Granite Ridge (GRNT) Q3 2026 earnings review
Granite Ridge's cash now covers drilling, but its costs rise
Granite Ridge, which funds oil and gas wells that partners drill, now pays for drilling while running costs stay high. Higher oil and gas prices did most of the work: by our math, about 85% of the 57% sales jump. Chief executive Tyler Farquharson said the promised cash surplus is starting to show. But the company trimmed its production outlook, and by our math the plan has output rising about 5% in the fourth quarter.
| Daily production, oil and gas combined | 34,641 barrels of oil equivalent +9% from a year ago |
|---|---|
| Adjusted EBITDAX, the company's cash earnings measure | $107.3M +36% from a year ago, a record |
| Cash left after drilling | $13.7M $4.5M a year ago |
| Full-year production outlook | Cut middle of the range: 34,500 a day, from 35,000 |
⚖️ Verdict: ⚪ Neutral
The story is unchanged, because better gas prices met a worse cost outlook. The good news: West Texas gas prices recovered, so gas sales roughly tripled. The bad news: the company raised its forecast for well running costs a third time.
The question now is whether cash keeps covering drilling if oil prices fall. If running costs per barrel drop as output grows, the surplus lasts; if not, it rests on oil prices. The 2027 outlook, due with fourth-quarter results, will tell.
🐂 Bull Case
Cash From Wells Now Covers the Drilling Bill
Chief executive Tyler Farquharson has said for a year that "2026 is the final year we invest ahead of our cash flow". This quarter, he told investors, they can start to see that change in the numbers.
Granite Ridge earned $96.6 million of operating cash, before timing swings in bills owed and received. Drilling and completing wells cost $82.9 million, so $13.7 million was left over. Adjusted EBITDAX, its measure of cash earnings before interest, tax and depletion, also hit a record.
- Adjusted EBITDAX: $107.3 million, up 36% from a year ago
- Adjusted EBITDAX: up 35% from the second quarter
- Cash left after drilling, first nine months: $22.3 million
This matters because the plan for next year depends on that surplus growing. Finance chief Kyle Kettler said the company will give its 2027 outlook only with fourth-quarter results. Until then, the claim rests on one quarter with oil near $87 a barrel.
What to watch: cash left after drilling in the fourth quarter, when Kettler expects drilling spending at the high end of its range. A surplus that holds while spending climbs would show the change is real.
Gas Sales Tripled as West Texas Prices Recovered
Granite Ridge sells much of its gas at prices tied to Waha, a West Texas trading hub. Those prices hit record lows in the second quarter, when the oil and gas investor earned just $1.12 per thousand cubic feet.
Prices then recovered "as new Permian takeaway came on", finance chief Kyle Kettler said, meaning new pipelines out of the region. The realized price reached $3.46, so gas sales climbed to $30.0 million.
In August, Kettler had pointed to more than $30 million if prices held, and he expects continued strength. But Waha prices have swung for a year, so one quarter does not prove the recovery lasts.
What to watch: fourth-quarter gas sales, due with full-year results. A second quarter near $30 million would show the new pipelines fixed the price problem.
Permian Partner Wells Lift Oil Output 17%
Granite Ridge operates none of its wells. Partner companies find land and drill, while "we provide the majority of the capital, and we control what gets drilled and when", Farquharson wrote.
That model carried the quarter. Permian wells made up 8.2 of the 9.2 net wells, its ownership share, that started producing. Oil output therefore grew 17% from a year ago.
Farquharson also named a second Permian partner, Arete Creek Resources, which should run one rig in 2027. The risk is dependence on partners: Granite Ridge wrote down $20.3 million of Permian land earlier this year after poor drilling.
What to watch: Arete Creek's first well results in 2027. Good wells from a second partner would show the model works beyond Admiral Permian, the first.
🐻 Bear Case
Oil Prices Drove Most of the Sales Gain
Farquharson wrote that next year's cash will build on this quarter's record "without relying on today’s oil prices". He cited the end of cheap hedges, which are contracts that fixed a low price on part of the oil, plus extra output.
This quarter leaned on price instead. By our math, about 85% of the $64.5 million sales gain came from prices per barrel, and only the rest from extra barrels.
- Oil price received: $84.41 a barrel, against $61.62 a year ago
- Hedge payments in the quarter: $20.9 million
- Hedge cost: 11.8% of the price per barrel before hedges
The claim does not hold up well, because the hedge relief also depends on high prices. Most hedges cost money only when oil trades above a ceiling, about $76 for the rest of this year. Next year the ceilings sit near $84, so at $70 oil the expiry adds almost nothing.
What to watch: the 2027 outlook, due with fourth-quarter results, and the oil price behind it. A plan that needs oil above $76 would mean the hedge relief is a bet on prices.
Cost Outlook for Running Wells Raised Again
Lease operating expense, the cost of keeping wells running, has climbed faster than output at Granite Ridge all year. Last quarter, finance chief Kyle Kettler said unit costs would improve as new wells came online.
They did, but only partly. Cost per barrel of oil equivalent, which counts gas in barrel terms, fell to $9.43 from $10.27 in the second quarter. That still left it 17% above a year ago. The company blamed "increased saltwater disposal costs due to higher water cuts and flowback operations", meaning more water coming up with the oil.
Kettler said: "We still consider the dollar per BOE high." The full-year range agrees with him, because the oil and gas investor lifted it a third time, to $9.25–9.75 per barrel. As a share of sales, the cost dropped 4.0 percentage points to 17%, but only because prices rose.
What to watch: fourth-quarter cost per barrel against what the full-year range implies. Another reading near $9.43 would mean water handling is a lasting cost of the Permian wells, not a start-up phase.
Dividend and Deals Still Rely on Borrowing
Farquharson wrote that cash left after drilling should "comfortably cover the dividend and grow our business" next year. Until now, he said, "Dividends and acquisitions have been funded from the balance sheet".
The third quarter did not change that: Granite Ridge paid $14.5 million in dividends and spent $19.0 million on drilling rights. By our math, those two uses ran about $20 million ahead of the cash left after drilling.
Its revolving credit line, a bank loan it can draw and repay, grew to $130 million from $50 million in January. Bond repayments of $8.75 million a quarter also began in September, and missing one would block dividends.
What to watch: the credit line balance at year-end. A figure above $130 million would show the dividend still runs on borrowing.
Risks this quarter didn't answer
Several standing concerns got little or no new evidence this quarter. Each item below names the disclosure that would settle it, mostly due with fourth-quarter results or the annual report.
- Grey Rock share handouts: the former controlling owner gave out 14 million shares in August and expects more; its next filings will show the size.
- Management contract: a Grey Rock affiliate manages Granite Ridge under a deal running to 2031; quarterly fees reached $2.9 million.
- Power contract with a Grey Rock-backed company: its value fell $9.2 million; the share and fixed payments remain undisclosed.
- Permian land write-downs: none this quarter; the overlap with 2025 land purchases remains unknown.
👓 Other Themes
New $35 Million Buyback and a Cash Definition
The board approved buying back up to $35 million of shares through 2027. Farquharson called it "another way to return capital to shareholders alongside our dividend". Kettler set the order for spare cash: the $0.11 quarterly dividend first, then acquisitions that meet the return target, then buybacks. The program does not oblige Granite Ridge to buy any shares.
💲 Other KPIs
Leverage eased to 1.3 times from 1.4 times in June, the first drop in a year. Net debt, meaning borrowings minus cash, slipped to $416.6 million. The ratio stood at 0.9 times a year ago, before the bond issue. Record quarterly cash earnings did the work, not debt repayment.
Money owed by buyers of its oil and gas climbed 52% from a year ago, in step with sales. The balance equals 64% of quarterly sales, against 66% a year ago. So the rise reflects prices, not slower payment by customers.
Wells drilled but not yet producing, counted by the company's ownership share, edged up to 14.6 from 14.0 in June. The count is 29% above a year ago, after a fall in the second quarter. That queue feeds fourth-quarter and early-2027 output.
🔮 Guidance
Cut. The plan now has full-year output at 34,000–35,000 barrels of oil equivalent a day, with a top 1,000 lower than before. Kettler blamed gas wells shut in during the spring price slump and the sale of gas-heavy DJ Basin wells. By our math, the range leaves about 36,800 a day for the fourth quarter. That is about 5% above a year ago.
Raised. Oil should now make up 51.5–52.5% of output this year, from 50–52% before. Oil reached 55% of output in the third quarter as Permian partner wells came online. By our math, the middle of the range puts fourth-quarter oil output near 20,000 barrels a day, 16% above a year ago.
Unchanged. The forecast still calls for $45–55 million of spending on drilling rights and land this year. Granite Ridge has already spent $45.9 million, so by our math the fourth quarter has room for up to about $9 million. That sits well below the third quarter's $19.0 million.
Unchanged. The plan still has $300–330 million for drilling and completing wells this year. Kettler expects spending at the high end because of cost inflation. By our math, the high end leaves about $102 million for the fourth quarter, above the third quarter's $90.8 million.
Unchanged. Total spending, including land purchases, stays at $345–385 million. By our math, nine-month spending of $273.5 million leaves $72–112 million for the fourth quarter. The upper half of that range fits Kettler's comment that drilling spending will land at the high end.
Raised. The cost of running wells should now average $9.25–9.75 per barrel of oil equivalent, from $8.25–9.25. It is the third increase this year, and the middle of the range has climbed $2.25 since the first plan. By our math, the new range implies about $8.84 for the fourth quarter, 6% below the third quarter.
Unchanged. Production and property taxes should stay at 6–7% of sales. They ran at 5.8% in the third quarter and 6.1% over nine months, so the range looks achievable.
Raised. Cash overhead, which excludes stock-based pay, should now total $28–30 million, from $25–27 million. The oil and gas investor spent $24.3 million in nine months, partly on legal fees. By our math, that leaves only $3.7–5.7 million for the fourth quarter, against $8.7 million in the third.
❓ Key Questions
Why must overhead fall by half in the fourth quarter?
By our math, the higher $28–30 million range for cash overhead leaves $3.7–5.7 million for the fourth quarter. Granite Ridge spent $8.7 million in the third, partly on legal fees. Either the range excludes items, or spending must drop sharply.
What oil price does the 2027 cash plan assume?
Farquharson says next year does not rely on today's prices, yet most of this quarter's sales gain came from price. The assumed oil price shows how much of the promised surplus would survive oil near $70.
Is year-end output of 40,000 barrels a day still likely?
Earlier this year management spoke of year-end output approaching 40,000 barrels a day. By our math, the trimmed plan implies a fourth-quarter average near 36,800, so the year-end rate sets the starting point for 2027.
What does the Grey Rock power contract cost each month?
Granite Ridge pays fixed monthly fees and receives a share of power plant profits from 2027. The contract's value turned into a $7.7 million liability this quarter, but the company has not disclosed its share or its payments.
Is the debt target still 1.0 to 1.25 times earnings?
Management described that target band for net debt against cash earnings. Leverage stands at 1.3 times, and in August its banks loosened a test on dividends until January 2027, while the new buyback competes for spare cash.