Permian Resources Corporation (NYSE:PR) Q4 2023 Earnings Call Transcript
Permian Resources Corporation (NYSE:PR) Q4 2023 Earnings Call Transcript February 28, 2024
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Operator: Good morning, and welcome to Permian Resources conference call to discuss its fourth-quarter and full-year 2023 earnings. Today's call is being recorded. A replay of the call will be accessible until March 13, 2024, by dialing 877-674-7070 and entering the replay access code 855841 or by visiting the company's website at www.permianres.com At this time, I will now turn the call over to Hays Mabry, Permian Resources' Senior Director of Investor Relations, for some opening remarks. Please go ahead.
Hays Mabry: Thanks, John, and thank you all for joining us on the company's fourth-quarter and full-year 2023 earnings call. On the call today are Will Hickey and James Walter, our Chief Executive Officers; and Guy Oliphint, our Chief Financial Officer. Yesterday, February 27, we filed a Form 8-K with an earnings release reporting fourth-quarter results. We also posted an earnings presentation to our website that we will reference during today's call. I would like to note that many of the comments during this earnings call are forward-looking statements that involve risk and uncertainties that could affect our actual results and plans. Many of these risks are beyond our control and are discussed in more detail in the risk factors and the forward-looking statements sections of our filings with the SEC, including our Form 10-K, which is expected to be filed tomorrow afternoon.
Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results or developments may differ materially. We may also refer to non-GAAP financial measures that help facilitate comparisons across periods and with our peers. For any non-GAAP measure, we use a reconciliation to the nearest corresponding GAAP measure that can be found in our earnings release or presentation, which are both available on our website. With that, I will turn the call over to Will Hickey, Co-CEO.
William Hickey: Thanks, Hays. We're excited to share our fourth-quarter and full-year 2023 results, as Permian Resources was able to deliver another quarter of outperformance, closing out an incredible first year of operations under the PR name. I think that over the past five quarters, we've demonstrated just how good this Permian pure-play business is, operating efficiently on our core Delaware assets, executing on highly accretive deals, and continuing to demonstrate low-cost operatorship across the business, which all contribute to PR's industry-leading returns since inception. As we look to 2024, we expect to continue maximizing shareholder value, and I want to take a moment to walk through how we think about value creation here at PR.
Our relentless focus is on creating value on a per-share basis, and our team has positioned us to deliver a 2024 plan that's expected to generate peer-leading production, cash flow, and free cash flow per share growth without increasing leverage. We're able to drive this outsized growth per share through PR's continued focus on being the lowest cost operator in the Delaware, our thoughtful capital allocation and development plan, and the highly accretive transactions we completed during the year. In the midst of closing the Earthstone acquisition on November 1, the Permian Resources team was still able to deliver an outstanding fourth quarter across all metrics. Q4 production outperformed, with total production of 285,000 barrels of oil equivalent per day and oil production of 137,000 barrels per day, exceeding both internal and external expectations.
This production beat was attributable to three things. First and most significantly, we saw outperformance across the board between both PR and legacy Earthstone assets. Second, a reduction in downtime on legacy Earthstone assets led to higher-than-expected runtimes as the team realized operational synergies more quickly than planned. Third and finally, our drilling and completion efficiencies continue to impress, bringing incremental wells and producing days into the quarter. Even with the increased activity, capital expenditures were in line due to per-unit cost reductions, leading to significant free cash flow outperformance in the quarter. Our team was also able to transition seamlessly into integration and synergy capture mode in the fourth quarter, executing on our proven integration playbook while maintaining focus on driving low-cost leadership across the business.
PR continued to increase operational efficiencies in the fourth quarter while integrating legacy Earthstone rigs and fleets into its program, contributing to overall program decreases in per-well unit costs that we've been able to carry forward into the full-year 2024 plan, culminating in a program average of $860 per lateral foot. In addition, the team demonstrated strong controllable cost discipline, driven largely by lower LOE with controllable cash costs decreasing 8% quarter over quarter to $7.33 per BOE despite higher legacy Earthstone costs. Overall, our strong production and low-cost structure allowed PR to report $0.47 per share of adjusted free cash flow or $332 million in aggregate. In addition to our focus on execution, we believe our portfolio optimization program will continue to drive meaningful value for shareholders.
As many of you saw last month, Permian Resources announced a series of transactions which added 14,000 net acres and 5,300 net royalty acres in the core of the Delaware Basin, just three months after closing the $4.5 billion Earthstone acquisition. Most notably, the two bolt-on acquisitions add over 100 high-return locations, directly offset our core Parkway position, which represents one of the highest returning assets within our portfolio. This is in addition to a sizable acreage swap, a non-core divestiture, and our ongoing ground game. Importantly, when you combine all of our portfolio management efforts from the last year, our inventory additions more than replaced the wells we drilled on a standalone basis. We believe that excellent execution on these type of difficult transactions and smaller deals is a great path towards material improvements in our inventory position, NAV, and overall value proposition to stakeholders and will continue to be a key focus for us going forward.
Our excellent Q4 results and increased free cash flow allowed us to deliver total return of capital of $0.24 per share to shareholders during the quarter. We announced a $0.05 per share base quarterly dividend, and we are excited to be able to demonstrate sustainable base dividend growth as we plan to increase our base dividend by 20% to $0.06 per share next quarter. In addition, we remain committed to paying 50% of the remainder of free cash flow to shareholders via dividends and or buybacks. And once again, we executed both methods of variable returns during the fourth quarter. First, we repurchased a total of 5 million shares at an aggregate price of $13.32 per share for the quarter. And consistent with our framework, we announced an incremental variable dividend of $0.10 per share, bringing the all-in quarterly return of capital to $0.24 per share.
As I mentioned before, our team has absolutely hit the ground running with the integration and synergy capture phase of the Earthstone acquisition. We are well ahead of schedule, giving us high level of confidence that we'll be able to beat the original synergy target timeline laid out in August. Importantly, drilling and completion costs and efficiencies are realized almost immediately at closing, with a 12% D&C savings per well already realized on the legacy Earthstone wells and more to come. I want to take a second to highlight the amount of effort that's gone to that 12% cost reduction per well since closing the Earthstone acquisition because it's not just swapping out rigs or changing a casing design. Slide 6 shows around 10 drivers. But in reality, it's close to 40-plus small initiatives that add up to meaningful improvements.
And our team has not stopped pushing on those efforts. Two of the largest savings, drilling and completion efficiencies, have improved by 35% and 20%, respectively, versus historical Earthstone results, as equipment has been high-graded and best practices have been shared across the unified team. These faster drilling completion time has both reduced costs and improved returns by shortening cycle times. Our field operations team has also made incredible progress on the LOE front, optimizing production operations in many large and small ways. We couldn't be more pleased with the synergy results to date and look forward to providing another positive update next quarter. The same relentless focus on low-cost leadership that allowed us to maximize synergies in the Earthstone acquisition also allowed us to drive controllable cash cost to peer-leading levels.
Our 2024 plan, which James will outline here in a minute, benefits from lower-than-expected all-in cost, with the combined business able to basically get back to PRs legacy cost structure despite higher historical Earthstone costs. Given the marginal nature of free cash flow, running a low-cost business is critical to supporting strong free cash flow per share generation. With that, I'll turn it over to James to talk through the 2024 plan.
James Walter: Thanks, Will. Turning to slide 8, we're excited to discuss our 2024 development program, which is focused on maximizing returns and free cash flow per share through thoughtful capital allocation and efficient low-cost execution. Our plan is a result of a tremendous amount of work from every department at Permian Resources, and we want to thank our entire team for the work that went into this plan. Our goal is to focus on high-return developments in the Delaware Basin that allow the company to maximize returns while ensuring we minimize any future well or location degradation. Fortunately, our robust inventory allows us to drill similar zones, areas, and packages to what we drilled in 2023 and, as such, achieve similar well productivity.
For the full year 2024, we expect total production to average between 300,000 and 325,000 BOE per day and oil production to average between 145,000 and 150,000 barrels of oil per day. We expect production to be in the lower half of the full range during the first half of 2024 and the upper half during the back half of the year. Our capital program consists of approximately $2 billion, of which 75% is allocated to drilling and completion operations. We expect to turn-in-line 250 wells this year. The balance is primarily investments in infrastructure that positions PR to continue to drive value in 2024 and years beyond. In terms of CapEx cadence, we expect CapEx to be slightly front-half weighted. Our drilling program is largely focused on our high-returning Delaware Basin asset, with a particular emphasis on the New Mexico portion of the Delaware, given the returns we're seeing from those assets today.
The Midland Basin will not be a substantial part of our development plan in 2024. As Will mentioned, we expect our controllable cash cost to be approximately $8 per BOE, which screens well relative to other operators in the Permian and is particularly impressive given the higher legacy cost structure that came over from the Earthstone assets. Turning to slide 9, we wanted to concisely lay out how our business is getting better this year through the lens of capital efficiency-related metrics. Simply put, in 2024, we expect our cost to be lower and our well productivity to be the same or slightly better than last year, which is a winning combination. We would also like to highlight that these improvements in capital efficiency do not come easy.
Our team is focused on maximizing value by analyzing every input into our model on a per-unit basis and looking for areas to improve. We moved very quickly and leveraging our increased size and scale to receive better pricing on key consumables, such as casing and sand. But some key input costs, such as drilling rigs and pressure pumping, remain at elevated prices as we head into 2024. Our team continues to find ways to do more with less, and we're always looking for ways to tweak and optimize well designs and find that these individual changes only reduce cost by a percentage point or two, but the cumulative effect adds up to real dollars when multiplied over a 250-well program. This hard work drives our basin-leading cost structure and really makes a difference in our ability to extract as much value from every single asset as possible.
I'd like to conclude today's prepared remarks on slide 11, which helps to re-emphasize our value proposition for current and future investors. Since the formation of Permian Resources, we have delivered best-in-class returns for our sector and meaningfully outperformed the S&P 500. This outperformance was largely driven by successful execution, low-cost leadership, and accretive acquisitions. As a result, our business continues to represent a compelling value proposition against other large cap oil companies. For some of the recent deals announced, there are fewer and fewer Permian pure plays solely focused on the highest returning base in the lower 48. It's worth emphasizing Permian Resources now fits to the new cost of large-cap peers with an enterprise value of greater than $15 billion and 100% of our business focused on the Permian.
It continues to be our belief that quality businesses such as ours with core assets in the Permian, efficient operations, and strong multiple -- strong production and free cash flow per share growth have room to re-rate to higher multiples. By continuing to cultivate and enhance these attributes through efficient execution and opportunistic transactions such as Earthstone, we believe that we can continue to create outsized value for shareholders and solidify our position as a leader in the energy sector. Thank you for tuning in today. And now, we will turn it back to the operator for Q&A.
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