Riley Exploration Per (REPX) Update - Mar 7

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Riley Exploration Per (REPX) Update - Mar 7

Post by dan_s »

Riley has announced two significant transactions that will impact my valuation. I am working up a Proforma forecast model for the Pecos Acquisition that is expected to close in April. The Joint Venture announced on March 2nd will have no impact on my valuation, but should help improve operations in 2H 2023.
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This is a BIG DEAL for a company of this size:


OKLAHOMA CITY, Feb. 28, 2023 /PRNewswire/ -- Riley Exploration Permian, Inc. (NYSE American: REPX) ("Riley Permian" or the "Company") today announced that it has entered into a definitive purchase agreement to acquire oil and gas assets from Pecos Oil & Gas, LLC ("Pecos"), an affiliate of Cibolo Energy Partners LLC ("Cibolo"), for cash consideration of $330 million. The acquisition will be funded through a combination of borrowings under the Company's revolving credit facility and the proceeds from the issuance of new senior unsecured notes. Concurrent with the signing of the purchase agreement, the Company entered into a commitment letter with EOC Partners Advisors L.P. for the issuance of $200 million of senior unsecured notes upon closing of the acquisition and subject to the terms and conditions set forth therein. The transaction is subject to customary terms and conditions, including purchase price closing adjustments. The transaction has an effective date of January 1, 2023 and is expected to close early in the second quarter of 2023. < Adds debt but not dilutive.

Bobby Riley, Riley Permian CEO and Chairman, commented, "We're excited to add this prolific asset and new region to our portfolio. Our team has been highly selective in reviewing acquisition opportunities, and this is a deal that fits our criteria, as it brings over 100 high quality drilling locations and provides immediate accretion to relevant financial metrics. This is an under-developed asset with extensive development potential, allowing for value creation potential through the drillbit. Our enhanced scale will improve our cost structure, will facilitate normalizing development cadence and may lead to oilfield service cost savings. Overall, we believe this transaction positions our Company to continue delivering strong financial performance and shareholder returns." < The additional "Running Room" will justify a higher valuation multiple.

Asset Highlights:

11,700 total contiguous net acres in Eddy County, NM (99% held by production)

Current production of 7.2 MBoe/d and 4.2 MBo/d (58% oil, 81% liquids)

Estimated PDP PV10 of $260 million, as of January 1, 2023, with 16.5 MMBoe PDP reserves

Over 100 gross horizontal development drilling locations

Primary geologic targets within the Yeso trend include the Blinebry, Glorieta and Paddock formations

100% ownership of water gathering and disposal infrastructure including nearly 70 miles of water gathering pipelines, multiple saltwater disposal wells and frac ponds

Strategic Rationale:

Attractive Financial Accretion: The transaction is valued at 3.4x 2023 Adjusted EBITDAX(1) and a 15% free cash flow yield(1), accretive relative to Riley Permian's 2023 stand-alone metrics. On a combined basis, the transaction is forecasted to increase Riley Permian's Adjusted EBITDAX(1)(3) by ~50% and Free Cash Flow(1)(3) by ~70% in 2023 (vs. Riley Permian standalone), with no increase in share count.
Significant Increase in Inventory Depth and Quality: Significant growth in Riley Permian's inventory of oil-weighted, horizontal development drilling locations. Drilling economics compete with Riley Permian's existing core asset, with overall lower drilling and completion costs for shallower, conventional source rock as compared to deeper shale wells.

Logical Extension Area: Yeso trend asset has many similarities to Riley Permian's existing core asset focused on the San Andres: a shallow, conventional reservoir on the same Northwest Shelf geology trend that can be developed using modern, unconventional techniques (horizontal drilling and fracturing), and which has a lower production decline rate than shale. Riley Permian's extensive expertise with similar geology reduces execution risk. Adding an extension area diversifies our operating footprint, reducing single-area concentration and alleviating some operations constraint, such as midstream gas take-away capacity.

Enhanced Scale and Cost Synergies: Significantly increased size with only modest increased G&A leads to improved cost structure (25% lower pro forma G&A on a per Boe basis). Overall increased drilling and completion activity may lead to normalized activity cadence and oilfield service cost savings.

Modest Pro Forma Leverage Profile: Estimated pro forma leverage at close of ~1.3x, based on forecasted, pro forma combined 2023 Adjusted EBITDAX(1)(3), with estimated pro forma liquidity of ~$125-150 million based on an anticipated increased borrowing base. The Company forecasts both leverage and liquidity improving through 2023 based on forecasted debt reduction. Further, attractive updated derivatives positions allow for improved downside protection while maintaining upside price exposure. < Riley's strong balance sheet and liquidity helped them to make an acquisition of this size.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Riley Exploration Per (REPX) Update - Mar 7

Post by dan_s »

For modeling purposes, I am assuming a 10% reduction in lease operating expenses per boe as a result of using previously flared gas for power generation. It should also reduce downtime due to power outages.
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Conduit Power and Riley Permian Form Joint Venture to Build New Power Infrastructure
March 2, 2023

Project to Utilize Captured Flare Gas for On-Site Power Generation

OKLAHOMA CITY and HOUSTON, March 2, 2023 /PRNewswire/ -- Riley Exploration Permian, Inc. (NYSE American: REPX) ("Riley Permian") and Conduit Power, LLC ("Conduit"), a portfolio company of Grey Rock Investment Partners ("Grey Rock"), today announced that they entered into definitive agreements to form a joint venture that will own and operate on-site power generation utilizing captured flared natural gas (the "Project") to power Riley Permian's operations in Yoakum County, Texas. The Project will be completed in phases and will ultimately include 20 megawatts ("MW") of power. Phase 1 of the Project will provide 10 MW of on-site generation and is expected to be operational by June 2023, with an additional 10 MW in Phase 2 anticipated to be operational by late 2023 or early 2024.

Strategic Rationale:

Improve Operations: Unreliable power quality can lead to lost revenue from production downtime and/or costly repairs. The new power infrastructure is expected to improve Riley Permian's operating resiliency with a consistent, baseload power source in an increasingly intermittent power grid.

Control Costs: Vertically integrating Riley Permian's power need with a behind-the-meter solution will allow Riley Permian to better manage its long-term energy costs.

Reduce Flaring and Emissions: At the completion of both phases, the Project will capture a substantial amount of natural gas currently flared, thereby allowing Riley Permian to reduce its CO2 emissions.

Management Commentary:
"We sought Conduit as an aligned partner based on their expertise, which will help us navigate the complexities of the power industry," said Bobby Riley, CEO of Riley Permian. "Their team's depth of experience offered us a turnkey solution, including design, procurement, build and implementation. We believe this Project is indicative of the types of creative initiatives we pursue as a company, including those that enable higher operational control and situations that turn challenges into opportunities."

"We are excited to partner with Riley Permian and look forward to building and operating this new infrastructure that allows them to grow their operations in the Permian Basin," said Matt Whitaker, Conduit Managing Director. "Our customers benefit from controlling critical infrastructure, such as electric power, as a means to improving costs and operational efficiency. At Conduit, we provide a total power solution that enables our customers to increase reliability, lower power costs and reduce carbon emissions."
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Riley Exploration Per (REPX) Update - Mar 7

Post by dan_s »

TipRanks: "On March 7, 2023 Riley Exploration price target raised to $43 from $39 at Truist Financial analyst Neal Dingmann."

I have updated my forecast/valuation to account for the transitions above. My current valuation increases by $5 to $50. There is significant upside for this stock if their 2023 guidance agrees with my forecast model assumptions.

Riley Exploration Permian, Inc. (NYSE American: REPX) ("Riley Permian" or the "Company"), plans to release financial and operating results for its fourth quarter and full year 2022 on March 8, 2023 after the U.S. financial markets close.

In connection with the earnings release, Riley Permian management will host a conference call for investors and analysts on March 9, 2023 at 9:00 a.m. CT to discuss the Company's results and to host a Q&A session. Interested parties are invited to participate by calling:

Toll Free Dial-In, 1 (888) 330-2214
Toll Dial-In, 1 (646) 960-0161
Conference ID number 5405646
An updated company presentation, which will include certain items to be discussed on the call, will be posted prior to the call on the Company's website (www.rileypermian.com).

A replay of the call will be available until March 23, 2023 by calling:

Toll Free Dial-In, 1 (800) 770-2030
Toll Dial-In, 1 (647) 362-9199
Conference ID number 5405646
About Riley Exploration Permian, Inc.
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 natural gas liquids. For more information please visit www.rileypermian.com.
Dan Steffens
Energy Prospectus Group
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