Riley Exploration Permian Inc

(1) Organization and Nature of Business

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 NGLs in Texas and New Mexico. Our activities primarily include the horizontal development of conventional reservoirs on the Northwest Shelf of the Permian Basin. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas and Eddy County, New Mexico.

On April 3, 2023 (the "Closing Date"), the Company completed the acquisition of oil and natural gas assets (the "New Mexico Acquisition") from Pecos Oil & Gas, LLC ("Pecos"), a Delaware limited liability company and an affiliate of Cibolo Energy Partners LLC. For further information regarding the New Mexico Acquisition, see Note 4 - Acquisitions of Oil and Natural Gas Properties.

(2) Basis of Presentation

These unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 include the accounts of Riley Permian and its wholly-owned subsidiaries and have been prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated upon consolidation.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, shareholders' equity, results of operations or cash flows. These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

These condensed consolidated financial statements have not been audited by an independent registered public accounting firm. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024, for various reasons, including fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, the current and future impacts of the military conflicts between Russia and Ukraine and Israel and Hamas, the volatile inflationary environment in U.S. markets and other factors.

(3) Summary of Significant Accounting Policies

Significant Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, accrued capital expenditures and operating expenses, ARO, the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives.

Accounts Receivable

Accounts receivable is summarized below:

As of December 31, 2022, the Company had accounts receivables from oil, natural gas and NGL sales of $24.1 million.

The Company hadno allowance for credit losses at March 31, 2024 and December 31, 2023.

Other Non-Current Assets, Net

Other non-current assets consisted of the following:

(1)Deferred financing costs, net reflects costs associated with the Company's Credit Facility which are amortized over the term of the Credit Facility.

Equity method investment. In January 2023, the Company formed a joint venture, RPC Power LLC ("RPC Power"), for the purpose of constructing a power infrastructure for onsite power generation in Yoakum County, Texas using produced natural gas. The Company has contributed its portion of capital for the joint venture through RPC Power Holdco LLC, a wholly-owned subsidiary of the Company. In March 2024, the Company made an additional capital contribution of $5.6 million in RPC Power. As of March 31, 2024, the Company owned 35% and had invested $11.5 million in the joint venture, comprised of $9.2 million in cash and $2.3 million of contributed assets, which was reduced by the Company's share of losses and increased by its share of income in the joint venture.

Accrued Liabilities

Accrued liabilities consisted of the following:

Asset Retirement Obligations

Components of the changes in ARO for the three months ended March 31, 2024 and the year ended December 31, 2023 are shown below:

(1)Current ARO is included within other current liabilities on the accompanying condensed consolidated balance sheets.

Revenue Recognition

The following table presents oil and natural gas sales disaggregated by product:

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. This ASU is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this standard provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid. This ASU is effective for the Company prospectively to all annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its disclosures.

(4) Acquisitions of Oil and Natural Gas Properties

New Mexico Acquisition

On April 3, 2023, the Company completed the New Mexico Acquisition from Pecos for $324.7 million, including customary purchase price adjustments. The assets acquired are located in Eddy County, New Mexico, and include approximately 10,600 total contiguous net acres of leasehold. The acquisition also included 18 net horizontal wells and 250 net vertical wells.

The Company funded the New Mexico Acquisition through a combination of proceeds from the issuance of $200 million of Senior Notes and borrowings under the Company's Credit Facility, including application of a $33 million escrow deposit paid during the three months ended March 31, 2023 from borrowings under the Credit Facility. For further information regarding the financing for the New Mexico Acquisition, see Note 9 - Long-Term Debt.

The New Mexico Acquisition qualified as a business combination using the acquisition method of accounting. The assets acquired and liabilities assumed were recognized at fair value as of the acquisition date. The fair value measurements of the oil and natural gas properties acquired and ARO assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of future production volumes, future development, future operating costs, future cash flows and the use of a weighted average cost of capital. These inputs required the use of significant judgments and estimates at the date of valuation, and use of different estimates and judgments could yield different results.

The following presents the allocation of the total purchase price of the New Mexico Acquisition to the identified assets acquired and liabilities assumed based on estimated fair value as of the Closing Date:

Transaction costs associated with the New Mexico Acquisition were approximately $1.9 million for the three months ended March 31, 2023 and are included on the accompanying condensed consolidated statements of operations.

Post-Acquisition Operating Results

The results of operations attributable to the New Mexico Acquisition since the Closing Date have been included in the condensed consolidated statements of operations and include $29.0 million of total revenue, net, and $18.9 million of earnings for the three months ended March 31, 2024.

Pro Forma Operating Results

The following unaudited pro forma combined results for the three months ended March 31, 2023 reflect the consolidated results of operations of the Company as if the New Mexico Acquisition had occurred on January 1, 2022. The unaudited pro forma information includes adjustments for (i) amortization for the discount and deferred financing costs and interest expense related to the Senior Notes and Credit Facility, (ii) depletion, depreciation and amortization expense, and (iii) interest expense related to the financing for the New Mexico Acquisition. In addition, the pro forma information has been effected for income taxes with a 21.5% statutory tax rate for three months ended March 31, 2023.

The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations that the Company would have reported had the New Mexico Acquisition been completed as of January 1, 2022 and should not be taken as indicative of the Company's future combined results of operations. The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.

Entry into Purchase and Sale Agreement

On March 22, 2024, the Company entered into a purchase and sale agreement, pursuant to which the Company agreed to purchase interest in oil and natural gas properties in Eddy County, New Mexico ("2024 NM Asset Acquisition") for a purchase price of approximately $20.5 million, subject to customary post-closing adjustments. In connection with executing the purchase and sale agreement in March 2024, a deposit of $1.9 million was paid by the Company and is included in other non-current assets, net in the accompanying condensed consolidated balance sheets. The Company closed this asset acquisition on May 7, 2024 with an effective date of December 1, 2023. See Note 14 - Subsequent Events.

(5) Oil and Natural Gas Properties

Oil and natural gas properties are summarized below:

Depletion and amortization expense for proved oil and natural gas properties was $17.0 million and $8.9 million, respectively, for the three months ended March 31, 2024 and 2023.

(6) Derivative Instruments

Oil and Natural Gas Contracts

The Company uses commodity based derivative contracts to reduce exposure to fluctuations in oil and natural gas prices. While the use of these contracts limits the downside risk for adverse price changes, their use also limits future revenues from favorable price changes. We have not designated our derivative contracts as hedges for accounting purposes, and therefore changes in the fair value of derivatives are included and recognized in other income (expense) in the accompanying condensed consolidated statements of operations.

As of March 31, 2024, the Company’s oil and natural gas derivative instruments consisted of fixed price swaps, costless collars, and basis swaps. The following table summarizes the open financial derivative positions as of March 31, 2024, related to our future oil and natural gas production:

Interest Rate Contracts

The Company entered into floating-to-fixed interest rate swaps, in which it will receive a floating market rate equal to one-month CME Term Secured Overnight Financing Rate and will pay a fixed interest rate, to manage future interest rate exposure related to the Company’s Credit Facility. In March 2024, the Company entered into a fixed-to-floating interest rate swap for the period May 2024 - December 2024, to reduce our interest rate exposure, which resulted in a gain of approximately $1 million on a notional amount of $80 million. This gain will be realized upon settlement of the contracts in 2024.

At the time of settlement of these interest rate derivative contracts, gain or loss on settlement will be included in interest expense on the condensed consolidated statements of operations.

The following table summarizes the open interest rate derivative positions as of March 31, 2024:

Balance Sheet Presentation of Derivatives

The following tables present the location and fair value of the Company’s derivative contracts included in the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023:

The following table presents the components of the Company's gain (loss) on derivatives, net for the periods presented below:

(7) Fair Value Measurements

The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.

The carrying values of financial instruments comprising cash, payables, receivables, and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value reported for the Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes is based on estimates of current rates available for similar issues with similar maturities and is classified as Level 2 in the fair value hierarchy. The oil and natural gas properties acquired and ARO assumed in the New Mexico Acquisition are considered Level 3 measurements.

Assets and Liabilities Measured on a Recurring Basis

The fair value of commodity derivatives and interest rate swaps is estimated using discounted cash flow calculations based upon forward curves and are classified as Level 2 in the fair value hierarchy. The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, by level within the fair value hierarchy:

The following table summarizes the fair value and carrying amount of the Company's financial instruments.

(1)The carrying value reported for the Senior Notes is shown net of unamortized discount and unamortized deferred financing costs.

The carrying value reported for the Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes was determined utilizing a discounted cash flow approach.

(8) Transactions with Related Parties

Contract Services

Riley Permian Operating Company, LLC ("RPOC") provided certain administrative services to Riley Exploration Group, LLC ("REG") and certain administrative and operational services for Combo Resources, LLC ("Combo"). REG and Combo are third-party entities with no ownership by the Company or any members of its management team as of March 31, 2024. REG owns shares of equity in the Company. Combo and the Company also own interests in certain oil and natural gas properties in Lee and Fayette Counties, Texas, which were being jointly developed by Combo and the Company.

RPOC provided administrative services to REG in exchange for a monthly fee of $100 thousand pursuant to a contract services agreement or MSA. Beginning in February 2024, the Company began a transition of the administrative services to REG and its service providers at a reduced fee.

Additionally, RPOC provided certain administrative and operational services to Combo for a monthly fee of $100 thousand and reimbursement of all third party expenses pursuant to a contract services agreement. Both Combo and Riley Permian desired to terminate such MSA and transitioned the services under the MSA to Combo and its service providers effective as of January 31, 2024.

In addition, certain oil and natural gas properties were developed by Riley Permian and Combo who currently jointly own interests in 6 established units in Lee and Fayette Counties, Texas. Effective January 31, 2024, Riley Permian no longer has the right to acquire interest in Combo’s leases or earn an interest in the future units formed within defined areas. Riley Permian may participate in any wells or units to the extent Riley Permian owns an interest in oil, gas or minerals attributable to such new well or unit. Further, Riley Permian can continue to participate in wells drilled within each of the established units. Riley Permian continues to serve as operator on the wells in the established units.

The following table presents revenues from and related cost for contract services for related parties:

The Company hadno amounts payable to Combo at March 31, 2024 and $0.7 million payable at December 31, 2023, which is reflected in other current liabilities on the accompanying condensed consolidated balance sheets. Amounts due to Combo reflect the revenue, net of any expenditures for wells and fees due under the MSA, for Combo's net working interest in wells that the Company operates on Combo's behalf.

Consulting and Legal Fees

The Company has an engagement agreement with di Santo Law PLLC ("di Santo Law"), a law firm owned by Beth di Santo, a member of our Board of Directors, pursuant to which di Santo Law's attorneys provide legal services to the Company. The Company incurred legal fees from di Santo Law of approximately $0.3 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively. As of both March 31, 2024 and December 31, 2023, the Company had approximately $0.6 million in amounts accrued for di Santo Law, which was included in other current liabilities in the accompanying condensed consolidated balance sheets.

(9) Long-Term Debt

The following table summarizes the Company's outstanding debt:

(1)Unamortized discount on long-term debt is amortized over the term of the respective debt.

(2)Unamortized deferred financing costs are attributable to and amortized over the term of the Senior Notes.

(3)As of March 31, 2024 and December 31, 2023, the current portion of long-term debt reflects $20 million due on the Senior Notes over the next twelve months.

Credit Facility

As of March 31, 2024, Riley Exploration - Permian, LLC ("REP LLC"), as borrower, and the Company, as parent guarantor, are parties to a credit agreement with Truist Bank and certain lenders party thereto, as amended, which provides for a Credit Facility with a borrowing base of $375 million. On February 22, 2023, the Company amended its Credit Facility to, among other things, allow for the issuance of unsecured senior notes of up to $200 million. On April 3, 2023, and concurrent with the closing of the New Mexico Acquisition, the Company entered into the fourteenth amendment to the Credit Facility to, among other things, increase the maximum facility amount to $1.0 billion and the borrowing base from $225 million to $325 million, resulting in the addition of new lenders to the lending group. On November 14, 2023, through the semi-annual redetermination process, the Credit Facility was amended to increase the borrowing base from $325 million to $375 million.

The Credit Facility contains certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not greater than 3.00 to 1.00. The Credit Facility also contains a total leverage ratio for Restricted Payments, as defined in the credit agreement. The leverage ratio, after giving pro forma effect to such Restricted Payments, cannot exceed 2.50 to 1.00. If the pro forma leverage ratio is between 2.00 to 2.50, the Restricted Payments cannot exceed trailing twelve month free cash flow. In addition to and after giving effect to such Restricted Payments, the availability of funds under on the Company's Credit Facility must be greater than or equal to 20% of the elected commitments. The Company must maintain a minimum hedging requirement included within the credit agreement for oil and natural gas based on its proved developed producing projected volumes for oil and natural gas on a rolling 24-month basis.

The Credit Facility is set to mature in April 2026. Substantially all of the Company’s assets are pledged to secure the Credit Facility. The following table summarizes the Credit Facility balances:

Senior Notes

On April 3, 2023, and concurrent with the closing of the New Mexico Acquisition, the Company (as "Issuer") completed its issuance of $200 million aggregate principal amount of 10.50% senior unsecured notes with final maturity in April 2028 pursuant to a note purchase agreement (the "Note Purchase Agreement"), with the Senior Notes issued at a 6% discount. The net proceeds from the Senior Notes were used to fund a portion of the purchase price and related fees, costs and expenses for the New Mexico Acquisition.

Interest is due and payable at the end of each quarter. In addition to interest, the Issuer will repay 2.50% of the original principal amount each quarter resulting in $5 million quarterly principal payments until the maturity of the Senior Notes. As of March 31, 2024, the Company had $20 million in current liabilities on the accompanying condensed consolidated balance sheet related to the quarterly principal payments due within the next 12 months.

The Issuer may, at its option, redeem, at any time and from time to time on or prior to April 3, 2026, some or all of the Senior Notes at 100% of the principal amount thereof plus the make-whole amount plus a premium of 5.25% as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After April 3, 2026, but on or prior to October 3, 2026, the Issuer may, at its option, redeem, at any time and from time to time some or all of the Senior Notes at 100% of the principal amount thereof plus a premium of 5.25% as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any. After October 3, 2026, the Issuer may redeem some or all of the Senior Notes at 100% of the principal amount thereof plus accrued and unpaid interest, if any. The principal remaining outstanding at the time of maturity is required to be paid in full by the Issuer. Certain note features, including those discussed above, were evaluated and deemed to be remote. Due to the remote nature, the fair value of these features was estimated to be approximately zero.

The Senior Notes contain certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not greater than 3.00 to 1.00 and (ii) an asset coverage ratio greater than 1.50 to 1.00. The Senior Notes also contain a total leverage ratio and an asset coverage ratio for Restricted Payments, as defined in the Note Purchase Agreement. The leverage ratio, after giving pro forma effect to such Restricted Payments, cannot exceed 2.00 to 1.00, and the asset coverage ratio, after giving effect to such Restricted Payments, must be greater than or equal to 1.50 to 1.00. In addition to and after giving effect to such Restricted Payments, the availability of funds under the Company's Credit Facility must be greater than or equal to 15% of the Aggregate Elected Commitment Amount. Upon issuance of the Senior Notes, the Company must maintain a minimum hedging requirement included within the Senior Notes for oil and natural gas based on its proved developed producing projected volumes for oil and natural gas on a rolling 18-month basis.

The Senior Notes are general unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company and are senior in right of payment to all existing and future subordinated indebtedness of the Company. The Note Purchase Agreement contains customary terms and covenants, including limitations on the Company’s ability to incur additional secured and unsecured indebtedness.

The following table summarizes the Company's interest expense:

As of March 31, 2024 and December 31, 2023, the weighted average interest rate on outstanding borrowings under the Credit Facility was 8.51% and 8.68%, respectively.

As of March 31, 2024, the Senior Notes had $9.5 million of unamortized discount and $3.7 million of unamortized deferred financing costs, resulting in an effective interest rate of 13.38% during the three months ended March 31, 2024.

As of March 31, 2024, the Company was in compliance with all covenants contained in the credit agreement for the Credit Facility and in the Note Purchase Agreement.

(10) Shareholders' Equity

Dividends

For the three months ended March 31, 2024 and 2023, the Company declared quarterly dividends on its common stock totaling approximately $7.3 million and $6.9 million, respectively.

Share-Based Compensation

In April 2023, the Company's stockholders approved the Amended and Restated 2021 Long Term Incentive Plan (the "A&R LTIP"), which increased the total number of shares of common stock that may be utilized for awards pursuant to the A&R LTIP by 950,000 shares, from 1,387,022 to 2,337,022. The A&R LTIP had 1,076,095 shares available for future awards as of March 31, 2024.

2021 Long-Term Incentive Plan

The following table presents the Company's restricted stock activity during the three months ended March 31, 2024 under the A&R LTIP:

For the three months ended March 31, 2024 and 2023, the total share-based compensation expense was $1.7 million and $1.3 million, respectively. Share-based compensation expense is included in general and administrative costs on the Company's condensed consolidated statements of operations for the restricted share awards granted under the A&R LTIP. Approximately $9.4 million of additional share-based compensation expense will be recognized over the weighted average life of 25 months for the unvested restricted share awards as of March 31, 2024.

ATM Program

On September 1, 2023, the Company entered into an Equity Distribution Agreement in connection with an at-the-market equity sales program ("ATM") pursuant to which the Company may offer and sell from time to time up to an aggregate $50 million in shares of the Company's common stock through its agents. The offer and sale of the shares has been registered under the Securities Act of 1933, as amended ("Securities Act"), pursuant to the Company’s registration statement on Form S-3, as amended. A prospectus supplement related to the offering of the shares, as defined in Rule 415(a)(4) promulgated under the Securities Act, was also filed. The Company intends to use the net proceeds from any offering for working capital purposes and other general corporate purposes, including, but not limited to, financing of capital expenditures, repayment or refinancing of outstanding debt, financing acquisitions or investments, financing other business opportunities, and general working capital purposes.

During the three months ended March 31, 2024, the Company did not execute any sales under the ATM program. As of March 31, 2024, the Company had remaining capacity to sell up to an additional $49.7 million of common stock under the ATM program.

(11) Income Taxes

The components of the Company's consolidated provision for income taxes from operations are as follows:

A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:

The Company's federal income tax returns for the years subsequent to December 31, 2019 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2018. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.

(12) Net Income Per Share

The Company calculated net income per share using the treasury stock method. The table below sets forth the computation of basic and diluted net income per share for the periods presented below:

The following shares were excluded from the calculation of diluted net income per share due to their anti-dilutive effect for the periods presented:

(13) Commitments and Contingencies

Legal Matters

Due to the nature of the Company's business, the Company may at times be subject to claims and legal actions. The Company accrues liabilities when it is probable that future costs will be incurred, and such costs can be reasonably estimated. Such accruals are based on developments to date and the Company’s estimates of the outcomes of these matters. The Company did not recognize any material liability for legal matters as of March 31, 2024 or December 31, 2023. Management believes it is remote that the impact of such matters will have a materially adverse effect on the Company’s financial position, results of operations, or cash flows.

Environmental Matters

The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws, which are often changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. The Company hadno material environmental liabilities as of March 31, 2024 or December 31, 2023.

Contractual Commitments

In October 2021, the Company executed an agreement related to its EOR project. This agreement is a CO 2 purchase agreement that has a daily contract quantity with Kinder Morgan CO 2 Company, LLC with a primary term extending through the earlier of the total contract quantity delivered or December 31, 2025.

In August 2022, the Company entered into a second amendment on its gas gathering and processing agreement with its primary midstream counterparty, Stakeholder Midstream LLC ("Stakeholder"). Stakeholder committed to expand its gathering and processing system with a commitment from the Company to deliver an annual minimum volume to Stakeholder’s gathering system for a minimum ofseven years beginning on the in-service date of the expanded plant, which is expected to be during the second quarter.

The Company entered into agreements with RPC Power including one of its subsidiaries, which include RPC Power providing operational expertise on the implementation and management of the power generation assets for a monthly fee of $20 thousand for a period of 10 years. In addition, the Company entered into a tolling agreement and committed to provide the natural gas needed to fuel the onsite power generators for 10 years following the in-service date, with an automatic yearly extension until terminated by either party, for a fee based on a per MMBtu basis adjusted for contractual usage factors.

In October 2023, the Company entered into a purchase agreement for pipe related to its 2024 drilling program. As of March 31, 2024, the Company has commitments to purchase approximately $8.5 million of pipe by December 2024.

(14) Subsequent Events

Dividend Declaration

On April 11, 2024, the Board of Directors of the Company declared a cash dividend of $0.36 per share of common stock payable on May 9, 2024 to its shareholders of record at the close of business on April 25, 2024.

Equity Offering

On April 3, 2024, the Company issued 1,015,000 shares of common stock at a par value of $0.001 per share. Net proceeds from the issuance were approximately $25.9 million, after deducting the underwriting discounts and commissions.

Asset Acquisition

On May 7, 2024, the Company closed the 2024 NM Asset Acquisition for approximately $20.5 million, subject to customary post-closing adjustments.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company's condensed consolidated financial statements and related notes thereto presented in this report as well as the Company's audited consolidated financial statements and related notes included in the Company's Annual Report for the fiscal year ended December 31, 2023. The following discussion contains "forward-looking statements" that reflect the Company’s future plans, estimates, beliefs and expected performance. The Company’s actual results could differ materially from those discussed in these forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements" and "Part II. Item 1A. Risk Factors" below and the information set forth in the Risk Factors under Part I. Item 1A of the Company's Annual Report for the fiscal year ended December 31, 2023.

Overview

We operate in the upstream segment of the oil and natural gas industry and are focused on steadily growing conventional reserves, production and cash flow through the acquisition, exploration, development and production of oil, natural gas and NGLs primarily in the Permian Basin in West Texas and Southeastern New Mexico. We intend to continue to develop our reserves and increase production through development drilling and exploration activities and through acquisitions that meet our strategic and financial objectives.

Financial and Operating Highlights

Financial and operating results reflect the following:

•Increased total net equivalent production by 55% to 20.4 MBoe/d for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023

•During the three months ended March 31, 2024, 6 gross (5.97 net) horizontal wells brought online to production

•Realized average oil price on production sold of $75.25 per barrel, before derivative settlements, during the three months ended March 31, 2024

•Generated cash flow from operations of $56.1 million for the three months ended March 31, 2024

•Incurred total accrual (activity based) capital expenditures before acquisitions of $26.2 million for the three months ended March 31, 2024

•Paid cash dividends on common shares of $7.2 million during the three months ended March 31, 2024

•$6.6 million in cash and$341.8 million in total debt as of March 31, 2024

Recent Developments

Market Conditions, Commodity Prices and Interest Rates

The U.S. and global economies and markets have experienced heightened volatility following impactful geopolitical events, the effects of widespread inflation, and the impact of significantly higher interest rates. Prices for oil and natural gas are determined primarily by prevailing market conditions, which have been and could continue to be volatile.

The combination of geopolitical events, inflation and the higher interest rate environment has led to numerous forecasts of a U.S. or global recession. Any such recession could prolong market volatility or cause a decline in commodity prices, among other potential impacts.

The Company cannot estimate the length or gravity of the future impact these events will have on the Company's results of operations, financial position, liquidity and the value of oil and natural gas reserves.

New Mexico Acquisition

On April 3, 2023, the Company completed the New Mexico Acquisition for an adjusted purchase price of $324.7 million. The New Mexico Acquisition was funded through a combination of borrowings under the Company's Credit Facility and proceeds from the issuance of $200 million of Senior Notes.

Power Joint Venture

In January 2023, the Company entered into an agreement to form a joint venture created for the purpose of constructing new power infrastructure for onsite baseload power generation using produced natural gas for its Champions Field. The Company had an initial 30% investment in the joint venture company, RPC Power, which was increased to 35% in the current quarter, and is committed to providing its portion of capital expenditures. Construction of the onsite power generation facility was predominately completed during 2023 with temporary power generation beginning November 2023 and permanent onsite power generation beginning operations in the second quarter 2024.