Permian Resources Corporation (NYSE:PR) Q1 2024 Earnings Call Transcript

Permian Resources Corporation (NYSE:PR) Q1 2024 Earnings Call Transcript May 8, 2024

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Operator: Good morning and welcome everyone to Permian Resources Conference Call to Discuss its First Quarter 2024 Earnings Conference Call. Today’s call is being recorded. A replay of the call will be accessible until May 22, 2024 by dialing 1800-9382-488, and entering the replay access code 24995 or by visiting the company’s website at www.permianres.com. At this time, I’ll turn the call over to Mr. Hays Mabry, Permian Resources, Vice President of Investor Relations for some opening remarks. Please go ahead, Mr. Mabry.

Hays Mabry : Thanks, Bo, and thank you all for joining us on the company’s first quarter 2024. On the call today are Will Hickey and James Walter, our Chief Executive Officers; and Guy Oliphint, our Chief Financial Officer. Yesterday, May 7, we filed a Form 8-K with an earnings release reporting first quarter results. We also posted an earnings presentation to our website that we will reference during today’s call. I would like to note that many of the comments during this earnings call are forward-looking statements that involve risk and uncertainties that could affect our actual results and plans. Many of these risks are beyond our control and are discussed in more detail in the risk factors and the forward-looking statements sections of our filings with the SEC, including our Form 10-K, which is expected to be filed later this afternoon.

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

William Hickey : Thanks, Hays. I truly believe that the first quarter was the most compelling quarter Permian Resources has delivered so far. We were able to deliver production and free cash flow above our expectations. Close out the integration of Earthstone ahead of schedule while increasing our annual synergy target by 50 million and continue to execute on accretive A&D with approximately 270 million of acquisitions announced this year. It takes an incredible team to deliver such strong execution quarter after quarter, and I look forward to sharing some more detail on Q1 today. Moving into quarterly results, I’m pleased to announce Q1 production exceeded expectations. The total production of 320,000 barrels of oil equivalent per day and oil production of 152,000 barrels of oil per day.

Our strong production was attributable to multiple factors, including accelerated Earthstone D&C efficiencies and higher operational runtimes. Strong production results in CapEx of 520 million in the quarter resulted in adjusted operating cash flow of 844 million or $1.09 per share, an adjusted free cash flow of 324 million or $0.42 per share. We remain highly focused on sustaining a strong balance sheet with leverage of approximately one times an increased liquidity to over 2 billion. As part of our regularly scheduled spring bank redetermination process, we increased aggregate lender commitments under the credit facility from 2 billion to 2.5 billion while maintaining a borrowing base of 4 billion. Turning to return of capital. Our strategy remains consistent.

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Q&A Session

We delivered on our previously announced increased base dividend of $0.06 per share, a 20% increase from previous quarters. For the variable portion of our return of capital, first, we repurchased a total of 2 million shares in the quarter. The remainder of our capital return will we paid out via a variable dividend of $0.14 per share, bringing the all-in quarterly return of capital to $0.24 per share. Now I’d like to spend a little time talking about the efficiencies and synergies that impacted the business in such a positive way this quarter. We rolled out the Earthstone acquisition. We are highly confident that we could reduce drilling days and completion days and improve production operations, driving material synergies to be fully realized by year end 2024.

We have already achieved that and more. In just under five months, we’ve high graded all legacy Earthstone rigs and completion crews. This combined with PR best practices help drive an 18% product reduction in Earthstone drilling days per well and approximately 50% production — reduction in completion days per well in the first quarter, which we were initially anticipating achieving by midyear 2024. Additionally, we are seeing some efficiency gains in the Midland Basin that were not originally forecasted, which is a testament to our team’s ability to unlock value in new assets quickly. In addition, runtimes improved as a result of better compression performance, optimized artificial lift and improved chemical programs. The combination of accelerated activity and better runtimes was the primary driver of the strong production performance in Q1.

The impact of the combined PR team’s integration execution is that we have already achieved 175 million per year of synergies and are increasing our synergy target to an annual run rate of 225 million. As I mentioned earlier, the main drivers this increase are operational. For DC&F, we increased our per well savings from 1.2 million to 1.5 million. Similarly, we expect to be able to improve margins by approximately $1 per BOE by year end, but we’ve already implemented strategy in the field to realize the majority of this improvement today. Drivers of the margin improvement include reduced trucking, upgraded electrical infrastructure, rationalizing vendors, and optimizing midstream agreements. Integrations are never easy, but what our team accomplished over the last six months is a testament to a lot of hard work and dedication, and we’re proud to say that Earthstone is fully integrated.

With that, I’ll turn it over to James to talk to A&D and an update on our ‘24 plan.

James Walter : Thanks, Will. I would like to quickly reiterate what we led off with today. That PR’s results this quarter are the best results we have had as a public company, and that applies to every department and every discipline at Permian Resources. This now marks our seventh consecutive quarter of strong operational execution as a public company and our ninth year as a leading operator of the Delaware Basin. We are highly focused on continuing to increase our track record of consistent results and low-cost operations. Our team is firing on all cylinders, positioning us very well for the remainder of the year, while successfully executing in the field and wrapping up the integration of Earthstone, our business development and land teams continue to source, evaluate, and close attractive deals in and around our enhanced footprint.

Our overall objective when it comes to A&D is to target acquisitions that enhance the quality of our business and drive value for shareholders. For us, that means seeking out acquisitions that increase the quality and duration of our current inventory at prices that make sense, in our recent acquisitions achieve all of these goals. Yesterday after market closed, we announced two separate bolt-on transactions directly offset our Legacy Parkway asset in Eddy County. This asset is characterized by low D&C costs and high oil cuts that make it one of the most capital efficient assets in our portfolio. This is why we’re so excited to bolster our position here with the addition of high quality, high [Indiscernible] locations that immediately compete for capital.

In addition to these bolt-ons remains highly active on the grassroots side of the business, completing approximately 150 smaller transactions ahead of the [Joel bed]. These smaller deals target near term development or amongst the highest rate of return acquisitions that we find. All in these transactions add over 11,000 net leasehold acres and approximately 110 gross operated locations for a purchase price of 270 million of which we expect 245 million to be paid in the second quarter. After accounting for production value, this works out to a little less than 10,000 per net leasehold acre and approximately $1 million per gross location or 1.5 million per net location. Our presence in Midland has been one of the key drivers of our successful acquisition program, and the vast majority of the acres we are acquiring in today’s announcement come from Midland based counterparties who we have longstanding relationships with.

As well mentioned earlier in the call, our team’s successful execution has reduced our drilling and completion times, allowing us to bring barrels forward into Q1 and increase overall production per the year. As such, we are increasing our standalone production guidance to 150,000 barrels of oil per day and 320,000 barrels of oil equivalent per day. This represents a 2% increase compared to our original guidance ranges with no change to CapEx or other guidance categories. Coming off this acceleration of production in the first quarter, we anticipate a relatively flat production profile in the second quarter with modestly lower standalone production in the second half of the year. The slight decline is driven by normal course fluctuations and working interests that occurred during a large-scale development program.

The revised guidance outlined on Slides 10 and 14 reflect Permian Resources standalone projections, and do not include the impact of the acquisitions we’re announcing today. We expect those acquisitions to add an average of approximately 3,500 BOE a day during the second half of the year. Given the high-quality inventory of the acquired assets, we do expect to begin development in the second half of the year, which we anticipate result in $50 million of incremental CapEx. In summary, this is a terrific start to the year, and we are proud of what we’ve accomplished so far in 2024. I’d like to conclude today’s prepared remarks in Slide 11, which helps to reemphasize our value proposition for current and future investors. We think that the announcement today really highlights the quality of Permian Resources business and the multi-prong approach we have to driving out outside shareholder value.