Q3 2024 Riley Exploration Permian Inc Earnings Call
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Good morning, My name is John and I'll be your conference operator today.
At this time I'd like to welcome everyone to the O'reilly exploration Permian, Inc. Third quarter 2010 for earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time to depress bar fall, but the number one on your telephone keypad. If you would like to withdraw your question Brett.
And again, thank you I would now like to turn the call over to Filip Reilly Chief Financial Officer, you May begin your conference.
Good morning, welcome to our conference call covering the third quarter 2024 results I'm Philip Reilly CFO. Joining me today are Bobby Reilly, Chairman and CEO and John Suter COO.
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 statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.
We will also reference certain non-GAAP measures the reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure on our website I'll now turn the call over to Bobby.
Thank you Philip good morning, and welcome to our Q3 2024 earnings call.
Today, we highlight several updates for Riley since Q2, including that our team met or exceeded key metrics on our planned guidance, resulting in significant free cash flow.
This has allowed us to continue paying down debt and distributing dividends back to our shareholders.
Today, we're paying our 15th consecutive dividend as a public company with our recent increased to 38 cents per share up 6% from previous quarter. Since 'twenty 'twenty. One we've returned $98 million to public shareholders, achieving an annual dividend growth rate of 11.
Percent.
Additionally, we paid down $35 million of debt this quarter.
Underscoring our commitment to delivering consistent and growing shareholder returns.
While maintaining prudent financial management.
I'm happy to report that our 'twenty 'twenty four drilling and completion campaign is delivering excellent results.
We are successfully driving down cost, while generally seeing production outperform relative to forecast and prior year results in both West, Texas and New Mexico.
This reinforces the effectiveness of our operational strategies and strengthens our ability to generate value.
This success also underscores the quality of our acquisitions and highlights new opportunities to invest in infrastructure that will support future growth.
This new opportunity to invest in infrastructure that will support future growth.
Just as we did early on in our Texas, Our champions asset we plan to take advantage of these opportunities beginning in Q4 and the future to build out infrastructure that will enhance transportation and processing, providing reliable continuous takeaway insuring.
We are well positioned to maximize efficiency and long term value in both regions.
We believe riley's all focused assets to be among the most productive and capital efficient in North America.
As we demonstrate our new slides in our investor presentation.
Using data and analysis from embarrass her top data provider for our industry. One can see how our assets compare favorably to core Midland Basin, and Delaware Basin wells outperforming both our longer term Cuba.
Cumulative production per lateral foot metrics and forecasted breakeven prices.
Since the fall of 2022.
We've been operating our C O two pilot in a small footprint area that consisted of six vertical wells and three horizontal wells.
The data gathered from this pilot showed that we were successful in mobilizing hydrocarbons, both oil and Ngls with C O two.
This provides valuable insights for potential E O E O our applications, which we believe will be best suited for post primary production later in the reservoirs life.
We will continue to evaluate anthropogenic cotwo arses that will be crucial in the economic outcome.
We made significant progress with our power joint venture RPC power across both projects in Yoakum County, we completed the final installation of power units supporting our operations and are actively transferring load to these units.
For our larger merchant project, we advanced with siting permitting and equipment orders positioning us well for continued development.
Speaker Change: Now I will turn the call over to John Suter, Our C O O to discuss operational results for the quarter, followed by Philip Riley, our CFO, who.
John Suter: Who will discuss financial results and guidance.
John Suter: Thank you Bobby and good morning.
John Suter: Once again Riley demonstrated excellence in operations through safe operating practices.
John Suter: Team achieved a total recordable incident rate of zero for Q3 and year to date.
John Suter: We achieved 91% safe days in the quarter, a metric requiring no recordable incidents vehicle accidents or spills over 10 barrels.
John Suter: Thanks to our team for their continued focus on these efforts.
John Suter: In Q3 of 2024, we drilled 12 completed three and turned in line six gross operated wells the.
John Suter: The additional wells turned in line are carried over from Q2 completion activity.
John Suter: The nine ducks generated in Q3, we will provide our completions for the remainder of 2024 and give us a healthy start to our 2025 program.
Speaker Change: As Bobby mentioned, our 2020 for drilling and completion campaign continues to drive down costs through efficiencies and economies of scale from pad drilling and continuous drilling operations.
John Suter: This has been achieved through optimization of drilling practices pad drilling geo steering efficiencies and zipper fracs.
John Suter: We've increased both our feet per day in lateral feet per day by 33% and 20% in 2024 year to date relative to 2023, respectively.
John Suter: We've also set records for drilling in Yoakum County for fastest one mile lateral at 397 days spud to TD.
John Suter: And fastest one five mile lateral at $4 seven eight days spud to TD.
John Suter: Net production grew from 1.34 to 1.42 million barrels of oil quarter over quarter, an increase of 6% while equivalent production is up 11% from $1 94 to $2, one 6 million barrels oil equivalent.
John Suter: Our average daily net production was 23.42 N V O E per day for this quarter.
John Suter: We continue to make steady progress in increasing the offtake of associated gas much of this is driven by enhancements from our midstream provider alongside us.
John Suter: These efforts allowed us to send 42% more of our guests produced to sales compared to the previous quarter.
John Suter: The team successfully implemented our new Mexico plans in the third quarter, including completing our first two red Lake Wells with nine more planned to be drilled this year.
John Suter: We purposefully back loaded our Red Lake development to avoid costly rig moves between states.
John Suter: Initial production of these completed wells meets or exceeds expectations for the area.
John Suter: The additional wells will provide valuable opportunities to place to test completion methodologies and well spacing to.
John Suter: To continue to improve results on future wells in the asset.
John Suter: Lease operating expenses were $8 60 per Boe.
John Suter: Within 1% of last quarter and down 7%.
John Suter: Just as the same quarter last year.
John Suter: With the inclusion of vertical production in our new Mexico asset absolute Louis has increased slightly.
John Suter: Offset though by an increase in total equivalent production.
John Suter: We're continuing to look at options to drive down LOE costs.
John Suter: Particularly on our vertical wells. This includes but is not limited to leveraging software and other technology to help manage optimize and even automate artificial lift changes.
John Suter: In the fourth quarter of this year, we will begin construction of our gathering and compression system, and our new Mexico asset to better control, our gas takeaway and allow for optionality in the future.
John Suter: This infrastructure accounts for roughly 12 million of capital spend within the fourth quarter and will allow gathering and compression of our 2025 drilling program wells as well as much of our existing gas production.
John Suter: S Repower we.
John Suter: We supported approximately 50% of our electrical load in Texas with self generated power in the third quarter.
John Suter: We will continue to transition to a larger majority of self generated power as we bring on more production within the generation footprint.
Speaker Change: I will now turn the call over to Philip to discuss Q3 financial results and guidance.
Philip Riley: Thank you John.
Philip Riley: Third quarter 2020 for operating cash flow was $72 1 million or $60 5 million before changes in working capital with the latter increasing by 5% quarter over quarter the.
John Suter: The increase was driven by higher oil production volumes lower total unit costs improved hedge settlements and lower income tax payments, partially offset by a 12% decline in average realized prices, including higher gas sales volumes and negative realized prices.
John Suter: We reinvested, 50% of operating cash flow before working capital changes into upstream capex on an accrual basis and 38% on a cash capex basis.
John Suter: Hence, we converted 62% of that cash flow to 38 million of free cash flow.
John Suter: That repeats approximately the record level set last quarter, despite the significantly lower prices this quarter.
John Suter: Year to date, we've converted 56% of our operating cash flow before working capital changes to $99 million of free cash flow or $133 million of free cash flow for the last 12 months.
John Suter: So we're reinvesting less than half our after tax cash flow and still growing production volumes, but more importantly, growing our free cash flow.
John Suter: We believe this combination of lower spending with higher volumes and free cash flow is a useful indicator of asset quality and capital efficiency.
John Suter: The 99 million of free cash flow. This year is two seven times the amount the same metric I mean through the first nine months of 2023.
John Suter: And 133 million of last 12 months' free cash flow corresponds with approximately 21% yield on our equity value as of the close yesterday, even after the 8% one day increase in the stock price.
John Suter: <unk> significant free cash flow, while still investing for growth has been a key objective for our team and our company. This year and we're proud to be delivering on the objectives.
John Suter: Operating income this quarter was impacted by the impairment related to the EUR project is continuation most of which was noncash on a go forward basis will save approximately $3 million per year on avoided C. O two costs, which I'll note was previously capitalized not an opex, but it will increase free cash flow going forward.
John Suter: Net income was down by 24% or $8 million quarter over quarter as gains on commodity hedges about 23 million unrealized and 1 million realized absorbed some of the reduction from the impairment.
John Suter: Adjusted net income, which excludes the impact of the impairment and the hedging gains was down by 5% quarter over quarter.
John Suter: We reduced the principal value of debt by $35 million this quarter to $300 million.
John Suter: Debt to total enterprise value at quarter end was 34% with 1.07 times debt to LTM adjusted EBITDAX.
John Suter: The credit facility utilization is now 35% down from 65% a year ago and total debt has been reduced by $100 million over the past year.
John Suter: We will look to pursue a normal course extension on our credit facility by early in the new year.
John Suter: Book value of shareholders' equity increased to $507 million or $24 per share based on 21.5 million shares outstanding.
John Suter: Dividends in the third quarter accounted for $8 million or 22% of free cash flow.
John Suter: A final allocation of capital in the third quarter was one $5 million contributed to the power JV.
John Suter: Moving onto guidance.
John Suter: At the beginning of the year, we announced our annual plan, which called for 10% year over year oil volume growth, while cutting capital spending by 10%.
John Suter: Our current full year guidance range based on three quarters of actuals, plus one quarter of guidance for the fourth quarter.
John Suter: Calls for increasing full year 2024 oil production by 14% to 15% over full year 2023 production.
John Suter: Our guidance range for fourth quarter 'twenty four exit rate is up by 14% to 19% over fourth quarter 'twenty three levels.
John Suter: Proximately, 85% of annual oil volume growth can be attributed to organic development funded by Capex with 15% attributed to the bolt on acquisition earlier in the year, which is not in our original plan.
John Suter: Adjusting to exclude for the acquisition for illustrative purposes, we'd still be at 12% to 13% annual oil growth, so still beating our original goal.
John Suter: Fourth quarter, Opex and overhead cost guidance ranges were both reduced from prior quarter levels, primarily owing to improvements experienced in the third quarter and to a lesser extent to the benefit of the increased gas sales volumes, which has the effect of increasing the denominator on unit cost metrics.
John Suter: Our fourth quarter Capex range implies a year over year reduction of 20% using low end of our 12% using the high end of spending.
John Suter: Our full year Capex range did increase from last quarter on account of the gas compression project that John discussed, which will have longer term benefits.
John Suter: Adjusting to exclude for that new compression project for illustrative purposes, as we didnt contemplated earlier in the year and we'd be looking at a huge 21% to 29% annual capex reduction from last year, yet still achieving organic growth.
Speaker Change: Back to you Bobby for clothing. Thank you.
Philip Riley: Thank you Philip once again, we appreciate your time and interest in our company.
Speaker Change: We're pleased with our recent performance and while we believe these quarterly results were strong.
Speaker Change: We remind investors that we are primarily focused on long term results and value creation.
Speaker Change: We remain confident that our strategic focus and operational excellence will continue to drive growth and profitability for.
Speaker Change: For our shareholders over the long term.
Speaker Change: Operator, you May now turn the call over for questions.
Speaker Change: Yeah.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star followed by Denver willing or your telephone keypad. If you would like to withdraw your question simply press Star. One again, thank you well pause for a moment to compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Your first question comes from the line of Neal Dingmann with UBS Securities. Please go ahead.
Speaker Change: Good morning, guys. My first question is on the capital efficiency in your upcoming D. C plant specifically you all seem to continue to do more with less is certainly notable by your slide five I'm just wondering.
Speaker Change: When looking at next year is the plan still to maintain around the similar growth in.
Speaker Change: How would a 60 versus $80 environment affect your plans.
Neal Dingmann: Great. Good morning, Thanks Neal.
Speaker Change: Yeah, So we're not providing guidance now for the.
Speaker Change: 2025 of you saw we Havent historically done that now we typically do it in the early in the same year. When we can offer a few things. So we've got a multiyear track record of growth through development and simply turning the calendar shouldn't materially alter our strategy.
Speaker Change: This year, we aim for 10% growth and it looks like we may achieve even more than that on account of the incremental gains we made each quarter.
Speaker Change: 2025 might look similar you know we might keep making those small gains each quarter.
Speaker Change: Similar to this time last year, the macro macro backdrops pretty volatile we've got a fairly loose crude supply and demand balances large amount of OPEC spare capacity large non OPEC growth areas in places like Guyana got weakness in China. So we're watching that of course, we've got the optimism here domestically.
Speaker Change: <unk> with some more growth outlook post election.
Speaker Change: But we're all still processing that is the team and with the board.
Speaker Change: You know on the price volatility I think that would probably affect us maybe less than some companies.
Speaker Change: We're hedged ballpark, 40% on total oil production next year, maybe 65, 70% on PDP.
Speaker Change: And of that swaps is about 30% maybe in the <unk>.
Speaker Change: $73 $74 or above the current strip that gives us some some cushion and then you've got about 70% and collars at 63 to kind of mid seventies pricing.
Speaker Change: So that gives us some protection and mitigate some of that volatility and I don't think that will be one to to make big changes.
Speaker Change: Certainly at the $80 level, if things are at 60 than maybe we have a little bit less growth, but as you started with the question.
Speaker Change: We're able to do more with less.
Speaker Change: We've got some capital efficient assets. So I think we might do a tiny bit less there with the.
Speaker Change: With the quite a low price but.
Speaker Change: Don't see a problem in keeping production flat there.
Speaker Change: Yeah, that's what I thought thanks, Philip and then just secondly on the get the help ask on the powered focused JV, specifically, maybe could you describe any potential upside next several quarters and maybe more specifically sort of significant data points.
Speaker Change: We should be looking for in the next few quarters.
Speaker Change: Yeah, It's a fair question and we're looking for the right way to do this we recognize most of your upstream analysts and this is a bit of a new foray. So we've got two phases here. The first phase is effectively a behind the meter project to power our own operations. That's installed as Bobby noted the load is being transferred over more and more.
Speaker Change: That's going to be an easier business to forecast and we'll give some guidance soon on that.
Speaker Change: But that.
Speaker Change: We hope as like a mid teens type of capital return.
Speaker Change: And we've invested.
Speaker Change: A little over $30 million and that to date.
Speaker Change: And then we've got the second project with this which is the sale to ERCOT and we're making great progress for RPC is making great progress there that's.
Speaker Change: That's the larger one with generation of.
Speaker Change: Power and the services the backup ancillary services.