Business Overview and History
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) primarily in the Permian Basin in West Texas and Southeastern New Mexico. The company has built a strong track record of operational excellence and financial discipline, enabling it to navigate the inherent volatility of the energy industry and consistently deliver value for its shareholders.
Riley Exploration Permian, Inc. was founded in 2012 and is headquartered in Oklahoma City, Oklahoma. The company's initial focus was on building its acreage position in the Permian Basin through strategic acquisitions. During the challenging low commodity price environment from 2014-2016, Riley Permian demonstrated its resilience by prudently managing its capital expenditures and balance sheet, successfully weathering the industry downturn.
In 2017, the company reached a significant milestone by completing its initial public offering, which provided the necessary capital to fund its growth initiatives. Following the IPO, Riley Permian intensified its drilling and completion activities, implementing operational efficiencies to reduce costs and increase production.
Throughout its history, Riley Permian has maintained a strong focus on generating free cash flow and returning capital to shareholders through a growing dividend program. The company has consistently demonstrated operational excellence, achieving top-tier production and capital efficiency metrics compared to its Permian Basin peers. Riley Permian's success can be attributed to its strategic acreage position, technical expertise, and disciplined financial management.
Financials
Riley Permian's operational and financial performance has been consistently strong, with the company reporting annual net income of $111.59 million, annual revenue of $375.05 million, annual operating cash flow of $207.19 million, and annual free cash flow of $65.89 million for the fiscal year 2023. The company's focus on capital efficiency and prudent financial management has enabled it to maintain a solid balance sheet, with a debt-to-total capitalization ratio of 32.18% as of the end of the most recent fiscal year.
In the most recent quarter (Q3 2024), Riley Permian reported revenue of $102.34 million, net income of $25.66 million, operating cash flow of $72.1 million (or $60.5 million before changes in working capital), and free cash flow of $37.8 million. Year-over-year, Q3 2024 revenue decreased by 5% compared to Q3 2023, driven by a 12% decline in average realized prices. However, this was partially offset by a 6% increase in oil production volumes and an 11% increase in total equivalent production.
Riley Permian's primary source of revenue is from the sale of its oil, natural gas, and NGL production. For the three months ended September 30, 2024, oil sales accounted for $105.30 million, natural gas sales accounted for $1.17 million, and NGL sales accounted for $1.79 million, totaling $102.34 million in net oil and natural gas sales. For the nine months ended September 30, 2024, oil sales accounted for $308.65 million, natural gas sales accounted for $1.46 million, and NGL sales accounted for $78,000, totaling $307.11 million in net oil and natural gas sales.
The increase in oil sales revenue for the nine-month period was primarily due to a 14% increase in production volumes, as well as a 1% increase in realized oil prices compared to the prior year period. Natural gas and NGL sales revenues decreased during the nine-month period due to lower realized prices, which did not fully recover the company's allocated gathering and processing costs.
In addition to its oil and natural gas sales, Riley Permian also generates revenue from providing certain administrative support services to related parties through master service agreements. For the three and nine months ended September 30, 2024, the company recorded $600,000 and $1.80 million, respectively, in contract services revenue from these related party agreements.
Liquidity
Riley Permian's disciplined financial management has resulted in a strong liquidity position. As of September 30, 2024, the company had a working capital deficit of $31.9 million, with $13.3 million in cash on hand and $245 million of available borrowing capacity under its $375 million credit facility. The company also had $170 million of senior notes outstanding, with $20 million classified as current liabilities for scheduled principal payments over the next 12 months.
The company's debt-to-equity ratio stood at 0.6599 as of December 31, 2023. The current ratio and quick ratio as of September 30, 2024, were 0.6337 and 0.5754, respectively. Riley Permian funded its operations, capital expenditures, and acquisitions during the nine-month period primarily through cash flow from operations, borrowings under its credit facility, and proceeds from the issuance of common stock in April 2024. The company also paid $22.8 million in cash dividends to shareholders during the nine-month period.
Recent Developments and Outlook
In the third quarter of 2024, Riley Permian continued to execute on its growth strategy, reporting strong operational and financial results. The company's total equivalent production increased by 11% quarter-over-quarter to 2.16 million barrels of oil equivalent (Boe), with oil production rising by 6% to 1.42 million barrels. This growth was driven by the successful implementation of the company's drilling and completion program, which has benefited from ongoing operational improvements and efficiencies.
Despite the volatile commodity price environment, Riley Permian's disciplined hedging strategy and capital allocation approach have allowed the company to generate significant free cash flow. In the third quarter, the company reported free cash flow of $37.8 million, which enabled it to continue reducing its debt load and return capital to shareholders through a $0.38 per share dividend, representing a 6% increase from the previous quarter.
Looking ahead, Riley Permian remains focused on delivering consistent growth and shareholder returns. The company has adjusted its full-year 2024 guidance, now projecting a 14-19% increase in fourth-quarter oil production compared to the same period in 2023, despite a 20% reduction in capital expenditures year-over-year. This performance reflects the company's ability to optimize its operations and extract more value from its asset base.
At the beginning of 2024, Riley Permian announced an annual plan that called for 10% year-over-year oil volume growth while cutting capital spending by 10%. The company's current full year 2024 guidance range indicates they are increasing full year 2024 oil production by 14% to 15% over full year 2023 production, exceeding their original 10% growth target. Approximately 85% of the annual oil volume growth can be attributed to organic development, with the remaining 15% from a bolt-on acquisition earlier in the year.
Riley Permian's guidance range for Q4 2024 exit rate is up by 14% to 19% over Q4 2023 levels. Q4 2024 OpEx and overhead cost guidance ranges were both reduced from prior quarter levels, primarily due to improvements experienced in Q3 and increased gas sales volumes. The company's full year 2024 CapEx range increased from the prior quarter due to a new gas compression project in New Mexico, which will have longer-term benefits. Excluding this project, Riley Permian would be looking at a 21% to 29% annual CapEx reduction from 2023, while still achieving organic growth.
Risks and Challenges
While Riley Permian has demonstrated its ability to navigate industry challenges, the company is not immune to the inherent risks associated with the oil and gas sector. Fluctuations in commodity prices, changes in regulatory environment, and operational disruptions can all impact the company's financial and operational performance. Additionally, the company's reliance on acquisitions to drive growth introduces integration and execution risks that must be carefully managed.
Furthermore, the ongoing geopolitical tensions, such as the military conflict between Russia and Ukraine and the Israel-Hamas conflict, could have far-reaching implications for the global energy market, potentially affecting Riley Permian's operations and financial results.
Conclusion
Riley Exploration Permian, Inc. (REPX) has established itself as a leading player in the Permian Basin, delivering consistent operational and financial performance through a disciplined approach to capital allocation and a relentless focus on operational excellence. Despite the industry's inherent volatility, the company has demonstrated its ability to adapt and thrive, positioning itself for continued growth and shareholder value creation. As Riley Permian navigates the evolving energy landscape, investors can take comfort in the company's proven track record and its commitment to maintaining a strong balance sheet and delivering sustainable returns.