Riley Permian Grew 20% and the Market Shrugged — Then It Found 90 Wells It Didn't Have to Buy
A record production quarter, a new San Andres bench with zero acreage cost, and a stock still 26% off its October high
REPX · Earnings Call · 2026-11-05
A growth quarter the tape refuses to pay for
Riley Exploration Permian's third quarter was, by any operating measure, the best of the development program Bobby Riley has been promising since the Silverback acquisition. Oil averaged over 25,000 barrels a day, up 20% sequentially and 38% year over year; total volumes rose 23% to roughly 42,000 BOE/d. And they did it while turning fewer wells to sales than the low end of guidance — the growth came from capital already sunk earlier in the year finally converting. Cash flow from operations of $111 million was 75% higher than the second quarter.
Yet the stock sits 26% below its October 23 peak of $54.18 even after a 24% ninety-day run. Derrick Whitfield of Texas Capital said the quiet part out loud on the call: “there's seemingly a disconnect this morning in the value of your growth trajectory in both the $70 and $90 scenarios” — Derrick Whitfield, Analyst · 2026-11-05. At roughly 3.1x trailing free cash flow and 1.5x revenue — levels near the bottom of a decade-long range for this name — the disconnect is the story. Either the market does not believe the 30%-40% 2027 growth outlook, or it is discounting a small-cap upstream with two rigs running into a backwardated curve.
The free bench: San Andres
The genuinely new item in the quarter is not volume — it is inventory. Riley has developed Red Lake on the Paddock and Blinebry benches of the Yeso package. Management now says it will add the shallower San Andres horizontally across acreage it already owns.
The San Andres potentially provides approximately 90 additional net development locations across our acreage. Importantly, these additional locations are within the acreage we already own, adding potential inventory without incremental acquisition cost.
That phrase — potential inventory without acquisition cost — is the hinge. For four straight quarters this company's answer to inventory replacement was the ground game: bolt-on leasing and forced-pooling stick-picking around existing footprints. That theme has quietly vanished from the prepared remarks, replaced by a subsurface one. It is not a total surprise — Bobby Riley flagged in March that “There is some work being done in one of the upper benches that could significantly add inventory” — Bobby Riley, Chairman and CEO · 2026-03-05, and John Suter was studying the San Andres in August. But quantifying 90 net locations at four wells per section, with six wells planned in 2027, is a real shift from concept to capital allocation.
Crucially, they will co-develop rather than chase: “It makes so much sense to co-develop those. You'll get the best frac job in each interval.” — John Suter, COO · 2026-11-05 Each avoided rig move is $100,000-$150,000; zipper fracs on shared pads are the whole economics of the thing. Management explicitly declined to give EURs — a rare piece of restraint on a call otherwise full of ambition.
The constraint management finally stopped talking about
The most telling keyword fall-off is gas takeaways, a top-five theme last quarter, and takeaway capacity before that. Both are gone. The reason: WaterBridge began taking water in September and Targa's high-pressure line started in October. Recall the August posture: “we believe that Targa line will be in very early fourth quarter. Up until then, we do have some exposure on the New Mexico side” — Bobby Riley, Chairman and Chief Executive Officer (CEO) · 2026-08-06. Three months later that exposure is retired, and 17.3 net DUCs — about 85% of them in New Mexico — are being completed into a system that can finally breathe.
The cost of that relief is honest: third-party water is more expensive than their own saltwater disposal system. Suter framed it back in March as a deliberate trade — higher cost in exchange for capacity — and repeated the point in November, blending purchased disposal against owned capacity. What management gets is flow assurance and the ability to run a second rig — one at Champions, one moving to New Mexico late in the first quarter.
Where the numbers and the narrative split
The fundamentals confirm the operating step-up but also the strain of funding it. Trailing revenue was $166 million, up 94% year over year, with operating income of $115 million; free cash flow of $60 million still carried a 35.9% margin. Yet despite three years of paying down debt, effective net cash of -$267 million still reflects a leveraged upstream — and the quarterly path shows how violently that line swings with capital timing.
Philip Riley is leaning on the deleveraging record: debt down 35% year over year to $245 million, a revolver take-out of the 10.5% notes saving about $5 million annually, and a borrowing base upsized to $450 million with $205 million undrawn. That is a real improvement in financial flexibility, and it explains why the hedge book is rolling off — the balance sheet no longer requires the same protection.
But the guidance architecture is doing heavy lifting. The illustrative $70 case grows through mid-2027 then flattens; the $90 case supports 30%-40%. Philip Riley admitted the second rig is “only about a quarter of the year is contracted, so that's a small amount out of the total” — Philip Riley, CFO · 2026-11-05 — deliberate optionality, but also a hedge against the plan. Suter put roughly 10% cost inflation into the forecast for casing, diesel and chemicals, argued that offsetting synergies net it back toward zero, and noted that only about a quarter of 2027 wells and a tenth of completions are locked in. Steep three- to five-year backwardation then argues against hedging too far out — a defensible choice that also leaves more cash flow exposed to spot.
The theme that disappeared
Worth flagging for what is absent: the Power JV. For two years the ERCOT merchant power project and the data-center adjacency consumed analyst airtime and management enthusiasm — the second site in final commissioning, the hyperscaler capex wave, project-level financing options. In the November 2026 call it does not come up once. That silence is consistent with Philip Riley's prior framing of these as opportunistic and his caution that crowded infrastructure pushes down returns. Focus has rotated back to the drill bit, which is arguably the right allocation at three times free cash flow — but investors who underwrote a power-optionality story should note it has been shelved without ceremony.
So: a company that is genuinely accelerating, funded largely internally, with a new bench it did not have to buy — trading as if none of that happened. The next data point is formal 2027 guidance in March. Until then, the market is pricing the $70 case and management is describing the $90 one.