Ring Energy(US:REI)2025-08-06 20:51PART I — FINANCIAL INFORMATION Item 1. Condensed Financial Statements This section presents the unaudited condensed balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes on accounting policies and key financial components Condensed Balance Sheets The balance sheet as of June 30, 2025, shows an increase in total assets to $1.52 billion from $1.41 billion at year-end 2024, primarily driven by growth in oil and natural gas properties, with total liabilities increasing to $618.4 million and total stockholders' equity growing to $897.9 million Condensed Balance Sheet Summary (in millions) | Balance Sheet Items | June 30, 2025 ($) | December 31, 2024 ($) | | :--- | :--- | :--- | | Total Current Assets | 62.4 | 50.4 | | Net Properties and Equipment | 1,435.2 | 1,342.1 | | Total Assets | 1,516.3 | 1,408.1 | | Total Current Liabilities | 98.3 | 105.0 | | Revolving line of credit | 448.0 | 385.0 | | Total Liabilities | 618.4 | 549.5 | | Total Stockholders' Equity | 897.9 | 858.6 | Condensed Statements of Operations For the three months ended June 30, 2025, revenues decreased to $82.6 million from $99.1 million year-over-year, while net income slightly declined to $20.6 million from $22.4 million, though for the six-month period, net income increased to $29.7 million from $27.9 million due to derivative gains Key Operational Results (in millions, except EPS) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $82.6 | $99.1 | $161.7 | $193.6 | | Income from Operations | $23.5 | $41.8 | $45.8 | $79.4 | | Net Income | $20.6 | $22.4 | $29.7 | $27.9 | | Diluted EPS | $0.10 | $0.11 | $0.15 | $0.14 | Condensed Statement of Stockholders' Equity Stockholders' equity increased from $858.6 million at the end of 2024 to $897.9 million as of June 30, 2025, primarily driven by net income of $29.7 million and a $7.4 million common stock issuance for the Lime Rock Acquisition Changes in Stockholders' Equity (For the Six Months Ended June 30, 2025) | Description | Amount ($) | | :--- | :--- | | Balance, December 31, 2024 | 858,639,982 | | Common stock issuance for Lime Rock Acquisition | 7,420,811 | | Net income | 29,745,625 | | Share-based compensation | 1,690,958 | | Payments for tax withholdings, net | (953,446) | | Balance, June 30, 2025 | 897,895,769 | Condensed Statements of Cash Flows For the six months ended June 30, 2025, net cash from operating activities decreased to $61.7 million from $95.8 million year-over-year, while net cash used in investing activities significantly increased to $121.0 million due to the Lime Rock Acquisition, leading to net cash provided by financing activities of $57.4 million Cash Flow Summary (For the Six Months Ended June 30) | Cash Flow Activity | 2025 ($) | 2024 ($) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 61,668,259 | 95,807,099 | | Net Cash Used in Investing Activities | (120,966,327) | (76,367,768) | | Net Cash Provided by (Used in) Financing Activities | 57,431,673 | (18,556,903) | | Net (Decrease) Increase in Cash | (1,866,395) | 882,428 | Notes to the Condensed Financial Statements This section provides detailed explanations of the company's accounting policies and specific financial items, including the Lime Rock Acquisition, derivative instruments, the revolving line of credit, and the determination of a single reportable segment - The company completed the Lime Rock Acquisition on March 31, 2025, for a total consideration of $87.7 million, consisting of cash, common stock, and a deferred payment, with the transaction accounted for as an asset acquisition99100102 - The company utilizes derivative instruments (swaps and collars) to manage commodity price risk, with the fair value of derivative assets at $21.4 million and liabilities at $6.2 million as of June 30, 2025, which are not designated as hedges for accounting purposes103106120 - On June 18, 2025, the company amended its credit agreement, which has a borrowing base of $585 million and matures in June 2029, with $448 million outstanding as of June 30, 2025122123127 - The company determined it has a single reportable segment, Exploration and Production, as its operations in the Permian Basin exhibit similar economic characteristics and are managed by a single chief operating decision maker group144146 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The MD&A section details the company's operational and financial performance, strategic focus, and market conditions, including the Lime Rock Acquisition, ongoing drilling activities, and the impact of commodity prices on revenues and production costs Overview and 2025 Developments The company focuses on oil and natural gas development in the Permian Basin, balancing debt reduction and production growth, with a major development in 2025 being the Lime Rock Acquisition and continued drilling activities - The company's primary business strategy is to balance long-term debt reduction with the development of its oil and gas properties, aiming to operate within its generated cash flow156 - On March 31, 2025, the company completed the Lime Rock Acquisition, acquiring oil and gas interests in Andrews County, Texas158 Drilling and Completion Activity H1 2025 | Quarter | Area | Wells Drilled | Wells Completed | | :--- | :--- | :--- | :--- | | 1Q 2025 | Northwest Shelf (Horizontal) | 4 | 4 | | | Central Basin Platform (Vertical) | 3 | 3 | | 2Q 2025 | Central Basin Platform (Horizontal) | 1 | 1 | | | Central Basin Platform (Vertical) | 1 | 1 | | Total | | 9 | 9 | Results of Operations This sub-section provides a detailed comparison of financial results for the three and six months ended June 30, 2025, and 2024, highlighting a 17% decrease in Q2 2025 revenues to $82.6 million due to a 22% drop in average realized oil price, despite an 8% increase in total production volume Q2 2025 vs. Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Sales | $82.6M | $99.1M | (17)% | | Total Production (Boe) | 1,937,850 | 1,800,570 | 8% | | Average Oil Price (per Bbl) | $62.69 | $80.09 | (22)% | | Lease Operating Expenses (LOE) | $20.2M | $19.3M | 5% | | Average LOE per Boe | $10.45 | $10.72 | (3)% | H1 2025 vs. H1 2024 Performance | Metric | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Sales | $161.7M | $193.6M | (16)% | | Total Production (Boe) | 3,593,109 | 3,532,627 | 2% | | Average Oil Price (per Bbl) | $66.17 | $77.93 | (15)% | | Lease Operating Expenses (LOE) | $39.9M | $37.7M | 6% | | Average LOE per Boe | $11.11 | $10.66 | 4% | - For Q2 2025, the company recorded a gain on derivative contracts of $14.6 million, a significant reversal from the $1.8 million loss in Q2 2024, primarily due to changes in crude oil futures prices197199 Liquidity and Capital Resources As of June 30, 2025, the company had no cash on hand, with net cash from operations for H1 2025 at $61.7 million, down from $95.8 million YoY, and $448 million outstanding on its $585 million borrowing base credit facility, maintaining a strategic focus on maximizing cash flow and reducing debt - Net cash provided by operating activities for H1 2025 was $61.7 million, a decrease from $95.8 million in H1 2024, primarily due to lower revenues209 - As of June 30, 2025, the company had $448 million outstanding on its credit facility, which has a borrowing base of $585 million and matures in June 2029211 - The company maintains a portfolio of oil and gas hedges (swaps and collars) extending into Q2 2027 to manage price risk and increase cash flow predictability212213214 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are commodity price volatility, customer credit risk, and interest rate fluctuations, with commodity price risk actively managed through hedging and interest rate risk on its variable-rate credit facility potentially impacting annual interest expense by an estimated $4.5 million for a 1% rate change - The company's major market risk is commodity price volatility for its oil and natural gas production, which it mitigates by entering into hedging arrangements223224 Customer Concentration (H1 2025) | Purchaser | % of Revenues | % of A/R | | :--- | :--- | :--- | | Phillips 66 Company | 66% | 73% | | Concord Energy LLC | 13% | 10% | | NGL Crude Partners | 9% | 7% | - The company is exposed to interest rate risk on its $448 million of variable-rate debt, where a 1% change in interest rates would result in an estimated $4.5 million change in annual interest expense227228 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate reporting, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report233 - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls236 PART II — OTHER INFORMATION Item 1. Legal Proceedings There were no material developments in legal proceedings during the quarter ended June 30, 2025 - No material developments occurred in the company's legal proceedings during the quarter ended June 30, 2025238 Item 1A. Risk Factors This section refers the reader to the company's Annual Report on Form 10-K for the year ended December 31, 2024, for a detailed discussion of risk factors, stating that the company is subject to various risks and hazards inherent in its business - For a discussion of risk factors, the report directs readers to "Item 1A. Risk Factors" in the Annual Report on Form 10-K for the year ended December 31, 2024239 Other Items (Items 2, 3, 4, 5, 6) This section consolidates minor items, including the incorporation by reference of a Form 8-K regarding unregistered sales of equity securities, confirmation of no defaults on senior securities or mine safety issues, and a listing of exhibits filed with the report - Information regarding unregistered sales of equity securities was previously disclosed in a Form 8-K filed on April 4, 2025, and is incorporated by reference240 - The company reports no defaults upon senior securities and has no mine safety disclosures to report241242 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the quarter243