8-K: Riley Permian Announces Acquisition of Silverback Exploration and Modifies Development Outlook

Riley Exploration Permian reports Q1 2025 results, announces acquisition of Silverback Exploration for $142 million, and modifies its development outlook.

Summary

• Riley Exploration Permian reported its financial and operating results for the first quarter ended March 31, 2025.
• The company averaged 24.4 MBoe/d of total equivalent production, with oil production of 15.6 MBbls/d.
• Operating cash flow was $50 million, or $56 million before changes in working capital, with Total Free Cash Flow of $36 million and Upstream Free Cash Flow of $39 million.
• Total accrual capital expenditures before acquisitions were $24 million ($19 million for upstream), while cash capital expenditures before acquisitions were $19 million ($16 million for upstream).
• Debt outstanding was reduced by $21 million, resulting in a debt-to-Adjusted EBITDAX ratio of 0.9x.
• The borrowing base on the company's senior secured revolving credit facility was reaffirmed at $400 million in May 2025.
• An agreement to acquire Silverback Exploration for $142 million in cash was announced, adding 5 MBoe/d of total equivalent production and 300+ gross undeveloped locations.
• Management has elected to modify previously announced investment and development activity in light of recent market conditions and the pending acquisition.
• The Silverback Acquisition assets comprise an approximate 47,000 net acre position, directly adjacent to and overlapping with the Company's existing acreage in Eddy County.
• Riley Permian estimates that approximately 19,000 net acres are prospective for the Yeso Trend, with an estimated 300+ gross undeveloped locations.
• Recent production was 5.0 MBoe/d, of which 52% was oil and 75% was liquids.
• The transaction is expected to close early in the third quarter of 2025, subject to customary closing conditions.
• The company is reducing 2025 investing midpoint guidance on a standalone basis (excluding the pending acquisition) by 50% while reducing midpoint total production guidance by 3%.
• Inclusive of the acquisition, the company forecasts 5% of incremental total investing on a full-year 2025 basis, as compared to its standalone guidance.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While the company is reducing its investment and production guidance, it is also making a strategic acquisition and maintaining a strong financial position. The management's comments are optimistic, but acknowledge the challenges of the current market environment.

Positives

• Strong free cash flow generation allowed for debt reduction.
• Strategic acquisition of Silverback Exploration adds significant long-term upstream development potential.
• The company has a disciplined capital allocation philosophy and robust hedging profile.
• The company is well-positioned to succeed in the current market environment.
• The company is prioritizing the acquisition and preservation of high-quality inventory over the conversion of inventory to production.

Negatives

• The company is reducing 2025 investing midpoint guidance on a standalone basis by 50%.
• The company is reducing midpoint total production guidance by 3%.

Risks

• Volatility of oil, natural gas and NGL prices.
• Regional supply and demand factors.
• Delays, curtailment delays or interruptions of production.
• Governmental order, rule or regulation that may impose production limits.
• Cost and availability of gathering, pipeline, refining, transportation and other midstream and downstream activities.
• Inability to successfully complete mergers, acquisitions or divestitures.
• The potential delays in the development, construction or start-up of planned projects.
• Failure to realize any of the anticipated benefits of our joint ventures or other equity investments.
• Inability to prove up undeveloped acreage and maintain production on leases.
• Any reduction in our borrowing base on our Credit Facility from time to time and our ability to repay any excess borrowings as a result of such reduction.
• The impact of our derivative strategy and the results of future settlement.
• Our ability to comply with the financial covenants contained in our Credit Facility and Senior Notes.
• Changes in general economic, business or industry conditions, including changes in inflation rates, interest rates and foreign currency exchange rates.
• Conditions in the capital, financial and credit markets and our ability to obtain capital needed to fund our exploration and development and midstream project on favorable terms or at all.
• The loss of certain tax deductions.
• Risks associated with executing our business strategy, including any changes in our strategy.
• Risks associated with concentration of operations in one major geographic area.
• Legislative or regulatory changes, including initiatives related to hydraulic fracturing, regulation of greenhouse gases, water conservation, seismic activity, weatherization, or protection of certain species of wildlife, or of sensitive environmental areas.
• The ability to receive drilling and other permits or approvals and rights-of-way in a timely manner (or at all), which may be restricted by governmental regulation and legislation.
• Restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the Railroad Commission of Texas in an effort to control induced seismicity in the Permian Basin.
• Changes in government environmental policies and other environmental risks.
• The availability of drilling equipment and the timing of production.
• Tax consequences of business transactions.
• Public health crisis, such as pandemics and epidemics, and any related government policies and actions and the effects of such public health crises on the oil and natural gas industry, pricing and demand for oil and natural gas and supply chain logistics.
• General domestic and international economic, market and political conditions, including military conflicts, global economic growth, unpredictability of new tariffs, actions of OPEC+ countries and changes to the current political environment under the new administration.
• Risks related to litigation.
• Cybersecurity threats, technology system failures and data security issues.

Future Outlook

Riley Permian is reducing 2025 investing midpoint guidance on a standalone basis by 50% while reducing midpoint total production guidance by 3%. Inclusive of the acquisition, the company forecasts 5% of incremental total investing on a full-year 2025 basis, as compared to its standalone guidance.

Management Comments

• Riley Permian delivered another capital-efficient quarter of strong performance.
• Our modest capital investing during the first quarter allowed us to generate substantial Total Free Cash Flow and further reduce debt, positioning us for the year ahead.
• Were excited to announce another strategic acquisition of a largely undeveloped asset base in New Mexico.
• Despite current market volatility, we believe this acquisition is justified at present given our long-term outlook for our industry and our company.
• This year we are prioritizing the acquisition and preservation of high-quality inventory over the conversion of inventory to production.
• We believe Riley Permian is well-positioned to succeed in the current market environment, with our strong asset base, disciplined capital allocation philosophy and robust hedging profile.

Industry Context

The acquisition of Silverback Exploration reflects a trend of consolidation in the Permian Basin, as companies seek to expand their acreage and production base. The modified development outlook suggests a cautious approach to capital spending in light of market volatility, prioritizing inventory preservation over immediate production growth.

Comparison to Industry Standards

• It is difficult to compare Riley Permian's results directly to industry standards without more detailed information on its specific assets and operating costs.
• However, the company's debt-to-Adjusted EBITDAX ratio of 0.9x is generally considered healthy in the oil and gas industry.
• The reduction in capital spending and production guidance is consistent with the actions of other companies in the sector that are responding to market uncertainty.
• The company's focus on free cash flow generation and debt reduction aligns with investor preferences for capital discipline in the energy sector.

Stakeholder Impact

• Shareholders: The acquisition and focus on free cash flow generation are likely to be viewed positively by shareholders.
• Employees: The modified development outlook may impact employment opportunities.
• Customers: The acquisition is not expected to have a significant impact on customers.
• Suppliers: The reduction in capital spending may impact suppliers.
• Creditors: The debt reduction is positive for creditors.

Next Steps

• Close the Silverback Acquisition in early Q3 2025.
• Continue to develop midstream infrastructure in New Mexico.
• Progress on RPC Power phase 2 project with a planned in-service date of late 2025 or early 2026.

Key Dates

Keywords

Riley Permian, Silverback Exploration, Acquisition, Production, Financial Results, Capital Expenditures, Debt Reduction, Guidance, Permian Basin, Oil and Gas