Q1 2024 Permian Resources Corp Earnings Call

Please standby we're about to begin.

Operator: Please stand by, we're about to begin. Good morning and welcome everyone to the Permian Resources conference call to discuss its first quarter 2024 earnings conference call. This call is being recorded. A replay of the call will be accessible until May 22nd, 2024 by dialing 1-800-938-2488 and entering the replay access code 24995, or by visiting the company's website at www.permianres.com. At this time, I will turn the call over to Mr. Hays Mabry, Permian Resource's Vice President of Investor Relations, for some opening remarks. Please go ahead, Mr. Mabry. Thanks. Thanks, Bill.

Good morning, and welcome everyone to Permian Resources Conference call to discuss its first quarter 2024 earnings conference call.

Operator: Today's call is being recorded a replay of the call will be accessible until may 22nd 2024 by dialing one 893 eight to 488 and entering the replay access code 249, 95 or by visiting the company's website at www.

Operator: Got Permian Rez dotcom.

Operator: At this time I will turn the call over to Mr. Hays Mabry Permian resources, Vice President of Investor Relations for some opening remarks. Please go ahead Mr. <unk>.

Hays Mabry: Thanks, Bo. And thank you all for joining us for the company's first quarter, 2024. On the call today are Will Hickey and James Walter, our Chief Executive Officer, and Guy Oliphant, our Chief Financial Officer, yesterday. May 7, who thought of Form 8K with an earnings, Reporting, First Quarter Results.

Hays Mabry: Thanks Bill.

Hays Mabry: We also posted a NARINES presentation on our website that we will reference during today's call. I would like to note that many of the comments during this earnings call are forward-looking statements that involve risk and uncertainty that could affect our actual results and plans. Many of these risks are beyond our control and are discussed in more detail in the Risk Factors section and the forward-looking statement section of our filings with the SEC, including our Form 10-Q, which is expected to be filed later this afternoon.

Speaker Change: Thank you all for joining us.

Hays Mabry: The company's first quarter 2024.

Hays Mabry: On the call today.

Hays Mabry: Our will hickey.

Hays Mabry: James Walton.

Hays Mabry: Our chief Executive officers.

Hays Mabry: Hey, Guy often our chief financial Officer.

Hays Mabry: Yesterday Mesa.

Hays Mabry: Seven.

Hays Mabry: We saw the form 8-K with an earnings release.

Hays Mabry: Reporting first quarter results.

Hays Mabry: We also posted an earnings presentation.

Hays Mabry: To our website that we will reference during today's call.

Hays Mabry: I would like to note that many of the comments.

Hays Mabry: During this earnings call.

Hays Mabry: Looking statements.

Hays Mabry: Risk and uncertainties.

Hays Mabry: It could affect our actual results and plans.

Hays Mabry: Many of these risks are beyond our control.

Hays Mabry: And are discussed in more detail.

Hays Mabry: The risk factors and the forward looking statements sections of our filings with the SEC.

Hays Mabry: Including our Form 10-Q, which is expected to be filed later this afternoon.

Hays Mabry: Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance, and actual results may differ materially. We may also refer to non-GAAP financial measures that help facilitate comparisons across periods and with our peers. For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation, which are both available on our website. With that, I will turn the call over to Will Hickey, co-CEO.

Hays Mabry: Although we believe the expectations expressed are based on reasonable assumptions there.

William M. Hickey: They are not guarantees of future performance.

William M. Hickey: And actual results or developments may.

William M. Hickey: Differ materially.

William M. Hickey: We may also refer to non-GAAP financial measures.

William M. Hickey: Facilitate comparisons across periods and with our peers.

William M. Hickey: For any non-GAAP measure we use a.

William M. Hickey: A reconciliation to the nearest corresponding GAAP measure can.

William M. Hickey: Can be found in our earnings release or presentation.

William M. Hickey: Which are both available on our website.

William M. Hickey: That I will turn the call over to Wil Hickey co CEO.

William M. Hickey: Thanks, Hays. I truly believe that the first quarter was the most compelling quarter Permian Resources has delivered so far. We were able to deliver production and free cash flow above our expectations, close out the integration of Earthstone ahead of schedule while increasing our annual synergy target by 50 million, and continue to execute on a creative A&E with approximately 270 million in acquisitions announced. It takes an incredible team to deliver such strong execution quarter after quarter, and I look forward to sharing some more detail on Q1.

William M. Hickey: Thanks, guys.

William M. Hickey: Truly believe that the first quarter was the most compelling quarter Permian resources has delivered so far we were able to deliver production and free cash flow above our expectations close out the integration of <unk> ahead of schedule, while increasing our annual synergy target by $50 million and continued to execute on accretive A&D with approximately 270 million of acquisitions announced.

William M. Hickey: <unk>.

William M. Hickey: It takes an incredible team to deliver such strong execution quarter after quarter and I look forward to sharing some more detail on Q1 today.

William M. Hickey: Moving into quarterly results, I'm pleased to announce Q1 production exceeded expectations with total production of 320,000 barrels of oil equivalent per day and oil production of 152,000 barrels of oil per day. Our strong production was attributable to multiple factors, including accelerated earthstone DMC efficiency and Higher Operational Run. Strong production results and CapEx of $520 million in the quarter resulted in adjusted operating cash flow of $844 million, or $1.09 per share, and adjusted free cash flow of $324 million, or $0.42 per share.

William M. Hickey: Moving into the quarterly results I am pleased to announce Q1 production exceeded expectations with total production of 320000 barrels of oil equivalent per day and oil production of 152000 barrels of oil per day.

William M. Hickey: Our strong production was attributable to multiple factors, including accelerated first on D&C efficiencies and higher operational run times.

William M. Hickey: Strong production results in Capex of $520 million in the quarter resulted in adjusted operating cash flow of $844 million or $1 nine per share and adjusted free cash flow of $324 million or 42 cents per share.

William M. Hickey: We remain highly focused on sustaining a strong balance sheet with leverage of approximately one times and increased liquidity to over $2 billion. As part of our regularly scheduled spring bank redetermination process, we increased aggregate lender commitments under the credit facility from $2 to $2.5 billion while maintaining a borrowing base of $4 billion. Turning to return of capital, our strategy remains consistent. We delivered on our previously announced increased base dividend of $0.06 per share, a 20% increase from previous quarters.

William M. Hickey: We remain highly focused on sustaining a strong balance sheet with leverage of approximately one times and increase liquidity to over 2 billion.

William M. Hickey: As part of our regularly scheduled spring bank Redetermination process, we increased aggregate lender commitments under the credit facility from two to $2 5 billion, while maintaining a borrowing base of 4 billion.

William M. Hickey: Turning to return of capital our strategy remains consistent we delivered on our previously announced increased base dividend of <unk> <unk> per share a 20% increase from previous quarters.

William M. Hickey: For the variable portion of our return on capital, first, we repurchased a total of 2 million shares in the quarter. The remainder of our capital return was paid out via a variable dividend of $0.14 per share, bringing the all-in quarterly return on capital to $0.24 per share.

William M. Hickey: The variable portion of our return of capital first we repurchased a total of 2 million shares in the quarter. The remainder of our capital return we paid out via a variable dividend of 14 <unk> per share, bringing the all in quarterly return of capital to 24 cents per share.

William M. Hickey: Now I'd like to spend a little time talking about the efficiencies and synergies that impacted the business in such a positive way this quarter. When we rolled out the Earthstone acquisition, we were highly confident that we could reduce drilling days and completion days and improve production operations, driving material synergies to be fully realized by year-end 2021. We have already achieved that and more. In just under five months, we've high-graded all Legacy Earthstone rigs and completions.

William M. Hickey: Now I'd like to spend a little time talking about the efficiencies and synergies that impacted the business in such a positive way this quarter.

William M. Hickey: Rolled out the Archstone acquisition, we were highly confident that we could reduce drilling days and completion days and improved production operations driving material synergies to be fully realized by year end 2024.

William M. Hickey: We have already achieved that and more and just under five months, we've high graded all legacy Archstone rigs and completion crews. This combined with TR best practices helped drive an 18% production reduction and first down drilling days per well and approximately 50% production reduction in completion days per well in the first quarter.

William M. Hickey: This, combined with PR best practices, helped drive an 18% reduction in earthstone drilling days per well and approximately 50% reduction in completion days per well in the first quarter, which we were initially anticipating achieving by mid-year 2020. Additionally, we are seeing some efficiency gains in the Midland Basin that were not originally forecast, which is a testament to our team's ability to unlock value in new assets. In addition, run times improved as a result of better compression performance, Optimized Artificial Lift, and Improved Chemical Program.

William M. Hickey: We were initially anticipating achieving by midyear 2024.

William M. Hickey: Additionally, we are seeing some efficiency gains in the Midland Basin that were not originally forecasted which is a testament to our team's ability to unlock value in new assets quickly.

William M. Hickey: In addition run times improved as a result of better compression performance optimize artificial lift and improved chemical programs. The combination of accelerated activity and better run times is the primary driver of the strong production performance in Q1.

William M. Hickey: The combination of accelerated activity and better run times was the primary driver of the strong production. The impact of the combined PR team's integration execution is that we have already achieved $175 million per year of synergies and are increasing our synergy target to an annual run rate of $225 million. As I mentioned earlier, the main drivers of this increase are operational. For DCNF, we increased our per well savings from 1.2 to 1.5.

William M. Hickey: The impact of the combined PR teams integration execution is that we have already achieved $175 million per year of synergies and are increasing our synergy target to an annual run rate of $225 million.

William M. Hickey: Mentioned earlier the main drivers of this increase are operational for DCF, we increased our per well savings from 1.2 to $1 5 million.

William M. Hickey: Similarly, we expect to be able to improve margins by approximately $1 for BOE by year-end, but we've already implemented strategies in the field to realize the majority of this improvement today. Drivers of the margin improvement include reduced trucking, upgraded electrical infrastructure, rationalizing vendors, and optimizing midstream equipment. Integrations are never easy, but what our team accomplished over the last six months is a testament to a lot of hard work and dedication, and we're proud to say that Earthstone is fully integrated. With that, I'll turn it over to James to talk to A and D and give an update on our.

William M. Hickey: Similarly, we expect to be able to improve margins by approximately $1 per Boe by year end, but we've already implemented strategies in the field to realize the majority of this improvement today drivers of the margin improvement include reduced trucking upgraded electrical infrastructure rationalizing vendors and optimizing midstream agreements.

William M. Hickey: Integrations are never easy, but what our team accomplished over the last six months is a testament to a lot of hard work and dedication and we're proud to say that <unk> is fully integrated with that I'll turn it over to James to talk to you A&D and an update on our 24 plan.

James H. Walter: Thanks, Will. I'd like to quickly reiterate what we left off today, that PR's results this quarter are the best results we have had as a public company, and that applies to every department and every discipline at Permian Resources. This now marks our 7th consecutive quarter of strong operational execution as a public company and our 9th year as a leading operator in the Delaware Basin. We are highly focused on continuing to improve our track record of consistent results in low-cost operations. Our team is firing on all cylinders, positioning us very well for the remainder of the year.

James: Thanks, well.

James: To quickly reiterate when we let off with today Prs results. This quarter are the best results, we've had as a public company and that applies to every department and every discipline at Permian resources. This now marks our seventh consecutive quarter of strong operational execution as a public company and our ninth year as a leading operator of the Delaware Basin.

James H. Walter: We are highly focused on continuing to increase our track record of consistent results and low cost operations. Our team is firing on all cylinders.

Speaker Change: Well for the remainder of the year.

James H. Walter: While successfully executing in the field and wrapping up the integration of Earthstone, our business development and land teams continue to source, evaluate, and close attractive deals in and around our enhanced footprint. Our overall objective when it comes to A&D is to target acquisitions that enhance the quality of our business and drive value for shareholders. For us, that means seeking out acquisitions that increase the quality and duration of our current inventory at prices that make sense, and our recent acquisitions achieve all of these goals.

James H. Walter: While successfully executing in the field and wrapping up the integration of <unk>, our business development and land teams continue to source evaluate and close attractive deals in and around our enhanced footprint R.

James H. Walter: Our overall objective when it comes to Andy it's a target acquisitions that enhance the quality of our business and drive value for shareholders.

James H. Walter: That means seeking out because it does it increase the quality and duration of our current inventory at prices that make sense.

James H. Walter: Recent acquisitions achieve all of these goals.

James H. Walter: Yesterday after the market closed, we announced two separate bolt-on transactions directly offsetting our legacy parkway asset in Eddy County. This asset is characterized by low DNC costs and high oil cuts that make it one of the most capital efficient assets in our portfolio. This is why we're so excited to bolster our position here with the addition of high quality, high NRI locations that immediately compete for capital. In addition to these bolt-ons, we remain highly active on the grassroots side of the business, completing approximately 150 smaller transactions ahead of the drill bit.

James H. Walter: Yesterday after market close we announced two separate bolt on transactions directly offset our legacy Parkway asset in Eddy County.

James H. Walter: As it is characterized by low D&C costs and high oil cuts that make it one of the most capital efficient assets in our portfolio.

James H. Walter: This is why we're so excited to bolster our position here with the addition of high quality high NRI locations that immediately compete for capital.

James H. Walter: In addition to these bolt ons, we remain highly active on the graduate side of the business completing approximately 150 smaller transactions ahead of the job at.

James H. Walter: These smaller deals target near-term development and are amongst the highest rate of return acquisitions that we find. All in, these transactions add over 11,000 net leasehold acres and approximately 110 gross operated locations for a purchase price of $270 million, of which we expect $245 million to be paid in the second quarter. After accounting for production value, this works out to a little less than $10,000 per net leasehold acre and approximately $1 million per gross location or $1.5 million per net location.

James H. Walter: These smaller deals target near term development are amongst the highest rate of return acquisitions that we find.

James H. Walter: All in these transactions add over 11000, net leasehold acres and approximately 110 gross operated locations for a purchase price of $270 million.

James H. Walter: We expect 245 million to be paid in the second quarter.

James H. Walter: After accounting for production value. This works out to a little less than 10000 per net leasehold acres and approximately $1 million per gross location are $1 5 million for net location.

James H. Walter: Our presence in Midland has been one of the key drivers of our successful acquisition program, and the vast majority of the acres we are acquiring in today's announcement come from Midland-based counterparties who we have long-standing relationships with. As we mentioned earlier in the call, our team's successful execution has reduced our drilling and completion times, allowing us to bring barrels forward into Q1 and increase overall production for the year. As such, we are increasing our stand-alone production guidance to 150,000 barrels of oil per day and 320,000 barrels of oil equivalent per day.

James H. Walter: Presence in Midland has been one of the key drivers of our successful acquisition program and the vast majority of the acreage we're acquiring and today's announcement come from Midland based Counterparties, who we have long standing relationships with.

James H. Walter: As will mentioned earlier in the call our team's successful execution has reduced our drilling and completion times, allowing us to bring barrels forward into Q1 that increased overall production for the year.

James H. Walter: We are increasing our stand on production guidance to 150000 barrels of oil per day, and 320000 barrels of oil equivalent per day, which represents a 2% increase compared to our original guidance ranges with no change to capex, you're either guidance categories.

James H. Walter: This represents a 2% increase compared to our original guidance ranges, with no change to CAPEX or other guidance categories. Coming off this acceleration in production in the first quarter, we anticipate a relatively flat production profile in the second quarter, with modestly lower stand-alone production in the second half of the year. The slight decline is driven by normal course fluctuations in working interest that occur during a large-scale development program.

James H. Walter: Coming out of this acceleration in production in the first quarter, we anticipate a relatively flat production profile in the second quarter with modestly lower standalone production in the second half of the year.

James H. Walter: The slight decline is driven by normal course fluctuations in working interests that occurred during a large scale development program.

James H. Walter: The revised guidance outlined on slides 10 and 14 reflect Permian Resource's standalone projections and do not include the impact of the acquisitions we're announcing today. We expect those acquisitions to add an average of approximately 3,500 BOE a day during the second half of the year. Given the high-quality inventory of the acquired assets, we do expect to begin development in the second half of the year, which we anticipate will result in $50 million of incremental cap-back.

James H. Walter: The revised guidance outlined on slides 10, and 14 reflect Permian resources Standalone projections do not include the impact of the acquisitions, we are announcing today we.

James H. Walter: We expect those acquisitions to add an average of approximately 3500 BOE a day during the second half of the year.

James H. Walter: Given the high quality inventory of the acquired assets, we do expect to begin development in the second half of the year, which we anticipate resulted in $50 million of incremental capex.

James H. Walter: In summary, this is a terrific start to the year, and we are proud of what we have accomplished so far in 2024. I'd like to conclude today's prepared remarks on slide 11, which helps to reemphasize our value proposition for current and future investors. We think that the announcement today really highlights the quality of Permian Resources' business and the multi-pronged approach we have to driving outside shareholder value. Since the company was formed in 2022, we have delivered best-in-class returns for our sector, amounting to over three times the annualized return of the S&P 500 during that same time period.

James H. Walter: In summary, this is a terrific start to the year and we are proud of what we've accomplished so far in 2024.

James H. Walter: I'd like to conclude today's prepared remarks on slide 11, which helps to reemphasize our value proposition for current and future investors.

James H. Walter: We think that the announcement today really highlights the quality of Permian resources business and the multi pronged approach, we have to driving outsized shareholder value.

James H. Walter: Since the company was founded in 2022, we have delivered best in class returns for our sector.

James H. Walter: Adding to over three times the annualized return of the S&P 500 during that same time period.

James H. Walter: Our performance over the last two years has been driven primarily by low-cost execution and accretive transactions. And as a result, PR has become a compelling value within large-cap oil and gas, particularly when recognizing that Permian Resources is now the second-largest Permian pure plant in the sector. Thank you for tuning in today, and now we will turn it back to the operator for Q&A.

James H. Walter: Our performance over the last two years has been driven primarily by low cost execution in accretive transactions and as a result, PR remains a compelling value within large chemical oil and gas, particularly when recognizes that Permian resources is now the second largest Permian pure play in this sector.

James H. Walter: Thank you for tuning in today and now we will turn it back to the operator for Q&A.

Operator: Thank you, Mr. Walter. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question, and we do ask that you please limit yourself to one question and one follow-up question. We'll go first this morning to Neal Dingmann at Truist Resources and Truist Securities. Excuse me.

Speaker Change: Thank you Mr. Walter Ladies and gentlemen at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question and we do ask that you. Please limit yourself to one question and one follow up question.

Operator: We will go first this morning to Neal Dingmann at Truest resources true Securities excuse me.

James H. Walter: Morning guys, nice job. My first question, James, may be on your DNC plan for you or Will. Correct me if I'm wrong, but I believe you're currently running about 11-12 rigs, three to four spreads, or about the same as PR and Earthstone was separately, and I'm just wondering, given your notable continued efficiencies that you certainly highlighted today, I'm just wondering, and I believe the goal of relatively flat production, you know, maybe could you or Will talk about potential to drop rigs or spreads or maybe just how you see the maintenance plan on a go-forward?

Neal David Dingmann: Good morning, guys nice job on my first question James maybe on your D&C plan for your well.

James H. Walter: Correct me if I'm wrong.

James H. Walter: Are you currently running about 11 to 12 rigs three and four spreads or about the same.

James H. Walter: PR in Austin was separately and I'm just wondering given your notable continued efficiencies that you certainly highlighted today I'm just wondering I believe the goal of relatively flat production. You know, maybe you will talk about potential to drop rigs or spreads or maybe just how you see the maintenance plan on a on a go forward.

James H. Walter: Yeah, I mean, I think you're right. Like, if you think about the plan this year, we were originally saying we would drill about 250 wells and that kind of, we thought that would take about 12 rigs. With the efficiencies we're seeing today, I think it's very realistic that we could continue to execute on the same plan with less, you know, whether that's 11 rigs or kind of somewhere between 11 and 12, I think it's very much on the table if we can keep these efficiencies.

James H. Walter: Yes.

James: I think youre right like if you think about the plan. This year, we were originally saying, we drill about 250 wells and kind of.

James H. Walter: We thought that would take about 12 rigs.

James H. Walter: <unk>.

James H. Walter: With the efficiencies we're seeing today I think it's very realistic that we could continue to execute on the same plan with less whether that's 11 rigs are kind of somewhere between 11 and 12 I think is if we can keep these efficiencies is very much on the table.

James H. Walter: If you think back to the kind of Colgate CDEV merger, it's a very similar playbook. You know, originally, that was an eight rig combined business that we were able to get down to six with the same level of efficiency. So we've done this before. I do think it's worth calling them out. We're not solving for kind of some maintenance plan or production per kind of the last part of your question. It's much more just an input of what the return environment is, what the macro looks like from a supply and demand perspective, and what the service costs look like so that we can, [inaudible]

James H. Walter: If you think back to kind of the the.

James H. Walter: The Colgate <unk> merger and its a very similar playbook. If you think originally thought that was an eight rig combined business that we were able to get down to six at the same level of efficiency. So we've done this before I do think it's worth calling out.

James H. Walter: We're not solving for kind of some maintenance plan our production curve kind of that last part of your question. It's much more just an input.

James H. Walter: What's the return environment.

James H. Walter: The macro look like from a supply demand perspective, and what our service costs look like so that we can.

James H. Walter: Kind of what the production that is more of an output. So we continue to see strong service, our strong oil prices and reduced service costs I think it's very very real that we could decide to kind of keep the 12 rigs or even add rigs from here to go grow production, but what do you see any kind of a revised guide is is more of that stick to the 250 wells and we could do it.

James H. Walter: A chance, we could do that with less equipment.

James H. Walter: Now I figured that good to hear well and then secondly just quick on the bolt-ons such as the recent two that you all highlighted specifically you all seem just to have continue to have better success adding these creative bolt-ons you know versus it just seems like I don't see as many of your peers being able to do this I'm just wondering what you know what what are the keys behind this and and you know can you kind of continue at this pace of you know adding a couple two three it seems like almost every quarter Yeah, thank you.

Speaker Change: No I figured that good to hear well and then secondly, just quick on the bolt ons.

James H. Walter: Such as the recent too that you all highlighted so hopefully you all seem to just to have continue to have better success, adding these accretive bolt ons versus it just seems like I don't see as many of your peers being able to do this I'm just wondering what you.

James H. Walter: What what are the keys behind this and can you kind of continue at this pace of adding a couple two or three it seems like almost every quarter.

James H. Walter: Yeah, thank you. I think that's a pretty easy answer. I mean, I think first and foremost, it's something we're focused on, that we prioritize. I think it's something we've done for a long time and have and continue to be really good at. And I think that's driven, I should give away a couple of things.

Speaker Change: Yeah. Thank you I think that's a pretty easy answer I mean, I think first and foremost is something we're focused on it. We are prioritizing is something we've done for a long time and have and continue to be really good at and I think that's driven this should give them a couple of things I think first and foremost we are the lowest cost structure in the Delaware basin, which allows us to earn.

James H. Walter: I think, first and foremost, we have the lowest cost structure in the Delaware Basin, which allows us to earn higher returns on the same assets. And as a result, kind of naturally, over time, assets like these do just flow to the low-cost operator. I'd say second, we're based in Midland, you know, that's the heart of the Permian, the heart of the deal flow. And we've got a great reputation across the market of being good partners that people want to be across the aisle from on the transaction side, and that goes a long way.

James H. Walter: Returns on the same assets and as a result kind of naturally over time assets like these do just flow to the low cost operator.

James H. Walter: I'd say second we're based in Midland that's the heart of the Permian The heart of the deal flow and we've got a great reputation across the market and be good partners that people want to be across the aisle from on the transaction side and that goes a long way.

James H. Walter: And finally, for today's example, I mean, this is a really cool one; we're buying in an area where I think we do have a unique edge on the activity and, therefore, the information side of things. We have more rigs running in this area than anybody else, and therefore, more proprietary data to pull from for better understandings, etc. So I think you take all that together, and it does feel like something that is definitely sustainable, and Edge will continue to have. Will we do this every quarter? Probably not, but something we expect kind of over the long term to continue to be a big part of the story.

James H. Walter: For today's example, I mean this is really going to we're buying it is an area where I think we do have a unique edge from activity and therefore, the information side of things we have more rigs running in this area than anybody else and therefore more proprietary data to pull from better understandings et cetera. So I think you take all that together and it does feel like something that is definitely.

James H. Walter: Sustainable and agile continue to have what we do this every quarter, probably not but something we expect kind of over the long term to continue to be a big part of the story.

Speaker Change: Great answers thanks, guys.

James H. Walter: Yeah.

Operator: Thank you. We go next now to John Freeman at Raymond James.

James H. Walter: Thank you well go next now to John Freeman at Raymond James.

James H. Walter: Good morning, guys. Great quarter! When I'm looking at slides six and seven and just, you know, these huge efficiency gains that y'all continue to get out of the legacy Earthstone properties, and I'm just trying to get a sense of what maybe that remaining gap is, if any, between kind of legacy Earthstone and PR on whatever metric you guys want to cite cost per foot or whatever. But when I look at all the different data, the drilling days, the completion days, the production downtime, just some sense of how that compares to PR, just trying to see if there's still any gap left.

John Holliday Abbott: Good morning, guys great quarter.

James H. Walter: When I'm looking at slide six and seven and just you know these these.

James H. Walter: Huge efficiency gains that you all continue to get out of that the legacy Archstone properties I'm, just trying to get a sense of what maybe that remaining gap if any between kind of <unk>.

James H. Walter: Legacy Archstone and PR.

James H. Walter: Whatever metric you know you all want to site cost per foot or whatever but when I look at all of the effort and drilling days completion days production downtime.

James H. Walter: Some sense of how that compares to two to PR just trying to see if there's still any gap loft.

James H. Walter: I think on the DNC side, the gap is very small, if not kind of non-existent at this point. You know, we have different efficiencies and different assets in different areas, but we kind of view different areas. Whether it's legacy Earthstone or legacy PR no longer matters. It's more, it's all PR, and I think on the DNC side, that gap is closed. Where I think there's still some room is on the LOE side.

Speaker Change: I think on the D&C side. The gap is very small if not kind of nonexistent at this point, we are we have different <unk>.

James H. Walter: <unk> and different assets in different areas, but we kind of view different areas, whether it's legacy or extend our legacy PR no longer matters. It's more it's all PR and I think on the D&C side that gap has closed.

James H. Walter: I think theres still some room is on the low side, we've made tremendous progress in a short amount of time of improving margins through kind of what we've done on the contract side, but also just reducing LOE, but a lot of the other low staffing I think like.

James H. Walter: We've made tremendous progress in a short amount of time improving margins through what we've done on the contract side, but also just reducing LOE. But a lot of the other LOE stuff, SWD disposal agreements, or recycling agreements, have some time to them and require more work and more time to get fully incorporated. So as I think about kind of where the last kind of gap remains between Legacy, Earthstone, and PR would be more LOE focused.

James H. Walter: S WD disposal agreements our recycling agreements have some time to acquire.

James H. Walter: More work and more time to get fully incorporated so as I think about kind of where the the last kind of gap remains between legacy <unk> and PR would be more low focused if that makes sense.

James H. Walter: That's perfect, thanks. And then just the follow-up for me, you know, gas takeaway has been pretty topical, you know, with what's going on at WAHA. Any sort of updated thoughts from you on how you're thinking about gas takeaway and how to address that longer term? Yeah, I mean, I think, I mean, I think it's...

Speaker Change: That's perfect. Thanks, and then.

James H. Walter: And just a follow up for me gas takeaway has been pretty topical what's going on there. It was just any sort of updated thoughts from you on how you are thinking about gas.

James H. Walter: Gas takeaway and how how to address that longer term.

James H. Walter: Yeah, I mean, I think, I mean, it's pretty obvious to you running the call that pricing at Waha has been challenged this year and probably will be until we get closer to new pipes coming online in the fourth quarter. And, you know, I think that is what it is; we're fortunate that dry gas only makes up about 5% of our revenue in any given year. So the business isn't really affected.

James H. Walter: Yeah, I mean I think it.

James H. Walter: It's pretty obvious to you around the call pricing at <unk> has been challenged this year and probably will be until we get closer to new pipes coming online in the fourth quarter and I think that is what it is we're fortunate that dry gas only makes up about 5% of our revenue in any given year. So the business really isn't affected.

James H. Walter: But I think kind of worth pointing out only about half of our gas is exposed to warhol pricing. This year kind of other happens either covered by attractive basis hedges or sales at better regional hubs today, but but yes, I think we're always trying to kind of focus on and work on we sell.

James H. Walter: But you know, I think it's worth pointing out a couple of things; only about half of our gas is exposed to Waha pricing this year; the other half is either covered by, you know, attractive basis hedges or sales at better regional hubs today. But, but yeah, something we're always trying to kind of focus on and work on, we sell about a quarter of our gas at hubs other than Waha today and, you know, are constantly looking to find ways we can get that percentage higher. We actually have a contract, which should get signed in the next week or two, that should allow us to get more volume sold at Houston prices kind of next year.

James H. Walter: About a quarter of our gas at hugs other than Wahhab today and.

James H. Walter: Are constantly looking to find ways, we can get that percentage higher we actually have a contract probably get signed in the next week or two that should allow us to get more volume sold at Houston pricing kind of next year, so kind of more to come on that front I'd say, that's something we've been working on for a long time.

James H. Walter: So, kind of, more to come on that front. I'd say that's something we've been working on for a long time and continue to chip away at. But you know, I think the most important thing is, you know, we've got awesome partners on the midstream side, we've got firm capacity, and our molecules are going to flow, even if we see regional constraints later this year.

James H. Walter: Continue to chip away at but I think the most important thing is we've got awesome partners on the midstream side, we've got firm capacity in our molecules are going to flow.

James H. Walter: Even if we saw regional constraints later this year.

Speaker Change: Thanks I appreciate it.

Speaker Change: Thanks, Sean.

Operator: Thank you. We go next now to Scott Hanold at RBC.

James H. Walter: Thank you we'll go next now to Scott Hanold at RBC.

James H. Walter: Hey, thanks, guys. I was wondering if we could go back to, you know, sort of the outlook for the balance of the year and just holistically, how you guys like to think about the business.

Scott Michael Hanold: Hey, Thanks, guys.

Scott Michael Hanold: I was wondering if you can go back to.

Scott Michael Hanold: Sort of the outlook through the balance of the year and just Holistically. How are you guys like to think about the business obviously you're.

James H. Walter: Obviously, your cycle times are improving. So you pulled for a little bit more of your activity and production in one go. And so, like you kind of said, it does taper, and you have a soft decline in the back half of this year. But how do you think about the setup then for 25 with that?

Scott Michael Hanold: Cycle times are improving so you pulled forward a little bit more of your activity in production and Q1and so like you you kind of said it does taper and you have.

James H. Walter: Soft declining in the back half of this year, but.

James H. Walter: How do you think about like the set up then for 25 with that would you guys or into 'twenty five and over the long term like to see more kind of flattish growth do you want to see some more moderate growth than and if you could talk about like any any kind of acadians variability through the year.

James H. Walter: Would you guys, into 25, and over the long term, like to see more kind of flattish growth? Do you want to see some more moderate growth? And if you could talk about any kind of cadence variability through the year? Would you like to keep things constant? Or do you think there will be some cadence depending on the cycle times?

James H. Walter: Would you like to keep things constant or do you think there will be some cadence depending on the cycle times.

James H. Walter: Okay.

James H. Walter: I think, I mean, first and foremost, kind of as we think about the trajectory from a production perspective of the company, I've said it many times, and I'll say it again, like, it really is a returns-driven input, and production is just an output. Obviously, kind of in the last, you know, two weeks ago, I'd say the returns environment was extremely good. And we've had made some headway on the service cost side, kind of over the balance of the year. So it was looking good. I think that today it's still good, but not quite as good as it was a few weeks ago.

James H. Walter: I think first and foremost kind of as we think about the trajectory from a production perspective of the company I I've said it many times I'll say it again it really is a returns driven.

James H. Walter: Put in production is just an output.

James H. Walter: Obviously, you kind of.

James H. Walter: Over the last two weeks ago I would say the returns environment was extremely good.

James H. Walter: And we've had we've made some headway on the service cost side kind of over the balance of the year. So it was looking good I think that today, it's it's still good but not quite as good as it was a few weeks ago and I don't yet know what the world will look like six months from today as we go into 25, I would say that kind of that.

James H. Walter: And I don't yet know what the world will look like six months from today as we go into 25. I would say that kind of the, really, as you think about what happened over the course of this year so far, it's just been that the whole schedule has shifted forward. We're just drilling wells faster, we're completing wells faster. And as such, kind of just given the natural work interest changes over large-scale development, the back half of the year is really kind of a dip is just really a little bit less work interest under a few wells that moved in from the next year. And that naturally corrects itself.

James H. Walter: Really if you think about what happened over the course of this year. So far has it just been the whole schedule has shifted forward. We've just we're drilling wells faster, we're completing wells faster and as such kind of just given the natural working interest changes over large scale development.

James H. Walter: Back half of the year are really kind of dip is just really a little bit less working interest on a few wells that moved in from from the next year and that naturally corrects itself. So said differently. If we maintain the same pace kind of call. It $2 50 to $2 60 wells per year like that actually does set up for a really good 25, it's just not.

James H. Walter: So, said differently, if we maintain the same pace, kind of call it 250 to 260 wells per year, like that actually does set up for a really good 25. It's just not, it's kind of a slight decline back half of the year and then bounces back in 25. I'm not saying that is our plan. We're going to spend a lot of time over the next six months figuring out exactly what we want to do when we are 25.

James H. Walter: Kind of a slight decline back half of the year and then bounces back in 'twenty five.

James H. Walter: I'm not saying that is our plan, we were going to spend a lot of time over the next six months figure out exactly what you wanted it to 25% I think it could be anywhere from 11% to 13 rigs based on commodity prices and we'll kind of see what it makes sense, there, but but as I think I wouldn't think of this kind of slow tapering back half of the year as an indication of kind of future trajectory of the <unk>.

James H. Walter: And I think it could be anywhere from 11 to 13 rigs based on commodity prices, and we'll kind of see what makes sense there. But, as I think, I wouldn't think of this kind of slow tapering back half of the year as an indication of any kind of future trajectory of the production profile in the coming years.

James H. Walter: <unk> profile in outer years. This plan is great et cetera sat back. We also had to do with really good optionality, because we don't know what the world's going up back in 'twenty, five and that's kind of puts us somewhere in the middle of that zero to 10% growth over the long term that we've talked about and we can make a decision as we get closer to that year.

James H. Walter: Yeah, this plan's great. It sets us up, like we always try to do, with really good optionality, because we don't know what the world's going to look like in 2025, and it kind of puts us somewhere in the middle of that zero to 10% growth over the long term that we've talked about, and we can make a decision as we get closer to that year.

James H. Walter: I appreciate the commentary. And in your prepared comments, you also mentioned, you know, that you're seeing some productivity gains, or is it cycle times or just cost reductions on OPEX?

Speaker Change: I appreciate the commentary.

James H. Walter: In your prepared comments you also mentioned.

James H. Walter: That you are seeing some.

James H. Walter: The better performance or efficiencies in the Midland and the debt.

James H. Walter: It sounds like you weren't necessarily expecting could you gives you a little color and context behind exactly what that is and where the benefits were or was it more well productivity or is it cycle times or just cost reductions on opex.

James H. Walter: It's really just DNC CapEx. We haven't drilled a lot of wells in the Midland Basin, so we didn't expect to be able to cut near the amount of cost on the Midland Basin side as we have on the Delaware, and we've been surprised on the upside in that regard. I still think we have a ways to go to catch up with where the leading operators in the Midland Basin are from a CapEx perspective, but we've made big strides that have surprised us on the upside.

James H. Walter: It's really just D&C capex.

James H. Walter: We were we have not drilled a lot of wells in the Midland basin that didn't expect to be able to cut kind of.

James H. Walter: Near the amount of cost on the Midland Basin side as we have on the Delaware and we've been surprised to the upside and in that regard I still think we have a ways to go to catch up with where kind of that the leading operators in the Midland basin from a capex perspective, but we've made big strides that kind of surprised us to the upside.

James H. Walter: And was that more about just the cycle times, drilling, and completion time of that? [inaudible] Cycle Time

James H. Walter: And was that more of just the cycle times drilling and completion.

James H. Walter: The.

James H. Walter: So those are all just <unk>.

James H. Walter: cycle times, casing design, kind of everything that would lead to a lower capex per foot on a Midland Basin well.

James H. Walter: Cycle times casing design kind of everything that would lead to a lower capex per foot on our Midland basin well.

Speaker Change: Got it thank you.

James H. Walter: Yeah.

Operator: We'll go next to Gabe Daoud at TD Calendars.

James H. Walter: With <unk> now to gaped out at TD Cowen.

James H. Walter: Thanks. Hey morning, everyone. I appreciate the time.

Gabriel J. Daoud: Thanks, Hey, good morning, everyone I appreciate the time.

James H. Walter: I understand it's certainly a little bit too early to be thinking about 25, but I guess just piggybacking off Scott's question here, if we just think about all the synergy capture and efficiency gains and maybe this year being a little bit heavier on midstream spend or infrastructure spend, I should say, is it fair to assume maybe 25, assuming similar activity levels? I mean, CapEx is probably a bit lower than where we are today.

Gabriel J. Daoud: Understanding it's certainly a little bit too early to be thinking about 25, but I guess just piggybacking off of.

James H. Walter: Scott's question here, if we just think about all the synergy capture and efficiency gains and maybe this year being a little bit heavier on midstream spend our infrastructure spend I should say is it fair to assume maybe 25, assuming similar activity levels and the capex is probably a bit lower than where we are today.

James H. Walter: Right.

James H. Walter: Yeah, I think kind of certainly maintenance capex would be lower than what we've outlined this year, just kind of given where the business is, the efficiency, etc. I think that's, that's definitely a fair, fair assumption.

Speaker Change: Yes, I think kind of certainly maintenance capex would be lower than what we've outlined this year or just kind of given where the business sets. The efficiencies, we achieved et cetera, I think that's definitely a fair fair assumption.

James H. Walter: Okay, okay, great, great. And then, maybe, as a follow-up. [inaudible]

Speaker Change: Okay, Okay, great Great and then maybe as a follow up.

Speaker Change: Uh huh.

James H. Walter: Talked about aggressive, but just curious in that northern new Mexico area, both Eddy and Lee are you seeing any processing capacity tightness or any other midstream managers.

James H. Walter: Mentioning I recognize theres no rigs over in Eddy County, just yet is that driven by constraints at all or are you guys planning on getting after that in the second half of this year.

James H. Walter: Yeah, I mean, I think the kind of lack of rigs in any area today is just driven by our focus on doing some of these larger developments and making sure when we put rigs on them, we're doing it as quickly and as efficiently as possible and touching kind of all parts of the cube that need to be co-developed. So, no, but I think macro-wise, gas processing constraints, it actually feels really good this year.

James H. Walter: Yeah, I mean, I think the kind of lack of rigs in any area. Today is just driven by our focus on doing some of these larger developments and making sure when we put rigs on it we're doing it as quickly as efficiently as possible and touching kind of all parts of the cube that need to be co develop so no but I think.

James H. Walter: Macro wise gas processing constraints it actually feels really good this year I think last year, we'd mentioned before probably Q2 Q3 timeline there were more challenges on the processing, but even more kind of in field compression and kind of plumbing issues in the middle of last year, but those are all really resolve themselves I would say our midstream.

James H. Walter: You know, I think last year we mentioned before, probably Q2, Q3 timeline, there were more challenges with processing, but even more kind of infield compression and kind of plumbing issues in the middle of last year, but those have all really resolved themselves. I'd say our midstream partners have done a ton of work and spent a ton of money, and, you know, our gas processing in New Mexico-Delaware feels like it's in a great spot today. And, frankly, thankful not to have any constraints of that nature or really anything else kind of able to do what we want up there. Okay.

James H. Walter: Partners have done a ton of work, it's been a ton of money in.

James H. Walter: Our gas processing, and then new Mexico, Delaware, because they can get a great spot today, and and frankly thankful not to have any constraints of that nature or really anything else kind of able to do what we want up there.

James H. Walter: Okay, awesome. Great to hear it. Thanks, guys.

Speaker Change: Okay awesome, great to hear thanks, guys.

Speaker Change: Thanks, Kevin.

Operator: We'll go next to Derrick Whitfield at Stiefel.

James H. Walter: We'll go next now to Derrick Whitfield at Stifel.

James H. Walter: Good morning, all, and congratulations on a strong update. Thank you. With my first question, I wanted to lean in on your D&C efficiencies to better understand the rate of improvement you're seeing. If we were to compare PR to PR on slide six, how do the cycle times in Northern Delaware compare with your Q4 averages?

Derrick Lee Whitfield: Good morning, all and congrats on a strong update.

Speaker Change: Thank you.

James H. Walter: With my first question I wanted to lean in on your D&C efficiencies to better understand the rate of the permit youre seeing.

James H. Walter: We were to compare peer to peer on slide six how does the cycle times in the northern Delaware compare with your Q4 averages.

James H. Walter: PR to PR, from Q4 to Q1, we've gotten better, but it's going to be kind of a single-digit percent improvement as compared to the big improvement you see if you compare Legacy or Send2PR.

James H. Walter: Peer to peer PR from Q4 to Q1, we've gotten better, but it's going to be kind of single digit percent improvement as compared to.

James H. Walter: The Big improvement you see if you compare legacy or soon to PR.

James H. Walter: Great. And then maybe, maybe shifting over to slide nine, the identified location count of 110 grist locations appears conservative to us on the surface. Can you offer any color on the degree of legacy operator development and your general underwritten assumptions for this part of the base?

James H. Walter: Great and then maybe shifting over to slide nine.

James H. Walter: The identified location count of 110, great locations.

James H. Walter: Appears conservative to us on the surface.

James H. Walter: Can you offer any color on the degree of legacy operator development and your general underwriting assumptions for this part of the basin.

James H. Walter: Yeah, I mean, I'd say it's actually a good question and very astute. I think I'll answer your second question first.

Speaker Change: Yes, I'd say, it's actually it's a good question and various Dude I think answering your second question first it's pretty undeveloped acreage.

Speaker Change: Acreage position if there is a handful of wells on it but it's as undeveloped as any asset we've looked at in a long time, which is great. Because it also has to come and take advantage of clean fairways and they kind of do a PR does best with regards to inventory I think it probably is conservative I think we're trying to book locations that we have a very high degree.

Speaker Change: Confidence in here and.

Speaker Change: Is it more likely to have more zones kind of come into the money here.

Speaker Change: I think the answer is probably yes, but we feel good about what we put out is that being a real base case and something that we can stand behind.

Speaker Change: Perfect Great update thanks for your time.

James H. Walter: Okay.

James H. Walter: We'll go next now to Leo Mariani at Roth M can.

James H. Walter: Yes.

James H. Walter: It's pretty undeveloped in the acreage position, you know, there's a handful of wells on it, but it's as undeveloped as any asset we've looked at in a long time, which is great because it all has to come in, take advantage of clean fairways, and they kind of do what PR does best. In regards to inventory, yeah, I think it probably is conservative. You know, I think we're trying to book locations that we have a very high degree of confidence in.

Speaker Change: I wanted to dig in a little bit to your comments around kind of flattish second quarter production and then kind of slightly lower in the second half if I heard your comments right. It sounded like a lot of this was just based on working interest changes I was hoping maybe you could kind of quantify some of that I mean, I think you guys are talking about.

James H. Walter: 5% average working interest, but maybe it's a little higher in the first half and lower in the second just any help on that would be great.

James H. Walter: Yes, I think it's just kind of normal fluctuations when youre running a multi rig program like this especially as you kind of stacking rigs to pursue the full field development strategy that we've been pursuing for a long time like one quarter may be 70%, one maybe 80 to get back to an average of 75 and just kind of how it is I think you see this especially kind of over time as <unk>.

James H. Walter: You have more concentration of rig counts on particular developments, but it's all normal and kind of evens out over time.

James H. Walter: Okay, but it definitely sounds like working interest is a little higher in the first and then a little lower in the second half and then.

James H. Walter: Would that translate into capex, but that basically give your capex a little lower in the second half standalone versus first half.

Speaker Change: Yeah, I think that's a good assumption.

James H. Walter: Okay.

Speaker Change: Alright, thanks, guys.

James H. Walter: Yes.

James H. Walter: We'll go next now to Oliver Wang at Dth.

Speaker Change: Good morning, all and thanks for taking my questions.

Speaker Change: Wanted to start on the A&D side I can't help but notice you all have been fairly active in this area of Eddy County kind of looking back at where the Q on bolt ons in the latest two transactions announced last night.

Speaker Change: So just kind of wondering if you all might be able to speak to if there is anything specific that youre seeing in the area that is driving an increased focus from an 88 perspective real.

James H. Walter: Terrific. Great update. Thanks for your time.

James H. Walter: And, you know, is it more likely that more zones will kind of come into the money here? I think the answer is probably yes, but we feel good about what we put out as being a real base case and something that we can stand behind.

James H. Walter: That's a great question and I think kind of post closing of <unk> today, we do.

Operator: We'll go next to Leo Mariani at Roth MKM.

James H. Walter: You saw a real market window, where we're able to go by.

Leo Paul Mariani: For extremely attractive bolt ons and quite a few grassroots deals at prices that that were really attractive to us and I think the reason, we're able to do so which I touched on a little bit with Neils question at the beginning was because we've been the most active operator in this part of Eddy County for a long time, and therefore had a lot of really exciting proprietary.

James H. Walter: I wanted to dig in a little bit to your comments around kind of flattish second quarter production and then kind of slightly lower in the second half. If I heard your comments right, it sounded like a lot of this was just based on working interest changes. I was hoping maybe you could kind of quantify some of that. I mean, I think you guys are talking about 75% average working interest, but maybe it's a little higher in the first half and lower in the second. Just any help on that would be great.

James H. Walter: Yeah, I think it's just kind of normal fluctuations when we're running a multi-rig program like this, especially when you're kind of stacking rigs to pursue the full-field development strategy that we've been pursuing for a long time, like one quarter maybe 70 percent, one maybe 80 to get back to an average of 75. And just kind of how it is. I think you see this especially kind of over time as you have more concentration of rig counts on particular developments, but it's all normal and kind of evens out over time.

James H. Walter: Okay, but it definitely sounds like working interest is a little higher in the first and a little lower in the second half. And then how would that translate into CapEx? Would that basically give you a CapEx a little lower in the second half, standalone versus the first half? Yeah, I think that's a good assumption.

Operator: We'll go next to Oliver Huang at TPH.

James H. Walter: Good morning, all, and thanks for taking my questions. I wanted to start on the A&D side. I can't help but notice you all have been fairly active in this area of Eddy County, kind of looking back at where the Q1 bulletins and the latest two transactions announced last night sit. So just kind of wondering if you could speak to someone about anything specific that you're seeing in the area that's driving an increased focus from an A&D perspective for you all. You know,

James H. Walter: Terry results, both on kind of zones, well performance and I think most importantly, the cost side or were doing this cheaper up here than I think anybody would expect so.

James H. Walter: You know, that's a great question, and I think, kind of, post-closing of Erston to today, we just saw a real market window where we were able to buy four extremely attractive bolt-ons and, you know, quite a few grassroots deals at prices that were really attractive to us. And I think the reason we were able to do so, which I touched on a little bit with Neal's question at the beginning, was because we've been the most active operator in this part of Eddy County for a long time and therefore have a lot of really exciting proprietary results both on the kind of zones, performance, and, I think most importantly, the cost side, where we're doing this cheaper up here than I think anybody would expect.

James H. Walter: Just a unique it's kind of one of those windows that we saw an opportunity and we hit it hard and I think these are some of the best deals. We've done so yeah I think it wasn't I didn't think we'd get all of these deals the way we did but it's a great outcome in and add some really core inventory and was our most capital efficient asset.

James H. Walter: So kind of just a unique window, it's kind of one of those windows where we saw an opportunity and we hit it hard, and I think these are some of the best deals we've done. So yeah, I think it wasn't, you know, I didn't think we'd get all of these deals the way we did, but it's a great outcome, and it adds some really core inventory to what's our most capital-

James H. Walter: Makes sense. And for my follow-up, I was just kind of wondering if you could provide an update on your royalty position. It seems like an aspect of the business where you've been able to steadily pick up some decent interest over the past nine months or so. That's kind of going under the radar. So any color there would be helpful.

Speaker Change: Makes sense and for my follow up just kind of wondering if you all could provide an update on your royalty position. It seems like an aspect of the business, where you all been able to steadily pick up some decent interest over the past nine months or so.

James H. Walter: That's kind of going under the radar so any color there would be helpful.

James H. Walter: Yeah, I mean, I think we're always trying to buy acreage and inventory that competes for capital. And a big part of that is, what is the royalty burden?

Speaker Change: Yes, I mean, I think we're always trying to buy acreage and inventory that competes for capital and a big part of that is what is the royalty burden. So we target.

James H. Walter: So we target, you know, assets that have an advantage in our eyes, lower royalties that really just help our capital efficiency. And I think today we've got a royalty business that we're really proud of, kind of 75,000 net royalty acres is not insubstantial. I don't know if there's anything strategic that we have planned with that today, but I do think that's a big part of our capital efficiency story. You know, we're getting more free cash flow for every dollar of capex that we spend as a result.

James H. Walter: Assets that have advantaged in our eyes lower royalties that really just helps our capital efficiency I think today, we've got a royalty business that we're really proud of kind of 75000 net royalty acres is not insubstantial wondering if anything strategic that we have planned with that today, but I do think that's a big part of our capital efficiency story.

James H. Walter: We're getting more fee free cash flow for every dollar of Capex that we spend as a result, so I think.

James H. Walter: So I think, you know, ultimately, it's something that just makes our widget better and helps our value creation increase over time. So it's something that we're proud of, and we're focused on. I think it's probably a little underappreciated by the market, but it really comes down to helping us earn better returns on every dollar that we spend. Makes sense.

James H. Walter: Ultimately, it's something that just makes our widget better it helps our value creation increase over time. So it's something that we're proud of we're focused on I think probably a little underappreciated by the market and but it's really ultimately comes down to helping us earn better returns on every dollar that we spend.

Speaker Change: Makes sense thanks for the time.

James H. Walter: Tyler.

James H. Walter: Makes sense. Thanks for the time. Thank you. And just a quick reminder, ladies and gentlemen, Star 1, please.

James H. Walter: Thank you and just a quick reminder, ladies and gentlemen star one please for any questions. Today, We'll go next to Jeff J at Daniel Energy Partners.

Operator: Thank you. And just a quick reminder, ladies and gentlemen, Star 1, questions today. We go next to Geoff Jay at Daniel Energy Partners. Hey guys, I was just looking for...

Operator: Yes.

Geoff Jay: Hey, guys I was just looking for I know you referenced in your power infrastructure build outs.

Geoff Jay: Loved to hear what's happening there what the scale of that is how big that's going to be for you guys. It's obviously kind of a pressing issue. These days.

James H. Walter: Yeah, look, line power in the entire Permian's tough, in Texas, it's tough, and in New Mexico it's tough. So we're trying our best to stay in front of it. I'd say kind of as you think about our... Our power needs, if we can be on line power, that's obviously preferable. And after that, if we can kind of leverage, you know, natural gas power generators, it's probably the second best answer. And that's kind of what you'll see for the majority of our New Mexico infrastructure.

Geoff Jay: Yes look.

Geoff Jay: Wind power in.

James H. Walter: Kind of entire Permian stuff in Texas, it's tough and in new Mexico stop So we're trying our best to to stay in front of it I'd say kind of as you think about our firepower needs. If we can be online power thats, obviously preference and after that if we can kind of leverage.

James H. Walter: Natural gas powered generators as probably the second best answer and Thats kind of what Youll see for the majority of our new Mexico infrastructure, but but it's a priority for us and I'd say, we are actively looking at ways to improve that position collaborating with others.

James H. Walter: But it's a priority for us. I'd say we are actively looking at ways to improve that position, you know, collaborating with others to look at building incremental substations and really anything we can do. But it doesn't come quick. And I think it'll be a challenge for the industry for the next few years. I don't think it means we won't be able to produce our weld. It's just a little bit less efficient to be on natural gas power generators than it would be to be all online.

James H. Walter: Building incremental substations and really anything we can do but.

James H. Walter: It doesn't come quick and I think it'll be a challenge for the industry for the next few years I don't think it means we won't be able to produce our wells, it's just a little bit less efficient to be on natural gas power generators and it would be to be all online power.

Speaker Change: Okay. Thanks I appreciate it.

Speaker Change: Yep. Thank you.

Operator: We'll go next to Paul Diamond with Citi.

James H. Walter: We'll go next now to Paul Diamond with Citi.

James H. Walter: Good morning. I appreciate you taking my call. Just a quick one talking about the acquisition pipeline. As you're looking forward to kind of what's next, are you seeing any kind of movement on the bid-asks based on scale, location, or is it all pretty cohesive and correlated?

Paul Michael Diamond: Hi, Good morning, Thanks for taking my call just a quick one talking about the cause of the acquisition pipeline as you're seeing are you looking forward to kind of what's next are you seeing any kind of a bit of a good asks based on scale location or is it all pretty much pretty cohesive and correlated.

James H. Walter: Look, I think our pipeline on the A and D side feels really good. You know, I think there's a lot of, there's going to be lots of opportunities in the Delaware, and I think our position as a kind of preferential party for a lot of sellers and a low-cost operator in the basin position as well, as assets come for sale, kind of both marketed deals, which we've participated in successfully, but also I think just importantly kind of off-market assets, which has been a large chunk of our acquisition program historically, but it feels good.

Paul Michael Diamond: Look I think our pipeline on the A&D side feels really good I think theres a lot of continue to be lots of opportunities in the Delaware and I think our position as a kind of preferential party for a lot of sellers in a low cost operator in the basin position as well.

James H. Walter: Asset sales kind of both marketed deals between participated and successfully but also just importantly kind of off market assets, which has been a large chunk of our acquisition program historically, but it feels good I don't think there is probably not the size of deals that you saw hitting the market in 'twenty, two and 'twenty three in the Delaware, which I think we largely stayed on the side.

James H. Walter: I don't think there's probably not the size of deals that you saw hitting the market in 22 and 23 in Delaware, which I think we largely stayed on the sidelines from, but I think we're seeing a lot of stuff that fits kind of the grassroots side is maintaining momentum, and we're still seeing lots of bolt-ons probably coming down the pipe this year. Will we wind up acquiring all of them? Definitely not, but are there some that could fit?

James H. Walter: <unk> from but I think we're seeing a lot of stuff that fits kind of the grassroots side is maintaining a lot of momentum and we're still seeing lots of bolt ons, probably coming down the pipe this year, where we wind up acquiring all of them definitely not but are there some that could fit I'd like to think so but.

James H. Walter: I'd like to think so, but we're really picky, and we want to buy assets, like I said, that make our business better and that earn a high rate of return and drive value for shareholders. So, you know, if we can continue to do that, that's great, but we've said that before. We don't need to do anything. We think we've got an incredible inventory base and an incredible standalone business, so if we can find those opportunities, we'll be excited to pursue them, but certainly don't feel any pressure to do so.

James H. Walter: We're really picky and we want to buy assets like I said that make our business better and that earn a high rate of return and drive value for shareholders. So if we can continue to do that that's great, but we said it before we don't need to do anything we've got an incredible inventory base, an incredible standalone business. So if we can find those opportunities will be excited to pursue them, but certainly don't feel any pressure to do so.

James H. Walter: And just a quick follow-up. So that's where you guys have been pretty balanced with your shareholder return framework. Is there anything you guys are seeing in the markets that would kind of tip that scale one way or the other?

Speaker Change: Understood and just a quick follow up so that's why you guys have been pretty balanced shareholder return framework is there anything you guys are seeing in the markets that we got to that.

James H. Walter: That scale, one way or the other.

James H. Walter: No, I mean, I think, you know, we're going to kind of naturally bias towards the dividend. I think that the variable dividends are our base case, and we'll be opportunistic on potentially increasing share buybacks at some point in the future if certain kinds of dislocations and large opportunities exist. But no, I'd say really steady as it goes on the capital return strategy. I do think it's worth mentioning, you know, we did show a 20% increase in our base dividend this year, which should hit for the quarterly dividend payment upcoming, and a nice increase in our variable cash dividend as well. So it feels like that's working really well, and, you know, we're excited about it.

Speaker Change: No I mean, I think we're going to kind of naturally biased towards the dividend I think that the variable dividends are our base case, and we'll be opportunistic on potentially increasing share buybacks at some point in the future if kind of dislocations in large opportunities exist, but no I would say really steady as she goes on the capital return strategy.

James H. Walter: Do you think it's worth mentioning we did show a 20% increase in our base dividend this year, which should hit for the quarterly dividend payment upcoming in a nice increase in our variable cash dividend as well so it feels like that's working really well.

James H. Walter: We're excited about it.

James H. Walter: Understood. Thanks for your time. I'll leave it there.

Speaker Change: Understood. Thanks for your time I'll leave it there.

Speaker Change: Thanks, Paul.

Operator: We'll go next to Kevin McCurdy at Pickering Energy Partners.

James H. Walter: We'll go next now to Kevin Mccurdy at Pickering Energy partners.

James H. Walter: Hey, good morning. To follow up on an earlier question about M&A, your last couple of deals have been concentrated in northern Delaware. Just kind of a general question on how you are viewing opportunities in the southern Delaware versus the northern Delaware. Are there, you know, as many opportunities out there? And how do you kind of compare

Kevin McCurdy: Hey, good morning.

Kevin McCurdy: To follow up on an earlier question about M&A. Your last couple of deals have been concentrated in the northern Delaware just kind of a general question on how you're viewing opportunities in the southern Delaware.

James H. Walter: Versus northern Delaware, there is many opportunities out there and how do you kind of compare the two of them.

James H. Walter: Yeah, I mean, I think that's a great question. I think looking back historically, the kind of first consolidation wave in Delaware was Texas focused, if you think about 2017, 2018, 2019, a lot of Texas businesses, and that's where the Delaware got, you know, started, at least activity was faster to begin. So I think you kind of have seen a natural consolidation wave in the Delaware as of late. I think for us specifically, we'd be in a great Texas position today with some really high return go forward drilling to do.

Speaker Change: Yes, I mean, I think that's it.

James H. Walter: Question, I think looking back historically.

James H. Walter: First consolidation wave in the Delaware with Texas focused if you think 2017 2018 2019, a lot of Texas businesses and Thats why the Delaware got.

James H. Walter: Started at least activity was faster to began so I think you kind of have you seen a natural consolidation wave in the Delaware as of late I think for US specifically, we got a great Texas position today with some really high returning to go forward drilling to do if we could find opportunities in Texas that.

James H. Walter: If we could find opportunities in Texas that compete for capital, like what we've seen in New Mexico, we'd be really excited about it. You know, I think those opportunities do still exist. I just think kind of, you know, the majority of assets that we've seen that fit what we're trying to do from a making the business better standpoint have been in New Mexico the last couple of years, but I think that could change. And we'd be really excited if we could find similar opportunities on the Texas side.

James H. Walter: For capital like what we've seen in new Mexico, we'd be really excited about it I think those opportunities do you still exist I, just didnt kind of.

James H. Walter: The majority of assets that we've seen that fit what we're trying to do from a making the business better standpoint.

James H. Walter: Been in new Mexico. The last couple of years, but I think that could change and we'd be really excited if we could find some opportunities on the Texas side.

James H. Walter: Okay.

James H. Walter: Great. And changing gears a little bit, you mentioned an additional 3,500 barrels a day equivalent and an additional $50 million of capital once you close the bolt-on acquisitions later this quarter. Just to clarify, is the 350 or, sorry, the 3,500 barrels a day flowing now? And if so, what will be the production impact of the additional $50 million of capital?

James H. Walter: And changing gears, a little bit you mentioned, an additional 3500 barrels a day equivalent and an additional $50 million of capital once you close the bolt on.

James H. Walter: Acquisitions later this quarter.

James H. Walter: Just to clarify is the 350 or sorry that 3500 barrels a day flowing is that is that flowing production now.

James H. Walter: And if so what will be the production impact of the additional $50 million capital stack.

James H. Walter: Yeah, that production is online now, but the majority of that's from an acquisition we haven't closed and won't close at the end of this quarter. So it's kind of online now, but it's not ours, if you will.

James H. Walter: Yes. The production is online now the majority of that is from an acquisition, we havent closed and done close to the to the end of this quarter. So it's kind of online now, but it is not ours if you will.

James H. Walter: And then that $50 million Capex I'm going to spend in the back half of this year that.

James H. Walter: And then that $50 million is capital we're going to spend in the back half of this year on that awesome, awesome, high return inventory. Really excited to get our hands on it again. We don't own it today, so we can't, can't keep up with all the, okay, all the production you'd see from that's going to show up next year, but really strong returns and something we're excited to get after as soon as we can get our hands on the asset.

James H. Walter: Awesome Awesome high return inventory really excited get our hands on because we don't own. It today. So we can't can't give out all.

James H. Walter: All of the production you'd see from that is going to show up next year, but but really strong returns is something we're excited to get after as soon as we can get our hands on the asset.

James H. Walter: Great, thanks for the clarification.

Speaker Change: Great. Thanks for the clarification.

James H. Walter: And gentlemen, it appears we have no further questions this morning. Mr. Walter, I'd like to turn things back to you, sir, for any closing comments.

James H. Walter: And gentlemen, it appears we have no further questions. This morning, Walter I'd like to turn things back to you Sir for any closing comments.

James H. Walter: Having gotten off to a great start in 2024, our primary goal remains the same as it was when we announced the Colgate Centennial merger in May of 2022, to maximize shareholder value over the long term. And to do that, we plan to continue to build on our track record of delivering consistent results with the lowest cost structure in the Delaware Basin. Thanks to everyone for joining the call today and for following the Permian Resources story. Thank you, gentlemen. Again, ladies and gentlemen, that will conclude today's Permian Corridor Earnings Conference call. Again, thanks so much for joining us today, and we wish you all a great day.

Walter: I haven't gotten off to a great start in 2020 form our primary goal remains the same as it wasn't we announced the Colgate Centennial merger in May of 2022 to maximize shareholder value over the long term.

James H. Walter: To do that we plan to continue to build on our track record of delivering consistent results with the lowest cost structure in the Delaware Basin.

James H. Walter: Thanks to everyone for joining the call today, if you're following the Permian resources story.

Operator: Thank you, gentlemen. Again, ladies and gentlemen, that will conclude today's Permian Resources first quarter earnings conference call. Again, thanks so much for joining us today, and we wish you all a great day. Goodbye.

James H. Walter: Thank you gentlemen, again, ladies and gentlemen that will conclude today's Permian resources first quarter earnings conference call again. Thank you so much for joining us today and we wish you all a great day Goodbye.

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