REPX(US:REPX) Seeking Alphaยท2024-01-07 05:29Core Viewpoint - The investment focus for 2024 is on small-cap companies, particularly Riley Exploration Permian, Inc. (NYSE:REPX), which is expected to benefit from the ongoing demand for oil despite the rise of renewables [4]. Company Overview - REPX is an independent player in the oil and natural gas sector, involved in the acquisition, exploration, development, and production of energy resources primarily in Texas and New Mexico [5]. - The company focuses on the San Andres Formation, a significant geological feature that offers valuable exploration opportunities [5]. Production and Financial Performance - In 2023, the U.S. oil production reached a record high of 13.3 million barrels per day, indicating strong demand for oil [4]. - REPX's production levels grew by 49% year-over-year to 14,000 barrels per day, showcasing strong growth prospects in the Permian Basin [7]. - The company generated $31 million in free cash flow (FCF) last quarter, which is more than its annual dividend payout of $27 million [4][8]. - The stock trades at a low price-to-earnings (P/E) ratio of 4.8, indicating potential for significant upside [4]. Earnings Highlights - For the three months ended September 30, 2023, REPX reported oil and natural gas sales of $107.7 million, net income of $8.6 million, and adjusted EBITDAX of $72.2 million [8]. - Daily combined volumes were 19,949 barrels of oil equivalent (Boe/d), with daily oil volumes at 14,043 barrels [8]. Valuation and Growth Potential - REPX is trading at a significant discount compared to its sector, with a forward P/E ratio of 4.81, which is 54.85% lower than the sector median [11][12]. - A fair valuation multiple of 7.5 suggests a price target of $48 for 2024, assuming a 15% year-over-year growth in earnings per share (EPS) [12]. - The company has expanded its asset base significantly, from $178 million in 2017 to nearly $1 billion, indicating strong growth initiatives [12]. Dividend and Shareholder Value - REPX has consistently raised its dividend, supported by strong FCF generation, making it an attractive option for dividend-seeking investors [4][15]. - The company has reduced its total debts by $10 million in the last quarter, with long-term debts currently at $365 million [10]. Industry Context - The Permian Basin is a highly productive region for oil and natural gas extraction, characterized by low production costs and proximity to established infrastructure [6]. - Despite the volatility in oil prices, REPX has demonstrated resilience and the ability to maintain strong FCF generation [13].