Crescent Energy Inc-a Stock

Hello, everyone. Thank you for joining us, and welcome to the Crescent Energy Q3 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Reid Gallagher, Investor Relations. Reid, please go ahead.

Good morning, and thank you for joining Crescent's Third 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, the pending acquisition of Devon Energy's Eagle Ford assets and other factors that may cause actual results to differ from those expressed or implied in these statements and our other disclosures. We have no obligation to update any forward-looking statements after today's call.

In addition, today's discussion may include disclosure regarding non-GAAP financial measures. For reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures, please reference our 10-Q and earnings release available in the Investors section of our website.

With that, I'll hand it over to David.

Good morning, and thank you to everyone for joining us. Crescent delivered another strong quarter, and I want to begin by thanking everyone on Team Crescent for the consistent focus and execution behind our performance. We are proud of the business we've built and excited about where Crescent stands today. We've assembled high-quality assets, deep inventory and a talented team with a proven track record of consistently improving the assets we own.

Our business generates substantial free cash flow today, and we will continue to deliver. We have significant opportunity across our portfolio to create significant incremental value from here. With that, let me highlight three key takeaways for today's call.

First, Crescent has undergone a significant portfolio transformation and is a fundamentally better business than it was 5 years ago at IPO. With a proven track record of investing and operating execution, we have improved asset quality, build scale in our core basins, deepened our inventory and strengthened our financial profile. Today, we are a top 10 independent with a world-class Eagle Ford position.

Second, our market-leading operational execution continues to drive strong results and differentiated value creation. We delivered higher production, lower capital and higher free cash flow than market expectations this quarter. Across our portfolio, structurally lower well costs are expanding our economic inventory and our lower operating costs are increasing both margins and free cash flow. Our Permian transformation has demonstrated the repeatability of our model with approximately $295 million of annualized synergies captured versus our original target of $90 million to $100 million.

And finally, we have significant embedded upside across the business, all within our control. With continued operational improvement, our growing Crescent Royalties platform, the recently announced Devon Eagle Ford acquisition and our clear path to rapid deleveraging, we see multiple compelling opportunities to compound value creation.

Before discussing the quarter in more detail, I would like to put our progress in perspective. Since our IPO, we've transformed Crescent. We've assembled a much larger and higher quality asset base while meaningfully improving the underlying cash flow capacity of the business. Pro forma for the announced Eagle Ford acquisition, Crescent produces approximately 400,000 barrels of oil equivalent per day, has 15-plus years of inventory and is positioned to generate more than $7.5 billion of levered free cash flow over the next 5 years, assuming an oil price of $70 per barrel.

We've built this business through consistent investing and operating execution and our third quarter results demonstrate the consistency and strength of our model. The transformation in the Permian is a particularly compelling example of our operating playbook in action where results continue to exceed our original expectations.

Since our second quarter update, we've captured $105 million of incremental annual synergies, bringing the total to approximately $295 million, nearly 3x the high end of our original target and representing more than $1 billion of value on a 5-year PV-10 basis. The result is an asset base that looks materially different than it did at announcement. Our total synergy target is now more than $300 million, and that value creation is coming from strong execution, lower costs and better commercial outcomes.

Our Permian success is just a single example of our consistent execution. In each of our core basins, efficiency gains, longer laterals and increased final frac utilization are translating into structurally lower well costs. With 25% savings in the Eagle Ford since 2023 and approximately 20% savings year-over-year in the Uinta, in addition to the 20% to 25% savings in the Permian since taking over operations late last year.

Illustratively, $1 million of savings per well can [indiscernible] oil breakevens by approximately $5 to $10 per barrel. So those savings represent a dramatic step change in inventory quality and significantly extend our runway of economic locations. With our realized savings to date, we have doubled sub-$50 breakeven inventory and increased sub-$60 breakeven inventory by nearly 50%. In addition to our inventory expansion, we have driven a similar transformation of the financial profile of our business.

Our operating costs, margins and free cash flow per share at all improved at market-leading rates. That rate of change reflects our ability to consistently improve the assets we own and create substantial incremental value.

Our track record of investing and operating execution is why we see significant opportunity in the Eagle Ford acquisition. This is a rare opportunity to add scale in Tier 1 inventory in our backyard where we have differentiated knowledge and a proven ability to create value. The assets add more than 600 net locations on a 10,000-foot basis and will make Crescent the second largest operator in the Eagle Ford.

The $140 million of identified annual synergies are grounded in our track record, supported by the same operational and commercial improvements we've executed repeatedly across Crescent.

The acquisition also transforms our market-leading Royalties platform, bringing the pro forma business to approximately $250 million of annualized EBITDA. Just as important, approximately 40% of pro forma EBITDA will come from Crescent operated assets, up from approximately 10% today, giving us significantly greater visibility into future development and cash flow. This combination of scale, development visibility and exposure to cost-free organic growth is a differentiated source of cash flow and value within Crescent.

Taken together, our third quarter results and the announced acquisition are a clear example of the Crescent model. We love our current asset portfolio that we have built over the last 5 years through successful and consistent execution. We have a substantial opportunity to create additional value through the assets we own and the announced Eagle Ford acquisition. Our near-term focus is to continue to execute on our high-quality asset base, generate free cash flow, reduce debt and deliver value to our shareholders.

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

Thanks, David. Crescent delivered another quarter of strong results. We produced approximately 328,000 barrels of oil equivalent per day during the quarter, including approximately 134,000 barrels of oil per day. It generated approximately $786 million of adjusted EBITDA and $367 million of free cash flow.

Production came in above expectations. Capital of approximately $326 million was 9% better than expectations and levered free cash flow was 23% above expectations. We ended the quarter with approximately $2 billion of liquidity and net leverage of approximately 1.5x. Our fixed quarterly dividend remains $0.12 per share, and our capital allocation framework continues to prioritize long-term per share value creation.

As we discussed last month, the recently announced Eagle Ford acquisition is consistent with that framework. The transaction adds significant Tier 1 inventory and we have structured the financing to support rapid deleveraging and to preserve balance sheet strength. We expect approximately $1 billion of pro forma liquidity at closing, providing meaningful flexibility as we execute against our deleveraging plan.

We successfully executed approximately $1.15 billion of equity financing and secured efficient low-cost in an approximate 6% cost of capital. The strong investor support and constructive rating us response further reinforced the quality of the transaction and our financing strategy. Our hedge position is an important part of our deleveraging plan.

Alongside the Eagle Ford acquisition, we fully executed our planned incremental 2027 oil hedges and have begun layering on 2028 hedges at attractive pricing. Pro forma for the acquisition, approximately 60% of our oil production is hedged in the first half of 2027, approximately 50% in the second half and approximately 20% in the first half of 2028, enhancing near-term cash flow visibility during the initial debt reduction period.

Our near-term capital allocation priorities remain clear. First, the fixed dividend, which remains an important component of our shareholder return framework. Second, following the recent Eagle Ford acquisition, debt reduction will be our primary use of free cash flow after the fixed dividend. We are targeting approximately 1.5x consolidated leverage at year-end 2027, at approximately 1x at year-end 2028, pro forma for the acquisition.

Importantly, commodity prices have increased since we announced the acquisition, providing an opportunity to delever faster than the initial targets we outlined. And third, preserve financial flexibility for additional shareholder returns and attractive investments over time, with any such decisions consistent with our deleveraging objectives.

The combination of strong free cash flow generation, substantial pro forma liquidity at closing, no near-term maturities and a clear path to lower leverage puts Crescent in a strong financial position and supports our continued progress towards an investment grade credit rating.

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

Thanks, Brandi. This quarter's performance and the transformation we've made since our IPO demonstrate the strength of the Crescent model. With market-leading execution, we have built a fundamentally better business, expanded our economic inventory, improved our operating cost structure and significantly increased our free cash flow capacity. We have assembled an exceptional asset base anchored by a world-class Eagle Ford position, alongside significant opportunities across Permian, Uinta and Crescent Royalties.

Importantly, the next phase of Crescent's value creation is within our control. We see substantial opportunity for further value embedded in our asset base. Our focus is on execution, continuing to improve well economics, integrating Eagle Ford assets, capturing synergies and generating free cash flow. With this differentiated upside, we believe Crescent has never been better positioned to create long-term value for shareholders.

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

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

My first question is on capital allocation. Specifically, could you speak to how this may or may not change post the Devon Eagle Ford close, especially given how much larger operations are now than a year ago?

Neal, it's David. Great question. I'll just start by saying we love the assets that we have, and we're currently actively developing oil across the whole portfolio. And so we don't expect that to change. To your point, the Devon Eagle Ford acquisition, it's an asset in our own backyard and it slots right in to what we're doing. So importantly, we see more development opportunity across every asset that we own, and we'll continue to allocate based on returns. And then fundamentally, as you know, we like to make sure we're running basically a maintenance to a low growth program. So I don't think fundamental change in capital spending or reinvestment rate, but just a lot more opportunity.

Perfect. And then just my second, just on the strategic plan going forward, just wondering now with the larger size, David, would you say the strategic growth plan has changed at all?

No, no change to strategy or growth plan, but I think probably worth reiterating some of the key points we just made. Number one objective is focused on operational execution. It's working for us. We're generating more value across the business, more cash flow, more profit across every asset. And the other thing we've been able to do over a number of years is scale the portfolio that also focuses. So I think it should be pretty clear really where we see the opportunity in our existing asset base and call it offset assets down the road. But importantly, and also highlight, we think opportunistic stock buybacks are an excellent way to buy more of what we already know and love.

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

When we sort of look back on the fact that you've been able to triple or more than triple the initial synergy target on the Vital deal, I'm not trying to set up too high of a bar before the Devon deal even closes. But if you're just sort of looking back over the last 12 months, and you're like, okay, I had this original target on vital, you end up doing 3x that, and you sort of apply it to Devon, like where you see potential opportunities above and beyond this initial target, not saying they occur. But if we're going to look back in 12 months and you're going to end up beating this target what are some likely areas where that could occur?

John, it's David. I'll start. Two things, again, just to know about us and about the Permian acquisition and Shell. As you'll recall, we've been executing on a number of the slides we put forward this quarter demonstrate what I'll call, multiyear market-leading execution on the cost side, both on D&C and regular way operations. So we think that is a core skill set of the company. We took that into the Permian, but it was a basin entry for us. And so, as you'll remember, we had very limited operational synergies that we put forward at that time really at just respect to the opportunity that we saw out there and the time line we might not take it would take. So long story short. Resounding success, playbook transferred really well from the core Eagle Ford out into the Permian. But what we would say is two things about the Permian. One still have more to do. So we're excited about that. The other thing is a lot of what we've captured is just starting to roll into the financial statement.

So we think we're going to see more performance improvement from things we've already accomplished that are just starting to show up contractually and financially. And then secondly, we'll do more with those assets is our view over time. And then coming back now to the original question on the Eagle Ford, this is our backyard. We've executed here for a long time. We absolutely believe we're going to achieve the synergies we put forward and more. But we are putting forward operational synergies upfront. So I think Devon was an outstanding example of what we can do when we've built a scale position. And the Permian, obviously offered some incremental upside just because we were a little bit, I'll call it, cautious stepping in there, but we feel great about it now.

That's great. And then moving to the new sort of marketing slide that you've got Slide 11 in the deck, trying to understand sort of kind of what sort of the future opportunities are versus what you've already achieved? And then obviously, that slide focuses on gas. But post the Devon deal closing, are there also opportunities to improve NGL realizations as well?

John, it's Brandi. So what we highlighted as part of the incremental synergy capture this quarter on the Permian assets was $40 million of effectively just successful recontracting across oil, gas, water contracts. So those are all contracts that are across the line that should start flowing through the financial statement starting in January of next year. I think there is incremental upside, especially as you think about us now having access on a portion of our volume to take it out of a more constrained Waha market into the Gulf Coast. So I think that's incremental upside to what we laid out. So a couple of things, expect structurally lower GP&T costs, but then also stronger gas and NGL realizations over time.

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

David, on the Crescent Royalties, I know you -- as it was a couple of quarters ago that you introduced this as kind of a stand-alone and you've taken a step here towards potential IPO. And I wonder when I look at it, I think it can do two things, at least two things, more than two things. But two of the things you could do for you are you can accelerate your deleveraging. The other thing you could do is it could give you a public mark on that piece of your business that could help your overall -- your CRDi share price. But I wonder if you could talk about from your perspective, what are the potential benefits from taking this step? And what the relative priority is for you, like whether you're more focused on getting a good mark or more focused on accelerating the deleveraging or perhaps something else?

Yes. Charles, thank you. It's a great question. I'll just start by saying this is obviously consistent with the strategy we outlined in the first quarter. And really earlier this year, what we discussed was finding the best outcome for shareholders over a 12- to 18-month period. And then later talked about accelerating that time line. So hopefully, this is just seen as, number one, we're hard at work focused on best outcome.

To your point, our view is that best outcome will achieve all of those things, which is making the business opportunity more clear, making the value opportunity more clear and certainly, anything we do around this highly cash-generative business should be credit accretive as well. So the priority is just best outcome for us, and we're going to find the best way to do that.

Okay. That's helpful. And then looking at 4Q, you guys had a really strong 3Q and -- operations-wise, you noted that in your prepared comments. I understand the reasons why with the pending acquisition close, you're not going to update any 4Q guide. But maybe you could -- perhaps you could offer kind of a characterization that the -- the strength we saw in 3Q, is that -- was that due to some one-off factors or maybe at the other than end of the spectrum, is that some kind of durable operational improvement that we should expect to show up again in 4Q?

The simple answer is no one-off making durable change to the business. And as you heard from Brandi, a lot of the things we're doing are going to start showing up sequentially quarter over quarter over quarter.

Your next question comes from the line of Noah Hungness with Wells Fargo.

I guess my first question here, on your guys' asset detailed slides, it looks like well costs have been more or less flat down this year. Are you thinking about well cost next year on the stand-alone CRT Y assets? And are there any inflationary pressures that may be working their way through the system?

Noah, it's Joey. Thanks for the question. We would expect to continue to see well costs go down in 2027. But to your point, we do expect inflationary pressures, no question about it. And I would also just characterize that, particularly when you're talking about on the Vital side of things, we've really taken the big chunks out. So we'll just be looking at more operational efficiencies. But we have a huge opportunity on the Devon assets, so we expect for those full costs to go down.

On the inflation part, inflation is very real. I would say, as an industry, we're looking at like 5% to 7% steel and diesel, very big drivers. But whenever you're talking about Crescent, we're just a different company now. We're bigger and we're developing different than we have in the past, and it's hard for inflation to erode significant gains in capital efficiency, which is what we're experiencing. So we're going to keep executing our playbook. We're going to continue drilling longer laterals like, in particular, in the Permian, we still have opportunity to use more signal frac. We have some electrification opportunities. So inflation can make a den in these things, but it's not going to curve us from continuing to make continual improvements in well costs.

Also still working on the supply chain side. In a lot of instances, we're allowing service providers to provide things like fuel and sand and chemicals and things like that. We're looking at taking those on ourselves, which, of course, you know that would have a pretty significant markup. So that's another opportunity. So I just feel like inflation is real, but the opportunities are more. So I would expect us to continue to drive down well cost.

And maybe what I'll add there is that alongside the Eagle Ford transaction announcement from a couple of weeks ago, we laid out a capital framework of $1.8 billion going forward. That framework still holds and reflects the current service cost environment that we're in.

And just a clarification question then. The $1.8 billion, does that include the -- does that include kind of the operational improvements that would have seen like the updated synergy number that you threw out here at 3Q?

That's right. It includes the efficiencies that we're capturing on the legacy Crescent business, but also the $100 million of expected D&C synergies related to the Devon Eagle Ford assets.

That's helpful. And then for my second question. You guys continued to layer on hedges and take advantage of the strength that we're seeing in the forward curve here. Just how are you thinking about the maximum amount of production that you want to hedge? And I'm thinking both for 2027, given the strength there, but also how strong 2028 has been as well. Is there more that you would be interested in hedging in '28, too?

No. It's Brandi. So with as we're there, and we've executed everything we wanted to execute as it relates to the '27 oil program. As you saw in the materials, we've had roughly 20% of the first half of 2028 at a kind of $75-plus range. I think we'll look to continue to kind of opportunistically add a bit more there. But in totality, we feel really great about the deleveraging pathway and hedges that we've executed to protect that.

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

Just kind of following up on John's question. Look, I think it's safe to say at this point, the Vital deal has just been a knockout transaction given the rapid synergy realizations. To your point, David, look, we understand that there may have been more to do in the Permian assets than with the Devon assets. But I'd imagine the process of really scrutinizing in other operators' methods forces you to look internally at your own operations, but maybe through a new perspective. So -- is there anything that the company has identified through that process of realizing synergies that you're looking to apply to the legacy Crescent assets just in general?

Yes. It's David. No, I'll let Joey follow on as needed. I think it's a great opportunity, to your point. So long story short, we came in knowing what we could do. And in particular, just the scale and opportunity. We've had to build a business across 1 million now gross acres versus this, which is a great position, but much smaller. We certainly bringing a lot of tools to to the party. But all that said, we think the existing business will certainly run well, and we learn something every time. So we do believe we're going to be able to slot this into our existing operations and get incremental benefits to scale, but we do always learn things, and you might just talk about how we're thinking about integration and for next year.

Yes. Michael, I'll give you some specific examples. One of the things we're really trying to get up the curve on to improve our operating costs as the automation state-of-the-art business. And both vital and in particular, Devon have done a tremendous job over their lifetime of getting automation in the place where we want it to be. And in particular, Devon, we're looking forward to learning from them and using the systems that they put in place to help us operate our feel better. But to say that -- I know we talk about synergies all the time, but I would say from Vital, there were several things that we took on from them in regards to supply chain and inventory management and things like that, we've taken on board and allowed us to improve our own operations because we're on our own learning curve as well. When you look at the history of the company, we've been a conglomeration of multiple acquisitions, and we're just now starting the journey, particularly on the LOE side of improving our operations. So yes, both of those organizations have helped us tremendously.

Great. Appreciate the response. Just a quick follow-up on the Uinta. Look, that asset has been on a slight growth trajectory this year. I think spending has been a little under $100 million. It reflects pretty strong capital efficiency. So I believe the expectation is to continue with the 1-rig program next year, but would you expect to see continued slight growth in 2027?

Yes. It's David. As you know, one of the key things we did up there was much like we did in the Permian. We slowed down, took assessment of what others have been doing and have now, as you noted, been executing a very good program. And long story short, there's just so much resource potential up there. One, it's well known across our acreage, but it's also being actively developed by offset operators. So we'd expect to have continued activity and also continued inventory expansion and depth being created over time. So yes, we're very excited about that asset.

Your next question comes from the line of Ajay Bakshani with BMO Capital Markets.

Your presentation shows roughly 6 years of inventory below $50 a barrel and 10 years below $60 at current well costs. I was just wondering how do those economic buckets map the low-risk in total locations disclosed by basin? Are the sub-$60 wells primarily low risk? Or do they include inventory that still need delineation? And how large is that next tranche at $60 to $70 breakeven that could move below $60 with further cost reductions?

Yes. This is David. The short answer is, we've -- I'll call it conformed to industry disclosure rather than really changing what we're doing. We view our inventory as things that deliver 2x our money or better. We have a really long runway of that. And long story short, this is just a rebucketing into that sub-$50 and sub-$60 kind of vocabulary. So -- one, we expect to continue to grow growth of those categories through both operational execution, which we still see significant upside there on the cost side. But also as we've expanded our acreage footprint over many years and gotten more concentrated in the portfolio, we're seeing obviously incremental zones that we can develop, but also incremental lateral feet that we can bring into a program as we push together acreage in meaningful ways now that we've got a really scaled position across all 3 of these patients. So I think it's just more of everything more sub-$50, more sub-$60 and also just more overall as we continue to execute.

Great. And for my follow-up. How are you thinking about capital allocation across Julian Karnes Counties after you closed the Eagle Ford transaction. Do you see one area more advanced than the other on returns in inventory? And is there any weighting between the two in terms of synergies?

Yes. I think too early to say. Again, we look at the Eagle Ford as an entire position. But as you know, those are both two great opportunities within our Eagle Ford portfolio. So we have not closed on that acquisition yet. But again, I think we'll see huge opportunity both in those areas and also across the rest of the company, and we'll continue to provide more detail on that as we get the assets closed and integrated. But excited definitely about what we're bringing in, but also equally about what we hope to get.

Your next question comes from the line of Gabe Daoud with Truist Securities.

Was hoping, David, maybe we could just start with bigger picture, you have the minerals strategic lever that you could potentially pull. But I was just curious about the upstream portfolio as it stands today, would you think about or how do you think about the portfolio moving forward? Is there anything that maybe stands out from a divestiture candidate standpoint?

Yes. Great question. The short answer, as we said earlier, we love the portfolio we've got. We think every part of the portfolio has upside in it, and we're -- it's our job to go execute and capture that for the benefit of shareholders. So the short answer is the divestiture program that we announced last year is done, and we're really focused on getting the most out of the assets we own today.

Okay. Got it. That makes sense. And then just as a follow-up maybe for Joey. I think there were maybe a few pads where Crescent kind of drilled and completed start to finish on the Permian asset. I was just curious if you can maybe remind us some of the differences maybe on the completion or facing side and even the drilling side versus the prior operator? And maybe any kind of commentary around expected productivity uplift, if any, from some of these changes?

Yes. Gabe, thanks for the question. Just as a reminder, a lot of the program we inherited from Vital, we executed in the early part of the year, including quite a few DUCs. I can't remember how many DUCs there were, but there was a pretty significant number of DUCs. And I would say that the Crescent influence really started to thread into latter part of Q3 and into Q4.

At this point in time, we have made some recent changes on volumes, both for capital efficiency in some instances, reduced and some cases increased. And on the spacing side, there's a couple of pads where we actually added a well that would not have been a part of the Vital drilling program. So just a complete development plan change. And of course, the most significant opportunity we've deployed is increasing lateral lengths. Our land team did a tremendous job right out of the gate, getting some trades done so we could increase lateral length. So I would say the biggest improvement you could expect is just on a capital efficiency perspective. But whenever we're talking about productivity changes and such, I wouldn't expect to see some of that take effect until we get into 2027 whenever we fully baked this as a Crescent plan.

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

I think this question will go to Brandi. So when the Devon acquisition of the -- when the Devon Eagle Ford assets are acquired, it's going to benefit the mineral business. My question is, how do we think about the pro forma capital structure for Crescent minerals, right? Does Crescent sell the minerals -- does Crescent sell the minerals to Crescent Minerals? How does that kind of work there, Brandi?

Yes. John, it's David. I'll start. The short answer is everything is part of Crescent today. So we're -- we look at the business on a holistic basis. As you know, we have split out the minerals. But the way we think about leverage across the company, the way we think about managing the business, all the same, no fundamental changes there. So to your point, depending on the direction we take with the minerals business, we'll certainly have to continue to think about the 2 pieces of the puzzle here. But long story short, we run the business fundamentally the same and don't intend to change that.

Appreciate it. Okay. Then the follow-up question here is there was a lot of discussion last quarter organically. We talked about the Austin Chalk -- of course, winter we were doing our dodeineation. And also at the same time, you are further getting a grasp around. First part of the question is, how do we think about the disclosure on the inventory? And then in your deck, you have $1 million well cost reduction and improving the oil breakeven by either $5 or $10 per barrel. How do we think about that distribution? Is more of the opportunities towards $10 per barrel, towards $5 a barrel, or is it split in the middle like at $7.50 per barrel?

Yes. The easy thing I even put it in the mill. We'll start there. More broadly, though, hopefully, what you're seeing and, call it, in public data and also hearing from us is, we see significant opportunity in each of the areas where we operate to continue to expand inventory, and that's both moving -- existing, what I'll call formations where we're actively developing down the cost curve and into that sub-50% range. And also, as you know, we've got incremental zones in the Uinta in the Midland and Delaware and in the Eagle Ford and the most notable of those in terms of active development from us today is the Austin Chalk. It's about 40% of our Shop Texas program. So I think, long story short is we will continue to provide updates on how that is all going. And in particular, I think you were asking it this way, would you expect us to be talking about that in the first half of '27. The short answer is, yes.

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

Maybe just a quick follow-up to the prior question on the Chalk. It's certainly been a big part of the development program over the last few quarters, particularly on the western side of your position. Could you speak to views around the horizon as we look to your legacy Central Eagle Ford position where development there has been more Lower Eagle Ford centric and even maybe further eased down into corn into it?

Yes. The short -- this is David. The short answer is we see Chalk opportunity across the whole position that we've built across the Eagle Ford. We would also highlight that it does, I'll call it, required different approaches depending on where you are, no surprise. So in some areas, we see multiple opportunities in landing zones within the Chalk and in other places, there may only be one zone that we see is currently productive. So long story short is we are actively and economically developing, Chalk, across the entire Eagle Ford position we have. And we expect that to continue to be a big part of our program, and we would expect if anything there to be more development going forward and more opportunity than we've quantified not less.

Got you. That makes sense. And maybe for my second question, just on gas marketing. I know you all talked about some of the capture out on the Permian side of your portfolio. But just any thoughts around gas marketing, looking ahead out of the Eagle Ford Aguadulce area, just given the impacts of Traverse coming online, Rio brand starting to ramp. Just thinking between this and your low nitrogen gas, just how we should be thinking about the magnitude of the opportunity set to drive gas realizations higher as we kind of look ahead over the next couple of years?

Oliver, it's Brandi. So we talked specifically about the opportunity around our Permian molecules just getting that out of the Waha basin and into the Gulf Coast, and whether that's into AD or to the Katy market. I think there's going to be a lot for us to do over time to help meet the structural demand increases that we're seeing from an LNG standpoint and a power perspective. So you can't necessarily quantify it today. But as you mentioned, we're one of the largest gas producers. We also produce a lot of low nitrogen gas, which I think will continue to trade at a premium over time as that fills LNG demand. So expect us to continue to kind of update you guys as we're making more progress there, but really happy with some of the gas marketing benefits that we've captured thus far.

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

An answer to earlier question, you said there was nothing unusual about third quarter. I would follow up on that, specifically on CapEx, which came in a little bit below what we are thinking. As we look into fourth quarter, if we just ignore the timing of the Devon close, is it fair to assume that CapEx should be kind of flattish with that $326 million you spent in third quarter? Or the timing of completions push that one way or the other?

Yes. Mike, if you mentioned the business is performing really well. You heard talked about continued capital efficiencies, which is showing up in Q3 on a full year basis, we would expect to end up below the midpoint of the full year capital guidance.

Okay. And then you've talked a lot about improving the breakeven of the undeveloped inventory. Is there anything worth noting on things you're working on to optimize the producing assets, anything to lower the decline rate?

Michael, thanks for that question. Yes, we have a very intense effort on improving what we refer to as the base production. We've evaluated -- we have over 4,700 wells in the Eagle Ford and over 4,000 wells in the Permian, which to me represents 8,700 opportunities to get that denominator up. Our teams are working very diligently in both areas focused on [indiscernible] the artificial and rightsizing artificial lift, optimizing artificial lift supply chain. Again, this is one of the opportunities we have to significantly impact the business due to our scale and supply chain working on things such as chemicals, generators, I mean, the list just goes on and on. But yes, we're equally focused on improving the margins on the base production as we are on improving well cost.

And we have lots of opportunity there. We know that in the Permian that were below the P50 in both the Midland and the Delaware. So a huge opportunity there. And we know we're about P50, and the Eagle Ford as well, so significant opportunity to improve cost there. So yes, we have an intense effort to -- improvements in those areas as well.

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

I was wondering if you could give us some insights on how you're thinking about 2027, obviously, post the close of the Devon Eagle Ford transaction. You guys had outlined, call it a maintenance program of $1.8 billion of capital for 170,000 barrels a day or so of oil. Can you give us maybe some -- a little bit of color on how you're thinking about capital allocation between the different basins as you see on a go-forward basis?

Yes, great question. As you know, the sort of simple starting point is our #1 focus is on operational execution and around the acquisition get closed, get integrated and get stabilized. So the simple starting point is, we've got the majority of the company's rigs running today on our existing Eagle Ford assets. We would plan to bring the Devon assets in just at the current pace where there's a couple of rigs. But then if you said, once I feel comfortable that everything has been integrated and stabilized where should capital allocation go, well, obviously to the best performing areas, but also to areas where we think we can improve efficiency. And so in that context, the new Eagle Ford, the Permian and the Uinta would call it, the undercapitalized relative to the overall allocation today, just given we've been on a stabilization path in the Permian, delineation path in Uinta and an integration path for the new Eagle Ford.

So long story short, we'd expect steady state as a planning case, but you could see some incremental capital come out of the existing Eagle Ford to go to all three of those other places just depending on how the market and execution looks.

Appreciate that. And my follow-up, David, I know the company reiterated its pro forma EBITDA guide for minerals at $250 million. There was some quarter-to-quarter fluctuations in production from 13% to 11% in the quarter. Could you just talk a little bit about that? And again, I know it's -- there's always going to be some volatility on the quarterly numbers, but maybe just a comment on the sequential trends and expectations, I guess, for 4Q?

Yes. Just a high-performing business, and I'll call it just ordinary quarter-to-quarter movement, no change to outlook or expectations.

Your next question comes from the line of Peyton Dorne with UBS.

Just a quick one. But in the Permian, I know you've been rightsizing the capital intensity and the pace of TIL slowed a bit in 3Q. So I wonder if you could just provide a bit more color on where you see the maintenance production kind of shaping up into year-end? And how you're thinking about activity in the Permian kind of as we look out to 2027?

Peyton, I'm happy to start. As we talked about previously, we expect to exit the year on a status quo across it standpoint -- 130.

[Technical Difficulty]

I'll turn the call back to David Rockecharlie, CEO, for closing remarks.

Great. Thank you all again. In particular, thank you to all of my colleagues here at Crescent that are executing every day. We're delivering quarter-over-quarter and multiyear market-leading performance. So we're very excited about the opportunity ahead, and we thank all of you for their support, and we'll continue to keep you updated.

This concludes today's call. Thank you for attending.

Hello, everyone. Thank you for joining us, and welcome to the Crescent Energy Conference Call. [Operator Instructions]

I will now hand the conference over to Reid Gallagher, Investor Relations. Reid, please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us to discuss Crescent's announced acquisition. With me today are our CEO, David Rockecharlie; our COO, Joey Hall; and our CFO, Brandi Kendall. Our Executive Vice President of Investments, Clay Rynd, will also be available during Q&A. A replay of today's call will be available by webcast and accessible from our website.

Please note that the information reported on this call speaks only as of today, October 8, 2026, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Crescent's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management.

The listener is encouraged to read our annual report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies as well as to review additional disclosures associated with the pending acquisition. The pending acquisition, which is currently expected to close in the fourth quarter of 2026 or early 2027, is subject to customary closing conditions and receipt of required regulatory approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act.

Now I would like to turn the call over to David.

Good morning, and thank you for joining us. Today, Crescent announced an agreement to acquire Devon Energy's Eagle Ford Assets for a net purchase price of approximately $3.85 billion. This is another logical and valuable step forward for Crescent, and it is a continuation of the same strategy we've executed consistently for more than a decade. Acquire high-quality assets at attractive returns, apply our proven operating strategy to improve performance and create long-term value through free cash flow. By combining both investing and operating expertise, we have built Crescent into a top 10 independent operator with a world-class Eagle Ford position, where we will now be the second largest producer.

We have a streamlined portfolio of scaled assets across the Eagle Ford, Permian and Uinta Basins, and we have significant operational upside embedded in our portfolio. You've seen us deliver on that upside so far this year with operational improvement on a unique trajectory in our sector. We are driving down well costs and enhancing margins to extend our inventory life, reduce our breakevens and increase free cash flow and returns across our portfolio. As we highlight our operational capabilities, I want to recognize the hard work and outstanding performance of everyone on Team Crescent, who has helped us deliver on our integration and operational value creation year-to-date.

Crescent is strongly positioned, and we were ready to seize this opportunity. Our ability to acquire these assets accelerates and expands the operational value creation potential within our business today. And this addition to our portfolio solidifies Crescent's position in the Eagle Ford as truly world-class. As we integrate these assets and continue to drive operational value creation, our measure of success remains the same. We want to deliver multiples on invested capital. Crescent already presents a differentiated value proposition in the sector, and we believe this acquisition enhances our ability to achieve that goal. With that, I want to begin with a few key takeaways about the acquisition.

First, the strategic fit is truly differentiated. We have owned royalties under these assets for more than a decade and have operations directly offset. We know the acreage, the geology and the operating environment as well as any asset in our own portfolio today. The acquisition adds approximately 68,000 barrels of oil equivalent production per day, nearly 40,000 barrels of oil production per day and more than 600 net locations in the Karnes Trough with economics that compete with anything in the Lower 48. Second, the acquisition returns are compelling and the accretion is meaningful. We are acquiring premier assets for approximately 3x EBITDA and adding Tier 1 inventory for less than $2 million per net location. We expect base returns in excess of our 2x multiple on invested capital target and significant accretion across all key metrics, including cash flow, free cash flow and net asset value.

Third, this acquisition accelerates and expands our operational value creation efforts that are already underway. Pro forma Crescent has lower breakeven inventory, higher margin cash flow and lower capital intensity, all driving enhanced free cash flow generation. We see significant opportunity to make these premier assets even better and have identified approximately $140 million in annual synergy potential. And finally, this acquisition is transformational for our market-leading royalties platform. Our existing minerals ownership overlaps substantially with the acquired assets and the transaction includes approximately $50 million of incremental royalties EBITDA. In addition to the added scale, we will now operate a significantly higher portion of the Crescent Royalties portfolio, meaningfully improving visibility into future development and cash flow generation.

Pro forma for the transaction, Crescent Royalties is a bigger, better business and well positioned in both scale and quality versus public royalties peers. In summary, this is a very attractive addition to our portfolio, but it is more than just an asset acquisition. It is another major step on our journey to create a leading energy company. Over the last 3 years, Crescent has built a world-class position in the Eagle Ford. Since June 2023, we've announced 9 major Eagle Ford acquisitions and realized more than $200 million of annual synergies. We have a proven track record in the basin, acquiring assets at attractive value, integrating them efficiently and improving their operating and financial performance. We have lowered well costs, increased lateral lengths, improved completion efficiency, optimized field operations and captured commercial benefits from our growing scale. And we have a lot more operational value creation still ahead of us. This transaction gives us the opportunity to expand our proven playbook in the heart of our core operating area.

With that, I'll pass the call over to Joey.

Thanks, David, and good morning, everybody. Building on that introduction, these assets accelerate and expand Crescent's opportunity to create value through operational improvements. We're adding high-margin production and more than 600 Tier 1 net locations to our portfolio, driving a step change in capital efficiency and free cash flow generation. The Karnes Trough is one of the lowest breakeven oil resources in the Lower 48, and Devon's recent well results demonstrate the potential of these assets. Pro forma for the transaction, Crescent will have approximately 6 years of sub-$50 breakeven inventory, approximately 10 years of sub-$60 breakeven inventory and more than 15 years of total inventory life. And while these assets are extremely high quality, we see a significant opportunity to improve the performance by executing our playbook.

We have identified approximately $140 million of synergy potential across drilling and completions LOE and marketing. The clearest example of operational upside here is development optimization, where we see significant potential to improve well cost and increase capital efficiency through longer lateral development and surface design efficiencies. This isn't new for us. Across our 5 most recent acquisitions of scale, we've increased average lateral length by more than 25% versus previous operators, driving a step change in cost structure, increasing returns and lowering breakevens. With this change alone, we expect to deliver approximately $100 million in annual synergies from the Devon assets. Our message today is straightforward. These are premier assets that clearly expand Crescent's upside, and our track record demonstrates our ability to make them even better.

On a personal note, while today's focus is on the business merits of this transaction, I want to recognize the hard work and dedication of the Devon Eagle Ford team. I look forward to meeting you soon and welcoming those of you who will join us here at Crescent. And with that, I'll turn it over to Brandi.

Thanks, Joey. We are acquiring these assets for a net purchase price of approximately $3.85 billion with a July 1 effective date and an expected closing in the fourth quarter of 2026 or early 2027. We expect to fund the acquisition through a balanced combination of debt and equity, designed to preserve balance sheet strength and support efficient deleveraging. As part of the equity financing, KKR, a long-standing investor and strategic partner, has committed $500 million in support of the transaction. From an investment perspective, the transaction is consistent with our disciplined underwriting framework. The existing production base provides meaningful valuation support, including approximately $2.3 billion of proved developed PV-10 plus significant royalty cash flow, while the acquired Tier 1 inventory and identified operating improvements provide additional upside.

We expect returns exceeding our 2x MOIC threshold, a payback period of less than 5 years and meaningful accretion across all key metrics. Importantly, these assets also improve the capital efficiency of the entire Crescent business. We expect the pro forma company to maintain approximately 170,000 barrels of oil production per day with approximately $1.8 billion of annual development capital, representing a maintenance reinvestment rate of approximately 5% lower than our standard stand-alone business. The combination of high-quality inventory, lower capital intensity and increased margins translates into greater free cash flow capacity. This is important not only for long-term shareholder returns, but also for our ability to reduce debt following closing.

Turning to the balance sheet. Our acquisition financing maintains our strong financial position and our near-term capital allocation priority will continue to be deleveraging. We intend to maintain our fixed dividend and preserve strong liquidity while directing excess free cash flow toward debt reduction. Our hedge strategy is an important part of protecting the capital we invest and our deleveraging path. We've added meaningful incremental hedges alongside the acquisition to lock in attractive commodity prices and increase cash flow visibility during the initial debt reduction period. Combined with the strong free cash flow capacity of the pro forma business and our disciplined financing approach, this supports our target of approximately 1.5x leverage at year-end 2027 and approaching 1x at year-end 2028 based on current strip pricing. We believe the increased scale, stronger free cash flow generation and clear path to deleveraging support continued progress toward an investment-grade credit profile.

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

Thanks, Brandi. In summary, this acquisition represents another logical and valuable step forward for Crescent as we add high-quality assets at attractive value in the heart of our core operating area. I'd like to leave you with our key takeaways. First, this acquisition solidifies Crescent's world-class Eagle Ford position and the strategic fit is truly differentiated. We have a proven track record of Eagle Ford value creation, and we have owned royalties under these assets for more than a decade. We also have existing operations directly offset these assets. This gives us differentiated conviction in the opportunity and our ability to execute. Second, the returns are compelling and the accretion is meaningful. We're acquiring premier assets for approximately 3x EBITDA and adding Tier 1 inventory for less than $2 million per net location.

Third, this acquisition accelerates our operational value creation efforts. Pro forma Crescent has lower breakeven inventory, higher margins and lower capital intensity. These are Tier 1 assets, but we see significant opportunity to make them even better. And finally, this acquisition is transformational for our market-leading royalties platform with greater scale, increased operatorship and enhanced development visibility. We have built a business that is very well positioned versus public peers. Pro forma for the transaction, Crescent will produce approximately 400,000 barrels of oil equivalent per day with approximately 170,000 barrels of oil per day and will be the second largest operator in the Eagle Ford. We have a streamlined portfolio of scaled assets, and we have significant operational upside embedded in our portfolio.

As we integrate these assets and continue to drive operational value creation within our business, our measure of success remains the same. We want to deliver multiples on invested capital. Crescent presents a differentiated value proposition in the sector, and we believe this acquisition enhances our ability to achieve that goal.

Before we go to questions, I'd like to once again recognize everyone on Team Crescent, including our investors and the communities where we operate. We are building something special, and we remain focused on safe and efficient operations that will continue to drive long-term value for our investors. And lastly, as Joey said earlier, to the Devon Eagle Ford team, we look forward to welcoming you to Team Crescent. We have a great opportunity ahead of us.

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

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

Congrats for fantastic assets you're adding. David, my first question is just you mentioned in the prepared remarks that I'm sure nothing changes about the free cash flow focus you all have. Could you talk about activity? I know I think they were running kind of 2 to 3 rigs. You add those to yours. Do you anticipate kind of the same type of program? Or I guess my sort of follow-up question with that is how much is that predicated on higher prices? Because I would assume you could get to that if prices stay at these very solid levels, you can get to that 1x leverage much quicker if you would be a little bit more active, but wondering how you feel about that?

Yes. Great question. Good news, very simple answer, same as always. We're about maximizing free cash flow and returns. So we're effectively going to keep activity at about the same level. But I think the highlight is that by folding this into the company, we see significant capital allocation flexibility. So we think we're going to deliver effectively the same production with less capital, just more capital efficiency, which is greater free cash flow for investors.

Great to hear. And then just secondly, just you mentioned very quickly on the royalties. Is that something now that you guys are getting now to have a pretty decent sized position that you could spin that off or somehow just doesn't seem like you're getting a ton of value for that quite yet. And now with this addition, is there something you could do to, I don't know, monetize or get some value in that much quicker?

Neal, it's Clay. I think we hit it in the prepared remarks, but this is a total game changer for the royalties business. So when you think about our royalties business, we've been talking to the market about it being a $200 million a year EBITDA business. We highlight in the slides, this grows the cash flow by more than 20%. So we're highlighting about $250 million of cash flow generation. But I think more importantly, we take a business where we were the operator on about 10% of our cash flow, and we make it 40%, right? Because we already own royalties on this position and then we're buying a number of royalties on this position.

And so now that we control the drill bit, we have line of sight on cash flow of about half of our kind of cash flow today, which we think is really compelling strategically. So I think what we'd say is it's clearly a super high-value part of the business, and we are committed to maximizing that value for our shareholders here. And we think this transaction just kind of further enhances that.

And then I'll just finish [indiscernible] David. We announced in the first quarter that we were going to take 12 to 18 months to kind of evaluate our minerals position. As Clay said, this is a game changer. And you should assume that we're on the same or faster time line than we were in the first quarter.

Your next question comes from the line of Noah Hungnes with Wells Fargo.

For my first question here, I wanted to ask on the refrac opportunities. You all spoke about the 600 Tier 1 net locations, but how can we think about the amount of refrac opportunities you have on the asset?

It's Clay. I think as we -- one of the things we love about this asset is Joey mentioned the quality of the resource. So as we think about those 600 locations, that does not include refracs. So that is full D&C across the asset. We certainly think the opportunity for incremental resource here is plentiful, but that's upside for us today. And those 600 locations don't include refracs.

Great. That's helpful. And then the next question is on just your hedge book. Is there a certain percent that you'll be looking to hedge via the pro forma production? Or is it like a floor that you'd be looking to lock in? Just kind of how are you thinking about that given where the strip is today?

Noah, it's Brandi. So I had mentioned in the prepared remarks that we've been active hedging into signing of the purchase agreement to really protect the deleveraging pathway. As we sit here today, we're roughly 50% hedged on oil for 2027. And I would say of that position, roughly 2/3 are swaps and 1/3 are collars.

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

First question, right, the deal comes with 600 locations. Based on your commentary, it seems like these assets would receive a greater amount of activity. So how do you think about inventory with the asset? How should we think about oil production on this asset versus other areas in your Eagle Ford sort of going forward?

Yes. Great question. Happy to take it. As you know, John, we're very focused on maintaining stable levels of activity to gain efficiency, and we're not looking to go accelerate here. But we think this has a huge depth of inventory. As we said, it's also a very high-quality inventory. The other thing you're seeing throughout the course of the year to date on Crescent is we're making significant progress lowering our cost structure, lowering breakevens and even adding to our existing inventory. So long story short, in the presentation, we disclosed approximately 6 years of sub-50 inventory, 10 years of sub-60. And then we think we see significant upside beyond that as we continue to execute.

Appreciate it. And then just one follow-up question here. You talked -- you called out about $140 million savings in the presentation. How have you sort of risked that number?

I mean this is $140 million worth that we feel fairly confident in. The reason I say that is the majority of that is on the D&C side and the majority of that is in our ability to increase lateral lengths. This puzzle is pretty simple. You're taking two 5,000-foot lateral length blocks and adding them together or two 6,000-foot lateral length blocks and adding them together. We know Devon has had some early success in drilling these longer laterals. We've had success in drilling these longer laterals. So I mean that's the primary way that we're going to achieve these synergies. The other one is that any time you increase scale, you include opportunities to improve your cost structure. And so we know that's a given as well. And so I would put high confidence in the $140 million.

And maybe what I'd add, these are all areas where we have a really strong track record of executing and capturing in prior acquisitions, and we expect to capture the entirety of the $140 million throughout the course of 2027. So fully captured in our run rate as we exit next year.

Your next question comes from the line of Phillip Jungwirth with BMO.

Congrats on the deal. Wondering how you see the base decline on the Eagle Ford for oil and gas, and then just how you are thinking about base decline at the corporate level now just given the changes to the portfolio over the years?

Yes. Great question. Also an easy answer. We always target lower decline rates than is typical in the industry and the way we operate naturally allows those declines to settle in. So you've seen us really settle the decline in, on the acquisition we made in the Permian last year. These assets come in with a modestly higher decline rate, but our view, the overall portfolio will stay on the same trajectory, moderating down towards 25% decline over time.

Okay. Great. And then you've also streamlined the portfolio through divestitures quite a bit. Just with the larger Eagle Ford scale, #2 in the basin now, do you think it makes sense to look at additional pruning? Or are you pretty happy with where the legacy assets sit at this point?

Yes. We -- as you recognize, we made a transformational step to exit noncore assets last year. The exit of those assets has gone great in terms of operational efficiency and what I'll call capturing incremental value from just consolidating around these core positions. So we like what we have today, and we're going to stick to it, and we think it's just a great portfolio.

Your next question comes from the line of Tim Rezvan with KeyBanc Capital Markets.

As the first one, I know some of the prior were addressed. I know the funding structure is still a work in progress as you evaluate capital markets. Can you talk about the assumptions behind that year-end '27 and year-end '28 leverage targets? And obviously, it sounds like there's no asset sales being contemplated. So can you just kind of roughly talk about how you get there, that 1.5x again next year?

Yes. Tim, it's Brandi. As you probably saw from the press releases this morning, we did launch a primary equity offering. I mentioned in my prepared remarks, half of that is already covered through the KKR commitment. So expect the balance of the transaction to be funded with a mix of debt and free cash flow. So I can't comment on other kind of specific capital markets transactions, but feel really good with respect to where we sit today with respect to the equity that just launched, it's half covered, the free cash flow capacity of this business allows us to significantly delever. And then as I mentioned on the prior question, we've locked in significant hedges on the 2027 cash flow. So feel very good about the deleveraging pathway to get to that 1.5x 2027.

Okay. That's helpful. And then just to repeat or so, I think this was mentioned a bit in your comments. On the royalties segment, did you say you operate now 40% of your position and 50% of cash flow? Is that those the correct numbers?

Yes, that's right. So about 40% to 50% of the position we operate pro forma. So that's our [indiscernible] transaction. So a step change from an [indiscernible] to operating pro forma.

Your next question comes from the line of Gabe Daoud with Truist.

Congrats on the acquisition. I was just curious if we could go back to some of the synergies that you laid out. Curious on the D&C opportunity. Like what would the baseline be? And I guess I'm just curious if there's any contemplation for inflationary pressures embedded in that synergy target? Or it seems like maybe you're expecting to still deliver that net of any inflationary pressures?

Yes. It's David. I'll take it first. The simple answer is we're really -- we operate offset here. So we're just really coming next door and continue to do what we do. And generally, what I would say is all of our investors know, we've been on an operational improvement plan all year. We're continuing to execute there. And so from our perspective, operational performance has got to offset any inflation. So we feel great about what I would call what we've laid out here and then our goal is to try to get more, but I'll let Joey add to that.

Yes, Gabe, just restating what I answered earlier, most of this is pretty simple and pretty straightforward, just increasing lateral lengths. And then on the LOE side, again, we're just taking advantage of scale. I mean this is our backyard, unlike whenever we acquired the Vital asset in the Permian. Now we're just adding to our position, taking advantage of our expertise as Clay has made very clear, we understand these assets. We've had line of sight into them for over 10 years. And the lateral length piece is just very simple to execute. And you can see on Slide 10, I mean, going from an average of 6,500 to 11,500. I mean that's a step change in cost structure. And we've been doing this across our acreage. So we're just -- we're confident we can execute on it and looking forward to hitting that target.

And it's David. Just one more thing I'd add, again, just to make sure you've got some of the history here. These assets were in a pretty wonky JV structure through multiple operators over the years that just got unwound last year. So there's a lot to do here.

Right, right. Okay. That's helpful. And then just a quick follow-up, maybe back to the minerals piece, and this was discussed earlier, obviously. But just curious, I think earlier this year, when you first introduced Crescent Royalties, there was maybe a 12- to 18-month kind of window when you felt like you'd have an answer on the strategic lever that you can maybe pull there. So maybe now 6 to 12 months since that's about 6 months ago. Is that a fair like window to still maybe hold you to on making a decision there?

Absolutely.

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

Congrats on the deal. I think most of mine have been asked, but just a couple. Just when speaking to production, I know the 68,000 a day is a July estimate, just assuming that there's continuous activity between now and closing from Devon. Is that a fair number to think about exiting the year when the deal officially closes? And are there any DUCs that you all would also be inheriting?

It's David. The short answer is yes, we'd expect what I'll call maintenance level of activities and transitioning into our business that way.

Perfect. And then just a second question on NOL benefits. Are there any coming alongside the deal? I know you all were pretty shielded for the next couple of years, but just wanted to get the latest thoughts on cash tax assumptions and if the runway might be getting pushed out even a bit further.

Oliver, it's Brandi. We do not expect to be a cash taxpayer in 2027 or likely 2028, but we'll provide more guidance alongside our formal '27 guide.

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

David, I apologize, I hopped on a few minutes late, so I may have missed some of the details earlier on the call, but I'm wondering if you could characterize these 600 locations a bit more. Perhaps what fraction of those are Eagle Ford versus Austin Chalk? And also if there's -- I don't want to say downspace, but maybe like wine racking within an existing kind of fully developed unit, if there's any aspect of that?

Yes, great question. The simple answer is most of it is Lower Eagle Ford and call it, Eagle Ford in general. We do have very good success in our existing business in the Austin Chalk. So we see that as a great area as well. And we do think there will be a lot of locations there over time and some are included here. But you can assume it's mostly Eagle Ford. And then to your question on, call it, development approach, one of the reasons we don't want to go really fast right away is we do believe there is strong optimization potential around where we land, how we complete. As Joey said, we're going to go redo development plans and make sure we get longer laterals. And I think some of that, I think you said wine racking, so I'll use that term. But we think that's still to be determined from an optimization perspective. So we see significant upside there as well. But our expectations around the Eagle Ford, which is very well known to us are high, but we see very significant opportunity elsewhere on the assets, including the Austin Chalk.

And Charles, I can't add much to that. I mean we've got -- in the way you asked your question, we've got all of those in the development strategy. But again, core Lower Eagle Ford, some infill and Austin Chalk. And I really like to emphasize the Austin Chalk because we're one of the largest developers of the Austin Chalk, and we're really looking forward to the upside that this acreage presents us as well.

Got it. That's great detail, David and Joey. And perhaps picking up on that optimization thread, this part of the Eagle Ford is really -- I think it's -- there's no primary leasing available anymore. I mean this is all locked up. But with a new operator, you perhaps have some new currencies, some different trade currency. So I'm curious, how would you characterize the opportunities to optimize the map or the assets around you?

Yes. I think great question. The simple answer is we see tremendous opportunity, as we've said for many years. Yes, there are some large-scale players in the Eagle Ford. We're obviously the second largest now. But when you look at the map and you look at the availability of the play, there's still a lot of fragmentation. And so to your point, we think there is more opportunity to bolt on or trade down the road to optimize the position we've got. So we have a world-class position out here, and that is really, really valuable in terms of being able to optimize the land position we've got.

Your next question comes from the line of Gregg Brody with Bank of America.

Congrats on the transaction. Clearly, this makes the company larger in scale and helps towards your investment-grade thesis, but the leverage is picking up here. So can you just talk about how you think about this impacts the IG story from your perspective?

Yes. So I would characterize it as it's unchanged, right? So we're financing this transaction in line with our stated long-term target of 1x. I think we continue to be on the same deleveraging pathway that we were on pre this transaction. It's just 12 months delay. So you mentioned not only are we a bigger business, but we're also better in a lot of respect for oilier, our margins are higher, our reinvestment rate is lower. Our free cash flow generation is higher. So I think we'll continue on that pathway, Gregg?

Yes. That all makes sense. Just a question for you. The KKR commitment, is that a backstop to get to the $1 billion? Or is that $500 million committed and then there's the potential to upsize the equity as part of the transaction? I'm just wondering how committed is the KKR in terms with respect to the $1 billion raise and potentially more.

Yes. The short answer, again, without talking about the offering in general is fully committed capital. We're really pleased with very strong support from one of our long-term investors. So that's -- it's a $500 million commitment. And then to your point, that gives us really high confidence that we're going to get the equity that we've announced into the company very quickly. So yes, fully supportive from KKR and intending to come in at that amount to the company alongside this acquisition.

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

Again, thank you all for joining us. Thank you to everybody on Team Crescent for everything you do to support the company. And we really look forward to talking to you all again around the third quarter earnings. And as you know, the performance year-to-date through the second quarter has been great. So thank you.

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

Hello, everyone. Thank you for joining us, and welcome to Crescent Energy Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Reid Gallagher, Investor Relations. Reid, please go ahead.

Good morning, and thank you for joining Crescent's Second Quarter 2026 Conference Call. Today's prepared remarks will come from our CEO, David Rockecharlie; and our CFO, Brandi Kendall. Our Chief Operating Officer and Executive Vice President of Investments will also be available during Q&A. Today's call may contain projections and other forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict, our business strategies and other factors that may cause actual results to differ from those expressed or implied in these statements and our other disclosures.

We have no obligation to update any forward-looking statements after today's call. In addition, today's discussion may include disclosure regarding non-GAAP financial measures. For reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures, please reference our 10-Q and earnings release available in the Investors section of our website.

With that, I'll hand it over to David.

Good morning, and thank you for joining us. Crescent delivered another record quarter, and I want to begin by thanking our talented colleagues across the company for the focus and execution that made these results possible. Our year-to-date results demonstrate continued positive momentum across Crescent. Higher production, structurally lower costs and record free cash flow reinforce both the strength of the business today and the long-term value creation opportunity ahead. Our business is better than it has ever been before and recent commodity tailwinds only amplify our outperformance. As always, I want to begin with 3 key takeaways.

First, consistent execution across the portfolio drove another quarter of outperformance and supports an enhanced full year outlook. Oil and total production were ahead of our full year plan and adjusted operating expense was significantly better than expectations. As a result, we are raising guidance for both total production and oil production and improving guidance for operating expense.

Second, momentum continues to build in the Permian. Asset performance is improving, operational efficiencies are becoming increasingly visible and synergy capture continues to exceed expectations. We are increasing our target range once again to approximately $250 million to $300 million, roughly 3x our original synergy target at announcement. And third, our differentiated combination of operating and investing expertise delivered record quarterly free cash flow, providing meaningful flexibility to accelerate deleveraging and return capital to our investors.

Let me now discuss the quarter in more detail. We produced approximately 335,000 barrels of oil equivalent per day during the quarter, including approximately 140,000 barrels of oil per day and generated a record $418 million of levered free cash flow. Total production was approximately 2% above the midpoint of our original full year guidance. Oil production was approximately 4% above the midpoint and adjusted operating expense was nearly 10% better than the midpoint. With outperformance across production and operating costs, we are increasing our full year production guidance and improving operating expense guidance, while maintaining our development capital range.

In the Eagle Ford, steady efficiency gains continue to drive strong returns and consistent free cash flow. Base production and new well performance remained strong, supported by optimized workover and artificial lift programs and solid field execution. Well costs improved approximately 5% year-over-year and are now more than 25% below 2023 levels, further improving breakevens and capital efficiency across the asset.

In the Permian, early results demonstrate meaningful progress with significant upside still ahead. Following the acquisition in December, we completed the initial stabilization phase by integrating the organization, rightsizing capital intensity and implementing our returns-focused operating approach. We are now firmly in the optimization phase where the Crescent investing and operating model is translating into measurable improvements in costs, efficiency and free cash flow.

When we announced the Permian acquisition, we identified an initial annual synergy opportunity of $90 million to $100 million. As we transition from integration to optimization, we continue to identify additional operational infrastructure and commercial opportunities. As a result, we have captured approximately $190 million of annualized synergies to date and are increasing our total target to $250 million to $300 million, approximately 3x our original target.

On a 10-year PV-10 basis, the updated synergy range represents approximately half of the original headline purchase price, underscoring the significant value we are creating through execution alone. The incremental synergy opportunity continues to come from 3 primary areas: first, operational optimization. We are improving field execution through better operational planning, workover strategy, vendor management and standardized operating practices, while reducing well costs by approximately 20% to 25% versus the prior operator and materially improving capital efficiency.

Second, infrastructure optimization. We continue to improve operating costs through artificial lift and facilities optimization, equipment rationalization and proactive field surveillance, creating a structurally lower and more sustainable operating cost structure. And third, commercial optimization. We are improving marketing terms, takeaway costs and equipment contracting by implementing a more holistic commercial strategy across the asset base and leveraging the full scale of the Crescent platform.

Our message today is straightforward. In the first 6 months following our Permian acquisition, Crescent is delivering better performance, lower costs and more free cash flow. Importantly, the value captured to date does not include the significant commodity tailwinds relative to our underwriting or the additional upside in our reserve base, where we see potential for expanded economic inventory, improved recoveries and future resource delineation.

What we're seeing in the Permian reinforces that the Crescent investing and operating model is repeatable. We make assets better. Over many years and even more acquisitions, we have consistently increased performance, improved costs and created meaningful long-term value for our shareholders. These results are consistent with what we said at announcement that the Permian assets would look materially different under Crescent's ownership. Our track record in the Eagle Ford gives us confidence in the remaining opportunity, and we believe we're still in the early days of unlocking the full value of the assets.

In the Uinta, we are applying the same proven operating playbook. Workover and artificial lift optimization are improving base production, while drilling and completion efficiencies are driving a step change in development costs. Drilling efficiency is up approximately 25% year-over-year. Completion efficiency has nearly doubled and development costs are down nearly 20% to below $800 per foot. As we built this company through acquisition, we've implemented the Crescent investing and operating model on all of our acquired assets and driven clear and significant operational improvement across our portfolio.

Through more efficient and lower-cost operations and an increasing focus on our broader resource base, we see tremendous organic opportunity to meaningfully enhance and expand Crescent's inventory across all of our core basins. Our expectation is simple, both more inventory and lower breakevens. We also want to highlight that our Minerals and Royalties business continues to deliver strong performance, producing approximately 13,000 barrels of oil equivalent per day during the quarter. The business provides high-margin, capital-free exposure to organic development. And at current prices, we expect the portfolio to generate approximately $200 million of EBITDA this year.

Across the portfolio, consistent execution is translating into higher production, structurally lower costs and stronger free cash flow. That operating momentum supports an enhanced outlook, both in 2026 and beyond and gives us a greater opportunity to create value through free cash flow and disciplined capital allocation.

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

Thanks, David. Crescent delivered another quarter of strong financial results, generating approximately $798 million of adjusted EBITDAX and approximately $418 million of levered free cash flow. These results reflect strong operating execution and a portfolio designed to generate substantial free cash flow through cycles. Given our stronger-than-expected first half performance, we are enhancing our 2026 outlook. We are increasing full year total production guidance to 327,000 to 335,000 barrels of oil equivalent per day. We are also improving our adjusted operating expense guidance by $0.50 to $11 to $12 per barrel of oil equivalent, reflecting structural improvements across field operations, workovers, procurement and infrastructure optimization.

Development capital guidance remains unchanged at $1.325 billion to $1.425 billion. The combination of higher volumes and lower operating costs drive incremental free cash flow. Maintaining the capital range while raising production guidance reflects the capital efficiency gains being achieved across the portfolio. Our capital allocation framework remains consistent and focused on long-term per share value creation. First, the dividend.

We declared a $0.12 per share dividend for the quarter, continuing our long history of returning cash to shareholders. Second, the balance sheet. We ended the quarter with approximately $2.2 billion of liquidity, no near-term maturities and a weighted average maturity of approximately 6 years. On July 31, we redeemed the remaining $259 million of our 2029 senior notes at par, reducing absolute debt and annual interest expense, while advancing our long-term leverage and investment-grade objectives. And third, our free cash flow provides significant flexibility. At current prices, we expect to generate more than $1 billion of levered free cash flow in 2026, giving us the ability to further reduce debt, fund accretive M&A and repurchase shares when appropriate.

Our priorities remain clear: maintain the dividend, strengthen the balance sheet and allocate excess cash to the highest return opportunities available, including opportunistic share repurchases. With record quarterly free cash flow, significant liquidity and multiple avenues for value creation, Crescent is in its strongest financial position ahead.

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

Thanks, Brandi. Our year-to-date results demonstrate the continued progression of the Crescent story. We delivered strong operating results, enhanced our full year outlook and generated record free cash flow. In the Permian, stabilization is complete, optimization is underway, and we're beginning to see the benefits of the Crescent investing and operating model translate into stronger operating and financial performance.

While we are pleased with the progress to date in the Permian and have delivered consistent outperformance on our Eagle Ford and Uinta assets, we believe we're still in the early stages of unlocking the full value that Crescent has to offer. We see tremendous upside across our nearly 1 million net acres to significantly enhance and expand our inventory with more locations and lower breakevens through best-in-class operations and a relentless focus on the opportunity ahead. With our outperformance demonstrating the strength and repeatability of our model and the significant upside opportunity in front of us, we believe Crescent has never been better positioned to deliver for our investors.

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

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

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

Yes, that's great. Thank you, Neel. Short answer is, our focus in the business is returns and free cash flow. When we made the acquisition, our expectation is we'd be able to significantly improve both over the prior operations. And early on, we had, I think, some pretty strong expectations around our initial synergy targets. And the punchline is what we've seen as we've been able to spend more time with the assets is an all of the above improvement approach. So you're starting to see those synergies show up in the financial statements. And that, at the end of the day, is better margins, better free cash flow.

We'll continue to find more throughout the course of the year. And our expectation is, call it, quarterly and long-term improvement for the business. As you know, we think in terms of years, not days and months as we manage the business.

The other thing I would say is that we're really just talking today about the operational improvements. So we're definitely lowering cost structure and improving free cash flow, but we think that's going to translate into a significant future around these assets and the resource that we bought and brought into the company that we think was underappreciated, and you're starting to see the potential value there. But it's pretty nice to be able to triple the expectation for run rate savings, which directly translates into long-term free cash flow.

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

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

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

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

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

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

Hi, Michael, this is Joey. Thanks for the question and opportunity to highlight some of the great work taking place by the team. I mean it all kind of goes back to some of the same things we're working on in the synergies, and we continue to work on in our more mature Eagle Ford and Uinta assets. But at the end of the day, it's a mixed bag of letting our land operations and development planning teams work together to have longer laterals, more wells per pad. Whenever we're talking about the Permian, I'd like to continue to emphasize, don't underestimate the power slowing down. The previous operator was executing some pretty complicated pads, 18-mile pad with 12 stacked advanced trajectory wells. We're able through just better operational planning, able to do more executable strategies.

Workovers is one of the areas where we've had tremendous success. We had noted that there were a lot of repeated failures and just working to see how we can minimize the number of failures or reduce the number of workovers, rightsizing the ESPs going from the biggest ESP you can put into a smaller, cheaper ESP that lasts longer, again, resulting in less workovers, scrubbing power bills and seeing how we can get our power costs down, route optimization, putting our lease operators on the locations that have the most impact.

We're really developing our supply chain opportunities, gas lift compression, making sure we're fully utilizing it, combining it in some cases or eliminating it when not necessary. Chemicals is one of our biggest opportunities. We had one location where treating for H2S, we were able to reduce the chemical usage by over 50%, consolidating vendors. We had a number of vendors that we were getting our chemicals from, and we've reduced the number of vendors, generators. I mean, the list just goes on and on, on all the great work that our team is working on. If you go to the more mature asset like on Eagle Ford, you can see we reduced drilling efficiencies by 5% or increased drilling efficiencies by 5%, reduced cost by 5%. So that's not as much as the big impacts we're having in the Permian, but we're still chipping away on the more matured assets and taking chunks off the newer assets.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yes. Great question and I think I'd highlight a couple of things at the start. One, kind of just following on your question about '27 guidance, I would just say, generally, the future of the company today from our perspective looks a lot better with a lot more clarity. And so what you think about first is, we've had time now to integrate the Permian assets. We also went through a very significant and important divestiture program last year that just allowed us to become a much more focused company. And we've also -- now what you're seeing in the financial statements is we're able to execute every day, as Joey talked through, and just make the business better.

So to hit your question directly, we control a lot of resource, 1 million acres in really core plays in the U.S. onshore. We're finally getting a chance to invest the time and effort in a way that is much more thoughtful and planning than the businesses that we acquired and especially even ourselves going through a really high acquisition period in a lower commodity price environment. So, we're thrilled about the positions we've built and you're seeing the results in the early days of us getting the time to work on them. And the punchline is we're lowering costs. We're improving margins on the base business. We're getting more efficient on the development side, and that all lowers breakevens. So the existing inventory, as you mentioned, is going to be more profitable and have effectively lower breakevens. And then we're also getting the time now to go invest our efforts and our intellect and some dollars in trying to understand the resource potential that exists all around us in other formations. And so across the Permian, Eagle Ford and the Uinta, we see significant upside, which would not only increase locations and increase reserve and inventory life, also at lower cost.

So that's the future that we're looking at. It's going to take us some time to continue to get all of that, but you're just starting to see a lot of it come through in the operating side on the financial statements and more to come as we move into the end of this year and into 2027 and beyond.

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

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

Yes. Hey, Charles, it's Clay. Well, obviously, we're super excited about what we acquired over the past few years, right? You've heard a lot about the momentum in the Permian on the call today and then continued execution in the Eagle Ford. So, I think the business we've built through acquisition over the past few years, I think we're really excited about and clearly, different commodity environment where those assets were acquired versus where we're sitting in today. As we look at the market today, I think we've clearly seen some recent transactions where there were some assets that buyers felt like they needed to own. I think our strategy has tended to be more opportunistic and value-driven in terms of the assets we want to acquire and where we see opportunity.

So, I think as we look at the market today versus the internal opportunity set, the bar remains high. We just see such a unique opportunity to drive value with internal value creation. But then I'd also highlight the same execution you're seeing on the Permian as we think our opportunity to win longer term. And so, I do think continued execution and continued confidence on that strategy longer term is there. But right now, pretty high bar and super excited about what our opportunity set is internally.

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

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

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

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

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

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

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

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

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

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

Yes, I'll start off with a simple answer to your question on, do we still have the expectation to go from 29% to 25%? The answer is yes. As to how we do that, I think it's important to emphasize, we're talking about changing the math here, not necessarily the physics. That's a whole different conversation. But we've got well over 8,000 wells between our South Texas and Permian asset. And how do we go about this, just evaluate the potential of all those wells, ask it for why is a well not producing at its potential, do the cost benefit of closing the gaps and then execute. That could simply mean potentially shutting in a well and just taking it out of the equation. But typically, it means optimizing artificial lift to tweak the production upward.

Same thing on compression. A lot of times, we have some midstream constraints that we need to eliminate. And then don't underestimate the impact of technology. Once was a one-off well here and one-off well there, we're able to deploy tools across the enterprise where we can look at all 8,000 of our wells in unison and be able to make whole change or whole shift changes to a number of wells to make an immediate impact. So that's -- as we kind of go through our execution strategy of acquire assets and operating them better, that just has to be a basic skill set of ours. We have to be as good or better than anybody at it. And I would say that we're well on our way in our journey to make that happen.

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

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

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

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

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

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

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

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

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

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

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.