Texas Co.'s Oil Wells Outperform in Q1/25
Research Report

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Disclosures for Water Tower Research, Ring Energy Inc., April 22, 2025

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Ring Energy Inc. (REI:NYSE) Q1/25 oil production passed the high end of quarterly guidance, and total production surpassed the midpoint, reported Jeff Robertson, analyst at Water Tower Research, in an April 22 research note.

"Since oil represents more than 95% of total revenue, the oil outperformance has an outsized revenue impact," Robertson wrote.

Noteworthy Oil Production

In Q1/25 Ring's oil production exceeded the high end of guidance for the quarter of 11,700–12,000 barrels of oil per day (11.7–12 Mbbl/d). Seven new wells, four horizontal and three vertical, which performed better than management's pre-drill estimates were responsible for this outcome.

Total production surpassed the middle of total production guidance of 18.25 Mbbl/d.

Ring's capital program guidance for full-year 2025 (FY25) is US$138–170 million (US$137–170M) and includes 43–55 new wells being put online.

New Producing Assets

On March 31, Ring completed its US$68.6M acquisition of producing assets from Lime Rock Resources IV. To cover the total, Ring borrowed against its existing reserve-based lending facility, issued about 6.5 million (6.5M) shares of common stock to Lime Rock Resources and is to make a US$10M deferred cash payment around Dec. 31, 2025.

"The Lime Rock acquisition furthers management's dual goals of scaling the asset base and improving the balance sheet," wrote Robertson.

These new assets are on about 17,700 net acres, mostly contiguous to Ring's existing footprint, on the Central Basin Platform in Andrews County's Shafter Lake area in Texas.

"The acquired assets sit on greater than 40 gross development locations that will immediately compete for capital in Ring's development program," Robertson wrote.

In the first half of April, these Lime Rock assets produced an average of about 2,500 barrels of oil equivalent per day (boe/d), 80% of which is oil, about 200 boe/d more than management anticipated. So far, thanks to operating synergies, Ring has saved more than 5% on lease operating expenses on the new assets. 

Estimated Value

At the time Ring announced the transaction, management estimated it acquired the assets for less than 85% of proved developed PV10, then considered to be about US$120M. Since then, the company has revised the value to US$116M to reflect declining oil prices since February.

"The discount implies that the development well inventory was added at zero cost," wrote Robertson.

Water Tower Research updated its estimates on Ring to reflect Q1/25 production and pricing. Now, the firm's adjusted EBITDA is US$46.5M for Q1/25 and based on an average New York Mercantile Exchange (NYMEX) reference oil price of US$65.32 per barrel, its EBITDA is US$202.3M for FY25.

"Oil accounts for 97% of our full-year revenue estimate," noted Robertson.

Stock Data

Ring Energy's share price at the time of the report was US$0.90.

The company has 206.5M outstanding shares. Its market cap is US$186M. Its 52-week range is US$0.78–2.06 per share.