Permian Resources Corp

NYSE:PR

Earnings Call Analysis

Permian Resources: Strong Q3 and Strategic Growth

In the third quarter, Permian Resources achieved key operational successes, exceeding its growth target a quarter early, indicative of its robust operational performance. Daily oil production climbed to 90,000 barrels, marking increases of 4% and 6% from the previous quarter. The company's disciplined execution led to $165 million in adjusted free cash flow, complemented by noteworthy drilling and completion efficiency improvements. Management emphasized their commitment to shareholder value, indicating a base dividend increase of 20% from Q1 and a focus on maintaining a strong balance sheet after the Earthstone transaction. While details on the 2024 plan were not disclosed, the focus remains on maximizing shareholder value and free cash flow over the next 12 to 24 months.

Permian Resources Surpasses Expectations in Q3 2023 Earnings

Good morning, ladies and gentlemen. On the call today, Permian Resources took pride in discussing its third quarter earnings for 2023, highlighting that the company has exceeded expectations set forth in its full year plan. The plan, released in February, was strategically aimed at maximizing free cash flow for shareholders through high-return, cost-effective development. The company's performance has not only outstripped initial predictions but has done so in its very first year as a publicly traded entity, signaling a strong market performance and operational execution.

Achieving Growth Ahead of Schedule

Permian Resources celebrated hitting a substantial 10% exit-to-exit growth target a full quarter in advance of the year-end expectations. The outperformance was attributed to a combination of improved well productivity, operational efficiencies, and lower downtime, leading to an unanticipated beat on the oil production side.

Cost Efficiency and Outlook for 2024

From a cost perspective, the company reported that capital expenditures (CapEx) in Q3 were higher than expected due to efficiency gains and more wells being drilled and completed. However, leading-edge drilling and completion costs have seen approximately a 10% decrease from earlier in the year, adding to the company's cost-effective performance. For the coming year, they anticipate approximately 5% deflation year-over-year on consumable costs like casing, with potential additional savings from services and materials such as sand. Operational advancements leading to faster drilling and fracturing times are likely to contribute further to reducing well costs.

Consistency in Capital Return Strategy

Permian Resources reiterated its commitment to a well-established capital return framework, which balances operational and strategic flexibility with meaningful and substantial returns to shareholders. The company expressed a firm stance on maintaining the current strategy, signaling confidence in its effectiveness.

Integration and Synergies from Earthstone Acquisition

The acquisition of Earthstone positions Permian Resources as the second-largest remaining Permian pure-play and one of the largest operators in the Permian Basin. Realizing synergies from this transaction is a focal point, with immediate economies of scale and pricing benefits being achieved. The company is well on track to reach a $175 million run rate in cost synergies by the end of the following year and is confident in its ability to deliver these. Additionally, efforts like artificial lift optimization and water disposal initiatives are expected to contribute to lower operating expenses over time.

Outlook and Guidance for Q4

Looking ahead to Q4, the financial projections suggest a trend towards a slight beat on oil productivity. The CapEx, likewise, is expected to outperform due to the acceleration of well completions from Q4 to Q3. The guidance indicates two months of Earthstone's asset contributions in Q4, with the remaining guide being consistent with Earthstone's previous projections. The company did not venture into granular forecasts during the call but provided a broader direction for investors to anticipate the quarter's performance.

Maintaining Efficient Operation Amid M&A Diligence

In the merger and acquisition (M&A) domain, Permian Resources remains keenly focused on integrating and executing current operations, which is an overarching priority. The company assesses the M&A landscape cautiously, pursuing transactions that enhance business quality and inventory base. While existing M&A opportunities are slowing down, the company continues to look for strategic 'small ball ground game' deals that promise high returns and inventory accretive potential. Larger packages will be evaluated as they appear, but the preference is for deals that complement the company's long-term value creation objectives.

Permian Resources' Strong Market Presence and Future Prospects

Since its inception, Permian Resources has delivered best-in-class returns, substantially outperforming the S&P 500, thanks to successful execution strategies. Currently boasting an enterprise value of almost $15 billion and operating with a 100% focus on the Permian, the company sees potential rerating opportunities to reach more competitive multiples across sectors, not just within its peer group. By focusing on their core competency, organic growth, and executing opportunistic transactions like the Earthstone deal, Permian Resources strives to continuously create value for shareholders and affirm its leadership in the energy sector.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and welcome to Permian Resources conference call to discuss its third quarter 2023 earnings. Today's call is being recorded. A replay of the call will be accessible until November 22, 2023, by dialing [phone] and entering the replay access code 608519 or by visiting the company's website at www.permianres.com. At this time, I will turn the call over to Hays Mabry, Permian Resources Senior Director of Investor Relations, for some opening remarks. Please go ahead.

[Hays Mabry, executive]

Thanks, Lester. And thank you all for joining us on the company's third quarter earnings call. On the call today are Will Hickey; and James Walter, our Chief Executive Officers and Guy Oliphint, our Chief Financial Officer. Yesterday, November 7, we filed a Form 8-K with an earnings release reporting third quarter results for the company. We also posted an earnings presentation to our website that we will reference during today's call. You can find the presentation on our website homepage or under the News and Events section at www.permianres.com.

I would 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. 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 Securities and Exchange Commission, including our quarterly report on Form 10-Q for the quarter ended September 30, 2023, which is expected to be filed with the SEC 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.

[William Hickey, executive]

Thanks, Hays. Before we jump into the slides, I want to take a moment to thank our team for delivering the best operational quarter we have ever had as a company, which I will expand on in more detail in a moment. It's easy to get distracted when a big deal is announced, and our team didn't take their eyes off the ball from accounting to IT to all of the operational groups, great work from top to bottom. Having a strong underlying business is critical as we expand our focus to integration, and we have a great team that exceeded expectations so far in 2023.

I want to spend a few minutes talking about the Earthstone acquisition, which we closed last week on November 1. As we stated during the announcement, we believe that the Earthstone deal provided a unique combination of significant near-term and long-term accretion, Permian Basin scale, high-quality assets in the core of the Northern Delaware Basin and accelerated return of capital, all while allowing us to maintain a strong pro forma balance sheet. Importantly, we were able to complete the transaction at a purchase price and structure that will provide significant value to our combined shareholder base and are looking forward to delivering on the $175 million annual synergy target laid out in August. We spent the past few months working with the Earthstone team and preparing for integration and synergy capture phase of the acquisition.

M&A integration is something we consider our core competency at Permian Resources and we have already hit the ground running to leverage the playbook and lessons learned from the Colgate, Centennial merger last year. As we have begun integrating Earthstone's assets and team, we are more excited than ever about the improvement to our already great business that the combination provides.

Shifting back to Permian Resources third quarter, I'm proud to announce that our team continued to deliver strong results. Operational outperformance across the board drove a meaningful increase in free cash flow for the quarter, resulting from a combination of wins. First, strong well results led to meaningful oil growth in the quarter with our new wells continuing to impress. Second, continued operational execution in the field lowered controllable costs despite summer weather in Texas, which is a real testament to how prepared and dedicated our field team is every single season. Weather in Texas is extreme but predictable and our team has worked hard to put equipment and processes in place to mitigate downtime. Third and finally, our drilling and completions team has relentlessly continued to drive down cycle times and well costs throughout the quarter.

As a result, PR delivered total production of 172,000 barrels of oil equivalent per day and oil production of 90,000 barrels of oil per day, which represent 4% and 6% increases, respectively, compared to the second quarter. It's worth noting that we hit our Q4 '24 to Q4 '23 growth target of 10% a quarter early due to strong operational performance. The company generated adjusted EBITDAX of $584 million for the quarter. Total controllable cash costs were $7.92 per BOE, which decreased slightly quarter-over-quarter. Overall, LOE, GP&T and cash G&A were in line with our expectations. We reported adjusted free cash flow of $165 million based on cash CapEx of $380 million in the quarter. Lastly, we reported $0.29 of adjusted free cash flow per share on a cash CapEx basis and $0.39 per share of adjusted net income.

Diving into the operations a little more. Our team increased efficiencies across the board, continuing our positive momentum from the previous quarter. The drilling team increased drilled feet per day by 14% quarter-over-quarter by continuing to refine best practices. In addition, the completions team delivered their best quarter to date. With 1,880 completed feet per day and over 19 pumping hours per day, which we believe are some of the best performance metrics in the Delaware Basin. Overall, these efficiencies meaningfully reduced cycle time for the quarter, resulting in slightly higher CapEx spend for the quarter but lower per unit well cost. This is a winning combination, these sustained efficiencies should drive incremental value for shareholders going forward. Now I'll turn it over to Guy to go to return on capital.

[Guy Oliphint, executive]

Thanks, Will. As you can see on Slide 9, strong Q3 results and increased free cash flow allowed us to deliver a total return of capital of $0.17 per share to shareholders during the quarter. Our calculation begins with adjusted free cash flow of $165 million. We reduced that amount by our $0.05 per share base quarterly dividend or $28 million. We have committed to pay 50% of the remainder of free cash flow to shareholders via dividends or buybacks. This quarter, we achieved that target with both. The share repurchase represents 2.2 million shares that we bought back for $28 million alongside a sponsor secondary offering during the quarter. Additionally, we will pay a variable dividend of $0.07 per share bringing the all-in quarterly return of capital to $0.17 per share. Consistent with our goal of delivering sustainable long-term base dividend growth, we plan to increase our base dividend by 20% from $0.05 to $0.06 per share beginning in Q1.

An overview of our balance sheet and hedge book can be found in the appendix. Our third quarter results, both as a stand-alone company and combined with Earthstone demonstrate our continued ability to maintain a strong balance sheet that supports strategic flexibility while pursuing accretive consolidation opportunities such as Earthstone. We have no near-term maturities and approximately $1.5 billion of liquidity on our RBL. We expect to continue to utilize excess free cash flow to pay down debt over time. Notably, our credit ratings were upgraded by all 3 agencies at closing of the Earthstone transaction, furthering our goal of achieving an investment-grade credit rating within 12 to 18 months. With that, I'll turn it over to James.

[James Walter, executive]

Thanks, Guy. As you have all heard about the Earthstone announcement call in this morning's earnings call, we are incredibly excited about the future of our business with the addition of Earthstone. We're excited to get the deal closed last week and begin to welcome the Earthstone employees to the Permian Resources team. We view this transaction as consistent with our ultimate goal to do whatever it takes to maximize shareholder value creation. Our business today is better than it's ever been, and we expect to find ways to continue to improve it going forward.

On Slide 10, we look back at a few of the key takeaways from our Earthstone acquisition. First, we acquired Earthstone at a very attractive valuation, where we are highly certain that we can exceed our return thresholds. Our purchase price at the time of announcement represented a slight discount to Proved-Developed PV-10 while adding significant high-quality Delaware inventory at little or no cost. Second, the transaction is accretive to all key financial metrics before synergies and highly accretive with synergies near term, long term and midterm. But finally, and most importantly, we firmly believe this transaction will continue our track record of enhancing shareholder value through increased free cash flow per share and returns to investors. It's worth noting that this transaction makes Permian Resources the second largest remaining Permian pure-play one of the largest operators in the Permian Basin. Although we have been very clear we would never do a deal just to get bigger, we do expect to benefit from enhanced economies of scale and the strategic benefits of being the second largest Permian pure-play.

Before we move to Q&A, I'd like to take a quick second to look back at 2023 so far. This past February, our team set out a very strong and well received full year 2023 plan that maximize free cash flow for shareholders through high return cost-effective development. Since February, our team has executed extremely well, and we are exceeding expectations against that budget. We will not be providing standalone PR look back in our Q4 earnings call this February since we have 2 months of contribution from Earthstone included in our financials, but it's worth noting and giving our team credit for the fact that PR standalone is on track to deliver an excellent and outperforming year in its first full year as a public company. We will not be addressing our 2024 plan on this call today, but expect to release an updated business plan and guidance on our next regularly scheduled call in February.

Investors can rest assured that our philosophy has not changed. We'll be building a development plan that maximizes value for our shareholders over the near and long term. As we decide activity levels, we will put together a plan that results in highest free cash flow over the next 12 to 24 months. We believe that by waiting until February, we'll have a much better idea of what that reinvestment environment looks like and be able to come to the market with a plan that maximizes value for shareholders in a way that we could not do as effectively if we rolled out a plan today. As always, our focus is on long-term value creation. Thank you for tuning in today. And now we will turn it back to the operator for Q&A.

[Operator]

[Operator Instructions] First question comes from Zach Parham from JPMorgan.

[Zachary Parham, analyst]

Congrats on the quarter. I guess, first, just a question operationally. Like you mentioned, you hit the 10% exit-to-exit growth target a full quarter in advance. Can you just give us some more detail on what drove that outperformance in 3Q? Was it well productivity? Was it cycle times that allowed you to bring wells online earlier or any other factors you would point to that allowed you to deliver that oil well above expectations?

[William Hickey, executive]

Yes. Thanks, Zach. It was really 3 things. You hit on 2 of them -- oil side. The kind of acceleration of wells into the quarter has given the operational efficiencies and then improved downtime numbers. We just -- we saw kind of record downtime numbers for the year in Q3 just due to what the operational team did. And so kind of add all 3 of those together and it leads to what was a pretty big beat on the oil side.

[Zachary Parham, analyst]

And then just one more on the CapEx side. You talked about CapEx being a little higher than expected in 3Q because of those efficiency gains and getting more wells drilled and completed, but that well costs were also lower. Maybe could you quantify where leading-edge D&C cost per foot are and maybe give us some thoughts on where those costs could go in 2024, given deflation and efficiency gains as well?

[William Hickey, executive]

Yes. Just as you think about inflation, kind of as we discussed last quarter, I think we were trending for next year to see about 5% deflation year-over-year on the consumables side, primarily driven by casing and then hoping to get kind of a little bit on top of that via some of the services or things like sand, et cetera. So I think that's still consistent today. Obviously, the commodity prices are moving around a lot and people are putting out full year budget, which I think will drive kind of a lot of changes in that in either direction. But kind of call it, 5-plus percent on the deflation side feels like a safe assumption for next year.

And then on the operational efficiencies, the things we did in Q3 to reduce cycle times, faster drilling, faster frac times, et cetera, are the small little things that are really sticky. So I think our expectation is we'll be able to kind of continue that pace, drill more wells with less equipment and kind of add to that 5-plus percent on the deflation side, just via better overall kind of operational efficiencies to drive well cost down even lower.

[Zachary Parham, analyst]

Got it. And then any color on where leading edge D&C costs are currently?

[William Hickey, executive]

I think kind of if you think about relative to where we were in kind of earlier this year, it's probably down 10%, something like that.

[Operator]

Your next question comes from Gabe Daoud from TD Cowen.

[Gabriel Daoud, analyst]

Was hoping that we could maybe get a bit more color on how you guys are thinking about just at a high level exit-to-exit growth going forward. I know the goal is to always maximize free cash flow with maybe growth being an output of that. But just curious now as a larger entity, how you guys think about growth on an exit-to-exit basis?

[William Hickey, executive]

Yes. I mean I think we've been pretty clear with the market that we're not going to put out a 2024 plan. At this point, we don't think that's advantageous or the right thing for our shareholders over the long term. But I do think that growth can certainly as we're bigger, continue to be a part of the mix. I think we pride ourselves our ability to be flexible and react to whatever the investment environment looks like at the time. And I think that could be in a less attractive environment, kind of low or 0 growth and in a higher, better return environment, it could be as high as the kind of 10% we'd outlined previously. I think despite additional scale, we've got an incredible high-return inventory base and our philosophy on that front hasn't changed.

[Gabriel Daoud, analyst]

Understood. And then you mentioned the ground game in the quarter, 20 grassroots transactions. Just curious how you guys think about larger scale M&A at this point. You noted the attractiveness and the strategic value of being a large Permian pure-play. So just curious how that lends itself to your thinking on M&A?

[William Hickey, executive]

Yes. I mean I think the ground game is something we do quarter in, quarter out, I think something we do exceptionally well and can be a real differentiator over time. As we've mentioned time and again, those are, I think, the most attractive acquisition opportunities we look at often right ahead of the drill bit and really, really accretive. I think on the larger stuff, to be really clear, the first focus for us today is on integration of the Earthstone business, which we closed last week and continuing to execute. I think we have a saying on it if we can't execute, we can't do anything else. I'd say larger stuff at some point down the road could make sense again. I'd say for us, we are highly focused on our asset quality, and I think remaining a Permian Basin pure-play is important to us. So I think that probably does narrow the potential scope of larger deals in the future. But we're going to continue to keep our eyes open. And as we've always said, we're going to do whatever makes the most sense for shareholders.

[Operator]

Next question comes from Neal Dingmann from Truist Securities.

[Neal Dingmann, analyst]

My first question is on the Earthstone assets. I'm just wondering, well, I know you're definitely not giving '24, but I'm just wondering, sort of broadly speaking, are you able to say, just in broad strokes, how much of the total activity for by mid-24, these assets could represent. And I'm just also wondering, would you consider at this point, I know it's early, what would you consider sort of the initial low-hanging fruit with that operation?

[William Hickey, executive]

Yes. Thanks, Neal. As far as activity goes, I think we've been pretty clear that we're going to kind of move rigs from Midland and reallocate that capital to Delaware. So our development plan will be very Delaware focused, kind of 90-plus percent Delaware Basin will be where the CapEx has been. And I think kind of within the Delaware, as you think about capital allocation to the Earthstone assets, I think plus or minus 1/3 is probably the right range and maybe a little less than that kind of at times. But I think kind of over the course of the year, that's probably a safe bet as to where it will shake out. And then low-hanging fruit on the operational side, I think everything we laid out in our rollout call around synergies is we're still very convicted that, that was -- those synergies are very achievable and ones that we can even go beat.

So the quickest wins are going to be on just pricing, pricing on things like sand, fuel, frac, wireline, et cetera, are wins that we were able to get kind of the day after we closed. Probably followed up by that, it will be rigs. I think we'll be able to go get efficiencies either by swapping out rigs or kind of applying best practices to grow faster or -- moves, et cetera, with kind of the economies of scale of the business. And then kind of I think what will bring up the rear will be the LOE changes. A lot of those are kind of water disposal, contractual-based type deals or things that take a little more time. But we're 1 week in today, and I think we are feeling as confident as ever to be able to go get this.

[Neal Dingmann, analyst]

Yes, certainly a lot of upside. And then, James, maybe my second one for you just on shareholder return. Just wondering, do you believe the current -- your current 50% free cash flow payout will remain optimal going forward as you all get larger, as production increases as that even goes down further? Or is there any reason you'd see to maybe step that up in that case or potentially even lowered if you want to decide to boost production?

[James Walter, executive]

I think we really like our framework. I think what we came out with 1.5 years ago or so was really the right balance, and we're trying to strike the right balance of making sure we maintain operational and strategic flexibility to take advantage of the opportunities that we see in whatever environment we're in, but while also returning capital to the shareholders in a way that's really meaningful and substantial. So I think we nailed it with the plan, and we have no plans to change it.

[Neal Dingmann, analyst]

Yes, I think it's very steady. It makes a lot of sense for you all.

[Operator]

Your next question comes from Scott Hanold from RBC Capital Markets.

[Scott Hanold, analyst]

You obviously all identified some opportunities to -- for the synergies, especially on the operating cost side. And I know you've only had Earthstone for about a week, but like big picture, how quickly do you think you can get the Earthstone operations up to speed to your standards? And especially on the OpEx side, which has been certainly in the area that's run high for Earthstone?

[William Hickey, executive]

Yes. I kind of break into 3 parts. I think kind of if you think about just overall synergies from a cost perspective, there's some just kind of economies of scale pricing corrections that we are already getting that are showing up kind of day 1. Just we're running 2 to 3 frac fleets from the same company, and there's some benefits from doing that, that we'll get immediately. I think the rest of kind of the efficiencies on the D&C side probably come next. If you think about in the last merger we did with Colgate and CDEV, we were able to drop kind of down to rigs call it, 6 to 9 months post close. And here we are a year post closing kind of better efficiencies than either company had on a stand-alone basis.

So I think kind of, call it, plus or minus 6 to 9 months on the kind of D&C side. And then the LOE will be the slowest. I think that, that will take time just because a lot of that is contractual and things that we'll have to go work through on combining contracts and renegotiating things like that. But if you think about it, we lined out that we could achieve this $175 million run rate by the end of the year next year. And I think we are -- from everything we've seen, very confident that we will both be able to get that, likely get more than that and maybe even be able to get it quicker. So -- but that's kind of how they would line out over time.

[Scott Hanold, analyst]

Yes. And so on the operating cost side, just to clarify, you see more of that is contractual versus operational like you don't need to go out in the field and change plumbing and everything else on those wells that you're inheriting?

[William Hickey, executive]

No, absolutely. There's a lot of that as well. I just think of it as -- if I think about the big needle movers being kind of artificial lift optimization failure rate, which is what you just described, that's in the field best practices. That will be stuff that we'll do kind of -- we're starting to work through in real time today. But the other big piece is water disposal and water disposal is going to be more of a little longer lead time, finding the optimal SWD disposal or recycling process and kind of working through some small contracts along the way. So a little bit of both, I guess, to be the short answer.

[Scott Hanold, analyst]

Okay. And just a follow-up. I know, obviously, we'll get the better 2024 outlook as we get into early next year, and I appreciate the need. It's a very dynamic market. But like -- when you think about whether you look at a 0 or 10% kind of growth rate range, can you talk about the factors? Like is it -- some of it is a fundamental macro? Or is it price? And how do you think about hedging as you kind of think about that? Like if, for example, if you were able to hedge a high enough price, would you say go to the higher end of growth regardless of what the macro looks like. So any kind of color on how you think about that strategy?

[William Hickey, executive]

Yes. I mean, I think our hedging strategy will be pretty clear how we think about it. But no, you're right. I'd say we'd be biased to hedge more and grow more at higher commodity prices. I think that's just good basic business sense. But as we see higher commodity prices, I think we've always said we're going to be opportunistic and would look to layer in incremental hedges, both on the crude side and the gas side. I'd say -- and then I think as I think about growth, it's really how good is the reinvestment widget. And I'd say that's a combination of really equal parts that drive the answer is what are the commodity prices we expect to realize next year and probably the following. And then what does the service cost environment look like? I mean we've seen over the past 2 years, a wide range of service costs and kind of input costs that ultimately impact the rate of return and the payout of our projects and our development plan. So I'd say lower services costs, higher commodity prices is a better reinvestment environment going to push us to the high end of that range. And if you have the opposite, it pushes us lower.

[Operator]

Your next question comes from Derrick Whitfield from Stifel.

[Derrick Whitfield, analyst]

Congrats on another solid quarter. Starting with a bigger picture longer-term outlook question on your pro forma asset base. And in recent quarters, there's been a heightened investor focus on asset productivity and durability. With the benefit of the Earthstone transaction, is it reasonable to assume your reinvestment 1 year out assessment looks very similar to your 2- and 5-year out assessments?

[William Hickey, executive]

Yes, I think that's a fair assumption. We'd agree with that.

[Derrick Whitfield, analyst]

Terrific. And then maybe staying on operations. Long lateral development has been a growing theme over the last couple of quarters. As you look out over the next couple of years, what are your thoughts on the risk reward -- really metrics associated with integrating more 3-mile lateral development into your operations?

[William Hickey, executive]

Look, we're watching this closely. We've seen what others have done in other basins and then some in the Delaware. I'd say our position kind of has the benefit of its set up extremely well for 2-mile development across the whole position. We worked kind of very hard over the last 5 to 10 years to set it up accordingly. So I think as you kind of scan both ours and Earthstone positions pro forma, just from a map perspective, you'll see that it's set up really well for 2-mile development, which I think makes it just less likely and there's less opportunity to go ahead and extend to 3 miles.

I also think it is our belief still today that 2-mile lateral is the optimal kind of most capital efficient or risk-adjusted return lateral link in the Delaware. I do think as technology continues to get better and we get better -- continue to get better at drilling wells that, that may shift to 2.5 or 3 over the near term. So Look, we're going to stay -- we're going to keep watching it. We'll be fast followers. I think that there's probably some small places where we could do things to incorporate longer laterals if we chose to do so, but that's not a big part of the near-term business plan for us.

[James Walter, executive]

And Derrick, I think a lot of where you've seen the most important push to the extra-long 3-mile plus laterals has been in place where people are really pushing the margins of the basin, and they're into well into the kind of next tier of inventory. And we're in the fortunate position we're still drilling our core of the core acreage, that's extremely high quality and will be for the long time. So I think for us, we're in the fortunate position of we don't need to do that and really like the value proposition of the 2 milers we have set up for today.

[Derrick Whitfield, analyst]

That's a fair point. Congrats again on the quarter guys.

[Operator]

Your next question comes from Phillips Johnston from Capital One.

[Phillips Johnston, analyst]

I realize you guys won't have detailed '24 guidance until February. But now that the Earthstone deal is closed, can you maybe just frame up Q4 a bit and give us a sense for either what volumes might look like today or what kind of year-end exit rate we should be steering towards especially considering, I guess, the improvement in efficiencies that led to higher activity and volumes in Q3.

[William Hickey, executive]

Yes. I can give you kind of a few points, I think, will be helpful. Starting with just PR stand-alone, as you think about it, so we hit -- we kind of hit the Q4 target in Q3. So I think it would be safe to assume we were kind of trending towards on a standalone basis, kind of a slight beat for Q4 oil productivity or production. CapEx, I think, similar story. We accelerated some wells from Q4 into Q3, so you're probably trending towards a slight beat on the CapEx side as well for PR stand-alone. And then as you think about Earthstone what will be in that Q4 will be 2 months of Earthstone, so kind of the last 2 months of the year of the Earthstone assets. And Earthstone had a guide out there alongside their Novo acquisition that I think is still the right guide to use. So kind of taking those pieces, you can do kind of PR plus 2/3 Earthstone to get to what I think is a decent kind of round number for where we'll be in Q4.

[Phillips Johnston, analyst]

Okay. So this might be too granular, but it looks like leading edge estimates for the quarter are sort of in the 260 to 270 day range for oil equivalent and 125 to 130 day for oil. Do those seem reasonable? Or is that a little bit too granular for you?

[William Hickey, executive]

I think that's too granular for me, but I'm sure you can have a follow up with Hays or somebody if you -- make sure that you're not missing something.

[Phillips Johnston, analyst]

Yes. Okay. Sounds good. And then maybe just a modeling housekeeping question. Your natural gas differential stepped down in Q3 versus kind of where it was in the prior 2 quarters. Is that kind of a trend we should extrapolate going forward? Or were there some one-off factors in the quarter that sort of drove that?

[Guy Oliphint, executive]

Yes. Just on commodity mix, generally, oil is really just strong well productivity, gas and NGL trends are really just a combination of oil cut in the areas where we're drilling. Specifically on NGLs, it's kind of the content of the gas, we're popping wells and the associated midstream contracts with a little bit of midstream constraints. I don't -- I think you'll see some fluctuation there, but not kind of a persistent trend off of 1 quarter.

[Operator]

Your next question comes from Oliver Huang from TPH.

[Hsu-Lei Huang, analyst]

Congrats on a solid quarter. Just wanted to start out on the ops front with respect to the efficiencies that you all kind of gained over the quarter. What's the confidence level in being able to keep that Q3 run rate going over the course of an entire year and as we kind of think about how much activity a base program of 11 rigs could get done. And also, is there any sort of inclination to do something similar like you all did with the Colgate deal in terms of just dropping a rig once efficiencies are achieved or would the thought process be to just kind of take advantage of those efficiencies to drive a little bit more pro forma growth? And I guess that kind of dovetails into -- just kind of -- just being tight lipped on the 2024 outlook at this point in time.

[William Hickey, executive]

Yes. I mean, I guess I'll give you some color around it. These efficiencies, a lot of them are just like small things. We're just continuing to get buy-in from the field, driving down flat time on both the drilling side and downtime on the frac side. So I think they're going to be pretty sticky. Q3 was a quarter where everything went right. So can we maintain that exact same run rate for a whole year that may be a little bit ambitious, but at the same time, I think we'll continue to find small things to improve upon. So I do think that the go-forward efficiencies will look more like Q3 than they did any of the previous quarters.

And kind of what does that mean for next year? Look, I think the way that we run our budget and think about it, is we're going to solve for what's the right amount of capital to spend and kind of that will be dictated by how James laid out. What is the ultimate kind of return on that capital, kind of how efficient is that widget in the calendar year in which we're doing it. And then we'll leverage these efficiencies to rightsize the amount of equipment to hit that capital budget. So the answer is everything is on the table. We may run less equipment and drill more wells because we're being more efficient. We may run the same amount of equipment and drill even more wells because we're trying to spend more capital because of the return on the capital, et cetera. So you can feel rest assured that we're going to keep these efficiencies and use the equipment that's generating these efficiencies, but kind of how we use it and how much of it we use is still kind of things we're working through in real time.

[Hsu-Lei Huang, analyst]

Okay. That's helpful color. And just one more kind of thinking about Q4, given the year-to-date outperformance on efficiencies. Are there any concerns with respect to budget exhaustion that might drive a loss of efficiency with having to pull back a rig or crew? And could you also remind us how many crews you're running on a pro forma basis when including Earthstone and if there are any plans to pick back up a spot or full-time crew for next year?

[William Hickey, executive]

Yes. We're not going to do anything that doesn't make sense operationally. We're not going to do -- we're not going to drop a very efficient rig or anything like that to kind of stay within quarter-to-quarter budget constraints. We do have the benefit that we were always planning on. We ran 3 frac fleets on PR standalone for the majority of Q3 and we are planning on dropping to 2 in Q4. Given the efficiency we saw on the frac side, we dropped down to 2 fleets a little bit earlier than expected in Q4. So I think this is going to be one of these where we didn't -- we were able to kind of do both. We're going to kind of have a drop in CapEx in Q4 that kind of keeps us in line with where consensus and kind of expectations were for full year CapEx on PR standalone, while also keeping all of our rigs and our 2 dedicated frac fleets that we're able to achieve the efficiencies you saw. So hopefully that answers your question, but we're going to -- we're not going to drop rigs or frac fleets that have seen these crazy levels of efficiencies kind of based on quarter-to-quarter budget.

[Operator]

Your next question comes from Paul Diamond from Citi. Paul Diamond from Citi your line is now open.

[Hays Mabry, executive]

Paul, I think you're on mute, if you're there.

[Operator]

Your next question comes from Leo Mariani from ROTH MKM.

[Leo Mariani, analyst]

I was hoping you could maybe just discuss the M&A landscape a bit. Obviously, you guys have been pretty acquisitive throughout your history, going back to Colgate and now in PR. So how do you kind of see things out there now? Or there are deals available? What's your appetite? How would you kind of characterize some of these deals out there? Just any color would be great.

[William Hickey, executive]

Yes. And I said it earlier, but I think worth emphasizing again, I'd say our very first priority and focus right now is on integration and execution, that comes first always. But I'd say, yes, you're right. We've been constantly in the market and understanding it. And I'd say it's changed quite a bit over the past 9 months. I'd say we saw a very long backlog of kind of large-scale private deals come to market the first 9 months or so of the year. I do think that backlog is largely exhausted and slowing. I'd say for us, we looked at all those deals, I'd say we're focused on doing transactions that enhance the quality of our business and our inventory base, and that's a really high bar today and didn't find anything outside of the Earthstone acquisition that fit that bar of scale. But I think what we're seeing that's really attractive is we're continuing to see the kind of small ball ground game to be the most attractive opportunities that are the highest rate of return, the most inventory accretive and ultimately set us best up for long-term value creation. So I think we'll continue to be active on that front, and we'll evaluate larger packages as they come, but kind of does see anything coming down the pipeline that we think is fit for us.

[Leo Mariani, analyst]

Okay. That's helpful. And then just on Q4 for PR standalone you guys talked about kind of dropping a crew a little bit earlier. You kind of went faster. Obviously, a lot of efficiencies in Q4. Can you kind of help us out with sort of expected kind of standalone TIL count in 4Q in terms of number of wells? Is that coming down a fair bit this quarter? And just per your earlier comments, one to sort of clarify, given that the strength in 3Q seems like you're fairly confident that you're going to be kind of above midpoint of oil for full year for PR standalone.

[William Hickey, executive]

Yes. Q3 was our highest TIL count quarter as a business and Q4 will come down from there as expected. And also, yes, we were -- you'll never -- PR standalone won't be a thing because in Q4, it will include PR plus 2 months of Earthstone, but on a PR standalone basis, we were headed for a Q4 beat relative to the 90,000 barrels of oil per day target that we put out at the early year guidance. So yes, all of that driven by just acceleration of TILs into Q3, some into Q4 and then obviously increase in well productivity and better downtime numbers than originally budgeted for.

[Operator]

Our next question comes from Paul Diamond from Citi.

[Paul Diamond, analyst]

Apologies for that, had a bit of technical difficulties. I just wanted to touch base real quick on the ground game opportunities, 740 acres, 20 deals last quarter. Now with Earthstone in-house, just want to get your idea or get you guys idea on how -- I guess what the opportunity is on the kind of legacy operations or the new stuff? And is your kind of attention shift anywhere or will all be kind of an all-inclusive type of event?

[William Hickey, executive]

Yes. I mean I think I'd say the opportunity set is brighter for our ground game effort with Earthstone. I think just kind of a larger footprint creates more opportunities for bolt-on acquisitions for trades, et cetera. I think it's probably obvious that that's going to be exclusively focused in the Delaware today. I think that's where the full force of our operational and acquisition efforts are. But I think we're excited. I think there's a lot to do with these assets, we're kind of 1 plus 1 equals more than 2. So we're excited and think the opportunity set only grows from here.

[Paul Diamond, analyst]

Understood. Just kind of one quick follow-up, given the recent mechanics of rising M&A in the market. Are you guys seeing any of kind of fluctuations on -- in those negotiations? Or is it still kind of moving with the general market or kind of any deviation there in?

[William Hickey, executive]

I think small bull market has been really interesting over the last 8 years. It's been a lot more steady, kind of people. It's largely independent private sellers or kind of legacy family-owned oil companies, et cetera. And we haven't seen kind of prices change as much. They don't -- prices don't fall as quickly when commodity prices or the broader market falls and they don't rise as quickly when those markets are up into the right. So I think those opportunities have been steady. And I think for us represent a pretty unique value proposition today.

[Operator]

There are no further questions at this time, handing it over to James Walter for the closing remarks.

[James Walter, executive]

Perfect. Thank you. I'd like to conclude today's conference call on Slide 11, which helps to reemphasize our value proposition for current and future investors. Since the formation of Permian Resources last year, we delivered best-in-class returns for our sector and meaningfully outperformed the S&P 500. This outperformance was largely driven by successful execution. And as a result, our business continues to represent a compelling value proposition against other large capital oil and gas companies. It's worth noting that Permian Resources now sits in a new class of large-cap peers, with enterprise value of almost $15 billion and 100% of our business focused on the Permian.

It continues to be our belief that quality businesses such as ours with core assets, organic growth, efficient operations and a strong financial position have room to rerate to more competitive multiples, not only with our direct peers but also with other sectors in the broader market. By continuing to enhance and cultivate these attributes to quarter in, quarter out execution and opportunistic transactions such as Earthstone, we believe that we can continue to create outsized value for shareholders and solidify our position as a leader in the energy sector. Thank you again for your time today.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.