Q2 2024 Riley Exploration Permian Inc Earnings Call

August 8, 2024

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Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Riley Exploration Permian, Inc.'s second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Regina: and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to Riley Exploration Permian, Inc.'s second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Regina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the conference over to Philip Riley, CFO. Please go ahead.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Regina: After the speaker's remarks, there will be a question and answer session.

Regina: If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad.

Regina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the conference over to Philip Riley, CFO. Please go ahead.

Regina: If you'd like to withdraw your question, press star 1 again. I would now like to turn the conference over to Philip Riley, CFO . Please go ahead.

Philip Riley: Good morning. Welcome to our conference call covering the second quarter 2024 results. I'm Philip Riley, CFO. Joining me today is Bobby Riley, Chairman and CEO, and John Souter, COO.

Philip Riley: Good morning. Welcome to our conference call covering the second quarter 2024 results. I'm Philip Riley, CFO . Joining me today is Bobby Riley, Chairman and CEO , and John Souter, COO.

Philip Riley: 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 security 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 reference certain non-GAP measures. The reconciliations to the appropriate GAP measures can be found in our supplemental disclosure on our website. I'll now turn the call over to Bobby.

Speaker Change: Yesterday we published a variety of materials which can be found on our website under the Investors section.

Philip Riley: These materials and today's conference call contain certain projections and other forward-looking statements within the meaning of the federal security 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. I'll now turn the call over to Bobby.

Philip Riley: These materials and today's conference call contain certain projections and other forward-looking statements within the meaning of the federal security laws.

Philip Riley: These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

Speaker Change: We'll also reference certain non- GAAP measures . The reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure on our website.

Bobby: Thank you, Philip. Good morning and welcome to our Q2 2024 earnings call and significant free cash flow. Raising $25 million of net proceeds through the issuance of 1.015 million shares of common stock and the PowerJV investment. In the last 12 months, we generated $126 million, which facilitated debt reduction of $75 million, or 18% year over year. Dividends of over $28 million, with the balance contributing to new investments and an acquisition. Today, we're paying our 22nd consecutive quarterly dividend, our 14th consecutive dividend as a public company, with $91 million returned to public shareholders since 2021.

Bobby Riley: Thank you, Philip. Good morning and welcome to our Q2 2024 earnings call. Today we will highlight several updates and key changes since Q1 2024, including. Meeting our exceeding key metrics on plan guidance resulting in improving capital efficiency, and significant free cash flow. Closing an asset acquisition in Eddy County, New Mexico for $18.1 million, which added producing properties and development locations within our existing operating footprint, expanding the scope of our power joint venture with plans to generate and sell electricity and ancillary services to ERCOT, as well as increasing our ownership in the joint venture to 50%.

Bobby: I'll now turn the call over to Bobby.

Bobby: Thank you, Philip. Good morning and welcome to our Q2 2024 earnings call.

Bobby: Today, we will highlight several updates and key changes since Q1 2024, including meeting or exceeding key metrics on plan guidance resulting in improving capital efficiency,

Bobby: and significant free cash flow.

Bobby: Closing an asset acquisition in Eddy County, New Mexico, for $18.1 million, which added producing properties and development locations within our existing operating footprint.

Bobby: Expanding the scope of our power joint venture with plans to generate and sell electricity and ancillary services to ERCOT as well as increasing our ownership in the joint venture to 50 percent.

Bobby Riley: Raising $25 million of net proceeds through the issuance of 1.015 million shares of common stock, which was used to primarily fund the acquisition, and the PowerJV Investment Fund. We continue to execute our annual plan with overall positive results. It's still early in the year to report on medium term to longer term results for the 2024 vintage wells, but thus far, we are generally seeing outperformance on this year's production results relative to forecast and as compared to prior year results.

Bobby: Raising $25 million of net proceeds through the issuance of 1.015 million shares of common stock, which was used to primarily fund the acquisition.

Bobby: and the PowerJV investment.

Bobby: We continue to execute our annual plan with overall positive results.

Bobby: It's still early in the year to report on medium-term to longer-term results for the 2024 vintage wells, but thus far, we are generally seeing outperformance on this year's production results relative to forecast and as compared to prior year results.

Bobby Riley: We continue to experience favorable efficiencies and cost savings on our drilling and completion activities. Well-cost savings represent our largest driver of free cash flow improvement this year. Free cash flow generation was a primary objective for us this year as both a measure of performance and of shareholder return. We generated $38 million of free cash flow in the second quarter and $62 million year-to-date. Over the last 12 months, we generated $126 million, which facilitated debt reduction of $75 million, or 18% year-over-year.

Bobby: We continue to experience favorable efficiencies and cost savings on our drilling and completion activity.

Speaker Change: Well cost savings represent our largest driver of free cash flow improvement this year.

Bobby: Free cash flow generation was a primary objective for us this year as both a measure of performance and of shareholder return.

Bobby: We generated $38 million of free cash flow in the second quarter and $62 million year-to-date.

Bobby: over the last twelve months we generated one hundred and twenty six million dollars which facilitated debt reduction of seventy-five million are eighteen percent year-over-year dividends of over twenty eight million with a balance contributing to new investments and an acquisition

Bobby Riley: Dividends of over $28 million, with the balance contributing to new investments and an acquisition. Today, we're paying our 22nd consecutive quarterly dividend, our 14th consecutive dividend as a public company, with $91 million returned to public shareholders since 2021. Additionally, we welcome two new additions to our executive team in the second quarter. Jeff Gutman joined us as Chief Accounting Officer with 35 years of public and private company experience as the principal financial officer all within the industry.

Bobby: Today, we're paying our 22nd consecutive quarterly dividend, our 14th consecutive dividend as a public company, with $91 million returned to public shareholders since 2021.

Bobby: Additionally, we welcome two new additions to our executive team in the second quarter. These additions will enhance our leadership team and strengthen our ability to deliver on strategic growth initiatives, improve operational efficiency, return capital to shareholders, and reduce debt, and continue the continual performance improvement that is evidenced by our results shared here today. Total equivalent production was 21.3 MVOE per day, a quarter over quarter increase of five percent. Lease operating expenses were $8.50 per BOE, about $0.50 lower than during the first quarter and from the average of the prior four. Workover activity drove some of the higher LOE over the past year, which may be lessening at this time. As for power,

Bobby: Additionally, we welcome two new additions to our executive team in the second quarter.

Jeff Gutman: Jeff Gutman joined us as Chief Accounting Officer with 35 years of public and private company experience as the principal financial officer all within the industry.

John Souter: And John Souter joined us as Chief Operating Officer, bringing 38 years of experience in various executive management roles across public and private companies within the industry.

Bobby: These additions will enhance our leadership team and strengthen our ability to deliver on strategic growth initiatives, improve operational efficiency, return capital to shareholders, and reduce debt.

Bobby Riley: And John Souter joined us as Chief Operating Officer, bringing 38 years of experience in various executive management roles across public and private companies within the industry. These additions will enhance our leadership team and strengthen our ability to deliver on strategic growth initiatives, improve operational efficiency, return capital to shareholders, and reduce debt. Now I will turn the call over to John Souter, our COO, to discuss operational results for the quarter, followed by Philip Riley, our CFO, who will discuss financial results and guidance. Thank you, Bobby, and good morning.

Bobby: Now I will turn the call over to John Souter, our COO, to discuss operational results for the quarter, followed by Philip Riley, our CFO, who will discuss financial results and guidance.

John Souter: I'd first like to say Riley strives for excellence in operations through safe operating practices, and continual performance improvement that is evidenced by our results shared here today. The team successfully implemented our plan in the second quarter, including the closing and integration of the bolt-on acquisition in Eddy County, New Mexico. The results of the quarter reflect performance from both our legacy assets and from newly acquired assets. The bolt-on acquisition closed in early May and contributed for two months during the second quarter.

Bobby: thank you bobby and good morning

Speaker Change: i first like to say riley strives for excellence and operations through safe operating practices and continual performance improvement that is evidenced by our results shared here today

Bobby: The team successfully implemented our plan in the second quarter, including the closing and integration of the bolt-on acquisition in Eddy County, New Mexico.

Bobby: The results of the quarter reflect performance from both our legacy assets and from newly acquired assets.

Bobby: The bolt-on acquisition closed in early May and contributed for two months during the second quarter.

John Souter: Total equivalent production was 21.3 MVOE per day, a quarter over quarter increase of five percent. Oil production was 14.75 M barrels per day, a quarter over quarter increase of 4%. Lease operating expenses were $8.50 per BOE, about $0.50 lower than during the first quarter and from the average of the prior four quarters.

John Souter: Since closing our bigger New Mexico acquisition in late spring of 2023, We embarked on a workover campaign for many of the vertical wells that we inherited with that package, as well as efforts to optimize artificial lift. We're seeing the benefits of that effort with overall vertical production volumes up 40 to 50% from levels at closing from last year. That work over activity drove some of the higher LOE over the past year, which may be lessening at this point. As for power.

Speaker Change: Since closing our bigger new Mexico acquisition in late spring of 2023.

Bobby: We embarked on a workover campaign.

Bobby: For many of the vertical wells that we inherited with that package as well as efforts to optimize artificial lift.

Bobby: We're seeing the benefits of that effort with overall vertical production volumes.

Bobby: Up 40% to 50% from levels at closing from last year.

Bobby: That workover activity drove some of the higher <unk> over the past year.

Bobby: Which may be lessening at this point.

Bobby: As for power.

John Souter: We supported approximately 50% of our electrical load in Texas with self-generated power in the second quarter. We'll continue to transition to a larger majority of our self-generated power following the balance of our units coming online in the third quarter. And then finally, I'd like to highlight our team's performance and development activities.

Bobby: We supported approximately 50% of our electrical load in Texas with self generated power in the second quarter.

Bobby: We will continue to transition to a larger majority of our self generated power.

Bobby: Following the balance of our units coming online in the third quarter.

Bobby: And then finally I'd like to highlight our team's performance and development activity.

John: As Bobby mentioned, well-cost savings represent our largest driver of free cash flow improvement this year. We believe well costs are on average down by more than 20% year over year, and we're down by more than 25% as compared to 2022.

John Souter: As Bobby mentioned, well-cost savings represent our largest driver of free cash flow improvement this year, with a $100 million plus capital budget. That leads to some very meaningful savings. We believe well costs are on average down by more than 20% year over year. We're down by more than 25% as compared to 2022.

Speaker Change: As Bobby mentioned, well cost savings represent our largest driver of free cash flow improvement this year.

John: With a 100 million dollar plus capital budget.

Bobby: That leads to some very meaningful savings.

Bobby: We believe well cost are on average down by more than 20% year over year.

John: We're down by more than 25% as compared to 2022.

Philip Riley: Drilling efficiencies and completion redesigns account for just over half of these gains, with Better Market Pricing Representing the Balance. Drilling times are down by 20% year over year, or 40% as compared to 2022. We're generally completing wells now, in pairs or more, using a zipper frack design, which we believe leads to both cost savings and better production. As you can see, we are vigilant about capturing cost savings as we gain technical improvements in our drilling and completion programs.

Bobby: Drilling efficiencies and completion Redesigns account for just over half of these gains.

John: With better market pricing, representing the balance.

Bobby: Drilling times are down by 20% year over year or 40% as compared to 2022.

Bobby: We're generally completing wells now compares are more using a zipper frac design, which we believe leads to both cost savings and better production.

Bobby: As you can see we are vigilant about capturing cost savings as we gained technical improvements in our drilling and completion programs.

Philip Riley: As we further integrate last year's foothold New Mexico acquisition and this year's bolt-on, we are focused on taking best practices from our legacy Texas asset and incorporating them for production optimization and cost improvement in New Mexico. With that, I'll turn the call over to Philip. Thank you.

John: As we further integrate last year's foothold in the Mexico acquisition.

Speaker Change: And this year's bolt on.

Speaker Change: We are focused on taking best practices from our legacy, Texas asset and incorporating them for production optimization and cost improvement in new Mexico.

John: With that I'll turn the call over to Philip Thank you.

John: Thank you, John. Second quarter operating cash flow was $51.6 million, or $57.6 million before changes in working capital, declining very modestly by 1% quarter over quarter. Second quarter adjusted EBITDAX was $73 million, higher by $3 million quarter over quarter, with the EBITDAX margin improving from 67% to 70% from the first to second quarter. Additionally, the negative gas revenue was more than offset by $1.2 million of positive gas hedge settlements during the quarter. And third, big picture, this is one of the reasons we're pursuing the natural gas power generation project.

Philip Riley: Thank you, John. Second quarter operating cash flow was $51.6 million, or $57.6 million before changes in working capital, declining very modestly by 1% quarter over quarter. Second quarter adjusted EBITDAX was $73 million, higher by $3 million quarter over quarter, with the EBITDAX margin improving from 67% to 70% from the first to second quarter. Year-to-date total oil and gas hedge negative settlements improved by 77 percent, or $6 million, versus the six months of 2023, despite higher oil prices, representing another driver of cash flow improvement year-over-year.

Bobby: Thank you John second quarter operating cash flow was $51 6 million or $57 6 million before changes in working capital declining very modestly by 1% quarter over quarter.

John: Second quarter, adjusted EBITDAX was $73 million higher by $3 million quarter over quarter with the EBITDAX margin improving from 67% to 70% from the first to second quarter.

John: Year to date total oil and gas hedge negative settlements improved by 77% or $6 million versus the six months of 2023, despite higher oil prices, representing another driver of cash flow improvement year over year.

Philip Riley: Natural gas and NGL realized prices turned slightly negative for the quarter, driven by weaker market fundamentals, both domestically, generally, and more specifically in the West Texas region, leading to wider differentials relative to the Henry Hub and, Midstream counterparty fees are then allocated to this pre-fee revenue, which is how we arrive at slightly negative revenue. While disappointing, here are a few ways we think about this and how we're working to manage the exposure.

John: Natural gas and NGL realized prices turned slightly negative for the quarter driven by weaker market fundamentals, both domestically generally and more specifically in the west, Texas region, leading to wider differentials relative to the Henry hub index.

John: Midstream counterparty fees are then allocated to this pre fee revenue, which is how we arrive at slightly negative revenue.

Speaker Change: While disappointing here are a few ways, we think about this and how we're working to manage the exposure.

Philip Riley: First, on an absolute basis, the negative $1 million of combined gas and NGL revenue in the second quarter is dwarfed by our $106 million of oil revenue, which is up $9 million quarter over quarter. Second, the negative gas revenue was more than offset by $1.2 million of positive gas hedge settlements during the quarter. And third, big picture, this is one of the reasons we're pursuing the natural gas power generation project. Low or negative cost feedstock gas can lead to very attractive power economics, which can ultimately work as an additional hedge.

John: On an absolute basis, the negative $1 million of combined gas and NGL revenue in the second quarter is dwarfed by our $106 million of oil revenue was up $9 million quarter over quarter.

John: Second the negative gas revenue was more than offset by $1 $2 million of positive gas hedge settlements during the quarter.

John: And third Big picture. This is one of the reasons, we're pursuing the natural gas power generation project low or negative cost feedstock gas can lead to very attractive power economics, which can ultimately work as an additional hedge for us.

Philip Riley: Moving on, reinvestment rate of operating cash flow into upstream CapEx was 37% on an accrual basis and 34% on a cash CapEx basis. Hence, we converted 66% of operating cash flow to $38 million of free cash flow in the second quarter. That's a single quarter record for us and it's very exciting.

John: Moving on reinvestment rate of operating cash flow into upstream Capex was 37% on an accrual basis and 34% on a cash capex basis, hence.

John: Hence, we converted 66% of operating cash flow to $38 million of free cash flow in the second quarter.

Speaker Change: It's a single quarter record for us and it's very exciting.

Philip Riley: Year-to-date, we've converted 53% of operating cash flow to $62 million of free cash flow or $126 million for the last 12 months, reinforcing this excellent capital efficiency. In the second quarter, we allocated 20% of free cash flow to dividends and 52% to debt pay down, with the balance allocated to partially fund the PowerJV and the asset acquisition. Beyond free cash flow, we've benefited from $25 million of net proceeds from the equity rate.

John: Year to date, we've converted 53% of operating cash flow to $62 million of free cash flow or $126 million for the last 12 months reinforcing this excellent capital efficiency.

John: In the second quarter, we allocated 20% of free cash flow to dividends and 52% of debt paydown with the balance allocated to partially fund the power JV and the asset acquisition.

Speaker Change: Beyond free cash flow, we benefited from $25 million of net proceeds from the equity raise.

Philip Riley: Total use of funds for the quarter included $4 million to build cash, $20 million to reduce debt, $7.5 million for the dividend, $18 million for the acquisition, $10 million in contributions to the power joint venture. The credit facility utilization is now at 43%, down from 66% a year ago, representing a significant increase in liquidity. We've paid down our senior notes by $25 million, or 12.5% since issuance. Debt to TEV at quarter end was 39%, 1.2 times debt to LTM adjusted EBIT debt.

John: Total use of funds for the quarter included $4 million to build cash, $20 million to reduce debt, $7.5 million for the dividend, $18 million for the acquisition, and $10 million in contributions to the power joint venture. Debt to TEV at quarter end was 39%, 1.2 times debt to LTM adjusted EBIT. We will continue to pay down debt, not because we believe we're overleveraged but rather because we prefer the flexibility and optionality that the extra liquidity affords.

John: So the use of funds for the quarter included $4 million to build cash $20 million to reduce debt $7 $5 million for the dividend $18 million for the acquisition $10 million in contribution to the power joint venture.

John: The credit facility utilization is now at 43% down from 66% a year ago, representing a significant increase in liquidity.

John: We paid down our senior notes by 'twenty build $25 million or 12, 5% since issuance.

John: T V at quarter end was 39% 1.2 times debt to LTM adjusted EBITDAX.

Philip Riley: We will continue to pay down debt, not because we believe we're over levered, but rather because we prefer the flexibility and optionality that the extra liquidity affords. Looking ahead, we updated guidance in the written materials provided.

John: We will continue to pay down debt not because we believe we are over levered, but rather because we prefer the flexibility and optionality that the extra liquidity affords.

Speaker Change: Looking ahead, we updated guidance in the written materials provided I'll offer just a few comments to provide recap from the prior guidance.

Philip Riley: I'll offer just a few comments to provide a recap from the prior guidance. At the beginning of the year, we announced our annual plan, which called for 10% year-over-year oil volume growth while cutting spending by 10%. The current midpoint guidance calls for increasing oil production by 13% while reducing spending by more than 20% year over year. Admittedly, volumes benefit modestly from the small acquisition, which wasn't in the original plan. That will contribute to two-thirds of the year, which equates to only 200 to 300 barrels per day on average when viewed on an annual basis.

Bobby Riley: And adjusting to exclude for that, we're still at about 11% annual oil growth. Meanwhile, the CapEx reduction continues to improve. So essentially we're forecasting that we'll achieve the planned volumes with less activity and less spending. We believe this will continue to translate to meaningful free cash. At $75 WTI for the balance of the year, we currently forecast full year 2024 free cash flow in the area of approximately $115 million. Corresponding to year-over-year growth of approximately 65 percent and corresponding to about 22 percent yield on the market value of our equity as of yesterday.

Speaker Change: At the beginning of the year, we announced our annual plan, which called for 10% year over year oil volume growth, while cutting spending by 10%.

John: The current midpoint guidance calls for increasing oil production by 13% while reducing spending by more than 20% year-over-year. And adjusting to exclude that, we're still at about 11% annual oil growth. Meanwhile, the capex reduction continues to improve, and we believe this will continue to translate into meaningful free cash. At $75 WTI for the balance of the year, we currently forecast full-year 2024 free cash flow in the area of approximately $115 million.

Speaker Change: The current midpoint guidance calls for increasing oil production by 13%, while reducing spending by more than 20% year over year.

John: Admittedly volumes benefit modestly from the small acquisition, which wasn't in the original plan that will contribute to two thirds of the year, which equates to only two to 300 barrels per day on average when viewed on an annual basis.

John: And adjusting to exclude for that we're still at about 11% annual oil growth.

John: Meanwhile, the Capex reduction continues to improve so essentially we're forecasting that we'll achieve the planned volumes with less activity and less spending.

John: We believe this will continue to translate to meaningful free cash flow at 75 dollar W. T. I for the balance of the year. We currently forecast full year 'twenty 'twenty four of free cash flow in the area of approximately $115 million corresponding.

John: Corresponding to year-over-year growth of approximately 65 percent and corresponding to about 22 percent yield on the market value of our equity as of yesterday. By comparison, the median of E&Ps across all sizes and excluding the gasier companies, has consensus free cash flow growth of approximately 10% year-over-year and a current yield on equity value of approximately 12%, based on estimates using public data. The average across the S&P 500 companies is 5% year-over-year free cash flow growth and 5% yield on equity value. We consider these some of the more distinguishing metrics for our company as compared to the wider market.

John: Corresponding to year over year growth of approximately 65% and corresponding to about 22% yield on the market value of our equity as of yesterday.

Bobby Riley: By comparison, the median of E&Ps across all sizes, and excluding the gasier companies, has consensus free cash flow growth of approximately 10% year-over-year, and a current yield on equity value of approximately 12%, based on estimates using public data. The average across the S&P 500 companies is 5% year-over-year free cash flow growth and 5% yield on equity value. We consider these some of the more distinguishing metrics for our company as compared to the wider market. I'll turn it back to Bobby for closing. Thank you.

John: By comparison, the median of E&ps across all sizes and excluding the gas your companies as consensus free cash flow growth of approximately 10% year over year and a current yield on equity value of approximately 12% based on estimates using public data.

Speaker Change: The average across the S&P 500 companies as 5% year over year free cash flow growth and 5% yield on equity value.

John: We consider these some of the more distinguishing metrics for our company as compared to the wider market.

John: I'll turn it back to Bobby for closing thank you.

Regina: Thank you. Once again, we appreciate your time and interest in our company. We're pleased with our recent results. And while we believe these quarterly results are strong, we remind investors that we are primarily focused on long-term results and value creation. We remain confident that our strategic focus and operational excellence will continue to drive growth and profitability for our shareholders over the long term. Operator, you may now open up the call for questions.

John: Thank you once again, we appreciate your time and interest in our company.

John: We're pleased with our recent results and while we believe these quarterly results are strong we remind investors that we are primarily focused on long term results and value creation.

John: We remain confident that our strategic focus and operational excellence will continue to drive growth and profitability for our shareholders over the long term.

Regina: Operator, you may now open up the call for questions.

Speaker Change: Operator, you May now open up the call for questions.

Regina: At this time, I'd like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Again, that is star one for any questions. Our first question will come from the line of Neal Dingmann with Truist Securities. Please go ahead. Thank you.

Speaker Change: At this time I'd like to remind everyone in order to ask a question with star followed by the number one on your telephone keypad again that is star one for any questions. Our first question will come from the front of mind Neal Dingmann with true Securities. Please go ahead.

Julian Roche: Hey, good morning. This is Julian Roche on for Neal. Thanks for taking our questions.

Neal Dingmann: Hey, good morning. This is Julian Roche on for Neal.

Regina: Hey, good morning, its Julien Broche on for Neil.

Speaker Change: Thanks for taking our question.

Julian Roche: Thanks for taking our questions. How should we think about the incremental volumes throughout the year given the recent acquisition in May and then any consequential potential impacts there on go forward guidance? Then as like a follow-up, maybe give us a little bit more color on the revised power, JV, and then kind of how, I know you said it acts like a hedge, so I just wanted to understand the dynamic there. Thanks.

Julian Roche: How should we think about the incremental volumes throughout the year given the recent acquisition of Mei and then any consequence, so potential impacts there on gulfport guidance.

Speaker Change: And then it was like a follow up maybe give us a little bit more color on the revised power JV.

Speaker Change: And then kind of how I know you said it acts like a hedge such soares and the dynamic there.

Julian Roche: Thanks.

Philip Riley: Sure, good morning, Julian. This is Philip, I can cover that since I mentioned it in my prior remarks. So the acquisition is really only about four to 500 barrels a day production, we closed on that April 7. And so when you do the math on an annual basis, what you see that contributing is about two to 300 barrels a day, when you're divided by 366 a year. So that was the logic there.

Philip Riley: Sure. Good morning, Julian. This is Philip.

Julian Roche: Sure. Good morning, Julien This is Philip I can cover that since I mentioned it in my prior remarks.

Philip Riley: I can cover that since I mentioned it in my prior remarks. So the acquisition is really only about 400 to 500 barrels of daily production. We closed on that on April 7th, and so when you do the math on an annual basis, what you see is that contributing is about 200 to 300 barrels a day when you're dividing by 366 a year. So that was the logic there.

Philip Riley: So the acquisition is really only about four to 500 barrels a day production. We closed on that April 7th and so when you do the math on an annual basis, what you see that contributing its about two to 300 barrels a day when you divide them by a 366 day year.

Philip Riley: So that was the logic there.

Philip Riley: We are.

Julian Roche: We are Forecasting growth for the year of, I think the midpoint shows about 13%, so you exclude that and you're still at 11%. We're doing slightly less activity. You can see that in the well counts we're showing there. We've got reductions in the CAPEX there reflecting that, as well as some additional cost savings. That's the first part of your question. Anything you want to clarify there before I move on to power?

Speaker Change: Forecasting growth for the year of I think the midpoint shows about 13%. So you you exclude that and you're still at 11%, 11%, we're doing slightly less activity.

Speaker Change: You can see that in and are well counts were showing there.

Philip Riley: We've got reductions in the Capex, there, reflecting that as well as some additional cost savings. That's the first part of your question anything you want to clarify there before I move on to power.

Julian Roche: No, that's helpful. Thank you.

Philip Riley: No, that's helpful. Thank you.

Speaker Change: No that's helpful. Thank you.

Bobby: On power, as Bobby mentioned, we increased our ownership in the JV to 50%. That was planned all along from the beginning. We had that right in there that we established on February 23 when we set this up.

Philip Riley: On power, as Bobby mentioned, we increased our ownership in the JV to 50%. That was planned all along from the beginning.

Julian Roche: On power as Bobby mentioned, we increased our ownership in the JV to 50% that was planned.

Speaker Change: All along from the beginning we had that right and there are that.

Bobby: That we established in February 23, when we set this up.

Philip Riley: We had that right in there that we established in February 23 when we set this up. What we've done at this point is expand the scope of the JV to have the ability to sell power, energy effectively, selling generation energy into ERCOT as well as the ancillary services. And ancillary services is a fancy word for basically standby power. ERCOT's not a capacity market like you have in other ISOs in the U.S., but with the various challenges that Texas has had with cold and hot and everything in between, they're adding more and more of this service to the grid to make it more resilient. So they're paying people to be ready and standby.

Speaker Change: What we've done at this point is expand the scope of the JV to.

Speaker Change: Have the ability to sell power energy effectively selling generation energy into ERCOT as well as the ancillary services and ancillary services as a as a fancy word for basically standby power.

Speaker Change: ERCOT is not a capacity market like you have another isos in the U S.

Speaker Change: But with the various challenges that Texas has had with cold cold and hot and everything in between.

Speaker Change: They're they're adding more and more of this service to the to the grid to make it more resilient so they're paying people to be ready and standby are what we're and what we're planning is a mix of thermal and battery.

Philip Riley: What we're planning is a mix of thermal and battery. We're still planning on what the optimal mix could be. Thermal being another word for natural gas fire generation.

Speaker Change: We're still planning on what the optimal mix could be.

Speaker Change: Thermal being another word for natural gas fired generation. These would be recipient writers like we've got in Texas doing our self generated power.

Philip Riley: These would be receipt generators like we've got in Texas doing our self-generated power. And then some batteries can help with the ancillary. You can do both for ancillary. This isn't a peek or play.

Speaker Change: And then some batteries.

Speaker Change: It can help with the ancillary you can do both for ancillary this isn't a peak or play. This is something that we think will dispatch most of the time based on where we see prices clearing these days with increased power.

Philip Riley: This is something that we think will dispatch most of the time based on where we see prices clearing these days with increased power demand with the load growth, as well as a frankly highly variable grid, especially out in West Texas. In the area that we're talking about, approximately two-thirds of the generation stack is wind, and wind is highly variable, much more so than solar, actually. And so you've got periods where we believe the nat gas generators are going to dispatch, quite often.

Bobby: Demand.

Speaker Change: With the low load growth as well as.

Speaker Change: Frankly, higher highly variable grid Ah.

Speaker Change: Especially out in West Texas.

Speaker Change: In the area that we're talking about approximately two thirds of the generation stack is wind and wind is a highly variable much more so than in solar actually.

Speaker Change: And so you've got periods, where.

Speaker Change: We believe that the Nat gas generators risks are going to dispatch.

Philip Riley: So we're going to continue to update you on that. That's something that we hope to have coming online next year. Our guess is it's a second quarter or third quarter type of thing. That is significantly faster than some of the bigger projects, even solar and wind, take for the interconnection queue. So it's an expedited plan that we're excited about and we're hopeful to hit. Thank you.

Speaker Change: Quite often so we're going to continue to update you on that that that's something that we hope to have.

Speaker Change: Coming online.

Speaker Change: Next year.

Bobby: Right.

Speaker Change: Our guess is that it's a second quarter third quarter type of thing.

Speaker Change: That is significantly faster than in some of the bigger projects, even solar and wind take for the interconnection queue. So it's an expedited plan that we're we're excited about and we're hopeful that thank.

Speaker Change: Thank you.

Julian Roche: Got it. Thank you very much. I appreciate that additional color on that.

Speaker Change: Got it. Thank you very much I appreciate that additional color on that.

Regina: Our next question will come from the line of John White with Rock Capital. Please go ahead.

Speaker Change: Our next question will come from the line of John White with Roth Capital. Please go ahead.

John: Good morning, and congratulations on a strong quarter. In your press release and prepared remarks, you highlighted

John White: A good morning and congratulations on a strong quarter. In your press release and prepared remarks, you highlighted. Savings on drilling and completion activities. And you provided some additional detail on that. Do you want to give us an idea from a geographic standpoint where you're experiencing that?

Speaker Change: Good morning, and congratulations on a strong quarter.

Speaker Change: In your press release and prepared remarks, you highlighted.

Speaker Change: Savings on drilling and completion activities.

Speaker Change: And you provided some additional detail on that do you want to give us an idea from a geographic standpoint, where you're experiencing that.

John Souter: Yes. Yeah, thank you, John. This is John Souter.

John Souter: Yes. Yeah. Thank you, John. This is John Souter.

John: Yes, yes. Thank you John this is John Suter.

Speaker Change: Really we are experiencing that in our champions play in Texas.

John Souter: Really, we are experiencing that in our Champions Play in Texas. We think as we keep modifying this, as we move over into New Mexico, we'll carry some of these same savings over there with us. They're a little bit different well-to-well as far as the completions go, but still, we anticipate having those good savings.

John Souter: Really, we are experiencing that in our champions play in Texas. We think as we keep modifying this we'll as we move over into New Mexico we'll carry some of these same savings over there with us. They're a little bit different well-to-well as far as the completions go, but still we anticipate having those good savings.

John Souter: We think as we keep modifying this will as we move over into new Mexico will carry some of the same.

John Souter: Savings over there with us.

John Souter: There are a little bit different well to well as far as the completions go but still.

John Souter: Still we anticipate having those good savings.

John Souter: Okay.

John White: Okay, thank you and On the New Mexico bolt-on acquisition, do you plan to embark on a well workover program there in the second half?

Speaker Change: Okay. Thank you.

John Souter: Yeah.

Speaker Change: On the new Mexico bolt on acquisition do you plan to embark on a well Workover program there in the second half.

John Souter: Yeah.

John Souter: Yeah, we we continue to we have a larger work over program in New Mexico. That's just one one part of it, but certainly we've we have escalated that a little bit.

Speaker Change: Yeah, we we continue to we have a larger workover program and the Mexico. That's just a one one part of it but certainly we have the we have escalated that a little bit.

John Souter: We also have gained a lot of value there by taking those wells and connecting them to the power system. We've taken a number of wells off generators. And probably save 35,000 a month on the number of wells we've done there. So we're, we're, doing all the usual work at getting them integrated, but certainly we're including that in our work over program.

John Souter: We also have gained a lot of value there by taking those wells and connecting them to the power system.

John White: Sounds good. Thanks for the extra detail. I'll pass the call back.

Speaker Change: We've taken on a number of wells off.

John Souter: Generators, and probably save 35000, a month on the.

John Souter: The number of wells, we've done there so where we are.

John Souter: We're.

John Souter: doing all the usual work of getting them integrated, but certainly, we're including that in our workover program.

John Souter: Doing all the usual work at getting them integrated, but certainly where we're including that in our Workover program.

Julian Roche: Sounds good. Thanks for the extra detail. I'll pass the call back.

Speaker Change: Sounds good thanks for the thanks for the extra detail I'll pass the call back.

Regina: Our next question will come from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Speaker Change: Our next question will come from the line of Jeff Robertson with water Tower Research. Please go ahead.

Jeff Robertson: Thanks. Good morning.

Julian Roche: Thanks, Good morning, John when you're on the Workover program into Mexico is that adding barrels that would not have been factored into the.

Speaker Change: Acquisition economics for either the 2023 acquisition or the the bolt on.

John Souter: John, on the workover program in New Mexico, is that adding barrels that would not have been factored into the acquisition economics for either the 2023 acquisition or the bolt-on? Yeah, I think it's really a small segment of our production, but but still an important one. I think, like I said, in our opening remarks, I think we've increased those volumes probably 50% with pump off controllers, with the various workovers we've been doing, improving the artificial lift, but certainly it's a smaller, impact of our production compared to horizontal wells. And though it's way too early for 2024 guidance, but can you all talk at all about how you think about putting together a capital program? Next year with the current asset base.

Speaker Change: Yes, I think it's really a small segment of our production, but but still an important one.

Speaker Change: I think like I said in our opening remarks, I think we've increased those volumes, probably 50% with pump off controllers wood with the various workovers, we been doing improving the artificial lift but.

Speaker Change: Certainly it's a smaller.

Unnamed: impact of our production compared to horizontal wells. I know it's way too early for 2024 guidance, but can you all talk at all about how you think about putting together a capital program next year with the current asset base?

Julian Roche: Impact of our production compared to horizontal wells.

Unnamed: I know it's way too early for 2020 for guidance, but can you talk at all about how you think about putting together a capital program.

Unnamed: Next year with the with the current asset base.

John Souter: I'll take it, Jeff. I think you meant 2025. Yes, I'm sorry.

Unnamed: I'll take it Jeff I think you meant 2025.

Unnamed: Yes, I'm sorry.

Speaker Change: If we're talking 25.

Philip Riley: If we're talking 2025, yeah, it is a little early. You know, it's every time we think we're done with volatility, we get something new in the Middle East or, you know, a political backdrop or such. So we got a busy and noisy few months ahead of us here in the fall. We'll watch that.

Speaker Change: Yeah. It is a little early you know it's every time, we think we are done with volatility we get something new.

Speaker Change: In the Middle East there are political backdrop or such so.

Speaker Change: We got a busy and noisy few months ahead of US here in the fall, we'll we'll watch that but in general our business model and strategy is to grow free cash flow, while minimizing the amount we have to reinvest and really focusing on that capital efficiency. So we'll see.

Philip Riley: But in general, our business model and strategy is to grow free cash flow while, you know, minimizing the amount we have to reinvest and really focusing on that capital efficiency. So we'll see where prices are bouncing around and what that affords us. And frankly, between a 70 and $80 WTI level is fantastic. We're not holding out for 90 or 100. This is a great level for us. Our wells are economic far, far below that.

Speaker Change: Where prices are bouncing around and what that affords us a battle frankly between 70 and 80 dollar W. T. I level is fantastic, we're not holding out for 90 or 100. This is a great level for us are our wells are economic far far below that.

Philip Riley: But we want to be mindful of it. It's a balance of managing inventory, maintaining a good amount where you all appropriately award us a sufficient going concern value. But that's, you know, kind of how we're looking at it is to hopefully have some continued, you know, modest growth there, hoping to grow that free cash flow still, super excited about that kind of 60 to 70% level year over year growth we're seeing this year.

Speaker Change: But we want to be mindful of it.

Speaker Change: It's a balance of managing inventory maintaining a good about.

Speaker Change: Where are you all.

Speaker Change: <unk> Award us a sufficient going concern value.

Speaker Change: But that that's you know kind of how we're looking at it is to hopefully have some continued modest growth there hoping to grow that free cash flow still super excited about that kind of 60% to 70% level year over year growth, we're seeing this year.

Philip Riley: Hoping John's team can continue to push the envelope on well-cost savings. So we'll continue to collect bids on AFEs to see how that's coming out. That may shape our thinking. And then, you know, finally, I just want to say this is a bit of a segue, but it's tied to how we think about capital allocation is, you know, we see a lot of opportunities out there right now on the inorganic front.

Speaker Change: Pulping Johns team can continue to push the envelope on well cost savings. So we'll continue to collect bids on a F. These to see how that's coming out that may shape, our thinking and then finally I just want to say this is a bit of a segue, but it's tied to how we think about capital allocation as we see a lot of opportunities out there right now.

Speaker Change: On the inorganic front.

Philip Riley: And so we're being a little bit measured just to keep a little bit of powder dry as we see a lot of exciting things out there that we'll have a better idea of where those will have landed later in the fall.

Speaker Change: And so we're we're being a little bit measured just to keep a little bit of powder dry as we see a lot of exciting things out there that will.

Speaker Change: We'll have a better idea of where those will have landed later in the fall.

Phil: Thank you Phil.

Regina: Our next question will come from the line of Noel Parks with Tui Brothers. Please go ahead.

Unnamed: Our next question will come from the line up Noel Parks with Tuohy Brothers. Please go ahead.

Noel Parks: Hi, good morning. Just had a couple.

Unnamed: Hi. Good morning. I just had a couple.

Speaker Change: Hi, good morning.

Speaker Change: Just had a couple.

Speaker Change: Actually just sort of touched on the assay process.

Justice: Getting rolling and Justice.

Unnamed: You actually just sort of touched on the ASE process getting rolling. And just as far as overall, you know, service capacity for your needs in your part of the basin, do you see the market as pretty well balanced at this point? Or do you think maybe you're looking at, well, either inflationary or deflationary trends as you look ahead in the next year?

Unnamed: Just as far as overall service capacity from your your needs and your part of the basin.

Speaker Change: Do you see the market is pretty well balanced at this point or are.

Noel Parks: You actually just sort of touched on the ASE process getting rolling and just as far as overall, you know, service capacity for your needs in your part of the basin. Do you see the market as pretty well balanced at this point? Or do you think maybe you're looking at, well, either inflationary or deflationary trends as you look ahead into next year?

Unnamed: Or do you do you think maybe youre looking at well either inflationary or deflationary trends as you look ahead into next year.

Unnamed: Yeah.

John Souter: Yeah, no, I think that our what we're seeing is that we're able to get rigged services as we need them at reasonable prices. The stimulation market is kind of a mixture of both large and there's a number of small companies that have moved out there that are really doing an excellent job for that area as well. Unknown Speaker, So, really think that, you know, certainly in the last I don't know, six months. As we said, about half of our savings have come from market pricing, but I think it's stabilized. We're getting a good value and a good quality of service for what's out there right now.

Speaker Change: Yeah, No I think that our.

Speaker Change: What we're seeing is that we're <unk>.

Unnamed: able to get regulated services as we need them at reasonable prices. The stimulation market is kind of a mixture of both large, and there's a number of small companies that have moved out there that are really doing an excellent job for that area as well.

Speaker Change: Able to get.

Unnamed: Rig services as we need them at reasonable prices.

Unnamed: The stimulation market is kind of a mixture of both large and there's a number of small companies that have moved out there that are.

Unnamed: Really doing an excellent job for for that area as well.

Speaker Change: So really thinks that.

Unnamed: Certainly in the last.

Speaker Change: Oh I don't know six months as we said about half of our savings have come from market pricing, but I.

Speaker Change: I think it's stabilized where we're getting a good value and a good quality of service for what's out there right now.

Speaker Change: Maybe I'll just add.

Philip Riley: Something from a macro point of view, Noel, is You know, you watch all the corporate deals happening, all this consolidation. And every time one of these faster, faster growers, smaller companies gets gobbled up by a bigger guy. More often than not, that's pulling.

Unnamed: It's something from a macro point of view Noel is.

Speaker Change: You watch all the corporate deals happening all this consolidation.

Speaker Change: Every time one of these faster faster growers smaller companies gets gobbled up by a bigger guy.

Speaker Change: More often than not that's pulling.

Unnamed: Demand has obviously been squeezed out of the system for these services. Look at the year-over-year rig count. I mean, it's down by 90 or 100. Look at what Diamondback just announced, how they're saying, oh, we thought we could do this. We're actually going to reduce it by even six more rigs.

Unnamed: Demand out of the system for these services, we've obviously had a tremendous amount of consolidation look at the year over year rig count I mean, it's down by 90 or 100.

Philip Riley: Demand out of the system for these services. We've obviously had a tremendous amount of consolidation. Look at the year-over-year rig count. I mean, it's down by 90 or 100. Look at what Diamondback just announced, how they're saying, oh, we thought we could do this. We're actually going to reduce it by even six more rigs. All of that, we're not necessarily competing with those guys for the same rig, but it generally pulls pressure out of the system. Same thing with fracking. It's just, it's a pretty favorable environment for us. So we're, we're excited about that.

Unnamed: Look with Diamondback, just announced how they're saying Oh, we thought we could do that we're actually going to reduce it by even six more rigs all of that we're not necessarily competing with those guys for the same rig, but it generally pulls pressure out of the system same thing with fracking Ah. It's just it's a pretty favorable environment for us.

Unnamed: So.

Speaker Change: Excited about that.

Noel Parks: Great. Thanks for the observation. I think it's really timely.

Unnamed: Great. Thanks.

Unnamed: Most of the observations.

Unnamed: It's really timing.

Unnamed: Hum.

Speaker Change: Just some thought about.

Noel Parks: And just some thought about, or just looking for some thoughts on the outperformance, all of the expectations that you've seen in your acquired areas. And just in retrospect, benefit of hindsight, Do you think you just were overly conservative in your original take on what the assets could do? Or is it more just that? There's just a lot of stuff that the old owners weren't able to get to. They just didn't have the, you know, the capacity or the capital or maybe the technical resources to get at some of the low-hanging fruit that you're now benefiting from.

Speaker Change: Just looking for some thoughts on.

Speaker Change: The outperformance relative to expectations that you've seen.

Speaker Change: In acquired areas and just an extra benefit.

Unnamed: Hindsight.

Speaker Change: Do you think you just were overly conservative and in your.

Speaker Change: Original take on.

Unnamed: I know what the what the assets could do or or is it more just that.

Speaker Change: Theres, just a lot of stuff that the old owners weren't able to get to where they just didn't have the.

Speaker Change: The capacity or the capital or or maybe it's a technical resources to it to get at some of our some of the low hanging fruit that you are now benefiting from.

Speaker Change: Yeah I wasn't here at the time, but I can tell you from what I've learned so far it's really down to a number of things.

Unnamed: time, but I can tell you from what I've learned so far, it's really down to a number of things. We do have a number of wells that are outperforming their type curves, which is really what I believe from a little bit of a stimulation recipe change that I think is, you know, still under review but, give me guess, some very positive results.

John Souter: I can tell you from what I've learned so far, it's really down to a number of things. We do have a number of wells that are outperforming their type curves that are really what I believe from a little bit of a stimulation recipe change that I think is still under review but giving us some very positive results. Unknown Speaker, You know, I also think that I don't know, it's just from a number of things, primarily the stimulation change, but also, You know, just a number of wells coming on.

Unnamed: We do have.

Unnamed: A number of wells that are that are outperforming their type curves that are really what I believe from a.

Unnamed: A little bit of a stimulation recipe change that.

Unnamed: I think is still.

Unnamed: Still under review, but giving us some very positive results.

Unnamed: Yeah.

Unnamed: I also think that.

Unnamed:

Unnamed: I don't know. It's just a number of things. Primarily the stimulation change, but also, the four whales we turned in this quarter were really solid.

Unnamed: I don't know that its just from a number of things primarily primarily the stimulation change but also.

Unnamed:

Unnamed: Just a number of wells coming on we're certainly.

Unnamed: We had.

John Souter: We're certainly we had The four wells we turned in this quarter were really solid. But it's not one thing, I don't think it's the neglect of the previous people. We're just doing a really good job on homing in on kind of what the optimal stimulation is for these wells.

Unnamed: The four wells, we turned in this quarter, where we.

Unnamed: Were really solid.

Speaker Change: But it's but it's not one thing I don't think it's been neglected the previous people.

Unnamed: We're just doing a really good job on homing in on kind of what the optimal.

Unnamed: Stimulation is for these wells.

Noel Parks: Got it. Thanks a lot.

Unnamed: Got it. Thanks a lot.

Unnamed: Got it thanks a lot.

Unnamed: Okay.

Speaker Change: Ladies and gentlemen that will conclude our question and answer session and today's conference call. Thank you all for joining you may now disconnect welcome to Riley exploration Permian Quarterly conference call. We appreciate you joining us today.

Unnamed: Okay.

Unnamed: Yeah.

Unnamed: Sure.

Unnamed: Okay.

Unnamed: Yes.

Unnamed: Okay.

Unnamed: Sure.

Unnamed: Okay.

Unnamed: No.

Unnamed: Damian.

Unnamed: Yeah.

Unnamed: Okay.

Speaker Change: And our reforms.

Unnamed: Great.

Speaker Change: All right.

Unnamed: Okay.

Unnamed: Yes.

Unnamed: Okay.

Unnamed: Yes.

Unnamed: Yeah.

Unnamed: Hum.

Unnamed: Yeah.

Speaker Change: For example.

Unnamed: Okay.

Unnamed: Sure.

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