Riley Exploration Permian, Inc.

and I will be your conference operator today. At this time, I would like to welcome everyone to the Riley Exploration Terminate Second Quarter 2025 Earnings Conference Call. All lines can be placed on mute to prevent any background noise. After the speakers are marked, there will be a question and answer section. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and one. I'm now gonna call over to Philip Riley, CEO, you may begin.

Good morning. Welcome to our conference call covering the second quarter 2025 results. I'm Philip Riley, CFO. Joining me today are Bobby Riley, Chairman and CEO, and Dan Doherty, SVP of Operations. 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 uncertainty that may cause actual results to differ materially from those expressed or implied in these statements. We'll also reference certain non-GAAP measures. The reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure 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 demonstrated solid overall performance in the second quarter despite a less favorable oil macro backdrop and regional operating environment. We adjusted our development activity and capex downward in response to lower oil prices and we generated significant free cash flow for the first half of the year. Our development activity was a success and our activity was moderated but demonstrated good execution overall with positive momentum continuing on growing completion times and costs. We experienced some production impacts from infrastructure challenges common to many companies in the Permian Basin. Most notably was unreliable natural gas processing in New Mexico which leads to strutting wells and deferred production. As a courtesy reminder for our investors, the larger value driver at hand is not to defer gas revenue which is immaterial but rather the oil revenue. New Mexico is a zero-flaring state so disruptions on gas locally or downstream can result in disruptions to oil production. While disruptions in the second quarter are frustrating, fortunately this is a timing issue versus fundamental well performance issues. Also these types of hurdles present opportunities that underpin several of our initiatives including midstream and power generation projects which we continue to advance. These projects are designed to enhance gas and oil flow assurance and support access to a stable power supply. Together these efforts strengthen our ability to scale operations through acquisitions providing a competitive edge to our peers in a dynamic energy environment. We closed our acquisition of silverback exploration in July. With this deal we've increased our yeso trend footprint to 30,000 net acres, 98% of which is held by production. This region today represents only a quarter of the company's total production yet offers substantial undeveloped potential for future growth. I will now turn the call over to Dan Doherty who is sitting in today for John Suter, our COO to discuss operational results for the quarter followed by Philip Riley, our CFO who will discuss the company's financial performance and forward looking guidance. Thank you Bobby and good morning. Riley Cronian has once again shown excellence in safe operations, achieving a total recordable incident rate of zero in the second quarter. We achieved 97% safe days, a metric requiring no reportable incidents, vehicle accidents or spills over 10 barrels. This is a record number of safe days for the second quarter in a row, a testament to our commitment to safe operating. As for activity, for the second quarter of 2025, we drilled 10, completed two and turned in line seven gross operated wells. Five of those wells turned in line were completed at the end of the first quarter. We mentioned on the previous call that we picked up a rig in Q1, splitting the first low in that campaign in Texas in late March. That rig completed its general program in the second quarter, replenishing our duck inventory that will carry completions into 2026. During this drilling campaign, Riley set multiple Yolkin County records in the sanators, including longest lateral drill at 10,375 feet, as well as fastest fled to TD and fastest fled to rig release for both one and two mile wells. We did see some impact from tariffs during the campaign, most significantly in the form of higher pipe pricing, due to the added drilling efficiency, however, we were able to keep total cost down compared to our previous drilling efforts, reducing our total average drilling cost per lateral flip by 15% over our previous program in 2024, despite the added tariff costs. Overall, this campaign was the most efficient and cost effective to date. Net production declined marginally from 1.41 to 1.38 million barrels of oil, quarter over quarter in Q2, but increased 3% compared to the 10 quarter last year. Barrel of oil equivalent production is up 1% quarter over quarter, and up 14% compared to 10 quarter last year, from 1.94 to 2.22 million barrels of oil equivalent. Our average daily net production was 15.2 thousand barrels of oil per day, and 24.4 thousand barrels of oil equivalent per day for the second quarter of 2025. Despite the decline in oil production within the quarter was due primarily to gas takeaway constraints with our current midstream partner in New Mexico. These gas takeaway constraint events result in us deferring oil volumes to future quarters, and are the foundational reason for our investing in gathering compression in the asset. Last quarter we announced that we had completed our first phase of this gathering compression. Since then, this initial phase has allowed us to sell up to 15 million cubic feet in high pressure gas for our current midstream partner, mitigating some of the gathering constraints that we've experienced and allowing us to bring on new production. During the second quarter, we continue to make progress on the subsequent phases of the project as we work towards planned 2026 in-service case for deliveries to our new midstream partner. An expansion of the initial BIRDY compression stations to 55 million cubic feet a day is already underway, with the additional compression schedules to arrive in late Q4. Maintaining low operating costs remains a primary focus for our operations team. Our average upstream LOE per DOE in the first two quarters of 2025 is down .7% over our 2024 average. As power becomes an increasingly precious commodity in the Permian Basin, managing our own power production will be an integral piece to our unconstrained development. In the second quarter, we add an additional 9% to our sub-generated power in Texas. The continued efficiency and reliability of the power project has led to the initial training phases at a similar installation of our next process. With the Silverback acquisition closing, the Wiley Permian operations team has already identified numerous opportunities, synergies, and cost savings to underscore the intrinsic value of the acquisition. Managing water handling costs is integral to our business, and leveraging our expertise in the matter will decrease operating expenditures within the new asset. Combining water infrastructure between our legacy assets and Silverback will also drive efficiencies and opportunities as we continue to develop in New Mexico. Due to the significant overlap of the legacy and Silverback acreage, we are able to increase the expected net interest of many of our development locations. This will allow us to produce more net barrels for the same amount of gas, water, and power infrastructure investments. Nearly doubling the scale of our operations in the region will also give us a strategic advantage when going to close services. We believe this could lead to savings of 5% to 15% for many regularly used services. Finally, with minimal build-outs, existing gas production in the Silverback wells can be brought to our construction station, allowing for quicker scale and improving project economics. To summarize, in the second quarter, the Liley-Permian team had a low successful drilling target and to date, he maintained low operating costs. Our mid-stream and power projects are continuing to prove their value in the form of reliability and increased optionality, and we continue to find significant synergies in our recent Silverback acquisition. And all of this was done while achieving record safety metrics. Congratulations to the team on a job well done. Philip, I'll now turn the call back to you.

Thank you, Darren. Second quarter cash flow from operations was $33.6 million, lower quarter over quarter primarily from price and changes in working capital. Realized oil prices for hedges fell 11% quarter over quarter for 22% year over year, while prices after hedges by only 7% quarter over quarter were 14% year over year, demonstrating the benefit of that risk management program. We had a million dollar non-cash impairment on a small asset far outside either of our two core areas driven by lower prices, which shows up on the income statement. Combined LOE and cash GNA for BLE decreased by 5% to 7% as compared to the same period one and two years ago. Addressed a user-backed margin of 65% down modestly from 71% one year ago in spite of the lower oil prices. We believe this demonstrates the resiliency of our business and the positive impacts of structural cost improvements. We reinvested 54% of cash flow from operations before working capital into upstream capex during quarter, from only 41% for the six months year to date compared to 47% for the same period in 2024. This lower reinvestment rate reflects our response to lower oil prices, which we discussed in our prior quarterly call and which corresponds with our production volumes. Also, 40% of the year to date capex spend relates to drilling 10 net wells, which was only 10 sales 5.8 net wells, highlighting an inventory build of uncompleted wells. We converted 59% of year to date operating cash flow before working capital to 61 million of upstream free cash flow or 54 million of total free cash flow after midstream capex. The quarterly increase in debt, $284 million at quarter end, was given primarily a combination of normalized networking capital changes as well as funding the deposit for our silverback acquisition. Subsequent quarter end, we closed the silverback acquisition, which was funded with our credit facility. As of August 1st, we had 401 million in total debt, including 246 million on the credit facility and 155 million of notes, or 381 million of net debt, excluding 20 million of cash. That level is an increase of 131 million of net debt from the end of the first quarter, consisting of 125.5 million for silverback, which reflects a preliminary purchase price benefit of 16.5 million, as well as $5 million related to some working capital needs. Now let's discuss our latest guidance. First, on the full map and periods disclosed, we're providing activity, production, and capex guidance for the third and fourth quarters. It was updated the full year figure. I'll remind our listeners that this reflects six months of stand-alone for the first half of the year, with six months combined with silverbacks for the second half of the year, hence a blended average relative to what we'll see for the third and fourth quarter levels. We've provided cost guidance for the current quarter. A couple items may drive LOE higher in the near term. First, I'll note that silverback is a primarily undeveloped asset base with a large number of low volume vertical wells holding the acreage, but which also correspond with higher per unit costs. This will come down over time as we develop the asset. Second, we've got a modest amount of midstream op-ex flowing through this LOE category for now, skewing the appearance of higher upstream costs. We might choose to break this out at a later date. To recap our capital budget guidance for the year, in March we announced a $210 million budget across upstream midstreams in power. Following the significant price decline in April, we announced on our 2-1 earnings call an approximate $110 million budget for a very significant 47% cut from the original. We're now adding back a modest amount of drilling and confusion activity and further midstream and power investments. We're bringing back the rig with 10 gross new drills, accounting for approximately 60% of the increased spend as compared to prior guidance. We also plan on completing an additional two and a half net wells as compared to our prior guidance, accounting for the balance of the incremental spend. Overall, this could result in a smaller drawdown of drills and uncompleted wells, or DOPs, maintaining an inventory to draw from and setting up 2026 for maximum flexibility. We also see additional growth as compared to prior guidance, with fourth quarter midpoint oil production in the mid 18,000 barrels per day level for oil and over 30,000 barrels per day for total equivalent. That suggests 21% growth from second quarter to fourth quarter for oil and 27% for total equivalent. The oil growth represents a combination of organic growth and the impact of adding silverback accounting for full year base decline of about 25% of silverback from the beginning of year level cited upon the oil announcement. We see the total equivalent production growing faster than oil because our Texas midstream partner completed some upgrades, which leads to more processed gas and less squaring, combined with some tighter potential basis differentials, hopefully this leads to positive gas and NGO revenue in the second half of the year. From a broader perspective, this oil growth represents a 26% average annual growth rate from the same period in 2021, or 23% on an oil production per share basis. While encouraging, we're staying disciplined and I'll emphasize this represents a modest increase in capital allocation corresponding with an approximate 45% upstream reinvestment rate of cash flow from operations before working capital. On a new Mexico midstream projects, we're bringing forward some tap backs into this year, which primarily relates to the additional compressor as Dan mentioned earlier this year, as well as the cost of the steel pipe. On the pipe, we had an opportunity to commit to a purchase at an attractive price and an advance of any tariff impact. On power, the increase forward investment as compared to last quarter, just represents a small acceleration of some project spend and overall timing is looking like in-service starting in 2026. We remain cautious on the macro front and we'll watch culturally during the second half of this year to see how OPEC's actual market is supply compared to the plan unwind of costs and for how the market is or such increases. So while we're positioning ambitious group projects and acquisitions, we're also positioning our company for resilience and flexibility in the face of uncertainty. We added hedges over the past quarter, primarily for the next 18 months to mitigate the impact of price swings. On debt leverage, we forecast modest pay down this fall at $65 WTI, partially contingent on the pace of our midstream build out. If we were to look at that on a pro-formal combined basis, we could have several quarters beginning being in the range of 1.3 times adjusted EBITDAX or slightly higher 1.4 times on a standalone basis. I'll turn it back to Bobby for closing. Thank you.

Thank you, Phillip. Once again, we appreciate your time and interest in Riley Permian. While we're pleased with our Q2 2025 results, our focus remains firmly on the future. We're committed to building long-term values through disciplined capital allocation, strategic infrastructure investments, and operational excellence. We believe these initiatives will position us for sustained growth, and this long-term strategy will continue to drive shareholder value. 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 and the number one on the telephone keypad. Your first question comes from the line of Gary Ritchfield. Your line is open.

Good morning, guys, and thanks for your time. For my first question, I wanted to focus on your production directory into 2026. With your revised upstream capital plan, your 4Q XOA is materially above 2026 consensus. While I realize you're not offering 2026 guides today, is the second half capital run rate an easy place to start for 2026? And how does that run rate compare to your maintenance capital case for

that post-women company? Yeah, good morning, Derek. This is Philips, I'll start with

that. Yeah, we're excited about the fourth quarter exit rate production you see there. We are increasing our capital. I think if you look at the year, we like to break out the upstream from the midstream in total. You can see we're still under $100 million at the midpoint for the year. Now, compared to some years past, and we're quite a bit higher even in several years, we've got more assets now. So I think you could imagine a budget and maybe call it $120 million next year if we wanted to continue the growth that we are. You know, on maintenance capex, it's a little bit of an abstract concept, but I think you can look and see what we've done over the last quarter too. We kept things pretty flat with very little investment. That always gets a little skewed when you're drilling and creating ducks or possibly using them, but directionally you can see that there, maybe that's in the 35 to 40% reinvestment rate of cash flow. I'll remind our listeners when we say cash flow, we mean after interest after tax, not even though, so that's an even lower percentage of even though. Does that answer some of your questions? Anything more we can clarify there, Derek?

I think that's great, Phillip. And maybe shifting over to midstream from our follow-up, could you speak to your latest thoughts on what's the most likely outcome for funding this development and the degree of flexibility you guys have in New Mexico to navigate the constraints given your and Silverback's collective arrangements?

Sure, so yeah, I think what

Derek alluded to, we hinted last quarter we were considering different ways to finance this. We started the year thinking we just keep this going on the balance sheet, use the credit facility, other financial adjustments after the big macro events and then finding the current acquisition. The latest is, we're still working through it, we've got a few options, ideas we like. At spend time we're controlling the pace, that's a great thing about building it yourself. We are making commitments like we've disclosed in our 10 Q as we discussed, discussing compressors coming, we've got that pipe we're excited about. We're doing a little work like some right of way, that's some of that spending that you'll see there. All while kind of trying to meet our in-service data in a few quarters from now. But we've got some flexibility I'd say, hang tight for a little bit longer and we've got some hopefully some more updates to give you. As for the operational aspects of the midstream, I think we've got some flexibility, there's a difference between low pressure and high pressure but maybe I'll turn this to Dan, I think he could probably explain it.

Yeah, thank you Phil. Couple things on this, one you mentioned Silverback, I think we're pretty well positioned to incorporate Silverback into this existing midstream plan. We've already got plans to bring on between five and 10 million a day over to our high pressure system from the Silverback system with our initial birdie compressor. There's also a lot of overlap as I mentioned with the existing Arteza area which will focus on our development in the 2026 timeframe. Midstream is really going to be focused on servicing those initial wells that will be growing in 2026. So a lot of synergies there, a lot of opportunity with the Silverback acquisition

and everything's really worked well together. That's

great guys, I'll turn

it back to the operator.

Thank you, your next question comes from a line of Kelly Robertson, your line is open.

Good morning, so past 2025

you invested about 41% of the capital compared to 10% in personal debt. The production still grew I think on the well that 10% goal production was about 17%. Does that tell you something about the underlying performance of the assets that we could see carry into 2026 with the upcoming capital program?

Yes, thank you Jeff.

I'm going to repeat what you said because I think I could hear it and maybe some people couldn't. So yeah, year over year our total production, oil was 7% higher for oil and 17% higher for total. Meanwhile our reinvestment rate dropped from 47% last to the 41% here for the first half of the year. So yeah, that's encouraging. Most of that was done for the period captured organically. Again, for the listeners we hadn't done the acquisition yet for the results we published. Last year we had the benefit of very small acquisition, it was mostly land, 200 barrels a day. But yeah, mostly organic there. Looking ahead, kind of to build on what I was talking about with Derek. We, you know, when you talk about reinvestment rate the denominator is cash flow. Of course that's impacted by your oil prices on the trailing 12 months we've benefited from some higher prices. And last year we had some higher prices. This first half of the year is kind of a blend of lower. So the 41% is really cutting it back. Looking ahead, cash flow can be a little bit lower because you can have lower oil prices and the hedge is locked in for the next year won't be as high as they were for this year. I would say reinvestment rate going up a bit. I think we are leaning into the asset to try to, we've got a few, several asset acquisitions or even this latest is an entity acquisition that has been more undeveloped and we wanna add some production to that. We wanna fill up the midstream when it's ready and demonstrate what these New Mexico assets can do.

Can you talk a little bit about capital spend from this view? Can you talk about what Riley could realize as the economic impact from the midstream project and being able to move third party volumes?

Yeah, so when we say third party volumes, I think it's important to distinguish a couple different ways. So as you know, we have our operated volumes that we control the molecule. And for each of those molecules there's a working interest ownership split. We very often in New Mexico will not own 100% of that just by the nature of course pooling and it's a little more chopped up than what we have in Texas. So on average we might only have 50% working interest, 55, 60%, which is frankly quite a bit higher than a lot of the peers you'll see out there. And so the balance though represents something from somebody else that you control but it's somebody else's. So you're actually able to build that out and collect some effective third party revenue there even though it's operated by us. And then in addition you've got some loyalty when it's not the feds that you can pick up some of that. There's another category that's truly third party operated. There's potential for that. We have to weigh the trade-offs of whether we wanna maintain capacity for ourselves and that's changed after Silverback. We've got a big footprint out there. We're gonna wanna maintain some of that. But that's part of the calculus and then as far as this translates to cash flow, I think it'll take a little while to ramp but then we do plan to charge some market rates out there and we're optimistic that this could translate into 10, 20, 30 million dollars of cash flow a few years down the road. This on an accounting basis, let me just say one more thing. On an accounting basis, this remains to be seen, how we'll do this but there's effectively the aspect of the gross dollars and then the netting on elimination if we were to consolidate some of that. It's eliminated, net balance effectively if we're the operator of paying ourselves to be the misstream operator as well. So that's just kind of a preview of what could come and there's a few ways to do it.

Excellent, lastly on the power project, are there opportunities or is there a need in New Mexico for Riley to undertake any power solutions for your acres?

Yeah, I'll say a couple things and turn it to Dan. There absolutely are, we kinda hinted at it. We haven't formalized anything yet but as Bobby said, it's critical for operations out there. There's frankly a much longer wait for power in New Mexico. So it's something we're looking at real hard.

Yeah, just to tack on to that, I mean we were looking at gas compression stations and in coordination with building those, putting power very close by to support that as well as the development that we have out there. With all the locations that we have to drill, there is an abundance of power that we're gonna need and we just wanna secure our future here where we're not so sure that we're gonna be able to deliver that power by the local co-ops. So we're doing our best to plan for the contingency that we're just

gonna have to do this all ourselves.

Thank you. As a reminder, if you would like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from a line of Mill Park. Your line is open.

Hi, good morning. You know, I just have a couple things and one is, I wonder, could you maybe pivot back a little bit to talking about the water handling opportunity? Just, I would like to get a little more sense of the moving parts of the system here put together. Yeah, this is Dan. I'll take that role.

Yeah, so moving water out here is pretty integral to everything that we do. You know, everything that we produce is produced through a pretty high water cut and being able to handle that waste product is really what drives a lot of our optics on the production side of things. So we do a very good job of managing a very large pipeline system that goes into numerous saltwater disposal wells, as well as third party water handlers. Silverback had a system that is somewhat similar. It is going to be tied into our existing system, offering a little bit more robust overall system that will be able to dispose of even more water. So as far as we know, we control our destiny when it comes to development pace and, you know, how we want to build out this infrastructure, water is definitely a integral part of that. That thought process.

I'll say one more thing you're

probably watching though,

which is,

you

know, take a look at Eris and you recognize the importance of, what Eris has given on today. So you recognize the importance of it. Right, right. Thanks, and just wondering in general, as you're looking at your to-be plan going forward, anything you know you're seeing on the service cost side right now? Yeah, no,

you know, we've already gone out to a handful of our vendors. Now that we've increased our scale out there in New Mexico and trying to leverage our economies of scale there. We believe that there's definitely an opportunity now that we've got more assets to, an opportunity to offer service companies. We've seen anywhere between five and 15%. Reductions in cost and believe that could go even higher as we get into the competitive bidding process.

Oh wow, great, that's interesting. Okay, that's great. And just a last thing, sort of a just background or housekeeping thing. I'm just wondering about Gate Bridge. Is there anything significant on the horizon to do as far as P&A work, since they do have, you know, legacy vertical production stuff there? Just wondering if there's much cleanup you have to do out there for that. Yeah, this is Dan, I'll take that one as well.

There is always gonna be some reclamation of P&A work when you're working in New Mexico when you're dealing with these old vertical wells. That said, we do our very best to maintain the economic status of these vertical wells and keep them producing as long as we can. As long as you've got them producing well, there's no need for a reclaim or plug anything. So I'd say our first and foremost goal is to optimize production and make sure that everything's producing economically. And then we, you know, do what we have to do as required by the BLM or the AMOCD and the other governing bodies out there.

Got it, thanks a lot. Cool.

And there are no further questions. At this time, thank you everyone for attending. This has concludes today's conference call. You may now disconnect.