Ring Energy – $REI – Analysis

What is Ring Energy – $REI ?

Analysis of Ring Energy – Ring Energy is a company in the oil sector located in the Permian basin of West Texas. It explores, developed and produce oil and gas. It owns three different areas where it produces around 10’500 Boepd.

Why Ring Energy can be an interesting investment?

Current Ring Energy capitalisation post-AK is around $60MM. It has 80MM shares, but it will increase to 130MM if the Ring Energy stock price maintains over $0.8 as the Ring Energy warrants will be exercised. Furthermore, Ring Energy has $315MM of debt that it has to pay before April 2024. Additionally, Ring Energy revenues are forecasted to be around $160MM in FY21 (85% of its future production for FY21 is already hedged)

Ring Energy - $REI Hedges calendar 2021 (Costless Collars and SWAP)
Source: Ring Energy – December 2020
Is Ring Energy a good Investment?

The following table shows a sensitivity analysis with the two most important variables for Ring Energy: WTI price and production. We estimate that spending around $40MM CAPEX per year, Ring Energy can maintain a production rate around 10’500-11’000 Boepd. Regarding the oil price, we see that if WTI is above $50, Ring Energy can be a very profitable investment. It is noteworthy that we are assuming all the warrants are executed (price over $0.8).

Valuation by MORAM (WTI price assumption for 2022 onwards as 2021 is 90% Hedged)
Reserves of Ring Energy

Assuming a daily production of 11Kboe, Ring Energy would consume roughly 4MM barrels per year. It means that Ring Energy has proved developed reserves for at least the next ten years. If Ring Energy spend the next 3 years to pay down its debt, it means that it would have another 7 years to make money exclusively for its shareholders.

Ring Energy Credit Facility (Debt)

In 2019, Ring Energy acquired the Northwest Shelf assets, incurring a $375MM debt. The interest is Libor +4.25% payable in 5 years. It was a very risky movement and with the arrival of Covid-19, the oil prices plummeted. At that point, Ring Energy stock price was at $0.5. Ring Energy only had 40% of its production hedged and the future of the company was very dark.

Ring Energy tried to sell the Delaware basin assets by $30MM, but after 6 months waiting for the buyer, the sell was cancelled. Consequently, Ring Energy did an AK, going from 67MM shares to 127MM( if all warrants are exercised). Ring Energy paid down the debt from $360MM to the $315MM it has outstanding right now.

Ring Energy will finish 2021 (as 90% of its production is hedged) with a debt around $260MM and 2.5 years to pay it down. It can happen if the WTI price is over $57. So basically, investing in Ring Energy is a way of leveraging this bet.

Annex – Ring Energy $REI
Ring Energy Assets: Delaware Basin, Central Basin Platform and Northwest Shelf

If you enjoyed reading this analysis of Ring Energy, then, you can have a look at the analysis of companies section. There are analysis for all the companies we have in our portfolio. Moreover, there is a list of companies in our Watchlist.

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