Ring Energy, Inc. Q4 FY2024 Earnings Call

Good morning, and welcome to the Ring Energy Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this event is being recorded. I would now like to turn the call over to Al Petrie, Investor Relations for Ring Energy. 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 2024, as well as our 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 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, and Shawn Young, Senior Vice President 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 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 call is being recorded. I'd now like to turn the call over to Paul McKinney, our Chairman and CEO.

Thanks, Al, and good morning, everyone, and thank you for joining us today. The fourth quarter of 2024 represented a strong ending to a year in which the Ring Energy team enhanced nearly every controllable metric. Our total sales grew 8% over 2023 to a record 19,648 barrels of oil equivalent per day, and oil sales grew 6% to a record 13,283 barrels of oil per day. We reduced our year-over-year all-in cash operating costs on a per Boe basis by 2%. We drilled 13 more wells in 2024 than the prior year for slightly less capital, representing a substantial increase in capital efficiency for both our horizontal and vertical wells. For the year ended December 31, 2024, we spent $151.9 million, which included the cost to drill, complete, and place into production 21 horizontal wells, including five in the Northwest Shelf and 16 in the northern portion of the CBP, as well as 22 vertical wells in the CBP. Also included in the full year capital spending were costs for capital workovers, infrastructure upgrades, recompletions, facility upgrades to reduce emissions, and leasing. We paid down debt by $40 million and $70 million since the closing of the Founders acquisition in August of 2023. We exited the year with $385 million of debt on the balance sheet and approximately $217 million of liquidity. Our performance led to generating adjusted EBITDA of $233.3 million despite a 7% reduction in realized prices. Supported by our focus on capital discipline, we delivered adjusted free cash flow of $43.6 million, remaining cash flow positive for over five years. Turning to reserves, we grew proved reserves by 4.4 million barrels of oil equivalent or 3% to 134.2 million barrels of oil equivalent. A key point to note regarding our 2024 reserves was that we organically added 16 million barrels of oil equivalent which more than offset the 7.2 million barrels of oil equivalent of production, the 1.2 million Boe from sales of non-core assets, and 3.2 million Boe in reserve reductions due to lower SEC prices. Our proved reserves PV-10 was approximately $1.5 billion at year-end 2024. Included in that total was approximately $1.1 billion of PV-10 for 92.6 million barrels of oil equivalent approved developed reserves. The primary contributors to our success in 2024 are directly related to the benefits of our Stronghold and Founders acquisitions in 2022 and ’23. These acquisitions have exceeded our expectations in many regards, further establishing our strategic foothold in the Central Basin Platform and significantly increasing our undeveloped inventory of highly economic drilling locations. As we have previously stated, we continue to look for similar acquisitions that can help us replicate the success of those two transactions. We believe the proposed Lime Rock transaction does that. As previously released, the purchase price of $100 million is comprised of $80 million of cash and up to 7.4 million shares of Ring common stock at closing and an additional $10 million deferred cash payment due nine months after closing. The transaction has an effective date of October 01, 2024, and is expected to close by the end of the first quarter of 2025. In short, Lime Rock's CBP acreage is in Andrews County, Texas, where the majority directly offsets Ring's core Shafter Lake operations, and the remaining acreage to the south is prospective from multiple horizontal targets and exposes Ring to active new plays. The acquisition ideally suits Ring's focus on consolidating producing assets in core counties on the CBP defined by shallow declines, high-margin production, and undeveloped inventory that immediately competes for capital. Additionally, as previously disclosed, these assets add significant near-term opportunities for field-level synergies and cost savings. Regarding our guidance for 2025, our estimates include three full quarters of operations with the Lime Rock assets. Driving the top-line, we anticipate an average annual sales midpoint of 21,000 barrels of oil equivalent per day and 13,900 barrels of oil per day, a 7% and 5% increase, respectively. And an annual capital spending midpoint of $154 million, essentially flat with the prior year, and a midpoint of approximately 49 total wells drilled, completed, and placed online. In summary, our 2025 plans will follow a very similar playbook from the past; we will remain focused on maximizing free cash flow generation, we will maintain a disciplined capital spending program that maintains or slightly grows our production and liquidity, and allocate the balance of our cash flow to paying down debt. Travis will provide more detail regarding our guidance along with other comments concerning our fourth quarter and full year financial results. So, with that, I will turn it over to Travis.

Thanks, Paul, and good morning, everyone. We were pleased with our overall outcome for the fourth quarter. The results met our overall guidance, and the fourth quarter marked another successful year for Ring. I will take a few minutes to discuss the most significant results. In production, we sold 19,658 Boe per day in the fourth quarter, a slight decrease of 2% from 20,108 Boe per day in the third quarter. This decrease was partly due to a third-party gas plant shut down by a fire, which affected our sales volumes. Our total sales volumes for the fourth quarter were above the midpoint of our guidance range, contributing to a record full-year sales of 19,648 Boe per day. This year benefited from a full year of production from our Founders acquisition, which closed in August 2023. Additionally, a successful drilling campaign across our asset base, focused on our highest rate of return inventory, materially contributed to our record sales volumes. In terms of pricing for the fourth quarter, our overall realized price decreased by 4% to $46.14 per Boe from $48.24 per Boe in the third quarter. The decline was driven by a 7% decrease in realized oil prices. Our average crude oil price differential from NYMEX WTI futures was negative $1.42 per barrel, compared to negative $0.56 in the third quarter, primarily due to changes in pricing benchmarks. Our average natural gas price differential was negative $3.83 per Mcf, an improvement from negative $4.43 per Mcf the previous quarter. The realized NGL price for the fourth quarter averaged 13% of WTI, up from 11% in the third quarter. Oil revenue fell by $5.8 million, with a $3.8 million price variance and a $2 million production variance. In contrast, gas and NGL revenues increased by a combined $2.6 million quarter-to-quarter, contributing to a total revenue of $83.4 million for the fourth quarter, down from $89.2 million in the third quarter. Our fourth quarter LOE was $20.3 million, essentially unchanged from the third quarter, with a unit basis of $11.24 per Boe, which was within our guidance range. Cash G&A was $3.51 per Boe for the fourth quarter, compared to $3.45 in the third quarter. We recognized a loss on derivative contracts of $6.3 million in the fourth quarter versus a gain of $24.7 million in the third, mainly due to lower pricing at the end of the fourth quarter. We recorded a tax provision of $1.8 million in Q4 compared to $10.1 million in the third quarter, influenced by an increase in pre-tax book income. Our net income for Q4 was $5.7 million or $0.03 per diluted share. After adjusting for non-cash unrealized gains and losses on hedges, share-based compensation, and transaction costs, our adjusted net income was $12.3 million or $0.06 per diluted share. This compares to a net income of $33.9 million or $0.17 per diluted share in the third quarter. Looking at our hedge position for 2025, we have approximately 2.4 million barrels of oil hedged, covering around 48% of our estimated oil sales based on the midpoint of guidance. We also have 2.4 Bcf of natural gas hedged, which accounts for about 33% of our estimated natural gas sales based on the midpoint. Moving to the balance sheet, we spent $37.6 million on CapEx in the fourth quarter, aligning with the midpoint of guidance. We reduced D&C CapEx by 23% to $22 million in the fourth quarter from $29 million in the third. Our CapEx also included around $4.7 million for facilities upgrades aimed at reducing emissions, alongside over $1 million in leasing costs contributing to our reserve replacement and organic inventory growth. Throughout 2024, we drilled 13 more wells than the previous year with slightly less capital, illustrating improved capital efficiency. Total CapEx for the year was $151.9 million, slightly lower than in 2023. At year-end 2024, we had $385 million drawn on our credit facility, with a reaffirmed borrowing base of $600 million, leaving us with $215 million available net of letters of credit. Our liquidity, combined with cash, stood at $217 million with a leverage ratio of 1.66 times. In Q4 2024, we generated $4.7 million of adjusted free cash flow and reduced debt by $7 million, totaling $70 million in debt reduction since completing the Founders acquisition in mid-August 2023. Throughout 2024, we repaid $40 million in debt and generated $43.6 million in adjusted free cash flow. We plan to continue utilizing our free cash flow for debt repayment to improve our long-term financial profile, primarily driven by our targeted 2025 development program. Our focus remains on leveraging our substantial free cash flow to reduce debt and enhance our capacity to provide a meaningful return of capital to shareholders. For our 2025 plans, we intend to adopt a similar approach as in 2024. Our guidance now incorporates the recently announced agreement to acquire Lime Rock's CBP assets, with operation results expected after closing, anticipated by March 31st. Our goal is to maintain or slightly grow Boe per day total production while increasing crude oil sales. Our total sales guidance for 2025 is between 20,000 and 22,000 Boe per day and 13,600 to 14,200 barrels of crude oil per day. We expect to spend between $138 million and $170 million on our full-year 2025 development program, with capital expenditures for the first quarter projected to range from $26 million to $34 million. Additionally, we anticipate full-year 2025 LOE between $11.25 and $12.25 per Boe, with first-quarter LOE expected between $11.75 and $12.25 per Boe. All estimates are based on assumed WTI oil prices of $65 to $75 per barrel and Henry Hub prices of $2 to $4 per Mcf. With that, I will turn it back to Paul for his closing comments.

Thank you, Travis. Up to this point, we've reviewed our fourth quarter and full year 2024 results and discussed generally our outlook and guidance for 2025. What we haven't shared though are our thoughts associated with managing the company through the volatility we continue to experience in commodity markets. The question that could be asked is, what are our priorities and how will those priorities impact our decision-making going forward? So, let's discuss what Ring is likely to do if WTI oil prices remain substantially at or below $65 a barrel. Before going there though, I think it is good to remind ourselves of the virtues associated with our assets. Turning to Page 8 of our investor presentation, Ring Energy has the second highest margin on a dollar per barrel basis in our peer group. This enables the company to have a relatively better ability to manage the challenges of low oil prices compared to many of our peer group, if we don't consider the benefits or the differences in company hedging practices. Furthermore, as shown on Page 9, Ring has the second-lowest production decline rate in our peer group, which means, if we want to maintain our production levels, we would require a relatively lower level of capital spending to achieve that goal. Another thing we can discuss is our hedging practices. As you know, Ring strives to hedge 50% of our forecasted PDP production from our most recent reserve report as a method of limiting the exposures to sustained low oil and natural gas prices and to protect future cash flows supporting our debt repayment and our capital spending plans. Having said all that, if WTI oil prices remain at or below $65 per barrel for an extended period of time, we believe the right thing to do is to cut back on capital spending in favor of reducing debt. On Page 7 of our investor presentation, we show estimates of, among other things, our projected leverage ratio at different WTI oil prices. I am referring to the chart on the lower right of the page entitled Enhancing Balance Sheet Targeting Leverage Ratio Less Than 1 time. The scenario depicted in the chart assumes our capital spending levels remain the same; only the oil price assumptions were changed. The $65 per barrel case shows that we believe our leverage ratio under those assumptions will reduce only modestly. If we stay at $65 per barrel for a duration of that forecast, we are more likely to reduce our capital spending to a lower level than that assumed in the $65 per Boe scenario depicted there. And we will apply more of our cash flow to paying down debt. Although the calculation is very complicated and lower capital spending levels would imply lower production revenue and EBITDA levels, we believe we would end up at a better leverage ratio by focusing on reducing absolute debt. Another point I'd like to make is associated with our success in organically growing our proved reserves in 2024 and what that means regarding our future plans for growth. Earlier today and in the past, you have heard us say we intend to allocate a portion of our cash flow from operations to maintaining or slightly growing our production and liquidity, and allocating the balance to reducing debt, and that our growth will come from accretive, balance sheet-enhancing acquisitions. Building on that strategy, in 2024, we began focusing on identifying and capturing opportunities for reserve and inventory growth with our cash flow and as a part of our capital program. We intend to increase our focus on organically growing our reserves and undeveloped inventory over time. And by doing so, we are adding another component to our growth strategy, another way to win, so to speak, and not rely solely on acquisitions for reserve and undeveloped inventory growth. We believe the benefits of adding organic growth to our growth strategy are compelling. Another point refers to the question, why did Ring use stock as part of the total consideration in the pending Lime Rock transaction? There are a couple of reasons, the primary one being our balance sheet. By using a small amount of equity, we anticipate having a stronger balance sheet and corresponding leverage ratio at closing. Another benefit is related to the confidence Lime Rock has in our ability to create value. As you may know, Lime Rock is a premier oilfield operator and the parent company provides growth capital for the energy industry. The last subject I would like to address before turning this call over to the operator to answer questions is our low stock price. Our stock price hasn't been this low since 2021. Since that time, we have increased our reserves and production per share, lowered our leverage ratio, and are larger and more resilient company than we were during that time. The value proposition established with our current stock price is compelling, and in my opinion, represents a very opportunistic investment opportunity. And with that, we will turn this call over to the operator for questions.

Thank you. We will now begin the question-and-answer session. The first question will come from Bert Donnes with Truist. Please go ahead.

Hey, good morning team.

Good morning, Bert.

I saw your note on the new guide that it does not assume any synergies or cost reductions in it from the recent acquisition. I was just wondering if maybe you could talk us through low-hanging fruit on the savings you might be able to find on the combined assets. And then, maybe, how quickly do you expect to kind of fold in those 40 new locations that you just added to the portfolio?

Certainly. I'm going to invite a few colleagues to help respond to this question, as it's an important one. Our operations are situated very close to one another and are quite similar to what we’re currently undertaking. One significant area we've pinpointed that presents an opportunity relates to one of the main components of our operating costs, which is water management. They have a saltwater disposal system that includes 12 disposal wells, and this system is not being fully utilized, especially when compared to ours. In previous instances, we had to regulate our drilling program to avoid generating more water than what our disposal system could accommodate. This situation opens up opportunities not just to merge the systems but also to lower the overall operating costs. Now, I'd like to hand it over to Shawn. We visited the assets last week for the first time. What insights did you gain during your visit, Shawn?

Yeah, I think there's definitely some opportunities for synergies. Beyond just the water infrastructure, we have an extensive oil infrastructure there as well. And also, just taking advantage of our personnel, our office that is currently right there, so there's some synergies there as well. Also, just point to kind of our track record, right, if you look back at the FOG acquisition, the lifting costs and cost structure here is somewhat similar. And we've been able to reduce our lifting costs in that FOG acquisition by over 22%. So, while there's not anything in the forecast that basically outlines kind of those synergies, they're definitely there, and we expect to capitalize on them.

Yeah, the challenge we had, Bert, is we really didn't want to get out over our skis and predict something before we had an opportunity to actually see what those potential savings would be firsthand. But again, pointing out what Shawn identified, we have a track record of doing this and we're very confident. It could even result in just changing the pumper routes and reduce the number of people just to operate the wells. There's all kinds of opportunities there. And so, we just didn't want to get over our skis. And so, we want to make sure that we just continue to use in our forecast the operating cost track record that Lime Rock had, but we do believe that the combined benefit of both areas, now all being one, we'll see some cost reductions. Now, going to the second part of your question about the undeveloped inventory, again, the playbook is going to be similar to what we did with Founders. The first thing we want to do is get our arms around the operations to get those wells and operations integrated into our company and then start the process of drilling. So right now, we anticipate drilling some of the first Lime Rock opportunities in the second half of the year. Alex, is there more you want to share there?

Yes, certainly. Hi, Bert. This is Alex. Regarding the inventory, similar to our experience with Ring over the past few years, we have been investing significantly in the CBP horizontal assets to drill highly productive horizontal wells, primarily because of the substantial reduction in cost structures in that area. We plan to implement the same strategies with the Lime Rock assets. We have developed a more efficient method for drilling the wells, maintaining better placement, and optimizing the fracking process. Our cost structure has decreased by approximately 15% to 20% over the last couple of years. With this improved cost framework and enhanced completion techniques, we expect to have a strong inventory that will be appealing for capital investments right now.

Yeah, that goes back to some other things we've talked about in the past, Bert. Technology is our friend. At the early parts, early stages of developing the San Andres horizontal oil play, both in Yoakum County and Andrews County and Gaines, primarily though in Andrews and Yoakum, technologies continue to roll on, and we've learned how to develop higher recoveries from the same wells and the same lateral lengths. And so, yeah, technology is our friend. I think we answered your question, Bert.

I think you sure did. I think you're doing the right thing. Keep the guidance conservative and give yourself a chance to beat it there. And then, on my second question, just on the M&A front, you continue to fold in accretive bolt-ons. I just want to get an update on maybe how you think about the volatility that we're seeing. Does this maybe slow that down? Or do you think it's the other way, maybe third-party operators are maybe looking to sell some of their assets and shore up their balance sheets and maybe you'll be the beneficiary of that? And just the other side of that as well, you sold about $6 million in those high-cost non-core wells. Is there anything left at the company on that front?

Currently, we don't have much inventory to sell. With each acquisition, the portfolio will never consist of a perfect set of assets. Some assets may be considered non-core or may not have developed opportunities that can compete effectively. Not all economic opportunities, even from the Lime Rock acquisition, are equally viable. For instance, opportunities in the South, such as Barnett and Devonian, are economically beneficial, especially at higher oil prices, but they don't compare to the more attractive San Andres horizontal opportunities associated with our Shafter Lake operations. That's the situation we are in. I'm not sure if anyone else has additional comments to add.

Just to follow up on the first part, are there more Lime Rocks out there, or do you think the volatility in the market affects your ability to find more Lime Rocks?

Yeah, thanks for the reminder. No, the volatility is a challenge, but it's also complicated. The volatility tends to bring buyers and sellers' expectations closer together, so you're more likely to get a transaction done. The challenge for us is the lower the prices, and if you're in a sustainably lower price environment, we're going to protect our balance sheet. And our first priority is to strengthen the balance sheet so we can enter the marketplace again. And so, I'm not going to tell you that we're not going to do a deal because there's all kinds of creative ways to structure deals, but in a lower price environment, right after completing a transaction like we're hoping to do with this pending transaction, our balance sheet won't be strong enough for us to want to go out there and keep going. So, again, there will be a time period for us where we're going to concentrate on restoring the balance sheet, so we can get out there and get active when the next opportunities come out.

Yeah. Let me add to that. Actually, we have a new slide, Bert, Slide 14. Think about Founders and what we did in 2023, right? So, it took us a little bit to integrate it and optimize it and you can see all the metrics there, but we cleaned up the balance sheet and strengthened it up to be able to do another deal. So, it's the same concept here.

Yeah.

That's perfect. Thanks for the update, guys.

Hey, you're welcome, Bert.

And the next question will come from Noel Parks with Tuohy Brothers. Please go ahead.

Hi, good morning. Could you discuss the quality of your inventory and your geographic presence, particularly how acquisitions like Shafter Lake benefit you? I'm curious about the location aspect and any potential broader implications.

Okay. I'll address that, Noel. You are raising points that we often hear from investors and shareholders. As you know, we have access to undeveloped locations that offer excellent economics, particularly when compared to other plays in the broader Permian Basin. Our San Andres horizontal locations have performed very well against some of the Devonian or Delaware and Midland Basin shale wells being drilled. This is a crucial aspect of our growth strategy. As I have mentioned in the past, we would love to have a 15- or 20-year inventory of undeveloped locations with similar economics, but the reality is that we don’t have that. This is why we are focused on making acquisitions that meet specific criteria and bring with them undeveloped opportunities that fit into our portfolio. One notable change over the past year is that we have been concentrating on organically identifying and securing these opportunities, so we don’t solely rely on acquisitions. By focusing on capturing future growth opportunities organically, we are using our cash flow within our annual budget to achieve this, even though that extra capital could also have been used to reduce debt. However, this approach represents the most attractive and least costly method for growing our inventory and securing opportunities for sustained growth.

Let me add to that, Noel. I'd like to address a little bit of your inventory quality question. We actually put in a new slide on Page 25 of the slide deck and that just shows year-over-year what our inventory looks like both on the horizontal basis and a vertical basis. So, if you look at that, year-over-year, we're still drilling really good horizontal wells, but for a reduced cost structure, 11% on horizontals. And then, on the vertical sense, we actually increased substantially on well performance. That's mostly due to the Founders acquisition, because when we did that, the Founders acquisition brought in good and even better inventory, yet we still reduced our vertical cost on a per stage basis by like 3%. So, the inventory quality is still there, and actually, we have really good breakeven. So, in these lower oil prices, we have more optionality and flexibility.

Our breakevens are very competitive compared to our peers. We have a solid inventory. While it's not a 15- or 20-year inventory, that's part of our strategy as we seek additional opportunities. We are particularly interested in the Central Basin Platform in the southern part of the shelf, where we have extensive experience. We believe there are numerous opportunities there. The entire Central Basin platform has conventional reservoirs that other operators have historically overlooked, and many still are. As we continue to explore and build upon this inventory, I believe there are great prospects ahead in our familiar area. In the future, we may even consider expanding beyond our current focus. Does that answer your question, Noel?

Sure did. And in the deal slides, I saw you had a mention of Devonian potential, and that sounds familiar to me. But I've only read a little bit about Barnett potential in your neck of the woods. I guess that's sort of in the boundary between the Central Basin Platform and the Midland Basin. So that was a new topic for me.

Yeah. This is an area that's been developing. If you were to take a little bit of time to understand or study what is actually going on, on the eastern side of the Central Basin Platform, the Barnett play is a very successful play that several companies are still spending money trying to acquire acreage in it. And so, it does present really nice optionality, especially if we ever get back to an environment where you are above $75 oil. And so, above $75 oil, these things are very attractive. And some of the other things that are very interesting if you were to study the play is that the operating costs for most of these Barnett wells are really, really low. So, you have really, really high cash-generating capacity. And so, that's part of why we're so excited about that play. Now, at $65 oil, I don't believe we'd be able to allocate capital to those opportunities. But the bottom line is acquisitions like this provide optionality in the future, especially in an environment where prices rebound and are stronger.

Is there a learning curve that could potentially lower the threshold needed to make finance work at a slightly better price?

Yeah, Noel. I think you already know the answer to that question. Yes, there's always a learning curve. And again, technology is your friend. We have learned that technology and climbing the learning curve associated with experiences and figuring out the best ways to drill and complete the wells is the key to taking what used to be Tier 1 acreage or Tier 2 acreage and turning it into Tier 1 acreage economics. And so, yes, there is a learning curve, but again, in a stage like you find us today, and where we will be after we close a pending acquisition with Lime Rock, our balance sheet and our current price environment right now, it would be very challenging for us to want to allocate capital to a development program where we know that we'd have to climb that learning curve. We would want to do that in a higher price environment.

Got it. Thanks a lot.

Your next question will come from Jeff Robertson with Water Tower Research. Please go ahead.

Thanks. Good morning. Paul, just to follow up on the organic growth concept, can you talk about what Ring is doing with maybe some portion of your capital or at least with your geological and geophysical activities to identify additional organic growth opportunities on the existing footprint, whether it's new zones or applying a different technology to an existing zone?

That's a great question. We are currently evaluating all potential zones within our existing acreage. As we map these zones, we also look beyond our current acreage to areas nearby, which is the most straightforward and cost-effective way to expand and seize economic opportunities. We're focused on this approach. Regarding our existing acreage, we are aware of development opportunities that exist both vertically and horizontally. Interestingly, we are identifying horizontal opportunities in areas that have typically been designated for vertical development. This past year, we drilled a couple of wells, including one horizontal well that has remained a DUC for the year, which we plan to complete soon while we analyze completion methods and the associated learning curve. Other operators in the region have found success in these plays, which motivates us to study our options for capital allocation in the least risky way to maximize free cash flow. We are excited about the opportunities, particularly in the southern part of our acreage, including Crane County and Ector County, where we have historically focused on vertical development. Currently, we see potential for testing horizontal technology to enhance capital efficiency and increase the net present value of each site, thereby reducing the overall footprint and emissions, making management easier. This approach reflects a much more efficient path for our future growth.

And then, on the balance sheet, Paul or maybe Travis, can you talk about whether or not the Lime Rock assets will have a material impact on the RBL when you fold those in and I guess spring redetermination?

Yeah. So, yeah, we typically have a spring redetermination. Right now, we have the room and liquidity on our balance sheet to close this transaction, and we plan to do that. However, we do believe that with the added assets, we probably could deserve a higher borrowing base. That's something that the banks will have to decide after we provide all the information and all that. So, I don't want to get out over my skis in predicting that. Travis, is there a point you'd like to make in that?

They are highly bankable assets with a low decline rate, which we believe the banks will find appealing. Additionally, they are heavily weighted towards proven developed producing reserves. There is significant potential for growth, but the banks will appreciate the proven developed producing aspect as well. We will wait for the spring redetermination.

Thank you.

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

On behalf of the management team and Board of Directors, I want to, once again, thank everyone for your interest and for joining today's call. We appreciate your continued support, and we look forward to keeping everyone apprised of our progress. Have a great day.

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