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Riley Exploration Permian 4Q22 Results; 2023 Capital Plan

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   |    Thursday,March 09,2023

Riley Exploration Permian, Inc. reported financial and operating results for the fourth quarter and year ended December 31, 2022. It also detailed its 2023 capital plans.

2023 Outlook

Riley Permian is providing 2023 guidance including pro forma combined guidance for the pending New Mexico Acquisition based on an expected close date early in the second quarter of 2023:

  • Full year 2023(1) guidance for oil production of 12.8 - 13.4 MBbls/d (18.4 - 19.2 MBoe/d)
  • Full year 2023(1) guidance for activity-based investing expenditures before acquisitions of $160 - $180 million
  • First quarter 2023 guidance for oil production of 9.8 - 10.2 MBbls/d (13.2 - 13.8 MBoe/d)
  • First quarter 2023 guidance for activity-based investing expenditures before acquisitions of $47 - $54 million

Riley Permian is providing 2023 guidance based on currently scheduled development activity and current market conditions, including combined guidance for the pending New Mexico Acquisition based on an expected close date early in the second quarter of 2023.

Activity and Investing Guidance

 

Q1 2023

 

Full Year 2023 (1)

(Reporting)

     

Forecasted Contribution of New Mexico Acquisition to Period

 

- %

 

75 %

         

Texas Activity

       

Gross operated wells drilled

 

7 - 9

 

13 - 15

Average working interest on gross operated wells drilled

 

99% - 100%

 

98% - 99%

         

New Mexico Activity

       

Gross operated wells drilled

 

-

 

7 - 9

Average working interest on gross operated wells drilled

 

NA

 

90% - 97%

         

Investing Expenditures by Category (Accrual, in millions)

       

E&P(2)

 

$44 - 50

 

$150 - 165

Joint Venture investment

 

$3 - 4

 

$10 - 15

Total

 

$47 - 54

 

$160 - 180

         

E&P Capital Expenditures by Region(2) (Accrual)

       

Texas

 

99% - 100%

 

65% - 75%

New Mexico

 

- %

 

35% - 25%

           

(1)

Full year 2023 guidance information here reflects Riley Permian for the first quarter of 2023 and Riley Permian with the New Mexico Acquisition for the second, third and fourth quarters of 2023 based on assumption that the New Mexico Acquisition closes early in the second quarter of 2023.

(2)

Expenditures are before acquisitions.

 

4Q 2022 Highlights:

  • Averaged oil production of 10.0 MBbls/d, exceeding the high end of guidance and representing an increase of 37% as compared year-over-year to the fourth quarter 2021
  • Reported net income of $27 million, or $1.37 per share, which includes $7 million of non-cash gain on derivative contracts and income from operations of $41 million
  • Generated $46 million of Adjusted EBITDAX(1) and $40 million of operating cash flow, representing a decrease of 10% and 28%, respectively, over the prior quarter, driven primarily by lower commodity pricing
  • Incurred total accrual (activity-based) capital expenditures before acquisitions of $27 million and total cash capital expenditures before acquisitions of $30 million
  • Paid dividends of $0.34 per share in the fourth quarter for a total of $7 million

Full Year 2022 Highlights:

  • Increased net oil production by 31% year-over-year to 8.8 MBbls/d and total net equivalent production by 25% year-over-year to 11.5 MBoe/d
  • Reported net income of $118 million, or $6.04 per share, with income from operations of $204 million
  • Generated $176 million of Adjusted EBITDAX(1), $170 million of operating cash flow from continuing operations and $56 million of Free Cash Flow(1)
  • Invested total cash capital expenditures before acquisitions of $113 million, corresponding to a reinvestment rate of 66% of operating cash flow from continuing operations, down from 88% in 2021
  • Paid $25 million in dividends on common shares, corresponding to 44% of Free Cash Flow(1)
  • Reported total proved developed reserves of 47 MMBoe and total proved reserves of 72 MMBoe based on NYMEX pricing
  • Completed change in fiscal year end to December 31st from September 30th during the calendar third quarter 2022

In February 2023, Riley Permian entered into a definitive purchase agreement to acquire oil and natural gas assets from Pecos Oil & Gas, LLC, an investment of Cibolo Energy Partners LLC, for cash consideration of $330 million, subject to customary closing adjustments, (the "New Mexico Acquisition"). The acquisition will be funded through a combination of borrowings under the Company's revolving credit facility and the issuance of new unsecured senior notes. The oil and natural gas assets are located in Eddy County, New Mexico and primarily target the Yeso trend.

CEO Bobby Riley commented: "2022 was another record year for Riley Permian, with our out-performance continuing through the fourth quarter. We continue to deliver record production levels while working to minimize the impact of inflationary and supply chain pressures on costs, which is reflected in our financial results. Our team has worked tirelessly to optimize our core business as well as to execute on a variety of exciting new ventures. Most significantly, we entered into a purchase agreement to acquire oil and gas assets in the Yeso trend in New Mexico. The New Mexico Acquisition provides us with a combination of material current production and a significant number of high quality drilling locations for future development. The New Mexico asset, with its many similarities to our core asset in Yoakum County, allows us to leverage our experience and enhance our scale, which we believe will result in efficiencies and an improved cost structure. Additionally, we recently announced our entry into a joint venture that will facilitate better control over electric power supply, which we expect will improve operations, control costs and reduce our gas flaring. Further, we're progressing on CCUS initiatives, including advancing with partners on the potential development of a large-scale CO2 storage hub in our immediate region of the Permian Basin. Finally, consistent with our historical practice, our management team and Board are committed to continued performance management and value creation for shareholders."

Operations and Development

Riley Permian averaged oil production of 10.0 MBbls per day for the three months ended December 31, 2022, representing an increase of 37% as compared year-over-year to the fourth quarter 2021 and 6% as compared quarter-over-quarter to the third quarter 2022. The Company averaged total equivalent production of 13.3 MBoe per day for the fourth quarter, an increase of 34% as compared to the same period in 2021 and 4% as compared to the prior quarter.

The Company turned to sales 1 gross (1.0 net) horizontal well during the fourth quarter and 15 gross (11.8 net) horizontal wells during the year ended December 31, 2022. In November 2022, the Company began CO2 injection on its EOR pilot project with longer term assessment of the project continuing.

The Company incurred $27 million in total accrued capital expenditures before acquisitions for the fourth quarter, 30% lower than the Company's previously released midpoint guidance. The lower than anticipated accrued capital expenditures were driven primarily by deferred activity - including drilling one less well in the fourth quarter than planned and less activity on the EOR Project due to certain facility buildout delays - as well as better than anticipated cost performance on drilling and completions. On a cash basis, the Company had total capital expenditures before acquisitions of $30 million for the quarter. Additionally, the Company acquired surface acreage positions within its operating footprint in Yoakum County, Texas. This surface land will be used to support a variety of initiatives, including the recently announced on-site power generation joint venture, and is expected to contribute to operating synergies.

Financials

For the three months ended December 31, 2022, the Company reported net income of $27 million and operating income of $41 million. The Company generated Adjusted EBITDAX(1) of $46 million, operating cash flow of $40 million and Free Cash Flow(1) of $15 million.

For the year ended December 31, 2022, the Company reported net income of $118 million and operating income of $204 million. The Company generated Adjusted EBITDAX(1) of $176 million, operating cash flow of $170 million and Free Cash Flow(1) of $56 million. The pattern of the Company's development activity affects cash capital expenditures and may continue to cause fluctuations in Free Cash Flow(1) from quarter to quarter with longer periods more representative of Free Cash Flow(1) generation potential than an individual quarter.

Fourth quarter 2022 average realized prices, before derivative settlements were $80.60 per barrel of oil, $1.92 per Mcf of natural gas and $12.10 per barrel of natural gas liquids, resulting in a total equivalent price, before derivative settlements, of $63.38 per Boe. Adjusted for derivative settlements, total equivalent price was $51.87 per Boe, corresponding to realized derivative settlement losses of $11.51 per Boe or $14 million. The Company reported a $7 million loss on derivatives, which includes a $14 million loss on settlements and a $7 million non-cash gain due to changes in the fair value of derivatives. Total oil and natural gas sales revenue, net of derivative settlements, was $63 million, a decrease of $7 million or 10% over the third quarter of 2022. Year-over-year, total oil and natural gas sales revenue, net of derivative settlements, increased 56%.

Riley Permian's total Cash Costs(1) for the fourth quarter of 2022 were $16.8 million, representing a decrease of 15% compared to the third quarter of 2022. Lease operating expense ("LOE") was $8.8 million, 10% lower than midpoint guidance, which remained flat quarter-over-quarter despite increased volumes. Cash G&A expense(1) was $4.5 million, 9% below midpoint guidance. The Company reported interest income for the quarter of $0.9 million, which includes a $1.5 million favorable settlement related to the termination of the Company interest rate swap, partially offset by $0.6 million of interest expense.

During the fourth quarter 2022, the Company raised the common dividend by 10% to $0.34 per share and paid a cash dividend of $6.5 million. Subsequent to the year end, the Company declared a cash dividend of $0.34 per share, which was paid in February 2023.

As of December 31, 2022, the Company had $56 million drawn on its credit facility, reflecting a net drawdown of $8 million during the fourth quarter. The drawdown was used primarily to fund the surface land acquisition. In October 2022, the Company completed an amendment to its credit facility which increased the borrowing base from $200 million to $225 million.

 

RESERVES

Estimated proved reserves increased 6% over 2021 to 77.7 MMBoe at December 31, 2022 based on SEC pricing. Of the total proved reserves, 82% was oil and NGLs, and 37% was associated with proved undeveloped reserves. The increase to proved developed reserves and total proved reserves was primarily attributable to drilling activity by the Company and higher commodity prices in 2022, slightly offset by adjustments in certain well type curves and higher service costs.


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