Granite Ridge Resources, Inc.

Good morning and welcome everyone to Granite Ridge Resources' fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question during the Q&A session, simply press star then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now turn the call over to Wes Harris, Investor Relations Representative for Granite Ridge.

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, President and Chief Executive Officer, who will provide an overview of key matters for the fourth quarter and full year 2022. We will then turn the call over to Tyler Parkinson, Chief Financial Officer, who will review our financial results. Luke will then return to discuss our future plans and outlook before we open up the call for questions. I would also note that we have posted an updated company presentation to our website. 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. Additional information on factors that could cause results to differ is available in the company's 10-K that was filed yesterday. We would ask that you review it and the cautionary statement in our earnings release. A replay and transcript will be made available on our website following today's call. Granite Ridge displays any intention or obligation to update or review or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not take unduly reliance on forward-looking statements. These and other risks are described in the SRA press release in our filings with the SETI team. 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. So with that, I will turn the call over to Luke Brandenburg, our President and Chief Executive Officer. Luke. Thank you, Wes, and good morning, everyone. Before I jump into our results, I'd like to say that we really do appreciate you joining us for today's call. We are a young public company with a lot of work to do to get our story out, but what a great story it is. 2023 marks our 10-year anniversary of pursuing a non-off strategy. We were one of the first groups to do so with institutional capital, specifically in areas like the Perennium and the Eagleford. So while we are new to the public, we have been creating value for private investors and non-op for years. Our business is built on a solid foundation. The opportunity set is there, and we have the right team on the field to execute. The future is bright for Granite Ridge. With that, we are pleased to report outstanding fourth quarter and four-year results for 2022. Our outperformance is a direct result of the hard work of our network of proven operators across the country and our dedicated team of professionals that I'm fortunate to work with. To all, I say thank you for your continued focus and dedication. Our 2022 fourth quarter was successful on many fronts, and we look forward to leveraging that success as we execute on our 2023 business plan. Highlights for the fourth quarter include A 45% year-over-year increase in net production to just under 22,000 barrels of oil equivalent per day, including 52% of oil. Revenue growth of 46% from the prior year period. And year-over-year growth in adjusted EBITDA and adjusted net income of 59%, 72% respectively. During the fourth quarter, our operating partners turned 88 wells to sales, which equated to 6.2 net wells for Granite Ridge. On a full-year basis, our operating partners turned 265 wells to sales, which equated to 20.8 net wells for Granite Ridge. The success we have seen in the development campaigns across our targeted portfolio of assets contributed to material full-year 2022 operational and financial outperformance, including A 22% increase in net production to just under 20,000 barrels of oil equivalent per day, including 51% oil. Revenue of $497 million, about 71% higher than the 2021. An adjusted EBITDA and adjusted net income growth of 74% and 118%, respectively. And a 2022 with a fortress balance sheet that included no debt and liquidity at $201 million, including $51 million in cash. Our continued success in 2022 was also reflected in our year-end SEC total approved reserves, which grew 16% over the prior year to 51 million barrels of oil equivalent, including a 50-50 balanced mix of oil and natural gas. This increase in reserves represents an all-in replacement ratio of 1.9 times our production for the year. Looking at the mix of our total approved reserves at year-end, 60% were approved developed producing, 1% were approved developed non-producing, and 39% were approved undeveloped. I would also note that the PD 10 of our total approved reserves using SEC prices grew 100% to $1.6 billion. The diversification of our asset can be clearly seen when sorting our total approved reserves by region. At year end 2022, 57% of our total approved reserves were located in the Permian, 16% were in the Eagleford, 10% were in the Hainesville, 10% were in the Bakken, and 7% were in the DJ. Now we'll turn to our outlook for 2023. The past handful of months have been a time of integration, and now we pivot to acceleration. We anticipate capital expenditures of $260 to $270 million during the year, and we expect to turn 18 to 20 net wealth to sales. That capex number includes drilling and completion dollars, as well as about $46 million in acquisitions and opportunity capture that has been spent or committed year-to-date. It does not include any dollars for uncommitted acquisitions or opportunity capture, but I will note that our team continues to pursue new growth opportunities. On the GMT cap extra, we expect roughly 60% to occur in the first half of the year, with roughly 60% of that coming in the second quarter. We expect full-year 2023 production, of 20,500 to 22,500 barrels of oil equivalent per day, including 50% oil. At the midpoint, that represents a 9% increase over a full year 2022 production, which we believe is a responsible level of growth. For the first quarter, we anticipate a slight production decline of around 5% from our fourth quarter numbers, as some flush production from 2022 rolls off and our 2023 net turn to sales are weighted towards the back half of the year. So with that, I will ask Tyler to discuss our financial results in more detail. Tyler? Thank you, Luke, and good morning, everyone. Echoing Luke's comments, we were very pleased with our financial results for the fourth quarter and full year of 2022 and look forward to our continued growth in 2023. During the fourth quarter, our average daily production was 22,031 barrels of oil equivalent per day, an increase of 45% and 17% compared to the fourth quarter of 2021 and sequentially over the last quarter, respectively. As a reminder, we report our production on a two-stream basis, rolling the revenue realized from natural gas liquid sales into our natural gas revenues. We realized the oil prices of $83.32 per barrel, or approximately 101% of the benchmark WGI average for the quarter, and natural gas prices of $4.97 per MCF, which was approximately 80% of the average Henry Hub price for the quarter. This was moderately lower than our realized natural gas pricing for the third quarter due to widening gas basis differentials, weaker NGL prices, and a larger percentage of gas production coming from the Hainesville. The overall result was oil and natural gas revenues of $116.3 million for the quarter, which was 46% higher than the fourth quarter of 2021. Turning to cost for the fourth quarter and our expectations for 2023. The operating expenses were $14.4 million, or $7.11 per VOE, For 2023, we are looking at LOE of $6.50 to $7.50 per BOE. Production and ad valorem taxes were $9.8 million, or $4.86 per BOE, or 8% of sales. For 2023, we expect them to be in the range of 7% to 8% of sales. And depletion and accretion expense was $21.7 million, or $10.68 per BOE. Our cash G&A expense for the fourth quarter was $6.5 million, or $3.19 per DOE. Our cash G&A for the fourth quarter included $2.1 million of non-recurring costs incurred in preparation of our Form S-1, filed in January 2023, and transaction-related expenses in connection with the formation of Granite Ridge in October 2022. Included in our G&A are costs directly attributable to Granite Ridge and a management fee from our master services agreement with Grayrock. As a reminder, the MSA is $10 million per year, or $2.5 million per quarter, and covers approximately 20 Grayrock employees that provide various services to Granite Ridge. We currently expect our full-year cash G&A for 2023 to be in the range of $20 to $22 million. We reported net income of $56.6 million, or $0.43 per share for the quarter. Adjusted net income was $50.7 million, or $0.38 per share, which was approximately 72% higher than adjusted net income of $29.5 million, or $0.22 per share for the fourth quarter of 2021. And finally, adjusted EBITDA was $83.2 million compared to $52.5 million for the same period in 2021. Contributing to the 58% year-over-year growth in adjusted EBITDA was a 45% increase in production and a 21% increase in realized oil prices that were partially offset by a 26% decrease in realized natural gas prices. Capital expenditures during the quarter totaled $91.7 million. Our well delivery accelerated during the quarter as we completed and placed on production 6.2 net wells, nearly 60% of which were in the Permian. This was a dramatic increase from the 3.2 net wells we turned to sales in the third quarter and contributed to our production gains versus prior periods. At year end, we had an additional 16.7 net wells in progress, of which we expect approximately one-third to be placed on production in the first half of 2023. As Luke already covered, we are guiding to 2023 capital expenditures of $260 to $270 million, including $46 million of opportunity capture that occurred through last week. We do not guide to additional opportunity capture beyond what has already occurred to date. We initiated our ongoing quarterly cash dividend, targeted at $60 million annually, or 11 cents per share, per quarter during the fourth quarter. Annualized at approximately 44 cents per share, this represents an approximate 9% dividend yield measured against the current price as of this past Friday, March 24th. In mid-December, our board approved a $50 million stock buyback plan to repurchase shares in the open market. During the last half of December, we repurchased a little over 25,000 shares, and we continue to repurchase shares during the first quarter as we view Granite Ridge as undervalued given our lower-risk, non-off business model, supported by a diversified asset base and production mix located in key prolific producing basins across the U.S. Finally, turning to the balance sheet, as of year-end, we had no borrowings under the revolving credit facility that we entered into this past October. With an availability of $150 million on the revolver, and cash of $51 million, we began this year with liquidity of $201 million. As such, we remain in a strong position to continue to execute on opportunities to strategically expand the business through acquisitions and other immediately accretive transactions that complement our current business and increase value for all shareholders. I will now hand it back to Luke for his closing comments. Luke? Thanks, Tyler. It has been a busy handful of months since we went public in late October, and market sentiment continues to evolve as it relates to the energy industry. During this period, I have been pleased to have a significant number of conversations with current and prospective shareholders about why we believe Granite Ridge is a differentiated investment vehicle for capitalizing on the significant benefits afforded by the upstream oil and gas sector. We believe Granite Ridge is uniquely positioned on multiple fronts. First and foremost, our non-op business model materially decreases risks for investors as we participate in a smaller portion of a larger number of wells as compared to operators and business. This provides the opportunity to materially diversify our asset position in premier basins across the U.S. The execution of that strategy has resulted in our current ownership interest in more than 2,350 wells across the Permian, Eagleford, Hainesville, Bakken, and DJ. Our business development efforts are focused on high-quality, near-term drilling inventory that drives more immediate value to our shareholders than long-dated inventory. Finally, our non-op business model allows us to carry less overhead as we partner with the best operators in each basin versus building an internal operations team. Our fortress balance sheet is also key for the company. We are committed to ensuring that we maintain a conservative leverage profile, which serves us well given the cyclical nature and inherent volatility of the oil and gas sector. As a non-op, we have the ability to elect to participate in development activity on a well-by-well basis, and we are not burdened by long-term contracts or drilling obligations common to operators. We also enjoy increased flexibility related to hedging offers. We continue to view Granite Ridge as unique, given the small number of publics that focus exclusively on non-operated properties. Granite Ridge provides the public investor exposure to core areas of production under the best operators, both public and private, through a vehicle with low leverage that is built for responsible, long-term growth. We will continue to partner with private operators, many of which have some of the country's best early inventory, particularly in the permanent. As such, We provide public investors access to first-class private operators that would have been previously inaccessible to traditional upstream investors. We are committed to the ongoing and long-term return of capital to our shareholders, and our business model is ideally suited to ensure our success in this regard. We have built a business that will comfortably provide $60 million in annual cash dividends to our shareholders, recognizing the volatility of the only gas sector. We've also implemented an opportunistic share repurchase program that we have and will continue to execute on as appropriate. Supporting our overall strategy is our focus on responsible growth in our areas of operation over time. We clearly recognize that the oil and gas industry is cyclical and that pricing of hydrocarbons is volatile. As such, we will continue to place emphasis on adding assets to our portfolio at a reasonable pace that supports our construct which is highly fixed and requires minimal overhead increases to support incremental production growth. I'm going to go a bit off script here to wrap up. Our stock performance year-to-date has been ugly. We are trading like a company with a little cash flow and a lot of debt when the opposite is true. We have a technical challenge from our 80% private equity overhang, but one day that will be behind us. And in the meantime, we look awfully cheap. at less than two times trailing 12 months adjusted EBITDA and approaching a 9% dividend yield. So with that, we are happy to answer any questions folks may have on today's call. Operator?

At this time, I'd like to remind everyone, in order to ask a question, simply press star 1 on your telephone keypad. Our first question will come from the line at Phillips-Johnston with Capital One. Please go ahead.