Q1 2024 Permian Resources Corp Earnings Call

Participants

Hays Mabry; Senior Director, IR; Permian Resources Corp

William Hickey; Co-Chief Executive Officer, Director; Permian Resources Corp

James Walter; Co-Chief Executive Officer, Director; Permian Resources Corp

Neal Dingmann; Analyst; Truist Securities

John Freeman; Analyst; Raymond James

Scott Hanold; Analyst; RBC

Gabe Down; Analyst; TD Cowen

Derrick Whitfield; Analyst; Stifel

Leo Mariani; Analyst; Roth MKM

Oliver Wang; Analyst; TTM

Jeff Jay; Analyst; Daniel Energy Partners

Paul Diamond; Analyst; Citi

Kevin McCurdy; Analyst; Pickering Energy Partners

Presentation

Operator

Good morning, and welcome, everyone to Permian Resources conference call to discuss its first-quarter 2024 earnings conference call. Today's call is being recorded. A replay of the call will be accessible until May 22, 2024 by dialing 1-809-382-488 and entering the replay access code 24995 or by visiting the company's website at www.permianres.com.
At this time, I will turn the call over to Mr. Hays Mabry, Permian Resources's Vice President of Investor Relations, for some opening remarks. Please go ahead, Mr. Mabry.

Hays Mabry

Thanks, Bill, and thank you all for joining us on the company's first quarter 2020. For us on the call today are Will Hickey and James Walter, our Chief Executive Officer; and Guy Oliphint, our Chief Financial Officer. Yesterday, May 7, we filed a Form 8-K with an earnings reporting first 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 uncertain. It 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 in the forward-looking statement sections of our filings with the SEC, including our Form 10 Q, which is expected to be filed later this 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. It helps 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

Thanks, Jason. I truly believe that the first quarter was the most compelling quarter Permian Resources has delivered so far, we were able to deliver production and free cash flow above our expectations, close out the integration of our stone ahead of schedule while increasing our annual synergy target by $50 million and continued to execute on accretive A&D with approximately $270 million of acquisitions announced it takes an incredible team to deliver such strong execution quarter after quarter, and I look forward to sharing some more detail on Q1 today.
Moving into quarterly results, I'm pleased to announce Q1 production exceeded expectations with total production of 320,000 barrels of oil equivalent per day and oil production of 152,000 barrels of oil per day. Our strong production was attributable to multiple factors, including accelerated Earthstone D&C efficiencies and higher operational runtime, strong production results and CapEx of $520 million in the quarter resulted in adjusted operating cash flow of $844 million or $1.9 per share, and adjusted free cash flow of $324 million or $0.42 per share. We remain highly focused on sustaining a strong balance sheet with leverage of approximately one times and increased liquidity to over $2 billion as part of our regularly scheduled spring bank redetermination process, we increased aggregate lender commitments under the credit facility from $2 billion to $2.5 billion while maintaining a borrowing base of $4 billion.
Turning to return of capital, our strategy remains consistent. We delivered on our previously announced increased base dividend of $0.06 per share, a 20% increase from previous quarters. For the variable portion of our return of capital. First, we repurchased a total of 2 million shares in the quarter. The remainder of our capital return we paid out via a variable dividend of $0.14 per share, bringing the all-in quarterly return of capital to $0.24 per share.
Now I'd like to spend a little time talking about the efficiencies and synergies that impacted the business in such a positive way. This quarter, we rolled out the Archstone acquisition. We are highly confident that we could reduce drilling days and completion days and improve production operations, driving material synergies to be fully realized by year end 2024.
We have already achieved that and more and just under five months, we've high-graded all legacy Earthstone rigs and completion crews. This combined with TR best practices, helped drive an 18% production reduction in first on drilling days per well and approximately 50% production reduction in completion days per well in the first quarter, which we were initially anticipating achieving by midyear 2020.
Additionally, we are seeing some efficiency gains in the Midland Basin that were not originally forecasted, which is a testament to our team's ability to unlock value in new assets quickly. In addition, runtimes improved as a result of better compression performance, optimize artificial lift and improved chemical process, combination of accelerated activity and better run times as the primary driver of the strong production performance in Q1, the impact of the combined PR teams, integration execution is that we have already achieved $175 million per year of synergies and are increasing our synergy target to an annual run rate of $225 million. As I mentioned earlier, the main drivers of this increase are operational.
For DC. and F. We increased our per well savings from 1.2 to 1.5. Similarly, we expect to be able to improve margins by approximately $1 per BOE by year end, but we've already implemented strategies in the field to realize the majority of this improvement today. Drivers of the margin improvement include reduce trucking, upgraded electrical infrastructure, rationalizing vendors and optimizing midstream. Agri integrations are never easy, but what our team accomplished over the last six months is a testament to a lot of hard work and dedication, and we're proud to say that Earthstone is fully integrated.
With that, I'll turn it over to James to talk to A. and D. and an update on our 2014.

James Walter

Thanks. Well, I'd like to quickly reiterate where we lead off with today that PRs results this quarter are the best results we have had as a public company and that applies to every department and every discipline at Permian Resources. This now marks our seventh consecutive quarter of strong operational execution as a public company and our 9th year as a leading operator in the Delaware Basin, we are highly focused on continuing to increase our track record of consistent results and low cost operations.
Our team is firing on all cylinders, positioning us very well for the remainder of the year, while successfully executing in the field and wrapping up the integration of Earthstone. Our business development and land teams continue to source, evaluate and close attractive deals in and around our enhanced footprint. Our overall objective, when it comes to A&D, it's target acquisitions that enhance the quality of our business and drive value for shareholders for us. That means seeking out acquisitions and increase the quality and duration of our current inventory at prices that make sense in our recent acquisition to achieve all of these goals.
Yesterday, after market close, we announced two separate bolt-on transactions directly offset our legacy Parkway asset in Eddy County. This asset is characterized by low D&C costs and high oil cuts that make it one of the most capital-efficient assets in our portfolio. This is why we're so excited to bolster our position here with the addition of high quality, high NRI locations that immediately compete for capital.
In addition to these bolt-ons, we remain highly active on the grassroots side of the business completing approximately 150 smaller transactions ahead of the drill bit. A smaller deals target near term development are amongst the highest rate of return acquisitions that we find all in these transactions add over 11,000 net leasehold acres and approximately 110 gross operated locations for a purchase price of $270 million, of which we expect $245 million to be paid in the second quarter after accounting for production value. This works out to a little less than 10,000 per net leasehold acres in approximately $1 million per gross location or $1.5 million per net location.
Our presence in Midland has been one of the key drivers of our successful acquisition program and the vast majority of the acreage we are acquiring. And today's announcement come from Midland based counterparties who we have long-standing relationships with, as Will mentioned earlier in the call, our team's successful execution has reduced our drilling and completion times bias to bring barrels forward into Q1 and increased overall production for the year.
As such, we are increasing our stand on production guidance to 150,000 barrels of oil per day and 320,000 barrels of oil equivalent per day, which represents a 2% increase compared to our original guidance ranges with no change to CapEx or other guidance categories coming on, there's acceleration in production the first quarter. We anticipate a relatively flat production profile in the second quarter with modestly lower stand-alone production in the second half of the year. The slight decline is driven by normal course fluctuations in working interest that occurred during a large-scale development program.
The revised guidance outlined on slides 10 and 14 reflect Permian Resources standalone projections and do not include the impact of the acquisitions we're announcing today. We expect those acquisitions to add an average of approximately 3,500 BOE a day during the second half of the year. Given the high quality inventory of the acquired assets, we do expect to begin development in the second half of the year, which we anticipate will result in $50 million of incremental CapEx. In summary, this is a terrific start to the year and we are proud of what we've accomplished so far in 2024.
I'd like to conclude today's prepared remarks and slide 11, which helps to re-emphasize our value proposition for current and future investors. We think that the announcement today really highlights the quality of Permian Resources business and the multipronged approach we have to driving outsized shareholder value since the Company responded to in 2022, we have delivered best-in-class returns for our sector, amounting to over three times the annualized return of the S&P 500 during that same time period.
Our performance over the last two years has been driven primarily by low-cost execution and accretive transactions. And as a result, PR remains a compelling value within large cap oil and gas, particularly when recognized in the Permian Resources is now the second largest Permian pure-play in the sector.
Thank you for tuning in today. And now, we will turn it back to the operator for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Neal Dingmann, Truist Securities.

Neal Dingmann

Excuse me, a lot of guys and nice job on my first question, James, maybe on your D and C plan for your Well, Tom, correct me if I'm wrong, but I believe you're currently running about 1112 rigs, three to four spreads or about the same is PR and or Stone was separately. And I'm just wondering, given your notable continued efficiencies that you certainly highlighted today. I'm just wondering, I believe the goal of relatively flat production. Maybe could you or we'll talk about potential too drop rigs or spreads? Or maybe just how you see the maintenance plan on a go forward?

William Hickey

I mean, I think you're right, like if you think about the plan this year, we were originally saying we drill about 250 wells and that kind of we thought that would take about 12 rigs with the efficiencies we're seeing today. I think it's very realistic that we could continue to execute on the same plan with less unit, whether that's 11 rigs or kind of somewhere between 11 and 12, I think is if we can keep these efficiencies is very much on the table. If you think back to kind of the Colgate seat of mergers to very similar playbook.
And if you think that originally those that was an eight rig combined business that we're able to get down to six with the same level of efficiency. So we've done this before. I do think it's worth calling out. We're not solving for kind of some maintenance plan or production for kind of the last part of your question, it's much more just an input of what's the return environment or what's the macro look like from a supply demand perspective and what are service costs look like?
So that we can kind of what the production is more of an output. So we continue to see strong service or strong oil prices and reduced service costs. I think it's very very real that we could decide to kind of keep the 12 rigs or even add rigs from here to go grow production. But what you see in the kind of our revised guide is more of that stick to the 250 wells and we could there's a chance we could do that with less equipped.

Neal Dingmann

No, I think that's good to hear well. And then secondly, just quick on the bolt-ons such as the recent two that you all highlighted simply you all seem just to have continue to have better success adding these accretive bolt-ons versus it just seems like I don't see as many of your peers being able to do this. So I'm just wondering what your what are the keys behind this? And can you kind of continue at this pace of adding a couple two three? It seems like almost every quarter.

William Hickey

Thank you. I think it's a pretty easy answer I I think first and foremost is something we're focused on it. We prioritizing something we've done for a long time and have and continue to be really good at and I think that's driven by a couple of things. I think first and foremost, we have the lowest cost structure in the Delaware Basin, which allows us to earn higher returns on the same assets and as a result, kind of naturally over time, assets like these do just flow to the low cost operator?
I'd say second, we're based in Midland. That's the heart of the Permian, the heart of the deal flow. And we've got a great reputation across the market of being good partners that people want to be across the aisle from on the transaction side. And that goes a long way from the filing for today's example. And this is really going to we're buying. It is an area where I think we do have a unique edge from activity and therefore, the information side of things, if we have more rigs running in this area than anybody else and therefore, more proprietary data to pull from better understandings, et cetera.
So I think you take all that together and it does feel like something that is definitely sustainable and Edge will continue to have what we do this every quarter, probably not, but something we expect kind of over the long term to continue to be a big part of the story.

Neal Dingmann

Great answers. Thanks.

Operator

John Freeman, Raymond James.

John Freeman

Good morning, guys. Great quarter on when I'm looking at Slides 6 and 7 and just these this huge efficiency gain that you're continuing to get out of the legacy Archstone properties, and I'm just trying to get a sense of of what maybe that remaining gap, if any, between kind of legacy Earthstone and PR on whatever metric you know, you all want to cite cost per foot or whatever. But when I look at all the different the drilling days and completion date to production downtime. Just some sense of how that compares to two to PR. I'm just trying to see if there's still any gap.

William Hickey

I think on the DSD. and C. side, the gap is very small, if not kind of nonexistent at this point. We are we have different efficiencies and different assets in different areas where we kind of view different areas, whether it's legacy or stone or legacy PR, no longer matters. It's more it's all PR. And I think on the D&C side, that gap is closed, where I think there's still some room is on the LOE side. We've made tremendous progress in a short amount of time of improving margins through kind of what we've done on the contract side.
But also just reducing LOE, but a lot of the other LOE staffing, I think like SWD disposal agreements or recycling agreements have some time to on a higher more work and more time to get fully incorporated. So as I think about kind of where the last kind of gap remains between legacy Earthstone and PR would be more LOE focused if that makes sense.

John Freeman

That's perfect. Thanks. And then just the follow-up for me on your gas takeaway has been pretty topical. What's going on at Waha? Just any sort of updated thoughts from you all and high only thinking about gas takeaway and how to address that longer term?

William Hickey

I mean, I think if anything, it's pretty obvious to you that around the call pricing at Waha has been challenge this year and probably will be until we get closer to new pipes coming online in the fourth quarter. And I think that is what it is we're fortunate that dry gas only makes up about 5% of our revenue in any given year. So the business really isn't affected. But I think kind of worth pointing out a couple of things. Only about half of our gas is exposed to Waha pricing this year and kind of other half is either covered by attractive basis hedges or sales at better regional hubs today.
But yes, it's something we're always trying to kind of focus on and work on. We sell about a quarter of our gas at hubs other than Waha today and we are constantly looking to find ways we can get that percentage higher. If you have a contract probably get signed in the next week or two, that should allow us to get more volumes sold at Houston pricing kind of next year. So kind of more to come on that front. I'd say that's something we've been working on for a long time and continue to chip away at. But I think the most important thing is we've got awesome partners on the midstream side. We've got firm capacity and our molecules are going to flow and even if we saw regional constraints later this year.

John Freeman

Thanks.

Operator

Scott Hanold, RBC.

Scott Hanold

Okay. Thanks, guys. I was wondering if you go back to on sort of the outlook through the balance of the year in just holistically, how you guys like to think about the business. Obviously, your cycle times are improving. So you pulled forward a little bit more of your activity and production in 1Q. And so like, like you kind of said, it does taper you have a soft decline in the back half of this year.
But how do you think about like the setup then for 25 with that, would you guys or into 25 and over the long term, like to see more kind of flattish growth, you want to see some more moderate growth. And if you could talk about like any kind of cadence variability through the year as you would you like to keep things constant? Or do you think there will be some cadence depending on the cycle times?

William Hickey

I think Turning first and foremost, kind of as we think about the trajectory from a production perspective of the company, I've said it many times, I'll say it again, it really is a returns-driven INPUT and production is just an output, obviously kind of. And over the last two weeks ago, I'd say the returns environment was extremely good. And we've had we've made some headway on the service cost side kind of over the balance of the year. So it was looking good.
I think that today it's it's still good, but not quite as good as it was a few weeks ago, and I don't yet know what the world will look like six months from today as we go into 25, I would say that's kind of the really as you think about what happened over the course of this year so far as it's just been, the whole set schedule has shifted forward. We've just we're drilling wells faster. We're completing wells faster. And as such, kind of just given the natural working interest changed over large-scale development, that the back half of the year are really kind of dip is just really a little bit less working interest under few wells that moved in from from the next year and that naturally correct itself.
So said differently, if we maintain the same pace kind of call it to 50 to 60 wells per year like that actually does set up for a really good 25. It's just not it's kind of a slight decline back half of the year and then bounces back in 25. I'm not saying that is our plan. We're going to spend a lot of time over the next six months figure out exactly what you want to do. 25. I think it could be anywhere from 11 to 13 rigs based on commodity prices, and we'll kind of see what makes sense there. But but as I think I wouldn't think of this kind of slow tapering back half of the year as an indication of kind of future trajectory of the production profile in outer years.
This plan has great acceptance up, but we also do have really good optionality because we don't know what the world's going look like in 25 and our kind of puts us somewhere in the middle that 0% to 10% growth over the long term that we've talked about it. We can make a decision as we get closer to that year.

Scott Hanold

Appreciate that commentary. And Doug, in your prepared comments, you all you also mentioned that you're seeing some better performance or efficiencies in the Midland in it sounds like you weren't necessarily expecting. Could you could you a little color and context behind exactly what that is and where the benefits were? Was it more well productivity or is it cycle times or just cost reductions on OpEx?

James Walter

It really is D&C CapEx. We were we have not drilled a lot of wells in the Midland Basin to didn't expect to be able to cut kind of near the amount of costs on the Midland Basin side as we have on the Delaware. And we've been surprised to the upside in that regard, I still think we have a ways to go to catch up with where kind of the leading operators in the Midland Basin are on from a CapEx perspective.
But we've made big strides that kind of surprised us to the upside and was that more as just the cycle time of drilling and completion time of the of that those various stages cycle times casing design kind of everything that would lead to a lower CapEx per foot on a Midland Basin.

Scott Hanold

Well, got it. Thank you.

Operator

Gabe Down, TD Cowen.

Gabe Down

Hey, morning, everyone. I appreciate the time, but understand it's certainly a little bit too early to be thinking about 25. But I guess just piggybacking off of Scott's question here. If we just think about all the synergy capture and efficiency gains and maybe this year being a little bit heavier on midstream spend or infrastructure spend, I should say is it fair to assume maybe 25, assuming similar activity levels, the CapEx is probably a bit lower than where we are today?

William Hickey

Yes, I think kind of certainly maintenance CapEx would be lower than what we've outlined this year, just kind of given where the businesses the efficiency we achieved this. And I think that's that's definitely fair, fair assumption.

Gabe Down

Okay. Great. And then maybe as a follow-up, you noted or talked about egress a bit, but just curious in that northern New Mexico area, both Eddy and Lea, are you seeing any processing capacity tightness or any other midstream managers that are worth mentioning? I recognize there's no rigs over in Eddy County just here. Is that driven by constraints at all or are you guys planning on getting after that in the second half of this year?

William Hickey

Yes. I mean, I think the kind of lack of rigs in any area today is just driven by our focus on doing some of these larger developments and making sure when we put rigs on it, we're doing it as quickly as efficiently as possible and touching kind of all parts of the cube that need to be co-developed. So no. And but I think macro-wise gas processing constraints, it actually feels really good this year.
I think last year we'd mentioned before, probably Q2 Q3 time line, there were more challenges on processing, but even more kind of in field compression and kind of plumbing issues in the middle of last year, but those have all really resolve themselves. That's our midstream partners have done a ton of work and spent a ton of money and our gas processing in the New Mexico Delaware to the great spot today and and frankly, painful not to have any constraints of that nature or really anything else kind of able to do what we want to have there.

Gabe Down

Okay. Awesome. Great to hear. Thanks, guys.

Operator

Derrick Whitfield, Stifel.

Derrick Whitfield

Good morning all and congrats on a strong update in queue with my first question I wanted to lean in on your D&C efficiencies to better understand the rate of improvement you're seeing if we were to compare PR to PR on slide 6, how does the cycle times in the Northern Delaware compare with your Q4 averages PR to pick up the PR from Q4 to Q1, we've gotten better, but it's going to be kind of single digit percent improvement as compared to the big improvement you see if you compare legacy or centerpiece.
And then maybe shifting over to slide 9. The identified location count of 110 gross locations appears conservative to us on the surface. Can you offer any color on the degree of legacy operator development and your general underwriting assumptions for this part of the business?

William Hickey

Yes. I mean, I'd say it's actually good. That's a good question and very astute, I think. And to your second question first, it's pretty undeveloped acreage position there's a handful of wells on it, but it's an undeveloped as any asset we've looked at in a long time, which is great because it all has to come in take advantage of clean fairways and I kind of do a PR does best regards to inventory?
Yes, there probably is conservative. I think we're trying to book locations that we have a very high degree of confidence in here and, you know, is it more likely to have more zones kind of come into the money here?
I think the answer is probably yes, but we feel good about what we put out as being a real base case and something that we can stand behind.

Derrick Whitfield

Terrific. Great update, and thanks for your time.

Operator

Leo Mariani, Roth MKM.

Leo Mariani

I wanted to dig in a little bit to your comments around kind of flattish second quarter production and then kind of slightly lower in the second half, if I heard your comments right, it sounded like a lot of this was just based on working interest changes. I was hoping maybe you could kind of quantify some of that. I mean, I think you guys are talking about 75% average working interest, but maybe it's a little higher in the first half and lower in the second, just any help on that would be great.

William Hickey

Yes. I think it's just kind of normal fluctuations when you're running a multi-rig program like this, especially the kind of stacking rigs to pursue the full-field development strategy that we've been pursuing for a long time, like one quarter, maybe 70%, one, maybe 80 to get back to an average of 75 and just kind of how it is, I think you see this especially kind of overtime as as you have more concentration of rig counts on particular developments. But it's all normal and kind of evens out over time.

Leo Mariani

Okay. But it definitely sounds like working interest is a little higher in the first and a little lower in the second half and then how would that translate into CapEx? Would that basically give you CapEx a little lower in the second half, stand-alone versus first half, but yes, I think that's a good assumption Okay.
I think US.

Operator

Oliver Wang, TTM.

Oliver Wang

Good morning all and thanks for taking my questions. I wanted to start on the A. and D. side I can't help. But notice you've been fairly active in this area of Eddy County, kind of looking back at where the Q1 bolt-on to the latest two transactions now classified to sit. So just kind of wondering if you all might be able to speak to there. Is anything specific that you're seeing in the area that's driving an increased focus from an NAV perspective for you?

William Hickey

You know, that's a great question. And I think kind of post closing of our stone today, we just saw a real market window where we're able to go buy for extremely attractive bolt-ons and quite a few grassroots deals at prices that that were really attractive to us. And I think the reason we're able to do so which I touched on a little bit with Neil's question at the beginning was because we've been the most active operator in this part of Eddy County for a long time. And therefore, had a lot of really exciting proprietary results, both on kind of zones, well performance.
And I think most importantly, the cost side, what we're doing this cheaper up here than I think anybody would expect. So tonnage is unique. It's kind of one of those windows that we saw an opportunity and we hit it hard. And I think these are some of the best deals we've done. So yes, I think it wasn't I didn't think we'd get all of these deals the way we did. But it's it's a great outcome and that's it really core inventory with our most capital-efficient assets.

Oliver Wang

Makes sense. And for my follow-up, just kind of wondering if you all could provide an update on your royalty position. It seems like an aspect of the business where you've been able to steadily pick up some decent interest of the past nine months or so that's kind of going under the radar. So any color there would be helpful.

William Hickey

Yes. I mean, I think we're always trying to buy acreage and inventory that competes for capital. And a big part of that is what is the royalty burden. So we target assets that have advantage winterized, lower royalties that really just help our capital efficiency. And I think today we've got our royalty business that we're really proud of kind of 75,000 net royalty acres is not insubstantial.
I don't have anything strategic that we have planned with that today, but I do think that's a big part of our capital efficiency story, we're getting more fee free cash flow for every dollar of CapEx that we spend as a result. So I think ultimately, it's something that just makes our widget better and helps our value creation increase over time. So that's something that we're proud of. We're focused on, I think, probably a little underappreciated by the market and but it's really ultimately comes down to helping us earn better returns on every dollar that we spend.

Oliver Wang

Makes sense. Thanks for the time.

Operator

(Operator Instructions) Jeff Jay, Daniel Energy Partners.

Jeff Jay

Hey, guys. I was just looking for I know you referenced your power infrastructure build-outs would kind of love to hear what's happening there, what the scale of that is, how big that's going to be for you guys. It's obviously kind of a pressing issue these days?

William Hickey

Yes, look at wind power in this kind of entire Permian stuff in Texas is tough and in New Mexico's top. So we're trying our best to to stay in front of it. I'd say kind of as you think about our power needs, if we can be online power, that's obviously preference. And after that, if we can kind of leverage you could natural gas power generators is probably the second best answer. And that's kind of what you'll see for the majority of our New Mexico infrastructure. But but it's a priority for us.
And I think we are actively looking at ways to improve that position, collaborating with others to look at building incremental substations and really anything we can do. It doesn't come quick, and I think it will be a challenge for the industry for the next few years. I don't think it means we won't be able to produce our well, it is just a little bit less efficient to be on natural gas power generators and it would be to be all online power.

Jeff Jay

Okay, thanks. I appreciate it.

Operator

Paul Diamond, Citi.

Paul Diamond

Good morning. Others taking my call. Just a quick one talking about the acquisition pipeline. Are you seeing looking forward to kind of what's next, are you seeing any kind of movement on the bid asks based on scale location?

William Hickey

Or is it all pretty much, Chris, you should think of corporate, but I think our pipeline on the A. and D. side feels really good. I think there's a lot of to be lots of opportunities in the Delaware. And I think our position as a kind of preferential party for a lot of sellers in a low cost operating base and position us well as the assets come for sale kind of both marketed deals, which we participated in successfully, but also just importantly, kind of off-market assets, which has been a large chunk of our acquisition program historically.
But it feels good. I don't think they're probably not the size of deals that you saw hitting the market in 22 and 23 and the dollar, which I think we largely stayed on the sidelines from. But I think we're seeing a lot of stuff that fits kind of the grassroots side is maintaining our momentum, and we're still seeing lots of bolt-ons probably coming down the pipe this year where we wind up acquiring all of them, definitely not, but other some that could fit.
I'd like to think so. But we're really picky and we want to buy assets like I said that make our business better and that earn a high rate of return and drive value for shareholders. So if we can continue to do that, that's great. But we said before, we don't need to do anything. We think we have an incredible inventory base, an incredible standalone business. So if we can find those opportunities, we'll be excited for soon but certainly don't feel any pressure to do so.

Paul Diamond

Understood. And just a quick follow-up. So that's why you guys have been pretty balanced shareholder return framework as anything you guys are seeing in the markets that would kind of tip scale one way or the other.

William Hickey

Now, I mean, I think we're going to kind of naturally bias towards the dividend. I think that the variable dividends are our base case, and we'll be opportunistic on potentially increasing share buybacks at some point in the future if kind of dislocations and large opportunities exists. But no, I'd say really steady as she goes on the capital return strategy, do you think it's worth mentioning?
We did show a 20% increase in our base dividend this year. Which should hit for the quarterly dividend payment upcoming and a nice increase in our variable cash dividend as well. So it feels like that's working really well. We're excited about it understood.

Paul Diamond

Thanks for your time. I'll leave it there.

Operator

Kevin McCurdy, Pickering Energy Partners.

Kevin McCurdy

Hey, good morning, Tom, to follow up on an earlier question, about M&A. Your last couple of deals have been concentrated in the Northern Delaware. Just kind of a general question on how you are viewing opportunities in the Southern Delaware versus the Northern Delaware. Are there as many opportunities out there? And how do you kind of compare that to open?

William Hickey

I mean, I think that's a great question. I mean, looking back historically, the kind of first consolidation wave in the Delaware was Texas focused. If you think like 2017, 2018, 2019, a lot of Texas businesses. And that's where the dollar got it started at least activity was faster to begin. So I think we kind of have you seen a natural consolidation wave in the Delaware as of late.
I think for us specifically, we've got a great Texas position today with some really high return to go for drilling to do it if we can find opportunities in Texas that compete for capital, like what we've seen in New Mexico, we'd be really excited about it. And I think those opportunities do still exist. I just think kind of the majority of assets that we've seen that fit.
What we're trying to do from a making the business better standpoint have been in New Mexico the last couple of years. But I think that could change and we'd be really excited if we could find some opportunities on the Texas side.

Kevin McCurdy

Great. And changing gears a little bit. You mentioned an additional 3,500 barrels a day equivalent and an additional $50 million of capital once you close the bolt on acquisitions later this quarter, just to clarify, is the 350 or sorry, the 3,500 barrels a day flowing because that's pulling production now on? And if so, what will be the production impact of the additional $50 million capital spend?

James Walter

Yes, that production is online. Now, the majority of that is from an acquisition. We haven't closed and done close to the to the end of this quarter. So it's kind of online now but it's not ours, if you will. And then that $50 million is CapEx. We're going to spend in the back half of this year that it's awesome.
Awesome. High return inventory really exciting in our hands. I mean, we don't own it today, so we can't kick you out of the oven, I guess all the production you see from that's going to show up next year, but but really strong returns, and we're excited to get after Susan get our hands on the assets.

Kevin McCurdy

Great. Thanks for the clarification.

Operator

Gentlemen, it appears we have no further questions this morning. Mr. Walter, I'd like to turn things back to you, sir, for any closing comments.

James Walter

As I've gotten off to a great start in 2020 form. Our primary goal remains the same as it was when we announced the Covington Tennessee merger in May of 2022 to maximize shareholder value over the long term and to do that, we plan to continue to build on our track record of delivering consistent results with the lowest cost structure in the Delaware Basin.
Thanks to everyone for joining the call today and for following the Permian Resources story.

Operator

Thank you, gentlemen. Again, ladies and gentlemen, that will conclude today's Permian Resources first-quarter earnings conference call. Again, thanks so much for joining us today, and we wish you all a good day.