Business context and reporting period
Riley Exploration Permian, Inc. (NYSE American: REPX) filed its Form 10-K for the fiscal year ended December 31, 2023, comparing results with calendar 2022. This is an annual report, not a standalone fourth-quarter results filing. The company explores, develops and produces oil, natural gas and NGLs, primarily in the Permian Basin in Texas and New Mexico.
Results include the New Mexico acquisition, completed April 3, 2023, for adjusted consideration of approximately $325 million. The acquired Eddy County assets contributed about $79.3 million of revenue and $51.8 million of earnings from the acquisition date through year-end.
Key financial and operating metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $375.0 million | $321.7 million |
| Oil and natural gas sales, net | $372.6 million | $319.3 million |
| Income from operations | $171.9 million | $203.5 million |
| Net income | $111.6 million | $118.0 million |
| Diluted earnings per share | $5.58 | $5.99 |
| Cash from operating activities | $207.2 million | $170.3 million |
| Cash used in investing activities | $469.6 million | $128.3 million |
| Cash from (used in) financing activities | $264.4 million | $(37.0) million |
| Cash and cash equivalents at year-end | $15.3 million | $13.3 million |
| Working capital | $(31.1) million | $(25.3) million |
Oil and natural gas sales increased 17%, while net income declined about 5%. Average daily production rose 62% to 18,590 Boe/d, including 13,156 barrels of oil per day. Oil represented approximately 71% of 2023 production. The average realized combined price before derivative settlements fell to $54.91/Boe from $76.05/Boe; including settlements, it was $52.38/Boe versus $58.13/Boe.
Operating costs and notable items: lease operating expenses were $58.8 million ($8.67/Boe); production and ad valorem taxes were $25.6 million. DD&A and accretion were $65.1 million, and the company recorded a $9.8 million proved-property impairment, primarily associated with lower year-end commodity prices. Interest expense, net, increased to $31.8 million from $1.1 million. Derivatives generated a $6.2 million net gain versus a $51.6 million loss in 2022; cash settlements were losses of $17.2 million in 2023 versus $75.3 million in 2022. Income tax expense was $34.5 million, with a 23.6% effective tax rate.
At December 31, 2023, reported debt carrying value was approximately $356.0 million; gross principal was $370.0 million, comprising $185 million drawn on the revolver and $185 million of Senior Notes principal. The $375 million revolver borrowing base left $190 million available. The Senior Notes bear 10.50% interest, mature in April 2028, and require quarterly principal payments; the Credit Facility matures in April 2026. The company reported compliance with debt covenants. It declared approximately $27.9 million in dividends during 2023 and paid approximately $27.7 million in cash.
Year-end proved reserves were 107.7 MMBoe, up from 77.7 MMBoe; 47.5 MMBoe were proved undeveloped, with estimated future development costs of $322.7 million. The standardized measure of discounted future net cash flows was $1.26 billion, up from $1.11 billion, despite lower commodity-price assumptions, with acquisition and drilling additions contributing to the change.
Material changes versus 2022
- The acquisition and new wells increased production and oil revenue; acquisition assets contributed approximately 931 MBbl of oil production in 2023.
- Lower realized commodity prices, especially for natural gas and NGLs, offset volume growth. Realized oil price declined 19%; natural gas and NGL prices declined 87% and 69%, respectively.
- Investing outflows increased primarily because of the $324.7 million acquisition payment and higher capital spending. Accrual-basis capital expenditures before acquisitions were $135.8 million, versus $123.1 million.
- Debt and interest expense rose substantially to finance the acquisition. General and administrative expense also increased, reflecting expanded staffing and operating needs, share-based compensation and acquisition-related costs.
- Proved reserves rose through acquisition and extensions/discoveries, partly offset by 12.1 MMBoe of downward revisions, mainly from changes to the development schedule.
Outlook, risks and unusual items
No specific production, capital spending or earnings guidance is provided in the supplied filing text. Management describes priorities of developing existing assets, improving returns and costs, generating sustainable free cash flow, maintaining balance-sheet flexibility and pursuing acquisitions that meet strategic and financial objectives. An onsite natural-gas power project at Champions Field was expected to become operational in spring 2024; temporary generation began in November 2023.
- Commodity-price volatility and regional price differentials can materially affect revenue, cash flow, reserves, borrowing capacity and impairment risk. The company reported 2023 realized differentials of $(1.96)/Bbl for oil and $(2.08)/Mcf for natural gas against benchmark prices.
- Produced-water disposal restrictions and induced-seismicity measures in parts of the Permian Basin may raise costs or constrain operations. A third-party processing-plant maintenance issue shut in Redlake production during July and August 2023.
- Operations are concentrated in one basin and depend on third-party purchasers, gathering, processing and transportation. One purchaser accounted for 70% of 2023 revenue purchased and another accounted for at least 10%.
- Environmental, methane-emissions, hydraulic-fracturing and other regulatory changes may increase compliance costs or delay development. The company also faces plugging, abandonment and reclamation obligations.
- Debt covenants restrict certain borrowing, distributions and other actions; cash availability and dividend capacity depend on operating cash flow and covenant tests. The company had a working-capital deficit of $31.1 million.
- Commitments include approximately $13.1 million of pipe purchases for the 2024 drilling program, midstream minimum-volume obligations, and contributions to the power joint venture. The company also has a 10-year gas tolling commitment after the power facility enters service.
- The company recognized a $3.4 million exploratory-well expense after determining a previously suspended well was not capable of commercial production. No material legal or environmental liability was recorded; management said pending matters were not expected to have a material adverse effect.
BDO issued an unqualified opinion on the financial statements and internal controls. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2023.
Important facts for investors to verify
- Review the acquisition’s realized production, costs and returns, and whether the acquired assets meet expectations over a full-year period.
- Check debt principal amortization, the 10.50% Senior Notes cost, revolver borrowing-base redeterminations and covenant headroom, particularly under lower commodity prices.
- Assess whether operating cash flow can support planned development, the $322.7 million PUD development estimate, dividends and joint-venture commitments.
- Track realized prices, gas processing deductions, purchaser concentration, and progress on takeaway capacity and Redlake operating reliability.
- Evaluate reserve revisions and development timing, including the assumptions underlying reserve estimates and the $1.26 billion standardized measure.
- Confirm actual commissioning, capital contributions and economics of the power project, as well as compliance with its long-term gas and midstream commitments.
- Review the full financial statements and notes for debt maturities, derivatives, related-party transactions, contingencies and subsequent events; the supplied filing text does not provide a standalone fourth-quarter income statement.