Thank you. I ask because REI has two permitted but un-drilled wells in Gaines.
In the last corporate call, Ring Energy revealed its wells cost around $375,000 to drill. To me, that is low cost in comparison to a $10 million dollar horizontal well. Given the quote below, I wonder if Ring Energy might actually be in the catbird seat--or, perhaps, even a takeover target.
"Relying on flexible, low-cost opportunities that can stop and start on a dime will be critical as U.S. drillers become the world’s swing suppliers, ConocoPhillips Chairman and Chief Executive Officer Ryan Lance said April 8. “We’re going into a world that’s going to be characterized by lower, gradually rising prices and a lot of volatility.”
REI is smarter because it has been deliberate in taking on no/insignificant debt. I think one would need a great deal more information about well economics and available/expanded drilling locations to have any feel as to whether there could be upside potential for the stock in the $50/bbl commodity price universe. With no debt and no drilling program, earnings might surprise.
I am not a short poster at all. Today just addressed that they have brought more wells in to production. What about revenue and eps. I am very skeptical of earnings and what makes rei different than all the other struggling small start ups. They are smarter and more efficient than all the other companies? I think not and may be wrong, but i will not buy unless they compress down to $6.50 and don't really care if they get there.
So much for that theory! Stock has really taken off since this post for sure! Wow things look pretty good from here!
Thanks for your reply. I will pass on SA. The conference call was very interesting, so I might give the CC another listen if it is available.
happy, i posted this from seeking alpha's website, see part ii of my posts. i'd suggest requesting clarification directly from the author via their website.
At what point in the Q4 conference call was $41/boe cost mentioned? If REI's wells are disproportionately oil weighted, is the break-even, then, around $41/bbl? I thought I heard mention of REI being able to quickly increase its drilling in Qs 3+4 to scores of wells, if the commodity price warrants?
with horizontal wells will. Management, in fact, believes that 2015 organic production will 'stand shoulder to shoulder' to 2014 and basically be around the same level.
Even though it isn't drilling any new wells, Ring Energy has a very good chance of expanding production this year. This is because the company is actively looking for an acquisition. In recent months, the company has been approached by several companies on potential acquisitions but so far Ring management has been patient. Time and low crude prices are on Ring Energy's side. Management has noticed higher M&A activity in recent months as more sellers move past the initial 'denial phase' of low oil prices and realize that the best solution to reducing their debt is by selling assets. As WTI prices remain low or fall further, those sellers will be even more motivated to sell and Ring Energy could potentially get a better deal.
According to Ring management, there is no upper limit in terms of size of a potential acquisition. The acquisition could include both vertical and horizontal wells, and could be anywhere in the Permian Basin, including the Midland or Delaware regions. Management's only stipulation on a potential acquisition is that it be accretive.
Investing in Ring Energy is basically investing in management's judgment on a potential acquisition. If management makes an accretive acquisition, Ring's stock will rally as the acquisition adds to the company's underlying net acreage and production on the cheap. Ring Energy shares will rally even further when WTI rebounds. If management makes a not-so-good acquisition, Ring Energy will fall in the same category as the other small and levered E&P companies that are currently struggling. A bad acquisition could potentially saddle Ring Energy with a significant debt load that the company would struggle to pay off.
Ring management does have a long track record of successful acquisitions(remainder of this article can be found on Seeking Alpha's website)
- Ring Energy is cash flow positive in first quarter 2015. The company has drawn only $5 million from its credit line.
- The company has successfully reduced costs to around $41/boe and management believes that they can find further cost savings if WTI falls further.
- The company will likely make an acquisition in the near future.
Ring Energy (NYSEMKT:REI) doesn't have any hedging contracts to protect itself when crude prices fall but in many ways, the company doesn't need any hedges.
Ring Energy isn't levered. The company had no debt at the end of 4th quarter 2014. The company has competitive production costs. Ring Energy's fourth quarter cost of production was $41.65 per BOE compared to $60.28 per BOE in the fourth quarter of 2013. The fall in production costs was mainly due to a fall in general and administrative expenses as stock compensation costs fell significantly. Because of the lower production costs and an average realized price of $65.48 per BOE, the company earned $0.12 per share on revenues of $9.98 million. Crude production also increased from 54,557 barrels in 4Q 2013 to 150,036 barrels in 4Q 2014.
According to Ring's conference call, the company is doing okay in first quarter 2015 as well. The company has drawn only $5 million of its credit line so far. Management has successfully reduced total cost per well by asking vendors for additional discounts if crude prices fall further. Because of the cost savings, Ring Energy is still cash flow positive for first quarter
Management hasn't given any concrete capex plans for FY 2015 but the odds are good that 2015 capex will be significantly lower than the $125 million in capex for 2014. This is because all of Ring Energy's drilling rigs are idle and management is in cost savings mode.
But just because Ring Energy isn't drilling new wells doesn't mean production will fall off a cliff. Because Ring Energy's wells are vertical wells, the company's production won't decline as steeply as a company
Per today's conference call, REI has a "clean balance sheet" and is "in a nice positive cash flow position even at lower prices." I may be misunderstanding the officers' comments, but it seems drilling costs are down from $515,000 to $375,000 per well.
Per today's conference call, REI has a "clean balance sheet" and is "in a nice positive cash flow position even at lower prices."
Why would REI need to raise capital if it has stopped all leasing and drilling and owes no debt? I think only a major supply disruption due to war and/or M&A will drive the stock higher, and I agree with you there is serious downside potential.
That is really the concern that either just the declining oil and gas prices continue to drag down the stock price or they dilute the shares to raise capital or both, but unless the environment changes quickly, which no one seems to think will happen, there will be shares available at much lower prices. I am willing to wait and also realize I might be wrong.
Sounds like he's just saying the company may sell shares to raise capital. I hope not i.e. hopefully production revenue will cover expenses but he might be right.