A Combination of Yield and Growth
We hosted a fireside chat on March 13, 2024, with CEO Luke Brandenberg to discuss Granite Ridge’s strategy of exposing shareholders to private equity returns in a public company vehicle. This report contains a transcript of the conversation, which can be accessed on demand. A link is accessible in our full report. Granite Ridge’s business model is built upon a capital allocation strategy focused on returning cash to shareholders through a fixed dividend and investing in non-operated near-term development projects to grow the asset base. To execute the plan, management seeks to maintain leverage at about 0.5x trailing adjusted EBITDA. The company leverages relationships with leading public and private operators across most major US producing regions to build its diverse asset portfolio. As of year-end 2023, Granite Ridge owned interests in ~38,800 net acres in five producing regions. Proved reserves totaled 53.5 MMBOE, having an SEC PV-10 value of $856 million. The Permian Basin held 63% of the YE23 SEC PV-10 value. Controlled Capital partnerships that allow Granite Ridge to control development timing from a non-operated position are a top priority. Partnership capital could take up ~33% of FY24 capex and increase from there over time. Management believes the Controlled Capital partnership structure could help bridge the valuation gap between operating companies and non-operating companies. Management expects to increase the share of capital allocated to such structures to provide increased control over development timing and visibility into future production. The first pad of completions from a partnership formed last year in the Delaware Basin are contributing to 2Q24 production volumes. Management has guided to a mid- to high single-digit Y/Y production growth rate for FY24. Total capex is expected to fall in the range of $265-285 million. Maintaining low leverage and a strong balance sheet are core tenets of management’s philosophy. As of March 31, 2024, net debt was $62.9 million (including the value of ~1.1 million shares of Vital Energy) equating to a leverage ratio of 0.2x based on annualized 1Q24 adjusted EBITDA.
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