Ring Energy, Inc. (NYSE:REI) is a growth-oriented independent exploration and production company based in The Woodlands, Texas, focused on oil and natural gas development, production, acquisition, and exploration activities in the Permian Basin of Texas. Ring Energy has demonstrated its ability to consistently generate substantial cash flows, reporting annual net income of $104,864,641, annual revenue of $361,056,001, annual operating cash flow of $198,170,459, and annual free cash flow of $42,956,243 in its most recent fiscal year.

Recent Developments

In the first quarter of 2024, Ring Energy continued to deliver strong operational and financial results. Ring Energy reported sales volumes that exceeded the high end of its guidance, with oil production accounting for 70% of the total. Specifically, Ring Energy sold 13,394 barrels of oil per day and 19,034 barrels of oil equivalent per day, both of which were above the top end of Ring Energy's guidance range. This robust production performance was driven by the success of Ring Energy's drilling program and reduced downtime since the winter storm in January.

Importantly, Ring Energy's operating expenses and capital spending came in below Ring Energy's guidance ranges in the first quarter, further bolstering its financial position. Lease operating expenses (LOE) were $10.60 per barrel of oil equivalent (BOE), below the low end of the guidance range of $10.75 to $11.25 per BOE. The primary drivers of the lower-than-expected LOE were increased efficiencies associated with Ring Energy's well completions and improved logistics of drilling its wells, as well as progress made in integrating the assets acquired from Founders.

Financials

Ring Energy's first quarter results translated into adjusted net income of $20.3 million, adjusted EBITDA of $62 million, and net cash provided by operating activities of $45.2 million. Importantly, Ring Energy generated $15.6 million in adjusted free cash flow during the quarter, representing a 48% increase compared to the same period in the prior year and the 18th consecutive quarter of positive adjusted free cash flow for Ring Energy.

Turning to the balance sheet, Ring Energy continued to focus on reducing its debt burden, paying down an additional $3 million on its revolving credit facility during the first quarter. Since the closing of the Founders acquisition in late August 2023, Ring Energy has paid down a total of $33 million in debt, further strengthening its financial position. As of March 31, 2024, Ring Energy had $422 million drawn on its $600 million credit facility, providing Ring Energy with $179.3 million in total liquidity.

Outlook

Looking ahead, Ring Energy remains committed to its value-focused strategy, which includes pursuing operational excellence, high-grading and executing its targeted drilling program, continuing to improve its balance sheet, and seeking growth through strategic, accretive, and balance sheet-enhancing acquisitions. Ring Energy plans to maintain a phased two-rig drilling program, including one horizontal rig and one vertical rig, to organically maintain or slightly grow its oil production while maximizing free cash flow generation.

For the second quarter of 2024, Ring Energy expects its production to range between 18,500 and 19,100 BOE per day, with oil production accounting for approximately 70% of the total. Ring Energy has also provided full-year 2024 guidance, maintaining its previous outlook for crude oil sales volumes of 12,500 to 13,300 barrels per day and BOE sales volumes of 18,000 to 19,000 per day.

In terms of capital expenditures, Ring Energy anticipates spending between $37 million and $42 million in the second quarter and $135 million to $175 million for the full year 2024. Ring Energy also expects its LOE to range between $10.75 and $11.25 per BOE in the second quarter and $10.50 to $11.50 per BOE for the full year.

Business Overview

One of the key strengths of Ring Energy's business model is its geographic diversification within the Permian Basin. Ring Energy's operations are primarily focused in two core areas: the Northwest Shelf and the Central Basin Platform. This diversification allows Ring Energy to optimize its capital allocation and operational efficiencies, as Ring Energy can shift its drilling focus between these areas based on factors such as infrastructure constraints, water availability, and the relative economics of each play.

In the Northwest Shelf, Ring Energy has found success in its horizontal drilling program targeting the oil-rich San Andres formation, while in the Central Basin Platform, Ring Energy has been able to leverage its multi-stack vertical drilling approach to unlock value from its acreage. Ring Energy's recent acquisition of the Founders assets has further bolstered its position in the Central Basin Platform, providing additional high-quality drilling inventory and synergies with its existing operations.

Looking at Ring Energy's revenue breakdown, oil sales accounted for 98% of Ring Energy's total revenue in the first quarter of 2024, despite oil making up only 70% of its production mix. This is due to Ring Energy's focus on oil-weighted opportunities, which have been driving its strong financial performance. Natural gas sales, on the other hand, contributed a negative $818,235 to Ring Energy's top line, as Ring Energy continues to grapple with the challenging natural gas takeaway infrastructure in the Permian Basin.

Despite these natural gas headwinds, Ring Energy's overall financial performance has been impressive, with Ring Energy generating substantial cash flows and steadily improving its balance sheet. Ring Energy's commitment to operational excellence, disciplined capital allocation, and strategic acquisitions has positioned it well to navigate the evolving energy landscape and continue delivering value to its shareholders.

Conclusion

Ring Energy is a Permian Basin powerhouse that has demonstrated its ability to consistently generate significant cash flows and steadily strengthen its financial position. Ring Energy's diversified asset base, focus on oil-weighted opportunities, and prudent capital management have been key drivers of its success, and Ring Energy appears well-positioned to continue its growth trajectory in the years to come.