Riley Exploration Permian, Inc. First Quarter 2023 Results

Subsequent to quarter end and as previously disclosed, in April 2023, Riley Permian completed its acquisition of oil and natural gas assets (the "New Mexico Acquisition"), which are located in Eddy County and primarily target the Yeso trend.

Riley Permian Chairman and CEO, Bobby Riley said: "The Company remains focused on optimizing our core business, and the positive results of the first quarter of 2023 reinforce this objective. Despite extensive attention given to the successful completion of the New Mexico Acquisition, we met our previously announced guidance for operations and financials for the quarter. The New Mexico Acquisition marks a major milestone for the Company, and we are excited about the opportunities it brings for long-term growth and value creation for our shareholders."

Mr. Riley continued, "In addition to the ongoing development of our core assets, we have commenced development activities on the acquired New Mexico assets with plans to bring on additional wells early in the third quarter."

OPERATIONS AND DEVELOPMENT ACTIVITY UPDATE

Riley Permian averaged oil production of 9.9 MBbls per day for the three months ended March 31, 2023, representing an increase of 32% as compared year-over-year to the first quarter 2022 and effectively consistent with the fourth quarter of 2022. The Company averaged total equivalent production of 13.2 MBoe per day for the first quarter, an increase of 34% as compared to the same period in 2022 and consistent with the fourth quarter of 2022. Adverse weather during February 2023 limited workover activity, which modestly impacted production. Production data for the first quarter of 2023 represents legacy operations only and was not impacted by the New Mexico Acquisition that closed in April 2023.

The Company turned to sales 7 gross (5.3 net) horizontal wells during the first quarter 2023, the majority of which came online later in the quarter. The Company incurred $42 million in total accrued capital expenditures before acquisitions for the first quarter, 11% lower than the Company's previously released midpoint guidance. The lower than anticipated accrued capital expenditures were driven primarily by deferred activity, which will be conducted during the second quarter of 2023. The overall high level of development activity was anticipated and resulted from fulfilling previous drilling and completion commitments, which had been secured during 2022. On a cash basis, the Company had total capital expenditures before acquisitions of $35 million for the quarter.

During the first quarter of 2023, the Company formed a joint venture with Conduit Power, LLC that will own and operate on-site power generation utilizing produced natural gas to power Riley Permian's operations in Yoakum County, Texas. Phase 1 equipment has been ordered and initial construction began in April 2023. The Company is targeting an in-service date for Phase 1 for the second half of the third quarter 2023.

FINANCIAL RESULTS

For the three months ended March 31, 2023, the Company reported net income of $32 million, or $1.60 per diluted share, and Adjusted Net Income⁽¹⁾ of $25 million, or $1.26 per diluted share. The Company generated Adjusted EBITDAX⁽¹⁾ of $44 million, operating cash flow of $33 million and Free Cash Flow⁽¹⁾ of $2 million.

First quarter 2023 average realized prices, before derivative settlements were $72.76 per barrel of oil, $0.55 per Mcf of natural gas and $6.83 per barrel of natural gas liquids. Quarter-over-quarter, realized prices declined by 10% for oil, 71% for natural gas, and 44% for natural gas liquids. Oil represented 97% of first quarter revenue. Total oil and natural gas sales revenue, net of derivative settlements, was $61 million, a decrease of $2 million or 3% over the fourth quarter of 2022. The Company reported a $6 million gain on derivatives, which includes a $5 million loss on settlements and a $11 million non-cash gain due to changes in the fair value of derivatives.

Riley Permian's total Cash Costs⁽¹⁾ for the first quarter of 2023 were $19 million, or $16.02 per Boe. Lease operating expense ("LOE") was $9 million, or $7.49 per Boe, which is 12% lower than midpoint guidance and 3% below the average for full-year 2022. Cash G&A expense⁽¹⁾ was $5 million, or $4.20 per Boe, which is within the guidance range and 7% above the average on a per boe basis for full-year 2022. Interest expense was $1 million or $0.86 per Boe, which reflects higher rates and increased borrowings related to the deposit for the New Mexico Acquisition. Additionally, interest expense in the fourth quarter of 2022 was offset by a $1.5 million favorable settlement related to the termination of the Company's interest rate swap.

In conjunction with the formation of the power infrastructure joint venture, the Company invested approximately $2 million in cash during the first quarter of 2023, in addition to contributing assets valued at $2 million to the joint venture, which had been previously funded by the Company during the fourth quarter of 2022.

During the first quarter 2023, the Company paid a cash dividend of $7 million. Subsequent to the quarter end, the Company declared a cash dividend of $0.34 per share, payable in May 2023.

As of March 31, 2023, the Company had $89 million drawn on its credit facility, reflecting a drawdown of $33 million during the first quarter. The drawdown was used to fund the deposit for the New Mexico Acquisition.

NEW MEXICO ACQUISITION

As noted previously, the New Mexico Acquisition successfully closed in April 2023. The closing process and transition efforts to date have proceeded as planned. The Company is currently operating the assets in conjunction with the prior operator pursuant to the terms of a transitional service agreement. The Company has hired a combination of field and office personnel to adequately service the new assets.

We estimate production from the New Mexico Acquisition averaged approximately 4.1 MBbls per day and 7.2 MBoe per day during the first quarter of 2023 based upon the seller's production records. This production was not included in Riley Permian's reported production for the first quarter and was instead part of the purchase price adjustment at closing and subsequent settlement statements.

Upon taking ownership, Riley Permian began development activity with drilling our first horizontal well in the area. The Company anticipates drilling 3-4 gross operated wells in New Mexico during the second quarter 2023, with such wells forecasted to turn to sales early in the third quarter.

In April 2023 and in conjunction with the closing of the New Mexico Acquisition, the Company amended the credit facility to, among other things, increase the borrowing base to $325 million. The Company also issued $200 million of senior unsecured notes upon closing, whose net proceeds along with borrowings under the credit facility, were used to fund the closing of the New Mexico Acquisition and related expenses.

FULL-YEAR 2023 OUTLOOK AND GUIDANCE

Riley Permian is providing 2023 guidance based on currently scheduled development activity and current market conditions. Beginning with the second quarter, the Company will realize production and financial results for the New Mexico Acquisition given the closing in early April 2023. We forecast modest declines in the New Mexico production during the second quarter, with new development wells forecasted to turn to sales early in the third quarter. For the legacy assets, and excluding the New Mexico Acquisition assets, the Company forecasts double-digit percentage production growth in the second quarter compared to the first quarter, as a result of extensive first quarter development activity. Full-year 2023 guidance remains unchanged from previously disclosed figures.