Ring Energy, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Ring is an independent oil and gas exploration and production company operating in the Permian Basin of Texas and New Mexico. This is an annual report, not a standalone fourth-quarter report.
Financial and operating highlights
| Metric | 2021 | 2020 |
|---|---|---|
| Oil and natural gas revenue | $196.3 million | $113.0 million |
| Net income (loss) | $3.3 million | ($253.4 million) |
| Cash provided by operating activities | $72.7 million | $72.2 million |
| Development spending | $51.3 million | $42.5 million |
| Production | 3.109 million BOE | 3.217 million BOE |
| Average realized sales price | $63.14/BOE | $35.13/BOE |
- Revenue growth reflected higher realized prices: oil averaged $67.56 per barrel versus $38.95, and natural gas averaged $5.83 per Mcf versus $1.57. Oil volumes fell about 4%; total BOE production declined about 3%.
- Operating income was $95.8 million. Net income was substantially affected by a $77.9 million derivative loss, including realized cash settlements of $52.8 million, and $14.5 million of interest expense.
- The prior-year loss included a non-cash $277.5 million full-cost ceiling impairment; no ceiling impairment was recorded in 2021. The 2020 results also included $5.5 million of deposit-forfeiture income.
- Lease operating expense was $9.75/BOE, up from $9.25; production taxes were $2.93/BOE, up from $1.63. The filing does not provide a clear EBITDA or EBITDA-margin figure.
- Year-end cash was $2.4 million and working capital was negative $46.9 million. Credit-facility debt was $290 million against a $350 million borrowing base; the company reported covenant compliance. The facility matures in April 2024. Its weighted-average interest rate was 4.4%.
- Proved reserves were 77.8 million BOE, up from 76.5 million; 56% were proved developed and 44% proved undeveloped. Standardized discounted future net cash flows were $1.137 billion versus $556 million. Pre-tax PV-10 was $1.332 billion, a non-GAAP measure. The increase in reserve valuation was driven substantially by higher SEC benchmark prices.
Material changes and management outlook
- Ring drilled and brought 11 gross operated wells online in 2021, participated in two non-operated wells, and completed multiple conversions from electric submersible pumps to rod pumps. Management said phased drilling was intended to keep activity within cash flow.
- Management plans to focus 2022 drilling primarily on the Northwest Shelf and Central Basin Platform, allocate capital to higher-return projects, generate free cash flow, and reduce debt. No specific production, revenue, earnings, or capital-spending guidance is provided.
- At year-end, oil swaps covered 3,129 barrels per day for 2022 at a weighted-average price of $46.60 per barrel. A subsequent February 2022 contract added 1,000 barrels per day for the remainder of 2022 at a weighted-average $84.61 per barrel. These financial hedges limit exposure to both falling and rising prices.
- Key risks include commodity-price volatility, borrowing-base reductions and refinancing needs, the capital required to develop PUD reserves, drilling and reserve-estimation uncertainty, customer concentration, and evolving environmental and emissions regulation. Phillips 66 represented 76% of 2021 revenue and 75% of year-end receivables.
- A purchaser sued over a proposed property sale and seeks return of a $5.5 million forfeited deposit plus damages and fees. Ring disputes the claims and has counterclaimed; discovery was ongoing. The filing does not state a clear estimate of potential loss.
Important facts for investors to verify
- Current debt, borrowing-base availability, covenant headroom, and the plan to repay or refinance the facility before its April 2024 maturity.
- Expected 2022 production, capital spending, and free cash flow, which the filing does not quantify, as well as the funding and timing assumptions for converting PUD reserves.
- The full 2022 hedge position, including the effect of the post-year-end swap, against realized prices and expected production.
- Reserve revisions and development economics, particularly the negative revisions attributed to Delaware PUD removal, well performance, and higher industry costs.
- Progress and potential exposure in the $5.5 million deposit litigation, and continued reliance on Phillips 66 as the dominant customer.