Riley Exploration Permian Charts Disciplined 2026 Growth Path

Riley Exploration Permian Inc ((REPX)) has held its Q4 earnings call. Read on for the main highlights of the call.

Riley Exploration Permian’s latest earnings call struck a cautiously optimistic tone as management balanced strong operational momentum with clear near‑term cash‑flow and commodity‑price headwinds. Leaders emphasized production gains, cost cuts, balance‑sheet strength and a disciplined 2026 growth plan, while acknowledging weaker free cash flow, gas-price pressure and higher upcoming operating costs.

Production Growth — Quarter and Full Year

Riley posted solid volume gains, with Q4 oil output up about 1,700 barrels per day, a 9% sequential increase and 26% above the prior year’s Q4. For full‑year 2025, oil production rose 15% while total equivalent volumes surged 29%, underscoring the company’s ability to grow barrels despite a pullback in development activity.

New Mexico Outperformance

New Mexico remained the standout growth engine, with oil volumes up roughly 74% year over year, or about 2,500 barrels per day. The state’s contribution to company oil output climbed from 23% to 34% in a single year, achieved with only about 6.3 net wells turned to sales, highlighting strong rock quality and well performance.

Silverback Acquisition and Asset Optimization

The Silverback acquisition, closed in July, materially expanded Riley’s undeveloped inventory and has outperformed internal expectations. By year‑end, Silverback’s oil rate was running about 65% above the company’s original model, driven by workovers, artificial lift optimization and returning shut‑in wells to production.

Midstream Monetization and Liability Elimination

Riley monetized its interest in a New Mexico midstream project, selling it to Targa for $123 million in cash plus up to $60 million of potential earnouts. The deal removed future construction obligations and associated liabilities while securing flow assurance for New Mexico gas, effectively de‑risking infrastructure needs in a key growth area.

Balance Sheet Strength and Capital Allocation

The company used proceeds and cash flow to materially de‑lever, cutting debt by $120 million in Q4 to end at $255 million outstanding. With the credit facility just 28% drawn on a $400 million borrowing base and leverage around 1.0x debt to EBITDAX, Riley also authorized a $100 million buyback and repurchased roughly 152,000 shares at an average $26.54.

Cost Reductions and Operating Efficiency

Riley delivered notable cost progress, with core cash operating costs down about 13% quarter over quarter, including a 21% decline in lease operating expense per BOE. General and administrative costs excluding stock compensation fell 20%, while drilling and completion costs per lateral foot improved about 25% in Red Lake and 15% in Texas year over year.

Profitability and Cash Flow Metrics

Adjusted EBITDAX in Q4 rose 3% sequentially to $66 million, pushing margins higher from 59% to 63% despite price noise. Operating cash flow increased about 2%, and the company converted 27% of that into $17 million of upstream free cash flow and $1 million of total free cash flow, though midstream sale timing complicates comparisons.

2026 Growth Plan and Hedging Strategy

Management outlined a disciplined 2026 growth plan targeting more than 20% year‑over‑year oil volume growth on $200 million of capital spending. Riley plans to drill 46–53 gross wells, with over two‑thirds of CapEx front‑loaded into the first half, and has hedged about 70% of expected 2026 oil volumes at a roughly $60 per barrel downside, including 36% in collars.

Operational Safety Performance

The company underscored a strong safety culture, reporting a total recordable incident rate of zero for 2025. It also achieved 95% safe days, defined as days without recordable incidents, vehicle accidents or spills greater than 10 barrels, which management framed as foundational to sustainable execution.

Inventory Replacement at Attractive Cost

Riley continues to backfill its drilling runway at low cost, estimating it replaced about two‑thirds of 2025 completed locations through new land deals. The implied cost of less than $300,000 per net undeveloped location supports future returns, and management plans to keep up this “ground game” to maintain inventory depth.

Reduced Activity and Fewer New Wells

Despite production growth, 2025 saw a pullback in development pace, with only 18 net wells drilled, a 28% year‑over‑year decline. About 16.3 net wells were turned to sales, down 23%, which reduces near‑term new‑well contributions and increases reliance on legacy wells and past years’ projects for current volumes.

Free Cash Flow and Dividend Pressure

Total free cash flow fell 31% year over year, driven by weaker commodity prices and elevated midstream spending ahead of the asset sale. Even as cash generation slipped, Riley boosted capital returns, allocating 41% of total free cash flow to dividends compared with 26% the prior year, limiting retained cash for debt reduction or growth.

Gas Price Weakness and Waha Constraints

The company was hit hard by regional gas market turmoil, posting negative natural gas and NGL revenues in Q4 after basis differentials and fees. Pipeline maintenance and constrained Permian takeaway pressured Waha pricing, leaving in‑basin gas netbacks under water and highlighting the value of Riley’s liquids‑weighted portfolio.

Short-Term Production and Operational Headwinds

Management flagged a near‑term dip in volumes for Q1, citing downtime, winter weather‑related freezes and legacy midstream pipeline shut‑ins. Several wells drilled late in Q4 were not yet turned to sales, meaning their production will only show up in Q1 and Q2 2026, creating a timing lag in reported growth.

Higher Near-Term Operating Costs

Looking ahead, Riley expects operating expenses to rise as water handling requirements grow with development. The 2026 program will require additional water disposal capacity and infrastructure, which will pressure costs later in the year even as the company works to offset some of that impact with efficiency gains.

Hedging Strategy Caps Upside

While the robust hedge book provides important downside protection for cash flows, it also limits leverage to a potential oil price rally. With roughly 70% of 2026 oil volumes hedged at about $60 per barrel and over a third of positions in collars, investors should expect more stable but somewhat capped cash generation.

Free Cash Flow Distortion from Midstream Sale

Management cautioned that free cash flow metrics for Q4 are distorted by the midstream transaction, as prior midstream capital was reimbursed in the sale. This timing effect reduces the usefulness of quarter‑to‑quarter comparisons and suggests investors should focus more on underlying upstream cash generation and long‑term trends.

Forward-Looking Guidance and Strategic Flexibility

Riley is guiding to more than 20% oil growth in 2026 on a $200 million CapEx budget that is heavily weighted to the first half, with two rigs running through May before activity tapers. With low leverage, a sizable hedge book and an active buyback, management emphasized flexibility to dial rigs up or down to protect the dividend and balance growth with returns.

Riley’s earnings call painted the picture of a company leaning on strong well results, cost discipline and a healthier balance sheet to navigate volatile gas markets and subdued free cash flow. If management executes on its capital‑efficient 2026 growth plan while managing cost inflation, shareholders could see improving cash generation once the current midstream and activity timing headwinds pass.