RBC Capital Markets is betting on a strong third quarter for Permian Resources, a major oil and gas producer in the Permian Basin. In a note to clients on Thursday, the bank raised its earnings and production estimates for the company, pointing to rising output and better operational efficiency.
RBC now expects Permian Resources to report earnings of $0.66 per share for the third quarter, up from its previous forecast. That's above the Wall Street consensus of $0.57. The bank also lifted its cash flow per share estimate to $1.56, versus the $1.43 analysts had been expecting.
On the production side, RBC models the company pumping 442,000 barrels of oil equivalent per day (boe/d) in Q3, including 205,000 barrels of oil. That's ahead of the 430,000 boe/d that the broader market had penciled in. The bank attributes the stronger outlook to faster drilling and completion activity, as well as solid oil prices.
What's driving the upgrade?
Permian Resources is one of the largest pure-play producers in the Permian Basin, the prolific shale region that spans West Texas and southeastern New Mexico. The company was formed in 2022 through the merger of Centennial Resource Development and Colgate Energy, and it has since grown through acquisitions, including a major deal with Occidental Petroleum's Delaware Basin assets.
The bank's upgrade reflects a few key trends. First, Permian Resources has been steadily increasing its output as it brings new wells online and optimizes its operations. Second, efficiency gains—such as faster drilling times and better completion techniques—are helping the company squeeze more oil out of each dollar spent. Finally, oil prices have remained relatively firm, which boosts the revenue generated from each barrel sold.
RBC's note comes as the broader energy sector faces mixed signals. While oil prices have been volatile, energy stocks have dipped recently as crude slid and BP halted Gulf of Mexico output ahead of a storm. Still, Permian Resources' focus on the Permian Basin—a region with some of the lowest production costs in the U.S.—gives it a cushion against price swings.
What it means for investors
For everyday investors, this upgrade is a signal that Wall Street sees Permian Resources as well-positioned to deliver strong quarterly results. When a bank raises its estimates above the consensus, it often suggests that the company could beat expectations when it reports earnings.
Higher production and efficiency also translate into stronger cash flow, which is important for a company like Permian Resources that returns cash to shareholders through dividends and buybacks. In recent quarters, the company has been increasing its shareholder returns, and a strong Q3 could support that trend.
However, it's worth noting that oil and gas stocks are highly sensitive to commodity prices. If crude prices fall sharply, even the most efficient producers will see their profits shrink. So while RBC's outlook is positive, investors should keep an eye on the broader oil market.
RBC's view on Permian Resources echoes its recent optimism on other energy names. For instance, the bank also sees Viper Energy beating its Q3 output target after a drop-down from Diamondback Energy. And in the broader sector, Berenberg lifted its BP price target on a stronger gas trading outlook, while Shell profit forecasts were raised ahead of its October update.
What to watch next
Investors will be watching Permian Resources' actual third-quarter results, which are expected in early November. Key metrics to look for include total production, oil volumes, and capital spending. The company has a track record of beating expectations, and RBC's upgrade suggests that trend could continue.
Also on the radar is the company's guidance for the fourth quarter and 2025. If Permian Resources raises its full-year production target, that would be a bullish signal. Conversely, any signs of cost inflation or slower well performance could temper enthusiasm.
For now, RBC's upgrade is a positive indicator, but it's just one analyst's view. As always, investors should consider their own financial goals and risk tolerance before making any decisions.
