Ring Energy(US:REI)2022-08-05 18:27Financial Data and Key Metrics Changes - The company reported record-setting sales revenue and adjusted EBITDA, with adjusted EBITDA increasing by 33% compared to the first quarter of 2022 [12] - Free cash flow generation continued for the eleventh consecutive quarter, with an additional $10 million in debt reduction [12] - Net income for the second quarter was $41.9 million, or $0.32 per diluted share, compared to $7.1 million, or $0.06 per diluted share in the first quarter [33] Business Line Data and Key Metrics Changes - Sales volumes for the quarter were 9,341 barrels of oil equivalent per day, over 5% higher than the first quarter [13] - The company drilled nine wells and completed seven wells during the second quarter, focusing on the Northwest shelf acreage [14][15] - Lease operating expenses per BOE were 13% lower than the first quarter due to lower costs and higher production [17] Market Data and Key Metrics Changes - Realized pricing for the second quarter was $109.24 per barrel and $7.29 per MCF, compared to $93.80 per barrel and $6.49 per MCF in the first quarter [25] - The average oil price differential from NYMEX WTI was a positive $0.81 per barrel in the second quarter, compared to a negative $0.90 per barrel in the first quarter [26] - Natural gas price differential from Henry Hub was a negative $0.23 per MCF in the second quarter, compared to a positive differential of $1.81 per MCF in the first quarter [27] Company Strategy and Development Direction - The company plans to close the acquisition of Stronghold Energy, which is expected to nearly double production and diversify the commodity mix [10][44] - The acquisition is anticipated to improve leverage ratios and cash flow per share, allowing for faster debt repayment and potential returns to shareholders [45][46] - The company aims to optimize capital efficiency, achieving production growth for fewer dollars, thus allowing excess cash to be allocated to debt repayment and shareholder returns [45][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued production and operating cash flow growth throughout 2022, assuming stable commodity prices [42] - The company has factored in rising costs into its forecasts and has been accurate in its projections thus far [54] - Future capital spending is expected to be less than previous estimates, with a focus on optimizing capital allocation while meeting growth expectations [82] Other Important Information - The company ended the second quarter with $81.5 million in liquidity, a 33% increase from the end of 2021 [21] - The full-year capital spending guidance remains unchanged at $120 million to $140 million [20] Q&A Session Summary Question: Overview on services and materials cost for the second half of 2022 - Management indicated that they have factored in rising prices into their forecasts and have been fairly accurate in their projections [54] Question: Productivity expectations between Stronghold new well inventory versus recompletion inventory - New wells are expected to bring more production, while recompletions are targeted more for managing decline rates [55][56] Question: Status of rig outlook with Stronghold properties combined - No changes to the existing program have been decided yet, and further evaluation will occur post-acquisition [60] Question: GTP costs and their future accounting treatment - GTP costs will no longer be an expense line item but will be reflected as a reduction to the natural gas sales price [62] Question: Warburg Pincus ownership stake and future value creation - Management believes Warburg Pincus sees potential for greater value creation through the combined assets [65] Question: Leverage ratio before considering shareholder returns - The new credit facility will allow for potential dividends or stock buybacks, with the earliest possibility being 12 months post-acquisition [68][69] Question: Capital allocation for Stronghold assets - Management confirmed that some capital will be allocated to Stronghold assets, as they are considered strong opportunities [75][76]