Q4 2021 Riley Exploration Permian Inc Earnings Call

December 14, 2021

Good morning, My name is Julian and I will be your conference operator today.

Julianne: Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Riley Permian's fiscal Q4 2021 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 Riley, CFO, you may begin your conference.

Operator: Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Riley Permian's fiscal Q4 2021 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 Riley, CFO, you may begin your conference.

At this time I would like to welcome everyone to Riley Permian fiscal fourth quarter 2021 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 a question. During this time simply press star followed by the number one on your telephone keypad.

If you'd like to withdraw your question press the punky. Thank you Filipe Reilly CFO you may begin your conference.

Thank you and good morning to everyone welcome to our fiscal fourth quarter and full year Conference call. 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.

Philip Riley: Thank you and good morning to everyone. Welcome to our fiscal Q4 and full year conference call. 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. 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. Participating on the call today are Bobby Riley's Chairman and CEO, Kevin Riley's President, myself, Philip Riley, CFO and EVP of Strategy.

To differ materially from those expressed or implied in these statements.

We'll also be referencing certain non-GAAP measures 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 for cautionary statement about forward looking statements can be found in our investor presentation on our website.

Participating on the call today are Bob B Riley Riley as chairman and CEO, Kevin Riley Riley, President and myself, Bill O'brien, CFO and EVP of strategy.

Philip Riley: I will now turn the call over to Bobby.

I'll now turn the call over to Bob.

Thank you Philip good morning, and thank you for joining us today on the call.

Bobby Riley: Thank you, Philip. Good morning, and thank you for joining us today on the call. We're pleased to report that Riley Permian completed another strong fiscal year. It was an eventful year in which we completed our merger with Tengasco in February, raised capital in July, began and progressed on our EOR project this fall, and we're now reporting that we met our operational guidance metrics for the fiscal Q4 and the fiscal year. You will hear from our team shortly that we reported record results across a number of operating and financial metrics. We are proud of the organic growth we achieved over the past year. We recognize the market prefers that many larger oil and gas companies not pursue growth, while we have been encouraged by investor support of our continued growth.

We're pleased to report that Riley Permian completed another strong fiscal year.

It was an eventful year in which we completed our merger with 10 Gasco in February.

<unk> capital in July began and progress on our E. O R project. This fall.

And we're now reporting that we met our operational guidance metrics for the fiscal fourth quarter and the fiscal year.

You will hear from our team shortly that we reported record results across a number of operating and financial metrics.

We are proud of the organic growth, we achieved over the past year.

We recognize the market prefers that many larger oil and gas companies not pursue growth. While we have been encouraged by investor support of our continued growth.

Bobby Riley: We believe our reinvestment for growth is warranted to improve our scale, cost structure, and cash flow. At the same time, we achieved this growth while allocating significant cash flow from operations back to shareholders in the form of dividends. Finally, we have continued to progress our efforts in developing CCUS projects, including for permanent storage projects on our property, and we're optimistic in initiating our first project during 2022. We're having meaningful discussions and due diligence efforts with counterparties from CO2 source capture equipment providers and regulatory advisors. We are seeking to construct commercial arrangements that provide attractive economic returns in the current regulatory environment, with potential for improvement should regulations change at the federal or state levels. I will now turn the call over to Kevin Reilly to review operational results.

We believe our reinvestment for growth is warranted to improve our scale cost structure and cash flow.

At the same time, we achieved this growth while allocating significant cash flow from operations back to shareholders in the form of dividends.

Finally, we have continued to progress our efforts in developing Cc U S projects, including for permanent storage projects on our property and we're optimistic and initiating our first project during 2022.

We're having meaningful discussions with intelligence efforts with Counterparties from C O two sources.

Capture equipment providers and regulatory advisers.

We are seeking to construct commercial arrangements that provide attractive economic returns in the current regulatory environment with potential for improvement should regulations change at the federal or state levels.

I will now turn the call over to Kevin Riley to review operational results.

Kevin Riley: Thank you, Bobby, and good morning to everyone. As Bobby mentioned, I plan to review operational results for the full fiscal year ended 30 September 2021, and for the Q4 ended 30 September 2021. As previously mentioned on our last call, the quality of our assets, combined with the strong financial position of the company, allow for continued growth while maintaining capital discipline. Our execution during fiscal year 2021 proved to be the company's best fiscal year performance across numerous operational and financial metrics. To start, I'll review the results for the full fiscal year, followed by results for our Q4 ending 30 September 2021. For the full year, we increased net production by 22% to 8.6 MBOE per day as compared to the same period in 2020, which consisted of 74% crude oil.

Thank you Bobby and good morning to everyone as Bobby mentioned I plan to review operational results for the full fiscal year ended September 32021, and for the fourth quarter ended September 32021.

As previously mentioned on our last call the quality of our assets combined with our strong financial position of the company and allow for continued growth while maintaining capital discipline.

Our execution during fiscal year 2021 proved to be the company's best fiscal year performance across numerous operational and financial metrics.

Start I'll review the results for the full fiscal year followed.

Followed by our results for our fourth fiscal quarter ending September 32021.

For the full year, we increased net production by 22% to eight six Boe per day as compared to the same period in 2020.

Which consisted of 74% crude oil.

Kevin Riley: The company brought online 20 gross and 14 net horizontal wells during the year, investing total cash capital expenditures of $60.1 million, of which 80% was invested towards drilling and completion capital, 7% capitalized workovers, and other for the remaining. We reduced our lease operating cost by 11% to $6.97 per BOE as compared to 2020. We just finished doing our third-party reserve report for the year, which was issued by Netherland, Sewell & Associates. We increased our total proved developed reserves by 37% year over year to 41.5 MMBOE, an increase of 11.3 MMBOE. We increased our total proved reserves by 27% year over year to 72.2 MMBOE, which is an increase of 15.4 MMBOE. Now for our Q4 ending 30 September 2021 results.

The company brought online 20 gross 14 net horizontal wells during the year <unk>.

Investing total cash capital expenditures of $60 1 million of which 80% was invested towards drilling and completion capital, 7% capitalized workovers and other for the remaining.

We reduced our lease operating costs by 11% to $6 97 per Boe as compared to 2020.

We just finished doing our third party reserve report for the year, which was issued by Netherlands <unk> Associates.

We increased our total proved developed reserves by 37% year over year to 41, 5% and Bo.

An increase of 11, three and Boe.

And we increased our total proved reserves by 27% year over year to $72, two and then BOE, which is an increase of $15 four and Bowie.

Now for our fourth quarter ending September 32021 results.

We increased our total net equivalent production by 35% to nine six Boe per day for the three months ended September 30, as compared to the same period in 2020 or by 5% quarter over quarter compared to our third quarter of 2021.

Kevin Riley: We increased our total net equivalent production by 35% to 9.6 MBOE per day for the three months ended 30 September as compared to the same period in 2020, or by 5% quarter over quarter compared to our Q3 of 2021. During the quarter, the company brought online 6 gross and 5.7 net horizontal wells. We invested total cash capital expenditures of $20 million. We reduced our lease operating cost by 20% to $6.45 per BOE as compared to the same period in 2020, or by 7% quarter over quarter. The improvement in lease operating cost is a testament to our team's effort to control costs as well as the benefit of increased scale, though we do acknowledge costs may still vary from quarter to quarter, including from the impact of workovers.

During the quarter the company brought on line six gross five seven net horizontal wells, we invested total cash capital expenditures of $20 million.

We reduced our lease operating costs by 20% to $6 45 per Boe.

As compared to the same period in 2020.

Or by 7% quarter over quarter.

The improvement in lease operating cost is a testament to our team's effort to control costs as well as the benefit of increased scale, though we do acknowledge cost may still vary from quarter to quarter, including from the impact of workers.

Since October one 2001.

Kevin Riley: Since 1 October 2001, the company has continued to progress on its EOR pilot program. The company has drilled 6 of 6 currently planned vertical injection wells and has commenced on installation of water and CO2 injection lines. We anticipate being able to initiate water injection for the project during calendar Q2 2022, which will continue until the reservoir is sufficiently repressurized and the CO2 tap has been installed in the summer of 2022. Also, the company has executed 2 agreements in October, including an agreement with the Cortez Pipeline Company relating to the connection and establishment of a delivery point for CO2 for Riley Permian, as well as an agreement with Kinder Morgan CO2 Company relating to the purchase and sale of CO2. I will now turn the call over to Philip Reilly for the review of our financial results.

Company has continued to progress on its EUR pilot program. The company has drilled six of six currently planned vertical injection wells and has commenced on installation of water and cotwo injection lines.

We anticipate being able to initiate water injection for the project during calendar two Q2 thousand 22.

Each will continue until the reservoir sufficiently re pressurized and Sidoti has been installed in the summer of 2022.

Also the company has executed two agreements in October included an agreement with the Cortez pipeline company relating to the connection and establishment of a delivery point for Cotwo rally Permian.

As well in his agreement with Kinder Morgan Sidoti company related to the purchase and sale of <unk>.

I will now turn the call over to Philip Rally for the review of our financial results.

Thank you Kevin.

Philip Riley: Thank you, Kevin. Today, in an effort to be efficient with everyone's time, I'll aim to limit stating all of the standard financial results and instead try to highlight a number of smaller metrics. For Q4, we're reporting net income of $15.7 million. For the fiscal year, we reported operating income of approximately $60 million and an overall net loss of $65.7 million, with the largest driver here a derivatives loss of nearly $90 million, of which only about $16 million were realized losses. Switching to non-GAAP measures, we had adjusted EBITDAX of $24.5 million for the quarter and approximately $90 million for the year. These amounts closely resemble our cash flow from operations.

Today in an effort to be efficient with everyone's time, all aimed to limit stating all of the standard financial results and instead try to highlight a number of smaller metrics.

For the fourth quarter, we're reporting net income of $15 7 million for the fiscal year, we reported operating income of approximately $60 million in an overall net loss of $65 $7 million with the largest driver here of derivatives loss of nearly $90 million of which only about $16 million or realized losses.

The non-GAAP measures, we had adjusted EBITDAX of $24 5 million for the quarter and approximately $90 million for the year.

These amounts closely resemble our cash flow from operations on.

Philip Riley: On free cash flow, we generated $7.2 million in the quarter and $26 million for the year, with the latter representing 30% of our operating cash flow. Most of our cash flow growth this year was driven by higher production. Our revenue is largely driven by oil sales and indexed oil prices were up materially this year, of course. For our fiscal year period, for derivatives, a realized oil price was up 60% year over year. Including the effect of derivatives, our realized oil price was up only 4%, owing to the fact that we were not only hedged largely this year but also last year, reducing the year over year impact. For the recent quarter, our realized price was $52 a barrel.

On free cash flow, we generated $7 2 million in the quarter and $26 million for the year with the latter representing 30% of our operating cash flow.

Most of our cash flow growth. This year was driven by higher production. Our revenue is largely driven by oil sales and indexed oil prices were up materially this year of course.

For our fiscal year period for derivatives, our realized oil prices up 60% year over year, including the effect of derivatives, our realized oil price was up only 4% owing to the fact that we were not only hedged largely this year, but also last year, reducing the year over year impact for the recent quarter, our realized price was 52.

$2 a barrel.

For this first fiscal quarter in 2022.

Philip Riley: For this Q1 2022, the current Q4 will still largely be hedged approximately 85% at the midpoint of our oil production guidance disclosed. For calendar 2022, we chose to restructure some hedges, moving 20,000 barrels per month in oil derivatives to calendar 2023. This reduced our calendar 2022 position by about 4% to 5% per quarter, allowing a bit more exposure this year. When you look where we are today for the calendar Q1 and Q2, our hedged volumes drop about 22% from the current quarter down to about 65% of forecasted volumes at midpoint guidance. In the calendar Q3 and Q4, about 35% down from current quarter levels to about 55% of forecasted volumes at midpoint guidance.

The current fourth calendar quarter will still largely be hedged approximately 85% at the midpoint of our oil production guidance disclosed.

For calendar 'twenty, two we chose to restructure some hedges moving 20000 barrels per month and oil derivatives to calendar 'twenty three.

This reduced our calendar 'twenty, two position by about 4% to 5% per quarter, allowing a bit more exposure this year.

So when you look where we are today. So the calendar first and second quarters are hedged volumes drop about 22% in the quarter current quarter down to about 65% of forecasted volumes at mid point guidance.

And then again in the calendar third and fourth calendar quarters about 35% down from current quarter levels to about 55% of forecasted volumes at mid point guidance.

Average quarter volumes for oil derivatives in 'twenty, three or about a third of the current quarter levels, which when combined with anticipated growth lead to materially lower percentage hedge positions.

Philip Riley: Average quarter volumes for oil derivatives in 2023 are about a third of the current quarter levels, which when combined with anticipated growth, lead to materially lower percentage hedge positions. Final note here on hedging is that we anticipate using collars more often and wider collars, which provides downside protection at a current price that's far above our cash operating cost levels, while also allowing more upside potential for the exposure we know many investors want. Moving on now to some operating costs for the quarter. Kevin discussed LOE, so I won't repeat that. Just make a note here that we changed a slight reporting matter there. We're now excluding ad valorem taxes from LOE as we reported in the past. Those are now grouped with production taxes.

Final note here on hedging is that we anticipate using collars more often and wider callers.

Which provides downside protection and at current prices far above our cash operating cost levels, while also allowing more upside potential to the exposure we know many investors want.

Moving on now to some operating costs for the quarter.

Kevin discussed low so I won't repeat that just make a note here that we changed one slight reporting matter there.

Now excluding AD valorem taxes from low as we reported in the past those are now grouped with production taxes, we made that change in an effort to be more aligned with peers for more consistent reporting.

Philip Riley: We made that change in an effort to be more aligned with peers for more consistent reporting. On cash G&A, that's an expense. It's a non-GAAP measure, one that we define as excluding share-based compensation and benefiting from the effects of revenues from contract services. Cash G&A for the quarter was $4.3 million or $4.92 per BOE. This is higher than we anticipated last quarter, and we attribute the overage to a number of categories, including professional services, insurance, and other matters. We're spending more time and advisory dollars now on efforts such as carbon capture initiatives, as Bobby alluded to earlier, which we believe may materialize into more actionable opportunities this year.

On cash G&A, that's an expense is a non-GAAP measure one that we defined as excluding share based compensation and benefiting from the effects of revenues from contract services.

Cash G&A for the quarter was $4 3 million or $4 92 per Boe.

This is higher than we anticipated last quarter, and we attribute the overage to a number of categories, including professional services insurance and other matters.

We're spending more time and advisory dollars now and efforts such as carbon capture initiatives as Bobby alluded to earlier, which we believe may materialize into more actionable opportunities this year.

Total interest expense for the fiscal fourth quarter was 963000, or one dollar and <unk> per BOE, which is a decrease of 23% from fiscal third quarter.

Philip Riley: Total interest expense for the fiscal Q4 was $963,000 or $1.09 per BOE, which is a decrease of 23% from fiscal Q3. Interest expense on our income statement includes amortization of deferred financing costs. Guidance previously provided did not include amounts for this non-cash amortization of deferred financing costs. As included on the statement of cash flows presented in our earnings release, you'll see amortization of deferred financing costs was $170,000 for the fiscal Q4. When you compile these costs discussed, then add production taxes and ad valorem taxes, you get a total of $15.38 per BOE for the quarter.

Interest expense in our income statement includes amortization of deferred financing costs guidance. Previously provided does not include amounts for this noncash amortization of deferred financing costs at.

As included on the statement of cash flows presented in our earnings release, Youll see amortization of deferred financing cost was $170000 for the fiscal fourth quarter.

When you compile these cost discussed then add production taxes and AD valorem taxes, you get a total of $15 38 per Boe for the quarter.

Philip Riley: Then compare that to a realized average price of $54.46 per BOE for the quarter, and you get a cash margin of just over $39 before derivatives. After realized derivative losses of $12.67, we had a cash margin of $26.41. Based on analysis and calculations of cash margins for various other Permian companies, we believe we have among the highest cash margins on both an unhedged and hedged basis. You can see our presentation for this analysis and comparison. Moving on to cash flow and cash flow allocation. For the year, we allocated 70% of operating cash flow to CapEx, 21% to dividends, with 9% excess used for debt paydown.

And then compare that to a realized average price of $54 46 per Boe for the quarter and you get a cash margin of just over $39 before derivatives after realized derivative losses of $12 67.

We had a cash margin of $26 41.

Based on analysis and calculations of cash margins for various other Permian companies. We believe we have among the highest cash margins on both an unhedged and hedge basis, you can see our presentation for this analysis and comparison.

Moving on to cash flow and cash flow allocation.

For the year, we allocated 70% of operating cash flow to capex, 21% of dividends with 9% excess used for debt paydown.

For the quarter, we had $19 5 million in cash drilling and completion capital expenditures during the fiscal fourth quarter or $57 million for fiscal year 2021.

Philip Riley: For the quarter, we had $19.5 million in cash drilling and completions capital expenditures during the fiscal Q4, or $57 million for fiscal year 2021. Within the $57 million, about $4 million was related to capital workovers. We then had $1.7 million of other property and equipment additions, including a new field office, some field trucks, and other small investments. Final points here. In October, we raised our dividend about 11% to $0.31 per share, which was about $6 million in total. As of 8 December, we had $65 million drawn and $110 million of availability on our credit facility, following a 30% increase in our borrowing base in October. At this point, I'll turn it back to Kevin to discuss our forward guidance.

Within the.

<unk> 57 about $4 million was related to capital Workovers.

We then had $1 7 million of other property and equipment additions, including a new field office some field trucks other small investments.

Final points here in October we raised our dividend about 11% to 31 per share, which was about $6 million in total.

And as of December 8th we had $65 million drawn and $110 million of availability on our credit facility. Following a 30% increase in our borrowing base in October.

At this point I will turn it back to Kevin to discuss our forward guidance.

Kevin Riley: Thank you, Philip. I will now give guidance for the company's activity in fiscal year 2022 in the current quarter. The company recently commenced its fiscal year 2022 development program. Based on the current market conditions, the company forecasts full year fiscal 2022 accrued capital expenditures before acquisitions to total approximately $85 to 95 million, which includes amounts for drilling and completion, operated and anticipated non-operated capital workovers, infrastructure, minor additions to land and existing working interest, as well as the investment in our EOR program. We plan to drill 18 gross and 12.5 net wells during the year, with 12 gross, 11.6 net wells being operated. The company forecasts fiscal Q1 2022 accrued capital expenditures before acquisitions to total $26 to 32 million. Riley Exploration Permian forecasts fiscal Q1 2022 oil production to average 7.1

Thank you Philip I will now give guidance for the company's activity in fiscal year 2022 in the current quarter.

The company recently commenced its fiscal year 2022 development program.

Based on the current market conditions, the company forecast full year fiscal 2022 accrued capital expenditures before acquisitions.

The total approximately $85 million to $95 million.

Which includes amounts for drilling and completion operated in anticipated non operated capital Workovers infrastructure.

Minor additions to land, an existing working interest as well as the investment in our <unk> program.

We plan to drill 18, gross and $12 five net wells during the year with 12 gross 11, six net wells being operated.

The company forecast fiscal first quarter of 2022 accrued capital expenditures before acquisitions totaled $26 million to $32 million.

Riley Permian forecast fiscal first quarter 2022 oil production to average seven one.

<unk> thousand barrels per day to seven 4000 barrels per day with total equivalent production to average nine five to $9 nine.

Philip Riley: thousand barrels per day to 7.4 thousand barrels per day, with total equivalent production to average 9.5 to 9.9 thousand BOE per day. The company forecasts Q1 2022 LOE of approximately $725 to $775 per BOE, cash and G&A expenses of approximately $4 to $4.75 per BOE, excluding share-based and unit-based compensation expense. We believe this level of capital investment may correspond to full year growth approximately 11% to 15% over full year fiscal 2021 production levels. This growth level is attainable due to our low base decline PDP production, which the company estimates to be around 21% for the coming year. I will now turn the call over to Bobby for closing remarks.

Kevin Riley: thousand barrels per day to 7.4 thousand barrels per day, with total equivalent production to average 9.5 to 9.9 thousand BOE per day. The company forecasts Q1 2022 LOE of approximately $725 to $775 per BOE, cash and G&A expenses of approximately $4 to $4.75 per BOE, excluding share-based and unit-based compensation expense. We believe this level of capital investment may correspond to full year growth approximately 11% to 15% over full year fiscal 2021 production levels. This growth level is attainable due to our low base decline PDP production, which the company estimates to be around 21% for the coming year. I will now turn the call over to Bobby for closing remarks.

Bo per day.

The company forecast first quarter of.

2020 to low <unk> of approximately 725 to $7 75 per Boe cash.

Cash and G&A expenses of approximately $4 to $4 75.

Per Boe.

Excluding share based in unit based compensation expense.

We believe this level of capital investment may correspond to full year growth approximately 11% to 15% over full year fiscal 2021 production levels.

This growth level is attainable due to our low base decline PDP production.

Which the company estimates to be around 21% for the coming year.

I'll now turn the call over to Bobby for closing remarks.

Bobby Riley: Thank you, Kevin. In summary, we believe the company delivered another solid quarter and an overall excellent year. Comparing to the prior fiscal year, this year we grew production, reserves, operating cash flow, free cash flow, and dividends. Our year-end results on capital allocation were consistent with the framework we shared earlier in the year. Looking forward, we're forecasting another year of material production growth, and we're excited about our EOR and CCUS projects. Thank you again for your support and for your time today. Operator, you may now open it up for questions.

Thank you Kevin in summary, we believe the company delivered another solid quarter and an overall excellent year.

Pairing to the prior fiscal year. This year, we grew production reserves operating cash flow free cash flow and dividends.

Our year end results on capital allocation were consistent with the framework, we shared earlier in the year.

Looking forward, we're forecasting another year of material production growth than we're excited about our <unk> and Cc U S projects.

Thank you again for your support and for your time today.

Operator, you May now open it up for questions.

Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad.

Julianne: Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile a Q&A roster. Your first question comes from Neal Dingmann from Truist Securities. Please go ahead. Your line is open.

Operator: Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile a Q&A roster. Your first question comes from Neal Dingmann from Truist Securities. Please go ahead. Your line is open.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Neal Dingmann from <unk> Securities. Please go ahead. Your line is open.

Good morning, all it's Jordan maybe on for Neil.

Jordan Levy: Morning, all. It's Jordan Levy on for Neal. Really nice quarter. I wanted to start out and see if I could get your comments related to the progress on the EOR project. Nice to see that the six vertical injections have been drilled, and you have the water and CO2 injection lines upcoming and the agreements you discussed with the pipelines. I wanted to get your thoughts around how things are progressing from a timing perspective. What's your expectations there, and how we should view kind of the next steps in terms of the EOR project, both near term that I think you talked more to on the prepared remarks and longer term for that project?

Really nice quarter I wanted to start out can you if I could get your comments related to the progress on the EMR project mix to see the sixth vertical objected to backfill them.

You have the water in COPD and injection lines upcoming and the agreements you discussed pipelines I wanted to get your thoughts around how things are progressing from a timing perspective.

Mutations that are and how we should view kind of the next steps in terms of the EUR project, both near term, but I think you talked more too.

Political barks and longer term for that project.

Okay. This is Bobby Riley I'll take that question I think as we kind of indicated in the presentation we have.

Bobby Riley: Okay, this is Bobby Riley. I'll take that question. I think as we kind of indicated in the presentation, we have completed the drilling phase of six of the initial injection wells that we plan to start water injection as early as Q1 or Q2 of our fiscal year 2022. The water injection lines are currently in place and we are making the final tie-ins to the wellhead, and we'll do pressure testing and start injection. We intend to do that for several months for two or three reasons. One is just to start refreshing the reservoir so we can have a better effect once we get CO2 in the ground. The other is just to continue to analyze the injectivity profiles and how we can maximize the sweep and the ultimate recovery from the project.

<unk>.

Completed the drilling phase of six of the initial injection wells that we plan to start water injection as early as Q1 or Q2.

Our fiscal.

2022.

Water injection lines are currently in place and.

We are making the final tie ins to the wellhead pressure testing and start.

Injection.

We intend to do that for several.

Several months under for two or three reasons. One is just to start refreshing. The reservoir. So we can have.

Have a better effect once we get tier two in the ground and the other.

There is just to continue to analyze.

Edge activity profiles, and how we can maximize the scrip and the ultimate recovery from the project, but overall I'd say, it's on schedule are a bit ahead of schedule as far as getting water in the ground and then.

Bobby Riley: Overall, I would say it's on schedule or a bit ahead of schedule as far as getting water in the ground. Construction is underway for the tap coming in from Kinder Morgan. Hope that answered your question. I would say overall, we feel very good about where we are, and not being behind at all.

Construction is underway.

For the tap coming in from Kinder Morgan, So I hope that answered your question, but I would say overall, we felt very good about where we are.

And not being behind at all.

Jordan Levy: Yeah. Absolutely, and certainly seems that way. For my next question, maybe move on to the other new venture that y'all been discussing with the carbon capture and sequestration initiatives. Curious what the high level timeline for that could look like. You mentioned earlier, optimism around initiating a first project sometime next year. Curious, you know, what needs to get done there, how this process has been going so far, and that sort of thing.

Absolutely and certainly seems that way.

For my next question, maybe move on to the other bench new venture that you all been discussing with the carbon capture and sequestration initiatives curious what the high level timeline for that could look like you mentioned earlier.

Optimism around initiating our first project sometime next year curious what needs to get done there. How this process has been going so far and that sort of thing.

Yes. Thanks for your time this is Philip Riley.

Philip Riley: Yeah. Thanks, Bertrand. This is Philip Reilly. As we noted in the remarks and in the press release, we're working with various different parties, beginning with the source hosts themselves, guys in the middle, the equipment makers, and also regulatory advisors and such. What we're trying to do is solve a bit of a multivariable equation, you know, with different decision tree branches. We're trying to do this in a way where we're not completely contingent upon what comes out of any new potential law, while acknowledging that that could have a profound impact on what we structure.

As we noted in.

In the remarks and in the press release, we're working with various different parties beginning with the source post themselves.

Guys in the middle of the equipment makers.

And also.

Regulatory advisors and such.

We're trying to do it.

And saw a bit of a multi variable equation a different decision tree branches.

We're we're trying to do this in a way where we're not completely.

Intentions upon what comes out of any new potential law, while acknowledging that that could have a profound impact on on what we structure and just a quick example, there is.

Philip Riley: Just a quick example, if the new law that's being debated up in Washington were to get enacted, at least as how we've seen it most recently, it would include a direct pay aspect for the Section 45Q credit. In that world, you don't need an intermediary to necessarily help you monetize the tax credit. For the foreseeable future, we don't anticipate having significant cash tax exposure, and so we would want another way to monetize that. You can use tax equity. You can do a different model perhaps with a fee for service and have someone else that may want the tax credit themselves. That's just one example where, you know, if you don't have that, if you do have the direct credit.

It's the new law, that's being debated in Washington, where to get enacted at least and we.

We've seen it most recently it would include a direct pay aspects of this 45 Q credit and in that World you don't need an intermediary.

To necessarily help you monetize the tax credits.

For the for the foreseeable future, we don't anticipate being.

Having significant cash tax exposure and so we would want another way to monetize that.

You can use tax equity, we can do a different model, perhaps with that.

For service and have someone else that may want the tax credits themselves.

And so that's just one example of where if you don't have that if you do have the direct credit.

Philip Riley: Direct pay, then, that eliminates that. We're just trying to be careful, Bertrand, in how we think about this to optimize where we'd be happy with any of the outcomes. We're not gonna give specific guidance right now on the timing, but I just reinforce that we are having constructive talks. We're working with equipment providers. As you can imagine, you got the supply chain constraints that are pushing up prices across many areas of industry. We're trying to keep those manageable to where project costs still look attractive for us. We look forward to sharing more information soon.

Direct pay then that eliminates that so.

So we're just trying to be careful in how we think about this to optimize where we'd be happy with any of the outcomes.

We're not going to give specific guidance right now on the timing, but I just.

Reinforce that we are having constructive talks where we're working with equipment providers and as you can imagine you've got the supply chain.

Why chain constraints that are pushing up prices.

Many areas.

Industry, we're trying to keep those manageable to where project cost still look attractive for us.

But we look forward to sharing more information soon.

Yes, it makes a lot of sense and maybe if I could just sneak one more in.

Jordan Levy: That makes a lot of sense. Maybe if I could just sneak one more in. With your 2022 guidance, I'm curious if you could talk around some of the activity assumptions in that that get you to that $85 to 95 million, both on the EOR side, which appears to be pretty loaded into Q1 and Q2. On the D&C side, I know you talked to the 18 gross 12.5 net wells, but maybe just some more specifics around how that looks from kind of a cadence perspective and that sort of thing.

Your 'twenty two guidance I'm curious if you could talk around some of the activity assumptions, but not the case.

About $85 million to $95 million, both on the EUR side, which appears to be a pretty loaded into <unk> on the D&C side I know you talked to the 18 gross 12.

Net wells, but maybe just some more specifics around how that looks from kind of a cadence perspective and that sort of thing.

Did you say from a cadence perspective.

Kevin Riley: Did you say, from a cadence perspective?

Yes, Sir.

Jordan Levy: Yes, sir.

Kevin Riley: We have commenced, like I said earlier, our 2022 development program. We started that at the end of September and drilled 4 wells. Laid the rig down from the D&C perspective and don't pick it back up till February. At that point, we'll commence drilling, believe it's 6 more wells, operated wells, and we'll pick back up in June and drill the remaining 2. From an EOR capital perspective, most of that capital is being spent in Q1 as we've drilled the injection wells, and we've started laying the lines for injection, and the surface infrastructure being put in place. There's some anticipated non-op work during the year, one of which has already been brought online. The others we don't anticipate until the spring.

Okay. So sorry.

So.

We have commenced like I said earlier, our 2022 development program.

We started that at the end of September.

And drilled.

Four wells.

Lay the rig down from the DNC perspective, and don't pick it back up until February.

And at that point, we will commence drilling.

<unk>.

I believe its six more wells.

On the operated wells and then we'll pick back up in June and drill the remaining two.

From a capital perspective, most of that capital is being spent in the first Q as we've drilled.

Injection wells and we've started laying the lines for injection.

And the surface infrastructure being put in place.

So I guess and then theres some anticipated non op.

Work during the year.

One of which has already been brought online the others, we don't anticipate until the spring.

Jordan Levy: Got you. That answers all my questions. Nice quarter, guys.

That answers all my questions and nice quarter guys.

Your next question comes from John White from Roth Capital. Please go ahead. Your line is open.

Julianne: Your next question comes from John White from ROTH Capital Partners. Please go ahead. Your line is open.

Operator: Your next question comes from John White from ROTH Capital Partners. Please go ahead. Your line is open.

Good morning, guys.

John White: Good morning, guys, and congratulations. A lot of good numbers in the report. In your new presentation, I liked your slide number eight. I wondered if you could talk about the frack markets. Are you seeing any tightness? Are you seeing any price increases? Any other comments you'd want to add on drilling and completing costs across the spectrum.

Congratulations a lot of good numbers in the report.

In your new presentation I like your slide number eight.

Reserve.

Their presence.

I wonder.

If you could talk about the Frac market.

Are you seeing any tightness are you seeing any.

Price increases.

Any other comments you'd want add on drilling and completion costs.

Across the spectrum.

Absolutely John this is Kevin <unk>.

Kevin Riley: Absolutely, John. This is Kevin. I'll address that question. In the frack market, it is getting tighter and harder to tie up crews for calendar 2022, especially starting out in 2022, as a lot of the service providers are, you know, being booked up with the companies that have the new budgets for the year. Fortunately, we do have most of those lined up, so we're not anticipating much delay in bringing on our new drills. You know, the wells that we drilled in this previous or current quarter, they've all been completed, and they're now all online. There wasn't more than three or four weeks between rig release and completion date. From a cost perspective, we're starting to see slight increases from, say, fiscal Q2, fiscal Q3, but nothing substantial.

Address that question so in the Frac market is getting tighter.

Harder too.

Tie up crews for calendar 'twenty, two especially starting out in 'twenty. Two is a lot of the service providers are.

Being booked up with the companies that have the new budgets for the year, but Fortunately, we do have most of those lined up so we're not anticipating much delay in bringing on our new drills.

Sure.

The wells that we drilled in the previous for current quarter.

All being completed and Theyre now all now online so.

Was it more than three or four weeks between rig release and completion date.

From a cost perspective, we're seeing starting to see slight increases.

From say fiscal Q2 fiscal Q3, but nothing substantial.

Kevin Riley: If you look on a per foot basis, D&C per foot, by total measured depth, we're seeing costs maybe go up between 5% and 10% for the remaining wells this fiscal year.

If you look on.

A per foot basis D&C per foot by total measured depth, we're seeing cost maybe maybe go up between five and 10%.

For the remaining wells this this fiscal year.

Okay.

John White: Okay. Well, you're

Kevin Riley: Still remains at a level that is below the peak levels that we've seen in the past.

Still remains at a level that is below the peak levels that we've seen in the past.

Yes, that's pretty consistent with what the.

John White: Yeah, that's pretty consistent with what the September 30 filing said on their calls. Appreciate it. Thank you. I'll pass it on.

Yes.

September 30.

File that on their calls for us I appreciate it. Thank you I'll pass it from a steel perspective.

Kevin Riley: From a steel perspective, we were able to pre-buy most of the casing and tubulars for the whole drill program, and we bought that back in June. We're protected a little bit from continued price increases.

Perspective.

We were able to pre buy most of the <unk>.

Casing and tubular for the whole drill program and we bought that back in June.

So we're.

Protected a little bit from continued price increases.

Nice move.

John White: Nice move. Well, again, a very nice quarter, and I'll pass it on.

Well again, a nice very nice quarter and I'll pass it on.

Kevin Riley: Thank you.

Thank you.

As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.

Julianne: As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from Noel Parks from Tuohy Brothers. Please go ahead. Your line is open.

Operator: As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from Noel Parks from Tuohy Brothers. Please go ahead. Your line is open.

Your next question comes from Noel Parks from Tuohy Brothers. Please go ahead. Your line is open.

Hello.

Noel Parks: Hello.

Good morning Noah.

Kevin Riley: Morning, Noel.

Yeah.

Just had a.

Noel Parks: Just had a few quick questions. Could you talk a little bit more about the progress you made on LOE in the quarter? Maybe just drill down a little bit into what some of the ingredients of that was.

A few quick questions.

Could you talk a little bit more about the progress you made on LOE in the quarter.

Maybe just drill down a little bit into <unk>.

What some of the ingredients of that.

Sure.

Largest driver in the quarter was just less workover activity.

Kevin Riley: Largest driver in the quarter was just less workover activity. That's just a function of pumps not going out during the quarter like they had previously, and that's why we kinda

And Thats just a function of.

Pumps not going out during the quarter like they had previously and Thats why we kind of footnoted that.

Kevin Riley: noted that, you know, the LOE could fluctuate quarter to quarter based upon the timing of workover expenses, but that was the primary driver.

Low could fluctuate quarter to quarter based upon the timing and workover expenses, but that was the primary driver.

Great.

Noel Parks: Great. You made a mention that you were looking, going forward, to start using wider collars. I don't have a great sense of either, you know, what those would look like. I'm thinking especially around, you know, whether there's enough liquidity in the curve to be able to do what you want. Any extra detail on that would be great.

And.

You mentioned that you were looking going forward to start using.

Wider collars and.

I don't have a great sense of either.

What those would look like or I'm thinking, especially around whether there is enough liquidity in the curve to be able to do what you want so any extra detail on that would be great.

Philip Riley: Yeah. Hi, Noel, this is Philip. What I meant there is that we can use collars instead of swaps for some of the hedging. You're familiar, a collar, you got the call and the put, and so you're basically creating a straddle around the current price. With increased volatility, you can basically take advantage of that with the higher embedded option premium on the options in there. An example is that instead of, say, a $10 spread around the current spot price, you could do a $20 spread or maybe even a $30 spread.

Yes, Hi, this is phillippe.

What I meant there that we can use collars instead of swaps for some of the hedging.

You're familiar with.

<unk>.

You got to call on the put and so you're basically creating a straddle around the current price with increased volatility basically take advantage of that with the higher embedded option premium on the.

On the options.

In there and so an example is that instead of say a $10 spread around the current spot price you could do a 20 dollar spread or maybe even a $30 spread.

Philip Riley: At recent levels, we've seen those, say, with the put price there above $50 and the call just below maybe $80, gives you some ability, kind of a hybrid where you've got some exposure while at the same time protecting your downside that's far above our operating costs.

At recent levels, we have seen those stay with that.

Put price there.

Above $50 and the call just below maybe $80 gives you some ability kind of a hybrid where you've got some exposure.

While at the same time protecting your downside that that's far above our operating costs.

Right right and then the balance sheet in good shape.

Noel Parks: Right. With the balance sheet in good shape, you know, that $50 floor is, you know, still pretty attractive.

That $50 floors.

Feel pretty attractive.

Right right.

Philip Riley: Right. That's how we see it.

That's how we'd see got it got.

Noel Parks: Got it. Just one thing about the CO2 purchase and sale agreement you've set up with Kinder Morgan. Please refresh my memory. Is that going to be a price that is tied to oil prices and will fluctuate going forward? That's sort of what I think of as being typical for a lot of CO2 pricing.

Got it.

And just one thing about.

The C O two.

Purchase and sale.

Agreement value.

Kinda American.

Can you just refresh my memory.

It's going to be.

A price that is tied to oil prices.

It will fluctuate.

Going forward it sort of.

What I think what's been typical for a lot of future pricing.

Yes sure. It can it is tied to oil price we've got a floor.

Philip Riley: Yeah, sure, it can. It is tied to oil price. It's got a floor, but it's in the neighborhood at 2% of WTI. That's a small amount we're starting off with there, and we have about a 3-year term.

But it's in the neighborhood of 2% of WCS Ti.

That's a small amount we're starting off with there and we have about a three year term.

Yes.

Noel Parks: Okay, great. I'm sorry, did you say what percent of WTI?

Okay, Great I'm, sorry did you say what percent of WTS.

Two.

Philip Riley: 2. 2.0.

Two zero hei.

Noel Parks: 2% of WTI. For three years. Okay, great. That's all I had.

Three years Okay.

Great that's all I have.

Yeah.

Julianne: Your next question comes from Walter Morris from Baraboo Growth. Please go ahead. Your line is open.

Operator: Your next question comes from Walter Morris from Baraboo Growth. Please go ahead. Your line is open.

Your next question comes from Walter Morris from <unk> growth. Please go ahead. Your line is open.

Excellent.

Walter Morris: Excellent, strong finish to the year, gentlemen, and solid projections for fiscal 2022. As John White indicated, impressive reserve growth with proved developed up 37% and proved reserves up 27%. Can you give us a rough NAV number for those reserves using current strip?

Todd finish to the year Jonathan.

Our projections for fiscal 'twenty two.

As John why are you being mitigated.

Yes.

Our reserve growth would slow.

We've developed a 37% crew.

Reserves up 27% can.

Can you give us a rough.

And then the number.

All four of those reserves using current strip.

Okay.

Yes.

Philip Riley: Yeah. This is Philip Riley. I guess I'd point you to our 10-K, which will be filed tomorrow afternoon. Towards the very back of there, we'll have the Netherland Sewell numbers in there. Ask you to be patient for that, but hope you're happy with the outcome.

As Philip Riley.

I guess I'd point, you to our 10-K, which will be filed tomorrow.

Afternoon.

Towards the very back of there, we'll have the Netherlands Seoul numbers in there.

Ask you to be patient for that but hope you're happy with the outcome.

Okay. Thank you Phil.

Walter Morris: Okay. Thank you, Philip.

Yeah.

We have no further questions in queue I'll turn the call back over to Bobby Riley for any closing remarks.

Julianne: We have no further questions in queue. I turn the call back over to Bobby Riley for any closing remarks. Mr. Bobby Riley, do you have any closing remarks?

Operator: We have no further questions in queue. I turn the call back over to Bobby Riley for any closing remarks. Mr. Bobby Riley, do you have any closing remarks?

Okay.

Mr. Bobby Riley do you have any closing remarks.

Bobby Riley: No, that's it. I appreciate everybody's time today for dialing in. We'll just keep the ship going the way we're going. Thanks a lot, guys.

No I appreciate everybody's time today for dialing in.

We'll just keep the ship go on the waiver going thanks, a lot guys.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Julianne: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

Sure.

[music].

Q4 2021 Riley Exploration Permian Inc Earnings Call

Request a DemoDemo

REPX

Riley Exploration Permian

Earnings