Granite Ridge Resources Inc. Reports Fourth-Quarter and Full-Year 2022 Results, Provides 2023 Outlook

Granite Ridge Resources Inc. (“Granite Ridge” or the “Company”) (NYSE: GRNT) today reported financial and operating results for the fourth quarter and full year 2022.

Fourth Quarter 2022 Highlights

• Produced 22,031 barrels of oil equivalent (“Boe”) per day (52% oil), a 45% increase from the fourth quarter of the prior year.
• Reported net income of $56.7 million, or $0.43 per share. Adjusted net income (non-GAAP) totaled $50.7 million, or $0.38 per share.
• Generated $83.2 million of adjusted EBITDAX (non-GAAP).
• Paid $10.7 million in dividends.
• Exited 2022 with liquidity of $200.8 million as of December 31, 2022, including $50.8 million of cash.

2023 Outlook

• Anticipate paying a quarterly dividend of $0.11 per share for each quarter of 2023.
• Planning $260 million to $270 million of capital expenditures, including $46 million of identified acquisitions.
• Expecting to generate 9% midpoint annual production volume growth as compared to the full year 2022, based on placing 18 – 20 net new wells on production.

See “Supplemental Non-GAAP Financial Measures” below for descriptions of the above non-GAAP measures as well as a reconciliation of these measures to the associated GAAP (as defined herein) measures.

Luke Brandenberg, President and CEO of Granite Ridge, commented, “We were pleased with our strong fourth quarter results, including a year-over-year increase of almost 60% in Adjusted EBITDAX and growth of more than 70% in Adjusted Net Income. Contributing to our success was the continued execution of our operating partners’ well-designed plans to promote efficient and safe operations and increase value through the drill bit and other field development programs.

“2022 was a transformative year for Granite Ridge, with the most significant highlight being the business combination with Executive Network Partnering Corporation (“ENPC”) and GREP Holdings LLC on October 24, 2022 that created NYSE-listed Granite Ridge Resources. The past five months have been a time of integration as we transitioned to a public company; I am proud of our progress and I want to thank our entire team for their hard work and dedication throughout this process. Our asset base performed extremely well in 2022, which is directly attributable to the deep and talented group of public and private operators with whom we are partnered. Their targeted capital investment programs remain squarely focused on executing high rate-of-return projects located in key prolific producing onshore basins that helped drive net production growth of 22%, a 16% increase in proved reserves, Adjusted EBITDA and Adjusted Net Income growth of 73% and 118%, respectively.

“Looking forward, we plan to leverage the positive momentum generated in 2022 to continue to invest in the business. Our development program for 2023 anticipates capital spending across our asset base of $260 million to $270 million, including approximately $46 million of acquisitions and opportunity capture that has been spent or committed to year to date. We will continue to execute on our proven business plan that focuses on responsible growth, including a targeted year-over-year net production increase of 9% using the mid-point of our 2023 full year guidance. Supporting our efforts is a fortress balance sheet that provides maximum flexibility as we increase our asset diversity beyond the interests we currently own in over 2,350 wells across the Permian, Eagle Ford, Haynesville, DJ and Bakken. Finally, we will continue to support the long-term interests of our shareholders through an ongoing and well-defined shareholder return program highlighted by the payment of a meaningful fixed quarterly cash dividend, as well as the opportunistic repurchase of shares depending on market conditions.”

Fourth Quarter 2022 Summary

For the fourth quarter of 2022 oil production volumes increased 29% from the fourth quarter of the prior year to 11,359 barrels (“Bbls”) per day. Natural gas production for the fourth quarter of 2022 totaled 64,033 thousand cubic feet of natural gas (“Mcf”) per day. The Company’s total production for the fourth quarter of 2022 grew 45% from the fourth quarter of the prior year to 22,031 Boe per day.

Net income for the fourth quarter of 2022 was $56.6 million, or $0.43 per share. Excluding non-cash and special items, the fourth quarter 2022 adjusted net income (non-GAAP) was $50.7 million, or $0.38 per share. The Company’s average realized price for oil and natural gas for the fourth quarter of 2022, excluding the effect of commodity derivatives, was $83.32 per Bbl and $4.97 per Mcf, respectively.

Adjusted EBITDAX (non-GAAP) for the fourth quarter of 2022 totaled $83.2 million, compared to $52.5 million for the fourth quarter of 2021. The fourth quarter of 2022 cash flow from operating activities was $95.0 million, including $12.1 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $83.0 million. Costs incurred for development activities totaled $91.7 million for the fourth quarter of 2022.

Full Year 2022 Summary

Total production for 2022 increased 22% to 19,765 Boe per day, including a 7% increase in oil production to 10,016 Bbl per day. Natural gas production for 2022 was 58,496 Mcf per day. For 2022, the Company’s average realized price for oil and natural gas, excluding the effect of commodity derivatives, was $92.50 per Bbl and $7.46 per Mcf, respectively, compared to $63.07 per Bbl and $5.04 per Mcf, respectively, for 2021.

Net income for 2022 was $262.3 million, or $1.97 per share, compared with net income of $108.5 million, or $0.82 per share, in 2021. Excluding non-cash and special items, 2022 adjusted net income (non-GAAP) was $247.2 million, or $1.86 per share, compared with adjusted net income of $113.4 million, or $0.85 per share, for 2021.

Adjusted EBITDAX (non-GAAP) for 2022 totaled $365.5 million, compared with $210.4 million in 2021. For 2022, cash flow from operating activities was $346.4 million, including $17.2 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $363.6 million. Costs incurred for development activities totaled $256.7 million for the year.

Operational Activity

The table below provides a summary of gross and net wells completed and put on production for the fourth quarter and full year 2022:

2022 Proved Reserves

At December 31, 2022, Granite Ridge’s estimated proved reserves totaled 50,534 MBoe, compared to 43,710 MBoe at December 31, 2021. The Company’s proved reserves are approximately 50% oil and 50% natural gas. Proved developed reserves totaled 30,886 MBoe, or 61% of total proved reserves. The table below provides a summary of changes in total proved reserves for the year ended December 31, 2022, as well as the proved developed reserves balance at the beginning and end of the year.

Commodity Derivatives Update

The Company’s commodity derivatives strategy is intended to manage its exposure to commodity price fluctuations. Please see the table under “Derivatives Information” below for detailed information about Granite Ridge’s current derivatives positions. The Company has not entered into any additional derivatives subsequent to year end.

2023 Guidance

The following table summarizes the Company’s operational and financial guidance for 2023.

Conference Call

Granite Ridge will host a conference call on March 28, 2023, at 10:00 AM CT (11:00 AM ET) to discuss the fourth quarter and full year 2022 results. The telephone number and passcode to access the conference call are provided below:

Dial-in: (888) 660‑6093

Intl. dial-in: (929) 203‑0844

Participant Passcode: 4127559

To access the live webcast and view the related earnings presentation, visit Granite Ridge’s website at www.graniteridge.com. Alternatively, an audio replay will be available through April 10, 2023. To access the audio replay dial (800) 770‑2030 and enter confirmation code 4127559.

About Granite Ridge

Granite Ridge is a scaled, non-operated oil and gas exploration and production company. We own a portfolio of wells and top-tier acreage across the Permian and four other prolific unconventional basins across the United States. Rather than drill wells ourselves, we increase asset diversity and decrease overhead by investing in a smaller piece of a larger number of high-graded wells drilled by proven public and private operators. We create value by generating sustainable full-cycle risk adjusted returns for investors, offering a rewarding experience for our team, and delivering reliable energy solutions to all – safely and responsibly. For more information, visit Granite Ridge’s website at www.graniteridge.com.

Forward-Looking Statements and Cautionary Statements

This press release contains forward-looking statements regarding future events and future results that are subject to the safe harbors created under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts included in this release regarding Granite Ridge’s 2023 outlook, dividend plans and practices, financial position, operating and financial performance, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance are forward-looking statements. When used in this release, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,” “believe,” “expect,” “continue,” “anticipate,” “target,” “could,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about actual or potential future production and sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond Granite Ridge’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: the ability to recognize the anticipated benefits of the business combination, Granite Ridge’s financial performance following the business combination, changes in Granite Ridge’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans, changes in current or future commodity prices and interest rates, supply chain disruptions, infrastructure constraints and related factors affecting our properties, ability to acquire additional development opportunities or make acquisitions, changes in reserves estimates or the value thereof, operational risks including, but not limited to, the pace of drilling and completions activity on our properties, changes in the markets in which Granite Ridge competes, geopolitical risk and changes in applicable laws, legislation, or regulations, including those relating to environmental matters, cyber-related risks, the fact that reserve estimates depend on many assumptions that may turn out to be inaccurate and that any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of the Granite Ridge’s reserves, the outcome of any known and unknown litigation and regulatory proceedings, legal and contractual limitations on the payment of dividends, limited liquidity and trading of Granite Ridge’s securities, acts of war or terrorism and market conditions and global, regulatory, technical, and economic factors beyond Granite Ridge’s control, including the potential adverse effects of the COVID‑19 pandemic, or another major disease, affecting capital markets, general economic conditions, global supply chains and Granite Ridge’s business and operations, and increasing regulatory and investor emphasis on environmental, social and governance matters.

Granite Ridge has based these forward-looking statements on its current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond Granite Ridge’s control. Granite Ridge does not undertake any duty to update or revise any forward-looking statements, except as may be required by the federal securities laws.

Use of Non-GAAP Financial Measures

To supplement the presentation of the Company’s financial results prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), this press release contains certain financial measures that are not prepared in accordance with GAAP, including adjusted net income, adjusted earnings per share, adjusted EBITDAX, operating cash flow before working capital changes and free cash flow.

See “Supplemental Non-GAAP Financial Measures” below for a description and reconciliation of each non-GAAP measure presented in this press release to the most directly comparable financial measure calculated in accordance with GAAP.

Granite Ridge Resources Inc.

Supplemental Non-GAAP Financial Measures

The Company reports its financial results in accordance with the GAAP. However, the Company believes certain non-GAAP performance measures may provide financial statement users with additional meaningful comparisons between current results, the results of its peers and the results of prior periods. In addition, the Company believes these measures are used by analysts and others in the valuation, rating and investment recommendations of companies within the oil and natural gas exploration and production industry. See the reconciliations throughout this release of GAAP financial measures to non-GAAP financial measures for the periods indicated.

Reconciliation of Net Income to Adjusted EBITDAX

Adjusted EBITDAX (as defined below) is presented herein and reconciled from the GAAP measure of net income because of its wide acceptance by the investment community as a financial indicator.

The Company defines adjusted EBITDAX as net income, before (1) exploration and abandonments, (2) depletion and accretion expense, (3) (gain) loss on derivatives – commodity derivatives, (4) net cash payments on derivatives, (5) gain on disposal of oil and natural gas properties, (6) interest expense (7) gain on derivatives – common stock warrants and (8) income tax expense. Adjusted EBITDAX is not a measure of net income or cash flows as determined by GAAP.

The Company’s adjusted EBITDAX measure provides additional information that may be used to better understand the Company’s operations. Adjusted EBITDAX is one of several metrics that the Company uses as a supplemental financial measurement in the evaluation of its business and should not be considered as an alternative to, or more meaningful than, net income as an indicator of operating performance. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that adjusted EBITDAX is a widely followed measure of operating performance and is one of many metrics used by the Company’s management team and by other users of the Company’s consolidated financial statements. For example, adjusted EBITDAX can be used to assess the Company’s operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure, and to assess the financial performance of the Company’s assets and the Company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of the GAAP measure of net income to adjusted EBITDAX for the periods indicated:

Reconciliation of Net Cash Provided by Operating Activities to Operating Cash Flow Before Working Capital Changes and to Free Cash Flow

The Company provides Operating Cash Flow (“OCF”) before working capital changes, which is a non-GAAP financial measure. OCF before working capital changes represents net cash provided by operating activities as determined under GAAP without regard to changes in operating assets and liabilities. The Company believes OCF before working capital changes is an accepted measure of an oil and natural gas company’s ability to generate cash used to fund development and acquisition activities and service debt or pay dividends. Additionally, the Company provides free cash flow, which is a non-GAAP financial measure. Free cash flow is cash flow from operating activities before changes in working capital in excess of exploration and development costs incurred. The Company believes that free cash flow is useful to investors as it provides measures to compare cash from operating activities and exploration and development costs across periods on a consistent basis.

These non-GAAP measures should not be considered as alternatives to, or more meaningful than, net cash provided by operating activities as indicators of operating performance.

The following tables provide a reconciliation from the GAAP measure of net cash provided by operating activities to OCF before working capital changes and to free cash flow:

Reconciliation of Net Income to Adjusted Net Income and Adjusted Earnings per Share

The Company’s presentation of adjusted net income and adjusted earnings per share that exclude the effect of certain items are non-GAAP financial measures. Adjusted net income and adjusted earnings per share represent earnings and diluted earnings per share determined under GAAP without regard to certain non-cash and special items. The Company believes these measures provide useful information to analysts and investors for analysis of its operating results on a recurring, comparable basis from period to period. Adjusted net income and adjusted earnings per share should not be considered in isolation or as a substitute for earnings or diluted earnings per share as determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

The following table provides a reconciliation from the GAAP measure of net income to adjusted net income, both in total and on a per diluted share basis, for the periods indicated:

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