Riley Exploration Permian, Inc.

Thank you for standing by. My name is Tina, and I will be your operator today. At this time, I would like to welcome everyone to the Riley Exploration Permian Incorporated First Quarter 2025 earnings conference call. All lines have been pressed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during the time, simply press star followed by the number one on your telephone keypad. If you would like to reply to your question, press star one again. Thank you. I would now like to come to call over to Philip Riley, CFO.

Please go ahead. Good morning. Welcome to our conference call covering first quarter 2025

results. I'm Philip Riley, CFO. Joining me today are Bobby Riley, Sherman and CEO, and John Suter, COO. Yesterday, we published a variety of materials which can be found on our website under the investors section. These materials in today's conference call contain certain projections and other forward-looking statements within the meaning of the Federal Security Laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. The laws will reference certain non-GAP measures. The reconciliation to the appropriate GAP measures can be found in our supplemental disclosures on our website. I'll now turn the call over to Bobby.

Thank you, Philip. Good morning and welcome to our earnings call.

Riley Permian has once again demonstrated capital efficiency with strong performance this quarter. Our modest capital investing during the first quarter allowed us to generate substantial free cash flow and further reduce debt, setting us up favorably for the year ahead. We're excited to announce that we have reached an agreement to acquire silverback exploration for 142 million in cash. This strategic acquisition involves a largely undeveloped asset based in New Mexico, which is contiguous and overlapping with Riley Permian's existing position in the ESO trend, thereby extending our footprint in the region. The asset includes approximately 47,000 networking interest takers and significantly enhances our long-term upstream development potential. It adds over 300 gross incremental undeveloped horizontal locations to our inventory, along with around 50 overlapping gross undeveloped horizontal locations, which will increase Riley Permian's current working interest in existing units. Notably, 98% of the acreage is held by production, providing flexibility for future development. We anticipate further synergies from this acquisition in several areas. Number one, water handling. The asset comes with existing water disposal infrastructure and SWD injection capacity to further support future hydrocarbon production. This is particularly important in New Mexico, with the regulatory bodies making it difficult to get new SWD permits. Number two, gas takeaway. The undeveloped locations will bolster our previous decisions to invest in midstream gas infrastructure in the region. And number three, power generation. We plan to extend our proven processes from Texas to New Mexico, enhancing our power generation capabilities. Despite the current market volatility, we believe this acquisition is justified giving our long-term outlook for both our industry and our company. This year, we are prioritizing the acquisition and preservation of high-quality inventory over the conversion of inventory to production. We believe Riley Permian is well positioned to succeed in the current market environment with our strong asset-based, disciplined capital allocation philosophy and robust hedging profile. Now I'll turn the call over to John Suter, our COO, to discuss operational results for the quarter, followed by Philip Riley, our CFO, who will discuss the acquisition financing and forward guidance. Thank you, Bobby, and good morning. Once again, Riley demonstrated excellence in operations through safe operating practices. The team achieved a total recordable incident rate of zero for the first quarter of 2025. We achieved 93% safe days in the first quarter, a metric requiring no recordable incidents, vehicle accidents, or spills over 10 barrels. This is a record percentage of safe days in a quarter for Riley. Congratulations to the entire team. Moving on to activity, you will remember that we dropped the one rig used in the 2024 campaign in late December. Our 2025 drilling campaign kicked off in Q1, setting our first well for the year in late March. We plan to use the rig to drill a 10-well program this year, replenishing the ducts we completed thus far in 2025. For Q1 2025, we drilled zero, completed 10, and turned in line zero gross operated wells. Five of those completed wells are flowing back now and will begin production in May. The other five wells will come on in the second half 2025 with minor infrastructure additions. Net production declined slightly from 1.45 to 1.41 million barrels of oil quarter over quarter in Q1, but increased 9% compared to the same quarter last year. Equivalent production is up 19% compared to the same quarter last year, from 1.85 to 2.2 million barrels oil equivalent. Our average daily net production was 15.62 thousand barrels oil per day and 24.43 thousand barrels oil equivalent per day for the first quarter of 2025. All of this was accomplished without any new wells being added during the quarter, which is a testament to the high quality assets that we operate. This relatively flat quarter over quarter production outcome was achieved while lowering operating costs. Our LOE for BOE for Q1 2025 was $8.34 for equivalent barrel, a 2% reduction from Q4 2024 and an 8% reduction from the first quarter a year ago. Our operations team prides itself on driving the best economic outcomes no matter what the activity level. Service costs are a subject we're keeping a close watch on, particularly in light of uncertainty around current and future tariffs. That said, based on the recent activity, we see an average of 10% compression in many service costs over last year. While tariffs could have some offsetting impact on tangible costs, even factoring that in, our position remains strong. We're very encouraged by how significantly tangible costs have come down pre-tariffs and even post-tariffs were still well positioned to lower overall well costs. Should we see a significant decline in rig count such as 30, 40 rigs in industry, we believe our cost compression in the range of 20% could be realized. We're very excited about the silverback acquisition that Bobby just mentioned. It roughly doubles the size of our JSO footprint in New Mexico, located adjacent to our Red Lake asset to the west, southwest and overlapping our acreage in many areas. Here are a few more details on some of the synergies that Bobby mentioned with this combination of assets. A large water disposal system with five SWDs that will augment Riley's already robust water operation by roughly 35 to 40%. Water disposal capacity in conjunction with gas take-away are key facets to enabling development plans in this area. A combination of 2.6 million barrels of recycled water storage is located in two primary facilities. This could be a significant cost saving mechanism for Riley crack jobs and aligns us well with the current regulatory environment. With the acquisition of silverback increasing the magnitude of our New Mexico holdings, the value and timing of our midstream project are key for development optionality between both assets. Let me update you on what we've accomplished so far with our project and describe our flexibility of completion. During Q1, we completed the first phase of our New Mexico gathering and compression project with the commissioning of our Burde compressor station on the west side of the Red Lake asset. This was completed on time and on budget. We established roughly 15 million cubic feet per day compression capacity toward our existing gatherers high pressure system and in the process left additional low pressure capacity to fill in the interim. In the short term, this new station will increase our ability to deliver gas from this asset more consistently and reliably. It began initial flows to the purchaser on March 26th. Once our 20th high pressure transmission line to Targa is completed in 2026, we will swing gas deliveries from this station to that outlet. We're currently finalizing the path and purchasing right of way as for our schedule through late summer. As mentioned earlier, we're keeping a close eye on cost. We have the flexibility to order pipe and begin construction at a time that makes economic sense with commodity pricing and cash flow considerations. This station is designed to be expandable to 100 million cubic feet per day with additional compressors installed as needed. Prior to completion of the high pressure transmission line, our goal is to maximize the utilization of the compressor station by focusing on near term development plans approximately to the station. We continue to utilize our power generation station with a greater percentage of our existing Texas assets with 50 to 60% of our power needs provided by self-generation in Q1. We're evaluating the benefits of a similar installation in New Mexico. With the expanded size of our portfolio in New Mexico and infrastructure improvements planned with gas and water, the power generation support will more fully allow us to develop unconstrained. In summary for the quarter, we're pleased with our delivery of relatively flat production at lower LOE, especially considering no new wells turned in line as per plan. We made significant midstream progress with the completion of our compressor station in Redley. All while delivering stellar safety metrics. We picked up a rig and look forward to efficient and cost effective Q2 development. I want to congratulate the Riley Development and Operational Team for a very successful quarter. Phillip, I'll turn it over to you. Thank you, John. Our

first quarter financials are straightforward. We converted $54 million of operating cash flow before working capital to $39 million of upstream free cash flow on account of a wider capex quarter, reinvesting only 35% and upstream while keeping volumes mostly flat. We allocated upstream free cash flow as follows. 56% went to debt reduction in cash, lowering debt by $21 million quarter over quarter to 0.9 times leverage. A combined 23% was invested on midstream and power projects. And 21% was allocated as a dividend. I'll next describe some of the acquisition mechanics and funding estimates. With the transaction effective date of January 1st and an estimated closing date of July 1st, we'll benefit from six months of cash flow that will serve as an adjustment to the funds required at closing. At current prices, this may amount to a $15 million reduction at closing. And after accounting for some transaction expenses, may result in a $130 million draw on the revolver. We do forecast a modest debt increase during the second quarter on a standalone basis, based on current estimates, from the impact of working capital movements. By the third quarter, profile leverage after the acquisition will increase to a level which management and the board is comfortable. And we believe similar to levels where we were at the end of 2023. We'll focus on managing the leverage profile in the second half of the year, which will be impacted by market prices, cash flow and spending. We have a track record of paying cash for an asset and subsequently de-leveraging over time. And that's our plan here. We'll benefit from some innovative hedges coming with the acquisition entity, as well as additional hedges we've put on recently. So to balance the 2025 on a pro-forma combined basis, we've hedged oil prices for 70% of forecasted TDP volumes and 57% of total oil volumes, at a weighted average $67 downside price. For 2026 on a pro-forma combined basis, we've hedged 67% of forecasted TDP volumes at a weighted average $59 downside price. Let's now discuss our modified guidance. In March, we announced 2025 investing guidance calling for material investments across upstream, midstream and power as we seek to build complementary assets and a self-reinforcing model. On our last call, we forecasted staying debt neutral for the year at around $70 WTI. Since then, both real-life prices and the Ford Strip have been well below that level. Additionally, the silverback acquisition opportunity manifested and we and our board decided that was worth pursuing even a volatile down market. Given the combination of these factors, we decided to adjust down our capex across each of upstream, midstream and power. On a standalone basis, before accounting for the acquisition and reinvesting any of its cash flow, we're reducing 2025 total investments by 105 million for 50%, including upstream capex by 41%, midstream capex by 71% and the PowerJV investment by 25%. The impact on standalone upstream volumes is modest with midpoint oil guidance only down 4% and still showing -over-year growth. One way we're achieving this is by turning to sales already completed wells. We plan to complete more wells than we're drilling, only to the fact that we have an inventory of ducks to utilize. We also provide guidance combined with the acquisition showing the second half of 2025 for combined volumes and the full year averages, which only include a half year benefit from the acquisition. At this point, we forecast only modest incremental development activity and reinvestment of the acquisition cash flow, perhaps to net incremental wells, given the currently depressed price outlook. On an inflation adjusted basis, oil prices are at their lowest level in the past 20 years, besides some 12-month periods in 2015, 2016, and then again in 2020. We believe this is a better time to procure and preserve inventory, as Bobby said. We're certainly excited about the long-term development potential of the assets, and while we believe break-even development prices are far below the current market, we believe more favorable market conditions will return for bringing on new production. On the midstream project, John describes how we're spinning selectively, while pausing for now on the order of the pipe material itself. This will help reduce the concentration of the project spend and spread more into 2026. Additionally, we may explore some financing alternatives for the midstream project. There's a scenario where we elect to use entity-level financing and reaccelerate the project. We'll report back next quarter. On power, we continue with good progress and foresee reprioritizing a few elements following the acquisition, including adding battery backup to the self-generation project in Texas, adding another self-generation project in New Mexico, and using the thermal generators from one of the five aircraft projects for that, while finally deferring the battery generation aspect of the aircraft project. Net-net, we forecast this reducing our power, equity, and investment need in 2025 by $5 million, or 25%. I'll

turn it back to Bobby for closing. Thank you. Thank you, Philip. Once again, we

appreciate your time and interest in Riley Permian. While we're pleased with our Q1 2025 results, our focus remains firmly on the future. We are committed to building a long-term value through disciplined capital allocation, strategic infrastructure investments, and operational excellence. Our recent initiatives position us for sustained growth, and we believe our long-term strategy will continue to drive shareholder value well beyond this upcoming year. Thank you for your continued support. Operator, you may now turn the call over for

questions.

At this time, I would like to remind everyone, in order to ask a question, press star Zenda number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Staffer, questions from the line of John White, Rip Rock, Capitol. Please go ahead.

Good morning. Good morning. Good morning. Congratulations on the Silverback acquisition. It looks like

a very nice transaction for you. I was going to ask about the held by production content, but you and Bobby addressed that in his opening remarks. What do you think the motivation for the seller was? Is it driven by private equity structure or something like that? What are you thinking?

Yeah, John, this is Philip. I'll take that.

Yeah, the seller here was one of the large private equity shops, and they often focus on kind of three to five billion type of entities and exits. While this is great scale for Riley-Termian, you know, maybe eventually it was going to be just a bit too small for them. At the same time, there's a real strategic move and unlocking that we're doing here. A lot of the region has been constrained by some infrastructure, including gas. And there are some efforts being made by third party midstream company to alleviate that, but probably insufficiently. So the project that we started in the fall that we announced there in January, building our pipe, really gives us a strategic advantage here. And we believe that we were really best positioned to unlock that,

whereas somebody else really couldn't take advantage of that. Does that help? Yes, very helpful and makes very good sense. Thanks for the extra details, and I'll turn the call back over to the operator.

Hi, our next question comes from line of Jeff Robertson with Water Tower Research. Please go ahead.

Thank you. To follow up on the midstream angle of the silverback transaction, does the larger, essentially contiguous, acreage position change the scope of your midstream project, and are there any issues with bringing their volumes into the system that you all plan to build, and would you be able to capture some additional economic enhancement by adding those volumes through the system that you originally designed?

Yeah, sure. I'll start off here and then pass it to John to add in here. In general, this acquisition absolutely supports our decision to invest in infrastructure. You can see the map, it's a beautiful map there with the complete adjacency and overlapping acreage. What we'd say is we can definitely take advantage of the pipe that we're building. We'll also need more, frankly. We'll have more, we won't need another pipe, but we'll probably want some additional gathering and compression over time. It's not something we'd have to do, that's what John could speak to here, but it does absolutely offer some synergy. We're excited about that. I'm referencing gas here, but it's also water, John talked about that. So yeah, there's absolutely ability to take advantage of that from the upstream side for operations, and then if you put the midstream business hat on, this represents a substantial amount of additional volume that can go through the system. It's slightly lower working interest, pretty similar to what we've got, but as we described in the prior news call, we can bill out key working interest partners and most of the loyalty owners, the Cs there, and so this represents some win-win. John, you want to add something there?

Yeah, I think we're really excited about this. This is an asset we've been interested in for quite some time. As it turns out, our west side compressor station that we just completed was really perfectly placed as it worked out in the end. It is just really proximally close to this asset, the east side of the Silverback asset. So like I always said, there will be some gathering systems to be put in to make full use of it over time, but we're in no rush with the HVP. There's several gatherers out there that are working fine for the moment that we'll work with, but in the wall run, it makes perfect sense to be able to bring in additional gas to our lines of targa. So it really fits in well. If the compressor station had been on the east side of our assets, it would have been a little bit more challenging to get anything over there, so it worked out well. John, does the ability to move gas

more

efficiently have an impact on your ability to produce

oil?

Absolutely. If you don't have gas and water take away, it really does constrain you. And so this puts us in good position to be able to do things as we want when the timing is right. That's the nice thing about this company with the assets we have, with our size, and we're nimble. So when the market turns, we can ramp up, ramp down to take full advantage of it, but you've got to have that infrastructure assets really more so than many other places I've been involved with. So being able to debobble that gas and the water situation allows you to move more oil, which represents more than 95% of current revenue, correct? Yes, it's just a necessary means to get your, to be able to produce the oil, you've got to be able to handle the other byproducts. Right. Philip, can you talk about, maybe this is premature, but can you talk about what impact the silverback assets could have on Riley's borrowing base when you come to your re-determination in the fall? Sure. So,

I'd say that the PDP value here is probably half of the purchase price. This is a largely undeveloped asset, hence all the undeveloped locations we state. If you take that and then cut it in half again, maybe that gives you an indication of what we could get incremental in the borrowing base, so we're not counting on anything, but we're certainly expecting to get something there. We're going to get more probably just from some of the development that we've been doing recently and then in the interim between now and then. We kind of, we didn't trumpet this, but it was buried in our earnings release that we just reaffirmed our borrowing base to $400 million. We're happy to get that done. We might have been a little bit early for some others on the street and no doubt that there's a little bit of choppy water out there given the volatility, the pricing and such. So, we'll see how pricing adjusts through the year, but yes, in short, we'd like to see a little bit of benefit there.

You spoke about hedging and laid in some swaps for 2026. Can you just philosophically talk about how you are thinking about hedging downside risk in the uncertain market environment that we're in right now?

Yeah,

you know, the way we think about hedging is a risk management tool. There's a permanent compliance aspect, but then there's also the risk management perspective, which is more the driving factor. We like to think of that ahead of the troubled times, and so we're fortunate that we did that, but we're not having to hedge now necessarily. Generally, how we treat this is that the more leverage we have that might, and the more fixed costs that we see, commitments that we see, we're going to want some more protection. For example, we had some nice 60 by 80 callers for some of 2026, 60 downside, $80 upside that we decided to convert to some swaps that provided an uplift of maybe five or six dollars when you converted it to a swap, and so that in turn led to say a six or seven dollar premium to what the swap was at the time, which we're happy to do, which gives us just a little bit clearer streaming cash flow there for the upcoming years. For this year, we feel good about it. We have a smaller delta perhaps between CDP and just total volumes on our forecast. Then sometimes we do just keep in work. We're not spending that time this year on the development, as

I

described earlier,

and so that allows for a little bit easier hedging profile as well. Thank you.

Thanks. Lastly on power, are there any significant permitting differences between what you might need to do power wise in New Mexico versus what you've been doing in Texas?

I can start, maybe John can help me, but yeah,

the air permits a little bit more. It's just a functional item you add to the generator in that ER, and so what we're talking about for the behind the meters installation there, which I kind of hinted at there in my prepared remarks, that adds just a little bit of cost, but otherwise

we're looking fine on the permitting and feel pretty good about it. Thank you. As a

reminder to ask a question, press star 1 on your telephone keypad, and our next question comes from the line of Derek Whitfield. Please go ahead.

Good morning guys, and congrats on a strong update in transformational acquisition.

Thank you. Good morning.

It is starting first with the Civil Back acquisition. It is clear the acquisition that purely increases your net undeveloped locations and offers considerable synergy opportunities. Could you guys speak to how this asset competes for capital and the opportunity

you see to create working interests across the position over time?

Yeah,

I think especially

the east side of this asset, the east half, is really we think identical to reservoir quality that we already have, and so it's, I think it's really going to revolve around the infrastructure at least initially. We want to be able to develop maybe the east side of the Novo asset and the west side of the Riley asset as a starting point just to take advantage of that existing compression station and pipeline to target. So that's kind of where we see it, but as far as a economic side, I would say those two areas are really similar.

Great. And then maybe shifting over to the standalone business, it's quite remarkable

the production has only impacted by 3% given the near 50% decrease in 2025 capital. If you guys think about the adjustments you're making to the capital plan for non-GDC capital, does that give you adequate runway once

you're in position to increase capital to the upstream business? Yeah, I can start. You know, it is a

mixture of drilling and completions capital that was cutting, but also some infrastructure admittedly. That was part of the initial kind of $200 million budget that we started with earlier this year. That includes a variety of, you know, say non-power JV power installation like a GME, some water. We also had some growth capital in there, frankly, for some land acquisitions that we kind of earmarked. This acquisition is effectively just a giant land budget there. And so there's some things that we are cutting this year for GMT. There's other things that were effectively deferring, a bit that we're trying to defer, and we'll layer and smooth out over the coming

12 to 24 months or longer. Sure, that's very helpful. I'm going to go back to the operator. One more final question comes from the line of Noel Parks with Three Brothers. Please go ahead. Good morning. Morning. Morning, Noel. I just had a few, just for housekeeping, is there only a huge debt with the transaction? No. Okay, great. And you

did already comment on the hedgers. I'm just curious about what the recent drill bit pace was with Silverback. Have they been better out there or not?

Yeah, they really haven't been too active drilling wise. To be honest with you, it's not because of the quality of what they had to develop. They just were really hamstrung with having a longer term access to infrastructure. I mean, that word keeps coming back up, but they were kind of constrained in that area. They did drill, they have drilled some wells, but they weren't what I would call active.

It's been a year and a half since they drilled their last well.

Wow. So as a host of other PE exercises we've seen over the years, where they really ramp up the production here, sort of come up with a valuation, this is not one of those cases, huh? Right. You could

drill some wells individually, but you really can't drill to scale to be able to do that. Again, that's kind of like we had on our last conference call, Ernie's call, where they asked Bobby about that. But it really gives us a competitive advantage when we hold the key to the infrastructure that we believe would result in opportunities like this. So it's kind of played out to some degree.

Got it. And I guess I was just curious, somebody being asked about the college motivation, but you mentioned that the opportunity was clearly attractive, even in a weaker oil environment. And when I saw the map of where the acreage location was, it's like, okay, you were obviously aware of this mission, this operation. I can't really think of a closer bullseye scene in a duel recently. So did this sort of, I guess maybe the degree of experience in strain, was that evident to you before you got into due diligence? And did it come together relatively quickly, or is this something that has been on the back burner for a long, long time?

You know, I can try to characterize it. Well,

you know, generally people are aware of the regional constraints for gas take-away in the Permian, both in the basin and even up on the northwest shelf. You can look simply at a Laha differential and see how much less valuable gas is here in the Permian versus the Ames, the London, and the Marsalis. So that's not a secret. As far as the deal coming together, you know, I'll say we did our best to make it happen. Obviously, we've worked through some volatility in the past six weeks, and

we're happy to present to you today what we're able to choose. Yeah, I think our technical team

always, they're kind of carbonate experts, I think. And so we're always looking up and down the shelf to see what opportunities are out there if the chance ever exists.

Okay,

well, great. It's good to see the essential high-quality acquisition. I was sort of under the impression that there wasn't a lot out there, that most of what was coming to market was going to be sort of pushed over. So this is like a welcome surprise,

so congratulations. Thank you. And we have one final question

from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Thank you. Bobby, I just wanted to follow up on your comment about the drilling activity in the silverback asset leading up to the sale. It sounds like from your comments you're acquiring an asset base that has a relatively shallow decline, or at least it's not in a flush decline. Is that the right way to think about it as you start to think about laying out a 2026 capital program? You're not really starting at a big deficit from a swimming decline? Exactly. Like Philip said, it's been a year and a half since they drilled something, so it's declines moderated and that won't be a big issue for us. So that will allow you to be more opportunistic to switch your capital if you think about deploying capital in whatever environment we'll be in? Absolutely. You seldom get something like that where you aren't rushing to cover either the decline or the expirations, but we're in really good shape here where we can take advantage of some of the infrastructure they did have on the water side and kind of take our time and deploy money when it makes sense, and again to take advantage of the new compression that kind of borders both of our

assets. Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you all for joining. You may now disconnect.