Crescent Energy Company — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022. Crescent is a U.S. independent oil and gas company with assets in the Eagle Ford, Rockies, Barnett, Permian and other basins. Its December 2021 merger created an Up-C structure; results include substantial redeemable noncontrolling interests. Comparisons with 2021 are affected by the merger and acquisitions, and are not wholly like-for-like.
Key financial metrics
| Metric | Q3 2022 | Nine months 2022 |
|---|---|---|
| Revenue | $865.0 million | $2.372 billion |
| Operating income | $417.6 million | $1.180 billion |
| Net income (consolidated) | $555.3 million | $431.2 million |
| Net income attributable to Crescent | $118.4 million | $87.9 million |
| Adjusted EBITDAX (non-GAAP) | $358.7 million | $927.0 million |
| Levered Free Cash Flow (non-GAAP) | $144.3 million | $371.0 million |
| Operating cash flow | Not separately provided for the quarter | $797.4 million |
Q3 operating margin was approximately 48% (operating income divided by revenue). Q3 production averaged 150,000 Boe/d, up 65% year over year; nine-month production averaged 138,000 Boe/d, up 50%. Growth reflects acquisitions, particularly the Uinta transaction, and new well completions.
For the first nine months, investing cash outflow was $1.061 billion, including $440.4 million for development and $627.5 million for acquisitions. Financing cash inflow was $158.1 million. Cash and cash equivalents were $22.5 million at quarter-end; cash, cash equivalents and restricted cash totaled $29.7 million.
Long-term debt carrying value was $1.372 billion, versus $1.030 billion at December 31, 2021. Debt included $685 million drawn on the revolving facility and $700 million principal of 7.25% notes due 2026. The revolving facility had a $1.3 billion elected commitment, $2.0 billion borrowing base and $12.2 million of letters of credit outstanding; the reported weighted-average rate on revolver borrowings was 5.39%. The facility matures in 2027, subject to terms described in the filing.
Changes versus prior comparable period
- Q3 revenue rose 137% from $365.7 million; nine-month revenue rose 134% from $1.014 billion. Higher realized commodity prices and acquisition-related production both contributed.
- Q3 net income attributable to Crescent was $118.4 million; the comparable 2021 figure was reported as zero because the predecessor’s results were allocated to the predecessor. For nine months, Crescent reported $87.9 million attributable income versus zero in 2021 on that basis. Consolidated net income was $555.3 million in Q3 and $431.2 million year to date, with significant portions attributable to redeemable noncontrolling interests.
- Derivative results remained volatile: a $205.1 million gain in Q3 contrasted with a $282.2 million loss in Q3 2021; the nine-month derivative loss was $645.6 million, versus $885.0 million in 2021. Nine-month cash settlements paid were $654.4 million.
- Operating costs, depreciation and interest expense increased, reflecting higher activity, acquisitions, inflation and increased borrowing. Nine-month interest expense was $68.5 million, up from $37.8 million.
Outlook, management commentary and risks
- Management expected 2022 capital spending of approximately $600 million to $700 million, excluding acquisitions, primarily for drilling and completion. The filing says the program is flexible and expected to be funded from operating cash flow.
- The board approved a $0.17-per-share Q3 cash dividend, payable December 7, 2022; the filing reports $0.46 per share paid during the first nine months. Future dividends remain subject to board approval, financial conditions and debt-document restrictions.
- In November 2022, Crescent agreed to sell certain Permian properties for $80 million, subject to customary adjustments and closing conditions; the company expected closing by year-end. This was a subsequent event, not a completed Q3 transaction.
- Management described commodity price volatility, inflation and service-cost increases, interest-rate exposure, acquisition and operating execution, and changing demand and regulation as risks. The Inflation Reduction Act includes methane fees beginning in 2024, which could increase costs. The company’s $0.5 billion net derivative liability makes reported earnings sensitive to commodity-price movements.
- The filing states that management expected covenant compliance and ordinary-course contractual payments. Management reported no known legal proceedings expected to have a material adverse effect; it noted a proposed $0.9 million New Mexico civil penalty, with resolution discussions ongoing.
Important facts for investors to verify
- How much of reported earnings and cash generation accrues to Crescent shareholders versus redeemable noncontrolling interest holders.
- Current revolver availability, borrowing-base redetermination outcomes, covenant headroom and the impact of variable interest rates.
- Hedge volumes, pricing, settlement cash flows and remaining exposure to commodity prices, especially given the derivative liability and nine-month realized losses.
- Whether capital spending stays within guidance and is funded by operating cash flow amid inflation and acquisition integration needs.
- Completion and net proceeds of the announced Permian divestiture, and the sustainability of dividends under debt and cash-flow constraints.