Quarterly / Earnings Reports | Third Quarter (3Q) Update | Financial Results | Capital Markets

Ring Energy Reports Q3 2019 Results

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Ring Energy, Inc. reported its Q3 2019 results.

CEO Kelly Hoffman, stated, "2019 has been a year of consistent operational performance. In each of the first three quarters we have executed as we have said we would, and in some instances, surpassed our own expectations. The third quarter was our first full quarter of development on our Northwest Shelf ("NWS") assets. Based on the results we are experiencing, we have revised our internal estimates which reflect the higher Initial Potentials ("IPs"), flatter declines and improved economics the NWS wells are demonstrating. We continue to focus on our goals of cash flow neutrality by year end in combination with meaningful production growth. In the third quarter, we came within $2 million of reaching cash flow neutrality a full quarter ahead of our goal while showing a 4% increase in production sales over the second quarter. Management continues to explore opportunities to reduce our debt through the monetization of existing assets. With the current and foreseeable focus remaining on the development of our NWS assets and Central Basin Platform ("CBP") properties, the Company has officially started the process of marketing its Delaware Basin asset. We will be diligent in our efforts to maintain a strong balance sheet while posturing your Company for the many years of growth and productivity ahead."

Randy Broaddrick, Vice President and Chief Financial Officer, commented, "The primary reason for the increase in the LOE per BOE for the third quarter 2019 is an accounting adjustment related to the processing fees for most of the gas sold on the Northwest Shelf ("NWS") assets. These fees were previously accounted for as a reduction of revenue but are now correctly included as a lease operating expense. This accounting treatment is appropriate because of the marketing arrangements in place for this gas. Additionally, we received older invoices related to the NWS assets during the third quarter that had to be accounted for. We believe our ongoing LOE per BOE is under $12.00, including gas processing fees. Considering cash flows from operations, excluding changes in assets and liabilities against development capital expenditures during the period, we were approximately $2 million shy of reaching cash flow neutrality in the third quarter. Further, we continue to firmly believe that at a $50.00 per BOE received price we will attain our goal of cash flow neutrality by year end."

Production

For the three months ended September 30, 2019, oil sales volume increased to 906,874 barrels, compared to 555,020 barrels (Ring Only) for the same period in 2018, a 63.4% increase, and gas sales volume increased to 731,627 MCF (thousand cubic feet), compared to 280,200 MCF (Ring Only) for the same period in 2018, a 161.1% increase. On a barrel of oil equivalent ("BOE") basis for the three months ended September 30, 2019, production sales were 1,028,812 BOEs, compared to 601,720 BOEs (Ring Only) for the same period in 2018, an 70.9% increase, and 988,218 BOEs for the second quarter of 2019, a 4.1% increase. For the nine months ended September 30, 2019, oil sales volume increased to 2,612,742 barrels, compared to 1,504,330 (Ring Only) barrels for the same period in 2018, a 73.7% increase, and gas sales volume increased to 1,697,373 MCF, compared to 809,287 MCF (Ring Only) for the same period in 2018, a 109.7% increase. On a BOE basis for the nine months ended September 30, 2019, production sales increased to 2,895,637 BOEs, compared to 1,639,211 BOEs (Ring Only) for the same period in 2018, a 76.6% increase.

Financials

For the three-month period ended September 30, 2019, the Company reported oil and gas revenues of $50,339,105 compared to revenues of $32,687,179 for the quarter ended September 30, 2018. For the nine months ended September 30, 2019, the Company reported oil and gas revenues of $143,471,645, compared to $92,503,453 for the nine months ended September 30, 2018.

For the three months ended September 30, 2019, Ring reported net income of $9,888,356, or $0.15 per diluted share, compared to net income of $5,693,628, or $0.09 per fully diluted share for the three months ended September 30, 2018. For the nine months ended September 30, 2019, the Company reported net income of $33,353,053, or $0.50 per diluted share, compared to net income of $16,079,068, or $0.27 per fully diluted share for the nine-month period ended September 30, 2018.

For the three months ended September 30, 2019, the net income included a pre-tax unrealized gain on derivatives of $1,877,368 and a non-cash charge for stock-based compensation of $792,836. Excluding these items, the net income per diluted share would have been $0.12. For the nine months ended September 30, 2019, the net income included a pre-tax unrealized gain on derivatives of $3,066,913 and a non-cash charge for stock-based compensation of $2,436,035. Excluding these items, the net income per diluted share would have been $0.42. 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.

The average commodity prices received by the Company were $54.59 per barrel of oil and $1.14 per MCF of natural gas for the quarter ended September 30, 2019, compared to $57.00 per barrel of oil and $3.76 per MCF of natural gas for the quarter ended September 30, 2018. On a BOE basis for the three-month period ended September 30, 2019, the average price received was $48.93, compared to $54.32 per BOE for the three months ended September 30, 2018. The average prices received for the nine months ended September 30, 2019 were $54.03 per barrel of oil and $1.35 per MCF of natural gas, compared to $59.65 per barrel of oil and $3.42 per MCF of natural gas for the nine-month period ended September 30, 2018. On a BOE basis for the nine-month period ended September 30, 2019, the average price received was $49.55, compared to $56.43 per BOE for the nine months ended September 30, 2018.

The average price differential the Company experienced from WTI pricing in the third quarter 2019 was less than $3.00.

As of September 30, 2019, the Company had entered into derivative contracts in the form of costless collars of NYMEX WTI Crude Oil prices in order to protect the Company's cash flow from price fluctuation and maintain its capital programs. "Costless collars" are the combination of two options, a put option (floor) and call option (ceiling) with the options structured so that the premium paid for the put option will be offset by the premium received from selling the call option. The trades were for a total of 5,500 barrels of oil per day for the period of April 2019 through December 2019 and 2,000 barrels of oil per day for the period of January 2020 through December 2020. The average prices for the 5,500 BOPD under contract for 2019 are: Floor = $50.00 / Ceiling = $68.19. The average prices for the 2,000 BOPD under contract for 2020 are: Floor = $50.00 / Ceiling = $65.61. The "Costless Collar" pricing does not take into account any pricing differentials between NYMEX WTI pricing and the price received by the Company.

Lease operating expenses ("LOE"), including production taxes, for the three months ended September 30, 2019 were $17.28 per BOE, an 18.6% increase from the prior year. Depreciation, depletion and amortization costs, including accretion, decreased 24.4% to $13.95 per BOE. General and administrative costs, which included a $792,836 charge for stock-based compensation and $114,112 for an operating lease expense, were $3.75 per BOE, a 29.6% decrease. For the nine months ended September 30, 2019, lease operating expenses, including production taxes, were $14.94 per BOE, a 1.8% increase. Depreciation, depletion and amortization costs, including accretion, were $14.63 per BOE, a 17.4% decrease, and general and administrative costs, which included a $2,436,035 charge for stock-based compensation and $370,462 for operating lease expenses, were $5.41 per BOE, an 6.1% decrease.

Cash provided by operating activities, before changes in working capital, for the three and nine months ended September 30, 2019 was $24,930,123, or $0.37 per fully diluted share, and $77,415,296, or $1.17 per fully diluted share, compared to $18,963,008 and $55,520,527, or $0.31 and $0.92 per fully diluted share for the same periods in 2018. Earnings before interest, taxes, depletion and other non-cash items ("Adjusted EBITDA") for the three and nine months ended September 30, 2019 were $29,486,623, or $0.43 per fully diluted share, and $86,991,225, or $1.31 per fully diluted share, compared to $18,998,041 and $55,508,099, or $0.31 and $0.92 in 2018. (See accompanying table for a reconciliation of net income to adjusted EBITDA).

Total capital expenditures for the three and nine months ended September 30, 2019 were approximately $21.3 and $418.2 million. The three-month amount included $161,000 of asset retirement obligations and was reduced $5.5 million by divestiture of non-operated properties. The nine-month amount includes $296.9 million for property acquisitions, $3.6 million of asset retirement obligations and was reduced $7.6 million by property divestitures.

As of September 30, 2019, the outstanding balance on the Company's $1 billion senior secured credit facility was $366.5 million. The weighted average interest rate on borrowings under the senior credit facility was 4.83%. The immediate borrowing base ($425 million) will be re-determined semi-annually on each May 1 and November 1.