Investing.com -- S&P Global Ratings has upgraded the issuer credit rating for oil, gas, and natural gas liquids exploration and production company, Permian Resources Corp., to ’BB+’ from ’BB’ based on the company’s strong financial measures and improved operational performance. The issue-level rating on its unsecured debt has also been increased to ’BB+’ from ’BB’. The recovery rating on the unsecured debt remains unchanged at ’3’, indicating an expected recovery of around 65%.

Permian Resources Corp., based in Midland, Texas, has been expanding its scale and improving its operational performance. The company’s stable outlook is expected to benefit from its low-cost structure and increased cash flow from the integration of acquired assets, while maintaining funds from operations (FFO) to debt well above 60%.

The credit rating upgrade is a reflection of Permian’s increased scale and improved operational efficiency in the Permian basin. The company has expanded its presence in the basin through several acquisitions, including the Earthstone acquisition in 2023 and the purchase of Barilla Draw assets from Occidental Petroleum (NYSE: OXY ) in 2024. As a result of these acquisitions, Permian added 50,000 net acres and 20 thousand barrels of oil-equivalent per day of production in 2024 for a total consideration of about $1.2 billion.

Permian plans to operate 12 rigs and about three frac crews in 2025 and expects to turn-in-line approximately 285 wells. The company’s production is expected to increase to the range of 360-380 Mboe/d in 2025 due to a full year of production from the Barilla Draw assets.

The company continues to increase its reserve base, with about 450,000 net acres in the Permian Basin and about 88,000 net royalty acres. As of the end of 2024, Permian’s reserves totaled 1,026,957 Mboe, which represented an 11% year-over-year expansion. Since the end of 2020, the company has expanded its reserves by 244%.

Permian is focusing on reducing costs. In 2024, the company reduced the lease operating expense and drilling and completion costs on its acquired properties by about $3/boe and $325/ft, respectively. In 2025, it plans to further reduce its total controllable cash costs to reach $7.75/boe.

Permian maintains strong credit metrics with a net debt target of 0.5x-1.0x. The company financed its most recent acquisition with 54% equity. After the close of the transaction, the company sold associated midstream assets for approximately $180 million and used the proceeds to pay down its debt.

The company has adequate liquidity, supported by the full availability under its $2.5 billion reserve-based lending credit facility and almost $500 million of cash as of the end of 2024. The company changed its capital return policy in the third quarter of 2024 by increasing its base dividend to $0.15 per share quarterly.

The stable outlook for Permian Resources is based on expectations that the company will maintain average FFO to debt of greater than 60% and leverage of about 1x over the next two years. The company is expected to modestly expand its organic production and generate significant discretionary cash over the next two years.

S&P Global Ratings could lower its rating on Permian Resources if its FFO to debt approaches 45% on a sustained basis. This could occur if commodity prices decline and management doesn’t reign in its capital spending, or if the company pursues a more-aggressive shareholder return policy or a leveraging transaction. On the other hand, the rating could be raised if Permian increases its production profile in-line with those of its higher-rated peers or improves its geographic diversity while maintaining FFO to debt of comfortably above 60%.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.