Riley Exploration Permian, Inc. (REPX) is a growth-oriented, independent oil and natural gas company focused on the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids (NGLs) in Texas and New Mexico. The company has demonstrated a track record of consistent growth, strong financial performance, and a commitment to shareholder value creation.

Financials

In the fiscal year ended December 31, 2023, Riley Permian reported annual net income of $118.0 million, annual revenue of $321.7 million, annual operating cash flow of $170.3 million, and annual free cash flow of $42.0 million. These robust financial results highlight the company's ability to generate substantial cash flow and profitability, even in a challenging commodity price environment.

During the first quarter of 2024, Riley Permian continued to deliver strong operational and financial performance. The company reported net oil production of 14,165 barrels per day, representing a 4% increase compared to the previous quarter. Looking ahead, the company has provided guidance for the second quarter of 2024, forecasting a production range of 14,400 to 14,800 barrels of oil per day, with the majority of the incremental growth expected to occur during this period.

Business Overview

Riley Permian's success is underpinned by its strategic focus on the Permian Basin, one of the most prolific oil and gas-producing regions in the United States. The company's acreage is primarily located on large, contiguous blocks in Yoakum County, Texas and Eddy County, New Mexico, providing it with a significant competitive advantage in terms of operational efficiency and development potential.

In April 2023, the company completed the acquisition of oil and natural gas assets in Eddy County, New Mexico, for an adjusted purchase price of $324.7 million. This strategic acquisition expanded Riley Permian's existing operating footprint in New Mexico, adding approximately 10,600 net acres of leasehold and 18 net horizontal wells, as well as 250 net vertical wells. The acquired assets are largely underdeveloped, providing the company with high-quality horizontal drilling locations, primarily in the Yeso trend, including the Blinebry, Glorieta, and Paddock formations.

The New Mexico acquisition not only increased Riley Permian's production and reserves but also enhanced the company's operational capabilities. The acquired assets include valuable infrastructure, such as saltwater disposal wells, which will optimize operations across the company's existing New Mexico footprint. Additionally, the company has identified opportunities to leverage its expertise and infrastructure to potentially generate additional revenue by providing services to third-party operators in the region.

Operational Excellence and Capital Discipline

Riley Permian's commitment to operational excellence and capital discipline is evident in its ability to manage costs and drive efficiency improvements. The company has successfully implemented cutting-edge technologies and streamlined processes, which have allowed it to rely on a single rig for a portion of the year while still delivering double-digit volume growth. This approach has enabled the company to maintain a disciplined capital allocation strategy, with a reinvestment rate of 45% of operating cash flow into upstream capital expenditures during the first quarter of 2024.

The company's focus on cost control and capital efficiency has also contributed to its strong free cash flow generation. During the first quarter of 2024, Riley Permian converted 40% of its operating cash flow into free cash flow, representing continued improvement in this key metric. The company's ability to generate substantial free cash flow provides it with the financial flexibility to pursue strategic growth opportunities, strengthen its balance sheet, and return capital to shareholders through dividends.

Environmental, Social, and Governance (ESG) Initiatives

In addition to its operational and financial achievements, Riley Permian has also demonstrated a commitment to environmental, social, and governance (ESG) practices. The company has implemented initiatives to reduce its environmental footprint, including the development of a joint venture for onsite power generation using produced natural gas. This project, which is expected to be fully operational by the second quarter of 2024, will provide the company with a reliable and sustainable source of power for its operations in Yoakum County, Texas, while also reducing its reliance on the grid and associated emissions.

Outlook

Looking ahead, Riley Permian remains well-positioned to continue its growth trajectory. The company's diversified asset base, strong balance sheet, and disciplined capital allocation strategy provide it with the flexibility to navigate market volatility and capitalize on strategic opportunities. Additionally, the company's commitment to operational excellence, cost control, and ESG practices positions it as a leader in the Permian Basin, with the potential to deliver sustainable value for its shareholders.

Conclusion

Overall, Riley Exploration Permian, Inc. (REPX) is a compelling investment opportunity, with a proven track record of consistent growth, robust financial performance, and a focus on shareholder value creation. The company's strategic positioning in the Permian Basin, coupled with its operational expertise and disciplined approach to capital allocation, make it a strong contender in the oil and gas industry.