Ring Announces Financial & Operational Results

Source: www.gulfoilandgas.com 11/9/2020, Location: North America

Ring Energy, Inc. announced 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.

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.

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.


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