Key Points
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Granite Ridge Resources is targeting positive free cash flow by 2027, with a free-cash-flow yield above 10%, dividend coverage of at least 1.25 times, and continued production growth.
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The company is shifting capital toward operated partnerships, which management says offer strong returns and support high-single-digit production growth while helping reduce leverage. Planned development spending and acquisitions are expected to total in the high-$300 million range.
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Granite Ridge believes its enterprise-value multiple of 2.7 times—below mid-cap and Permian-focused peers—could rerate as cash flow improves, while a potential share distribution by a Grey Rock fund may increase the public float and end its controlled-company status.
Granite Ridge Resources (NYSE:GRNT) is targeting a transition to positive free cash flow by 2027 while maintaining high-single-digit production growth through its operated-partnership model, Chief Financial Officer Kyle Kettler said during a company presentation.
The Dallas-based upstream oil and natural gas company invests across major U.S. unconventional basins through both traditional non-operated working interests and operated partnerships with established operators. Kettler said Granite Ridge targets a 25% asset-level rate of return on its investments.
Operated partnerships drive capital allocation
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Kettler highlighted Granite Ridge’s operated-partnership strategy as a key component of its growth plan. The company historically operated as a non-operated working-interest investor, but its capital allocation is now increasingly directed toward operated partnerships.
One partnership, Admiral, operates in the Delaware Basin across New Mexico and Texas. Kettler said Granite Ridge has generated “very good” returns through its relationship with Admiral and expects to become cash-flow positive from that partnership in the near term.
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Across its operator partners, Granite Ridge has acquired locations for an average of approximately $1.4 million per location, according to Kettler. He said that figure compares favorably with broader market data compiled by Enverus and with recent Delaware Basin acreage transactions announced by larger companies.
The company identified 238 gross locations, or 88 net locations, within the portfolio discussed in the presentation. Average drilling and completion costs, including facilities, are about $900 per foot, Kettler said. Average well productivity is estimated at 56 barrels per foot, with a range of 45 to 60 barrels per foot for 10,000-foot laterals.
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Granite Ridge estimates that its net inventory represents roughly $800 million in future development spending, based on the number of net locations, drilling and completion costs, and lateral lengths.
Growth outlook and spending plans
Granite Ridge has delivered compounded growth of 13% since 2023, Kettler said. Looking ahead, management expects growth to moderate somewhat but remain in the high-single-digit range as the company seeks to reduce leverage and move toward positive cash flow.
The company’s guidance calls for single-digit growth while maintaining an approximately even oil and natural gas production mix. Granite Ridge expects development spending and acquisitions to be in the high-$300 million range, with operated partnerships receiving the majority of capital.
Since inception, including assets held in private Grey Rock funds that were contributed to Granite Ridge when the company went public in 2022, Granite Ridge has invested more than $2 billion, Kettler said.
Rather than pursuing large-scale acquisitions, Granite Ridge seeks to make smaller and more frequent investments relative to its size. Kettler said the approach is intended to keep returns within a tighter range, adding that results have been repeatable across the company’s four operated partners.
2027 cash flow and valuation targets
Management views 2027 as a key milestone for the company’s financial strategy. Granite Ridge is targeting a free cash flow yield above 10%, dividend coverage of at least 1.25 times, and continued all-in production growth that year.
Kettler said Granite Ridge has reached a scale at which it can shift from a growth model that outspends cash flow toward one that generates positive cash flow. He said the company’s enterprise value is roughly $1 billion.
Granite Ridge was trading at an enterprise-value multiple of 2.7 times, compared with 3.4 times for mid-cap peers and 4 times for Permian-focused peers, according to the presentation. Kettler said management believes continued growth, investment returns and a cash-flow profile more comparable with peers could support a valuation rerating.
Granite Ridge has publicly discussed two of its operated partners, including PetroLegacy, while two additional partners have not been disclosed because they are still building their positions. The company said those undisclosed partners are active in development.
Kettler also pointed to an expected distribution of Granite Ridge shares held by a Grey Rock fund to that fund’s limited partners over the next six to 12 months. He said the distribution could increase the company’s public float and move Granite Ridge from controlled-company status to non-controlled-company status.
Company insiders have also been active buyers of Granite Ridge shares during available trading windows, Kettler said.
About Granite Ridge Resources (NYSE:GRNT)
Granite Ridge Resources, Inc operates as a non-operated oil and gas exploration and production company. It owns a portfolio of wells and acreage across the Permian and other unconventional basins in the United States. Granite Ridge Resources, Inc is based in Dallas, Texas.
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The article “Granite Ridge Resources Targets Positive Free Cash Flow by 2027” was originally published by MarketBeat.
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