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Ring Energy Announces Financial and Operational Results for the Three and Nine-Month Periods Ending September 30, 2020

·21 min read

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/

Contacts

David Fowler, President
Ring Energy, Inc.
(432) 682-7464

Bill Parsons
K M Financial, Inc.
(702) 489-4447