Riley Exploration Permian, Inc. 10-K

Item 9A. Controls and Procedures Disclosure Controls and Procedures 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 70 . Table of Contents 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 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 December 31, 2022, the Company’s internal control over financial reporting was effective. Changes in Internal Control Over Financial Reporting 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. 71 . Table of Contents 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 72 . Table of Contents Item 9B. Other Information None. 73 . Table of Contents PART III Item 10. 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 December 31, 2022. Item 11. 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 December 31, 2022. Item 12. 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 December 31, 2022. Item 13. 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 December 31, 2022. Item 14. 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 December 31, 2022. 74 . Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules The following documents are filed as a part of this report: (1) Consolidated Financial Statements Reference is made to the Index to Consolidated Financial Statements appearing on page F-1. (2) Financial Statement Schedules All financial statement schedules have been omitted because they are not applicable or the required information is presented in the consolidated financial statements or notes thereto. (3) Exhibits Exhibit Number Description 2.1 Agreement and Plan of Merger, by and among Tengasco, Inc., Antman Sub, LLC, and Riley Exploration - Permian, LLC, dated as of October 21, 2020 (incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 22, 2020). 2.2 Amendment No. 1 to Agreement and Plan of Merger, by and among Tengasco, Inc., Antman Sub, LLC, and Riley Exploration - Permian, LLC, dated as of January 20, 2021 (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 January 22, 2021). 3.1 First Amended and Restated Certificate of Incorporation of Riley Exploration Permian, Inc. (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. 333-253750). 3.2 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). 10.1 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. 333-250019). 10.2 First Amendment to Credit Agreement dated as of February 27, 2018, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.2 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. 333-250019). 10.3 Second Amendment to Credit Agreement dated as of November 9, 2018, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.3 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. 333-250019). 10.4 Third Amendment to Credit Agreement dated as of April 3, 2019, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.4 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. 333-250019). 10.5 Fourth Amendment to Credit Agreement dated as of October 15, 2019, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.5 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. 333-250019). 10.6 Fifth Amendment to Credit Agreement dated as of May 7, 2020, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.6 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. 333-250019). 75 . Table of Contents 10.7 Sixth Amendment to Credit Agreement dated as of August 31, 2020, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.7 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. 333-250019). 10.8 Seventh Amendment and Consent to Credit Agreement dated as of October 21, 2020, by and among Riley Exploration – Permian, LLC, as borrower, Truist Bank, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.8 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. 333-250019). 10.9 Eighth Amendment to Credit Agreement dated as of March 5, 2021, 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 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on May 17, 2021). 10.10 Ninth Amendment to Credit Agreement dated as of May 5, 2021, 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 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on May 17, 2021). 10.11 Tenth Amendment to the Credit Agreement dated as of October 12, 2021, 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 14, 2021). 10.12 Form of Indemnity Agreement (incorporated by reference from Exhibit 10.14 to the Registrant’s Registration Statement on Form S-4/A, as filed with the Securities and Exchange Commission on January 21, 2021, Registration No. 333-250019). 10.13 Form of Independent Director Agreement (incorporated by reference from Exhibit 10.13 to the Registrant’s Registration Statement on Form S-4/A, as filed with the Securities and Exchange Commission on January 21, 2021, Registration No. 333-250019). 10.14 † Riley Exploration Permian, Inc. 2021 Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 25, 2021). 10.15 † Form of Common Stock Award Agreement (incorporated by reference from Exhibit 10.10 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 15, 2021). 10.16 † Form of Restricted Stock Agreement (Time Vesting) (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on March 1, 2021, Registration No. 333- 253750). 10.17 † Form of Substitute Restricted Stock Agreement (Time Vesting) (incorporated by reference from Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8 filed with the Commission on March 1, 2021, Registration No. 333-253750). 10.18 † Form of Restricted Stock Agreement (Non-Employee Director) (incorporated by reference from Exhibit 4.6 to the Registrant’s Registration Statement on Form S-8 filed with the Commission on March 1, 2021, Registration No. 333-253750). 10.19 † Employment Agreement dated effective as of March 15, 2021 by and between Riley Exploration Permian, Inc. and Corey Riley (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 March 15, 2021). 10.2 0† Employment Agreement dated effective as of March 15, 2021 by and between Riley Exploration Permian, Inc. 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). 10.21 † Employment Agreement dated April 1, 2019 by and between Riley Exploration – Permian, LLC and Bobby D. Riley and assigned by Riley Exploration – Permian, LLC to Riley Permian Operating Company, LLC on June 8, 2019 (incorporated by reference from Exhibit 10.9 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. 333-250019). 76 . Table of Contents 10.22 † Amendment No. 1 to Employment Agreement dated October 1, 2020 by and between Riley Permian Operating Company, LLC and Bobby D. Riley (incorporated by reference from Exhibit 10.10 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. 333-250019). 10.23 † Amendment No. 2 to Employment Agreement dated March 15, 2021 by and between Riley Permian Operating Company, LLC and Bobby D. Riley (incorporated by reference from Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 15, 2021). 10.24 † Employment Agreement dated April 1, 2019 by and between Riley Exploration – Permian, LLC and Kevin Riley and assigned by Riley Exploration – Permian, LLC to Riley Permian Operating Company, LLC on June 8, 2019 (incorporated by reference from Exhibit 10.11 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. 333-250019) 10.25 † Amendment No. 1 to Employment Agreement dated March 15, 2021 by and between Riley Permian Operating Company, LLC and Kevin Riley (incorporated by reference from Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 15, 2021). 10.26 Second Amended and Restated Registration Rights Agreement dated October 7, 2020 by and among Riley Exploration – Permian, LLC, Riley Exploration Group, Inc., Yorktown Energy Partners XI, L.P., Boomer Petroleum, LLC, Bluescape Riley Exploration Holdings LLC, Bluescape Riley Acquisition Company LLC, Bobby D. 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. 333-250019). 10.27† 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). 10.28 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). 10.29 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). 10.30 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). 10.31 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). 10.32 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) 21.1* Subsidiaries of the Registrant 23.1* Consent of BDO USA, LLP 23.2* Consent of Netherland, Sewell & Associates, Inc. 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C., Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1* Report of Netherland, Sewell & Associates, Inc. 101.INS* XBRL Instance Document 77 . Table of Contents 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Calculation Linkbase Document 101.DEF* XBRL Taxonomy Definition Linkbase Document 101.LAB* XBRL Taxonomy Label Linkbase Document 101.PRE* XBRL Taxonomy Presentation Linkbase Document * Filed herewith. † Compensatory plan or arrangement. Item 16. Form 10-K Summary None. 78 . Table of Contents SIGNATURES 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. Date: March 8, 2023 By: /s/ Bobby D. Riley Bobby D. Riley Chief Executive Officer By: /s/ Philip Riley Philip Riley Chief Financial Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated. Signature Title Date /s/ Bobby D. Riley Chairman of the Board and Chief Executive Officer (Principal Executive Officer) March 8, 2023 Bobby D. Riley /s/ Philip Riley Chief Financial Officer (Principal Financial Officer) March 8, 2023 Philip Riley /s/ Amber Bonney Chief Accounting Officer (Principal Accounting Officer) March 8, 2023 Amber Bonney /s/ Brent Arriaga Director March 8, 2023 Brent Arriaga /s/ Bryan H. Lawrence Director March 8, 2023 Bryan H. Lawrence /s/ E. Wayne Nordberg Director March 8, 2023 E. Wayne Nordberg /s/ Beth A. di Santo Director March 8, 2023 Beth A di Santo /s/ Rebecca Bayless Director March 8, 2023 Rebecca Bayless 79 INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ; Houston, Texas , PCAOB ID # 243 ) F-2 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-4 Consolidated Statements of Operations for the Year Ended December 31, 2022, Three Months Ended December 31, 2021 and Year Ended September 30, 2021 F-5 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 F-7 Consolidated Statements of Cash Flows for the Year Ended December 2022, Three Months Ended December 31, 2021 and Year Ended September 30, 2021 F-8 Notes to Consolidated Financial Statements F-10 F-1 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Riley Exploration Permian, Inc. Oklahoma City, Oklahoma Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Riley Exploration Permian, Inc. (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 These consolidated financial statements are the responsibility of the Company’s management. 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 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. We conducted our audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. F-2 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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 (“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. 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 of proved oil and natural gas properties. 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: • 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. /s/ BDO USA, LLP We have served as the Company's auditor since 2016. Houston, Texas March 8, 2023 F-3 RILEY EXPLORATION PERMIAN, INC. CONSOLIDATED BALANCE SHEETS December 31, 2022 December 31, 2021 (In thousands, except share amounts) Assets Current Assets: Cash and cash equivalents $ 13,301 $ 8,317 Accounts receivable 25,551 18,002 Prepaid expenses and other current assets 3,236 4,122 Inventory 8,886 780 Current derivative assets 20 83 Total current assets 50,994 31,304 Oil and natural gas properties, net (successful efforts) 440,102 359,131 Other property and equipment, net 20,023 3,174 Non-current derivative assets — 267 Other non-current assets, net 4,175 2,293 Total Assets $ 515,294 $ 396,169 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 Current derivative liabilities 16,472 30,984 Other current liabilities 2,238 947 Total Current Liabilities 76,305 64,076 Non-current derivative liabilities 12 9,515 Asset retirement obligations 2,724 2,261 Revolving credit facility 56,000 65,000 Deferred tax liabilities 45,756 17,384 Other non-current liabilities 1,051 95 Total Liabilities 181,848 158,331 Commitments and Contingencies (Note 14) Shareholders' Equity: Preferred stock, $ 0.0001 par value, 25,000,000 shares authorized; 0 shares issued and outstanding — — Common stock, $ 0.001 par value, 240,000,000 shares authorized; 20,160,980 and 19,836,885 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively 20 20 Additional paid-in capital 274,643 271,737 Retained earnings (Accumulated deficit) 58,783 ( 33,919 ) Total Shareholders' Equity 333,446 237,838 Total Liabilities and Shareholders' Equity $ 515,294 $ 396,169 The accompanying notes are an integral part of these consolidated financial statements. F-4 RILEY EXPLORATION PERMIAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands, except per share/unit amounts) Revenues: Oil and natural gas sales, net $ 319,343 $ 56,650 $ 148,636 Contract services - related parties 2,400 600 2,400 Total Revenues 321,743 57,250 151,036 Costs and Expenses: Lease operating expenses 32,458 7,419 21,975 Production and ad valorem taxes 19,273 3,005 8,636 Exploration costs 2,032 611 9,566 Depletion, depreciation, amortization and accretion 32,113 6,867 26,015 Impairment of oil and natural gas properties 7,325 — — General and administrative: Administrative costs 18,496 3,633 13,966 Unit-based compensation expense — — 689 Share-based compensation expense 3,439 951 6,104 Cost of contract services - related parties 450 150 477 Transaction costs 2,638 1,258 3,732 Total Costs and Expenses 118,224 23,894 91,160 Income From Operations 203,519 33,356 59,876 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 ) Income tax expense ( 32,844 ) ( 5,869 ) ( 13,016 ) Net Income (Loss) From Continuing Operations 118,011 21,398 ( 46,869 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 RILEY EXPLORATION PERMIAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued) Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands, except per share/unit amounts) Discontinued Operations: Loss from discontinued operations — — ( 18,738 ) Income tax expense on discontinued operations — — ( 59 ) Loss on Discontinued Operations — — ( 18,797 ) Net Income (Loss) 118,011 21,398 ( 65,666 ) Dividends on preferred units — — ( 1,491 ) Net Income (Loss) Attributable to Common Shareholders/Unitholders $ 118,011 $ 21,398 $ ( 67,157 ) Net Income (Loss) per Share/Unit from Continuing Operations: Basic $ 6.04 $ 1.10 $ ( 3.02 ) Diluted $ 5.99 $ 1.09 $ ( 3.02 ) Net Loss per Share/Unit from Discontinued Operations: Basic $ — $ — $ ( 1.17 ) Diluted $ — $ — $ ( 1.17 ) Net Income (Loss) per Share/Unit: Basic $ 6.04 $ 1.10 $ ( 4.19 ) Diluted $ 5.99 $ 1.09 $ ( 4.19 ) Weighted Average Common Shares/Units Outstanding: Basic 19,553 19,470 16,021 Diluted 19,686 19,569 16,021 The accompanying notes are an integral part of these consolidated financial statements. F-6 RILEY EXPLORATION PERMIAN, INC. CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS'/SHAREHOLDERS' EQUITY (In Thousands) Members' Equity Shareholders' Equity Common Stock Units Outstanding Amount Shares Amount Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Total Shareholders' Equity Balance, September 30, 2020 1,555 $ 166,617 — $ — $ — $ — $ — Issuance of common units under long-term incentive plan 13 — — — — — — Purchase of common units under long-term incentive plan ( 3 ) ( 191 ) — — — — — Dividends on preferred units — ( 1,491 ) — — — — — Dividends on common units — ( 7,571 ) — — — — — Unit-based compensation expense — 689 — — — — — Net loss from October 1, 2020 through February 26, 2021 — ( 27,058 ) — — — — — Preferred units converted to common units 512 61,196 — — — — — Restricted common shares issued in exchange for common units issued under long-term incentive plan ( 24 ) — 198 — — — — Common shares issued in exchange for common units (effected for 1-for-12 reverse stock split) ( 2,053 ) ( 192,191 ) 16,733 17 192,174 — 192,191 Common shares issued for business combination — — 891 1 26,391 — 26,392 Restricted common shares issued — — 3 — — — — Share-based compensation expense — — — — 1,939 — 1,939 Dividends declared — — — — — ( 10,559 ) ( 10,559 ) Net loss from February 27, 2021 through September 30, 2021 — — — — — ( 38,608 ) ( 38,608 ) Issuance of common shares under long-term incentive plan — — 197 — 4,165 — 4,165 Common stock sold to public, net of issuance costs — — 1,667 2 46,682 — 46,684 Repurchased shares for tax withholding — — ( 17 ) — ( 514 ) — ( 514 ) 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. F-7 RILEY EXPLORATION PERMIAN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Cash Flows from Operating Activities: Net income (loss) $ 118,011 $ 21,398 $ ( 65,666 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss from discontinued operations — — 18,797 Oil and gas lease expirations 1,953 588 9,347 Depletion, depreciation, amortization and accretion 32,113 6,867 26,015 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 ) Amortization of deferred financing costs 731 282 653 Unit-based compensation expense — — 689 Share-based compensation expense 3,946 951 6,104 Deferred income tax expense 28,372 5,756 12,962 Changes in operating assets and liabilities Accounts receivable ( 7,549 ) ( 529 ) ( 7,345 ) Accounts receivable – related parties — 456 ( 401 ) Prepaid expenses and other current assets ( 997 ) ( 3,172 ) 201 Accounts payable and accrued liabilities 2,860 ( 2,625 ) 7,445 Accounts payable - related parties 160 164 — Revenue payable 6,380 2,362 4,576 Other current liabilities 666 50 ( 195 ) Net Cash Provided by Operating Activities - Continuing Operations 170,288 21,727 86,073 Cash Flows from Investing Activities: Additions to oil and natural gas properties ( 111,662 ) ( 29,011 ) ( 58,329 ) Acquisitions of oil and natural gas properties — — ( 445 ) Acquisitions of land ( 15,342 ) — — Additions to other property and equipment ( 1,252 ) ( 117 ) ( 1,714 ) Tengasco acquired cash — — 860 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. F-8 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: Deferred financing costs ( 1,942 ) ( 274 ) ( 139 ) Proceeds from revolving credit facility 22,000 5,000 5,500 Repayments under revolving credit facility ( 31,000 ) — ( 46,500 ) Payment of common share/unit dividends ( 25,066 ) ( 6,056 ) ( 18,286 ) Proceeds from issuance of common stock — — 50,000 Public offering costs — — ( 3,316 ) Payment of preferred unit dividends — — ( 1,491 ) Common stock repurchased for tax withholding ( 1,040 ) ( 19 ) ( 514 ) Purchase of common units under long-term incentive plan — — ( 191 ) Net Cash Used in Financing Activities - Continuing Operations ( 37,048 ) ( 1,349 ) ( 14,937 ) Net Increase (Decrease) in Cash and Cash Equivalents from Continuing Operations 4,984 ( 8,750 ) 11,508 Cash Flows from Discontinued Operations: Operating activities — — 7 Investing activities — — 3,892 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 Cash and Cash Equivalents, Beginning of Period 8,317 17,067 1,660 Cash and Cash Equivalents, End of Period $ 13,301 $ 8,317 $ 17,067 Supplemental Disclosure of Cash Flow Information Cash Paid For: 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 Right of use assets obtained in exchange for operating lease liability $ 1,655 $ — $ — Preferred unit dividends paid in kind $ — $ — $ 904 Common stock issued in exchange for common units $ — $ — $ 192,191 Assets acquired and liabilities assumed in business combination $ — $ — $ 3,695 Common stock issued for business combination $ — $ — $ 26,392 Preferred units converted to common units $ — $ — $ 61,196 Non-cash Investing Activities - Discontinued Operations: Goodwill incurred in business combination $ — $ — $ 19,013 Assets acquired and liabilities assumed in business combination $ — $ — $ 2,824 The accompanying notes are an integral part of these consolidated financial statements. F-9 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (1) Nature of Business Organization 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 natural gas liquids ("NGL") 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. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas. On February 26, 2021 (the “Closing Date”), Riley Permian (f/k/a Tengasco, Inc. (“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. to Riley Exploration Permian, Inc. Current Commodity Environment U.S. 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 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. GAAP"). All intercompany balances and transactions have been eliminated upon consolidation. The Merger was accounted for as a reverse merger and, as such, the historical operations of REP LLC are deemed to be those of the Company. Thus, the consolidated financial statements included in this report reflect (i) the historical operating results of REP LLC prior to the Merger; (ii) the consolidated results of the Company following the Merger; (iii) the assets and liabilities of REP LLC at their historical cost; and (iv) the Company’s equity and earnings per share for all periods presented. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, members'/shareholders' equity, results of operations or cash flows . F-10 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (3) Summary of Significant Accounting Policies Significant Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Actual results may differ significantly from the Company’s estimates. 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 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 The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash at financial institutions which may at times exceed federally insured amounts. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash and cash equivalents. Accounts Receivable 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 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. No interest is charged on past-due balances. Payments made on all accounts receivable are applied to the earliest unpaid items. To the extent actual volumes and prices of oil, natural gas and NGLs are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volume and prices for these properties are estimated and recorded within accounts receivable in the accompanying consolidated balance sheets. Oil is priced based upon prevailing prices published by purchasers with certain adjustments related to oil quality and physical location. Natural gas pricing provisions are tied to a market index, with certain adjustments based on, among other factors, quality and heat content of natural gas, and prevailing supply and demand conditions. NGLs are priced based upon a market index with certain adjustments for transportation and fractionation. These market indices are determined on a monthly basis. 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. F-11 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Accounts receivable is summarized below: December 31, 2022 December 31, 2021 (In thousands) Oil, natural gas and NGL sales $ 24,136 $ 17,562 Joint interest accounts receivable 793 409 Other accounts receivable 622 31 Total accounts receivable $ 25,551 $ 18,002 Inventory 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 The Company uses the successful efforts method of accounting for its oil and natural gas producing activities. Under this method, all property acquisition costs and costs of development wells are capitalized as incurred. The costs of development wells are capitalized whether producing or non-producing. Costs to drill exploratory wells are capitalized pending the determination of whether proved reserves are found. If an exploratory well is determined to be unsuccessful, the costs of drilling the unsuccessful exploratory well are charged to exploration costs. Geological and geophysical costs, including seismic studies, are charged to exploration costs as incurred. Expenditures incurred to operate and for maintenance, repairs and minor renewals necessary to maintain our oil and natural gas properties in operating condition are charged to lease operating expenses as incurred. Capitalized costs of proved oil and natural gas properties are amortized using the units-of-production method based on production and estimates of proved reserve quantities. Leasehold acquisition costs of proved properties are depleted over total estimated proved reserves, and capitalized development costs of wells and related equipment and facilities are depleted over-estimated proved developed reserves. 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 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 Unproved oil and natural gas properties consist of costs incurred to acquire unproved leases. Unproved lease acquisition costs are capitalized until the leases expire or when we specifically identify leases that will revert to the lessor, at which time we charge the associated unproved lease acquisition costs to exploration costs. Lease acquisition costs related to successful drilling are reclassified to proved oil and natural gas properties. Upon the sale of an entire interest in an unproved property for cash or cash equivalents, a gain or loss is recognized to the extent of the difference between the proceeds received and the net carrying value of the property. Proceeds from the sale of partial interests in unproved oil and natural gas properties are accounted for as a recovery of costs unless the proceeds exceed the entire cost of the property. Impairment of Oil and Natural Gas Properties The cost of proved oil and natural gas properties are assessed on a field-by-field basis for impairment at least annually or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The expected undiscounted future cash flows of the oil and natural gas properties are compared to the carrying amount of the oil, natural gas and NGL properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the carrying amount of the oil and natural gas properties is adjusted to estimated fair value. Assumptions associated with discounted cash flow models or valuations used in the impairment evaluation include estimates of F-12 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) future oil, natural gas and NGL prices, production costs, development expenditures, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data. Unproved oil and natural gas properties are assessed periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. See further discussion in Note 7 - Fair Value Measurements. Business Combinations 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. In the cost accumulation model, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. The Company includes the results of operations of acquired businesses beginning on the respective acquisition dates. In accordance with the acquisition method, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on the estimated fair values. Transaction costs related to the business combination are expensed as incurred. This fair value measurement is based on unobservable (Level 3) inputs. 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, if any, is recorded as a bargain purchase gain. Other Property and Equipment, Net Property and equipment are capitalized and recorded at cost, while maintenance and repairs are expensed. 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. 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 Deferred financing costs include origination, arrangement, legal and other fees to issue or amend the terms of credit facility agreements. These deferred financing costs are reported as other non-current assets and recognized on the consolidated statement of operations as interest expense by amortizing the costs over the related financing using the straight-line method, which approximates the effective interest method. Equity Issuance Costs Equity issuance costs include underwriter, legal, accounting, printing and other fees to issue common equity securities. These issuance costs are netted against offering proceeds at the time of issuance and are reported as other non-current assets when related to the issuance of common equity securities. The issuance costs are expensed to the consolidated statement of operations if the issuance is unsuccessful. F-13 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Other Non-Current Assets, Net Other non-current assets consisted of the following: December 31, 2022 December 31, 2021 (In thousands) Deferred financing costs, net $ 2,556 $ 1,345 Prepayments to outside operators 186 690 Right of use assets 1,370 208 Other deposits 63 50 Total other non-current assets, net $ 4,175 $ 2,293 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: December 31, 2022 December 31, 2021 (In thousands) Accrued capital expenditures $ 16,744 $ 5,618 Accrued lease operating expenses 4,607 2,534 Accrued general and administrative costs 2,286 3,404 Accrued inventory 6,235 — Accrued ad valorem tax 3,789 705 Other accrued expenditures 1,921 613 Total accrued liabilities $ 35,582 $ 12,874 Asset Retirement Obligations ARO consist of future plugging and abandonment expenses on oil and natural gas properties. The fair value of the ARO is recorded as a liability in the period in which wells are drilled with a corresponding increase in the carrying amount of oil and natural gas properties. 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 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. F-14 Table of Contents RILEY EXPLORATION PERMIAN, INC. 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) ARO, beginning balance $ 2,453 $ 2,434 Liabilities incurred 358 56 Revision of estimated obligations 326 — Liability settlements and disposals ( 178 ) ( 58 ) Accretion 79 21 ARO, ending balance 3,038 2,453 Less: current ARO (1) ( 314 ) ( 192 ) ARO, long-term $ 2,724 $ 2,261 _____________________ (1) Current ARO is included within other current liabilities on the accompanying consolidated balance sheets. Goodwill 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, 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 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. 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. 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 Oil Sales Under the Company’s oil sales contracts, oil that is produced by the Company is delivered to the purchaser at a contractually agreed-upon delivery point at which point the purchaser takes custody, title and risk of loss of the product. Once control has been transferred, the purchaser transports the product to a third party and receives market-based prices from the third party. The Company receives a percentage of proceeds received by the purchaser less transportation costs in accordance with the pricing provisions in the Company's contracts. As transportation costs are incurred after the transfer of control, the costs are included in oil and natural gas sales and represent part of the transaction price of the contract. The pricing provisions also provide quantity requirements and grade and quality specifications. The Company recognizes revenue at the net price received when control transfers to the purchaser. Natural Gas and NGL Sales 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 F-15 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. The pricing provisions also provide quantity requirements and grade and quality specifications. The Company recognizes revenue on a net basis for amounts expected to be received from third party customers through the marketing process. Transaction Price Allocated to Remaining Performance Obligations 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. Contract Balances Under the Company’s product sales contracts, the Company has the right to invoice customers once the performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s product sales contracts do not give rise to contract assets or liabilities under ASC 606. Prior-Period Performance Obligations Revenue is recorded in the month in which production is delivered to the purchaser. However, certain settlement statements for oil, natural gas and NGLs may not be received for thirty to ninety days after the date production is delivered and, as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. Differences identified between the Company’s revenue estimates and actual revenue received historically have not been significant. 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 disaggregated by product: Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Oil and natural gas sales: Oil $ 298,723 $ 50,623 $ 136,421 Natural gas 10,755 2,705 7,500 Natural gas liquids 9,865 3,322 4,715 Total oil and natural gas sales, net $ 319,343 $ 56,650 $ 148,636 Contract Services with Related Parties The Company has contracts with related parties to provide certain contract operating, accounting and back-office support services. Revenue related to these contract services is recognized over time as the services are rendered, and the fee is stated within the contract at a fixed monthly rate. Costs directly attributable to performing these services are also recognized as the services are rendered. Refer to Note 8 - Transactions with Related Parties for a more detailed discussion regarding these contracts. Revenue Payable For certain oil and natural gas properties, where the Company serves as operator, the Company receives production proceeds from the purchaser and further distributes such amounts to other revenue and royalty owners. 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. F-16 Table of Contents RILEY EXPLORATION PERMIAN, INC. 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. Income Taxes 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. Realization of deferred tax assets is contingent on the generation of future taxable income. As a result, management considers whether it is more likely than not that all or a portion of such assets will be realized during periods when they are available, and if not, management provides a valuation allowance for amounts not likely to be recognized. Management periodically evaluates tax reporting methods to determine if any uncertain tax positions exist that would require the establishment of a loss contingency. A loss contingency would be recognized if it were probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimates and management’s judgment with respect to the likely outcome of each uncertain tax position. 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. 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 We have financed a portion of our working capital requirements, capital expenditures and certain acquisitions with borrowings under our revolving credit facility. We incur interest expense that is affected by both fluctuations in interest rates and our financing decisions. 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 Our customer concentration may impact our overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and natural gas industry. We sell our production at market prices and to a relatively small number of purchasers, as is customary in the exploration, development and production business. Our purchaser contracts include marketing provisions with our purchasers to market our production. 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 this purchaser could materially and adversely affect our revenues in the short-term. However, the end customers include companies with lower credit risk. Further, based on the current demand for oil and natural gas and the availability of other purchasers, we believe that the loss of any of our purchasers would not have a long-term material adverse effect on our financial condition and results of operations because oil, natural gas and NGLs are marketable products with well-established markets. We manage credit risk related to accounts receivable through credit approvals, escrow accounts and monitoring procedures. Accounts receivable are generally not collateralized. However, we routinely assess the financial strength of our customers and, based upon factors surrounding the credit risk, establish an allowance for uncollectible accounts, if required. As a result, we believe that our accounts receivable credit risk exposure beyond such allowance is limited. F-17 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Environmental and Other Issues We are engaged in oil and natural gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures. In connection with our acquisition of existing or previously drilled well bores, we may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental cleanup or restoration, we would be responsible for curing such a violation. We account for environmental contingencies in accordance with the accounting guidance related to accounting for contingencies. Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Fair Value Measurements 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 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. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or a liability, into three levels. Level 1 inputs are unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability and have the lowest priority. The valuation techniques that may be used to measure fair value include a market approach, an income approach and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). 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 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 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. Derivative contracts are settled on a monthly basis. The fair value of the derivatives is established using index prices, volatility curves and discount factors. The value we report in our consolidated financial statements is as of a point in time and subsequently change as these estimates are revised to reflect actual results, changes in market conditions and other factors. The use of derivatives involves the risk that the counterparties to such contracts will be unable to meet their obligations under the terms of the agreement. 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 F-18 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. Leases 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. A lease exists when the Company has the right to obtain substantially all of the economic benefit of a specific asset and to control the use of that asset over the term of the agreement. Identified leases are classified as an operating or finance lease, which determines the recognition, measurement and presentation of expenses. 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. Options to extend or terminate leases are included in the lease term when it is reasonably certain the Company will exercise the option. For operating leases, lease costs are recognized on a straight-line basis over the term of the lease. The present value of operating lease payments and amortization of the lease liability is calculated using a discount rate. When available, the Company uses the rate implicit in the lease as the discount rate; however, most of the Company’s leases do not provide a readily determinable implicit rate. In such cases, the Company is required to use its incremental borrowing rate ("IBR"). The Company’s IBR reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The Company is required to reassess the discount rate for any new and modified lease contracts as of the lease effective date. 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) ROU asset $ 1,370 $ 208 Current lease liability $ 539 $ 212 Long-term lease liability $ 838 $ — 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 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. 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., London Interbank Offered Rate ("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 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. F-19 Table of Contents 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 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. The Exchange Ratio was 97.796467 shares of Tengasco common stock for each common unit of REP LLC (as adjusted for the reverse stock split). 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. 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 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): Tengasco common stock price $ 29.64 Tengasco common stock - issued and outstanding as of February 26, 2021 891 Total consideration $ 26,392 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. F-20 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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): Assets Cash and cash equivalents $ 860 Accounts receivable 325 Prepaid and other current assets 759 Total current assets 1,944 Oil and gas properties 4,525 Other property and equipment 91 Right of use assets 42 Other non-current assets 4 Deferred tax assets 2,987 Total assets acquired $ 9,593 Liabilities Accounts payable $ 130 Accrued liabilities 409 Current lease liabilities, operating 42 Current lease liabilities, financing 68 Total current liabilities 649 Asset retirement obligations 1,565 Total liabilities assumed 2,214 Net identifiable assets acquired 7,379 Goodwill 19,013 Net assets acquired $ 26,392 The goodwill recognized was primarily attributable to a substantial increase in the stock price of Tengasco on the Closing Date, which increased the amount of the consideration transferred. The Company does not expect goodwill to be deductible for tax purposes. Pro Forma Operating Results (Unaudited) 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 F-21 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. For the year ended September 30, 2021 (In thousands, except per share/unit amounts) (Unaudited) Total Revenues $ 151,036 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 per Share/Unit from Discontinued Operations: Basic $ 0.02 Diluted $ 0.02 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. Divestitures 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. 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 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. F-22 Table of Contents 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: December 31, 2022 December 31, 2021 (In thousands) Proved $ 516,011 $ 421,779 Unproved 12,770 18,839 Work-in-progress 45,169 13,534 573,950 454,152 Accumulated depletion, amortization and impairment ( 133,848 ) ( 95,021 ) Total oil and natural gas properties, net $ 440,102 $ 359,131 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 $ 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 Oil and Natural Gas Contracts 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 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. F-23 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) • 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. If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the put and the call strike price, no payments are due from either party. • Basis Protection Swaps – basis swaps are settled based on differences between a fixed price differential and the differential between the settlement prices of two referenced indexes. We receive the fixed price differential and pay the differential between the referenced indexes. 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 / Year Notional Volume Fixed Put Call ($ per unit) Oil Swaps (Bbl) Q1 2023 225,000 $ 53.65 $ — $ — Q2 2023 195,000 $ 53.89 $ — $ — Q3 2023 126,000 $ 53.79 $ — $ — Q4 2023 114,000 $ 54.59 $ — $ — Oil Collars (Bbl) Q1 2023 30,000 $ — $ 60.00 $ 109.60 Q2 2023 30,000 $ — $ 60.00 $ 109.60 Q3 2023 — $ — $ — $ — Q4 2023 — $ — $ — $ — 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 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. F-24 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Balance Sheet Presentation of Derivatives 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 (In thousands) Current derivative assets $ 64 $ ( 44 ) $ 20 Non-current derivative assets 9 ( 9 ) — Current derivative liabilities ( 16,516 ) 44 ( 16,472 ) Non-current derivative liabilities ( 21 ) 9 ( 12 ) Total $ ( 16,464 ) $ — $ ( 16,464 ) December 31, 2021 Balance Sheet Classification Gross Fair Value Amounts Netted Net Fair Value (In thousands) Current derivative assets $ 281 $ ( 198 ) $ 83 Non-current derivative assets 267 — 267 Current derivative liabilities ( 31,182 ) 198 ( 30,984 ) Non-current derivative liabilities ( 9,515 ) — ( 9,515 ) Total $ ( 40,149 ) $ — $ ( 40,149 ) 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) 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 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 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 F-25 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 (In thousands) Financial assets: Commodity derivative assets $ — $ 73 $ — $ 73 Financial liabilities: Commodity derivative liabilities $ — $ ( 16,537 ) $ — $ ( 16,537 ) December 31, 2021 Level 1 Level 2 Level 3 Total (In thousands) Financial assets: Commodity derivative assets $ — $ 187 $ — $ 187 Interest rate assets $ — $ 361 $ — $ 361 Financial liabilities: Commodity derivative liabilities $ — $ ( 40,687 ) $ — $ ( 40,687 ) Interest rate liabilities $ — $ ( 10 ) $ — $ ( 10 ) Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis 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. The fair value measurements of assets acquired and liabilities assumed are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company's estimated cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that the Company’s management believes will impact realizable prices. 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 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. Significant inputs to the valuation include: (i) estimated plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; (iii) future inflation factors; and (iv) our average credit-adjusted risk-free rate. These assumptions represent Level 3 inputs. If the carrying amount of our oil and natural gas properties exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and natural gas properties to fair value. The fair value of our oil and natural gas properties is determined using valuation techniques consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with the expected cash flow projected. These assumptions represent Level 3 inputs. F-26 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (8) Transactions with Related Parties Contract Services 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. 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 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. 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) Combo $ 1,200 $ 300 $ 1,200 REG 1,200 300 1,200 Contract services - related parties $ 2,400 $ 600 $ 2,400 Cost of contract services $ 450 $ 150 $ 477 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 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 (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. 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. The borrowing base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time. 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). F-27 Table of Contents 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 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 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, 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 Public Offering of Common Stock On June 30, 2021, the Company entered into an Underwriting Agreement (the "Underwriting Agreement") with Truist Securities, Inc., as the representative of the other several underwriters named in the Underwriting Agreement. On July 2, 2021, the Company issued 1,666,667 shares of common stock at a price to the public of $ 30.00 per share in accordance with the Underwriting Agreement. Net proceeds from the issuance were approximately $ 46.7 million, after deducting the underwriting fees and other offering costs incurred. Dividends 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. F-28 Table of Contents 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) 2022 December 31, 2022 $ 0.34 $ 6.7 September 30, 2022 $ 0.31 $ 6.2 June 30, 2022 $ 0.31 $ 6.2 March 31, 2022 $ 0.31 $ 6.2 2021 December 31, 2021 $ 0.31 $ 6.2 September 30, 2021 $ 0.28 $ 5.5 June 30, 2021 $ — $ — March 31, 2021 (2) $ 0.29 $ 8.8 2020 December 31, 2020 $ 0.30 $ 3.8 _____________________ (1) Per unit amounts for dividends declared before the Closing Date of the Merger have been effected by giving adjustment to the 1-for-12 reverse stock split and exchange ratio of 97.796467 . (2) On February 4, 2021, the Board of Managers of REP LLC declared a $ 3.8 million cash dividend, paid on February 5, 2021. On March 4, 2021, the Board of Directors of the Company declared a cash dividend of $ 0.28 per share or $ 5.0 million total, paid on May 7, 2021. Share-Based and Unit-Based Compensation In connection with the Merger, the Company shareholders adopted an omnibus equity incentive plan, the 2021 LTIP, for the employees, consultants and the directors of the Company and its affiliates who perform services for the Company. 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 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 The 2021 LTIP will provide for potential grants of: (i) incentive stock options qualified as such under U.S. federal income tax laws ("ISO's:); (ii) stock options that do not qualify as incentive stock options; (iii) stock appreciation rights, or SARs; (iv) restricted stock awards; (v) restricted stock units, or RSUs; (vi) stock awards; (vii) performance awards; (viii) dividend equivalents; (ix) other stock-based awards; (x) cash awards; and (xi) substitute awards, all of which will collectively be referred to as the "Awards". The 2021 LTIP authorizes the Compensation Committee to administer the plan and designate eligible persons as participants, determine the type or types of Awards to be granted to an eligible person, determine the number of shares of stock or amount of cash to be covered by the Awards, approve the forms of award agreements for use under the plan, determine the terms and conditions of any Award, modify, waive or adjust any term or condition of an Award that has been granted, among other responsibilities delegated by the Company's Board. Restricted Shares: 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. F-29 Table of Contents 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 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 December 31, 2021 366,789 $ 19.41 Granted 367,420 $ 17.63 Vested ( 192,899 ) $ 19.25 Forfeited ( 5,101 ) $ 23.46 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 In connection with the Merger and in accordance with the Merger Agreement, each unvested restricted unit outstanding under the 2018 LTIP was converted into restricted shares of the Company under the 2021 LTIP. 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. The Company granted 13,309 restricted units to executives and employees of the Company during the year ended 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 REP LLC was organized as a limited liability company and treated as a flow-through entity for federal income tax purposes. As such, taxable income and any related tax credits were passed through to its members and included in their tax returns, even though such taxable income or tax credits may not have been distributed. In connection with the closing of the Merger, the Company's tax status changed from a limited liability company to a C-corporation. As a result, the Company is responsible for federal and state income taxes and must record deferred tax assets and liabilities for the tax effects of any temporary differences that exist on the date of the change. When push down accounting does not apply as part of a business combination, U.S. GAAP requires the effect of the change in tax status to be recognized in the financial statements and the effect is included in income (loss) from continuing operations. 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 F-30 Table of Contents 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: Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Current income tax expense: Federal $ 4,026 $ — $ 2 State 446 113 52 Total current income tax expense $ 4,472 $ 113 $ 54 Deferred income tax expense (benefit): Federal $ 27,393 $ 5,669 $ 14,202 State 979 87 ( 1,240 ) 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: Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Deferred tax assets Non-cash gain on derivatives $ 3,563 $ 10,286 $ 11,006 Intangibles 182 215 222 Inventory — 23 23 Share-based compensation 421 690 480 Accruals and other 484 558 578 Net operating loss 2,812 3,172 5,422 Total deferred tax assets 7,462 14,944 17,731 Oil and natural gas assets ( 52,665 ) ( 32,154 ) ( 29,161 ) Other fixed assets ( 553 ) ( 174 ) ( 198 ) Total deferred tax liabilities ( 53,218 ) ( 32,328 ) ( 29,359 ) Net deferred tax liabilities $ ( 45,756 ) $ ( 17,384 ) $ ( 11,628 ) F-31 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows: 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 % Nondeductible compensation 0.2 % 0.1 % ( 1.0 ) % Transaction costs — % — % ( 1.5 ) % Share-based compensation — % ( 0.3 ) % ( 0.1 ) % State income taxes, net of federal benefit 0.7 % 0.7 % 0.4 % Change in tax status — % — % ( 40.1 ) % 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 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 significant reserves for uncertain tax positions. Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss ("NOL") carryforwards following a change in control. The Merger caused a stock ownership change for purposes of Section 382 which is subject to an approximate annual limit. 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 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. The deferred tax assets for the net operating losses are presented net with deferred tax liabilities, which primarily consist of book and tax depreciation differences. (12) Discontinued Operations and Assets Held For Sale Kansas Reporting Unit On March 10, 2021, the Company entered into a PSA to divest of the Kansas Reporting Unit for an agreed upon purchase price of $ 3.5 million before certain closing adjustments. In addition, the Company also agreed to assign to the buyer its lease associated with Tengasco's former corporate office in Greenwood Village, Colorado. With Tengasco qualifying as a business and the Kansas Reporting Unit making up a significant portion of the assets of Tengasco, the Company concluded that the transaction met the requirements of assets held for sale and discontinued operations upon the acquisition date. The sale closed on April 2, 2021 for an adjusted purchase price of $ 3.3 million, after customary closing adjustments. F-32 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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: Year Ended September 30, 2021 (In thousands) Oil and natural gas sales $ — Total revenues — Lease operating expenses 115 Goodwill impairment 18,516 Total expenses 18,631 Other expenses ( 107 ) Loss from discontinued operations before income taxes ( 18,738 ) Income tax expense ( 59 ) 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. 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) Continuing Operations: Net income (loss) - Diluted $ 118,011 $ 21,398 $ ( 46,869 ) Less: Dividends on preferred units — — ( 1,491 ) Net income (loss) attributable to common shareholders/unitholders - Basic (1) $ 118,011 $ 21,398 $ ( 48,360 ) Basic weighted-average common shares/units outstanding 19,553 19,470 16,021 Effecting of dilutive securities: Restricted shares/units 133 99 — Diluted weighted-average common shares/units outstanding 19,686 19,569 16,021 Continuing Operations: Basic net income (loss) per common share/unit $ 6.04 $ 1.10 $ ( 3.02 ) Diluted net income (loss) per common share/unit $ 5.99 $ 1.09 $ ( 3.02 ) _____________________________________________________ (1) Used in the basic and diluted net loss per share/unit calculation when the Company is in a net loss position. F-33 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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) Restricted shares/units 405 268 228 (14) Commitments and Contingencies Legal Matters 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 The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. 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 material environmental liabilities as of December 31, 2022 or 2021. Contractual Commitments 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. F-34 Table of Contents 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 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. The F-35 Table of Contents 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 Period (1) Notional Volume Fixed Put Call ($ per unit) 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. F-36 Table of Contents SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued) (Unaudited) (16) Supplemental Information on Oil and Natural Gas Operations (Unaudited) Capitalized Costs 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. 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 . Costs Incurred for Property Acquisition, Exploration and Development Amounts reported as costs incurred include both capitalized costs and costs charged to expense when incurred for oil and natural gas property acquisition, exploration and development activities. Costs incurred also include new ARO established in the current year as well as increases or decreases to ARO resulting from changes to cost estimates during the year. Exploration costs presented below include the costs of drilling and equipping successful and unsuccessful exploration wells during the year, geological and geophysical expenses and the costs of retaining undeveloped leaseholds. 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 periods presented below: Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Acquisition of properties Proved $ 450 $ 67 $ 74 Unproved 1,468 193 1,562 Exploration costs 157 — 7,993 Development costs 119,673 20,348 59,948 Total costs incurred $ 121,748 $ 20,608 $ 69,577 F-37 Table of Contents SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued) (Unaudited) Results of Operations The following table includes revenues and expenses associated with the Company's oil and natural gas producing activities. They do not include any allocation of the Company's interest costs or general corporate overhead. Therefore, the following schedule is not necessarily indicative of the contribution of net earnings of the Company's oil and natural gas operations. Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Oil, natural gas and NGL sales $ 319,343 $ 56,650 $ 148,636 Lease operating expenses 32,458 7,419 21,975 Production and ad valorem taxes 19,273 3,005 8,636 Exploration costs 2,032 611 9,566 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 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 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. All reserves are located within the continental United States. Proved oil, natural gas and NGL reserves are the estimated quantities of oil, natural gas and NGLs that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimate is made. Proved developed oil, natural gas and NGL reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made. A variety of methodologies are used to determine our proved reserve estimates. The principal methodologies employed are decline curve analysis and analogy. Some combination of these methods is used to determine reserve estimates in substantially all of our fields. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and natural gas properties. Accordingly, these estimates are expected to change as future information becomes available. F-38 Table of Contents SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued) (Unaudited) 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: Oil Natural Gas NGLs Total (MBbl) (MMcf) (MBbl) (MBoe) September 30, 2020 37,158 53,683 10,681 56,787 Extensions and discoveries 9,308 12,089 2,436 13,759 Revisions 2,138 12,850 492 4,772 Production ( 2,341 ) ( 2,603 ) ( 380 ) ( 3,155 ) September 30, 2021 46,263 76,019 13,229 72,163 Extensions and discoveries 1,328 1,961 371 2,026 Revisions 99 350 ( 24 ) 133 Production ( 669 ) ( 844 ) ( 105 ) ( 915 ) 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 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 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 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. 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 $ 3.60 per MMBtu is adjusted for energy content, transportation fees and market differentials. As of September 30, 2021, reserves were comprised of 64.1 % oil, 17.6 % natural gas and 18.3 % NGL. 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. 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 $ 2.94 per MMBtu is adjusted for energy content, transportation fees and market differentials. F-39 Table of Contents SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued) (Unaudited) 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 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. Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil, Natural Gas and NGL Reserves The Company follows the guidelines prescribed in ASC Topic 932 Extractive Activities – Oil and Gas for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. The following summarizes the policies used in the preparation of the accompanying oil, natural gas and NGL reserve disclosures, standardized measures of discounted future net cash flows from proved oil, natural gas and NGL reserves and the reconciliations of standardized measures from year to year. The standardized measure of discounted future net cash flows from production of proved reserves was developed as follows: (i) estimates are made of quantities of proved reserves and future periods during which they are expected to be produced based on year-end economic conditions; (ii) estimated future cash flows are compiled by applying the twelve month average of the first of the month prices of crude oil and natural gas relating to the Company’s proved reserves to the year-end quantities of those reserves for reserves; (iii) future cash flows are reduced by estimated production costs, costs to develop and produce the proved reserves and abandonment costs, all based on year-end economic conditions, plus Company overhead incurred; (iv) future income tax expenses are based on year-end statutory tax rates giving effect to the remaining tax basis in the oil and natural gas properties, other deductions, credits and allowances relating to the Company’s proved oil and natural gas reserves; and, (v) future net cash flows are discounted to present value by applying a discount rate of 10%. The assumptions used to compute the standardized measure are those prescribed by the FASB and the Securities and Exchange Commission. These assumptions do not necessarily reflect the Company’s expectations of actual revenues to be derived from those reserves, nor their present value. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations, since these reserve quantity estimates are the basis for the valuation process. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and natural gas properties. The standardized measure of discounted future net cash flows does not purport, nor should it be interpreted, to present the fair value of the Company’s oil and natural gas reserves. 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. F-40 Table of Contents SUPPLEMENTAL OIL AND GAS INFORMATION - (Continued) (Unaudited) 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: Year Ended December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Future crude oil, natural gas and NGLs sales (1)(2)(3) $ 5,135,650 $ 3,350,506 $ 2,783,910 Future production costs ( 1,559,266 ) ( 912,468 ) ( 839,167 ) Future development costs ( 341,481 ) ( 216,138 ) ( 218,765 ) Future income tax expense ( 658,340 ) ( 436,829 ) ( 324,487 ) Future net cash flows 2,576,563 1,785,071 1,401,491 10% annual discount ( 1,468,187 ) ( 1,081,602 ) ( 848,555 ) Standardized measure of discounted future net cash flows $ 1,108,376 $ 703,469 $ 552,936 _____________________________________________________ (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 December 31, 2022 Three Months Ended December 31, 2021 Year Ended September 30, 2021 (In thousands) Balance, beginning of period $ 703,469 $ 552,936 $ 302,338 Sales of crude oil, natural gas and NGLs, net ( 267,612 ) ( 46,226 ) ( 118,030 ) Net change in prices and production costs 406,803 194,596 237,475 Net changes in future development costs ( 40,226 ) 1,267 ( 18,856 ) Extensions and discoveries 321,009 35,111 144,392 Revisions of previous quantity estimates ( 83,188 ) ( 536 ) 50,283 Previously estimated development costs incurred 8,775 4,182 12,844 Net change in income taxes ( 117,098 ) ( 47,881 ) ( 124,625 ) Accretion of discount 87,914 17,018 30,551 Other 88,530 ( 6,998 ) 36,564 Balance, end of period $ 1,108,376 $ 703,469 $ 552,936 F-41