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SR

Sitio Royalties Corp. (STR)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered robust production (38,585 Boe/d, 50% oil) and Adjusted EBITDA of $135.4M, though EBITDA fell 10.7% sequentially on lower realized oil prices; diluted EPS was $0.15 .
  • Raised FY2024 pro forma production guidance to 37,000–39,000 Boe/d and lowered Cash G&A guidance, while increasing cash tax guidance midpoint by $7M; LOS wells rose 11% QoQ, pointing to sustained operator activity and development visibility .
  • Capital returns remained a core catalyst: $0.47 per share total return of capital (dividend $0.28 + repurchases $0.19); repurchased 1.4M shares and reduced long-term debt by ~$56.5M, ending with $1,003M total debt and $455.5M liquidity .
  • Management emphasized benefits from industry consolidation and operator efficiency; cited proprietary systems recovering ~$25M in missing payments over 12 months—a driver of cash sustainability and margin support .

What Went Well and What Went Wrong

What Went Well

  • Production above full-year guidance range (38,585 Boe/d, 50% oil); LOS wells +11% QoQ, and 7.7 net wells turned-in-line, reinforcing near-term volume visibility .
  • Balance sheet actions and capital return: long-term debt down ~$56.5M; declared $0.28 dividend and executed $29.0M in buybacks (1.4M shares at $21.47) totaling $0.47 per share returned .
  • Strategic positioning and execution: “beating expectations for the third consecutive quarter” and strengthening the 2024 outlook; CEO highlighted proprietary systems recovering ~$25M in missing payments over the last 12 months, nearly covering a full year of cash G&A .

What Went Wrong

  • Sequential profitability pressure: Adjusted EBITDA declined to $135.4M (−10.7% QoQ) and net income fell 4.0% QoQ, primarily on lower unhedged realized oil prices; total revenues decreased by $17.7M QoQ .
  • Cash tax guidance raised for FY2024 (to $17–$21M), reflecting updated tax estimates and exhaustion of legacy credits; management expects simpler tax modeling in 2025 but near-term cash tax burden increased .
  • Commodity pricing headwinds: Q3 average realized prices fell versus Q2 (oil $74.67/Bbl, gas $0.45/Mcf, combined $41.65/BOE unhedged), pressuring revenue and cash flow sensitivity despite hedge settlements .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Total Revenues ($USD Millions)$151.391 $168.548 $149.375
Net Income ($USD Millions)$18.692 $29.041 $27.867
Diluted EPS ($)$0.10 $0.15 $0.15
Adjusted EBITDA ($USD Millions)$135.107 $151.608 $135.441
Avg Realized Combined Price ($/BOE, unhedged)$46.00 $46.36 $41.65
Avg Realized Oil Price ($/Bbl, unhedged)$76.60 $79.85 $74.67
Avg Realized Gas Price ($/Mcf, unhedged)$1.15 $1.01 $0.45
Avg Realized NGL Price ($/Bbl, unhedged)$20.71 $20.32 $17.11
Average Daily Production (Boe/d)35,349 39,231 38,585

Year-over-Year comparison (Q3 2024 vs Q3 2023):

MetricQ3 2023Q3 2024
Total Revenues ($USD Millions)$156.710 $149.375
Avg Realized Combined Price ($/BOE, unhedged)$45.00 $41.65
Net Income ($USD Millions)$0.275 $27.867
Cash G&A ($/BOE)$2.18 $2.20

Segment breakdown – Average Daily Production (three months ended September 30, 2024):

AreaBoe/d% Oil
Delaware20,167 50%
Midland8,446 57%
DJ5,648 37%
Eagle Ford3,386 54%
Williston/Other938 45%
Total38,585 50%

Key operating and financial KPIs (Q3 2024):

KPIQ3 2024
Net LOS Wells – Spuds27.5
Net LOS Wells – Permits21.4
Net LOS Wells – Total48.9
Depletion ($/BOE)$21.97
Cash G&A ($/BOE)$2.20
Interest Expense, net ($/BOE)$6.34
Total Debt (principal) ($M)$1,003.0
Liquidity ($M)$455.5
Credit Facility Draw ($M)$403.0
Dividend per Share$0.28
Share Repurchases ($)$29.0M
Shares Repurchased1.4M (avg $21.47)
Total Return of Capital per Share$0.47

Guidance Changes

MetricPeriodPrevious Guidance (Aug 7, 2024)Current Guidance (Nov 6, 2024)Change (Midpoint)
Pro Forma Avg Daily Production (Boe/d)FY 202436,000–38,000 37,000–39,000 +1,000
Pro Forma % OilFY 202449–51% 49–51% —
Cash G&A ($M)FY 2024$31.5–$33.5 $30.0–$32.0 −$1.5
Production Taxes (% of royalty revenue)FY 20247.5%–9.5% 7.5%–9.5% —
Cash Taxes ($M)FY 2024$9.0–$15.0 $17.0–$21.0 +$7.0

Earnings Call Themes & Trends

TopicQ1 2024 (Prior)Q2 2024 (Prior)Q3 2024 (Current)Trend
Operator consolidation and efficiencyHighlighted diversified operator base; visibility via LOS wells at record levels “Do more with less”; efficiencies despite flat rigs; LOS dipped vs Q1 but above 2023 average Continued improvements; longer laterals, horseshoe laterals; operators’ scale supports sustainable development Improving
DJ Basin acquisitions and deal flowClosed DJ Basin acquisition; strong operator activity (Chevron/Oxy/Civitas) 6 additional acquisitions; ~2,100 NRAs added; DJ and Permian focus 5 acquisitions (~$22M) added ~2,300 NRAs in DJ; DJ offering superior returns recently Active/Positive
Return of capital framework65% of DCF; dividend 35% minimum; buybacks initiated $0.71/share total; opportunistic block buyback; above minimum $0.47/share total; mix of dividend and buybacks; allocation flexible Ongoing/Stable
Tax guidance and modelingComplex credits affecting forecasts Lowered cash tax guidance range to $9–$15M Raised cash tax guidance; expect credits exhausted, simpler 2025 modeling; ~52% of statutory rate as guidepost Volatile → Normalizing
Midstream/gas infrastructure dynamicsNot a focusObserved efficiencies; commodity agnostic on acquisitions Matterhorn ramp; Blackcomb discussed; midstream planning mitigates Waha pressure; discipline is key constraint Improving capacity
Proprietary systems/dataNoted data-driven management—~$25M recovered missing payments over 12 months via proprietary systems Positive execution

Management Commentary

  • “We continued our streak of sound results, beating expectations for the third consecutive quarter... higher volumes and cash costs down ~4% YoY... differentiating Sitio from its peers” — CEO Chris Conoscenti .
  • “Over the last quarter, we reduced total debt by nearly $60 million... proprietary data management systems... recover approximately $25 million in missing payments over the last 12 months” — CEO .
  • “Financial results benefited from robust production from legacy assets and the impact of recent acquisitions” — Press release .
  • “Record high adjusted EBITDA of $151.6 million and discretionary cash flow of $129.3 million in the second quarter... payout ratio of 85% of DCF” — CFO Carrie Osicka (context for trends) .
  • “Cash tax guidance... we expect to exhaust that credit this year... next year should be a lot more straightforward” — CFO clarifying FY24 increase and 2025 outlook .

Q&A Highlights

  • LOS wells and activity drivers: LOS increased broadly across footprint; diversity across Permian and DJ supports visibility (9,000 gross LOS wells on normalized basis) .
  • DJ Basin acquisition returns and capital allocation: DJ currently superior rate-of-return opportunities; capital directed accordingly while Permian remains competitive .
  • Return of capital mix: Minimum 35% of DCF as dividend; remaining 30% flexible between dividends/buybacks; opportunistic repurchases when NAV-accretive .
  • Cash tax modeling: Guidance variability driven by updated filings and merger-related credits; guide ~52% of all-in statutory rate for 2025 modeling .
  • Operator consolidation benefits and efficiency: Larger operators drive steadier capex across cycles; improved drilling/completion technology unlocking stranded resources (longer and horseshoe laterals) .
  • Midstream capacity outlook: Matterhorn ramping; Blackcomb discussed; midstream companies proactively adding layers of capacity; capital discipline likely the supply governor .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2024 EPS, revenue, and EBITDA was unavailable via our data source at the time of this analysis due to a missing CIQ mapping for STR. As a result, quantitative beat/miss vs consensus cannot be shown here [SpgiEstimatesError].
  • Management stated Sitio “beat expectations for the third consecutive quarter,” and raised FY2024 pro forma production guidance, suggesting estimates may need upward revisions to volume and potentially cash costs; however, cash tax expectations should rise given the updated FY guidance .

Key Takeaways for Investors

  • Volume resilience with diversified basin exposure: Q3 production remained above the full-year guidance range, LOS wells +11% QoQ, and operator activity concentrated in Permian/DJ supports near-term volumes .
  • Profitability headwinds from pricing: Adjusted EBITDA fell 10.7% QoQ as unhedged realized oil prices declined; watch commodity trajectory and hedge effects into Q4 .
  • Guidance raised for volumes; cost and taxes mixed: FY2024 pro forma production guidance increased, Cash G&A guidance reduced, but cash taxes raised—update models accordingly .
  • Capital returns continue with balance sheet prudence: $0.47/share total capital returned; debt reduced ~$56.5M and liquidity at $455.5M; ongoing flexibility for opportunistic buybacks and acquisitions .
  • Structural advantages from consolidation and data: Larger operators and improved long-lateral drilling methods should sustain development pace; proprietary systems recovered ~$25M in missing payments, underpinning cash generation .
  • DJ Basin momentum: Multiple acquisitions add NRAs and wells, with management signaling superior DJ returns recently; expect continued deal flow and contribution to volumes .
  • 2025 tax modeling simplification: With credits exhausted, CFO’s guidance implies more predictable tax rate assumptions in 2025—reduce forecast volatility in models .