Permian Resources – Good Q3 results

[Petroleum economist]

Permian Resources Q3 results were good. Production was well above expectation and profit was marginally above expectation. The balance sheet is solid. Profitability is good. Shareholder returns are decent and can increase in the future.

Production
• Q3 (347 K BoE/d) was 2.5% above Q2 production (338.8 K BoE/d). I had expected a production of only 330 K BoE/d.
• Q3 oil production (160.8 K bbl/d) was up 5.2% versus Q2 (152.9 K bbl/d) (Q2).
• The Q3 oil cut (46.3%) was up versus Q2 (45.2%) due to the recent acquisitions but is still well down versus early 2023 (50.9%).
• Like many other Permian producers, the oil cut will continue to fall, as oil cut of the proven reserves is only 43%.
• I expect for Q4 a production of 360 K BoE/d. Permian did not provide a specific Q4 outlook.
• Permian 2024 outlook was increased from 320-330 K BoE/d to 340-342 K BoE/d. I now expect a 2024 production of 341.3 K BoE/d.
• In 2025 and beyond, the production can increase with 2%/year to 380-385 K BoE/d in 2028.

Balance sheet
• The balance sheet remains very solid.
• Q3 equity ratio (=equity/balance sheet total) of 62.4% was just below the Q2 equity ratio (62.7%).
• Late 2024 the equity should be a good 63.5%.
• Due to recent acquisitions, long-term debt in Q3 ($4,184M) was up $ 412 M versus Q2 ($ 3,872 M).
• 2024 debt/EBITDA ratio should be a good 1.1, to reduce to 0.8 in 2025
• The balance sheet allows shareholder returns but can do with some reinforcements due to the acquisitions in Q3.

Profitability
• Q3 adjusted eps ($ 0.35) was a bit down from ($ 0.39), mainly due to low oil prices. Operating cost showed minor increases.
• Gas prices were negative (-$ 0.20 MM Btu), even lower than the -$ 0.01/MM btu in Q2.
• For 2024, with WTI at $ 71.77/bbl, I expect an eps (excluding non-cash hedging results) of $ 1.51.
• In the period 2025-2028, the eps can increase to $ 1.65-1.90 (PE=6.8-7.7), especially if Permian gas prices recover after the commissioning of the new Matterhorn gas pipeline in west Texas Q4.
• Permian is a profitable company.

Shareholder returns
• Permian targets to return >50% of the FCF to shareholders.
• Permian paid a fixed dividend of $ 0.05 per quarter from Q1 to Q3.
• Permian also paid a variable dividend: $ 0.05 (Q1), $ 0.05 (Q2, and $ 0.07 (Q3).
• Permian bought back shares in Q1 ($ 31 M) and Q2 ($ 30 M), but none in Q3.
• For Q4 I expect a fixed dividend of $ 0.05, but I do not expect variable dividends or share buybacks.
• For 2024, total dividend and share buybacks should be equivalent to a decent yield of 5.7%.
• With higher production and higher gas prices, the yield can increase to 6.2% in 2025 and to 10-12% in 2027-2028.

Conclusions
Permian Resources Q3 results were good. Production was well above expectation and profit was marginally above expectation. The balance sheet is solid. Profitability is good. Shareholder returns are decent and can increase in the future.

Permian Resources sits in my oil and gas ranking in 35th position (out of 82), just outside the top 25.

[dan_s]

I have updated my forecast/valuation model for PR, but I want to listen to their 9AM CT conference call before I finalize it.

PR recently raised their fixed dividend to $0.15/Quarter.

Q4 production mix needs to be 46.8% oil, 28.5% natural gas and 24.7% NGLs to hit the midpoint of PR's updated full year production of 341,000 Boepd with 158,500 barrels of oil per day. Their drilling program will remain focused on the most oil-prone areas.

PR's Q3 realized prices including cash settlements on their hedges were $72.40/bbl for oil, $0.23/mcf for natural gas and $22.35/bbl for NGLs.
If WTI averages $70/bbl in Q4, their realized oil price including cash settlements on their hedges should be approximately $68.36/bbl net of hedges. Net of hedges their realized natural gas price should be $0.87/mcf in Q4 and I am using $24.00/bbl for NGLs in Q4. The new Matterhorn Express pipeline should help PR to get better natural gas prices in 2025.

My valuation of $22.50 was before they announced very good Q3 results. My valuation will go up to at least $23.00.

TipRanks: "In a report released this morning, Mark Lear from Piper Sandler maintained a Buy rating on Permian Resources (PR), with a price target of $20.00. The company’s shares closed yesterday at $14.57."

In my opinion, PR is the "Diamondback Energy" of the Delaware Basin. Today PR's production is where Diamondback's production was in 2022. PR is a very aggressive company.