Riley Exploration Permian - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong free cash flow and deleveraging despite zero wells turned to sales; revenues were $102.5M, net income $28.6M ($1.36 diluted EPS), Adjusted EBITDAX $71.1M, and upstream free cash flow $39.3M.
• Management cut 2025 standalone total investments by ~50% and trimmed midpoint production guidance ~3%, prioritizing inventory preservation and the pending $142M Silverback acquisition that adds ~5 MBoe/d and 300+ gross undeveloped locations.
• New Mexico midstream build-out advanced (first compression station commissioned; 20-inch pipeline targeted 2026), supporting oil production reliability via improved gas/water takeaway; RPC Power JV now covers ~56% of Texas field load and ERCOT merchant project is progressing.
• Balance sheet improved: debt reduced $21M in Q1; leverage ~0.9x LTM Adjusted EBITDAX; borrowing base reaffirmed at $400M; total liquidity $310M as of 3/31/25.
• Potential stock catalysts: Silverback closing in early Q3 2025, midstream phases/gathering additions, ERCOT power project timing, and hedge-protected cash flows (70% PDP oil hedged for 2025; detailed swaps/collars through 2026).

What Went Well and What Went Wrong

• What Went Well

  • Free cash flow and deleveraging: upstream FCF $39.3M; total FCF $36.4M; debt down $21M; leverage 0.9x.
  • Operational cost discipline: LOE per Boe $8.34; cash G&A $3.38/Boe; service costs ~10% lower YoY; potential 20% compression if rig counts decline.
  • Strategic positioning: Silverback acquisition adds inventory, SWD capacity, water storage, and synergizes with midstream/power strategy; 98% HBP acreage reduces urgency to drill.
  • Quote: “We are prioritizing the acquisition and preservation of high-quality inventory over the conversion of inventory to production.” — Bobby Riley.

• What Went Wrong

  • Lower realized gas/NGL pricing and derivative loss: avg gas price $0.71/Mcf; NGL $5.41/Bbl; net derivatives loss $5.9M.
  • Production modestly down QoQ: daily Boe/d and oil/d declined ~2% with zero wells turned to sales; completions stacked for later quarters.
  • Guidance reduction: standalone 2025 investments cut ~50%; production midpoint trimmed ~3% due to macro and acquisition pacing.
  • Analyst concern: midstream timing/costs and tariff impacts; company paused pipe orders to optimize economics and may explore financing alternatives for midstream.

Transcript

Operator (participant)

Thank you for standing by. My name is Tina, and I will be your operator today. At this time, I would like to welcome everyone to the Riley Exploration Permian's first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Philip Riley, CFO. Please go ahead.

Philip Riley (CFO and EVP of Strategy)

Good morning. Welcome to our conference call covering first quarter 2025 results. I'm Philip Riley, CFO. Joining me today are Bobby Riley, Chairman and CEO, and John Suter, COO. Yesterday, we published a variety of materials which can be found on our website under the investors' section. These materials and today's conference call contain certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. We'll also reference certain non-GAAP measures. The reconciliations to the appropriate GAAP measures can be found in our supplemental disclosures on our website. I'll now turn the call over to Bobby.

Bobby Riley (President, Chairman, and CEO)

Thank you, Philip. Good morning and welcome to our earnings call. Riley Permian has once again demonstrated capital efficiency with strong performance this quarter. Our modest capital investing during the first quarter allowed us to generate substantial free cash flow and further reduce debt, setting us up favorably for the year ahead. We're excited to announce that we have reached an agreement to acquire Silverback Exploration for $142 million in cash. This strategic acquisition involves a largely undeveloped asset base in New Mexico, which is contiguous and overlapping with Riley Permian's existing position in the Yeso Trend, thereby extending our footprint in the region. The asset includes approximately 47,000 net working interest acres and significantly enhances our long-term upstream development potential.

It adds over 300 gross incremental undeveloped horizontal locations to our inventory, along with around 50 overlapping gross undeveloped horizontal locations, which will increase Riley Permian's current working interest in existing units. Notably, 98% of the acreage is held by production, providing flexibility for future development. We anticipate further synergies from this acquisition in several areas. Number one, water handling. The asset comes with existing water disposal infrastructure and SWD injection capacity to further support future hydrocarbon production. This is particularly important in New Mexico, with the regulatory bodies making it difficult to get new SWD permits. Number two, gas takeaway. The undeveloped locations will bolster our previous decision to invest in midstream gas infrastructure in the region. Number three, power generation. We plan to extend our proven processes from Texas to New Mexico, enhancing our power generation capabilities.

Despite the current market volatility, we believe this acquisition is justified, given our long-term outlook for both our industry and our company. This year, we are prioritizing the acquisition and preservation of high-quality inventory over the conversion of inventory to production. We believe Riley Permian is well-positioned to succeed in the current market environment with our strong asset base, disciplined capital allocation philosophy, and robust hedging profile. Now I'll turn the call over to John Suter, our COO, to discuss operational results for the quarter, followed by Philip Riley, our CFO, who will discuss the acquisition financing and forward guidance.

John Suter (COO)

Thank you, Bobby, and good morning. Once again, Riley demonstrated excellence in operations through safe operating practices. The team achieved a total recordable incident rate of zero for the first quarter of 2025. We achieved 93% safe days in the first quarter, a metric requiring no recordable incidents, vehicle accidents, or spills over 10 barrels. This is a record percentage of safe days in a quarter for Riley. Congratulations to the entire team. Moving on to activity, you will remember that we dropped the one rig use in the 2024 campaign in late December. Our 2025 drilling campaign kicked off in Q1, spreading our first well for the year in late March. We plan to use the rig to drill a 10-well program this year, replenishing the ducts we have completed thus far in 2025. For Q1 2025, we drilled zero, completed 10, and turned in line zero gross operated wells.

Five of those completed wells are flowing back now and will begin production in May. The other five wells will come on in the second half of 2025 with minor infrastructure additions. Net production declined slightly from 1.46 to 1.41 million barrels of oil quarter-over-quarter in Q1, but increased 9% compared to the same quarter last year. Equivalent production is up 19% compared to the same quarter last year, from 1.85 to 2.2 million barrels oil equivalent. Our average daily net production was 15.62 thousand barrels oil per day and 24.43 thousand barrels oil equivalent per day for the first quarter of 2025. All of this was accomplished without any new wells being added during the quarter, which is a testament to the high-quality assets that we operate. This relatively flat quarter-over-quarter production outcome was achieved while lowering operating costs.

Our LOE per BOE for Q1 2025 was $8.34 per equivalent barrel, a 2% reduction from Q4 2024 and an 8% reduction from the first quarter a year ago. Our operations team prides itself on driving the best economic outcomes, no matter what the activity level. Service costs are a subject we're keeping a close watch on, particularly in light of uncertainty around current and future tariffs. That said, based on the recent activity, we see an average of 10% compression in many service costs over last year. While tariffs could have some offsetting impact on tangible costs, even factoring that in, our position remains strong. We're very encouraged by how significantly tangible costs have come down pre-tariffs and even post-tariffs. We're still well-positioned to lower overall well costs.

Should we see a significant decline in rig count, such as 30-40 rigs in industry, we believe our cost compression in the range of 20% could be realized. We're very excited about the Silverback acquisition that Bobby just mentioned. It roughly doubles the size of our Yeso footprint in New Mexico, located adjacent to our Red Lake asset to the west-southwest and overlapping our acreage in many areas. Here are a few more details on some of the synergies that Bobby mentioned with this combination of assets: a large water disposal system with five SWDs that will augment Riley's already robust water operation by roughly 35%-40%. Water disposal capacity, in conjunction with gas takeaway, are key facets to enabling development plans in this area. A combination of 2.6 million barrels of recycled water storage is located in two primary facilities.

This could be a significant cost-saving mechanism for Riley and aligns us well with the current regulatory environment. With the acquisition of Silverback, increasing the magnitude of our New Mexico holdings, the value and timing of our midstream project are key for development optionality between both assets. Let me update you on what we've accomplished so far with our project and describe our flexibility of completion. During Q1, we completed the first phase of our New Mexico gathering and compression project with the commissioning of our Birdie Compressor Station on the west side of the Red Lake asset. This was completed on time and on budget. We established roughly 15 million cubic feet per day compression capacity toward our existing gatherer's high-pressure system and, in the process, left additional low-pressure capacity to fill in the interim.

In the short term, this new station will increase our ability to deliver gas from this asset more consistently and reliably. It began initial flows to the purchaser on March 26. Once our 20-inch high-pressure transmission line to Targa is completed in 2026, we will swing gas deliveries from this station to that outlet. We're currently finalizing the path and purchasing right of way as per our schedule through late summer. As mentioned earlier, we're keeping a close eye on costs. We have the flexibility to order pipe and begin construction at a time that makes economic sense with commodity pricing and cash flow considerations. This station is designed to be expandable to 100 million cubic feet per day, with additional compressors installed as needed.

Prior to completion of the high-pressure transmission line, our goal is to maximize the utilization of the compressor station by focusing on near-term development plans proximally to the station. We continue to utilize our power generation station with a greater percentage of our existing Texas assets, with 50%-60% of our power needs provided by self-generation in Q1. We're evaluating the benefits of a similar installation in New Mexico. With the expanded size of our portfolio in New Mexico and infrastructure improvements planned with gas and water, the power generation support will more fully allow us to develop unconstrained. In summary for the quarter, we're pleased with our delivery of relatively flat production at lower LOE, especially considering no new wells turned in line as per plan. We made significant midstream progress with the completion of our compressor station in Red Lake, all while delivering stellar safety metrics.

We've picked up a rig and look forward to efficient and cost-effective Q2 development. I want to congratulate the Riley Development and Operational Team for a very successful quarter. Philip, I'll turn it over to you.

Philip Riley (CFO and EVP of Strategy)

Thank you, John. Our first quarter financials are straightforward. We converted $54 million of operating cash flow before working capital to $39 million of upstream free cash flow on account of a wider CapEx quarter, reinvesting only 35% into upstream while keeping volumes mostly flat. We allocated upstream free cash flow as follows: 56% went to debt reduction in cash, lowering debt by $21 million quarter-over-quarter to 0.9 times leverage. A combined 23% was invested on our midstream and power projects, and 21% was allocated to the dividend. I'll next describe some of the acquisition mechanics and funding estimates. With the transaction effective date of January 1st and an estimated closing date of July 1st, we'll benefit from six months of cash flow that will serve as an adjustment to the funds required at closing.

At current prices, this may amount to a $15 million reduction at closing, and after accounting for some transaction expenses, may result in a $130 million draw on the revolver. We do forecast a modest debt increase during the second quarter on a standalone basis, based on current estimates from the impact of working capital movements. By the third quarter, pro forma leverage after the acquisition will increase to a level with which management and the board is comfortable, and we believe similar to levels where we were at the end of 2023. We'll focus on managing the leverage profile in the second half of the year, which will be impacted by market prices, cash flow, and spending. We have a track record of paying cash for an asset and subsequently deleveraging over time, and that's our plan here.

We'll benefit from some novated hedges coming with the acquisition entity, as well as additional hedges we've put on recently. For the balance of 2025, on a pro forma combined basis, we've hedged oil prices for 70% of forecasted PDP volumes and 57% of total oil volumes at a weighted average $67 downside price. For 2026, on a pro forma combined basis, we've hedged 67% of forecasted PDP volumes at a weighted average $59 downside price. Let's now discuss our modified guidance. In March, we announced 2025 investing guidance calling for material investments across upstream, midstream, and power as we seek to build complementary assets in a self-reinforcing model. On our last call, we forecasted staying debt neutral for the year at around $70 WTI. Since then, both realized prices and the forward strip have been well below that level.

Additionally, the Silverback acquisition opportunity manifested, and we and our board decided that was worth pursuing even in a volatile or down market. Given the combination of these factors, we decided to adjust down our CapEx across each of upstream, midstream, and power. On a standalone basis, before accounting for the acquisition and reinvesting any of its cash flow, we are reducing 2025 total investments by $105 million or 50%, including upstream CapEx by 41%, midstream CapEx by 71%, and the power JV investment by 25%. The impact on standalone upstream volumes is modest, with midpoint oil guidance only down 4% and still showing year-over-year growth. One way we are achieving this is by turning to sales of already completed wells. We plan to complete more wells than we are drilling, owing to the fact that we have an inventory of ducks to utilize.

We also provide guidance combined with the acquisition, showing the second half of 2025 for combined volumes and the full-year averages, which only include a half-year benefit from the acquisition. At this point, we forecast only modest incremental development activity and reinvestment of the acquisition cash flow, perhaps two net incremental wells, given the currently depressed price outlook. On an inflation-adjusted basis, oil prices are at their lowest level in the past 20 years, aside from 12-month periods in 2015, 2016, and then again in 2020. We believe this is a better time to procure and preserve inventory, as Bobby said. We are certainly excited about the long-term development potential of the assets, and while we believe break-even development prices are far below the current market, we believe more favorable market conditions will return for bringing on new production.

On the midstream project, John described how we're spending selectively while pausing for now on the order of the pipe material itself. This will help reduce the concentration of the project spend and spread more into 2026. Additionally, we may explore some financing alternatives for the midstream project. There's a scenario where we elect to use entity-level financing and re-accelerate the project. We'll report back next quarter. On power, we continue with good progress and foresee reprioritizing a few elements following the acquisition, including adding battery backup to the self-generation project in Texas, adding another self-generation project in New Mexico, and using the thermal generators from one of the five ERCOT projects for that, while finally deferring the battery generation aspect of the ERCOT project. Net-net, we forecast this reducing our power equity investment need in 2025 by $5 million or 25%. I'll turn it back to Bobby for closing.

Thank you.

Bobby Riley (President, Chairman, and CEO)

Thank you, Philip. Once again, we appreciate your time and interest in Riley Permian. While we're pleased with our Q1 2025 results, our focus remains firmly on the future. We are committed to building long-term value through disciplined capital allocation, strategic infrastructure investments, and operational excellence. Our recent initiatives position us for sustained growth, and we believe our long-term strategy will continue to drive shareholder value well beyond this upcoming year. Thank you for your continued support. Operator, you may now turn the call over for questions.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of John White with ROTH Capital. Please go ahead.

John White (Senior Research Analyst)

Good morning.

Philip Riley (CFO and EVP of Strategy)

Good morning.

Bobby Riley (President, Chairman, and CEO)

Morning.

John White (Senior Research Analyst)

Congratulations on the Silverback acquisition. It looks like a very nice transaction for you. I was going to ask about the held-by-production content, but you had, Bobby, addressed that in his opening remarks. What do you think the motivation for the seller was? Was it driven by private equity structure or something like that? What do you think?

Philip Riley (CFO and EVP of Strategy)

Yeah, John, this is Philip. I'll take that. Yeah, the seller here was one of the large private equity shops, and they often focus on kind of $3 billion-$5 billion type of entities and exits. While this is great scale for Riley Permian, maybe eventually it was going to be just a bit too small for them. At the same time, there's a real strategic move and unlocking that we're doing here. A lot of the region has been constrained by some infrastructure, including gas, and there are some efforts being made by third-party midstream companies to alleviate that, but probably insufficiently. The project that we started in the fall that we announced there in January, building our pipe, really gives us a strategic advantage here, and we believe that we were really best positioned to unlock that, whereas somebody else really couldn't take advantage of that.

Does that help?

John White (Senior Research Analyst)

Yes, very helpful, and makes very good sense. Thanks for the extra detail, and I'll turn the call back over to the operator.

Operator (participant)

Our next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Jeff Robertson (Managing Director)

Thank you, Philip. To follow up on the midstream angle of the Silverback transaction, does the larger, essentially contiguous acreage position change the scope of your midstream project, and are there any issues with bringing their volumes into the system that you all plan to build, and would you be able to capture some additional economic enhancement by adding those volumes through the system that you originally designed?

Philip Riley (CFO and EVP of Strategy)

Yeah, sure. I'll start off here and then pass it to John to add in here. In general, this acquisition absolutely supports our decision to invest in infrastructure. You can see the map. It's a beautiful map there with the complete adjacency and overlapping acreage. What we'd say is we can definitely take advantage of the pipe that we're building. We'll also need more, frankly. We won't need another pipe, but we'll probably want some additional gathering and compression over time. It's not something we have to do. That's what John could speak to here. It does absolutely offer some synergy. We're excited about that. I'm referencing gas here, but it's also water. John talked about that.

Yeah, Jeff, there's absolutely the ability to take advantage of that from the upstream side for operations, and then if you put the midstream business hat on, this represents a substantial amount of additional volume that can go through the system. It's slightly lower working interest, pretty similar to what we've got, but as we described on the prior earnings call, we can bill out to working interest partners and most of the royalty owners the fees there. This represents some win-win. John, you want to add something there?

John Suter (COO)

Yeah, I think we're really excited about this. I mean, this is an asset we've been interested in for quite some time. As it turns out, our west side compressor station that we just completed was really perfectly placed as it worked out in the end. It is just really proximately close to this asset, the east side of the Silverback asset. Like Philip said, there'll be some gathering systems to be put in to make full use of it over time, but we're in no rush with the HBP. There are several gatherers out there that are working fine for the moment that we'll work with, but in the long run, it makes perfect sense to be able to bring in additional gas to our line to Targa. It really fits in well.

If the compressor station had been on the east side of our assets, it would have been a little bit more challenging to get anything over there. It worked out well.

Jeff Robertson (Managing Director)

John, does the ability to move gas more efficiently have an impact on your ability to produce oil?

John Suter (COO)

Absolutely. If you do not have gas and water takeaway, it really does constrain you. This puts us in good position to be able to do things as we want when the timing is right. That is the nice thing about this company with the assets we have, with our size, and we are nimble. When the market turns, we can ramp up, ramp down to take full advantage of it, but you have to have that infrastructure access really more so than many other plays I have been involved with.

Jeff Robertson (Managing Director)

Being able to debottle that gas and the water situation allows you to move more oil, which represents more than 95% of current revenues, correct?

John Suter (COO)

Yes, it's just the necessary means to get your—to be able to produce the oil, you've got to be able to handle the other byproducts.

Jeff Robertson (Managing Director)

Right. Philip, can you talk about—maybe this is premature, but can you talk about what impact the Silverback assets could have on Riley's borrowing base when you come to your redetermination in the fall?

Philip Riley (CFO and EVP of Strategy)

Sure. I'd say that the PDP value here is probably half of the purchase price. This is a largely undeveloped asset, hence all the undeveloped locations we state. If you take that and then cut it in half again, maybe that gives you an indication of what we could get incremental in the borrowing base. We're not counting on anything, but we certainly expect to get something there. We're going to get more probably just from some of the development that we've been doing recently, and then in the interim between now and then. We kind of—we didn't trumpet this, but it was buried in our earnings release that we just reaffirmed our borrowing base at $400 million. We were happy to get that done.

We might have been a little bit early for some others on the street, and no doubt that there's a little bit of choppy water out there given the volatility of the pricing and such. We will see how pricing adjusts through the year, but yes, short, we'd like to see a little bit of benefit there.

Jeff Robertson (Managing Director)

You spoke about hedging and laid in some swaps for 2026. Can you just philosophically talk about how you are thinking about hedging downside risk in the uncertain market environment that we're in right now?

Philip Riley (CFO and EVP of Strategy)

Yeah. The way we think about hedging is a risk management tool. There's a covenant compliance aspect, but then there's also the risk management perspective, which is more of the driving factor. We like to think of that ahead of the trouble times, and so we're fortunate that we did that, so we're not having to hedge now necessarily. Generally, how we treat this is that the more leverage we have that might—and the more fixed costs that we see, commitments that we see, we're going to want some more protection. For example, we had some nice $60 by $80 collars for some of the 2026, $60 downside, $80 upside that we decided to convert to some swaps.

That provided an uplift of maybe five or six dollars when you converted it to a swap, and that in turn led to, say, a six or seven dollar premium to what the swap was at the time, which we're happy to do, which gives us just a little bit clearer stream of cash flow there for the upcoming year. This year, we feel good about it. We have a smaller delta perhaps between PDP and total volumes on our forecast than sometimes we do just given we're not spending a ton this year on the development, as I described earlier. That allows for a little bit easier hedging profile as well. Thank you.

Jeff Robertson (Managing Director)

Thanks. Lastly, on power, are there any significant permitting differences between what you might need to do power-wise in New Mexico versus what you've been doing in Texas?

Philip Riley (CFO and EVP of Strategy)

I can start. Maybe John, you help me. Yeah, the air permit is a little bit more—it is just a functional item you add to the generator and SPR. What we are talking about for the behind-the-meter installation there, which I kind of hinted at in my prepared remarks, adds just a little bit of cost, but otherwise, we are looking fine on the permitting, and we are pretty good about it.

Jeff Robertson (Managing Director)

Thank you.

Operator (participant)

As a reminder to ask a question, press star one on your telephone keypad. Our next question comes from the line of Derrick Whitfield. Please go ahead.

Derrick Whitfield (Managing Director)

Good morning, guys, and congrats on a strong update and transformational acquisition.

Philip Riley (CFO and EVP of Strategy)

Thank you.

Bobby Riley (President, Chairman, and CEO)

Morning.

Derrick Whitfield (Managing Director)

Starting first with the Silverback acquisition, it's clear the acquisition materially increases your net undeveloped locations and offers considerable synergy opportunities. Could you guys speak to how this asset competes for capital and the opportunity you see to accrete working interest across the position over time?

John Suter (COO)

Yeah, I think especially the east side of this asset, the east half, is really, we think, identical to reservoir quality that we already have. I think it's really going to revolve around the infrastructure, at least initially. We want to be able to develop maybe the east side of the Novo asset and the west side of the Riley asset as a starting point just to take advantage of that existing compression station and pipeline to Targa. That's kind of where we see it. As far as the economic side, I would say those two areas are really similar.

Derrick Whitfield (Managing Director)

Great. Maybe shifting over to the state-alone business, it's quite remarkable that production is only impacted by 3% given the near 50% decrease in 2025 capital. If you guys think about the adjustments you're making to the capital plan for non-DDC capital, does that give you adequate runway once you're in a position to increase capital to the upstream business?

Philip Riley (CFO and EVP of Strategy)

Yeah, I can start. It is a mix here of drilling and completions capital that we're cutting, but also some infrastructure, admittedly. That was part of the initial kind of $200 million budget that we started with earlier this year. That includes a variety of, say, non-powered JV power installation like a PME, some water. We also had some growth capital in there, frankly, for some land acquisitions that we kind of earmarked. This acquisition is effectively just a giant land budget there. There are some things that we are cutting this year as far as DMC. There are other things that we're effectively deferring a bit that we're fine to defer, and we'll layer in and smooth out over the coming 12-24 months or longer.

Derrick Whitfield (Managing Director)

Sure. If it gets very helpful, I'll turn it back to the operator.

Operator (participant)

One more final question comes from the line of Noel Parks with Tuohy Brothers. Please go ahead.

Noel Parks (Managing Director)

Hi, good morning.

Bobby Riley (President, Chairman, and CEO)

Morning.

Philip Riley (CFO and EVP of Strategy)

Good morning, Noel.

Noel Parks (Managing Director)

Just have a few, just the housekeeping items. Is there any assumed debt with the transaction?

Philip Riley (CFO and EVP of Strategy)

Yeah.

Noel Parks (Managing Director)

Okay. Great. You did already comment on the hedges. Just curious about what the recent drill bit pace was with Silverback. Have they been active or not?

John Suter (COO)

Yeah, they really have not been too active drilling-wise. To be honest with you, it is not because of the quality of what they had to develop. They just were really hamstrung with having a longer-term access to infrastructure. I mean, that word keeps coming back up, but they were kind of constrained in that area. They had drilled some wells, but they were not what I would call active.

Philip Riley (CFO and EVP of Strategy)

It's been a year and a half since they drilled their last well.

Noel Parks (Managing Director)

Wow. As a host of quite a few other PE exits we've seen over the years, where they really ramp up the production to sort of pump up the valuation, this is not one of those cases, huh?

Philip Riley (CFO and EVP of Strategy)

Right. It's not that.

John Suter (COO)

Yeah, you could drill some wells individually, but you really can't drill to scale to be able to do that again. That is kind of like we had on our last conference call, earnings call, where they asked Bobby about that, that it really gives us a competitive advantage when we hold kind of the key to the infrastructure that we believe would result in opportunities like this. It has kind of played out to some degree.

Noel Parks (Managing Director)

Got it. I guess I was just curious. Someone did ask about the seller's motivation, but you mentioned that the opportunity was clearly attractive even in a weaker oil environment. When I saw the map of one of the acreage locations, it is like, okay, you were obviously aware of this position. This operation. I can't really think of a closer bullseye I have seen in a deal recently.

Did this sort of, I guess, was maybe the degree to which they were constrained, was that evident to you before you got in to do diligence? Did it come together relatively quickly, or is this something that has been on the back burner for a long, long time?

Philip Riley (CFO and EVP of Strategy)

I can try to characterize it, Noel. Generally, people are aware of the regional constraints for gas takeaway in the Permian, both in the basin and even up on the Northwest Shelf. You can look simply at a Waha differential and see how much less valuable gas is here in the Permian versus the Haynesville and the Marcellus. That is not a secret. As far as the deal coming together, I'll say we did our best to make it happen. Obviously, we've worked through some volatility in the past six weeks, and we're happy to present to you today what we were able to achieve.

John Suter (COO)

Yeah, and I think our technical team always, they're kind of carbonate experts, I think. And so we're always looking up and down the shelf to see what opportunities are out there if the chance ever exists.

Noel Parks (Managing Director)

Okay. Great. It's interesting to see such a high-quality acquisition. I was sort of under the impression that there wasn't a lot out there, that most of kind of what was coming to market was going to be sort of pitched over. This is like a welcome surprise. Congratulations.

John Suter (COO)

Thank you.

Operator (participant)

We have one final question from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Jeff Robertson (Managing Director)

Thank you. Bobby or John, I just want to follow up on your comment about the drilling activity and the Silverback asset leading up to the sale. It sounds like from your comments, you're acquiring an asset base that has a relatively shallow decline, or at least it's not in a flush decline. Is that the right way to think about it as you start to think about laying out a 2026 capital program? You're not really starting at a big deficit from a screaming decline?

John Suter (COO)

Exactly. It's like Philip said, it's been a year and a half since they drilled something, so its declines moderated, and that won't be a big issue for us.

Noel Parks (Managing Director)

That will allow you to be more opportunistic with your capital if you think about deploying capital in whatever environment we'll be in?

John Suter (COO)

Absolutely. No, you seldom get something like that where you are not rushing to cover either the decline or the expirations. We are in really good shape here where we can take advantage of some of the infrastructure they did have on the water side and kind of take our time and deploy money when it makes sense, and again, to take advantage of the new compression that kind of borders both of our assets.

Noel Parks (Managing Director)

Thank you.

Operator (participant)

Ladies and gentlemen, that does conclude today's conference call. Thank you all for joining. You may now disconnect.