Good morning, and welcome to the Ring Energy Year End 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Al Petrie, Investor Relations for Ring Energy. Please go ahead.

Thank you, Andrea, and good morning, everyone. We appreciate your interest in Ring Energy. We'll begin our call with comments from Paul McKinney, our Chairman 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 detailed 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 are welcome to rejoin the queue later with additional questions. I would also note that we have posted a Q4 and full year 2021 investor 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 intentions or obligations 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. 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 our earnings announcement released yesterday. Finally, as a reminder, this conference is being recorded. I would now like to turn the call over to Paul McKinney, our Chairman and CEO.

Thank you, Al. Welcome, everybody and thank you for your interest in Ring Energy, and for joining us today for our fourth quarter and year end 2021 earnings call. As you may know, we finished 2021 with strong fourth quarter results. We generated free cash flow of $9.3 million during the fourth quarter, and $20.5 million of free cash flow during the full year 2021, marking our ninth consecutive quarter of producing positive cash flow. We use the cash flow to help pay down $23 million of debt in 2021 including 5 million during the fourth quarter, which helped us reduce our interest expense by almost 18% when compared to the prior year. During the fourth quarter, we enjoyed higher product prices, while continuing to make progress driving operational efficiencies that resulted in adjusted EBITDA and adjusted net income growth over the third quarter of 2021 of 21% and 46% respectively. For the full year 2021, we posted adjusted EBITDA of 83.3 million and adjusted net income was 30.6 million, which was 48% higher than the full year 2020. We ended 2021 with 61.6 million of liquidity, a 10% increase from the end of the third quarter and 52% higher year-over-year. If you recall, we have a $1 billion revolving credit facility, with a borrowing base of $350 million, which was reaffirmed in December. Availability under our credit facility at December 31, 2021 was $59.2 million. With respect to our development initiatives, we continue to benefit from our successful 2021 drilling program that targeted high-rate return opportunities in our Northwest Shelf and Central Basin Platform areas. The result was fourth quarter 2021 sequential sales volume growth of 11%, where we averaged 9153 barrels of oil equivalent per day, of which 85% was oil. We concluded our 2021 drilling program with…

Thanks, Paul, and good morning, everyone. For the fourth quarter of 2021, we generated revenues of $59.7 million and net income of 24.1 million or $0.20 per diluted share. Excluding the estimated after tax impact of pre tax items, including a $15.2 million non-cash unrealized gain on hedges and approximately 900,000 per share based compensation expense, our fourth quarter adjusted net income was $9.9 million, or $0.10 per share. For the full year of 2021. We generated revenues of $196.3 million and net income of 3.3 million or $0.03 per diluted share, excluding the estimated after tax impact of pre tax items, including a $25.1 million non-cash unrealized loss on hedges and 2.4 million per share based compensation expense, our full year adjusted net income was $30.6 million or $0.31 per share. During the fourth quarter of 2021, we had approximately 20.6 million in cash flow from operations and 11.3 million in capital expenditures. The combined result was free cash flow of $9.3 million. For the full year 2021, we had approximately 69.5 million in cash flow from operations, 51 million in capital expenditures and 2 million in divestiture proceeds. The combined result was free cash flow of 20.5 million. For the three months ended December 31, 2021, we had oil sales a 715,163 barrels and natural gas sales of 761,682 Mcf for a total of 842,110 BOE. Our fourth quarter of 2021 realized pricing was $76.35 per barrel of oil, and $6.65 per Mcf natural gas for an average of $70.85 per BOE. The differential between our average oil price received in NYMEX WTI, was a negative $1.12 per barrel for the fourth quarter of 2021, versus our third quarter average differential of a negative $1.05 per barrel. Our average natural gas price differential from Henry Hub was a…

Thank you, Travis. And as you just heard, we have a solid asset base that is generating strong operating cash flow and adjusted EBITDA, especially in the current pricing environment. We are planning to strategically and properly grow our production to build scale through a continuous drilling program. We believe that by increasing size and scale, we can more easily incorporate accretive acquisitions that meet our investment criteria and align with our strategic vision. In closing, we speak to our shareholders regularly and for some time now they have expressed that once we got beyond 2021 they want to see us grow more in 2022. Like your management team and board, they want us to build size and scale to reduce the volatility we have had in the past and become a more sustainable company. We believe our plans were increased drilling and capital investments this year puts us well on that path and does a small part to help the current supply situation that world is facing. Nonetheless, we will monitor commodity prices to ensure our increased capital spending allows us to remain cashflow positive, reduce our debt and improve our leverage ratio. In summary, we're excited about the future and Ring Energy is well positioned for continued success in 2022 and beyond. And with that, I will turn this call over to Andrea for questions. Andrea?

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Jeffrey Campbell of Alliance Global Partners. Please go ahead.

Good morning, Paul. And congratulations on staying the course on spending in debt reduction in 2021. I'll limit myself to three questions this morning. First, I wanted to ask if any third-party facilities downtime has been included in the 2022 guidance? And if so, is there any reasonable chance that this could improve over the course of the year?

Actually it does. Things have improved as we've gone through 2022. There still is uncertainty associated with the third-party facilities. One of the big issues that we will face as we march through our capital drilling program this year is the takeaway capacity for that gas production. As you know, we're growing in both the Central Basin Platform and the Northwest Shelf. Both of those areas have their own and unique issues associated with gas takeaway. And so it could be an issue. But our forecasts right now have incorporated our best estimate and associated with that restriction.

Okay, great. I appreciate that color. Second question, looking out into 2023. Do expect your bankers to continue to impose hedging requirements? Or maybe put another way, is there a debt level at which those requirements might be reduced or eliminated completely? And here I'm kind of thinking of the two times leverage goal that you've set for year end 2022?

Yes, that's a good question. And our credit facility, the way it is currently written, only requires us to maintain the hedges that we had in place from last year into 2022. There are no requirements going into 2023. And so the hedging activity that we will pursue will be one of what we've described in the past, as an opportunistic hedging strategy. We believe it's the right thing to do to protect our cash flows, and also put in the necessary protection so that we can, pay down debt as planned. And but beyond those requirements, we believe our shareholders want to benefit from the marketplace or what they believe that the marketplace has to offer. And so we want our shareholders to participate in the marketplace. And so, but we will have a responsible hedging strategy that that does take advantage of the opportunities in marketplace provides. That answer your question?

It does. And it's great to hear that you're going to have complete freedom to do what you want to do in 2023.

Complete freedom, I don't know about complete freedom. But yes, I'll go with your mad.

How about expanded freedom?

Expanded freedom, there you go.

Finally, your Delaware basin update noted that the proceeds from the sale when consummated, would go to further debt reduction, I thought this was interesting since in the past, there's usually been some mention of potential M&A as another variable. So I just wondered if you could expand on this a little bit.

There you go. By taking the proceeds from the sale of our Delaware assets and applying that to that debt that also increased our liquidity. It also increases our ability to take down another opportunity using cash. And so we are every bit as much focused on acquisitions and AMD, as we have said in the past, the volatility that we're all experiencing right now in the marketplace has created kind of -- I would just call it confusion, a lot of noise out there. So people don't know, really what price tag to use. And so it's not that there is increased gap between expected buyers and sellers. But it has created a lot of confusion because people are still questioning. Okay, so what price tag do I want to use? As we saw just this morning, we saw another uptick in prices followed behind sharp reductions in oil prices as a result of the worlds interpretation, what's going on over there -- between Russia and Ukraine. So but yes, we're still focused on acquisitions and divestitures and will continue to be so. And our plan for the Delaware assets, once those are sold that we will apply that to debt reduction.

Okay, great. I appreciate the expansion. And again, congratulations on the fourth quarter, and we look forward to a good 2022.

Thank you, Jeff. Have a great day.

The next question comes from Noel Parks of Tuohy Brothers. Please go ahead.

Hi, good morning.

Good morning, Noel. How are you?

Good. Thanks. Just a couple of things. The hedge you did layer in the 1000 barrels a day at just shy of 85? I was just curious how long had you been sort of monitoring the market and the strip before you decided to pull the trigger on that?

Well, we watch it pretty much every day. We get a report in every morning that kind of summarizes our mark-to-market differences in our head position in the current marketplace. And we look at the statistics. Like we've said in the past, we are pursuing when we want to continue to pursue an opportunity to strategy that puts in the right defenses to protect our capital spending program and our debt repayment plans. But this last year, or earlier this year, I should say when the opportunity came along, we were at -- we were looking at some historical records associated with what was out there in the marketplace, we decided that with an additional contract of 1000 barrels a day, that went a long way to ensuring our capital spending and our debt repayment plans and so we took it.

Great thanks. And with clock inflation being such a hot topic these days, only if you could talk about the arrangement you have for your rig and whether you have it on under contract, or just paying a spot rate for it, and just what your outlook is there.

Yes. We have a five well rolling contract with a growing contractor right now. And that contract and allows both parties to make adjustments as you roll along throughout the year to take into account inflationary measures. And so due to the volatility that we've experienced, we've seen spurts of really high rates of inflation, and then things level off. And I think it's all associated with the supply chain, what's going on around the world. And I'll just take pipe for example, if you look at our pipe prices today versus what we're paying in the fourth quarter of 2020, we've more than double those costs now. And so we've seen increases now across the board, whereas initially they were still prices. But now we've seen price increases for all the goods and services that we use, whether it's cementing or fracking, or just whatever it is. And so we'll see how things go. It is my prediction, though, that the supply chain will start to level out as we go throughout the year.

Great. Anything in particular that steers you in that direction?

Well, I mean, the world's always been good to respond to changing situations and so yes, we've seen some volatility. We've seen some pretty significant inflation in various different areas. And the manufacturing process whenever prices get really, really high for any one product somebody else decides they want to get into the business and so just the supply and demand situation has proven that, our capitalist society has always been able to respond to the needs of the economy, and I'm confident that American people will follow through again.

Great, thanks a lot.

Thank you, Noel.

[Operator Instructions] And our next question will come from Neal Dingmann of Truist. Please go ahead.

Good morning all. Paul, thanks for the details. All my question to you guys, kind of good job you and Travis were laying out what you're seeing for this quarter next quarter on production. I guess I don't want to get ahead of myself. But if prices and all start to come down, as you said for some of the OFS, would you all even consider? I mean, I look at and say, I love the quick payback to high returns you all have? Would you all consider even adding more activity, either through workovers or another rig if, again, overall, macro prices remain high and service costs even go lower?

Yes, and you bring up a really interesting point Neal. Right now, all the things we've addressed basically would suggest that we're going to be responsible with respect to our capital spending plan, so we're going to stay within cashflow. So if you take your scenario, you just laid out and cashflow has actually increased even considerably more. Yes, that's going to allow us to pay down debt faster. But it's also going to give us the opportunity to accelerate our capital spending programs. Now, there are some realistic limitations to our capital spending programs. Let's talk about some of those. One of those I mentioned a little bit earlier, our gas takeaway in both the Central Basin Platform and the Northwest Shelf, although they are for different reasons, there are limitations to how much gas we can take away. And so we get ahead of ourselves and drill really fast as we pick up a second rig, we may outstrip the ability for gas takeaway. The other issue that we have, it's not as acute would be our water disposal. Right now we have the water disposal facilities necessary for the wells we plan to drill, but it's going to be close to and so the investment necessary to increase our disposable capacity is not that much. So we could probably take care of that. But the biggest limitation probably would be gas takeaway, and that would limit how much growth we could actually have at least in the areas that we're currently focused.

Now, that totally makes sense. And then what are you seeing fall as far as -- are the little you got either higher working interest or just to get I'm not talking particularly on big deals, but you guys always seem to be sort of scouring? And I'm just wondering what the competition is like, either for bolt-ons, either on the platform, the shelf, are there opportunities? How does it look today versus let's say, a year ago, and is that bid ask spread pretty wide or not necessarily in your area because maybe less competition?

Yes, we have. Although we have participated in some of the marketed deals that other people have bid on, and were successful, we've participated, we have been unsuccessful, and one or two of the attempts that we thought would be great bolt-on to the company. But our preferred method is to go to the principles of that own and operate certain assets and try to negotiate something off the market. And that's because we're persnickety might be the right word, we don't want to dilute the various metrics that have led to our what we consider superior returns. So we have really low shallow declines. We have high margins, in our operating -- operated wells, the undeveloped opportunities have really superior economics. And so what we're trying to do is, we're trying to be disciplined, we're trying to acquire assets that meet that criteria. Those are also the superior assets out there in the marketplace that everybody wants, right. So the competition is pretty stiff. And so the thing that has really kept us from really being successful up to now I think, is really our balance sheet. We have tried to use a combination of cash and equity. But as you know, our strategy has been all along, we haven't been secretive about this at all. We have been willing to use equity and cash in a transaction. But the goal was always to take care of our existing shareholders. By making sure it's accretive on the tail end of that transaction, it would be accretive on whatever metric you want to use, whether it's cash flow per share or reserves per share production per share. But at the same time, it could also be a leverage ratio, reducing activity, strengthen the balance sheet, strengthening the credit facility. That's not been an easy thing to do. But we are very, very active every single day we're working on those opportunities. We keep making phone calls, others have called us and so we're looking for partners that want to help us do that. Because anybody who takes our stock, of course, would be a partner, right? And so it is something that we work on every single day. Now getting back to your point about bid ask and sell spreads. Yes, there's always out there, these volatile times make it probably a little more challenging. But there are ways to overcome that. And so you can put in contingent payments associated with, okay, let's say these oil prices stay high for a longer period of time than what the four strip is showing, well, then you put some kind of a contingent payment out there if oil prices are higher, or you come up with other creative ways to bring a deal down. And also reduce the anxiety associated with the differences between what the buyers and the sellers are trying to achieve.

No, that makes sense. And then just lastly, you touched on this a little bit. Well, you guys talked about a lot, I don't know if you are one of the guys want to get operationally but you guys continue to hit some of these record wells? Is it just sort of what you're continuing to learn? Is that through more efficiencies, I mean, what's driving that? Again, I don't know that you guys have even given yourself enough credit. But I'd love to hear more on what's pushing these results.

Yes, all the credit goes to my Geoscience and engineering teams. These guys, they strive for excellence every day. We keep our ear to the ground. And we continue to walk in circles of others in the industry that are out there on the leading edge. We don't want to be on the bleeding edge. But by staying close to those communities, keeping close contact with those that are developing new technologies and learning what of those technologies would apply to our specific rock, because every rock is different. And so, but I give all the credit to our operating team, and also our completions and drilling teams, we're staying up on all the technologies. Our geoscience guys have really focused on the geology and petrophysics, nailing the landing zones. And so if you look at what we did in the Central Basin Platform, yes, our teams, our technical team just nailed it. And so I can't tell you how happy I am with respect to that. Because, for a time period, we were concentrating our investments up there in the Northwest Shelf. But we had so much legacy acreage, and so many undrilled opportunities in the Central Basin Platform is great now that we've been able to focus on the technology is now it's really unlock the value of that. And those economics, although they used to be considered inferior, I mean, I'm not so sure that in theory, they're really, really strong economics. And so the difference between the breakeven cost from one area to the other is arguably within our margin of error to calculate, from the variability between wells. And so yes, we're talking about $25 breakeven cost and then on to our shelf, but Central Basin Platform is probably in the vicinity of 30 or so.

Thanks so much, guys.

You're welcome.

[Operator Instructions] And our next question will come from Dennis Richter a Private Investor. Please go ahead.

Good morning, Paul. Congratulations to a great 2021.

Hey, thank you. Thank you.

So Paul actually, you just answered one of my questions that it was regarding the Central Basin Platform, you're using wells and how they compare to the Northwest Shelf? And can you give a little bit more color in terms of how much running room you in terms of acreage that is for how many drilling locations you possibly could have there with those kind of economics?

Well, Dennis, I got to tell you, I don't have the number of undeveloped locations in our newly completed reserve report for those areas. But I do know that right now, our plans for 2022 include nine wells in the Central Basin Platform, four of those have already been drilled. When looking at the economics, again, and the performance of the three wells we drilled in 2021 They look really, really strong. Now although the rest right now is slated for the Northwest Shelf. Our guidance range also allows for probably another eight or so wells where we haven't completed the work and so will we go back down to the Central Basin Platform, we do have more locations down there to drill and of course we also have a really handsome inventory of undrilled location in Northwest Shelf still as well. And so but for this year, I know for sure we've got less, energy prices, fall below levels that we're currently anticipating. Right now we've got nine well slated for the Central Basin Platform and the remaining 16 or so in the Northwest Shelf.

Okay. And just one other question. And this is a little bit in terms of the CO, kind of secondary recovery or waterflood potential, something that this is your neighbor in the Northwest Shelf, Riley, exploration Permian, they're doing a pilot project just wanted to see if in terms of the potential there to do something like that, if that is being looked at. And if you can shed some color on that, if they talk about being able to recover possibly three to five times the primary recovery in that acreage and right, you're having your acreage right next door. So I just wanted to see if you were willing to give some kind of perspective on that. Appreciate it.

Yes. So Dennis, just to let you know, and we know, the Riley Permian guys well, we've all traded secrets and shared our opinions. We are aware of their programs. We've actually had a conference call with those guys, where we talked about their operations, our operations, their plans for their CO2 program. As you may know, maybe you don't, but the section where they permitted their CO2 and water injection wells are in the section right next to our wells. And so yes, we've shared quite a bit of information, we wish them all the best. This goes back to developing technologies. You take on additional risks when you try these new ideas. But if the idea is, pardon me, I'm losing my throat here. But if those ideas, generate positive results, well, then that type of an opportunity can be applied to all the [San Andres] [ph] horizontal well play up there in the Yocum County area. And so not only would it benefit Riley Permian, but it would also benefit the other operators that choose to apply that technology. And so we're all standing back, cheer Riley, and we really hope that they have really strong success, because their success could also lead to success and additional recoveries for us.

That's great. Thank you. That's all for me.

Thank you, Dennis.

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

Thank you, Andrea. And all of you that have joined us on the call, thank you very much. Thank you for the questions and the interest in Ring. We're looking forward to a really strong year this year. And just we hope that you'll continue to invest and trust your investment with us, because we're working hard for you. This concludes our meeting for the day.

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