Estimate Update
Ring’s 4Q23 production averaged ~19,400 BOE/d, near the high end of management’s 18,900-19,500 BOE/d guidance range. Average production increased 11% from 3Q23, reflecting the full-quarter inclusion of volumes acquired in the Founders acquisition, which closed in August 2023, and from volumes added from the completion of the 2023 development program in the quarter. Management expects 1Q24 production to average 18,000-18,500 BOE/d. 1Q24 volumes were adversely affected by winter weather disruptions in January, which deferred ~1,900 BOE/d for 10 days and natural declines from wells completed during 2H23. Ring’s development drilling program resumed in early January 2024 and production from the first new wells was expected online in February 2024. Management expects 1Q24 capital outlays to total $37-42 million from a program utilizing one rig to drill vertical wells and one to drill horizontal wells. Management’s initial 2024 development plans include four to six vertical wells and five horizontal wells. From a modeling standpoint, we would expect the volume impact to be more evident beginning in 2Q24. We expect management to provide more clarity on the FY24 capital and operating plan in conjunction with its 4Q23 earnings release in early March. Ring generated sufficient free cash flow in 4Q23 to fund the $11.9 million deferred payment from the Founders acquisition and reduce RBL borrowings by $3 million. RBL borrowings at year-end were $425 million. We expect the FY24 capital program will again balance management’s desire to strengthen the balance sheet and maintain production. We are updating our estimates to reflect preliminary 4Q23 production and actual NYMEX reference prices. Our reference oil price averaged $78.32/bbl in 4Q23, compared with our earlier estimate of $85/bbl. We estimate that oil accounted for 69% of 4Q23 production and 96% of our revenue estimate. Our updated estimates are shown in Figures 1 to 3. Ring is trading at 2.5x our FY24 adjusted EBITDA estimate of $260 million. Oil represents 69% and 97% of our FY24 production and revenue estimates, respectively. Our FY24 estimate incorporates average NYMEX oil prices of $79.50/bbl.Ring Energy is an exploration and production company that is engaged in oil and natural gas acquisition, exploration, development and production activities. The company's primary drilling operations target the Central Basin Platform in Andrews County and Gaines County, TX and the Delaware Basin in Reeves County and Culberson County, TX, all of which are part of the Permian Basin. The company principally sell its oil and natural gas production to end users, marketers and other purchasers that have access to nearby pipeline facilities. In areas where there is no practical access to pipelines, oil is trucked to storage facilities.
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