I am building a forecast model for this small-cap with a goal of having an estimated valuation by Wednesday. Production growth, operating cash flow and free cash flow are key to all of my valuations.
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OKLAHOMA CITY, Dec. 13, 2021 /PRNewswire/ -- Riley Exploration Permian, Inc. (NYSE American: REPX) ("Riley Permian" or the "Company"), today reported financial and operational results for the fiscal fourth quarter and year ended September 30, 2021.
HIGHLIGHTS FOR THE FISCAL FULL YEAR ENDING SEPTEMBER 30, 2021
Increased total production by 22% to 3.15 MMBoe for fiscal year 2021, as compared to fiscal year 2020
Reported net loss of $65.7 million with income from operations of $59.9 million for the same period
Generated $89.9 million of Adjusted EBITDAX(1), $86.1 million of operating cash flow from continuing operations and $26.0 million of Free Cash Flow(1)
Invested total cash capital expenditures before acquisitions of $60.0 million, which corresponds to 70% of operating cash flow from continuing operations
Paid $18.3 million in dividends on common units/shares, which corresponds to 21% of operating cash flow from continuing operations or 70% of Free Cash Flow(1)
Increased total proved developed reserves by 38% year-over-year to 41.5 MMBoe and increased total proved reserves by 27% year-over-year to 72.2 MMBoe
HIGHLIGHTS FOR THE FISCAL FOURTH QUARTER ENDING SEPTEMBER 30, 2021
Increased production by 35% to 9.6 MBoe per day for the three months ended September 30, 2021, as compared to the same period in 2020, or by 5% quarter-over-quarter compared to fiscal third quarter 2021
Reported net income of $15.7 million with income from operations of $26.9 million for the same period
Generated $24.5 million of Adjusted EBITDAX(1), $27.2 million of operating cash flow from continuing operations and $7.2 million of Free Cash Flow(1)
Realized a Cash Margin(1) of $39.08 per Boe before derivative settlements or $26.41 per Boe after derivative settlements
Declared dividends of $0.28 per share with a record date of July 23, 2021 for a total of $5.5 million
"Riley Permian completed another strong fiscal year," stated Bobby Riley, Chief Executive Officer and Chairman of the Board of Directors. Mr. Riley continued, "We completed our merger with Tengasco in February, had a successful capital raise in July, began and progressed on our EOR project this fall, and met our operational guidance metrics for the fiscal fourth quarter and the fiscal year. We are proud of the organic growth achieved over the past year and believe our reinvestment for growth is warranted to improve our scale, cost structure and cash flow. At the same time, we achieved this growth while allocating significant cash flow from operations back to shareholders in the form of dividends. Finally, we have continued to progress our efforts in developing CCUS projects, including for permanent storage projects on our property, and we're optimistic in initiating our first project during 2022. We are engaging in constructive discussions and diligence efforts with counterparties from CO2 source hosts, capture equipment providers and regulatory advisors. We are seeking to construct commercial arrangements that provide attractive economic returns in the current regulatory environment, with potential for improvement should regulations change at the federal or state levels."
Riley Exploration Permian (REPX) Update - Dec 13
Riley Exploration Permian (REPX) Update - Dec 13
Last edited by dan_s on Tue Dec 14, 2021 10:02 am, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Riley Exploration Permian (RPEX) Update - Dec 13
Dan, great to see that you are writing up this company. BTW the ticker is actually REPX, not RPEX.
Looks like they had another good quarter. Here are some questions that I've thought about so far, for when you speak to the IR guy on Wednesday. These might be answered in the CC tomorrow of course.
1) The company needs to quantify, at least in general terms, what their expectations/hopes are for an ROI on their EOR pilot project. I understand there are a ton of moving parts on that but from their latest presentation it looks like they are close to the point where they will have spent nearly all of the investment $$ on the total project so the only uncertainties now are, what kind of production do they think they will get and for how long. Maybe they think they don't need to "bare their souls" to the markets about this but they need to realize that they are a very small company and they need to go well beyond what some of the larger companies disclose if they want people to buy their stock. To cover their ass and make their lawyers happy they could provide a wide range of projections.
2) More on the EOR project: a) how many acres is comprised in the pilot project and how much of their remaining 26K acres are prospective for EOR projects, in their opinion? b) they need to get specific about what tax benefits they believe they will earn from this project -- I believe its Section 45Q credits. As the law currently stands, how much credits do they think they will generate per year? They talked about this in the last CC but why can't they just do the math for us?
3) Have they considered starting to buy back some of their stock yet? It seems that increasing their dividend has not helped the stock price at all.
4) Are they considering changing their year-end to the calendar year? Its confusing having a 9/30 fiscal year.
5) Curious why they declined to give the PV10 value of their reserves in the PR. That figure is going to be in the 10K anyway, so by not including it in the PR it makes it look like they are trying to hide something. The number may not be that great given that the average oil prices for the year ended 9/30/21 were not as high as they are now, but other companies, such as ESTE and NOG, have issued "proforma" PV10 valuations using strip pricing and I bet that number would be very high for these guys. Query whether Riley has considered issuing PV10 valuation of their reserves using strip prices?
If I come up with any other questions I'll let you know tomorrow.
Looks like they had another good quarter. Here are some questions that I've thought about so far, for when you speak to the IR guy on Wednesday. These might be answered in the CC tomorrow of course.
1) The company needs to quantify, at least in general terms, what their expectations/hopes are for an ROI on their EOR pilot project. I understand there are a ton of moving parts on that but from their latest presentation it looks like they are close to the point where they will have spent nearly all of the investment $$ on the total project so the only uncertainties now are, what kind of production do they think they will get and for how long. Maybe they think they don't need to "bare their souls" to the markets about this but they need to realize that they are a very small company and they need to go well beyond what some of the larger companies disclose if they want people to buy their stock. To cover their ass and make their lawyers happy they could provide a wide range of projections.
2) More on the EOR project: a) how many acres is comprised in the pilot project and how much of their remaining 26K acres are prospective for EOR projects, in their opinion? b) they need to get specific about what tax benefits they believe they will earn from this project -- I believe its Section 45Q credits. As the law currently stands, how much credits do they think they will generate per year? They talked about this in the last CC but why can't they just do the math for us?
3) Have they considered starting to buy back some of their stock yet? It seems that increasing their dividend has not helped the stock price at all.
4) Are they considering changing their year-end to the calendar year? Its confusing having a 9/30 fiscal year.
5) Curious why they declined to give the PV10 value of their reserves in the PR. That figure is going to be in the 10K anyway, so by not including it in the PR it makes it look like they are trying to hide something. The number may not be that great given that the average oil prices for the year ended 9/30/21 were not as high as they are now, but other companies, such as ESTE and NOG, have issued "proforma" PV10 valuations using strip pricing and I bet that number would be very high for these guys. Query whether Riley has considered issuing PV10 valuation of their reserves using strip prices?
If I come up with any other questions I'll let you know tomorrow.
Re: Riley Exploration Permian (REPX) Update - Dec 13
Ed;
Thanks. I will be on the CC today, but I will save your questions for my phone conversation with Rick D'Angelo tomorrow. I am going to ask them to host a webinar for us in January, so we can have a live one-on-one with the CEO.
Based on the base level guidance they've given for FYE 9-30-2022, my model shows ~$141 million of operating cash flow ($7.10/share) for this fiscal year. This compares to their capex guidance of $85 to $95 million for the year.
They do have some "Bad Hedges" to work off. The worst oil hedge (6100 BOPD at $51.65) expires on 12-31-2022
CO2 floods usually take ~6 months from initial injections of CO2 to see an oil production response.
At the company's stage in life, I do find it strange that they are paying a dividend. The balance sheet is in good shape, but I'd rather see them accelerate production growth than pay a dividend. Production and proven reserve growth is very important for young upstream companies.
The tax credits for the EOR project will have little near-term impact because they don't have much taxable income anyway.
Thanks. I will be on the CC today, but I will save your questions for my phone conversation with Rick D'Angelo tomorrow. I am going to ask them to host a webinar for us in January, so we can have a live one-on-one with the CEO.
Based on the base level guidance they've given for FYE 9-30-2022, my model shows ~$141 million of operating cash flow ($7.10/share) for this fiscal year. This compares to their capex guidance of $85 to $95 million for the year.
They do have some "Bad Hedges" to work off. The worst oil hedge (6100 BOPD at $51.65) expires on 12-31-2022
CO2 floods usually take ~6 months from initial injections of CO2 to see an oil production response.
At the company's stage in life, I do find it strange that they are paying a dividend. The balance sheet is in good shape, but I'd rather see them accelerate production growth than pay a dividend. Production and proven reserve growth is very important for young upstream companies.
The tax credits for the EOR project will have little near-term impact because they don't have much taxable income anyway.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Riley Exploration Permian (REPX) Update - Dec 13
After listening to Riley's CC, I am comfortable with an initial valuation of $28/share.
My valuation is 5X 2021+2022 annualized operating cash flow, which is a low multiple for a company with a strong balance sheet and lots of running room. Plus, it is rare to find of a small-cap upstream company that has over 10% annual production growth locked in that pays a decent dividend (~7% annualized dividend yield).
Despite hedges that kept their realized oil price under $52/bbl in FYE 2021, Riley generated $81.8 million of Adjusted Operating Cash flow that more than covered their Capex during the year and covered their dividends. Additional free cash flow paid down debt.
My FYE 2022 forecast is based on realized prices of $55/bbl crude oil, $2.50/mcf of natural gas and $15/bbl of NGLs. I do believe there is upside to these commodity prices. Plus, each quarter going forward they will have more production exposed to higher prices.
On the CC they said that they intend to layer on future oil hedges using collars with floors around $50/bo.
My initial forecast/valuation model for REPX has been posted to the EPG website.
My valuation is 5X 2021+2022 annualized operating cash flow, which is a low multiple for a company with a strong balance sheet and lots of running room. Plus, it is rare to find of a small-cap upstream company that has over 10% annual production growth locked in that pays a decent dividend (~7% annualized dividend yield).
Despite hedges that kept their realized oil price under $52/bbl in FYE 2021, Riley generated $81.8 million of Adjusted Operating Cash flow that more than covered their Capex during the year and covered their dividends. Additional free cash flow paid down debt.
My FYE 2022 forecast is based on realized prices of $55/bbl crude oil, $2.50/mcf of natural gas and $15/bbl of NGLs. I do believe there is upside to these commodity prices. Plus, each quarter going forward they will have more production exposed to higher prices.
On the CC they said that they intend to layer on future oil hedges using collars with floors around $50/bo.
My initial forecast/valuation model for REPX has been posted to the EPG website.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Riley Exploration Permian (REPX) Update - Dec 13
Thanks Dan, very helpful info.
The key question at this point is, what value should investors place on the EOR potential of this company. So far Riley has not really given us any way to try to estimate this potential value. They say that there has been extensive EOR projects both to the north and south of theirs. One would think that out of all those projects, Riley would have a reasonable benchmark to refer to with respect to coming up with some sort of estimate of what they think they will get out of this pilot project. They are blowing nearly a third of their FY '22 cap ex budget on this project so they should be able to provide some reasonably quantified justification for it.
When you come up with your valuation of the stock I note that you are giving zero value to either the current EOR pilot project or the future EOR prospectivity on REPX's acreage. It would seem to me that it might be more reasonable to at least value the EOR project at cost for now, pending getting more info from Riley on its potential value. Valuing the EOR project at cost would add about a buck or 2 to the per-share valuation I believe.
The key question at this point is, what value should investors place on the EOR potential of this company. So far Riley has not really given us any way to try to estimate this potential value. They say that there has been extensive EOR projects both to the north and south of theirs. One would think that out of all those projects, Riley would have a reasonable benchmark to refer to with respect to coming up with some sort of estimate of what they think they will get out of this pilot project. They are blowing nearly a third of their FY '22 cap ex budget on this project so they should be able to provide some reasonably quantified justification for it.
When you come up with your valuation of the stock I note that you are giving zero value to either the current EOR pilot project or the future EOR prospectivity on REPX's acreage. It would seem to me that it might be more reasonable to at least value the EOR project at cost for now, pending getting more info from Riley on its potential value. Valuing the EOR project at cost would add about a buck or 2 to the per-share valuation I believe.
Re: Riley Exploration Permian (REPX) Update - Dec 13
There are some extremely profitable CO2 floods in the San Andres formation. When I was at Hess the SSAU project was the most profitable asset in the entire company by the late 1980's. It ramped up to 64,000 BOPD.
My models do not give value to future projects, but I do think valuing it at cost is reasonable for now.
Riley's project is MUCH SMALLER than Hess's SSAU project that had over 500 wells in it. With just six injector wells, it is a small pilot project. The good news is that by the end of 2022 they should have a good idea if it will work. They first need to inject water to repressurize the zone and then start adding CO2.
In addition to increasing production, CO2 floods that work can add a lot of proven reserves.
My models do not give value to future projects, but I do think valuing it at cost is reasonable for now.
Riley's project is MUCH SMALLER than Hess's SSAU project that had over 500 wells in it. With just six injector wells, it is a small pilot project. The good news is that by the end of 2022 they should have a good idea if it will work. They first need to inject water to repressurize the zone and then start adding CO2.
In addition to increasing production, CO2 floods that work can add a lot of proven reserves.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Riley Exploration Permian (REPX) Update - Dec 13
Thanks Dan. To your last point about the increase in reserves from waterfloods & CO2 floods --- it would be interesting to know whether any of the increase in reserves from this pilot EOR project was included in the 9/30/21 reserve report (as PUDs) or whether any increase would not get booked until the 9/30/22 report. I'm presuming it's the latter but just wanted to check.