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

Riley Exploration Permian announced positive financial and operational results for the second quarter of 2024, highlighted by strong production, free cash flow generation, and debt reduction.

Summary

• Riley Exploration Permian reported its financial and operating results for the second quarter ended June 30, 2024.
• The company averaged 21.3 MBoe/d of total equivalent production, with oil production at 14.7 MBbls/d.
• Operating cash flow was $51.6 million, or $57.6 million before changes in working capital.
• Total accrual capital expenditures before acquisitions were $21.4 million, and cash capital expenditures were $19.3 million.
• Free cash flow for the quarter was $38.3 million.
• The company paid dividends of $0.36 per share, totaling $7.5 million.
• Riley Permian reduced its debt by $20.0 million.
• Net proceeds of $25.4 million were raised from an equity offering.
• An acquisition added approximately 13,900 net acres in New Mexico.
• The company increased its ownership in RPC Power, LLC from 35% to 50%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, production growth, and strategic acquisitions. The company is executing its plan effectively, and the management commentary is optimistic. However, there are inherent risks in the oil and gas industry, which temper the sentiment slightly.

Positives

• The company experienced outperformance on 2024 legacy well production results relative to internal forecasts.
• Favorable efficiencies and cost savings were achieved in drilling and completion activities.
• Well cost savings were a significant driver of free cash flow improvement.
• Development activity and spending were effectively smoothed.
• The company's borrowing base and elected commitments were reaffirmed at $375 million.
• Net income was $33.5 million, or $1.59 per diluted share.
• Adjusted EBITDAX was $73.3 million.

Negatives

• The company experienced negative realized prices for natural gas and natural gas liquids.
• Interest expense was $8.9 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 of production.
• The company faces risks related to the cost and availability of midstream and downstream activities.
• Severe weather and other risks could lead to a lack of available markets.
• There are risks associated with completing mergers, acquisitions, or divestitures.
• The company faces potential delays in the development, construction, or start-up of planned projects.
• There are risks related to the performance of enhanced oil recovery or carbon capture projects.
• The company's borrowing base on its revolving credit facility could be reduced.
• The company is subject to changes in general economic, business, or industry conditions.
• There are risks associated with legislative or regulatory changes, including environmental regulations.
• The company faces risks related to litigation and cybersecurity threats.

Future Outlook

The company is providing third quarter detailed guidance and reiterating previously disclosed full-year 2024 activity guidance based on currently scheduled development activity and current market conditions. The facilities for the RPC Power joint venture are targeted for commercial operations throughout 2025.

Management Comments

• We continue to execute our annual plan with overall positive results, said Bobby D. Riley, Chief Executive Officer and Chairman of the Board.
• Its early in the year to report on medium-term to longer-term well results, but thus far we are generally seeing outperformance on 2024 legacy well production results relative to our internal forecasts.
• We continue to experience favorable efficiencies and cost savings on our drilling and completion activity.
• Well cost savings represent our largest driver of free cash flow improvement this year.
• The team has also done a great job in smoothing development activity and spend, one of our core objectives coming into the year.

Industry Context

The results reflect a positive trend in the oil and gas industry, with companies focusing on production efficiency and cost management to maximize profitability. The expansion of the power joint venture also indicates a move towards diversification and integration of energy solutions.

Comparison to Industry Standards

• Riley Permian's production of 21.3 MBoe/d is comparable to other mid-sized Permian operators, such as Laredo Petroleum and Centennial Resource Development.
• The company's free cash flow generation of $38.3 million is a positive sign, indicating strong operational performance and capital discipline, similar to peers like Ovintiv and Devon Energy.
• The debt reduction of $20 million is a positive step towards strengthening the balance sheet, which is a common goal for many oil and gas companies in the current market environment.
• The acquisition of 13,900 net acres in New Mexico is a strategic move to expand their footprint in a key producing region, similar to acquisitions made by other companies like Diamondback Energy and Pioneer Natural Resources.
• The increase in ownership of the RPC Power joint venture is a unique move that diversifies their business model, which is not a common strategy among their direct peers.

Related Party Transactions

• The company had contract services with related parties, with revenues of $60 thousand for the three months ended June 30, 2024 and $380 thousand for the six months ended June 30, 2024.

Stakeholder Impact

• Shareholders will benefit from the strong financial results, dividend payments, and potential for future growth.
• Employees will benefit from the company's positive performance and continued operations.
• Customers will benefit from the company's continued production of oil and gas.
• Suppliers will benefit from the company's ongoing operations and capital expenditures.
• Creditors will benefit from the company's debt reduction and strong financial position.

Next Steps

• The company will continue to execute its 2024 plan.
• The company will focus on drilling and completion activities.
• The company will continue to develop its joint venture with RPC Power.
• The company will host a conference call for investors and analysts on August 8, 2024.

Key Dates

Keywords

Oil and Gas, Production, Free Cash Flow, Debt Reduction, Acquisition, Permian Basin, EBITDAX, Capital Expenditures, Equity Offering, Joint Venture