8-K: Crescent Energy Reports $215 Million in Hedge Settlements and Year-End Reserves

Crescent Energy anticipates reporting $215 million in net cash settlements paid on hedge positions for the year ended December 31, 2023, alongside year-end proved reserves of 548 MMBoe.

Summary

• Crescent Energy expects to report $55 million in net cash settlements paid on hedge positions for the three months ended December 31, 2023, and $215 million for the full year.
• These settlements include both realized losses on derivative settlements and settlements of acquired derivative contracts.
• The company's year-end 2023 proved reserves totaled 548 MMBoe, with 80% classified as proved developed and 64% as liquids.
• The first-year decline rate for proved developed producing reserves is estimated at 19%.
• The standardized measure of discounted future net cash flows of proved reserves was $5.3 billion, while PV-10 was $5.6 billion.
• Crescent recorded an impairment expense of $153.5 million due to the removal of certain Permian basin PUD locations from its five-year development plan.
• The company plans to focus its capital program on the Eagle Ford and Uinta basins following recent acquisitions.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While there are negative aspects such as the hedge settlements and impairment, the company's focus on key basins and substantial reserves provide a balanced outlook.

Positives

• Crescent Energy has a substantial amount of proved reserves totaling 548 MMBoe.
• A significant portion of the reserves, 80%, are proved developed, indicating a strong base of producing assets.
• The company has a high percentage of liquids in its reserves, at 64%, which are generally more valuable than gas.
• The company is focusing its capital program on the Eagle Ford and Uinta basins, which may lead to more efficient operations.

Negatives

• Crescent Energy experienced a significant net cash outflow of $215 million due to hedge settlements.
• The company recorded a substantial impairment expense of $153.5 million, indicating a reduction in the value of some assets.
• The first-year decline rate of 19% for proved developed producing reserves suggests a need for continuous investment to maintain production levels.

Risks

• The reported hedge settlements are subject to change and are based on current expectations, which may not materialize.
• The company's future results could be affected by various factors, including weather, market conditions, and regulatory changes.
• There are uncertainties inherent in estimating natural gas and oil reserves and in projecting future rates of production.
• The company's hedging strategy and results could impact financial performance.
• The company is exposed to risks related to federal and state regulations, pandemics, and geopolitical events.
• The company's reliance on an external manager could pose operational risks.
• Cost inflation and central bank policy changes could impact the company's profitability.

Future Outlook

The company anticipates focusing its capital program on the Eagle Ford and Uinta basins following recent acquisitions. The final dollar amounts for the three and twelve months ended December 31, 2023 will be reported in Crescent's Annual Report on Form 10-K.

Management Comments

• Crescent's management has stated that the go-forward capital program will be largely focused in the Eagle Ford and the Uinta basins.
• Management has informed Ryder Scott that they have furnished all material data required for the investigation.
• Management has informed Ryder Scott that the development activities included in the report have received the internal approvals required by Crescent's management.

Industry Context

The report reflects the ongoing challenges and opportunities in the oil and gas industry, including the impact of hedging strategies, reserve valuations, and strategic capital allocation. The focus on Eagle Ford and Uinta basins aligns with industry trends of concentrating on high-return areas.

Comparison to Industry Standards

• The report uses SEC guidelines for reserve estimation, which is standard practice for US-listed oil and gas companies.
• The use of Ryder Scott, an independent reserve engineer, is a common practice to ensure objectivity and credibility in reserve reporting.
• The reported PV-10 of $5.6 billion is a key metric used by investors to compare the value of reserves across different companies, similar to how companies like EOG Resources or Pioneer Natural Resources would report their reserves.
• The impairment of $153.5 million is not uncommon in the industry, as companies adjust their development plans based on market conditions and asset performance, similar to how other companies like Devon Energy or Occidental Petroleum might report impairments.
• The focus on Eagle Ford and Uinta basins is a strategic move similar to other companies that are concentrating on core areas with higher returns, such as how ConocoPhillips focuses on the Permian and Alaska.

Stakeholder Impact

• Shareholders will be impacted by the reported hedge settlements and impairment expense, which may affect the company's stock price.
• Employees may be affected by the shift in focus to the Eagle Ford and Uinta basins.
• Customers and suppliers may see changes in the company's operations and production.

Next Steps

• The company will report final dollar amounts for the three and twelve months ended December 31, 2023, in its Annual Report on Form 10-K.
• Crescent will continue to execute its development plan, focusing on the Eagle Ford and Uinta basins.

Key Dates

Keywords

reserves, hedge settlements, oil and gas, proved reserves, PV-10, impairment, Eagle Ford, Uinta, production, derivatives