Ring Energy, Inc. 10-Q Summary
Business Context and Reporting Period
This is a quarterly report (Form 10-Q) for Ring Energy, Inc., a smaller reporting company and development stage entity, for the period ended September 30, 2010. The company holds a 25% working interest in a single oil and gas lease in Howard County, Texas. Management has determined that further development of this current leasehold is unlikely due to minimal production and has fully impaired the asset. The company is currently seeking to acquire additional oil and gas properties.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 | Balance Sheet (Sep 30, 2010) |
|---|---|---|---|
| Revenue | $1,814 | $8,269 | - |
| Net Loss | $(10,681) | $(62,055) | - |
| Cash and Cash Equivalents | - | - | $938,803 |
| Total Assets | - | - | $950,331 |
| Total Liabilities | - | - | $799 |
| Operating Cash Flow | - | $(55,057) | - |
| Stockholders' Equity | - | - | $949,532 |
Note: The company reported no revenue or production costs for the comparable periods in 2009. Margins are not applicable due to the development stage status and net losses.
Material Changes vs. Prior Period
- Asset Impairment: The company recognized a loss on impairment of oil and gas properties of $22,655 for the nine months ended September 30, 2010. This follows a total impairment of $292,917 recognized since September 2009, resulting in the write-off of all capitalized costs for the Eastland #1 well.
- Revenue Generation: Unlike the prior year periods which had zero revenue, the company generated $8,269 in revenue from oil production for the nine months ended September 30, 2010, though this was insufficient to cover production costs.
- Liquidity: Cash and cash equivalents decreased by $55,057 during the nine-month period, primarily due to operating losses. Total liabilities decreased significantly from $21,007 at year-end 2009 to $799 at September 30, 2010.
Outlook, Risks, and Management Commentary
Management does not consider the current prospect a source of future liquidity or capital. The company intends to pursue the acquisition of one or more oil and gas leasehold interests with existing production or proved reserves. However, such acquisitions may require substantially greater capital than currently available ($938,803).
Risks and Contingencies:
- Capital Constraints: The company may need to issue debt or equity to fund acquisitions. Current economic conditions and infrequent trading of its stock on the OTC Bulletin Board may make raising capital difficult.
- Acquisition Uncertainty: There is no assurance that the company will successfully negotiate or consummate a transaction for new properties.
- Operational Risks: Standard industry risks include fluctuating oil prices, regulatory changes, and operational interruptions.
Investor Verification Checklist
- Verify the status of the $938,803 cash balance and confirm it is held in a single financial institution with amounts exceeding federal insurance limits.
- Confirm the timeline and progress of the search for new oil and gas properties, as the current asset base is fully impaired.
- Assess the feasibility of raising additional capital given the company's status as a smaller reporting company with infrequent stock trading.
- Review the specific terms of any potential future equity or debt issuances required to fund acquisitions.