Ring Energy Releases Third Quarter and Nine Month 2019 Financial and Operational Results

Wednesday, November 6, 2019 3:27 pm CST

Dateline:

MIDLAND, Texas

Public Company Information:

NYSEAM:
REI
"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 ("

MIDLAND, Texas--(BUSINESS WIRE)--Ring Energy, Inc. (NYSE American: REI) (“Ring”) (“Company”) announced today financial results for the three months and nine months ended September 30, 2019. 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.

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.

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.

Mr. 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.”

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.

The Company’s Chief Executive Officer, Mr. 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.”

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, 2018, its Form 10Q for the quarter ended September 30, 2019 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.
STATEMENTS OF OPERATIONS
 
Three Months Ended Nine Months Ended
September 30, September 30,

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 
Oil and Gas Revenues

$

50,339,105

 

$

32,687,179

 

$

143,471,645

 

$

92,503,453

 

 
Costs and Operating Expenses
Oil and gas production costs

 

15,478,052

 

 

7,217,940

 

 

36,455,925

 

 

19,638,163

 

Oil and gas production taxes

 

2,307,226

 

 

1,551,097

 

 

6,802,996

 

 

4,405,974

 

Depreciation, depletion and amortization

 

14,115,170

 

 

10,930,563

 

 

41,659,494

 

 

28,576,057

 

Asset retirement obligation accretion

 

236,207

 

 

167,433

 

 

681,386

 

 

493,223

 

Operating lease expense

 

114,112

 

 

-

 

 

370,462

 

 

-

 

General and administrative expense

 

3,745,928

 

 

3,205,116

 

 

15,287,072

 

 

9,442,327

 

 
Total Costs and Operating Expenses

 

35,996,695

 

 

23,072,149

 

 

101,257,335

 

 

62,555,744

 

 
Income from Operations

 

14,342,410

 

 

9,615,030

 

 

42,214,310

 

 

29,947,709

 

 
Other Income (Expense)
Interest income

 

9

 

 

5,911

 

 

13,505

 

 

97,855

 

Interest expense

 

(4,556,509

)

 

(40,944

)

 

(9,589,434

)

 

(85,427

)

Realized loss on derivatives

 

-

 

 

(2,722,774

)

 

-

 

 

(6,600,226

)

Unrealized gain (loss) on change in fair value of derivatives

 

1,877,368

 

 

(566,649

)

 

3,066,913

 

 

(2,456,623

)

 
Net Other Income (Expense)

 

(2,679,132

)

 

(3,324,456

)

 

(6,509,016

)

 

(9,044,421

)

 
Income before Tax Provision

 

11,663,278

 

 

6,290,574

 

 

35,705,294

 

 

20,903,288

 

 
Provision for Income Taxes

 

(1,774,922

)

 

(596,946

)

 

(2,352,241

)

 

(4,824,220

)

 
Net Income

$

9,888,356

 

$

5,693,628

 

$

33,353,053

 

$

16,079,068

 

 
Basic Earnings Per Common Share

$

0.15

 

$

0.09

 

$

0.50

 

$

0.27

 

Diluted Earnings Per Common Share

$

0.15

 

$

0.09

 

$

0.50

 

$

0.27

 

 
 
Basic Weighted-Average Common Shares Outstanding

 

67,811,127

 

 

60,405,355

 

 

66,149,469

 

 

59,084,300

 

Diluted Weighted-Average Common Shares Outstanding

 

67,836,968

 

 

61,830,381

 

 

66,401,422

 

 

60,567,232

 

COMPARATIVE OPERATING STATISTICS
 
Three Months Ended September 30,

2019

 

2018

 

Change

 

11,183

6,540

70.9%

Per BOE:
Average Sales Price

$48.93

$54.32

-9.9%

 
Lease Operating Expenses

15.04

11.99

25.4%

Production Taxes

2.24

2.58

-13.2%

DD&A

13.72

18.17

-24.5%

Accretion

0.23

0.28

-17.8%

General & Administrative Expenses

3.75

5.33

-29.6%

 
Nine Months Ended September 30,

2019

 

2018

 

Change

 
Net Sales - BOE per day

10,607

6,004

76.6%

Per BOE:
Average Sales price

$49.55

$56.43

-12.2%

 
Lease Operating Expenses

12.59

11.98

5.1%

Production Taxes

2.35

2.69

-12.6%

DD&A

14.39

17.43

-17.4%

Accretion

0.24

0.30

-20.0%

General & Administrative Expenses

5.41

5.76

-6.1%

RING ENERGY, INC.
BALANCE SHEET
 
September 30, December 31,

 

2019

 

 

 

2018

 

 
ASSETS
Current Assets
Cash

$

7,599,089

 

$

3,363,726

 

Accounts receivable

 

18,291,698

 

 

12,643,478

 

Joint interest billing receivable

 

2,025,180

 

 

578,144

 

Operating lease asset

 

169,115

 

 

-

 

Derivative asset

 

2,386,066

 

 

-

 

Prepaid expenses and retainers

 

3,340,178

 

 

258,909

 

Total Current Assets

 

33,811,326

 

 

16,844,257

 

Property and Equipment
Oil and natural gas properties subject to depletion and amortization

 

1,059,284,347

 

 

641,121,398

 

Financing lease asset subject to depreciation

 

947,435

 

 

-

 

Fixed assets subject to depreciation

 

1,465,551

 

 

1,465,551

 

Total Property and Equipment

 

1,061,697,333

 

 

642,586,949

 

Accumulated depreciation, depletion and amortization

 

(142,235,581

)

 

(100,576,087

)

Net Property and Equipment

 

919,461,752

 

 

542,010,862

 

Derivative asset

 

680,847

 

Deferred Income Taxes

 

5,434,238

 

 

7,786,479

 

Deferred Financing Costs

 

3,403,491

 

 

424,061

 

Total Assets

$

962,791,654

 

$

567,065,659

 

 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable

$

51,813,690

 

$

51,910,432

 

Financing lease liability

$

272,498

 

 

-

 

Operating lease liability

$

169,115

 

 

-

 

Total Current Liabilities

 

52,255,303

 

 

51,910,432

 

 
Revolving line of credit

 

366,500,000

 

 

39,500,000

 

Financing lease liability

 

588,251

 

 

-

 

Asset retirement obligations

 

16,703,186

 

 

13,055,797

 

Total Liabilities

 

436,046,740

 

 

104,466,229

 

 
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;
67,811,611 shares and 63,229,710 shares
issued and outstanding, respectively

 

67,812

 

 

63,230

 

Additional paid-in capital

 

525,679,942

 

 

494,892,093

 

Accumulated earnings (deficit)

 

997,160

 

 

(32,355,893

)

Total Stockholders' Equity

 

526,744,914

 

 

462,599,430

 

Total Liabilities and Stockholders' Equity

$

962,791,654

 

$

567,065,659

 

   
STATEMENTS OF CASH FLOW
  Nine Months Ended
  September 30, September 30,
 

 

2019

 

 

2018

 

   
Cash Flows From Operating Activities  
Net income  

$

33,353,053

 

$

16,079,068

 

Adjustments to reconcile net income (loss) to net cash  
Provided by operating activities:  
Depreciation, depletion and amortization  

 

41,659,494

 

 

28,576,057

 

Accretion expense  

 

681,386

 

 

493,223

 

Share-based compensation  

 

2,436,035

 

 

3,091,336

 

Deferred income tax provision  

 

7,498,112

 

 

4,389,690

 

Excess tax deficiency related to share-based compensation  

 

(5,145,871

)

 

434,530

 

Change in fair value of derivative instruments  

 

(3,066,913

)

 

2,456,623

 

Changes in assets and liabilities:  
Accounts receivable  

 

(7,095,256

)

 

435,048

 

Prepaid expenses and retainers  

 

(6,060,699

)

 

(509,116

)

Accounts payable  

 

(1,055,397

)

 

(2,989,645

)

Settlement of asset retirement obligation  

 

(615,732

)

 

(452,468

)

Net Cash Provided by Operating Activities  

 

62,588,212

 

 

52,004,346

 

Cash Flows from Investing Activities  
Payments to purchase oil and natural gas properties  

 

(263,262,046

)

 

(4,090,642

)

Payments to develop oil and natural gas properties  

 

(122,004,117

)

 

(158,069,999

)

Proceeds from disposal of fixed assets subject to depreciation  

 

-

 

 

105,536

 

Net Cash Used in Investing Activities  

 

(385,266,163

)

 

(162,055,105

)

Cash Flows From Financing Activities  
Proceeds from revolving line of credit  

 

327,000,000

 

 

17,000,000

 

Proceeds from issuance of common stock, net of offering costs  

 

-

 

 

81,815,022

 

Reduction of financing lease liability  

 

(86,686

)

 

-

 

Net Cash Provided by Financing Activities  

 

326,913,314

 

 

98,815,022

 

Net Change in Cash  

 

4,235,363

 

 

(11,235,737

)

Cash at Beginning of Period  

 

3,363,726

 

 

15,006,581

 

Cash at End of Period  

$

7,599,089

 

$

3,770,844

 

Supplemental Cash flow Information  
Cash paid for interest  

$

5,821,545

 

$

54,652

 

   
Noncash Investing and Financing Activities  
Asset retirement obligation incurred during development  

 

602,090

 

 

1,058,763

 

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  

 

26,958,655

 

 

24,000,000

 

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

 

 

-

 

   
RECONCILIATION OF CASH FLOW FROM OPERATIONS  
   
Net cash provided by operating activities  

$

62,588,212

 

$

52,004,346

 

Change in operating assets and liabilities  

 

14,827,084

 

 

3,516,181

 

   
Cash flow from operations  

$

77,415,296

 

$

55,520,527

 

   

Management believes that the non-GAAP measure of cash flow from operations is useful information for investors because it is used internally and is accepted by the investment community as a means of measuring the Company's ability to fund its capital program. It is also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.

RING ENERGY, INC.
NON-GAAP DISCLOSURE RECONCILIATION
ADJUSTED EBITDA
 
Nine Months Ended
September 30, September 30,

 

2019

 

 

2018

 

 
NET INCOME

$

33,353,053

$

16,079,068

 

 
Net other (income) expense

 

6,509,016

 

9,044,421

 

Realized loss on derivatives

 

-

 

(6,600,226

)

Income tax expense

 

2,352,241

 

4,824,220

 

Depreciation, depletion and amortization

 

41,659,494

 

28,576,057

 

Accretion of discounted liabilities

 

681,386

 

493,223

 

Stock based compensation

 

2,436,035

 

3,091,336

 

 
ADJUSTED EBITDA

$

86,991,225

$

55,508,099

 

 

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Contact:

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

Stock Information

NYSE American: REI Change: 
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Investor Contact

Bill Parsons
901 W. Wall St. Suite 300
Midland, TX 79701
Phone: 702.489.4447
k-m-financial@msn.com

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