Granite Ridge (GRNT) Q4 2025 earnings review
Record Production Growth Overshadowed by Profitability Collapse
Granite Ridge successfully executed its volume-growth strategy in Q4, driving production up 27% YoY to a record 35,120 Boe/d. However, this operational success completely failed to translate to the bottom line. Depressed commodity prices, surging Lease Operating Expenses (+29% YoY per unit), and a massive $44.7M asset impairment drove the company into a $25.1M GAAP net loss. Even adjusting for one-time items, Adjusted Net Income collapsed 93% YoY to just $1.5M ($0.01 per share). In response to the harsh margin environment and having built sufficient inventory, management is sharply pivoting in 2026: moderating volume growth to ~9% and slashing acquisition capital by nearly 80%.
🐂 Bull Case
The transition to controlled development through 'Operated Partnerships' successfully accelerated volume, adding 331 gross (77.2 net) locations in 2025 and achieving scale that management can now lean on.
After outspending cash flow aggressively in 2025 to capture inventory, 2026 development CapEx ($300-$330M) is designed to align closely with expected cash flow, reducing balance sheet pressure.
🐻 Bear Case
Adjusted EBITDAX declined 16% YoY despite a 27% increase in volumes. Unfavorable realized prices ($55.49/Bbl oil) combined with rising service and disposal costs are severely compressing cash generation.
Net Debt to Adjusted EBITDAX climbed to 1.2x at year-end, up from 0.7x at the end of 2024. Aggressive spending in a weak price environment has eroded financial flexibility.
⚖️ Verdict: 🔴
Bearish. The 'growth at any cost' approach of 2025 succeeded operationally but eroded shareholder value in a softening commodity market. The drastic cut to 2026 acquisition spend signals a necessary, defensive retreat.
Key Themes
Operated Partnerships Drive Record Volumes
Management's primary thesis—acting as a capital provider to private operators—has fueled an accelerating production curve. Q4 production hit 35,120 Boe/d (49% oil), an acceleration from previous quarters. The company placed 67 gross (10.5 net) wells online in Q4 alone, demonstrating robust execution capability in the Permian Basin.
Lease Operating Expenses (LOE) Surging
A major red flag is the deteriorating unit cost structure. Q4 LOE surged to $7.72 per Boe, up 29% YoY from $5.99 in 24Q4. Previous quarters warned of rising saltwater disposal and service costs in the Delaware Basin, and this headwind is now structurally damaging margins as realized prices concurrently fall.
Persistent Asset Impairments
For the second consecutive Q4, the company absorbed a massive non-cash impairment on long-lived assets ($44.7M in 25Q4 vs $35.6M in 24Q4). While non-cash, it indicates that inventory acquired or held on the books is failing economic viability tests at current strip pricing, eroding book equity.
Strategic Pivot: Slashing M&A to Conserve Cash
In H1 2025, leadership aggressively leaned into outspending cash flow to consolidate inventory. Q4 marks a sharp reversal: 2026 guidance indicates acquisition capital will collapse from $122M in 2025 to just $20-$30M. Management is pivoting from a land-grab phase to a 'scale-and-harvest' phase to protect the balance sheet.
Other KPIs
Cash flow from operations for the full year was $296.4M, thoroughly outpaced by $401.0M in total costs incurred for properties. This negative free cash flow profile explains the decision to significantly pare back acquisition spending for the upcoming year.
Debt loads accelerated throughout 2025 to fund the operated partnership expansion. Net Debt finished at $370.5M, bringing the leverage ratio to 1.2x. This sits right at the upper edge of management's previously stated comfort band (1.0x - 1.25x), severely limiting near-term M&A flexibility.
Decelerating sharply. Down from $11.8M in Q3 and $22.7M in the year-ago quarter. This highlights how operating leverage has worked against the company: the cost of adding incremental barrels is currently swallowing the revenue generated from them.
Guidance
Decelerating. Represents ~9% growth at the midpoint from 2025's 31,984 Boe/d. This is a deliberate step down from the 28% YoY growth achieved in FY25, reflecting a maintenance-plus capital program rather than hyper-growth.
Reversing. Down drastically from the $122 million spent on property acquisitions in 2025. The company's 'just-in-time' inventory buying spree has officially been paused.
Accelerating slightly. Compared to $279M spent on D&C in FY25, management is keeping the drill-bit budget elevated to maintain and modestly grow the larger production base established this year.
Stable/High. Management does not expect LOE to revert to the low-$6 range seen in early 2025. The high midpoint suggests saltwater disposal and service cost inflation in their Permian assets are largely structural.
Key Questions
Impairment Anatomy
You recorded a $44.7M impairment in Q4 following a $35.6M impairment last Q4. Which specific basins or asset packages drove this write-down, and are there further mature non-operated assets at risk if WTI stays near $60?
Dividend Coverage
With 2026 CapEx modeled at $320-$360M and current strip prices remaining soft, what is your projected free cash flow breakeven, and how will you fund the ~$57M annual dividend if operating cash flow falls short?
LOE Structural Floor
LOE exited the year at $7.72/Boe, and 2026 guidance tops out at $7.75. Have we reached a new structural floor for operating costs due to water handling in the Delaware Basin, or are there specific mitigation projects underway to push this back down?
M&A Pause Implications
With acquisition capital dropping 80% YoY, does the $20-$30M budget allow you to maintain your target '3-to-5 years of inventory', or does this signal a temporary drawdown of your existing backlog?