REPX(REPX) - 2022 Q4 - Annual Report

Part I Business and Properties Riley Exploration Permian, Inc. is an independent oil and natural gas company focused on the horizontal development of the San Andres formation in the Permian Basin, aiming to grow cash flow, identify new investment opportunities, and distribute returns to stockholders Overview and Strategy The company is an independent oil and gas entity focused on acquisition, exploration, and development in the San Andres formation of the Permian Basin[22] - In February 2023, the company agreed to acquire oil and gas leases in Eddy County, New Mexico for approximately $330 million, partially financed by $200 million in new Senior Notes[26][27] - Business strategy focuses on three core pillars: growing cash flow from operations, identifying new investment opportunities (including CCUS projects), and distributing excess returns to stockholders through dividends[30] - The company is developing an Enhanced Oil Recovery (EOR) project in Yoakum County, Texas, by injecting water and CO2 to lower decline rates and increase oil recovery[28][60] Properties and Reserves Company Properties Overview (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Net Acres | ~30,470 | | Net Producing Wells | 100 | | Operated Net Production (FY2022) | 93% | | Average Working Interest (Operated) | 95% | | Average Net Daily Production (FY2022) | 11,505 Boe/d | Estimated Proved Reserves Summary | Reserve Category (thousand barrels of oil equivalent) | Dec 31, 2022 | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | :--- | | Proved Developed Producing | 49,122 | 40,968 | 30,186 | | Proved Developed Non-Producing | 0 | 548 | 0 | | Proved Undeveloped | 28,551 | 30,647 | 26,601 | | Total Proved Reserves | 77,673 | 72,163 | 56,787 | - Proved Undeveloped Reserves (PUDs) decreased from 30,366 thousand barrels of oil equivalent at the end of 2021 to 28,551 thousand barrels of oil equivalent at year-end 2022, primarily due to downward revisions of 7,411 thousand barrels of oil equivalent attributed to increased costs and decreased well projections, which offset 7,037 thousand barrels of oil equivalent of extensions and discoveries[39] - The estimated future development cost for PUDs as of December 31, 2022, is approximately $324.4 million, expected to be financed through cash flow from operations and borrowings[40] Drilling, Acreage, and Production Drilling Results (Productive Wells) | Well Type | Year Ended Dec 31, 2022 (Net) | Year Ended Sep 30, 2021 (Net) | Year Ended Sep 30, 2020 (Net) | | :--- | :--- | :--- | :--- | | Development | 14 | 13 | 3 | | Exploratory | 0 | 1 | 0 | | Total | 14 | 14 | 3 | Acreage Statistics (as of Dec 31, 2022) | Acreage Type | Gross Acres | Net Acres | | :--- | :--- | :--- | | Developed | 37,984 | 27,107 | | Undeveloped | 6,024 | 3,363 | | Total | 44,008 | 30,470 | Production and Average Prices | Metric | Year Ended Dec 31, 2022 | Year Ended Sep 30, 2021 | | :--- | :--- | :--- | | Production | | | | Total Production (thousand barrels of oil equivalent) | 4,199 | 3,154 | | Avg. Daily Production (barrels of oil equivalent per day) | 11,505 | 8,640 | | Avg. Realized Prices (pre-hedges) | | | | Oil ($/Bbl) | $92.86 | $58.29 | | Natural Gas ($/Mcf) | $3.33 | $2.88 | | Combined ($/Boe) | $76.05 | $47.12 | | Avg. Realized Prices (post-hedges) | | | | Combined ($/Boe) | $58.13 | $41.95 | Marketing, Regulation, and Human Capital - The company has significant customer concentration, with one purchaser accounting for 89% of revenue in the year ended December 31, 2022[73] - Operations are substantially affected by federal, state, and local laws, including regulations on drilling permits, well spacing, production rates, environmental protection, hydraulic fracturing, and greenhouse gas emissions[79][96] - As of December 31, 2022, the company employed 65 people and is not a party to any collective bargaining agreements[123] Risk Factors The company faces a wide range of risks inherent to its business and the oil and gas industry, including commodity price volatility, reserve estimate accuracy, capital access, geographic concentration, and regulatory changes - Business & Operational Risks: An extended decline in commodity prices could adversely affect business, financial condition, and the value of reserves; reserve estimates are based on assumptions that may prove inaccurate[133][147] - Geographic Concentration Risk: Substantially all producing properties are located in the Northwest Shelf of the Permian Basin, making the company vulnerable to regional risks like regulatory changes, infrastructure constraints, and competition for personnel[159] - Regulatory & Environmental Risks: Federal, state, and local initiatives related to hydraulic fracturing, GHG emissions, and climate change could result in increased costs, operating restrictions, and reduced demand for oil and gas[240][247] - Financial & Market Risks: Covenants in the revolving credit facility may restrict business activities and the ability to pay dividends; derivative activities could result in financial losses; the market price of the company's common stock may be volatile[196][204][261] - Company-Specific Risks: Executive officers, directors, and principal stockholders own 77.3% of the company's stock, giving them significant influence over corporate matters[279] Legal Proceedings The company was involved in an adversary proceeding related to the bankruptcy of Hoactzin Partners, L.P., concerning alleged fraudulent transfers, which was fully resolved through a settlement agreement in October 2022 - On October 13, 2022, the company entered into a settlement agreement to resolve the Hoactzin Partners L.P. adversary proceeding, agreeing to pay $80 thousand to the bankruptcy trustee[290] - In November 2022, the Bankruptcy Court approved the settlement, the payment was made, and the proceeding against the company was dismissed with prejudice[291] Part II Market for Common Equity, Stockholder Matters, and Issuer Purchases The company's common stock is listed on the NYSE American under "REPX", declared significant quarterly dividends totaling approximately $25.3 million in FY2022, and limited share repurchases to employee tax withholding purposes - The company's common stock trades on the NYSE American under the symbol REPX, with approximately 121 holders of record as of March 1, 2023[295] Dividends Declared | Period | Total Dividends Declared | | :--- | :--- | | Year Ended Dec 31, 2022 | ~$25.3 million | | Three Months Ended Dec 31, 2021 | ~$6.2 million | | Year Ended Sep 30, 2021 | ~$10.6 million | - For the year ended December 31, 2022, the company repurchased 44,738 shares at an average price of $22.11 per share, solely for employee tax withholding purposes on vesting transactions[301] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a significant increase in production and revenue for the year ended December 31, 2022, driven by successful drilling activities and higher commodity prices, while maintaining a strong liquidity position Results of Operations Revenue and Production Comparison | Metric | Year Ended Dec 31, 2022 | Year Ended Sep 30, 2021 | | :--- | :--- | :--- | | Oil and Natural Gas Sales | $319.3 million | $148.6 million | | Total Production (thousand barrels of oil equivalent) | 4,199 | 3,154 | | Avg. Realized Price ($/Boe) | $76.05 | $47.12 | - Total oil and natural gas revenue increased by $170.7 million (115%) in FY2022, driven by a 61% increase in the average realized combined price and a 33% increase in production volumes[316][304] - Lease operating expenses (LOE) increased by $10.5 million, primarily due to higher workover expenses ($5.4 million) and increased costs for electricity, chemicals, and new wells coming online ($4.2 million)[323] - A proved property impairment loss of $7.3 million was recognized for the year ended December 31, 2022, related to the New Mexico field, as the company focused drilling efforts on its Yoakum County acreage[332] - The company recorded a total loss on derivatives of $51.6 million, which included $75.3 million in cash settlement losses, partially offset by a $23.7 million non-cash gain on the change in fair value of contracts[337][338] Liquidity and Capital Resources - Primary sources of liquidity are cash flow from operations and borrowings under the revolving credit facility; cash flow from operations increased 98% to $170.3 million for the year ended Dec 31, 2022[342][346] - As of December 31, 2022, the company had a working capital deficit of $25.3 million, an improvement from a $32.8 million deficit a year prior, primarily due to a decrease in current derivative liabilities[343] Revolving Credit Facility Status (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Borrowing Base | $225 million | | Outstanding Borrowings | $56 million | | Available Capacity | $169 million | Critical Accounting Estimates - The company utilizes the successful efforts method of accounting, which requires significant management judgment in classifying wells as developmental or exploratory and assessing costs for capitalization or expense[355] - Estimates of proved oil and natural gas reserves are a major component of the depletion calculation and impairment assessments, prepared by a third-party consulting firm and inherently imprecise[359] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes, and the independent auditor issued an unqualified opinion - Based on an evaluation as of December 31, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[368] - Management assessed the effectiveness of internal control over financial reporting using the COSO 2013 framework and concluded that, as of December 31, 2022, it was effective[370] - The independent registered public accounting firm, BDO USA, LLP, audited the company's internal control over financial reporting and opined that it was maintained effectively in all material respects as of December 31, 2022[373] Part III Part III Items 10 through 14, covering Directors, Executive Compensation, Security Ownership, Certain Relationships, and Principal Accountant Fees, are incorporated by reference from the company's definitive proxy statement, to be filed within 120 days after the fiscal year-end Part IV Exhibits and Financial Statement Schedules This section contains the consolidated financial statements and a list of exhibits filed with the report, including key agreements for the New Mexico Acquisition and Senior Notes - The consolidated financial statements are referenced as appearing on page F-1[388] - Key exhibits filed include the Purchase and Sale Agreement dated February 22, 2023, for the New Mexico Acquisition and a related Commitment Letter for $200 million in Senior Notes[392] Financial Statements and Supplementary Data The consolidated financial statements present the financial position and results of operations for Riley Exploration Permian, Inc., with total assets of $515.3 million and net income of $118.0 million for the year ended December 31, 2022, and proved reserves of 77.7 million barrels of oil equivalent with a standardized measure of $1.11 billion Note 4. Acquisitions - The February 26, 2021 merger with Tengasco, Inc. was accounted for as a reverse merger, with REP LLC as the accounting acquirer, for a total consideration of approximately $26.4 million[508][509] Purchase Price Allocation for Tengasco Merger (in thousands) | Category | Fair Value | | :--- | :--- | | Total assets acquired | $9,593 | | Total liabilities assumed | $2,214 | | Net identifiable assets acquired | $7,379 | | Goodwill | $19,013 | | Net assets acquired | $26,392 | Note 9. Revolving Credit Facility - In 2022, the company amended its credit agreement, increasing the borrowing base to $225 million and extending the maturity to April 2026[546] - As of December 31, 2022, the company had $56 million in outstanding borrowings and $169 million available under the facility, and was in compliance with all covenants[551] Note 15. Subsequent Events - On February 22, 2023, the company agreed to acquire oil and gas interests in Eddy County, New Mexico from Pecos Oil & Gas, LLC for approximately $330 million[592] - The New Mexico Acquisition will be funded through an amended credit facility (up to $130 million) and the issuance of $200 million in new 10.5% unsecured senior notes due in five years[593][594] - In anticipation of the acquisition, the company significantly increased its commodity derivative positions for 2023, 2024, and 2025[595][597] Note 16. Supplemental Information on Oil and Natural Gas Operations (Unaudited) Changes in Proved Reserves (thousand barrels of oil equivalent) | Description | Total (thousand barrels of oil equivalent) | | :--- | :--- | | Balance at Dec 31, 2021 | 73,407 | | Extensions and discoveries | 14,796 | | Revisions | (6,331) | | Production | (4,199) | | Balance at Dec 31, 2022 | 77,673 | Standardized Measure of Discounted Future Net Cash Flows (in thousands) | Description | Dec 31, 2022 | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | :--- | | Future net cash flows | $2,576,563 | $1,785,071 | $1,401,491 | | 10% annual discount | $(1,468,187) | $(1,081,602) | $(848,555) | | Standardized Measure | $1,108,376 | $703,469 | $552,936 | - The standardized measure increased from $703.5 million at the end of 2021 to $1.11 billion at the end of 2022, primarily driven by a net positive change in prices and production costs of $406.8 million and extensions/discoveries of $321.0 million[623]