Permian Resources – Good Q3 results
Posted: Thu Nov 07, 2024 8:09 am
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.
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.