Permian Resources Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2024

There are 13 speakers on the call.

Operator

Good morning, and welcome everyone to Permian Resources' conference call to discuss its Q1 2024 Earnings Conference Call. Today's call is being recorded. A replay of the call will be accessible until May 22, 2024 by dialing 1-eight hundred 938-2488 and entering the replay access code 24,995 or by visiting the company's website at www.permianres.com. At this time, I will turn the call over to Mr. Hayes Mabry, Permian Resources' Vice President of Investor Relations for some opening remarks.

Operator

Please go ahead, Mr. Mabry.

Speaker 1

Thanks, Beau, and thank you all for joining us on the company's Q1 2024. On the call today are Will Hickey and James Walter, our Chief Executive Officers and Guy Ollifin, our Chief Financial Officer. Yesterday, May 7, we filed a Form 8 ks with an earnings release reporting Q1 results. We also posted an earnings presentation to our website that we will reference during today's call. I'd like to note that many of the comments during this earnings call are forward looking statements that involve risks and uncertainties that could affect our actual results and plans.

Speaker 1

Many of these risks are beyond our control and are discussed in more detail in the Risk Factors and the Forward Looking Statements sections of our filings with the SEC, including our Form 10 Q, which is expected to be filed later this afternoon. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results or developments may differ materially. We may also refer to non GAAP financial measures that help facilitate comparisons across periods and with our peers. For any non GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation, which are both available on our website. With that, I will turn the call over to Will Hickey, Co CEO.

Speaker 2

Thanks, Hays. I truly believe that the Q1 was the most compelling quarter Permian Resources has delivered so far. We were able to deliver production and free cash flow above our expectations, close out the integration of Earthstone ahead of schedule while increasing our annual synergy target by $50,000,000 and continue to execute on accretive A and D with approximately $270,000,000 of acquisitions announced this quarter. It takes an incredible team to deliver such strong execution quarter after quarter and I look forward to sharing some more detail on Q1 today. Moving into quarterly results, I'm pleased to announce Q1 production exceeded expectations with total production of 320,000 barrels of oil equivalent per day and oil production of 152,000 barrels of oil per day.

Speaker 2

Our strong production was attributable to multiple factors, including accelerated Earthstone D and C efficiencies and higher operational run times. Strong production results and CapEx of $520,000,000 in the quarter resulted in adjusted operating cash flow of $844,000,000 or $1.09 per share and adjusted free cash flow of $324,000,000 or $0.42 per share. We remain highly focused on sustaining a strong balance sheet with leverage of approximately 1x and increased liquidity to over $2,000,000,000 As part of our regularly scheduled Spring Bank rate termination process, we increased aggregate lender commitments under the credit facility from $2,000,000,000 to 2,500,000,000 dollars while maintaining a borrowing base of $4,000,000,000 Turning to return of capital. Our strategy remains consistent. We delivered on our previously announced increased base dividend of $0.06 per share, a 20% increase from previous quarters.

Speaker 2

For the variable portion of our return of capital, first, we repurchased a total of 2,000,000 shares in the quarter. The remainder of our capital return we paid out via a variable dividend of $0.14 per share, bringing the all in quarterly return of capital to $0.24 per share. Now I'd like to spend a little time talking about the efficiencies and synergies that impacted the business in such a positive way this quarter. When we rolled out the Earthstone acquisition, we are highly confident that we could reduce drilling days and completion days and improve production operations driving material synergies to be fully realized by year end 2024. We have already achieved that and more.

Speaker 2

In just under 5 months, we've high graded all legacy Earthstone rigs and completion crews. This combined with PR best practices helped drive an 18% reduction in earthstone drilling days per well and approximately 50% production reduction in completion days per well in the Q1, which we were initially anticipating achieving by mid year 2024. Additionally, we are seeing some efficiency gains in the Midland Basin that were not originally forecasted, which is a testament to our team's ability to unlock value in new assets quickly. In addition, run times improved as a result of better compression performance, optimized artificial lift and improved chemical programs. The combination of accelerated activity and better run times was the primary driver of the strong production performance in Q1.

Speaker 2

The impact of the combined PR team's integration execution is that we have already achieved $175,000,000 per year of synergies and are increasing our synergy target to an annual run rate of $225,000,000 As I mentioned earlier, the main drivers of this increase are operational. For DC and F, we increased our per well savings from $1,200,000 to 1,500,000 improve margins by approximately $1 per BOE by year end, but we've already implemented strategies in the field to realize the majority of this improvement today. Drivers of the margin improvement include reduced trucking, upgraded electrical infrastructure, rationalizing vendors and optimizing midstream agreements. Integrations are never easy, but what our team accomplished over the last 6 months is a testament to a lot of hard work and dedication, and we're proud to say that Earthstone is fully integrated. With that, I'll turn it over to James to talk to A and D and an update on our 2024 plan.

Speaker 3

Thanks, Will. I'd like to quickly reiterate what we left off with today, that PR's results this quarter are the best results we have had as a public company and that applies to every department and every discipline at Permian Resources. This now marks our 7th consecutive quarter of strong operational execution as a public company and our 9th year as a leading operator of the Delaware Basin. We are highly focused on continuing to increase our track record of consistent results in low cost operations. Our team is firing on all cylinders, positioning us very well for the remainder of the year.

Speaker 3

While successfully executing in the field and wrapping up the integration of Earthstone, our business development and land teams continue to source, evaluate and close attractive deals in and around our enhanced footprint. Our overall objective when it comes to A and D is to target acquisitions that enhance the quality of our business and drive value for shareholders. For us, that means seeking out acquisitions that increase the quality and duration of our current inventory at prices that make sense. And our recent acquisitions achieve all of these goals. Yesterday after market close, we announced 2 separate bolt on transactions directly offset our legacy Parkway asset in Eddy County.

Speaker 3

This asset is characterized by low D and C costs and high oil cuts that make it one of the most capital efficient assets in our portfolio. This is why we're so excited to bolster completing approximately 150 smaller transactions ahead of the drill bed. Completing approximately 150 smaller transactions ahead of the drill bit. These smaller deals target near term development and are amongst the highest rate of return acquisitions that we find. All in, these transactions add over 11,000 net leasehold acres and approximately 110 gross operated locations for a purchase price of $270,000,000 of which we expect $245,000,000 to be paid in the 2nd quarter.

Speaker 3

After accounting for production value, this works out to a little less than $10,000 per net leasehold acre and approximately $1,000,000 per gross location or $1,500,000 per net location. Our presence in Midland has been one of the key drivers of our successful acquisition program, and the vast majority of the acres we are acquiring in today's announcement come from Midland based counterparties who we have long standing relationships with. As Will mentioned earlier in the call, our team's successful execution has reduced our drilling and completion times, allowing us to bring barrels forward into Q1 and increase overall production for the year. As such, we are increasing our standalone production guidance to 150,000 barrels of oil per day to 320,000 barrels of oil equivalent per day. This represents a 2% increase compared to our original guidance ranges with no change to CapEx or other guidance categories.

Speaker 3

Coming up this acceleration in production in the 1st quarter, we anticipate a relatively flat production profile in the 2nd quarter with modestly lower standalone production in the second half of the year. The slight decline is driven by normal course fluctuations in working interest that occurred during a large scale development program. The revised guidance outlined on Slides 10 14 reflect Permian Resources' standalone projections and do not include the impact of the acquisitions we're announcing today. We expect those acquisitions to add an average of approximately 3,500 BOE a day during the second half of the year. Given the high quality inventory of the acquired assets, we do expect to begin development in the second half of the year, which we anticipate will result in $50,000,000 of incremental CapEx.

Speaker 3

In summary, this is a terrific start to the year, and we are proud of what we've accomplished so far in 2024. I'd like to conclude today's prepared remarks on Slide 11, which helps to reemphasize our value proposition for current and future investors. We think that the announcement today really highlights the quality of Permian Resources business and the multi pronged approach we have to driving outsized shareholder value. Since the company was formed in 2022, we have delivered best in class returns for our sector amounting to over 3 times the annualized return of the S and P 500 during that same time period. Our performance over the last years has been driven primarily by low cost execution and accretive transactions.

Speaker 3

And as a result, PR remains a compelling value within large capital oil and gas, particularly when recognized in the Permian Resources is now 2nd largest Permian pure play in the sector. Thank you for tuning in today. And now we will turn it back to the operator for Q and A.

Operator

You, Mr. Walter. We'll go first this morning to Neal Dingmann at Truist Resources Truist Securities, excuse me.

Speaker 4

Good morning, guys. Nice job. My first question, James, maybe on your D and C plan for you, Will. Correct me if I'm wrong, but I believe you're currently running about 11, 12 rigs, 3 to 4 spreads or about the same as PR and Ersteyn was separately. And I'm just wondering, given your notable continued efficiencies that you certainly highlighted today, I'm just wondering, and I believe the goal of relatively flat production, maybe could you or Will talk about potential to drop rigs or spreads or maybe just how you see the maintenance plan

Speaker 5

on a go forward?

Speaker 2

Yes. I mean, I think you're right. Like if you think about the plan this year, we were originally saying we drilled out 2 50 wells and that kind of we thought that would take about 12 rigs. With the efficiencies we're seeing today, I think it's very realistic that we could continue to execute on the same plan with less, whether that's 11 rigs or kind of somewhere between 11 12, I think is if we can keep these efficiencies is very much on the table. If you think back to kind of the Colgate CDEV merger, it's a very similar playbook.

Speaker 2

If you think originally that was an 8 rig combined business that we're able to get down to 6 with the same level of efficiency. So we've done this before. I do think it's worth calling out is we're not solving for kind of some maintenance plan or production per kind of the last part of your question. It's much more just an input of what's the return environment, what's the macro look like from a supply demand perspective and what our service costs look like so that we can the kind of what the production does is more of an output. So we continue to see strong service or strong oil prices and reduced service costs.

Speaker 2

I think it's very, very real that we could decide to kind of keep the 12 rigs or even add rigs from here to go grow production. But what you see in kind of our revised guide is more of that stick to the 250 wells and we could there's a chance we could do that with less equipment.

Speaker 4

No, I figured that. Good to hear well. And then secondly, just quick on the bolt ons, such as the recent 2 that you all highlighted specifically, you all seem just to have continued to have better success adding these accretive bolt ons versus it just seems like I don't see as many of your peers been able to do this. I'm just wondering what are the keys behind this and can you kind of continue at this pace of adding a couple 2, 3 it seems like almost every quarter?

Speaker 3

Yes. Thank you. I think that's a pretty easy answer. I mean, I think first and foremost, it's something we're focused on that we prioritize and it's something we've done for a long time and have and continue to be really good at. And I think that's driven by a couple of things.

Speaker 3

I think 1st and foremost, we have the lowest cost structure in the Delaware Basin, which allows us to earn higher returns on the same assets. And as a result, kind of naturally over time, assets like these do just flow to the low cost operator. I'd say second, we're based in Midland. That's the heart of the Permian, the heart of the deal flow. And we've got a great reputation across the market of being good partners that people want to be across the aisle from on the transaction side and that goes a long way.

Speaker 3

Finally, for today's example, I mean, this is really cool. And we're buying in an area where I think we do have a unique edge from activity and therefore the information side of things. We have more rigs running in this area than anybody else and therefore more proprietary data to pull from better understandings, etcetera. So I think you take all that together and it does feel like something that is definitely sustainable and an edge will continue to have. Will we do this every quarter?

Speaker 3

Probably not, but something we expect kind of over the long term to continue to be a big part of the story.

Speaker 4

Great answers. Thanks guys.

Operator

Thank you. We go next now to John Freeman at Raymond James.

Speaker 6

Good morning, guys. Great quarter. When I'm looking at Slide 67 and just these huge efficiency gains that you all continue to get out of the legacy Earthstone properties, and I'm just trying to get a sense of what maybe that remaining gap is, if any, between kind of legacy Earthstone and PR on whatever metrics you all want to cite cost per foot or whatever. But when I look at all the different the drilling days, the completion days, the production downtime, just some sense of how that compares to PR, just trying to see if there's still any gap left?

Speaker 2

I think on the D and C side, the gap is very small, if not kind of non existent at this point. We are we have different efficiencies and different assets in different areas, but we kind of view different areas whether it's legacy or legacy PR no longer matters. It's more it's all PR. And I think on the D and C side, that gap is closed. Where I think there's still some room is on the LOE side.

Speaker 2

We've made tremendous progress in a short amount of time of improving margins through kind of what we've done on the contract side, but also just reducing LOE. But a lot of the other LOE stuff, think like SWD disposal agreements or recycling agreements have some time to them and require more work and more time to get fully incorporated. So as I think about kind of where the last kind of gap remains between legacy Earthstone and PR would be more LOE focused, if that makes sense.

Speaker 6

That's perfect. Thanks. And then just the follow-up for me. Gas takeaway has been pretty topical with what's going on at Waha. Just any sort of updated thoughts from you all on how you all are thinking about gas takeaway and how to address that longer term?

Speaker 3

Yes. I mean, I think it's pretty obvious to you that run the call, pricing at Waha has been challenged this year and probably will be until we get closer to new pipes coming online in the Q4. And I think that is what it is. We're fortunate that dry gas only makes up about 5% of our revenue in any given year. So the business really isn't affected.

Speaker 3

But I think kind of worth pointing out a couple of things. Only about half of our gas is exposed to Waha pricing this year. Kind of other half is either covered by attractive basis hedges or sales at better regional hubs today. But yes, I think we're always trying to kind of focus on our work on. We sell about a quarter of our gas at hubs other than Waha today and are constantly looking to find ways we can get that percentage higher.

Speaker 3

We actually have a contract, probably get signed in the next week or 2 that should allow us to get more volume sold at Houston pricing kind of next year. So kind of more to come on that front. I'd say that's something we've been working on for a long time and continue to chip away at. But I think the most important thing is we've got awesome partners on the midstream side. We've got firm capacity and our molecules are going to flow even if we saw regional constraints later this year.

Speaker 6

Thanks. Appreciate it.

Speaker 1

Thanks, John.

Operator

Thank you. We go next now to Scott Hanold at RBC.

Speaker 5

Yes. Hey, thanks guys. I was wondering if you can go back to sort of the outlook through the balance of the year and just holistically, how you guys like to think about the business? Obviously, your cycle times are improving, so you pulled for a little bit more of your activity and production in 1Q. And so like you kind of said, it does taper and have a soft decline in the back half of this year.

Speaker 5

But how do you think about like the setup then for 2025 with that? Would you guys into 2025 and over the long term like to see more flattish growth? Do you want to see some more moderate growth? And if you could talk about like any kind of cadence variability through the year, Would you like to keep things constant? Or do you think there will be some cadence depending on the cycle times?

Speaker 2

I think, I mean, 1st and foremost, kind of as we think about the trajectory from a production perspective of the company, I've said it many times, I'll say it again, it really is a returns driven input and production is just an output. Obviously, kind of over the last 2 weeks ago, I'd say the returns environment was extremely good. And we've had we've made some headway on the service cost side kind of over the balance of the year.

Speaker 5

So it was looking good.

Speaker 2

I think that today it's still good, but not quite as good as it was a few weeks ago. And I don't yet know what the world will look like 6 months from today as we go into 2025. I would say that kind of the really as you think about what happened over the course of this year so far, it's just been the whole set schedule has shifted forward. We've just we're drilling wells faster, we're completing wells faster. And as such, kind of just given the natural work interest changes over large scale development, The back half of the year are really kind of dip.

Speaker 2

It's just really a little bit less work interest under a few wells that moved in from the next year and that naturally corrects itself. So said differently, if we maintain the same pace, kind of call it 250 to 260 wells per year, like that actually does set up for a really good 25. It's just not it's kind of a slight decline back half of the year and then bounces back in 25. I'm not saying that is our plan. We're going to spend a lot of time over the next 6 months figuring out exactly what we want to do to 25.

Speaker 2

I think it could be anywhere from 11 to 13 rigs based on commodity prices and we'll kind of see what it makes sense there. But as I think of I wouldn't think of this kind of slow tapering back half of the year as an indication of kind of future trajectory of the production profile in outer years.

Speaker 3

Yes. This plan is great. It sets us up like we always try to do with really good optionality because we don't know what the world is going to look like in 2025 and it kind of puts us somewhere in the middle of that 0% to 10% growth of the long term that we've talked about and we can make a decision as we get closer to that year.

Speaker 5

Appreciate the commentary. And in your prepared comments, you also mentioned that you're seeing some better performance or efficiencies in the Midland and it sounds like you weren't necessarily expecting. Could you give a little color and context behind exactly what that is and where the benefits were? Was it more well productivity or is it cycle times or just cost reductions on OpEx?

Speaker 2

It's really just D and C CapEx. We were we have not drilled a lot of wells in the Midland Basin, so didn't expect to be able to cut kind of near the amount of cost on the Midland Basin side as we have on the Delaware, and we've been surprised to the upside in that regard.

Speaker 7

I still think we have

Speaker 2

a ways to go to catch up with where kind of the leading operators in the Midland Basin are from a CapEx perspective, but we've made big strides that kind of surprised us to the upside.

Speaker 5

And was that more on just the cycle times drilling and completion time of that for those wells?

Speaker 2

Yes, it's just cycle times, casing design, kind of everything that would lead to a lower CapEx per foot on a Midland Basin well.

Speaker 8

Got it. Thank you.

Operator

We'll next now to Gabe Daoud at TD Cowen.

Speaker 9

Thanks. Hey, morning, everyone. I appreciate the time. But I understand it's certainly a little bit too early to be thinking about 25, but I guess just piggybacking off Scott's question here, if we just think about all the synergy capture and efficiency gains and maybe this year being a little bit heavier on midstream spend or infrastructure spend, I should say. Is it fair to assume maybe 25% assuming similar activity levels, CapEx is probably a bit lower than where we are today?

Speaker 3

Yes. I think kind of certainly maintenance CapEx would be lower than what we've outlined this year, just kind of given where the business is, the efficiency of cheese and etcetera. I think that's definitely a fair assumption.

Speaker 9

Okay. Okay, great. Great. And then maybe as a follow-up, noted or talked about egress a bit, but just curious in that Northern New Mexico area in both Eddie and Lee, are you seeing any processing capacity tightness or any other midstream managers that are worth mentioning? I recognize there's no rigs over in Eddy County just yet.

Speaker 9

Is that driven by constraints at all? Or are you guys just planning on getting after that in the second half of this year?

Speaker 3

Yes. I mean, I think the kind of lack of rigs in any area today is just driven by our focus on doing some of these larger developments and making sure when we put rigs on it, we're doing it as quickly, as efficiently as possible and touching kind of all parts of the cube that need to be co developed. So no, but I think macro wise gas processing constraints, it actually feels really good this year. I think last year, we've mentioned before, probably Q2, Q3 time line, there were more challenges on the processing, but even more kind of infield compression and kind of plumbing issues in the middle of last year. But those have all really resolved themselves.

Speaker 3

I'd say our midstream partners have done a ton of work and spent a ton of money. And our gas processing in the New Mexico, Delaware feels like it's a great spot today. And frankly, thankful not to have any constraints of that nature or really anything else able to do what we want up there.

Speaker 9

Okay, awesome. Great to hear. Thanks guys.

Speaker 3

Thanks, Gabe.

Operator

We'll go next now to Derrick Whitfield at Stifel.

Speaker 10

Good morning, all. Congrats on a strong update.

Speaker 2

Thank you.

Speaker 10

With my first question, I wanted to lean in on your D and C efficiencies to better understand the rate of improvement you're seeing. If we were to compare PR to PR on Slide 6, how do the cycle times in the Northern Delaware compare with your Q4 averages?

Speaker 2

PR to PR from Q4 to Q1, we've gotten better, but it's going to be kind of single digit percent improvement as compared to the big improvement you see if you compare legacy or Ascend to PR.

Speaker 10

Great. And then maybe shifting over to Slide 9, the identified location count of 110 gross locations appears conservative to us on the surface.

Speaker 5

Can you offer any color

Speaker 10

on the degree of legacy operator development and your general underwriting assumptions for this part of the basin?

Speaker 3

Yes. I mean, I'd say, it's actually it's a good question and very astute. I think answer your second question first, it's pretty undeveloped in acreage position. There's a handful of wells on it, but it's as undeveloped as any asset we've looked at in a long time, which is great because it also has to come in, take advantage of clean fairways and kind of do what PR does best. Regards to inventory, yes, I think it probably is conservative.

Speaker 3

I think we're trying to book locations that we have a very high degree of confidence in here. And is it more likely to have more zones kind of come into the money here? I think the answer is probably yes. But we feel good about what we've put out as being a real base case and something that we can stand behind.

Speaker 10

Terrific. Great update and thanks for your time.

Operator

We'll go next now to Leo Mariani at ROTH MKM.

Speaker 11

I wanted to dig in a little bit to your comments around kind of flattish second quarter production and then kind of slightly lower in the second half. If I heard your comments right, it sounded like a lot of this was just based on working interest changes. I was hoping maybe you could kind of quantify some of that. I mean, I think you guys are talking about 75% average working interest, but maybe it's a little higher in the first half and lower in the second. Just any help on that would be great.

Speaker 3

Yes. I think it's just kind of normal fluctuations when you're running a multi rig program like this, especially as you're kind of stacking rigs to pursue the full field development strategy that we've been pursuing for a long time, like 1 quarter maybe 70%, one maybe 80% to get back to an average of 75% and just kind of how it is. I think you see this especially kind of over time as you have more concentration of rig counts on particular developments, but it's all normal and kind of evens out over time.

Speaker 11

Okay. But it definitely sounds like working interest is

Speaker 3

a little higher in the

Speaker 11

first and a little lower in the second half. And then how would that translate into CapEx? Would that basically give you CapEx a little lower in the second half standalone versus first half?

Speaker 3

Yes, I think that's a good assumption.

Speaker 11

Okay. All right. Thanks guys.

Operator

We'll go next now to Oliver Wang at TTH.

Speaker 7

Good morning, all, and thanks for taking my questions. I wanted to start on the A and D side. I can't help but notice you all have been fairly active in this area of Addie County kind of looking back at where the Q1 bolt ons and the latest two transactions announced last night sit. So just kind of wondering if you all might be able to speak to if there is anything specific that you're seeing in the area that's driving an increased focus from an AVE perspective for you all?

Speaker 3

That's a great question. And I think kind of post closing of Versedone to today, we just saw a real market window where we're able to go buy 4 extremely attractive bolt ons and quite a few grassroots deals at prices that were really attractive to us. And I think the reason we're able to do so, I touched on a little bit with Neil's question at the beginning, was because we've been the most active operator in this part of Eddy County for a long time and therefore had a lot of really exciting proprietary results both on kind of zones, well performance and I think most importantly the cost side where we're doing this cheaper up here than I think anybody would expect. So kind of just the unique, it's kind of one of those windows that we saw an opportunity and we hit it hard. And I think these are some of the best deals we've done.

Speaker 3

So yes, I think it wasn't I didn't think we'd get all of these deals the way we did, but it's a great outcome and had some really core inventory and what's our most capital efficient asset.

Speaker 7

Makes sense. And for my follow-up, just kind of wondering if you all could provide an update on your royalty position. It seems like an aspect of the business where you all have been able to steadily pick up some decent interest over the past 9 months or so that's kind of going under the radar. So any color there would be helpful.

Speaker 3

Yes. I mean, I think we're always trying to buy acreage and inventory that competes for capital. And a big part of that is what is the royalty burden. So we target assets that have advantage in our eyes, lower royalties that really just help our capital efficiency. I think today we've got a royalty business that we're really proud of, kind of 75,000 net royalty acres is not insubstantial.

Speaker 3

I don't know if you think strategic that we have planned with that today, but I do think that's a big part of our capital efficiency story. We're getting more free cash flow for every dollar of CapEx that we spend as a result. So I think ultimately it's something that just makes our widget better and our value creation increase over time. So it's something that we're proud of. We're focused on, I think probably a little underappreciated by the market.

Speaker 3

And but it's really ultimately comes down to helping us earn better returns on every dollar that we spend.

Speaker 7

Makes sense. Thanks for the time.

Operator

Sure. Thank you. Questions today. We go next now to Jeff Jay at Daniel Energy Partners.

Speaker 4

Hey, guys. I was just looking for, I know you referenced your power infrastructure build outs, would kind of love to hear what's happening there, what the scale of that is, how big that's going to be for you guys. It's obviously kind of a pressing issue these

Speaker 2

days. Yes. Look, line power in the kind of entire Permian is tough, in Texas it's tough and in New Mexico it's tough. So we're trying our best to stay in front of it. I'd say kind of as you think about our power needs, if we can be on line power, that's obviously preference.

Speaker 2

And after that, if we can kind of leverage natural gas power generators is probably the 2nd best answer, and that's kind of what you'll see for the majority of our New Mexico infrastructure. But it's a priority for us. I'd say we are actively looking at ways to improve that position, collaborating with others to look at building incremental substations and really anything we can do. But it doesn't come quick and I think it will be a challenge for the industry for the next few years. I don't think it means we won't be able to produce our wells.

Speaker 2

It's just a little bit less efficient to be on natural gas power generators than it would be to be all online power.

Speaker 4

Okay. Thanks. I appreciate it.

Speaker 2

Yes. Thank you.

Operator

We'll go next now to Paul Diamond with Citi.

Speaker 12

Good morning. All thanks for taking my call. Just a quick one talking about the kind of acquisition pipeline. As you're seeing looking forward to kind of what's next, are you seeing any kind of movement on the bid asks based on scale, location or is it all pretty much pre cohesive and core already?

Speaker 3

Look, I think our pipeline on the A and Z side feels really good. I think there's a lot of there's going to be lots of opportunities in the Delaware. And I think our position as a kind of preferential party for a lot of sellers and a low cost operator in the basin position as well. As assets come for sale kind of both marketed deals, which we participated in successfully, but also I think just importantly kind of off market assets, which has been a large chunk of our acquisition program historically. But it feels good.

Speaker 3

I don't think it's probably not the size of deals that you saw hitting the market in 2022 and 2023 in the Delaware, which I think we largely stayed on the sidelines from. But I think we're seeing a lot of stuff that fits kind of the grassroots side is maintaining all the momentum. And we're still seeing lots of bolt ons probably coming down the pipe this year. Will we wind up acquiring all of them? Definitely not.

Speaker 3

But are there some that could fit? I'd like to think so. But we're really picky, and we want to buy assets, like I said, that make our business better and that earn a high rate of return and drive value for shareholders. So if we can continue to do that, that's great. But we've said it before, we don't need to do anything.

Speaker 3

We've got an incredible inventory base and incredible stand alone business. So if we can find those opportunities, we'll be excited to pursue them, but certainly don't feel any pressure to do so.

Speaker 12

Understood. And just a quick follow-up. So that's why you guys have been pretty balanced with your shareholder return framework. Is there anything you guys are seeing in the markets that would kind of tip that scale one way or the other?

Speaker 3

No. I mean, I think we're going to kind of naturally bias towards the dividend. I think that the variable dividends are base case and we'll be opportunistic on potentially increasing share buybacks at some point in the future if kind of dislocations and large opportunities exist. But no, I'd say really steady as she goes on the capital return strategy. Do you think it's worth mentioning, we did show a 20% increase in our base dividend this year, which should hit for the quarterly dividend payment upcoming and a nice increase in our variable cash dividend as well.

Speaker 3

So it feels like that's working really well, and we're excited about it.

Speaker 12

Understood. Thanks for your time. I'll leave it there.

Speaker 3

Thanks, Paul.

Operator

We'll go next now to Kevin McCurdy at Pickering Energy Partners.

Speaker 8

Hey, good morning. To follow-up on an earlier question about M and A, your last couple of deals have been concentrated in the Northern Delaware. Just kind of a general question on how you are viewing opportunities in the Southern Delaware versus the Northern Delaware? Are there as many opportunities out there? And how do you kind of compare the 2 of them?

Speaker 3

Yes. I mean, I think that's a great question. I think looking back historically, the kind of first consolidation wave in the Delaware was Texas focused. If you think like 2017, 2018, 2019, a lot of Texas businesses and that's where the Delaware got started, at least activity was faster to begin. So I think kind of you've seen a natural consolidation wave in the Delaware as of late.

Speaker 3

I think for us specifically, we've got a great Texas position today with some really high return to go forward drilling to do. If we could find opportunities in Texas that compete for capital like what we've seen in New Mexico, we'd be really excited about it. I think those opportunities do still exist. I just think kind of the majority of assets that we've seen that fit what we're trying to do from a making the business better standpoint have been in New Mexico the last couple of years. But I think that could change and we'd be really excited if we could find similar opportunities on the Texas side.

Speaker 8

Great. And changing gears a little bit, you mentioned an additional 3,500 barrels a day equivalent and an additional $50,000,000 of capital once you close the bolt on acquisitions later this quarter. Just to clarify, is the 3,550 or sorry, the 3,500 barrels a day flowing, is that flowing production now? And if so, what will be the production impact of the additional $50,000,000 of capital spend?

Speaker 3

Yes. The production is online now. The majority of that's from an acquisition we haven't closed and don't close to the end of this quarter. So it's kind of online now, but it's not ours, if you will. And then that $50,000,000 is CapEx that we're going to spend in the back half of this year.

Speaker 3

That awesome high return inventory, really excited to get our hands on it. We don't own it today. So we can't keep around all the production you'd see from that is going to show up next year. But really strong returns and some we're excited to get after as soon as we can get our hands on the asset.

Speaker 8

Great. Thanks for the clarification.

Operator

And gentlemen, it appears we have no further questions this morning. Mr. Walter, I'd like to turn things back to you, sir, for any closing comments.

Speaker 3

Having gotten off to a great start in 2024, our primary goal remains the same as it was when we announced the Colgate Centennial merger in May of 2022, to maximize shareholder value over the long term. And to do that, we plan to continue to build our track record of delivering consistent results with the lowest cost structure in the Delaware Basin. Thanks to everyone for joining the call today and for following the Permian Resources story.

Operator

Thank you, gentlemen. Again, ladies and gentlemen, that will conclude today's Permian Resources Q1 earnings conference call. Again, thanks so much for joining us today, and we wish you all a great day. Goodbye.

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