Riley Exploration Permian (REPX) Q1 2026: Production Guidance Raised 5% as Texas Drives 30% Growth Trajectory
REPX delivered operational outperformance in Texas, raising full-year production guidance and reaffirming its accelerated growth plan for 2026. The company’s disciplined capital execution, margin resilience, and infrastructure-driven optionality position it to capitalize on higher oil prices and unlock value from both Texas and New Mexico assets. Investors should focus on the back-half weighted growth, capital allocation discipline, and the evolving role of power projects and midstream timing in the company’s forward trajectory.
Summary
- Texas-Driven Outperformance: Strong well productivity and capital efficiency in Texas underpin upwardly revised production targets.
- Infrastructure Readiness as Growth Lever: Sequenced New Mexico development hinges on pipeline timing, adding upside optionality.
- Disciplined Capital Allocation: Free cash flow priorities remain debt paydown and shareholder returns, with measured flexibility for M&A and buybacks.
Business Overview
Riley Exploration Permian (REPX) is an independent oil and gas producer focused on the Permian Basin, with primary operations in Texas (Champions asset) and New Mexico (Red Lake asset). The company generates revenue from crude oil, natural gas, and NGL (natural gas liquids) production, with oil representing the dominant share of revenue. Growth is driven by horizontal drilling, well completions, and strategic infrastructure investments. REPX supplements core upstream operations with power generation projects, aiming to monetize gas and offset regional price weakness.
Performance Analysis
REPX exceeded the high end of production guidance in Q1, with net oil output averaging 20.2 thousand barrels per day and total equivalent production at 35.6 thousand BOE per day. This outperformance was achieved while capital expenditures came in below the low end of guidance, reflecting operational discipline and timing efficiencies. Well productivity, especially from two-mile laterals in Texas, surpassed pre-drill forecasts, driving both volume and margin improvement.
Despite headwinds from negative realized gas and NGL pricing—which reduced net revenue by 9%—the company’s oil-heavy portfolio and hedging program provided resilience. Adjusted EBITDAX fell 8% sequentially due to lower gas/NGL hedge revenue and higher operating costs, but underlying cash flow generation remained robust. The company reduced debt, paid dividends, and repurchased shares, signaling confidence in its balance sheet and capital return framework. Notably, LOE (lease operating expense, a key cost per barrel metric) trended down 10% year-over-year, driven by vendor realignment and chemical cost savings in New Mexico.
- Well Productivity Outpaces Plan: Initial production from new wells, particularly two-mile laterals, exceeded expectations and drove the volume beat.
- Cost Structure Improvement: LOE per BOE declined year-over-year and chemical costs in New Mexico were halved, offsetting inflation in service and diesel costs.
- Gas Price Drag Managed: Negative gas/NGL pricing pressured revenue, but oil price strength and hedging limited the impact on cash flow.
Overall, REPX demonstrated effective operational execution and capital allocation, setting a foundation for accelerated growth through 2026, with Texas providing near-term momentum and New Mexico offering incremental upside as infrastructure comes online.
Executive Commentary
"Our first quarter results provide an initial round of momentum for the year ahead. We executed well, delivering production exceeding the high end of guidance while spending less than the low end of our capital guidance range."
Bobby Riley, Chairman and CEO
"Our business continues to generate meaningful cash flow, which should increase materially in the coming quarters if oil prices remain elevated, as we're only about 67% hedged for the balance of the year."
Philip Riley, Chief Financial Officer
Strategic Positioning
1. Texas as the Growth Engine
Texas (Champions asset) is the primary driver of 2026 growth, benefiting from mature infrastructure, high working interest, and rapid-cycle drilling. The company’s operational focus here allows for volume growth with lower per-well costs and higher capital efficiency, as most wells are 1.5-mile laterals owned nearly 100% by REPX.
2. New Mexico Optionality and Sequencing
New Mexico (Red Lake asset) offers material long-term upside, but development is sequenced to align with the Targa high-pressure pipeline project. The company is drilling wells now, but completions are timed for pipeline readiness, preserving capital efficiency and enabling a production ramp once takeaway constraints ease. New Mexico wells are more expensive due to longer laterals and slick water fracs, but ongoing testing could drive future cost reductions.
3. Power Projects as Margin Stabilizer
ERCOT power generation and behind-the-meter gas-to-power projects are beginning to contribute incremental revenue and offset weak regional gas prices. The first 10-megawatt facility is entering commercial operation, and additional sites are set to come online, supporting the company’s strategy to monetize stranded gas and reduce negative sales impact.
4. Capital Allocation Discipline
Management is prioritizing debt reduction and dividends, with opportunistic share repurchases. M&A remains on the table but is approached cautiously due to market volatility and asset pricing. The company’s high-return organic growth focus is underpinned by a deep inventory and infrastructure readiness.
5. Operational Flexibility and Efficiency
REPX’s ability to scale activity up or down, driven by fast cycle times and multi-well pad efficiencies, provides resilience against commodity price swings. The company’s use of zipper fracs, pad drilling, and vendor optimization supports cost control and repeatable execution.
Key Considerations
This quarter’s performance highlights REPX’s strategic pivot from inventory accumulation to accelerated development, with Texas delivering immediate growth and New Mexico staged for future upside. Investors should weigh the following:
- Back-Half Weighted Growth: The largest production gains are expected in Q3 and Q4, as well timing and infrastructure sequencing drive volume ramp.
- Hedging and Price Leverage: With 67% of oil production hedged for the balance of 2026, the company retains upside to further oil price strength, but will face mark-to-market volatility in reported earnings.
- Cost Structure Resilience: Efficiency gains in drilling and chemical use are offsetting inflationary pressures, but service cost risk remains if diesel and input prices rise further.
- Optionality for Capital Deployment: Excess free cash flow after dividends is earmarked for debt reduction, with flexibility to accelerate activity or pursue opportunistic M&A if conditions warrant.
Risks
Execution risk remains elevated due to the back-end loading of growth, with potential delays in the Targa pipeline project or completion timing in New Mexico capable of impacting 2026 targets. Commodity price volatility—especially for oil and regional gas—poses a risk to cash flow and returns. Service cost inflation and regulatory delays in infrastructure projects could pressure margins or defer planned volume ramps. The company’s hedging program limits near-term downside but also caps some upside in a rising price environment.
Forward Outlook
For Q2 2026, REPX guided to:
- Materially increased development activity with two rigs running and 16–18 completions planned (up 30% from Q1)
- Modest sequential production growth, with the steepest ramp expected in Q3 and Q4
For full-year 2026, management raised guidance:
- Production target midpoint increased 5% to 22.5 thousand barrels per day, supporting a 30% year-over-year growth rate
- Full-year capex midpoint raised 5% to $210 million, reflecting incremental operated and non-operated activity
Management emphasized that free cash flow will be weighted toward the fourth quarter, with most excess capital after dividends allocated to debt paydown. The company remains flexible to adjust activity should macro or commodity conditions shift materially.
- Texas volumes will anchor growth regardless of New Mexico pipeline timing
- Optionality exists to accelerate or decelerate capital deployment as market conditions evolve
Takeaways
REPX’s Q1 execution validates its accelerated growth plan, with Texas operations delivering both volume and cost outperformance. The company’s infrastructure sequencing in New Mexico and power project ramp provide further optionality for margin expansion and risk mitigation.
- Operational Outperformance: Texas well productivity and capital efficiency are driving the company’s upwardly revised growth targets and underpinning margin resilience.
- Infrastructure-Driven Upside: New Mexico’s contribution remains contingent on pipeline timing, but the asset’s embedded value and inventory depth support future growth.
- Capital Discipline Anchors Flexibility: Debt reduction and dividends remain the primary uses of free cash flow, with measured flexibility for opportunistic M&A or share repurchases as market conditions dictate.
Conclusion
Riley Exploration Permian enters the remainder of 2026 with strong operational momentum, disciplined capital allocation, and a clear path to 30% production growth. Texas will provide the bulk of near-term gains, while New Mexico and power projects offer incremental upside and margin stability. Investors should monitor infrastructure timing, cost trends, and capital deployment as the year unfolds.
Industry Read-Through
REPX’s results signal that Permian producers with mature infrastructure and deep inventories can capitalize quickly on improved oil prices, even as regional gas price weakness persists. The company’s ability to flex activity and sequence development around midstream constraints is a template for peers facing similar takeaway bottlenecks. The emergence of power projects as a margin lever highlights a broader industry trend toward monetizing stranded gas and diversifying revenue streams. For investors, the quarter underscores the importance of operational flexibility, infrastructure readiness, and disciplined capital allocation in navigating commodity and service cost volatility across the upstream sector.