Q3 2024 Granite Ridge Resources Inc Earnings Call
Operator: Good morning, and welcome everyone to Granite Ridge Resources' Q3 2024 Earnings Conference Call. Currently, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw that question, again, press star one. I will now turn the call over to James Masters, investor relations representative for Granite Ridge.
Speaker Change: Good morning and welcome everyone to Granite Ridge Resources' 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: Currently, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If you would like to ask a question during that time, simply press star followed by the number 1 on your telephone keypad. And if you would like to withdraw that question, again press star 1.
Speaker Change: I will now turn the call over to James Masters, Investor Relations Representative for Granite Ridge.
James Masters: Thank you, operator, and good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Luke Brandenberg, our President and Chief Executive Officer, who will provide an overview of key matters for Q3 and an outlook for the remainder of 2024. We will then turn the call over to Tyler Farquharson, our Chief Financial Officer, who will review our financial results. Luke will then return to provide some closing comments before we open up the call for questions. Today's conference call contains certain projections and other forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements. We would ask that you also review the cautionary statement in our earnings release.
James Masters: Thank you, operator, and good morning, everyone. We appreciate your interest in Granite Ridge's resources.
Speaker Change: We will begin our call with comments from Luke Brandenburg, our President and Chief Executive Officer, who will provide an overview of key matters for the third quarter and an outlook for the remainder of 2024. We will then turn the call over to Tyler Parkinson, our Chief Financial Officer, who will review our financial results.
Speaker Change: Luke will then return to provide some closing comments before we open up the call for questions.
Speaker Change: Today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements.
James Masters: Granite Ridge disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and our filings with the Securities and Exchange Commission. This conference call also includes references to certain non-GAAP financial measures. Information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in our earnings release that is posted on our website. Finally, as a reminder, this conference call is being recorded. A replay and transcript will be made available on our website following today's call. With that, I will now turn the call over to Luke.
Speaker Change: Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and are filing with the Securities and Exchange Commission. This conference call also includes references to certain non-GAAP financial measures.
Speaker Change: Information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in our earnings release that is posted on our website.
Speaker Change: Finally, as a reminder, this conference call is being recorded. The replay and transcript will be made available on our website following today's call. With that, I will now turn the call over to Luke.
Luke Brandenberg: Thank you, James, and good morning, everyone. Appreciate you joining us today. I'm pleased to report that our Q3 results have exceeded our internal expectations across the board. This success is a testament to our team's creative deal sourcing and exceptional underwriting and to the operational excellence of our partners. I'm grateful for our team's efforts as we continue to demonstrate our capabilities in the public arena, just as we have done privately for over a decade. Tyler will provide a detailed overview of Q3, but I'd like to highlight a few key points. Our controlled capital program, which gives us full control over development timing and targets project rates of return in the mid-20s or better, continues to thrive. Though still in its early stages, production to date has exceeded targets by approximately 15%, and CapEx has come in about 15% under budget.
Luke Brandenburg: Thank you, James. And good morning, everyone. I appreciate you joining us today. I'm pleased to report that our third quarter results have exceeded our internal expectations across the board. This success is a testament to our team's creative deal sourcing and exceptional underwriting, and to the operational excellence of our partners.
Luke Brandenburg: I'm grateful for our team's efforts as we continue to demonstrate our capabilities in the public arena, just as we have done privately for over a decade.
Luke Brandenburg: Tyler will provide that detailed overview of the quarter, but I'd like to highlight a few key points. Our controlled capital program, which gives us full control over development timing and targets project rates of return in the mid-20s or better, continues to thrive.
Luke Brandenburg: Though still in its early stages, production to date has exceeded targets by approximately 15%, and CapEx has come in about 15% under budget. We now have an inventory of over 40 net locations in the Permian that we plan to develop over the next two to three years.
Luke Brandenberg: We now have an inventory of over 40 net locations in the Permian that we plan to develop over the next two to three years. Given our early success, we plan to allocate even more resources to controlled capital. In 2024, this will account for nearly 50% of our CapEx. Based on current inventory, I anticipate that in 2025, approximately 60% of our CapEx will be dedicated to controlled capital. On the deal front, we successfully closed over a dozen transactions this quarter, adding nearly 16 net locations at a total cost of $31 million. These new locations are projected to require $125 million in future development capital. This aligns with our typical ratio, where $1 of entry drives roughly three to four dollars in the ground.
Luke Brandenburg: Given our early success, we plan to allocate even more resources to control capital. In 2024, this will account for nearly 50% of our CapEx, and based on current inventory, I anticipate that in 2025, approximately 60% of our CapEx will be dedicated to control capital.
Luke Brandenburg: On the deal front, we successfully closed over a dozen transactions this quarter, adding nearly 16 net locations at a total cost of $31 million. These new locations are projected to require 125 million in future development capital.
Luke Brandenburg: This aligns with our typical ratio where one dollar of entry drives roughly three to four dollars in the ground.
Luke Brandenberg: These additional locations are primarily within our controlled capital program and include inventory under our new Midland Basin-focused strategic partner, where we continue to grow our position and plan to pick up a rig later this year or early next year. Turning to production, I mentioned last quarter that we anticipated a 5% to 10% decline in gas production for Q3. I'm pleased to report that we were wrong, as we actually saw an increase in gas production. This outperformance was primarily driven by our first controlled capital pad in Loving County, Texas. Looking ahead to Q4, we do expect some flush gas production to taper off, potentially leading to a quarter-over-quarter gas production decline of up to 10%. However, this should be partially offset by a modest increase in oil production.
Luke Brandenburg: These additional locations are primarily within our control capital program and include inventory under our new Midland Basin focused strategic partner where we continue to grow our position and plan to pick up a rig later this year or early next year.
Luke Brandenburg: Turning to production, I mentioned last quarter that we anticipated a 5 to 10 percent decline in gas production for the third quarter. I'm pleased to report that we were wrong, as we actually saw an increase in gas production.
Luke Brandenburg: This outperformance was primarily driven by our first controlled capital pad in Loving County, Texas. Looking ahead to the fourth quarter, we do expect some flush gas production to taper off, potentially leading to a quarter-over-quarter gas production decline of up to 10 percent.
Luke Brandenburg: However, this should be partially offset by a modest increase in oil production.
Luke Brandenberg: When going through our quarterly results, it stood out to me that 16.2 net wells in process as of 30 September is higher than usual. To add a bit more color, 12 of those net wells are under just four operators in the Delaware Basin. Of those 12, five are in our controlled capital program. We currently expect to put two to four net wells on production in Q4, followed by a significant increase in Q1. I'll wrap up with a look ahead to next year. As mentioned on our August call, we anticipate double-digit production growth in 2025 compared to 2024. While we are not providing formal guidance for 2025 at this time, we do expect year-over-year production growth to be in the mid-teens, with the oil weighting of 2025 production projected to be in the low 50% range.
Luke Brandenburg: When going through our quarterly results, it stood out to me that 16.2 net wells in process as of September 30th is higher than usual.
Luke Brandenburg: To add a bit more color, 12 of those net wells are under just four operators in the Delaware Basin. Of those 12, 5 are in our controlled capital program. We currently expect to put 2 to 4 net wells on production in the fourth quarter, followed by a significant increase in the first quarter.
I'll wrap up with a look ahead to next year.
Luke Brandenburg: As mentioned on our August call, we anticipate double-digit production growth in 2025 compared to 2024.
Luke Brandenburg: While we are not providing formal guidance for 2025 at this time, we do expect year-over-year production growth to be in the mid-teens, with the oil weighting of 2025 production projected to be in the low 50 percent range.
Luke Brandenberg: On that note, I'll hand it over to Tyler to provide more insights into our results.
Luke Brandenburg: On that note, I'll hand it over to Tyler to provide more insights into our results.
Tyler Farquharson: Thanks, Luke, and good morning, everyone. For the Q3, we reported average daily production of 25.2 thousand BOE per day, marking a 9% increase over the Q2 and 5% from the Q3 last year. Notably, our oil volumes increased by 16% from the prior quarter to 12.7 thousand BOE per day, raising our total oil percentage to 50% in the Q3, up from 47% in the prior quarter. Our annual production guidance range of 23.3 to 25.3 BOE per day remains unchanged. However, we now expect more oil production for the year than originally guided and expect our Q4 oil production mix to be in the low 50s as we exit 2024. Overall, we expect our Q4 production to decline slightly versus our reported Q3 results. Net income for the quarter was $9.1 million, or $0.07 per share.
Thanks, Luke, and good morning, everyone.
Tyler Parkinson: For the third quarter, we reported average daily production of 25.2 thousand BOE per day, marking a 9% increase over the second quarter and 5% from the third quarter last year.
Tyler Parkinson: Notably, our oil volumes increased by 16% from the prior quarter to 12.7 thousand BOE per day, raising our total oil percentage to 50% in the third quarter, up from 47% in the prior quarter.
Tyler Parkinson: Our annual production guidance range of 23.3 to 25.3 BOE per day remains unchanged. However, we now expect more oil production for the year than originally guided and expect our fourth quarter oil production mix to be in the low 50s as we exit 2024.
Tyler Parkinson: Overall, we expect our fourth quarter production to decline slightly versus our reported third quarter results.
Tyler Parkinson: Net income for the quarter was $9.1 million, or $0.07 per share.
Tyler Farquharson: Excluding non-cash and non-recurring items, adjusted net income was $18.5 million, or $0.14 per share. Adjusted EBITDAX for the quarter was $75.4 million, representing a 10% increase from $68.3 million in the prior quarter, despite a 6% decline in realized pricing on a BOE basis. Year-over-year, adjusted EBITDAX was down approximately 9%, primarily due to the impact of asset divestitures in Q4 2023 and lower realized pricing. Per unit lease operating cost improved significantly from the prior quarter, coming in at $5.62 per BOE, a 14% improvement from $6.50 per BOE in Q2. Production and ad valorem taxes were 6.7% of sales, down from the 7.6% Q2, both metrics below our annual guidance range for 2024. We feel comfortable reaffirming our full-year operating expense guidance. Our per-unit G&A expense, excluding non-cash stock-based compensation, improved by 25% to $2.16 per BOE for the quarter.
Tyler Parkinson: Excluding non-cash and non-recurring items, adjusted net income was $18.5 million, or $0.14 per share.
Tyler Parkinson: Adjusted EBITDAX for the quarter was $75.4 million, representing a 10% increase from $68.3 million in the prior quarter, despite a 6% decline in realized pricing on a BOE basis.
Tyler Parkinson: Year-over-year, adjusted EBITDAX was down approximately 9%, primarily due to the impact of asset divestitures in Q4 2023 and lower realized pricing.
Tyler Parkinson: Per-unit lease operating cost improved significantly from the prior quarter, coming in at $5.62 per BOE, a 14% improvement from $6.50 per BOE in the second quarter.
Tyler Parkinson: Production and ad valorem taxes were 6.7% of sales, down from the 7.6% last quarter. Both metrics below our annual guidance range for 2024, and we feel comfortable reaffirming our full year operating expense guidance.
Tyler Parkinson: Our per-unit G&A expense, excluding non-cash stock-based compensation, improved by 25% to $2.16 per BOE for the quarter.
Tyler Farquharson: This highlights the scalability of our business model. As production and sales grow, unit overhead costs continue to decline. Our annual guidance range of $23 to $26 million is unchanged. During the quarter, our operating partners completed and placed on production a total of 93 gross, or 5.2 net wells, with activity nearly evenly split between the Permian Basin, the DJ Basin, and a handful in the Bakken. As of 30 September, we had an additional 6.2 net wells in process, and as Luke mentioned, we expect two to four of those wells to be placed on production during Q4. In total, we continue to expect 22 to 24 net wells to be placed online during 2024, with nearly 80% of those wells being in the Permian Basin.
Tyler Parkinson: This highlights the scalability of our business model as production and sales grow, unit overhead costs continue to decline. Our annual guidance range of $23 to $26 million is unchanged.
Tyler Parkinson: During the quarter, our operating partners completed and placed on production a total of 93 gross, or 5.2 net wells.
Speaker Change: with activity nearly evenly split between the Permian Basin and the DJ Basin and a handful in the Bakken. As of September 30th, we had an additional 6.2 net wells in process, and as Luke mentioned, we expect two to four of those wells to be placed on production during the fourth quarter.
Speaker Change: In total, we continue to expect 22 to 24 net wells to be placed online during 2024, with nearly 80% of those wells being in the Permian Basin.
Tyler Farquharson: In Q3, we closed multiple transactions, adding 15.9 net future drilling locations, primarily in the Permian Basin, for a total cost of $30.9 million. Our acquisition capital guidance for 2024 remains unchanged at $60 million. Our development capital spending during Q3 was $77.6 million, in line with expectations. We reaffirm our development capital guidance of $300 million at the midpoint of the range. Notably, a substantial portion of our capital expenditures in H2 of this year have been directed towards our controlled capital development programs. We expect these investments to drive significant production and cash flow in H1 of 2025. During our Q4 call, we will provide formal 2025 guidance, which we anticipate will reflect strong year-over-year growth, due in part to nearly $150 million worth of capital deployed during 2024 for activity expected to turn to sales during early 2025.
Speaker Change: In the third quarter, we closed multiple transactions, adding 15.9 net future drilling locations, primarily in the Permian Basin, for a total cost of $30.9 million. Our acquisition capital guidance for 2024 remains unchanged at $60 million.
Speaker Change: Our development capital spending during the third quarter is $77.6 million, in line with expectations.
Speaker Change: We reaffirm our development capital guidance of $300 million at the midpoint of the range. Notably, a substantial portion of our capital expenditures in the second half of this year have been directed towards our controlled capital development programs.
Speaker Change: We expect these investments to drive significant production and cash flow in the first half of 2025. During our Q4 call, we will provide formal 2025 guidance.
Speaker Change: which we anticipate will reflect strong year-over-year growth, due in part to nearly $150 million worth of capital deployed during 2024 for activity expected to turn to sales during early 2025.
Tyler Farquharson: Finally, consistent with Granite Ridge's value proposition, we continued our quarterly cash dividend program, paying $0.11 per share in Q3. Subsequent to quarter end, our board declared another $0.11 per share cash dividend payable on 16 December 2024, to shareholders of record as of 29 November 2024. This annualized dividend represents a 6.9% yield based on Wednesday's closing price, which underscores our commitment to returning differentiated value to our shareholders. I will now hand it back to Luke for his closing comments.
Speaker Change: Finally, consistent with Granite Ridge's value proposition, we continued our quarterly cash dividend program, paying $0.11 per share in the third quarter. Subsequent to quarter end, our board declared another $0.11 per share cash dividend, payable on December 16, 2024, to shareholders of record as of November 29, 2024.
Speaker Change: This annualized dividend represents a 6.9% yield based on Wednesday's closing price, which underscores our commitment to returning differentiated value to our shareholders.
Luke Brandenberg: Luke. As we celebrate our second anniversary as a public company, it is an opportune time to reflect on our journey and future direction. One of my key priorities moving forward is to reshape the narrative around Granite Ridge. We are often categorized with non-controlled companies. This does not accurately reflect our business. Typically, operators allocate about 75% of their capital expenditure to controlled projects and 25% to non-op. This year, Granite Ridge will allocate nearly 50% to control projects, increasing to around 60% next year. This allocation is more characteristic of an operator, yet we do not operate wells. The value we create at Granite Ridge lies in our capital allocation strategy. We blend our non-op roots with control over development by controlling the first rings. If we control development but we do not operate, what are we? Publicly traded private equity.
Luke Brandenburg: I will now hand it back to Luke for his closing comments. Luke.
Luke Brandenburg: As we celebrate our second anniversary as a public company, it is an opportune time to reflect on our journey in future direction. One of my key priorities moving forward is to reshape the narrative around Granite Ridge. We are often categorized with non-control companies.
but this does not accurately reflect our business.
Luke Brandenburg: Typically, operators allocate about 75% of their capital expenditure to controlled projects and 25% to non-op.
Speaker Change: This year, Granite Ridge will allocate nearly 50 percent of control projects increasing to around 60 percent next year.
Speaker Change: This allocation is more characteristic of an operator, yet we do not operate wells. The value we create at Granite Ridge lies in our capital allocation strategy. We blend our non-op routes with control over development by controlling the purse strings.
Speaker Change: If we control development, but we do not operate, what are we?
Luke Brandenberg: Granite Ridge combines the control of an operator with private equity's agility and capital allocation. By integrating private equity principles into a public entity, we aim to drive long-term value for shareholders in a vehicle with increased liquidity, enhanced visibility and alignment, and immediate shareholder returns. This is a unique model, and it is proving successful. We invite you to join us in building something special. Thank you all for joining us this morning. I'm enthusiastic about the future of Granite Ridge. 2025 promises to be an exciting year for us. Our earnings release highlights several upcoming conferences over the next month. I look forward to seeing some of you in person or catching up on a call soon. As the holiday season approaches, I wish you and your families all the best. Operator, please open the floor for questions.
publicly traded private equity.
Speaker Change: Granite Ridge combines the control of an operator with private equity's agility and capital allocation.
by integrating private equity principles into a public entity.
Speaker Change: we aim to drive long-term value for shareholders in a vehicle with increased liquidity, enhanced visibility and alignment, and immediate shareholder returns.
This is a unique model and it is proving successful.
We invite you to join us in building something special.
Speaker Change: Thank you all for joining us this morning. I'm enthusiastic about the future of Granite Ridge. 2025 promises to be an exciting year for us. Our earnings release highlights several upcoming conferences over the next month. I look forward to seeing some of you in person or catching up on a call soon. As the holiday season approaches, I wish you and your families all the best.
Operator, please open the floor for questions.
Operator: We will now begin the Q&A session. If you would like to ask a question, please press star one on your telephone keypad. If you'd like to withdraw that question, again, press star one. Your first question comes from the line of Noah Hungness with Bank of America. Please go ahead.
Speaker Change: We will now begin the Q&A session. If you would like to ask a question, please press star 1 on your telephone keypad. And if you'd like to withdraw that question, again, press star 1. Your first question comes from the line of Noah Hungus with Bank of America. Please go ahead.
Noah Hungness: Morning, guys. I just wanted to start off here on your LOE cost. You guys came in pretty well below your guided range for the year. Could you just talk about what drove that and how we should think about LOE cost moving into Q4 and maybe into early 2025?
Speaker Change: Morning guys. I just wanted to start off here on your LOE costs. You guys came in pretty well below your guided range for the year. Could you just kind of talk about what drove that and how we should think about LOE costs moving into 4Q and maybe into early 25?
Luke Brandenberg: Sure. Morning. This year we've seen LOE costs come in under where we've been guiding to, at least the past couple of quarters. That's mainly due to less workover expense. I think at some point that will revert back to the mean. For now, I think our Q4, we're expecting that we probably come in towards the lower end of our guidance range, which would put us, again, towards the low end of the guidance range for 2024.
Yeah, sure. Morning. Yeah, so...
Speaker Change: This year we've seen LOE costs come in under where we've been guiding to at least the past couple quarters. That's mainly due to less work over expense.
Speaker Change: I think at some point that will revert back to the mean, but for now, I think our Q4, we're expecting that we'd probably come in towards the lower end of our guidance range, which would put us, again, towards the low end of the guidance range for 2024.
Noah Hungness: Great. I was looking at your Burgers and Beers list of basins you added some leasehold, and it looks like you guys added some in Appalachia. I was hoping you could just give us some color there on where you're looking, or is that in the Marcellus or the Utica? If it's in one of those areas, is it more liquids or dry gas focused?
Great, and then.
Speaker Change: I kind of was hoping you guys could expand on, I was looking at your burgers and beers.
Speaker Change: a list of basins you have added some leasehold, and it looks like you guys added some in Appalachia. I was hoping you could just give us some color there on where you're looking, or is that in the Marcellus or the Utica, and if it's in one of those areas, is it more liquids or dry gas focused?
Luke Brandenberg: Noah Hungness, this is Luke Brandenberg. Thanks for the question. Happy to take that. We are really focused on the Utica condensate window, more Guernsey and Harrison. That's really a neat opportunity for us where we came across a group that has been active in that area, they were coming across really unleased minerals, we were able to form a partnership with them such that whenever they had unleased, we got a first look at those, that's been a really neat opportunity. They've been in the Utica since, gosh, I think 2006. They were up there in the very early days of the first wave. It's just a cool opportunity for us to really be a capital partner to groups that are finding neat opportunities.
Luke Brandenburg: Yeah, Noah, this is Luke. Thanks for the question. Happy to take that. So we are really focused on the Utica Condensate window, more Guernsey and Harrison. That's really a neat opportunity for us where we came across a group that has been active in that area and they were coming across
Luke Brandenburg: really unleased minerals, and we were able to form a partnership with them such that whenever they had unleased, we got a first look at those, and so that's been a really opportunity. They've been in the Utica since.
Luke Brandenburg: Gosh, I think 2006, they were up there in the very early days of the first wave. So it's just a cool opportunity for us to really be a capital partner to groups that are finding neat opportunities. Again, this is the area, if I had to paint a picture on a map, you've got the dry gas
Luke Brandenberg: Again, this is the area, if I had to paint a picture on the map, you got the dry gas stuff to the east, you got EOG oil window to the west, and we're in that radical middle where it's really a condensate, rich condensate area. We're not putting a ton of capital to work there. Wherever you are, people have figured out the good areas pretty quick, so it's tough to find unleased or stuff at a good deal. The capital we have put to work, we're very excited about it and frankly would be excited to put more as long as we can continue to find opportunities that hit our target returns.
Luke Brandenburg: stuff to the east, you've got EOG, oil window to the west, and we're in that radical middle where it's really a condensate, rich condensate area. You know, we're not putting a ton of capital to work there. There's
Luke Brandenburg: wherever you are, people have figured out the good areas pretty quick, so it's tough to find unleased or stuff at a good deal, but the capital we have put to work, we're very excited about it, and frankly would be excited to put more as long as we can continue to find opportunities that hit our target returns.
Noah Hungness: Sounds good, guys. Thanks.
Luke Brandenberg: Thanks, Noah.
Sounds good, guys. Thanks.
Operator: Your next question comes from the line of Michael Scialla with Stephens Inc. Please go ahead.
Thanks, everyone.
Speaker Change: Your next question comes from the line of Michael Scalia with Stevens Inc. Please go ahead.
Michael Scialla: Hi, good morning, everybody. Luke, I wanted to see if you could give a little more color on the controlled CapEx partnerships. You talked about the drilling inventory now is up to 42.6 net locations. You said you might pick up a rig in the Midland Basin in Q4 or Q1 next year. I guess I want to see how many of those locations are in the Midland Basin partnership and what will determine when you get that rig. Do you need more inventory there still, or is it something else that will determine the timing there?
Michael Scalia: Hi, good morning, everybody. Luke, I wanted to see if you could give a little more color on the control capex partnerships. You talked about the drilling inventory now is up to 42.6 net locations.
Michael Scalia: He said you might pick up a rig in the Midland Basin then.
Speaker Change: fourth quarter or first quarter next year. I guess I want to see how many of those locations are in the Midland Basin Partnership and what will determine when you get that rigged. Do you need more inventory there still or is it something else that will determine the timing there?
Luke Brandenberg: Morning, Mike. Thanks for the question. A couple pieces on that. As you mentioned, we really have two partners right now. One is primarily Delaware Basin focused. The other is primarily Midland Basin focused. The Midland Basin asset, we're really in, I'd say, lease block-up mode right now, where they have a nice initial position. As we did with our initial Delaware Basin partnership, a real goal was to build up enough inventory such that if we wanted to, we could keep a rig running full time for a period of time anyways to try to drive some of the efficiencies from keeping one rig going versus going up and going down. Right now, we have five or six net locations, depending on what working interest shakes out to be in the Midland Basin, and the rest is in the Delaware. We're working on several transactions.
Speaker Change: Yeah, morning Mike. Thanks for the question. So, a couple pieces on that. As you mentioned, we really have two partners right now. One is primarily Delaware Basin focused. The other is primarily Midland Basin focused.
Speaker Change: You know, the Midland Basin asset, we're really in, I'd say, least block-up mode right now, where they have a nice initial position. But as we did with our initial Delaware Basin partnership,
Speaker Change: A real goal was to build up enough inventory such that if we wanted to, we could keep a rig running for a full time, for a period of time anyways to try to drive some of the efficiencies from.
Speaker Change: Keeping one rig going versus going up and going down, you know right now We have a little five or six net locations depending on what working interest shakes out to be in the Midland Basin
Luke Brandenberg: I think that we'll block that up and increase that Midland Basin working interest piece. Right now, again, we're targeting probably late this year or early next, more than likely. I want to say more than likely. To be honest, one of the cool things about our strategy is we're trying to find the right rig at the right time, that's where we can be creative and we'd rather have a better rig and wait a month than have a rig that's coming out of the yard and do it immediately. I think late this year, early next, we'll pick up Midland Basin. We're currently running one rig in the Delaware Basin. I'd anticipate that we go to two rigs in the Delaware Basin probably middle of next year.
Speaker Change: The rest is in the Delaware, but we're working on several transactions, I think, that will block that up and increase that mid-long base and working interest piece. But right now, again, we're targeting probably late this year, early next, more than likely
Speaker Change: more than likely. To be honest, one of the cool things about our strategy is
Speaker Change: We're trying to find the right rig at the right time, and so that's where we can be creative, and we'd rather have a better rig and wait a month than have a rig that's coming out of the yard and do it immediately. So I think late this year, early next, we'll pick up Midland Basin. We're currently running one rig in the Delaware Basin. I'd anticipate that we'd go to two rigs in the Delaware Basin, probably Midland next year.
Michael Scialla: Sounds good. I want to ask on slide nine, your chart shows your look back analysis, actual production versus what you've underwritten with your forecast. It looks like you're pretty much dead on production-wise and realize that with data out there, you can get a pretty good handle on what wells will produce in a given area. As a non-operator, obviously, timing and development is a significant risk. I guess my question is that chart just showing well performance or is that also showing your performance versus, I guess, sorry, does it incorporate timing into it as well? If so, how are you handling the timing risk when you underwrite these acquisitions?
Speaker Change: Sounds good. I wanted to ask on slide 9, your chart shows...
Speaker Change: Your look-back analysis, actual production versus what you've underwritten with your forecasts, it looks like you're pretty much dead-on production-wise and realize that
You know, it's with.
Speaker Change: Data out there you can get a pretty good handle on what wells will will produce in a given area but as a non operator obviously timing of development is
Speaker Change: it's a significant risk. So I guess my performance or is that also showing
Luke Brandenberg: That's a good question, Mike, thanks for asking about that slide because it's something that we really are proud of is at the end of the day, if we're a publicly traded private equity firm and our real value is in capital allocation, a core piece of that, are any good at underwriting deals. This slide really goes to demonstrate that really is a strength, and it's a strength that goes back for over a decade that we've been doing this largely on the private side. This does not incorporate timing. This just takes the engineers made a projection of what a well would do and then tracked that and saw what actual performance was for over 1,000 wells across multiple basins.
Speaker Change: Yeah, it's a good question Mike and thanks for asking about that slide because it's something that we really are proud of is at the End of the day if we're a publicly traded private equity firm and our real value is in capital allocation
Speaker Change: A core piece of that is, are you any good at underwriting deals? This slide really goes to demonstrate that that really is a strength, and it's a strength that goes back for over a decade that we've been doing this, largely on the private side. But this does not incorporate timing. This just takes the...
Speaker Change: The engineers made a projection of what a well would do and then tracked that and saw what actual performance was.
Luke Brandenberg: A neat thing about this, and I think a big driver for why this number is so tight is to your point, the dataset that we have. Just being in over 3,000 wells and many in each of these basins, geology can change quite rapidly, but the more data points that you have, the better chance you have of making a good estimate. We've been in the Permian Basin since, gosh, 2013. We have a strong data set of actuals that's really helped this. I'd say the neat thing is, Mike, this would continue to improve. I'd say there's not a whole lot of room for improvement, but just we get more data points every single day, and our team continues to incorporate that in their underwriting.
Speaker Change: for over 1,000 wells across multiple basins. A neat thing about this, and I think a big driver for why this number is.
Speaker Change: so tight is, to your point, the data set that we have, just being in over 3,000 wells and many in each of these basins.
Speaker Change: you know, geology can change quite rapidly, but the more data points that you have.
Speaker Change: the better chance you have of making a good estimate. We've been in the Permian Basin since, gosh, 2013.
Speaker Change: So, we have a strong data set of actuals that really help to this, and I'd say the neat thing is, like, this.
Speaker Change: We continue to improve. I'd say there's not a whole lot of room for improvement, but just we get more data points every single day and our team continues to incorporate that in their underwriting. So we're very proud of our engineering team, our underwriting capabilities, and that is just a true cornerstone of the business and the success we've had to date.
Luke Brandenberg: We're very proud of our engineering team, our underwriting capabilities, and that is just a true cornerstone of the business and the success we've had to date.
Michael Scialla: Thank you.
Luke Brandenberg: Thanks, Mike.
Operator: Your next question comes from the line of Phillips Johnston with Capital One. Please go ahead.
Thank you.
Speaker Change: Thanks, Mike. Your next question comes from the line of Phillips Johnston with Capital One. Please go ahead.
Phillips Johnston: Hey, guys, thanks for the time. Lots of good color in the prepared remarks just about the trajectory of production. Just wanted to make sure I caught everything. Let's talk oil. Your implied Q4 guidance suggests about a 3% kind of downtick in oil volumes, sort of on the heels of what was pretty outsized growth, obviously, in Q3. It sounds like you expect a large sequential increase in Q1, which I think is consistent with what you guys said on the Q2 call. It seems like that might even be augmented by the nine controlled capital spuds in the Permian. Just wondering what kind of order of magnitude we're talking about in Q1, and then, I guess for the full year, I think you said double-digit growth on a year-over-year basis.
Speaker Change: Thanks for the time. Lots of good color in the prepared remarks just about the trajectory of production. Just wanted to make sure I caught everything.
Speaker Change: Let's talk oil, so your implied fourth quarter guidance suggests about a 3% kind of downtick in oil volumes.
Speaker Change: Sort of on the heels of what was pretty outsized growth, obviously, in Q3.
Speaker Change: Then it sounds like you expect a large sequential increase in Q1, which I think is consistent with what you guys said on the second quarter call.
Speaker Change: And it seems like that might even be augmented by the nine controlled capital spuds in the Permian. So, just wondering what kind of order of magnitude we're talking about in Q1. And then, I guess for the full year, I think you said double-digit growth on a year-over-year basis.
Phillips Johnston: Just wanted to clarify if that applied to oil or BOE or both. Thanks.
Speaker Change: Just wanted to clarify if that applies to oil or BOE or both.
Luke Brandenberg: Yeah. Great questions and thanks, Phil. Appreciate you dialing in. I'll hit from Q3 to Q4 first. On the gas side, we anticipate what could approach a 10% decline in gas quarter-over-quarter from Q3 to Q4, and that's primarily driven from, frankly, some of these new wells and that rolling off the flush production side. A big piece of the gas outperformance from Q2 to Q3 was our first controlled capital pad there in Loving County. One of the difference makers there is we drilled 8 wells in that pad, 2 in the XY, 2 in the A, 2 in the B, 2 in the C, and the B and the C are gassier zones. I'd say we're generally conservative in an area where we do have fewer data points there.
Thanks.
Speaker Change: Great questions. Thanks, Philip. I appreciate you dialing in. I'll hit from third quarter to fourth quarter first.
Speaker Change: On the gas side, we anticipate what could approach a 10% decline in gas quarter over quarter from third to fourth, and that's primarily driven from, frankly, some of these new wells.
That rolling off the flush production side a big piece
of the gas out performance from second to third quarter.
was our first control capital pad there in Lubbock County.
Speaker Change: difference makers there is we drilled eight wells in that pad.
Speaker Change: 2 in the X, Y, 2 in the A, 2 in the B, 2 in the C, and the B and the C are gassier zones.
I'd say we're
Speaker Change: generally conservative in an area where we do have fewer data points. There we had a lot of X, Y, and A's, but fewer proximate data points in the B and C, and we were conservative in underwriting the gas side. We saw significant outperformance there. I anticipate that some of that will start to roll off. So again, gas, looking at up to 10% decline from third to fourth quarter.
Luke Brandenberg: We had a lot of X, Y, and As, but fewer approximate data points in the B and C, and we were conservative in underwriting the gas side. We saw significant outperformance there, and I anticipate that some of that will start to roll off. Again, gas looking at up to 10% decline from Q3 to Q4. On the oil side, I actually anticipate we'll see a slight uptick to mitigate some of that gas decline, but not a significant one, low single digits. As we look to next year, Tyler made this point in his comments, which I think was a good one. We anticipate spending probably $150 million in 2024 on wells that we will not see any contribution from until next year. A lot of those wells I think will come online early next year.
Speaker Change: On the Willis side, I actually anticipate we'll see a slight uptick to mitigate some of that gas decline, but not a significant one, low single digits.
Speaker Change: As we look to next year, you know, Tyler made this point in his comments, which I think was a good one.
You know, we anticipate spending probably $150 million in 24.
Speaker Change: on wells that we will not see any contribution from until next year. A lot of those wells, I think, will come online early next year. We mentioned, like I mentioned, we have just over 16 WIPs at the end of 930.
Luke Brandenberg: We mentioned, like I mentioned, we have just over 16 whips at the end of 30 September, we expect two to four wells to turn to sales in Q4. A lot of those are going to come on early Q1. I anticipate Q1 we'll see a pretty significant jump in production. I think you'll see that both on the oil and gas side. For 2025, you were correct. I mentioned double-digit growth last quarter. I mentioned in my remarks earlier, we think that'll be mid-teens. I'm going to narrow that down a little bit. We're looking for mid-teens growth on a BOE basis. I think that you'll see growth year-over-year in both oil and gas, but primarily on the oil side. That's going to be the big driver is controlled capital program.
Speaker Change: And we expect, you know, two to four wells to turn to sales in the fourth quarter. And so a lot of those are going to come on early first quarter. And so.
I anticipate first quarter we'll see a pretty significant jump.
Speaker Change: In production, I think you'll see that both on the oil and gas side.
Speaker Change: For 25, you were correct. I mentioned double-digit growth last quarter. I mentioned in my remarks earlier, we think that'll be mid-teens. So I'm going to narrow that down a little bit.
Speaker Change: We're looking for mid-teens growth on a BOE basis. I think that you'll see growth year over year in both oil and gas, but primarily on the oil side. And so that's going to be the big driver, is the controlled capital program.
Luke Brandenberg: That's I guess all Midland Basin focused. Excuse me, all Delaware and Midland Basin focused at this point. It'll be a primary oil-driven growth in 2025, which we are very excited about.
Speaker Change: all mid, you know, I guess all Midland Basin focused, excuse me, all Delaware and Midland Basin focused at this point, but it'll be a primary oil driven growth in 25, which we are very excited about.
Phillips Johnston: Okay, great. That's good color. Maybe can you talk about where you expect to end the year in just in terms of a next 12 months PDP decline rate, and what that might look like relative to where you came end of the year? You guys have had a decent amount of growth. Just wondering if your PDP decline rate has changed significantly.
Speaker Change: Okay. Great. That's a good color. And then maybe can you talk about where you expect to end the year and just in terms of the next 12 months PDP decline rate and kind of
Speaker Change: What that might look like relative to kind of where you came into the year, you know, you guys have had a decent amount of growth. So just wondering if your PDP decline rate has changed significantly.
Luke Brandenberg: Yeah, I think it's increased a bit. I'd say we're around 40% right now. If you had asked me this a year ago, actually, you may have. A year ago, I probably would've said it was high 30s, and now I would say it's around 40. It has ticked up a little bit. A big piece is, again, the controlled capital program, which is the higher working interest wells. We recognize that by doing that, you do increase the treadmill a bit, certainly in the near term. That's a big piece of why we wanted to wait to pick up a rig until we had enough inventory to keep it going. That will help to stable out that treadmill over time.
Speaker Change: Yeah, I think it's increased a bit. I'd say we're around 40% right now, if you had asked me this a year ago.
Speaker Change: Actually, I don't know. You may have. But a year ago, I probably would have said it was high 30s, and I would say it's around 40.
Speaker Change: so it has ticked up a little bit. And a big piece is, again, the controlled capital program, which is the higher working interest wells.
So we
Speaker Change: We recognize that by doing that, you do increase the treadmill a bit, certainly in the near term. But that's a big piece of why we wanted to wait to pick up a rig until we had enough inventory to keep it going. That will help to, you know, stable out that treadmill over time.
Phillips Johnston: Sounds good. Thanks, Luke.
Luke Brandenberg: Cool. Thanks, Phillips. Have a great one.
Speaker Change: Sounds good. Thanks, Will. Cool. Thanks, Philips. Have a great one.
Operator: Your next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.
Speaker Change: Your next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.
Jeff Robertson: Thanks, Luke. Luke, I think you said that all of your, or most of your controlled capital is currently in the Permian basin. I'm wondering if you're seeing opportunities in some of the other basins that you operate for controlled capital-type partnerships.
Jeff Robertson: Thanks Luke. I think you said or thank you Luke I think you said that all of your most of your controlled capital is currently in the Permian Basin. I'm wondering if you're seeing opportunities in some of the other basins that you operate for controlled capital type partnerships.
Luke Brandenberg: Yeah, that's a great question, Jeff, because right now we have two controlled capital partnerships. I'd love to have three or four, and we are looking at other basins. One of the challenges that we see right now, our controlled capital program is really focused on near-term development. Areas that are gas-weighted are tough for us. Just given current economics, drilling new gas wells right now is just more challenged. There are areas on the gas side that could be compelling from an inventory capture perspective, and there are some teams out there that are very high quality, have created a lot of value, and I think could be interested in a type of partnership that we have.
Speaker Change: Yeah, that's a great question, Jeff, because right now we have, you know, two controlled capital partnerships.
Speaker Change: I'd love to have three or four, and we are looking at other basins. One of the challenges that we see right now, our controlled capital program is really focused on near-term development, and so areas that are gas-weighted are tough for us, just given current economics.
drilling new gas wells right now is just more challenged.
Speaker Change: And so there are areas on the gas side that could be compelling from an inventory capture perspective, and there are some teams out there that are very high quality, have created a lot of value.
Speaker Change: I think could be interested in a type of partnership that we have, but gas side is tough and so as we do look in other areas you know we're I'd say in some form of dialogue with a couple other teams right now. I would think Bakken and Eagleford are two of the basins that we're looking at pretty hard right now in the sense that we
Luke Brandenberg: Gas side is tough, as we do look in other areas, we're, I'd say, in some form of dialogue with a couple other teams right now. I would think Bakken and Eagle Ford are two of the basins that we're looking at pretty hard right now in the sense that we see an opportunity for our existing assets to potentially contribute to building a partnership. The one thing in all these basins, frankly, is that the treasure maps are well-defined in a lot of spots. You're not finding unleased acreage. A big piece has really become that trading game. A big advantage that we have, and really a way that we can add value to potential partners is, we do have a lot of acreage across these different basins, take the Bakken, for example, that could be used to trade.
Speaker Change: see an opportunity for our existing assets to potentially contribute to building a partnership. You know, the one thing in all these basins, frankly, is that
Speaker Change: The treasure maps are well-defined in a lot of spots, and so you're not finding unleased acreage. And so a big piece has really become that trading game.
a big advantage that we have and really it.
Speaker Change: so the way that we can add value to potential partners is.
Speaker Change: You know, we do have a lot of acreage across these different basins. Take the Bakken, for example, that could...
Luke Brandenberg: Sometimes trade is more appealing than cash for a lot of these large operators you may want to work with. That's a long-winded way of saying absolutely, we'd love to have teams in different basins. I think Eagle Ford and Bakken are very compelling based on the opportunity set that is out there and the data that we have. I'd say Eagle Ford is a bit tougher just because there's fewer opportunities. Yes, we'll continue to look. We're certainly open for business on that side. I'd like to allocate more and more capital to that program. We've loved the success to date. I think that we can provide a differentiated solution to some of these proven management teams, and we will continue to look. Thank you for asking that.
Speaker Change: be used to trade. Sometimes trade is more appealing than cash for a lot of these large operators you may want to work with. So that's a long-winded way of saying absolutely. We would love time schemes in different basins. I think Eagle for Embankment are very compelling based on the opportunity set.
That is out there and that data that we have.
Speaker Change: I'd say Eagleford is a bit tougher, just because there's fewer opportunities. But yes, we'll continue to look. We're certainly open for business on that side. And I'd like to allocate more and more capital to that program. We've loved the success to date. I think that we can provide a differentiated solution to
Speaker Change: some of these proven management teams, and we will continue to look. Thank you for asking that.
Jeff Robertson: I guess as a follow-up, it sounds like it would probably be complicated, but you could use some of Granite Ridge's leases in some of these basins to help a control partner solidify acreage in an area that the two of you would like to participate. Is that fair? Is that too complicated to try to put together?
Speaker Change: I guess as a follow-up, it sounds like it would probably be complicated, but you could use some of Granite Ridge's leases and some of these basins to help it control partner solidified acreage in an area that the two of you would like to participate. Is that...
Speaker Change: Is that fair, or is that too complicated to try to put together?
Luke Brandenberg: No, it's not too complicated, and we've actually done that on multiple occasions, with our Delaware Basin focused partner, where we've had acreage in a good area, and they were trying to cut a deal with that operator in a different area, and we were able to use that acreage as currency to help grease the skids and get the deal done. No, it's a great point. I think it is a true value add that we have, with our partners in the Delaware Midland Basin. Day one of getting that partnership going, we said, Hey, look, here's everything that we have in your area of interest. If there's a way that you can use that, to help facilitate capturing inventory in other parts, have at it. We can easily find a way to make that work for both sides. It's a great point.
Speaker Change: No, it's not too complicated. We've actually done that on multiple occasions with our Delaware Basin Focus partner where we've had
Speaker Change: acreage in a good area, and they were trying to cut a deal with that operator in a different area, and we were able to use that acreage as currency to help grease the skids and get the deal done. So, no, it's a great point. I think it is a true value add that we have.
Speaker Change: You know, with our partners in the Delaware and Midland Basin, you know, day one of getting that partnership going, we said, hey, look, here's everything that we have in your area of interest. You know, if there's a way that you can use that.
to help facilitate
you know, capturing inventory and other parts.
Speaker Change: have at it. We can easily find a way to make that work for both sides. So it's a great point. I think it is a big differentiator for us as folks are looking for capital partners.
Luke Brandenberg: I think it is a big differentiator for us as folks are looking for capital partners.
Jeff Robertson: Thank you.
Luke Brandenberg: You got it. Thank you, Jeff.
Thank you.
You got it. Thank you, Jeff.
Operator: We have no further questions in our queue at this time. With that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: We have no further questions in our queue at this time. And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
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