# Riley Exploration Permian, Inc.: Form 10-Q for the period ended Mar 31, 2020

- Company: [Riley Exploration Permian, Inc.](/companies/repx.md) (CIK 1001614)
- Form: 10-Q
- Filed: 2020-05-14
- Accepted by EDGAR: May 14, 2020, 16:41 ET
- Period: 2020-03-31
- Accession: 0001140361-20-011640
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1001614/000114036120011640/form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1001614/000114036120011640/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $963.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | −$527.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $2.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | −$527.0k | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2020-01-01 to 2020-03-31 | 10,666,129 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | $174.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2020-03-31 | $3.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $4.0m | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $8.3m | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $571.0k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-03-31 | $2.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-03-31 | $5.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 9,880 characters.

### Results of Operations and Financial Condition

During the first three months of 2020, 31.6 MBbl gross of oil were sold from the Company’s properties. Of the 31.6 MBbl sold, 23.4 MBbl were net to the Company after required payments to all of the royalty interests and the one remaining drilling program participant. The Company’s net sales from its properties during the first three months of 2020 of 23.4 MBbl of oil compares to net sales of 23.4 MBbl of oil during the first three months of 2019. The Company’s net revenue from its oil and gas properties was $963,000 during the first three months of 2019 compared to $1.2 million during the first three months of 2019. This decrease in net revenue was primarily due to an $8.82 per barrel decrease in the average oil price from $49.88 per barrel during the first three months of 2019 to $41.06 per barrel during the first three months of 2020.

### Comparison of the Quarters Ended March 31, 2020 and 2019

The Company reported a net loss of $(527,000) or $(0.05) per share of common stock during the first quarter of 2020 compared to a net loss of $(96,000) or $(0.01) per share of common stock during the first quarter of 2019. The $431,000 decrease in net income was primarily due to an $208,000 decrease in revenues, a $185,000 increase in production costs and taxes, and a $43,000 decrease in gain on sale of assets.

The Company recognized $963,000 in revenues during the first quarter of 2020 compared to $1.2 million during the first quarter of 2019. The $208,000 decrease in net revenues was primarily due to a $8.82 per barrel decrease in the average oil price from $49.88 per barrel during the first quarter of 2019 to $41.06 per barrel during the first quarter of 2020.

Production costs and taxes increased $185,000 from $779,000 during the first quarter of 2019 to $964,000 during the first quarter of 2020. This increase was primarily due to a change in the oil inventory adjustment.

Gain on sale of assets decreased $43,000 from $45,000 during the first quarter of 2019 to $2,000 during the first quarter of 2020. This decrease was primarily related to gain on sale of equipment inventory to a third party during the first quarter of 2019.

### Liquidity and Capital Resources

At March 31, 2020, the Company had a revolving credit facility with Prosperity Bank. This has historically been the Company’s primary source to fund working capital and capital spending. Under the credit facility, loans and letters of credit are available to the Company on a revolving basis in an amount outstanding not to exceed the lesser of $50 million or the Company’s borrowing base in effect from time to time. As of March 31, 2020, the Company’s borrowing base was $4 million, subject to a credit limit based on current covenants of $1.97 million. The credit facility is secured by substantially all of the Company’s producing and non-producing oil and gas properties. The credit facility includes certain covenants with which the Company is required to comply. At March 31, 2020, these covenants include the following: (a) Current Ratio \> 1:1; (b) Funded Debt to EBITDA \< 3.5x; and (c) Interest Coverage \> 3.0x. At March 31, 2020, the interest rate on this credit facility was 3.75%. The Company was in compliance with all covenants during the quarter ended March 31, 2020. The Company had no outstanding borrowing under the facility as of March 31, 2020 or December 31, 2019. However, if the Company had borrowings under the credit facility at March 31, 2020, the Company would not have been in compliance with EBITDA related covenants as the Company reported negative EBITDA for the trailing four quarters ended March 31, 2020.

During April 2020, the Company’s senior credit facility with Prosperity Bank after Prosperity Bank’s most recent review of the Company’s currently owned producing properties was amended to decrease the borrowing base to $3.1 million, subject to a credit limit based on current covenants of $1.442 million. The borrowing base remains subject to the existing periodic redetermination provisions in the credit facility. The interest rate remained prime plus 0.50% per annum. This rate was 3.75% at the date of the amendment. The maximum line of credit of the Company under the Prosperity Bank credit facility remained $50 million. The next borrowing base review will take place in July 2020.

During the second quarter of 2020, the Company was approved by the Small Business Administration to receive a Paycheck Protection Program (“PPP”) loan in the amount of approximately $166,000. This loan was funded by Prosperity Bank in May 2020. The PPP loan is not part of the credit facility with Prosperity Bank as described above and therefore is not subject to the same terms as Company’s credit facility. The PPP loan has an interest rate of 1% with a maturity date of May 2022. There are no payments due during the first six months of the loan. After the six-month period has expired, all outstanding accrued interest is due. At that time, the remaining unforgiven portion of the loan will be due in 18 equal monthly installments of principal and interest. The Company may apply for forgiveness of the amount due on the PPP loan based on spending the loan proceeds on eligible expenses as defined by statute. However, the Company anticipates that it will be eligible for forgiveness of the entire loan amount as the proceeds will be used for eligible expenses.

Net cash provided operating activities was $174,000 during the first three months of 2020 compared to $(18,000) used in operating activities during the first three months of 2019. Cash flow provided by working capital was $508,000 during the first three months of 2020 compared to $(102,000) used in working capital during the first three months of 2019. The $192,000 increase in cash provided by operating activities was primarily due to a $610,000 increase in cash flow provided by working capital, partially offset by the $208,000 decrease in revenues, and the $185,000 increase in production cost and taxes. Net cash provided used in investing activities was $(81,000) during the first three months of 2020 compared to $139,000 provided by investing activities during the first three months of 2019. This decrease in cash flow provided by investing activities was primarily due to proceeds from the sale of equipment inventory to a third party during the first three months of 2019 and drilling costs paid during the first three months of 2020. Cash flow used in financing activities during the first three months of 2020 was $(8,000) compared to $(12,000) used in financing activities during the first three months of 2019.

Through May 2021, the Company believes its revenues as well as cash on hand will be sufficient to fund operating costs and general and administrative expenses and to remain in compliance with its bank covenants. If revenues and cash on hand are not sufficient to fund these expenses or if the Company needs additional funds for capital spending, the Company may be able to borrow funds against the credit facility depending on the borrowing base and credit limit. Because of the drop in oil prices during the first and second quarters of 2020 and resulting projected negative EBITDA, borrowing from the Company’s credit facility would result in non-compliance with current covenants, and would require a waiver on the EBITDA related covenants, or a change in the covenants, until such time as prices improve. In addition, if required, the Company could also issue additional shares of stock and/or sell assets as needed to further fund operations

### Critical Accounting Policies

Effective January 1, 2019, the Company adopted ASU 2016-02 *Leases (Topic 842).*

### Commitments and Contingencies

#### Cost Reduction Measures

Commencing in the quarter ended March 31, 2015 and continuing into the quarter ended June 30, 2018, the Company implemented cost reduction measures including compensation reductions for each employee as well as members of the Board of Directors. These compensation reductions were to remain in place until such time, if any, that the market price of crude oil, calculated as a thirty-day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $70 per barrel. In May 2018, oil prices as so calculated exceeded $70 and compensation reverted to the levels in place before the reductions became effective. At such time, if any, that the market price of crude oil, calculated as a thirty-day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $85 per barrel, all previous reductions made will be reimbursed, a portion which may be paid in stock, to each employee and members of the Board of Directors if is still employed by the Company or still a member of the Board of Directors. For the period January 1, 2015 through March 31, 2020, the reductions were approximately $373,000. Of the $373,000, approximately $45,000 would be paid in the Company’s common stock. The $45,000 value represents approximately 100,000 common shares valued at $0.45 per share which represents the closing price on March 31, 2020. The Company has not accrued any liabilities associated with these compensation reductions.

#### Legal Proceedings

The Company is not a party to any pending material legal proceeding. To the knowledge of management, no federal, state, or local governmental agency is presently contemplating any proceeding against the Company which would have a result materially adverse to the Company. To the knowledge of management, no director, executive officer or affiliate of the Company or owner of record or beneficial owner of more than 5% of the Company’s common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

## Market risk

As filed, 4,962 characters.

**The Company’s Borrowing Base under its Credit Facility may be reduced by the lender.**

The borrowing base under the Company’s revolving credit facility will be determined from time to time by the lender, consistent with its customary natural gas and crude oil lending practices. Reductions in estimates of the Company’s natural gas and crude oil reserves could result in a reduction in the Company’s borrowing base, which would reduce the amount of financial resources available under the Company’s revolving credit facility to meet its capital requirements. Such a reduction could be the result of lower commodity prices or production, inability to drill or unfavorable drilling results, changes in natural gas and crude oil reserve engineering, the lender’s inability to agree to an adequate borrowing base or adverse changes in the lenders’ practices regarding estimation of reserves. If cash flow from operations or the Company’s borrowing base decreases for any reason, the Company’s ability to undertake exploration and development activities could be adversely affected. As a result, the Company’s ability to replace naturally declining production may be limited. In addition, if the borrowing base is reduced, the Company may be required to pay down its borrowings under the revolving credit facility so that outstanding borrowings do not exceed the reduced borrowing base. This requirement could further reduce the cash available to the Company for capital spending and, if the Company did not have sufficient capital to reduce its borrowing level, could cause the Company to default under its revolving credit facility. Because of the drop in oil prices during the first and second quarters of 2020 and resulting projected negative EBITDA, borrowing from the Company’s credit facility would result in non-compliance with current covenants, and would require a waiver on the EBITDA related covenants, or a change in the covenants, until such time as prices improve.

### Commodity Risk

The Company's major market risk exposure is in the pricing applicable to its oil production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil. Historically, prices received for oil and gas production have been volatile and unpredictable and price volatility is expected to continue. The average monthly Kansas oil prices received during the first three months of 2020 ranged from a low of $27.31 per barrel to a high of $53.04 per barrel. The Company anticipates a continued reduction in average oil prices during the second quarter of 2020.

As of March 31, 2020 and December 31, 2019, the Company had no open positions related to derivative agreements relating to commodities.

### Interest Rate Risk

At March 31, 2020, the Company had balances on financing leases outstanding of approximately $82,000, and no balance owed on its credit facility with Prosperity Bank. As of March 31, 2020, the interest rate on the credit facility was variable at a rate equal to prime plus 0.50% per annum. The Company’s credit facility interest rate at March 31, 2020 was 3.75%. The Company’s financing leases of $82,000 have fixed interest rates ranging from 5.0% to 6.5%.

The annual impact on interest expense and the Company’s cash flows of a 10% increase in the interest rate on the credit facility would be approximately zero assuming borrowed amounts under the credit facility remained at the same amount owed as of March 31, 2020. The Company did not have any open derivative contracts relating to interest rates at March 31, 2020 or December 31, 2019.

### Forward-Looking Statements and Risk

Certain statements in this report, including statements of the future plans, objectives, and expected performance of the Company, are forward-looking statements that are dependent upon certain events, risks and uncertainties that may be outside the Company’s control, and which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, the market prices of oil and gas, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, political and economic uncertainties of foreign governments, future business decisions, and other uncertainties, all of which are difficult to predict.

There are numerous uncertainties inherent in projecting future rates of production and the timing of development expenditures. The total amount or timing of actual future production may vary significantly from estimates. The drilling of exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns. Lease and rig availability, complex geology and other factors can also affect these risks. Additionally, fluctuations in oil and gas prices, or a prolonged period of low prices, may substantially adversely affect the Company's financial position, results of operations, and cash flows.

## Controls and procedures

As filed, 1,862 characters.

### Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Report, were adequate and effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and fraud. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.

### Changes in Internal Controls

During the three months ended March 31, 2020, there have been no changes to the Company’s system of internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s system of controls over financial reporting. As part of a continuing effort to improve the Company’s business processes, management is evaluating its internal controls and may update certain controls to accommodate any modifications to its business processes or accounting procedures.

## Risk factors

As filed, 168 characters.

Refer to Item 1A Risk Factors in the Company’s Report on Form 10-K for the year ended December 31, 2019 filed on March 30, 2020 which is incorporated by this reference.

Filed May 14, 2020.
Source: SEC EDGAR, the filing index for accession 0001140361-20-011640. Last ingested by Listed: Nov 4, 2026, 18:14 ET. No prices; not investment advice.