Q4 2023 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

Guy Oliphint; EVP & CFO; Permian Resources Corp

Scott Hanold; Analyst; RBC Capital Markets

Neal Dingmann; Analyst; Truist Securities

Gabe Daoud; Analyst; TD Cowen

Zach Parham; Analyst; JPMorgan Chase & Co.

Oliver Huang; Analyst; TUDOR PICKERING & CO. SEC

Leo Mariani; Analyst; Roth MKM

John Abbott; Analyst; Bank of America

John Annis; Analyst; Stifel Financial Corp.

Paul Diamond; Analyst; Citi

Phillips Johnston; Analyst; Capital One

Subash Chandra; Analyst; The Benchmark Company, LLC

Presentation

Operator

Good morning, and welcome to Permian Resources conference call to discuss its fourth-quarter and full-year 2023 earnings. Today's call is being recorded. A replay of the call will be accessible until March 13, 2024, by dialing 877-674-7070 and entering the replay access code 855841 or by visiting the company's website at www.permianres.com
At this time, I will now turn the call over to Hays Mabry, Permian Resources' Senior Director of Investor Relations, for some opening remarks. Please go ahead.

Hays Mabry

Thanks, John, and thank you all for joining us on the company's fourth-quarter and full-year 2023 earnings call. On the call today are Will Hickey and James Walter, our Chief Executive Officers; and Guy Oliphint, our Chief Financial Officer. Yesterday, February 27, we filed a Form 8-K with an earnings release reporting fourth-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 uncertainties that 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 and the forward-looking statements sections of our filings with the SEC, including our Form 10-K, which is expected to be filed tomorrow 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 that help facilitate comparisons across periods and with our peers. For any non-GAAP measure, we use a reconciliation to the nearest corresponding GAAP measure that 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, Hays. We're excited to share our fourth-quarter and full-year 2023 results, as Permian Resources was able to deliver another quarter of outperformance, closing out an incredible first year of operations under the PR name. I think that over the past five quarters, we've demonstrated just how good this Permian pure-play business is, operating efficiently on our core Delaware assets, executing on highly accretive deals, and continuing to demonstrate low-cost operatorship across the business, which all contribute to PR's industry-leading returns since inception.
As we look to 2024, we expect to continue maximizing shareholder value, and I want to take a moment to walk through how we think about value creation here at PR. Our relentless focus is on creating value on a per-share basis, and our team has positioned us to deliver a 2024 plan that's expected to generate peer-leading production, cash flow, and free cash flow per share growth without increasing leverage.
We're able to drive this outsized growth per share through PR's continued focus on being the lowest cost operator in the Delaware, our thoughtful capital allocation and development plan, and the highly accretive transactions we completed during the year.
In the midst of closing the Earthstone acquisition on November 1, the Permian Resources team was still able to deliver an outstanding fourth quarter across all metrics. Q4 production outperformed, with total production of 285,000 barrels of oil equivalent per day and oil production of 137,000 barrels per day, exceeding both internal and external expectations.
This production beat was attributable to three things. First and most significantly, we saw outperformance across the board between both PR and legacy Earthstone assets. Second, a reduction in downtime on legacy Earthstone assets led to higher-than-expected runtimes as the team realized operational synergies more quickly than planned.
Third and finally, our drilling and completion efficiencies continue to impress, bringing incremental wells and producing days into the quarter. Even with the increased activity, capital expenditures were in line due to per-unit cost reductions, leading to significant free cash flow outperformance in the quarter.
Our team was also able to transition seamlessly into integration and synergy capture mode in the fourth quarter, executing on our proven integration playbook while maintaining focus on driving low-cost leadership across the business. PR continued to increase operational efficiencies in the fourth quarter while integrating legacy Earthstone rigs and fleets into its program, contributing to overall program decreases in per-well unit costs that we've been able to carry forward into the full-year 2024 plan, culminating in a program average of $860 per lateral foot.
In addition, the team demonstrated strong controllable cost discipline, driven largely by lower LOE with controllable cash costs decreasing 8% quarter over quarter to $7.33 per BOE despite higher legacy Earthstone costs. Overall, our strong production and low-cost structure allowed PR to report $0.47 per share of adjusted free cash flow or $332 million in aggregate.
In addition to our focus on execution, we believe our portfolio optimization program will continue to drive meaningful value for shareholders. As many of you saw last month, Permian Resources announced a series of transactions which added 14,000 net acres and 5,300 net royalty acres in the core of the Delaware Basin, just three months after closing the $4.5 billion Earthstone acquisition.
Most notably, the two bolt-on acquisitions add over 100 high-return locations, directly offset our core Parkway position, which represents one of the highest returning assets within our portfolio. This is in addition to a sizable acreage swap, a non-core divestiture, and our ongoing ground game.
Importantly, when you combine all of our portfolio management efforts from the last year, our inventory additions more than replaced the wells we drilled on a standalone basis. We believe that excellent execution on these type of difficult transactions and smaller deals is a great path towards material improvements in our inventory position, NAV, and overall value proposition to stakeholders and will continue to be a key focus for us going forward.
Our excellent Q4 results and increased free cash flow allowed us to deliver total return of capital of $0.24 per share to shareholders during the quarter. We announced a $0.05 per share base quarterly dividend, and we are excited to be able to demonstrate sustainable base dividend growth as we plan to increase our base dividend by 20% to $0.06 per share next quarter.
In addition, we remain committed to paying 50% of the remainder of free cash flow to shareholders via dividends and or buybacks. And once again, we executed both methods of variable returns during the fourth quarter.
First, we repurchased a total of 5 million shares at an aggregate price of $13.32 per share for the quarter. And consistent with our framework, we announced an incremental variable dividend of $0.10 per share, bringing the all-in quarterly return of capital to $0.24 per share.
As I mentioned before, our team has absolutely hit the ground running with the integration and synergy capture phase of the Earthstone acquisition. We are well ahead of schedule, giving us high level of confidence that we'll be able to beat the original synergy target timeline laid out in August.
Importantly, drilling and completion costs and efficiencies are realized almost immediately at closing, with a 12% D&C savings per well already realized on the legacy Earthstone wells and more to come. I want to take a second to highlight the amount of effort that's gone to that 12% cost reduction per well since closing the Earthstone acquisition because it's not just swapping out rigs or changing a casing design.
Slide 6 shows around 10 drivers. But in reality, it's close to 40-plus small initiatives that add up to meaningful improvements. And our team has not stopped pushing on those efforts.
Two of the largest savings, drilling and completion efficiencies, have improved by 35% and 20%, respectively, versus historical Earthstone results, as equipment has been high-graded and best practices have been shared across the unified team. These faster drilling completion time has both reduced costs and improved returns by shortening cycle times.
Our field operations team has also made incredible progress on the LOE front, optimizing production operations in many large and small ways. We couldn't be more pleased with the synergy results to date and look forward to providing another positive update next quarter.
The same relentless focus on low-cost leadership that allowed us to maximize synergies in the Earthstone acquisition also allowed us to drive controllable cash cost to peer-leading levels. Our 2024 plan, which James will outline here in a minute, benefits from lower-than-expected all-in cost, with the combined business able to basically get back to PRs legacy cost structure despite higher historical Earthstone costs. Given the marginal nature of free cash flow, running a low-cost business is critical to supporting strong free cash flow per share generation.
With that, I'll turn it over to James to talk through the 2024 plan.

James Walter

Thanks, Will. Turning to slide 8, we're excited to discuss our 2024 development program, which is focused on maximizing returns and free cash flow per share through thoughtful capital allocation and efficient low-cost execution. Our plan is a result of a tremendous amount of work from every department at Permian Resources, and we want to thank our entire team for the work that went into this plan.
Our goal is to focus on high-return developments in the Delaware Basin that allow the company to maximize returns while ensuring we minimize any future well or location degradation. Fortunately, our robust inventory allows us to drill similar zones, areas, and packages to what we drilled in 2023 and, as such, achieve similar well productivity.
For the full year 2024, we expect total production to average between 300,000 and 325,000 BOE per day and oil production to average between 145,000 and 150,000 barrels of oil per day. We expect production to be in the lower half of the full range during the first half of 2024 and the upper half during the back half of the year.
Our capital program consists of approximately $2 billion, of which 75% is allocated to drilling and completion operations. We expect to turn-in-line 250 wells this year. The balance is primarily investments in infrastructure that positions PR to continue to drive value in 2024 and years beyond. In terms of CapEx cadence, we expect CapEx to be slightly front-half weighted.
Our drilling program is largely focused on our high-returning Delaware Basin asset, with a particular emphasis on the New Mexico portion of the Delaware, given the returns we're seeing from those assets today. The Midland Basin will not be a substantial part of our development plan in 2024.
As Will mentioned, we expect our controllable cash cost to be approximately $8 per BOE, which screens well relative to other operators in the Permian and is particularly impressive given the higher legacy cost structure that came over from the Earthstone assets.
Turning to slide 9, we wanted to concisely lay out how our business is getting better this year through the lens of capital efficiency-related metrics. Simply put, in 2024, we expect our cost to be lower and our well productivity to be the same or slightly better than last year, which is a winning combination.
We would also like to highlight that these improvements in capital efficiency do not come easy. Our team is focused on maximizing value by analyzing every input into our model on a per-unit basis and looking for areas to improve.
We moved very quickly and leveraging our increased size and scale to receive better pricing on key consumables, such as casing and sand. But some key input costs, such as drilling rigs and pressure pumping, remain at elevated prices as we head into 2024.
Our team continues to find ways to do more with less, and we're always looking for ways to tweak and optimize well designs and find that these individual changes only reduce cost by a percentage point or two, but the cumulative effect adds up to real dollars when multiplied over a 250-well program. This hard work drives our basin-leading cost structure and really makes a difference in our ability to extract as much value from every single asset as possible.
I'd like to conclude today's prepared remarks on slide 11, which helps to re-emphasize our value proposition for current and future investors. Since the formation of Permian Resources, we have delivered best-in-class returns for our sector and meaningfully outperformed the S&P 500. This outperformance was largely driven by successful execution, low-cost leadership, and accretive acquisitions. As a result, our business continues to represent a compelling value proposition against other large cap oil companies.
For some of the recent deals announced, there are fewer and fewer Permian pure plays solely focused on the highest returning base in the lower 48. It's worth emphasizing Permian Resources now fits to the new cost of large-cap peers with an enterprise value of greater than $15 billion and 100% of our business focused on the Permian.
It continues to be our belief that quality businesses such as ours with core assets in the Permian, efficient operations, and strong multiple -- strong production and free cash flow per share growth have room to re-rate to higher multiples. By continuing to cultivate and enhance these attributes through efficient execution and opportunistic transactions such as Earthstone, we believe that we can continue to create outsized value for shareholders and solidify our position as a leader in the energy 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

Thank you. Ladies and gentlemen, we will now start the question-and-answer session. (Operator Instructions) Scott Hanold, RBC Capital Markets.

Scott Hanold

Yeah, thanks. Great quarter, guys, and good to see those synergies coming in faster than expected. And if we turn to page 6, where you kind of walk down the Earthstone cost to where they're at right now, could you give us a sense of -- as you look at the current cost and bring that down to the PR legacy costs, what are really the areas where that difference is going to be occurring and how fast can you do those? And so is it drilling efficiencies, casing? What gets you to the PR well costs and how quickly can you get there?

William Hickey

Yeah. Look, I think we've made -- frankly, we've gotten here way faster than I thought we would be. If you think about the five Earthstone rigs that we picked up, we've already swapped out three of them just three months post close. And we're able to get our casing design implemented effectively day one.
We were in a fortunate position they didn't have a big backlog of casing that we had to chew through before we can start running our wellbore design and our casing. So that's how we were able to achieve dramatic cost reduction in just three months.
And if you think what's on to come, it's the -- it's not the pricing power. We've already implemented all that. It's more to go build the last bit of efficiencies across all the Earthstone equipment.
So we've got two more rigs we'll have to either get up to our standards or swap out over time. We'll have to continue to drive a few more efficiencies on the drilling and frac side, but we're more than halfway there to where we're trying to get to. And we've done that in just three months. So I'd say we're feeling really good about both the absolute quantum of dollars that we'll be able to cut from the Earthstone well costs and also the time to get there.

Scott Hanold

Understood. And as we think about the 2024 activity and budget, it looks like it's maintaining your current pace coming into the year. But with you all seeing better efficiencies and performance, you obviously pulled a few wells into 2023. Would that allow you guys to reduce the well count next year and the rig count? Or would you guys just produce at a higher level if your efficiencies continue through next year? So it's really a question on pace of next year. And if you keep going faster, will you just keep rolling through that?

William Hickey

Yeah, I think there's two (inaudible) that I'll give. First, as we think about pace of activity, I'd say just as our business has gotten bigger and working interest moved around a little bit, we're much more focused on the total quantum of dollars that we want to reinvest. What is the capital dollar budget? I say that's how we're thinking about activity.
I think as you follow this year, we've got 12 rigs running today. And you could see that number move up and down around 11 to 12 throughout the year, just as we're optimizing both the rig fleet as we continue to swap out and bring in better rigs, but also optimizing around larger [pats], et cetera. So more of a focus on -- I think you'll see a relatively consistent capital profile around that total capital budget of $2 billion.
And then, yeah, as you get to year end and you get to these weird things where, are we going to -- if we bring wells in the quarter, are we willing to spend more and what not? I'd say we'll take it on a case-by-case basis. But historically speaking, when our per-unit costs are the lowest they've ever been because efficiencies are the highest they've ever been and returns are very, very good, like they were in Q4 just two or three months ago that, we lean towards -- we'll go ahead and kind of bring the extra wells on at the value the business focused on the long term as opposed to doing some kind of cute things on a quarter-to-quarter basis.

Scott Hanold

Great. Makes sense. Thanks.

Operator

Neal Dingmann, Truist.

Neal Dingmann

Good morning, guys, and thanks for the time. My first question, just going right to well productivity, looking at slide 10. Specifically, Will, I'm just wondering. How repeatable is this production not only in Lea and Eddy Counties? But maybe you could go down into Texas. And then I'm just wondering, is -- you continued the plan throughout this year and maybe more into next year and '26. Should we assume more child wells or the same mix as you've always had?

William Hickey

No, I think it'll be very, very similar. I can speak very specifically to '24 to '25 because we've already got basically '25's scheduled all lined out. And it's a very, very similar well mix. Our development methodology really hasn't changed from 2022, 2021, 2023. Now, you're seeing it in '24, and I'd expect you'd see this again in '25 and '26.
Just -- we are methodically marching across the position, joining the right-sized pads to make sure to minimize any future degradation. And you're seeing that flatten out the capital efficiency. So should be quiet, no story. No news is good news on the well productivity side for us for the years to come.

Neal Dingmann

That's fantastic. And then, well, for you James, just on -- my second was just on your ground game yields. While you've done a great job, Earthstone and some larger deals which have been really notable, could you speak to the degree of upside that the bolt-on trades and grassroot efforts will continue to provide? It seems like that certainly was a big deal even here recently.

James Walter

Yeah. We obviously put out that release in January that went through all the detail of the slide in the back here. But I think our ground game in the Delaware is awesome. We've got an incredible land team, an incredible business development team, that every day are out there, doing deals, looking to accretively add acreage in places a lot of people aren't looking. So really cool.
Some stats -- I mean, I think you've seen this. But we did 145 acquisitions last year that added almost 17,000 net acres to our position. And I think that's just a little piece of the pea, our secret sauce, that drives value in a different way than I think a lot of our peers are. But it's something we think we can continue to do, I'd say, those small deals.
The pipeline still feels really good for 2024 and 2025. And I think we're confident we continue to get the right deals done at the right prices.

Neal Dingmann

Great, guys. Thanks.

William Hickey

Thanks, Neal.

James Walter

Thanks, Neal.

Operator

Gabe Daoud, TD Cowen.

Gabe Daoud

Thanks, guys. Thanks for taking my questions. I guess what I would like to hit on first is just -- you talked about the increasing pad size. And you obviously highlighted the target that you'll be going after in the Delaware. I was just wondering if you could, overall, refresh our memory on where the pad size or project size is going this year relative to last year and then just what the spacing looks like for this year?

James Walter

In the Delaware?

William Hickey

Yeah. I mean, it ends up being a couple wells per pad bigger than where we were last year. But this isn't really a change in kind of spacing or anything from a development perspective. It's more just as we look at the footprint of the acreage we're drilling, we've got some wider fairways than maybe we had the year before, which calls for slightly larger pads. So it's factually correct.
Our average pad size will be a couple of wells higher this year than it was last year, but I wouldn't view that as any bit of a change in the development philosophy. It's more just the acreage that we're drilling this year calls for slightly larger pads to keep with a consistent development methodology and really nothing more than that.

Gabe Daoud

Okay. Got it. Understood. Thanks for that. And then I guess as a follow-up, could you maybe just talk a little bit about that 25% non-D&C capital, what kind of infrastructure projects? And is that a similar level of spend we should expect on infrastructure in '25 and beyond?

William Hickey

No. Look, really, what it is this year is it's a little bit of catch-up on the Earthstone side, just some stuff where we want to go build out some batteries and some stuff PR way. So there's a little bit of incremental catch-up cost this year with Earthstone and a little bit of -- some of the gathering side to make sure that we're continuing to have really, really good takeaway in New Mexico, like we've always had.
But I think of it more as kind of one time in nature. And as you look forward, we're probably back to that, I don't know, 15% or something like that on a total percent of capital budget for infrastructure spend.

Gabe Daoud

Cool, got it. Thanks, guys.

Operator

Zach Parham, JPMorgan.

Zach Parham

Morning, guys. Thanks for taking my question. First, we've heard from some of your peers about some natural gas processing tightness in New Mexico that's been a headwind. Has this been an issue for you all at all? And maybe talk about how you've managed this issue and if you see anything impeding the '24 program as far as a processing standpoint.

William Hickey

Zach, I mean, we're in a really fortunate position that we've got the right long-term midstream partners in New Mexico -- we said in our calls in the past that fortunately, we're part of some of the biggest and best natural gas processors and transporters in the basin. That's both in New Mexico and Texas.
And looking back historically, we've really never had any issues and don't foresee anything going forward. I think that's just being in the fortunate position to have the right partners in the right places, but we don't doesn't foresee any issues whatsoever on the midstream side.

Zach Parham

Thanks. And my follow-up is just on cash taxes. You guided to $75 billion in cash taxes for 2024. Could you give us some color on how you expect cash taxes to trend in 2025 and in future years?

Guy Oliphint

Yeah. I mean, we'll start getting closer to a normal-course cash taxpayer beginning in '25. We have some sensitivity in '24 oil price, obviously. But we have NOLs today, a meaningful portion of which, we're using. And we'll start turning to more cash taxes in '25 and beyond.

Zach Parham

Thanks, guys.

Operator

Oliver Huang, TPH.

Oliver Huang

Good morning, all, and thanks for taking my questions.

James Walter

Morning, Oliver.

Oliver Huang

Great quarter. And you all have obviously done a good job with integrating the Earthstone assets ahead of schedule. But I just wanted to see if you all might be able to provide some incremental detail to help us better understand the drivers of LOE moving sustainably lower for both Q4 and for the 2024 guide being so quick, just kind of looking at where the figure was just six months or so ago from the standalone Earthstone business.

William Hickey

Yeah. I think the big drivers of LOE, there's two or three things that we're working on. I'd say one, just to give there Earthstone team some credit, their LOE was improving quarter over quarter pre-close. I mean, it was -- I think we've applied some best practices and some things that have helped accelerate that and maybe have a slight step change from where it was headed. But that LOE was coming down on its own, so there's a little bit of tailwind there.
I'd say secondly, just the overall production profile in Q4 and go forward helps. A bigger denominator, obviously, is going to help on the LOE side. And then probably, the more sticky stuff would be what we're doing on the water disposal side and how we're addressing failure rates and really optimizing artificial lift for the right well set.
We've got the best practices at PR. We're not a blanket gas-lift company. We're not a blanket ESP company. We're not a blanket (inaudible) company. It's really a -- we challenge every engineer over every area to -- it's build to suit. It's built with the right lift that the well needs, which will give better run times and lower LOE.
And we've been really successful. You could go out to a PR pad across the Delaware. You may see a different lift type and two wells that are very close to each other in the same area because that's what they call for. And we're starting to see the benefits of that pretty quickly.
So there's a lot more to come there. Look, I think that we can do some stuff on the water disposal side in a bigger way. We've had some quick wins, where we had good water contracts or good water disposal solutions or water recycling solutions in areas that Earthstone wells didn't have that time and was right [offset] us. But go forward, I'd expect we'll continue to tackle the LOE side on the -- really with the respect to water.

Oliver Huang

Okay. That's certainly helpful. And maybe for a follow-up. I mean, definitely good to see some of the drilling and completion efficiency improvements starting to be realized right off the bat for Earthstone. But just with understanding that there's still solid running room to converge those well costs towards the legacy PR business, just wanted to see how much of that future benefit has already been taken into account when looking at the D&C budget that you all laid out for this year.

William Hickey

It is taken into account. So I'd say from what we have line of sight on, expect to get all of it. Obviously, we're hopeful in doing everything to try to get more. But the budget does take into account the synergies that we have achieved to date and expect to achieve between now and year-end.

Oliver Huang

Awesome. Appreciate the color, guys.

James Walter

Yeah. Thanks, Oliver.

Operator

Leo Mariani, Roth MKM.

Leo Mariani

Hi, guys. You had very, very strong production here during fourth quarter. And I was hoping you could provide a little bit more detail. I mean, did you get some extra wells on? Were there some extra non-op benefit?
Obviously. you just had very strong growth in both oil and in total volumes. And I guess my understanding was that you maybe had quite a fewer wells down the [trend line] this quarter versus last, but perhaps I'm mistaken. So maybe you could just provide a little bit more color on the dynamic there.

William Hickey

Yeah. I mean, I tried to address some of it in the script, Leo. I'd say the biggest driver would just be well outperformance. The legacy Earthstone wells and the PR wells you brought online in the quarter just outperformed even our expectations. So that's going to be more than half of the volume beat for the quarter.
The balance is going to be made up of -- we're able to make some material progress on downtime on the Earthstone assets in Q4, a step change in less downtime. So better runtime than what we had budgeted for and what we've seen historically, which really helps with Q4 production.
And then lastly being we did bring some more wells in the quarter. I don't know the exact numbers. It was a couple of wells, so a couple of wells with some meaningful amount of producing days into the quarter that were expected to be in '24. And again, that's just going to be -- we didn't expect to start drilling 35% faster and fracking 20% faster on the Earthstone assets effectively day one, and we were. So that just brought some activity into the quarter.

Leo Mariani

Okay. That's helpful in terms of all that color. I mean, just looking at 2024, I think you guys had mentioned that CapEx is a little bit front-half weighted. You generally expect it to decline during the course of the year. And I'm guessing production is maybe a little bit of a mirror of that. Would you generally expect first quarter to be low on production and to build a bit throughout the year? Just any color you have around the cadence in 24 will be helpful.

James Walter

Yeah, I think how you said it is right. CapEx is a little bit front-half weighted and production's a little bit back-half weighted, but it's not giant swings. I'd say it's pretty modest, but what you said was just right.

Leo Mariani

All right. Thanks, guys.

James Walter

Thanks, Leo.

Operator

Doug Leggate, Bank of America.

John Abbott

Hey, good morning. This is John Abbott on for Doug Leggate. Thank you for taking our questions. My first question is just on your Midland position. Just, what is your current production on that position? And then just given the continued interest in Permian assets, what is your latest thoughts on what you do with that position and also the possible timeframe?

James Walter

Yeah. So the Midland position's about 20,000 barrels of oil per day and about 60,000 BOE a day. And it's a great cash flow business. I think the Earthstone team and our PR team have that in a really good place, where we've got consistent low declines, low cost, et cetera.
So we like having it. I think I'd say we're doing a couple of wells on that asset the first half of this year. And I'm pretty excited of what our team has done to date just on the cost side. I think there could be some meaningful cost reductions there that are a big boost to the value of that asset.
But I think over the long term, we've been really clear we're a Delaware Basin-focused business, and that's where the majority of our capital, our time, and our energy are focused. So I don't think we're going to do anything strategic with the Midland Basin asset in the near term. But I think over time, as we better understand that asset, if there's ways to extract more value other than owning it, I'd say we're all ears. But I'd say that's probably down the road, most likely a 2025 type of thing if were to do anything at all.

John Abbott

Appreciate it. And then for our follow-up question, while it is not your focus necessarily, how do you think about long-term maintenance CapEx? I mean, do you look at the midpoint of your guidance of several million dollars or less than that? How do you think about long-term maintenance CapEx for your business?

William Hickey

Yeah, I think that's right. I mean, just given all of the integration and acquisitions over the last six months, it's hard to peg what production level you're calling maintenance. But I think if you're going to predict -- peg where we were in Q4 or where we'll be in Q1 and then maintenance CapEx to be exactly what you said, I think it's about $200 million less than the midpoint of guidance, something like that.

John Abbott

All right. Thank you very much for taking our questions.

James Walter

Yeh. Happy to, John.

Operator

John Annis, Stifel.

John Annis

Hey, good morning, guys. Congrats on the strong quarter. For my first question, digging further into your comments around on downtime, what was Earthstone's primary source of downtime and what were some of the specific practices in the field you've implemented to minimize it?

William Hickey

Look, there's two ways to attack downtime. One is lower failure rate. Just the easiest and most sticky, best thing to do is lower failure rate. And although I think that is in progress, that takes a little longer. And the second is when wells go down, you just get on quicker. Try to have turnaround time on a well that fails a day or measured in a day or measured in hours, not measured in a week or weeks.
And well, it's a little bit of that. It's a little bit of what I said. There's some tailwinds on the Earthstone assets. The team have done a good job of starting to address some of these problems over the last six months. So we stepped in at a time where we were set up to succeed.
And I think the people on the Earthstone team that have become part of the PR team were excited to do things the PR way and really jump head first into it. And so we think that the low-hanging fruit, things like that -- I think where we'll go get now is hopefully really start to improve run times, which is the best way to lower LOE and increase the runtime.

John Annis

Terrific. For my follow-up, referencing slide 7 and where you stack up against peers in terms of cash costs, it's quite impressive, especially with the Delaware being a little heavier in water production. What's your sense of the biggest delta between you and other Delaware operators?

William Hickey

I think -- I mean, what helps us, if you compare to other operators in general -- one is we don't have a lot of old vertical wells. We've got relatively clean, new horizontal production, which really helps keep costs down. I think it's a great asset of ours. We don't have a lot of vertical wells that increase the cost structure.
And we have great assets. If you think about where our assets sit within the Delaware Basin, although I think it's a fair statement that there's more water on average, we're in some of the oiliest places in the whole basin on an oil cut percentage. We're not at any places that have -- are very few (inaudible) like high H2S treatment, not something like that.
We are in the (inaudible) core of the basin. I mean, look, this is what we do. We are a low-cost operator. We focus on controlling the things that we can control. We try to be the lowest on the D&C side, the lowest on the LOE side, and the lowest on the G&A side. And so I think that's what shows up here.

James Walter

And I think the only thing I'd add to that is we have a real awesome culture in the field with an ownership mindset. I think we spend a lot of time answering questions on management ownership, management stock, et cetera.
And I think that's what's honestly probably more impactful to that is that ownership mindset in the field, where our team is incredibly proud of what they do and work incredibly hard in the field to fix wells as soon as they go down and waste no time, waste no effort, and getting the right things to run the business the right way done. So I think it's that ownership mindset that we've talked about a lot [of the talk], but really permeates through the entire Permian Resources organization that -- I don't think that gets enough credit.

John Annis

Great color. Thanks for taking my questions.

Operator

Paul Diamond, Citi.

Paul Diamond

Thank you. Good morning. Thanks for taking my call. Just a quick one on valuation. You talked about the potential opportunity for you and similarly sized peers to re-rate versus the larger. Just wanted to get your -- get a bit more detail on what type of catalyst do you think or you anticipate to see to close that gap?

William Hickey

Yeah. I mean, I think for us, it's all about execution. I think the market has started to realize the quality of our business, looks a lot more like the other Permian pure plays than other large caps, albeit at a smaller scale. But I think over time, as we can continue to execute quarter in, quarter out and year in, year out, I think that that re-rating happens on its own. I think it's too obvious to miss. And the most important thing for us is to execute and continue to be the lowest cost operator at the Delaware.

Paul Diamond

Understood. Thank you. Just a quick follow-up. As you guys are thinking about the go-forward cadence on D&C improvement, you're already catching that 12%. You note some more is coming from the full integration of Earthstone. I guess I'm trying to get understanding of your guys' view on the quantum you can expect going forward, into late '24 and '25 and beyond.

William Hickey

I think it is (inaudible) to think about. I think on the Earthstone assets specifically, we expect, over the coming months, those costs to converge with the legacy PR costs, where we don't really talk about legacy Earthstone or legacy PR anymore. It's just these are Permian Resources well cost by area, and that's well on its way and expect to be there in short order.
And then what does that mean for absolute PR D&C cost? What we laid out is this $860 a foot is the guide for the year this year, and that's based on what we're seeing real time today. So we're not baking in further efficiencies or further deflation. I think there's -- we're hopeful we'll get a little bit of each of those over the coming years. But again, we've made a ton of progress recently. I think we more expected to see that kind of gradual decreases in costs, no more of the step changes seen in the last four quarters.

Paul Diamond

Understood. Appreciate the clarity. I'll leave it there.

James Walter

Thanks.

Operator

Phillips Johnston, Capital One.

Phillips Johnston

Hey, guys. Thank you. First, just to follow up on Neal's question on well productivity. Slide 9, you show an expected 3% increase in your average productivity this year (inaudible) from the Delaware. Is that mainly a function of the geographic mix shifts with 70% of your activity on towards Mexico versus the 40% last year or were there other factors driving that?

James Walter

No, well mix should be the biggest factor there. You're spot on.

Phillips Johnston

Okay. I assume that's all baked into your '24 guidance, right?

William Hickey

Yes.

Phillips Johnston

Yeah? Okay. And then just last question, just the next 12 months PDP decline, that (inaudible) assumed in your year-end 23 reserve report. And would you expect that decline rate to change significantly between now and the end of this year?

William Hickey

Sorry, what's the second part of your question? Can you just repeat that real quick?

Phillips Johnston

Yeah, just -- I'm looking for just a PDP decline rate that (inaudible) assumed in your reserve report? And then I said the follow-up, would you expect that decline rate to change significantly between now and the end of this year?

William Hickey

I can't say I've read what (inaudible) reserve report says, but I can say what we say. It's low to mid-30s on a BOE decline.
And then, do I expect it to change? Sure, yeah. Every year, it should -- especially years where we're not having the significant amount of growth like we had last year, you'll see that decline will slowly arrest. I don't assure it's going to be super significant, but yeah. That decline will continue to shallow out between now and year end.

Paul Diamond

Yeah, okay. Makes sense. Thank you.

Operator

Subash Chandra, Benchmark.

Subash Chandra

Yeah. Thanks, guys. The 150-ish type transactions, 17,000 acres are, I think, the metrics you threw out. What do you think the dollar per location map has worked out to?

James Walter

We haven't -- we potentially haven't published that in a lot of these especially smaller transactions, I think there's probably some competitive dynamics that are important to keep tight to the vest and some -- frankly, some confidentiality there. But I would say the dollar per location is going to be in the pretty low single-digit millions, if that gets you in the right direction.

Subash Chandra

Yeah. Yeah, I guess directionally, that's cool. And then secondly, on the integration costs, are they all done at this point? Or should we see anything flow into '24?

James Walter

Well, it's [20] -- about 20 in the first half of the year.

Subash Chandra

Another $20 million?

James Walter

Yeah, and then done.

Subash Chandra

Got it. Okay.

Operator

There are no further questions at this time. I will now hand the call back to James Walter for closing remarks.

James Walter

In closing, I just want to say that we believe our Q4 '23 results and our 2024 go-forward plan speak for themselves and demonstrate just how good our Permian business is. As the lowest cost operator in the Delaware Basin, we believe that we are positioned to continue to generate significant returns for our shareholders as we build our track record of consistent low-cost execution, year in and year out. Thanks to everyone for joining the call today and following the Permian Resources story.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.