Riley Exploration Permian, Inc.'s Third Quarter 2026 Earnings Conference Call - RILEY EXPLORATION PERMIAN INC

Financial Performance:

• Oil production averaged 25,400 bpd in Q3 2026 (up 20% QoQ, 38% YoY); total production reached 42,000 BOE/d (up 23% QoQ).
• Cash flow from operations was $111 million in Q3 (75% higher QoQ) and $222 million YTD (50% higher YoY).
• Net debt reduced by $28 million to $245 million (35% YoY decrease); $8.4 million in dividends paid; zero buybacks.
• Capex: Accrual capex decreased 39% QoQ to $53 million; cash capex was $66 million due to prior quarter activity payments.
• Balance sheet strength: $450 million borrowing base with $205 million undrawn liquidity; credit facility extended to October 2030.
• $5 million in annual interest expense savings achieved via revolver drawdown to retire 10.5% senior notes at par.

Guidance and Future Outlook:

• No formal 2027 guidance provided yet; expected to be released in March 2027.
• Preliminary 2027 outlook anticipates 30% to 40% year-over-year oil and total production growth.
• Plan to add a second rig in late Q4 2026, transitioning to a two-rig operation throughout 2027.
• Expected to deliver a significant volume ramp in Q1 and Q2 2027 following completion of deferred duct inventory.
• Capital allocation remains flexible, prioritizing internal development while monitoring commodity prices and inflation.

Business Segments and Product Lines:

• Champions (Texas): Oil production up 17% QoQ to 18,500 bpd; 12 wells turned to sales; focus on converting new wells to production.
• Red Lake (New Mexico): Oil production up 30% QoQ to 6,900 bpd despite zero new sales; recovery driven by restored midstream capacity.
• New Resource Opportunity: Evaluation of "San Andreas" formation at Red Lake; potential for 90 net development locations on existing acreage.
• Infrastructure: WaterBridge water handling agreement operational (Sept 2026); Targa high-pressure trunk line operational (Oct 2026).
• Operations: 8.6 net wells drilled, 7.9 net completed, 11.9 net turned to sales in Q3; 17.3 net drilled uncompleted wells (ducts) awaiting completion.

Market and Competitive Landscape:

• Improved midstream infrastructure in New Mexico has removed bottlenecks previously limiting development pace.
• Company views current commodity prices (above $90/bbl) as supportive of their high-growth trajectory.
• Competitive positioning strengthened by existing infrastructure assets and deep inventory, allowing for flexible activity sequencing.
• Market volatility acknowledged; management maintains a disciplined approach to hedging rather than speculation.

Risks and Challenges:

• Execution risk on new San Andreas development targets; EURs and cost metrics not yet fully validated via operated wells.
• Commodity price volatility could necessitate scaling back capital activity.
• Inflationary pressures on inputs (casing, diesel, chemicals) estimated at ~10%, though offset by synergies and efficiency gains.
• Third-party water disposal costs are higher than company-operated systems; trade-off made for capacity and flexibility.

Management Commentary and Tone:

• Tone is highly confident regarding execution capabilities, asset quality, and the ability to grow production while reducing debt.
• Management emphasizes that growth and financial discipline are not mutually exclusive, citing 80% production growth over three years alongside 40% debt reduction.
• Leadership highlights "wave-like" production ramp-ups due to the strategic sequencing of multi-well pad completions.
• Strong emphasis on safety (zero recordable incidents in Q3) as a foundation for scaling operations.

Analyst Questions and Answers:

• CapEx & Inflation: Management confirmed ~10% inflation in costs but believes synergies and contracting flexibility (only 25% of wells/10% of completions contracted) neutralize the net impact.
• San Andreas EURs: No specific EURs provided; plan to use Champion's experience as a baseline but acknowledge reservoir differences in New Mexico.
• Rig Allocation: One rig focused on Champions, one moving to New Mexico in late Q1 to prioritize duct completion and infrastructure filling.
• Cost Structure: Gas gathering costs expected to remain similar; water disposal costs higher but offset by the ability to develop at a faster pace; NGL yields expected to improve with new equipment.
• Hedging Strategy: Reduced hedging levels for 2027 (under 60% for remaining 2026, ~50% for Q1 2027) to align with a healthier balance sheet and reduced capital obligations.

Other Key Points:

• 90% of drilled uncompleted wells are in New Mexico; 10 of 24 New Mexico wells have been fracked, with flowback expected to begin impacting production in early January.
• Co-development of San Andreas with Paddock and Blind Baye (YASO package) on single pads is the preferred method to optimize fracking energy and reduce rig move costs.
• Inventory planning for 2027 involves a mix of Paddock, Blind Baye, and San Andreas, utilizing larger multi-well pads.
• Company operates with a "net zero" inflation assumption by offsetting cost increases with operational synergies.