Granite Ridge Resources, Inc (GRNT) Earnings

Management highlights

- Strategic Direction & Core Platform Advantage * 2026 is the final year of investing ahead of free cash flow, with a targeted free cash flow inflection in 2027 * The operator partnership model provides proprietary deal sourcing through partners' existing leasing and local relationships, avoiding competitive auctions that raise entry costs * Unlike passive non-operators, Granite Ridge controls capital pacing and development schedules, capturing operator-level economics without carrying a full standalone operating cost structure * All deals are underwritten to a 25%+ full-cycle return hurdle at commodity strip pricing, maintaining strict investment discipline - Q2 2026 Operational Activity * Closed 27 transactions (primarily in the Permian and Utica) for $28 million total committed capital, adding 21.9 net undeveloped locations to the inventory * Turned 7.2 net wells online late in the quarter, with strong early production results; ended the quarter with 175 gross (14 net) wells in process * In first half 2026, 363 opportunities were reviewed, 84 advanced to underwriting, and 44 closed, for a 12% conversion rate that demonstrates maintained screening discipline * Inventory is being added at a 2:1 replacement rate relative to drilling activity, at entry costs well below marketed deal prices * Flagship partner Admiral Permian Resources successfully took on a fast-track 9-well Permian project for a large producer, leveraging existing rig capacity to meet an aggressive end-of-2026 deadline, highlighting the platform's differentiated capabilities * Built ~6,000 net acres in the Utica over 18 months, with over 80 producing wells showing strong productivity, continuing as the primary focus for traditional non-operated investment - Governance Update * Majority owner Grayrock plans to distribute a portion of its Granite Ridge shares to limited partners in Q3 2026, which will bring Grayrock's ownership below 50% and transition Granite Ridge to a fully independent public company with broader public float and improved trading liquidity

Guidance

- Full year 2026 lease operating expense (LOE) guidance is revised upward to $8.25-$9.25 per BOE, from prior lower guidance. LOE per unit is expected to decline sequentially through the second half of 2026 as new production volumes ramp and dilute fixed costs, with further cost reductions expected as the business scales into 2027 - Full year 2026 production is expected to remain within the original guidance range but will land at the lower end of the range due to project timing shifts, with volumes shifting to create a larger positive impact on Q1 2027 production than initially planned - Q2 2026 is expected to be the low point for Permian natural gas realizations amid Waha basis weakness. Natural gas revenue is projected to rise materially in the second half of 2026, reaching over $30 million in Q3 2027 (before hedge settlements) if current basis levels hold - 2027 is projected to deliver high single-digit production growth, a double-digit free cash flow yield (achievable at $65/bbl oil, providing upside at current prices), 1.25x dividend coverage, and leverage of ~1.25x net debt to adjusted EBITDAX - Exit 2026 production is targeted to approach 40,000 BOE per day - 2026 acquisition capital spending is expected to total ~$50 million, with 2027 acquisition spending projected to be at a similar level - Over 75% of 2027 development capital is expected to be allocated to operator partnerships, consistent with the platform's growth priority

Segment performance

Granite Ridge Resources is an oil and gas producer with two operating segments: operator partnerships and traditional non-operated assets. For Q2 2026, total oil and natural gas sales were $149.3 million, GAAP net income was $30 million ($0.23 per diluted share), adjusted EBITDAX was $79.6 million (up from $75.4 million year-over-year), and cash flow from operations was $55.6 million. Average daily production was 32,044 BOE (51% oil). Lease operating expense (LOE) was $30 million ($10.27 per BOE), and G&A was $9.2 million ($3.14 per BOE). Operator partnerships drove approximately 78% of first half 2026 deal capital, while traditional non-operated assets in the Utica made up the remaining 22% of deal capital. The operator partnership platform is the primary growth engine, generating 93% of the firm's development capital in Q2 2026, with the balance allocated to traditional non-operated assets.

Risks & headwinds

- Lease operating expenses have run above plan for two consecutive quarters, driven primarily by higher water handling costs in the Permian and elevated early-life costs on new production pads - Persistent Waha basis weakness has suppressed Permian natural gas realizations, which hit a record low in Q2 2026; while takeaway capacity is improving, continued supply growth means the issue is not yet fully resolved - Commodity price volatility poses downside risk; if oil holds below $65/bbl, the firm can reduce 2027 development spending by 40-50% to protect the base business and dividend, but this would reduce growth outlook - The upcoming Grayrock share distribution creates potential near-term overhang on the stock price as shares enter the public market over a 6-9 month period - The two newer operator partnerships are still in early stages of inventory buildout and have not yet begun full-scale development, carrying execution risk related to project timing and well performance

Analyst Q&A

• Q: What core assumptions underpin the 2027 free cash flow inflection, and what oil price is needed to hit the targeted double-digit free cash flow yield? /

  A: Management states the 2027 outlook is based on a $65 per barrel oil price, which is below current spot levels, providing a pricing cushion. The plan projects high single-digit production growth, 1.25x dividend coverage, and leverage around 1.25x. Large hedge losses recorded in 2026 will not repeat in 2027, and improving Permian natural gas basis will expand gas revenue next year.

• Q: How flexible is the operator partnership model for adjusting activity levels if commodity prices move materially up or down? /

  A: Management notes that activity can be scaled up very quickly by pulling forward scheduled out-year inventory and adding rigs if prices rise. While scaling down is more complex, the model still allows for meaningful cuts to protect the base business and dividend if prices fall, aligning with the firm's 40-50% potential budget cut estimate for sustained sub-$65 oil.

• Q: What gives management confidence that LOE will moderate in the second half of 2026, and which regions drove elevated first half costs? /

  A: Management confirms elevated LOE is partially driven by Permian water handling and early well costs, and already sees declining per-unit LOE working closely with operating partners. A denominator effect from low Waha prices that led to shut-ins in gas-focused areas also inflated first half per-unit costs, which will reverse as production ramps in the second half. The non-recurring MVC delinquency write-off that impacted Q1 LOE did not affect Q2 results.

• Q: Can you provide an update on the newer operator partnerships outside Admiral, when can we expect more details, and what is their strategic focus? /

  A: Both additional partnerships are Permian-focused. One is an emerging geologically-led team that has built an acreage position and is currently conducting appraisal work, with results expected later in 2026. The second, added in Q4 2025, follows the Admiral model of inventory aggregation and development focused on the Midland Basin, and is already ahead of schedule on inventory capture. Management typically waits 12-18 months to confirm sufficient inventory for continuous drilling before announcing full details, which may come later this year for the newer partnership.