Ring Energy, Inc. - 10-K Summary (Fiscal Year Ended Dec 31, 2010)
Business Context and Reporting Period
Ring Energy, Inc. is a Nevada corporation engaged in the oil and gas exploration and development sector. This filing covers the fiscal year ended December 31, 2010, representing the company's first full fiscal year after changing its year-end from September 30 to December 31 in late 2009. The company holds a 25% working interest (18.75% net revenue interest) in the Anderson Prospect in Howard County, Texas. As of the reporting date, the company is classified as a development stage entity with no employees, relying on a part-time president and a board of directors.
Key Financial Metrics
| Metric | 2010 (Year Ended) | 2009 (Transition Period) | 2009 (Year Ended Sep 30) |
|---|---|---|---|
| Revenue (Oil & Gas) | $8,269 | $5,851 | $0 |
| Net Loss | $(78,419) | $(47,941) | $(334,055) |
| Loss Per Share | $(0.02) | $(0.01) | $(0.09) |
| Total Assets | $939,797 | $1,032,594 | N/A |
| Cash & Equivalents | $931,103 | $993,860 | N/A |
| Total Liabilities | $6,629 | $21,007 | N/A |
| Working Capital | $927,374 | $980,476 | N/A |
| Operating Cash Flow | $(62,757) | $(28,653) | $(9,963) |
Note: The 2009 Transition Period covers the three months from October 1 to December 31, 2009.
Material Changes and Operational Status
- Asset Impairment: The company fully impaired its investment in the Anderson Prospect (Eastland #1 Well). Total costs to acquire and drill the well were $296,042. Impairment charges of $22,655 were recorded in 2010, following previous impairments in 2009. The well was determined to be non-commercial.
- Production Status: The company elected in January 2011 not to participate in the recompletion of the Eastland #1 Well. Consequently, the company may lose its interest in the Prospect but will receive a production payment for oil currently in the tanks. Management does not anticipate this revenue to be material.
- Liquidity: Total assets decreased by approximately 9% ($92,797) compared to the prior year-end, primarily due to a reduction in cash used for operations. However, liabilities decreased significantly by 68% ($14,378), improving the working capital position relative to obligations.
- Cost Structure: General and administrative expenses totaled $57,349 for 2010, driven largely by accounting/legal fees ($19,779), director fees ($15,000), and rent ($12,700).
Outlook, Risks, and Management Commentary
- Capital Needs: Management believes current cash reserves (~$900,000 as of March 2011) are insufficient to acquire producing properties. The company anticipates needing to raise additional capital through debt or equity financing, which would result in dilution to existing shareholders.
- Future Strategy: The company is actively searching for new oil and gas properties, preferring producing or developmental assets over exploratory ones. No definitive agreements for new acquisitions have been reached.
- Risks: Key risks include the inability to secure financing, the cyclical nature of the oil and gas industry, commodity price volatility, and the inherent risks of drilling exploratory wells. The company does not hedge against commodity price risks.
- Related Party Transactions: The company leases its office space from an affiliate of the President's brother-in-law for $1,100 per month. Total rent paid in 2010 was $12,700.
Investor Verification Checklist
- Cash Runway: Verify the current cash balance and burn rate to assess how long operations can continue without new financing.
- Production Payment: Confirm the actual amount and timing of the production payment received from the Eastland #1 Well following the January 2011 election.
- Financing Plans: Review any subsequent filings for details on proposed equity or debt offerings to fund future acquisitions.
- Asset Ownership: Confirm the legal status of the company's interest in the Anderson Prospect following the decision not to recomplete the well.
- Related Party Leases: Validate the terms and necessity of the office lease with the related party to ensure fair market value.