10-Q: Riley Exploration Permian Reports Strong Q2 Revenue Growth

Riley Exploration Permian's Q2 2026 results show a significant increase in oil and natural gas sales, driven by higher oil prices and expanded production, though natural gas and NGL prices faced headwinds.

Summary

• Riley Exploration Permian reported a substantial increase in total oil and natural gas sales, net, for the second quarter of 2026, reaching $165.9 million, a 94% increase compared to $85.4 million in the same period of 2025.
• For the six months ended June 30, 2026, total sales were $279.7 million, up 49% from $187.9 million in the prior year.
• The company experienced a significant rise in oil revenues due to higher realized oil prices ($94.28/Bbl in Q2 2026 vs. $62.17/Bbl in Q2 2025) and increased oil volumes.
• Natural gas and NGL revenues faced challenges, with negative realized prices for both, primarily due to increased negative Permian basis differentials and higher gathering, processing, and transportation (GP&T) costs.
• Lease operating expenses (LOE) increased due to the Silverback Acquisition and higher workover expenses.
• Net income for the three months ended June 30, 2026, was $87.4 million, a significant increase from $30.5 million in the prior year, while diluted EPS was $4.11 compared to $1.44.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive report, with strong revenue growth driven by higher oil prices and increased production volumes, despite some challenges in natural gas and NGL pricing and midstream disruptions.

Positives

• Total oil and natural gas sales, net, increased by 94% to $165.9 million for the three months ended June 30, 2026, compared to $85.4 million for the same period in 2025.
• Oil revenues saw a substantial increase of $96.3 million for the quarter, driven by a $32.11 per Bbl increase in realized oil prices and a 40% increase in average daily oil volumes.
• Net income for the quarter surged to $87.4 million, up from $30.5 million in the prior year.
• Diluted earnings per share improved to $4.11 from $1.44 year-over-year.
• The company's borrowing base under its Credit Facility was increased to $425 million, and the maturity was effectively extended to January 2028.
• Cash provided by operating activities increased to $110.7 million for the six months ended June 30, 2026, from $84.0 million in the prior year.

Negatives

• Natural gas revenues decreased by $12.5 million for the quarter due to negative realized prices, exacerbated by regional pipeline constraints and higher GP&T costs.
• NGL revenues decreased by $3.4 million for the quarter, also impacted by higher allocated GP&T costs when natural gas prices are negative.
• Lease operating expenses increased by $10.6 million for the quarter, largely due to the Silverback Acquisition and increased workover expenses.
• The company reported a working capital deficit of $127.7 million as of June 30, 2026, an increase from $37.8 million at the end of 2025.

Risks

• Volatility of oil, natural gas, and NGL prices, including basis differentials.
• Regional supply and demand factors, production curtailments, or interruptions.
• Cost and availability of midstream and downstream services, potentially leading to well shut-ins.
• Severe weather conditions impacting markets.
• Risks associated with integrating acquired assets and developing new projects.
• Potential reduction in borrowing base and ability to repay excess borrowings.
• Changes in general economic, business, or industry conditions, including inflation and interest rates.
• Legislative or regulatory changes, particularly those related to hydraulic fracturing, greenhouse gases, and environmental protection.

Future Outlook

The company's strategic objectives include enhancing return on invested capital, generating sustainable free cash flow, maintaining a strong balance sheet, and maximizing shareholder returns through development, optimization, and complementary growth opportunities. The new Targa pipeline infrastructure is expected to provide increased capacity and reduce reliance on third-party facilities, with an in-service date in Q4 2026. The company anticipates continued capital investments to sustain and grow production.

Management Comments

• The Company cannot estimate the length or gravity of the future impact of geopolitical and economic conditions on its results of operations, financial position, liquidity, and the value of oil and natural gas reserves.
• While curtailments negatively impacted certain production volumes during the quarter, they did not materially affect overall financial condition or liquidity.
• Management continues to monitor the reliability and capacity of third-party midstream infrastructure serving its New Mexico acreage.

Industry Context

StockSavvy.ai notes that Riley Exploration Permian's performance is heavily influenced by the volatile oil and gas market. The strong revenue growth in oil is a positive indicator, but the negative realized prices for natural gas and NGLs highlight industry-wide challenges related to infrastructure constraints and basis differentials in the Permian Basin.

Comparison to Industry Standards

• The company's realized oil price of $94.28/Bbl for Q2 2026 significantly outpaced the average WTI price for the period, indicating effective hedging or favorable market positioning for its specific crude.
• The negative realized prices for natural gas and NGLs ($ (4.12)/Mcf and $ (4.71)/Bbl respectively, before GP&T costs) are indicative of severe regional pricing pressures, which are common in the Permian Basin when takeaway capacity is constrained, impacting many producers in the region.
• The increase in LOE, partly due to the Silverback Acquisition, aligns with industry trends of rising operational costs, especially for companies expanding their asset base.
• The company's DD&A expense as a percentage of revenue is within typical ranges for upstream oil and gas producers, reflecting the capital-intensive nature of the industry.

Legal Proceedings

• A claim was received from a purported working interest owner asserting rights regarding four wells drilled on properties acquired in the Silverback Acquisition prior to its closing date. The company is investigating and has asserted a claim for indemnification from the sellers.

Related Party Transactions

• The company has a 10-year agreement with RPC Toll LLC (a subsidiary of RPC Power) for natural gas to electricity conversion for its Champions field operations.
• The company has a 10-year natural gas supply agreement with RPC Merchant LLC (a subsidiary of RPC Power) for the Merchant Deal project.
• The company incurred LOE from RPC Power of approximately $2.1 million for Q2 2026 and $4.1 million for the first six months of 2026.
• Legal fees were incurred from di Santo Law PLLC, a firm owned by a member of the Board of Directors.

Stakeholder Impact

• Shareholders benefit from increased net income, improved EPS, and declared dividends.
• Creditors are impacted by the increased borrowing base and extended maturity of the Credit Facility, while covenants on the Credit Facility and Senior Notes require ongoing compliance.
• Suppliers and service providers may see increased business due to higher drilling and completion activity, though rising operational costs could impact margins.
• Employees may benefit from increased compensation and potential stock awards, as reflected in higher stock-based compensation expenses.

Next Steps

• Completion of new Targa pipeline infrastructure in Eddy County, New Mexico, expected in Q4 2026, to improve gathering, processing, and takeaway capacity.
• Continued monitoring of third-party midstream infrastructure reliability and capacity.
• Potential future capital investments to sustain and grow production.
• Management will continue to evaluate the impact of geopolitical and economic conditions on operations and financial results.

Key Dates

Recommendation

While the company demonstrates strong operational performance in oil production and revenue growth, the negative realized prices in natural gas and NGLs, coupled with rising operating costs and ongoing midstream infrastructure concerns, warrant a cautious approach. The positive outlook for oil prices and production is offset by these persistent challenges. A 'hold' recommendation reflects the balance between current strengths and existing risks.

Keywords

oil and gas, Permian Basin, revenue, production, commodity prices, Silverback Acquisition, derivatives, lease operating expenses