Riley Exploration Permian’s Q1 2025 Earnings: Navigating Volatility with Strategic Discipline

Riley Exploration Permian Inc (REPX) delivered a mixed but strategically significant set of results in its Q1 2025 earnings, balancing operational resilience against a backdrop of persistently low oil prices and infrastructure challenges. The company’s focus on preserving inventory, leveraging midstream synergies, and maintaining financial discipline positions it to weather near-term headwinds while positioning for long-term growth.

Operational Efficiency Amid Market Headwinds

REPX’s Q1 production rose 9% year-over-year to 15,620 barrels of oil equivalent per day (BOE/D), driven by operational excellence rather than new drilling activity. Notably, the company avoided the need to drill new wells, relying instead on its existing inventory of delayed well completions (DUCs) to maintain output. This approach underscores a shift toward capital preservation in a market where WTI crude has hit 20-year lows (excluding crisis periods).

Cost discipline shone through in reduced Lease Operating Expenses (LOE), which fell to $8.34 per BOE—a 2% drop from Q4 2024 and an 8% decline year-over-year. The company also reported a flawless safety record, with 0 recordable incidents and 93% of days classified as “safe” (measured by spill-free operations and accident-free driving).

Financial Fortitude and Strategic Acquisitions

REPX’s financial performance reflected both challenges and strengths. While revenue of $102.46 million narrowly missed estimates, EPS of $1.62 beat expectations by a penny. Debt was slashed by $21 million, reducing leverage to a healthy 0.9x, a stark improvement from prior quarters. The company’s $142 million acquisition of Silverback Exploration stands out as a bold move to expand its New Mexico holdings. The deal adds 47,000 net working interest acres and 300+ gross undeveloped horizontal locations, while synergies in water disposal and gas takeaway capacity could unlock critical infrastructure advantages.

The acquisition’s midstream benefits are particularly notable. Silverback’s assets include 5 saltwater disposal (SWD) facilities and 2.6 million barrels of storage capacity, addressing bottlenecks in a region where regulatory hurdles often delay production. As CEO Bobby Riley emphasized, the purchase is a “strategic move to unlock long-term value” by aligning with Riley’s existing infrastructure.

Growth Initiatives: Infrastructure Over Inventory

REPX is prioritizing midstream investments to maximize asset value, even as it scales back capital spending. Phase 1 of its New Mexico gathering project includes a 15,000 MMcf/d compressor station, while plans to extend a 20-inch high-pressure transmission line to Targa by 2026 could boost gas takeaway capacity. However, the company has delayed midstream pipe procurement to reduce 2025 CapEx by 71%, a tactical pause to avoid overextending in a low-price environment.

Power generation initiatives are similarly pragmatic. Expanding self-generation in Texas to 50-60% of needs while deferring some projects has cut power spending by 25%. CFO Philip Riley framed this as part of a broader strategy to “preserve inventory” rather than chase short-term production gains. Total 2025 CapEx is now projected at $150 million, a 50% reduction from prior plans, with upstream spending falling 41% as the focus shifts to completing DUCs.

Risks and Regulatory Scrutiny

The company faces significant headwinds. Low oil prices—WTI hovering around $60/barrel, below the $67 downside hedge for 2025—compress margins, while infrastructure constraints in New Mexico’s Northwest Shelf risk bottlenecks. Regulatory hurdles, including the need to ratify BDO USA PC as its auditor, hint at potential compliance challenges. GuruFocus also flagged three unspecified warning signs, though details remain unclear.

Executive Vision: Long-Term Over Short-Term

Executives stressed that REPX’s success hinges on capital efficiency and patience. CEO Bobby Riley reiterated the priority of “preserving high-quality inventory”, while CFO Philip Riley highlighted hedging (covering 70% of 2025 production at $67) as a shield against price volatility. The Silverback acquisition, though modest in its 2025 impact (just 2 net wells), is viewed as a “strategic platform” for future growth, with COO John Suter noting its infrastructure compatibility with existing assets.

Conclusion: A Calculated Gamble on Resilience

REPX’s Q1 results paint a company making tough choices to thrive in a tough market. Its 9% production growth, 8% cost reductions, and $21 million debt paydown demonstrate operational rigor, while the Silverback deal adds scale and infrastructure advantages. The company’s decision to slash CapEx by 50% and delay non-essential spending reflects a disciplined focus on liquidity and leverage—a prudent stance given WTI’s 20-year lows.

However, risks loom large. The Permian Basin’s infrastructure bottlenecks, regulatory uncertainties, and reliance on hedging (which protects against downside but limits upside) could test REPX’s strategy. Still, with 70% of 2025 production hedged, a leverage ratio of 0.9x, and a proven ability to reduce costs, the company appears better positioned than many peers to endure this downturn.

Investors should watch for midstream project execution in New Mexico and whether the Silverback acquisition’s synergies materialize. If REPX can maintain its safety record, control costs, and navigate regulatory hurdles, its inventory-heavy strategy could pay off handsomely once oil prices rebound. For now, the company’s focus on fundamentals over flash makes it a cautiously optimistic play in an otherwise bleak energy landscape.