Good morning, and welcome to Permian Resources conference call to discuss its third quarter 2023 earnings. Today's call is being recorded. A replay of the call will be accessible until November 22, 2023, by dialing 877-674-7070 and entering the replay access code 608519, or by visiting the company's website at www.permianres.com. At this time, I will turn the call over to Hays Mabry, Permian Resources Senior Director of Investor Relations, for some opening remarks. Please go ahead.
Thanks, Lester, and thank you all for joining us on the company's third quarter earnings call. On the call today are Will Hickey and James Walter, our Chief Executive Officers, and Guy Oliphint, our Chief Financial Officer. Yesterday, November 7th, we filed a Form 8-K with an earnings release reporting third quarter results for the company. We also posted an earnings presentation to our website that we will reference during today's call. You can find the presentation on our website homepage or under the News and Events section at www.permianres.com. I would like to note that many of the comments during this earnings call are forward-looking statements that involve risk and uncertainties that could affect our actual results and plans.
Many of these risks are beyond our control and are discussed in more detail in the risk factors in the forward-looking statement sections of our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q for the quarter ended September 30th, 2023, which is expected to be filed with the SEC later this afternoon. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance, and actual results or developments may differ materially. We may also refer to non-GAAP financial measures that help facilitate comparisons across periods and with our peers. For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation, which are both available on our website. With that, I will turn the call over to Will Hickey, Co-CEO.
Thanks, Hays. Before we jump into the slides, I want to take a moment to thank our team for delivering the best operational quarter we have ever had as a company, which I will expand on in more detail in a moment. It's easy to get distracted when a big deal is announced, and our team didn't take their eyes off the ball. From accounting to IT, to all of the operational groups, great work from top to bottom. Having a strong underlying business is critical as we expand our focus to integration, and we have a great team that exceeded expectations so far in 2023. I want to spend a few minutes talking about the Earthstone acquisition, which we closed last week on November 1st.
As we stated during the announcement, we believe that the Earthstone deal provided a unique combination of significant near-term and long-term accretion, Permian Basin scale, high quality assets in the core of the northern Delaware Basin, and accelerated return of capital, all while allowing us to maintain a strong pro forma balance sheet. Importantly, we were able to complete the transaction at a purchase price and structure that will provide significant value to our combined shareholder base, and are looking forward to delivering on the $175 million annual synergy target laid out in August. We spent the past few months working with the Earthstone team and preparing for integration and synergy capture phase of the acquisition.
M&A integration is something we consider a core competency at Permian Resources, and we have already hit the ground running to leverage the playbook and lessons learned from the Colgate Centennial merger last year. As we have begun integrating Earthstone's assets and team, we are more excited than ever about the improvement to our already great business that the combination provides. Shifting back to Permian Resources' third quarter, I'm proud to announce that our team continued to deliver strong results. Operational outperformance across the board drove a meaningful increase in free cash flow for the quarter, resulting from a combination of wins. First, strong well results led to meaningful oil growth in the quarter, with our new wells continuing to impress.
Second, continued operational execution in the field lowered controllable costs despite summer weather in Texas, which is a real testament to how prepared and dedicated our field team is every single season. Weather in Texas is extreme but predictable, and our team has worked hard to put equipment and processes in place to mitigate downtime. Third, and finally, our drilling and completions team has relentlessly continued to drive down cycle times and well costs throughout the quarter. As a result, PR delivered total production of 172,000 barrels of oil equivalent per day and oil production of 90,000 barrels of oil per day, which represent 4% and 6% increases, respectively, compared to the second quarter. It's worth noting that we hit our Q4 2024 to Q4 2023 growth target of 10% a quarter early due to strong operational performance.
The company generated Adjusted EBITDA of $584 million for the quarter. Total controllable cash costs were $7.92 per BOE, which decreased slightly quarter-over-quarter. Overall, LOE, GP&T and Cash G&A were in line with our expectations. We reported adjusted free cash flow of $165 million, based on cash CapEx of $380 million in the quarter.
L astly, we reported $0.29 of adjusted free cash flow per share on a cash CapEx basis and $0.39 per share of adjusted net income. Diving into the operations a little more, our team increased efficiencies across the board, continuing our positive momentum from the previous quarter. The drilling team increased drilled feet per day by 14% quarter-over-quarter by continuing to refine best practices. In addition, the completions team delivered their best quarter to date, with 1,880 completed feet per day and over 19 pumping hours per day, which we believe are some of the best performance metrics in the Delaware Basin. Overall, these efficiencies meaningfully reduced cycle times for the quarter, resulting in slightly higher CapEx spend for the quarter, but lower per unit well costs.
This is a winning combination, and these sustained efficiencies should drive incremental value for shareholders going forward. Now I'll turn it over to Guy to go over return on capital.
Thanks, Will. As you can see on slide 9, strong Q3 results and increased free cash flow allowed us to deliver total return of capital of $0.17 per share to shareholders during the quarter. Our calculation begins with adjusted free cash flow of $165 million. We reduced that amount by our 5-cent per share base quarterly dividend of $28 million. We have committed to pay 50% of the remainder of free cash flow to shareholders via dividends or buybacks. This quarter, we achieved that target with both. The share repurchase represents 2.2 million shares that we bought back for $28 million, alongside a sponsor secondary offering during the quarter. Additionally, we will pay a variable dividend of $0.07 per share, bringing the all-in quarterly return of capital to $0.17 per share.
Consistent with our goal of delivering sustainable long-term base dividend growth, we plan to increase our base dividend by 20% from $0.05 to $0.06 per share, beginning in Q1. An overview of our balance sheet and hedge book can be found in the appendix. Our third quarter results, both as a standalone company and combined with Earthstone, demonstrate our continued ability to maintain a strong balance sheet that supports strategic flexibility while pursuing accretive consolidation opportunities such as Earthstone. We have no near-term maturities and approximately $1.5 billion of liquidity on our RBL. We expect to continue to utilize excess free cash flow to pay down debt over time. Notably, our credit ratings were upgraded by all three agencies at closing of the Earthstone transaction, furthering our goal of achieving an investment-grade credit rating within 12-18 months.
With that, I'll turn it over to James.
Thanks, Guy. As you have all heard from both the Earthstone announcement call and this morning's earnings call, we are incredibly excited about the future of our business with the addition of Earthstone. We're excited to get the deal closed last week and to begin to welcome the Earthstone employees to the Permian Resources team. We view this transaction as consistent with our ultimate goal to do whatever it takes to maximize shareholder value creation. Our business today is better than it's ever been, and we expect to find ways to continue to improve it going forward. On slide ten, we look back at a few of the key takeaways from our Earthstone acquisition. First, we acquired Earthstone at a very attractive valuation, where we are highly certain that we can exceed our return thresholds.
Our purchase price at the time of announcement represented a slight discount to proved developed PV10, while adding significant high-quality Delaware inventory at little or no cost. Second, the transaction is accretive to all key financial metrics before synergies and highly accretive with synergies, near term, long term, and midterm. But finally, and most importantly, we firmly believe this transaction will continue our track record of enhancing shareholder value through increased free cash flow per share and returns to investors. It's worth noting that this transaction makes Permian Resources the second largest remaining Permian pure play, and one of the largest operators in the Permian Basin. Although we have been very clear we would never do a deal just to get bigger, we do expect to benefit from enhanced economies of scale and the strategic benefits of being the second largest Permian pure play.
Before we move to Q&A, I'd like to take a quick second to look back at 2023 so far. This past February, our team put out a very strong and well-received full year 2023 plan that maximized free cash flow for shareholders through high return, cost-effective development. Since February, our team has executed extremely well, and we are exceeding expectations against that budget. We will not be providing a standalone PR look back in our Q4 earnings call this February, since we have two months of contribution from Earthstone included in our financials. But it's worth noting and giving our team credit for the fact that PR standalone is on track to deliver an excellent and outperforming year in its first full year as a public company.
We will not be addressing our 2024 plan on this call today, but expect to release an updated business plan and guidance on our next regularly scheduled call in February. Investors can rest assured that our philosophy has not changed. We'll be building a development plan that maximizes value for our shareholders over the near and long term. As we decide activity levels, we will put together a plan that solves to the highest free cash flow over the next 12-24 months. We believe that by waiting until February, we will have a much better idea of what that reinvestment environment looks like and be able to come to the market with a plan that maximizes value for shareholders in a way that we could not do as effectively if we rolled out a plan today. As always, our focus is on long-term value creation.
Thank you for tuning in today, and now we will turn it back to the operator for Q&A.
Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing star, then 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the 2. One moment for your first question. First question comes from Zach Parham from JP Morgan. Your line is now open.
Hey, guys. Congrats on the quarter, and thanks for taking my question. I guess first, just a question operationally. You know, like you mentioned, you hit the 10% exit-to-exit growth target a full quarter in advance. Can you just give us some more detail on what drove that outperformance in 3Q? Was it well productivity? Was it cycle times that allowed you to bring wells online earlier? Or any other factors you would point to that allowed you to deliver that oil well above expectations?
Yeah, thanks, Zach. It was really three things. You hit on two of them. Well side, the kind of acceleration of wells into the quarter, just given the operational efficiencies, and then improved downtime numbers. We just saw kind of record downtime numbers for the year in Q3, just due to what the operational team did. And so, you know, kind of add all three of those together, and it leads to what was a pretty big beat on the oil side.
Got it. Thanks for that. And then just one more on the CapEx side. You talked about CapEx being a little higher than expected in 3Q because of those efficiency gains and getting more wells drilled and completed, but well costs were also lower. Maybe could you quantify where leading-edge D&C cost per foot are, and maybe give us some thoughts on where those costs could go in 2024, given, you know, deflation and efficiency gains as well?
Yeah, just so you think about inflation, kind of as we discussed last quarter, I think we were trending for next year to see about 5% deflation year-over-year on the consumable side, primarily driven by casing, and then hoping to get kind of a little bit on top of that via some of the services or things like sand, et cetera. So I think that's still consistent today. Obviously, the commodity price is moving around a lot, and people are putting out full-year budget, which I think will drive kind of a lot of changes in that in either direction. But kinda call it 5%+ on the deflation side, feels like a safe assumption for next year.
And then on the operational efficiencies, you know, the things we did in Q3 to reduce cycle times, faster drilling, faster frack times, et cetera, are the small, little things that are really sticky. So I think our expectations, we'll be able to kind of continue that pace, drill more wells with less equipment, and kind of add to that 5%+ on the deflation side, just via better overall kind of operational efficiencies to drive well cost down even lower.
Got it. Thanks. And then any color on where leading-edge D&C costs are currently?
I think kind of if you think about relative to where we were in kind of earlier this year, it's probably down 10%, something like that.
Okay. Thanks for that color. Thank you, guys.
Your next question comes from Gabe Daoud from TD Cowen. Your line is now open.
Thanks. Hey, good morning, everyone. Was hoping that we could maybe get a bit more color on how you guys are thinking about, just at a high level, exit to exit growth going forward. I know the, the goal is to always maximize free cash flow, with maybe growth being an output of that. But just curious now, as a, as a larger entity, how you guys think about growth on an exit to exit basis?
Yeah, I mean, I think, I think we've been pretty clear with, with the market that we're not gonna put out a 2024 plan at, at this point. We don't think that's advantageous or the right thing for our shareholders over the long term, but I do think that growth could certainly, as we're bigger, continue to be a part of the mix. You know, I think we pride ourselves on our ability to be flexible and react to whatever the investment environment looks like at the time, and I think that could be, you know, in a, in a less attractive environment, kind of lower zero growth, and in a higher, better return environment, it could be as high as the kind of 10% we, we'd outlined previously.
I think despite additional scale, we've got an incredible high return inventory base, and our philosophy on that front hasn't changed.
Understood. Thanks for that. And then you mentioned the ground game in the quarter, 20 grassroots transactions. Just curious how you guys think about larger scale M&A at this point. You know, you noted the attractiveness and the strategic value of being a large Permian pure play. So just curious how that lends itself to your thinking on M&A.
Yeah, I mean, I think the ground game is something we do quarter in, quarter out. I think something we do exceptionally well and can be a real differentiator over time. As we've mentioned time and again, those are, I think, the most attractive acquisition opportunities we look at, often right ahead of the drill bit and really accretive. I think on the larger stuff, to be really clear, the first focus for us today is on integration of the Earthstone business, which we closed last week, and continuing to execute. You know, I think we have a saying on, "If we can't execute, we can't do anything else." You know, I'd say larger stuff at some point down the road could make sense again.
You know, I'd say for us, we are highly focused on our asset quality, and I think remaining a Permian Basin pure play is important to us. So, you know, I think that probably does narrow the potential scope of larger deals in the future, but, you know, we're gonna continue to keep our eyes open, and, and as we've always said, we're gonna do whatever makes the most sense for shareholders.
Awesome. Great. Thanks, guys.
Next question comes from Neal Dingmann from Truist Securities. Your line is now open.
Morning, guys. Thanks for the time. My first question is on the Earthstone assets. I'm just wondering, Will, you know, I know you're definitely not giving 2024, but I'm just wondering, sort of broadly speaking, are you able to say just, you know, in broad strokes, how much of the total activity for by mid-2024 these assets could represent? And I'm just also wondering, you know, would you consider at this point, I know it's early, what would you consider sort of the initial low-hanging fruit with that operations?
Yeah, thanks, Neal. As far as activity goes, I think we've been pretty clear that we're going to kind of move rigs from Midland and reallocate that capital to Delaware. So our development plan will be very Delaware-focused, kind of 90%+, Delaware Basin will be where the CapEx is spent. And I think kind of within the Delaware, as you think about capital allocation to the Earthstone assets, you know, I think ± a third is probably the right range. It may be a little less than that, kind of at times, but I think kind of over the course of the year, that's probably a safe bet where it'll shake out.
And then low-hanging fruit on the operational side, you know, I think everything we laid out in our rollout call around synergies is, you know, we're still very convicted that those synergies are very achievable and ones that we can even go beat. So, you know, the quickest wins are gonna be on just pricing. You know, pricing on things like sand, fuel, frack, wireline, et cetera, are wins that we were able to get kind of the day after we closed. Probably followed up by that, it will be rigs. I think we'll be able to go get efficiencies, either by swapping out rigs or kind of applying best practices real fast for short moves, et cetera, with kind of the economies of scale of the business.
And then, kind of, I think what'll bring up the rear will be the LOE changes. A lot of those are kind of water disposal, contractual-based type deals, or things that take a little more time. But, you know, we're, we're one week in today, and I think we are feeling as confident as ever to be able to go get this.
Yeah, certainly a lot of upside. And then, James, maybe my second one for you, just on shareholder return. Just wondering, do you believe the current, you know, your current 50% free cash flow payout will remain optimal going forward, you know, as you all get larger, as production, you know, increases, as debt even goes down further? Or is there any reason you'd see to, you know, maybe step that up in that case, or potentially even lower it if you want to, you know, decide to boost production?
I think we really like our framework. I think what we came out with a year and a half ago or so was really the right balance, and we're trying to strike the right balance of making sure we maintain operational and strategic flexibility to take advantage of the opportunities that we see in whatever environment we're in, but while also returning capital to shareholders in a way that's really meaningful and substantial. So I think we nailed it with the plan, and we have no plans to change it.
Yeah, I think it's very steady. It makes a lot of sense for you all. Thank you so much.
Thanks, Neal. Thanks, Neal.
Your next question comes from Scott Hanold from RBC Capital Markets. Your line is now open.
Thanks. You know, hey, you obviously, you know, all identified, you know, some opportunities to, you know, for the synergies, especially in the operating cost side. And, you know, I know you've only had Earthstone for about a week, but like, you know, big picture, how quickly do you think you can get, you know, the Earthstone operations up to speed to your, you know, standards and, you know, especially on the OpEx side, which has been, you know, certainly an area that's run high for Earthstone?
Yeah, I kind of break into three parts. I think, kind of, if you're thinking about just overall synergies from a cost perspective, there's some just kind of economies of scale pricing corrections that we are already getting, that are showing up kind of day one. Just, you know, we're running 2-3 frack fleets from the same company, and there's some benefits from doing that, that we'll get immediately. I think the rest of kind of the efficiencies on the D&C slide probably come next. If you think about in the last merger we did with Colgate and CDEV, we were able to drop kind of down to rigs called 6-9 months post-close. And here we are, a year post-close, seeing kind of better efficiencies than either company had on a standalone basis.
So I think kind of call it ±6-9 months on the kind of D&C side, and then the LOE will be the slowest. I think that that'll take time just 'cause a lot of that's contractual and, and things that we'll have to go work through on combining contracts and renegotiating, things like that. But, if you think about it, we lined out that we could achieve this $175 million run rate by, you know, the end of the year next year. And I, I think we are, from everything we've seen, very confident that we will both be able to get that, likely get more than that, and, and maybe even be able to get it quicker. So, but that, that's kind of how they would line out over time.
Yeah. And so on the operating cost side, just to you know, clarify, you see more of that as contractual versus operational? Like, that you don't need to go out in the field and, you know, change, you know, plumbing and everything else on those wells that you're inheriting.
No, absolutely. There's, there's a lot of that as well. I just think of it as, you know... If I think about the big needle movers being kind of artificial lift optimization failure rate, which is what you just described, that's in the field, best practices. That'll be stuff that, that we'll go- we're starting to work through in real time today. But the other big piece is water disposal. And water disposal is gonna be more of, you know, a little longer lead time, finding the optimal SWD disposal or recycling process, and kind of working through some small contracts along the way. So, a little bit of both, I guess, would be the short answer.
Okay. And just to follow up on—and I know, you know, obviously, we'll get the better 2024 outlook as we get into early next year, and I appreciate the need. It's a very dynamic market. But, like, when you think about, you know, whether you look at a 0% or 10% kind of growth rate range, can you talk about the factors? Like, is it—some of it, is it fundamental macro, or is, you know, is it price? And, you know, how do you think about hedging as you kind of think about that? Like, if, for example, if you were able to hedge a high enough price, would you, say, go to the higher end of growth regardless of what the macro looks like?
Any kind of color, you know, on how you think about that strategy.
Yeah, I mean, I think our hedging strategy would be pretty clear how we think about it. But no, you're right. I'd say we'd be biased to hedge more and grow more at, at higher commodity prices. You know, I think that's just good basic business sense. But as we see higher commodity prices, I think we've always said we're gonna be opportunistic and would look to layer in incremental hedges, both on the crude side and the gas side. I, I'd say-- And then I think as I think about growth, it's really how good is the reinvestment widget? And I'd say that's a, a combination of really equal parts that, that drive the answer, is what is-- what are the commodity prices we expect to realize next year and, and probably the following, and then... cost environment look like?
I mean, we've seen over the past two years a wide range of service costs and kind of input costs that ultimately impact the rate of return and the payout of our projects and our development plans. So I'd say lower services costs, higher commodity prices is a better reinvestment environment and gonna push us to the higher to that range. And if you have the opposite, it pushes us lower.
Appreciate that. Thank you.
Your next question comes from Derrick Whitfield from Stifel. Your line is now open.
Good morning, all, and congrats on another solid quarter.
Thanks.
Starting with a bigger picture, longer-term outlook question on your pro forma asset base. In recent quarters, there's been a heightened investor focus on asset productivity and durability. With the benefit of the Earthstone transaction, is it reasonable to assume your reinvestment one year out assessment looks very similar to your two and five-year out assessments?
Yes, I think that's a fair assumption. We'd agree with that.
Terrific. And then maybe staying on operations. Long lateral development has been a growing theme over the last couple of quarters. As you look out over the next couple of years, what are your thoughts on the risk-reward, really, metrics associated with integrating more three-mile lateral development into your operations?
Look, we're watching this closely. We've seen what others have done in other basins and then some in the Delaware. I'd say our position kind of has the benefit of it's set up extremely well for 2-mile development across the whole position. We worked kind of very hard over the last 5 to 10 years to set it up accordingly. So I think as you kind of scan both ours and Earthstone positions pro forma, just from a map perspective, you'll see that it's set up really well for 2-mile development, which I think makes it just less likely, and there's less opportunity to go ahead and extend to 3 miles. I also think it is our belief still today that 2-mile lateral is the optimal, kind of most capital efficient or risk-adjusted return lateral length in the Delaware.
I do think as technology continues to get better and we continue to get better at drilling wells, that may shift to 2.5 or 3 over the near term. So look, we're gonna keep watching it. I think that, you know, there's probably some small places where we could do things to incorporate longer laterals if we chose to do so, but that's not a big part of the near-term business plan for us.
And Derek, I think a lot of where you've seen the most important push to the extra-long, three-mile-plus laterals has been in places where people are really pushing the margins of the basin, and they're into... well into the kinda next tier of inventory. And we're in the fortunate position, we're still drilling our core of the core acreage that's extremely high quality and will be for the long time. So I think for us, we're in the fortunate position that we don't need to do that and really like the value proposition of the two-milers we have set up for today.
That's a fair point. Congrats again on the quarter, guys.
Thanks, Derek.
Your next question comes from Phillips Johnston from Capital One. Your line is now open.
Hey, guys. Thanks. I realize you guys won't have detailed 2024 guidance until February, but now that the Earthstone deal is closed, can you maybe just frame up Q4 a bit and give us a sense for either what volumes might look like today or what kind of year-end exit rate we should be steering towards? Especially considering, I guess, the improvement in efficiencies that led to higher activity and volume share in Q3.
Yeah, I can give you kind of a few points I think will be helpful. Starting with just PR standalone, as you think about it, so we kinda hit the Q4 target in Q3, so I think it'd be safe to assume we were kind of trending towards, on a standalone basis, kind of a slight beat for Q4 oil productivity, or production. CapEx, I think similar story, we accelerated some wells from Q4 into Q3, so you're probably trending towards a slight beat on the CapEx side as well for Q for PR standalone. And then, as you think about Earthstone, what'll be in that Q4 will be two months of Earthstone, so kind of the last two months of the year of the Earthstone assets.
Earthstone had a guide out there alongside their Novo acquisition that I think is, is still the right guide to use. Kind of taking those pieces, you can do kind of PR plus 2/3 Earthstone to get to what I think is a, a decent kind of round number for, for where we'll be in Q4.
Okay. So, this might be too granular, but it looks like leading-edge estimates for the quarter are sort of in a 260-270-day range for oil equivalent, and 125-130-day for oil. Do those seem reasonable, or is that a little bit too granular for you?
I think that's too granular for me, but I, I'm sure you can have a follow-up call with Hays or, or somebody to make sure that you're not missing something.
Yeah. Okay. Sounds good. And then maybe just a modeling housekeeping question. Your natural gas differential stepped down in Q3 versus kind of where it was in the prior two quarters. Is that kind of a trend we should extrapolate going forward, or were there some one-off factors in the quarter that sort of drove that?
Yeah, just on commodity mix, generally, you know, oil's up, really just strong well productivity. Gas and NGL trends are really just a combination of oil cut in the areas where we're drilling. Specifically on NGLs, it's kind of the content of the gas where we're popping wells and the associated midstream contracts with a little bit of midstream constraint. I don't think you'll see some fluctuation there, but not kind of a persistent trend off of one quarter.
Okay. Sounds good. Thank you.
Your next question comes from Oliver Huang from TPH. Your line is now open.
Good morning, James, Will, and team. Congrats on a solid quarter, and thanks for taking my questions.
Thanks, Oliver.
Just wanted to start out on the ops front with respect to the efficiencies that you all kind of gained over the quarter. What's the confidence level in being able to keep that Q3 run rate going over the course of an entire year? And as we kind of think about how much activity a base program of 11 rigs could get done. And also, is there any sort of inclination to do something similar like you all did with the Colgate deal in terms of just dropping a rig once efficiencies are achieved? Or would the thought process be to just kind of take advantage of those efficiencies to drive a little bit more pro forma growth?
I guess that kind of dovetails into just kind of being tight-lipped on the 2024 outlook at this point in time.
Yeah, I mean, I guess I'll give you some color around it. These efficiencies, a lot of them are just like small things. We're just continuing to get buy-in from the field, driving down flat time on both the drilling side and downtime on the frack side. So I think they're gonna be pretty sticky. Q3 was a quarter where everything went right, so, you know, can we maintain that exact same run rate for a whole year? That may be a little bit ambitious, but at the same time, I think we'll continue to find small things to improve upon. So I do think that the go-forward efficiencies will look more like Q3 than they did any of the previous quarters. And kind of what does that mean for next year?
Look, I think the way that we run our budget and think about it is we're gonna solve for what's the right amount of capital to spend, and kind of that will be dictated by how James laid out, what is the ultimate kind of return on that capital, kind of how efficient is that widget in the calendar year in which we're doing it? And then we'll leverage these efficiencies to right-size the amount of equipment to hit that capital budget. So, the answer is, everything is on the table. We may run less equipment and drill more wells because we're being more efficient. We may run the same amount of equipment and drill even more wells because we're trying to spend more capital because of the return on the capital, et cetera.
So, you can, you can feel rest assured that we're going to keep these efficiencies and use the equipment that's generating these efficiencies, but kind of how we use it and how much of it we use is still kind of things we're working through in real time.
Okay, that's helpful color. And just when we're kind of thinking about Q4, given the year-to-date outperformance on efficiencies, are there any concerns with respect to budget exhaustion that might drive a loss of efficiency with having to pull back a rig or crew? And could you also remind us how many crews you all have running on a pro forma basis when including Earthstone, and if there are any plans to pick back up a spot or full-time crew for next year?
Yeah, we're not going to do anything that doesn't make sense operationally. We're not gonna drop a very efficient rig or anything like that to kind of stay within quarter-to-quarter budget constraints. We do have the benefit that we were always planning on. We ran 3 frack fleets on PR standalone for the majority of Q3, and we were planning on dropping to 2 in Q4. Given the efficiency we saw on the frack side, we dropped down to 2 fleets a little bit earlier than expected in Q4. So I think this is gonna be one of these where we were able to kind of do both.
We're going to kind of have a drop in CapEx in Q4 that kind of keeps us in line with where consensus and kind of expectations were for full-year CapEx on PR standalone, while also keeping all of our rigs and our two dedicated frack fleets that were able to achieve the efficiencies you saw. So, hopefully that answers your question, but we're going to, we're not going to drop rigs or frack fleets that have seen these crazy levels of efficiencies, just kind of based on quarter-to-quarter budget.
Awesome. Thanks, thanks for the time.
Yeah.
Your next question comes from Paul Diamond from Citi. Your line is now open. Paul Diamond from Citi, your line is now open.
Hey, Paul. Hey, Paul, I think you're on mute, if you're there.
Your next question comes from Leo Mariani from Roth MKM. Your line is now open.
Guys, I was hoping you could maybe just discuss the M&A landscape a bit. Obviously, you guys have been, you know, pretty acquisitive, you know, throughout your history, you know, going back to Colgate and now with at PR. So how do you kinda see things out there now? Are there deals available? You know, what's your appetite? How would you kind of characterize some of these deals out there? Just any color would be great.
Yeah, and I said it earlier, but I think worth emphasizing again. I'd say our very first priority and focus right now is on integration and execution. That comes first always. But I'd say, yeah, you're right. We've been constantly in the market and understanding it. And I'd say it's changed quite a bit over the past nine months. I'd say we saw a very long backlog of kind of large-scale private deals come to market the first nine months or so of the year. I do think that backlog is largely exhausted and slowing. You know, I'd say for us, we looked at all those deals.
I'd say we're focused on doing transactions that enhance the quality of our business and our inventory base, and that's a really high bar today and didn't find anything, you know, outside of the Earthstone acquisition that fit that bar of scale. But I think what we're seeing that's really attractive is we're continuing to see the kind of small ball ground game be the most attractive opportunities that have the highest rate of return, the most inventory accretive, and ultimately set us best-
for long-term value creation. So I think we'll continue to be active on that front, and we'll evaluate larger packages as they come, but kind of don't see anything coming down the pipeline that we think is a fit for us.
Okay, that's helpful. And then just on Q4 for, you know, PR standalone, you guys talked about kinda dropping a crew a little bit earlier. You kinda went faster, obviously, a lot of efficiencies in Q4. Can you kinda help us out with, you know, sort of expected kind of standalone TIL count in Q4, in terms of number of wells? Is that coming down a fair bit this quarter? And just per your earlier comments, wanted to sort of clarify, given that the strength in 3Q, seems like you're fairly confident that you're gonna be kind of above midpoint of oil, you know, for full year of a PR standalone.
Yeah, Q3 was our highest TIL count quarter as a business, and Q4 will come down from there as expected. And also, yes, we were, you know, PR standalone won't be a thing because in Q4, it will include PR plus two months of Earthstone. But on a PR standalone basis, we were headed for a Q4 beat relative to the 90,000 barrels of oil per day target that we put out at the early year guidance. So yeah, all of that driven by just, you know, acceleration of TILs into Q3, some into Q4, and then obviously increased in well productivity and better downtime numbers than originally budgeted for.
Okay, thanks.
You bet.
Our next question comes from Paul Diamond, from Citi. Your line is now open.
Hi, all. Apologies for that. I had a bit of technical difficulties. Just wanted to touch base real quick on the ground game opportunities, you know, 740 acres, 20 deals last quarter. Now with Earthstone in-house, just want to get your idea or get you guys' idea on how, I guess, what the opportunity is on kind of legacy operations or the new stuff, and is your kind of attention shift anywhere, or will all be kind of an all-inclusive type of, type of event?
Yeah, I mean, I think I'd say the opportunity set is brighter for our ground game effort with Earthstone. I think just kind of a larger footprint creates more opportunities for bolt-on acquisitions, for trades, et cetera. I think it's probably obvious, but that's gonna be exclusively focused in the Delaware today. You know, I think that's where the full force of our operational and acquisition efforts are. But I think we're excited. I think there's a lot to do with these assets for kind of one plus one equals more than two. So we're excited and think the opportunity set only grows from here.
Understood. Thanks for the clarity. Just one quick follow-up, given the recent mechanics of, you know, rising M&A in the, in the market. Are you guys seeing any of, kind of fluctuations in those negotiations, or is it still kinda, you know, moving with the general market or kinda any deviation therein?
You know, I, I think the small bolt-on market has been really interesting over the last eight years. It's, it's been a lot more steady, kind of people. It's largely independent, private sellers or, or kind of legacy, family-owned oil companies, et cetera. And that we haven't seen kind of prices change as much. They don't—prices don't fall as quickly when commodity prices or the broader market falls, and they don't rise as quickly when those markets are up, in the right. So I think those opportunities have been steady, and I think for us, represent a pretty unique value proposition today.
Understood. Thanks for the clarity.
Cool.
There are no further questions at this time. Handing it over to James Walter for the closing remarks.
Perfect. Thank you. I'd like to conclude today's conference call on slide 11, which helps to reemphasize our value proposition for current and future investors. Since the formation of Permian Resources last year, we've delivered best-in-class returns for our sector and meaningfully outperformed the S&P 500. This outperformance was largely driven by successful execution, and as a result, our business continues to represent a compelling value proposition against other large cap oil and gas companies. It's worth noting that Permian Resources now sits in a new class of large cap peers, with enterprise value of almost $15 billion and 100% of our business focused on the Permian. It continues to be our belief that quality businesses such as ours, with core assets, organic growth, efficient operations, and a strong financial position, have room to rerate to more competitive multiples.
Not only with our direct peers, but also with other sectors in the broader market. By continuing to enhance and cultivate these attributes through quarter in, quarter out execution and opportunistic transactions such as Earthstone, we believe that we can continue to create outsized value for shareholders and solidify our position as a leader in the energy sector. Thank you again for your time today.
Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.