Ring Energy, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. The interim consolidated financial statements are unaudited. Ring owns oil and natural gas interests in Texas and Kansas.
Financial results and liquidity
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Oil and gas revenue | $11.20 million | $17.17 million | $1.29 million and $2.44 million |
| Net income (loss) | $2.82 million | $3.99 million | ($0.89 million) and ($1.86 million) |
| Basic EPS | $0.12 | $0.17 | ($0.06) and ($0.13) |
| Operating cash flow | Not separately presented | $13.03 million | $1.37 million |
| Investing cash flow | Not separately presented | ($48.54 million) | ($7.33 million) |
At June 30, cash was $45.54 million, down from $52.35 million at year-end 2013. Current assets were $50.58 million and current liabilities $8.65 million. No borrowings were outstanding on the $25 million Prosperity Bank facility. The filing reports no funded debt at quarter-end. The six-month cash outflow for investing was funded in part by $28.67 million of common-stock proceeds.
Q2 oil volume was 118,533 barrels, at an average realized price of $93.84 per barrel; gas volume was 7,142 Mcf, at $4.98 per Mcf. Q2 production expense was $1.08 million, production taxes $0.52 million, DD&A $3.48 million, and G&A $1.63 million. The filing gives lease operating expense of $9.00 per BOE for Q2. It does not provide a clear reported gross-margin figure.
Changes and significant events
- Revenue rose sharply year over year, which management attributed primarily to higher production from drilling. For the six months, oil sales volume increased to 182,477 barrels from 28,506; the average realized oil price rose 11% to $93.69 per barrel.
- For the six months, operating cash flow increased to $13.03 million from $1.37 million, while investing outflows increased to $48.54 million from $7.33 million. Net income turned positive from a prior-year loss.
- In February, Ring acquired Permian Basin properties in Andrews County for $6.51 million, then spent a further $1.91 million to acquire or lease additional acreage and rights.
- In June, Ring sold 2,000,001 shares at $15 per share for gross proceeds of approximately $30.0 million. Shares outstanding were 25,645,614 at June 30; 25,711,218 were outstanding August 7.
- In July, Ring entered a new senior secured revolving facility with a $150 million maximum commitment, an initial $40 million borrowing base, and a July 1, 2019 maturity. Borrowing-base redeterminations and financial covenants apply. The prior facility was terminated and amounts outstanding were paid off.
Outlook, risks, and contingencies
Management described ongoing drilling and plans to pursue producing or developed-undrilled properties, potentially in multiple states. The filing provides no quantified production, revenue, earnings, or capital-spending guidance. Management expects G&A may increase as the company grows and hires personnel.
Key risks include volatile oil and gas prices, the need for capital to fund development and acquisitions, drilling and reserve-estimation uncertainty, environmental and regulatory requirements, transportation constraints, and reliance on a small number of customers. Two customers accounted for 86% and 11% of six-month revenue; the largest accounted for 78% of receivables. Ring reported no known environmental claims or proceedings and no off-balance-sheet arrangements. Standby letters of credit totaled $145,000, with none drawn.
Important facts to verify
- Confirm the reported Q2 DD&A amount: the financial statements show $3,477,816, while MD&A states $3,447,816.
- Reconcile offering costs: the financial-statement note reports $1,332,884, while Part II reports $1,334,884.
- Review the July credit facility’s borrowing-base terms, redetermination mechanics, interest margins, and covenants; its $150 million maximum is not the initial borrowing base.
- Assess exposure to the largest oil purchaser and the effect of commodity-price changes on cash generation and borrowing capacity.
- Evaluate whether drilling and acquisition spending can be sustained by operating cash flow and available financing.