Good morning, and welcome to Permian Resources conference call to discuss its fourth-quarter and full-year 2023 earnings. Today's call is being recorded. A replay of the call will be accessible until March 13, 2024, by dialing 877-674-7070 and entering the replay access code 855841 or by visiting the company's website at www.permianres.com At this time, I will now turn the call over to Hays Mabry, Permian Resources' Senior Director of Investor Relations, for some opening remarks. Please go ahead.

Thanks, John, and thank you all for joining us on the company's fourth-quarter and full-year 2023 earnings call. On the call today are Will Hickey and James Walter, our Chief Executive Officers; and Guy Oliphint, our Chief Financial Officer. Yesterday, February 27, we filed a Form 8-K with an earnings release reporting fourth-quarter results. We also posted an earnings presentation to our website that we will reference during today's call. I would like to note that many of the comments during this earnings call are forward-looking statements that involve risk and uncertainties that could affect our actual results and plans. Many of these risks are beyond our control and are discussed in more detail in the risk factors and the forward-looking statements sections of our filings with the SEC, including our Form 10-K, which is expected to be filed tomorrow afternoon. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results or developments may differ materially. We may also refer to non-GAAP financial measures that help facilitate comparisons across periods and with our peers. For any non-GAAP measure, we use a reconciliation to the nearest corresponding GAAP measure that can be found in our earnings release or presentation, which are both available on our website. With that, I will turn the call over to Will Hickey, Co-CEO.

Thanks, Hays. We're excited to share our fourth-quarter and full-year 2023 results, as Permian Resources was able to deliver another quarter of outperformance, closing out an incredible first year of operations under the PR name. I think that over the past five quarters, we've demonstrated just how good this Permian pure-play business is, operating efficiently on our core Delaware assets, executing on highly accretive deals, and continuing to demonstrate low-cost operatorship across the business, which all contribute to PR's industry-leading returns since inception. As we look to 2024, we expect to continue maximizing shareholder value, and I want to take a moment to walk through how we think about value creation here at PR. Our relentless focus is on creating value on a per-share basis, and our team has positioned us to deliver a 2024 plan that's expected to generate peer-leading production, cash flow, and free cash flow per share growth without increasing leverage. We're able to drive this outsized growth per share through PR's continued focus on being the lowest cost operator in the Delaware, our thoughtful capital allocation and development plan, and the highly accretive transactions we completed during the year. In the midst of closing the Earthstone acquisition on November 1, the Permian Resources team was still able to deliver an outstanding fourth quarter across all metrics. Q4 production outperformed, with total production of 285,000 barrels of oil equivalent per day and oil production of 137,000 barrels per day, exceeding both internal and external expectations. This production beat was attributable to three things. First and most significantly, we saw outperformance across the board between both PR and legacy Earthstone assets. Second, a reduction in downtime on legacy Earthstone assets led to higher-than-expected runtimes as the team realized operational synergies more quickly than planned. Third and finally, our…

Thanks, Will. Turning to slide 8, we're excited to discuss our 2024 development program, which is focused on maximizing returns and free cash flow per share through thoughtful capital allocation and efficient low-cost execution. Our plan is a result of a tremendous amount of work from every department at Permian Resources, and we want to thank our entire team for the work that went into this plan. Our goal is to focus on high-return developments in the Delaware Basin that allow the company to maximize returns while ensuring we minimize any future well or location degradation. Fortunately, our robust inventory allows us to drill similar zones, areas, and packages to what we drilled in 2023 and, as such, achieve similar well productivity. For the full year 2024, we expect total production to average between 300,000 and 325,000 BOE per day and oil production to average between 145,000 and 150,000 barrels of oil per day. We expect production to be in the lower half of the full range during the first half of 2024 and the upper half during the back half of the year. Our capital program consists of approximately $2 billion, of which 75% is allocated to drilling and completion operations. We expect to turn-in-line 250 wells this year. The balance is primarily investments in infrastructure that positions PR to continue to drive value in 2024 and years beyond. In terms of CapEx cadence, we expect CapEx to be slightly front-half weighted. Our drilling program is largely focused on our high-returning Delaware Basin asset, with a particular emphasis on the New Mexico portion of the Delaware, given the returns we're seeing from those assets today. The Midland Basin will not be a substantial part of our development plan in 2024. As Will mentioned, we expect our controllable cash cost…

[Operator Instructions]. Your first question comes from the line of Scott Hanold from RBC Capital Markets.

Yeah, thanks. Great quarter, guys, and good to see those synergies coming in faster than expected. And if we turn to page 6, where you kind of walk down the Earthstone cost to where they're at right now, could you give us a sense of -- as you look at the current cost and bring that down to the PR legacy costs, what are really the areas where that difference is going to be occurring and how fast can you do those? And so is it drilling efficiencies, casing? What gets you to the PR well costs and how quickly can you get there?

Yeah. Look, I think we've made -- frankly, we've gotten here way faster than I thought we would be. If you think about the five Earthstone rigs that we picked up, we've already swapped out three of them just three months post close. And we're able to get our casing design implemented effectively day one. We were in a fortunate position they didn't have a big backlog of casing that we had to chew through before we can start running our wellbore design and our casing. So that's how we were able to achieve dramatic cost reduction in just three months. And if you think what's on to come, it's the -- it's not the pricing power. We've already implemented all that. It's more to go build the last bit of efficiencies across all the Earthstone equipment. So we've got two more rigs we'll have to either get up to our standards or swap out over time. We'll have to continue to drive a few more efficiencies on the drilling and frac side, but we're more than halfway there to where we're trying to get to. And we've done that in just three months. So I'd say we're feeling really good about both the absolute quantum of dollars that we'll be able to cut from the Earthstone well costs and also the time to get there.

Understood. And as we think about the 2024 activity and budget, it looks like it's maintaining your current pace coming into the year. But with you all seeing better efficiencies and performance, you obviously pulled a few wells into 2023. Would that allow you guys to reduce the well count next year and the rig count? Or would you guys just produce at a higher level if your efficiencies continue through next year? So it's really a question on pace of next year. And if you keep going faster, will you just keep rolling through that?

Yeah, I think there's two [indiscernible] that I'll give. First, as we think about pace of activity, I'd say just as our business has gotten bigger and working interest moved around a little bit, we're much more focused on the total quantum of dollars that we want to reinvest. What is the capital dollar budget? I say that's how we're thinking about activity. I think as you follow this year, we've got 12 rigs running today. And you could see that number move up and down around 11 to 12 throughout the year, just as we're optimizing both the rig fleet as we continue to swap out and bring in better rigs, but also optimizing around larger , et cetera. So more of a focus on -- I think you'll see a relatively consistent capital profile around that total capital budget of $2 billion. And then, yeah, as you get to year end and you get to these weird things where, are we going to -- if we bring wells in the quarter, are we willing to spend more and what not? I'd say we'll take it on a case-by-case basis. But historically speaking, when our per-unit costs are the lowest they've ever been because efficiencies are the highest they've ever been and returns are very, very good, like they were in Q4 just two or three months ago that, we lean towards -- we'll go ahead and kind of bring the extra wells on at the value the business focused on the long term as opposed to doing some kind of cute things on a quarter-to-quarter basis.

Your next question comes from the line of Neal Dingmann from Truist.

Good morning, guys, and thanks for the time. My first question, just going right to well productivity, looking at slide 10. Specifically, Will, I'm just wondering. How repeatable is this production not only in Lea and Eddy Counties? But maybe you could go down into Texas. And then I'm just wondering, is -- you continued the plan throughout this year and maybe more into next year and '26. Should we assume more child wells or the same mix as you've always had?

No, I think it'll be very, very similar. I can speak very specifically to '24 to '25 because we've already got basically '25's scheduled all lined out. And it's a very, very similar well mix. Our development methodology really hasn't changed from 2022, 2021, 2023. Now, you're seeing it in '24, and I'd expect you'd see this again in '25 and '26. Just -- we are methodically marching across the position, joining the right-sized pads to make sure to minimize any future degradation. And you're seeing that flatten out the capital efficiency. So should be quiet, no story. No news is good news on the well productivity side for us for the years to come.

That's fantastic. And then, well, for you James, just on -- my second was just on your ground game yields. While you've done a great job, Earthstone and some larger deals which have been really notable, could you speak to the degree of upside that the bolt-on trades and grassroot efforts will continue to provide? It seems like that certainly was a big deal even here recently.

Yeah. We obviously put out that release in January that went through all the detail of the slide in the back here. But I think our ground game in the Delaware is awesome. We've got an incredible land team, an incredible business development team, that every day are out there, doing deals, looking to accretively add acreage in places a lot of people aren't looking. So really cool. Some stats -- I mean, I think you've seen this. But we did 145 acquisitions last year that added almost 17,000 net acres to our position. And I think that's just a little piece of the pea, our secret sauce, that drives value in a different way than I think a lot of our peers are. But it's something we think we can continue to do, I'd say, those small deals. The pipeline still feels really good for 2024 and 2025. And I think we're confident we continue to get the right deals done at the right prices.

Your next question comes from the line of Gabe Daoud from TD Cowen.

Thanks, guys. Thanks for taking my questions. I guess what I would like to hit on first is just -- you talked about the increasing pad size. And you obviously highlighted the target that you'll be going after in the Delaware. I was just wondering if you could, overall, refresh our memory on where the pad size or project size is going this year relative to last year and then just what the spacing looks like for this year?

In the Delaware?

Yeah. I mean, it ends up being a couple wells per pad bigger than where we were last year. But this isn't really a change in kind of spacing or anything from a development perspective. It's more just as we look at the footprint of the acreage we're drilling, we've got some wider fairways than maybe we had the year before, which calls for slightly larger pads. So it's factually correct. Our average pad size will be a couple of wells higher this year than it was last year, but I wouldn't view that as any bit of a change in the development philosophy. It's more just the acreage that we're drilling this year calls for slightly larger pads to keep with a consistent development methodology and really nothing more than that.

Okay. Got it. Understood. Thanks for that. And then I guess as a follow-up, could you maybe just talk a little bit about that 25% non-D&C capital, what kind of infrastructure projects? And is that a similar level of spend we should expect on infrastructure in '25 and beyond?

No. Look, really, what it is this year is it's a little bit of catch-up on the Earthstone side, just some stuff where we want to go build out some batteries and some stuff PR way. So there's a little bit of incremental catch-up cost this year with Earthstone and a little bit of -- some of the gathering side to make sure that we're continuing to have really, really good takeaway in New Mexico, like we've always had. But I think of it more as kind of one time in nature. And as you look forward, we're probably back to that, I don't know, 15% or something like that on a total percent of capital budget for infrastructure spend.

Your next question comes from the line of Zach Parham from JPMorgan.

Morning, guys. Thanks for taking my question. First, we've heard from some of your peers about some natural gas processing tightness in New Mexico that's been a headwind. Has this been an issue for you all at all? And maybe talk about how you've managed this issue and if you see anything impeding the '24 program as far as a processing standpoint.

Zach, I mean, we're in a really fortunate position that we've got the right long-term midstream partners in New Mexico -- we said in our calls in the past that fortunately, we're part of some of the biggest and best natural gas processors and transporters in the basin. That's both in New Mexico and Texas. And looking back historically, we've really never had any issues and don't foresee anything going forward. I think that's just being in the fortunate position to have the right partners in the right places, but we don't doesn't foresee any issues whatsoever on the midstream side.

Thanks. And my follow-up is just on cash taxes. You guided to $75 billion in cash taxes for 2024. Could you give us some color on how you expect cash taxes to trend in 2025 and in future years?

Yeah. I mean, we'll start getting closer to a normal-course cash taxpayer beginning in '25. We have some sensitivity in '24 oil price, obviously. But we have NOLs today, a meaningful portion of which, we're using. And we'll start turning to more cash taxes in '25 and beyond.

Your next question comes from the line of Oliver Huang from TPH.

Great quarter. And you all have obviously done a good job with integrating the Earthstone assets ahead of schedule. But I just wanted to see if you all might be able to provide some incremental detail to help us better understand the drivers of LOE moving sustainably lower for both Q4 and for the 2024 guide being so quick, just kind of looking at where the figure was just six months or so ago from the standalone Earthstone business.

Yeah. I think the big drivers of LOE, there's two or three things that we're working on. I'd say one, just to give there Earthstone team some credit, their LOE was improving quarter over quarter pre-close. I mean, it was -- I think we've applied some best practices and some things that have helped accelerate that and maybe have a slight step change from where it was headed. But that LOE was coming down on its own, so there's a little bit of tailwind there. I'd say secondly, just the overall production profile in Q4 and go forward helps. A bigger denominator, obviously, is going to help on the LOE side. And then probably, the more sticky stuff would be what we're doing on the water disposal side and how we're addressing failure rates and really optimizing artificial lift for the right well set. We've got the best practices at PR. We're not a blanket gas-lift company. We're not a blanket ESP company. We're not a blanket [indiscernible] company. It's really a -- we challenge every engineer over every area to -- it's build to suit. It's built with the right lift that the well needs, which will give better run times and lower LOE. And we've been really successful. You could go out to a PR pad across the Delaware. You may see a different lift type and two wells that are very close to each other in the same area because that's what they call for. And we're starting to see the benefits of that pretty quickly. So there's a lot more to come there. Look, I think that we can do some stuff on the water disposal side in a bigger way. We've had some quick wins, where we had good water contracts or good water disposal solutions or water recycling solutions in areas that Earthstone wells didn't have that time and was right us. But go forward, I'd expect we'll continue to tackle the LOE side on the -- really with the respect to water.

Okay. That's certainly helpful. And maybe for a follow-up. I mean, definitely good to see some of the drilling and completion efficiency improvements starting to be realized right off the bat for Earthstone. But just with understanding that there's still solid running room to converge those well costs towards the legacy PR business, just wanted to see how much of that future benefit has already been taken into account when looking at the D&C budget that you all laid out for this year.

It is taken into account. So I'd say from what we have line of sight on, expect to get all of it. Obviously, we're hopeful in doing everything to try to get more. But the budget does take into account the synergies that we have achieved to date and expect to achieve between now and year-end.

Your next question comes from the line of Leo Mariani from Roth MKM.

Hi, guys. You had very, very strong production here during fourth quarter. And I was hoping you could provide a little bit more detail. I mean, did you get some extra wells on? Were there some extra non-op benefit? Obviously. you just had very strong growth in both oil and in total volumes. And I guess my understanding was that you maybe had quite a fewer wells down the this quarter versus last, but perhaps I'm mistaken. So maybe you could just provide a little bit more color on the dynamic there.

Yeah. I mean, I tried to address some of it in the script, Leo. I'd say the biggest driver would just be well outperformance. The legacy Earthstone wells and the PR wells you brought online in the quarter just outperformed even our expectations. So that's going to be more than half of the volume beat for the quarter. The balance is going to be made up of -- we're able to make some material progress on downtime on the Earthstone assets in Q4, a step change in less downtime. So better runtime than what we had budgeted for and what we've seen historically, which really helps with Q4 production. And then lastly being we did bring some more wells in the quarter. I don't know the exact numbers. It was a couple of wells, so a couple of wells with some meaningful amount of producing days into the quarter that were expected to be in '24. And again, that's just going to be -- we didn't expect to start drilling 35% faster and fracking 20% faster on the Earthstone assets effectively day one, and we were. So that just brought some activity into the quarter.

Okay. That's helpful in terms of all that color. I mean, just looking at 2024, I think you guys had mentioned that CapEx is a little bit front-half weighted. You generally expect it to decline during the course of the year. And I'm guessing production is maybe a little bit of a mirror of that. Would you generally expect first quarter to be low on production and to build a bit throughout the year? Just any color you have around the cadence in 24 will be helpful.

Yeah, I think how you said it is right. CapEx is a little bit front-half weighted and production's a little bit back-half weighted, but it's not giant swings. I'd say it's pretty modest, but what you said was just right.

Your next question comes from the line of Doug Leggate from Bank of America.

Hey, good morning. This is John Abbott on for Doug Leggate. Thank you for taking our questions. My first question is just on your Midland position. Just, what is your current production on that position? And then just given the continued interest in Permian assets, what is your latest thoughts on what you do with that position and also the possible timeframe?

Yeah. So the Midland position's about 20,000 barrels of oil per day and about 60,000 BOE a day. And it's a great cash flow business. I think the Earthstone team and our PR team have that in a really good place, where we've got consistent low declines, low cost, et cetera. So we like having it. I think I'd say we're doing a couple of wells on that asset the first half of this year. And I'm pretty excited of what our team has done to date just on the cost side. I think there could be some meaningful cost reductions there that are a big boost to the value of that asset. But I think over the long term, we've been really clear we're a Delaware Basin-focused business, and that's where the majority of our capital, our time, and our energy are focused. So I don't think we're going to do anything strategic with the Midland Basin asset in the near term. But I think over time, as we better understand that asset, if there's ways to extract more value other than owning it, I'd say we're all ears. But I'd say that's probably down the road, most likely a 2025 type of thing if were to do anything at all.

Appreciate it. And then for our follow-up question, while it is not your focus necessarily, how do you think about long-term maintenance CapEx? I mean, do you look at the midpoint of your guidance of several million dollars or less than that? How do you think about long-term maintenance CapEx for your business?

Yeah, I think that's right. I mean, just given all of the integration and acquisitions over the last six months, it's hard to peg what production level you're calling maintenance. But I think if you're going to predict -- peg where we were in Q4 or where we'll be in Q1 and then maintenance CapEx to be exactly what you said, I think it's about $200 million less than the midpoint of guidance, something like that.

Your next question comes from the line of John Annis from Stifel.

Hey, good morning, guys. Congrats on the strong quarter. For my first question, digging further into your comments around on downtime, what was Earthstone's primary source of downtime and what were some of the specific practices in the field you've implemented to minimize it?

Look, there's two ways to attack downtime. One is lower failure rate. Just the easiest and most sticky, best thing to do is lower failure rate. And although I think that is in progress, that takes a little longer. And the second is when wells go down, you just get on quicker. Try to have turnaround time on a well that fails a day or measured in a day or measured in hours, not measured in a week or weeks. And well, it's a little bit of that. It's a little bit of what I said. There's some tailwinds on the Earthstone assets. The team have done a good job of starting to address some of these problems over the last six months. So we stepped in at a time where we were set up to succeed. And I think the people on the Earthstone team that have become part of the PR team were excited to do things the PR way and really jump head first into it. And so we think that the low-hanging fruit, things like that -- I think where we'll go get now is hopefully really start to improve run times, which is the best way to lower LOE and increase the runtime.

Terrific. For my follow-up, referencing slide 7 and where you stack up against peers in terms of cash costs, it's quite impressive, especially with the Delaware being a little heavier in water production. What's your sense of the biggest delta between you and other Delaware operators?

I think -- I mean, what helps us, if you compare to other operators in general -- one is we don't have a lot of old vertical wells. We've got relatively clean, new horizontal production, which really helps keep costs down. I think it's a great asset of ours. We don't have a lot of vertical wells that increase the cost structure. And we have great assets. If you think about where our assets sit within the Delaware Basin, although I think it's a fair statement that there's more water on average, we're in some of the oiliest places in the whole basin on an oil cut percentage. We're not at any places that have -- are very few [indiscernible] like high H2S treatment, not something like that. We are in the [indiscernible] core of the basin. I mean, look, this is what we do. We are a low-cost operator. We focus on controlling the things that we can control. We try to be the lowest on the D&C side, the lowest on the LOE side, and the lowest on the G&A side. And so I think that's what shows up here.

And I think the only thing I'd add to that is we have a real awesome culture in the field with an ownership mindset. I think we spend a lot of time answering questions on management ownership, management stock, et cetera. And I think that's what's honestly probably more impactful to that is that ownership mindset in the field, where our team is incredibly proud of what they do and work incredibly hard in the field to fix wells as soon as they go down and waste no time, waste no effort, and getting the right things to run the business the right way done. So I think it's that ownership mindset that we've talked about a lot , but really permeates through the entire Permian Resources organization that -- I don't think that gets enough credit.

Your next question comes from the line of Paul Diamond from Citi.

Thank you. Good morning. Thanks for taking my call. Just a quick one on valuation. You talked about the potential opportunity for you and similarly sized peers to re-rate versus the larger. Just wanted to get your -- get a bit more detail on what type of catalyst do you think or you anticipate to see to close that gap?

Yeah. I mean, I think for us, it's all about execution. I think the market has started to realize the quality of our business, looks a lot more like the other Permian pure plays than other large caps, albeit at a smaller scale. But I think over time, as we can continue to execute quarter in, quarter out and year in, year out, I think that that re-rating happens on its own. I think it's too obvious to miss. And the most important thing for us is to execute and continue to be the lowest cost operator at the Delaware.

Understood. Thank you. Just a quick follow-up. As you guys are thinking about the go-forward cadence on D&C improvement, you're already catching that 12%. You note some more is coming from the full integration of Earthstone. I guess I'm trying to get understanding of your guys' view on the quantum you can expect going forward, into late '24 and '25 and beyond.

I think it is [indiscernible] to think about. I think on the Earthstone assets specifically, we expect, over the coming months, those costs to converge with the legacy PR costs, where we don't really talk about legacy Earthstone or legacy PR anymore. It's just these are Permian Resources well cost by area, and that's well on its way and expect to be there in short order. And then what does that mean for absolute PR D&C cost? What we laid out is this $860 a foot is the guide for the year this year, and that's based on what we're seeing real time today. So we're not baking in further efficiencies or further deflation. I think there's -- we're hopeful we'll get a little bit of each of those over the coming years. But again, we've made a ton of progress recently. I think we more expected to see that kind of gradual decreases in costs, no more of the step changes seen in the last four quarters.

Your next question comes from the line of Phillips Johnston from Capital One.

Hey, guys. Thank you. First, just to follow up on Neal's question on well productivity. Slide 9, you show an expected 3% increase in your average productivity this year [indiscernible] from the Delaware. Is that mainly a function of the geographic mix shifts with 70% of your activity on towards Mexico versus the 40% last year or were there other factors driving that?

No, well mix should be the biggest factor there. You're spot on.

Okay. I assume that's all baked into your '24 guidance, right?

Yes.

Yeah? Okay. And then just last question, just the next 12 months PDP decline, that [indiscernible] assumed in your year-end 23 reserve report. And would you expect that decline rate to change significantly between now and the end of this year?

Sorry, what's the second part of your question? Can you just repeat that real quick?

Yeah, just -- I'm looking for just a PDP decline rate that [indiscernible] assumed in your reserve report? And then I said the follow-up, would you expect that decline rate to change significantly between now and the end of this year?

I can't say I've read what [indiscernible] reserve report says, but I can say what we say. It's low to mid-30s on a BOE decline. And then, do I expect it to change? Sure, yeah. Every year, it should -- especially years where we're not having the significant amount of growth like we had last year, you'll see that decline will slowly arrest. I don't assure it's going to be super significant, but yeah. That decline will continue to shallow out between now and year end.

Your next question comes from the line of Subash Chandra from Benchmark.

Yeah. Thanks, guys. The 150-ish type transactions, 17,000 acres are, I think, the metrics you threw out. What do you think the dollar per location map has worked out to?

We haven't -- we potentially haven't published that in a lot of these especially smaller transactions, I think there's probably some competitive dynamics that are important to keep tight to the vest and some -- frankly, some confidentiality there. But I would say the dollar per location is going to be in the pretty low single-digit millions, if that gets you in the right direction.

Yeah. Yeah, I guess directionally, that's cool. And then secondly, on the integration costs, are they all done at this point? Or should we see anything flow into '24?

Well, it's -- about 20 in the first half of the year.

Another $20 million?

Yeah, and then done.

Got it. Okay.

There are no further questions at this time. I will now hand the call back to James Walter for closing remarks.

In closing, I just want to say that we believe our Q4 '23 results and our 2024 go-forward plan speak for themselves and demonstrate just how good our Permian business is. As the lowest cost operator in the Delaware Basin, we believe that we are positioned to continue to generate significant returns for our shareholders as we build our track record of consistent low-cost execution, year in and year out. Thanks to everyone for joining the call today and following the Permian Resources story.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.