Oil Producer Exceeds Production Targets With Outstanding Well Performance

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Oil and gas exploration and production company Ring Energy Inc. (REI:NYSE) provided an operational update that included the production of more than 12,000 barrels of oil per day (Bo/d), exceeding the high end of guidance.

In a release, the company said it produced more than 18,300 barrels of oil equivalent (Boe/d), exceeding the midpoint of guidance.

Ring said the production outperformance was driven by the success of its drilling program, which features seven wells coming online, all surpassing the company's pre-drill estimates.

"The first quarter has set a strong foundation for 2025, and we look forward to sharing our full results in early May," Chairman of the Board and Chief Executive Officer Paul D. McKinney said. "We are pleased to report that oil sales volumes surpassed our highest projections, thanks to the outstanding performance of the wells drilled this quarter. Every well not only met but exceeded our pre-drill expectations, showcasing our operational excellence." 

Ring currently conducts its operations in the Permian Basin in West Texas and southeastern New Mexico. The basin is unique in its size, vast infrastructure, thickness of strata, and multiple producing horizons/benches, providing a variety of exploration opportunities to develop oil and gas reserves. As a result, it is the top producing basin in North America, producing about 6.1 million Bo/d — about 47% of the U.S. daily production of approximately 13.1 million Bo/d, the company said.

'Value-Focused and Proven Strategy'

Ring also said it completed the acquisition of the Central Basin Platform assets of Lime Rock Resources IV LP in March, a transaction that provides "immediate and meaningful increased cash flow from shallow declining, long life, oil weighted assets."

It said it realized initial operational synergies by reducing lease operating expenses over 5% and production during the first two weeks of Ring's operations exceeded expectations by over 200 Boe/d, averaging over 2,500 Boe/d.

Ring also said it has more than 6,300 barrels of oil per day hedged with weighted average downside protection of US$64.44 per barrel for the remainder of the year, as of April 1.

"We are actively integrating these new properties into our portfolio," said McKinney. "We are confident that these achievements will propel us toward continued success in the upcoming months."

McKinney said the company's "value-focused and proven strategy" is designed to effectively navigate both high and low commodity price cycles, emphasizing the generation of free cash flow, maintaining a disciplined capital spending program, and prioritizing debt reduction.

"The flexibility in our contracting terms with drilling rigs and oil field service providers empowers us to quickly adapt our capital spending to stay aligned with our objectives," he said. "Our steadfast, value-focused strategy ensures we maintain the discipline and agility needed to navigate price volatility, positioning the company for enduring success."

Cash Flow to Pick Up Next Quarter, Analysts Say

Truist Securities analysts Neal Dingmann and Bertrand Donnes wrote in an updated research report on March 10 that Ring's "primary focus remains on debt repayment with the company focused on strategic acquisitions to drive FCF (free cash flow)."

With the Lime Rock purchase, "FCF should begin to step up," wrote the analysts, who rated the stock a Hold.

"REI continues to maintain stable organic production with external activity providing the majority of overall company growth," they said. "We estimate FCF will remain relatively minimal in the current quarter before stepping up next quarter with notably higher FCF by late this year. We forecast leverage to potentially fall to <1x by late 2026 depending on commodity prices."

Both Dingmann and Donnes said they expected the company to continue focusing on FCF "with some going towards organically growing inventory reserves, as well."

"We currently do not assign a price target to REI shares," they wrote.

However, the oil production figures did prompt Water Tower Research to update its estimates and pricing.

"Our 1Q25 adjusted EBITDA estimate is US$46.5 million," Analyst Jeff Robertson wrote on April 22. "Our FY25 adjusted EBITDA estimate is US$202.3 million based on an average NYMEX reference oil price of US$65.32/bbl."

The analyst noted that since "oil represents more than 95% of total revenue, the oil outperformance has an outsized revenue impact."

The Catalyst: One of the Economy's Most Powerful Branches

According to Statista, crude oil is "one of the most sought-after commodities in the world and demand is estimated at more than 104 million barrels per day."

It has a wide array of uses ranging from transportation fuels to the manufacturing of chemicals and pharmaceuticals.

"The oil industry is one of the most powerful branches in the world economy and changes in benchmark oil prices have great implications for many manufacturing sectors and consumers.

Despite growing concerns over fossil fuel use, oil consumption has remained at an all-time high with the U.S. consuming the most worldwide.

According to a report by Deloitte issued in December, oil and gas companies have been "prioritizing high-return investments and maintaining a focus on production efficiency."

Over the last four years, the report said the industry's capital expenditures have increased by 53%, while its net profit has risen by nearly 16%. Oilfield services reported its best performance for the 2023 to 2024 period in the past 34 years. 

"Additionally, some companies are engaging in increased investments in low-carbon technology projects to help balance the risks associated with the traditional oil and gas market," Deloitte wrote. "These investments will likely help companies position themselves as key players in the future energy landscape."

Ownership and Share Structure

According to Refinitiv, about 10% of the company is owned by management and insiders, including McKinney, who owns 0.95%. About 47% of the company is owned by institutions, including Warburg Pincus LLC with 14.02%, BlackRock Institutional Trust Co. with 4.64%, The Vanguard Group Inc. with 3.48%, Columbia Threadneedle Investments with 2.51% and UBS Financial Services Inc. with 1.95%.

The rest is retail.

It has a market cap of US$185.47 million with 206.51 million shares outstanding. It trades in a 52-week range of US$0.78 and US$2.06.