Q1 2026 Granite Ridge Resources Inc Earnings Call

May 8, 2026

Speaker #2: Hello everyone, thank you for joining us and welcome to the Granite Ridge Resources first quarter call. After today's prepared remarks, we will host a question and answer session.

Operator 2: Hello, everyone. Thank you for joining us, and welcome to the Granite Ridge Resources Q1 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to James Masters, Vice President of Investor Relations. Please go ahead.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Granite Ridge Resources Q1 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to James Masters, Vice President of Investor Relations. Please go ahead.

Speaker #2: If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to James Masters, Vice President of Investor Relations.

Speaker #2: Please go ahead.

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 Tyler Farquharson, our President and Chief Executive Officer, who will review the quarter's results and company strategy. He will then turn the call over to Kyle Kettler, our Chief Financial Officer, to review our financial results in greater detail. Tyler will then return to provide closing comments before we open 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. We ask that you review the cautionary statement in our earnings release. 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.

Speaker #3: Thank you, Operator, and good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Tyler Parkerson, our President and Chief Executive Officer, who will review the quarter's results and company strategy.

Speaker #3: He will then turn the call over to Cal Kettler, our Chief Financial Officer, to review our financial results in greater detail. Tyler will then return to provide closing comments before we open the call for questions.

Speaker #3: 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.

Speaker #3: We ask that you review the cautionary statement and our earnings release. 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.

Speaker #3: Accordingly, you should not place undue reliance on these statements. These and other risks are described in our press release and our filings with the Securities and Exchange Commission.

James Masters: Accordingly, you should not place undue reliance on these statements. These and other risks are described in our press release and our filings with the Securities and Exchange Commission. This call also includes references to certain non-GAAP financial measures. Information reconciling these measures to the most directly comparable GAAP measures is available in our earnings release on our website. Finally, this call is being recorded and a replay and transcript will be available on our website following today's call. With that, I'll turn the call over to Tyler.

Speaker #3: This call also includes references to certain non-GAAP financial measures. Information reconciling these measures to the most directly comparable GAAP measures is available in our earnings release on our website.

Speaker #3: Finally, this call is being recorded and a replay and transcript will be available on our website following today's call. With that, I'll turn the call over to Tyler.

Speaker #3: Thank you, James. And good morning, everyone. We delivered strong operational execution in the first quarter. Eighteen percent production growth year over year, to thirty-four and a half thousand barrels of oil equivalent per day, and adjusted EBITDAX of seventy-one million dollars.

Tyler Farquharson: Thank you, James, and good morning, everyone. We delivered strong operational execution in Q1. 18% production growth year-over-year to 34.5 thousand barrels of oil equivalent per day and Adjusted EBITDA of $71 million. We are positioned well for continued growth in H2 2026, with a trajectory to free cash flow in 2027. Two items in the quarter require additional discussion: lease operating expense and continued Waha weakness, which I will address both before turning to what is, in my view, the more important story. The opportunity set in front of us has improved materially since we set guidance in March, and we are positioning the platform to capture it.

Speaker #3: We are positioned well for continued growth in the back half of 2026, with a trajectory to free cash flow in 2027. Two items in the quarter require additional discussion.

Speaker #3: Least operating expense and continued Waha weakness, which I will address both before turning to what is, in my view, the more important story: the opportunity set in front of us has improved materially since we set guidance in March and we are positioning the platform to capture it.

Speaker #3: Starting with the financials. Oil and natural gas sales totaled one hundred and twenty-eight point three million, a five point three million increase over the first quarter of 2025.

Tyler Farquharson: Starting with the financials, oil and natural gas sales totaled $128.3 million, a $5.3 million increase over Q1 2025. Oil revenues drove the improvement with an 11% production increase and essentially flat realized pricing of $69.94 per barrel. Natural gas revenues declined by $6.3 million year-over-year, driven by a 36% decline in realized gas prices to $2.55 per Mcf, reflecting the ongoing impact of negative Waha pricing in the Permian. We've addressed this through an active basis hedging program.

Speaker #3: Oil revenues drove the improvement with an eleven percent production increase, an essentially flat realized pricing of sixty-nine dollars and ninety-four cents per barrel. Natural gas revenues declined by six point three million year over year, driven by a thirty-six percent decline in realized gas prices to two dollars and fifty-five cents per MCF.

Speaker #3: Reflecting the ongoing impact of negative Waha pricing in the Permian. We've addressed this through an active basis hedging program. From February through April, we layered in Waha basis swaps across the fourth quarter of 2026 through the first quarter of 2028 at a weighted average basis of approximately negative one dollar and fifty cents, covering roughly forty-five percent of total Permian gas in the fourth quarter and stepping into 2027 with coverage rising to nearly seventy percent on a PDP basis when our conduit volumes are included.

Tyler Farquharson: From February through April, we layered in Waha basis swaps across Q4 2026 through Q1 2028 at a weighted average basis of approximately -$1.50, covering roughly 45% of total Permian gas in Q4 and stepping into 2027 with coverage rising to nearly 70% on a PDP basis when our conduit volumes are included. Turning to lease operating expense, LOE came in at $9.57 per BOE, above our prior guide and was largely the result of a combination of increased early life flow back expense from an elevated level of wells turned to sales in Q4 2025, saltwater disposal costs, and a one-time charge tied to an asset impairment.

Speaker #3: Turning the least operating expense: LOA came in at nine dollars and fifty-seven cents per BOE. Above our prior guide and was largely the result of a combination of increased early life flowback expense from an elevated level of wells turned to sales in Q4 2025, saltwater disposal cost, and a one-time charge tied to an asset impairment.

Speaker #3: A smaller structural piece comes from the DJ and Bakken, where production is naturally declining and fixed costs are spread over fewer barrels. We view the quarter as a near-term outlier rather than a change in our cost trajectory.

Tyler Farquharson: A smaller structural piece comes from the DJ at Bakken, where production is naturally declining and fixed costs are spread over fewer barrels. We view the quarter as a near-term outlier rather than a change in our cost trajectory. As 2026 volumes come online, per unit LOE should trend lower, Kyle will walk through our updated full-year range. Let me now turn to the important part of the story. As capital allocators invest through cycles, our full cycle 25% underwriting threshold is always anchored to the long-dated strip. Spot prices have increased dramatically, and the forward curve has come up meaningfully as well, which has bolstered economics on near-term development opportunities. On the non-op side of the portfolio, we have seen some acceleration in AFEs, particularly in the Utica, adding to an already attractive set of opportunities in that basin.

Speaker #3: As 2026 volumes come online, per unit LOE should trend lower. And Kyle will walk through our updated full year range. Let me now turn to the important part of the story.

Speaker #3: As capital allocators invest through cycles, our full cycle twenty-five percent underwriting threshold is always anchored to the long-dated strip. Spot prices have increased dramatically, and the forward curve has come up meaningfully as well, which has bolstered economics on near-term development opportunities.

Speaker #3: On the non-op side of the portfolio, we have seen some acceleration in AFEs, particularly in the Utica, adding to an already attractive set of opportunities in that basin.

Speaker #3: Additionally, on the operator partnership side, we are actively evaluating additions to the 2026 capital program that will reflect our ability to access high-quality inventory that would otherwise be inaccessible to companies of our size.

Tyler Farquharson: Additionally, on the operated partnership side, we are actively evaluating additions to the 2026 capital program that will reflect our ability to access high-quality inventory that would otherwise be inaccessible to companies of our size. The most significant of these is a Permian Basin opportunity with a major operator who is seeking to grow near-term production but is budget-constrained. This operator needed someone who can quickly secure a rig, drill the Bone Springs targets, complete the wells, and bring them online before year-end. Our Admiral Permian team is the right fit for this project. At a 55% IRR and 2.4x MOIC at strip, this is another opportunity that demonstrates the structural advantages of the operated partnership model, where relationships and local connections are not easily replicated and where a proven, reliable operator like Admiral can secure highly attractive projects in the heart of the Delaware Basin.

Speaker #3: The most significant of these is a Permian basin opportunity with a major operator who is seeking to grow near-term production but is budget constrained.

Speaker #3: This operator needed someone who can quickly secure a rig, drill the bone springs targets, complete the wells, and bring them online before year-end. Our Admiral Permian team is the right fit for this project.

Speaker #3: At a fifty-five percent IRR and two point four MOIC at strip, this is another opportunity that demonstrates the structural advantages of the operator partnership model.

Speaker #3: Where relationships and local connections are not easily replicated and where a proven, reliable operator like Admiral can secure highly attractive projects in the heart of the Delaware basin.

Speaker #3: On capital, we invested sixty-eight point four million during the first quarter. Fifty-eight point three million of developing capital and ten point one million in acquisitions closing seventeen transactions in the Delaware and Utica basins that added three net undeveloped locations to our inventory.

Tyler Farquharson: On capital, we invested $68.4 million during Q1. $68.3 million of development capital and $10.1 million in acquisitions, closing 17 transactions in the Delaware and Utica basins that added 3 net undeveloped locations to our inventory. Total capital was below the pace implied by our full-year guidance, reflecting the timing of projects. As a result, H1 development capital is weighted towards Q2, likely exceeding $100 million, with another $40 million slated for acquisitions. On guidance, we are making 2 changes today. We are raising the full-year LOE guidance range to $7.75 to 8.75 per BOE. We are increasing acquisition capital by $25 million at the midpoint, reflecting transactions we have completed and deals we have clear line of sight to close.

Speaker #3: Total capital was below the pace implied by our full year guidance, reflecting the timing of projects and, as a result, first half development capital is weighted towards the second quarter likely exceeding a hundred million with another forty million slated for acquisitions.

Speaker #3: On guidance, we are making two changes today. We are raising the full year LOE guidance range to seven seventy-five to eight seventy-five per BOE.

Speaker #3: And we are increasing acquisition capital by twenty-five million at the midpoint, reflecting transactions we have completed and deals we have clear line of sight to close.

Speaker #3: Importantly, the majority of these acquisitions were agreed to before the significant shift in oil prices. Reflection of our deal flow and underwriting process, rather than a response to the current price environment, and they look even more attractive today.

Tyler Farquharson: Importantly, the majority of these acquisitions were agreed to before the significant shift in oil prices, a reflection of our deal flow and underwriting process rather than a response to the current price environment, and they look even more attractive today. Development capital guidance is unchanged at $300 to 330 million, resulting in total capital guidance of $345 to 385 million. Production guidance remains 34,000 to 36,000 BOE per day, and we believe we are on track to meet or exceed the midpoint. The capital we are deploying in 2026, including the incremental opportunities in front of us, is building the production base that will drive the 2027 inflection.

Speaker #3: Development capital guidance is unchanged at three hundred to three hundred and thirty million, resulting in total capital guidance of three hundred and forty-five to three hundred and eighty-five million.

Speaker #3: Production guidance remains thirty-four thousand to thirty-six thousand BOE per day, and we believe we are on track to meet or exceed the midpoint. The capital we are deploying in 2026, including the incremental opportunities in front of us, is building the production base that will drive the 2027 inflection.

Speaker #3: This is the last year we expect to outspend operating cash flow and we have clear line of sight to that destination and a framework that delivers durable growth, a double-digit free cash flow yield, and a sustainable dividend.

Tyler Farquharson: This is the last year we expect to outspend operating cash flow, and we have clear line of sight to that destination and a framework that delivers durable growth, a double-digit free cash flow yield, and a sustainable dividend. I'll now turn the call over to Kyle for a deeper look into the quarter's results.

Speaker #3: I'll now turn the call over to Kyle for a deeper look into the quarter's results. Thank you, Tyler, and good morning, everyone. Tyler covered the strategic picture and operational context, so I'll focus on the financial details of the first quarter: our balance sheet and capital position.

Kyle Kettler: Thank you, Tyler, and good morning, everyone. Tyler covered the strategic picture and operational context, so I'll focus on the financial details of Q1, our balance sheet and capital position. For Q1, oil and natural gas sales totaled $128.3 million, a $5.3 million increase over the prior year period. Oil revenues were $103.4 million, up from $91.8 million in Q1 2025, driven by an 11% increase in oil production to 16,433 barrels per day at an average realized price of $69.94 per barrel, compared to $69.18 per barrel in Q1 of 2025.

Speaker #3: For the first quarter, oil and natural gas sales totaled one hundred and twenty-eight point three million dollars, a five point three million dollar increase over the prior year period.

Speaker #3: Oil revenues were a hundred and three point four million, up from ninety-one point eight million in Q1 2025, driven by an eleven percent increase in oil production to sixteen thousand four hundred and thirty-three barrels per day, at an average realized price of sixty-nine point ninety-four per barrel.

Speaker #3: Compared to sixty-nine point eighteen per barrel in Q1 of 2025. Natural gas revenues were twenty-four point eight million, down from a thirty-one point one million in the prior period, reflecting a thirty-six percent decline in realized prices to two dollars and fifty-five cents per MCF.

Kyle Kettler: Natural gas revenues were $24.8 million, down from a $31.1 million in the prior period, reflecting a 36% decline in realized prices to $2.55 per Mcf, partially offset by a 24% increase in production. The gas price deterioration, specifically the ongoing impact of negative Waha basis differentials in the Permian, was a primary headwind on revenue and cash flow for this quarter. On an equivalent basis, our average realized price was $41.35 per BOE, excluding settled hedge commodity derivatives, compared to $46.71 per BOE in Q1 2025. Including settled derivatives, realizations were $37.53 per BOE for the quarter. Adjusted EBITDAX for the quarter was $71 million, and net cash provided by operating activities was $58.3 million.

Speaker #3: Partially offset by a twenty-four percent increase in production. The gas price deterioration specifically the ongoing impact of negative WAHA basis differentials in the Permian was a primary headwind on revenue and cash flow for this quarter.

Speaker #3: On an equivalent basis, our average realized price was forty-one dollars and thirty-five cents per BOE, excluding settled hedge commodity derivatives compared to forty-six dollars and seventy-one cents per BOE in Q1 2025.

Speaker #3: Including settled derivatives, realizations were thirty-seven point five three per BOE for the quarter. Adjusted EBITDAs for the quarter was seventy-one million dollars, and net cash provided by operating activities was fifty-eight point three million dollars.

Speaker #3: On a gap basis, we recorded a net loss of forty-seven million dollars or thirty-six cents per diluted share. The net loss is almost entirely attributed to a seventy-two million dollar loss on derivatives during the quarter, of which sixty point two million was an unrealized mark-to-market loss driven by an increase in oil prices during the period.

Kyle Kettler: On a GAAP basis, we recorded a net loss of $47 million or $0.36 per diluted share. The net loss is almost entirely attributed to a $72 million loss on derivatives during the quarter, of which $60.2 million was an unrealized mark-to-market loss driven by an increase in oil prices during the period. Adjusted net income for the quarter was $3.1 million or $0.02 per adjusted diluted share. I want to spend a moment on lease operating expenses. As Tyler indicated, this warrants additional context. LOE was $29.7 million in the quarter, or $9.57 per BOE, compared to $16 million or $6.17 per BOE in Q1 2025. That's a 55% increase on a per unit basis.

Speaker #3: Adjusted net income for the quarter was three point one million or two cents per adjusted diluted share. I want to spend a moment on lease operating expenses.

Speaker #3: As Tyler indicated, this warrants additional context. LOE was twenty-nine point seven million in the quarter or nine dollars and fifty-seven cents per BOE. Compared to sixteen million or six dollars and seventeen cents per BOE in Q1 2025, that's a fifty-five percent increase on a per unit basis.

Speaker #3: The increase reflects first higher saltwater disposal costs on the Permian basin which are largely due to higher water cuts and flow back operations. Second, higher miscellaneous supplies and contract labor, particularly in newer Admiral operating areas, that have been online for six to twelve months and are still in the higher cost phase of operation, partly due to compression rental, and third, we wrote off minimum volume commitment obligations totaling two point two million in the quarter that was associated with their asset impairment charge.

Kyle Kettler: The increase reflects, first, higher saltwater disposal costs in the Permian Basin, which are largely due to higher water cuts in flowback operations. Second, higher miscellaneous supplies and contract labor, particularly in newer Admiral operating areas that have been online for 6 to 12 months and are still in the higher cost phase of operation, partly due to compression rental. Third, we wrote off minimum volume commitment obligations totaling $2.2 million in the quarter that was associated with our asset impairment charge. Fourth, the DJ and Bakken, where we have no new development, continue to see fixed costs spread over declining production, creating upward pressure on per unit LOEs. We believe this number will improve as new wells that come online throughout 2026 add to production volumes and dilute these fixed cost elements.

Speaker #3: And fourth, the DJ and Bakken where we have no new development continue to see fixed costs spread over declining production creating upward pressure on per unit LOEs.

Speaker #3: We believe this number will improve as new 2026 add to production volumes and dilute these fixed cost elements, but as Tyler mentioned, we're increasing our full year LOE guidance to seven dollars and seventy-five cents to eight dollars and seventy-five cents per BOE.

Kyle Kettler: As Tyler mentioned, we're increasing our full year LOE guidance to $7.75 to $8.75 per BOE. Production ad valorem taxes were $8.2 million for the quarter or 6.4% of oil and natural gas sales, which is in line with our guidance of 6% to 7% of revenue. Total G&A was $9.1 million for the quarter, inclusive of $1.4 million of non-cash stock compensation. Cash G&A was $7.7 million, reflecting an increase from the prior year, primarily driven by an amendment to our management services agreement. On a per unit basis, G&A was $2.93 per BOE, modestly higher than $2.84 per BOE in Q1 2025, reflecting an increase in stock compensation.

Speaker #3: Production ad valorem taxes were eight point two million for the quarter, or six point four percent of oil and natural gas sales. Which is in line with our guidance of six to seven percent of revenue.

Speaker #3: Total GNA was nine point one million for the quarter, inclusive of one point four million of non-cash stock compensation, cash GNA was seven point seven million dollars, reflecting an increase from the prior year primarily driven by an amendment to our management services agreement.

Speaker #3: On a per unit basis, GNA was two dollars and ninety-three cents per BOE, modestly higher than two dollars and eighty-four percent per BOE in one Q2025, reflecting an increase in stock compensation.

Speaker #3: Turning to capital, we invested sixty-eight point four million during the quarter comprised of fifty-eight point three million of development capital and ten point one million of property acquisition costs.

Kyle Kettler: Turning to capital, we invested $68.4 million during the quarter, comprised of $58.3 million of development capital and $10.1 million of property acquisition costs. We closed 17 acquisitions in the Delaware and Utica basins, adding 3 net undeveloped locations to our inventory. Development capital is below the run rate implied by our full year guidance range, primarily driven by project timing rather than any reduction in planned activity. We placed 1.4 net wells online during the quarter. As Tyler Farquharson mentioned, we are actively evaluating additional development opportunities that could increase our development capital spending in H2 of the year. We may raise our D&C guidance range when we report 2Q results in August when we have better visibility into the timing and certainty of those incremental projects.

Speaker #3: We closed seventeen acquisitions in the Delaware and Utica basins, adding three net undeveloped locations to our inventory. Development capital is below the run rate implied by our full year guidance range, primarily driven by project timing rather than any reduction in planned activity.

Speaker #3: We placed 1.4 net wells online during the quarter. As Tyler mentioned, we were actively evaluating additional development opportunities that could increase our development capital spending in the back half of the year.

Speaker #3: We may raise our DNC guidance range when we report Q2 results in August. When we have better visibility into the timing and certainty of those incremental projects.

Speaker #3: Today, we're revising our acquisition capital guidance upward by twenty-five million dollars at the midpoint to reflect transactions completed in near-term line of sight deals, resulting in total capital guidance of three hundred and forty-five million to three hundred and eighty-five million dollars.

Kyle Kettler: Today, we're revising our acquisition capital guidance upward by $25 million at the midpoint to reflect transactions completed in near-term line-of-sight deals, resulting in total capital guidance of $345 million to $385 million. On the balance sheet as of 31 March, we had $400 million of long-term total debt outstanding, comprising of our 2029 senior notes and drawn amounts on our credit facility. We also had a current portion of $26.3 million in cash on hand at $30.1 million. Total debt to trailing twelve months Adjusted EBITDAX was 1.3x at quarter end. Subsequent to quarter end, we reaffirmed our borrowing base and aggregate elected commitments to $375 million.

Speaker #3: On the balance sheet, as of March thirty-first, we had $400 million of long-term total debt outstanding, comprising our 2029 senior notes and drawn amounts on our credit facility.

Speaker #3: We also had a current portion of twenty-six point three million dollars in cash on hand, a thirty point one million dollars. Total debt to trailing twelve months adjusted EBITDAs was one point three times at quarter end.

Speaker #3: Subsequent to quarter end, we reaffirmed our borrowing base and aggregate elected commitments to three hundred and seventy-five million dollars. As of March thirty-first, twenty twenty-six, our totally liquidity was three hundred and fourteen point eight million dollars, consisting of two hundred and forty-eight point seven million of committed borrowing base availability and thirty point one million dollars of cash.

Kyle Kettler: As of 31 March 2026, our total liquidity was $314.8 million, consisting of $248.7 million of committed borrowing base availability and $30.1 million of cash. We believe this improved liquidity position provides ample flexibility to pursue our capital program and the incremental opportunities in front of us. On hedging during Q1, we recorded a $72 million loss on derivatives, of which $11.8 million was realized and $60.2 million was unrealized. The unrealized portion reflects the mark-to-market impact of rising oil prices on our hedge book during the period. We view our hedge program as a risk management tool consistent with our balanced capital allocation framework. Please see the derivatives table in our press release for our current hedge position, which extends through 2028.

Speaker #3: We believe this improved liquidity position provides ample flexibility to pursue our capital program and the incremental opportunities in front of us. On hedging during the first quarter, we recorded a seventy-two million dollar loss on derivatives.

Speaker #3: Of which eleven point eight million was realized in sixty point two was unrealized. The unrealized portion reflects the mark-to-market impact of rising oil prices on our hedge book during the period.

Speaker #3: We view our hedge program as a risk management tool consistent with our balanced capital allocation framework. Please see the derivatives table in our press release for our current hedge position with extends through twenty twenty-eight.

Speaker #3: To summarize, production growth is strong, the balance sheet and liquidity are in good shape. We're maintaining our full-year guidance, with targeted revisions to acquisition guidance and LOE guidance.

Kyle Kettler: To summarize, production growth is strong. The balance sheet and liquidity are in good shape. We're maintaining our full-year guidance with targeted revisions to acquisition guidance and LOE guidance. LOE is the near-term challenge, and we are focused on improving it. The 2027 free cash flow inflection story remains intact. With that, I'll turn it over back to you, Tyler.

Speaker #3: LOE is the near-term challenge and we are focused on improving it. The twenty twenty-seven free cash flow inflection story remains intact. With that, I'll turn it over back to you, Tyler.

Speaker #4: Thanks, Kyle. Let me close with a few high-level points. First, and most important, this is the year we transition out of outspend and we are looking ahead to two thousand and twenty-seven committed to a capital allocation framework that achieves high single-digit production growth, more than ten percent free cash flow yield, and approximately one point two five X dividend coverage.

Tyler Farquharson: Thanks, Kyle. Let me close with a few high-level points. First, and most important, this is the year we transition out of outspend, we are looking ahead to 2027 committed to a capital allocation framework that achieves high single-digit production growth, more than 10% free cash flow yield, and approximately 1.25x dividend coverage. This is the framework the business has been built to deliver. Second, our 18% year-over-year production growth in the first quarter further demonstrates that our deployed capital has translated into meaningful scale, one that supports our 2027 free cash flow inflection. Third, 2 items weighed on the quarter, LOE and Waha pricing.

Speaker #4: This is the framework that the business has been built to deliver. Second, our 18% year-over-year production growth in the first quarter further demonstrates that our deployed capital has translated into meaningful scale.

Speaker #4: One that supports our two thousand and twenty-seven free cash flow inflection. Third, two items weighed on the quarter. LOE and Waaha pricing. We believe per unit LOE will moderate as the Q4 completions mature and two thousand and twenty-six volumes scale and a Waaha basis hedges from the fourth quarter of two thousand and twenty-six through the first quarter of two thousand and twenty-eight will add protection against the weakness we saw this quarter.

Tyler Farquharson: We believe per unit LOE will moderate as the Q4 completions mature and 2026 volume scale and our Waha basis hedges from the Q4 2026 through the Q1 2028 will add protection against the weakness we saw this quarter. Neither item disturbs our trajectory towards 2027 free cash flow. Fourth, the opportunity set in front of us is better than expected. The operator partnership model is delivering proprietary deal flow that validates the underwriting assumptions we made when we entered into these partnerships. Admiral's deep local relationships with large independents and majors active in the Delaware Basin are creating high return development opportunities that are a direct result of the structural advantages we have built as a partner of choice.

Speaker #4: Neither item disturbs our trajectory towards two thousand and twenty-seven free cash flow. Fourth, the opportunity set in front of us is better than expected.

Speaker #4: The operator partnership model was delivering proprietary deal flow that validates the underwriting assumptions we made when we entered into these partnerships. Admiral's deep local relationships with large independents and majors active in the Delaware Basin are creating high-return development opportunities.

Speaker #4: But our direct result of the structural advantages we have built as a partner of choice. We underwrote all of these projects at strip pricing at the time of underwriting and at more than 25% full cycle IRR.

Tyler Farquharson: We underwrote all of these projects at strip pricing at the time of underwriting and at more than 25% full cycle IRR. Higher prices make them even more attractive. Finally, the dividend remains a core component of our shareholder return framework. As we approach free cash flow generation, we expect to have increasing optionality around capital allocation and returns to shareholders. We appreciate the continued support of our shareholders, partners, and employees, and we look forward to continuing this dialogue at our upcoming investor meetings and in August when we report Q2 results. Operator, we're ready to take questions.

Speaker #4: Higher prices make them even more attractive. Finally, the dividend remains a core component of our shareholder return framework. As we approach free cash flow generation, we expect to have increasing optionality around capital allocation and returns to shareholders.

Speaker #4: We appreciate the continued support of our shareholders, partners, and employees, and we look forward to continuing this dialogue at our upcoming investor meetings and in August when we report second quarter results.

Speaker #4: Operator, we're ready to take questions.

Speaker #5: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Operator 2: We will now begin the question-and-answer session. Your first question comes from the line of Michael Scialla with Stephens. Your line is open. Please go ahead.

Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise you hand, to withdraw you question press star one again. We ask that you pick up your handsets when asking a question to allow for optimum sound quality. And if muted locally, remember to unmute your device. Please stand by while we combine the Q&A roster. Your first question comes from the line of Michael Scialla with Stephens. Your line is open. Please go ahead.

Speaker #5: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality, and if muted locally, please remember to unmute your device.

Speaker #5: Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Sciala with Stevens. Your line is open.

Speaker #5: Please go ahead.

Speaker #6: Yeah, good morning, guys. I wanted to ask about your plans to, increase the acquisition capex. Is that all for the opportunity that, Tyler, you described with Admiral and the large operator in the Delaware or is there some incremental spending, beyond that, want to just get some more detail there?

Michael Scialla: Yeah. Good morning, guys. I wanted to ask about your plans to increase the acquisition CapEx. Is that all for the opportunity that Tyler, you described with Admiral Permian Resources and the large operator in the Delaware? Or is there some incremental spending beyond that? I want to just get some more detail there.

Speaker #4: Yeah, morning. thanks for the question. Yeah, there's actu-actually incremental spending beyond that. That's really, what I described was really, additional DNC capital that we're, evaluating, right now.

Tyler Farquharson: Morning. Thanks for the question. There's actually incremental spending beyond that. That's really what I described was really additional D&C capital that we're evaluating right now. Really on the acquisition front, that's spread across a bunch of transactions that we expect to close in Q2. Most of these transactions we agreed to before the increase in commodity prices. Returns on these things are, you know, great. You know, we underwrite everything to a 25, with the improvement in commodity prices, these look a lot better. It's spread, you know, it's probably spread across, you know, half a dozen to a dozen transactions. It's mainly Permian based.

Speaker #4: really on the acquisition front, that's spread a-across a bunch of, of transactions, that we expect to close in the second quarter. most of these transactions we agreed to before, the increase in, in commodity prices.

Speaker #4: so returns on these things are, you know, are, are great. you know, we underwrite everything to a twenty-five, but, with the, improvement in, in, commodity prices, these, these look, a lot better.

Speaker #4: So, it's spread—you know, it's probably spread across, you know, half a dozen to a dozen transactions. It's mainly Permian-based. There's actually quite a bit of activity from our newest partner that we signed up in October of last year.

Tyler Farquharson: There's actually quite a bit of activity from our newest partner that we signed up in October of last year. They have a number of transactions that are scheduled to close during the quarter. Admiral has a few. The balance of the transactions, probably maybe 15% or so of the transactions, are additional leasing in the Utica Shale in Ohio, where we continue to see pretty good success up there.

Speaker #4: they have a number of transactions that are scheduled to close during the quarter. Admiral has a few and then the, the balance of the transactions probably maybe fifteen percent or so of, of, the transactions are, additional leasing, in the Utica shale, in Ohio.

Speaker #4: where we continue to see pretty good success up there. And then one last.

Speaker #6: Just to clip.

Michael Scialla: Okay.

Speaker #4: Yeah, go ahead. Yeah, remember we guide to on the acquisition front, we guide to, you know, everything that we've closed, plus, transactions that are in process of closing that, you know, we believe have a better than fifty percent chance of closing, so that doesn't include, you know, any additional, A and D that, we may do in, in the back half of the year.

Tyler Farquharson: Yeah.

Michael Scialla: Go ahead.

Tyler Farquharson: Yeah. Remember we guide to on the acquisition front, we guide to, you know, everything that we've closed, plus transactions that are in process of closing that, you know, we believe have a better than 50% chance of closing. That doesn't include, you know, any additional A&D that we may do in H2. The $25 million increase in the acquisition CapEx is for transactions that we believe will close in Q2.

Speaker #4: so the, the twenty-five million dollar increase in the acquisition capex is, is for transactions that we believe will close, in the second quarter.

Speaker #6: Okay. I just wanted to clarify on so you, you said the, the opportunity with Admiral, you've got the, the acreage in hand already. Kyle mentioned that, you know, you could have some upward pressure on your, DNC capex.

Michael Scialla: Okay. I just wanted to clarify. You said the opportunity with Admiral, you've got the acreage in hand already. Kyle mentioned that, you know, you could have some upward pressure on your D&C CapEx. Is that where that would come from if that opportunity comes to fruition?

Speaker #6: So, is that where that would come from if that opportunity comes to fruition, or is that already built into the plan?

Tyler Farquharson: Yeah

Michael Scialla: Is that already built in?

Speaker #4: No, that's exactly right. That's where it would come from. So we have, you know, a couple of opportunities that look like this, with Admiral.

Tyler Farquharson: No. That's exactly right. That's where it would come from. We have, you know, a couple of opportunities that look like this, with Admiral that we're evaluating now that, you know, I think, you know, will be H2 CapEx spend. It's something that we're working through finalizing right now. To the extent that that comes to fruition, you know, we'll obviously have an update for you in August when we have Q2 earnings on that.

Speaker #4: That we're evaluating now that, you know, I think, you know, will be back half of the year CapEx spend. It's something that we're working through finalizing right now.

Speaker #4: So, to the extent that that comes to fruition, you know, we’ll obviously have an update for you in August when we have second quarter earnings on that.

Speaker #6: Got it. Okay, thanks for that. And then, wanted to ask on, your plans for the free cash flow inflection next year when I look at your slide fourteen.

Michael Scialla: Got it. Okay. Thanks for that. Then, wanted to ask on your plans for the free cash flow inflection next year. When I look at your slide 14, you lay out a plan there that shows CapEx going down relative to 2026. I guess I'm wondering how you manage to do that while you're ramping up these partnerships. If I heard you right too, Tyler, you said you would still anticipate double-digit growth next year. Is that right?

Speaker #6: you lay out, a plan there that shows capex going down, relative to twenty twenty-six. I guess I'm wondering how you managed to do that while you're ramping up these partnerships that, and, and if I heard you right too, Tyler, you said, you would still year.

Speaker #6: Is that right?

Speaker #4: Yeah, yeah. So high single digit, low double digit production growth is, is where we see the business moving to. you know, starting in two thousand twenty-seven.

Tyler Farquharson: Yeah. Yeah. High single-digit, low double-digit production growth is where we see the business moving to, you know, starting in 2027. You know, one thing that's helping us in 2027 is on the Admiral front. A bulk of the startup CapEx has been invested. If you actually look at our J curve on our Admiral operated partnership, we profited on that. The Admiral team, you know, if you just look at that investment, that operated partnership is actually, you know, self-sustaining, you know, pretty much starting H2 of this year moving forward. That helps us tremendously in 2027 with our free cash flow inflection.

Speaker #4: You know, one thing that's helping us in '27 is on the Admiral front. We're—a bulk of the startup capex has been invested. So, if you actually look at our J curve on our A-Admiral operated partnership, we've troughed on that.

Speaker #4: so the, the Admiral team, you know, if you just look at that investment, that operated partnership is actually, you know, self-sustaining, you know, pretty much starting back half of this year moving forward.

Speaker #4: So that helps us tremendously in two thousand and twenty-seven, with our free cash flow inflection. So we, you know, have the capacity to then also ramp up, some of the other teams that we've signed up in the past year.

Tyler Farquharson: We, you know, have the capacity to then also ramp up, some of the other teams that we've signed up in the past year.

Speaker #6: Great. Appreciate it. Thank you.

Michael Scialla: Great. Appreciate it. Thank you.

Speaker #4: You bet.

Tyler Farquharson: You bet.

Speaker #7: Your next question comes from the line of Derek Whitfield with Texas Capital. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Derrick Whitfield with Texas Capital. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Derrick Whitfield with Texas Capital. Your line is open. Please go ahead.

Speaker #8: G-good morning and, and thanks for your time.

Derrick Whitfield: Good morning, and thanks for your time.

Speaker #4: Morning, Derek.

Tyler Farquharson: Morning, Derrick.

Speaker #8: I wanted to start first, on the Permian opportunity you referenced with Admiral. Could you further elaborate on the scale and potential duration of these opportunities?

Derrick Whitfield: I wanted to start first on the Permian opportunity you referenced with Admiral. Could you further elaborate on the scale and potential duration of these opportunities?

Speaker #4: Yeah, yeah, you bet. So, you know, this is something that we see, you know, more, you know, it's not all the time, but we see in, in the past handful of years a theme that's more and more where, a lot of the large, independents and large majors in the, in the Permian basin, are, you know, seeking to, find more partners, to basically expand, the capability of, of their capital budgets.

Tyler Farquharson: Yeah. Yeah, you bet. This is something that we see, it's not all the time, but we see, and in the past handful of years, a theme that's more and more where a lot of the large independents and large majors in the Permian Basin are seeking to find more partners to basically expand the capability of their capital budgets. They're hesitant to increase their capital budgets is the observation that we've seen over the past handful of years. Because of that, they still want to show some form of production growth or more efficient capital spending.

Speaker #4: So they're, they're hesitant to increase their capital budgets is, is, you know, the observation that we've, seen over the past handful of years. and so because of that, you know, they still want to show some form of production growth or, you know, more efficient capital spending, they look to teams like the Admiral team, who has the capability to come in, farm out some of their acreage from them in exchange for a carry, so it's neutral to their to the, you know, large independents' capital budget and capital spend.

Tyler Farquharson: They look to teams like the Admiral team, who has the capability to come in, farm out some of their acreage from them in exchange for a carry. It's neutral to their, you know, large independence capital budget and capital spend. But it provides them with some incremental production, you know, to help with efficiency, et cetera, et cetera. This is something that, you know, the Admiral team has been very successful on, transacting on, over the past handful of years. We've seen a little bit of acceleration here on this particular style of transaction, since the beginning of the Hormuz conflict.

Speaker #4: But it provides them with some incremental production, you know, to help with efficiency, etc., etc. So this is something that, you know, the Admiral team has been very successful on, transacting on, over the past handful of years.

Speaker #4: We've seen a little bit of acceleration here on this particular style of transaction since the beginning of the Hormuz conflict. Just given that, you know, it still looks like a majority of the operators are not ready to increase capital spend yet, but would like to capitalize on some of the higher prices, so we've seen some recent inbounds on this.

Tyler Farquharson: Just given that, you know, still, looks like a majority of the operators are not ready to increase capital spend yet but would like to capitalize on some of the higher prices. We've seen some recent inbounds on this. This is an example of one that we talked about earlier on the call. I would expect that we'd probably see some more of these.

Speaker #4: This is an example of one that we talked about earlier on the call. I would expect that we'd probably see some more of these.

Speaker #8: A-and Tyler, just in terms of scale, I mean, should we think about this as twenty-five million, fifty million, a hundred million, just order of magnitude?

Derrick Whitfield: Tyler, just in terms of scale, I mean, should we think about this as $25 million, $50 million, $100 million, just order of magnitude, what?

Speaker #8: What?

Speaker #4: I-it's gonna be, you know, it, it depends on, on, you know, what, what it is. but on this particular one, you know, I would think that it would be on the, the smaller end of that, that kind of range, that you mentioned, you know, just a second ago.

Tyler Farquharson: It's gonna be. You know, it depends on, you know, what it is. On this particular one, you know, I would think it'll be on the smaller end of that kind of range, that you mentioned, you know, just a second ago.

Speaker #8: Great. And then just thinking beyond Admiral, are there other operational levers you could pull to accelerate oil production in the current environment?

Derrick Whitfield: Great. Just thinking beyond Admiral, are there other operational levers you could pull to accelerate oil production in the current environment?

Speaker #4: yeah, absolutely. so, you know, we have other operator partners, that do have inventory. we do have, you know, some development scheduled with them. this year, I mentioned a moment ago that, you know, QQ, we expect, one of our newest partners to, to close on a number of transactions.

Tyler Farquharson: Yeah, absolutely. You know, we have other operator partners that do have inventory. We do have, you know, some development scheduled with them this year. I mentioned a moment ago that, you know, Q2, we expect one of our newest partners to close on a number of transactions. Those are drill-ready transactions. You know, to the extent those get closed up in Q2, those are drill-ready transactions that, if we chose to, we could slot them in later in 2026. There's definitely opportunity within the operated portfolio. On the non-op portfolio, we've actually seen an increase in AFEs in the Utica Shale in Ohio.

Speaker #4: Those are drill-ready transactions, you know, to the extent those get closed up in the second quarter. Those are drill-ready transactions that, if we chose to, we could slot them in later, in 2026.

Speaker #4: so there's definitely opportunity within the, the operated, portfolio. on the non-op portfolio, we've actually seen, a-an increase in AFEs, in the Utica Shale in Ohio.

Speaker #4: We've seen a number of operators, you know, or a number of AFEs come in from operators where we had those scheduled for '28, '29, turn to sales.

Tyler Farquharson: We've seen a number of operators, or a number of AFEs come in from operators where we had those scheduled for 2028, 2029 turn to sales. Those have accelerated now into this year. In the Permian, in our non-op portfolio, we haven't seen a material change to what our historical average is on that front, on the AFEs. I guess if we continue to see high prices, elevated prices, I would expect at some point for us to see an increase in AFEs off the traditional non-op in the Permian as well.

Speaker #4: Those have accelerated now into this year. In the Permian, in our non-op portfolio, we haven't seen a material change to what our historical average is on that front, on the AFEs.

Speaker #4: you know, I guess if we continue to see high prices elevate or prices, I would expect at some point for us to s see a-an increase in, in, AFEs off the traditional non-op in, in the, Permian as well.

Speaker #8: A-and Tyler, just to clarify on the other operated partners, safe to assume that the higher prices we're seeing right now are not negatively impacting their ability to source opportunities?

Derrick Whitfield: Tyler, just to clarify on the other operated partners, safe to assume that the higher prices we're seeing right now are not negatively impacting their ability to source opportunities?

Speaker #8: I imagine quite a few operators in the market.

Tyler Farquharson: No.

Derrick Whitfield: Quite a few operators in the market.

Speaker #4: No, no. Yeah, no, it's not i-impacting them because, again, we're underwriting, near-term development drilling, mainly. and when I say near-term, I mean, you know, turning online in the next, you know, kind of eighteen months-ish.

Tyler Farquharson: Yeah. No, it's not impacting them because, again, we're underwriting near-term development drilling, mainly. When I say near term, I mean, you know, turning online in the next, you know, kinda 18 months-ish. If you look at the forward strip, most of all of this volatility, nearly, you know, nearly all of this volatility that we've seen is contained within 2026. If you look out to 2027, which is where, you know, most of the stuff that we're underwriting would be turning on to sales, you know, you do have a strip that looks not a whole lot different than where we were before the Hormuz conflict.

Speaker #4: So if you look at the forward this volatility, nearly, you know, nearly all of this volatility that we've seen is, is contained within two thousand and twenty-six.

Speaker #4: So if you look out to two thousand and twenty-seven, which is where, you know, most of the stuff that we're underwriting would be turning on to sales, you know, you, you have a strip that looks not a whole lot different than, where we were, b-before the, before the Hormuz, conflict.

Speaker #4: So no, we, we haven't seen, in the style of transactions that we're underwriting, we haven't seen, you know, a slowdown, in that type of activity.

Tyler Farquharson: No, we haven't seen, in the style of transactions that we're underwriting, we haven't seen, you know, a slowdown in that type of activity.

Speaker #8: Great. Thanks for your time.

Derrick Whitfield: Great. Thanks for your time.

Speaker #4: You bet. Thank you.

Tyler Farquharson: You bet. Thank you.

Operator 2: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.