FORM
2023
RING ENERGY, INC.
Nevada | 90-0406406 | ||||
(State or other jurisdiction of | ( | ||||
1725 Hughes Landing Blvd., Suite 900 The Woodlands,TX | 77380 | ||||
(Address of principal executive offices) | (Zip Code) | ||||
| (281) 397-3699 | |||||
| (Registrant’s telephone number, including area code) |
(281)397-3699
(Registrant’s telephone number, including area code)
| Title of | Trading Symbol | Name of | ||||||
Common Stock, | REI | NYSE American | ||||||
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐x No
o
☒ Yes
| Large accelerated filer | o | Accelerated filer | ||||||||||||
Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | |||||||||||
Emerging growth company | o | |||||||||||||
☐ Yes
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Among thesubject to many important factors that could cause actual future results to differ materially arefrom those contemplated. Such factors include:
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Should our underlying assumptions prove incorrect or the consequences of the aforementioned risks worsen, actual results could differ materially from those expected. There may also be other risks and uncertainties that we are unable to predict at this time or that we do not now expect to have a material adverse impact on our business.
Forward-looking statements speak only as toof the date hereof. Allthat such statements are made. We undertake no obligation to publicly update or revise any forward-looking statements and any subsequent written or oral forward-looking statements attributable to us or any person acting on our behalfafter the date they are expressly qualified in their entirety by the statements contained herein or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. Except as otherwise required by applicable law, we disclaim any intention or obligation to update publicly or revise such statementsmade, whether as a result of new information, future events or otherwise.
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June 30, 2022 December 31, 2021 ASSETS Current Assets Cash and cash equivalents $ 2,223,289 $ 2,408,316 Accounts receivable 39,496,928 24,026,807 Joint interest billing receivable 1,350,134 2,433,811 Derivative assets 1,353,196 — Prepaid expenses and other assets 3,205,746 938,029 Total Current Assets 47,629,293 29,806,963 Properties and Equipment Oil and natural gas properties, full cost method 945,521,085 883,844,745 Financing lease asset subject to depreciation 2,067,375 1,422,487 Fixed assets subject to depreciation 2,044,709 2,089,722 Total Properties and Equipment 949,633,169 887,356,954 Accumulated depreciation, depletion and amortization (255,274,309) (235,997,307) Net Properties and Equipment 694,358,860 651,359,647 Operating lease asset 1,140,886 1,277,253 Derivative assets 785,389 — Deferred financing costs 1,324,918 1,713,466 Total Assets $ 745,239,346 $ 684,157,329 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable $ 64,262,609 $ 46,233,452 Financing lease liability 407,031 316,514 Operating lease liability 301,339 290,766 Derivative liabilities 32,700,566 29,241,588 Notes payable 894,295 586,410 Total Current Liabilities 98,565,840 76,668,730 Noncurrent Liabilities Deferred income taxes 1,641,253 90,292 Revolving line of credit 270,000,000 290,000,000 Financing lease liability, less current portion 667,456 343,727 Operating lease liability, less current portion 983,995 1,138,319 Asset retirement obligations 15,373,543 15,292,054 Total Liabilities 387,232,087 383,533,122 Stockholders’ Equity Preferred stock - $0.001 par value; 50,000,000 shares authorized; 0 shares issued or outstanding — — Common stock - $0.001 par value; 225,000,000 shares authorized; 107,236,111 shares and 100,192,562 shares issued and outstanding, respectively 107,236 100,193 Additional paid-in capital 561,791,836 553,472,292 Accumulated deficit (203,891,813) (252,948,278) Total Stockholders’ Equity 358,007,259 300,624,207 Total Liabilities and Stockholders’ Equity $ 745,239,346 $ 684,157,329 For the Three Months For the Six Months Ended June 30, Ended June 30, 2022 2021 2022 2021 Oil and Natural Gas Revenues $ 84,961,875 $ 47,760,102 $ 153,142,907 $ 87,262,634 Costs and Operating Expenses Lease operating expenses 8,301,443 7,424,488 17,254,608 15,651,063 Gathering, transportation and processing costs 549,389 897,166 1,846,247 1,832,185 Ad valorem taxes 949,239 703,775 1,901,193 1,441,026 Oil and natural gas production taxes 4,157,457 2,198,339 7,375,819 4,051,101 Depreciation, depletion and amortization 10,749,204 9,275,126 20,530,491 17,383,284 Asset retirement obligation accretion 186,303 184,013 374,545 377,757 Operating lease expense 83,590 84,790 167,180 356,307 General and administrative expense 5,832,302 3,757,152 11,354,579 6,670,143 Total Costs and Operating Expenses 30,808,927 24,524,849 60,804,662 47,762,866 Income from Operations 54,152,948 23,235,253 92,338,245 39,499,768 Other Income (Expense) Interest income — 1 — 1 Interest (expense) (3,279,299) (3,654,529) (6,677,660) (7,396,498) (Loss) on derivative contracts (7,457,018) (35,277,240) (35,053,159) (66,865,879) Net Other Income (Expense) (10,736,317) (38,931,768) (41,730,819) (74,262,376) Income (Loss) Before Provision for Income Taxes 43,416,631 (15,696,515) 50,607,426 (34,762,608) Benefit from (Provision for) Income Taxes (1,472,209) (190,644) (1,550,961) (190,644) Net Income (Loss) $ 41,944,422 $ (15,887,159) $ 49,056,465 $ (34,953,252) Basic Earnings (Loss) per share $ 0.39 $ (0.16) $ 0.47 $ (0.35) Diluted Earnings (Loss) per share $ 0.32 $ (0.16) $ 0.39 $ (0.35) Additional Retained Earnings Total Common Stock Paid-in (Accumulated Stockholders’ For the Six Months Ended June 30, 2022 Shares Amount Capital Deficit) Equity Balance, December 31, 2021 100,192,562 $ 100,193 $ 553,472,292 $ (252,948,278) $ 300,624,207 Share-based compensation 0 0 1,521,910 0 1,521,910 Net income 0 0 0 7,112,043 7,112,043 Balance, March 31, 2022 100,192,562 $ 100,193 $ 554,994,202 $ (245,836,235) $ 309,258,160 Exercise of common warrants issued in offering 6,453,907 6,454 5,156,672 0 5,163,126 Options exercised 100,000 100 (100) 0 0 Shares elected to be withheld for options exercised (47,506) (48) 48 0 0 Restricted stock vested 610,195 610 (610) 0 0 Shares to cover tax withholdings for restricted stock vested (73,047) (73) 73 0 0 Payments to cover tax withholdings 0 0 (257,694) 0 (257,694) Share-based compensation 0 0 1,899,245 0 1,899,245 Net income 0 0 0 41,944,422 41,944,422 Balance, June 30, 2022 107,236,111 $ 107,236 $ 561,791,836 $ (203,891,813) $ 358,007,259 For the Six Months Ended June 30, 2021 Balance, December 31, 2020 85,568,287 $ 85,568 $ 550,951,415 $ (256,271,170) $ 294,765,813 Common stock and warrants issued for cash, net 0 0 (65,000) 0 (65,000) Exercise of pre-funded warrants issued in offering 13,428,500 13,429 0 0 13,429 Exercise of common warrants issued in offering 184,800 185 147,655 0 147,840 Restricted stock vested 94,350 94 (94) 0 0 Share-based compensation 0 0 355,494 0 355,494 Net (loss) 0 0 0 (19,066,093) (19,066,093) Balance, March 31, 2021 99,275,937 $ 99,276 $ 551,389,471 $ (275,337,263) $ 276,151,483 Exercise of common warrants issued in offering 100,000 100 79,900 0 80,000 Restricted stock vested 3,480 3 (3) 0 0 Shares to cover tax withholdings (28,272) (28) 28 0 0 Share-based compensation 0 0 351,775 0 351,775 Net (loss) 0 0 0 (15,887,159) (15,887,159) Balance, June 30, 2021 99,351,145 $ 99,351 $ 551,821,170 $ (291,224,422) $ 260,696,099 For the Six Months Ended June 30, 2022 2021 Cash Flows From Operating Activities Net income (loss) $ 49,056,465 $ (34,953,252) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 20,530,490 17,383,284 Asset retirement obligation accretion 374,545 377,757 Amortization of deferred financing costs 388,548 330,251 Share-based compensation 3,421,155 707,269 Deferred income tax expense (benefit) 1,550,961 (1,744,175) Excess tax expense (benefit) related to share-based compensation 0 1,934,819 Loss on derivative contracts 35,053,159 66,865,879 Cash (paid) for derivative settlements, net (33,732,766) (18,357,124) Changes in assets and liabilities: Accounts receivable (14,393,828) (6,673,307) Prepaid expenses and other assets (2,267,717) (1,181,562) Accounts payable 6,847,979 8,659,118 Settlement of asset retirement obligation (1,666,576) (1,338,277) Net Cash Provided by Operating Activities 65,162,415 32,010,680 Cash Flows From Investing Activities Payments to purchase oil and natural gas properties (743,851) (437,688) Payments to develop oil and natural gas properties (49,654,172) (22,723,018) Purchase of fixed assets subject to depreciation (91,760) (60,903) Sale of fixed assets subject to depreciation 134,600 0 Proceeds from divestiture of oil and natural gas properties 25,066 2,000,000 Net Cash (Used in) Investing Activities (50,330,117) (21,221,609) Cash Flows From Financing Activities Proceeds from revolving line of credit 50,500,000 19,900,000 Payments on revolving line of credit (70,500,000) (32,400,000) Proceeds from issuance of common stock and warrants 5,163,126 241,269 Payments to cover tax withholdings (257,694) 0 Proceeds from notes payable 928,626 909,467 Payments on notes payable (620,741) (151,317) Payment of deferred financing costs 0 (76,887) Reduction of financing lease liabilities (230,642) (119,995) Net Cash (Used in) Financing Activities (15,017,325) (11,697,463) Net Change in Cash (185,027) (908,392) Cash at Beginning of Period 2,408,316 3,578,634 Cash at End of Period $ 2,223,289 $ 2,670,242 Supplemental Cash Flow Information Cash paid for interest $ 6,228,393 $ 7,202,818 Noncash Investing and Financing Activities Asset retirement obligation incurred during development $ 122,206 $ 48,662 Asset retirement obligation acquired 0 662,705 Asset retirement obligation revisions 0 153,475 Asset retirement obligation sold 0 (2,934,126) Capitalized expenditures attributable to drilling projects financed through current liabilities 11,181,178 4,460,973 Operating lease assets obtained in exchange for new operating lease liability 0 839,536 Operating lease asset revision 0 (621,636) (UNAUDITED) 2022. Permian Basin.(“SEC”("SEC"). Accordingly, certain disclosures required by accounting principles generally accepted in the United States ("GAAP") and normally included in Annual Reports on Form 10-K have been omitted. Although management believes that our disclosures are adequate to make the information presented not misleading, these unaudited interim financial statements should be read in conjunction with the Company’sCompany's audited financial statements and related footnotesnotes included in its most recent Annual Report on Form 10-K.5June 30, 2023 December 31, 2022 ASSETS Current Assets Cash and cash equivalents $ 1,749,975 $ 3,712,526 Accounts receivable 32,044,159 42,448,719 Joint interest billing receivables, net 2,617,815 983,802 Derivative assets 8,307,537 4,669,162 Inventory 7,327,295 9,250,717 Prepaid expenses and other assets 3,061,216 2,101,538 Total Current Assets 55,107,997 63,166,464 Properties and Equipment Oil and natural gas properties, full cost method 1,524,510,887 1,463,838,595 Financing lease asset subject to depreciation 3,144,038 3,019,476 Fixed assets subject to depreciation 2,762,370 3,147,125 Total Properties and Equipment 1,530,417,295 1,470,005,196 Accumulated depreciation, depletion and amortization (331,153,213) (289,935,259) Net Properties and Equipment 1,199,264,082 1,180,069,937 Operating lease asset 1,628,832 1,735,013 Derivative assets 10,555,937 6,129,410 Deferred financing costs 15,458,204 17,898,973 Total Assets $ 1,282,015,052 $ 1,268,999,797 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable $ 90,021,106 $ 111,398,268 Income tax liability 98,481 — Financing lease liability 761,110 709,653 Operating lease liability 394,404 398,362 Derivative liabilities 7,848,580 13,345,619 Notes payable 1,412,674 499,880 Deferred cash payment — 14,807,276 Asset retirement obligations 408,958 635,843 Total Current Liabilities 100,945,313 141,794,901 Non-current Liabilities Deferred income taxes 4,074,183 8,499,016 Revolving line of credit 397,000,000 415,000,000 Financing lease liability, less current portion 765,753 1,052,479 Operating lease liability, less current portion 1,263,936 1,473,897 Derivative liabilities 10,829,096 10,485,650 Asset retirement obligations 28,296,455 29,590,463 Total Liabilities 543,174,736 607,896,406 Commitments and contingencies Stockholders' Equity Preferred stock - $0.001 par value; 50,000,000 shares authorized; no shares issued or outstanding — — Common stock - $0.001 par value; 450,000,000 shares authorized; 195,350,672 shares and 175,530,212 shares issued and outstanding, respectively 195,350 175,530 Additional paid-in capital 791,450,835 775,241,114 Accumulated deficit (52,805,869) (114,313,253) Total Stockholders’ Equity 738,840,316 661,103,391 Total Liabilities and Stockholders' Equity $ 1,282,015,052 $ 1,268,999,797 6For the Three Months Ended For the Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Oil, Natural Gas, and Natural Gas Liquids Revenues $ 79,348,573 $ 84,961,875 $ 167,431,485 $ 153,142,907 Costs and Operating Expenses Lease operating expenses 15,938,106 8,301,443 33,410,797 17,254,608 Gathering, transportation and processing costs (1,632) 549,389 (2,455) 1,846,247 Ad valorem taxes 1,670,343 949,239 3,340,956 1,901,193 Oil and natural gas production taxes 4,012,139 4,157,457 8,420,279 7,375,819 Depreciation, depletion and amortization 20,792,932 10,749,204 42,064,603 20,530,491 Asset retirement obligation accretion 353,878 186,303 719,725 374,545 Operating lease expense 115,353 83,590 228,491 167,180 General and administrative expense 6,810,243 5,832,302 13,940,382 11,354,579 Total Costs and Operating Expenses 49,691,362 30,808,927 102,122,778 60,804,662 Income from Operations 29,657,211 54,152,948 65,308,707 92,338,245 Other Income (Expense) Interest income 79,745 — 79,745 — Interest (expense) (10,550,807) (3,279,299) (20,941,086) (6,677,660) Gain (loss) on derivative contracts 3,264,660 (7,457,018) 12,739,565 (35,053,159) Gain (loss) on disposal of assets (132,109) — (132,109) — Other income 116,610 — 126,210 — Net Other Income (Expense) (7,221,901) (10,736,317) (8,127,675) (41,730,819) Income Before Benefit from (Provision for) Income Taxes 22,435,310 43,416,631 57,181,032 50,607,426 Benefit from (Provision for) Income Taxes 6,356,295 (1,472,209) 4,326,352 (1,550,961) Net Income $ 28,791,605 $ 41,944,422 $ 61,507,384 $ 49,056,465 Basic Earnings per Share $ 0.15 $ 0.39 $ 0.33 $ 0.47 Diluted Earnings per Share $ 0.15 $ 0.32 $ 0.32 $ 0.39 7Common Stock Additional
Paid-in
CapitalRetained Earnings
(Accumulated Deficit)Total
Stockholders'
EquityFor the Six Months Ended June 30, 2023 Shares Amount Balance, December 31, 2022 175,530,212 $ 175,530 $ 775,241,114 $ (114,313,253) $ 661,103,391 Exercise of common warrants issued in offering 4,517,427 4,517 3,609,424 — 3,613,941 Restricted stock vested 659,479 659 (659) — — Shares to cover tax withholdings for restricted stock vested (79,634) (79) 79 — — Payments to cover tax withholdings for restricted stock vested, net — — (134,381) — (134,381) Share-based compensation — — 1,943,696 — 1,943,696 Net income — — — 32,715,779 32,715,779 Balance, March 31, 2023 180,627,484 $ 180,627 $ 780,659,273 $ (81,597,474) $ 699,242,426 Induced exercise of common warrants issued in offering 14,512,166 14,512 8,673,143 — 8,687,655 Restricted stock vested 288,709 289 (289) — — Shares to cover tax withholdings for restricted stock vested (77,687) (78) 78 — — Payments to cover tax withholdings for restricted stock vested, net — — (141,682) — (141,682) Share-based compensation — — 2,260,312 — 2,260,312 Net income — — — 28,791,605 28,791,605 Balance, June 30, 2023 195,350,672 $ 195,350 $ 791,450,835 $ (52,805,869) $ 738,840,316 For the Six Months Ended June 30, 2022 Balance, December 31, 2021 100,192,562 $ 100,193 $ 553,472,292 $ (252,948,278) $ 300,624,207 Share-based compensation — — 1,521,910 — 1,521,910 Net income — — — 7,112,043 7,112,043 Balance, March 31, 2022 100,192,562 $ 100,193 $ 554,994,202 $ (245,836,235) $ 309,258,160 Exercise of common warrants issued in offering 6,453,907 6,454 5,156,672 — 5,163,126 Options exercised 100,000 100 (100) — — Shares elected to be withheld for options exercised (47,506) (48) 48 — — Restricted stock vested 610,195 610 (610) — — Shares to cover tax withholdings for restricted stock vested (73,047) (73) 73 — — Payments to cover tax withholdings for restricted stock vested — — (257,694) — (257,694) Share-based compensation — — 1,899,245 — 1,899,245 Net income — — — 41,944,422 41,944,422 Balance, June 30, 2022 107,236,111 $ 107,236 $ 561,791,836 $ (203,891,813) $ 358,007,259 8For the Six Months Ended June 30, 2023 June 30, 2022 Cash Flows From Operating Activities Net income $ 61,507,384 $ 49,056,465 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 42,064,603 20,530,490 Asset retirement obligation accretion 719,725 374,545 Amortization of deferred financing costs 2,440,769 388,548 Share-based compensation 4,204,008 3,421,155 Bad debt expense 22,209 — Deferred income tax expense (benefit) (4,575,710) 1,550,961 Excess tax expense (benefit) related to share-based compensation 150,877 — (Gain) loss on derivative contracts (12,739,565) 35,053,159 Cash received (paid) for derivative settlements, net (478,930) (33,732,766) Changes in operating assets and liabilities: Accounts receivable 8,748,338 (14,393,828) Inventory 1,923,422 — Prepaid expenses and other assets (959,678) (2,267,717) Accounts payable (15,061,289) 6,847,979 Settlement of asset retirement obligation (919,886) (1,666,576) Net Cash Provided by Operating Activities 87,046,277 65,162,415 Cash Flows From Investing Activities Payments for the Stronghold Acquisition (18,511,170) — Payments to purchase oil and natural gas properties (878,743) (743,851) Payments to develop oil and natural gas properties (72,551,222) (49,654,172) Payments to acquire or improve fixed assets subject to depreciation (25,894) (91,760) Sale of fixed assets subject to depreciation 332,230 134,600 Proceeds from divestiture of equipment for oil and natural gas properties 54,558 25,066 Receipt from sale of Delaware properties 7,992,917 — Net Cash (Used in) Investing Activities (83,587,324) (50,330,117) Cash Flows From Financing Activities Proceeds from revolving line of credit 84,500,000 50,500,000 Payments on revolving line of credit (102,500,000) (70,500,000) Proceeds from issuance of common stock from warrant exercises 12,301,596 5,163,126 Payments for taxes withheld on vested restricted shares, net (276,063) (257,694) Proceeds from notes payable 1,565,071 928,626 Payments on notes payable (652,277) (620,741) Reduction of financing lease liabilities (359,831) (230,642) Net Cash Provided by (Used in) Financing Activities (5,421,504) (15,017,325) Net Increase (Decrease) in Cash (1,962,551) (185,027) Cash at Beginning of Period 3,712,526 2,408,316 Cash at End of Period $ 1,749,975 $ 2,223,289 For the Six Months Ended June 30, 2023 June 30, 2022 Supplemental Cash Flow Information Cash paid for interest $ 18,622,944 $ 6,228,393 Noncash Investing and Financing Activities Asset retirement obligation incurred during development $ 173,516 $ 122,206 Asset retirement obligation sold (2,262,478) — Operating lease assets obtained in exchange for new operating lease liability 1,148,400 — Financing lease assets obtained in exchange for new financing lease liability 142,719 — Capitalized expenditures attributable to drilling projects financed through current liabilities (2,621,236) 11,181,178 Supplemental Schedule for Stronghold Acquisition Investing Activities - Cash Paid Payment of deferred cash payment $ 15,000,000 $ — Payment of post-close settlement $ 3,511,170 $ — Payments for the Stronghold Acquisition $ 18,511,170 $ — 9(UNAUDITED)–— BASIS OF PRESENTATION AND& SIGNIFICANT ACCOUNTING POLICIES“Company”“Company,” "Ring Energy" or “Ring”), have not been audited by an independent registered public accounting firm. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein. The condensed results of operations for the three and six months ended June 30, 2022,2023, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022,2023, for various reasons, including the impact of fluctuations in prices received for oil and natural gas, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, and other factors.footnotesnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.The CompanyRing Energy is a Nevada corporation that owns interestsgrowth oriented independent exploration and production company based in The Woodlands, Texas engaged in oil and natural gas propertiesdevelopment, production, acquisition, and exploration activities currently focused in Texas and New Mexico. The Company’sTexas. Our primary drilling operations target the oil and natural gas sales, profitability and future growth are dependent upon prevailing and future prices for oil and natural gasliquids rich producing formations in the Northwest Shelf and the successful acquisition, exploration and developmentCentral Basin Platform, both of oil and natural gas properties. Oil and natural gas prices have historically been volatile and may be subject to wide fluctuations in the future. A substantial decline in oil and natural gas prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows and quantities of oil and natural gas reserves that may be economically produced.COVID-19 – In March 2020, the World Health Organization classified the outbreak of COVID-19 as a pandemic. The nature of COVID-19 led to worldwide shutdowns, reductions in commercial and interpersonal activity and changes in consumer behavior. In attempting to control the spread of COVID-19, governments around the world imposed laws and regulations such as shelter-in-place orders, quarantines, executive orders and similar restrictions. As a result, the global economy was marked by significant slowdown and uncertainty, which in turn led to a precipitous decline in oil prices in response to decreased demand, further exacerbated by global energy storage shortages and by the price war among membersare part of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”) during the first quarter 2020. Prices recovered to pre-pandemic levels earlier last year and have recently increased to levels not seen since 2014, due in part to the accessibility of vaccines, reopening of states and other regions around the world after lockdowns, and optimism about the economic recovery. The continued spread of COVID-19, including vaccine-resistant strains or variants, or repeated deterioration in oil and natural gas prices could result in additional adverse impacts on the Company’s results of operations, cash flows and financial position, including asset impairments.Credit Facility,credit facility, and proceeds from sales of non-strategic assets. to some extent, its cash flows from such price declines; however, if oil or natural gas prices rapidly deteriorate due to unanticipated economic conditions, this could have a material adverse effect on the Company’s cash flows.the Company’sour liquidity.10
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The Company’s unaudited condensed financial statements are based on a number of significant estimates, including estimates of oil and natural gas reserve quantities, which are the basis for the calculation of depletion and impairment of oil and gas properties. Reserve estimates, by their nature, are inherently imprecise. Actual results could differ from those estimates. Changes in the future
Any
additional information.
Approximately 97%proportionate share of the Company’s accounts receivables and jointremaining estimated natural gas reserves.
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Bad debt expense | $ | 19,315 | $ | — | $ | 22,209 | $ | — | |||||||||||||||
11
| June 30, 2023 | December 31, 2022 | ||||||||||
| Joint interest billing receivables | $ | 2,776,650 | $ | 1,226,049 | |||||||
| Allowance for credit losses | (158,835) | (242,247) | |||||||||
| Joint interest billing receivables, net | $ | 2,617,815 | $ | 983,802 | |||||||
RING ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Inventory - The full balance of the Company's inventory consists of materials and supplies for its operations, with no work in process or finished goods inventory balances. Inventory is added to the books upon the purchase of supplies (inclusive of freight and sales tax costs) to use on well sites, and inventory is reduced by material transfers for inventory usage based on the initial invoiced value. The Company reports the balance of its inventory at the lower of cost or market value. Inventory balances are excluded from the Company's calculation of depletion.
All capitalized costs of oil and gas properties, plus estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves as determined by the Company’s independent petroleum engineers. The Company evaluates oil and gas properties for impairment quarterly. The Company did not incur a write down of oil and natural gas properties as a result of the ceiling test for the three and six months ended June 30, 2022 or for the three and six months ended June 30, 2021. Depreciation, depletion and amortization expense for the three and six months ended June 30, 2022 was $10,749,204 and $20,530,491, respectively, based on depletion at the rate of $12.51 and $12.28, respectively, per barrel of oil equivalent compared to $9,275,126 and $17,383,284, respectively, based on depletion at the rate of $11.58 and $11.42 per barrel of oil equivalent for the three and six months ended June 30, 2021. These amounts include $119,417 and $276,087, respectively, of depreciation and amortization for the three and six months ended June 30, 2022, compared to $94,890 and $155,860, respectively, of depreciation and amortization for the three and six months ended June 30, 2021.
Equipment, Vehicles and Leasehold Improvements – Office equipment is valued at historical cost adjusted for impairment loss less accumulated depreciation. Historical costs include all direct costs associated with the acquisition of office equipment and placing such equipment in service. Depreciation is calculated using the straight-line method based upon an estimated useful life of 3 to 10 years.
Asset Retirement Obligation –
Dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs.
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Depletion | $ | 20,511,809 | $ | 10,629,787 | $ | 41,492,351 | $ | 20,254,404 | |||||||||||||||
| Depletion rate, per barrel-of-oil-equivalent (Boe) | $ | 13.05 | $ | 12.51 | $ | 12.89 | $ | 12.28 | |||||||||||||||
| Leasehold improvements | 3‑5 years | |||||||
| Office equipment and software | 3‑7 years | |||||||
| Equipment | 5‑10 years | |||||||
| Automobiles | 4 years | |||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Depreciation | $ | 91,628 | $ | 8,567 | $ | 196,729 | $ | 48,622 | |||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||
| Interest paid for notes payable | $ | 9,234 | $ | 4,682 | $ | 12,925 | $ | 9,284 | ||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Deferred federal income tax benefit (provision) | $ | 6,640,741 | $ | (1,014,048) | $ | 5,111,491 | $ | (1,014,048) | |||||||||||||||
| Current state income tax benefit (provision) | (41,191) | 12,813 | (98,481) | — | |||||||||||||||||||
| Deferred state income tax benefit (provision) | (243,255) | (470,974) | (686,658) | (536,913) | |||||||||||||||||||
| Benefit from (Provision for) Income Taxes | $ | 6,356,295 | $ | (1,472,209) | $ | 4,326,352 | $ | (1,550,961) | |||||||||||||||
Income Taxes – Provisions for income taxes are based on taxes payable or refundable for
Since December 31, 2020, the Company has determined that a full valuation allowance is necessary due to the Company assessment that it is more likely than not that it will be unable to obtain the benefits of its deferred tax assets due to the Company’s history of taxable losses. During the three months ended June 30, 2022, the Company determined that certain existing deferred tax assets will not be offset by existing deferred tax liabilities as a result of the 80% limitation on the utilization net operating lossesOperations, incurred after 2017. Accordingly, for the three and six months ended June 30, 2022, the Company recorded federal income tax expense of $1,014,048. The Company recorded state deferred income tax expense of $536,913 during the six months ended June 30, 20222023 and $190,644 for the six months
12
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |||||||||||||||||||||||
| Share-based compensation | $ | 2,260,312 | $ | 1,899,245 | $ | 4,204,008 | $ | 3,421,155 | ||||||||||||||||||
ended June 30, 2021. The Company has immaterial operations in New Mexico which is in a net deferred tax asset position for which a full valuation allowance is still recorded.
Recently Adopted Accounting Pronouncements – In December 2019, the FASB released Accounting Standards Update (ASU) No. 2019-12 (“ASU 2019-12”), “Income Taxes(Topic 740) – Simplifying the Accounting for Income Taxes,” which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The amended standard is effective for fiscal years beginning after December 15, 2020.The adoption of ASU 2019-12 did not have a material impact to the Company’s financial statements or disclosures.
In October 2020, the FASB issued ASU No. 2020-10, “Codification Improvements” (“ASU 2020-10”), which clarifies or improves disclosure requirements for various topics to align with SEC regulations. This update was effective for the Company beginning in the first quarter of 2021 and was applied retrospectively. The adoption and implementation of this ASU did not have a material impact on the Company’s financial statements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”). ASU 2020-06 was issued to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. The guidance may be applied using either a modified retrospective or a fully retrospective method. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU 2020-06 effective January 1, 2022. The adoption and implementation of this ASU did not have a material impact on the Company’s financial statements.
Recent Accounting Pronouncements - – In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”Reporting (“ASU 2020-04”), which providesprovided optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that referencereferenced LIBOR or another rate that is expected to be discontinued.rate. ASU 2020-04 will bewas in effect through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), to provide clarifying guidance regarding the scope of Topic 848. ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. TheIn December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" ("ASU 2022-06"), which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. Beginning August 31, 2022, under the Company's Second Amended and Restated Credit Agreement,
does not plan to enter into additional contracts using LIBOR as a reference rate.
Basic and Diluted Earnings per Share – Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if all contracts to issue common stock were converted into common stock, except for those that are anti-dilutive. The dilutive effect of stock options and other share-based compensation is calculated using the treasury method.
13
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Oil, Natural Gas, and Natural Gas Liquids Revenues | |||||||||||||||||||||||
| Oil | $ | 78,042,072 | $ | 79,688,536 | $ | 161,628,399 | $ | 143,119,163 | |||||||||||||||
| Natural gas | (1,100,776) | 5,273,339 | (36,213) | 10,023,744 | |||||||||||||||||||
Natural gas liquids (1) | 2,407,277 | — | 5,839,299 | — | |||||||||||||||||||
| Total oil, natural gas, and natural gas liquids revenues | $ | 79,348,573 | $ | 84,961,875 | $ | 167,431,485 | $ | 153,142,907 | |||||||||||||||
| | | | | | | | | | | | |
| | For The Three Months |
| For The Six Months | ||||||||
| | Ended June 30, | | Ended June 30, | ||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||
Operating Revenues | | |
|
| |
|
| |
|
| |
|
Oil | | $ | 79,688,536 | | $ | 45,653,189 | | $ | 143,119,163 | | $ | 81,037,770 |
Natural gas | |
| 5,273,339 | | | 2,106,913 | |
| 10,023,744 | |
| 6,224,864 |
Total operating revenues | | $ | 84,961,875 | | $ | 47,760,102 | | $ | 153,142,907 | | $ | 87,262,634 |
All revenues are from production from the Permian Basin in Texas and New Mexico.
14
vehicle.
| 2023 | 2024 | 2025 | 2026 | 2027 | Other Future Years | ||||||||||||||||||||||||||||||
Operating lease payments (1) | $ | 220,193 | $ | 482,328 | $ | 494,692 | $ | 398,096 | $ | 216,000 | — | ||||||||||||||||||||||||
Financing lease payments (2) | 416,687 | 771,643 | 432,695 | 11,136 | — | — | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | |
|
| 2022 |
| 2023 |
| 2024 |
| 2025 |
| 2026 | |||||
Operating lease payments(1) | | $ | 174,563 | | $ | 356,991 | | $ | 376,855 | | $ | 384,719 | | $ | 110,096 |
Financing lease payments(2) | | | 223,365 | | | 438,328 | | | 372,056 | | | 99,796 | | | — |
| | | | | | |
|
| As of | ||||
|
| June 30, 2022 |
| December 31, 2021 | ||
Operating lease liability, current portion | | $ | 301,339 | | $ | 290,766 |
Operating lease liability, non-current portion | |
| 983,995 | |
| 1,138,319 |
Operating lease liability, total | | $ | 1,285,334 | | $ | 1,429,085 |
Total undiscounted future cash flows | |
| 1,403,223 | |
| 1,577,786 |
Imputed interest | |
| 117,889 | |
| 148,701 |
Undiscounted future cash flows less imputed interest | | $ | 1,285,334 | | $ | 1,429,085 |
| | | | | | |
Financing lease liability, current portion | | $ | 407,031 | | $ | 316,514 |
Financing lease liability, non-current portion | |
| 667,456 | |
| 343,727 |
Financing lease liability, total | | $ | 1,074,487 | | $ | 660,241 |
Total undiscounted future cash flows | |
| 1,133,545 | |
| 692,091 |
Imputed interest | |
| 59,058 | |
| 31,850 |
Undiscounted future cash flows less imputed interest | | $ | 1,074,487 | | $ | 660,241 |
15
As of June 30, 2023 December 31, 2022 Operating lease liability, current portion $ 394,404 $ 398,362 Operating lease liability, non-current portion 1,263,936 1,473,897 Operating lease liability, total $ 1,658,340 $ 1,872,259 Total undiscounted future cash flows (sum of future operating lease payments) 1,811,309 2,065,580 Imputed interest 152,969 193,321 Undiscounted future cash flows less imputed interest $ 1,658,340 $ 1,872,259 Financing lease liability, current portion $ 761,110 $ 709,653 Financing lease liability, non-current portion 765,753 1,052,479 Financing lease liability, total $ 1,526,863 $ 1,762,132 Total undiscounted future cash flows (sum of future financing lease payments) 1,632,161 1,900,595 Imputed interest 105,298 138,463 Undiscounted future cash flows less imputed interest $ 1,526,863 $ 1,762,132
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Operating lease costs | $ | 115,353 | $ | 83,590 | $ | 228,491 | $ | 167,180 | |||||||||||||||
Short-term lease costs (1) | 1,815,836 | 581,799 | 3,029,635 | 1,297,602 | |||||||||||||||||||
| Financing lease costs: | |||||||||||||||||||||||
Amortization of financing lease assets (2) | 189,495 | 110,850 | 375,523 | 227,465 | |||||||||||||||||||
Interest on financing lease liabilities (3) | 24,268 | 7,280 | 49,699 | 13,793 | |||||||||||||||||||
amortization
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Operating lease costs | | $ | 83,590 | | $ | 84,790 | | $ | 167,180 | | $ | 356,307 |
Short term lease costs (1) | | | 581,799 | | | 1,046,025 | | | 1,297,602 | | | 1,938,514 |
Financing lease costs: | | | | | | | | | | | | |
Amortization of financing lease assets (2) | | | 110,850 | | | 68,625 | | | 227,465 | | | 104,464 |
Interest on lease liabilities (3) | | | 7,280 | | | 4,078 | | | 13,793 | | | 9,006 |
| | | | | | | | | | | | |
| | For the Three Months | | For the Six Months | ||||||||
| | Ended June 30, | | Ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net Income (Loss) | | $ | 41,944,422 | | $ | (15,887,159) | | $ | 49,056,465 | | $ | (34,953,252) |
Basic Weighted-Average Shares Outstanding | |
| 106,390,776 | | | 99,300,458 | |
| 103,291,669 | |
| 99,197,160 |
Effect of dilutive securities: | |
| | | | | |
| | |
| |
Stock options | |
| 114,985 | | | — | |
| 115,069 | |
| — |
Restricted stock units | |
| 2,614,251 | | | — | |
| 2,274,467 | |
| — |
Performance stock units | | | 393,023 | | | — | | | 243,475 | | | — |
Common warrants | | | 21,084,554 | | | — | | | 20,327,025 | | | — |
Diluted Weighted-Average Shares Outstanding | |
| 130,597,589 | | | 99,300,458 | |
| 126,251,705 | |
| 99,197,160 |
Basic Earnings (Loss) per Share | | $ | 0.39 | | $ | (0.16) | | $ | 0.47 | | $ | (0.35) |
Diluted Earnings (Loss) per Share | | $ | 0.32 | | $ | (0.16) | | $ | 0.39 | | $ | (0.35) |
Stock options to purchase 70,500
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||
| Net Income | $ | 28,791,605 | $ | 41,944,422 | $ | 61,507,384 | $ | 49,056,465 | ||||||||||||||||||
| Basic Weighted-Average Shares Outstanding | 193,077,859 | 106,390,776 | 185,545,775 | 103,291,669 | ||||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||||
| Stock options | — | 114,985 | — | 115,069 | ||||||||||||||||||||||
| Restricted stock units | 1,096,128 | 2,614,251 | 1,192,039 | 2,274,467 | ||||||||||||||||||||||
| Performance stock units | 276,566 | 393,023 | 241,140 | 243,475 | ||||||||||||||||||||||
| Common warrants | 1,415,980 | 21,084,554 | 6,045,012 | 20,327,025 | ||||||||||||||||||||||
| Diluted Weighted-Average Shares Outstanding | 195,866,533 | 130,597,589 | 193,023,966 | 126,251,705 | ||||||||||||||||||||||
| Basic Earnings per Share | $ | 0.15 | $ | 0.39 | $ | 0.33 | $ | 0.47 | ||||||||||||||||||
| Diluted Earnings per Share | $ | 0.15 | $ | 0.32 | $ | 0.32 | $ | 0.39 | ||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||
| Antidilutive securities: | ||||||||||||||||||||||||||
| Stock options to purchase common stock | 265,500 | 70,500 | 265,500 | 70,500 | ||||||||||||||||||||||
| Unvested restricted stock units | 1,803,513 | 6,681 | 71,985 | 6,269 | ||||||||||||||||||||||
| Unvested performance stock units | 1,592,268 | — | 1,296,912 | 767,537 | ||||||||||||||||||||||
The
Stronghold Acquisition.
16
the downside risk of adverse commodity price movements, thetheir use also may limit future income from favorable commodity price movements.
The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions. At June 30, 2022, 100% of the Company’s volumes subject to derivative instruments are with lenders under its Credit Facility (as defined in Note 8). Non-performance risk is incorporated by utilizing discount rates adjusted for the credit risk of the Company’s counterparties. The Company is not subject to master netting agreements and classifies the fair value of its derivative positions on a gross basis in its corresponding Balance Sheets.
| | | | | | |
| | As of | ||||
|
| June 30, 2022 |
| December 31, 2021 | ||
Commodity derivative instruments | | $ | 1,353,196 | | $ | — |
Derivative assets, current | | $ | 1,353,196 | | $ | — |
| | | | | | |
Commodity derivative instruments | | $ | 785,389 | | $ | — |
Derivative assets, noncurrent | | $ | 785,389 | | $ | — |
| | | | | | |
Commodity derivative instruments | | $ | 32,700,566 | | $ | 29,241,588 |
Derivative liabilities, current | | $ | 32,700,566 | | $ | 29,241,588 |
| As of | |||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||
| Commodity derivative instruments, marked to market: | |||||||||||
| Derivative assets, current | $ | 14,604,030 | $ | 16,193,327 | |||||||
| Discounted deferred premiums | (6,296,493) | (11,524,165) | |||||||||
| Derivatives assets, current, net of premiums | $ | 8,307,537 | $ | 4,669,162 | |||||||
| Derivative assets, noncurrent | $ | 10,555,937 | $ | 7,606,258 | |||||||
| Discounted deferred premiums | — | (1,476,848) | |||||||||
| Derivative assets, noncurrent, net of premiums | $ | 10,555,937 | $ | 6,129,410 | |||||||
| Derivative liabilities, current | $ | 7,848,580 | $ | 13,345,619 | |||||||
| Derivative liabilities, noncurrent | $ | 10,829,096 | $ | 10,485,650 | |||||||
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
(Loss) on oil derivative | | $ | (7,457,018) | | $ | (35,277,240) | | $ | (35,053,159) | | $ | (66,667,190) |
(Loss) on natural gas derivatives | |
| — | |
| — | | | — | | | (198,689) |
(Loss) on derivative contracts | | $ | (7,457,018) | | $ | (35,277,240) | | $ | (35,053,159) | | $ | (66,865,879) |
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Oil derivatives: | |||||||||||||||||||||||
| Realized gain (loss) on oil derivatives | $ | (833,841) | $ | (19,617,265) | $ | (1,497,603) | $ | (33,732,766) | |||||||||||||||
| Unrealized gain (loss) on oil derivatives | 4,545,136 | 12,160,247 | 12,652,157 | (1,320,393) | |||||||||||||||||||
| Gain (loss) on oil derivatives | $ | 3,711,295 | $ | (7,457,018) | $ | 11,154,554 | $ | (35,053,159) | |||||||||||||||
| Natural gas derivatives: | |||||||||||||||||||||||
| Realized gain (loss) on natural gas derivatives | 1,013,436 | — | 1,018,673 | — | |||||||||||||||||||
| Unrealized gain (loss) on natural gas derivatives | (1,460,071) | — | 566,338 | — | |||||||||||||||||||
| Gain (loss) on natural gas derivatives | $ | (446,635) | $ | — | $ | 1,585,011 | $ | — | |||||||||||||||
| Gain (loss) on derivative contracts | $ | 3,264,660 | $ | (7,457,018) | $ | 12,739,565 | $ | (35,053,159) | |||||||||||||||
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Cash flows from operating activites: | | | | | | | | | | | | |
Cash (paid) on oil derivatives | | $ | (19,617,265) | | $ | (12,436,333) | | $ | (33,732,766) | | $ | (19,100,302) |
Cash received on natural gas derivatives | |
| — | |
| — | |
| — | |
| 743,178 |
Cash (paid) for derivative settlements, net | | $ | (19,617,265) | | $ | (12,436,333) | | $ | (33,732,766) | | $ | (18,357,124) |
17
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Cash flows from operating activities | |||||||||||||||||||||||
| Cash received (paid) for oil derivatives | $ | (833,841) | $ | (19,617,265) | $ | (1,497,603) | $ | (33,732,766) | |||||||||||||||
| Cash received (paid) from natural gas derivatives | 1,013,436 | — | 1,018,673 | — | |||||||||||||||||||
| Cash received (paid) for derivative settlements, net | $ | 179,595 | $ | (19,617,265) | $ | (478,930) | $ | (33,732,766) | |||||||||||||||
During 2020, 2021, and early 2022, the Company entered into additional derivative contracts in the form of swaps for the 2022 calendar period for oil. Additionally, on June 28 and 29, 2022, the Company entered into twelve new derivative contracts in the form of put options. The following tables reflect the details of current derivative contracts as of June 30, 2022:
| | | | | | | | | | | | | | | | | |
|
| |
| Type of |
| Barrels |
| |
| Swap | | Strike | | Deferred | |||
Date entered into |
| Period covered |
| Contract |
| per day |
| Index |
| price |
| price |
| premium | |||
Oil derivative contracts: | | | | | |
| | | | | | | | | | | |
12/04/2020 | | Calendar year 2022 | | Swap | | 500 | | WTI | | $ | 44.22 | | | | | | |
12/07/2020 |
| Calendar year 2022 |
| Swap | | 500 | | WTI | | | 44.75 | | | | | | |
12/10/2020 |
| Calendar year 2022 |
| Swap | | 500 | | WTI | |
| 44.97 | | | | |
| |
12/17/2020 | | Calendar year 2022 | | Swap | | 250 | | WTI | | | 45.98 | | | | | | |
01/04/2021 | | Calendar year 2022 | | Swap | | 250 | | WTI | | | 47.00 | | | | | | |
02/04/2021 | | Calendar year 2022 | | Swap | | 250 | | WTI | | | 50.05 | | | | | | |
05/11/2021 | | Calendar year 2022 | | Swap | | 879 | (1) | WTI | | | 49.03 | | | | | | |
02/01/2022 | | 02/01/2022 - 12/31/2022 | | Swap | | 1,000 | | WTI | | | 82.01 | | | | | |
|
06/28/2022 | | 07/01/2022 - 09/30/2022 | | Put | | 1,000 | | WTI | | | | | $ | 107.90 | | $ | 6.95 |
06/28/2022 | | 10/01/2022 - 12/31/2022 | | Put | | 1,000 | | WTI | | | | | | 100.60 | | | 11.71 |
06/28/2022 | | 01/01/2023 - 03/31/2023 | | Put | | 1,000 | | WTI | | | | | | 95.75 | | | 13.96 |
06/28/2022 |
| 04/01/2023 - 06/30/2023 |
| Put | | 1,000 | | WTI | | | | | | 92.70 | | | 15.20 |
06/28/2022 | | 07/01/2023 - 09/30/2023 | | Put | | 1,000 | | WTI | |
| | | | 90.00 | |
| 16.00 |
06/28/2022 | | 10/01/2023 - 12/31/2023 | | Put | | 1,000 | | WTI | | | | | | 87.70 | | | 16.53 |
06/29/2022 | | 01/01/2023 - 03/31/2023 | | Put | | 500 | | WTI | | | | | | 95.25 | | | 14.25 |
06/29/2022 | | 04/01/2023 - 06/30/2023 | | Put | | 500 | | WTI | | | | | | 91.85 | | | 15.58 |
06/29/2022 | | 07/01/2023 - 09/30/2023 | | Put | | 500 | | WTI | | | | | | 89.10 | | | 16.45 |
06/29/2022 | | 10/01/2023 - 12/31/2023 | | Put | | 500 | | WTI | | | | | | 86.90 | | | 16.93 |
06/29/2022 | | 01/01/2024 - 03/31/2024 | | Put | | 500 | | WTI | | | | | | 84.70 | | | 17.15 |
06/29/2022 | | 04/01/2024 - 06/30/2024 | | Put | | 500 | | WTI | | | | | | 82.80 | | | 17.49 |
18
| Oil Hedges (WTI) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 181,700 | 138,000 | 170,625 | 156,975 | 282,900 | 368,000 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average swap price | $ | 74.19 | $ | 74.52 | $ | 67.40 | $ | 66.40 | $ | 65.49 | $ | 68.43 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Deferred premium puts: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 230,000 | 165,600 | 45,500 | 45,500 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average strike price | $ | 80.47 | $ | 83.78 | $ | 84.70 | $ | 82.80 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average deferred premium price | $ | 10.60 | $ | 14.61 | $ | 17.15 | $ | 17.49 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Two-way collars: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 211,163 | 274,285 | 339,603 | 325,847 | 230,000 | 128,800 | 474,750 | 464,100 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average put price | $ | 55.56 | $ | 56.73 | $ | 64.20 | $ | 64.30 | $ | 64.00 | $ | 60.00 | $ | 57.06 | $ | 60.00 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average call price | $ | 69.25 | $ | 70.77 | $ | 79.73 | $ | 79.09 | $ | 76.50 | $ | 73.24 | $ | 75.82 | $ | 69.85 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Three-way collars: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 16,242 | 15,598 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average first put price | $ | 45.00 | $ | 45.00 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average second put price | $ | 55.00 | $ | 55.00 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average call price | $ | 80.05 | $ | 80.05 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Gas Hedges (Henry Hub) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| NYMEX Swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 144,781 | 203,706 | 152,113 | 138,053 | 121,587 | 644,946 | 616,199 | 591,725 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average swap price | $ | 3.36 | $ | 3.35 | $ | 3.62 | $ | 3.61 | $ | 3.59 | $ | 4.45 | $ | 3.78 | $ | 3.43 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Two-way collars: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 404,421 | 579,998 | 591,500 | 568,750 | 552,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average put price | $ | 3.17 | $ | 3.15 | $ | 4.00 | $ | 4.00 | $ | 4.00 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Call hedged volume (MMBtu) | 404,421 | 579,998 | 591,500 | 568,750 | 552,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average call price | $ | 4.55 | $ | 4.50 | $ | 6.29 | $ | 6.29 | $ | 6.29 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Oil Hedges (basis differential) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Argus basis swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 305,000 | 460,000 | 364,000 | 364,000 | 368,000 | 368,000 | 270,000 | 273,000 | 276,000 | 276,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average spread price (1) | $ | 1.10 | $ | 1.10 | $ | 1.15 | $ | 1.15 | $ | 1.15 | $ | 1.15 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | |||||||||||||||||||||||||||||||||||||||
| Gas Hedges (basis differential) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Waha basis swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 332,855 | 324,021 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average spread price (1) | $ | 0.55 | $ | 0.55 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| El Paso Permian Basin basis swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 329,529 | 459,683 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average spread price (1) | $ | 0.63 | $ | 0.63 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
NOTE 7 –— FAIR VALUE MEASUREMENTS
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity).
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | ||||
| Level 2: | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. | ||||
| Level 3: | Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). | ||||
Other financial instruments include cash, accounts receivable and accounts payable. The carrying amount of these instruments approximates fair value because of their short-term nature. The Company’s long-term debt obligation bears interest at floating market rates, therefore the carrying amounts and fair value are approximately equal.
19
The following table summarizes the valuation of the Company’sour assets and liabilities that are measured at fair value on a recurring basis(furtherbasis (further detail in Note 6)"NOTE 6 — DERIVATIVE FINANCIAL INSTRUMENTS").
| | | | | | | | | | | | |
| | Fair Value Measurement Classification | | | | |||||||
| | Quoted prices | | | | | | | | | | |
| | in Active | | | | | | | | | | |
| | Markets | | | | | | | | | | |
| | for Identical | | Significant | | | | | | | ||
| | Assets | | Other | | Significant | | | | |||
| | or | | Observable | | Unobservable | | | | |||
| | (Liabilities) | | Inputs | | Inputs | | | ||||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | ||||
As of December 31, 2021 | | | | | | | | | | | | |
Commodity Derivatives - Liabilities | | $ | 0 | | $ | (29,241,588) | | $ | 0 | | $ | (29,241,588) |
Total | | $ | 0 | | $ | (29,241,588) | | $ | 0 | | $ | (29,241,588) |
| | | | | | | | | | | | |
| | Fair Value Measurement Classification | | | | |||||||
| | Quoted prices | | | | | | | | | | |
| | in Active | | | | | | | | | | |
| | Markets | | | | | | | | | | |
| | for Identical | | Significant | | | | | | | ||
| | Assets | | Other | | Significant | | | | |||
| | or | | Observable | | Unobservable | | | | |||
| | (Liabilities) | | Inputs | | Inputs | | | | |||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | ||||
As of June 30, 2022 | |
| | |
| | |
| | |
| |
Commodity Derivatives - Assets | | $ | 0 | | $ | 2,138,585 | | $ | 0 | | $ | 2,138,585 |
Commodity Derivatives - Liabilities | | | 0 | | | (32,700,566) | | | 0 | | | (32,700,566) |
Total | | $ | 0 | | $ | (30,561,981) | | $ | 0 | | $ | (30,561,981) |
| Fair Value Measurement Classification | |||||||||||||||||||||||
| Quoted prices in Active Markets for Identical Assets or (Liabilities) (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| Commodity Derivatives - Assets | $ | — | $ | 10,798,572 | $ | — | $ | 10,798,572 | |||||||||||||||
| Commodity Derivatives - Liabilities | $ | — | $ | (23,831,269) | $ | — | $ | (23,831,269) | |||||||||||||||
| Total | $ | — | $ | (13,032,697) | $ | — | $ | (13,032,697) | |||||||||||||||
| As of June 30, 2023 | |||||||||||||||||||||||
| Commodity Derivatives - Assets | $ | — | $ | 18,863,474 | $ | — | $ | 18,863,474 | |||||||||||||||
| Commodity Derivatives - Liabilities | $ | — | $ | (18,677,676) | $ | — | $ | (18,677,676) | |||||||||||||||
| Total | $ | — | $ | 185,798 | $ | — | $ | 185,798 | |||||||||||||||
The Credit Facility allows for Eurodollar Loans and Base Rate Loans (as respectivelypro forma Leverage Ratio, as defined in the Second Amended and Restated Credit Facility). Agreement, does not exceed 2.00 to 1.00, (iii) the amount of such payments does not exceed Available Free Cash Flow, (iv) the Borrowing Base Utilization Percentage is not greater than 80%, and (v) a Responsible Officer certifies that the other four conditions are satisfied.
20
The Second Amended and Restated Credit FacilityAgreement contains certain covenants, which, among other things, require the maintenance of (i) a total Leverage Ratio (outstanding debt to adjusted earnings before interest, taxes, depreciation and amortization)amortization, exploration expenses, and all other non-cash charges acceptable to the Administrative Agent) of not more than 4.03.0 to 1.0 and (ii) a minimum ratio of Current Assets to Current Liabilities (as such terms are defined in the Second Amended and Restated Credit Facility)Agreement) of 1.0 to 1.0.
2023.
| Balance, December 31, 2022 | $ | 30,226,306 | |||
| Liabilities acquired | — | ||||
| Liabilities incurred | 173,516 | ||||
| Liabilities sold | (2,262,478) | ||||
| Liabilities settled | (151,656) | ||||
| Revision of estimate | — | ||||
| Accretion expense | 719,725 | ||||
| Balance, June 30, 2023 | $ | 28,705,413 | |||
| | | |
Balance, December 31, 2021 |
| $ | 15,292,054 |
Liabilities incurred | |
| 122,206 |
Liabilities acquired | |
| — |
Liabilities sold | | | — |
Revision of previous estimates | | | — |
Liabilities settled | |
| (415,262) |
Accretion expense | |
| 374,545 |
Balance, June 30, 2022 | | $ | 15,373,543 |
| June 30, 2023 | December 31, 2022 | ||||||||||
| Asset retirement obligations, current | 408,958 | 635,843 | |||||||||
| Asset retirement obligations, non-current | 28,296,455 | 29,590,463 | |||||||||
| Asset retirement obligations | $ | 28,705,413 | $ | 30,226,306 | |||||||
During the year ended
warrant, expiring five years from initial issuance in October 2020. During the six months ended June 30, 2023, a total of 19,029,593 common warrants were exercised. The following table reflects the common warrants exercised, including the proceeds received for such exercises. As of June 30, 2023 there remained 78,200 exercisable common warrants.
| Common Warrants | Exercise Price | Proceeds Received | ||||||||||||||||||
| Exercisable, December 31, 2021 | 29,361,700 | $ | 0.80 | |||||||||||||||||
| Exercised | — | — | $ | — | ||||||||||||||||
| Exercisable, March 31, 2022 | 29,361,700 | $ | 0.80 | |||||||||||||||||
| Exercised | (6,453,907) | 0.80 | $ | 5,163,126 | ||||||||||||||||
| Exercisable, June 30, 2022 | 22,907,793 | $ | 0.80 | |||||||||||||||||
| Exercisable, December 31, 2022 | 19,107,793 | $ | 0.80 | |||||||||||||||||
| Exercised | (4,517,427) | 0.80 | $ | 3,613,941 | ||||||||||||||||
| Exercisable, March 31, 2023 | 14,590,366 | $ | 0.80 | |||||||||||||||||
Exercised (1) | (14,512,166) | 0.62 | $ | 8,997,543 | ||||||||||||||||
| Exercisable, June 30, 2023 | 78,200 | $ | 0.80 | |||||||||||||||||
UNITS
Condensed Statements of Operations.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |||||||||||||||||||||||
| Share-based compensation | $ | 2,260,312 | $ | 1,899,245 | $ | 4,204,008 | $ | 3,421,155 | ||||||||||||||||||
2023.
21
| | | | | | | | | | |
|
| |
| | |
| Weighted- |
| | |
| | | | Weighted- | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | | | Exercise | | Contractual | | Intrinsic | ||
|
| Shares |
| Price |
| Term |
| Value | ||
Outstanding, December 31, 2020 |
| 465,500 | | $ | 3.26 |
|
|
| | |
Granted |
| 0 | | | — |
|
|
| | |
Forfeited or rescinded |
| 0 | | | — |
|
|
| | |
Exercised | | 0 | | | — | | | | | |
Outstanding, March 31, 2021 | | 465,500 | | $ | 3.26 | | 3.00 Years | | $ | 134,850 |
Granted | | 0 | | | — | | | | | |
Forfeited or rescinded | | 0 | | | — | | | | | |
Exercised |
| 0 | | | — |
|
|
| | |
Outstanding, June 30, 2021 | | 465,500 | | | 3.26 | | 2.75 Years | | $ | 426,300 |
Exercisable, June 30, 2021 | | 460,700 | | $ | 3.11 | | 2.70 Years | | | |
| | | | | | | | | | |
Outstanding, December 31, 2021 | | 365,500 | | $ | 3.61 | | | | | |
Granted | | 0 | | | — | | | | | |
Forfeited or rescinded |
| 0 | | | — |
| | | | |
Exercised |
| 0 | | | — |
| | |
|
|
Outstanding, March 31, 2022 | | 365,500 | | $ | 3.61 | | 2.21 Years | | $ | 536,900 |
Granted |
| 0 | | | — |
|
|
| | |
Forfeited or rescinded |
| 0 | | | — |
|
|
| | |
Exercised |
| (100,000) | | | 2.00 |
|
|
| | |
Outstanding, June 30, 2022 | | 265,500 | | | 4.21 | | 2.14 Years | | $ | 128,700 |
Exercisable, June 30, 2022 | | 265,500 | | $ | 4.21 | | 2.14 Years | | | |
| Options | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding, December 31, 2021 | 365,500 | $ | 3.61 | ||||||||||||||||||||
| Granted | — | — | |||||||||||||||||||||
| Forfeited or rescinded | — | — | |||||||||||||||||||||
| Exercised | — | — | |||||||||||||||||||||
| Outstanding, March 31, 2022 | 365,500 | $ | 3.61 | 2.21 years | $ | 536,900 | |||||||||||||||||
| Granted | — | $ | — | ||||||||||||||||||||
| Forfeited or rescinded | — | $ | — | ||||||||||||||||||||
| Exercised | (100,000) | $ | 2.00 | ||||||||||||||||||||
| Outstanding, June 30, 2022 | 265,500 | $ | 4.21 | 2.14 years | $ | 128,700 | |||||||||||||||||
| Exercisable, June 30, 2022 | 265,500 | $ | 4.21 | 2.14 years | |||||||||||||||||||
| Outstanding, December 31, 2022 | 265,500 | $ | 4.21 | ||||||||||||||||||||
| Granted | — | — | |||||||||||||||||||||
| Forfeited or rescinded | — | — | |||||||||||||||||||||
| Exercised | — | — | |||||||||||||||||||||
| Outstanding, March 31, 2023 | 265,500 | $ | 4.21 | 1.39 years | $ | — | |||||||||||||||||
| Granted | — | $ | — | ||||||||||||||||||||
| Forfeited or rescinded | — | $ | — | ||||||||||||||||||||
| Exercised | — | $ | — | ||||||||||||||||||||
| Outstanding, June 30, 2023 | 265,500 | $ | 4.21 | 1.14 years | $ | — | |||||||||||||||||
| Exercisable, June 30, 2023 | 265,500 | $ | 4.21 | 1.14 years | |||||||||||||||||||
22
| | | | | |
|
| |
| Weighted- | |
| | | | Average Grant | |
|
| Restricted stock |
| Date Fair Value | |
Outstanding, December 31, 2020 |
| 2,132,297 | | $ | 1.03 |
Granted |
| 0 | |
| 0 |
Forfeited or rescinded |
| 0 | |
| 0 |
Vested |
| (94,350) | |
| 4.95 |
Outstanding, March 31, 2021 | | 2,037,947 | | $ | 0.85 |
Granted | | 1,196,102 | | | 2.77 |
Forfeited or rescinded | | 0 | | | 0 |
Vested | | (3,480) | | | 5.96 |
Outstanding, June 30, 2021 | | 3,230,569 | | $ | 1.55 |
| | | |
| |
Outstanding, December 31, 2021 | | 2,572,596 | | $ | 1.75 |
Granted | | 1,247,061 | | | 2.79 |
Forfeited or rescinded |
| 0 | | | 0 |
Vested | | 0 | | | 0 |
Outstanding, March 31, 2022 |
| 3,819,657 | | $ | 2.09 |
Granted |
| 19,642 | | | 4.27 |
Forfeited or rescinded | | (17,204) | | | 2.79 |
Vested | | (610,195) | | | 2.80 |
Outstanding, June 30, 2022 | | 3,211,900 | | $ | 1.97 |
| Restricted Stock Units | Weighted- Average Grant Date Fair Value | ||||||||||
| Outstanding, December 31, 2021 | 2,572,596 | $ | 1.75 | ||||||||
| Granted | 1,247,061 | 2.79 | |||||||||
| Forfeited or rescinded | — | — | |||||||||
| Vested | — | — | |||||||||
| Outstanding, March 31, 2022 | 3,819,657 | $ | 2.09 | ||||||||
| Granted | 19,642 | $ | 4.27 | ||||||||
| Forfeited or rescinded | (17,204) | $ | 2.79 | ||||||||
| Vested | (610,195) | $ | 2.80 | ||||||||
| Outstanding, June 30, 2022 | 3,211,900 | $ | 1.97 | ||||||||
| Outstanding, December 31, 2022 | 2,623,790 | $ | 2.29 | ||||||||
| Granted | 2,270,842 | 2.22 | |||||||||
| Forfeited or rescinded | (11,712) | 2.22 | |||||||||
| Vested | (659,479) | 2.80 | |||||||||
| Outstanding, March 31, 2023 | 4,223,441 | $ | 2.17 | ||||||||
| Granted | — | $ | — | ||||||||
| Forfeited or rescinded | (49,465) | $ | 2.22 | ||||||||
| Vested | (288,709) | $ | 2.85 | ||||||||
| Outstanding, June 30, 2023 | 3,885,267 | $ | 2.12 | ||||||||
Grant activity for the six months ended June 30, 20222023 was primarily restricted sharesstock units for the annual long-term incentive plan awards for employees.
23
| | | | | |
| | | | Weighted- | |
| | Performance | | Average Grant | |
|
| Stock Units |
| Date Fair Value | |
Outstanding, December 31, 2020 |
| — | | $ | — |
Granted |
| — | |
| — |
Forfeited or rescinded |
| — | |
| — |
Vested |
| — | |
| — |
Outstanding, March 31, 2021 |
| — | | $ | — |
Granted | | — | | | — |
Forfeited or rescinded | | — | | | — |
Vested | | — | | | — |
Outstanding, June 30, 2021 | | — | | $ | — |
| | | | | |
Outstanding, December 31, 2021 | | 860,216 | | $ | 3.87 |
Granted | | 860,216 | | | 3.65 |
Forfeited or rescinded | | — | | | — |
Vested | | — | | | — |
Outstanding, March 31, 2022 | | 1,720,432 | | $ | 3.76 |
Granted | | — | | | — |
Forfeited or rescinded | | — | | | — |
Vested | | — | | | — |
Outstanding, June 30, 2022 | | 1,720,432 | | $ | 3.76 |
| Performance Stock Units | Weighted- Average Grant Date Fair Value | ||||||||||
| Outstanding, December 31, 2021 | 860,216 | $ | 3.87 | ||||||||
| Granted | 860,216 | 3.65 | |||||||||
| Forfeited or rescinded | — | — | |||||||||
| Vested | — | — | |||||||||
| Outstanding, March 31, 2022 | 1,720,432 | $ | 3.76 | ||||||||
| Granted | — | $ | — | ||||||||
| Forfeited or rescinded | — | $ | — | ||||||||
| Vested | — | $ | — | ||||||||
| Outstanding, June 30, 2022 | 1,720,432 | $ | 3.76 | ||||||||
| Outstanding, December 31, 2022 | 1,720,432 | $ | 3.76 | ||||||||
| Granted | 1,162,162 | 2.71 | |||||||||
| Forfeited or rescinded | — | — | |||||||||
| Vested | — | — | |||||||||
| Outstanding, March 31, 2023 | 2,882,594 | $ | 3.34 | ||||||||
| Granted | — | $ | — | ||||||||
| Forfeited or rescinded | — | $ | — | ||||||||
| Vested | — | $ | — | ||||||||
| Outstanding, June 30, 2023 | 2,882,594 | $ | 3.34 | ||||||||
One of those wells has been plugged, and the bond released in the amount of $50,150, leaving the amount related to inactive wells as $50,288. On December 23, 2022, the Company increased its blanket plugging surety bond by $200,000. As of June 30, 2023, the Company had surety bonds in total of $650,288.
24
NOTE 13 –— SUBSEQUENT EVENTS
25
forward-looking statements as a result of many factors, including those discussed under “Risk Factors,” "Forward Looking Statements" and elsewhere in this Quarterly Report.2.2: Management’s Discussion and Analysis of Financial Condition and Results of OperationsManagement’s DiscussionAnalysis of Financial Condition and Results of Operations analyzes the major elements of our Balance Sheets and Statements of Operations. This sectionanalysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 and our interim unauditedaccompanying financial statements and accompanyingthe notes to those financial statements included elsewhere in this Quarterly Report. The following discussion includes forward-looking statements that reflect our plans, estimates and beliefs and our actual results could differ materially from those discussed in these financial statements.(“Ring,” the “Company,” “our,” “we,” “us,” or(the "Company," "Ring," "we," "us," "our" and similar terms) is a growth oriented independent exploration and production company and isbased in The Woodlands, Texas engaged in oil and natural gas development, production, acquisition, and exploration activities currently focused in Texas and New Mexico.the Permian Basin of Texas. Our primary drilling operations target the oil and liquids rich producing formations in the Northwest Shelf and the Central Basin Platform, and the Delaware Basin, allboth of which are part of the Permian Basin.Our corporate headquarters are in The Woodlands, Texas.Recent DevelopmentsStronghold Purchase AgreementOn July 1, 2022, the Company, as buyer, and Stronghold Energy II Operating, LLC, a Delaware limited liability company (“Stronghold OpCo”) and Stronghold Energy II Royalties, LP, a Delaware limited partnership (“Stronghold RoyaltyCo”, together with Stronghold OpCo, collectively, “Stronghold”), as seller, entered into a purchase and sale agreement (the “Purchase Agreement”). The Purchase Agreement provides that the Company will acquire (the “Stronghold Acquisition”) interests in oil and gas leases and related property of Stronghold located in the Central Basin Platform of Texas for a purchase price (the “Purchase Price”) of approximately $465 million, of which $215 million will be in cash, $20 million in assumed derivative liabilities, and the remainder will be in the form of stock consideration which is expected to consist of (i) 21,339,986 shares of common stock, par value $0.001 per share of the Company (“Common stock”) and (ii) 153,176 shares of newly created Series A Convertible Preferred Stock, par value $0.001 (“Preferred Stock”). Each share of Preferred Stock is automatically convertible into 277.7778 shares of common stock upon stockholder approval of the conversion. The Purchase Price is subject to customary purchase price adjustments with an effective date of June 1, 2022. On July 5, 2022, in connection with the Purchase Agreement, the Company deposited $46.5 million in cash into a third-party escrow account as a deposit pursuant to the Purchase Agreement, which will be credited against the Purchase Price upon the closing of the Stronghold Acquisition. The Company expects the Stronghold Acquisition to close in the third quarter of 2022.We aredeliveringbalancing 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.sustainable returns to our stockholdersreserves by developing acquiring, exploring for,our oil-rich resource base through conventional and commercializing oilhorizontal drilling. In an effort to maximize its value and natural gas resources vitalpotential, Ring intends to drill and develop its acreage base in both the world’s healthNorthwest Shelf and welfare. Successfully achieving Ring’s mission requires a firm commitmentCentral Basin Platform assets, allowing Ring to execute on its plan of operating safely in a socially responsiblewithin its generated cash flow.environmentally friendly manner, while ensuringdeleveraging 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, 2023, the Company conductsmade net paydowns of $25 million on its businessrevolving line of credit, which reduced the outstanding long-term debt balance to $397 million.honestyexceptional 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 integrity. Specifically, our businesscomparable to its existing inventory of drilling locations. We pursue an acquisition strategy isdesigned to increase our stockholders’ value throughreserves at attractive finding costs and complement existing core properties. Management intends to continue to pursue strategic acquisitions and structure the following:
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.●Growing production and reserves by developing our oil-rich resource base through conventional and horizontal drilling. In an effort to maximize its value and resource 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 on an annual basis.
26
DuringIn the second quarter of 2022, Ring drilled a total of nine wells, completed seven wells, and began the completion process on four wells, all2023, in the Northwest Shelf. Two ofShelf, the wellsCompany drilled and completed were 1-miletwo 1.5-mile horizontal wells that were drilled in the first quarter with both wells at a working interest of 100%. In addition, there were three 1-mile horizontal wells(one with a working interest of 100% and two 1.5-mile horizontal wellsthe other with a working interest of approximately 98.7% that were drilled75.4%) and completed in the second quarter. Ring also drilled and began the completion process on an additional fourtwo 1-mile horizontal wells. Two of the wells have(both with a working interest of 100%, one hasapproximately 91.1%). Additionally, in its Crane County acreage within the Central Basin Platform, the Company drilled and completed two vertical wells (each with a working interest of 87.5%,100%) and the fourth hasperformed three vertical well re-completions (each with a working interest of 75%100%). In addition to
| Quarter | Area | Wells Drilled | Wells Completed | Re-completions | ||||||||||||||||||||||
| 1Q 2023 | Northwest Shelf | 4 | 4 | — | ||||||||||||||||||||||
| Central Basin Platform (Vertical) | 3 | 3 | 6 | |||||||||||||||||||||||
| Total | 7 | 7 | 6 | |||||||||||||||||||||||
| 2Q 2023 | Northwest Shelf | 4 | 4 | — | ||||||||||||||||||||||
| Central Basin Platform (Vertical) | 2 | 2 | 3 | |||||||||||||||||||||||
| Total | 6 | 6 | 3 | |||||||||||||||||||||||
Executive Summary - 2022 Developments and Highlights
COVID-19 and Geopolitical Impact
In December of 2020, the Food and Drug Administration authorized the use of the COVID-19 vaccination in the United States. The shots were first administered to front line workers and the elderly but were soon made available to all adults. The daily new infections peaked in the first quarter of 2021 and have seen an overall steady decline, giving states the ability to reopen to certain extents. In March 2021, the Federal Government passed a $1.9 trillion coronavirus relief package which included direct payments to qualifying individuals, extended unemployment benefits, and provided state and local assistance. During 2021, the demand forcrude oil and natural gas increased as the economy recovered from the effectsand our ability to market our production on economically attractive terms. Commodity prices are affected by many factors outside of the COVID-19 pandemicour control, including changes in market supply and demand both domestically and world wide, which strengthened energy prices. Although bothare impacted by many factors. As a result, we cannot accurately predict future commodity prices, and therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes or revenues.
Oil and Natural Gas Revenues
Ourdevelop sufficient amounts of crude oil and natural gas producing propertiesreserves at economical costs are located in the Permian Basin. Oil sales represented approximately 94% and 96% ofcritical to our total revenue for the three months ended June 30, 2022 and 2021, respectively. Gas was a higher percentage of revenue in the three months ended June 30, 2022 due to the significant increase in gas sales volumes as well as increased product prices. Oil had an average realized price of $109.24 per barrel, compared to $65.00 per barrel for the same period in 2021. Gas prices had an average realized price of $7.29 per Mcf for the quarter, compared to $3.90 per Mcf for the same period in 2021.
27
Commodity Risk Management
Effective February 1, 2022 we entered into swaps for 1,000 barrels of oil per day for the remainder of calendar year 2022 at a weighted average price of $84.61 per barrel. Additionally, we entered into deferred premium commodity put options on June 28 and 29, 2022. In total, we had swaps for 3,129 barrels of oil per day for the month of January 2022, we had swaps for 4,129 barrels of oil per day for February through June 2022, and we have swaps and put options for a total of 5,129 barrels of oil per day for July through December 2022, with a weighted average price of $59.08 per barrel for the next two quarters in 2022. We have put options in place for 1,500 barrels per day from January through December 2023 with a weighted average price of $75.70 per barrel, and we have put options in place for 500 barrels per day from January through June 2024 with a weighted average price of $66.43 per barrel. Our 2022 derivative financial instruments resulted in a total non-cash fair value gain of approximately $12.2 million during the three months ended June 30, 2022 and cash paid for derivative settlements of approximately $19.6 million, for a total loss on derivative contracts of approximately $7.4 million.
Borrowing Base
The Company’s borrowing base remained at $350 million during the second quarter of 2022, with the minimum hedged barrels of oil per day at 3,100. We paid down $10 million of debt in each of the first and second quarters of 2022 and had $270 million of principal outstanding on our Credit Facility as of June 30, 2022. As our borrowing base is subject to a semi-annual redetermination, our available borrowings and liquidity could be impacted by a redetermination later in 2022.
Results of Operations – For
Oil and natural gas sales. For the three months ended June 30, 2022 oil and natural gas sales revenue increased $37,201,773 to $84,961,875, compared to $47,760,102 for the same period during 2021, primarily as a result of higher oil and natural gas prices, as well as increased production. Of this, oil sales increased $34,035,347 and natural gas sales increased $3,166,426. For the three months ended June 30, 2022, oil sales volume increased 27,076 barrels to 729,484 barrels, compared to 702,408 barrels for the same period in 2021. The average realized per barrel of oil price increased 68% from $65.00 for the three months ended June 30, 2021, to $109.24 for the three months ended June 30, 2022. For the three months ended June 30, 2022, gas sales volume increased 182,339 thousand cubic feet (Mcf) to 723,196 Mcf, compared to 540,857 Mcf for the same period in 2021 due to workovers completed as well as new wells placed into production. The average realized natural gas price per Mcf increased 87% from $3.90 to $7.29.
The following table presents our sales revenues for the periods indicated:
| | | | | | |
| | For The Three Months | ||||
| | Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
Operating Revenues |
| |
|
| |
|
Oil | | $ | 79,688,536 | | $ | 45,653,189 |
Natural gas | |
| 5,273,339 | |
| 2,106,913 |
Total operating revenues | | $ | 84,961,875 | | $ | 47,760,102 |
Lease operating expenses. Total lease operating expenses increased approximately 12% from $7,424,488 for the three months ended June 30, 2021, to $8,301,443 for the three months ended June 30, 2022 primarily due to a significant increase to labor costs and industry wide inflationary pressures. Total lease operating expenses (“LOE”) expressed on a per barrel of oil equivalent (“Boe”) basis increased approximately 4% from $9.37 per Boe for the three months ended June 30, 2021, to $9.77 per Boe for the three months ended June 30, 2022 primarily due to the same causes during the three months ended June 30, 2022.
Gathering, transportation and processing costs. Our total gathering, transportation and processing costs decreased approximately 39% from $897,166 for the three months ended June 30, 2021 to $549,389 for the three months ended June 30, 2022, due primarily to a change in cost recognition due to a modification of the contract agreement. Specifically, beginning May 1, 2022, the Company and its processing entity modified the contract so that the Company no longer maintained ownership of the gas through processing. Accordingly, the Company from that point on accounts for any such fees and deductions as a direct reduction of the sales transaction price. Total gathering, transportation and processing costs expressed on a per Boe basis decreased approximately 43% from $1.13 per Boe for the three months ended June 30, 2021 to $0.65 per Boe for the three months ended June 30, 2022 primarily due to the aforementioned change in cost recognition.
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| For the Three Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||
| Oil | $ | 78,042,072 | $ | 79,688,536 | $ | (1,646,464) | (2) | % | ||||||||||||||||||
| Natural gas | (1,100,776) | 5,273,339 | (6,374,115) | (121) | % | |||||||||||||||||||||
| Natural gas liquids | 2,407,277 | — | 2,407,277 | 100 | % | |||||||||||||||||||||
| Total sales | $ | 79,348,573 | $ | 84,961,875 | $ | (5,613,302) | (7) | % | ||||||||||||||||||
| Net production: | ||||||||||||||||||||||||||
| Oil (Bbls) | 1,079,379 | 729,484 | 349,895 | 48 | % | |||||||||||||||||||||
| Natural gas (Mcf) | 1,557,545 | 723,196 | 834,349 | 115 | % | |||||||||||||||||||||
| Natural gas liquids (Bbls) | 232,698 | — | 232,698 | 100 | % | |||||||||||||||||||||
Total production (Boe)(1) | 1,571,668 | 850,017 | 721,651 | 85 | % | |||||||||||||||||||||
| Average sales price: | ||||||||||||||||||||||||||
| Oil (per Bbl) | $ | 72.30 | $ | 109.24 | $ | (36.94) | (34) | % | ||||||||||||||||||
| Natural gas (per Mcf) | (0.71) | 7.29 | (8.00) | (110) | % | |||||||||||||||||||||
| Natural gas liquids (Bbl) | 10.35 | — | 10.35 | 100 | % | |||||||||||||||||||||
| Total per Boe | $ | 50.49 | $ | 99.95 | $ | (49.46) | (49) | % | ||||||||||||||||||
Ad valorem taxes. Our ad valorem taxes increased approximately 35% from $703,775 for the three months ended June 30, 2021 to $949,239 for the three months ended June 30, 2022 primarily due to the increase in taxation commodity price from the prior year. Expressed on a per Boe basis, these costs increased approximately 26% from $0.89 per Boe for the three months ended June 30, 2021 to $1.12 for the three months ended June 30, 2022.
Oil and natural gas production taxes. Production taxes as a percentage of oil and natural gas sales increased slightly to 4.9% for the three months ended June 30, 2022 compared to 4.6% for the second quarter of 2021. We expect these rates to stay relatively steady.
Depreciation, depletion and amortization. Our depreciation, depletion and amortization expense increased by $1,474,078 to $10,749,204 for the three months ended June 30, 2022, compared to $9,275,126 during the same period in 2021 due to higher 2022 production volumes. Average depreciation, depletion and amortization was $12.65 per Boe for the three months ended June 30, 2022 and $11.70 per Boe for the three months ended June 30, 2021.
Asset retirement obligation accretion. Accretion of asset retirement obligations (“AROs”) increased by $2,290 to $186,303 for the three months ended June 30, 2022, compared to $184,013 for the three months ended June 30, 2021 because of more wells added.
General and administrative expense. General and administrative expense increased to $5,832,302 for the three months ended June 30, 2022 compared to $3,757,152 for the three months ended June 30, 2021. Within this change, we isolate share-based compensation, which increased to $1,899,245 for the three months ended June 30, 2022 compared to $351,775 for the three months ended June 30, 2021, primarily as the result of grants of equity awards in 2021 and 2022 pursuant to the Ring Energy, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”) and subsequent grants in 2021 and 2022. For the three months ended June 30, 2022, general and administrative expenses excluding share-based compensation were higher due to increased salaries and wages, insurance costs, and rental costs. Hiring of 12 additional full-time employees in addition to awards under the Annual Incentive Plan (“AIP”) resulted in an increase of $291,652 in salaries and wages. Review of insurance coverages led to adjusting the coverage (i.e., cyber insurance, director & officer insurance) with a cost increase in total of $137,089. Other cost increases included $94,737 in additional rent expense due to the rent abatement for The Woodlands office for the first nine months of 2021.
| | | | | | |
| | For The Three Months | ||||
| | Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
| | | | | | |
General and administrative expense (excluding Share-based compensation) | | $ | 3,933,057 | | $ | 3,405,377 |
Share-based compensation | |
| 1,899,245 | |
| 351,775 |
General and administrative expense | | $ | 5,832,302 | | $ | 3,757,152 |
Interest expense. Interest expense decreased $375,230 to $3,279,299 for the three months ended June 30, 2022, compared to $3,654,529 for the three months ended June 30, 2021 due to a $36.7 million lower average daily loan balance.
(Loss) on derivative contracts. In the Statements of Operations, the total loss on derivative contracts decreased by approximately 79%, from $35,277,240 for the three months ended June 30, 2021 to $7,457,018 for the three months ended June 30, 2022. Underlying this overall change in loss were changes within the realized and unrealized portions of the derivative instruments. We experienced an increase of $7,180,932 in realized losses from $12,436,333 during the three months ended June 30, 2021 to $19,617,265 during the three months ended June 30, 2022 due to an increase in oil prices. The Company records all derivative instruments on the Balance Sheets as either an asset or liability measured at fair value. Changes in fair value are recognized currently in earnings unless certain specific hedge accounting criteria are met. The unrealized (mark to market) loss decreased from $22,840,907 during the three months ended June 30, 2021 to an unrealized gain of $12,160,246 during the three months ended June 30, 2022 due to fewer barrels of oil being hedged as well as newly entered into put contracts with an asset position, net of deferred premiums.
Net income (loss). For the three months ended June 30, 2022, the Company achieved net income of $41,944,422, compared to a net loss of $15,887,159 for the three months ended June 30, 2021. The primary difference was the higher sales volumes and revenue in 2022 compared to 2021 resulting from increased workovers and drilling activities, and the significantly higher oil prices in 2022, as well as a lower loss on derivative contracts in the second quarter 2022 due to fewer barrels of oil being hedged.
29
Sales volumes and commodity prices received
The following table presents our sales volumes and received pricing information for the periods indicated:
| | | | | | |
| | For the Three Months | ||||
| | Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
Oil volume (Bbls) |
| | 729,484 |
| | 702,408 |
Natural gas volume (Mcf) |
| | 723,196 |
| | 540,857 |
Total Production (Boe)(1) |
| | 850,017 |
| | 792,551 |
| | | | | | |
Average Sales Price |
| |
|
| |
|
Oil price (per Bbl) | | $ | 109.24 | | $ | 65.00 |
Gas price (per Mcf) | | $ | 7.29 | | $ | 3.90 |
Total per Boe | | $ | 99.95 | | $ | 60.26 |
(1) Boe is calculated using six Mcf of natural gas as the equivalent of one barrel of oil.
Results. Oil sales decreased approximately $1.6 million from $79.7 million to $78.0 million due to a decrease in the average realized price per barrel from $109.24 to $72.30, offset by an increase in sales volume from 729,484 barrels of Operations –oil to 1,079,379 barrels of oil. The decreased average realized price per barrel was primarily a result of lower market conditions. Of the increase in volume of 349,895 barrels of oil, 285,981 barrels of oil were attributable to the Stronghold Acquisition with the remainder attributable to our 2023 development program offset by the Delaware divestiture.
Oil and natural gas sales. For the six months ended June 30, 2022 oil and natural gas sales revenue increased $65,880,273 to $153,142,907, compared to $87,262,634 for the same period during 2021, primarily as a result of higher oil and natural gas prices, as well as increased production. Of this, oil sales increased $62,081,393 and natural gas sales increased $3,798,880. For the six months ended June 30, 2022, oil sales volume increased 93,549 barrels to 1,405,699 barrels, compared to 1,312,150 barrels for the same period in 2021. The average realized per barrel of oil price increased 65% from $61.74 for the six months ended June 30, 2021, to $101.81 for the six months ended June 30, 2022. For the six months ended June 30, 2022, gas sales volume increased 276,813 thousand cubic feet (Mcf) to 1,455,479 Mcf, compared to 1,178,666 Mcf for the same period in 2021. The average realized natural gas price per Mcf increased 30% from $5.28 to $6.89.
The following table presents our sales revenues for the periods indicated:
| | | | | | |
|
| For The Six Months | ||||
| | Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
Operating Revenues | | | | | | |
Oil | | $ | 143,119,163 | | $ | 81,037,770 |
Natural gas | |
| 10,023,744 | |
| 6,224,864 |
Total operating revenues | | $ | 153,142,907 | | $ | 87,262,634 |
Lease operating expenses. Total lease operating expenses increased approximately 10% from $15,651,063 for the six months ended June 30, 2021, to $17,254,608 for the six months ended June 30, 2022 primarily due to a significant increase to labor costs and industry wide inflationary pressures. Total LOE expressed on a per Boe basis increased approximately 1% from $10.37 per Boe for the six months ended June 30, 2021, to $10.47 per Boe for the six months ended June 30, 2022 primarily due to the same causes during the six months ended June 30, 2022.
Gathering, transportation and processing costs. Our total gathering, transportation and processing costs slightly increased by approximately 1% from $1,832,185 for the six months ended June 30, 2021 to $1,846,247 for the six months ended June 30, 2022, due to increased produced volumes in 2022, offset by May and June costs being mapped as a reduction to oil and natural gas sales revenues, due to the processing entity beginning to take control of transportation at the wellhead beginning May 1, 2022. Total gathering, transportation and processing costs expressed on a per Boe basis decreased approximately 8% from $1.21 per Boe for the six months ended June 30, 2021 to $1.12 per Boe for the six months ended June 30, 2022 due to increased Boe as well as the change in recognition effective May 1, 2022.
Ad valorem taxes. Our ad valorem taxes increased approximately 32% from $1,441,026 for the six months ended June 30, 2021 to $1,901,193 for the six months ended June 30, 2022 primarily due to the increase in taxation commodity price from the prior year. Expressed on a per Boe basis, these costs increased approximately 22% from $0.95 per Boe for the six months ended June 30, 2021 to $1.15 for the six months ended June 30, 2022.
30
| For the Six Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||
| Oil | $ | 161,628,399 | $ | 143,119,163 | $ | 18,509,236 | 13 | % | ||||||||||||||||||
| Natural gas | (36,213) | 10,023,744 | (10,059,957) | (100) | % | |||||||||||||||||||||
| Natural gas liquids | 5,839,299 | — | 5,839,299 | 100 | % | |||||||||||||||||||||
| Total sales | $ | 167,431,485 | $ | 153,142,907 | $ | 14,288,578 | 9 | % | ||||||||||||||||||
| Net production: | ||||||||||||||||||||||||||
| Oil (Bbls) | 2,218,792 | 1,405,699 | 813,093 | 58 | % | |||||||||||||||||||||
| Natural gas (Mcf) | 3,158,952 | 1,455,479 | 1,703,473 | 117 | % | |||||||||||||||||||||
| Natural gas liquids (Bbls) | 472,690 | — | 472,690 | 100 | % | |||||||||||||||||||||
Total production (Boe)(1) | 3,217,974 | 1,648,279 | 1,569,695 | 95 | % | |||||||||||||||||||||
| Average sales price: | ||||||||||||||||||||||||||
| Oil (per Bbl) | $ | 72.85 | $ | 101.81 | $ | (28.96) | (28) | % | ||||||||||||||||||
| Natural gas (per Mcf) | (0.01) | 6.89 | (6.90) | (100) | % | |||||||||||||||||||||
| Natural gas liquids (Bbl) | 12.35 | — | 12.35 | 100 | % | |||||||||||||||||||||
| Total per Boe | $ | 52.03 | $ | 92.91 | $ | (40.88) | (44) | % | ||||||||||||||||||
Oil and natural gas production taxes. Production taxes as a percentage of oil and natural gas sales increased slightly to 4.8% for the six months ended June 30, 2022 compared to 4.6% for the same period in 2021. We expect these rates to stay relatively steady.
Depreciation, depletion and amortization. Our depreciation, depletion and amortization expense increased by $3,147,207 to $20,530,491 for the six months ended June 30, 2022, compared to $17,383,284 during the same period in 2021 due to higher 2022 production volumes. Average depreciation, depletion and amortization was $12.46 per Boe for the six months ended June 30, 2022 and $11.52 per Boe for the six months ended June 30, 2021.
Asset retirement obligation accretion. Accretion of AROs decreased $3,212 to $374,545 for the six months ended June 30, 2022, compared to $377,757 for the six months ended June 30, 2021 because of fewer wells added compared to those plugged and abandoned.
Operating lease expense. Operating lease expense decreased $189,127 to $167,180 for the six months ended June 30, 2022, compared to $356,307 for the six months ended June 30, 2021 due to the change in treatment of the compressor leases beginning April 1, 2021.
General and administrative expense. General and administrative expense increased to $11,354,579 for the six months ended June 30, 2022 compared to $6,670,143 for the six months ended June 30, 2021. Within this change, we isolate share-based compensation, which increased to $3,421,155 for the six months ended June 30, 2022 compared to $707,269 for the six months ended June 30, 2021, primarily as the result of grants of equity awards in 2021 and 2022 pursuant to the 2021 Plan. For the six months ended June 30, 2022, general and administrative expenses excluding share-based compensation were higher due to increased salaries and wages, insurance costs, and software costs. Hiring of 12 additional full-time employees in addition to awards under the AIP resulted in an increase of $1,187,507 in salaries and wages. Review of insurance coverages led to adjusting the coverage (i.e., cyber insurance, director & officer insurance) with a cost increase in total of $323,443. Other cost increases were $199,552 in acquisition-related costs, $177,533 in rent expenses due to the rent abatement for The Woodlands office for the first nine months of 2021, as well as various others.
| | | | | | |
|
| For The Six Months | ||||
| | Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
| | | | | | |
General and administrative expense (excluding Share-based compensation) | | $ | 7,933,424 | | $ | 5,962,874 |
Share-based compensation | |
| 3,421,155 | |
| 707,269 |
General and administrative expense | | $ | 11,354,579 | | $ | 6,670,143 |
Interest expense. Interest expense decreased $718,838 to $6,677,660 for the six months ended June 30, 2022, compared to $7,396,498 for the six months ended June 30, 2021 due to a $29.2 million lower average daily loan balance.
(Loss) on derivative contracts. In the Statements of Operations, the total loss on derivative contracts decreased by approximately 48%, from $66,865,879 for the six months ended June 30, 2021 to $35,053,159 for the six months ended June 30, 2022. Underlying this overall change in loss were changes within the realized and unrealized portions of the derivative instruments. We experienced an increase of $15,375,642 in realized losses from $18,357,124 during the six months ended June 30, 2021 to $33,732,766 during the six months ended June 30, 2022 due to an increase in oil prices. The Company records all derivative instruments on the Balance Sheets as either an asset or liability measured at fair value. Changes in fair value are recognized currently in earnings unless certain specific hedge accounting criteria are met. The unrealized (mark to market) loss decreased from $48,508,755 during the six months ended June 30, 2021 to $1,320,393 during the six months ended June 30, 2022 due to fewer barrels of oil being hedged, as well as newly entered into put contracts with an asset position, net of deferred premiums.
Net income (loss). For the six months ended June 30, 2022, the Company achieved net income of $49,056,465, compared to a net loss of $34,953,252 for the six months ended June 30, 2021. The primary difference was the higher sales volumes and revenue in 2022 compared to 2021 resulting from increased workovers and drilling activities, and the significantly higher oil prices in 2022, as well as a lower loss on derivative contracts due to fewer barrels of oil being hedged.
31
Sales volumes and commodity prices received
The following table presents our sales volumes and received pricing information for the periods indicated:
| | | | | | |
|
| For the Six Months | ||||
| | Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
Oil volume (Bbls) |
| | 1,405,699 |
| | 1,312,150 |
Natural gas volume (Mcf) |
| | 1,455,479 |
| | 1,178,666 |
Total Production (Boe)(1) |
| | 1,648,279 |
| | 1,508,594 |
| | | | | | |
Average Sales Price |
| |
|
| |
|
Oil price (per Bbl) | | $ | 101.81 | | $ | 61.74 |
Gas price (per Mcf) | | $ | 6.89 | | $ | 5.28 |
Total per Boe | | $ | 92.91 | | $ | 57.83 |
(1) Boe is calculated using six Mcf of natural gas as the equivalent of one barrel of oil.
. Oil sales increased approximately $18.5 million from $143.1 million to $161.6 million due to an increase in sales volume from 1,405,699 barrels of oil to 2,218,792 barrels of oil, offset by a decrease in the average realized price per barrel from $101.81 to $72.85. Of the increase in volume of 813,093 barrels, 595,359 barrels of oil was attributable to the Stronghold Acquisition with the remainder attributable to our 2023 development program offset by the Delaware divestiture.The decreased average realized price per barrel was primarily the result of lower market conditions.
| For the Three Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Lease operating expenses ("LOE") | $ | 15,938,106 | $ | 8,301,443 | $ | 7,636,663 | 92 | % | ||||||||||||||||||
| Average LOE per Boe | $ | 10.14 | $ | 9.77 | $ | 0.37 | 4 | % | ||||||||||||||||||
| Gathering, transportation and processing costs ("GTP") | $ | (1,632) | $ | 549,389 | $ | (551,021) | (100) | % | ||||||||||||||||||
| Average GTP per Boe | $ | — | $ | 0.65 | $ | (0.65) | (100) | % | ||||||||||||||||||
| Ad valorem taxes | $ | 1,670,343 | $ | 949,239 | $ | 721,104 | 76 | % | ||||||||||||||||||
| Average Ad valorem taxes per Boe | $ | 1.06 | $ | 1.12 | $ | (0.06) | (5) | % | ||||||||||||||||||
| Oil and natural gas production taxes | $ | 4,012,139 | $ | 4,157,457 | $ | (145,318) | (3) | % | ||||||||||||||||||
| Average Production taxes per Boe | $ | 2.55 | $ | 4.89 | $ | (2.34) | (48) | % | ||||||||||||||||||
| Production taxes as a percentage of total sales | 5.06 | % | 4.89 | % | 0.17 | % | 3 | % | ||||||||||||||||||
| For the Six Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Lease operating expenses ("LOE") | $ | 33,410,797 | $ | 17,254,608 | $ | 16,156,189 | 94 | % | ||||||||||||||||||
| Average LOE per Boe | $ | 10.38 | $ | 10.47 | $ | (0.09) | (1) | % | ||||||||||||||||||
| Gathering, transportation and processing costs ("GTP") | $ | (2,455) | $ | 1,846,247 | $ | (1,848,702) | (100) | % | ||||||||||||||||||
| Average GTP per Boe | $ | — | $ | 1.12 | $ | (1.12) | (100) | % | ||||||||||||||||||
| Ad valorem taxes | $ | 3,340,956 | $ | 1,901,193 | $ | 1,439,763 | 76 | % | ||||||||||||||||||
| Average Ad valorem taxes per Boe | $ | 1.04 | $ | 1.15 | $ | (0.11) | (10) | % | ||||||||||||||||||
| Oil and natural gas production taxes | $ | 8,420,279 | $ | 7,375,819 | $ | 1,044,460 | 14 | % | ||||||||||||||||||
| Average Production taxes per Boe | $ | 2.62 | $ | 4.47 | $ | (1.85) | (41) | % | ||||||||||||||||||
| Production taxes as a percentage of total sales | 5.03 | % | 4.82 | % | 0.21 | % | 4 | % | ||||||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Depreciation, depletion and amortization (DD&A): | ||||||||||||||||||||||||||
| Depletion | $ | 20,511,809 | $ | 10,629,787 | $ | 9,882,022 | 93 | % | ||||||||||||||||||
| Depreciation | 91,628 | 8,567 | 83,061 | 970 | % | |||||||||||||||||||||
| Amortization of financing lease assets | 189,495 | 110,850 | 78,645 | 71 | % | |||||||||||||||||||||
| Total depreciation, depletion and amortization | $ | 20,792,932 | $ | 10,749,204 | $ | 10,043,728 | 93 | % | ||||||||||||||||||
| Depletion per Boe | $ | 13.05 | $ | 12.51 | $ | 0.54 | 4 | % | ||||||||||||||||||
| Depreciation, depletion and amortization per Boe | $ | 13.23 | $ | 12.65 | $ | 0.58 | 5 | % | ||||||||||||||||||
| Asset retirement obligation ("ARO") accretion | $ | 353,878 | $ | 186,303 | $ | 167,575 | 90 | % | ||||||||||||||||||
| Operating lease expense | $ | 115,353 | $ | 83,590 | $ | 31,763 | 38 | % | ||||||||||||||||||
| General and administrative expense ("G&A"): | ||||||||||||||||||||||||||
| General and administrative expense (excluding Share-based compensation) | $ | 4,549,931 | $ | 3,933,057 | $ | 616,874 | 16 | % | ||||||||||||||||||
| Share-based compensation | 2,260,312 | 1,899,245 | 361,067 | 19 | % | |||||||||||||||||||||
| Total general and administrative expense | $ | 6,810,243 | $ | 5,832,302 | $ | 977,941 | 17 | % | ||||||||||||||||||
| G&A per Boe | $ | 4.33 | $ | 6.86 | $ | (2.53) | (37) | % | ||||||||||||||||||
| G&A excluding Share-based compensation, per Boe | $ | 2.89 | $ | 4.63 | $ | (1.74) | (38) | % | ||||||||||||||||||
| For the Six Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Depreciation, depletion and amortization (DD&A): | ||||||||||||||||||||||||||
| Depletion | $ | 41,492,351 | $ | 20,254,404 | $ | 21,237,947 | 105 | % | ||||||||||||||||||
| Depreciation | 196,729 | 48,622 | 148,107 | 305 | % | |||||||||||||||||||||
| Amortization of financing lease assets | 375,523 | 227,465 | 148,058 | 65 | % | |||||||||||||||||||||
| Total depreciation, depletion and amortization | $ | 42,064,603 | $ | 20,530,491 | $ | 21,534,112 | 105 | % | ||||||||||||||||||
| Depletion per Boe | $ | 12.89 | $ | 12.29 | $ | 0.60 | 5 | % | ||||||||||||||||||
| Depreciation, depletion and amortization per Boe | $ | 13.07 | $ | 12.46 | $ | 0.61 | 5 | % | ||||||||||||||||||
| Asset retirement obligation ("ARO") accretion | $ | 719,725 | $ | 374,545 | $ | 345,180 | 92 | % | ||||||||||||||||||
| Operating lease expense | $ | 228,491 | $ | 167,180 | $ | 61,311 | 37 | % | ||||||||||||||||||
| General and administrative expense ("G&A"): | ||||||||||||||||||||||||||
| General and administrative expense (excluding Share-based compensation) | $ | 9,736,374 | $ | 7,933,424 | $ | 1,802,950 | 23 | % | ||||||||||||||||||
| Share-based compensation | 4,204,008 | 3,421,155 | 782,853 | 23 | % | |||||||||||||||||||||
| Total general and administrative expense | $ | 13,940,382 | $ | 11,354,579 | $ | 2,585,803 | 23 | % | ||||||||||||||||||
| G&A per Boe | $ | 4.33 | $ | 6.89 | $ | (2.56) | (37) | % | ||||||||||||||||||
| G&A excluding Share-based compensation, per Boe | $ | 3.03 | $ | 4.81 | $ | (1.78) | (37) | % | ||||||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Interest income | $ | 79,745 | $ | — | $ | 79,745 | 100 | % | ||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||||
| Interest on revolving line of credit | $ | 9,056,845 | $ | 2,987,366 | $ | 6,069,479 | 203 | % | ||||||||||||||||||
| Fees associated with revolving line of credit | $ | 240,075 | $ | 90,697 | 149,378 | 165 | % | |||||||||||||||||||
| Amortization of deferred financing costs | $ | 1,220,385 | $ | 189,274 | 1,031,111 | 545 | % | |||||||||||||||||||
| Interest on financing lease liabilities | $ | 24,268 | $ | 7,280 | 16,988 | 233 | % | |||||||||||||||||||
| Interest paid for notes payable | $ | 9,234 | $ | 4,682 | 4,552 | 97 | % | |||||||||||||||||||
| Total interest expense | $ | 10,550,807 | $ | 3,279,299 | $ | 7,271,508 | 222 | % | ||||||||||||||||||
| Gain (loss) on derivative contracts: | ||||||||||||||||||||||||||
| Realized gain (loss): | ||||||||||||||||||||||||||
| Crude oil | $ | (833,841) | $ | (19,617,265) | $ | 18,783,424 | (96) | % | ||||||||||||||||||
| Natural gas | 1,013,436 | — | 1,013,436 | 100 | % | |||||||||||||||||||||
| Total realized gain (loss) | $ | 179,595 | $ | (19,617,265) | $ | 19,796,860 | (101) | % | ||||||||||||||||||
| Unrealized gain (loss): | ||||||||||||||||||||||||||
| Crude oil | $ | 4,545,136 | $ | 12,160,247 | $ | (7,615,111) | (63) | % | ||||||||||||||||||
| Natural gas | (1,460,071) | — | (1,460,071) | 100 | % | |||||||||||||||||||||
| Total unrealized gain (loss) | $ | 3,085,065 | $ | 12,160,247 | $ | (9,075,182) | (75) | % | ||||||||||||||||||
| Total gain (loss) on derivative contracts: | $ | 3,264,660 | $ | (7,457,018) | $ | 10,721,678 | (144) | % | ||||||||||||||||||
| Gain (loss) on disposal of assets | $ | (132,109) | $ | — | $ | (132,109) | 100 | % | ||||||||||||||||||
| Other income | $ | 116,610 | $ | — | $ | 116,610 | 100 | % | ||||||||||||||||||
| For the Six Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Interest income | $ | 79,745 | $ | — | $ | 79,745 | 100 | % | ||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||||
| Interest on revolving line of credit | $ | 17,766,719 | $ | 6,116,987 | $ | 11,649,732 | 190 | % | ||||||||||||||||||
| Fees associated with revolving line of credit | $ | 478,250 | $ | 149,048 | 329,202 | 221 | % | |||||||||||||||||||
| Amortization of deferred financing costs | $ | 2,440,769 | $ | 388,548 | 2,052,221 | 528 | % | |||||||||||||||||||
| Interest on financing lease liabilities | $ | 49,699 | $ | 13,793 | 35,906 | 260 | % | |||||||||||||||||||
| Interest paid for notes payable | $ | 12,925 | $ | 9,284 | 3,641 | 39 | % | |||||||||||||||||||
| Deferred cash payment accretion | $ | 192,724 | $ | — | 192,724 | 100 | % | |||||||||||||||||||
| Total interest expense | $ | 20,941,086 | $ | 6,677,660 | $ | 14,263,426 | 214 | % | ||||||||||||||||||
| Gain (loss) on derivative contracts: | ||||||||||||||||||||||||||
| Realized gain (loss): | ||||||||||||||||||||||||||
| Crude oil | $ | (1,497,603) | $ | (33,732,766) | $ | 32,235,163 | (96) | % | ||||||||||||||||||
| Natural gas | 1,018,673 | — | 1,018,673 | 100 | % | |||||||||||||||||||||
| Total realized gain (loss) | $ | (478,930) | $ | (33,732,766) | $ | 33,253,836 | (99) | % | ||||||||||||||||||
| Unrealized gain (loss): | ||||||||||||||||||||||||||
| Crude oil | $ | 12,652,157 | $ | (1,320,393) | $ | 13,972,550 | (1058) | % | ||||||||||||||||||
| Natural gas | 566,338 | — | 566,338 | 100 | % | |||||||||||||||||||||
| Total unrealized gain (loss) | $ | 13,218,495 | $ | (1,320,393) | $ | 14,538,888 | (1101) | % | ||||||||||||||||||
| Total gain (loss) on derivative contracts: | $ | 12,739,565 | $ | (35,053,159) | $ | 47,792,724 | (136) | % | ||||||||||||||||||
| Gain (loss) on disposal of assets | $ | (132,109) | $ | — | $ | (132,109) | 100 | % | ||||||||||||||||||
| Other income | $ | 126,210 | $ | — | $ | 126,210 | 100 | % | ||||||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Benefit from (Provision for) Income Taxes: | ||||||||||||||||||||||||||
| Deferred federal income tax benefit (provision) | $ | 6,640,741 | $ | (1,014,048) | $ | 7,654,789 | (755) | % | ||||||||||||||||||
| Current state income tax benefit (provision) | $ | (41,191) | $ | 12,813 | (54,004) | (421) | % | |||||||||||||||||||
| Deferred state income tax benefit (provision) | $ | (243,255) | $ | (470,974) | 227,719 | (48) | % | |||||||||||||||||||
| Benefit from (Provision for) Income Taxes | $ | 6,356,295 | $ | (1,472,209) | $ | 7,828,504 | (532) | % | ||||||||||||||||||
| For the Six Months Ended | ||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | Change | % Change | |||||||||||||||||||||||
| Benefit from (Provision for) Income Taxes: | ||||||||||||||||||||||||||
| Deferred federal income tax benefit (provision) | $ | 5,111,491 | $ | (1,014,048) | $ | 6,125,539 | (604) | % | ||||||||||||||||||
| Current state income tax benefit (provision) | $ | (98,481) | $ | — | (98,481) | 100 | % | |||||||||||||||||||
| Deferred state income tax benefit (provision) | $ | (686,658) | $ | (536,913) | (149,745) | 28 | % | |||||||||||||||||||
| Benefit from (Provision for) Income Taxes | $ | 4,326,352 | $ | (1,550,961) | $ | 5,877,313 | (379) | % | ||||||||||||||||||
liquidity.
In April 2019, the Company amended and restated its Credit Agreement with SunTrust Bank (now Truist), as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (the “Administrative Agent”), (as amended and restated, the “Credit Facility”). The amendment and restatement of the Credit Agreement, among other things, increased the maximum borrowing amount to $1 billion, extended the maturity date through April 2024 and made other modifications to the terms of the Credit Facility. This Credit Facility was amended on June 25, 2021, June 10, 2021, December 23, 2020 and June 17, 2020. The June 10, 2021 amendment, among other things, modified the definition for “Fall 2020 Borrowing Base Hedges,” from 4,000 barrels of oil per day to 3,100 barrels of oil per day for calendar year 2022, and reaffirmed the borrowing base at $350 million. The amendment on June 25, 2021 incorporated contractual fallback language for US dollar LIBOR denominated syndicated loans, which language provides for the transition away from LIBOR to an alternative reference rate. The Credit Facility is secured by a first lien on substantially all of the Company’s assets.
The borrowing base is subject to periodic redeterminations, mandatory reductions, and further adjustments from time to time. The borrowing base is redetermined semi-annually each May and November and will be reduced in certain circumstances such as the sale or disposition of certain oil and gas properties of the Company and the cancellation of certain hedging positions.
32
The Credit Facility allows for Eurodollar Loans and Base Rate Loans (as respectively defined in the Credit Facility). The interest rate on each Eurodollar Loan will be the adjusted LIBOR for the applicable interest period plus a margin between 2.5% and 3.5% per annum (depending on the then-current level of borrowing base usage). The annual interest rate on each Base Rate Loan is (a) the greatest of (i) the Administrative Agent’s prime lending rate, (ii) the Federal Funds Rate (as defined in the Credit Facility) plus 0.5% per annum, (iii) the adjusted LIBOR determined on a daily basis for an interest period of one month, plus 1.00% per annum and (iv) 0.00% per annum, plus (b) a margin between 1.5% and 2.5% (depending on the then-current level of borrowing base usage).
The Credit Facility contains certain covenants, which, among other things, require the maintenance of (i) a total Leverage Ratio (outstanding debt to adjusted earnings before interest, taxes, depreciation and amortization) of not more than 4.0 to 1.0 and (ii) a minimum ratio of Current Assets to Current Liabilities (as such terms are defined in the Credit Facility) of 1.0 to 1.0. The Credit Facility also contains other customary affirmative and negative covenants and events of default. As of June 30, 2022, $270,000,0002023, $397 million was outstanding on theour 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 covenants.
Credit Facility is $600 million. The borrowing base is redetermined semi-annually on each May 1 and November 1. See "NOTE 8 — REVOLVING LINE OF CREDIT" in the Notes to the condensed financial statements for more information on our Credit Facility.
During February and March of 2020, the Company entered into derivative contracts in the form of costless collars of WTI Crude Oil prices in order to protect the Company’s cash flow from price fluctuation and maintain its capital programs. “Costless collars” are the combination of two options, a put option (floor) and a call option (ceiling) with the options structured so that the premium paid for the put option will be offset by the premium received from selling the call option. The trades were for a total 4,500 barrels of oil per day for the period of January 2021 through December 2021.
In November and December of 2020, the Company entered into swap contracts with a weighted average of $45.42 for 4,500 barrels per day for 2021 and 1,750 barrels per day for 2022 with a weighted average of $44.84. In January and February of 2021, we entered into swap contracts for 500 barrels per day for 2022 for a weighted average price of $48.53. Similar to costless collars, there is no cost to enter into the swap contracts. On swap contracts, there is no spread and payments will be made or received based on the difference between WTI and the swap contract price.
In November of 2020, we entered into natural gas swap contracts for 6,000 MMBtu per day at $2.991 and 5,000 MMBtu per day at $2.726 for 2021 and 2022, respectively. On March 30, 2021, we unwound all remaining gas swaps for 2021 and 2022 for a realized value of $581,424.
In May of 2021, we bought back a 1,500 barrels of oil per day call option for June 1 through December 31, 2021 and entered into an approximate 879 Bbls/d calendar 2022 swap contract for no net cost. This allowed us to unlock additional upside to increase our cash flow for the remainder of 2021, while retaining the put to protect our downside.
Effective February 1, 2022, the Company entered into a derivative contract with a Credit Facility lender for 1,000 barrels of oil per day for the remainder of 2022 (total notional quantity of 334,000 barrels). Fixed swap prices vary by month, ranging from $90.78 per barrel in February to $80.01 per barrel by the end of the year, with a weighted average swap price of $84.61 per barrel.
Near the end of the second quarter 2022, on June 28 and 29, the Company entered into twelve derivative contracts with a Credit Facility lender. Details are shown in the table below.
33
The following table reflects the prices of contracts outstanding as of June 30, 2022:
| | | | | | | | | | | | | | | | | |
| | | | Type of | | Barrels | | | | Swap | | Strike | | Deferred | |||
Date entered into |
| Period covered |
| Contract | | per day |
| Index |
| price |
| price |
| premium | |||
Oil derivative contracts: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
12/04/2020 | | Calendar year 2022 | | Swap | | 500 | | WTI | | $ | 44.22 | | | | | | |
12/07/2020 | | Calendar year 2022 | | Swap | | 500 | | WTI | | | 44.75 | | | | | | |
12/10/2020 | | Calendar year 2022 | | Swap | | 500 | | WTI | | | 44.97 | | | | | | |
12/17/2020 | | Calendar year 2022 | | Swap | | 250 | | WTI | | | 45.98 | | | | | | |
01/04/2021 | | Calendar year 2022 | | Swap | | 250 | | WTI | | | 47.00 | | | | | | |
02/04/2021 | | Calendar year 2022 | | Swap | | 250 | | WTI | | | 50.05 | | | | | | |
05/11/2021 | | Calendar year 2022 | | Swap | | 879 | (1) | WTI | | | 49.03 | | | | | | |
02/01/2022 | | 02/01/2022 - 12/31/2022 | | Swap | | 1,000 | | WTI | | | 82.01 | | | | | | |
06/28/2022 | | 07/01/2022 - 09/30/2022 | | Put | | 1,000 | | WTI | | | | | $ | 107.90 | | $ | 6.95 |
06/28/2022 | | 10/01/2022 - 12/31/2022 | | Put | | 1,000 | | WTI | | | | | | 100.60 | | | 11.71 |
06/28/2022 | | 01/01/2023 - 03/31/2023 | | Put | | 1,000 | | WTI | | | | | | 95.75 | | | 13.96 |
06/28/2022 | | 04/01/2023 - 06/30/2023 | | Put | | 1,000 | | WTI | | | | | | 92.70 | | | 15.20 |
06/28/2022 | | 07/01/2023 - 09/30/2023 | | Put | | 1,000 | | WTI | | | | | | 90.00 | | | 16.00 |
06/28/2022 | | 10/01/2023 - 12/31/2023 | | Put | | 1,000 | | WTI | | | | | | 87.70 | | | 16.53 |
06/29/2022 | | 01/01/2023 - 03/31/2023 | | Put | | 500 | | WTI | | | | | | 95.25 | | | 14.25 |
06/29/2022 | | 04/01/2023 - 06/30/2023 | | Put | | 500 | | WTI | | | | | | 91.85 | | | 15.58 |
06/29/2022 | | 07/01/2023 - 09/30/2023 | | Put | | 500 | | WTI | | | | | | 89.10 | | | 16.45 |
06/29/2022 | | 10/01/2023 - 12/31/2023 | | Put | | 500 | | WTI | | | | | | 86.90 | | | 16.93 |
06/29/2022 | | 01/01/2024 - 03/31/2024 | | Put | | 500 | | WTI | | | | | | 84.70 | | | 17.15 |
06/29/2022 | | 04/01/2024 - 06/30/2024 | | Put | | 500 | | WTI | | | | | | 82.80 | | | 17.49 |
| Oil Hedges (WTI) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 181,700 | 138,000 | 170,625 | 156,975 | 282,900 | 368,000 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average swap price | $ | 74.19 | $ | 74.52 | $ | 67.40 | $ | 66.40 | $ | 65.49 | $ | 68.43 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Deferred premium puts: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 230,000 | 165,600 | 45,500 | 45,500 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average strike price | $ | 80.47 | $ | 83.78 | $ | 84.70 | $ | 82.80 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average deferred premium price | $ | 10.60 | $ | 14.61 | $ | 17.15 | $ | 17.49 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Two-way collars: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 211,163 | 274,285 | 339,603 | 325,847 | 230,000 | 128,800 | 474,750 | 464,100 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average put price | $ | 55.56 | $ | 56.73 | $ | 64.20 | $ | 64.30 | $ | 64.00 | $ | 60.00 | $ | 57.06 | $ | 60.00 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average call price | $ | 69.25 | $ | 70.77 | $ | 79.73 | $ | 79.09 | $ | 76.50 | $ | 73.24 | $ | 75.82 | $ | 69.85 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Three-way collars: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (Bbl) | 16,242 | 15,598 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average first put price | $ | 45.00 | $ | 45.00 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average second put price | $ | 55.00 | $ | 55.00 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Weighted average call price | $ | 80.05 | $ | 80.05 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Gas Hedges (Henry Hub) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| NYMEX Swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 144,781 | 203,706 | 152,113 | 138,053 | 121,587 | 644,946 | 616,199 | 591,725 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average swap price | $ | 3.36 | $ | 3.35 | $ | 3.62 | $ | 3.61 | $ | 3.59 | $ | 4.45 | $ | 3.78 | $ | 3.43 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Two-way collars: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 404,421 | 579,998 | 591,500 | 568,750 | 552,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average put price | $ | 3.17 | $ | 3.15 | $ | 4.00 | $ | 4.00 | $ | 4.00 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Call hedged volume (MMBtu) | 404,421 | 579,998 | 591,500 | 568,750 | 552,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average call price | $ | 4.55 | $ | 4.50 | $ | 6.29 | $ | 6.29 | $ | 6.29 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Oil Hedges (basis differential) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Argus basis swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 305,000 | 460,000 | 364,000 | 364,000 | 368,000 | 368,000 | 270,000 | 273,000 | 276,000 | 276,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average spread price (1) | $ | 1.10 | $ | 1.10 | $ | 1.15 | $ | 1.15 | $ | 1.15 | $ | 1.15 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | |||||||||||||||||||||||||||||||||||||||
| Gas Hedges (basis differential) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Waha basis swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 332,855 | 324,021 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average spread price (1) | $ | 0.55 | $ | 0.55 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| El Paso Permian Basin basis swaps: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedged volume (MMBtu) | 329,529 | 459,683 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average spread price (1) | $ | 0.63 | $ | 0.63 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
34
The process of acquiring one or more additional oil and gas properties would impact our financial position, and reduce our cash position.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 pro formaproforma 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 a transaction resulting in our acquisitionother acquisitions of oil and gas producing properties.
Effects of Inflation and Pricing
The oil and natural gas industry is very cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry puts pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase, so do all associated costs. Material changes in prices (inflation) will impact our revenue stream, estimates of future reserves, borrowing base calculations of bank loans and the value of properties in purchase and sale transactions. Material changes in prices can also impact the value of oil and natural gas companies and their ability to raise capital, borrow money and retain personnel. We anticipate business costs will vary in accordance with commodity prices for oil and natural gas, and the associated increase or decrease in demand for services related to production and exploration.We further expect that prices to explore, develop and produce oil and gas may increase depending in large part on government spending and regulations.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, and it is not anticipated that the Company will enter into any off-balance sheet arrangements.
Disclosures About Market Risks
Like other natural resource producers, the Company faces market risks associated with the exploration and production of oil and natural gas. The most salient risk factors are the volatile prices of oil and gas, transportation of oil and natural gas, competition in the oil and natural gas industry, retention of key personnel, and environmental and regulatory concerns and obligations.
Oil and Gas Prices
The price we receive for our oil and natural gas will heavily influence our revenue, profitability, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. The prices we receive for our production depend on numerous factors beyond our control. These factors include, without limitation, the following: worldwide and regional economic conditions impacting the global supply and demand for oil and natural gas; the price and quantity of imports of foreign oil and natural gas; the level of global oil and natural gas inventories; localized supply and demand fundamentals; the availability of refining capacity; price and availability of transportation and pipeline systems with adequate capacity; weather conditions, natural disasters and public health threats; governmental regulations; speculation as to the future price of oil and the speculative trading of oil and natural gas futures contracts; price and availability of competitors’ supplies of oil and natural gas; energy conservation and environmental measures; technological advances affecting energy consumption; the price and availability of alternative fuels and energy sources; and domestic and international drilling activity.
A substantial or extended decline in oil or natural gas prices may result in impairments of our proved oil and gas properties and may materially and adversely affect our future business, financial condition, cash flows, and results of operations.
Transportation of Oil and Natural Gas
Ring is presently committed to using the services of the existing gatherers in its present areas of production. This gives such gatherers certain short-term relative monopolistic powers to set gathering and transportation costs. Obtaining the services of an alternative gathering company would require substantial additional costs since an alternative gatherer would be required to lay new pipeline and/or obtain new rights-of-way.
35
Competition in the Oil and Natural Gas Industry
We operate in a highly competitive environment for developing and acquiring properties, marketing oil and natural gas and securing equipment and trained personnel. As a relatively small oil and natural gas company, many large producers possess and employ financial, technical and personnel resources substantially greater than ours. Those companies may be able to develop and acquire more prospects and productive properties than our financial or personnel resources permit. It is also significant that more favorable prices can usually be negotiated for larger quantities of oil and/or gas product, such that Ring views itself as having a price disadvantage compared to larger producers.
Retention of Key Personnel
We depend to a large extent on the services of our officers. These individuals have extensive experience in the energy industry, as well as expertise in evaluating and analyzing producing oil and natural gas properties and drilling prospects, maximizing production from oil and natural gas properties, and developing and executing financing strategies. The loss of any of these individuals could have a material adverse effect on our operations and business prospects. Our success may be dependent on our ability to continue to hire, retain and utilize skilled executive and technical personnel.
Environmental and Regulatory Risks
Our business and operations are subject to and impacted by a wide array of federal, state, and local laws and regulations governing the exploration for and development, production, and marketing of oil and natural gas, the operation of oil and natural gas wells, taxation, and environmental and safety matters. Many laws and regulations require drilling permits and govern the spacing of wells, rates of production, water and waste use and disposal, prevention of waste, hydraulic fracturing, and other matters. From time to time, regulatory agencies have imposed price controls and limitations on production in order to conserve supplies of oil and natural gas. In addition, the production, handling, storage, transportation and disposal of oil and natural gas, byproducts thereof and other substances and materials produced or used in connection with oil and natural gas operations are subject to regulation under federal, state and local laws and regulations. Compliance with these regulations may constitute a significant cost and effort for Ring. In the event of a violation of environmental regulations, these environmental regulatory agencies have a broad range of alternative or cumulative remedies, including ordering a cleanup of any spills or waste material and restoration of the soil or water to conditions existing prior to the environmental violation; fines; or enjoining further drilling, completion, or production activities.
3.3: Quantitative and Qualitative Disclosures aboutAbout Market RiskInterest Rate RiskThe Company is subject to market risk exposure related to changes in interest rates on its indebtedness under its Credit Facility, which bears variable interest based upon a prime rate and is therefore susceptible to interest rate fluctuations. Changes in interest rates affect the interest earned on the Company’s cash and cash equivalents and the interest rate paid on borrowings under the Credit Facility. As of June 30, 2022, the Company had $270,000,000 outstanding borrowings under the Credit Facility. Our weighted average annual interest rate on borrowings under the Credit Facility was 4.3% for the six months ended June 30, 2022. An increase or decrease of 1% in the interest rate would have a corresponding decrease or increase in our annualized interest expense of $2.7 million based on the aggregate of $270,000,000 outstanding under the Credit Facility as of June 30, 2022.Currently, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes.36
The Company’s revenues, profitability and future growth depend substantially on prevailing prices for oil and natural gas. Prices also affect the amount of cash flow available for capital expenditures and Ring’s ability to borrow and raise additional capital. The Company’s borrowing base under its Credit Facility is subject to periodic redetermination based in part on changing expectations of future prices. Lower prices may also reduce the amount of oil and natural gas that the Company can economically produce. Ring currently sells all its oil and natural gas production under price sensitive or market price contracts.
Customer Credit Risk
| For the Six Months Ended | As of | |||||||||||||
| June 30, 2023 | June 30, 2023 | |||||||||||||
| Percentage of Oil, Natural Gas, and Natural Gas Liquids Revenues | Percentage of accounts receivables from the sale of our oil and natural gas production | |||||||||||||
| Customer: | ||||||||||||||
| Phillips 66 Company ("Phillips") | 68% | 71% | ||||||||||||
| Enterprise Crude Oil LLC ("Enterprise") | 13% | 13% | ||||||||||||
| NGL Crude Partners ("NGL Crude") | 11% | 11% | ||||||||||||
use interest rate derivative instruments to manage exposure to interest rate changes.
procedures. reporting.4.4: Controls and Proceduresproceduresreporting20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.37
1.1: Legal Proceedings.We may beProceedingssubject of threatened or pending legal actionsCompany plus related damages, and contingencies inattorneys’ fees and costs. The action relates to a proposed property sale by the normal course of conducting our business. We provide for costs relatedCompany to these matters when a loss is probablethe plaintiff, which was extended by the Company on several occasions with the plaintiff ultimately failing to perform on the agreement and the amount can be reasonably estimated.Company keeping the deposit. The effectCompany believes that the claims by the plaintiff are entirely without merit and is conducting a vigorous defense and counterclaim. The Company has filed an answer and a counterclaim denying the allegations and asserting affirmative defenses that would bar or substantially limit the plaintiff’s claims, asserting breach of the outcome of these matters on our future results of operationscontract and liquidity cannot be predicted because any such effect depends on future results of operationsrequesting a declaratory judgment and the amount or timing of the resolution of such matters. For certain types of claims, we maintain insurance coverage for personal injuryattorneys’ fees and property damage, product liabilitycosts. The parties have begun taking depositions and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us. Reference is made to Item 3. Legal Proceedings, in our Annual Report on Form 10-K for the Year Ended December 31, 2021 as filed with the SEC on March 16, 2022. The information in such Item is incorporated herein by reference.
1A.1A: Risk Factors2021 Form 10-K. There have been no material changes to the risks described in the 20212022 Form 10-K. We may experience additional risks and uncertainties not currently known to us. Further, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect us. Any such risks may materially and adversely affect our business, financial condition, cash flows, and results of operations.
2.2: Unregistered Sales of Equity Securities and Use of Proceeds
Securities3.3: Defaults Upon Senior Securities.
Disclosures4.4: Mine Safety Disclosures.
Incorporated by Reference Exhibit Exhibit Description Form File No. Exhibit Filing Date Filed 31.1 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Ring Energy, Inc. Date: August By: /s/ Paul D. McKinney Paul D. McKinney Chief Executive Officer (Principal Executive Officer) Date: August By: /s/ Travis T. Thomas Travis T. Thomas Chief Financial Officer (Principal Financial and Accounting Officer)5.5: Other Information.None.386.6: Exhibits
Number
Here-withFurnished
HerewithX31.2X32.1X 32.2X 101.SCHX 32.2 X 101.SCH Inline XBRL Taxonomy Extension Schema Document X X X X X 394, 2022 and Director4, 202240