Riley Permian Buys Northwest Shelf E&P Silverback II for $142MM

Riley Exploration Permian is adding acreage in New Mexico’s Northwest Shelf with an acquisition of Silverback Exploration II.

Silverback, backed by private equity EnCap Investments LP, holds 47,000 net acres in Eddy County, New Mexico. Recent production from the acquired assets was 5,000 boe/d (52% oil, 75% liquids).

Riley Permian estimates around 19,000 net acres (79% undeveloped) are prospective for the Yeso Trend, one of the company’s main development areas.

Riley mainly targets the Yeso’s Paddock and Blinebry formations, President and CEO Bobby Riley told Oil and Gas Investor in an interview last year.

The Silverback acquisition will add over 300 gross undeveloped locations on the Northwest Shelf.

Consideration for the Silverback deal is $142 million in cash, plus quarterly earnout payments of up to $1.875 million in 2026 and 2027, depending on if WTI crude prices rise to $70/bbl, to $75/bbl or higher.

“Despite current market volatility, we believe this acquisition is justified at present given our long-term outlook for our industry and our company,” Riley said in a May 7 earnings release.

“The acquisition adds significant, long-term upstream development potential and supports our prior decision to invest in gas midstream infrastructure in the region,” he said.

The deal is expected to close in the third quarter. Greenhill, a Mizuho affiliate, served as financial adviser to Riley. Holland & Knight LLP served as Riley’s legal counsel.

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Shelf life

Supermajors and large-cap publics have focused their efforts on the Permian’s deeper Midland and Delaware basins.

But small-caps and privates have found running room in the Permian’s conventional zones of the Central Basin Platform and Northwest Shelf.

Riley’s foundational asset was in Yoakum County, Texas, where the company offsets massive legacy oil fields, including the Wasson and Brahaney fields. But the company expanded into the New Mexico Northwest Shelf with a $330 million acquisition in early 2023.

The deal with Pecos Oil & Gas included 10,600 contiguous net acres, 18 net horizontal wells and 250 net verticals.

Last year, Riley closed a $20.5 million acquisition of 13,900 net acres and undeveloped locations.

Riley is one of the biggest players on the Northwest Shelf today. Others include KKR-backed Spur Energy Partners and privately held Longfellow Energy LP. Across New Mexico and Texas, Riley produced 24,400 boe/d (64% oil, 83% liquids) in the first quarter. Oil production averaged 15,600 bbl/d.

One of the reasons Riley likes the Northwest Shelf is the low conventional decline rate. Oil volumes decreased by 2% quarter over quarter, despite Riley turning no new wells to sales in the first quarter.

The company completed 6.3 net wells in the first quarter, 3.8 of which are slated to turn to sales in the second quarter. The remaining wells will come online in the third and fourth quarters.

But considering recent commodity price volatility, Riley is lowering 2025 capex midpoint guidance by 50%, excluding the pending Silverback deal.

“This year we are prioritizing the acquisition and preservation of high-quality inventory over the conversion of inventory to production,” CEO Riley said.

WTI crude prices have collapsed 20% year to date, averaging $58.29/bbl during the week ended May 2.

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Silverback’s second exit

San Antonio-based Silverback Exploration II launched in the summer of 2017, fresh off an $855 million exit in the Delaware Basin. EnCap financed Silverback II with an initial $500 million equity commitment.

Earlier that year, Silverback sold 35,000 net acres and 3,500 boe/d of production in Reeves County, Texas, to Centennial Resource Development.

Centennial would later merge with Colgate Energy in 2022 to create Permian Resources, one of the Delaware Basin’s top producers.

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