Why did GRNT's Q2 2024 earnings fall short?

Granite Ridge Resources Inc. (GRNT) experienced a slight decline in its Q2 2024 earnings, with a net income of $5.1 million and a diluted EPS of $0.04, compared to the previous quarter's EPS of $0.12. The EPS fell short of market expectations, as analysts had anticipated an EPS of $0.15 for the quarter. The key factors contributing to this shortfall are as follows:

|code|Ticker|Name|Date|Net Income YoY|Net Income|market_code|
|---|---|---|---|---|---|---|
|GRNT|GRNT.N|Granite Ridge|2023 Q3|-77.55122451275768|1.7957E7|169|
|GRNT|GRNT.N|Granite Ridge|2023 Q4|-69.02604856512141|1.7539E7|169|
|GRNT|GRNT.N|Granite Ridge|2024 Q1|-55.98383334237509|1.6227E7|169|
|GRNT|GRNT.N|Granite Ridge|2024 Q2|-41.61611537140895|5101000|169|

|code|Ticker|Name|Date|Diluted EPS YoY|Diluted EPS|market_code|
|---|---|---|---|---|---|---|
|GRNT|GRNT.N|Granite Ridge|2023 Q3|-78.33333333333333|0.13|169|
|GRNT|GRNT.N|Granite Ridge|2024 Q1|-57.14285714285715|0.12|169|
|GRNT|GRNT.N|Granite Ridge|2024 Q2|-42.85714285714286|0.04|169|

1. **Production Decline and Oil Mix Mismatch**: Granite Ridge faced a decrease in oil production volumes by 8% from the previous quarter, which is a significant challenge for sustaining oil output levels. Additionally, the oil production mix for the quarter was lower than expected at 45%, below the guidance expectation of 47% for the year. This production decline and mix mismatch likely contributed to the lower earnings.
2. **Capital Expenditure and Debt**: The company has been expanding its operations, including placing net wells online and closing acquisitions, which has increased its operational footprint. However, these expansion efforts have also led to higher capital expenditures and debt levels. For instance, the company ended the quarter with a robust liquidity position of $123.0 million and a leverage of 0.4 times net debt to trailing EBITDAX. The costs associated with these expansions may have impacted the company's short-term profitability.
3. **Market Conditions and Commodity Prices**: While the company's adjusted EBITDAX was higher than expected due to favorable oil prices and production levels, the overall market conditions and potential fluctuations in commodity prices could still affect the company's earnings. Granite Ridge is also looking at selling a portion of its shares in Vital Energy to help pay down its debt, which may indicate a strategic response to managing its financial obligations amidst changing market conditions.

In summary, Granite Ridge's Q2 2024 earnings fell short primarily due to a combination of production decline, oil mix mismatch, higher capital expenditure and debt, and market conditions and commodity prices. These factors, either directly or indirectly, impacted the company's profitability for the quarter.