Ring Energy (REI) to Acquire Permian Basin Assets for $75M
U.S.-based oil and gas producer Ring Energy REI recently agreed to buy the Central Basin Platform (“CBP”) assets of privately-held upstream company Founders Oil & Gas IV. The transaction, valued at $75 million, further solidifies Ring's presence in the Permian Basin and enhances its operational capabilities. The acquisition — to conclude by Sep 30 — is expected to be immediately accretive and bring various benefits to the company's shareholders.
The total transaction value comprises $60 million in cash to be paid at closing, and an additional deferred cash payment of $15 million, which will be due four months after the closing date. Ring will fund the transaction using its available cash reserves and borrowings under its recently reaffirmed senior revolving credit facility.
Expanding Core Operating Area and Synergies
The acquisition of Founders' CBP assets strategically expands Ring's core operating area in Ector County, TX. This move allows REI to capture various cost synergies, further enhancing operational efficiency. The assets closely resemble the Stronghold assets acquired in the previous year, featuring high-quality rock formations and proven performance. Leveraging its expertise, Ring aims to optimize the undeveloped drilling locations available through the transaction.
Asset Highlights and Growth Potential
The acquired properties, which comes with 99% working interest and 87% revenue interest, offer significant potential for growth. In the second quarter of 2023, average daily production from the CBP acreage averaged approximately 2,500 net barrels of oil equivalent/BOE (86% oil). With estimated proved reserves of 9.2 million BOE (80% oil) at the end of 2022, the assets possess low-risk, high-return drilling locations and have the potential for downspacing to further increase economic returns. Existing infrastructure provides cost-saving opportunities and streamlines operations.
Production, Capital Investment Guidance
Ring has provided pro forma guidance for the third and fourth quarters of 2023, incorporating the impact of the pending acquisition and the recent sale of its Delaware Basin assets. The company targets a total pro forma capital spending range of $67 million to $77 million in the second half of 2023, including drilling, completions, recompletions and infrastructure upgrades. With a focus on generating adjusted free cash flow, Ring expects to fund all planned capital expenditures through cash on hand and cash from operations.
The company also revised its production guidance to reflect the pending acquisition as well as the just-concluded sale of its Delaware Basin assets. REI now sees output of 18.1-18.6 thousand BOE per day in the third quarter and 18.9-19.5 thousand BOE in the October-December period of 2023.
Zacks Rank & Stock Picks
Ring Energy carries a Zacks Rank #3 (Hold) at present. Meanwhile, investors interested in the energy sector might look at operators like Profire Energy PFIE, Smart Sand SND and Murphy USA MUSA, each currently carrying a Zacks Rank #2 (Buy).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Profire Energy: The 2023 Zacks Consensus Estimate for Profire Energy indicates 125% year-over-year earnings per share growth. PFIE has a trailing four-quarter earnings surprise of 11.1%, on average.
Profire Energy is valued at around $59.2 million. PFIE has seen its shares drop 2% in a year.
Smart Sand: SND beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. Smart Sand has a trailing four-quarter earnings surprise of 183.3%, on average.
SND is valued at around $72.3 million. Smart Sand has seen its shares drop 4.9% in a year.
Murphy USA: It is valued at some $6.6 billion. The Zacks Consensus Estimate for MUSA's 2023 earnings has been revised 8.3% upward over the past 60 days.
Murphy USA beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. MUSA shares have gained 14.3% in a year.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.
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