Executive Summary / Key Takeaways

• Evolving Business Model: Granite Ridge Resources (NYSE:GRNT) is strategically transforming from a traditional non-operated E&P to a "publicly traded private equity firm" model, emphasizing operated partnerships to gain greater control over capital allocation, development timing, and well design. This shift is a direct response to the void of private capital in smaller energy deals, allowing GRNT to acquire high-quality inventory at attractive prices.
• Robust Production Growth & Operational Efficiency: The company delivered strong operational performance in 2025, with Q3 average daily production increasing 27% year-over-year to 31,925 BOE per day. Full-year 2025 production guidance is set at 31,000 to 33,000 BOE per day, representing 28% year-over-year growth at the midpoint. This growth is supported by improving cost structures, with G&A per BOE decreasing as the business scales.
• Strengthened Capital Structure & Liquidity: Subsequent to Q3 2025, GRNT enhanced its financial flexibility by reaffirming its $375 million revolving credit facility borrowing base and issuing $350 million in 8.88% senior unsecured notes due 2029. These actions boosted pro forma liquidity to $422 million, providing ample capacity for strategic investments and growth.
• Disciplined Capital Allocation with Flexibility: GRNT targets full-cycle returns exceeding 25% on its investments and maintains a conservative leverage ratio (0.9x net debt to EBITDAX as of Q3 2025, below its 1.25x target). The company has built-in capital expenditure flexibility, with plans to pivot to maintenance mode (targeting $225 million CapEx) if oil prices sustain below $55 per barrel, or pursue measured growth with modest outspend above $60 oil.
• Shareholder Returns & Hedging Strategy: The company maintains a consistent quarterly dividend of $0.11 per share, offering an attractive yield. A robust hedging program, covering approximately 75% of current production and nearly 50% of expected 2026 volumes, protects cash flows against commodity price volatility.

The Evolution of an Energy Investor: Granite Ridge's Strategic Pivot

Granite Ridge Resources, Inc. (NYSE:GRNT) is carving out a distinctive identity in the U.S. oil and natural gas sector, evolving beyond a conventional exploration and production (E&P) company to operate as a "publicly traded private equity firm." This strategic transformation, rooted in its history as an oil and gas private equity firm since 2014, positions GRNT to capitalize on unique market dislocations. The company’s core business involves the development, exploration, and production of oil and natural gas across six premier unconventional basins in the United States, including the Permian, Eagle Ford, Bakken, Haynesville, DJ, and Appalachian basins.

The industry landscape has shifted dramatically, particularly since 2018, with private equity fundraising for U.S. natural resources plummeting by nearly 90% through 2023. This exodus of private capital has created a significant void, especially for smaller-scale operated deals, which now offer more attractive returns compared to the increasingly competitive non-operated space. Granite Ridge has adeptly recognized this opportunity, leveraging its deep experience and proprietary data set to partner with highly talented operating teams. This approach allows GRNT to acquire high-quality inventory and exert greater control over capital allocation, development timing, and well design, a critical differentiator in a volatile commodity market.

GRNT's competitive positioning is defined by its ability to identify and execute on these smaller, high-return opportunities that larger E&P companies or mega-deal-focused private equity firms often overlook. While major players like EOG Resources (EOG), Devon Energy (DVN), ConocoPhillips (COP), and Marathon Oil (MRO) command significant scale and broader market share, GRNT's niche strategy allows for specialized expertise and potentially faster decision-making in targeted basins. For instance, in the core of the Delaware Basin, where seven large operators oversee massive asset packages, GRNT's nimble approach enables it to piece together smaller deals at attractive prices. This focused strategy, combined with a leaner structure, can translate to qualitatively lower operating costs in certain segments, though larger competitors typically benefit from greater economies of scale and more robust financial performance.

A key technological differentiator for Granite Ridge, particularly within its operated partnerships, is the adoption of advanced techniques such such as "U-turn well design." This innovation, implemented by partners like Admiral Permian Resources, enhances efficiency and cost control in drilling and completions. While specific quantifiable metrics for this technology are not detailed, its strategic importance lies in improving operational performance and making GRNT's partners preferred collaborators for larger asset managers. This technological edge, combined with a data-driven underwriting approach, strengthens GRNT's competitive moat by enabling it to consistently achieve full-cycle returns that comfortably exceed its cost of capital.

The Operated Partnership Model: A Blueprint for Growth

Granite Ridge's strategic pivot to "operated partnerships" is central to its investment thesis. This model involves holding a majority working interest with proven operators, granting GRNT full control over capital deployment and development. This contrasts with its "traditional non-operated" strategy, where it holds minority interests and relies on third-party operators. In 2024, approximately $120 million was invested in these controlled partnerships, a figure projected to account for nearly 60% of the company's capital expenditures in 2025.

Admiral Permian Resources exemplifies the success of this model. As GRNT's largest and longest-standing partner, Admiral controls 30 distinct drilling units across the Permian Basin and, as of Q3 2025, had 63 producing wells with 14 more in progress. In less than three years, this partnership has captured 198 wells, 94 net to Granite, representing nearly $1 billion of development capital. Admiral's net production to Granite Ridge reached 7,400 BOE per day in Q3 2025, accounting for 23% of the company's total production. The success of Admiral has become a blueprint for other partnerships, including PetroLegacy, focused on the Midland Basin, and two recently formed, confidential partnerships also targeting the Permian. These newer partnerships are in aggregation mode, aiming to secure 18 months of development inventory before committing to full-time rigs.

The company aims to maintain a 3-to-5-year inventory of drilling locations, viewing this as the optimal duration that provides control without the burden of warehousing long-term assets on the balance sheet. This "just-in-time" inventory model, coupled with a diversified asset base and minimal drilling commitments, underpins GRNT's operational agility.

Financial Performance and Operational Momentum

Granite Ridge has demonstrated robust financial and operational performance, reflecting the effectiveness of its evolving strategy. For the third quarter of 2025, average daily production surged 27% year-over-year to 31,925 barrels of oil equivalent per day (51% oil). Adjusted EBITDAX for the quarter rose 4% from the prior year to $78.6 million. Net income for Q3 2025 was $14.5 million, or $0.11 per diluted share, compared to $9.1 million, or $0.07 per diluted share, in the prior year period.

Year-to-date through September 30, 2025, total oil and natural gas sales increased 26% compared to the same period in 2024. Oil revenues grew 14% due to a 37% increase in production, partially offset by a 16% decrease in realized prices (excluding derivatives). Natural gas revenues saw a significant 105% increase, driven by a 70% rise in realized prices (excluding derivatives) and a 20% increase in production. This production growth is a direct result of drilling success and strategic acquisitions, with net wells increasing from 195.88 in Q3 2024 to 235.27 in Q3 2025.

Cost management, while generally improving with scale, saw some fluctuations. Lease operating expenses (LOE) for Q3 2025 increased 81% year-over-year to $23.60 million ($8.03 per Boe), primarily due to higher well counts from acquisitions and new drills, leading to an 83% increase in saltwater disposal costs and a general rise in service costs in the Permian Basin. However, general and administrative (G&A) expenses per BOE have shown a downward trend, benefiting from the scalability of the business model. For the nine months ended September 30, 2025, G&A expenses rose 23% to $23 million ($2.72 per Boe), primarily due to severance expenses from a management transition and capital market activities.

The company's liquidity and capital resources are robust. As of September 30, 2025, Granite Ridge had $300 million of debt outstanding under its Credit Agreement and $86.50 million in liquidity, including $11.80 million cash on hand.

Subsequent to quarter-end, the company significantly bolstered its financial position by issuing $350 million in 8.88% senior unsecured notes due 2029 and reaffirming its $375 million revolving credit facility borrowing base. These actions increased pro forma liquidity to $422 million, providing substantial flexibility for future investments.

Outlook, Guidance, and Risk Assessment

Granite Ridge's forward-looking strategy is characterized by disciplined growth and a commitment to shareholder returns. The company maintains its full-year 2025 production guidance of 31,000 to 33,000 BOE per day, with oil expected to comprise approximately 50% of the mix. Total planned capital expenditures for 2025 are budgeted between $400 million and $420 million, including approximately $120 million for acquisitions that are expected to add 75 net locations to the company's inventory. Development capital is allocated roughly 51% to operated partnerships and the remainder to traditional non-op assets.

Management's outlook for 2026 is constructive on long-term oil prices but cautious in the near term due to global supply growth uncertainties. The strategic framework includes clear guidance: above $60 oil, the company plans for measured growth with modest outspend; if sustained oil prices fall below $55 per barrel, it will pivot to a maintenance mode, targeting approximately $225 million in CapEx, with a focus on opportunistic acquisitions. This flexibility is a direct benefit of the controlled nature of its operated partnerships.

The company actively manages commodity price risk through a systematic hedging strategy, with approximately 75% of current production and nearly 50% of expected 2026 volumes already hedged. This robust hedge book, combined with a conservative leverage profile (0.9x net debt to EBITDAX, well below its 1.25x target), ensures the company can operate and invest through market cycles.

Despite these strengths, Granite Ridge faces inherent risks. Commodity price volatility remains a primary concern, impacting revenues and cash flows. As a non-operator in a significant portion of its portfolio, the company is dependent on third-party partners, whose operational decisions or inability to perform could adversely affect results. Geopolitical risks, including ongoing conflicts and trade policies, can also influence commodity prices and increase operating costs. Additionally, while the issuance of senior unsecured notes strengthens liquidity, it introduces debt covenants that must be maintained, including specific leverage and asset coverage ratios. The company is also exploring alternatives for its Permian gas, including gas-to-power projects, to mitigate exposure to weak Waha natural gas prices.

Conclusion

Granite Ridge Resources is executing a compelling investment thesis centered on its unique "publicly traded private equity" model. By strategically leveraging operated partnerships, the company gains critical control over its capital allocation and development pipeline, enabling it to pursue high-return opportunities in a market where traditional private capital has retreated. This approach, exemplified by the success of Admiral Permian Resources and the integration of advanced operational techniques like U-turn well design, underpins GRNT's impressive production growth and improving cost structure.

With a strengthened balance sheet, robust liquidity, and a disciplined hedging strategy, Granite Ridge is well-positioned to navigate commodity market fluctuations while consistently delivering value to shareholders through its fixed quarterly dividend. The company's flexible capital plan, which can adapt to varying oil price environments, further enhances its resilience. As GRNT continues to scale its operated partnership platform and expand its inventory, its ability to identify and develop accretive assets, combined with its commitment to financial prudence, presents a compelling long-term investment opportunity in the dynamic energy sector.