Q1 2022 Riley Exploration Permian Inc Earnings Call

February 15, 2022

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Good morning, My name is David and I'll be your conference operator today at this time I'd like to welcome everyone to Riley Permian physical once you twenty-two earnings call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise.

Operator 3: Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Riley Permian's Fiscal Q1 2022 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you. Philip Riley, CFO, you may begin your conference.

Operator: Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Riley Permian's Fiscal Q1 2022 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you. Philip Riley, CFO, you may begin your conference.

After the Speakers' remarks, there'll be a question and answer session if you'd like to ask a question. During this time simply press the star followed by the number one on your telephone keypad. If you like to withdraw your question Press Star one once again. Thank you Philip Reilly CFO you may begin your conference.

Thank you and good morning to everyone.

Philip Riley: Thank you, and good morning to everyone. Welcome to our Q1 2022 conference call covering the three-month period ending December 31, 2021. 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 commentary can be found in our earnings release.

To our first fiscal quarter of 2022 conference call covering the three month period, ending December 31 2021.

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 may cause actual results to differ materially from those expressed or implied in these statements.

That would 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.

All cautionary statement about forward looking commentary can be found in our earnings release participating on the call today are Bobby Riley right at least chairman and CEO , Kevin Riley Riley President myself celebrate CFO and EVP of strategy.

Philip Riley: Participating on the call today are Bobby Riley's Chairman and CEO, Kevin Riley's President, myself, Philip Riley, CFO, and EVP of Strategy. I will now turn the call over to Bobby.

I'll now turn the call over to Bobby.

Bobby Riley: Thank you, Philip. Good morning, and thank you for joining us today on the call. Riley Permian completed another strong fiscal quarter with continued growth across operating and financial metrics. We grew production above guidance and have provided guidance for continued growth this coming quarter. We realized improved pricing across all commodities, which was partially offset by realized hedging losses, and some higher LOE, but overall margins improved from the prior quarter, and year. On the cost side, we are experiencing some inflation in selected areas, which Kevin will elaborate on further, and which we're of course monitoring closely for overall impacts to our business. We work to manage our hedge profile and overhang, which we hope is getting better each coming quarter, and which Philip will discuss in his prepared remarks.

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

Riley Permian completed another strong fiscal quarter with continued growth across operating and financial metrics.

We grew production above guidance and have provided guidance for continued growth this coming quarter.

We realized improved pricing across all commodities, which was partially offset by realized hedging losses, and some higher L O that.

But overall margins improved from the prior quarter and year.

On the cost side, we are experiencing some inflation in selected areas, which Kevin will elaborate on further.

And which were of course monitoring closely for overall impacts to our business.

We've worked to manage our hedge profile and overhang, which we hope is getting better each coming quarter, and which Phil will discuss in his prepared remarks.

So management of our cost structure and supported market prices generally around the level. We've seen over the past few quarters provides us with a potential to see materially higher margins in the coming quarters, we made significant progress during the quarter on our EUR pilot project in which we collected our permits.

Bobby Riley: Management of our cost structure and supported market prices generally around the level we've seen over the past few quarters, provides us with the potential to see materially higher margins in the coming quarters. We made significant progress during the quarter on our EOR pilot project, in which we collected our permits, drilled our injection wells, and installed the majority of our pipeline infrastructure. We plan to begin water injection in the fiscal Q2, with CO2 injection scheduled to begin later in the summer. Carbon capture projects remain a priority for our team, where we're having good engagement navigating the various requirements to make a good project. We continue to return capital to shareholders in the form of dividends, which we paid during the fiscal Q1 and which were paid last week.

Drill bar injection wells and install the majority of our pipeline infrastructure.

We plan to begin water injection in the fiscal second quarter with C. O. Two injection scheduled to begin later in the summer.

Carbon capture projects remain a priority for our team.

Where we're having good engagement navigating the various requirements to make it a good project.

We continued to return capital to shareholders in the form of dividends, which we paid during the first fiscal quarter and which were paid last week.

Finally at our board level, we were excited to welcome Rebecca Bayliss to our board of directors on January .

Bobby Riley: Finally, at our board level, we were excited to welcome Rebecca Bayless to our board of directors in January. Becky brings extensive operational and management experience in all facets of the energy industry, as well as a 25-year track record with successful energy companies. We welcome her vision and viewpoint on our board as we continue to build and scale Riley Permian. I will now turn the call over to Kevin Riley to review operational results.

Becky brings extensive operational and management experience in all facets of the energy industry.

As well as a 25 year track record with successful energy companies.

We welcome her vision and viewpoint on our board as we continue to build and scale Riley Permian.

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

Kevin Riley: Thank you, Bobby, and good morning to everyone. I plan to review operational results for Q1 ended 31 December 2021. The company brought online 5 gross, 4 net horizontal wells during the first quarter, investing a total CapEx of $27 million, of which approximately 70% was invested in non-EOR drilling and completions activities and 30% towards our EOR pilot. We drilled 4 operated and 1 non-operated wells in our Champions area of the Northwest Shelf. For the operated wells, we averaged 11 days per well from spud to rig release, with an average total measured depth of 12,873 feet and completed lateral length of 7,035 feet.

You, Bobby and good morning to everyone I plan to review operational results for the first quarter ended December 31, two.

2021.

The company brought online five gross four net horizontal wells during the first quarter investing a total capex of $27 million.

Of which approximately 70% was invested in non <unk> drilling and completion activities and 30% towards our EUR pilot.

We drilled four operated and one non operated wells in our champions area of the northwest shelf.

The operated wells, we averaged 11 days per well from spud to rig release.

With an average total measured depth of 12873 feet and completed lateral length of 7035 feet.

Kevin Riley: On the capital cost side, though still early, we think drilling and completion costs for the recently completed wells are averaging approximately 6% to 8% higher than an equivalent well design from a year ago, owing to some inflationary pressure, but partially offset by some efficiencies we are seeing. During Q1 fiscal, we realized a delay due to rig availability associated with one gross 0.66 net wells we had planned. This well is now underway with completions expected before the end of our Q2 fiscal. Despite these small delays, we increased oil production to 7,300 barrels per day, which is a 5% quarter-over-quarter growth or 22% year-over-year growth for the three-month period.

The capital cost side, though still early we think drilling and completion costs for the recently completed wells are averaging approximately 6% to 8% higher than an equivalent well designed from a year ago.

Owing to some inflationary pressure that partially offset with some efficiencies we're seeing.

During the first fiscal quarter, we realized a delay due to rig availability associated with one gross point.

Six six net wells, we had planned.

Well is now underway with completion expected before the end of our second fiscal quarter.

This is Mike these small delays.

We increased oil production to seven 3000 barrels per day, which is a 5% quarter over quarter growth or 22% year over year growth for the three months period.

Kevin Riley: Total net equivalent production was 9.9 thousand BOE per day, which is a 4% quarter-over-quarter growth or 31% year-over-year growth, with the latter metric being higher than the oil growth due to expanded gas processing capacity. The rig delay mentioned should not materially impact our full year production either, and guidance remains unchanged from what was previously announced. Lease operating costs were 8% higher than our midpoint guidance, coming in at $8.11 per BOE for the three months ended 31 December 2021. The increase in lease operating costs was largely driven by our non-recurring workover cost of $1.1 million or $1.30 per BOE associated with 3 operated disposal wells. These workovers included the replacement of the injection tubing on each of the wells.

Total net equivalent production was $9 9000 barrels of equivalent per day, which is a 4% quarter over quarter growth or 31% year over year growth with the latter metric being higher than the old growth due to expanded gas processing capacity.

So the rig delay mentioned should not materially impact our full year production either in.

Guidance remains unchanged from what was previously announced.

Lease operating costs were 8% higher than our mid point guidance coming in at $8 11 per Boe.

For the three months ended December 31 2021.

The increase in lease operating costs was largely driven by our nonrecurring workover costs of $1 $1 million.

The $1 30 per Boe.

Associated with three operated disposal wells.

These workovers included the replacement of the injection tubing on each of the wells. So as anticipated last quarter's alloy in the mid $6 range was unusually low this quarter at $8 per Boe level is about 16% higher than last year's average and identical with our 2020.

Kevin Riley: As anticipated, last quarter's LOE in the mid-$6 range was unusually low. This quarter's $8 per BOE level is about 16% higher than last year's average and identical with our 2020 average. Excluding the workovers, the base LOE was about 6% higher than last year's average. This is reasonable given the inflationary environment we're in. We're starting to see price increase on various other items, including electricity and production chemicals, which make up the largest portion of our recurring lease operating expense. Though the lease operating cost increased for this quarter, we expect future lease operating costs to fall more in line with our forecasted cost over a longer period, barring continued unusual workover activity and rampant inflation. As previously disclosed in our fiscal year 2021 earnings release, the company has continued to progress on its EOR pilot program.

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Excluding workovers the base LOE was about 6% higher than last year's average.

This is reasonable given the inflationary environment. We're in we're starting to see price increase from various other items, including electricity and production chemicals, which make up the largest portion of our recurring lease operating expense, though the lease operating cost increased for this quarter, we expect future lease operating cost to fall more in line with our forecasted.

Cost over a longer period, barring continued unusual workover activity and ramp it inflation.

As previously disclosed in our fiscal year 2021 earnings release. The company has continued to progress on its EUR pilot program. The company has drilled six of six currently planned vertical injection wells and has completed installation of water and <unk> injection lines, which are now being pressure tested.

Kevin Riley: The company has drilled six of six currently planned vertical injection wells and has completed installation of water and CO2 injection lines, which are now being pressure tested. We anticipate being able to initiate water injection for the project as early as March 2022, which will continue until the reservoir is sufficiently repressurized and the CO2 tap has been installed in the summer of 2022. At this point, I'll now turn the call over to Philip Riley for the review of our financial results.

We anticipate being able to initiate water injection for the project as early as March of 2022.

Which will continue into the reservoir is sufficiently re pressurized and the C. O. Two tap has been installed in the summer of 2022.

At this point I'll now turn the call over to Philip Rally for the review of our financial results.

Philip Riley: Thank you, Kevin. Similar to past formats, I'll limit stating all the standard financial results and instead highlight select metrics with commentary on a few focus areas. For Q4, we're reporting net income of $21 million, which includes operating income of approximately $33 million. We had adjusted EBITDA of $27.1 million for the quarter, or approximately $97 million for the twelve-month period ending December 31. Comparing to our prior quarter ending September 30, 2021, this represents an increase of 11% or $2.6 million. Approximately $2 million of that increase is driven by increased volumes. Higher commodity prices then drove revenues up by $6.5 million, excluding the impact from volumes, but offset by $4.8 million of larger realized hedge losses. Production taxes, LOE, and overhead combined for a net $1 million increase approximately.

Thank you Kevin.

Similar to past formats element, stating all the standard financial results and instead.

<unk> select metrics with commentary on a few focus areas.

For the fourth quarter, we're reporting net income of $21 million, which includes operating income of approximately $33 million.

We had adjusted EBITDAX of $27 1 million for the quarter or approximately $97 million for the 12 month period ending December 31.

Comparing to a prior quarter ending 930 21. This represents an increase of 11% or $2 6 million.

Approximately $2 million of that increase is driven by increased volumes.

Higher commodity prices, then drove revenues up by $6 5 million, excluding the impact from volumes, but offset by $4 8 million of larger realized hedge losses.

Then production taxes, <unk> and overhead combined for a net $1 million increase approximately.

Philip Riley: Oil sales are clearly the driver for our revenue, but I wanna first comment on gas and NGLs, as they are growing contributors of revenue, and the differentials to index pricing can cause confusion for some investors. During the quarter ended December 31, 2020, more than a year ago, we had $300,000 in combined gas and NGL revenue. This immediately past quarter, we had $6 million, about 11% of overall revenues. Gas and NGL volumes have increased disproportionately higher than oil due to increased processing capacity, which also means less flared gas. The real driver in the revenue increase is higher prices. Year-over-year, our realized gas price is up nearly $3. Similar to the reporting methodology of many E&P companies, we net out gathering and processing fees of our realized pricing, which have approximated $1.70 over the past two years.

Oil sales are clearly the driver for our revenue, but I want to first comment on gas and Ngls as they are growing contributors of revenue and the differentials to index pricing can cause confusion for some investors.

During the quarter ended December 31, 2020 more than a year ago, we had $300000 in combined gas and NGL revenue.

This immediately past quarter, we had $6 million about 11% of overall revenues.

Gas and NGL volumes have increased disproportionately higher than oil due to increased processing capacity, which also means less flared gas, but the real driver and the revenue increase as higher prices.

Year over year, our realized gas price was up nearly $3 similar to the reporting methodology of many E&P companies, we net out gathering and processing fees, if I realized pricing.

Which have approximated $1 70 over the past two years.

Philip Riley: The business really starts to have operating leverage for amounts above and beyond the fees as you get into the $3 and $4 index pricing level. A similar dynamic on the better realized pricing occurs with NGLs, where we were well clear of the fees, leading to realized pricing being up 65% quarter over quarter, or well over 1,000% year over year, and with realized pricing at about 40% of WTI versus teens or twenties last year and 6% one year ago. For gas and NGL hedges, about two-thirds of gas volumes were hedged for the quarter ended December 31. For calendar year 2022, we have similar hedge volumes at an average price of $3.26. We have 0 NGL hedges, so we've been enjoying the full price appreciation there. Moving on to oil pricing and hedges.

So the business really starts to have operating leverage for amounts above and beyond the fees as you get into the three and four dollar index pricing level.

A similar dynamic on a better realized pricing occurs with Ngls, where we we're well clear of the fees, leading to realized pricing being up 65% quarter over quarter for well over a 1000% year over year and with realized pricing at about 40% of W. T.

Versus teens or twenties last year, and 6% one year ago.

For gas and NGL hedges about two thirds of gas volumes are hedged for the quarter ended December 31.

For calendar year 2022.

We have similar hedge volumes at an average price of $3 26.

We had zero NGL hedges, so we have been enjoying a full a pre price appreciation there.

Moving on to oil pricing and hedges.

Philip Riley: For the quarter, our realized price improved about 10% to $75.67, which was largely offset by realized hedge losses of over $21 per barrel for a net realized price after derivatives of just over $54, about 3% higher than the prior quarter. You will see $5 million of hedge losses on the income statement, whereas if you look at the disaggregated detail on our 10-Q, you'll see that includes an approximate $11 million unrealized gain offset by $16 million in realized hedge losses. The unrealized gain was essentially a function of the sharp downward swing in pricing we saw during November and December relative to the higher pricing in the preceding quarter, which made the hedges less out of the money. As pricing has once again shifted higher after quarter end, you can expect the unrealized dynamic to reverse.

For the quarter, our realized price improved about 10% to $75 67.

Which was largely offset by realized hedge losses of over $21 per barrel for net realized price after derivatives of just over $54 about 3% higher than the prior quarter.

Youll see $5 million of hedge losses on the income statement, whereas if you look at the disaggregated detail in our 10-Q, you'll see that includes an approximate $11 million unrealized gain offset by $16 million and realized hedge losses the.

The unrealized gain is essentially a function of the sharp downward swing in pricing. We saw during November and December relative to the higher pricing and the precedent quarter, which made the hedges less out of the money.

As pricing has once again shifted higher after quarter end you can expect the unrealized dynamic to reverse.

We recognize we've been significantly hedged on oil production for the last four quarters, we sold 2.46 million net barrels and had $2, one 4 million hedged over 85% in the low fifties.

Philip Riley: We recognize we've been significantly hedged on oil production. For the last four quarters, we sold 2.46 million net barrels and had 2.14 million hedged over 85% in the low fifties. Based on current market conditions and assuming our leverage level stays low, we plan to be less hedged overall relative to the past, with relatively higher amounts of hedging for production forecasted within a rolling twelve-month basis and less hedging beyond twelve months, which may allow for more flexibility to react to market conditions, as well as hedge price optimization in a backwardated market. Our hedge book may still weigh on our bottom-line cash flow this fiscal year, but we see that improving starting in the current quarter with lower hedge volumes and assuming market prices are directionally consistent with recent paths.

Based on current market conditions, and assuming our leverage level stays low we plan to be less hedged overall relative to the past with relatively higher amounts of hedging for production forecasted within a rolling 12 month basis, and less hedging beyond 12 months, which may allow for more flexibility to react to market conditions as well as <unk>.

Price optimization in a backward dated market.

So our hedge book May still way on our bottom line cash flow this fiscal year, but we see that improving starting in the current quarter with lower hedge volumes and assuming market prices are directionally consistent with recent past.

Philip Riley: We're hoping 2022 marks a good transitional year on realized pricing. Based on positions as of today, our oil price hedges are dropping 123,000 barrels or 22% in this fiscal Q2 compared to the fiscal Q1. If you look at only these unhedged barrels and apply current market pricing, which is averaged in the mid-80s halfway through this quarter, more than $30 higher than our weighted average hedge price in just the prior quarter, that unhedged volume has the potential to yield $3 to $3.5 million in incremental net revenue. For the oil hedges we do have, the weighted average price is $3 higher this quarter than the prior quarter's price, which could itself yield more than $1 million in incremental hedge realizations.

We're hoping 2022 marks a good transitional year unrealized pricing.

Based on physicians as of today, our oil price hedges are dropping by 123000 barrels for 22% in this fiscal second quarter compared to the fiscal fourth quarter.

So if you look at only these unhedged barrels and apply current market pricing, which has averaged in the mid eighties halfway through this quarter and more than $30 higher than our weighted average hedge price and just the prior quarter.

Unhedged volume has the potential to yield three to $3 $5 million and incremental net revenue.

So the oil hedges, we do have the weighted average prices.

$3 higher this quarter than the prior quarter's price, which could itself yield more than $1 billion in incremental hedge realizations.

Philip Riley: None of this accounts for any production of growth which would be applied to market pricing. Then looking a bit further out, the quarter ending 30 September 2022 currently has hedge volumes about 30% lower and with a weighted average price over $6 higher than this past completed quarter. I offer these anecdotes that you can start to piece together our potential for real step-ups in cash flow in the coming quarters. All right, moving on to some operating costs and margins for the quarter. Kevin discussed LOE, so I won't discuss that. Normal course administrative expenses decreased by over $1 million from the prior quarter. We refer to cash G&A expense, which is a non-GAAP measure and one that we define as excluding share-based compensation and benefiting from the effect of revenues from contract services.

And none of this accounts for any production of growth, which would be applied to market pricing.

And then looking a bit further out the quarter ending September 32022, currently has hedged volumes about 30% lower and with a weighted average price of over $6 higher than this past completed quarter.

After these anecdotes that you can start to piece together, our potential for real step ups in cash flow in the coming quarters.

Alright, moving on to some operating costs and margins for the quarter.

Kevin discussed leaves so I wont discuss that.

Normal course administrative expenses decreased by over $1 million from the prior quarter.

We refer to cash G&A expense, which is a non-GAAP measure and one that we define as excluding share based compensation and benefiting from the effect of revenues from contract services.

Philip Riley: Cash G&A for the quarter was $3.2 million, or about $3.50 per BOE of production, about 20% below midpoint guidance. This category will continue to fluctuate, and we're guiding to a higher figure again as we see some seasonality with certain costs, higher possible costs with professional services, business development activities, and insurance, among others. Our cash operating margin on a per BOE basis improved about 7% quarter over quarter from mid-$26 to mid-$28. We show this non-GAAP metric in the back of our earnings release, which includes just under $62 per BOE of pre-hedge revenue, $17.51 per BOE of realized hedging loss, and just under $16 per BOE of cash costs, which includes all operating costs, production and ad valorem taxes, cash G&A, and interest expense.

Cash G&A for the quarter was $3 2 million or about $3 50 per Boe production about 20% below midpoint guidance.

This category will continue to fluctuate and we're guiding to a higher figure again as we see some seasonality with certain costs higher possible costs.

Recessional services.

Business development activities and insurance among others.

Our cash operating margin on a per Boe basis improved about 7% quarter over quarter for mid 'twenty $6 to mid $28.

Show this non-GAAP metric in the back of our earnings release, which includes just under $62 per Boe pre.

Pre hedge revenue.

$17 51 per BOE realized hedging loss and just under $16 per Boe of cash costs, which includes all operating costs production and AD valorem taxes cash G&A and interest expense.

Philip Riley: The LOE by itself was just above $8 per BOE. Moving on to cash flow and cash flow allocation. Cash flow from operations for the quarter was $21.7 million, including $25 million before changes in working capital and then -$3 million of negative changes in working capital. On CapEx for the fiscal Q1, the company had $20 million in accrual-based drilling completions and facility capital expenditures, $6.3 million of which relates to our EOR project. Including additions to leasehold and other property and equipment, the company had $20.7 million in total accrued capital expenditures for the three months ended 31 December 2021, which compares to the company's previously released guidance of $26 million to $32 million. The lower anticipated accrued CapEx can be attributed to development activity timing differences falling outside of the quarter.

Louis by itself was just above $8 per Boe.

Moving onto cash flow and cash flow allocation.

Cash flow from operations for the quarter was $21 7 million, including $25 million before changes in working capital and then a little over $3 million of negative changes in working capital.

On Capex for the fiscal first quarter, the company had $20 million in accrual based drilling completions and facility capital expenditures.

$6 3 million of which relates to our <unk> project.

Including additions to leasehold and other property and equipment company had $20 7 million and total accrued capital expenditures for the three months ended December 31, 2021, which compares to the Companys previously released guidance of 26 million to $32 million.

The lower anticipated accrued capex can be attributed to development activity timing differences falling outside of a quarter.

On a cash basis. The company had total capex before acquisitions of $29 1 million for the three months ended December 31 2021 the.

Philip Riley: On a cash basis, the company had total CapEx before acquisitions of $29.1 million for the three months ended December 31, 2021. The difference here versus the accrued figure includes amounts for prior quarter activity that has a lag effect with the cash payment. If you use this quarter's cash flow from operations and this higher cash CapEx figure, that leads to negative free cash flow for the quarter, which we anticipated given timing of our development spending. Further, in managing the operations of the company, we're more focused on efficiencies and cost savings, which may lead to concentrated capital spending in some quarters, rather than ensuring that each quarter yields positive free cash flow. For the full year 2022, we do forecast creating significant free cash flow.

The difference here versus the accrued figure includes amounts for prior quarter activity that has a lag effect with the cash payment.

If you use this quarter's cash flow from operations and this higher cash capex figure that leads to negative free cash flow for the quarter, which we anticipated giving timing of our development spending.

Further in managing the operations of the company, we're more focused on efficiencies and cost savings, which may lead to concentrated capital spending in some quarters, rather than ensuring that each quarter yields positive free cash flow.

For the full year 2022, we do forecast, creating significant free cash flow.

Our allocation of Capex relative to cash flow from operations will likely appear higher than fiscal 2021, given the incremental spending on the EUR special project falling within this fiscal year.

Philip Riley: Our allocation of CapEx relative to cash flow from operations will likely appear higher than fiscal 2021, given the incremental spending on the EOR special project falling within this fiscal year. We'll also point out the EOR pilot program represents a special project outside of the normal self-funding operations and one for which we raised equity capital last summer. Total change in cash this quarter was -$8.8 million, including $21.7 million of cash flow from operations, offset by $29.1 million for the investing activity and $1.3 million for financing activities, reflecting a $5 million draw on our credit facility, offset by our $6 million dividend payout. We ended the quarter at $65 million on the credit facility. Subsequently, during February, we drew an additional $3 million, with $68 million outstanding currently.

I'll also point out the EUR pilot program represents a special project to outside of the normal self funding operations and one for which we raised equity capital last summer.

Total change in cash this quarter was negative $8 8 million, including $21 7 million of cash flow from operations offset by $29 1 million for the investing activity and one three for financing activities, reflecting a $5 million draw on our credit facility offset by our $6 million dividend payout.

We ended the quarter at $65 million on our credit facility.

Currently during February we drew an additional $3 million was $68 million.

Standing currently.

These draw amounts.

Philip Riley: These draw amounts align with our forecast, and we believe this may represent approximate peak borrowings for the year with anticipated paydown through the year, given a lighter capital spend in H2, subject to market conditions, of course, and swings in working capital. Final point I'd make on cash and debt is that our quarter-end cash balances have the potential to be deceptive with our commodity sales receipts typically arriving just before quarter end, while hedge settlements, which have been largely negative for us of late, occur at the beginning of the following month. The combined effects may be helpful in understanding our reported cash balances. I'll now turn it back to Kevin to discuss our forward guidance.

Lines with our forecast and we believe this may represent approximate peak borrowings sitting here with anticipated pay down through the year, given a lighter capital spend in the back half of the year subject to market conditions of course swings in working capital.

Final point I'd make on cash and that is that our quarter end cash balances have the potential to be deceptive with our commodity sales receipts typically rising just before quarter end, while hedge settlements, which have been largely negative for us of late.

Occur at the beginning of the following month.

The combined effects may be helpful in understanding our reported cash balances.

I'll now I will turn it back to Kevin to discuss our forward guidance.

Kevin Riley: Thank you, Philip. I'll now give guidance for the company's activity for fiscal Q2 2022. We're forecasting fiscal Q2 2022 accrued capital expenditures before acquisitions to total approximately $26 to 32 million. This total includes an estimated $20 to 24 million for normal course drilling and completions, both operated and anticipated non-operated capital workovers, infrastructure, and minor additions to land and existing working interest. We estimate another $6 to 8 million for our EOR program. Consistent with prior quarter, we forecast a larger weighting of capital spending during H1 of fiscal 2022. In line with guidance previously provided and based on current market conditions and costs, we still anticipate full fiscal year 2022 capital expenditures total between $85 and 95 million.

Thank you Philip I'll now give guidance for the company's activity for fiscal quarter two 2022.

We're forecasting fiscal second quarter 2022, accrued capital expenditures before acquisitions to total approximately 26% to $32 million.

This total includes an estimated 20 million to $24 million for normal course drilling and completions, both operated and anticipated non operated capital workovers infrastructure than minor additions to land an existing working interest than we estimate another $6 million to $8 million for our <unk> program.

Consistent with prior quarter, we forecast a larger weighting of capital spending during the first half of fiscal 2022 in line with guidance previously provided and based on current market conditions and cost we still anticipate full fiscal year 2022 capital expenditures totaled between 85% to $95 million.

Kevin Riley: The company forecasts fiscal Q2 2022 net oil production to average 7.25 to 7.5 thousand barrels per day, with total net equivalent production of 9.4 to 10 thousand barrels of oil equivalent per day. The gas and NGL sales during February through April will be impacted from an expansion underway at our midstream partners facilities, leading us to provide the wider range of guidance. Once complete, the plant will provide additional takeaway capacity to our operations, which will further reduce flaring of natural gas and expected to increase sales volumes. Though our production on equivalent basis appears to be flat quarter over quarter, we do see oil production continuing to grow. The company forecasts Q2 LOE costs of between $6.5 to 8 million, which includes increases from inflationary cost increases we have realized to date.

The company forecast fiscal second quarter 2022, net oil production to average seven 5% to seven 5000 barrels per day with total net equivalent production of nine 4% to 10000 barrels of oil equivalent per day.

The gas and NGL sales during February through April will be impacted from an expansion underway at our midstream partners' facilities, leading us to provide a wider range of guidance once complete the plant and to provide additional takeaway capacity to our operations, which will further reduce flaring of natural gas and expect it to increase sales volumes.

Though our production on equivalent basis appears to be flat quarter over quarter, we do see oil production continuing to grow.

The company forecast second quarter LOE cost of between six $5 million to $8 million, which includes increases for inflationary cost increases we have realized to date, we are giving this on an absolute basis versus on a per Boe basis due to the uncertainty on curtailment volumes due to the expansion of <unk>.

Kevin Riley: We are giving this on an absolute basis versus on a per BOE basis due to the uncertainty on curtailment volumes due to the expansion of our midstream partners gas gathering and processing facility. We forecast cash G&A expenses of approximately $3.5 to 4.5 million, excluding share-based and unit-based compensation expense, and after the effect of gross profit from contract services derived from management services agreements. We believe that this level of capital investment corresponds to full year growth of approximately 11% to 15% as compared to fiscal year 2021 production levels. Now I'll turn the call over to Bobby for closing remarks.

Midstream partners' gas gathering and processing facility, we forecast cash G&A expenses of approximately three 5% to $4 5 million excluding share based in unit based compensation expense and after the effect of gross profit for our contract services derived from management services agreements.

We believe that this level of capital investment corresponds to full year growth of approximately 11% to 15% as compared to fiscal year 2021 production levels.

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

Thank you Kevin.

Bobby Riley: Thank you, Kevin. In summary, the company delivered another solid quarter. We're excited about 2022 for a number of reasons. Oil sales dominate our business and the combination of forecasted production growth, stronger market prices, and the roll-off of some of our lower priced hedges may lead to materially higher net effective revenues from oil sales. On the gas side, we have line of sight on growing processing plant capacity with our midstream partners, which then combined with stronger pricing in gas and NGL markets, leads to these commodities contributing more to our bottom line. As we discussed, we're excited about the next steps in our EOR project developments in the coming quarters, and we look forward to sharing more progress in this area. Overall, our plans remain on track and poised for execution. Thank you again for your support and your time today.

In summary, the company delivered another solid quarter, we're excited about 2022 for a number of reasons.

Our oil sales dominate our business and the combination of forecasted production growth stronger market prices on the roll off of some of our lower priced hedges may lead to materially higher net effective revenues from oil sales.

On the gas side, we have lot of Saddam growing processing plant capacity with our midstream partners.

Then combined with stronger pricing in gas and NGL markets leads to these commodities contributing more to our bottom line.

As we discussed we're excited about the next steps in our EUR project development.

In the coming quarters, and we look forward to sharing more progress in this area.

Overall, our plans remain on track and poised for execution.

Thank you again for your support.

And your time today.

Bobby Riley: Operator, you may now open it up for questions.

Operator, you May now open it up for questions.

Thank you at this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Operator 3: Thank you. At this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We'll take our first question from Neal Dingman with Truist.

Operator: Thank you. At this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We'll take our first question from Neal Dingman with Truist.

We'll take our first question from Neal Dingmann with truest.

Neal Dingman: Good morning, all. Thanks for the update. Bobby, my first question is on the traditional production and associated cash flow, maybe for you or Kevin. Given the stellar balance sheet you all have and your ability that we've seen now in the last several quarters to quickly boost production when and if you choose, you know, I would add that, you know, obviously, as Philip mentioned, the lower price hedges are rolling off, why not push production a little bit, maybe from the normal kind of 13 wells a year to take advantage of the current higher prices that are out there? I mean, if there's any thoughts about doing that.

Neal Dingmann: Good morning, all. Thanks for the update. Bobby, my first question is on the traditional production and associated cash flow, maybe for you or Kevin. Given the stellar balance sheet you all have and your ability that we've seen now in the last several quarters to quickly boost production when and if you choose, you know, I would add that, you know, obviously, as Philip mentioned, the lower price hedges are rolling off, why not push production a little bit, maybe from the normal kind of 13 wells a year to take advantage of the current higher prices that are out there? I mean, if there's any thoughts about doing that.

Good morning, all thanks for the update.

My first question is on the traditional production and associated cash flow.

Maybe for you or Kevin given the stellar balance sheet, you'll have in your ability that we've seen now over the last several quarters. So quickly boost production when and if you choose.

Given that and I would add that obviously is as bill mentioned, the lower priced hedges are rolling off.

Not pushed production a little bit maybe from the normal kind of 13 wells a year to take advantage of the current higher prices that are out there I mean any thoughts about doing that.

Okay. Thanks, Thanks, Neal it's a great question. So I will tell you that we are.

Bobby Riley: Okay, thanks. Thanks, Neal. It's a great question. I will tell you that we're evaluating what our options are here in the next couple of quarters. Having that in our pocket to accelerate our drilling program if the material and the rig is available is something that we're seriously considering and will probably address in the upcoming timeframe pretty quick. We would kind of wanna stay disciplined to the point that we keep within our guidance, but obviously, we're looking at these inflated prices and wanna take opportunities. I think you'll see that in our upcoming forecast.

<unk>, what our options are here in the next couple of quarters.

Having that in our pocket to accelerate our drilling program. If the material on the rig is available is something that we're seriously considering and will probably address.

And upcoming timeframe pretty quick so.

Thank you.

We would kind of want to stay disciplined to the point.

We keep within our guidance, but obviously, we're looking at these inflated.

Our prices and want to take opportunities. So I think you'll see that in our upcoming forecast.

No great great great to have the flexibility.

Neal Dingman: No, it was great to see and great to have the flexibility. My second question is really on the EOR and the CCUS. Bobby, you and Kevin briefly mentioned the upcoming timetable around the EOR and associated CO2. First, can you talk about maybe what you all would need to see, and I don't wanna get too far ahead, but curious to know what you all would need to see in this first EOR project to potentially move to a second. Maybe if I could just tie another one in. Obviously, given that the CCUS projects are separate from this, is there any update on any potential upcoming CCUS project, obviously, as aside from, you know, outside of what you're doing on this first EOR?

Neal Dingmann: No, it was great to see and great to have the flexibility. My second question is really on the EOR and the CCUS. Bobby, you and Kevin briefly mentioned the upcoming timetable around the EOR and associated CO2. First, can you talk about maybe what you all would need to see, and I don't wanna get too far ahead, but curious to know what you all would need to see in this first EOR project to potentially move to a second. Maybe if I could just tie another one in. Obviously, given that the CCUS projects are separate from this, is there any update on any potential upcoming CCUS project, obviously, as aside from, you know, outside of what you're doing on this first EOR?

And then my second question is really on the EUR and Ccs Bobby.

And Kevin briefly mentioned upcoming timetable around the EUR associated still too. So first can you talk about maybe what you all would need to see and I don't want to get too far ahead, but.

Curious to know what you all would need to see in this first EUR project potentially move to a second and then maybe if I can just tie another one and obviously given the ccs projects sort of separate.

From this is there any update on any potential upcoming Ccs project obviously.

Syed.

And what Youre doing on this first EUR.

Bobby Riley: Okay, Neil, I'll take the first part, and then I'll let Philip kind of address the second part. You know, kinda as we talked in the presentation, the infrastructure is now in place on the pilot project, which is basically one half of a 960-acre unit. We anticipate starting with water injection within the next couple of weeks, and we'll expand that water injection over the next couple of months.

Okay, Neil I'll take the first part and then I'll, let Phil kind of address the second part.

Kind of as we talked in the presentation.

Infrastructure is now in place on the pilot project, which is basically one half of a 960 acre unit.

We anticipate starting with water injection.

Within the next couple of weeks.

And we will expand that water injection over the next couple of months.

Bobby Riley: Sometime in late June, we expect to start taking first delivery of CO2 from Kinder Morgan, and then we'll be implementing what's known as a WAG process, water alternating gas. We will monitor that for the first 6 to 12 months to look at what our injection profiles look like so that we can optimize what we want to be considered our sweep efficiencies and then what we're seeing in production response so that we can start modeling, you know, what the cost profile would look like on expanding the project. That's gonna take probably a few months, say maybe up to 6 months before we actually start getting enough hard data to consider expanding the first EOR pilot. For the second question, I'll let Philip respond to the CCUS.

Sometime in late June we expect to start taking first delivery.

Cotwo from Kinder Morgan and then we will be implementing what's known as a wag process water alternating gas.

We will monitor that for the first six to 12 months too.

Look at what our injection profiles look like.

So that we can optimize what we want to be.

Considered a sweep efficiencies.

Then what we're seeing in production response.

So that we can start modeling.

No.

What the cost.

Profile would look like on expanding the project.

That's going to take probably a few months.

They may be up to six months before we actually start getting it up hard data to consider.

Expanding.

The first EUR pilots.

So the second question I'll, let spill response of the CCA U S.

Yes, Thanks Ravi.

Philip Riley: Yeah. Thanks, Bobby. As Bobby noted in his intro, you know, we're working with various groups, navigating the various requirements that, you know, make up a good project. We're not at the point to announce something right now. I think the way I'd characterize it is that we're talking to different groups. We're trying to decide, you know, where exactly in the value stream we wanna participate. An example there is whether you wanna own the carbon capture equipment and own the full A to Z to capture the value chain there. Or if rather we're just gonna do a part of it.

As Bobby noted in his intro, we're working with various groups navigating the various requirements.

Now make up a good project.

We're not at the point to announce something right now.

I think the way I'd characterize it is that we're talking to different groups, we're trying to decide where exactly in the in the value stream, we want to participate.

An example, there is whether you want to own the carbon capture equipment.

And on the full a disease.

To capture the value chain, there or rather were just going to do a part of it and an example, there is maybe more of a fee for service, where somebody else potentially with a lower cost of capital and a bigger tax appetite could own the equipment, whereas we can be a partner there for.

Philip Riley: An example there is maybe more of a fee for service where somebody else, potentially with a lower cost of capital and a bigger tax appetite, could own the equipment, whereas we can be a partner there for the carbon sequestration and permanent storage. At the same time, you know, we're working to understand regulations and lands. Examples include, you know, plume modeling, how much surface and mineral we wanna scope out to ensure that we have adequate room. At the same time, you know, the Build Back Better plan that was heading one direction towards the very end of last year, that, of course, changed directions. We wanna have something that's flexible, that of course, works in the current regime, but then has potential for upside should the code with 45Q change to the better.

Carbon sequestration and permanent storage at.

At the same time, we're working to understand regulations and Lance examples include.

Plume modeling how much.

Surface and.

Mineral we want to scope out to ensure that we have adequate room.

At the same time.

Build back better plan that was heading one direction towards the very end of last year and of course change directions, and we want to have something thats flexible that of course works in the current regime, but then has potential for upside should the code was 40, plus Q change to the better.

Philip Riley: I hope that answers your question for the time being.

Hope that answers your question for the time, but it does feel but I guess, it's just a matter of kind of what what offers and sort of how the contract sort of shape I mean, it sounds like you have a lot of opportunity on the Ccs in just a matter of.

Neal Dingman: No, no, it does, Philip. I guess it's just a matter of kind of what offers and sort of how the contracts sort of shake out. I mean, it sounds like you have a lot of opportunities on the CCUS. It's just a matter of sort of which people maybe present you with the best opportunity go forward. Is that fair?

Neal Dingmann: No, no, it does, Philip. I guess it's just a matter of kind of what offers and sort of how the contracts sort of shake out. I mean, it sounds like you have a lot of opportunities on the CCUS. It's just a matter of sort of which people maybe present you with the best opportunity go forward. Is that fair?

Just sort of which people may be present, you with the best opportunity to go forward is that fair.

Philip Riley: Yeah, I think that's a good way to put it. Then at the same time, overlaying certain costs. You know, what does it cost to bond these things? This is a nascent field. I'd encourage anybody who's reading headlines to really dig in on some of those. You may find that some of the headlines, you know, there's less actually there for people that have gotten, say, a truly underwritten insurance policy for, you know, some of the storage. So those are the types of things we're doing.

Yes, I think that's a good way to put it and then at the same time overlaying certain costs, what does it cost to bond. These things. This is a nascent field I'd encourage anybody who is reading headlines to really dig in on some of those and you may find that some of the headlines theres less actually there for people that.

It's gotten say a truly underwritten insurance policy for four.

Some of the storage. So those are the types of things we're doing.

Yeah.

No.

Neal Dingman: No, it's just I love the optionality on both EOR and CCUS side. All right, guys, keep up the good work.

Neal Dingmann: No, it's just I love the optionality on both EOR and CCUS side. All right, guys, keep up the good work.

Love the Optionality on both the <unk> side, Alright, guys keep up the good work.

Next we'll go to John White with Roth Capital Your line is open.

Operator 3: Next, we'll go to John White with Roth Capital. Your line is open.

Neal Dingmann: Next, we'll go to John White with Roth Capital. Your line is open.

Good morning.

John White: Good morning.

Yes.

Good morning, John .

Bobby Riley: Morning, John.

John White: Hey, really nice to see the improved results on natural gas and NGL pricing. A follow-up on Neil's question on the EOR project, and you laid out a precise timeline on water and CO2 injections. I take it from the timeline you've laid out, meaningful oil production from the EOR project is probably, would you say mid-2023?

Hey, Yeah really nice to see the improved results on natural gas and NGL pricing.

A follow up on Neil's question on.

<unk> project and you laid out a precise timeline water.

Oh two injections.

Ah.

I take it from the timeline that you've laid out.

Meaningful oil production from the EUR projected probably would you say mid 2023.

I think that.

Bobby Riley: I think that that's a year from now we will have significant data to support whether we're where and how to expand the project. I expect we will start seeing some response prior to that. You know, you don't wanna push it to get response too fast because you wanna try to design a very efficient sweep structure so that you're not bypassing. This is not something that you want to cram in the hole for immediate results. It's gonna take a little time, but I expect by mid-2023 we should be on this initial pilot, we should be reaching kind of peak performance on what we're looking for.

That's a year from now.

We will have significant.

Data to support whether were.

Where and how to expand the project.

I expect we will start seeing some response prior to that.

You don't want to push it to get response too fast because you want to try to design, a very efficient sweep structure. So that youre not bypassing. So this is not something that you want to cram in the hole to four.

Mediate results, it's going to take a little time, but I expect by mid 'twenty three we should be on this initial on this initial pilots we should be reaching kind of peak performance of what we are initially what we're looking for.

I appreciate the detail.

John White: I appreciate the detail and cautionary remarks. Thanks a lot. I'll pass it on.

Scenario remarks.

Thanks, a lot I'll pass it on.

Bobby Riley: Okay. Thanks, John.

Okay. Thanks, Sean.

Operator 3: As a reminder, ladies and gentlemen, to ask a question, press star one on your telephone keypad. We'll next go to Noel Parks with Tuohy Brothers. Your line's open.

Operator: As a reminder, ladies and gentlemen, to ask a question, press star one on your telephone keypad. We'll next go to Noel Parks with Tuohy Brothers. Your line's open.

As a reminder.

Ladies and gentlemen to ask a question press star one on your telephone keypad will Mexico to Noel Parks with Tuohy Brothers. Your line is open.

Noel Parks: Good morning.

Morning.

Okay.

Bobby Riley: Good morning, sir.

Good morning, Sir.

Okay.

Noel Parks: I just had a couple questions. Just sort of, refresh me on, where things stand with your, the process of the, gas processing capacity expansion. You mentioned there was a little bit of uncertainty ahead, around just when the, operator, I guess, might have some downtime. If you could just expand on that a bit.

Got a couple of questions.

Just sort of refresh me on.

Where things stand with your.

The process of the gas processing capacity expansion than you.

You mentioned, there was a little bit of uncertainty ahead.

Around just when the operator, I guess might have some some downtime. So if you could just expand on that a bit.

Yes.

Bobby Riley: Kevin?

Kevin.

Philip Riley: Yes. They have started the process or are well underway on the expansion project.

Yes.

Kevin Riley: Yes. They have started the process or are well underway on the expansion project.

<unk> started the process to are well underway expansion project.

We anticipate that we'll.

Kevin Riley: We anticipate that we'll see curtailment through early to mid-April, at which point we will be able to start selling full stream of our Champions-operated gas into the system.

Oilseed curtailment through early to mid April at which point, we will be able to start selling bolstering of our champions operated gas into the system.

Okay great.

Noel Parks: Okay, great. Are there subsequent stages after that sort of mid-April capacity comes online or will that basically take you to where you need to be for near term?

And.

Is there are there are subsequent stages after.

After that.

Sort of.

Mid April capacity comes online or will that basically take you to.

Where you need to be for near term.

Kevin Riley: It'll take us to where we need to be near term. In the future, there may be need for additional expansion projects as the field continues to develop.

It will take us to where we need to be nearer term.

In the future there may be need for additional installs from projects in the field continues to develop.

Great and.

Noel Parks: Great. You talked a bit about keeping an eye on just what cost and rig availability looks like as you execute your plan for the year. Just was wondering on the size of the pace of completions, just kinda what you're planning. I mean, one advantage, of course, as you have hedges roll off, there's the, you know, opportunity, of course, for more upside if oil prices stay strong. Is that something you're also flexible around, your completion pace through the year?

You talked a bit about.

Keeping an eye on just what cost and rig availability looks like.

As you execute your plan for the year.

Just was wondering on the.

On the silos.

Pace of completions.

Just kind of what Youre planning I mean, one advantage of of course of.

As you have hedges roll off there is about <unk> opportunity of course for for more upside of oil.

Oil prices stay strong.

So.

Is that something you are also flexible around your completion.

Through the year.

Well, we do anticipate currently completing all the wells that we drilled during this quarter or this year, especially being that most of our activity is heavily weighted to the first half of the year.

Kevin Riley: Well, we do anticipate currently completing all the wells that we drill during this quarter or this year, especially being that most of our activity is heavily weighted to the H1. All the wells that we currently have scheduled will be producing during this fiscal year for some amount of time. But one of the things that we do consider is if we are to add wells in this fiscal year, what's the impact of that well and the timing of bringing it online? We would want to add something in the next six months versus waiting post July.

All the wells that we currently have scheduled we'll we'll be producing during this fiscal year for some amount of time.

But one of the things that we do consider as if we are to add wells.

In this fiscal year once the impact of that well and the timing of that bringing in our lives. So we would want to add something in the next six months versus waiting.

July .

Okay.

Noel Parks: Okay. Okay, great. That's all I have. Thanks.

Okay, Great. That's all I have thanks.

Kevin Riley: Thank you.

Thank you.

There are no further questions at this time I will now turn the call back over to Bobby Riley for any additional or closing remarks.

Operator 3: There are no further questions at this time. I'll now turn the call back over to Bobby Riley for any additional or closing remarks.

Operator: There are no further questions at this time. I'll now turn the call back over to Bobby Riley for any additional or closing remarks.

Okay. Thank you and thank you everybody for joining the call today, we look forward to talking to you next quarter. Thank you.

Bobby Riley: Okay. Thank you. Thank you, everybody, for joining the call today. We look forward to talking to you in the next quarter. Thank you.

This.

Operator 3: This concludes today's conference call. You may now disconnect.

Operator: This concludes today's conference call. You may now disconnect.

Today's conference call you may now disconnect.

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Q1 2022 Riley Exploration Permian Inc Earnings Call

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