Granite Ridge Finally Turns — With an Assist From Waha

Granite Ridge Finally Turns — With an Assist From Waha

Granite Ridge Resources has spent four straight quarters telling investors that 2026 would be the last year it outspent cash flow and that 2027 would be the payoff. On Thursday the $698 million Permian non-operator delivered the first receipt.

For the last year, we have told you that 2026 is the final year we invest ahead of our cash flow and that 2027 is the turn. This quarter, you can start to see the turn in our numbers.

The numbers are, on their face, the best the company has produced as a public entity. Adjusted EBITDAX of $107 million rose 35% sequentially and 36% year over year. Oil volumes grew 16% while headline production rose 8%, and the oil mix climbed from 51% to 54.7%. Capex stopped outrunning operating cash flow, and management used the occasion to do something it has never done: define the free cash flow it has been promising.

We define adjusted free cash flow as operating cash flow before changes in working capital. Less development capital expenditures. Acquisitions are not included in that number. On that basis, we generated $13.7 million of adjusted free cash flow in the third quarter.

The Turn, or the Gas Price?

Here is the tension investors should sit with. Strip out the story and look at the arithmetic: total production grew 8%, yet EBITDAX grew 35%. The difference is largely natural gas. Realized gas went from $1.12 per Mcf in Q2 to $3.46 in Q3 as Waha Basis recovered from record lows — 38% of Henry Hub in the second quarter to 121% in the third. Gas sales went from $9.6 million to $30 million.

That is not a Granite Ridge execution story; that is Permian takeaway capacity arriving. And it is worth remembering how recently management was modeling the opposite. In May, the CFO described the forward curve thus: “The strip is much better but still negative around a dollar or so.” — Kyle Kettler, Chief Financial Officer or similar executive role · 2026-05-08 Three months of basis recovery did in one quarter what a rig program could not. The stock's own tape reflects the relief — a +19.7% ninety-day run into the print, with the shares peaking at $5.91 on October 26 and still down roughly 47% from the 2021 high.

Costs, meanwhile, moved the wrong way — quietly. Lease operating expense improved to $9.43 per BOE from $10.27, but guidance was raised to $9.25–$9.75, and cash G&A went from $28 million to $30 million. “We still consider the dollar per BOE high.” — R. Kyle Kettler, Chief Financial Officer · 2026-11-06 This is the same saltwater-disposal and water-cut problem flagged a year ago, still unresolved. The keyword trail tells the story of attention shifting: unit cost was the single highest-ranked theme on the second quarter's call and has since slid into the decliner column — the discussion has moved on, the expense has not.

A Third Partner, and the Price of Inventory

The strategic news is the naming of the third Permian operating partner, RedTalon Creek Resources, an Arete-affiliated, Midland-based team whose principals drilled more than 200 horizontal wells at Jerry Resources and whose business development group has executed over $8 billion of upstream transactions. This closes a loop opened in August, when Tyler Farquharson said: “I think probably later this year we'll be in a position to share a lot more information on those partners.” — Tyler Farquharson, President and Chief Executive Officer · 2026-08-07 They did. Arete spud its first well in October and is expected to run a rig through 2027.

The economics remain the franchise's core claim: net location cost of roughly $2.4–2.5 million in the Permian, sourced through partner ground game rather than marketed processes. But note the nuance analysts caught — the average crept up sequentially, and the explanation was mix, not inflation: “those wells in the Utica are you know, 15 thousand you know, 20 thousand-foot average lateral.” — Tyler S. Farquharson, President and Chief Executive Officer · 2026-11-06 The company is quietly building a second engine in the Utica, over 6,000 net acres and about 3,000 BOE/d from 100-plus gross wells, funded out of the traditional non-op bucket.

The Buyback Meets the Overhang

The $35 million repurchase authorization is the more interesting capital-allocation signal, because it is aimed squarely at a known structural problem. Grey Rock distributed 14 million shares to fund LPs in August, holds roughly 39%, and has signaled more distributions are coming. Granite Ridge is no longer a controlled company, but it still has a sponsor-shaped supply of stock.

Management was unusually direct about the valuation embedded in that decision: “we are trading at less than 2.5x, you know, 2027 consensus.” — Tyler S. Farquharson, President and Chief Executive Officer · 2026-11-06 At roughly 5% of market cap, the authorization is a toe in the water, not a tender — but it converts the overhang from a pure threat into a buyer of last resort, and in doing so it changes who the marginal shareholder is.

What the Balance Sheet Still Owes

The uncomfortable footnote to the whole story is that this growth was financed with debt, and the leverage metrics show it plainly. effective net cash has deteriorated for two straight years to a net debt position of roughly $431 million; management pegged net debt at $417 million and leverage at 1.3x, improved from 1.4x. Interest coverage sits near 3.5x versus over 200x in 2022.

The revenue base is growing — total revenue rose 37% year over year, on data filed in August, one quarter behind this call. The bet is that the same cash flow that funded the balance sheet can now retire it. Kyle Kettler's 2027 framing is deliberately hedged — well in excess of the third quarter annualized — and rests on three legs: moderate growth, heavier oil weighting, and hedged books rolling off (Q3 carried a $52.7 million derivative loss, $31.8 million of it unrealized). Two of those three are commodity bets.

For a market whose editorial keyword set this quarter is dominated by tariffs, AI infrastructure and Fed policy, this is a resolutely idiosyncratic story — the long dated barrel economics, the Waha basis, the sponsor distribution schedule. It never appears in a global top-75. That cuts both ways: no sector wave to ride, and no sector wave to hide behind. Granite Ridge has about two quarters to prove that the capital changes inflection it just reported is a slope rather than a data point.