8-K: Ring Energy Announces Record Fourth Quarter and Full Year 2023 Results, Provides 2024 Guidance

Ring Energy reports record operational and financial results for Q4 and full year 2023, alongside year-end proved reserves and additional 2024 guidance.

Summary

• Ring Energy achieved record sales volumes in the fourth quarter of 2023, reaching 19,397 barrels of oil equivalent per day (Boe/d), a 11% increase from the previous quarter.
• Oil sales volumes also hit a record in Q4 2023, with 13,637 barrels of oil per day (Bo/d), a 13% increase from Q3 2023.
• Year-over-year, total sales volumes grew by 47% to a record 18,119 Boe/d, and full-year oil sales volumes increased by 32% to 12,548 Bo/d.
• The company reported a net income of $50.9 million, or $0.26 per diluted share, for the fourth quarter, and a full-year net income of $104.9 million, or $0.54 per diluted share.
• Adjusted EBITDA for the fourth quarter was a record $65.4 million, a 12% increase from the third quarter, and full-year Adjusted EBITDA grew by 21% to $236.0 million.
• Adjusted Free Cash Flow reached a record $16.3 million in Q4 and $45.3 million for the full year, a 30% increase year-over-year.
• Ring Energy reduced debt by $3.0 million in Q4 and $30.0 million since the Founders Acquisition in August 2023, ending the year with $425 million in borrowings and a leverage ratio of 1.62x.
• The company's proved reserves at year-end 2023 were 129.8 million barrels of oil equivalent (MMBoe), with a present value discounted at 10% (PV-10) of $1.6 billion.
• For 2024, Ring Energy plans capital spending between $135 million and $175 million, targeting oil sales volumes of 12,600 to 13,300 Bo/d and total sales volumes of 18,000 to 19,000 Boe/d.
• The company intends to allocate excess cash from operations to reducing debt and improving the balance sheet.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record operational and financial results, strong growth metrics, and a clear strategy for future growth and debt reduction. While there are some negative aspects, the overall tone is optimistic and forward-looking.

Positives

• The company achieved record sales volumes, both total and oil, in the fourth quarter of 2023.
• Ring Energy demonstrated strong year-over-year growth in sales volumes, Adjusted EBITDA, and Adjusted Free Cash Flow.
• The company successfully reduced debt and improved its balance sheet.
• Ring Energy has a strong focus on cost reduction and operational efficiency.
• The company has a disciplined capital spending program designed to maintain or slightly grow oil production.
• Ring Energy is cash flow positive for the 17th consecutive quarter.
• The company has a high cash return on capital employed of 17.2% in 2023.
• Ring Energy has a clear strategy to return capital to stockholders.
• The company has a strong hedging position for 2024, with approximately 45% of oil sales and 43% of natural gas sales hedged.

Negatives

• The average realized sales price per Boe decreased by 4% compared to the third quarter of 2023 and 8% compared to the fourth quarter of 2022.
• Net income for the full year 2023 was lower than 2022, decreasing from $138.6 million to $104.9 million.
• The company's proved reserves decreased from 138.1 MMBoe at year-end 2022 to 129.8 MMBoe at year-end 2023.
• The PV-10 value of proved reserves decreased from $2.77 billion at the end of 2022 to $1.65 billion at the end of 2023.
• The company experienced a negative oil price differential of $0.92 per barrel from WTI NYMEX futures pricing in Q4 2023.
• The company experienced a negative natural gas price differential of $3.12 per Mcf from NYMEX futures pricing in Q4 2023.

Risks

• The company is subject to risks related to declines in oil, natural gas liquids, or natural gas prices.
• The level of success in exploration, development, and production activities is uncertain.
• Adverse weather conditions may negatively impact development or production activities.
• There are risks related to the timing of exploration and development expenditures.
• Inaccuracies in reserve estimates or assumptions underlying them could impact results.
• Revisions to reserve estimates as a result of changes in commodity prices could impact results.
• The company is subject to risks related to its level of indebtedness and periodic redeterminations of the borrowing base and interest rates under its credit facility.
• Ring Energy's ability to generate sufficient cash flows from operations to meet its capital expenditures budget is not guaranteed.
• The impacts of hedging on results of operations are uncertain.
• The company's ability to replace oil and natural gas reserves is a risk.

Future Outlook

Ring Energy plans to continue a disciplined capital spending program in 2024, focusing on maintaining or slightly growing oil production, reducing debt, and pursuing accretive acquisitions. The company aims to achieve the size and scale necessary to sustainably return meaningful capital to stockholders.

Management Comments

• We ended 2023 with record fourth quarter and full year operational and financial results on multiple fronts.
• Driving our results was the successful execution and integration of the two acquisitions made over the past 18 months, the success of our high rate-of-return drilling and recompletion programs, and our continuing focus on reducing costs.
• Our focus for 2024 will be very similar to the past. We will continue a disciplined capital spending program designed to organically maintain or slightly grow our oil production with the flexibility to respond as necessary to changing oil and natural gas prices.
• We intend to allocate our excess cash from operations to reducing debt and improving our balance sheet.
• We plan to continue seeking to grow through our pursuit of accretive, balance sheet enhancing acquisitions.

Industry Context

This announcement reflects a trend in the oil and gas industry where companies are focusing on operational efficiency, cost reduction, and strategic acquisitions to enhance shareholder value. Ring Energy's emphasis on debt reduction and free cash flow generation aligns with investor preferences for companies with strong balance sheets and sustainable returns.

Comparison to Industry Standards

• Ring Energy's cash operating margin of over $30 per Boe is in the top quartile compared to peers like Amplify Energy, Battalion, Berry Corporation, Crescent Energy, Riley Permian, SilverBow Resources, Vital Energy and W&T Offshore.
• The company's high oil weighting of ~70% (85% mix of oil + liquids) contributes to high realized pricing per Boe, which is a competitive advantage.
• Ring Energy's focus on conventional Permian assets with long-life wells and low D&C costs differentiates it from companies focused on shale plays.
• The company's cash return on capital employed (CROCE) of 17.2% in 2023 is strong compared to the average of 13.9% from 2020-2022.
• Ring Energy's leverage ratio of 1.62x is below the maximum permitted of 3.00x under its credit facility, indicating a healthy balance sheet.
• The company's current ratio of 2.14 is well above the minimum permitted of 1.00x, demonstrating strong liquidity.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance, debt reduction, and potential for future capital returns.
• Employees will benefit from the company's focus on operational excellence and safety.
• Customers will benefit from the company's continued production of oil and gas.
• Creditors will benefit from the company's debt reduction efforts and strong balance sheet.
• Suppliers will benefit from the company's continued operations and capital spending.

Next Steps

• The company will continue its disciplined capital spending program in 2024.
• Ring Energy will focus on maintaining or slightly growing oil production.
• The company will allocate excess cash from operations to reducing debt.
• Ring Energy will pursue accretive, balance sheet enhancing acquisitions.
• The company will hold a conference call on March 8, 2024, to discuss the results.

Key Dates

Keywords

oil and gas, Permian Basin, production, reserves, EBITDA, free cash flow, debt reduction, capital expenditures, drilling, acquisitions