Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Jun. 30, 2014 | Aug. 07, 2014 | |
Document and Entity Information | ' | ' |
Entity Registrant Name | 'RING ENERGY, INC. | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Jun-14 | ' |
Amendment Flag | 'false | ' |
Entity Central Index Key | '0001384195 | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Common Stock, Shares Outstanding | ' | 25,711,218 |
Entity Filer Category | 'Non-accelerated Filer | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Voluntary Filers | 'No | ' |
Entity Well-known Seasoned Issuer | 'No | ' |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q2 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
Current Assets | ' | ' |
Cash | $45,535,352 | $52,350,583 |
Accounts receivable | 4,780,627 | 3,888,402 |
Prepaid expenses and retainers | 259,096 | 66,051 |
Total Current Assets | 50,575,075 | 56,305,036 |
Properties and Equipment | ' | ' |
Oil and natural gas properties subject to amortization | 107,371,894 | 58,040,724 |
Office equipment | 497,121 | 257,911 |
Total Properties and Equipment | 107,869,015 | 58,298,635 |
Accumulated depreciation, depletion and amortization | -7,888,265 | -2,880,253 |
Net Properties and Equipment | 99,980,750 | 55,418,382 |
Total Assets | 150,555,825 | 111,723,418 |
Current Liabilities | ' | ' |
Accounts payable | 7,944,774 | 6,229,490 |
Other accrued liabilities | 709,566 | 1,002,153 |
Total Current Liabilities | 8,654,340 | 7,231,643 |
Noncurrent Liabilities | ' | ' |
Deferred income taxes | 3,044,298 | 703,651 |
Asset retirement obligations | 2,276,845 | 1,182,410 |
Total Noncurrent Liabilities | 5,321,143 | 1,886,061 |
Stockholders' Equity (Deficit) | ' | ' |
Preferred stock - $0.001 par value; 50,000,000 shares authorized; no shares issued or outstanding | 0 | 0 |
Common stock - $0.001 par value; 150,000,000 shares authorized; 25,645,614 shares and 23,576,313 shares outstanding, respectively | 25,646 | 23,576 |
Additional paid-in capital | 139,005,296 | 109,018,165 |
Accumulated deficit | -2,450,600 | -6,436,027 |
Total Stockholders' Equity | 136,580,342 | 102,605,714 |
Total Liabilities and Stockholders' Equity | $150,555,825 | $111,723,418 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS PARENTHETICALS (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
Parentheticals | ' | ' |
Preferred Stock, par value | $0.00 | $0.00 |
Preferred Stock, shares authorized | 50,000,000 | 50,000,000 |
Common Stock, par value | $0.00 | $0.00 |
Common Stock, shares authorized | 150,000,000 | 150,000,000 |
Common Stock, shares issued | 25,645,614 | 23,576,313 |
Common Stock, shares outstanding | 25,645,614 | 23,576,313 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | |
Revenues: | ' | ' | ' | ' |
Oil and Gas Revenues | $11,204,238 | $1,291,579 | $17,174,690 | $2,443,536 |
Costs and Operating Expenses | ' | ' | ' | ' |
Oil and gas production costs | 1,077,878 | 214,468 | 1,848,978 | 355,723 |
Oil and gas production taxes | 517,052 | 59,459 | 793,013 | 112,676 |
Depreciation, depletion and amortization | 3,477,816 | 396,662 | 5,008,012 | 740,270 |
Accretion expense | 37,312 | 11,824 | 61,694 | 23,277 |
General and administrative expense | 1,634,807 | 1,499,559 | 3,199,268 | 3,067,263 |
Total Costs and Operating Expenses | 6,744,865 | 2,181,972 | 10,910,965 | 4,299,209 |
Other Income | ' | ' | ' | ' |
Interest income | 19,576 | 0 | 62,349 | 0 |
Net Other Income | 19,576 | 0 | 62,349 | 0 |
Income (loss) before tax provision | 4,478,949 | -890,393 | 6,326,074 | -1,855,673 |
Income tax provision | -1,657,211 | 0 | -2,340,647 | 0 |
Net Income (Loss) | $2,821,738 | ($890,393) | $3,985,427 | ($1,855,673) |
Basic Earnings (Loss) per Share | $0.12 | ($0.06) | $0.17 | ($0.13) |
Diluted Earnings (Loss) per Share | $0.11 | ($0.06) | $0.16 | ($0.13) |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) | 6 Months Ended | |
Jun. 30, 2014 | Jun. 30, 2013 | |
Cash Flows From Operating Activities | ' | ' |
Net Income (Loss) | $3,985,427 | ($1,855,673) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ' | ' |
Depreciation, depletion and amortization | 5,008,012 | 740,270 |
Accretion expense | 61,694 | 23,277 |
Share-based compensation | 1,299,569 | 1,701,721 |
Provision for income taxes | 2,340,647 | 0 |
Changes in assets and liabilities: | ' | ' |
Accounts receivable | -892,225 | -45,956 |
Prepaid expenses | -193,045 | -32,795 |
Accounts payable | 1,422,697 | 839,621 |
Net Cash Provided by Operating Activities | 13,032,776 | 1,370,465 |
Cash Flows from Investing Activities | ' | ' |
Payments to purchase oil and natural gas properties | -10,974,396 | -1,751,342 |
Payments to develop oil and natural gas properties | -37,324,033 | -5,524,201 |
Purchase of office equipment | -239,210 | -54,441 |
Net Cash Used in Investing Activities | -48,537,639 | -7,329,984 |
Cash Flows From Financing Activities | ' | ' |
Proceeds from option exercise | 22,500 | 0 |
Proceeds from issuance of common stock | 28,667,132 | 18,987,272 |
Net Cash Provided by Financing Activities | 28,689,632 | 18,987,272 |
Net Increase (Decrease) in Cash | -6,815,231 | 13,027,753 |
Cash at Beginning of Period | 52,350,583 | 5,404,167 |
Cash at End of Period | 45,535,352 | 18,431,920 |
Noncash Investing and Financing Activities | ' | ' |
Revision of asset retirement obligation estimate | 0 | 211,691 |
Asset retirement obligation acquired | 294,772 | 0 |
Asset retirement obligation incurred during development | $737,969 | $67,352 |
BASIS_OF_PRESENTATION_AND_SIGN
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2014 | |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | ' |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | ' |
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | |
Condensed Financial Statements – The accompanying condensed consolidated financial statements prepared by Ring Energy, Inc. and its subsidiary (the “Company” 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 results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014. | |
Certain notes and other disclosures have been omitted from these interim financial statements. Therefore, these financial statements should be read in conjunction with the Company’s 2013 Annual Report on Form 10-K. | |
Organization and Nature of Operations – The Company is a Nevada corporation that owns interests in oil and natural gas properties located in Texas and Kansas. The Company’s oil and natural gas sales, profitability and future growth are dependent upon prevailing and future prices for oil and natural gas and the successful acquisition, exploration and development 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. | |
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. Changes in the future estimated oil and natural gas reserves or the estimated future cash flows attributable to the reserves that are utilized for impairment analysis could have a significant impact on the Company’s future results of operations. | |
Consolidation – The accompanying consolidated financial statements include the accounts, operations and cash flows of Stanford Energy, Inc. (“Stanford”) for all periods presented and the consolidated operations and cash flows of Ring Energy, Inc. from June 28, 2012. All significant intercompany balances and transactions have been eliminated in consolidation. | |
Concentration of Credit Risk and Major Customer – The Company had cash in excess of federally insured limits at June 30, 2014. During the six months ended June 30, 2014, sales to two customers represented 86% and 11%, respectively, of the Company’s oil and gas revenues. At June 30, 2014, these customers made up 78% and 12%, respectively, of the Company’s accounts receivable. | |
Oil and Gas Properties – The Company uses the full cost method of accounting for oil and gas properties. Under this method, all costs associated with the acquisition, leasing, exploration, and development of oil and gas reserves are capitalized. Costs capitalized include acquisition costs, estimated future costs of abandonment and site restoration, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling and equipping productive and non-productive wells. Drilling costs include directly related overhead costs. Capitalized costs are generally categorized either as being subject to amortization or not subject to amortization. All of the Company’s costs are subject to amortization. | |
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 independent engineers. The Company evaluates oil and gas properties for impairment at least annually. Amortization expense for the three and six months ended June 30, 2014, was $3,477,816 and $5,008,012, based on depletion at the rate of $26.80 per barrel of oil equivalent compared to $396,662 and 740,270, respectively, for the three and six months ended June 30, 2013, based on depletion at the rate of $23.33 per barrel of oil equivalent. These amounts include $25,741 and $47,427, respectively, of depreciation for the three and six months ended June 30, 2014 compared to $13,902 and $25,406 of depreciation for the three and six months ended June 30, 2013, respectively. | |
In addition, capitalized costs are subject to a ceiling test which limits such costs to the estimated present value of future net revenues from proved reserves, discounted at a 10% interest rate, based on current economic and operating conditions, plus the lower of cost or fair value of unproved properties. Consideration received from sales or transfers of oil and gas property is accounted for as a reduction of capitalized costs. Revenue is not recognized in connection with contractual services performed on properties in which the Company holds an ownership interest. | |
Office Equipment – 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 5 to 7 years. | |
Asset Retirement Obligation – The Company records a liability in the period in which an asset retirement obligation (“ARO”) is incurred, in an amount equal to the discounted estimated fair value of the obligation that is capitalized. Thereafter, this liability is accreted up to the final estimated retirement cost. An ARO is a future expenditure related to the disposal or other retirement of certain assets. The Company’s ARO relates to future plugging and abandonment expenses of its oil and natural gas properties and related facilities disposal. | |
Revenue Recognition – The Company predominantly derives its revenues from the sale of produced oil and natural gas. Revenue is recorded in the month the product is delivered to the purchasers. At the end of each month, the Company recognizes oil and natural gas sales based on estimates of the amount of production delivered to purchasers and the price to be received. Variances between the Company’s estimated oil and natural gas sales and actual receipts are recorded in the month the payments are received. | |
Share-Based Employee Compensation – The Company has outstanding stock option grants to directors, officers and employees, which are described more fully in Note 6. The Company recognizes the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the related compensation expense over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period. | |
Share-Based Compensation to Non-Employees – The Company accounts for share-based compensation issued to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for these issuances is the earlier of (i) the date at which a commitment for performance by the recipient to earn the equity instruments is reached or (ii) the date at which the recipient’s performance is complete. | |
Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09 establishing Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (ASC 606). ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. The standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within the reporting period. Accordingly, we expect to adopt this standard in the first quarter of 2017. ASC 606 allows either full retrospective or modified retrospective transition and early adoption is not permitted. We are currently evaluating the impact of this new pronouncement on our financial statements. | |
Basic and Diluted Earnings (Loss) per Share – Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) 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 with an offset from expected proceeds upon exercise of the stock options and unrecognized compensation expense. |
EARNINGS_PER_SHARE_INFORMATION
EARNINGS PER SHARE INFORMATION | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
EARNINGS PER SHARE INFORMATION | ' | ||||||||||||
EARNINGS PER SHARE INFORMATION | ' | ||||||||||||
NOTE 2 – EARNINGS (LOSS) PER SHARE INFORMATION | |||||||||||||
For The Three Months | For The Six Months | ||||||||||||
Ended June 30, | Ended June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Net Income (Loss) | $ | 2,821,738 | $ | -890,393 | $ | 3,985,427 | $ | -1,855,673 | |||||
Basic Weighted-Average Shares Outstanding | 23,907,651 | 14,350,284 | 23,745,406 | 14,290,060 | |||||||||
Effect of dilutive securities: | |||||||||||||
Stock options | 1,244,281 | - | 1,180,682 | - | |||||||||
Diluted Weighted-Average Shares Outstanding | 25,151,932 | 14,350,284 | 24,926,088 | 14,290,060 | |||||||||
Basic Earnings (Loss) per Share | $ | 0.12 | $ | -0.06 | $ | 0.17 | $ | -0.13 | |||||
Diluted Earnings (Loss) per Share | $ | 0.11 | $ | -0.06 | $ | 0.16 | $ | -0.13 | |||||
Stock options to purchase 5,000 and 105,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share during the three and six months ended June 30, 2014, as their effect would have been anti-dilutive. Stock options to purchase 2,562,500 shares of common stock were excluded from the computation of diluted loss per share during both the three and six months ended June 30, 2013 as their effect would have been anti-dilutive. |
ACQUISITIONS
ACQUISITIONS | 6 Months Ended | |||
Jun. 30, 2014 | ||||
ACQUISITIONS | ' | |||
ACQUISITIONS | ' | |||
NOTE 3 – ACQUISITIONS | ||||
In February 2014, Ring acquired additional proved developed and undeveloped oil and natural gas reserves (the “RAW Properties”) located in the Permian Basin, Andrews County, Texas. The RAW Properties consist of varied working interests (81% to 93%) and net revenue interests (61% to 70%) in eleven producing leases which included 907 net acres. The transaction also included 660 net acres of non-producing leasehold. Consideration given consisted of cash payments totaling $6,510,791. The Company incurred $20,003 in acquisition-related costs, which were recognized in general and administrative expense during the three months ended March 31, 2014. | ||||
The acquisition was recognized as a business combination whereby Ring recorded the assets acquired and the liabilities assumed at their fair values as of February 27, 2014, which is the date the Company obtained control of the properties and was the acquisition date for financial reporting purposes. The estimated fair value of RAW Properties approximated the consideration paid, which the Company concluded approximated the fair value that would be paid by a typical market participant. The following table summarizes the fair values of the assets acquired and the liabilities assumed: | ||||
Proved oil and natural gas properties | $ | 6,805,563 | ||
Asset retirement obligations | -294,772 | |||
Total Identifiable Net Assets | $ | 6,510,791 | ||
Subsequent to the initial acquisition, Ring spent $1,914,386 to acquire or lease additional interests in the acreage, including deeper lease rights and acquire an additional 397 net acres. |
REVOLVING_LINE_OF_CREDIT
REVOLVING LINE OF CREDIT | 6 Months Ended |
Jun. 30, 2014 | |
REVOLVING LINE OF CREDIT: | ' |
REVOLVING LINE OF CREDIT | ' |
NOTE 4 – REVOLVING LINE OF CREDIT | |
In May 2014, the Company amended a credit agreement with Prosperity Bank, successor by merger to The F&M Bank and Trust Company; whereby the borrowing base increased to $25 million for borrowings and letters of credit effective May 1, 2014. As of June 30, 2014, no amounts were outstanding under this credit facility. The credit agreement includes a non-usage commitment fee of 0.25% per annum and covenants limiting other indebtedness, liens, transfers or sales of assets, distributions or dividends and merger or consolidation activity. The facility has an interest rate of the bank’s prime rate plus 0.25%. The maturity date on the note was extended to October 30, 2015. |
ASSET_RETIREMENT_OBLIGATION
ASSET RETIREMENT OBLIGATION | 6 Months Ended | |||
Jun. 30, 2014 | ||||
ASSET RETIREMENT OBLIGATION | ' | |||
ASSET RETIREMENT OBLIGATION | ' | |||
NOTE 5 – ASSET RETIREMENT OBLIGATION | ||||
The Company provides for the obligation to plug and abandon oil and gas wells at the dates properties are either acquired or the wells are drilled. The asset retirement obligation is adjusted each quarter for any liabilities incurred or settled during the period, accretion expense and any revisions made to the estimated cash flows. The asset retirement obligation incurred upon each of the acquisitions or at the time of drilling was computed using the annual credit-adjusted risk-free discount rate at the applicable dates, which rates ranged from 4.65% to 7.09% per annum. Changes in the asset retirement obligation were as follows: | ||||
Balance, December 31, 2013 | $ | 1,182,410 | ||
Liabilities acquired | 294,772 | |||
Liabilities incurred | 737,969 | |||
Accretion expense | 61,694 | |||
Balance, June 30, 2014 | $ | 2,276,845 |
STOCKHOLDERS_EQUITY
STOCKHOLDERS' EQUITY | 6 Months Ended |
Jun. 30, 2014 | |
STOCKHOLDERS' EQUITY | ' |
STOCKHOLDERS' EQUITY | ' |
NOTE 6 – STOCKHOLDERS’ EQUITY | |
Common Stock Issued in Option Exercise – In January 2014, the Company issued 5,000 shares of common stock as the result of an option exercise. The Company received the exercise price of $4.50 per share for an aggregate amount of $22,500. | |
Also, in January 2014, the Company issued 20,361 shares of common stock as the result of the cashless exercise of 20,000 stock options with an exercise price of $2.00 and 5,000 stock options with an exercise price of $5.50. The Company withheld 4,639 shares, valued at $67,500 or $14.55 per share. | |
In April 2014, the Company issued 43,632 shares of common stock as the result of the cashless exercise of 42,500 stock options with an exercise price of $2.00 and 10,000 stock options with an exercise price of $4.50. The Company withheld 8,868 shares, valued at $130,000 or $14.66 per share. | |
In June 2014, the Company issued 307 shares of common stock as the result of the cashless exercise of 500 stock options with an exercise price of $7.50. The Company withheld 193 shares, valued at $3,750 or $19.39 per share. | |
In June 2014, the Company closed on an offering of 2,000,001 shares of common stock at $15.00 per share for gross proceeds of $30,000,015. The shares were sold without registration under the Securities Act by reason of the exemption from the registration afforded by the provisions of Section 4(a)(2) and/or Section 4(a)(5) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder for sales of unregistered securities. Offering costs totaled $1,332,884. The Company has filed a registration statement with the SEC to register such shares. |
EMPLOYEE_STOCK_OPTIONS
EMPLOYEE STOCK OPTIONS | 6 Months Ended | ||||||||||
Jun. 30, 2014 | |||||||||||
EMPLOYEE STOCK OPTIONS | ' | ||||||||||
EMPLOYEE STOCK OPTIONS | ' | ||||||||||
NOTE 7 – EMPLOYEE STOCK OPTIONS | |||||||||||
Compensation expense charged against income for share-based awards during the three and six months ended June 30, 2014, was $640,101 and $1,299,569, respectively, as compared to $885,958 and $1,701,721, respectively, for the three and six months ended June 30, 2013. These amounts are included in general and administrative expense in the accompanying financial statements. | |||||||||||
In 2011, Stanford’s Board of Directors and stockholders approved and adopted a long-term incentive plan which allows for the issuance of up to 2,500,000 shares of common stock through the grant of qualified stock options, non-qualified stock options and restricted stock. In 2013, the Company’s stockholders approved an amendment to the long-term incentive plan, increasing the number of shares eligible under the plan to 5,000,000 shares. As of June 30, 2014, there were 2,384,500 shares remaining eligible for issuance under the plan. | |||||||||||
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model and using certain assumptions. The expected volatility is based on the historical price volatility of the Company’s common stock. The Company uses the simplified method for estimating the expected term for options granted. Under the simplified method, the expected term is equal to the midpoint between the vesting period and the contractual term of the stock option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected life of the stock options. The following are the assumptions used to determine the fair value of options granted during the six months ended June 30, 2014 and 2013: | |||||||||||
2014 | 2013 | ||||||||||
Expected volatility | 114% | 128% - 138% | |||||||||
Weighted-average volatility | 114% | 137% | |||||||||
Expected dividends | 0 | 0 | |||||||||
Expected term (in years) | 6.5 | 6.5 | |||||||||
Risk-free interest rate | 1.58% | 0.76% - 1.49% | |||||||||
A summary of the stock option activity as of June 30, 2014, and changes during the six months then ended is as follows: | |||||||||||
Weighted- | |||||||||||
Weighted- | Average | ||||||||||
Average | Remaining | Aggregate | |||||||||
Exercise | Contractual | Intrinsic | |||||||||
Shares | Price | Term | Value | ||||||||
Outstanding, December 31, 2013 | 2,647,500 | $ | 4.01 | ||||||||
Granted | 5,000 | 16.99 | |||||||||
Forfeited | -62,000 | 4.6 | |||||||||
Exercised | -83,000 | 3 | |||||||||
Outstanding, June 30, 2014 | 2,507,500 | $ | 4.06 | 8.2 Years | $ | 33,602,125 | |||||
Exercisable, June 30, 2014 | 621,500 | $ | 3.36 | 8.0 Years | - | ||||||
The intrinsic value was calculated using the closing price on June 30, 2014 of $17.45. As of June 30, 2014, there was approximately $4,018,052 of unrecognized compensation cost related to stock options that is expected be recognized over a weighted-average period of 2.4 years. The total intrinsic value of options exercised during the six months ended June 30, 2014, was $987,295. |
COMMITMENTS_AND_CONTINGENT_LIA
COMMITMENTS AND CONTINGENT LIABILITIES | 6 Months Ended |
Jun. 30, 2014 | |
COMMITMENTS AND CONTINGENT LIABILITIES | ' |
COMMITMENTS AND CONTINGENT LIABILITIES | ' |
NOTE 8 – CONTINGENCIES AND COMMITMENTS | |
Standby Letters of Credit – A commercial bank issued standby letters of credit on behalf of the Company to the states of Texas and Kansas totaling $145,000 to allow the Company to do business in those states. The standby letters of credit are valid until cancelled or matured and are collateralized by the revolving credit facility with the bank. The terms of these letters of credit are extended for a term of one year at a time. The Company intends to renew the standby letters of credit for as long as the Company does business in the states of Texas and Kansas. No amounts have been drawn under the standby letters of credit. |
SUBSEQUENT_EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2014 | |
SUBSEQUENT EVENTS: | ' |
SUBSEQUENT EVENTS | ' |
NOTE 9 – SUBSEQUENT EVENTS | |
In July 2014, the Company entered into a Credit Agreement with SunTrust Bank, as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (“Administrative Agent”) (the “Credit Facility”). The Credit Facility provides for a senior secured revolving credit facility with a maximum borrowing amount of $150 million. The Credit Facility matures on July 1, 2019, and is secured by substantially all of the Company’s assets. | |
The initial borrowing base under the Credit Facility is $40 million (the “Borrowing Base”). The Borrowing Base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time. The Borrowing Base will be redetermined (i) quarterly on each January 1, April 1, July 1 and October 1, beginning October 1, 2014 through October 1, 2015, and (ii) semi-annually on each October 1 and April 1 beginning on April 1, 2016. In addition, the Company may elect to cause the Borrowing Base to be redetermined one time during each of the following periods (i) between the October 1, 2014 and April 1, 2015 redeterminations, (ii) between the April 1, 2015 and October 1, 2015 redeterminations and (iii) starting with the October 1, 2015 redetermination, during any six month period between redeterminations. The Borrowing Base will also be reduced in certain circumstances such as the sale or disposition of certain oil and gas properties of the Company or its subsidiaries and cancellation of certain hedging positions. | |
The Credit Facility allows for Eurodollar Loans and Base Rate Loans (each as defined in the Credit Facility). The interest rate on each Eurodollar Loan will be the adjusted LIBO rate for the applicable interest period plus a margin between 1.75% and 5.00% (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 plus 0.5% per annum or the (iii) adjusted LIBO rate determined on a daily basis for an interest period of one-month, plus 1.00% per annum, plus (b) a margin between 2.75% and 6.00% (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 of not more than 4.0 to 1.0 and (ii) a minimum current ratio of 1.0 to 1.0. The Credit Facility also contains other customary affirmative and negative covenants and events of default. | |
In connection with the closing of the Credit Facility, the Company terminated its credit facility with The F&M Bank & Trust Company, predecessor-in-interest to Prosperity Bank (the “Previous Credit Facility”). The Company has paid off all amounts outstanding under such credit facility. |
SIGNIFICANT_ACCOUNTING_POLICIE
SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2014 | |
SIGNIFICANT ACCOUNTING POLICIES | ' |
Condensed Financial Statements | ' |
Condensed Financial Statements – The accompanying condensed consolidated financial statements prepared by Ring Energy, Inc. and its subsidiary (the “Company” 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 results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014. | |
Certain notes and other disclosures have been omitted from these interim financial statements. Therefore, these financial statements should be read in conjunction with the Company’s 2013 Annual Report on Form 10-K. | |
Organanization and Nature of Operations | ' |
Organization and Nature of Operations – The Company is a Nevada corporation that owns interests in oil and natural gas properties located in Texas and Kansas. The Company’s oil and natural gas sales, profitability and future growth are dependent upon prevailing and future prices for oil and natural gas and the successful acquisition, exploration and development 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. | |
Use of Estimates | ' |
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. Changes in the future estimated oil and natural gas reserves or the estimated future cash flows attributable to the reserves that are utilized for impairment analysis could have a significant impact on the Company’s future results of operations. | |
Concentration of Credit Risk and Major Customer | ' |
Concentration of Credit Risk and Major Customer – The Company had cash in excess of federally insured limits at June 30, 2014. During the six months ended June 30, 2014, sales to two customers represented 86% and 11%, respectively, of the Company’s oil and gas revenues. At June 30, 2014, these customers made up 78% and 12%, respectively, of the Company’s accounts receivable. | |
Oil and Gas Properties Policy | ' |
Oil and Gas Properties – The Company uses the full cost method of accounting for oil and gas properties. Under this method, all costs associated with the acquisition, leasing, exploration, and development of oil and gas reserves are capitalized. Costs capitalized include acquisition costs, estimated future costs of abandonment and site restoration, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling and equipping productive and non-productive wells. Drilling costs include directly related overhead costs. Capitalized costs are generally categorized either as being subject to amortization or not subject to amortization. All of the Company’s costs are subject to amortization. | |
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 independent engineers. The Company evaluates oil and gas properties for impairment at least annually. Amortization expense for the three and six months ended June 30, 2014, was $3,477,816 and $5,008,012, based on depletion at the rate of $26.80 per barrel of oil equivalent compared to $396,662 and 740,270, respectively, for the three and six months ended June 30, 2013, based on depletion at the rate of $23.33 per barrel of oil equivalent. These amounts include $25,741 and $47,427, respectively, of depreciation for the three and six months ended June 30, 2014 compared to $13,902 and $25,406 of depreciation for the three and six months ended June 30, 2013, respectively. | |
In addition, capitalized costs are subject to a ceiling test which limits such costs to the estimated present value of future net revenues from proved reserves, discounted at a 10% interest rate, based on current economic and operating conditions, plus the lower of cost or fair value of unproved properties. Consideration received from sales or transfers of oil and gas property is accounted for as a reduction of capitalized costs. Revenue is not recognized in connection with contractual services performed on properties in which the Company holds an ownership interest. | |
Office Equipment | ' |
Office Equipment – 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 5 to 7 years. | |
Asset Retirement Obligations, Policy | ' |
Asset Retirement Obligation – The Company records a liability in the period in which an asset retirement obligation (“ARO”) is incurred, in an amount equal to the discounted estimated fair value of the obligation that is capitalized. Thereafter, this liability is accreted up to the final estimated retirement cost. An ARO is a future expenditure related to the disposal or other retirement of certain assets. The Company’s ARO relates to future plugging and abandonment expenses of its oil and natural gas properties and related facilities disposal. | |
Revenue Recognition | ' |
Revenue Recognition – The Company predominantly derives its revenues from the sale of produced oil and natural gas. Revenue is recorded in the month the product is delivered to the purchasers. At the end of each month, the Company recognizes oil and natural gas sales based on estimates of the amount of production delivered to purchasers and the price to be received. Variances between the Company’s estimated oil and natural gas sales and actual receipts are recorded in the month the payments are received. | |
Share-Based Compensation Policy | ' |
Share-Based Employee Compensation – The Company has outstanding stock option grants to directors, officers and employees, which are described more fully in Note 6. The Company recognizes the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the related compensation expense over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period. | |
Share-Based Compensation to Non-Employees | ' |
Share-Based Compensation to Non-Employees – The Company accounts for share-based compensation issued to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for these issuances is the earlier of (i) the date at which a commitment for performance by the recipient to earn the equity instruments is reached or (ii) the date at which the recipient’s performance is complete. | |
Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09 establishing Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (ASC 606). ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. The standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within the reporting period. Accordingly, we expect to adopt this standard in the first quarter of 2017. ASC 606 allows either full retrospective or modified retrospective transition and early adoption is not permitted. We are currently evaluating the impact of this new pronouncement on our financial statements. | |
Basic and Diluted Earnings (Loss) per Share | ' |
Basic and Diluted Earnings (Loss) per Share – Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) 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 with an offset from expected proceeds upon exercise of the stock options and unrecognized compensation expense. |
EARNINGS_LOSS_PER_SHARE_INFORM
EARNINGS (LOSS) PER SHARE INFORMATION (Tables) | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
EARNINGS (LOSS) PER SHARE INFORMATION | ' | ||||||||||||
EARNINGS (LOSS) PER SHARE INFORMATION | ' | ||||||||||||
For The Three Months | For The Six Months | ||||||||||||
Ended June 30, | Ended June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Net Income (Loss) | $ | 2,821,738 | $ | -890,393 | $ | 3,985,427 | $ | -1,855,673 | |||||
Basic Weighted-Average Shares Outstanding | 23,907,651 | 14,350,284 | 23,745,406 | 14,290,060 | |||||||||
Effect of dilutive securities: | |||||||||||||
Stock options | 1,244,281 | - | 1,180,682 | - | |||||||||
Diluted Weighted-Average Shares Outstanding | 25,151,932 | 14,350,284 | 24,926,088 | 14,290,060 | |||||||||
Basic Earnings (Loss) per Share | $ | 0.12 | $ | -0.06 | $ | 0.17 | $ | -0.13 | |||||
Diluted Earnings (Loss) per Share | $ | 0.11 | $ | -0.06 | $ | 0.16 | $ | -0.13 |
ACQUISITIONS_Tables
ACQUISITIONS (Tables) | 6 Months Ended | |||
Jun. 30, 2014 | ||||
Summarizes the fair values of the assets acquired and liabilities assumed | ' | |||
Summarizes the fair values of the assets acquired and liabilities assumed | ' | |||
The following table summarizes the fair values of the assets acquired and the liabilities assumed: | ||||
Proved oil and natural gas properties | $ | 6,805,563 | ||
Asset retirement obligations | -294,772 | |||
Total Identifiable Net Assets | $ | 6,510,791 |
ASSET_RETIREMENT_OBLIGATION_Ta
ASSET RETIREMENT OBLIGATION (Tables) | 6 Months Ended | |||
Jun. 30, 2014 | ||||
ASSET RETIREMENT OBLIGATION (Tables) | ' | |||
Changes in Asset Retirement Obligations | ' | |||
Changes in the asset retirement obligation were as follows: | ||||
Balance, December 31, 2013 | $ | 1,182,410 | ||
Liabilities acquired | 294,772 | |||
Liabilities incurred | 737,969 | |||
Accretion expense | 61,694 | |||
Balance, June 30, 2014 | $ | 2,276,845 |
EMPLOYEE_STOCK_OPTIONS_Tables
EMPLOYEE STOCK OPTIONS (Tables) | 6 Months Ended | ||||||||||
Jun. 30, 2014 | |||||||||||
EMPLOYEE STOCK OPTIONS (Tables) | ' | ||||||||||
Assumptions used to determine the fair value of options granted | ' | ||||||||||
The following are the assumptions used to determine the fair value of options granted during the six months ended June 30, 2014 and 2013: | |||||||||||
2014 | 2013 | ||||||||||
Expected volatility | 114% | 128% - 138% | |||||||||
Weighted-average volatility | 114% | 137% | |||||||||
Expected dividends | 0 | 0 | |||||||||
Expected term (in years) | 6.5 | 6.5 | |||||||||
Risk-free interest rate | 1.58% | 0.76% - 1.49% | |||||||||
A summary of the stock option activity | ' | ||||||||||
A summary of the stock option activity as of June 30, 2014, and changes during the six months then ended is as follows: | |||||||||||
Weighted- | |||||||||||
Weighted- | Average | ||||||||||
Average | Remaining | Aggregate | |||||||||
Exercise | Contractual | Intrinsic | |||||||||
Shares | Price | Term | Value | ||||||||
Outstanding, December 31, 2013 | 2,647,500 | $ | 4.01 | ||||||||
Granted | 5,000 | 16.99 | |||||||||
Forfeited | -62,000 | 4.6 | |||||||||
Exercised | -83,000 | 3 | |||||||||
Outstanding, June 30, 2014 | 2,507,500 | $ | 4.06 | 8.2 Years | $ | 33,602,125 | |||||
Exercisable, June 30, 2014 | 621,500 | $ | 3.36 | 8.0 Years | - |
Concentration_of_Credit_Risk_a
Concentration of Credit Risk and Major Customer (Details) | 6 Months Ended |
Jun. 30, 2014 | |
Basis Of Presentation And Significant Accounting Policies Concentration of Credit Risk and Major Customer | ' |
Percentage of sales to one major customer | 86.00% |
Percentage of Receivable from one major customer | 78.00% |
Recovered_Sheet1
Basis Of Presentation And Significant Accounting Policies Oil and Gas Properties (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | |
Basis Of Presentation And Significant Accounting Policies Oil and Gas Properties | ' | ' | ' | ' |
Depreciation, depletion and amortization | $3,477,816 | $396,662 | $5,008,012 | $740,270 |
Depletion at the rate per barrel | 26.8 | 23.33 | 26.8 | 23.33 |
Depreciation expenses on oil & Gas properties | $25,741 | $13,902 | $47,427 | $25,406 |
LOSS_PER_SHARE_INFORMATION_Det
LOSS PER SHARE INFORMATION (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | |
LOSS PER SHARE INFORMATION AS FOLLOWS: | ' | ' | ' | ' |
Net Income (Loss) | $2,821,738 | ($890,393) | $3,985,427 | ($1,855,673) |
Basic Weighted-Average Shares Outstanding | 23,907,651 | 14,350,284 | 23,745,406 | 14,290,060 |
Effect of dilutive securities: | ' | ' | ' | ' |
Stock options | 1,244,281 | 0 | 1,180,682 | 0 |
Diluted Weighted-Average Shares Outstanding | 25,151,932 | 14,350,284 | 24,926,088 | 14,290,060 |
Basic Earnings (Loss) per Share | $0.12 | ($0.06) | $0.17 | ($0.13) |
Diluted Earnings (Loss) per Share | $0.11 | ($0.06) | $0.16 | ($0.13) |
Fair_values_of_the_assets_acqu
Fair values of the assets acquired and liabilities assumed (Details) (USD $) | Jun. 30, 2014 |
Fair values of the assets acquired and liabilities assumed | ' |
Proved oil and natural gas properties | $6,805,563 |
Asset retirement obligations | -294,772 |
Total Identifiable Net Assets | $6,510,791 |
REVOLVING_LINE_OF_CREDIT_Detai
REVOLVING LINE OF CREDIT (Details) (USD $) | Jun. 30, 2014 |
In Thousands, unless otherwise specified | |
REVOLVING LINE OF CREDIT {1} | ' |
Company extended a credit agreement with a bank that provides for a revolving line of credit | $2,500 |
Non usage commitment fees percentage per annum | 0.25% |
Interest rate of the bank's prime rate plus | 0.25% |
Changes_in_the_asset_retiremen
Changes in the asset retirement obligation as follows (Details) (USD $) | Asset Retirement obligation |
Balance at Dec. 31, 2013 | $1,182,410 |
Liabilities acquired | 294,772 |
Liabilities incurred | 737,969 |
Accretion expense | 61,694 |
Balance at Jun. 30, 2014 | $2,276,845 |
COMMON_STOCK_ISSUED_IN_OFFERIN
COMMON STOCK ISSUED IN OFFERINGS (DETAILS) (USD $) | Jun. 30, 2014 | Apr. 30, 2014 | Jan. 31, 2014 |
COMMON STOCK ISSUED IN OFFERINGS | ' | ' | ' |
Issued shares of common stock | 307 | 43,632 | 5,000 |
Exercise price per share | ' | ' | $4.50 |
Exercise price value | ' | ' | $22,500 |
Shares of common stock issued | ' | ' | 20,361 |
Shares of common stock issued pursuant to cashless exercise of options | 500 | 42,500 | 20,000 |
Exercise price per share | $7.50 | $2 | $2 |
Stock options | ' | 10,000 | 5,000 |
Stock options with an exercise price | ' | $4.50 | $5.50 |
Withheld shares | 193 | 8,868 | 4,639 |
Withheld shares per share | $19.39 | $14.66 | $14.55 |
Withheld shares valued | 3,750 | 130,000 | 67,500 |
Issue of common shares private placement offering | 2,000,001 | ' | ' |
Common shares per share value | $15 | ' | ' |
Gross proceeds | $30,000,015 | ' | ' |
EMPLOYEE_STOCK_OPTIONS_DETAILS
EMPLOYEE STOCK OPTIONS (DETAILS) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | |
EMPLOYEE STOCK OPTIONS {2} | ' | ' | ' | ' |
Compensation expenses charged against income for share based awards included in general and administrative expenses | $640,101 | $885,958 | $1,299,569 | $1,701,721 |
Longterm_Incentvie_Plan_Detail
Longterm Incentvie Plan (Details) | Jun. 30, 2014 |
Longterm Incentvie Plan | ' |
Issuance of common stock through grant of qualified stock options approved in 2011 | 2,500,000 |
Issuance of common stock through grant of qualified stock options amendment approved in 2013 | 5,000,000 |
Shares remaining eligible for issuance under the said plan | 2,384,500 |
Weightedaverage_assumptions_us
Weighted-average assumptions used to determine the fair value of options granted (Details) | 6 Months Ended | |
Jun. 30, 2014 | Jun. 30, 2013 | |
Weighted-average assumptions used to determine the fair value of options granted | ' | ' |
Expected volatility | 114.00% | 128.00% |
Expected volatility Maximum | ' | 138.00% |
Weighted-average volatility | 114.00% | 137.00% |
Expected dividends | 0.00% | 0.00% |
Expected term (in years) | 6.5 | 6.5 |
Risk-free interest rate | 1.58% | 0.76% |
Risk-free interest rate Maximum | ' | 1.49% |
Summary_of_the_stock_option_ac
Summary of the stock option activity and changes during the period (Details) | Shares | Weighted Average Exercise Price | Weighted Average Remaining contractual Term (years) | Aggregate Intrinsic Value |
Outstanding at Dec. 31, 2013 | 2,647,500 | 4.01 | 0 | 0 |
Granted | 5,000 | 16.99 | 0 | 0 |
Forfeited | -62,000 | 4.6 | 0 | 0 |
Exercised | -83,000 | 3 | 0 | 0 |
Exercisable at Jun. 30, 2014 | 621,500 | 3.36 | 8 | 0 |
Outstanding at Jun. 30, 2014 | 2,507,500 | 4.06 | 8.2 | 33,602,125 |
CONTINGENCIES_AND_COMMITMENTS_
CONTINGENCIES AND COMMITMENTS (Details) (USD $) | Jun. 30, 2014 |
CONTINGENCIES AND COMMITMENTS: | ' |
Standby letters of creidt issued by commercial banks in the states of Texas and Kansas | $145,000 |
SUBSEQUENT_EVENTS_DETAILS
SUBSEQUENT EVENTS (DETAILS) (USD $) | Jun. 30, 2014 |
In Millions, unless otherwise specified | |
SUBSEQUENT EVENTS AS FOLLOWS: | ' |
The Credit Facility provides for a senior secured revolving credit facility with a maximum borrowing amount | $150 |
Initial borrowing base under the Credit Facility | $40 |