8-K: Riley Permian Reports Strong First Quarter 2024 Results, Driven by Increased Production and Cost Efficiencies

Riley Exploration Permian announced a strong first quarter of 2024, marked by increased production, cost savings, and strategic acquisitions.

Summary

• Riley Exploration Permian reported its financial and operating results for the first quarter of 2024, ending March 31.
• The company achieved an average total equivalent production of 20.4 MBoe/d, with oil production averaging 14.2 MBbls/d, a 4% increase from the previous quarter.
• Operating cash flow was $56 million, or $58 million before changes in working capital.
• The company incurred $26 million in total accrual capital expenditures and $35 million in cash capital expenditures before acquisitions.
• Free cash flow for the quarter was $23 million.
• Riley Permian paid dividends of $0.36 per share, totaling $7 million, and reduced debt by $15 million.
• The company closed on an acquisition of oil and gas properties in Eddy County, New Mexico, for approximately $20.5 million, adding 13,900 net acres and an estimated 20 to 25 net drilling locations.
• First quarter revenues totaled $100 million, with a net income of $19 million, or $0.94 per diluted share.
• Adjusted EBITDAX was $70 million, and adjusted net income was $32 million, or $1.61 per diluted share.
• The company reported a $17.1 million loss on derivatives, primarily due to a $17.2 million non-cash loss from changes in fair value.
• The company made a $5.6 million capital contribution to its joint venture, RPC Power LLC, bringing its total investment to $11.5 million for a 35% ownership.
• As of March 31, 2024, total debt was $342 million, with $175 million drawn on the credit facility and $167 million in senior unsecured notes.
• The borrowing base and elected commitments were reaffirmed at $375 million after the semi-annual redetermination.
• On April 3, 2024, the company issued 1,015,000 shares of common stock, raising approximately $25.9 million in net proceeds.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong production numbers, free cash flow generation, debt reduction, and a strategic acquisition. The company's management commentary is also optimistic, and the guidance for the next quarter is positive. The only negative is the loss on derivatives, but this is offset by the overall positive performance.

Positives

• The company experienced a 4% increase in oil production compared to the previous quarter.
• Riley Permian generated significant free cash flow of $23 million.
• The company successfully reduced its debt by $15 million.
• The acquisition in Eddy County, New Mexico, expands the company's development inventory.
• The company's adjusted EBITDAX was $70 million, indicating strong operational performance.
• The company reaffirmed its borrowing base at $375 million.
• The company is experiencing improved cycle times and efficiencies in development activities, leading to cost savings.

Negatives

• The company reported a $17.1 million loss on derivatives, primarily due to a $17.2 million non-cash loss from changes in fair value.
• Cash capital expenditures of $35 million were higher than accrual capital expenditures of $26 million due to prepayments.
• The company's net income was $19 million, which is lower than the $31.851 million reported in the same quarter of the previous year.

Risks

• The company is exposed to the volatility of oil, natural gas, and NGL prices.
• There are risks associated with delays or interruptions in production.
• The company faces risks related to the cost and availability of midstream and downstream activities.
• The company's enhanced oil recovery project may not perform as expected.
• There is a risk of reduction in the borrowing base on the revolving credit facility.
• The company is exposed to risks related to compliance with financial covenants.
• The company faces risks related to legislative or regulatory changes, including those related to hydraulic fracturing and emissions.
• There are risks associated with cybersecurity threats and technology system failures.

Future Outlook

Riley Permian is providing second quarter detailed guidance and reiterating previously disclosed full-year 2024 activity guidance based on currently scheduled development activity and current market conditions. The company expects total equivalent production of 20.3-21.3 MBoe/d in Q2 and 21.0-22.5 MBoe/d for the full year. The company anticipates drilling 2-3 gross operated wells in Q2 and 21-23 for the full year.

Management Comments

• Our Company had a strong start to the year with both operational and financial performance during the first quarter, said Bobby D. Riley, Chief Executive Officer and Chairman of the Board.
• We're experiencing improved cycle times and efficiencies in our development activities, leading to measurable cost savings.
• We continue to prioritize free cash flow generation which allows for debt reduction and direct shareholder return through dividends.
• Finally, we recently closed on the previously announced acquisition in New Mexico, contiguous to our existing New Mexico assets, which adds valuable development inventory in the region.

Industry Context

This announcement reflects a trend in the oil and gas industry where companies are focusing on operational efficiencies, free cash flow generation, and strategic acquisitions to enhance their asset base. The focus on debt reduction and shareholder returns is also a common theme among energy companies.

Comparison to Industry Standards

• Riley Permian's production growth of 4% quarter-over-quarter is a positive sign, indicating effective operational execution, however, this is not as high as some of its peers in the Permian Basin who have seen double digit growth.
• The company's focus on free cash flow generation is in line with industry trends, as investors are increasingly prioritizing companies that can generate cash and return value to shareholders.
• The acquisition in Eddy County, New Mexico, is a strategic move to expand the company's footprint in a key producing region, similar to other companies consolidating assets in the Permian.
• The company's debt reduction efforts are also a positive sign, as many oil and gas companies are working to deleverage their balance sheets.
• Compared to companies like Diamondback Energy and Pioneer Natural Resources, Riley Permian is a smaller player, but its focus on operational efficiency and strategic acquisitions positions it well for future growth.

Related Party Transactions

• The company had contract services with related parties, with revenues of $320,000 and costs of $363,000.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance, dividend payments, and strategic acquisitions.
• Employees may benefit from the company's growth and operational improvements.
• Customers will continue to receive oil and gas products from the company.
• Suppliers will continue to provide goods and services to the company.
• Creditors will benefit from the company's debt reduction efforts.

Next Steps

• The company will continue its development activities in the Permian Basin.
• Riley Permian will focus on integrating the newly acquired assets in Eddy County, New Mexico.
• The company will host a conference call on May 9, 2024, to discuss the results.
• The company will continue to monitor market conditions and adjust its strategy as needed.

Key Dates

Keywords

Oil and Gas, Production, EBITDAX, Free Cash Flow, Acquisition, Debt Reduction, Dividends, Permian Basin, Capital Expenditures, Derivatives