Crescent Energy Inc-a Aktie

Ladies and gentlemen, greetings, and welcome to the Crescent Energy First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Reid Gallagher from Investor Relations. Please go ahead.

Good morning, and thank you for joining Crescent's First 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 reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measures, 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. First, I'd like to say thank you to all of our investors, our talented colleagues and everyone who has been part of our journey as the Crescent Energy team. Together, we have executed a consistent strategy, uniquely combining investing and operating expertise to deliver better returns, more free cash flow and profitable growth.

Today, Crescent Energy is a top 10 U.S. independent oil and gas producer with more scale, more focus and more opportunity than ever before. On this solid foundation, we will continue to build tremendous value in the months and years ahead and our update today gives us great confidence in Crescent's future.

Crescent delivered another strong quarter. We outperformed on production, generated meaningful free cash flow and made significant progress integrating our Permian assets. As always, I want to begin with 3 key takeaways.

First, strong execution drove outperformance. We exceeded production expectations driven by faster cycle times and some key steps in optimization of our producing base. We further increased free cash flow through an opportunistic refinancing, lowering our cost of capital.

Second, we are thrilled with our Permian acquisition, where our integration is ahead of plan and we see meaningfully more upside every day. We've already exceeded our initial synergy target, capturing $120 million to date and we are seeing early improvements in both well costs and production.

And third, our differentiated combination of investing and operating expertise continues to deliver significant free cash flow, both in the quarter and in our future outlook.

Let me now discuss the quarter in more detail. We produced a record 341,000 barrels of oil equivalent per day for the quarter, including 140,000 barrels of oil per day and generated $192 million of levered free cash flow. Importantly, first quarter production was above expectations on both total equivalent volumes and oil volumes, driven largely by base production outperformance and acceleration in the Permian from improved cycle times.

While our development plan remains fundamentally unchanged, we are selectively accelerating volumes to capture higher near-term returns while continuing to drive operational efficiencies and lower well costs across our asset base.

In the Eagle Ford, we continue to see steady efficiency gains. We continue to increase our use of [ Simulfrac ] completions across our development, which is reducing costs and accelerating volumes. At the same time, we've strengthened our 2026 development program through an active ground game, increasing lateral lengths and working interest.

In the Permian, we're off to a strong start and capturing early wins. The initial phase of our integration focused on stabilizing the assets. We have rightsized capital intensity and implemented our returns-driven operating approach.

We are now focused on optimization and have seen impressive early results with $120 million in synergies captured to date, already exceeding our original target.

To provide a few examples, we've improved the operational planning around our development program, efficiently increasing wells per pad and adding roughly 100,000 incremental lateral feet to our 2026 plan through offset acreage trades and land optimization. We've accelerated cycle times and are currently 100 producing days ahead on our 2026 development plan.

And we're already having success reducing well costs. From rebidding service contracts to changing fuel usage and facility design, we've achieved over $500,000 of savings per well versus the prior operator. These are not one-off wins. They reflect Crescent's operating model and our track record of buying assets and making them better. And importantly, we still see meaningful upside from here.

In the Uinta, we've had strong execution with well costs down roughly 20% year-on-year as we implement the same proven approach you've seen from us in the Eagle Ford. Implementing Simulfrac, increasing efficiency and extending laterals are just a few of the tools we've brought to the basin to optimize the capital program and increase well returns.

Activity this year remains focused on our core Uteland Butte development. Additionally, after strong results in additional formations across the basin and on our acreage, we are investing more capital towards the prudent delineation of our broader resource opportunity.

With our meaningful cost improvements and the tremendous stacked resource potential across our position, we see significant opportunity for value creation ahead of us in the Uinta.

Our Minerals and Royalties business has shown similar strong performance. Our portfolio of world-class resource and high-margin cash flow provides valuable exposure to cost-free organic growth.

And at current prices, we expect the portfolio to generate approximately $200 million of EBITDA this year, representing a meaningful increase versus our original guidance.

Across the portfolio, the results are clear. We are executing well, improving our assets and generating strong returns and significant cash flow. Our unique combination of investing and operating skills delivered this quarter and Crescent is better positioned than ever before to continue delivering impressive results and long-term value for investors.

With that, I'll turn the call over to Brandi.

Thanks, David. Crescent delivered another quarter of strong financial results, generating approximately $690 million of adjusted EBITDA and approximately $192 million of levered free cash flow. These results reflect both strong execution and a portfolio built to generate outsized free cash flow.

During the quarter, we also improved our cost of capital with an opportunistic refinancing. We reduced interest expense, extended maturities and further strengthened the balance sheet, all of which support higher free cash flow going forward. Our capital allocation framework remains consistent and disciplined.

First, the dividend. We declared a $0.12 per share dividend for the quarter, continuing our long history of returning cash to shareholders.

Second, we remain committed to maintaining a strong balance sheet. We ended the quarter with approximately $2 billion of liquidity, no near-term debt maturities and a clear pathway to lower absolute leverage over time. And third, our free cash flow provides significant flexibility.

At current prices, we expect to generate approximately $1 billion of levered free cash flow in 2026, which gives us the ability to reduce debt, fund accretive M&A and repurchase shares when appropriate. Our focus remains on long-term per share value creation and our scale, cash flow profile and balance sheet strength gives us multiple ways to achieve that.

With that, I'll turn the call back to David.

Thanks, Brandi. Before we open the call for Q&A, I want to reiterate our key messages. First, our base business continues to outperform. We exceeded expectations on production, delivered strong financial results and continued to improve the efficiency of our operations.

Second, our Permian integration is ahead of plan. We've already exceeded our initial synergy target and see further upside ahead.

And third, our differentiated combination of investing and operating expertise continues to deliver strong returns and significant free cash flow.

Not long ago, Crescent was a new public company, producing just over 100,000 barrels of oil equivalent per day. Since then, we've driven profitable growth, significant free cash flow and meaningful operating efficiencies to create a top 10 U.S. independent oil and gas producer, delivering impressive results like you've seen today.

Our strategy remains consistent and with more scale, more focus and more opportunity than ever before. We believe Crescent has never been better positioned to deliver impressive performance and long-term value in the months and years ahead.

With that, we'll open it up for Q&A. Operator?

[Operator Instructions] We take the first question from the line of Neal Dingmann from William Blair.

Nice quarter. David, my first question is just on your operational efficiency, specifically, how much upside are you already seeing on the Vital assets? It seems like you're already very quickly seeing some upside there. I would love to hear color there.

This is Joey. I'll take that one. Yes, we've really hit the ground running. The way I like to describe how we've attacked this is just taking our integration capabilities and moving from a defensive position to an offensive position as quickly as we can. I really like the way Slide 7 frames it. We wanted to stabilize as quickly as we could.

Of course, slowing down the activity helps. I liken it to -- just the way they talked about football slowing the game down, slowing the game down helped us immensely and we've quickly moved into the optimization process. And some of the first things that we did was rebid our services, which was incredibly timely because we had some 100% diesel fleets out there operating and we were able through the bidding process to find some dynamically gas blending fleets, DGB fleets.

And if I were to talk about one lever, that would be the biggest one that we've really hit to reduce our cost because displacing 55% to 75% of the diesel, particularly in light of diesel costs currently and also with the gas prices that we're getting in the Permian, it was just a huge one. And you can see the impact of that on Slide 12, which I really like as well, being able to get $25 a foot reduction. So that was a big one.

Some of the things that are coming down the pipe, it's kind of the same playbook, different day, larger pads, implementing Simulfrac. Previous operator had, I think, maybe done 1 or 2 pads towards the end and we're doing as many pads as we can.

I think we're going to be approaching 50% of our wells this year are going to be with Simulfrac. And then just doing the things that we do, reducing cycle time, rightsizing artificial lift, reducing facility sizes. The opportunities are plentiful and I'm really proud of how well the team has hit the ground running.

Great. And then just secondly, guys, wondering you saw towards [indiscernible] boost activity. Just wondering what it would take for you all to do something similar, maybe a rig or 2?

It's David. I'll just start by taking a quick step back and again, reiterating why we talk so much about investing and operating and deployment of capital is investing. And so we're really pleased with the M&A that's taken place over the last 3 years.

That's dollars in the ground at $60 oil price environment. And we think in today's environment, we should be grabbing as much cash flow as we can for the benefit of investors. So we don't see increasing rig activity into a higher price environment. We see producing barrels at really high margin and returning cash to the balance sheet and investors.

We take the next question from the line of Zach Parham from JPMorgan.

First, just wanted to ask in the Permian, Waha spot today is around negative $4. Futures indicate that it gets quite a bit better later this year with new pipes coming online. I think Vital had quite a bit of Waha exposure.

So I'm assuming that's still the case with your Permian asset. How do you factor that into your operations? Do you think about holding back the timing of some turn-in lines or shutting in some higher GOR wells in the basin with where Waha is today?

It's Brandi. So I would say as we sit here today, we are very well hedged from a Waha standpoint over the next probably 24 months in the kind of the mid-2s. I feel like we have a lot of protection there.

Okay. And then, David, maybe just following up on one thing you said in your prepared remarks, talking about the delineation of the broader resource opportunity in the Uinta.

Can you just unpack that a little bit more? What other zones do you plan to test in the near term? What's the time line there? Just curious for some more color there.

It's Clay. I think as we mentioned in the remarks, early in the year, we've been focused on the Uteland Butte. And as we get in the back half of the year, you'll see us continue to drill with confidence, but have some delineation opportunities. We mentioned the JV we had on the northeastern side of our acreage that we felt really good about the results and continue to lean into that.

As you think about where we're focused, I think you can see more of the same, right? As you think about the upper cube, you see activity in the upper cube across the play and then the results we've seen early on our asset that we're really excited about. But more to come, but excited about the opportunity set for us.

We take the next question from the line of John Freeman from Raymond James.

When I look at the nice 1Q beat and then what -- even though I know you all haven't officially changed your full year production guidance, just given the strong first quarter beat and then the extra footage that you all are adding, it seems likely that's -- you are going to do better than that original guide.

But when I break down the drivers of this kind of outperformance between the faster cycle times that you all are mentioned in the Permian and then the kind of the base outperformance, which I assume is related to kind of this optimized workover program, is there any way you can kind of flesh that out between how much of this, at least of the 1Q upside was driven by kind of just the base outperformance relative to kind of the improved cycle times?

It's Brandi. I'd say it's roughly 50-50, better cycle times in the Permian and then just optimizing the base.

Perfect. And then just the follow-up for me. As you all have continued to kind of provide more details about Crescent Royalties the last few quarters and continue to build out that business, when you all look at the kind of the leverage on Crescent Royalties, like obviously, with Crescent E&P, you've got stated kind of leverage targets, things like that.

I know royalties right now is about 1.9x. Is that sort of the right ZIP code for that type of business? Is there any sort of target that we should be thinking about with that business similar to how we think about the E&P business?

It's Brandi. I'll take this. So we would expect to be 1.5x or below on the minerals business as we exit the year. The asset base which we flagged in the materials at today's commodity prices is generating close to $200 million of free cash flow.

So that free cash flow will go to the balance sheet there. But I think similar ZIP code as we think about kind of the working interest business from a leverage perspective.

We take the next question from the line of Michael Furrow from Pickering Energy Partners.

I wanted to touch on the improved cycle times again and what they could mean for the overall broader business. Look, the efficiency gains are clearly positive, especially at current oil prices.

But one caveat is that accelerated activity could put some modest pressure on the corporate decline rate. Now that said, it looks like the base production appears to be performing well. So could you walk us through some of the key drivers behind the base business outperformance and how you're thinking about further optimizing that decline rate from here?

Yes. It's David. I'll just start with better performance is better performance. So we feel great about how things are going. And to your point, getting some barrels sooner, not going to fundamentally change decline rate.

We really focus on that as a business, as you know. And so I think we feel very comfortable with what I'll call the capital discipline and our ability to kind of maintain the production base where we want it.

I'll turn it to Joey to just give some perspective on further outlook there. But the punchline for me is that we've been able to integrate the business faster and make change sooner and that's just getting us more value quite simply sooner.

Yes. Michael, I get your question that whenever you get faster things, you have the opportunity to bring more activity in and how does that impact capital. But the other thing I would point to is the significant reduction that we're demonstrating on our well costs.

So a lot of this increased activity, we're paying for. We've indicated even on the West Texas asset, a $500,000 per well reduction in well costs. I mean, that will go a long way towards adding a little bit of activity.

Some of the other things we've talked about through acreage trades adding 100,000 extra feet, not leaving stranded resource, all those things. I mean, at the end of the day, I like the way David said it. Efficiency gains are definitely a positive and then we just balance how the rest of the year plays out by doing everything we can to keep our well costs down.

David, I agree with your statement, better performance is better performance. It looks like the market is agreeing with that as well.

Okay. So as a follow-up, I just want to piggyback off the same subject, the improved cycle times and efficiency gains. But you previously mentioned, David, that maximizing cash flows is the objective.

But looking later in the year, in the event that operations continue at this pace and the company is sort of faced with a decision on whether to reach or extend the planned number of wells or capital for the year, do you think you'll maintain this operational cadence and efficiencies by seeing both production and CapEx higher? Or will activity and spending levels sort of be the governor here?

Yes. I think the short answer is that our focus on the corporate targets of decline rate, reinvestment rate and returns are always going to drive everything there. As you also know, given the new assets we brought in, we've sort of guided to the ability to kind of move up or down 1 rig throughout the year across the whole portfolio.

So I think that the long story short, the activity levels and the business plan are generally already baked in and a higher price environment just means more cash flow. So I don't think you'll see us change fundamentally anything as it relates to that, just given the flexibility we've already got at the margin.

And Michael, maybe what I'd add. So no formal change to production or capital guidance for the full year. But given performance to date, to David's point, given where commodity prices are, we would expect to be between the mid and the high point on both production and capital.

We take the next question from the line of Oliver Huang from TPH.

Just wanted to start out on the synergy side. Great to see you all exceeding the initial target already. But as we kind of look forward, could you all just provide a composition of what remains to be achieved to hit the updated target from last quarter? Just trying to get some better insight to the line of sight there.

It's Brandi. So what we've captured to date is largely overhead, cost of capital and starting to bring forward the operational synergies. I would say what's left for us, I think there's additional room for us to improve cost of capital.

I'll let Joey talk about what we're focused on from an ops standpoint, but then I think there's also opportunities to further optimize our marketing efforts, not just in the Permian, but as we think more holistically across our portfolio.

We've already talked about some of the capital opportunities that we've identified, particularly with the DGB fleets and reducing our diesel usage. And again, the same points on larger pads, longer laterals, increasing our capital efficiency. Maybe a specific example of the way that we are looking at things different, focusing on value versus chasing volumes.

Artificial lift is a perfect example of that, where maybe different to prior operators rather than putting the largest ESP that we can to chase a high volume, we would have deference to putting in an appropriately sized DSP that will last longer, maybe all the way up till its next conversion.

So you eliminate a workover and a change out of an ESP that could cost as much as $250,000. And then you're just not chasing those peak volumes.

The other thing that it allows you to do because you're not chasing those peak volumes is reduce your facility size. Just again, reducing CapEx. Some of the other things that we've identified are just the number of failures that we can eliminate that reduces our workover activity significantly because we have seen a tendency to work over some of the wells multiple times, and we're focused on, hey, how can we get rid of all those capital workovers.

And then doing everything we can to attack LOE as well and the opportunities there are pretty plentiful. And we're looking forward to continuing the pace that we started at the beginning and continue that through the year.

Okay. Awesome. That's helpful color. Maybe just for a second question, just to stick with the, I guess, Permian. Just could you please remind us when we might expect to see the first start to finish Crescent design well, just given all the progress on the integration front?

And just trying to get a sense for how much of all of this that you all kind of talked through is being reflected in the well cost slides with respect to just the larger pad sizes, longer laterals, Simulfrac usage?

Yes, I would say -- I mean, it's going to be a little bit of a journey. Obviously, we inherited a drill schedule. We've had the opportunity to make some modifications.

But on the frontend of this, it's been primarily just what can we do operationally to reduce the cost of what we have. The increased pad sizes and longer laterals, those are things that are going to start to not play out till the latter part of the year and into early next year.

So we're on a -- which to me is encouraging because we've had so much success early term on just hitting our operational efficiencies and reducing costs just through some pretty simple changes. That just keeps me optimistic that some of these other things that are going to be coming with time are just going to keep the journey going.

But it's going to take a little bit of time for us to have our development plan fully implemented towards the end of the year into next year.

And maybe just to add, we think there's outperformance to the $500,000 reduction in well cost [indiscernible] capture.

Correct. Yes.

We take the next question from the line of Phil Jungwirth from BMO Capital Markets.

This is Ajay Bakshani on for Phil. Great quarter. I know it's early with the integration. And although you've already took quite a bit, can you talk about your initial assessment around Vital inventory in terms of low risk versus total locations?

How close are you to having a Crescent view of total inventory? And how are you viewing upside to Permian low-risk locations and moving more wells to this category?

It's Clay. As you just heard from Joey, we're really excited about where we are today. The focus on operational execution and the ability to kind of put points on the board there is real, what you've heard from us.

I think we continue to be excited about the overall inventory opportunity. You heard in David's prepared remarks, our excitement about the acquisition overall and where we sit today. But we've got a lot ahead of us there.

So I think it will be an ongoing evolution. But if you look at where we sat when we announced the acquisition, we're more encouraged on all fronts, including the inventory side.

Great. And for my next one, just wondering how has the stronger commodity environment changed, if at all, how you approach the A&D market with Crescent Royalties? Slide that you guys got those 2 deals off before the run-up. And if you could also just touch on how you're viewing A&D for present E&P in this market as well, that would be great.

Yes. You mentioned it. We are really excited about what we accomplished across the business. So if you look at over the last couple of years into a very different macro environment, we were able to kind of meaningfully scale the business accretively and kind of transform the opportunity set, obviously, with the royalties business, with the Permian -- scaled Permian entry, but also meaningfully scaling our Eagle Ford business, where we're the third largest producer today.

So when we think about go forward, we -- and you've heard from us on the call, the opportunity set internally that we see for the business has never been greater. So we have a ton of value creation opportunity in our control.

When we look at the A&D market, obviously, a lot of volatility on the commodity side. You haven't seen an oil-weighted transaction get announced since the start of the conflict in mid- to late February.

We continue to be disciplined evaluators of assets and you would expect us to continue that in this market environment. That includes both across the base E&P business, but also the royalty asset. And clearly, with the portfolio we've built, we've never been in a better position of strength. But we will be disciplined acquirers. We will be disciplined evaluators and really excited about the opportunities that we control today.

We take the next question from the line of John Abbott from Wolfe Research.

Question is really early thoughts on 2027. Brandi has already mentioned that for 2026, you'll be likely up in the upper -- mid- to upper half of CapEx and production guidance.

I mean, if we continue to have strong commodity prices sort of looking to 2027, what are the puts and takes as we sort of think to next year? Do you get to the 25% decline rate, you change potentially the deduction of the number of Permian rigs?

I mean, Joey just talked about 50% Simulfrac this year in the Permian, maybe that could go higher. What are the puts and takes as we sort of think about 2027?

Yes. It's David. Great question. Without getting into too much detail too early, I think you know us well enough to know that we're going to continue to just do more of the same and try to do it better. So I think very steady focus on production levels. We talk about maintaining flat to very modest growth through the drill bit.

We expect to continue to drive performance, both on the production and D&C side, but also on the cost side. So I think we just love to continue to generate significant free cash flow following all the core principles, decline rate, reinvestment rate, return on our capital and strong free cash flow benefiting investors. So call it more of the same in '27 and hopefully, a very stable and improving business continually.

And the next question is for Brandi. Brandi, I mean, $140 million working capital draw during the quarter. Is it correct to assume that sort of reverses over the course of the year? And then also additionally, I mean, how are you sort of thinking about how would you fine-tune cash taxes if higher commodity prices persist?

Great questions, John. Working capital, I would expect that to unwind next quarter and it would say largely related to the A&D transactions that we closed on at the end of the fourth quarter. From a cash tax standpoint, I would say, specifically with respect to 2026, we have significant tax assets to offset any expected taxable income.

And then I would say over the longer term, we'd expect to become a cash taxpayer kind of in an $80-plus WTI environment.

We take the next question from the line of Hanwen Chang from Wells Fargo.

Could you walk through your current oil market exposure? Specifically the split between MEH-linked barrels versus WTI-based pricing? And how much of the oil volumes are exposed to spot pricing?

So I think your question is coming from just our strong oil realizations this quarter. So we did print 99% of WTI. I think that's a function of the fact that we sell a lot of our South Texas crude based off of MEH, which is technically a waterborne crude and given what's happening in the Middle East, that is pricing at an incremental premium to how MEH has normally traded. I would say roughly 70% to 75% of our crude across the business prices off of MEH.

And given your MEH exposure, how should we think about the second quarter versus the first quarter? Are you seeing potential for further upside? Or is 1Q closer to a high point?

I mean, I think with respect to Q2 on oil realizations, I think it's probably kind of in the ZIP code where Q1 printed.

We take the next question from the line of Charles Meade from Johnson Rice & Company.

I wanted to ask a question about your CapEx flexibility and really about reallocating or reallocating CapEx within the current capital budget you have perhaps to more oily assets. I think there's a -- it seems like there's -- the obvious place that you could do that would be by moving up dip in the Eagle Ford.

But I think there's probably also an opportunity out in the Permian once we get some of these big pipelines come online and gas isn't so negative anymore. I think like, for example, some of the stuff you have further west in Pecos would be -- once gas was positive, maybe there's an opportunity to bring on some oil volumes out there. So I wonder if you could talk about where you see those opportunities and how likely you are to act on them?

Yes, great question. I'll start with a really simple answer of yes. And your commentary is music to our ears. I think we pride ourselves on having flexibility within the portfolio. I think it's one of the really valuable distinctive things about Crescent's assets that we put together.

Long story short, we've been able to manage that over the last few years and this year is much the same, meaning we are today about 90-plus percent allocated to liquids-oriented drilling and we'll continue to monitor opportunities for the best returns across the portfolio.

And as you said, we have multiple places in the portfolio where we can allocate more or less capital to liquids and to gas. And so we're really just looking for the best returns and the best efficiency.

So we feel great about the program we have today, but we do continue to have flexibility to do exactly what you outlined and I like how you said it, and we'll stay focused on that.

Ladies and gentlemen, as there are no further questions from the participants, I would now hand the conference over to David Rockecharlie for his closing comments.

Great. As I said at the beginning of the call, I'd just like to thank again all the investors who have trusted us, all the colleagues here at Crescent who have helped build this company into what it is today and going to help us take it forward, continue to improve every day and then everybody else who's been along the ride here with us.

We do think the best days are ahead for us. We've got a lot of work to do. We appreciate all the questions on this morning's call and we're going to get back to work and look forward to having just a very strong series of updates, as I said in the beginning, over the coming months and years as we continue to build Crescent into an outstanding business.

Thank you. Ladies and gentlemen, the conference of Crescent Energy has now concluded. Thank you for your participation. You may now disconnect your lines.

Greetings, and welcome to the Crescent Energy Q4 2025 Results Call. [Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce Reid Gallagher, Investor Relations. Thank you.

Good morning, and thank you for joining Crescent's Fourth Quarter and Full Year 2025 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 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 or 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. A reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-K 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. 2025 was a transformational year for Crescent. Our team delivered strong performance by executing on our consistent strategy, and capitalizing on our leading combination of investing and operating skills. As a result, we entered 2026 better positioned than ever with more scale, more focus and more opportunity.

As always, I'd like to begin with 3 key takeaways. First, our base business continues to deliver impressive results. In 2025, we generated significant free cash flow exceeded expectations on both production and capital and demonstrated the durability of our investing and operating model, and we are bringing that significant momentum into our 2026 plan. Second, we are now a focused and scaled operator in 3 premier basins, the Eagle Ford, the Permian and the Uinta, and we see tremendous upside potential across our portfolio. Our investing and divesting activity materially upgraded the quality and scale of our portfolio.

In total, we executed nearly $5 billion of transactions in 2025. We closing over $4 billion of acquisitions at less than 3x EBITDA and divesting nearly $1 billion of noncore assets at over 5x EBITDA. This is how we compound value recycling capital out of noncore positions and into higher return, scalable assets where we can apply our operational playbook to drive value for years to come. You have seen us successfully execute our strategy in the Eagle Ford. Over multiple years, we have built a top 3 position while generating strong returns and hundreds of millions of annual synergies. It is just the beginning for us in the Permian, but we are off to a strong start, and we are doubling our original synergy target.

And third, our equity value proposition is even more compelling. We will continue to build long-term value through strong free cash flow and returns from our base business, but we also have significant upside catalysts embedded in our business. We are excited to introduce one of those key catalysts today, our world-class minerals platform, present royalties. Let me now discuss our strong fourth quarter in more detail. We produced 268,000 barrels of oil equivalent per day for the quarter, including 106,000 barrels of oil per day and generated approximately $239 million of levered free cash flow. In the fourth quarter, our activity was focused predominantly in the Eagle Ford gas and condensate windows to capitalize on strength in the natural gas curve. Early performance has been strong and our ability to allocate capital across both oil and gas weighted inventory enhances the durability of our returns in a volatile commodity environment.

Operationally, we continue to raise the bar across our asset base. Over the past year, we have increased drilling and completion efficiencies, extended lateral lengths and expanded the use of final frac operations across our footprint. These initiatives drove a 15% reduction in drilling and completion cost per foot year-over-year and contributed to full year CapEx outperformance. Our operational expertise is foundational to our strategy of buying assets and making them better and we intend to apply the same proven playbook to our newly acquired Permian assets, which gives us confidence in our increased synergy target. Our entry into the Permian was a defining step in Crescent's evolution. Today, we operate scaled positions across 3 premier basins, the Eagle Ford, the Permian and the Uinta, which is complemented by a substantial and world-class minerals portfolio. This combination provides inventory depth, commodity flexibility and a durable free cash flow profile that positions us to outperform through cycles.

Turning to our new Permian assets. Integration has progressed seamlessly. As we have spent more time with the assets, our conviction in the value creation opportunity has increased. This acquisition remains one of the most compelling we've evaluated with immediate accretion across key metrics and highly attractive cash-on-cash returns. Importantly, our synergy targets are now 100% higher than what we underwrote which meaningfully enhances expected investment returns. That increase reflects clear visibility into incremental operational efficiencies, overhead optimization, marketing improvements, and additional balance sheet opportunities as we implement the Crescent playbook.

Looking ahead to 2026, our plan reflects the consistent execution of our long-term free cash flow strategy. Our focus is on maximizing free cash flow while maintaining operational and capital allocation flexibility. We expect to run a 6- to 7-rig program across our asset footprint. Four rigs in the Eagle Ford will span multiple phase windows, providing flexibility to pursue the highest returns across commodity cycles. One rig in the Uinta will target our core Uteland Butte formation and continue prudent delineation of the upside across our significant resource base, following the success of our Eastern JV. And in the Permian consistent with our acquisition announcement, we are rightsizing capital and operational intensity with a disciplined 1- to 2-rig program. Our upgraded portfolio enhanced capital efficiency and commodity flexibility position us to generate some of the strongest development returns we have seen in recent years despite the current commodity price volatility.

In addition to upgrading our operated portfolio, we're excited to announce the formation of Crescent Royalties. This is a major milestone in our strategy to build a leading royalties business. We have been active buyers of minerals and royalty assets for nearly 15 years and have built one of the largest and most established minerals and royalties platforms in the sector. anchored by a core position in the Eagle Ford under world-class operators. Today, our minerals portfolio contributes approximately $160 million of annual cash flow. By placing these assets within a dedicated capital structure, we enhance strategic flexibility and create additional pathways for long-term value recognition. With Crescent's differentiated knowledge, experience, and sourcing pipeline, we see meaningful opportunity to continue scaling this platform in a value-accretive manner.

Our transformation in 2025 was significant and a testament to the power of our consistent strategy. We are relentlessly focused on building a great business with a great team that talented people feel proud to be a part of. With our success in 2025, we are well positioned to continue on our trajectory with more scale, more focus and more opportunity than ever before. With that, I'll turn the call over to Brandi.

Thanks, David. Crescent delivered another quarter of strong financial performance, generating approximately $536 million of adjusted EBITDA with $226 million of capital expenditures and approximately $239 million of levered free cash flow. These results underscore the significant free cash flow generation capacity of our portfolio and the strength of our lower capital intensity operating model. Our free cash flow enables what we view as an all-of-the-above return to capital framework.

First, it provides substantial coverage of our fixed dividend. We declared a $0.12 per share dividend for the quarter, equating to an approximate 5% annualized yield, and our cash flow profile provides significant cushion to support and sustain that return. Second, it allows us to meaningfully strengthen the balance sheet. During the quarter, we repaid more than $700 million of debt, and we retain the capacity to continue deleveraging throughout the course of 2026. And third, it gives us flexibility to repurchase shares when market dislocation occurs. We increased our buyback authorization to $400 million, providing the ability to repurchase a meaningful amount of shares when we believe doing so represents an attractive use of capital.

Our balance sheet remains strong. Our liquidity is significant, and our capital allocation framework is disciplined, flexible and focused on long-term per share value creation. With that, I'll turn the call back to David.

Thanks, Brandi. Let me close by reiterating our 3 key messages. First, our base business is strong, improving and generating meaningful cash flow, and we are bringing significant momentum into our 2026 plan. Second, our 2025 investing and divesting activity materially upgraded our portfolio. We entered the Permian at compelling value with significant synergy potential and exited noncore assets at attractive multiples.

And third, Crescent's value proposition has never been more compelling. We combine investing discipline with operational expertise. We generate substantial and durable free cash flow, and we have multiple pathways to drive long-term per share value creation. We are larger, more focused and better positioned than we've ever been and we believe we are just getting started. Thank you for your time this morning, and I will now open it up for Q&A.

[Operator Instructions]

The first question is from Bert Donnes from William Blair.

On Crescent royalties, could you maybe help us understand where we are in the value creation process. It seems evident to us that the value is not really showing up in the shares if you use peer multiples. And you noted scaling the business is probably maybe the next step. But what options are you open to or what options are you not open to eventually monetize the assets?

Yes, it's David. Great question. I think the most important place to start is that this has been a core business of ours. We've built a scale portfolio over the last 15 years. It's world-class assets and there is significant embedded value in the company, and we want to make sure that investors and Crescent understand what they are. The other couple of key messages I would give, these assets that we've put together are among the lowest cost in the Lower 48.

We think they've got tremendous upside potential in just what we already own. But we see significant future growth potential just like we do in the rest of the business. I'll let Clay give you a little bit more color on that.

Yes, the only thing I'd note is, we view this as realist on in terms of value creation in terms of allowing our shareholders to kind of recognize the value that we see embedded in the business. As David mentioned, we kind of see clear pathway for growth. We've been able to compound this business at 20% annual growth over the last 5 years. We continue to see a pathway for kind of accretive growth for the business. And then we're committed in 2026 to continue in to unlock value for our shareholders with this business.

Sounds great. And then maybe just one for Brandi. On the -- maybe the [ Vanilla ] upstream M&A. We've kind of heard both sides of the story that this is a seller's market, prices are reaching high watermarks but also that inventory is drying up, and you should probably be grabbing inventory while you can. So just wondering if Crescent thinks this is a time where maybe you do whatever it takes to win a bid like maybe the Canadian Curling team? Or is it smarter just take a step back and catch a few low-priced silvers like the hockey team?

Bert, it's David. I'll take that one, and thanks for an amazing setup. What I would say a couple of things. Your comment just makes me want to communicate how many significant catalysts that we think we have in the company. But to run through them on the M&A side, we've just completed a transformational year. We think we made a great entry into the Permian a fantastic value. That integration is going great.

As you know, our #1 thing when we make an acquisition is to get that right. What you should hear from us today is that it's going really well. We think it's going to be a tremendous long-term opportunity for us. From a preparedness perspective, we're active in the market all the time, and we're ready to be opportunistic. From an actionability perspective, which is very different, what we're telling you is we see a huge amount of opportunity even within the company. So we're focused on driving value with what we already own. We're focused on making sure investors understand all the levers we have in the business, including, as we've talked about, the royalties assets, which, again, are world-class and scaled. And the market, from our perspective, we'll be ready when it's there. So it's an interesting time right now, but we're kind of always in the market. But the #1 thing is, are we prepared to be opportunistic? And yes, we are.

The next question is from Charles Meade from Johnson Rice.

Good morning David, to you and your whole team there. On the desire to grow the mineral royalty position, can you talk about what advantage Crescent has in that process. My impression is it's generally a pretty competitive market, but it's less competitive. There's fewer players as you get to the size you guys are playing in. But what do you view or your advantages that let you compound this value 20% year-over-year? And perhaps are there -- is there one geography over another where you think there's the most opportunity?

Yes, I'd say a couple of things, and it goes back to just the core of kind of who we are as a company, which is we're investors and operators. So we've got the core skill set and activity on the technical and operational side that we're looking at assets that we operate every day and paying attention to what others are doing. And then on the investing side, not only are we disciplined we're very active. It's a core competency. So we see -- and we try to see everything.

So when you put that together, at the end of the day, we're obviously, there is no difference in how we go about growing. We're investing in minerals and we do the operating business. it's about patience. It's about sticking to the returns and asset profiles we want. And what we found is we've been able to compound in both of these asset classes over time as long as we're patient and disciplined and prepared and acquiring the assets that we want to own. So I do think the track record speaks for itself. But the inherent advantages we have are really who we are as a company and just really what we've built, how integrated team we are and how well we combine investing and operating expertise.

Got it. And then if I could ask a question that drills down on your Midland Basin position. I know it's relatively new for you guys. But there's another operator that made a big -- really a big review about the Barnett, the prospective of the Barnett in the Midland Basin. And I know there's been operators who -- it's not new that companies have been targeting the Barnett, but there were some new information with some, frankly, impressive rates. So I'm curious, I know you guys have only had your hands on those assets since December, but have you -- do you have any kind of estimate on Barnett potential that you'd be able to share?

David again, and then I'll let Joey and Clay also give you some more context on your broader Midland question. But very specifically, I'd say 2 things. We think we've made a phenomenal entry into the basin. We feel really good about it. It's going well, and we think we got it at great value. So we don't feel any, what I'll call, pressure to do anything other than make sure we get that integration and then synergy capture right.

The second thing I would say, kind of before I hand it off is if you look at really our strategy in action and what we've been able to do in the Eagle Ford, we put together a very significant position really over a decade. We're now a top 3 producer in that basin. And a lot of the resource that we're developing today was not thought to be there or thought to be economic at the time we acquired it, which is fantastic. So I would just say we have high hopes for our entire business in terms of the long-term inventory potential without trying to comment specifically on the Barnett. But I'll let Joey and Clay also give you some more perspective just on how the Midland and Permian is going.

Yes. The only thing I'd add, Charles, is clearly, we mentioned a lot when we talk about M&A, how active we are. And in the market. I think the same thing would apply to resource expansion. And so you'd expect us to be kind of very actively following where the market there and what opportunity we have. And as David mentioned, I think one of the big reasons you're hearing so much excitement for us on the on the Permian entry is that we think there's a ton of opportunity around that asset base. So really excited about where we sit today.

Yes. And Charles, in regard, we've seen the same announcements on the Barnett and we just consider that potentially more upside to what we've already highlighted. And so looking forward to exploring that with everybody else and seeing what we can do with it.

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

I'd like to stick on Crescent Royalties quickly. We appreciate your comments that the strategy sounds quite clear towards adding scale. But given that this is a different business model, are the acquisition rate is going to be consistent with legacy Crescent 5-year payback period at a 2x multiple of invested capital?

Yes, that's right. It's the same lens we bring, right? So as you know, right, this is cash flow orientation on the royalty side, clear focus on 2x multiple money and very clear focus on NAV per share and free cash flow per share accretion. So what we are excited about in the business is we've been able to build it the way we built it. with those as kind of our core focus, and that is the opportunities that we see going forward.

All right. That's great. I appreciate the color there. As a follow-up, I was hoping for some clarification on one of your slides in the deck, Slide 11 here. So by our math, it looks like the implied oil rate for the fourth quarter in the Permian was nearly 70,000 barrels a day, represent a pretty meaningful step up from the 3Q level of like 61,000 and even more impressive is that you're disclosing 0 turning in the fourth quarter. So are there moving pieces here in terms of what was disclosed or maybe some M&A or other transactions that occurred? Just trying to square that circle.

Michael, so no additional transaction I would say that our base business outperformed production expectations in the fourth quarter. I think we're carrying forward good momentum into 2026. I will also flag though that Vital did not bring on any new wells since early October. So that business was in decline, and that's ultimately what's translating into a pretty flat oil production cadence for 2026.

The next question is from Philip Jungwirth from BMO.

Congrats on the successful Vital integration and increase on synergies. On the well costs, I know these numbers are not always apples-to-apples across companies, but I think you're at $700 per foot in the Midland, $875 in the Delaware. I know there's a lot of tough competitors in these basins, but it does feel like there's a nice gap you could reduce. I know we're just getting started, but just wondering how much runway do you see to lower in Permian well cost beyond what's being underwritten currently in the asset.

Philip, thanks for the question. Yes, we're going to be working the DMC piece of it diligently. We do see some great opportunity for improvement. We've already seen some even in the short time that we've had things moving forward. The other part of it that I always like to encourage people, point out to people is just the value of slowing down the fact that we slowed down, get the opportunity to catch our breath, understand from the past learnings from Vital and apply the things that we're going to do going forward. Just a slower pace gives us a better opportunity for higher capital efficiency and reducing costs. So we're very bullish on our opportunity to reduce well cost in the Permian.

Okay. And slowing down is actually going to be my follow-up here. Just on the base decline, Vital used to give us a year-end figure for oil and BOE. Last year, it was 42% for oil and 36% per BOE. So I'm guessing this is a lot lower today, but any sense on where the Permian base decline is now or by year-end '26? And just to confirm an earlier comment, can we imply that Permian oil production is also going to trend flat through the year similar to the Total company?

Philip, this is Brandi. I think similar to my prior comments, I would expect relatively flat oil volumes, both in the Eagle Ford and in the Permian throughout the course of 2026.

Okay. Great. And then anything on the base decline?

Yes. On a corporate level, we did pick up post the merger pro forma for divestitures were in the high 20s that across the base -- the broader business, but expect to kind of get back to our corporate target of 25% or below over the next 12 to 18 months.

The next question is from Jarrod Giroue from Stephens.

Congrats on a strong quarter. So my first question is around synergies from the Vital acquisition. In your release, you stated that Crescent had already hit $40 million plus in synergies from the deal, and it's causing you to double your annual target of about $190 million. I was hoping you could give a little color on what you -- what savings you've already seen and what you expect to get to the $190 million?

Hey Jarrod, it's Brandi. I'll start, and then I'll turn it over to Joey. So with respect to the $40 million that has been captured to date, I would say, largely overhead, duplicative public company expenses as well as cost of capital synergies. Of the 100% increase on synergies, I would say 50% of that is op related. And then the remaining 50% is additional overhead, incremental marketing synergies and then additional opportunities to further drive down cost of capital.

And Jarrod, one of the things since I've been here at Crescent that's been incredibly impressive. This has gone back in history their 16th asset that they've acquired since going public and have a very good, tried and true playbook on integration. I've been incredibly impressed efficiently. We've been able to integrate these assets. The team integrations and operational performance are exceeding our expectations. Just some color on some things specifically.

Going forward, we'll be increasing the number of wells per pad, which will allow us to implement simulfrac. We're also increasing lateral lengths by doing land trades. So we'll be able to increase our capital efficiency there. The supply chain opportunities are starting to come to us now that we're a company of scale, combining services and contracts. Some specific examples, combining contracts on generators, compression, chemicals, tubulars, and as I was explaining to Charles, just don't underestimate the value of slowing down. Slowing down gives us better operational planning, which drives better execution.

Also on the LOE side, huge opportunity on the artificial lift side with our cash flow focus free cash flow focus. We're focusing on long-term value versus short time rates. So that affects the ESP sizing and how we do the timing of artificial lift spots. The list is pretty long. All of these opportunities will be feathering in over 2026, but we're pretty excited and looking forward to getting through 2026 and capturing all the synergies.

That's great. And then just my second question, with the earnings release, you announced an upsized and extended share repurchase authorization of $400 million. So just kind of curious how Crescent prioritizes shareholder return between the base dividend, shareholder returns and debt reduction in 2026?

Jarrod, this is Brandi. So no change to kind of key capital allocation priorities. The balance sheet and the dividend or top. We're prioritizing deleveraging well so retaining the flexibility, right? We kind of talked about all of the above return to capital program. But again, I think in the immediate term, it's all about the balance sheet, the increase in the buyback, though does allow us to be opportunistic. It allows us to move the needle with the authorization program if the stock is significantly dislocated.

The next question is from Jonathan Mardini from KeyBanc Capital Markets.

Just given the capacity or the ability for minerals companies to run at higher leverage ratios, the latest spotlighting of Crescent royalties change the way you think about leverage over time? Or would you target that 1.5x ratio at the minerals level? So just how we should think about leverage on a consolidated basis trending through this year?

Good question. I would say no fundamental change. It's how we think about leverage across the broader business, long-term target continues to be 1x. We do believe that we were pretty conservative financing these latest minerals acquisitions. We expect to be below 1.5x by year-end. And then there's clearly just significant asset coverage given where this asset class trades relative to that leverage target.

Okay. I appreciate the details. And moving upstream on your Eagle Ford asset slide, we show laterals your Central and Southern regions increasing by about 2,000 feet compared to 2025. Can you just talk about what's driving this expected step-up and maybe how we should expect this to impact D&C cost per foot in 2026?

Jonathan, this is Clay. I'm happy to start, and then I'll turn it to Joey. I think part of that is, as we've talked about, our ability to kind of build scale in the Eagle Ford has given us a huge opportunity to continue to drive capital efficiency by extending laterals assets of joint ventures, just blocking and tackling in terms of putting the position together and giving ourselves the best shot on capital efficiency. But turn to Joey also.

Yes, Jonathan. Obviously, one of the simplest ways to become more efficient is to drill longer laterals. So it's really as simple as that. But I also point to the fact that we're increasing the pad sizes as well which allows us to increase the percentage of simulfrac. We'll be up to 70% of our pads in South Texas regional beyond simulfrac. So those 2 things combined really push our capital efficiency higher and higher. So it's all good things happening.

The next question is from John Abbott from Wolfe Research.

I'll just jump to the Uinta for a moment here. I mean, part of your program this year is sort of delineating the other zones in that area.When you think about that asset, how do you think about the optionality of the Uinta at this point in time that is not as significant part of your portfolio as in the past?

John, it's David. Great question. I'd say a couple of things. Just to hit optionality immediately and succinctly in our control, how we want to handle it. So that's just a fantastic asset to have. It's obviously intentional on our part as well as part of our strategy. So we feel really good about 2 things in that area. We can deliver really strong returns in a I'll call normalized oil market. We're making great returns there and been view now.

And then just the resource potential there is incredible. We've seen our offset operators continue to expand that opportunity. We entered there below PDP value. So we feel great about what I'll call just methodically going through the opportunity and expanding it over time. And as Joey said, the ability operationally to just go at the pace you want to go just provides tremendous optionality. But we think of it as more or less a 1 rig area for us and just slow and steady continued expansion of the opportunity is what we expect.

Appreciate it. And then the follow-up question is really on maintenance CapEx and long-term oil. Based off your current plans, I guess, you could exit the year, with 1 rig maybe in the Permian. Let's say, maintenance CapEx long term. I was talking to Brandi about last night, it's $1.3 billion to $1.4 billion long term, well, maybe about 130,000 barrels per day. I guess my question is, is if we do see a more constructive environment in the second half of this year and as we sort of look out to 2027, '28, could you decide to plateau at a higher level? Or is 1 rig in the Permian really where you want to be? Or could you decide, hey, if we have a more constructive environment, let's just be a little bit higher than 130 long term?

John, it's David again. I'm happy to take that. Long story short is we feel really good about what I'll call running the business at a target reinvestment rate, and we've done that all the time. Our key goal is returns and free cash flow. So yes, back to your topic of optionality. We've got the ability to do more everywhere, which means not that we're going to do more everywhere, but we can allocate our development activity to the best return.

So if oil development is higher returning, you will see us allocating more capital towards oil and vice versa. You've seen the gas market strengthen. We've had more allocation there. So I think it will be purely a function of rate of return. -- and then we actually have oil opportunity in the Eagle Ford and the UN in the Permian. So I think we could do it anywhere. But yes, you're correctly pointing out that we've got good optionality in the Permian.

The next question is from Lloyd Byron from Jefferies.

Congrats on all the progress. Can I just go back and get a couple of clarifications. I don't know if it was Joe that was talking about costs, but another way to kind of ask it, is there an optimal scale for you guys going forward? And I'm just thinking about in the Permian or the Uinta, you've done such a good job in the Eagle Ford with scale.

This is David. I'll give you a sort of simple response and then Brandi give you maybe a little more context strategically. What we are seeing is that we've got the scale we need to continue to drive value within the current business. around operations. We see tremendous upside in continuing to drive efficiencies across these assets. And in particular, as you know, the newest assets in the company are recent, call it, 12 to 18 months ago, Eagle Ford acquisitions and then the entry into the Permian.

So we feel like we've got plenty of scale there to continue to drive value. However, we think this industry through cycle presents significant opportunity for our business strategy to grow through acquisition opportunistically. And so we also see significant scale potential beyond what we already have, in particular, in the Eagle Ford and the Permian. And so I think that's what we're looking for. But those acquisitions are all going to stand on their own, and they're going to be, because we think the value is right because we think we're ready to do them and we see an ability to do what we do, which is buy assets and make them better. I think we would tell you we've got the scale we need today to drive significant value on our existing footprint.

Okay. That makes sense. And then let me come back to [indiscernible] and a little bit. And I know you're -- it's a nice steady growth going forward, but are there any bottlenecks at this point, takeaway rail, permitting? Could you grow it faster if you wanted to, I guess, my question.

Lloyd, I'll start. So we could grow it faster if we want it. I think we've always thought about this asset as kind of a 1-rig asset but the basin has really transformed over the last couple of years given rail, given kind of debottlenecking on the gas side of things. So I would say no constraint from an oil or gas midstream perspective.

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

Perfect. Thank you all again. We really appreciate again, the opportunity every quarter to share how we're doing. And hopefully, the key takeaways all came through, which is base business, high performing with a lot of momentum. We completely transformed the portfolio last year into a much more focused scale business.

And again, we think the company has a tremendous amount of catalysts both on the existing assets, but also one of the things we really are highlighting this quarter is the opportunity in our Minerals business in that segment. So we'll continue to keep you updated as we move forward. And again, thank you for the support.

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

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 and 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, Present 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 present 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 stronger returns for our investors. With these impressive capital efficiencies, we have again enhanced our outlook for the year, increasing free cash flow with flat production from less capital. In the Eagle Ford, where our activity was focused this quarter, we have achieved 15% savings per foot on our capital versus last year's program, along with an impressive rate of change on well productivity with our 2024 and 2025 wells outperforming prior activity by 20-plus percent.

In line with our guidance at the outset of this year, our capital for the remainder of the year is focused on our gassier acreage in the Southern and Western Eagle Ford as we capitalize on the relative strength in the natural gas curve. On top of our outstanding business performance this quarter, we also made a significant step forward on our growth trajectory with our announced acquisition of Vinyl Energy creating a top 10 independent U.S. oil and gas producer with line of sight to an investment-grade rating. As we progress towards closing, which we expect to occur before year-end, we continue to see significant value in the Vital assets under our operator show. We expect the Vital acquisition to generate immediate accretion across all key metrics and deliver attractive cash-on-cash investment returns exceeding 2x multiple of invested capital with the valuation covered by Vital's existing production base.

As always, and in line with our initial announcement, we will apply Crescent's consistent strategy to this acquisition. We plan to high-grade capital allocation on Vital's assets by taking activity down to 1 to 2 rigs at closing, which will deliver higher free cash flow and returns for investors. This is only a small part of the synergies we outlined in our original announcement and we now see upside beyond the $90 million to $100 million of base case synergies we announced. We have proven our ability to integrate and execute and we believe there is an opportunity for significant value creation through improved operations on the Vital assets that was not included in our underwriting. The Vital acquisition is a scaled entry into the Permian Basin and significantly expands Crescent's opportunity for future growth with more than $60 billion of asset acquisition potential surrounding our pro forma footprint.

We have demonstrated our playbook for accretive growth through acquisition in the Eagle Ford, and we are confident in our ability to continue to scale profitably across our Eagle Ford and Permian positions. Alongside our Vital announcement, we also announced a sizable pipeline of noncore divestitures to accelerate value, streamline our business and further strengthen our pro forma balance sheet. We are one of the most consistently active operators in the A&D market, and we are pleased to report that we have successfully signed more than $700 million of accretive divestitures this quarter bringing our year-to-date sales to over $800 million. But the sales announced this quarter, encompassing the entirety of our legacy Barnett, conventional Rockies and Mid-Continent positions we've exceeded our expectations in regards to timing as well as valuation with the total sale value representing more than 5.5x EBITDA and a significant premium to the year-end proved PV-10. The sales also meaningfully enhance the Crescent value proposition as we emerge with a more focused asset portfolio, increased margins, improved breakevens, longer reserve life and an even stronger balance sheet.

Going forward, the combination of our continued strong operational performance, the Vital acquisition and our successful divestiture program positions Crescent with more scale, more focused and an even greater opportunity than ever before.

Upon closing of our announced transactions, we will operate across 3 core regions: the Eagle Ford, the Permian and the Uinta. With scale positions in each of these premier regions, we will continue to pursue long-term value for shareholders through strong free cash flow, operational excellence and profitable growth.

With that, I'll turn the call over to Brandi to provide more detail on the quarter.

Thanks, David. Crescent delivered another quarter of strong financial performance, generating approximately $487 million of adjusted EBITDA and $2 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 some tenor to 5 years and improve our pricing grid. This retermination 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.

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 branders 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 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. I think overall, balance sheet is an integrated spot -- as you stated, right, we're continuing to operate the business within our leverage targets. We've been successful pushing out maturities were well hedged and we generate significant free cash flow, which allows us to continue to you lever 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 that 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 is 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 at 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, 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?

Good question. So we did reaffirm our production guidance from a legacy crosstandpoint. But as you know, the 4,000 a day impact from the divestitures will equate to roughly 16,000 BOE per day impact to our 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 focus on the 16,000 a day that would come out of Q4 as part of the sales transaction.

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 goes, I 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, 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 look very similar to 2025 from an allocation and commodity perspective.

The next question is from Michael Scialla from Stephens Inc.

Good morning. 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. 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? Other plans to sort of go out there and look for greater value from that business? How do you think about the minerals line?

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 would be $700 million plus of divestitures, does that impact your future cash tax situation at all? How you think about cash taxes postsale?

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 comes based on today's expected development plan over the next handful of years. I will say that with respect to the divestitures and them 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 proceeds.

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

Oil 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. I would say a similar theme of just buying assets and making them better. Our Markanteam 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 we're collecting nickels and dimes, but those add up over time. And you can see that reflected in our financial statements in the quarter.

All right. Just as a follow-up, I noticed that the Eagle Ford turning lines were a bit higher than we were expecting. The company is obviously planning some dry gas turning lines later this year. So I was just curious if there was any maybe overlap dry gas training lines that maybe were included in the 31 turn-in-line count 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 Inco.

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 ground 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 stream 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, I would expect to be roughly 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.

Greetings. Welcome to Crescent Energy's acquisition of Vital Energy Conference Call. [Operator Instructions]. Please note that this conference is being recorded.

At this time, I'll hand the conference over to Reid Gallagher with Investor Relations. Reid, you may now begin.

Good morning, and thank you for joining this call covering Crescent's announced transaction with Vital Energy. Our prepared remarks today will come from our CEO, David Rockecharlie, along with Vital's President and CEO, Jason Pigott. We'll also have our CFO, Brandi Kendall, and other members of our leadership team 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 materially 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.

With that, I will turn it over to our CEO, David.

Good morning, everyone, and thank you for joining us today. We're pleased to announce that Crescent Energy has signed a definitive agreement to acquire Vital Energy in an all-stock transaction, creating a top 10 independent operator with line of sight to an investment-grade rating.

Alongside this acquisition, we are increasing our noncore divestiture pipeline to $1 billion. With these steps, we are even better positioned. Crescent will have more focus, more scale and more potential to deliver long-term value to shareholders.

Before getting into the merits of the transaction, I want to commend Jason and everyone on the team at Vital for the business that they have built. Crescent is looking forward to integrating Vital's attractive Permian assets into our portfolio and becoming a part of the Midland community. We are proud to welcome the Vital team into the Crescent organization.

Turning to the transaction. I would like to start by highlighting the 3 things I hope you all take away from this call. First, this acquisition represents compelling value, generating attractive cash-on-cash investment returns in line with our target of greater than 2x multiple of invested capital, with the valuation covered by Vital's existing production base and delivering immediate and significant accretion to both near-term and long-term metrics, including more than 20% accretion to 5-year free cash flow per share and more than 10% accretion to net asset value per share.

Second, as always, we will apply Crescent's consistent strategy to this acquisition. We plan to high-grade capital allocation on Vital's assets by reducing activity and increasing both free cash flow and returns. This is a leverage-accretive business plan. Our approach to pro forma operations, combined with our $1 billion divestiture pipeline, supports our commitment to an investment-grade balance sheet and to our attractive peer-leading return of capital program.

And finally, with this scaled entry into the Permian, we significantly expand Crescent's opportunity for future growth, with more than $60 billion of asset acquisition potential surrounding our pro forma footprint. In the Eagle Ford, we have demonstrated our playbook for our accretive growth through acquisition strategy, and we are confident in our ability to continue to execute across our combined portfolio.

I will now go over the key terms of the transaction, which is structured as an all-stock deal. Each Vital shareholder will receive 1.9062 shares of Crescent common stock for each share of Vital common stock. Upon closing, which is expected by year-end, Vital shareholders will own approximately 23% of the combined company on a fully diluted basis.

Both Boards have unanimously approved the transaction and major shareholders of both companies are party to agreements serving to support the transaction. Following close, the Crescent Board will expand to 12 members and 10 representatives from Crescent and 2 from Vital.

As mentioned in my opening remarks, this attractive combination creates a top 10 independent, catalyzing a step change in Crescent's market positioning with attractive tailwinds from an increased investor pool, incremental index inclusion and a potential ratings uplift with enhanced scale. The combined company will have an enterprise value of approximately $9 billion and a free cash flow generation capacity comparable to our new top 10 peers.

The transaction provides a substantial foothold in the Permian that complements our existing scaled positions across the Eagle Ford and the Uinta. Together, the combined company produces nearly 400,000 barrels of oil equivalent per day with nearly $13 billion of total proved SEC reserves and has capital allocation flexibility across basins and commodities that support significant and sustainable free cash flow generation through commodity cycles.

The combined company will hold nearly 1 million net acres across its core areas with more than a decade of low-risk development inventory and significant resource upside to support our development program far into the future. We operate some of the largest positions across both the Eagle Ford and Uinta Basins, and this transaction provides a scaled foothold in the Permian, where we see significant opportunity for future growth.

Vital contributes substantial and competitive inventory to our pro forma portfolio that generates attractive returns in today's price environment. We also expect to deliver meaningful pro forma efficiencies, including $90 million to $100 million of immediate annual savings to further enhance our free cash flow focused operating plan. These savings are straightforward, driven by Crescent's more favorable cost of debt, lower corporate overhead as we eliminate redundant public company expenses and meaningful interest savings as our operating plan improves returns and free cash flow and accelerates debt repayment.

Altogether, the 5-year PV-10 of our expected synergies is approximately $350 million, which covers about 11% of the headline transaction value. Beyond these immediate savings, we see significant potential for operational efficiency gains across the acquired assets as well as longer-term cost of capital benefits as we advance towards our goal of being an investment-grade business.

These opportunities, while not included in our valuation, represent potential for more than $100 million in incremental annual savings or more than $200 million combined with our base case synergies. But we want to give ourselves time to do this right. We've demonstrated our ability to find the goals buried in assets we acquire through efficient execution and improved operating performance, and we are confident in our ability to maximize the value of this transaction for investors.

Under our operating plan and including our baseline synergy expectations, we expect 5-year cumulative free cash flow well in excess of our combined market cap. We've always had a free cash flow-focused business model, and our strategy applied to these assets creates compelling value for all shareholders.

With our increased base of free cash flow, our capital allocation priorities remain consistent with a continued focus on putting our investors first. As we always say, priorities 1A and 1B with free cash flow are maintaining a strong balance sheet and returning capital to our shareholders. Through this transaction, we will maintain our fixed $0.12 per share quarterly dividend, which offers an extremely compelling yield versus our peers as well as our existing $150 million buyback authorization.

This transaction enhances our investment-grade quality balance sheet with an improved credit profile driven by increased scale and our leverage accretive business plan, and it makes Crescent the largest liquids-weighted producer yet to receive an investment-grade rating. We have no financing requirements associated with the transaction. And at closing, we expect to maintain our current leverage of 1.5x, within the bounds of our target leverage range of 1 to 1.5x.

We also have $1.5 billion of liquidity. On top of our substantial cash flow generation, we see significant opportunity to drive value and accelerate further deleveraging through incremental asset divestitures. We announced a $250 million divestiture pipeline in the fourth quarter of last year, and we now see $1 billion of divestiture opportunity in the pro forma company. With our strong balance sheet, substantial free cash flow and a highly executable divestiture pipeline, we continue to advance towards our ambition of being an investment-grade business.

We have a proven track record of returns-driven growth through M&A, averaging 3 acquisitions per year over the last decade. We hold ourselves accountable to a consistent underwriting criteria, and we've demonstrated our ability to acquire and integrate successfully. With our consistent strategy, we've more than tripled production and grown annual cash flow more than fivefold since our public listing about 4 years ago, all while maintaining the strength of our balance sheet and increasing our credit ratings.

Our recent success in the Eagle Ford highlights our value proposition of thoughtful investing, efficient integration and operational improvement to build a basin-leading position. We saw a highly fragmented basin with a compelling growth opportunity, and we got to work, executing on a transformative series of transactions, completing 7 acquisitions over 2 years to more than triple our asset footprint, production base and inventory.

We integrated each asset seamlessly, and we relentlessly pursued operational efficiencies, driving approximately $200 million in annual synergies across these recent acquisitions. We consistently execute our playbook for M&A success, and this transaction offers a unique opportunity to use it in a basin with the largest acquisition opportunity set remaining in the Lower 48.

The addition of a scaled Permian position significantly expands Crescent's scope for accretive growth. We now have more than $60 billion of potential growth opportunities surrounding our pro forma footprint in the Eagle Ford and Permian, and we are confident in our ability to capitalize on it.

With that, I'd like to welcome Jason to share a few thoughts before we close.

Thanks, David. This is an exciting new chapter for Vital Energy and a compelling value proposition for our shareholders, providing attractive value and accelerating our trajectory in a larger and better positioned combined business. This transaction is fully aligned with the strategies we've consistently pursued, creating long-term value through responsible growth and capital discipline.

Our investors will be part of a combined company that is extremely well positioned in our sector with a scaled asset portfolio across premier basins, a strong balance sheet, significant free cash flow generation, supporting peer-leading dividend and a large opportunity set for future growth.

In addition to the financial and strategic metrics, our companies share similar values and a commitment to safe and responsible operations. With those shared principles and complementary strengths, I am confident this combination will create meaningful and lasting value for all stakeholders.

I also want to express my sincere gratitude to the employees of Vital. Your dedication, hard work and commitment to -- commitment have built a company we can all be proud of, one with high-quality assets, operational excellence and integrity and discipline. Without you, we wouldn't be in a position to make a transformative step for our business.

With that, I'll turn the call back over to David.

Great. Thank you, Jason. Before we close, I want to reiterate the 3 things I hope everyone takes away from this call. First, this combination represents compelling value for our shareholders with attractive acquisition returns and significant accretion across all key financial metrics.

Second, we plan to align these assets under our consistent strategy with lower activity, higher returns and higher free cash flow, plus a $1 billion divestiture pipeline to maximize value for investors and accelerate our path to investment grade.

And finally, we have more than $60 billion of potential opportunities surrounding the pro forma [ footprint ] and we are confident in our ability to continue to grow the business accretively from here. This acquisition and our $1 billion noncore divestiture pipeline are transformative for our business, but there is no change to our strategy. With these steps, we are even better positioned. Crescent will have more focus, more scale and more potential to deliver long-term value to shareholders, to enable for step change, and we'll be working hard to deliver.

With that, I'll open it up to Q&A.

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

David, congrats and Jason, congrats on your side. Obviously, Jason love working with you all. David, my first question is just the assets. Obviously, I know the Vital assets quite well. I'm just curious how you and the team believe that the vital assets will immediately start to compete for capital. Is it fair to say that a good bit of it will go in the upper quartile of your inventory? Or how do you see this?

Yes, great question. I would say that we're really pleased to fold it into our business plan, and I think we look at it as adding incremental oil inventory to the business. So yes, very strongly competes. But as you heard us say, we are going to significantly reduce activity on those assets, and we think that's going to allow us to high-grade the development within the context of our broader plan and our core assets.

So David, in that same vein then, could you talk about when you look at sort of pro forma rig count for the company, I mean would it be one in one and have you decided yet one in one in Midland and Delaware in these assets? Or I'm just trying to think of how you sort of think about the pro forma D&C going forward?

Yes. I think too early to sort of start providing any, what I'll call, forward guidance. But generally, just so you have some context, Vital has been running about 4 rigs, and we see a program that's more likely in the 1 to 2 range.

Okay. And then if I could sneak one last one in just on the divestitures, the noncore. I mean, is that something you're planning -- do you have a time line on that? And is there any assets you could talk about that you've already identified there?

Yes. As you have heard from us before, we started this process of what I'll call, streamlining the company in the fourth quarter. And what you're hearing from us is that you can assume we're getting after it, and we're confident in the pipeline and our ability to capture value sooner rather than later.

The next question is from the line of Tim Rezvan with KeyBanc Capital Markets.

We found the Permian entry to be interesting, especially in light of the hire of your COO in May, who has significant experience there. But can you talk about the change? What made you decide that being an Eagle Ford Shale consolidator was not going to be the path forward and that you're going to kind of expand your opportunity set? What led you to that decision?

Yes. Great question. I think the first thing to know, we look at everything in the market. So we're constantly trying to pay attention to that, in particular, areas that we think fit our operating skill set and assets we can fold into our plan. So in general, we don't think this is a change in terms of operating profile or strategy. We're getting great value with the business.

And as for the Eagle Ford, no change there. We see a huge opportunity, and we'll be even better positioned as a company following this acquisition. And I think what you're hearing from us with both this transaction and the divestiture program is, as I said in the earlier remarks, I think we're getting more scale, but also more opportunity around both the Permian and Eagle Ford going forward.

Okay. Okay. That makes sense. I appreciate that. And then, David, in the past, you've talked about being comfortable in that 1 to 1.5x leverage because of the low PDP decline of the business. I believe it went from 19% to 25% with SilverBow. So how does that change? You haven't said what you're going to sell, but it's likely that the Barnett Shale or conventional Rockies, some of these more mature assets would leave. So how do you think about pro forma leverage if you're running a higher PDP decline business?

Yes. A couple of things. Just to hit the decline upfront, we're still committed to what I would call our core targets of a 50% or lower reinvestment rate and a 25% decline rate. And while you're correct that our conventional assets have had traditionally lower decline, it's a really small part of the business. And you'll see that through the cycle, we've acquired shale assets that were sub-20%.

And then a lot of times, we acquire assets that were operated in a different business plan that come into the company at a higher decline rate and then we manage that into our position. So that's in terms of strategy or asset profile and portfolio, maybe worth hitting upfront.

But then turning to the leverage question specifically, our stand-alone business is 1.5x levered today and on a great path. We expect to fully repay the RBL by year-end. Vital is above our 1.5x target, but we expect to close at 1.5x given the free cash flow generation from both businesses. And obviously, the $1 billion pipeline of divestitures, we feel confident about that adding to the balance sheet as well.

And then the other thing I would highlight to your question, we've got confidence in the balance sheet management. It comes from over a decade of running the business with average leverage of 1.2x. And as we've talked about together before, it may take a bit longer at lower prices or a bit faster at higher prices, but we're committed to the strategy, and we'll get there.

Our next question is from the line of Charles Meade with Johnson Rice.

Picking up on that point of debt management, I understand the details are going to need to wait for post close. But can you give us an idea of what you would regard as kind of positive milepost or positive achievements post close in '26 on the debt front, what that would look like?

Yes. I think in general, the business generates significant free cash flow. And hopefully, what you're hearing very strongly from us is that combined, we're going to have a significant increase in free cash flow driven partly by lower activity and higher returns.

Going forward, we just expect to continue to delever out of free cash flow. The business is well positioned. And I'll just -- maybe one just great example of what we hope you'll continue to hear from us is in the second quarter, we paid down a couple of hundred million of debt and used 80% plus or minus of the free cash flow has been targeted to debt repayment. So we feel very good about it.

Got it. Got it. And then to the point about reducing activity on the Vital assets, can you elaborate a bit more on that? Is this just kind of harmonizing the reinvestment on those assets with your existing philosophy of just -- so going from 4 to 1 to 2 rigs? Or is this is this also -- you're going to keep the best kind of the projects. So is there an element of this that some of those projects for rigs 3 and 4, say, for example, aren't going to -- wouldn't compete in the combined company portfolio?

Yes. As a starting point, we would say we find this asset position really attractive. And so we're -- just to confirm for you, we're going to bring it into our business strategy and operate it how Crescent operates. That is different than others in the industry. And first of all, I'd say that Vital strategy had included more growth through the [ Dilbert ] approach along with the acquisitions they were doing, and that just hasn't been our style from the beginning. So we're going to maximize cash flow and returns here.

But the other thing I think worth highlighting is we also like to take our time. And so we think there's great capital projects to do here. But as we look at this business, we want to do this right. And so taking your time and being able to high-grade inventory plan within the context of our broader portfolio and then also integrate and high-grade among the opportunities we have to develop is just the way we like to do things.

So I'm confident that we're going to be successful. We have high conviction around the quality of the inventory available to us here, but we're just going to take it slower, and we think that's going to be better for all the shareholders.

Our next question is from the line of Michael Scialla with Stephens.

Congratulations. David, you mentioned some upside on the operations. Just want to see if you could provide any more color on things you might attack there to increase that synergy target number.

Yes. Great question. And obviously, we've got a lot of confidence in the first $100 million. And so we're really focused on that second $100 million. We didn't include these in the base underwriting. But what I would say, we've been able to get these same things in prior acquisitions. And so same potential exists here, again, back to some of the comments about inventory high grading as well. We're going to give ourselves the time to get it right.

But I think it's across everything, LOE, D&C efficiencies. We've brought different completion practices to every acquisition. And so I think it's the normal playbook, but just going to take us some time to get things integrated and optimized. So we're excited about the opportunity, but we need to go get after that.

And I'm assuming you've -- as you mentioned, you look at everything, you've, I'm sure, looked at other Permian opportunities. You've even owned some Permian assets in the past. I guess I wanted to ask what made Vital the right one to transact on at this point? I mean not every day you can obviously do an all-stock transaction that's accretive, but anything beyond valuation that you can point to really tell us why this deal made sense at this time.

Yes. It's both from the entry point for us and the significant upside, just a really attractive compelling investment opportunity, and we think the combined company is great for all the shareholders. So everything with us starts with investment returns and no difference here.

To your point, we do look at everything, but we also think about what's the ability for us to drive operational performance and future growth. So we want to be scaled. The team at Vital put together an attractive position that really lends itself to our operating strategy. So we're excited about what we can do, just bringing it in, again, to how we like to operate from a free cash flow perspective.

And then it's just a huge area and opportunity for further consolidation just like we pursued in the Eagle Ford. So we think the resource in this basin is tremendous. We've looked at it for a long time. And I think we're very good at being disciplined and patient, and this was a great chance for us to get in with what I'll call a set of assets that fit us really well for our operating philosophy.

Our next question the line of John Abbott with Wolfe Research.

I guess at this point in time, you're not really providing pro forma guidance, but Vital really didn't have any sort of time line to pay cash taxes. I guess the question for you, Brandi, is how -- what is the potential benefit to Crescent on the tax side from this transaction?

So I would say at a high level, no anticipated changes to the guidance we provided on our Q2 earnings with respect to cash taxes as a pro forma business. We don't anticipate being a material cash taxpayer over the next couple of years with the caveats being that, that's highly dependent on commodity prices and ultimate capital programs. I would say no change to what we would have talked about a couple of weeks ago.

And then my follow-up question will be on the $1 billion in noncore divestitures. You have the $250 million target you've been able to execute on things. There is commodity volatility out there. There's some concern prices for oil could be lower towards the end of the year. I mean, how do you think about commodity divestitures and commodity volatility? And when you look at your assets, I mean, does the mineral -- some sort of sale of your mineral business sort of makes sense at this point in time?

Yes, great question. So first thing, our 3 core areas where we see the most growth potential pro forma are the Eagle Ford, the Permian and Uinta. Everything else, we constantly evaluate for opportunities to maximize value. I think the most clear way I can answer your question on volatility and timing is, as I said earlier, we announced a divestiture program in the fourth quarter of last year. We have been very active in the market. And I would say, feel very good and confident about the pipeline increase that we've announced today. And again, I think our focus and ability to capture value sooner rather than later is something we're trying to convey.

Thank you. At this time, we've reached the end of our question-and-answer session. I'll hand the call to David Rockecharlie for closing remarks.

Great. Thanks, everybody. Again, we want to welcome the entire Vital team, and I appreciate Jason sitting here with me today as we were able to share this great news with both of our shareholders. And we look forward to getting the transaction closed appropriately and getting after the combined business together and making sure that investors get a great outcome across the board. So we look forward to keeping you up to date, and thank you for joining us.

This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

Greetings, and welcome to the Crescent Energy Q2 2025 Results 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 Second Quarter 2025 Conference Call. Today's prepared remarks will come from our CEO, David Rockecharlie; and our CFO, Brandi Kendall. Our Executive Vice President of Investments, Clay Rynd, will also be available during 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 on the Investors section on our website.

With that, I will hand it over to David.

Good morning, and thank you for joining us. Yesterday, Crescent posted financial and operating results for the second quarter. In summary, it was an exceptional quarter of continued execution for our business. As always, I would like to begin with a few key points that I hope you take away from this call.

First, Crescent continues to deliver. This quarter, we once again posted strong free cash flow and overall performance. Our excellent results exceeded expectations on all key metrics, and we are enhancing our outlook for the full year.

Second, we are driving long-term value through operational excellence. Our strong free cash flow generation is the result of impressive operational execution with record production alongside continued capital efficiency gains and cost savings across our asset base.

And finally, we are making the most of this market environment, and we see huge opportunity ahead for Crescent. We operate in a cyclical industry and see volatility as opportunity. We intentionally built a lower decline and less capital-intensive business with commodity flexibility and a consistent hedge program to generate more durable free cash flow than our peers. Our business model allows us to see opportunity and be proactive in periods of dislocation like we are seeing today.

Since our last call, we've successfully navigated the market to both acquire assets, including our own stock and divest assets, all at compelling valuations. We have continued to proactively risk-manage the business, strengthening the balance sheet with debt repayment, maturity extensions and additions to our hedge position.

And we continue to simplify the positioning of Crescent stock with our transition to a single share class. We've also been driving operational savings through excellent execution across both acquisition integration and our base business. We built this company to succeed through the inevitable cycles of our industry and our performance this quarter demonstrates just that. Following those quick highlights, I will now discuss our results in a bit more detail. We saw record production of 263,000 barrels of oil equivalent per day with 108,000 barrels of oil per day and generated approximately $171 million of free cash flow for the quarter, all well above Wall Street expectations.

Our significant outperformance was driven by capital efficiencies, strong well performance and a modest acceleration of activity. Our talented team continues to drive operational savings with increased efficiency of both drilling and completions, improving well costs by approximately 15% in both the Eagle Ford and Uinta Basins since last year. With these savings, we are enhancing our outlook for the year, reaffirming production expectations alongside a reduction in capital and lower cash tax expectations, driving increased free cash flow.

Our operating plan for the year remains focused on maximizing free cash flow and returns on capital invested. In the Eagle Ford, we are delivering on the flexible capital program that we highlighted in our initial 2025 guidance, taking advantage of relative commodity pricing with gas-focused activity in the back half of the year. In Utah, we are maintaining our prudent approach to capturing the significant long-term resource opportunity we own. The industry remains active with widespread positive results across the basin. Our joint venture in the Northeast portion of our position continues to show extremely strong performance. We were not focused historically in this area, and the impressive results are giving us an exciting reason to remain patient and methodical as we continue to optimize our long-term development plan.

As we look beyond our base business for attractive investment opportunities, the A&D market was quieter in the second quarter with continued volatility in commodity pricing. However, our team has been able to find pockets of compelling value and execute accretive transactions, including both acquisitions and divestitures. First, we acquired attractive minerals assets that complement our existing portfolio focused in Texas and the Rockies.

We expect the acquisition to generate returns in excess of our 2x MOIC target and be accretive to free cash flow. The assets fit seamlessly into our existing minerals portfolio, which pro forma contributes roughly $100 million of annual cash flow to our overall business. On the other side of the A&D market, we closed another divestiture of non-operated assets. This accretive divestiture is a part of our ongoing plan to streamline the business and maximize the value of non-core assets in our portfolio, and it brings our year-to-date divestiture total to roughly $110 million.

I'm consistently impressed with the focus, drive and creativity that our team brings to finding compelling value opportunities, whether that be in the A&D market or within our own business. This quarter has been a great example of what execution means to us. It means delivering free cash flow. It means delivering strong and consistent operations. It means delivering returns through accretive M&A. But most of all, it means that everyone on our team is always ready, looking for any opportunity to deliver further value for Crescent.

With that, I'll turn the call over to Brandi to provide more detail on the quarter.

Thanks, David. Crescent had impressive results for the quarter with approximately $514 million of adjusted EBITDA, $265 million of capital expenditures and approximately $171 million in levered free cash flow. These results build on our strong track record of consistent and significant free cash flow generation, supported by our advantaged decline rate, lower relative capital intensity, returns-focused reinvestment and consistent hedge strategy. Over the last 5 years, we have generated cumulative free cash flow roughly equal to our current market cap, and we continue to trade at a compelling discount on free cash flow metrics today.

As David mentioned, we have capitalized on the current market volatility in a number of ways since the first quarter, starting with a meaningful step in our evolution as a public company with the elimination of our Up-C structure in early April and the transition to a single class of common shares, reducing complexity and making our stock easier to own.

With the significant dislocation early in the quarter, we repurchased approximately $28 million worth of stock at a weighted average price of $7.88, roughly 12% below our current share price. Our buyback program is an opportunistic tool for us to capitalize on periods of volatility, and we evaluate opportunities to acquire our own stock the same way we evaluate acquisition opportunities. In addition to our repurchase activity, we announced another dividend of $0.12 per share, which altogether equates to an attractive 7% annualized yield. We took steps to further strengthen our balance sheet, using cash flow to pay down approximately $200 million of debt this quarter, increasing liquidity to $1.750 billion. We also successfully refinanced a portion of our long-term debt to strengthen our maturity time line even further relative to our peers. On top of all that, we were able to add some opportunistic oil hedges to our 2026 portfolio at recent highs.

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, we continue to deliver. This quarter, all key metrics exceeded expectations. We are a cash flow-focused company, and we generated $171 million of free cash flow. And with our strong results, we have enhanced our outlook for the year.

Second, we are driving long-term value through operational excellence. Our team continues to outperform. Over many years and many transactions, we have proven our successful acquisition and integration capabilities, and we don't stop there. We are relentlessly focused on finding the gold buried within our own business to increase free cash flow and returns for our investors. Simply put, we acquire assets and we make them better.

And finally, we are making the most of this market environment, and we are always prepared to capitalize on any opportunity ahead of us. Our business model allows us to see opportunity and be proactive in periods of dislocation like we are seeing today. And this quarter's performance is a perfect example of our strategy in action.

With that, we'll open it up for Q&A. Operator?

[Operator Instructions]. The first question is from John Freeman from Raymond James.

We continue to see the nice efficiency gains on the D&C per foot falling another 6% just from 1Q levels. And it looks like most of that improvement was driven by about a 10% improvement on the completion side in terms of just the amount of fluids a day that are being pumped. And just maybe if you all could elaborate on that, if there was some specific change that you all made on the completion side that would have driven that big of an improvement from what you all had just put up in 1Q?

John, it's David. Thanks for the question. I would say quite simply, it's just more execution of what we would call best practices. And in particular, we would highlight that we're still bringing simul-frac in bigger and bigger ways to our completion operations[Technical Difficulty].

Got it. And then I guess -- I was just going to say if we then looking at the Uinta, those well results that you're pointing out on Slide 11, obviously, pretty meaningful outperformance. And you did mention that's an area that you previously weren't really kind of looking at. Does -- what you all are seeing on those wells, I get it, it's still early days. But on those -- that size of an outperformance, does it sort of maybe change the way you all think about maybe capital allocation decisions within the basin going forward?

Yes, great question. Just as a quick reminder, you'll recall that we acquired that asset really based purely on PDP value. Early days, we were in a pretty low-risk mode, drilling really just one formation. What we've seen in the last 3-plus years is a significant expansion and economic proving up of multiple formations in that area.

So long story short, we're very excited about the resource potential. We don't have any need to move too quickly out here. And yes, we're really pleased with what I would call an expansion across our acreage of proven economic inventory. So I think you'll see us continue to allocate capital here, and we just want to do it in the right way, given the significant stacked resource that's now been proven up over the last multiple years that we would not have gone after the day we acquired the asset.

Appreciate it, nice quarter.

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

Congrats on the quarter. I was just hoping to get a little more color on recent M&A activity during the quarter with the acquisition and divestiture. The minerals portfolio has grown to be a bit quite sizable, doing $100 million in anticipated EBITDA. And I think that we can all agree that Crescent is really not seeing that value reflected in the share price today and monetization of that asset would likely be the quickest way to kind of recognize that value.

So our question is, what's the justification to add to the minerals portfolio here? And what are you guys seeing internally that might not have been as clear to us on the outside looking in, particularly on that asset package?

It's Clay. Listen, first, glad you're asking about the minerals portfolio because I agree with you, it's grown to be a decent-sized business. For us, just to hit the acquisition specifically, super consistent with the strategy, right? Hits the return metrics that we all focus on. As you know, right? We've been building this minerals portfolio over a long time. So it's a part of the market we're active in, we understand. And when we see value drive by, we thought it made sense to grab it, super accretive for the business, in line with kind of how we view the world, highly cash flow accretive.

So I think as we thought of that acquisition, especially into a volatile market where we thought we could grab great value, we did it. Bigger picture, look, certainly, we recognize that if you put stop time today and said, are we getting the value for that business today? I don't think we are. And so we're certainly focused on how do we get the best long-term value for our investors around that business. I think there's multiple paths to do that, but something we talk about a lot and are focused on.

It's great, I appreciate the color. Just likely had a follow-up here on the balance sheet kind of move a little different direction. Gross debt is still a little elevated relative to the current market cap, but it's really moving in the right direction. Leverage is quite manageable really on a path to that 1x target. I'd argue that the balance sheet is even stronger than those metrics coming to look at the weighted average maturity and the coupon rate.

So to us, it seems like the company is in a pretty strong position to both further reduce debt and repurchase shares. So our question is, how is the company viewing the opportunity to buy back stock at the current valuation? And how is that being balanced with your longer-term leverage targets?

Michael, it's Brandi. Good question. So no change fundamentally as to how we think about capital allocation priorities remain the balance sheet and the fixed dividend. And then after that, it's all about, right, what's the best return on the capital that we can invest, whether that we're buying our stock, it's M&A or we're drilling wells. I think Q2 and how we allocate the capital is probably a good framework to think about going forward. So of the free cash flow that we generated, roughly 80% went to the balance sheet. So you saw us repay $200 million of debt this quarter and the remaining 20% went back to our equity investors through the fixed dividend and the buyback.

So again, I think that's an okay ZIP code to think about how we balance the 2 going forward.

The next question is from Charles Meade from Johnson Rice & Co.

I wondered if -- David, in your prepared remarks, you used the word dislocation to talk about the A&D market right now. And I'm wondering if you could elaborate on what you're seeing to lead you to use that word dislocation. And if you care to offer a guess on how that dislocation might resolve going forward?

Yes. So great question. First, I'll start by saying that there's definitely what I'll call levels of dislocation, and it's certainly functioning. So maybe the simplest explanation I can give you for our use of that word despite the fact that we got a few things done is -- as you know, we are heavily focused in our core area of the Eagle Ford, where we're a top 3 producer of oil and gas and have been a very active acquirer. We look at everything in the A&D market, but including the highly, what I would call, transactable area in the Eagle Ford. And what we've seen so far this year was a fairly active market early on of assets available for sale.

And the punchline is 75% or more of the asset sale processes we saw in the Eagle Ford were pulled and never transacted as a result of the volatility that we saw in Q2. So our view is the market is functioning right now, and we're able to get some things done, but there's just a lot out there in our view that's still sitting on the sidelines. And so we like it when we get a chance to look at lots of things and the market environment starts to allow people to sort out where they want to focus their capital and when and how they want to transact. So I think we're well prepared to succeed in that type of environment.

Got it. Got it. And then to go back to the earlier question about those really I mean the tantalizing results in the eastern side of your Uinta position. Again, recognizing it's early days. But is -- do you guys have any kind of leading hypotheses on why you're seeing such a good production response versus your Uinta? Is it perhaps deeper and higher pressure? Or is it a more intensive completion or a different completion design? Or are you just still trying to figure it out?

Yes. David again. I'd say long story short is that we played it really safe early on. As I mentioned earlier, we acquired the assets for PDP value. And so we were really focused on just making sure we got what we paid for from a cash flow perspective. And the industry has continued to evolve significantly. So I think there's nothing fundamentally surprising. In other words, the reservoirs are performing very well. And yes, we had a lack of certainty around what that might look like before we allocated some capital there. But fundamentally, much like a lot of the success across the basin, I think we're very pleased, and there's nothing fancy going on here. It's just good old-fashioned performance of strong reservoirs.

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

David, Brandi, Clay. Just wanted to follow up on the earlier question around efficiencies and the lower D&C. Was there a deflation or a lower service cost component? Or did that have anything to do with where activity occurred during the quarter? Or was it just purely efficiency cycle time driven? And also, are there certain areas where you all see further levers to pull cost down lower over the next year or so, whether from a cash OpEx or D&C perspective?

Oliver, it's Brandi. I'll start. So the driver for reducing our capital guide by 3% is all drilling and completion efficiencies, I would say, from a kind of inflation, deflation standpoint, as we sit here today and look out for the rest of the year, I would say not seeing a ton with respect to service cost deflation.

We obviously were the beneficiaries of significant deflation throughout 2024. And then just obviously in the obvious tariff overlay is going to be slightly inflationary. So I would expect D&C costs to creep up maybe $10 a foot in the back part of the year, specifically due to deflation, but that's still well within our updated capital guidance.

Okay. Perfect. That's helpful. And maybe just for a second question, just on the efficiencies that you all have seen. Is there any thought to potential building of [ DUCs ] if they were to kind of hold true and lead to running ahead of schedule heading into year-end? Or would the decision point be to slow down a bit or even pull forward some activity into 2025?

Yes. It's David. I think we are very good at managing the business through cycles and planning for the longer term. So long story short, I think our outlook for the year remains the same. I wouldn't expect us to be doing anything different, absent large moves in commodity prices that impact returns.

And maybe also, I'll add, we obviously reaffirmed our full year production guidance on less capital. If we add up the capital and the tax savings, that equates to roughly $100 million of incremental free cash flow for the business this year. And especially in a period of market volatility, we think retaining that $100 million for the benefit of our shareholders is a better use of that extra cash flow than continue to put it into the ground.

The next question is from John Abbott from Wolfe Research.

First question is on capital allocation. I mean this year, you are allocating more capital towards natural gas. I mean you are still expected to grow gas volumes in the second half of the year. You do have flexibility in the Eagle Ford to pivot. I guess my question is, at this point in time, as you sort of think about that flexibility, are you pretty much locked in, in terms of activity for the remainder of this half -- for the remainder of this year if we continue to see robust production for the U.S. for natural gas that could lower pricing?

Do you have that ability to flex? And then as you sort of look to 2026, how are you thinking about the allocation of activity between oil and gas?

John, David here. A quick answer on that is, yes, I think we have not only the flexibility in the asset base, as you said, we've also got the ability -- a proven ability to shift that capital relatively quickly as we did earlier this year.

But I would say in terms of timing, I think the most important thing we highlight is we can change the allocation of capital in the down market pretty quickly. So we feel like we have a lot of control over our capital. And the flexibility side, while highly flexible, I'd go back to what we talked about earlier in the year at the margin quickly, it tends to be about 20% of the program that we can move pretty quickly. So I'd maybe give you those 2 guideposts.

Appreciate it. And then for our second question, Brandi, this one is for you. You are a beneficiary of the Big One Beautiful Bill. I mean you know your cash taxes this year, you're going to -- as you just discussed, you're going to get a benefit from this year. And then I guess over the next several years, you're probably not going to be paying much in the way of cash taxes.

I guess the real question is, how do you think about your ability to offset cash taxes post 2027 when you kind of sort of look at strip pricing?

John, Brandi. Good question. As you mentioned, we are a beneficiary of updated tax legislation similar to other oil and gas companies. As we look at kind of the next 5 years of expected cash tax payments kind of pre-legislation and post legislation, we think that's roughly $250 million of cash tax savings, so roughly $1 per share. Again, over the next couple of years, right, assuming current commodity prices and a kind of a maintenance level of capital program, expect federal taxes to essentially be $0.

Next question is from Tim Rezvan from KeyBanc Capital Markets.

I wanted to sort of follow up on prior comments on the balance sheet. In talking with you all last night, we sense confidence on hitting or exceeding your asset sale target. It comes on top of pretty strong free cash flow. But when we see leverage in this commodity price environment, we simply don't see a lot of organic deleveraging even if we were to assume several hundred million of asset sales that didn't have earnings.

So can you talk about how realistic that 1x leverage target is over the next 1 to 2 years? And maybe kind of looking at it a different way, what's the appropriate debt balance that a company your size should have?

Tim, thanks for the question. It's David. As you know, our stated framework is to operate between 1 and 1.5x. And as you heard earlier from Brandi in our released results as well, we're obviously -- no change.

We're focused on managing the business through the cycle and taking care of the capital structure and making sure we've got a strong balance sheet. So I think you'll continue to see us pay down debt out of free cash flow. We're at the higher end of our range now. I think that's consistent with what we've said. And to your point, we do generate a lot of free cash flow, and we're also well hedged with long-term debt. So I think we've got a very strong path over time to not to reducing debt, but also, again, I think we've proven we'll stay within our leverage targets.

Maybe on a little more specific thoughts around how we see the appropriate way to leverage companies in the oil and gas sector. I'll let Brandi cover this, but we're well aligned as a company strategically on how we think about asset base and leverage.

Yes. I'll add. So as David mentioned, right, we generate a lot of cash. We're well hedged. We have a less capital-intensive business, meaning, historically, we've reinvested 40% to 50% of our cash flows, I do think inherently, our business has an ability to delever over time, both on an absolute basis, but then also with respect to an overall leverage metric.

We have roughly $250 million drawn on the RBL today. We would expect that to be repaid out of cash flow as we move towards the end of the year. And then the only maturity that exists before 2032 would be the remaining $500 million of our 2028 notes. As we look forward, again, assuming kind of we're in a similar commodity price environment, we can kind of pay those off again without a cash flow. So as we move through the end of this year into next year, we could be looking at some long-term debt that matures between 2032 and 2034. So again, I feel like we're in a really great spot and really within the guidelines of how we've operated the business for the last 12 years.

Okay. That's helpful context. And I just wanted to tie that to sort of your comments on being countercyclical on the A&D front. I appreciate the comments on the Eagle Ford.

So is it safe to say you will remain nimble and that we should think about guidepost as leverage on structure for a deal and that you're comfortable with net debt going up if something is leverage-neutral. Is that the right way to think about opportunities?

Yes. I think for us, right, from an A&D perspective, we want to earn 2x our money or more. We're focused on accretion, and we want to make sure the pro forma business is really strong. And for us, we're comfortable going up to 1.5x. So that's how we evaluate M&A.

The next question is from Michael Scialla from Stephens Inc.

I want to ask just kind of high level, even after you've simplified the structure here with the elimination of the Up-C, your stock is still valued at about a 1 turn discount, at least to our mid-cap peer group. I guess what do you see as holding the stock back? Anything in particular that you plan to focus on going forward?

Yes. I think, look, it's our job to demonstrate to people how good this business is. So we're just going to keep doing it. I think this quarter is a great example. Free cash flow, great returns and risk management and a great operating business is what we're building here. So I think it's -- we're not going to make it harder than that. We just got to keep showing up.

Understood. I wanted to ask on the Uinta, the decision to pause drilling there when it looks like you have some really good results. I guess how do the returns between the Uinta and the Eagle Ford compare? And if they are similar, can you just discuss the reason for keeping that asset kind of on hold here for a little bit?

Yes. It's David. The short answer is, I think we've talked about before, the oil-weighted portfolio in the company in terms of our ability to allocate capital is similar across the Eagle Ford and the Uinta. But we've got significantly more, what I'll call stacked resource in the Uinta, and we've got a larger acreage position with less development across it. So it's relatively straightforward to us to allocate capital between the 2 areas on the oil side. We'll continue to do that.

And all you're seeing is when we get great results in an area where we have not been as focused, we're going to stop and evaluate that and make sure we maximize the future development there. So we're really excited about it.

We've got great resource on the oil side in both the Eagle Ford and Uinta, and I think you'll continue to see us allocate capital effectively across those 2 basins in a similar way.

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

Great. Thank you all again. As we said, we're really pleased with how the business is performing, and we're going to continue to do that and get back to work and look forward to talking to you next quarter.

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