Permian Resources (PR) Q4 Results - Feb 27

[dan_s]

I will be updating my forecast/valuation models for DVN, OVV, PR and CIVI tomorrow morning. This is the point in each quarter where information is coming out of a fire hose. I'll do my best to keep up.

Fourth Quarter 2023 Financial and Operational Highlights

Closed $4.5 billion Earthstone acquisition on November 1, enhancing Permian Resources’ position as the second largest Permian pure-play E&P with a >$15 billion enterprise value

Earthstone synergy capture ahead of schedule

Continued strong well performance combined with closing of the Earthstone acquisition drove crude oil and total average production to 137 MBbls/d and 285 MBoe/d < Beat my Q4 forecast of 125,500 bopd and 267,033 Boepd.

Decreased controllable cash costs by 8% quarter-over-quarter to $7.33 per Boe, driven primarily by lower LOE and continued focus on cost control

Announced accrued capital expenditures of $423 million and cash capital expenditures of $458 million

Reported net cash provided by operating activities of $846 million and adjusted free cash flow of $332 million (cash capital expenditures), or $0.47 per adjusted basic share < Compares to my Adjusted operating cash flow forecast of $711.9 million.

Delivered total return of capital of $183 million, or $0.24 per share:

Quarterly base dividend of $0.05 per share

Variable dividend of $0.10 per share

Repurchased 5.0 million shares for $67 million at an average weighted price of $13.32 per share

Since November 1, added ~14,000 net acres and ~5,300 net royalty acres located in the core of the Delaware Basin

Full Year 2023 Financial and Operational Highlights

Met or outperformed all of PR standalone’s guidance, significantly exceeding production targets while remaining within original budget on capex and controllable cash costs

Generated peer-leading total production growth per debt-adjusted share of ~35%

Delivered ~$324 million, or $0.47 per share, in dividends to shareholders < Once things settle down post-merger, I do expect PR to increase their dividends and stock repurchases.

Repurchased 10.0 million shares for ~$125 million at an average weighted price of $12.46 per share

Replaced >100% of PR standalone’s developed locations in 2023 through successful portfolio optimization transactions, effectively increasing inventory life < This is very good news.

2024 Financial and Operating Plan

Announced highly capital efficient operating plan underpinned by consistent well performance, lower well costs and continued cost discipline

Crude oil and total average production guidance of 145 to 150 MBbls/d and 300 to 325 MBoe/d

Total cash capital expenditure budget of $1.9 to $2.1 billion

Total controllable cash costs of $7.40 to $8.60 per Boe

Increasing quarterly base dividend by 20% to $0.06 per share, as previously announced

Management Commentary

"In our first full year, Permian Resources had an outstanding 2023, accomplishing all our goals laid out last February. On a standalone basis, the Company delivered oil production at the high-end of our 2023 guidance range, while staying within our capex budget," said Will Hickey, Co-CEO of Permian Resources. "During the fourth quarter, Permian Resources reported another strong quarter of production outperformance and operational improvements in the midst of closing the Earthstone acquisition. The combined team is exceeding expectations associated with the Earthstone integration and is on-track to reach key operational synergy run rates well ahead of the originally scheduled targets."

"We are excited to announce our 2024 operational and financial plan, which combines consistent year-over-year well productivity with lower costs and other optimized key inputs to deliver even better capital efficiency than we realized in 2023," said James Walter, Co-CEO of Permian Resources. "Most importantly, our 2024 plan allows us to maximize shareholder value by delivering industry leading per share annual growth across production, cash flow and free cash flow."
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MY TAKE: With detailed guidance for 2024, PR deserves a higher valuation multiple because it checks all the boxes: Strong Balance Sheet, double-digit annual production growth, lots of high-quality "Running Room", over $1.2 billion of free cash flow in 2024, pays a dividend and funding stock buybacks. My valuation will be over $22 per share. I will update this one first on Wednesday morning. PR is one of my Tip Picks for 2024.

[dan_s]

Note from Piper Sandler's Research Team (PSC). Prior to the Q4 release Piper Sandler rated PR "Overweight" with a price target of $17.

PR delivered a 4Q23 beat driven by higher production and gas/liquids pricing which was partially offset by higher capital spending. For FY24, the company guided capital spending and production in line with PSC/cns estimates with the company expecting to allocate 70% of capital to the NM Delaware vs. 45% in FY23. PR expects D&C costs down ~10% in FY24 while Delaware adjusted 12-mth oil cumes are expected +3%. Having closed the ESTE acquisition in 4Q23, the company is ahead of schedule on synergies and has realized a 12% reduction in well costs to date. We expect a positive equity response to the 4Q23 beat, better FY23 cash opex guidance and NM-heavy FY24 capital allocation.

Operational Results and Guidance. PR reported 4Q23 oil and total production of 136.6 mbbls/d and 285.2 mboe/d, which was ahead of PSC and cns estimates of 128/266. For FY24, PR plans to TIL 250 gross wells and spend $1.9-2.1bn to deliver oil and total production of 145-150 mbbls/d and 300-325 mboe/d, which compares to PSC/cns estimates of $1.99bn/145.6/309.5 and $2.05bn/147.9/312.

PR anticipates that approximately 70% of its operating activity will be directed towards the NM Del and approximately 25% towards the TX Del, with the remaining portion to be allocated to its Midland position. PR announced on 1/30 that it had added 14k net acres and 5,300 net mineral acres with roughly 150 drilling locations in various transactions including trades and an acquisition. The company acquired 11.5k net acres and 4k net royalty acres in Eddy County, NM with 100 gross two-mile locations in close proximity to its Parkway asset for $175mm.

Financial Results. PR reported 4Q23 adj. EPS and EBITDAX of $0.45 and $858mm, which compared to PSC and cns estimates of $0.37/$785mm and $0.34/$775mm. FCF of $367mm was compared to PSC and cns estimates of $325/$309mm, with capex of $423mm vs PSC/cns expectations of $411/$426mm, respectively. The company declared a base dividend of $0.05/share and variable dividend of $0.10/sh payable in 1Q24 which compared to the PSC estimate of $0.17/sh total and equates to a 3.9% annual base and variable dividend. The company repurchased 5mm shares for $67mm (avg ~13.32/sh), and along with the dividends equates to annualized TSR of 6.3%.

[Cliff_N]

PR slide from this morning's presentation on comparison with others in their sector.

[Cliff_N]

[dan_s]

I do expect PR to increase their variable dividend later this year. Free cash flow should be close to $1.4 million based on my 2024 forecast.

Per the Company: Shareholder Returns

Permian Resources announced today that its Board of Directors (the "Board”) declared a quarterly base cash dividend of $0.05 per share of Class A common stock, or $0.20 per share on an annualized basis. Additionally, based upon fourth quarter financial results, the Board has declared a quarterly variable cash dividend of $0.10 per share of Class A common stock. Combined, the base and variable dividends represent a total cash return of $0.15 per share.

The base and variable dividends are payable on March 21, 2024 to shareholders of record as of March 13, 2024.

Permian Resources returned additional capital to shareholders in the fourth quarter by repurchasing 5.0 million shares of common stock for $67.0 million at an average weighted price of $13.32 per share.

The Company’s fourth quarter total return of capital, inclusive of the base dividend, variable dividend and share repurchases, was $0.24 per share, a 41% increase from the prior quarter.

"Consistent with our game plan, we continue to return 50% of our quarterly free cash flow after the base dividend to shareholders through dividends and share repurchases,” said James Walter, Co-CEO. "During 2023, Permian Resources delivered approximately $324 million, or $0.47 per share, in dividends to shareholders. Additionally, we repurchased 10.0 million shares for approximately $125 million during the year at an average weighted price of $12.46 per share, driving incremental value for our shareholders.”

[Cliff_N]

Dividend comparison for CIVI vs. Peers