Sitio Royalties Q4 2024: Diverging Views on Acquisitions, Oil Production, and Cash Flow Strategies

These are the key contradictions discussed in Sitio Royalties' latest 2024Q4 earnings call, specifically including: Acquisition Strategy and Priorities, Oil Exposure and Production Trajectory, and Strategic Priorities for Free Cash Flow Allocation:



Operational Performance and Production Growth:
- Sitio Royalties achieved record fourth quarter production of 41,000 barrels of oil equivalent per day, a 14% year-over-year increase.
- The company averaged over 39,000 barrels of oil equivalent for the year pro forma for the DJ Basin acquisition.
- The growth was driven by strong activity and well performance from industry-leading operators, accretive acquisitions, and differentiated asset management capabilities.

Financial Strength and Capital Returns:
- Sitio returned $330 million to owners in 2024, representing over 70% of discretionary cash flow, and has returned nearly $850 million since becoming public.
- The company's borrowing base was increased to $925 million, reflecting its strong balance sheet and financial flexibility.
- This was a result of effective capital allocation, strong financial management, and consistent execution on accretive acquisitions.

Efficiency and Cost Reduction:
- Sitio captured $19 million in missing revenue payments through automated data processing and AI interpretation, offsetting over 2/3 of cash G&A expenses.
- Investments in asset management systems and skilled personnel are expected to lead to significant reductions in cash G&A costs per BOE over time.
- These efficiencies were driven by innovative proprietary custom-built asset management applications and AI models that automate revenue check processing and identify discrepancies.

Acquisition Strategy and Deal Flow:
- Sitio completed 16 high-value acquisitions in 2024, totaling more than $350 million, with a weighted unlevered IRR exceeding 15%.
- The acquisitions included $140 million in deals during Q4, adding 3,300 net royalty acres, primarily in the Delaware Basin.
- The company's disciplined approach to acquisitions, focusing on risk-adjusted returns and leveraging relationships with mineral owners and operators, contributed to this success.