Granite Ridge Resources Q2 Earnings Call Highlights

Key Points

• Granite Ridge reported stronger second-quarter earnings, with production of 32,044 BOE per day, adjusted EBITDA of $79.6 million and net income of $30 million. The company remains in an investment phase, deploying capital toward production growth and inventory additions ahead of an anticipated free-cash-flow inflection in 2027.
• Management raised full-year lease operating expense guidance to $8.25–$9.25 per BOE due to Permian water-handling costs and newer-pad expenses, while weak Waha gas pricing pressured realizations. New pipeline capacity and improved basis hedges are expected to support gas sales in the second half of 2026.
• Granite Ridge’s 2027 framework targets a 10% free-cash-flow yield, high-single-digit production growth, 1.25x leverage and 1.25x dividend coverage at $65 oil. Separately, Grey Rock plans to distribute some Granite Ridge shares to its limited partners, potentially increasing public float and ending Granite Ridge’s controlled-company status.

Granite Ridge Resources NYSE: GRNT reported second-quarter production of 32,044 barrels of oil equivalent per day, with oil representing 51% of the production mix, as the company continued investing in development and inventory additions ahead of an expected free-cash-flow inflection in 2027.

President and Chief Executive Officer Tyler Farquharson said 2026 is expected to be the company’s final year of investing beyond free cash flow. He said capital deployed this year is intended to build a larger production base, improve margins and support sustainable free cash flow next year.

“The real story is not the quarter, it’s the trajectory,” Farquharson said. “We are getting closer to that inflection.”

Second-Quarter Financial Results

Chief Financial Officer Kyle Kettler said oil and natural gas sales totaled $149.3 million during the quarter. GAAP net income was $30 million, or $0.23 per diluted share, compared with $0.19 per share a year earlier. Adjusted net income was $11.1 million, or $0.09 per diluted share.

Adjusted EBITDA was $79.6 million, up from $75.4 million in the prior-year period. Cash flow from operations totaled $55.6 million, or $69.5 million before working-capital changes.

• Unhedged realized price: $51.19 per BOE
• Realized price including settled derivatives: $43.39 per BOE
• Lease operating expense: $30 million, or $10.27 per BOE
• Drilling and completions capital: $78.5 million
• Acquisition capital: $16.7 million

Granite Ridge ended the quarter with $44.1 million of cash, $125 million drawn on its revolving credit facility and $350 million of principal outstanding on its 8.875% senior unsecured notes. Net debt was $418 million, and Kettler said leverage stood at approximately 1.4 times.

Inventory Additions and Operated Partnerships

The company closed 27 transactions during the quarter, primarily in the Permian Basin and Utica region. Including future carry obligations, Granite Ridge committed about $28 million of capital and added 21.9 net undeveloped locations to its inventory.

Farquharson said the company’s operated-partnership model provides access to acreage and development opportunities sourced through partners’ leasing operations, local relationships and operator networks. The company seeks to provide capital while retaining influence over development timing and capital allocation, he said.

During the first half of 2026, Granite Ridge reviewed 363 opportunities, advanced 84 to underwriting and closed 44 transactions. Its operator partnerships accounted for about 78% of first-half deal capital, according to Farquharson.

The company ended the quarter with 175 gross wells, or 14 net wells, in process. Farquharson highlighted work by Admiral Permian Resources, Granite Ridge’s flagship operating partner, on a project involving nine long-lateral wells for a large Permian operator. The wells are required to be drilled, completed and producing by the end of 2026, he said.

Granite Ridge also continues to pursue traditional non-operated opportunities in the Utica. Farquharson said the company has accumulated nearly 6,000 net acres there over roughly 18 months and has more than 80 wells online in its portfolio with at least a year and a half of production data.

Costs, Natural Gas and 2026 Outlook

Lease operating expense increased from $9.57 per BOE in the first quarter to $10.27 per BOE in the second quarter. Kettler attributed the higher costs primarily to water handling in the Permian and elevated early-life expenses on newer pads.

Granite Ridge raised its full-year LOE guidance to a range of $8.25 to $9.25 per BOE. Kettler said the company expects unit costs to improve during the second half as recently completed wells contribute more volumes and fixed costs are spread over a larger production base.

Management also cited production shut-ins in high gas-oil-ratio and gas-oriented areas during a period of significantly weak Waha natural-gas pricing as a factor affecting per-unit costs. Kettler said a first-quarter write-off related to an MBC delinquency also affected LOE, but did not affect second-quarter results.

Natural gas realizations remained pressured by Waha basis differentials, with the company reporting a realized price of $1.12 per Mcf during the quarter. Gas sales totaled $9.6 million. However, management said new pipeline takeaway capacity has begun to improve Permian gas-market conditions.

Farquharson pointed to the Hugh Brinson Pipeline beginning gas movements during the middle of the year, with additional capacity expected to follow. Granite Ridge has hedged its gas basis through the first quarter of 2028, he said.

Kettler said that if basis holds near current levels, the company expects gas sales to exceed $30 million in the third quarter before hedge settlements, with a further improvement anticipated in the fourth quarter due to more favorable basis hedges and less hedged volume.

For 2026, Granite Ridge expects full-year production to remain within its guidance range but trend toward the lower end because of timing shifts. Production is expected to increase modestly in the third quarter and more significantly in the fourth quarter, with oil comprising about 52% of the mix by year-end. The company expects exit production to approach 40,000 BOE per day.

2027 Free-Cash-Flow Framework and Grey Rock Distribution

Farquharson said the company’s 2027 outlook is based on $65 per barrel oil and calls for a 10% free-cash-flow yield, dividend coverage of 1.25 times, leverage of roughly 1.25 times and high-single-digit production growth. Kettler added that hedge losses seen in 2026 are expected to diminish in 2027, while improved gas realizations could support revenue.

Management said it could reduce an estimated 40% to 50% of its development budget if oil prices were to remain below roughly $65 per barrel, while retaining the ability to accelerate activity if returns justify it. Farquharson said the company estimates maintenance capital at about $250 million and expects more than 75% of 2027 development spending to be directed to operated partnerships.

The company also said Grey Rock intends to distribute a portion of its Granite Ridge shares to its limited partners during the third quarter. If completed, the distribution would reduce Grey Rock’s ownership below 50%, ending Granite Ridge’s status as a controlled company.

Farquharson said the planned distribution could broaden the shareholder base, increase public float and improve trading liquidity. He said Grey Rock expects the distribution process to occur methodically over approximately six to nine months, though Granite Ridge said the decision and timing remain under Grey Rock’s control.

About Granite Ridge Resources (NYSE:GRNT)

Granite Ridge Resources, Inc operates as a non-operated oil and gas exploration and production company. It owns a portfolio of wells and acreage across the Permian and other unconventional basins in the United States. Granite Ridge Resources, Inc is based in Dallas, Texas.

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