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CRESCENT ENERGY COMPANY

(CRGY)
  Report
Delayed Nyse  -  04:00 2022-10-03 pm EDT
14.64 USD   +8.69%
09/29Crescent Energy Co : Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant, Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)
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09/28Wells Fargo Starts Crescent Energy at Overweight With $18 Price Target
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09/26Sector Update: Energy Stocks, Crude Oil Sinking
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CRESCENT ENERGY CO Management's discussion and analysis of financial condition and results of operations (form 10-Q)

08/09/2022 | 04:42pm EDT
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide the reader of the financial
statements with a narrative from the perspective of management on the financial
condition, results of operations, liquidity and certain other factors that may
affect the Company's operating results. The following discussion and analysis
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K
for the year ended December 31, 2021 ("Annual Report"), our Quarterly Report on
Form 10-Q for the period ended March 31, 2022, as well as our unaudited
condensed consolidated financial statements for the three and six months ended
June 30, 2022 and 2021. The following information updates the discussion of our
financial condition provided in our previous filings, and analyzes the changes
in the results of operations between the three and six months ended June 30,
2022 and 2021. The following discussion contains forward-looking statements that
reflect our future plans, estimates, beliefs and expected performance. The
forward-looking statements are dependent upon events, risks and uncertainties
that may be outside our control. Our actual results could differ materially from
those discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, commodity price
volatility, capital requirements and uncertainty of obtaining additional funding
on terms acceptable to the Company, realized oil, natural gas and NGL prices,
the timing and amount of future production of oil, natural gas and NGLs,
shortages of equipment, supplies, services and qualified personnel, as well as
those factors discussed below and elsewhere in this Quarterly Report and in our
Annual Report, particularly under "Risk Factors" and "Cautionary Statement
Regarding Forward Looking Statements," all of which are difficult to predict. In
light of these risks, uncertainties and assumptions, the forward-looking events
discussed may not occur. We do not undertake any obligation to publicly update
any forward-looking statements except as otherwise required by applicable law.
Unless otherwise stated or the context otherwise indicates, all references to
"we," "us," "our," "Crescent" and the "Company" or similar expressions for time
periods prior to the Merger Transactions refer to Crescent Energy OpCo LLC
(f/k/a Independence Energy LLC) and its subsidiaries, our predecessor for
accounting purposes. For time periods subsequent to the Merger Transactions,
these terms refer to Crescent Energy Company and its subsidiaries.

Business


We are a well-capitalized U.S. independent energy company with a portfolio of
assets in key proven regions across the lower 48 states, including the Eagle
Ford, Rockies, Barnett and Permian.

Our approach employs a unique business model that combines an investor mindset
and deep operational expertise to pursue a cash flow-based investment mandate
focused on operated working interests with an active risk management strategy.
We pursue our strategy through the production, development and acquisition of
oil, natural gas and NGL reserves.

Merger Transactions and Reorganization


On December 7, 2021, we completed a series of transactions, pursuant to which
the business of Contango Oil & Gas Company ("Contango") and the business of
Independence Energy LLC ("Independence") combined under a new publicly traded
holding company named "Crescent Energy Company" (the "Merger Transactions"). Our
Class A common stock, par value $0.0001 per share ("Class A Common Stock") is
listed on The New York Stock Exchange under the symbol "CRGY." The combined
company is structured as an "Up-C," with all of our assets and operations
(including those of Contango) indirectly held by our operating subsidiary,
Crescent Energy OpCo LLC ("OpCo"). Crescent Energy Company ("Crescent") is a
holding company, the sole material asset of which consists of economic,
non-voting limited liability company interests in OpCo ("OpCo Units"), and is
responsible for all operational, management and administrative decisions related
to OpCo's business. We are the sole managing member of OpCo. Crescent
consolidates the financial results of OpCo and its subsidiaries. Former Contango
shareholders own shares of Class A Common Stock, which have both voting and
economic rights. The former owners of our predecessor, Independence Energy LLC,
own economic, non-voting OpCo Units and corresponding shares of Class B common
stock, par value $0.0001 per share ("Class B Common Stock," together with Class
A Common Stock, the "Common Stock"), which shares of Class B Common Stock have
voting (but no economic) rights. OpCo Units may be redeemed or exchanged for
Class A Common Stock or, at our election, cash on the terms and conditions set
forth in the Amended and Restated Limited Liability Company Agreement of OpCo.

In connection with the Merger Transactions, we underwent a reorganization (the
"Crescent Reorganization"), whereby Independence merged with and into OpCo (the
"Isla Merger"). The financial statements include the accounts of Independence
from the date of the Isla Merger, which is the date the Company obtained a
controlling financial interest in Independence on a consolidated basis. Because
the Isla Merger resulted in a change in the reporting entity, and in order to
furnish comparative financial information prior to the Isla Merger, our
financial statements have been retrospectively recast to reflect the historical
accounts of Independence, our accounting predecessor (the "Predecessor"), on a
combined basis.

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Geopolitical developments and economic environment


During the last several years, prices of crude oil, natural gas and NGLs have
experienced periodic downturns and sustained volatility. In particular, the
global spread of the COVID-19 virus during 2020 and 2021 had a negative impact
on the global demand for oil and natural gas and caused significant commodity
market volatility. While the increase in domestic vaccination programs and
reduced spread of the COVID-19 virus has contributed to an improvement in the
economy and higher realized prices for commodities, the current price
environment remains uncertain as responses to the COVID-19 pandemic and newly
emerging variants of the virus continue to evolve. Given the dynamic nature of
these events, we cannot reasonably estimate the period of time that the COVID-19
pandemic and related market conditions will persist. While we use derivative
instruments to partially mitigate the impact of commodity price volatility, our
revenues and operating results depend significantly upon the prevailing prices
for oil and natural gas.

In addition, in February 2022, Russia launched a large-scale invasion of Ukraine
that has led to significant armed hostilities. As a result, the United States,
the United Kingdom, the member states of the European Union and other public and
private actors have levied severe sanctions on Russian financial institutions,
businesses and individuals. This conflict, and the resulting sanctions, have
contributed to significant increases and volatility in the price for oil and
natural gas, with the posted price for WTI reaching a high of over $120 per
barrel. Such volatility may lead to a more difficult investing and planning
environment for us and our customers. While the near-term impact of these events
resulted in higher oil and gas prices in the first six months of 2022, the
geopolitical and macroeconomic consequences of this invasion and associated
sanctions cannot be predicted, and such events, or any further hostilities in
Ukraine or elsewhere, could severely impact the world economy and may adversely
affect our financial condition. Furthermore, the United States has experienced a
significant inflationary environment in 2022 that, along with international
geopolitical risks, has contributed to concerns of a potential recession that
has caused oil and gas prices to retreat from their earlier highs in 2022 and
has created further volatility.

Finally, due to the cyclical nature of the oil and gas industry, fluctuating
demand for oilfield goods and services can put pressure on the pricing structure
within our industry. As commodity prices rise, the cost of oilfield goods and
services generally also increase, while during periods of commodity price
declines, oilfield costs typically lag and do not adjust downward as fast as oil
prices do. In addition, the U.S. inflation rate has been steadily increasing
since 2021 and into 2022. These inflationary pressures have resulted in and may
result in additional increases to the costs of our oilfield goods, services and
personnel, which in turn cause our capital expenditures and operating costs to
rise. Sustained levels of high inflation have likewise caused the U.S. Federal
Reserve and other central banks to increase interest rates, which could have the
effects of raising the cost of capital and depressing economic growth, either of
which-or the combination thereof-could hurt our business.

Acquisitions and divestitures

Acquisitions


In March 2022, we consummated the acquisition contemplated by the Membership
Interest Purchase Agreement dated February 15, 2022 (the "Purchase Agreement"
and the transactions contemplated therein, the "Uinta Transaction") between
certain of our subsidiaries, including OpCo, and Verdun Oil Company II LLC, a
Delaware limited liability company, pursuant to which we purchased all of the
issued and outstanding membership interests of Uinta AssetCo, LLC, a Texas
limited liability company that held all development and production assets of,
and certain obligations of, EP Energy E&P Company, L.P. ("EP") located in the
State of Utah (the "Utah Assets"). Such assets include an aggregate
approximately 145,000 net acres, primarily located in Duchesne and Uintah
Counties, Utah, with approximately 400 currently producing wells. Upon closing
of the Uinta Transaction on March 30, 2022, we paid $621.3 million in cash
consideration and related transaction fees and assumed certain commodity
derivatives. The Uinta Transaction was funded with cash on hand and borrowings
under our Revolving Credit Facility. In connection with the closing of the Uinta
Transaction, we entered into an amendment to our Revolving Credit Facility to,
among other things, increase the borrowing base to $1.8 billion and the elected
commitment amount to $1.3 billion. We incurred financing costs of $13.4 million
associated with this amendment.

Subsequent to the closing of the Uinta Transaction, we settled certain acquired
oil commodity derivative positions and entered into new commodity derivative
contracts for 2022 with a swap price of $75 per barrel for a net cost of
$54.1 million, including restructuring fees, during the three months ended March
31, 2022.

In December 2021, we acquired from an unrelated third-party certain operated
producing oil and natural gas properties predominately located in the Central
Basin Platform in Texas and New Mexico, with additional properties in the
southwestern Permian and Powder River Basins, for total cash consideration of
$60.4 million, including customary purchase price adjustments (the "Central
Basin Platform Acquisition"). The purchase price was funded using cash on hand
and borrowings
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under our Revolving Credit Facility (as defined below). We accounted for the Central Basin Platform Acquisition as an asset acquisition.


In May 2021, certain of our consolidated subsidiaries redeemed the
noncontrolling equity interests held in such subsidiaries by a third-party
investor in exchange for the third-party investor's proportionate share of the
underlying oil and natural gas interests held by its consolidated subsidiaries
as part of the "Noncontrolling Interest Carve-out." Additionally, the
third-party investor contributed cash of approximately $35.5 million to repay
its proportionate share of the underlying debt outstanding under our prior
credit agreements and other liabilities. The percentage ownership of these
certain consolidated subsidiaries owned by the third-party investor ranges from
2.21% to 7.38%.

In April 2021, certain minority investors exchanged 100% of their interests in
our Barnett basin natural gas assets for 9,508 of our Class A Units,
representing 0.77% of our consolidated ownership pursuant to (the "April 2021
Exchange"). Since we already consolidate the results of these assets, this
transaction was accounted for as an equity transaction and reflected as a
reclassification from noncontrolling interests to members' equity with no gain
or loss recognized on the April 2021 Exchange.

In March 2021, we acquired a portfolio of oil and natural gas mineral assets
located in the DJ Basin from an unrelated third-party operator for total
consideration of $60.8 million (the "DJ Basin Acquisition"). The DJ Basin
Acquisition was funded using cash on hand and borrowings under our prior credit
agreements. We accounted for the DJ Basin Acquisition as an asset acquisition.

Divestitures


In April 2022, our equity method investment, Exaro Energy III, LLC ("Exaro")
entered into a purchase and sale agreement to sell its operations in the Jonah
Field in Wyoming. During the three and six months ended June 30, 2022 we
received a distribution from Exaro Energy of $6.8 million primarily as a result
of the sale.

In February 2022, we contributed all of the assets and prospects in the Gulf of
Mexico formerly owned by Contango to Chama Energy LLC ("Chama"), in exchange for
a 9.4% interest in Chama. Such interest is valued at approximately $3.8 million.
John Goff, the Chairman of our Board of Directors, holds an approximate interest
of 17.5% in Chama, and the remaining interests are held by other investors.
Pursuant to the Limited Liability Company Agreement of Chama, we may be required
to fund certain workover costs, and we will be required to fund plugging and
abandonment costs related to the producing assets we contributed to Chama.
During the first quarter of 2022, we derecognized the assets and liabilities
that were contributed to Chama from our condensed consolidated balance sheets.
We recorded a $4.5 million gain related to on the deconsolidation of these
assets and liabilities and recorded an equity method investment for our interest
in Chama. The carrying value of our equity method investment in Chama at June
30, 2022 is $3.9 million.

In December 2021, we entered into an assignment, conveyance and bill of sale
with an unaffiliated third-party that encompassed the sale of certain producing
properties and oil and natural gas leases in Claiborne Parish, Louisiana in
exchange for cash consideration, net of closing adjustments, of $4.3 million.

In May 2021, we executed a purchase and sale agreement with an unaffiliated
third-party that encompassed the sale of certain producing properties and oil
and natural gas leases in the Arkoma Basin in exchange for cash consideration,
net of closing adjustments, of $22.1 million.

Environmental, social and corporate governance ("ESG") initiatives


We view exceptional ESG performance as an opportunity to differentiate Crescent
from our peers, mitigate risks and strengthen operational performance as well as
benefit our stakeholders and the communities in which we operate. In December
2021, we released our inaugural ESG report, which included key performance
metrics according to Value Reporting Foundation's SASB Standard for Oil & Gas -
Exploration & Production and also established our key ESG priorities. We also
established an ESG Advisory Council to advise management and our Board of
Directors on ESG-related issues. We are working to reduce greenhouse gas ("GHG")
emissions by implementing aggressive methane reduction targets and eliminating
routine flaring, among other initiatives. In February 2022, we joined the Oil &
Gas Methane Partnership ("OGMP") 2.0 Initiative to enhance reporting of methane
emissions reduction programs.

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How we evaluate our operations

We use a variety of financial and operational metrics to assess the performance of our oil, natural gas and NGL operations, including:

•Production volumes sold,

•Commodity prices and differentials,

•Operating expenses,

•Adjusted EBITDAX (non-GAAP), and

•Levered Free Cash Flow (non-GAAP)

Development program and capital budget


Our development program is designed to prioritize the generation of attractive
risk-adjusted returns and meaningful free cash flow and is inherently flexible,
with the ability to modify our capital program as necessary to react to the
current market environment.

We expect to incur approximately $600 million to $700 million, excluding
acquisitions, for our 2022 capital program. Our program is approximately 95%
allocated to D&C (80 to 85% to our operated assets primarily in the Eagle Ford
and Uinta basins and 10 to 15% to non-operated activity) and approximately 5% to
other capital expenditures. We expect to fund our 2022 capital program through
cash flow from operations. Due to the flexible nature of our capital program and
the fact that the majority of our acreage is held by production, we could choose
to defer a portion or all of these planned capital expenditures depending on a
variety of factors, including, but not limited to, the success of our drilling
activities, prevailing and anticipated prices for oil, gas and NGLs and
resulting well economics, the availability of necessary equipment,
infrastructure and capital, the receipt and timing of required regulatory
permits and approvals, seasonal conditions, drilling and acquisition costs and
the level of participation by other interest owners.

Sources of revenue


Our revenues are primarily derived from the sale of our oil, natural gas and NGL
production and are influenced by production volumes and realized prices,
excluding the effect of our commodity derivative contracts. Pricing of
commodities are subject to supply and demand as well as seasonal, political and
other conditions that we generally cannot control. Our revenues may vary
significantly from period to period as a result of changes in volumes of
production sold or changes in commodity prices. The following table illustrates
our production revenue mix for each of the periods presented:

                         Three Months Ended June 30,               Six Months Ended June 30,
                                2022                 2021                2022                2021
     Oil                                   68  %     68  %                         66  %     65  %
     Natural gas                           23  %     20  %                         24  %     23  %
     NGLs                                   9  %     12  %                         10  %     12  %



In addition, revenue from our midstream assets is supported by commercial
agreements that have established minimum volume commitments. These midstream
revenues comprise the majority of our midstream and other revenue. Midstream and
other revenue accounts for 4% or less of our total revenues for the three and
six months ended June 30, 2022 and 2021.

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Production volumes sold

The following table presents historical sales volumes for our properties:

                                                         Three Months Ended June 30,                               Six Months Ended June 30,
                                                     2022                            2021                     2022                            2021
Oil (MBbls)                                            5,781                          3,351                     9,766                          6,669
Natural gas (MMcf)                                    32,353                         22,482                    62,367                         43,305
NGLs (MBbls)                                           1,785                          1,492                     3,612                          2,937
Total (MBoe)                                          12,958                          8,590                    23,773                         16,824
Daily average (MBoe/d)                                   142                             94                       131                             93



Total sales volume increased 4,368 MBoe and 6,949 MBoe during the three and six
months ended June 30, 2022, respectively, compared to the three and six months
ended June 30, 2021. The increase is primarily due to the Merger Transactions,
DJ Basin Acquisition and Central Basin Platform Acquisition (collectively, the
"2021 Acquisitions") and our Uinta Transaction, which contributed an additional
2,701 MBoe and 2,356 MBoe for the three months ended June 30, 2022,
respectively, and 5,836 MBoe and 2,356 MBoe for the six months ended June 30,
2022, respectively. Sales volumes from our other assets decreased by 689 and
1,243 MBoe during the three and six months ended June 30, 2022, respectively,
compared to the three and six months ended June 30, 2021, primarily as a result
of the natural decline from our existing asset base.

Commodity prices and differentials

Our results of operations depend upon many factors, particularly the price of commodities and our ability to market our production effectively.


The oil and natural gas industry is cyclical and commodity prices can be highly
volatile. In recent years, commodity prices have been subject to significant
fluctuations. The outbreak of the COVID-19 virus followed by certain actions
taken by OPEC caused crude oil prices to decline significantly beginning in the
first half of 2020 and prices remained below pre-pandemic levels for a prolonged
period of time. Despite the impact of the COVID-19 virus on the global economy,
commodity prices trended higher in the three and six months ended June 30, 2022,
compared with the three and six months ended June 30, 2021, reflecting the
ongoing recovery in the oil and gas industry in early 2022 due to increasing
demand as more states and countries re-open and national and global economies
continue to recover from the global COVID-19 pandemic and a premium due to the
reduction in crude oil supply resulting from sanctions imposed on Russia in
response to its large-scale invasion of Ukraine in February 2022. Although
commodity prices have increased substantially in 2022, uncertainty persists
regarding OPEC's actions, increased U.S. drilling and the continued effect from
the COVID-19 pandemic, as well the armed conflict in Ukraine.

In order to reduce the impact of fluctuations in oil and natural gas prices on
revenues, we regularly enter into derivative contracts with respect to a portion
of the estimated oil, natural gas and NGL production through various
transactions that fix the future prices received. We plan to continue the
practice of entering into economic hedging arrangements to reduce near-term
exposure to commodity prices, protect cash flow and corporate returns and
maintain our liquidity.

The following table presents the percentages of our production that was economically hedged through the use of derivative contracts:


                         Three Months Ended June 30,               Six Months Ended June 30,
                                2022                 2021                2022                2021
     Oil                                   66  %     81  %                         70  %     82  %
     Natural gas                           67  %     80  %                         71  %     84  %
     NGLs                                  49  %     70  %                         49  %     71  %


The following table sets forth the average NYMEX oil and natural gas prices and our average realized prices for the periods presented:

                                       33
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                                               Three Months Ended June 30,                 Six Months Ended June 30,
                                                 2022                  2021                 2022                  2021
Oil (Bbl):
Average NYMEX                             $        108.41          $   66.07          $       101.35          $   61.96
Realized price (excluding derivative
settlements)                                       104.23              64.70                   99.84              60.84
Realized price (including derivative
settlements) (1)                                    78.84              51.60                   74.57              50.95
Natural Gas (Mcf):
Average NYMEX                             $          7.17          $    2.83          $         6.06          $    2.76
Realized price (excluding derivative
settlements)                                         6.40               2.78                    5.62               3.31
Realized price (including derivative
settlements)                                         3.51               2.68                    3.32               3.26
NGLs (Bbl):
Realized price (excluding derivative
settlements)                              $         46.98          $   25.60          $        42.92          $   25.30
Realized price (including derivative
settlements)                                        32.15              17.25                   28.44              17.07




(1)    For the three and six months ended June 30, 2021, the realized price
excludes the impact of the settlement of certain of our outstanding derivative
oil commodity contracts associated with calendar years 2022 and 2023 for $198.7
million in June 2021. Subsequent to the settlement, we entered into new
commodity derivative contracts at prevailing market prices.


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Results of operations:

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Revenues

The following table provides the components of our revenues, respective average realized prices and net sales volumes for the periods indicated:

                                                 Three Months Ended June 30,
                                                   2022                  2021             $ Change             % Change
Revenues (in thousands):
Oil                                          $      602,567          $ 216,820          $ 385,747                    178  %
Natural gas                                         207,177             62,449            144,728                    232  %
Natural gas liquids                                  83,864             38,192             45,672                    120  %
Midstream and other                                  14,826             12,668              2,158                     17  %
Total revenues                               $      908,434          $ 330,129          $ 578,305                    175  %
Average realized prices, before effects of
derivative settlements:
Oil ($/Bbl)                                  $       104.23          $   64.70          $   39.53                     61  %
Natural gas ($/Mcf)                                    6.40               2.78               3.62                    130  %
NGLs ($/Bbl)                                          46.98              25.60              21.38                     84  %
Total ($/Boe)                                         68.96              36.96              32.00                     87  %
Net sales volumes:
Oil (MBbls)                                           5,781              3,351              2,430                     73  %
Natural gas (MMcf)                                   32,353             22,482              9,871                     44  %
NGLs (MBbls)                                          1,785              1,492                293                     20  %
Total (MBoe)                                         12,958              8,590              4,368                     51  %
Average daily net sales volumes:
Oil (MBbls/d)                                            64                 37                 27                     73  %
Natural gas (MMcf/d)                                    356                247                109                     44  %
NGLs (MBbls/d)                                           20                 16                  4                     25  %
Total (MBoe/d)                                          142                 94                 48                     51  %



Oil revenue. Oil revenue increased $385.7 million, or 178%, in the three months
ended June 30, 2022, compared to the three months ended June 30, 2021. This was
driven primarily by higher realized oil prices that resulted in an increase of
$228.5 million (an increase of 61% per Bbl) and a $157.2 million increase in
sales volume (27 MBbls/d or 73%). The increase in sales volumes is primarily
related to our 2021 Acquisitions and our Uinta Transaction, which contributed an
additional 923 MBbls and 1,593 MBbls, respectively, partially offset by the
natural decline from our existing asset base of 86 MBbls.

Natural gas revenue. Natural gas revenue increased $144.7 million, or 232% in
the three months ended June 30, 2022, compared to the three months ended
June 30, 2021. This was driven primarily by higher natural gas prices that
resulted in an increase of $117.1 million (an increase of 130% per Mcf) and a
$27.4 million increase in sales volume (109 MMcf/d, or 44%). The increase in
sales volumes were primarily related to our 2021 Acquisitions and our Uinta
Transaction, which contributed an additional 8,283 MMcf and 4,570 MMcf,
respectively, partially offset by the natural decline from our existing asset
base of 2,982 MMcf.
NGL revenue. NGL revenue increased $45.7 million, or 120%, in the three months
ended June 30, 2022, compared to the three months ended June 30, 2021. This was
driven primarily by higher realized NGL prices that resulted in an increase of
$38.2 million (an increase of 84% per Bbl) and a $7.5 million increase in sales
volume (4 MBbls/d, or 25%).

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Midstream and other revenue. Midstream and other revenue increased $2.2 million,
or 17%, in the three months ended June 30, 2022, compared to the three months
ended June 30, 2021, driven primarily by higher midstream revenue related to the
2021 Acquisitions.

Expenses

The following table summarizes our expenses for the periods indicated and includes a presentation on a per Boe basis, as we use this information to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis:


                                                    Three Months Ended June 

30,

                                                      2022                  2021             $ Change             % Change
Expenses (in thousands):
Operating expense                               $      255,713          $ 146,690          $ 109,023                     74  %
Depreciation, depletion and amortization               131,573             76,228             55,345                     73  %
General and administrative expense                      19,656             16,122              3,534                     22  %
Other operating costs                                    1,651             (9,394)            11,045                       NM*
Total expenses                                  $      408,593          $ 229,646          $ 178,947                     78  %
Selected expenses per Boe:
Operating expense, excluding production and
other taxes                                     $        14.68          $   14.06          $    0.62                      4  %
Production and other taxes                                5.05               3.01               2.04                     68  %
Depreciation, depletion and amortization                 10.15               8.87               1.28                     14  %




* NM = Not meaningful.

Operating expense. Operating expense increased $109.0 million, or 74%, in the
three months ended June 30, 2022, compared to the three months ended June 30,
2021, driven primarily by the following factors:

(i)Lease and asset operating expense increased $56.3 million, or 84%, in the
three months ended June 30, 2022, compared to the three months ended June 30,
2021. Additionally, lease and asset operating expense per Boe increased $1.70
per Boe from $7.84 per Boe to $9.54 per Boe. This $56.3 million increase was
driven primarily by higher production during the three months ended June 30,
2022, due in part to the 2021 Acquisitions and Uinta Transaction, which
contributed $36.4 million and $8.5 million to the increase, respectively, and
certain costs that are indexed to oil commodity prices, such as CO2 purchase
costs related to our CO2 flood asset in Wyoming. These contractually commodity
indexed operating expenses move in tandem with oil commodity prices, and as oil
prices increase, higher contractually commodity-linked operating costs are
offset by higher realizations.
(ii)Gathering, transportation and marketing expense decreased $10.0 million, or
21%, in the three months ended June 30, 2022, compared to the three months ended
June 30, 2021. Additionally, gathering, transportation and marketing expense per
Boe decreased $2.67 per Boe from $5.62 per Boe to $2.95 per Boe. This decrease
was driven primarily by lower sulfur processing and transportation expenses.
(iii)Production and other taxes increased $39.6 million, or 153%, in the three
months ended June 30, 2022, compared to the three months ended June 30, 2021 and
increased $2.04 per Boe, an increase of 68%, to $5.05 per Boe. This increase was
driven primarily by higher oil and natural gas revenues, which increased the tax
base upon which production and other taxes are calculated.
(iv)Workover expense increased $22.4 million, or 851%, in the three months ended
June 30, 2022, compared to the three months ended June 30, 2021. Additionally,
workover expense per Boe increased $1.62 per Boe from $0.31 per Boe to $1.93 per
Boe. This increase was driven by (i) higher well workover activities that meet
our internal return thresholds due to the higher commodity price environment and
(ii) additional costs from our 2021 Acquisitions and Uinta Transaction, which
contributed $14.8 million and $2.9 million to the increase, respectively. The
2021 Acquisitions increase includes additional costs related to a standard
turnaround at our natural gas processing plant in Wyoming.
(v)Midstream operating expense increased $0.7 million, or 29%, in the three
months ended June 30, 2022, compared to the three months ended June 30, 2021.

Depreciation, depletion and amortization. In the three months ended June 30,
2022, depreciation, depletion and amortization increased $55.3 million, or 73%,
compared to the three months ended June 30, 2021, driven primarily by $24.3
million and
                                       36
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$33.4 million of additional depreciation, depletion and amortization due to our
2021 Acquisitions and our Uinta Transaction, respectively, partially offset by a
lower depletion rate on increased reserves of our other assets.

General and administrative expense. General and administrative expense ("G&A")
increased $3.5 million, or 22%, for the three months ended June 30, 2022,
compared to the three months ended June 30, 2021, primarily driven by (i) an
increase in equity-based compensation expense of $3.0 million due to awards that
were granted as part of the Merger Transactions and the increase in fair value
of the Company's liability-classified profits interest awards and (ii) $3.3
million related to expense payable under the management agreement with KKR
Energy Assets Manager LLC, which is the pro-rata portion of the Manager
Compensation borne by us, offset by $1.5 million in lower transaction and
nonrecurring related expenses. While only the portion borne by us impacts our
consolidated statements of operations, we include the full Manager Compensation
in the calculation of Adjusted EBITDAX and Levered Free Cash Flow (the
difference between the Manager Compensation and the amount presented in G&A is
represented by "Certain-redeemable noncontrolling interest distributions made by
OpCo related to Manager Compensation").

                                                  Three Months Ended June 

30,

                                                   2022                  2021              $ Change              % Change
General and administrative expense (in
thousands):
Recurring general and administrative expense $        8,052          $    6,019          $    2,033                      34  %
Transaction and nonrecurring expenses                 2,249               3,704              (1,455)                    (39) %
Equity-based compensation                             9,355               6,399               2,956                      46  %

Total general and administrative expense $ 19,656 $ 16,122 $ 3,534

                      22  %

General and administrative expense per Boe: Recurring general and administrative expense $ 0.62 $ 0.70 $ (0.08)

                    (11) %
Transaction and nonrecurring expenses                  0.17                0.43               (0.26)                    (60) %
Equity-based compensation                              0.72                0.74               (0.02)                     (3) %



Other operating costs. Other operating costs include exploration expense and
gain on sale of assets. Other operating costs changed by $11.0 million, compared
to the three months ended June 30, 2021, primarily driven by $9.2 million lower
gain on sale of assets recognized during the three months ended June 30, 2022.

Interest expense


In the three months ended June 30, 2022, we incurred interest expense of $24.9
million, as compared to $17.4 million in the three months ended June 30, 2021, a
43% increase. This increase was driven primarily by higher interest rates
associated with the issuance of the Senior Notes (as defined below) and an
increase in our weighted average debt outstanding during the period related to
the Uinta Transaction.

Gain (loss) on derivatives

We have entered into derivative contracts to manage our exposure to commodity
price risks that impact our revenues and interest rate risks on our variable
interest rate debt. The following table presents gain (loss) on derivatives for
the periods presented:

                                               Three Months Ended June 30,
                                                 2022                  2021              $ Change              % Change
Gain (loss) on derivatives (in
thousands):
Gain (loss) on commodity derivatives      $      (177,209)         $ (356,308)         $  179,099                     (50) %
Gain (loss) on interest rate derivatives                -                 312                (312)                   (100) %
Gain (loss) on derivatives                $      (177,209)         $ (355,996)         $  178,787                     (50) %



Our loss on commodity derivatives during the three months ended June 30, 2022
decreased $178.8 million, or 50%, compared to the three months ended June 30,
2021 primarily due to changes in commodity prices relative to our strike price.
In addition, in June 2021, we incurred additional losses on derivatives from the
settlement of certain derivative oil contracts for $198.7
                                       37
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million. The derivative losses that were realized were offset by the higher revenue prices that we received during the three months ended June 30, 2022.

Income from equity affiliates


Our income from equity method investments was $2.3 million for the three months
ended June 30, 2022 primarily due to a gain on sale of substantially all of the
oil and gas assets held by Exaro.

Income tax benefit (expense)


For the three months ended June 30, 2021, we were organized as a limited
liability company and treated as a flow-through entity for U.S. federal income
tax purposes. As a result, the tax provision for the three months ended June 30,
2021 was minimal. Subsequent to the Merger Transactions, we are a corporation
that is subject to U.S. federal and state and income taxes on its allocable
share of any taxable income from OpCo. For the three months ended June 30, 2022
we recognized income tax expense of $17.8 million for an effective tax rate of
5.9%. Our effective tax rate is lower than the U.S. federal statutory income tax
rate of 21% primarily due to effects of removing income and losses related to
our noncontrolling interests and redeemable noncontrolling interests.

Adjusted EBITDAX (non-GAAP) and Levered Free Cash Flow (non-GAAP)


Adjusted EBITDAX and Levered Free Cash Flow are supplemental non-GAAP financial
measures used by our management to assess our operating results. See "-Non-GAAP
Financial Measures" below for their definitions and application.

The following table presents a reconciliation of Adjusted EBITDAX (non-GAAP) and Levered Free Cash Flow (non-GAAP) to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:

                                                       Three Months Ended June 30,
                                                        2022                  2021              $ Change             % Change
(in thousands)
Net income (loss)                                 $      281,898          $ (272,861)         $ 554,759                   (203) %
Adjustments to reconcile to Adjusted EBITDAX:
Interest expense                                          24,937            

17,443

Realized (gain) loss on interest rate derivatives              -            

3,394

Income tax expense (benefit)                              17,798            

1

Depreciation, depletion and amortization                 131,573            

76,228

Exploration expense                                        1,848            

23

Non-cash (gain) loss on derivatives                      (89,655)           

95,459

Non-cash equity-based compensation expense                 9,355               6,399
(Gain) loss on sale of assets                               (197)             (9,417)
Other (income) expense                                       303                 (96)
Certain redeemable noncontrolling interest
distributions made by OpCo related to Manager
Compensation                                             (10,064)           

-

Transaction and nonrecurring expenses (1)                  5,548            

4,175

Early settlement of derivative contracts (2)                   -            

198,688

Adjusted EBITDAX (non-GAAP)                       $      373,344          $  119,436          $ 253,908                    213  %
Adjustments to reconcile to Levered Free Cash
Flow:
Interest expense, excluding non-cash deferred
financing cost amortization                              (22,608)           

(12,884)

Realized (gain) loss on interest rate derivatives              -            

(3,394)

Current income tax benefit (expense)                      (3,026)           

(1)

Tax-related redeemable noncontrolling interest
distributions made by OpCo                               (17,167)           

-

Development of oil and natural gas properties           (193,388)           

(40,272)

Levered Free Cash Flow (non-GAAP)                 $      137,155          $   62,885          $  74,270                    118  %




                                       38
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(1)Transaction and nonrecurring expenses of $5.5 million for the three months
ended June 30, 2022 were primarily related to (i) transition service agreement
costs incurred for the Uinta Transaction and (ii) acquisition and debt
transaction related costs. Transaction and nonrecurring expenses of $4.2 million
for the three months ended June 30, 2021 were primarily related to legal,
consulting and other fees related to the formation of Independence, the
acquisition of Titan Energy Holdings, LLC (f/k/a Liberty Energy LLC) (the "Titan
Acquisition") and the related reorganization transactions.
(2)Represents the settlement in June 2021 of certain outstanding derivative oil
commodity contracts for open positions associated with calendar years 2022 and
2023. Subsequent to the settlement, we entered into commodity derivative
contracts at prevailing market prices.

Adjusted EBITDAX increased by $253.9 million, or 213%, in the three months ended
June 30, 2022, compared to the three months ended June 30, 2021, primarily
driven by higher revenue associated with our oil, natural gas and NGL production
as a result of increased (i) realized prices and (ii) sales volume driven by our
2021 Acquisitions and our Uinta Transaction. This increase was partially offset
by a corresponding increase in operating costs due to higher production volumes
and commodity prices, as well as higher realized losses on our commodity
derivatives.

Levered Free Cash Flow increased by $74.3 million, or 118%, in the three months
ended June 30, 2022 compared to the three months ended June 30, 2021, primarily
driven by our increased Adjusted EBITDAX offset by $153.1 million of increased
capital expenditures related to our additional reinvestment activities following
the increase in commodity prices.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Revenues

The following table provides the components of our revenues, respective average realized prices and net sales volumes for the periods indicated:

                                                                 Six Months Ended
                                                                     June 30,
                                                                          2022                2021             $ Change             % Change
Revenues (in thousands):
Oil                                                                  $   975,076          $ 405,743          $ 569,333                     140  %
Natural gas                                                              350,488            143,492            206,996                     144  %
Natural gas liquids                                                      155,043             74,291             80,752                     109  %
Midstream and other                                                       26,737             24,464              2,273                       9  %
Total revenues                                                       $ 1,507,344          $ 647,990          $ 859,354                     133  %
Average realized prices, before effects of
derivative settlements:
Oil ($/Bbl)                                                          $     99.84          $   60.84          $   39.00                      64  %
Natural gas ($/Mcf)                                                         5.62               3.31               2.31                      70  %
NGLs ($/Bbl)                                                               42.92              25.29              17.63                      70  %
Total ($/Boe)                                                              62.28              37.06              25.22                      68  %
Net sales volumes:
Oil (MBbls)                                                                9,766              6,669              3,097                      46  %
Natural gas (MMcf)                                                        62,367             43,305             19,062                      44  %
NGLs (MBbls)                                                               3,612              2,937                675                      23  %
Total (MBoe)                                                              23,773             16,824              6,949                      41  %
Average daily net sales volumes:
Oil (MBbls/d)                                                                 54                 37                 17                      46  %
Natural gas (MMcf/d)                                                         345                239                106                      44  %
NGLs (MBbls/d)                                                                20                 16                  4                      25  %
Total (MBoe/d)                                                               131                 93                 38                      41  %



                                       39
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Oil revenue. Oil revenue increased $569.3 million, or 140%, in the six months
ended June 30, 2022, compared to the six months ended June 30, 2021. This was
driven primarily by higher realized oil prices that resulted in an increase of
$380.9 million (an increase of 64% per Bbl) and a $188.4 million increase in
sales volume (17 MBbls/d or 46%). The increase in sales volumes primarily
related to our 2021 Acquisitions and Uinta Transaction, which contributed an
additional 1,918 MBbls and 1,593 MBbls, respectively, partially offset by the
natural decline from our existing asset base of 414 MBbls.

Natural gas revenue. Natural gas revenue increased $207.0 million, or 144% in
the six months ended June 30, 2022, compared to the six months ended June 30,
2021. This was driven primarily by higher natural gas prices that resulted in an
increase of $143.9 million (an increase of 70% per Mcf) and a $63.1 million
increase in sales volume (106 MMcf/d, or 44%). The increase in sales volumes was
primarily related to our 2021 Acquisitions and Uinta Transaction, which
contributed an additional 18,674 MMcf and 4,570 MMcf, respectively, partially
offset by the natural decline from our existing asset base of 4,182 MMcf.
NGL revenue. NGL revenue increased $80.8 million, or 109%, in the six months
ended June 30, 2022, compared to the six months ended June 30, 2021. This was
driven primarily by higher realized NGL prices that resulted in an increase of
$63.7 million (an increase of 70% per Bbl) and a $17.1 million increase in sales
volume (4 MBbls/d, or 25%).

Midstream and other revenue. Midstream and other revenue increased $2.3 million,
or 9%, in the six months ended June 30, 2022, compared to the six months ended
June 30, 2021, driven primarily by higher midstream revenue related to the 2021
Acquisitions.

Expenses

The following table summarizes our expenses for the periods indicated and includes a presentation on a per Boe basis, as we use this information to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis:

                                                                 Six Months Ended
                                                                     June 30,
                                                                          2022               2021             $ Change              % Change
Expenses (in thousands):
Operating expense                                                     $ 474,952          $ 285,953          $  188,999                     66  %
Depreciation, depletion and amortization                                230,592            160,097              70,495                     44  %
General and administrative expense                                       42,178             22,751              19,427                     85  %
Other operating costs                                                    (3,048)            (9,338)              6,290                       NM*
Total expenses                                                        $ 744,674          $ 459,463          $  285,211                     62  %
Selected expenses per Boe:
Operating expense, excluding production and
other taxes                                                           $   15.27          $   13.89          $     1.38                     10  %
Production and other taxes                                                 4.71               3.10                1.61                     52  %
Depreciation, depletion and amortization                                   9.70               9.52                0.18                      2  %




* NM = Not meaningful.

Operating expense. Operating expense increased $189.0 million, or 66%, in the
six months ended June 30, 2022, compared to the six months ended June 30, 2021,
driven primarily by the following factors:

(i)Lease and asset operating expense increased $103.9 million, or 79%, in the
six months ended June 30, 2022, compared to the six months ended June 30, 2021.
Additionally, lease and asset operating expense per Boe increased $2.10 per Boe
from $7.79 per Boe to $9.89 per Boe. This $103.9 million increase was driven
primarily by higher production during the six months ended June 30, 2022, due in
part to the 2021 Acquisitions and Uinta Transaction, which contributed $72.7
million and $8.5 million to the increase, respectively, and certain costs that
are indexed to oil commodity prices, such as CO2 purchase costs related to our
CO2 flood asset in Wyoming. These contractually commodity indexed operating
expenses move in tandem with oil commodity prices, and as oil prices increase,
higher contractually commodity-linked operating costs are offset by higher
realizations.
(ii)Gathering, transportation and marketing expense decreased $4.9 million, or
5%, in the six months ended June 30, 2022, compared to the six months ended
June 30, 2021. Additionally, gathering, transportation and marketing expense per
Boe decreased $1.79 per Boe from $5.43 per Boe to $3.64 per Boe. This decrease
was driven primarily by lower sulfur processing and transportation expenses.
                                       40
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(iii)Production and other taxes and increased $59.8 million, or 115%, in the six
months ended June 30, 2022, compared to the six months ended June 30, 2021 and
increased $1.61 per Boe, an increase of 52%, to $4.71 per Boe. This increase was
driven primarily by higher oil and natural gas revenues, which increased the tax
base upon which production and other taxes are calculated.
(iv)Workover expense increased $30.1 million, or 615%, in the six months ended
June 30, 2022, compared to the six months ended June 30, 2021. Additionally,
workover expense per Boe increased $1.18 per Boe from $0.29 per Boe to $1.47 per
Boe. This increase was driven primarily by (i) higher well workover activities
that meet our internal return thresholds due to the higher commodity price
environment and (ii) additional costs from our 2021 Acquisitions and Uinta
Transaction, which contributed $20.3 million and $2.9 million to the increase,
respectively. The 2021 Acquisitions increase includes additional costs related
to a standard turnaround at our natural gas processing plant in Wyoming.
(v)Midstream operating expense increased $0.1 million, or 1%, in the six months
ended June 30, 2022, compared to the six months ended June 30, 2021.

Depreciation, depletion and amortization. In the six months ended June 30, 2022,
depreciation, depletion and amortization increased $70.5 million, or 44%,
compared to the six months ended June 30, 2021, driven primarily by $55.1
million and $33.4 million of additional depreciation, depletion and amortization
due to our 2021 Acquisitions and Uinta Transaction, respectively, partially
offset by a lower depletion rate on increased reserves of our other assets.

General and administrative expense. General and administrative expense ("G&A")
increased $19.4 million, or 85%, for the six months ended June 30, 2022,
compared to the six months ended June 30, 2021, primarily driven by (i) an
increase in equity-based compensation expense of $10.7 million due to awards
that were granted as part of the Merger Transactions and the increase in fair
value of the Company's liability-classified profits interest awards and (ii)
$6.6 million related to expense payable under the management agreement with KKR
Energy Assets Manager LLC, which is the pro-rata portion of the Manager
Compensation borne by us. While only the portion borne by us impacts our
consolidated statements of operations, we include the full Manager Compensation
in the calculation of Adjusted EBITDAX and Levered Free Cash Flow (the
difference between the Manager Compensation and the amount presented in G&A is
represented by "Certain-redeemable noncontrolling interest distributions made by
OpCo related to Manager Compensation").

                                                               Six Months Ended
                                                                   June 30,
                                                                        2022               2021              $ Change              % Change
General and administrative expense (in
thousands):
Recurring general and administrative expense                         $ 16,315          $    8,667          $   7,648                       88  %
Transaction and nonrecurring expenses                                   5,393               4,348              1,045                       24  %
Equity-based compensation                                              20,470               9,736             10,734                      110  %
Total general and administrative expense                             $ 42,178          $   22,751          $  19,427                       85  %
General and administrative expense per Boe:
Recurring general and administrative expense                         $   0.69          $     0.52          $    0.17                       33  %
Transaction and nonrecurring expenses                                    0.23                0.26              (0.03)                     (12) %
Equity-based compensation                                                0.86                0.58               0.28                       48  %



Other operating costs. Other operating costs include exploration expense and
gain on sale of assets. Other operating costs changed by $6.3 million, compared
to the six months ended June 30, 2021, primarily driven by a $4.4 million lower
gain on sale of assets recognized during the six months ended June 30, 2022.

Interest expense


In the six months ended June 30, 2022, we incurred interest expense of $41.5
million, as compared to $24.8 million in the six months ended June 30, 2021, a
67% increase. This increase was driven primarily by higher interest rates
associated with the issuance of the Senior Notes (as defined below) and an
increase in our weighted average debt outstanding during the period.

Gain (loss) on derivatives

                                       41
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We have entered into derivative contracts to manage our exposure to commodity
price risks that impact our revenues and interest rate risks on our variable
interest rate debt. The following table presents gain (loss) on derivatives for
the periods presented:

                                                        Six Months Ended
                                                            June 30,
                                                                 2022                2021              $ Change              % Change
Gain (loss) on derivatives (in thousands):
Gain (loss) on commodity derivatives                         $ (850,695)         $ (603,135)         $ (247,560)                     41  %
Gain (loss) on interest rate derivatives                              -                 325                (325)                   (100) %
Gain (loss) on derivatives                                   $ (850,695)         $ (602,810)         $ (247,885)                     41  %



Our loss on commodity derivatives during the six months ended June 30, 2022
increased $247.9 million, or 41%, compared to the six months ended June 30, 2021
primarily due to changes in commodity prices relative to our strike price. In
addition, in June 2021, we incurred additional losses on derivatives from the
settlement of certain derivative oil contracts for $198.7 million. The
derivative losses that were realized were offset by the higher revenue prices
that we received during the six months ended June 30, 2022.

Income from equity affiliates


Our income from equity method investments was $3.3 million for the six months
ended June 30, 2022 primarily due to a gain on sale of substantially all of the
oil and gas assets held by Exaro.

Income tax benefit (expense)


For the six months ended June 30, 2021, we were organized as a limited liability
company and treated as a flow-through entity for U.S. federal income tax
purposes. As a result, the tax provision for the six months ended June 30, 2021
was minimal. Subsequent to the Merger Transactions we are a corporation that is
subject to U.S. federal and state and income taxes on its allocable share of any
taxable income from OpCo. For the six months ended June 30, 2022 we recognized
income tax expense of $3.9 million for an effective tax rate of 3.1%. Our
effective tax rate is lower than the U.S. federal statutory income tax rate of
21% primarily due to effects of removing income and losses related to our
noncontrolling interests and redeemable noncontrolling interests.

Adjusted EBITDAX (non-GAAP) and Levered Free Cash Flow (non-GAAP)


Adjusted EBITDAX and Levered Free Cash Flow are supplemental non-GAAP financial
measures used by our management to assess our operating results. See "-Non-GAAP
Financial Measures" below for their definitions and application.

The following table presents a reconciliation of Adjusted EBITDAX (non-GAAP) and Levered Free Cash Flow (non-GAAP) to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:

                                       42
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                                                                     Six Months Ended
                                                                         June 30,
                                                                              2022                2021              $ Change             % Change
(in thousands)
Net income (loss)                                                         $ (124,109)         $ (439,129)         $ 315,020                     (72) %
Adjustments to reconcile to Adjusted EBITDAX:
Interest expense                                                              41,461              24,826
Realized (gain) loss on interest rate derivatives                                  -               7,022
Income tax expense (benefit)                                                  (3,927)                 14
Depreciation, depletion and amortization                                     230,592             160,097
Exploration expense                                                            1,939                  79
Non-cash (gain) loss on derivatives                                          408,030             304,579
Non-cash equity-based compensation expense                                    20,470               9,736
(Gain) loss on sale of assets                                                 (4,987)             (9,417)
Other (income) expense                                                         1,802                   6
Certain redeemable noncontrolling interest
distributions made by OpCo related to Manager
Compensation                                                                 (20,128)                  -
Transaction and nonrecurring expenses (1)                                     17,107               4,819
Early settlement of derivative contracts (2)                                       -             198,688
Adjusted EBITDAX (non-GAAP)                                               $  568,250          $  261,320          $ 306,930                     117  %
Adjustments to reconcile to Levered Free Cash
Flow:
Interest expense, excluding non-cash deferred
financing cost amortization                                                  (37,535)            (19,417)
Realized (gain) loss on interest rate derivatives                                  -              (7,022)
Current income tax benefit (expense)                                          (7,976)                (14)
Tax-related redeemable noncontrolling interest
distributions made by OpCo                                                   (17,167)                  -
Development of oil and natural gas properties                               (278,868)            (65,099)
Levered Free Cash Flow (non-GAAP)                                         $  226,704          $  169,768          $  56,936                      34  %




(1)Transaction and nonrecurring expenses of $17.1 million for the six months
ended June 30, 2022 were primarily related to (i) legal, consulting, transition
service agreement costs, related restructuring of acquired derivative contracts
and other fees incurred for the Uinta Transaction and Merger Transactions, (ii)
severance costs subsequent to the Merger Transactions and (iii) acquisition and
debt transaction related costs. Transaction and nonrecurring expenses of $4.8
million for the six months ended June 30, 2021 were primarily related to legal,
consulting and other fees related to the formation of Independence, the Titan
Acquisition and the related reorganization transactions.
(2)Represents the settlement in June 2021 of certain outstanding derivative oil
commodity contracts for open positions associated with calendar years 2022 and
2023. Subsequent to the settlement, we entered into commodity derivative
contracts at prevailing market prices.

Adjusted EBITDAX increased by $306.9 million, or 117%, in the six months ended
June 30, 2022, compared to the six months ended June 30, 2021, primarily driven
by higher revenue associated with our oil, natural gas and NGL production as a
result of increased (i) realized prices and (ii) sales volume driven by our 2021
Acquisitions and our Uinta Transaction. This increase was partially offset by a
corresponding increase in operating costs due to higher production volumes and
commodity prices, as well as higher realized losses on our commodity
derivatives.

Levered Free Cash Flow increased by $56.9 million, or 34%, in the six months
ended June 30, 2022 compared to the six months ended June 30, 2021, primarily
driven by our increased Adjusted EBITDAX offset by $213.8 million of increased
capital expenditures related to our additional reinvestment activities following
the increase in commodity prices.

Liquidity and capital resources


Our primary sources of liquidity are cash flow from operations and borrowings
under a senior secured reserve-based revolving credit agreement (as amended,
restated, amended and restated or otherwise modified to date, the "Revolving
Credit Facility") with Wells Fargo Bank, N.A., as administrative agent for the
lenders and letter of credit issuer, and the lenders from time to
                                       43
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time party thereto. Our primary use of capital is for dividends to shareholders, debt repayment, development of our existing assets and acquisitions.


Our development program is designed to prioritize the generation of meaningful
free cash flow and attractive risk-adjusted returns and is inherently flexible,
with the ability to scale our capital program as necessary to react to the
existing market environment and ongoing asset performance. See "-Development
plan and capital budget" above for additional discussion of our capital program.

We plan to continue our practice of entering into economic hedging arrangements
to reduce the impact of the near-term volatility of commodity prices and the
resulting impact on our cash flow from operations. A key tenet of our focused
risk management effort is an active economic hedge strategy to mitigate
near-term price volatility while maintaining long-term exposure to underlying
commodity prices. Our commodity derivative program focuses on entering into
forward commodity contracts when investment decisions regarding reinvestment in
existing assets or new acquisitions are finalized, targeting economic hedges for
a portion of expected production as well as adding incremental derivatives to
our production base over time. Our active derivative program allows us to
preserve capital and protect margins and corporate returns through commodity
cycles.

The following table presents our cash balances and outstanding borrowings at the end of each period presented:

                               June 30, 2022       December 31, 2021
                                           (in thousands)
Cash and cash equivalents     $       54,580      $          128,578
Long-term debt                     1,515,702               1,030,406



Based on our planned capital spending, our forecasted cash flows and projected
levels of indebtedness, we expect to maintain compliance with the covenants
under our debt agreements. Further, based on current market indications, we
expect to meet in the ordinary course of business other contractual cash
commitments to third parties pursuant to the various agreements described under
the heading "Contractual obligations" in our Annual Report, recognizing we may
be required to meet such commitments even if our business plan assumptions were
to change.

Cash flows

The following table summarizes our cash flows for the periods indicated:

                                                       Six Months Ended June 30,
                                                                            2022           2021
                                                                              (in thousands)
Net cash provided by operating activities                                $ 398,454      $ 35,678
Net cash used in investing activities                                     (864,036)      (86,670)
Net cash provided by financing activities                                  

394,613 90,209




Net cash provided by operating activities. Net cash provided by operating
activities for the six months ended June 30, 2022 increased by $362.8 million,
or 1017%, compared to the six months ended June 30, 2021 primarily due to higher
EBITDAX and the restructuring of certain derivative contracts in 2021, partially
offset by the restructuring of certain oil commodity derivative contracts
acquired in connection with the Uinta Transaction.

Net cash used in investing activities. Net cash used in investing activities for
the six months ended June 30, 2022 increased by $777.4 million, or 897%,
compared to the six months ended June 30, 2021, primarily due to $566.6 million
of additional acquisitions of oil and natural gas properties in 2022, driven by
the Uinta Transaction, and an additional $191.6 million of cash development
capital expenditures as we have resumed reinvestment activity in relation to
higher commodity prices.

Net cash provided by financing activities. Net cash provided by financing
activities for the six months ended June 30, 2022 was $394.6 million, as
compared to a $90.2 million use of cash in the six months ended June 30, 2021.
This increase was primarily due to net cash inflows from our debt transactions,
primarily the result of the issuance of our 7.250% senior notes due 2026 (the
"New Notes") in February 2022 and additional borrowings from our Revolving
Credit Facility to fund our Uinta Transaction.
                                       44
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These net cash inflows in 2022 were partially offset by $61.4 million in distributions to redeemable noncontrolling interests and $12.2 million in dividends to holders of our Class A Common Stock.

Debt agreements

Senior Notes


On May 6, 2021, Crescent Energy Finance LLC ("Crescent Finance") issued $500.0
million aggregate principal amount of senior notes due 2026 at par (the
"Original Notes"). In February 2022, Crescent Finance issued an additional
$200.0 million aggregate principal amount of our senior notes due 2026 at 101%
of par (the "New Notes" and, together with the Original Notes, the "Senior
Notes"). Both issuances of the Senior Notes are treated as a single series and
vote together as a single class, and have identical terms and conditions, other
than the issue date, the issue price and the first interest payment. The Senior
Notes bear interest at an annual rate of 7.250%, which is payable on May 1 and
November 1 of each year and mature on May 1, 2026.

The Senior Notes are our senior unsecured obligations, and the notes and the
guarantees issued in connection with the issuance of the Senior Notes rank
equally in right of payment with the borrowings under the Revolving Credit
Facility and all of its other future senior indebtedness and senior to any of
its future subordinated indebtedness. The Senior Notes are guaranteed on a
senior unsecured basis by each of our existing and future subsidiaries that
guarantee the Revolving Credit Facility. The Senior Notes and the guarantees are
effectively subordinated to all of our secured indebtedness (including all
borrowings and other obligations under the Revolving Credit Facility) to the
extent of the value of the collateral securing such indebtedness, and
structurally subordinated in right of payment to all existing and future
indebtedness and other liabilities (including trade payables) of any future
subsidiaries that do not guarantee the Senior Notes.

We may, at our option, redeem all or a portion of the Senior Notes at any time
on or after May 1, 2023 at certain redemption prices. We may also redeem up to
40% of the aggregate principal amount of the Senior Notes before May 1, 2023
with an amount of cash not greater than the net proceeds that we raise in
certain equity offerings at a redemption price equal to 107.250% of the
principal amount of the Senior Notes being redeemed, plus accrued and unpaid
interest, if any, to, but excluding the redemption date. In addition, prior to
May 1, 2023, we may redeem some or all of the Senior Notes at a price equal to
100% of the principal amount thereof, plus a "make-whole" premium, plus accrued
and unpaid interest, if any, to, but excluding the redemption date.

If we experience certain kinds of changes of control accompanied by a ratings
decline, holders of the Senior Notes may require us to repurchase all or a
portion of their notes at certain redemption prices. The Senior Notes are not
listed, and we do not intend to list the Senior Notes in the future, on any
securities exchange, and currently there is no public market for the Senior
Notes.

Revolving Credit Facility


In connection with the issuance of the Senior Notes, Crescent Finance entered
into the Revolving Credit Facility. The Revolving Credit Facility matures on May
6, 2025. At June 30, 2022, we had $829.0 million of outstanding borrowings under
the Revolving Credit Facility and $17.8 million in outstanding letters of
credit.

In connection with the closing of the Uinta Transaction, we entered into an amendment to our Revolving Credit Facility to increase the borrowing base to $1.8 billion with an elected commitment amount of $1.3 billion.


Borrowings under the Revolving Credit Facility bear interest at either a (i)
U.S. dollar alternative base rate (based on the prime rate, the federal funds
effective rate or an adjusted secured overnight financing rate ("SOFR")), plus
an applicable margin, or (ii) SOFR, plus an applicable margin, at the election
of the borrowers. The applicable margin varies based upon our borrowing base
utilization then in effect. The fee payable for the unused revolving commitments
is 0.50% per year. Our weighted average interest rate on loan amounts
outstanding as of June 30, 2022 was 4.42%.

The borrowing base is subject to semi-annual scheduled redeterminations on or
about April 1 and October 1 of each year, as well as (i) elective borrowing base
interim redeterminations at our request not more than twice during any
consecutive 12-month period or the required lenders not more than once during
any consecutive 12-month period and (ii) elective borrowing base interim
redeterminations at our request following any acquisition of oil and natural gas
properties with a purchase price in the aggregate of at least 5.0% of the then
effective borrowing base. The borrowing base will be automatically reduced upon
(a) the issuance of certain permitted junior lien debt and other permitted
additional debt, (b) the sale or other disposition of borrowing base properties
if the aggregate net present value, discounted at 9% per annum ("PV-9") of such
properties sold or
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disposed of is in excess of 5.0% of the borrowing base then in effect and (c)
early termination or set-off of swap agreements (x) the administrative agent
relied on in determining the borrowing base or (y) if the value of such swap
agreements so terminated is in excess of 5.0% of the borrowing base then in
effect.

The obligations under the Revolving Credit Facility remain secured by first
priority liens on substantially all of our and the guarantors' tangible and
intangible assets, including without limitation, oil and natural gas properties
and associated assets and equity interests owned by us and such guarantors. In
connection with each redetermination of the borrowing base, we must maintain
mortgages on at least 85% of the PV-9 of the oil and gas properties that
constitute borrowing base properties. Our domestic direct and indirect
subsidiaries are required to be guarantors under the Revolving Credit Facility,
subject to certain exceptions.

The Revolving Credit Facility contains certain covenants that restrict the
payment of cash dividends, certain borrowings, sales of assets, loans to others,
investments, merger activity, commodity swap agreements, liens and other
transactions without the adherence to certain financial covenants or the prior
consent of our lenders. We are subject to (i) maximum leverage ratio and (ii)
current ratio financial covenants calculated as of the last day of each fiscal
quarter. The Revolving Credit Facility also contains representations,
warranties, indemnifications and affirmative and negative covenants, including
events of default relating to nonpayment of principal, interest or fees,
inaccuracy of representations or warranties in any material respect when made or
when deemed made, violation of covenants, bankruptcy and insolvency events,
certain unsatisfied judgments and a change of control. If an event of default
occurs and we are unable to cure such default, the lenders will be able to
accelerate maturity and exercise other rights and remedies. We expect to remain
in compliance with these covenants for the foreseeable future.

Prior Credit Agreements


Certain of our subsidiaries had revolving credit facilities with syndicates of
lenders with original expiration dates between 2022 and 2024 (the "Prior Credit
Agreements"). The amounts we were able to borrow under each of the Prior Credit
Agreements was limited by a borrowing base, which was based on our oil and
natural gas properties, proved reserves and total indebtedness, as well as other
factors, and was consistent with customary lending criteria. On May 6, 2021, we
terminated the Prior Credit Agreements with the proceeds from the issuance of
the Senior Notes, the redemption of certain noncontrolling equity interests in
exchange for a third-party investor's proportionate share of underlying oil and
natural gas interests held by its consolidated subsidiaries and borrowings under
our Revolving Credit Facility.

Capital expenditures


Our acquisition and development expenditures consist of acquisitions of proved
and unproved property, expenditures associated with the development of our oil
and natural gas properties and other asset additions. Cash expenditures for
drilling, completion and recompletion activities are presented as "Development
of oil and natural gas properties" in investing activities on our condensed
consolidated statements of cash flows.

We expect to fund our 2022 capital program through cash flow from operations.
The amount and timing of capital expenditures on development of oil and natural
gas properties is substantially within our control due to the held-by-production
nature of our assets. We regularly review our capital expenditures throughout
the year and could choose to adjust our investments based on a variety of
factors, including but not limited to the success of our drilling activities,
prevailing and anticipated prices for oil, natural gas and NGLs, the
availability of necessary equipment, infrastructure and capital, the receipt and
timing of required regulatory permits and approvals, seasonal conditions,
drilling and acquisition costs and the level of participation by other interest
owners. Any postponement or elimination of our development drilling program
could result in a reduction of proved reserve volumes, the related standardized
measure and conversions of proved undeveloped volumes to proved developed
volumes. These risks could materially affect our business, financial condition
and results of operations.

The table below presents our capital expenditures and related metrics that we use to evaluate our business for the periods presented:

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                                                                       Six Months Ended
                                                                           June 30,
                                                                                2022                 2021
                                                                                     (in thousands)
Total development of oil and natural gas properties                        $   278,868          $    65,099
Change in accruals or other non-cash adjustments                               (38,512)             (16,302)
Cash used in development of oil and natural gas properties                     240,356               48,797
Cash used in acquisition of oil and natural gas properties                     627,390               60,828
Non-cash acquisition of oil and natural gas properties                               -               10,537
Total expenditures on acquisition and development of oil and
natural gas properties                                                     $   867,746          $   120,162



Our development of oil and natural gas properties was higher during the six
months ended June 30, 2022, compared to the six months ended June 30, 2021. Due
to the low commodity price environment experienced throughout 2020 resulting
from the COVID-19 pandemic and the actions from OPEC, we significantly reduced
our development capital expenditures starting in the second quarter of 2020 but
resumed development activities in the second half of 2021 as commodity prices
recovered. During the six ended June 30, 2022, commodity prices remained at or
above levels prior to the COVID-19 pandemic. Our budget for 2022 reflects the
current price environment. We used cash of $627.4 million in 2022 for the
acquisition of oil and natural gas properties, primarily related to our Uinta
Transaction, as compared to $60.8 million in 2021, primarily related to our DJ
Basin Acquisition (see Notes to condensed consolidated financial statements,
NOTE 3 - Acquisitions and Divestitures in Part I, Item 1. Financial Statements
of this Quarterly Report).

Contractual obligations

As of June 30, 2022, there have been no material changes to the contractual obligations previously disclosed in our Annual Report.

Dividends

Our future dividends depend on our level of earnings, financial requirements and other factors and will be subject to approval by our Board of Directors, applicable law and the terms of our existing debt documents, including the indenture governing the Senior Notes.

We paid cash dividends of $0.29 per share of our Class A Common Stock to shareholders during the six months ended June 30, 2022.


On August 9, 2022, the Board of Directors approved a quarterly cash dividend of
$0.17 per share, or $0.68 per share on an annualized basis, to be paid to
shareholders of our Class A Common Stock with respect to the second quarter of
2022. The quarterly dividend is payable on September 6, 2022 to shareholders of
record as of the close of business on August 23, 2022. OpCo unitholders will
also receive a distribution based on their pro rata ownership of OpCo Units.

The payment of quarterly cash dividends is subject to management's evaluation of
our financial condition, results of operations and cash flows in connection with
such payments and approval by our Board of Directors. In light of current
economic conditions, management will evaluate any future increases in cash
dividend on a quarterly basis.

Critical accounting policies and estimates


This discussion and analysis of our financial and results of operations are
based upon our unaudited condensed consolidated financial statements. A complete
list of our significant accounting policies is described in Note 2 - Summary of
Significant Accounting Policies in our audited financial statements as of and
for the year ended December 31, 2021 in our Annual Report. Refer also to
"Critical accounting estimates" in Part II. Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations of our Annual Report.
There have been no changes to our significant accounting policies and critical
accounting estimates as of June 30, 2022.

Non-GAAP financial measures

Our MD&A includes financial measures that have not been calculated in accordance with U.S. GAAP. These non-GAAP measures include the following:

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•Adjusted EBITDAX; and

•Levered Free Cash Flow


These are supplemental non-GAAP financial measures used by our management to
assess our operating results and assist us make our investment decisions. We
believe that the presentation of these non-GAAP financial measures provides
investors with greater transparency with respect to our results of operations,
as well as liquidity and capital resources, and that these measures are useful
for period-to-period comparison of results.

We define Adjusted EBITDAX as net income (loss) before interest expense,
realized (gain) loss on interest rate derivatives, income tax expense,
depreciation, depletion and amortization, exploration expense, non-cash gain
(loss) on derivative contracts, impairment of oil and natural gas properties,
non-cash equity-based compensation, (gain) loss on sale of assets, other
(income) expense, certain redeemable noncontrolling interest distributions made
by OpCo related to Manager Compensation, transaction and nonrecurring expenses
and early settlement of derivative contracts. We believe Adjusted EBITDAX is a
useful performance measure because it allows for an effective evaluation of our
operating performance when compared against our peers, without regard to our
financing methods, corporate form or capital structure. We exclude the items
listed above from net income (loss) in arriving at Adjusted EBITDAX because
these amounts can vary substantially within our industry depending upon
accounting methods and book values of assets, capital structures and the method
by which the assets were acquired. Adjusted EBITDAX should not be considered as
an alternative to, or more meaningful than, net income (loss) as determined in
accordance with GAAP, of which such measure is the most comparable GAAP measure.
Certain items excluded from Adjusted EBITDAX are significant components in
understanding and assessing a company's financial performance, such as a
company's cost of capital and tax burden, as well as the historic costs of
depreciable assets, none of which are reflected in Adjusted EBITDAX. Our
presentation of Adjusted EBITDAX should not be construed as an inference that
our results will be unaffected by unusual or nonrecurring items. Our
computations of Adjusted EBITDAX may not be identical to other similarly titled
measures of other companies. In addition, the Revolving Credit Facility and
Senior Notes include a calculation of Adjusted EBITDAX for purposes of covenant
compliance.

We define Levered Free Cash Flow as Adjusted EBITDAX less interest expense,
excluding non-cash deferred financing cost amortization, realized gain (loss) on
interest rate derivatives, current income tax benefit (expense), tax-related
redeemable noncontrolling interest distributions made by OpCo and development of
oil and natural gas properties. Levered Free Cash Flow does not take into
account amounts incurred on acquisitions. Levered Free Cash Flow is not a
measure of performance as determined by GAAP. Levered Free Cash Flow is a
supplemental non-GAAP performance measure that is used by our management and
external users of our financial statements, such as industry analysts,
investors, lenders and rating agencies. We believe Levered Free Cash Flow is a
useful performance measure because it allows for an effective evaluation of our
operating and financial performance and the ability of our operations to
generate cash flow that is available to reduce leverage or distribute to our
equity holders. Levered Free Cash Flow should not be considered as an
alternative to, or more meaningful than, net income (loss) as determined in
accordance with GAAP, of which such measure is the most comparable GAAP measure,
or as an indicator of actual operating performance or investing activities. Our
computations of Levered Free Cash Flow may not be comparable to other similarly
titled measures of other companies.

Adjusted EBITDAX and Levered Free Cash Flow should be read in conjunction with
the information contained in our condensed consolidated financial statements
prepared in accordance with GAAP.

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