Permian Resources – Analysis of Q2 results

[Petroleum economist]

Summary
Q2 results were just below expectation. Production in Q2 was high, but only for NGL and gas. As gas prices were extremely weak, the extra production added almost nothing to revenues. The balance sheet is solid. Profitability is good. Shareholder returns are decent and can increase in the future.

Production
• Q2 production (338.8 K BoE/d) was an amazing 6% above Q1 (319.5 K BoE/d),
• The production was unevenly distributed, oil production was only up +0.7%, NGL +6.6% and gas +16%. As both NGL and gas prices sank (gas revenues were negative), the increased production hardly contributed to the bottom line.
• The 2024 outlook was modified from 310-330 K BoE/d to 320-330 K BoE/d; this despite 15 K BoE/d being added in Q4 from the recent Oxy bolt-on acquisition. This indicates that the base production will be scaled down to 330 K BoE/d in Q3 and Q4.
• I expect for Q3 a production of 330 K BoE/d and for Q4 345 K BoE/d, inclusive the additional 15 K BoE/s from the acquisition.
• 2024 production should be 330-335 K BoE/d, still above the outlook of 320-330 K BoE/d.
• In 2025 and beyond, the production can increase with 2%/year to 365-370 K BoE/d in 2028.
• Fluids in Q2 were consisted of 45% oil, 25% NGL and 20% gas. With scaling back the gas production, oil share in H2 of 2024 should increase and gas and NGL share should decrease.

Balance sheet
• The balance sheet remains very solid.
• Q2 solvency (62.7%) was 1% above the late 2023 solvency (61.7%).
• After the closing of the Oxy acquisition in Q4, combined with the float of new shares, the solvency to a still good 62.0%
• Long-term debt in Q2 ($ 3,872 M) was flat versus late 2023 ($ 3,484 M).
• With $ 818 M to be added to the debt in Q4 and $ 304 M from the share issue, the long-term debt late 2024 will be $ around $ 4.0 B
• The 2024 debt/EBITDA should be around a good 1.0- 1.1
• The balance sheet allows shareholder returns

Profitability
• Unit costs (inclusive interest, depreciation and overheads) are a medium low $ 27.95/BoE.
• Q2 net profit was $ 235 M (eps $ 0.35).
• Permian quotes high ethane recovery as the reason for the high gas production.
• Low realized gas prices ($ 0.01/MM Btu) and gas revenue (=methane + ethane) of -$23 M do not support this reasoning for increasing the gas production.
• Hopefully the increased gas production will be reversed in Q3 and Q4,
• For 2024, with WTI at $ 70-75/bbl, I expect a net profit (excluding non-cash hedging results) of $ 960-1,020 M (eps=$ 1.60-1.69, PE=8.1-8.6).
• In the period 2025-2028 the eps can increase to $ 1.79-2.06 (PE=6.7-7.6), especially if gas prices recover after the commissioning of new gas pipelines in west Texas in late 2024.
• Permian is a profitable company.

Shareholder returns
• Permian targets to return >50% of the FCF to shareholders.
• Q2 interim dividend of ($ 0.21) was just above Q1 ($ 0.20).
• Q2 share buybacks (1.8 M shares = $ 30 M) were just below Q1 (2.0 M shares = $ 31 M).
• For 2024 I expect a total dividend of $ 1.27 and share buybacks of $ 130 M, equivalent to a decent yield of 7.0%.
• In 2025 and beyond, with higher production and higher gas prices, the yield can increase to 10-11%.

Conclusions
Q2 results were just below expectation. Production in Q2 was high, but only for NGL and gas. As gas prices were extremely weak, the extra production added little revenues. The balance sheet is solid. Profitability is good. Shareholder returns are decent and can increase in the future.
Permian Resources looks like a decent investment.

Permian resources drops a bit in my oil and gas ranking, and now sits as 30th (out of 80), just outside the top 25.

[dan_s]

Two new pipelines, Matterhorn Express and another one from West Texas to Mexico, should help de-bottleneck the Permian Basin and get better natural gas price for all of our Permian Basin companies. At least that is the plan.
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The Matterhorn Express Pipeline is an approximately 580-mile intrastate pipeline designed to transport up to 2.5 billion cubic feet per day of natural gas from the Permian Basin to the Katy area near Houston, Texas. < The last update I saw shows the completion date in late Q3 2024.

As natural gas production in the Permian Basin continues to grow, the Matterhorn Express Pipeline will provide critical takeaway capacity moving product to market for end use and play a significant role enhancing our nation’s energy security, reducing energy costs, and minimizing emissions related to flaring.
Notes below from: https://matterhornexpress.com/
> The Matterhorn Express Pipeline is designed to transport up to 2.5 billion cubic feet of natural gas per day from the Permian Basin to the greater Houston area.
> The pipeline will start in West Texas, crossing southeast through central Texas, and ending in the Katy area outside of Houston, Texas.
> Construction began in June 2023 and was expected to conclude by June 2024 with an in-service date of Q3 2024.

[cmm3rd]

"EnLink Midstream (ENLC) executives expect the Matterhorn Express Pipeline to begin operations in September, an executive said during the company’s second-quarter earnings conference call on Aug. 7." https://www.hartenergy.com/exclusives/enlink-expects-matterhorn-line-operational-september-210062