Ring Energy, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 13, 2012. Although the request identifies 2011 Q4, this filing reports full-year results, not standalone fourth-quarter results. Ring Energy describes itself as a development-stage oil and gas company.
Business context
At year-end, Ring’s principal oil and gas asset was a 25% working interest (18.75% net revenue interest) in a 440-acre Howard County, Texas prospect and one well. The well’s production had declined, and the company had elected not to participate in a recompletion; it reported no reserves and no production revenue from other properties. The company’s strategy was to acquire oil and gas properties, particularly producing or developed undrilled assets.
Financial results and position
| Metric | FY 2011 / Dec. 31, 2011 | FY 2010 / Dec. 31, 2010 |
|---|---|---|
| Oil and gas revenue | $2,624 | $8,269 |
| Production costs | $600 | $8,429 |
| General and administrative expenses | $78,478 | $57,349 |
| Non-refundable Stanford transaction fee | $250,000 | — |
| Net loss | $320,248 | $78,419 |
| Basic and diluted loss per share | $0.09 | $0.02 |
| Cash and cash equivalents | $4,423,913 | $931,103 |
| Total assets | $5,283,730 | $939,797 |
| Total liabilities | $5,645 | $6,629 |
| Working capital | $5,278,085 | Not stated clearly as a comparative figure |
Revenue fell about 68% year over year. The oil and gas operations result improved from a $1,623 loss in 2010 to $2,024 income in 2011 because production costs fell sharply; this was far too small to offset overhead and the $250,000 transaction fee. G&A rose about 37%, with accounting and legal costs increasing to $28,018 from $19,779. The filing reports no debt balance; liabilities consisted primarily of accounts payable and accrued liabilities.
Cash flow from operations was negative $322,355; investing cash flow was negative $850,000, principally for advances to Stanford; and financing cash flow was positive $4,665,165 from the year-end stock offering. Cash increased by $3,492,810. The company had no off-balance-sheet arrangements. Cash deposits were held at one financial institution, with amounts exceeding $250,000 not federally insured.
Material changes and transactions
- Ring issued 1,167,504 shares at $4.00 per share in a 2011 private offering, receiving approximately $4.665 million net. A further 1,071,180 shares were issued in January 2012 for approximately $4.281 million net.
- Ring paid Stanford Energy a non-refundable $250,000 transaction fee and had advanced $850,000 by year-end. The balance sheet included $853,122 of related-party notes and interest receivable at December 31, 2011.
- In February 2012, Ring signed a second non-binding LOI to acquire Stanford for 3,440,000 Ring shares. Closing was anticipated by March 30, 2012, subject to due diligence, definitive documentation, and verification of property interests and valuation. The LOI cited an engineering report valuing Stanford’s Andrews County properties at $80 million present value, discounted at 10%; this was a proposed transaction valuation, not Ring’s reported reserve value.
- Ring also agreed, subject to due diligence, to buy a 100% working interest in approximately 161.4 Andrews County acres for $112,980, and placed $82,800 in escrow for a separate interest in approximately 280 acres. These were subsequent events, not completed year-end acquisitions.
Outlook, risks, and unusual items
Management said proceeds from the stock offerings were intended to fund acquisitions and a drilling program. At February 15, 2012, the filing cited approximately $8.5 million in cash, while another risk-factor passage cited approximately $8.3 million; the filing text does not provide a clear reconciliation. The company also held a Stanford note receivable bearing 5% interest; the filing gives differing balances and dates as advances and accrued interest were added.
Ring had no profitable operating base, no reserves, no major customer, no employees, and relied on equity sales to fund its activities. Management warned that acquisitions, drilling, and hiring could consume cash without generating commercial production; additional stock issuance could dilute existing holders. The Stanford acquisition was uncertain and could be delayed or fail, and the company identified competition, commodity-price volatility, exploration and drilling risk, regulation, environmental obligations, limited access to capital, and potential catastrophic events as risks. Ring stated it did not intend to hedge commodity-price exposure.
The audited financial statements received an unqualified opinion. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2011; the auditor did not provide an opinion on internal control effectiveness.
Key facts for investors to verify
- Whether the Stanford acquisition closed, what assets and liabilities were ultimately acquired, and whether the stated property interests and engineering valuation were independently substantiated.
- The status, terms, collectability, and current balance of Stanford’s note, including reconciliation of the year-end receivable, subsequent advances, and interest.
- Whether the Andrews County land purchases closed and what working, net revenue, or overriding royalty interests Ring actually obtained.
- Current cash, spending, liquidity runway, and any further financing or dilution since the reported offerings.
- Whether any properties have since produced commercial results or established independently supported reserves.