Riley Exploration Permian, Inc. Water Tower Research Virtual Insights Conference

Before we begin, I would like to note that Riley safe harbor disclosures regarding forward-looking statements can be found under the Investors tab of the company's homepage. Investors can submit questions through the conference portal, and we will seek to address those questions in the follow-up management series report. Also, indications of interest in meeting with management can be submitted through the portal, and our teams will work to coordinate those. Riley is a growth-oriented exploration and production company whose asset base is concentrated in the Permian Basin. The company's two core areas are referred to as Champions in Yoakum County, Texas, and Red Lake in Eddy County, New Mexico. The company's production profile is essentially conventional oil-weighted assets, which has allowed Riley to grow while generating excess cash flow that can be used to strengthen the balance sheet, return cash to shareholders, and invest in growing the company.

I'd now like to welcome Philip and Ben. Thanks for joining us today.

Thank you. Thank you. As I mentioned, Riley's asset base is comprised of conventional oil-weighted producing formations.

Philip, why has Riley preferred conventional assets before the unconventional play or in favor of the unconventional plays, which have become the prevalent and dominated the industry in the last couple of decades?

Yeah, sure. First, thanks for having us today. It's always good to speak with you. I'd say it's kind of a combination. We've got a conventional rock that we're developing in the unconventional modern way. The reason we like the conventional rock are several. The rock properties have good permeability, porosity, and oil saturation. Really allows for good oil in place and great production profiles. The shallower nature of our intervals are quite a bit shallower than, say, where the Wolfcamp is, and that in turn allows for less expensive drilling cost. Because of those rock properties I described, you can use a less intensive frack, and so that also makes it less expensive. Once the thing is producing, it generally has shallower declines than a shale well, just given the porosity and such.

You add all that together and it leads to just really good well returns.

Is it basically that the treadmill doesn't spin quite as fast with the type of reservoirs that Riley's targeted versus Wolfcamp A and B in the Midland and Delaware basins?

Yes, that's exactly right. We're not very good at the treadmill, and so we prefer a slower one.

You talked a little about or alluded to the asset intensity with shallower depths and less intense completions needed. How does all of that support your goals of delivering value to shareholders?

Yeah. It's really an extension of that treadmill analogy in that we're in the depletion business. You're always replacing the production that's declining. The shallower declines we have, the less we have to replace of that, and it allows more cash than for discretionary allocation. Now, we may choose to grow. We could choose to give that back to shareholders or some combination thereof. Most recently this year, we've been growing a lot, and so we like that flexibility.

Philip, when we talk about shareholder value, I know you've talked about it on quarterly conference calls, but how do you measure the company's ability to deliver shareholder value?

Lots of different ways. If I had to kind of boil it down, I think ultimately some version of free cash flow or even free cash flow per share is always a good one. People allocate sometimes different ways to expenses versus capital, but really what's left over after you've spent your money. Can you reinvest only a portion of your cash flow and still grow? I think that's a good measure that you're probably creating some value there. On a multi-year basis, are you increasing your kind of free cash flow per share with the dilution that you may be incurring from, say, an acquisition or your stock-based comp or so forth. We haven't issued any stock, directly in an acquisition, but many companies do, and I think that's usually a good tool to be looking at across companies.

Since before Riley became a public company, returning cash to shareholders has been a key pillar of management's philosophy. Can you talk a little bit about how the board evaluates capital allocation decisions between funding growth on the existing asset base, maybe looking at acquisition opportunities, and how those compete with other capital uses? Lastly, managing the balance sheet and ultimately keeping the company in a position to have a consistent cash return framework.

Sure. Yeah. On overall capital allocation choices, you kind of teed it up there. You got some organic and you got the inorganic. The organic is going to be within your control typically, and the A&D inorganic is usually outside your control. You can run hard at certain deals, but you got to be disciplined as you're underwriting them, and you also can't control initially what comes towards you and what's available and how a counterparty will react. We've been developing our company and our assets for about 10 years now. We had an original asset that we got through Effectively ended a certain farm-in approximately 11 years ago. We've done a few bolt or new entry, acquisitions into New Mexico 3 years ago, 2 years ago, and 1 year ago.