Permian Resources Corp

NYSE:PR

Earnings Call Analysis

Permian Resources Reports Robust Q4 and Plans for 2024

Permian Resources experienced a strong fourth quarter with production surpassing expectations at 285,000 barrels of oil equivalent (BOE) per day, and 137,000 barrels of oil per day, thanks to efficiency gains, reduced downtime, and increased operational synergies. The company successfully integrated Earthstone assets, realizing 8% quarter-over-quarter cash cost savings to $7.33 per BOE, and reported $0.47 per share of adjusted free cash flow. Shareholders received a substantial return of capital totaling $0.24 per share, due to a base dividend and an incremental variable dividend, with plans to increase the base dividend by 20% next quarter. For 2024, production is forecasted to average 300,000 to 325,000 BOE per day with oil production between 145,000 and 150,000 barrels per day, supported by a $2 billion capital plan. The company continues to streamline costs, anticipating a competitive $8 per BOE, and is poised for further growth and efficiency.

Introduction to Permian Resources' Strong Performance

Permian Resources has wrapped up its first year under the new company name with remarkable achievements. The successful execution of its 2023 plan highlighted by efficient operations, strategic deals, and low-cost leadership, has placed the company as a key player in the Permian Basin territory. The firm's commitment to driving shareholder value through peer-leading production and significant free cash flow growth has been unwavering, despite the challenges posed by incorporating Earthstone's operations in a short timeframe.

Operational Excellence and Accretive Acquisitions

The fourth-quarter performance exceeded expectations with a production output of 285,000 barrels of oil equivalent per day and 137,000 barrels of oil per day. This impressive production leap was driven by the superior performance of both PR and legacy Earthstone assets and rapid integration synergies. Notably, the quarter saw PR continue to slash costs, achieving a controllable cash cost reduction of 8% quarter-over-quarter while delivering $332 million in adjusted free cash flow. The company's strategic and high-return acquisitions have also expanded its asset base significantly, enhancing its net acreage and royalty interests in core Delaware Basin areas.

Future Outlook and Growth Trajectory

Permian Resources is set on a path to sustain and enhance its growth trajectory in 2024. The company plans to focus its $2 billion capital program on its high-yielding Delaware Basin assets, especially in New Mexico. With this investment, total expected production is projected to average between 300,000 and 325,000 barrels of oil equivalent per day, with oil production averaging between 145,000 and 150,000 barrels per day. The company anticipates production to pick up in the latter half of the year and is dedicated to maintaining its efficiency standards while tackling the elevated costs of drilling rigs and pressure pumping.

Capital Efficiency and Value Creation

The 2024 vision is clear - lower costs and maintain or improve well productivity. Permian Resources is striving for capital efficiency gains across 250 planned wells, ensuring every dollar spent adds the maximum value to the company. This commitment to efficiency and ongoing optimization of well designs is expected to solidify Permian Resources' standing as a leader in the industry. These efforts are backed by the company's history of providing superior returns and the potential for a valuation re-rating to reflect its strong performance and growth prospects.

Industry Position and Shareholder Value

Through disciplined execution and judicious acquisitions, Permian Resources has crafted a compelling value proposition relative to other large-cap oil companies. With its sole focus on the lucrative Permian Basin and strategic deals such as the Earthstone acquisition, Permian Resources is defining its stature in a new league of large-cap peers. They believe in the potential for re-rating to higher valuation multiples, translating into a strong investment case for both current and prospective shareholders.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to Permian Resources' conference call to discuss its fourth quarter and full year 2023 earnings. Today's call is being recorded. A replay of the call will be accessible until March 13, 2024 by dialing 877-674-7070 and entering the replay access code 855841 or by visiting the company's website at www.permianres.com.At this time, I will now 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, John. And thank you all for joining us on the company's fourth quarter and full year 2023 earnings call. On the call today are Will Hickey and James Walter, our Chief Executive Officers; and Guy Oliphint, our Chief Financial Officer.Yesterday, February 27, we filed a Form 8-K with an earnings release reporting fourth quarter results. We also posted an earnings presentation to our website that we will reference during today's call.I would like to note that many of the comments during this earnings call are forward-looking statements that involve risk 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 statement sections of our filings with the SEC, including our Form 10-K, which is expected to be filed tomorrow 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. We're excited to share our fourth quarter and full year 2023 results as Permian Resources was able to deliver another quarter of outperformance, closing out an incredible first year of operations under the PR name. I think that over the past 5 quarters we've demonstrated just how good this Permian pure play business is, operating efficiently on our core Delaware assets, executing on highly accretive deals, and continuing to demonstrate low-cost operatorship across the business, which all contribute to PR's industry-leading returns since inception.As we look to 2024, we expect to continue maximizing shareholder value. And I want to take a moment to walk through how we think about value creation here at PR. Our relentless focus is on creating value on a per share basis. And our team has positioned us to deliver a 2024 plan that's expected to generate peer-leading production, cash flow, and free cash flow per share growth without increasing leverage.We're able to drive this outsized growth per share through PR's continued focus on being the lowest-cost operator in the Delaware, our thoughtful capital allocation and development plan, and the highly accretive transactions we completed during the year. In the midst of closing the Earthstone acquisition on November 1, the Permian Resources team was still able to deliver an outstanding fourth quarter across all metrics.Q4 production outperformed, with total production of 285,000 barrels of oil equivalent per day and oil production of 137,000 barrels per day, exceeding both internal and external expectations. This production beat was attributable to 3 things. First and most significantly, we saw outperformance across the board between both PR and legacy Earthstone assets.Second, a reduction in downtime on legacy Earthstone assets led to higher-than-expected run times as the team realized operational synergies more quickly than planned. Third and finally, our drilling and completion efficiencies continued to impress, bringing incremental wells and producing days into the quarter. Even with the increased activity, capital expenditures were in line due to per-unit cost reductions, leading to significant free cash flow outperformance in the quarter.Our team was also able to transition seamlessly into integration and synergy capture mode in the fourth quarter, executing on our proven integration playbook while maintaining focus on driving low-cost leadership across the business. PR continued to increase operational efficiencies in the fourth quarter while integrating legacy Earthstone rigs and fleets into its program, contributing to overall program decreases in per-well unit costs that we've been able to carry forward into the full year 2024 plan, culminating in a program average of $860 per lateral foot.In addition, the team demonstrated strong controllable cost discipline, driven largely by lower LOE with controllable cash costs decreasing 8% quarter-over-quarter to $7.33 per BOE despite higher legacy Earthstone costs. Overall, our strong production and low-cost structure allowed PR to report $0.47 per share of adjusted free cash flow, or $332 million in aggregate.In addition to our focus on execution, we believe our portfolio optimization program will continue to drive meaningful value for shareholders. As many of you saw last month, Permian Resources announced a series of transactions which added 14,000 net acres and 5,300 net royalty acres in the core of the Delaware Basin just 3 months after closing the $4.5 billion Earthstone acquisition.Most notably, the 2 bolt-on acquisitions add over 100 high return locations, directly offset our core Parkway position, which represents one of the highest returning assets within our portfolio. This is in addition to a sizable acreage swap, a non-core divestiture, and our ongoing ground game. Importantly, when you combine all of our portfolio management efforts from the last year, our inventory additions more than replace the wells we drilled on a standalone basis.We believe that excellent execution on these type of difficult transactions and smaller deals is a great path towards material improvements in our inventory position, NAV, and overall value proposition to stakeholders, and will continue to be a key focus for us going forward. Our excellent Q4 results and increased free cash flow allowed us to deliver total return of capital of $0.24 per share to shareholders during the quarter.We announced a $0.05 per share base quarterly dividend, and we are excited to be able to demonstrate sustainable base dividend growth, as we plan to increase our base dividend by 20% to $0.06 per share next quarter. In addition, we remain committed to paying 50% of the remainder of free cash flow to shareholders via dividends and/or buybacks. And once again, we executed both methods of variable returns during the fourth quarter.First, we repurchased a total of 5 million shares at an aggregate price of $13.32 per share for the quarter, and consistent with our framework, we announced an incremental variable dividend of $0.10 per share, bringing the all-in quarterly return of capital to $0.24 per share.As I mentioned before, our team has absolutely hit the ground running with the integration and synergy capture phase of the Earthstone acquisition. We are well ahead of schedule, giving us high level of confidence that we will be able to beat the original synergy target timeline laid out in August. Importantly, drilling and completion costs and efficiencies were realized almost immediately at closing, with a 12% D&C savings per well already realized on the legacy Earthstone wells and more to come.I want to take a second to highlight the amount of effort that's gone into that 12% cost reduction per well since closing the Earthstone acquisition, because it's not just swapping out rigs or changing a casing design.Slide 6 shows around 10 drivers, but in reality it's close to 40 plus small initiatives that add up to meaningful improvements. And our team has not stopped pushing on those efforts. Two of the largest savings, drilling and completion efficiencies, have improved by 35% and 20%, respectively, versus historical Earthstone results, as equipment has been high graded and best practices have been shared across the unified team.These faster drilling and completion time has both reduced costs and improved returns by shortening cycle times. Our field operations team has also made incredible progress on the LOE front, optimizing production operations in many large and small ways. We couldn't be more pleased with the synergy results to-date and look forward to providing another positive update next quarter.The same relentless focus on low cost leadership that allowed us to maximize synergies in the Earthstone acquisition also allows us to drive controllable cash costs to peer leading levels. Our 2024 plan, which James will outline here in a minute, benefits from lower than expected all-in cost, with the combined business able to basically get back to PR's legacy cost structure despite higher historical Earthstone costs. Given the marginal nature of free cash flow, running a low cost business is critical to supporting strong free cash flow per share generation.With that, I'll turn it over to James to talk to 2024 plan.

[James Walter, executive]

Thanks, Will. Turning to Slide 8, we're excited to discuss our 2024 development program, which is focused on maximizing returns and free cash flow per share through thoughtful capital allocation and efficient low cost execution. Our plan is a result of a tremendous amount of work from every department at Permian Resources, and I want to thank our entire team for the work that went into this plan.Our goal is to focus on high return developments in the Delaware Basin that allow the company to maximize returns while ensuring we minimize any future well or location degradation. Fortunately, our robust inventory allows us to drill similar zones, areas, and packages to what we drilled in 2023, and as such, achieves similar well productivity.For the full year 2024, we expect total production to average between 300,000 and 325,000 BOE per day and oil production to average between 145,000 and 150,000 barrels of oil per day. We expect production to be in the lower half of the full range during the first half of 2024 and the upper half during the back half of the year.Our capital program consists of approximately $2 billion, of which 75% is allocated to drilling and completion operations. We expect to turn in line 250 wells this year. The balance is primarily investments in infrastructure that positions PR to continue to drive value in 2024 and years beyond. In terms of CapEx cadence, we expect CapEx to be slightly front half weighted.Our drilling program is largely focused on our high returning Delaware Basin asset, with a particular emphasis on the New Mexico portion of the Delaware given the returns we are seeing from those assets today. The Midland Basin will not be a substantial part of our development plan in 2024.As we mentioned, we expect our controllable cash cost to be approximately $8 per BOE, which screens well relative to other operators in the Permian and is particularly impressive given the higher legacy cost structure that came over from the Earthstone assets.Turning to Slide 9, we want to concisely lay out how our business is getting better this year through the lens of capital efficiency related metrics. Simply put, in 2024, we expect our cost to be lower and our well productivity to be the same or slightly better than last year, which is a winning combination. We would also like to highlight that these improvements in capital efficiency do not come easy.Our team is focused on maximizing value by analyzing every input into our model on a per unit basis and looking for areas to improve. We moved very quickly in leveraging our increased size and scale to receive better pricing on key consumables, such as casing and sand, but some key input costs, such as drilling rigs and pressure pumping remain at elevated prices as we head into 2024.Our team continues to find ways to do more with less, and we are always looking for ways to tweak and optimize well designs, and find that these individual changes only reduce cost by a percentage point or 2, but the cumulative effect adds up to real dollars when multiplied over a 250 well program. This hard work drives our base and leading cost structure and really makes a difference in our ability to extract as much value from every single asset as possible.I'd like to conclude today's prepared remark on Slide 11, which helps to reemphasize our value proposition for current and future investors. Since the formation of Permian Resources, we have delivered best-in-class returns for our sector and meaningfully outperformed the S&P 500. This outperformance was largely driven by successful execution, low cost leadership and accretive acquisitions.As a result, our business continues to represent a compelling value proposition against other large cap oil companies. With some of the recent deals announced, there are fewer and fewer Permian pure plays solely focused on the highest returning base in the lower 48. It's worth emphasizing that Permian Resources now sits in a new class of large cap peers, with an enterprise value of greater than $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 in the Permian, efficient operations and strong production and free cash flow for share growth have room to re-rate to higher multiples. By continuing to cultivate and enhance these attributes to efficient 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 for tuning in today. And now we will turn it back to the operator for Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Scott Hanold from RBC Capital Markets.

[Scott Hanold, analyst]

Great quarter, guys, and good to see those synergies coming in faster than expected. And if we turn to Page 6, where you kind of walk down the Earthstone costs to where they're at right now, could you give us a sense of -- as you look at the current cost and bring that down to the PR legacy costs, like what are really the areas where that difference is going to be occurring? And how fast can you do those? And so, is it drilling efficiencies, casing? Like what gets you to the PR well cost and how quickly can you get there?

[William Hickey, executive]

Yes. Look, I think we've made -- frankly, we're way -- we've gotten here way faster than I thought we would be. If you think about the 5 Earthstone rigs that we picked up, we've already swapped out 3 of them just 3 months post closed, and we're able to get our casing design implemented effectively day 1. We were in a fortunate position. They didn't have a big backlog of casing that we had to chew through before we could start running our well bore design and our casing.So that's how we were able to achieve such dramatic cost reduction in just 3 months. And if you think kind of what's going to come, it's the stuff -- it's not the kind of pricing power. We've already implemented all that. It's more kind of to go build the last bit of efficiencies across all the Earthstone equipment. So we've got 2 more rigs that we'll have to kind of either get up to our standards or swap out over time.We'll have to kind of continue to drive a few more efficiencies on the drilling and frac side. But we're more than halfway there to where we're trying to get to, and we've done that in just 3 months. So I'd say we're feeling really good about both the absolute quantum of dollars that we'll be able to cut from the Earthstone well cost and also the time to get there.

[Scott Hanold, analyst]

Understood. And as we think about the 2024 activity and budget, it looks like it's sort of maintaining your current pace coming into the year. But with you all seeing better efficiencies and performance -- you obviously pulled a few wells into 2023 -- would that allow you guys to reduce the well count next year and the rig count? Or would you guys just produce at a higher level if your efficiencies continue through next year? So it's really a question on pace of next year. And if you keep going faster, will you just kind of keep rolling through that?

[William Hickey, executive]

Yes, I think there's 2 answers I'll give. I'd say first, just as we think about pace of activity, I'd say just as our business has gotten bigger and working interest moved around a little bit, we're much more focused on kind of the total quantum of dollars that we want to reinvest. Kind of what is the capital dollar budget? I'd say that's kind of how we're thinking about activity.I think as you follow this year, we've got 12 rigs running today. And you could see that number kind of move up and down around 11 to 12 throughout the year just as we're optimizing both the rig fleet as we continue to swap out and bring in better rigs, but also kind of optimizing around larger pads, et cetera. So more of a focus on -- I think you'll see a relatively consistent capital profile around that total capital budget of $2 billion.And then, yes, as you get to year end and you get to these weird things, where are we going -- if we bring wells into the quarter, are we willing to spend more and what not? I'd say we'll take it on a case-by-case basis. But historically speaking, when our per unit costs are the lowest they've ever been because efficiencies are the highest they've ever been and returns are very, very good, like they were at the -- in Q4 just 2 or 3 months ago, we lean towards we'll go ahead and kind of bring the extra wells on, add the value to the business, focused on the long-term as opposed to doing some kind of cute things on a quarter-to-quarter basis.

[Operator]

Your next question comes from the line of Neal Dingmann from Truist.

[Neal Dingmann, analyst]

My first question is just going right to well productivity, looking at Slide 10. Specifically, Will, I'm just wondering how repeatable is this production, not only in Lea and Eddy Counties, but as you go down into Texas? And then I'm just wondering is -- you continue to plan throughout this year or maybe more into next year '26? Should we assume more child wells or sort of the same mix as you've always had?

[William Hickey, executive]

No, I think it'll be very, very similar. I can speak very specifically to kind of '24 to '25, because we've already got, basically '25 schedule kind of all lined out. And it's a very, very similar well mix. Our development methodology really hasn't changed from 2022, 2021, 2023. Now you're seeing it in '24. And I'd expect you to see this again in '25 and '26.Just -- we are kind of methodically marching across the position, join the right size pads to make sure to minimize kind of any future degradation. And you're seeing kind of that flatten out the capital efficiency. So it should be quiet, kind of no story. No news is good news on the well productivity side for us for the years to come.

[Neal Dingmann, analyst]

It's fantastic to hear. And then, well, for you, James, just on -- my second is just on your ground game. While you've done a great job, Earthstone and some larger deals, which have been very notable, can you speak to the degree of upside that the bolt-on trades and grassroots efforts will continue to provide? Because it seems like that certainly was a big deal even here recently?

[James Walter, executive]

Yes, we obviously put up that release in January that went through all that detail. I have a slide in the back here. But I think our ground game in the Delaware is awesome. We've got an incredible land team, an incredible business development team that kind of every day are out there doing deals, looking to accretively add acreage in places a lot of people aren't looking. So really cool some stats. I mean, I think you've seen this, but we did. 145 acquisitions last year that added almost 17,000 net acres to our position.I think that's just a little piece of the PR secret sauce that drives value in a different way than I think a lot of our peers are. But it's something we can continue to do I'd say those small deals. You know, the pipeline still feels really good for '24 and '25. And I think we're confident we can continue to get the right deals done at the right prices.

[Operator]

Your next question comes from the line of Gabe Daoud from TD Cowen's.

[Gabriel Daoud, analyst]

I guess what I would like to hit on first is just you talked about the increasing pad size and you obviously highlighted the target that you'll be going after in the Delaware. I was just wondering if you could overall refresh our memory on where the pad size or project size is going this year relative to last year. And then just what the spacing kind of looks like for this year in the Delaware?

[William Hickey, executive]

Yes. I mean, it ends up being a couple of wells per pad, bigger than where we were last year. But this isn't really a change in kind of spacing or anything from a development perspective. It's more just, as we look at the footprint of the acreage we're drilling, we've got some wider fairways than maybe we had the year before, which calls for slightly larger pads.So it's factually correct our average pad size will be a couple of wells higher this year than it was last year. But I wouldn't view that as any bit of a change in development philosophy. It's more just that the acres that we're drilling this year calls for slightly larger pads to keep with the consistent development methodology, and really nothing more than that.

[Gabriel Daoud, analyst]

Okay. Got it. Understood. And then I guess as a follow-up, could you maybe just talk a little bit about that 25% non-D&C capital? What kind of infrastructure projects? And is that a similar level of spend we should expect on infrastructure in '25 and beyond?

[James Walter, executive]

No, look, really what it is this year is, is it's a little bit of catch up on the Earthstone side, just kind of some stuff where we want to go kind of build out some batteries and some stuff the PR way. So there's a little bit of kind of incremental catch up cost this year with Earthstone, and a little bit of kind of some on the gathering side to make sure that we're continuing to have a really, really good takeaway in New Mexico, like we've always had.But I think of it more as kind of one-time in nature. And as you look forward, we're probably back to that, I don't know, 15% or something like that on a total percent of capital budget for infrastructure spend.

[Operator]

Your next question comes from the line of Zach Parham from JPMorgan.

[Zachary Parham, analyst]

First, we've heard from some of your peers about some natural gas processing tightness in New Mexico that's been a headwind. Has this been an issue for you all at all? And maybe talk about how you've managed this issue and if you see anything impeding the '24 program as far as a processing standpoint?

[James Walter, executive]

No, Zach. I mean, we're in a really fortunate position that we've got the right long-term midstream partners in New Mexico. We said it on calls in the past that fortunately we're part of some of the kind of biggest and best natural gas processors and transporters in the basin. That's kind of both in New Mexico and Texas.And looking back historically, we've really never had any issues and don't foresee anything going forward. I think that's just kind of being in the first position to have the right partners in the right places. But we don't foresee any issues whatsoever on the midstream side.

[Zachary Parham, analyst]

And my follow-up is just on cash taxes. You got in at $75 million in cash taxes for 2024. Can you give us some color on how you expect cash taxes to trend in 2025 and in future years?

[Guy Oliphint, executive]

Yes. I mean, we'll start getting closer to a normal course cash tax payer beginning in '25. We have some sensitivity in '24 to oil price, obviously. But we have NOLs today, a meaningful portion of which we're using and we'll start trending to more cash taxes in '25 and beyond.

[Operator]

Your next question comes from the line of Oliver Huang from TPH.

[Hsu-Lei Huang, analyst]

Great quarter. And you all have obviously done a good job with integrating the Earthstone assets ahead of schedule. But just wanted to see if you all might be able to provide some incremental details to help us better understand the drivers of LOE moving sustainably lower for both Q4 and for the 2024 guide being so quick, just kind of looking at where the figure was just 6 months or so ago from the standalone Earthstone business?

[William Hickey, executive]

Yes, I think kind of the big drivers in LOE is kind of -- there's 2 or 3 things that we're working on it. I'd say, one, just to give the Earthstone team some credit that their LOE was improving quarter-over-quarter pre-close. I mean, it was -- I think we've applied some best practices and some things that are -- that have kind of helped accelerate that and maybe have a slight step change from where it was headed. But that LOE was kind of coming down on its own. So there's a little bit of tailwind there.I think secondly, just the overall kind of production profile in Q4 and go forward helps. Kind of a bigger denominator obviously is going to help on the LOE side. And then probably the more sticky stuff would be what we're doing on the water disposal side and how we're addressing kind of failure rates and really kind of optimizing artificial lift for the right well set.We've got to -- kind of the best practices at PR are we don't -- we're not a blanket gas lift company, we're not a blanket ESP company, we're not a blanket [ spago ] company. It's really a -- we challenge every engineer over every area. It's built to suit. It's go put the right lift that the well needs, which will give better run times and lower LOE. And we've been really successful.If you go out to a PR pad across the Delaware, you may see a different lift type and 2 wells that are very close to each other in the same area because that's what they call for. And we're starting to see kind of the benefits of that pretty quickly. So there's a lot more to come there. Look, I think that we can do some stuff on the water disposal side in a bigger way. We've had some quick wins, where we had good water contracts or good water disposal solutions or water recycling solutions in areas that Earthstone wells didn't have that tie in and which were kind of right offside of us. But go for it. I expect we'll continue to tackle the LOE side on the -- really, really with respect to water.

[Hsu-Lei Huang, analyst]

Okay. That's certainly helpful. And maybe for a follow-up. I mean, definitely good to see some of the drilling and completion efficiency improvements starting to be realized right off the bat for Earthstone. But just with the understanding that there's still solid running room to kind of converge those well cost towards the legacy PR business, just wanted to see how much of that future benefit has already been taken into account when kind of looking at the D&C budget that you all have laid out for this year?

[William Hickey, executive]

It is taken into account. So I'd say from what we have line of sight on, we expect to get all of it. Obviously, we're hopeful and kind of doing everything to try to get more. But the budget does take into account the synergies that we have achieved to-date and expect to achieve between now and year end.

[Operator]

Your next question comes from the line of Leo Mariani from ROTH MKM.

[Leo Mariani, analyst]

It's very, very strong production here during fourth quarter, and I was hoping you can provide a little bit more detail. I mean, did you get some extra wells on? Whether there's some extra non-op benefit? Obviously, you just had very strong growth in both oil and in total volumes. And I guess my understanding was that you maybe had a few -- quite a few more wells that were turned in line this quarter versus last. But perhaps I'm mistaken. So maybe you could just provide a little bit more color on the dynamic there?

[William Hickey, executive]

Yes. I mean, I tried to address some of it in the script, Leo. I'd say the biggest driver would just be well outperformance. The legacy Earthstone wells and the PR wells we brought online in the quarter just outperformed even our expectations. So that's going to be kind of more than half of the volume beat for the quarter.The balance is going to be made up of -- we were able to make some material progress on downtime on the Earthstone assets in Q4, kind of a step change in less downtime. So better runtime than kind of what we had budgeted for and what we've seen historically, which really helps with Q4 production. And then lastly being, we did bring some more wells into the quarter. I don't know the exact numbers. It was a couple of wells.So, couple of wells with some meaningful amount of producing days into the quarter that were expected to be in '24. And again, that's just going to be -- we didn't expect to start drilling 35% faster and fracking 20% faster on the Earthstone assets effectively day 1. And we were. So that just kind of brought some activity into the quarter.

[Leo Mariani, analyst]

Okay. No, that's helpful in terms of all that color. And then just looking at 2024, I think you guys did mention that CapEx is a little bit front half weighted and you generally expect it to decline during the course of the year. And I'm guessing production is maybe a little bit of a mirror of that. Would you generally expect first quarter to be a low on production and to kind of build a bit throughout the year? Just any color you have around kind of cadence in '24 would be helpful?

[James Walter, executive]

Yes, I think how you said it is right. CapEx is a little bit front half weighted and production is a little bit back half weighted. But it's not it's not giant swings. I'd say it's kind of -- it's pretty modest. But what you said was just right.

[Operator]

Your next question comes from the line of Doug Leggate from Bank of America.

[John Abbott, analyst]

This is John Abbott on for Doug Leggate. The first question is just on your Midland position. Just what is your current production of that position? And then just given the continued interest in Permian assets, what is your latest thoughts on what you do with that position and also the possible time frame?

[James Walter, executive]

Yes. So the Midland position is about 20,000 barrels of oil per day and about 60,000 BOE a day. And it's a great cash flow business. I think the Earthstone team and our PR team are in a really good place where we've got consistent low declines, low cost, et cetera. So we like having it. I think -- I'd say we're doing a couple of wells on that asset the first half of this year, and pretty excited about what our team has done to-date just on the cost side. I think there could be some meaningful cost reductions there that are a big boost to the value of that asset.But I think over the long-term, we've been really clear we're a Delaware Basin-focused business, and that's where the majority of our capital, our time and our energy are focused. So I don't think we're going to do anything strategic with the Midland Basin asset in the near term. But I think over time as we better understand that asset, if there's ways to extract more value other than owning it, I'd say we're kind of all ears. But I'd say that's probably down the road, most like a 2025 type of thing if we look to do anything at all.

[John Abbott, analyst]

Appreciate it. And then for our follow-up question, while it is not your focus necessarily, how do you sort of think about long-term maintenance CapEx? I mean, do you sort of look at the midpoint of your guidance, several hundred million dollars less than that. How do you think about long-term maintenance CapEx for your business?

[William Hickey, executive]

Yes, I think that's right. I mean, just given all the kind of integration and acquisitions over the last 6 months, it's kind of hard to peg what production level you're calling maintenance. But I think if you're going to predict -- peg kind of where we were in Q4 or where we'll be in Q1 for a -- and then kind of maintenance CapEx to be exactly what you said. I think it's about $200 million less than the midpoint of guide, something like that.

[Operator]

Your next question comes from the line of John Annis from Stifel.

[John Annis, analyst]

Congrats on the strong quarter. For my first question, digging further into your comments around downtime, what was Earthstone's primary source of downtime? And what were some of the specific practices in the field you've implemented to minimize it?

[William Hickey, executive]

Look, there's 2 ways to attack downtime. One is lower failure rate, just kind of the easiest and most sticky best thing to do is lower failure rate. And although I think that is in progress that takes a little longer. And the second is, when wells go down, you just get on them quicker. Try to have turnaround time on a well that fails be a day or measured in a day or measured in hours, not measured in a week or weeks.And it's a little bit of that. It's a little bit of kind of what I said. There are some tailwinds on the Earthstone asset. The team has done a good job of starting to address some of these problems over the last 6 months. So we kind of stepped in at a time where we were set up to succeed. And I think the people on the Earthstone team that have become part of the PR team were excited to kind of do things the PR way and really jump head first into it.And so, we've picked up the low hanging fruit, things like that. I think where we'll go get now is hopefully kind of really start to improve run times, which is the best way to lower LOE and increase run time.

[John Annis, analyst]

Terrific. For my follow-up, referencing Slide 7 and where you stack up against peers in terms of cash costs, it's quite impressive, especially with the Delaware being a little heavier in water production. What's your sense of the biggest delta between you and other Delaware operators?

[William Hickey, executive]

I think -- I mean, what helps us to be compared to other operators in general, one is we don't have a lot of old vertical wells. We've got relatively clean, new horizontal production, which really helps keep cost down. I think it's a great asset of ours. We don't have a lot of vertical wells that kind of increase the cost structure.And then we have great assets. So if you think about where assets sit within the Delaware Basin, although I think it's a fair statement that there's more water on average, we're in some of the oiliest places in the whole basin on a oil cut percentage. We're not in any places that have -- or a very few places that have like high H2S treatment, nothing like that. We are in the kind of basinal core of the basin.And then, look, this is what we do. We are a low cost operator. We focus on controlling the things that we can control. We try to be the lowest on the D&C side, the lowest on the LOE side and the lowest on the G&A side. So I think that's what shows up here.

[James Walter, executive]

And the only thing I'd add to that is we have a real awesome culture in the field with an ownership mindset. Like I think we spend a lot of time answering questions on management, ownership, management, stock, et cetera. But I think what's honestly probably more impactful is that ownership mindset in the field, where our team is incredibly proud of what they do and work incredibly hard in the field to fix wells as soon as they go down and kind of waste no time, waste no effort and kind of getting the right things to run the business the right way done.So I think it's that ownership mindset that we've talked about a lot at the top, but really permeates through the entire Permian Resources organization that -- I don't think that gets enough credit.

[Operator]

Your next question comes from the line of Paul Diamond from Citi.

[Paul Diamond, analyst]

Just a quick one on valuation. You talked about the potential opportunity for you and similarly sized peers to re-rate versus those larger. Just want to get your -- get a bit more detail on what type of catalysts you think or you anticipate to see to kind of close that gap?

[James Walter, executive]

Yes, I mean, I think for us -- I think it's all about execution. I think we -- I think the market has started to realize the quality of our business, looks a lot more like the other Permian pure plays than other large caps, albeit at a smaller scale. But I think over time as we can continue to execute quarter in, quarter out and year in, year out, I think that re-rating happens on its own. I think it's kind of too obvious to miss. And the most important thing for us is to execute and continue to be the lowest cost operator in the Delaware.

[Paul Diamond, analyst]

Understood. Just a quick follow-up. As you guys think about the go forward cadence on D&C improvement, you already captured that 12%. We know some more is coming from the full integration of Earthstone. I guess I'm trying to get an understanding of you guys view on the quantum you can expect going forward, like in the late '24 and '25 and beyond?

[William Hickey, executive]

I think it's 2 different ways of think about it. I think on the Earthstone assets specifically we expect over the coming months those costs to converge with the legacy PR costs where we don't really talk about legacy Earthstone or center legacy PR anymore. It's just, these are Permian resources well cost by area. And that's well on its way and expect to be there in short order.And then what does that mean for absolute PR D&C costs? What we laid out is this 860 a foot is kind of the guide for the year this year. And that's based on what we're seeing real time today. So we're not baking in further efficiencies or further deflation. I think there's -- we're hopeful we'll get a little bit of each of those kind of over the coming years.But again, we've made a ton of progress recently and I think kind of more expected to see kind of gradual -- or gradual decrease in cost. No more of the kind of step changes seen in the last four quarters.

[Operator]

Your next question comes from the line of Phillips Johnston from Capital One.

[Phillip Jungwirth, analyst]

First, just to follow-up on Neal's question on well productivity, Slide 9, you show an expected 3% percent increase in your average productivity this year versus last year in the Delaware. Is that mainly a function of the geographic mix shifts with 70% of your activity going towards New Mexico versus the 40% last year? Or are there other factors driving that?

[James Walter, executive]

No, well mix will be the biggest factor there. You're spot on.

[Phillip Jungwirth, analyst]

I assume that's all taken in your '24 guides, right?

[William Hickey, executive]

Yes.

[Phillip Jungwirth, analyst]

Okay. And then just last question, just next 12-month PDP decline that Netherland Sewell assumed in your year-end '23 reserve report. And would you expect that decline rate to change significantly between now and the end of this year?

[William Hickey, executive]

Sorry. What's the second part of that question? Can you repeat that real quick?

[Phillip Jungwirth, analyst]

Yes. Just -- I'm looking for just a PDP decline rate that Netherland Sewell assumed in your reserve report. And then said the follow-up, would you expect that decline rate to change significantly between now and the end of this year?

[William Hickey, executive]

I can't say offhand what Netherland Sewell's reserve report says, but I can say what we say, which is it's in the low 30s, kind of low to mid-30s on a BOE decline. And then do I expect it to change? Sure. Yes. Every year it should, especially years where we're not having the significant amount of growth like we had last year. You'll see that decline will slowly arrest. I'm not sure it's going to be super significant, but yes, that that decline will continue to shallow out between now and year end.

[Operator]

Your next question comes from the line of Subhasish Chandra from Benchmark.

[Subhasish Chandra, analyst]

The 150-ish type transactions, 17,000 acres of I think the metrics you threw out, what do you think the dollar per location map has worked out to?

[William Hickey, executive]

We haven't -- we kind of intentionally haven't published that and a lot of these especially smaller transactions. I think there's probably some competitive dynamics that are important to keep tight to the vest and frankly some confidentiality there. But I'd say the dollar per location is going to be in the pretty low single-digit millions, if that gets you in the right direction.

[Subhasish Chandra, analyst]

Yes, yes, I guess directionally. That's cool. And then secondly, on the integration costs, are they all done at this point or should we see anything kind of flow into '24?

[Guy Oliphint, executive]

About $20 million in the first half of the year.

[Subhasish Chandra, analyst]

Another $20 million?

[Guy Oliphint, executive]

Yes.

[James Walter, executive]

And then done.

[Operator]

There are no further questions at this time. I will now hand the call back to James Walter for closing remarks.

[James Walter, executive]

In closing, I just want to say that we believe our Q4 '23 results and our 2024 go forward plan speak for themselves and demonstrates just how good our Permian business is. As the lowest cost operator in the Delaware Basin, we believe that we are positioned to continue to generate significant returns for our shareholders as we build our track record of consistent low cost execution year in and year out. Thanks to everyone for joining the call today and following the Permian Resources story.

[Operator]

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