Granite Ridge Resources Inc (GRNT) Q1 2024 Earnings Call Transcript Highlights: Key Financial ...

• Production: 23,800 barrels of oil equivalent per day, slightly higher than expected.

• Net Debt to EBITDA: Targeting 0.5 times, with current net debt around $150 million.

• Adjusted EBITDAX: $64 million, higher than expected due to favorable oil prices and production.

• Same Store Sales: Down 3%, better than the expected 5% decline.

• Adjusted EPS: $0.12 per diluted share for Q1 2024.

• Capital Expenditures: $65 million in Q1 2024, with $3 million from acquisitions.

• Annual Production Guidance: 23,250 to 25,250 BOE per day, representing 7% midpoint growth.

• Dividend: Quarterly cash dividend declared at $0.11 per share, annualized yield of 6.7%.

• Borrowing Base: Increased to $300 million with expanded lender syndicate.

• Leverage: 0.4 times net debt to trailing EBITDA, below the target of 0.5 times.

Release Date: May 10, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Granite Ridge Resources Inc (NYSE:GRNT) expanded its credit facility to a $300 million borrowing base, successfully syndicating the facility from six to 14 banks.

• The company reported production slightly higher than expected at 23,800 barrels of oil equivalent per day, despite a projected decline.

• Adjusted EBITDAX for the quarter was $64 million, higher than expected due to favorable oil prices and production levels.

• Granite Ridge Resources Inc (NYSE:GRNT) closed four transactions during the quarter, focusing primarily on the Delaware side of the Permian Basin.

• The company maintains a strong balance sheet with pro forma liquidity over $180 million and leverage of 0.4 times net debt to trailing EBITDA.

Negative Points

• Production was down 8% from the previous quarter, and the company expects production to be flat for the next couple of quarters.

• The deferral of some dry gas production expected to come online in the second quarter will likely slow down the timeline for production ramp-up.

• Total entry costs for new net locations were higher than the target, at $2.7 million per net location compared to a target closer to $2 million.

• Oil production mix for the quarter was lower than expected at 45%, below the guidance expectation of 47% for the year.

• The company is experiencing temporary dislocation due to demand destruction or sustained decline in demand response to limited supply.

Q & A Highlights

Q: Thanks, Tom, I wanted to ask about your oil mix of Tyler, I think you mentioned the 45% mix for the quarter is below your guidance for the year. I realize you've got some deferred gas projects going forward that are going to improve that. But can you maybe walk us through some of the drivers that are going to move your absolute oil production from and I guess Q4 some of little bit higher than that 45% mix. A: Hey, good morning. Bill sporadic, Regina, thanks for the question. A couple of pieces. I mentioned we're seeing some deferrals on the gas side, I think that will help accelerate the oil mix increasing more quickly than we thought. On the last call, I mentioned that just across the year, we start out in the mid 40s and slowly working our way up if the gas deferrals dollar. This is more conversation that we're having operators saying, hey, we made data from wells. We may defer some drilling instead of drilling eight wells we'll drill for. We actually have an operator in the Permian. That's just simply curtailing gas production and Reeves County do that terrible Waha pricing. So that continues, I that you'll see that oil percentage creep up, you may even break 50% as we get later in the year. We anticipate in the next several years, it'll be upwards of 50%, but we just expect to accrete from, call it 45 to 50 or so, is that across the next three quarters.

Q: Okay. Sounds good. And then I guess your two one oil realization was a nice premium to Nymex. Can you maybe talk about what sort of drove that, how we should sort of think about that relationship going forward? A: Yes, sure. Phil and Tyler, we have some lumpiness in our differentials. If you look back historically over the last handful of quarters, and I think you're seeing some lumpiness again in the first quarter. We did have a small out of period adjustment in the first quarter that drove it a little higher. But moving forward, I still think on average over time, you should expect to see minus $2 to benchmark price.

Q: Please go ahead or were you guys wanted to get some more detail on the 5.5 fills that you're looking at what the partnership I think, Luke, you said those are coming online in the second quarter. Have any of those been completed yet? And I guess what needs to happen to bring those online? A: Yes. Morning, Mike, thanks for the call and thanks for the question. And so that is 5.5 net single mile wells there in Loving County is that actually our completed got the Christmas trees on, they're ready to go actually got a picture two days ago. I have everything fully ready to turn them on, but really just waiting on pipe. And so the expected turn to sales date is June first. I love it for it to be earlier, but that's really what we're targeting right now. Again, it's just more, I think, issues everything on the operations side is done and frankly was done in tremendous fashion. We came in 14% under AFE on the drilling, 8.5% about on the completion side and just a data point, the drilling was really more driven by just drilling quickly, not necessarily by material price decreases. The completion side was pretty similar. We've just got great crews out there and they've really done a tremendous job.

Q: Sounds good. You mentioned the partnership CapEx now you're taking 40% of your target in the 30s, maybe 35% earlier and you see that going higher. Can you talk about where that may go next year and beyond? A: Yes, that's a good question, though. What we've talked about right now, Mike, is we had two rigs we were actually running earlier this year. We've laid down one rig or have another group that we're penetrating it back and forth with how there's a good chance we pick up another rig later this year. That's the plan. And what I'd say is the second rig for us is really more opportunistic. What's allowing us to do is hit some of these short fuse opportunities. Frankly, this is the one that we're bringing on to kind of late third quarter, early fourth quarter and the 1.4 net well pad. That was a new deal where there was a lot independent who had the experts come up and they were going to be able to hit it. So we were able to then look, we'll pick up another rig. We were able to get it from an operator hot rig crew that we know. In fact, I think they're using the same drilling consultants able to pick it up to hit that unit. So I wouldn't assume two rigs running full-time, but I would assume 1.5 ish rigs next year. And so I'd expect that you'd see a relatively similar number on maybe a bit higher, call it, mid one, 25 to 30 would be my guess right now.

Q: And then last one from me. I guess given that the partnership activity is probably going to dictate to a large extent your capital spend, it sounds like second quarter is going to be the high watermark for the year and does that come down in the second half? I guess any you haven't given formal guidance on second quarter, but the is it something in the $80 million for development CapEx for Q3 kind of ballpark, as that sounds a little high to me right out of the gate and largely because we don't have that second rig running the whole second quarter is generally down the second quarter. A: We'll pick it up in the third. So I'd expect something pretty similar to what you're seeing in this first or maybe slightly less.

Q: Thanks. Good morning, Luke, on the controlled capital efforts, are you looking at opportunities both to put together organic deals that Granite Ridge assembles and takes to an operator and look at operators who might be looking like a partner where essentially Granite Ridge comes in and works as a capital provider? A: Yes. Great question, Jeff, and thanks for the call. The The answer is yes, to both. And so we'll look at it from a few pieces, one in there with the controlled capital via strategic partnership, they're the ones generating the opportunities and really where the capital provider for that. Another piece to it, we've put together unit just boots on the ground and one thing that we did as we did last year, and we actually are finishing of documents for another unit this year where we've strayed into an area we thought EOG putting together position. And so it's great in their start picking up leases were the only ones that had the idea there was another non-op

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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