The U.S. oil and gas exploration and production industry has faced headwinds related to falling natural gas prices and political uncertainty so far in 2024. Cash from operations across three dozen leading U.S. firms fell in real terms from the first quarter of 2023 to the first quarter of this year due to lower gas prices. The November election is also likely to play a significant role in shaping the industry's future.

At the same time, production cuts by OPEC+ have supported increased crude oil production among some U.S. firms, with companies like Antero Resources Corp. (NYSE: AR) and Pembina Pipeline Corp. (NYSE: PBA) benefiting from the shift. One area that has not experienced a wholesale production increase, though, is the Permian Basin of the southwestern U.S. West Texas' Waha hub experienced negative trading for much of the summer, prompting some producers in the area to curtail production.

Permian Resources Corp. (NYSE: PR) shares have slid by more than 22% in the last six months. Over the last year, the company's stock has significantly underperformed competitors like Antero and Pembina.

Nonetheless, Permian Resources has a history of cost management, successful M&A activity, and strong earnings performance that may entice investors interested in buying while share prices are low.

Permian Resources: Keeping Costs Down, Earning Efficiently

Operating an oil and gas production company is costly, but Permian Resources does a good job of reducing these expenses whenever possible. Its total costs are below the industry average, thanks in part to its low lease operating expenses (LOE; the costs of maintaining a well after the initial expenses of drilling and completion) of $5.18 per barrel of oil equivalent (BOE).

Overall, the company reduced total controllable cash costs by 8% quarter-over-quarter for the most recent quarterly period to $7.45 per BOE. Permian is also finding ways to reduce costs on new drilling projects, which are down 13% relative to last year.

At the same time, total production increased by 6% from the first quarter of the year to the second. By bringing production up and minimizing costs, Permian Resources has contributed meaningfully to free cash flow growth. In the second quarter, the company generated $332 million in adjusted free cash flow, or $0.43 per share. Adjusted free cash flow per share is up an impressive 60% since the first quarter of 2023.

Permian's Strong M&A Activity

In mid-September, Permian completed the acquisition of various leasehold and royalty interests, including midstream infrastructure, from Occidental Petroleum Corp. (NYSE: OXY). This acquisition increased Permian's resource base by nearly 30,000 acres adjacent to its prior assets in Texas. The new interest is expected to generate roughly 15,000 BOE per day.

This acquisition is just the latest in a longer series of deals that analysts have viewed positively. Permian has successfully targeted key royalty and land interests for expansion, keeping costs down in the process.

Earnings Growth Potential

Permian has topped analyst expectations for earnings per share for each of the last three quarters. Analysts are optimistic about the potential for future growth as well: Permian enjoys a projected earnings growth rate of nearly 16%.

Fast-growing earnings have allowed Permian to boost its dividend to $0.15 from $0.06 in September and to initiate a $1-billion share buyback program. Permian executives have assured investors that the dividend is sustainable for more than two years, regardless of the price of oil at that time.

Permian Stock's Upside Opportunity

Given these factors, it's little surprise that analysts largely believe Permian Resources has the potential to reverse its recent downward trend and reclaim much of its lost share value. The average price target for PR shares is $19.20, representing upside potential of about 39%. Still, the unpredictability of the U.S. political climate going forward and the trajectory of oil prices may mean that investors will have to wait to realize this opportunity. Permian's stable history and impressive operations make it a good candidate for buy-and-hold investors interested in waiting for more favorable external conditions.