Riley Exploration Permian, Inc.REPX
Riley Exploration Permian, Inc. Fair Value Disclosure
Fair Value Measurements
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The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.
The carrying values of financial instruments comprising cash, payables, receivables, and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value reported for the Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes is based on estimates of current rates available for similar issuances with similar maturities and is classified as Level 2 in the fair value hierarchy. The oil and natural gas properties acquired and ARO assumed in the Silverback Acquisition, 2024 New Mexico Asset Acquisition and 2023 New Mexico Acquisition in addition to the fair value of assets and liabilities when considered for impairment are considered Level 3 measurements.
Assets and Liabilities Measured on a Recurring Basis
The fair values of commodity derivatives and interest rate swaps are estimated using discounted cash flow calculations based on forward curves and are classified as Level 2 within the fair value hierarchy. The following table summarizes these instruments that were accounted for at fair value on a recurring basis by level within the fair value hierarchy:
| December 31, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Commodity derivative assets | $ | — | $ | 31,437 | $ | — | $ | 31,437 | |||||||||||||||
| Interest rate assets | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Commodity derivative liabilities | $ | — | $ | (7,179) | $ | — | $ | (7,179) | |||||||||||||||
| Interest rate liabilities | $ | — | $ | (149) | $ | — | $ | (149) | |||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Commodity derivative assets | $ | — | $ | 15,301 | $ | — | $ | 15,301 | |||||||||||||||
| Interest rate assets | $ | — | $ | 1,177 | $ | — | $ | 1,177 | |||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Commodity derivative liabilities | $ | — | $ | (13,043) | $ | — | $ | (13,043) | |||||||||||||||
Earnout Payments - Silverback
The earnout payments in connection with the Silverback Acquisition were valued using a Monte Carlo simulation model that incorporated forward strip pricing as of December 31, 2025. The valuation process involved modeling the potential earnout payments over numerous scenarios based on WTI futures prices. The average expected value from the simulations was then discounted using the Company's cost of debt. Based on the forward strip pricing as of December 31, 2025, management determined that no material change in estimates was necessary. The fair value of the earnout payments is considered a Level 3 measurement due to the unobservable inputs including volatility and the discount rate, as well as the detailed modeling required to estimate fair value. See Note 4 - Acquisitions and Divestitures for additional information on the earnout payments.
| December 31, 2025 | |||||
| Fair Value | |||||
| (In thousands) | |||||
Earnout Payments (Level 3) | $ | 3,100 | |||
As of December 31, 2025, $1.0 million is accrued in other current liabilities and $2.1 million is accrued in other long-term liabilities in our consolidated balance sheets.
Liabilities Not Measured on a Recurring Basis
The following table summarizes the fair value and carrying amount of the Company's financial instruments.
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Credit Facility (Level 2) | $ | 110,000 | $ | 110,000 | $ | 115,000 | $ | 115,000 | |||||||||||||||
Senior Notes (Level 2)(1) | $ | 137,855 | $ | 149,312 | $ | 154,464 | $ | 172,864 | |||||||||||||||
(1)The carrying value reported for the Senior Notes is shown net of unamortized discount and unamortized deferred financing costs.
The carrying value reported for the Credit Facility approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of the Senior Notes was determined utilizing a discounted cash flow approach.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities accounted for at fair value on a non-recurring basis in accordance with the fair value hierarchy include the initial recognition of ARO and the fair value of oil and natural gas properties when acquired in a business combination or assessed for impairment.
The fair value measurements of assets acquired and liabilities assumed are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company's estimated cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation.
The fair value of ARO incurred and acquired during the years ended December 31, 2025, and 2024, totaled approximately $19.4 million and $9.8 million, respectively. The fair value of additions and revisions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated plugging and abandonment costs per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; (iii) future inflation factors; and (iv) our average credit-adjusted risk-free rate. These assumptions represent Level 3 inputs.
If the carrying amount of our oil and natural gas properties exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and natural gas properties to fair value. The fair value of our oil and natural gas properties is determined using valuation techniques consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with the expected cash flow projected.
For the year ended December 31, 2025, the Company recognized a non-cash impairment loss to our oil and natural gas properties of $1.2 million related to acreage in New Mexico outside of our Red Lake field as well as a non-cash impairment
loss of $1.6 million for the previously repurposed compressors related to the EOR project. At the time of impairment, the oil and natural gas properties in New Mexico outside of our Red Lake field had a net book value of $1.2 million and a fair value of zero resulting in an impairment loss of $1.2 million. The compressors related to the EOR project had a net book value of $1.6 million and a fair value of zero resulting in an impairment loss of $1.6 million.
For the year ended December 31 2024, the Company recognized non-cash impairment losses of $11.3 million related to acreage in Texas and New Mexico outside of our Champions and Red Lake fields as well as a non-cash impairment loss of $28.9 million related to the discontinuation of the EOR project. As of December 31, 2024, the oil and natural gas properties in Texas outside of the Champions field had a net book value of $21.1 million and a fair value of $11.6 million resulting in an impairment loss of $9.5 million and the oil and natural gas properties in New Mexico outside of the Red Lake field had a net book value of $3.1 million and a fair value of $1.3 million resulting in an impairment loss of $1.8 million. The EOR project had a net book value of $41.7 million and a fair value of $12.8 million for repurposed assets (including the EOR compressors) with alternative uses, resulting in an impairment loss of $28.9 million.
For the year ended December 31, 2023, the Company recognized non-cash impairment losses to our oil and natural gas properties of $9.8 million related to acreage in Texas outside of our Champions field. As of December 31, 2023, the oil and natural gas properties in Texas outside of the Champions field had a net book value of $33.7 million and a fair value of $23.9 million.
In preparing these assessments, the Company utilized a discounted cash flow approach to estimate fair value. The assumptions utilized in the discounted cash flow are considered Level 3, consistent with the discussion above. Under the discounted cash flow methodology, the expected future net cash flows were discounted using a weighted average cost of capital rate reflective of a market participant rate. Additionally, the assumptions utilized include the future commodity prices for oil and natural gas based on NYMEX strip pricing for WTI and Henry Hub, as adjusted for differentials (using the Company's historical average of differentials, which approximate a market participant's differentials) and operating cost assumptions based on the Company's historical LOE, which are deemed to estimate a market participant's operating costs. See further discussion of our impairments in Note 5 - Oil and Natural Gas Properties.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 5, 2025 | |
| 2020 | Mar 30, 2021 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.