Ring Energy, Inc. — Q1 2013 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2013, compared with Q1 2012. Ring owns oil and gas interests in Texas and Kansas. Historical financial statements reflect Stanford Energy as accounting acquirer in the 2012 combination.
Key financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Oil and gas revenue | $1.152 million | $328,003 |
| Net loss | $965,280 | $630,274 |
| Loss per share, basic and diluted | $0.07 | $0.18 |
| Cash from operating activities | $(373,422) | $(116,525) |
| Capital expenditures | $1.483 million | $295,629 |
| Cash at period end | $3.998 million | $124,218 |
Revenue rose about 251%, principally as production increased following 2012 acquisitions and development. Oil volume increased to 14,245 barrels from 3,264; realized oil price declined 18% to $79.79 per barrel. Gas volume increased to 5,757 Mcf from 2,538; realized gas price declined 23% to $2.67 per Mcf.
Production costs fell to $141,255 from $157,181, and costs per BOE declined to $9.29 from $42.63. Production taxes were approximately 5% of sales in both periods. DD&A increased to $343,608 from $81,128. General and administrative expense increased to $1.568 million from $657,309, including share-based compensation of $815,763 versus $290,886. No interest expense was recorded in Q1 2013, compared with $93,835 in Q1 2012.
Financial position and liquidity
At March 31, 2013, total assets were $28.527 million, current assets $4.545 million, accounts payable/current liabilities $681,456, and stockholders’ equity $26.500 million. Cash declined $1.406 million from December 31, 2012. No borrowings were outstanding under the revolving credit facility; $9.855 million was available, including capacity reserved for letters of credit. The facility permits up to $10 million, carries a minimum interest rate of 4%, and matures August 8, 2013. Two stockholders jointly and severally guarantee outstanding borrowings.
The company reported an asset retirement obligation of $719,430, up from $496,286 at year-end, including a $211,691 estimate revision and $11,453 of accretion. A $450,000 private placement of 100,000 shares at $4.50 per share provided financing; the purchaser was the company’s Vice President of Operations.
Changes, outlook, and risks
Despite substantially higher revenue and lower production costs, the quarterly net loss widened, mainly because of increased stock-based and cash compensation and higher DD&A. Operating cash use also increased, while investing outflows rose with development and property spending.
Management stated an intent to pursue producing or developed-undrilled properties, but acquisitions may require substantially more capital than currently available and may require debt or equity financing. No quantified production, revenue, or earnings guidance is provided. The filing cautions that Q1 results are not necessarily indicative of full-year results.
Key disclosed risks include volatile oil and gas prices, dependence on external capital and successful development, drilling and reserve-estimation uncertainty, concentrated reserves, transportation and gathering costs, competition, reliance on key personnel, and environmental and regulatory requirements. One customer accounted for 96% of Q1 oil and gas revenue and 91% of accounts receivable at quarter-end. Cash exceeded federally insured limits. The company reported no known environmental demands, claims, litigation, or administrative proceedings involving it or acquired properties.
Investor verification points
- Confirm the revolving facility’s August 8, 2013 maturity, renewal status, covenants, and actual available borrowing capacity.
- Assess funding needs and capital spending plans against operating cash outflows and management’s acquisition ambitions.
- Monitor customer concentration, receivable collection, and the availability and cost of gathering and transportation.
- Review the assumptions behind reserve estimates, depletion, ceiling-test calculations, and the increased asset retirement obligation.
- Evaluate the effect of stock-option grants and unrecognized compensation costs; the filing reports $6.712 million of unrecognized option compensation.
- Note that the statements are unaudited and that the MD&A contains apparent period/value inconsistencies; the financial statements report Q1 operating cash use of $373,422.