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RE

RING ENERGY, INC. (REI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $83.4MM and diluted EPS was $0.03; Adjusted EBITDA was $50.9MM with a 61% margin, while volumes beat guidance midpoint but lower realized pricing and hedge mark-to-market reduced profitability .
  • Cash generation remained positive: Adjusted Free Cash Flow was $4.7MM, CapEx was reduced 12% QoQ to $37.6MM, and debt was paid down by $7MM, bringing revolver borrowings to $385MM and liquidity to $216.8MM .
  • 2025 guidance introduced: FY oil sales 13,600–14,200 Bo/d (midpoint 13,900), total 20,000–22,000 Boe/d (midpoint 21,000), CapEx $138–$170MM (midpoint $154), LOE $11.25–$12.25/Boe; assumes Lime Rock assets from Q2 2025 with synergies not yet included .
  • Strategic catalyst: pending Lime Rock CBP acquisition expected to close by end of Q1 2025; management emphasized cost synergies (e.g., water handling) and conservative guidance with potential upside, alongside ongoing deleveraging focus and possible CapEx moderation if WTI sustains ≤$65/bbl .

What Went Well and What Went Wrong

What Went Well

  • Volumes beat guidance midpoint with 19,658 Boe/d (66% oil), and Q4 oil/NGL realized mix improved (NGL at ~13% of WTI); company delivered its 21st consecutive quarter of positive cash flow and raised FCF QoQ .
  • CapEx discipline: Q4 CapEx dropped 12% QoQ to $37.6MM; Adjusted Free Cash Flow was $4.7MM; debt fell by $7MM in Q4 and $70MM since the Founders deal, reaffirming balance sheet progress .
  • Management quote signaling execution and flexibility: “We intend to maintain or slightly grow our production… and allocate the balance [of cash flow] to paying down debt” .

What Went Wrong

  • Pricing headwind and hedge swing: realized price/boe fell 4% QoQ to $46.14 and 18% YoY; hedge mark-to-market shifted to a $6.3MM net loss vs a $24.7MM gain in Q3, compressing net income to $5.7MM and EPS $0.03 .
  • Oil price differentials widened vs Q3 (WTI -$1.42/bbl vs -$0.56/bbl), and gas/NGL realizations remained impacted by fees, keeping gas pricing negative and pressuring cash margins .
  • G&A per Boe increased sequentially (to $4.44 from $3.47), and LOE per Boe ticked up to $11.24, though both stayed within guidance ranges; Adjusted EBITDA fell QoQ to $50.9MM .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($MM)$99.9 $89.2 $83.4
Diluted EPS ($)$0.26 $0.17 $0.03
Adjusted EBITDA ($MM)$65.4 $54.0 $50.9
Adjusted EBITDA Margin (%)65% 61% 61%
Avg Realized Price ($/Boe)$56.01 $48.24 $46.14
LOE ($/Boe)$10.50 $10.98 $11.24
G&A ($/Boe, incl. SBC)$4.58 $3.47 $4.44
Avg Daily Sales (Boe/d)19,397 20,108 19,658
Oil Sales (Bo/d)13,637 13,204 12,916

KPIs and Balance Sheet

MetricQ4 2023Q3 2024Q4 2024
Adjusted Free Cash Flow ($MM)$16.3 $1.9 $4.7
Capital Expenditures ($MM)$38.8 $42.7 $37.6
Borrowings Outstanding ($MM)$425.0 $392.0 $385.0
Liquidity ($MM)$175.0+ (cash + facility, YE context) $208.0 $216.8
Leverage Ratio (LTM) (x)1.62x 1.59x 1.66x
Cash Operating Margin ($/Boe)$32.49 $25.14 $22.94

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Oil Sales (Bo/d)FY 2025—13,600 – 14,200 (midpoint 13,900) New
Total Sales (Boe/d)FY 2025—20,000 – 22,000 (midpoint 21,000) New
CapEx ($MM)FY 2025—$138 – $170 (midpoint $154) New
LOE ($/Boe)FY 2025—$11.25 – $12.25 (midpoint $11.75) New
Oil Sales (Bo/d)Q1 2025—11,700 – 12,000 (midpoint 11,850) New
CapEx ($MM)Q1 2025—$26 – $34 (midpoint $30) New
LOE ($/Boe)Q1 2025—$11.75 – $12.25 (midpoint $12.00) New
Borrowing BaseCurrent$600MM (prior)$600MM reaffirmed in Q4 2024 Maintained
Q4 2024 LOE ($/Boe)Q4 2024$10.75 – $11.25 Actual $11.24 Within

Note: FY 2025 guidance assumes Lime Rock closing by end of Q1 2025; synergies/cost reductions are not embedded in the guidance ranges .

Earnings Call Themes & Trends

TopicQ-2 (Q2 2024)Q-1 (Q3 2024)Current (Q4 2024)Trend
CapEx efficiencyReported lower completion/drilling costs; record FCF; maintained well count with lower spend Continued discipline; CapEx within guidance CapEx -12% QoQ; planned phased 2025 program to maximize FCF Improving efficiency, disciplined spend
Hedging strategy~50% PDP hedged goal; detailed collars/swaps 0.6MM bbl hedged Q4; ~48% oil guidance midpoint ~2.4MM bbl oil (~48%), ~2.4 Bcf gas (~33%) hedged for 2025 Stable risk management, volume coverage
Gas/NGL takeaway/pricingGas price pressure; expected Matterhorn pipeline relief Continued negative gas realizations, fee impacts Gas/NGL realizations impacted by fees; negative gas differential Persistent headwind; fees structurally reduce realizations
M&A/consolidationFocused pipeline in CBP/NWS; balance-sheet enhancing deals Divested non-core verticals; debt reduction Pending Lime Rock acquisition; synergies (water handling, routes) Active bolt-ons with integration synergies
Deleveraging focusTarget leverage comfortably <1x over time Leverage 1.59x; debt paydown Leverage 1.66x; reiterated debt reduction priority Ongoing, sensitive to commodity prices
Organic inventory growthTesting new zones/Hz on legacy acreage New opportunities on existing footprint Heightened emphasis on organic reserve growth Expanding organic program
ESG/emissionsFacility upgrades; emissions reduction investments —Sustainability report; methane tax accrual; emissions programs Continued ESG execution

Management Commentary

  • CEO: “We finished 2024 delivering on our promises… We intend to maintain or slightly grow our production… and allocate the balance… to paying down debt” .
  • CFO: “We reduced D&C CapEx by 23% to $22 million… generated $4.7 million of adjusted free cash flow and paid down $7 million in debt” .
  • Commodity sensitivity: “If WTI oil prices remain at or below $65… the right thing to do is to cut back on capital spending in favor of reducing debt” .
  • Lime Rock synergies: management highlighted underutilized SWD capacity (12 wells), integrated operations, and track record of reducing lifting costs by >22% in Founders integration .
  • Balance sheet and borrowing base: revolver borrowing base reaffirmed at $600MM; banks expected to like PDP-heavy, low-decline assets .

Q&A Highlights

  • Synergies/cost reductions: Near-term opportunities in SWD and field optimization; analog reduction in lifting costs from Founders (>22%) suggests upside not baked into guidance .
  • Inventory and capital allocation: First Lime Rock wells planned for 2H 2025; focus remains on high-return CBP horizontals with improved drilling/completion techniques reducing costs 15–20% .
  • M&A pacing and price volatility: Volatility brings buyer/seller expectations closer; near-term priority is restoring balance sheet strength post-closing before pursuing additional deals .
  • Borrowing base outlook: PDP-heavy, low-decline assets are “very bankable”; potential for higher borrowing base after spring redetermination, subject to bank processes .

Estimates Context

  • Wall Street consensus comparisons could not be performed due to S&P Global data access limits at the time of analysis; no beat/miss assessment is provided. Reported Q4 figures: Revenue $83.4MM; Diluted EPS $0.03; Adjusted EBITDA $50.9MM .
  • REI did not provide explicit revenue or EPS guidance; investor focus should be on production, LOE, capital efficiency, and FCF guidance metrics .

Key Takeaways for Investors

  • Execution amid pricing headwinds: Volumes and operational KPIs held up; lower realized prices and hedge swings compressed earnings—expect sensitivity to differentials/fees to continue in 2025 .
  • FCF and deleveraging remain intact: Positive Adjusted FCF, reduced CapEx, and ongoing debt paydown support balance sheet resilience; leverage at 1.66x with target to move lower, contingent on commodity prices and disciplined spend .
  • 2025 setup with conservative guide and optionality: Guidance excludes synergies from Lime Rock; integration offers identifiable cost-reduction levers (water handling, routes, personnel), creating potential upside to margins/LOE post-close .
  • Capital program flexibility: Management will scale CapEx to protect leverage in sub-$65 WTI scenarios, prioritizing debt reduction over growth—supportive of downside risk management .
  • Organic growth priority: Expanded focus on identifying/drilling new zones on existing acreage to augment inventory, reducing reliance on acquisitions over time .
  • Watch list: Spring borrowing base redetermination (potential uplift with Lime Rock PDP), integration synergies realization timeline, realized price differentials/fees on gas/NGL, and LOE/G&A trajectories .
  • Near-term trading setup: Closing/initial updates on Lime Rock integration and any CapEx/LOE surprises vs quarterly guidance are likely stock catalysts, alongside commodity/differential moves .