8-K: Permian Resources Reports Strong Q4 2023 Results and Outlines Capital Efficient 2024 Plan

Permian Resources announced strong fourth quarter and full year 2023 results, driven by the Earthstone acquisition and operational efficiencies, and provided a highly capital efficient 2024 plan.

Summary

• Permian Resources reported its fourth quarter and full year 2023 financial and operational results, which include the acquisition of Earthstone Energy in November.
• The company's Q4 production averaged 137,000 barrels of oil per day and 285,000 barrels of oil equivalent per day.
• Controllable cash costs decreased by 8% quarter-over-quarter to $7.33 per barrel of oil equivalent.
• Permian Resources generated $846 million in net cash from operating activities and $332 million in adjusted free cash flow in Q4.
• The company returned $183 million to shareholders through dividends and share repurchases in Q4.
• For the full year 2023, Permian Resources achieved approximately 35% production growth per debt-adjusted share.
• The company delivered $324 million in dividends to shareholders and repurchased 10 million shares for $125 million in 2023.
• Permian Resources' 2024 plan includes production guidance of 145,000 to 150,000 barrels of oil per day and 300,000 to 325,000 barrels of oil equivalent per day.
• The 2024 capital expenditure budget is set at $1.9 to $2.1 billion, with a focus on drilling and completions.
• The company expects total controllable cash costs of $7.40 to $8.60 per barrel of oil equivalent in 2024.
• The quarterly base dividend is increasing by 20% to $0.06 per share.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, successful acquisition integration, and a focus on shareholder returns. The company is exceeding expectations and demonstrating operational efficiency. There are some negative points, but the overall tone is positive.

Positives

• The Earthstone acquisition closed on November 1, 2023, and integration is ahead of schedule.
• Permian Resources exceeded its production targets for 2023 while staying within its original budget.
• The company achieved a 35% production growth per debt-adjusted share in 2023.
• Permian Resources is demonstrating strong cost control, with an 8% decrease in controllable cash costs in Q4.
• The company is increasing its quarterly base dividend by 20% to $0.06 per share.
• Permian Resources has a strong financial position with low leverage, with a net debt-to-LQA EBITDAX of approximately 1x at the end of 2023.
• The company has achieved a 12% reduction in drilling and completion costs compared to Earthstone's historical well costs.
• Permian Resources expects to realize $175 million in annual synergies from the Earthstone acquisition ahead of schedule.
• The company's 2024 plan is designed to maximize shareholder value through industry-leading per-share growth.
• Permian Resources replaced more than 100% of its developed locations in 2023, increasing inventory life.

Negatives

• The company's total operating expenses increased significantly in 2023, reaching $2,024.6 million compared to $1,122.4 million in 2022.
• Merger and integration expenses were substantial at $125.3 million for the full year 2023.
• The company's net income attributable to Class A Common Stock was $476.3 million for 2023, down from $515 million in 2022.
• The company's net income attributable to noncontrolling interest was $403.4 million for 2023, up from $234.8 million in 2022.
• The company's net income per share of Class A Common Stock was $1.36 for 2023, down from $1.80 in 2022.

Risks

• The company is subject to commodity price volatility, which could impact its revenues and profitability.
• Inflation and the availability of drilling and production equipment and services could affect the company's costs.
• The integration of the Earthstone acquisition presents risks, including the potential for not realizing the expected synergies.
• Environmental risks and regulatory changes could impact the company's operations and financial performance.
• There is uncertainty inherent in estimating reserves and projecting future rates of production and cash flow.
• The company's ability to access capital could be affected by market conditions.
• Weather conditions in the areas where the company operates could impact production.
• The company's hedging strategy may not fully protect it from commodity price fluctuations.
• The company faces competition from other oil and gas producers.
• The company's future operating results are subject to uncertainty.

Future Outlook

Permian Resources expects strong well productivity in 2024, with a focus on capital returns and maximizing free cash flow. The company anticipates a 10% reduction in drilling and completion costs per foot compared to 2023 and expects to turn-in-line approximately 250 gross wells in 2024. The company also expects to realize $175 million in annual synergies from the Earthstone acquisition ahead of schedule.

Management Comments

• Will Hickey, Co-CEO, stated that Permian Resources delivered oil production at the high-end of its 2023 guidance range while staying within its capex budget.
• Will Hickey also noted that the company had strong Q4 production results driven by better than expected well performance and minimal downtime.
• James Walter, Co-CEO, mentioned that the 2024 plan combines consistent well productivity with lower costs to deliver better capital efficiency.
• James Walter also stated that the 2024 plan allows the company to maximize shareholder value by delivering industry-leading per share annual growth across production, cash flow, and free cash flow.
• James Walter also noted that the company continues to return 50% of its quarterly free cash flow after the base dividend to shareholders through dividends and share repurchases.

Industry Context

This announcement highlights Permian Resources' strategic focus on the Permian Basin, a key oil-producing region in the United States. The acquisition of Earthstone positions Permian Resources as a major player in the area. The company's emphasis on cost control and capital efficiency aligns with broader industry trends focused on profitability and shareholder returns. The company's focus on the Delaware Basin is consistent with the industry trend of focusing on high-return areas.

Comparison to Industry Standards

• Permian Resources' production growth of 35% per debt-adjusted share is a strong result compared to many of its peers in the oil and gas industry.
• The company's focus on cost control, with an 8% reduction in controllable cash costs in Q4, is a positive sign compared to industry averages.
• The company's net debt-to-LQA EBITDAX of approximately 1x indicates a strong financial position compared to some other companies in the sector.
• The company's ability to achieve a 12% reduction in drilling and completion costs compared to Earthstone's historical costs demonstrates operational efficiency.
• The company's 20% increase in the quarterly base dividend is a positive signal for investors compared to some other companies in the sector.
• The company's 2024 capital expenditure budget of $1.9 to $2.1 billion is in line with other companies of similar size in the Permian Basin.
• The company's focus on returning capital to shareholders through dividends and share repurchases is consistent with industry trends.
• The company's proved reserves of 925 MMBoe is a significant increase compared to the previous year, indicating a strong asset base.
• The company's 2024 production guidance of 300,000 to 325,000 barrels of oil equivalent per day is a strong target compared to some other companies in the sector.
• The company's focus on the Delaware Basin is consistent with the industry trend of focusing on high-return areas.

Stakeholder Impact

• Shareholders will benefit from increased dividends and share repurchases.
• Employees will be part of a larger, more efficient organization.
• Customers will benefit from the company's increased production capacity.
• Suppliers will have increased business opportunities with the larger company.
• Creditors will be reassured by the company's strong financial position.

Next Steps

• The company will continue to integrate the Earthstone acquisition.
• Permian Resources will execute its 2024 operational plan.
• The company will focus on maximizing shareholder value through dividends and share repurchases.
• Permian Resources will file its Annual Report on Form 10-K on February 29, 2024.
• The company will host an investor conference call on February 28, 2024.

Key Dates

Keywords

Permian Resources, Earthstone Energy, Oil and Gas, Production, Delaware Basin, Capital Expenditure, Shareholder Returns, Dividends, Share Repurchase, Reserves, Synergies, Cost Control