Riley Exploration Permian, Inc. [REPX] Filings

10-Q 1 rep-20240630.htm 10-Q rep-20240630

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 June 30, 2024


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 August 2, 2024 was 21,575,276.


RILEY EXPLORATION PERMIAN, INC.
FORM 10-Q
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2024
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		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements	6
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Operations	7
	Condensed Consolidated Statements of Changes in Shareholders' Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to the Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38


Item 5.	Other Information	38
Item 6.	Exhibits	39

Signatures		39

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DEFINITIONS

As used in this Quarterly Report on Form 10-Q (the "Quarterly Report"), unless otherwise noted or the context otherwise requires, we refer to Riley Exploration Permian, Inc., together with its consolidated 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:


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
ATM			At-the-market equity sales program


CME			Chicago Mercantile Exchange
Credit Facility			A credit agreement among Riley Exploration - Permian, LLC, as borrower, and Riley Exploration Permian, Inc, as parent guarantor, with Truist Bank and certain lenders party thereto, as amended
CO2			Carbon Dioxide


EOR			Enhanced Oil Recovery
ERCOT			Electric Reliability Council of Texas


FASB			Financial Accounting Standards Board







NGL			Natural gas liquids



NYSE			NYSE American
Oil			Crude oil and condensate
RRC			Railroad Commission of Texas
SEC			Securities and Exchange Commission
Senior Notes			Unsecured 10.5% senior notes due April 2028


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 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 "Part II, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 1A. Risk Factors" in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report"). 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, which could result in a prolonged shut-in of our wells that may adversely affect our reserves, financial condition and results of operations;

•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;

•failure to realize any of the anticipated benefits of our joint ventures or other equity investments;

•the risk that the Company's enhanced oil recovery ("EOR") or carbon capture, utilization and sequestration ("CCUS") projects 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 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 Credit Facility and in our Senior Notes;

•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, regulation of greenhouse gases, water conservation, seismic activity, weatherization, or protection of certain species of wildlife, or of sensitive environmental areas;

•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;

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•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 crises, 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;

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

•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)
	June 30, 2024		December 31, 2023
	(In thousands, except share amounts)
Assets
Current Assets:
Cash	$	10,910	$	15,319
Accounts receivable	42,077		35,126

Prepaid expenses	1,766		1,625
Inventory	5,685		6,177
Current derivative assets	1,426		5,013
Total current assets	61,864		63,260
Oil and natural gas properties, net (successful efforts)	889,270		846,901
Other property and equipment, net	20,630		20,653
Non-current derivative assets	631		2,296
Equity method investment	20,757		5,620


Other non-current assets, net	9,805		6,981
Total Assets	$	1,002,957	$	945,711
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable	$	12,581	$	3,855

Accrued liabilities	19,156		33,159
Revenue payable	32,902		30,695


Current derivative liabilities	8,292		360
Current portion of long-term debt	20,000		20,000
Other current liabilities	4,691		6,276
Total Current Liabilities	97,622		94,345
Non-current derivative liabilities	2,527		—
Asset retirement obligations	31,503		19,255
Long-term debt	302,720		335,959
Deferred tax liabilities	78,418		73,345
Other non-current liabilities	1,135		1,212
Total Liabilities	513,925		524,116
Commitments and Contingencies (Note 14)


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; 21,559,918 and 20,405,093 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	21		20
Additional paid-in capital	309,341		279,112
Retained earnings	179,670		142,463
Total Shareholders' Equity	489,032		421,595
Total Liabilities and Shareholders' Equity	$	1,002,957	$	945,711

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands, except per share amounts)
Revenues:
Oil and natural gas sales, net	$	105,343	$	99,312	$	204,767	$	165,724
Contract services - related parties	60		600		380		1,200
Total Revenues	105,403		99,912		205,147		166,924
Costs and Expenses:
Lease operating expenses	16,492		17,514		33,261		26,389
Production and ad valorem taxes	7,174		7,221		14,405		11,331
Exploration costs	60		80		64		412
Depletion, depreciation, amortization and accretion	17,470		18,601		35,249		27,684

General and administrative:
Administrative costs	6,644		6,500		11,983		11,967
Share-based compensation expense	3,281		1,225		4,973		2,339
Cost of contract services - related parties	—		109		363		219
Transaction costs	670		3,652		670		5,539
Total Costs and Expenses	51,791		54,902		100,968		85,880
Income from Operations	53,612		45,010		104,179		81,044
Other Income (Expense):
Interest expense, net	(8,857)		(10,161)		(17,924)		(11,177)
Gain (loss) on derivatives, net	(359)		8,665		(17,436)		14,420
Loss from equity method investment	(192)		(4)		(25)		(236)
Total Other Income (Expense)	(9,408)		(1,500)		(35,385)		3,007
Net Income from Operations before Income Taxes	44,204		43,510		68,794		84,051
Income tax expense	(10,656)		(10,442)		(16,488)		(19,132)












Net Income	$	33,548	$	33,068	$	52,306	$	64,919








Net Income per Share:
Basic	$	1.61	$	1.68	$	2.57	$	3.30
Diluted	$	1.59	$	1.65	$	2.55	$	3.25
Weighted Average Common Shares Outstanding:
Basic	20,866		19,671		20,378		19,660
Diluted	21,087		19,985		20,539		19,951

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
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Total Shareholders' Equity
Balance, December 31, 2023	20,405	$	20	$	279,112	$	142,463	$	421,595
Share-based compensation expense	—	—		1,692		—		1,692
Repurchased shares for tax withholding	(5)	—		(106)		—		(106)

Dividends declared	—	—		—		(7,329)		(7,329)
Net income	—	—		—		18,758		18,758
Balance, March 31, 2024	20,400	$	20	$	280,698	$	153,892	$	434,610
Share-based compensation expense	147	—		3,281		—		3,281
Repurchased shares for tax withholding	(2)	—		(52)		—		(52)
Issuance of common shares, net	1,015	1		25,414		—		25,415
Dividends declared	—	—		—		(7,770)		(7,770)
Net income	—	—		—		33,548		33,548
Balance, June 30, 2024	21,560	$	21	$	309,341	$	179,670	$	489,032


















	Shareholders' Equity
	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
Share-based compensation expense	14	—		1,225		—		1,225
Repurchased shares for tax withholding	(1)	—		(66)		—		(66)

Dividends declared	—	—		—		(6,846)		(6,846)
Net income	—	—		—		33,068		33,068
Balance, June 30, 2023	20,182	$	20	$	276,828	$	110,005	$	386,853

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)
	Six Months Ended June 30,
	2024		2023
	(In thousands)
Cash Flows from Operating Activities:
Net income	$	52,306	$	64,919
Adjustments to reconcile net income to net cash provided by operating activities:
Exploratory well costs and lease expirations	—		388
Depletion, depreciation, amortization and accretion	35,249		27,684


(Gain) loss on derivatives, net	17,436		(14,420)
Settlements on derivative contracts	(1,725)		(7,391)
Amortization of deferred financing costs and discount	2,632		1,281


Share-based compensation expense	4,973		2,485
Deferred income tax expense	5,073		13,737
Loss from equity method investment	25		236
Other	(42)		—
Changes in operating assets and liabilities
Accounts receivable	(6,951)		(7,033)

Prepaid expenses and other current assets	(186)		(1,318)
Other non-current assets	(302)		—
Accounts payable and accrued liabilities	(2,665)		1,074

Inventory	442		(1,715)
Revenue payable	1,931		6,098

Other current liabilities	(430)		2,695
Net Cash Provided by Operating Activities	107,766		88,720
Cash Flows from Investing Activities:
Additions to oil and natural gas properties	(53,926)		(83,023)
Net assets acquired in business combination	—		(325,094)
Acquisitions of oil and natural gas properties	(18,138)		(5,443)
Contributions to equity method investment	(15,162)		(3,566)


Additions to other property and equipment	(430)		(277)
Net Cash Used in Investing Activities	(87,656)		(417,403)






Cash Flows from Financing Activities:
Deferred financing costs	(69)		(6,214)
Proceeds from credit facility	15,000		178,000
Repayments under credit facility	(40,000)		(19,000)
Proceeds from Senior Notes, net of discount	—		188,000
Repayments of Senior Notes	(10,000)		(5,000)
Payment of common share dividends	(14,707)		(13,363)
Proceeds from issuance of common shares, net	25,415		—


Common stock repurchased for tax withholding	(158)		(300)

Net Cash (Used in) Provided by Financing Activities	(24,519)		322,123
Net Decrease in Cash	(4,409)		(6,560)
Cash, Beginning of Period	15,319		13,301
Cash, End of Period	$	10,910	$	6,741

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 - (Continued)
(Unaudited)
	Six Months Ended June 30,
	2024		2023
	(In thousands)
Supplemental Disclosure of Cash Flow Information
Cash Paid For:
Interest, net of capitalized interest	$	16,372	$	9,060
Income taxes, net of refunds	$	10,773	$	3,688
Non-cash Investing and Financing Activities:
Changes in capital expenditures in accounts payable and accrued liabilities	$	(2,699)	$	(6,461)


Right of use assets obtained in exchange for operating lease liability	$	386	$	(517)





Assets contributed to equity method investment	$	—	$	2,272
Asset retirement obligations assumed in acquisitions	$	9,727	$	19,359

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 NGLs in Texas and New Mexico. Our activities primarily include the horizontal development of conventional reservoirs on the Northwest Shelf of the Permian Basin. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas and Eddy County, New Mexico.

(2) Basis of Presentation

These unaudited condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 include the accounts of Riley Permian and its consolidated 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. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, shareholders' equity, results of operations or cash flows. These condensed consolidated financial statements should be read in conjunction with the Company's 2023 Annual Report.

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 and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024, for various reasons, including 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 conflicts between Russia and Ukraine and Israel and Hamas, 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

(Unaudited)

Accounts Receivable

Accounts receivable is summarized below:


	June 30, 2024		December 31, 2023


	(In thousands)
Oil, natural gas and NGL sales	$	34,658	$	31,135
Joint interest accounts receivable	2,048		1,630
Allowance for credit losses	(30)		—
Other accounts receivable	5,401		2,361
Total accounts receivable	$	42,077	$	35,126

As of December 31, 2022, the Company had accounts receivables from oil, natural gas and NGL sales of $24.1 million.

The Company estimates uncollectible amounts based on the length of time that the accounts receivable has been outstanding, historical collection experience and current and future economic and market conditions, to determine if failure to collect is expected to occur. Allowances for credit losses are recorded as reductions to the carrying values of the accounts receivables included in the Company’s condensed consolidated balance sheets and are recorded in Administrative costs in the condensed consolidated statements of operations if failure to collect an estimable portion is determined to be probable. The Company had $30 thousand and no allowance for credit losses at June 30, 2024 and December 31, 2023.

Other Non-Current Assets, Net

Other non-current assets consisted of the following:


	June 30, 2024		December 31, 2023


	(In thousands)
Deferred financing costs, net (1)	$	3,083	$	3,844
Right of use assets	1,727		1,890
Other	4,995		1,247
Total other non-current assets, net	$	9,805	$	6,981

_____________________

(1)Deferred financing costs, net reflects costs associated with the Company's Credit Facility which are amortized over the term of the Credit Facility.

Accrued Liabilities

Accrued liabilities consisted of the following:


	June 30, 2024		December 31, 2023


	(In thousands)
Accrued capital expenditures	$	5,386	$	15,851
Accrued lease operating expenses	5,280		6,038

Accrued general and administrative costs	4,806		4,655




Accrued ad valorem tax	2,568		5,269

Other accrued expenditures	1,116		1,346
Total accrued liabilities	$	19,156	$	33,159

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Asset Retirement Obligations

Components of the changes in ARO for the six months ended June 30, 2024 and the year ended December 31, 2023 are shown below:


	June 30, 2024		December 31, 2023

	(In thousands)
ARO, beginning balance	$	23,044	$	3,038
Liabilities incurred	12		45
Liabilities assumed in acquisitions	9,727		19,359

Liability settlements and disposals	(316)		(1,039)
Accretion	1,233		1,641
ARO, ending balance	33,700		23,044
Less: current ARO (1)	(2,197)		(3,789)
ARO, long-term	$	31,503	$	19,255

_____________________

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

Revenue Recognition

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Oil and natural gas sales:
Oil	$	106,353	$	97,830	$	203,345	$	162,803
Natural gas (1)	(977)		40		(294)		564
NGLs (1)	(33)		1,442		1,716		2,357
Total oil and natural gas sales, net	$	105,343	$	99,312	$	204,767	$	165,724

_____________________

(1)The Company's natural gas and NGL sales are presented net of gathering, processing, and transportation costs which at times exceed the price received and result in negative average realized prices.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. This ASU is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. The Company does not expect this standard to have a material impact on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this standard provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid. This ASU is effective for the Company prospectively to all annual periods beginning after December 15, 2024. The Company does not expect this standard to have a material impact on its disclosures.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Acquisitions of Oil and Natural Gas Properties

2023 New Mexico Acquisition

On April 3, 2023, the Company completed an acquisition of oil and natural gas properties (the "2023 New Mexico Acquisition") from Pecos Oil & Gas, LLC for $324.7 million, funded through a combination of proceeds from the issuance of $200 million of Senior Notes and borrowings under the Company's Credit Facility. The assets acquired are located in Eddy County, New Mexico, and include approximately 10,600 total contiguous net acres of leasehold. The acquisition also included 18 net horizontal wells and 250 net vertical wells.

The 2023 New Mexico Acquisition qualified as a business combination using the acquisition method of accounting. The following table presents the allocation of the total purchase price of the 2023 New Mexico Acquisition to the identified assets acquired and liabilities assumed based on estimated fair value as of the Closing Date.


Purchase price allocation (in thousands):

Total cash consideration	$	324,686

Assets acquired:

Inventory	$	2,980
Oil and natural gas properties	342,308
Other	$	149
Amount attributable to assets acquired	$	345,437

Liabilities assumed:
Revenue payable	$	1,475
Asset retirement obligations	19,276
Amount attributable to liabilities assumed	$	20,751



Net assets acquired	$	324,686

Transaction costs associated with the 2023 New Mexico Acquisition were approximately $3.7 million and $5.5 million for the three and six months ended June 30, 2023, respectively, and are included on the accompanying condensed consolidated statements of operations.

Pro Forma Operating Results

The following unaudited pro forma combined results for the three and six months ended June 30, 2023 reflect the consolidated results of operations of the Company as if the 2023 New Mexico Acquisition had occurred on January 1, 2022. The unaudited pro forma information includes adjustments for (i) amortization for the discount and deferred financing costs and interest expense related to the Senior Notes and Credit Facility, (ii) depletion, depreciation and amortization expense, and (iii) interest expense related to the financing for the 2023 New Mexico Acquisition. In addition, the pro forma information has been effected for income taxes with a 23% statutory tax rate for the three and six months ended June 30, 2023.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Three Months Ended		Six Months Ended
	June 30, 2023		June 30, 2023
	(In thousands, except per share amounts)
Total revenues	$	99,912	$	197,519
Net income	$	36,956	$	76,799
Basic net income per common share	$	1.88	$	3.91
Diluted net income per common share	$	1.85	$	3.85

The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations that the Company would have reported had the 2023 New Mexico Acquisition been completed as of January 1, 2022, and should not be taken as indicative of the Company's future combined results of operations. The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.

2024 New Mexico Asset Acquisition

On May 7, 2024, the Company closed on the previously announced acquisition of oil and natural gas properties in Eddy County, New Mexico ("2024 New Mexico Asset Acquisition"), which included 13,900 contiguous net acres to the Company's existing acreage in Eddy County, for a cash purchase price of approximately $17.6 million plus $0.5 million in transaction costs. The 2024 New Mexico Asset Acquisition was accounted for as an asset acquisition, with the final purchase price and transaction costs being capitalized to oil and natural gas properties and was funded through a combination of proceeds from the 2024 equity issuance ("2024 Equity Offering") discussed in Note 11 and cash on hand.

(5) Oil and Natural Gas Properties

Oil and natural gas properties are summarized below:


	June 30, 2024		December 31, 2023


	(In thousands)
Proved	$	974,081	$	895,783
Unproved	112,110		100,216
Work-in-progress	42,744		57,004
	1,128,935		1,053,003
Accumulated depletion, amortization and impairment	(239,665)		(206,102)
Total oil and natural gas properties, net	$	889,270	$	846,901

Depletion and amortization expense for proved oil and natural gas properties was $16.5 million and $17.9 million, respectively, for the three months ended June 30, 2024 and 2023 and $33.5 million and $26.8 million, respectively, for the six months ended June 30, 2024 and 2023.

(6) 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 partially limits the downside risk for adverse price changes, their use can also partially limit future revenues from favorable price changes. We have not designated our derivative contracts as hedges for accounting

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

purposes, and therefore changes in the fair value of derivatives are included and recognized in other income (expense) in the accompanying condensed consolidated statements of operations.

As of June 30, 2024, the Company’s oil and natural gas derivative instruments consisted of fixed price swaps, costless collars, and basis swaps. The following table summarizes the open financial derivative positions as of June 30, 2024, related to our future oil and natural gas production:


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


Q3 2024	405,000	$	74.35
Q4 2024	360,000	$	73.94
2025	570,000	$	72.86

Natural Gas Swaps (Mcf)

Q3 2024	600,000	$	3.21
Q4 2024	450,000	$	3.67
2025	1,470,000	$	3.71
2026	555,000	$	4.02

Oil Collars (Bbl)


Q3 2024	366,000			$	61.00	$	83.61
Q4 2024	390,000			$	61.92	$	83.39
2025	1,635,000			$	63.41	$	76.42
2026	265,000			$	60.61	$	80.71

Natural Gas Collars (Mcf)

Q3 2024	405,000			$	3.01	$	3.68
Q4 2024	405,000			$	3.50	$	4.45
2025	1,395,000			$	3.29	$	4.30

Oil Basis (Bbl)


Q3 2024	330,000	$	0.97
Q4 2024	330,000	$	0.97

Interest Rate Contracts

The Company entered into floating-to-fixed interest rate swaps, in which it will receive a floating market rate equal to one-month CME Term Secured Overnight Financing Rate and will pay a fixed interest rate, to manage future interest rate exposure related to the Company’s Credit Facility. In March 2024, the Company entered into a fixed-to-floating interest rate swap for the period from May 2024 to December 2024, to reduce our interest rate exposure, which resulted in a gain of approximately $1 million on a notional amount of $80 million. This gain will be realized upon settlement of the contracts in 2024.

At the time of settlement of these interest rate derivative contracts, gain or loss on settlement will be included in interest expense on the condensed consolidated statements of operations. Gains on interest rate swaps were $0.2 million for the three and six months ended June 30, 2024.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the open interest rate derivative positions as of June 30, 2024:


Open Coverage Period	Position	Notional Amount		Fixed Rate
		(In thousands)
July 2024 - April 2026	Long	$	30,000	3.180	%
July 2024 - April 2026	Long	$	50,000	3.039	%
July 2024 - December 2024	Short	$	80,000	4.910	%

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 June 30, 2024 and December 31, 2023:


	June 30, 2024
Balance Sheet Classification	Gross Fair Value		Amounts Netted		Net Fair Value
	(In thousands)
Current derivative assets	$	5,345	$	(3,919)	$	1,426
Non-current derivative assets	5,761		(5,130)		631
Current derivative liabilities	(12,211)		3,919		(8,292)
Non-current derivative liabilities	(7,657)		5,130		(2,527)
Total	$	(8,762)	$	—	$	(8,762)

	December 31, 2023
Balance Sheet Classification	Gross Fair Value		Amounts Netted		Net Fair Value
	(In thousands)
Current derivative assets	$	8,948	$	(3,935)	$	5,013
Non-current derivative assets	6,687		(4,391)		2,296
Current derivative liabilities	(4,295)		3,935		(360)
Non-current derivative liabilities	(4,391)		4,391		—
Total	$	6,949	$	—	$	6,949

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Settlements on derivative contracts	$	(1,829)	$	(2,303)	$	(1,725)	$	(7,391)
Non-cash gain (loss) on derivatives	1,470		10,968		(15,711)		21,811
Gain (loss) on derivatives, net	$	(359)	$	8,665	$	(17,436)	$	14,420

(7) 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.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The carrying values of financial instruments comprising cash, 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 Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes is based on estimates of current rates available for similar issuances with similar maturities and is classified as Level 2 in the fair value hierarchy. The oil and natural gas properties acquired and ARO assumed in both the 2023 New Mexico Acquisition and the 2024 New Mexico Asset Acquisition are considered Level 3 measurements.

Assets and Liabilities Measured on a Recurring Basis

The fair value of commodity derivatives and interest rate swaps is 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 liabilities that were accounted for at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, by level within the fair value hierarchy:


	June 30, 2024
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Commodity derivative assets	$	—	$	9,124	$	—	$	9,124
Interest rate assets	$	—	$	1,982	$	—	$	1,982
Financial liabilities:
Commodity derivative liabilities	$	—	$	(19,868)	$	—	$	(19,868)


	December 31, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Commodity derivative assets	$	—	$	14,766	$	—	$	14,766
Interest rate assets	$	—	$	869	$	—	$	869
Financial liabilities:
Commodity derivative liabilities	$	—	$	(8,686)	$	—	$	(8,686)

The following table summarizes the fair value and carrying amount of the Company's financial instruments.


	June 30, 2024				December 31, 2023
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Credit Facility (Level 2)	$	160,000	$	160,000	$	185,000	$	185,000
Senior Notes (Level 2)(1)	$	162,720	$	182,638	$	170,959	$	185,346

_____________________

(1)The carrying value reported for the Senior Notes is shown net of unamortized discount and unamortized deferred financing costs.

The carrying value reported for the Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes was determined utilizing a discounted cash flow approach.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8) Equity Method Investment

In January 2023, the Company formed a joint venture, RPC Power LLC, a Delaware limited liability company ("RPC Power"), for the purpose of constructing, owning and operating power generation assets which are expected to be fully operational in the third quarter of 2024. These assets will use the Company’s produced natural gas to power its oilfield operations in Yoakum County, Texas. In May 2024, the Company entered into the Second Amended and Restated Limited Liability Company Agreement (“A&R LLC Agreement”) to expand the scope of its joint venture to include the constructing, owning, and operating of additional new power generation and storage assets which are expected to be operational in 2025, for the sale of energy and ancillary services to ERCOT ("Merchant Deal"). Upon signing the A&R LLC Agreement, the Company invested an additional $9.5 million and also increased its equity ownership in RPC Power from 35% to 50%. The Company also committed to invest up to an additional $21.5 million, if required, to fund its portion of the capital budget for 2024 and 2025 for the RPC Power joint venture. As the Company has significant influence due to its ownership percentage, but lacks control, RPC Power is accounted for as an equity method investment. As of June 30, 2024, the Company had invested $21 million in the joint venture, comprised of $18.7 million in cash and $2.3 million of contributed assets, which was reduced by the Company's share of losses and increased by its share of income in the joint venture.

See Note 9 - Transactions with Related Parties for further discussion of the contractual agreements between the Company and RPC Power and its affiliates and Note 14 - Commitments and Contingencies for additional information on future commitments.

The following table presents the Company's equity method investment activity:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Equity method investment, beginning balance	$	11,406	$	3,880	$	5,620	$	—
Contributions	9,543		1,726		15,162		5,838
Loss from equity method investment	(192)		(4)		(25)		(236)
Equity method investment, ending balance	$	20,757	$	5,602	$	20,757	$	5,602

(9) Transactions with Related Parties

RPC Power

In January 2023, the Company entered into a 10-year agreement with RPC Power, which provides for the conversion of specified quantities of the Company’s produced natural gas to electricity in order to power its oilfield operations in Yoakum County, Texas ("Tolling Agreement"). The Tolling Agreement was amended and restated in June 2024 ("A&R Tolling Agreement") primarily to reflect the new in-service date in the third quarter of 2024. The Company also entered into a 10-year agreement (“Asset Optimization Agreement”) in January 2023 that requires RPC Power to provide operational expertise on the implementation and management of the power generating assets subject to the A&R Tolling Agreement for a monthly fee of $20 thousand.

In May 2024, the Company entered into a 10-year natural gas supply agreement ("Supply Agreement") with RPC Merchant LLC, a wholly owned subsidiary of RPC Power ("RPC Merchant"), to supply natural gas to fuel the natural gas generators under the Merchant Deal. The Company's commitment under the Supply Agreement is contingent upon project start-up which is expected to occur throughout 2025.

At June 30, 2024, and December 31, 2023, the Company had no amounts accrued or in accounts payable related to these agreements.

See additional information related to RPC Power in Note 8 - Equity Method Investment and Note 14 - Commitments and Contingencies for additional information on future commitments.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contract Services

The Company and Combo Resources, LLC (“Combo”) own interests in six established units in Lee and Fayette Counties, Texas, which were jointly developed by the parties pursuant to participation agreements (collectively, the "Combo PA") and are currently operated by Riley Permian Operating Company, LLC ("RPOC"). RPOC also provided certain administrative and operational services to Combo pursuant to a management services agreement (the "Combo MSA") for a monthly fee of $100 thousand and reimbursement of all third party expenses until the Combo MSA was terminated on January 31, 2024. Upon termination of the Combo PA as of December 31, 2023 and pursuant to a letter agreement effective as of December 31, 2023, the Company agreed to relinquish its right to acquire additional working interests within a specified area. The rights of the Company in the six jointly owned units are not affected by this letter agreement and remain subject to the existing joint operating agreements between the parties.

The Company also provided certain administrative services pursuant to a services agreement (the "REG MSA") with Riley Exploration Group, LLC (“REG”) for a monthly fee of $100 thousand through January 2024 and $60 thousand through April 2024, and reimbursement of all third party expenses until the REG MSA was terminated effective May 31, 2024. The $60 thousand fee was waived for the month of May 2024.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Combo	$	—	$	300	$	100	$	600
REG	60		300		280		600
Contract services - related parties	$	60	$	600	$	380	$	1,200

Cost of contract services	$	—	$	109	$	363	$	219

The Company had no amounts payable to Combo at June 30, 2024 and $0.7 million payable at December 31, 2023, which is reflected in other current liabilities on the accompanying condensed consolidated balance sheets. Amounts due to Combo reflect the revenue, net of any expenditures for Combo's net working interest in wells that RPOC operates on Combo's behalf.

The Company had a $0.2 million receivable from REG at June 30, 2024 and no amounts receivable at December 31, 2023, which is reflected in accounts receivable on the accompanying condensed consolidated balance sheets. Amounts receivable from REG reflect administrative services provided by the Company to REG.

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 $0.5 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively, and approximately $0.8 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the Company had approximately $0.2 million and $0.6 million, respectively, in amounts accrued for di Santo Law, which was included in other current liabilities in the accompanying condensed consolidated balance sheets.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(10) Long-Term Debt

The following table summarizes the Company's outstanding debt:


	June 30, 2024		December 31, 2023
	(In thousands)
Credit Facility	$	160,000	$	185,000
Senior Notes
Principal	175,000		185,000
Less: Unamortized discount(1)	8,835		10,117
Less: Unamortized deferred financing costs(2)	3,445		3,924
Total Senior Notes	162,720		170,959

Total debt	322,720		355,959
Less: Current portion of long-term debt(3)	20,000		20,000

Total long-term debt	$	302,720	$	335,959

___________________

(1)Unamortized discount on long-term debt is amortized over the term of the respective debt.

(2)Unamortized deferred financing costs are attributable to and amortized over the term of the Senior Notes.

(3)As of June 30, 2024 and December 31, 2023, the current portion of long-term debt reflects $20 million due on the Senior Notes over the next twelve months.

Credit Facility

As of June 30, 2024, 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 Credit Facility with a borrowing base of $375 million. 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, and concurrent with the closing of the 2023 New Mexico Acquisition, the Company entered into the fourteenth amendment to the Credit Facility to, among other things, increase the maximum facility amount to $1.0 billion and the borrowing base from $225 million to $325 million, resulting in the addition of new lenders to the lending group. On November 14, 2023, through the semi-annual redetermination process, the Credit Facility was amended to increase the borrowing base from $325 million to $375 million, which was reaffirmed in April 2024.

The Credit Facility contains certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not greater than 3.00 to 1.00. The Credit Facility also contains a total leverage ratio for Restricted Payments, as defined in the credit agreement. The leverage ratio, after giving pro forma effect to such Restricted Payments, cannot exceed 2.50 to 1.00. If the pro forma leverage ratio is between 2.00 to 2.50, the Restricted Payments cannot exceed trailing twelve month free cash flow. In addition to and after giving effect to such Restricted Payments, the availability of funds under on the Company's Credit Facility must be greater than or equal to 20% of the elected commitments. The Company must maintain a minimum hedging requirement included within the credit agreement for oil and natural gas based on its proved developed producing projected volumes for oil and natural gas on a rolling 24-month basis.

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 Credit Facility balances:


	June 30, 2024		December 31, 2023
	(In thousands)
Outstanding borrowings	$	160,000	$	185,000
Available under the borrowing base	$	215,000	$	190,000

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Senior Notes

On April 3, 2023, and concurrent with the closing of the 2023 New Mexico Acquisition, the Company (as issuer) completed its issuance of $200 million aggregate principal amount of 10.50% senior unsecured notes with final maturity in April 2028 pursuant to a note purchase agreement (the "Note Purchase Agreement"), with the Senior Notes issued at a 6% discount. The net proceeds from the Senior Notes were used to fund a portion of the purchase price and related fees, costs and expenses for the 2023 New Mexico Acquisition.

Interest is due and payable at the end of each quarter. In addition to interest, the Company will repay 2.50% of the original principal amount each quarter resulting in $5 million quarterly principal payments until the maturity of the Senior Notes. As of June 30, 2024, the Company had $20 million in current liabilities on the accompanying condensed consolidated balance sheets related to the quarterly principal payments due within the next 12 months.

The Company may, at its option, redeem, at any time and from time to time on or prior to April 3, 2026, some or all of the Senior Notes at 100% of the principal amount thereof plus the make-whole amount plus a premium of 5.25% as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After April 3, 2026, but on or prior to October 3, 2026, the Company may, at its option, redeem, at any time and from time to time some or all of the Senior Notes at 100% of the principal amount thereof plus a premium of 5.25% as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After October 3, 2026, the Company may redeem some or all of the Senior Notes at 100% of the principal amount thereof plus accrued and unpaid interest, if any. The principal remaining outstanding at the time of maturity is required to be paid in full by the Company. Certain note features, including those discussed above, were evaluated and deemed to be remote. Due to the remote nature, the fair value of these features was estimated to be approximately zero.

The Senior Notes contain certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not greater than 3.00 to 1.00 and (ii) an asset coverage ratio greater than 1.50 to 1.00. The Senior Notes also contain a total leverage ratio and an asset coverage ratio for Restricted Payments, as defined in the Note Purchase Agreement. The leverage ratio, after giving pro forma effect to such Restricted Payments, cannot exceed 2.00 to 1.00, and the asset coverage ratio, after giving effect to such Restricted Payments, must be greater than or equal to 1.50 to 1.00. In addition to and after giving effect to such Restricted Payments, the availability of funds under the Company's Credit Facility must be greater than or equal to 15% of the Aggregate Elected Commitment Amount, as defined in the Note Purchase Agreement. Upon issuance of the Senior Notes, the Company must maintain a minimum hedging requirement included within the Senior Notes for oil and natural gas based on its proved developed producing projected volumes for oil and natural gas on a rolling 18-month basis.

The Senior Notes are general unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company and are senior in right of payment to all existing and future subordinated indebtedness of the Company. The Note Purchase Agreement contains customary terms and covenants, including limitations on the Company’s ability to incur additional secured and unsecured indebtedness.

The following table summarizes the Company's interest expense:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Interest expense	8,409		9,771		$	17,152	$	11,065
Interest income	(236)		—		(443)		—
Capitalized interest	(834)		(835)		(1,798)		(1,450)
Amortization of deferred financing costs	680		450		1,351		643
Amortization of discount on Senior Notes	637		638		1,281		638
Unused commitment fees on Credit Facility	201		137		381		281
Total interest expense, net	$	8,857	$	10,161	$	17,924	$	11,177

As of June 30, 2024 and December 31, 2023, the weighted average interest rate on outstanding borrowings under the Credit Facility was 8.50% and 8.68%, respectively.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of June 30, 2024, the Senior Notes had $8.8 million of unamortized discount and $3.4 million of unamortized deferred financing costs, resulting in an effective interest rate of 13.38% during the six months ended June 30, 2024. As of December 31, 2023, the Senior Notes had $10.1 million of unamortized discount and $3.9 million of unamortized deferred financing costs, resulting in an effective interest rate of 13.38% during the year ended December 31, 2023.

As of June 30, 2024, the Company was in compliance with all covenants contained in the credit agreement for the Credit Facility and in the Note Purchase Agreement.

(11) Shareholders' Equity

Dividends

For the three months ended June 30, 2024 and 2023, the Company declared quarterly dividends on its common stock totaling approximately $7.8 million and $6.8 million, respectively. For the six months ended June 30, 2024 and 2023, the Company declared quarterly dividends on its common stock totaling approximately $15.1 million and $13.7 million, respectively.

Share-Based Compensation

In April 2023, the Company's stockholders approved the Amended and Restated 2021 Long Term Incentive Plan (the "A&R LTIP"), which increased the total number of shares of common stock that may be utilized for awards pursuant to the A&R LTIP by 950,000 shares, from 1,387,022 to 2,337,022. The A&R LTIP had 929,374 shares available for future awards as of June 30, 2024.

2021 Long-Term Incentive Plan

The following table presents the Company's restricted stock activity during the six months ended June 30, 2024 under the A&R LTIP:


Amended and Restated 2021 Long-Term Incentive Plan
	Restricted Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2023	521,997	$	24.37
Granted	167,929	$	28.83
Vested	(98,299)	$	26.78
Forfeited	(21,677)	$	28.11
Unvested at June 30, 2024	569,950	$	25.41

For the three months ended June 30, 2024 and 2023, the total share-based compensation expense was $3.3 million and $1.2 million, respectively. For the six months ended June 30, 2024 and 2023, the total share-based compensation expense was $5.0 million and $2.5 million, respectively. Share-based compensation expense is included in general and administrative costs on the Company's condensed consolidated statements of operations for the restricted share awards granted under the A&R LTIP. Approximately $10.7 million of additional share-based compensation expense will be recognized over the weighted average life of 25 months for the unvested restricted share awards as of June 30, 2024.

ATM Program

On September 1, 2023, the Company entered into an Equity Distribution Agreement in connection with an at-the-market equity sales program ("ATM") pursuant to which the Company may offer and sell from time to time up to an aggregate $50 million in shares of the Company's common stock through its agents. During the three and six months ended June 30, 2024,

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the Company did not execute any sales under the ATM program. As of June 30, 2024, the Company had remaining capacity to sell up to an additional $49.7 million of common stock under the ATM program.

2024 Equity Offering

On April 8, 2024, the Company issued and sold 1,015,000 shares of common stock at a price of $27.00 per share. Net proceeds from the 2024 Equity Offering were approximately $25.4 million, after deducting underwriting discounts and commissions and expenses. The proceeds were used for financing an acquisition, repayment of outstanding debt and general corporate purposes.

(12) Income Taxes

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Current income tax expense:
Federal	$	6,952	$	1,574	$	10,529	$	4,781
State	517		414		886		614
Total current income tax expense	7,469		1,988		$	11,415	$	5,395
Deferred income tax expense:
Federal	2,541		7,207		$	4,054	$	12,295
State	646		1,247		1,019		1,442
Total deferred income tax expense	3,187		8,454		$	5,073	$	13,737
Total income tax expense	$	10,656	$	10,442	$	16,488	$	19,132

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands)
Tax at statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
Nondeductible compensation	0.8	%	—	%	0.7	%	—	%

Share-based compensation	0.1	%	(0.1)	%	0.1	%	(0.2)	%
State income taxes, net of federal benefit	2.1	%	3.0	%	2.2	%	1.9	%


Effective income tax rate	24.0	%	23.9	%	24.0	%	22.7	%

The Company's federal income tax returns for the years subsequent to December 31, 2019 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, 2018. 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.

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RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(13) Net Income Per Share

Riley Exploration Permian, Inc. [REPX] Filings
10-Q	[2024-08-07]
10-Q	[2024-05-08]
10-K	[2024-03-06]
10-Q	[2023-11-07]
10-Q	[2023-08-07]
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]