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Crescent Energy Reports Second Quarter 2023 Financial and Operating Results

Declares Cash Dividend of $0.12 per Share

Raises 2023 Outlook, Continues Growth with Closing of Accretive Western Eagle Ford Acquisition and Expands Public Float

Crescent Energy Company (NYSE: CRGY) ("Crescent" or the "Company") today announced results for the second quarter of 2023 and declared a quarterly cash dividend for the period of $0.12 per share. A supplemental slide deck on its second quarter results can be found at www.crescentenergyco.com. The Company plans to host a conference call and webcast at 10 a.m. CT, Thursday, August 10, 2023. Details can be found in this release.

Second Quarter 2023 Highlights

  • Reported $57 million of net income and $25 million of Adjusted Net Income(1)
  • Generated $225 million of Adjusted EBITDAX(1), $183 million of Operating Cash Flow and $46 million of Levered Free Cash Flow(1)
  • Produced 139 MBoe/d, a 1.5% increase to the prior quarter, and oil and liquids comprised 46% and 60% of volumes, respectively
  • Raised full year 2023 outlook for production and cash flow based on operational performance including improved capital efficiencies
  • Closed the previously announced Western Eagle Ford acquisition, increasing operating scale and inventory
  • Exited the second quarter at 1.1x net LTM leverage(1) and completed a $300 million notes offering in July, which increased liquidity to approximately $800 million
  • Senior notes upgraded by S&P and added to the BB high yield index(2)
  • Increased public float to 45% from 29% with the completion of the Class A share conversion on July 3

Crescent CEO David Rockecharlie said, “We posted an outstanding quarter, with results exceeding estimates across all key categories driven by strong operational performance and significant efficiencies achieved on our development program. Our successful execution allows us to raise full-year expectations for production and cash flow with lower capital investment. We expect to generate substantial free cash flow throughout the remainder of the year, which will support our return of capital strategy focused on our dividend and debt repayment.

In addition to our operational achievements and increasing cash flow, we continued to execute on our broader strategic objectives, growing production and scale through the accretive Western Eagle Ford acquisition and improving our capital markets presence through increased float and an opportunistic notes offering."

2023 Outlook

Crescent increased its outlook for 2023 to reflect improved capital efficiencies with higher production and lower planned capital investment. Higher production guidance reflects strong well performance year to date across the Company’s asset base. Lower planned capital investment levels reflects realized operational efficiencies, including reduced drilling days and completion optimizations that have driven capital costs per foot 10% lower relative to 2022.

 

Initial

FY 2023

Updated

FY 2023

Change at the

Midpoint

Total Production

(Mboe/d)

140 - 148

143 - 148

+1.5 or 1%

Capital Expenditures (Excl. Acquisitions)

($MM)

$625 - $700

$575 - $625

($62.5) or (10%)

Note: All amounts are approximations based on currently available information and estimates and are subject to change based on events and circumstances after the date hereof. Please see “Cautionary Statement Regarding Forward-Looking Information.”

 

Initial FY 2023 guidance based on full year 2023 outlook disclosed in March 2023 plus the midpoint of the contribution from the Western Eagle Ford acquisition disclosed in July 2023. Additional updated 2023 guidance details provided in Crescent’s investor presentation, including operating costs, general and administrative costs and corporate cash taxes.

Second Quarter 2023 Results

Crescent reported $57 million of net income and $25 million of Adjusted Net Income(1) in the second quarter. The Company generated $225 million of Adjusted EBITDAX(1), $183 million of Operating Cash Flow and $46 million of Levered Free Cash Flow(1) for the period.

Second quarter production averaged 139 MBoe/d (46% oil and 60% liquids). Average realized prices per Boe, including and excluding the effect of commodity derivatives, were $37.21 and $37.89, respectively.

Second quarter operating expense and adjusted operating expense excluding production and other taxes(1), stated on a per Boe basis, were $17.85 and $14.84, respectively. Operating expenses for the quarter were in line with expectations and normalized relative to the first quarter, which were impacted by higher-cost residue gas. Production and other taxes were $1.96 per Boe. G&A expense and Adjusted Recurring Cash G&A(1) (includes Manager Compensation and excludes non-cash equity-based compensation) totaled $41 million and $19 million, respectively, during the period.

Crescent operated one rig in the Uinta and one rig in the Eagle Ford during the second quarter and incurred D&C capital investments of $148 million. The Company drilled 16 gross operated wells (12 in the Eagle Ford and four in the Uinta) and brought online 20 gross operated wells (9 in the Eagle Ford and 11 in the Uinta).

Financial Position

Crescent maintains a strong balance sheet and a low leverage profile. As of June 30, 2023, the Company had total long-term debt of $1.4 billion, $62 million of cash and cash deposits related to the Western Eagle Ford acquisition and a Net LTM Leverage(1) ratio of 1.1x.

On July 3, 2023, Crescent closed the Western Eagle Ford acquisition for approximately $600 million in cash, subject to customary purchase price adjustments. Concurrent with closing, Crescent's lenders reaffirmed the borrowing base under its revolving credit facility (the "Revolving Credit Facility") at $2.0 billion with an elected commitment of $1.3 billion. On July 17, 2023, Crescent issued an additional $300 million aggregate principal amount of 9.250% senior notes due 2028 and used net proceeds to repay amounts outstanding on its Revolving Credit Facility. As of June 30, 2023, pro forma for these transactions, the Company had total long-term debt of $1.9 billion, $2 million of cash and approximately $800 million of liquidity.

In July 2023, S&P upgraded Crescent's issuer credit rating to B+ and its senior unsecured notes rating to BB- with a stable outlook. Following the upgrade, Crescent was added to the BB high yield index with two BB- unsecured notes ratings. Crescent's ratings were upgraded by Moody's earlier in the year(2).

Class A Conversion

Following the completion of the previously announced Class A share conversion, the Company has approximately 76 million Class A shares outstanding, and the combined total of Class A and Class B shares outstanding remains approximately 167 million. Certain KKR-managed funds and accounts continue to hold indirect interests in Class B shares / OpCo Units. In addition, KKR's balance sheet retains its existing 16% ownership, which is held by an indirect subsidiary of KKR & Co. Inc. for its own account and not through its investment funds. KKR remains a long-term investor and has reiterated that it has no present intention of selling the shares in the Company it holds for its own account.

Return of Capital

Consistent with the Company’s framework to return cash to shareholders, the Company's board of directors approved a second quarter cash dividend of $0.12 per share, which is in line with Crescent's fixed-within-a-framework policy to distribute 10% of Adjusted EBITDAX at guidance pricing. The second quarter dividend is payable on September 6, 2023, to shareholders of record as of the close of business on August 23, 2023. Any payment of future dividends is subject to board approval and other factors.

Second Quarter 2023 Conference Call Information

Crescent plans to host a conference call to discuss its second quarter 2023 financial and operating results at 10 a.m. CT on Thursday, August 10, 2023. Complete details are below. A webcast replay will be available on the website following the call. Crescent has provided an investor presentation on its second quarter 2023 results on its website, www.crescentenergyco.com.

Date: Thursday, August 10, 2023

Time: 10 a.m. CT (11 a.m. ET)

Conference Dial-In: 877-407-0989 / 201-389-0921 (Domestic / International)

Webcast Link: https://ir.crescentenergyco.com/events-presentations/

About Crescent Energy Company

Crescent is a well-capitalized, U.S. independent energy company with a portfolio of proven, low-decline assets across the lower 48 states that generate substantial cash flow supported by a predictable base of production. Crescent’s leadership team is a proven team of investment, financial and industry professionals. Together, they have executed a consistent strategy for more than a decade. The Company’s mission is to invest in energy assets and deliver better returns through strong operations and stewardship. For additional information, please visit www.crescentenergyco.com.

Cautionary Statement Regarding Forward-Looking Statements

This communication contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on current expectations. The words and phrases “should”, “could”, “may”, “will”, “believe”, “plan”, “intend”, “expect”, “potential”, “possible”, “anticipate”, “estimate”, “forecast”, “view”, “efforts”, “goal” and similar expressions identify forward-looking statements and express the Company’s expectations about future events. All statements, other than statements of historical facts, included in this communication that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Company’s control. Such risks and uncertainties include, but are not limited to, weather, political, economic and market conditions, including a decline in the price and market demand for natural gas, natural gas liquids and crude oil, uncertainties inherent in estimating natural gas and oil reserves and in projecting future rates of production; our hedging strategy and results, federal and state regulations and laws, the impact of pandemics such as COVID-19, actions by the Organization of the Petroleum Exporting Countries (“OPEC”) and non-OPEC oil-producing countries, including recent production cuts by OPEC, the impact of armed conflict, including in Ukraine, the impact of disruptions in the bank and capital markets, the timing and success of business development efforts, including acquisition and disposition opportunities, our reliance on our external manager, sustained cost inflation and central bank policy changes associated therewith and other uncertainties. Consequently, actual future results could differ materially from expectations. The Company assumes no duty to update or revise its respective forward-looking statements based on new information, future events or otherwise.

Financial Presentation

While units ("OpCo Units") representing limited liability interests in Crescent Energy OpCo LLC ("OpCo") and corresponding shares of Class B Common Stock are outstanding in our "Up-C" structure, and in accordance with the terms of our Management Agreement under which Class A shareholders bear only their proportionate share of Manager Compensation, portions of Manager Compensation, income tax provision (benefit) amounts and dividends paid corresponding to such ownership are required to be classified as distributions to redeemable noncontrolling interests rather than G&A expense, income tax provision (benefit), and dividends paid to Class A Common Stock, respectively. We define those redeemable noncontrolling interest ("RNCI") distributions made by OpCo related to (i) Manager Compensation as “Manager Compensation RNCI Distributions,” (ii) income tax provision (benefit) as “Income Tax RNCI Distributions,” and (iii) dividends paid as “Dividend RNCI Distributions.”

To facilitate comparison of our G&A expense, dividends paid to Class A Common Stock, and income tax provision (benefit) to peer companies with varying corporate and management structures, Adjusted EBITDAX and Levered Free Cash Flow, for both (i) historical periods and (ii) periods for which we provide guidance, are presented assuming the full redemption of all outstanding OpCo Units for shares of our Class A Common Stock and a corresponding cancellation of all shares of our Class B Common Stock. Management believes this presentation is most useful to investors, as the full amounts of Manager Compensation as G&A expense, dividends paid to Class A Common Stock, and income tax provision (benefit) are thereby reflected as such.

Crescent Operational Summary

 

For the three months ended

 

June 30, 2023

 

June 30, 2022

 

March 31, 2023

Average daily net sales volumes:

 

 

 

 

 

Oil (MBbls/d)

 

64

 

 

64

 

 

59

Natural gas (MMcf/d)

 

335

 

 

356

 

 

351

NGLs (MBbls/d)

 

19

 

 

20

 

 

19

Total (MBoe/d)

 

139

 

 

142

 

 

137

Average realized prices, before effects of derivative settlements:

 

 

 

 

 

Oil ($/Bbl)

$

67.68

 

$

104.23

 

$

69.99

Natural gas ($/Mcf)

 

1.71

 

 

6.40

 

 

5.14

NGLs ($/Bbl)

 

19.38

 

 

46.98

 

 

24.84

Total ($/Boe)

 

37.89

 

 

68.96

 

 

46.94

Average realized prices, after effects of derivative settlements:

 

 

 

 

 

Oil ($/Bbl)(3)

$

63.14

 

$

78.84

 

$

62.83

Natural gas ($/Mcf)

 

1.92

 

 

3.51

 

 

4.61

NGLs ($/Bbl)

 

25.72

 

 

32.15

 

 

29.21

Total ($/Boe)

 

37.21

 

 

48.37

 

 

43.10

Expense (per Boe)

 

 

 

 

 

Operating expense

$

17.85

 

$

19.73

 

$

22.12

Depreciation, depletion and amortization

 

12.65

 

 

10.15

 

 

11.92

General and administrative expense

 

3.26

 

 

1.52

 

 

1.73

Non-GAAP and other expense (per Boe)

 

 

 

 

 

Adjusted operating expense, excluding production and other taxes(1)(4)

$

14.84

 

$

13.53

 

$

16.57

Production and other taxes

 

1.96

 

 

5.05

 

 

4.47

Adjusted Recurring Cash G&A(1)

 

1.50

 

 

1.40

 

 

1.69

Note: Operating costs for the three months ended March 31, 2023, were impacted by higher cost residue gas purchases related to increased natural gas prices in the West Coast pricing market. Higher cost residue gas was more than offset by higher realized pricing during such period.

Crescent Income Statement

(Unaudited)

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Revenues:

(in thousands, except per share data)

Oil

$

393,248

 

 

$

602,567

 

 

$

765,584

 

 

$

975,076

 

Natural gas

 

52,054

 

 

 

207,177

 

 

 

214,075

 

 

 

350,488

 

Natural gas liquids

 

33,851

 

 

 

83,864

 

 

 

76,374

 

 

 

155,043

 

Midstream and other

 

13,186

 

 

 

14,826

 

 

 

26,443

 

 

 

26,737

 

Total revenues

 

492,339

 

 

 

908,434

 

 

 

1,082,476

 

 

 

1,507,344

 

Expenses:

 

 

 

 

 

 

 

Lease operating expense

 

113,051

 

 

 

106,375

 

 

 

244,005

 

 

 

201,198

 

Workover expense

 

18,683

 

 

 

25,017

 

 

 

31,254

 

 

 

34,976

 

Asset operating expense

 

15,872

 

 

 

17,243

 

 

 

38,090

 

 

 

33,862

 

Gathering, transportation and marketing

 

51,525

 

 

 

38,238

 

 

 

98,928

 

 

 

86,514

 

Production and other taxes

 

24,825

 

 

 

65,496

 

 

 

79,748

 

 

 

111,980

 

Depreciation, depletion and amortization

 

159,904

 

 

 

131,573

 

 

 

306,387

 

 

 

230,592

 

Exploration expense

 

1,541

 

 

 

1,848

 

 

 

1,541

 

 

 

1,939

 

Midstream and other operating expense

 

1,735

 

 

 

3,344

 

 

 

5,514

 

 

 

6,422

 

General and administrative expense

 

41,166

 

 

 

19,656

 

 

 

62,404

 

 

 

42,178

 

(Gain) loss on sale of assets

 

 

 

 

(197

)

 

 

 

 

 

(4,987

)

Total expenses

 

428,302

 

 

 

408,593

 

 

 

867,871

 

 

 

744,674

 

Income (loss) from operations

 

64,037

 

 

 

499,841

 

 

 

214,605

 

 

 

762,670

 

Other income (expense):

 

 

 

 

 

 

 

Gain (loss) on derivatives

 

33,587

 

 

 

(177,209

)

 

 

183,897

 

 

 

(850,695

)

Interest expense

 

(31,128

)

 

 

(24,937

)

 

 

(60,448

)

 

 

(41,461

)

Other income (expense)

 

39

 

 

 

(303

)

 

 

289

 

 

 

(1,802

)

Income (loss) from equity affiliates

 

117

 

 

 

2,304

 

 

 

280

 

 

 

3,252

 

Total other income (expense)

 

2,615

 

 

 

(200,145

)

 

 

124,018

 

 

 

(890,706

)

Income (loss) before taxes

 

66,652

 

 

 

299,696

 

 

 

338,623

 

 

 

(128,036

)

Income tax benefit (expense)

 

(9,178

)

 

 

(17,798

)

 

 

(25,538

)

 

 

3,927

 

Net income (loss)

 

57,474

 

 

 

281,898

 

 

 

313,085

 

 

 

(124,109

)

Less: net (income) loss attributable to noncontrolling interests

 

(256

)

 

 

(713

)

 

 

(405

)

 

 

(1,183

)

Less: net (income) loss attributable to redeemable noncontrolling interests

 

(52,067

)

 

 

(226,662

)

 

 

(247,735

)

 

 

94,815

 

Net income (loss) attributable to Crescent

$

5,151

 

 

$

54,523

 

 

$

64,945

 

 

$

(30,477

)

Net income (loss) per share:

 

 

 

 

 

 

 

Class A common stock – basic

$

0.11

 

 

$

1.30

 

 

$

1.34

 

 

$

(0.73

)

Class A common stock – diluted

$

0.11

 

 

$

1.30

 

 

$

1.34

 

 

$

(0.73

)

Class B common stock – basic and diluted

$

 

 

$

 

 

$

 

 

$

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Class A common stock – basic

 

48,665

 

 

 

41,954

 

 

 

48,475

 

 

 

41,954

 

Class A common stock - diluted

 

49,017

 

 

 

41,956

 

 

 

48,842

 

 

$

41,954

 

Class B common stock – basic and diluted

 

118,342

 

 

 

127,536

 

 

 

118,493

 

 

$

127,536

 

Crescent Consolidated Balance Sheet

 

 

 

(Unaudited)

 

June 30, 2023

 

December 31, 2022

 

(in thousands, except share data)

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

2,253

 

 

$

 

Restricted cash

 

68,500

 

 

 

8,000

 

Accounts receivable, net

 

437,058

 

 

 

457,071

 

Accounts receivable – affiliates

 

2,799

 

 

 

2,681

 

Derivative assets - current

 

19,584

 

 

 

14,878

 

Drilling advances

 

16,695

 

 

 

14,655

 

Prepaid expenses

 

37,430

 

 

 

13,241

 

Other current assets

 

12,617

 

 

 

6,213

 

Total current assets

 

596,936

 

 

 

516,739

 

Property, plant and equipment:

 

 

 

Oil and natural gas properties at cost, successful efforts method

 

 

 

Proved

 

7,455,319

 

 

 

7,113,819

 

Unproved

 

279,218

 

 

 

314,255

 

Oil and natural gas properties at cost, successful efforts method

 

7,734,537

 

 

 

7,428,074

 

Field and other property and equipment, at cost

 

194,518

 

 

 

176,831

 

Total property, plant and equipment

 

7,929,055

 

 

 

7,604,905

 

Less: accumulated depreciation, depletion, amortization and impairment

 

(2,445,989

)

 

 

(2,167,135

)

Property, plant and equipment, net

 

5,483,066

 

 

 

5,437,770

 

Derivative assets – noncurrent

 

7,740

 

 

 

 

Investment in equity affiliates

 

12,718

 

 

 

15,038

 

Other assets

 

47,801

 

 

 

50,302

 

TOTAL ASSETS

$

6,148,261

 

 

$

6,019,849

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued liabilities

$

508,069

 

 

$

524,690

 

Accounts payable – affiliates

 

28,851

 

 

 

27,652

 

Derivative liabilities – current

 

107,386

 

 

 

312,975

 

Financing lease obligations – current

 

3,933

 

 

 

3,341

 

Other current liabilities

 

24,193

 

 

 

25,091

 

Total current liabilities

 

672,432

 

 

 

893,749

 

Long-term debt

 

1,331,555

 

 

 

1,247,558

 

Derivative liabilities – noncurrent

 

7,090

 

 

 

63,737

 

Asset retirement obligations

 

360,058

 

 

 

346,868

 

Deferred tax liability

 

241,214

 

 

 

147,348

 

Financing lease obligations – noncurrent

 

7,642

 

 

 

7,412

 

Other liabilities

 

10,849

 

 

 

14,183

 

Total liabilities

 

2,630,840

 

 

 

2,720,855

 

Commitments and contingencies

 

 

 

Redeemable noncontrolling interests

 

2,039,063

 

 

 

2,436,703

 

Equity:

 

 

 

Class A common stock, $0.0001 par value; 1,000,000,000 shares authorized, 77,030,353 and 49,433,154 shares issued, 75,958,800 and 48,282,163 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

8

 

 

 

5

 

Class B common stock, $0.0001 par value; 500,000,000 shares authorized, 91,048,124 and 118,645,323 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

9

 

 

 

12

 

Preferred stock, $0.0001 par value; 500,000,000 shares authorized and 1,000 Series I preferred shares issued and outstanding as of June 30, 2023 and December 31, 2022

 

 

 

 

 

Treasury stock, at cost; 1,071,553 and 1,150,991 shares of Class A common stock as of June 30, 2023 and December 31, 2022, respectively

 

(17,143

)

 

 

(18,448

)

Additional paid-in capital

 

1,362,118

 

 

 

804,587

 

Retained earnings

 

112,891

 

 

 

61,957

 

Noncontrolling interests

 

20,475

 

 

 

14,178

 

Total equity

 

1,478,358

 

 

 

862,291

 

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

$

6,148,261

 

 

$

6,019,849

 

Crescent Cash Flow Statement

(Unaudited)

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

Cash flows from operating activities:

(in thousands)

Net income (loss)

$

313,085

 

 

$

(124,109

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

Depreciation, depletion and amortization

 

306,387

 

 

 

230,592

 

Deferred income tax expense (benefit)

 

24,158

 

 

 

(11,901

)

(Gain) loss on derivatives

 

(183,897

)

 

 

850,695

 

Net cash (paid) received on settlement of derivatives

 

(55,805

)

 

 

(442,665

)

Non-cash equity-based compensation expense

 

35,156

 

 

 

20,470

 

Amortization of debt issuance costs and discount

 

5,743

 

 

 

3,926

 

(Gain) loss on sale of oil and natural gas properties

 

 

 

 

(4,987

)

Restructuring of acquired derivative contracts

 

 

 

 

(51,994

)

Settlement of acquired derivative contracts

 

(34,978

)

 

 

(23,101

)

Other

 

(7,263

)

 

 

(7,636

)

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

20,012

 

 

 

(265,459

)

Accounts receivable – affiliates

 

(118

)

 

 

18,627

 

Prepaid and other current assets

 

(22,260

)

 

 

(13,471

)

Accounts payable and accrued liabilities

 

21,229

 

 

 

191,134

 

Accounts payable – affiliates

 

3,406

 

 

 

29,811

 

Other

 

(1,299

)

 

 

(1,478

)

Net cash provided by operating activities

 

423,556

 

 

 

398,454

 

Cash flows from investing activities:

 

 

 

Development of oil and natural gas properties

 

(383,240

)

 

 

(240,356

)

Acquisitions of oil and natural gas properties

 

(14,996

)

 

 

(627,390

)

Proceeds from the sale of oil and natural gas properties

 

21,437

 

 

 

800

 

Purchases of restricted investment securities – HTM

 

(8,875

)

 

 

(5,390

)

Maturities of restricted investment securities – HTM

 

8,922

 

 

 

3,600

 

Other

 

1,808

 

 

 

4,700

 

Net cash used in investing activities

 

(374,944

)

 

 

(864,036

)

Cash flows from financing activities:

 

 

 

Proceeds from the issuance of Senior Notes, after premium, discount and underwriting fees

 

394,000

 

 

 

199,250

 

Revolving Credit Facility borrowings

 

548,000

 

 

 

918,000

 

Revolving Credit Facility repayments

 

(857,449

)

 

 

(632,000

)

Payment of debt issuance costs

 

(2,903

)

 

 

(14,873

)

Redeemable noncontrolling interest contributions

 

709

 

 

 

5,985

 

Redeemable noncontrolling interest distributions

 

(417

)

 

 

 

Dividend to Class A common stock

 

(14,011

)

 

 

(12,168

)

Distributions to redeemable noncontrolling interests related to Class A common stock dividend

 

(34,407

)

 

 

(37,004

)

Distributions to redeemable noncontrolling interests related to Manager Compensation

 

(18,942

)

 

 

(12,734

)

Contributions from (distributions to) redeemable noncontrolling interests related to income taxes

 

23

 

 

 

(11,685

)

Repurchase of noncontrolling interest

 

 

 

 

(4,060

)

Noncontrolling interest distributions

 

(2,517

)

 

 

(3,408

)

Noncontrolling interest contributions

 

1,771

 

 

 

55

 

Cash paid for treasury stock acquired for equity-based compensation tax withholding

 

(72

)

 

 

 

Other

 

(1,740

)

 

 

(745

)

Net cash provided by financing activities

 

12,045

 

 

 

394,613

 

Net change in cash, cash equivalents and restricted cash

 

60,657

 

 

 

(70,969

)

Cash, cash equivalents and restricted cash, beginning of period

 

15,304

 

 

 

135,117

 

Cash, cash equivalents and restricted cash, end of period

$

75,961

 

 

$

64,148

 

Reconciliation of Non-GAAP Measures

This release includes financial measures that have not been calculated in accordance with GAAP. These supplemental non-GAAP performance measures are used by Crescent's management and external users of its financial statements, such as industry analysts, investors, lenders and rating agencies. These non-GAAP measures include Adjusted EBITDAX, Levered Free Cash Flow, Adjusted Net Income, Adjusted Recurring Cash G&A, Adjusted Current Income Tax, Adjusted Dividends Paid and Net LTM Leverage. These non-GAAP measures should be read in conjunction with the information contained in Crescent’s audited combined and consolidated financial statements prepared in accordance with GAAP.

Adjusted EBITDAX and Levered Free Cash Flow

Crescent defines Adjusted EBITDAX as net income (loss) before interest expense, realized (gain) loss on interest rate derivatives, income tax expense (benefit), depreciation, depletion and amortization, exploration expense, non-cash gain (loss) on derivative contracts, impairment expense, non-cash equity-based compensation, gain (loss) on sale of assets, other (income) expense, Manager Compensation RNCI Distributions, transaction and nonrecurring expenses and settlement of acquired derivative contracts. Management believes Adjusted EBITDAX is a useful performance measure because it allows for an effective evaluation of the Company’s operating performance when compared against its peers, without regard to financing methods, corporate form or capital structure. The Company adjusts net income (loss) for the items listed above in arriving at Adjusted EBITDAX because these amounts can vary substantially within its industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP, of which such measure is the most comparable GAAP measure. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax burden, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDAX. The Company’s presentation of Adjusted EBITDAX should not be construed as an inference that its results will be unaffected by unusual or nonrecurring items. Crescent’s computations of Adjusted EBITDAX may not be identical to other similarly titled measures of other companies. In addition, the Company’s Credit Agreement (as defined below) and the 9.250% senior notes due 2028 and the 7.250% senior notes due 2026 (together, the "Senior Notes") include a calculation of Adjusted EBITDAX for purposes of covenant compliance.

Crescent defines Levered Free Cash Flow as Adjusted EBITDAX less interest expense, excluding non-cash deferred financing cost amortization, realized gain (loss) on interest rate derivatives, current income tax benefit (expense), Tax RNCI Distributions and development of oil and natural gas properties. Levered Free Cash Flow does not take into account amounts incurred on acquisitions or proceeds received from asset sales. Levered Free Cash Flow is not a measure of performance as determined by GAAP. Levered Free Cash Flow is a supplemental non-GAAP performance measure that is used by Crescent’s management and external users of its financial statements, such as industry analysts, investors, lenders and rating agencies. Management believes Levered Free Cash Flow is a useful performance measure because it allows for an effective evaluation of operating and financial performance and the ability of the Company’s operations to generate cash flow that is available to reduce leverage or distribute to equity holders. Levered Free Cash Flow should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP, of which such measure is the most comparable GAAP measure, or as an indicator of actual operating performance or investing activities. The Company’s computations of Levered Free Cash Flow may not be comparable to other similarly titled measures of other companies.

The following table reconciles Adjusted EBITDAX (non-GAAP) and Levered Free Cash Flow (non-GAAP) to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(in thousands)

Net income (loss)

$

57,474

 

 

$

281,898

 

 

$

313,085

 

 

$

(124,109

)

Adjustments to reconcile to Adjusted EBITDAX:

 

 

 

 

 

 

 

Interest expense

 

31,128

 

 

 

24,937

 

 

 

60,448

 

 

 

41,461

 

Income tax expense (benefit)

 

9,178

 

 

 

17,798

 

 

 

25,538

 

 

 

(3,927

)

Depreciation, depletion and amortization

 

159,904

 

 

 

131,573

 

 

 

306,387

 

 

 

230,592

 

Exploration expense

 

1,541

 

 

 

1,848

 

 

 

1,541

 

 

 

1,939

 

Non-cash (gain) loss on derivatives

 

(42,235

)

 

 

(89,655

)

 

 

(239,702

)

 

 

408,030

 

Non-cash equity-based compensation expense

 

27,551

 

 

 

9,355

 

 

 

35,156

 

 

 

20,470

 

(Gain) loss on sale of assets

 

 

 

 

(197

)

 

 

 

 

 

(4,987

)

Other (income) expense

 

(39

)

 

 

303

 

 

 

(289

)

 

 

1,802

 

Manager Compensation RNCI Distributions

 

(7,264

)

 

 

(10,064

)

 

 

(16,735

)

 

 

(20,128

)

Transaction and nonrecurring expenses(5)

 

3,764

 

 

 

5,548

 

 

 

6,199

 

 

 

17,107

 

Settlement of acquired derivative contracts(6)

 

(16,331

)

 

 

(23,101

)

 

 

(34,978

)

 

 

(23,101

)

Adjusted EBITDAX (non-GAAP)

$

224,671

 

 

$

350,243

 

 

$

456,650

 

 

$

545,149

 

Adjustments to reconcile to Levered Free Cash Flow:

 

 

 

 

 

 

 

Interest expense, excluding non-cash deferred financing cost amortization

 

(29,830

)

 

 

(22,608

)

 

 

(58,100

)

 

 

(37,535

)

Current income tax benefit (expense)

 

(869

)

 

 

(3,026

)

 

 

(1,381

)

 

 

(7,976

)

Tax RNCI (Contributions) Distributions

 

140

 

 

 

(17,167

)

 

 

128

 

 

 

(17,167

)

Development of oil and natural gas properties

 

(148,127

)

 

 

(193,388

)

 

 

(349,814

)

 

 

(278,868

)

Levered Free Cash Flow (non-GAAP)

$

45,985

 

 

$

114,054

 

 

$

47,483

 

 

$

203,603

 

Reconciliation of Operating Cash Flow to Levered Free Cash Flow (non-GAAP)

The table below reconciles net cash provided by operating activities to Levered Free Cash Flow:

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(in thousands)

Net cash provided by operating activities

$

183,466

 

 

$

261,163

 

 

$

423,556

 

 

$

398,454

 

Changes in operating assets and liabilities

 

13,761

 

 

 

60,958

 

 

 

(20,970

)

 

 

40,836

 

Restructuring of acquired derivative contracts(7)

 

 

 

 

 

 

 

 

 

 

51,994

 

Manager Compensation RNCI Distributions

 

(7,264

)

 

 

(10,064

)

 

 

(16,735

)

 

 

(20,128

)

Tax RNCI (Contributions) Distributions

 

140

 

 

 

(17,167

)

 

 

128

 

 

 

(17,167

)

Transaction and nonrecurring expenses(5)

 

3,764

 

 

 

5,548

 

 

 

6,199

 

 

 

17,107

 

Other

 

245

 

 

 

7,004

 

 

 

5,119

 

 

 

11,375

 

Adjusted cash provided by operating activities

$

194,112

 

 

$

307,442

 

 

$

397,297

 

 

$

482,471

 

Development of oil and natural gas properties

 

(148,127

)

 

 

(193,388

)

 

 

(349,814

)

 

 

(278,868

)

Levered Free Cash Flow (non-GAAP)

$

45,985

 

 

$

114,054

 

 

$

47,483

 

 

$

203,603

 

Adjusted Net Income

Crescent defines Adjusted Net Income as net income (loss), adjusted for certain items. Management believes that Adjusted Net Income is useful to investors in evaluating operational trends of the Company and its performance relative to other oil and gas companies. Adjusted Net Income is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for net income as an indicator of financial performance.

The following table presents a reconciliation of Adjusted Net Income (non-GAAP) to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(in thousands)

Net income (loss)

$

57,474

 

 

$

281,898

 

 

$

313,085

 

 

$

(124,109

)

Unrealized (gain) loss on derivatives

 

(42,235

)

 

 

(89,655

)

 

 

(239,702

)

 

 

408,030

 

Non-cash equity-based compensation expense

 

27,551

 

 

 

9,355

 

 

 

35,156

 

 

 

20,470

 

(Gain) loss on sale of assets

 

 

 

 

(197

)

 

 

 

 

 

(4,987

)

Manager Compensation RNCI Distributions

 

(7,264

)

 

 

(10,064

)

 

 

(16,735

)

 

 

(20,128

)

Transaction and nonrecurring expenses(5)

 

3,764

 

 

 

5,548

 

 

 

6,199

 

 

 

17,107

 

Settlement of acquired derivative contracts(6)

 

(16,331

)

 

 

(23,101

)

 

 

(34,978

)

 

 

(23,101

)

Tax effects of adjustments(8)

 

2,261

 

 

 

6,617

 

 

 

16,324

 

 

 

(24,322

)

Adjusted Net Income (non-GAAP)

$

25,220

 

 

$

180,401

 

 

$

79,349

 

 

$

248,960

 

Adjusted Recurring Cash G&A

Crescent defines Adjusted Recurring Cash G&A as general and administrative expense, excluding non-cash equity-based compensation and transaction and nonrecurring expenses, and including Manager Compensation RNCI Distributions. Management believes Adjusted Recurring Cash G&A is a useful performance measure because it facilitates the ability for investors to compare Crescent's cash G&A expense against peer companies. As discussed elsewhere, these adjustments are made to Adjusted EBITDAX and Levered Free Cash Flow for historical periods and periods for which we present guidance.

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(in thousands)

General and administrative expense

$

41,166

 

 

$

19,656

 

 

$

62,404

 

 

$

42,178

 

Less: non-cash equity-based compensation expense

 

(27,551

)

 

 

(9,355

)

 

 

(35,156

)

 

 

(20,470

)

Less: transaction and nonrecurring expenses(9)

 

(1,859

)

 

 

(2,249

)

 

 

(4,227

)

 

 

(5,393

)

Plus: Manager Compensation RNCI Distributions

 

7,264

 

 

 

10,064

 

 

 

16,735

 

 

 

20,128

 

Adjusted Recurring Cash G&A

$

19,020

 

 

$

18,116

 

 

$

39,756

 

 

$

36,443

 

Adjusted Current Income Tax

Crescent defines Adjusted Current Income Tax as current income tax provision (benefit) plus Income Tax RNCI Distributions. Management believes Adjusted Current Income Tax is a useful performance measure because it reflects as tax provision (benefit) the amount of cash distributed for taxes that is otherwise classified as redeemable noncontrolling interest distributions, facilitating the ability for investors to compare Crescent’s tax provision (benefit) against peer companies, and is included in the Company’s Levered Free Cash Flow calculation for historical periods and for periods for which guidance is provided.

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2023

 

 

 

2022

 

 

2023

 

 

 

2022

 

(in thousands)

Current income tax provision (benefit)(10)

$

869

 

 

$

3,026

 

$

1,381

 

 

$

7,976

Tax RNCI Distributions (Contributions)

 

(140

)

 

 

17,167

 

 

(128

)

 

 

17,167

Adjusted Current Income Tax

$

729

 

 

$

20,193

 

$

1,253

 

 

$

25,143

Adjusted Dividends Paid

Crescent defines Adjusted Dividends Paid as Dividend to Class A Common Stock plus Dividend RNCI Distributions. Management believes Adjusted Dividends Paid is a useful performance measure because it reflects the full amount of cash distributed for dividends that is otherwise classified as distributions to redeemable noncontrolling interests, facilitating the ability for investors to compare Crescent’s dividends paid against peer companies.

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(in thousands)

Dividend to Class A common stock

$

5,803

 

$

7,133

 

$

14,011

 

$

12,168

Dividend RNCI Distributions

 

14,236

 

 

21,681

 

 

34,407

 

 

37,004

Adjusted Dividends Paid

$

20,039

 

$

28,814

 

$

48,418

 

$

49,172

Net LTM Leverage

Crescent defines Net LTM Leverage as the ratio of consolidated total debt to consolidated Adjusted EBITDAX as calculated under the credit agreement (the "Credit Agreement") governing Crescent’s Revolving Credit Facility. Management believes Net LTM Leverage is a useful measurement because it takes into account the impact of acquisitions. For purposes of the Credit Agreement, (i) consolidated total debt is calculated as total principal amount of Senior Notes, plus borrowings on our Revolving Credit Facility and unreimbursed drawings under letters of credit, less cash and cash equivalents and (ii) consolidated Adjusted EBITDAX includes certain adjustments to account for EBITDAX contributions associated with acquisitions the Company has closed within the last twelve months. Adjusted EBITDAX is a non-GAAP financial measure.

 

June 30, 2023

 

(in millions)

Total principal debt(11)

$

1,350

 

Less: cash and cash equivalents

 

(2

)

Less: cash deposit related to Western Eagle Ford acquisition

 

(60

)

Net Debt

$

1,288

 

 

 

 

LTM Adjusted EBITDAX for Leverage Ratio

$

1,137

 

 

 

 

Net LTM Leverage

1.1x

 

(1)

Non-GAAP financial measure. Please see “Reconciliation of Non-GAAP Measures” for discussion and reconciliations of such measures to their most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”).

(2)

Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice.

(3)

Does not include the $16.3 million and $23.1 million impact from the settlement of acquired derivative contracts for the three months ended June 30, 2023 and June 30, 2022, respectively. Total average realized prices, after effects of derivatives settlements would have been $35.92/Boe and $46.58/Boe for the three months ended June 30, 2023 and June 30, 2022, respectively, taking into consideration the impact of acquired derivatives.

(4)

Adjusted operating expense excluding production and other taxes includes lease operating expense, workover expense, asset operating expense, gathering, transportation and marketing expense and midstream and other revenue net of expense.

(5)

Transaction and nonrecurring expenses of $3.8 million and $6.2 million for the three and six months ended June 30, 2023 were primarily related to our Western Eagle Ford Acquisition and system integration expenses. Transaction and nonrecurring expenses of $5.5 million and $17.1 million for the three and six months ended June 30, 2022 were primarily related to (i) legal, consulting, transition service agreement costs, related restructuring of acquired derivative contracts, and other fees incurred for the acquisition of certain Uinta Basin assets (the "Uinta Transaction") and the series of transactions pursuant to which we indirectly combined the businesses of Contango Oil & Gas Company and Independence Energy LLC (the "Merger Transactions"), (ii) severance costs subsequent to the Merger Transactions, (iii) merger integration costs and (iv) acquisition and debt transaction related costs.

(6)

Represents the settlement of certain oil commodity derivative contracts acquired in connection with the Uinta Transaction.

(7)

In connection with the Uinta Transaction, Crescent acquired commodity derivative liabilities totaling $180 million from the seller, which reduced the cash cost at closing of the Uinta Transaction. Concurrent with the close of the transaction, Crescent settled certain of these acquired oil commodity derivative positions and entered into new commodity derivative contracts for 2022 with a swap price of $75 per barrel for a net cost of $52 million.

(8)

The tax effects of adjustments are calculated using our estimated blended statutory rate (after excluding noncontrolling interests) of approximately 7% for the three and six months ended June 30, 2023 and approximately 6% for the three and six months ended June 30, 2022.

(9)

Transaction and nonrecurring expenses of $1.9 million and $4.2 million for the three and six months ended June 30, 2023, were primarily related to system integration expenses. Transaction and nonrecurring expenses of $2.2 million and $5.4 million for the three and six months ended June 30, 2022, were primarily related to legal, consulting and other fees related to the Merger Transactions.

(10)

Current income tax provision (benefit) is the amount of income tax (benefit) expense recognized in our statements of operations for the three months ended June 30, 2023 and June 30, 2022. Actual cash paid (refunded) for income taxes for the three months ended June 30, 2023 and June 30, 2022, was $3.3 million and $7.8 million, respectively.

(11)

Excludes $18.4 million of unamortized debt discount and issuance costs.

 

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