BACKGROUND

• Went public end of 2022 with no debt
• Was essentially a group of private equity funds that went public as an oil and gas company, according to CEO
• Non-op oil and gas, which means they don’t have any operations personnel and don’t drill the wells themselves
• Their main activity is sourcing oil and gas deals and investing
• According to the CEO, out of 1000 wells underwritten they were 99% accurate at estimating the well value
• Goal is to keep a solid balance sheet and not get too levered
• They recently took conservative debt about ½ of annual revenue ($150M debt)

FINANCIALS

• Consistently profitable for past 5 quarters, although their earnings are down from FY22
• Recently increased capital expenditures guidance for 2024, $25M increase in acquisitions and $60M increase in development expense to work those new acquisitions
• Q2 24 net income down to $5.1M from $16.23 in Q1 24
• Q2 24 commodity derivatives up to -$0.79M from -$3.2M Q1 24 (probably oil hedges)
• Q2 24 equity investments down significantly at -$8.8M from +$7.8M in Q1 24, this is a large piece of the drop in earnings
• The increase in capex seems to be related with their new push into “controlled capital” deals where they own the controlling share of the well, as opposed to the traditional small share for a non-op. This allows them to control the development timing.

Here’s the interesting thing about the investment numbers, I believe the equity investments figure is heavily tied to the price of VTLE, another hydrocarbon company. The GRNT CEO mentioned at a conference that they own about a million shares of VTLE through some merger deal.

This could heavily impact the earnings going forward depending on when they decide to get rid of those shares. Since GRNT posted Q2 earnings, VTLE is down 22% so I believe this will hurt their Q3 earnings at the moment, but stay tuned for a dive into VTLE.

MANAGEMENT THOUGHTS

• CEO believes that Wall Street investors are undervaluing the stock because:
• New debt they’ve taken on
• New cash flow from expansion on the debt
• Potential benefits of a larger investment base in the future
• They have talked to many large managers who like the stock but can’t buy in because the trading volume is currently too low to get a real position
• As this grows, then the stock will see a boost from larger investors buying in
• Changing business model will have positive price effects
• They are moving towards more controlled capital investments from traditional non-op
• They believe this will make them viewed more like an operator which trades at a premium
• Faster rate of return for these investments

RECENT EVENTS

• Large insider buying, multiple cluster buys in the past month
• Very few footnotes or plans, mostly open market
• Recently appointed 2 new directors in late May
• Appointed Forvis LLP as their independent registered public accounting firm for 2024
• Took on debt of ½ annual revenue
• Went to Midwest IDEAS Conference (source of many of these management opinions)