What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-10 compared with 2022-11-14 · 215 added, 420 removed, 304 unchanged (68% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In thousands, except share amounts)

3 unchanged sentences

Prepaid expenses and other current assets 2,242 3,236

Inventory 7,892 8,886

Current derivative assets 1,637 20

3 unchanged sentences

Non-current derivative assets 939 —

Funds held in escrow 33,000 —

Other non-current assets, net 9,784 4,175

20 unchanged sentences

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

20,181,872 and 19,836,885 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

20,169,434 and 20,160,980 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 275,669 274,643

Retained earnings (Accumulated deficit) 38,813 ( 33,919 )

Retained earnings 83,783 58,783

Total Shareholders' Equity 359,472 333,446

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

(In thousands, except per share/unit amounts)

Three Months Ended March 31,

(In thousands, except per share amounts)

Oil and natural gas sales, net $ 66,412 $ 66,645

8 unchanged sentences

Administrative costs 5,467 4,014

Unit-based compensation expense — — — 276

Share-based compensation expense 1,114 1,017

6 unchanged sentences

Gain (loss) on derivatives 5,755 ( 49,632 )

Loss from equity method investment ( 232 ) —

Total Other Income (Expense) 4,507 ( 50,310 )

Net Income (Loss) From Continuing Operations Before Income Taxes 76,134 10,941 116,334 ( 25,389 )

Income tax benefit (expense) ( 16,317 ) 3,937 ( 25,130 ) ( 13,539 )

Net Income (Loss) From Continuing Operations 59,817 14,878 91,204 ( 38,928 )

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

RILEY EXPLORATION PERMIAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

(In thousands, except per share/unit amounts)

Discontinued Operations:

Gain (loss) from discontinued operations — 775 — ( 18,738 )

Income tax benefit (expense) on discontinued operations — 1 — ( 59 )

Gain (Loss) on Discontinued Operations — 776 — ( 18,797 )

Net Income (Loss) From Operations Before Income Taxes 40,541 ( 9,282 )

Income tax (expense) benefit ( 8,690 ) 2,114

Net Income (Loss) $ 31,851 $ ( 7,168 )

Dividends on preferred units — — — ( 574 )

Net Income (Loss) Attributable to Common Shareholders/Unitholders $ 59,817 $ 15,654 $ 91,204 $ ( 58,299 )

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

Basic $ 3.06 $ 0.77 $ 4.67 $ ( 2.29 )

Diluted $ 3.05 $ 0.76 $ 4.65 $ ( 2.29 )

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

Basic $ — $ 0.04 $ — $ ( 1.09 )

Diluted $ — $ 0.04 $ — $ ( 1.09 )

Net Income (Loss) per Share/Unit:

Net Income (Loss) per Share:

Basic $ 1.62 $ ( 0.37 )

Diluted $ 1.60 $ ( 0.37 )

Weighted Average Common Shares/Units Outstanding:

Weighted Average Common Shares Outstanding:

Basic 19,649 19,501

2 unchanged sentences

RILEY EXPLORATION PERMIAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS'/SHAREHOLDERS' EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In Thousands)

Nine Months Ended September 30, 2022

Members' Equity Shareholders' Equity

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

Shareholders' Equity

Three Months Ended March 31, 2023 Common Stock

Shares Amount Additional Paid-in Capital Retained Earnings Total Shareholders' Equity

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

1 unchanged sentence

Repurchased shares for tax withholding ( 8 ) — ( 234 ) — ( 234 )

Issuance of common shares under long-term incentive plan, net — — 30 — — — —

Dividends declared — — — ( 6,851 ) ( 6,851 )

Net loss — — — — — ( 7,168 ) ( 7,168 )

Net income — — — 31,851 31,851

Balance, March 31, 2023 20,169 $ 20 $ 275,669 $ 83,783 $ 359,472

Shareholders' Equity

Three Months Ended March 31, 2022 Common Stock

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

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

Share-based compensation expense — — 1,061 — 1,061

Repurchased shares for tax withholding ( 13 ) — ( 339 ) — ( 339 )

Issuance of common shares under long-term incentive plan — — 20 — — — —

Dividends declared — — — — — ( 6,159 ) ( 6,159 )

Net income — — — — — 38,555 38,555

Balance, June 30, 2022 — $ — 19,865 $ 20 $ 273,035 $ ( 14,845 ) $ 258,210

Share-based compensation expense, net — — — — 795 — 795

Repurchased shares for tax withholding — — — — ( 9 ) — ( 9 )

Issuance of common shares under long-term incentive plan, net 30 — — — —

Dividends declared — — — ( 6,154 ) ( 6,154 )

Net income — — — — — 59,817 59,817

Balance, September 30, 2022 — $ — 20,182 $ 20 $ 273,821 $ 38,813 $ 312,654

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

RILEY EXPLORATION PERMIAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS'/SHAREHOLDERS' EQUITY- (Continued)

(In Thousands)

Nine Months Ended September 30, 2021

Members' Equity Shareholders' Equity

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

Balance, December 31, 2020 1,568 $ 154,371 — $ — $ — $ — $ —

Purchase of common units under long-term incentive plan ( 3 ) ( 191 ) — — — — —

Dividends on preferred units — ( 574 ) — — — — —

Preferred units converted to common units 512 61,196 — — — — —

Dividends on common units — ( 3,770 ) — — — — —

Unit-based compensation expense — 276 — — — — —

Net loss from January 1, 2021 through February 26, 2021 — ( 19,117 ) — — — — —

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 — — — — 409 — 409

Dividends declared — — — — — ( 4,991 ) ( 4,991 )

Net loss from February 27, 2021 through March 31, 2021 — — — — — ( 32,761 ) ( 32,761 )

Balance, March 31, 2021 — $ — 17,825 $ 18 $ 218,974 $ ( 37,752 ) $ 181,240

Share-based compensation expense — — — — 779 — 779

Issuance of common shares under long-term incentive plan — — 197 — 4,165 — 4,165

Dividends paid — — — — — ( 55 ) ( 55 )

Net loss — — — ( 7,168 ) ( 7,168 )

Balance, June 30, 2021 — $ — 18,022 $ 18 $ 223,918 $ ( 59,308 ) $ 164,628

Share-based compensation expense — — — — 751 — 751

Repurchased shares for tax withholding — — ( 17 ) — ( 514 ) — ( 514 )

Common stock sold to public, net of issuance costs — — 1,667 2 46,682 — 46,684

Dividends declared — — — — — ( 5,513 ) ( 5,513 )

Net income — — — — — 15,654 15,654

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

Balance, March 31, 2022 19,854 $ 20 $ 272,459 $ ( 47,241 ) $ 225,238

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

2 unchanged sentences

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Loss from discontinued operations — 18,797

Oil and gas lease expirations 332 1,465

Depletion, depreciation, amortization and accretion 9,083 6,633

Loss on derivatives 44,395 75,286

(Gain) loss on derivatives ( 5,755 ) 49,632

Settlements on derivative contracts ( 5,088 ) ( 18,375 )

Amortization of deferred financing costs 548 498

Unit-based compensation expense — 276

Share-based compensation expense 1,260 1,017

Deferred income tax expense 5,283 ( 2,893 )

Other 424 191

Changes in operating assets and liabilities

4 unchanged sentences

Accounts payable - related parties 24 193

Inventory ( 5,031 ) —

Revenue payable 1,611 2,067

Other current liabilities 3,235 637

Net Cash Provided by Operating Activities - Continuing Operations 130,352 70,186

Net Cash Provided by Operating Activities 32,970 29,995

Cash Flows from Investing Activities:

Additions to oil and natural gas properties ( 34,986 ) ( 10,171 )

Acquisitions of oil and natural gas properties — ( 445 )

Contributions to equity method investment ( 1,840 ) —

Funds held in escrow ( 33,000 ) —

Additions to other property and equipment ( 109 ) ( 28 )

Tengasco acquired cash — 859

Net Cash Used in Investing Activities - Continuing Operations ( 83,182 ) ( 51,229 )

Net Cash Used in Investing Activities ( 69,935 ) ( 10,199 )

Cash Flows from Financing Activities:

1 unchanged sentence

Proceeds from revolving credit facility 33,000 3,000

Repayment under revolving credit facility ( 21,000 ) ( 41,000 )

Payment of common share/unit dividends ( 18,257 ) ( 14,568 )

Proceeds from issuance of common stock — 50,000

Public offering costs — ( 3,316 )

Payment of preferred unit dividends — ( 1,491 )

Repayments under revolving credit facility — ( 5,000 )

Payment of common share dividends ( 6,778 ) ( 6,140 )

Common stock repurchased for tax withholding ( 234 ) ( 339 )

Purchase of common units under long-term incentive plan — ( 191 )

Net Cash Used in Financing Activities - Continuing Operations ( 37,579 ) ( 7,666 )

Net Increase in Cash and Cash Equivalents from Continuing Operations 9,591 11,291

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

RILEY EXPLORATION PERMIAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

Nine Months Ended September 30,

(In thousands)

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 in Cash and Cash Equivalents 9,591 15,190

Net Cash Provided by (Used in) Financing Activities 25,939 ( 8,504 )

Net Increase (Decrease) in Cash and Cash Equivalents ( 11,026 ) 11,292

Cash and Cash Equivalents, Beginning of Period 13,301 8,317

3 unchanged sentences

Interest, net of capitalized interest $ 788 $ 490

Non-cash Investing and Financing Activities - Continuing Operations:

Income taxes $ — $ —

Non-cash Investing and Financing Activities:

Changes in capital expenditures in accounts payable and accrued liabilities $ 2,870 $ 15,044

Right of use assets obtained in exchange for operating lease liability $ 1,624 $ —

Preferred unit dividends $ — $ 574

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 - Discontinued Operations:

Goodwill incurred in business combination $ — $ 19,013

Assets acquired and liabilities assumed in business combination $ — $ 2,824

Assets contributed to equity method investment $ 2,272 $ —

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

1 unchanged sentence

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Nature of Business

Riley Permian is a growth-oriented, independent oil and natural gas company focused on the acquisition, exploration, development and production of oil, natural gas and NGLs in Texas and New Mexico.

(1) Organization and Nature of Business

Riley Permian is a growth-oriented, independent oil and natural gas company focused on the acquisition, exploration, development and production of oil, natural gas and NGL's 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.

On April 3, 2023 (the “Closing Date”), the Company completed its previously announced acquisition of oil and natural gas assets (the “New Mexico Acquisition”) from Pecos Oil & Gas, LLC (“Pecos”), a Delaware limited liability company and an affiliate of Cibolo Energy Partners LLC.

These unaudited condensed consolidated financial statements and accompanying notes do not include the assets acquired or operating activity from the New Mexico Acquisition as the acquisition was completed in the second quarter of 2023.

For further information regarding the New Mexico Acquisition, see Note 13 - Subsequent Events.

(2) Basis of Presentation

On August 16, 2022, 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.

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.

As a result of the change in the Company's fiscal year, this document reflects the Company's Quarterly Report for the three and nine months ended September 30, 2022 and comparative information for the 2021 periods.

These unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 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 U.S.

Effective by the Company's Board of Directors written consent on September 23, 2022, the Company's fiscal year is now the period from January 1 to December 31, beginning with the year ended December 31, 2022.

These unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 include the accounts of Riley Permian and its wholly owned subsidiaries and have been prepared in accordance with U.S.

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 condensed 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 information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.

These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended September 30, 2021 and the Company's Transition Report on Form 10-QT for the period ended December 31, 2021.

These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

These condensed consolidated financial statements have not been audited by an independent registered public accounting firm.

In the opinion of the Company’s management, the accompanying unaudited financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2022, for various reasons, including as a result of the impact of fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, the current and future impacts of the military conflict between Russia and Ukraine, the volatile inflationary environment in U.S.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2023, for various reasons, including as a result of the impact of fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, the current and future impacts of the military conflict between Russia and Ukraine, the volatile inflationary environment in U.S.

markets and other factors.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(3) Summary of Significant Accounting Policies

7 unchanged sentences

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, ARO, the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Accounts Receivable

Accounts receivable is summarized below:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In thousands)

3 unchanged sentences

Total accounts receivable $ 24,640 $ 25,551

The Company had no allowance for credit losses at September 30, 2022 and December 31, 2021.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company had no allowance for credit losses at March 31, 2023 and December 31, 2022.

Other Non-Current Assets, Net

Other non-current assets consisted of the following:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In thousands)

2 unchanged sentences

Right of use assets 1,232 1,370

Equity method investment 3,880 —

Other deposits 66 63

Total other non-current assets, net $ 9,784 $ 4,175

The Company incurred $ 1.7 million in financing costs related to the amendment of its revolving credit facility in April 2022.

The Company extended certain existing leases and entered into a new lease during the nine months ended September 30, 2022, which resulted in additions to the right of use assets.

Equity method investment.

In January 2023, the Company entered into an agreement to form a joint venture created for the purpose of constructing a new power infrastructure for onsite power generation in Yoakum County, Texas using produced natural gas.

RPC Power Holdco LLC, a wholly owned subsidiary of REPX, has a 30 % investment in the joint venture, RPC Power LLC ("RPC Power").

The Company will contribute its portion of capital expenditures for construction of the onsite power generation.

As of March 31, 2023, the Company invested $ 4.1 million, comprised of $ 1.8 million in cash and $ 2.3 million of contributed assets, which was reduced by a $ 0.2 million loss during the three months ended March 31, 2023.

The Company accounts for its corporate joint ventures under the equity method of accounting in accordance with FASB Accounting Standards Codification Topic 323 “Investments — Equity Method and Joint Ventures.” The Company applies the equity method of accounting to investments of less than 50% in an investee over which the Company exercises significant influence but does not have control.

Under the equity method of accounting, the Company’s share of the investee’s earnings or loss is recognized in the condensed consolidated statement of operations.

Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions, material intercompany transactions and extent of ownership by an investor in relation to the concentration of other shareholdings.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Accrued Liabilities

Accrued liabilities consisted of the following:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In thousands)

2 unchanged sentences

Accrued general and administrative costs 3,591 2,286

Accrued inventory 210 6,235

Accrued ad valorem tax 916 3,789

Other accrued expenditures 766 1,921

Total accrued liabilities $ 21,518 $ 35,582

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Current Liabilities

Other current liabilities consisted of the following:

March 31, 2023 December 31, 2022

(In thousands)

Advances from joint interest owners $ 170 $ 192

Income taxes payable 4,601 1,194

Current ARO liabilities 71 314

Lease liabilities 540 538

Total other current liabilities $ 5,382 $ 2,238

Asset Retirement Obligations

Components of the changes in ARO for the nine months ended September 30, 2022 and the year ended December 31, 2021 are shown below:

September 30, 2022 December 31, 2021

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

March 31, 2023 December 31, 2022

(In thousands)

10 unchanged sentences

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

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 condensed consolidated statement of operations, of $ 18.5 million for the nine months ended September 30, 2021.

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

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue Recognition

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(In thousands)

5 unchanged sentences

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued 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 condensed consolidated financial statements.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In March 2020, the FASB issued ASU No.

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

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

ASU 2020-04 allows, among other things, certain contract modifications, such as those within the scope of Topic 470 on debt, to be accounted 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 condensed consolidated financial statements.

(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 condensed 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 $ 0.2 million and $ 2.6 million was expensed for the three and nine months ended September 30, 2021 as transaction costs on the condensed consolidated statements of operations.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED 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):

Cash and cash equivalents $ 860

Account 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

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.

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

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED 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)

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:

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.

No new accounting pronouncements have been adopted or issued that would impact the financial statements of the Company.

(4) Oil and Natural Gas Properties

Oil and natural gas properties are summarized below:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In thousands)

3 unchanged sentences

615,481 573,950

Accumulated depletion and amortization ( 116,712 ) ( 95,021 )

Accumulated depletion, amortization and impairment ( 142,759 ) ( 133,848 )

Total oil and natural gas properties, net $ 472,722 $ 440,102

Depletion and amortization expense for proved oil and natural gas properties was $ 8.2 million and $ 6.5 million for the three months ended September 30, 2022 and 2021.

Depletion and amortization expense for proved oil and natural gas properties was $ 21.7 million and $ 19.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Exploration expense was $ 20 thousand and $ 0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $ 1.5 million and $ 9.1 million for the nine months ended September 30, 2022 and 2021, respectively.

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

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Depletion and amortization expense for proved oil and natural gas properties was $ 8.9 million and $ 6.4 million, respectively, for the three months ended March 31, 2023 and 2022.

Exploration expense was $ 0.3 million and $ 1.5 million, respectively, for the three months ended March 31, 2023 and 2022.

On April 3, 2023, the Company closed on an acquisition of oil and natural gas assets.

Transaction costs associated with the acquisition were approximately $ 1.9 million for the three months ended March 31, 2023.

In connection with the acquisition, a deposit of $ 33 million was paid by the Company and reflected as funds held in escrow on the condensed consolidated balance sheet as of March 31, 2023.

For further information regarding the acquisition, see Note 13 - Subsequent Events.

(5) Derivative Instruments

3 unchanged sentences

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 condensed consolidated statement of operations.

As of September 30, 2022, the Company's oil and natural gas derivative instruments consisted of fixed price swaps, costless collars, and basis protection swaps.

The following table summarizes the open financial derivative positions as of September 30, 2022, related to oil and natural gas production:

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of March 31, 2023, the Company's oil and natural gas derivative instruments consisted of fixed price swaps, costless collars, and basis protection swaps.

The following table summarizes the open financial derivative positions as of March 31, 2023, related to oil and natural gas production:

Weighted Average Price

2 unchanged sentences

Q2 2023 468,000 $ 66.65 $ — $ —

Q3 2023 362,000 $ 66.76 $ — $ —

Q4 2023 302,000 $ 66.18 $ — $ —

2024 240,000 $ 71.60 $ — $ —

1 unchanged sentence

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 $ — $ —

Oil Collars (Bbl)

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 1,621,000 $ — $ 61.12 $ 84.39

2025 378,000 $ — $ 60.00 $ 77.23

Natural Gas Collars (Mcf)

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)

Q2 2023 360,000 $ 1.28 $ — $ —

Interest Rate Contracts

The Company has entered into floating-to-fixed interest rate swaps, in which it receives a floating market rate equal to one-month LIBOR and pays a fixed interest rate, to manage interest rate exposure related to the Company's revolving credit facility.

The following table summarizes the open interest rate derivative positions as of September 30, 2022:

Open Coverage Period Notional Amount Fixed Rate

(In thousands)

Floating-to-Fixed Interest Rate Swaps

October 2022 - September 2023 $ 40,000 0.24 %

Q3 2023 360,000 $ 1.28 $ — $ —

Q4 2023 360,000 $ 1.28 $ — $ —

2024 960,000 $ 0.87 $ — $ —

RILEY EXPLORATION PERMIAN, INC.

1 unchanged sentence

Balance Sheet Presentation of Derivatives

The following tables present the location and fair value of the Company’s derivative contracts included in the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021:

September 30, 2022

The following tables present the location and fair value of the Company’s derivative contracts included in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:

March 31, 2023

Balance Sheet Classification Gross Fair Value Amounts Netted Net Fair Value

13 unchanged sentences

Total $ ( 16,464 ) $ — $ ( 16,464 )

The following table presents the components of the Company's gain (loss) on derivatives for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

Three Months Ended March 31,

(In thousands)

8 unchanged sentences

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.

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

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

Assets and Liabilities Measured on a Recurring Basis

The fair value of commodity derivatives are 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 financial assets and

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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.

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, by level within the fair value hierarchy:

September 30, 2022

liabilities that were accounted for at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, by level within the fair value hierarchy:

March 31, 2023

Level 1 Level 2 Level 3 Total

2 unchanged sentences

Commodity derivative assets $ — $ 19,860 $ — $ 19,860

Interest rate assets $ — $ 1,607 $ — $ 1,607

Financial liabilities:

Commodity derivative liabilities $ — $ ( 25,481 ) $ — $ ( 25,481 )

Interest rate liabilities $ — $ — $ — $ —

December 31, 2022

3 unchanged sentences

Commodity derivative assets $ — $ 73 $ — $ 73

Interest rate assets $ — $ 361 $ — $ 361

Financial liabilities:

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

Interest rate liabilities $ — $ ( 10 ) $ — $ ( 10 )

(7) 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.

Riley Permian Operating Company, LLC ("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.

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(In thousands)

Combo $ 300 $ 300

REG 300 300 900 900

Contract services - related parties $ 600 $ 600

Cost of contract services $ 110 $ 85

The Company had amounts due to Combo of $ 0.1 million and $ 0.2 million at September 30, 2022 and December 31, 2021, respectively, which are reflected in accounts payable - related parties on the accompanying condensed consolidated balance

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company had amounts payable to Combo of $ 0.3 million and $ 0.4 million at March 31, 2023 and December 31, 2022, respectively, which are reflected in accounts payable - related parties, respectively, on the accompanying condensed 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

On January 25, 2022, the Company and di Santo Law PLLC ("di Santo Law"), a law firm owned by a member of our Board of Directors, entered into an engagement letter that provides a monthly fixed fee in exchange for general corporate legal services.

The agreement has an initial term of one year and provides for a monthly cash payment of $ 30 thousand and an aggregate one-time grant of 10,500 shares of restricted stock that vest in four equal installments at the end of each quarter in calendar year 2022.

Prior to entry into this agreement, di Santo Law's attorneys provided legal services to the Company based on hourly rates.

The Company incurred legal fees from di Santo Law of approximately $ 0.2 million and $ 0.5 million for the three months ended September 30, 2022 and 2021, respectively.

The Company incurred legal fees from di Santo Law of approximately $ 0.5 million and $ 1.3 million for the nine months ended September 30, 2022 and 2021.

As of September 30, 2022, there were no amounts due to di Santo Law.

As of December 31, 2021, the Company had approximately $ 0.2 million accrued for di Santo Law.

Such amounts were included in accrued liabilities in the accompanying condensed 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.

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

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

On April 29, 2022, the Company amended its Credit Agreement to, among other things, increase the borrowing base from $ 175 million to $ 200 million, extend the maturity date to April 2026, replace LIBOR with SOFR and change the requirements for hedging to be based on utilization of the borrowing base and the Company's leverage ratio.

On October 25, 2022, the Company amended its Credit Agreement to, among other things, increase the borrowing base from $ 200 million to $ 225 million and change the semi-annual redeterminations to April 1 and October 1 to align with the Company's new fiscal year end of December 31st..

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).

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 September 30, 2022, the Company's minimum hedging requirement was 0 %.

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.

The Company incurred legal fees from di Santo Law of approximately $ 0.2 million for the three months ended March 31, 2023 and 2022.

As of March 31, 2023 and December 31, 2022, the Company had approximately $ 20 thousand and zero in amounts

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

accrued for di Santo Law, which was included in accounts payable - related parties in the accompanying condensed consolidated balance sheets.

(8) Long-Term Debt

As of March 31, 2023, Riley Exploration - Permian, LLC ("REP LLC"), as borrower, and the Company, as parent guarantor, are parties to a credit agreement with Truist Bank and certain lenders party thereto, as amended, which provides for a borrowing base of $ 225 million (such agreement and the borrowing facility provided thereby, the “Credit Facility”).

On February 22, 2023, the Company amended its Credit Facility to, among other things, allow for the issuance of unsecured senior notes of up to $ 200 million.

On April 3, 2023, the Company amended its Credit Facility to, among other things, increase the borrowing base from $ 225 million to $ 325 million and completed its issuance of $ 200 million Senior Unsecured Notes due 2028 ("Senior Notes").

For more information on the amended Credit Facility and the issuance of the Senior Notes, see Note 13 - Subsequent Events.

The Credit Facility is set to mature in April 2026.

Substantially all of the Company’s assets are pledged to secure the Credit Facility.

The following table summarizes the Company's interest expense:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(In thousands)

Interest expense, net of capitalized interest $ 273 $ 728 $ 1,050 $ 2,645

Interest expense $ 1,294 $ 384

Capitalized interest ( 615 ) —

Amortization of deferred financing costs 192 191

1 unchanged sentence

Total interest expense, net $ 1,016 $ 678

As of September 30, 2022 and December 31, 2021, the weighted average interest rate on outstanding borrowings under the revolving credit facility was 5.88 % and 3.10 %, respectively.

As of September 30, 2022, the Company was in compliance with all covenants contained in the Credit Agreement and had $ 48 million of outstanding borrowings and $ 152 million 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.

For the three months ended September 30, 2022 and 2021, the Company declared quarterly dividends on its common stock totaling approximately $ 6.2 million and $ 5.5 million, respectively.

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

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 444,549 shares remained available as of September 30, 2022.

As of March 31, 2023 and December 31, 2022, the weighted average interest rate on outstanding borrowings under the revolving credit facility was 7.86 % and 7.17 %, respectively.

As of March 31, 2023 and December 31, 2022, the Company was in compliance with all covenants and had outstanding borrowings of $ 89 million and $ 56 million, respectively, and $ 136 million and $ 169 million, respectively, available under the borrowing base.

(9) Shareholders' Equity

For the three months ended March 31, 2023 and 2022, the Company declared quarterly dividends on its common stock totaling approximately $ 6.9 million and $ 6.2 million, respectively.

Equity-Based Compensation

The Company's long-term equity incentive plan (the "2021 LTIP") had 1,387,022 shares of common stock available for issuance, of which 434,920 shares remained available as of March 31, 2023.

Subsequent to March 31, 2023, an amendment and restatement of the 2021 LTIP was approved at the Company's annual meeting of stockholders held on April 21, 2023.

For more information, see Note 13 - Subsequent Events.

RILEY EXPLORATION PERMIAN, INC.

1 unchanged sentence

2021 Long-Term Incentive Plan

The following table presents the Company's restricted stock activity during the nine months ended September 30, 2022 under the 2021 LTIP:

The following table presents the Company's restricted stock activity during the three months ended March 31, 2023 under the 2021 LTIP:

2021 Long-Term Incentive Plan

5 unchanged sentences

Forfeited ( 365 ) $ 16.30

Unvested at September 30, 2022

Unvested at March 31, 2023

504,251 $ 18.63

For the three months ended September 30, 2022 and 2021, the total equity-based compensation expense is $ 0.8 million for both periods and is included in general and administrative costs on the Company's condensed consolidated statement of operations for the restricted share awards granted under the 2021 LTIP.

For the nine months ended September 30, 2022 and 2021, the total equity-based compensation expense of $ 2.7 million and $ 6.1 million, respectively, is included in general and administrative costs on the Company's condensed consolidated statement of operations for the restricted share awards granted under the 2021 LTIP.

Approximately $ 9.4 million of additional equity-based compensation expense will be recognized over the weighted average life of 30 months for the unvested restricted share awards as of September 30, 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.

Total unit-based compensation expense of $ 0.3 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 condensed consolidated statement of operations.

For the three months ended March 31, 2023 and 2022, the total equity-based compensation expense is $ 1.3 million and $ 1.0 million, respectively, for all periods and is included in general and administrative costs on the Company's condensed consolidated statement of operations for the restricted share awards granted under the 2021 LTIP.

Approximately $ 7.6 million of additional equity-based compensation expense will be recognized over the weighted average life of 25 months for the unvested restricted share awards as of March 31, 2023 granted under the 2021 LTIP.

(10) 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.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

Three Months Ended March 31,

(In thousands)

1 unchanged sentence

Federal $ 3,207 $ 768

State 291 284 486 52

Total current income tax expense $ 3,407 $ 779

1 unchanged sentence

Federal $ 5,088 $ ( 2,894 )

State 424 2,204 763 ( 717 )

Total deferred income tax expense (benefit) $ 5,283 $ ( 2,893 )

Total income tax expense (benefit) $ 8,690 $ ( 2,114 )

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(In thousands)

Tax at statutory rate 21.0 % 21.0 %

Nondeductible compensation — % ( 0.4 ) %

Transaction costs — % ( 47.7 ) % — % ( 2.1 ) %

Stock compensation — % 0.2 % ( 0.1 ) % ( 0.1 ) %

Share-based compensation ( 0.4 ) % 1.9 %

State income taxes, net of federal benefit 0.8 % 0.4 %

Change in tax status — % ( 0.5 ) % — % ( 53.4 ) %

Income subject to taxation by REP LLC's unitholders — % — % — % ( 15.8 ) %

Other ( 0.5 ) % — % ( 0.3 ) % — %

Effective income tax rate 21.4 % 22.9 %

3 unchanged sentences

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

(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.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Three Months Ended Nine Months Ended

September 30, 2021 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 income (expenses) 775 ( 107 )

Gain (loss) from discontinued operations before income taxes 775 ( 18,738 )

Income tax benefit (expense) 1 ( 59 )

Gain (loss) from discontinued operations, net of tax $ 776 $ ( 18,797 )

The Company did not have any discontinued operations during the three and nine months ended September 30, 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 three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

(In thousands, except per share/unit)

Continuing Operations:

Net income (loss) - Diluted $ 59,817 $ 14,878 $ 91,204 $ ( 38,928 )

Dividends on preferred units — — — ( 574 )

Net income (loss) attributable to common shareholders/unitholders - Basic (1)

$ 59,817 $ 14,878 $ 91,204 $ ( 39,502 )

Basic weighted-average common shares/units outstanding 19,546 19,434 19,530 17,218

Effecting of dilutive securities:

Restricted shares/units 41 106 102 —

Diluted weighted-average common shares/units outstanding 19,587 19,540 19,632 17,218

Continuing Operations:

Basic net income (loss) per common share/unit $ 3.06 $ 0.77 $ 4.67 $ ( 2.29 )

Diluted net income (loss) per common share/unit $ 3.05 $ 0.76 $ 4.65 $ ( 2.29 )

_____________________________________________________

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

(11) Net Income (Loss) Per Share

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

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

Three Months Ended March 31,

(In thousands, except per share)

Net income (loss) $ 31,851 $ ( 7,168 )

Basic weighted-average common shares outstanding 19,649 19,501

Restricted shares 261 —

Diluted weighted average common shares outstanding 19,910 19,501

Basic net income (loss) per common share $ 1.62 $ ( 0.37 )

Diluted net income (loss) per share $ 1.60 $ ( 0.37 )

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

Three Months Ended March 31,

Restricted shares 246,358 332,725

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

For the three and nine months ended September 30, 2022 and 2021, the following shares/units were excluded from the calculation of diluted net income (loss) per share/unit due to their anti-dilutive effect:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

(In thousands)

Restricted shares/units 293 127 232 228

(12) Commitments and Contingencies

Indemnification

The Company has agreed to indemnify its directors and certain of its officers, employees and agents with respect to claims and damages arising from acts or omissions taken in such capacity, as well as with respect to certain litigation.

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions.

Pursuant to such agreements, the Company may indemnify, hold harmless and defend the indemnified parties for losses suffered or incurred by the indemnified party.

Some of the provisions will limit losses to those arising from third-party actions.

In some cases, the indemnification will continue after the termination of the agreement.

The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.

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.

The complaint also alleges that Salas, Dolphin Direct Equity Partners, L.P.

("DDEP"), an entity substantially owned by Salas, and the Company are jointly and severally liable for the damages incurred by Hoactzin.

In connection with the Company’s merger in February 2021, Salas resigned his position from the Company’s Board and no longer holds any position as an officer or director of the Company.

On April 2, 2021, the Company closed on the sale of all the assets it held in Kansas (of which the Kansas Working Interests were a small part) to a third party for an agreed upon purchase price of $ 3.3 million.

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 will 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.

The effectiveness of the Settlement Agreement is contingent upon its approval by the Bankruptcy Court.

On October 13, 2022, the Trustee filed a motion to approve the Settlement Agreement with the Bankruptcy Court (the “Settlement Motion”).

A hearing will be held on November 16, 2022 on the Settlement Motion.

Should the Court decline to approve the proposed settlement, the Trustee's claims against Riley Permian would proceed to trial, absent a subsequent settlement approved by the Court.

If the Bankruptcy Court grants the Settlement Motion, after Riley Permian makes the settlement payment contemplated under the Settlement Agreement, Riley Permian and the Trustee intend to file a joint motion requesting dismissal of the Adversary Proceeding with prejudice, as contemplated by the Settlement Agreement.

The Settlement Agreement will have no 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.

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

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

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

The Company did not recognize any material liability as of March 31, 2023 and December 31, 2022.

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

Environmental Matters

1 unchanged sentence

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

The Company had no material environmental liabilities as of September 30, 2022 or December 31, 2021.

The Company had no material environmental liabilities as of March 31, 2023 or December 31, 2022.

Contractual Commitments

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

In October 2021, the Company executed an agreement related to its EOR project.

This 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.

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 $ 10.1 million of pipe by first quarter of 2023.

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.

In January 2023, the Company entered into an agreement to form a joint venture with Conduit Power LLC.

The Company is committed to contribute its portion of capital expenditures into the joint venture company, RPC Power.

In conjunction with the formation of the joint venture, the Company entered into additional agreements with RPC Power or one of its subsidiaries.

These agreements include RPC Power providing operational expertise on the implementation and management of the power generation for a monthly fee of $ 20 thousand and the Company committing to provide the natural gas needed to fuel the onsite power generators through 2028.

(13) Subsequent Events

On October 10, 2022, the Board of Directors of the Company declared a cash dividend of $ 0.34 per share of common stock payable on November 7, 2022 to its shareholders of record at the close of business on October 24, 2022.

On October 25, 2022, the Company amended its Credit Agreement to, among other things, increase the borrowing base from $ 200 million to $ 225 million and change the semi-annual redetermination dates to April 1 and October 1 to align with the Company's new fiscal year end of December 31st.

New Mexico Acquisition

The New Mexico Acquisition expands the Company's operations and adds significant drilling locations to the Company inventory.

RILEY EXPLORATION PERMIAN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The aggregate purchase price of the New Mexico Acquisition is $ 330 million, subject to customary purchase price adjustments pursuant to the purchase and sale agreement (the “Purchase Agreement”), and was funded through a combination of borrowings under the Company's revolving credit facility and proceeds from the issuance of $ 200 million of Senior Notes.

Due to the recent closing of the New Mexico Acquisition, the acquisition date fair value of the assets and liabilities of Pecos and certain other related disclosures were not yet available as of the date of this report.

This acquisition will be accounted for as a business combination.

Issuance of Senior Notes

On the Closing Date, the Company (as “Issuer”) completed its issuance of $ 200 million aggregate principal amount of 10.50 % Senior Unsecured Notes due 2028 pursuant to a note purchase agreement (the “Note Purchase Agreement”), which the Senior Notes were issued at a 6 % discount.

The net proceeds from the Senior Notes were used to fund a portion of the purchase price and related fees, costs and expenses for the New Mexico Acquisition.

The Issuer may, at its option, redeem, at any time and from time to time on or prior to April 3, 2026, some or all of the Senior Notes at 100 % of the principal amount thereof plus the make-whole amount plus a premium of 5.25 % as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any.

After April 3, 2026, but on or prior to October 3, 2026, the Issuer may, at its option, redeem, at any time and from time to time some or all of the Senior Notes at 100 % of the principal amount thereof plus a premium of 5.25 % as set forth in the Note Purchase Agreement plus accrued and unpaid interest, if any.

After October 3, 2026, the Issuer may redeem some or all of the Senior Notes at 100 % of the principal amount thereof plus accrued and unpaid interest, if any.

The principal remaining outstanding at the time of maturity is required to be paid in full by the Issuer.

The Senior Notes are general unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company and are senior in right of payment to all existing and future subordinated indebtedness of the Company.

The Note Purchase Agreement contains customary terms and covenants, including limitations on the Company’s ability to incur additional secured and unsecured indebtedness.

Amendment to Credit Facility

On the Closing Date, the Company entered into the fourteenth amendment (the “Fourteenth Amendment”) to the Credit Facility to allow for the closing of the New Mexico Acquisition, including increasing the maximum facility amount to $ 1.0 billion and increasing the borrowing base to $ 325 million from $ 225 million and adding new lender parties to the syndicate, among other matters.

The Company used borrowings from the Credit Facility to fund a portion of the purchase price and related fees, costs and expenses for the New Mexico Acquisition.

Amendment and Restatement of the 2021 LTIP

On April 21, 2023 at the Company's annual meeting of stockholders, the Company's stockholders approved the Amended and Restated 2021 Long Term Incentive Plan (the "A&R LTIP") that increased the total number of shares of Common Stock, par value $ 0.001 per share, by 950,000 shares that may be utilized for awards pursuant to the Plan from 1,387,022 to 2,337,022 .

The A&R LTIP is described in further detail in the Company's definitive proxy statement for the Annual Meeting filed with the Securities and Exchange Commission on March 22, 2023.

Dividend Declaration

On April 11, 2023, the Board of Directors of the Company declared a cash dividend of $ 0.34 per share of common stock payable on May 9, 2023 to its shareholders of record at the close of business on April 25, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements