Ring Energy (REI) Q1 Results - May 13

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dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Ring Energy (REI) Q1 Results - May 13

Post by dan_s »

Ring Energy's Q1 results beat my forecast.

~ Improved Hedge Position, Higher Pricing and Success of 2022 Drilling Program Drives Increased Free Cash Flow Generation and Further Pay Down of Debt ~

THE WOODLANDS, Texas, May 10, 2022 (GLOBE NEWSWIRE) -- Ring Energy, Inc. (NYSE American: REI) (“Ring” or the “Company”) today reported operational and financial results for the first quarter of 2022. In addition, the Company provided second quarter guidance and reiterated its full year 2022 outlook.

First Quarter 2022 and Recent Highlights

Produced sales volumes of 8,870 barrels of oil equivalent per day (“Boe/d”) (85% oil), which was above the high end of Ring’s guidance range of 8,500 to 8,700 Boe/d (85% oil); < My Q1 forecast was 8,500 Boepd.

Reported net income of $7.1 million, or $0.06 per diluted share, compared with net income of $24.1 million, or $0.20 per diluted share, for the fourth quarter of 2021; Posted Adjusted Net Income of $22.3 million, or $0.22 per share, up more than 125% from $9.9 million, or $0.10 per share, in the fourth quarter of 2021; < Adjusted Net Income compares to my forecast of $14.4 million.

Grew Adjusted EBITDA by 48% to $35.6 million from $24.0 million for the fourth quarter of 2021;

KEY STAT: Generated Cash Flow from Operations of $32.3 million and Free Cash Flow of $12.6 million – an increase of 57% and 36%, respectively, from the fourth quarter of 2021; < My operating cash flow forecast (before changes in working capital) was $29.3 million.

Paid down $10.0 million of debt on the Company’s revolving credit facility;

Reduced debt to Adjusted trailing 12-month EBITDA (”Leverage”) ratio to 2.8x compared to 3.5x at year end 2021; Leverage ratio was less than 2.0x using annualized first quarter 2022 Adjusted EBITDA; < Ring still has work to do on their balance sheet, but they've made a lot of progress and I'm sure their bankers are happy now.

Increased liquidity to $71.4 million – a 16% increase from year end 2021;

Drilled six wells (including four in the Central Basin Platform (“CBP”) and two in the Northwest Shelf (“NWS”) in the first quarter and placed on production the four CBP wells;

Converted four NWS wells from downhole electrical submersible pumps to rod pumps (“CTRs”), thereby reducing costly workovers and long-term operating costs; and

Provided guidance for the second quarter and reaffirmed the Company’s full year outlook of 2022.

Mr. Paul D. McKinney, Chairman of the Board and Chief Executive Officer, commented, “We were pleased with our overall operating and financial results for the first quarter, which establishes a solid foundation for 2022 and is another clear representation of the merits of our value-focused, proven strategy. Our first quarter sales volumes came in above the high end of our guidance and benefited from placing wells on production sooner than anticipated and the installation of certain field compressors that positively benefited natural gas sales volumes. During the first quarter, we further benefitted from the increased commodity price environment as the majority of our lower priced oil hedges expired at the end of last year and we have no natural gas hedges in place for 2022.
Complemented by our continued pursuit of driving further cost efficiencies throughout the business, we generated almost $36 million of Adjusted EBITDA, which was 48% higher than the fourth quarter of 2021. The combination of increased operating cash flow and rigorous capital spending discipline resulted in our 10th consecutive quarter of generating Free Cash Flow. In fact, our almost $13 million of Free Cash Flow in the first quarter of 2022 was more than four times what we reported in the first quarter of 2021. We used this to pay down $10 million of debt during the period, and look forward to further debt reduction as we move through the remainder of 2022.”

Mr. McKinney continued, “We have been encouraged with the results from our one-rig continuous drilling program that was initiated in late January. As in the past, our efforts are focused on our highest risk-adjusted rate of return projects that will allow us to profitably grow our production and reserve levels while maximizing cash flow generation. Complementing our targeted 2022 drilling and completion campaign, during the first quarter we performed four CTRs – all in the NWS – as part of our successful program to reduce costly workovers and long-term operating costs.”

Mr. McKinney concluded, “The first quarter of 2022 marked the beginning of a new chapter for Ring as we moved from a phased drilling program in 2021 that resulted in some unevenness in quarterly production last year, to a continuous drilling program in 2022. We expect this transition will result in meaningful growth in year-over-year production and cash flow generation. I appreciate all of the hard work and dedication of our workforce in executing our development and operational programs, and driving additional efficiencies that directly benefit our financial performance. I also want to thank our investors for their continued support of our efforts and progress building shareholder value.”
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Re: Ring Energy (REI) Q1 Results - May 13

Post by dan_s »

At the time of this post, REI was trading for $3.98. First Call's price target is $4.77.
I have updated my forecast/valuation model for REI and my valuation increases by $0.25 to $6.65/share.

The Company's continuous drilling program should generate steady production growth this year.
> Ring reports natural gas and NGLs on a combined basis and none of their gas is hedged, so realized gas+ngl prices should average more than $8.00 for the remainder of 2022.
> They still have ~63% of their oil hedged at a weighted average price of ~$53/bbl, but more of their oil is unhedged each quarter. At this point none of their oil is hedged beyond 2022. Their debt covenants require some hedging, so I hope they go with collars for 2023 that have high ceilings.
> Ring's realized prices net of cash settlements on their hedges were $6.49/mcfe for gas+ngls and $72.05.bbl for crude oil.

Ring has been free cash flow positive for 7 quarters and that trend should continue. Their drilling program and annual production growth of ~10% is now being fully funded by operating cash flow. Ring has a lot of low-risk drilling inventory, which is a plus.

My updated forecast has been posted to the EPG website.
Dan Steffens
Energy Prospectus Group
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