By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panel is divided on Granite Ridge's (GRNT) prospects. While some see potential in the Admiral partnership and hedging strategies to drive 2027 free cash flow, others caution about elevated lease operating expenses, volatile Permian basis differentials, and the risk of acquisition-driven growth in a commodity downturn.
Risk: Persistent Waha basis weakness depressing gas realizations and elevated lease operating expenses staying high due to ongoing early-life costs.
Opportunity: The Admiral partnership becoming self-sustaining in 2H26 and lease operating expenses per BOE improving as new wells come online.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Granite Ridge posted higher Q1 production and revenue, with output up 18% year over year to 34,500 BOE per day and oil and gas sales rising to $128.3 million. Management said the company remains on track for growth in the second half of 2026 and still expects a free cash flow inflection in 2027.
Results were pressured by weak Permian natural gas pricing and higher lease operating expenses. Natural gas revenue fell as realized gas prices dropped 36% to $2.55 per Mcf, while LOE rose to $9.57 per BOE, prompting the company to raise full-year LOE guidance.
The company kept full-year production guidance unchanged but lifted total capital spending due to more acquisition activity, including deals mainly in the Permian. Granite Ridge also highlighted active basis hedging and operator partnerships as key to supporting growth and its 2027 free cash flow target.
Granite Ridge Resources (NYSE:GRNT) reported higher first-quarter 2026 production and revenue, while management said elevated lease operating expenses and weak Permian Basin natural gas pricing weighed on results.
President and Chief Executive Officer Tyler Farquharson said the company delivered “strong operational execution” in the quarter, with production up 18% year over year to 34,500 barrels of oil equivalent per day. Adjusted EBITDA was $71 million.
Farquharson said Granite Ridge remains positioned for continued growth in the second half of 2026 and reiterated the company’s expectation for a “trajectory to free cash flow in 2027.” He said the company views 2026 as “the last year we expect to outspend operating cash flow.”
Revenue rises, but gas pricing pressures results
Oil and natural gas sales totaled $128.3 million in the first quarter, up $5.3 million from the same period in 2025. The increase was driven by oil revenue, which rose to $103.4 million from $91.8 million a year earlier.
Chief Financial Officer Kyle Kettler said oil production increased 11% to 16,433 barrels per day, while the average realized oil price was $69.94 per barrel, compared with $69.18 per barrel in the first quarter of 2025.
Natural gas revenues fell to $24.8 million from $31.1 million in the prior-year period. Kettler said the decline reflected a 36% drop in realized natural gas prices to $2.55 per Mcf, partially offset by a 24% increase in gas production. He cited “the ongoing impact of negative Waha basis differentials in the Permian” as the primary headwind on revenue and cash flow.
On an equivalent basis, Granite Ridge’s average realized price was $41.35 per BOE, excluding settled commodity derivatives, compared with $46.71 per BOE in the first quarter of 2025. Including settled derivatives, realizations were $37.53 per BOE.
Granite Ridge recorded a GAAP net loss of $47 million, or $0.36 per diluted share. Kettler said the loss was “almost entirely” due to a $72 million loss on derivatives, including $60.2 million of unrealized mark-to-market losses driven by rising oil prices. Adjusted net income was $3.1 million, or $0.02 per adjusted diluted share.
LOE comes in above expectations
Management spent part of the call addressing lease operating expense, which rose to $29.7 million, or $9.57 per BOE, compared with $16 million, or $6.17 per BOE, in the first quarter of 2025.
Farquharson said the increase was largely tied to early-life flowback expenses from wells turned to sales in the fourth quarter of 2025, higher saltwater disposal costs and a one-time charge related to an asset impairment. Kettler added that higher miscellaneous supplies and contract labor, compression rental in newer Admiral operating areas, and fixed costs spread over declining production in the DJ and Bakken also contributed.
Granite Ridge raised its full-year LOE guidance to $7.75 to $8.75 per BOE. Management said it expects per-unit LOE to improve as new wells come online during 2026 and add production volume.
Guidance updated for acquisition spending
Granite Ridge maintained its full-year production guidance of 34,000 to 36,000 BOE per day, with Farquharson saying the company believes it is on track to meet or exceed the midpoint.
The company also left development capital guidance unchanged at $300 million to $330 million. However, it increased acquisition capital by $25 million at the midpoint, resulting in total capital guidance of $345 million to $385 million.
During the first quarter, Granite Ridge invested $68.4 million, including $58.3 million of development capital and $10.1 million of acquisition costs. The company closed 17 transactions in the Delaware and Utica basins, adding three net undeveloped locations to its inventory.
Kettler said first-quarter development spending was below the pace implied by full-year guidance due to project timing, not a reduction in planned activity. He said the company expects second-quarter development capital could exceed $100 million, with another $40 million slated for acquisitions.
Company highlights hedging and Permian opportunity
Farquharson said Granite Ridge has responded to Waha pricing weakness through an active basis hedging program. From February through April, the company added Waha basis swaps from the fourth quarter of 2026 through the first quarter of 2028 at a weighted-average basis of approximately negative $1.50.
He said the hedges cover roughly 45% of total Permian gas in the fourth quarter and increase in 2027 to nearly 70% on a proved developed producing basis when conduit volumes are included.
Management also pointed to an improved opportunity set, particularly through operator partnerships. Farquharson described a Permian Basin opportunity involving a major operator seeking near-term production growth while constrained by its budget. He said Admiral Permian is positioned to secure a rig, drill Bone Spring targets, complete the wells and bring them online before year-end.
Farquharson said the project carries a 55% internal rate of return and 2.4 times multiple on invested capital at strip pricing. He said it demonstrates the advantages of Granite Ridge’s operator partnership model, including access to inventory that would otherwise be difficult for a company of its size to reach.
Analysts ask about acquisitions and 2027 outlook
During the question-and-answer session, Stephens analyst Michael Scialla asked whether the increased acquisition capital was tied to the Admiral opportunity. Farquharson said the Admiral project would fall under potential additional development spending, not the acquisition capital increase.
Farquharson said the $25 million acquisition capital increase reflects transactions expected to close in the second quarter, spread across roughly half a dozen to a dozen deals, mainly in the Permian. He said about 15% relates to additional leasing in the Utica Shale in Ohio.
Scialla also asked how Granite Ridge expects to lower capital spending next year while ramping partnerships. Farquharson said the Admiral partnership has largely absorbed its startup capital and is expected to become “self-sustaining” beginning in the back half of 2026, helping support the company’s 2027 free cash flow inflection.
In response to a question from Texas Capital analyst Derrick Whitfield, Farquharson said Granite Ridge is seeing more opportunities where large Permian operators seek partners to expand production without increasing their own capital budgets. He said the specific opportunity discussed on the call would likely fall on “the smaller end” of a range Whitfield framed as $25 million to $100 million.
Farquharson closed by reiterating the company’s 2027 framework, which targets high single-digit production growth, more than 10% free cash flow yield and approximately 1.25 times dividend coverage. He said the dividend remains a core part of Granite Ridge’s shareholder return framework.
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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Four leading AI models discuss this article
"The sharp rise in LOE and the reliance on acquisition-heavy growth indicate that the non-operated model is failing to deliver the promised cost efficiencies, jeopardizing the 2027 free cash flow target."
Granite Ridge is attempting to bridge the gap between a non-operated model and a self-sustaining cash flow machine, but the Q1 results expose a dangerous disconnect. While production is up 18%, the 55% surge in lease operating expenses (LOE) to $9.57/BOE suggests that the 'non-operated' advantage—lower overhead—is eroding. Management is betting heavily on the Admiral partnership to drive 2027 free cash flow, but they are simultaneously increasing acquisition capital. Relying on 'operator partnerships' to bypass capital constraints is a double-edged sword; they are essentially outsourcing execution risk to larger players who have their own budget agendas. If Permian basis differentials remain volatile, the 2027 inflection target looks increasingly optimistic.
The company's active basis hedging strategy effectively mitigates the Waha pricing risk, and the shift toward 'self-sustaining' partnerships could significantly lower future capital intensity, justifying the current spending ramp-up.
"GRNT's basis hedging and operator partnerships de-risk the path to 2027's targeted 10%+ FCF yield despite near-term gas/LOE headwinds."
GRNT's 18% YoY production growth to 34.5k BOE/d and oil revenue up 13% show execution amid Permian gas woes (realized $2.55/Mcf, -36% YoY), but hedging 45-70% of 2026-27 Waha basis at -$1.50 mitigates downside. Raised LOE guidance to $7.75-8.75/BOE reflects acquisition integration and early flowback costs, yet per-unit improvement expected with volume ramp. Partnerships like Admiral's 55% IRR Bone Spring project (2.4x MOIC at strips) leverage non-op model for inventory access. 2027 FCF yield >10% target looks credible if capex discipline holds post-H2 2026 inflection.
Permian gas oversupply could persist beyond hedges (ending Q1 2028), keeping realizations depressed and delaying FCF to 2028+ if LOE doesn't normalize. Acquisitions at elevated multiples risk value destruction if oil strips fall 10-15%.
"GRNT's path to 2027 FCF inflection requires three simultaneous wins (oil prices hold, LOE normalizes, partnerships scale) with no margin for error in a commodity-dependent business already showing cost inflation."
GRNT's Q1 shows classic small-cap E&P trap: headline growth (18% production, $128.3M revenue) masks deteriorating unit economics. LOE surged 55% YoY to $9.57/BOE—management blames flowback costs and one-time charges, but $7.75–$8.75 guidance still implies structural cost inflation. More concerning: gas realizations collapsed 36% to $2.55/Mcf on Waha basis weakness. Management hedges 45–70% of Permian gas, which is prudent, but the 2027 'free cash flow inflection' depends entirely on: (1) oil prices staying $65+, (2) LOE actually declining as promised, and (3) Admiral partnership scaling without capital drain. The $25M acquisition capex increase signals management sees deals, but acquisition-driven growth in a commodity downturn often destroys value.
If Admiral partnership truly becomes self-sustaining in H2 2026 and LOE normalizes as wells mature, the 10%+ FCF yield and 1.25x dividend coverage in 2027 is achievable—and the stock could re-rate on visibility to cash generation rather than production growth.
"The core bullish thesis is that Granite Ridge can hit a meaningful 2027 free cash flow inflection thanks to the Admiral partnership, a robust hedging program, and disciplined capex allied to accretive acquisitions."
Granite Ridge’s Q1 shows oil-led strength (oil revenue $103.4m; production 34.5k BOE/d), but the bull case rests on a few moving parts that could flip. The upside hinges on the Admiral partnership becoming self-sustaining in 2H26, LOE per BOE improving as new wells come online, and a 2027 free cash flow inflection aided by hedging and measured acquisitions. Risks include persistent Waha basis weakness depressing gas realizations, LOE staying elevated due to ongoing early-life costs, and execution risk around the accelerated acquisition spend. GAAP losses due to derivatives mask operating cash flow quality and could mislead near-term sentiment.
If Admiral fails to become self-sustaining as expected or if Waha basis remains depressed, the 2027 FCF inflection may erode well before it materializes; and if acquisition activity overruns timing or cost, cash flow visibility worsens.
"Granite Ridge's aggressive acquisition spending during a period of rising LOE creates a liquidity trap that threatens the 2027 FCF inflection."
Claude, you’re right to highlight the unit economic deterioration, but you’re missing the balance sheet implication. Granite Ridge is aggressively levering its non-op model to buy growth during a period of high LOE, effectively trading near-term cash flow for future inventory. If the Admiral partnership doesn't yield immediate scale, the current $25M acquisition ramp-up creates a liquidity trap. They are betting on 2027, but the market will punish them for capital intensity long before then.
"Non-op model plus Admiral partnership reduces net capital intensity, neutralizing acquisition liquidity risks."
Gemini, your 'liquidity trap' from $25M acquisitions overlooks the non-op model's low D&C capex (~20-25% of total per guidance) and Admiral partnership offloading 50%+ development costs for self-funding post-H2 2026. This combo lowers blended capital intensity to < $10/BOE by 2027, funding buys from ops without leverage spike. LOE normalization is the real litmus test.
"Admiral's 'self-sustaining' claim needs operational definition—if it doesn't cover 100% of drilling costs by H2 2026, GRNT's capex intensity doesn't improve as much as Grok models."
Grok's <$10/BOE blended capex by 2027 assumes Admiral scales flawlessly and LOE normalizes—both unproven. But the real gap: nobody's quantified what 'self-sustaining' actually means operationally. Does Admiral cover 100% of its own drilling costs by H2 2026, or just cash-on-cash? If it's the latter, GRNT still funds the gap from ops, negating the leverage relief Grok claims. That distinction determines whether the $25M acquisition ramp is opportunistic or desperate.
"The $10/BOE capex by 2027 is brittle because Admiral’s coverage and LOE normalization are unquantified and could derail the inflection."
Grok's blended <$10/BOE capex by 2027 hinges on Admiral scaling and LOE normalization, but that's a big conditional. There’s no evidence Admiral will cover 50%+ of drilling costs or that LOE will normalize quickly if production ramps; even small misses hit FCF. A 2027 inflection requires multiple positive bets—oil price, hedges, acquisition efficiency—any one failing breaks the thesis. The model remains asset-light only if scale is achieved, not guaranteed.
The panel is divided on Granite Ridge's (GRNT) prospects. While some see potential in the Admiral partnership and hedging strategies to drive 2027 free cash flow, others caution about elevated lease operating expenses, volatile Permian basis differentials, and the risk of acquisition-driven growth in a commodity downturn.
The Admiral partnership becoming self-sustaining in 2H26 and lease operating expenses per BOE improving as new wells come online.
Persistent Waha basis weakness depressing gas realizations and elevated lease operating expenses staying high due to ongoing early-life costs.