Riley Permian demonstrates strong operational execution and capital efficiency in its upstream business, supporting sustainable growth. The company's strategic pivot into midstream infrastructure and power generation provides credible optionality for diversification and fee-based revenue, though th…
Riley Exploration Permian (REPX) Q4 2024: 22% Production Growth Highlights Capital Efficiency and Strategic Infrastructure Expansion
Riley Exploration Permian delivered robust production growth with disciplined capital spending, underscoring its operational efficiency and strategic shift toward infrastructure investments in New Mexico. The company’s focus on midstream and power joint ventures signals a broader transformation aimed at long-term value creation beyond upstream operations. Investors should watch for execution on the New Mexico midstream project and power initiatives as key drivers of future growth and cash flow diversification.
Summary
- Capital Efficiency Demonstrated: Production growth outpaced capital spending reductions, reflecting strong operational execution.
- Infrastructure-Led Growth Focus: Strategic investments in midstream and power assets aim to enhance operational control and diversify revenue streams.
- Forward Positioning in New Mexico: Development activity and infrastructure buildout in New Mexico underpin the company’s medium-term growth trajectory.
Business Overview
Riley Exploration Permian is an independent oil and natural gas company operating primarily in Texas and New Mexico. The company generates revenue through the exploration, development, and production of oil, natural gas, and natural gas liquids (NGLs). Its operations are segmented into upstream production, midstream infrastructure development, and power generation joint ventures, reflecting a diversified approach to capitalizing on Permian Basin resources.
Performance Analysis
In 2024, Riley Permian achieved a 22% increase in total equivalent production, reaching 8.25 million barrels of oil equivalent (MMBoe), with oil production up 15% to 5.52 million barrels. This growth was accomplished while reducing upstream cash capital expenditures by 27%, demonstrating significant capital efficiency. Operating expenses remained stable, with lease operating expenses (LOE) per barrel of oil equivalent (BOE) flat year-over-year at approximately $8.66 per BOE. The company generated $117 million in total free cash flow, marking a 67% increase from the prior year.
The company’s upstream free cash flow, which isolates cash flow after upstream reinvestment but before midstream and power investments, grew 82%, highlighting strong operational cash generation. Debt reduction was a priority, with a $90 million decrease in total debt, resulting in a leverage ratio of 1.0x Adjusted EBITDAX, reflecting a healthy balance sheet. The company also maintained a consistent dividend payout, distributing $31 million in dividends during the year.
- Production Mix Shift: Increased gas capture in Texas led to a gassier production mix, supporting higher total production growth relative to oil growth.
- Operational Cost Control: Drilling and completion costs per foot decreased by 11%, while lateral footage drilled per day increased by 20%, evidencing operational improvements.
- Reserve Growth: Proved reserves increased 15% to 124 MMBoe, with proved developed producing reserves growing 27%, supporting the company’s growth outlook.
These results reflect Riley Permian’s ability to grow production and reserves while managing costs and capital allocation prudently, setting a foundation for sustainable growth.
Executive Commentary
"Our 2024 performance underscores the capital efficiency of our asset base and the results of past infrastructure investments... We achieved these results while reinvesting less than half of our cash flow into our upstream business, which allowed for excess cash for debt paydown, dividends, and investments into midstream and power."
Bobby Riley, Chairman and Chief Executive Officer
"We believe this transparency will be helpful to shareholders given the different stages of maturity of our upstream business, which is well-established, as compared to these newer midstream assets... We allocated upstream free cash flow in 2024 as follows: 38% to growth initiatives, 38% to debt reduction, and 24% to dividends."
Philip Riley, Chief Financial Officer
Strategic Positioning
1. Upstream Capital Efficiency and Growth
Riley Permian’s upstream business demonstrated strong capital efficiency, growing oil production by 15% while reducing upstream capital expenditures by 27%. The company’s operational improvements include drilling cost reductions and increased lateral footage drilled per day, which contribute to lower per-unit development costs. The upstream drilling plan for 2025 is back-end weighted, with a strategic shift toward New Mexico assets where infrastructure buildout is underway.
2. New Mexico Midstream Development
The company is advancing a significant New Mexico gas midstream project, which includes constructing low- and high-pressure gathering lines, compression facilities, and a 56-mile, 20-inch high-capacity pipeline with a throughput capacity of up to 150 million cubic feet per day (MMcf/d). This infrastructure aims to provide operational control, improve flow assurance, and open third-party marketing opportunities. The project is expected to be partially operational by late 2025, with full completion targeted before the end of 2026. Capital expenditures for this initiative are budgeted between $60 million and $80 million in 2025.
3. Power Joint Venture Expansion
Riley Permian continues to develop its power generation joint venture, initially designed to reduce reliance on the Texas grid and now expanded to include power sales into ERCOT (Electric Reliability Council of Texas). The company plans $18 million to $22 million in investments to support this initiative in 2025. The power project acts as a natural gas basis hedge and provides an additional revenue stream, with construction and interconnection milestones anticipated through the year.
4. Balance Sheet Strength and Capital Allocation Discipline
With a debt-to-Adjusted EBITDAX ratio of 1.0x and a strong free cash flow profile, Riley Permian maintains financial flexibility to fund growth initiatives and return capital to shareholders. The company’s capital allocation prioritizes upstream reinvestment, infrastructure expansion, debt reduction, and dividends, positioning it well for sustained value creation.
5. Operational Excellence and Safety Focus
Operational metrics highlight a zero total recordable incident rate for 2024 and 90% safe days, reflecting strong safety culture and execution. Efficiency gains in workover operations and completions techniques underpin cost control and production sustainability.
Key Considerations
Riley Permian’s 2024 results and 2025 plans reflect a company transitioning from pure upstream producer to an integrated energy business with upstream, midstream, and power components. Key considerations for investors include:
- Infrastructure Investment Impact: The timing and execution of the New Mexico midstream project will be critical in unlocking production growth and fee-based revenue streams.
- Capital Allocation Balance: Maintaining upstream production growth while funding midstream and power investments requires disciplined cash flow management amid commodity price volatility.
- Production Mix Evolution: Increased gas capture and a gassier production mix may affect realized pricing and margin dynamics going forward.
- Operational Leverage: Cost reductions and efficiency gains in drilling and completions provide operational leverage but require continued execution excellence.
- Power JV Development Risks: Power project timelines and market dynamics in ERCOT introduce new operational and market risks distinct from upstream operations.
Risks
Riley Permian faces typical industry risks, including commodity price volatility, regulatory challenges related to infrastructure projects, and execution risks in transitioning toward integrated midstream and power operations. Delays in the New Mexico midstream project or power joint venture could impact production growth and cash flow diversification. Additionally, increased gas production and basis differentials may pressure realized natural gas prices, affecting margins.
Forward Outlook
For Q1 2025, Riley Permian guides to total production of 24.5 to 24.9 MMBoe per day, with oil production of 15.5 to 15.7 million barrels per day (MBbl/d). Full-year 2025 production is expected to grow 9% to 14% overall, with oil increasing 5% to 8%. The company forecasts upstream capital expenditures of $110 million to $130 million and midstream capital expenditures of $60 million to $80 million. Power joint venture investments are expected at $18 million to $22 million. Operating expenses per BOE are expected to remain stable, with LOE of $8.00 to $9.00 per BOE and production taxes of 6% to 8% of revenue.
- Capital expenditures will be back-end weighted, with significant development activity in New Mexico in the second half of 2025.
- Debt levels are expected to remain approximately flat, supported by strong free cash flow generation.
Takeaways
Riley Exploration Permian’s fourth quarter and full-year 2024 results demonstrate a successful execution of capital efficiency and operational improvement strategies. The company’s strategic pivot toward infrastructure ownership in New Mexico and power generation diversification reflects a forward-looking approach to managing commodity price risks and enhancing long-term cash flows.
- Capital Efficiency Validated: The company’s ability to grow production by 22% while reducing upstream capital expenditures by 27% highlights operational discipline and asset quality.
- Infrastructure as a Growth Lever: The New Mexico midstream project and power joint venture represent strategic investments that could unlock incremental production, fee-based revenue, and market optionality.
- Execution and Timing Are Key: Investors should monitor the progress of midstream regulatory approvals, construction milestones, and power project interconnections as critical catalysts for future value realization.
Conclusion
Riley Permian’s 2024 performance and 2025 guidance reflect a company leveraging operational excellence and strategic infrastructure investments to drive sustainable growth. While upstream remains the core cash flow engine, midstream and power ventures provide diversification and optionality that position the company for long-term value creation amid evolving market dynamics.
Industry Read-Through
Riley Permian’s integrated approach exemplifies a broader industry trend where upstream producers seek greater control over midstream infrastructure and power generation to mitigate takeaway constraints and monetize natural gas more effectively. The company’s New Mexico midstream buildout and power joint venture highlight the growing importance of infrastructure ownership in unlocking resource value and managing regional bottlenecks. Other Permian Basin operators may follow similar strategies to enhance operational control and diversify cash flow, reflecting evolving capital allocation priorities in the energy sector.