Permian Resources Corporation 2026 Q2 Earnings Call

Thank you all for joining us. On the call today are Will Hickey and James Walter, our Co-Chief Executive Officers, and Guy Oliphint, our Chief Financial Officer. Many of the comments during this call are forward-looking statements that involve risk and uncertainties that could affect our actual results and are discussed in more detail in our filings with the SEC. We may also refer to non-GAAP financial measures. For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation. With that, I will turn the call over to Will Hickey, Co-CEO.

Thanks, Hays. Q2 is a standout quarter for Permian Resources. We delivered record free cash flow of $751 million, an increase of almost 50% quarter-over-quarter, and record free cash flow per share of $0.88. These results reflect our team's ability to respond quickly and decisively to a volatile commodity environment. Our activities this quarter are a reminder of the uniqueness of PR's business model. We can respond quickly to market conditions, we have a differentiated approach to sourcing and executing acquisitions, and we are relentlessly improving the capital efficiency of our business on a go-forward basis. All of these characteristics support the goal we are all aligned on, increasing free cash flow per share over the long term to create shareholder value. Turning to the quarter, oil production came in at approximately 198,000 barrels per day, up 3% quarter-over-quarter.

Slide four shows the key drivers that drove that oil production growth. When oil prices moved higher, our team in the field responded immediately. We increased the number of workover rigs by 50%, which improved runtimes and quickly accelerated incremental barrels. At the same time, our successful ground game drove working interest in completed wells to approximately 82% for the quarter, up materially from our original expectations of 75%. Combined with strong well performance, these actions generated 6,000 barrels per day of oil growth quarter-over-quarter for cash CapEx of $521 million. One thing I'd highlight is our continued success increasing working interest ahead of development. This has always been part of the PR playbook, but our BD and land team have executed at an exceptionally high level this year.

We view these acquisitions as some of the highest rate of return deals that we do, given that their near-term impact, as evidenced from our higher working interest, not only in Q2 but also for the remainder of the year. Incremental workovers and ground game transactions are exactly the types of investments we want to make in a volatile market. Both generate incremental oil production and cash flow almost immediately, allowing us to recycle capital quickly and de-risk returns through shorter payback periods. Turning to natural gas, our team demonstrated their relentless focus on maximizing free cash flow as they navigated a severely depressed Waha market during the quarter. As many of you are aware, Waha natural gas prices averaged negative $3.14 per Mcf during Q2 and traded as low as negative $9.52 per Mcf.

Rather than selling natural gas at negative prices, we proactively curtailed production on high GOR wells with Waha exposure, reducing natural gas production by approximately 20% quarter-over-quarter. The curtailments, combined with our firm transportation and hedging, allowed us to realize a natural gas price of $0.38 per Mcf for the quarter and an uplift of over $75 million of revenue on our natural gas sales. When Waha pricing improved in late June, we returned all previously curtailed wells to production without any operational issues. I want to give a big shout-out to the field team for putting in the hard work to make this possible during the quarter. On the D&C side, we offset inflationary pressures from rising diesel prices with continued operational efficiency gains through longer laterals, increased water recycling, deployment of water-based mud, and new wellbore designs.

We've also begun surfactant trials on completion and production operations. We're still early in evaluating surfactants, but we're encouraged by the initial results. Between continued operational efficiency gains and the potential to improve recoveries, there are a lot of ways for us to continue our path of increasing capital efficiency. As you can see from today's results, the quality of our assets, combined with our basin leading cost structure, has driven a step change improvement to our business over the last several years. As a result, we achieved record free cash flow in Q2 of $751 million. This is more than we generated in all of 2023, and we expect full-year 2026 free cash flow to be nearly double what we generated in 2024. With that, I'll turn it over to James.

Thanks, Will. Before we start talking about what's been a great start to our 2026 BD effort, we want to discuss how Permian Resources approaches acquisitions and how that fits with our value creation story. When we founded Colgate in 2015, we moved to Midland with exactly zero acres, zero production, and Will and I sharing a single 200 square foot office. Our goal at the beginning was to buy high quality assets, operate them efficiently, and underwrite them conservatively so their invested capital would generate real cash on cash, unlevered equity returns.

From those humble beginnings, we grew Colgate Energy from an idea to the business it is today, with over 500,000 net acres and over 200,000 barrels of oil per day. Our focus was never to build the large-scale business that Permian Resources is now, but rather to maximize the return of every dollar we invested in the business. How did we get here? Because we've honored the same strategy and philosophy in how we underwrite and how we operate, while working relentlessly to find deals that meet our very high underwriting standards and targeted full-cycle returns. We use it time and time again. Small deals add up, you create value for shareholders, and the business naturally gets bigger. With that, I'm excited to talk about what we've done in 2026 today.

Starting with the largest deal on slide eight, we closed on an acquisition of approximately 2,000 net acres and 5,000 BOE a day in Ward County for $520 million. This acreage directly offsets our existing asset base, is 100% held by production, and provides an extended runway of high return inventory. Shortly after we closed on the Ward County asset in July, we signed a trade agreement with an offset operator, utilizing a combination of the recently acquired bolt-on acreage, the legacy PR acreage, and some other acres that we had. This acreage helps address some of the challenges with the standalone Ward County acquisition, namely it being majority non-operated, low working interest, and somewhat scattered. The trade also increases the number of operated net locations from 50 to 120 while increasing the average lateral length by 20%.

We view this trade as a true win-win for PR and our counterparties, who is a valued industry partner, as it helps them to further core up their acreage position and increase their working interest in their own operated units. We expect the trade to close during Q3. Finally, the Parkway bolt-on project in Eddy County is a great example of how our proprietary data and Midland relationships create opportunities others simply do not see. Following the success of a delineation well we drilled in late 2025, we quietly assembled a contiguous position of approximately 15,000 net acres with two-mile lateral lengths and an 82.5% NRI. Our partner in this deal, Tascosa Energy Partners, actually brought this deal to us over drinks in Midland. We've been fortunate to know this team for a long time and bought a big deal from them a couple years back.

I think more importantly, this deal is a scaled example of the Midland-born deals that we do with our friends and partners on a regular basis, and that we think provides a real competitive advantage to Permian Resources. In total, year to date, we've acquired approximately 55,000 net acres in the core of the Delaware Basin for total consideration of approximately $1.05 billion, executed through roughly 190 separate transactions. These acquisitions added approximately 330 high-confidence, high-NRI locations that immediately compete for capital in our portfolio. Ultimately, we think the valuation metrics for the deals we have done so far this year speak to the strength of our approach. 13,000 per net acre, 8,000 per net royalty acre, and 2.5 million per net location. Slide 11 summarizes why we believe our acquisition strategy is truly differentiated.

Our focus has been on buying high-quality assets, pursuing accretive transactions where PR has a commercial, technical, or operational advantage. We continuously hunt for off-market deals and look for areas where we have distinct advantages or can create an edge that allows PR to underwrite higher full-cycle returns. The edge can come from our leading cost structure, proprietary service information, or simply access to a deal that isn't widely marketed. While this is not easy and requires a ton of work, we pride ourselves on being creative and not afraid of leaning into harder, less obvious deals. We are confident we will be able to continue this successful track record for years to come. Our financial discipline allows us to execute meaningful transactions like we have announced today while retaining a fortress balance sheet, with Q2 leverage of approximately 0.5 times and expected year-end leverage of approximately 0.5 times.

All this leads us to our updated and improved plan for 2026. As we mentioned in our prepared remarks, the success of our ground game has allowed us to significantly increase our working interest for full year 2026. This will allow us to meaningfully grow production while maintaining the same completion crews, rig count, and operating efficiencies we have achieved this year. Our updated production guidance of 199,000 barrels of oil a day for full year 2026 is 10% higher than 2025, while our CapEx midpoint of $1.95 billion is approximately 1% lower than the capital we spent last year. This all highlights the strides that our team is making to continue to improve the capital efficiency of our business and to grow free cash flow per share every year.