Presidio (FTW) Q3 2026 Earnings Call Transcript

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DATE

Friday, Nov. 13, 2026

CALL PARTICIPANTS

• Director of Investor Relations - Connor Fair
• Chairman and Co-Chief Executive Officer - William Ulrich
• Co-Chief Executive Officer and Director - Christopher Hammack
• Executive Vice President and Chief Financial Officer - John Brawley
• Executive Vice President and General Counsel - Brett Barnes

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TAKEAWAYS

• Net Production -- 26,133 barrels of oil equivalent (BOE) per day, representing a 15% increase from the second quarter primarily due to the addition of Canyon Creek assets.
• Adjusted EBITDA -- $29.1 million for the third quarter, which aligns with management's previous guidance.
• Net Loss -- $46.4 million attributable to the company, reflecting a $66.5 million unrealized non-cash loss on the commodity hedge book.
• Quarterly Dividend -- $0.375 per share, representing an annualized rate of $1.50 per share and an 11% increase from the previous $1.35 annualized payout.
• Lease Operating Expense -- $9.10 per BOE, down from $9.39 per BOE in the second quarter.
• AI Production Contribution -- 3.2% production uplift in the third quarter, tracking within the full-year 2026 target range of 3% to 5%.
• Leasehold Sales -- $17 million in proceeds year to date, including $2.1 million in the third quarter and $7.1 million in the fourth quarter so far.
• Net Debt -- $349.4 million as of Sept. 30, resulting in a leverage ratio of 2.8 times based on the last six months of adjusted EBITDA annualized.
• Liquidity -- $97.4 million at quarter-end, consisting of $37.4 million in unrestricted cash and $60 million in undrawn reserve-based lending capacity.
• Core Debt Interest Rate -- 6.38% fixed on $344 million of asset-backed securities (ABS) debt established in June 2026.
• Blended Interest Rate -- 6.6% effective interest rate across all debt after fixing 75% of the warehouse facility rate via a floating-to-fixed swap.
• Canyon Creek Integration -- 32% projected reduction in lease operating expenses through chemical program changes, labor optimization, and compression removal.
• Acquisition Pipeline -- $17 billion of identified actionable targets across three basins.
• Total Operating Expense -- $11.09 per BOE, which includes production taxes of $1.46 and ad valorem taxes of $0.53 per BOE.
• Capital Expenditures -- $400,000 for the quarter, reflecting the company's low-reinvestment business model.
• Workover Program -- 37 jobs completed in 2026 that delivered 8% more production than forecast at 13% less cost.
• Bolt-on Acquisition -- $4.3 million working interest addition in Arkoma Basin properties executed subsequent to the close of the third quarter.
• RBL Borrowing Base -- $60 million as of Sept. 30, with a projected reduction to approximately $45 million expected during the winter redetermination.
• AI Plunger Lift -- 25 wells currently utilizing AI-controlled cycles, with the pilot program being evaluated for broader rollout.
• Well Reactivations -- 10 reactivations planned by the end of 2026 after AI analysis identified shut-in wells that are profitable at lower water disposal rates.
• Total Revenue -- $57.3 million, representing a 6% increase from $54 million in the second quarter.
• Production Mix -- 13% oil, 58% natural gas, and 29% natural gas liquids.

SUMMARY

Presidio Production Company (NYSE:FTW) reported net production of 26,133 barrels of oil equivalent per day and increased its annualized dividend to $1.50 per share. Management stated that the company's strategy focuses on acquiring long-life, producing assets and applying an internal operational engine comprising engineering expertise and artificial intelligence. The integration of the Canyon Creek acquisition contributed to a reduction in lease operating expenses to $9.10 per BOE. The company identified $17 million in year-to-date leasehold sales as a source of profit from undeveloped acreage.

• Management reported that AI initiatives, such as production surveillance and weekend coverage programs, contributed a 3.2% production uplift without additional capital spending.
• The company established a dedicated product engineering team and launched "The Gauntlet," an agentic software development platform, to accelerate the delivery of internal intelligence modules.
• CEO Ulrich stated, "We buy assets, then we install our engine with the 3 things that no one can sell us," referring to operational expertise, technology, and acreage monetization strategy.
• Management identified a theoretical production gap of approximately 15% between current well performance and maximum potential, which defines the long-term target for AI optimizations.
• The company intends to monetize undeveloped inventory through joint ventures and acreage sales, marketing drilling opportunities to outside operators while retaining carried interest and royalty overrides.
• Co-CEO Hammack noted that the pilot program for AI-controlled plunger lift on 25 wells is providing data that may enable predictive settings for wells without specialized hardware.

INDUSTRY GLOSSARY

• ABS Warehouse Facility: A $1 billion credit facility used to fund acquisitions prior to their long-term securitization into asset-backed securities.
• BOE: Barrel of oil equivalent, a unit of energy representing the energy content of one barrel of crude oil.
• L6A: Last six months annualized, a metric used to calculate the company's leverage and adjusted EBITDA performance.
• Mainspring: The company's proprietary operating system used to integrate artificial intelligence agents into oil and gas production management.
• PDP: Proved developed producing, a category of oil and gas reserves currently being recovered from existing wells.
• RBL: Reserve-based lending, a revolving credit facility where the borrowing limit is determined by the value of the borrower's oil and gas reserves.
• WTI: West Texas Intermediate, a grade of crude oil used as a primary pricing benchmark in the United States.

Full Conference Call Transcript

Operator: Good day, ladies and gentlemen, and thank you for joining us. Welcome to the Presidio Production Company's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now hand the call over to Mr. Connor Fair, Director of Investor Relations. Please go ahead, sir.

Connor Fair: Good morning, and welcome to Presidio Production Company's Third Quarter 2026 Earnings Conference Call. I'm Connor Fair, Director of Investor Relations, and joining me today are our Chairman and Co-CEO, Will Ulrich; Co-CEO and Director, Chris Hammack; Executive Vice President and CFO, John Brawley; Executive Vice President and General Counsel, Brett Barnes. We released our third quarter results yesterday after the market closed. An updated investor presentation is available on the Investor Relations section of our website at ir.bypresidio.com. As a reminder, today's call includes forward-looking statements.

These statements are based on management's current expectations and assumptions and are subject to risks, uncertainties and other factors, many of which are beyond the company's control that could cause actual results to differ materially from those expressed or implied on this call. For a discussion of these risks, please refer to the cautionary language in yesterday's earnings release and the risk factors in our filings with the SEC, which are available on the Investor Relations section of our website. We will also refer to certain non-GAAP financial measures, including adjusted EBITDA, net debt and leverage. The most directly comparable GAAP measures, together with definitions and reconciliations are included in yesterday's earnings release.

With that, I will turn the call over to Will.

William Ulrich: Thank you, Connor, and good morning, everyone. A few weeks ago, I was in Austin for the United States Grand Prix. While I enjoyed the speed and the scene as an F1 newbie, I was really struck by the teamwork and strategy and by how every team on the grid answers the same question: what do we buy and what do we build? Take Mercedes. In early 2009, Honda pulled out of Formula 1 and walked away from a team it had spent years and a fortune building. Ross Brawn bought that team for a reported GBP 1, and that season, it won both world championships. At the end of 2009, Mercedes bought the champion.

Then it put its own engineering into the one thing nobody could sell, the engine, and built a hybrid power unit. Starting in 2014, Mercedes won 8 Constructors' Championships in a row, a record in the sport. In Austin, I got to see that team up close. I enjoyed watching Toto Wolff, who runs Mercedes, being interviewed in the paddock and I got to meet some of the Mercedes team under the podium. Stood out to me how calm and precise and happy they all were. But what I really took from Austin is this, you don't win by building everything from scratch.

You buy a platform and then you use the skills that are uniquely yours to make it more valuable than anyone else could. Mercedes didn't invent that team. It bought it and then it made it the best in the sport. That is Presidio. This industry has spent 150 years and trillions of dollars proving it can drill. Those wells already exist. They're producing today. Someone else paid for the learning curve. So here's how we think about it. We buy assets, then we install our engine with the 3 things that no one can sell us. The first is our operational expertise. That's our engineers, our field teams and the discipline they bring the day we take over.

We cut costs, reduce downtime and pick better workovers until the wells make more cash flow than they did before we owned them. The second is our technology layer, the intelligence that sits on top of every well we operate. It watches each well against what it should be producing, advises the field what to fix first and gets smarter with every well we add. The third is how we create value from acreage. We monetize it through carried interest, joint ventures and acreage sales. So someone else spends the drilling capital, but we still generate upside.

That approach has already generated more than $100 million as a private company and $17 million so far in 2026 as a public company. Mercedes bought a team and built an engine. We buy wells and we install our engine, the operations, the technology and the acreage strategy that make them worth more. In our model, that's where the race is won. On to the quarter. I believe a public company owes its shareholders a clear thesis and proof that it's working. This quarter, we have continued to deliver both. We offer one of the highest dividend yields on the New York Stock Exchange, backed by stable PDP cash flow and a clear framework for growing it.

We said we would raise the dividend on realized cash flow. With a full quarter of Canyon Creek in the numbers, our Board declared a third quarter dividend of $0.375 per share or $1.50 annualized, up from $1.35, and that increase comes from the contribution of Canyon Creek. We grow the dividend through acquisitions. We buy producing assets at levered returns well above our cost of capital. So each deal adds long-term shareholder value. Canyon Creek closed in July as the first draw on our ABS warehouse and integration is complete, and our acquisition pipeline continues to be deep. We optimize those acquisitions by dropping in our engine.

Every well we buy gets the same thing, our operations, our technology and our acreage strategy. On operations, we create alpha after we buy. For our 2 acquisitions so far this year, we've cut operating costs by about 30% at EQVR, and we project 32% at Canyon Creek. This quarter, lease operating expense was $9.10 per BOE, our lowest of the year. We produced 26,133 BOE per day, our highest quarter as a public company, and we have had 0 safety incidents in 2026. Our workover playbook targets returns above 50%. This year the wedge workover program has completed 37 jobs, which has delivered 8% more barrels than we forecast at 13% less cost.

On technology, we said FTW Technologies would grow production 3% to 5% this year without drilling a well or spending capital. In the second quarter, we reported 2.3%. In the third quarter, we're at 3.2%. We're inside our target with a quarter to go, and the programs coming online now put our exit rate potential at around 4%. In October, the first of the idle wells on our piped water system came back online and 10 more reactivations are planned by year-end. This is an AI-generated project that identified and modeled a business case for bringing wells back online economically. Chris will have more on this.

And on acreage, we've completed $17 million of leasehold sales so far this year, including $2.1 million in the third quarter and $7.1 million so far in the fourth. That's the engine working on the wells we already own, the dividend and the engine. That's the case for Presidio. Back to the paddock for a minute. Some parts, a team builds for itself because they can't be bought. For us, that's Mainspring. Mainspring is FTW Technologies' operating system for oil and gas. Many of you know Doug, our first AI agent. Doug's technology now lives inside Mainspring, and Doug himself has been retired. Field Intelligence runs on it today. Deal Intelligence, our AI-assisted acquisition underwriting is being built on it.

And over the coming months, we'll release it along with our other intelligence modules for lands, legal, finance, corporate development and geology to name a few. After the success of our pilot programs, we made a choice this year to stop building AI products one at a time. We hired a senior team out of Silicon Valley, led by our CTO, Jason Hudak, and built the foundation first. One platform, one front door security and controls designed in from the start. Then we built the Gauntlet, our AI software factory. It's the same idea as factory mode drilling. You standardize once and you repeat it on every product. There's a lesson here. Our industry has already paid for once.

Remember Shale 1.0? The technology was real; horizontal drilling and fracking changed the country's energy future. But for most of the decade, the industry kept score the wrong way. We counted rigs, wells spud, we celebrated production growth at all costs. Capital markets rewarded all of it, so the industry drove for growth and treated returns as something that would show up later. And as we know, for a lot of companies, those returns never showed up. AI agents are having their Shale 1.0 moment right now. The technology is just as real, but look at how companies are keeping score. They count how many agents they've deployed, how many tokens they've burned, how many lines of code they've shipped.

Some have internal leader boards for AI usage. We've seen an agent write 300,000 lines of code in a few days, which is impressive activity. And then someone asked the question that every E&P investor learned to ask. You spent how much to build what? As we know, activity isn't returns. So we approach AI at Presidio the way Shale 2.0 taught us to run a drilling program, like a capital project. Every program starts with a specific outcome written down. We measure it against the baseline set before we start. We pilot first and only scale what works. The AI makes recommendations and our people in the field still make the call.

In 2027, we'll expand that same approach into every facet of stewarding oil and gas assets. And we keep one scoreboard, barrels and dollars. This quarter, that scoreboard reads 3.2% more production from the same wells. And this is where it starts to compound. Every acquisition we make joins Mainspring on day 1, alongside the more than 2,300 wells we operate today. Every well we add makes the system smarter and every acquisition integrates faster than the last. More to come in 2027 from FTW Technologies. And now over to Chris.

Christopher Hammack: Thanks, Will. I'll start with operations. Simply put, our team is running on all cylinders in delivery. For the quarter and the year, we are ahead on production and under on controllable expenses versus our expectations. Will talked about what we're building with AI. Let me tell you what it's delivering. Our target for '26 is to use AI to increase production across our existing asset base by 3% to 5% without additional capital spending. In the third quarter, our AI programs added approximately 3.2%, up from the 2.3% in the second quarter. Here's where it comes from. First, production surveillance.

Our field intelligence agent watches every well against its expected rate, ranks the biggest misses and finds the likely cause. It then tells the field which well to fix first, why and how. Second, weekend coverage. Weekend well check ranks every well in a territory so a shorthanded weekend crew goes first to the wells that need attention. We estimate it adds about 1.4% to production per year from the same wells and the same crew, and it took hours to build because the platform was already in place. Third, the AI plunger box, now on 25 wells, which sets each well's plunger cycles from its own production data instead of fixed timers. We also added 2 new programs.

The first is the well reactivations Will mentioned. In September, we used AI to find the shut-in wells on our piped water system that could be profitable to restart at lower water disposal rates and to model the business case for bringing them back. With this analysis, we negotiated lower disposal rates, which makes it economic to bring wells back that had been cash flow negative. The first of those wells came back online in October with 10 more to follow by year-end. These reactivations are one of the programs behind the exit rate potential Will described.

The second is an AI workover adviser, which we put in place in October to review every workover job, so the next one gets better. None of these replace field judgment. AI recommends and the field makes the call. Every program is measured against a preprogram baseline, piloted first and scaled only when it works. As for integration, at the EQVR assets, which we acquired at IPO, we cut lease operating expenses by about 30%. When Canyon Creek closed in July, we took over field operations right away and moved its 42 wells onto our production systems on day 1.

We estimate we will cut lease operating expenses by about 32% through labor optimization, chemical program changes and removing compression where it's no longer needed. We also completed 5 workovers the prior operator had deferred with all 5 being successful. The integration has gone smoothly, and we are achieving the objectives we set. The result is evident in our numbers. With Canyon Creek now in the mix, company-wide lease operating expense fell from $9.39 to $9.10 per barrel of oil equivalent. Speaking of Canyon Creek, I also noted that we recently made a small working interest addition to our Canyon Creek assets for approximately $4.3 million.

Beyond field operations, we also continue to find new sources of value in our assets in the form of leasehold sales. At IPO, we didn't have expectations for these and so had not included them in our outlook. And this is an area we have solidly outperformed. So far this year, we have sold $17 million of leasehold. That's unmodeled profit that goes straight to the bottom line. We still hold hundreds of thousands of acres, which potentially provide additional upside for asset sales. While we don't drill, we have always monetized upside through partnerships where our costs are carried, through retained overriding royalty interest and through undeveloped land sales.

We are demonstrating our proficiency here, and there will be more to come. With that, I'll turn it over to John.

John Brawley: Thank you, Chris. We've had another strong quarter that's exactly as we've discussed previously. Last call, I indicated the last 3 quarters would total $90 million of EBITDA. We think that still holds. We delivered $33.2 million last quarter and $29.1 million this quarter. The EBITDA difference is largely based on price and the shape of pricing in our hedge book. Beyond EBITDA, nonproducing asset sales have been surprisingly positive this year, which Chris walked through earlier. We expect this will continue during the remainder of the year. As a reminder, I note that the asset sales are not included in the EBITDA numbers we provide.

As for other financial metrics, on these calls rather than read every detail which already exists in our filings, I'll just stick to pointing out items of note where commentary is useful. This was Presidio's second full quarter as a public company and the first to include Canyon Creek, which closed in July. Financial results are delivered and are continuing to deliver on the outlook we gave you in August. Production was up approximately 15% this quarter over last quarter, owing to the inclusion of our newly acquired Canyon Creek asset and our AI efforts continuing to add production to our legacy assets.

Revenue and expense details are included in our press release, in line with expectations and reflect a first full quarter with Canyon Creek. Of note this quarter was our net loss attributable to Presidio of $46.4 million. This net loss was caused by a $66.5 million unrealized noncash loss on our hedge book because prices rose during the period. As a reminder, at the end of every quarter, we mark our hedge portfolio to fair value and any change in value runs through net income as an unrealized noncash expense. As for our balance sheet, at the end of the quarter, total debt principal outstanding was $400.6 million and net debt was $349.4 million.

Based on net debt of $349.4 million and adjusted EBITDA of $124.5 million, which represents the last 2 quarters annualized, leverage was 2.8x. Now that we have 2 full quarters as a public company, this period annualized gives us a fuller picture versus the single quarter annualized we gave last period. We call this last 2 quarters annualized L6A in our materials, which stands for last 6 months annualized. As for liquidity, we note that we remain extremely liquid, buoyed by excess cash flow from leasehold sales following a great job from our land team. Using our balance sheet, unrestricted cash and RBL capacity, we have liquidity of almost $100 million as of September 30.

As a reminder, we are expecting our RBL borrowing base to decrease in our winter redetermination based on hedge cash flow roll-off. I'm expecting the borrowing base to drop from $60 million to around $45 million after the next redetermination. The facility is entirely undrawn and so there's no impact other than a relatively small reduction to our liquidity. Needless to say, we have ample cash flow and liquidity to support our acquisition efforts, dividends and other high-returning investment opportunities as they arise. Our Goldman and Citizens warehouse facility remains with $54 million drawn after a little bit of amortization during the period. We will look to term that out in the first half of 2028.

As of 9/30, our core ABS had a balance of $344 million, and I note that, that ABS is performing beautifully. Speaking of debt, interest rates have become topic du jour. Well, that is if you exclude Microsoft politics surrounding NVIDIA. With inflation concerns and projected Fed rate hikes, Polymarket now quotes a 98% chance of at least a 25 basis point rate hike in the December FOMC meeting with additional 25 basis point hikes expected in the first half of 2027. Rising rates are making things generally more difficult for borrowers. As for Presidio, we could not have had a better time. In June, we fixed the interest rate of our core $344 million of debt at 6.38%.

Today, I estimate that facility would be close to 50 basis points more expensive given the rise in rates. It was great for us to refinance that paper at that time at a fixed rate. Our warehouse is a variable rate instrument, but I'll note that subsequent to quarter end, we effectively fixed 75% of the warehouse debt interest rate using a floating to fixed interest rate swap. The rate of that $54 million of debt outstanding under the warehouse is effectively now fixed at approximately 7.2%. And so we fixed the interest rate on the vast majority of our debt and our existing business is not at all meaningfully impacted by rising rates.

Our blended effective interest rate across both the warehouse or ABS is therefore effectively fixed at 6.6%. With respect to future deals, we've been asked how rates affect our ability to acquire new assets. First, we're solving for return on equity close to 20%. Moving rates 50 to 100 bps does not meaningfully impact our acquisition model. There's plenty of meat on the bone. I do think higher rates will affect others more than us and higher rates will also have the potential to widen acquisition discount rates, all of which is actually helpful to our strategy.

We are less sensitive here because we're not maxing leverage as others do when they're buying producing assets and because we create a meaningful part of our expected return through operations versus just financing leverage. Generally, the ABS market remains extremely strong. We're seeing new asset classes such as gathering and midstream come to market, assets with far higher concentration and declines than ours come to market. In that context, we continue to set the market for ABS as a gold standard issuer and observe new investors in greater depth coming to the market each quarter. As for commodity hedges, we continue to maintain a multiyear commodity hedging program across oil, natural gas and NGLs.

The detailed hedge table is included in the earnings release, and we continue to view hedging as an important part of our risk strategy that provides cash flow visibility, supports dividend durability and helps us underwrite acquisitions with far greater confidence. I'll close with the acquisition market. Simply put, we are very active. At any time, we may be involved in several acquisition discussions in various phases. The opportunity set remains deep. We've identified more than $17 billion of actionable targets across 3 basins. What we look for hasn't changed, producing long-life, low-decline wells that we can operate where our team and our technology can lower costs and add production after we close.

We also have the capital to act on it with our $1 billion ABS warehouse facility, which gives sellers confidence we can close. In addition to larger acquisitions, we've remained focused on high-grading our portfolio, selling wells that lay at the end of their life, selling acreage upside with no wells and buying accretive bolt-on working interest such as the one Chris mentioned earlier. We'll keep constantly managing our portfolio, high-grading its value over time. Technology is also starting to change how we underwrite. As Will mentioned, we're building deal intelligence on our Mainspring AI system. It's designed to test acquisition information against our own well history.

So our team starts each deal with a reviewed first pass instead of a blank page. As always, we won't comment on specific transactions until we have something to announce. With that, I'll turn the call back over to Will.

William Ulrich: Thanks, John. One more thought from Austin. A Grand Prix isn't won on Sunday afternoon. It's won in the hundreds of decisions made long before the car leaves the garage. What to buy, what to build, where to put your best people. We make those decisions every day at Presidio. We buy proven producing wells at attractive prices. We install our engine, the engineering, the operations and the intelligence to make them better than they were, and we return the cash to you while generating long-term equity returns. As always, we endeavor to deliver on our simple business model: acquire, optimize, grow the dividend, repeat.

And my hope is we'll get back to you in short order with continued proof of Presidio executing on this thesis. Operator, we'll now open the line for questions.

Operator: [Operator Instructions] Our first questions come from the line of Neal Dingmann with William Blair.

Neal Dingmann: Just jump right into it. My first question, Will, something you said just you and Chris, on the portfolio optimization. Specifically, it was good to see that Canyon Creek had its first full quarter and then you all sold some nonproducing assets for what seemed to be a great price. My question is, how active and how much upside could you continue to derive from this optimization in '27? Meaning what kind of opportunities either to add another Canyon Creek or dispose of another non-producer like that you all have?

William Ulrich: Yes. I think it's kind of 2 separate questions, but the odds of another Canyon Creek, I think, are obviously very good. I mean that's in 2027, our desire will be to continue to expand through acquisitions. I think at this point, the Arkoma, we have a few opportunities that we're reviewing that would be very attractive bolt-ons. And the adding of the additional working interest is something that's fairly typical that we've done in all kind of prior acquisitions where as we enter the basin, we'll then tend to be approached by people or go seek people out to buy up our interest in the wells that we're already operating at attractive prices.

On the acreage side, it's really -- it's been a part of our business since really 2022, where we've been active in forming joint ventures to bring forward the value from the large undeveloped leasehold that is underpinning all of these PDP wells that we go and buy. So while you'll not hear us talk about drilling and completing those wells ourselves, we have been -- we do have a team that studies these opportunities. We will, on occasion, market drilling opportunities to outside companies, and we've been successful in bringing outside operators to come and drill on the acreage where we receive attractive carry economics and retain an override in those wells.

And then to the extent that we think an area maybe is less tested or is something where we think it's better or we're getting a more attractive kind of relative price relative to the developed kind of PV-10 per acre on the acreage, then we'll contemplate selling acreage, which is kind of the direction where we headed this year. In prior years, I would say it's been more joint venture focused, in 2026, it was acreage focused, in 2027, obviously, a lot of this will depend on the oil. But at the same time, every other call that you'll hear about is talking about inventory. And the reality is we have inventory.

And so we are at the appropriate prices, happy to part with that inventory to help out other operators who are looking to drill wells as well as create and bring forward value from undeveloped leasehold that we wouldn't be developing ourselves.

Christopher Hammack: Yes. I think the only thing I'd add, Neal, was that, and I think as it applies to the Arkoma assets and kind of our plans there, the majority, if not all, of the things that we've done to date have been on our WAB assets. So the idea of understanding the undeveloped in the Arkoma and our own technical position on what that is and kind of what value is there and then figuring out the best way to go about monetizing that through. It's one of the avenues that Will talked about -- JVs or divestitures of nonproducing lands for somebody else to go drill. Those things are underway.

And I think once we have a good technical picture in-house of what those opportunities are, we'll expect those same type of strategies and results from our Arkoma assets as well because, again, it's another area that we focused on that has a lot of different pay potentials that has served us really, really well on our existing the WAB assets over time. So I think there's more to do there. So I think from an operations perspective, we keep doing what we're doing. And I think from an upside perspective, we're just beginning that and we'll continue to work on it and come up with ways to see value there.

Neal Dingmann: Great point, guys. And then my second, just on operational efficiency. Specifically, I look at that, Chris, you've done a lot of what I call more traditional improvement. You continue to -- whether it's compression, chemical improvement, all that sort of thing, but then you all talked about with the Gauntlet now a lot of potential AI savings ahead. I mean could -- is it one, fair to say you'll continue to see equal savings, I mean, either on existing properties or as you take over new properties on both?

Or should we think about, hey, the traditional savings will still be -- whether it's compression chemicals, all that kind of good stuff, will that still be more impactful even than AIs for '27?

Christopher Hammack: Yes. I don't know that we know. Will and I spoke at a conference yesterday, and we joked that when we set these production goals for 3% to 5% gains in '26, we were -- I think we thought we were being aggressive, and we've come to find out we were actually probably being very conservative. I think the results have been more impactful than we thought, and we found things that we didn't know we'd find. And I think that is what we're finding in this AI development that it's just seeing things that we just didn't see.

So I think while now I think the operational efficiency case of coming in and changing cost structure and changing how we do things is probably still a bigger lever as AI continues to grow and we have more tools there that the smarter it gets, the more understanding it gets for what impacts profitability from a production expense reactivation standpoint, it could probably be equal to what we're doing today. We're not there yet, but I think -- and the trajectory we're at now with what we've seen in '26 and what I think we'll see with a fulsome effort from our technology team in '26 into '27. I don't know where the top is.

I mean we have to remember that for the last few years, our AI efforts have been, for lack of a better description, kind of bootstrapping. And we've really just now in the last few months, kind of gone all in with our technology team and Jason's efforts at the company. So it will be really exciting to see what the output of that is over the next 6 months to a year.

William Ulrich: Yes. I would just add that in our kind of traditional underwriting, what we've really focused on are the things that Chris focuses on and that you mentioned, which is really resetting the cost structure. As we've gotten better at improving workovers and other forms of increasing output from PDP at good low cost and good returns, we've started adding some of those projects where applicable into our acquisition underwrite. We also think about things like gas marketing efficiencies and how we can get an uplift in the pricing by taking gas in kind. We kind of have all these different legs of value creation. And I would definitely see us adding AI as an additional leg of value creation.

And to Chris' point, if that is, for example, a 3% to 5% uplift in production, I think 2 things. One, that will probably be about a doubling of the efficiencies that we'll gain from assets by in addition to resetting the cost structure, also increasing production. And two, if we have that ability, I do believe that, that will give us a distinct competitive advantage in the market to be able to go and acquire and aggregate more assets.

Operator: Our next questions come from the line of Michael Scialla with Stephens.

Michael Scialla: Wanted to start with the dividend, Will, you mentioned you have one of the highest yields of any public company. I want to see if I could get some insight into how you and the Board weighed that decision to increase the dividend versus, say, paying down debt or leaving more cash on the balance sheet.

William Ulrich: Yes. So just a quick response. We did pay down debt. So we do pay down debt quarterly through the scheduled and variable amortization on the ABS bonds. So for the...

John Brawley: Yes. For the -- John Brawley here. For the amortization point, our RBL is undrawn. And you really don't pay down ABS debt or can't ahead of time if it's unscheduled. So we've paid down all the debt that isn't in the ABS systems. So...

William Ulrich: While building liquidity...

John Brawley: Yes. So we've built liquidity and...

William Ulrich: But broadly, I think the question that you're asking is we're trading at this high yield, how do we think about increasing the dividend into already being at wide of where the comps are trading on a yield basis and then pushing ourselves even higher by increasing the dividend. And the answer there, I think, is pretty simple, which is we've really dedicated ourselves in this first 12 months as a public company to laying out very simple and predictable goals to the market that we then intend to execute on and provide the certainty to our investors that they can believe us when we say we're going to go do things.

And so I think that over a long period of time, that will result in us trading at a significantly premium yield to our peer group as the market sees this story mature over time. So to your question of kind of what the discussion was, the discussion was geared towards, there's the market perception and there's also the realities of our business. It generates a lot of cash flow. It generated more cash flow this quarter because of the increase in the Canyon Creek assets, so the inclusion of the Canyon Creek assets for a full quarter.

We have a massive amount of liquidity that we are capable of using to go and acquire additional assets at scale and continue to grow that dividend. So we look at all facets of it, but the most important thing, we think, is to continue the track record of delivering on saying -- on doing what we said we were going to do. And so that's what led to the increase.

Michael Scialla: Got it. I appreciate that answer. You mentioned the AI-controlled plunger lift on 25 wells. I'm just curious, is that all the wells that you have on plunger lift or could this become a broader application across more wells? And I guess along the same lines, do you have plans to use AI to help with other lift mechanisms?

Christopher Hammack: Yes. No, this was the pilot program. So the pilot program was to go out to these specific 25 wells. I don't have the numbers in front of me, but probably 1/3 of our wells, the 2,500 are on plunger. It's primary lift for us. So the idea here was kind of like everything we've done with AI is proof-of-concept test, make sure it works, make sure it works the way we want it to, make sure that it's delivering the results on those wells using the information that it has on those wells to be able to kind of fine-tune things before we roll it out to others.

So this is an application, too, where in areas where we don't have SCADA information, where we don't have real-time analysis -- we can't really real-time analyze the wells, where we've got applications to use these plunger boxes that use only the information that are on the wells there that we can't access remotely. So a lot of our wells don't have full SCADA control where I can see them from a central office and get real-time data. So this is a big application for a lot of wells that we have. So no, I think the pilot program was a success.

And so now the next phase of this program will be, how many more wells do we roll it out to here in the near future.

William Ulrich: Yes. The other interesting thing when we think about a lot of the eventual cases that we will be able to use AI for require the collection of additional data. And then we have to balance that with the fact that these wells are kind of mid-life and the cost of adding incremental equipment to them at this point may not be able to be justified. But the really cool thing about the data collection aspect of this is that while we have 25 of these out there, we're collecting a ton of data on them that may enable us to be predictive around wells that don't even have these plunger boxes on them.

So we can take the learnings from these 25 and we can apply it more broadly to provide more recommendations on different settings to the pumpers who are pumping wells that don't have the system on them to the extent those wells can't afford the hardware.

Michael Scialla: That's interesting. One more, if I could. The -- given that this was a pilot program, I guess, any sense of what the '27 program might look like?

William Ulrich: In terms of the...

Michael Scialla: In terms of the number of wells.

William Ulrich: On the plunger lift box?

Michael Scialla: Yes. Yes.

William Ulrich: I don't think that we have any thoughts on it right now.

Operator: Our next questions come from the line of Greg Lewis with BTIG.

Gregory Lewis: I did want to touch a little bit more on the AI. Obviously, since it initiated earlier this year, it's kind of been improving on a linear basis. I know you have the longer-term target of 3% to 5%. Is that something we should kind of -- I guess what I'm wondering is, could there be some lumpiness around that? And then the other is just given the success, is there thoughts of maybe expanding that budget to kind of expand on the AI production targets even more?

William Ulrich: Yes. So we're in the midst of our 2027 planning here and putting together kind of what the various projects, the AI-driven projects would be and what the contribution to uplift could be. The total size of the prize, like when we first started looking at this and when we calculated what we called kind of the distance to theoretical production for a well.

So assuming a well is flowing perfectly, it's not impeded by any sort of pipeline pressure or any equipment issues or downtime or whatever it is, our analysis kind of statistically showed that there's about a 15% gap between where the wells are producing and then where the theoretical production -- theoretical max production could be from those wells. So that's kind of the size of the prize on the production side is the 15%. So when we set that 3% to 5%, it was a challenge to ourselves to say, can we go capture 25% to 1/3 of that here in the first year of the program through these various pilots.

And as we were able to demonstrate that, we decided to shift from these kind of one-off pilot programs to actually developing this as a kind of full-scale industrial strength application. That's what led to us bringing in Jason and Jason hiring his team. But it'll also -- yes, it will permeate into other things as well, things that make our pumpers more efficient, whether that's through better insight into invoices and on the expense side is another piece that we'll be attacking. So production was the prize that we wanted to attack first, but then efficiencies on the operating expense side will be a part of 2027 as well.

As well as while they're not huge value drivers, but the kind of the 10x of the efficiency of all of our employees is a really important piece. And then I think you'll see that as we grow through acquisitions, our EBITDA margins will be scaling probably not linearly as a result of the ability to implement additional AI processes on the actual kind of stewardship of the assets out of Fort Worth as opposed to what we're being able to do in the field. So I think that will be another piece you're going to see in 2027 as well as expanding EBITDA margin around it.

Operator: This does conclude our question-and-answer session. And with that, I'd like to hand the call back over to Will Ulrich for any closing comments.

William Ulrich: We appreciate everyone's time this morning, and we look forward to speaking soon and continuing to deliver on what we're doing here at Presidio. Thanks all.

Operator: Thank you, ladies and gentlemen. This does now conclude today's conference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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