Expect 2H23 Free Cash Flow Growth
We are updating our 3Q23 estimates to reflect actual reference prices of $82.26/bbl for oil and $2.66/MMBtu for natural gas. Our FY23 adjusted EBITDA estimate is $257 million, based on average oil and gas reference prices of $79.29/bbl and $2.69/MMBtu. Riley’s 2Q23 production averaged 21.2 MBOE/d (71% oil), representing 109% Y/Y and 62% Q/Q gains. Management’s 3Q23 production guidance is 18.6-19.8 MBOE/d. Initial production from new completions and the April acquisition of producing assets in New Mexico drove the volume growth. 4Q23 volumes could benefit from three completions on wells drilled during 3Q23. For FY23, management’s August 2023 outlook indicated 18.4-19.2 MBOE/d of average production (Figure 1). We expect the addition of a second core area in New Mexico will complement Riley’s legacy Texas assets in the form of a more consistent development program. Capital activity in both core areas could spread activity out and provide some operational cost synergies. Figures 2 through 4 summarize our adjusted EPS and adjusted EBITDA estimates. Our estimates imply Riley is well situated to generate significant free cash flow in 2H23 and FY24. Capital activity slowed in 2H23 following a brisk pace in 1H23. Our model shows ~$57 million of free cash flow during 2H23. Free cash flow would be available to reduce RBL borrowings and fund the quarterly dividend. At the end of 2Q23, long-term debt was $410 million, including $215 million of RBL borrowings and a $195 million principal amount of 10.5% senior unsecured notes. The notes have an amortization feature requiring redemptions at par of $5 million per quarter. Our updated model reflects a 1.1x annualized leverage ratio at YE23 and 0.5x in FY24 (Figure 5). Riley’s balance sheet provides ample financial flexibility to management’s capital plan, strengthen the balance sheet, and fund the dividend. On September 1, 2023, Riley entered an equity distribution agreement allowing for the sale from time to time of up to $50 million of shares of common stock. The authorization could allow the company to access the equity capital markets to fund a compelling investment opportunity. Riley is trading at 2.9x and 2.3x our FY23 and FY24 adjusted EBITDA estimates and a 4.7% dividend yield.
Water Tower Research is built on the foundation of democratizing information flow. We bridge the growing information gap between companies and investors through our investor engagement strategies and open-access research platform.
Our research analysts are Wall Street veterans with the experience and knowledge to work with companies and investors in tandem. We provide access to the information and content that anchors the due diligence process for both professional money managers and individual investors. We leverage traditional research distribution channels and the best of modern digital strategies and tactics to amplify this information flow globally to engage all categories of investors and stakeholders.
Information flow is the foundation for creating investor awareness, knowledge, and engagement. Our mission is to help companies and investors have the tools they need and achieve their goals.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.