Generates Free Cash Flow for Sixth Consecutive Quarter, Further Pays Down Debt and Reaffirms Full Year 2021 Guidance
THE WOODLANDS, Texas, May 10, 2021 (GLOBE NEWSWIRE) — Ring Energy, Inc. (NYSE American: REI) (“Ring” or the “Company”) today reported operational and financial results for the first quarter 2021 and reaffirmed full year 2021 guidance.
Highlights and Recent Key Items
- Sold 7,960 barrels of oil equivalent per day (“Boe/d”), or 716,422 barrels of oil equivalent (“Boe”) (85% oil), in the first quarter of 2021, with production significantly impacted by the severe winter storm in February and temporary downtime associated with well completions activity and the conversion of electrical submersible pumps to rod pumps (“CTR”);
- Reported a net loss of $19.1 million, or $0.19 per share, and Adjusted Net Income1 of $7.0 million, or $0.07 per share, in the first quarter of 2021;
- Generated Adjusted EBITDA1 of $19.0 million for the first quarter of 2021;
- Produced Free Cash Flow1 of $2.9 million in the first quarter of 2021, marking the sixth consecutive quarter of Free Cash Flow generation;
- Further reduced debt on the Company’s revolving credit facility by $7.5 million during the first quarter 2021 by utilizing a portion of Free Cash Flow;
- Performed nine CTRs in this year’s first quarter (seven in Northwest Shelf (“NWS”) and two in Central Basin Platform (“CBP”)) reducing future overall operating costs and diminishing costly workovers;
- Completed and placed on production all four wells of the Company’s NWS Phase I drilling program during the first quarter, with all wells completed on schedule and budget, and collective production results to date meeting or exceeding expectations;
- Successfully finished drilling operations on the NWS Phase II drilling program, releasing the rig April 29, 2021, with all three wells expected to be completed on schedule and within budget, and online by the end of May 2021;
- During the first quarter, the Company closed on the sale and exchange of certain oil and gas interests in Andrews County, Texas, with Vin Fisher Operating, Inc. (“VFOC”). The effective date of the transaction was January 1, 2021, with Ring receiving a net value consideration in cash of $2.0 million; and
- Reaffirmed full year 2021 guidance.
Mr. Paul D. McKinney, Chairman of the Board and Chief Executive Officer, commented, “Despite the significant impact of the severe winter storm across Texas during February, we were pleased with our overall results for the quarter. We were able to generate free cash flow for the sixth consecutive quarter and continued to pay down debt while pursuing our targeted development program that is showing strong results. Our performance in the period was a direct result of the continued dedication of Ring’s employees, and I want to thank all of them for their hard work and tireless efforts as they acted quickly and decisively to return our operations back to substantially pre-storm production levels. This was evidenced by our average net sales of 9,094 Boepd during March 2021, which does not include approximately 200 Boepd associated with the full restoration of certain third-party gas processing facilities damaged during the storm.
“Partially offsetting the impact of the winter storm on our first quarter sales volumes was the completion of the four wells included in our NWS Phase I drilling program. We are also pleased with our NWS Phase II drilling program as our drilling operations are finished and all wells are expected to be online by the end of May, including the first well that was placed on production on April 30, 2021.
“We believe our focus on operational excellence to steady production levels and control costs, as well as ensuring capital discipline through targeted investment in our highest risk-adjusted return opportunities, will drive increased profitability and sustainability for the remainder of 2021 and beyond. We appreciate the ongoing support of our shareholders as we continue to generate incremental free cash flow that we will use to further enhance our financial position through additional pay down of debt. We are encouraged by the M&A opportunities we are seeing in the marketplace and are actively evaluating them to potentially grow the business through targeted, accretive asset acquisitions. We have engaged advisors to assist in evaluating and financing these opportunities.”
For the first quarter of 2021, the Company reported a net loss of $19.1 million, or $0.19 per share, which included before tax adjustments of $25.7 million for a non-cash unrealized commodity derivative loss and $0.4 million for share-based compensation. Excluding the estimated after-tax impact of these adjustments, the Company’s Adjusted Net Income was $7.0 million, or $0.07 per share. In the fourth quarter of 2020, the Company reported a net loss of $160.3 million, or $1.83 per share, which included before tax adjustments of $129.6 million for a non-cash ceiling test impairment primarily due to lower oil pricing, a $15.2 million non-cash unrealized commodity derivative loss, and $2.8 million for share-based compensation. Excluding the estimated after-tax impact of these adjustments and adding back the full valuation against its deferred tax assets of $50.6 million, the Company’s Adjusted Net Income was $6.5 million, or $0.07 per share. In the first quarter of 2020, Ring reported net income of $43.8 million, or $0.64 per share, which included a $47.1 million non-cash unrealized commodity derivative gain and $0.7 million for share-based compensation. Excluding the estimated after-tax impact of these adjustments, Adjusted Net Income in the first quarter of 2020 was $7.7 million, or $0.11 per share.
Adjusted EBITDA declined to $19.0 million for the first quarter of 2021 from $24.5 million in the fourth quarter of 2020 and $28.2 million in the first quarter of 2020. The decline in Adjusted EBITDA compared to both prior periods was primarily due to lower sales volumes that were partially offset by higher commodity prices.
Free Cash Flow for the first quarter of 2021 totaled $2.9 million compared with $12.7 million in the fourth quarter of 2020 and $8.0 million for the first quarter of 2020.
Adjusted Net Income, Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures, which are described in more detail and reconciled to the most comparable GAAP measures, in the tables shown later in this release under “Non-GAAP Information.”
Sales Volumes, Prices and Revenues: Sales volumes for the first quarter of 2021 were 7,960 Boe/d (85% oil), or 716,422 Boe, compared to 9,307 Boe/d (86% oil), or 856,271 Boe, for the fourth quarter of 2020 and 10,804 Boe/d (87% oil) in the first quarter of 2020. First quarter 2021 sales volumes were comprised of 610,121 barrels (“Bbls”) of oil and 637,808 thousand cubic feet (“Mcf”) of natural gas.
Sales volumes for the first quarter of 2021 declined from the fourth quarter of 2020 primarily due to the negative impact of the severe winter storm in February that resulted in the shut-in and deferral of more than 60% of Ring’s production for the majority of the storm with restoration of most of the production taking more than two weeks to complete. Temporary downtime associated with production shut-in of offset wells during the completion operations of the four NWS Phase I wells and the nine CTRs also contributed to lower sequential quarterly sales volumes. Average net sales of 9,094 Boepd (87% oil) during March 2021 does not include approximately 200 Boepd associated with the full restoration of certain third-party gas processing facilities damaged during the storm.
For the first quarter of 2021, the Company realized an average sales price of $58.00 per barrel for crude oil and $6.46 per Mcf for natural gas. Driving the significantly higher natural gas price realization was a spike in natural gas prices during the severe winter storm in February. The combined average realized sales price for the period was $55.14 per Boe, up 54% from $36.61 per Boe for the fourth quarter of 2020, and up 37% from $40.25 per Boe in the first quarter of 2020. The average price differential the Company experienced from WTI posting2 price in the first quarter of 2021 was approximately ($0.37) per barrel of crude oil.
Revenues were $39.5 million for the first quarter of 2021 compared to $31.4 million for the fourth quarter of 2020 and $39.6 million for the first quarter of 2020. The 26% increase in first quarter 2021 revenues from the fourth quarter 2020 was due to higher realized pricing partially offset by lower sales volumes.
Lease Operating Expense (“LOE”): LOE, which includes base lease operating expenses, expense workovers, and facilities maintenance, was $8.2 million, or $11.48 per Boe, in the first quarter of 2021 versus $7.9 million, or $9.19 per Boe, in the fourth quarter of 2020 and $8.4 million, or $8.57 per Boe, for the first quarter of 2020. The severe winter storm in February contributed to the unusual increase in first quarter 2021 LOE per Boe as compared to the fourth quarter of 2020 due to lower sales volumes coupled with the additional cost of bringing wells back online.
Gathering, Transportation and Processing (“GTP”) Costs: GTP costs were $1.31 per Boe in the first quarter of 2021 versus $1.47 per Boe in the fourth quarter of 2020 and $1.17 per Boe in the first quarter of 2020.
Ad Valorem Taxes: Ad valorem taxes were $1.03 per Boe for the first quarter of 2021 compared to $0.84 per Boe in the fourth quarter of 2020 and $0.82 per Boe for the first quarter of 2020.
Production Taxes: Production taxes were $2.59 per Boe in the first quarter of 2021 compared to $1.75 per Boe in the fourth quarter of 2020 and $1.90 per Boe in first quarter of 2020. As a percent of revenues, production tax remained steady at 5% for all three periods.
Depreciation, Depletion and Amortization (“DD&A”) and Asset Retirement Obligation Accretion: DD&A was $11.32 per Boe in the first quarter of 2021 versus $13.04 per Boe for the fourth quarter of 2020 and $13.92 in the first quarter of 2020. Asset retirement obligation accretion was $0.27 per Boe in the first quarter of 2021 compared to $0.25 per Boe for the fourth quarter of 2020 and $0.24 per Boe in the first quarter of 2020.
Operating Lease Expense: Operating lease expense was $271,517 for the first quarter of 2021 versus $319,483 for the fourth quarter of 2020 and $289,051 in the first quarter of 2020. These expenses are primarily associated with the Company’s office leases.
General and Administrative Expenses (“G&A”): G&A, excluding share-based compensation, was $2.6 million, or $3.57 per Boe, versus $4.4 million, or $5.09 per Boe, for the fourth quarter of 2020 and $2.4 million, or $2.40 per Boe, in the first quarter of 2020. The approximate 40% sequential decrease in G&A, excluding share-based compensation, for the first quarter 2021 was primarily associated with higher costs during the fourth quarter for management and personnel changes, severance and non-recurring legal and asset divestiture fees.
Derivative (Loss) Gain: In the first quarter of 2021, Ring recorded a loss of $31.6 million on its commodity derivative contracts, including a realized $5.9 million cash commodity derivative loss and an unrealized $25.7 million non-cash commodity derivative loss, largely due to higher quarter-end oil and natural gas prices compared to fourth quarter of 2020. This compared to a net loss of $11.5 million in the fourth quarter of 2020, of which $15.2 million was unrealized, and a gain of $50.4 million in the first quarter of 2020, of which $47.1 million was unrealized.
In the first quarter of 2021, Ring added the following derivative positions:
|Date Entered Into||Production Period||Instrument||Daily Volumes||Swap Price|
|Crude Oil – WTI||(Bbls)||(per Bbl)|
|01/04/2021||Calendar year 2022||Swaps||250||$47.00|
|02/04/2021||Calendar year 2022||Swaps||250||$50.05|
On March 30, 2021, the Company unwound its remaining gas swaps for Calendar year 2021 and 2022, resulting in the receipt of a cash payment of $581,424 that was recorded in the first quarter of 2021. A full listing of the Company’s current outstanding derivative positions is included in the tables shown later in this release.
Interest Expense: Interest expense, as reported in the income statement, in the first quarter of 2021 was $3.7 million versus $4.7 million in the fourth quarter of 2020 and $4.2 million for the first quarter of 2020. Contributing to sequential quarterly decrease was a $35.7 million lower daily average balance of borrowings for the first quarter 2021 compared to the fourth quarter.
Income Tax: There was no non-cash income tax benefit or provision recorded in the first quarter of 2021. The Company recorded a non-cash income tax provision of $21.2 million in the fourth quarter of 2020 and $12.4 million for the first quarter of 2020.
Balance Sheet and Liquidity: Total liquidity increased 14% from December 31, 2020 to March 31, 2021. Liquidity at the end of the first quarter of 2021 was $46.2 million, which consisted of cash and cash equivalents of $1.7 million and $44.5 million of availability under Ring’s revolving bank credit facility. At March 31, 2021, the Company had $305.5 million in borrowings on its revolving credit facility, which has a current borrowing base of $350 million. Ring paid down $7.5 million of debt during the first quarter of 2021, and is targeting further debt reduction in 2021 based on expected additional free cash flow generation as well as potential asset sales during 2021.
The next regularly scheduled bank redetermination is underway, and Ring is currently in compliance with all applicable covenants of its revolving credit facility agreement.
Capital Expenditures and Asset Transfers: During the first quarter of 2021, the Company finished drilling, completing and placing on production the four wells of its NWS Phase I program. The Company also performed nine CTR projects. Capital expenditures in the first quarter of 2021 were $14.5 million. In addition, during the first quarter of 2021, Ring received net value consideration in cash of $2.0 million from VFOC for the sale and exchange of certain oil and gas interests in Andrews County, Texas.
2021 Capital Investment Program & Sales Volumes Outlook
For full year 2021, the Company continues to anticipate total capital spending of $44 million to $48 million, which includes the estimated cost to drill up to six to eight horizontal wells and complete eight to 10 horizontal wells primarily in its NWS asset area. Its full year capital spending outlook includes targeted well reactivations, workovers, infrastructure upgrades, and continuing its successful CTR program in its NWS and Central Basin Platform areas. Also included in the full year estimate is anticipated spending for leasing, contractual drilling obligations and non-operated drilling, completion and capital workovers. Capital expenditures for 2021 will be fully funded by cash on hand and cash from operations, with excess free cash flow allocated to debt reduction.
As previously announced, Ring is planning to launch a sales process during the second quarter of 2021 to divest Delaware Basin assets. The Company anticipates using the net proceeds from the potential sale to further reduce its debt position.
Supported by its targeted development program and continued execution of its successful CTR initiatives, and despite the negative impact to production resulting from the severe winter storm in February, Ring continues to forecast full year 2021 sales volumes to increase by 2% to 8% higher from full year 2020 average sales volumes of 8,790 Boe/d.
2021 Sales Volumes, Operating Expense and Capital Spending Guidance
The guidance for the full year 2021 in the table below represents the Company’s current best estimate of the range of likely future results. Guidance could be affected by the factors described below in “Safe Harbor Statement”.
|Total (Boe/d)||9,000 – 9,500|
|Lifting cost(1) (per Boe)||$10.00 – $10.50|
|Number of new wells drilled||6 – 8|
|Number of new wells completed||8 – 10|
|Capital spending(2) (millions)||$44 – $48|
|(1) Lifting cost equals lease operating expenses excluding severance and ad valorem tax divided by the total barrels of oil equivalent sold during the same period.|
|(2) In addition to Company-directed drilling and completion activities, the capital spending outlook includes funds for targeted well reactivations, workovers, infrastructure upgrades, and continuing the Company’s successful CTR program in its Northwest Shelf and Central Basin Platform areas. Also included is anticipated spending for leasing, contractural drilling obligations and non-operated drilling, completion and capital workovers.|
Conference Call Information
Ring will hold a conference call on Tuesday, May 11, 2021 at 11:00 a.m. ET to discuss its first quarter 2021 operational and financial results. To participate, interested parties should dial 877-270-2148 at least five minutes before the call is to begin. Please reference the “Ring Energy First Quarter 2021 Earnings Conference Call.” International callers may participate by dialing 412-902-6510. The call will also be webcast and available on Ring’s website at www.ringenergy.com under “Investors” on the “Events” page. An audio replay will also be available on the Company’s website following the call.
About Ring Energy, Inc.
Ring Energy, Inc. is an oil and gas exploration, development, and production company with current operations focused on the conventional development of its Permian Basin assets in West Texas and New Mexico. For additional information, please visit www.ringenergy.com.
Safe Harbor Statement
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve a wide variety of risks and uncertainties, and include, without limitations, statements with respect to the Company’s strategy and prospects. Such statements are subject to certain risks and uncertainties which are disclosed in the Company’s reports filed with the SEC, including its Form 10-K for the fiscal year ended December 31, 2020, and its other filings with the SEC. Readers and investors are cautioned that the Company’s actual results may differ materially from those described in the forward-looking statements due to a number of factors, including, but not limited to, the Company’s ability to acquire productive oil and/or gas properties or to successfully drill and complete oil and/or gas wells on such properties, general economic conditions both domestically and abroad, and the conduct of business by the Company, and other factors that may be more fully described in additional documents set forth by the Company.
David A. Fowler, Investor Relations
Ring Energy, Inc.
Al Petrie, Senior Partner
Al Petrie Advisors