Ring Energy (REI) Valuation Update - Nov 5

[dan_s]

REI closed at $1.71 on November 3.

I have updated my forecast/valuation model for their Q3 results and updated guidance. My current valuation is reduced by $0.05 to $4.30/share, just because their Q3 production came in below my forecast.

From Ring's press release:
Grew average sales volumes to 17,509 barrels of oil equivalent per day (“Boe/d”) (69% oil) from 17,271 Boe/d (69% oil) for the second quarter of 2023;
> Positively impacting sequential quarterly sales volumes was the Founders Acquisition and the continued success of the Company’s 2023 development program;
> Partially offsetting the overall increase in sales volumes from the second quarter of 2023 were several unanticipated and temporary downtime events at certain third-party natural gas processing facilities affecting natural gas and natural gas liquids (“NGLs”) sales, and downtime due to a tank battery fire that led to a three week outage of oil, natural gas, and associated NGLs sales at that battery;
> The Company exited the third quarter of 2023 at a production rate in excess of 19,000 Boe/d;

The mid-point of Ring's Q4 production guidance is 19,200 Boepd. For 2024 I am using 19,500 Boepd in my forecast.

Ring continues to generate solid free cash flow. As long as they continue to do that, the Company will be fine.

Download my forecast model and look at row 45: "Operating Cash Flow". It is the key stat for all of our Small-Caps.

[Fraser921]

They really have crap hedges in the mid 60’s and too much debt.

These guys lever up then they have to write crap hedges to protect themselves

Perhaps they should stop buying stuff and harvest what they have

[Fraser921]

Ring getting hammered on crap mgt, debt and price concerns

Leads my loser list down 7.7 %

[knusser58]

Hi Dan,
is there any particular issue, that is not in the public domain, that is going on with REI?
It has fallen much more then any other oil company that we follow.
Market to Book Value is around 1/3 !
Time to buy back shares? Very cheap we to buy reserves and production?
Regards,
Klaus

[dan_s]

Ring and Riley are both working in the Central Basin Platform (CBP) of the Permian Basin. It does not have the "Sex Appeal" of the Delaware and Midland Basins (both are sub-basins of the Permian Basin). Shallow horizontal wells in the CBP are much cheaper and they generate solid economic returns at the current oil price.

Ring continues to generate free cash flow quarter-after-quarter, but it does have some work to do on the balance sheet.

In the near-term, InPlay and Surge Energy look better to me, primarily because they pay very nice monthly dividends. InPlay is virtually debt free.

[knusser58]

Dan,
thank you.
Regards,
Klaus

[Fraser921]

Many liked these guys at 2.00.

I didn't like these guys at 2.00 and I don't like them at 1.37.

Crap hedges & too much debt!