Permian Resources: $1 Billion In Positive Cash Flow Likely In 2023 (NYSE:PR)

Permian Resources (NYSE:PR) still looks capable of generating approximately $1 billion in positive cash flow in 2023 despite WTI oil strip prices declining to the mid-to-high $70s.

I now estimate Permian’s value at approximately $11.50 per share in a long-term (after 2023) $70 WTI oil environment. This is slightly lower than my October estimated value for Permian due to the decreases in projected near-term cash flow. For example, Permian’s projected cash flow for 2023 was about $200 million higher than now with mid-$80s WTI oil. Permian is partially protected by hedges, which cover around 30% of its oil production. However, this means it is still significantly affected by changes in oil prices.

Updated 2023 Outlook

Permian Resources expects to produce around 157,500 BOEPD (52% oil) in 2023, which is approximately a 9% increase from the 145,000 BOEPD it expects to average (at guidance midpoint) in Q4 2022.

At current 2023 strip of $77 WTI oil and $5.00 Henry Hub natural gas, Permian is projected to generate $2.943 billion in revenues before hedges. Permian’s hedges are projected to have $93 million in positive value in 2023 at strip. This includes its Waha basis hedges, which cover around 25% of its 2023 natural gas production at a negative $1.25 differential to Henry Hub. Permian expects 33% of its natural gas to be exposed to Waha prices, which often trade at a large discount to Henry Hub. That leaves around 42% of its natural gas production receiving Houston Ship Channel pricing, which typically averages close to Henry Hub prices over the full year.

Thus, including hedges, Permian is projected to generate $3.036 billion in revenues.

Type	Barrels/Mcf	$ Per Barrel/Mcf	$ Million
Oil	29,893,500	$74.50	$2,227
NGLs	10,922,625	$33.50	$366
Gas	100,028,250	$3.50	$350
Hedge Value			$93
Total			$3,036

Click to enlarge

This leads to a projection that Permian will generate $990 million in positive cash flow in 2023 at current strip before dividends.

	$ Million
Lease Operating, Cash G&A and GP&T	$460
Production Taxes	$221
Cash Interest	$115
Capex	$1,250
Total	$2,046

Click to enlarge

Dividends And Share Repurchases

Permian’s quarterly dividend of $0.05 per share adds up to around $112 million per year currently, leaving $878 million for other purposes. Based on its variable return of capital program, it would put around $439 million towards variable dividends and/or share repurchases.

Permian currently has around 558 million shares outstanding, while its 3.25% convertible notes due 2028 can be converted into another 27 million shares.

Thus, Permian’s total dividend for 2023 could approach $1 per share if it put all its return of capital towards variable dividends. On the other hand, it could repurchase close to 48 million shares if it put all that $439 million towards share repurchases (based on its current share price). This would reduce its outstanding share count by around 9% from its current level.

Estimated Valuation

I am tweaking Permian’s estimated value down slightly to around $11.50 per share in a long-term (after 2023) $70 WTI oil and $4 Henry Hub gas scenario. This is due to the reduction in Permian’s projected 2023 free cash flow. With the 2023 oil strip moving down by around $6 to $7 since mid-October, as well as some declines in the natural gas strip too, Permian’s projected cash flow for 2023 has been reduced by approximately $200 million.

Waha basis differentials are also something to keep an eye on, with Permian’s production being around 29% natural gas. As noted above though, Permian has reduced its exposure to Waha prices to under 60% of its natural gas volumes, with Waha basis hedges further mitigating potentially wide differentials to a significant extent as well (at least for 2023).

Conclusion

Permian Resources is now projected to generate nearly $1 billion in positive cash flow in 2023 at current strip of mid-to-high $70s WTI oil. This is a couple of hundred million lower than what I projected for Permian in mid-October at roughly mid-$80s WTI oil. Permian also expects a decent amount of production growth (9% from Q4 2022 levels to 2023 average production) while generating that positive cash flow.

As a result of the trimmed estimates for 2023 free cash flow, I’ve lowered my estimated value for Permian slightly to $11.50 per share in a long-term (after 2023) $70 WTI oil scenario. Permian still looks in good shape overall, with net debt at the end of 2023 potentially at approximately 0.7x EBITDAX, despite putting over $400 million during 2023 towards variable dividends and share repurchases.