Riley Exploration Permian, Inc. 10-Q

Item 1. Financial Statements RILEY EXPLORATION PERMIAN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 2023 December 31, 2022 (In thousands, except share amounts) Assets Current Assets: Cash and cash equivalents $ 2,275 $ 13,301 Accounts receivable 24,640 25,551 Prepaid expenses and other current assets 2,242 3,236 Inventory 7,892 8,886 Current derivative assets 1,637 20 Total current assets 38,686 50,994 Oil and natural gas properties, net (successful efforts) 472,722 440,102 Other property and equipment, net 20,012 20,023 Non-current derivative assets 939 — Funds held in escrow 33,000 — Other non-current assets, net 9,784 4,175 Total Assets $ 575,143 $ 515,294 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 17,002 $ 3,939 Accounts payable - related parties 348 324 Accrued liabilities 21,518 35,582 Revenue payable 19,361 17,750 Current derivative liabilities 8,019 16,472 Other current liabilities 5,382 2,238 Total Current Liabilities 71,630 76,305 Non-current derivative liabilities 178 12 Asset retirement obligations 2,860 2,724 Revolving credit facility 89,000 56,000 Deferred tax liabilities 51,039 45,756 Other non-current liabilities 964 1,051 Total Liabilities 215,671 181,848 Commitments and Contingencies (Note 12) 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; 20,169,434 and 20,160,980 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 20 20 Additional paid-in capital 275,669 274,643 Retained earnings 83,783 58,783 Total Shareholders' Equity 359,472 333,446 Total Liabilities and Shareholders' Equity $ 575,143 $ 515,294 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents RILEY EXPLORATION PERMIAN, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2023 2022 (In thousands, except per share amounts) Revenues: Oil and natural gas sales, net $ 66,412 $ 66,645 Contract services - related parties 600 600 Total Revenues 67,012 67,245 Costs and Expenses: Lease operating expenses 8,875 6,830 Production and ad valorem taxes 4,110 3,502 Exploration costs 332 1,498 Depletion, depreciation, amortization and accretion 9,083 6,633 General and administrative: Administrative costs 5,467 4,014 Share-based compensation expense 1,114 1,017 Cost of contract services - related parties 110 85 Transaction costs 1,887 2,638 Total Costs and Expenses 30,978 26,217 Income From Operations 36,034 41,028 Other Income (Expense): Interest expense, net ( 1,016 ) ( 678 ) 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 Operations Before Income Taxes 40,541 ( 9,282 ) Income tax (expense) benefit ( 8,690 ) 2,114 Net Income (Loss) $ 31,851 $ ( 7,168 ) Net Income (Loss) per Share: Basic $ 1.62 $ ( 0.37 ) Diluted $ 1.60 $ ( 0.37 ) Weighted Average Common Shares Outstanding: Basic 19,649 19,501 Diluted 19,910 19,501 The accompanying notes are an integral part of these condensed consolidated financial statements. 9 Table of Contents RILEY EXPLORATION PERMIAN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (In Thousands) 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 Share-based compensation expense 16 — 1,260 — 1,260 Repurchased shares for tax withholding ( 8 ) — ( 234 ) — ( 234 ) Dividends declared — — — ( 6,851 ) ( 6,851 ) 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, net 30 — — — — Dividends declared — — — ( 6,154 ) ( 6,154 ) Net loss — — — ( 7,168 ) ( 7,168 ) 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. 10 Table of Contents RILEY EXPLORATION PERMIAN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2023 2022 (In thousands) Cash Flows from Operating Activities: Net income (loss) $ 31,851 $ ( 7,168 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Oil and gas lease expirations 332 1,465 Depletion, depreciation, amortization and accretion 9,083 6,633 (Gain) loss on derivatives ( 5,755 ) 49,632 Settlements on derivative contracts ( 5,088 ) ( 18,375 ) 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 Accounts receivable 911 ( 7,780 ) Accounts receivable – related parties — ( 1,106 ) Prepaid expenses and other current assets ( 1,276 ) 839 Accounts payable and accrued liabilities ( 3,894 ) 4,643 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 32,970 29,995 Cash Flows from Investing Activities: Additions to oil and natural gas properties ( 34,986 ) ( 10,171 ) Contributions to equity method investment ( 1,840 ) — Funds held in escrow ( 33,000 ) — Additions to other property and equipment ( 109 ) ( 28 ) Net Cash Used in Investing Activities ( 69,935 ) ( 10,199 ) Cash Flows from Financing Activities: Deferred financing costs ( 49 ) ( 25 ) Proceeds from revolving credit facility 33,000 3,000 Repayments under revolving credit facility — ( 5,000 ) Payment of common share dividends ( 6,778 ) ( 6,140 ) Common stock repurchased for tax withholding ( 234 ) ( 339 ) 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 Cash and Cash Equivalents, End of Period $ 2,275 $ 19,609 Supplemental Disclosure of Cash Flow Information Cash Paid For: Interest, net of capitalized interest $ 788 $ 490 Income taxes $ — $ — Non-cash Investing and Financing Activities: Changes in capital expenditures in accounts payable and accrued liabilities $ 2,870 $ 15,044 Assets contributed to equity method investment $ 2,272 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 11 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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 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 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. GAAP. All intercompany balances and transactions have been eliminated upon consolidation. 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 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 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. (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 condensed 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, ARO, the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives. 13 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Accounts Receivable Accounts receivable is summarized below: March 31, 2023 December 31, 2022 (In thousands) Oil, natural gas and NGL sales $ 23,804 $ 24,136 Joint interest accounts receivable 728 793 Other accounts receivable 108 622 Total accounts receivable $ 24,640 $ 25,551 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: March 31, 2023 December 31, 2022 (In thousands) Deferred financing costs, net $ 2,413 $ 2,556 Prepayments to outside operators 2,193 186 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 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. 14 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Accrued Liabilities Accrued liabilities consisted of the following: March 31, 2023 December 31, 2022 (In thousands) Accrued capital expenditures $ 13,768 $ 16,744 Accrued lease operating expenses 2,267 4,607 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 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 consisted of the following and is shown below: March 31, 2023 December 31, 2022 (In thousands) ARO, beginning balance $ 3,038 $ 2,453 Liabilities incurred 21 358 Revision of estimated obligations — 326 Liability settlements and disposals ( 153 ) ( 178 ) Accretion 25 79 ARO, ending balance 2,931 3,038 Less: current ARO (1) ( 71 ) ( 314 ) ARO, long-term $ 2,860 $ 2,724 _____________________ (1) Current ARO is included within other current liabilities on the accompanying condensed consolidated balance sheets. 15 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Revenue Recognition The following table presents oil and natural gas sales disaggregated by product: Three Months Ended March 31, 2023 2022 (In thousands) Oil and natural gas sales: Oil $ 64,974 $ 62,376 Natural gas 523 1,789 Natural gas liquids 915 2,480 Total oil and natural gas sales, net $ 66,412 $ 66,645 Recent Accounting Pronouncements 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: March 31, 2023 December 31, 2022 (In thousands) Proved $ 550,099 $ 516,011 Unproved 11,109 12,770 Work-in-progress 54,273 45,169 615,481 573,950 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 $ 8.9 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 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 condensed consolidated statement of operations. 16 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 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 Calendar Quarter / Year Notional Volume Fixed Put Call ($ per unit) Oil Swaps (Bbl) Q2 2023 468,000 $ 66.65 $ — $ — Q3 2023 362,000 $ 66.76 $ — $ — Q4 2023 302,000 $ 66.18 $ — $ — 2024 240,000 $ 71.60 $ — $ — Natural Gas Swaps (Mcf) 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 $ — $ — Q3 2023 360,000 $ 1.28 $ — $ — Q4 2023 360,000 $ 1.28 $ — $ — 2024 960,000 $ 0.87 $ — $ — 17 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 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 March 31, 2023 and December 31, 2022: March 31, 2023 Balance Sheet Classification Gross Fair Value Amounts Netted Net Fair Value (In thousands) Current derivative assets $ 8,709 $ ( 7,072 ) $ 1,637 Non-current derivative assets 11,151 ( 10,212 ) 939 Current derivative liabilities ( 15,091 ) 7,072 ( 8,019 ) Non-current derivative liabilities ( 10,390 ) 10,212 ( 178 ) Total $ ( 5,621 ) $ — $ ( 5,621 ) 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 ) The following table presents the components of the Company's gain (loss) on derivatives for the periods presented below: Three Months Ended March 31, 2023 2022 (In thousands) Settlements on derivative contracts $ ( 5,088 ) $ ( 18,375 ) Non-cash gain (loss) on derivatives 10,843 ( 31,257 ) Gain (loss) on derivatives $ 5,755 $ ( 49,632 ) (6) 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 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 18 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 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 (In thousands) Financial assets: Commodity derivative assets $ — $ 19,860 $ — $ 19,860 Financial liabilities: Commodity derivative liabilities $ — $ ( 25,481 ) $ — $ ( 25,481 ) 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 ) (7) Transactions with Related Parties Contract Services 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 March 31, 2023 2022 (In thousands) Combo $ 300 $ 300 REG 300 300 Contract services - related parties $ 600 $ 600 Cost of contract services $ 110 $ 85 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 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 19 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 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 March 31, 2023 2022 (In thousands) Interest expense $ 1,294 $ 384 Capitalized interest ( 615 ) — Amortization of deferred financing costs 192 191 Unused commitment fees 145 103 Total interest expense, net $ 1,016 $ 678 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 Dividends 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. 20 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 2021 Long-Term Incentive Plan 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 Restricted Shares Weighted Average Grant Date Fair Value Unvested at December 31, 2022 536,209 $ 18.39 Granted 16,364 $ 31.62 Vested ( 47,957 ) $ 18.14 Forfeited ( 365 ) $ 16.30 Unvested at March 31, 2023 504,251 $ 18.63 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 The components of the Company's consolidated provision for income taxes from operations are as follows: Three Months Ended March 31, 2023 2022 (In thousands) Current income tax expense: Federal $ 3,207 $ 768 State 200 11 Total current income tax expense $ 3,407 $ 779 Deferred income tax expense (benefit): Federal $ 5,088 $ ( 2,894 ) State 195 1 Total deferred income tax expense (benefit) $ 5,283 $ ( 2,893 ) Total income tax expense (benefit) $ 8,690 $ ( 2,114 ) 21 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows: Three Months Ended March 31, 2023 2022 (In thousands) Tax at statutory rate 21.0 % 21.0 % Nondeductible compensation — % ( 0.4 ) % Share-based compensation ( 0.4 ) % 1.9 % State income taxes, net of federal benefit 0.8 % 0.4 % Effective income tax rate 21.4 % 22.9 % 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. (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, 2023 2022 (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, 2023 2022 Restricted shares 246,358 332,725 22 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (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 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 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 March 31, 2023 or December 31, 2022. Contractual Commitments 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. 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 New Mexico Acquisition 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. The New Mexico Acquisition expands the Company's operations and adds significant drilling locations to the Company inventory. 23 Table of Contents RILEY EXPLORATION PERMIAN, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 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. 24 . Table of Contents