Granite Ridge Resources Third Quarter 2026 Earnings Conference Call - GRANITE RIDGE RESOURCES INC

Explicit Guidance:

• Full Year 2026 Production: Revised downward to a range of 34,000–35,000 BOE per day (down from previous guidance) due to DJ Basin divestiture and Q2 gas shut-ins; oil mix targeted at 51.5–52.5% (up from 50%).
• Full Year 2026 OpEx (LOE): Raised to $9.25–$9.75 per BOE (previously implied lower).
• Full Year 2026 Cash G&A: Raised to $28–$30 million for Q4 2026 specifically; full-year total not restated as a single number but implies adherence to the higher Q4 run rate.
• Capital Expenditures (CapEx): Expects development CapEx for Q4 2026 and full year 2026 to trend to the high end of previous ranges to account for cost inflation and volume growth.
• Production Growth: Targeting ~10% year-over-year production growth for 2027, weighted toward oil volumes.
• 2027 Financials: No formal 2027 revenue, earnings, or EBITDA guidance provided; expectation is for 2027 Adjusted EBITDAX to exceed Q3 2026 annualized levels.
• Dividend: Continuation of $0.11 per share quarterly dividend, with 2027 payouts to be funded by Adjusted Free Cash Flow (AFFCF).
• Share Repurchases: Board authorized a program of up to $35 million to run through year-end 2027; funding source specified as AFFCF within credit agreement limits.

Business-Segment Outlook:

• Permian Basin (Operating Partnerships):
  • Admiral Permian Resources: Currently running two rigs; continues to add inventory at < $2.5 million per net location.
  • Red Tank Creek Resources (New Partner): Targeting Midland Basin focus; expects to run one rig starting in 2027; secured ~40+ gross locations with an expectation to continue adding inventory; first well under partnership drilled in October.
  • General Partnership Strategy: Aiming to add 1–2 additional unnamed partners in late 2027 and beyond; planning to think through capital allocation through 2029–2031.
• Utica Shale (Non-Operator):
  • Currently holds ~6,300 net acres, producing ~3,000 net BOE/day from 100+ gross wells.
  • Strategy to continue acquiring at attractive entry costs ($2.4M avg for 20 deals in Q3); expecting continued activity in this basin due to high volume of small deals.
• DJ Basin: Divested oil and gas properties in September (800+ gross wells); no systematic divestiture strategy moving forward, but will evaluate opportunistic exits from the 6-basin non-op footprint if multiples (e.g., >3.8x forward EBITDA) are attractive.

Market and Competitive Outlook:

• Natural Gas Pricing: Expect continued strength in Waha bases and NGL pricing in Q4 2026, with realized gas prices expected to remain above historical lows.
• Oil Price Assumptions: Business planning based on back-of-the-curve prices (long-dated barrels) at $70/bbl or below; disciplined against chasing front-month price volatility.
• Inventory Sourcing: Competitive advantage maintained through operator partners sourcing "unmarketed" grassroots and joint venture deals, consistently achieving entry costs well below marketed deals ($2.5M/net Permian location).
• Cost Structure: LOE ($/BOE) expected to decline over the long term as production volumes grow and initial water cut issues stabilize, though 2027 will see higher aggregate LOE dollars due to volume growth.

Macro / Industry Outlook:

• Cost Inflation: Management acknowledges cost inflation pressures, citing saltwater disposal costs, higher water cuts, and contract labor as key drivers for elevated current LOE.
• Commodity Volatility: Planning remains anchored on full-cycle returns (>25% at the strip) rather than short-term price fluctuations; hedge program to remain disciplined.
• Liquidity Environment: Anticipates leverage will decline materially in 2027 naturally through EBITDA growth; no specific debt reduction targets announced aside from maintaining a "safe balance sheet."

Strategic Initiatives:

• Capital Allocation Hierarchy (Post-Q3 2026): 1. Dividend ($0.11/share); 2. Acquisitions meeting >25% hurdle; 3. Opportunistic share repurchases ($35M program).
• Corporate Governance Transition: Completing transition from "controlled company" (via Grey Rock distribution) to majority independent board and independent committees within NICE standards; expecting additional Grey Rock distributions to increase float and liquidity.
• Expansion of Partnership Platform: Onboarding Red Tank Creek as the third Permian operator partner, expanding the "controlled development runway" and inventory pipeline.

Risks and Headwinds to Outlook:

• Operational Costs: Saltwater disposal costs and flowback-related surface equipment/rentals may keep LOE higher than desired in the near term.
• Regulatory/Market Risks: Standard securities law disclaimers regarding risks that actual results may differ from projections.
• Divestiture Uncertainty: Future asset sales in the non-op portfolio are opportunistic and not systematic; timing and proceeds are unpredictable.
• Partnership Execution: Reliance on third-party operators (Admiral, Red Tank, etc.) to execute drilling schedules and locate inventory; 2027 rig start dates are subject to their inventory readiness.
• Commodity Prices: Potential downside if long-dated oil prices fall below the $70 planning assumption or if Waha bases weaken.
• Share Repurchase: Program is discretionary and may be suspended, discontinued, or modified at any time; funding depends on AFFCF generation.

Management Tone on the Future:

• Confidence: High confidence in the "turn" occurring in 2026/2027; description of the business as "catching up" with development spending.
• Strategic Maturity: Expresses excitement about moving from a growth-invest phase to a cash-generating phase in 2027, funded by AFFCF.
• Valuation: Management notes the stock trades at <2.5x 2027 consensus, indicating a belief in significant upside potential relative to cash flow generation; expressed willingness to buy back significant equity if conditions persist.
• Hedges: Cautious regarding cost inflation and water cuts but optimistic regarding the recovery of Waha bases and the compounding nature of the partnership platform.

Miscellaneous:

• Q3 2026 Performance Highlights: Average daily production grew 8% QoQ; Oil volumes up 16% QoQ; Adjusted EBITDAX up 35% QoQ to $107.3M; Adjusted Free Cash Flow of $13.7M generated in Q3.
• Liquidity Position: Ended quarter with $42.7M cash, $130M on revolver, and total debt leverage of 1.3x (down from 1.4x).
• Grey Rock Distribution: Affiliates of Grey Rock distributed 14M shares in August; Grey Rock now owns ~39% of the company.