All right, we'll go ahead and get started. So good afternoon, everyone, and thank you for joining us today for the September Sidoti Conference. My name is Kyle May. I'm one of the analysts at Sidoti & Company. The next presentation will be Granite Ridge Resources. The ticker is GRNT, and we're pleased to have Michael Ott, Vice President of Corporate Development, with us today to discuss the company. For those in the audience, if you have a question, please type it into the Q&A section at the bottom of your screen, and we'll address as many as we can at the end of the presentation. And now I'll turn it over to Michael, so please go ahead.
Thank you, Kyle. And thanks for having us again. This has been a great experience for us the last few times we've joined this conference. We've had great meetings and, you know, enjoyed the feedback. I will say I'm gonna do a high-level overview of the company. I'll admit that it's a strategy that I believe requires high touch from investors to better understand what we're doing and how we're doing it. So, you know, I'm gonna give this presentation today. We'll have a Q&A afterwards, but I invite you to reach out. If the story piques your interest, please reach out. Let's get a call on the books and, you know, we can dive deeper into the story.
Granite Ridge at a glance. We are a non-op strategy within the upstream business of oil and gas. We're focused in the Lower 48. You can see the basins where we hold assets are also what would be considered, you know, the primary basins of the Lower 48. Our asset base is primarily located in the Permian Basin, but we've got assets in the DJ, the Bakken, the Eagle Ford, the Haynesville, and most recently started forming a position in the Utica. We're really excited about what we're seeing up there on the heels of what EOG has been able to do, as well as the other operators in that play, both private and public. Non-op, look, the name of this game is diversification.
It's having a small interest in a large number of wells, and we've been able to create that here at Granite Ridge, where we've got you know a fractional interest in over three thousand producing wellbores in the basins highlighted on this slide. We have acquired those interests in a number of different ways, but our focus is to gain exposure to the drill bit. We are not traditionally PDP buyers, unless there's a significant amount of asymmetric upside due to commodity pricing, or you know some form of distress and proprietary opportunity. So generally, as you'll you know you see in our capital spend each year, we are acquiring assets and opportunities that have significant drill bit exposure.
That's where we feel the returns are best, to achieve what this entity needs to grow and provide good returns to our shareholders. From a commodity standpoint, again, diversification. Historically, and on a forward reserves basis, we are roughly fifty-fifty oil and gas. You can see our production and our reserves are split, you know, after the Permian, fairly equally between the plays where we hold assets, and another key point is we have partnerships, or we have passive interest in operated acres that are under both public and private companies.
And, you know, oddly enough, through this wave of consolidation that we've seen in the business as Exxon has taken out Pioneer or, you know, Chevron and Hess or similar transactions, we have actually seen an increase in deal flow. As portfolios are being managed more appropriately to focus on their operated assets, that actually expands the opportunity set for us to buy into new assets ahead of the drill bit. So a different look at what Granite Ridge is right now. We pay a fixed dividend. Right now, we're yielding over 7%. We are a growth company. We're targeting roughly 7% growth year-over-year. And something that I think sets us apart from our peers in the upstream energy business is leverage.
Our view on leverage is to be more conservative than our peers. Some of that is from personal experience in this business, but also we just need to make sure that we're managing our balance sheet to sustain the cyclicality of this business from a commodity pricing standpoint. You know, we want to be in a position where if there is some form of distress, where you know what you saw during COVID, where oil went negative and gas went low as well, that we have the opportunity to get greedy while others are scared. So managing our balance sheet to be healthy is a focus of ours.
You know, where we trade, right now, we trade at a discount relative to our true peers in the non-op space, and then a significant discount to our, the operating peers, whether it be large, mid, or small cap. You know, some of that is due to... I'll credit that to our concentrated shareholder base. You know, we do have a large concentrated share ownership due to our... You know, the way we became public was through a SPAC. And so they, you know, the private equity group that controls most of our shares has been slowly pushing shares out in kind.
You've seen our float, our daily trading float increase over time, and, you know, we think as our shareholder transition occurs over the next year, year and a half, you know, we think where we trade right now offers a great opportunity for folks to step into a, you know, what we think is a fulsome opportunity for shareholder returns from a yield standpoint, a growth standpoint, protection in downside scenarios with our balance sheet, and then the multiple arbitrage that we think we can achieve from expanding the shareholder base, as well as some of the other strategies that we're starting to deploy.
I'll also note that it's not in this presentation, but I think it's important to mention that, you know, what does our company look like from a personnel standpoint? I think when you walk up and down these hallways, we look a lot like an operating company. We've got folks on the finance side, the land side, the engineering side. We've all worked in operating strategies in some way, shape, or form. Our CEO was actually a principal at EnCap, which is a private equity fund based in Houston and Dallas. And, you know, if through his time there, he invested in hundreds of companies and evaluated, you know, a thousand. So he's the one exception to who has worked at an operator.
But being a board member and an investor in those strategies across the Lower 48 gives him a really unique vantage point. Because at the end of the day, as a non-op strategy, we are a capital allocator. We're looking to put our cash flow and our liquidity into, you know, the best rate of return projects on a risk-adjusted basis.
But you know, myself, our CFO, our land team, our reservoir engineers, we have all spent significant amounts of time in operating companies, which gives us fantastic relationships across the business, as well as providing us the relationships to make the phone calls, to gather information, to help protect further downside on our investment opportunities, whether it be something small like water gathering, or oil gathering, or gas takeaway, or a performance of a certain operator, or you know, where we're seeing faults. It's all about relationships in this business, whether you're an operator or a non-operator. So how do we feel shareholders have an opportunity to win with Granite Ridge? You know, I highlighted our ability to grow.
We have shareholder returns as a focus of ours on the fixed dividend. And then, you know, the two things that obviously, the dividend is being paid and has been paid since becoming public, we're focused on protecting that. We have a thoughtful approach to asset growth. We have a very conservative underwriting process that we think yields great risk-adjusted return opportunities. You know, the other two key pieces that I think are worth explaining further is strategic partnerships and what we're doing to broaden the shareholder base and support that transition. Improving the vehicle for investors. This is...
This is a nod to what we're doing to support the shareholder transition as our, you know, our primary investor, Grey Rock, is pushing shares out and in kind to their LPs historically, and, you know, what we expect to remain the same going forward. We, as an executive team, have been on the road. We are attending conferences where we've done non-deal roadshows.
We've had hundreds and hundreds of meetings with unique investors and a lot of repeat follow-up meetings, where we need to get in front of people now so that they can understand the story, build the model, and be, you know, ready to invest those dollars once our daily trading value hits a certain metric or once our enterprise value reaches a certain point, or, you know, once we reach, you know, the scale of whatever metric they need, they're ready. And we've been putting in that time on the road to do that. Our research coverage has increased from one to seven. Our daily trading volume has increased twelve X, and we were added to the Russell 2000 Index. We've got a fantastic set of analysts who cover our name.
We think they're, you know, they're thoughtful, and we really like the insights that they've been able to generate in our business for, you know, the broader investors out there, so strategic partnerships. This is twofold. We've got relationships. We have methods of investing our capital, but, you know, the key part of this strategy is relationships. We can form partnerships with folks where we are developing some sort of right of first refusal on new opportunities that they're seeing through their shop, and, you know, we could put those together because we're able to bring most of the capital to that party, or what we've done recently is we've actually more or less become the capital sponsor for private operating companies.
As the existence of the private equity landscape in the upstream space has more or less diminished, you know, along with the trend of fundraising, which you've seen fall close to 90% over the last eight to nine years, that has presented an opportunity for us to form relationships with really successful, proven operators that either don't want the capital from the private equity space, or despite being talented and qualified, they're just not getting those dollars allocated. 'Cause where EnCap or Quantum may have, you know, allocated $1 billion to four or five different teams, and now they're now giving $1 billion to one team.
So the space, the fundraising is down, and the distribution of that capital has been reduced as well, and it's been consolidated behind a leaner team. So that's opened the window for us to form partnerships with these operators, and create what we're calling, you know, we've coined it controlled capital, but really what we're trying to do is we're trying to create more or less a hybrid-operated wedge of investment and cash flow within our business, right? So why do operators trade at a premium to non-op? I think it's really predicated upon around some of it is NAV, you know, where they're buying inventory for twenty, thirty years out. But I think a lot of it has to do with the predictability of their cash flows and, you know, and their business plan.
And so, you know, from a philosophical standpoint, we don't really believe in buying long-dated inventory, but we do, we do believe in the importance of having predictable cash flows. And we're doing what we can to, you know, provide that for our investors. And so we've been investing alongside two partners in the Permian Basin. We've accumulated close to 8,500 net acres, 70 gross, just over 40 net locations. We're gonna put over $100 million into the ground with these partners this year, and likely considerably more next year. So as you know, as you look at our profile of production, you know, now we're roughly 90% non-op, 10% controlled capital.
But over the foreseeable future, as we go one quarter to the next, we're investing more dollars in these controlled capital strategies with these private operators. And not necessarily less dollars in traditional non-op, but with the way we're investing, the scale that we're investing in on this controlled capital side, we do see that eventually being the lion's share of our production, which we hope will help us bridge the gap between what you see as a non-op trading multiple and a three to four x, and the operated trading multiple, which is more four to six x at times. So that's a huge focus of ours, both on an underwriting basis, on a deal sourcing basis, on a partnership creation basis.
And we're really excited about it, and we think investors should be too. So, you know, to close, I wanna highlight a couple things. One is, if you sign up for our SEC alerts, you will see quite a few Form 4s roll through. Certainly, our executive team and our board are being allocated shares for, you know, the long-term incentive plans, but you'll also note that they're actively buying whenever a window opens up. I think that's a really positive sign. Their faith in the business is real, and I think it shouldn't be taken lightly. So please take note of that. You know, I also want to say a comment about long-dated inventory.
Look, we as a non-op strategy cannot afford to buy things and wait for it to be drilled 20 years down the road. That's just not prudent. Maybe, we can't afford it. We just don't think it's the right way to invest our dollars. So if you think about us as far as an asset, there's value there, no doubt. But I think the most important thing you can do is realize that this is a business. We're replacing our inventory every year. We're bringing twenty to thirty wells online every year, and we're buying 20-30 net locations. Sometimes it's more, sometimes it's less.
But if you can focus on the strategy and the way that it's been repeated over the last ten years when it was a private equity fund, and now the last year and a half as a public company, the proof is there, the track record is there. This is a real business. It's repeatable, it adapts quickly. We can go after natural gas when that makes sense. We can focus on oil when that makes sense. We can move basins, we can expand into new basins, and most importantly, we could double our size from a production standpoint overnight and not have to appreciably increase our G&A.
So you have a lot of things about this strategy that I think are to be admired, and I think they stack up well relative to our peers in the upstream space. So with that, I'll turn back over to Kyle for any Q&A.
All right. Great, Michael, appreciate the update on Granite Ridge. We have a few questions coming in, but for anybody else who's listening, feel free to submit questions with the Q&A button at the bottom of your screen, and we'll get to as many as we can. So Michael, one thing I want to start with, and you know, the controlled capital is, I think, a newer concept, newer to the story, new to investors. One of the slides you pointed to showed you have two strategic partnerships. Can you maybe give us more details on how this is evolving and, you know, maybe who those partners are and how you see this business going forward?
Yeah, yeah. One partner we've talked about publicly is Admiral Permian. They have been operating their team in Midland, and that's really important for us to be where the opportunities are. You know, there's a joke around our office, or maybe every office, that if a deal makes it to Dallas, it means everyone in Midland turned it down. So to have them out there, boots on the ground, churning up opportunities is really an important piece of that partnership and why we want to put our dollars in with them. But the other partner, we're not disclosing that yet.
We're really excited about what they're doing, and I think maybe staying quiet on that front allows them to stretch their legs a little bit and narrate the basin that we're excited about, you know, so we don't wanna crowd out their BD efforts from that standpoint. But look, these guys are... They're proven money makers, and that is, you know, you can look at the outcomes of what they've seen historically, but I think it also goes to say that you cannot enter these partnerships with us specifically, without having a significant amount of success and capital in your own pocket. As we come into these deals where we're 90% or 95% of every deal that we do with them on both the acquisition and the development side of the fence.
And so they're putting up 5%-10% of their own capital out of their own pockets, which we expect and we believe creates a ton of alignment. And so what we've done, because this is such an expensive hobby, right? Like, they still need other people's money, and they still wanna be incentivized, and, and, and we wanna put our money to work in high return, high conviction opportunities, and we wanna be able to grow this platform. And we feel like these strategic partnerships, this controlled capital strategy, is gonna be our way of creating accretive growth, by virtue of these more concentrated investments in a basin that we're very familiar with.
You know, we think we can be more competitive here and earn higher rates of return investing this way, rather than maybe buying things from a market transaction. We look at those, we evaluate them, we love the assets that these folks have built and put on the market, but for us to achieve the rates of return that we wanna see on our capital dollars invested, this has proven to be the best source of deal flow for us right now.
Got it. And when you think about the, I guess, the opportunity set or maybe the market potential for controlled capital, I mean, how big can this be for you guys, and how much are you thinking about? How much of your capital are you thinking about allocating here?
Great question. It's hard to give an exact number. I think there's a lot of ebb and flow naturally within the development programs of all of these operators and all of these basins. The more sophisticated basins and, you know, especially in Texas, you're gonna have far more lease management from... You've got lease expirations, you've got continuous drilling clauses, you have two clauses where it's a depth expiration rather than a, you know, horizontal expiration, where you can lose half the unit or, you know, you could lose a shallower depth or, you know, a deeper depth, depending on what the lease says.
And so as operators are going through and managing their own portfolio, they're realizing that what's on the slate for 2024, what's on the slate for 2025, what's on the slate for 2026? Like, where do they need to manage their own assets? And that, in turn, allows us to leverage our relationships and put terms in front of these folks to help them manage their own assets and create economic opportunities for us. That's not how all of the deal flow is brought to our attention, but that is. There's certainly longevity to that reality. There's always gonna be some sort of asset management that large operators are gonna have to deal with, and we're trying to be on that shortlist.
We wanna, we wanna be able to execute to prove that we can do it, and we, we have done that. These guys have a great track record of execution, both historically and recently with us, so that's really important. And so, you know, there's a lot of future opportunity, and then there's just a lot of blocking and tackling that these guys do. They are deal junkies, more or less. They find something, they're talking to people, they're going to lunch, they're golfing, they're doing everything they need to do to focus on creating economic opportunities for themselves and for us. So we have the potential to invest or you know, deploy a significant amount of capital in this strategy, as early as next year, but certainly we feel really, really great about the long-term prospects.
Great, that's, that's helpful. And, you know, I guess as I think about the business, there's a couple of different ways that you can deploy capital here. So you've got the controlled capital, you've got investing in non-op, and you've got M&A opportunities. You know, how do you think about balancing these different aspects and kind of where you... or maybe how you prioritize things?
At the end of the day, we're economic animals, right? I think when I come in, and I make a presentation, or I've got a meeting with an investor, and I say, "Oh, we're agnostic to commodity. We're agnostic to basin," I think sometimes I feel lazy saying that. Like, we don't have this edge, or this drive, or this view on one basin versus another. We are... You know, I think the better way to say it is, we are just economic animals. We are going to chase the opportunities that we think provide us the best rates of return on our capital. Or, it's sort of triangling, excuse me, triangulating around returns, margin of safety, and return on investment, right?
'Cause you can have a lower return on investment but a high rate of return, and that doesn't give us much margin of safety. So it's focusing on those two key metrics and then balancing those relative to where are we in the commodity pricing cycle? Are we buying a large amount of production that we may have outsized risk to commodity pricing because we can only hedge so much or something like that? So we're looking at everything. We have figured out ways to quickly screen opportunities to sort of line up with our view of the world on prior opportunities, and that allows us to quickly screen new opportunities so that we're spending the right amount of time on these deals.
Just honestly, or bluntly, we just have not been competitive in the market processes, but we always wanna participate, because you never know what's gonna happen. They might throw a party, and no one else shows up. We're gonna pursue every opportunity of deal flow, but ultimately, we're gonna be investing in the highest rate of return opportunities.
Great. And one of the things that you've touched on a few times in, in a different way is, your business model is unique within the oil and gas industry. Yeah, who do you look at for... You know, who do you think is your, your competition, and, you know, do you think there's somebody that has maybe an advantage or edge among the group?
I think I mean, our competitors. I don't know that we have competitors as much as we have we very clearly have peers, like Vitesse and Northern, and we have a ton of respect and admiration for the businesses they've built, the things they're doing. NOG has done a tremendous job of building a vehicle that has massive amounts of scale. They've become a very, very efficient, you know, go-to party for that co-buying strategy and, you know, ultimately, you know, Vitesse and Northern, as our public peers, while we don't compete with them necessarily, we don't see them in the same opportunities. You know, Vitesse is just the Bakken. Northern, you know, they, they're all around now. They are peers, but they're not competitors. We're not really running into them that often.
But you know what? Their success is gonna have a big impact on us, so we're huge fans of theirs. We're watching what they do, seeing what we can learn. Most of our competition is more on the private side, and there just aren't many people that are doing what we're doing. So that's why we're able to go acquire these net acres and this inventory at what we feel are fantastic rates of return. The competition for these assets is much lower than it is for more traditional non-op, where there's, you know, very little barrier to entry, and there's a ton of folks bidding on those opportunities.
Got it. That's helpful, and maybe turning to shareholder returns, how do you think about the dividend and, you know, dividend growth potential or any other ways that you could return capital to investors?
We are hyper-focused on protecting the dividend where it exists right now. We feel that the best use of our capital right now, on a risk-adjusted basis, is to be reinvesting that cash flow into asset growth. You know, we're, we're a solid company, and, you know, we're big, but we don't quite have scale. So we realize and recognize that, so we're gonna, we're gonna reinvest our cash flow until we can gain appropriate scale. And when the time comes, when, you know, when the metrics are right, we, we certainly have discussed increasing our dividend, but we-- there's, there's no reason to increase it now, given where we trade and what the yield is. I think right now we need to focus on reinvesting all, all the cash flow we can, after, after we pay that dividend.
Got it, and you know, looking at your guidance for this year, I believe production guidance implies 7% growth year-over-year. I know you haven't given guidance for 2025, but I think there's been some mention about the potential for double-digit growth. Can you give us any color about, you know, the factors that are, you know, leading you in that direction?
Yeah. On our last earnings call, we bumped up our capital expenditure guidance for this year by almost $60 million. That is mostly due to our controlled capital program and the opportunities that we were able to capture with those partners. But the reality is, you know, in the non-op space, I could theoretically go buy production overnight. I could spend money today and have production tomorrow, right? 'Cause it's sort of a just-in-time opportunity, where if you have a willing seller and a willing buyer, we can all of a sudden create an interest in that producing well, or in a well that's being completed right now or being drilled right now. So it's the time from investment to when you see that production, it can be extremely quick.
Under this operating strategy, it's a longer cycle time, right? The first eight-well pad that we brought online with Admiral was in June of this year. It's a eight-well pad, 5,000-foot laterals in Loving County. We bought those, we took those leases in the middle of 2023, picked up a rig in October of 2023, fracked those wells in April, brought them online in June, right? So you've got almost a year of cycle time from when we first started investing dollars to when we saw the fruit of that labor. So what you see right now are the wheels are starting to spin on this strategy. We're starting to invest that capital, and Luke's reference to growth next year is really based around the capital that we're investing this year.
We're expecting to see the results of that next year. So we're super excited about that, and, you know, we feel that investors understand the dynamics of that, but we still need to prove it. So, you know, we're looking forward to seeing what we can provide investors next year.
Great. It looks like we're at the end of our time today. Mike, I wanna thank you for the update on Granite Ridge, but also leave it with you for any closing remarks.
Look, thank you for the time and the opportunity to use your platform, and I just encourage everyone that as you dig in, please reach out. Let's look - let's have a discussion about Granite Ridge, and dive a little deeper. You know, like I said at the beginning, this is a high-touch strategy, and I think if you can spend the time in this name and get to know this team, I think you're gonna really like the opportunity to invest alongside us.
All right. Sounds great. Thanks again, and everybody, enjoy the rest of the conference.
Thank you.