8-K: Sitio Royalties Reports Record Production and Strong First Quarter 2024 Results

Sitio Royalties Corp. announced record pro forma average daily production of 37,970 boe/d for the first quarter of 2024, along with a return of capital of $0.49 per share.

Summary

• Sitio Royalties Corp. reported its operational and financial results for the first quarter of 2024, highlighting a record pro forma average daily production volume of 37,970 barrels of oil equivalent per day (boe/d), with 51% oil.
• The company's pro forma production increased by 3.7% compared to the fourth quarter of 2023, primarily due to activity in the Delaware Basin and Eagle Ford.
• Sitio returned $0.49 per share to investors, consisting of a $0.41 per share dividend and $0.08 per share in stock repurchases.
• The company repurchased 545,527 shares of Class A Common Stock at an average price of $23.77 per share during the quarter.
• Net income for the quarter was $18.7 million, a significant improvement from a net loss of $91.7 million in the previous quarter, driven by lower operating expenses.
• Adjusted EBITDA was $135.1 million, comparable to $134.9 million in the fourth quarter of 2023, while pro forma Adjusted EBITDA was $143.7 million, including the DJ Basin acquisition.
• Sitio closed the acquisition of DJ Basin assets on April 4, 2024, for $126.6 million, which added approximately 2,621 boe/d of production and $8.5 million of asset-level cash flow for the quarter.
• The company also repurchased approximately 2.0 million shares from two of its largest non-sponsor Class C shareholders in a privately negotiated block trade in April 2024.
• As of March 31, 2024, Sitio had $860.0 million in total debt and $601.7 million in liquidity.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong production numbers, improved profitability, and a focus on shareholder returns. The successful acquisition and share repurchases further boost the positive sentiment. However, the debt level and commodity price volatility are potential risks.

Positives

• The company achieved record pro forma average daily production, indicating strong operational performance.
• The 3.7% increase in pro forma production from the previous quarter demonstrates growth.
• The return of capital to shareholders through dividends and share repurchases is a positive sign for investors.
• The significant improvement in net income from a loss to a profit shows a positive turnaround.
• The successful closing of the DJ Basin acquisition adds to the company's production and cash flow.
• The share repurchases in April 2024 indicate management's confidence in the company's value.

Negatives

• The company experienced $28.5 million of incremental commodity derivative losses.
• There was a $24.0 million increase in income tax expense.
• The company has a significant amount of debt outstanding at $860.0 million.

Risks

• Commodity price volatility could impact the company's revenue and profitability.
• Global economic uncertainty and geopolitical events could affect the company's operations and financial results.
• The company's debt level could pose a risk if interest rates increase or if cash flow decreases.
• The company's reliance on commodity derivatives could lead to losses if market conditions change.

Future Outlook

The company expects to see a more pronounced impact on second quarter production from new wells that came online in March. Sitio continues to evaluate a strong pipeline of minerals acquisition opportunities.

Management Comments

• Chris Conoscenti, Chief Executive Officer of Sitio, stated that production from their assets reached an all-time company high of 37,970 boe/d pro forma for the DJ Basin Acquisition.
• He noted that production was primarily driven by activity in the Delaware Basin and Eagle Ford.
• He also mentioned that nearly 40% of the pro forma net wells TIL in the first quarter of 2024 came online during March, which is expected to impact second quarter production.
• Conoscenti highlighted the share repurchases in March and April, and the closing of the DJ Basin Acquisition.

Industry Context

The report reflects the ongoing trend of consolidation in the oil and gas industry, with Sitio actively pursuing acquisitions to increase its production and cash flow. The focus on shareholder returns through dividends and share repurchases is also a common theme among energy companies.

Comparison to Industry Standards

• Sitio's production growth of 3.7% quarter-over-quarter is a positive sign, but it is important to compare this to peers such as Viper Energy Partners (VNOM) and Black Stone Minerals (BSM) to assess its relative performance.
• The return of capital of $0.49 per share is a strong metric, but it should be compared to the dividend yields and buyback programs of other royalty companies to determine its competitiveness.
• The Adjusted EBITDA of $135.1 million is a key indicator of profitability, and it should be benchmarked against the EBITDA margins of similar companies to evaluate its efficiency.
• The DJ Basin acquisition is a strategic move, and its impact on production and cash flow should be compared to similar acquisitions by other companies in the sector, such as those by Permian Resources (PR) or Civitas Resources (CIVI).
• The company's debt level of $860 million should be compared to the debt-to-equity ratios of its peers to assess its financial risk.

Stakeholder Impact

• Shareholders will benefit from the return of capital through dividends and share repurchases.
• Employees may see increased job security due to the company's growth and financial stability.
• Customers will continue to receive oil and gas products from the company.
• Suppliers will benefit from the company's continued operations and acquisitions.
• Creditors will be impacted by the company's debt level and ability to repay its obligations.

Next Steps

• Sitio will host a conference call on May 9, 2024, to discuss the results.
• The company will continue to evaluate mineral acquisition opportunities.
• Sitio's management team will attend several investor conferences in May and June 2024.

Key Dates

Keywords

oil and gas, royalties, production, EBITDA, dividends, share repurchase, acquisition, DJ Basin, Permian Basin, Delaware Basin, Eagle Ford