Crescent Energy Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Crescent is a U.S. oil and gas company with assets in the Eagle Ford and Uinta basins. Its strategy emphasizes acquisitions, development of cash-flow-oriented assets and returns of capital. The company reported that higher production, largely following the 2023 Western Eagle Ford acquisitions, contributed to year-over-year revenue and Adjusted EBITDAX growth.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $657.5 | $590.1 | Up 11% |
| Operating income | $134.0 | $150.6 | Down 11% |
| Operating margin | 20.4% | 25.5% | Down 5.1 percentage points |
| Net income (loss), consolidated | $(32.4) | $255.6 | Declined $288.0 |
| Net income (loss) attributable to Crescent | $(24.2) | $59.8 | Down $84.0 |
| Cash from operating activities | $183.8 | $240.1 | Down 23% |
| Adjusted EBITDAX (non-GAAP) | $313.3 | $232.0 | Up 35% |
| Levered Free Cash Flow (non-GAAP) | $66.1 | $1.5 | Up $64.6 |
- Sales volumes rose 23% to 15.1 million Boe, or 166,000 Boe/d. Oil revenue increased 27% to $473.9 million, NGL revenue rose 57% to $66.9 million, and midstream and other revenue increased to $36.7 million. Natural gas revenue fell 51% to $79.9 million.
- Average realized prices before derivatives were $74.01/Bbl for oil, $2.18/Mcf for gas and $26.07/Bbl for NGLs. Gas pricing fell 58% year over year; management also cited the loss of a prior-year West Coast pricing premium.
- Total expenses increased 19% to $523.5 million. Operating expenses rose 12% to $304.2 million, while operating expense per Boe fell 9% to $20.16. DD&A increased 21% to $176.6 million, primarily with higher production. G&A doubled to $42.7 million, primarily due to higher non-cash equity compensation.
- Derivative losses were $105.6 million, versus a $150.3 million gain in Q1 2023, mainly reflecting changes in commodity prices relative to contract strike prices. Interest expense rose 46% to $42.7 million.
- Investing cash outflow was $157.5 million, including $136.8 million cash development spending and $19.5 million for acquisitions. Financing cash outflow was $23.9 million. Cash and cash equivalents were $5.3 million at quarter-end; cash, cash equivalents and restricted cash totaled $11.2 million.
- At March 31, long-term debt carrying value was $1.749 billion, compared with $1.694 billion at December 31, 2023. Principal outstanding was $1.781 billion: $1.0 billion of 2028 Notes, $700 million of 2032 Notes and $81.3 million under the revolver. Revolver letters of credit were $21.6 million, with approximately $1.2 billion of available borrowings reported.
- Current assets were $563.8 million and current liabilities were $748.1 million, a current ratio of approximately 0.75. The filing reports covenant compliance at quarter-end.
Material changes and notable transactions
- In March, Crescent issued $700 million of 7.625% senior notes due 2032 and used the proceeds, together with revolver borrowings, to retire all $700 million of 7.250% notes due 2026. The repurchase resulted in a $22.6 million extinguishment loss. The company retained $1.0 billion of 9.250% notes due 2028.
- The revolver had a $2.0 billion borrowing base and a September 2027 maturity at quarter-end. An April 10, 2024 amendment, after the reporting date, reduced the borrowing base to $1.7 billion and extended maturity to April 2029; elected commitments remained $1.3 billion.
- Crescent acquired Eagle Ford mineral interests for approximately $25 million in February, funded with revolver borrowings. It also completed March equity transactions that increased Class A shares by 13.8 million, reduced Class B shares by 16.1 million and included a $22.7 million cash repurchase of OpCo units. These transactions reduced redeemable noncontrolling interests by $341.7 million and increased additional paid-in capital by $319.0 million.
- Q1 equity-based compensation was $28.2 million, including $27.0 million of Manager PSUs. The company recorded $14.1 million of additional expense following a change in estimate associated with the increased Class A share count.
Outlook, risks and contingencies
- Management expects 2024 capital spending of approximately $550 million to $625 million, excluding acquisitions, with the majority directed to drilling and completion and approximately 90% allocated to operated Eagle Ford and Uinta assets. The company expects to fund the program through operating cash flow, but says spending can be adjusted for prices, well economics, costs, equipment, permits and other conditions.
- The board approved a $0.12-per-share quarterly Class A dividend payable June 7, 2024, equivalent to $0.48 annually. Future dividends remain subject to financial performance, management evaluation, board approval and debt-document restrictions.
- Management cited commodity-price volatility, geopolitical developments, inflation, elevated interest rates, operating and service costs, drilling execution, acquisition integration, infrastructure availability, regulation and environmental obligations as risks. The company hedged 63% of oil and 40% of gas production in Q1; its derivative portfolio had a $62.5 million net liability at March 31.
- The company reported no legal proceedings known to management that would have a material adverse effect, but said it could not estimate the range of reasonably possible losses related to contingencies. It reported no material environmental liabilities recorded at quarter-end.
- Management stated it expected to comply with debt covenants and meet ordinary-course contractual commitments. The filing does not provide a numerical production or earnings outlook.
Important facts for investors to verify
- How much of the Q1 production and Adjusted EBITDAX increase is sustainable versus attributable to acquired assets, and how future realized prices compare with hedged prices.
- Whether operating cash flow can support the $550 million–$625 million capital program, dividends and debt service, given low cash balances and the working-capital deficit.
- The effects of the revolver borrowing-base reduction, its extended maturity, borrowing costs and covenant headroom.
- The drivers of the large year-over-year derivative swing, the remaining hedge exposure and potential cash settlements.
- The ongoing cost and dilution implications of Manager Compensation and equity awards, as well as future related-party transactions.