 Investors section of our website. With that, I'll hand it over to David.

Good morning, and thank you for joining us. Crescent delivered another record quarter, and 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 and recent commodity tailwinds only amplify our outperformance. As always, I want to begin with 3 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 and 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 to $300 million, roughly 3x our original synergy target at announcement. And 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 and 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 remained 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 to $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 to $300 million, approximately 3x 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 3 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% to 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. And 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 6 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 and 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 barrels of oil equivalent per day 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 barrels of oil equivalent per day. We are also improving our adjusted operating expense guidance by $0.50 to $11 to $12 per barrel of oil equivalent, reflecting structural improvements across field operations, workovers, procurement and infrastructure optimization. Development capital guidance remains unchanged at $1.325 billion to $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 6 years. On July 31, 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. And 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 dividend, 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 ahead. With that, I'll turn the call back to David.

Thanks, Brandi. Our year-to-date results demonstrate the continued progression of the Crescent story. We delivered strong operating results, enhanced our full year outlook and generated record free cash flow. In the Permian, stabilization is complete, optimization is underway, and we're beginning to see the benefits of the Crescent investing and operating model translate into stronger operating and financial performance. While we are pleased with the progress to date in the Permian and have delivered consistent outperformance on our Eagle Ford and Uinta assets, we believe we're still in the early stages of unlocking the full value that Crescent has to offer. We see tremendous upside across our nearly 1 million net acres to significantly enhance and expand our inventory with more locations and lower breakevens through best-in-class operations and a relentless focus on the opportunity ahead. With our outperformance demonstrating the strength and repeatability of our model and the significant upside opportunity in front of us, we believe Crescent has never been better positioned to deliver for our investors. With that, we'll open it up for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Neal Dingmann with William Blair.

Very nice quarter. My first question, I think, has to be around the increased Permian synergy target, specifically. I'm just wondering how will it improve this material improvement we've seen, how will that continue to see really -- what -- I guess, David, what should that sort of translate into? I mean, obviously, it was such a material increase. Should we see the benefits of that not only this year, but well into '27? I'd just love to hear what we should see the upside there.

Yes, that's great. Thank you, Neel. Short answer is, our focus in the business is returns and free cash flow. When we made the acquisition, our expectation is we'd be able to significantly improve both over the prior operations. And early on, we had, I think, some pretty strong expectations around our initial synergy targets. And the punchline is what we've seen as we've been able to spend more time with the assets is an all of the above improvement approach. So you're starting to see those synergies show up in the financial statements. And that, at the end of the day, is better margins, better free cash flow. We'll continue to find more throughout the course of the year. And our expectation is, call it, quarterly and long-term improvement for the business. As you know, we think in terms of years, not days and months as we manage the business. The other thing I would say is that we're really just talking today about the operational improvements. So we're definitely lowering cost structure and improving free cash flow, but we think that's going to translate into a significant future around these assets and the resource that we bought and brought into the company that we think was underappreciated, and you're starting to see the potential value there. But it's pretty nice to be able to triple the expectation for run rate savings, which directly translates into long-term free cash flow.

Tremendous. And then you kind of led me into my second question. Just I couldn't help but see in the prepared remarks, you talked about a lot of the same. I think you called it your enhanced outlook. Specifically around that comment, are you referring to maybe confidence over continued free cash flow growth or continued improved well economics? Or what would you point to that best highlights this future enhanced outlook?

Neal, it's Brandi. What I'd say is all of the above. So more free cash flow, better well returns as well as to David's point, more economic inventory across the Permian. As we move throughout the course of 2026, we would expect to have realized the majority of our $250 million to $300 million of synergy target. But I think there's incremental upside as we move into 2027, in particular around cash flow generation for the business.

Your next question comes from the line of Michael Furrow with Pickering Energy Partners.

Congratulations on such a strong quarter. Brandi, quick one for you. Does CapEx still seem like it's going to come in at the upper end of guidance? Or do the cost reductions given to date make the midpoint seem more achievable?

Hey, Michael, I would guide you back towards the midpoint. So, the capital program is executing very well. Obviously, the second quarter was the lowest capital quarter of the year. So, we would expect to hit the midpoint of capital and for Q3, Q4 to be fairly ratable with respect to the remaining capital left to spend.

Got it. That's great. Appreciate the color. And just piggybacking off the strong Permian update, I mean, particularly on the cost reductions, I'd also like to highlight, it seems like the efficiency gains and cost improvements are being realized outside the Permian as well. You're now over 90% simul-frac operations on the non-Permian assets. So, could you help us understand what other cost reduction initiatives are underway that would maybe help you continue improving well costs in both the Eagle Ford and Uinta?

Hi, Michael, this is Joey. Thanks for the question and opportunity to highlight some of the great work taking place by the team. I mean it all kind of goes back to some of the same things we're working on in the synergies, and we continue to work on in our more mature Eagle Ford and Uinta assets. But at the end of the day, it's a mixed bag of letting our land operations and development planning teams work together to have longer laterals, more wells per pad. Whenever we're talking about the Permian, I'd like to continue to emphasize, don't underestimate the power slowing down. The previous operator was executing some pretty complicated pads, 18-mile pad with 12 stacked advanced trajectory wells. We're able through just better operational planning, able to do more executable strategies. Workovers is one of the areas where we've had tremendous success. We had noted that there were a lot of repeated failures and just working to see how we can minimize the number of failures or reduce the number of workovers, rightsizing the ESPs going from the biggest ESP you can put into a smaller, cheaper ESP that lasts longer, again, resulting in less workovers, scrubbing power bills and seeing how we can get our power costs down, route optimization, putting our lease operators on the locations that have the most impact. We're really developing our supply chain opportunities, gas lift compression, making sure we're fully utilizing it, combining it in some cases or eliminating it when not necessary. Chemicals is one of our biggest opportunities. We had one location where treating for H2S, we were able to reduce the chemical usage by over 50%, consolidating vendors. We had a number of vendors that we were getting our chemicals from, and we've reduced the number of vendors, generators. I mean, the list just goes on and on, on all the great work that our team is working on. If you go to the more mature asset like on Eagle Ford, you can see we reduced drilling efficiencies by 5% or increased drilling efficiencies by 5%, reduced cost by 5%. So that's not as much as the big impacts we're having in the Permian, but we're still chipping away on the more matured assets and taking chunks off the newer assets.

Appreciate the comprehensive answer, Joey. It sounds like there is still lot of setting opportunities ahead.

The next question comes from the line of Arun Jayaram with JPMorgan.

Arun Jayaram from JPMorgan. I wanted to get a little bit of color around the back half of this year. Kind of on a year-to-date basis, you guys have drilled about 17% more at least gross wells than you've placed under production. So, I was wondering how you think about till count of the balance of the year and perhaps maybe the trajectory of oil volumes because you have been exceeding Wall Street expectations the last couple of quarters. And maybe just any lead into how that second half makes you think about a trajectory into 2027? Sorry for the long answer question.

Arun, I'll start. So, to your point, we've had great execution across the board year-to-date. As we move into the back part of the year, we do expect both oil and total volumes to naturally decline. I would say, largely just due to the timing of the activity of tills. We are specifically in the Permian transitioning from 2-mile to 3-mile laterals, which is naturally push more completions back to the back part of the quarter. So, as we think specifically about Q3 volumes, I would expect us to be in the mid-130s range on oil.

Got it. Got it. That's helpful. And then I wanted to get -- I appreciate the color on minerals. We have seen a recent public market IPO in the mineral space. Dave, I would love to get your thoughts on your observation around that transaction from a peer and just in general, how you're thinking about potential strategic options just given the attractive valuation that the market does present on those unique assets like minerals?

Arun, it's Clay. I'll take that. Yes. So, listen, take a step back, I think we're really excited about in the first quarter, we announced $350 million of mineral acquisitions and feel great about kind of where those assets are from a performance perspective. And obviously, the commodity helps us a bit. So really feel good about the mineral portfolio we own. And as you think about the scale and the quality of the assets at kind of $200 million of EBITDA for the year and really high-quality assets, we feel like we've got all the tools at our disposal in terms of value creation. And so certainly aware of what might not executed on. And I think part of our calculus in terms of where we go from here is how do we maximize value, both day 1 and long term for our shareholders. And so, I think that continues to be the focus, but super excited about the assets we own, how we acquired them and then performance year-to-date.

Your next question comes from the line of John Freeman with Raymond James.

Nice quarter. Just following up on Neal's question on synergies. When sort of looking at that, the increased synergy target of $250 million to $300 million versus the $190 million that you have captured to date. Can you sort of give us maybe the visibility or some rough timeline on when you think you could achieve that new target? I mean there'll be some parts of that synergy drivers that seem like things that could happen pretty quickly and others that maybe take a little bit longer to occur like marketing. But just any additional color on maybe from a timeline perspective.

Hi, John, it's Brandi. I would expect as we exit 2026 and move into 2027 that we've captured the large portion of the $250 million to $300 million.

Perfect. And then just following up on Arun's question on the minerals. Maybe, Clay, when you look at how you've built the minerals business the past couple of years and with your minerals kind of spread across a handful of different basins, is the strategy going forward, are you sort of like, I don't know, basin kind of agnostic between where you've got it? Are you trying to like buy minerals in areas underneath where -- around where Crescent operates? Just maybe a little bit more color on sort of maybe how you think about the strategy going forward on the M&A side?

Yes, John, listen, I think David said it out of the jump on the call. I think we're always going to be kind of free cash flow returns oriented as our North Star. So, I mean that's going to be the driver. As I think about where we expect we will be most competitive and where we see our opportunity to win, I think naturally, it's going to be in and around the assets we own today, where we have a clear view on performance and value. So, I would certainly expect that as you see us grow the business, you'd see it in logical places consistent with our portfolio and where you're seeing kind of our ability to perform, give us an advantage and an ability to kind of drive differentiated returns.

Your next question comes from the line of Oliver Huang with TPH Research.

Congrats on the nice quarter. Maybe for my first question, any sort of early 2027 color you're able to provide at this time as to how production and CapEx levels might shake out on a run rate basis as we just think about accounting for the stronger start to the year on oil volumes, costs, synergies. It just feels like there's potential for improvement for how 2027 might be shaping up.

Yes. I would say early to give maybe too much detail on 2027. But as we've talked about on prior quarters, just with respect to longer-term maintenance for the business, we do expect '27 to be a slight decline over 2026, really as a function of us just resetting the capital intensity of the Permian assets. I would expect in particular, on oil, just given the shape of oil volumes over the course of 2026, I would expect us to more or less exit at our expected longer-term maintenance level.

Okay. Makes sense. And for my second question, I just wanted to kind of hit on the resource upside. It looks like you all have taken the opportunity to call out some organic resource expansion with the Austin Chalk in the slide deck. You hit on it a couple of times in the prepared remarks, David, on the organic upside opportunity there. So, just could you speak to it in a bit more detail? Would these be incremental to the total locations you all have highlighted in the recent material? Or is that kind of shifting some of those into the low-risk bucket?

Yes. Great question and I think I'd highlight a couple of things at the start. One, kind of just following on your question about '27 guidance, I would just say, generally, the future of the company today from our perspective looks a lot better with a lot more clarity. And so what you think about first is, we've had time now to integrate the Permian assets. We also went through a very significant and important divestiture program last year that just allowed us to become a much more focused company. And we've also -- now what you're seeing in the financial statements is we're able to execute every day, as Joey talked through, and just make the business better. So to hit your question directly, we control a lot of resource, 1 million acres in really core plays in the U.S. onshore. We're finally getting a chance to invest the time and effort in a way that is much more thoughtful and planning than the businesses that we acquired and especially even ourselves going through a really high acquisition period in a lower commodity price environment. So, we're thrilled about the positions we've built and you're seeing the results in the early days of us getting the time to work on them. And the punchline is we're lowering costs. We're improving margins on the base business. We're getting more efficient on the development side, and that all lowers breakevens. So the existing inventory, as you mentioned, is going to be more profitable and have effectively lower breakevens. And then we're also getting the time now to go invest our efforts and our intellect and some dollars in trying to understand the resource potential that exists all around us in other formations. And so across the Permian, Eagle Ford and the Uinta, we see significant upside, which would not only increase locations and increase reserve and inventory life, also at lower cost. So that's the future that we're looking at. It's going to take us some time to continue to get all of that, but you're just starting to see a lot of it come through in the operating side on the financial statements and more to come as we move into the end of this year and into 2027 and beyond.

Your next question comes from the line of Charles Meade with Johnson Rice.

Good morning, David, Brandi to the rest of the Crescent team there. David or perhaps or Clay, can you tell us what the acquisition opportunity set, what that landscape looks for you like right now? And also maybe give some thoughts on what's your current appetite and posture for more E&P acquisitions?

Yes. Hey, Charles, it's Clay. Well, obviously, we're super excited about what we acquired over the past few years, right? You've heard a lot about the momentum in the Permian on the call today and then continued execution in the Eagle Ford. So, I think the business we've built through acquisition over the past few years, I think we're really excited about and clearly, different commodity environment where those assets were acquired versus where we're sitting in today. As we look at the market today, I think we've clearly seen some recent transactions where there were some assets that buyers felt like they needed to own. I think our strategy has tended to be more opportunistic and value-driven in terms of the assets we want to acquire and where we see opportunity. So, I think as we look at the market today versus the internal opportunity set, the bar remains high. We just see such a unique opportunity to drive value with internal value creation. But then I'd also highlight the same execution you're seeing on the Permian as we think our opportunity to win longer term. And so, I do think continued execution and continued confidence on that strategy longer term is there. But right now, pretty high bar and super excited about what our opportunity set is internally.

That is helpful. And then maybe that dovetails nicely into my next question. The Eagle Ford or more specifically, you -- I think it's on one of the slides, you specifically call out the encouraging Austin Chalk results. And I wonder if you could just say where in your footprint you're seeing those strong Austin Chalk results and what they are relative to, say, your baseline Eagle Ford type curves?

Charles, I mean with respect to the Chalk, we are one of the most active Chalk developers in the Eagle Ford today. And as we noted, we see a tremendous opportunity, I would say, largely on the western side of our asset base.

And Charles, just from a total well perspective, it's kind of exciting to see that by the end of this year, we'll be about 50-50 on the Eagle Ford and Austin Chalk wells, which just shows our expanding optimism over Austin Chalk. And for every new successful Austin Chalk well we drill, it just increases our optimism and encourages us to continue to look across all of our acreage to see what other opportunities exist.

Your next question comes from the line of Philip Jungwirth with BMO Capital Markets.

This is Ajay Bakshani on for Phil. The Permian cost improvements have been pretty impressive this year. Wondering how the well productivity is trending across the Midland and Delaware. Is there also an improvement story here? Or is that something that is going to require more of an end-to-end Cresent design drill complete well?

Yes. I think if you just look at how the program is playing out when we initially started right after we took over the asset in mid-December, we are, in essence, executing how the previous operator's plan. And I would say, largely, we're doing that through the first half of the year. So you could expect to see more of the same. And then as we go into the second half of the year and particularly into 2027, you'll start to see some of the influences of the development planning changes that we've implemented based on our review of the acreage and our team's assessment. And so the expectation should be that we could see some benefits from the changes that we'll make, both from a development planning perspective, again, the longer laterals, more pads or more wells per pad. And then any particular completion design changes that we may implement would be impactful at that point in time, too. So that's the long answer. The short answer is first half of the year, not much feathering in second half of the year and fully implemented in 2027, we should start to see the impact.

Awesome. And for my follow-up, you guys have made significant progress on lowering Permian well costs from vital levels versus peers are already better than average in the Delaware. I was just curious how you see future progress across the Midland and any reason you couldn't close more of the gap with peers here? And what steps would you need to take in order to do that?

I'll give you the simple answer. Whenever I look at the slide that we included on where the journey has gone, the expectations for me and from my team is that we will continue to progress towards the top quartile of the peer set. So, the answer is a simple yes. We expect to continue the journey and to become a top-tier operator in the Permian.

Your next question comes from the line of John Abbott with Wolfe Research.

First question is going to be on the base decline rate. The expectation is that you're going to return to 25% in 2027. Not too long ago, there was a sell-side lunch in Houston, Joey, where we had the conversation that there's opportunities to improve upon the base. I guess, can you provide us an update on where you are in terms of the opportunity to improve the base? I mean, is 25% still a good number for 2027? And then how does that base sort of decline beyond change beyond 2027?

Yes, I'll start off with a simple answer to your question on, do we still have the expectation to go from 29% to 25%? The answer is yes. As to how we do that, I think it's important to emphasize, we're talking about changing the math here, not necessarily the physics. That's a whole different conversation. But we've got well over 8,000 wells between our South Texas and Permian asset. And how do we go about this, just evaluate the potential of all those wells, ask it for why is a well not producing at its potential, do the cost benefit of closing the gaps and then execute. That could simply mean potentially shutting in a well and just taking it out of the equation. But typically, it means optimizing artificial lift to tweak the production upward. Same thing on compression. A lot of times, we have some midstream constraints that we need to eliminate. And then don't underestimate the impact of technology. Once was a one-off well here and one-off well there, we're able to deploy tools across the enterprise where we can look at all 8,000 of our wells in unison and be able to make whole change or whole shift changes to a number of wells to make an immediate impact. So that's -- as we kind of go through our execution strategy of acquire assets and operating them better, that just has to be a basic skill set of ours. We have to be as good or better than anybody at it. And I would say that we're well on our way in our journey to make that happen.

Appreciate it. And then for a follow-up question, just sort of -- given the efficiency gains that you're seeing in the Permian and the cost benefits, I guess, what are the latest thoughts on the optimal rig count longer term for the Permian?

Yes. John, it's David. I'll take that one. As you know, our sort of oil-weighted inventory generally across the company competes pretty comparably for capital. As Joey has mentioned a number of times and as we announced a year ago, our expectation was to reduce activity as we brought on new assets in the Permian. I think we're seeing the benefit of that now, and we're still in what I would call the planning and improvement stages. So there's definitely a huge amount of opportunity, and we can allocate more rigs there, but I think that will be a what I would call, evolving assessment based on the market and our kind of readiness to just move rigs around the company. But generally, we feel really good about the opportunity and the inventory in the Permian. And so there's absolutely an ability and it's in our planning scenarios to consider adding more rigs there over time. But as of now, you should assume everything is kind of steady state.

Your next question comes from the line of Michael Scialla with Stephens.

I wanted to see your latest thoughts on free cash flow priorities and see where you just redeemed some notes, you don't really have any near-term maturities. Your balance sheet is looking pretty strong. You've talked about aspirations to get to investment grade in the past. I guess, given that, do you stay focused on debt reduction here? Or are you willing to buy back shares at this level?

I would say no change fundamentally in how we think about capital allocation. Every dollar competes, whether that's we're repaying debt or buying back shares or drilling a well. I think in the near term, I think it's fair to assume that we're continuing to be focused on rapid deleveraging with the excess cash flow that we're generating.

Okay. And I want to ask, I know you talked about your resource expansion opportunities. Have you tested any of these new zones like the Barnett, Woodford, Wolfcamp D or I guess, in the other basins, Chalk, you obviously have in the upper Cube in the Uinta. I guess, when would you anticipate we hear more about those? When would you be able to talk about what the change might be for your overall resource base there?

Yes, great question. David, the simple answer is you're starting to see that capital allocation and the results of it already. So, Austin Chalk is a place we really weren't drilling a few years ago, and now it's a very significant part of the program as we've gotten more resource development and expansion and confidence there. We will be doing similar things in the Permian over the next 6 to 12 months. And also you're seeing us following up later this year and into next year in the Uinta following on the heels of the really strong performance from the McMullin well last year, where we took some opportunity to step out further across the acreage. So, I think the resource potential is a tremendously underappreciated part of the company. But I would say in the second half of this year and into 2027, you'll start seeing a lot more from us over there.

We have now reached the end of the Q&A session. I will turn the call back to David Rockecharlie, CEO, for closing remarks.

Great. Thank you all again for the support and participation in the call this quarter. Again, hopefully, what you're seeing is just the results of what I'll call a disciplined strategy, strong focus on returns, free cash flow and just building a better business. I'd like to thank everybody at Crescent who has contributed really tremendously to the results that we're continuing to deliver, and we've got a lot more ahead to do, but we feel very strongly about the performance of the company today and into the future. So, looking forward to keeping in touch in the coming quarters.

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