Crescent Energy (CRGY) Acquisition Update - Sept 5

[dan_s]

Yesterday Crescent Energy Company (NYSE: CRGY) announced the signing of a definitive agreement to acquire assets from a private Eagle Ford operator for total cash consideration of $168 million, subject to customary purchase price adjustments.
> The acquisition is directly offset Crescent’s existing Central Eagle Ford footprint and builds upon its significant acquisition activity in the Eagle Ford over the past 18 months, including the recently closed acquisition of SilverBow Resources Inc.
> The transaction, which has an effective date of May 1, is expected to close in September 2024, subject to customary closing conditions.
> Additional details have been posted on Crescent’s website at www.crescentenergyco.com.

HIGHLIGHTS

Strong investment returns and accretive to key financial metrics – The transaction is accretive to Operating Cash Flow, Levered Free Cash Flow and net asset value per share, with unlevered cash-on-cash returns in excess of Crescent’s 2.0x Multiple on Invested Capital ("MOIC") target

Complementary operations directly offset core position – Low-decline oil production with attractive inventory directly offset Crescent’s existing footprint in Frio, Atascosa, La Salle and McMullen counties with potential for meaningful operating efficiencies and extended lateral lengths across Crescent’s existing position

High-return drilling inventory; immediately competes for capital – Acquisition adds roughly 30 oil-weighted, core development locations with advantaged NRIs from owned minerals further increasing returns

Minerals, surface and midstream ownership enhances flexibility – Approximately 5,300 net royalty acres, greater than 3,500 surface acres and owned takeaway increase margins and create meaningful operating flexibility

Maintains strong balance sheet and Investment Grade credit metrics – Crescent’s leverage ratio is expected to remain relatively unchanged, with net debt to trailing 12-month Adjusted EBITDAX ratio expected to be below the Company’s publicly stated maximum leverage target of 1.5x. In conjunction with the signing of the transaction, Crescent entered into additional hedges in-line with its risk-management strategy

"This transaction builds upon our momentum in the Eagle Ford, where we see substantial opportunity for further growth and compelling investment returns," said Crescent CEO David Rockecharlie. "We are adding low-decline oil production and high-quality acreage adjacent to our existing position, with meaningful opportunity to further increase returns through improved operating efficiency. We are pleased with this attractive acquisition, and we believe in our ability to continue to accretively scale Crescent."

I will update my forecast/valuation for CRGY this afternoon.

[dan_s]

Details here: https://crescentenergyco.com/wp-content/uploads/2024/09/CRGY-Complementary-Central-Eagle-Ford-Bolt-On-9.4.24.pdf

Accretive: Adding 4,000 Boepd of production in Q4 2024 (85% oil)

[dan_s]

Today Wells Fargo and KeyBanc have adjusted their price targets for CRGY to $21.00 and $16.00. < TipRanks' consensus price target is $17.25

I have updated my forecast model for the relatively small bolt-on acquisition announced yesterday. My valuation increases by $0.25 to $24.50/share. My valuation multiple is 4.0 X operating CFPS, which IMO is low for a company of this size that is free cash flow positive, pays a decent dividend and has a lot of Running Room in South Texas.

CRGY is trading for $11.10 today. It pays dividends of $0.12/quarter for annualized yield of ~4.3%.

For those of you turning bullish on U.S. natural gas prices, CRGY is one of my top picks.
They closed the significant merger with SilverBow Resources on July 30th.
After the small Eagle Ford Bolt-On Acquisition closes, the Company's production mix will be approximately 43.5% natural gas, 39.0% crude oil and 17.5% NGLs. This year's drilling program is focused on increasing oil production. Crude oil sales should be approximately 70% of Q4 2024 revenues.

For 2H 2024 Crescent Energy has over 60% of their natural gas hedged at an average price of approximately $3.75/MMBtu. Plus, South Texas has plenty of pipeline access for natural gas, so they get decent prices for their natural gas. They also have ~50% of their 2025 natural gas hedged at an average price of approximately $3.70/MMBtu. They are getting ~$25/bbl for their NGLs.

My updated forecast model will be posted to the EPG website this afternoon.

[Fraser921]

Perhaps they should spend 20 billion on acquisitions since the TP goes up for every dollar they spend !

[dan_s]

Maybe this makes more sense:
> Crescent Energy (CRGY) had very little analysts' coverage prior to the merger with SilverBow Resources, which was also not getting the coverage it deserved. As one of the top producers in South Texas (over 250,000 Boepd), CRGY will get more coverage. On September 5th Wells Fargo rated it a BUY with a price target of $21/share.
> The small acquisition they announced on September 4 should be immediately accretive to operating cash flow.
> The leasehold acquired fills in some blanks in their core areas in the Eagle Ford.
> The Company's revenues should be over $3.8 billion in 2025 (TipRanks's forecast).

Last but not least: Crescent Energy is backed by KKR > https://www.kkr.com/