Ring Energy, Inc. Q4 FY2022 Earnings Call

Good morning, and welcome to Ring Energy's Fourth Quarter and Full Year 2022 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. Please go ahead.

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 fourth quarter and full year. We will then turn the call over to Travis Thomas, Ring's Chief Financial Officer, who will review our financial results. Paul will then return to discuss our future plans and outlook 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 of Engineering and Corporate Strategy; Marinos Baghdati, Executive VP of Operations; and Steve Brooks, Executive VP of Land, Legal, Human Resources and Marketing. During the Q&A session, we ask you to limit your questions to one and a follow-up. You’re welcome to reenter the queue later with additional questions. I'd also note that, we have posted a Q4 and full year 2022 earnings corporate presentation to 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 and 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 at ringenergy.com. Should one or more of these risk factors 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 is being recorded. I'd now like to turn the call over to Paul McKinney, our Chairman and CEO.

Thanks, Al. Welcome everyone, and thank you for your interest in Ring Energy and for joining us today for our fourth quarter and year-end 2022 earnings call. We are pleased with our record operational and financial performance during the fourth quarter. Contributing to our success was a full three months of production from our Stronghold acquisition, the continued implementation of our targeted 2022 capital spending program, and our ongoing initiatives to drive further efficiencies in the business. During the fourth quarter, we grew sales volume by 34% over the third quarter to a record of 17,856 barrels of oil equivalent per day. Although this was slightly below our guidance, it was primarily due to downtime associated with the impact of the winter storm conditions, constraints limiting our gas sales and adjustments for year-end reversionary interest and after-payout conditions. We brought online seven new horizontal wells, including five in Northwest Shelf and two in the Legacy Central Basin Platform area, an area we now call the CBP North. We also brought on five new vertical wells in the Stronghold acreage in the area, which we call CBP South. We also performed nine recompletions in CBP South. We produced a record adjusted EBITDA of $56.3 million during the fourth quarter, which was 135% higher than the same quarter for the previous year. We spent $42.6 million on capital projects, which was at the lower end of our guidance of $42 million to $46 million. The result was $5.5 million of free cash flow, marking our 13th consecutive quarter of free cash flow generation. Additionally, we reduced our debt position by $20 million during the quarter and $37 million since closing the transaction on August 31, 2022. We also reaffirmed the company's borrowing base of $600 million under our revolving credit facility in December. The fourth quarter marked the end of a transformational year for the company. We began 2022 with a solid base of core assets in the Northwest Shelf and Central Basin Platform, and a well-defined plan to further develop our high rate of return inventory through our continuous one-rig drilling program. Our pursuit of accretive acquisitions was rewarded in the third quarter by closing the Stronghold acquisition, and we ended the year with a successful integration of those assets into our operations, accounting, and land record systems. 2022 was marked by several highlights including: record sales volumes of 12,364 barrels of oil equivalent per day, which were 45% higher than 2021. Record net income of $138.6 million or $0.98 per diluted share. Growth in adjusted net income of 251% to a record $107.5 million or $0.89 per share, a 134% increase in adjusted EBITDA from the previous year to a record of $195.2 million, and a strong free cash flow of $34.8 million along with record cash flow from operations of $172.9 million, a 70% and 149% year-over-year increase, respectively. We ended the year with $415 million of debt on the balance sheet and $188 million in liquidity, which is three times the liquidity we had at the end of 2021. We lowered our leverage ratio by more than 50% from the previous year to 1.6 times. During the full year of 2022, we drilled and completed 27 horizontal wells, including 18 in Northwest Shelf, and 9 in the Central Basin Platform North and five vertical wells in the Central Basin Platform South. We also performed 12 recompletions in CBP South. Our success in 2022 was also reflected in our year-end SEC total proved reserves, which grew 78% to a record 138.1 million barrels of oil equivalent over the prior year. Contributing to the increase was 62.9 million barrels of oil equivalent from acquisitions, 1.2 million barrels of oil equivalent from positive well performance revisions, and 0.8 million barrels of oil equivalent from extensions and discoveries. Partially offsetting the overall increase was approximately 4.5 million barrels of oil equivalent of production. The result was an all-in replacement ratio of 13.4 times production for the year. The PV-10 of our total proved reserves using SEC prices grew 108% to $2.8 billion. Turning to our outlook, we intend to spend between $135 million and $170 million during 2023, which includes a capital efficient combination of drilling horizontal wells on our legacy acreage and vertical wells on our CBP South acreage. This amount also includes planned spending for recompletions, capital workovers, infrastructure upgrades, leasing costs, and ESG related projects. In January, we began our 2023 capital spending program with the drilling and completion of three horizontal wells in the Northwest Shelf, all of which have been placed on production. A fourth horizontal well in Northwest Shelf has been drilled and is expected to be completed and placed on production by the end of this month. Additionally, we picked up a rig in the CBP South area to drill three vertical wells and anticipate having all three wells online by the end of the month as well. Our 2023 budget assumes WTI oil prices are between $70 and $90 per barrel and Henry Hub prices of between $2 and $4 per Mcf. As in the past, we have designed our spending program with the flexibility to respond to changes in commodity prices and other market conditions. We expect full year 2023 sales volumes to be between 17,800 and 18,800 barrels of oil equivalent per day. When considering the midpoint of our full year 2023 sales volume guidance, we anticipate a 48% increase over full year 2022 and a 2.5% increase over fourth quarter 2022. For the first quarter of 2023, we expect sales volume to come in between 17,800 and 18,300 barrels of oil equivalent per day. So with that, I'll turn this call over to Travis to discuss our financial results and guidance in more detail. Travis?

Thanks, Paul, and good morning, everyone. Echoing Paul's comments, we are very pleased with our record results for the fourth quarter and full year of 2022. Our fourth quarter benefited from three months' results from the recently acquired Stronghold assets as well as the continued strong performance of our targeted 2022 development campaign and ongoing efforts to drive further operational efficiencies. With that backdrop, during the fourth quarter of 2022, we sold approximately 1.1 million barrels of oil, 1.7 Bcf of natural gas, and 241,000 barrels of NGLs for a total of 1.6 million BOE. This is 34% higher than sales of 1.2 million BOE in the third quarter. For the full year of 2022, we grew sales volumes to 4.5 million BOE, a 45% increase from 3.1 million BOE in 2021. Fourth quarter of 2022 realized pricing was $81.62 per barrel of crude oil, $2.39 per Mcf of natural gas, and $17.21 per barrel of NGLs, or $60.69 per BOE. This was moderately lower than our realized pricing for the third quarter of $77.28 per BOE. However, for the full year of 2022, we saw a 22% increase in realized pricing, growing to $76.95 per BOE from $63.14 in 2021. Our fourth quarter average oil price differential from NYMEX WTI futures pricing was a negative $1.07 per barrel versus a positive $2.28 for the third quarter of 2022. This difference is due mostly to the Argus CMA role that declined to $1.79 per barrel on average for the period and the Argus WTI, WTS, which declined $1.68 per barrel from the third quarter. Our average natural gas price differential from NYMEX futures pricing for the fourth quarter was a negative $3.79 per Mcf compared to a negative $3.15 for the third quarter. Our realized NGL price for the fourth quarter averaged 21% of WTI compared to 28% for the third quarter. This combined result was record revenue for the fourth quarter of $99.7 million, which was 6% higher than third quarter revenues of $94.4 million. We also posted record revenues for the full year of 2022 of $347.2 million that represented a 77% increase from the $196.3 million for 2021. Looking at the more significant expense line items on the income statement, LOE was $17.4 million, or $10.60 per BOE compared to $13 million, or $2.67 per BOE for the third quarter of 2022. Our absolute LOE rose due to the increased sales volume during the quarter, while LOE per BOE was a bit lower than the prior quarter and below the midpoint of our guidance range of $10.25 to $11.40 per BOE. Production taxes were $5.2 million, or $3.16 per BOE versus 4.6 million or $3.74 per BOE for the third quarter, with the tax rate remaining steady at approximately 5%. DD&A was $20.9 million compared to $14.3 million for the third quarter of 2022. On a per BOE basis, DD&A increased to $12.71 from $11.73 in the third quarter. Cash G&A, which excludes share-based compensation, was $6.1 million versus $5.9 million for the third quarter. But the fourth and third quarters of 2022 each included about $1 million of transaction cost. Adjusting for the transaction cost, fourth quarter 2022 Cash G&A was $3.14 per BOE compared to $3.85 per BOE for the third quarter. This represents an 18% decrease and a direct reflection of the synergies afforded by the Stronghold transaction. Interest expense was $9.5 million versus $7 million for the third quarter, with the increase substantially due to a higher average daily balance of long-term debt associated with the additional borrowings on the revolving credit facility due to the Stronghold transaction. During the fourth quarter, we posted net income of $14.5 million or $0.08 per diluted share. Excluding the estimated after-tax impact of pre-tax items, including $5.4 million of non-cash unrealized loss on hedges and $2.2 million for share-based compensation expense, and $993,000 of transaction costs for the Stronghold acquisition, our fourth quarter adjusted net income was $21.8 million or $0.13 per share. This is compared to the third quarter of 2022 net income of $75.1 million or $0.49 per diluted share. Excluding the estimated after-tax impact of pre-tax items, including $47.7 million for non-cash unrealized gains on hedges and $1.5 million for share-based compensation expense, and $1.1 million for transaction costs, our third quarter adjusted net income was $32.5 million or $0.28 per share. For the full year of 2022, we posted record adjusted net income of $107.5 million or $0.89 per share. This was more than 250% higher than $30.6 million or $0.31 per share for 2021. Looking at adjusted EBITDA, we are pleased to report a record $56.3 million in the fourth quarter compared to $56 million in the third quarter, as lower realized pricing for the fourth quarter significantly reduced the benefit from the 34% increase in sales volumes from the third quarter. Fourth quarter 2022 adjusted EBITDA was more than 135% higher than the $24 million reported for the same period in 2021. For the full year of 2022, we posted record adjusted EBITDA of $195.2 million, which was 134% higher than the $83.3 million for 2021. Free cash flow for the fourth quarter of 2022 was $5.5 million compared to the $9.7 million in the third quarter. The decrease was primarily due to lower realized pricing and higher interest expense and capital spending, partially offset by higher sales volumes. For the full year of 2022, we generated free cash flow of $34.8 million that was 70% higher than the $20.5 million in 2021. As of December 31, we had $415 million drawn on our revolving credit facility, which reflects a debt paid out of $20 million in the fourth quarter and a total of $37 million since the closing of the Stronghold transaction, with a current borrowing base of $600 million. At the end of 2022, we had $184.2 million available on the revolver net of letters of credit, combined with $3.7 million of cash. We ended 2022 with liquidity of $188 million. We are focused on further debt reduction in 2023. Of course, realized commodity prices and the timing of capital spending will have an impact on the cadence of quarterly debt pay down. I would also note that we recently paid the $15 million deferred payment associated with the Stronghold transaction. Looking at our share count, during the fourth quarter, we had 800,000 common warrants exercised at $0.80 per warrant. Accordingly, our fourth quarter financials reflected the issuance of 800,000 shares of common stock and the receipt of $640,000 of cash. To date in 2023, we have had approximately 4.5 million common warrants exercised, resulting in approximately 14.6 million common warrants that remain outstanding. Turning to our 2023 outlook for the full year and first quarter. As Paul discussed, for the full year of 2023, we anticipate capital spending of $135 million to $170 million, which includes the estimated cost to drill 12 to 15 new horizontal wells, drill 12 to 25 new vertical wells, complete and place online 24 to 40 new wells and recomplete 6 to 10 wells. Also included in our full year outlook is spending for recompletions, capital workovers, infrastructure upgrades, as well as leasing cost and non-operating drilling completion and capital workovers. Based on the $152.5 million midpoint of spending guidance, we expect the following estimated allocation of capital investment, including 70% for drilling, completion and related equipment and facilities, 22% for recompletions and capital workovers, and 8% for land, ESG and non-operated capital. Looking at our sales volume guidance, we expect full year of 2023 to average 17,800 to 18,800 BOEs per day of which approximately 68% is oil, 17% is natural gas and 15% is NGLs. Looking at this year's first quarter, as Paul discussed, in January, we kicked off our 2023 capital investment program, including drilling and completing three horizontal wells in the Northwest Shelf to date with all wells placed on production. A fourth horizontal well in the Northwest Shelf has been drilled and is expected to be completed and placed on production by the end of this month. Additionally, we picked up a rig in CBP South to drill three vertical wells and anticipate having the three wells completed and online by the end of this month. As such, there will be minimal benefit for the first quarter production results associated with these four wells. Accordingly, first quarter 2023 sales are expected to be in the range of 17,800 to 18,300 BOEs per day, of which we expect 68% to be oil, 17% natural gas, and 15% NGLs. For full year 2023, we anticipate LOE of $11 to $11.60 per BOE. For the first quarter of 2023, we currently expect LOE to range between $11.10 to $11.50 per BOE. I would note that all of our 2023 guidance is included in yesterday's release and in the presentation on our website. Turning to the hedge position. For full year 2023, we currently have approximately 1.7 million barrels of oil hedge or 38% of our oil sales based on the midpoint of guidance. We also have 2.4 Bcf of natural gas or 35% of our natural gas sales based on the midpoint of guidance. For quarterly breakout of our hedge position, please see our presentation on our website, which includes the average price for each contract type. So with that, I will turn it back to Paul for his closing comments before Q&A. Paul?

Thank you, Travis. Before opening this call up for questions, I'd like to reemphasize several points we have made in the past. First and foremost, the Stronghold acquisition has substantially increased our size and scale, lowered our overall cost structure, and improved nearly every per share metric normally considered when comparing similar transactions. We are a stronger, more diverse energy company, better positioned to manage the risks associated with price volatility and unforeseen operational issues such as power outages or mechanical failures or weather-related downtime. We have significantly increased our ability to generate revenue due to higher sales volumes and the roll-off of lower-priced hedges. The improved capital efficiency of our undeveloped inventory provides the opportunity to further optimize our future capital programs to maximize cash flow generation and to remain focused on reducing debt. The improved capital efficiency is demonstrated with the progress we have made regarding our return on capital employed, which was over 20% for 2022, representing an increase over our performance in 2021 of more than 75%. The improved capital efficiency also provides enhanced flexibility to respond to changing market conditions or to proactively adjust our capital spending plans to accommodate our pursuit of accretive balance sheet enhancing acquisitions. The bottom line is simply this. Ring Energy today is larger, stronger and more efficient with an improved balance sheet and enhanced ability to pay down debt. As previously shared, we paid down $20 million of debt in the fourth quarter, and $37 million in the last four months of the year. We have also increased our liquidity more than 200% over the previous year and our proved reserves by almost 80%. So having said that, we have talked about the state of the company, our plans for 2023, and our strategy. But we haven't yet talked about the principles driving our strategy. Simply put, we tried to align our actions to those we believe create long-term value for our stockholders. We believe this company needs more size and scale to help our common stock be eligible as an investment opportunity to a broader cross-section of the investment community. While we have materially reduced our leverage ratio, we believe our absolute debt levels justify our continued commitment to pay down debt. We believe continuing to pursue accretive balance sheet enhancing acquisitions is one method of achieving both of these objectives. We believe we should position this company to return capital to our stockholders. In short, we believe staying the course on our value-focused proven strategy will continue to position this company for success in 2023 and beyond, creating long-term value for our stockholders. And with that, we will turn this call over to the operator for questions. Operator?

And the first question will be from Neal Dingmann from Truist. Please go ahead.

Good morning, everyone. Thank you for the opportunity to speak. Paul, I have a question for you or the team regarding the recent press release. It seems that with Stronghold, you now have significantly more operational options. I'm curious about how the vertical strategies at Stronghold measure up against the horizontal, more traditional approaches. I know you shared some details on the number of wells drilled this year and the upcoming plans. So, could you explain how much flexibility you have in your strategy and how the two approaches compare in terms of returns?

Yes, go ahead. I'm going to give a first stab at that. And I'm going to let a couple of you guys kind of share their points of view. But bottom line is this. The undeveloped opportunity that came with the acquisition has very, very competitive economics. Some of them are actually superior due to the short cycle time from the date of completion to the date you start getting oil into the tanks. But at the same time, we have system constraints. We've talked about this in the past with respect to Northwest Shelf and the Central Basin Platform across CBP North now. We've tried to balance our drilling programs and our undeveloped programs and our capital spending programs to maximize the efficiency of the infrastructure that we have. The primary issue up in the North was saltwater disposal. Well in the South, we have very attractive rates of returns, very quick payouts and turnaround times, and a very capital efficient program. But we also have other limitations. We also have saltwater disposal constraints down there and we also have power grid or power and electricity constraints. So we are maximizing the cash flow generation from these assets, trying to minimize investments in infrastructure where it's not necessary. We are making investments in infrastructure where it is necessary, but it's a balanced program. As it turns out, some of our best economics are associated with some of the vertical wells or drilling in the South. They are very, very robust from an economic perspective, and they're very impactful for the company. I don't know if there's any more I need to say. Marinos, how about you?

The only thing I'd add, Paul, is that in terms of optionality, our rate contracts this year are all well-to-well with extensions. So there's no long-term commitment in terms of multiple wells. We can pivot at any point. The same thing with the casing; we've secured casing for multiple projects in both areas. That gives us a lot of flexibility to adjust accordingly with the infrastructure constraints that we might face unexpectedly. In terms of the saltwater constraints in the South that we discussed a little bit on the last call, we've resolved a lot of those constraints. The saltwater disposal is no longer a constraint in the South. The freshwater supply has also been restrained. So we're really just facing the electrical supply kind of pivoting and trying to resolve those, which for the most part we have made great headway with too.

Great. And, Paul, maybe that leads into my question. Go ahead, I'm sorry. Go ahead.

Yes, sorry, Neal. This is Alex. I wanted to echo and piggyback off of Paul's and Marinos’ comments. We specifically anticipated some of these conversations or questions, so you'll see that we revamped our IR deck. If you go to Page 21 on our deck, it really tackles your question there a little bit more clearly, giving you a feel for what is the average well performance between horizontal well and vertical well and the differences in cost. That is the blended average of every single well we have. So when you’re asking if you will be spending capital on vertical wells, yes, as Paul mentioned, there are some very high rate of return, very short cycle time investments there. That’s specifically due to our PJ Lea fields, and the reason that one is even greater economics is because the NRIs are really high in that asset. So if you look at Page 22, you will also get a sense for IP 60 and present oil. As far as optionality, we are obviously going to focus our capital to the highest rate of return investments. Both Slides 21 and 22 really answer your question.

Yes, I appreciate that. I noticed those details, which is why I was considering future aspects. You provided valuable insights into the averages we've seen so far. My next question is for Paul or Marinos, regarding the various forecasts for prices. I'm curious about the stability of your plan. Currently, oil is priced at around $77. If it rises to $85 or falls to $65, do you expect to maintain a similar strategy? I'm interested in your perspective on pricing sensitivity, Paul, as it seems you're in a solid position.

Yes. You're not the only one who has asked this question. We have shared that our budget plans are based on oil prices between $70 and $90 for WTI and Henry Hub prices between $2 and $4. Hypothetically, if oil prices fall below $65 for a prolonged period, we can adjust our capital spending program to focus only on the essential expenditures. We have debt repayment goals this year and intend to adhere to them. We know we have the capacity; for instance, January's production was higher than our production guidance for this year. This indicates our commitment to capital discipline. Our capital discipline will be influenced by price trends. Conversely, if prices exceed $85 or $90 for an extended time, we can pursue organic growth while considering the limitations of our infrastructure. Alex, would you like to add anything?

Yes. To also echo Paul’s comment here, if you look at our guidance, we also had a bigger range on CapEx to account for that.

You guys spot on. I think that’s kind of what I thought. I think is that you guys are in a fantastic position. Thank you, Paul.

Thank you, Neal.

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

Thank you, Paul. You've closed the Stronghold acquisition in August and having owned those assets now and operated them for five or six months, is there anything you've learned since you did your diligence that you think is playing a significant role in the 2023 capital program?

Yes, there's quite a bit we've learned. I will say this, we are every bit as excited today about this acquisition as we were the day we signed the purchase and sale agreement. We have learned several things. I'm going to turn this over to Marinos, because he can expound a little bit more on these. But we are experimenting and trying different completion techniques. We've evaluated the condition of many of the wellbores and many of the wellbore completions may end up being redrawn instead of recompleted, that's going to be a case-by-case basis. We have come to realize, as mentioned by Alex just earlier, we have certain areas in the CBP South that actually demonstrate superior economics to even the portfolio we had before the acquisition. Everybody knows how strong our economics are in the Northwest Shelf and Central Basin Platform, but the rates of return and the economics of these opportunities that came in with this acquisition are truly outstanding and very competitive with our portfolio. We’re really, really excited about that. Do you want to say anything more about the operation?

No, the only thing I'd add is that, as Paul said, we’re just as excited. From an operations standpoint, we're more excited than when we were during the acquisition. We've found on the PDP side, we’ve had five or six projects where we've gone in, cleaned out the wells, performed a little stimulation and significantly increased our production and reduced some decline. So we feel really good about the asset. We're learning a lot about it and extremely excited.

I'll add one more thing too. Due to the nature that we got several fields that we didn't assign a lot of value on during the acquisition, we are testing certain concepts that have proved valid in both McKnight and PJ Lea and some of the other assets. I think that you'll see us throughout some future calls share some of those results. So more to come.

Thanks. Just a quick follow-up on that, and then I have another question. Redrilling wells rather than recompleting, is that because you think you can get a better completion over a broader zone and then just being able to go in and use the existing casing?

That's right. This is a combination of a couple of things. With the condition of the casing and also the type of completion job they have and the quantity of stimulation work needed. As you know, we're fracking these wells. The objective is to exploit the resource for the lowest costs and lowest risk. It's just a balance of all of those factors as we evaluate each one of these opportunities individually. We'll make a decision based on that. One learning is that when you look at the results we've seen, new wells tend to have superior producing rates and EUR associated with them than the recompletion wells, and this is what's primarily driving that.

And as a follow-up, Paul, you mentioned continuing to build scale in the Permian. Stronghold gave Ring a lot more options in terms of types of projects to invest your capital in. Can you just briefly describe what are the characteristics of an acquisition that fit the existing Ring asset base?

That’s an excellent question. We were fortunate with the Stronghold acquisition; it was structured and negotiated with the sellers in a way that proved to be highly beneficial across nearly all metrics. I can't think of any metric that wasn't positively impacted. This acquisition significantly benefits the company. We specifically targeted that set of assets and initially faced a setback when our first offer was not accepted. However, this led them to run a process where we eventually succeeded. We are currently conducting a similar analysis on other assets in the Central Basin Platform and the Permian Basin, which will resemble our approach with Stronghold. Our focus remains on such targets, although it doesn’t guarantee that the next acquisition will look identical. This is because we are both being approached and actively seeking different types of assets in the market. We would consider acquiring production that doesn’t offer many development opportunities if the price is right. However, our preference is to find existing production that reduces our operating costs, exhibits lower decline rates, and has a long lifespan, alongside undeveloped opportunities that promise competitive economics compared to our current assets. I have repeatedly stated that I aim to maintain the quality of our inventory and avoid diluting it with lower-quality acquisitions. Comparatively lower quality may still yield strong economic returns, and there are many companies that admire the returns and quality of our undeveloped opportunities. We believe there are viable options out there, but we think that as a company of our size, we can find desirable acquisitions on our own. We are optimistic about the future, seeing potential transactions in 2023 or 2024. This depends on how negotiations unfold and whether we can structure a deal that benefits our current shareholders and strengthens our balance sheet. These are our primary criteria. We appreciate the metrics and financial performance our company can deliver, and we intend to maintain their integrity. We will exercise discipline and will not purchase lower-quality assets. Does that answer your question, Jeff?

It does. Thank you.

Okay. And our next question is from Noel Parks from Tuohy Brothers. Please go ahead.

Hi, good morning.

Hey, Noel.

Actually, I have done a little late, so apologies for being covered already. But just based on your last comments about what you might consider evaluating for acquisition. With a PDP acquisition, are there properties out there where there would be meaningful recompletion opportunities that could move the needle on the value of some things?

There are actually. It's all a function of who the prior operator was, Noel. There are certain operators in the Central Basin Platform and the Greater Permian Basin, that are known to work their properties very hard. They have already mined many of those opportunities. There are other operators that have focused their capital spending elsewhere. Some of their assets could be classified as not having been worked as hard. That was the benefit of the Stronghold acquisition. For instance, if you look at the position that Stronghold acquired from Devon and Chevron, they had developed those assets and managed them for quite some time. They tried some ideas but allocated their capital elsewhere. They left behind these types of opportunities for Stronghold, and now for us. Yes, there are on the Central Basin Platform, in other areas in Northwest Shelf, we've identified assets that could be classified as you mentioned, mostly PDP, maybe not a whole lot of drilling opportunities, but there are some recompletion opportunities out there as well.

Great, thanks a lot.

And the next question will be from an unidentified analyst. Please go ahead.

Hey, guys. Just one quick question, I keep getting from my clients. We made a great acquisition. We've got record numbers, we're making money, we're paying down debt. But our stock can't hold at $2 a share. What are the suspicions out there in the market that maybe we're not talking about? Can you help me explain that?

Rick, I get asked that question more than any other question, it seems. That's a really tough one to understand. The marketplace and if you go back to the investor presentation, we actually lay out kind of the argument as to why it is that we are undervalued in the marketplace. I believe that today, Ring Energy stands as probably one of the best investments in the oil and gas space. Why is our stock so undervalued? We know that the industry has been hit hard since last summer, with the change in oil prices. We know that the smaller companies that we've fallen into that category have been hit disproportionately harder than some of the bigger companies. In my opinion, Ring Energy has generated superior, at least as good or better returns than our peer group, yet we’re trading at a much lower multiple. Explaining that would take quite a bit of time investigating the marketplace and what's been happening. I believe there are a couple of factors contributing to that. I think some people will not invest in a company with the debt levels we have. As you point out, we're quickly and very rapidly addressing that, and we're going to have a really strong balance sheet soon just from our organic ability to pay down debt. It’s hard to think that people are penalized too heavily for that. To be honest with you, Rick, your question is probably better addressed to some of the analysts that follow us such as Jeff or Neil or Noel and John White, who is not on the call today, but some of them would probably have more insight than I do in terms of why we're being held down. Alex, do you have something you want to add?

I do. I would also add comments that this is the first quarter that we announced all of our metrics as a full performance company, meaning all Stronghold for three months. I think that a lot of the Street and the public is waiting to see. Once we get a couple of quarters underneath us watching the performance of the company, you'll really start seeing the effect of that acquisition.

Yes, and I would also question, and I'll throw in a little bit more here. As Travis shared, 4.5 million warrants were converted and exercised, converted into common shares this quarter. That has to have an impact, Rick, on why our stock performance is the way it is. Is there an overhang? These are the types of questions that many people ask. I believe if there is an overhang out there, it’s temporary; it’s not long-term. I believe that if we continue to generate the returns, we continue to strengthen our balance sheet, and we continue to do all the right things, eventually the marketplace is going to come around. That's why I personally believe when I look at the oil and gas space, other companies that are similar or would be considered peers, we represent the most compelling investment opportunity out there on the market today.

Okay. Thanks.

You’re welcome. Thanks for the question, Rick.

And the next question is a follow-up from Jeff Robertson from Water Tower Research. Please go ahead.

Follow along the lines of leverage and in the $90, high-end of your budgeting, if prices went back up to $90, how do you balance increasing capital versus accelerating deleveraging? If people are concerned with deleveraging?

Yes, and so again, part of the reason why we gave that range of $70 to $90 is that when you fall below $70, and I use $65 as an example for an extended period, that would really encourage us to change our capital spending programs. Now if we're at $90, I'm going to take the additional excess cash from operations to pay down debt. Now, if we get above $90 for a sustained period, let's just say we're at $100, well, then we're probably going to add capital because we're going to grow organically. It will also depend on other factors such as, do we have something our size, are we successful in negotiating the deal, and will we bring a deal down this year? Those types of considerations come into play. Our preference will always be paying down debt. If the capital spend versus our EBITDA for the year gets below 50%, we will probably keep it at that 50% level or more.

So at a higher commodity price deck, you could both increase deleveraging and also grow the production base to support higher EBITDA numbers. So you get lower leverage and higher EBITDA numbers, which in theory should flow through to the valuation?

It certainly would. In those types of scenarios, yes, I believe we could surpass our debt repayment goals for the year. In that type of scenario, EBITDA is coming up, and yes, we could make substantial reductions in the leverage ratio itself, even to the point where we're down around one, potentially below one.

Great, thank you.

Ladies and gentlemen, at this time, there are no further questions. So let's turn the conference back to Paul McKinney for any closing remarks.

Okay. Thank you again for your interest and joining us on the call today. We are looking forward to 2023. We are very excited about what this year can do for Ring's shareholders. We are working hard and diligently and continue with the value-focused proven strategy that we’ve laid out. We hope to hear from you again on the next call, but in the meantime we will be working hard for you. Thanks for joining us on the call today.

And thank you, sir. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.