Granite Ridge Resources Q3 2026 Earnings Call Transcript

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Provided by Quartr
November 6, 2026

Key Takeaways

  • Positive Sentiment: Granite Ridge reported a stronger third quarter: production rose 8% sequentially to 34,641 BOE per day, Adjusted EBITDAX increased 35% to $107.3 million, and $96.6 million of cash flow before working-capital changes covered $90.8 million of drilling and completion capital.
  • Positive Sentiment: Management expects roughly 10% production growth in 2027, with more oil-weighted volumes and hedges rolling off supporting Adjusted EBITDAX well above the third-quarter annualized level; formal 2027 guidance will come with fourth-quarter results.
  • Positive Sentiment: The company authorized up to $35 million in share repurchases through year-end 2027, to be funded from Adjusted Free Cash Flow after the dividend and qualifying acquisitions. It also introduced Arete Creek Resources as a Permian operating partner, with more than 40 gross locations identified and a rig expected in 2027.
  • Negative Sentiment: Granite Ridge lowered its 2026 production guidance to 34,000–35,000 BOE per day, citing shut-in gas volumes and the DJ Basin divestiture, and raised its LOE guidance to $9.25–$9.75 per BOE. Management said LOE remains high, partly due to water handling and flowback costs.
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Earnings Conference Call
Granite Ridge Resources Q3 2026
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Granite Ridge Resources Third Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone keypad. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. James Masters, Vice President of Investor Relations. Sir, please begin.

Speaker 1

Thank you, operator, and good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Tyler Farquharson, our President and Chief Executive Officer, who will review the quarter's results and company strategy. He will then turn the call over to Kyle Kettler, our Chief Financial Officer, to review our financial results in greater detail. Tyler will then return to provide closing comments before we open the call for questions. 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. We ask that you review the cautionary statement in our earnings release.

Speaker 1

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 these statements. These and other risks are described in our press release and our filings with the Securities and Exchange Commission. This call also includes references to certain non-GAAP financial measures, including Adjusted Free Cash Flow. Information reconciling these measures to the most directly comparable GAAP measures is available in our earnings release on our website. Finally, this call is being recorded, and a replay and transcript will be available on our website following today's call. With that, I'll turn the call over to Tyler.

Speaker 2

Thank you, James, and good morning, everyone. Let me start with the most important takeaway. For the last year, we have told you that 2026 is the final year we invest ahead of our cash flow, and that 2027 is the turn. This quarter, you can start to see the turn in our numbers. Average daily production grew 8% from the second quarter. Oil volumes grew 16%. Adjusted EBITDAX rose 35% sequentially to $107.3 million. Our cash flow before working capital changes covered our drilling and completion capital for the quarter. We are also taking three steps today that reflect where the business is going. First, our board has authorized a share repurchase program of up to $35 million. Second, we are putting a clearer definition of Adjusted Free Cash Flow in front of you, along with the order in which we intend to use it.

Speaker 2

Third, we continue to evaluate our operated partnerships, and we are excited to name our third operating partner in the Permian, Arete Creek Resources. Kyle will take you through the first two. Let me start with the quarter and the platform. Third quarter production averaged 34,641 BOE per day, 55% of it was oil. We placed 9.2 net wells online, most of them in the Permian, and we ended the quarter with 14.6 net wells in process. The other major driver to our quarter-over-quarter Adjusted EBITDAX growth was natural gas price realization. Our realized gas price rose from $1.12 per MCF in the second quarter to $3.46 in the third quarter, as Waha basis recovered. Kyle will walk you through that in detail because it's a real change in our cash flow.

Speaker 2

Our operated partnership platform remains the core of our strategy, and it directs the majority of our 2026 drilling and completion capital. The advantage starts with sourcing. Our partners find and assemble acreage through their own leasing, ground game, and operator relationships, so we see opportunities that never reach a marketed process. We provide the capital, we underwrite every opportunity to our return threshold, and we control the pace. That is how we've consistently added inventory for under $2.5 million per net Permian location, well below where marketed deals command. Admiral Permian Resources has been the flagship of that platform. Today, we are introducing another partner. Arete Creek Resources is a Midland-based operator, and our partnership with them is focused on the Midland Basin. The core of the group worked at Henry Resources, where they drilled, completed, and produced more than 200 horizontal wells between 2014 and 2024.

Speaker 2

Arete's management has helped build five Permian Basin ventures, including Bold Energy 1, 2, and three, and Oxbow Petroleum, and its business development team has executed more than $8 billion of upstream transactions. Arete Creek works the same way Admiral does. Its land team builds positions through grassroots leasing and joint ventures with large overlapping asset managers. We provide the capital, and we control what gets drilled and when. Arete spud its first well under our partnership in October, and we expect them to run a rig during 2027. Outside the Permian, we have built a non-operated position in the Utica Shale that we're increasingly proud of. We hold about 6,300 net acres and produce about 3,000 net BOE per day from our interest in over 100 gross producing wells.

Speaker 2

We built this position from scratch over the past two years through a high volume of small deals and count these opportunities among the most economic in our portfolio. During the quarter, we closed 20 acquisitions for $19 million, adding eight net locations at an average entry cost of about $2.4 million per net location. Also, we divested over $20 million of oil and gas properties in the D.J. Basin at a 3.8x forward next 12-month EBITDA multiple. While there's been a lot of volatility at the front end of the oil curve, we continue to plan our business around the back of the curve. Every acquisition and every operated partnership well has to clear a full cycle return above 25% at the strip. In today's backwardated market, those long-dated barrels are priced at $70 or below.

Speaker 2

We're not going to chase near-term prices or pay up for assets based on where the front month is trading. Instead, we will continue to seek longer-dated development opportunities farther out on the curve, keep our hedge program disciplined, and direct any excess cash to the priorities Kyle will lay out. Stepping back, the plan is working. Our traditional non-op business generates steady cash flow across six basins, and our operated partnerships are compounding inventory and growth. Through the first nine months of the year, our cash flow before capital changes has funded our development capital. Dividends and acquisitions have been funded from the balance sheet, but in 2027, that changes. We expect Adjusted Free Cash Flow to fund the dividend and the rest of our capital allocation priorities, with leverage falling as our cash flow grows. With that, I'll turn it over to Kyle.

Speaker 3

Thank you, Tyler, and good morning, everyone. This was our strongest quarter of Adjusted EBITDAX since we've been a public company, and I'll spend most of my time on what that means for 2027. First, the results. Oil and natural gas sales were $177.2 million. On a GAAP basis, we reported a net loss of $10.1 million, or $0.08 per share, driven by a $52.7 million loss on commodities derivatives, of which $31.8 million was unrealized. Adjusted net income was $22.6 million, or $0.17 per diluted share. Adjusted EBITDAX was $107.3 million, up 36% from $78.6 million a year ago, and 35% from $79.6 million last quarter. Cash flow from operations was $87.7 million, or $96.6 million before working capital changes.

Speaker 3

Our unhedged realized price was $55.60 per BOE, and $49.04 per BOE, excluding settled derivatives. LOE was $30.1 million, or $9.43 per BOE, down from $10.27 per BOE in the second quarter. Last quarter, we said we expected per-unit cost to improve sequentially as new volumes came on, and they did. But LOE is still high, mainly from saltwater disposal costs tied to higher water cuts and flowback, along with related surface equipment rentals and contract labor. Production and ad valorem taxes were $10.3 million, or 6% of sales. Cash G&A was $8.7 million, or $2.73 per BOE. We invested $90.8 million of drilling and completion capital and $19 million of acquisition capital during the quarter.

Speaker 3

We ended the quarter with $42.7 million of cash, $130 million drawn on our revolving credit facility, and $341.3 million of principal on our 8 and 7/8 senior unsecured notes. Net debt was $416.6 million, and leverage improved to 1.3 times from 1.4 times last quarter. Liquidity was $287.4 million. Natural gas. Waha basis held through the quarter, and gas sales came in at $30 million, up from $9.6 million in the second quarter. Waha recovered from record lows in the second quarter as new Permian takeaway came on, and our realized price tripled. A note on how we report. We use two-stream reporting, so NGL revenue is shown in the natural gas revenue line on our financial statements.

Speaker 3

On that basis, our realized natural gas price went from 38% of Henry Hub in the second quarter to 121% of Henry Hub in the third quarter. We expect continued strength from Waha basis and NGL pricing in the fourth quarter. Higher natural gas pricing helps, but our focus remains on growing oil volumes. Our mix moved in that direction this quarter from 51% oil in the second quarter to 54.7% in the third. For the full year, we still expect oil volumes in line with the midpoint of our original guidance. Natural gas volumes will come in lower for two reasons: gas that was shut in during the quarter due to Waha prices in the second quarter, while Waha prices were at their low, and our gas-weighted DJ divestiture that closed in September.

Speaker 3

That nets out to a lower top end on production guidance in a new range of 34,000-35,000 BOE per day, and a higher oil mix now at 51.5%-52.5%. We also raised our LOE guidance to $9.25-$9.75 per BOE, and our cash G&A from $28 million-$30 million. For the fourth quarter, we expect higher oil volumes than we did in the third quarter, with oil growing faster than gas. We also expect development capital expenditures modestly higher as well, accounting for cost inflation, which should put us at the high end of our guidance range for 2026. Let me move to Adjusted Free Cash Flow. We define Adjusted Free Cash Flow as operating cash flow before changes in working capital, less development capital expenditures. Acquisitions are not included in that number.

Speaker 3

On that basis, we generated $13.7 million of Adjusted Free Cash Flow in the third quarter. We think this definition of Adjusted Free Cash Flow will enhance the comparability to our peers and provide a clear framework for how we will use our Adjusted Free Cash Flow. Here is how we intend to use it. First, the dividend. We have paid an 11-cent dividend per share every quarter since becoming a public company. Second, acquisitions that clear our full-cycle return threshold at strip. Third, opportunistic share repurchases. Our board authorized a repurchase of up to $35 million of our common stock through year-end 2027. The program did not obligate us to buy any shares and may be suspended or discontinued at any time. We will fund the program with Adjusted Free Cash Flow and within the limits of our credit agreement and our senior notes. Finally, 2027.

Speaker 3

We are not providing 2027 guidance today. We expect to do that with our fourth-quarter results. We want to talk to you about the cash generation in the business and the assumptions behind it. On page 13 of our investor presentation, you will see the EBITDAX trajectory of our business. With incremental EBITDAX from moderate production growth, higher oil volume weight, and hedges rolling off, we see 2027 EBITDAX well in excess of third-quarter annualized EBITDAX. With that, I will turn it back over to you, Tyler.

Speaker 2

Thanks, Kyle. Let me close with three points. First, the inflection is underway. Volumes are growing, oil mix is rising, gas realizations have recovered, and our cash flow has caught up with our development spending. We have defined Adjusted Free Cash Flow plainly and told you how we will use it. Second, our operated partnership platform is broadening. With Admiral and now Arete Creek, we have two Permian partners sourcing attractively priced locations that extend our controlled development runway. Third, Grey Rock. in August, affiliates of Grey Rock distributed 14 million Granite Ridge shares to the limited partners of Grey Rock Energy Fund III. Grey Rock's ownership is now approximately 39%, and Granite Ridge is no longer a controlled company. We are completing the transition to a majority independent board and fully independent committees within the periods the NYSE standards provide. Grey Rock has indicated that it expects additional distributions.

Speaker 2

The size and timing of any future distributions are at Grey Rock's discretion, but we would refer you to Grey Rock's Section 13D filings. We view the first distribution as a healthy step. It expanded our float and has meaningfully increased trading liquidity, which makes Granite Ridge more investable for a broader set of institutions. We are excited about where this company is headed, and we look forward to delivering on it. With that, operator, we will open the line for questions.

Operator

Yes, sir. Ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star 11 again. Again, if you have a question or comment at this time, please press star 11 on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Michael Scialla from Stephens. Your line is now open.

Speaker 4

Morning, guys. Wanted to get some high-level thoughts. Kyle, you mentioned 2027 with the slide showing where you think EBITDA will land. Just some of the assumptions built into that. Production, I guess, should we be thinking kind of high single-digit growth and CapEx kind of flattish year-over-year? Is that fair, or any more you could offer on that?

Speaker 3

That's a completely fair assessment of it. We're targeting just about 10% production growth year-on-year. I think we have a little bit extra weighting on the oil side in that production growth. Then if you take into consideration our hedge book rolling off, those are the really three kind of simple key things to look at to pencil out where 2026, Q3 2026 annualized EBITDA goes into 2027 estimated on that page.

Speaker 4

Great. Appreciate that. Tyler, you mentioned the changes with Grey Rock and changes on the board. Anything we should expect in terms of changes with direction of the company with those?

Speaker 2

The short answer is no, not at all. The board is completely committed to the strategy that we have laid out. You've seen us transform the business over the past couple years to be more focused on controllable development via the operator partners. We now have four partners. We'll continue to add partners in the future. They've been very successful for us. We've been able to capture inventory at less than $2.5 million per net location in the Permian, which we think is a pretty good value. We're moving into a little more maturity with Admiral, obviously running two rigs, but we're excited now that Arete Creek is picking up a rig with us. We've actually drilled a handful of wells with them already this quarter, and then we expect to run a rig full-time with them starting in 2027.

Speaker 2

The board is fully committed to the strategy.

Speaker 4

Very good. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Derrick Whitfield from Texas Capital. Mr. Whitfield, your line is now open.

Speaker 5

Good morning, and thanks for taking my questions. I wanted to start with your Arete partnership disclosure. How would you characterize the depth of their gross locations, their ability to continue to source inventory, and how the quality of the inventory compares versus the average of your partnerships?

Speaker 2

Yeah, you bet. First, the Arete Creek team is very accomplished on both the commercial side as well as the development side. A large portion of the team came out of Henry Resources. They had a very successful exit a few years ago. Chunks of the team have also been involved with various entities that they've built and flipped over the years. They've drilled over 200 horizontal wells over 10 years. So, on the development front execution side, very accomplished. On the commercial side, equally as accomplished. Their business development team and commercial sourcing team has closed over $8 billion of transactions. That is incredible. This is a Midland-based team. They have very deep networks based in Midland.

Speaker 2

We are highly confident in their ability to source opportunity that is more proprietary in nature, and we will continue to build on what we have done with the Admiral team, sourcing opportunity from those types of markets as well. We are about a year into it with Arete Creek. We like to let teams have some time to build up some inventory in front of them. We are proud to report that Arete has already secured at least half a dozen or so DSUs, 40-something gross locations, and has enough for us to commit to picking up a rig with them in 2027. I fully expect them to be able to continue to add a lot more inventory to what they currently have, just like our Admiral team. This is a development strategy first.

Speaker 2

I like to talk about Admiral and Arete as hitting singles over and over again, but driving in a lot of runs. They will be focused on the Midland Basin. That is not to say that they will not do deals in other parts of the Permian Basin, but where we expect them to find opportunities is in the Midland Basin, and they have done a heck of a job so far.

Speaker 5

Great, Kyle. As my follow-up, I wanted to shift over to your buyback authorization. It would seem on our math, which is clearly share price dependent, that you guys could buy back a substantial amount of Grey Rock's future distributions. Is that a fair read based on where those lie today?

Speaker 2

Yeah, absolutely. We set the authorization at $35 million to start with. Obviously, with where the stock is trading, we are trading at less than 2.5x, 2027 consensus. I think if you look at where we think cash flow potential is for next year, we are trading at even less than that. We would love to own more of this company. We set up the authorization at $35 million initially. We will see how that goes. It is completely opportunistic, as Kyle mentioned, and the board can come back in the future and raise that or cancel it at any time. We wanted to kind of dip our toe in the water here to start with. We set it pretty low.

Speaker 2

It's about 5%-ish of current market cap, but we'd love to own more of this business, certainly with where the current consensus numbers are at less than 2.5x 2027, and we think 2027 should be north of where consensus currently is. Yeah, but you're right, we could buy a lot more.

Speaker 5

That's great. Congrats on the quarter and update.

Speaker 2

Perfect. Thanks, sir.

Operator

Thank you. Our next question or comment comes from the line of Jeff Grampp from Northland Capital Markets. Mr. Grampp, your line is now open.

Speaker 6

Hey, morning, guys. Was curious, Tyler, on the operated partnership front, given kind of the focus and shift here to free cash flow positive and the progress you've made with the partners you have, what's the appetite to add more partnerships?

Speaker 2

Yeah, that's a good question. We're always looking at when's the right time to add more. We could. It's something we discuss all the time. I think we'd like to see how 2027 goes. We'd like to get Arete Creek and their rigs stood up. We have a couple of other partners that we haven't discussed with you all yet, that are working on some things in the background that we think could start to layer in maybe late 2027 and 2028 and beyond. We're interested in seeing how those develop over the next, call it, six, nine months. There is some more in the background that we haven't talked with you all about. We talk a lot about the operated partnership platform.

Speaker 2

Most of our capital goes into that line of business, but we do have a lot going on in the Utica via our traditional non-op business. We really like the returns there. We've built a position over the past year and a half, two years of over 6,000 net acres. We've done it at a very attractive entry cost. That business itself right now is generating about 3,000 BOE a day net to us. We have over 100 gross wells online that we're participating in, and we're continuing to find a ton of opportunity there. We have the three or four partners that we've disclosed publicly. There's a few others that are working in the background, plus we have the Utica program up and running. There's a lot on the plate, and we're really excited about where it's headed.

Speaker 2

I think we're happy with where we're at now, and we'll see how 2027 goes.

Speaker 3

Yeah, I would add, Tyler, to that. The way this operated partnership business model works is we have 2027 and 2028 laid out, and we can start thinking about 2029, 2030, and 2031. So to your point, Jeff, we can always look into doing more work with existing operated partners as they grow and flourish, and we can look at bringing others into the fold. But we are thinking years down the road now because we have the near term set up for us.

Speaker 6

Great. Those are super helpful details. My other question is on the acquisitions you guys did in the quarter. It looked like the cost per location went up a bit sequentially. Is that just a function of higher commodity prices driving some increased cost, while still making sense from a hurdle rate perspective, or any other factors driving those specific locations to be a bit more expensive than the recent averages? Thanks.

Speaker 2

Yeah. No, that is a good question. And $2.5 million per net location is still extremely incredible in our view, and it just continues to build on our track record of what we have been doing the past couple years in that space. But specifically, to answer your question, we did 20 deals during the quarter, or closed 20 deals during the quarter. There was a higher I just mentioned how proud we are of the Utica program. There was a higher percentage this quarter of transactions that closed in the Utica. So those wells in the Utica are a 15,000, 20,000-foot average lateral, versus what we are buying in the Permian is normalized to a 10,000-foot lateral. So that is the difference. We are just getting more lateral feet. But on a per-foot basis, it has all been consistent in line with where we have been.

Speaker 6

All right, perfect. That makes a ton of sense. Thank you, guys.

Speaker 2

You bet.

Operator

Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your telephone keypad. I am showing no additional questions in the queue. Oh, we have a question or follow-up from Michael Scialla from Stephens. Your line is now open, sir.

Speaker 4

Yeah. You mentioned, Tyler, that you sold some DJ assets. Just wondering anything else that you could be potentially looking to divest?

Speaker 2

All of that is opportunistic, right? We are not looking to systematically dispose of any assets. But we do have a large non-operated footprint across six different basins, thousands of wells. From time to time, there are opportunities that come across our desk that make a lot of sense. I think Kyle will walk you through some of the multiples on why that made sense to us. But from my standpoint, we are always evaluating things in the non-op portfolio. Again, it is a huge footprint. From time to time, there are things that are interesting, but it is not a larger strategy of monetizing assets.

Speaker 3

Yeah, I would add that this was largely, I would say, a kind of a cleanup exercise. It was about 800 gross wells, so a good proportion of producing wells, a very small working interest. Highly gas-concentrated asset too. It made sense just from where we are taking the portfolio to shed those assets, and it worked out that we got a really good multiple of forward EBITDA at 3.8 times.

Speaker 4

Makes sense. I wanted to ask on your LOE, it came down a bit in the third quarter from second quarter on a per BOE basis. How are you thinking about op costs for 2027? Should we anticipate with the growth that it continues to come down, or just any color you can add there?

Speaker 3

Yeah. We still consider the dollar per BOE high. We are going to see aggregate costs going up just because we have production going up. We have increased guidance on LOE as a result. I think as we have, I guess, if you can think about, like, we had about 18 wells come online the first three quarters of this year, and we have got a number of them coming on in the fourth quarter and then growth into 2027. So I think as we drill more, that number is going to hopefully come off and be closer to where we are in guidance.

Speaker 4

Got it. On your leverage, it looks like it is going to come down naturally, I guess, with the EBITDA growth next year. Do you have any plans to try and reduce debt, or are you just kind of letting that leverage come down naturally?

Speaker 3

We are fortunate. It looks like with the trajectory of EBITDA leverage on a debt-to-EBITDA basis is going to come down pretty materially. I'd say we got free cash flow going into 2027. That's going to compete with everything else, but we do want to watch it closely and keep a pretty safe balance sheet.

Speaker 4

Sure. Makes sense. Thanks, guys.

Speaker 2

Thanks, sir.

Operator

Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your telephone keypad. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

Speaker 2

Nope. Thank you, operator. Thank you, everybody.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

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