Business Context and Reporting Period
Company: Ring Energy, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2011
Status: Development Stage Entity / Smaller Reporting Company
Operations: The Company holds a 25% working interest in an oil and gas lease in Howard County, Texas. However, it has determined that further development of this interest is unlikely and has fully impaired the associated capitalized costs. The Company is currently searching for new oil and gas properties to acquire but has not yet secured any new interests.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 | Balance Sheet (June 30, 2011) |
|---|---|---|---|
| Revenue (Oil & Gas) | $2,624 | $6,455 | - |
| Net Loss | $(40,217) | $(51,374) | - |
| Cash and Cash Equivalents | - | - | $885,256 |
| Total Assets | - | - | $892,951 |
| Total Liabilities | - | - | $0 |
| Operating Cash Flow | $(45,847) | $(45,576) | - |
| Shares Outstanding | - | - | 3,548,200 |
Note: The Company reported no revenue from oil and gas operations for the three months ended June 30, 2011. Margins are not applicable due to the development stage status and lack of significant revenue.
Material Changes vs. Prior Period
- Operating Loss: The loss from operations for the six months ended June 30, 2011, was $41,704, an increase of 38% compared to $30,115 in the prior year period. This increase was primarily driven by $12,275 in consulting fees incurred during the search for new properties.
- Revenue: Oil and gas revenue for the six months ended June 30, 2011, was $2,624, compared to $6,455 in the prior year. The Company ceased production activities in the second quarter of 2011.
- Impairment: Unlike the prior year period which included a $22,655 loss on impairment of oil and gas properties, no impairment loss was recorded in the current period as the properties were already fully impaired.
- Liquidity: Cash and cash equivalents decreased by $45,847 during the six-month period. Total liabilities were reduced to zero as the Company paid off all accounts payable and accrued liabilities.
Outlook, Risks, and Management Commentary
- Future Operations: Management does not anticipate deriving future revenue from existing properties. The Company intends to pursue the acquisition of new oil and gas leasehold interests with existing production or proved reserves.
- Capital Needs: Acquiring new properties will likely require substantially greater capital than currently available. The Company may need to issue debt or equity, though current market conditions and the infrequent trading of its stock on the OTC Bulletin Board may make this difficult.
- Risks: Key risks include the volatility of oil and gas prices, the inability to secure new properties, and the potential inability to raise capital. The Company faces regulatory risks regarding environmental protection and drilling operations.
- Unusual Items: The Company incurred approximately $17,000 in consulting and legal fees during the six months ended June 30, 2011, specifically for evaluating potential acquisitions. No acquisitions were completed during this period.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of the $885,256 cash balance given the operating cash outflow of approximately $46,000 per six months and the anticipated costs of future acquisitions.
- Acquisition Strategy: Confirm if the Company has identified specific targets for acquisition and the estimated capital required to close such deals.
- Related Party Transactions: Review the lease agreement for the executive office, which is leased from a stockholder at $1,100 per month.
- Stock Liquidity: Assess the trading volume and liquidity of the common stock on the OTC Bulletin Board to evaluate the feasibility of future equity financing.
- Development Stage Status: Acknowledge that the Company remains a development stage entity with no significant revenue, implying high risk and speculative investment characteristics.