Ring Energy (REI) Update - August 13

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Ring Energy (REI) Update - August 13

Post by dan_s »

I took a hard look at Ring Energy and I have updated my forecast/valuation model for the company. I have lowered my valuation by $0.15 to $8.35.

Ring is a pure play on the Permian's Central Basin Platform area.

REI is now trading for $2.11, so it has a lot of upside for us if my model is close to accurate.

Q2 results are the first full quarter since they closed the acquisition of Wishbone on 2-1-2019. Their Q2 production exceeded my forecast and I am expecting production to ramp up to an exit rate of more than 12,000 Boepd by year-end. Ring's production mix is 90% crude oil and 10% natural gas. They report natural gas and NGLs on a combined basis.

Natural gas and NGL prices in the Permian Basin are terrible, but should improve by year-end as more pipeline access is coming soon.

Ring is only running one operated rig now, so they should be funding all D&C going forward with cash flow from operations. CF from operations s/b over $25 million in Q3 and over $30 million in Q4 if WTI goes up to my forecast of $60/bbl for Q4.

IMPORTANT: All of Ring's hedges are collars with $50 floors and $68 ceilings. This means that if oil prices do increase, there is significant upside to my valuation.

FWIW First Call's price target is $6.75.
Dan Steffens
Energy Prospectus Group
ChuckGeb
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Joined: Thu Nov 21, 2013 2:46 pm

Re: Ring Energy (REI) Update - August 13

Post by ChuckGeb »

The big question is whether Ring can achieve FCF before it runs out of money. Not a lot of room for error.
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Ring Energy (REI) Update - August 13

Post by dan_s »

Cash flow from operations should fund their one rig program going forward. The balance sheet is in fairly good shape.
Dan Steffens
Energy Prospectus Group
ChuckGeb
Posts: 945
Joined: Thu Nov 21, 2013 2:46 pm

Re: Ring Energy (REI) Update - August 13

Post by ChuckGeb »

We all hope so except for the damn shorts! If oil prices do what you project, a lot of companies needing some cushion capital will get out of the woods. However if Trump continues his tweets and hard ass policies they will continue on very thin ice.
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Ring Energy (REI) Update - August 13

Post by dan_s »

More people are beginning to notice that U.S. oil production growth has slowed to a crawl. Wall Street needs a "Paradigm Shift" to overcome the notion that the Permian Basin can supply all of the world's thirst for oil. It ain't happening at the current active rig count.

Note that Ring put up solid results in the 2nd quarter with realized prices of just $56.86/bbl of oil and $0.95/mcf for natural gas (including NGLs).

Unless Trump lifts the sanctions against Iran, oil price will go higher. IMO the FEAR of a U.S. vs China trade war going on forever is way overblown. Even IEA is only lowering their demand growth forecast by a few 100,000 BOPD. That is a rounding error in world that consumes 101,000,000 barrels per day.
Dan Steffens
Energy Prospectus Group
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