Granite Ridge Resources Q1 2025 Earnings Report

Granite Ridge Resources EPS Results

• Actual EPS: $0.22
• Consensus EPS: $0.20
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Granite Ridge Resources Revenue Results

• Actual Revenue: $122.93 million
• Expected Revenue: $115.30 million
• Beat/Miss: Beat by +$7.63 million
• YoY Revenue Growth: N/A

Granite Ridge Resources Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: After Market Closes
• Conference Call Date: Friday, May 9, 2025
• Conference Call Time: 11:00AM ET

Granite Ridge Resources (NYSE:GRNT) (NYSE: GRNT) is a pure-play natural gas midstream company that provides gathering, processing, transportation and marketing services to producers across key U.S. basins. The company owns and operates an integrated network of pipelines, processing plants, compression stations and dehydration facilities designed to optimize the value of natural gas and natural gas liquids (NGLs) for its customers. With a focus on efficiency and reliability, Granite Ridge Resources supports producers by connecting raw wellhead volumes to takeaway infrastructure and end-user markets.

At the heart of Granite Ridge Resources’ operations are its natural gas gathering and processing systems. The company’s processing plants separate methane from NGL streams such as ethane, propane and butane, which are then fractionated, stored and delivered to regional and national markets. Granite Ridge Resources also offers third-party transportation and marketing services, leveraging strategic pipeline interconnects to provide flexible access to liquefied natural gas (LNG) export facilities, bleach plants and petrochemical complexes.

Granite Ridge Resources began trading publicly through a spin-off transaction in mid-2023, when it was separated from its parent company to create a standalone midstream platform. Since its inception, the company has pursued both organic expansion and targeted joint ventures to enhance its footprint in high-growth areas. Investment in pipeline loop projects, cryogenic processing trains and compressor upgrades has increased throughput capacity, while acreage dedications with producers have secured long-term volume commitments.

Headquartered in Houston, Granite Ridge Resources serves producing regions including the Delaware and Midland basins of West Texas, the Eagle Ford shale in South Texas and select areas of the Rockies. The company is led by a management team with decades of combined experience in midstream energy, supported by a board of directors with deep expertise in the hydrocarbon value chain. Granite Ridge Resources continues to prioritize safety, environmental stewardship and operational excellence as it seeks to meet evolving customer needs and market dynamics.

Granite Ridge Resources Q1 2025 Earnings Call Transcript

Key Takeaways

• Production reached over 29,000 Boe/d, a 23% year-over-year increase.
• Generated $91 million of adjusted EBITDAX, surpassing internal projections.
• Improved cost structure with LOE down 13% to $6.17 per BOE and operating margins up to 87%.
• Maintained a strong balance sheet with ~75% of production hedged through 2026 and net debt/EBITDAX of just 0.7x.
• Operated partnership volumes grew significantly, with Delaware Basin partner oil production up 400% to ~10,000 bbl/d.

Presentation

[Operator]

Good morning, and welcome to the Granite Ridge Resources First Quarter twenty twenty five Earnings Conference Call. Currently, all participants are in a listen only mode. After question and answer session, we will follow the formal presentation. I will now turn the call over to James Messers, Investor Relations representative for Granite Ridge.

[James Masters, Principal at Masters & Company]

Thank you, operator, and good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Luke Brandenburg, our President and Chief Executive Officer, who will review the quarter's results and company strategy. We will then turn the call over to Tyler Farkerson, our Chief Financial Officer, who will review our financial results in greater detail. Luke will then return to provide some closing comments before we open the call up for questions.

[James Masters, Principal at Masters & Company]

Today's conference call contains certain projections and other forward looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements. We would ask that you also review the cautionary statement in our earnings release. Granite Ridge disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward looking statements.

[James Masters, Principal at Masters & Company]

These and other risks are described in yesterday's press release and our filings with the Securities and Exchange Commission. This conference call also includes references to certain non GAAP financial measures. Information reconciling non GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in our earnings release that is posted on our website. Finally, as a reminder, this conference call is being recorded. A replay and transcript will be made available on our website following today's call.

[James Masters, Principal at Masters & Company]

With that, I will now turn the call over to Luke.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Thank you, James, and thank you all for joining us today. This morning, I plan to cover the key highlights from the first quarter, discuss the recent market volatility and review our current 2025 budget along with the flexibility we have within it. I will then share thoughts on the outlook for the rest of 2025 before passing it over to Tyler. Kicking off with the quarter, I'm pleased to share that Granite Ridge had an outstanding first quarter in 2025. We achieved a production rate of over 29,000 barrels of oil equivalent per day, reflecting a 23% increase compared to the same period last year.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Additionally, we generated $91,000,000 of adjusted EBITDAX surpassing our internal projections. These impressive results highlight the success of our strategic focus on geographic and hydrocarbon diversity, currently a balanced fifty-fifty split between oil and gas and our partnership with top tier operators. Our outperformance in the first quarter was primarily driven by traditional non op wells that came online earlier than anticipated or outperformed their expected type curves throughout the quarter. A standout performer continues to be our operated partnership program where we are excited to see substantial growth in volumes over the past year. Our partner in the Delaware Basin has increased gross daily operated oil production by 400% from 2,500 barrels of oil per day to approximately 10,000 barrels of oil per day with interest in over 50 producing wells.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

With every dollar we invest in this business, we are targeting full cycle returns of greater than 25% and we are pleased that the results to date align with those expectations. For the quarter, we turned 13.7 net wells to sales, increased oil volumes by 39% and natural gas volumes by 10% with robust initial production from new wells primarily in the Permian Basin. 1 area I'm particularly proud of is our cost structure, which continues to improve on a per unit basis as we scale the business. As the denominator grows, our efficiency improves. In the first quarter, we reported LOE of $6.17 per BOE, 13% lower than last year.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

On an operating margin basis, we improved from 83% in the first quarter of last year to 87% this year. These are not one time savings. They are repeatable cost structure improvements, thanks to increased scale that will continue to drive enhanced cash flow and shareholder returns. Turning to the macro environment, while volatility has been a prevailing theme lately Granite Ridge remains well positioned with a diversified asset base. Our production is approximately 75% hedged through 2026 and we maintain a leverage ratio of just 0.7 times net debt to adjusted EBITDA.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

This combination preserves our expected cash flows and provides significant optionality as we look to capitalize on opportunities in this environment. Our diversification in particular proves incredibly valuable during times of volatility. After two years on the doldrums, it is great to see the macro picture improve for natural gas and we are pleased with both the production and operating margin growth of our natural gas assets. Year over year, while gas volumes grew by 10%, our revenue from gas more than doubled to $31,000,000 thanks to realized prices of $3.97 per M compared to just $1.84 per M a year ago. We continue to evaluate opportunities to accelerate capital deployment in response to today's improved gas pricing particularly in the Haynesville and dry gas Eagle Ford.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Moving to our 2025 budget, during our last call I mentioned the possibility of an accelerated CapEx scenario of approximately $380,000,000 However, due to recent market volatility, we decided to proceed with our base case of $310,000,000 This approach is projected to achieve a 16% production growth at the midpoint. Let's take a quick look at our sources and uses for 2025. Using round numbers, the uses include $300,000,000 budget for CapEx, about $60,000,000 for dividends and $25,000,000 for interest and other costs totaling $395,000,000 On the sources side, while production growth does not directly translate to cash flow with gas prices up, oil prices down and hedges in place, it serves as a reasonable proxy. Starting with $291,000,000 of 2024 EBITDA and applying a 16% increase at the production guidance midpoint, we estimate about $335,000,000 This leaves us with $60,000,000 of incremental debt. I'll walk through this for a couple of reasons.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

First to assist those of you who model Granite Ridge we appreciate it. Second to highlight in the current hydrocarbon price environment our plan puts us roughly cash flow neutral excluding the dividend. I recognize that excluding the dividend is a lightning rod for some. In this environment where oil and gas stocks trade more like assets than businesses, people often take the negative and criticize us for borrowing to pay the dividend. I would like to offer a different perspective.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

We believe we can fund our dividend and achieve mid to high single digit production growth out of cash flow. As we continue to find accretive opportunities even in this price environment, we're taking on conservative leverage to generate mid teens production growth and accelerate cash flows. As we consider budget flexibility, our focus on full cycle returns and efficient operating cost management has enabled us to maintain a low leverage profile while achieving significant asset growth. In the face of an uncertain market, these priorities remain crucial. We are confident in our assets and balance sheet's ability to withstand fluctuations in hydrocarbon prices, and our capital program is designed to adapt to various price scenarios.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Like our peers in oil and gas industry, we're closely monitoring hydrocarbon prices and we'll continue to adjust our budget accordingly if oil remains below $60 per barrel. As recently as this week, we have non consented well proposals that do not meet our return threshold and identified approximately $30,000,000 in CapEx within our operated partnerships that we can swiftly cut or defer with additional flexibility if market conditions require. Our guiding principle for capital allocation remains a focus on full cycle returns combined with conservative leverage. Production growth is merely a result of this strategy. With estimated maintenance capital accounting for less than two thirds of our 2025 budget, we have substantial flexibility to make decisions that enhance long term shareholder value.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

To review, we've had an outstanding quarter with performance exceeding expectations across the board. Our balance sheet remains in great shape at just 0.7x leverage and our hedging program is solid covering roughly 75% of current production through 2026. We are growing responsibly with increased margins and lower capital reinvestment rate than ever before. Strategically, where are we? After a decade of building a significant non op portfolio with diversified interest across six premier oil and gas basins in The United States, our current focus on operated partnerships brings balance to the portfolio.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

This focus adds control over the timing of CapEx and cash flows while partnering with some of the highest quality operating teams in the country. We have built Granite Ridge on the principles of diversification and strict underwriting standards to generate steady returns for our shareholders. Our approach remains rooted in capital stewardship with disciplined allocation following close behind. Over the past two point five years as a public company, we have ensured that our intent to grow and add scale has not come at the expense of financial prudence. I'm proud of our efforts.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

The growth we have experienced is due to sound capital allocation strategies, always with good rocks and outstanding partners. Looking ahead to the rest of 2025, we are focused on three key priorities. First, developing our operated partnership program. We currently have two operating partners and have agreed to terms with a third all targeting the Permian Basin. Earlier this year we were running two rigs in the Delaware Basin but have since scaled back to one rig.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

We are pleased with the results we have achieved so far and maintain total control and flexibility to adjust the program according to the hydrocarbon price environment. This program will account for about 60% of our capital this year, up from 50% in 2024. Second, maintaining a careful balance between growth and returns. We continue to guide to a 16% production growth while maintaining our $0.11 per share quarterly dividend, which at current prices offers almost a 9% dividend yield. And finally preserving our financial flexibility.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

With the support of our banking partners we successfully increased our borrowing base in April by $50,000,000 to $375,000,000 providing enhanced pro form a liquidity of $141,000,000 as of March 31. Leverage stands at just 0.7x net debt to EBITDAX. This conservative approach has served us well through multiple cycles. With that, let me turn it over to Tyler to walk through the numbers in more detail. Tyler?

[Tyler Farquharson, Chief Financial Officer at Granite Ridge Resources]

Thanks Luke and good morning everyone. I'll begin with an overview of our income statement. We generated $122,900,000 in total revenue this quarter, that's up nearly $34,000,000 from the same period last year with realized prices of $69.18 per barrel and $3.97 per Mcf. Our adjusted net income was $28900000.0.00 $22 per share, an 89% increase year over year. That strong performance translated into $86,700,000 of operating cash flow before working capital changes.

[Tyler Farquharson, Chief Financial Officer at Granite Ridge Resources]

On costs, want to highlight two items. First, as Luc mentioned, we reduced LOE to $6.17 per BOE. Second, G and A came in at $2.84 per BOE, down 5% from last year as we continue to benefit from scale. Turning to capital allocation, we invested $71,000,000 in drilling and completions capital with the majority directed toward our Permian operated partnerships. In addition, we deployed $34,000,000 on acquisitions securing 12 net high quality locations at an average cost of $2,100,000 each.

[Tyler Farquharson, Chief Financial Officer at Granite Ridge Resources]

Total capital for the quarter was $101,000,000 compared to consensus expectations of $87,000,000 The difference primarily reflects the timing of $14,000,000 opportunistic acquisition completed during the quarter reflecting our ability to remain flexible and capitalize on attractive assets when they arise. Our balance sheet remains a real strength. We ended the quarter with $250,000,000 of debt outstanding, just 0.7x net debt to EBITDAX and with our recent borrowing base increase we now have 140,800,000 in total liquidity which positions us well to capitalize on future opportunities. Our hedge book also provides significant protection. For oil in 2025, we have 2,400,000 barrels hedged with floors at $61.86 and ceilings at $77.89 On the gas side, we protected 7.3 Bcf at floors of $3.43 and ceilings of $4.23 and have swapped an additional eight Bcf at $3.67 These hedges lock in substantial cash flow through 2025.

[Tyler Farquharson, Chief Financial Officer at Granite Ridge Resources]

Based on this strong start to the year, we're reaffirming all aspects of our 2025 guidance. We continue to expect production between 58,000 BOE per day with oil making up 52% of volumes. On costs, we're now tracking toward the low guidance range of $6.25 to $7.25 per BOE. Looking ahead, we anticipate Q2 production will remain consistent with Q1 levels followed by a modest increase in the second half of the year. Capital spending in Q2 is expected to be broadly in line with Q1 levels with a more measured pace of investment plan for the second half as we maintain our focus on capital efficiency. Back to you, Luke.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Thank you, Tyler. I have the privilege of working daily with some of the most talented, driven and creative professionals in the industry. My partners built this business from the ground up. And over the past dozen years, we have established a remarkable track record of consistently achieving the goals that great oil and gas companies strive for. We have prudently allocated capital to grow asset value while maintaining conservative leverage, continuously reduced our cost structure and replaced an increased inventory with an intense focus on quality.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Our commitment to delivering value for shareholders is evident through both cash returns and asset appreciation. Our journey has not been without challenges as we have navigated several significant downturns. However, through discipline, teamwork and an unwavering focus on our investors, we have continually demonstrated our ability to adapt and drive value across cycles. While macroeconomic conditions may fluctuate, our commitment remains steadfast. We focus on what we can control, building a resilient business capable of adapting to any environment and maintaining a laser focus on delivering returns for our investors.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Over the long term, the market will ultimately reward consistent earnings e with price t. We invite you to join us on this journey. With that, operator, please open the line for questions.

[Operator]

Our first question comes from the line of Phillips Johnston with Capital One. Please go ahead.

[Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc]

Hey guys, thanks for the time. Can you maybe give us some color as to how much production came in the door from the 10 acquisitions that you closed in Q1 and maybe what the split is in terms of Delaware versus Utica and what the oil and gas mix kind of looks like?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Yes, you got it. Good morning, Phillips. That acquisition, so we closed that earlier this year. We think it's about four fifty barrels for the year, 25,000,000, dollars 9 million if I had to put a number to it, but about four fifty barrels is how I look at it. That's all Delaware production.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

In fact, that asset acquisition that Tyler mentioned, that was the only thing that we bought that had any production associated with it.

[Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc]

Okay. And was there any material contribution to Q1 volumes? Was the close kind of late in the quarter and it's kind of a Q2 through Q4 impact?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Yes, I'd call it the latter. It was later in the quarter and so I think you'll see that show up later, not necessarily much of an impact in Q1.

[Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc]

Okay, perfect. Tyler, you touched on LOE in your prepared comments. Nice to see Q1 was below the low end of the range. It sounded like we should be steering towards the low end of the range for the year. Is that what I heard?

[Tyler Farquharson, Chief Financial Officer at Granite Ridge Resources]

Yes, correct. Good morning, Phillips. Yes, as we're production starting to scale on those operating partnerships, starting to see those LOE per unit move down towards the lower end of our guidance. So that's our current expectation is to be at that low end.

[Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc]

Okay, great. Thanks guys.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Awesome. Thank you, Phillips. Have a good weekend. You too.

[Operator]

Next question comes from the line of John Anas with Texas Capital. Please go ahead.

[John Annis, Vice President at Texas Capital]

Hey, good morning guys and thanks for taking my questions. My first one, maybe following up on your prepared remarks on the strong well performance from your non op wells. Can you elaborate on which specific basins are outperforming? And are there any specific factors that you would attribute this outperformance to?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Yes. Hey, good morning, Johnny. Great question. I appreciate that. Probably should have given some more color on that in the prepared remarks.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

So if I think about really our beat compared to internal, I'd group into two buckets. So one is from acceleration, so wells that came on sooner than we thought and then existing wells that outperformed. And so I'll hit each of those separate. Acceleration was probably a third of the beat. That's just one of those games where on the traditional non op space, we don't know exactly when those are going to come online.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

And so we're generally a bit conservative on it and we like to be pleasantly surprised. So the wells that I'd say really had an impact was one pad in particular in the Delaware Basin that came online sooner than we thought and that made a big impact. We had a couple pads in the Utica and see no operator pads that came online earlier and we've been real pleased with what those guys are doing up there. And then cats and dogs here and there, just small working interest in the DJ and Midland Basin that were a bit sooner than we thought. So let's call it a third of it.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

The other two thirds was really existing wells. And so this is one as well where I love how we underwrite. We've got a great team over here on the underwriting side and they take a very practical approach to these. And so one thing that we saw on some existing wells are some wells that were shut in for offset frac. And so again, we don't really benefit by being aggressive on when they come back online.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

We like to be a bit conservative. So we had some wells come online sooner than we thought. That had a pretty significant contribution. Biggest point that I'll mention that I'm encouraged about, now we'll see how this changes in the current market environment, but we had a pretty big pad for us in the Delaware Basin that had been constricted primarily because of gas prices late last year. And as gas prices ramped, it's a Delaware pad that has a strong gas contribution.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

They started opening the chokes a little bit as prices improved, not just at Hub but also at Waha. And so we had some increased production as they increased the chokes and bumped production a bit. I'm curious to see if that continues now that oil prices have been little bit tougher over the past month or so. But I think that was certainly exciting to see at the time. And again, we'll see if that trend continues.

[John Annis, Vice President at Texas Capital]

Terrific. I appreciate all that color. For my follow-up, maybe leaning into your comments on natural gas, how do you evaluate the relative attractiveness of each basin just given the softening in oil and strengthening in gas? And does this dynamic change your appetite for increasing or decreasing exposure in certain basins, either from a non op or operated partnership basis?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Yes. That's a great question too because, look you're talking capital allocation at the end of the day and that's our primary role is capital allocation. What we always say is that every opportunity has to compete for capital. And so we're in six basins, deals in each of the six basins have to compete. As we know, wells aren't just oil or just gas in a lot of places.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

They certainly aren't, say the Haynesville or Sautex Eagle Ford. But take the Delaware Basin. That's been such an interesting one where oil prices have come down but gas has come up. And so we have to look at just a full cycle basis across both hydrocarbons. So what really it's led us to do right now on our traditional non op side we have some inventory in some gas weighted basins primarily the Haynesville and dry gas Eagle Ford.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

A lot of the operators we're talking to there either looking at wells that have been duct some cases for a year or more that they're looking to turn online. Some have at least hinted that they may accelerate development on some of those. In that case, it's less of us making a decision. It's more of the well proposal comes in and we determine if we're going to participate, but we continue to make that compete for capital. I really like the diversification we have in these environments.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

I just think that's a big one. And with 50% gas production, we really are seeing the benefit of that right now in spite of challenges on the oil side. So I'm not really hitting your questions head on John and it's not intentional, I'm not trying to evade it. It's more of everything competes for capital. We see what comes in the door and as I mentioned we had wells just this week that we were non consenting because they didn't hit the return hurdles.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

So we're going to stay disciplined and we'll see where it goes. Our operated partnerships are all currently in the Permian and so they're that blend of oil and gas. We don't have any in a pure gas basin that we can really push right now. But again, we've some great partners and we're excited to see what they do this year.

[John Annis, Vice President at Texas Capital]

Makes sense. Thanks guys.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Thank you. Hope you have a good weekend.

[Operator]

Our next question comes from Noah Hungness with Bank of America. Please go ahead.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Good morning, Noah. You may be muted. I can't hear you if you're talking.

[Noah Hungness, Equity Research Associate at Bank of America Merrill Lynch]

Oh, Can you hear me now?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

I can hear you now.

[Noah Hungness, Equity Research Associate at Bank of America Merrill Lynch]

Okay. Sorry about that. Could you give us an idea of how we should think about oil cut kind of trending through the rest of the year? Just kind of noting maybe 1Q was a little lower than what we were expecting.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Yes, it's a good question. I'd say that we were actually just talking about that this morning. It's a dynamic where we're basically in line with what we thought on oil production, but gas production was higher than we thought. And so you end up in the scenario where oil cut is a bit lower, but oil production was darn near spot on and gas was just higher, so gas outperformed. This is one we battle a lot, Noah, and I'm glad you hit on it because as these wells get older, right, they get gassier, GOR is increasing.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

But it's challenging to make a curve on an increasing GOR, what do you really want to assume. And so generally speaking, I found that we've been pretty darn consistent on oil and slightly outperform on the gas side just due to that rise in GOR. So right now, we're leaving guidance intact at the 51 to 53. I think that if we were to quote miss, I would say that it's a miss because gas production was better than we thought. So in a weird way, it's a positive miss.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

But that's one that we a lot of these wells, especially these higher working interest wells and some of these wells in deeper zones, right? We're drilling some Wolfcamp Bs and Cs that have a higher gas content. As they continue to outperform, it makes it a bit tougher to model the gas side. But again, we view that oddly as a positive, given that oil production was pretty darn close and gas production was just a beat.

[Noah Hungness, Equity Research Associate at Bank of America Merrill Lynch]

Yes. No, that's very helpful color. And then for my second question, how can we think about the or maybe you could add a little bit of color around, the non op versus, partnership capital split. I think you guys are allocating more capital to the to the partnership. Could you maybe talk about some of the moving parts there and your decision behind that?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Yes, you got it. So right now I think our operated partnership capital will be roughly 60% of our total CapEx for the year. And the neat thing is we have full control over that. And so we have the ability to defer some of that if the price environment doesn't make sense. A really neat thing about that model is we have some great partners that we're just absolutely thrilled to have.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

They mean a lot to us. And we've created structures that we really are aligned there. And so this isn't a Us dictating town from an ivory tower. We've to cut back. It's a conversation and we've created real financial alignment there.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

So while it's 60% of the capital that's an easy one to move and we can do that and fortunately we are aligned with our partners in that case. The traditional monop side is we have a well by well election, We can always elect not to participate in a well but we have less control over driving activity there. But again, we non consented some wells this year that just didn't hit the return hurdle. So the sixtyforty is I'd say more of an output than an input in the sense that we didn't start the year saying I want to allocate 60% of capital to operated partnerships. We just let the deals compete for capital.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

And we've really been pleased with what we've been able to capture on the operated partnership side. Again, we've got just some just great groups that are continuing to surprise us in what they're able to capture. And even in this environment, we're continuing to find accretive opportunities. Now, it may not be as easy to find, but we've been in Midland for over a decade with capital, right? There are deals that we see that I'm confident that the whole world doesn't see.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

We may not be the only one, but one of a small few which demonstrated that we're a trustworthy counterparty. And so that adds value on both the operated partnership side and the traditional non op side. So again, similar to John's question, I'm not sure that I hit it dead on because it is more of an output than an input. But we do have full control over both. I mentioned in the prepared remarks that we're watching hydrocarbon prices like a hawk.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

And we are quick to say, hey, we need to slow down CapEx or quick to say, hey, we're not going to participate in that. It may be a burden in hand, but it's not returning meeting our return thresholds and we're going to lay off on that for now.

[Noah Hungness, Equity Research Associate at Bank of America Merrill Lynch]

That all makes sense. Great stuff, guys. Thank you.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Thank you, Noah. Have a good one.

[Operator]

And our final question comes from the line of Michael Scialla with Stephens. Please go ahead.

[Michael Scialla, Managing Director at Stephens Inc]

It's okay, Tyler. I want to see if you could talk a little bit more on the partnership wells, how those are performing? And you said you scale back to one rig. Is that the plan for the remainder of the year? And maybe just in terms of production, you talked about the 10,000 BOE a day of gross production from the partnership.

[Michael Scialla, Managing Director at Stephens Inc]

Where do you see that going for the remainder of the year?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Yes, good question, Mike. That's the biggest piece of what we're doing. So I'm glad you asked about it. I'll hit those in maybe varying orders. On the production side, the 10,000 is a gross number.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

I'd say we expect our operated partnerships to be roughly a quarter of our production this year. Right now it's probably a bit less than that as they're continuing to grow. But I think about a quarter for the year of our production will be from our operated partners. As I think about well performance, we continue to be really pleased with what we're seeing. I'll tell you one of the most impressive things is just the D and C side of things.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

They continue to do an incredible job executing. I think that's something that is often misunderstood and I'm glad you asked because it gives me a chance to hit it. The D and C side of things and the drilling days that we're seeing, I mean, they're competitive with the best operators in the basin. I think there's a view out there potentially that smaller operator, smaller scale is just going to cost a lot more. And that's just not necessarily true.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

We've continued to hang with some of the best operators in the basin in terms of performance. In an inflationary environment, sure, you're going pay more for pipe and that sort of thing. You don't have a yard full of it. But fortunately in the relatively stable price environment we've seen over the past six, twelve months, we've really done a great job on the D and C side continuing to beat expectations. On the performance side, prices are always a play but productivity has been good.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

While oil prices have been less than and when we drilled these wells or made the decision to drill, the gas prices have really helped. So that's keeping the return intact. We talked on the last call, I think we looked at our first five projects with these guys and we're targeting 25% rate of return. We were right about that 24% rate of return as of the last call. They continue to execute and we continue to want to deploy capital.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Now as I did mention, we are watching the markets like a hawk and we will be quick to react. That was a part of the going from two rigs to one. It's just a conversation of hey, should we be thoughtful? Should we maybe defer some of this inventory? We're having conversations about where we should dug wells waiting for a better price environment.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

What did I miss? You had a couple of good pieces in there. I want to make sure I hit them all. I think you got them all.

[Michael Scialla, Managing Director at Stephens Inc]

I appreciate that. I want to follow-up on the other part of the Midland Basin partnership. I I think you had been kinda back and forth on whether to start drilling that around mid year. I guess, where does that stand now? You and and maybe some of the industry results up in that part of the Midland Basin, how those are impacting maybe your plans there?

[Michael Scialla, Managing Director at Stephens Inc]

And is that impacting the ability to add acreage in that area as well?

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

I'm laughing because you hit the nail on the head with that one. The price of poker is going up as the results in the Northern Midland Basin. It seems like every month oil and gas investor has another article about strong results up there, which is great. We'd love to see it. It doesn't necessarily help on the ability to capture additional inventory side, but I think all in, we'd be we're happy to see that.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

From our operating perspective, we're still looking at probably this summer starting. Now I'd say that's a real time conversation based on what we've seen over the past month. But the plan has been this summer to start development. We're looking at potentially a four well pad up there. It's smaller working interest initially based on our deal that we structured.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

But that's the plan that we're looking at now. But that is one of the easiest to defer. And so in a scenario where we decide, hey, it makes sense to be more prudent to hold off on this. That's an easy one to look at is Northern Midland Basin project.

[Michael Scialla, Managing Director at Stephens Inc]

Got it. Appreciate it, Luke.

[Luke Brandenberg, President & CEO at Granite Ridge Resources]

Absolutely. Thank you.

[Operator]

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Luke Brandenberg, President & CEO
• Tyler Farquharson, Chief Financial Officer

Analysts

• James Masters, Principal at Masters & Company
• Phillips Johnston, Senior E&P Analyst at Capital One Securities, Inc
• John Annis, Vice President at Texas Capital
• Noah Hungness, Equity Research Associate at Bank of America Merrill Lynch
• Michael Scialla, Managing Director at Stephens Inc