Riley Exploration Permian is an oil and gas exploration company focusing on developing and producing hydrocarbons in the Permian Basin. The company has reported strong Q1 2024 results and has announced strategic moves to enhance its operations and financial stability.
Q1 2024 Results
In Q1 2024, Riley Exploration Permian reported production averaging approximately 20,400 BOEPD, including around 14,200 barrels per day of oil production. This represented a 2% increase in total production and a 5% growth in oil production compared to Q4 2023.
The company’s Q1 production was at the high end of its guidance, while its accrued capital expenditures were slightly lower than expected at $26 million.
Riley’s cash capital expenditures were $35 million, as it prepaid some items scheduled for future quarters in 2024. The company’s Q1 2024 results indicate a strong start to the year, positioning Riley well to meet its full-year guidance.
Stock Offering and Acquisition
In April 2024, Riley announced an underwritten public offering of 1.015 million shares at $27 per share, resulting in $25.9 million in net proceeds. Concurrently, some of Riley’s shareholders sold 1.4 million shares at the same price. At last report, Riley had 21.544 million outstanding shares.
The proceeds from the offering primarily funded an acquisition in Eddy County, which Riley closed in early May 2024. The company paid $20.5 million for this acquisition after preliminary closing adjustments. The acquired assets include 13,900 net acres, 20 to 25 net horizontal locations, and approximately 1,100 BOEPD (including 400 barrels per day of oil) in current production.
This acquisition is expected to boost Riley’s production, contributing to an annual EBITDA of approximately $8 million.
Joint Venture Expansion
Riley also expanded the scope of its joint venture (RPC Power) with Conduit Power. Initially, Riley owned 35% of the JV and had contributed $11.5 million to fund the initial project, which involved installing 20MW of natural gas-fueled power generation facilities to use Riley’s produced natural gas for its oilfield operations.
Now, Riley will own 50% of the joint venture and has committed to selling up to 10 MMcf per day of natural gas to RPC Power as feedstock for the power generation facilities. This expansion plans to increase the power generation capacity to 100MW, with commercial operations expected to start in 2025. This strategic move is advantageous as Riley receives minimal proceeds from its natural gas production, making power generation a more profitable use of this resource.
Updated 2024 Outlook
Riley has maintained its 2024 production guidance despite the acquisition. The additional production from the Eddy County acquisition is expected to add approximately 700 BOEPD to Riley’s full-year results.
If production from Riley’s legacy assets aligns with the guidance midpoint, the added production from the acquisition will help achieve the high end of Riley’s production guidance ranges for both oil and total production.
With current commodity prices of slightly over $76 WTI oil and roughly $2.60 NYMEX gas, Riley is projected to generate around $412 million in oil and gas revenues in 2024. The company’s results indicate that 97% of its 2024 revenues are expected to come from oil sales, with the remaining 3% from natural gas and NGLs.
Riley is now projected to generate $112 million in free cash flow in 2024, considering the impact of cash income taxes. This projection assumes Riley’s guidance holds and does not include additional JV contributions.
If the cost per installed MW remains similar to the initial stage of the JV, Riley will need to contribute around $65 million to fund its share of the additional 80MW in planned power generation capacity.
Excluding additional JV contributions, Riley is projected to end 2024 with approximately $268 million in net debt, assuming no significant changes in working capital compared to the end of 2023.
Valuation and Conclusion
Previously, Riley’s value was estimated at $35 per share based on a long-term $75 WTI oil price scenario. Issuing 1.015 million shares at $27 per share has a slight negative impact on Riley’s value. However, the Eddy County acquisition and the expanded scope of the RPC Power JV add value to the company.
Consequently, the estimated value of Riley is now slightly increased to $36 per share.
Riley Exploration Permian’s Q1 2024 results were solid, with production at the high end of its guidance and accrual capex below expectations. The Eddy County acquisition adds to its production capacity, and the expanded RPC Power JV is expected to make better use of its natural gas production.
With these strategic moves, Riley is well-positioned to achieve its production guidance for the full year and generate substantial free cash flow. The company’s estimated value is now $36 per share in a long-term $75 WTI oil environment, reflecting the positive updates and strategic growth initiatives.
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