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Item 7. Management’s Discussion and Analysis

2026-03-04 compared with 2025-03-05 · 167 added, 159 removed, 244 unchanged (57% of the section changed)

5 unchanged sentences

Risk Factors."

Riley Permian is a growth-oriented, independent oil and natural gas company focused on horizontal drilling of conventional oil-saturated and liquids-rich formations that produce long-term stable cash flows in the Permian Basin.

The following discussion and analysis focuses primarily on our results for 2025 and 2024 and comparisons between those periods.

Discussion of 2023 results and comparisons between 2024 and 2023 are not included herein and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2024 Annual Report on Form 10-K.

Riley Permian is a growth-oriented, independent oil and natural gas company focused on horizontal drilling of conventional oil-saturated and liquids-rich formations in the Permian Basin that produce long-term cash flows.

The majority of our acreage is located in Yoakum County, Texas and Eddy County, New Mexico.

Our strategic business objectives include enhancing the rate of return on our invested capital, generating sustainable free cash flow, maintaining a strong and flexible balance sheet while maximizing our returns to shareholders.

We implement this strategy primarily through identification and capture of attractive development opportunities, optimization of our assets and pursuing complementary growth opportunities that increase our scale and meet our strategic and financial objectives.

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Commodity prices remain volatile.

General domestic and international political and economic conditions, including the military conflict between Russia and Ukraine, conflicts in the Middle East, and the U.S.

and global response to such conflicts, global economic growth, actions of OPEC+ countries, and implementation of tariffs could prolong market volatility or cause a decline in commodity prices.

Inflation continues to be an ongoing concern.

Although inflation moderated somewhat, inflationary pressures remain elevated, which in turn may cause our capital expenditures and operating costs to increase.

During inflationary periods, interest rates have historically increased.

General domestic and international economic, market and political conditions, including military conflicts, global economic growth, unpredictability of tariffs, actions of OPEC+ countries and changes to the current political environment could prolong market volatility and cause a decline in commodity prices.

Although the broader rate of inflation has moderated, we continue to monitor the risk of persistent cost pressures in specific areas of our operating expenses and capital expenditures.

Our margins may be compressed if costs increase more than commodity prices.

Additionally, the current interest rate environment remains sensitive to shifts in macroeconomic factors and central bank policies.

Increased interest rates could have the effects of raising our cost of capital and the potential for depressing economic growth, either of which (or the combination thereof) could hurt the financial and operating results of our business.

The Company cannot estimate the length or gravity of the future impact these conditions will have on the Company's results of operations, financial position, liquidity and the value of the oil and natural gas reserves.

2024 New Mexico Asset Acquisition

On May 7, 2024, the Company completed the acquisition of oil and natural gas properties in Eddy County, New Mexico ("2024 New Mexico Asset Acquisition"), which included 13,900 contiguous net acres adjacent to the Company's existing acreage in Eddy County, for a cash purchase price of approximately $19.1 million plus $0.5 million in transaction costs.

The 2024 New Mexico Asset Acquisition was accounted for as an asset acquisition, with the final purchase price and transaction costs being capitalized to oil and natural gas properties.

The acquisition was funded through a combination of proceeds from the 2024 Equity Offering and cash on hand.

Midstream Sale

On December 3, 2025, the Company sold all of our membership interests in Dovetail Midstream, LLC, a wholly owned subsidiary of the Company that holds certain midstream infrastructure projects in Eddy County, New Mexico, to Targa for an aggregate cash purchase price of approximately $111 million, subject to customary purchase price adjustments.

The Midstream Sale also provided for the subsequent sale by the Company of certain compressor station assets for an aggregate cash purchase price of approximately $10 million plus reimbursement of $1.4 million of capital improvements;

this second transaction closed on December 24, 2025.

In connection with the Midstream Sale, the Company recognized a pre-tax gain of $71.7 million, net of $2.6 million of transaction costs, which was recorded in our consolidated statement of operations.

The Company also has the right to earn up to an additional $60 million in cash payments contingent upon achieving certain volumetric performance thresholds over a five-year period.

On November 21, 2025, the Company sold its interest in oil and natural gas properties in Texas outside of the Company's acreage in the Champions field, which had a net carrying value of $10.4 million to an affiliate of Combo.

The properties consisted of six established units in Lee and Fayette Counties, Texas, which were jointly developed by the Company and Combo.

In exchange for the Company's interest in these assets, we received and subsequently retired 250,000 shares of the Company's common stock.

The net carrying value of the assets plus cash paid of $0.8 million less the tax impact of the sale resulted in a reduction to additional paid-in capital of $10.2 million.

Silverback Acquisition

On July 1, 2025, the Company closed on the acquisition of 100% of the ownership interests of Silverback for approximately $123 million, which included approximately $120 million paid in cash and approximately $3 million of estimated fair value related to potential earnout payments.

The Silverback Acquisition added approximately 40,000 net acres directly adjacent to and overlapping with the Company's existing core acreage primarily in Eddy County, New Mexico.

The Company funded the acquisition with cash on hand and borrowings under our Credit Facility.

RPC Power Joint Venture

In January 2023, the Company formed a joint venture, RPC Power, for the purpose of constructing, owning and operating power generation assets which became fully operational in September of 2024.

These assets use the Company’s produced natural gas to power a portion of our oilfield operations in Yoakum County, Texas.

In May 2024, the Company entered into the Second Amended and Restated Limited Liability Company Agreement ("A&R LLC Agreement") to expand the scope of our joint venture to include the constructing, owning, and operating of additional new power generation and storage assets, which are expected to be operational beginning in late 2025 through 2026, for the sale of energy and ancillary services to ERCOT.

In November 2024, the Company signed the Second Amendment to the A&R LLC Agreement, which increased the capital commitment for each owner from $42.5 million to $51.5 million.

During the year ended December 31, 2025, the Company contributed an additional $15.8 million to RPC Power which increased our total capital contributions to $39.5 million.

As of December 31, 2025, the Company owned 50% of the joint venture.

On February 28, 2025, the Company contributed an additional $6.3 million to the joint venture which increased our total capital contributions to $30 million.

2024 Equity Offering

On April 8, 2024, the Company issued and sold 1,015,000 shares of common stock at a price of $27.00 per share.

Net proceeds from the issuance were approximately $25.4 million, after deducting underwriting discounts and commissions and expenses.

On December 31, 2025, RPC Power declared a $3 million dividend of which $1.5 million was the Company's portion.

The dividend was paid in January 2026.

Credit Facility Amendment

On December 13, 2024, the Company entered into the sixteenth amendment to the Credit Facility to, among other things, extend the stated maturity date from April 2026 to December 2028 (or if any Senior Notes are then outstanding, the date that is 181 days prior to the earliest stated maturity date of such Senior Notes, in this case October 2027), increase the borrowing base from $375 million to $400 million, and add one new lender to the lending group.

Gas Purchase Agreement

We believe the successful execution of the Company's New Mexico development plan is dependent upon maintaining operational control and securing reliable processing and downstream markets for our natural gas.

As part of this plan, the Company signed a long-term gas purchase agreement for our New Mexico field with a new midstream counterparty, which includes dedicated acreage for a significant portion of the Company’s oil and gas assets in New Mexico, reimbursement by the Company of construction costs incurred by the midstream counterparty to connect to the Company’s pipeline (subject to a monetary cap of $18.7 million) and an initial 15-year term from the in-service date.

In conjunction with the agreement, the Company intends to construct, own and operate low and high-pressure gathering lines and compression facilities that will connect to our new high capacity 20-inch natural gas pipeline to be constructed by the Company and designed to handle gas volumes of up to 150 MMcf per day.

We currently anticipate the in-service date will be before the end of 2026.

The Board of Directors approved an aggregate of approximately $130 million in capital expenditures to complete these initial projects of our midstream development plan.

Oil & Gas Property Impairments

At December 31, 2024, we recognized a non-cash $11.3 million impairment of proved properties comprised of a $9.5 million impairment in Texas, outside of the Champions field, and a $1.8 million impairment in New Mexico, outside of the Red Lake field.

The impairments were primarily driven by a reduction in reserve volume due to lower well performance assessments based on historical trends.

The affected areas included nine operated producing wells.

Impairment of EOR Project

At September 30, 2024, the Company recorded a $30.2 million impairment related to the discontinuation of our EOR Project, including a $28.9 million non-cash impairment and a $1.3 million cash impairment related to the termination of the Kinder Morgan CO 2 contract.

Select equipment from the EOR Project was salvaged for use in the Company's conventional vertical and horizontal development programs.

In December 2025, through the semi-annual redetermination process, the Company's borrowing base was reaffirmed at $400 million and the requirement for natural gas hedging was removed.

Results of Operations

Comparison for the years ended December 31, 2025, and 2024.

The following table sets forth selected operating data for the years ended December 31, 2024, and 2023:

Years Ended December 31,

Year Ended December 31,

Revenues (in thousands):

Oil sales $ 408,935 $ 363,125

Natural gas sales (1,412) 2,612

Oil sales, net

$ 398,341 $ 408,935

Natural gas sales, net

(3,322) (1,412)

NGLs sales, net

(3,039) 2,278

Oil and natural gas sales, net $ 391,980 $ 409,801

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(1) The Company's oil, natural gas and NGL sales are presented net of gathering, processing and transportation costs.

(1) The Company's oil, natural gas and NGL sales are presented net of GP&T costs.

These costs, related to natural gas and NGLs, at times exceeded the price we received and resulted in negative average realized prices.

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Our revenues are derived from the sale of our oil and natural gas production, including the sale of NGLs that are extracted from our natural gas during processing.

Realized prices and revenues from product sales are a function of the volumes produced, product quality, market prices, gas Btu content, as well as gathering, processing and transportation costs.

Gathering, processing and transportation costs are allocated across natural gas and NGLs based on revenue, which leads to heightened fluctuations in such cost allocations across periods.

Realized prices and revenues from product sales are a function of the volumes produced, product quality, market prices, gas Btu content, as well as GP&T costs.

GP&T costs are allocated across natural gas and NGLs based on revenue, which leads to heightened fluctuations in such cost allocations across periods.

Our revenues from oil, natural gas and NGL sales do not include the effects of derivatives.

Our revenues may vary significantly from period to period as a result of changes in the volume of production sold or changes in commodity prices.

The Company’s total oil and natural gas sales, net increased $37.2 million, or 10%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The following table presents the Company's oil and natural gas sales prior to and net of gathering, processing and transportation costs:

Years Ended December 31,

The following table presents the Company's oil and natural gas sales prior to and net of GP&T costs:

Year Ended December 31,

(In thousands)

Oil sales, gross

$ 408,983 $ 363,151

Gathering, processing and transportation costs

Oil sales, net

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$ 7,272 $ 2,480

Gathering, processing and transportation costs

(10,594) (3,892)

Gas sales, net

$ (3,322) $ (1,412)

NGL sales, gross

$ 44,159 $ 31,591

Gathering, processing and transportation costs

(47,198) (29,313)

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$ 449,772 $ 443,006

Gathering, processing and transportation costs

(57,792) (33,205)

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$ 391,980 $ 409,801

For the year ended December 31, 2024, oil revenues increased by $45.8 million, or 13%, compared to the year ended December 31, 2023.

The following table summarizes the effect of price and volume changes on oil revenues:

The Company’s total oil and natural gas sales, net decreased $17.8 million, or 4%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The following tables summarize the effects of price, volume and GP&T cost changes on our revenues from oil, natural gas and NGLs:

Oil revenues decreased by $10.6 million.

(In thousands)

Oil sales, net for the year ended December 31, 2024

Oil sales, net for the year ended December 31, 2025

Our realized oil prices decreased by $1.52 during the year ended December 31, 2024, when compared to the year ended December 31, 2023, which corresponded with a $0.95 decrease in the average WTI price during the same period.

An increase in basis differentials accounted for the remaining difference.

Daily oil volumes increased by 15% due to increased production from new wells turned to sales in our Champions field as well as the 2023 and 2024 New Mexico Acquisitions.

Our realized oil prices decreased by $11.15 per Bbl, which was the result of an $11.24 per Bbl decrease in the average WTI price.

Daily oil volumes increased by 15% due to increased production from new wells turned to sales in our Red Lake field as well as the partial year contribution from the Silverback Acquisition.

Natural gas revenues

For the year ended December 31, 2024, natural gas revenues decreased by $4.0 million compared to the year ended December 31, 2023.

The following table summarizes the effect of price and volume changes on natural gas revenues:

Natural gas revenues decreased by $1.9 million.

(In thousands)

Gas sales, net for the year ended December 31, 2024

GP&T costs (6,702)

Gas sales, net for the year ended December 31, 2025

Our realized natural gas prices, which were negative for the year ended December 31, 2024, decreased by $0.64 compared to the year ended December 31, 2023, due to weak Permian Basin natural gas prices that did not provide for full recovery of the Company's allocated gathering and processing costs.

This corresponded with a $0.34 decrease in the average Henry Hub price during the year ended December 31, 2024, and an increase in basis differentials due to regional supply imbalances.

For the year ended December 31, 2024, NGL revenues decreased by $4.6 million, or 67%, compared to the year ended December 31, 2023.

The following table summarizes the effect of price and volume changes on NGL revenues:

Our realized natural gas prices before GP&T costs increased by $0.29 per Mcf, which was the result of a $1.33 per Mcf increase in the average Henry Hub price, offset by higher allocated GP&T costs due to increased volumes in our Champions field resulting from a full year contribution of additional third party processing capacity that came online in mid-2024, higher volumes in our Red Lake field from new wells turned to sales as well as the partial year contribution from the Silverback Acquisition.

NGL revenues decreased by $5.3 million.

(In thousands)

NGL sales, net for the year ended December 31, 2024

GP&T costs (17,885)

NGL sales, net for the year ended December 31, 2025

Our realized NGL prices decreased by $5.34 during the year ended December 31, 2024, when compared to the year ended December 31, 2023.

Realized prices decreased due to higher allocated gathering and processing costs from weak Permian Basin natural gas prices that limited the full recovery of the Company's allocated gathering and processing costs.

This was partially offset by a 48% increase in volumes due to additional third party processing capacity that came online in 2024.

Contract Services - Related Party

The following table presents the Company's revenue and costs associated with our contract services - related party transactions:

Year Ended December 31,

(In thousands)

Contract services - related parties (1)

$ 380 $ 2,400

Cost of contract services - related parties (2)

Gross profit from contract services $ 17 $ 1,821

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(1) The Company’s contract services - related parties revenue was derived from master services agreements with related parties to provide certain administrative support services.

(2) The Company's cost of contract services - related parties represented costs specifically attributable to the master service agreements the Company had in place with the respective related parties.

The management services agreement with Riley Exploration Group, LLC was terminated effective May 31, 2024, and the management services agreement with Combo Resources, LLC was terminated effective January 31, 2024.

See Note 9 - Transactions with Related Parties in the Company's consolidated financial statements in "Item 15.

Exhibits and Financial Statement Schedules for more information.

Our realized NGL prices before GP&T costs decreased by $2.76 per Bbl, or 13%, which was the result of an $11.24 per Bbl or 15% decrease in the average WTI price.

GP&T costs increased due to increased volumes in our Champions field resulting from a full year contribution of additional third party processing capacity that came online in mid-2024, higher volumes in our Red Lake field from new wells turned to sales as well as the partial year contribution from the Silverback Acquisition.

Costs and Expenses

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Administrative costs $ 31,472 $ 26,551

Share-based compensation

Stock-based compensation

General and administrative expense $ 40,602 $ 34,689

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Loss from equity method investment $ 886 $ 721

Gain on midstream sale $ (71,675) $ —

Income tax expense $ 48,123 $ 28,074

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LOE are the costs incurred in the operation and maintenance of producing properties.

Expenses for electricity, compression, direct labor, saltwater disposal and materials and supplies comprise the most significant portion of our lease operating expenses.

Certain operating cost components, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period.

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The Company’s LOE increased by $16.0 million for the year ended December 31, 2025, compared to the year ended December 31, 2024.

This increase was driven by a $5.5 million increase due to more workovers primarily in our Red Lake field, a $4.5 million increase in our Champions field due to higher production volumes and a $3.4 million increase due to the inclusion of LOE expenses associated with our 2024 New Mexico Asset Acquisition, partially offset by a decrease in certain expenses, primarily chemical, fuel and repair costs.

On a LOE per BOE basis, the additional volumes fully offset the $12.6 million increase as the 2024 LOE per BOE was flat when compared to 2023.

This was driven primarily by higher production volumes, including an $8.3 million increase due to higher production in our Red Lake field, a $7.2 million increase due to Silverback production added to our Red Lake field, and a $0.9 million increase in workovers.

Production and Ad Valorem Tax Expense

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Ad valorem taxes are generally based on the valuation of our oil and natural gas properties, which also trend with oil and natural gas prices and vary across the different counties in which we operate.

In addition, the Company became subject to a waste emissions charge in 2024 related to methane emissions in excess of specified limits under new legislation from the EPA.

This amount was recorded in production taxes for 2024.

Production and ad valorem taxes increased by $3.9 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to increases in our oil and natural gas sales, net and $0.8 million from the new waste emissions charge.

Production and ad valorem taxes decreased by $0.4 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to lower realized prices of $6.8 million and $1.5 million related to the Environment Protection Agency's WEC that was nullified in the first quarter of 2025, partially offset by $5.5 million due to increased production and $2.4 million due to the Silverback Acquisition.

Exploration Costs

Exploration costs consist of exploratory well expense, expiration of unproved leasehold, and geological and geophysical costs which include seismic survey costs.

The following table presents exploration costs for the years ended December 31, 2024, and 2023:

The following table presents the components of exploration costs:

Year Ended December 31,

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Total exploration costs $ 361 $ 2,595

_____________________

(1) The Company determined that an exploratory well was not capable of producing commercial quantities and expensed the associated drilling costs during the year ended December 31, 2023 .

Depletion, Depreciation, Amortization and Accretion Expense

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The liability accretes each period until it is settled or the well is sold, at which time the liability is removed.

The following table presents the components of the Company's DD&A expense:

Year Ended December 31,

(In thousands)

Depletion $ 84,424 $ 71,260

Accretion 7,193 2,765

Depreciation and amortization

Total DD&A expense

$ 93,183 $ 74,900

DD&A expense increased by $18.3 million for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase for the year ended December 31, 2024, was primarily due to higher production in our Champions field and the inclusion of the 2023 New Mexico Acquisition for the full year as well as the 2024 New Mexico Asset Acquisition for part of the year.

The increase for the year ended December 31, 2025, was primarily due to higher production in our historical Red Lake and Champions fields, which increased depletion expense by approximately $12 million and $5 million, respectively, in addition to the inclusion of the Silverback Acquisition, which increased depletion expense by approximately $7 million, These increases were partially offset by a lower depletion rate in our Red Lake field, which decreased depletion expense by approximately $8 million due to reserve estimate revisions.

Accretion increased $4 million as a result of higher plug-and-abandonment activity occurring on wells acquired in the New Mexico Acquisitions.

Impairment of Oil and Natural Gas Properties

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If the carrying amount exceeds the estimated undiscounted future cash flows, we adjust the carrying amount of the oil and natural gas properties to estimated fair value.

During the year ended December 31, 2024, the Company recognized a non-cash impairment loss on proved properties of $11.3 million relating to certain properties in Texas outside of the Company's acreage in the Champions field, in addition to historical properties in New Mexico outside of Red Lake.

These impairments were primarily driven by a reduction in reserve volume due to lower well performance assessments based on historical trends.

The affected areas included nine operated producing wells.

The Company recognized a non-cash impairment loss on proved properties of $9.8 million for the year ended December 31, 2023, which related to a decrease in fair value of certain properties in Texas outside of the Company's acreage in the Champions field.

During the year ended December 31, 2025, and 2024, the Company recognized a non-cash impairment loss on proved properties of $1.2 million and $1.8 million, respectively, relating to certain properties in New Mexico outside of the Company's acreage in the Red Lake field.

Additionally, the Company recognized a non-cash impairment loss on proved properties of $9.5 million for the year ended December 31, 2024, relating to certain properties in Texas outside of the Company's acreage in the

Champions field that were sold as part of the Viking Sale.

The 2025 and 2024 impairments were primarily driven by a reduction in well results and lower commodity prices.

Other Impairments

The cost of proved and unproved oil and natural gas properties are assessed for impairment at least annually or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred.

We compare the undiscounted future cash flows of the oil, natural gas and NGL properties to the carrying amount of the oil, natural gas and NGL properties to determine if the carrying amount is recoverable.

If the carrying amount exceeds the estimated undiscounted future cash flows, we adjust the carrying amount of the oil, natural gas and NGL properties to their estimated fair value.

The Company recognized an impairment loss of $30.2 million for the year ended December 31, 2024, which consisted of a non-cash impairment loss of $28.9 million and a cash impairment loss of $1.3 million related to the termination of the Kinder Morgan CO 2 contract.

The impairment loss relates to the discontinuation of the Company's EOR project, in favor of redeploying the required future capital and salvaging certain assets for use in the Company's conventional vertical and horizontal development programs.

There was no other impairment loss for the year ended December 31, 2023.

The Company recognized an additional non-cash impairment loss of $1.6 million for the year ended December 31, 2025 related to equipment from the EOR project that was intended to be repurposed for use in our conventional development programs.

The Company also recognized an impairment loss of $30.2 million for the year ended December 31, 2024, which consisted of a non-cash impairment loss of $28.9 million related to the discontinuation of the EOR project, and a cash impairment loss of $1.3 million related a contract termination payment.

The discontinuation of the Company's EOR project was in favor of redeploying the required future capital and repurposing certain assets for use in the Company's conventional vertical and horizontal development programs.

General and Administrative ("G&A") Expense

G&A expenses consist of administrative costs and share-based compensation expense.

G&A expenses consist of administrative costs and stock-based compensation expense.

Administrative costs include corporate overhead such as payroll and benefits for our staff, office costs, fees for professional services such as audit and legal services, technology costs, insurance and other.

Share-based compensation expense reflects costs associated with our stock granted to employees and members of our board of directors.

Stock-based compensation expense reflects costs associated with our stock granted to employees and members of our board of directors.

G&A expenses are reported net of overhead recoveries.

Total G&A expense increased by $1.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Administrative costs remained flat for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Share-based compensation expense increased by $1.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in share-based compensation expense was primarily due to a higher employee count and an increase in outstanding equity awards.

For the year ended December 31, 2025, total G&A expense increased by $5.9 million, compared to the year ended December 31, 2024.

Administrative costs increased by $4.9 million, which was primarily driven by increased employee headcount, including headcount retained as part of the Silverback Acquisition, resulting in higher compensation expenses, as well as transition costs from the Silverback Acquisition.

Additional drivers of increased administrative costs included technology costs, professional services, office costs and insurance costs.

Stock-based compensation expense increased by $1.0 million primarily due to an increase in outstanding equity awards.

Transaction Costs

Transaction costs represent costs incurred on successful or unsuccessful commercial transactions, business combinations or unsuccessful acquisitions.

The transaction costs of $1.6 million for the year ended December 31, 2024, primarily relate to the RPC Power Joint Venture, costs associated with the negotiation and closing of our new gas purchase agreement in addition to potential transactions that the Company evaluated but decided not to pursue further.

During the year ended December 31, 2023, the transaction costs of $5.8 million related to the 2023 New Mexico Acquisition.

The transaction costs of $5.2 million for the year ended December 31, 2025, primarily related to the Silverback Acquisition.

During the year ended December 31, 2024, the transaction costs of $1.6 million primarily related to the RPC Power joint venture and costs associated with the negotiation and closing of a long-term gas purchase agreement in addition to potential transactions that the Company evaluated but decided not to pursue further.

Interest Expense, net

Interest expense, net increased by $2.5 million during the year ended December 31, 2024, when compared to the year ended December 31, 2023.

The increase in interest expense was primarily due to a full-year effect of the Senior Notes, which were the primary financing for the 2023 New Mexico Acquisition, including amortization of the discount.

Gain/Loss on Derivatives

Interest expense, net decreased by $3.0 million during the year ended December 31, 2025, when compared to the year ended December 31, 2024.

The decrease in interest expense was primarily due to a lower average interest rate on the Credit Facility as well as a lower average balance on the Senior Notes.

Gain (Loss) on Derivatives, net

The Company recognizes settlements and changes in the fair value of our derivative contracts as a single component within other income (expense) in our consolidated statements of operations.

We have oil and natural gas derivative contracts, including fixed price swaps, basis swaps and collars, that settle against various indices.

The following table presents the components of the Company's gain (loss) on derivatives, net for the years ended December 31, 2024, and 2023:

The following table presents the components of the Company's gain (loss) on derivatives, net:

Year Ended December 31,

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Current income taxes represent the amount the Company expects to owe to federal and state tax authorities in the current period, based on our taxable income.

Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted

See Note 12 - Income Taxes in the Company's consolidated financial statements in "Item 15.

Exhibits and Financial Statement Schedules" for a full discussion of income taxes.

Total income tax expense is summarized below:

Year Ended December 31,

4 unchanged sentences

Effective income tax rate 23.0% 24.0%

The decrease in deferred income tax expense from 2023 to 2024 is primarily due to the 2023 New Mexico Acquisition, which allowed for more accelerated tax depreciation in 2023.

The increase in our current income tax expense was due to the Midstream Sale, which increased our current tax liability by $16.5 million, partially offset by an increase in tax depreciation and depletion due to higher production and capital spending.

The decrease in our effective income tax rate was primarily due to the federal marginal well tax credit.

Liquidity and Capital Resources

The business of exploring for, developing and producing oil and natural gas is capital intensive.

Because oil, natural gas and NGL reserves are a depleting resource, like all upstream operators, we must make capital investments to grow and even sustain production.

The Company’s principal liquidity requirements are to finance our operations, fund capital expenditures and acquisitions, pay dividends and satisfy any indebtedness obligations.

Because oil, natural gas and NGL reserves are a depleting resource, we must make capital investments, like all upstream operators, to sustain and grow production.

The Company’s principal liquidity requirements are to finance our operations, fund capital expenditures, fund acquisitions and joint venture commitments, pay dividends and satisfy any indebtedness obligations.

Cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and the significant capital expenditures required to more fully develop the Company’s oil and natural gas properties.

8 unchanged sentences

Working Capital

Working capital is the difference in our current assets and our current liabilities.

Working capital represents the funds available to meet day-to-day operational needs and is the difference in our current assets and our current liabilities.

Working capital is an indication of liquidity and potential need for short-term funding.

The change in our working capital requirements is driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to, and the timing of collections from customers, the level and timing of spending for expansion activity, and the timing of debt maturities.

As of December 31, 2024, we had a working capital deficit of $54.6 million compared to a deficit of $31.1 million as of December 31, 2023.

The current portion of our Senior Notes, which includes our regularly scheduled principal payments of $5 million per quarter, accounts for $20 million of our working capital deficit at December 31, 2024, and December 31, 2023.

We utilize our Credit Facility and cash on hand to manage the timing of cash flows and fund short-term working capital deficits.

At December 31, 2024, we had cash on hand of $13.1 million and $285 million of undrawn capacity under our Credit Facility.

The following table summarizes the Company’s cash flows for the years ended December 31, 2024, and 2023:

Our working capital fluctuates as our drilling and completion activity changes with periods of higher and lower activity.

We utilize our Credit Facility and cash on hand to manage the timing of cash

flows and fund short-term working capital deficits.

At December 31, 2025, we had $290 million of undrawn capacity under our Credit Facility.

The following table presents the components of working capital:

Year Ended December 31,

(In thousands)

Current Assets:

Cash $ 17,889 $ 13,124

Accounts receivable, net 41,045 44,411

Prepaid expenses 7,763 1,592

Inventory 7,929 5,734

Current derivative assets 19,141 3,264

Total Current Assets $ 93,767 $ 68,125

Current Liabilities:

Accounts payable $ 5,083 $ 13,937

Accrued liabilities 37,690 33,918

Revenue payable 59,606 34,786

Current derivative liabilities 37 —

Current portion of long-term debt 20,000 20,000

Other current liabilities 34,089 20,123

Total Current Liabilities $ 156,505 $ 122,764

Working Capital Deficit

$ (62,738) $ (54,639)

Our working capital deficit increased by $8.1 million primarily due to the Silverback Acquisition increasing our revenue payable and the Midstream Sale increasing our income tax payable, which was included in other current liabilities in our consolidated balance sheets, partially offset by an increase in our current derivative assets due to a decrease in crude oil pricing.

The following table summarizes the Company’s cash flows:

Year Ended December 31,

(In thousands)

Net cash provided by operating activities $ 212,539 $ 246,274

Net cash used in investing activities $ (145,769) $ (147,838)

Net cash provided by (used in) financing activities $ (100,631) $ 264,379

Net cash used in financing activities $ (62,005) $ (100,631)

Operating Activities

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(In thousands)

Total revenues

Total revenues, net

$ 391,980 $ 410,181

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$ (153,252) $ (128,653)

Prepayments from partners

Advances from joint interest owners

$ (6,828) $ 11,020

Settlements on derivative contracts $ 16,615 $ 1,849

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(1) Operating expenses include LOE, production and ad valorem taxes, administrative costs, transaction costs and other minor operating expenses.

Net cash provided by operating activities increased $39.1 million, or 19%, compared to year ended December 31, 2023.

Oil and natural gas revenues increased $58.2 million due to an increase in our oil and natural gas production partially offset by a $21.1 million decrease due to lower realized pricing.

The decrease in net cash provided by operating activities was due primarily to lower revenues from a decrease in realized prices and higher operating expenses due to higher production volumes.

Increased settlements on derivatives partially offset the decrease in revenues.

Investing Activities

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Additions to oil and natural gas properties $ (89,624) $ (98,490)

Additions to midstream property and equipment

$ (36,667) $ (10,964)

Net assets acquired in business combination $ (117,702) $ —

Acquisitions of oil and natural gas properties $ (2,161) $ (19,597)

Contributions to equity method investment $ (17,912) $ (3,566)

Additions to midstream property and equipment

Disposition of midstream property and equipment

$ 120,204 $ —

Capital expenditures for oil and natural gas properties decreased $36.3 million due primarily to lower average well cost.

Cash contributions to our joint venture, RPC Power, increased $14.3 million to fund additional new power generation for self-consumption and for the sale of energy and ancillary services to ERCOT, which is expected to be operational beginning in late 2025 through 2026.

The Company also began construction of midstream infrastructure in New Mexico to increase our oil and natural gas volume capacity, and we currently anticipate the in-service date will be before the end of 2026.

Contributions to equity method investment $ (15,750) $ (17,912)

Capital expenditures for oil and natural gas properties decreased due to fewer wells drilled and lower facility costs.

Additions to midstream property and equipment increased due to continued construction of the midstream project, which was subsequently sold as part of the Midstream Sale, generating cash inflows from the disposition.

Net assets acquired in business combinations increased due to the Silverback Acquisition.

Acquisitions of oil and natural gas properties decreased due to the 2024 New Mexico Acquisition with no comparable activity in 2025.

Financing Activities

Net cash flows used in financing activities were $100.6 million for the year ended December 31, 2024, compared to net cash flows provided by financing activities of $264.4 million for the year ended December 31, 2023, and primarily consisted of the following:

Net cash flows used in financing activities were $62.0 million for the year ended December 31, 2025, compared to $100.6 million for the year ended December 31, 2024, and primarily consisted of the following:

Year Ended December 31,

(In thousands)

Proceeds (repayments) under Credit Facility, net $ (70,000) $ 129,000

Proceeds (repayments) under Senior Notes, net of issuance costs $ (20,000) $ 173,000

Payment of common share dividends $ (30,831) $ (27,706)

Proceeds from issuance of common shares, net $ 25,415 $ 2

Deferred financing costs

Repayments to Credit Facility, net $ (5,000) $ (70,000)

Repayments to Senior Notes, net of issuance costs $ (20,000) $ (20,000)

Payment of cash dividends

$ (33,325) $ (30,831)

During 2024, the Company repaid $90 million of debt, net of proceeds compared to net borrowings of $302 million in 2023 and cash dividends increased $3 million, partially offset by our 2024 Equity Offering of $25.4 million.

Proceeds from issuance of common shares, net $ — $ 25,415

Net repayments under our Credit Facility decreased year over year.

During 2025, we drew on our Credit Facility to fund the Silverback Acquisition, and for general working capital purposes, and subsequently repaid borrowings with proceeds from the Midstream Sale.

During 2024, we drew on the Credit Facility to fund the 2024 New Mexico Acquisition, and for general working capital purposes, and subsequently repaid borrowings with excess cash flow.

The proceeds from issuance of common shares in 2024 was attributable to equity securities issued in 2024 with no comparable activity in 2025.

Credit Facility and Senior Notes

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On November 14, 2023, through the semi-annual redetermination process and fifteenth amendment, the Company increased our borrowing base from $325 million to $375 million, resulting in the addition of two new lenders and the exit of one lender.

On December 13, 2024, the Company entered into the sixteenth amendment to the Credit Facility to, among other things, extend the stated maturity date from April 2026 to December 2028 (or if any Senior Notes are then outstanding, the date that is 181 days prior to the earliest stated maturity date of such Senior Notes, in this case October 2027) and increase the borrowing base from $375 million to $400 million, resulting in the addition of one new lender to the lending group.

On December 13, 2024, the Company entered into the sixteenth amendment to the Credit Facility to, among other things, extend the stated maturity date from April 2026 to December 2028 (or if any Senior Notes are then outstanding, the date that is 181 days prior to the earliest stated maturity date of such Senior Notes, in this case October 2027) and increase the borrowing base from $375 million to $400 million, which was reaffirmed in December 2025 with the removal of the natural gas hedging requirement.

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

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The proceeds from the Senior Notes were used to finance the 2023 New Mexico Acquisition.

The principal balance of the Senior Notes as of December 31, 2024, was $165 million.

The Senior Notes had a principal balance of $145 million as of December 31, 2025.

See Note 10 - Long-Term Debt in the Company's consolidated financial statements in "Item 15.

Exhibits and Financial Statement Schedules" for a full discussion of our long-term debt.

For the year ended December 31, 2024, the Company authorized and declared quarterly dividends totaling approximately $31.0 million, with $30.8 million paid in cash and $0.2 million accrued for the holders of restricted stock upon vesting.

For the year ended December 31, 2025, the Company recognized quarterly dividends totaling approximately $33.6 million, with $33.3 million paid in cash and $0.3 million accrued for the holders of unvested restricted stock awards.

For the years ended December 31, 2025, and 2024, the Company paid cash dividends of approximately $0.8 million and $0.7 million, respectively, to holders of restricted stock upon vesting.

See Note 11 - Shareholders' Equity in the Company's consolidated financial statements in "Item 15.

Exhibits and Financial Statement Schedules" for further discussion.

Contractual Obligations

As of December 31, 2024, the Company had a remaining volume commitment of less than seven years with our primary midstream counterparty in Texas.

The Company also had natural gas delivery commitments under the A&R Tolling Agreement and a remaining equity commitment under the Second amendment to the A&R LLC Agreement of $27.7 million to fund our portion of the 2025 capital budget for the RPC Power joint venture.

Further, the Company entered into a 15-year gas purchase agreement that required an acreage dedication to a midstream counterparty for a significant portion of our oil and gas assets in New Mexico.

This agreement is expected to begin before the end of 2026.

As a result of entering into the gas purchase agreement, the Company is committed to spend approximately $130 million in capital expenditures through 2026 to complete

the initial projects of our midstream buildout plan.

The Company incurred approximately $11 million in 2024.

As of December 31, 2025, the Company had a remaining volume commitment of less than five years with Stakeholder.

The Company also had natural gas delivery commitments under the A&R Tolling Agreement and a remaining equity commitment under the Second Amendment to the A&R LLC Agreement to fund our portion of the capital budget for the RPC Power joint venture.

Further, the Company entered into the A&R Gas Purchase Agreement that required an acreage dedication and a

minimum volume commitment to Targa for a significant portion of our natural gas production in New Mexico.

This agreement is expected to commence before the end of 2026.

See Note 15 - Commitments and Contingencies in the Company's consolidated financial statements in "Item 15.

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If the carrying value is not recoverable, the Company will compare the carrying value of the asset to its fair value and recognize any impairment loss in the period.

Significant inputs and judgements are used in determining the fair value of the assets.

Significant inputs and judgments are used in determining the fair value of the assets.

The Company utilizes a discounted cash flow model in order to estimate fair value by modeling the present value of future cash flows, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with the expected cash flow projected.

During the year ended December 31, 2024, the Company recognized a proved property impairment of $11.3 million relating to certain properties in Texas outside of the Company's acreage in the Champions field and certain historical properties in New Mexico outside of the Company's acreage in the Red Lake field.

The Company recognized an impairment loss on proved properties of $9.8 million for the year ended December 31, 2023, relating to certain properties in Texas outside of the Company's acreage in the Champions field.

The 2025 and 2024 impairments were primarily driven by a reduction in well results and lower commodity prices.

See Note 7 - Fair Value Measurements in the Company's consolidated financial statements in "Item 15.

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Estimates of reserves are forecasts based on engineering data, projected future rates of production and the timing of future expenditures.

of estimating oil, natural gas and NGL reserves requires substantial judgment, resulting in imprecise determinations, particularly for new discoveries.

The process of estimating oil, natural gas and NGL reserves requires substantial judgment, resulting in imprecise determinations, particularly for new discoveries.

Different reserve engineers may make different estimates of reserve quantities based on the same data.

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Business Combinations

The Company periodically acquires assets and assumes liabilities in transactions accounted for as business combinations, such as the 2023 New Mexico Acquisition.

In connection with the 2023 New Mexico Acquisition, we allocated the purchase price consideration of $324.7 million to the assets acquired and liabilities assumed based on estimated fair values as of the date of the acquisition.

We made a number of assumptions in estimating the fair value of assets acquired and liabilities assumed in the 2023 New Mexico Acquisition.

The 2023 New Mexico Acquisition and the Silverback Acquisition resulted in the Company acquiring assets and assuming liabilities in transactions accounted for as business combinations.

In connection with these acquisitions, we allocated the purchase price consideration to the assets acquired and liabilities assumed based on estimated fair values as of the acquisition date.

We made a number of assumptions in estimating the fair value of assets acquired and liabilities assumed in these acquisitions.

The most significant assumptions relate to the estimated fair values of proved and unproved oil and gas properties.

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Significant judgments and assumptions are inherent in these valuation techniques and include, among other things, estimates of reserves, estimates of future commodity prices, expected development costs, lease operating costs and the discount rate that reflects the risk of the underlying cash flow estimates.

In addition, the earnout payments in connection with the Silverback Acquisition were valued using a Monte Carlo simulation model which involved modeling the potential earnout payments over numerous scenarios based on WTI futures prices.

Estimated fair values assigned to assets acquired can have a significant impact on future results of operations presented in the Company's financial statements.

A higher fair value assigned to a property results in higher DD&A expense, which results in lower net earnings.

A higher fair value assigned to a property results in higher DD&A expense, which results in lower net income.

In the event that future commodity prices or reserve quantities are lower than those used as inputs to determine estimates of acquisition date fair values, the likelihood increases that certain costs may be determined to not be recoverable.

See Note 4 - Acquisitions of Oil and Natural Gas Properties in the Company's consolidated financial statements in "Item 15.

See Note 4 - Acquisitions and Divestitures in the Company's consolidated financial statements in "Item 15.

Exhibits and Financial Statement Schedules" for a full discussion of our acquisitions.

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Exhibits and Financial Statement Schedules" for a full discussion of our significant accounting policies.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Financial Statements and Supplementary Data

The information required by this item appears beginning on page F-1 of this report.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

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

What changed 10-K

Item 7. Management’s Discussion and Analysis