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Riley Exploration Permian First Quarter 2021 Results

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   |    Wednesday,May 12,2021

Riley Exploration Permian Inc. reported its Q1 2021 results.

Highlights:

• Closed reverse merger transaction with Tengasco on February 26, 2021
• Increased total equivalent sales volumes to 8.3 MBoe per day for the second quarter 2021, an increase of 11% over the same period in 2020, despite significant reductions in capital expenditures and production outages due to two severe storms
• Generated Cash Flow from Operations of $38.1 million for the six months ended March 31, 2021
• Reported a Net Loss of $48.5 million for the three months ended March 31, 2021, with Adjusted Net Income of $8.6 million for the same period
• Incurred capital expenditures of $17.1 million for the six months ended March 31, 2021, which corresponds to 43% of EBITDAX¹, representing a significant decrease of 49% compared to the same period for 2020
• Generated Free Cash Flow¹ of $20.6 million for the six months ended March 31, 2021
• Paid cash common dividends of $3.8 million during the three months ended March 31, 2021; announced latest dividend of $0.28 per share with a record date of April 16, 2021, which was paid May 7, 2021, for a total of $5.0 million
• Exited the second quarter with $10.1 million in cash and $97.5 million drawn on the credit facility
• Decreased flaring by 35% quarter-over-quarter
• Production, cash flow, capital investing and leverage trends all performing in line with previously released guidance and the Company's capital allocation framework
• Began operations on enhanced oil recovery ("EOR") project, which will utilize a combination of water and C02 injection, including the goal of using anthropogenic CO2 ("ACO2")

Bobby Riley, Chief Executive Officer of Riley Permian, stated, "We're excited to have closed our reverse merger transaction and welcome the positive reception by markets thus far. Riley Permian performed strongly during our fiscal second quarter of 2021, during which we overcame the extreme operating challenges presented by Winter Storm Uri, and we continued to create value for our shareholders.

"Halfway through our fiscal year, which ends on September 30, 2021, we remain firmly adhered to our capital allocation framework, including reinvesting less than 70% of EBITDAX¹ in capital expenditures, as evidenced by our year-to-date allocation of only 43% of EBITDAX¹. Combined with our robust operating performance, this capital discipline allowed us to generate over $38 million of Cash Flow from Operations and $20 million of Free Cash Flow¹ during our fiscal year-to-date."

"Further, we were pleased to raise the dividend to $0.28 per share, which was paid on May 7^th. The payment of a regular quarterly dividend has long been a priority for Riley Permian, dating back to its predecessor entity as a private company. Going forward, one of Riley Permian's core priorities is to continue to pay - and grow - a regular quarterly dividend, consistent with our shareholder-focused business model."

"Finally, we have formally begun operations on our EOR pilot after several years of extensive technical studies internally and with world-class partners. Our core asset in Yoakum County, TX, is an ideal candidate for EOR for both geologic and geographic reasons, and is directly adjacent to several of the largest and most successful EOR projects in the U.S. We forecast benefits of increased recoveries and further flattening of decline curves, leading to steadier cash flows, which fits our shareholder-focused business model. Riley aims to use anthropogenic sources of CO2 (ACO2), in accord with international calls for reducing emissions and CO2, and which fits our goal of producing low-carbon barrels."

Ops Update

Second-quarter oil production averaged 6.0 MBbls per day and equivalent production averaged 8.3 MBoe per day, in line with our budgeted guidance previously disclosed. Sales of natural gas and natural gas liquids (NGLs) increased by 30% and 39%, respectively, compared to the quarter ended December 31, 2020 on account of increased processing capacity coming online in early February. Company management estimates that severe weather, including Winter Storm Uri and an additional powerful windstorm, effectively reduced production by approximately 3 percent.

During the fiscal second quarter of 2021, Riley Permian commenced a 7 gross (7 net) well drilling and completion ("D&C") program and invested $9.1 million in D&C capital expenditures, which resulted in the drilling of 5 gross (4.5 net) wells and the completion of 2 gross (1.5 net) wells.

The Company's drilling times (spud to reaching total depth) have continued to improve, with the results for wells drilled to date during this fiscal year averaging 5 days for a 1-mile lateral, and 6.5 days for a 1.5-mile lateral.

Q1 Financials

Cash Flow from Operations for the fiscal year-to-date 2021 was $38.1 million, which funded all capital expenditures, leading to Free Cash Flow² of $20.6 million for the same period.

The Company reported a Net Loss of $48.5 million for the second quarter of 2021, including $11.2 million of Operating Income. The Company calculates Adjusted Net Income² of $8.6 million, adjusted to exclude certain items, including the loss from discontinued operations, unrealized losses from derivative mark-to-market values, non-recurring transaction costs and a deferred tax expense related to the change in tax status.

During its fiscal second quarter of 2021 Riley Permian generated $21.0 million in EBITDAX² and $23.2 million in Adjusted EBITDAX², adjusted to exclude transaction and restructuring costs.

For the fiscal second quarter 2021 average unhedged realized prices were $56.71 per barrel of oil, $7.51 per Mcf of natural gas and $13.16 per barrel of natural gas liquids, resulting in a total equivalent unhedged price of $49.12 per Boe.

Riley Permian's cash operating costs for the fiscal second quarter of 2021 were $14.60 per Boe, including lease operating expense ("LOE") of $9.07 per Boe (including a non-recurring expense of approximately $1.34 per Boe related to a downhole failure on a salt-water disposal well), cash G&A expenses (after offset from our contract services - related parties revenue) of $2.93 per Boe, and production taxes of $2.60 per Boe.

The Company continued to maintain a strong balance sheet, exiting the second quarter with $10.1 million in cash and $97.5 million drawn on its revolving credit facility.

EOR Pilot

Riley Permian has begun operations on its EOR pilot program, which will start with a 960-acre unit in Yoakum County, TX, applying water and C02 through vertical injection wells adjacent to horizontal producing wells. The Company began drilling the first vertical injection well beginning in May 2021 with approximately $1.5MM of associated capital estimated to be incurred during fiscal 2021.

In preparation for the pilot program, Riley Permian spent several years collecting extensive cores, logs and 3-D seismic data over the Platang Field, which the Company calls its Champions asset, to evaluate resource potential, including with the assistance of world-class advisors such as Baker Hughes, William M. Cobb and Associates, and others. From analysis of this data, Riley Permian management believes that in addition to significant recovery from primary production, EOR methods, particularly waterflooding (secondary recovery) and CO2 injection (tertiary recovery), which have been highly successful in the adjacent Wasson Field San Andres formation, will further increase recoveries in the Champions area. The Company's Champion assets possess similar reservoir rock properties to Wasson and average oil saturations are quite favorable for both waterflooding and CO2 injection. Further, the most concentrated area of CO2 infrastructure in the U.S. is directly adjacent to Riley Permian's Champions asset, including the CO2 pipeline hub at Denver City, TX.

Historically, EOR operations were most often applied to older, legacy oil fields past peak production and development stage. However, Riley Permian management believes the Champions asset is an excellent candidate for EOR methods - even as a more undeveloped asset - as we recognize the efficiencies gained by early application of waterflooding and CO2 injection. Beginning such applications early, concurrently with primary depletion and while the reservoir still has substantial pressure, can lead to more efficient oil displacement, operating synergies and higher ultimate recoveries. The historical sequencing of primary production, followed by traditional waterflooding, and subsequently by CO2 injection, can lead to an extremely long life cycle, whereas implementing these processes concurrently allows for an acceleration of the full value capture of the field in a notably shorter time frame.

Finally, Riley Permian aims to use anthropogenic sources of CO2 (ACO2) and is currently investigating multiple potential sources of ACO2 with leading industry players. The capture and use of ACO2 is part of a process known as Carbon, Capture, Utilization and Sequestration (CCUS), in which Riley Permian may participate as an offtake partner only or as an operating and financial partner. The Company's EOR pilot, which we forecast to ultimately consist of 5 horizontal producers and up to 48 vertical injection wells, could ultimately consume approximately 80 MMcf per day of CO2, or 1.5 million metric tons of CO2 annually.

2021 Outlook & Guidance

Based on current market conditions, the Company expects fiscal 2021 capital expenditures to total approximately $54 million to $56 million, which we believe will be consistent with our capital allocation framework of reinvesting approximately 65-70% of EBITDAX³, and which we believe will be funded entirely by Cash Flow from Operations.

The Company forecasts full-year fiscal 2021 oil production to average 6.3 MBbls per day to 6.5 MBbls per day, with total equivalent production to average 8.3 MBoe per day to 8.7 MBoe per day, representing year-over-year growth of approximately 17% to 23%.

The Company forecasts third fiscal quarter of 2021 cash operating costs to include LOE of approximately $6.50 to $7.50 per Boe; cash G&A expenses (after offset from our contract services - related parties revenue) of approximately $2.80 to $3.30 per Boe, and production taxes of approximately $2.20 to $2.50 per Boe.