Granite Ridge Resources, Inc. (NYSE:GRNT) is a scaled, non-operated oil and gas exploration and production company that owns a diverse portfolio of wells and top-tier acreage across the Permian and four other prolific unconventional basins in the United States. Rather than drilling wells themselves, Granite Ridge increases asset diversity and decreases overhead by investing in a smaller piece of a larger number of high-graded wells drilled by proven public and private operators.
Business Overview
Granite Ridge was created in 2022 through the business combination of Executive Network Partnering Corporation and Grey Rock Energy Fund III. The company's strategy is to participate in the development of oil and natural gas properties as a non-operating partner, paying its pro rata share of expenses but avoiding the burden of long-term contracts and drilling obligations common to operators. This allows Granite Ridge to maintain a flexible, capital-efficient model while benefiting from the operational expertise and scale of its industry-leading partners.The company's asset base is diversified across the Permian, Eagle Ford, Bakken, Haynesville, and Denver-Julesburg (DJ) basins, providing exposure to some of the most prolific unconventional plays in North America. Granite Ridge's non-operated model allows it to participate in a large number of wells across its broad geographic footprint, mitigating concentration risk.
Financial Performance
For the full year 2023, Granite Ridge reported annual revenue of $394.1 million, net income of $81.1 million, and operating cash flow of $302.9 million. The company generated negative free cash flow of $56.3 million as it continued to invest in accretive acquisition and development opportunities.In the first quarter of 2024, Granite Ridge reported production of 23,800 Boe/d, up 3% compared to the prior year period. Oil production accounted for 45% of the total, with the company expecting oil mix to increase throughout the year as some natural gas-focused operators defer development. Adjusted EBITDA for Q1 2024 was $64.5 million, and adjusted EPS was $0.12 per diluted share.
Guidance and Outlook
For the full year 2024, Granite Ridge maintains production guidance of 23,250 to 25,250 Boe/d, representing 7% growth at the midpoint after adjusting for 2023 divestitures. The company expects capital expenditures of $265 million to $285 million, including $35 million for acquisitions.Granite Ridge is focused on expanding its "controlled capital" strategy, where it partners with operators to develop specific drilling units or areas. This allows the company to access operated inventory and have more control over development timing. Management expects controlled capital to account for over 40% of 2024 development and completion capex, with a goal of the majority of capital being controlled in the coming years.
The company recently increased its credit facility to a $300 million borrowing base and $300 million in aggregate elected commitments, providing ample liquidity to fund its growth plans. Granite Ridge targets net debt to EBITDA of 0.5x or less, and exited Q1 2024 with a leverage ratio of 0.4x.
Geographic and Operational Highlights
Granite Ridge's asset base is diversified across five major U.S. unconventional basins, providing exposure to a range of play types and development opportunities.In the Permian Basin, which accounted for 49% of Q1 2024 production, the company closed several bolt-on acquisitions during the quarter, adding 2.5 net locations for $6.8 million. Granite Ridge also has 40 gross (21.9 net) operated locations in the Permian that it plans to develop through strategic partnerships, with the first 5.5 net single-mile wells expected to be turned to sales in June 2024.
The Eagle Ford contributed 15% of Q1 2024 production, while the Bakken, Haynesville, and DJ Basin accounted for 15%, 6%, and 8%, respectively. Granite Ridge noted that some natural gas-focused operators in the Haynesville and dry gas Eagle Ford have elected to defer production in the current price environment, which may impact the company's gas volumes in the near-term.
Financial Position and Liquidity
Granite Ridge exited the first quarter of 2024 with $20.8 million in cash and $137.5 million in outstanding borrowings under its $300 million credit facility, providing $123.0 million in total liquidity. The company's leverage ratio was 0.4x net debt to trailing 12-month EBITDA, well below its 0.5x target.The recent expansion and syndication of Granite Ridge's credit facility, which now includes 14 banks, provides the company with significant financial flexibility to fund its growth plans. Management believes the facility can be tripled in size within the existing lender group.
Risks and Challenges
As a non-operator, Granite Ridge is highly dependent on the success of its third-party operating partners. If they are not successful in the development, exploitation, production and exploration activities relating to the company's leasehold interests, or are unable or unwilling to perform, Granite Ridge's financial condition and results of operations could be adversely affected.The company is also subject to commodity price risk, with its earnings and cash flows affected by fluctuations in oil and natural gas prices. While Granite Ridge utilizes derivative instruments to mitigate this risk, significant and prolonged price declines could still impact its financial performance.
Additionally, Granite Ridge faces risks related to its acquisition strategy, including the ability to identify and execute on attractive opportunities, accurately value acquired assets, and successfully integrate new properties into its portfolio.