10-Q: Riley Exploration Permian Reports Q2 2024 Results, Revenue Up 6% Year-Over-Year

Riley Exploration Permian saw a 6% increase in net oil and gas revenue year-over-year for the second quarter of 2024, driven primarily by higher oil prices.

Summary

• Riley Exploration Permian's net oil and gas revenue increased to $105.3 million in Q2 2024, up from $99.3 million in Q2 2023.
• The increase in revenue was primarily driven by a 9% increase in oil revenue, which was partially offset by decreases in natural gas and NGL revenues.
• Oil production volumes decreased slightly by 2% while realized oil prices increased by 11% compared to Q2 2023.
• Natural gas revenues decreased due to negative realized prices, primarily due to weak Permian Basin natural gas prices.
• NGL revenues also decreased due to higher allocated gathering and processing costs.
• For the first six months of 2024, total oil and natural gas revenue increased by 24% to $204.8 million compared to $165.7 million in the same period of 2023.
• The company's net income for Q2 2024 was $33.5 million, compared to $33.1 million in Q2 2023.
• The company closed on an acquisition of oil and natural gas properties in Eddy County, New Mexico for approximately $17.6 million in cash plus $0.5 million in transaction costs.
• The company issued 1,015,000 shares of common stock at $27.00 per share, raising approximately $25.4 million in net proceeds.
• The company's borrowing base under its credit facility is $375 million with $160 million outstanding as of June 30, 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company shows revenue growth and successful acquisitions, the negative impact of low natural gas prices, operational disruptions, and a working capital deficit temper the positive aspects. The company's future outlook is uncertain due to the ongoing operational disruption.

Positives

• Oil revenues increased by 9% in Q2 2024 due to higher realized prices.
• The company successfully completed an acquisition of oil and natural gas properties in Eddy County, New Mexico.
• The company raised $25.4 million through an equity offering.
• The company has a significant available borrowing capacity of $215 million under its credit facility.
• The company's net income for Q2 2024 was $33.5 million.

Negatives

• Natural gas revenues decreased due to negative realized prices.
• NGL revenues decreased due to higher allocated gathering and processing costs.
• Oil production volumes decreased slightly by 2% compared to Q2 2023.
• The company had a working capital deficit of $35.8 million as of June 30, 2024.
• A portion of the company's oil, natural gas and NGL sales in New Mexico have been negatively impacted due to an operational disruption encountered by the midstream provider.

Risks

• The company is exposed to the volatility of oil, natural gas, and NGL prices.
• Regional supply and demand factors can impact production and revenues.
• Delays or interruptions in production can adversely affect the company's financial condition.
• The company's enhanced oil recovery (EOR) or carbon capture projects may not perform as expected.
• The company's ability to comply with financial covenants in its credit facility and senior notes is a risk.
• The company is subject to risks associated with concentration of operations in one major geographic area.
• The company is subject to legislative or regulatory changes, including environmental policies.
• The company is subject to cybersecurity threats, technology system failures and data security issues.
• The company's operations in New Mexico have been negatively impacted by an operational disruption encountered by the midstream provider.

Future Outlook

The company anticipates that its daily production for each of the third and fourth quarters will remain consistent with the second quarter, despite an operational disruption in New Mexico. Management believes the impact of this disruption can be significantly mitigated by shifting development to unaffected areas and/or by accelerating development in unaffected areas.

Management Comments

• Management will be actively monitoring the operational disruption in New Mexico as the midstream provider works towards resolving it.
• Management believes the impact of the disruption can be significantly mitigated by shifting development to unaffected areas and/or by accelerating development in unaffected areas.

Industry Context

The report reflects the ongoing volatility in the oil and gas industry, with fluctuating commodity prices impacting revenues. The company's strategic acquisitions and focus on the Permian Basin are consistent with industry trends of consolidation and development in key producing regions. The company's investment in power generation assets also reflects a trend towards self-sufficiency and cost reduction in the industry.

Comparison to Industry Standards

• The company's production volumes are comparable to other small to mid-sized operators in the Permian Basin.
• The company's realized oil prices are in line with WTI benchmarks, although natural gas prices are below average due to regional factors.
• The company's debt levels are moderate compared to peers, with a borrowing base of $375 million and $160 million outstanding.
• The company's focus on horizontal development of conventional reservoirs is a common strategy in the Permian Basin.
• The company's investment in power generation assets is a unique approach compared to most peers, which may provide a competitive advantage.

Management Changes

Related Party Transactions

• The company has a 10-year agreement with RPC Power for the conversion of natural gas to electricity.
• The company has a 10-year natural gas supply agreement with RPC Merchant LLC.
• The company had contract service agreements with Combo Resources, LLC and Riley Exploration Group, LLC, which were terminated in January and May 2024, respectively.
• The company incurred legal fees from di Santo Law PLLC, a law firm owned by a member of the Board of Directors.

Stakeholder Impact

• Shareholders will be impacted by the company's financial performance, dividend payments, and stock price.
• Employees will be impacted by the company's operational performance and any changes in employment policies.
• Customers will be impacted by the company's ability to deliver oil and gas products.
• Suppliers will be impacted by the company's purchasing decisions and payment terms.
• Creditors will be impacted by the company's ability to repay its debt obligations.

Next Steps

• The company will continue to monitor the operational disruption in New Mexico and work with its midstream provider to resolve the issue.
• The company will focus on shifting development to unaffected areas and/or accelerating development in unaffected areas to mitigate the impact of the disruption.
• The company will continue to develop its reserves through development drilling and exploration activities.
• The company will continue to evaluate potential acquisitions that meet its strategic and financial objectives.

Key Dates

Keywords

oil and gas, production, Permian Basin, revenue, acquisition, equity offering, credit facility, derivatives, natural gas, NGLs