Ring Energy, Inc. (NYSEAM: REI) (“Ring”) (“Company”) announced
today financial and operational results for the third quarter ended
September 30, 2020.
Q3 2020 Highlights
- Increased net oil & gas sales by 74.0% to 9,549 Boe/d (89%
oil), compared to 5,487 Boe/d (86% oil) for Q2 2020
- Decreased LOE1 by 38.5% to $8.88 million or $10.11/Boe,
compared to $14.43 million or $14.03/Boe for Q3 2019
- Decreased cash G&A2 by 34.6% to $1.93 million or $2.20/Boe,
compared to $2.95 million or $2.87/Boe for Q3 2019
- Reported net loss of $1.96 million, or $0.03 per diluted share.
Excluding the unrealized loss on derivatives and a non-cash charge
for stock-based compensation, adjusted net income3 per diluted
share is $0.05/share
- Adjusted EBITDA3 increased 44.6% to $19.9 million, compared to
$13.7 million for Q2 2020
- Free cash flow (“FCF”) 3 increased 45.8% to $11.3 million,
compared to $7.7 million for Q2 2020
- Reduced bank debt by $15.0 million, outstanding balance is $360
million
- Increased liquidity3 to $32.2 million
- Reduced capital spending by 79.9% to $4.3 million, compared to
$21.4 million for Q3 2019
- Net realized gain on derivates of approximately $1.7
million
Q1-Q3 2020 Highlights and Subsequent
Events
- Decreased LOE1 by 25.8% to $24.72 million or $10.47/Boe during
first nine months of 2020, compared to $33.3 million or $11.51/Boe
for the same nine months of the prior year
- Decreased cash G&A2 by 44.3% to $7.15 million or $3.03/Boe
during first nine months of 2020, compared to $12.85 million or
$4.44/Boe for the same nine months of the prior year
- Reported net loss of $93.2 million, or $1.37 per diluted share
through September 30, 2020. Excluding the unrealized loss on
derivatives, ceiling test write down and a non-cash charge for
stock-based compensation, adjusted net income3 per diluted share is
$0.21/share
- Generated adjusted EBITDA3 of $61.6 million through September
30, 2020
- Remained FCF3 positive for four consecutive quarters and
generated over $27.0 million FCF3 through Q3 2020
- Reduced capital spending by 77.8% to $22.2 million during the
first nine months of 2020, compared to $99.8 million for the same
nine months of the prior year (excludes Wishbone acquisition in
2019)
- Net realized gain on derivates of approximately $18.8 million
through September 30, 2020
- Announced appointment of Paul D. McKinney as Chief Executive
Officer & Chairman of the Board
- Reorganized the Board of Directors by replacing three insiders
with three independent Directors
- Raised ~$19.1 million in net proceeds further improving
liquidity from public and registered direct offerings
- Posted a positive average operating margin4 of $20.60/Boe
through September 30, 2020
(1) Lease operating expenses
“LOE” excludes ad valorem taxes
(2) Cash G&A excludes
stock-based compensation & operating lease expense
(3) The Company defines and
reconciles adjusted EBITDA, adjusted net income and other non-GAAP
financial measures to the most directly comparable GAAP measure in
supporting tables at the conclusion of this press release.
Management believes that the non-GAAP measures are useful
information for investors because they are used internally and are
accepted by the investment community. They are used by professional
research analysts in providing investment recommendations
pertaining to companies in the oil and gas exploration and
production industry.
(4) Operating margin – Net
received price per BOE less cash-based expenses per BOE.
Calculation of this value is included in supporting tables at the
conclusion of this press release.
Management Comments
Paul D. McKinney, Chief Executive Officer and Chairman of the
Board, commented, “As commodity prices improved during the third
quarter, Ring returned the majority of its previously shut-in wells
to production and made excellent progress on our cost reduction
initiatives begun earlier in the year. This, along with our hedges,
significantly improved our financial results over the second
quarter. Because we believe these pandemic-induced economic
conditions are likely to continue for an extended period of time,
we are putting our growth plans on hold, prioritizing our capital
to high-return projects that improve liquidity, and aggressively
managing our cost structure so that we can continue to generate
free cash flow and pay down debt. We are fortunate that our
production portfolio is characterized by the long-life and shallow
declines of predominately the San Andres formation and the majority
of our drilling inventory is economic in the current price
environment giving us the sustainability and flexibility to meet
the challenges that we are currently facing.”
Mr. McKinney continued, “During my short tenure here, I have
seen firsthand the outstanding job our operations and field
personnel have performed in an incredibly challenging environment.
They have reduced our lease operating expenses on $/Boe basis by
20% over the prior quarter and 28% over the same three months of
the prior year. Not only do I commend them for these achievements,
but together, we are exploring additional cost saving and
production enhancing ideas that we expect to be evident in future
quarters.”
Other Financial Updates
Important to note - the third quarter of 2020 included a pre-tax
unrealized loss on derivatives of $6,228,453 and a non-cash charge
for stock-based compensation of $565,819. Excluding these items,
the net income per diluted share would have been $0.05/share,
versus the net loss of $(0.03)/share.
During the nine months ended September 30, 2020, the net income
included a pre-tax unrealized gain on derivatives of $14,086,699, a
pre-tax ceiling test impairment of $147,937,943 and a non-cash
charge for stock-based compensation of $2,557,156. Excluding these
items, the net income per diluted share would have been $0.19. The
Company believes results excluding these items are more comparable
to estimates provided by security analysts and, therefore, are
useful in evaluating operational trends of the Company and its
performance, compared to other similarly situated oil and gas
producing companies.
Third quarter of 2020 the outstanding balance on the Company’s
$1 billion senior credit facility was $360 million with a weighted
average interest rate on borrowings under the senior credit
facility of 4.5%. The next bank redetermination, originally
scheduled for November 2020, was extended by the bank group to
December 2020 to allow the Company to properly reflect recent cost
reductions and operational efficiencies in the reserve information
provided to the bank group.
In May 2020, the Company unwound the costless collars for June
2020 and July 2020. Concurrently, the Company entered Swap
contracts at $33.24 for 5,500 barrels per day for June and July
2020, equal to the barrels for which the costless collars were
unwound. Like costless collars, there is no cost to enter the Swap
contracts. On Swap contracts, there is no spread and payments will
be made or received based on the difference between WTI and the
Swap contract price. The costless collar and Swap pricing do not
take into consideration any pricing differentials between NYMEX WTI
pricing and the price received by the Company.
2020 costless collars, in place for August through December
2020
BOPD
Put
Price
Call
Price
1,000
$50.00
$65.83
1,000
$50.00
$65.40
1,000
$50.00
$58.40
1,000
$50.00
$58.25
1,500
$50.00
$58.65
2020 Swap, in place for July 2020
BOPD
Swap
Price
5,500
$33.24
Third quarter of 2020, the Company entered derivative contracts
for 2021 in the form of costless collars of NYMEX WTI Crude oil.
The contracts are for a total of 4,500 barrels of oil per day for
the period of January 2021 through December 2021. Again, the
costless collar pricing does not take into consideration any
pricing differentials between NYMEX WTI pricing and the price
received by the Company.
2021 costless collars, in place for January through December
2021
BOPD
Put
Price
Call
Price
1,000
$45.00
$54.75
1,000
$45.00
$52.71
1,000
$40.00
$55.08
1,500
$40.00
$55.35
Subsequent to September 30, 2020, the Company entered into Swap
derivative contracts for 6,000 MMBTU/day for calendar year 2021 at
a price of $2.991 per MMBTU and 5,000 MMBTU/day for calendar year
2022 at a price of $2.7255 per MMBTU.
Additional Operations
Update
Third quarter of 2020 oil sales were 781,626 barrels (8,496
Bop/d), and gas sales volume were 581,123 MCF (6,317 mcf/d)
(thousand cubic feet). On a barrel of oil equivalent (“BOE”) basis
for the third quarter of 2020 production sales were 878,480 BOEs
(9,549 Boe/d), compared to 499,333 BOEs (5,487 Boe/d) for the
second quarter of 2020, a 75.9% increase.
The average price differential the Company experienced from WTI
pricing in Q3’2020 was approximately $2.00.
Third quarter of 2020 Lease operating expenses (“LOE”) were
$10.11 per BOE, production taxes $ 1.62 per BOE and ad valorem
taxes $0.91 per BOE for total of $12.64 per BOE field level all in
lifting cost. Depreciation, depletion and amortization costs,
including accretion, were $12.59 per BOE, and general and
administrative costs, which included a $565,819 charge for
stock-based compensation were $2.84 per BOE. Operating lease
expense (equipment/office leases) was $0.34 per BOE.
During the nine months ended September 30, 2020, lease operating
expenses were $10.47 per BOE, production taxes $1.58 per BOE and ad
valorem taxes $1.02 per BOE for total of $13.07 per BOE field level
all in lifting cost. Depreciation, depletion, and amortization
costs, including accretion, were $13.78 per BOE, and general and
administrative costs, which included a $2,557,156 charge for
stock-based compensation, were $4.11 per BOE. Operating lease
expense (equipment/office leases) was $0.37 per BOE.
Subsequent Events Update
Changes occurred to executive management and to the Board of
Directors. Mr. Lloyd T. Rochford resigned from his employment
position of Executive Chairman and from the Board of Directors but
will remain in an advisory capacity to Mr. Paul McKinney. Mr. Kelly
Hoffman resigned as Chief Executive Officer and from the Board of
Directors. Mr. Stanley McCabe resigned from the Board of Directors.
Mr. David Fowler resigned from the Board of Directors but remains
as President of the Company. Mr. Paul D. McKinney was appointed as
Chairman of the Board and as Chief Executive Officer. Additionally,
Mr. Thomas L. Mitchell, John A. Crum and Richard E. Harris were
appointed to the Board as independent Directors.
The Company completed a public offering and concurrently
completed a registered direct offering of common shares, pre-funded
warrants, and common warrants. In total, the company issued
13,075,800 shares, 16,728,500 pre-funded warrants and 29,804,300
common warrants. Gross proceeds received at closing were
approximately $20.8 million and net proceeds are anticipated to be
approximately $19.1MM.
The previously announced plan to divest of Delaware Basin assets
failed to close. The Company continues to attempt to work with the
buyer, but the termination process has been initiated and unless an
agreement can be reached, the contracts will terminate on November
12, 2020.
About Ring Energy, Inc.
Ring Energy, Inc. is an oil and gas exploration, development and
production company with current operations in Texas and New
Mexico.
www.ringenergy.com
Safe Harbor Statement
This release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward-looking
statements involve a wide variety of risks and uncertainties, and
include, without limitations, statements with respect to the
Company’s strategy and prospects. Such statements are subject to
certain risks and uncertainties which are disclosed in the
Company’s reports filed with the SEC, including its Form 10-K for
the fiscal year ended December 31, 2019, its Form 10Q for the
quarter ended September 30, 2020 and its other filings with the
SEC. Readers and investors are cautioned that the Company’s actual
results may differ materially from those described in the
forward-looking statements due to a number of factors, including,
but not limited to, the Company’s ability to acquire productive oil
and/or gas properties or to successfully drill and complete oil
and/or gas wells on such properties, general economic conditions
both domestically and abroad, and the conduct of business by the
Company, and other factors that may be more fully described in
additional documents set forth by the Company.
RING ENERGY, INC.
CONDENSED STATEMENTS OF
OPERATIONS
For The Three Months
For The Nine Months
Ended September 30,
Ended September 30,
2019
2019
2020
(restated)
2020
(restated)
Oil and Gas Revenues
$
31,466,544
$
50,339,105
$
81,673,465
$
143,471,645
Costs and Operating Expenses
Oil and gas production costs (including ad valorem taxes)
9,678,011
15,478,052
27,128,768
36,455,925
Oil and gas production taxes
1,427,041
2,307,226
3,731,046
6,802,996
Depreciation, depletion and amortization
10,826,989
14,115,170
31,848,093
41,659,494
Ceiling test impairment
-
-
147,937,943
-
Asset retirement obligation accretion
230,784
236,207
694,113
681,386
Operating lease expense
295,631
114,112
876,889
370,462
General and administrative expense
(including stock-based compensation)
2,496,927
3,745,928
9,709,431
15,287,072
Total Costs and Operating
Expenses
24,955,383
35,996,695
221,926,283
101,257,335
Income (Loss) from Operations
6,511,161
14,342,410
(140,252,818
)
42,214,310
Other Income (Expense)
Interest income
1
9
7
13,505
Interest expense
(4,457,250
)
(4,556,509
)
(12,958,788
)
(9,589,434
)
Realized gain on derivatives
1,726,373
-
18,814,068
-
Unrealized gain (loss) on change in fair
value of derivatives
(6,228,453
)
1,877,368
14,086,699
3,066,913
Net Other Income (Expense)
(8,959,329
)
(2,679,132
)
19,941,986
(6,509,016
)
Income (Loss) before Tax
Provision
(2,448,168
)
11,663,278
(120,310,832
)
35,705,294
(Provision for) Benefit from Income
Taxes
486,565
(2,805,278
)
27,153,281
(11,235,437
)
Net Income (Loss)
$
(1,961,603
)
$
8,858,000
$
(93,157,551
)
$
24,469,857
Basic Earnings (Loss) per Share
$
(0.03
)
$
0.13
$
(1.37
)
$
0.37
Diluted Earnings (Loss) per
Share
$
(0.03
)
$
0.13
$
(1.37
)
$
0.37
Basic Weighted-Average Shares
Outstanding
67,980,961
67,811,127
67,985,168
66,149,469
Diluted Weighted-Average Shares
Outstanding
67,980,961
67,836,968
67,985,168
66,401,422
COMPARATIVE OPERATING
STATISTICS
Three Months Ended September
30,
2020
2019
Change
Net Sales - BOE per day
9,549
11,183
-14.6%
Per BOE:
Average Sales Price
$35.82
$48.93
-26.8%
Lease Operating Expenses (excluding ad
valorem taxes)
10.11
14.03
-28.0%
Ad valorem Taxes
0.91
1.01
-10.1%
Production Taxes
1.62
2.24
-27.7%
DD&A
12.32
13.72
-10.2%
Accretion
0.26
0.23
13.0%
General & Administrative Expenses
(excluding stock-based compensation)
2.20
2.87
-23.4%
Operating Lease Expense
0.34
0.11
209.0%
Realized (gain) loss on derivatives
(1.97)
0.00
N/A
Interest Expense
5.07
4.43
14.6%
Operating Margin(4)
$17.54
$24.24
-27.6%
Nine Months Ended September
30,
2020
2019
Change
Net Sales - BOE per day
8,617
10,607
-18.8%
Per BOE:
Average Sales Price
$34.59
$49.55
-30.2%
Lease Operating Expenses (excluding ad
valorem taxes)
10.47
11.51
-9.0%
Ad valorem Taxes
1.02
1.08
-5.8%
Production Taxes
1.58
2.35
-32.8%
DD&A
13.49
14.39
-6.2%
Accretion
0.29
0.24
20.8%
General & Administrative Expenses
(excluding stock-based compensation)
3.03
4.44
-31.7%
Operating Lease Expense
0.37
0.13
184.6%
Realized (gain) loss on derivatives
(7.97)
0.00
N/A
Interest Expense
5.49
3.31
65.7%
Operating Margin(4)
$20.60
$26.73
-22.9%
(4) Operating margin – Net received price
per BOE less cash-based expenses per BOE.
RING ENERGY, INC.
BALANCE SHEET
September 30,
December 31,
2020
2019
ASSETS
Current Assets
Cash
$
17,920,817
$
10,004,622
Accounts receivable
12,489,321
22,909,195
Joint interest billing receivable
653,607
1,812,469
Derivative receivable
1,711,710
-
Derivative asset
9,518,564
-
Prepaid expenses and retainers
498,610
3,982,255
Total Current Assets
42,792,629
38,708,541
Properties and Equipment
Oil and natural gas properties subject to
amortization
953,696,964
1,083,966,135
Financing lease asset subject to
depreciation
858,513
858,513
Fixed assets subject to depreciation
1,465,551
1,465,551
Total Properties and Equipment
956,021,028
1,086,290,199
Accumulated depreciation, depletion and
amortization
(188,922,137
)
(157,074,044
)
Net Properties and Equipment
767,098,891
929,216,155
Operating lease asset
990,155
1,867,044
Derivative asset
1,568,057
-
Deferred Income Taxes
21,152,105
-
Deferred Financing Costs
2,647,160
3,214,408
Total Assets
$
836,248,997
$
973,006,148
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities
Accounts payable
$
24,839,820
$
54,635,602
Financing lease liability
292,227
280,970
Operating lease liability
814,400
1,175,904
Derivative liabilities
-
3,000,078
Total Current Liabilities
25,946,447
59,092,554
Deferred income taxes
-
6,001,176
Revolving line of credit
360,000,000
366,500,000
Financing lease liability, less current
portion
201,528
424,126
Operating lease liability, less current
portion
175,755
691,140
Asset retirement obligations
17,119,114
16,787,219
Total Liabilities
403,442,844
449,496,215
Stockholders' Equity
Preferred stock - $0.001 par value;
50,000,000 shares authorized; no shares issued or outstanding
-
-
Common stock - $0.001 par value;
150,000,000 shares authorized; 67,983,075 shares and 67,993,797
shares issued and outstanding, respectively
67,983
67,994
Additional paid-in capital
528,755,063
526,301,281
Accumulated deficit
(96,016,893
)
(2,859,342
)
Total Stockholders' Equity
432,806,153
523,509,933
Total Liabilities and Stockholders'
Equity
$
836,248,997
$
973,006,148
RING ENERGY, INC.
STATEMENTS OF CASH
FLOWS
2019
For the Nine Months Ended September
30,
2020
(restated)
Cash Flows From Operating
Activities
Net income (loss)
$
(93,157,551
)
$
24,469,857
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: Depreciation, depletion and
amortization
31,848,093
41,659,494
Ceiling test impairment
147,937,943
-
Accretion expense
694,113
681,386
Amortization of deferred financing costs
567,248
-
Share-based compensation
2,557,156
2,436,035
Deferred income tax provision
(25,573,920
)
7,498,112
Excess tax deficiency related to share-based compensation
(1,579,361
)
3,737,325
Change in fair value of derivative instruments
(14,086,699
)
(3,066,913
)
Changes in assets and liabilities: Accounts receivable
9,867,026
(7,095,256
)
Prepaid expenses and retainers
3,483,645
(6,060,699
)
Accounts payable
(17,225,782
)
(1,055,397
)
Settlement of asset retirement
obligation
(428,605
)
(615,732
)
Net Cash Provided by Operating
Activities
44,903,306
62,588,212
Cash Flows From Investing
Activities
Payments to purchase oil and natural gas properties
(1,189,433
)
(263,262,046
)
Proceeds from oil and gas property divestiture
4,500,000
-
Payments to develop oil and natural gas
properties
(33,586,337
)
(122,004,117
)
Net Cash Used in Investing
Activities
(30,275,770
)
(385,266,163
)
Cash Flows From Financing
Activities
Proceeds from revolving line of credit
21,500,000
327,000,000
Payments on revolving line of credit
(28,000,000
)
-
Reduction of financing lease liability
(211,341
)
(86,686
)
Net Cash (Used in) Provided by
Financing Activities
(6,711,341
)
326,913,314
Net Change in Cash
7,916,195
4,235,363
Cash at Beginning of Period
10,004,622
3,363,726
Cash at End of Period
$
17,920,817
$
7,599,089
Supplemental Cash Flow
Information
Cash paid for interest
$
12,387,670
$
5,821,545
Noncash Investing and Financing
Activities
Asset retirement obligation incurred during development
$
66,387
$
602,090
Operating lease assets obtained in exchange for new operating lease
liability
-
539,577
Financing lease assets obtained in exchange for new financing lease
liability
-
947,435
Capitalized expenditures attributable to drilling projects financed
through current liabilities
2,600,000
26,958,655
Acquisition of oil and gas properties Assumption of joint interest
billing receivable
-
1,464,394
Assumption of prepaid assets
-
2,864,554
Assumption of accounts and revenue payables
-
(1,234,862
)
Asset retirement obligation incurred through acquisition
-
(2,979,645
)
Common stock issued as partial consideration in asset acquisition
-
(28,356,396
)
Oil and gas properties subject to amortization
-
296,910,774
Non-GAAP
reconciliations
Adjusted net income per
share
For The Three Months
For The Nine Months
Ended September 30,
Ended September 30,
2019
2019
2020
(restated)
2020
(restated)
Adjusted net income per share
Net income (loss) per income statement
$
(1,961,603
)
$
8,858,000
$
(93,157,551
)
$
24,469,857
Stock-based compensation
565,819
792,836
2,557,156
2,436,035
Ceiling test write down
-
-
147,937,943
-
Unrealized (gain) loss on derivatives
6,228,453
(1,877,368
)
(14,086,699
)
(3,066,913
)
Tax adjustment for adjusting items
(1,446,501
)
230,897
(29,041,348
)
134,314
Adjusted net income
$
3,386,168
$
8,004,365
$
14,209,501
$
23,973,293
Weighted average shares outstanding
67,980,961
67,836,552
67,985,168
66,401,422
Adjusted net income per share
$
0.05
$
0.12
$
0.21
$
0.36
Adjusted EBITDA per
share
For The Three Months
For The Nine Months
Ended September 30,
Ended September 30,
2019
2019
Adjusted EBITDA
2020
(restated)
2020
(restated)
Net income (loss) per income statement
$
(1,961,603
)
$
8,858,000
$
(93,157,551
)
$
24,469,857
Net interest expense
4,457,249
4,556,500
12,958,781
9,575,929
Unrealized (gain) loss on derivatives
6,228,453
(1,877,368
)
(14,086,699
)
(3,066,913
)
Ceiling test impairment
-
-
147,937,943
-
Income tax expense (benefit)
(486,565
)
2,805,278
(27,153,281
)
11,235,437
Depreciation, depletion and
amortization
10,826,989
14,115,170
31,848,093
41,659,494
Accretion of discounted liabilities
230,784
236,207
694,113
681,386
Stock- based compensation
565,819
792,836
2,557,156
2,436,035
Adjusted EBITDA
$
19,861,126
$
29,486,623
$
61,598,555
$
86,991,225
Weighted average shares outstanding
67,980,961
67,836,552
67,985,168
66,401,422
Adjusted net income per share
$
0.29
$
0.43
$
0.91
$
1.31
Free cash flow
For The Three Months
For The Nine Months
Ended September 30,
Ended September 30,
2019
2019
2020
(restated)
2020
(restated)
Adjusted EBITDA
$
19,861,126
$
29,486,623
$
61,598,555
$
86,991,225
Net interest expense (excluding
amortization of deferred financing costs)
(4,268,126
)
(4,556,500
)
(12,391,534
)
(9,575,929
)
Capital expenditures (excluding Northwest
Shelf acquisition)
(4,305,557
)
(21,413,253
)
(22,205,770
)
(99,838,922
)
Free cash flow
$
11,287,443
$
3,516,870
$
27,001,251
$
(22,423,626
)
Liquidity, as of September 30,
2020
Cash
$
17,920,817
Available under Credit Facility
15,000,000
Outstanding Letters of Credit
(760,438
)
Net available under Credit Facility
14,239,562
Liquidity
$
32,160,379
Reconciliation of cash flow
from operations
2019
For the Nine Months Ended September
30,
2020
(restated)
Net cash provided by operating
activities
$
44,903,306
$
62,588,212
Change in operating assets and
liabilities
4,303,716
14,827,084
Cash flow from operations
$
49,207,022
$
77,415,296
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201109006130/en/
David Fowler, President Ring Energy, Inc. (432) 682-7464
Bill Parsons K M Financial, Inc. (702) 489-4447
Ring Energy (AMEX:REI)
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