10-Q: Riley Exploration Permian Reports Q3 2024 Results, Impacted by EOR Project Impairment

Riley Exploration Permian's Q3 2024 results show a net income of $25.7 million, impacted by a $30.2 million impairment charge related to the discontinuation of its Enhanced Oil Recovery (EOR) project.

Summary

• Riley Exploration Permian reported a net income of $25.7 million for the third quarter of 2024, compared to $8.6 million in the same period last year.
• The company's oil and natural gas sales, net, were $102.3 million for the quarter, a decrease from $107.7 million in Q3 2023.
• The decrease in revenue was primarily due to lower realized prices for natural gas and NGLs, which were negative due to high gathering and processing costs.
• The company recorded a $30.2 million impairment charge related to the discontinuation of its EOR project, which included a $28.9 million non-cash impairment and a $1.3 million cash impairment.
• Production volumes increased for oil, with 1.424 million barrels produced in Q3 2024 compared to 1.292 million barrels in Q3 2023.
• The company's average realized oil price was $73.95 per barrel, down from $80.87 in the same quarter last year.
• The company's average realized natural gas price was negative $0.60 per Mcf, down from $0.61 in the same quarter last year.
• The company's average realized NGL price was negative $4.40 per barrel, down from $8.11 in the same quarter last year.
• The company's lease operating expenses were $18.5 million, up from $16.9 million in Q3 2023.
• The company's depletion, depreciation, amortization and accretion expense was $20.7 million, up from $18.7 million in Q3 2023.
• The company's general and administrative expenses were $7.6 million, up from $6.6 million in Q3 2023.
• The company declared a cash dividend of $0.38 per share of common stock payable on November 7, 2024.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the significant impairment charge and negative realized prices for natural gas and NGLs, despite increased oil production and a dividend declaration. The company faces challenges in the current market environment.

Positives

• Oil production volumes increased by 10% compared to the same quarter last year.
• The company has $245 million of undrawn capacity under its credit facility.
• The company declared a cash dividend of $0.38 per share of common stock.

Negatives

• The company recorded a $30.2 million impairment charge related to the discontinuation of its EOR project.
• Realized prices for natural gas and NGLs were negative due to high gathering and processing costs.
• Total oil and natural gas revenue decreased by 5% compared to the same quarter last year.
• The company has a working capital deficit of $31.9 million.

Risks

• The company is exposed to the volatility of oil, natural gas and NGL prices.
• The company's operations are subject to regional supply and demand factors, and potential delays or interruptions of production.
• The company's ability to obtain capital needed for development and exploration operations may be impacted by market conditions.
• The company is subject to legislative or regulatory changes, including initiatives related to hydraulic fracturing and environmental regulations.
• The company is subject to risks related to litigation and cybersecurity threats.
• The company's future results could be impacted by the military conflict between Russia and Ukraine, the Israel-Hamas conflict, and the global response to such conflicts.

Future Outlook

The company intends to continue to develop its reserves through development drilling and exploration activities and through acquisitions that meet its strategic and financial objectives. The company also expects the RPC Power joint venture to become fully operational throughout 2025.

Management Comments

• Management believes it is remote that the impact of legal matters will have a materially adverse effect on the Company's financial position, results of operations, or cash flows.
• Management believes that the combination of cash on hand, cash flow from operations, borrowings under the Credit Facility, and the issuance of debt or equity securities will continue to be adequate to meet the company's short and long-term liquidity needs.

Industry Context

The results reflect the ongoing volatility in the oil and gas industry, with fluctuating commodity prices impacting revenue and profitability. The company's strategic focus on the Permian Basin and its investments in power generation assets are aligned with industry trends towards efficiency and cost management.

Comparison to Industry Standards

• The company's production growth in oil is in line with other Permian Basin operators, but the negative realized prices for natural gas and NGLs are a concern.
• The impairment charge related to the EOR project is a significant event, and the company's decision to redeploy capital to conventional development is a common strategy in the current market.
• The company's leverage ratio and asset coverage ratio are within the required covenants of its Credit Facility and Senior Notes, which is a positive sign.
• The company's hedging strategy is a common practice in the industry to mitigate price volatility, but the results of future settlements will be important to monitor.
• The company's investment in the RPC Power joint venture is a unique approach to managing energy costs and potentially generating additional revenue, which is not a standard practice among all oil and gas companies.

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 has an engagement agreement with di Santo Law PLLC for legal services.

Stakeholder Impact

• Shareholders will receive a cash dividend of $0.38 per share.
• Employees may be impacted by the discontinuation of the EOR project.
• Customers may be impacted by changes in production volumes and prices.
• Suppliers may be impacted by changes in the company's capital expenditure plans.
• Creditors may be impacted by changes in the company's financial performance and debt levels.

Next Steps

• 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.
• The company will continue to monitor the performance of its RPC Power joint venture and its impact on energy costs and revenue.
• The company will complete the construction of a compression station and associated pipelines to increase the amount of natural gas flowing to the Company's New Mexico assets by the first quarter of 2025.

Key Dates

Keywords

Oil and Gas, Production, Permian Basin, Financial Results, EOR Project, Impairment, Derivatives, Dividends, Acquisition, Joint Venture