Ring Energy(REI) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information for Ring Energy, Inc., including financial statements and management's discussion and analysis Financial Statements This section presents Ring Energy, Inc.'s unaudited condensed consolidated financial statements for Q1 2022, showing a net income turnaround driven by higher revenues despite derivative losses Condensed Balance Sheets Total assets increased to $704.1 million by March 31, 2022, driven by oil and gas properties, while liabilities rose due to derivative contracts Condensed Balance Sheet Summary | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $39,409,380 | $29,806,963 | | Net Properties and Equipment | $661,921,493 | $651,359,647 | | Total Assets | $704,054,538 | $684,157,329 | | Total Current Liabilities | $97,760,186 | $76,668,730 | | Revolving line of credit | $280,000,000 | $290,000,000 | | Total Liabilities | $394,796,378 | $383,533,122 | | Total Stockholders' Equity | $309,258,160 | $300,624,207 | - Derivative liabilities increased significantly to $42.7 million from $29.2 million at the end of the previous year[20] Condensed Statements of Operations Q1 2022 saw a net income of $7.1 million, a significant improvement from a prior-year loss, driven by a 73% revenue increase despite derivative contract losses Condensed Statements of Operations Summary | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Oil and Natural Gas Revenues | $68,181,032 | $39,502,532 | | Income from Operations | $38,185,297 | $16,264,515 | | (Loss) on derivative contracts | $(27,596,141) | $(31,588,639) | | Net Income (Loss) | $7,112,043 | $(19,066,093) | | Diluted Earnings (Loss) per share | $0.06 | $(0.19) | Condensed Statements of Stockholders' Equity Stockholders' equity increased by $8.6 million to $309.3 million in Q1 2022, primarily due to net income and share-based compensation - Stockholders' equity increased from $300.6 million at Dec 31, 2021, to $309.3 million at March 31, 2022, driven by net income and share-based compensation[25] Condensed Statements of Cash Flows Net cash from operations increased to $24.4 million in Q1 2022, with $14.2 million used in investing and $10.5 million in financing activities, including debt paydown Condensed Statements of Cash Flows Summary | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $24,439,765 | $15,687,684 | | Net Cash (Used in) Investing Activities | $(14,222,711) | $(10,177,370) | | Net Cash (Used in) Financing Activities | $(10,486,159) | $(7,388,438) | | Net Change in Cash | $(269,105) | $(1,878,124) | - The company made a net repayment of $10 million on its revolving line of credit during the quarter[28] Notes to Condensed Financial Statements Notes detail accounting methods, significant customer concentration, derivative losses, credit facility terms, and share-based compensation - The company's oil and gas sales are dependent on prevailing prices, which have been volatile. The company uses hedges to mitigate some of this risk[32][35] - For Q1 2022, sales to three customers represented 70%, 13%, and 5% of total oil and gas revenues, indicating significant customer concentration[44] - The company's credit facility has a borrowing base of $350 million, which was reaffirmed in December 2021. As of March 31, 2022, $280 million was outstanding[97][99] - In April 2022, subsequent to the quarter end, 6,453,907 pre-funded common warrants were exercised, resulting in the issuance of an equivalent number of common stock shares[115] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2022 financial performance, highlighting a 73% revenue increase, business strategy, operational results, liquidity, and hedging Overview and Business Strategy Ring Energy's strategy focuses on increasing stockholder value through production growth, debt reduction via free cash flow, advanced drilling, and strategic acquisitions - The company plans to drill 25 to 33 horizontal wells and complete 25 to 30 in 2022 across its Northwest Shelf and Central Basin Platform assets[119] - A key strategic goal is the reduction of long-term debt through free cash flow from operations and potential non-core asset sales. The company paid down $10 million of debt in Q1 2022[119] Results of Operations Q1 2022 revenues rose to $68.2 million, driven by higher oil prices and production, resulting in a $7.1 million net income despite derivative losses and increased operating expenses Production and Pricing Summary | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Oil Volume (Bbls) | 676,215 | 610,121 | | Average Oil Price (per Bbl) | $93.80 | $58.00 | | Total Production (Boe) | 798,262 | 716,422 | | Average Price (per Boe) | $85.41 | $55.14 | - Lease operating expenses (LOE) per Boe decreased by 2% to $11.22, despite a 9% increase in total LOE, due to higher production volumes[126] - General and administrative expenses increased to $5.5 million from $2.9 million YoY, primarily due to a $1.2 million increase in share-based compensation and higher salaries, insurance, and legal costs[134] - The total loss on derivative contracts was $27.6 million, consisting of a $14.1 million realized cash loss and a $13.5 million unrealized non-cash loss[123][136] Capital Resources and Liquidity Liquidity is sourced from operations, cash, and a $350 million credit facility, with $70 million available as of March 31, 2022, focusing on debt reduction and capital expenditures - As of March 31, 2022, the company had $280 million outstanding on its credit facility, with a total borrowing base of $350 million[146] - The company is compliant with all financial covenants, including a Leverage Ratio of not more than 4.0 to 1.0 and a Current Ratio of at least 1.0 to 1.0[146] Oil Derivative Contracts (Swaps) for 2022 | Oil Derivative Contracts (Swaps) for 2022 | Barrels per day | Weighted Avg. Swap Price ($) | | :--- | :--- | :--- | | Existing Swaps (Jan-Dec) | 3,129 | ~$47.30 | | New Swaps (Feb-Dec) | 1,000 | $84.61 | | Total Hedged (Feb-Dec) | 4,129 | ~$55.53 | Quantitative and Qualitative Disclosures About Market Risk Primary market risks include volatile commodity prices, interest rate fluctuations on variable debt, and significant customer credit concentration, partially mitigated by hedging - A 1% change in interest rates would result in a $2.8 million annualized change in interest expense on the $280 million of debt outstanding under the Credit Facility[172] - The company's major market risk is the pricing of its oil and natural gas production, which is volatile and unpredictable. The company uses hedging to reduce this uncertainty[174][176] - Significant customer credit risk exists, with three customers (Phillips 66, NGL Crude, and BP) accounting for 70%, 13%, and 5% of revenues, respectively, for the three months ended March 31, 2022[178] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls during Q1 - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[181] - No changes occurred in internal control over financial reporting during Q1 2022 that have materially affected, or are reasonably likely to materially affect, these controls[184] PART II – OTHER INFORMATION This section covers other required disclosures, including legal proceedings, risk factors, and various other standard items Legal Proceedings The company reports no material pending legal proceedings outside the ordinary course of business - The company is not currently subject to any material legal proceedings outside the ordinary course of business[187] Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Form 10-K have occurred - There have been no material changes to the risk factors previously disclosed in the company's 2021 Form 10-K[188] Other Items (Items 2, 3, 4, 5, 6) This section confirms no unregistered equity sales, no defaults, no mine safety disclosures, and lists exhibits filed with the 10-Q - The company reported "None" for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[189][190][192][193]