Co-Chief Executive Officer & Director, PERMIAN RESOURCES CORP
Permian Resources co-CEOs: We can grow and return meaningful capital to shareholders
Permian Resources co-CEOs James Walter and Will Hickey join CNBC's 'Squawk on the Street' to discuss the company's debut ...
About James Walter
In a September 2022 CNBC interview, James Walter discussed Permian Resources' strategy following its merger. He stated that the company can "grow and return meaningful capital to shareholders," adding that "returning capital is in our DNA." Walter estimated an "all in return of capital yield" of 14% or 15% with a dividend yield approaching 2.5%, which he described as "really competitive" with other exploration and production companies. He expressed confidence in the company's assets in the Delaware Basin, calling them "some of the best assets in that basin," and said that at $75 to $80 oil prices the company can "sustain this indefinitely." Walter characterized the merger as "way better than an IPO," saying it "builds a bigger, better company than we ever could have done on our own." He noted that the company is "cutting a lot of costs out of the business" through operational synergies, and that combining best practices has revealed "a lot of extra fat we can cut." Walter attributed the success of the co-CEO structure to his transactional and legal background complementing co-CEO Will Hickey's technical background, stating it "works really well." He also said that being in "the lowest break-even basin in the U.S." gives the company confidence it will be "one of the best positioned for the next ten years."
Transcript (17 segments)
I
Interviewer0:02
It was about a $7 billion merger of equals that took place recently. We're joined with Permian CEO James Hickey. The stock now trades under the ticker PR. Nice to have you here. I brought the first question, let either one of you decide, given you're co-CEOs. You are talking about planned activity levels, therefore, targeting crude oil production growth of about 10% in the fourth quarter of 2023 over the fourth quarter of this year, and the possibility of generating as much as 1.1 to $1.3 billion free cash flow. Give me a sense of why you're confident in that 10% growth number and the free cash flow numbers you put out there.
J
James Walter0:56
I'll take that one. So, currently, Permian Resources is in the 6 or 7 rigs we need to execute. Both businesses were growing pre-merger. We feel confident in our assets in the Delaware Basin, and we have some of the best assets in that basin. This is continuing to execute on what both companies did pre-merger with the new team. We're confident with the new team together will be better than either one was before the deal.
I
Interviewer1:25
Speaking of team, and I know Jim will have a lot of questions for you, how are you apportioning the co-CEO roles? To be frank, sometimes those don't work so well. I'm curious as to the conversations you've had and where you see each of your responsibilities being to allow you to actually work well together.
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James Walter1:42
Yeah. Will and I have been co-CEOs for the past seven years. It's worked well for us. It's natural. Will has a technical background. He spent most of his career prior to starting Colgate at Pioneer Natural Resources. He receives engineering, production, operation, geology. I have a transactional background, M&A, legal, ground. It works really well. I think that's a great part of our success story.
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Interviewer2:07
Jim. James, it sounds like, you're right from the beginning, adopting a Pioneer-like method of payout. You are determined to give the shareholders cash flow. Can you speak to that? In the old days, of course, it was drill, drill, drill. These days you seem to favor a position, you have 10% growth, which allows you to return an amazing amount of money. Any thoughts at these prices what sort of yield you might have?
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James Walter2:35
Yeah, we're in the position we can grow and return meaningful capital to shareholders. I would say returning capital is in our DNA. We founded the predecessor to Permian Resources with maximizing investor return through distribution. We're really excited. I don't know exactly today, I think you're probably looking at 14% or 15% all in return of capital yield with a dividend yield approaching 2.5%. Like you said, Jim, it's really competitive. It's up there with a lot of the big boys in E&P.
I
Interviewer3:06
Will, you should know my trust is overweighted with oil. We absolutely love that return. At the same time we feel the market has not been very kind to the group. Reuters reported December of 2021 that Colgate sponsors were exploring an IPO. Better way to be able to come public than an IPO?
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James Walter3:27
Yeah, I would say this transaction was way better. I think the assets the Centennial transaction, the people that brought, this really builds a bigger, better company than we ever could have done on our own.
I
Interviewer3:39
Well, if that's the case, is the idea to, let's say, put continuous areas together and, therefore, take advantage of the idea that, as we've seen time and again, say, with Pioneer, that if you can just take the same number of rigs, move them over, the expense structure is really terrific?
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James Walter3:59
Yeah, definitely. I'll take that one. As you look at this merger, we're cutting a lot of costs out of the business. Really from operational synergies. Both businesses were very, very good at what they were doing pre-merger. We've been really surprised as we kind of laid best practices next to each other. There's a lot of extra fat we can cut, and we can adopt the best things Centennial did, the best things Colgate did to set up Permian Resources for success.
I
Interviewer4:25
And on the --
Let me follow up. It does feel like -- I was afraid you paid too much for it. Clearly not. The market is saying right now that we're thrilled with the combination. And I think, once again, it's because, and you just mentioned, makes me feel like people can get great yield right here from the patch. How many years do you think you can sustain something like that? Pioneer is saying -- Mr. Sheffield is saying many, many years before they have to worry about cash flow declining, as long as oil stays above, say, 75, 80.
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James Walter4:56
Yeah, I think we can sustain this production level for decades. We have one of the highest quality assets in the entire Permian Basin. Like Will said, is the best basin, we think, in North America. You know, I think, yeah, at 75 or $80 we can sustain this indefinitely.
I
Interviewer5:12
Indefinitely. I mean, now, of course, the demand overall over time for what you're producing may decline given the proliferation of electric vehicles.
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James Walter5:22
Yeah. And I was using the $75 to $80. I think we feel good about the demand side, too. We're in a period where we're seeing the results of years of, you know, underinvestment in the space. It doesn't look like that's changing any time soon.
I
Interviewer5:38
So, despite what may be lower demand over a longer period of time, you feel like you're well positioned to go out, let's say, the next ten years?
J
James Walter5:46
Yeah. Just being in the lowest break-even basin in the U.S., gives us confidence we'll be one of the