Permian Resources Corp Q1 FY2025 earnings call

• Delivered strong Q1 with highest free cash flow per share in PR history at $0.54 per share, driven by lower per unit cost and solid production.
• Strengthened balance sheet with highest liquidity, most cash, and lowest leverage. Redeemed $175 million in principal of legacy notes, reducing interest expenses.
• Production exceeded expectations: oil production 175,000 BPD, total production 373,000 BOE per day, driven by 2024 acquisitions' outperformance.
• Reduced controllable cash cost by 4% and D&C cost by 3% compared to Q4, landing at $750 per foot.
• Started executing downturn playbook with first opportunistic share buyback and announcement of a New Mexico bolt-on acquisition.

Production exceeded expectations with oil production of 175,000 barrels of oil per day and total production of 373,000 barrels of oil equivalent per day. Adjusted operating cash flow was $900 million and adjusted free cash flow was $460 million. The firm achieved the highest free cash flow per share in PR history of $0.54 per share, with oil production outperforming expectations and controllable cash costs reduced by 4% compared to Q4. The firm also strengthened the balance sheet with highest liquidity, most cash, and lowest leverage in PR history.

• Revised plan projects more production and lower CapEx than original plan; reduced capital budget by $50 million while maintaining production at high end of guidance range.
• Q2 expected to be highest CapEx quarter of the year with step down in CapEx in the second half.
• Business remains flexible to react to macro changes and maximize long-term shareholder value.

Forward-looking statements involve risks and uncertainties beyond control, which are discussed in detail in SEC filings. Non-GAAP financial measures may be used, with reconciliations to GAAP in earnings release or presentation.

Q: Good morning, James, and Guy, and Will and team. Just would love to build on your comments on the bolt-on in New Mexico. Just curious, how does this deal stack up against the recent deals that you’ve done as you think about what it brings to the table? And spend a little bit more time kind of flushing out what you think might be underappreciated here?

A: Yeah. Neil, great question. We’re really excited about this deal, I think it fits with exactly what we’re trying to do with our kind of M&A strategy which is make our business better. And I think as the markets evolve, I think one of the hardest things to continue to find is inventory that competes with what we’ve already got in our base business. And I think that’s to us, the best part about this deal. I think we love the low decline PDP base. I think I mentioned in my prepared remarks that the base declines here are lower than anything we’ve looked at in quite some time. But what we really like here is the kind of higher weighting of the purchase price to inventory and the quality of that inventory. I think we haven’t seen deals that have break evens in the low 30s like this in a little bit of time. And they’re kind of really excited about what it does. And it really does compete for capital. I think we’ve got a great inventory base to build upon and this fits great with our stack.

Q: Hey, good morning guys. Maybe to stick with the acquisition. Can you share anything on how this deal came about? Was this a process or negotiated deal? And then maybe where these assets fit into the development queue?

A: Yes, sure. So I mean, these are some assets we’ve had our eye on for a long time. I think we’ve been in some discussions with the sellers on a smaller scale going back several years. I’d say for us, this discussion’s probably going on again in earnest the last six to nine months we had some conversations around potential trades, other ways to work together. Obviously we’re two large players in the Permian that have a lot of respect for what the other ones are doing. But ultimately this did morph into something that I would call a process and we’re able to reach a deal that makes sense for us. I think largely on the backs of our peer leading cost structure. I think these assets were really interesting where a good chunk of the acreage was in existing Permian Resources units that were on the near-term drill schedule for us. So I think we had a nice competitive advantage there. And the newly acquired inventory competes for capital day one. I think we probably over allocate to some of these assets in the near-term just given how low the break evens are and how quick the payouts are.

Q: Congrats on the acquisition. On the roughly one third of this bolt-on deal that's not option you speak to the line of sight you got on being able to work some trades to increase your interest in the operated units.

A: Yes, sure. I mean I think with our existing footprint, we have meaningful overlap with every operator of scale in the Delaware Basin today, which is great. I'd say, we really do have active ongoing trade discussions with, I think, everyone who's relevant and active in the Delaware Basin. So as you take the roughly 4,500 non-op acres we've acquired here. That just fits right into the discussions that we're already having. And frankly, I think, should allow us to help optimize both the assets were newly acquiring as well as some of the legacy PR assets that we've been working to kind of trade and consolidate. So I think that's a great component of the deal. And I think we also like some of the consolidation and buying opportunities around what may appear to be a non-op asset today, may very well not be a non-op when we unleash our land team and our business development team, which I think are the best in the business on growing some of those positions. I think a lot of what we underwrote is now bankers could very well end up being operated and not too much time.

Q: Thanks for taking my question. Given the activity drops we've seen across the industry already, and there's probably more to come, can you talk about what you're seeing on the service cost side at this point? Have those started to move lower yet?

A: I'd say that, yes, they're just starting to kind of move lower. Zach, exactly where it settles out. I think it's too early to say, but very much with the activity drop, I'd say, service providers are aware, and there are some that are taking a strategy if they'd like to kind of keep their market share and keep all their crews busy. And with those, we're getting some price concessions, and there are others who are more drawing a hard line of they'd rather drop activity themselves as opposed to give price concessions. And so exactly how it shakes out, I think it's TBD, but there was a little bit left to get it feels like on that side, and we're starting to see it.

Q: Thanks, Will. Next, I just wanted to ask on OpEx. You were in the lower half of the full year range in 1Q, can you talk about what drove OpEx lower? And maybe give us some thoughts on how you expect OpEx to trend through the rest of the year?

A: Yes. We have, again, just integration of the deals we bought and kind of overall just good operating practices as they led to a good quarter. The biggest driver on the OpEx on a per BOE basis is down is just going to be the outperformance on the oil side, just the fixed cost nature of some of those LOE costs when you add more barrels, we just saw costs come down a little bit.

Q: Thanks for taking the call. Just a quick one, I want to talk about kind of the progression of your cost per lateral foot. Made some really good progress, 3% in the last quarter. How should we think about that going forward? Is that more linear? Should we be expecting that to kind of flatten out? Just kind of how do you view that?

A: I mean, had you asked me – two months ago, I would have said it would have been flattening out and then I'd expect kind of step changes in time with just kind of operational breakthroughs or just kind of how we've seen the efficiency side of the equation go where you find big wins and then you kind of flatten out for a few quarters and find big wins. I'd say the one change that is just the body has changed so much and activity drops are happening so quickly, but I do think we'll get a modest amount of service cost reductions kind of from now to the end of the year, and that obviously would help on the well cost side. So kind of adding this together, maybe there's an expectation of a slight reduction from the $750 a foot that shows up in kind of Q3, Q4 with hopefully an operational kind of win somewhere over the next six to nine months on top of it. Again, I'm kind of putting my crystal ball and speculating here a little bit, but we were hoping to get to $750 million a foot for the year. We achieved that in Q1 – and I think there's more downward pressure from there just given where the overall macro sits.