Freedom cut the target price for Riley Exploration Permian shares to $51

Freedom analysts reaffirmed their “Buy” rating on shares of oil and gas company Riley Exploration Permian (REPX) but lowered the target price from $55 to $51. With a closing price of $36.52, the new target implies 39.65% upside. The decision followed the company’s mixed results for the second quarter of 2026.

Production up 41%, but infrastructure constrained results

Riley Exploration Permian’s total production in the second quarter rose 40.7% year over year to 3.1 million barrels of oil equivalent, or 34.3 thousand barrels of oil equivalent per day. Compared with the first quarter, the figure declined 2.7%.

Oil production increased 39.9% year over year to 1.93 million barrels. Natural gas output rose 46.5% to 3.2 billion cubic feet, but fell 14.3% versus the prior quarter. A similar pattern was seen for gas condensate: its production rose 38.7% year over year but declined 15.1% quarter over quarter.

The quarter-on-quarter decline was caused by infrastructure constraints in New Mexico. In April and May, a shortage of gas processing and transportation capacity forced the company to temporarily shut in some wells. By June, production had largely been restored.

Strong annual growth is also linked to the acquisition of Silverback Exploration II. The $142 million deal closed on July 1, 2025 and added about 47 thousand acres and roughly 300 prospective undeveloped locations to REPX’s portfolio.

Low gas prices continue to weigh on the business

REPX revenue in the second quarter jumped 94.2% year over year and 45.6% versus the first quarter to $169.3 million. Adjusted net income rose 52.3% year over year to $32.8 million, and adjusted EPS was $1.54, in line with Freedom’s forecast.

At the same time, results in the gas business remain under pressure. The average realized natural gas price was minus $4.12 per thousand cubic feet versus minus $0.39 a year earlier. The realized gas condensate price fell to minus $4.7 per barrel versus plus $0.75 a year earlier.

The negative figures are due to REPX reporting prices net of gathering, processing, and transportation costs. Wide price differentials amid infrastructure constraints continue to negatively affect production economics.

Rising costs became one of the key negative factors

In the second quarter, lease operating expenses (LOE) increased to $9.44 per barrel from $7.51 in the first quarter. The main driver was higher well workover and optimization costs. For the third quarter, the company guides LOE at $8.5–9.5 per barrel.

At the same time, REPX is ramping up investment. Capital expenditures for the quarter reached $68.3 million—up 137.8% year over year and 119% above the prior quarter. For all of 2026, management forecasts capex of $236 million, implying 84.6% growth.

Operating cash flow excluding working capital changes came to $74.5 million. Additional pressure on cash flows came from a $11 million increase in working capital and a realized loss on derivatives of $36.2 million.

Higher investment limits buyback capacity

A high level of capital spending reduces the likelihood of a meaningful share repurchase. In the second quarter, REPX spent only $0.8 million on buybacks versus $4 million in the prior quarter.

The company still has an active $100 million share repurchase program, which is roughly 12.5% of its current market capitalization.

REPX dividends were maintained at $0.40 per share. At current prices, the dividend yield is about 4.4%.

What Freedom expects from REPX

In the third quarter, management plans to significantly increase production to 41 thousand barrels of oil equivalent per day. For full-year 2026, the company expects to reach about 38 thousand barrels of oil equivalent per day.

Freedom forecasts REPX revenue of $583 million in 2026, $606 million in 2027, and $621 million in 2028. Adjusted EBITDA is expected at $313 million, $386 million, and $397 million, respectively. Adjusted EPS could rise from $5.97 in 2026 to $8.60 in 2027 and $8.74 in 2028. These forecasts are also presented in the table of key financial metrics on page 4 of the report.

Potential catalysts cited by analysts include new LNG export capacity coming online, rising gas demand from data centers, and infrastructure development that could narrow price differentials for gas and gas condensate.

Why the target price was lowered to $51

Freedom views REPX’s second-quarter results negatively. Lower guidance for total production is accompanied by higher capital and operating costs, which pressures free cash flow. Analysts also cite derivative losses and persistently wide price differentials for gas and gas condensate as negative factors.

Against this backdrop, the REPX target price was cut from $55 to $51. The “Buy” rating was maintained: relative to $36.52, the new target implies 39.65% potential upside.

Freedom names a potential drop in hydrocarbon prices in the event the Strait of Hormuz is unblocked as the main sector risk. At the same time, improvements in gas infrastructure and stronger demand for U.S. gas could be medium-term drivers for the company.

What’s happening in the oil and gas sector

The situation in the oil market remains mixed. On August 12, Brent futures rose just $0.07 to $88.98 per barrel, while U.S. WTI also gained $0.07 to $83.27. Prices are supported by ongoing tensions in the Middle East, but further upside is capped by weaker global demand forecasts. OPEC cut its estimate of oil demand growth in 2026 to 580 thousand barrels per day, while the International Energy Agency now expects demand to decline by 1.6 million barrels per day. More details are available in the article “Oil prices changed little after the session”. 

Against this backdrop, Freedom also revised its assessment of another U.S. oil and gas company— SandRidge Energy (SD). Analysts lowered its target price from $15 to $14 and kept a “Hold” rating. With shares around $14.3, the new target implies a decline of about 2.1%. Key negatives include pressure on natural gas prices: in the second quarter, SandRidge’s average realized gas price fell 56.5% versus the prior quarter to $1.36 per thousand cubic feet.

At the same time, SandRidge continues to expand its producing business. The company agreed to acquire assets in the Cherokee Play region for $65 million, providing about 3 thousand barrels of oil equivalent per day of production. The deal should increase production and cash flow, but will require using part of accumulated liquidity, reducing the likelihood of large shareholder payouts and meaningful share buybacks in the near term. 

Thus, Riley Exploration Permian (REPX) and SandRidge face a similar industry factor—weak natural gas prices. However, for REPX Freedom maintains a more positive view: despite cutting the target price to $51 due to higher costs and revised production forecasts, the stock remains rated “Buy” with upside potential of around 40%.

This is not an individual investment recommendation.