What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-08 compared with 2021-12-14 · 533 added, 524 removed, 937 unchanged (53% of the section changed)

2 unchanged sentences

Our management establishes and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

We evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021, with the participation of our CEO and CFO, as well as other key members of our management.

Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2021.

Such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow

timely decisions regarding required disclosure.

We evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022, with the participation of our CEO and CFO, as well as other key members of our management.

Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2022.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).

We have evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this report, with the participation of our CEO and CFO, as well as other key members of our management.

Based on this assessment, management concluded that, as of September 30, 2021, the Company’s internal control over financial reporting was effective.

Based on this assessment, management concluded that, as of December 31, 2022, the Company’s internal control over financial reporting was effective.

Changes in Internal Control Over Financial Reporting

We previously disclosed material weaknesses in internal control over financial reporting.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As disclosed in the Company's Form 10-Q as of March 31, 2021 and Item 1A herein, we had not yet designed an effective financial reporting process and did not complete thorough reviews of financial reports in a timely manner to allow for an appropriate level of analysis that would have identified these errors related to (i) accounting for stock-based compensation and our failure to record compensation expense for certain vested stock-based compensation grants in the correct reporting period, (ii) accounting for dividend distributions and our failure to record a declared dividend in the reporting period in which the dividend was declared, (iii) accounting for derivative settlements, and (iv) controls over preparation and review of the Company’s statement of cash flows were not effective.

From the identification of the material weaknesses, it was determined that a lack of sufficient personnel were in place to allow for appropriate and thorough review and supervision of the financial reporting process.

Additionally, we identified enhancements to certain existing financial reporting processes that would facilitate timely identification of equity transactions.

These enhancements were implemented during the fiscal year ended September 30, 2021.

In addition to augmenting our financial reporting processes, we hired additional accounting personnel, including a Chief Accounting Officer and senior financial reporting accountant, and engaged third party consultants to provide technical accounting expertise and an additional layer of review.

These additional accounting personnel and resources were put in place during 2021 and have been fully integrated into the financial reporting process and the company’s internal control over financial reporting.

As these improvements were fully implemented and in place during our fiscal year ended September 30, 2021, a sustained period of effective operation was demonstrated during the fiscal year and in connection with the preparation of our consolidated financial statements for the fiscal year ended September 30, 2021, to enable the management of the Company to conclude the material

weaknesses have been fully remediated as of September 30, 2021.

There were no other changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of the Independent Registered Public Accounting Firm

Until we are an accelerated filer or a large accelerated filer (as defined in Exchange Act Rule 12b-2), we will not be required to comply with the auditor attestation requirements related to internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Report of the Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Riley Exploration Permian, Inc.

Oklahoma City, Oklahoma

Opinion on Internal Control over Financial Reporting

We have audited Riley Exploration Permian, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in members’/shareholders’ equity, and cash flows for the year ended December 31, 2022, the three months ended December 31, 2021, and the year ended September 30, 2021, and the related notes and our report dated March 8, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Houston, Texas

March 8, 2023

Other Information

Directors, Executive Officers and Corporate Governance

Information as to Item 10 will be set forth in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended September 30, 2021.

Executive Compensation

Information as to Item 11 will be set forth in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended September 30, 2021.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information as to Item 12 will be set forth in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended September 30, 2021.

Certain Relationships and Related Transactions, and Director Independence

Information as to Item 13 will be set forth in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended September 30, 2021.

Principal Accountant Fees and Services

Information as to Item 14 will be set forth in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended September 30, 2021.

Exhibits and Financial Statement Schedules

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(incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 1, 2021, Registration No.

Second Amended and Restated Bylaws of Riley Exploration Permian, Inc.

(incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 1, 2021, Registration No.

Third Amended and Restated Bylaws of Riley Exploration Permian, Inc.

(incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 23, 2022).

Credit Agreement dated as of September 28, 2017, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 to the Registrant’s Registration Statement on Form S-4/A, as filed with the Securities and Exchange Commission on December 31, 2020, Registration No.

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and Philip Riley (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 15, 2021).

Employment Agreement dated effective as of February 26, 2021 by and between Riley Exploration Permian, Inc.

and Michael J.

Rugen (incorporated by reference from Exhibit 10.15 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 4, 2021).

Employment Agreement dated April 1, 2019 by and between Riley Exploration – Permian, LLC and Bobby D.

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Riley, Kevin Riley and Corey Riley (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-4/A, as filed with the Securities and Exchange Commission on December 31, 2020, Registration No.

Employment Agreement dated effective as of January 25, 2022 by and between Riley Exploration Permian, Inc.

and Amber Bonney (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on January 27, 2022).

Eleventh Amendment to the Credit Agreement dated as of April 29, 2022, by and among Riley Exploration Permian, Inc., Riley Exploration - Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on May 2, 2022).

Twelfth Amendment to the Credit Agreement dated as of October 25, 2022, by and among Riley Exploration Permian, Inc., Riley Exploration - Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on October 26, 2022).

Thirteenth Amendment to the Credit Agreement dated as of February 22, 2023, by and among Riley

Exploration Permian, Inc., Riley Exploration - Permian, LLC, as borrower, Truist Bank, as

administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.2 to the

Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on

February 27, 2023).

Purchase and Sale Agreement dated February 22, 2023 by and between Pecos Oil & Gas, LLC, as

Seller, and Riley Exploration - Permian, LLC, as Purchaser (incorporated by reference from Exhibit

2.1 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange

Commission on February 27, 2023).

Commitment Letter dated February 22, 2023 by and between Riley Exploration Permian, Inc.

and EOC Partners Advisors L.P.

(incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on February 27, 2023)

Subsidiaries of the Registrant

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Form 10-K Summary

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

RILEY EXPLORATION PERMIAN, INC.

December 14, 2021 By:

March 8, 2023

Chief Executive Officer

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Signature Title Date

Riley Chairman of the Board and Chief Executive Officer (Principal Executive Officer) December 14, 2021

Riley Chairman of the Board and Chief Executive Officer

(Principal Executive Officer) March 8, 2023

/s/ Philip Riley Chief Financial Officer

(Principal Financial Officer) December 14, 2021

(Principal Financial Officer) March 8, 2023

/s/ Amber Bonney Chief Accounting Officer

(Principal Accounting Officer) December 14, 2021

/s/ Brent Arriaga Director December 14, 2021

(Principal Accounting Officer) March 8, 2023

/s/ Brent Arriaga Director March 8, 2023

Brent Arriaga

Lawrence Director December 14, 2021

Wayne Nordberg Director December 14, 2021

Lawrence Director March 8, 2023

Wayne Nordberg Director March 8, 2023

Wayne Nordberg

di Santo Director December 14, 2021

di Santo Director March 8, 2023

Beth A di Santo

/s/ Rebecca Bayless Director March 8, 2023

Rebecca Bayless

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2021 and 2020

Consolidated Statements of Operations for the Years Ended September 2021 and 2020

Consolidated Statements of Changes in Members'/Shareholders' Equity for the Years Ended September 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended September 2021 and 2020

( BDO USA, LLP ;

Houston, Texas , PCAOB ID # 243 )

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the Year Ended December 31, 2022, Three Months Ended December 31, 2021 and Year Ended September 30, 2021

Consolidated Statements of Changes in Members'/Shareholders' Equity for the Year Ended December 31, 2022, Three Months Ended December 31, 2021 and Year Ended September 30, 2021

Consolidated Statements of Cash Flows for the Year Ended December 2022, Three Months Ended December 31, 2021 and Year Ended September 30, 2021

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Riley Exploration Permian, Inc.

(the “Company”) as of September 30, 2021 and 2020, the related consolidated statements of operations, changes in members’/shareholders’ equity, and cash flows for each of the two years in the period ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2021 , in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in members’/shareholders’ equity, and cash flows for the year ended December 31, 2022, the three months ended December 31, 2021, and the year ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the year ended December 31, 2022, the three months ended December 31, 2021, and the year ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 8, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Estimation of Oil and Natural Gas Reserves and Effect on Depreciation, Depletion and Amortization Expense (“DD&A”) Related to Proved Oil and Natural Gas Properties

The Company’s oil and natural gas properties, net balance as of September 30, 2021 was $345.8 million, which includes proved oil and natural gas properties of $402.2 million and accumulated DD&A of $88.3 million.

DD&A expense was $25.2 million for the year ended September 30, 2021.

As described in Note 2 to the consolidated financial statements, the Company accounts for its oil and natural gas activities using the successful efforts method of accounting which involves management’s use of internal and independent petroleum engineers to make estimates of proved oil and natural gas reserves necessary to record DD&A expense.

To estimate the proved oil and natural gas reserves, management and their internal and independent petroleum engineers make significant estimates and assumptions including forecasting of future production volumes and lease operating expenses of proved oil and natural gas properties.

We have identified the estimation of future production volumes and lease operating expenses used to estimate proved oil and natural gas reserves and the associated effect on DD&A expense related to proved oil and natural gas properties as a critical audit matter.

Estimating future production volumes and lease operating expenses involves a high degree of subjectivity from management and their internal and independent petroleum engineers.

Changes in these estimates and assumptions could have a significant effect on the measurement of DD&A expense.

In turn, auditing these estimates and assumptions required subjective and complex auditor judgement.

Estimation of Oil and Natural Gas Reserves and Effect on Depreciation, Depletion and Amortization (“DD&A”) Expense and Impairment Expense Related to Proved Oil and Natural Gas Properties

The Company’s oil and natural gas properties, net balance as of December 31, 2022 was $440.1 million, which includes proved oil and natural gas properties of $516.0 million and accumulated DD&A and impairment of $133.8 million.

DD&A expense and impairment expense was $31.5 million and $7.3 million, respectively, for the year ended December 31, 2022.

As described in Note 3 – Summary of Significant Accounting Policies to the consolidated financial statements, the Company accounts for its oil and natural gas activities using the successful efforts method of accounting which involves management’s use of internal and independent petroleum engineers to make estimates of proved oil and natural gas reserves necessary to record DD&A expense and impairment expense.

We have identified the estimation of future production volumes used to estimate proved oil and natural gas reserves and the associated effect on DD&A expense and impairment expense related to proved oil and natural gas properties as a critical audit matter.

Estimating future production volumes involves a high degree of subjectivity from management and their internal and independent petroleum engineers.

Changes in this estimate and assumptions could have a significant effect on the measurement of DD&A expense and impairment expense.

Auditing this estimate and assumptions required subjective and complex auditor judgement.

The primary procedures we performed to address this critical audit matter included:

• Evaluating the professional qualifications of the internal and independent petroleum engineers, including their relationship to the Company, and making inquiries regarding the process and judgments used in estimating the Company’s proved oil and natural gas reserves.

• Comparing estimates of future production volumes, production decline analyses, and lease operating expenses against historical results of actual production volumes, production decline analyses, and lease operating expenses on a summary basis for all wells and a detailed basis for a sample of wells.

• Testing the design and operating effectiveness of internal controls relating to management’s estimation of proved oil and natural gas reserves.

• Evaluating the professional qualifications of the internal and independent petroleum engineers, including their relationship to the Company, and evaluating the process and judgments used in estimating the Company’s proved oil and natural gas reserves.

• Comparing estimates of future production volumes and production decline analyses against historical results of production volumes and production decline analyses on a summary basis for all wells, on a detailed basis for certain wells and on a field level for the field that was impaired during the year.

• Performing a retrospective review over management estimates of future production volumes made in prior periods as compared to actual results.

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Houston, Texas

December 14, 2021

March 8, 2023

RILEY EXPLORATION PERMIAN, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2021 September 30, 2020

December 31, 2022 December 31, 2021

(In thousands, except share amounts)

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Accounts receivable 25,551 18,002

Accounts receivable - related parties 456 55

Prepaid expenses and other current assets 3,236 4,122

Inventory 8,886 780

Current derivative assets 20 83

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Total Assets $ 515,294 $ 396,169

Liabilities, Series A Preferred Units, and Members'/Shareholders' Equity

Liabilities and Shareholders' Equity

Current Liabilities:

Accounts payable $ 3,939 $ 7,737

Accounts payable - related parties 324 164

Accrued liabilities 35,582 12,874

Revenue payable 17,750 11,370

Income taxes payable 219 —

Advances from joint interest owners 214 254

Current derivative liabilities 16,472 30,984

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Commitments and Contingencies (Note 14)

Series A Preferred Units — 60,292

Members' Equity — 166,617

Shareholders' Equity:

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Common stock, $ 0.001 par value, 240,000,000 shares authorized;

19,672,050 and 0 shares issued and outstanding at September 30, 2021 and 2020, respectively

20,160,980 and 19,836,885 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 274,643 271,737

Accumulated deficit ( 49,167 ) —

Retained earnings (Accumulated deficit) 58,783 ( 33,919 )

Total Shareholders' Equity 333,446 237,838

Total Liabilities, Series A Preferred Units, and Members'/Shareholders' Equity $ 388,231 $ 350,992

Total Liabilities and Shareholders' Equity $ 515,294 $ 396,169

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands, except per share/unit amounts)

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Depletion, depreciation, amortization and accretion 32,113 6,867 26,015

Impairment of oil and natural gas properties 7,325 — —

General and administrative:

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Income From Operations 203,519 33,356 59,876

Other Income (Expense):

Interest expense ( 4,534 ) ( 5,299 )

Gain (loss) on derivatives ( 89,195 ) 33,876

Total Other Income (Expense) ( 93,729 ) 28,577

Other Expense:

Interest expense, net ( 1,090 ) ( 896 ) ( 4,534 )

Loss on derivatives ( 51,574 ) ( 5,193 ) ( 89,195 )

Total Other Expense ( 52,664 ) ( 6,089 ) ( 93,729 )

Net Income (Loss) From Continuing Operations Before Income Taxes 150,855 27,267 ( 33,853 )

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CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)

Year Ended September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands, except per share/unit amounts)

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CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS'/SHAREHOLDERS' EQUITY

Members' Equity Shareholders' Equity

Units Outstanding Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Total Shareholders' Equity

(In Thousands)

Balance, September 30, 2019 1,527 $ 149,383 — $ — $ — $ — $ —

Issuance of common units under long-term incentive plan 31 — — — — — —

Purchase of common units under long-term incentive plan ( 3 ) ( 322 ) — — — — —

Dividends on preferred units — ( 3,535 ) — — — — —

Dividends on common units — ( 15,016 ) — — — — —

Unit-based compensation expense — 963 — — — — —

Net income — 35,144 — — — — —

Members' Equity Shareholders' Equity

Units Outstanding Amount Shares Amount Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Total Shareholders' Equity

Balance, September 30, 2020 1,555 $ 166,617 — $ — $ — $ — $ —

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Balance, September 30, 2021 — $ — 19,672 $ 20 $ 270,837 $ ( 49,167 ) $ 221,690

Share-based compensation expense — — — — 919 — 919

Repurchased shares for tax withholding — — ( 10 ) — ( 19 ) — ( 19 )

Issuance of common shares under long-term incentive plan — — 175 — — — —

Dividends declared — — — — — ( 6,150 ) ( 6,150 )

Net income — — — — — 21,398 21,398

Balance, December 31, 2021 — $ — 19,837 $ 20 $ 271,737 $ ( 33,919 ) $ 237,838

Share-based compensation expense — — — 3,946 — 3,946

Repurchased shares for tax withholding — — ( 45 ) — ( 1,040 ) — ( 1,040 )

Issuance of common shares under long-term incentive plan — — 369 — — — —

Dividends declared — — — — — ( 25,309 ) ( 25,309 )

Net income — — — — — 118,011 118,011

Balance, December 31, 2022 — $ — 20,161 $ 20 $ 274,643 $ 58,783 $ 333,446

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

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Depletion, depreciation, amortization and accretion 32,113 6,867 26,015

(Gain) loss on plugging liabilities — 138

(Gain) loss on derivatives 89,195 ( 33,876 )

Impairment of proved properties 7,325 — —

Loss on derivatives 51,574 5,193 89,195

Settlements on derivative contracts ( 75,257 ) ( 16,014 ) ( 16,304 )

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Prepaid expenses and other current assets ( 997 ) ( 3,172 ) 201

Other non-current assets — 84

Accounts payable and accrued liabilities 2,860 ( 2,625 ) 7,445

Income taxes payable ( 54 ) —

Accounts payable - related parties 160 164 —

Revenue payable 6,380 2,362 4,576

Advances from joint interest owners ( 40 ) ( 108 )

Other liabilities ( 101 ) —

Other current liabilities 666 50 ( 195 )

Net Cash Provided by Operating Activities - Continuing Operations 170,288 21,727 86,073

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Acquisitions of oil and natural gas properties — — ( 445 )

Acquisitions of land ( 15,342 ) — —

Additions to other property and equipment ( 1,252 ) ( 117 ) ( 1,714 )

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Net Cash Used in Investing Activities - Continuing Operations ( 128,256 ) ( 29,128 ) ( 59,628 )

The accompanying notes are an integral part of these consolidated financial statements.

RILEY EXPLORATION PERMIAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

Cash Flows from Financing Activities:

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Proceeds from revolving credit facility 22,000 5,000 5,500

Repayment under revolving credit facility ( 46,500 ) ( 12,500 )

Repayments under revolving credit facility ( 31,000 ) — ( 46,500 )

Payment of common share/unit dividends ( 25,066 ) ( 6,056 ) ( 18,286 )

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Net Increase (Decrease) in Cash and Cash Equivalents from Continuing Operations 4,984 ( 8,750 ) 11,508

The accompanying notes are an integral part of these consolidated financial statements.

RILEY EXPLORATION PERMIAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

Year Ended September 30,

(In thousands)

Cash Flows from Discontinued Operations:

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Investing activities — — 3,892

Net Increase in Cash and Cash Equivalents

from Discontinued Operations 3,899 —

Net Increase in Cash and Cash Equivalents from Discontinued Operations — — 3,899

Net Increase (Decrease) in Cash and Cash Equivalents 4,984 ( 8,750 ) 15,407

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Cash Paid For:

Interest $ 3,234 $ 4,206

Interest, net of capitalized interest $ 1,749 $ 495 $ 3,234

Income taxes $ 3,611 $ — $ 191

Non-cash Investing and Financing Activities - Continuing Operations:

Changes in capital expenditures in accounts payable and accrued liabilities $ 15,229 $ ( 8,443 ) $ 11,204

Common share/unit dividends incurred but not paid $ ( 302 ) $ ( 173 )

Asset retirement obligations $ 113 $ 1,184

Right of use assets obtained in exchange for operating lease liability $ 1,655 $ — $ —

Preferred unit dividends paid in kind $ — $ — $ 904

Preferred unit dividends $ — $ 3,535

Common stock issued in exchange for common units $ — $ — $ 192,191

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(1) Nature of Business

Riley Exploration Permian, Inc., ("Riley Permian", "REPX", "the Company", "Registrant", "we", "our", or "us"), is a growth-oriented, independent oil and natural gas company focused on the acquisition, exploration, development and production of oil, natural gas and NGLs in Texas and New Mexico.

Our activities primarily include the horizontal development of the San Andres formation, a shelf margin deposit on the Northwest Shelf of the Permian Basin.

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On February 26, 2021 (the “Closing Date”), Riley Permian (f/k/a Tengasco, Inc.

(“Tengasco”)), consummated the previously announced Merger pursuant to that certain Agreement and Plan of Merger (“Merger Agreement”), dated as of October 21, 2020, by and among Tengasco, Antman Sub, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Tengasco (“Merger Sub”), and Riley Exploration – Permian, LLC (“REP LLC”), as amended by Amendment No.

1 to the Agreement and Plan of Merger, dated as of January 20, 2021, by and among Tengasco, Merger Sub and REP LLC.

Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into REP LLC, with REP LLC as the surviving company and as a wholly-owned subsidiary of Tengasco (collectively, with the other transactions described in the Merger Agreement, the “Merger”).

(“Tengasco”)), consummated a merger, dated as of October 21, 2020, by and among Tengasco, Antman Sub, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Tengasco (“Merger Sub”), and Riley Exploration – Permian, LLC (“REP LLC”).

Merger Sub merged with and into REP LLC, with REP LLC as the surviving company and as a wholly owned subsidiary of Tengasco (collectively, with the other transactions described in the Merger Agreement, the “Merger”).

On the Closing Date, the Registrant changed its name from Tengasco, Inc.

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Current Commodity Environment

During 2020, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, spread quickly across the globe.

Federal, state and local governments mobilized to implement containment mechanisms and minimize impacts to their populations and economies.

Various containment measures, which included the quarantining of cities, regions and countries, have resulted in a severe drop in general economic activity and a resulting decrease in energy demand.

As oil and natural gas operations are considered essential in the State of Texas and New Mexico, the Company has not had any significant disruptions in operations.

This outbreak and the related responses of governmental authorities and others to limit the spread of the virus significantly reduced global economic activity, resulting in a significant decline in the demand for oil and other commodities.

These factors caused a swift and material deterioration in commodity prices for a majority of 2020, which significantly impacted our revenues for 2020 and, to a lesser degree, 2021.

However, near the end of 2020 and during 2021, oil prices have increased but are expected to continue to be volatile as these events evolve.

The Company cannot estimate the full length or gravity of the future impacts at this time and if there is another significant decline in oil price, it could have a material adverse effect on the Company’s results of operations, financial position, liquidity and the value of oil and natural gas reserves.

and global markets experienced heightened volatility following impactful geopolitical events, consistent evidence of widespread inflation, as well as increased fears of an economic recession.

However, commodity prices continued to remain high during 2022 due to OPEC+ and other oil and natural gas producers not rapidly increasing production levels, as well as from the recovery in demand related to the COVID-19 pandemic.

The full-scale military invasion of Ukraine by Russian troops has continued unabated since February 2022 coupled with related economic sanctions imposed on Russia further exacerbating supply shortages, leading to disruptions in the credit and capital markets, including significant uncertainty in commodity prices, during 2022.

(2) Basis of Presentation

These consolidated financial statements as of the years ended September 30, 2021 and 2020 include the accounts of Riley Permian and its wholly-owned subsidiaries REP LLC, Riley Permian Operating Company, LLC ("RPOC"), Riley Employee Member, LLC ("REM"), Tengasco Pipeline Corporation ("TPC"), Tennessee Land & Mineral Corporation ("TLMC"), and Manufactured Methane Corporation ("MMC"), and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S.

On August 16, 2022, the Company's Board of Directors (the "Board") acting by written consent resolved to amend and restate the Company's Second Amended and Restated Bylaws to change the Company's fiscal year period from October 1st through September 30th each year to January 1st through December 31st each year commencing with the 2022 calendar year (the "Bylaws Restatement").

On August 19, 2022, the holders of approximately 75 % of our outstanding Common Stock acting by written consent approved the Bylaws Restatement and adopted the Third Amended and Restated Bylaws.

In accordance with Rule 14c-2 under the Exchange Act, the aforementioned actions taken by written consent became effective on September 23, 2022.

As a result, the Company's 2022 fiscal year is now the period from January 1, 2022 to December 31, 2022.

The accompanying consolidated financial statements include the accounts of Riley Permian and its wholly owned subsidiaries REP LLC, Riley Permian Operating Company, LLC ("RPOC"), Tengasco Pipeline Corporation, Tennessee Land & Mineral Corporation, and Manufactured Methane Corporation, and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S.

All intercompany balances and transactions have been eliminated upon consolidation.

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and (iv) the Company’s equity and earnings per share for all periods presented.

As of June 22, 2021, REM and REP LLC consummated an Agreement and Plan of Merger whereby REM was merged into REP LLC with REP LLC as the surviving entity.

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation.

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Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, accrued operating expenses and asset retirement obligations ("ARO"), the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives.

Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, accrued capital expenditures and operating expenses, asset retirement obligations ("ARO"), the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives.

Cash and Cash Equivalents

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Our receivables arise primarily from the sale of oil, natural gas and NGLs and joint interest owner receivables for properties in which we serve as the operator.

Accounts receivable are stated at amounts due, net of an allowance for doubtful accounts, if necessary.

Accounts receivable are stated at amounts due, net of an allowance for credit losses, if necessary.

Accounts receivable from oil, natural gas and NGL sales are generally due within 30 to 60 days after the last day of each production month.

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These market indices are determined on a monthly basis.

On October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments using a modified retrospective approach.

This ASU replaced the incurred impairment model with an expected credit loss model for financial instruments, including accounts receivable.

The ASU requires the Company to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under previous accounting guidance.

As a result of adoption, the Company would establish allowances for bad debts equal to the estimable portions of accounts receivable for which failure to collect is expected to occur, if applicable.

The Company would estimate uncollectible amounts based on the length of time that the accounts receivable has been outstanding, historical collection experience and current and future economic and market conditions, if failure to collect is expected to occur.

Allowances for doubtful accounts would be recorded as reductions to the carrying values of the accounts receivables included in the Company’s consolidated balance sheets and would be recorded in Administrative costs in the consolidated statements of operations in the accounting periods if failure to collect an estimable portion is determined to be probable.

The Company had no allowance for doubtful accounts at September 30, 2021 and 2020.

The Company estimates uncollectible amounts based on the length of time that the accounts receivable has been outstanding, historical collection experience and current and future economic and market conditions, if failure to collect is expected to occur.

Allowances for credit losses are recorded as reductions to the carrying values of the accounts receivables included in the Company’s consolidated balance sheets and are recorded in Administrative costs in the consolidated statements of operations if failure to collect an estimable portion is determined to be probable.

The Company had no allowance for credit losses at December 31, 2022 and December 31, 2021.

RILEY EXPLORATION PERMIAN, INC.

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Accounts receivable is summarized below:

September 30,

December 31, 2022 December 31, 2021

(In thousands)

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Joint interest accounts receivable 793 409

Realized derivative receivable 42 2,187

Other accounts receivable 622 31

Total accounts receivable $ 25,551 $ 18,002

The Company's inventory represents tangible assets such as drilling pipe, tubing, casing and operating supplies used in the Company's future drilling or repair operations.

The Company accounts for its inventory using the first-in, first-out method and valued at the lower of cost or net realizable value.

Proved Oil and Natural Gas Properties

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On the sale or retirement of a complete unit of a proved property or field, the cost and related accumulated depletion, depreciation and amortization are eliminated from the oil and natural gas property accounts, and the resulting gain or loss is recognized.

On the retirement or sale of a partial unit of proved property, the unamortized cost of the property is apportioned to the interest sold and the interest retained is accounted for on the basis of the fair value of the retained interests and a gain or loss is recognized.

On the sale of a partial unit of proved property, the unamortized cost of the property is apportioned to the interest sold and the interest retained is accounted for on the basis of the fair value of the retained interests and a gain or loss is recognized if the divestiture significantly affects the depletion rate.

Unproved Oil and Natural Gas Properties

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Business Combinations

In accordance with ASC 805 - Business Combinations (“ASC 805”), the Company accounts for its acquisitions that qualify as a business using the acquisition method.

In accordance with ASC 805 - Business Combinations, the Company accounts for its acquisitions that qualify as a business using the acquisition method.

If the set of assets and activities acquired is not considered a business, it is accounted for as an asset acquisition using a cost accumulation model.

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The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill.

The excess value of the net identifiable assets and liabilities acquired over the purchase price of an acquired business is recorded as a bargain purchase gain.

The excess value of the net identifiable assets and liabilities acquired over the purchase price of an acquired business, if any, is recorded as a bargain purchase gain.

Other Property and Equipment, Net

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Depreciation of such property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from 5 to 39 years.

Depreciation expense for other property and equipment amounted to $ 420 thousand and $ 428 thousand for the years ended September 30, 2021 and 2020, respectively.

Capitalized costs related to leasehold improvements are depreciated over the life of the lease.

As of December 31, 2022 and 2021, the Company had capitalized property and equipment costs of $ 5.3 million and $ 3.6 million, respectively, with $ 2.0 million and $ 1.7 million, respectively, of accumulated depreciation on the consolidated balance sheet.

Components of other property and equipment consists of computer equipment, office furniture, tools and equipment, buildings and improvements, and vehicles.

Land purchases are accounted for at cost and are not depreciated.

As of December 31, 2022 and 2021, the Company had capitalized land costs of $ 16.7 million and $ 1.3 million, respectively, on the consolidated balance sheet.

Deferred Financing Costs

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The issuance costs are expensed to the consolidated statement of operations if the issuance is unsuccessful.

Other Non-Current Assets

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other Non-Current Assets, Net

Other non-current assets consisted of the following:

September 30,

December 31, 2022 December 31, 2021

(In thousands)

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Total other non-current assets, net $ 4,175 $ 2,293

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The Company incurred $ 1.9 million in financing costs related to the amendments of its revolving credit facility in April and October 2022.

The Company extended certain existing leases and entered into a new lease during the year ended December 31, 2022, which resulted in additions to the right of use assets.

Accrued Liabilities

Accrued liabilities consisted of the following:

September 30,

December 31, 2022 December 31, 2021

(In thousands)

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Accrued general and administrative costs 2,286 3,404

Accrued dividends on preferred units — 903

Accrued inventory 6,235 —

Accrued ad valorem tax 3,789 705

Other accrued expenditures 1,921 613

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The liability is accreted for the change in its present value each period and the capitalized cost is depreciated using the units-of-production method.

The asset and liability is adjusted for changes resulting from revisions to the timing or the amount of the original estimate when deemed necessary.

The asset and liability are adjusted for changes resulting from revisions to the timing or the amount of the original estimate when deemed necessary.

If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

Components of the changes in ARO for the years ended September 30, 2021 and 2020 are shown below:

September 30,

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Components of the changes in ARO consisted of the following and is shown below:

December 31, 2022 December 31, 2021

(In thousands)

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Liabilities incurred 358 56

Liabilities acquired — 1,161

Revision of estimated obligations 326 —

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(1) Current ARO is included within other current liabilities on the consolidated balance sheets.

(1) Current ARO is included within other current liabilities on the accompanying consolidated balance sheets.

Goodwill represents the future economic benefit arising from other assets acquired in a business combination that are not individually identified or separately recognized.

Goodwill is initially recognized as the excess of the purchase price of a business combination over the fair value of the net assets acquired and is tested for impairment annually in accordance with ASC 350 - Intangibles - Goodwill and Other ("ASC 350"), or more frequently if there is a change in events or circumstances that indicate the carrying value of the goodwill may not be recoverable.

Goodwill is initially recognized as the excess of the purchase price of a business combination over the fair value of the net assets acquired and is tested for impairment annually in accordance with ASC 350 - Intangibles - Goodwill and Other, or more frequently if there is a change in events or circumstances that indicate the carrying value of the goodwill may not be recoverable.

The impairment test should occur at the reporting unit level determined by the Company and an impairment should only exist if the Company has determined the carrying value of the goodwill no longer exceeds the implied fair value.

If the Company determines it is more likely than not the fair value of the reporting unit is less than its carrying value, including

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goodwill, then a quantitative assessment is necessary.

If the Company determines it is more likely than not the fair value of the reporting unit is less than its carrying value, including goodwill, then a quantitative assessment is necessary.

An impairment loss is recognized if the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill.

The Company assessed the goodwill balance recognized from the Merger of $ 19.0 million for impairment since the Company entered into a purchase and sale agreement ("PSA") on March 10, 2021 for $ 3.5 million before closing adjustments.

See further discussion in Note 13 - Discontinued Operations and Assets Held for Sale.

At the closing of the Merger, the Company determined it had two reporting units, and the entire goodwill balance of $ 19.0 million was included in the reporting unit acquired in the Merger (the "Kansas Reporting Unit").

At the closing of the Merger, the Company determined it had two reporting units, and the entire goodwill balance was included in the reporting unit acquired in the Merger (the "Kansas Reporting Unit").

The Company did not fully integrate the Kansas Reporting Unit in the Company's operations as it was deemed to be held for sale upon acquisition.

See further discussion in Note 4 - Acquisitions and Divestitures.

The carrying value of the Kansas Reporting Unit was $ 22.0 million.

At the closing of the Merger, the Company concluded the fair value of the Kansas Reporting Unit was $ 3.5 million.

The Company assessed the goodwill balance for impairment since the Company entered into a purchase and sale agreement ("PSA") in March 2021 for $ 3.5 million before closing adjustments.

As the carrying value exceeded the implied fair value at the time of the closing of the Merger, the Company concluded the goodwill balance associated with the Kansas Reporting Unit was impaired and recognized a goodwill impairment loss, included within loss from discontinued operations on the consolidated statement of operations, of $ 18.5 million for the year ended September 30, 2021.

See further discussion in Note 12 - Discontinued Operations and Assets Held for Sale.

Revenue Recognition

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Under the Company’s natural gas gathering and processing contracts, natural gas is delivered to the purchaser at the inlet of the purchasers' gathering system, at which point title and risk of loss is transferred to the purchaser.

The purchaser gathers and processes the natural gas and remits proceeds to the Company for the resulting sales of natural gas and NGLs in accordance with the pricing provisions of the Company's contracts.

The purchaser gathers and processes the natural gas and remits proceeds to the Company for the resulting sales of natural gas and NGLs in accordance

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with the pricing provisions of the Company's contracts.

As the gathering, processing and transportation activities occur after the transfer of control, these costs are netted against our oil and natural gas sales and represent part of the transaction price of the contract, and may exceed the sales price.

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Transaction Price Allocated to Remaining Performance Obligations

For the contracts that are short term in nature with a contract term of one year or less, the Company applies the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

Based on the Company’s current product sales contracts, with contract terms ranging from one to ten years , each unit of production is considered a separate performance obligation and therefore future production volumes are wholly unsatisfied and do not require allocation or disclosure of the transaction price to remaining performance obligations.

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Prior-Period Performance Obligations

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Revenue is recorded in the month in which production is delivered to the purchaser.

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Differences identified between the Company’s revenue estimates and actual revenue received historically have not been significant.

For the years ended September 30, 2021 and 2020, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.

For the year ended December 31, 2022, the three months ended December 31, 2021, and year ended September 30, 2021, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.

Disaggregation of Revenue

The following table presents oil and natural gas sales from continuing operations disaggregated by product:

Year Ended September 30,

The following table presents oil and natural gas sales disaggregated by product:

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

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Natural gas 10,755 2,705 7,500

7,500 ( 1,267 )

Natural gas liquids 9,865 3,322 4,715

4,715 ( 495 )

Total oil and natural gas sales, net $ 319,343 $ 56,650 $ 148,636

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(1) The Company's natural gas and NGL sales are presented net of gathering, processing and transportation fees which at times exceed the price received and result in negative average prices.

Contract Services with Related Parties

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Production proceeds that the Company has not yet distributed to other revenue and royalty owners are reflected as revenue payable in the consolidated balance sheets.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Lease Operating Expenses

Lease operating costs, including payroll for field personnel, saltwater disposal, electricity, generator rentals, diesel fuel and other operating expenses, are expensed as incurred and included in lease operating expenses in our consolidated statements of operations.

Upon closing of the Merger on February 26, 2021, Tengasco was renamed to Riley Exploration Permian, Inc.

and REP LLC became a wholly-owned subsidiary of Riley Permian, the consolidated company.

In addition, Riley Permian became a C-corporation which is subject to current federal and state income taxes, including Texas Margin Tax.

See further discussion in Note 4 - Acquisitions and Divestitures.

See further discussion in Note 12 - Income Taxes.

Riley Permian uses the asset and liability method of accounting for income taxes, which requires the establishment of deferred tax accounts for all temporary differences between:

The Company uses the asset and liability method of accounting for income taxes, which requires the establishment of deferred tax accounts for all temporary differences between:

(i) financial reporting and tax bases of assets and liabilities, using currently enacted federal and state income tax rates, and (ii) operating loss and tax credit carryforwards.

In addition, deferred tax accounts must be adjusted to reflect new rates if enacted into law.

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Realization of deferred tax assets is contingent on the generation of future taxable income.

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The amount that is ultimately incurred for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized.

There are no unrecorded liabilities for uncertain tax positions related to the Company as of September 30, 2021 and 2020.

Interest and penalties, if any, related to uncertain tax positions are included in current income tax expense.

There are no unrecorded liabilities for uncertain tax positions related to the Company as of December 31, 2022 and December 31, 2021.

See further discussion in Note 11- Income Taxes.

Interest Expense

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We incur interest expense that is affected by both fluctuations in interest rates and our financing decisions.

Interest expense in the consolidated statement of operations reflects interest, unused commitment fees paid to our lender, interest rate swap settlements plus the amortization of deferred financing costs (including origination and amendment fees).

Interest expense was $ 4.5 million and $ 5.3 million for the years ended September 30, 2021 and 2020.

Interest expense in the consolidated statements of operations reflects interest less amounts allocated to capital expenditures, unused commitment fees paid to our lender, interest rate swap settlements plus the amortization of deferred financing costs (including origination and amendment fees).

Interest expense was $ 1.1 million, $ 0.9 million, and $ 4.5 million for the year ended December 31, 2022, the three months ended December 31, 2021, and the year ended September 30, 2021, respectively.

Capitalized interest represents interest expense related to wells in process during the period in which the Company is incurring costs and expending resources to get the properties ready for their intended purpose.

Capitalized interest is added to the cost of the underlying asset and is amortized over the useful life of the asset in the same manner as the underlying asset.

Concentrations of Credit Risk

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Our purchaser contracts include marketing provisions with our purchasers to market our production.

For the years ended September 30, 2021 and 2020, one purchaser accounted for 87 % and 86 %, respectively, of our revenue purchased, with three end customers each accounting for more than 10% of the purchased revenue.

For the year ended December 31, 2022, the three months ended December 31, 2021, and the year ended September 30, 2021, one purchaser accounted for 89 %, 87 %, and 87 %, respectively, of our revenue purchased, with two end customers each accounting for more than 10% of the purchased revenue.

During such periods, no other purchaser accounted for 10% or more of our revenues.

The loss of either of this purchaser could materially and adversely affect our revenues in the short-term.

The loss of this purchaser could materially and adversely affect our revenues in the short-term.

However, the end customers include companies with lower credit risk.

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As a result, we believe that our accounts receivable credit risk exposure beyond such allowance is limited.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Environmental and Other Issues

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Certain financial instruments are reported at fair value on our consolidated balance sheets.

Under fair value measurement accounting guidance, fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

of a liability in an orderly transaction between market participants (i.e.

an exit price).

Under fair value measurement accounting guidance, fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants (i.e., an exit price).

To estimate an exit price, a three-level hierarchy is used.

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The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

The carrying values of financial instruments comprising cash and cash equivalents, payables, receivables, related party accounts receivable and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments.

The carrying value reported for the revolving line of credit approximates fair value because the underlying instruments are at interest rates which approximate current market rates.

These approaches are considered Level 3 in the fair value hierarchy.

The carrying values of financial instruments comprising cash and cash equivalents, payables, receivables, related party accounts receivable/payable and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments and are classified as Level 1 in the fair value hierarchy.

The carrying value reported for the revolving credit facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates and is considered Level 3 in the fair value hierarchy.

Assets and liabilities accounted for at fair value on a non-recurring basis in accordance with the fair value hierarchy include the initial recognition of asset retirement obligations, the fair value of oil and natural gas properties, and goodwill when acquired in a business combination or assessed for impairment and are considered Level 3 in the fair value hierarchy.

Derivative Contracts

We report the fair value of derivatives on the consolidated balance sheets in derivative assets and derivative liabilities as either current or noncurrent based on the timing of the settlement of individual trades.

We report the fair value of derivatives on the consolidated balance sheets in derivative assets and derivative liabilities as either current or non-current based on the timing of the settlement of individual trades.

Trades that are scheduled to settle in the next twelve months are reported as current.

The Company nets derivative assets and liabilities, in the consolidated balance sheets, whenever it has a legally enforceable master netting agreement with the counterparty to a derivative contract.

For the years ended September 30, 2021 and 2020, we have not designated our derivative contracts as hedges for accounting purposes, and therefore changes in the fair value of derivatives are recognized in earnings.

For the year ended December 31, 2022, the three months ended December 31, 2021, and year ended September 30, 2021, we have not designated our derivative contracts as hedges for accounting purposes, and therefore changes in the fair value of derivatives are recognized in earnings.

Cash settlements of contracts are included in cash flows from operating activities in the consolidated statement of cash flows.

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To minimize the credit risk with derivative instruments, it is our policy to enter into derivative contracts primarily with counterparties that are financial institutions that are also lenders within our revolving credit facility.

Under the terms of the current counterparties' contracts, only those that are lenders under our revolving credit facility are secured by the same collateral as outlined in our revolving credit facility.

Under the terms of the current counterparties' contracts, only those that are lenders under our revolving credit facility

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are secured by the same collateral as outlined in our revolving credit facility.

The counterparties are not required to provide credit support to the Company.

See further discussion in Note 6 – Derivative Instruments.

The Company's current leases include office space and information technology equipment, comprised primarily of printers and copiers.

The Company reviews all contracts to determine if a lease exists at contract inception.

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Identified leases are classified as an operating or finance lease, which determines the recognition, measurement and presentation of expenses.

As of September 30, 2021, the Company did not have any finance leases.

Operating leases are capitalized on the consolidated balance sheet at commencement date through a lease right-of-use ("ROU") asset and lease liability representing the present value of lease payments over the lease term.

As of December 31, 2022, the Company did not have any finance leases.

Operating leases are capitalized on the consolidated balance sheet at commencement through a lease right-of-use ("ROU") asset and lease liability representing the present value of lease payments over the lease term.

In addition to the present value of lease payments, the operating lease ROU asset includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred.

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For operating leases, lease costs are recognized on a straight-line basis over the term of the lease.

The Company elected certain practical expedients and made certain accounting policy elections that impacted the effect of adoption on the consolidated balance sheets and statement of operations, including:

(i) a package of practical expedients which

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allowed the Company to not reassess contracts that commenced prior to adoption in regards to lease terms, lease classification and indirect costs incurred prior to adoption, (ii) excluding land easements that existed or expired prior to adoption, (iii) policy election that eliminates the need for adjusting prior period comparable financial statements prepared under prior lease accounting guidance and (iv) to not apply the recognition requirements under the standard to short-term leases.

The present value of operating lease payments and amortization of the lease liability is calculated using a discount rate.

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The Company is required to reassess the discount rate for any new and modified lease contracts as of the lease effective date.

ROU asset and lease liability balances were as follows as of September 30, 2021 and 2020:

September 30,

The weighted-average discount rate was 3.18 % and 5.17 %, respectively, at December 31, 2022 and 2021.

The weighted average remaining lease term was 2.4 years and 0.5 years, respectively, at December 31, 2022 and 2021.

Lease expense was $ 0.5 million, $ 0.1 million, and $ 0.4 million, respectively, for the year ended December 31, 2022, the three months ended December 31, 2021, and year ended September 30, 2021.

December 31, 2022 December 31, 2021

(In thousands)

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Long-term lease liability $ 838 $ —

The ROU asset, current lease liability, and long-term lease liability was included in other non-current asset, other current liabilities and non-current lease liabilities, respectively, on the accompanying consolidated balance sheet.

For the year ended September 30, 2021 and 2020, the Company recorded $ 0.4 million in lease expense which is included in general and administrative costs on the accompanying consolidated statements of operations.

The ROU asset and current lease liability was included in other non-current assets and other current liabilities and non-current lease liabilities , respectively, on the accompanying consolidated balance sheets.

Lease expense for the Company was included in general and administrative costs on the accompanying consolidated statements of operations.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a Current Expected Credit Losses (“CECL”) methodology.

The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables.

The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted this ASU effective October 1, 2020 using a modified retrospective approach.

The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements or related disclosures.

The Company is exposed to credit losses primarily through receivables that result from oil and natural gas sales.

Estimates of expected credit losses for accounts receivables consider factors such as historical collection experience, credit quality of our customers and current and future economic and market conditions.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.

The purpose of this amendment is to improve the effectiveness of disclosures in the notes to the consolidated financial statements.

This ASU removes certain disclosure requirements around transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements, modifies certain reporting requirements around Level 3 fair value measurements and investments in certain entities that calculate net asset value, and adds certain disclosure requirements for Level 3 fair value measurements.

The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes." This update is intended to simplify the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance and is effective for public business entities beginning after December 15, 2020 with early adoption permitted.

The Company adopted this ASU effective October 1, 2021.

The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Issued Accounting Standards Not Yet Adopted

In December 2019,the FASB issued ASU No.

In March 2020, the FASB issued ASU No.

2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates (e.g., LIBOR) that are expected to be discontinued.

ASU 2020-04 allows, among other things, certain contract modifications, such as those within the scope of Topic 470 on debt, to be accounted as a continuation of the existing contract.

This ASU was effective upon the issuance and its optional relief can be applied through December 31, 2022.

(4) Acquisitions and Divestitures

ASU 2020-04 allows, among other things, certain contract modifications, such as those within the scope of Topic 470 on debt, to be accounted for as a continuation of the existing contract.

The Company adopted this ASU effective concurrent with the amendment of the Company's revolving credit facility in April 2022.

See Note 9 - Revolving Credit Facility for additional information on the amendment of the revolving credit facility.

The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(4) Acquisitions

Business Combination Between REP LLC and Tengasco

Immediately prior to the closing of the Merger on February 26, 2021, REP LLC converted all of the issued and outstanding Series A Preferred Units into common units of REP LLC.

Immediately prior to the closing of the Merger on February 26, 2021, REP LLC converted all of its issued and outstanding Series A Preferred Units into common units of REP LLC.

In connection with the Merger, holders of common units of REP LLC were entitled to receive, in exchange for each common unit, shares of common stock of Tengasco (which was renamed Riley Exploration Permian, Inc.), par value $ 0.001 per share (“Tengasco common stock”) based on the exchange ratio set forth in the Merger Agreement (the “Exchange Ratio”), with cash paid in lieu of the issuance of any fractional shares.

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Immediately prior to the closing of the Merger, Tengasco effected a one-for-twelve reverse stock split resulting in outstanding common stock of approximately 17.8 million shares including shares of Tengasco common stock issued in the Merger.

See further discussion in Note 10 – Members'/Shareholders' Equity.

Pursuant to the Merger Agreement and on the Closing Date, each restricted share of common stock issued to holders of restricted common units in REP LLC in conjunction with the Merger were issued under the 2021 Long Term Incentive Plan (the "2021 LTIP").

See further discussion in Note 10 – Members'/Shareholders' Equity.

The combination between REP LLC and Tengasco qualified as a business combination with REP LLC being treated as the accounting acquirer.

The assets acquired and liabilities assumed were recognized on the consolidated balance sheet at fair value as of the acquisition date.

The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market.

These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future commodity prices, future development, future operating costs, future cash flows and the use of weighted average cost of capital.

These inputs required the use of significant judgments and estimates at the date of valuation.

The consideration paid in the Merger by REP LLC as the accounting acquirer totaled approximately $ 26.4 million and was determined based on the closing price of Tengasco’s common stock on February 26, 2021 and the total number of shares outstanding immediately prior to the Merger.

The Merger was structured as a tax-free reorganization for United States federal income tax purposes.

The following table summarizes the consideration for the Merger (presented in thousands, except stock price):

2 unchanged sentences

Total consideration $ 26,392

The Company incurred approximately $ 5.0 million of related costs to date for the Merger, of which $ 3.6 million and $ 1.4 million was expensed for the year ended September 30, 2021 and 2020, respectively, as transaction costs on the

The Company incurred approximately $ 5.0 million of related costs for the Merger, of which $ 3.6 million was expensed for the year ended September 30, 2021 as transaction costs on the consolidated statements of operations.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

consolidated statement of operations.

Included in the above costs, the Company incurred success fees of $ 1.75 million upon closing of the Merger which is included within transaction costs on the consolidated statement of operations.

The Company has completed the determination of the fair value attributable to the assets acquired and liabilities assumed as of September 30, 2021.

The Company completed the determination of the fair value attributable to the assets acquired and liabilities assumed as of September 30, 2021.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values on February 26, 2021 (in thousands):

Cash and cash equivalents $ 860

Account receivable 325

Accounts receivable 325

Prepaid and other current assets 759

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The Company does not expect goodwill to be deductible for tax purposes.

The Company did not integrate the acquired properties and the acquisition met the assets held for sale criteria on the Closing Date.

See further discussion in Note 13 - Discontinued Operations and Assets Held for Sale.

Post-Acquisition Operating Results

Net loss attributable to the operations of the assets and liabilities acquired in the Merger of $ 115 thousand was included in loss from discontinued operations on the consolidated statement of operations for the year ended September 30, 2021.

On April 2, 2021, the Company closed on the sale of the Kansas Reporting Unit with an effective date of March 1, 2021.

A net loss of $ 18.8 million on discontinued operations, net of state and federal taxes, was included in loss on discontinued operations for the year ended September 30, 2021.

Pro Forma Operating Results (Unaudited)

The following unaudited pro forma combined results for the years ended September 30, 2021 and 2020 reflect the consolidated results of operations of the Company as if the Merger had occurred on October 1, 2019.

The unaudited pro forma information includes adjustments for $ 3.6 million of transaction costs being reclassified to the first quarter of fiscal year 2020 which were incurred during the year ended September 30, 2021.

Additionally, the Company adjusted for $ 0.9 million of oil and natural gas property impairment Tengasco recognized under the full-cost method of accounting, which would not have been

The following unaudited pro forma combined results for the year ended September 30, 2021 reflect the consolidated results of operations of the Company as if the Merger had occurred on October 1, 2019.

Subsequent to the Merger, the Company changed its fiscal year period from October 1st through September 30th each year to January 1st to December 31st each year commencing with the 2022 calendar year.

The unaudited pro forma information includes adjustments for $ 3.6 million of transaction costs being reclassified to the fourth quarter of calendar year 2019 which were incurred during the year ended September 30, 2021.

Additionally, the Company adjusted for $ 0.9 million of oil and natural gas property impairment that Tengasco recognized under the full-cost method of accounting, which would not have been recognized under the successful efforts method, during the three months ended December 31, 2020.

Also, the unaudited pro forma information has been tax

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

recognized under the successful efforts method, during the three months ended December 31, 2020.

Also, the unaudited pro forma information has been tax affected using a 21% tax rate.

effected using a 21% tax rate.

The common stock was also adjusted for the conversion of the REP LLC preferred units into common units and retroactively adjusted for the Exchange Ratio and one-for-twelve reverse stock split.

Year Ended September 30,

For the year ended September 30, 2021

(In thousands, except per share/unit amounts)

Total Revenues $ 151,036

Pro Forma Net Income (Loss) from Continuing Operations ( 30,146 ) 33,075

Pro Forma Net Income (Loss) from Discontinued Operations 275 ( 18,203 )

Pro Forma Net Income (Loss) before Taxes ( 29,871 ) 14,872

Pro forma income tax benefit (expense) 6,273 ( 3,123 )

Pro Forma Net Income (Loss) $ ( 23,598 ) $ 11,749

Net Income (Loss) per Share/Unit from Continuing Operations:

Pro Forma Net Loss before Taxes ( 29,871 )

Pro forma income tax benefit 6,273

Pro Forma Net Loss $ ( 23,598 )

Net Loss per Share/Unit from Continuing Operations:

Basic $ ( 1.88 )

Diluted $ ( 1.88 )

Net Income (Loss) per Share/Unit from Discontinued Operations:

Basic $ 0.02 $ ( 1.46 )

Net Income per Share/Unit from Discontinued Operations:

Diluted $ 0.02

The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations that the Company would have reported had the Merger been completed as of October 1, 2019 and should not be taken as indicative of the Company's future combined results of operations.

The unaudited pro forma combined financial information is for informational purposes only and was based off of the fiscal year period October 1st through September 30th as this was the fiscal year in effect at the time of the Merger.

The unaudited pro forma financial information was not modified for the change in the Company's fiscal year.

It is not intended to represent or to be indicative of the combined results of operations that the Company would have reported had the Merger been completed as of October 1, 2019 and should not be taken as indicative of the Company's future combined results of operations.

The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.

On December 20, 2019, the Company acquired 1,237 net acres (unaudited) in Yoakum County, Texas.

The acquisition included 17 total wells, with 11 producing and 6 salt water disposals, for a total purchase price of $ 3.3 million, as adjusted for customary closing items.

The transaction was accounted for as an asset acquisition and was therefore recorded based on the total consideration paid, with value assigned to unproved oil and natural gas properties, capitalized asset retirement cost and ARO.

During the years ended September 30, 2021 and 2020, the Company made several additional acquisitions in the ordinary course of business totaling $ 0.4 million and $ 0.8 million, respectively, for oil and natural gas properties, none of which individually were considered significant.

These transactions were accounted for as asset acquisitions and was recorded based on the total consideration paid, with value assigned to unproved oil and natural gas properties.

On April 2, 2021, the Company closed on the sale of the Kansas Reporting Unit for an agreed upon purchase price of $ 3.5 million, less approximately $ 0.2 million of closing adjustments.

See further discussion in Note 12 - Discontinued Operations and Assets Held for Sale.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Transaction Costs

Transaction costs consist of those costs associated with investment banking, accounting, legal and other diligence costs related to unsuccessful acquisitions or successful acquisitions accounted for as business combinations.

The Company recognized acquisition costs related to the Merger for the years ended September 30, 2021 and 2020 included in the table below:

Year Ended September 30,

The Company recognized transaction costs for the periods presented below:

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

Business combination acquisition costs $ 2,638 $ 1,258 $ 3,572

Other — — 160

Total transaction costs $ 2,638 $ 1,258 $ 3,732

The transaction costs of $ 2.6 million and $ 1.3 million for the year ended December 31, 2022 and three months ended December 31, 2021, respectively, primarily related to a potential business combination and related financing that the Company pursued but ultimately chose not to consummate.

During the year ended September 30, 2021, the transaction costs of $ 3.6 million primarily relate to costs incurred on the Merger with Tengasco in February 2021.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(5) Oil and Natural Gas Properties

Oil and natural gas properties are summarized below:

Year Ended September 30,

December 31, 2022 December 31, 2021

(In thousands)

3 unchanged sentences

573,950 454,152

Accumulated depletion and amortization ( 88,336 ) ( 63,176 )

Accumulated depletion, amortization and impairment ( 133,848 ) ( 95,021 )

Total oil and natural gas properties, net $ 440,102 $ 359,131

At September 30, 2021 and 2020, the Company had one and two exploratory wells, respectively, drilled but uncompleted that were included in work-in-progress with associated well costs of $ 3.7 million and $ 7.1 million, respectively.

During the year ended September 30, 2021, one of the exploratory wells was completed, resulting in $ 3.4 million of costs transferred from work-in-progress to proved properties.

At September 30, 2021, the Company had one exploratory well with costs of $ 3.7 million that has been capitalized for greater than one year but less than two years .

At December 31, 2022 and 2021, the Company had one exploratory well drilled but uncompleted that was included in work-in-progress with associated well costs of $ 3.8 million and $ 3.7 million, respectively.

At December 31, 2022, the Company had one exploratory well with costs of $ 3.8 million that has been capitalized for greater than two years .

The Company is in the process of evaluating completion methods for this exploratory well.

Depletion and amortization expense for proved oil and natural gas properties was $ 25.2 million and $ 20.8 million, respectively, for the year ended September 30, 2021 and 2020.

The Company incurred $ 9.6 million and $ 9.9 million of exploration costs, including $ 9.3 million and $ 7.9 million related to the expiration of oil and natural gas leases for the years ended September 30, 2021 and 2020, respectively.

Depletion and amortization expense for proved oil and natural gas properties was $ 31.5 million for the year ended December 31, 2022, $ 6.7 million for the three months ended December 31, 2021, and $ 25.2 million for the year ended September 30, 2021.

Exploration expense was $ 2.0 million for the year ended December 31, 2022, $ 0.6 million for the three months ended December 31, 2021, and $ 9.6 million for the year ended September 30, 2021.

Exploration expense was primarily attributable to the expiration of oil and natural gas leases for the year ended December 31, 2022, the three months ended December 31, 2021 and year ended September 30, 2021.

Impairment of Proved Properties

Certain proved oil and natural gas properties were impaired during year ended December 31, 2022.

Our impairment test involved a Step 1 assessment to determine if the net book value of our proved oil and natural gas properties is expected to be recovered from the estimated undiscounted future net cash flows.

We calculated the expected undiscounted future net cash flows of our long-lived assets using management’s assumptions and expectations.

See further discussion in Note 7 - Fair Value Measurements.

Certain oil and natural gas properties in our New Mexico operating area failed the Step 1 assessment.

For these assets, we used a discounted cash flow analysis to estimate fair value.

The expected future net cash flows were discounted using a rate of 10.25 %, which we believe represents the estimated weighted average cost of capital of a market participant.

Based on Step 2 of our long-lived assets impairment test, we recognized a $ 7.3 million impairment because the carrying value exceeded the estimated fair market value as of the year ended December 31, 2022.

See further discussion of our fair value assumptions in Note 7 - Fair Value Measurements.

(6) Derivative Instruments

1 unchanged sentence

The Company uses commodity based derivative contracts to reduce exposure to fluctuations in oil and natural gas prices.

While the use of these contracts limits the downside risk for adverse price changes, their use may also limit future revenues from favorable price changes.

As of September 30, 2021, the Company's oil and natural gas derivative instruments consisted of the following types:

While the use of these contracts limits the downside risk for adverse price changes, their use also limits future revenues from favorable price changes.

We have not designated our derivative contracts as hedges for accounting purposes, and therefore changes in the fair value of derivatives are included and recognized in other income (expense) in the consolidated statement of operations.

As of December 31, 2022, the Company's oil and natural gas derivative instruments consisted of the following types:

• Fixed Price Swaps – the Company receives a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

• Fixed Price Swaps – the Company receives a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume.

• Costless collars – the combination of a put option (fixed floor) and call option (fixed ceiling), with the options structured so that the premium paid to purchase the put option is offset by the premium received from the sale of the call option.

3 unchanged sentences

We receive the fixed price differential and pay the differential between the referenced indexes.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the open financial derivative positions as of September 30, 2021, related to oil and natural gas production:

The following table summarizes the open financial derivative positions as of December 31, 2022, related to oil and natural gas production:

Weighted Average Price

Calendar Quarter Notional Volume Fixed Put Call

Calendar Quarter / Year Notional Volume Fixed Put Call

Oil Swaps (Bbl)

3 unchanged sentences

Q4 2023 114,000 $ 54.59 $ — $ —

Q4 2022 330,000 $ 54.07 $ — $ —

2023 360,000 $ 59.01 $ — $ —

Natural Gas Swaps (Mcf)

Q4 2021 555,000 $ 3.03 $ — $ —

Q1 2022 540,000 $ 3.26 $ — $ —

Q2 2022 540,000 $ 3.26 $ — $ —

Q3 2022 540,000 $ 3.26 $ — $ —

Q4 2022 540,000 $ 3.26 $ — $ —

Oil Collars (Bbl)

3 unchanged sentences

Q4 2023 — $ — $ — $ —

Oil Basis (Bbl)

Q4 2021 435,000 $ 0.40 $ — $ —

Q1 2022 180,000 $ 0.40 $ — $ —

Q2 2022 180,000 $ 0.40 $ — $ —

Q3 2022 180,000 $ 0.40 $ — $ —

Q4 2022 180,000 $ 0.40 $ — $ —

2024 3,000 $ — $ 50.00 $ 88.00

The Company entered into additional derivative contracts subsequent to December 31, 2022.

See further discussion in Note 15 - Subsequent Events.

Interest Rate Contracts

The Company has entered into floating-to-fixed interest rate swaps (we receive a floating market rate equal to one-month LIBOR and pay a fixed interest rate) to manage interest rate exposure related to the Company's revolving credit facility.

The following table summarizes the open interest rate derivative positions as of September 30, 2021:

Open Coverage Period Notional Amount Fixed Rate

(In thousands)

Floating-to-Fixed Interest Rate Swaps

October 2021 - September 2023 $ 40,000 0.24 %

During the years ended December 31, 2022 and 2021, the Company entered into floating-to-fixed interest rate swaps, in which it received a floating market rate equal to one-month LIBOR or Secured Overnight Financing Rate ("SOFR") and paid a fixed interest rate, to manage interest rate exposure related to the Company's revolving credit facility.

In December 2022, the Company settled the remaining open positions for the interest rate swap which resulted in a $ 1.5 million settlement.

The Company recognizes settlements on interest rate swaps in interest expense on the consolidated statements of operations.

RILEY EXPLORATION PERMIAN, INC.

1 unchanged sentence

Balance Sheet Presentation of Derivatives

The following table presents the location and fair value of the Company’s derivative contracts included in the consolidated balance sheets as of September 30, 2021 and 2020:

September 30, 2021

The following tables present the location and fair value of the Company’s derivative contracts included in the consolidated balance sheets as of December 31, 2022 and 2021:

December 31, 2022

Balance Sheet Classification Gross Fair Value Amounts Netted Net Fair Value

5 unchanged sentences

Total $ ( 16,464 ) $ — $ ( 16,464 )

September 30, 2020

December 31, 2021

Balance Sheet Classification Gross Fair Value Amounts Netted Net Fair Value

5 unchanged sentences

Total $ ( 40,149 ) $ — $ ( 40,149 )

The following table presents the Company's derivative activities for the years ended September 30, 2021 and 2020:

Year Ended September 30,

The following table presents the components of the Company's gain (loss) on derivatives for the periods presented below:

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

Fair value of net asset (liability), beginning of period $ 21,921 $ 14,959

Gain (loss) on derivatives ( 89,195 ) 33,876

Settlements on derivatives 16,304 ( 26,914 )

Fair value of net asset (liability), end of period $ ( 50,970 ) $ 21,921

Settlements on derivative contracts (1)

$ ( 75,257 ) $ ( 16,014 ) $ ( 16,304 )

Non-cash gain (loss) on derivatives 23,683 10,821 ( 72,891 )

Loss on derivatives $ ( 51,574 ) $ ( 5,193 ) $ ( 89,195 )

_____________________________________________________

(1) In December 2022, the Company settled a portion of its 2023 open oil fixed price swap contracts which resulted in a $ 1.5 million settlement.

(7) Fair Value Measurements

The carrying value reported for the revolving line of credit approximates fair value because the underlying instruments are at interest rates which approximate current market rates.

The revolving line of credit is considered a level 3 measurement.

The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy consists of three broad levels.

Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

Level 3 are unobservable inputs for an asset or liability.

The carrying values of financial instruments comprising cash and cash equivalents, payables, receivables, and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments and are classified as Level 1 in the fair value hierarchy.

The carrying value reported for the revolving credit facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates.

The revolving line of credit is considered Level 3 in the fair value hierarchy.

Assets and Liabilities Measured on a Recurring Basis

The fair value of commodity derivatives and interest rate swaps is estimated using internal discounted cash flow calculations based upon forward curves.

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2021 and 2020, by level within the fair value hierarchy:

The fair value of commodity derivatives and interest rate swaps is estimated using discounted cash flow calculations based upon forward curves and are classified as Level 2 in the fair value hierarchy.

The following table presents the Company’s

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2021

financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2022 and 2021, by level within the fair value hierarchy:

December 31, 2022

Level 1 Level 2 Level 3 Total

2 unchanged sentences

Commodity derivative assets $ — $ 73 $ — $ 73

Interest rate assets $ — $ 106 $ — $ —

Financial liabilities:

Commodity derivative liabilities $ — $ ( 16,537 ) $ — $ ( 16,537 )

Interest rate liabilities $ — $ ( 48 ) $ — $ —

September 30, 2020

December 31, 2021

Level 1 Level 2 Level 3 Total

2 unchanged sentences

Commodity derivative assets $ — $ 187 $ — $ 187

Interest rate assets $ — $ 361 $ — $ 361

Financial liabilities:

11 unchanged sentences

These inputs require significant judgments and estimates by the Company’s management at the time of the valuation.

The fair value of asset retirement obligations incurred and acquired during the years ended September 30, 2021 and 2020, totaled approximately $ 0.1 million and $ 1.2 million, respectively.

The fair value of asset retirement obligations incurred and acquired during the year ended December 31, 2022 and the three months ended December 31, 2021, totaled approximately $ 0.4 million and $ 0.1 million, respectively.

The fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income approach, which converts future cash flows to a single discounted amount.

14 unchanged sentences

RPOC provides certain administrative services to Combo Resources, LLC ("Combo") and is also the contract operator on behalf of Combo in exchange for a monthly fee of $ 100 thousand and reimbursement of all third party expenses pursuant to a contract services agreement.

The monthly fee was $ 250 thousand through June 30, 2020, $ 150 thousand for July 1, 2020 and $ 100 thousand effective August 1, 2020.

RPOC also has the option to participate as a working interest owner in Combo wells operated by RPOC.

Combo was previously owned by Oakspring Energy Holdings, LLC ("Oakspring") and by a wholly-owned subsidiary of Riley Exploration Group, Inc.

On December 31, 2020, Oakspring contributed its interest in Combo to certain investment funds of Yorktown Partners, LLC, and the wholly-owned subsidiary of REG contributed its interest in Combo to Riley Exploration Group, LLC.

Additionally, RPOC provides certain administrative and operational services to Riley Exploration Group, LLC ("REG") in exchange for a monthly fee of $ 100 thousand pursuant to a contract services agreement.

Combo and REG are portfolio companies of Yorktown Energy Partners XI, L.P.

("Yorktown XI"), certain managed funds of which have investments in the Company (all deemed to be related parties).

One of our executives held positions with REG and Combo at September 30, 2021.

One of our executives held positions with REG and Combo at December 31, 2022.

Our Executive Vice President, Business Intelligence is the President of both REG and Combo, as well as a board member of Combo.

Additionally, RPOC provides certain administrative and operational services to REG in exchange for a monthly fee of $ 100 thousand pursuant to a contract services agreement.

The following table presents revenues from contract services for related parties:

Year Ended September 30,

The following table presents revenues from and related cost for contract services for related parties:

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

3 unchanged sentences

Cost of contract services $ 450 $ 150 $ 477

The Company had amounts due from Combo of $ 0.5 million and $ 0.1 million at September 30, 2021 and 2020, respectively, which are reflected in accounts receivable - related parties on the accompanying consolidated balance sheets.

There were no amounts due to the Company from REG as of September 30, 2021 or 2020.

The Company had amounts payable to Combo of $ 0.4 million and $ 0.2 million at December 31, 2022 and 2021, respectively, which are reflected in accounts payable - related parties on the accompanying consolidated balance sheets.

Amounts due to Combo reflect the revenue, net of any expenditures for wells and fees due under the contract services agreement, for Combo's net working interest in wells that the Company operates on Combo's behalf.

Consulting and Legal Fees

The Company has an arrangement with one of its board members to provide certain legal and advisory services.

For the years ended September 30, 2021 and 2020, the Company incurred legal fees from this board member or an entity associated with the board member of $ 1.0 million and $ 0.4 million, respectively.

As of September 30, 2021 and 2020, the Company had $ 0.0 million and $ 0.2 million in amounts due to this board member or an entity associated with the board member for legal services.

Such amounts were included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

The Company has an engagement agreement with di Santo Law PLLC ("di Santo Law"), a law firm owned by Beth di Santo, a member of our Board of Directors, pursuant to which di Santo Law's attorneys provide legal services to the Company.

For the year ended December 31, 2022, the three months ended December 31, 2021, and year ended September 30, 2021, the Company incurred legal fees from di Santo Law of approximately $ 0.7 million, $ 0.2 million, and $ 1.0 million, respectively.

As of December 31, 2022 there are no accrued amounts for di Santo Law.

As of December 31, 2021, the Company had approximately $ 0.2 million in amounts accrued for di Santo Law, which was included in accrued liabilities in the accompanying consolidated balance sheets.

(9) Revolving Credit Facility

On September 28, 2017, REP LLC entered into a credit agreement to establish a senior secured revolving credit facility with a syndicate of banks including SunTrust Bank, now Truist Bank as successor by merger, as administrative agent.

On September 28, 2017, REP LLC entered into a credit agreement (the "Credit Agreement") to establish a senior secured revolving credit facility with a syndicate of banks including SunTrust Bank, now Truist Bank as successor by merger, as administrative agent.

The revolving credit facility had an initial borrowing base of $ 25 million with a maximum facility amount of $ 500 million.

As of September 30, 2021, the revolving credit facility had a borrowing base of $ 135 million.

In both April and October 2022, the Company amended its Credit Agreement to, among other things, increase the borrowing base to $ 225 million.

The Credit Agreement is set to mature in April 2026.

Substantially all of the Company’s assets are pledged to secure the revolving credit facility.

Effective October 15, 2019, the Company amended its revolving credit facility to increase the borrowing base from $ 135 million to $ 180 million and had the ability to request an increase in its lender commitments up to the approved $ 200 million borrowing base amount.

Effective May 7, 2020, the Company amended its revolving credit facility to decrease the

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

borrowing base from $ 180 million to $ 150 million.

Effective August 31, 2020, the Company amended its revolving credit facility to decrease the borrowing base from $ 150 million to $ 132.5 million.

Effective March 5, 2021, the Company and REP LLC entered into the Eighth Amendment to the credit facility pursuant to which the parties thereto reaffirmed the borrowing base at $ 135 million with total commitments increasing to $ 135 million.

On October 21, 2020, REP LLC entered into an amendment to its revolving credit facility to incorporate the changes in the legal structure of REP LLC upon consummation of the Merger, including the joinder of the Company as the parent guarantor thereto.

The amendment was effective upon closing of the Merger.

Effective August 31, 2021, the revolving credit facility was amended to among other things extend the maturity date of the facility to September 28, 2023.

The borrowing base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time.

The facility currently requires semi-annual redeterminations on February 1 and August 1.

During these redetermination periods, the Company’s borrowing base may be increased and may also be reduced in certain circumstances.

The revolving credit facility allows for Eurodollar Loans and Base Rate Loans (each as defined in the credit agreement).

The interest rate on each Eurodollar Loan will be the adjusted LIBOR for the applicable interest period plus a margin between 2.50 % and 3.50 % (depending on the borrowing base utilization percentage).

The annual interest rate on each Base Rate Loan is (i) the greatest of (a) the administrative agent’s prime lending rate, (b) the federal funds rate plus 0.5 % per annum or (c) the adjusted LIBOR determined on a daily basis for an interest period of one-month, plus 1.00 % per annum, plus (ii) a margin between 1.50 % and 2.50 % (depending on the borrowing base utilization percentage).

During these redetermination periods, the Company’s borrowing base may be increased or may be reduced in certain circumstances.

The revolving credit facility allows for SOFR Loans and Base Rate Loans (each as defined in the Credit Agreement).

The interest rate on each SOFR Loan will be the adjusted Term SOFR for the applicable interest period plus a margin between 2.75 % and 3.75 % (depending on the borrowing base utilization percentage).

The annual interest rate on each Base Rate Loan will be the Base Rate for the applicable interest period plus a margin between 1.75 % and 2.75 % (depending on the borrowing base utilization percentage).

The Company is also subject to an unused commitment fee of between 0.375 % and 0.500 % (depending on the borrowing base utilization percentage).

The credit agreement contains certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not more than 3.5 to 1.0 and (ii) a minimum current ratio of 1.0 to 1.0 as of the last day of any fiscal quarter.

The credit agreement also contains a total leverage ratio for Restricted Payments after giving pro forma effect to such Restricted Payments, which includes payments to any holder of the Company's shares, would not exceed 2.75 to 1.0.

The Company is also required to prepay the revolving credit facility if at any time the consolidated cash balance is in excess of the greater of $ 15 million or 10 % of the borrowing base for five consecutive business days and the Company has not identified an approved intended use for the excess cash.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Credit Agreement contains certain covenants, which, among other things, require the maintenance of (i) a total leverage ratio of not more than 3.25 to 1.0 and (ii) a minimum current ratio of not less than 1.0 to 1.0 as of the last day of any quarter.

The Credit Agreement also contains a total leverage ratio for Restricted Payments, as defined in the Credit Agreement, after giving pro forma effect to such Restricted Payments, which includes payments to any holder of the Company's shares, would not exceed 2.50 to 1.0.

If the Company's leverage ratio, after giving pro forma effect to such Restricted Payments (as defined in the Credit Agreement), is above 2.0 to 1.0, then an additional test of free cash flow is applied, and the Company will only be permitted to make such Restricted Payments if such payment does not exceed the Company's free cash flow.

The Company is also required to limit its cash balance to less than $ 15 million or 10 % of the borrowing base, whichever is greater.

If the Company's cash balance exceeds this limit on the last business day of the month, the Company will be required to apply the excess to reduce its credit facility borrowings.

The Credit Agreement also contains other customary affirmative and negative covenants and events of default.

The Company’s minimum hedging requirement was 50 % as of September 30, 2021.

In October 2021, the revolving credit facility was further amended to, among other things, increase the borrowing base to $ 175 million, provide for the transition away from LIBOR to an alternative reference rate and change the requirements for Restricted Payments to consider the Company's total leverage ratio and available free cash flow under certain circumstances.

The Company's minimum hedging requirement is between 0 % and 50 % (depending on the borrowing base utilization percentage and leverage ratio as of the hedge evaluation date) of its proved developed producing ("PDP") volumes on a rolling 24-month basis.

As of December 31, 2022, the Company's minimum hedging requirement was 0 %.

The following table summarizes the Company's interest expense:

Year Ended September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

Interest expense (1)

$ 864 $ 512 $ 3,686

Capitalized interest ( 1,022 ) $ — —

Amortization of deferred financing costs 731 282 653

Unused commitment fees 517 102 195

Total interest expense $ 4,534 $ 5,299

As of September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings under the revolving credit facility was 2.83 % and 4.09 %, respectively.

As of September 30, 2021 and 2020, the Company was in compliance with all covenants contained in the credit agreement and had $ 60 million and $ 101 million, respectively, of outstanding borrowings and an additional $ 75 million and $ 31.5 million, respectively, available under the borrowing base.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Total interest expense, net $ 1,090 $ 896 $ 4,534

_____________________

(1) In December 2022, the Company settled the remaining open positions for the interest rate swap which resulted in a $ 1.5 million settlement.

The Company recognizes settlements on its interest rate swaps in interest expense on the consolidated statements of operations.

As of December 31, 2022 and 2021, the weighted average interest rate on outstanding borrowings under the revolving credit facility was 7.17 % and 3.10 %, respectively.

As of December 31, 2022 and 2021, the Company was in compliance with all covenants contained in the Credit Agreement and had $ 56 million and $ 65 million, respectively, of outstanding borrowings and $ 169 million and $ 110 million, respectively, available under the borrowing base.

(10) Members’/Shareholders' Equity

3 unchanged sentences

Net proceeds from the issuance were approximately $ 46.7 million, after deducting the underwriting fees and other offering costs incurred.

For the years ended September 30, 2021 and 2020, the Company declared quarterly cash dividends on its common units and common stock totaling approximately $ 18.1 million and $ 15 million, respectively.

The cash dividends were declared for all issued and outstanding common shares or units, including vested and unvested under the respective Long Term Incentive Plan in effect during the period of dividend declaration.

The portion of the cash dividend attributable to the unvested restricted shares issued under the 2021 LTIP is included in accrued liabilities on the consolidated balance sheet and will be paid in cash once the unvested restricted shares fully vest.

Any accrued but unpaid cash dividends attributable to the unvested restricted shares issued under the 2018 LTIP was paid in accordance with the Merger Agreement immediately prior consummation of the Merger.

Cash dividends for the periods presented were declared for all issued and outstanding common shares or units, including vested and unvested under the respective Long-Term Incentive Plan in effect during the period of dividend declaration.

The portion of the cash attributable to the unvested restricted shares issued under the 2021 Long-Term Incentive Plan ("2021 LTIP") is included in accrued liabilities on the consolidated balance sheet and will be paid in cash once the unvested restricted shares fully vest.

Any accrued but unpaid cash dividends attributable to the unvested restricted shares issued under the 2018 Long-Term Incentive Plan ("2018 LTIP") was paid in accordance with the Merger Agreement immediately prior to consummation of the Merger.

See Note 9 - Revolving Credit Facility for discussion over the Company's restrictions on certain payments, including dividends.

The table below summarizes the following cash distributions declared to common shareholders and unitholders during the years ended 2021 and 2020:

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The table below summarizes the following cash distributions declared to common shareholders and unitholders during the periods presented below:

Quarter Ended Per Share/Unit Distribution (1)

Total Distribution

(In millions)

December 31, 2022 $ 0.34 $ 6.7

September 30, 2022 $ 0.31 $ 6.2

13 unchanged sentences

The holders of unvested restricted units issued under the 2018 LTIP were issued substitute awards under the 2021 LTIP at the closing of the Merger.

Upon the closing of the Merger and after giving effect to the adjustment resulting from the 1-for-12 reverse stock split, the 2021 LTIP had 1,387,022 shares of common stock available for issuance, of which 989,283 shares remained available as of September 30, 2021.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Upon the closing of the Merger and after giving effect to the adjustment resulting from the one-for-twelve reverse stock split, the 2021 LTIP had 1,387,022 shares of common stock available for issuance, of which 440,784 shares remained available as of December 31, 2022.

2021 Long-Term Incentive Plan

14 unchanged sentences

Restricted Shares:

The Company granted 397,739 restricted shares to executives, employees and independent directors of the Company during the year ended September 30, 2021, of which 198,024 restricted shares were issued as substitute awards under the 2021 LTIP at the closing of the Merger.

The holder of these restricted shares receives dividends, in arrears, once the shares vest.

The Company granted 367,420 , 174,575 , and 397,739 restricted shares to executives, employees and independent directors of the Company during the year ended December 31, 2022, three months ended December 31, 2021, and year ended September 30, 2021, respectively.

The holder of these restricted shares receive dividends, in arrears, once the shares vest.

The Company has accrued for these dividends which are reported in accrued liabilities and other non-current liabilities.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

All restricted shares granted have a service period between 3 and 36 months.

The Company estimates the fair values of the restricted shares as the closing price of the Company's common stock on the grant date of the award, with the expense amortized on a straight-line basis and recognized over the vesting period.

The following table shows a summary of the restricted shares granted during the year ended September 30, 2021:

2021 Long-Term Incentive Plan

Grant Date Restricted Shares Vesting Period Average Price Compensation Expense

(In thousands)

February 26, 2021 198,024 8 - 32 months

$ 13.33 $ 744

March 1, 2021 3,374 12 months $ 24.21 44

March 15, 2021 158,582 N/A (1)

$ 28.99 4,597

April 1, 2021 37,759 12 months $ 28.99 719

_____________________

(1) On April 1, 2021, these restricted shares fully vested.

The following table presents the Company's restricted stock activity during the year ended September 30, 2021 under the 2021 LTIP:

The following table presents the Company's restricted stock activity during the year ended December 31, 2022 under the 2021 LTIP:

2021 Long-Term Incentive Plan

Restricted Shares Weighted Average Grant Date Fair Value (1)

Unvested at September 30, 2020 — $ —

Unvested at December 31, 2021

366,789 $ 19.41

Granted 367,420 $ 17.63

1 unchanged sentence

Forfeited ( 5,101 ) $ 23.46

Unvested at September 30, 2021 228,369 $ 15.35

Total share-based compensation expense of $ 6.1 million is included in general and administrative costs on the Company's consolidated statement of operations for the restricted share awards granted under the 2021 LTIP during the year ended September 30, 2021.

The Company will recognize any forfeited shares, and any unpaid dividends for those shares, as they occur as an increase to accrued liabilities and a reduction from shareholders' equity on the consolidated balance sheet.

Approximately $ 2.3 million of additional share-based compensation expense will be recognized over the weighted average life for these grants of 21 months.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Unvested at December 31, 2022

536,209 $ 18.39

_____________________________________________________

(1) For the three months ended December 31, 2021, the Company granted 174,575 restricted shares at a weighted average grant date fair value of $ 23.46 .

For the year ended September 30, 2021, the Company granted 397,739 restricted shares at a weighted average grant date fair value of $ 21.16 .

For the year ended December 31, 2022, the three months ended December 31, 2021, and year ended September 30, 2021, the total equity-based compensation expense is $ 3.9 million, $ 0.9 million, and $ 6.1 million, respectively, for all periods and is included in general and administrative costs on the Company's consolidated statement of operations for the restricted share awards granted under the 2021 LTIP.

At the time of the forfeiture, the Company will recognize any forfeited shares as a reduction to share-based compensation expense on the consolidated statement of operations and a decrease to shareholders' equity on the consolidated balance sheet.

Any unpaid dividends on forfeited shares will be recognized as a decrease to accrued liabilities and an increase to shareholders' equity on the consolidated balance sheet.

Approximately $ 8.3 million of additional equity-based compensation expense will be recognized over the weighted average life of 28 months for the unvested restricted share awards as of December 31, 2022 granted under the 2021 LTIP.

2018 Long-Term Incentive Plan

1 unchanged sentence

The holders of unvested restricted units issued under the 2018 LTIP were issued substitute awards under the 2021 LTIP at the closing of the Merger.

Restricted Units:

The Company granted 13,309 restricted units to executives and employees of the Company during the year ended September 30, 2021.

The Company determined the fair value of the common units in accordance with ASC 718 using an options pricing model.

The holder of these restricted units participated in dividend distributions in which the accrued dividends would be paid once the shares vest.

Immediately prior to the consummation of the Merger and in accordance with the Merger Agreement, any accrued but unpaid cash dividends on the unvested restricted units issued under the 2018 LTIP was paid.

The total expense was amortized on a straight-line basis and recognized over the vesting period.

The following table shows a summary of the restricted units granted and the expense during the years ended September 30, 2021 and 2020:

2018 Long-Term Incentive Plan

Grant Date Restricted Units Vesting Period Average Price Compensation Expense

(In thousands)

April 29, 2019 14,766 36 months $ 113.25 $ 278 $ 676

February 1, 2020 15,767 36 months $ 100.69 203 287

October 1, 2020 13,309 36 months $ 112.47 208 —

The following table presents the Company's restricted stock unit activity during the year ended September 30, 2021 under the 2018 LTIP:

2018 Long-Term Incentive Plan

Restricted Units Weighted Average Grant Date Fair Value

Unvested at September 30, 2020 23,909 $ 105.62

Granted 13,309 $ 112.47

Vested ( 10,213 ) $ 107.30

Forfeited ( 2,706 ) $ 104.89

Converted (1)

( 24,299 ) $ 108.75

Unvested at September 30, 2021 — $ —

_____________________

(1) The holders of unvested restricted units issued under the 2018 LTIP were issued substitute awards under the 2021 LTIP at the closing of the Merger .

Total unit-based compensation expense of $ 0.7 million and $ 1.0 million, respectively, is included in general and administrative costs on the Company's consolidated statement of operations for all of the issuances outstanding for the year ended September 30, 2021 and 2020.

The Company recognized any forfeited shares, and any unpaid dividends for those shares, as they occurred as an increase to accrued liabilities and a reduction from shareholders' equity on the consolidated balance sheet.

(11) Preferred Units

As of August 13, 2020, REP LLC entered into the Fourth Amended and Restated Limited Liability Company Agreement (the "Fourth LLC Agreement") which declared the mandatory redemption date for all Series A Preferred Units in cash to one

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

year following the expiration of the credit agreement (as may be further amended, restated, supplemented, modified or replaced from time to time) which was set to mature on September 28, 2023.

In accordance with ASC 480 Distinguishing Liabilities From Equity, equity securities are required to be classified outside of permanent equity in temporary equity if they are redeemable or may become redeemable for cash or other assets.

As the Company was not considered to have sole control over the contractually mandated redemption during the year ended September 30, 2020 based on the set redemption in 2024, the Series A Preferred Units were classified as mezzanine equity until they were converted into common units, as discussed below.

Immediately prior to the closing of the Merger on February 26, 2021 and in accordance with the Merger Agreement, REP LLC converted each issued and outstanding Series A Preferred Unit into one common unit and paid the holders of REP LLC Series A Preferred Units a cash payment equal to the amount of any unpaid dividends accruing between October 1, 2020 and February 26, 2021 in accordance with the Fourth LLC Agreement.

The Company converted 511,695 Series A Preferred Units with a value of $ 61.2 million to common units in accordance with the Fourth LLC Agreement and Merger Agreement.

Additionally, the cash payment of any unpaid dividends accrued between October 1, 2020 and February 26, 2021 was $ 1.5 million on 511,695 Series A Preferred Units.

The tables below summarize the preferred unit activity during the years ended September 30, 2021 and 2020:

(In thousands)

Balance, September 30, 2019 475,152 $ 56,810

Dividends paid in kind 29,016 3,482

Balance, September 30, 2020 504,168 60,292

Dividends paid in kind 7,527 904

Units converted to common units ( 511,695 ) ( 61,196 )

Balance, September 30, 2021 — $ —

After the closing of the Merger, the Company's authorized capital stock includes 25 million shares of preferred stock with a par value of $ 0.0001 per share, of which no shares were issued and outstanding as of September 30, 2021.

Total unit-based compensation expense of $ 0.7 million is for all of the issuances outstanding during the period of January 2021 through the date of the merger, February 26, 2021.

Unit-based compensation expense is included in general and administrative costs on the Company's consolidated statement of operations.

(11) Income Taxes

6 unchanged sentences

Upon consummation of the Merger, the Company established a $ 13.6 million provision for deferred income taxes with the conversion to a C-corporation.

Accordingly, a provision for federal and state corporate income taxes has been made for the operations of REP LLC only from February 27, 2021 through September 30, 2021 in the accompanying consolidated financial statements.

Accordingly, a provision for federal

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

and state corporate income taxes has been made for the operations of REP LLC only from February 27, 2021 through December 31, 2022 in the accompanying consolidated financial statements.

The components of the Company's consolidated provision for income taxes from continuing operations are as follows:

September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

1 unchanged sentence

Federal $ 4,026 $ — $ 2

State 446 113 52

Total current income tax expense $ 4,472 $ 113 $ 54

Deferred income tax expense:

Deferred income tax expense (benefit):

Federal $ 27,393 $ 5,669 $ 14,202

State 979 87 ( 1,240 )

Total deferred income tax expense 12,962 718

Total income tax expense $ 13,016 $ 718

Total deferred income tax expense (benefit) $ 28,372 $ 5,756 $ 12,962

Total income tax expense (benefit) $ 32,844 $ 5,869 $ 13,016

Deferred tax assets and liabilities are the result of temporary differences between the financial statement carrying values and the tax bases of assets and liabilities.

The Company's net deferred tax position is as follows:

September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

Deferred tax assets

Unrealized gain on derivatives $ 11,006 $ —

Non-cash gain on derivatives $ 3,563 $ 10,286 $ 11,006

Intangibles 182 215 222

4 unchanged sentences

Total deferred tax assets 7,462 14,944 17,731

Oil and gas assets ( 29,161 ) ( 1,669 )

Oil and natural gas assets ( 52,665 ) ( 32,154 ) ( 29,161 )

Other fixed assets ( 553 ) ( 174 ) ( 198 )

Unrealized gain on derivatives — ( 165 )

Total deferred tax liabilities ( 53,218 ) ( 32,328 ) ( 29,359 )

3 unchanged sentences

A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:

September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

Tax at statutory rate 21.0 % 21.0 % 21.0 %

1 unchanged sentence

Transaction costs — % — % ( 1.5 ) %

Stock compensation ( 0.1 ) % — %

Share-based compensation — % ( 0.3 ) % ( 0.1 ) %

State income taxes, net of federal benefit 0.7 % 0.7 % 0.4 %

1 unchanged sentence

Income subject to taxation by REP LLC's unitholders — % — % ( 17.1 ) %

Other ( 0.2 ) % — % — %

Effective income tax rate 21.7 % 21.5 % ( 38.4 ) %

The Company's federal income tax returns for the years subsequent to September 30, 2017 remain subject to examination.

The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to September 30, 2017.

The Company's federal income tax returns for the years subsequent to December 31, 2018 remain subject to examination.

The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2017.

The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements.

Therefore, the Company has not established any uncertain tax positions.

Therefore, the Company has not established any significant reserves for uncertain tax positions.

Section 382 of the Internal Revenue Code limits the utilization of U.S.

2 unchanged sentences

The Company has federal net operating losses subject to the annual Section 382 limit of $ 13.4 million of which $ 4.6 million will expire beginning in 2022 with the remaining $ 8.8 million of the NOL's not expiring.

Additionally, the Company has approximately $ 12.1 million of federal net operating losses generated after the Merger that are not limited by Section 382 and are not subject to expiration.

Additionally, the Company has no federal net operating losses generated after the Merger that are not limited by Section 382 and are not subject to expiration.

We believe it is more likely than not the tax benefit of these net operating losses will be fully realized, as such no valuation allowance has been recorded.

8 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the components of the loss on discontinued operations reported in the consolidated statement of operations for the year ended September 30, 2021 (in thousands):

The following table presents the components of the loss on discontinued operations reported in the consolidated statements of operations for the periods ended September 30, 2021:

September 30, 2021

(In thousands)

Oil and natural gas sales $ —

3 unchanged sentences

Total expenses 18,631

Other expense 107

Other expenses ( 107 )

Loss from discontinued operations before income taxes ( 18,738 )

Income tax expense ( 59 )

Net loss from discontinued operations, net of tax $ ( 18,797 )

For further discussion of revenues and expenses included in discontinued operations, see further discussion in Note 4 - Acquisitions and Divestitures.

Loss from discontinued operations, net of tax $ ( 18,797 )

The Company did not have any discontinued operations during the year ended December 31, 2022.

(13) Net Income (Loss) Per Share/Unit

Net income (loss) per share/unit is calculated using a retroactive application of the Exchange Ratio and the one-for-twelve reverse stock split that occurred in conjunction with the Merger.

Certain restricted shares of the Company met the criteria of a participating security.

The Company calculated net income or loss per share/unit using the two-class method for those shares.

The table below sets forth the computation of basic and diluted net income (loss) per share/unit for the years ended September 30, 2021 and 2020:

September 30,

The Company calculated net income or loss per share/unit using the treasury stock method.

The table below sets forth the computation of basic and diluted net income (loss) per share/unit for the periods presented below:

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands, except per share/unit)

6 unchanged sentences

Effecting of dilutive securities:

Series A preferred units — 3,999

Restricted shares/units 133 99 —

4 unchanged sentences

_____________________________________________________

(1) Used in basic and diluted net loss per share calculation for September 30, 2021 since the Company was in a net loss position.

(1) Used in the basic and diluted net loss per share/unit calculation when the Company is in a net loss position.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

For the years ended September 30, 2021 and 2020, the following shares/units were excluded from the calculation of diluted net income (loss) per share/unit due to their anti-dilutive effect:

September 30,

The following shares/units were excluded from the calculation of diluted net income (loss) per share/unit due to their anti-dilutive effect for the periods presented:

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

2 unchanged sentences

Legal Matters

The Company has been named as a defendant in an action commenced on November 30, 2021 in United States Bankruptcy Court For the Northern District of Texas Dallas Division by the Trustee for the Chapter 11 Bankruptcy of Hoactzin Partners, L.P.

(“Hoactzin”), an affiliate of Peter Salas (“Salas”).

The complaint alleges that, through a series of transactions involving Salas and various Hoactzin affiliates spanning 2014 through 2018, Hoactzin fraudulently transferred its working interests in certain wells on its Kansas acreage (the “Kansas Working Interests”) to Dolphin Direct Equity Partners, L.P.

(“DDEP”), an entity substantially owned and controlled by Salas.

Subsequently, DDEP sold the Kansas Working Interests to the Company in October 2018, one year prior to Hoactzin bankruptcy filing in October 2019, for an amount the complaint alleges was purportedly less than the reasonable value of such Kansas Working Interests.

The action seeks, among other things, to recover approximately $ 14 million in damages, as well as an unspecified amount of punitive damages and attorney’s fees.

The complaint alleges that Salas, DDEP and the Company are jointly and severally liable for the damages incurred by Hoactzin, During the period of the purported fraudulent transfers giving rise to the claims set forth in the complaint, Salas was Chairman of the Board of Tengasco, Inc., which subsequently merged with Riley Exploration - Permian, LLC on February 26, 2021 and was renamed Riley Exploration Permian, Inc.

Concurrently with the closing of the merger, Salas resigned his position from the Board and no longer holds any position as a director or officer of the Company.

On April 2, 2021, the Company closed on the sale of all assets it held in Kansas to a third party for an adjusted purchase price of $ 3.3 million, after customary closing adjustments.

This lawsuit is in the early stages and, accordingly, an estimate of reasonably possible losses associated with this action, if any, cannot be made until the facts, circumstances and legal theories relating to the claims and the defenses are fully disclosed and analyzed.

The Company has not established any reserves relating to this action.

Due to the nature of the Company's business, the Company may at times be subject to claims and legal actions.

The Company accrues liabilities when it is probable that future costs will be incurred, and such costs can be reasonably estimated.

Such accruals are based on developments to date and the Company’s estimates of the outcomes of these matters.

The Company did not recognize any material liability as of September 30, 2021 and September 30, 2020.

Management believes it is remote that the impact of such matters will have a materially adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company was named as a defendant in an adversary proceeding (the "Adversary Proceeding") commenced on October 25, 2021 in United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court"), by the Trustee of the Chapter 7 bankruptcy of the Hoactzin Partners, L.P.

("Hoactzin").

The complaint in the Adversary Proceeding alleges that in October of 2018, one year prior to the Hoactzin bankruptcy filing in October of 2019, Peter Salas ("Salas"), Chairman of the Board of Tengasco during the period of the purported fraudulent transfers, caused Hoactzin to transfer its working interests in certain wells on its Kansas acreage (the “Kansas Working Interests”) to the Company for an amount the complaint alleges was purportedly less than the reasonable equivalent value of such Kansas Working Interests.

The complaint includes avoidance actions and other causes of action in connection with the transfer of the Kansas Working Interests, as well as other causes of action alleged related to certain transactions to which the Company was not a party.

On October 13, 2022, the Company entered into a Compromise Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the Trustee for the bankruptcy estate for Hoactzin to resolve certain claims against the Company in the Adversary Proceeding.

Under the terms of the Settlement Agreement, the Company agreed to pay $ 80 thousand to the Trustee in full settlement and satisfaction of (a) all claims, causes of action, and damages that have been asserted against the Company or could be asserted against the Company in the Adversary Proceeding;

and (b) all claims which might arise from or relate to any actions taken by the Company while acting in connection with Debtor.

On November 17, 2022, the Bankruptcy Court approved the Settlement Agreement.

On November 17, 2022, the Company made the settlement payment to the Trustee in accordance with the Settlement Agreement.

On November 22, 2022, the Bankruptcy Court entered an Order Granting the Joint Motion Dismissal resulting in the dismissal of the Adversary Proceeding with prejudice (the "Dismissal Order"), as contemplated by the Settlement Agreement.

Neither the Settlement Agreement nor the Dismissal Order has any effect on the Trustee’s claims against any of the other defendants in the Adversary Proceeding, including without limitation, those claims against Peter Salas, our former Chief Executive Officer.

Environmental Matters

1 unchanged sentence

These laws, which are often changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

The Company had no environmental liabilities as of September 30, 2021 or 2020.

The Company had no material environmental liabilities as of December 31, 2022 or 2021.

Contractual Commitments

In July 2021, as part of a planned expansion of Stakeholder’s primary gas processing plant, the Company committed to annually drill, complete and connect a minimum number of wells or deliver an annual target volume to Stakeholder's gathering system.

While the minimum number of wells is below our planned development activity, there are financial penalties if the minimum activity levels are not met.

The annual well or volume target is for each of five years beginning January 2022.

The additional capacity from the gas processing plant expansion is expected to lead to increased natural gas sales and decreased gas flaring for the Company.

In August 2021, the Company entered into a purchase agreement for supplies for its EOR project.

Under the agreement, the Company committed to purchasing supplies totaling approximately $ 1.2 million and $ 3.3 million by January 2022 and April 2022, respectively.

In October 2021, the Company executed two agreements related to its enhanced oil recovery ("EOR") project.

The first agreement is a CO 2 purchase agreement with Kinder Morgan CO 2 Company, LLC that has a primary term extending through the earlier of the total contract quantity delivered or December 31, 2025.

The agreement also has a daily contract quantity for Kinder Morgan to deliver CO 2 to the Company.

The second agreement is a connection agreement that also established a delivery point for the purchased CO 2 with the Cortez Pipeline Company.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In April 2022, the Company entered into a purchase agreement for pipe related to its 2023 drilling program.

Under the agreement, the Company has commitments to purchase an additional approximately $ 2.8 million of pipe by second quarter of 2023 as of December 31, 2022.

In August 2022, the Company entered into a second amendment on its gas gathering and processing agreement with its primary midstream counterparty, Stakeholder Midstream LLC (“Stakeholder”).

Stakeholder committed to expand their gathering and processing system with a commitment from the Company to deliver an annual minimum volume to Stakeholder’s gathering system for a minimum of seven years beginning on the in-service date of the expanded plant.

(15) Subsequent Events

On October 7, 2021, the Board of Directors of the Company declared a cash dividend of $ 0.31 per share of common stock, payable on November 4, 2021 to its shareholders of record at the close of business on October 21, 2021.

Effective October 7, 2021, the Company executed two agreements related to its EOR project.

The first agreement is a CO 2 purchase agreement with Kinder Morgan CO 2 Company, LLC and the second agreement is a connection agreement that also established a delivery point for the purchased CO 2 with the Cortez Pipeline Company.

Effective October 12, 2021, the Company amended its revolving credit facility to increase the borrowing base and elected commitments of the lenders thereto from $ 135 million to $ 175 million.

See further discussion in Note - 9 Revolving Credit Facility.

Dividend Declaration

On January 11, 2023, the Board of Directors of the Company declared a cash dividend of $ 0.34 per share of common stock payable on February 8, 2023 to its shareholders of record at the close of business on January 25, 2023.

Entry into Purchase and Sales Agreement

On February 22, 2023, the Company entered into a purchase and sale agreement (the "Purchase Agreement") to acquire interests in oil and natural gas leases and related property with Pecos Oil & Gas, LLC (“Pecos”) for a purchase price of approximately $ 330 million, subject to customary closing adjustments, (the “New Mexico Acquisition”).

The oil and natural gas leases are located in the Yeso trend of the Permian Basin in Eddy County of New Mexico.

On February 22, 2023, in connection with the Purchase Agreement, REP deposited $ 33 million in cash into a third party escrow account, which will be credited against the purchase price upon closing.

The New Mexico Acquisition is expected to close early in the second quarter of 2023, subject to the satisfaction of several closing considerations, including but not limited to, an amendment to the revolving credit facility and a commitment letter dated February 22, 2023 with Truist Bank and the other participating lenders, it is anticipated that up to $ 130 million of the purchase price will be funded by amending REP’s existing credit facility to increase the total borrowing base to $ 475 million from $ 225 million.

The commitment letter and related amendment to the credit facility and increase to the borrowing base are subject to a number of conditions, including the preparation, execution and delivery of loan amendments.

In connection with the Purchase Agreement, the Company entered into a commitment letter dated February 22, 2023 (the "Commitment Letter") with EOC Partners Advisors L.P.

and/or one of its affiliates (collectively, “EOC”) in which EOC and/or one of its affiliates will purchase $ 200 million of unsecured senior notes (“Senior Notes”) from the Company on the closing date of the New Mexico Acquisition.

The proceeds of the Senior Notes will be used to fund a portion of the purchase price of the New Mexico Acquisition and to pay fees, costs and expenses related to the New Mexico Acquisition and the related financing transactions.

The Senior Notes will bear interest at 10.5 % annually and will mature five years after issuance.

The Senior Notes contain certain mandatory and voluntary prepayment conditions.

Additionally, the Senior Notes have various financial covenants.

The funding of the Senior Notes is contingent on the satisfaction or waiver of certain conditions set forth in the Commitment Letter.

Derivative Contracts

As discussed above, the Company entered into the Purchase Agreement to acquire assets in Eddy County New Mexico.

In connection with the Purchase Agreement, the Company entered into the Commitment Letter described above for the issuance of $ 200 million of Senior Notes upon closing of the New Mexico Acquisition, which is subject to the terms and conditions set forth therein.

The Senior Notes contain certain hedging requirements.

The Company has therefore added to its open derivative contracts in anticipation of an early second quarter close on the New Mexico Acquisition and issuance of Senior Notes.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

following table summarizes the Company's open derivative positions as of March 3, 2023, related to oil and natural gas production:

Weighted Average Price

Notional Volume Fixed Put Call

Oil Swaps (Bbl)

Q1 2023 225,000 $ 53.65 $ — $ —

Q2 2023 315,000 $ 62.78 $ — $ —

Q3 2023 216,000 $ 63.04 $ — $ —

Q4 2023 189,000 $ 62.51 $ — $ —

2024 240,000 $ 71.60 $ — $ —

Oil Collars (Bbl)

Q1 2023 210,000 $ — $ 70.95 $ 89.96

Q2 2023 300,000 $ — $ 71.50 $ 88.98

Q3 2023 330,000 $ — $ 68.64 $ 88.85

Q4 2023 330,000 $ — $ 68.64 $ 88.85

2024 1,293,000 $ — $ 61.02 $ 86.39

2025 315,000 $ — $ 60.00 $ 77.98

Natural Gas Swaps (MMBtu)

Q1 2023 — $ — $ — $ —

Q2 2023 450,000 $ 2.60 $ — $ —

Q3 2023 450,000 $ 2.60 $ — $ —

Q4 2023 400,000 $ 3.23 $ — $ —

2024 1,500,000 $ 3.43 $ — $ —

2025 375,000 $ 4.05 $ — $ —

Natural Gas Collars (MMBtu)

Q1 2023 — $ — $ — $ —

Q2 2023 300,000 $ — $ 2.55 $ 3.20

Q3 2023 300,000 $ — $ 2.55 $ 3.20

Q4 2023 300,000 $ — $ 3.12 $ 4.07

2024 1,065,000 $ — $ 3.19 $ 4.14

2025 255,000 $ — $ 3.65 $ 4.95

Oil Basis (Bbl)

Q1 2023 240,000 $ 1.28 $ — $ —

Q2 2023 360,000 $ 1.28 $ — $ —

Q3 2023 360,000 $ 1.28 $ — $ —

Q4 2023 360,000 $ 1.28 $ — $ —

2024 960,000 $ 0.87 $ — $ —

___________________

(1) Q1 2023 derivative positions shown include January and February 2023 contracts, some of which have settled as of March 3, 2023.

SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued)

2 unchanged sentences

Capitalized costs include the cost of properties, equipment and facilities for oil and natural gas producing activities.

Capitalized costs for proved properties include costs for oil and natural gas leaseholds where proved reserves have been identified, development wells and related equipment and facilities, including development wells in progress.

Capitalized costs for unproved properties include costs for acquiring oil and natural gas leaseholds where no proved reserves have been identified, including costs of exploratory wells that are in the process of drilling or in active completion, and costs of exploratory wells suspended or waiting on completion.

Capitalized costs for proved properties include costs for oil and natural gas leaseholds where proved reserves have been identified, development wells and related equipment and facilities.

Capitalized costs for unproved properties include costs for acquiring or extending oil and natural gas leaseholds where no proved reserves have been identified.

Work in progress include costs of exploratory and development wells that are in the process of drilling or in active completion, and costs of exploratory and development wells suspended or waiting on completion.

For a summary of these costs, please refer to Note 5 – Oil and Natural Gas Properties .

4 unchanged sentences

Development costs include the costs of drilling and equipping development wells and construction of related production facilities.

The following summarizes the costs incurred for oil and natural gas property acquisition, exploration and development activities for the years ended September 30, 2021 and 2020:

Years Ended September 30,

The following summarizes the costs incurred for oil and natural gas property acquisition, exploration and development activities for the periods presented below:

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

9 unchanged sentences

They do not include any allocation of the Company's interest costs or general corporate overhead.

For the year ended September 30, 2020, they also do not include estimated corporate taxes since the Company was not a taxpaying entity for federal income tax purposes.

Therefore, the following schedule is not necessarily indicative of the contribution of net earnings of the Company's oil and natural gas operations.

Years Ended September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

4 unchanged sentences

Depletion, accretion and amortization 31,500 6,742 25,347

Impairment of oil and natural gas properties 7,325 — —

Results of operations 226,755 38,873 83,112

Income tax expense (1)

48,957 ( 8,393 ) ( 13,505 )

Results of operations, net of income tax expense $ 275,712 $ 30,480 $ 69,607

_____________________________________________________

(1) Subsequent to the Closing Date of the Merger, the statutory combined federal and state tax rate of 21.59 % is used.

Prior to the Closing Date of the Merger and for the year ended September 30, 2020, the Company was a flow-through entity for federal income tax purposes.

As such, no taxes are reflected here as taxable income was passed through to its members.

(1) Subsequent to the Closing Date of the Merger, the statutory combined federal and state tax rate of 21.59 % is used for the year ended December 31, 2022, three months ended December 31, 2021, and year ended September 30, 2021.

Oil, Natural Gas and NGL Quantities

Our reserve reports, as of September 30, 2021 and 2020, were prepared by Netherland, Sewell & Associates, Inc.

Our reserve reports, as of the year ended December 31, 2022, three months ended December 31, 2021, and year ended September 30, 2021, were prepared by Netherland, Sewell & Associates, Inc.

and are presented below.

8 unchanged sentences

SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued)

The following table sets forth information for the years ended September 30, 2021 and 2020 with respect to changes in the Company’s proved (i.e.

The following table sets forth information for the periods below with respect to changes in the Company’s proved (i.e.

proved developed and undeveloped) reserves:

9 unchanged sentences

Production ( 669 ) ( 844 ) ( 105 ) ( 915 )

September 30, 2021 46,263 76,019 13,229 72,163

December 31, 2021 47,021 77,486 13,471 73,407

Extensions and discoveries 9,949 13,178 2,651 14,796

Revisions ( 4,871 ) ( 1,417 ) ( 1,224 ) ( 6,331 )

Production ( 3,217 ) ( 3,229 ) ( 444 ) ( 4,199 )

December 31, 2022 48,882 86,018 14,454 77,673

Proved Developed Reserves, Included Above

September 30, 2021 26,170 46,173 7,650 41,516

September 30, 2020 19,149 31,137 5,847 30,186

September 30, 2021 26,170 46,173 7,650 41,516

December 31, 2021 27,096 47,974 7,949 43,041

December 31, 2022 29,632 59,314 9,604 49,122

Proved Undeveloped Reserves, Included Above

September 30, 2021 20,093 29,846 5,579 30,647

September 30, 2020 18,009 22,546 4,834 26,601

September 30, 2021 20,093 29,846 5,579 30,647

As of September 30, 2021, reserves were comprised of 64.1 % oil, 17.6 % natural gas and 18.3 % NGL.

December 31, 2021 19,925 29,512 5,522 30,366

December 31, 2022 19,250 26,704 4,850 28,551

As of December 31, 2022, reserves were comprised of 62.9 % oil, 18.5 % natural gas and 18.6 % NGL.

2022 proved reserves were estimated based on prices of $ 91.96 per Bbl of oil, $ 3.16 per Mcf of natural gas and $ 25.55 per Bbl of NGL.

Prices used in the 2021 reserve report are based on the twelve month unweighted arithmetic average of the first-day-of-the-month price for each month in the period October 2020 through September 2021.

Prices used in the 2022 reserve report are based on the twelve month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January 2022 through December 2022.

For oil and NGL volumes, the average West Texas Intermediate ("WTI") spot price of $ 94.14 per Bbl is adjusted for quality, transportation fees, and market differentials.

The fees associated with the transportation contract are included as a deduction to oil revenue.

For gas volumes, the average Henry Hub spot price of $ 6.36 per MMBtu is adjusted for energy content, transportation fees and market differentials.

As of December 31, 2021, reserves were comprised of 64.1 % oil, 17.6 % natural gas and 18.3 % NGL.

December 31, 2021 proved reserves were estimated based on prices of $ 64.60 per Bbl of oil, $ 1.65 per Mcf of natural gas and $ 13.75 per Bbl of NGL.

Prices used in the December 31, 2021 reserve report are based on the twelve month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January 2021 through December 2021.

For oil and NGL volumes, the average WTI spot price of $ 66.55 per Bbl is adjusted for quality, transportation fees, and market differentials.

2 unchanged sentences

As of September 30, 2021, reserves were comprised of 64.1 % oil, 17.6 % natural gas and 18.3 % NGL.

2020 proved reserves were estimated based on prices of $ 41.91 per Bbl of oil, $( 0.06 ) per Mcf of natural gas and $( 1.96 ) per Bbl of NGL.

Prices used in the 2020 reserve report are based on the twelve month unweighted arithmetic average of the first-day-of-the-month price for each month in the period October 2019 through September 2020.

September 30, 2021 proved reserves were estimated based on prices of $ 55.73 per Bbl of oil, $ 0.99 per Mcf of natural gas and $ 9.83 per Bbl of NGL.

Prices used in the September 30, 2021 reserve report are based on the twelve month unweighted arithmetic average of the first-day-of-the-month price for each month in the period October 2020 through September 2021.

For oil and NGL volumes, the average WTI spot price of $ 57.64 per Bbl is adjusted for quality, transportation fees, and market differentials.

1 unchanged sentence

For gas volumes, the average Henry Hub spot price of $ 2.94 per MMBtu is adjusted for energy content, transportation fees and market differentials.

For the year ended September 30, 2021, the Company had upward revisions of previous estimates of 4,772 MBoe.

These revisions are primarily the result of increases in pricing.

SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued)

For the year ended December 31, 2022, the Company had downward revisions of previous estimates of 6,331 MBoe.

These revisions are primarily the result of changes in well level projections in certain undeveloped areas and increases in service costs.

The Company had extensions and discoveries to proved developed and proved non-developed reserves of 14,796 MBoe which consisted of 7,759 MBoe as a result of drilling successful wells that were previously classified as unproved locations, and the addition to proved undeveloped of 7,037 MBoe as a result of drilling successful wells offsetting locations that were previously unproven locations.

During the fiscal year in 2022, the Company did not purchase any additional reserves.

For the three months ended December 31, 2021, the Company had net upward revisions of previous estimates of 133 MBoe.

These revisions are primarily the result of increases in pricing.

The Company had extensions and discoveries to proved developed and proved non-developed reserves of 2,026 MBoe as a result of drilling successful wells that were previously classified as unproved locations.

During the three months ended December 31, 2021, the Company did not purchase any additional reserves.

For the year ended September 30, 2021, the Company had upward revisions of previous estimates of 4,772 MBoe.

These revisions consisted of a positive revision of 1,840 MBoe due to pricing and differentials, a downward revision of 1,952 MBoe due to lease operating expenses and a positive revision of 1,275 MBoe which was the result of better well performance that exceeded previous estimates.

The Company had extensions and discoveries to proved developed and proved non-developed

SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued)

reserves of 3,412 MBoe which consisted of 1,404 MBoe as a result of drilling successful wells that were previously classified as unproved locations, and the addition to proved undeveloped of 2,008 MBoe as a result of drilling successful wells offsetting locations that were previously unproven locations.

These revisions are primarily the result of increases in pricing.

The Company had extensions and discoveries to proved developed and proved non-developed reserves of 13,759 MBoe which consisted of 6,564 MBoe as a result of drilling successful wells that were previously classified as unproved locations, and the addition to proved undeveloped of 7,195 MBoe as a result of drilling successful wells offsetting locations that were previously unproven locations.

During the year ended September 30, 2021, the Company did not purchase any additional reserves.

14 unchanged sentences

An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs and a discount factor more representative of the time value of money and the risks inherent in reserve estimates.

SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued)

The following summary sets forth the Company’s future net cash flows relating to proved oil, natural gas and NGL reserves based on the standardized measure prescribed in ASC Topic 932:

September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

4 unchanged sentences

Future income tax expense ( 658,340 ) ( 436,829 ) ( 324,487 )

( 324,487 ) ( 3,167 )

Future net cash flows 2,576,563 1,785,071 1,401,491

2 unchanged sentences

_____________________________________________________

(1) 2021 proved reserves were derived based on prices of $ 55.73 of oil, $ 0.99 of natural gas and $ 9.83 of NGL.

(2) 2020 proved reserves were derived based on prices of $ 41.91 of oil, $( 0.06 ) of natural gas and $( 1.96 ) of NGL.

(3) The Company's calculations of the standardized measure of discounted future net cash flows as of September 30, 2020 included the Company’s obligation for Texas Margin Tax but excluded the effect of estimated future income tax expenses as the Company was a limited liability company and not subject to income taxes.

SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued)

(1) December 31, 2022 proved reserves were derived based on prices of $ 91.96 per barrel of oil, $ 3.16 per Mcf of natural gas and $ 25.55 per barrel of NGL.

(2) December 31, 2021 proved reserves were derived based on prices of $ 64.60 per barrel of oil, $ 1.65 per Mcf of natural gas and $ 13.75 per barrel of NGL.

(3) September 30, 2021 proved reserves were derived based on prices of $ 55.73 per barrel of oil, $ 0.99 per Mcf of natural gas and $ 9.83 per barrel of NGL.

Principal sources of change in the Standardized Measure are shown below:

Year Ended September 30,

Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021

(In thousands)

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures