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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 001-15555
Riley Exploration Permian, Inc.
(Exact name of registrant as specified in its charter)
Delaware08-0267438
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
29 E. Reno Avenue, Suite 500
Oklahoma City, Oklahoma
73104
(Address of Principal Executive Offices)(Zip Code)
(405) 415-8677
Registrant's telephone number, including area code
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.001REPXNYSE American
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x   No  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated fileroAccelerated filero
Non-accelerated filer  xSmaller reporting companyx
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes   o     No  x
The registrant had outstanding 18,021,521 shares of common stock as of May 6, 2021.


1


Riley Exploration Permian, Inc.
Table of Contents
For the Quarter Ended March 31, 2021
Page
Part I. Financial Information

2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position and potential growth opportunities. Our forward-looking statements do not consider the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” “estimates,” “projects,” “targets” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this report and in our annual report on Form 10-K for the year ended December 31, 2020. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to:
fluctuations in the price we receive for our oil, gas, and NGL production, including local market price differentials;
the impact of the COVID-19 pandemic, including reduced demand for oil and natural gas, economic slowdown, governmental and societal actions taken in response to the COVID-19 pandemic, and stay-at-home orders or illness that may cause interruptions to our operations;
cost and availability of gathering, pipeline, refining, transportation and other midstream and downstream activities and our ability to sell oil, gas, and NGLs, which may be negatively impacted by the COVID-19 pandemic;
severe weather and other risks and lead to a lack of any available markets;
risks related to our recently completed Merger, including challenges associated with integrating operations and diversion of management’s attention to Merger-related issues;
our ability to successfully complete mergers, acquisitions and divestitures;
risks relating to our operations, including development drilling and testing results and performance of acquired properties and newly drilled wells;
any reduction in our borrowing base from time to time and our ability to repay any excess borrowings as a result of such reduction;
the impact of our derivative instruments and hedging activities;
continuing compliance with the financial covenants contained in our credit agreement;
the loss of certain federal income tax deductions;
risks associated with executing our business strategy, including any changes in our strategy;
inability to prove up undeveloped acreage and maintaining production on leases;
risks associated with concentration of operations in one major geographic area;
deviations from our forecasts and budgets, including our 2021 capital expenditure budget;
the ability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) and other oil exporting nations to agree to, adhere to and maintain oil price and production controls;
legislative or regulatory changes, including initiatives related to hydraulic fracturing, emissions, and disposal of produced water, which may be negatively impacted by the recent change in Presidential administration or legislatures;
the ability to receive drilling and other permits or approvals and rights-of-way in a timely manner (or at all), which may be negatively impacted by the impact of COVID-19 restrictions on regulatory employees who process and approve permits, other approvals and rights-of-way and which may be restricted by new Presidential and Secretarial orders and regulation and legislation;
risks related to litigation; and
cybersecurity threats, technology system failures and data security issues.

3


All forward-looking statements speak only as of the date of this Quarterly Report. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements.
Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and the price and cost assumptions made by our reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ from the quantities of oil and natural gas that are ultimately recovered.
4


Part I- Financial Information
Item 1. Financial Statements
Riley Exploration Permian, Inc.
Condensed Consolidated Balance Sheets
($ in thousands)
(unaudited)
March 31,
2021
September 30,
2020
Assets
Current Assets:
Cash and cash equivalents$10,062 $1,660 
Accounts receivable13,605 10,128 
Accounts receivable – related parties177 55 
Prepaid expenses and other current assets2,919 1,752 
Current derivative assets352 18,819 
Current assets - discontinued operations103  
Total Current Assets27,218 32,414 
Non-Current Assets:
Oil and natural gas properties, net (successful efforts)319,816 310,726 
Other property and equipment, net2,080 1,801 
Non-current derivative assets564 3,102 
Other non-current assets, net2,442 2,949 
Noncurrent assets - discontinued operations5,066  
Total Non-Current Assets329,968 318,578 
Total Assets$357,186 $350,992 

5


Riley Exploration Permian, Inc.
Condensed Consolidated Balance Sheets - (Continued)
($ in thousands)
(unaudited)
March 31,
2021
September 30,
2020
Liabilities, Series A Preferred Units, and Members'/Shareholders' Equity
Current Liabilities:
Accounts payable$6,335 $4,739 
Income taxes payable1,129  
Accrued liabilities26,499 8,746 
Revenue payable7,685 4,432 
Advances from joint interest owners274 254 
Current derivative liabilities14,310  
Other current liabilities469 392 
Current liabilities - discontinued operations95  
Total Current Liabilities56,796 18,563 
Non-Current Liabilities:
Non-current derivative liabilities6,076  
Asset retirement obligations2,270 2,268 
Revolving credit facility97,500 101,000 
Deferred tax liabilities11,589 1,834 
Other non-current liabilities108 418 
Noncurrent liabilities - discontinued operations1,607  
Total Non-Current Liabilities119,150 105,520 
Total Liabilities175,946 124,083 
Series A Preferred Units 60,292 
Commitments and Contingencies (Note 17)
Members' Equity 166,617 
Shareholders' Equity:
Preferred stock, $0.0001 par value, 25,000,000 shares designated; 0 shares issued and outstanding
 — 
Common stock, $0.001 par value, authorized 240,000,000 shares; 17,825,179 and 0 shares issued and outstanding, respectively
18 — 
Additional paid-in capital218,974 — 
Accumulated deficit(37,752)— 
Total Shareholders' Equity181,240  
Total Liabilities, Series A Preferred Units, and Members'/Shareholders' Equity$357,186 $350,992 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


Riley Exploration Permian, Inc.
Condensed Consolidated Statements of Operations
($ in thousands, except per share/unit amounts)
(unaudited)
Three Months Ended March 31,Six Months Ended March 31,
2021202020212020
Revenues:
Oil and natural gas sales, net$36,659 $24,356 $59,073 $52,855 
Contract services – related parties600 1,050 1,200 2,100 
Total Revenues37,259 25,406 60,273 54,955 
Costs and Expenses:
Lease operating expenses6,773 6,028 11,569 11,757 
Production taxes1,937 1,156 2,998 2,515 
Exploration costs5,473 1,747 5,897 2,474 
Depletion, depreciation,
amortization and accretion
6,251 5,357 12,241 10,992 
General and administrative:
Administrative costs2,696 3,514 5,141 6,733 
Unit-based compensation expense276 206 689 359 
Stock-based compensation expense4,571  4,571  
Cost of contract services - related parties91 138 239 306 
Transaction costs2,164 28 3,213 27 
Total Costs and Expenses30,232 18,174 46,558 35,163 
Income From Operations7,027 7,232 13,715 19,792 
Other Income (Expense):
Interest expense(1,165)(1,418)(2,400)(2,784)
Gain (loss) on derivatives(24,903)69,239 (38,812)51,204 
Total Other Income (Expense)(26,068)67,821 (41,212)48,420 
Net Income (Loss) From
Continuing Operations Before
Income Taxes
(19,041)75,053 (27,497)68,212 
Income tax expense(14,231) (13,716) 
Net Income (Loss) From
Continuing Operations
(33,272)75,053 (41,213)68,212 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


Riley Exploration Permian, Inc.
Condensed Consolidated Statements of Operations - (Continued)
($ in thousands, except per share/unit amounts)
(unaudited)
Three Months Ended March 31,Six Months Ended March 31,
2021202020212020
Discontinued Operations:
Loss from discontinued operations(18,631) (18,631) 
Income tax benefit on discontinued operations25  25  
Loss on discontinued operations(18,606) (18,606) 
Net Income (Loss)(51,878)75,053 (59,819)68,212 
Dividends on preferred units(574)(877)(1,491)(1,741)
Net Income (Loss) Attributable to Common Shareholders/Unitholders$(52,452)$74,176 $(61,310)$66,471 
Net Income (Loss) per Share/Unit
from Continuing Operations:
Basic$(2.33)$5.95 $(3.15)$5.34 
Diluted$(2.33)$4.55 $(3.15)$4.15 
Net Income (Loss) per Share/Unit
    from Discontinued Operations:
Basic$(1.28)$ $(1.37)$ 
Diluted$(1.28)$ $(1.37)$ 
Net Income (Loss) per Share/Unit:
Basic$(3.61)$5.95 $(4.52)$5.34 
Diluted$(3.61)$4.55 $(4.52)$4.15 
Weighted Average Common Share/Units Outstanding:
Basic14,542 12,457 13,575 12,446 
Diluted14,542 16,486 13,575 16,435 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8


Riley Exploration Permian, Inc.
Condensed Consolidated Statements of Changes in Members'/Shareholders' Equity
($, units and shares in thousands)
(unaudited)
Members' EquityShareholders' Equity
Common Stock
Units OutstandingAmountSharesAmountAdditional Paid-in CapitalAccumulated DeficitTotal Shareholders' Equity
For the Six Months Ended March 31, 2020
Balance, September 30, 20191,527 $149,383  $ $ $ $ 
Issuance of common units under long-term incentive plan15 — — — — — — 
Purchase of common units under long-term incentive plan(2)(194)— — — — — 
Dividends on preferred units— (864)— — — — — 
Dividends on common units— (4,997)— — — — — 
Unit-based compensation expense— 153 — — — — — 
Net loss— (6,841)— — — — — 
Balance, December 31, 20191,540 $136,640  $ $ $ $ 
Issuance of common units under long-term incentive plan16 — — — — — — 
Purchase of common units under long-term incentive plan(1)(124)— — — — — 
Dividends on preferred units— (877)— — — — — 
Dividends on common units— (4,988)— — — — — 
Unit-based compensation expense— 206 — — — — — 
Net income— 75,053 — — — — — 
Balance, March 31, 20201,555 $205,910  $ $ $ $ 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9


Riley Exploration Permian, Inc.
Condensed Consolidated Statements of Changes in Members'/Shareholders' Equity - (Continued)
($, units and shares in thousands)
(unaudited)
Members' EquityShareholders' Equity
Common Stock
Units OutstandingAmountSharesAmountAdditional Paid-in CapitalAccumulated DeficitTotal Shareholders' Equity
For the Six Months Ended March 31, 2021
Balance, September 30, 20201,555 $166,617  $ $ $ $ 
Issuance of common units under long-term incentive plan13 — — — — — — 
Dividends on preferred units— (917)— — — —  
Dividends on common units— (3,801)— — — —  
Unit-based compensation expense— 413 — — — —  
Net loss— (7,941)— — — —  
Balance, December 31, 20201,568 $154,371  $ $ $ $ 
Purchase of common units under long-term incentive plan(3)(191)— — — —  
Dividends on preferred units— (574)— — — —  
Preferred units converted to common units512 61,196 — — — —  
Dividends on common units— (3,770)— — — —  
Unit-based compensation expense— 276 — — — —  
Net loss from January 1, 2021 through February 26, 2021— (19,117)— — — —  
Restricted common shares issued in exchange for common units issued under long-term incentive plan(24)— 198 — — — — 
Common shares issued in exchange for common units (effected for 1-for-12 reverse stock split(2,053)(192,191)16,733 17 192,174 — 192,191 
Common shares issued for business combination— — 891 1 26,391 — 26,392 
Restricted common shares issued— — 3 — — — — 
Share-based compensation expense— — — — 409 — 409 
Cash dividends declared ($0.28 per share)
— — — — — (4,991)(4,991)
Net loss from February 27, 2021 through March 31, 2021— — — — — (32,761)(32,761)
Balance, March 31, 2021 $ 17,825 $18 $218,974 $(37,752)$181,240 
The accompanying notes are an integral part of these condensed consolidated financial statements.
10


Riley Exploration Permian, Inc.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(unaudited)
Six Months Ended March 31,
20212020
Cash Flows from Operating Activities:
Net income (loss)$(59,819)$68,212 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash discontinued operations18,606  
Oil and gas lease expirations5,827 547 
Depletion, depreciation, amortization and accretion12,241 10,992 
(Gain) Loss on derivatives38,812 (51,204)
Settlements on derivative contracts2,579 5,492 
Amortization of deferred financing costs316 318 
Unit-based compensation expense689 359 
Stock-based compensation expense4,571  
Deferred income tax expense12,938  
Changes in operating assets and liabilities:
Accounts receivable (3,477)1,528 
Accounts receivable – related parties(122)(1,247)
Prepaid expenses and other current assets(433)1,133 
Other non-current assets1 35 
Accounts payable and accrued liabilities1,366 (2,617)
Income taxes payable778  
Revenue payable3,253 951 
Advances from joint interest owners20 1,091 
Advances from related parties 662 
Net Cash Provided By Operating Activities - Continuing Operations38,146 36,252 
Cash Flows From Investing Activities:
Additions to oil and natural gas properties(17,133)(33,712)
Acquisition of oil and natural gas properties(171)(3,976)
Additions to other property and equipment(380)(53)
Tengasco acquired cash859  
Net Cash Used In Investing Activities - Continuing Operations(16,825)(37,741)
The accompanying notes are an integral part of these condensed consolidated financial statements.
11


Riley Exploration Permian, Inc.
Condensed Consolidated Statements of Cash Flows – (Continued)
($ in thousands)
(unaudited)
Six Months Ended March 31,
20212020
Cash Flows From Financing Activities:
Deferred financing costs(129)(267)
Proceeds from revolving credit facility5,500 14,000 
Repayment under revolving credit facility(9,000)(2,000)
Payment of common unit dividends(7,841)(10,347)
Payment of preferred unit dividends(1,491) 
Purchase of common units under long-term incentive plan(191)(318)
Net Cash Provided by (Used In) Financing Activities -
Continuing Operations
(13,152)1,068 
Net Increase (Decrease) in Cash and Cash Equivalents
from Continuing Operations
8,169 (421)
Cash Flows from Discontinued Operations:
Operating activities238  
Financing activities(5) 
Net Increase in Cash and Cash Equivalents
from Discontinued Operations
233  
Net Increase (Decrease) in Cash and Cash Equivalents8,402 (421)
Cash and Cash Equivalents, Beginning of Period1,660 3,726 
Cash and Cash Equivalents, End of Period$10,062 $3,305 
Supplemental Disclosure of Cash Flow Information
Cash Paid For:
Interest$1,856 $2,396 
Non-cash Investing and Financing Activities - Continuing Operations:
Changes in capital expenditures in accounts payable and accrued liabilities$9,471 $5,027 
Common unit dividends incurred but not paid$84 $25 
Asset retirement obligations$53 $859 
Preferred unit dividends paid in kind$904 $1,715 
Preferred unit dividends$ $1,741 
Dividends declared on common shares$4,991 $ 
Common stock issued in exchange for common units$192,191 $ 
Assets acquired and liabilities assumed in business combination$3,497 $ 
Common stock issued for business combination$26,392 $ 
Preferred units converted to common units$61,196 $ 
Non-cash Investing and Financing Activities - Discontinued Operations:
Goodwill incurred in business combination$19,057 $ 
Assets acquired and liabilities assumed for business combination$2,978 $ 

The accompanying notes are an integral part of these condensed consolidated financial statements.
12

RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.Nature of Business
Riley Exploration Permian, Inc. ("Riley Permian", "REPX", "the Company", "Registrant", "we", "our", or "us") is a growth-oriented, independent oil and natural gas company focused on growing our conventional reserves, production and cash flow per share through the acquisition, exploration, development and production of oil, natural gas and natural gas liquids ("NGLs") in the Permian Basin. Our activities are primarily focused on the San Andres Formation, a shelf margin deposit on the Northwest Shelf. The Company was formed to focus on opportunities (i) with favorable reservoir and geological characteristics primarily for oil development, (ii) that offer large contiguous acreage positions with significant untapped potential in terms of ultimate recoverable reserves and (iii) with a high degree of operational control. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas with additional acreage located in Lea and Roosevelt Counties, New Mexico.
On February 26, 2021 (the “Closing Date”), Riley Exploration Permian, Inc., a Delaware corporation (f/k/a Tengasco, Inc. (“Tengasco”)), consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger (“Merger Agreement”), dated as of October 21, 2020, by and among Tengasco, Antman Sub, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Tengasco (“Merger Sub”), and Riley Exploration – Permian, LLC (“REP LLC”), as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of January 20, 2021, by and among Tengasco, Merger Sub and REP LLC. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into REP LLC, with REP LLC surviving as the surviving company and as a wholly-owned subsidiary of Tengasco (collectively, with the other transactions described in the Merger Agreement, the “Merger”). On the Closing Date, the Registrant changed its name from Tengasco, Inc. to Riley Exploration Permian, Inc. Our organizational structure includes wholly-owned consolidated subsidiaries through which our operations are conducted.
Current Commodity Environment
During 2020, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, spread quickly across the globe. Federal, state and local governments mobilized to implement containment mechanisms and minimize impacts to their populations and economies. Various containment measures, which included the quarantining of cities, regions and countries, have resulted in a severe drop in general economic activity and a resulting decrease in energy demand.
Currently, oil and natural gas operations are considered essential in the State of Texas and New Mexico, and the Company has not had any significant disruptions in operations.
This outbreak and the related responses of governmental authorities and others to limit the spread of the virus significantly reduced global economic activity, resulting in a significant decline in the demand for oil and other commodities. These factors caused a swift and material deterioration in commodity prices for a majority of 2020, which significantly impacted our revenues for the three and six months ended March 31, 2020. However, near the end of 2020 and the beginning of 2021, oil prices steadily increased but are expected to continue to be volatile as these events evolve. The Company cannot estimate the full length or gravity of the future impacts at this time and if there is another significant decline in oil price, it could have a material adverse effect on the Company’s results of operations, financial position, liquidity and the value of oil and natural gas reserves.
CARES Act and Consolidated Appropriations Act
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), and on December 27, 2020, President Trump signed into law the Consolidated Appropriations Act. These Acts are meant to provide fast and direct economic assistance for American workers, families, and small businesses, and preserve jobs for American industries. The Company evaluated the outlook of its future operations, current financial position and liquidity and determined not to take the relief provided by the CARES Act and the Consolidated Appropriations Act.
2.    Basis of Presentation
These unaudited condensed consolidated financial statements as of March 31, 2021 and for the three and six months ended March 31, 2021 and 2020 include the accounts of Riley Permian and its wholly-owned subsidiaries REP LLC, Riley Permian Operating Company, LLC ("RPOC"), Riley Employee Member, LLC ("REM"), Tengasco Pipeline Corporation ("TPC"), Tennessee Land & Mineral Corporation ("TLMC"), and Manufactured Methane Corporation ("MMC"). All intercompany balances and transactions have been eliminated upon consolidation. The Merger was accounted for as a reverse merger. The historical operations of REP LLC are deemed to be those of the Company. Thus, the consolidated financial statements included in this report reflect (i) the historical operating results of REP LLC prior to the Transaction;
The accompanying notes are an integral part of these condensed consolidated financial statements.
13

RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



(ii) the consolidated results of the Company following the Merger; (iii) the assets and liabilities of REP LLC at their historical cost; and (iv) the Company’s equity and earnings per share for all periods presented.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to the rules and regulation of the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with REP LLC's audited consolidated financial statements and related notes for the year ended September 30, 2020, included in the Company's current report on Form 8-K/A filed on April 22, 2021.
These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company's management, necessary for a fair presentation of the results for the interim periods. These condensed consolidated financial statements are not necessarily indicative of the results for the entire fiscal year.
3.Summary of Significant Accounting Policies
Significant Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying condensed notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable and accrued operating expenses, the fair value determination of acquired assets and assumed liabilities, certain tax accruals and the fair value of derivatives.
Accounts Receivable
The Company had no allowance for doubtful accounts at March 31, 2021 and September 30, 2020.
Accounts receivable is summarized below:
March 31,
2021
September 30,
2020
($ in thousands)
Oil, natural gas and NGL sales$12,990 $6,919 
Joint interest accounts receivable557 1,022 
Realized derivative receivable 2,187 
Other accounts receivable58  
Total accounts receivable$13,605 $10,128 
Business Combinations
In accordance with ASC 805 - Business Combinations (“ASC 805”), the Company accounts for its acquisitions that qualify as a business using the acquisition method under ASC 805. If the set of assets and activities is not considered a business, it is accounted for as an asset acquisition using a cost accumulation model. In the cost accumulation model, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.
The Company includes the results of operations of acquired businesses beginning on the respective acquisition dates. In accordance with the acquisition method under ASC 805, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on the estimated fair values. This fair value measurement is based on unobservable (Level 3) inputs. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess value of the net identifiable assets and liabilities acquired over the purchase price of an acquired business is recorded as a bargain purchase gain.
14

RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



Accrued Liabilities
Accrued liabilities consisted of the following:
March 31,
2021
September 30,
2020
($ in thousands)
Accrued capital expenditures$12,215 $2,964 
Accrued lease operating expenses2,249 1,617 
Accrued ad valorem tax365 680 
Accrued general and administrative costs2,151 2,125 
Accrued interest expense28 63 
Accrued dividends on preferred units 903 
Accrued dividends on common units 95 
Accrued dividends on common shares4,991  
Accrued stock-based compensation liability4,162  
Other accrued expenditures338 299 
Total accrued liabilities$26,499 $8,746 
Asset Retirement Obligations
Components of the changes in asset retirement obligations ("ARO") for the six months ended March 31, 2021 and year ended September 30, 2020 are shown below:
March 31,
2021
September 30,
2020
($ in thousands)
ARO, beginning balance$2,326 $1,203 
Liabilities incurred53 68 
Liabilities acquired 1,161 
Revision of estimated obligations (45)
Liability settlements and disposals (131)
Accretion43 70 
ARO, ending balance2,422 2,326 
Less: current ARO(152)(58)
ARO, long-term$2,270 $2,268 
Current ARO is included within accrued liabilities on the condensed consolidated balance sheets.
Goodwill
Goodwill represents the future economic benefit arising from other assets acquired in a business combination that are not individually identified or separately recognized. Goodwill is initially recognized as the excess of the purchase price of a business combination over the fair value of the net assets acquired and is tested for impairment annually in accordance with ASC 350 - Intangibles - Goodwill and Other ("ASC 350"), or more frequently if there is a change in events or circumstances that indicate the carrying value of the goodwill may not be recoverable.
The Company recognized goodwill of $19.1 million from the Merger. The Company assessed the oil and natural gas properties acquired through the Merger as a separate reporting unit (the "Kansas Reporting Unit") and therefore allocated the full goodwill amount to the Kansas Reporting Unit. In March 2021, the Company entered into an agreement to divest the Kansas Reporting Unit which is made up primarily of the oil and natural gas properties acquired, which includes producing oil wells, shut-in wells, temporarily abandoned wells, and active disposal wells (the "Kansas Properties"). The Company did not fully integrate the Kansas Reporting Unit into the Company's operations since it was deemed to be held for sale upon acquisition. See further discussion in Note 4 - Business Combinations.
15

RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



In accordance with ASC 350, the impairment test should occur at the reporting unit level determined by the Company and an impairment should only exist if the Company has determined the carrying value of the goodwill no longer exceeds the implied fair value. A two-step goodwill impairment test should be used to identify potential goodwill impairment and measure such impairment, if any. The first step is a qualitative assessment which the Company will determine whether it is more likely than not (greater than 50 percent likelihood) that the fair value of the reporting unit is less than its carrying value, including goodwill. If the Company determines it is more likely than not the fair value of the reporting unit is less than its carrying value, including goodwill, then step two is a quantitative assessment. The quantitative assessment compares the implied fair value of the reporting unit goodwill with the carrying value of the goodwill. An impairment loss is recognized if the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill.
The Company assessed the goodwill balance as of March 31, 2021 for impairment because the Company entered into a Purchase and Sale Agreement ("PSA") on March 10, 2021 for $3.5 million before closing adjustments. See further discussion in Note 15 - Discontinued Operations and Assets Held for Sale. As of March 31, 2021, the Kansas Reporting Unit was recorded at a fair value of $4.6 million using a discounted cash flow method of valuation in accordance with ASC 805. The carrying value of the Kansas Reporting Unit was $22.0 million, which includes a goodwill balance of $19.1 million. The Company concluded the fair value of the Kansas Reporting Unit was $3.5 million in accordance with ASC 350 since the Company entered into a PSA shortly after the Kansas Reporting Unit was deemed held for sale. The carrying value exceeded the implied fair value at the time of the closing of the Merger. As such, the Company concluded the goodwill balance associated with the Kansas Reporting Unit was impaired and recognized a goodwill impairment loss, included within loss from discontinued operations, of $18.5 million for the period ending March 31, 2021.
Revenue Recognition
The following table presents oil and natural gas sales from continuing operations disaggregated by product:
Three Months Ended March 31,Six Months Ended March 31,
2021202020212020
($ in thousands)
Oil and natural gas sales:
Oil$30,784 $24,598 $52,891 $53,396 
Natural gas4,516 (93)4,635 (271)
Natural gas liquids1,359 (149)1,547 (270)
Total oil and natural gas sales, net$36,659 $24,356 $59,073 $52,855 
16

RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



Transaction Costs
Three Months Ended March 31,Six Months Ended March 31,
2021202020212020
($ in thousands)($ in thousands)
Business combination acquisition costs$2,164 $28 $3,053 $27 
Other  160  
Total transaction costs$2,164 $28 $3,213 $27 
The Company recognized transaction costs of $2.2 million and $3.2 million for the three and six months ended March 31, 2021. These costs relate to the fees incurred for the Merger. See further discussion in Note 4 - Business Combinations.
Income Taxes
Upon closing of the Merger on February 26, 2021, Tengasco was renamed to Riley Exploration Permian, Inc. and REP LLC became a wholly-owned subsidiary of Riley Permian, the consolidated company, which is subject to current federal and state income taxes, including Texas Margin Tax. See further discussion in Note 4 - Business Combinations. The Company recorded a provision for federal and state income taxes as of March 31, 2021. See further discussion in Note 14 - Income Taxes.
Riley Permian uses the asset and liability method of accounting for income taxes, which requires the establishment of deferred tax accounts for all temporary differences between: (i) financial reporting and tax bases of assets and liabilities, using currently enacted federal and state income tax rates, and (ii) operating loss and tax credit carryforwards. In addition, deferred tax accounts must be adjusted to reflect new rates if enacted into law.
Realization of deferred tax assets is contingent on the generation of future taxable income. As a result, management considers whether it is more likely than not that all or a portion of such assets will be realized during periods when they are available, and if not, management provides a valuation allowance for amounts not likely to be recognized.
Management periodically evaluates tax reporting methods to determine if any uncertain tax positions exist that would require the establishment of a loss contingency. A loss contingency would be recognized if it were probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimates and management’s judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately incurred for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. There are no unrecorded liabilities for uncertain tax positions related to the Company as of the periods ended March 31, 2021 and September 30, 2020.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a Current Expected Credit Losses (“CECL”) methodology. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. The Company adopted this ASU effective October 1, 2020 using a modified retrospective approach. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements or related disclosures.
The Company is exposed to credit losses primarily through receivables that result from oil and natural gas sales. Estimates of expected credit losses for accounts receivables consider factors such as historical collection experience, credit quality of our customers and current and future economic and market conditions.
17

RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of this amendment is to improve the effectiveness of disclosures in the notes of the financial statements. This ASU removes certain disclosure requirements around transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements, modifies certain reporting requirements around Level 3 fair value measurements and investments in certain entities that calculate net asset value, and adds certain disclosure requirements for Level 3 fair value measurements. The Company adopted this ASU effective October 1, 2020. The adoption of this ASU did not have a material impact on the Company's financial statements.
Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 840): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates (e.g., London Interbank Offered Rate (“LIBOR”)) that are expected to be discontinued. ASU 2020-04 allows, among other things, certain contract modifications, such as those within the scope of Topic 470 on debt, to be accounted as a continuation of the existing contract. This ASU was effective upon the issuance and its optional relief can be applied through December 31, 2022. This standard did not have any effect on the Company's financial statements as of March 31, 2021. The Company will continue to evaluate the effect of this standard on future reporting periods through December 31, 2022.
4.Business Combinations
Business Combination Between REP LLC and Tengasco
Immediately prior to the closing of the Merger on February 26, 2021, REP LLC converted all of the issued and outstanding Series A Preferred Units into common units of REP LLC. In connection with the Merger, holders of common units of REP LLC were entitled to receive, in exchange for each common unit, shares of common stock of Tengasco (which was renamed Riley Exploration Permian, Inc.), par value $0.001 per share (“Tengasco common stock”) based on the exchange ratio set forth in the Merger Agreement (the “Exchange Ratio”), with cash paid in lieu of the issuance of any fractional shares. The Exchange Ratio was 97.796467 shares of Tengasco common stock for each common unit of REP LLC (as adjusted for the reverse stock split). Immediately prior to the closing of the Merger, Tengasco effected a one-for-twelve reverse stock split resulting in outstanding common stock of approximately 17.8 million shares including shares of Tengasco common stock issued in the Merger. See further discussion in Note 11 – Members'/Shareholders' Equity.
Pursuant to the Merger Agreement and on the Closing Date, each restricted share of common stock issued to holders of restricted common units in REP LLC in the Merger were issued under the 2021 Long Term Incentive Plan (the "2021 LTIP"). See further discussion in Note 13 – Share-Based and Unit-Based Compensation.
The combination between REP LLC and Tengasco qualified as a business combination, with REP LLC being treated as the accounting acquirer. The assets acquired and liabilities assumed were recognized on the consolidated balance sheet at fair value as of the acquisition date. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future commodity prices, future development, future operating costs, future cash flows and the use of weighted average cost of capital. These inputs required the use of significant judgments and estimates at the date of valuation.
The consideration paid in the Merger by REP LLC as the accounting acquirer totaled approximately $26.4 million and was determined based on the closing price of Tengasco’s common stock on February 26, 2021 and the total number of shares outstanding immediately prior to the Merger. The following table summarizes the purchase price or consideration for the Merger (presented in thousands, except per share amounts).
Consideration
Tengasco common stock price$29.64 
Tengasco common stock - issued and outstanding as of February 26, 2021891 
Total consideration$26,392 
18

RILEY EXPLORATION PERMIAN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



The Company incurred approximately $4.5 million of related costs to date for the Merger, of which $2.2 million and $3.1 million was expensed for the three and six months ended March 31, 2021 as transaction costs on the condensed consolidated statement of operations. Included in the above costs, the Company incurred success fees of $1.75 million upon closing of the Merger which is included within transaction costs on the condensed consolidated statement of operations. The majority of these fees were paid at closing with approximately $0.3 million being paid 30 days after closing.
The Company believes it has completed the determination of the fair value attributable to the assets acquired and liabilities assumed. The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values on February 26, 2021.
February 26,
2021
Assets
Cash and cash equivalents$860 
Account receivable325 
Prepaid and other current assets759 
Total current assets1,944 
Oil and gas properties, net4,525 
Other property and equipment, net91 
Right of use assets42 
Other non-current assets4 
Deferred tax assets2,943 
Total non-current assets7,605 
Total assets acquired$9,549 
Liabilities
Accounts payable130 
Accrued liabilities409 
Current lease liabilities, operating42 
Current lease liabilities, financing68 
Total current liabilities649 
Asset retirement obligations1,565 
Total non-current liabilities