Riley Exploration Permian, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The unaudited company is an independent oil and natural gas producer focused primarily on the San Andres formation in the Permian Basin. The April 3, 2023 acquisition discussed below closed after quarter-end and is not included in Q1 operating results or balance-sheet assets.
Financial and operating performance
- Revenue: Total revenue was $67.0 million, down 0.3% from $67.2 million a year earlier. Oil and gas sales were $66.4 million. Production growth largely offset lower realized commodity prices.
- Production and prices: Production averaged 13,169 Boe/d, up 34% year over year; oil volumes rose 32%. Realized combined price before derivative settlements fell 26% to $56.04/Boe. The company brought seven gross (5.3 net) horizontal wells online.
- Profit: Operating income was $36.0 million, compared with $41.0 million. Net income was $31.9 million ($1.60 diluted per share), versus a $7.2 million net loss ($0.37 per share). Results included a $5.8 million derivative gain, compared with a $49.6 million derivative loss in Q1 2022. The filing does not present a separately defined margin measure; calculated operating margin was approximately 53.8%, versus 61.0%.
- Costs and interest: Lease operating expense increased $2.0 million to $8.9 million, and DD&A and accretion increased $2.5 million to $9.1 million, principally reflecting higher production. Net interest expense rose to $1.0 million from $0.7 million.
- Cash flow and investment: Operating cash flow was $33.0 million, versus $30.0 million. Investing cash outflow was $69.9 million, including $33.0 million placed in escrow for the acquisition, $35.0 million of cash additions to oil and gas properties, and a $1.8 million cash contribution to the power joint venture. Financing provided $25.9 million, including $33.0 million of revolver borrowings. Cash ended the quarter at $2.3 million, down from $13.3 million.
- Liquidity and debt: Revolver borrowings were $89.0 million, up from $56.0 million at year-end; $136.0 million remained available under the $225.0 million borrowing base. The weighted-average borrowing rate was 7.86%. Working capital deficit was $32.9 million. The company reported compliance with credit covenants at quarter-end.
- Shareholder returns: The company declared approximately $6.9 million in Q1 dividends and paid $6.8 million in cash. A subsequent dividend of $0.34 per share was declared for payment May 9, 2023.
Material changes and subsequent events
- On April 3, 2023, the company completed the New Mexico asset acquisition for $330 million, subject to customary adjustments. It was funded with revolver borrowings and $200 million of 10.50% senior unsecured notes due 2028; the notes were issued at a 6% discount. The acquisition-date fair values were not yet available in this filing. The post-closing revolver balance is not clearly provided.
- At closing, the revolver borrowing base increased from $225 million to $325 million, and the facility’s maximum amount increased to $1.0 billion. The facility matures in April 2026.
- The company formed a 30%-owned power infrastructure joint venture in January. Phase 1 construction was expected to finish in June 2023, with Phase 2 expected to become operational in late 2023 or early 2024. The company committed to supply natural gas to the project through 2028.
Outlook, risks, and contingencies
- No quantified production, revenue, capital-spending, or earnings guidance is provided. Management stated that available capital sources were expected to meet short- and long-term liquidity needs, while noting cash flow is exposed to commodity prices, production, and capital requirements.
- Key risks include volatile oil, gas, and NGL prices; drilling and acquisition execution; borrowing-base reductions, interest costs, and covenant compliance; midstream capacity; inflation and market conditions; and environmental, water-use, permitting, and regulatory requirements. The filing specifically notes potential constraints on produced-water permits in the Permian.
- Commodity derivatives reduce downside exposure but also limit gains when prices rise; fair-value changes can materially affect reported earnings. The company reported no material legal or environmental liabilities and no material change to the risk factors in its 2022 Form 10-K.
- The company has multi-year gathering and processing volume commitments and CO₂ purchase obligations related to its EOR project. The filing does not quantify all potential future obligations under these arrangements.
Important facts for investors to verify
- Post-acquisition debt, revolver utilization, liquidity, and covenant headroom after the $330 million purchase and $200 million note issuance.
- Acquired New Mexico assets’ production, reserves, integration costs, and purchase-price allocation once disclosed.
- Whether production growth and realized prices support cash generation amid higher operating costs and continued development spending.
- Derivative coverage, settlement exposure, and the effect of commodity-price movements on cash flows and earnings.
- Capital requirements and delivery timelines for the power joint venture, and the economics of the related gas and midstream commitments.