Permian Resources (NYSE:PR) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
Permian Resources reported record free cash flow of $751 million in Q2 2026, marking a significant 50% increase quarter over quarter, driven by strategic responses to volatile oil prices and increased production.
Oil production increased by 3% to approximately 198,000 barrels per day, supported by an increased workover rig count and successful efforts to enhance working interest in wells.
The company strategically curtailed natural gas production due to depressed prices, realizing a natural gas price of $0.38 per MCF, and plans to continue operational efficiency improvements, including surfactant trials and water recycling.
Permian Resources completed a significant acquisition in Ward County, enhancing its operated net locations and lateral lengths, and executed additional bolt-on projects, bringing total acquisitions to approximately 55,000 net acres this year.
The company maintains a strong balance sheet with leverage at 0.5 times and expects to continue its disciplined acquisition strategy while focusing on high-quality asset purchases and maximizing shareholder returns.
Updated guidance projects a 10% increase in oil production for 2026, with capital expenditures slightly reduced, highlighting continued capital efficiency improvements.
Full Transcript
OPERATOR
Good morning and welcome to Permian Resources conference call to discuss its second quarter 2026 earnings. Today's call is being recorded. A replay of the call will be available by visiting the company's website at www.permianres.com. At this time, I will now turn the call over to Hayes Mabry, Permian Resources Vice President of Investor Relations, for some opening remarks. Please go ahead.
Hayes Mabry, Vice President of Investor Relations
Thanks, Eldy, and thank you all for joining us. On the call today are Will Hickey and James Walter, our Chief Executive Officers, and Guy Oliphant, our Chief Financial Officer. Many of the comments during this call are forward-looking statements that involve risks and uncertainties that could affect our actual results and are discussed in more detail in our filings with the SEC. We may also refer to non-GAAP financial measures. For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation.
With that, I will turn the call over to Will Hickey, Co-CEO.
Will Hickey, Co-CEO
Thanks, Hayes. Q2 is a standout quarter for Permian Resources. We delivered record free cash flow of 751 million, an increase of almost 50% quarter over quarter, and record free cash flow per share of $0.88. These results reflect our team's ability to respond quickly and decisively to a volatile commodity environment. Our activities this quarter are a reminder of the uniqueness of PR's business model. We can respond quickly to market conditions, we have a differentiated approach to sourcing and executing acquisitions, and we are relentlessly improving the capital efficiency of our business on a go-forward basis.
All these characteristics support the goal we are all aligned on: increasing free cash flow per share over the long term to create shareholder value. Turning to the quarter, oil production came in at approximately 198,000 barrels per day, up 3% quarter over quarter. Slide 4 shows the key drivers that drove that oil production growth. When oil prices moved higher, our team in the field responded immediately. We increased the number of workover rigs by 50%, which improved run times and quickly accelerated incremental barrels.
At the same time, our successful ground game drove working interest in completed wells to approximately 82% for the quarter, up materially from our original expectations of 75%. Combined with strong well performance, these actions generated 6,000 barrels per day of oil growth quarter over quarter for cash capital expenditures of 521 million. One thing I'd highlight is our continued success increasing working interest ahead of development. This has always been part of the PR playbook, but our BD and land team have executed at an exceptionally high level this year.
We view these acquisitions as some of the highest rate of return deals that we do, given their near-term impact as evidenced from our higher working interest not only in Q2 but also for the remainder of the year. Incremental workovers and ground game transactions are exactly the types of investments we want to make in a volatile market. Both generate incremental oil production and cash flow almost immediately, allowing us to recycle capital quickly and de-risk returns through shorter payback periods.
Turning to natural gas, our team demonstrated their relentless focus on maximizing free cash flow as they navigated a severely depressed Waha market during the quarter. As many of you are aware, Waha natural gas prices averaged negative $3.14 per MCF during Q2 and traded as low as negative $9.52 per MCF. So rather than selling natural gas at negative prices, we proactively curtailed production on high GOR wells with Waha exposure, reducing natural gas production by approximately 20% quarter over quarter.
The curtailments, combined with our firm transportation and hedging, allowed us to realize a natural gas price of $0.38 per MCF for the quarter and an uplift of over 75 million of revenue on our natural gas sales. When Waha pricing improved in late June, we returned all previously curtailed wells to production without any operational issues. I want to give a big shout-out to the field team for putting in the hard work to make this possible during the quarter.
On the D&C side, we offset inflationary pressures from rising diesel prices with continued operational efficiency gains through longer laterals, increased water recycling, deployment of water-based mud, and new wellbore designs. We've also begun surfactant trials on completion and production operations. We're still early in evaluating surfactants, but we're encouraged by the initial results. Between continued operational efficiency gains and the potential to improve recoveries, there are a lot of ways for us to continue our path of increasing capital efficiency.
As you can see from today's results, the quality of our assets combined with our basin-leading cost structure has driven a step-change improvement to our business over the last several years. As a result, we achieved record free cash flow in Q2 of 751 million. This is more than we generated in all of 2023, and we expect full year 2026 free cash flow to be nearly double what we generated in 2024. And with that, I'll turn it over to James.
James Walter, Co-CEO
Thanks, Will. Before we start talking about what's been a great start to our 2026 BD effort, we want to discuss how Permian Resources approaches acquisitions and how that fits with our value creation story. When we founded Colgate in 2015, we moved to Midland with exactly zero acres, zero production, and Will and I sharing a single 200 square foot office. Our goal at the beginning was to buy high-quality assets, operate them efficiently, and underwrite them conservatively so that our invested capital would generate real cash-on-cash unlevered equity returns.
From those humble beginnings, we grew Colgate from an idea to the business it is today with over 500,000 net acres and over 200,000 barrels of oil per day. But our focus was never to build a large-scale business at Permian Resources now, but rather to maximize the return of every dollar we invested in the business. So how did we get here? Because we've honored the same strategy and philosophy in how we underwrite and how we operate. We're working relentlessly to find deals that meet our very high underwriting standards and targeted full cycle returns, and we use it time and time again.
Small deals add up, you create value for shareholders, and the business naturally gets bigger. With that, I'm excited to talk about what we've done in 2026. Today, starting with the largest deal on Slide 8, we closed on an acquisition of approximately 2,000 net acres and 5,000 BOE a day in Ward County for 520 million. This acreage directly offsets our existing asset base, is 100% held by production, and provides an extended runway of high-return inventory.
Shortly after we closed on the Ward County asset in July, we signed a trade agreement with an offset operator utilizing a combination of the recently acquired bolt-on acreage, the legacy PR acreage, and some other acres that we had. This acreage helps address some of the challenges with the standalone Ward County acquisition, namely it being majority non-operated, low working interest, and somewhat scattered. The trade also increases the number of operated net locations from 50 to 120 while increasing the average lateral lengths by 20%.
We view this trade as a true win-win for PRNR and our counterparty, who is a valued industry partner, as it helps them to further core up their acreage position and increase their working interest in their own operated units. We expect the trade to close during Q3. Finally, the Parkway bolt-on project in Eddy County is a great example of how our proprietary data and Midland relationships create opportunities others simply do not see. Following the success of a delineation well we drilled in late 2025, we quietly assembled a contiguous position of approximately 15,000 net acres with 2 mile lateral lengths and an 82.5% .
Our partner in this deal, Tascosa Energy Partners, actually brought this deal to us over drinks in Midland. We've been fortunate to know this team for a long time and bought a big deal from them a couple years back. But I think more importantly, this deal is a scaled example of the Midland-born deals that we do with our friends and partners on a regular basis and that we think provides a real competitive advantage to Permian Resources. In total, year to date we've acquired approximately 55,000 net acres in the core of the Delaware Basin for total consideration of approximately 1.05 billion, executed through roughly 190 separate transactions.
These acquisitions added approximately 330 high-confidence, high NRI locations that immediately compete for capital in our portfolio. Ultimately, we think the valuation metrics for the deals we have done so far this year speak to the strength of our approach: 13,000 per net acre, 8,000 per net royalty acre, and 2.5 million per net location. Slide 11 summarizes why we believe our acquisition strategy is truly differentiated. Our focus is on buying high-quality assets, pursuing accretive transactions where PR has a commercial, technical, or operational advantage.
We continuously hunt for off-market deals and look for areas where we have distinct advantages or can create an edge that allows PR to underwrite higher full cycle returns. The edge can come from our leading cost structure, proprietary service information, or simply access to a deal that isn't widely marketed. While this is not easy and requires a ton of work, we pride ourselves on being creative and not afraid to lean into harder, less obvious deals.
We are confident we will be able to continue this successful track record for years to come. Our financial discipline allows us to execute meaningful transactions like we have announced today while retaining a fortress balance sheet with Q2 leverage of approximately 0.5 times and expected year-end leverage of approximately 0.5 times. All this leads us to our updated, improved plan for 2026. As Will mentioned in his prepared remarks, the success of our ground game has allowed us to significantly increase our working interest for full year 2026.
This will allow us to meaningfully grow production while maintaining the same completion crews, rig count, and operating efficiencies we have achieved this year. Our updated production guidance of 199,000 barrels of oil a day for the full year 2026 is 10% higher than 2025, while a capex midpoint of $1.95 billion is approximately 1% lower than the capital we spent last year. This all highlights the strides that our team is making to continue to improve the capital efficiency of our business and to grow free cash flow per share every year.
Concluding with Slide 14, our focus on full cycle returns has allowed the company to generate outsized value creation for our investors. A dollar invested in Colgate in 2015 would be worth nearly $50 today, representing a greater than 50% compounded annual return. And we've continued that same philosophy and performance at scale with Permian Resources, nearly tripling our total shareholder returns since formation in 2022. Most importantly, our business model has not changed.
We are confident the combination of our high-quality asset base, peer-leading cost structure, and differentiated approach to acquisitions will continue our track record of long-term value creation. We live in an industry that in some ways has been defined by consolidation and scale. But we'd like to be defined by prudent investment of capital, free cash flow per share growth, and ultimately leading total shareholder returns for our investors. Thank you for tuning in today.
And now we will turn it back to the operator for Q&A.
OPERATOR
We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Scott Hanold with RBC Capital Markets. Please go ahead.
Scott Hanold, Analyst at RBC Capital Markets
Yeah, thanks. Good morning, all. Obviously the ground game, M&A, has been a staple of y'all for the last number of years and it looks like you had a pretty successful run here in the last couple months. Can you give us a sense of what you see moving forward on the M&A landscape? And also how do you kind of compare and contrast the activity you've been doing versus looking at some of the larger packages that are a little bit more, I guess, competitive like the federal lease sale or marketed deals?
James Walter, Co-CEO
Yeah, thanks, Scott. I mean, I think on the ground game side, I think that's an effort that's been kind of building and consistent for the whole 11 years we've been running this business. Got pretty much the same team, the same people that are kind of operating at an extremely high level. So I mean that may ebb and flow a little bit from quarter to quarter, but I think over years we are really confident we can continue to kind of execute and grow that part of our business.
You know, I think the opportunity set in front of us looks as good as it ever has and we're kind of excited and confident that we can continue that. Look, it may not be the same every single quarter, but we really do believe in the kind of long-term viability of that part of our business. In terms of larger packages, look, like we've always, we kind of look at everything in the Delaware. I think you should assume we are kind of in the mix and evaluating any package of quality that is out there on the publicly marketed side.
I think what we've seen in some of these deals and some of these federal lease sales or state lease sales is that, you know, they're good assets. I mean, there's been some really good stuff that transacted this year. But I think our focus on full-cycle returns and generating outsized equity returns for investors I think has us being really disciplined on purchase price and I think kind of, you know, are some of those assets that transacted assets we'd like to own?
Absolutely. But were we able to get to those purchase prices and still achieve our targeted returns? The answer was no. So I think for us it's all about focusing on kind of full cycle and long-term value creation. And if there's bigger packages that meet those return thresholds and standards, then we'll be excited to do them, and if not we'll continue to be patient.
Scott Hanold, Analyst at RBC Capital Markets
Got it. Thanks for that. And my follow-up question is more, you know, kind of Permian, I guess, macro related, you know, certainly with new egress coming on for pipelines, you're seeing probably a next surge of gas coming, including, you know, your production that was offline. But like how do you see, you know, activity pace from a lot of, you know, kind of offset operators? Any kind of non-operated activity, you know, with improved egress, and do you expect a surge of production?
And I'm just kind of curious on oil takeaway capacity if you think that becomes a constraint in the next couple of years or so.
James Walter, Co-CEO
Yeah, good. I think kind of hitting last point first. We feel really good about oil takeaway capacity for the next few years. You know, I think we're also hopeful that we've all learned a good lesson on kind of the gas situation we've been in the past 12 months that you got to get out there years ahead. We're fortunate on the oil side. We've got a lot of capacity today and expect that to be the case as we continue to grow for years to come in the Permian, which I think is not guaranteed, but certainly possible.
You know, I'd say at this point we're confident our midstream partners will be working with people like us to kind of get further ahead of that. And on the gas side, we haven't seen any meaningful reaction kind of from an activity level. You know, I think it seems like the pipelines that are coming online this quarter are able to handle the new gas that we brought back online, kind of any incremental growth today. And, you know, I think we're hopeful that we're entering a new era in Waha gas where you get past this period of dislocations and we have pipeline capacity that's now going to be able to keep up with Permian growth.
I'd certainly say the environment and the attitude has changed. You know, I think there's a new eagerness and desire to build pipelines coming out of the basin because people do believe this basin is going to grow its gas volumes for a long time and there's a lot of exciting downstream demand things. So I think we feel a lot better about kind of both crude and gas, you know, than we have the last few months.
Scott Hanold, Analyst at RBC Capital Markets
Thank you.
OPERATOR
Your next question is from the line of Neil Dingman with William Blair. Please go ahead, guys.
Neil Dingman, Analyst at William Blair
Thanks for the time, James. Maybe stay on the same vein. My first question just around M&A specifically, is it fair to say does the Pathway bolt-on suggest you all continue to have more confidence as you move northwest in Eddy County? And just wondering either there or, again, further in Lee, would you all continue considering moving just further north in New Mexico overall?
James Walter, Co-CEO
Yeah, I mean I think that kind of Eddy County area where this Pathway bolt-on has been, that's been a tremendous asset for Permian Resources since we bought our first deal there back in summer of 2016. And, you know, I think we've seen it continue to work as you push, you know, modestly west and modestly north. I'd say we've been surprised by how strong the well performance is, for example, in the kind of area that you're referencing today. And I think we see a lot of white space.
I also think the white space may be moving north and maybe moving west, but there's also still a lot to do kind of in and amongst our existing position. You know, there's a lot of white space on the map between our existing assets. And I think I'd say honestly most of the bolt-on activity that's active now is more kind of in between the yellow on the map, if you will. But we still see a lot to do in what we call the Pathway area of Eddy County and are certainly excited about the well results we've seen and excited about what we think could be coming.
Neil Dingman, Analyst at William Blair
Perfect. And then my follow-up just on capital allocation, maybe for you or Guy or Will. Just specifically, we've seen at least a couple of your peers, if not more now, recently boost activity, I guess in the last few months. Do you all believe production growth in this environment is appropriate given the commodity backdrop? And maybe if not, is the plan just to keep building cash?
James Walter, Co-CEO
Look, we don't like to forecast our plan for next year or anything like that. I'd say with regards to 2026 and what oil prices did kind of at the beginning of this year, I think we were strong believers that this is an environment where it made sense to invest a little more capital and grow production more than the kind of flattish expectations we had coming into the year. You know, like Will talked about in prepared remarks, we're proud of our team, how quickly we could respond and how quickly we could bring those barrels.
As far as growth from here or growth next year, I think that's just really going to depend on the returns environment. We've always talked about growth in a returns-driven framework. We have high oil prices, low service costs — you'll probably see us in growth mode — and inversely, we have lower oil prices and higher service costs, I think you'll see us back to maintenance mode. So I think it's just going to depend on kind of how the macro settles out.
I think today it's probably too early to tell what next year looks like, but we'll keep watching it and we've proven we can react really quickly when the time comes.
Neil Dingman, Analyst at William Blair
Perfect, thank you.
James Walter, Co-CEO
Thanks, Neil.
OPERATOR
Your next question is from Neil Mehta with Goldman Sachs. Please go ahead.
Neil Mehta, Analyst at Goldman Sachs
Yeah, thanks, guys. Just continued operational momentum as we think about your production. And so, you know, James, I'd love you to talk a little bit about some of the things that you're deploying out in the field to stay ahead of expectations operationally.
James Walter, Co-CEO
Yeah, I mentioned a few in the prepared remarks. You know, I'd say one that I feel like I hit on every quarter, which is really, really important to both the production and the completion cost of business, is water recycling. And so we had another tick up on percent water recycled in Q2. I think it's the highest quarter we've had in PR history. So we are continuing to make progress on kind of incremental water recycling. We've got a great relationship with a big water company in New Mexico and as they continue to build out an integrated system, I'd say we are a big beneficiary of that.
And then on the drilling side, which is — if you think back to my Q1 comments — where I thought there was some low-hanging fruit, or maybe not low anymore, but kind of the next level of step up would be on the drilling side, and we're making a few changes there. I'd say, one, we started to introduce water-based mud in areas where we take losses typically. And with oil at high prices, I'd say the payback on taking a little bit of loss on water-based is pretty meaningful — call it 5, 6, 7 bucks a foot of savings on those wells.
And then the last one would be we've kind of transitioned to a slimmer hole design in New Mexico. Same long string, still run 5 1/2-inch all the way back to surface, but running it inside 8 5/8 instead of 9 5/8. And that's savings in steel — especially as casing prices are projected to run up in the back half of the year — savings in time, just smaller holes drill faster, and then savings in cement. So I think that kind of, if you think about looking forward, obviously we are willing to take the increased diesel prices with the increased oil revenue, but we do have some inflationary pressures with respect to diesel and casing and to date have been able to offset that through gains like what I just talked through.
Neil Mehta, Analyst at Goldman Sachs
That's helpful. And then just your perspective on lateral lengths too. I mean, I would imagine with these bolt-ons you'll be able to extend these laterals through, given you're able to block up the acreage a little bit more. But give us a sense as you think about the portfolio, how long you can get these laterals to and what does that mean from a P&L perspective?
James Walter, Co-CEO
Yeah, I mean lateral lengths is the most effective way to reduce D&C per foot. I think we've slightly ticked up every year for the last two or three years, kind of moving from just under two miles to now kind of right at 11,000 ft. We mentioned in the deck that we drilled our first four-mile lateral in Q2 and that was a big success. So I think what it really means is the combination of our willingness to drill longer, our ability to drill U-turns when needed, and the blockiness of the position, that you'll continue to see lateral length tick up over time.
I don't think that we are in a place where you're going to see some step change where we go from 11,000 to 15,000 year over year. But I do think the kind of 500 plus or minus feet longer each year is probably typical of what you should expect going forward.
Neil Mehta, Analyst at Goldman Sachs
Great, guys, thank you so much.
OPERATOR
Your next question is from John Freeman with Raymond James. Please go ahead.
John Freeman, Analyst at Raymond James
Good morning. Thanks. You know, in the slide deck, you sort of show the capital allocation strategy and, you know, at least the first half of the year it's been pretty skewed to these really nice accretive acquisitions along with debt repayment. You've got leverage now at the bottom end of your leverage target range. So just sort of thinking, I guess going forward, if there's any sort of maybe change in the way you'll think about your cash priorities across acquisitions, balance sheet, you know, buybacks, maybe even, you know, growing the dividend.
James Walter, Co-CEO
Yeah, I mean, I think growing the base dividend consistently over time is a priority and always has been a priority. So I think that's something you'll continue to see for us in the future. I'd say other than that, we don't have any plans to change our capital allocation program. I think what we have is working really well today. Obviously the business is generating a lot of cash. We've been able to both pay down considerable amounts of debt over the past two years and do a lot of acquisition activity, all while delevering the business to the 0.5 times it is today.
So I think now for the foreseeable future, our capital allocation strategy is working and you'll kind of see us hold the course.
John Freeman, Analyst at Raymond James
Okay. And then on the back of all the accretive acquisitions, obviously most of these have been just the perfect deal where you're just kind of increasing working interest and field there. But there are some examples of you all doing some transactions continuing to push the boundaries further out on your acreage footprint. Does that necessitate any sort of infrastructure investments that we should be thinking about in the upcoming years?
James Walter, Co-CEO
No, I mean, nothing outside of what's already baked in our plan and our budget for the year. You know, I think these areas that we're more active in are still right next to existing Permian Resources or offset operator operations today. So I think it probably is pretty easy. We've got the right partners where we need on the midstream side. And frankly, all the stuff we're doing really is a mile or two away from existing Permian Resources operations.
So nothing out of the ordinary there. I think the only exception would be the Ward County bolt-on. There'll be a minimal, call it like $25 million of incremental capex associated with just taking over a new asset.
John Freeman, Analyst at Raymond James
Got it. Thanks. Thanks guys.
OPERATOR
Your next question is from the line of Kevin McCurdy with Pickering Energy Partners. Please go ahead.
Kevin McCurdy, Analyst at Pickering Energy Partners
Hey, good morning guys and thanks for taking my question. I guess for the first one, can you guys bridge the old production guidance to the new production guidance and do the same thing on capex? Maybe breaking out the contribution from the higher working interest, the production you bought and then any pull forward or outperformance.
Guy Oliphint, CFO
Hey Kevin, it's Guy. On production side, we were at 192 and a half thousand barrels a day in Q1. Our guidance after Q1 are 199 today. The only production we acquired with this billion dollars of acquisitions was 2,500 barrels a day of production at the time we closed the Ward County bolt-on a week ago. When you take that over a year that's 1,000 barrels of the 6 and a half thousand barrel a day increase. The significant majority of the remainder is just higher working interest in our 2026 projects, as we talked about, with a little bit of contribution from accelerated workovers.
On the capital side we're up $100 million, $25 million of that is just some of the takeover costs associated with the Ward County bolt-on — just putting in equipment that's our standards and things like that — and the remainder is also just higher working interest in the ’26 tills. We took our guidance from 75% to 80% to over 80% working interest in 2026 tills. So I think when you put all that together it's really capital efficient and you can see that in the increase in capital relative to the increase in production.
Kevin McCurdy, Analyst at Pickering Energy Partners
I appreciate that detail, Guy. And then maybe for the follow-up, you know, is your gas production back online now that Waha prices are better and can you give us any kind of sense of the cash flow uplift you're seeing for the back half of the year just from better gas prices?
Will Hickey, Co-CEO
All the wells are back online. We brought them online kind of at the very end of June right when Waha rebounded and we've had all the wells online since. So Q3 and Q4 will be much more normal-looking with respect to gas.
James Walter, Co-CEO
And Kevin, on cash flow uplift I think we're probably hesitant to forecast gas prices in the back half. But, you know, we produce over 700, you know, 750 million a day net. So regardless of where we end up, given where Waha is today, about $52 in HSC and TCO higher, it'll contribute in the back half of ’26. And that's why we put the commentary in there about ’27. As we think about growing free cash flow over time, we've done that with the real headwind of realizing almost nothing from our dry gas stream.
And I think both the curves and our transportation in ’27 set us up for a much better answer year over year.
Kevin McCurdy, Analyst at Pickering Energy Partners
Great, appreciate that and totally understandable you wouldn't want to predict gas prices in this market.
OPERATOR
Your next question is from the line of John Abbott with Wolfe Research. Please go ahead.
John Abbott, Analyst at Wolfe Research
Hey, good morning and thank you for taking our questions. So the question is really on capex, and recognizing that you don't want to talk too much about 2027. So for 2026, from the increased working interest and also from some carryover from Ward, you've increased full year guidance by about 100 million on the midpoint. If you kind of annualize that as maybe it's 200 mil, is that a reasonable step up as one sort of thinks about 2027 if you were going to maintain flat production, or are there other factors that need to be taken into account as you sort of think about capex next year?
James Walter, Co-CEO
I mean, I think one thing just to correct is the majority of that hundred million increase happened in Q2 and so I don't think you can double it to realize it. I think that is the annualized increase, if you want to think about it. This year we came into it, we were going to spend 1.85 and grow production minimal, and now we're going to spend 1.95 and grow production by 10,000 barrels a day. So it is a very, very meaningful increase in production, and that 100 is annualized.
I think if you look go-forward, I guess if the question is where is maintenance capex? I think if we continue to spend at, call it, the $1.95 to $2 billion range, we would continue to grow production. So maintenance is south of there and that's a growth case. And I think where we stand in ’27 between do we want to grow or do we want to be in a maintenance case is obviously very much subject to what the markets look like when we get there. But, I mean, that 1.95 billion grew production 10%.
I think that's a pretty substantial growth rate, and I'd say as we think about the world, that's highly capital efficient. So I'd say if you think about our business today, that's 17,000 barrels per day year-over-year, growth of 10%. So I think that's a pretty, pretty cool capital efficiency story.
John Abbott, Analyst at Wolfe Research
Extremely helpful. And then just, you had the step up in activity on the workover activity in 2Q. How does workover activity sort of trend for the remainder of the year?
James Walter, Co-CEO
It'll normalize. The step up in Q2 basically chewed through our entire backlog of workovers. So we are back at normal course, just kind of fixing wells as they come offline, and that'll be with a rig cadence that's more like what we've done in Q1 in the past.
John Abbott, Analyst at Wolfe Research
Appreciate it. Thank you very much for taking our questions.
James Walter, Co-CEO
Thank you.
OPERATOR
Your next question is from Philip Young Reith with BMO Capital Markets. Please go ahead.
Philip Young Reith, Analyst at BMO Capital Markets
Yeah, thanks. Good morning. Can you provide some background information just on what you did here in Ward County with the bolt-on and subsequent acreage swap? I mean, it looks like you executed acre trades between two or more parties that gave you a larger operated position. Just wondering if there's similar opportunities where you have large operators with legacy checkerboard acreage positions and just how much of a discount you typically see for non-op acreage.
Will Hickey, Co-CEO
Yeah, sure. I know that's a really cool deal. I think a lot of things came together — our team, great collaboration with, as you mentioned, multiple counterparties on the trades in the Ward County bolt-on — and yeah, I think we love it when you can find opportunities like that that are win-wins and make your position better. I think actually it's an interesting question. I'd say honestly this year we haven't talked a lot about it, and maybe we should in our next release, but this has been a really busy year for us on the trade front.
I think we're finding more opportunities to net up our own working interest, trade out of non-op and into operated positions like you see here. So yeah, I don't know if we'll see any that are as big as this in the back half of the year. We've certainly done some big ones to start the year and it's something that we're always working on.
Philip Young Reith, Analyst at BMO Capital Markets
Okay, great. And then can you talk about some of the productivity initiatives such as surfactants, completion design changes, just how many wells you're looking to deploy surfactants on this year, and you mentioned you're encouraged by early-time results — just any color here or expectations for incremental costs.
Will Hickey, Co-CEO
On the completion side, we've pumped two surfactant trials on two different pads with test-control wells and test wells. One of those is online. One, we've pumped the fracs but the wells are not yet online. That's probably where we'll stop for this year. We'll look at that data, see what we see early-time with water-oil ratios, and see what we see over the 60-, 90-, and 180-day period as we head into next year. Should be a good place to have a feel for how big of a program that could be.
I'd say on that side it's just too early to tell. And then on the production side, there's two or three pads across both basins that we have pumped surfactant more in late life, typically around an ESP failure, and have seen uplifts up to north of 100 barrels a day and some that are de minimis. On the average, that program has been very economic — call it sub one-year payouts on the aggregate inclusive of the wells that we saw basically no uplift.
So that's where we're very encouraged, is that even with the dispersion of results from really, really effective to less effective, the program on average has been very economic. And so I'd say what the team's working on now is how do we do more of the 100-barrel-a-day uplifts and less of the zero, or what can we do differently on the wells that we didn't see an uplift. But I think that's going to be something that probably is a real part of the program go-forward.
We just have to figure out exactly how much and exactly where we're going to do it before we can roll it out as part of the go-forward plan.
Philip Young Reith, Analyst at BMO Capital Markets
Very helpful, thank you.
OPERATOR
Your next question is from Oliver Huang with TPH Research. Please go ahead.
Oliver Huang, Analyst at TPH Research
Good morning, James, Will, team, and thanks for taking our questions. Just kind of looking at what you all picked up on the New Mexico side, I think one of the things that goes overlooked sometimes is just how this is fairly virgin rock you're picking up. You all referenced the Tuscosa well in that Northwest Parkway area being a bit more of a step-out. Are you all 100% confident at this point with carrying out your development program there, or are you going to need to do a bit more appraisal work up there to feel comfortable with the entirety of that block?
James Walter, Co-CEO
Yeah, that's a good question. You know, I think we're really comfortable in the primary zones. Like I actually think that's a great kind of nuanced question that we didn't address in our script. Like I'd say our base case underwriting, kind of the deals that the locations that we actually paid for, we are highly confident in. I do think as you get to some upside zones potential, I think whether that's, you know, two or three productive zones or four or five productive zones is still TBD.
So I do think we'll continue to learn about the Parkway area and that kind of test goes to acquisition specifically over time, but have a really high degree of confidence in what we're calling kind of proven locations that kind of go into that 330 locations that were underwritten and I think over time hopeful and would expect to see some of those upside locations, you know, kind of proven up and coming into the money.
Oliver Huang, Analyst at TPH Research
Okay, perfect. And maybe just for a follow-up, just on the ops side, could you maybe provide a bit more detail in terms of just, I mean you all call out wellbore design improvement, which you spoke to earlier, but just optimization of the power supply and compression fleet as well. Just how much of that is already flowing through the financials today and how much more running room do you see on both of those fronts?
Will Hickey, Co-CEO
Well, I think that there's a decent amount flowing through the financials today. I mean we've run at this point seven or eight microgrids across New Mexico in areas where we historically have been on generator power. If you want to think about run room of that going forward, like there's definitely more to do, but it's really going to be New Mexico centric as we are on line power in Texas, Delaware. Same thing on the compression side. Like as we're optimizing that, it's going to be in areas where what we've seen is we end up with better run times across the board if we're on microgrid as opposed to kind of one-off generators.
Just think about flipping a light switch. Like cycling it on and off is not good for runtime of, you know, equipment like ESPs and things like that. But really all this just kind of comes together too. I think we've seen a tremendous ability for us to kind of hold LOE flat or even reduce it over time, which is not, I think, not normal and not what you'd expect. I mean, I feel like we've always been a $5.50 per BOE LOE company. And if you look at where we were in Q1 and even where we were in Q2, with, you know, a meaningful amount of our BOE shut in due to gas curtailment, we're still kind of pushing closer to five bucks per BOE.
And I think that's a testament to what we've done in the short term. And there is still stuff to do. I feel like beating a dead horse, but the water recycling side is a big needle mover and water disposal is our largest LOE cost, and the more we can recycle, the more we defer and ultimately save on the LOE side. So those are the initiatives that we're working on real time. I think all of them matter, but if you can do them all together, that's when you really move the needle.
Oliver Huang, Analyst at TPH Research
Awesome. Thanks for the time.
OPERATOR
Your next question is from Josh Silverstein with UBS. Please go ahead.
Josh Silverstein, Analyst at UBS
Good morning, guys. Just want to see if we can get a bit more detail on the royalty acquisitions versus the leasehold acquisitions here. Were these done in separate transactions? Done together where you have both the leasehold and the royalty? And I guess maybe along the same lines, we typically think of the royalty value as a bit higher. You guys are having a lower price paid for the royalty acreage versus the leasehold. So just a little bit more detail there would be great.
James Walter, Co-CEO
Yeah, I mean, I think I'd say the royalties historically and in this first half of the year come as a mix of kind of straight minerals and royalties acquisitions versus kind of high NRI leasehold. I'd say for us it's tended to be more weighted towards kind of higher NRI leaseholds. I think the minerals and royalties on a standalone basis can get really expensive, and frankly we struggled to always, you know, to be able to buy very much at kind of our return thresholds.
But yeah, I think going forward, I think we will continue to target both. I think it's probably safe to expect more of our royalty acquisitions to compare to leasehold because I think we can bring kind of the full suite of Permian Resources competitive advantages to bear on the cost-bearing interest combined with the royalty. In terms of prices, look, I think what you're seeing on low dollar per net royalty acre values is just kind of the output of us acquiring these deals at attractive prices.
Like I think we talk a lot about the creative things that we've done, and those creative things allow us to buy both, I'd say, the leasehold and the royalty interest at what we view as really attractive and you may view as lower prices. But I think that's a really good thing and something we're hopeful to continue to be able to do.
Josh Silverstein, Analyst at UBS
Yeah, thanks for that detail there. And then maybe just along the same lines, I was curious to see if there's any shift in development plans given the leasehold and royalty acres that you've acquired. Do you now have a bit more capital going towards the Texas assets? Do you still favor New Mexico? And I'm guessing the goal is to try to keep your working interest now at higher and higher levels. So any update there would be great. Thanks.
Will Hickey, Co-CEO
I think it's going to be basically the exact same as it's always been. It'll be, you know, call it 70% of the development, maybe a little north of that, on the New Mexico assets and the rest in Texas, and that's consistent with where we've been the last two or three years.
Josh Silverstein, Analyst at UBS
Got it. Thanks, guys.
OPERATOR
Your next question is from the line of Gabe Daud with Truist. Please go ahead.
Gabe Daud, Analyst at Truist
Hey, thanks, operator. Morning, everyone. I know it's hard to kind of nail down these opportunities, but was curious if you could maybe frame what the spend on land could be the rest of the year. You've done, you know, a billion or so year-to-date. Just curious if you maybe have any kind of framework around additional spend from here.
James Walter, Co-CEO
I think the answer is no, we don't. We're kind of always looking, we're always on the hunt, and we're going to continue to buy things when we can find high-quality assets at prices that make sense for generating attractive full-cycle returns. But no, I think we've got good momentum. You know, I think the ground game continues to chug along and we're having a lot of success there. But I think in terms of trying to predict exactly what it looks like over the kind of next 12 months, I think that's hard to do.
Gabe Daud, Analyst at Truist
Okay, okay. No, that's fair. And then I guess just a quick follow-up for me. You know, you talked about the surfactants and productivity potentially improving from here. Just curious, maybe can you quantify or talk about what else you're doing on the productivity side and if we should still expect flat productivity from Permian Resources year over year, particularly with all the new assets. Thank you.
Will Hickey, Co-CEO
I'd say, like, look, there's a long list of things we're doing. The hot topic today is surfactants, and if you want to think back, you know, six months ago it was on lightweight proppant, and in the middle there's been a bunch of tweaks of, you know, cluster spacing, completion design strategies, et cetera. I think the right kind of approach that you all should think about Permian Resources is that we are testing, trialing, and studying all of it.
And we'll probably, I think, be better suited to speak to exactly which ones are the big winners, kind of once we get there. But really, what's it mean for well productivity? I'd say not driven by step changes in oil recovery percentages, but really just by the duration and depth of the inventory. I think your expectation is that the rest of ’26 and ’27 productivity will be the same as it's been in ’24, ’25, ’26. We are still kind of marching across our position in both New Mexico and Texas, drilling the same benches in the same way, and expect the same productivity as we've seen in the past.
OPERATOR
Your next question is from the line of Leo Mariani with Roth. Please go ahead.
Leo Mariani, Analyst at Roth
Hi. I was hoping to provide a little bit more detail on kind of where cost per foot may be headed here in the second half. You mentioned some inflationary pressures. I think in some of your prepared materials you kind of said well cost per foot are pretty flat in 2Q versus 1Q. Do you expect those to go up at all with inflation in the second half? You think efficiencies can basically counteract all that? And I think you had talked about a $675 per foot target at one point.
Just want to get a sense, are we there at this point? Is that something you're hoping to get to later this year?
Will Hickey, Co-CEO
Yeah, I'd say, you know, obviously the run-up in crude and kind of demands on steel and et cetera associated with the war has put some pressure on where we were targeting for the year. But we've done a really, really good job offsetting that. I mentioned some of the efficiencies we've picked up on the drilling side, on the water recycling side. We've got some small wins on the sand side. So it's not all inflationary pressures. We've had some kind of big wins on the efficiency side to get here to date.
I think a lot of that shows up just with the incremental year. Now we're just north of 80% working interest in the back half of the year, and we're still able to keep CapEx sub $1 billion. Kind of speaks to are we going to achieve $675? I'd say that feels like a longer putt than it was when we came into the year, but we're still very much on target as far as where we came into the year at and at least holding the line flat or maybe slightly improving.
So it's a really hard answer to give, Leo, just given like fuel is such a big component of our spending and I just have no idea where fuel and crude prices are going to be between now and year-end. But I think that if oil prices dip and fuel resets back to where we came into the year, I think $675 is absolutely in our sights. And if oil runs, I think it's probably less likely, but we'll take it on the revenue side.
Leo Mariani, Analyst at Roth
Right, okay, makes sense. I know it's, you know, really difficult to forecast your success on the M&A front, but maybe you can just talk about, you know, the deal pipeline. Is that kind of, it sounds like it's very robust right now. Certainly you executed a lot of deals in the first half. Is the deal pipeline just as robust today as it was in the past handful of months? So are you getting a lot of looks here?
James Walter, Co-CEO
Yeah, I mean I'd say just kind of, we've spent a billion dollars in the last two years, kind of ’24 full year and ’25 full year. We've kind of already achieved that same pace halfway through, a little over halfway through ’26. I think it's probably safe to say we will exceed the last two years' average this year. But yeah, the ground game, we're seeing a lot of stuff. You know, I think that like we said in the past, that's pretty consistent kind of every month in, every month out where we're finding opportunities on the ground game side, and the bigger stuff can be lumpier, but I'd say we're getting a lot of looks.
I think Will referenced it: I felt like there were a ton of deals kind of coming to market at the beginning of the year. You know, I think we've seen maybe half of those kind of run their course, and there's still some out there that could be interesting. But, you know, I think for us, definitely nothing big imminent. There's some ground game stuff that's always getting done day in, day out. But, you know, for us, it's just taking it as it comes and making sure we do the right opportunities at the right price and, you know, pass on the deals that don't make sense for us.
And we've done a really good job of that. So we've got a ton of confidence it'll keep working going forward.
Leo Mariani, Analyst at Roth
Okay, thanks.
OPERATOR
Your next question is from Paul Diamond with Citi. Please go ahead.
Paul Diamond, Analyst
Thank you. Good morning. Thanks for taking the call. So there's been a lot of discussion about emerging benches across the mid or Mid Bend, Delaware. How do you guys see that developing on your footprint, and I guess any updates from the last time we spoke about it?
Will Hickey, Co-CEO
Last time we spoke about this, I'd say I mentioned kind of the success of the Avalon and kind of some of the deeper Wolfcamps in moving north in Lee County. And I'd say that is happening and happening extremely well and very quickly, so to speak. I mean, we had drilled a few Avalons up that far north as of the call last quarter, but I'd say since then, like, you know, full development stacking Avalon, it's been some of the most productive wells we've drilled.
So those type of emerging benches, think of it as, you know, benches that have been developed historically on the state line area moving up north into our Lee County and our Eddy County position is very much happening. We're seeing the same thing on our Eddy County positioning with something like the deeper Wolfcamp. You know, typically we've drilled first sand, second sand, third sand and XY on the north Eddy, and we're starting to see deeper Wolfcamp move that direction.
As far as the total new benches, which are where I think you were alluding — you know, Woodford, Brushy, things like that — we own it on some of our assets and other assets we don't. But I'd say it's something that we're keeping our eye on. But it's not a core bench. It's not something that's going to be a big part of our development plan or really any part of our development plan in 27. I think that we have seen some of the most prolific wells in the basin drilled in the Woodford and some of the biggest dogs, and so we're just kind of going to watch and see and hopefully let serendipity kind of come our way to the extent that does.
Paul Diamond, Analyst
Got it. Understood. And then I guess over the course of the last year or so, you guys have worked pretty diligently to kind of right-size realization expectations around nat gas. Are you guys happy at the current level on a go-forward basis, or should we expect a bit more movement in kind of those, whether it's FT or hedging, or just kind of how you think about walking that?
Guy Oliphint, CFO
Hey Paul, it's Guy. I think we feel great about the deals we did. You know, we identified this as an issue a couple years ago, and I think not just the long-haul that we are kicking in kind of late this year and early next year, but the interim agreements we had with some of those partners this year have served us really well. And I think the capacity we have going into 27 covers roughly all of our net volume. So we're always thinking about what else should we do to optimize the portfolio.
How do we handle growth in gas volumes that could occur as we continue to grow oil production and grow through acquisition. And I think on the hedging front we're just going to be opportunistic like we have. I think that we spend a lot of time thinking about appropriate basis and where we want to sell gas. But I view that more as optimization rather than something we have to do.
Paul Diamond, Analyst
Got it. Appreciate the clarity there.
OPERATOR
Your next question is from the line of Shawn Mitchell with Daniel Energy Partners. Please go ahead.
Shawn Mitchell, Analyst at Daniel Energy Partners
Morning, guys. Thanks for working me in here. Will, you talked a little bit in the comment area about offsetting some rising costs by using water-based mud versus oil-based mud in the drilling. Are you seeing anything in terms of drill time that is interesting, or is it coming down with water-based versus oil-based?
Will Hickey, Co-CEO
No, I don't think water-based would be a time savings versus oil-based. It's more just we've got some areas where you'll take some losses, and if you can run water-based instead of oil-based in areas you take losses, you save money really, really quick.
Shawn Mitchell, Analyst at Daniel Energy Partners
Okay, so it's more on cost savings than drill time.
Will Hickey, Co-CEO
Yeah, that's right. I mean our drill time wins have been in this slim-hole design. I mean, obviously when you go to 8 5/8 intermediate as opposed to 9 5/8, you can drill a smaller hole and kind of everything goes faster. So if you want to think about the savings associated with slim-hole, it's been like 50% of the savings is on drill times. We save almost a day a well.
Shawn Mitchell, Analyst at Daniel Energy Partners
Okay. All right, that's it. Thank you.
Will Hickey, Co-CEO
Thanks, Shawn.
OPERATOR
Your last question is from the line of John Addis with Texas Capital. Please go ahead.
Hayes Mabry, Vice President of Investor Relations
Hey John. John, do you have your mute on? We can't hear you. Operator, I think we can hand it back.
OPERATOR
We can close the question and answer session. Absolutely. There are no further questions at this time. So I will now turn the call back to James Walter for closing remarks. Please go ahead.
James Walter, Co-CEO
Thank you. As you can tell from this morning's results, the business is performing at the highest level in Permian Resources' history. We delivered record free cash flow this quarter, responded quickly and decisively to a volatile commodity environment, and add high-quality inventory at attractive valuations, all while maintaining an investment-grade balance sheet and the lowest-cost structure in the Delaware Basin. We believe we are exceptionally well positioned to continue compounding free cash flow per share and delivering outsized returns for investors going forward.
Thanks to everyone who joined the call today and for following the Permian Resources story.
OPERATOR
This concludes today's call. Thank you for attending, and you may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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