Summary
Riley Exploration reported solid Q1 results. The Silverback acquisition looks attractive. Q1 production was lowish, but will continue to grow a.o. due to the silverback acquisition. The balance sheet is in a good condition but will weaken in H2 due to the Silverback acquisition. Riley is a profitable company. Q1 profit was as expected and the PE is low. Shareholder returns in 2025/2026 are reasonable and can increase in the years thereafter. Riley profits are robust under low oil prices.
In my 85 oil and gas company rankings Riley sits in the top 10 at a high 3rd position.
Silverback acquisition
• Riley will acquire for $ 142 M 47,000 acres in Eddy County (NM) from Silverback. The assets are near current operations. The assets produce 5.0 K BoE/d (50% oil, 25% NGL).
• The acquisition normalizes as 142/5 = $ 28.5 M/1,000 BoE. This is at the low end of the normal range of $ 30-50M/1,000 BoE.
• The acquisition looks cheap especially if the high liquid content (75%) is considered.
• The acquisition is expected to close early Q3.
Production
• Riley has demonstrated that it is capable to sustain a growing production. Production tripled from 6.6 K BoE/d (2019) to 22.5 K BoE/d (2024). See chart below.
• Q1 production (24.4 K BoE/d) was near the bottom the outlook (24.5-25.0 K BoE/d). Q1 production (24.4 K BoE/d) was -0.6 K BoE/d below the Q4 production (25.0 K BoE/d).
• Q2 production will be flat. Q2 outlook is 24.0-24.7 K BoE/d.
• In early Q3 the Silverback assets will be added. The Q3/Q4 outlook is 27.6-28.6 K BoE/d.
• With Silverback included, the 2025 outlook of 24.6-25.6 K BoE/d was raised to 25.6-26.9 K BoE/d. I now expect a 2025 production of 26.3 K BoE/d.
• After 2025, with ample reserves (123.6 M BoE + approx. 20-25 M BoE from Silverback), combined with a high RRR (2.66), the Riley production can grow with 5% per year to 33 K BoE/d in 2029 and to 35-40 K BoE/d thereafter. See charts below.
- Riley - production.jpg (43.75 KiB) Viewed 132 times
Balance sheet
• The balance sheet at the end of Q1 is in a reasonable/good shape but will weaken in Q3 due to the Silverback acquisition.
• The equity ratio (=equity/balance sheet total) improved from 51.4% ( late 2024) to a good 53.5% (Q1).
• Due to the Silverback the acquisition the equity ratio in H2 will fall back to just below 50%.
• Long-term debt fell from $ 249 M (late 2024) to $ 229 M (Q1). Due to the Silverback the acquisition in Q3 the long-term-debt in H2 will increase to $ 350-360 M.
• The debt/EBITDA ratio in Q1 on an annual basis equates to a good 0.85, but will increase in H2 highish 1.2-1.3.
• The balance sheet can do with some reinforcement, but allows shareholder returns.
Profitability
• Riley is a very profitable company.
• The Q1 net/adjusted eps ($ 1.36/1.66) was in line with my expectation ($ 1.40).
• Costs were lower than expected
• The realized gas price in Q1 ($ 0.71/MM Btu) was positive and well above Q4 ($ 0.02/MM Btu) and was close my expectation of $ 0.77/MM Btu.
• For 2025, with WTI= $ 60-65/bbl and with Silverback included in H2, I expect an eps of $ 4.48-5.01 (PE-5.0-5.5).
• The eps can increase to $ 4.77-6.00 (PE=4.2-5.1) in 2029. The PE is low.
- Riley - profit.jpg (50.95 KiB) Viewed 132 times
Shareholder returns
• Riley pays a quarterly dividend of $ 0.38 or $ 1.52 on an annual basis
• Although the balance sheet weakens in H2 due to the payments for Silverback, I assume the dividend will continue until late 2026.
• The dividend in 2025/2026 is equivalent to a good shareholder return of 6.1%.
• After 2026 shareholder returns with WTI at $ 60-65/bbl can improve to 9-12%. See charts below.
- Riley - returns.jpg (47.52 KiB) Viewed 132 times
Conclusions
Riley Exploration reported solid Q1 results. The Silverback acquisition looks attractive. Q1 production was lowish, but will continue to grow a.o. due to the silverback acquisition. The balance sheet is in a good condition but will weaken in H2 due to the Silverback acquisition. Riley is a profitable company. Q1 profit was as expected and the PE is low. Shareholder returns in 2025/2026 are reasonable and can increase in the years thereafter. Riley profits are robust under low oil prices.
In my 85 oil and gas company rankings Riley sits in the top 10 at a high 3rd position.