Riley Exploration Permian Inc. Q1 2023 Earnings Call
Hello, Thank you Bruce.
Standing by my name is Jeremy and I will be your conference operator today at this time I would like to welcome everyone to the brightly exploration Permian incorporated Q1, 2023 earnings call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question answer session if you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
I'd like to withdraw your question again press star and the number one I would now like to turn the call over to the CFO .
Ali.
Thank you and good morning to everyone and welcome to our conference call covering the first quarter 2023 results yesterday. The company published a number of items, which can be found on our website under the investors section in earnings release supplemental info on non-GAAP measures and two presentations.
One of which provides an update for first quarter results with a second providing a company overview we.
We plan to file our 10-Q on Wednesday.
Participating on the call today are Bobby Reilly, Chairman and CEO , Kevin Reilly, President and me, Philip Reilly, CFO and EVP of strategy.
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 will also reference certain non-GAAP measures the reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure on our website.
I'll now turn the call over to Bobby.
Thank you Philip.
Good morning, and thank you for joining us today on our Q1 2023 earnings call.
I'm pleased to report that the company remains focused on optimizing our core business and I believe we're off to a great start in 2023.
Although we gave a lot of attention during Q1 to the new Mexico acquisition, we were still able to meet or even surpass the targets. We have previously announced for the quarter.
In addition to our ongoing development of our core assets hubs.
Subsequent to closing the acquisition on April the third we.
We have commenced development activities in new Mexico with plans to bring on additional wells early in the third quarter.
The new Mexico acquisition marks a major milestone for the company.
And we are excited about the opportunities it brings for long term growth and value creation for our shareholders.
We also announced a joint venture to construct new power infrastructure for onsite generation using produced gas.
This strategic initiative aligns with our commitment to sustainable practices and cost efficient operations.
I will now turn the call over to Kevin to discuss the operational results for the quarter.
Thank you Bobby and good morning.
Riley Permian continue to execute in the first quarter with production coming in within the guidance range, but on the low end at 9.9 thousand barrels of oil per day, and 13.2 thousand barrels oil equivalent per day.
During the quarter the company turned to sales seven gross five three net wells, which is well above the one gross one net well we had turned to sales during Q4 of 2022.
<unk> already has and is expected to continue to increase in Q2 relative to both Q4 22 in Q1 'twenty three not only from having a full quarter of contribution from the wells put online in Q1.
But also with the addition of the New Mexico acquisition and the continued development of our core assets.
As a reminder, the production from new Wells Oftentimes has a lag effect.
Large portion of the associated Capex being realized in the prior period as these wells take anywhere from one to three months on average to reach peak production.
So that said April is the first month that fully benefits from development activity of the previous quarter.
Q1 remained relatively flat quarter over quarter with only one new well from Q4 of 22, reaching its peak production during the period.
Lease operating expenses were lower than guidance expectations.
Merrily due to optimizations and some delayed workovers due to seasonal west Texas wins.
As Bobby had previously mentioned subsequent to closing on April 3rd we've commenced development in New Mexico, and we are currently finishing up drilling activity on the second of our first four wells.
On our champions asset in Yoakum County, we just finished the drilling campaign for the first half of 2023.
The remainder of these wells will be turned to sales over the next couple of months. The campaign was very successful and the team was able to deliver a significant improvement in days spent on each well on average reducing spud to TD by 25% on a one and a half mile lateral with the last three of that campaign being the best coming in right at six days.
Spud to TD.
These improvements have resulted in well cost reductions.
We estimated at 4% to 5% of N. A S E as compared to the previous drilling campaign in 2022.
Lastly regarding service cost we remain cautiously optimistic we have seen a slight decrease in service costs as compared to 2022, and we hope to see more benefits from that in the second half of the year as we work through our previous commitments in preorders from 'twenty to 'twenty, two four or 2023 development activity.
With that I'll turn the call over to Philip to discuss the financial results. Thank you.
Thank you Kevin.
For the first quarter 2023, we're reporting net income of $32 million or $1 60 per diluted share and adjusted net income of $25 million or $1 26 per diluted share.
Adjusted EBITDAX of 44 million for the quarter was up by $9 million or 26% year over year, and modestly lower quarter over quarter by approximately $2 million or 5%.
Operating cash flow was $33 million or $37 million before working capital changes, which was up by $7 million or 23% year over year.
This was driven by higher production volumes, despite lower prices.
L O E on a unit of production basis was actually slightly lower year over year and as compared to full year, 2022, which is encouraging and a reflection of our cost control efforts.
Quarter over quarter operating cash flow before working capital was lower by 7 million or 16%.
We had very modestly lower volumes and slightly higher LOE and G&A on a unit basis.
Some of the added G&A for March reflected additions made for the new Mexico acquisition for prior to having the production volume to offset the unit cost metrics.
Interest expense was higher primarily due to not having the benefit like we did in the fourth quarter of the one time interest swap settlement.
And then final point on operating cash flows that we accrued $2 million in transaction expenses in the first quarter related to the acquisition.
For the quarter accrual based Capex was $42 million in cash Capex was $35 million as a result of the spend free cash flow was modest during the first quarter just over $2 million as anticipated due to the concentration of development activity and corresponding capital spending consistent with our 2023 full year plan.
As discussed on past calls, we encourage investors to focus less on a single quarter free cash flow given uneven activity and instead focus on the full year metric as well as the overall growth of operating cash flow.
I'll offer some commentary on capital allocation.
Really the biggest allocation this year was toward the new Mexico acquisition, but very excited about the deal and assets and we appreciate investors reaction and support for the deal thus far.
We also want to thank our financing parties and the sellers for a smooth transition.
For the remainder of the year the bulk of discretionary cash flow based on current conditions and prices will likely go toward reinvestment for volume growth with the balance available for debt Paydown, new ventures, and our dividend.
On upstream reinvestment the spending to year to date as well as the anticipated spend going for this year should result in what we forecast is meaningful growth above and beyond solely the pickup from the acquisition volumes.
The spin currently appears front half weighted with about 60% in the first half of the year based on midpoint guidance.
Our reinvestment rate will be influenced by the macro environment.
The macro backdrop has certainly been volatile this year the fed induced monetary tightening debates on oil demand as well as very weak gas and NGL pricing.
So we do remain flexible to slow down spending and we'll continue to evaluate options there with their management team and the board to find the right balance.
We also hope to Delever this year, both through scheduled amortization on the notes of $5 million per quarter as well as through voluntary paydowns on the credit facility.
The amount of Delevering will largely be a function of commodity pricing and our reinvestment rate.
On new ventures, we have $10 million to $15 million forecasted for 2023 investment and our power joint venture.
This project is off to a great start and we frankly see opportunity to expand already.
We're still focused on AOR and six U S and continue to evaluate opportunities with counterparties.
Do not have a material amount of investment earmarked at the moment.
Which could change in in quarter as situation's developed as regulations become clear and if deals compete for capital with our upstream and power businesses.
Finally, we plan to continue to play our quarterly dividend, which represents a material amount of excess free cash flow by our estimates.
I'll pass it back to Kevin for a discussion of guidance. Thank you.
Thank you Philip I'll now give guidance for the company's activity for the second quarter on a combined basis as this quarter will be the first quarter to include the results of the New Mexico acquisition. Please.
Please note that the guidance provided is subject to change as we are monitoring the fluctuating nature of commodity prices.
We forecast oil production to average 14 to 15000 barrels per day and total equivalent production to average 20 to 21000 barrels of oil equivalent per day based on estimates of available gas processing capacity we.
We anticipate low of approximately eight to $9 per Boe and cash G&A expenses of approximately three to $3 50 per Boe.
The company also anticipates cash income taxes of approximately $3 million to $4 million to.
To be paid during the quarter.
Lastly.
We forecast accrual basis capital expenditures of $50 million to $60 million, excluding amounts for corporate or land acquisitions.
I'll now turn the call over to Bobby for closing remarks.
Thank you Kevin and again, we appreciate your time and interest in our company as always we are focused on creating value for our shareholders and look forward to updating on our progress in the next quarter and beyond.
Operator, you May now open the call for a discussion.
Awesome. Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Pause for a moment to compile the Q&A roster.
Okay. Your first question comes from the line of Neil.
Dingmann Your line is open.
Hi, Good morning, guys. Thanks for the time by the Premier Kevin. My first question is just really looking at the new assets I think there's really interesting perspective I'm. Just wondering when you look at the plan I know, it's still Super early how much will you integrate in.
Is that something that will be a big part of your plan already this year and maybe.
Maybe talk about number one if that's if that's going to be fully incorporated how quickly. It will be incorporated and then just number two months I've asked my question now is more just on the EUR side, how the project is going and is there any plans for a second.
Yeah.
Yes, Neal and good morning.
Regarding the Mexico asset integration with Rx began.
Working through a transition period with the previous operator.
Our group is heavily involved in the activities out there slowly transitioning of which we intend to have done during this quarter completely.
That asset will.
It will encompass about.
40% of our development capital this year.
Most of which has started.
Mid April and we will go through I would say.
October November at sits barring any changes due to commodity prices like we mentioned.
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We are continuing to inject as we have said on the previous projects.
We are refresh horizon, the reservoir, which does take some time, we produced a lot of water and oil out of that in that area.
We are also working to finish our facilities and infrastructure with compressors hopefully coming online in the next couple of weeks.
So we can start to do some re injection.
Alright perfect.
And just as a reminder, if you would like to ask a question press star and the number one our next question comes from Noel Parks normal. Please go ahead.
Hi, good morning.
Good morning.
So just a couple of things.
You were just talking about.
You were expecting compressors to come online in the next couple of weeks and I'm just.
Trying to get a feel for the capex behind those that were.
Previously incurred.
In.
Either first quarter or earlier or is that something that's going to be hitting in the second quarter.
A large portion of the Capex for that has already been incurred as those compressors are are on location have been poorer.
Little while but its been the plumbing in and waiting on the electronic components to be able to operate for Reinjection. So we are currently injecting cotwo.
But what I would say, we're using the compressors for re injection so taken the gas it comes out.
Reproduction and re injected that gets it up to pressure to re inject into the reservoir.
Oh.
Okay.
Brian I'll give it one more minute to see if any new questions come in.
All right with you and another question from no no. Please go ahead.
Hi.
I was wondering about with the new properties and the integration that you are in the midst of.
At this stage.
Any.
Any.
New awareness is or insights you have actually a heavier year hasn't the properties I guess I'm wondering about.
Your thoughts on horizontal development out there and.
What your own experience might bring to our to.
The property is things you might approach differently.
Yes, I appreciate that no.
We have now.
I mentioned, we have commenced development on our first two horizontal wells out there we're drilling for them in the next.
This first campaign out there underneath Riley.
Two of which have been done.
We see opportunities to <unk>.
Livestock.
What we've learned and champions to reduced.
Days drilling to hopefully.
Complete the wells more efficiently and drive costs down.
We see the opportunity in the second half of the year can you share a rig between the two locations.
Of which we plan to do.
And also some additional services.
We've also having.
The larger economy of scale allows us for more negotiating power with buying inventory.
To develop these wells in the future.
Okay.
All right are there any final questions.
All right. If there are no further questions that will conclude today's conference call you may now disconnect.
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