Riley Exploration Permian: Strategic Acquisition and Operational Efficiency Drive Undervalued Growth in the Permian Basin

In the volatile world of energy, companies that master capital allocation and operational efficiency often emerge as the most compelling investments. Riley Exploration Permian (REPX) is one such story, leveraging a disciplined approach to acquisitions and infrastructure development to unlock value in the Permian Basin. With oil prices fluctuating and OPEC+ dynamics creating uncertainty, Riley's recent $142 million acquisition of Silverback Exploration II, LLC, and its strategic midstream investments position it as a standout in a sector where many peers are struggling to balance growth with fiscal prudence.

Capital Allocation Discipline: A Hedge Against Volatility

Riley's acquisition of Silverback in July 2025 is a masterclass in risk-adjusted capital deployment. The deal added 5.0 MBoe/d of production (52% oil, 75% liquids) and over 300 gross undeveloped drilling locations in Eddy County, New Mexico—land directly adjacent to Riley's existing acreage. This geographic proximity is critical: it allows the new wells to piggyback on Riley's existing midstream infrastructure, slashing transportation and processing costs. The acquisition's structure further demonstrates foresight. A base purchase price of $142 million is supplemented by a performance-based earnout of up to $1.875 million annually, contingent on NYMEX WTI prices exceeding $70–$75/barrel in 2026 and 2027. This aligns Riley's capital with favorable market conditions, ensuring returns are maximized when prices are strong and minimizing downside risk during downturns.

Operational Synergies: Vertical Integration as a Competitive Edge

The integration of Silverback's 19,000 net acres in the Yeso Trend with Riley's midstream network is a game-changer. By investing $22 million in low-pressure gathering and high-pressure compression facilities, Riley has already begun delivering 15 MMcf/d of natural gas to processing partners. A planned 20-inch pipeline with 150 MMcf/d capacity, set for completion in 2026, will further reduce third-party transportation costs and insulate the company from regional infrastructure bottlenecks. These projects are not just about cost savings—they're about creating a flywheel effect: higher production efficiency, lower breakeven costs, and enhanced cash flow margins.

Riley's operational discipline is also evident in its reinvestment strategy. In Q2 2025, the company reinvested 54% of cash flow from operations into upstream capital expenditures, while maintaining a 45% reinvestment rate for the year-to-date. This balance between growth and flexibility is rare in the E&P sector, where many companies either overextend during booms or underinvest during slumps. Riley's approach ensures it can scale production when prices rise and preserve liquidity when they fall.

Debt Management and Free Cash Flow: A Resilient Balance Sheet

Despite the $142 million acquisition, Riley's debt load remains manageable. As of August 1, 2025, the company had $401 million in combined debt (including $246 million in borrowings under its Credit Facility and $155 million in Senior Notes). However, its ability to generate free cash flow is a key differentiator. In Q2 2025, Riley exceeded earnings per share (EPS) expectations by 24.14%, reporting $1.44 against a forecast of $1.16. This outperformance, coupled with a 15% reduction in drilling costs per lateral foot compared to 2024, underscores its operational efficiency.

Investment Thesis: A Compelling Case for the Permian

For investors, Riley's strategic moves present a compelling case. The company's focus on vertical integration and performance-based acquisitions creates a moat against volatility. Its midstream projects, expected to reach full capacity in 2026, will unlock further production growth while improving margins. Additionally, the earnout structure of the Silverback deal provides upside potential if oil prices stabilize above $75/barrel—a scenario increasingly plausible as global demand rebounds in 2026.

Riley's disciplined reinvestment rate and strong balance sheet also make it a safer bet in a sector prone to overleveraging. With a 22% total return over the past year and a stock price currently trading at $25.74, the company appears undervalued relative to its growth prospects. For those seeking exposure to the Permian Basin's long-term potential without the risks of cyclical overinvestment, Riley Exploration Permian is a name worth watching.

Final Takeaway

In a market where capital allocation and operational efficiency are the keys to outperformance, Riley Exploration Permian has positioned itself as a standout. Its strategic acquisition of Silverback, coupled with midstream investments and a performance-based capital structure, creates a resilient business model. For investors with a medium-term horizon, Riley offers a rare combination of disciplined growth and downside protection—a recipe for success in the unpredictable energy landscape.