Permian Resources (PR) Q3 2026 earnings review
Permian Resources lifts its oil plan, but deal costs rise
Permian Resources, the Texas and New Mexico oil and gas producer, grew cash flow as restored gas wells and lower field costs overcame a drop in oil prices from last quarter. Total daily output jumped 22% from the second quarter because management reopened gas-heavy wells that were shut in when local gas prices turned negative. Co-chief executives Will Hickey and James Walter raised the full-year oil outlook for a third time, and by our math the plan points to 211,300 barrels of oil per day in the fourth quarter.
| Daily oil production | 208.0 MBbls/d +11% from a year ago (+5% from last quarter) |
|---|---|
| Revenue | $1,958M +48% from a year ago |
| Free cash flow, excluding working capital swings | $846M +80% from a year ago (+13% from last quarter) |
| Full-year oil and capital outlook | Both raised oil +3.5 MBbls/d; capital budget +$75M |
⚖️ Verdict: 🟢 Bullish
The story got better because new pipeline contracts to the Gulf Coast and Dallas turned natural gas from a cash drain into a revenue contributor while field projects cut unit operating costs to a record low. One caution: management raised the annual capital budget by another $75 million and committed $1.15 billion to land acquisitions at higher per-acre prices while buying back zero shares.
The question now is whether spending $2.2 billion on acquisitions this year during a period of high oil prices will lift per-share cash flow once commodity prices cool. One view is that adjacent New Mexico wells and low operating costs guarantee high returns; the other is that paying $22,000 per acre with oil-price earnouts hands away upside. The 2027 capital budget and well performance in February will tell.
🐂 Bull Case
Gas Pipelines and Shut-In Wells Restored Cash Flow
Natural gas in West Texas often trades below zero when local pipelines fill up, which forced Permian Resources to shut in gas-heavy wells during the second quarter. That regional bottleneck was a standing risk alongside the company's push to buy space on long-distance pipelines reaching the Gulf Coast and Dallas.
Both parts of the gas business turned around this quarter as new pipeline contracts started and management brought "placing high-GOR wells back online that were curtailed during the second quarter due to negative regional natural gas prices". Gas volumes jumped 42% from last quarter to 787 million cubic feet per day, while the average unhedged gas price rose from negative $2.40 per thousand cubic feet to positive $0.72.
"As a result, we generated adjusted free cash flow of $846 million, representing a significant increase compared to the second quarter despite lower oil prices," co-chief executive Will Hickey said. The numbers back his claim: oil prices fell $12 per barrel from last quarter, but natural gas and natural gas liquids added $222 million in revenue and lifted free cash flow excluding working capital swings by 13%.
What to watch: the unhedged natural gas price differential against the local Waha hub in the third-quarter filing. A premium above $1.00 per thousand cubic feet would confirm that the new pipeline contracts protect cash flow when local gas prices weaken.
Field Projects Cut Unit Operating Costs to a Record Low
Permian Resources tracks three controllable cash expenses per barrel of oil equivalent (Boe): lease operating expenses to run the wells, gathering and processing fees to move the output, and cash overhead. Together, those three costs fell 6% from last quarter to $7.05 per barrel, the lowest in the company's history.
- Lease operating expenses: $5.11 per barrel, down 8% from last quarter and equal to 11.0% of revenue, down 3.5 percentage points from a year ago by our math
- Depreciation, depletion and amortization (the non-cash cost of past drilling): 30.3% of revenue, down 9.6 percentage points from a year ago by our math
- Operating profit margin: 45.3% of revenue, up 15.8 percentage points from a year ago
Management credited the drop in well operating costs to "continued optimization of power and compression projects, which delivered lower costs and record runtimes" alongside an artificial-intelligence monitoring system for well pumps. Bringing shut-in gas wells back online also spread fixed field and overhead expenses across 22% more barrels than in the second quarter.
What to watch: fourth-quarter controllable cash costs per barrel against the unchanged full-year outlook of $7.15 to $8.15. Staying near $7.05 would show the power and pump savings are durable rather than a one-time volume bounce.
Bigger Ownership Stakes Lifted Oil Output and the Plan
Instead of adding drilling rigs when oil prices rose this year, co-chief executive James Walter said the company grew output by acquiring larger working interests — its ownership share in the wells it drills — and speeding up maintenance on existing wells. That approach has driven three full-year oil outlook raises in three quarters.
Daily oil production rose 5% from last quarter to 208,029 barrels per day, beating the 198,800 to 206,700 second-half rate implied by the prior full-year plan by our math. Stripping out the 2,500 barrels per day acquired when the Ward County deal closed on July 31, underlying oil output still grew by about 8,300 barrels per day by our math.
Management raised the full-year oil target by another 3,500 barrels per day at the middle of the range, though about 1,000 barrels per day of that annual increase comes from closing the Ridge Runner acquisition on October 30. What to watch: fourth-quarter daily oil production above 211,300 barrels per day, the rate implied by the new outlook.
🐻 Bear Case
Permian Resources Keeps Buying Land at High Oil Prices
Permian Resources expands its drilling inventory by purchasing smaller neighbours and adjacent leases, a strengthening operational driver that added 24,000 net acres and about 200 drilling locations across 175 deals this quarter. "The Ridge Runner bolt-on is a perfect example, adding core inventory offset our existing position and driving free cash flow per share accretion over the near, medium and long-term," Walter said.
Yet the timing and price cut against management's counter-cyclical framing. The drillers spent $1.15 billion on acquisitions this quarter — including $1.025 billion for Ridge Runner — when third-quarter oil prices averaged $85.73 per barrel and the 2027 oil futures price sat near $72. Meanwhile, the company bought back zero shares for a third straight quarter.
- Leasehold price paid: $22,000 per net acre in Q3, up from $13,000 in the first half of 2026
- Location price paid: $3.0 million per 10,000-foot well location in Q3, up from $2.5 million in the first half
- Year-to-date acquisition commitment: about $2.2 billion, double the $1.1 billion spent in all of 2025
The Ridge Runner contract also includes "potential contingent cash payments of up to $125 million, based on quarterly WTI prices over the two-year period starting January 1, 2027" whenever oil tops $70 or $80 per barrel. That clause hands away part of the upside if oil prices stay high, while Permian Resources bears the full cost if prices fall.
What to watch: the 2027 capital budget and well productivity in the fourth-quarter release. If capital spending per barrel of output rises next year, buying pricier land during an oil boom diluted returns.
High Oil Prices and Hedges Still Govern Cash Flow
Permian Resources uses price swaps — contracts that lock in a fixed selling price for oil and gas — to protect its budget against a downturn. When oil prices rise above the swap price, the company must pay the difference in cash to its trading counterparties.
Revenue jumped 48% from a year ago primarily because unhedged oil prices averaged $85.73 per barrel against $64.77 a year earlier. Those high prices triggered $5.77 per barrel in cash oil hedge losses, costing the company $110 million this quarter by our math, plus a $226 million non-cash accounting charge that cut reported net income to $420 million.
For the fourth quarter, Permian Resources has 70,000 barrels per day of oil locked in at $67.10 per barrel, covering about one-third of expected oil output. What to watch: realized oil hedge settlements in the fourth quarter, because oil prices near $70 per barrel would cut both unhedged revenue and the cash flow left after capital spending.
Risks this quarter didn't answer
Five standing concerns and watch items could not be read from the third-quarter earnings release and await the quarterly filing or conference call.
- Drilling and completion cost per foot: omitted from the release for a second quarter; the call will test whether diesel and steel costs kept it above the old $675 target.
- Unhedged natural gas price vs the Waha hub: the release gave the $0.72 realized price but not the benchmark comparison; the filing's price table will show it.
- Texas acreage trade closing: management expected the swap boosting operated locations from 50 to 120 to close in the third quarter, but the release did not mention it.
- Cash tax rate step-up: nine-month current tax was about $16 million by our math, and the release gave no 2027 cash tax outlook.
- Basin-wide takeaway limits: the release provided no new data on regional pipeline construction beyond the company's own contracts.
💲 Other KPIs
Net debt rose 3.6% from last quarter to $3.00 billion as property acquisitions absorbed cash, while net debt to annualized EBITDAX (earnings before interest, taxes, depreciation and exploration) held steady at 0.5x. The company paid off another $325 million of 9.875% notes in July, bringing year-to-date debt redemptions to $875 million and cutting yearly interest payments by $75 million.
Money owed by oil and gas buyers rose 25.9% from year-end 2025 and 13.8% from last quarter, reaching $1,059 million. The build in unpaid customer bills tied up $120 million of operating cash flow during the third quarter, driven by the 22% jump in total production volumes and higher gas sales.
Total diluted shares rose 1.5% from a year ago and 0.4% from last quarter to 858.6 million. The share count crept up because employee stock awards vested while management left its $925 million buyback authorization untouched for a third consecutive quarter.
🔮 Guidance
Raised. The middle of the range moved up 3,500 barrels per day to 202,500, or 11.4% growth from 2025 by our math. By our math, that leaves 211,300 barrels per day for the fourth quarter (+12.0% from a year ago), which matches management's statement of over 210,000 barrels per day and includes 4,000 barrels per day from Ridge Runner. Third raise this year: +3.5, +6.5, +3.5 MBbls/d.
Raised. The middle of the range rose by 15,000 barrels of oil equivalent per day to 430,000 (+9.5% from 2025 by our math) after third-quarter gas volumes rebounded. By our math, hitting the middle of the new range requires 472,300 barrels per day in the fourth quarter (+17.6% from a year ago and 3.2% above the third quarter), aided by the Ridge Runner acquisition.
Raised. The middle of the capital spending plan increased by $75 million to $2,025 million (+3.0% from 2025 by our math), following a $100 million increase last quarter. By our math, the plan leaves $519 million for the fourth quarter, matching the third quarter's $518 million. The oil producer attributed the higher budget to "higher working interest associated with its successful ground game efforts, increased workovers and approximately $20 million associated with the Ridge Runner bolt-on".
Unchanged. Management kept the full-year range at $7.15 to $8.15 per barrel of oil equivalent, including lease operating expenses at ~$5.45, gathering and processing at ~$1.40, and cash overhead at ~$0.80. Because controllable costs averaged $7.27 per barrel across the first three quarters and hit $7.05 in the third quarter, the driller is tracking toward the bottom half of its cost plan.
Unchanged. Production and property taxes stayed at 6.5% to 8.5% of revenue for the full year. The actual rate was 7.8% in the third quarter and 7.6% across the first nine months, sitting near the 7.5% middle of the range.
Unchanged. The company still plans to turn about 250 gross operated wells in line this year with an average horizontal well length near 11,000 feet and an ownership share above 80%. Keeping the well count flat while raising the capital budget confirms that the extra spending comes from owning a larger percentage of each well and doing more maintenance.
Improved. Permian Resources now expects year-end net debt to annualized EBITDAX to finish below 0.5x, tighten slightly from the ~0.5x target set last quarter. The oil producer expects fourth-quarter free cash flow to pay down the commercial paper issued to close the $1.025 billion Ridge Runner acquisition on October 30.
❓ Key Questions
Why did acreage acquisition prices jump in the third quarter?
Permian Resources paid $22,000 per net leasehold acre and $3.0 million per well location in the third quarter, up from $13,000 per acre and $2.5 million per location in the first half. Investors need to know if land inflation is permanent.
What was the drilling and completion cost per lateral foot?
Management highlighted drilling its fastest well at over 2,700 feet per day, but omitted the dollar cost per foot for a second straight quarter after calling the $675 target difficult in August.
Did the Ward County acreage trade close as planned?
Last quarter, co-chief executive James Walter expected an acreage swap boosting operated locations on the Ward County land from 50 to 120 to close during the third quarter. The release gave no update on the deal.
When will chemical and artificial-intelligence trials lift well recoveries?
The company is testing "a combination of surfactant and chemical deployment, better subsurface data and secondary and tertiary recovery" to extract more oil from existing rock, but has not quantified the cost or volume uplift.