Q4 2024 Permian Resources Corp Earnings Call
Good morning and welcome to Permian Resources' conference call to discuss its fourth quarter and full year 2024 earnings.
Today's call is being recorded.
Speaker Change: At this time, I will turn the call over to Hays Mabry, Permian Resources Vice President of Investor Relations, for some opening remarks, please go ahead.
Speaker Change: Thanks, Zena, and thank you all for joining us. On the call today are Will Hickey and James Walter, our Chief Executive Officers.
and Guy Oliphant, our Chief Financial Officer.
Speaker Change: I would like to note that many of the comments during this call are forward-looking statements that involve risk and uncertainties that could affect our actual results or plans.
Speaker Change: Many of these risks are beyond our control and are discussed in more detail in the risk factors and the forward-looking statement sections of our filings with the SEC.
Speaker Change: 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.
Speaker Change: For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation.
Speaker Change: With that, I will turn the call over to Will Hickey, co-CEO.
Will Hickey: Thanks, Hays. We're excited to discuss our fourth quarter results as well as lay out our 2025 plan this morning. We reported a record quarter in both production and free cash flow per share in Q4, demonstrating that the business continues to perform extremely well, led by outstanding execution in the field.
Will Hickey: Additionally, we saw a relentless focus on cost control manifest into lower DNC cost and controllable cash cost when compared to Q3.
Will Hickey: Over the full year of 2024, our team delivered outstanding results, resulting in a nearly 50% increase in free cash flow per share compared to 2023.
Will Hickey: Even more impressive, we achieved this without increasing leverage, reflecting the strength and consistency of our core operations.
Will Hickey: As a result, we believe 2024 represents a highly repeatable year, positioning us for sustained performance and growth. As we look to 2025, we expect to continue maximizing shareholder value by executing on our highly capital-efficient Delaware Basin Drilling Program.
Will Hickey: We're proud to lay out a 2025 plan that's expected to continue to generate significant free cash flow per share growth.
Will Hickey: Moving into quarterly results, Q4 production exceeded expectations with oil production of 171,000 barrels of oil per day and total production of 368,000 barrels of oil equivalent per day.
Will Hickey: Our DNC team also continues to execute at an extremely high level, which led to 275 wells tilled in 2024. Importantly, we executed on this plan with CAPEX remaining well within our original guidance range of 1.9 to 2.1 billion.
Will Hickey: In addition, we delivered leading cash costs supporting strong margins with Q4 LOE of $5.42 per BOE, cash G&A of $0.93 per BOE, and GP&T of $1.49 per BOE.
Will Hickey: Strong production results paired with low cash costs and CapEx of $504 million in the quarter resulted in an adjusted operating cash flow of $904 million and adjusted free cash flow of $400 million.
Will Hickey: Turning to slide four, we wanted to provide a quick review of how strong a year 2024 was for PR. We were able to beat and or raise production guidance every quarter on just the base outperformance.
Will Hickey: When including the bolt-on acquisitions we closed throughout the year, we delivered 8% higher oil production when compared to our original 2024 guidance. Our cost controls also performed extremely well, as most recent oil costs were almost 20% lower compared to 2023.
Will Hickey: Most importantly, a little over half of this reduction was a direct result of structural efficiency improvements gained throughout the year, with the balance a result of service cost deflation.
Will Hickey: We also rolled out an enhanced capital return program during 2024 that prioritizes a leading base dividend for our shareholders. This change was underpinned by the material improvements in free cash flow per share generation of our business, which we will touch on.
Will Hickey: Lastly, during 2024, we were able to increase our liquidity by approximately $1 billion, showcasing our ability to maintain a very strong financial position with no change in leverage. While executing on $1.2 billion of accreted M&A,
Will Hickey: We have and will continue to prioritize maintaining a fortress balance sheet as we believe this allows us to maintain flexibility and be opportunistic through the commodity price cycles.
Will Hickey: Slide 5 illustrates our expertise and cost leadership in the Delaware Basin. Our relentless focus on low-cost leadership allows us to drive both D&C and controllable cash costs to peer-leading levels. Our 2025 plan, which James will outline here in a minute, benefits greatly from the reduction in all-in costs we've seen over the past year.
Will Hickey: Given the marginal nature of free cash flow, running a low-cost business is critical in supporting strong free cash flow per share.
Will Hickey: Turning to slide 6, we wanted to highlight the success of our 2024 M&A program. We executed on approximately 1.2 billion dollars of acquisitions for 50,000 net acres and about 20,000 barrels of oil equivalent per day across our acreage position.
Will Hickey: The mix of acquisitions consisted of a large asset deal in Brea Draw, several smaller bolt-on acquisitions, and finally a substantial ground game that consisted of over 500 transactions for 4,000 net acres.
Will Hickey: We believe that expertise in executing each of these type of transactions provides PR the means to continue to replace our drilled locations with high rate of return inventory that immediately competes for capital.
Will Hickey: Now looking at slide 7, we want to highlight a big reason for why we've been so successful at M&A that creates value for shareholders. One of our sustainable competitive advantages is our ability to buy acreage in areas where we can apply PR's leading cost structure to the acquired assets immediately.
Will Hickey: Specifically, when we compared the last several months of LOE on assets prior to acquisition, we've already driven a $3 per BOE reduction in that asset base.
Will Hickey: This was largely achieved through our lean field organization, technical expertise in artificial lift, optimized chemical programs, and a leading field compression team that maximizes production while reducing downtime.
Will Hickey: Similarly, on the DNC side, we've reduced cost by over $300 per lateral foot when compared to the prior operator's most recent wells. Our leading cycle times, completion optimization, and sourcing of key materials with scale support these improvements.
Will Hickey: We're confident that our ability to execute this level will allow us to continue to find Delaware Basin opportunities at attractive rates of return. With that, I will turn it over to James to go over our 25 plan.
James Walter: Our plan is the result of a tremendous amount of effort from every department at Permian Resources, and we want to thank our entire team for the hard work that went into pulling this all together.
James Walter: For the full year 2025, we expect total production to average between 360 and 380,000 BOE per day, and oil production to average between 170 and 175,000 barrels of oil per day.
James Walter: This plan delivers 8% higher annual oil production compared to full year 2024.
James Walter: Our capital program consists of approximately $2 billion, which is less than 2024, despite the higher production base, showing materially improved capital efficiency year over year.
James Walter: Eighty percent of the capital program is allocated to drilling and completion operations, where we expect to turn line approximately 285 wells this year, with roughly the same dock inventory as we carried in 2024.
James Walter: The remaining 20% is primarily investments in infrastructure that position PR to continue to drive value in 2025 and beyond.
James Walter: Our development program in Wellness will be largely the same as last year, and will continue to be focused on our high-returning Delaware Basin asset, with New Mexico accounting for about 65% of our activity, the Texas-Delaware accounting for about 30%, and the Midland Basin getting the balance.
James Walter: We expect our average working age to be approximately 75%, which is in line with 2024, and our average lateral length to increase to approximately 10,000 feet.
Speaker Change: We expect our controllable cash costs to be approximately $7.75 per BOE, which as was mentioned earlier, we believe to be the lowest cost in the Permian. Additionally, we continue to optimize our tax planning strategies and expect approximately $25 million in current taxes for 2025 at strip prices.
Speaker Change: The combination of the same or better well productivity with lower cost across the board drive meaningfully improved capital efficiency and lower break-evens in 2025.
Speaker Change: Page 5-9, our balance sheet reflects the same philosophy around low leverage and high liquidity we have shown since the founding of our predecessor company.
Speaker Change: We maintained leverage right at one time through the course of 2024, while doing $1.2 billion in acquisitions, and we expect to exit 2025 at approximately 0.5 times leverage, assuming current strip prices.
Speaker Change: As mentioned earlier, we entered the year with $3 billion in liquidity, including approximately $500 million of cash. This positions us to be opportunistic in any environment as we believe market dislocations represent some of the greatest value creation opportunities in this sector.
Speaker Change: We've also protected our downside through hedging, with approximately 25% of our crude oil heads at $73 and strong oil and gas hedges for the next few years.
Speaker Change: The next strategic priority for our balance sheet is the achievement of investment grade status, which we think could come before the end of the year, given our consistent, conservative financial policies and lower leverage than many of our investment grade peers.
Speaker Change: We paid our first $0.15 per share base dividend in November, and our current base dividend yield is over 4%, highlighting the relative value that Permian Resources' stock represents today.
Speaker Change: Importantly, the improvement of business fundamentals we have highlighted throughout the deck have driven our post-dividend free cash flow break-even down to approximately $40, which highlights the sustainability of our plan.
Speaker Change: Turning to slide 10, we wanted to go back to 2023 to highlight some of the performance metrics that have helped drive the outsized investor returns we'll highlight on the following slide.
Speaker Change: As most of you know, our sole focus is creating value on a per-share basis. And our team has positioned us to deliver substantial, peer-leading growth on key per-share metrics like production per share and free cash flow per share.
Speaker Change: From 2023 to 2025, we will grow production per debt-adjusted share by approximately 50 percent, or reducing our cost structure in a material way during that same time period. And the end result is our free cash flow per share almost doubles, from just over $1 per share in 2023 to over $2 per share in 2025.
Speaker Change: Slide 11 shows the public results of the improvements to our business we highlighted on slide 10. Our team's tireless focus on value creation and free cash flow per share growth has led to best-in-class total shareholder returns every year since the Colgate Centennial merger in 2022.
Speaker Change: As you can see turning to slide 12, the majority of the shareholder value has come from improvements in the quality of our business rather than a re-rating of our multiple.
Speaker Change: Even with our industry-leading TSR the past few years, we believe that Permian Resources is well-positioned to continue to create outside value for investors. Our go-forward value creation potential is underpinned by an industry-leading cost structure, low break-evens, and long-dated high return inventory, which together have driven leading returns for investors.
Speaker Change: Thank you for tuning in today, and now we will turn it back to the operator for Q&A.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 4 by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised.
Speaker Change: And should you wish to cancel your request, please press star 4 by the 2.
Speaker Change: Your first question comes from the line of Scott Hanold from RBC Capital Markets. Please go ahead.
Yeah, thanks. Good morning.
Speaker Change: You know, you discussed a little bit about your plan into 2025 and a lot of regional similarities. Can you give a little color around that?
Speaker Change: The target formations and you know co-development to that provide you confidence and you know sustainability of you know The the economics as you move forward and you know, what's your visibility on that right now in terms of like duration?
Yeah, I mean it's
Speaker Change: It's shockingly similar, both the kind of allocation across states, basins, and zones.
Speaker Change: I mean you'll see average pad size may creep up a little bit just
some of the
Speaker Change: blocks we're drilling set up for larger scale development, but but really it's it's the same zones You know it'll be a lot of the same zones in New Mexico, Texas and Midland Basin that we've done for previous years and really I'd say our inventory position has not has not changed if you follow kind of the M&A slides in there. We've been
Speaker Change: able to basically replace everything we've built for two years in a row now. So we still sit with high-confidence 15-year inventory with kind of the first half of that showing very little degradation from what we're doing today.
Speaker Change: Delaware, you know, how much do you all see is left, you know, that could be targeted?
Speaker Change: You know I think the M&A landscape overall, I think we see a pretty interesting and attractive kind of market backdrop as we head into 2025. I think it looks...
Speaker Change: pretty similar to the last couple years and the years before COVID, which have been kind of fruitful if people can find and do the right deals.
Speaker Change: I think, you know, in terms of scale, we've been more focused on the kind of smaller deals. I think the biggest deal we've done on the cash side was...
Speaker Change: the OxyBorea jaw deal we announced in in Q3 and I think we find those deals tend to have higher quality Inventory and represent better values. You know, I think the bigger deals we've seen
Speaker Change: especially on the private side in the Delaware, have tended to be very production-heavy and probably not as long lives on the inventory.
Speaker Change: side of things and so I think you know our focus has been more on the on the smaller deals kind of the hundreds of millions of dollars and smaller That's it. I mean we'd be happy to look at bigger deals We've looked at quite a few of them, and if we found the one that was the right fit
Speaker Change: the right quality and we believe truly made our business better over the long term. I think we'd we'd be excited to to do something bigger but but we see more value on the smaller end and probably the same going forward but you know you never know what the market's going to bring and and you can assume we're looking at everything.
Appreciate that, thank you.
Speaker Change: Thank you. And your next question comes from the line of Neil Dingman from Tourist Securities. Please go ahead.
Neil Dingman: Morgan, thanks for the time. Will, maybe my first question for you just around the operational efficiencies, you continue just to now do yourself, you just sort of quarter in, quarter out. I'm wondering, is part of this driven by the continuing integration of new assets? I mean, does that help? Or really, what continues to be the driver of just, you know, when you guys are able to do this quarter after quarter?
Neil Dingman: I'd say really that's just the culture that we've built around here. We've got a...
Neil Dingman: A team of highly motivated, highly skilled people that are really working every day to try to better what they did the quarter before.
Neil Dingman: that's the culture that's ingrained in PR. That's what we've been doing for a long time and you know M&A I'd say M&A allows us to showcase that M&A allows us to leverage our cost structure to to buy deals at high rate of return and kind of
Neil Dingman: immediately apply that cost structure where you can see kind of the synergies as quick as the first month after acquisition but
Neil Dingman: But I wouldn't say M&A makes us better, you know, I think on the margin it probably gives us some scale and some purchasing power, but really kind of the day-to-day grinding out hours, days, minutes on the drilling side and finding ways to optimize completions to lower costs is really just a cultural thing ingrained in PR and
Neil Dingman: And I think we benefit a lot from being in Midland and really being focused on one basin. You know, there is...
Neil Dingman: There's a lot of value in being kind of hyper-focused on one basin in Midland, and I think kind of the culmination of the culture with that is what drives the performance.
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Speaker Change: haven't gone crazy thinking you have to pay out 100% or you have to have a 15% yield dividend. Just wondering, when you sort of see the free cash flow shaping up as it is, how do you think, you know, what do you think is the appropriate shareholding return value this year by going into next year? How do you sort of see that strategy?
Speaker Change: Yeah, I mean, I think we're, you know, as we said, a lot of base dividend is the core of our shareholder returns program, and we paid our
Speaker Change: We all got our first $0.15 per share base dividend in November, so I think we're all really excited about that. I think we like it.
Speaker Change: The strong dividend yield, I think it reflects the kind of value proposition of a PR stock today. And it feels really sustainable. Like I said on the call, I think that's sustainable at a cash flow bank even. Post-dividend down to $40,000, I think, feels...
Speaker Change: really, really good. I think going forward, look, I think our number one goal is to continue to increase
Speaker Change: the base dividend on an annual basis. We all think that's kind of a key criteria to have a healthy, high-quality growing business is a sustainably growing base dividend. So I think that's our first priority. And then beyond that, I think that kind of capital allocation post-base dividend is going to depend on.
Speaker Change: The opportunity is set in front of us. I think that could be what it's been the last couple of months, is putting cash on the balance sheet and paying down some debt. I think over time there could be interesting opportunities on the share buyback side or on the strategic acquisition side.
Speaker Change: We're looking at all that and I think we're kind of making the decision every day, every week, every month what we think is going to drive the highest return for shareholders and that's where the kind of rest of the cash is going to go.
Love the answer. Well done, guys. Thank you.
Speaker Change: Thank you. And your next question comes from the line of Dave DeVood from the TD Commonwealth. Please go ahead.
Dave DeVood: Hey guys, good morning. Thanks for taking my questions. I was hoping first we could start with CapEx, a couple...
Speaker Change: items wanted to ask about I guess first is just the level of facility spend of for I guess it's about
Speaker Change: 400 million on an absolute basis. Just curious if that's a good number to use annually on a go-forward basis. And then your DNC per foot numbers targeting 750 a foot. Are you there now or is that a level that you expect to get to at some point this year?
Cool, great questions. Facilities...
Speaker Change: Yeah I think kind of right around 400 maybe slightly above that is kind of where we think we'll be this year. That's that's a hundred million off of where we were.
Speaker Change: Last year if you remember there was a kind of a lot of one-time spending spend associated with the Earthstone integration So I think 400 is probably the right
Speaker Change: call it short to midterm run rate. Obviously acquisitions can move that around. I do think that, you know, if we didn't do any acquisitions and just continued to prosecute developing our own inventory, that once you get, call it three plus four years out, you could see that drop further to kind of call it the
Speaker Change: Maybe all as low as 300 million a year, but but that's probably the right kind of base case No acquisition run rate and I think based on our history. There's likely to be some acquisitions that happen between now and then
Speaker Change: D&C side, $7.50 a foot is cutting edge real-time cost today. So we are there, as we were looking at what to put in the budget and the guide, I'd say we've got confidence based on what we're seeing real-time in the field today that $7.50 is achievable and we are there today.
Speaker Change: awesome okay so I think it'd be fair to say you could probably move that lower as we move throughout the year
Speaker Change: yeah you said that not me I you know I think that I trust my team will continue to find ways to get better but
Speaker Change: but at the same time I kind of you know it feels like we've squeezed probably a lot of we can out of the deflation side of the equation people are talking about tariffs there's kind of a lot of other factors at play so I think
Speaker Change: $7.50 is the right is the right guide based on where I stand today and hopefully we can go find ways to cut costs from here but
It's not quite as clear as it maybe was.
three or four months ago.
Speaker Change: okay okay no that's fair understood thanks for that and then just a quick follow-up is it fair to assume just given
Speaker Change: pretty static level of equipment and activity relative to where you just were. So, so maybe no, no real lumpiness in the program this year. Is that a fair statement?
Speaker Change: I think there's a little bit of lumpiness. I would say CapEx is probably
Speaker Change: Slightly front half-weighted, and production is slightly back half-weighted. Something like that, you know, production is probably on the low end of the guide for the first half of the year, and then high end of the guide for the back half of the year.
Speaker Change: CapEx you probably could, you know, move a couple percent to the first half and drop the back half by a couple percent, something like that.
Speaker Change: Gotcha, gotcha. Okay, nothing too meaningful though. Okay, great. Thanks guys.
Thank you. Thank you. Thank you.
Speaker Change: Thank you. And your next question comes from the line of Zach Parham from J.P. Morgan. Please go ahead.
Zach Parham: Good morning guys. Just to follow up on some of the other questions on D&C costs. You're at $750 a foot now. That's down over $100 a foot from where you were kind of coming into $24. Can you just detail you know what the drivers and those reductions in D&C costs have been over the last year? How much of that's efficiency gains versus on the cost side?
Yeah, happy to do it. I'd say...
Zach Parham: just real high level I'd say probably slightly over 50% maybe 55% is going to come from the efficiency side with the balance being more kind of real per unit cost deflation.
On the efficiency side, it's.
Zach Parham: It's drilling weighted you can see it kind of however you want to pull our drilling times just we've continued to cut days and days and days on
Zach Parham: you know on the on the material side it's really just kind of tangible stuff like stands come down, casings come down, and then a little bit of call it like deflation on true services. Simulfrax helped a little bit you kind of add all that together and you just get to the the numbers you're quoting.
Speaker Change: Got it. Thanks for that. And then maybe just an update on the Midland asset and kind of how that fits into the portfolio. It seems like it's about 5% of turn in lines this year, but how do you think about that asset fitting into the portfolio over the longer term?
Speaker Change: Yeah, I mean, I think, you know, we're obviously very focused on the Delaware Basin, that's kind of our backyard, that's where we've spent the majority of our time, the majority of energy and the majority of our capital.
Speaker Change: That's turned out to be a good little asset. You know, I think our team's done a really good job bringing kind of costs in line with
Speaker Change: the leading operators in the Midland Basin. You know, frankly, when we acquired that asset a couple years ago, it was in a fine position, but I think our team's really taken that and made it a lot better, kind of applied the PR secret sauce, if you will.
Speaker Change: to optimize the position that included that. I think we'd obviously be open to it, but I think we like having it in the portfolio. I think it's got really good gas price optionality, obviously kind of Permian.
Speaker Change: Gas prices haven't been anything to be that excited about but that that business has a real amount of leverage to to kind of in base and gas pricing that I think
Speaker Change: Both kind of makes it more attractive to hold and probably requires a different environment to do something with but
Speaker Change: Tell you the truth, our team has done such good work, I think we're pretty happy with it.
Speaker Change: Sitting where it is and if there's a way to do something to make it or make our business better Obviously, that's what we do every day. We'd be open to it. But you know happy with it in the portfolio as it stands today
Got it. Thanks guys
Exact
Thank you.
Speaker Change: And your next question comes from the line of Kevin McCurdy from Pickering Energy Partners. Please go ahead.
Kevin McCurdy: Hi, guys. It looks like you're taking your efficiency gains and shorter cycle times from 2024 and using it to increase turning lines year over year. This is slightly different than some of your peers, who I think are banking those efficiency gains and keeping production flattish. And I wonder if we could just share your thought process on activity levels and how you reached the decision you did.
all at the beginning of it I'd say kind of
Kevin McCurdy: What first all we look at as we're making capital allocation decisions especially with respect to the drilling program is just kind of the the all-in return of the program and
Kevin McCurdy: And we've talked about this in the past, but also kind of the payback of it, you know, when you add an incremental rig, how fast that rig pays for itself to where you're in a net better cash position because of it.
Kevin McCurdy: I think what you've seen over the last 9 months or 12 months is commodity prices have moved against us but at the same time our cost structure has more than offset it. We're earning better returns at the pad level today than we were a year ago just given the
Kevin McCurdy: the overall return profile of the business, really with the cost structure being the biggest tailwind. I think as we look at the plan for 25,
Kevin McCurdy: I wouldn't call this more of a tweener program like we are from you know year over year it's 8% growth but there's a lot of acquisitions in it you know kind of from q4 levels it's less than that and
Kevin McCurdy: You know we could easily dial it up to to show meaningful growth much more than this to kind of high-end 10% as we've talked About or or dial it back a little bit, but it feels like kind of the return profile of the business Justifies a little bit of growth, and that's that's where we landed
Kevin McCurdy: And really the way we're thinking about it and the way we focus everything is per share growth I think we've got the debt adjusted
Speaker Change: Thanks, I appreciate that answer and yeah, I think the growth certainly separates you from your peers.
Speaker Change: For a follow-up, I wanted to touch on the minimal cash taxes in 2025 because I think that's a meaningful piece of the free cash flow. How were you guys able to mitigate taxes again this year, and do you have any thoughts on how long you can kind of continue to defer the majority of your cash taxes?
Guy: Yeah, this is Guy. So for 24 we really just kind of continued to optimize our tax planning and we learned a lot with Earthstone that ultimately resulted in...
Guy: Nominal cash tax was paid in 24, and 25 is just a carryover of that, what I call improved planning and probably
Optimization of Earthstone
Guy: As we go forward, cash taxes will be more meaningful in 26, and by 27, closer to a full cash taxpayer. So we're going through all that now, so that'll change, but 25 was a meaningful improvement relative to what we thought six or nine months ago.
Appreciate that. Thank you guys.
Thanks, Kevin.
Guy: Thank you once again. Should you have a question, please press star or fall back to one on your telephone keypad. Your next question comes from the line of Derek Whitfield from Texas Capitol. Please go ahead.
Good morning all and thanks for taking my questions.
Yes.
Guy: Over the last two quarters, you guys have added 2,500 net acres via grassroots leasing, with the majority of that coming in 4Q.
Guy: Kind of looking forward across your expanded position, is it reasonable to think that you could continue to add five to ten thousand acres per year via grassroots leasing, really negating the need for larger bolt homes?
Guy: High end of that sounds pretty high. I think we're confident, like we've been doing this a long time and it's lumpy.
Guy: I think we could have, you know, replicate what we did in Q4.
Guy: a couple of quarters in a full year period, but I think probably
Guy: The kind of 4,000, 5,000, 6,000 in that acre is probably the better base case, I'd say.
10,000 acres would be a really good year.
Guy: You know, I think just kind of the way that these deals come through and the kind of opportunity set being largely tied to the drill bit in our drill schedule. Like you do have some.
Guy: outsides quarters like we saw in in Q4 but I think
Guy: We're certainly confident we can continue doing it at the scale we've done in the last couple of years, which I think is probably closer to that 5,000 acres plus or minus run rate.
Guy: But you know, who knows? I mean, our team, we've got an incredible team out here in Midland on the ground every day looking for opportunities. So I think, you know, a really good year could look like that, but probably not every year.
Speaker Change: And for my follow-up, I wanted to ask a capital efficiency question. One of your peers recently introduced a new measure where they evaluated the price in 2025 that would allow for a similar free cash flow per share as achieved in 2024.
Speaker Change: I guess with respect to that capital efficiency measure, if you've seen it, I'd love your take on it. And secondly, if you have a view on what crude price would deliver a similar level of free cash flow per share for you in 2025, if you have it.
Speaker Change: I think for us, we actually like looking at this, I think one thing that's really important as we talk about running our business every day is that our business is getting better year over year and kind of the ultimate arbiter of quality as we see it is free cash flow.
Speaker Change: generally in the context of absolute free cash flow, but I think from our perspective
Speaker Change: If we were trying to generate the same, call it 1.4 billion dollars we generate in free cash flow on an absolute basis.
Speaker Change: last year, which is at a call it a $75 crude price. We think we could do that.
Speaker Change: this year in the kind of low to mid 60s, call that $63 plus or minus.
Speaker Change: I feel like that shows the quality of the business, the kind of step change that we've seen in operational efficiencies and capital efficiency across the board.
Great update. Thanks for your time.
Speaker Change: Thank you and your next question comes from the line of Neal Mehta from Goldman Sachs. Please go ahead. Yeah, good morning Will and James and team, thanks for the time here.
Neal Mehta: I guess a big picture question, you know, you show in the deck, despite multi-year outperformance, the stock does still trade at a two-turn discount.
Neal Mehta: to a lot of the pure set, including your big brother in the midland, and I guess the question is what do you think the market needs to better understand to start thinking about Permian resources differently and more in the context of other pure play Permian stories?
Neal Mehta: closer to that and better answering that question than we are. I'd say where we spend all of our time and focus on is how we can make our business better. I think if I had to speculate, and I'm probably not the best person to do this, I think it's a combination of
Neal Mehta: One, Permanent Resources is still a relatively new story. I think if you want to talk about the guys across the street, they've been doing this for well over a decade, probably closer to two than to one, and doing it tremendously well year in, year out, quarter in, year in, quarter out.
Neal Mehta: That multiple is deserved by the kind of both the quality of the business they run and the duration they've run it for We're still a relatively new story. I think it's it's
Neal Mehta: I think over time the kind of multiple uplift will come as people see, I think people see the quality of our business today, but continue to see quarter in, quarter out, year in, year out execution. So I think the only other thing we get occasionally from investors is, you know, the outperformance to date, which is shown on slide 11, has been...
Neal Mehta: So strong three years running that I think people have a hard time Reconciling that with slide 12, which is still a relatively low multiple compared to the peer set So I think I think it'll work itself out over time and you know, you know I'd say for us we're really focused on how we grow free cash flow per share and think everything else will take care of itself
Neal Mehta: Great answer. And then just the follow-ups on lateral length. You're moving from 9,300 feet to 10,000. Just talk about how do you continue to drive this higher and what's your approach to continuing to extend?
Neal Mehta: I'd say some of the step up from 9,300 to 10,000 is just we're drilling very, very few sub 10,000 foot laterals this year as well as there's a few three-mile laterals that in some of the shallower benches actually does drive incremental economics and when so that's what we'll do.
Neal Mehta: I think the verdict is still a little bit out on the Delaware Basin if you'll see the big shift change from targeting 10,000 feet to targeting closer to 12,500 feet that you've seen in the Midland Basin.
Neal Mehta: most Midland Basin Operational synergies or efficiencies do ends up translating to the Delaware a couple years later So I probably wouldn't bet against it, but you know we drop we
Neal Mehta: Delaware Basin productivity makes a lot more fluid per foot than Midland and so at some point if you really really start to push lateral links your you know fluid deliverability is
Neal Mehta: is constrained and it kind of hurts the economics, so I'd say that's the stuff we're looking at every day, but I do have the confidence that our drilling team could easily go drill two and a half, three miles if needed. It's more of just does that make sense of the acreage position and the economics.
Yeah, okay. Thanks, Will.
Speaker Change: Thank you. And your next question comes from the line of Oliver Wang from TPH. Please go ahead.
Thank you.
Oliver Wang: Good morning, James, Will, and team, and thanks for taking the questions.
Oliver Wang: Just wanted to kind of look back at the 2025 budget and the non-DNC portion, that 20%. It sounds like most of that is facilities, infrastructure related, but just any sort of color you all can provide with respect to the magnitude of the non-op CAPEX within that budget.
Oliver Wang: Yeah, Nanoff's pretty small. We've done an awesome job over the years, I think, kind of coring up and focusing on our operating business. I'd say that Nanoff spends less than $50 million a year.
Oliver Wang: Okay that makes sense. And for a follow-up maybe just on gas realizations, last quarter you all put out a slide speaking towards focusing on optimizing the gas netbacks. Just kind of wondering if there's been any progress updates to kind of offer up on that front that you're able to speak to.
Oliver Wang: No, I mean I'd say it's definitely still a priority. I think kind of better marketing of all of our hydrocarbons across the board is is a priority I'd say on the gas side.
Oliver Wang: That just takes time. You know, I think you saw us on the crude side kind of guide up our oil realizations by a percent at the midpoint from our guidance last year, and I think we've made some real
Oliver Wang: $10, $20, $0.50 a barrel in different places really moves the needle on free cash flow at the end of the day. On the gas side, I think, to be frank, I think our
Oliver Wang: The way we're going to sell our gas this year probably looks a lot like it did last year. I think the kind of real step change that we think we'll see is probably in 2026 and beyond, as we're looking at some longer-term, longer-haul deals, ways to access – got a couple different things on the – you know, on the plate that could allow us to access.
Oliver Wang: different markets than WAHA, but that just takes time. So, you know, I think our gas strategy is very in focus for us. I think kind of optimizing our realizations over the next decade is at the very top of the strategic priorities list, but I think you'll see that more in 2026 and 2027 than you will in 2025.
Perfect. Thanks for the time.
Speaker Change: Thank you. And your next question comes from the line of Josh Silverstein from UBS. Please go ahead.
Josh Silverstein: Good morning, guys. You mentioned potentially getting the balance sheet to half a turn of leverage by the end of this year. Do you see benefit in getting to this level from a re-rating in the stock, or does it make sense to stay closer to one times and use that cash for buyback and acquisitions?
You know I...
Josh Silverstein: We're definitely not kind of solving for balance sheet issues because I think because of implications for how the stock trades. I'd say as we think about balance sheet, it's.
positioning our business.
Josh Silverstein: to optimize value creation in all environments. And I think having a stronger balance sheet, I think everyone would agree.
Josh Silverstein: positioned you well to be able to be opportunistic and aggressive if there's a downturn. I want you to have dry powder as well if the right opportunity comes along.
Josh Silverstein: be that a buyback, be that an acquisition and in a kind of normal market as well. So I don't think it's a...
Josh Silverstein: Stock positioning, I think we're very comfortable at one times. We've been at one times the majority of our you know business life cycle the last nine or ten years and
Josh Silverstein: You know, we're in a fortunate position where the business is generating so much cash, it's going to delever more quickly this year, absent any extra acquisitions or buybacks, but there's certainly no strong view that we're going to trade better at 0.5 times than 1 times.
Speaker Change: Got it. And then on the royalty side, you guys have a pretty chunky position now, almost at 90,000 net royalty acres. A couple of questions here, just as you're thinking about M&A, are you thinking about potentially targeting more royalty acreage? And then for the drilling program this year, how much drilling is on that royalty acreage to enhance returns?
Speaker Change: Yeah, I think look I say we look at all acquisitions on the lens of what's the all-in total return we think we can achieve and
Speaker Change: You know, I'd say the majority of the acquisition dollars we've spent have been on working interests. You know, I think we look at a lot of royalties deals, that's a pretty competitive landscape and competitive market.
Speaker Change: lower cost of capital. But I think we're definitely active buying royalties under these Permian resources where we can. I think where we've had the most success is buying working interest packages that come with royalties alongside it. You know, I think that's been, you saw that in the Berea Draw deal and we announced last year and kind of I think probably more
Speaker Change: More likely to be the base case and then you know when it comes
Speaker Change: When it comes to activity, you know, I'd say the activity
Speaker Change: goes towards the highest rate of return developments that we have and you know more often than not those tend to be on the high NRI package that we have with the kind of royalties advantage. You'll see on 15 our kind of 2025 guidance has us at about a 79% 8-8 NRI, so we're definitely allocating more capital to those higher return higher NRI packages.
Thanks guys.
Speaker Change: Thank you. And your next question comes from the line of Jan Abbott from Wolf Research. Please go ahead.
Hey, good morning and thank you for taking our questions.
Speaker Change: Well, I want to go back to the cost per lateral foot.
Speaker Change: Ignoring tariffs, you mentioned the risk there, you know it's $750 per lateral foot.
Speaker Change: To achieve further efficiencies from here, do we really need to see more of a technological change at this point in time, or are there other things that you could potentially do?
to see a major change in costs.
Speaker Change: Yeah, look, I mean, if I was to make the bull case for cutting costs from here, I'd say, you know, there's small changes in continued kind of reduced flat time on the drilling side. There's small changes on water sourcing, you know, recycled water is a meaningful savings and water's become a really, really big part of our capital budget. On the completion side...
Yeah
Speaker Change: And then, yeah, there's always the breakthroughs. Like, if you follow drilling costs for PR or the predecessor company that we ran over time, it's kind of a...
Speaker Change: flat to very marginal improvements quarter over quarter and then you have big step changes kind of
Speaker Change: once every year or two. We saw one of those going from Q1 to Q2.
Speaker Change: last year, so I'd say those are more of the technological changes here. You discover a new BHA or you find a swap out of fluids or something like that that has like a meaningful change, so those are all the ways you could win. Obviously there's ways you can lose too, and so hence the $750 being kind of where we landed for the year.
Speaker Change: Okay, and then I want to go back to CAPEX for production. I mean production is 8% year-over-year.
So.
Speaker Change: You know, we got it back for data at Wellcurve, but there are benefits to maintaining efficiencies of operations. I mean, we've seen that in your cost per lateral foot.
Speaker Change: So when you think about sort of possibly managing production, or like, when you think about like a production number, does it make more sense to let efficiencies continue versus managing to a production number?
Speaker Change: I think it just really depends on the market and kind of I'd say both it's a combination as we think about kind of capital allocation and reinvestment rate which ultimately drives
Speaker Change: kind of the production number that you referenced. It's a function as we think about it of what is
Speaker Change: What are the returns that we're getting and what is the kind of macro backdrop go forward? I think the returns we're getting...
Speaker Change: even at a back-weighted strip are phenomenal in this environment. You know, I think we talked about...
Speaker Change: You know, our returns at a corporate level are materially better than they were last year at even a lower oil price.
Speaker Change: But I do think kind of there is a backdrop of kind of potentially an oversupplied market as you kind of move through the year I think maybe some of the storm clouds are
Appreciate it. Thank you for taking our questions.
Speaker Change: Thank you. And your next question comes from the line of Leo Mariani from Roth Capital Partners. Please go ahead.
Bye-bye.
Leo Mariani: Yeah, hi. Obviously, you spoke a bit in your prepared comments about, you know, clearly the
Leo Mariani: The multiple being lower than peers, and hopefully that takes care of itself over time.
Leo Mariani: At the same time, you guys are generating a lot of free cash flow, which seems to put the balance sheet in a lot better shape at the end of the year, and I know M&A's
unpredictable but you know just given the fact that
Leo Mariani: Your leverage profile's in great shape and the multiple's low. You know, why doesn't it make sense to maybe feather in a little bit more buyback instead of kind of waiting for things to totally blow up here?
Leo Mariani: Real dislocations are a real downturn and although I think we're undervalued relative to peers It doesn't feel like a truly dislocated market kind of more broadly today. So I think
Leo Mariani: We think our dollars are better spent putting them on the balance sheet and rating for a, call it a riper opportunity, than one that's just good enough. We think that kind of prudent approach to share buybacks to ultimately drive...
Leo Mariani: More shareholder value of the long term and and we're kind of prepared to be patient and and wait for the right opportunities be that A juicier buyback in the future that I think we do in mass or an acquisition opportunity or something else
Speaker Change: Okay, and then just turning to your controllable cash costs, as you pointed out, they kicked down a little bit here in the fourth quarter. You're looking at 2025 guidance, I guess you guys are expecting them to come down again on your controllable cash costs. Maybe just kind of talk to...
Speaker Change: Some of the success you had in 4Q and what the drivers are to kind of reduce the cost more in 2025. Is it just simply a matter of scale or are there some kind of tangible cost reduction efforts that you guys are working on?
Speaker Change: Yeah, so I'd say one big win which we highlighted some of is the cost we were able to cut so quickly out of the acquisitions we made. That three address that we bought was north of a $10 per BOE asset, and just a few months after getting our hands on it, we've got it down into the eighth, and I think there's room to continue to lower it from there. So you have some of those tailwinds as you compare.
Speaker Change: Some of our midstream contracts, I think you'll expect, we expect a lower GP&T year over year.
Speaker Change: That's more just a function of where we're drilling than any material change to the business.
Speaker Change: But look, I'd say overall we think controllable cash costs is a...
Speaker Change: important to protecting our margin, to protecting our ability to generate free cash flow and free cash flow per share. So we'll keep chipping away at it, you know, industry leading GNA, kind of keep pushing on the LOE side, etc., etc., will lead to a better business and ultimately more free cash flow.
Thank you.
Speaker Change: Thank you. And your next question comes from the line of Paul Diamonds from Citi. Please go ahead.
Paul Diamonds: Good morning, all. Thanks for taking my call. Just a quick one. You mentioned on M&A opportunities, kind of thinking that couple hundred million dollar range. Should we think about, you know, the go forward kind of opportunity set similar to Berea Draw or the high side or the low side of that?
Paul Diamonds: I think we're doing acquisitions today that are $50,000 on the small end, and we're doing those by the dozen or by the hundreds.
Paul Diamonds: We've done a lot of the kind of Berea draw sized high hundred million dollar acquisitions last year We did the kind of eight hundred million dollar Berea draw deal We did a kind of two hundred something million dollar deal in Eddy County and then a couple of deals a little smaller than that So I think that's that's probably
Paul Diamonds: The right range of kind of potential outcomes I think it's kind of big as a billion dollars on the kind of cash transaction side and as small as ten thousand
Thank you for joining us.
Speaker Change: Understood. Appreciate the clarity. And then just talking a bit about the ground game, you know, compared to two and a half years ago with the CDEV-Colgate merger, how have you seen that evolve? You've seen similar bid-ask spreads, similar kind of negotiation times, or just any evolution in that net marketer activity?
Speaker Change: You know, the ground game has been pretty similar to efforts that we've had underway since we started.
Speaker Change: Boots on the ground out here in Midland in the heart of the Permian that that kind of opens up a lot of opportunities For us, but I'd say the only big change We saw was kind of from the Colgate Centennial merger in 2022 was just the scale of the business You know we go from running
Andy Stegman, thanks for the clarity. I'll leave it there.
Speaker Change: Thank you. And your next question comes from the line of Noah Hungness from Bank of America. Please go ahead.
Noah Hungness: your capital program become more efficient, your cash costs go lower, and your production is higher than what we were expecting. And it seems like your free cashflow capacity is also increasing. So what was your reasoning behind keeping your base dividend flat when you announced results?
Noah Hungness: The reason is we paid our, we all got our first 15 cent base dividend in November, so it just kind of felt like
Noah Hungness: that kind of that was the right status quo, and I think we probably messaged this Indirectly when we rolled it out that kind of we do plan to revisit it annually But we kind of did our annual revisit with the first November dividend that we paid. I think the business could certainly support
made sense to make a change just one quarter in.
Speaker Change: Yeah, that makes sense. And then I just would like to know your thoughts on potentially implementing creative drilling solutions like U-laterals. We've seen some of your peers in the basin do so to levels of success and if you guys had any thoughts on that.
Speaker Change: Yeah, so I think for the most part we're very fortunate that our kind of land team and our land position does not require it like if you go look at
Speaker Change: Our acreage on a map, just a simple scan, you can see how well it sets up for kind of two or longer than two straight well development.
Having said that
Speaker Change: I think we've drilled three or four U-turn wells or kind of curved candy cane wells, if that's what you want to call it, to date. And anytime it does make sense, it's part of the program. I'd say our drilling team has proven over the three or four times we've done it that there's very, very little incremental cost. Like that curve, you know, sometimes you don't even see it on a DVD plot.
Speaker Change: We have the confidence that when it makes sense, we'll do it. And I think that, you know, it'll be something kind of like Simulfrac. It's part of the program, but I don't think it'll be something that we are necessarily highlighting as a huge step change in capital efficiency, primarily driven that we just don't have that many inefficient places where we need to do it.
Gotcha. Thank you so much for answering our questions.
Hey, you bet. Thanks, Noel.
Speaker Change: Thank you. There are no further questions at this time. I will now hand the call back to Mr. James Walter for any closing remarks.
Speaker Change: Thank you, and thanks everyone for dialing in today. Having gotten off to a great start for 2025, our primary goal remains the same. To maximize shareholder value over the long term.
Speaker Change: Due to 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 again to everyone for joining the call today and for following the Permian Resources story.
Speaker Change: This concludes today's call. Thank you for participating. You may all disconnect.