Strategy Execution Drives Value
We hosted a fireside chat with Chairman, President, and CEO Bobby Riley and CFO Philip Riley on April 10, 2024, to discuss Riley’s strategy of delivering value from its conventional asset base in the Permian Basin. This report contains a transcript of the conversation, which can be accessed on demand. Link is accessible in our full report. Riley’s business focuses on acquiring, developing, and producing oil from conventional formations with significant volumes of original oil in place. Management relies on its geoscience team to economically develop incremental oil reserves utilizing modern horizontal drilling and completion techniques. On May 7, 2024, Riley closed the acquisition of incremental acreage in New Mexico, expanding a footprint established through an acquisition in early April 2023. The latest deal added ~13,900 net acres with an estimated 20-25 net horizontal development locations and ~1.1 MBOE/d of production for $20.5 million. Importantly, the purchase brought two saltwater disposal wells, adding critical water-handling infrastructure to the company’s position in the area. Riley capitalizes on opportunities to add value through operational excellence across its two core areas. In the Champions Area in Yoakum County, Texas, Riley formed RPC Power, LLC, a joint venture to supply 20 MW of onsite power generation in March 2023. A reliable base load electricity supply is expected to increase equipment run times while minimizing unexpected workover costs resulting in positive impacts on both revenue and costs. The joint venture’s scope was expanded on May 21, 2024, to initiate sales and dispatchable power and related services to ERCOT with plans for 100 MW of natural gas fueled generation and battery energy storage systems from multiple facilities in West Texas. Riley increased its joint venture ownership to 50% from 35% and agreed to sell up to 10 MMcf/d of gas to RPC Power as feedstock for the new facilities. Riley’s FY24 capital program is geared to deliver ~10% oil production growth from ~10% lower spending levels. Management expects the capital program will benefit from increased drilling efficiencies, decreased oilfield inflationary pressure, and increased competition among service providers. The company generated $70.1 million of adjusted EBITDA in 1Q24 from total production of 20.4 MBOE/d (70% oil). Oil accounted for 98% of total revenue. Free cash flow in the quarter was $23.3 million. Long-term debt decreased $15 million in 1Q24 to $355 million (principal amount). The leverage ratio, based on annualized 1Q24 adjusted EBITDA, was 1.2x. Management’s FY24 production guidance is 21.0-22.5 MBOE/d, including 14.0-15.0 b/d of oil and the E&P capital budget estimate is $109-123 million. FY23 production averaged 18.6 MBOE/d, including 13.2 b/d (71%) oil.
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