Q2 2021 Riley Exploration Permian Inc Earnings Call

May 12, 2021

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Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

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Operator: Good morning. My name is Rashay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Riley Permian fiscal Q2 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Philip, you may begin your conference.

Good morning, My name is for Shay and I will be your conference operator today at this time I would like to welcome everyone to the rally Permian fiscal second quarter earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask the question. During this time simply price.

Star followed by the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Thank you Philip you may begin your conference.

Philip Riley: Thank you, Rashay. Good morning, everyone. Welcome to Riley Permian's Fiscal Q2 Earnings Conference Call. Participating on the call today are Bobby Riley's Chairman and CEO, Kevin Riley, President, Mike Rugan, CFO, and myself, Executive Vice President of Strategy. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. We'll also be referencing certain non-GAAP measures. These reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. Additional information on the risk factors that could cause results to differ is available in the company's SEC filings. A full cautionary statement about forward-looking statements can be found in our investor presentation on our website.

Thank you Rochelle and good morning, everyone.

Welcome to Riley Permian fiscal second quarter earnings conference call participating on the call today are Bobby Riley or at least chairman and CEO, Kevin Riley President, Mike Brueggen CFO and myself.

And the vice President of strategy.

As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied and these statements.

We'll also be referencing certain non-GAAP measures. These reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon and.

Additional information on the risk factors that could cause results to differ the available in the company's SEC filings of form.

All cautionary statement about forward looking statements can be found in our investor presentation on our website.

Philip Riley: I'll now turn the call over to Mr. Bobby Riley, Chairman and CEO.

I'll now turn the call over to Mr. Bobby Riley Chairman and CEO.

Bobby Riley: Thank you, Phillip. Good morning, and thank you for joining us today on the call. My comments this morning will focus on key highlights for the quarter ending 31 March 2021, which is our fiscal Q2. As previously announced, we closed the reverse merger transaction on 26 February 2021, which represented a public debut for our predecessor, Riley Exploration Permian, LLC. Riley Permian performed strongly during our fiscal Q2 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 30 September 2021, we remain firmly adhered to our capital allocation framework, including reinvesting less than 70% of EBITDAX in capital expenditures, as evidenced by our year-to-date allocation of only 51%.

Thank you Philip.

Good morning, and thank you for joining us today on the call. My comments. This morning will focus on key highlights for the quarter ended March 31, 2021, which is our second fiscal quarter.

As previously announced we closed the reverse merger transaction on February 26, 2021, which represented a public debut for our predecessor of Riley exploration Permian L. L C.

Riley Permian performed strongly during our fiscal second quarter of 2021 during which we overcame the extreme operating challenges presented by winter storm here and we continue to create value for our shareholders.

Halfway through our fiscal year, which ends on September 30 of 2021.

We remain firmly adhere to our capital allocation framework.

Including reinvesting less and 70% of EBITDAX and capital expenditures as evidenced by our year to date and allocation of only 51 per cent.

Bobby Riley: Combined with our robust operating performance, such capital discipline allowed us to generate over $20 million of unadjusted free cash flow during our fiscal year to date. Further, we are pleased to pay the dividend of $0.28 per share. The payment of regular quarterly dividends 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, Texas, 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 United States.

Combined with our robust operating performance such capital discipline allowed us to generate over $20 million of an adjusted free cash flow during our fiscal year to date.

Further we are pleased to pay the dividend of 28 cents per share the <unk>.

<unk> of our regularly 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 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 EUR pilot after several years of extensive technical studies internally and with World Class partners are.

Our core assets and Yoakum County, Texas is an ideal candidate per EUR for both the geologic and geographic reasons.

And its directly adjacent to several of the largest and most successful EUR projects and the United States.

Bobby Riley: 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 in line with international calls for reducing emissions and CO2, and which fits our goal of producing low carbon barrels. I'll now turn it over to Kevin Riley to review operational activity and results for the quarter.

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 C. O two in line with international calls for reducing emissions and C O two.

And which fits our goal of producing low carbon and barrels.

I'll now turn it over to Kevin Riley to review operational activity and results from the quarter.

Kevin Riley: Thank you, Bobby, and good morning to everyone. As Bobby mentioned, I plan to review the operational activity and results for the last quarter. Despite production impacts of what management estimates to believe to be 18.4 MBOE from the impact of Winter Storm Uri and another windstorm that impacted our production in March, our total net production for the quarter totaled 746 MBOE or 8,293 BOE per day. This represents a 9% increase from our Q1 ending 31 December 2020. As a result of increased gathering and processing capacity from our midstream partner, our production mix for the quarter was 73% oil, 13% natural gas, and 14% natural gas liquids. The additional gathering and processing capacity allowed us to reduce our flaring of natural gas by 35% quarter over quarter.

Thank you Bobby and good morning to everyone and as Bobby mentioned I plan to review the operational activity results from the last quarter.

Despite production impacts of what management estimates to believe to be 18.4 N V. O E from the impact of Winter storm, Yuri and another wind storm that impacted our production in March.

Our total net production for the quarter totaled 746 and Boe.

<unk> 8293 Boe per day.

This represents a 9% increase from our first fiscal quarter ended December 31 2020.

As a result of increased gathering and processing capacity from our midstream partner our production mix for the quarter was 73% oil.

13% natural gas and 14% natural gas liquids.

The additional gathering and processing capacity allowed us to reduce our flaring of natural gas by 35% quarter over quarter.

Kevin Riley: In February 2021, Riley Permian commenced a 7 gross, 7 net, well drilling program on our Permian asset. To date, we have spent about $11.2 million towards that endeavor. That resulted in drilling of 5 gross and 4.5 net wells, and the completion of 2 gross and 1.5 net wells during the quarter. This investment rate implies a 53% reinvestment rate of EBITDAX for the quarter. One of the results of our program is our drilling times spud to reaching total depth have continued to improve, with the results for wells drilled to date during the fiscal year averaging 5 days for 1-mile lateral and 6.5 days for a 1.5-mile lateral. On to the financial aspect of the drilling program.

In February of 'twenty, 'twenty, one where all the Permian commence day seven gross seven net.

Well drilling program on our Permian assets and to date, we have spent about $11 $2 million towards that endeavor.

That resulted in drilling of five gross and $4 five net wells and the completion of two gross and 1.5 net wells during the quarter.

This investment rate implies of 53% reinvestment rate of EBITDAX for the quarter.

One of the results of our program as our drilling times and spud to reaching total depth have continued to improve.

With the results for wells drilled to date during the fiscal year average and five days from one mile lateral and six and a half days for a mile and a half lateral.

Onto the financial aspect of the drilling program.

Kevin Riley: The average realized unhedged prices were $56.41 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. After the impact of hedges, our realized price was $45.64 per BOE. Our all-in cash costs for Q2 were $16.16 per BOE, which is inclusive of interest expense of $1.56 per BOE. We generated $21 million of EBITDAX and $23.2 million of adjusted EBITDAX after the exclusion of transaction costs related to the merger. With that, I'll now turn the call back over to Phillip to discuss our recently announced EOR pilot.

The average realized unhedged prices or.

And were $56 41 per barrel of oil and $7.51 per Mcf of natural gas and $13 60 per barrel of natural gas liquids.

Resulting in a total equivalent unhedged price of 49 and 12 per Boe.

After the impact of hedges, our realized price was $45.64 per Boe.

Our all in cash costs for the second quarter were $16.16 per Boe.

Which is inclusive of interest expense of $1 56 per Boe.

We generated $21 million of EBITDAX and $23 2 million of adjusted EBITDAX. After the exclusion of transaction costs related to the merger.

With that I'll now turn the call back over to Philip to discuss our recently announced EUR pilot.

Philip Riley: Thank you, Kevin. As Bobby previewed, we're pleased that the company has begun operations on our EOR pilot program. This will start with a 960-acre unit in Yoakum County, Texas, applying water and CO2 through vertical injection wells adjacent to horizontal producing wells. We've already begun drilling the first vertical injection well this month, with approximately $1.5 million of capital estimated to be incurred during fiscal 2021. We're kicking off this operational effort after several years collecting extensive cores, logs, 3D seismic data over the Brahaney field, which we call our Champions asset, to evaluate the resource potential. After studying the data, we believe that in addition to significant recovery from primary production, we can use EOR, including water flooding and CO2 injection, to increase recoveries in the Champions area.

Thank you Kevin.

As Bobby previewed we're pleased that the company has begun operations on our EUR pilot program.

This will start with the 960 acre unit, Yoakum County, Texas, playing water and Cotwo through vertical injection wells adjacent to horizontal producing wells.

<unk> already begun drilling the first of all of the vertical injection, while this month with approximately one and a half million dollars of capital estimated to be incurred during fiscal 2021.

We're kicking off this operational effort after several years collect and extensive cores logs three D seismic data over the split tank field, which we call of champions of asset to evaluate the resource potential and.

And after studying the data we believe that in addition to significant recovery from primary production, we can use E O R, including water flooding and C O two injection to increase recoveries and the champions area.

Philip Riley: These methods, which have been highly successful in the Wasson field, which is directly adjacent across the lease line to us, should work very well for us. Our assets have similar reservoir rock properties to Wasson, and the most concentrated area of CO2 infrastructure in the US is directly adjacent to our Champions asset, including the CO2 pipeline hub at Denver City, Texas.

These methods, which have been highly successful and the Watson field, which is directly adjacent across the lease line to us.

And should work very well for us our assets of similar reservoir rock properties to Washington, and the most concentrated area of C. O two infrastructure and the U S is directly adjacent to of champions assets, including the C. O two pipeline hub at Denver City, Texas.

Bobby Riley: Just a few more thoughts here for why we believe this is the right time to begin this pilot. Historically, EOR operations were most often applied to older legacy oil fields, past peak production in the development stage. We believe our Champions asset is an excellent candidate for EOR methods, even as a more undeveloped property, as we recognize the efficiency gained by early applications of water flooding and CO2 injection. There is a time value component to this, both from reservoir and financial perspectives. We think beginning these 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, which we hope may approach three times the recovery of primary operations. Doing so may also accelerate the life cycle of our asset.

Philip Riley: Just a few more thoughts here for why we believe this is the right time to begin this pilot. Historically, EOR operations were most often applied to older legacy oil fields, past peak production in the development stage. We believe our Champions asset is an excellent candidate for EOR methods, even as a more undeveloped property, as we recognize the efficiency gained by early applications of water flooding and CO2 injection. There is a time value component to this, both from reservoir and financial perspectives. We think beginning these 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, which we hope may approach three times the recovery of primary operations. Doing so may also accelerate the life cycle of our asset.

Just a few more thoughts here for why we believe this is the right time to begin this pilot.

Historically, EUR operations, where most often and apply to older legacy oilfields past peak production and the development stage and we believe our champions asset is an excellent candidate per EUR message, even as a more undeveloped property as we recognize the efficiencies gained by early applications of water.

Flooding and C O two injection.

There is of time value from college this belt from reservoir and financial perspectives.

We think beginning of these applications early concurrently with primary completion and while the reservoir still have some central pressure can lead to more efficient all of displacement operating synergies and higher ultimate recoveries, which we hope may approach three times the recovery of primary operations.

Doing so may also accelerate the lifecycle of our assets.

Bobby Riley: We've always believed that EOR represented an eventual step in the evolution for its development, and the historical sequencing of primary to secondary to tertiary recovery can lead to an extremely long life cycle, whereas implementing these processes concurrently allows for an acceleration of the full value capture of a field in a notably shorter timeframe.

Philip Riley: We've always believed that EOR represented an eventual step in the evolution for its development, and the historical sequencing of primary to secondary to tertiary recovery can lead to an extremely long life cycle, whereas implementing these processes concurrently allows for an acceleration of the full value capture of a field in a notably shorter timeframe.

We've always believe that EUR represented and the natural step and the evolution towards development and the historical sequencing of primary to secondary and tertiary recovery 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 and notably shorter timeframe.

Philip Riley: Finally, there's another forward-looking element to this pilot related to our ambition to use anthropogenic sources of CO2, or aCO2, as we call it. Why are we focused on this? Well, we believe attractive economics may be achievable while at the same time providing a service to society in consuming significant amounts of CO2, which much of the planet is calling for, and which could lead to Riley producing a differentiated low carbon barrel of oil. The economics of using aCO2 are partially supported by the 45Q federal tax credits, which can be factored into levelized cost analyses. Guidelines have been set for both the use and sequestration purposes of the CO2. Riley's initial focus will be on the use, factor with our EOR activities.

And finally, there was another forward looking elements of this pilot related to our ambition to use anthropogenic sources of Seo to our ACO to as we call it.

Why are we focused on this.

Well, we believe attractive economics, maybe achievable while at the same time, providing the service to society and consuming significant amounts of C. O two which much of the planet is calling for and which could lead to riley producing of differentiated low carbon barrel of oil.

The economics of using ACO too are partially supported by the 45 acute federal tax credits, which can be factored into the level of cost analysis Guy.

Guidelines have been set for both of us and sequestration purposes of the C O two Riley.

The initial focus will be on the use of factor with our U R activities.

Philip Riley: We're currently investigating multiple potential sources of aCO2 with leading industry players, and we're looking into this both as an off-take partner only or as a partner in a project to source and capture. We're excited by the reception thus far, and we look forward to providing updates in the future. I'll turn it back to Kevin now for discussion of forward guidance.

We're currently investigating multiple potential sources of ACO too with leading industry players and we're looking into this both us and off take partner only or is the partner and the project and the source and capture or <unk>.

Excited by the reception, thus far and we look forward to providing updates and the future.

And I'll turn it back to Kevin now for a discussion of forward guidance. Thank you Philip.

Kevin Riley: Thank you, Philip. Outside of some additional CapEx of $3 to 4 million related to some unplanned participation in three additional non-op wells and the initiation of our EOR pilot, we reaffirm our fiscal year CapEx in line with a reinvestment rate of approximately 65% of our EBITDA. The company expects fiscal year 2021 capital expenditures to be a total of approximately $54 to 56 million. Additionally, the company forecasts full year fiscal 2021 oil production to average between 6.3 and 6.5 MBO per day, with total equivalent production to average between 8.3 and 8.7 MBOE per day, representing a year-over-year growth of approximately 17% to 23%. With that, I'll turn it over to Bobby for closing remarks. Thank you, Kevin. In closing, our past quarter was extremely busy and productive.

Outside of from additional Capex of three of $4 million related to some unplanned participation and three additional non op wells and.

And the initiation of our EUR pilot, we reaffirm our fiscal year Capex in line with the reinvestment rate of approximately 65% of our EBITDA.

The company expects fiscal year 2021 capital expenditures to be a total of approximately $54 million to $56 million.

Additionally, the company forecast full year fiscal 2021 oil production to average between six three and 6.5 Mbo per day with total equivalent production to average between eight three and $8 seven and BOE per day, representing a year over year growth of approximately 17.

The 23 per cent.

And with that I'll turn it over the body for closing remarks, Thank you Kevin.

Bobby Riley: Thank you, Kevin. In closing, our past quarter was extremely busy and productive.

And closing our past quarter was extremely busy and productive.

Bobby Riley: We generated operating cash flow, free cash flow, and paid dividends. Our objective remains to continue to grow within our capital allocation framework. Thank you again for your time today. Operator, you may now turn it, open for questions.

We generated operating cash flow free cash flow and paid dividends.

Our objective remains to continue to grow within our capital allocation framework.

Thank you again for your time today.

And operator, you may now turn it open for questions.

Rashay: As a reminder, to ask a question, you need to press star one on your telephone. To withdraw your question, press the pound key. Your first question from the line of John White from Roth Capital.

Operator: As a reminder, to ask a question, you need to press star one on your telephone. To withdraw your question, press the pound key. Your first question from the line of John White from Roth Capital.

As of Romani to ask the question you need to press Star one on your telephone to withdraw your question press. The pound key you. Your first question from the line of John White from Roth capital.

John White: Good morning, guys, and congratulations on your inaugural earnings call as a public company.

Good morning, guys and congratulations on your inaugural earnings call as a public company.

Philip Riley: Thank you.

Bobby Riley: Thank you, John.

Thank you.

John White: Philip addressed this in part, and on slide 16, the last bullet point on the right-hand side of the page said Riley's participation in CCUS could be direct or offtake only. By that, do you mean you could use CO2 as part of your EOR project or you could take CO2 from an industrial emitter and simply store it in a saline reservoir.

And I'm.

So of addressed this in part a and on slide 16.

The last the bullet point, yeah, right hand side of the page.

<unk> participation and C. C U S could be direct for off take all of them and.

By that do you mean.

You could use.

And as part of your E O our project.

For you.

You could take C O two from an industrial and Nader and simply store it and of Saline reservoir.

Philip Riley: Yeah. Kind of two questions there from what I heard, John. First, thanks for the warm note there. One is it offtake or participation, and two, is it use or storage? You know, on the latter, we are going to be using the CO2 in our initial endeavors. That's with the EOR rather than permanent sequestration with the Class VI well, which is a slight difference there with both the use and also with the 45Q tax credits. Use qualifies for up to a $35 credit in the coming years, whereas permanent sequestration is the $50 at a time. The other question I heard is, are you participating just as offtake?

Yes.

Two questions there from what I heard John.

First thanks for the the warm note there.

Sure.

One is is it off taker of participation and two is it used for storage on the.

On the ladder and we are going to be using the <unk> and our initial endeavor, that's what the EUR rather than permanent and sequestration with the plastics well.

Which.

It is a slight difference there with both.

The use and also with the 45 key tax credits used qualifies for up.

The 35 dollar credit and in the coming years, whereas the permanent sequestration is the $50 per ton.

And the other question I heard it.

Are you participating just as the off take and if you think about how it works we've got our site and we've got the two.

Philip Riley: You know, if you think about how it works, we've got our site, and we've got the CO2 pipeline network coming to our asset. Regardless of the source, it's got to get into a pipe and make it down to our asset. As an offtaker, the first step is ensuring that somehow the source can connect to the pipe, and then it makes its way down to us. Now, if we were to participate as an operating or even potentially financial partner at the source, that's further upstream, potentially somewhere in the region, but somewhere where the midstream pipe is connecting on the original source end before it comes to us.

And two pipeline network coming to our asset.

Regardless of the source, it's got to get into a price and make it down to our asset.

So as an off taker of the first step is ensuring that somehow the source can connect to the pipe and then is.

It makes it down and its way to US now if we were to participate as an operating or even potentially financial partner at the source.

And that's further upstream.

Potentially somewhere in the region, but somewhere where the the midstream pipe of connecting on the original source and where it comes to US what I'd say is we're looking at all options right now.

Philip Riley: What I'd say is we're looking at all options right now, trying to compare and contrast the trade-offs and the costs and so forth, and we'll have more to share in the future.

I'm trying to compare and contrast of the trade off and the cost and so forth and we'll have more to share and the future.

John White: Well, I can appreciate that. This has been referred to as basically a new industry within our traditional E&P industry, and you incurred some federal income tax in the quarter, so I guess that would lead to your application of potential 45Q credits.

Well I can appreciate that.

This is.

Ben referred to as basically a new industry within our traditional E&P industry and.

And it looked like you were a of federal you incurred some federal income tax in the quarter. So.

And I guess.

That would lead to your application of potential of 45 SKU credits.

Philip Riley: Yeah. On the tax, what I'd say, John, is, it's frankly still being developed at the federal level, whether you have to be a true taxpayer or whether these can potentially be direct pay, meaning it's a true credit whether or not you are a taxpayer. One way or another, you know, in modern capital markets, you can find a way to monetize these credits, as you're familiar in the renewable industry and such, the tax equity structuring. As we see it, the value is fungible. The original source person may be a taxpayer and can effectively share economic benefit with us through a potentially reduced price.

Yeah on the tax what I stated on it.

And it's frankly still being developed at the federal level, whether that you have to be a true taxpayer or whether these and potentially be direct day.

Meaning is the true credit whether or not cheap and you are.

We're a taxpayer.

One way or another.

And modern capital markets, you can find a way to monetize these credits.

And as you're familiar and the renewable industry and such the tax equity structuring so.

As we see it the value of this fungible the.

The the.

And the original source person maybe of taxpayer and can effectively share.

Share economic benefit with us through of potentially reduced price.

John White: I appreciate that. My final question is on your 960-acre pilot EOR. Are you aware of any other projects where vertical injection to horizontal producing wells is underway?

I appreciate that and my final question is the.

On your 960 acre pilot E O R.

Are you aware of any other projects.

Projects were vertical injection.

Two horizontal producing wells.

Underway.

Bobby Riley: John, that's a good question. I mean, this is an early technique since horizontal drilling in these type of mature fields have not been around for a long time. In the adjacent fields, our offset operators have drilled some horizontal wells to increase their recovery efficiency. You can see on the well maps where they've gone into the Yates fields and added some horizontal producers. There's been some of this work done internationally. I think the presentation indicates that we're in partnership with both Baker Hughes and William M. Cobb & Associates in designing the injectivity patterns, the volumes, rate, et cetera.

And that's a good question and I mean this is an early <unk>.

Technique.

Since horizontal drilling and these type of mature fields have not been around for a long time in the adjacent fields, our offset operators.

And have drills and horizontal wells to increase their efficiency from recoveries.

See on the on the well mapped where they've gone and from young feels of that and some cortisol of producers.

And there's been some of this work done internationally I think the the presentation in the case that we've.

And partnership with the Baker, Hughes, and William Cob, and associates and designing the objective of the patterns of volumes.

<unk> et cetera.

Bobby Riley: We have designed our wellbores in this project where we have sliding sleeves instead of a traditional plug and perf completion that allow us to open and close these sleeves throughout the length of the wellbore so that you're able to control and, you know, monitor sweep. If you have breakthroughs, you're able to shut them off. We've been looking forward in the way we designed our wellbores from the beginning. Even though it's early, we think we're in the right place at the right time.

And.

We have designed our well bores.

And the.

Project, where we have.

Sliding sleeves, and instead of a traditional plug and perf completion that allow us to open and close all.

This leaves throughout the length of the Wellbore, so that you're able to control and you know of.

Monitor.

Sweet and if you'd have breakthrough youre able to shut them off so we've been looking forward and the way we designed our well bores from.

And from the beginning so even though it's early we think we're and the right place at the right time.

John White: Well, that sounds very exciting. I salute you on your technical foresight on your setting up your horizontals that way. Thanks for taking my questions, and I'll pass it on.

Well that sounds very exciting and.

I salute you on your technical foresight on you're setting up your horizontals that way.

Thanks for taking my questions and I'll pass it on.

Bobby Riley: Thank you, John.

Right.

Philip Riley: Thank you.

Rashay: Your next question line, Neal Dingmann from Truist Securities.

And again, if you'd like to ask the question. Please press Star then the number one and your telephone keypad. Your next question. The line of Neal Dingmann from Truth true is security.

Operator: Your next question line, Neal Dingmann from Truist Securities.

Neal Dingmann: Morning, all. First question, kind of around that. My question, I really like the potential around this EOR pilot, and I think some of the comments you made about what the potential there, not only financially, but obviously different aspects of that is certainly there. I guess my question around that is, you know, will that be predicated on. I'm just wondering, you know, the size and scale, is that gonna be predicated on, you know, bringing a partner in? Or, you know, I guess what I'm thinking about for sort of the second part of that question is, you know, funds allocated there, will that take away from funds allocated just to the traditional business? I'm just wondering sort of early on how you all are thinking about that.

Many of the first question the kind of around that Mike My question I really like the the potential around the Seo our pilot and I think some of the comments you've made about what the potential.

They're not only financially, but obviously different aspects of that is certainly there. That's my question around that is.

Well, well well that'd be predicated on I'm, just wondering you know the the <unk>.

Size and scale is that going to be predicated on.

Bringing the partner in is is or I guess, what I'm thinking of that for a sort of the second part of that question is you know funds allocated there will that take away from fund the allocated just to the traditional business I'm, just wondering sort of early on and how you all of our thinking about that.

Philip Riley: Sure. Thanks. Thanks, Neil. You know, at this point, we've only disclosed that we've begun this initial vertical injection well. We haven't disclosed or provided guidance on how we're gonna do the wider project. We are gonna watch how this performs for a while. Again, previously, I said we've only allocated $1.5 million of the capital for fiscal 2021, so that's the following two quarters. It's gonna give us the time to see how the wells respond, and we'll look at it after that to see how we go from there. You know, we are mindful of the capital allocation framework that we've presented to investment community, and we think that's one of our core differentiating factors with some of the other companies. We're mindful of that.

Sure. Thanks, Thanks Neal.

You know at this point with the only disclosed that we've begun this initial vertical injection well, we haven't disclosed or provided guidance on how we're going to do the wider the wider projects.

And we are going to watch how this performs for a while again previously I've said, what we've only allocated one and a half million of the capital for fiscal.

21, so that's the following two quarters.

It's going to give us the time to see how the world responds and.

And we'll look at it after that and see how we go from there and are we.

And are mindful of the capital allocation framework that we prevent presenting to.

Investment community and we think that's one of our core differentiating factors with some of the other company. So we're mindful of that.

Rashay: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question, line of David Dernick from The Dernick Companies.

Operator: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question, line of David Dernick from The Dernick Companies.

Okay, and if you'd like to ask a question. Please press Star then the number one on your telephone keypad. Your next question the line of David <unk> from Dougherty <unk> company.

David Dernick: Good morning, fellas. Again, I want to tell you how great it is that you all have been successful in your merger and going public. My question today is, assuming success with your CO2 recovery, how much additional acreage will you have available to expand this? With that in mind, what percentage of your acreage is being held by production now? What is your plans for that acreage that still is not held by production?

Good morning Fellas.

Again I want to.

To.

Tell you.

Great and it is that you all have been successful and and.

And your merger and the going public.

Mike My question today is assuming the success with your seal to a recovery.

How much additional acreage will you have available to expand this.

And with that in mind.

What percentage of your acreage is being held by production now.

The.

And what do you what is your plans for that acreage that still has not held by production.

Philip Riley: You know, on the EUR, I guess we haven't fully disclosed that. What we'd say is we're generally being mindful of how we're developing the field. As Bobby described, it's flooding fleets, trying to have forward-looking thoughts for designing it optimally. We generally see a lot of room, running room for this. This is the first unit. We've got a large footprint, so we've got a long way to go there. Maybe on the HBP or HBO operations, as we call it, I'll pass it over to Kevin.

On the EUR I guess.

We haven't fully disclose that what we'd say is we're generally being mindful of how we are developing the field Bobby described it the sliding sleeve.

I'm trying to have forward looking thoughts or designing and optimally.

And we generally see a lot of running room for this this is the first units.

Got a large footprint. So we've got a long way to go there.

Maybe on the H VP of HBO operations as we call it the I'll pass it over to Kevin.

Kevin Riley: I don't have the exact numbers in front of me, but looking back to our last filing, which disclosed that, I believe HBP plus HBO was somewhere between 70% and 80% of our acreage position. We're well underway in development and having delineated the position, and I hope that answers your question.

I don't have the exact numbers in front of the movie, but looking back to our last filings and disclose that.

And I believe the HPT plus HBO was.

Somewhere between 70, and 80% of our acreage position.

So, we're well underway and development and haven't delineated position and.

And I hope that answers your question.

Philip Riley: Yeah, I'd say one more thing to follow Kevin's comment is we're generally trying to optimize the development to spend capital efficiently with dollars going into the ground versus releasing acres. We're mindful of that.

Yeah, I'd say, one more thing followed the kevins comment as well.

Generally.

Trying to optimize the development.

And to spend capital efficiently with dollars going into the ground versus re leasing acres. So.

And we're mindful of that.

David Dernick: Okay. Thank you.

Okay. Thank you.

Rashay: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that's star then the number one to ask a question. We do have a follow-up question from John White from Roth Capital.

Operator: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that's star then the number one to ask a question. We do have a follow-up question from John White from Roth Capital.

Again, if you'd like to ask the question and please press Star then the number one on your telephone keypad again, the starting of number one to ask a question.

And we do have a follow up question from John White from Roth capital.

John White: Yeah, just thought I'd jump back in. CapEx for drilling and completions in this quarter was a little light versus my expectation. Was that due to the storm, or is your cadence just set up for more drilling in the latter part of the fiscal year?

And I just thought I'd jump back in.

Capex for drilling and completions in this quarter was a little light versus my ex <unk>.

Was that due to the store for easier.

Is your is your cadence just set up for more drilling in the latter part of the fiscal year.

Kevin Riley: There was a little bit of delay due to the storm and such. The rig was originally scheduled to be to us starting in early February. I don't think we commenced drilling operations until late in February, and we're able to get a completion of 2 off. You are correct in that our cadence does kinda pick up the next quarter or this quarter that we're currently in, and then begins to taper off a little in our fiscal Q4 prior to picking back up for our fiscal 2022, so.

And there was a little bit of a delay due to the storm and such the rig was originally scheduled to be to US starting in early February I don't think we commenced drilling operations until the <unk>.

Late in February and we're able to get a completion of to all of you.

You are correct and that our cadence does kind of pick up the next quarter or this quarter that we're currently in and then began to taper off a little and our fiscal Q4 prior to picking back up for fiscal 'twenty two so.

John White: Okay, thanks. You mentioned a bad windstorm. Anybody that spent time out in West Texas is familiar with that. Did that knock down some power lines, or what equipment did that windstorm affect?

Okay. Thanks, and you mentioned a bad windstorm.

Anybody that spent time out in west, Texas is familiar with that.

What did that knocked down some power lines are of what equipment did that that wind storm events.

Kevin Riley: It did impact some power, from our power provider, Lea County Electric.

Did impact some power from our power provider of Lea County electric.

John White: Okay, thanks for the detail.

Okay. Thanks for the detail.

Kevin Riley: Yep.

The.

Rashay: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. There are no other questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. There are no other questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.

Again, if you would like to ask the question. Please press Star then the number one on your telephone keypad.

And there are no other questions at this time.

This concludes today's conference call you and thank you for participating you may now disconnect.

[music].

Q2 2021 Riley Exploration Permian Inc Earnings Call

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