Good morning and welcome everyone to Granite Ridge Resources first quarter 2023 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 this time, please press star one on your telephone keypad. I will now turn the call over to Wes Harris, investor relations representative for Granite Ridge.
Thank you, operator, good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Luke Brandenberger, President and Chief Executive Officer, who will provide an overview of key matters for the first quarter and our updated outlook for 2023. We will turn the call over to Tyler Farquharson, Chief Financial Officer, who will review our financial results. Luke will return to provide some closing comments before we open up the call for questions. 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. We would ask that you also review the cautionary statement in our earnings release.
Granite Ridge disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and our filings with the SEC. 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 call is being recorded. A replay and transcript will be made available on our website following today's call. With that, I'll turn the call over to Luke. Luke?
Thank you, Wes. Good morning, everyone. We appreciate you joining us for today's call. We're pleased with our results for the first quarter of 2023, which provide us with a solid start to the year. Our success during the period was driven by strong execution on our 2023 business plan as our team continues to work closely with our proven operating partners in multiple key basins across the country. Highlights for the first quarter include a 5% increase in net production from last quarter to approximately 23,200 barrels of oil equivalent per day, including 46% oil. Revenue of $91 million and net income of $37 million. Adjusted EBITDAX and adjusted net income of $71 million and $27 million, respectively, and liquidity of $136 million, including $11 million of cash at the end of the period.
Looking specifically at our production results, on our year-end 2022 earnings call, we discussed that we anticipated a slight production decline of around 5% from the fourth quarter. Driving this view was the expectation that some flush production from 2022 would roll off and that 2023 net turn to sales were weighted towards the back half of the year. Our actual first quarter 2023 production results ended up coming in about 10% higher than our projections due to outperformance on some of our newer gas wells and a handful of high-interest wells coming online late in the first quarter versus early in the second. In total, our operating partners turned 78 wells to sales during the first quarter. This equated to 5.9 net wells for Granite Ridge.
Of the 78 gross wells, 59% were in the Permian, 17% were in the DJ, 13% were in the Bakken, and 11% were in the Eagle Ford. During the first quarter, we spent $91 million on drilling and completion CapEx net to Granite Ridge, or said another way, excluding drilling carries. Tyler will provide additional details in his comments. I will say that D&C CapEx for the quarter came in quite a bit hotter than expected. As I mentioned, much of the delta was due to acceleration of wells scheduled to come online in the second quarter that actually came online in the first, which is great, other than when you're trying to model a company quarterly, that is. The remainder of spending during the quarter included $17 million of opportunity capture.
As a reminder, opportunity capture is basically anything that grows our undeveloped inventory. Think acquisitions of undeveloped acreage, leasing, drilling carries, and most of the deals that we target through strategic partnerships. Of that $17 million, 89% was in the Delaware, 70% of the capital in the Delaware was through a strategic partnership. We also closed on an $18 million DJ PDP package. While we are not typically focused on oil-weighted PDP deals in this price environment, this is a transaction that we have been working on since last March that took a while to get to the finish line. Turning to our outlook for full year 2023. In our continued effort to provide more and better information, we are bifurcating our guidance between opportunity capture/PDP acquisitions and D&C CapEx.
On the D&C CapEx side, we are increasing guidance by $25 million at the midpoint to a range from $230 million-$260 million. About half of that increase is new D&C generated by our burgers and beer game. I would note that we do not anticipate seeing material production from most of the new CapEx until 2024. The other half is a combination of cost inflation from wells that were AFE'd in early to mid 2022 and unforecasted activity. On the inflation side, we believe that we've realized most of that hit in the first quarter. It seems that wells AFE'd in late 2022 and after are coming in around AFE.
Finally, we increased our guided net wells by one to a range of 19-21. Our view of $45 million for opportunity capture and PDP acquisitions remains unchanged. That includes the $18 million DJ deal and $17 million of opportunity capture year to date, plus roughly $10 million that we have committed but not yet spent. Our full year capital spending outlook does not include any dollars for uncommitted acquisitions or opportunity capture, though I note our team continues to pursue new growth opportunities daily.
As a result of the stronger than anticipated PDP performance we have seen to date in the Permian and Haynesville, and wells coming online sooner than expected during the first quarter, we're increasing our full year 2023 production outlook by 500 barrels equivalent per day to a range of 21,000-23,000 barrels of oil equivalent per day, including 49% oil. With that, I'll turn it over to Tyler to discuss our financial results in more detail. Tyler.
Thanks, Luke. Good morning, everyone. As Luke discussed, we were pleased to begin 2023 with a solid first quarter and look forward to continued success for the remainder of the year. During the first quarter, our average daily production was 23,167 BOE per day, an increase of 46% compared to the first quarter of 2022, and 5% from the fourth quarter, respectively. Production results for the quarter were higher than our internal estimates due to stronger than expected results from PDP wells in the Haynesville and the acceleration of an additional 1.56 net wells that were placed online in the Permian.
We realized oil prices of $76.14 per barrel and natural gas prices of $2.65 per Mcf, which was approximately 96% of the average Henry Hub price for the quarter. Our lower natural gas price realizations for the period were a result of a higher proportion of our natural gas production coming from the Haynesville. The overall result was oil and gas revenues of $91.3 million for the quarter. This was 3% lower than the first quarter of 2022, as a substantial year-over-year production increase was more than offset by lower commodity pricing. Looking at costs for the first quarter and our expectations for 2023. Lease operating expenses were $13.8 million or $6.61 per BOE.
For 2023, we continue to expect LOE to be in the range of $6.50-$7.50 per BOE. Production and ad valorem taxes were $5.7 million or $2.74 per BOE and 6% of sales. Our view for 2023 remains unchanged at 7%-8% of sales. Our G&A expense for the first quarter was $8.6 million or $4.11 per BOE. Included in our G&A expense was $1.1 million in non-cash stock-based compensation and $1.4 million in non-recurring transaction related costs. We continue to expect our full year cash G&A for 2023 to be in the range of $20 million-$22 million. We reported net income of $37.9 million or $0.29 per share for the quarter.
Adjusted net income was $28.4 million or $0.21 per share. Adjusted EBITDAX was $71.8 million compared to $69.7 million for the same period in 2022. Total capital spending during the quarter was $126.2 million, consisting of $98.6 million of development costs and $27.6 million of acquisitions. As Luke discussed, our development costs for the quarter were approximately $40 million higher than we expected. Nearly 75% of this variance was due to the acceleration of projects originally scheduled to turn to sales later in 2023, an additional unforecasted activity from AFEs we received during the period. We also observed an approximate 10% cost overrun on certain projects that recently turned to sales.
A majority of those projects were AFEd in mid-2022 prior to service cost inflations most operators experienced in the second half of 2022. We are now guiding to 2023 capital expenditures of $275 million-$305 million, including $45 million of acquisitions and opportunity capture. Our well delivery continued to progress steadily during the quarter as we completed and placed on production 5.9 net wells in multiple key basins across the country with a primary focus on the Permian. We also continued our ongoing cash quarterly dividend program by declaring a $0.11 per share dividend during the quarter. Annualized at approximately $0.44 per share, this represents an approximate 7.9% dividend yield measured against Wednesday's closing price.
In mid-December, our board approved a $50 million stock buyback plan to repurchase shares in the open market. During the first quarter, we repurchased 273,000 shares. We will continue to strategically repurchase shares in the open market as appropriate. Finally, we ended the quarter with $25 million drawn on our revolving credit facility. With availability of $125 million and cash of $10.9 million, our ending liquidity was $135.9 million. I will now hand it back to Luke for his closing comments. Luke.
Thanks, Tyler. Granite Ridge is unique. On one hand, we're an oil and gas company, and that we own oil and gas assets. On the other hand, our job is not to operate those assets, but rather to reinvest the cash flows they generate into projects with the best risk-adjusted returns. In that sense, we're more of an investment firm, but with daily liquidity and greater investor alignment. Our objective is to tighten the band of outcomes in oil and gas investing and to generate asymmetric upside through high diversification, low leverage, and disciplined investment underwriting. Why should you care about us? I could talk all morning about the virtues of our near zero leverage, low cost, non-op model, and how our diversification across hydrocarbon type, basin, operator generates a more attractive risk-adjusted return profile.
How taking a smaller piece of a larger number of wells makes it easier for us to replace inventory than most operators. I could talk about how we provide public investors access to private operators that control some of the best inventory, particularly in the Permian. The real reason to care about Granite Ridge is that we are cheap on just about any metric you can throw at us. As I mentioned on the last call, we trade like a company with a little cash flow and a lot of debt, when the opposite is true. We're a fundamentally strong business that I believe would trade a lot higher were it not for our technical challenges of private equity overhang and limited trading volume. We will solve this.
There may be some volatility along the way. Anyone willing to take a bet on us today will be rewarded with a roughly 8% dividend. I believe real multiple expansion as we solve both our technical challenges and continue to build on our solid foundation. In closing, we appreciate the continued support of our shareholders. We look forward to keeping everyone apprised of our progress. With that, we're happy to answer any questions folks may have on today's call. Operator?
Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. Your first question comes from the line of Phillips Johnston with Capital One. Please go ahead.
Hey, guys. Thank you. First question, I guess, is on CapEx. As you've mentioned, it came in a little bit higher than you expected, mainly because some wells got pulled into Q1 from Q2. Spent more than 40% of the budget, I think, in Q1. How confident are you that CapEx should moderate in the remaining three quarters of the year? What's driving that decrease?
Yeah. Hey, Phillips. It's Tyler. You know, we did have some acceleration into the first quarter of activity that we thought would occur in the second quarter. As you'll recall, most of our projects are scheduled to turn to sales in the third quarter of this year. Really, that's where leading up to that is where the bulk of our capital will be spent. I think what you'll see is we've had some more capital than expected in the first quarter, but that was really just a shift from the second quarter. By the time we get through in leading up to the third quarter, I think you'll start to see our CapEx moderate.
In terms of the cadence by quarter, it's not going to be sort of a ratable kind of $55 million per quarter. It's a little bit higher than that in Q2, the back half of the year should be a little bit lower.
Yeah.
Is that right?
Exactly.
Okay.
We still expect pretty high level of spend in the second quarter and then it should moderate.
Yeah. Okay. That makes sense. Then just, I guess, on the rationale for the slightly higher well count and CapEx budget for the year, I recognize obviously Q1 was a heavy CapEx quarter, but you know, you did tap into your cash balance and the revolver in order to fund the fixed dividend. At current strip prices, I don't think that's gonna be necessary for the rest of the year, even with the higher CapEx budget. If prices continue to weaken, would you guys plan to continue to fund the dividend by drawing down on the revolver, or would you look to cut activity in order to sort of prevent that from happening?
Yeah, Phillips, this is Luke. Thanks for the question. We would plan to stick with that dividend. We like the fixed dividend. We think that's an important piece of the business model and an important piece of the story. The plan would to keep the dividend fixed, and as we see production coming on from a lot of these wells, you're paying down your debt balance from there later on in the year.
Yeah. Okay. Thanks, guys.
Thank you.
Your next question comes from the line of Jeff Grampp with Alliance Global Partners. Please go ahead.
Morning, Luke Brandenberger and Tyler Farquharson. Thanks for the time. Was curious to dig in on this DJ PDP package that you guys closed on? I guess for one, since it sounds like it had been in the works for a while, can you confirm whether or not that was included in the original guide and therefore, that's kind of apples to apples as it relates to that specific asset? Then maybe, you know, curious, you know, given that you guys are not traditionally PDP buyers, what maybe was interesting enough about this package to get you guys moving forward with that? Thanks.
Yeah, you got it. Thanks again for the call and the question, Jeff. Yes, that was one that we had talked about in the fourth quarter call as well. You know, we started talking to this group in March of 2022, which is a long conversation. Ultimately, they were a motivated seller. They weren't in a bind necessarily, but it was their only asset in the area. And really we were the most logical buyer, so it was a long, slow dance that got to the finish line. From a value perspective, it made a lot of sense. I'd say that we underwrote that at pricing that was around or maybe even a little bit more attractive in terms of the lower price than now.
That's a deal that we like, but it's not something we spend a lot of time on. I wouldn't anticipate seeing a lot of PDP acquisitions going forward on the oil side. On the gas side, that could be interesting, but haven't seen a lot of folks willing to sell at $2 gas quite yet. We are sniffing around in that market but have not seen a gap between buyers and sellers narrow just quite yet.
Got it. That's helpful. Thank you. As it relates to the CapEx guidance again, since the opportunity capture component basically was reiterated, is it fair to conclude that this is really more of an acceleration, if you will, within the existing asset base relative to original expectations? I think Tyler Farquharson also mentioned maybe there was a little bit of cost overruns as well. I don't know if that's that easy to bifurcate kind of well cost change assumptions versus an acceleration, but just hoping to get a little bit more clarity on kind of the original guide versus the update.
Yeah, you got it. A couple things. There was some cost increase on the D&C side, but on the opportunity capture... One thing to note about that, you know, we guide towards deals that are closed and then also deals we've committed to. Sometimes some of those deals include a wellbore carry as part of the consideration. A funny thing is that 45 is really flat quarter-over-quarter in terms of what we're guiding to. The components of that 45 are not necessarily the same. One thing that we saw is some wells that we had a carried interest associated with, so we were going to pay a carry as part of those. Some of those wells were pushed until 2024, so they went out of the guidance.
We had some new deals that were generated from our burgers-and-beer game, that will be drilled in, call it, late third, early fourth quarter and likely come online in 2024. The components of that, again, continue to move around. It is consistent, but it is different deals. I'm not sure if that exactly gets to your question or not.
Got it. No, that's helpful. I think it's there's kind of a subset within that opportunity capture that can be a little bit fluid given that you guys are talking about deals that haven't yet closed. So that's... I understand that. Okay. If I can just sneak one more in on the burgers and beer side of things. When we're thinking about that opportunity set, is that primarily, kind of on the AFE side of things where you're exposed to, say, a single well? Or are you guys acquiring, say, minority interest within an entire DSU and therefore also acquiring future development opportunities or is it kind of both? I guess just kind of curious if you can compare and contrast those two opportunity sets.
Certainly. There is some that I would say is the wellbore only, but not much. Now in terms of deal flow that we see, a lot of it is wellbore only. In terms of deals that we are interested in allocate capital to, that's pretty low. If I look at the opportunity capture side for this quarter, for example, the vast majority of that was really acreage and deals related to one of our strategic partnerships. There we will own, you know, everything, all the inventory in the project. We certainly prefer those. Wellbore only, you've got a lot higher, you know, allocation to a single well. You don't have the upside, so there's less bailout.
On the flip side, though, some of those wellbore only deals, they're often with larger operators, who have a lot larger supply chains and are very consistent in terms of their drilling and completion costs. It's kind of a balance. You know, when you're working with smaller deals, more concentrated bets, you're generally expecting a higher rate of return, but you may have more variability there. It's a balancing act. Again, the short answer is our focus is on opportunities where, you know, we like the single well economics, but we're also getting upside in terms of additional zones with it. That's more leasing than just wellbore only.
Okay. Understood. Thanks for the time, guys.
Thank you.
Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. Your next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.
Thanks. Good morning. Luke, a question on the strategic partnership opportunity. Can you talk about how long it takes to mature these relationships? Are there certain companies where you would divide assets between a non-operated piece and an operated piece?
Yeah, good question. I'd say the strategic partnership, just concept, those really are relationship deals. Those are, you know, to say something was a year-long relationship would be short on that side. These are folks that, you know, we've known for a long time and really built a relationship and a trust with. You know, those deals are pretty unique because from our perspective, you know, we have a non-op interest, but because of our partnership and our higher working interest in those, we have a bit more control over the timing. It's kind of a bridge between op and non-op, which is something that we like. It helps to, you know, frankly, remove or largely mitigate one of the largest risk factors with investing in mineral or non-op deals, which is not controlling the drill bit.
These are relationships that take a long time to develop. There has to be a large trust there. Whenever you build something like that, it's something we're really excited about. You know, the deals with one of our partners in Delaware in particular, it's just really neat to see from a deal flow perspective, you know, they are, they're very aggressive, and just to build deep relationships over time. Some of the projects that they generate and bring to us to partner with them on are very short fuse. You know, you got to put a rig on there in three months. Some are much longer date, where it's an opportunity that you may have a development plan that lasts two years or three years.
The, the types of opportunities vary a lot in scale, but I think the primary takeaway is for us and why we like it, we just have a lot more insight into timing, and it really is a partnership. It's, I think something that helps to bridge that gap between op and non-op and really helps us to be better underwriters and just be sharper whenever we're looking at some of these deals.
On the timing issue, Luke, do you have a general rule of thumb or at least a goal of how quickly opportunities might go from undeveloped to actually getting drilled, when you invest capital in these types of deals?
Yeah. In the broader strategic partnership bucket, most of those deals we plan to spud within, you know, six-12 months at least on an initial tranche. Now some of those. Again, one of the benefits of being a larger interest, we have more control over the timing. You may drill an initial tranche in the primary zones up front, and then you may plan to come back a year or so later to come drill secondary zones. We are focused on deals that will quickly turn inventory to cash flow. I think that's a big piece of just our model. We're not really focused on long-dated inventory, certainly not looking to pay for long-dated inventory.
We are really focused on inventory that we think will be turned to cash flow within two-three years, but we want our, you know, primary, dollars, that first tranche to turn to cash flow within a year.
Last question: Have the recent declines in oil and natural gas prices increased the deal flow as the people that may own non-operated pieces just don't want to participate and would rather spend their money on operated assets or something else?
Yeah, it's a good question. One place that it certainly increased the deal flow is the Haynesville. You have a lot of operators who were non-op, you know, to other operators. When they received well proposals in the fourth quarter last year, they all elected in. Gas prices looked good. They were excited to participate. Now we've had a pretty material decline in gas prices, a lot of operators, you know, have non-op and other assets are looking to offload some of that. I've seen a material increase in Haynesville kind of well bore deals. That's not a market where we're very competitive, particularly given the fact that they're looking to unload it because the economics aren't near as attractive as they were. We have seen an increase in deal flow there.
I don't know that it's really driven an increase in deal flow in, frankly, many of the other basins. I think the deal flow there continues to be strong. You know, from our perspective, we see basically a new deal a day that comes through the shop. The way that we look at our deal flow, we see a new deal a day. We bid on about a deal a week, and we win a deal every three weeks. That's been relatively consistent.
Great. Thank you for taking my questions.
You got it, Jeff.
There are no further questions at this time. I will turn the call back to Luke Brandenberger, CEO.
All right. Well, I just wanna thank everybody for participating in the call. We're still a nascent public company, and it means a lot to have your interest, to have your support. We are always available to answer any questions, and we will continue our effort to provide more and better information. Thanks everyone. Look forward to talking to you and seeing many of you soon.
This concludes today's conference call. You may now.