Riley Exploration Permian, Inc. — Q1 2024 10-Q
Reporting period: Three months ended March 31, 2024. The unaudited results cover an oil and gas producer focused on the Permian Basin in West Texas and southeastern New Mexico. Comparisons with Q1 2023 are affected by the April 2023 New Mexico acquisition: Q1 2024 includes the acquired properties for the full quarter, while Q1 2023 does not.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $99.7 million | $67.0 million |
| Income from operations | $50.6 million | $36.0 million |
| Net income | $18.8 million | $31.9 million |
| Diluted earnings per share | $0.94 | $1.60 |
| Cash provided by operating activities | $56.1 million | $33.0 million |
| Cash used in investing activities | $42.6 million | $69.9 million |
| Cash used in financing activities | $22.3 million | Cash provided: $25.9 million |
- Net production averaged 20,374 Boe/d, up 55% from 13,169 Boe/d. The company brought six gross (5.97 net) horizontal wells online.
- Oil and gas sales rose 50% to $99.4 million. Oil volumes increased 44%, and the realized oil price before derivative settlements rose 3% to $75.25 per barrel. The acquired New Mexico properties contributed $29.0 million of revenue and $18.9 million of earnings in Q1 2024.
- Income from operations increased about 40%, but operating margin on total revenue decreased to approximately 50.7% from 53.8%. Net income fell about 41%, primarily reflecting a $17.1 million net derivative loss versus a $5.8 million gain a year earlier, and higher interest expense.
- Interest expense, net, was $9.1 million versus $1.0 million; the company attributed the increase mainly to acquisition-related debt and higher borrowing rates. The Senior Notes’ effective interest rate was 13.38% in Q1 2024.
- Operating cash flow increased 70%. Capital expenditures on an accrual, activity basis before acquisitions were $26.2 million. Cash and cash equivalents were $6.6 million at quarter-end, down from $15.3 million at December 31, 2023.
- Total debt carrying value was $341.8 million, comprising $175.0 million outstanding under the Credit Facility and $166.8 million carrying value for Senior Notes with $180.0 million principal outstanding. The Credit Facility had a $375 million borrowing base and $200 million available. The company reported compliance with debt covenants.
- Working capital was negative $40.9 million, compared with negative $31.1 million at year-end. Current liabilities include $20 million of scheduled Senior Notes principal payments due over the next 12 months.
- The company declared approximately $7.3 million in Q1 dividends and paid $7.2 million in cash. A subsequent dividend of $0.36 per share was declared in April.
Changes, outlook, and notable items
- Higher production and revenue reflected the acquired New Mexico assets, new wells, and workovers. Costs also rose: lease operating expense increased $7.9 million, and depletion, depreciation, amortization and accretion increased $8.7 million year over year.
- The $17.1 million derivative loss was primarily non-cash mark-to-market loss; settlements produced a $0.1 million gain in Q1 2024. Commodity hedges reduce downside exposure but also limit some benefit from favorable price movements.
- Permanent onsite power generation from the RPC Power joint venture was expected to begin operating in Q2 2024. Riley Permian held a 35% interest after a $5.6 million Q1 contribution; reported equity-method investment income was $0.2 million.
- No numerical production, capital-spending, or earnings guidance is provided in the supplied filing text. Management said existing sources of liquidity were expected to meet short- and long-term needs, while noting that cash flow and financing access can fluctuate.
- Subsequent to quarter-end, the company issued 1,015,000 shares on April 3, 2024, receiving approximately $25.9 million net. It closed a New Mexico asset acquisition for approximately $20.5 million on May 7, 2024. It also had an $8.5 million pipe purchase commitment due by December 2024.
- Management identified commodity-price volatility, production and operational risks, midstream access and costs, water restrictions and permitting, EOR performance, interest rates, borrowing-base reductions, covenant compliance, and access to capital among the risks. No material legal or environmental liabilities were reported; management said there was no material change in risk factors from the 2023 10-K.
Investor facts to verify
- How much of production and revenue growth is attributable to the New Mexico acquisition versus organic well performance, and how sustainable are volumes and unit costs?
- How sensitive are earnings and cash flow to commodity prices and the significant non-cash changes in derivative fair value?
- Can operating cash flow fund development, dividends, scheduled debt amortization, and joint-venture commitments while maintaining liquidity?
- What are the realized results and remaining obligations for the RPC Power project, midstream volume commitments, and EOR-related CO2 agreement?
- How do the April share issuance and May acquisition affect leverage, share count, and expected returns? The filing states 21,543,798 shares outstanding on May 3, 2024.