Riley Exploration Permian, Inc. (REPX): A Steady Performer Navigating Operational Efficiency and Strategic Expansion

Published on March 08, 2025 | Ticker: REPX

Business Overview and History

Riley Exploration Permian, Inc. was founded in 2015 and is headquartered in Oklahoma City, Oklahoma. The company has established itself as a significant player in the Permian Basin through strategic acquisitions and operational excellence. In April 2023, Riley Permian completed a transformative acquisition of oil and natural gas properties in Eddy County, New Mexico from Pecos Oil & Gas, LLC for $324.7 million. This acquisition significantly expanded the company's footprint, adding approximately 10,600 net acres of leasehold, 18 net horizontal wells, and 250 net vertical wells to its portfolio.

Riley Permian's operations are centered around two key assets: the Champions field in Yoakum County, Texas, and the newly acquired Redlake field in Eddy County, New Mexico. The company's asset portfolio consists of large, contiguous acreage positions that allow for efficient, pad-based development. Riley Permian has a diversified production mix, with oil accounting for approximately 70% of total production, complemented by natural gas and NGLs.

Over the past year, Riley Permian has demonstrated its commitment to prudent financial management by reducing its total debt by $100 million and maintaining a debt-to-total enterprise value ratio of 34% as of September 30, 2024. The company has also prioritized returning capital to shareholders through a robust dividend program, paying over $98 million in dividends since 2021.

Financial Performance and Efficiency

Riley Permian has demonstrated a track record of consistent financial performance and operational efficiency. In the latest reported quarter (Q3 2024), the company generated $72.1 million in operating cash flow, or $60.5 million before changes in working capital. This strong cash flow generation enabled Riley Permian to reinvest 50% of its operating cash flow into upstream capital expenditures and still deliver $37.8 million in free cash flow.

Financials

The company's capital efficiency is further reflected in its robust financial ratios. As of September 30, 2024, Riley Permian had a current ratio of 0.70, a quick ratio of 0.64, and a cash ratio of 0.12, indicating a stable liquidity position. The company's debt-to-total capitalization ratio stood at 36.77%, with a debt-to-Adjusted EBITDAX ratio of 1.07x, demonstrating prudent financial management.

For the third quarter of 2024, Riley Permian reported revenue of $102.3 million, representing a 12% year-over-year decline primarily due to lower realized oil, natural gas, and NGL prices, despite an 11% increase in total production volumes. Net income for the quarter was $25.7 million, a 24% decrease year-over-year, largely driven by a $30.2 million impairment charge related to the discontinuation of the company's EOR project. However, the company generated strong operating cash flow of $72.1 million and free cash flow of $37.8 million, representing a 62% conversion rate of operating cash flow.

Riley Permian's financial performance for the first nine months of 2024 showed improvement compared to the same period in 2023. Total oil and natural gas revenue, net, increased by $33.7 million or 12%. Oil revenues increased by $41.4 million or 15% due to a 14% increase in oil volumes and a 1% increase in realized oil prices. However, natural gas revenues decreased by $3.0 million, and NGL revenues decreased by $4.7 million, both due to lower realized prices.

Liquidity

Riley Permian's liquidity position remains strong, as evidenced by its ability to generate substantial cash flow and maintain healthy financial ratios. The company's prudent debt management and consistent dividend payments further underscore its solid financial footing. As of September 30, 2024, Riley Permian had $13.3 million in cash and a debt-to-equity ratio of 0.58. The company has a $375 million credit facility, of which $130 million was drawn, leaving $245 million of available borrowing capacity.

Operational Excellence and Growth

Riley Permian's operational performance has been a key driver of its success. In the third quarter of 2024, the company achieved average total equivalent production of 23.42 MBoe/d, with oil production reaching 15.48 MBbls/d. This represents a 6% increase in oil production and an 11% increase in total equivalent production compared to the prior-year period.

The company's focus on operational efficiency has yielded impressive results. Riley Permian has implemented various strategies, including pad drilling, geosteering, and zipper fracs, to drive down costs and optimize production. These efforts have resulted in a 33% increase in feet per day and a 20% increase in lateral feet per day in 2024 year-to-date compared to 2023.

Strategic Initiatives and Expansion

In addition to its core oil and gas operations, Riley Permian has embarked on strategic initiatives to diversify its business and enhance long-term value creation. In January 2023, the company formed a joint venture, RPC Power LLC, to construct, own, and operate power generation assets that utilize Riley Permian's produced natural gas to power its oilfield operations in Yoakum County, Texas. This project became fully operational in September 2024.

The company has since expanded the scope of the RPC Power joint venture to include the construction, ownership, and operation of additional power generation and storage assets for the sale of energy and ancillary services to the Electric Reliability Council of Texas (ERCOT) grid. This initiative is expected to provide Riley Permian with an alternative revenue stream and a hedge against potential natural gas price volatility.

Business Segments and Products

Riley Permian's main business segments include oil and natural gas production and contract services. The company's primary focus is on the horizontal development of conventional reservoirs on the Northwest Shelf of the Permian Basin. In addition to its oil and gas production activities, Riley Permian provides certain administrative and operational services to other companies through master service agreements. During the three and nine months ended September 30, 2024, the company generated $0.6 million and $1.8 million, respectively, in revenue from these contract services.

Guidance and Future Outlook

Riley Permian has consistently exceeded its own guidance and continues to project strong operational and financial performance. At the beginning of 2024, the company announced an annual plan targeting 10% year-over-year oil volume growth while reducing capital spending by 10%. The current full-year 2024 guidance range indicates that Riley Permian is increasing full-year 2024 oil production by 14% to 15% over full-year 2023 production, surpassing the original 10% oil growth guidance.

The company's guidance range for Q4 2024 exit rate is up by 14% to 19% over Q4 2023 levels. Approximately 85% of the annual oil volume growth can be attributed to organic development funded by capital expenditures, with the remaining 15% coming from a bolt-on acquisition earlier in the year.

Riley Permian has also reduced its Q4 2024 OpEx and overhead cost guidance ranges from prior quarter levels, primarily due to improvements experienced in Q3 and increased gas sales volumes. The full-year 2024 capital expenditure range increased from the prior quarter due to a new gas compression project in New Mexico, which is expected to have longer-term benefits.

Risks and Challenges

As with any oil and gas company, Riley Permian faces a variety of risks and challenges. The company's operations are subject to the inherent volatility of commodity prices, which can significantly impact its financial performance. Additionally, the company's operations are subject to various environmental regulations and potential liabilities, which could result in increased costs or operational disruptions.

Furthermore, Riley Permian faces competition from other operators in the Permian Basin, which could impact its ability to acquire and develop new acreage or retain skilled personnel. The company also relies on its midstream partners for the transportation and processing of its production, and any disruptions or constraints in this infrastructure could affect its operations.

Conclusion

Riley Exploration Permian, Inc. (REPX) has established itself as a steady performer in the Permian Basin, delivering consistent operational and financial results through its focus on efficiency, strategic expansion, and prudent capital allocation. The company's diversified asset base, capital discipline, and innovative initiatives, such as the RPC Power joint venture, position it well to navigate the challenges of the oil and gas industry and continue generating value for its shareholders. With a strong track record of exceeding guidance and maintaining financial stability, Riley Permian is well-positioned for continued growth and success in the competitive Permian Basin market.

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