Q2 2025 Riley Exploration Permian Inc Earnings Call
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Thank you for standing by. My name is Bailey, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Riley exploration Permian inks, second quarter 2025 earnings conference call. Corey
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After this, speakers are marked. There will be a question-and-answer session.
if you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad,
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I'll now turn the call over to Philip Riley, CEO. You may begin.
Good morning. Welcome to our conference call covering our second quarter 2025 results. I'm Philip Riley CFO. Joining me today are Bobbie Riley chairman and CEO and Dan Dory, SVP of operations.
Yesterday we published a variety of materials which can be found on our website under the investors section these materials in 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-gaap 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.
Thank You Phillip. Good morning and Welcome to our earnings call.
Riley Permian demonstrated solid overall performance in the second quarter, despite a less favorable oil macro backdrop and regional operating environment.
We adjusted our development activity and capex downward and response to lower oil prices and we generated significant free cash flow for the first half of the year.
Our development activity was moderated, but demonstrated good execution. Overall, with positive momentum continuing on drilling completion times and cost
we experienced some production impacts from infrastructure challenges common to many companies and the peryam basin.
Most notably was unreliable natural gas processing in New Mexico, which leads to shut in Wells and deferred production.
as a courtesy, reminder for our investors, the larger value driver at hand is not to deferred gas, Revenue which is immaterial but rather the oil Revenue,
New Mexico is a zero flaring state so disruptions on gas locally are Downstream can result in disruptions to oil production.
While disruptions in the second quarter are frustrating. Fortunately, this is a timing issue versus fundamental well performance issues.
Also, these types of hurdles present opportunities that underpin several of our initiatives, including midstream and power generation projects, which we continue to advance.
Gas and oil flow assurance, and support access to a stable power supply.
Together, these efforts, strengthen our ability to scale operations through Acquisitions. Providing a Competitive Edge to our peers in a dynamic energy environment.
We closed our acquisition of Silverback expiration in July.
With this deal, we've increased our yasso Trend footprint to 30,000 net Acres, 98% of which is held by production.
This region today represents only a quarter of the company's total production. Yet offers substantial undeveloped potential for future growth.
I will now turn the call over to Dan dhy who is sitting in today for John, Sutter our CEO to discuss operational results for the quarter followed by Philip Riley. Our CFO, who will discuss the company's financial performance and forward-looking guidance.
Thank you, Bobby and good morning.
Riley Permian has once again, shown excellence in safe operations, achieving a total recordable incident rate of zero in the second quarter.
We achieved 97% safe days. A metric. Requiring no recordable incidents vehicle accidents or spills over 10 barrels.
this is a record number of safe days for the second quarter in a row, a testament to our commitment to safe operating
As for activity, for the second quarter of 2025, we drilled 10 completed 2 and turned in line 7 gross operated Wells.
5 of those Wells. Turn in line, were completed at the end of the first quarter.
We mentioned on the previous call that we picked up a rigging q1 spotting the first, well, in that campaign in Texas, in late March.
That rig completed its 10 while program in the second quarter replenishing our duck inventory that will carry completion into 2026.
During this drilling campaign, Riley set, multiple Yoakum County records in the St Andrews including longest lateral drilled at 10,375 FT.
As well as fastest Spud to TD and fastest Spud to rig release for both 1 and 2 m Wells.
We did see some impact from tariffs during the campaign, most significantly in the form of higher pipe pricing.
Due to the added drilling efficiencies, however, we were able to keep total costs down compared to our previous drilling efforts, reducing our total average drilling cost per lateral foot by 15% over our previous program in 2024, despite the added tariff costs.
Overall, this campaign was our most efficient and cost-effective to date.
Net production, decline marginally from 1.41 to 1.38 million. Barrels of oil, quarter over quarter and Q2, but increased 3%, compared to the same quarter last year.
Barrel of oil. Equivalent production is up 1% quarter over quarter and up, 14% compared to same quarter last year from 1.94 to 2.22 million, barrels of oil equivalent.
Our average daily. Net production was 15.2 thousand barrels of oil per day.
And 24.4 thousand barrels of oil, equivalent per day for the second quarter of 2025.
The flight decline in oil production within the quarter was due primarily to gas, takeaway constraints with our current Midstream partner in New Mexico.
These gas takeaway constraint events, result in US, deferring, oil, volumes to Future quarters, and are the foundational reason for our investing and Gathering and compression in the asset.
Last quarter, we announced that we had completed our first phase of this gathering in compression.
Since then, this initial phase has allowed us to sell up to 15 million. Cubic feet, in high-pressure gas to our current Midstream partner mitigating. Some of the Gathering constraints that we've experienced and allowing us to bring on new production.
During the second quarter, we continue to make progress on the subsequent phases of the project, as we work toward our planned 2026 in service date for deliveries to our new Midstream partner.
An expansion of the initial Birdie compressor station to 55 million cubic feet per day is already underway with the additional compression. It is scheduled to arrive in late Q4.
Maintaining low operating costs remains a primary focus for our operations team. Our average Upstream eloe per Boe in the first 2 quarters of 2025 is down 3.7% over our 2024, average.
As power becomes an increasingly precious commodity in the Permian Basin, managing our own power production will be an integral piece to our unconstrained development.
In the second quarter, we added an additional 9% to our self-generated power in Texas.
The continued efficiency and reliability of this power project has led to the initial planning, phases of a similar. Installation of our New Mexico, asset.
With the Silverback acquisition, closing, the Riley Permian operations. Team has already identified. Numerous opportunities synergies, and cost savings that underscore the intrinsic value of the acquisition.
Managing water, handling costs is integral to our business and leveraging our expertise in the matter will decrease operating expenditures within the new asset.
Velop in New Mexico.
Due to significant overlap of the Legacy and Silverback acreage. We're able to increase the expected net interest of many of our development locations. This will allow us to produce more net barrels for the same amount of gas water and power infrastructure Investments.
Nearly doubling the scale of our operations. In the region will also give us a strategic Advantage when going to quote Services, we believe this could lead to Savings of 5 to 15% for many regularly Used Services.
Finally with minimal build ups existing gas production in the Silverback, Wells can be brought to our compressor station, allowing for quicker, scale and improving project economics.
To summarize in the second quarter, the Riley Permian team.
At our most successful drilling program to date, we maintained low operating costs. Our Midstream and power projects are continuing to prove their value in the form of reliability and increased optionality. And we continue to find significant synergies in our recent Silverback acquisition and all of this was done while achieving record safety metrics, congratulations to the team on a job. Well done,
Philip. I'll now turn the call back to you.
Thank you, Dan.
Second quarter cash flow from operations was 33.6 Million loader, lower quarter of a quarter primarily from price and changes in working capital.
Realized oil prices before. Hedges fell 11% quarter of a quarter or 22% year-over-year while prices after Hedges by only 7% quarter over quarter or 14% year-over-year demonstrating the benefit of that risk management program.
We had a million-dollar non-cash impairment on a small asset far outside. Either of our 2 core areas driven by lower prices, which shows up on the income statement.
Combined eloe and cash GNA per Boe decreased by 5 to 7% as compared to the same period 1 and 2 years ago.
Adjusted evax margin with 66% down modestly from 71% 1 year ago, in spite of the lower oil prices.
We believe this demonstrates, the resiliency of our business and the positive impacts of structural cost improvements.
We reinvested 54% of cash flow from operations before working capital and to Upstream capex during the quarter or only 41% for the 6 months year to date compared to 47% for the same period in 2024.
This lower reinvestment rate, reflects our response to lower oil prices which we discussed in our prior quarterly call and which corresponds with our production volumes.
Also, 40% of the year to date capex. Spend relates to drilling 10 net welds, which we've only turned sales 5.8 net Wells, highlighting an inventory. Build of uncompleted Wells.
We converted 59% of year-to-date, operating cash flow before working capital to 61 million of Upstream free cash flow or 54 million of total free cash flow after midstream capex.
The quarterly increase in debt to $184 million at quarter end was driven primarily by a combination of normalized working capital changes, as well as funding the deposit for our Silverbac acquisition.
Subsequent quarter end, we close the silver back acquisition, which we funded with our credit facility.
As of August 1st, we had 401 million in total debt including 246 million on the credit facility and 1555 15555 million of notes or 381 million of net debt. Excluding 20 million of cash.
That level is an increase of 131 million of net debt from the end of the first quarter consisting of 125.5 million for Silverback, which reflects a preliminary purchase price, benefit of 16.5 million as well as 5 million related to some working capital needs.
Now, let's discuss our latest guidance.
First on the format and periods. Disclosed, we're providing activity production and capex. Guidance. For the third and fourth quarters.
We've updated the full year figure.
A reminder listeners that this reflects 6 months of Standalone for the first half of the year with 6 months, combined with Silverback for the second half of the Year, hence, a blended average relative to what you'll see for the third and fourth quarter levels.
We provided cost guidance for the current quarter.
A couple items May Drive Eloy higher in the near term first. I'll note that Silverback is primarily undeveloped asset base with a large number of low-volume vertical Wells holding the acreage but which also correspond with higher per unit costs.
This will come down over time as we develop the asset.
Second we've got a modest amount of Midstream Opex flowing through this eloe category for now skewing the appearance of higher Upstream costs. We might choose to break this out at a later date.
Million dollar budget across Upstream, Midstream and Power.
Following the significant price declines in April, we announced on our Q1 earnings call an approximate $110 million budget, a very significant 47% cut from the original.
We're now adding back a modest amount of drilling and completion activity, and further management power Investments.
We're bringing back the rig with 10 gross, new drills, accounting for approximately 60% of the increase spend as compared to Prior guidance.
We also plan on completing an additional 2.5 net wells as compared to our prior guidance, accounting for the balance of the incremental spend.
Overall, this should result in a smaller draw draw down of drilled, but uncompleted Wells, or docks maintaining an inventory to draw from and setting up 2026 for maximum flexibility.
We also see additional growth as compared to Prior Guidance with fourth quarter. Midpoint oil production in the mid 18,000 barrels per day. Level for oil, and over 30,000, barrels per day for total equivalent.
That suggests 21% growth from second quarter to fourth quarter for oil and 27% for total equivalent.
The oil growth represents a combination of organic growth and the impact of adding Silverback accounting. For full year, base decline of about 25% at Silverback from the beginning of year levels cited upon deal announcement.
We see the total equivalent production growing faster than oil because our Texas Midstream partner completed some upgrades which leads to more processed gas and less flaring combined with some tighter potential basis differentials. Hopefully this leads to positive gas and NGL revenue and the second half of the year.
From a broader perspective, this oil growth represents a 20%, 26% average annual growth rate from the same period in 2021 or 23%.
On an oil production, per share basis.
while encouraging, we're staying disciplined, and I'll emphasize this represents a modest increase in capital, allocation corresponding with an approximate 45% Upstream reinvestment rate of cash flow from operations before working capital
On a New Mexico midstream project, we're bringing forward some capex into this year, which primarily relates to the additional compressors Dan mentioned earlier this year, as well as the costs for the steel pipe.
On the pipe, we had an opportunity to commit to a purchase at an attractive price and an advance of any tariff impact.
The increased forward investment, as compared to last quarter, just represents a small acceleration of some project spend, and overall timing is looking like in-service states starting in 2026.
we remain cautious on the macro front and we'll watch closely during the second half of this year to see how opec's actual marketed Supply compares to the plan unwind of cuts and for how the market absorbs such increases
So while we're positioning ambitious, growth, projects and Acquisitions. We're also positioning our company for resilience and flexibility in the face of uncertainty.
We added Hedges over the past quarter, primarily for the next 18 months, to mitigate the impact of price swings.
On debt leverage, we forecast modest pay down this fall at 65 WTI.
Partially contingent on the pace of our midstream buildout.
If we were to look at that on a pro-forma combined basis, we could have several quarters beginning being in the range of 1.3 times adjusted ibid tax or slightly higher, 1.4 times on a standalone basis.
I'll turn it back to Bobby for closing. Thank you.
Thank you Phillip. Once again, we appreciate your time and interest in Riley puran.
While we're pleased with our Q2 2025 results, our Focus remains firmly on the future. We are committed to building long-term value through disciplined, Capital, allocation, strategic, infrastructure Investments, and operational excellence. We believe these initiatives will position us for sustained growth.
And this long-term strategy will continue to drive shareholder value.
Thank you for your continued support operator, you may now turn the call over for questions.
Your first question comes from the line of dairy Whitfield, your line is open.
Um, good morning, guys. And thanks for your time. For my first question, I wanted to focus on your production trajectory into 2026 with your revised Upstream Capital plan. Your Q4 is materially above 2026 consensus.
Guidance today is the second half Capital run later, reasonable place to start for 2026 and how does that that run rate compared to your maintenance Capital case, for the proof former company?
Yeah, good morning, Derek. Uh, this is Philip. I'll I'll start with that. Um,
Yeah, we're we're excited about the fourth quarter, exit rate production. You see there? Um we are uh increasing that capital. I think what if if you look at the year we we like to break out the Upstream from the Midstream in total. You can see we're still under a hundred million dollars um at the midpoint for the year. Now compare that to some years passed and we're quite a bit higher even in several years. Uh we've got more assets now. So I I think you could imagine a a
A budget in the maybe call a 120 million dollars next year. If we wanted to continue the growth that we are, you know, on maintenance capex. Um, it's a little bit of an abstract concept, but I think you can look and see what we've done over the last quarter or 2. We kept things pretty flat with very little, uh, investment. It always gets a little skewed when you're Drilling and creating, uh, ducks, or or possibly using them, but directionally, you can see that there maybe that's in the, the 35 to 40%, uh, reinvestment rate of of cash flow and which I'll remind our listeners.
Uh, when we say cash flow, we mean, after interest after tax, not even does, so that'd be an even lower percent of of IBA.
Um, does that answer some of your question? Anything more we can clarify their Derek.
I think that's great fill up and maybe shifting over to Midstream for my follow-up. Could you speak to your latest thoughts on? What's the most likely outcome for funding this development and the degree of flexibility? You guys having New Mexico to navigate the constraints given your insights Collective Arrangements.
Uh, sure. So yeah, I I think with Derek's alluding to we, we hinted last quarter. We were uh, we're considering a different ways to finance this. Uh, we started the year thinking, we just keep this falling on the balance sheet. Use the credit facility. Um, obviously made some adjustments after the big macro events and then finding this nice acquisition. Um, you know, the latest is, we're still working through it. We've got a few options, uh, ideas. We, we like, um, at the same time, we're controlling the pace. That's a great thing about building it yourself. Um, we are making commitments like we've disclosed, uh, and our tinq. And as we discussed discussed about some compressors coming, we got that pipe. We're excited about. Um we're doing a little work. Like some right away, that's some of that uh, spending that you um you'll see there. Um,
Oh wow. Kind of trying to meet our our in-service date of um, a few quarters from now. But um, we've got some flexibility. I'd say hang tight for a little bit longer and we've got some um, hopefully some more updates to give you uh, as for the operational aspect of the Midstream, I think we've got some flexibility. There's a difference between low pressure and high pressure, but maybe I turn this to Dan. I think he could probably explain it.
Yeah. Thank you Philip. Um, couple things on this. Uh 1 you mentioned Silverback, uh I think we're pretty well positioned to uh incorporate Silverback into uh this existing Midstream plan. Uh, we've already got plans to bring on uh between 5 and 10 million a day over to our high-pressure system from the Silverback system, uh with our initial birdie compressor.
uh,
You know, there's also a lot of overlap as I mentioned, uh, with the existing artisia area, uh which will will focus on our our development and the uh 2026 time frame. Um, you know, Midstream is really going to be focused on uh, servicing those initial Wells that will be drilling in 2026. So uh, a lot of synergies there, a lot of opportunity.
Uh, with the Silverback acquisition and everything just kind of really works well together.
That's great, guys. I'll turn it back to the operator.
Thank you. Your next question comes from the line of Kelly Robertson. Your line is open.
uh,
so,
tap 2025 you invested about 41% of your Capital if you compared to
Production still grew. I think on the website over production was up about 7%. Does that tell you something about the underlying performance of the assets that we could see carry into 2026?
With the upcoming Capital program.
Yes. Um, thank you Jeff. Um
Because I, I think I could hear it, maybe some people could couldn't. So yeah, year over year, our our, uh, total production oil was 7 7% higher for oil and 17% higher for total. Uh, meanwhile, our reinvestment rate dropped from 47% last year to 41% here for the first half of the year. So yeah, that's encouraging. Um, most of that was done for the period captured organically. Uh, again with for the listeners, we we hadn't done the cam, the acquisition, yet for the results we've published last year, we had the benefit of a very small acquisition. It was mostly land, um, 200 barrels a day, but Yah Mo mostly, uh, organic there. Um, you know, looking ahead kind of to build on what I was talking about with Derek. Um, we, you know, when you talk about reinvestment rate, the denominator is cash flow. Of course, that's impacted by uh,
Your oil prices on the trailing 12 months. We've benefits, um, from some higher prices. In last year we had some higher prices. Uh, this first half of the year is kind of a blend uh of lower. So the 41% is you know really cutting it back. Looking ahead um cash flow can be a little bit lower because you can have lower oil prices and the hedges locked in for the next year won't be as high as they were for this year. Um,
I would see reinvestment rate going up a bit. I think we are leaning into the asset to try to. We've got a few, uh, or several asset Acquisitions or even this latest was an entity acquisition that have been more undeveloped and, um, and we want to add some production to that we want to, uh, fill up the Midstream, when it's ready. And uh, demonstrate um, what these New Mexico assets can do.
You, you talked a little bit about Capital spend on the Midstream. Can you talk about what Riley could realize as an economic impact?
From the Midstream project, being able to move, third-party volumes.
Yeah, so when we say third-party volumes, um, I think it's important to distinguish, uh, a couple different ways there. So as you know, there's a, we have our, uh, operated volumes that we control the molecule. Um,
And for each, um, each of those molecules, there's a working interest ownership split. We very often in New Mexico will not own a 100% of that, just by the nature of force pooling and it's a little more chopped up than what we have in Texas. Uh, so on average, we might only have 50%, uh, working interest 55 60%, um, which is frankly quite a bit higher than a lot of the, a lot of the peers you'll see out there. Um, and so the balance though, represents something from somebody else that you control, but it's somebody else's. So, you're actually able to build that out and, uh, collect some effective third-party Revenue there.
Even though it's, uh, operated by us. And then in addition, you've got some royalty when it's not the Feds that you can, uh, pick up some of that. Uh, there's another category that's truly third-party operated. Um, there's potential for that, uh, we have to weigh the trade-offs of whether we want to maintain, uh, capacity for ourselves and that's, um,
That's changed after Silverback. We've got a big footprint out there. We're going to want to maintain some of that.
But that's that's part of the calculus. And then as far as this translates to cash flow, um, you know I think it'll it'll take a little while to ramp but then we do plan to charge some Market rates out there and um, we're optimistic that this could translate into 1020, you know, 30 million dollars of cash flow. Um, a few years down the road
This, uh, you know, on an accounting basis. Yeah, let me just say one more thing: on an accounting basis, um, this remains to be seen how we'll do this. But, um, you know, there's effectively the aspect of the growth dollars and then the netting on elimination. If we were to consolidate, uh, some of that, uh, is eliminated and nets out effectively. If the operator is paying ourselves with the Midstream operator as well, um, so that's just kind of a preview of what could come. There are a few ways to do it.
Thanks. And then lastly in the on the power projects are there opportunities, or is there a need in the Mexico for uh for Riley to undertake any power uh solutions for your acreage.
Looking at real hard. Yeah, uh, just to tack on to that. I mean we we're looking at uh, gas compression stations and and in coordination with building those uh putting power, you know, very close by uh to support that as well as the development that we have out there uh you know, with with all the locations that we have to drill.
There is an abundance of power that we're going to need. And uh you know, we just want to secure our future here uh, where we're not uh,
So sure that we're going to be able to be delivered that power by the local co-ops. Um, so we're doing our best to plan for the contingency that we're just going to have to do this all ourselves.
Thank you.
as a reminder, if you would like to ask a question, please press star and the number 1 on your telephone keypad,
Your next question comes from the line of null Parks. Your line is open.
All right, hi. Good morning.
Good morning.
Uh, you know, uh, I just had a couple of things and, uh, 1 is um, I wonder, could could you maybe pivot back a little bit to talking about the water handling opportunity? Um, just, uh, would like to get a little more sense of the, the moving parts of the, the different systems. You're uh, putting together
Yeah, this is Dan. I I'll take that. No, um, yeah. So, uh, moving water out here is is uh, pretty integral to everything that we do. Uh, you know, everything that we produce is produced at a pretty high water cut, uh, and be able to handle that. Uh, uh, waste product is, is really what drives a lot of our Opex, uh, on the production side of things. So, uh, we do a very good job of, uh, managing a very large pipeline system that uh, goes into uh, numerous saltwater, disposal Wells, uh, as well as third-party water handlers. Um, Silverback had a system that is somewhat similar uh it
Is going to be tied into our existing system, offering a little bit more robust overall system that will be able to dispose of even more water. So,
As far as being able to control our destiny. Uh, when it comes to development pace and uh you know how how we want to build out this uh this infrastructure. Um water water is definitely a integral part of that uh that thought process.
I'll say 1 more thing. You're probably watching know which is uh,
You know, take a look at arrows and you recognize the importance of what arrows is getting bought today. So you recognize the importance of it.
Right, right. Um,
uh, thanks and, uh, I just wondering in general, um,
As you're looking at, uh, your activity plan going forward, uh, anything Noble, you're seeing on the service cost side right now.
Yeah, no. Uh, you know, we've already gone out to a handful of our vendors, uh, now that we've increased our scale out there in New Mexico and you know, trying to leverage our our economies of scale there and we we believe that there's definitely an opportunity. Uh, now that we've got more assets to uh uh and and opportunities to offer service companies. Uh, we we've seen anywhere between 5 and 15%. Uh,
Uh uh reductions in cost and and believe that could go even higher uh as as we get into the competitive bidding process.
Oh wow, great 5 to 15%. Okay.
That's great. And, um, this last things are the, uh, just background or housekeeping thing, um, on the Silverback acreage. Uh, is there anything significant? Uh, on the horizon to do as far as PNA work? Uh, since they do have, you know, Legacy vertical production stuff, I just wanted to just much clean up. You have to do out there for that.
Yeah, this is Dan. I'll take that 1 as well. Um, there is always going to be, uh, some Reclamation in PNA work when you're working in New Mexico. Uh, when you're dealing with these old vertical Wells. Uh, that said, we do our very best to, uh, maintain the economic status of these vertical Wells and keep them producing, as long as we can, uh, as long as you've got a producing. Well, there's there's no need to reclaim or or plug anything. So, uh, I I'd say our first and foremost goal is to optimize production and make sure that everything's producing economically. Uh, and and then we, you know, do what we have to do, uh, as required by the BLM, or the nmocd and and the other governing bodies out there.
Got it. Thanks a lot.
you're welcome and there are
Further questions at this time. Thank you everyone for attending. This does conclude today's conference call. You may now disconnect
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