Good afternoon, and thank you all for joining us for this session. My name is William Schalmout with Three Part Advisors, and I have the pleasure of introducing Granite Ridge Resources, trading on the New York Stock Exchange under GRNT. And presenting today on behalf of the company is President and CEO, Luke Brandenberg. Luke?
Thank you. Thank you for having us, and thanks to everyone for joining. I guess they put us in the right after lunch lull, so if you need some coffee or anything to come in, just raise your hand. I bet we can get maybe Sage to go around and fill up some cups, but thanks for coming to hear about Granite Ridge, so Granite Ridge is a neat story. We're really a company that has a bit of an identity crisis, which is an odd way to start a presentation, but you think back on our history, so Granite Ridge was a private equity firm, basically. It was a consolidation of three private equity funds, and then we took that public.
So on one day, we were a private equity fund, and then the next day, we're an oil and gas company. And so we're still trying to figure out exactly what we are. So, I thought the best thing to do, maybe start by telling you what we do. What does Granite Ridge do? I'll jump into some details, but at the highest level, what we do at Granite Ridge is we have an asset base that generates cash flow.
So our job, day in and day out, is to source oil and gas investment opportunities, to evaluate those opportunities, and then to allocate capital to the deals with the best risk-adjusted returns. That's what we do. That's at our core, our business. If you look at our company, if you look at our team, we look like any other oil and gas company.
We've got oil and gas engineers, landmen, accountants. What we don't have, we don't have the operations folks. We don't have the folks in the field, because rather than drill wells ourselves, we choose to partner with folks that are experts in drilling in those particular areas. That way, we're able to keep our costs down, keep our overhead down, but maintain a broader opportunity set with folks that are really good and have a proven track record of what they do. So I'll jump into Granite Ridge at a glance, as the slide says. So, as I mentioned, we're a New York Stock Exchange-listed company.
This slide's a bit dated, just a few weeks old, but we're about a little over $6 a share now, roughly $6.50, so call it an $850-ish million market cap company, about a $1 billion enterprise value.
And we're doing about $300 million a year trailing on a cash flow basis. So that equates to trading a little bit over three times right now. And yield's important to us. We're really a hybrid growth and income story, and on the income side, we're currently yielding just under 7%. It's a fixed $0.44-cent a share dividend. Another thing that is kinda hard to find on the books, but we own shares in Vital Energy, own about 1 million shares of them, so another piece of the value. Going to the assets here. So what you see is a diversified oil and gas play. We've got assets across the country, okay? And the question is: Well, how do you do that? Are you not focused? You not have a focus here?
The neat thing about our business model is, you think about oil and gas, one of the skill sets that's challenging to transfer from one basin to the next is really the operational side, the details. How do I drill in this rock? How is this different from one basin to another? But one thing that is easier to transfer from one basin to the next is the ability to predict the productivity of a well. Okay, we don't actually have to know how to do the operations. Our job is sourcing and evaluating opportunities.
What we are is experts at finding, "Hey, what do I think a well in this area is going to produce?" As a result, what we really like to do is have a broad opportunity set, because I think a big thesis for us is, if you're an investor, which is what we are at the end of the day, the broader the opportunity set you have, I think the higher likelihood that you can find areas that may be underloved or where opportunities are missed that you can invest in. Diversification is a big piece of the story. I'll get into that in a second, but I wanna make a bit of a counterpoint to that.
If you were just a diversified investor, that's all you do, you invest across the U.S., well, you're going to generate returns that are in line, right? You're not likely to outperform if you're just simply allocating in a diversified way. So one of the things that we really like to do at Granite Ridge is have that diverse opportunity set that's very broad, but have the comfort to make more concentrated investments in areas that we have high conviction.
I say that now because that's a piece of the story that I'm gonna get into, because Granite Ridge is in a bit of a transformational stage. What we really did was we identified a void. We identified an area that was really underserved from a capital perspective, and we're jumping into it. We're allocating more capital there. So that's a teaser we'll get into a second.
But again, what is Granite Ridge at the highest level? We're the income stock that also has production growth. We like the balance of income and production. We're targeting about 7% growth year- over- year at the midpoint. That maintains a strong balance sheet. I'd say that's a core tenet of what we want to do. Don't blow this thing up. You know, don't be the cowboys in oil and gas. It all goes good, pedal to the metal, take on the debt, it's gonna pay for itself and get yourself in trouble. Our target leverage is less than half a turn. If you're gonna say... You're gonna see us stay disciplined there. And then finally, you know, why should you care about us?
We're trading at a discount to our peers, and I think that discount is only going to increase based on what we're doing on the production side, and so we hope to see a price impact that changes that. So again, diversification. We want this diversified opportunity set that allows us to allocate capital to the best deals. And so what you're going to see here is there's assets in a bunch of different basins. You're gonna see a lot of operator names. Okay, some of these folks you're gonna know. Everyone in the room knows ExxonMobil, and everyone knows probably the EOGs of the world, but then you might see some names that you don't necessarily recognize. Admiral Permian is one I like to point out that's in the Permian Basin.
Here's the thing: We like access to the larger operators, especially in inflationary times, 'cause the larger the operator is, the more likely they are to have a deeper supply chain, okay? So whenever you have an inflationary period, and the cost of pipe increases, well, Exxon probably has miles and miles and miles of pipe stacked up in fields in all the basins they're active in. But some of these smaller operators may not have that, okay? They're more susceptible to the impacts of inflation. But a line that I'm borrowing from someone else, but I like is, you know, shale, which frankly revolutionized U.S. oil and gas drilling, shale isn't brought to you by Exxon. Shale is brought to you by five guys in a rusty pickup truck.
It's the entrepreneurs, it's the independents that are out trying new things, that are pushing the boundaries, trying new technologies to try to find a better way to drive down cost and increase returns. And so we like the diversification from the big guys that can control cost to the small guys. Now, we're not an exploration company, so we're not the ones out there putting the first dollar in on the new technology. But what we are is a real fast follower. When something starts to work, whether it's a new area, a new completion design, a new zone, we like to watch it, and as soon as we get confidence that it's repeatable, we could scurry in there and start to put together a position. So we're fast followers with the smaller guys.
We're roughly 50/50 oil and gas right now, and that's not, that's not a science. That's more of an art. We're constantly allocating capital to deals that have the best returns. We were more oil-weighted, and then in 2022, price of gas ramped. Oil did as well, but, but gas really did, and so we were allocating more capital to gas. We saw our gas exposure increase. Gas has been challenged now the past several months, and so our gas exposure continues to decrease, and we get more oily. And the last thing I'd point out, again, diversification is key, broad opportunity set, is that about half our operators are private companies and half are public. And again, the point there is, we wanna have relationships across the board because we want opportunities across the board.
That's gonna give us the best chance of finding the deals where we can allocate, you know, outsized capital to earn better returns. I'm not gonna flip through every slide here, by the way. To be honest, this is a challenge that public companies face. Maybe some of you guys have ideas for it, but you have a slide deck, and you kinda make the slide deck for the guy that doesn't see the presentation, right? He just pulls it up on the website, he's interested. But sometimes it can be tough to talk through these slides, so forgive me for flipping through some. I think they're all important, but maybe not the key things I wanna cover if I only have about fifteen more minutes left to talk, 'cause I'm sure we got a bunch of great questions.
But the point is, we have been diversified, and we continue to allocate capital in a diversified way. The cool thing about oil and gas, to me, is every basin is really its own ecosystem, and frankly, hydrocarbon. Each hydrocarbon is its own ecosystem. And so sometimes a basin can be hot. Okay? It can be too hot. To me, that means too much capital is flowing in, and it's driving down returns. But another basin may be cool. Well, it may not be as exciting, but that doesn't mean I can't get good returns there. And so we're always able to invest capital across different hydrocarbons, across different basins, but it'll really change, and it'll change quickly based on the environment. Adaptability is simply key.
We don't come in at the beginning of the year and say, "Okay, we're gonna allocate half our capital and half to gas." That's not the case. This year, I'll bet 80+% of the capital that we've put to work has been in the Permian Basin, maybe more than that. And that's really because it's driven by the opportunity set. But I'll tell you what, if gas goes to $6 tomorrow, not predicting that, by the way, you'll see us allocate more capital to gas, and that could change pretty quickly. So again, I mentioned what is it that we do, and I wanted to start out with that because I think it's an important piece of the business is, what is it that we do day in and day out? And this is really representation.
We see over 600 deals a year, so you're talking about at least a deal a day, more, I guess, approaching two deals a day comes across the desk. Those deals generate that $300 million of cash flow, and our job is to allocate it to the best deals. Right now, that dividend we have is about $60 million bucks, so we're currently, we've been allocating about 20% of our cash flow to the dividend. I think that our Maintenance CapEx, or the capital necessary to keep production flat, probably $175 million-$200 million, and the rest is growth capital. We've been investing that in growth. So we believe that out of cash flow, we can pay the dividend and grow this thing mid to high single digits every year. So that's really the base business model.
So how do you win with Granite Ridge, right? There's really a few primary ways. Shareholder returns is a big one. That's the dividend. That's sacrosanct to us. We hedge, and we have low leverage such that we can maintain that dividend, even in a challenging price environment. Asset growth is the piece that I talked about. That's something that we're really allocating that excess capital to growth because the returns demand it. We're seeing opportunity sets that are compelling. For us, what does that mean? A good deal for us that we're willing to allocate capital to generates at least a 25% return on a project level, all right? So that's the entry cost and the drilling associated with it. That's our typical return hurdle. That's how we allocate capital. We do that, and we recycle those dollars over and over.
There's a couple big ways to win, though, that I wanna hit on. One thing that's a challenge of our company, frankly, is that we have a very tightly held shareholder base. So while we're a $900 million company, we trade like a $250 million company. Now, the good thing is, we have a lot of investors that really believe this thing is worth more than it is. But the challenging thing is, you know, we're trading about $3 million a day, and for a lot of the folks that, you know, may sit in New York and Boston, that's tough. If they're trying to run a $5 billion fund, it's tough for them to build a position that is material.
And so as a result, I think our share price is artificially depressed because a big part of the investor universe, can't buy the stock right now. It doesn't meet the criteria that they have in order to invest. We meet with a lot of folks in New York, and they'll say, "Listen, I buy what you're selling. In fact, I own you in my personal account." I don't know how many do or don't, but some of them say they do. And they say, "Look, if you get above $5 million a day, $10 million a day of trading volume, I'm gonna own your name." So I think that's an opportunity to win. But the biggest opportunity to win, how you make money, is our business model. And so let's talk about the business model a little bit.
You're gonna hear me talk about two things. You've got traditional non-op, and you have the strategic partnerships in what we call our controlled capital program. All right? So traditional non-op is going to get 10% under EOG in a good area, right? That's your traditional non-op game. Where can I be scrappy, go get some interest in what EOG is doing and make some money? Great business. That's how this thing was built. That'll continue to be a cornerstone of what we're doing. We love that business. One challenge about that business is, though, there's a lot of competition, and the competition has continued to increase. You know, the mineral space got pretty hot for a while, and it still is pretty hot, but so much so that it's harder to deploy capital in the mineral space.
So you've seen a lot of mineral buyers become non-op buyers. And so, as a result, the returns are being priced down. And so a big piece of us, again, as a capital allocator, is, well, if I'm not able to achieve the returns that I want here, what else can I do? What do I do with myself? And we found a really neat opportunity in these strategic partnerships, again, what we call controlled capital. And so the source of this, in a lot of ways, is oil and gas private equity. So if you think about oil and gas private equity, and that's my background, primarily the oil and gas private equity side, we call it private equity because it sounds less risky than venture capital, but primarily, it was oil and gas venture capital. You'd back a team.
It's the five guys in the pickup truck. They have no assets. You give them some money to go build a business. Well, that was a great business. Oil and gas private equity was the tip of the spear of new opportunities for a long time, and they had the capital to do it. The capital was there. I started a previous firm back in twenty ten. We invested in a $2.5 billion fund, then we raised a $3.5 billion, then a $5 billion, then a $6.5 billion, then a $7 billion. Incredible quantum of capital focused on the strategy, and then COVID happened, and primarily, what you had is a lot of the investors that used to support private equity firms are on the sidelines. Some may be gone forever, but a lot of them are just on the sidelines.
So that $7 billion fund may now be a $2 billion or $2.5 billion fund. And so what you are left with is some highly talented teams that had track records of execution, finding deals, and were willing to put a lot of their own capital at risk in a deal that were without a home. They didn't have a place to go. The private equity firms could not re-back them all because they had a lot less capital than they had before. And we said, "Oh, that's an opportunity for us." We're just a provider of capital to the space, and if these guys are finding opportunities that we're not able to source ourselves or we're not able to execute on ourselves, this could be neat.
So we started these strategic partnerships, and what it is at the core of it, in traditional non-op, again, the 10% under EOG in a good area, we underwrite the rock first. What do we think this well is going to produce? Second, what is this well gonna cost? And then third, what is the timing, right? When is this well going to get drilled? Because we don't necessarily control it. With controlled capital in these strategic partnerships, we partner with a group who's an expert in a certain area, that has a long track record of success, that's putting a lot of their own money in the deal. We've got a CEO for one of our companies. He's probably putting in $7 million-$10 million a year on what we're doing, real dollars.
We partner with him and said, "All right, this is the same underwriting. We're still doing the rock first. What's the well gonna produce? What do we think the well's gonna cost? But now we're the largest owner." So in some of these assets, we may own 60%-70% of the working interest, so we fully control the timing. We decide what gets drilled, we decide when it gets drilled. We decide if it makes sense to stop, or we decide if it makes sense to accelerate, add another rig on that asset. I think we really want to produce more hydrocarbons in this environment. So we're really pivoting the company to this more controlled strategy. And so if you look at 2024, just over, probably around 40% of our capital that we're spending is going into this control program.
Next year, I think that number is going to be, oh, closer to 50%. More and more capital. Now, the important thing about it is this is returns driven. We're allocating capital here because we think we're getting better returns. If that's not the case, we'll shift back more toward traditional non-op, but we really like this balance. So what you're looking at with Granite Ridge is a business that, over time, has more control, so we're more predictable, and we have more ability to adapt quickly to whatever the opportunity set and whatever the hydrocarbon or macro environments are. I think that's a neat thing. So we're in that transition phase. So really, the business model, it's exciting. Here's another challenge: We're weird. Nobody knows where to put us. What box are you in? Are you a, are you an operator?
No, you're not an operator, but you're not a non-op either. You're controlling the timing of this. We're in this kinda weird purgatory bucket, so we're having to make our own way. I think that impacts the stock price now, but I truly believe that if we're making more money, then that'll end up showing up in results and share price. One thing I want to hit on. Okay, we're an valuation shop, right? I said we're valuation experts. We're only. If we're an investor, we're only as good as our ability to underwrite deals. Are we any good? How can I prove to you that we're good at underwriting deals? What we did here is I challenged the team with that.
I said, "All right, I, I believe what we're doing is good, but can we put something together that demonstrates that?" This is just a data point. You can cut and slice anything, but we took just over a thousand wells that were not yet drilled. So we got a proposal, and we want to drill this well. And so our engineers worked it up and said, "Here's what we think the well's gonna produce." Well, out of these thousand wells, we were at 99% of the actual, so we were pretty darn close. That is a high degree of accuracy. I was honestly a bit surprised by that. And you've got a range of variability, right?
You're gonna be high, you're gonna be low, but we're very good at underwriting these things, and I think that's a critical component, is you as investors are underwrite someone who's investing in real assets with your capital. So why do we do this? Why are we shifting the controlled capital model? It's a few reasons. We like the additional control. We think that's a big benefit. We like the ability to make concentrated investments in areas that we have high conviction, and we also believe that it's going to result in better returns. And so, as we shift from being viewed as a non-op to being viewed as an operator, typically the operator peers trade at a premium to non-op. And so we're trying to get to that bucket.
We're really focused on how do we get that share price up while not putting the company at risk. So we've done a lot with the business. We're still a nascent company. We've only been around for less than two years, two years in October, but we've done a lot in that time. We went public. We had one group that covered us in research, now we have seven. You know, we had very few shareholders that filed, now we have, you know, I guess, what? Five times as many, which I think is an important metric to show that we are transitioning that shareholder base. Production is up, reserves are up, daily volume is continuing to increase, which I think is a big piece. As volume increases, I think we expand the buyer universe, which is great.
So we really continue to work hard to drive shareholder value, and the good thing is that we've got a lot of data points that we're making progress, but we're still new, and we still appreciate that. So we know that we need to earn the right to be heard. I was a Young Life leader for a long time, and that was one of the things that we always said is, "You have to earn the right to be heard." You gotta go to where the kids are, right? When you're a Young Life leader. Well, when you're a public company executive, you gotta go to where the investors are. You have to earn the right to be heard, so you gotta go see folks. And so, I'm sure glad that Three Part Advisors had us.
That was kind of them, and thank you guys all for sitting in here. The one thing I wanna tell you, and I'll end with this, then we'll maybe go to a little bit of Q&A, but we think we're undervalued, right? My joke is, that's probably the first time you've ever heard somebody, an executive tell you they think their stock's undervalued. But if I say that, right, it's easy to say, but what I'm doing is I'm saying that you're missing something. I'm saying that the street is missing something, the research analysts are missing something. And so what are they missing? What do I think these folks are missing if we're undervalued? Here's a big piece of it.
It comes down to leverage in a weird way, and you say, "Well, look, you just told me you're conservatively leveraged." We are conservatively leveraged. We're about half a turn, and we're gonna commit to stay conservatively leveraged. In oil and gas, just for reference, you know, we took this thing public and we had no debt, and we thought, "Great, we're gonna have no debt. The street's gonna reward us and say, 'Golly, guys, great job with your discipline.' You know, COVID just happened. We really love the financial discipline." And the street, generally speaking, just yawned. They said, "Look, we're focused on leverage. We're more focused than we ever have been before. Don't get over-levered, but if you're at a turn or lower, you're not really levered, right? That's not really a problem.
We're totally comfortable with that, given the cash flow profile of this business," and we said, "Well, great. Well, if we're not getting any credit for being unlevered, then we have this opportunity set, particularly as we're growing to this controlled capital program, let's take on some leverage and allocate it to drilling wells," so we've done that. So we're up to about half a turn of leverage now. We've taken on about $150 million of debt, but I don't think we're getting any credit for it. I mentioned this on my last earnings call, but if you look at what most of the equity analysts are putting out, and actually post that earnings call, you've seen a little bit of adjustment there, but we say we can grow mid to high single digits on a production basis out of cash flow.
All the research reports said just that: "We're gonna grow mid to high single digits in perpetuity." Which is great, they were listening, but they weren't accounting for the debt. They weren't accounting for the fact that we've taken on a conservative amount of leverage, and we're gonna stay conservative, to go drill additional oil wells and to ramp that. You know, $150 million, I mean, that's over 10 net wells that we're in the process of drilling, and I think the street has not really given us credit for that. You know, they're showing debt increase every quarter, that's what we've done, but they're not showing the production increase associated with that.
So what I said on the last earnings call is, "You know, next year is not gonna be mid to high single digits, it's gonna be double digits," and we're very optimistic about what next year looks like. I don't think that that's being priced into the stock at all, that this debt that we're spending, still maintaining a conservative level, is really going to have a production and cash flow impact that's gonna make this thing sing. The thing about, you know, picking up a rig, if you will, it's a long cycle time, right? You don't just pick up a rig on day one and immediately go cash flow positive, especially for us.
We spent a year building out an inventory such that we knew we could pick up a rig, keep it running, maintain the efficiencies and the cost benefits of keeping the rig going, not going up, down, up, down. And so we didn't start drilling. Our first well came online in early June. So we haven't seen the production impact yet from that debt that we're spending, and I think the street's really missing it. I think that we're gonna see that maybe not late this year. I think we'll start to see it, but I think really early next year, you start to see the benefit. So that's what the street's missing. They're missing the benefit as we transition the shareholder base, that you're gonna have more buyers.
I think that'll be constructive on the price, and they're missing the business model, both the higher rate of return to the controlled capital, but also the impact of this debt-fueled growth. Right now, you can only do that once, and we recognize that. Go from no debt to conservative debt. You can only do that once. But what we've built is a high-velocity cash flow recycling machine, and so our job, once we use that debt to drill wells, is to continue to recycle that capital into high rates of return opportunity. So that's Granite Ridge today. And I don't know, 25 minutes, I guess. And so really would love to double-click on anything that's helpful to you. I sure appreciate you all coming out. This has been neat. It's fun. We go to a decent amount of conferences.
Frankly, we'll go anywhere that'll have us, 'cause I wanna go to where the investors are. But we've seen a lot of folks here that can really buy the stock today, which is great, versus again, those, you know, $5 billion fund in New York. They're interested, which is great, because they think we will become something, but they can't buy right now. So, this has been a lot of fun. Glad to see some new faces and some familiar faces, and turn it over to questions. Yes, sir?
Do you hedge any?
Do we hedge any? Great question. So, yes, we do hedge. And so my perspective on hedging is that I want to make sure that I can pay the dividend and then not shrink. So basically, keep production flat for at least eighteen months in a challenging market environment. And so by keep production flat, I mean, just cover maintenance CapEx. We think that's about $175 million-$200 million right now, plus the dividend. So that's my goal with hedging. Why eighteen months? You know, it used to be that you could hedge oil out 2-3 years. And you still can, but you know, let's make a number, 7-8 years ago, if I was hedging, so if I'm selling oil in the future, my counterparty was Delta or Royal Caribbean Cruise Lines, right?
They were buying out that far in advance, but, you know, COVID was a big piece, but also regulations, has them not doing that as much. They're not buying out as much in the future. And so if I'm, you know, hedging out three years oil, my counterparty is probably a Citadel, which isn't a bad thing, but it just means that that's not an end user that thinks that's a fair price for that barrel of oil. That's somebody speculating on oil. So generally, in oil, we're only hedging for about eighteen months. On gas, we're hedging a lot longer. We're hedging through basically year-end 2026. I think we're pushing 75% of our current production. Because in gas, you, you do actually have more real counterparties that are hedging out further, electric companies, power companies, that sort of thing.
But that's the simple eighteen months: keep the dividend and not shrink the business. That's what we're striving to do, and the idea is tighten the band of outcomes, try to be more predictable, and continue to earn investor trust.
What's the history of the Vital Energy share and what's your plan?
Yeah, that's a good question. So we're generally not in the business of selling assets. We're in the business of growing. As a public company, it's actually kind of hard to sell assets because then you've got to, you know, adjust all your numbers for what would've happened if we didn't. But this was a deal where a lot of our, in a non-op business, we may have additional rights.
You can propose wells, or in this case, we had a partnership with a group called Henry Petroleum out of Midland, and Henry had built a big asset position. They were kind of a cool company. It was really all owned by the Henry family, and they built a huge business. But the way that they managed risk was they only wanted 50% of whatever they were drilling, so they'd go sell the other 50%.
We'd buy some of different things they were in. We had a tag right, which meant that whenever if they sold, we had the right to participate in the sale at the exact same valuation they had. They sold to Vital last year, and so we had the tag right to participate. Again, we're not typically sellers, but the valuation for our assets were very compelling. We thought that it was certainly far worth more to them than it was to us, and so we were happy to sell. Now, truth be told, the price was closer to $50 whenever we sold, and it's been struggling as of late. I feel for those guys. They're trying to grow the company as well, and it seems like they're doing a good job, but they're not getting a lot of love in the space.
You know, if you had asked me this three months ago, four months ago, when they were trading in the high forties, I probably would've tried to get out of it in a reasonable amount of time. Right now, we're not really... We're not selling them today, is what I'd tell you. And so we don't need that cash today. Maybe as we get tighter, then we'll look at selling it, but right now, we're kind of sitting and watching. Yes, sir?
What do you think you're gonna get by controlled capital versus non-op? What, what's spread around, what percentage are you gonna do better at?
Yeah, great question. So what percentage do we get better? What's the spread between, you know, traditional non-op and controlled capital? What I'd tell you is, we used to be able to get, you know, roughly 25% type rate of return in the traditional non-op business. And then you've seen more and more competition come in, and so we're losing more deals, which is okay. But generally, we're seeing those deals go for, you know, maybe we can get 20-25% type rate of return. So I'd say 20-25%. The controlled capital, we're looking for 25% or better, and so that's generally the spread, which is important to note because, look, we're taking more concentration risk with this controlled capital. We need to not only see better returns, but we have the benefit of control.
And so I think that's a good distinction. I appreciate you asking that.
When you get on the non-op, you get 20%-25%. What do you think the overall industry gets? You are trying to cherry-pick and get some good ones, but I just wanted to throw it in a deal.
Yeah. No, it's a good question. So I see this, repeat the question in front of me, so I'll repeat it. What do you think the industry is getting in typical deals? And I would say that the non-op space, at least just your traditional non-op, you know, we call it burgers and beer, 'cause a lot of this is, it's deals done over burgers and beer in Midland, right? You gotta go to where the deals are, too. That's a big piece of it. I would tell you that I think that it's probably around that 20% on a project basis, right? Your single well economics may be screamers. You can certainly drill a well that's a 100% rate of return, but I'm gonna have to pay more, a lot more for that opportunity.
I'd say it's roughly 20%, which is why we lose, I don't know, 90% of the deals that we bid on in that space, because we're staying disciplined, and we want that 25% rate of return. You know, look, some slip through the cracks, but the other thing is, you get two engineers, even two very good engineers, they're gonna have a different view on what it's gonna cost, of what productivity is. It's a blessing and a curse. You know, we have over 3,000 wellbores and largely in the Permian. So any well proposal that we see, we have a lot of real proximate data points. And this is important because, from just county to county, from unit to unit, I mean, a mile away. That well could get gathered by a different group.
Okay? And those gathering fees may be dramatically different. And so if you're underwriting a deal, and you're using that group's gathering fees because you don't have data on what this group's gathering fees are gonna be, that can either make you bid way too much or way too little. That's a great thing. We really like assets that are approximate to what we have. We have a good sense of that because you don't always have full information on the non-op side, but by having a lot of approximate wells, it really helps. Again, sometimes it makes us bid too little, but sometimes we'll bid a lot.
Sometimes we know maybe a contract had changed, and we've got that kind of inside baseball because of our existing ownership and assets. Yes, sir. Why- yes, sir.
Why do the non-op opportunities come up?
Why do they come up?
Yes. Great question, so if we think about the non-op opportunity set in general, I'd say on average, about 75% of a well is owned by the operator, and the other 25% is non-op. Okay, and that non-op can be one person, that can be 1,000 different people. 'Cause what it looks like is, if somebody wants to go drill a well, Exxon wants to go drill a well, they have to create a spacing unit, okay? So maybe that's 1,280 acres, and so say they're drilling underneath your neighborhood. Okay, well, they have to go to every single person in your neighborhood to get them to sign up for it, well, when I catch wind that Exxon's doing that, I may scurry in there, and I may try to get some of those neighbors as well.
And that way, that creates non-op, right? That's one way that you can do it. So I'm generally not buying from Exxon. In some cases, I am, like the Henry Petroleum example that I mentioned earlier. I was buying from the operator. That was part of the risk management strategy. A lot of the times, I'm just buying from somebody who owns a small interest in the well. Sometimes it's somebody that maybe had shallow vertical production, then there's this big horizontal well drilled underneath, and they say, "Wow, I just got a $10 million, you know, bill to go drill this well. I don't have that kind of money." How can we be a partner to help them participate in it, but help fund some of that as well? So there's a variety of different ways that comes up.
And again, that's what we call that burgers and beer, because that's the... You got to go to where the deals are and earn the right to be a part of that deal flow. We're based in Dallas, all right? So we often joke that if a Midland deal makes it to Dallas, you know you overpaid, 'cause there's no way. It probably wouldn't leave Midland, and it darn sure wouldn't get past Fort Worth, so you know you overpaid. You got to go to where they are. But that really is it. It's a lot of smaller deals. So our average deal on that size, if I had to guess, is probably about $3 million of entry cost, and then there's 3-4x out of drilling on the other side. But we'll range. We've done deals, certainly sub $1 million.
I think the biggest deal we've practically done on entry was a call it 30-35 million dollar deal. That was more of an acquisition we made during COVID. Wish I'd have bought more then. Yes, sir. Got a minute forty-five left. Come on, we don't have any big stump the chump questions over here? All right. If we don't have anything else, I'll say I really do appreciate everyone participating in this. It's one of our biggest challenges as a management team is how do we get in front of the right investors, and how do we find folks that buy the stock? Somebody once told me, you know, I shared some of the challenges. I want to be transparent. We've got to transition the shareholder base.
We've got a new business model that we're excited about, and all this creates volatility, right? It's gonna create volatility as that happens. I met with an investor down in Florida, and he told me, "Listen, Luke, you're one of these stocks, I'm gonna buy it, and I'm gonna stick it in a drawer. I'm not gonna look at it for two years. When I pull it back out, I'm gonna have a stack of dividends, and I think your stock's gonna be worth a lot more because you'll have solved that shareholder overhang, you'll transition, you'll have figured out this, you know, strategic partnership model. That'll start to sing.
If I look at it day to day, it may be a roller coaster ride, but if I can look at it over two years, I know I'm gonna make a lot of money here." He said, "Just don't over-leverage it. Do not put too, too much leverage on this business." And I said, "Yes, sir. I will not do that." That's something that we are very, very focused on, is not getting over our skis from a leverage perspective. But we really think that we're a bit of a unique company out there, that you have the strong yield piece, but that you also have the growth piece in oil and gas. And we think we got a neat mousetrap.
I know we've got the right team on the field to execute it, so we're really excited about what the next few years are gonna bring us. So thank you.