Crescent Energy Company — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Crescent is a U.S. independent oil and gas company operating primarily in the Eagle Ford and Uinta basins. The figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial and operating results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $642.4 | $865.0 | $1,724.9 | $2,372.3 |
| Operating income | $141.5 | $417.6 | $356.1 | $1,180.2 |
| Net income (loss) | $(131.1) | $555.3 | $182.0 | $431.2 |
| Net income (loss) attributable to Crescent | $(52.9) | $118.4 | $12.1 | $87.9 |
| Adjusted EBITDAX (non-GAAP) | $289.6 | $342.8 | $746.3 | $887.9 |
| Levered Free Cash Flow (non-GAAP) | $160.3 | $128.4 | $207.8 | $332.0 |
Q3 production averaged 157 thousand Boe/d, up 5% year over year; nine-month average production was 144 thousand Boe/d, up 4%. Q3 realized prices before derivative settlements fell year over year: oil to $75.70/Bbl (13% lower), natural gas to $2.18/Mcf (69% lower), and NGLs to $24.10/Bbl (32% lower). Total revenue per Boe declined 29% to $43.73 in Q3 and 31% to $42.86 for the nine-month period.
For the nine months, operating cash flow was $612.9, investing cash flow was $(1,066.2), and financing cash flow was $705.4. Cash and cash equivalents were $228.6 at quarter-end, versus none reported at December 31, 2022; restricted cash was another $33.4 current and $5.3 noncurrent. Current assets were $903.1 and current liabilities $880.8.
Long-term debt carrying value was $1,912.2, compared with $1,247.6 at year-end 2022. At quarter-end, debt principal comprised $392.0 drawn on the revolver, $700.0 of 7.25% notes due 2026, and $850.0 of 9.25% notes due 2028. The revolver had $1.3 billion of elected commitments, $11.4 of letters of credit, and approximately $0.9 billion available. The company reported covenant compliance.
Material changes versus the comparable period
- Q3 revenue fell 26% and nine-month revenue fell 27%, primarily because commodity prices were lower; increased production partly offset the declines.
- Q3 net loss included a $252.1 loss on derivatives, compared with a $205.1 gain in Q3 2022. Nine-month derivative loss improved to $68.2 from $645.6 in 2022. Derivative effects are a major source of period-to-period earnings volatility.
- Q3 Adjusted EBITDAX declined 16%; nine-month Adjusted EBITDAX declined 16%. Nine-month Levered Free Cash Flow declined 37%, reflecting lower Adjusted EBITDAX, partly offset by lower development spending.
- Interest expense rose 56% in Q3 and 50% for the nine-month period, mainly due to higher average debt and interest rates. DD&A increased 29% in Q3 and 31% for nine months.
- Production growth and higher DD&A and operating costs reflect acquisitions, including the July Western Eagle Ford acquisition for approximately $593.4. In October, after quarter-end, Crescent completed a further Western Eagle Ford acquisition for approximately $250.0, subject to customary adjustments.
- September’s public offering of 12.7 million Class A shares generated $145.7 net proceeds. A June conversion of approximately 27.6 million OpCo units and corresponding Class B shares into Class A shares changed the ownership mix; Crescent owned approximately 49% of outstanding common shares after the September issuance.
Outlook, risks, contingencies, and notable items
- Management expected 2023 capital spending of approximately $580–$630, excluding acquisitions, funded from operating cash flow. The program is flexible and may be adjusted for prices, well economics, costs, equipment, permits, weather, and other conditions.
- The board approved a $0.12-per-share Q3 dividend, payable December 4, 2023; future dividends remain subject to board approval, financial performance, cash needs, and debt-document restrictions.
- Management cited commodity-price volatility, inflation and service costs, interest rates, geopolitical events, banking-market disruption, production and processing downtime, acquisition integration and execution, and regulatory and environmental requirements as risks. The company hedges a portion of expected production: Q3 2023 coverage was 64% for oil and 54% for natural gas; NGL production was unhedged for the quarter.
- At September 30, the commodity derivative portfolio had a net fair-value liability of $270.3 and approximately $2.0 billion of aggregate notional value. A hypothetical 10% commodity-price move would change the net position by approximately $181.4–$191.7, depending on direction.
- Asset retirement obligations totaled $393.6, including $21.0 current. Management said it could not estimate a range of reasonably possible losses for legal contingencies, but was unaware of proceedings expected to materially adversely affect the company. No environmental remediation liability was recognized.
- Q3 G&A included $29.5 of equity-based compensation; nine-month equity-based compensation was $64.6. The filing also describes related-party manager compensation and incentive awards, which increased with share issuances and ownership changes.
- Management stated that disclosure controls were effective and that there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether lower commodity prices, hedge settlements, and derivative mark-to-market changes are reflected appropriately in earnings and cash-flow assessments.
- Acquisition contributions to production and cash generation, including integration, operating costs, reserve assumptions, and the funding and impact of the October acquisition.
- Debt service capacity and refinancing risk, particularly the 9.25% 2028 notes, variable-rate revolver borrowings, borrowing-base redeterminations, and covenant headroom.
- Cash available for development spending, dividends, and debt reduction after working-capital needs and acquisition commitments; non-GAAP cash-flow measures exclude acquisitions.
- The effect of equity issuance, OpCo ownership, dilution, and KKR-related management and incentive compensation on the economics attributable to Class A shareholders.