Granite Ridge Resources, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone Q4 filing. Granite Ridge is a scaled, non-operated U.S. oil and natural gas company with interests across the Permian, Eagle Ford, Bakken, Haynesville and DJ basins. Third-party operators conduct all well operations. Historical periods before the October 24, 2022 Business Combination reflect the combined predecessor funds, which affects period comparability.
Key Financial and Operating Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $394.1 million | $497.4 million | Down 21% |
| Net income | $81.1 million | $262.3 million | Down 69% |
| Basic and diluted EPS | $0.61 | $1.97 | Down 69% |
| Net cash from operating activities | $302.9 million | $346.4 million | Down $43.5 million |
| Capital expenditures | $282.4 million | $185.5 million | Up 52% |
| Acquisitions of oil and gas properties | $76.8 million | $49.2 million | Up 56% |
| Year-end debt | $110.0 million | None | New borrowing |
| Year-end cash | $10.4 million | $50.8 million | Down $40.4 million |
- Production: 24,311 Boe per day, up from 19,765 Boe per day; total production increased to 8.873 MMBoe from 7.215 MMBoe. Oil production rose to 4.162 MMBbl and natural gas production to 28.266 Bcf.
- Pricing: Realized price excluding settled derivatives declined to $44.41 per Boe from $68.94. Oil averaged $76.18 per barrel versus $92.50, while natural gas and related products averaged $2.72 per Mcf versus $7.46.
- Derivative impact: Commodity derivatives generated a $25.5 million gain and $22.9 million of net cash receipts in 2023, compared with a $25.3 million loss and $42.4 million of cash payments in 2022.
- Profitability: Net operating income was $90.6 million, implying an operating margin of approximately 23%. Net income margin was approximately 21%. These margins were pressured by lower prices, higher depletion, increased operating costs and a $26.5 million impairment.
- Costs: Lease operating expense increased to $60.5 million, or $6.82 per Boe, from $44.7 million, or $6.19 per Boe. Depletion and accretion rose to $160.7 million, or $18.11 per Boe, from $105.8 million, or $14.66 per Boe.
- Reserves: Year-end proved reserves were 53.472 MMBoe, including 27.317 MMBbl of oil and 156.928 Bcf of natural gas. Proved developed reserves represented 58% of volumes and 72% of PV-10. PV-10 was $856.4 million, down from $1.559 billion, while standardized measure was $721.9 million, down from $1.266 billion.
- Balance sheet: Total assets were $927.1 million and stockholders’ equity was $671.6 million at year-end. Debt was $110.0 million at a weighted-average interest rate of 8.71%, with $129.7 million of committed borrowing availability and $10.4 million of cash, or total stated liquidity of $140.1 million.
- Cash returns: The company paid $58.6 million in dividends, or $0.44 per share, and repurchased 5.68 million shares for an aggregate $36.3 million since program inception.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of lower oil and natural gas prices, partially offset by higher production from drilling, acquisitions and additional net revenue interests.
- Production and the net producing-well interest expanded materially, with net producing wells increasing to 176.50 from 132.88.
- Operating cash flow declined despite higher production because of lower commodity sales and higher operating costs. Improved derivative settlements partially mitigated the decline.
- Capital deployment increased substantially, including $282.4 million of development capital and $76.8 million of acquisitions.
- Depletion increased 52% and the company recorded a $26.5 million impairment of Haynesville properties due to lower gas prices and negative reserve revisions.
- Debt increased from zero at December 31, 2022 to $110.0 million. The November 2023 credit amendment reduced the borrowing base from $325.0 million to $275.0 million while increasing elected commitments to $240.0 million.
- The company completed a warrant exchange and conversion that eliminated all outstanding warrants and resulted in the issuance of approximately 2.6 million common shares. Related costs were approximately $2.5 million.
- In December 2023, certain Permian assets were exchanged for 561,752 shares of Vital Energy common stock and 541,155 shares of Vital Energy preferred stock. The year-end carrying value of these equity investments was $50.4 million.
- The company corrected an immaterial prior-period tax-basis error in the 2022 balance sheet. The correction reduced deferred tax liabilities and increased additional paid-in capital by $41.8 million, with no effect on prior-period net income, cash flows, total assets or total equity.
Guidance, Outlook, Commentary and Risks
- 2024 capital plan: Management budgeted approximately $265 million to $285 million of total capital expenditures, including approximately $35 million for acquisitions. Spending may be deferred or increased depending on commodity prices, costs, financing, operator activity and investment opportunities.
- Dividend: The company expects quarterly dividends of approximately $0.11 per share, or about $60 million annually, but future payments remain subject to board discretion and financial conditions. A $0.11-per-share first-quarter 2024 dividend was declared.
- Liquidity outlook: Management believes cash on hand, operating cash flow and available credit capacity are sufficient for budgeted expenditures and operating needs for at least the next twelve months. The filing does not provide a detailed free-cash-flow forecast.
- Hedging: At December 31, 2023, the company had 2024 oil collars and swaps covering approximately 1.717 million barrels and natural gas collars and swaps covering approximately 12.374 Bcf. Subsequent to year-end, it added 2025 oil collars and natural gas swaps.
- Principal risks: Results depend on third-party operators over which Granite Ridge has limited control; oil and gas prices, reserve estimates, drilling pace, infrastructure, transportation, operator credit quality and lease expirations are material variables.
- Regulatory and environmental risks: Increasing methane, greenhouse-gas, hydraulic-fracturing, wastewater-disposal, seismicity and environmental requirements could increase operator costs, delay development or reduce production.
- Development risk: Approximately 42% of proved reserves were proved undeveloped. Estimated future development costs for these reserves were approximately $343.9 million over five years, creating significant capital and execution requirements.
- Lease expirations: Undeveloped leases representing 5,498 net acres could expire in 2024, 1,459 net acres in 2025 and 491 net acres in 2026 and later unless production, drilling or other lease-preservation provisions apply.
- Controls and reporting: Management stated that previously disclosed material weaknesses involving depletion calculations, acquisition accounting and information-technology access controls were remediated as of December 31, 2023. The company’s independent auditor was not engaged to attest to internal control effectiveness because Granite Ridge remains an emerging growth company.
- Unusual items: 2023 results included the Haynesville impairment, warrant-exchange costs and a $5.7 million loss from changes in warrant fair value. These items reduce comparability with 2022.
Important Facts for Investors to Verify
- Reconcile the annual results with the financial statements and assess the impact of the October 2022 Business Combination on comparability.
- Review the $26.5 million Haynesville impairment, reserve revisions and the sensitivity of PV-10 to commodity prices and development timing.
- Evaluate whether projected operating cash flow can fund the $265 million to $285 million 2024 capital program, approximately $60 million of annual dividends and debt obligations.
- Confirm the borrowing-base calculation, covenant compliance, semiannual redetermination risk and the effect of the 8.71% weighted-average borrowing rate.
- Assess the sustainability of the dividend and the company’s continued reliance on debt or asset sales if commodity prices weaken.
- Review operator concentration, operator development plans and the company’s limited control over drilling and production decisions.
- Examine the terms, liquidity, restrictions and conversion mechanics of the Vital Energy common and preferred stock received in the Permian divestiture.
- Monitor remediation of internal-control weaknesses, related-party fees under the $10 million annual Management Services Agreement and potential conflicts with Grey Rock affiliates.