Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Permian Resources Corp (PR, Financial) reported strong Q2 production, exceeding expectations with 153,000 barrels of oil per day and 339,000 barrels of oil equivalent per day.
- The company announced the highly accretive Barilla Draw acquisition from OXY, adding significant high-return inventory in the Texas-Delaware region.
- Operational efficiencies led to a 13% cost improvement in drilling and completion (D&C) compared to 2023.
- Q2 saw particularly strong gas and NGL performance, driven by an increase in gas processors switching to ethane recovery.
- Permian Resources Corp (PR) maintained a strong balance sheet with low leverage and high liquidity, supported by recent equity and bond issuances.
Negative Points
- Despite strong performance, the company acknowledged that many risks and uncertainties could affect future results and plans.
- The Q2 LOE of $5.18 per BOE, while exceeding expectations, may not be sustainable in the long term due to potential increases in workover costs and chemical usage.
- The company’s reliance on acquisitions for growth could pose integration challenges and potential overextension.
- Volatility in commodity prices, particularly gas prices, could impact future financial performance and hedging strategies.
- The Midland Basin position remains under evaluation, with potential divestiture not imminent, indicating uncertainty in asset optimization.
Q & A Highlights
Q: Given your continued improved cycle times, do you anticipate lowering D&C activity this year? And how are you thinking about D&C activity once the Barilla Draw closes?
A: The plan is to maintain the current rig and frac count. We've seen a material drop in well costs due to efficiencies, allowing us to bring about 15 incremental wells into the year without increasing CapEx. Post-Barilla Draw, we plan to drill a pad in Q4, substituting it for other scheduled activities rather than adding incremental activity. For 2025, it's too early to tell, but we will adjust based on commodity prices and business needs.
Q: Can we assume much of the upcoming targeted activity will be on your royalty acres? Is there any reason to consider monetizing some of these minerals given high prices?
A: We focus on allocating capital to our highest rate of return projects, and our royalty portfolio is a significant part of that. The high NRI on these acres drives better returns and capital efficiency. We have no immediate plans to monetize this position as it is too important to our overall system and long-term returns.
Q: Do you think your current pace of activity, including Barilla Draw, is at a maintenance pace or allows for incremental production growth?
A: Given our increased efficiency, our current rig count allows for more than a maintenance case, likely around 2% growth. We have flexibility to adjust rig and frac fleet counts in 2025 based on desired growth levels.
Q: What is your appetite for M&A, and how do you see the current landscape?
A: We remain open to evaluating opportunities that enhance long-term shareholder value. Our focus is on smaller, high-return opportunities, although we will consider larger deals if they make strategic sense. Our strong balance sheet allows us to be opportunistic, but our primary focus is on executing our current operations and integrating recent acquisitions.
Q: How long will it take to close the gap on LOE between legacy Earthstone and PR assets?
A: The gap has closed. Q2 was a strong quarter for LOE on both legacy Earthstone and PR assets. We expect LOE to be more in line with legacy PR going forward, although the $5.18 per BOE in Q2 may not be the run rate, with future costs likely in the lower half of our $5.50 to $6 guidance range.
Q: Can you discuss how well costs will trend in the second half of the year and the potential to drive them down further?
A: The $830 per foot well cost achieved in Q2 is primarily due to efficiency gains and is expected to be the new norm. While there may be small additional efficiency gains, significant reductions would likely come from service cost deflation. We expect well costs to remain stable or potentially decrease slightly.
Q: How do you expect NGL and gas volumes to trend in the second half of the year?
A: We saw increased ethane recovery in Q2 due to poor in-basin gas prices. As gas prices recover towards the end of the year, we expect a return to more normal trends for gas, NGLs, and oil volumes.
Q: How did the 2,000 acres in Eddy County become part of the OXY deal, and why was this area attractive?
A: The Eddy County acres were identified through our grassroots acquisition efforts. We proposed including these acres in the Barilla Draw deal as a win-win for both us and OXY. The area fits well with our existing footprint and strategic goals.
Q: Given the ongoing volatility in Waha pricing, how do you see this impacting your hedging strategy, especially around basis?
A: We expect market conditions to improve with additional pipeline capacity coming online. Our hedging strategy includes basis hedging to manage volatility. We also aim to diversify our gas sales beyond Waha, increasing sales to markets like the Houston Ship Channel.
Q: How do you see the current bid-ask spreads in the M&A market, and how do you plan to navigate them?
A: Despite a robust market for non-op and smaller deals, our low-cost structure allows us to remain competitive. We remain disciplined in our bidding and continue to find opportunities that make sense for us, even in a volatile market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
