00:06 Greetings. Welcome to the Crescent Energy 2021 Results Conference Call. At this time, all participants are in a listen-only mode. 00:25 I would now like to turn the conference over to Emily Newport, SVP of Finance and Investor Relations. Thank you. You may begin.

00:36 Good morning and thanks for joining Crescent’s 2021 earnings call. A brief prepared remarks today will come from our CEO, David Rockecharlie; and our CFO, Brandi Kendall. Todd Falk, Chief Accounting Officer; Ben Conner, and Clay Rynd, both Executive Vice Presidents are also here today and will be available during the Q&A session. 00:57 Today’s call may contain projections and other forward-looking statements within the meaning of the federal security laws. These statements are subject to risk and uncertainties, including commodity price volatility, the continued impacts of COVID-19, geopolitical conflicts, including in Russia and Ukraine, our business strategies and other factors that may cause actual results to defer from those expressed or implied in these statements and our other disclosures. 01:25 We disclaim any 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-K and earnings press release available on our website. 01:46 With that, I will turn the call over to David.

01:49 Great. Thanks Emily and good morning everyone. We appreciate you joining us today on our first earnings call as a public company. For our company, 2021 was truly a transformational year. We issued our inaugural bond offering in April, we announced the merger with Contango in June, and were publicly listed in December. 02:11 Last month, we announced the accretive acquisition of EP’s Uinta Basin assets, and we continue to advance our ESG strategy. Before we discuss our 2021 results and this year’s outlook, I want to take a moment to ensure you appreciate our strategy and the attractive and differentiated investment opportunity that Crescent presents. 02:33 The guiding principles behind all of our decisions are quite simple. Cash flow, risk management, and returns. Our model is unique, combining an investor mindset with deep operational expertise and we have successfully executed this strategy for nearly a decade. 02:54 Cash flow is the foundation of our business. We have a large diversified and low decline producing asset base that generate significant free cash flow. I hope you've had a chance to review our 2022 outlook and recognize the scale and stability of the business. 03:12 Assuming nine months contribution from the Uinta acquisition, our 2022 estimated adjusted EBITDA is nearly $1.2 billion with $425 million of projected levered free cash flow, at $75 per barrel oil. 03:31 Our proved developed PV-10 is more than $5 billion at SEC pricing of $66 a barrel of oil, with an industry leading PDP decline rate of only 21%. We have a proven track record in effectively managing risk to protect asset value, generate strong returns, and pursue profitable growth. 03:56 We maintain low leverage and a strong balance sheet. We utilize hedging to protect cash flows and our capital investment decisions. We acquire…

09:53 Thanks, David. Before I turn to our results for the 2021 period and our 2022 outlook, I would like to provide an overview of our capital allocation strategy. Priority 1a and 1b is the dividend and balance sheet. We allocate free cash flow to our shareholders in the balance sheet before making any capital investment decisions. 10:13 Today, we announced our first dividend as a public company, $0.12 per share for the fourth quarter of 2021. We target a dividend equal to 10% of adjusted EBITDAX, which we referred to as fixed within a framework given the inherent stability of our business with our low decline rates, our low leverage, and a robust hedge book. 10:34 Unlike many of our peers, our dividend framework is based on a percentage of EBITDA not free cash flow, so it is not impacted by decisions on our capital program. We paid consistent dividends to our private investors for nine years and will continue the same consistent dividend policy as a public company. 10:50 We expect our quarterly dividend will increase to $0.17 per share upon closing of the Uinta Basin transaction based on our 10% of EBITDAX framework. On the balance sheet, we exited the year at 1.3x net leverage in-line with our long-term goal of 1x. Over the past decade, our leverage has averaged 1.2x while making consistent acquisitions and facing volatile commodity price environments. 11:15 We know the importance of a strong capital structure and it allows us to weather the commodity price cycles inherent in this business. Only after the dividend and balance sheet do we think about reinvestment securities both on our existing footprint and through potential acquisitions. 11:29 Due to the stability of our business, we are uniquely positioned to evaluate all of our investment decisions on…

17:04 Thanks, Brandi. Before we take your specific questions today, let me quickly summarize today's key highlights. First, we have a proven strategy to deliver long-term value to investors. We've been successfully executing this strategy for the last decade. Our strategy is simple and unwavering. We are focused on cash flow, risk management, and returns. 17:28 Second, we are a large scaled business with $1.2 billion of projected 2022 adjusted EBITDA and proved developed PV-10 of over $5 billion and SEC pricing. We have a deep inventory of low risk, high return drilling opportunities, scale is incredibly important to being competitive in today's E&P industry, and this is one of the key factors driving consolidation across our industry. 17:56 Lastly, we have a proven track record of adding value through quality acquisitions. Our people are able to identify accretive opportunities that play to our operating strengths, capture financial and operational synergies, and maintain our strong capital structure. 18:13 Thanks again for joining us today and for your investment in our company. We will now be happy to take your questions. Operator?

18:21 Thank you. Our first question comes from the line of Tarek Hamid with J.P. Morgan. You may proceed with your question.

18:54 Good morning and thanks for taking my question.

18:58 Hi, Tarek. Good morning.

19:00 It's obviously a very complicated for quarter with the transaction in only a 25 day stub period, but sort of walking through the math, I get to roughly 240 million of kind of true proforma EBITDA, if the transaction didn’t close this is start of the quarter. As I look at that kind of versus the 2022 guidance, I just wonder if you kind of help me understand, sort of how to bridge that to the standalone guidance? I assume a big part of it is the hedge book versus also guidance being at $35 below strip pricing at this point, but anything you do to help would be appreciated?

19:35 Hey Tarek, it's Brandi. Thanks for the question. So, we announced proforma 2021 EBITDAX of 682. On a standalone basis it is 800 to 850. I would agree with you that it's largely related to an increase in our hedge book. We were hedged at just over $50 a barrel for 2021 and the hedge book increases to in 2022, so largely attributed to the increase in the hedge book.

20:03 Got it. And then I think you touched on this Brandi, but in terms of production cadence, I think you had a note in the release that you, sort of, it was kind of 115, it’s probably close to 120, I guess if you sort of do the math correctly on the stub period, could just may give a flavor for what that kind of looks like first quarter then heading into sort of hopefully at closing on the Uinta transaction?

20:28 Yes. So, I agree that we're probably closer to 120 from an exit standpoint, if you account for the Contango production, for the period of time which we actually owned it. We did mention in guidance that we expect roughly a third of our Eagle Ford wells to come online in the first quarter. I will note that towards the end of the first quarter so that production and cash flow will really impact 2Q forward.

20:59 Got it. And then maybe just a bigger picture question. Obviously, the Uinta, sort of trade came up relatively quickly, but obviously in a very interesting environment, I’d say at least just with commodity prices and sort of buyers and sellers and can any flavor that you guys have in terms of kind of what’s out there from a potential transaction target standpoint? And kind of anything that you, sort of, think is worth, kind of highlighting at this point?

21:28 Hey, Tarek, it's Ben. It's a good question. I'd say, the big thing that we’ve seen coming into the year and expect to see is that there's going to be a large supply of assets continuing to come to the market with a backdrop of really no capital formation in the space. So, we think that that does continue to set up a pretty interesting acquisition market. 21:49 Having said that, though, I would say that obviously with the recent volatility, we would expect that to potentially put a little friction on the market just in terms of timing of getting deals done and just spread in the context of that volatility. What I would tell you is that, we do expect people to be opportunistic and continue to look to find liquidity in this market. And so, we do expect to see a large supply. 22:14 Our focus continues to be around our two business segments, which is our low decline conventional, as well as our mid-cycle, which is reflective of the Uinta acquisition. We've been very successful over the last 12 to 18 months buying low decline production where there's really just been less of a bid for those assets, but we expect to see a kind of a steady supply, kind of in both segments, and we think that our strategy sets up for us to be pretty opportunistic there. And so, the curve is still heavily with our risk management strategy. 22:45 We think were able to continue to capture things at interesting risk returns, but we continue to watch the back of the curve, which is certainly moving up here over the last quarter. Clay, I don't know if you’d anything else to that.

22:59 I think that's right.

23:02 Well, thanks, guys. I appreciate it. And congratulations again on your first earnings call as a public company. I'll now get back in the queue.

23:10 Thank Tarek.

23:11 Yeah. Thank you.

23:14 Our next question comes from the line of Joseph Mackay with Wells Fargo. You may proceed with your question.

23:21 Hey guys. Thanks taking the questions. Just kind of curious to get your thoughts around how you envision incremental cash flows coming in from higher commodity prices, just thoughts around the dividends, debt reduction, continued M&A activity, just any color you can provide there?

23:47 Hey Joe, it's Brandi. As we’ve talked about before, with respect to our capital allocation strategy, our priority is that the balance sheet and the dividend, just a reminder from a dividend standpoint, we set the annual dividend at the beginning of the year based on guidance pricing and our 10% of EBITDA framework. That obviously resulted in $0.12 a share, which we announced earlier this morning. 24:11 If we do generate more free cash flow at higher prices, we'd expect to pay down additional debt and selectively pursue accretive acquisitions. So, no intention in the near-term to increase the dividend outside of obviously the Uinta Basin transaction that we announced us going from $0.12 to $0.17.

24:34 Got you. Okay. That helps. And then maybe, just kind of touching again on the M&A front, can you just kind of talk about what you're seeing, you know industries in consolidation mode, just kind of what you're seeing out there in terms of other potential opportunities, and how that's being shaped by the higher commodity prices that we're seeing today?

24:58 Yeah. Hey, it's David. I'll give you a quick high level, and then I'll let Ben and Clay be a little more specific. I think one thing to highlight is that we typically see 150 to 200 transactions a year come across kind of the business. We'd expect to be at the high-end of that this year. As you heard us say, we typically on average have done three or four deals a year, so low-single-digit percentage of conversion on any of those. 25:30 So, at a high level, the market environment looks attractive from the supply. We have a pretty low probability of getting things done in general and any particular thing we're looking at. The one thing I would highlight, I think different in this market environment and may specifically address your question. 25:49 There's sort of two sellers in this market environment. They're are the sellers who have a very strong keep case and are looking to get paid for $100 oil and then there are sellers who've been invested for a long time and have decided to reshape either their portfolio or just exit their position. And they just want to get paid for this environment in general relative to a $40 environment that existed before. 26:14 And so, you can definitely assume that what we're looking for is to be patient and sort of find attractive sellers who are looking to just exit into the environment rather than opportunistically top check things. And that's always a challenge when things move this quickly on price line.

26:35 All right. Thanks. That helps. Thanks for taking my questions.

26:40 Yeah. Thank you.

26:44 Our next question comes from the line of Gregg Brody with Bank of America. You may proceed with your question.

26:50 Hi, good morning, guys. Just starting with – for the transaction that you announced, the Uinta transaction, what is performing your maintenance CapEx for the asset profile? And just as you answer that question, can you talk a little bit how you do think about potentially growing? I know you said where cash will be allocated prioritizing for debt. Repayment in the acquisitions, but how do you think about allocating more capital to growth? And is there a point where it makes sense?

27:29 Yeah. Hey happy to take the question. Obviously, we're adding an asset where EP is currently actively and we expect to continue to be active. And so, as we kind of look at that, you know, look where we continue to maintain a low decline, but as we look at the asset kind of roughly we kind of, in this environment, where prices are, kind of $500 million to $600 million tightening in its capital business. 27:54 And so, I think, as we've talked about before on our strategy, we're extremely focused on returns on capital and really strong operational execution. So, I think as we sit here today, running a rig in the Eagle Ford and in the Uinta, is kind of, where we would see ourselves continue to be. 28:13 So, and from a pro-rata perspective, I think that's between those two basins is largely where our capital will be going for the foreseeable future. I think that’s close to 85% of our proforma capital spend would be between those two basins. So, I think it's fair to kind of think in this environment. We'd be at a consistent pace and not looking to really expand beyond that.

28:34 That's with – you said $500 million to $600 million, you your budget is $600 million to $700 million this year. So that implies some proforma growth, is that right? And then just, is that, should be thinking that you won't be able to have a low growth strategy from here into 2023 and 2024, assuming things stay where we are?

28:55 Hey, Gregg, it's Brandi. So, it doesn't imply some slight growth for the year. I will also just highlight given we just restarted our capital program in the Eagle Ford and the back part of 2021 there is some, kind of carryover capital that's coming into 2022, which just makes it a little bit noisy, but I think spends right in the $500 million to $600 million range is a good maintenance level for us going forward.

29:25 Got it. And as you said, one in Eagle Ford, two in Uinta that's 85% of your capital, is the – infrastructure or is that for not-op or could you explain what that is?

29:37 Yes. Mostly non-op for the remainder.

29:43 When you guide your, that 85% that you say is Eagle Ford and Uinta that includes equipment and it’s a full member or…?

29:55 Correct. .

29:59 Look, you are public now, obviously, you have a unique structure. I know management is centralized, with shares, I'm curious if you can think of just kind of help for the new investors here, and how do you think, how do you benchmark your incentives versus the general public market? Pluses and minuses, are you thinking about making any changes? Be interested to hear your thoughts now? If there is any updates?

30:25 Yeah. Happy to take that. It’s David. I'll call it – no updates or changes from what's been disclosed. Happy to your point to just cover it again from how we think about it. We think that two things are important: one, the absolute level of I'll call it, cost in the business needs to be in-line or better than market. And then secondly, the incentives to management should be heavily driven by performance. And so, in the first case, when we benchmark ourselves and the public data that is out there from the industry, we think that the overall operating costs of the business associated with management are in-line or better than the peers. 31:28 And then on the performance and incentive compensation, it's 100% stock based and it's 100% performance based, which we think is unique in the sector. There's no time based vesting or anything like that. So, just as a reminder for everyone on the phone, 60% of the potential long-term incentive on the equity side is based around total shareholder return, which has a minimum of an 8% IRR, and the second piece of that, which represents 40% of the long-term incentive comp is a requirement to have strong relative value performance compared to peers. 32:13 So, we feel great about how that compares. We also feel motivated by the opportunity to do good work and have performance for the shareholders and all the investors also be well aligned with how management is compensated.

32:30 And you talked about you shareholder return strategy. I appreciate the limited flow that makes it difficult to buy back shares, but is there clearly where your stock is traded, it definitely points to that might be a good use of capital? Is this shareholder program, is a buyback, just not contemplate today or is it something maybe be in the future you might?

32:55 Yes, I think in the current mindset and market environment, we're all about two things. One, really transitioning the company from, I'll call it smaller market capitalization that Contango had pre-merger into, I'll call it institutional recognition both on the research, as well as the investor side that would be more typical of a company of this scale. And I think that's, we're focused on creating incremental liquidity, as well as awareness and coverage of the company. 33:38 In terms of what we would do with the cash and in particular, obviously we have a very strong focus on free cash flow. As Brandi said, we're focused on maintaining the historical framework for the dividend, which we've announced now publicly. And so, we're very – actually excited to deliver the first cash payment through dividends to the public investors of Crescent. 34:05 And secondly, it's going to be all about the balance sheet. We think in this type of environment, the free cash flow available to the business should be really strengthening the value proposition of the company and that includes the balance sheet. So, I think you can assume that we're going to really heavily focus there and no change in that strategy from what we’ve historically done.

34:26 I got it. And last question for you. I think you're assuming some inflation in there. Could you give us a sense of how much you're assuming right now?

34:36 Yeah. So, we are experiencing, as you can imagine similar impacts as the rest of the industry. We've embedded all of the known inflation into our guidance. I would say in the range of 5% to 10%. I will note so given we have a really large base decline and we're only really running one rig today, and three rig proforma for Uinta, our cash flow is weighted towards PDP production, which is less impacted by these inflationary pressures.

35:07 And that's 500 million to 600 million of maintenance CapEx that includes the 5% to 10% inflation?

35:13 That's right.

35:15 Right. Thanks for the time guys and welcome to the public markets.

35:19 Thanks you Gregg.

35:20 Thank you.

35:23 At this time, we have reached the end of the question-and-answer session, and that also concludes today's conference call. Thank you everybody for participating. You may disconnect your lines at this time. Thank you for your participation.