10-Q: Riley Exploration Permian Q1 2026 Net Loss Driven by Derivatives

Riley Exploration Permian reported a net loss of $70.4 million for Q1 2026, primarily due to a significant non-cash loss on derivatives, despite an 11% increase in oil and natural gas sales.

Summary

• Riley Exploration Permian reported a net loss of $70.4 million for the first quarter ended March 31, 2026, a significant shift from a net income of $28.6 million in the same period of 2025.
• This loss was largely driven by a substantial non-cash loss on derivatives totaling $115.2 million, contributing to a total loss on derivatives of $127.0 million for the quarter.
• Total revenues increased by 11% to $113.9 million, primarily due to a 29% increase in oil production volumes, partly from the Silverback Acquisition, and an 80% increase in NGL production volumes.
• Lease operating expenses (LOE) increased by $5.7 million, largely due to the Silverback Acquisition, and production and ad valorem taxes rose by $2.4 million due to increased production and higher crude oil prices.
• The company's cash position decreased to $15.8 million from $17.9 million at the end of 2025, and the working capital deficit widened to $180.6 million from $68.0 million, largely due to increased derivative liabilities.
• Capital expenditures for oil and natural gas properties increased to $29.6 million from $16.2 million in the prior year's quarter.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the significant net loss driven by derivative accounting and negative realized prices for natural gas and NGLs, despite revenue growth.

Positives

• Total oil and natural gas sales, net increased by 11% to $113.9 million compared to the prior year's quarter.
• Oil production volume increased by 29% due to the Silverback Acquisition and new wells.
• NGL production volumes increased by 80% due to new wells, increased processing capacity, and the Silverback Acquisition.
• The company's Credit Facility borrowing base was increased to $425 million in April 2026, with $293 million of available capacity as of March 31, 2026.
• The company declared a cash dividend of $0.40 per share in April 2026.

Negatives

• Reported a net loss of $70.4 million for the quarter, compared to a net income of $28.6 million in Q1 2025.
• Experienced a significant non-cash loss on derivatives of $115.2 million, leading to a total derivative loss of $127.0 million.
• Realized natural gas prices before GP&T costs decreased by $2.92 per Mcf due to increased negative basis differentials.
• Realized NGL prices before GP&T costs decreased by $7.31 per Bbl, primarily due to lower Mont Belvieu pricing.
• Working capital deficit increased significantly to $180.6 million from $68.0 million, largely due to increased derivative liabilities.
• Cash on hand decreased to $15.8 million from $17.9 million.

Risks

• Sustained negative or depressed natural gas prices at the Waha Hub and widening basis differentials have adversely affected, and will continue to adversely affect, realized natural gas and NGL prices.
• The company may not be able to fully recover GP&T costs, resulting in negative natural gas and NGL realized prices, negative revenues, and a reduction in results of operations.
• Waha daily cash prices have periodically traded in negative territory, including a sustained period of consecutive negative days in Q1 2026, continuing into Q2 2026.
• Prolonged negative pricing may cause the company to curtail, defer, or shut in wells, and could adversely affect estimated economically producible quantities of proved reserves and trigger non-cash impairments.
• An unplanned outage at a third-party gas processing facility in New Mexico required the company to shut in a significant portion of its New Mexico production, with uncertain duration.
• Volatility of oil, natural gas, and NGL prices, regional supply and demand factors, and potential delays or curtailments of production.

Future Outlook

The company's ability to meet short and long-term liquidity needs is expected to be adequate, supported by cash on hand, operating cash flow, borrowings under its Credit Facility, and the issuance of Senior Notes. However, cash flows are subject to fluctuations in oil and natural gas prices, production levels, and capital expenditure requirements. The company continues to monitor geopolitical and economic conditions, including commodity price volatility and interest rate sensitivity.

Management Comments

• The results of operations for the three months ended March 31, 2026, are not necessarily indicative of the results to be expected for the full-year ending December 31, 2026, for various reasons including fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, unpredictability of new tariffs, the current and future impacts of military conflicts, changes to the political environment under the current administration and other factors.
• We monitor the risk of cost pressures in specific areas of our operating expenses and capital expenditures. Our margins may be compressed if costs increase more than commodity prices and our revenues, net of derivatives.
• We estimate the combination of the sources of capital discussed above will continue to be adequate to meet our short and long-term liquidity needs.
• Excluding the impact of derivatives, the increased working capital deficit corresponds with increased development activity, which should convert to operating cash flow over time.

Industry Context

StockSavvy.ai notes that Riley Exploration Permian's Q1 2026 results reflect the broader industry challenges of volatile commodity prices, particularly negative natural gas pricing in the Permian Basin due to infrastructure constraints. The significant derivative loss highlights the impact of hedging strategies in managing price volatility, while increased LOE and DD&A are consistent with expanded operations following acquisitions.

Comparison to Industry Standards

• The negative natural gas prices at the Waha Hub, as reported by Riley Exploration Permian, are a significant concern within the broader US natural gas market, indicating regional infrastructure limitations that are not present in all basins.
• The company's increased LOE and DD&A expenses are in line with industry trends for companies expanding production through acquisitions and development drilling, such as those seen in other Permian Basin operators.
• The net loss driven by derivative accounting is a common occurrence for exploration and production companies that utilize hedging strategies to mitigate price risk, though the magnitude of Riley's loss is notable.
• The widening of basis differentials between Waha and Henry Hub is a specific issue impacting Permian Basin producers, differentiating their experience from producers in other regions with better pipeline connectivity.

Legal Proceedings

• The company believes that the amount of liability, if any, ultimately incurred with respect to any legal proceedings or claims will not have a material adverse effect on its financial condition, liquidity, capital resources, results of operations or cash flows.

Related Party Transactions

• The company has a 10-year Tolling Agreement with RPC Power for the conversion of natural gas to electricity for its operations.
• An Asset Optimization Agreement with RPC Power requires RPC Power to provide operational expertise for a monthly fee of $20 thousand.
• A 10-year Supply Agreement with RPC Merchant (a subsidiary of RPC Power) to supply natural gas for power generation assets.
• The company incurred $2.0 million in Lease Operating Expenses (LOE) from RPC Power in Q1 2026.
• The company incurred $0.3 million in legal fees from di Santo Law PLLC, a firm owned by a board member, in Q1 2026.

Stakeholder Impact

• Shareholders are impacted by the net loss and a decrease in earnings per share, although a cash dividend was declared.
• Creditors are impacted by the company's debt levels and covenants, with the Credit Facility borrowing base recently increased.
• Suppliers and counterparties are impacted by the company's operational activities and contractual agreements, such as those with Targa and RPC Power.
• Employees are impacted by increased administrative costs related to higher headcount and stock-based compensation expenses.

Next Steps

• Continue to monitor the midstream disruption in New Mexico and the expected completion of new Targa pipeline infrastructure.
• Manage capital expenditures and operations in response to commodity price volatility and infrastructure constraints.
• Continue to evaluate and manage derivative strategies to mitigate price risk.
• The company has a remaining commitment to invest up to an additional $8.0 million in the RPC Power joint venture.

Key Dates

Recommendation

While revenue growth and increased production volumes are positive, the significant net loss driven by derivative accounting, negative realized prices for natural gas and NGLs, and widening working capital deficit present considerable headwinds. The company's ability to navigate infrastructure constraints and volatile commodity prices will be key. The recent increase in the credit facility borrowing base provides some financial flexibility, but the overall financial performance for the quarter is concerning, warranting a hold recommendation pending further clarity on operational improvements and commodity price stabilization.

Keywords

Riley Exploration Permian, 10-Q, Quarterly Report, Oil and Gas, Permian Basin, Financial Results, Derivative Loss, Silverback Acquisition, Commodity Prices, Net Loss