Good morning, and welcome everyone to Granite Ridge Resources' Second Quarter 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. A question-and-answer session will follow the formal presentation. Thank you. It is now my pleasure to turn the call over to Wes Harris, Investor Relations Representative for Granite Ridge.

Thank you, operator. And good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Luke Brandenberg, our President and Chief Executive Officer, who will provide an overview of key matters for the second quarter, and our outlook for the remainder of 2023. We'll then turn the call over to Tyler Farquharson, our Chief Financial Officer who will review our financial results. Luke will then return to provide some closing comments before we open the call up for questions. Today's conference call contains certain projections and other forward-looking statements within the meaning of Federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied in these statements. We would ask that you also review the cautionary statement in our earnings release. Granite Ridge disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release in our filings with the Securities and Exchange Commission. This conference call also includes references to certain non-GAAP financial measures. Information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in our earnings release that is posted on our website. Finally, as a reminder, this call is being recorded. The replay and transcript will be made available on our website following today's call. So with that, I'll turn the call over to Luke.

Thank you, Wes. And good morning, everyone. We appreciate you joining us for today's call. This was a solid quarter for Granite Ridge from a results perspective. I’ll borrow the term Tyler used in our board meeting and call it workmanlike. Across the board, results were in line to slightly better than our internal expectations. Production was a bit better, which led to a bit higher adjusted EBITDAX. CapEx and wells turned to sales were roughly in line. It almost seems boring, but as a new public company, boring can be good. A lot of hard work went into creating this boring-but-good outcome. I'd like to thank our team for all their efforts over the past quarter, as well as our operating partners. An immense amount of time and energy went into determining nearly how well we turned wells to sales; we greatly appreciate it. A particularly bright spot of the quarter was our business development and deal evaluation efforts. Historically, we have seen about a deal a day, or roughly 400 unique deals a year. Year-to-date, we've already screened and/or evaluated over 400 deals representing over $10 billion of potential capital opportunities. We completed ten transactions in the first half of the year, seven of which were in the Permian, and one transaction each in the Eagle Ford, Haynesville, and DJ Basin. A few of those Permian transactions are part of the strategic partnership leg to our opportunity set stool, where we make a more concentrated allocation in core areas with our strategic partners. We mitigate this concentration risk with higher expected returns and more insight into development timing. We look forward to sharing more on our strategic partnership initiative in the coming quarters. Additionally, alongside solid execution across the board, I'm pleased with the progress we've made on several of our key initiatives. While we still have work to do to increase trading volume, the one-two punch of the war and exchange and Russell Index addition at the end of June removed an overhang and has more than doubled our previous volume. We continue to increase investor visibility at conferences and non-deal roadshows, and we are starting to hit our stride as a public company. It's great to see some of this progress reflected in the share price as we're up roughly 35% since we spoke three months ago on our first-quarter earnings call. Now, with the table set, I'll turn to our outlook for the full year 2023. As a result of stronger than expected well performance in the Haynesville and Permian, we are increasing the low-end of our 2023 production guidance by 500 barrels of oil equivalent per day. This takes the midpoint up to 22,250 barrels of oil equivalent, or a 13% increase over the full year 2022. On the CapEx side, we're not changing our development capital guidance, but we are increasing our guidance on inventory acquisitions, which in the past I’ve referred to as opportunity capture by $5 million. Now as a reminder, while our team continues to pursue new opportunities, we do not guide to future investments. The $50 million guide for inventory acquisitions and production acquisitions are deals that have either closed or where we have executed definitive agreements. Our development CapEx for 2023 is front half loaded, but our wells turned to sales count is back half loaded. The third quarter will be an exciting one. We anticipate that about three-quarters of our remaining wells to be turned to sales, as well as about three-quarters of our remaining development CapEx will occur in the quarter. So with that, I'll turn it over to Tyler to discuss our financial results in more detail. Tyler.

Thanks, Luke. And good morning, everyone. During the second quarter, we reported net income of $0.07 per diluted share, and adjusted net income of $0.19 per diluted share. Our average daily production for the quarter was 21,500 BOE per day, a 13% increase year-over-year and a 7% decrease quarter-over-quarter. Looking forward, we expect this quarter's production volume to be our low point for the year, with production growth anticipated during the second half of 2023. And as Luke mentioned, we tightened our production guidance range and increased our midpoint for the year to 22,250 BOE per day, which now represents 13% growth compared to last year. Per unit lease operating costs for the quarter were $7.34 per BOE, an increase compared to the first quarter due to a combination of several factors, including the addition of acquired producing properties, higher saltwater disposal costs, increased workover expenses, and lower production. For 2023, we continue to expect LOE of $6.50 to $7.50 per BOE. Production and ad valorem taxes came in at 7% of sales, and our view for 2023 of 78% of sales remains unchanged. G&A expense for the second quarter was $4.08 per BOE. Included in our G&A expense was $400,000 of non-cash stock-based compensation and $2.5 million in warrant exchange transaction costs. Adjusting for these items, our recurring cash G&A expense was $5.1 million, or $2.60 per BOE. We continue to expect full year 2023 recurring cash G&A to be in the range of $20 million to $22 million, excluding the $2.5 million in foreign exchange transaction costs. Our operating partners completed and placed on production a total of 79 gross and 5.5 net wells, with 90% of that activity occurring in the DJ and Permian basins. At quarter end, we had an additional 186 gross, or 12.2 net wells in progress. Our full year expectation of 19 to 21 net wells placed on production is unchanged. Capital spending during the quarter was right on track. During the quarter, we deployed $63 million of capital, including $7.5 million of acquisitions. And year-to-date our spending totals $189 million, including $42 million of acquisitions. We're increasing our annual capital guidance by $5 million to reflect these recently closed transactions. Our total capital spending guidance is now $280 million to $310 million for 2023. We've also continued our ongoing quarterly cash dividend program. During the quarter, the Board declared a $0.11 per share dividend, which represents an approximate 6.1% dividend yield measured against Wednesday's closing price. Looking at our $50 million stock buyback plan, during the second quarter we repurchased 661,000 shares at an aggregate cost of $4.1 million. As of June 30, we have repurchased a total of 960,000 shares at a cost of $6 million. Our stock repurchase plan is authorized through the end of 2023 and will be evaluated later this year. Finally, we ended the second quarter with $55 million drawn on our revolving credit facility, with availability of $95 million on the revolver and cash of $14 million. Our ending liquidity was $109 million. I'll now hand it back to Luke for his closing comments.

Thank you, Tyler. As we have discussed on previous calls, Granite Ridge is a bit different in the public world in that we are a hybrid. On one hand, we are an oil and gas company, as all our assets are oil and gas real property interests. On the other hand, we're more of an investment firm, but on a daily liquidity and greater investor alignment, as our day-to-day job is not picking drilling locations or frack designs, but rather to source and evaluate opportunities, and to allocate capital to deals with the best risk-adjusted returns. Our objective is to tighten the band of outcomes in oil and gas investing through high diversification, low leverage, and disciplined investment decision-making. While many of our small-cap peers trade more like an asset and a business, we look forward to demonstrating in the public space, as we have in the private space for a decade, that there's real value in the Granite Ridge business above and beyond our asset value. I'd like to conclude by thanking our shareholders for your continued support, and to investors that we do not yet have a relationship with, we look forward to the opportunity to share our story and our plans to deliver meaningful shareholder returns, both in the near future and long term. So with that, we are happy to answer any questions folks might have on today's call. Operator?

Your first question comes from Phillips Johnston with Capital One. Your line is open.

Hey, guys, thanks, and happy Friday. My first question pertains to M&A. Luke, I wanted to maybe flesh out some of your comments about strategic partnerships. So you mentioned in your prepared remarks. I'm wondering if you guys have looked at or plan to look at any larger size deals where Granite Ridge would be a true partner in the development plans of a larger acreage footprint, similar to what one of your public non-op peers has done recently, as opposed to sort of the more traditional non-op deals where you're more of a passive working interest owner?

Yeah, good morning, Phillips. And thanks for the question. The answer is absolutely. In fact, we’ve submitted offers on a couple of deals that look like that thus far. The strategic partnership model is more of a private equity type approach, where we're really partnering directly with a team that's going out to build an asset in smaller portions over time. But in terms of a larger format acquisition, we are in conversations with several parties to do that as well. One thing we look at is our goal to avoid more of the larger banker marketing processes. We just haven't seen as much value there; we see more value in smaller, one-off deals. So I can tell you that we're engaging in regular dialogue with private equity firms. As private equity fundraising isn't as significant as it was several years ago, we believe we could be a really interesting capital partner for those looking to make an acquisition and not necessarily having the capital to compete with a lot of these mid-cap companies. The idea is that, if those firms acquire the asset, that's probably the only asset they own. Therefore, we have a good line of sight that 100% of their CapEx will be allocated to the asset with which we're invested. If they choose to stop drilling, it probably makes sense for us as well. Currently, many packages on the acquisition and divestiture market are at an impasse due to difficulties buying PDP when our cost of debt rose from 3.5% to 8.5%. So it’s a tough environment for buying PDP at the current pricing, as sellers are demanding. However, that’s a long-winded way of saying we like the concept. We admire what our peers have done in this space, think they're driving a lot of value, and we are certainly exploring it as well.

Yeah. Sounds good. That's really good color. Thanks. And then it's obviously early to talk '24. But maybe just from a high-level perspective, how should we think about what your production growth rate might look like next year and just kind of thinking longer term, what do you think is the right production growth rate for a company of your size?

Yeah, that's a great question. So one thing we’ve talked about from a CapEx standpoint is that we’re generally targeting to reinvest the majority of our free cash flow. So, at a high level, that looks like maybe high-single digits to low-double digit year-over-year production growth. This year, with a small bump in guidance, we're looking at approximately 13% year-over-year production growth. I anticipate something around that range; again, high-single digits to low-double digits is what we look at internally.

Okay, great. Thanks, Luke.

You got it. Thanks, Phillips. Have a great weekend.

Thank you.

Your next question comes from the line of Jeff Grampp with Alliance Global Partners. Your line is open.

Good morning, guys. Appreciate the time.

Yeah, good morning.

So maybe kind of building off that last commentary. Luke, it sounded like you mentioned targeting to reinvest all the free cash flow to focus on growing that top line at attractive returns. I wanted to tie that into the dividend policy. You guys are newly public, so no real precedent, I guess, in terms of when you and the board will review that policy. Is it fair to think that the focus is more on growing the asset base versus the dividend? Or do you think there's a dividend growth story here? And in the medium term, how do you see that fitting into the overall shareholder return framework for you?

Yeah, it's a great question. It's a primary topic of conversation at our board meetings. At a high level, if we're able to find opportunities that meet our return targets, we believe that allocating capital there and increasing production is a better use of capital, providing a better full cycle return for our investors. However, if we experience a slow period where we're unable to deploy capital effectively, there is free cash flow available to allocate either to growth or to the dividend. To date, we haven’t had much conversation about increasing the dividend, to be honest. I think that's largely influenced by the deal flow we’re seeing, which is more substantial than ever, and our eagerness to allocate more significant capital through our strategic partnerships. While we haven't discussed increasing the dividend, we always aim to ensure that the dividend we have is appealing to a broader investor demographic, particularly retail investors. We love maintaining a dividend that we can easily justify. One consideration from a hedging perspective is ensuring we can cover our dividend while keeping production roughly flat for at least 18 months at a price point that isn’t sustainable for operators going under. We believe our current dividend structure positions us well, allowing people to confidently rely on it.

Great, appreciate that commentary. And on the acquisition side, is there any sense for attributing that increase in deal flow to broader industry dynamics, or is it a function of being public and perhaps having greater brand recognition? What do you attribute that step change in deal flow to?

Yes, it’s a good question. I’d say it's a mix of factors. I do believe there is increased awareness since we became public; I think, non-operators are increasingly being recognized as a sector that holds promise. Additionally, through our strategic partnerships, we’ve broadened our business development team significantly. One of our partners has proven incredibly effective in identifying new deals, seemingly every couple of weeks. We’re excited to see that not only is the volume increasing, but so is the quality of the deals coming in. In terms of the predecessor company, we were more restrained in the scale of investments we could engage in via the fund side, but now being a public company has afforded us a lot more consolidated cash flow to invest. This allows us greater capacity to partake in more substantial investments, ultimately helping us address concentration risk and manage timely returns effectively. There are numerous positives to their outcomes.

Great, great. And just a follow-up to that point. It appears that your acquisition budget for this year isn't dramatically different from previous years, yet deal flow is higher. Would you say your return thresholds are higher than before? Is this a reflection of conservatism, given recent commodity price volatility? Please provide some commentary on the overall quality of the deals you're seeing.

Yes, I'd say a portion of it relates to competition within the first half of the year. In particular, during the first quarter, we felt we were frequently outbid on several deals due to newfound capital in the non-op space actively seeking investments. Another contributing factor is that there is increased capital associated with some of the more concentrated investments. Although the total amounts spent on inventory acquisitions may not have risen significantly, the associated CapEx for some of these investments is indeed higher. Thus, when evaluating full cycle investments, it leads us to reassess how we're allocating our capital.

Understood, that makes a lot of sense. All right. Thanks for the time, guys.

Cool. Thanks for the question. Have a good one.

Your next question is from Jeff Robertson with Water Tower Research. Your line is open.

Thanks. Good morning. Luke, just following up on Phillips' question about production growth. When do you start to get good line of sight into your operators' plans for 2024?

Yeah. Thanks for calling in, Jeff. What I'd tell you is we have pretty good visibility for about nine months. With some of the strategic partnerships, it's manageable, frankly. However, particularly since many of the wells that we're participating in or developing are subject to pad development, there is considerable lead time involved. I'd say we have solid visibility for about nine months; for a full year, visibility is decent but becomes tougher thereafter. Additionally, having built a significant dataset over the past decade provides insight into when an operator is likely to return. For instance, we have substantial data suggesting when EOG will come back to drill additional zones, wait a period, and then potentially drill nearby pads. This allows us to predict subsequent conditions. However, beyond 12 months, the operators themselves may not have certainty, as they adapt plans based on changing inventories and hydrocarbon price conditions. So in a nutshell, nine to twelve months is our sweet spot for visibility.

Secondly, Luke, is there some seasonality to the blocking and tackling acquisition-type strategy, as operators refresh their budgets and send out AFEs to their non-op partners?

Yes, it's a good question. The seasonality typically arises at the end of the year. We observe this phenomenon in the fourth quarter, particularly in November and December. Several operators with significant non-op positions will routinely submit AFEs. For example, in a typical week in the Permian, a particular operator may release AFEs with CapEx in the range of $30 million to $40 million. However, as we near year-end, this can escalate to $100 million to $150 million. This predictable cyclicality primarily presents itself in the later part of Q4. While we're often less competitive in that marketplace due to various factors, we strive to remain engaged as it can be cyclical but not universally predictable. We maintain a keen awareness of these cycles.

Thank you.

Your next question is from the line of Carter Dunlap with Dunlap Equity Management. Your line is open.

Hey, guys. I know there's been a lot of questions about deal flow, but I'm curious about one factor. If we consider that the second half commodity deck is, let's say, materially or somewhat better than the first half, do you think that helps or impedes flow in terms of volume? And also regarding what people want from you?

Yeah, it’s a good question. What I'm hoping, Carter, is that in the first half, I think you have more optimism about prices. Thus, there may have been operators that led into deals due to a consensus around higher back-half pricing. We weren’t pursuing that approach. When we evaluate opportunities, we generally utilize strip pricing, assessing above and below strip to determine break-even points. Essentially, we want to identify where a deal stands financially. We may have lost some bids as others anticipated higher prices, which likely swayed their evaluations. However, we've now seen a rise in prices, particularly in oil, and I anticipate that may result in participants bidding more on strip, reducing reliance on anticipated growth. This could benefit us on pricing. PDP remains a significant challenge, primarily due to elevated interest rates and uncertainties in hydrocarbon pricing. Having observed some climbing prices, I suspect we’ll see a narrowing gap between buyers and sellers, which could be an optimistic perspective, but it's possible.

All right, thanks. I appreciate it.

Yes, sir.

There are no further questions at this time. Ladies and gentlemen, thank you for participating in today's conference call. This concludes today's call. You may now disconnect.