Riley Exploration Permian (REPX) Update - Apr 16

[dan_s]

I had a 45 minute conference call with REPX this morning, primarily to go over some of my forecast/model assumptions and to encourage them to host a webinar for us late in May or early June. Riley only has two decent energy sector analysts covering them. They have a good story and just need to get it out there so more investors see the potential.

Here are my notes from this morning:
 The Eddy County Bolt-On Acquisition is expected to close late May or early June.
 At closing it will add ~1,100 Boepd of current production with ~400 barrels of oil per day. So, ~350 Boepd with ~125 Bopd in Q2. The full production impact will show up in Q3.
 All of the good leasehold in Eddy County, New Mexico (Pecos Acquisition that closed April 4, 2023. + the new Bolt-on Acq.) is held by production, primarily from older vertical wells.
 Riley’s Eddy County total leasehold will be ~24,200 net acres in June. < It will be a 2nd significant core area of operations for the Company.
 Total Eddy County production in June should be ~8,000 Boepd with ~50% crude oil. < Riley's total production in Q3 2024 should be 22,500 to 23,000 Boepd with 14,500 to 14,700 Bopd.
 Most of their Eddy County leasehold includes the deep rights, but Riley’s focus will be to develop the shallow currently producing zones (4,000 to 5,500 feet deep) with horizontal wells. Riley believes there is lots of oil in place that can be economically developed with horizontal wells and secondary recovery methods (i.e. – waterfloods) over the next 10-15 years. < Lots of “Running Room”, which is not reflected in the current share price.
 Riley’s 2024 capital program remains $115 to $130 million, not including the cost of the Eddy County Bolt-On Acquisition. Cash proceeds of approximately $19 million from the recent stock sale will be used to pay for the bolt-on acquisition, which will be accretive to free cash flow in Q3.
 Based on my forecast, total free cash flow should be $100 to $120 million this year. FCF will be used to dividend payments of ~$31.5 million and debt repayment.
 The largest quarter-over-quarter production increase will be in Q3, due to the Eddy County Bolt-On Acquisition closing late in Q2 and improvements being made by the 3rd party midstream company that processes most of Riley’s natural gas production in Yoakum. The improvements will allow Riley to increase their production of natural gas and NGLs.
 Riley sells their raw gas to the midstream company (except for gas sold to RPC Power, LLC for electricity generation), which nets all gathering & processing fees against the payments made to Riley. This is why the Company’s realized natural gas and NGL prices are so low in my forecast model.

Riley is committed their dividend program. < Currently, $0.36 per quarter, for annualized yield of ~5%
 MY TAKE: If WTI stays over $80/bbl Riley is likely to increase dividends by 5% to 8% per year.
 MY TAKE: Riley’s investment in RPC Power, LLC has significant upside. By generating electricity on-site using produced gas, Riley can avoid costly power outages. Other upstream companies in the Delaware Basin are looking into doing the same thing.
 Riley's CO2 Pilot Project continues to provide valuable information and the Company expects to publish a feasibility report late in 2024 for expansion of the CO2 Flood.

I have made some changes to my forecast/valuation model and posted it to the EPG website. My current valuation of REPX stays at $50/share.

On April 5th Neal Dingmann at Truist Financial adjusted his price target to $51.00.