DEFINITIONS
As used in this Quarterly Report on Form 10-Q (the "Quarter Report"), unless otherwise noted or the context otherwise requires, we refer to Riley Exploration Permian, Inc., together with its subsidiaries, as "Riley Permian," "REPX," "the Company," "Registrant," "we," "our," or "us." In addition, this Quarterly Report includes certain terms commonly used in the oil and natural gas industry, and the following are abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:
- Measurements.
- Bbl One barrel or 42 U.S. gallons liquid volume of oil or other liquid hydrocarbons
- Boe One stock tank barrel equivalent of oil, calculated by converting gas volumes to equivalent oil barrels at a ratio of 6 thousand cubic feet of gas to 1 barrel of oil and by converting NGL volumes to equivalent oil barrels at a ratio of 1 barrel of NGL to 1 barrel of oil
- Boe/d Stock tank barrel equivalent of oil per day
- Btu British thermal unit. One British thermal unit is the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit
- MBbl One thousand barrels of oil or other liquid hydrocarbons
- MBoe One thousand Boe
- MBoe/d One thousand Boe per day
- Mcf One thousand cubic feet of gas
- MMcf One million cubic feet of gas
- Abbreviations.
- ARO Asset Retirement Obligation
- ATM At-the-market equity sales program
- CME Chicago Mercantile Exchange
- Credit Facility A credit agreement among Riley Exploration - Permian, LLC, as borrower, and Riley Exploration Permian, Inc, as parent guarantor, with Truist Bank and certain lenders party thereto, as amended
- CO2 Carbon Dioxide
- EOR Enhanced Oil Recovery
- FASB Financial Accounting Standards Board
- NGL Natural gas liquids
- NYSE New York Stock Exchange
- Oil Crude oil and condensate
- RRC Railroad Commission of Texas
- SEC Securities and Exchange Commission
- Senior Notes Unsecured 10.5% senior notes due April 2028
- U.S. GAAP Accounting principles generally accepted in the United States of America
- WTI West Texas Intermediate
Item 1. Financial Statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
In thousands, except per share amounts
| RILEY EXPLORATION PERMIAN, INC. · CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Revenues: | ||
| Oil and natural gas sales, net | ||
| Contract services - related parties | ||
| Total Revenues | ||
| Costs and Expenses: | ||
| Lease operating expenses | ||
| Production and ad valorem taxes | ||
| Exploration costs | ||
| Depletion, depreciation, amortization and accretion | ||
| General and administrative: | ||
| Administrative costs | ||
| Share-based compensation expense | ||
| Cost of contract services - related parties | 363 | 110 |
| Transaction costs | ||
| Total Costs and Expenses | ||
| Income from Operations | ||
| Other Income (Expense): | ||
| Interest expense, net | () | () |
| Gain (loss) on derivatives, net | () | |
| Income (loss) from equity method investment | () | |
| Total Other Income (Expense) | () | |
| Net Income from Operations before Income Taxes | ||
| Income tax expense | () | () |
| Net Income | ||
| Net Income per Share: | ||
| Basic | ||
| Diluted | ||
| Weighted Average Common Shares Outstanding: | ||
| Basic | ||
| Diluted |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unaudited · In Thousands
| Line item | Shareholders' Equity · Common StockShares | Shareholders' Equity · Common StockAmount | Shareholders' EquityAdditional Paid-in Capital | Shareholders' EquityRetained Earnings | Shareholders' EquityTotal Shareholders' Equity |
|---|---|---|---|---|---|
| Balance, December 31, 2023 | 20,405 | $20 | $279,112 | $142,463 | |
| Share-based compensation expense | — | — | 1,692 | — | |
| Repurchased shares for tax withholding | (5) | — | (106) | — | () |
| Dividends declared | — | — | — | (7,329) | () |
| Net income | — | — | — | 18,758 | |
| Balance, March 31, 2024 | 20,400 | $20 | $280,698 | $153,892 | |
| Shareholders' Equity | |||||
| Common Stock | |||||
| Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Shareholders' Equity | |
| Balance, December 31, 2022 | 20,161 | $20 | $274,643 | $58,783 | |
| Share-based compensation expense | 16 | — | 1,260 | — | |
| Repurchased shares for tax withholding | (8) | — | (234) | — | () |
| Dividends declared | — | — | — | (6,851) | () |
| Net income | — | — | — | 31,851 | |
| Balance, March 31, 2023 | 20,169 | $20 | $275,669 | $83,783 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited · In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Cash Flows from Operating Activities: | ||
| Net income | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Exploratory well costs and lease expirations | — | 332 |
| Depletion, depreciation, amortization and accretion | ||
| (Gain) loss on derivatives, net | () | |
| Settlements on derivative contracts | () | |
| Amortization of deferred financing costs and discount | 1,315 | 192 |
| Share-based compensation expense | ||
| Deferred income tax expense | ||
| Other | () | |
| Changes in operating assets and liabilities | ||
| Accounts receivable | () | |
| Prepaid expenses and other current assets | () | |
| Other non-current assets | () | |
| Accounts payable and accrued liabilities | () | () |
| Inventory | () | () |
| Revenue payable | () | |
| Other current liabilities | ||
| Net Cash Provided by Operating Activities | ||
| Cash Flows from Investing Activities: | ||
| Additions to oil and natural gas properties | (34,939) | (34,986) |
| Contributions to equity method investment | () | () |
| Funds held in escrow | (1,926) | (33,000) |
| Additions to other property and equipment | () | () |
| Net Cash Used in Investing Activities | () | () |
| Cash Flows from Financing Activities: | ||
| Deferred financing costs | — | (49) |
| Proceeds from credit facility | ||
| Repayments under credit facility | () | |
| Repayments of Senior Notes | () | |
| Payment of common share dividends | () | () |
| Common stock repurchased for tax withholding | () | () |
| Net Cash (Used in) Provided by Financing Activities | () | |
| Net Decrease in Cash and Cash Equivalents | () | () |
| Cash and Cash Equivalents, Beginning of Period | ||
| Cash and Cash Equivalents, End of Period |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
Unaudited · In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Supplemental Disclosure of Cash Flow Information | ||
| Cash Paid For: | ||
| Interest, net of capitalized interest | ||
| Non-cash Investing and Financing Activities: | ||
| Changes in capital expenditures in accounts payable and accrued liabilities | $(4,210) | $2,870 |
| Assets contributed to equity method investment | — | $2,272 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Nature of Business
Riley Permian is a growth-oriented, independent oil and natural gas company focused on the acquisition, exploration, development and production of oil, natural gas and NGLs in Texas and New Mexico. Our activities primarily include the horizontal development of conventional reservoirs on the Northwest Shelf of the Permian Basin. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas and Eddy County, New Mexico.
On April 3, 2023 (the "Closing Date"), the Company completed the acquisition of oil and natural gas assets (the "New Mexico Acquisition") from Pecos Oil & Gas, LLC ("Pecos"), a Delaware limited liability company and an affiliate of Cibolo Energy Partners LLC. For further information regarding the New Mexico Acquisition, see Note 4 - Acquisitions of Oil and Natural Gas Properties.
(2) Basis of Presentation
These unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 include the accounts of Riley Permian and its wholly-owned subsidiaries and have been prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated upon consolidation.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, shareholders' equity, results of operations or cash flows. These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
These condensed consolidated financial statements have not been audited by an independent registered public accounting firm. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024, for various reasons, including fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, the current and future impacts of the military conflicts between Russia and Ukraine and Israel and Hamas, the volatile inflationary environment in U.S. markets and other factors.
(3) Summary of Significant Accounting Policies
Significant Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, accrued capital expenditures and operating expenses, ARO, the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts Receivable
Accounts receivable is summarized below:
In thousands
| Line item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Oil, natural gas and NGL sales | ||
| Joint interest accounts receivable | ||
| Other accounts receivable | ||
| Total accounts receivable |
As of December 31, 2022, the Company had accounts receivables from oil, natural gas and NGL sales of million.
The Company had allowance for credit losses at March 31, 2024 and December 31, 2023.
Other Non-Current Assets, Net
Other non-current assets consisted of the following:
In thousands
| Line item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Deferred financing costs, net (1) | ||
| Right of use assets | ||
| Equity method investment | ||
| Other | ||
| Total other non-current assets, net |
(1) Deferred financing costs, net reflects costs associated with the Company's Credit Facility which are amortized over the term of the Credit Facility.
Equity method investment. In January 2023, the Company formed a joint venture, RPC Power LLC ("RPC Power"), for the purpose of constructing a power infrastructure for onsite power generation in Yoakum County, Texas using produced natural gas. The Company has contributed its portion of capital for the joint venture through RPC Power Holdco LLC, a wholly-owned subsidiary of the Company. In March 2024, the Company made an additional capital contribution of $5.6 million in RPC Power. As of March 31, 2024, the Company owned 35% and had invested $11.5 million in the joint venture, comprised of $9.2 million in cash and $2.3 million of contributed assets, which was reduced by the Company's share of losses and increased by its share of income in the joint venture.
Accrued Liabilities
Accrued liabilities consisted of the following:
In thousands
| Line item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Accrued capital expenditures | ||
| Accrued lease operating expenses | ||
| Accrued general and administrative costs | ||
| Accrued ad valorem tax | ||
| Other accrued expenditures | ||
| Total accrued liabilities |
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Asset Retirement Obligations
Components of the changes in ARO for the three months ended March 31, 2024 and the year ended December 31, 2023 are shown below:
In thousands
| Line item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| ARO, beginning balance | ||
| Liabilities incurred | ||
| Liabilities assumed in acquisitions | — | 19,359 |
| Liability settlements and disposals | () | () |
| Accretion | ||
| ARO, ending balance | ||
| Less: current ARO (1) | () | () |
| ARO, long-term |
(1) Current ARO is included within other current liabilities on the accompanying condensed consolidated balance sheets.
Revenue Recognition
The following table presents oil and natural gas sales disaggregated by product:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Oil and natural gas sales: | ||
| Oil | ||
| Natural gas | ||
| NGLs | ||
| Total oil and natural gas sales, net |
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. This ASU is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this standard provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid. This ASU is effective for the Company prospectively to all annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its disclosures.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Acquisitions of Oil and Natural Gas Properties
New Mexico Acquisition
On April 3, 2023, the Company completed the New Mexico Acquisition from Pecos for $324.7 million, including customary purchase price adjustments. The assets acquired are located in Eddy County, New Mexico, and include approximately 10,600 total contiguous net acres of leasehold. The acquisition also included 18 net horizontal wells and 250 net vertical wells.
The Company funded the New Mexico Acquisition through a combination of proceeds from the issuance of $200 million of Senior Notes and borrowings under the Company's Credit Facility, including application of a $33 million escrow deposit paid during the three months ended March 31, 2023 from borrowings under the Credit Facility. For further information regarding the financing for the New Mexico Acquisition, see Note 9 - Long-Term Debt.
The New Mexico Acquisition qualified as a business combination using the acquisition method of accounting. The assets acquired and liabilities assumed were recognized at fair value as of the acquisition date. The fair value measurements of the oil and natural gas properties acquired and ARO assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of future production volumes, future development, future operating costs, future cash flows and the use of a weighted average cost of capital. These inputs required the use of significant judgments and estimates at the date of valuation, and use of different estimates and judgments could yield different results.
The following presents the allocation of the total purchase price of the New Mexico Acquisition to the identified assets acquired and liabilities assumed based on estimated fair value as of the Closing Date:
Purchase price allocation (in thousands):
| Total cash consideration | $324,686 |
| Assets acquired: | |
| Inventory | $2,980 |
| Oil and natural gas properties | 342,308 |
| Other | $149 |
| Amount attributable to assets acquired | $345,437 |
| Liabilities assumed: | |
| Revenue payable | $1,475 |
| Asset retirement obligations | 19,276 |
| Amount attributable to liabilities assumed | $20,751 |
| Net assets acquired | $324,686 |
Transaction costs associated with the New Mexico Acquisition were approximately $1.9 million for the three months ended March 31, 2023 and are included on the accompanying condensed consolidated statements of operations.
Post-Acquisition Operating Results
The results of operations attributable to the New Mexico Acquisition since the Closing Date have been included in the condensed consolidated statements of operations and include $29.0 million of total revenue, net, and $18.9 million of earnings for the three months ended March 31, 2024.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pro Forma Operating Results
The following unaudited pro forma combined results for the three months ended March 31, 2023 reflect the consolidated results of operations of the Company as if the New Mexico Acquisition had occurred on January 1, 2022. The unaudited pro forma information includes adjustments for (i) amortization for the discount and deferred financing costs and interest expense related to the Senior Notes and Credit Facility, (ii) depletion, depreciation and amortization expense, and (iii) interest expense related to the financing for the New Mexico Acquisition. In addition, the pro forma information has been effected for income taxes with a 21.5% statutory tax rate for three months ended March 31, 2023.
March 31, 2023 · In thousands, except per share amounts
| Line item | Three Months Ended | Three Months Ended |
|---|---|---|
| Total revenues | $97,607 | |
| Net income | $33,798 | |
| Basic net income per common share | $1.72 | |
| Diluted net income per common share | $1.70 |
The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations that the Company would have reported had the New Mexico Acquisition been completed as of January 1, 2022 and should not be taken as indicative of the Company's future combined results of operations. The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.
Entry into Purchase and Sale Agreement
On March 22, 2024, the Company entered into a purchase and sale agreement, pursuant to which the Company agreed to purchase interest in oil and natural gas properties in Eddy County, New Mexico ("2024 NM Asset Acquisition") for a purchase price of approximately $20.5 million, subject to customary post-closing adjustments. In connection with executing the purchase and sale agreement in March 2024, a deposit of $1.9 million was paid by the Company and is included in other non-current assets, net in the accompanying condensed consolidated balance sheets. The Company closed this asset acquisition on May 7, 2024 with an effective date of December 1, 2023. See Note 14 - Subsequent Events.
(5) Oil and Natural Gas Properties
Oil and natural gas properties are summarized below:
In thousands
| Line item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Proved | ||
| Unproved | ||
| Work-in-progress | ||
| Accumulated depletion, amortization and impairment | () | () |
| Total oil and natural gas properties, net |
Depletion and amortization expense for proved oil and natural gas properties was $17.0 million and $8.9 million, respectively, for the three months ended March 31, 2024 and 2023.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) Derivative Instruments
Oil and Natural Gas Contracts
The Company uses commodity based derivative contracts to reduce exposure to fluctuations in oil and natural gas prices. While the use of these contracts limits the downside risk for adverse price changes, their use also limits future revenues from favorable price changes. We have not designated our derivative contracts as hedges for accounting purposes, and therefore changes in the fair value of derivatives are included and recognized in other income (expense) in the accompanying condensed consolidated statements of operations.
As of March 31, 2024, the Company’s oil and natural gas derivative instruments consisted of fixed price swaps, costless collars, and basis swaps. The following table summarizes the open financial derivative positions as of March 31, 2024, related to our future oil and natural gas production:
| Calendar QuarterYear | Notional Volume | Weighted Average PriceFixed | Weighted Average PricePut | Weighted Average PriceCall |
|---|---|---|---|---|
| ($ per unit) | ||||
| Oil Swaps (Bbl) | ||||
| Q2 2024 | 465,000 | $74.76 | ||
| Q3 2024 | 405,000 | $74.35 | ||
| Q4 2024 | 360,000 | $73.94 | ||
| 2025 | 510,000 | $72.50 | ||
| Natural Gas Swaps (Mcf) | ||||
| Q2 2024 | 600,000 | $3.21 | ||
| Q3 2024 | 600,000 | $3.21 | ||
| Q4 2024 | 450,000 | $3.67 | ||
| 2025 | 1,235,000 | $3.75 | ||
| 2026 | 450,000 | $4.01 | ||
| Oil Collars (Bbl) | ||||
| Q2 2024 | 390,000 | $61.08 | $85.76 | |
| Q3 2024 | 366,000 | $61.00 | $83.61 | |
| Q4 2024 | 390,000 | $61.92 | $83.39 | |
| 2025 | 1,465,000 | $63.35 | $75.94 | |
| Natural Gas Collars (Mcf) | ||||
| Q2 2024 | 405,000 | $3.01 | $3.68 | |
| Q3 2024 | 405,000 | $3.01 | $3.68 | |
| Q4 2024 | 405,000 | $3.50 | $4.45 | |
| 2025 | 1,215,000 | $3.28 | $4.30 | |
| Oil Basis (Bbl) | ||||
| Q2 2024 | 330,000 | $0.97 | ||
| Q3 2024 | 330,000 | $0.97 | ||
| Q4 2024 | 330,000 | $0.97 |
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Interest Rate Contracts
The Company entered into floating-to-fixed interest rate swaps, in which it will receive a floating market rate equal to one-month CME Term Secured Overnight Financing Rate and will pay a fixed interest rate, to manage future interest rate exposure related to the Company’s Credit Facility. In March 2024, the Company entered into a fixed-to-floating interest rate swap for the period May 2024 - December 2024, to reduce our interest rate exposure, which resulted in a gain of approximately $1 million on a notional amount of $80 million. This gain will be realized upon settlement of the contracts in 2024.
At the time of settlement of these interest rate derivative contracts, gain or loss on settlement will be included in interest expense on the condensed consolidated statements of operations.
The following table summarizes the open interest rate derivative positions as of March 31, 2024:
| Open Coverage Period | Position | Notional Amount | Fixed Rate |
|---|---|---|---|
| (In thousands) | |||
| April 2024 - April 2026 | Long | $30,000 | 3.180% |
| April 2024 - April 2026 | Long | $50,000 | 3.039% |
| May 2024 - December 2024 | Short | $80,000 | 4.910% |
Balance Sheet Presentation of Derivatives
The following tables present the location and fair value of the Company’s derivative contracts included in the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023:
March 31, 2024 · In thousands
| Balance Sheet Classification | Gross Fair Value | Amounts Netted | Net Fair Value |
|---|---|---|---|
| Current derivative assets | $6,488 | $(4,850) | $1,638 |
| Non-current derivative assets | 6,175 | (5,470) | 705 |
| Current derivative liabilities | (14,662) | 4,850 | (9,812) |
| Non-current derivative liabilities | (8,233) | 5,470 | (2,763) |
| Total | $() | — | $() |
| December 31, 2023 | |||
| Balance Sheet Classification | Gross Fair Value | Amounts Netted | Net Fair Value |
| (In thousands) | |||
| Current derivative assets | $8,948 | $(3,935) | $5,013 |
| Non-current derivative assets | 6,687 | (4,391) | 2,296 |
| Current derivative liabilities | (4,295) | 3,935 | (360) |
| Non-current derivative liabilities | (4,391) | 4,391 | — |
| Total | — |
The following table presents the components of the Company's gain (loss) on derivatives, net for the periods presented below:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Settlements on derivative contracts | $() | |
| Non-cash gain (loss) on derivatives | () | |
| Gain (loss) on derivatives, net | $() |
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(7) Fair Value Measurements
The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.
The carrying values of financial instruments comprising cash, payables, receivables, and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value reported for the Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes is based on estimates of current rates available for similar issues with similar maturities and is classified as Level 2 in the fair value hierarchy. The oil and natural gas properties acquired and ARO assumed in the New Mexico Acquisition are considered Level 3 measurements.
Assets and Liabilities Measured on a Recurring Basis
The fair value of commodity derivatives and interest rate swaps is estimated using discounted cash flow calculations based upon forward curves and are classified as Level 2 in the fair value hierarchy. The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, by level within the fair value hierarchy:
March 31, 2024 · In thousands
| Line item | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Financial assets: | ||||
| Commodity derivative assets | — | $10,712 | — | $10,712 |
| Interest rate assets | — | $1,951 | — | $1,951 |
| Financial liabilities: | ||||
| Commodity derivative liabilities | — | $(22,895) | — | $(22,895) |
| December 31, 2023 | ||||
| Level 1 | Level 2 | Level 3 | Total | |
| (In thousands) | ||||
| Financial assets: | ||||
| Commodity derivative assets | — | $14,766 | — | $14,766 |
| Interest rate assets | — | $869 | — | $869 |
| Financial liabilities: | ||||
| Commodity derivative liabilities | — | $(8,686) | — | $(8,686) |
The following table summarizes the fair value and carrying amount of the Company's financial instruments.
In thousands
| Line item | March 31, 2024Carrying Amount | March 31, 2024Fair Value | December 31, 2023Carrying Amount | December 31, 2023Fair Value |
|---|---|---|---|---|
| Credit Facility (Level 2) | $175,000 | $175,000 | $185,000 | $185,000 |
| Senior Notes (Level 2)(1) | $166,842 | $190,426 | $170,959 | $185,346 |
(1) The carrying value reported for the Senior Notes is shown net of unamortized discount and unamortized deferred financing costs.
The carrying value reported for the Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes was determined utilizing a discounted cash flow approach.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) Transactions with Related Parties
Contract Services
Riley Permian Operating Company, LLC ("RPOC") provided certain administrative services to Riley Exploration Group, LLC ("REG") and certain administrative and operational services for Combo Resources, LLC ("Combo"). REG and Combo are third-party entities with no ownership by the Company or any members of its management team as of March 31, 2024. REG owns shares of equity in the Company. Combo and the Company also own interests in certain oil and natural gas properties in Lee and Fayette Counties, Texas, which were being jointly developed by Combo and the Company.
RPOC provided administrative services to REG in exchange for a monthly fee of $100 thousand pursuant to a contract services agreement or MSA. Beginning in February 2024, the Company began a transition of the administrative services to REG and its service providers at a reduced fee.
Additionally, RPOC provided certain administrative and operational services to Combo for a monthly fee of $100 thousand and reimbursement of all third party expenses pursuant to a contract services agreement. Both Combo and Riley Permian desired to terminate such MSA and transitioned the services under the MSA to Combo and its service providers effective as of January 31, 2024.
In addition, certain oil and natural gas properties were developed by Riley Permian and Combo who currently jointly own interests in 6 established units in Lee and Fayette Counties, Texas. Effective January 31, 2024, Riley Permian no longer has the right to acquire interest in Combo’s leases or earn an interest in the future units formed within defined areas. Riley Permian may participate in any wells or units to the extent Riley Permian owns an interest in oil, gas or minerals attributable to such new well or unit. Further, Riley Permian can continue to participate in wells drilled within each of the established units. Riley Permian continues to serve as operator on the wells in the established units.
The following table presents revenues from and related cost for contract services for related parties:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Combo | $100 | $300 |
| REG | 220 | 300 |
| Contract services - related parties | $320 | $600 |
| Cost of contract services | $363 | $110 |
The Company had no amounts payable to Combo at March 31, 2024 and $0.7 million payable at December 31, 2023, which is reflected in other current liabilities on the accompanying condensed consolidated balance sheets. Amounts due to Combo reflect the revenue, net of any expenditures for wells and fees due under the MSA, for Combo's net working interest in wells that the Company operates on Combo's behalf.
Consulting and Legal Fees
The Company has an engagement agreement with di Santo Law PLLC ("di Santo Law"), a law firm owned by Beth di Santo, a member of our Board of Directors, pursuant to which di Santo Law's attorneys provide legal services to the Company. The Company incurred legal fees from di Santo Law of approximately $0.3 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively. As of both March 31, 2024 and December 31, 2023, the Company had approximately $0.6 million in amounts accrued for di Santo Law, which was included in other current liabilities in the accompanying condensed consolidated balance sheets.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(9) Long-Term Debt
The following table summarizes the Company's outstanding debt:
In thousands
| Line item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Credit Facility | $175,000 | $185,000 |
| Senior Notes | ||
| Principal | 180,000 | 185,000 |
| Less: Unamortized discount(1) | 9,473 | 10,117 |
| Less: Unamortized deferred financing costs(2) | 3,685 | 3,924 |
| Total Senior Notes | 166,842 | 170,959 |
| Total debt | ||
| Less: Current portion of long-term debt(3) | ||
| Total long-term debt |
(1) Unamortized discount on long-term debt is amortized over the term of the respective debt.
(2) Unamortized deferred financing costs are attributable to and amortized over the term of the Senior Notes.
(3) As of March 31, 2024 and December 31, 2023, the current portion of long-term debt reflects $20 million due on the Senior Notes over the next twelve months.
Credit Facility
As of March 31, 2024, Riley Exploration - Permian, LLC ("REP LLC"), as borrower, and the Company, as parent guarantor, are parties to a credit agreement with Truist Bank and certain lenders party thereto, as amended, which provides for a Credit Facility with a borrowing base of $375 million. On February 22, 2023, the Company amended its Credit Facility to, among other things, allow for the issuance of unsecured senior notes of up to $200 million. On April 3, 2023, and concurrent with the closing of the New Mexico Acquisition, the Company entered into the fourteenth amendment to the Credit Facility to, among other things, increase the maximum facility amount to $1.0 billion and the borrowing base from $225 million to $325 million, resulting in the addition of new lenders to the lending group. On November 14, 2023, through the semi-annual redetermination process, the Credit Facility was amended to increase the borrowing base from $325 million to $375 million.
The Credit Facility contains certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not greater than 3.00 to 1.00. The Credit Facility also contains a total leverage ratio for Restricted Payments, as defined in the credit agreement. The leverage ratio, after giving pro forma effect to such Restricted Payments, cannot exceed 2.50 to 1.00. If the pro forma leverage ratio is between 2.00 to 2.50, the Restricted Payments cannot exceed trailing twelve month free cash flow. In addition to and after giving effect to such Restricted Payments, the availability of funds under on the Company's Credit Facility must be greater than or equal to 20% of the elected commitments. The Company must maintain a minimum hedging requirement included within the credit agreement for oil and natural gas based on its proved developed producing projected volumes for oil and natural gas on a rolling 24-month basis.
The Credit Facility is set to mature in April 2026. Substantially all of the Company’s assets are pledged to secure the Credit Facility. The following table summarizes the Credit Facility balances:
In thousands
| Line item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Outstanding borrowings | $175,000 | $185,000 |
| Available under the borrowing base | $200,000 | $190,000 |
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Senior Notes
On April 3, 2023, and concurrent with the closing of the New Mexico Acquisition, the Company (as "Issuer") completed its issuance of $200 million aggregate principal amount of 10.50% senior unsecured notes with final maturity in April 2028 pursuant to a note purchase agreement (the "Note Purchase Agreement"), with the Senior Notes issued at a 6% discount. The net proceeds from the Senior Notes were used to fund a portion of the purchase price and related fees, costs and expenses for the New Mexico Acquisition.
Interest is due and payable at the end of each quarter. In addition to interest, the Issuer will repay 2.50% of the original principal amount each quarter resulting in $5 million quarterly principal payments until the maturity of the Senior Notes. As of March 31, 2024, the Company had $20 million in current liabilities on the accompanying condensed consolidated balance sheet related to the quarterly principal payments due within the next 12 months.
The Issuer may, at its option, redeem, at any time and from time to time on or prior to April 3, 2026, some or all of the Senior Notes at 100% of the principal amount thereof plus the make-whole amount plus a premium of 5.25% as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After April 3, 2026, but on or prior to October 3, 2026, the Issuer may, at its option, redeem, at any time and from time to time some or all of the Senior Notes at 100% of the principal amount thereof plus a premium of 5.25% as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After October 3, 2026, the Issuer may redeem some or all of the Senior Notes at 100% of the principal amount thereof plus accrued and unpaid interest, if any. The principal remaining outstanding at the time of maturity is required to be paid in full by the Issuer. Certain note features, including those discussed above, were evaluated and deemed to be remote. Due to the remote nature, the fair value of these features was estimated to be approximately zero.
The Senior Notes contain certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not greater than 3.00 to 1.00 and (ii) an asset coverage ratio greater than 1.50 to 1.00. The Senior Notes also contain a total leverage ratio and an asset coverage ratio for Restricted Payments, as defined in the Note Purchase Agreement. The leverage ratio, after giving pro forma effect to such Restricted Payments, cannot exceed 2.00 to 1.00, and the asset coverage ratio, after giving effect to such Restricted Payments, must be greater than or equal to 1.50 to 1.00. In addition to and after giving effect to such Restricted Payments, the availability of funds under the Company's Credit Facility must be greater than or equal to 15% of the Aggregate Elected Commitment Amount. Upon issuance of the Senior Notes, the Company must maintain a minimum hedging requirement included within the Senior Notes for oil and natural gas based on its proved developed producing projected volumes for oil and natural gas on a rolling 18-month basis.
The Senior Notes are general unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company and are senior in right of payment to all existing and future subordinated indebtedness of the Company. The Note Purchase Agreement contains customary terms and covenants, including limitations on the Company’s ability to incur additional secured and unsecured indebtedness.
The following table summarizes the Company's interest expense:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Interest expense | ||
| Interest income | () | |
| Capitalized interest | () | () |
| Amortization of deferred financing costs | ||
| Amortization of discount on Senior Notes | 644 | — |
| Unused commitment fees on Credit Facility | 180 | 145 |
| Total interest expense, net |
As of March 31, 2024 and December 31, 2023, the weighted average interest rate on outstanding borrowings under the Credit Facility was 8.51% and 8.68%, respectively.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2024, the Senior Notes had $9.5 million of unamortized discount and $3.7 million of unamortized deferred financing costs, resulting in an effective interest rate of 13.38% during the three months ended March 31, 2024.
As of March 31, 2024, the Company was in compliance with all covenants contained in the credit agreement for the Credit Facility and in the Note Purchase Agreement.
(10) Shareholders' Equity
Dividends
For the three months ended March 31, 2024 and 2023, the Company declared quarterly dividends on its common stock totaling approximately million and million, respectively.
Share-Based Compensation
In April 2023, the Company's stockholders approved the Amended and Restated 2021 Long Term Incentive Plan (the "A&R LTIP"), which increased the total number of shares of common stock that may be utilized for awards pursuant to the A&R LTIP by 950,000 shares, from 1,387,022 to 2,337,022. The A&R LTIP had 1,076,095 shares available for future awards as of March 31, 2024.
2021 Long-Term Incentive Plan
The following table presents the Company's restricted stock activity during the three months ended March 31, 2024 under the A&R LTIP:
2021 Long-Term Incentive Plan
| Line item | Restricted Shares | Weighted Average Grant Date Fair Value |
|---|---|---|
| Unvested at December 31, 2023 | 521,997 | $24.37 |
| Granted | — | — |
| Vested | (15,285) | $24.39 |
| Forfeited | (469) | $20.27 |
| Unvested at March 31, 2024 | 506,243 | $24.82 |
For the three months ended March 31, 2024 and 2023, the total share-based compensation expense was $1.7 million and $1.3 million, respectively. Share-based compensation expense is included in general and administrative costs on the Company's condensed consolidated statements of operations for the restricted share awards granted under the A&R LTIP. Approximately $9.4 million of additional share-based compensation expense will be recognized over the weighted average life of 25 months for the unvested restricted share awards as of March 31, 2024.
ATM Program
On September 1, 2023, the Company entered into an Equity Distribution Agreement in connection with an at-the-market equity sales program ("ATM") pursuant to which the Company may offer and sell from time to time up to an aggregate $50 million in shares of the Company's common stock through its agents. The offer and sale of the shares has been registered under the Securities Act of 1933, as amended ("Securities Act"), pursuant to the Company’s registration statement on Form S-3, as amended. A prospectus supplement related to the offering of the shares, as defined in Rule 415(a)(4) promulgated under the Securities Act, was also filed. The Company intends to use the net proceeds from any offering for working capital purposes and other general corporate purposes, including, but not limited to, financing of capital expenditures, repayment or refinancing of
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
outstanding debt, financing acquisitions or investments, financing other business opportunities, and general working capital purposes.
During the three months ended March 31, 2024, the Company did not execute any sales under the ATM program. As of March 31, 2024, the Company had remaining capacity to sell up to an additional $49.7 million of common stock under the ATM program.
(11) Income Taxes
The components of the Company's consolidated provision for income taxes from operations are as follows:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Current income tax expense: | ||
| Federal | ||
| State | ||
| Total current income tax expense | ||
| Deferred income tax expense: | ||
| Federal | ||
| State | ||
| Total deferred income tax expense | ||
| Total income tax expense |
A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Tax at statutory rate | % | % |
| Nondeductible compensation | 0.5% | — |
| Share-based compensation | ()% | |
| State income taxes, net of federal benefit | % | % |
| Effective income tax rate | % | % |
The Company's federal income tax returns for the years subsequent to December 31, 2019 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2018. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(12) Net Income Per Share
The Company calculated net income per share using the treasury stock method. The table below sets forth the computation of basic and diluted net income per share for the periods presented below:
In thousands, except per share amounts
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Net income | ||
| Basic weighted-average common shares outstanding | ||
| Restricted shares | ||
| Diluted weighted average common shares outstanding | ||
| Basic net income per share | ||
| Diluted net income per share |
The following shares were excluded from the calculation of diluted net income per share due to their anti-dilutive effect for the periods presented:
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Restricted shares | 409,822 | 246,358 |
(13) Commitments and Contingencies
Legal Matters
Due to the nature of the Company's business, the Company may at times be subject to claims and legal actions. The Company accrues liabilities when it is probable that future costs will be incurred, and such costs can be reasonably estimated. Such accruals are based on developments to date and the Company’s estimates of the outcomes of these matters. The Company did not recognize any material liability for legal matters as of March 31, 2024 or December 31, 2023. Management believes it is remote that the impact of such matters will have a materially adverse effect on the Company’s financial position, results of operations, or cash flows.
Environmental Matters
The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws, which are often changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. The Company had material environmental liabilities as of March 31, 2024 or December 31, 2023.
Contractual Commitments
In October 2021, the Company executed an agreement related to its EOR project. This agreement is a CO2 purchase agreement that has a daily contract quantity with Kinder Morgan CO2 Company, LLC with a primary term extending through the earlier of the total contract quantity delivered or December 31, 2025.
In August 2022, the Company entered into a second amendment on its gas gathering and processing agreement with its primary midstream counterparty, Stakeholder Midstream LLC ("Stakeholder"). Stakeholder committed to expand its gathering and processing system with a commitment from the Company to deliver an annual minimum volume to Stakeholder’s gathering
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
system for a minimum of seven years beginning on the in-service date of the expanded plant, which is expected to be during the second quarter.
The Company entered into agreements with RPC Power including one of its subsidiaries, which include RPC Power providing operational expertise on the implementation and management of the power generation assets for a monthly fee of $20 thousand for a period of 10 years. In addition, the Company entered into a tolling agreement and committed to provide the natural gas needed to fuel the onsite power generators for 10 years following the in-service date, with an automatic yearly extension until terminated by either party, for a fee based on a per MMBtu basis adjusted for contractual usage factors.
In October 2023, the Company entered into a purchase agreement for pipe related to its 2024 drilling program. As of March 31, 2024, the Company has commitments to purchase approximately $8.5 million of pipe by December 2024.
(14) Subsequent Events
Dividend Declaration
On April 11, 2024, the Board of Directors of the Company declared a cash dividend of $0.36 per share of common stock payable on May 9, 2024 to its shareholders of record at the close of business on April 25, 2024.
Equity Offering
On April 3, 2024, the Company issued 1,015,000 shares of common stock at a par value of $0.001 per share. Net proceeds from the issuance were approximately $25.9 million, after deducting the underwriting discounts and commissions.
Asset Acquisition
On May 7, 2024, the Company closed the 2024 NM Asset Acquisition for approximately $20.5 million, subject to customary post-closing adjustments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company's condensed consolidated financial statements and related notes thereto presented in this report as well as the Company's audited consolidated financial statements and related notes included in the Company's Annual Report for the fiscal year ended December 31, 2023. The following discussion contains "forward-looking statements" that reflect the Company’s future plans, estimates, beliefs and expected performance. The Company’s actual results could differ materially from those discussed in these forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements" and "Part II. Item 1A. Risk Factors" below and the information set forth in the Risk Factors under Part I. Item 1A of the Company's Annual Report for the fiscal year ended December 31, 2023.
Overview
We operate in the upstream segment of the oil and natural gas industry and are focused on steadily growing conventional reserves, production and cash flow through the acquisition, exploration, development and production of oil, natural gas and NGLs primarily in the Permian Basin in West Texas and Southeastern New Mexico. We intend to continue to develop our reserves and increase production through development drilling and exploration activities and through acquisitions that meet our strategic and financial objectives.
Financial and Operating Highlights
Financial and operating results reflect the following:
- Increased total net equivalent production by 55% to 20.4 MBoe/d for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023
- During the three months ended March 31, 2024, 6 gross (5.97 net) horizontal wells brought online to production
- Realized average oil price on production sold of $75.25 per barrel, before derivative settlements, during the three months ended March 31, 2024
- Generated cash flow from operations of $56.1 million for the three months ended March 31, 2024
- Incurred total accrual (activity based) capital expenditures before acquisitions of $26.2 million for the three months ended March 31, 2024
- Paid cash dividends on common shares of $7.2 million during the three months ended March 31, 2024
- $6.6 million in cash and $341.8 million in total debt as of March 31, 2024
Recent Developments
Market Conditions, Commodity Prices and Interest Rates
The U.S. and global economies and markets have experienced heightened volatility following impactful geopolitical events, the effects of widespread inflation, and the impact of significantly higher interest rates. Prices for oil and natural gas are determined primarily by prevailing market conditions, which have been and could continue to be volatile.
The combination of geopolitical events, inflation and the higher interest rate environment has led to numerous forecasts of a U.S. or global recession. Any such recession could prolong market volatility or cause a decline in commodity prices, among other potential impacts.
The Company cannot estimate the length or gravity of the future impact these events will have on the Company's results of operations, financial position, liquidity and the value of oil and natural gas reserves.
New Mexico Acquisition
On April 3, 2023, the Company completed the New Mexico Acquisition for an adjusted purchase price of $324.7 million. The New Mexico Acquisition was funded through a combination of borrowings under the Company's Credit Facility and proceeds from the issuance of $200 million of Senior Notes.
Power Joint Venture
In January 2023, the Company entered into an agreement to form a joint venture created for the purpose of constructing new power infrastructure for onsite baseload power generation using produced natural gas for its Champions Field. The Company had an initial 30% investment in the joint venture company, RPC Power, which was increased to 35% in the current quarter, and is committed to providing its portion of capital expenditures. Construction of the onsite power generation facility was predominately completed during 2023 with temporary power generation beginning November 2023 and permanent onsite power generation beginning operations in the second quarter 2024.
Results of Operations
Comparison for the three months ended March 31, 2024 and 2023.
The following table sets forth selected operating data for the three months ended March 31, 2024 and 2023:
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Revenues (in thousands): | ||
| Oil sales | $96,992 | $64,974 |
| Natural gas sales | 683 | 523 |
| NGL sales | 1,749 | 915 |
| Oil and natural gas sales, net | $99,424 | $66,412 |
| Production Data, net: | ||
| Oil (MBbls) | 1,289 | 893 |
| Natural gas (MMcf) | 1,631 | 949 |
| NGLs (MBbls) | 293 | 134 |
| Total (MBoe) | 1,854 | 1,185 |
| Daily combined volumes (Boe/d) | 20,374 | 13,169 |
| Daily oil volumes (Bbls/d) | 14,165 | 9,922 |
| Average Realized Prices: | ||
| Oil ($ per Bbl) | $75.25 | $72.76 |
| Natural gas ($ per Mcf) | $0.42 | $0.55 |
| NGLs ($ per Bbl) | $5.97 | $6.83 |
| Average Realized Prices, including derivative settlements:(1) | ||
| Oil ($ per Bbl) | $74.33 | $67.06 |
| Natural gas ($ per Mcf) | $1.20 | $0.55 |
| NGLs ($ per Bbl) | $5.97 | $6.83 |
(1) The Company's calculation of the effects of derivative settlements includes gains and losses on the settlement of its commodity derivative contracts. These gains and losses are included under other income (expense) on the Company’s condensed consolidated statements of operations.
Oil and Natural Gas Revenues
Our revenues are derived from the sale of our oil and natural gas production, including the sale of NGLs that are extracted from our natural gas during processing. Revenues from product sales are a function of the volumes produced, product quality, market prices, and gas Btu content as well as midstream counterparty fees and deducts. Our revenues from oil, natural gas and NGL sales do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in the volume of production sold or changes in commodity prices. The Company’s total oil and natural gas revenue, net increased $33.0 million, or 50%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Oil revenues
- For the three months ended March 31, 2024, oil revenues increased by $32.0 million, or 49%, compared to the three months ended March 31, 2023. Of the increase, $28.8 million was attributable to an increase in volume and $3.2 million to an increase in our realized price. Volumes increased by 44%, while realized prices increased by 3% compared to the three months ended March 31, 2023. The oil and natural gas properties acquired in the New Mexico Acquisition contributed $26.4 million to the Company's revenues for the three months ended March 31, 2024.
- Oil volumes increased during the three months ended March 31, 2024 due to oil and natural gas assets acquired in the New Mexico Acquisition, production from new wells, and workovers performed on existing wells. During the three months ended March 31, 2024, we brought online 6 gross (5.97 net) horizontal wells. The oil and natural gas properties acquired in the New Mexico Acquisition contributed oil volumes of approximately 350 MBbls for the three months ended March 31, 2024.
- The average WTI price increased by $1.57 per Bbl during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023.
Natural gas revenues
- For the three months ended March 31, 2024, natural gas revenues increased by $0.2 million, compared to the three months ended March 31, 2023. Of the increase, $0.4 million was attributable to an increase in volumes, partially offset by a $0.2 million decrease attributable to lower realized price. Volumes increased by 72%, while realized prices decreased by 24%.
- Natural gas volumes increased during the three months ended March 31, 2024 due to oil and natural gas properties acquired in the New Mexico Acquisition, production from new wells, and workovers performed on existing wells. The oil and natural gas properties acquired in the New Mexico Acquisition contributed 862 MMcf to the Company's natural gas volumes for the three months ended March 31, 2024.
- The average Henry Hub price decreased by $0.49 per Mcf during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
NGL revenues
- For the three months ended March 31, 2024, NGL revenues increased by $0.8 million compared to the three months ended March 31, 2023. Of the increase, $1.1 million was attributable to an increase in volume, partially offset by a $0.3 million decrease attributable to lower realized price. Volumes increased by 119%, while realized prices decreased by 13%.
- NGL volumes increased during the three months ended March 31, 2024 due to oil and natural gas properties acquired in the New Mexico Acquisition, production from new wells, and workovers performed on existing wells. The oil and natural gas properties acquired in the New Mexico Acquisition contributed 155 MBbls to the Company's NGL volumes for the three months ended March 31, 2024.
Contract Services - Related Party
The following table presents the Company's revenue and costs associated with its contract services - related party transactions:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Contract services - related parties(1) | $320 | $600 |
| Cost of contract services - related parties(2) | 363 | 110 |
| Gross profit (loss) from contract services | $(43) | $490 |
(1) The Company’s contract services - related parties revenue is derived from master service agreements with related parties to provide certain administrative support services.
(2) The Company's cost of contract services - related parties represents costs specifically attributable to the master service agreements the Company has in place with the respective related parties.
The MSA with Combo was terminated as of January 31, 2024. See Note 8 - Transactions with Related Parties for more information.
Costs and Expenses
The following table presents the Company's operating costs and expenses and other (income) expenses:
| Costs and Expenses: | Three Months Ended March 31, 2024(In thousands) | Three Months Ended March 31, 2023(In thousands) |
|---|---|---|
| Lease operating expenses | $16,769 | $8,875 |
| Production and ad valorem taxes | $7,231 | $4,110 |
| Exploration costs | $4 | $332 |
| Depletion, depreciation, amortization and accretion | $17,779 | $9,083 |
| Administrative costs | $5,339 | $5,467 |
| Share-based compensation | 1,692 | 1,114 |
| General and administrative expense | $7,031 | $6,581 |
| Transaction costs | — | $1,887 |
| Interest expense, net | $9,067 | $1,016 |
| (Gain) loss on derivatives, net | $17,077 | $(5,755) |
| (Income) loss from equity method investment | $(167) | $232 |
| Income tax expense | $5,832 | $8,690 |
Lease Operating Expenses ("LOE")
LOE are the costs incurred in the operation and maintenance of producing properties. Expenses for electricity, compression, direct labor, saltwater disposal and materials and supplies comprise the most significant portion of our lease operating expenses. Certain operating cost components, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period. For instance, repairs to our pumping equipment or surface facilities or subsurface maintenance result in increased production expenses in periods during which they are performed. Certain operating cost components, such as saltwater disposal
associated with produced water, are variable and increase or decrease as hydrocarbon production levels and the volume of completion water disposal increases or decreases.
The Company’s LOE increased by $7.9 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was driven primarily by the oil and natural gas properties acquired in the New Mexico Acquisition which contributed $7.5 million to the Company's LOE for the three months ended March 31, 2024.
Production and Ad Valorem Tax Expense
Production taxes are paid on produced oil, natural gas and NGLs based on a percentage of revenues at fixed rates established by federal, state or local taxing authorities. In general, the production taxes we pay correlate to changes in our oil, natural gas and NGL revenues. We are also subject to ad valorem taxes in the counties where our production is located. Ad valorem taxes are generally based on the valuation of our oil and natural gas properties, which also trend with oil and natural gas prices and vary across the different counties in which we operate.
Production and ad valorem taxes increased by $3.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Production taxes increased primarily due to increases in our oil and natural gas sales, including revenues from production associated with the oil and natural gas properties acquired in the New Mexico Acquisition. Ad valorem taxes increased for the three months ended March 31, 2024 based on higher estimated property values for the current taxable period and higher tax rates for the current taxable period.
Depletion, Depreciation, Amortization and Accretion Expense
Depletion, depreciation and amortization is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil, natural gas and NGLs. All costs incurred in the acquisition, exploration and development of properties (excluding costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration activities) are capitalized. Capitalized costs are depleted using the units of production method.
Accretion expense relates to ARO. We record the fair value of the liability for ARO in the period in which the liability is incurred (at the time the wells are drilled or acquired) with the offset to property cost. The liability accretes each period until it is settled or the well is sold, at which time the liability is removed.
Depletion, depreciation, amortization and accretion expense increased by $8.7 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase for the three months ended March 31, 2024 was primarily due to depletion associated with the oil and natural gas properties acquired in the New Mexico Acquisition and a higher depletion rate on the historical properties.
General and Administrative Expense ("G&A")
G&A expenses include corporate overhead such as payroll and benefits for our corporate staff, share-based compensation expense, office rent for our headquarters, audit and other fees for professional services and legal compliance. G&A expenses are reported net of overhead recoveries.
Total G&A expense increased by $0.5 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by higher share-based compensation expense.
Transaction Costs
Transaction costs represent costs incurred on successful or unsuccessful business combinations or unsuccessful property acquisitions. There were no transaction costs for the three months ended March 31, 2024. During the three months ended March 31, 2023, the transaction costs of $1.9 million primarily related to the New Mexico Acquisition that closed April 3, 2023.
Interest Expense
Interest expense increased by $8.1 million during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023. The increase in interest expense was primarily due to higher debt balances, including the Senior Notes, as a result of financing for the New Mexico Acquisition, along with higher interest rates on borrowings under our Credit Facility, during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023.
Gain (Loss) on Derivatives
The Company recognizes settlements and changes in the fair value of its derivative contracts as a single component within other income (expense) on its condensed consolidated statements of operations. We have oil and natural gas derivative contracts, including fixed price swaps, basis swaps and collars, that settle against various indices. The following table presents the components of the Company's gain (loss) on derivatives, net for the three months ended March 31, 2024 and 2023:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Settlements on derivative contracts | $104 | $(5,088) |
| Non-cash gain (loss) on derivatives | (17,181) | 10,843 |
| Gain (loss) on derivatives, net | $(17,077) | $5,755 |
Cash gains or losses on settled derivative contracts related to contracts that settle during the period and are a function of the difference in settled versus contractual prices and the associated hedged volumes for each underlying commodity. Non-cash gains or losses on derivatives relate to unsettled contracts and are a function of changes in derivative fair values associated with fluctuations in the forward price curves for the commodities relative to contractual pricing for our derivative contracts outstanding.
Income Tax Expense
Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates. See Note 11 - Income Taxes to the Company's accompanying condensed consolidated financial statements included herein for further discussion of income taxes.
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Current income tax expense | $3,946 | $3,407 |
| Deferred income tax expense | 1,886 | 5,283 |
| Total income tax expense | $5,832 | $8,690 |
| Effective income tax rate | 23.9% | 21.4% |
The rise in our effective income tax rate was primarily due to the New Mexico Acquisition increasing our apportionment in New Mexico, which has a higher state tax rate than where we have historically operated.
Liquidity and Capital Resources
The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, like all upstream operators, we must make capital investments to grow and even sustain production. The Company’s principal liquidity requirements are to finance its operations, fund capital expenditures and acquisitions, make cash distributions and satisfy any indebtedness obligations. Cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and the significant capital expenditures required to more fully develop the Company’s oil and natural gas properties. Historically, our primary sources of capital funding and liquidity have been our cash on hand, cash flow from operations and borrowings under our Credit Facility. At times and as needed, we may also issue debt or equity securities, including through transactions under our shelf registration statement filed with the SEC. In April 2023, the Company amended its Credit Facility to increase the borrowing base and issued Senior Notes to fund the New Mexico Acquisition. We estimate the combination of the sources of capital discussed above will continue to be adequate to meet our short and long-term liquidity needs.
Cash on hand and operating cash flow can be subject to fluctuations due to trends and uncertainties that are beyond our control. Likewise, our ability to issue equity and obtain credit facilities on favorable terms may be impacted by a variety of market factors as well as fluctuations in our results of operations. For further discussion of risks related to our liquidity and capital resources, see "Item 1A. Risk Factors."
Working Capital
Working capital is the difference in our current assets and our current liabilities. Working capital is an indication of liquidity and potential need for short-term funding. The change in our working capital requirements is driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to, and the timing of collections from customers, the level and timing of spending for expansion activity, and the timing of debt maturities. As of March 31, 2024, we had a working capital deficit of $40.9 million compared to a deficit of $31.1 million as of December 31, 2023. The current portion of our Senior Notes, which includes our regularly scheduled principal payments of $5 million per quarter, accounts for $20 million of our working capital deficit as of March 31, 2024 and December 31, 2023. The working capital deficit at March 31, 2024 reflects $9.8 million in current derivative liabilities compared to $0.4 million in current derivative liabilities at December 31, 2023. We utilize our Credit Facility and cash on hand to manage the timing of cash flows and fund short-term working capital deficits. Our current derivative assets and liabilities represent the mark-to-market value as of March 31, 2024 of future commodity production which will settle on a monthly basis through the end of their contractual terms. This aligns with the receipt of oil and natural gas revenues on a monthly basis.
Cash Flows
The following table summarizes the Company’s cash flows:
In thousands
| Line item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
|---|---|---|
| Net cash provided by operating activities | $56,125 | $32,970 |
| Net cash used in investing activities | $(42,608) | $(69,935) |
| Net cash provided by (used in) financing activities | $(22,272) | $25,939 |
Operating Activities
The Company’s net cash provided by operating activities increased by $23.1 million, or 70%, to $56.1 million for the three months ended March 31, 2024 from $33.0 million for the three months ended March 31, 2023. The increase was primarily driven by a $32.7 million increase in revenues and a $5.2 million decrease in payments to settle commodity derivative contracts, partially offset by a $9.3 million increase in certain expenses, including LOE and production and ad valorem taxes and a $7.1 million increase in interest paid.
Investing Activities
The Company's cash flows used in investing activities decreased by $27.3 million to $42.6 million for the three months ended March 31, 2024 from $69.9 million for the three months ended March 31, 2023. The decrease was primarily due to funds
held in escrow associated with the Company's New Mexico Acquisition of $33.0 million for the three months ended March 31, 2023, partially offset by a $1.9 million deposit for the 2024 NM Asset Acquisition and an increase of $3.8 million in contributions to the equity method investment in RPC Power for the three months ended March 31, 2024.
Financing Activities
Net cash flow used in financing activities was $22.3 million for the three months ended March 31, 2024 compared to net cash flow provided by financing activities of $25.9 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, the Company had repayments to its Credit Facility of $10.0 million and to its Senior Notes of $5.0 million, compared to a draw on its Credit Facility of $33.0 million for the three months ended March 31, 2023, used to fund the escrow for the New Mexico Acquisition.
Credit Facility and Senior Notes
The borrowing base under the Company's Credit Facility was $375 million with outstanding borrowings of $175 million on March 31, 2024, representing available borrowing capacity of $200 million.
On February 22, 2023, the Company amended its Credit Facility to, among other things, allow for the issuance of Senior Notes of up to $200 million. On April 3, 2023, the Company amended its Credit Facility to, among other things, increase the borrowing base from $225 million to $325 million. On November 14, 2023, through the semi-annual redetermination, the Company increased its borrowing base to $375 million.
During 2023, the Company issued $200 million in principal amount of Senior Notes with a maturity date of April 2028. The proceeds from the Senior Notes were used to finance the New Mexico Acquisition. The principal balance of the Senior Notes as of March 31, 2024 was $180 million.
See further discussion in Note 9 - Long-Term Debt to the Company's condensed consolidated financial statements included herein.
Distributions
For the three months ended March 31, 2024, the Company authorized and declared a quarterly dividend totaling approximately $7.3 million, with $7.2 million paid in cash and $0.1 million payable to restricted shareholders upon vesting.
Contractual Obligations
As of March 31, 2024, the Company has commitments with its primary midstream counterparty and has purchase commitments totaling $8.5 million related to its 2024 drilling program. In addition, the Company entered into an agreement in 2023 to form a joint venture and is committed to contributing its portion of capital expenditures into the joint venture company and further entered into a tolling agreement to commit to providing the natural gas needed for the joint venture. The Company has also committed to a CO2 purchase agreement for a daily contracted quantity for an initial term that extends through December 2025. See Note 13 - Commitments and Contingencies in our notes to the condensed consolidated financial statements.
Critical Accounting Estimates
The Company's critical accounting policies and estimates are described in "Critical Accounting Estimates" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 of the Notes to the Consolidated Financial Statements in Riley Permian's Annual Report on Form 10-K for the year ended December 31, 2023. The accounting estimates used in preparing our interim condensed consolidated financial statements for the three months ended March 31, 2024 are the same as those described in Riley Permian's Annual Report.
See Note 3 - Summary of Significant Accounting Policies in the Company's consolidated financial statements in "Item 15. Exhibits and Financial Statement Schedules" for a full discussion of our significant accounting policies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management establishes and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024, with the participation of our CEO and CFO, as well as other key members of our management. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various legal proceedings and claims in the ordinary course of business. The ultimate outcome of any such proceedings or claims, and any resulting impact on us, cannot be predicted with certainty. The Company believes that the amount of the liability, if any, ultimately incurred with respect to any such proceedings or claims will not have a material adverse effect on our financial condition, liquidity, capital resources, results of operations or cash flows.
Refer to "Part I. Item 3 - Legal Proceedings" of Riley Permian's Annual Report on Form 10-K for the year ended December 31, 2023, and "Part I. Item 1. Note 13 - Commitments and Contingencies" in the notes to the unaudited condensed consolidated financial statements set forth in this Quarterly Report (which is incorporated by reference herein) for additional information.
Item 1A. Risk Factors
In addition to the information set forth in this Quarterly Report, the risks that are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, under the headings "Part I. Item 1. and Item 2. Business and Properties," "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II. Item 1A. Risk Factors," should be carefully considered, as such risks could materially affect the Company's business, financial condition or future results. There has been no material change in the Company's risk factors from those that were described in the Company's 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
Our common stock repurchase activity during the first quarter of 2024 was as follows:
| Month Ended | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Programs |
|---|---|---|---|---|
| January 31 | 4,440 | $23.05 | — | — |
| February 29 | 152 | $22.48 | — | — |
| March 31 | — | — | — | — |
(1) These amounts reflect the shares received by us from employees for the payment of personal income tax withholding on vesting transactions. The acquisition of the surrendered shares was not part of a publicly announced program to repurchase shares of our common stock. Any shares repurchased by the Company for personal tax withholdings are immediately retired upon repurchase.
Item 5. Other Information
During the quarter ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.
Item 6. Exhibits
Exhibit Number Description
3.1 First Amended and Restated Certificate of Incorporation of Riley Exploration Permian, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 1, 2021, Registration No. 333-253750). 3.2 Third Amended and Restated Bylaws of Riley Exploration Permian, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 23, 2022). 4.1 Description of Registrant's Securities (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 6, 2024). 4.2 Note Purchase Agreement, dated as of April 3, 2023, among Riley Exploration - Permian, LLC, as Issuer, Riley Exploration Permian, Inc., as Parent, each of the subsidiaries of the Issuer party thereto as guarantors, each of the holders from time to time party thereto, and U.S. Bank Trust Company, National Association, as agent for the holders (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2023). 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C., Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Calculation Linkbase Document 101.DEF* XBRL Taxonomy Definition Linkbase Document 101.LAB* XBRL Taxonomy Label Linkbase Document 101.PRE* XBRL Taxonomy Presentation Linkbase Document
- Filed herewith.
† Compensatory plan or arrangement.