Ring Energy: Future Potential Is Significantly Influenced By Non-D&C Capex Requirements

Jan. 18, 2020 6:20 AM ETRing Energy, Inc. (REI)10 Comments


  • Ring's production in Q4 2019 ended up slightly lower than its Q1 2019 production (proforma for its Northwest Shelf acquisition).
  • This occurred despite a $152 million capex budget (resulting in cash burn), strong well-level results, and high-$50s WTI oil.
  • Non-D&C capex appears to be a significant factor, potentially accounting for 45% to 50% of its total capex budget in 2019.
  • Ring also had a large amount of non-D&C capex in 2018.
  • Ring's future potential is significantly influenced by its non-D&C capex requirements going forward.
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Ring Energy (NYSE:REI) has continued to deliver strong results from its wells. However, it has been spending a lot on non-D&C capex, which has resulted in cash burn at high-$50s WTI oil despite relatively flat production growth. My view on Ring's future prospects will be significantly influenced by how much non-D&C capex it will need to spend going forward. With modest non-D&C capex requirements, Ring would do quite well at mid-$50s WTI oil, being able to both generate positive cash flow and grow production. If its non-D&C capex requirements approach the levels it spent at the last couple years, then Ring would need $60+ WTI oil to maintain production without cash burn.

About Production Growth

Ring Energy estimated that proforma for the Wishbone Northwest Shelf acquisition, production would have been around 11,667 BOEPD in Q1 2019. Production dropped significantly in Q2 2019 as it filed IPs on only five wells in Q2 2019 compared to 15 wells in Q1 2019. Since then, average daily production has been increasing, but Q4 2019 still appears to be a couple percent below Q1 2019 (assuming a full quarter of production from its acquisition).

Q1 2019 Q2 2019 Q3 2019 Q4 2019
BOEPD 11,667 10,859 11,183 11,405

I estimate that around 7 to 8 new wells per quarter is enough to maintain Ring's production at around 11,500 BOEPD.

Significant Non-D&C Capex

This relative lack of production growth during 2019 comes despite a $152 million capital expenditure budget for Ring. It drilled 30 new horizontal wells and filed IPs on 39 horizontal wells during 2019. Ring's well-level results have been good, with an average IP of 105 BOE per 1,000 feet for those 39 horizontal wells. This exceeds its average type curve IP of 86 BOE per 1,000 feet.

Source: Ring

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