Riley Exploration Permian (REPX) Q3 2025: Silverback Asset Drives 22% Oil Growth, Cost Synergies Unlock Margin Upside
REPX’s Q3 marked a pivotal inflection as the Silverback acquisition fueled a 22% quarter-over-quarter oil production surge and accelerated cost synergy realization. Management’s disciplined capital allocation and infrastructure buildout underpin robust free cash flow, even as commodity headwinds persist. Guidance signals confidence in maintaining growth and dividend coverage into 2026, with midstream and power projects poised to unlock further operational flexibility and upside.
Summary
- Acquisition Integration Outpaces Expectations: Silverback asset delivers production and cost synergies ahead of underwriting.
- Operational Leverage Grows: Midstream and power projects expand control over development pace and margin resilience.
- Capital Discipline Signals Flexibility: Management prioritizes free cash flow and dividend coverage across multiple oil price scenarios.
Performance Analysis
REPX’s Q3 performance was defined by the rapid integration of the Silverback acquisition, which contributed to a 22% sequential increase in net oil production and a 34% jump in total equivalent production. Notably, production from the acquired asset exceeded underwriting cases by more than 50% in September and October, driven by workovers and operational optimization. This outperformance, combined with legacy asset strength, propelled upstream free cash flow to $39.4 million for the quarter and $100 million year-to-date, despite realized oil prices 14% below last year.
Cost discipline remained a focus, with lease operating expense (LOE) per BOE near $9, reflecting only a modest rise despite the addition of higher-cost Silverback vertical wells. Workover activity, while elevating LOE in the quarter, was credited with driving the majority of production gains from the acquired asset. Administrative costs included non-recurring acquisition expenses but are expected to normalize. Adjusted EBITDAX margin compressed to 59% from 66% last quarter, as integration and workover costs weighed on near-term profitability, but management underscored confidence in driving further cost reductions as synergies scale.
- Production Mix Shift: Silverback’s gassier profile and midstream upgrades led to faster growth in equivalent volumes than oil, but new horizontal wells are expected to rebalance the mix toward oil in 2026.
- Cash Flow Conversion: 73% of operating cash flow before working capital converted to upstream free cash flow in Q3, with 64% conversion year-to-date, supporting both growth and a rising dividend.
- CapEx Efficiency: Upstream CapEx was nearly 40% below guidance midpoint, reflecting project timing and cost savings, while capital allocation to midstream and power projects remained on track.
Dividend coverage remains robust, with 31% of free cash flow allocated year-to-date and the dividend increased to $0.40 per share. Leverage stands at 1.3x EBITDAX, and over 60% of 2026 oil volumes are hedged, anchoring downside protection.
Executive Commentary
"In just a few months, we have reduced costs and increased production. For September and October, combined production on the acquired asset exceeded our underwriting case by more than 50%... Maintaining a consistent and growing dividend underscores our commitment to capital discipline and focus on sustainable free cash flow."
Bobby Riley, Chairman and CEO
"Adjusted EBITDAX margin was 59%, down from 66% last quarter, primarily as a result of cost items noted above... We're optimistic to lower our cost structure and improve margins over time. We take confidence in this potential given our track record in this area."
Philip Riley, Chief Financial Officer
Strategic Positioning
1. Acquisition Synergy Realization
The Silverback acquisition, closed in July, has already driven material production and cost synergies. REPX nearly doubled its operated well count in New Mexico, with production from the new asset outperforming forecasts by over 50% in the first two months post-close. Management is leveraging scale to negotiate better terms for materials and chemicals, and anticipates fixed cost reductions of 10% to 20% as integration matures.
2. Infrastructure-Led Growth and Margin Expansion
Investment in midstream and power generation infrastructure is central to REPX’s strategy for operational control and future growth. The New Mexico gas gathering and compression project is expanding capacity, reducing downtime, and will provide up to 40 million cubic feet per day of incremental compression by year-end. Power generation joint ventures are improving reliability and reducing energy costs, while new projects in New Mexico are expected to come online in 2026, further lowering cost of operations.
3. Capital Allocation Flexibility and Downside Protection
Management’s capital allocation framework is designed for resilience across commodity cycles. The company can sustain or modestly grow production with reduced CapEx in a $55 WTI scenario, while maintaining dividend coverage. Over 60% of 2026 oil volumes are hedged at a $60 floor, with upside optionality. Management is also exploring project-level financing for midstream assets to preserve balance sheet flexibility and unlock asset value.
Key Considerations
Q3 demonstrated REPX’s ability to integrate acquisitions, extract operational value, and execute on infrastructure investments, all while maintaining disciplined capital returns. The quarter’s results highlight the interplay between asset performance, cost control, and capital allocation, setting the stage for continued growth into 2026.
Key Considerations:
- Integration Depth: Silverback asset outperformance is early stage, with significant remaining upside from workovers and horizontal development.
- Midstream as Growth Enabler: Expanded gathering and compression capacity will allow unconstrained development in New Mexico, supporting oil mix improvement and higher netbacks.
- Cost Structure Optimization: LOE increases are temporary and tied to value-accretive workovers; fixed cost reductions and procurement scale should support margin recovery.
- Dividend and Balance Sheet Resilience: Free cash flow conversion and hedging underpin growing dividends and manageable leverage, even in softer oil markets.
- Optionality on Capital Projects: Management is actively evaluating project-level financing partners for midstream, balancing organic growth with risk and cash flow flexibility.
Risks
Commodity price volatility remains the principal risk to cash flow and development pace, particularly if oil falls below $55 per barrel for an extended period. Integration of higher-cost vertical wells could pressure margins if cost synergies are delayed. Execution risk exists on midstream project timelines, and financing or partnership structures for infrastructure assets could impact future cash flow allocation. Regulatory and permitting delays for infrastructure projects are additional watchpoints.
Forward Outlook
For Q4 2025, REPX guided to:
- Oil production of 19.2 thousand barrels per day at midpoint, up 5% sequentially and 21% YoY.
- CapEx and investment guidance maintained at $92 million for the full year, with some Q3-to-Q4 spend shift.
For full-year 2025, management raised oil production guidance by 2% to 17.1 thousand barrels per day, or 13% YoY growth.
- Dividend coverage expected to remain robust across 2026 scenarios.
- Over 60% of 2026 oil volumes hedged at a $60 floor, with 44% of hedges structured as collars for upside.
Management emphasized flexibility to throttle CapEx or volumes in response to commodity prices, and expects midstream project completion by mid-2026 to unlock further growth optionality.
Takeaways
REPX’s Q3 results showcase the high-impact integration of Silverback, infrastructure-driven operational leverage, and disciplined capital allocation that collectively position the company for resilient growth and shareholder returns into 2026.
- Production and Cost Synergy Momentum: Silverback asset is outperforming, with significant untapped upside as integration deepens and horizontal development ramps.
- Infrastructure as Strategic Moat: Midstream and power projects are set to reduce bottlenecks, lower costs, and enable unconstrained growth, supporting long-term margin expansion.
- Capital Flexibility and Downside Protection: Hedging, low reinvestment rates, and project-level financing options underpin dividend security and balance sheet resilience, even in a weaker oil price environment.
Conclusion
Riley Exploration Permian’s Q3 2025 reflects a company executing on acquisition integration, infrastructure investment, and capital discipline. The Silverback asset’s early outperformance and ongoing synergy capture, combined with robust free cash flow and flexible capital allocation, set the stage for sustainable growth and shareholder value creation into 2026.
Industry Read-Through
REPX’s rapid capture of production and cost synergies from the Silverback acquisition highlights the value of disciplined integration and operational optimization in upstream M&A. The shift toward infrastructure self-sufficiency—via midstream and power investments—underscores a broader industry trend as Permian operators seek to control costs, mitigate takeaway constraints, and secure development pace in volatile markets. The willingness to pursue project-level financing and third-party partnerships for infrastructure assets may become a template for capital-efficient growth across the sector, especially as public E&Ps balance shareholder returns with reinvestment and expansion. Upstream peers should note the operational and capital flexibility REPX demonstrates in managing through commodity cycles while maintaining growth and dividends.