Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ring Energy Inc (REI, Financial) posted record sales volumes and cash generation for the second quarter and year-to-date.
- The company used excess cash to pay down $15 million of debt and plans to continue reducing debt in the coming quarters.
- Second-quarter sales volumes exceeded initial guidance, and operating expenses and capital spending were below guidance ranges.
- Record adjusted EBITDA of $66.4 million for the second quarter, with year-to-date growth of 15%.
- Ring Energy Inc (REI) reported record adjusted free cash flow of $21.4 million for the second quarter, a 70% increase from the same quarter last year.
Negative Points
- The company continues to face negative realized pricing for natural gas, impacting overall revenue.
- Lease operating expenses (LOE) increased slightly in the second quarter to $10.72 per BOE from $10.60 per BOE in the first quarter.
- Despite improvements, the company still faces product takeaway constraints in the basin, affecting natural gas pricing.
- Ring Energy Inc (REI) has a limited inventory compared to competitors, lacking a long-term inventory of 15-20 years.
- The company acknowledges a disconnect between its operational and financial performance and its stock price performance, indicating potential market perception issues.
Q & A Highlights
Q: Can you remind me where you're thinking about the capital you allocated for the remainder of this year and into next year?
A: We like the current allocation mix, focusing on cash flow generation and managing infrastructure constraints. We have a solid short- to medium-term inventory for the next several years but are also exploring acquisitions to extend our inventory further. Additionally, we are testing new ideas on existing acreage to organically generate more drilling opportunities.
Q: Are there any upcoming conventional M&A opportunities you are considering?
A: Yes, we are seeing several conventional packages in the market and expect more to come. We are focused on areas where we currently operate to capture synergies and spread our operating team over more wells and production. We are mapping and identifying undeveloped opportunities and are excited about the potential acquisitions.
Q: Have you announced an increase in CapEx?
A: No, we have not. Our CapEx guidance for the rest of the year represents a slight reduction. We are benefiting from a favorable macro environment with reduced inflationary pressures on costs. We are targeting the same number of wells but can now drill and complete them for less money than initially estimated.
Q: Why might capital creep higher in the back half of the year despite consistent activity levels?
A: The higher capital estimate is partly due to conservatism and partly because we are allocating some capital towards higher-risk investments that could prove significant additional reserves organically. We are also stepping up spending on facility upgrades and emissions capture.
Q: Are the well cost reductions mostly due to the softness in the overall OFS market, or are there internal efficiencies at play?
A: It's a combination of both. We are seeing improvements in our drilling and completion efficiencies, which are driving down costs. While the relaxation in service prices contributes, our internal performance improvements are also significant and likely to be more permanent.
Q: Has the heavy lifting on field operations with respect to the Founders acquisition been done, or is there further opportunity to enhance production?
A: There is always room for improvement. We are seeing positive impacts from our artificial lift designs and other field-level steps, and we expect continued improvements as we spend more time with these assets.
Q: Does the Founders acquisition include a heavy PDP base, and are you able to pick up inventory at a relatively low cost due to the conventional nature?
A: Yes, the conventional nature reduces competition, allowing us to acquire assets at a lower cost. The acquisition opportunities vary, with some offering significant undeveloped opportunities and others being more PDP-focused. Each has different virtues that can enhance shareholder value.
Q: Are the higher-risk opportunities in the drilling program related to applying new technology to known reservoirs or to previously non-commercial reservoirs?
A: Both. We are testing new ideas on existing acreage and applying horizontal drilling in areas where it hasn't been tried. These opportunities could significantly improve our inventory organically.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
