RING ENERGY INC

Previous wording

The Company is focused on balancing the need to reduce long-term debt and further developing our oil and gas properties to maintain or grow our annual production. We intend to achieve both through proper allocation of cash flow generated by our operations and potentially through the sale of non-core assets. We intend to continue evaluating potential transactions to acquire strategic producing assets with attractive acreage positions that can provide competitive returns for our shareholders.

Current wording

The Company is focused on balancing reduction of long-term debt and further developing our oil and gas properties to maintain or grow our annual production. We intend to achieve both through proper allocation of cash flow generated by our operations and potentially through the sale of non-core assets. We intend to continue evaluating potential transactions to acquire strategic producing assets with attractive acreage positions that can provide competitive returns for our shareholders.

Previous wording

•Growing production and reserves by developing our oil-rich resource base through conventional and horizontal drilling. In an effort to maximize its value and resources potential, Ring intends to drill and develop its acreage base in both the Northwest Shelf and Central Basin Platform assets, allowing Ring to execute on its plan of operating within its generated cash flow.

Current wording

•Growing production and reserves by developing our oil-rich resource base through conventional vertical and horizontal drilling. In an effort to maximize its value and resources potential, Ring intends to drill and develop its acreage base in both its Northwest Shelf and Central Basin Platform assets, allowing Ring to execute on its plan of operating within its generated cash flow.

Previous wording

•Reduction of long-term debt and deleveraging of asset. Ring intends to reduce its long-term debt primarily through the use of excess cash flow and potentially through the sale of non-core assets. The Company believes that with its attractive field level margins, it is well positioned to maximize the value of its assets and deleverage its balance sheet. The Company also believes through potential accretive acquisitions and strategic asset dispositions, it can accelerate the strengthening of its balance sheet. During the three months ended March 31, 2024, the Company made net paydowns of $3 million on its revolving line of credit, resulting in the outstanding long-term debt balance of $422 million.

Current wording

•Reduction of long-term debt and deleveraging of asset. Ring intends to reduce its long-term debt primarily through the use of excess cash flow and potentially through the sale of non-core assets. The Company believes that with its attractive field level margins, it is well positioned to maximize the value of its assets and deleverage its balance sheet. The Company also believes through potential accretive acquisitions and strategic asset dispositions, it can accelerate the strengthening of its balance sheet. During the three months ended June 30, 2024, the Company made net paydowns of $15 million on its revolving line of credit, resulting in the outstanding long-term debt balance of $407 million.

Previous wording

•Employ industry leading drilling and completion techniques. Ring’s executive team intends to utilize new and innovative technological advancements for completion optimization, comprehensive geological evaluation, and reservoir engineering analysis to generate value and to build future development opportunities. These technological advancements have led to a low-cost structure that helps maximize the returns generated by our drilling programs.

Current wording

•Employ industry leading drilling and completion techniques. Ring’s executive team utilizes new and innovative technological advancements for completion optimization, comprehensive geological evaluation, and reservoir engineering analysis to generate value and to build future development opportunities. These technological advancements have led to a low-cost structure that helps maximize returns generated by our drilling programs.

Previous wording

•Pursue strategic acquisitions with attractive upside potential. Ring has a history of acquiring leasehold positions that it believes to have additional resource potential that meet its targeted returns on invested capital and comparable to its existing inventory of drilling locations. We pursue an acquisition strategy designed to increase reserves at attractive finding costs and complement existing core properties. Management intends to continue to pursue strategic acquisitions and structure the potential transactions financially, so they improve balance sheet metrics and are accretive to shareholders. Our executive team, with its extensive experience in the Permian Basin, has many relationships with operators and service providers in the region. Ring believes that leveraging the relationships of its management and board of directors will be a competitive advantage in identifying potential acquisition targets.

Current wording

•Pursue strategic acquisitions with attractive upside potential. Ring has a history of acquiring leasehold positions that it believes to have additional resource potential that meet its targeted returns on invested capital and are comparable to its existing inventory of drilling locations. We pursue an acquisition strategy designed to increase reserves at attractive finding costs and complement our existing core properties. Management intends to continue to pursue strategic acquisitions and structure them financially, to improve balance sheet metrics and be accretive to income metrics. Our executive team, with its extensive experience in the Permian Basin, has many relationships with operators and service providers in the region. Ring believes that leveraging the relationships of its management and board of directors is a competitive advantage in identifying potential acquisition targets.

Previous wording

The table below sets forth our drilling and completion activities for the three months ended March 31, 2024.

Current wording

The table below sets forth our drilling and completion activities for the six months ended June 30, 2024.

Previous wording

The Permian Basin has been experiencing a lack of sufficient pipeline transportation that is connected to markets which are purchasing the natural gas produced. This has resulted in negative natural gas prices at times, whereby the seller is actually paying the purchaser to take the gas. If these depressed or inverted natural gas prices continue in the region, our natural gas revenues will continue to be negatively impacted.

Current wording

The Permian Basin has been experiencing a shortage of pipeline transportation in order to sell natural gas produced in the Basin, resulting in negative natural gas prices, whereby the seller is actually paying the purchaser to take the gas. We have experienced negative gas prices since approximately March of 2023 and such conditions are continuing. If these depressed or inverted natural gas prices continue in the region, our natural gas revenues will continue to be negatively impacted.

Previous wording

Inflation has increased costs associated with our capital program and production operations. We have experienced increases in the costs of many of the materials, supplies, equipment and services used in our operations and we expect inflation to continue based on current economic circumstances. In addition, the attempts to reduce inflation by the U.S. Federal Reserve have resulted in increased interest rates on debt and contributed to debt and equity market volatility. We continue to closely monitor costs and take all reasonable steps to mitigate the inflationary effect on our cost structure and also work to enhance our efficiency to minimize additional cost increases where possible.

Current wording

Since 2022 inflation has increased costs associated with our capital program and production operations. We have experienced increases in the costs of many of the materials, supplies, equipment and services used in our operations and we expect inflation to continue based on current economic circumstances. In addition, the attempts to reduce inflation by the U.S. Federal Reserve have resulted in increased interest rates on debt. We continue to closely monitor costs and take all reasonable steps to mitigate the inflationary effect on our cost structure and also work to enhance our efficiency to minimize additional cost increases where possible.

Previous wording

Oil sales. Oil sales increased approximately $8.7 million from $83.6 million to $92.3 million due to an increase in sales volume from 1,139,413 barrels of oil to 1,218,837 barrels of oil, further supported by a increase in the average realized price per barrel from $73.36 to $75.72. Of the increase in volume of 79,424 barrels, 157,090 barrels of oil was from wells acquired and new wells drilled in the acreage of the Founders Acquisition offset by natural declines from the legacy assets and sale of non-core assets. The increased average realized price per barrel was primarily the result of higher market conditions.

Current wording

Oil sales. Oil sales increased approximately $30.0 million from $161.6 million to $191.6 million due to an increase in sales volume from 2,218,792 barrels of oil to 2,458,568 barrels of oil, further supported by a increase in the average realized price per barrel from $72.85 to $77.93. Of the increase in volume of 239,776 barrels, 337,001 barrels of oil were from wells acquired and new wells drilled in the acreage of the Founders Acquisition as well as drilling activity in other areas, offset by natural declines from the legacy assets and sale of non-core assets. The increased average realized price per barrel was primarily the result of higher market conditions.

Previous wording

Natural gas sales. Natural gas sales decreased approximately $1.9 million from $1.1 million to a negative $818,235. While our natural gas sales volume decreased from 1,601,407 Mcf to 1,496,507 Mcf, the average realized price per Mcf decreased from $0.66 to $(0.55). Of the decrease in volume of 104,900 Mcf, 106,419 Mcf was from wells acquired and new wells drilled in the acreage of the Founders Acquisition, and the offsetting decrease of 211,319 Mcf was attributable to legacy assets. The price decrease was driven by lower market conditions. The realized revenue pricing includes the impact of gas plant processing fees that were netted from revenue. For the three months ended March 31, 2024, gross revenues were $1.19 per Mcf and fees were $(1.74) per Mcf, compared to gross revenues of $2.03 per Mcf and fees of $(1.36) per Mcf for the three months ended March 31, 2023. This resulted in a net realized price of $(0.55) for the three months ended March 31, 2024 compared to $0.66 per Mcf for the three months ended March 31, 2023.

Current wording

Natural gas sales. Natural gas sales decreased approximately $3.8 million from a negative $36,213 to a negative $3,791,042. In addition to natural gas sales volume decreasing from 3,158,952 Mcf to 3,034,854 Mcf, the average realized price per Mcf decreased from $(0.01) to $(1.25). Of the decrease in volume of 124,098 Mcf, 245,545 Mcf was from wells acquired and new wells drilled in the acreage of the Founders Acquisition, and the offsetting decrease of (369,643) Mcf was attributable to legacy assets. The price decrease was driven by lower market conditions. The realized revenue pricing includes the impact of gas plant processing fees that were netted from revenue. For the six months ended June 30, 2024, gross revenues were $0.42 per Mcf and fees were $(1.67) per Mcf, compared to gross revenues of $1.52 per Mcf and fees of $(1.53) per Mcf for the six months ended June 30, 2023. This resulted in a net realized price of $(1.25) for the six months ended June 30, 2024 compared to $(0.01) per Mcf for the six months ended June 30, 2023.

Previous wording

Natural gas liquids sales. NGL sales decreased approximately $0.4 million from $3.4 million to $3.0 million. NGL sales volumes for the three months ended March 31, 2024 were 263,802 barrels of NGLs compared to 239,992 barrels of NGLs for the comparable period in 2023. Of the increase in volume of 23,810 barrels, 29,113 barrels were attributable to the wells acquired and new wells drilled within the acreage of the Founders Acquisition, offset by natural declines from the legacy assets and sale of non-core assets. The average realized price per barrel of NGLs was $11.47 for the three months ended March 31, 2024 compared to $14.30 for the three months ended March 31, 2023, attributable to lower market conditions.

Current wording

Natural gas liquids sales. NGL sales slightly increased by $10,145 from $5,839,299 to $5,849,444. NGL sales volumes for the six months ended June 30, 2024 were 568,250 barrels of NGLs compared to 472,690 barrels of NGLs for the comparable period in 2023. Of the increase in volume of 95,560 barrels, 67,449 barrels were attributable to the wells acquired and new wells drilled within the acreage of the Founders Acquisition, and 28,111 barrels were from the legacy assets. The average realized price per barrel of NGLs was $10.29 for the six months ended June 30, 2024 compared to $12.35 for the six months ended June 30, 2023, attributable to lower market conditions.

Previous wording

Oil and natural gas production taxes. Oil and natural gas production taxes as a percentage of oil and natural gas sales were 5.00% for the three months ended March 31, 2023 and decreased to 4.69% for the three months ended March 31, 2024. Overall, the percentage was consistent period over period.

Current wording

Oil and natural gas production taxes. Oil and natural gas production taxes as a percentage of oil and natural gas sales were 5.06% for the three months ended June 30, 2023 and decreased to 3.66% for the three months ended June 30, 2024. During the quarter, ($0.9) million was realized for severance tax credits associated with low-producing and two-year inactive wells, which caused the average for the three months ended June 30, 2024 to be lower than historical trends.

Previous wording

Lease operating expenses. Our total LOE increased from $17.5 million to $18.4 million but remained essentially flat on a per Boe basis, decreasing from $10.61 to $10.60. Total LOE increased primarily due to a 5% increase in production of 85,751 Boe as a result of the new wells acquired from the Founders Acquisition as well as new wells drilled and completed from our development program.

Current wording

Lease operating expenses. Our total LOE increased from $33.4 million to $37.7 million and LOE per Boe increased from $10.38 to $10.66. Total LOE increased primarily due to a 10% increase in production of 314,653 Boe as a result of the new wells acquired from the Founders Acquisition as well as new wells drilled and completed from our development program. Specific cost categories with significant increases included chemical, salaries, electric, and workover expense.

Previous wording

Gathering, transportation and processing costs. Our total GTP increased from $(823) to $166,054 and increased on a per Boe basis from $— to $0.10. Beginning May 1, 2022, due to a natural gas processing entity taking control of transportation at the wellhead, GTP costs were re-classified as a reduction to oil and natural gas sales revenues. However, GTP costs increased on the period shown due to one remaining contract with a natural gas processing entity in place where point of control of gas dictates requiring the fees be recorded as an expense.

Current wording

Gathering, transportation and processing costs. Our total GTP increased from negative $2,455 to $273,683 and increased on a per Boe basis from $0.00 to $0.08. Beginning May 1, 2022, due to a natural gas processing entity taking control of transportation at the wellhead, GTP costs were re-classified as a reduction to oil and natural gas sales revenues. However, GTP costs increased on the period shown due to one remaining contract with a natural gas processing entity in place where point of control of gas dictates requiring the fees be recorded as an expense.

Previous wording

Operating lease expense. Our operating lease expense increased from $113,138 to $175,091 due to additional office space leased in The Woodlands office expansion.

Current wording

Operating lease expense. Our operating lease expense increased from $115,353 to $175,090 due to additional office space leased in The Woodlands office expansion.

Previous wording

Depreciation, depletion and amortization. Our depreciation, depletion and amortization increased from $21.3 million to $23.8 million due to a higher depletion rate as well as an increase of 85,751 in Boe produced. Our average depreciation, depletion and amortization per Boe increased from $12.92 per Boe to $13.74 per Boe, due to the increase in the total costs of property and the decrease in the Boe amortization base.

Current wording

Depreciation, depletion and amortization. Our depreciation, depletion and amortization increased from $42.1 million to $48.5 million due to a higher depletion rate as well as an increase of 314,653 in Boe produced. Our average depreciation, depletion and amortization per Boe increased from $13.07 per Boe to $13.73 per Boe, due to the increase in the total costs of property and the decrease in the Boe amortization base.

Previous wording

Asset retirement obligation accretion. Our ARO accretion decreased from $365,847 to $350,834 primarily as a result of wells plugged and abandoned and sold, offset by the additional ARO accretion associated with the properties added from the Founders Acquisition.

Current wording

Asset retirement obligation accretion. Our ARO accretion decreased from $719,725 to $703,018 primarily as a result of wells plugged and abandoned and sold, offset by the additional ARO accretion associated with the properties added from the Founders Acquisition.

Previous wording

General and administrative expense. General and administrative ("G&A") expense increased from $7.1 million to $7.5 million, with the $0.3 million cost increase due to an increase of $0.4 million in salaries and wages, $0.2 million in bad debt expense, $0.1 million in software costs, $0.1 million in legal fees, and $0.1 million in health insurance costs. This was offset by a decrease of $0.2 million in share-based compensation costs and, $0.2 million in insurance costs.

Current wording

General and administrative expense. General and administrative ("G&A") expense increased from $13.9 million to $15.2 million, with the $1.2 million cost increase due to an increase of $1.0 million in salaries and wages, $0.6 million for an employee retention tax credit that was received in 2023, $0.3 million in legal fees, and $0.2 million in other professional fees. This was offset by a decrease of $0.4 million in lower transaction costs and $0.4 million in share-based compensation costs.

Previous wording

Interest income. Interest income of $78,544 was accrued from excess cash balances in bank sweep accounts beginning in May 2023.

Current wording

Interest income. During the three months ended June 30, 2024, interest income of $144,933 was earned from excess cash balances in bank sweep accounts. During the three months ended June 30, 2023, interest income of $50,703 was earned from depositing excess cash balances in bank sweep accounts beginning May 2023 and $29,042 was earned from the employee retention tax credit.

Previous wording

Gain (loss) on disposal of assets. We recognized a gain of $38,355 on disposal from selling multiple Company owned vehicles.

Current wording

Gain (loss) on disposal of assets. During the three months ended June 30, 2024, the Company recorded a gain on disposal of assets of $51,338, from selling multiple Company owned vehicles. Also, during the three months ended June 30, 2023, the Company recorded a loss on disposal of assets of $132,109 from from selling multiple Company owned vehicles.

Previous wording

Interest expense. Interest expense increased from $10.4 million to $11.5 million primarily due to the result of higher amounts outstanding on our Credit Facility, with a weighted average daily debt of approximately $428.8 million during the three months ended March 31, 2024 compared to approximately $424.3 million during the three months ended March 31, 2023. Additionally, the increase in interest expense was due to higher interest rates, with a weighted average annual interest rate of 9.3% during the three months ended March 31, 2024 compared to 8.2% during the three months ended March 31, 2023.

Current wording

Interest expense. Interest expense increased from $20.9 million to $22.4 million primarily due to the result of higher amounts outstanding on our Credit Facility, with a weighted average daily debt of approximately $424.6 million during the six months ended June 30, 2024 compared to approximately $419.6 million during the six months ended June 30, 2023. Additionally, the increase in interest expense was due to higher interest rates, with a weighted average annual interest rate of 9.3% during the six months ended June 30, 2024 compared to 8.5% during the six months ended June 30, 2023.

Previous wording

Gain (loss) on derivative contracts. We recorded a loss on derivative contracts of $19.0 million for the three months ended March 31, 2024 and a gain on derivative contracts of $9.5 million for the three months ended March 31, 2023. For the derivative contract settlements, we recorded a realized loss of $1.5 million for the three months ended March 31, 2024 and a realized loss of $0.7 million for the three months ended March 31, 2023. The increase of $0.8 million in the realized loss was a result of less favorable settlements of derivative contracts during the current year. For the marked-to-market contracts, we recorded an unrealized loss of $17.6 million for the three months ended March 31, 2024 and an unrealized gain of $10.1 million for the three months ended March 31, 2023. This change in unrealized derivatives primarily was due to losses on higher crude oil futures prices on derivative contracts in the Company's portfolio.

Current wording

Gain (loss) on derivative contracts. We recorded a loss on derivative contracts of $20.8 million for the six months ended June 30, 2024 and a gain on derivative contracts of $12.7 million for the six months ended June 30, 2023. For the derivative contract settlements, we recorded a realized loss of $4.1 million for the six months ended June 30, 2024 and a realized loss of $0.5 million for the six months ended June 30, 2023. The increase of $3.6 million in the realized loss was a result of less favorable settlements of crude oil derivative contracts during the current year. For the marked-to-market contracts, we recorded an unrealized loss of $16.8 million for the six months ended June 30, 2024 and an unrealized gain of $13.2 million for the six months ended June 30, 2023. This change in unrealized derivatives primarily was due to the changes in crude oil futures prices on derivative contracts in the Company's portfolio.

Previous wording

Benefit from (Provision for) income taxes. The benefit from (provision for) income taxes changed from a provision of $2.0 million for the three months ended March 31, 2023 to a provision of $1.7 million for the three months ended March 31, 2024. Current income taxes reflect estimated state and federal income taxes due for 2024 which is based on our estimated earnings, taking into account all applicable tax rates and laws.

Current wording

Benefit from (Provision for) income taxes. The benefit from (provision for) income taxes changed from a benefit of $6.4 million for the three months ended June 30, 2023 to a provision of $(6.8) million for the three months ended June 30, 2024. The benefit from (provision for) income taxes was calculated using the annual effective tax rate method based on our estimated earnings and estimated state and federal income taxes due for 2024, taking into account all applicable tax rates and laws.

Previous wording

As of March 31, 2024, we had cash on hand of $1.4 million, compared to $0.3 million as of December 31, 2023. We had net cash provided by operating activities for the three months ended March 31, 2024 of $45.2 million, compared to net cash provided by operating activities of $43.7 million for the same period in 2023, which was primarily due to higher year to date revenues, which resulted in more cash received from purchasers. We had net cash used in investing activities of $39.5 million for the three months ended March 31, 2024, compared to net cash used in investing activities of $55.5 million for the same period in 2023, driven by the deferred cash payment made for the Stronghold Acquisition in the first quarter of 2023, with no comparable payment made to date in 2024. Net cash used in financing activities was $4.6 million for the three months ended March 31, 2024 during which time $3 million was the net pay down of principal on our Credit Facility.

Current wording

As of June 30, 2024, we had cash on hand of $1.2 million, compared to $0.3 million as of December 31, 2023. We had net cash provided by operating activities for the six months ended June 30, 2024 of $95.8 million, compared to net cash provided by operating activities of $87.0 million for the same period in 2023, which was primarily due to higher year to date revenues, which resulted in more cash received from purchasers. We had net cash used in investing activities of $76.4 million for the six months ended June 30, 2024, compared to net cash used in investing activities of $83.6 million for the same period in 2023, driven by the deferred cash payment made for the Stronghold Acquisition in the first quarter of 2023, offset by the receipt from the sale of the Delaware properties in the second quarter of 2023, with no comparable payments or receipts made to date in 2024. Net cash used in financing activities was $18.6 million for the six months ended June 30, 2024 during which time $18 million was the net paydown of principal on our Credit Facility.

Previous wording

As of March 31, 2024, $422 million was outstanding on our Credit Facility and we were in compliance with all of the covenants under the Credit Facility. The Credit Facility matures in August 2026. The borrowing base under our Credit Facility is $600 million. The borrowing base is redetermined semi-annually on each May and November. See "NOTE 8 — REVOLVING LINE OF CREDIT" in the Notes to the condensed financial statements for more information on our Credit Facility.

Current wording

As of June 30, 2024, $407 million was outstanding on our Credit Facility and we were in compliance with all of the covenants under the Credit Facility. The Credit Facility matures in August 2026. The borrowing base under our Credit Facility is $600 million. The borrowing base is redetermined semi-annually on each May and November. See "NOTE 8 — REVOLVING LINE OF CREDIT" in the Notes to the condensed financial statements for more information on our Credit Facility.

Previous wording

The process of acquiring one or more additional oil and gas properties would impact our financial position, reduce our cash position and possibly increase our debt. The types of costs that we may incur include the costs to retain consultants and investment bankers specializing in the purchase of oil and gas properties, obtaining petroleum engineering reports relative to the oil and gas properties that we are investigating, legal fees associated with any such acquisitions including title reports, SEC reporting expenses, and negotiating definitive agreements. Additionally, accounting fees may be incurred relative to obtaining and evaluating historical and proforma information regarding such oil and gas properties. Even though we may incur such costs, there is no assurance that we will ultimately be able to consummate other acquisitions of oil and gas producing properties.

Current wording

The process of acquiring one or more additional oil and gas properties would impact our financial position, reduce our cash position and likely increase our debt levels. The types of costs that we may incur include the costs to retain consultants and investment bankers specializing in the purchase of oil and gas properties, obtaining petroleum engineering reports relative to the oil and gas properties that we are investigating, legal fees associated with any such acquisitions including title reports, SEC reporting expenses, and negotiating definitive agreements. Additionally, accounting fees may be incurred relative to obtaining and evaluating historical and pro forma information regarding oil and gas properties. Even though we may incur these costs, there is no assurance that we will ultimately be able to consummate additional acquisitions of oil and gas producing properties.