REPX (2021 - Q2)

Good morning my name is and I will be your conference operator today. At this time I would like to welcome everyone to the Riley Permian Fiscal Second Quarter Earnings Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. Thank you. Philip, you may begin your conference. Philip R

Thank you Rische. Good morning, everyone. Welcome to Riley Permian's fiscal second quarter earnings conference call. Participating on call today are Bobby Riley, Riley's Chairman and CEO, Kevin Riley, President, Mike Rugen, CFO and myself, Executive Vice President of Strategy.

Thank you, Philip. Good morning and thank you for joining us today on the call. My comments this morning will focus on key highlights for the quarter ending March 31, 2021, which is our second fiscal quarter. As previously announced, we closed the reverse merger transaction on February 26, 2021, which represented a public debut for our predecessor Riley Exploration Permian LLC. Riley Permian performed strongly during our fiscal second quarter of 2021, during which we overcame the extreme operating challenges presented by Winter Storm Uri, and we continue to create value for our shareholders. Halfway through our fiscal year, which ends on September 30, 2021, we remain firmly adhere to our capital allocation framework, including reinvesting less than 70% of EBITDAX and capital expenditures as evidenced by our year-to-date allocation of only 51%. Combined with our robust operating performance, such capital discipline allowed us to generate over $20 million upon adjusted free cash flow during our fiscal year-to-date. Further, we are pleased to pay the dividend of $0.28 per share. The payment of regularly quarterly dividends has long been a priority for Riley Permian dating back to its predecessor entity as a private company. Going forward one of Riley Permian's core priorities is to continue to pay and grow a regular quarterly dividend consistent with our shareholder focused business model. Finally, we have formally begun operations on our EOR pilot after several years of extensive technical studies internally and with world class partners. Our core assets and Yoakum County, Texas is an ideal candidate for EOR for both geologic and geographic reasons. It is directly adjacent to several of the largest and most successful EOR projects in the United States.

Thank you, Bobby and good morning to everyone. As Bobby mentioned, I plan to review the operational activity results for the last quarter. Despite production impacts and what management estimates to believe to be 18.4 MBoe from the impact of Winter Storm Uri and another windstorm that impacted our production in March. Our total net production for the quarter totaled 746 MBoe 8293 Boe per day. This represents a 9% increase from our first fiscal quarter ending December 31, 2020. As a result of increased gathering and processing capacity from our midstream partner, our production mix for the quarter was 73% oil, 13% natural gas and 14% natural gas liquids. The additional gathering and processing capacity allowed us to reduce our flaring and natural gas by 35% quarter-over-quarter. In February of 2021, Riley Permian commenced a seven growth seven net well drilling program on our Permian asset, and today we have spent about $11.2 million towards that endeavor that resulted in drilling a five growth wells in 4.5 net wells and the completion of two drills and 1.5 net wells during the quarter. This investment rate implies a 53% reinvestment rate or EBITDAX for the quarter. One of the results of our program is our drilling times spuds reaching total debt has continued to improve, with the results for wells drilled to-date during the fiscal year averaging five days for one mile lateral and six and a half days for a mile and a half lateral. Onto the financial, aspect of the drilling program. The average realized un-hedged prices were 5641 per barrel of oil, $7.51 per MCF of natural gas and 1360 per barrel of natural gas liquids, resulting in a total equivalent un-hedged price of 4912 per Boe, after the impact of hedges our realized price was $45.64 per Boe. Our all-in cash costs for the second quarter were $16.16 per Boe, which is inclusive of interest expense of $1.56 per Boe. We generated $21 million of EBITDAX and 23.2 million of adjusted EBITDAX after the exclusion, the transaction costs related to the merger. With that I will now turn the call back over to Philip to discuss our recently announced EOR pilot.

Thank you, Kevin. As Bobby previewed, we are pleased with the company has began operations on our EOR pilot program. This will start with a 960 acre unit in Yoakum County, Texas, applying water and C02 through vertical injection wells adjacent to horizontal producing wells. We have already began drilling the first vertical injection well this month with approximately $1.5 million of capital estimated to be incurred during fiscal 2021. We are kicking off this operational effort after several years collecting extensive cores, logs and 3-D seismic data over the Platang Field, which we call our Champions asset, to evaluate the resource potential. And after studying the data, we believe that in addition to significant recovery from primary production, we can use EOR including water flooding and Co2 injection to increase recoveries in the Champions area. These methods which have been highly successful in the Washington field, which is directly adjacent or properly find to us, should work very well for us. Our assets have similar reservoir rock properties for (Ph) and most concentrated areas CO2 infrastructure in the U.S. is directly adjacent to our Champions asset, including the CO2 pipeline in Denver City, Texas. Just a few more thoughts here for why we believe this is the right time to begin this pilot. Historically, EOR operations were most often applied to older legacy oil fields past the production and the development stage. But we believe our Champions asset is an excellent candidate for EOR methods, even as a more undeveloped property as we recognize the efficiency gained by early applications of water flooding and CO2 injection. There is a time value component to this, both from reservoir and financial perspective. We think beginning these applications early concurrently with primary depletion, and while the reservoir still has successful pressure, can lead to more efficient old displacement, operating synergies and higher ultimate recoveries which we hope may approach three times the recovery of primary operations. Doing so may also accelerate the lifecycle of our assets. We have always believed that EOR represented that visual step in the evolution for its development. And then historical sequencing of primary to secondary to tertiary recovery can lead to an extremely long lifecycle. Whereas implementing these processes concurrently, allows for an acceleration of the full value capture of a field and notably shorter timeframe. Finally, there is another Florida looking element to this pilot related to our ambition to use anthropogenic sources of CO2, or ACO2 as we call it. Why are we focused on this? Well, we believe the track with economics may be achievable, while at the same time providing the service to society and consuming significant amounts of CO2, which much of the planet is calling for and which could lead to Riley producing a differentiated low carbon barrel of oil.

Thank you Philip. Upright from additional CapEx of (Ph) million related to some unplanned participation in three additional non-op wells and the initiation of our EOR pilot, we reaffirm our fiscal year CapEx in-line with the reinvestment rate of approximately 65% of our EBITDA. The company expects fiscal year 2021 capital expenditures to be a total of approximately $54 million to $56 million. Additionally, the company forecasts full-year fiscal 2021 oil production the average between 6.3 and 6.5 MBoe per day, the total equivalent productions average between 8.3 and 8.7 MBoe per day represented a year-over-year growth approximately 17% to 23%. With that, I will turn it over to Body for closing remarks.

Thank you, Kevin. In closing, our past quarter was extremely busy and productive. We generated operating cash flow, free cash flow and paid dividends. Our objective remains to continue to grow within our capital allocation framework. Thank you again for your time today. And operator you may now open for questions.

Your first question from the line of John White from ROTH Capital.

Good morning guys and congratulations on your inaugural earnings call of the company. So in part and on Slide 16, the last bullet point, right hand side of the page says Riley's participation CCUS could be direct for off take only. By that do you mean, you could use CO2 as part of your EOR project or you could take the CO2 from an industrial emitter and simply store it in a saline reservoir?

Kind of two questions there from what I have heard, John. First, thanks for the warm note there. One is it off taker participation and two is the user storage. On the ladder, we are going to be using the CO2 and our initial endeavor that is what the EOR rather than permanent sequestration with the class as well, which is a slight difference there with both these and sponsor with the 45 key tax credits used qualifies as a $35 credit in the coming years, whereas a permanent sequestration is the $50 a tonne.

Well I can appreciate that. This has been referred to as basically a new industry within our traditional E&P industry. And it looked like you were federal - you encourage some federal income tax in the quarter. So I guess that would lead to your application of potential 45 queue credits?

Yes. On the tax what I would say John is it is frankly still being developed at the federal level whether that you have to be approved taxpayer or whether these can potentially be direct tax, meaning it is the truth credit whether or not you are a taxpayer. One way or another, in modern capital markets, you can find a way to monetize these credits, as you are familiar in the renewable industry and especially tax equity structuring. So, as we see, the value is fundable, this original source person maybe a taxpayer, and can effectively share economic benefit with us through a potentially reduced price.

I appreciate that. And my final question is, on your 960 acre, pilot EOR. Are you aware of any other projects where vertical injection to horizontal producing wells is underway?

John that is a good question. I mean, this is an early technique since horizontal drilling. These type of mature fields have not been around for a long time in the adjacent fields are offset operators have drills and horizontal wells to increase their efficiency from recoveries you can see on the, on the roadmap, we have gone into - fields for that and some horizontal producers. There is been some of this work done internationally. I think the presentation indicates that we have we are in partnership with both Baker Hughes and William Cobb and Associates in designing the injectivity, patterns, volumes, rate, et cetera. We have designed our wellbores in this project where we have sliding fleas instead of a traditional plugin curve completions that allow us to open and close the sleeves throughout the rest of the wellbore so, that you are able to control and monitor, sweep.

Well, that sounds very exciting. I salute you on your technical foresight on setting up your horizontals that way. Thanks for taking my questions, and I will pass it on. A - Bobby Riley Thanks.

Thank you John.

Your next question line up a Neal Dingmann from Truist Securities.

Good morning. First question kind of around that. I really like the potential around this EOR pilot. And I think some of the comments you made about what the potential there not only financially but obviously different aspects of that is certainly there. Just my question around that is, will that be predicated on? I'm just wondering, the size and scale, is that going to be predicated on bringing the partner in, is or I guess what I'm thinking for sort of the second part of that question is, funds allocated there, will that take away from fund allocated just to the traditional business. I'm just wondering, sort of early on how you all are thinking about that?

Sure. Thanks. Thanks, Neal. At this point was only disclosed that we have begun this initial vertical injection, well, we haven't disclosed or provided guidance on how we are going to do the wider the wider project. We are going to watch how this performs for a while. Again, previously, I said we have only allocated 1.5 half million of the capital for fiscal 2021. So, that is the following two quarters. It is going to give us a time to see how the world responds and we will look at it after that to see how we go from there. And we are mindful of the capital allocation framework that we have presented to the investment community and we think that is one of our core differentiating factors with some of the other companies, so we are mindful of that.

Your next question line of (Ph).

Good morning fellows. Again, I want to tell you how great it is that you all have been successful in your merger and going public. My question today is assuming success with your CO2 recovery. How much additional acreage will you have available to expand this and with that in mind, what percentage of your acreage is being held by production now and what is your plans for that acreage that still is not held by production?

On the EOR, I guess we haven't fully disclosed that. What we say is we are generally being mindful of how we are developing the field that Bob describes his flight and pleased to have forward looking thoughts for designing it optimally. We generally see a lot of running room for this, this is the first unit, we have got a large footprint. So we have got a long way to go there. Maybe on the HPC or HBO operations, as we call it, I will pass it over to Kevin.

I don't have the exact numbers in front of me, but looking back to our last filing which is close at. I believe HPC plus HBO was somewhere between 70% and 80% of our acreage position. So we are well underway in development and having delineated position. I hope that answer your question.

Yes, I would say one more thing, follow Kevin's comment is we are generally trying to optimize the development to spend capital efficiently with dollars going into the ground versus is releasing acres so we are mindful of that.

Okay. Thank you.

And we do have a follow-up question from John White from Roth Capital.

Just thought I would jump back in. CapEx for drilling and completions in this quarter was a little light versus my take. Was that due to the store or is your cadence is set up for more drilling in the latter part of the fiscal year?

There was a little bit of delay due to the storm and such the rig was originally scheduled to be to us starting nervous February. I don't think we can miss drone operations until late in February, and we are able to get a completion of to all. You are correct in that our cadence does kind of pick up the next quarter or this quarter that we are currently in and then begins to taper off a little and our fiscal Q4 prior to picking back up for fiscal 2022

Okay, thanks. And you mentioned a bad wind storm. Anybody that spent time in West Texas is familiar with that. Did that knock down some power lines or what equipment did that wind storm is that?

It did impact some power from our power provider Yoakum County electric.

Okay. Thanks for the detail.

And there are no other questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.