Riley Exploration – Analysis of Q2 results
Posted: Thu Aug 08, 2024 9:41 am
Summary
Riley Exploration Q2 results were slightly below expectation, mainly due to negative natural gas and NGL prices. Production was above expectation. Profitability is high, but was slightly lower than expected due to the negative gas and NGL prices. Prices should improve in 2025. The balance needs some reinforcement, which can be achieved late 2025. Shareholder returns are good and can jump in 2026.
Production
• Q2 production (21.3 K BoE/d was at the high end of the outlook (20.9-21.3 K BoE/d).
• Riley normally is at the high end or above the outlook
• Q2 production was 4.5% above Q1 (20.4 K BoE/d). This confirms the growing production trend.
• Q3 production outlook is 21.0-23.0 K BoE/d. I expect a Q3 production of 23.0 K BoE/d as Eddy County acquisition comes in with 1.1 K BoE/d.
• 2024 production outlook was unchanged at 21.0-22.5 K BoE/d.
• With Eddy County contributing the whole year, 2025 production can climb to 23.5-24.5 K BoE/d.
• 2026 onwards production can grow with 4*5%/ears to
Balance sheet
• The balance sheet is in a moderate condition.
• Solvency improved 4.2% from 44.6% (late 2023) to 48.8% (Q2).
• Long term debt reduced with $ 34 M from $ 336 M (late 2023) to $ 302 M (Q3).
• Late 2024 debt/EBITDA ratio should be a good 1.00-105.
• The balance sheet allows shareholder returns but needs some reinforcement in 2024 and 2025.
Profitability
• Unit costs (incl. interest, depreciation, and overheads) are a medium low $ 30.94/BoE.
• Realized gas prices (-$0.61/MM Btu) and NGL prices (-$ 0.10/bbl) were negative.
• With the commissioning of new gas pipelines in west Texas in late 2024, gas prices in 2025 should improve. Also the JV on local power generation should help.
• Q2 net profit was $ 33.1 M (eps $ 1.59).
• With WTI ate $ 70-75/bbl I expect a net 2024 profit (excluding non-cash hedging results) of $ 135 -142 M (eps=$ 6.55-6.90, PE=3.6-3.8). The PE is very low.
• With growing production and recovering gas and NGL prices, the eps in 2028 can grow to $ 7.64-8.90 (PE=2.7-3.8).
• Riley is a very profitable company.
Shareholder returns
• Quarterly dividend was $ 0.36 and should continue like this in H2 2024.
• Riley does not buy back shares.
• 2024 shareholder returns should be a reasonable 5.9%.
• Shareholder returns in 2025 increase slightly to 6.5%.
• 2026 onwards, with the solvency at >60%, shareholder returns can go up to 12-16%.
Conclusions
Riley Exploration Q2 results were slightly below expectation, mainly due to negative natural gas and NGL prices. Production was above expectation. Profitability is high, but was slightly lower than expected due to the negative gas and NGL prices. Prices should improve in 2025. The balance needs some reinforcement, which can be achieved late 2025. Shareholder returns are good and can jump in 2026.
Riley justifiably tops the ranking of my 80 oil and gas companies and is a good investment.
Riley Exploration Q2 results were slightly below expectation, mainly due to negative natural gas and NGL prices. Production was above expectation. Profitability is high, but was slightly lower than expected due to the negative gas and NGL prices. Prices should improve in 2025. The balance needs some reinforcement, which can be achieved late 2025. Shareholder returns are good and can jump in 2026.
Production
• Q2 production (21.3 K BoE/d was at the high end of the outlook (20.9-21.3 K BoE/d).
• Riley normally is at the high end or above the outlook
• Q2 production was 4.5% above Q1 (20.4 K BoE/d). This confirms the growing production trend.
• Q3 production outlook is 21.0-23.0 K BoE/d. I expect a Q3 production of 23.0 K BoE/d as Eddy County acquisition comes in with 1.1 K BoE/d.
• 2024 production outlook was unchanged at 21.0-22.5 K BoE/d.
• With Eddy County contributing the whole year, 2025 production can climb to 23.5-24.5 K BoE/d.
• 2026 onwards production can grow with 4*5%/ears to
Balance sheet
• The balance sheet is in a moderate condition.
• Solvency improved 4.2% from 44.6% (late 2023) to 48.8% (Q2).
• Long term debt reduced with $ 34 M from $ 336 M (late 2023) to $ 302 M (Q3).
• Late 2024 debt/EBITDA ratio should be a good 1.00-105.
• The balance sheet allows shareholder returns but needs some reinforcement in 2024 and 2025.
Profitability
• Unit costs (incl. interest, depreciation, and overheads) are a medium low $ 30.94/BoE.
• Realized gas prices (-$0.61/MM Btu) and NGL prices (-$ 0.10/bbl) were negative.
• With the commissioning of new gas pipelines in west Texas in late 2024, gas prices in 2025 should improve. Also the JV on local power generation should help.
• Q2 net profit was $ 33.1 M (eps $ 1.59).
• With WTI ate $ 70-75/bbl I expect a net 2024 profit (excluding non-cash hedging results) of $ 135 -142 M (eps=$ 6.55-6.90, PE=3.6-3.8). The PE is very low.
• With growing production and recovering gas and NGL prices, the eps in 2028 can grow to $ 7.64-8.90 (PE=2.7-3.8).
• Riley is a very profitable company.
Shareholder returns
• Quarterly dividend was $ 0.36 and should continue like this in H2 2024.
• Riley does not buy back shares.
• 2024 shareholder returns should be a reasonable 5.9%.
• Shareholder returns in 2025 increase slightly to 6.5%.
• 2026 onwards, with the solvency at >60%, shareholder returns can go up to 12-16%.
Conclusions
Riley Exploration Q2 results were slightly below expectation, mainly due to negative natural gas and NGL prices. Production was above expectation. Profitability is high, but was slightly lower than expected due to the negative gas and NGL prices. Prices should improve in 2025. The balance needs some reinforcement, which can be achieved late 2025. Shareholder returns are good and can jump in 2026.
Riley justifiably tops the ranking of my 80 oil and gas companies and is a good investment.