Ring Energy (REI) Update - June 7

[dan_s]

I have posted my updated profile on Ring Energy to the EPG website.

The most important thing to watch for Ring investors is their production growth. They struggled through the pandemic slowdown (2020 & 2021), but they were able to generate close to $70 million of operating cash flow each year. Their hedging program saved the Company in 2020 as the $22.5 million of cash settlements on the hedges they received kept them free cash flow positive. In 2021, their hedges kept them from benefiting from the rise in oil prices, but they remained free cash flow (FCF) positive, using it to pay down debt. The worst of their "Bad Hedges" expired at the end of 2021 and their realized oil prices will be up more than 50% in 2022.

Ring's Q1 2022 adjusted operating cash flow was $32.3 million and they should generate over $158 million of operating cash flow this year. That will allow them to maintain a steady drilling program, complete 25 to 30 horizontal wells this year and continue to generate free cash flow. A strong balance sheet, double digit production growth year-over-year and a big increase in the PV10 value of their proved reserves should push the share price over my current valuation of $7.30 by the time they report full-year 2022 results (within 9 months).

Ring has a strong team and lots of running room.

[mooneytim66]

Can you compare REI to TGA

[dan_s]

I no longer follow TGA. It was a huge winner for us, gains of several 1,000% for some of us in the early years of EPG. However, that success was driven by international oil discoveries in Yemen and Eqypt. Ring Energy is nothing like TGA.

Ring is a domestic upstream company that is drilling horizontal wells in old oilfields.

Ring is more like InPlay Oil and Hemisphere, but I think those two have more upside for us at this point.
Ring still has lots of hedges to work off this year. Look at my forecast model and you will see that 2023 looks very good for Ring.

What I like about all three is that with WTI firmly over $100/bbl, their new wells (with none of that oil hedged), payout in less than a year.

Solid management teams at all three.

[mooneytim66]

THANKS....