Ring Energy, Inc. (AMEX:REI) Q1 2025 Earnings Call Transcript

Ring Energy, Inc. (AMEX:REI) Q1 2025 Earnings Call Transcript May 8, 2025

Operator: Good day, and welcome to the Ring Energy’s First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations. Please go ahead.

Al Petrie: Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy. We will begin our call with comments from Paul McKinney, our Chairman of the Board and CEO, who will provide an overview of key matters for the first quarter 2025 as well as our updated outlook. We will then turn the call over to Travis Thomas, Ring’s Executive VP and Chief Financial Officer, who will review our financial results. Paul will then return with some closing comments before we open the call up for questions. Also joining us on the call today and available for the Q&A session are Alex Dyes, Executive VP and Chief Operations Officer, James Parr, Executive VP and Chief Exploration Officer, and Shawn Young, Senior VP of Operations.

During the Q&A session, we ask you to limit your questions to one and a follow-up. You are welcome to re-enter the queue later with additional questions. I would also note that we have posted an updated investor corporate presentation on our website. During the course of this conference call, the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Ring Energy disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday’s press release and in our filings with the SEC. These documents can be found in the Investors section of our website located at www.ringenergy.com. Should one or more of these risks materialize or should underlying assumptions proven correct, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in yesterday’s earnings release. Finally, as a reminder, this conference call is being recorded. I’d now like to turn the call over to Paul McKinney, our Chairman and CEO.

Paul McKinney: Thanks, Al. We appreciate everyone for joining us today and for your interest in Ring Energy. We began 2025 with a strong first quarter, where we met or exceeded all guidance targets. Driving our outperformance was exceptional oil sales volumes from newly drilled wells and our legacy assets through the outstanding efforts of our operations team to maintain our PDP production. During the quarter, we sold 18,392 barrels of oil equivalent per day, which was above the midpoint of our previously announced guidance range. And more importantly, we sold 12,074 barrels of oil per day, exceeding the high end of our guidance range despite the impact of weather-related downtime in January. We drilled, completed and placed on production seven wells in the first quarter, including four horizontal wells in the Northwest shelf and three vertical wells in the Central Basin platform.

Not only have those wells all exceeded initial pre-drill production estimates. Another highlight as we improved our capital efficiency again this quarter with average well costs coming in around 7% less than budget. We also closed the highly accretive acquisition of Lime Rock’s CBP assets that continue to exceed the forecast originally used to value similar to what we did to prepare for the Founders acquisition closing. We strategically adjusted the timing of our drilling program and capital spending initiatives during the first quarter to reduce the capital spent to optimize our financial position and better position the balance sheet. Like our Founders CBP asset acquisition that closed in the third quarter of 2023, the accretive Lime Rock transaction checks all the right boxes.

As a reminder, we purchased a little over 100 wells with approximately a 75% oil cut with low decline production, enhancing the company’s metrics for both measures. The transaction also modestly increased scale and captures operating synergies through reductions in the number of field personnel required to operate the assets, benefits from integrating saltwater disposal systems and lower costs from a variety of changes being made in the field. We also gained approximately 17,700 net acres, all held by production, with the majority of that acreage being contiguous with our legacy operations in the Shafter Lake area, the noncontiguous acreage to the South exposes in to additional active plays on the platform, providing additional opportunities when oil prices improve.

With this transaction, over 40 gross drilling locations have been added to our existing high-return drilling inventory that immediately competes for capital. Last but not least, production from these assets during April, our first month of operations, averaged over 2,500 barrels of oil equivalent per day, representing a 9% increase over the estimates used to value the assets. The result is an expected meaningful increase in adjusted free cash flow supported by $120 million of oil-weighted proved developed reserves and ultimately, a stronger and more resilient company. Regarding our guidance for the remainder of 2025, consistent with the revised second quarter outlook we provided last month, we are updating our outlook for the second half of the year to reflect a reduction in capital spending in response to the weakened price environment.

As a result, for the final three quarters of 2025, Ring intends to reduce total capital spending by more than 47% or 36% for the full year, with only a modest reduction in production during the last half of the year guiding to approximately 2% annual production growth over 2024. This is only made possible by the production outperformance for the new wells drilled in the first and second quarter and higher than expected production from the existing and newly acquired assets. All of this leads to projected higher adjusted free cash flow levels. For more details on the adjusted free cash flow levels, please refer to our investor presentation. With that, I will turn this over to Travis to provide financial details for the quarter, more details associated with our guidance ratings, and then return to share more about our plans to not only survive the potential for extended lower oil prices but thrive and emerge even stronger.

Travis?

Travis Thomas: Thanks, Paul, and good morning, everyone. As Paul noted, we posted solid first quarter operational and financial performance, driven by outstanding execution by our team across the board. The result was better than expected oil and total sales volumes as well as in-line operating and capital spending levels. The combination allowed us to conserve capital in anticipation of the closing of the highly accretive Lime Rock’ CBP asset acquisition, which has outperformed initial expectations and places Ring in a much stronger position to better succeed in the current pricing environment. It also allows us to pay down debt at a faster rate than we could have done on a stand-alone basis. As I say every time, balance sheet improvement has been and will remain a top priority for the company.

With that overview, let’s take a closer look at the quarter. Starting at the top line, we sold 12,074 barrels of oil per day and 18,392 Boe per day with both exceeding guidance. As a reminder, the March 31st closing — with the March 31st closing, we began to benefit from the recent acquisition of the additional CBP assets beginning on the first day of the second quarter, which is reflected in our guidance for the remainder of 2025. Turning to the first quarter 2025 pricing, our overall realized price increased 4% to $47.78 per Boe from $46.14 per Boe in the fourth quarter of 2024. Driving the overall increase was a 2% higher first quarter 2025 realized oil price. Our first quarter average crude oil differential from NYMEX WTI futures pricing was a negative $0.89 per barrel versus a negative $1.42 per barrel in the fourth quarter.

This was mostly due to the Argus WTI and WTS that increased by $0.59 per barrel, offset by the Argus CMA roll that decreased by $0.08 per barrel on average from the fourth quarter. Our average natural gas price differential from NYMEX futures pricing for the first quarter was a negative $3.81 per Mcf compared to a negative $3.83 per Mcf for the fourth quarter. Our realized NGL price for the first quarter averaged 15% of WTI compared to 13% for the fourth quarter. The result was revenue for the first quarter of $79.1 million. We continue to target the higher oil mix opportunities as oil accounted for 97% of total revenue, while it was only 66% of total production. Although, we continue to see slightly negative realized natural gas pricing there was a material improvement in the first quarter from the fourth quarter of 2024.

While the majority of our GTP costs are reflected as the sales price reduction, the larger impact on realized prices is from the continued gas takeaway constraints in the basin. However, we are starting to realize the benefits from additional takeaway capacity that came online with the Matterhorn Express Pipeline in late 2024. We are also excited about the prospect of increased large-scale AI infrastructure in West Texas that could potentially use local gas for power generation. This increased usage could further alleviate in-basin takeaway constraints and give a boost to gas pricing going forward. Overall, our sequential revenue had a 5% decrease from the fourth quarter, which was driven by a negative $7.3 million volume variance, offset by a positive $3 million price variance.

Moving to expenses. LOE was $19.7 million or $11.89 per Boe versus $20.3 million or $11.24 per Boe for the fourth quarter. We are pleased to see LOE lower on an absolute basis quarter-to-quarter and below our guidance midpoint of $12 per Boe. Cash G&A, which excludes share-based compensation, was $6.9 million compared to $6.4 million in the fourth quarter. The increase was partially driven by annual costs associated with the audit, 10-K and proxy. Our first quarter results included a loss on derivative contracts of $900,000 versus a loss of $6.3 million in the fourth quarter. The first quarter loss included a $400,000 unrealized loss and a $500,000 realized loss. As a reminder, the unrealized gain/loss is just the difference between the mark-to-market values, period to period.

Finally, for Q1, we reported net income of $9.1 million, or $0.05 per diluted share, compared to fourth quarter net income of $5.7 million, or $0.03 per diluted share. Excluding the estimated after-tax impact of pre-tax items, including non-cash unrealized gains and losses on hedges and share-based compensation expense. Our first quarter 2025 adjusted net income was $10.7 million, or $0.05 per diluted share, while fourth quarter 2024 adjusted net income was $12.3 million, or $0.06 per diluted share. We posted first quarter 2025 adjusted EBITDA of $46.4 million, versus $50.9 million for the fourth quarter, with most of the difference attributed to lower oil revenue. During the first quarter, we invested $32.5 million in capital expenditures, which was 14% lower than the fourth quarter and within our guidance of $26 million to $34 million.

As Paul discussed, we have been extremely pleased with the production from the new wells coming in ahead of expectation and lower combined overall cost. Adjusted free cash flow was $5.8 million, versus $4.7 million for the fourth quarter of 2024, with the net increase primarily associated with $5.2 million lower capital spending, partially offset by $4.5 million less in EBITDA, compared to the fourth quarter. We ended the period with $460 million drawn on our credit facility, with the increase mostly due to $63.6 million in cash required for closing on the acquisition of the Lime Rock CBP assets, along with the $5 million deposit earlier in the quarter. With the current borrowing base of $600 million, we began the second quarter with availability of $140 million, with a leverage ratio of 1.9 times, which includes a $10 million deferred payment due in December 2025.

Moving to our hedge position; for the last nine months of 2025, we currently have approximately 1.7 million barrels of oil hedged with an average downside protection price of $64.44. This covers approximately 47% of our oil sales guidance midpoint. We also have 2 Bcf of natural gas hedged with an average downside protection price of $3.43, covering approximately 37% of our estimated natural gas sales based on the midpoint. For a detailed breakout of our hedge position, please see our earnings release and presentation, which includes the average price for each contract type. Looking at our guidance, we had provided full details in our earnings material. In addition, Paul did a great job explaining, how our business model, including low breakeven economics, places us in a solid position to navigate these pricing headwinds.

Our proven value-focused model is battle-tested to drive success through the cycle. And we will pull all necessary levers to ensure we maintain a healthy financial position and capitalize on opportunities to further reduce debt. Consistent with our revised second quarter outlook we provided last month, we are updating our outlook for the second half of the year to reflect a reduction in capital spending in response to the weakened price environment. As a result, for full-year 2025, Ring now expects, total capital spending of $85 million to $113 million, with a midpoint of $99 million, versus our previously disclosed expectation of $138 million to $170 million. Included in the full-year 2025 CapEx guidance is estimated spending of $14 million to $22 million for the second quarter and $38 million to $58 million in the last half of the year.

Please refer to our first quarter earnings release and company presentation for full details by period, but I would note that the two to three wells included in our drilling program for the second quarter we have drilled, completed and placed on production, one horizontal and one vertical well to date. As in the past, we will retain the flexibility to react to changing commodity prices and market conditions as well as manage our quarterly cash flow. Our updated full year 2025 production guidance is 12,700 to 13,700 barrels of oil per day and 19,200 Boe per day to 20,700 Boe per day. We continue to expect second quarter total sales volumes of 20,500 Boe per day to 22,500 BOE per day and oil production to range between $13,700 and 14,700 barrels of oil per day, resulting in a 66% oil mix.

For second half 2025, we are guiding it to total sales volume of 19,000 Boe per day to 21,000 Boe per day and oil production to range between 12,500 and 14,000 barrels of oil per day, also a 66% oil mix. On the cost side, I would note that we now anticipate full year 2025 LOE of $11.25 to $12.25 per Boe, and are providing guidance of $11.50 to $12.50 per Boe for both the second quarter and second half of 2025. So with that, I will turn it back to Paul for his closing comments. Paul?

Paul McKinney : Thank you, Travis. As an industry, we have experienced a high level of oil price volatility over the last five years, where the amplitude and frequency seem to be increasing. Although current oil prices remain above our breakeven requirements, most of our industry, both domestically and abroad, depends on higher oil prices to continue to invest and maintain production levels. For many of us, oil and gas price volatility has been with us for our entire careers, which is the reason we designed our strategy to be successful in low price environments and in high ones. Our proven value-focused strategy is one with extreme focus on maximizing cash flow generation that has a proven track record over the last 22 reporting periods.

And let me remind you, oil prices were much lower at times during that period than current prices today. Our strategy seeks to retain and acquire wells with shallow declining production with long lives, low operating costs and high netback interest. The shallow decline rates reduce the capital intensity required to maintain the company’s production levels long-live wells provide stability through the price cycles and better full cycle economics. The low operating costs and high netbacks allow for the highest margins regardless of the oil price. We also like highly oil-weighted assets because Permian Basin gas typically receives significant discounts to Henry Hub prices, forcing us to occasionally pay to have our gas process and deliver to market.

We also seek to acquire and invest in undrilled development opportunities that have low breakeven costs and superior economics. Regarding capital spending, our strategy also emphasizes extreme capital discipline, allocating capital to our highest return on opportunities with the execution flexibility necessary to ensure we meet our debt reduction goals and strengthen our balance sheet. This aspect of our strategy plays a big part in the terms negotiated in our drilling contracts and other operational services. They are designed to retain the flexibility to respond quickly to market changes and minimize the cost associated with those changes. As we look to the remainder of 2025, we will capitalize on the production overperformance experienced so far this year and the benefits of the Lime Rock acquisition to reduce our capital spending and allocate more of our cash flow to paying down debt.

Although our production guidance for the last half of the year is less than previously guided, our forecast suggests that we will deliver modest annual production growth of approximately 2% over the prior year. If oil prices recover to previous ranges, at this time, we do not intend to increase capital spending this year, keeping our focus on debt reduction. If oil prices recover to higher levels than previous ranges, we will evaluate and respond to those conditions in a way most beneficial for our stockholders. In closing, I want to emphasize one more time, our disciplined approach highlights the strength and flexibility of our proven value-focused strategy and ensuring we not only weather this price cycle, but emerge even stronger. So with that, we will turn this call over to the operator for questions.

Operator?

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Jeff Robertson with Water Tower Research. Please go ahead.

Q&A Session

Jeff Robertson: Thank you. Paul, do you have a leverage target in mind as you allocate more free cash flow to debt reduction in this environment before you’d want to go back to trying to have a capital program that would generate more growth?

Paul McKinney: Hey, good morning. Jeff, good question, actually. And yes, we do. We’ve stated for a very long time that our long-term goal for our leverage ratio is to be comfortably below one. And in a low price environment, of course, it’s a lot more challenging to get that leverage ratio lower because you got to remember, oil prices are part of the denominator in that equation, and it makes it challenging. And so that’s part of the reason for the increased emphasis on debt reduction. And so if you go to our investor presentation, we have several things that kind of forecast where our free cash flow levels are in the future with various different prices. Those free cash flow levels are a direct reflection of the amount of debt that we can pay down.

It’s your prediction or my prediction. I don’t know if either one of us will be accurate in terms of predicting what future oil prices will be. So that leverage ratio is kind of hard to predict. But we’re taking all the measures we can during this weakened price environment to ensure that we keep our leverage ratio as low as we can. And so this part of this equation is somewhat out of our control. But the parts that are in our control, we’re taking every step we can to keep that leverage ratio as low as possible because we’ve been criticized in the past for having — being on the higher end of the leverage ratio when compared to our peers. And so we are also very much a debt resistant type group of managers. We just don’t like debt. And we know that debt is not — has not been the friend of a capital-intensive industry like the oil and gas industry.

And so we’re very focused on that.

Jeff Robertson: Paul, as you look at the back half of the year and the guidance that you laid out this morning for capital of $38 million to $58 million, do you assume any cost improvements in there? In other words, if you spend the $48 million midpoint and costs go lower, would you think you could complete more absolute projects? Or would the delta and cost savings go toward free cash flow and ultimately debt reduction?

Paul McKinney: Yes. That’s another good question, actually. Right now, our forecast for capital include current prices. We have not. And that kind of leads into — we’ve already seen some reductions here very recently in terms of our — some of the capital costs, and I could ask Shawn to chime in here, but I think they’re related to primarily the completion side and the fracs.

Shawn Young: Yes, we are seeing some relaxation on both the frac costs as well as cementing and wireline on the drilling side. So, — and those are in the range of — when you’re looking at our current cost structure anywhere from 4% to 6% at this point. Obviously, we expect that hopefully to relax some more with prices being where they are.

Paul McKinney: And so to complete the answer to your question, Jeff, right now, we’ve laid out a capital program selecting really the highest return opportunities we have in our portfolio, maximizing free cash flow. And so if we’re fortunate enough to see continued reductions like we said in the first quarter, all our capital program came in at approximately 7% lower than what we had budgeted. If that trend continues, all of that will go to repaying debt. We won’t take advantage of the lower cost to squeeze in another well or two. Right now — we’ve also learned even though we have the ability to respond on a dime based on our drilling contracts, the contract strategies we have with our other operational services, there is a loss of efficiency when you’re jacking your program, turn it on, turn it off.

And so we try not to do that to the extent we can. We did, as you can see, respond very quickly to the price changes that occurs here recently. We deferred the picking up of another rig that we were going to drill horizontal wells with — as a result of all of this, and that led to the 50% reduction in our capital spending for the second quarter. But again, going back to your question, no, in times like this or these, I should say, I think it’s important to demonstrate to our shareholders, the true flexibility and strength of our strategy and our commitment to reducing debt. We don’t know whether we’re going to be in an extended period of low prices. We could very easily — I know we see a lot of volatility. And like I said, the amplitude is increasing and so is the frequency.

So, we could see higher prices in a short period of time. But because we don’t have a crystal ball on that, we’re going to take the conservative approach and emphasize the reduction of debt, strengthen the balance sheet and prepare ourselves to continue our strategy for growth.

Jeff Robertson: Travis, I know there’s a lot that goes into the black box that the banks used to come up with an RBL borrowing base. But can you talk about some of the moving parts with the asset base with the inclusion of the Lime Rock assets as you look to your next redetermination?

Travis Thomas: Sure. We’re very excited about bringing the Lime Rock assets in for the next 3 year termination. If that is in process right now, it is the season for that and our assets and the low decline nature of them at the low cost really help us out when they’re making them more bankable. So we’ve got good expectations and I think that everything should go just normal.

Paul McKinney: Yes. We’re really early in that process right now, Jeff. So it’s kind of hard to predict. But it kind of goes back to the strategy of selecting these shallow decline wells with high net interest and high margins, low operating costs. All these things lead to a much stronger portfolio much — and like Travis said, a much more bankable portfolio. So we’re early in the process. It’s way too early to kind of predict how things are going to work out. But we’re still very confident that it will turn out to be an average or typical redetermination process.

Jeff Robertson: Paul, as you laid out your focus is on reducing debt with free cash flow. I’m wondering, is there anything in the credit facility that limits Rings ability to repurchase shares. In other words, do you have any kind of leverage test that you have to meet if you wanted to repurchase shares?

Paul McKinney: Yes. So our leverage ratio has to be less than 2. And we also have to be within a certain percentage of our draw on the total credit pace. I believe that’s 80%.

Travis Thomas: 80%. We also have the free cash flow bucket, available free cash flow for a trailing 12 months.

Paul McKinney: That’s right. So it back. So they’re very typical, I think, in terms of what’s typically required of a company, nothing out of the usual.

Jeff Robertson: Okay. Thank you.

Operator: [Operator Instructions] The next question comes from Noel Parks with Tuohy Brothers. Please go ahead.

Noel Parks: Hi, good morning. Just — I was just wondering if you could talk a little bit about just the state of activity on the platform and on the shelf. I’m just thinking about sort of the state of — there’s always kind of like an influx or an outflow of capital into various plays. And I’m just wondering sort of what the trend is now. We’ve seen — it seems like we’ve seen more exits in consolidation than we’ve seen sort of money from new parties coming in. So I just wondering if you could sort of characterize what you’re seeing.

Travis Thomas: Yes, that’s a really good question. Its actually a complex question because we’ve seem things on both sides. So if you recall from last summer, Hilcorp made a big entry into the Central Basin platform with 2 very large acquisitions, both of which we were interested in, at least portions of those dispositions. And so they picked up Apache’s position on the Central Basin platform. They also picked up Exxon Mobil’s position on the platform. And they paid a very in my opinion, a very premium, a large point for that. And so they paid just as an example, they paid $950 million for the Apache assets. And so to us, we couldn’t get to a value that high. And so that represented what I would like to think is a high watermark.

So that demonstrates that — and we’ve been predicting this for years, Noel, and you’ve been with us during this time period. We’ve been focused on the Center Basin platform because we believe there’s a lot of overlooked conventional oil and gas assets there that can be explored with modern drilling and completion technologies like we are and generate really positive returns. And so — but because the rest of the industry was focused on the Delaware Basin and the Midland Basin, we felt that we had that fairway to ourselves. And we’ve been trying to take advantage of that. I mean I don’t think we’ve hidden our desire and our quest to become the aggregator of the Central Basin platform and Northwest Shelf assets. We have demonstrated that we know those assets and how to operate those assets.

We also demonstrated very successfully in low prices and high prices, but we know how to drill the wells and generate strong returns for our shareholders. So we’re very focused there. But having said that, in a low price environment like this, I think you’ll find a mix, because most people are not going to want to sell their assets in a low price environment, because they’re looking to achieve different goals or whatever. So unless the companies are in trouble or have a strategic need to get out of them, you may not see as many assets hit the market. Now that doesn’t mean that we’re going to give up. We’re not going to continue to try. We think that the best time to actually make an acquisition is when prices are low, so it’s all a function of finding the right assets.

As you know, over the last four and a half, five years, we’re very selective on the types of assets we acquired. We, in the past, have sold the assets that don’t fit — that are in our portfolio that don’t fit our strategy, because we’re constantly looking for ways to reduce our operating costs and maximize our margins. We like the shallow declines. They all bring a lot of virtues. But I do believe, though, that although at one point, we thought we were alone out here, we’re not alone anymore, because other people have seen the success we’ve had. And so we anticipate continued interest in assets in the Central Basin Platform. We’ll have to get our elbows up to compete in that regard, but we will not overpay. But there is kind of a mix right now out there.

We’ve seen larger private operators like Telco come in, in a large way. I’m not sure that they’re done. I don’t know anything about that company’s desire to move forward. But we still like the area, and we’ll continue to compete there. In addition, though to the M&A market because we are predicting that the industry is going to turn more towards areas like the Central Basin Platform because the entry costs are a lot lower than they are in the Midland and the Delaware Basin. We decided to expand and increase the capability of our Geoscience department led by James Parr, where we are focusing on organic growth in the same area. So we’re mapping all aspects of the Central Basin Platform, the Southern part of the shelf. We’re identifying remain opportunities that compete and can compete with our portfolio.

We’re seeing whether or not those operators value those assets the same way we do, whether they’re investing in those assets the same way we are. And if there are acquisition opportunities, we’re knocking on doors. We’re trying to negotiate things and try to prevent those assets from actually hitting the street. So that’s another component of our go-forward strategy. But again, going back to your question, Noel, yes, there’s a mixed bag right now of interest in the Central Basin Platform. But I believe as time goes on, you’re going to see an increased interest in the Central Basin Platform.

Noel Parks: Great. I think what I was really interested in — I was thinking about, I guess, it’s about 10 years back when the first work was quietly being done on horizontals to the San Andres, which sort of seemed impractical for a long time. And I just started thinking about whatever the next wave of new resource potential might be alternative horizons or just step out that hadn’t been tried. But the area is so vast that I’m — it seems that to get critical mass, it’s ideal if you do have a good bit of investment going on. And — but to your point, it sounds like there is at least awareness coming into the basin? And I guess then the assumption is that capital would follow to help a bunch of companies prove up whatever next might be done?

Paul McKinney: Absolutely. And you’ve been studying this air to a long time, so your insights are right on. And that also — your insights really highlight some of the other benefits that we really haven’t talked a lot about with respect to Lime Rock acquisition. So we spent a lot of time talking about the synergies associated with combining operations up there in the Shafter Lake area. But the acreage that we have in the South truly does expose us to some of the newer emerging plays like the Barnett and the Woodford and these zones have extreme interest by other operators. And so our analysis right now suggests that they’re not quite as competitive as the investments we have been making, but we know in a slightly higher oil price that they will be competitive and they will generate the types of returns that our shareholders expect from us.

And we like the idea and the aspect of being exposed to some of these new plays. The other thing that you can go back and look at is that in the South, where we made the two acquisitions, a strong hold acquisition and also the Founders acquisition. Those areas are predominantly conventional vertical wells where we apply the unconventional completion technology, where you per frac and plug all the various different stack zones, you bring them all on vertical sense and you generate really strong returns. As you also know, our founders assets have really outperformed our original estimates. We’re currently looking at the application of horizontal drilling technology in those very same areas. So instead of developing them with inexpensive verticals, we can go with fewer wells, but longer laterals and higher capital efficiency and that there’s a little bit of risk associated with that, but other operators are already pioneering some of these changes.

We’re looking at that. And so the potential on our acreage in the south is also appealing in the very same zones that we’re also looking at — that we’re currently looking at from a vertical perspective. And so that also lends right into. We love this area. There are other operators that are not as active. They haven’t been allocating capital. They don’t understand perhaps these opportunities as well as we do. And so we’re very active in terms of trying to take advantage of our footprint down there and expand our growth through organic means and the acquisitions that we made, both the Stronghold and the founders have demonstrated more drilling opportunities and more opportunities to add reserves than what we used originally when we made those investments.

Noel Parks: Great. And just sort of my last sort just wrap up the line of thinking is, so it’s probably difficult to characterize because again, such a vast area. But in general, what’s the land situation like there in terms of legacy production held by production? Maybe talking about to the South, in particular, shallow rights versus deep rights? Is — if you identified something that you — a trend you thought was going to be successful, is that going to be a steep climb to put together a position or not so difficult, do you think?

Paul McKinney: Well, it’s always difficult nothing comes easy in this regard. And so I don’t know if anybody else has anything you want to chime in on that.

James Parr: I’d like to chime in. This is James. Obviously, the held by production shallow is pretty well established. But with companies focusing, as Paul mentioned, on the Midland and Delaware basins and going after the shale plays, which have been the flavor of the month for the last, say, 10 years, a lot of the deeper horizons, which are being proved up and tested by other companies, they closed out and they are available. Now the complexity then gets into doing the lease checks and the ownership to see what is available. So as Paul said, nothing comes easy. But knowing the area and being active in it, we’re able to chase down and we’ve got our land department looking at opportunities, which if in our initial test of these plays prove attractive.

How do we grow our position? As Paul said, there are different levers of growing, one of which is buying assets and the rights that come with the acquisition and the leasing. And we’re employing all strategies to grow the company cost effectively to change those.

Paul McKinney: And along that point, James, in addition, the acquisitions of many of our assets that we’ve put into our portfolio are older vintage leases. And so these older vintage leases don’t include those few causes. They also come with higher netbacks. And so in many cases, in some areas, we actually had really high percentages, over 90% ownership in natural gas and even over 90% ownership or 85% ownership, 88% ownership in the oil rights. And so that’s — and then on those older leases, which the Central Basin Platform is really known for because it’s a very old and mature development area, that provides the opportunity, both shallow and deep. Now I will also say it kind of goes back to what James is saying, there are areas that we believe some of these overlooked opportunities, we know that they fall outside of areas that had been previously developed– wells were drilled, but because they were not economic at a time, they were drilled because of the technology and all of that, those acreage positions are oftentimes left unleased.

And so we — that goes back to extensively mapping, understanding the Central Basin Platform, this other part of the shelf identifying from logs, rock that looks a lot like the rock that we’re very successfully and economically developing. And then when we identify those opportunities, we’re out leasing. And so leasing is at price — at times where prices are like they are today, most people tend to cut back on their leasing, and we are prioritizing, but we’re not going to shut down our leasing program because we’ve identified opportunities and we’re — we’ve got an active program trying to acquire those opportunities to move from a small to medium term inventory to more of a longer term. It’s very clear that the marketplace rewards those companies that had the 10- and 15- and 20-year inventory lives.

And here we are with a — essentially a five-year inventory life and we’d love to have that 10-, 15- or 20-year inventory life. And so the way you do that is all means possible through A&D when you have a balance sheet and the capability to do it and you find somebody that’s willing to sell the assets or something you’re willing to pay. The other one is organically leasing and doing it in the traditional fashion way.

Noel Parks: Great. Thanks a lot. Really interesting.

Operator: There are no further questions at this time. I would like to turn the conference back over to Paul McKinney, Chairman and CEO, for any closing remarks.

Paul McKinney: Thank you. On behalf of the entire team and Board of Directors, I want to once again thank everyone for listening and participating in today’s call. We are pleased to have posted solid operational and financial results for the first quarter of 2025, and our outlook for the remainder of the year remains solid despite the current price environment. We will continue to keep everyone apprised of our progress. And thank you again for your interest in Ring Energy. Have a great day

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.