Granite Ridge Resources, Inc. (GRNT) 2025 Q4 法說會逐字稿

Good morning and welcome everyone to Granite Ridge Resources fourth quarter and full year 2025 earnings conference call.

I will now turn the call over to James Masters, Vice President, Investor Relations.

Thank you, operator. Good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Tyler Farquharson, our President and Chief Executive Officer, who'll review the quarter's results and company strategy along with an overview of 2026 financial and operating guidance and introduce our newly announced Chief Financial Officer, Kyle Kettler.

He will then turn the call over to Kyle to review our financial results in greater detail. Tyler will then return to provide closing comments before we open the call for questions. Today's conference call contains certain projections and other forward-looking statements within the meaning of federal securities laws.

These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied. We ask that you review the cautionary statement in our earnings release.

Granite Ridge disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on these statements.

These and other risks are described in yesterday's press release and our filings with the Securities and Exchange Commission. This call also includes references to certain non-GAAP financial measures.

Information reconciling these measures to the most directly comparable GAAP measures is available in our earnings release on our website. Finally, this call is being recorded and a replay will be available on our website following today's call. With that, I'll turn the call over to Tyler.

Thank you, James, and good morning, everyone.

We are proud to report results for a third full year as a public company. While much has changed since the company went public in 2022, our commitment to pursuing the highest risk adjusted rate of return projects and creating durable shareholder value remains the same.

It is that commitment that drove our evolution from a traditional non-operated company pursuing a diversified investment strategy to a capital allocator focused on the Permian Basin backing proven management teams to acquire and develop high-quality assets, a strategy shift that is the driving force behind our results.

For the fourth quarter and full year 2025, average daily production increased 27% year over year to 35.1,000 barrels of oil equivalent per day. Total production for the year increased similarly to 32,000 barrels of oil equivalent per day.

Adjusted EBITDA for the quarter was approximately $70 million and $315 million for the full year. Capital expenditures for the fourth quarter were $127.5 million split approximately half to development and half to inventory acquisitions. Our full year CapEx was $401 million.

Finally, we maintained our quarterly dividend of $0.11 per share, which continues to demonstrate our commitment to return meaningful capital to shareholders. Since going public, we have significantly increased production while maintaining a conservative balance sheet. That capital efficient growth is a result of consistently hitting our underwriting targets and increasing our capital allocation to operate a projects thanks to a structural opportunity we identified in the market.

Over the past decade, private capital retreated from the natural resources sector in a major way, fundamentally changing the landscape for energy development. Private equity fundraising declined dramatically and the remaining capital focused on fewer teams chasing larger opportunities. This left a scarcity of capital and competition in the unit by unit operated segment.

At the same time, proven operating teams who had built and sold successful companies increasingly lacked access to aligned capital partners. Granite Ridge recognized the opportunity and stepped into the GAAP by developing our operative partnership model.

We first partnered with Admiral Permian Resources, a Midland-based operator with multiple successful exits and deep ties in the community. Central to our strategy was that the Delaware Basin, containing some of the highest quality shale resource in the world, is now controlled by a small number of large asset managers overseeing vast overlapping land positions.

These land positions come with a variety of complications like lease explorations, fragmented working interests, and inventory management issues that can turn into high return drilling opportunities for the right partner. Granite Ridge through Admiral has become that partner.

Over the past three years, we have executed over 50 transactions across the Permian Basin and have grown net production to nearly 10,000 BOE per day. Granite Ridge and Admiral have become preferred counterparties and inventory additions continue to outpace our two rig development program.

We've also signed up 3 additional operator partners, each pursuing a different strategy in the Permian.

We've been deliberate about limiting public disclosure of these partners to preserve their competitive positioning.

Each team has successfully built and exited private equity backed companies in the Permian and have significant personal capital invested alongside us, creating meaningful alignment. We look forward to sharing their progress and demonstrating the scalability of the operator partnership strategy.

These partnerships greatly expanded our proprietary deal flow, which was already a competitive strength.

Last year we reviewed nearly 700 opportunities with a capture rate of just 15%.

In 2025, we invested $122 million across 107 transactions, securing approximately 20,500 net acres and 331 gross or 77.2 net locations, almost exclusively split between two buckets.

Non-operated in the Utica shale and operated partnerships in the Permian.

Because we focus on short cycle opportunities underwritten at strip pricing, our entry costs remain notably low relative to large format transaction costs. In the Permian, our average acquisition cost per net location was just $1.4 million far below recent public market transactions.

This is a three cycle strategy. We target 25% full cycle returns at strip pricing, compound production, and cash flow growth and protect downside through discipline leverage.

Since our first operative partnership investment with Admiral, we have fundamentally transformed our business from passive non-op to controlled capital with scale, growing production and high-quality near-term inventory.

The results of which are becoming clear in our financials and outlook. Granite Ridge came public with cash on the balance sheet and no debt, but subscale. In the years since, we deliberately used leverage to achieve sufficient scale to support our next evolution, sustainable free cash flow. We're getting close.

We see 2026 as a year of transition. Production growth is moderating and development capital expenditures are aligning more closely with expected cash flow. At current prices, we expect to achieve free cash flow from operations in 2027. The midpoints of guidance for production and capital for this year are as follows.

We expect annual production to average 35,000 barrels of oil equivalent per day, representing a 9% increase over 2025, and we expect our exit in 2026 to be essentially flat or modestly up from exit in 2025. We forecast oil volumes to be approximately 51% of total production.

Development capital expenditures are projected at $315 million with an additional $20 million to $30 million for acquisitions that we currently have in the pipeline.

Approximately 90% of the capital invested in 2026 will be focused on operated projects. To summarize, we will spend roughly 15% less than last year to achieve production growth of approximately 9%. At current sprint pricing, we anticipate a modest outspend in 2026.

One of our expressed goals for the business is to generate alpha through the expansion of cash flow above maintenance capital. We currently estimate maintenance capital of approximately $250 million which provides room for disciplined growth above that level.

We built our business for capital efficient growth and free cash flow visibility at $60 Oil. In response to the geopolitical shocks of the past week, we have added oil hedges and will continue to closely monitor the market.

Recent events aside, we have been encouraged by the market resilience shown to date and remain bullish on the medium term outlook. Should prices fall below $60 per barrel for a sustained period, we retain flexibility with our partners to adjust the development schedule and moderate capital deployment.

Finally, let me expand on two recent announcements. Alongside Diamondback Energy, we partnered with Conduit Power to support the development of 200 megawatts of natural gas-fired power generation in URot scheduled to come online fully in 2027.

This transaction will effectively provide a synthetic hedge to our Permian gas realizations and is expected to enhance value by approximately $1 to $2 per MCF on our gas exposed to this contract. We think similar opportunities may exist to further improve our gas realizations and we'll be diligent in pursuing them.

Second, we recently announced the appointment of Kyle Kettler as our Chief Financial Officer after a six-month search. We went through a thoughtful, diligent process to find the right person that can help guide us through this next season of growth. Our business has matured and the challenges and opportunities are much different than they were a few years ago.

We were looking for an oil and gas professional with tremendous experience in capital markets, but also someone with creativity and a track record of creating value, somebody that could be a thought partner as we grow the business. We couldn't be happier that Kyle decided to join us. He brings significant capital markets expertise, an extensive network, and a keen strategic perspective that will be critical as we transition towards sustainable free cash flow in the next phase of Granite Ridge's development. I'm thrilled to welcome him to the team in his first earnings conference call, Kyle.

Thank you, Tyler, and good morning, everyone. It's my pleasure to join my first Granite Ridge earnings call and look forward to spending time with our analysts and investors in the months ahead. Granite Ridge is building something truly different, allocating capital and creating value from a platform that's unique in public and private EMP. I'm excited to be here.

Tyler covered the strategic highlights in 2026 outlook, so I'll focus on the fourth quarter and full year financial results and our capital position.

For the fourth quarter, oil and natural gas sales totaled $105.5 million. Revenue was essentially flat. Compared to the prior year quarter because of commodity pricing, however, production grew an impressive 27% year over year.

In the fourth quarter, our average realized oil price was $55.49 per barrel compared to $65.53 per barrel in the same period last year. Natural gas averaged $1.81 per MCF in the quarter, or 48% of Henry Hub. These weak realizations, particularly in the Permian Basin, had a meaningful impact on revenue and by extension, EBITDA and operating cash flow.

As a result, adjusted EBITDAX for the quarter was $69.5 million. An operating cash flow totaled $64.5 million for the full year, oil and natural gas sales totaled $450.3 million with production increasing 28% year over year to 31,984 barrels of equivalent a day.

Full year adjusted EBITDA was $315 million and operating cash flow was $296.4 million. The takeaway is straightforward. Our asset base is scaling. Oil remains roughly half of the mix. And volume growth is industry leading.

Pricing, especially Permian Basin, was a swing factor in the 4th quarter, revenue and cash flow. That dynamic reinforces the importance of our initiatives like the conduit power transaction Tyler mentioned, which we expect will help improve Permian gas realizations over time.

On the cost side, lease operating expense in the fourth quarter was $7.72 per barrel equivalent. That's higher than last year, driven primarily by our increasing focus on the Permian Basin.

Service costs, primarily saltwater disposal, increased, a dynamic that's structural in the basin.

For the full year, LOE averaged $7.27 a barrel equivalent. Our 2026 guidance for LOE is $6.75 to $7.75 per barrel equivalent.

Production and valorum taxes ran just under 6% of revenue in the quarter and G&A was $8 million including $1.4 million of non-cash stock compensation.

On a full year basis, [cass] DNA was what we expected. Annual guidance for these metrics are the same as last year. Production taxes of 6% to 7% of revenue.

In cash G&A of $25 million to $27 million.

Turning to capital, this is where the strategic shift Tyler described really starts to show up in the numbers.

We invested $127.5 million in the fourth quarter, roughly half into development and half into acquisitions for the full year. Total capital was $401 million including $279 million of drilling and completion capital and $122 million of property acquisitions.

That acquisition capital was not large format M&A. It was nimble, repetitive unit by unit inventory capture, high graded and underwritten at strip. Our acquisition strategy gives us control over timing and capital intensity. We're not locking in multi-year development programs irrespective of commodity price.

Operationally, we placed 67 gross wells online during the quarter and 322 gross wells for the year. That activity underpins the 28% annual production growth we delivered in 2025. Now, onto the balance sheet.

We exited the year with 350 million outstanding on the 2029 senior notes and 50 million drawn on the revolver. Liquidity totaled $339.5 million at year end.

Net debt to adjusted EBITDAX was 1.2 times inside of our long-term range. Looking ahead to 2026, we're deliberately shifting gears. The plan is to grow production while reducing capital spending. 2026 production is expected to average 34,000 to 36,000 barrels equivalent per day.

With oil just under half the mix, development capital is projected at $300 million to $330 million, the total capital of $320 million to $360 million including acquisitions. The key point is this growth is moderating, capital intensity is coming down, and development spending is aligning much more closely with expected cash flow.

That transition From scale building to cash flow durability is the financial inflection point for the company. And through the transition we're maintaining our $0.11 per share quarterly dividend.

So stepping back The last three years have been about scaling the platform and capturing inventory, while 2026 is about capital efficiency, balance sheet discipline, and positioning Granite Ridge to generate sustainable free cash flow. With that, I'll turn it back to you, Tyler.

Thanks, Kyle. Let me close with a few high-level points. first, 2025 was a transformational year for Brainite Ridge. We scaled the operator partnership model, expanded our controlled inventory in the Permian, and grew production 28% year over year.

We leaned into an opportunity set that is structurally advantaged and difficult to replicate. Second, we're now shifting from outside growth to durability. Our 2026 plan reflects a moderation and growth.

Tighter alignment of development capital with cash flow and a clear path towards sustainable free cash flow generation in 2027. Third, our competitive advantage is our structure and business development engine.

By underwriting unit by unit at strip pricing, partnering with proven operators, and maintaining capital flexibility, we've consistently hit our investment underwriting targets, which has resulted in significant growth in production and asset value.

Finally, we remain committed to balance shareholder returns. The dividend remains a core component of our framework as we cross into free cash flow, we'll have increasing optionality around capital allocation.

We appreciate the continuing support of our shareholders, partners, and employees and look forward to the year ahead. Operator, we're ready to take questions.

We will now begin the question-and-answer session. (Operator Instructions) Phillips Johnston, Capital One.

Hey, thanks for the time. First, a question for Kyle. The 4th quarter realized oil and gas prices as a percentage of NIME were a little bit lower than usual in the 4th quarter, especially on the gas side. I think in your comments you sort of alluded to weak wa prices. To drive on the gas side, so that makes sense. That's not surprising, but is there anything to call out on the oil side and also as a follow-up, what should we be thinking about for our models, in 2026 in terms of both oil and gas differentials?

Yes, thanks, yes, the 4th quarter was weak on natural gas realization and that was driven by Waha pricing. I've got a substantial portion of natural gas, coming from the Permian Basin, and that Waha base widened out during the quarter too on us, going forward we've modeled that, you can see the Waha strip we're utilizing that as a way to, predict what Waha prices will be over the next year.

And those prices are pretty low early in the year and they tighten up a little bit towards the back end of the year and then at '27 going forward the strip is.

Much better but still negative around $1 or so.

On the oil side of the equation there's really not anything particularly that sticks out. There's a bit of a negative difference between realized and, benchmark prices, but we've got that in our model going forward as well.

Okay, sounds good. .

And then can you maybe give us a sense of how many net wells are planned for '26 relative to the 38 that you brought online last year and.

Would you expect any significant change in the mix for this year? I think last year's mix was close to 85% of the premium, with most of the balance in Appalachia, Haynesville, and the DJ, so I just kind of wanted to get some color there.

You bet. So last year was 38 net wells turned online, towards the end of the year, got a little gassier with some Haynesville Wells coming on. So we see 2026 being about 29 net wells coming online. In the relative mix of gas and oil should should tilt back towards oil as the year goes on with more Permian Basin activity.

Yeah, Phillips.

On that point, on the oil point, we're actually, if you look at, oil production growth from 25 to 26, we actually see 12% growth there, so a little more oil growth, from 25% to 26% versus gas.

Yeah, and that I guess that implies kind of your oil mix ticks back up to 51% from 49% in in Q4 here alright great thanks.

Derrick Whitfield, Texas Capital.

Good morning guys, and congrats on the acquisition success you had in 2025.

Thanks, Derek. I wanted to start on slide 4.

As you think about the business's transition to sustainable free cash flow in 2027, are you outlining that this morning as a business objective for 2027 based on your desire to lower leverage or is it based on your current view of the opportunities ahead of you and not trying to pin you guys down as we live in a dynamic environment, I'm just trying to understand the driver and how firm the message is.

Yeah, no, it's not an opportunity set driver, it is a a leverage driver, we've spoken, we've been very consistent about we want to run the business.

To, 1% to 1.25% or so leverage, just to execute the base business plan we, we've said that we would go north of that for something more strategic, but to operate the base business plan, think of that as 1.25%, and again we, we've planned there, there's a lot going on in the world as we all know right now we planned, this year and next year more than a $60 oil environment, so you know. That's the lens we're looking through when we're thinking about 2027 free cash flow obviously with higher prices, there's going to be some additional capacity, that we could take in in 2026 and 2027, to continue to prosecute, additional inventory capture or additional development drilling and still be able to deliver some free cash flow.

Great and as my follow-up, I wanted to focus on your operative partnerships. We certainly appreciate what you're highlighting with Admiral in today's presentation, but could you maybe offer some color on general activity and inventory levels across your other operative partnerships?

Sure, yeah, I'd love to fill in, some blanks there. So we've spoken publicly about our first two, Admiral had the benefit of getting a head start on our other three partners, so they're the most secure, and steady state, of the four partners, so I think the Admiral's story is pretty clear to everyone in the public domain. They're, focused on Delaware Basin, unit by unit inventory capture. From some of the larger asset managers, in the basin, so that story's been successful. We're running a couple of rigs there. We're adding inventory faster than, the development base there. So we hope to be able to replicate this same evolution with the other three partners. Part two is actually Petro Legacy. We've mentioned that before, former in cap backed, that team is focused on, the Midland, Northern Midland Basin, Dean play. They've captured a position there in the dean play we'll probably get started on some selective development of that position this year.

That market's gotten extremely competitive as everyone knows, so I'm not sure how much additional running room we'll have there, so we're actually looking, the Petro Legacy team is looking at, some other opportunities, in the basin and also potentially outside of the basin. So I hope to have, some drilling results from them this year. Our third team, we haven't disclosed who that is, but I can tell you kind of what they're doing. They are, again another, successful team that's exited private equity.

They are focused on some of the emerging plays in the Permian Basin, I think, Whitford Barnett.

And those, transactions will probably look a little more blocky from an acreage perspective, larger chunks of acreage, will come with some, appraisal to, figure out what exactly we have, but if that's successful, that will have a lot of medium, term inventory for us and, start to fill in some of the development drilling in 28 and beyond.

Team 4 is our newest team.

They're also a Midland-based team, successful exit from private equity. They look a lot like, the Admiral team, except they're mainly focused on, Midland Basin opportunities, but I think they'll be, sourcing opportunity from the larger asset managers out there kind of on a unit by unit basis. We've, we're probably about 6 months into that one, so that one's, very new, but they've already started to capture inventory. Typically it takes us, maybe 18 months or so, 12 months, to get enough inventory, to have about, 18 months to 2 years of inventory in front of the team, in order for us to justify picking up a rig, so. I probably wouldn't expect a whole lot of development activity from this, from that team this year, but as we move into 27, I think we'll see them start to fill in some development.

Great color, greatly appreciate that, Tyler.

You bet.

[Jara Girou], Stephens. .

Hey, good morning guys. Thanks for taking my question.

Morning.

So my first question is in regards to the move to generating free cash flow in 2027, 1st continuing to at this same growth rate you've been doing the last couple of years. First, the first part of the question is, how do you decide to generate free cash flow versus growing, and the second part is.

If you're, I know it's early, but if this free cash flow will be returned to shareholders and if so in what form are you guys thinking? Or will this just be cash that goes on the balance sheet for maybe a good opportunity?

Thanks. Yeah, probably TBD on the second part, obviously, we've got a lot of options there, so we'll we'll kind of when we get there we'll see kind of what the best option is at that time.

I guess on the first part I mean we you know we're wanting to transition the the business into something that's more durable and long-term we think we've done a good job of of gaining some scale over the past handful of years, maturing the business, maturing the strategy, we still see a ton of opportunity in front of us from an inventory capture standpoint, but I think being able to show, some free cash flow and, keep our leverage. Around our target, which is still very conservative at 1.25 times that'll still, give us a ton of opportunity, to pursue additional inventory capture, if we wanted to accelerate some.

Yeah, I just add that the growth rate's been pretty significant over the last couple of years and it'll still be high single-digits going into next year, so they'll still be, I feel like pretty good growth. A lot of the capital spending is through operative partnerships and that's based on a development plan we've coordinated with them so that's that puts us in this modeling position where we think we can see into 26 and 27 and and turn into free cash flow in the '27 time period.

That's perfect, thanks for the color.

Then one more question, just about slide 9. Could you just give a little more color on that slide? Yes, we talked about granite retains 92% of the 10-year projected cash flows, and then also about the hamburglar, well or pads that achieved the hurdle revision. Can you just give a little more details on this case study?

Thanks. You bet. So what we did here was just to give you an example of. What the what the economics are between us and our and our operating partners we had some questions from investors over time on this one and so the real thrust of it is to show that while we do have some reversions in the reserve database they're effectively not very, not very punitive at all they're very relatively very small on a multiple capital basis and that's really what we're trying to achieve with this in the slide.

That's perfect. Thank you.

Noah Hungness, Bank of America.

Morning. For my first question here, I was just hoping you guys could touch on, the opportunity set and the competitiveness you're seeing to add inventory. In 2025 that you guys were able to add locations well below, I think what we saw from going market price. So how do you see those dynamics today?

Yeah, good question. So that opportunity still exists for us. Our operative teams are still executing on transactions that look exactly like that. We have, roughly $25 million of acquisition CapEx scheduled right now. That's basically what we have captured or what we have one of sight to now. If we wanted to continue to add inventory, and increase that budget, that opportunity is still available to us, I think, again, like I said in the.

Remarks that that's a Been a very good opportunity for us over the past couple of years and we see the operative partnership inventory captures you know having a number of years out in front of us on that front as far as like the rest of of deal flow we've seen still very strong deal flow I think we have you know a record last year on deal flow that we screened that's continuing. The distributive well bore market is still very strong. We don't participate in that market very much. Returns there are.

Something that we'd underwrite to, but that's a very strong market, the larger kind of marketed packages, those are, still out there with lots of, divestiture targets from, a lot of the consolidation again we don't really participate in that market either.

And, lastly on some of the smaller, I'd say where we're seeing probably the, least amount of deal flow, kind of trending down has been in some of the smaller marketed processes for non op, that's been a little bit weak, but again that's not an area that we typically source opportunity from, and I guess finally, in the Appalachia, Utica Shale Basin we're still seeing. A ton of opportunity there. That's, a traditional non-op play for us, so we've been very successful over the past year and a half, leasing there. We actually added, probably about another couple 1,000 net acres, in the Utica play, in, Q4.

We're continuing to see lots of opportunity there.

That's helpful color. And then for my second question, Tyler, could you just talk about how we can think about the oil cadence through 26 and then what does exit to exit production growth look like for oil?

Yeah, sure, so, exit to exit oil production growth is 12%. That's Q4, '25 to Q4, '26.

And then oil growth, over the year, it'll be down a little bit, in the first half, single-digit, low single-digit decline, kind of Q1 and Q2, and then increasing in the second half, but again from Q4 to Q4 we expect 12% growth.

Okay, thank you.

There are no further questions at this time. That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day.