8-K: Riley Permian Reports Strong Q3 2024 Results, Prioritizes Primary Production

Riley Exploration Permian announced strong third-quarter 2024 results, highlighted by increased production and free cash flow, while discontinuing its EOR project to focus on primary production methods.

Summary

• Riley Exploration Permian reported its financial and operating results for the third quarter of 2024, ending September 30.
• The company averaged 23.4 MBoe/d of total equivalent production, with oil production at 15.5 MBbls/d.
• Operating cash flow was $72.1 million, or $60.5 million before changes in working capital.
• The company generated $37.8 million in free cash flow and paid dividends of $0.36 per share, totaling $8.1 million.
• Riley Permian reduced its debt by $35.0 million.
• Revenues for the quarter totaled $102.3 million, with a net income of $25.7 million, or $1.21 per diluted share.
• Adjusted EBITDAX was $71.7 million, and adjusted net income was $31.5 million, or $1.49 per diluted share.
• The company recorded a $30.2 million impairment related to the discontinuation of its EOR project.
• The company completed the installation of 20 MW of electrical generation equipment to power field operations.
• Riley Permian has invested a total of $22.5 million in its power-focused joint venture, RPC Power, and has 50% ownership.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, increased production, and debt reduction. The discontinuation of the EOR project is a strategic decision that is explained well. The company is also investing in future growth with its power project. The negative realized prices for natural gas and NGLs are a concern, but overall the sentiment is positive.

Positives

• The company demonstrated strong operational performance with increased production volumes.
• Riley Permian generated significant free cash flow, allowing for debt reduction and dividend payments.
• The company successfully increased natural gas and NGL production due to new processing capacity.
• The company's electrical generation project is progressing, which is expected to benefit operations.
• Riley Permian has a strong balance sheet with $245 million available for future borrowing under its credit facility.

Negatives

• The company discontinued its EOR project, resulting in a $30.2 million impairment.
• Negative average realized prices were recorded for natural gas and NGLs due to gathering, processing, and transportation costs exceeding sales prices.
• The company's interest expense was $8.8 million for the quarter.

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 operations are subject to severe weather and other risks that could lead to a lack of available markets.
• There are risks associated with the company's ability to successfully complete mergers, acquisitions, or divestitures.
• The company's borrowing base on its revolving credit facility could be reduced.
• The company is subject to legislative and regulatory changes, including environmental regulations.
• The company faces risks related to cybersecurity threats and technology system failures.

Future Outlook

Riley Permian provided Q4 2024 guidance, estimating total equivalent production between 23.5 and 24.5 MBoe/d and oil production between 15.5 and 16.1 MBbls/d. Total E&P capex is expected to be between $32 and $42 million.

Management Comments

• Bobby D. Riley, CEO, stated that Riley Permian delivered another quarter of strong results and continued to execute its annual plan.
• He noted that operating cash flow improved despite lower commodity prices due to higher production and improved hedge settlements.
• He also mentioned that the company has generated $99 million of Free Cash Flow year-to-date, contributing to debt reduction and dividends paid.
• Management believes the electric power projects will be increasingly valuable to the company's operations.

Industry Context

The announcement reflects a trend in the oil and gas industry where companies are focusing on operational efficiency and free cash flow generation. The decision to discontinue the EOR project and focus on primary production aligns with a strategy to optimize near-term returns, which is common in the current market environment. The company's investment in electrical generation is also a growing trend in the industry to reduce costs and improve sustainability.

Comparison to Industry Standards

• Riley Permian's production of 23.4 MBoe/d is comparable to other small to mid-sized Permian operators, such as Laredo Petroleum and Centennial Resource Development.
• The company's free cash flow generation of $37.8 million is a positive sign, indicating strong operational efficiency, similar to companies like Matador Resources.
• The debt reduction of $35 million is a positive step, aligning with industry trends of deleveraging balance sheets, similar to efforts by companies like Diamondback Energy.
• The decision to discontinue the EOR project is a strategic move to focus on primary production, which is a common approach for companies in the early stages of asset development, similar to strategies employed by smaller operators.
• The investment in electrical generation is a forward-thinking move, similar to initiatives by larger companies like Pioneer Natural Resources to reduce operational costs and improve environmental performance.

Related Party Transactions

• The company had contract services with related parties, with revenues of $600,000 for the quarter and $1,800,000 for the nine months ended September 30, 2024.

Stakeholder Impact

• Shareholders will benefit from the dividend payments and debt reduction.
• Employees will be impacted by the company's operational performance and strategic decisions.
• Customers will be impacted by the company's production volumes and pricing.
• Suppliers will be impacted by the company's capital expenditures and operational needs.
• Creditors will be impacted by the company's debt reduction and financial performance.

Next Steps

• The company will continue to execute its development plan.
• Riley Permian will focus on primary production methods.
• The company will advance its electrical power projects.
• Management will host a conference call on November 7, 2024, to discuss the results.

Key Dates

Keywords

Oil and Gas, Production, EBITDAX, Free Cash Flow, Permian Basin, Debt Reduction, Dividends, Capital Expenditures, Commodity Prices, Energy, Natural Gas, NGLs