Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Riley Exploration Permian, Inc. Fiscal Third Quarter 2022 Earnings Release and 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'd like to ask a question during this time, simply press Star, then the number one on your telephone keypad. If you would like to withdraw your question, press Star one again. I would now like to turn the conference over to Philip Riley, Chief Financial Officer and Executive Vice President of Strategy. Please go ahead.
Thank you and good morning to everyone. Welcome to our third quarter 2022 conference call. The company recently changed its fiscal year from September thirtieth to December thirty-first, so we will be covering today results for the 3- and 9-month periods ending September thirtieth. We will report full year 2022 results in March of 2023. Yesterday, the company published 4 items, which can be found on our website under the Investors section. An earnings release, a 10-Q, and two presentations. One presentation provides an update for third quarter results. The goal here was to provide simple and transparent drivers of performance to be used in conjunction with our other public filings. We may reference a few slides from this on the call today. The second presentation provides an overview of the company story with minor updates from previously released versions.
Participating on the call today are Bobby Riley, Chairman and CEO, Kevin Riley, President, and myself, Philip Riley, CFO and EVP of Strategy. Today's conference call contains 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 will also reference certain non-GAAP measures. The reconciliations to appropriate GAAP measures can be found in our earnings release for presentations issued yesterday. I'll now turn the call over to Bobby.
Thank you, Philip, and thank you again to everyone for joining us on today's call. Yesterday, after the close of the market, we announced results of our third quarter. This is the first quarter for Riley reporting since we completed our change in fiscal year-end from September thirtieth to December 31st. Our rationale behind the change was simply to align better with other E&Ps for reporting and analytical comparisons for both investors and analysts. Riley delivered a very strong financial and operating results in the third quarter, again, being driven by continued organic growth. To highlight a few items for the third quarter.
We averaged oil production of 9,413 barrels per day, which exceeded our high end of guidance and represents an increase of 36% as compared to year-over-year to the third quarter of 2021, and an increase of 13% as compared quarter-over-quarter to the second quarter of 2022. We began full-scale water injection on our EOR pilot during the third quarter and commenced CO2 injection on November 1. We generated $51 million of adjusted EBITDAX and $55 million of Operating Cash Flow, representing an increase of 14% and 25%, respectively, over the prior quarter. We paid dividends of $0.31 per share during the third quarter and have since announced and paid an increased dividend of $0.34 per share during the fourth quarter, representing a 10% increase on new declaration.
Riley's strong financial position provides us with the flexibility needed to navigate through both product price volatility and periods of economic uncertainty. This also allows us to patiently seek attractive opportunities to enhance the per share value of the company. I will now turn the call over to Kevin to discuss operational results.
Thank you, Bobby, and good morning to everyone. As Bobby mentioned, we had a great quarter as a result of our low decline production base, in addition to the outperformance of a number of development wells recently brought online. Riley Permian averaged daily oil sales of 9,413 barrels per day for the quarter, which is a 13% quarter-over-quarter growth or 36% year-over-year growth as compared to the third quarter of 2021. The company averaged total equivalent sales of 12,717 barrels of oil equivalent per day for the same period, which is a 25% quarter-over-quarter increase or 33% year-over-year growth as compared to the third quarter of 2021.
The natural gas and NGL volumes increased quarter-over-quarter at a higher rate than oil volumes due to the additions in plant processing capacity by our midstream counterparty. The company also continued its efforts on its development activity. During the 3 and 9 months ended September 30, 2022, we brought online 7 gross, 4.2 net, and 14 gross, 10.8 net horizontal wells, respectively. Regarding the EOR pilot project in Yoakum County, Texas, as Bobby had previously mentioned, we began full-scale water injection in August and have since commenced CO2 injection on November 1. Early indications as a result of the water injection appear to have slowed and/or arrested production decline for the 3 horizontal producers within the EOR pilot. We anticipate a production response from the CO2 injection within 6-9 months, so sometime near late spring or the summer of 2023.
During the quarter, our average completed lateral length on operated horizontal wells turned to sales was approximately 7,800 feet, which is a 10% increase in average completed lateral length per well quarter-over-quarter, with drilling and completion costs remaining relatively flat as compared to the previous quarter for similar well designs. Our lease operating expenses were $8.8 million or $7.53 per BOE for the three months ended September 30th. This came in at the midpoint of guidance, but was a 9% increase quarter-over-quarter, while lower than our quarter-over-quarter growth, production growth, both on an oil and oil equivalent basis. I'll now turn the call over to Philip Riley to review our financial results.
Thank you, Kevin. Total revenue was $88 million for the third quarter of 2022, consistent with the level in the second quarter, driven by higher production volumes but offset by lower pricing. Third quarter 2022 derivative settlement losses were approximately $9 million less, at 34% lower than settlement losses in the second quarter. Combining those two, revenue net of settled hedges was 13% higher quarter-over-quarter. These factors in turn drove a 16% quarter-over-quarter increase in Cash Flow from Operations before changes in working capital from $44 million to $50 million, which you can see visually in the chart on slide 4 of our third quarter results presentation. If you look at the 9-month period year to date, our Cash Flow from Operations before working capital has increased 94% year-over-year from $64 million to $124 million.
About 40% of the increase has been due to production volume growth, with the balance due to net price, that is price net of hedge settlements. The company was approximately 50% hedged during 2022, with legacy hedges bought during 2020 and 2021. Looking to next year, we're about 20% hedged at lower prices. Now I'll offer some comments on capital allocation, referencing slide 5 in that same presentation. First, we've been able to grow volumes materially more than last year while reinvesting a lower amount of cash flow. This is driven by a few factors, including some really strong production from new development wells and a materially improved Operating Cash Flow.
This lower reinvestment rate, in turn, has allowed us to reallocate more to dividends and the balance sheet with a third of Cash Flow from Operations before working capital year to date versus 19% last year. Total dividends paid for the nine-month period are up 25% versus last year, and we've paid the debt down by 25% year to date. While investment is up year-over-year, Operating Cash Flow is still outpacing the CapEx increases for a net benefit. This leads to the higher free cash flow for the year, about $41 million year to date. We acknowledge our company may be producing less free cash flow than some other companies on a relative basis.
As many of you realize, this is mostly a function of a higher reinvestment for growth, with many other companies choosing zero growth, and which of course, requires significantly less reinvestment. Looking ahead to next year, while we won't be giving detailed 2023 guidance today, we believe that we can generate low double-digit oil production growth with a lower reinvestment rate than 2022. This could be driven from a combination of a tailwind of very strong 2022 growth, improved net price realizations as a result of further hedge roll-off, as well as lower EOR spend. I'll caveat this is conditioned upon roughly $70 or better oil prices, only modest increases from here on D&C costs and absent additional new venture spending. Final quick comment on the credit facility.
We recently completed a regular semiannual borrowing base redetermination and elected to increase the base by $25 million to $225 million total. While we are largely undrawn, we believe the increased liquidity in a volatile market justify the small incremental undrawn fees. Thank you, and I'll turn it back to Kevin now.
Thank you, Philip. I'll now give guidance for the company's activity for the fourth quarter. We forecast accrual basis capital expenditures of between $34 million and $41 million, which excludes amounts for corporate and/or land acquisitions or other opportunistic investments. We forecast fourth quarter 2022 oil production to average between 9,400 and 9,900 barrels per day, and total equivalent production to average between 12,600 and 13,200 barrels of oil equivalent per day, based on estimates of available gas processing capacity. We anticipate fourth quarter LOE of approximately $9-$10.5 million and cash G&A expenses of approximately $4.7-5.2 million. The company additionally anticipates cash income taxes of approximately $3-5 million to be paid during the fourth quarter.
I'll now turn the call over to Bobby for closing remarks.
Thank you, Kevin. Again, thank you to everyone for joining us today for our third quarter call. We remain focused on a disciplined model of low leverage, moderate production growth, and return of capital through dividends to our shareholders. Thank you again for your support. Operator, you may now open it up for questions.
At this time, if you'd like to ask a question, simply press star then the number one on your telephone keypad. Our first question will come from the line of Neal Dingmann with Truist Securities. Please go ahead.
Well, thanks for the time. My first question is on capital allocation. Specifically, could you all speak to. You know, I'm just wondering, you know, Bobby, Kevin, really any of the guys, how you all are thinking about per share growth going forward. Really what I'm focused on here is wondering if you all would consider boosting production more next year. You know, that obviously can be done by just boosting the per share volumes or even buying shares back, to, you know, either of those to boost share growth or will focus remain more on the maintenance Capital and Shareholder Return . You obviously, to me, seem to have opportunities to do both and just wondering how you all are looking at that.
Yeah, Neal, this is Philip. I can take that. Yeah, we certainly look at per share metrics. We haven't finalized the budget for next year. We do plan to grow. The question is how much. We believe our level of growth differentiates us. Very few E&Ps are growing at our pace. You know, based on the midpoint oil production guidance that Kevin just gave for fourth quarter, you know, frankly, we could hold that flat next year, for each of the quarters, and that would imply 10% year-over-year growth. We could grow more. There's cross currents for oil price. We're watching the economic indicators, trying to understand how impactful a U.S. and global recession could be and what impact that may have on oil price.
You know, as a positive contributor to price, we see the lower reinvestment levels by, you know, many of the multinationals and even U.S. E&Ps. You know, I made the comments on the lower reinvestment rate in my comments just before. We can grow and yet still have a lower reinvestment rate, and so in turn, that corresponds with more capital available for discretionary allocations such as shareholder return. I guess a few more notes on that. You know, we're gonna continue to pay a dividend. We plan to raise that once annually, most likely in that fourth quarter like we just did, absent some transformational event. We like the steadier pattern there versus the variable methodology used by some companies. We saw how that can flip on them, such as this quarter and the downward impact there.
There's potential for continued debt paydown, though admittedly, at certain low levels, we could decide to keep it flat. We're also considering other investments outside of traditional D&C, such as carbon capture activities. You've got the question of what's left over, depending on the price environment. I think there you do have some potential for shareholder buyback. That, of course, has to be approved by the board, but it's a topic we've discussed. What we're trying to do there is balance multiple objectives. You know, increasing the float on the one hand, managing the private equity overhang potential for future distributions, offsetting annual increases due to, you know, customary stock-based compensation. In any event, which those all factor into that per share metric growth that you're talking about.
It's something that's important to us and the board.
Yeah, I'm glad to hear you're looking at all that. Secondly, just maybe on development activity, kind of things you talked about, Philip. I know specifically there's been more focus, it seems like in the last quarter or so on co-development and, you know, maybe other, what I'd call, other large development strategies. I'm just wondering if you all could discuss maybe your approach going forward and, you know, really how to get the max efficiencies, you know, out of you. You know, again, you all and others obviously are operating a bit of a smaller program. It does seem like you're still getting some pretty nice efficiencies, so I'm just wondering if you could kind of maybe talk about your development strategy.
Our development strategy has pretty much remained the same, Neal, since we've started. I mean, we've got a nice foothold that we're holding through development. We're operating through cash flow. We're trying to maximize our efficiencies and utilization of our infrastructure that's in place, while holding the field, and, you know, creating an HBP Asset. I don't know that we are going to be drilling, you know, too many parent-child wells or co-development in that sense in the coming year. We continue to look at every opportunity and to optimize what we're doing and to be efficient. You can see that even through our growth in completed lateral equivalent of a quarter and the 10%.
That does help to drive down costs as you're getting more reservoir for, you know, the same well, so you're effectively draining more rock. We're looking at every option as we continue. Nothing's set in stone, but we are trying to be as efficient as we can in this volatile world.
Yeah, great. Kevin, just to sort of tack on, with infrastructure, anything, it seems like you all are in better shape now. Anything that prevents that development strategy infrastructure-wise or you mean anything you would need to build out or anything on that regard?
You know, we continue to build out small pieces to, you know, include within our infrastructure. We initially in 2015 when we started, we invested heavily in infrastructure to get kind of what we consider to be our base. As we continue and branch out and hold more acreage, we have small lines to lay, whether it be water gathering, oil, gas, or power distribution. We're looking at, you know, opportunistic ways to continue to be more efficient there and to be sustainable and sufficient and self-sufficient in some ways. We're excited to be able to talk more about that in the coming quarter.
Look forward to it. Thanks, guys.
Your next question will come from the line of John White with ROTH Capital. Please go ahead.
Good morning. Thank you, operator. Very nice results. Congratulations to you and your team. The significant increase in the production guidance for the fourth quarter, is that primarily due to the increased CapEx in the third quarter and the increase in CapEx guidance for the fourth quarter? Or you're drilling longer, slightly longer laterals, does that play a part in it? Or have you found a better portion of the reservoir? Can you talk about that?
You know, yeah, I think, you know, overall, if you look at the last several quarters and year to date, our PDP has hung in and outperformed our expectations and what was forecasted through our third-party reservoir engineers. In addition to the development wells that we brought on, outperforming type curves. It's a combination of both. Wells coming online faster than previously anticipated. From a timing perspective, we're generally completing wells as we planned. I think the last quarter we were right on in bringing online the same amount of wells that we had guided to. We seem to be online going forward in this current quarter.
Okay. Thank you. Your gas processing, the main upgrades to that or expansions of that processing facility, is that finished or there's some more expansions and upgrades to come?
That phase of the expansion and upgrade is complete and operational. We have since, along with other producers in the area, agreed to an additional expansion, which is, you know, 14-16 months out to bring on additional capacity for future growth. For the time being, with what we have and what we're looking to do operationally, I believe that we have sufficient capacity for our continued growth.
Thank you for that detail, and congratulations again. I'll pass it back to the operator.
Your next question will come from the line of Noel Parks with Tuohy Brothers. Please go ahead.
Good morning.
Good morning.
Good morning.
Just a couple things. Just maybe thoughts on cost. Wondering if you have any sense of whether we've sort of hit the peak of service cost inflation. Is it leveling off at all? Just as you model in the next year, just commentary you're looking at.
From what we've seen, you know, that has come in quarter-over-quarter and year to date, looking back, it appears as if we've kinda reached the peak and flattened out a little bit quarter-over-quarter. Our per unit cost generally were about the same for similar type wells. We've also, you know, tried to be proactive in doing some bulk buying and procurement for next year to help to lower the cost, so or either lower or arrest further inflation. From what I've seen, I would say yes, we've peaked out, I hope. But to be determined.
Great. Thanks. I'm just wondering, is there anything meaningful going on with the exploration of other horizons beyond the San Andres, in your vicinity, either work you're looking at yourself or, you know, competitors in the area that you're aware of?
This is Bobby. You know, we always continue. We have a great exploration team, led by some really qualified geoscientists. We're looking for footprint expansion in the existing area, obviously around the San Andres. Then, we also have drilled a few wells, in South Texas in the Eagle Ford, Austin Chalk area. Still early appraisal, so nothing really to announce here. We're very encouraged by what we're seeing in that area, and there's a great opportunity for us there.
Okay, great. Thanks a lot.
Your next question will come from the line of Richard Dearnley with Longport Partners. Please go ahead.
Good morning. In the fourth quarter guidance discussion, it seemed like you were calling out gas processing capacity as a limiting factor. Could you provide some color in light of the expansion, you know, a year and a half or so out as to where you are, you know, how much capacity you have there?
I guess the last quarter we just completed and are reporting on, two-thirds of the quarter was operational with the current plant capacity that was finished in July. There's still some, you know, guesses and estimates as to how everything lines out in the facility. That's why we just kind of caveated that to allow for a little bit of cushion. Gas and NGL volumes and sales are a very small percentage of our revenue, but we do understand that they influence our per Boe metrics. We try to talk in some sense on an absolute basis when we're speaking of LOE or G&A figures, because if you look at them on a per Boe basis, that's driven by our processing capacity.
Bear with us as we get through another quarter or two, and we continue to optimize our gas and NGL sales and the utilization of those products. I think we'll be able to give clearer guidance, as to what those numbers should level out to be.
Okay. Thank you. You know, the Eagle Ford is a well-known basin. Yorktown seems to, you know, give spun off companies little, you know, little bits of interest in diversified basins. There's some large packages available, some of which look like they might get split up into smaller pieces. Could that be of potential interest to y'all?
Well, as you know, most of our production is all organic, and we've not relied on making acquisitions of existing PDP. We're developing our area. We're developing organic leasing opportunities, a specific target that we're looking at. You know, we've got some experience in the Eagle Ford going back to the mid-2000, 2009, 2010 period. I don't see us at this point biting off one of those acquisitions. We're more focused on the quality of rock that we're wanting to target. We just need to keep that lined up. I think dollar for dollar, our rate of return is much better on organic development.
Right. Okay. Thank you.
Once again, for any questions, please press star, then the number one on your telephone keypad. Our next question will come from the line of Rick Hauser with Investor. Please go ahead.
Hi. Thank you, guys. A great quarter. I did have a question regarding the releases of the earnings and the mention of earnings per share, I guess, the lack of mentioning it. I know it's maybe not the most accurate measure of your guys' performance, but it is a metric that pretty much every investor looks for. I'm not invested in many other companies that really don't release their earnings per share. I didn't know if that's something you could add to your reports coming up.
Yeah, happy to, Rick. We understand. We try to find a balance of citing those more traditional metrics like that. The caveat, we do have certain factors that influence the bottom line net income, such as our Unrealized Hedge Gains and Losses. We had nice looking net income this quarter, partially as a result of that $34 million mark-to-market gain that you'll find in our 10-Q. That drives a higher net income and hence earnings per share. You know, with prices where they are now, higher than when we closed the quarter, that'll in turn result if they stay where they are for the remainder of the six weeks of the quarter, that would flip then to a loss. It just causes a little bit of a poor fit on net income and earnings per share.
We heard the comment, and we'll certainly take it into consideration.
Okay. I appreciate that. Thank you.
We have no further questions at this time. Ladies and gentlemen, that will conclude today's call. Thank you all for joining. You may now disconnect.