Ring Energy, Inc. (NYSE American: REI) (“Ring” or the “Company”)
today announced it has completed its previously announced
acquisition (the “Transaction”) of the assets of privately-held
Stronghold Energy II Operating, LLC and Stronghold Energy II
Royalties, LP (collectively, “Stronghold”). Stronghold’s operations
are located primarily in Crane County, Texas and focused on the
development of approximately 37,000 net acres in the Permian
Basin’s Central Basin Platform (“CBP”).
KEY HIGHLIGHTS
- Immediately
accretive to key metrics and significantly increases Adjusted
EBITDA(1) and free cash flow (“FCF”)(1) generation, as well as
lowers per barrel operating and general and administrative
costs;
- Strengthens the
balance sheet and accelerates the Company’s ability to pay down
debt
- Improves
expected 2022 year-end leverage ratio(2) to below 1.5 times versus
the previous target of below 2.0 times;
- Acquired
high-quality, conventional, Proved Developed Producing (“PDP”)
asset base with high-margin and low decline rates in the most
active county in the CBP;
- Enhances size
and scale through material growth in proved reserves, sales
volumes, operating footprint and premium, high rate of return
inventory; and
- Better positions
Ring for future potential transactions or other stockholder
return-of-capital opportunities, while continuing the Company’s
commitment to ESG and sustainability.
Mr. Paul D. McKinney, Chairman of the Board and
Chief Executive Officer, commented, “We are pleased to inform our
stockholders that we closed our previously announced acquisition of
Stronghold’s Permian Basin assets on August 31, 2022. This
Transaction truly complements our conventional-focused Central
Basin Platform and Northwest Shelf asset positions in the Permian
Basin. The combination further diversifies our commodity mix,
significantly enhances our size and scale, lowers our per barrel
operating costs, provides for meaningful synergies and increased
operations optionality on multiple fronts, and most important, is
immediately accretive across key operational and financial metrics
for Ring’s stockholders.
“With the completion of the Transaction, we have
materially increased our inventory of high rate-of-return drilling
and recompletion projects. As we leverage our extensive expertise
in applying the latest unconventional and conventional technologies
to optimally develop our deep inventory of investment
opportunities, we fully expect to improve our capital deployment
efficiency across our expanded footprint. The combination of lower
per barrel operating costs and a substantially expanded inventory
of high-margin, capital efficient development opportunities is
expected to increase free cash flow, accelerate the rate at which
we pay down debt, and improve our leverage metrics. This places us
in a much stronger position to expand through additional
acquisitions or enhance stockholder returns through potential
return of capital opportunities in the future.”
TRANSACTION CONSIDERATION
After taking into account closing adjustments
for interim cash flow based on an effective date of June 1, 2022
and other customary items, consideration for the Transaction
consisted of:
- Approximately
$167.9 million in cash;
- $15.0 million of
a deferred cash payment on or about February 28, 2023;
- $20.0 million
for the assumption of a Stronghold hedge liability; and
- The issuance of
approximately 21.3 million shares of common stock and 153,176
shares of Convertible Preferred Stock, convertible into
approximately 42.5 million shares of common stock upon a
stockholder vote.
The cash portion of the consideration was funded
primarily from borrowings under a new fully committed revolving
credit facility (the “Credit Facility”) underwritten by Truist
Securities, Citizens Bank, N.A., KeyBanc Capital Markets and Mizuho
Securities. The borrowing base of the $1.0 billion Credit Facility
was increased from $350.0 million to $600.0 million at the closing
of the Transaction.
OWNERSHIP & GOVERNANCE
Stronghold is majority owned by Warburg Pincus,
LLC, a leading growth investor (“Warburg Pincus”). Collectively,
Stronghold’s owners now are Ring’s largest stockholder. Ring’s
Board of Directors has been expanded from seven to nine directors,
including two members proposed by Stronghold.
OUTLOOK AND GUIDANCE
During the next several weeks, the Company plans
to complete its development and operational plans for the combined
entity and intends to provide updated guidance for the remainder of
2022, as well as an initial outlook for full year 2023.
ABOUT RING ENERGY, INC.
Ring Energy, Inc. is an oil and gas exploration,
development, and production company with current operations focused
on the conventional development of its Permian Basin assets in West
Texas and New Mexico. For additional information, please visit
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 limitation: failure to achieve the expected
benefits of the Stronghold acquisition to Ring and its
stockholders; the expected future reserves, production financial
position, business strategy, revenues, earnings, costs levels of
the combined company may not be in line with management’s
expectations; plans and objectives of management for future
operations may be materially different than planned; the ability to
integrate the operations of the combined entities successfully and
achieve anticipated benefits from it may not occur in line with
expectations of Ring management; risks related to any unforeseen
liabilities, and, risks related to the amounts of debt levels in
periodic redeterminations of the borrowing base under Ring’s credit
agreement. These statements are also subject to certain risks and
uncertainties that are disclosed in the Company’s reports filed
with the SEC, including its Form 10-K for the fiscal year ended
December 31, 2021, 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.
NON-GAAP INFORMATION
Certain financial information utilized by the
Company are not measures of financial performance recognized by
accounting principles generally accepted in the United States
(“GAAP”).
The Company defines Adjusted EBITDA as net
income (loss) plus net interest expense, unrealized loss (gain) on
change in fair value of derivatives, ceiling test impairment,
income tax (benefit) expense, depreciation, depletion and
amortization, asset retirement obligation accretion and share-based
compensation. Company management believes this presentation is
relevant and useful because it helps investors understand the
Company’s operating performance and makes it easier to compare its
results with those of other companies that have different
financing, capital and tax structures. Adjusted EBITDA should not
be considered in isolation from or as a substitute for net income,
as an indication of operating performance or cash flows from
operating activities or as a measure of liquidity. Adjusted EBITDA,
as the Company calculates it, may not be comparable to Adjusted
EBITDA measures reported by other companies. In addition, Adjusted
EBITDA does not represent funds available for discretionary
use.
The Company defines Free Cash Flow as Adjusted
EBITDA (defined above) less net interest expense (excluding
amortization of deferred financing cost), capital expenditures and
proceeds from divestiture of oil and natural gas properties. For
this purpose, the Company’s definition of capital expenditures
includes costs incurred related to oil and natural gas properties
(such as drilling and infrastructure costs and the lease
maintenance costs) and equipment, furniture and fixtures, but
excludes acquisition costs of oil and gas properties from third
parties that are not included in the Company’s capital expenditures
guidance provided to investors. Company management believes that
Free Cash Flow is an important financial performance measure for
use in evaluating the performance and efficiency of its current
operating activities after the impact of accrued capital
expenditures and net interest expense and without being impacted by
items such as changes associated with working capital, which can
vary substantially from one period to another. There is no commonly
accepted definition of Free Cash Flow within the industry.
Accordingly, Free Cash Flow, as defined and calculated by the
Company, may not be comparable to Free Cash Flow or other similarly
named non-GAAP measures reported by other companies. While the
Company includes net interest expense in the calculation of Free
Cash Flow, other mandatory debt service requirements of future
payments of principal at maturity (if such debt is not refinanced)
are excluded from the calculation of Free Cash Flow. These and
other non-discretionary expenditures that are not deducted from
Free Cash Flow would reduce cash available for other uses.
CONTACT INFORMATION
Al Petrie AdvisorsAl Petrie, Senior PartnerPhone:
281-975-2146Email: apetrie@ringenergy.com
FOOTNOTES
(1) |
Represents a
non-GAAP financial measure that should not be considered a
substitute for any GAAP measure. See section in this release titled
“Non-GAAP Information” for a more detailed discussion. |
(2) |
Defined as total debt divided by trailing twelve months (“TTM”)
Adjusted EBITDA. |
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