Q4 2022 Ring Energy Inc Earnings Call
Good morning, and welcome to rate Energy's fourth quarter full year 2022 earnings conference call.
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I would now like to turn the conference over to Al Petrie Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. We appreciate your interest and ring energy will begin our call with comments from Paul Mckinney, Our chairman of the board and CEO , who will provide an overview of key matters for the fourth quarter and full year and will then turn the call over to trap as Thomas brings Chief Financial Officer.
Our financial results. Paul will then return to discuss our future plans and outlook before we open the call up for questions also joining us on the call today and available for the Q&A session are Alex Dias executive VP of engineering and corporate strategy.
Arenas Baghdad executive VP of operations, and Steve Brooks Executive VP of land legal human resources and marketing <unk>.
During the Q&A session. We ask you to limit your questions to one and a follow up you are welcome to reenter the queue later with additional questions.
I'd also note that we have posted our Q4 and full year 2022 earnings corporate presentation to our website.
During the course of this conference call. The company, we're making forward looking statements within the meaning of federal Securities laws investors are cautioned that forward looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward looking statements and the company can give no.
Sure.
Such forward looking statements will prove to be correct.
Ring energy disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise accordingly, you should not place undue reliance on forward looking statements.
These and other risks are described in yesterday's press release and in our filings with the SEC. These.
These documents can be found in investors section of our website at <unk> Dot com, so one or more of these risk factors materialize or should underlying assumptions prove incorrect actual results may vary materially this.
This conference call also includes references to certain non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in yesterday's earnings release. Finally as a reminder, this conference is being recorded I would now like to turn the call over to Paul Mckinney Our chair.
And CEO .
Thanks Al welcome everyone and thank you for your interest in ring energy and for joining us today for our fourth quarter and year end 2022 earnings call. We are pleased with our record operational and financial performance during the fourth quarter contributing to our success was a full three months of production from our stronghold acquisition.
The continued implementation of our targeted 2022 capital spending program and our ongoing initiatives to drive further efficiencies in the business.
During the fourth quarter, we grew sales volumes by 34% over the third quarter to a record of 17856 barrels of oil equivalent per day.
Although this was slightly below our guidance it was primarily due to downtime associated with the impact of the winter storm conditions.
Gas purchase our system constraints limiting our gas sales in the CBP and northwest shelf areas.
And adjustments for a year and reversionary interest and after payout conditions.
We brought online seven new horizontal wells, including five in north West shelf and two in the legacy Central Basin platform area an area, we now call the CVP north.
We also brought on five new vertical wells in the stronghold acreage in area, which we call CBP South.
We also perform now re completions and CVP shelf.
We produced a record adjusted EBITDA of $56 3 million during the fourth quarter that was 135% higher than the same quarter for the previous year. We spent $42 6 million on capital projects, which was at the lower end of our guidance of 42 million to 46 million. The result was five and a half.
A free cash flow, which was our 13th consecutive quarter of free cash flow generation.
Additionally, we reduced our debt position by $20 million during the quarter and $37 million since closing the transaction on August 31 2022.
We also reaffirmed the company's borrowing base of 600 million under our revolving credit facility in December .
The fourth quarter marked an end of a transformational year for the company. We began 2022 with a solid base of core assets in the north West shelf and the Central basin platform and a well defined plan to further develop our high rate of return inventory through our continuous one rig drilling program.
Our pursuit of accretive acquisitions was rewarded in the third quarter by closing the stronghold acquisition and we ended the year with a successful integration of those assets into our operations accounting and land record systems.
2020 was marked by several highlights including record sales volumes of 12364 barrels of oil equivalent per day that were 45% higher than 2021.
Record net income of $138 6 million or <unk> 98 per diluted share.
Growth in adjusted net income of 251% to a record $107.5 million or 89 per share.
A 134% increase in adjusted EBITDA from the previous year to a record of $195 2 million.
And a strong free cash flow of $34 8 million and record cash flow from operations of $172 9 million.
A 70% and 149% year over year increase respectively.
We ended the year with $415 million of debt on the balance sheet and 188 million in liquidity, which is three times. The liquidity. We had at the end of 2021, we lowered our leverage ratio by more than 50% from the previous year to 1.6 times during.
During the full year of 2022, we drilled and completed 27 horizontal wells, including 18 in the northwest shelf and nine in the Central Basin platform, North and five vertical wells in the Central Basin platform South. We also performed 12 re completions and CVP south.
Our success in 2022 was also reflected in our year end SEC total proved reserves, which grew 78% to a record $138 1 million barrels of oil equivalent.
Over the prior year contributing to the increase was 62.9 million barrels of oil equivalent from acquisitions 1.2 million barrels of oil equivalent from positive well performance revisions and point 8 million barrels of oil equivalent from extensions and discoveries.
Partially offsetting the overall increase was approximately four and a half million barrels of oil equivalent of production. The result was an all in replacement ratio of 13.4 times our production for the year.
The PV 10 of our total proved reserves using SEC prices grew 108% to $2 $8 billion.
Turning to our outlook, we intend to spend between 135 and $170 million. During 2023 that includes a capital efficient combination of drilling horizontal wells on our legacy acreage and vertical wells on our CBP south acreage.
This amount also includes planned spending for re completions capital Workovers infrastructure upgrades leasing cost and ESG related projects.
In January we began our 2023 capital spending program with the drilling and completion of three horizontal wells in the north West shelf.
All of which have been placed on production a fourth horizontal well and north west shelf has been drilled and is expected to be completed and placed on production by the end of this month.
Additionally, we pick up a rig in CVP south area to drill three vertical wells and anticipate having all three wells online by the end of the month as well.
Our 2023 budget assumes W. T I oil prices of between $70 and $90 per barrel and.
And Henry hub prices of between $2 and $4 per Mcf.
As in the past, we have designed our spending program with flexibility to respond to changes in commodity prices and other market conditions. We expect full year 2023 sales volumes to be between 17000 818800 barrels of oil equivalent per day, when considering the midpoint of our full.
Year 2023 sales volume guidance, we anticipate a 48% increase over full year 2022, and a 2.5% increase over fourth quarter 2022.
For the first quarter of 2023, we expect sales volume to come in between 17800 18300 barrels of oil equivalent per day.
So with that I will turn this call over to Travis to discuss our financial results and guidance in more detail Travis.
Thanks, Paul and good morning, everyone. Echoing Paul's comments, we were very pleased with our record results for the fourth quarter and full year of 2022.
Our fourth quarter benefited from the three months of results from the recently acquired stronghold assets as well as the continued strong performance of our targeted 2022 development campaign and ongoing efforts to drive further operational efficiencies with that backdrop during the fourth quarter of 2020 to you we sold approximately one point.
1 million barrels of oil 1.7 Bcf of natural gas and 241000 barrels of Ngls for a total of $1 6 million V O E.
This is 34% higher than sales of 1.2 million Boe in the third quarter.
For full year of 2022 we grew sales volumes to a $4 5 million a 45% increase from $3 1 million Boe in 2020 one.
Fourth quarter of 2022 realized pricing was $81.62 per barrel of crude oil $2.39 per mcf for natural gas and $17 21 per barrel of Ngls or $60.69 per Boe.
This was moderately lower than our realized pricing for the third quarter up $77 28 per Boe.
However for the full year of 2022, we saw a 22% increase in our realized pricing growing to $76 95 per Boe from $63.14 in 2021 are.
Our fourth quarter average oil price differential from Nymex, Debbie Ti futures pricing was a negative dollar and seven cents per barrel versus a positive $2.28 for the third quarter of 2022. This.
This difference is due mostly to the Rguest CMA role the declined to $1 79 per barrel on average for the period and the Argus W. T. I D E T S, which declined $1 68 per barrel from the third quarter, our average natural gas price differential from Nymex futures pricing for the fourth quarter was a negative $3 79 per Mcf.
Compared to a negative $3.15 for the third quarter.
Our realized NGL price for the fourth quarter averaged 21% of Debbie T I compare to 28% for the third quarter.
This combined result was record revenue for the fourth quarter of $99.7 million that was 6% higher than third quarter revenues of $94.4 million. We also posted record revenues for the full year of 2022 of $347 $2 million represented a 77% increase.
On the $196 3 million for 2020 one.
Looking at the more significant expense line items on the income statement.
Louis was $17 $4 million or $10.60 per Boe compared to $13 million or $10 67 per Boe.
For the third quarter 2022 our absolute alloy rose due to the increased sales volume during the quarter, while our LOE per Boe was a bit lower than the prior quarter and below the midpoint of our guidance range of $10 25 to $11 40 per Boe.
Production taxes were $5 $2 million or $3 16 per Boe versus $4 6 billion or $3 74 per Boe for the third quarter with the tax rate remaining steady at approximately 5%.
DD&A was $20 $9 million compared to $14 $3 million for the third quarter of 2022.
On a per BOE basis, DD&A increased to $12.71 from $11.73 in the third quarter.
Cash G&A, which excludes share based compensation was $6 $1 million versus $5 9 million for the third quarter.
But the fourth and third quarters of 2022 each included about $1 million of transaction costs adjusting for the transaction costs fourth quarter 2022, cash G&A was $3 14 per Boe.
Compared to $3.85 per Boe for the third quarter. This represents an 18% decrease and a direct reflection of the synergies afforded by the stronghold transaction.
Interest expense was $9.5 million versus $7 million for the third quarter with the increase substantially due to a higher average daily balance of long term debt associated with the additional borrowings on the revolving credit facility due to the stronghold transaction.
During the fourth quarter, we posted net income of $14.5 million or eight cents per diluted share. Excluding the estimated after tax impact of pretax items, including $5.4 million of noncash unrealized loss on hedges and $2 2 million for share based compensation expense and 990.
3000 of transaction cost for the stronghold acquisition, our fourth quarter. Adjusted net income was $21 $8 million or <unk> 13 cents per share.
This is compared to third quarter of 2022 net income of $75 1 million or 49 cents per diluted share excluding.
Excluding the estimated after tax impact pre tax items, including $47.7 million for noncash unrealized gain on hedges and $1 5 million for share based compensation expense and $1 1 million for transaction costs. Our third quarter. Adjusted net income was $32 5 million or 28 cents per share.
For full year of 2022, we posted record adjusted net income of $107 5 million or <unk> 89 per share.
This was more than 250% higher than $30 6 million or 31 cents per share for 2021.
Looking at adjusted EBITDA, We are pleased to report a record $56 $3 million in the fourth quarter compared to $56 million in the third quarter as lower realized pricing for the fourth quarter significantly reduced the benefit from the 34% increase in sales volumes from the third quarter.
Fourth quarter 2022, adjusted EBITDA was more than 135% higher than the $24 million reported for the same period in 2021.
For full year of 2020 to you we posted record adjusted EBITDA of $195.2 million, which was 134% higher than the $83 3 million for 2021.
Free cash flow after the fourth quarter of 2022 was $5 $5 million compared to the $9 7 million in the third quarter.
The decrease was primarily due to lower realized pricing and higher interest expense and capital spending partially offset by higher sales volumes for full year 'twenty 'twenty. Two you we generated free cash flow of $34 $8 million that was 70% higher than the $20 5 million in 2020 one.
As of December 31, we had $415 million drawn on our revolving credit facility, which reflects a debt pay down of $20 million in the fourth quarter and a total of $37 million since the closing of the stronghold transaction with.
The current borrowing base of $600 million at the end of 2022 we had $884 2 million available on our revolver net of letters of credit.
Combined with $3 7 million of cash we ended 2022 with liquidity of $188 million.
We are focused on further debt reduction in 2023 of course realized commodity prices and the timing of capital spending will have an impact on the cadence of quarterly debt pay down.
I would also note that we recently paid a 15 million dollar deferred payment associated with the stronghold transaction.
Looking at our share count during the fourth quarter, we had 800000 common warrants exercised at 80 cents per warrant accordingly, our fourth quarter financials reflected the issuance at the 800000 shares of common stock and the receipt of $640000 of cash to date in 2023, we have had approximately.
$4 5 million common warrants exercised resulting in approximately $14 6 million common warrants that remain outstanding.
Turning to our 2023 outlook for the full year and first quarter as Paul discussed for the full year of 2023 we anticipate capital spending of $135 million to $170 million, which includes the estimated cost to you.
Gerald 12 to 15, new horizontal wells.
Drill 12 to 25, new vertical wells complete and placed online 24 to 40 new wells.
And re complete six to 10 wells.
Also included in our full year outlook is spending for re completions capital Workovers and infrastructure upgrades as well as leasing costs and non operating drilling completion and capital Workovers.
Based on the $152.5 million midpoint of spending guidance, we expect the following estimated allocation of capital investment, including 70% for drilling completion and related equipment and facilities, 22% for re completions and capital Workovers and 8% for land E. S. T. A.
The operating capital.
Looking at our sales volume guidance, we expect full year of 2023 to average 17800 to 18800 Boe per day of which approximately 68% is oil 17% is natural gas and 15% as Ngls.
Looking at this year's first quarter as Paul discussed in January we kicked off our 2023 capital investment program, including drilling and completing three horizontal wells in the north West shelf to date with all wells placed on production.
A fourth horizontal well in the northwest shelf has been drilled and is expected to be completed and placed on production by the end of this month.
Additionally, we picked up a rig and C. B piece out to drill three vertical wells anticipate having the three wells completed and an online by the end of this month.
As such there will be minimal benefit for the first quarter production results associated with these four wells.
Accordingly, first quarter 2023 sales are expected to be in the range of 17800 to 18300 Boe's per day of which we expect 68 per cent to be oil, 17% natural gas and 15% Ngls.
For full year 2023 we anticipate L O E of $11 to $11.60 per Boe.
For the first quarter of 2023, we currently expect LOE to range between $11.10 to $11 50 per Boe.
I would note that all of our 2023 guidance is included in yesterday's release and presentation on our website.
Turning to the hedge position.
For full year 2023 we currently have approximately 1.7 million barrels of oil hedged or 38% of our oil sales based on the midpoint of guidance. We also have 2.4 Bcf of natural gas or 35% of our natural gas sales based on the midpoint of guidance.
For a quarterly breakout of our hedge position.
We see our presentation on our website, which includes the average price for each contract type so with that I will turn it back to Paul for his closing comments before Q&A Paul.
All.
Thank you Travis before opening this call up for questions I'd like to reemphasize several points, we have made in the past <unk>.
First and foremost the stronghold acquisition has substantially increased our size and scale lowered our overall cost structure and improved nearly every per share metric normally considered when comparing similar transactions.
We are a stronger more diverse energy company better positioned to manage the risks associated with price volatility.
And unforeseen operational issues, such as power outages or mechanical failures or weather related downtime.
We have significantly increased our ability to generate revenue due to higher sales volumes and the roll off of lower priced hedges.
The improved capital efficiency of our undeveloped inventory provides the opportunity to further optimize our future capital programs to maximize cash flow generation and to remain focused on reducing debt the.
The improved capital efficiency as demonstrated with the progress we have made regarding our return on capital employed which was over 20% for 2022, representing an increase over our performance in 2021 of more than 75%.
The improved capital efficiency also provides enhanced flexibility to respond to changing market conditions or to proactively adjust our capital spending plans to accommodate our pursuit of accretive balance sheet enhancing acquisitions.
The bottom line is simply this ring energy today is larger stronger and more efficient with an improved balance sheet and enhance our ability to pay down debt as previously shared we paid down $20 million of debt in the fourth quarter and $37 million in the last four months of the year. We have also increased our liquidity.
More than 200% over the previous year and our proved reserves by almost 80%.
So having said that we have talked about the state of the company our plans for 2023, and our strategy, but we haven't yet talked about the principles driving our strategy simply put we try to align our actions to those we believe create long term value for our stockholders. We believe this company needs more so.
It is a scale to help our common stock be eligible as an investment opportunity to a wider cross section of the investment community.
While we have materially reduced our leverage ratio, we believe our absolute debt levels, just by our continued commitment to pay down debt.
We believe continuing to pursue accretive balance sheet enhancing acquisitions is one method of achieving both of these objectives.
We believe we should position this company to return capital to our stockholders in short we believe staying the course on our value focused proven strategy will continue to position. This company for success in 2023 and beyond creating long term value for our stockholders and with that we will turn this call over to the operator for <unk>.
Operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Yes that you please limit yourself to one question and one follow up if you have additional questions. You may re enter the question Kelly.
And at this time, we will pause momentarily to assemble our roster.
Okay.
And the first question will be from Neal Dingmann from Truest. Please go ahead.
Good morning, guys. Thanks for the time, Paul My question for you where the team is just you did lay this out in the press release, but I'm wondering when it comes to sort of operational optionality. It sounds like knowledge stronghold, you've got obviously a lot more.
Options that I just wanted hi, I guess my question is you know how does the verticals over there compete with the horizontal sort of legacy and maybe just talk about you know I know you did lay out kind of how many you've drilled thus far year to date and kind of what the plans are just so I'm. Just wondering what is the you know how much optionality do you have in the plan and maybe.
You know for you or the guys how they compete for returns between the two.
Yeah go ahead, I'm going to I'm going to give a first stab at that but I'm going to let a couple of these guys kind of share their point of view, but is.
Why is this.
The undeveloped opportunity that came with the acquisition.
Have very very competitive economics, some of them are actually superior due to the short cycle time from the date of spud to the date you start getting them all into the tax type of a thing.
And so but at the same time, we have system constraints, we've talked about this in the past with respect to north West shelf and the Central Basin platform right an area, we call CVP North now.
We've tried to.
Balanced our drilling programs in our undeveloped programs and our capital spending programs to maximize the efficiency of the infrastructure that we have.
The primary issue up in the north.
Saltwater disposal well in the south we have very attractive rates of returns very quick payouts and turnaround times very capital efficient program.
But we also have other limitations. We also have saltwater disposal constraints down there. We also have a power greater power and electricity constraints and so we are maximizing.
The.
The cash flow generation from these assets trying to minimize the investments and infrastructure, where it's not necessary, we are making investments in infrastructure, where it is necessary, but it's a balanced program and so as it turns out some of our best economics are on D. R.
Our associated with some of the vertical wells, we're drilling in the south and so they're very very robust from an economic perspective, and they're very robust from a standpoint of the impact. It can have for the company and so I don't know if there's any more I need to say marinos, how about the only thing I would add Paul is that in terms of Optionality. Our route contracts. This year are all well.
Well to well with extensions so theres no commitment long-tongued amendment in terms of multiple wells, we can pivot at any point.
The same thing with the casing, we secured casing for multiple projects in both both.
Areas and so that gives us a lot of flexibility to adjust accordingly, with the infrastructure constraints that we that might catch us besides by surprise.
In terms of the solar the constraints on the south and we visited a little bit about on the last call.
On the S. W. D side, we have we have resolved a lot of those constraints that the STB D is no longer a constraint in the south the freshwater supply has also been a restrained. So we're really just facing the electrical supply kind of pivoting and trying to resolve those.
Which for the most part of also we've made great headway there too.
Okay great.
Paul maybe that leaves me to them.
Go ahead, I'm sorry, yeah.
Yeah, sorry, Neil this is Alex I wanted to echo on piggyback off the call then Marina his comments.
We specifically anticipated some of these conversations are questions. So.
You'll see that we really revamped our IR deck.
Page 21 on our deck it really kind of tackle your question there a little bit more clearly, giving you a feel for what is the average well performance between.
Whereas on a well in a vertical well and the differences in cost, but that is a blended average of every single well, we have and so when you're asking will.
Will you be spending capital on vertical wells.
Yes, as Paul mentioned, there are some very very high rate of return very short cycle time.
Estimates, there and that specifically due to our a P. J Lee field and that the reason that that one's even greater.
Economic is because in our eyes are really high and that asset. So if you look at page 22, you'll also get a flavor for IP, 68% oil and so as far as Optionality, We're obviously going to focus our capital to the highest rate of return on investments in both.
Slides 21, and 22 really kind of answer your question.
Yeah, I liked that I saw those that's what I was thinking more Alex just on on sort of future because you're right I like the way you.
Gave some good details on what that sort of average it's been so far that's what I was just kind of take it I'll just just just.
Stronghold.
And then kind of my follow up is Paul a little bit on the same vein. If you remember that was one of the guys want to jump in is more you know theres a lot of a lot of different forecasts out there for prices I mean like oil is up over a buck today and you know some thought the Florida. It was gonna be recessionary fears I'm, just wondering how how stable I guess, the easiest way to answer it.
Ask the question is how stable.
Is your plan to me that prices you know like here, we are today at let's call. It $77 oil oil. It goes up to 85 or you know it goes down to 65 do you anticipate having you know relatively the same same plan just be curious to know.
Because you seem to be in a great spot tip, but like you know leverage is already getting down there you're still going to be down under one times. So I mean I like all of that so I guess my Big question is just maybe when you think about it.
Just pricing sensitivity Paul.
Yeah, and so and you're not the only one that has asked his question.
On online and privately.
So we shared a little earlier that our budget plans are assuming prices between 70 and $90 and for W. G I and Henry hub of between two and four.
So.
Let's just drop a hypothetical if if oil prices fall below $55 for a sustained period of time.
We've got the flexibility to.
Change our capital spending program limited to just the absolute highest ones are we can and so again, we've got debt repayment goals this year, and we're going to stick to them.
One way or another.
And so we know we've got the capacity I mean for example, I mean, if you look at January's production January 23.
Our January 23 production averaged higher than the high end of our production guidance for this year.
And so that should send a very clear message that we are going to be capital disciplined this year and so.
So and that capital discipline is going to be related to pricing. So let's take the opposite scenario. So lets say were above 85 or $90 for a sustained period of time, well, we've got the ability to port on the growth organically and we will do that subject to visa system limitations that we have an infrastructure out you always throw in something yes and to also echo.
All commentary I think that if you look at our guidance. We also had a bigger range on capex to try it out.
Account for that for that.
Does that answer your question Neal.
Yeah, it's spot on that that kind of what I thought and I think it is that you guys are in fantastic position. Thank you Paul.
Yeah. Thank you Neal.
And once again, if you would like to ask a question. Please press star one.
The next question is from Jeff Robertson with water Tower Research. Please go ahead.
Thank you Paul you I'll close the stronghold acquisition in August and having owned those assets now for an operated them for five or six months.
Is there anything you've learned since you since you did your diligence that you would think about is playing a significant role into 2023 capital program.
Yeah, there's quite a bit we've learned I will say this we are every bit as excited today about this acquisition as we are the day. We are we signed a purchase of sale agreement.
We have learned several things I'm going to turn this over to him right out because he can expand a little bit more on these but we are experimenting and trying different completion techniques.
We've evaluated the condition of many of the well bores and so many of the Wellbore re completions.
May end up because of the condition of those wells, we think that through increased efficiencies. Other things. We may end up re drilling those wells and celebrate completing that's going to be a case by case basis.
We have come to realize and as mentioned by Alex There's a little earlier, we have certain areas in the CBP south that actually do demonstrate superior economics to even the portfolio we had before the acquisition so.
And everybody knows how strong our economics are in the north West shelf is that debates on platform and legacy.
Acreage that we have but the rates of return and the economics of these opportunities that came in with this acquisition truly are.
Standing in a very competitive in this portfolio is that we're really really excited about that do you want us to anything more about the operation no. The only thing I'd add is is that you know Paul said, we're just as excited I think from an operation standpoint, we're more excited than we were doing the acquisition. We've actually found on the PDP side, we've had five or six projects, where we've gone in.
And and and cleaned out the wells and performed oldest stimulation and so forth and actually significantly increased our production and arrested. Some decline. So we feel really good about the acid were learning a lot about it and.
Extremely excited.
I had one more thing too.
Due to the nature of that we got several fields that we didn't even if a sign a lot of value on during the acquisition that we are testing certain concepts that proved valid both in Mcknight and P. J Lee on some of the other assets and I think you'll see us throughout some future calls sure some of those results.
More to come.
Thanks.
Quick follow up on that and then I have another.
Re drilling wells rather than re completing is that because he thinks he can get a better completion.
Over maybe a broader broader.
Broader zoned and then just being able to go in and use the existing casing.
That's right. It's a combination of a couple of things what's the condition of the casing and also what kind of cement jobs do they have and the quality of this merger and so as you know we're fracking these wells and so really the objective is to.
Floyd the reserves for the lowest cost and lowest risk and so it's just a balance of all those factors as we evaluate each one of these opportunities individually I will make a call on that but one thing that we have learned when you look at the results that we've seen.
New wells tend to have superior are.
Producing rates in EUR is associated with them than the re completion wells and so this is Wes.
Primarily driving that.
And as a follow up Paul you mentioned continuing to build scale in the Permian.
Stronghold gave rang a lot more options in terms of types of projects to invest your capital in can you just briefly describe what are the characteristics.
And acquisition debt.
That fit the existing bring asset base.
Yeah, that's that's a really good question.
And I think we were very fortunate with the stronghold acquisition and that the the acquisition the way it was structured.
And housing negotiated with the sellers.
It turned out to be a very very accretive across the board on nearly every metric and matter of fact, I don't know of a metric that it wasn't accretive on than it did a lot for this company.
We targeted that.
Set of assets, we went to them and as a result of our first offer not being sufficient for them. They decided to run a process and we prevail through that process.
But were.
We're very we chose those assets for that area because of what it provided we're still doing the similar type of analysis on other assets in the central basin platform and in the Permian Basin.
And so it's gonna look a lot like that now now.
That's what we target now that doesn't mean that we'll end up with something that looks just like it and the reason being is because we've been approached and we are approaching others in the marketplace that have certain types of assets certain asset and so we would be willing to do a PDP by without a lot of development opportunities. If we got it for the right price.
But our preference is to find production existing PDP production that lowers our operating costs has shallow declines long lives.
And then have undeveloped opportunities that have similar or at least competitive economics with the project that we have in our current inventory.
All of them.
As in the past, Jeff I don't I don't want to dilute.
The quality of my inventory by buying stuff that's a little.
Lower quality now lower quality.
Compared to the portfolio have may still be very robustly, economic and and I got to be honest with you. There's a lot of companies out there that would they're envious of.
The rates of returns and the quality of our undeveloped opportunity.
Set so.
That being what it is we do believe that there are opportunities out there, but we believe that there are more opportunities out there that a company our size can take down by ourselves and so we're really excited about the future. We do believe that there is a transaction to be made again here sometime in 2000 22024.
All a function of how the negotiation goes and whether we can structure the deal.
In a way that it is accretive to my existing shareholder and it reduces.
Maybe not reduce debt, but actually striking the balance sheet and so those are the main criteria.
But again, we really like.
The metrics and financial performance of this company can generate we don't want to dilute that and so we're gonna be very disciplined we're just not going to buy jobs, we're not going to buy a bunch of P&A, we're not going to do those types of things does that answer your question Jeff.
Thank you.
Okay.
Very good.
And our next question is from Noel Parks from Tuohy Brothers. Please go ahead.
Hi, good morning.
Hey, Noel.
Excellent.
Hopped on a little late so I.
Apologies, if it's something you covered already but just.
Based on your your last comments about what you might.
Might consider evaluating for for acquisition.
With a PDP acquisition are there are there.
He's out there where there would be meaningful re completion.
Charities that could that could move the needle on under value.
So some things other things you have out there.
There are actually and it's all a function of who the prior operator was Noel.
You know there are certain operators in the central basin platform and the greater Permian basin that are known to work their property is really really hard and so they've already mined many of those opportunities.
And then there's other operators that have.
Focus our capital spending elsewhere and so.
Some of our asset to be classified as not having been worked as hard and so that.
That was a benefit of the stronghold acquisition. If you look at the position that stronghold acquired from from Devin and Chevron.
They had developed those assets and been managing those assets for quite some time.
They tried some ideas, but they found that their capital.
They they allocated their capital elsewhere, and so what would be left behind these type of opportunities for for stronghold and then now us and so but.
But yes, there are on the central basin platform itself and other areas in the northwest shelf, we've identified assets that would.
It would be classified kind of what you were saying pretty much PDP, maybe not a whole lot of drilling opportunities, but there are some re completion opportunities out there as well.
Great. Thanks, a lot.
And the next question will be from Rick shell and learned from arc and Stark. Please go ahead.
Hey, guys. Just one quick question I keep getting from my clients.
You know we made a great acquisition, we've got record numbers were making money, we're paying down debt.
But our stock can hold $2 a share.
What are the suspicions out there in the market.
Maybe we're not talking about can you help me explain that.
You know Rick I get asked that question more than any any other question. It seems like and that's a really tough one to to.
Dan.
The market place.
As and then if you go back to the Investor presentation, we actually lay out kind of the argument as to why it is that we are undervalued in the marketplace I believe that today rang energy stands is probably one of the best investments in the oil and gas space.
And so why is our stock so undervalued, we know that the industry has been hit hard since last summer with the change in oil prices.
We know that the smaller companies that we've kind of fall in that category.
Had been hit disproportionately a little harder than some of the bigger companies.
But in my opinion ring energy has generated superior or at least better as good or better returns than our peer group.
Yet we're trading at a much lower multiple and so to explain that would take quite a bit of time of divesting are investigating the marketplace and what's been happening.
And so I believe that there are a couple of things that probably contributed to that I think.
There are some people that will not invest in a company with the debt levels that we have.
But as you point out where we're quickly and very rapidly addressing that and we're going to have a balance sheet, a really strong balance sheet. Soon just from our organic ability to pay down debt.
And if we can do something similar to what we did with the stronghold acquisition, we can strengthen our balance sheet, even more so I'd hate to think that people are penalize us to heavily for for that but to be honest with you. Rick. Your question, probably is better addressed to some of the analysts that follow us such as Jeff Our nailer are Noel and John why do not on the call.
Today, but some of them would probably have more insight than I do in terms of why were being held out Alex you have something you want to say I do I would also add the comments that this is the first quarter that we announced all of our metrics as a full pro forma company meeting all stronghold for three months and so I think that.
A lot of this the street and the public is waiting to see right now once you get a couple of quarters underneath us watching the performance of the company, you'll really start seeing the effect of that acquisition.
Yeah, and I also question and then I'll throw in a little more here you.
You know as Travis shared.
Four and a half million.
Carbon four and a half million warrants were converted and exercised and converted into common shares this quarter and so that has to have an impact Rick on on why our stock performance as a way to or is there an overhang. These are the types of questions that a lot of people asked I believe if if there isn't one.
Hang out there is temporary as not long term I believe that if we continue to to generate the returns we continue to strengthen our balance sheet and we continue to do all the right things eventually the marketplace is going to come around and that is the reason why I personally believe when I look at the oil and gas space other.
Companies that are similar or would be considered peers, we represent the most compelling investment opportunity out there in the market today.
Okay. Thanks.
Youre welcome Thanks for the question Rick.
And the next question is a follow up from Jeff Robertson from water Tower Research. Please go ahead.
All along the lines of leverage in <unk>.
The $90 high end of your the way you're budgeting if prices went back up to 90.
How do you balance increasing capital versus accelerating deleveraging.
If people are concerned with deleveraging.
Yeah. So again part of the reason why we gave that range of 70 to 90, it's because when you fall below 70, and I use 65, as an example, Florida extended our sustained period of time that would really encourage us to change our capital spending programs now if we're at $90 I'm going to take.
The.
Additional excess cash from operations to pay down debt now if we get above $90 for a sustained period of time, let's just say we're at 100 Bucks.
Well, then we're probably going to add capital because we're going to grow organically and it will also be dependent on other factors such as Oh do we have something in our size are we successful negotiating a deal will it will there will we bring a deal down this year these type of things.
But yeah.
Yeah. So that was the purpose of providing the guidance, but if we're at sustainably above 100 Bucks.
I believe the marketplace can expect us to at least pick up the drilling and capital spending a little bit more than what we've shown here, but again, our preference is going to be.
Paying down debt and so if if if the capital spend versus our EBITDA for the year gets below 50%, well, we'll probably keep it at that 50% level or more.
So at a higher.
<unk> price deck, you could you could both increase deleveraging.
And also grow the production base to support higher EBITDA number so you get lower.
Leverage at higher EBITDA numbers, which.
In theory should flow through to our to the valuation.
Fairly wood and those types of scenarios.
Yeah, I believe we could.
Surpass our debt repayment goals for the year.
And that type of a scenario, where EBITDA is coming up.
We could make a substantial reductions in the leverage ratio itself, even to the point to where we're down around one or even potentially below one.
Great. Thank you.
Ladies and gentlemen at this time there are no further questions. So I'd like to turn the conference back over to Paul Mckinney for any closing remarks.
Okay. Thank you again for your interest and joining us on the call. Today. We are looking forward to 2023, we're very excited about what this year can do for rings shareholders.
We're working.
Hard and diligently and continue with the.
Value focus proven strategy that we've laid out and we hope to hear from you again soon and join US on our next call, but in the meantime, we will be working hard for you. Thanks for joining us on the call today.
And thank you Sir.
Has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
Yes.
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