Ring Energy Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 8, 2024

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Ring Energy 4th Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations for Ring Energy. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy. We'll 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 Q4 and full year 2023, as well as our outlook. I 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 for Also joining us on the call today and available for the Q and A session are Alex Daes, Executive VP of Engineering and Corporate Strategy Morinos Baghdadi, Executive VP of Operations and Steve Brooks, Executive VP of Land, Legal, Human Resources and Marketing.

Speaker 1

During the Q and A session, we ask you to limit your questions to 1 and a follow-up. You're welcome to reenter the queue later with additional questions. I would also note that we have posted an updated 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.

Speaker 1

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.

Speaker 1

Com. Should 1 or more of these risks materialize or should underlying assumptions prove incorrect, 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.

Speaker 1

And I'd now like to turn the call over to Paul McKinney, our Chairman and CEO.

Speaker 2

Thanks, Al, and thank you to everyone joining us today and your interest in Ring Energy. Looking back to 2023, it was a very good year. We ended it establishing new records during the Q4 and the full year, both operationally and financially. As we shared in our earnings release, we grew our year over year production related sales volumes by 47%, our adjusted EBITDA by approximately 21% and our adjusted free cash flow by 30%. This was a direct result of our team's ongoing efforts related to the key aspects of our growth strategy.

Speaker 2

The primary contributors to our success are directly related to the successful integration of the 2 acquisitions executed over the past 18 months, the Stronghold Energy 2 and the Founders Oil and Gas Assets acquisitions. Our disciplined and highly successful capital spending program also contributed significantly as did our continuous focus on reducing operating costs. These acquisitions have further established our strategic foothold in the Central Basin platform of the Permian Basin and have significantly increased our undeveloped inventory of highly economic drilling locations. Another contributor to our success was the divestiture of certain non core assets located in the Delaware Basin, the operated assets in the State of New Mexico, and a few assets in Gaines County, Texas. As a result, all our operated acreage is now located in the business friendly state of Texas.

Speaker 2

Our average operating costs are lower since the assets sold had higher per BOE operating costs than most of our retained assets, and we moved the undeveloped opportunities of these assets that were challenged to compete in our portfolio to operators that value them higher. The outperformance of our 4th quarter capital spending program is largely due to new well production performance that brought our sales volumes near the high end of guidance, providing for an 11% increase in our daily BOE production over the Q3 of 2023. During the 4th quarter, we invested $38,800,000 in capital expenditures and drilled 4 horizontal wells, 3 in the CBP and 1 in the Northwest Shelf and 3 vertical wells in the Central Basin platform. We completed 10 wells, 6 in the CVP and 4 in the Northwest Shelf. Additionally, costs for capital workovers, infrastructure upgrades and leasing were also included.

Speaker 2

For the year ended December 31, 2023, we spent $152,000,000 which included cost to drill, complete and place on production 20 horizontal wells, 14 in Northwest Shelf and 6 in the Central Basin Platform and 11 vertical wells in the Central Basin Platform. Also included in the full year capital spending were costs for capital workovers, infrastructure upgrades, recompletions and leasing. Ring also participated in the drilling and completion of 5 non operated wells in the Northwest Shelf and Central Basin platform. Adjusted EBITDA was a record $65,400,000 for the 4th quarter, which represents a 12% increase over the previous quarter of $58,600,000 and a 16% increase over the Q4 of 2022, which was $56,300,000 Adjusted free cash flow for the 4th quarter was a record $16,300,000 compared to $6,100,000 in the Q3 of 2023, with 100 and 65% increase primarily due to increased revenue and lower capital spending in the 4th quarter. Q4 2023 adjusted free cash flow increased 197 percent from 5,500,000 for the Q4 of 2022.

Speaker 2

Adjusted cash flow from operations was a record $55,100,000 for the 4th quarter compared to $48,500,000 for the prior quarter $47,400,000 for the Q4 of the prior year 2022. With respect to our cash return on capital employed, in 2023, our capital spending program generated slightly more than 17% return. At this point, and on behalf of the Board of Directors and management team, I would like to thank our employees for their hard work and dedication the success we enjoyed in 2023 and to express my excitement for the opportunity to continue working along their side in the future as we further execute our value focused proven strategy. With respect to our reserves, we ended 2023 with SEC total proved reserves of 129,800,000 barrels of oil equivalent versus 138,100,000 barrels of oil equivalent at the end of 2022. We benefited from reserve additions of 8,200,000 barrels of oil equivalent from acquisitions and 4,800,000 BOE from our internal development efforts.

Speaker 2

Offsetting these increases were 6 point 6,000,000 barrels of oil equivalent of production, 5,700,000 barrels of oil equivalent for the sale of non core assets, 3,700,000 barrels of oil equivalent related to changes in performance and other economic factors and 5.3 barrels of oil equivalent for reductions in year over year prices. In short, a significant driver in the reduction in our year end SEC proved reserves was associated with the decreased SEC prices. The PV-ten of our total proved reserves was approximately $1,600,000,000 as of year end assuming SEC prices. Turning to the balance sheet, we paid down an additional $3,000,000 of borrowings on our revolver in the 4th quarter. The level of debt reduction was impacted by the final net payment for the Founders acquisition in December of approximately $11,900,000 I would note that through year end 2023, we paid down $30,000,000 of borrowings since the closing of the transaction in August, which had a final net purchase price of approximately $62,000,000 And finally, we entered 2024 with liquidity of approximately $175,000,000 including a recently reaffirmed borrowing base of $600,000,000 Our debt at year end was $425,000,000 The company continues to remain focused on cash flow generation and reducing our debt.

Speaker 2

Looking at our guidance for 2024, while Travis will go through more details in his comments, I wanted to provide a high level overview and strategic rationale driving our full year plans. The immediately accretive 2022 Stronghold and 2023 Founders acquisitions materially improved our size, scale and drilling inventory. This backdrop provides key support and flexibility as we execute a 2024 drilling program specifically designed to organically maintain or slightly grow our oil production. Our current plan is to drill an average of 5 horizontal and 6 vertical wells per quarter. As in the past, we are focused on developing our highest rate of return inventory while also investing in necessary field infrastructure and other critical capital projects.

Speaker 2

For 2024, we are planning a 2 rig phase drilling program, including 1 horizontal and 1 vertical rig. We are using a phase versus continuous drilling approach in 2020 to provide maximum flexibility to react to commodity price fluctuations and other market conditions in the current environment. After Travis provides his comments, I will come back with some additional thoughts on our business position and where we are headed. With that, I'll hand it off to Travis to discuss our recent financial results and outlook in more detail. Travis?

Speaker 3

Thanks, Paul, and good morning, everyone. Paul summed it all up nicely, but to further recap, our Q4 and financial results materially benefited from our 2 acquisitions completed over the past 18 months. Also driving our results was the successful execution of our 2023 drilling program, complemented by additional efficiencies achieved through our expanded scale and leveraging the best operational practices. We also executed targeted divestitures of non core assets. We might sound like a broken record, but that's what we did.

Speaker 3

We broke records. In the Q4 and full year of 2023, we had record sales volumes, record adjusted EBITDA, record adjusted cash flow from operations and record adjusted free cash flow. So here are my takeaways. We drove record adjusted EBITDA and adjusted free cash flow for Q4 2023 despite lower overall realized pricing. Supporting our results was an 11% increase in Q4 sales volumes and a 47% increase in full year sales volumes.

Speaker 3

We also focused on growing crude oil production as percent of product mix given the enhanced economics and we'll continue to do so in 2024. We paid the final $12,000,000,000 Founders deferred payment in December and we were able to pay down $3,000,000 on a revolver during Q4. We have been extremely pleased with the results from the Founders acreage and through year end, we paid down $30,000,000 of debt since closing on the transaction in mid August. With the net purchase price for founders of around $62,000,000 we are quickly recouping our investment. As in the past, we will continue to focus on paying down debt as fast as appropriate.

Speaker 3

Next, we completed our successful 2023 development program. Our 2024 drilling program has been underway since January, and we look forward to keeping our stockholders apprised of our progress. With that background, let's hit the other key highlights. I'm going to focus my comments on the most important sequential quarterly results. We benefited from a full quarter of production from our Founders acquisition completed in mid August and a full year of production uplift and scale provided by the Stronghold acquisition that closed in August of 2022.

Speaker 3

In addition, our ongoing field development efforts continue to drive further cost efficiencies. During the Q4, we sold 19,400 BOE per day at the higher end of our guidance range. Partially offsetting the increase in sales volumes was a lower overall realized pricing of 56 point 0 $1 per BOE, a 4% decrease from the 3rd quarter. Our 4th quarter average crude oil price differential from NYMEX WTI futures pricing was a negative $0.92 per barrel versus a negative $0.78 per barrel for the 3rd quarter. This was mostly due to the Argus WTI WTS that decreased $1.07 per barrel, offset by the ARGUS CMA roll that increased by $0.85 per barrel on average for the 3rd quarter.

Speaker 3

Our average natural gas price differential from NYMEX futures pricing for the 4th quarter was a negative $3.12 per Mcf compared to a negative $2.45 per Mcf for the 3rd quarter. Our realized NGL price for the 4th quarter averaged 14% of WTI compared to 16% for the 3rd quarter. The combined result was revenue for the Q4 of $99,900,000 let's call it an even $100,000,000 a 7% increase from the 3rd quarter despite the lower overall realized pricing environment. For full year of 2023, we posted revenue of $361,000,000 almost $1,000,000 a day, a 4% increase year over year. LOE was $18,700,000 versus $18,000,000 for the 3rd quarter.

Speaker 3

On a per BOE basis, LOE decreased sequentially 6% in the 4th quarter to $10.50 versus $11.18 per BOE for the 3rd quarter. The absolute increase in LOE was mostly driven by the full quarter of the founders assets, but the higher production reduced the per BOE rate. I would note that our Q4 LOE per BOE results were at the low end of our guidance of $10.50 to $11 per BOE. Cash G and A, which excludes share based compensation and transaction related costs was $3 per BOE for Q4 versus $3.15 per BOE for the 3rd quarter. We are pleased to see a 24% year over year decrease in cash G and A per BOE costs.

Speaker 3

Our 4th quarter results included a gain on derivatives of $29,000,000 versus a loss of $39,000,000 for the Q3. You may recall, we discussed during our last call that prices at the end of the Q3 were higher, which resulted in mark to market derivative loss, then the decline in prices in the 4th quarter reversed it to a mark to market gain. We recorded an income tax provision of $7,900,000 during Q4 2023 versus a benefit of $3,400,000 in the 3rd quarter, which was primarily associated with the increase in pre tax book income. Finally, for Q4, we reported net income of $50,900,000 or $0.26 per diluted share. Excluding the estimated after tax impact of pre tax items, including non cash unrealized gains and losses on hedges, share based compensation expense and transaction costs, our 4th quarter adjusted net income was $21,200,000 or $0.11 per diluted share.

Speaker 3

This is compared to Q3 of 2023 with a net loss of $7,500,000 or a negative $0.04 per diluted share and adjusted net income of $26,300,000 or $0.13 per diluted share. Moving to our hedge position. For 2024, we currently have approximately 2,100,000 barrels of oil hedged or approximately 45% of our estimated oil sales based on the midpoint of guidance. We also have 2,600,000,000 cubic feet of natural gas hedged or approximately 43% of our estimated natural gas sales based on the midpoint. For a quarterly breakout of our hedge positions for 2024, please see our earnings release and presentation, which includes the average price of each contract type.

Speaker 3

Turning to the balance sheet, our primary focus remains the same, reducing debt to better position ourselves to ultimately provide a meaningful return of capital to our shareholders. At year end 2023, we have $425,000,000 drawn on our credit facility. With the recently reaffirmed borrowing base of 600,000,000 dollars we had $174,200,000 available net of letters of credit. Combined with cash, we had liquidity of $175,000,000 with a leverage ratio of 1.62x, only slightly higher than year end 2022, despite additional borrowings for the Founders acquisition. As a reminder, from transaction completion in mid August of 2023 through the end of the year, we paid down debt by $30,000,000 another clear indication of the cash flow generation afforded by our significant asset base and our dedication to improving our long term financial profile.

Speaker 3

To be clear, we will continue to pull all the levers at our disposal to further reduce our debt position, including driving further growth in operating cash flow through the successful execution of our targeted 2024 development program and further cost reductions. Let's pivot to our 2024 outlook. In summary, during 2024, we are utilizing a phased versus continuous drilling program approach that better maximizes our ability to react to changing market conditions and adjust spending levels as appropriate. Our focus is on maintaining or slightly growing BOE per day production levels, while continuing to grow our crude oil sales. We expect to spend $135,000,000 to $175,000,000 on our full year development program and anticipate capital spending between $37,000,000 to $42,000,000 for the Q1.

Speaker 3

We also anticipate full year 2024 LOE to be between $10.50 $11.50 per BOE between $10.75 $11.25 for the Q1. All projects and estimates are based on assumed WTI prices of $70 to $90 per barrel and Henry Hub prices of $2 to $3 per Mcf. So with that, I will turn it back to Paul for his closing comments. Paul?

Speaker 2

Thank you, Travis. We view our record results for Q4 and full year 2023 as clear indications of the long term potential of our strategy, the quality of our assets and the low breakeven costs of our undeveloped drilling inventory. The opportunity provided by our expanded business plan and our focus remains the same as in the past. We will continue to pursue operational excellence and further cost efficiencies through the business, both on the capital and operating cost fronts. We will continue to high grade and execute our targeted drilling and development campaign focused on our highest rate of return prospects to organically maintain or slightly grow our production while maximizing cash flow generation.

Speaker 2

We will continue to focus on improving the balance sheet by reducing debt. We will continue to pursue growth through the evaluation and execution of acquisition opportunities to provide immediate accretion to our Ring stockholders and improve our balance sheet. In summary, we remain committed to our value focused proven strategy, which we believe better prepares the company to manage the risks and uncertainties associated with our industry and should generate sustainable and competitive returns for our stockholders. The focus of our strategy remains on achieving the necessary business size and scale that positions our company to sustainably return capital to stockholders. I want to take the time to thank our stockholders for their trust in us and for all of you who have joined us on the call today.

Speaker 2

With that, we will turn this call over to the operator for questions. Operator?

Operator

We will now begin the question and answer The first question comes from Jeff Grampp with Alliance Global Partners. Please go ahead.

Speaker 4

Good morning, guys. Thanks for the time. Good morning. Hey, Jeff. You made it a point a few times in the release as well as on the call here to kind of differentiate between this phase versus continuous drilling program.

Speaker 4

So I wanted to spend a minute there. Is that the management of the CapEx spending and the pace, do you guys expect that to maybe create some lumpiness in quarterly production capital spending? And it sounds like the main benefit there is just to give you a little bit more nimbleness to manage the volatility in commodity prices. But just any other additional commentary there would be helpful. Thanks.

Speaker 2

Yes, I'll do a first stab and then I'll turn it over to Marino.

Speaker 5

Yes,

Speaker 2

the thing that we're trying to manage right now is we're really trying to maximize our free cash flow generation and focus on paying down debt. If we keep a continuous rig going all year long, the burn rate brings us it increases our production, but it also limits the amount of debt that we can pay down. And so that's one consideration. The other one is because of the volatility we've experienced over the last year, actually several years, we want to be nimble and we want to be able to respond. And so by going with the phase drilling contracts, we can make decisions from quarter to quarter.

Speaker 2

The consequence of that is that some quarters might be slightly higher than others. It's all a function of the timing of when you actually drill the wells and when you bring them on. And so, yes, the lumpiness may very well continue to be there.

Speaker 5

You want

Speaker 6

to add any more?

Speaker 7

No, I just want to reemphasize that with the face drilling program, we continue our rigs being well to well contracts, so we can stop any moment if we decide to or we can just continue extending the contract for future wells. So it gives us a lot of flexibility, which we like.

Speaker 4

Great. Good to hear. Okay. And for my follow-up, return of capital obviously remains a big goal that you guys continue to work towards. I assume durable balance sheet and large enough kind of operating scale are probably 2 of the bigger items that you guys are working on to kind of achieve that.

Speaker 4

But Paul, I'm curious, are there any specific KPIs that you guys are working towards in that regard or anything else that you guys kind of measure that would, I guess, kind of effectively get you guys to climb to that summit to a point where you'd be able to return capital to shareholders? Like what are the main KPIs that we should be tracking towards to get you to that?

Speaker 2

Yes, that's a really good question. We get that question pretty often actually. We don't have at this point specified any specific KPIs. We look at every opportunity out there. We know that there's a long term goal.

Speaker 2

We believe that the marketplace has made it clear that investors expect the oil and gas industry to return capital to their shareholders. And so we're working on that. Right now, we believe that our debt levels are just too high. If we were to do a stock buyback or pay out a dividend, the big issue there is our debt. And so but with respect to a specific KPI, I don't really we haven't identified that.

Speaker 4

That's fair. Thought I'd try. All right. Thank you guys for the time.

Speaker 5

Yeah.

Operator

The next question is from Neal Dingmann with Truist. Please go ahead.

Speaker 5

Good morning, guys. Nice results. Paul, my first question is good morning. My first question is on the Founders assets specifically. I'm just wondering, it seems like they're doing quite good.

Speaker 5

I'm just wondering as you and the team look at them today versus kind of what they're doing versus your initial estimates. I'm just wondering, can you maybe give me a broadband of broad results of kind of what has improved? It certainly seems like they have. I'm just wondering maybe how they look since you initially were looking at them. And then secondly, I'm just wondering when it comes to sort of completions, what's changed?

Speaker 5

Is that what has improved in these? Or what's kind of been the improvement on these assets?

Speaker 2

Yes. Again, Marino and I will both tackle this.

Speaker 8

If you

Speaker 2

recall, what our intentions were when we made the acquisition, we wanted to get our arms around initially and we also concentrated on the production practices. We have moved water to and dispose of water differently because of we just believe that our operations could reduce costs and we've done that very successfully. The other thing we wanted to do, we spent quite a bit of time studying what has been done in the past in terms of drilling and completion practices, so that when we did go out there to drill, and we have, we've drilled several wells out there, It's kind of premature to talk about them, but I have to say that we're very, very impressed with the results. And so overall, our impression of the Founders acquisition is that it is going to over perform the forecast and the predictions we use when we first assess the value of it. We also believe there's additional drilling locations out there now that we've looked at it closer than what we originally booked and what we originally shared with our investors.

Speaker 2

You want to go into any more detail? No, just to

Speaker 7

say that our drilling and completion costs on the first few wells in the Q1, we've exceeded expectations even the ones that we set. And so lower costs are obviously going to improve the economics of those wells. We're very excited on the performance so far. Also, when we first got our hands around the project, our team did a really good job of identifying some small capital workovers where we lowered our ESPs closer to drop the bottom hole producing pressures and that stabilized production significantly. So we're exceeding what we thought how we thought the assets were declining just on the base production.

Speaker 7

So we're very, very happy and excited about the asset. Yes. And that change

Speaker 2

in decline on that base rate is pretty substantial. The work that they did, this is just what I call the blocking and tackling of a very conscientious production engineering team. They've done a great job evaluating things out there. And like he mentioned lowering the pumps, but it's surprising actually that the base production has responded so favorably to our operations and really has extended those declines. So I'm really, really happy with that acquisition.

Speaker 5

Great to hear. Good details by the way guys. And then my second question, something you did been talking about in the prepared press release, which is on the refrac and work over opportunities. I'm just wondering, I think you had mentioned, I assume this will continue to be pretty large part of your overall plan. And if so, are there specific areas that are more opportune for this?

Speaker 2

I don't know that we're really focused on refracs, Neil. We'll say that we are the things that we're tackling that where we spend a lot of time, we're trying to remove all of the infrastructure limitations to programs in both the North and the Northwest Shelf, also in the Central Basin Platform portion of the Northern and legacy assets and also in the South, because all of these areas have very, very economic undrilled opportunities and freeing ourselves from those limitations gives us more flexibility in terms of where we spend the capital. And so I think the primary thing that we've been working on instead of refracs is really eliminating infrastructure and then like Moreno's kind of pointed out, also reducing costs. And so the point that he made about the first couple of Founders wells we drilled out there, we believe that we could drill them cheaper than the Founders organization. We're drilling them and then now our actual costs are actually coming in substantially less than what we actually AFE them for.

Speaker 2

So we're very happy with all the efforts. As a combination of changing making changes to the way we do things and also the impact and effect of the change in the trajectory of inflation. So costs on many things have come down. So it's a variety of things that allowed us to perform as well as we are.

Speaker 5

Yes, that makes sense. That's all I meant. Thanks. And then on that infrastructure, that's the point I was getting at. Are you now getting to a point where you think most of the infrastructure is built up or is that built out or is that something that will go on most of this year still?

Speaker 7

Yes, sir. Were there's a few batteries that we have to build based on our 2024 capital program. But in general, all the bottlenecks that we were facing when we first especially down in the South when we first took over the assets, we've pretty much knocked out and that's really helped a lot on the capital efficiency that we've been seeing. And then we've also,

Speaker 4

our

Speaker 7

what I consider the backbone of our organization, the boots on the ground guys in the field, taking ownership of our operations and making it theirs to where they're looking at little bitty things that one at a time don't really significantly change things. But when you add everything together, we're seeing significant improvements in our operational efficiency and in conducting our operations safely. So we're really proud on how we're generating that culture.

Speaker 5

Great details. Thanks guys so much.

Operator

The next question is from Noel Parks with Tuohy Brothers. Please go ahead.

Speaker 2

Hi, good morning. Hi, good morning, Noel.

Speaker 8

Just a couple of things. You mentioned a few minutes ago that you believe that there are going to be some additional drilling locations out there than you had originally modeled. I was wondering is that a function of density or just a function of just the size of the individual targets you're finding?

Speaker 2

Yes, that is pushing the boundaries out a little bit on the area that is developable and also includes additional down spacing, so it's both.

Speaker 8

Okay, great. Great. Okay. And I did notice, speaking of locations, that in the reserve breakout, in the PDMP category, it seemed that the just the aggregate appeared a little gassier. And I just wondered, was that due to just production mix in locations in a particular area or anything in particular that you attribute that to?

Speaker 2

Yes. If you go if you recall, the Stronghold acquisition brought more gas more associated gas production to our portfolio. And the Founders acquisition is now getting more bringing us back to be more oil. And so

Speaker 7

I will also say too that especially in the founders, we've really focused again on the field operations and we've actually been able to increase our gas production or sales compared to the previous team that founders that had the assets. So that's also slightly increased our gas to oil ratios there at that.

Speaker 8

Okay, great. Thanks a lot.

Operator

The next question is from Jeff Robertson with Water Tower Research. Please go ahead.

Speaker 6

Thanks. Good morning. Paul and Marinos, you mentioned in Q4 'twenty three that you had some performance that helped production, I think, especially on oil. Was that related to well performance, Marinos? Or is that related to some of the field operations that you all started to implement on the acquired assets?

Speaker 6

And can you talk about how that plays into the guidance that you have out for 2024?

Speaker 7

Sure. In the first part of your question, it's a little bit of both. We've continued in the Q4, we developed some horizontal wells in the Central Basin platform in our legacy Andrews area that outperformed expectations, I would say. But in the base production, we were able to do a little bit better than anticipated because we didn't really have a lot of cold weather in the Q4 of 2023, but we did experience some in the 1st month of 20 24 in January. We had a really about 12 days of a really strong cold front come through that affected our production early on in the quarter and that led to a little bit of what we guided towards.

Speaker 7

So I hope that answers the question.

Speaker 2

Yes, there's a couple of other things, Jeff, and this goes back to the lumpiness of a continuous versus a phased drilling program. If you recall, we were a little disappointed in our production levels last summer. And so towards the end of the year, we went to a continuous program to try to catch up. And so the timing of going to that continuous program really helped us out in the Q4 and it kind of boosted the production. And so again, that goes back to managing continuous versus phase drilling.

Speaker 2

But so the 4th quarter actually benefited from additional drilling that occurred in the Q3 where those wells came on in the Q4.

Speaker 6

Paul, the way you constructed your 2024 development plans, it sounds like you're focusing more on higher margin oil production. Does that mean you are you will it be a noticeable or material impact on free cash flow per dollar of capital spent as you think about how the capital program for 2024 works out and the ability to delever over the course of the year?

Speaker 2

That's exactly right. So we are focused on maximizing our free cash flow generation. And one of the things we've learned, especially with natural gas prices where they are with the discounts to the wellhead where we're actually having to pay to take gas, We're laser focused on maximizing our oil production to maximize our free cash flow generation, so that we can pay down debt.

Speaker 8

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Paul McKinney for any closing remarks.

Speaker 2

Thank you, operator. Well, hey, on behalf of the management team and the Board of Directors, I want to thank everyone for listening and participating in today's call. We appreciate your continued support of the company and we look forward to keeping everyone apprised of our progress. Thank you again for your interest in Ring and have a great day and have a great weekend.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Ring delivered record 2023 results, growing production by 47%, adjusted EBITDA by 21% and adjusted free cash flow by 30% year-over-year.
  • The integration of the Stronghold (2022) and Founders (2023) acquisitions added 8.2 MMBOE of proved reserves, expanded high-return drilling inventory in the Central Basin Platform, and divestitures of non-core assets reduced operating costs by concentrating activity in Texas.
  • Q4 capital spending of $38.8 million funded 4 horizontal and 3 vertical wells, driving an 11% sequential production increase, while full-year capex of $152 million placed 20 horizontal and 11 vertical wells on production with improved cost efficiencies.
  • Ring paid down $30 million of debt post-Founders closing, ending 2023 with $425 million drawn on a $600 million revolver, $175 million of liquidity and a 1.62× leverage ratio, and remains focused on further debt reduction.
  • For 2024, the company will employ a phased two-rig program (one horizontal, one vertical) with $135–175 million of capex to maintain or slightly grow oil production, while hedging ~45% of oil and ~43% of gas volumes.
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Earnings Conference Call
Ring Energy Q4 2023
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