Riley Exploration Permian Inc

Previous wording

Inflation continues to be an ongoing concern. Although inflation moderated somewhat, inflationary pressures remain elevated, which in turn may cause our capital expenditures and operating costs to increase. During inflationary periods, interest rates have historically increased. Increased interest rates could have the effects of raising our cost of capital and the potential for depressing economic growth, either of which (or the combination thereof) could hurt the financial and operating results of our business.

Current wording

Inflation continues to be an ongoing concern. Although inflation has moderated somewhat, inflationary pressures remain elevated, which in turn may cause our capital expenditures and operating costs to increase. During inflationary periods, interest rates have historically increased. Increased interest rates could have the effects of raising our cost of capital and the potential for depressing economic growth, either of which (or the combination thereof) could hurt the financial and operating results of our business.

Previous wording

Comparison for the three months ended March 31, 2025, and 2024:

Current wording

Comparison for the three and six months ended June 30, 2025, and 2024:

Previous wording

(2)The Company's calculation of the effects of derivative settlements includes gains and losses on the settlement of our commodity derivative contracts. These gains and losses are included under other income (expense) in the Company’s condensed consolidated statements of operations.

Current wording

(2)The Company's calculation of the effects of derivative settlements includes gains and losses on the settlement of our commodity derivative contracts. These gains and losses are included under other income (expense) on the Company’s condensed consolidated statements of operations.

Previous wording

Our revenues are derived from the sale of our oil and natural gas production, including the sale of NGLs that are extracted from our natural gas during processing. Realized prices and revenues from product sales are a function of the volumes produced, product quality, market prices, gas Btu content, as well as gathering, processing and transportation costs. Gathering, processing and transportation costs are allocated across natural gas and NGLs based on revenue, which leads to heightened fluctuations in such cost allocations across periods. Our revenues from oil, natural gas and NGL sales do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in the volume of production sold or changes in commodity prices. The Company’s total oil and natural gas sales, net increased $3.0 million, or 3%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The following table presents the Company's oil and natural gas sales prior to and net of gathering, processing and transportation costs:

Current wording

Our revenues are derived from the sale of our oil and natural gas production, including the sale of NGLs that are extracted from our natural gas during processing. Realized prices and revenues from product sales are a function of the volumes produced, product quality, market prices, gas Btu content, as well as gathering, processing and transportation costs. Gathering, processing and transportation costs are allocated across natural gas and NGLs based on revenue, which leads to heightened fluctuations in such cost allocations across periods. Our revenues from oil, natural gas and NGL sales do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in the volume of production sold or changes in commodity prices. The following table presents the Company's oil and natural gas sales prior to and net of gathering, processing and transportation costs:

Previous wording

Our realized oil prices decreased by $5.13, which was the result of a $5.72 decrease in the average WTI price. Daily oil volumes increased by 10% due to increased production from new wells turned to sales in our Champions field and acquired wells in the 2024 New Mexico Asset Acquisition.

Current wording

Our realized oil prices decreased by $17.08, which was the result of a $17.24 decrease in the average WTI price. Daily oil volumes increased by 3% due to increased production from new wells turned to sales.

Previous wording

Our realized natural gas prices increased by $0.29, which was the result of a $1.99 increase in the average Henry Hub price partially offset by negative basis differentials due to regional supply imbalances. Daily natural gas volumes increased by 38% due to additional third-party processing capacity that came online in the third quarter of 2024.

Current wording

Our realized natural gas prices increased by $0.22, which was the result of a $1.13 increase in the average Henry Hub price, partially offset by higher allocated gathering and processing costs.

Previous wording

For the three months ended March 31, 2025, natural gas revenues increased by $0.9 million, compared to the three months ended March 31, 2024. The following table summarizes the effect of price and volume changes on natural gas revenues:

Current wording

NGL revenues increased by $0.9 million.

Previous wording

LOE are the costs incurred in the operation and maintenance of producing properties. Certain operating cost components, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period. For instance, repairs to our pumping equipment or surface facilities or subsurface maintenance result in increased production expenses in periods during which they are performed.

Current wording

LOE are the costs incurred in the operation and maintenance of producing properties. Expenses for electricity, compression, direct labor, saltwater disposal and materials and supplies comprise the most significant portion of our lease operating expenses. Certain operating cost components, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period. For instance, repairs to our pumping equipment or surface facilities or subsurface maintenance result in increased production expenses in periods during which they are performed. Certain operating cost components, such as saltwater disposal associated with produced water, are variable and increase or decrease as hydrocarbon production levels and the volume of completion water disposal increases or decreases.

Previous wording

Production and ad valorem taxes decreased by $0.6 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to the reversal of a previously accrued liability related to the Environmental Protection Agency’s waste emission charge that was nullified in the first quarter of 2025.

Current wording

Production and ad valorem taxes decreased by $1.6 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to lower oil revenues in addition to the reversal of a previously accrued liability related to the Environmental Protection Agency’s waste emission charge that was nullified in the first quarter of 2025.

Previous wording

DD&A expense increased by $1.4 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to an increase in production volumes in our Champions field, partially offset by lower depletion rates on all of our properties.

Current wording

DD&A expense increased by $2.1 million and $3.5 million for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024, primarily due to an increase in production volumes.

Previous wording

Interest expense, net decreased by $2.4 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to lower debt balances along with lower interest rates on borrowings under our Credit Facility.

Current wording

Interest expense, net decreased by $1.7 million and $4.1 million for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024, primarily due to higher debt balances in 2024.

Previous wording

The Company recognizes settlements and changes in the fair value of our derivative contracts as a single component within other income (expense) in our condensed consolidated statements of operations. We have oil and natural gas derivative contracts, including fixed price swaps and collars that settle against various indices. The following table presents the components of the Company's loss on derivatives, net:

Current wording

The Company recognizes settlements and changes in the fair value of our derivative contracts as a single component within other income (expense) in our condensed consolidated statements of operations. We have oil and natural gas derivative contracts, including fixed price swaps, basis swaps and collars, that settle against various indices. The following table presents the components of the Company's gain (loss) on derivatives, net:

Previous wording

Cash gains or losses on settled derivative contracts relate to contracts that settle during the period and are a function of the difference in settled versus contractual prices and the associated hedged volumes for each underlying commodity. Non-cash gains or losses on derivatives relate to unsettled contracts and are a function of changes in derivative fair values associated with fluctuations in the forward price curves for the commodities relative to contractual pricing and the associated hedged volumes for each underlying commodity for our derivative contracts outstanding.

Current wording

Cash gains or losses on settled derivative contracts related to contracts that settle during the period and are a function of the difference in settled versus contractual prices and the associated hedged volumes for each underlying commodity. Non-cash gains or losses on derivatives relate to unsettled contracts and are a function of changes in derivative fair values associated with fluctuations in the forward price curves for the commodities relative to contractual pricing and the associated hedged volumes for each underlying commodity for our derivative contracts outstanding.

Previous wording

The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, like all upstream operators, we must make capital investments to grow and even sustain production. The Company’s principal liquidity requirements are to finance our operations, fund capital expenditures, acquisitions and joint venture commitments, pay dividends and satisfy any indebtedness obligations. Cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and the significant capital expenditures required to more fully develop the Company’s oil and natural gas properties. Historically, our primary sources of capital funding and liquidity have been our cash on hand, cash flow from operations, borrowings under our Credit Facility and the issuance of our Senior Notes. At times and as needed, we may also issue debt or equity securities, including through transactions under our shelf registration statement filed with the SEC. In April 2024, the Company issued equity securities and used the proceeds to finance an acquisition, repay outstanding debt and for general corporate purposes. We estimate the combination of the sources of capital discussed above will continue to be adequate to meet our short and long-term liquidity needs.

Current wording

The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, like all upstream operators, we must make capital investments to sustain and grow production. The Company’s principal liquidity requirements are to finance our operations, fund capital expenditures, fund acquisitions and joint venture commitments, pay dividends and satisfy any indebtedness obligations. Cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and the significant capital expenditures required to more fully develop the Company’s oil and natural gas properties. Historically, our primary sources of capital funding and liquidity have been our cash on hand, cash flow from operations, borrowings under our Credit Facility and the issuance of our Senior Notes. At times and as needed, we may also issue debt or equity securities, including through transactions under our shelf registration statement filed with the SEC. In April 2024, the Company issued equity securities and used the proceeds to finance an acquisition, repay outstanding debt and for general corporate purposes. We estimate the combination of the sources of capital discussed above will continue to be adequate to meet our short and long-term liquidity needs.

Previous wording

Working capital is the difference in our current assets and our current liabilities. Working capital is an indication of liquidity and potential need for short-term funding. The change in our working capital requirements is driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to, the timing of collections from customers, the level and timing of spending for expansion activity and the timing of debt maturities. Our working capital will fluctuate as our drilling and completion activity fluctuates, with periods of higher and lower activity. As of March 31, 2025, we had a working capital deficit of $68.0 million compared to a deficit of $54.6 million as of December 31, 2024. The current portion of our Senior Notes, which includes our regularly scheduled principal payments of $5 million per quarter, accounts for $20 million of our working capital deficit as of March 31, 2025 and December 31, 2024. We utilize our Credit Facility and cash on hand to manage the timing of cash flows and fund short-term working capital deficits. At March 31, 2025, we had cash on hand of $8.9 million and $301 million of undrawn capacity under our Credit Facility.

Current wording

Working capital is the difference in our current assets and our current liabilities. Working capital is an indication of liquidity and potential need for short-term funding. The change in our working capital requirements is driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to, and the timing of collections from customers, the level and timing of spending for expansion activity, and the timing of debt maturities. Our working capital fluctuates as our drilling and completion activity changes with periods of higher and lower activity. As of June 30, 2025, we had a working capital deficit of $37.8 million compared to a deficit of $54.6 million as of December 31, 2024. The current portion of our Senior Notes, which includes our regularly scheduled principal payments of $5 million per quarter, accounts for $20 million of our working capital deficit as of June 30, 2025, and December 31, 2024. We utilize our Credit Facility and cash on hand to manage the timing of cash flows and fund short-term working capital deficits. At June 30, 2025, we had cash on hand of $14.0 million and $271 million of undrawn capacity under our Credit Facility.

Previous wording

Net cash provided by operating activities were $50.4 million for the three months ended March 31, 2025, compared to $56.1 million for the three months ended March 31, 2024, and primarily consisted of the following:

Current wording

Net cash provided by operating activities were $84.0 million for the six months ended June 30, 2025, compared to $107.8 million for the six months ended June 30, 2024, and primarily consisted of the following:

Previous wording

(2)Operating expenses include LOE, production and ad valorem taxes, administrative costs and other miscellaneous operating expenses.

Current wording

(1)Operating expenses include LOE, production and ad valorem taxes, administrative costs, transaction costs and other miscellaneous operating expenses.

Previous wording

(1)Oil and natural gas revenues increased $9.8 million due to an increase in our oil and natural gas production partially offset by a $6.8 million decrease due to lower realized prices.

Current wording

Oil and natural gas revenues decreased $16.9 million due to a $29.7 million decrease from lower realized prices, partially offset by a $12.8 million increase in our oil and natural gas production.

Previous wording

Net cash flows used in investing activities were $25.4 million for the three months ended March 31, 2025, compared to $42.6 million for the three months ended March 31, 2024, and primarily consisted of the following:

Current wording

Net cash flows used in investing activities were $70.5 million for the six months ended June 30, 2025, compared to $87.7 million for the six months ended June 30, 2024, and primarily consisted of the following:

Previous wording

Capital expenditures for oil and natural gas properties decreased by $18.8 million due to fewer wells drilled partially offset by more wells completed. Construction of our midstream project in New Mexico resulted in additions to midstream property and equipment.

Current wording

Capital expenditures for oil and natural gas properties decreased by $13.0 million due to fewer wells completed. Construction of our midstream project in New Mexico resulted in additions to midstream property and equipment. Acquisitions of oil and natural gas properties decreased due to the 2024 New Mexico Acquisition. Funds held in escrow increased due to the Silverback Acquisition, which closed on July 1, 2025.

Previous wording

Net cash flows used in financing activities were $29.2 million for the three months ended March 31, 2025, compared to $22.3 million for the three months ended March 31, 2024, and primarily consisted of the following:

Current wording

Net cash flows used in financing activities were $12.7 million for the six months ended June 30, 2025, compared to $24.5 million for the six months ended June 30, 2024, and primarily consisted of the following:

Previous wording

The borrowing base under the Company's Credit Facility was $400 million with outstanding borrowings of $99 million at March 31, 2025, and $301 million of available borrowing capacity.

Current wording

The borrowing base under the Company's Credit Facility was $400 million with outstanding borrowings of $129 million and $271 million of available borrowing capacity at June 30, 2025.

Previous wording

The Senior Notes had a principal balance of $160 million as of March 31, 2025.

Current wording

The Senior Notes had a principal balance of $155 million as of June 30, 2025.

Previous wording

For the three months ended March 31, 2025, the Company authorized and declared a quarterly dividend totaling approximately $8.2 million, with $8.0 million paid in cash and $0.2 million accrued for the holders of unvested restricted stock awards.

Current wording

For the six months ended June 30, 2025, the Company recognized quarterly dividends totaling approximately $16.5 million, with $16.1 million paid in cash and $0.4 million accrued for the holders of unvested restricted stock awards.

Previous wording

As of March 31, 2025, the Company had a remaining volume commitment of six years with our primary midstream counterparty in Texas. The Company also had natural gas delivery commitments under the A&R Tolling Agreement and the Supply Agreement and a remaining equity commitment under the Second amendment to the A&R LLC Agreement of $21.5 million to fund our portion of the capital budget for the RPC Power joint venture. Further, the Company entered into a 15-year gas purchase agreement (the "Midstream Gas Purchase Agreement") that required an acreage dedication to a midstream counterparty for a significant portion of our oil and gas assets in New Mexico. This agreement is expected to begin before the end of 2026. As a result of entering into the Midstream Gas Purchase Agreement, the Company is committed to spend approximately $130 million in capital expenditures through 2026 to complete the initial projects of our midstream buildout plan. The Company has incurred approximately $16 million since beginning the midstream project. See Note 15 - Commitments and Contingencies for additional information.

Current wording

As of June 30, 2025, the Company had a remaining volume commitment of approximately six years with our primary midstream counterparty in Texas. The Company also had natural gas delivery commitments under the A&R Tolling Agreement and the Supply Agreement and a remaining equity commitment under the Second Amendment to the A&R LLC Agreement of $21.5 million to fund our portion of the capital budget for the RPC Power joint venture. Further, the Company entered into a 15-year gas purchase agreement (the "Midstream Gas Purchase Agreement") that required an acreage dedication to a midstream counterparty for a significant portion of our oil and gas assets in New Mexico. This agreement is expected to begin before the end of 2026. As a result of entering into the Midstream Gas Purchase Agreement, the Company is committed to spend approximately $130 million in capital expenditures through 2026 to complete the initial projects of our midstream buildout plan. The Company has incurred approximately $22 million since beginning the midstream project. See Note 15 - Commitments and Contingencies for additional information.

Previous wording

The Company's critical accounting estimates are described in "Critical Accounting Estimates" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 of the Notes to the Consolidated Financial Statements in the 2024 Annual Report. The accounting estimates used in preparing our interim condensed consolidated financial statements for thethree months ended March 31, 2025, are the same as those described in the 2024 Annual Report.

Current wording

The Company's critical accounting estimates are described in "Critical Accounting Estimates" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 of the Notes to the Consolidated Financial Statements in the 2024 Annual Report. The accounting estimates used in preparing our interim condensed consolidated financial statements for thesix months ended June 30, 2025, are the same as those described in the 2024 Annual Report.