Riley Exploration Permian, Inc 10-Q for FY2023 Q3
Riley Exploration Permian, Inc. (REPX)
10-Q
2023-11-07
For: 2023-09-30
View Original
Added on
April 09, 2026
About this 10-Q
Riley Exploration Permian, Inc filed this 10-Q on November 7, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $108.29M
- up 23.0% from $88.07M a year earlier
- Net income
- $8.65M
- down 85.5% from net income of $59.82M a year earlier
- Diluted EPS
- $0.43
- down 85.9% from $3.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission file number 001-15555
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code: (405 ) 415-8699
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o | x | |||||||||
| Non-accelerated filer | o | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The total number of shares of common stock, par value $0.001 per share, outstanding as of November 2, 2023 was 20,426,199 .
| RILEY EXPLORATION PERMIAN, INC. | ||||||||
| FORM 10-Q | ||||||||
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2023 | ||||||||
| TABLE OF CONTENTS | ||||||||
| Page | ||||||||
2
DEFINITIONS
As used in this Quarterly Report on Form 10-Q (the "Quarter Report"), unless otherwise noted or the context otherwise requires, we refer to Riley Exploration Permian, Inc., together with its subsidiaries, as "Riley Permian," "REPX," "the Company," "Registrant," "we," "our," or "us." In addition, this Quarterly Report includes certain terms commonly used in the oil and natural gas industry, and the following are abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:
| Measurements. | |||||
| Bbl | One barrel or 42 U.S. gallons liquid volume of oil or other liquid hydrocarbons | ||||
| Boe | One stock tank barrel equivalent of oil, calculated by converting gas volumes to equivalent oil barrels at a ratio of 6 thousand cubic feet of gas to 1 barrel of oil and by converting NGL volumes to equivalent oil barrels at a ratio of 1 barrel of NGL to 1 barrel of oil | ||||
| Boe/d | Stock tank barrel equivalent of oil per day | ||||
| Btu | British thermal unit. One British thermal unit is the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit | ||||
| MBbl | One thousand barrels of oil or other liquid hydrocarbons | ||||
| MBoe | One thousand Boe | ||||
| MBoe/d | One thousand Boe per day | ||||
| Mcf | One thousand cubic feet of gas | ||||
| MMcf | One million cubic feet of gas | ||||
| Abbreviations. | |||||
| ARO | Asset Retirement Obligation | ||||
| ATM | At-the-market equity sales program | ||||
| CME | Chicago Mercantile Exchange | ||||
CO2 | Carbon Dioxide | ||||
| EOR | Enhanced Oil Recovery | ||||
| FASB | Financial Accounting Standards Board | ||||
| NGL | Natural gas liquids | ||||
| NYSE | New York Stock Exchange | ||||
| Oil | Crude oil and condensate | ||||
| RRC | Railroad Commission of Texas | ||||
| SEC | Securities and Exchange Commission | ||||
| U.S. GAAP | Accounting principles generally accepted in the United States of America | ||||
| WTI | West Texas Intermediate | ||||
3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Quarterly Report") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, contained in this Quarterly Report that include information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position and potential growth opportunities represent management's beliefs and assumptions based on currently available information and they do not consider the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” “estimates,” “projects,” “targets” or comparable terminology or by discussions of strategy or trends. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” and "Part II, Item 1.A Risk Factors" in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2022. We continue to face many risks and uncertainties including, but not limited to:
•the volatility of oil, natural gas and NGL prices;
•regional supply and demand factors, any delays, curtailment delays or interruptions of production, and any governmental order, rule or regulation that may impose production limits;
•cost and availability of gathering, pipeline, refining, transportation and other midstream and downstream activities, which could result in a prolonged shut-in of our wells that may adversely affect our reserves, financial condition and results of operations;
•severe weather and other risks that lead to a lack of any available markets;
•our ability to successfully complete mergers, acquisitions or divestitures;
•the inability or failure of the Company to successfully integrate the acquired assets into its operations and development activities;
•the potential delays in the development, construction or start-up of planned projects;
•the risk that the Company's EOR project may not perform as expected or produce the anticipated benefits;
•risks relating to our operations, including development drilling and testing results and performance of acquired properties and newly drilled wells;
•inability to prove up undeveloped acreage and maintain production on leases;
•any reduction in our borrowing base on our revolving credit facility from time to time and our ability to repay any excess borrowings as a result of such reduction;
•the impact of our derivative strategy and the results of future settlement;
•our ability to comply with the financial covenants contained in our revolving credit facility and in our unsecured Senior Notes;
•changes in general economic, business or industry conditions, including changes in inflation rates, interest rates, and foreign currency exchange rates;
•conditions in the capital, financial and credit markets and our ability to obtain capital needed for development and exploration operations on favorable terms or at all;
•the loss of certain tax deductions;
•risks associated with executing our business strategy, including any changes in our strategy;
•risks associated with concentration of operations in one major geographic area;
•legislative or regulatory changes, including initiatives related to hydraulic fracturing, emissions and disposal of produced water, which may be negatively impacted by regulation or legislation;
•the ability to receive drilling and other permits or approvals and rights-of-way in a timely manner (or at all), which may be restricted by governmental regulation and legislation;
•restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the RRC in an effort to control induced seismicity in the Permian Basin;
•changes in government environmental policies and other environmental risks; the availability of drilling equipment and the timing of production; tax consequences of business transactions; public health crises, such as pandemics and
4
epidemics, and any related government policies and actions and the effects of such public health crises on the oil and natural gas industry, pricing and demand for oil and natural gas and supply chain logistics;
•general domestic and international economic, market and political conditions, including the military conflict between Russia and Ukraine, the Israel-Hamas conflict, and the global response to such conflicts;
•risks related to litigation; and
•cybersecurity threats, technology system failures and data security issues.
In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.
5
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
| RILEY EXPLORATION PERMIAN, INC. | ||||||||||||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||
| (In thousands, except share amounts) | ||||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||||||
| Accounts receivable | ||||||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
| Inventory | ||||||||||||||||||||
| Current derivative assets | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Oil and natural gas properties, net (successful efforts) | ||||||||||||||||||||
| Other property and equipment, net | ||||||||||||||||||||
| Non-current derivative assets | ||||||||||||||||||||
| Other non-current assets, net | ||||||||||||||||||||
| Total Assets | $ | $ | ||||||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||
| Accounts payable | $ | $ | ||||||||||||||||||
| Accrued liabilities | ||||||||||||||||||||
| Revenue payable | ||||||||||||||||||||
| Current derivative liabilities | ||||||||||||||||||||
| Current portion of long-term debt | ||||||||||||||||||||
| Other current liabilities | ||||||||||||||||||||
| Total Current Liabilities | ||||||||||||||||||||
| Non-current derivative liabilities | ||||||||||||||||||||
| Asset retirement obligations | ||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||
| Deferred tax liabilities | ||||||||||||||||||||
| Other non-current liabilities | ||||||||||||||||||||
| Total Liabilities | ||||||||||||||||||||
| Commitments and Contingencies (Note 13) | ||||||||||||||||||||
| Shareholders' Equity: | ||||||||||||||||||||
Preferred stock, $ | ||||||||||||||||||||
Common stock, $ | ||||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||
| Total Shareholders' Equity | ||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
| RILEY EXPLORATION PERMIAN, INC. | ||||||||||||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||
| Oil and natural gas sales, net | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Contract services - related parties | ||||||||||||||||||||||||||||||||||||||
| Total Revenues | ||||||||||||||||||||||||||||||||||||||
| Costs and Expenses: | ||||||||||||||||||||||||||||||||||||||
| Lease operating expenses | ||||||||||||||||||||||||||||||||||||||
| Production and ad valorem taxes | ||||||||||||||||||||||||||||||||||||||
| Exploration costs | ||||||||||||||||||||||||||||||||||||||
| Depletion, depreciation, amortization and accretion | ||||||||||||||||||||||||||||||||||||||
| General and administrative: | ||||||||||||||||||||||||||||||||||||||
| Administrative costs | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||||||||||||||||
| Cost of contract services - related parties | ||||||||||||||||||||||||||||||||||||||
| Transaction costs | ||||||||||||||||||||||||||||||||||||||
| Total Costs and Expenses | ||||||||||||||||||||||||||||||||||||||
| Income From Operations | ||||||||||||||||||||||||||||||||||||||
| Other Income (Expense): | ||||||||||||||||||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Gain (loss) on derivatives | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Gain (loss) from equity method investment | ( | |||||||||||||||||||||||||||||||||||||
| Total Other Income (Expense) | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Net Income From Operations Before Income Taxes | ||||||||||||||||||||||||||||||||||||||
| Income tax expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net Income per Share: | ||||||||||||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Weighted Average Common Shares Outstanding: | ||||||||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
| RILEY EXPLORATION PERMIAN, INC. | ||||||||||||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||||||||||||||||
| Repurchased shares for tax withholding | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||||||||||||||||
| Repurchased shares for tax withholding | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | ( | — | — | |||||||||||||||||||||||||||||||||||
| Repurchased shares for tax withholding | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||
Issuance of common shares under ATM | — | — | ||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | |||||||||||||||||||||||||||||||||||
| Repurchased shares for tax withholding | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common shares under long-term incentive plan, net | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | |||||||||||||||||||||||||||||||||||
| Repurchased shares for tax withholding | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common shares under long-term incentive plan | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Share-based compensation expense, net | — | — | — | |||||||||||||||||||||||||||||||||||
| Repurchased shares for tax withholding | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of common shares under long-term incentive plan, net | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
| RILEY EXPLORATION PERMIAN, INC. | ||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
| Oil and natural gas lease expirations | ||||||||||||||||||||
| Depletion, depreciation, amortization and accretion | ||||||||||||||||||||
| (Gain) loss on derivatives | ||||||||||||||||||||
| Settlements on derivative contracts | ( | ( | ||||||||||||||||||
| Amortization of deferred financing costs and discount | ||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||
| Deferred income tax expense | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||||||||
| Prepaid expenses and other current assets | ( | |||||||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||||||||
| Inventory | ( | |||||||||||||||||||
| Revenue payable | ||||||||||||||||||||
| Other current liabilities | ( | |||||||||||||||||||
| Net Cash Provided by Operating Activities | ||||||||||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Additions to oil and natural gas properties | ( | ( | ||||||||||||||||||
| Net assets acquired in business combination | ( | |||||||||||||||||||
| Acquisitions of oil and natural gas properties | ( | |||||||||||||||||||
| Contributions to equity method investment | ( | |||||||||||||||||||
| Additions to other property and equipment | ( | ( | ||||||||||||||||||
| Net Cash Used in Investing Activities | ( | ( | ||||||||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Deferred financing costs | ( | ( | ||||||||||||||||||
| Proceeds from revolving credit facility | ||||||||||||||||||||
| Repayments under revolving credit facility | ( | ( | ||||||||||||||||||
| Proceeds from Senior Notes, net of discount | ||||||||||||||||||||
| Repayments of Senior Notes | ( | |||||||||||||||||||
| Payment of common share dividends | ( | ( | ||||||||||||||||||
| Proceeds from issuance of common stock, net of issuance costs | ||||||||||||||||||||
| Common stock repurchased for tax withholding | ( | ( | ||||||||||||||||||
| Net Cash Provided by (Used in) Financing Activities | ( | |||||||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | |||||||||||||||||||
| Cash and Cash Equivalents, Beginning of Period | ||||||||||||||||||||
| Cash and Cash Equivalents, End of Period | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
| RILEY EXPLORATION PERMIAN, INC. | ||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||||||||||||||
| Cash Paid For: | ||||||||||||||||||||
| Interest, net of capitalized interest | $ | $ | ||||||||||||||||||
| Income taxes | $ | $ | ||||||||||||||||||
| Non-cash Investing and Financing Activities: | ||||||||||||||||||||
| Changes in capital expenditures in accounts payable and accrued liabilities | $ | ( | $ | |||||||||||||||||
| Right of use assets obtained in exchange for operating lease liability | $ | ( | $ | |||||||||||||||||
| Assets contributed to equity method investment | $ | $ | ||||||||||||||||||
| Asset retirement obligations assumed in acquisitions | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1)Organization and Nature of Business
Riley Permian is a growth-oriented, independent oil and natural gas company focused on the acquisition, exploration, development and production of oil, natural gas and NGL's in Texas and New Mexico. Our activities primarily include the horizontal development of conventional reservoirs on the Northwest Shelf of the Permian Basin. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas and Eddy County, New Mexico.
On April 3, 2023 (the “Closing Date”), the Company completed the acquisition of oil and natural gas assets (the “New Mexico Acquisition”) from Pecos Oil & Gas, LLC (“Pecos”), a Delaware limited liability company and an affiliate of Cibolo Energy Partners LLC. For further information regarding the New Mexico Acquisition, see Note 4 - Acquisitions of Oil and Natural Gas Properties.
(2)Basis of Presentation
Effective by the Company's Board of Directors written consent on September 23, 2022, the Company's fiscal year is now the period from January 1 to December 31, beginning with the year ended December 31, 2022.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, members'/shareholders' equity, results of operations or cash flows. These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
These condensed consolidated financial statements have not been audited by an independent registered public accounting firm. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023, for various reasons, including as a result of the impact of the New Mexico Acquisition, fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, the current and future impacts of the military conflicts between Russia and Ukraine and Israel and Hamas, the volatile inflationary environment in U.S. markets and other factors.
(3)Summary of Significant Accounting Policies
Significant Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas
11
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts Receivable
Accounts receivable is summarized below:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Oil, natural gas and NGL sales | $ | $ | |||||||||
| Joint interest accounts receivable | |||||||||||
| Other accounts receivable | |||||||||||
| Total accounts receivable | $ | $ | |||||||||
As of December 31, 2021, the Company has accounts receivables from oil, natural gas and NGL sales of $17.6 million.
The Company had no
Other Non-Current Assets, Net
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
Deferred financing costs, net (1) | $ | $ | |||||||||
| Right of use assets | |||||||||||
| Equity method investment | |||||||||||
| Other | |||||||||||
| Total other non-current assets, net | $ | $ | |||||||||
Equity method investment. In January 2023, the Company entered into an agreement to form a joint venture created for the purpose of constructing a new power infrastructure for onsite power generation in Yoakum County, Texas using produced natural gas. RPC Power Holdco LLC, a wholly-owned subsidiary of REPX, has a 30 % investment in the joint venture, RPC Power LLC ("RPC Power"). The Company contributed its portion of capital for construction of the onsite power generation. As of September 30, 2023, the Company had invested $5.8 million to date in the joint venture, comprised of $3.6 million in cash and $2.3 million of contributed assets, which was reduced by the loss during the nine months ended September 30, 2023. The onsite power generation facility is expected to be placed in service during the fourth quarter of 2023.
12
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accrued Liabilities
Accrued liabilities consisted of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Accrued capital expenditures | $ | $ | |||||||||
| Accrued lease operating expenses | |||||||||||
| Accrued general and administrative costs | |||||||||||
| Accrued inventory | |||||||||||
| Accrued ad valorem tax | |||||||||||
| Other accrued expenditures | |||||||||||
| Total accrued liabilities | $ | $ | |||||||||
Other Current Liabilities
Other current liabilities consisted of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Advances from joint interest owners | $ | $ | |||||||||
| Income taxes payable | |||||||||||
| Current ARO liabilities | |||||||||||
| Lease liabilities | |||||||||||
| Accounts payable - related parties | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
Asset Retirement Obligations
Components of the changes in ARO for the nine months ended September 30, 2023 and the year ended December 31, 2022 consisted of the following and is shown below:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| ARO, beginning balance | $ | $ | |||||||||
| Liabilities incurred | |||||||||||
| Liabilities assumed in acquisitions | |||||||||||
| Revision of estimated obligations | |||||||||||
| Liability settlements and disposals | ( | ( | |||||||||
| Accretion | |||||||||||
| ARO, ending balance | |||||||||||
Less: current ARO (1) | ( | ( | |||||||||
| ARO, long-term | $ | $ | |||||||||
(1)Current ARO is included within other current liabilities on the accompanying condensed consolidated balance sheets.
13
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue Recognition
The following table presents oil and natural gas sales disaggregated by product:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Oil and natural gas sales: | |||||||||||||||||||||||
| Oil | $ | $ | $ | $ | |||||||||||||||||||
| Natural gas | |||||||||||||||||||||||
| Natural gas liquids | |||||||||||||||||||||||
| Total oil and natural gas sales, net | $ | $ | $ | $ | |||||||||||||||||||
Recent Accounting Pronouncements
No new accounting pronouncements have been adopted or issued that would impact the financial statements of the Company.
(4)Acquisitions of Oil and Natural Gas Properties
New Mexico Acquisition
On April 3, 2023, the Company completed the New Mexico Acquisition from Pecos for approximately $330 million, before customary purchase price adjustments. The assets acquired are located in Eddy County, New Mexico, and include approximately 10,600 total contiguous net acres of leasehold. The acquisition included 18 net horizontal wells and 250 net vertical wells. Additionally, the assets add significant drilling locations to the Company's inventory.
The Company funded the New Mexico Acquisition through a combination of borrowings under the Company's revolving credit facility and proceeds from the issuance of $200 million of Senior Notes, including application of a $33 million escrow deposit paid during the three months ended March 31, 2023 with borrowings under the revolving credit facility. For further information regarding the financing for the New Mexico Acquisition, see Note 9 - Long-Term Debt.
The New Mexico Acquisition qualified as a business combination using the acquisition method of accounting. The assets acquired and liabilities assumed were recognized at fair value as of the acquisition date. The preliminary purchase price allocation is subject to change for up to one year subsequent to the Closing Date due to changes in the estimated fair value of the assets acquired and liabilities assumed in the New Mexico Acquisition. The assets acquired and liabilities assumed were recognized on the condensed consolidated balance sheet at fair value as of the acquisition date. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future development, future operating costs, future cash flows and the use of weighted average cost of capital. These inputs required the use of significant judgments and estimates at the date of valuation, and use of different estimates and judgments could yield different results.
14
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following presents the preliminary allocation of the total purchase price of the New Mexico Acquisition to the identified assets acquired and liabilities assumed based on estimated fair value as of the Closing Date:
Preliminary purchase price allocation as of September 30, 2023 (in thousands): | |||||
| Total cash consideration | $ | ||||
| Assets acquired: | |||||
| Inventory | $ | ||||
| Oil and natural gas properties | |||||
| Amount attributable to assets acquired | $ | ||||
| Fair value of liabilities assumed: | |||||
| Revenue payable | $ | ||||
| Asset retirement obligations | |||||
| Amount attributable to liabilities assumed | $ | ||||
| Net assets acquired | $ | ||||
Transaction costs associated with the New Mexico Acquisition were approximately $0.2 million and $5.8 million for the three and nine months ended September 30, 2023, respectively, and are included on the accompanying condensed consolidated statements of operations.
Post-Acquisition Operating Results
The results of operations attributable to the New Mexico Acquisition since the Closing Date have been included in the condensed consolidated statements of operations and include $25.1 million of total revenue, net and $15.7 million of earnings for the three months ended September 30, 2023 and $49.5 million of total revenue, net and $31.3 million of earnings for the nine months ended September 30, 2023.
Pro Forma Operating Results (Unaudited)
The following unaudited pro forma combined results for the three and nine months ended September 30, 2023 and 2022 reflect the consolidated results of operations of the Company as if the New Mexico Acquisition had occurred on January 1, 2022. The unaudited pro forma information includes adjustments for (i) transaction costs being reclassified to the first quarter of 2022 instead of being recorded in the three and nine months ended September 30, 2023 (ii) amortization for the discount and deferred financing costs and interest expense related to the Senior Notes, (iii) depletion, depreciation and amortization expense, and (iv) interest expense related to Pecos that would not have been recognized had the Company acquired the assets. In addition, the pro forma information has been effected for taxes with a 23 % tax rate.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic net income per common share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted net income per common share | $ | $ | $ | $ | ||||||||||||||||||||||
The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations that the Company would have reported had the New Mexico Acquisition been completed as of January 1, 2022 and should not be taken as indicative of the Company's future combined
15
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
results of operations. The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.
Other Acquisitions
(5)Oil and Natural Gas Properties
Oil and natural gas properties are summarized below:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Proved | $ | $ | |||||||||
| Unproved | |||||||||||
| Work-in-progress | |||||||||||
| Accumulated depletion, amortization and impairment | ( | ( | |||||||||
| Total oil and natural gas properties, net | $ | $ | |||||||||
Depletion and amortization expense for proved oil and natural gas properties was $17.8 million and $8.2 million, respectively, for the three months ended September 30, 2023 and 2022 and $44.6 million and $21.7 million, respectively, for the nine months ended September 30, 2023 and 2022.
Exploration expense was $231 thousand and $20 thousand, respectively, for the three months ended September 30, 2023 and 2022 and $0.6 million and $1.5 million, respectively, for the nine months ended September 30, 2023 and 2022.
On April 3, 2023, the Company closed on the New Mexico Acquisition. For further information regarding the acquisition, see Note 4 - Acquisitions of Oil and Natural Gas Properties.
(6)Derivative Instruments
Oil and Natural Gas Contracts
The Company uses commodity based derivative contracts to reduce exposure to fluctuations in oil and natural gas prices. While the use of these contracts limits the downside risk for adverse price changes, their use also limits future revenues from favorable price changes. We have not designated our derivative contracts as hedges for accounting purposes, and therefore changes in the fair value of derivatives are included and recognized in other income (expense) in the condensed consolidated statements of operations.
16
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2023, the Company’s oil and natural gas derivative instruments consisted of fixed price swaps, costless collars, and basis protection swaps. The following table summarizes the open financial derivative positions as of September 30, 2023, related to oil and natural gas production:
| Weighted Average Price | ||||||||||||||||||||||||||
| Calendar Quarter / Year | Notional Volume | Fixed | Put | Call | ||||||||||||||||||||||
| ($ per unit) | ||||||||||||||||||||||||||
| Oil Swaps (Bbl) | ||||||||||||||||||||||||||
| Q4 2023 | $ | |||||||||||||||||||||||||
| 2024 | $ | |||||||||||||||||||||||||
| 2025 | $ | |||||||||||||||||||||||||
| Natural Gas Swaps (Mcf) | ||||||||||||||||||||||||||
| Q4 2023 | $ | |||||||||||||||||||||||||
| 2024 | $ | |||||||||||||||||||||||||
| 2025 | $ | |||||||||||||||||||||||||
| Oil Collars (Bbl) | ||||||||||||||||||||||||||
| Q4 2023 | $ | $ | ||||||||||||||||||||||||
| 2024 | $ | $ | ||||||||||||||||||||||||
| 2025 | $ | $ | ||||||||||||||||||||||||
| Natural Gas Collars (Mcf) | ||||||||||||||||||||||||||
| Q4 2023 | $ | $ | ||||||||||||||||||||||||
| 2024 | $ | $ | ||||||||||||||||||||||||
| 2025 | $ | $ | ||||||||||||||||||||||||
| Oil Basis (Bbl) | ||||||||||||||||||||||||||
| Q4 2023 | $ | |||||||||||||||||||||||||
| 2024 | $ | |||||||||||||||||||||||||
Interest Rate Contracts
The Company entered into floating-to-fixed interest rate swaps, in which it will receive a floating market rate equal to one-month CME Term SOFR Rate and will pay a fixed interest rate, to manage future interest rate exposure related to the Company’s revolving credit facility.
The following table summarizes the open interest rate derivative positions as of September 30, 2023:
| Open Coverage Period | Notional Amount | Fixed Rate | ||||||||||||
| (In thousands) | ||||||||||||||
| April 2024 - April 2026 | $ | % | ||||||||||||
| April 2024 - April 2026 | $ | % | ||||||||||||
17
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Balance Sheet Presentation of Derivatives
The following tables present the location and fair value of the Company’s derivative contracts included in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | ||||||||||||||||||||
| Balance Sheet Classification | Gross Fair Value | Amounts Netted | Net Fair Value | |||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Current derivative assets | $ | $ | ( | $ | ||||||||||||||||
| Non-current derivative assets | ( | |||||||||||||||||||
| Current derivative liabilities | ( | ( | ||||||||||||||||||
| Non-current derivative liabilities | ( | ( | ||||||||||||||||||
| Total | $ | ( | $ | — | $ | ( | ||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Balance Sheet Classification | Gross Fair Value | Amounts Netted | Net Fair Value | |||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Current derivative assets | $ | $ | ( | $ | ||||||||||||||||
| Non-current derivative assets | ( | |||||||||||||||||||
| Current derivative liabilities | ( | ( | ||||||||||||||||||
| Non-current derivative liabilities | ( | ( | ||||||||||||||||||
| Total | $ | ( | $ | — | $ | ( | ||||||||||||||
The following table presents the components of the Company's gain (loss) on derivatives for the periods presented below:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Settlements on derivative contracts | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Non-cash gain (loss) on derivatives | ( | ( | |||||||||||||||||||||
| Gain (loss) on derivatives | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
(7)Fair Value Measurements
The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.
The carrying values of financial instruments comprising cash and cash equivalents, payables, receivables, and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value reported for the revolving line of credit approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes is based on estimates of current rates available for similar issues with similar maturities and is classified as Level 2 in the fair value hierarchy. The oil and natural gas properties acquired and asset retirement obligations assumed in the New Mexico Acquisition are considered Level 3 measurements.
18
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assets and Liabilities Measured on a Recurring Basis
The fair value of commodity derivatives and interest rate swaps is estimated using discounted cash flow calculations based upon forward curves and are classified as Level 2 in the fair value hierarchy. The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, by level within the fair value hierarchy:
| September 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Commodity derivative assets | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate assets | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Commodity derivative liabilities | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Commodity derivative assets | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Commodity derivative liabilities | $ | $ | ( | $ | $ | ( | |||||||||||||||||
The following table summarizes the fair value and carrying amount of the Company's financial instruments.
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revolving Credit Facility (Level 2) | $ | $ | $ | $ | |||||||||||||||||||
| Senior Notes (Level 2) | $ | $ | $ | $ | |||||||||||||||||||
The carrying value reported for the revolving credit facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes were determined utilizing a discounted cash flow approach.
(8)Transactions with Related Parties
Contract Services
Riley Permian Operating Company, LLC ("RPOC") provides certain administrative services to Combo Resources, LLC ("Combo") and is also the contract operator on behalf of Combo in exchange for a monthly fee of $100 thousand and reimbursement of all third party expenses pursuant to a contract services agreement. Additionally, RPOC provides certain administrative and operational services to Riley Exploration Group, LLC ("REG") in exchange for a monthly fee of $100 thousand pursuant to a contract services agreement.
19
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents revenues from and related cost for contract services for related parties:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Combo | $ | $ | $ | $ | |||||||||||||||||||
| REG | |||||||||||||||||||||||
| Contract services - related parties | $ | $ | $ | $ | |||||||||||||||||||
| Cost of contract services | $ | $ | $ | $ | |||||||||||||||||||
The Company had amounts payable to Combo of $0.1 million and $0.4 million at September 30, 2023 and December 31, 2022, respectively, which are reflected in other current liabilities, respectively, on the accompanying condensed consolidated balance sheets. Amounts due to Combo reflect the revenue, net of any expenditures for wells and fees due under the contract services agreement, for Combo's net working interest in wells that the Company operates on Combo's behalf.
Consulting and Legal Fees
The Company has an engagement agreement with di Santo Law PLLC ("di Santo Law"), a law firm owned by Beth di Santo, a member of our Board of Directors, pursuant to which di Santo Law's attorneys provide legal services to the Company. The Company incurred legal fees from di Santo Law of approximately $0.3 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $0.7 million and $0.5 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company had approximately $0.2 million and zero in amounts accrued for di Santo Law, which was included in other current liabilities in the accompanying condensed consolidated balance sheets.
(9)Long-Term Debt
The following table summarizes the Company's outstanding debt:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Credit Facility | $ | $ | |||||||||
| Senior Notes | |||||||||||
| Principal | $ | $ | |||||||||
Less: Unamortized discount(1) | |||||||||||
Less: Unamortized deferred financing costs(2) | |||||||||||
| Total Senior Notes | $ | $ | |||||||||
Less: Current portion of long-term debt(3) | |||||||||||
| Total long-term debt | $ | $ | |||||||||
_____________________
(1)Unamortized discount on long-term debt is amortized over the life of the respective debt.
(2)As of September 30, 2023, unamortized deferred financing costs are attributable to and amortized over the life of the Senior Notes.
(3)As of September 30, 2023, the current portion of long-term debt reflects $20 million due on the Senior Notes over the next twelve months.
20
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Facility
As of September 30, 2023, Riley Exploration - Permian, LLC ("REP LLC"), as borrower, and the Company, as parent guarantor, are parties to a credit agreement with Truist Bank and certain lenders party thereto, as amended, which provides for a borrowing base of $325 million (such agreement and the borrowing facility provided thereby, the “Credit Facility”). On February 22, 2023, the Company amended its Credit Facility to, among other things, allow for the issuance of unsecured senior notes of up to $200 million. On April 3, 2023, and concurrent with the closing of the New Mexico Acquisition, the Company entered into the fourteenth amendment (the "Fourteenth Amendment") to the Credit Facility to, among other things, increase the maximum facility amount to $1.0 billion and the borrowing base from $225 million to $325 million, resulting in the addition of new lenders to the lending group. The Credit Facility is set to mature in April 2026. Substantially all of the Company’s assets are pledged to secure the Credit Facility. The following table summarizes the Credit Facility balances:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Outstanding borrowings | $ | $ | |||||||||
| Available under the borrowing base | $ | $ | |||||||||
Senior Notes
On April 3, 2023, and concurrent with the closing of the New Mexico Acquisition, the Company (as “Issuer”) completed its issuance of $200 million aggregate principal amount of 10.50 % senior unsecured notes with final maturity April 2028 pursuant to a note purchase agreement (the “Note Purchase Agreement”), with the Senior Notes issued at a 6 % discount. The net proceeds from the Senior Notes were used to fund a portion of the purchase price and related fees, costs and expenses for the New Mexico Acquisition.
Interest is due and payable at the end of each quarter. In addition to interest, the Issuer will repay 2.50 % of the original principal amount each quarter resulting in $5 million quarterly principal payments until the maturity of the Senior Notes. As of September 30, 2023, the Company had $20 million in current liabilities on the condensed consolidated balance sheet related to the quarterly principal payments due within the next 12 months.
The Issuer may, at its option, redeem, at any time and from time to time on or prior to April 3, 2026, some or all of the Senior Notes at 100 % of the principal amount thereof plus the make-whole amount plus a premium of 5.25 % as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After April 3, 2026, but on or prior to October 3, 2026, the Issuer may, at its option, redeem, at any time and from time to time some or all of the Senior Notes at 100 % of the principal amount thereof plus a premium of 5.25 % as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After October 3, 2026, the Issuer may redeem some or all of the Senior Notes at 100 % of the principal amount thereof plus accrued and unpaid interest, if any. The principal remaining outstanding at the time of maturity is required to be paid in full by the Issuer. Certain note features, including those discussed above, were evaluated and deemed to be remote. Due to the remote nature, the fair value of these features was estimated to be approximately zero.
The Senior Notes contain certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of less than 3.00 to 1.00 and (ii) an asset coverage ratio greater than 1.50 to 1.00. The Senior Notes also contain a total leverage ratio and an asset coverage ratio for Restricted Payments, as defined in the Senior Notes. The leverage ratio, after giving pro forma effect to such Restricted Payments, cannot exceed 2.00 to 1.00, and the asset coverage ratio, after giving effect to such Restricted Payments, must be greater than or equal to 1.50 to 1.00. In addition to and after giving effect to such Restricted Payments, the outstanding balance on the Company's Credit Facility must be greater than or equal to 15 % of the lesser of the then effective Borrowing Base and the Aggregate Elected Commitment Amount. Upon issuance of the Senior Notes, the Company must maintain a minimum hedging requirement included within the Senior Notes for oil and natural gas based on its proved developed producing projected volumes for each commodity on a rolling 18-month basis.
The Senior Notes are general unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company and are senior in right of payment to all existing and future subordinated indebtedness of the Company. The Note Purchase Agreement contains customary terms and covenants, including limitations on the Company’s ability to incur additional secured and unsecured indebtedness.
21
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the Company's interest expense:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Capitalized interest | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Amortization of discount on Senior Notes | |||||||||||||||||||||||
| Unused commitment fees on Credit Facility | |||||||||||||||||||||||
| Total interest expense, net | $ | $ | $ | $ | |||||||||||||||||||
As of September 30, 2023 and December 31, 2022, the weighted average interest rate on outstanding borrowings under the Credit Facility was 8.60 % and 7.17 %, respectively.
As of September 30, 2023, the Senior Notes had $10.8 million of unamortized discount and $4.2 million of unamortized deferred financing costs, resulting in an effective interest rate of 13.38 % during the nine months ended September 30, 2023.
As of September 30, 2023, the Company was in compliance with the financial covenants under its debt agreements.
(10) Shareholders' Equity
Dividends
For the three months ended September 30, 2023 and 2022, the Company declared quarterly dividends on its common stock totaling approximately $6.7 million and $6.2 million, respectively. For the nine months ended September 30, 2023 and 2022, the Company declared quarterly dividends on its common stock totaling approximately $20.4 million and $18.5 million, respectively.
Equity-Based Compensation
On April 21, 2023, at the Company's annual meeting of stockholders, the Company's stockholders approved the Amended and Restated 2021 Long Term Incentive Plan (the "A&R LTIP") that increased the total number of shares of Common Stock, par value $0.001 per share, by 950,000 shares that may be utilized for awards pursuant to the Plan from 1,387,022 to 2,337,022 . The A&R LTIP is included as an exhibit to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2023. The A&R LTIP had 1,366,843 shares available as of September 30, 2023.
22
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2021 Long-Term Incentive Plan
The following table presents the Company's restricted stock activity during the nine months ended September 30, 2023 under the A&R LTIP:
| 2021 Long-Term Incentive Plan | ||||||||||||||
| Restricted Shares | Weighted Average Grant Date Fair Value | |||||||||||||
Unvested at December 31, 2022 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Vested | ( | $ | ||||||||||||
| Forfeited | ( | $ | ||||||||||||
Unvested at September 30, 2023 | $ | |||||||||||||
For the three months ended September 30, 2023 and 2022, the total equity-based compensation expense was $1.1 million and $0.8 million, respectively. For the nine months ended September 30, 2023 and 2022, the total equity-based compensation expense was $3.6 million and $2.7 million, respectively. Equity-based compensation expense is included in general and administrative costs on the Company's condensed consolidated statements of operations for the restricted share awards granted under the A&R LTIP. Approximately $5.8 million of additional equity-based compensation expense will be recognized over the weighted average life of 20 months for the unvested restricted share awards as of September 30, 2023 granted under the A&R LTIP.
ATM Program
On September 1, 2023, the Company entered into an Equity Distribution Agreement in connection with an at-the-market equity sales program (ATM) pursuant to which the Company may offer and sell from time to time up to an aggregate $50 million in shares of the Company's common stock through its agents. The offer and sale of the shares has been registered under the Securities Act of 1933, as amended (Securities Act), pursuant to the Company’s registration statement on Form S-3, as amended. A prospectus supplement related to the offering of the shares, as defined in Rule 415(a)(4) promulgated under the Securities Act was filed September 1, 2023. The Company intends to use the net proceeds from any offering for working capital purposes and other general corporate purposes, including, but not limited to, financing of capital expenditures, repayment or refinancing of outstanding debt, financing acquisitions or investments, financing other business opportunities, and general working capital purposes.
23
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(11) Income Taxes
The components of the Company's consolidated provision for income taxes from operations are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Current income tax expense: | |||||||||||||||||||||||
| Federal | $ | ( | $ | $ | $ | ||||||||||||||||||
| State | |||||||||||||||||||||||
| Total current income tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Deferred income tax expense: | |||||||||||||||||||||||
| Federal | $ | $ | $ | $ | |||||||||||||||||||
| State | |||||||||||||||||||||||
| Total deferred income tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Total income tax expense | $ | $ | $ | $ | |||||||||||||||||||
A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Tax at statutory rate | % | % | % | % | |||||||||||||||||||
| Nondeductible compensation | % | % | % | % | |||||||||||||||||||
| Share-based compensation | ( | % | % | ( | % | ( | % | ||||||||||||||||
| State income taxes, net of federal benefit | ( | % | % | % | % | ||||||||||||||||||
Change in state rate (1) | % | % | % | % | |||||||||||||||||||
| Other | % | ( | % | % | ( | % | |||||||||||||||||
| Effective income tax rate | % | % | % | % | |||||||||||||||||||
_____________________
(1)Reflects the impact on the Company's deferred tax balance as a result of the increased apportionment to the state of New Mexico from the New Mexico Acquisition, which is a discrete item that is not expected to notably impact the Company's effective income tax rate for the full year.
The Company's federal income tax returns for the years subsequent to December 31, 2018 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2017. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.
(12) Net Income Per Share
24
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company calculated net income per share using the treasury stock method. The table below sets forth the computation of basic and diluted net income per share for the periods presented below:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| (In thousands, except per share) | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Restricted shares | ||||||||||||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||||||||||||
Basic net income per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted net income per share | $ | $ | $ | $ | ||||||||||||||||||||||
The following shares were excluded from the calculation of diluted net income per share due to their anti-dilutive effect for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Restricted shares | |||||||||||||||||||||||
(13) Commitments and Contingencies
Indemnification
The Company has agreed to indemnify its directors and certain of its officers, employees and agents with respect to claims and damages arising from acts or omissions taken in such capacity, as well as with respect to certain litigation.
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend the indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.
Legal Matters
Due to the nature of the Company's business, the Company may at times be subject to claims and legal actions. The Company accrues liabilities when it is probable that future costs will be incurred, and such costs can be reasonably estimated. Such accruals are based on developments to date and the Company’s estimates of the outcomes of these matters. The Company did not recognize any material liability for legal matters as of September 30, 2023 and December 31, 2022. Management believes it is remote that the impact of such matters will have a materially adverse effect on the Company’s financial position, results of operations, or cash flows.
Environmental Matters
The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws, which are often changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. The Company had no
25
RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contractual Commitments
In October 2021, the Company executed an agreement related to its EOR project. This agreement is a CO2 purchase agreement that has a daily contract quantity with Kinder Morgan CO2 Company, LLC that has a primary term extending through the earlier of the total contract quantity delivered or December 31, 2025.
In August 2022, the Company entered into a second amendment on its gas gathering and processing agreement with its primary midstream counterparty, Stakeholder Midstream LLC (“Stakeholder”). Stakeholder committed to expand its gathering and processing system with a commitment from the Company to deliver an annual minimum volume to Stakeholder’s gathering system for a minimum of seven years beginning on the in-service date of the expanded plant.
In January 2023, the Company entered into an agreement to form a joint venture with Conduit Power LLC. The Company is committed to contributing its portion of capital expenditures into the joint venture company, RPC Power. In conjunction with the formation of the joint venture, the Company entered into additional agreements with RPC Power or one of its subsidiaries. These agreements include RPC Power providing operational expertise on the implementation and management of the power generation for a monthly fee of $20 thousand and the Company committing to provide the natural gas needed to fuel the onsite power generators through 2028.
In October 2023, the Company entered into a purchase agreement for pipe related to its 2024 drilling program. Under the agreement, the Company has commitments to purchase approximately $13.1 million of pipe by December 2024.
(14) Subsequent Events
Dividend Declaration
On October 12, 2023, the Board of Directors of the Company declared a cash dividend of $0.36 per share of common stock payable on November 9, 2023 to its shareholders of record at the close of business on October 26, 2023.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s condensed consolidated financial statements and related notes thereto presented in this report as well as the Company's audited consolidated financial statements and related notes included in the Company's Annual Report for the fiscal year ended December 31, 2022. The following discussion contains “forward-looking statements” that reflect the Company’s future plans, estimates, beliefs and expected performance. The Company’s actual results could differ materially from those discussed in these forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements" and "Part II. Item 1A. Risk Factors" below and the information set forth in the Risk Factors under Part I. Item 1A of the Company's Annual Report for the fiscal year ended December 31, 2022.
Overview
We operate in the upstream segment of the oil and natural gas industry and are focused on steadily growing conventional reserves, production and cash flow through the acquisition, exploration, development and production of oil, natural gas and NGLs primarily in the Permian Basin in West Texas. The Company’s activities are primarily focused on the horizontal development of conventional reservoirs on the Northwest Shelf of the Permian Basin. We intend to continue to develop our reserves through development drilling and exploration activities and through acquisitions that meet our strategic and financial objectives.
Financial and Operating Highlights
Financial and operating results reflect the following:
•Increased total net equivalent production by 57% to 19.9 MBoe/d for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022 and 66% to 18.1 MBoe/d for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022
•During the three and nine months ended September 30, 2023, 9 gross (5.7 net) and 22 gross (16.2 net) horizontal wells, respectively, were brought online to production
•Realized average combined price on production sold of $58.69 and $55.20 per Boe, before derivative settlements, during the three and nine months ended September 30, 2023, including $80.87 and $75.19 per barrel for oil
•Generated cash flow from operations of $141.4 million for the nine months ended September 30, 2023
•Incurred total accrued (activity based) capital expenditures before acquisitions of $110.5 million for the nine months ended September 30, 2023
•Paid cash dividends on common shares of $6.8 million and $20.2 million during the three and nine months ended September 30, 2023, respectively
•$10.4 million in cash and $385 million in total debt as of September 30, 2023
27
Recent Developments
Market Conditions, Commodity Prices and Interest Rates
The U.S. and global economies and markets have experienced heightened volatility following impactful geopolitical events, the effects of widespread inflation and the impact of significantly higher interest rates. Prices for oil and natural gas are determined primarily by prevailing market conditions, which have been and could continue to be volatile.
The combination of geopolitical events, inflation and the rising rate environment has led to increasing forecasts of a U.S. or global recession. Any such recession could prolong market volatility or cause a decline in commodity prices, among other potential impacts.
The Company cannot estimate the length or gravity of the future impact these events will have on the Company's results of operations, financial position, liquidity and the value of oil and natural gas reserves.
New Mexico Acquisition
On April 3, 2023, the Company completed the New Mexico Acquisition from Pecos for approximately $330 million, subject to customary purchase price adjustments pursuant to the Purchase Agreement. The New Mexico Acquisition was funded through a combination of borrowings under the Company's Credit Facility and proceeds from the issuance of $200 million of Senior Notes.
Power Joint Venture
In January 2023, the Company entered into an agreement to form a joint venture created for the purpose of constructing a new power infrastructure for onsite power generation using produced natural gas. The Company has an initial 30% investment in the joint venture company, RPC Power, and is committed to providing its portion of capital. The onsite power generation facility is expected to be placed in service during the fourth quarter of 2023.
28
Results of Operations
Comparison for the three and nine months ended September 30, 2023 and 2022.
The following table sets forth selected operating data for the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Revenues (in thousands): | ||||||||||||||||||||||||||
| Oil sales | $ | 104,490 | $ | 80,017 | $ | 267,293 | $ | 224,895 | ||||||||||||||||||
| Natural gas sales | 983 | 4,216 | 1,547 | 8,855 | ||||||||||||||||||||||
| Natural gas liquids sales | 2,221 | 3,238 | 4,578 | 8,147 | ||||||||||||||||||||||
| Oil and natural gas sales, net | $ | 107,694 | $ | 87,471 | $ | 273,418 | $ | 241,897 | ||||||||||||||||||
| Production Data, net: | ||||||||||||||||||||||||||
| Oil (MBbls) | 1,292 | 866 | 3,555 | 2,301 | ||||||||||||||||||||||
| Natural gas (MMcf) | 1,616 | 985 | 4,242 | 2,239 | ||||||||||||||||||||||
| Natural gas liquids (MBbls) | 274 | 140 | 691 | 303 | ||||||||||||||||||||||
| Total (MBoe) | 1,835 | 1,170 | 4,953 | 2,977 | ||||||||||||||||||||||
| Daily combined volumes (Boe/d) | 19,949 | 12,717 | 18,143 | 10,903 | ||||||||||||||||||||||
| Daily oil volumes (Bbls/d) | 14,043 | 9,413 | 13,022 | 8,428 | ||||||||||||||||||||||
| Average Realized Prices: | ||||||||||||||||||||||||||
| Oil ($ per Bbl) | $ | 80.87 | $ | 92.40 | $ | 75.19 | $ | 97.74 | ||||||||||||||||||
| Natural gas ($ per Mcf) | 0.61 | 4.28 | 0.36 | 3.95 | ||||||||||||||||||||||
| Natural gas liquids ($ per Bbl) | 8.11 | 23.13 | 6.63 | 26.89 | ||||||||||||||||||||||
| Combined ($ per Boe) | $ | 58.69 | $ | 74.76 | $ | 55.20 | $ | 81.26 | ||||||||||||||||||
Average Realized Prices, including derivative settlements:(1) | ||||||||||||||||||||||||||
| Oil ($ per Bbl) | $ | 76.00 | $ | 75.80 | $ | 71.23 | $ | 73.63 | ||||||||||||||||||
| Natural gas ($ per Mcf) | 0.63 | 1.57 | 0.46 | 1.40 | ||||||||||||||||||||||
| Natural gas liquids ($ per Bbl) | 8.11 | 23.13 | 6.63 | 26.89 | ||||||||||||||||||||||
| Combined ($ per Boe) | $ | 55.26 | $ | 60.20 | $ | 52.44 | $ | 60.69 | ||||||||||||||||||
_____________________
(1)The Company's calculation of the effects of derivative settlements includes losses on the settlement of its commodity derivative contracts. These losses are included under other income (expense) on the Company’s condensed consolidated statements of operations.
29
Oil and Natural Gas Revenues
Our revenues are derived from the sale of our oil and natural gas production, including the sale of NGLs that are extracted from our natural gas during processing. Revenues from product sales are a function of the volumes produced, product quality, market prices, and gas Btu content. Our revenues from oil, natural gas and NGL sales do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
The Company’s total oil and natural gas revenue, net increased $20.2 million, or 23%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
Oil revenues
•For the three months ended September 30, 2023, oil revenues increased by $24.5 million, or 31%, compared to the three months ended September 30, 2022. Of the increase, $39.3 million was attributable to an increase in volume, partially offset by a $14.8 million decrease in our realized price. Volumes increased by 49%, while realized prices decreased by 12% compared to the three months ended September 30, 2022. The New Mexico Acquisition contributed $22.4 million to the Company's oil revenues for the period.
•Oil volumes increased during the three months ended September 30, 2023 due to the New Mexico Acquisition, production from new wells and workovers performed on existing historical wells. During the three months ended September 30, 2023, the New Mexico Acquisition contributed oil volumes of approximately 271 MBbls.
•The average WTI price decreased by $10.81 per Bbl during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022, respectively.
Natural gas revenues
•For the three months ended September 30, 2023, natural gas revenues decreased by $3.2 million, compared to the three months ended September 30, 2022. Of the decrease, $5.9 million was attributable to a decrease in realized prices, partially offset by $2.7 million attributable to an increase in volume. Volumes increased by 64%, while realized prices decreased by nearly 86%. The New Mexico Acquisition contributed 695 MMcf and $0.9 million, respectively, to the Company's natural gas volumes and revenues for the period.
•The average Henry Hub price decreased by $5.44 per Mcf during the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
Natural gas liquids revenues
•For the three months ended September 30, 2023, NGL revenues decreased by $1.0 million compared to the three months ended September 30, 2022. Of the decrease, $4.1 million was attributable to a decrease in realized price, partially offset by $3.1 million attributable to an increase in volume. Volumes increased by 94%, while realized prices decreased by 65%. The New Mexico Acquisition contributed 142 MBbls and $1.8 million, respectively, to the Company's natural gas liquids volumes and revenues for the period.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
The Company’s total oil and natural gas revenue, net increased $31.5 million, or 13%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Oil revenues
•For the nine months ended September 30, 2023, oil revenues increased by $42.4 million, or 19%, compared to the nine months ended September 30, 2022. Of the increase, $122.6 million was attributable to an increase in volume, partially offset by a $80.2 million decrease in our realized price. Volumes increased by 55%, while realized prices decreased by 23% compared to the nine months ended September 30, 2022. The New Mexico Acquisition contributed $45.0 million to the Company's oil revenues for the period.
30
•Oil volumes increased during the nine months ended September 30, 2023 due to the New Mexico Acquisition, production from new wells and workovers performed on existing historical wells. During the nine months ended September 30, 2023, the New Mexico Acquisition contributed oil volumes of approximately 584 MBbls.
•The average WTI price decreased by $21.70 per Bbl during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022, respectively.
Natural gas revenues
•For the nine months ended September 30, 2023, natural gas revenues decreased by $7.3 million, compared to the nine months ended September 30, 2022. Of the decrease, $15.2 million was attributable to a decrease in realized prices, partially offset by $7.9 million attributable to an increase in volume. Volumes increased by 89%, while realized prices decreased by 91%. The New Mexico Acquisition contributed 1,370 MMcf and $1.2 million, respectively, to the Company's natural gas volumes and revenues for the period.
•The average Henry Hub price decreased by $4.28 per Mcf during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Natural gas liquids revenues
•For the nine months ended September 30, 2023, NGL revenues decreased by $3.6 million compared to the nine months ended September 30, 2022. Of the decrease, $14.0 million was attributable to a decrease in realized price, partially offset by $10.4 million attributable to an increase in volume. Volumes increased by 128%, while realized prices decreased by 75%. The New Mexico Acquisition contributed 286 MBbls and $3.3 million, respectively, to the Company's natural gas liquids volumes and revenues for the period.
Contract Services - Related Party
The following table presents the Company's revenue and costs associated with its contract services - related party transactions:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
Contract services - related parties(1) | $ | 600 | $ | 600 | $ | 1,800 | $ | 1,800 | |||||||||||||||
Cost of contract services - related parties(2) | 128 | 89 | 347 | 263 | |||||||||||||||||||
| Gross profit from contract services | $ | 472 | $ | 511 | $ | 1,453 | $ | 1,537 | |||||||||||||||
(1)The Company’s contract services - related parties revenue is derived from master service agreements with related parties to provide certain administrative support services.
(2)The Company's cost of contract services - related parties represents costs specifically attributable to the master service agreements the Company has in place with the respective related parties.
31
Costs and Expenses
The following table presents the Company's operating costs and expenses and other (income) expenses:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Costs and Expenses: | (In thousands) | ||||||||||||||||||||||
| Lease operating expenses | $ | 16,898 | $ | 8,813 | $ | 43,287 | $ | 23,705 | |||||||||||||||
| Production and ad valorem taxes | $ | 7,242 | $ | 5,826 | $ | 18,573 | $ | 14,854 | |||||||||||||||
| Exploration costs | $ | 231 | $ | 20 | $ | 643 | $ | 1,540 | |||||||||||||||
| Depletion, depreciation, amortization and accretion | $ | 18,706 | $ | 8,346 | $ | 46,390 | $ | 22,167 | |||||||||||||||
| Administrative costs | $ | 5,530 | $ | 5,154 | $ | 17,497 | $ | 13,567 | |||||||||||||||
| Share-based compensation | 1,109 | 704 | 3,448 | 2,274 | |||||||||||||||||||
| General and administrative expense | $ | 6,639 | $ | 5,858 | $ | 20,945 | $ | 15,841 | |||||||||||||||
| Transaction costs | $ | 221 | $ | — | $ | 5,760 | $ | 2,638 | |||||||||||||||
| Interest expense, net | $ | 10,338 | $ | 585 | $ | 21,515 | $ | 1,960 | |||||||||||||||
| (Gain) loss on derivatives | $ | 35,345 | $ | (17,600) | $ | 20,925 | $ | 44,395 | |||||||||||||||
| (Gain) loss from equity method investment | $ | (23) | $ | — | $ | 213 | $ | — | |||||||||||||||
| Income tax expense | $ | 3,922 | $ | 16,317 | $ | 23,054 | $ | 25,130 | |||||||||||||||
Lease Operating Expenses ("LOE")
LOE are the costs incurred in the operation and maintenance of producing properties. Expenses for electricity, compression, direct labor, saltwater disposal and materials and supplies comprise the most significant portion of our lease operating expenses. Certain operating cost components, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period. For instance, repairs to our pumping equipment or surface facilities or subsurface maintenance result in increased production expenses in periods during which they are performed. Certain operating cost components, such as saltwater disposal associated with produced water, are variable and increase or decrease as hydrocarbon production levels and the volume of completion water disposal increases or decreases.
The Company’s LOE increased by $8.1 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. For the three months ended September 30, 2023, the increase was driven by a $5.0 million increase due to higher production, including $4.5 million attributable to the New Mexico Acquisition, and a $2.9 million increase due to higher workover expense, including $2.8 million attributable to the New Mexico Acquisition. In addition, increases of $0.2 million related to utility rates, field payroll, and saltwater disposal charges were incurred during the three months ended September 30, 2023.
The Company’s LOE increased by $19.6 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. For the nine months ended September 30, 2023, the increase was driven by a $15.7 million increase due to higher production, including $8.2 million attributable to the New Mexico Acquisition, and a $7.8 million increase due to higher workover expense, including $5.4 million attributable to the New Mexico Acquisition. These increases were partially offset by a $3.9 million decrease in LOE expense related to utility rates, field payroll, and saltwater disposal charges.
Production and Ad Valorem Tax Expense
Production taxes are paid on produced oil, natural gas and NGLs based on a percentage of revenues at fixed rates established by federal, state or local taxing authorities. In general, the production taxes we pay correlate to changes in our oil, natural gas and NGL revenues. We are also subject to ad valorem taxes in the counties where our production is located. Ad
32
valorem taxes are generally based on the valuation of our oil and natural gas properties, which also trend with oil and natural gas prices and vary across the different counties in which we operate.
Production and ad valorem taxes increased by $1.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and $3.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. These increases are primarily attributable to the New Mexico Acquisition with a slight increase in ad valorem taxes, and partially offset by lower commodity prices.
Exploration Expense
Exploration expense consists of expiration of unproved leasehold and geological and geophysical costs which include seismic survey costs. Exploration expense increased $0.2 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and decreased $0.9 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Depletion, Depreciation, Amortization and Accretion Expense
Depletion, depreciation and amortization is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil, natural gas and NGLs. All costs incurred in the acquisition, exploration and development of properties (excluding costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration activities) are capitalized. Capitalized costs are depleted using the units of production method.
Accretion expense relates to ARO. We record the fair value of the liability for ARO in the period in which the liability is incurred (at the time the wells are drilled or acquired) with the offset to property cost. The liability accretes each period until it is settled or the well is sold, at which time the liability is removed.
Depletion, depreciation, amortization and accretion expense increased by $10.4 million for the three months ended September 30, 2023. This increase was primarily due to a $6.7 million increase due to the New Mexico Acquisition along with higher production on historical properties and a higher depletion rate.
Depletion, depreciation, amortization and accretion expense increased by $24.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was primarily due to a $13.7 million increase due to the New Mexico Acquisition along with higher production on historical properties and a higher depletion rate.
General and Administrative Expense ("G&A")
G&A expenses include corporate overhead such as payroll and benefits for our corporate staff, share-based compensation expense, office rent for our headquarters, audit and other fees for professional services and legal compliance. G&A expenses are reported net of overhead recoveries.
Total G&A expense increased by $0.8 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Administrative costs, which include payroll, benefits and non-payroll costs, increased by $0.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to increased employee count, insurance, and technology costs.
Total G&A expense increased by $5.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Administrative costs, which include payroll, benefits and non-payroll costs, increased by $3.9 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to increased employee count, professional services, insurance, and technology costs.
Transaction Costs
Transaction costs represent costs incurred on successful or unsuccessful business combinations or unsuccessful property acquisitions. The transaction costs of $0.2 million and $5.8 million for the three and nine months ended September 30, 2023 primarily relate to the New Mexico Acquisition. During the nine months ended September 30, 2022, the transaction costs of $2.6 million primarily related to a potential business combination and related financing that the Company pursued but ultimately chose not to consummate due to changing market conditions.
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Interest Expense
Interest expense increased by $9.8 million during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022, and $19.6 million during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022. The increase in interest expense is primarily due to the higher debt balances as a result of financing for the New Mexico Acquisition, as well as higher interest rates impacting our credit facility borrowing cost.
Gain/Loss on Derivatives
The Company recognizes settlements and changes in the fair value of its derivative contracts as a single component within other income (expense) on its condensed consolidated statements of operations. We have oil and natural gas derivative contracts, including fixed price swaps, basis swaps and collars, that settle against various indices. The following table presents the components of the Company's gain (loss) on derivatives for the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Settlements on derivative contracts | $ | (6,269) | $ | (17,040) | $ | (13,660) | $ | (61,198) | |||||||||||||||
| Non-cash gain (loss) on derivatives | (29,076) | 34,640 | (7,265) | 16,803 | |||||||||||||||||||
| Gain (loss) on derivatives | $ | (35,345) | $ | 17,600 | $ | (20,925) | $ | (44,395) | |||||||||||||||
Our earnings are affected by the changes in value of our derivative portfolio between periods and the related cash received or paid upon settlement of our derivatives. To the extent the future commodity price outlook declines between periods, we will have mark-to-market gains, while future commodity price increases between measurement periods result in mark-to-market losses.
The gain (loss) on derivatives for the three months ended September 30, 2023 and 2022 was $(35.3) million and $17.6 million, respectively. The non-cash loss on derivatives for the three months ended September 30, 2023 was driven by higher forward pricing when compared to contract pricing at September 30, 2023, while the gain on derivatives for the three months ended September 30, 2022 was driven by higher contract pricing compared to the forward pricing at September 30, 2022. The decrease in the loss on settlements on derivatives was due to the decrease in oil and natural gas prices for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
The loss on derivatives for the nine months ended September 30, 2023 and 2022 was $20.9 million and $44.4 million, respectively. The non-cash loss on derivatives for the nine months ended September 30, 2023 was driven by new contracts entered into during the period and higher forward pricing when compared to contract pricing at September 30, 2023. The non-cash gain on derivatives for the nine months ended September 30, 2022 was driven by higher contract pricing when compared to forward pricing at September 30, 2022. The decrease in the loss on settlements on derivatives was due to the decrease in oil and natural gas prices for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Income Tax Expense
Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates. See Note 11 - Income Taxes for further discussion of income taxes.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Current income tax expense | $ | 57 | $ | 433 | $ | 5,452 | $ | 1,928 | |||||||||||||||
| Deferred income tax expense | 3,865 | 15,884 | 17,602 | 23,202 | |||||||||||||||||||
| Total income tax expense | $ | 3,922 | $ | 16,317 | $ | 23,054 | $ | 25,130 | |||||||||||||||
| Effective income tax rate | 31.2 | % | 21.4 | % | 23.9 | % | 21.6 | % | |||||||||||||||
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Liquidity and Capital Resources
The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, like all upstream operators, we must make capital investments to grow and even sustain production. The Company’s principal liquidity requirements are to finance its operations, fund capital expenditures and acquisitions, make cash distributions and satisfy any indebtedness obligations. Cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and the significant capital expenditures required to more fully develop the Company’s oil and natural gas properties. Historically, our primary sources of capital funding and liquidity have been our cash on hand, cash flow from operations and borrowings under our revolving credit facility. At times and as needed, we may also issue debt or equity securities, including through transactions under our shelf registration statement filed with the SEC. In April 2023, the Company amended its Credit Facility to increase the borrowing base and issued Senior Notes to fund the New Mexico Acquisition. We estimate the combination of the sources of capital discussed above will continue to be adequate to meet our short and long-term liquidity needs.
Cash on hand and operating cash flow can be subject to fluctuations due to trends and uncertainties that are beyond our control. Both purchaser and market constraints could impact our gas sales in the future. The Company may also experience periodic curtailments on natural gas produced in excess of our contractual processing capacity. Likewise, our ability to issue equity and obtain credit facilities on favorable terms may be impacted by a variety of market factors as well as fluctuations in our results of operations.
In the third quarter of 2023, a portion of the Company's oil, natural gas and NGL sales were negatively impacted due to downstream operational disruptions encountered by third parties we rely on to process our oil and natural gas production. As a result of the disruptions, the Company chose to temporarily shut in its New Mexico field to prevent flaring until volumes could be processed again, with the field returning to normal operating conditions in August. The Company continues to monitor its counterparties' ability to process its production. Management currently estimates that such production shut-ins to date have not resulted in a material adverse effect on the Company’s results of operations. The disruption arising from this and similar circumstances may last from a few days to several months and management is unable to forecast the financial impact of any such future disruption; however, at this time, the Company anticipates maintaining full-year average production results.
For further discussion of risks related to our liquidity and capital resources, including Risks Related to Our Operations. see "Item 1A. Risk Factors."
Working Capital
Working capital is the difference in our current assets and our current liabilities. Working capital is an indication of liquidity and potential need for short-term funding. The change in our working capital requirements is driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to, and the timing of collections from customers, the level and timing of spending for expansion activity, and the timing of debt maturities.
As of September 30, 2023, we had a working capital deficit of $40.1 million compared to a deficit of $25.3 million as of December 31, 2022. The working capital deficit at September 30, 2023 reflects an increase in both current assets and current liabilities due to the New Mexico Acquisition. Current liabilities increased $20 million for the current portion of our long-term debt from the addition of the Senior Notes during the second quarter of 2023, as well as an increase of approximately $8.8 million in accounts payable due to timing and an increase in activity due to the New Mexico Acquisition and an increase due to $19.1 million in current derivative liabilities compared to $16.5 million in current derivative liabilities at December 31, 2022.
We utilize our Credit Facility and cash on hand to manage the timing of cash flows and fund short-term working capital deficits. Our current derivative assets and liabilities represent the mark-to-market value as of September 30, 2023 of future commodity production which will settle on a monthly basis through the end of their contractual terms. This aligns with the receipt of oil and natural gas revenues on a monthly basis.
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Cash Flows
The following table summarizes the Company’s cash flows:
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Statement of Cash Flows Data: | ||||||||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 141,372 | $ | 130,352 | ||||||||||||||||||||||||||||
| Net cash used in investing activities | $ | (448,492) | $ | (83,182) | ||||||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | $ | 304,185 | $ | (37,579) | ||||||||||||||||||||||||||||
Operating Activities
The Company’s net cash provided by operating activities increased to $141.4 million for the nine months ended September 30, 2023 from $130.4 million for the nine months ended September 30, 2022. The increase in net cash provided by operating activities is primarily due to an increase in operating revenues and lower settlements on derivatives, partially offset by changes in working capital. Prior to changes in working capital, the Company’s net cash provided by operating activities was $151.7 million for the nine months ended September 30, 2023, as compared to $124.5 million for the nine months ended September 30, 2023.
Investing Activities
The Company's cash flows used in investing activities increased by $365.3 million to $448.5 million for the nine months ended September 30, 2023 from $83.2 million for the nine months ended September 30, 2022. The increase was primarily due to the Company's New Mexico Acquisition of $325 million for the nine months ended September 30, 2023, with no comparable items for the nine months ended September 30, 2022. Additionally, the Company incurred higher capital spending of $32.2 million related to increased activity during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, as a result of having a larger asset base following the New Mexico Acquisition.
Financing Activities
Net cash flows provided by financing activities were $304.2 million for the nine months ended September 30, 2023 compared to net cash flows used in financing activities of $37.6 million for the nine months ended September 30, 2022. The Company's primary financing activities consist of the following:
| Nine Months Ended September 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In thousands) | ||||||||||||||
| Deferred financing costs | $ | (6,250) | $ | (1,722) | ||||||||||
| Net proceeds (repayments) from revolving credit facility | $ | 154,000 | $ | (17,000) | ||||||||||
| Proceeds from Senior Notes, net of discount and repayments | $ | 178,000 | $ | — | ||||||||||
| Payment of common share dividends | $ | (20,173) | $ | (18,257) | ||||||||||
See Note 9 -Long-Term Debt in the notes to the unaudited condensed consolidated financial statements in Part I, Item 1. for a description of the Company's debt agreements.
Distributions
For the nine months ended September 30, 2023, the Company authorized and declared quarterly dividends totaling approximately $20.4 million, with $20.2 million paid in cash and $0.2 million payable to restricted shareholders upon vesting.
Contractual Obligations
In January 2023, the Company entered into an agreement to form a joint venture with Conduit Power LLC. The Company is committed to contributing its portion of capital expenditures into the joint venture company, RPC Power. In conjunction with
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the formation of the joint venture, the Company entered into additional agreements with RPC Power or one of its subsidiaries. These agreements include RPC Power providing operational expertise on the implementation and management of the power generation for a monthly fee of $20 thousand and the Company committing to provide the natural gas needed to fuel the onsite power generators through 2028. See Note 13 - Commitments and Contingencies for additional information.
ATM Program
On September 1, 2023, we filed a prospectus supplement relating to an at-the-market equity sales program (ATM) under which we may issue and sell shares of our common stock from time to time up to an aggregate offering price of $50 million. Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs. The Company has no obligation to sell any common units under the ATM and may suspend sales under the ATM at any time. During the three and nine months ended September 30, 2023, we executed sales under our ATM equity sales program of 8,939 shares with proceeds of $0.3 million, net of approximately $9 thousand of fees. The Company incurred approximately $124 thousand of expenses associated with establishing the ATM Program and filing the related prospectus supplement. As of September 30, 2023, $49.7 million of equity was available for issuance under our ATM program. See Note 10 - Shareholders' Equity for additional information.
Critical Accounting Estimates
The Company's critical accounting estimates are described in "Critical Accounting Estimates" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 of the Notes to the Consolidated Financial Statements in Riley Permian's Annual Report on Form 10-K for the year ended December 31, 2022. The accounting estimates used in preparing our interim condensed consolidated financial statements for the three and nine months ended September 30, 2023 are the same as those described in Riley Permian's Annual Report.
See Note 3 - Summary of Significant Accounting Policies in the Company's consolidated financial statements in "Item 15. Exhibits and Financial Statement Schedules" in Riley Permian's Annual Report for a full discussion of our significant accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management establishes and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023, with the participation of our CEO and CFO, as well as other key members of our management. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various legal proceedings and claims in the ordinary course of business. The ultimate outcome of any such proceedings or claims, and any resulting impact on us, cannot be predicted with certainty. The Company believes that the amount of the liability, if any, ultimately incurred with respect to any such proceedings or claims will not have a material adverse effect on our financial condition, liquidity, capital resources, results of operations or cash flows.
Refer to "Part I. Item 3 - Legal Proceedings" of Riley Permian's Annual Report on Form 10-K for the year ended December 31, 2022, and "Part I. Item 1. Note 13 - Commitments and Contingencies" in the notes to the unaudited condensed consolidated financial statements set forth in this Quarterly Report on Form 10-Q (which is incorporated by reference herein) for additional information.
Item 1A. Risk Factors
In addition to the information set forth in this Quarterly Report, the risks that are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, under the headings "Part I. Item 1. and Item 2. Business and Properties," “Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and "Part II. Item 1A. Risk Factors," should be carefully considered, as such risks could materially affect the Company's business, financial condition or future results. Except as set forth below, there has been no material change in the Company's risk factors that were described in the Company's 2022 Annual Report on Form 10-K.
Risks Relating to Our Operations
Our drilling and production programs may not be able to obtain access on commercially reasonable terms or otherwise to truck transportation, pipelines, gas gathering, transmission, storage and processing facilities to market our oil and natural gas production, certain of which we do not control, and our initiatives to expand our access to midstream and operational infrastructure may be unsuccessful.
The marketing of oil and natural gas production depends in large part on the capacity and availability of pipelines and storage facilities, trucks, gas gathering systems and other transportation, processing and refining facilities. Access to such facilities is, in many respects, beyond our control. If these facilities are unavailable to us on commercially reasonable terms or otherwise (either temporarily or long term), we could be forced to shut in some production or delay or discontinue drilling plans and commercial production following a discovery of hydrocarbons, as was the case in July and August 2023, when our producing wells in the Red Lake field in New Mexico were shut in due to an unexpected maintenance issue with our third party processing plant. We rely (and expect to rely in the future) on facilities developed and owned by third parties in order to store, process, transmit, and sell our oil and natural gas production. Our plans to develop and sell our oil and natural gas reserves, the expected results of our drilling program and our cash flow and results of operations could be materially and adversely affected by the inability or unwillingness of third parties to provide sufficient facilities and services to us on commercially reasonable terms or otherwise. The amount of oil and natural gas that can be produced is subject to limitation in certain circumstances, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, damage to the gathering, transportation, refining or processing facilities, or lack of capacity on such facilities. For example, increases in activity in the Permian Basin could contribute to bottlenecks in processing and transportation that may negatively affect our results of operations, and these adverse effects could be disproportionately severe to us compared to our more geographically diverse competitors.
Similarly, the concentration of our assets within a small number of producing formations exposes us to risks, such as changes in field-wide rules, which could adversely affect development activities or production relating to those formations. In addition, in areas where exploration and production activities are increasing, as has been the case in recent years in the Permian Basin, we are subject to increasing competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages or delays. The curtailments arising from these and similar circumstances may last from a few days to several months, and in many cases, we may be provided only limited, if any, notice as to when these circumstances will arise and their duration.
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While we have undertaken initiatives to expand our access to midstream and operational infrastructure, these initiatives may be delayed or unsuccessful. As a result, our business, financial condition, and results of operations could be adversely affected.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit Number | Description | ||||
| Note Purchase Agreement, dates as of April 3, 2023, among Riley Exploration - Permian, LLC, as Issuer, Riley Exploration Permian, Inc., as Parent, each of the subsidiaries of the Issuer party thereto as guarantors, each of the holders from time to time party thereto, and U.S. Bank Trust Company, National Association, as agent for the holders (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2023). | |||||
| Fourteenth Amendment to the Credit Agreement dated as of April 3, 2023, by and among Riley Exploration Permian, Inc., Riley Exploration - Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 4, 2023). | |||||
| Riley Exploration Permian, Inc. 2021 Long Term Incentive Plan, as amended and restated as of April 21, 2023 (Incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 24, 2023). | |||||
| Form of Restricted Stock Agreement (Time Vesting - Named Executive Officers), as amended and restated as of April 21, 2023 (Incorporated by reference from Exhibit 10.2 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 24, 2023). | |||||
| Form of Restricted Stock Agreement (Non-Employee Director), as amended and restated as of April 21, 2023 (Incorporated by reference from Exhibit 10.3 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 24, 2023). | |||||
| Form of Common Stock Award Agreement, as amended and restated as of April 21, 2023 (Incorporated by reference from Exhibit 10.4 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 24, 2023). | |||||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
| Certification of Chief Executive Officer pursuant to 18 U.S.C., Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
| Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
| 101.INS* | XBRL Instance Document | ||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL* | XBRL Taxonomy Calculation Linkbase Document | ||||
| 101.DEF* | XBRL Taxonomy Definition Linkbase Document | ||||
| 101.LAB* | XBRL Taxonomy Label Linkbase Document | ||||
| 101.PRE* | XBRL Taxonomy Presentation Linkbase Document | ||||
* Filed herewith.
† Compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| RILEY EXPLORATION PERMIAN, INC. | ||||||||
Date: November 7, 2023 | By: | /s/ Bobby D. Riley | ||||||
| Bobby D. Riley | ||||||||
| Chief Executive Officer | ||||||||
| By: | /s/ Philip Riley | |||||||
| Philip Riley | ||||||||
| Chief Financial Officer | ||||||||
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Exhibit 31.1
CERTIFICATION | ||||||||
I, Bobby D. Riley, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riley Exploration Permian, Inc. for the quarter ended September 30, 2023.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: | November 7, 2023 | |||||||
| By: | /s/ Bobby Riley | |||||||
| Bobby D. Riley | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION | ||||||||
I, Philip Riley, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riley Exploration Permian, Inc. for the quarter ended September 30, 2023.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: | November 7, 2023 | |||||||
| By: | /s/ Philip Riley | |||||||
| Philip Riley | ||||||||
| Chief Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION | ||||||||
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:
I have reviewed the Quarterly Report on Form 10-Q of Riley Exploration Permian, Inc. (the “Company”) for the quarter ended September 30, 2023 (the “Report”).
To the best of my knowledge the Report (i) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m (a) or 78o (d)); and, (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: | November 7, 2023 | |||||||
| By: | /s/ Bobby Riley | |||||||
| Bobby D. Riley | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 32.2
CERTIFICATION | ||||||||
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:
I have reviewed the Quarterly Report on Form 10-Q of Riley Exploration Permian, Inc. (the “Company”) for the quarter ended September 30, 2023 (the “Report”).
To the best of my knowledge the Report (i) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m (a) or 78o (d)); and, (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: | November 7, 2023 | |||||||
| By: | /s/ Philip Riley | |||||||
| Philip Riley | ||||||||
| Chief Financial Officer | ||||||||