Q4 2023 Riley Exploration Permian Inc Earnings Call
Operator: Welcome to the Riley Exploration Permian 4th Quarter 2020 Earnings Conference. At this time, participants are in a listen-only mode, with a question-and-answer session to follow at the end of the presentation.
Welcome to the O'reilly exploration Permian Fourthquarter 'twenty 'twenty earnings conference call. At this five participants are in a listen only mode with a question and answer session to follow at the end the presentation I will now hand, the call over to Filip Reilly Chief Financial officer for introductions.
Operator: I will now hand the call over to Philip Riley, Chief Financial Officer, for introductions. Mr. Riley, please go ahead. Good morning.
Please go ahead.
Good morning, welcome to our conference call covering the fourth quarter 2023 results I'm Philip Brian <unk> CFO, joining me today is Bobby Reilly, Chairman and CEO.
Philip A. Riley: Welcome to our conference call covering the fourth quarter 2023 results. I'm Philip Riley, CFO. Joining me today is Bobby Riley, Chairman and CEO. Yesterday, we published a variety of materials which can be found on our website under the Investors section. These materials and today's conference call contain certain projections and other forward-looking statements within the meaning of the federal securities law. 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 reference certain non-GAAP measures.
Yesterday, we published a variety of materials, which can be found on our website under the investors section.
These materials in todays conference call contains certain projections and other forward looking statements within the meaning of the federal Securities laws. These.
These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.
Also reference certain non-GAAP measures reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure on our website.
Philip A. Riley: Reconciliations to the appropriate gap measures can be found in our supplemental disclosure on our website. And I'll turn the call over to Bobby. Thank you, Philip, and thank you again to everyone for joining us on today's call. Yesterday, at the close of the market, we announced the results of our fourth quarter and full year 2023. I'm pleased to report that 2023 was another outstanding year for Riley Permian.
I'll now turn the call over to Bobby.
Thank you Philip and thank you again to everyone for joining us on today's call.
Yesterday at the close of the market, we announced the results of our fourth quarter and full year 2023.
I'm pleased to report.
The 2023 was another outstanding year for Riley Permian.
I'm going to discuss some of the high points for the year, our operations highlights and then turn the call over to Philip.
Bobby D. Riley: I'm going to discuss some of the high points for the year, our operations highlights, and then turn the call over to Philip. We encourage questions and discussion at the end of our calls. Our overall net oil production increased by 49% year-over-year to 13.2 MBOE per day and total net equivalent production by 62% year-over-year to 18.6 MBOE per day. Additionally, Riley achieved a 22% year-over-year organic growth in net oil production, excluding the New Mexico acquisition. Proved reserves increased, reaching 108 million BOE, an increase of 39% year over year. Improved developed producing reserves reached 60 million BOE, increasing 23% year over year. We generated $246 million of adjusted EBITDA.
We encourage questions and discussion at the end of our call today.
Yeah.
Our overall net oil production increased by 49% year over year to 13.2 N B O per day, and total net equivalent production by 62% year over year to 18.6 Boe per day.
Riley achieved a 22% year over year organic growth in net oil production, excluding the new Mexico acquisition.
Proved reserves increased reaching 108 million BOE, an increase of 39% year over year and proved developed producing reserves reached 60 million Boe, a increasing 23% year over year.
We generated $246 million of adjusted EBITDAX.
Bobby D. Riley: 207 million of operating cash flow from continuing operations and 70 million of free cash. We continue to invest in our business with total cash capital expenditures before acquisitions of $136 million, corresponding to a reinvestment rate of 66% of cash flow from operations. We remain committed to returning value to our shareholders, most recently paying our 20th consecutive quarterly dividend, totaling $28 million for the year. We remain focused on creating long-term value for our shareholders and delivering sustainable growth for years to come. The company successfully launched operations for the initial phase of its baseload power generation facility operated by our joint venture RPC Power, LLC. Construction of the on-site power generation facility was mostly finished during 2023, with temporary power generation commencing in November of 2023. The on-site power generation facility is anticipated to be fully operational by spring of 2024, utilizing Post-Processed Take-in-Kind Natural Gas Fuel.
207 million of operating cash flow from continuing operations and $70 million of free cash flow.
We continue to invest in our business with total cash capital expenditures before acquisitions of one.
136 million corresponding to a reinvestment rate of 66% of cash flow from operations.
We remain committed to returning value to our shareholders. Most recently paying our 20th consecutive quarterly dividend totaling $28 million for the year.
We remain focused on creating long term value for our shareholders and delivering sustainable growth for years to come the.
The company successfully launched operations for the initial phase of its base load power generation facility operated by our joint venture RPC power L. L. C <unk>.
Construction of the onsite power generation facility was mostly finished during 2023 with temporary power generation commencing in November of 2023.
The on site power generation facility is anticipated to be fully operational by spring of 2024.
Utilizing post process taken kind natural gas as fuel the thermal generation facility currently provides power to around 36% of our Yoakum County, Texas operations.
Bobby D. Riley: The thermal generation facility currently provides power to around 36% of our Yoakum County, Texas, operation. I will note that the last well we drilled was powered 100% by self-generated electric power. Regarding our EOR pilot, in early 2024, we successfully installed CO2 compression equipment and are currently injecting 12 MMCF per day of CO2 into the reservoir. This includes 10 million cubic feet per day of purchased CO2 and 2 million cubic feet per day of recycled CO2.
You'll note that the last well, we drilled was powered 100% by self generated electric power.
Okay.
Regarding our E O our pilot and early 'twenty 'twenty four we successfully installed C. O two compression equipment and are currently injecting 12 M. M. C. F per day of C. O two into the reservoir. This includes 10 million cubic feet per day of purchased Cotwo and 2 million cubic feet per day of <unk>.
<unk> C O two.
Bobby D. Riley: As we move forward, our testing will involve closely monitoring the movement of CO2 and reservoir fluids using tracer. The insights gathered from the project thus far have been invaluable, and we anticipate compiling a comprehensive feasibility report by the end of 2024. We've demonstrated our ability to inject substantial volumes of CO2 into the reservoir with minimal to moderate breakthrough. Looking forward, our expansion opportunities hinge on several factors, including the availability of industrial CO2 emissions, which was the basis of our initial thesis, ongoing depletion of primary production, and the subsequent repressurization of the reservoir with water to reach the minimum miscibility pressure for the optimal CO2 effect. This sets the stage for promising long-term opportunities in enhanced soil recovery. In 2023 and most recently, we achieved significant drilling efficiency improvements, with the time from spud to total depth decreasing by 50%. Additionally, drilled feet per day increased by 58%. Leveraging these efficiencies, we set our company's record for drilling the quickest 1.5-mile well, completing spud to total depth in just 4.78 days.
As we move forward, our testing will evolve closely monitoring the movement of C O two and reservoir fluids using tracers.
Deep insights gathered from the project, thus far have been invaluable and we anticipate compiling a comprehensive feasibility report by the end of 2024.
We've demonstrated our ability to inject substantial volumes of C O two into the reservoir with minimal to moderate breakthrough.
Looking forward our expansion opportunities hinge on several factors.
Including the availability of industrial C O two emissions, which was the basis of our initial thesis.
Ongoing depletion of primary production and the subsequent re pressurization of the reservoir with water to reach the minimum miscibility pressure for optimal C O two effects.
This sets the stage for promising long term opportunities and enhanced oil recovery.
In 2023, and most recently, we achieved significant drilling efficiency improvements with the time from spud to total depth decreasing by 50%.
Additionally, drilled feet per day increased by 58%.
Leveraging these efficiencies we set our company's record for drilling the quickest 1.5 mile well completing spud to total depth in just 4.78 days.
Bobby D. Riley: These gains were driven by optimized connection practices, new agitator technology, and increased bit runtime. Moving forward, we are steadfast in our commitment to leveraging technology and best practices to enhance efficiencies further. Lastly, building on this momentum, we witnessed the successful integration of our New Mexico acquisition with our existing asset base, representing a significant milestone for our company. This integration has allowed us to establish operating synergies through a shared supply chain across the portfolio, leading to streamlined operations. At this point, I'll turn the call over to Philip. Thank you, Bobby.
These gains were driven by optimized connection practices, new agitator technology and increased debt run times.
Moving forward, we are steadfast in our commitment to leveraging technology and best practices to enhance efficiencies further.
Lastly building on this momentum we witnessed the successful integration of our new Mexico acquisition with our existing asset base, representing a significant milestone for our company.
This integration has allowed us to establish operating synergies through a shared supply chain across the portfolio leading to streamlined operations.
At this point I'll turn the call over to Philip.
Thank you Bobby just a few minor additions here on trailing financial data for the full year cash flow increased by 22%.
Philip A. Riley: Just a few minor additions here on the trailing financial data. For the full year, cash flow increased by 22 percent. Full-year cash flow benefited from three quarters of new volumes from our 2023 New Mexico acquisition, as well as the organic growth mentioned. We certainly could have chosen to reinvest more and to grow volumes faster, but we were focused on growing free cash. So halfway through the year, last year, we intentionally slowed down some of the second half activity to even out some front half weighted activity and spend, and as we had confidence in hitting full year production volume targets. That action helped contribute to the 26% year-over-year increase in free cash flow to $70 million. We allocated 39% of free cash flow to dividends, increasing total dividends paid per share by 9% year over year. The balance was used to repay debt, which was lowered by $30 million in the fourth quarter alone.
Full year cash flow benefited from three quarters of new volumes from our 2023, New Mexico acquisition as well as the organic growth mentioned.
We certainly could have chosen to reinvest more and to grow volumes faster, but we're focused on growing free cash flow.
So halfway through the year last year, we intentionally slowed down some of the second half activity to even out some front half weighted activity and spend and as we had confidence in hitting full year production volume targets.
That action helped contributed to the 26% year over year increase in free cash flow to $70 million.
We allocated 39% of free cash flow to dividends, increasing total dividends paid per share by 9% year over year.
The balance was used to repay debt, which is lower by $30 million in the fourth quarter alone.
Philip A. Riley: That helped contribute to an $88 million, or 26% year-over-year increase in shareholders' equity. Looking ahead, we're excited about our 2024 plan. Their capital program midpoint is just over $120 million, of which 78% is allocated to development operations and capitalized work.
That helped contribute to an $88 million or 26% year over year increase in shareholders' equity.
Looking ahead, we're excited about our 2024 plan our capital program mid point is just over $120 million of which 78% is allocated to development operations and capitalized workovers.
Philip A. Riley: We're looking to drill approximately 22 wells this year while turning to sales a few more with the benefit of having some drilled but uncompleted in inventory. On a per-well basis, we're forecasting material savings year-over-year on account of both efficiencies, some of which Bobby described, as well as industry cost reductions such as in casing, tubing, and chemicals. We anticipate investing materially in infrastructure across both assets, which include gas takeaway, electrical upgrades, and other aspects that will lead to better operations for 2024 and beyond. This is separate from the PowerJV, which is accounted for as a contribution to an equity method investment.
We're looking to drill approximately 22 wells this year, while turning to sales a few more with the benefit of having some drilled uncompleted inventory.
On a per well basis, we're forecasting material savings year over year on account of both efficiencies some of which Bob described as well as industry cost reductions such as in casing tubing and chemicals.
We anticipate investing materially and infrastructure across both assets, which include gas takeaway electrical upgrades and other aspects that will lead to better operations for 2024 and beyond.
This is separate from the power JV, which is accounted for as a contribution to an equity method investment. We have one final expected contribution there this quarter for about $5 $5 $5 million.
As far this has come in below cost estimates.
As it translates to free cash flow the combination of higher forecasted volumes with lower spending act as a catalyst for growth. So obviously contingent on oil price.
We forecast needing WTO in the low sixty's or down 20% year over year from 2023 to hold free cash flow flat year over year and that assumes no reduction in growth capex, whereas we probably would start to slow down at those price levels.
Philip A. Riley: We have one final expected contribution there this quarter for about $5.5 million. As far as this has come in below cost, as it translates to free cash flow, the combination of higher forecasted volumes with lower spending acts as a catalyst for growth, though obviously contingent on oil prices. We forecast needing WTI in the low 60s or down 20% year-over-year from 2023 to hold free cash flow flat year-over-year, and that assumes no reduction in growth capex, whereas we probably would start to slow down at those prices. If oil averaged $75 for the remainder of the year, we see the potential for free cash flow to grow by 50% or more, in excess of $100 million, which would correspond to a 20% yield on Another metric I like is the ratio of free cash flow to CapEx, which in this case would be more than 80 cents of free cash flow generated for each dollar of CapEx invested. We encourage you to compare these types of metrics to other EMPs based on the guidance they have provided.
If oil averaged $75 for the remainder of the year, we see the potential for free cash flow to grow year over year by 50% or more in excess of $100 million, which.
Which would correspond to 20% yield on the current market value of our equity.
And that scenario is to bring our reinvestment rate down to 50% to 55% of operating cash flow with the inverse highlighting a very robust 45% to 50% conversion rate of operating cash flow to free cash flow.
Another metric I like is the ratio of free cash flow to Capex, which in this case would be more than 80 of free cash flow generated for each dollar of Capex invested.
We encourage you to compare these types of metrics to other e&ps based on the guidance they've provided.
Some companies may have a bit higher free cash flow conversion rate, but they are generally not growing free cash flow like we anticipate doing whereas many of the companies we've analyzed have weaker forecast.
Turn it back to Bobby now.
Thank you Philip and again, thank you for your support.
We remain focused on driving profitable growth and investing in our business for the long term.
Operator, you May now open it up for questions. Thank you all for joining us today.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
The first question comes from the line of Neal Dingmann from <unk> Securities. Please go ahead.
Morning, Bobby Unfilled Nice results guys. My first question is just on this 24 plan and you know what I'd call the capital efficiency plan.
Kimberly I'll just discuss it until you kind of were alluding to this.
It seems like now the situation you're in.
Bobby D. Riley: Some companies may have a bit higher free cash flow conversion rate, but they're generally not growing free cash flow like we anticipate. Whereas many of the companies we've analyzed have weak... I'll turn it back to Bobby.
Could you discuss maybe the needed growth what's your baseline decline all those things sort of stack up in order to hit that sort of 10% growth target. It seems to me like you guys are kind of an advantage situation and I'm, just hoping for a bit more color on.
Operator: Thank you, Philip, and again, thank you for your support. We remain focused on driving profitable growth and investing in our business for the long term. Operator, you may now open the line up to questions. Thank you all for joining us today. At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad.
Maybe as far as rig activity and those things needed in order to take the test.
Yeah. Good morning, Neil This is phillippe.
We do find ourselves in an advantaged opportunity, we like where we were coming out at the end of the year last year and what we're going into this year, we talked about 22 wells.
Just over 50% reinvestment rate.
Operator: We will pause for just a moment to compile the Q&A roster. The first question comes from the line of Neal Dingmann from Pruitt Securities. Please go ahead. Good morning, Bobby and Phil.
And that leads to the high free cash flow.
We've got those savings you know on the incremental free cash flow is I think we're going to see probably the most boost from the volume growth.
Neal David Dingmann: Nice results. Guys, my first question is just on this 24 plan, and, you know, I'd call it a capital efficiency plan. Could one of you all just discuss, and Phil, you kind of were alluding to this, it seems like now the situation you're in, could you discuss maybe the needed growth, what your, you know, baseline decline, how those things sort of stack up in order to hit that sort of 10% growth target? Seems to me like you guys are kind of in an advantage situation, and I'm just hoping for a bit more color on, you know Yeah, good morning, Neal. This is Philip.
Even at flat prices, our hedge book is yet another thing that should.
It should be noted, it's it's looking better coming into this year than last and then the capex savings as you're talking about with the efficiencies.
Those those are the main drivers are for that kind of year over year kind of 50% type of increase we see a current prices and we feel pretty good about that.
Is that am I wouldn't question.
Any more color.
Absolutely did and maybe just a follow up to that just maybe talk a little odd.
Capital allocation on.
Again, you got a great dividend would.
Would you think about buybacks.
And how does sort of debt repayment sort of fit into this given is I agree with you I think the free cash flow to.
Philip A. Riley: We do find ourselves an advantageous opportunity. We like where we came out at the end of the year last year and what we're going into this year. We talked about 22 wells, just over a 50% reinvestment rate, and that leads to a high free cash flow. We've got savings, you know, on the incremental free cash flow. I think we're going to see probably the most boost from. Volume growth, even at flat prices, our hedge book is yet another thing that should be noted. It's looking better coming into this year than last.
Could be pretty material. So I'm just wondering what the thoughts are with us this year.
Right and I guess, one more thing I'll say before on the allocations. When we think about growth, we think about growing free cash flow.
Production, obviously impacts that but at this demonstrated there's a few leavers to grow free cash flow. It doesn't have to be just the production growth. So it may have a little bit slower volume growth. This year, but we are excited about that free cash flow growth. So on allocation. You know we have three buckets of primary allocation right now.
First as you noted we have a large dividend the fixed versus variable nature of that dividend demonstrates our confidence and our future business. We've grown the dividend every year, we hope to grow it going forward.
Philip A. Riley: And then the CapEx savings, as you're talking about with the efficiencies. Those are the main drivers for that kind of year over year, kind of 50% type of increase we see at current prices. And we feel pretty good about that. Is that the end of the question, or do you have any more questions?
Oil prices, obviously impact our cash flows, but we have confidence the diverting coverage here, even at very low price low oil prices I'd say.
About.
$40 with our current hedge book.
Philip A. Riley: And I guess one more thing I'll say before on the allocation is that when we think about growth, we think about growing free cash flow. Production obviously impacts that, but I just demonstrated there are a few levers to grow free cash flow. It doesn't have to be just production growth.
Second we continue to identify opportunities opportunistic investments are those could be small acquisitions. It could be this power JV something like that I think.
We tend to find interesting things to invest in and I think investors should appreciate that that's you know our primary purpose is to run the business, but identify opportunities earn a return of capital and you know ultimately then return that capital.
Philip A. Riley: So it may have a little bit slower volume growth this year, but we are excited about that, you know, free cash flow growth. So on allocation, you know, we have three buckets of primary allocation right now. First, as you noted, we have a large dividend. The fixed versus variable nature of that dividend demonstrates our confidence in our future business. We've grown the dividend every year.
So I think the third bucket I think about is that excess after those first two is used for debt pay down.
What's the right level currently where it either on a book basis kind of 45% debt to cap, maybe it's down at the 25% to 30% debt to cap on a long term basis, but as we've talked about on prior calls I think what you'll find is us.
Philip A. Riley: We hope to grow it going forward. Oil prices obviously impact our cash flows, but we have confidence in the dividend coverage here, even at very low oil prices. I'd say probably about $40 with our current hedge book.
Pay it down naturally.
And then as we get to a lower leverage level.
Levels I think it's a.
Philip A. Riley: Second, we continue to identify opportunistic investments. Those could be small acquisitions. It could be this PowerJV, something like that.
Potential to use it again right rinse and repeat it we've got the credit facility there.
I think we're comfortable with that going forward.
And then look with debt Paydown, you made an allusion to buybacks I think with debt pay down but more.
Philip A. Riley: I think we tend to find interesting things to invest in, and I think investors should appreciate that. That's, you know, our primary purpose is to run the business, but identify opportunities, earn a return of capital, and, you know, ultimately, return that capital. So, I think the third bucket I think about is that excess after those first two is used for debt paydown. You know, what's the right level?
And in the future then we can explore other forms of shareholder return.
Great to hear thank you so much nice job guys.
Okay.
Your next question comes from the line of Jeff Robertson from Water Tower Research. Please go ahead.
Thank you good morning.
Bobby your Philip given really strong cash flow generation and what looks to be 50% reinvestment rate in 2024 can you talk about how you evaluate acquisitions.
That could complement.
The free cash flow capacity of the company.
Philip A. Riley: Currently, we're on a book basis, kind of 45% debt to cap. Maybe it's down at the 25 to 30 percent debt to cap on a long-term basis, but as we've talked about on prior calls, I think what you'll find is that we, you know, pay it down naturally. And then, as we get to lower leverage levels, I think it's the potential to, you know, use it again, right? Rinse and repeat.
Yes. This is Bobby let me, let me take it to begin with and let Philip give his his his comments also.
Obviously, most of the production or most of the history of this building is through organic drilling and development. So when we look at acquisitions, we're looking for something that has actually strong inventory available.
Something that's close to or in the same neighborhood as some of our existing assets. So we can optimize efficiencies you know one of the advantages that we had this year is with the integration of the new Mexico assets, we're able to high grade our drilling inventory and actually shift some of our developed but if we choose.
Neal David Dingmann: We've got the credit facility there. I think we're comfortable with that going forward. And then, look, with debt paid out, you made an allusion to buybacks. I think with debt paid down a bit more in the future, then we can explore other forms of shareholder returns. Great to hear. Thank you so much.
As to the new Mexico, JASO trend, which which really gives us I think a real keen advantage of being at the right place at the right time, but.
Jeffrey Woolf Robertson: Nice job, guys. Your next question comes from the line of Jeff Robertson from Watertower Research. Peace.
We continue to see numerous bolt on opportunities and like I say, we the key thing and it's not so much a PDP acquire are basically but buying something that has good <unk>.
Jeffrey Woolf Robertson: Go ahead. Thank you. Good morning.
Bobby D. Riley: Bobby or Philip, given Riley's strong cash flow generation and what looks to be a 50% reinvestment rate in 2024, can you talk about how you evaluate acquisitions that could complement the free cash flow capacity of the company? Yeah, this is Bobby.
Large inventory and especially held by production or something like that is something we're focused on.
Yeah, that's exactly right adds that bond to that and that we earn our best returns on on development.
And while the cash flow is nice you got to pay for the cash flow you've got to capitalize that so if we can find.
Bobby D. Riley: Let me take it to begin with and let Philip give his comments also. Obviously, most of the production or most of the history of this building has been through organic drilling and development. So when we look at acquisitions, we're looking for something that has actually strong inventory available, something that's close to or in the same neighborhood as some of our existing assets, so we can optimize efficiencies. You know, one of the advantages that we have this year is with the integration of the New Mexico assets; we're able to upgrade our drilling inventory and actually shift some of our development if we choose to the New Mexico YASO trend, which really But we continue to see numerous bolt-on opportunities. And like I say, the key thing is not so much PDP acquisition, basically, but buying something that has a large inventory and is especially held by production or something like that is something that we're focused on. Yeah, that's exactly right.
The.
Acquisition with a disproportionately larger amount of undeveloped inventory that's attractive to us.
Allows us to earn those higher returns.
Bob You mentioned the yea. So it is a part of what's driving the <unk>.
The production growth at a lower capital spend in 2024 in your plan.
The performance of those wells and the wait how they impact the overall weighted out.
Asset base.
So basically I want to I want to say that were very Ah.
A detailed it in research before we go spend a bunch of money drilling wells I mean, we gather a lot of geological and engineering data to put together the plan that we see.
It's going to get the best results from <unk>.
Efficiencies and higher <unk>, we're excited about what we've seen in the first four or five wells that we've drilled in that in that play.
And as we did when we started in the Yoakum County deal. The first thing to do is to make sure you have the correct infrastructure in place gas takeaways.
And things along that nature of that make it a much smoother deal. So where we are this year is just basically we have two assets in front of us they're pretty comparable really on where we are right now on rate of returns in.
Philip A. Riley: I just add to that in that, you know, we earn our best returns on development. And while the cash flow is nice, you've got to pay for the cash flow. You've got to capitalize that.
And our production profile, but it just gives us an opportunity to be selective.
And then lastly, just on the on the C O two.
Project in Yoakum County is the feasibility study one of the key elements Bobby to be enabled to go talk to industrial emitters and convince them that your debt.
Bobby D. Riley: So if we can find an acquisition with a disproportionately larger amount of undeveloped inventory that's attractive to us, allows us to earn those higher returns. Bobby, you mentioned the Yaso is a part of what's driving the production growth at a lower capital spend in 2024 in your plan. Just the performance of those wells and how they impact the overall weighted asset base. So basically, I want to say that we do very detailed research before we go spend a bunch of money drilling wells. I mean, we gathered a lot of geological engineering data to put together the plan that we see is going to get the best results from efficiencies and higher EURs. We're excited about what we've seen in the first four or five wells that we drilled in that play. And, as we did when we started in the Yoakum County deal, the first thing to do is to make sure you have the correct infrastructure in place, gas takeaways So where we are this year is basically that we have two assets in front of us.
Despite your project.
Most definitely I mean, basically we know we have a we're offsetting the great Watson field, whether it's contiguous to our east.
It's been zero to flooded for decades.
And I think what we've demonstrated is we have the ability to store a lot of C. O. Two also by enhancing oil recovery. So you know.
We're hoping those opportunities open to us, but what will be what it ready with rfps ability to be the synchronous storage.
Thanks, I'll jump back into queue.
Again, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. Thank you.
Your next question comes from the line of Noel Parks from Tuohy Brothers. Please go ahead.
Hi, good morning.
Okay.
Hi, good morning, all.
I just wanted to check on a couple of things you mentioned that.
You were seeing some benefit on cost from casing tubing and chemicals, having come back where do you think we stand in in sort of the the leveling off of inflation do you think you.
Your current pricing is pretty much stabilized I think there is any more to go.
I can try to address that no.
I hate to try to predict the future here.
Bobby D. Riley: They're pretty comparable, really, to where we are right now on rate of returns and production profile, but it just gives us an opportunity to be selective. And then lastly, just on the CO2 project in Yoakum County, is the feasibility study one of the key elements, Bobby, to being able to talk to industrial emitters and convince them to participate in your project? Most definitely. I mean, basically, we know we have, we're offsetting the Great Watson Field, whether it's contiguous to our east. It's been CO2 flooded for decades.
It does feel like its stabilized it feels like we've we're seeing either flat to down on most of the cost some of that was efficiency like I said some of the items like casing and tubing clearly you can type in a bloomberg and see how much hot rolled steel has come down.
So some of that is.
It's certainly material.
Some of that's impacted by China of course.
Other areas, though.
I think the chemicals is something that.
Feels pretty material.
Other areas, we'll see we've tried to lock in prices and services as much as we can for the year and feel pretty good about that but youre always going to have some floating aspect out of our control.
Sure.
Fair enough.
Bobby D. Riley: And I think what we've demonstrated is we have the ability to store a lot of CO2 also by enhancing oil recovery. So, you know, we're hoping those opportunities will open up for us, but we'll be ready with our feasibility to be the sink or the storage. Thanks, I'll jump back in the queue.
And I'm just.
Just curious.
Related to the the larger Servicers environment.
Our activity levels like across.
Your neck of the woods in the conventional Permian is is this sort of a flattish leap year as far as overall rig activity for the industry or or.
Operator: Again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Thank you. Your next question comes from the line of Noel Parks from the Pooey Brothers. Please go ahead. Hi, good morning. Hi, good morning, Noel.
Do you see it creeping up.
Well, specifically, where our assets are located are I would guess it in Mexico would probably be pretty flat to last year.
We're we're in constant communication with the offset operators in our area trying to.
Sure some services drilling rigs and stuff like that so I kind of think I see a pretty flat drilling.
Noel Augustus Parks: I just wanted to check on a couple of things. You mentioned that you were seeing some benefit on costs from casing, tubing, and chemicals having come back. Where do you think we stand in terms of the leveling off of inflation? Do you think your current pricing is pretty much stabilized? Do you think there's any more room to go?
Drilling profile for that area.
The.
Texas asset may as.
As far as our immediate area, probably be a little bit slower than it has been in the past.
But.
I mean, that's what that's why I say, yes, but the Texas areas, our neighboring assets or are more developed.
Philip A. Riley: I can try to address that, Noel. I hate to try to predict the future. It does feel like it's stabilized. It feels like we're seeing either flat to down on most of the costs. Some of that was efficiency, like I said. Some of the items like casing and tubing, you can type in a Bloomberg and see how much hot rolled steel has come down. So some of that is certainly material. Some of that's impacted by China, of course, other areas, though I think the chemicals are something that feels pretty material.
Then what we have we've got more running room with inventory and.
We're just finding that our neighbors are.
As either mostly drilled up what they have or has chosen to slow down for different reasons.
Okay.
Great. Thanks, a lot.
Your next question comes from the line of Jeff Robertson from water tower. Each age. Please go ahead.
Thank you Philip to follow up on the power JV in Yoakum County can you talk about what impact that will have on <unk>.
Field operations and reliability and you mentioned that the most recent well you all drilled out there was powered by electricity and whether or not that has a material impact on the capital cost of the new new wells.
Philip A. Riley: Other areas, you know; we'll see. We've tried to lock in prices and services as much as we can for the year and feel pretty good about that, but you're always going to have some aspects out of our control. Sure, fair enough. And I'm just curious, related to the larger service service environment, what are activity levels like across your neck of the woods in the conventional Permian? Is this sort of a flattish year as far as overall rig activity for the industry is concerned, or do you see it creeping up? Well, specifically, where our assets are located, I would guess in New Mexico, it would probably be pretty flat compared to last year. You know, we're in constant communication with the offset operators in our area, trying to share some services and drilling rigs and stuff like that. So I kind of think I see a pretty flat drilling profile for that area. The Texas asset may, as far as our immediate area is concerned, probably be a little bit slower than it has been in the past. But, uh...
Yeah, I'll start and then maybe Bobby can add onto it on costs.
We don't forecast a material improvement in operating costs, I think it's going to be mostly flat or it's going to be immaterial relative to our overall company to really move the needle there.
That said, we are an investor in it so we enjoy getting both sides there.
On the capital, though as you note.
And as Bobby noted in his intro, we did drill a well there using electric power that's exciting debts on the capital side that could have some reduction there.
Generally we find.
Electric power on a relative basis to be less expensive than diesel and so.
That's that's pretty exciting.
And it's not a major mover, but little things like that can make a difference.
Bobby you also say that basically all this gives us a great use for our gas in the basin before we try to put agenda and the highways to get it down to the Gulf Coast. So we get an uplift kind of being an investor in the power JV and we're also looking for reliability on our.
Bobby D. Riley: I mean, that's what I see, Philip. Yeah, the Texas area, our neighboring assets are more developed than what we have. We've got more running room with inventory, and we're just finding that our neighbors have either mostly drilled up what they have or have chosen to slow down for different reasons. Great. Thanks a lot.
<unk> zero, we had.
Analysts are dirty power.
Jeffrey Woolf Robertson: Your next question comes from the line of Jeff Robertson from Watertower Research. Please go ahead. Thank you, Philip. To follow up on the Power JV in Yocum County, can you talk about what impact that will have on field operations and reliability, and you mentioned that the most recent well you all drilled out there was powered by electricity, and whether or not that has a material impact on the capital costs of new wells. Yeah, I'll start it, and then maybe Bobby can add to it.
Our location and the the.
The co op that we're in we're able to where our goal is to increase our.
Run times and efficiencies with with cleaner power, so and basically the use of our our residue gas are.
That were taking <unk> for Mark.
Processor.
Everybody in the base and you see it's experiencing weak natural gas prices and we're doing everything we can do to try to enhance that value.
What we can do within our control and so I think we think this is one way and this is probably the first step for us.
Philip A. Riley: You know, on costs, we don't forecast a material improvement in operating costs. I think it's going to be mostly flat, or it's going to be immaterial relative to our overall company to really move the needle. That said, we are an investor in it, so we enjoy, you know, getting both sides there. On the capital side, though, as you note, and as Bobby noted in his intro, we did drill a well there using electric power. That's exciting. That's on the capital side. That could have some reduction there. Generally, we find electric power to be, on a relative basis, less expensive than diesel.
It seems like the goal is to create value for natural gas.
In the field as opposed to selling it for a low price and sending it off to the Gulf.
Exactly.
Lastly, Bobby Theres, obviously been a lot of consolidation in the Permian Basin and Riley has focused more on conventional long lived assets.
Do you get a sense of what's your sense of that the market for those assets over the next let's say two years as companies Digest.
Their asset basis.
The market for conventional or unconventional.
Philip A. Riley: And so that's pretty exciting. Again, it's not a major mover, but little things like that can make a difference. Yeah, I'll also say that, you know, basically this gives us a great use for our gas in the basin before we try to put it on the highways to get it down on the Gulf Coast. So we get an uplift as an investor in the PowerJV. And we're also looking for reliability in our operations. You know, we had brownouts or dirty power from our location in the co-op that we ran. Our goal is to increase our run times and efficiencies with cleaner power and basically the use of our residue gas. That we're taking in kind from our Prostos.
Inventions, but to clarify.
Well, obviously, there is a smaller bucket to choose from I mean, theres a lot of people with the.
Unconventional assets out there.
They're drilling off some of their top inventory and a lot of people are starting to look back at conventional opportunities.
For both horizontal land basically.
Secondary operations and stuff like that so.
I mean, we see assets that have a tremendous amount of PDP involved.
The vertical wells.
It's not the most exciting thing that we want to be focusing in Holland I mean, like we alluded to early assets that we're looking for it has is running room with the with the drill bit and I think I think we will have a chance to look at that.
Bobby D. Riley: Everybody in the basin you see is experiencing weak natural gas prices, and we're doing everything we can to try to enhance that value, what we can do within our control. And so we think this is one way, and this is probably the first step for us. It seems like the goal is to create value for natural gas in the field as opposed to selling it for a low price and sending it off to the Gulf.
Some consolidation opportunities in our area.
And look at some upcoming new place.
Thank you.
Your next question comes from the line of Gary Kennedy from Kennedy Trust investments.
Please go ahead good morning.
Okay.
I'm sorry, Mr. Gary. Please go ahead.
Yeah, Okay I just wanted to congratulate John your hedge book Whoever's doing that did a great job there.
Jeffrey Woolf Robertson: And lastly, Bobby, there's obviously been a lot of consolidation in the Permian Basin, and Riley has focused more on conventional long-lived assets. Do you get a sense, or what's your sense of the market for those assets over the next, let's say, two years as companies digest? other asset base, the market for conventional or unconventional? Conventional. Well, obviously, there's a smaller bucket to choose from. I mean, there are a lot of people with.
Look so much better than they did.
Last year and I see your natural gas is hedged about two bucks over.
What natural gas prices are selling for and going to cowers on the oil seems like a heck of a good idea so congratulations there and hopefully.
The good good work will continue.
Thank you Gary.
Bobby D. Riley: Unconventional assets out there that you know, they're drawing off some of their top inventory, and a lot of people are starting to look back at conventional opportunities for both horizontal and basically secondary operations and stuff like that. So, I mean, we see assets that have a tremendous amount of PDP involved, thousands of vertical wells, not the most exciting thing that we want to be focusing on. I mean, like we alluded to earlier, the assets that we're looking for have running room with a drill bit.
Again, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
The next question comes from Sanjay Vandenbrink from <unk> capital. Please go ahead.
Good morning, gentlemen, and congratulations on a good quarter.
Some time ago you.
Some time ago, you had put out that you were looking to sell shares to raise cash and I wondered what had happened to that if anything.
Okay.
Bobby D. Riley: And I think we'll have a chance to look at some consolidation opportunities in our area and look at some upcoming new plays. Thank you. Your next question comes from the line of Gary Kennedy from Kennedy Trust Investment. Go ahead. Good morning. I'm sorry, Mr. Gary. Please go ahead.
Sure Sandy this is phillippe.
Joining this morning.
That last fall, we did have a registration statement for an at the money.
Facility, that's something that we saw as opportunistic given the various.
Gary Kennedy: Yeah, okay. I just want to congratulate you on your hedge book. Whoever's doing that did a great job. They look so much better than they did last year, and I see your natural gas is hedged about two bucks over what natural gas prices are selling for, and going to cowers on the oil seems like a heck of a good idea.
Opportunities, we're looking at including that power JV.
It remains outstanding there as you can tell we've used it.
Very limited amount.
So far we've been financing the business and these new opportunities through cash flow.
Philip A. Riley: So congratulations there, and hopefully, the good work will continue. Thank you, Gary. Again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. The next question comes from Sandra Vandenbrink from Tokay Capital Corp. Please go ahead.
So far we have no no plans nothing else to announce at the moment.
Any change from that.
So it will remain open until.
It does but you know I encourage you and others to think about it no differently than anything else. I mean, we can just like you see companies. This morning announcing overnight deals two to do some issuances any public company has the ability to do that ours is an at the money.
Sandra Vandenbrink: Good morning, gentlemen. Congratulations on a good quarter. Some time ago, you.
Got it sorry at the market.
Philip A. Riley: Some time ago, you had put out that you were looking to sell shares to raise cash, and I wondered what had happened to that, if anything. Sure, Sandy, this is Philip. Thanks for joining us this morning. Last fall, we did have a registration statement for an At The Money Facility, that's something that we saw as opportunistic given the various opportunities we're looking at, including that PowerJV. It remains outstanding there.
Type of facility there it can allow us to do it in small amounts, but it's honestly not too different there from a regular way secondary or primary instruments.
Okay. Thanks, so much.
Thank you.
As there are no further question at this time I would now like to thank our speakers for today's presentation and thank you all for joining US. This now concludes today's conference you may now disconnect.
Philip A. Riley: As you can tell, we've used a very limited amount. So far, we've been financing the business and these new opportunities through cash flow. So far, we have no plans, nothing else to announce at the moment, or any change from that. So it'll remain open until. It does, but you know, I encourage you and others to think about it no differently than anything else. I mean, we could, just like you see companies this morning announcing overnight deals to do some issuances; any public company has the ability to do that. Ours isn't at the money, sorry, at the market, type of facility there. It can allow us to do it in small amounts, but it's honestly not too different there from a regular way, secondary or primary issue.
[music].
Okay.
[music].
Okay.
Yes.
Yeah.
Okay.
Okay.
[music].
Yeah.
Yeah.
Yeah.
Okay.
Yes.
Okay.
Okay.
Thanks.
Okay.
Okay.
Okay.
Yeah.
Thank you.
Okay.
Philip A. Riley: Okay, thanks, Philip. Thank you. As there are no further questions at this time, I would now like to thank our speakers for today's presentation and thank you all for joining us. This now concludes today's conference. You may now disconnect.
[music].