Riley Exploration Permian, Inc. [REPX] Filings

10-Q 1 rep-20230331.htm 10-Q rep-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-15555

Riley Exploration Permian, Inc.

(Exact name of registrant as specified in its charter)


Delaware						87-0267438
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

29 E. Reno Avenue, Suite 500 Oklahoma City, Oklahoma						73104
(Address of Principal Executive Offices)						(Zip Code)

Registrant's telephone number, including area code: (405) 415-8699

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001	REPX	NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	x
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The total number of shares of common stock, par value $0.001 per share, outstanding as of May 2, 2023 was 20,182,205.


RILEY EXPLORATION PERMIAN, INC.
FORM 10-Q
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023
TABLE OF CONTENTS
		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements	8
	Condensed Consolidated Balance Sheets	8
	Condensed Consolidated Statements of Operations	9
	Condensed Consolidated Statement s of Changes in Shareholders' Equity	10
	Condensed Consolidated Statements of Cash Flows	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35



Item 5.	Other Information	35
Item 6.	Exhibits	36

Signatures		39

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DEFINITIONS

As used in this Quarterly Report on Form 10-Q (the "Quarter Report"), unless otherwise noted or the context otherwise requires, we refer to Riley Exploration Permian, Inc., together with its subsidiaries, as "Riley Permian," "REPX," "the Company," "Registrant," "we," "our," or "us." In addition, this Quarterly Report includes certain terms commonly used in the oil and natural gas industry, and the following are abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:


Measurements.
Bbl			One barrel or 42 U.S. gallons liquid volume of oil or other liquid hydrocarbons



Boe			One stock tank barrel equivalent of oil, calculated by converting gas volumes to equivalent oil barrels at a ratio of 6 thousand cubic feet of gas to 1 barrel of oil and by converting NGL volumes to equivalent oil barrels at a ratio of 1 barrel of NGL to 1 barrel of oil
Boe/d			Stock tank barrel equivalent of oil per day
Btu			British thermal unit. One British thermal unit is the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit
MBbl			One thousand barrels of oil or other liquid hydrocarbons

MBoe			One thousand Boe
MBoe/d			One thousand Boe per day
Mcf			One thousand cubic feet of gas


MMcf			One million cubic feet of gas
Abbreviations.
ARO			Asset Retirement Obligation


CO2			Carbon Dioxide


EOR			Enhanced Oil Recovery


FASB			Financial Accounting Standards Board






NGL			Natural gas liquids



NYSE			New York Stock Exchange
Oil			Crude oil and condensate
RRC			Railroad Commission of Texas
SEC			Securities and Exchange Commission


U.S. GAAP			Accounting principles generally accepted in the United States of America
WTI			West Texas Intermediate

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Quarterly Report") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, contained in this Quarterly Report that include information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position and potential growth opportunities represent management's beliefs and assumptions based on currently available information and they do not consider the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” “estimates,” “projects,” “targets” or comparable terminology or by discussions of strategy or trends. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” and "Part II, Item 1.A Risk Factors" in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2022. We continue to face many risks and uncertainties including, but not limited to:

•the volatility of oil, natural gas and NGL prices;

•regional supply and demand factors, any delays, curtailment delays or interruptions of production, and any governmental order, rule or regulation that may impose production limits;

•cost and availability of gathering, pipeline, refining, transportation and other midstream and downstream activities;

•severe weather and other risks that lead to a lack of any available markets;

•our ability to successfully complete mergers, acquisitions or divestitures;

•the inability or failure of the Company to successfully integrate the acquired assets into its operations and development activities;

•the potential delays in the development, construction or start-up of planned projects;

•the risk that the Company's EOR project may not perform as expected or produce the anticipated benefits;

•risks relating to our operations, including development drilling and testing results and performance of acquired properties and newly drilled wells;

•inability to prove up undeveloped acreage and maintain production on leases;

•any reduction in our borrowing base on our revolving credit facility from time to time and our ability to repay any excess borrowings as a result of such reduction;

•the impact of our derivative strategy and the results of future settlement;

•our ability to comply with the financial covenants contained in our revolving credit facility;

•changes in general economic, business or industry conditions, including changes in inflation rates, interest rates, and foreign currency exchange rates;

•conditions in the capital, financial and credit markets and our ability to obtain capital needed for development and exploration operations on favorable terms or at all;

•the loss of certain tax deductions;

•risks associated with executing our business strategy, including any changes in our strategy;

•risks associated with concentration of operations in one major geographic area;

•legislative or regulatory changes, including initiatives related to hydraulic fracturing, emissions and disposal of produced water, which may be negatively impacted by regulation or legislation;

•the ability to receive drilling and other permits or approvals and rights-of-way in a timely manner (or at all), which may be restricted by governmental regulation and legislation;

•restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the RRC in an effort to control induced seismicity in the Permian Basin;

•changes in government environmental policies and other environmental risks; the availability of drilling equipment and the timing of production; tax consequences of business transactions; public health crisis, such as pandemics and epidemics, and any related government policies and actions and the effects of such public health crises on the oil and natural gas industry, pricing and demand for oil and natural gas and supply chain logistics;

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•general domestic and international economic, market and political conditions, including the military conflict between Russia and Ukraine and the global response to such conflict;

•risks related to litigation; and

•cybersecurity threats, technology system failures and data security issues.

In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements


RILEY EXPLORATION PERMIAN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	March 31, 2023		December 31, 2022
	(In thousands, except share amounts)
Assets
Current Assets:
Cash and cash equivalents	$	2,275	$	13,301
Accounts receivable	24,640		25,551

Prepaid expenses and other current assets	2,242		3,236
Inventory	7,892		8,886
Current derivative assets	1,637		20
Total current assets	38,686		50,994
Oil and natural gas properties, net (successful efforts)	472,722		440,102
Other property and equipment, net	20,012		20,023
Non-current derivative assets	939		—

Funds held in escrow	33,000		—
Other non-current assets, net	9,784		4,175
Total Assets	$	575,143	$	515,294
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable	$	17,002	$	3,939
Accounts payable - related parties	348		324
Accrued liabilities	21,518		35,582
Revenue payable	19,361		17,750


Current derivative liabilities	8,019		16,472
Other current liabilities	5,382		2,238
Total Current Liabilities	71,630		76,305
Non-current derivative liabilities	178		12
Asset retirement obligations	2,860		2,724
Revolving credit facility	89,000		56,000
Deferred tax liabilities	51,039		45,756
Other non-current liabilities	964		1,051
Total Liabilities	215,671		181,848
Commitments and Contingencies (Note 12)


Shareholders' Equity:
Preferred stock, $0.0001 par value, 25,000,000 shares authorized; 0 shares issued and outstanding	—		—
Common stock, $0.001 par value, 240,000,000 shares authorized; 20,169,434 and 20,160,980 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	20		20
Additional paid-in capital	275,669		274,643
Retained earnings	83,783		58,783
Total Shareholders' Equity	359,472		333,446
Total Liabilities and Shareholders' Equity	$	575,143	$	515,294

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RILEY EXPLORATION PERMIAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	Three Months Ended March 31,
	2023		2022
	(In thousands, except per share amounts)
Revenues:
Oil and natural gas sales, net	$	66,412	$	66,645
Contract services - related parties	600		600
Total Revenues	67,012		67,245
Costs and Expenses:
Lease operating expenses	8,875		6,830
Production and ad valorem taxes	4,110		3,502
Exploration costs	332		1,498
Depletion, depreciation, amortization and accretion	9,083		6,633

General and administrative:
Administrative costs	5,467		4,014
Share-based compensation expense	1,114		1,017
Cost of contract services - related parties	110		85
Transaction costs	1,887		2,638
Total Costs and Expenses	30,978		26,217
Income From Operations	36,034		41,028
Other Income (Expense):
Interest expense, net	(1,016)		(678)
Gain (loss) on derivatives	5,755		(49,632)
Loss from equity method investment	(232)		—
Total Other Income (Expense)	4,507		(50,310)
Net Income (Loss) From Operations Before Income Taxes	40,541		(9,282)
Income tax (expense) benefit	(8,690)		2,114












Net Income (Loss)	$	31,851	$	(7,168)








Net Income (Loss) per Share:
Basic	$	1.62	$	(0.37)
Diluted	$	1.60	$	(0.37)
Weighted Average Common Shares Outstanding:
Basic	19,649		19,501
Diluted	19,910		19,501

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RILEY EXPLORATION PERMIAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In Thousands)

	Shareholders' Equity
Three Months Ended March 31, 2023	Common Stock
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Total Shareholders' Equity
Balance, December 31, 2022	20,161	$	20	$	274,643	$	58,783	$	333,446
Share-based compensation expense	16	—		1,260		—		1,260
Repurchased shares for tax withholding	(8)	—		(234)		—		(234)

Dividends declared	—	—		—		(6,851)		(6,851)
Net income	—	—		—		31,851		31,851
Balance, March 31, 2023	20,169	$	20	$	275,669	$	83,783	$	359,472























	Shareholders' Equity
Three Months Ended March 31, 2022	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
Balance, December 31, 2021	19,837	$	20	$	271,737	$	(33,919)	$	237,838
Share-based compensation expense	—	—		1,061		—		1,061
Repurchased shares for tax withholding	(13)	—		(339)		—		(339)
Issuance of common shares under long-term incentive plan, net	30	—		—		—		—
Dividends declared	—	—		—		(6,154)		(6,154)
Net loss	—	—		—		(7,168)		(7,168)
Balance, March 31, 2022	19,854	$	20	$	272,459	$	(47,241)	$	225,238

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RILEY EXPLORATION PERMIAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three Months Ended March 31,
	2023		2022
	(In thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	31,851	$	(7,168)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Oil and gas lease expirations	332		1,465
Depletion, depreciation, amortization and accretion	9,083		6,633


(Gain) loss on derivatives	(5,755)		49,632
Settlements on derivative contracts	(5,088)		(18,375)



Share-based compensation expense	1,260		1,017
Deferred income tax expense	5,283		(2,893)
Other	424		191
Changes in operating assets and liabilities
Accounts receivable	911		(7,780)
Accounts receivable – related parties	—		(1,106)
Prepaid expenses and other current assets	(1,276)		839

Accounts payable and accrued liabilities	(3,894)		4,643
Accounts payable - related parties	24		193
Inventory	(5,031)		—

Revenue payable	1,611		2,067


Other current liabilities	3,235		637
Net Cash Provided by Operating Activities	32,970		29,995
Cash Flows from Investing Activities:
Additions to oil and natural gas properties	(34,986)		(10,171)
Contributions to equity method investment	(1,840)		—
Funds held in escrow	(33,000)		—


Additions to other property and equipment	(109)		(28)

Net Cash Used in Investing Activities	(69,935)		(10,199)






Cash Flows from Financing Activities:
Deferred financing costs	(49)		(25)
Proceeds from revolving credit facility	33,000		3,000
Repayments under revolving credit facility	—		(5,000)
Payment of common share dividends	(6,778)		(6,140)



Common stock repurchased for tax withholding	(234)		(339)

Net Cash Provided by (Used in) Financing Activities	25,939		(8,504)
Net Increase (Decrease) in Cash and Cash Equivalents	(11,026)		11,292





Cash and Cash Equivalents, Beginning of Period	13,301		8,317
Cash and Cash Equivalents, End of Period	$	2,275	$	19,609







Supplemental Disclosure of Cash Flow Information
Cash Paid For:
Interest, net of capitalized interest	$	788	$	490
Income taxes	$	—	$	—
Non-cash Investing and Financing Activities:
Changes in capital expenditures in accounts payable and accrued liabilities	$	2,870	$	15,044











Assets contributed to equity method investment	$	2,272	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)Organization and Nature of Business

Riley Permian is a growth-oriented, independent oil and natural gas company focused on the acquisition, exploration, development and production of oil, natural gas and NGL's in Texas and New Mexico. Our activities primarily include the horizontal development of the San Andres formation, a shelf margin deposit on the Northwest Shelf of the Permian Basin. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas.

On April 3, 2023 (the “Closing Date”), the Company completed its previously announced acquisition of oil and natural gas assets (the “New Mexico Acquisition”) from Pecos Oil & Gas, LLC (“Pecos”), a Delaware limited liability company and an affiliate of Cibolo Energy Partners LLC. These unaudited condensed consolidated financial statements and accompanying notes do not include the assets acquired or operating activity from the New Mexico Acquisition as the acquisition was completed in the second quarter of 2023. For further information regarding the New Mexico Acquisition, see Note 13 - Subsequent Events.

(2)Basis of Presentation

Effective by the Company's Board of Directors written consent on September 23, 2022, the Company's fiscal year is now the period from January 1 to December 31, beginning with the year ended December 31, 2022.

These unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 include the accounts of Riley Permian and its wholly owned subsidiaries and have been prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated upon consolidation.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

These condensed consolidated financial statements have not been audited by an independent registered public accounting firm. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2023, for various reasons, including as a result of the impact of fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, the current and future impacts of the military conflict between Russia and Ukraine, the volatile inflationary environment in U.S. markets and other factors.

(3)Summary of Significant Accounting Policies

Significant Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, accrued capital expenditures and operating expenses, ARO, the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Accounts Receivable

Accounts receivable is summarized below:


	March 31, 2023		December 31, 2022


	(In thousands)
Oil, natural gas and NGL sales	$	23,804	$	24,136
Joint interest accounts receivable	728		793

Other accounts receivable	108		622
Total accounts receivable	$	24,640	$	25,551

The Company had no allowance for credit losses at March 31, 2023 and December 31, 2022.

Other Non-Current Assets, Net

Other non-current assets consisted of the following:


	March 31, 2023		December 31, 2022


	(In thousands)
Deferred financing costs, net	$	2,413	$	2,556
Prepayments to outside operators	2,193		186
Right of use assets	1,232		1,370
Equity method investment	3,880		—
Other deposits	66		63

Total other non-current assets, net	$	9,784	$	4,175

Equity method investment. In January 2023, the Company entered into an agreement to form a joint venture created for the purpose of constructing a new power infrastructure for onsite power generation in Yoakum County, Texas using produced natural gas. RPC Power Holdco LLC, a wholly owned subsidiary of REPX, has a 30% investment in the joint venture, RPC Power LLC ("RPC Power"). The Company will contribute its portion of capital expenditures for construction of the onsite power generation. As of March 31, 2023, the Company invested $4.1 million, comprised of $1.8 million in cash and $2.3 million of contributed assets, which was reduced by a $0.2 million loss during the three months ended March 31, 2023.

The Company accounts for its corporate joint ventures under the equity method of accounting in accordance with FASB Accounting Standards Codification Topic 323 “Investments — Equity Method and Joint Ventures.” The Company applies the equity method of accounting to investments of less than 50% in an investee over which the Company exercises significant influence but does not have control. Under the equity method of accounting, the Company’s share of the investee’s earnings or loss is recognized in the condensed consolidated statement of operations.

Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions, material intercompany transactions and extent of ownership by an investor in relation to the concentration of other shareholdings.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Accrued Liabilities

Accrued liabilities consisted of the following:


	March 31, 2023		December 31, 2022


	(In thousands)
Accrued capital expenditures	$	13,768	$	16,744
Accrued lease operating expenses	2,267		4,607

Accrued general and administrative costs	3,591		2,286




Accrued inventory	210		6,235
Accrued ad valorem tax	916		3,789
Other accrued expenditures	766		1,921
Total accrued liabilities	$	21,518	$	35,582

Other Current Liabilities

Other current liabilities consisted of the following:


	March 31, 2023		December 31, 2022


	(In thousands)
Advances from joint interest owners	$	170	$	192
Income taxes payable	4,601		1,194
Current ARO liabilities	71		314
Lease liabilities	540		538
Total other current liabilities	$	5,382	$	2,238

Asset Retirement Obligations

Components of the changes in ARO consisted of the following and is shown below:


	March 31, 2023		December 31, 2022

	(In thousands)
ARO, beginning balance	$	3,038	$	2,453
Liabilities incurred	21		358

Revision of estimated obligations	—		326
Liability settlements and disposals	(153)		(178)
Accretion	25		79
ARO, ending balance	2,931		3,038
Less: current ARO(1)	(71)		(314)
ARO, long-term	$	2,860	$	2,724

_____________________

(1)Current ARO is included within other current liabilities on the accompanying condensed consolidated balance sheets.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Revenue Recognition

The following table presents oil and natural gas sales disaggregated by product:


	Three Months Ended March 31,
	2023		2022
	(In thousands)
Oil and natural gas sales:
Oil	$	64,974	$	62,376
Natural gas	523		1,789
Natural gas liquids	915		2,480
Total oil and natural gas sales, net	$	66,412	$	66,645

Recent Accounting Pronouncements

No new accounting pronouncements have been adopted or issued that would impact the financial statements of the Company.

(4)Oil and Natural Gas Properties

Oil and natural gas properties are summarized below:


	March 31, 2023		December 31, 2022


	(In thousands)
Proved	$	550,099	$	516,011
Unproved	11,109		12,770
Work-in-progress	54,273		45,169
	615,481		573,950
Accumulated depletion, amortization and impairment	(142,759)		(133,848)
Total oil and natural gas properties, net	$	472,722	$	440,102

Depletion and amortization expense for proved oil and natural gas properties was $8.9 million and $6.4 million, respectively, for the three months ended March 31, 2023 and 2022.

Exploration expense was $0.3 million and $1.5 million, respectively, for the three months ended March 31, 2023 and 2022.

On April 3, 2023, the Company closed on an acquisition of oil and natural gas assets. Transaction costs associated with the acquisition were approximately $1.9 million for the three months ended March 31, 2023. In connection with the acquisition, a deposit of $33 million was paid by the Company and reflected as funds held in escrow on the condensed consolidated balance sheet as of March 31, 2023. For further information regarding the acquisition, see Note 13 - Subsequent Events.

(5)Derivative Instruments

Oil and Natural Gas Contracts

The Company uses commodity based derivative contracts to reduce exposure to fluctuations in oil and natural gas prices. While the use of these contracts limits the downside risk for adverse price changes, their use also limits future revenues from favorable price changes. We have not designated our derivative contracts as hedges for accounting purposes, and therefore changes in the fair value of derivatives are included and recognized in other income (expense) in the condensed consolidated statement of operations.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

As of March 31, 2023, the Company's oil and natural gas derivative instruments consisted of fixed price swaps, costless collars, and basis protection swaps. The following table summarizes the open financial derivative positions as of March 31, 2023, related to oil and natural gas production:


		Weighted Average Price
Calendar Quarter / Year	Notional Volume	Fixed		Put		Call
		($ per unit)
Oil Swaps (Bbl)

Q2 2023	468,000	$	66.65	$	—	$	—
Q3 2023	362,000	$	66.76	$	—	$	—
Q4 2023	302,000	$	66.18	$	—	$	—
2024	240,000	$	71.60	$	—	$	—

Natural Gas Swaps (Mcf)
Q2 2023	450,000	$	2.60	$	—	$	—
Q3 2023	450,000	$	2.60	$	—	$	—
Q4 2023	400,000	$	3.23	$	—	$	—
2024	1,500,000	$	3.43	$	—	$	—
2025	375,000	$	4.05	$	—	$	—

Oil Collars (Bbl)

Q2 2023	300,000	$	—	$	71.50	$	88.98
Q3 2023	330,000	$	—	$	68.64	$	88.85
Q4 2023	330,000	$	—	$	68.64	$	88.85
2024	1,621,000	$	—	$	61.12	$	84.39
2025	378,000	$	—	$	60.00	$	77.23

Natural Gas Collars (Mcf)
Q2 2023	300,000	$	—	$	2.55	$	3.20
Q3 2023	300,000	$	—	$	2.55	$	3.20
Q4 2023	300,000	$	—	$	3.12	$	4.07
2024	1,065,000	$	—	$	3.19	$	4.14
2025	255,000	$	—	$	3.65	$	4.95

Oil Basis (Bbl)

Q2 2023	360,000	$	1.28	$	—	$	—
Q3 2023	360,000	$	1.28	$	—	$	—
Q4 2023	360,000	$	1.28	$	—	$	—
2024	960,000	$	0.87	$	—	$	—

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Balance Sheet Presentation of Derivatives

The following tables present the location and fair value of the Company’s derivative contracts included in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:


	March 31, 2023
Balance Sheet Classification	Gross Fair Value		Amounts Netted		Net Fair Value
	(In thousands)
Current derivative assets	$	8,709	$	(7,072)	$	1,637
Non-current derivative assets	11,151		(10,212)		939
Current derivative liabilities	(15,091)		7,072		(8,019)
Non-current derivative liabilities	(10,390)		10,212		(178)
Total	$	(5,621)	$	—	$	(5,621)

	December 31, 2022
Balance Sheet Classification	Gross Fair Value		Amounts Netted		Net Fair Value
	(In thousands)
Current derivative assets	$	64	$	(44)	$	20
Non-current derivative assets	9		(9)		—
Current derivative liabilities	(16,516)		44		(16,472)
Non-current derivative liabilities	(21)		9		(12)
Total	$	(16,464)	$	—	$	(16,464)

The following table presents the components of the Company's gain (loss) on derivatives for the periods presented below:


	Three Months Ended March 31,
	2023		2022
	(In thousands)
Settlements on derivative contracts	$	(5,088)	$	(18,375)
Non-cash gain (loss) on derivatives	10,843		(31,257)
Gain (loss) on derivatives	$	5,755	$	(49,632)

(6)Fair Value Measurements

The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.

The carrying values of financial instruments comprising cash and cash equivalents, payables, receivables, and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value reported for the revolving line of credit approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The revolving line of credit is considered a Level 3 measurement.

Assets and Liabilities Measured on a Recurring Basis

The fair value of commodity derivatives are estimated using discounted cash flow calculations based upon forward curves and are classified as Level 2 in the fair value hierarchy. The following table presents the Company’s financial assets and

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

liabilities that were accounted for at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, by level within the fair value hierarchy:


	March 31, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Commodity derivative assets	$	—	$	19,860	$	—	$	19,860

Financial liabilities:
Commodity derivative liabilities	$	—	$	(25,481)	$	—	$	(25,481)


	December 31, 2022
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Commodity derivative assets	$	—	$	73	$	—	$	73

Financial liabilities:
Commodity derivative liabilities	$	—	$	(16,537)	$	—	$	(16,537)

(7)Transactions with Related Parties

Contract Services

Riley Permian Operating Company, LLC ("RPOC") provides certain administrative services to Combo Resources, LLC ("Combo") and is also the contract operator on behalf of Combo in exchange for a monthly fee of $100 thousand and reimbursement of all third party expenses pursuant to a contract services agreement. Additionally, RPOC provides certain administrative and operational services to Riley Exploration Group, LLC ("REG") in exchange for a monthly fee of $100 thousand pursuant to a contract services agreement.

The following table presents revenues from and related cost for contract services for related parties:


	Three Months Ended March 31,
	2023		2022
	(In thousands)
Combo	$	300	$	300
REG	300		300
Contract services - related parties	$	600	$	600

Cost of contract services	$	110	$	85

The Company had amounts payable to Combo of $0.3 million and $0.4 million at March 31, 2023 and December 31, 2022, respectively, which are reflected in accounts payable - related parties, respectively, on the accompanying condensed consolidated balance sheets. Amounts due to Combo reflect the revenue, net of any expenditures for wells and fees due under the contract services agreement, for Combo's net working interest in wells that the Company operates on Combo's behalf.

Consulting and Legal Fees

The Company has an engagement agreement with di Santo Law PLLC ("di Santo Law"), a law firm owned by Beth di Santo, a member of our Board of Directors, pursuant to which di Santo Law's attorneys provide legal services to the Company. The Company incurred legal fees from di Santo Law of approximately $0.2 million for the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, the Company had approximately $20 thousand and zero in amounts

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

accrued for di Santo Law, which was included in accounts payable - related parties in the accompanying condensed consolidated balance sheets.

(8)Long-Term Debt

As of March 31, 2023, Riley Exploration - Permian, LLC ("REP LLC"), as borrower, and the Company, as parent guarantor, are parties to a credit agreement with Truist Bank and certain lenders party thereto, as amended, which provides for a borrowing base of $225 million (such agreement and the borrowing facility provided thereby, the “Credit Facility”). On February 22, 2023, the Company amended its Credit Facility to, among other things, allow for the issuance of unsecured senior notes of up to $200 million. On April 3, 2023, the Company amended its Credit Facility to, among other things, increase the borrowing base from $225 million to $325 million and completed its issuance of $200 million Senior Unsecured Notes due 2028 ("Senior Notes"). For more information on the amended Credit Facility and the issuance of the Senior Notes, see Note 13 - Subsequent Events. The Credit Facility is set to mature in April 2026. Substantially all of the Company’s assets are pledged to secure the Credit Facility.

The following table summarizes the Company's interest expense:


	Three Months Ended March 31,
	2023		2022
	(In thousands)
Interest expense	$	1,294	$	384
Capitalized interest	(615)		—
Amortization of deferred financing costs	192		191
Unused commitment fees	145		103
Total interest expense, net	$	1,016	$	678

As of March 31, 2023 and December 31, 2022, the weighted average interest rate on outstanding borrowings under the revolving credit facility was 7.86% and 7.17%, respectively.

As of March 31, 2023 and December 31, 2022, the Company was in compliance with all covenants and had outstanding borrowings of $89 million and $56 million, respectively, and $136 million and $169 million, respectively, available under the borrowing base.

(9) Shareholders' Equity

Dividends

For the three months ended March 31, 2023 and 2022, the Company declared quarterly dividends on its common stock totaling approximately $6.9 million and $6.2 million, respectively.

Equity-Based Compensation

The Company's long-term equity incentive plan (the "2021 LTIP") had 1,387,022 shares of common stock available for issuance, of which 434,920 shares remained available as of March 31, 2023. Subsequent to March 31, 2023, an amendment and restatement of the 2021 LTIP was approved at the Company's annual meeting of stockholders held on April 21, 2023. For more information, see Note 13 - Subsequent Events.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

2021 Long-Term Incentive Plan

The following table presents the Company's restricted stock activity during the three months ended March 31, 2023 under the 2021 LTIP:


2021 Long-Term Incentive Plan
	Restricted Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2022	536,209	$	18.39
Granted	16,364	$	31.62
Vested	(47,957)	$	18.14
Forfeited	(365)	$	16.30
Unvested at March 31, 2023	504,251	$	18.63

For the three months ended March 31, 2023 and 2022, the total equity-based compensation expense is $1.3 million and $1.0 million, respectively, for all periods and is included in general and administrative costs on the Company's condensed consolidated statement of operations for the restricted share awards granted under the 2021 LTIP. Approximately $7.6 million of additional equity-based compensation expense will be recognized over the weighted average life of 25 months for the unvested restricted share awards as of March 31, 2023 granted under the 2021 LTIP.

(10)Income Taxes

The components of the Company's consolidated provision for income taxes from operations are as follows:


	Three Months Ended March 31,
	2023		2022
	(In thousands)
Current income tax expense:
Federal	$	3,207	$	768
State	200		11
Total current income tax expense	$	3,407	$	779
Deferred income tax expense (benefit):
Federal	$	5,088	$	(2,894)
State	195		1
Total deferred income tax expense (benefit)	$	5,283	$	(2,893)
Total income tax expense (benefit)	$	8,690	$	(2,114)

Table of Contents

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:


	Three Months Ended March 31,
	2023		2022
	(In thousands)
Tax at statutory rate	21.0	%	21.0	%
Nondeductible compensation	—	%	(0.4)	%

Share-based compensation	(0.4)	%	1.9	%
State income taxes, net of federal benefit	0.8	%	0.4	%



Effective income tax rate	21.4	%	22.9	%

The Company's federal income tax returns for the years subsequent to December 31, 2018 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2017. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.

(11)Net Income (Loss) Per Share

The Company calculated net income or loss per share using the treasury stock method. The table below sets forth the computation of basic and diluted net income (loss) per share for the periods presented below:


	Three Months Ended March 31,
	2023		2022
	(In thousands, except per share)

Net income (loss)	$	31,851	$	(7,168)

Basic weighted-average common shares outstanding	19,649		19,501
Restricted shares	261		—
Diluted weighted average common shares outstanding	19,910		19,501

Basic net income (loss) per common share	$	1.62	$	(0.37)
Diluted net income (loss) per share	$	1.60	$	(0.37)

The following shares were excluded from the calculation of diluted net income (loss) per share due to their anti-dilutive effect for the periods presented:


	Three Months Ended March 31,
	2023	2022


Restricted shares	246,358	332,725

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(12)Commitments and Contingencies

Indemnification

The Company has agreed to indemnify its directors and certain of its officers, employees and agents with respect to claims and damages arising from acts or omissions taken in such capacity, as well as with respect to certain litigation.

In the ordinary course of business, the Company enters into agreements that may

Riley Exploration Permian, Inc. [REPX] Filings
10-Q	[2023-05-10]
10-K	[2023-03-08]
10-Q	[2022-11-14]
10-Q	[2022-08-10]
10-Q	[2022-05-11]
10-Q	[2022-02-14]
10-K	[2021-12-14]
10-Q	[2021-08-13]
10-Q	[2021-05-17]
10-K	[2021-03-30]
10-Q	[2020-11-12]
10-Q	[2020-08-13]
10-Q	[2020-05-14]
10-K	[2020-03-30]
10-Q	[2019-11-13]
10-Q	[2019-08-13]
10-Q	[2019-05-14]
10-K	[2019-03-28]
10-Q	[2018-11-14]
10-Q	[2018-08-14]
10-Q	[2018-05-15]
10-K	[2018-03-28]
10-Q	[2017-11-13]
10-Q	[2017-08-14]
10-Q	[2017-05-12]
10-K	[2017-03-30]
10-Q	[2016-11-14]
S-1	[2016-10-17]
10-Q	[2016-08-12]
10-Q	[2016-05-13]
10-K	[2016-03-30]
10-Q	[2015-11-16]
10-Q	[2015-08-14]
10-Q	[2015-05-14]
10-K	[2015-03-30]
10-Q	[2014-11-13]
10-Q	[2014-08-14]
10-Q	[2014-05-15]
10-K	[2014-03-31]
10-Q	[2013-11-14]
10-Q	[2013-08-13]
10-Q	[2013-05-14]
10-K	[2013-03-29]
10-Q	[2012-11-14]
10-Q	[2012-08-14]
10-Q	[2012-05-15]
10-K	[2012-03-29]