Good morning, and welcome to the Ring Energy's Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Al Petrie with Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. We'll begin our call with comments from Paul McKinney, our Chairman of the Board and CEO, who will provide an overview of key matters for the quarter. 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 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. [Operator instructions] I'd also note that, we have posted a Q3 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 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 Securities and Exchange Commission. These documents can be found in the Investors section of our website 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 can also include 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 release issued yesterday. Finally, as a reminder, this conference call is being recorded. I'd like to now turn the call over to Paul McKinney, our Chairman and CEO.

Thanks, Al. Welcome everyone, and thank you for your interest in Ring Energy. We appreciate you joining us today to discuss our recent results and outlook for the rest of the year. The third quarter mark a transformational period for our company and our shareholders as we announced and completed the acquisition of Stronghold Energy's assets. As you know, these operations are focused on the development of 37,000 net acres in the Permian Basin’ Central Basin platform where we also conduct operations. As a reminder, we closed the acquisition on August 31, so the third quarter only reflected one month of Stronghold operations. This bodes well for the fourth quarter during which we will record three full months of results with the Stronghold assets, which should set us up for a strong finish to the year. We were extremely pleased with our third quarter results, which is a direct reflection of our ability to execute on our value focused proven strategy. In addition to the acquisition of the stronghold assets, our third quarter benefited from the continued strong performance of our legacy drilling, completion, recompletion and capital workover programs, as well as our ongoing focus on operating cost control. While pricing did pull back some from the levels experienced during the second quarter, overall, they were still strong and we continued to benefit. The combined result was record quarterly production, revenue, net income, and adjusted EBITDA. We also posted another quarter of free cash generation, our 12th consecutive quarter, and were pleased to pay down $17 million of debt since we closed the acquisition on August 31. Our posted sales volumes for the quarter were 13,278 barrels of oil equivalent per day, which was 42% higher than the second quarter. As I said earlier, primarily driving the increase was the…

Thanks Paul, and good morning, everyone. We appreciate your participation on today's call and interest in Ring Energy. As in the past, my comments today will primarily focus on our financial position and sequential quarterly results. For detailed discussion concerning comparisons to last year's third quarter, please see our press release and 10-Q we filed yesterday with the SEC. As Paul discussed, our third quarter results were positively impacted by the Stronghold acquisition which closed on August 31st, as well as the continued strong performance of our targeted 2022 development campaign and ongoing efforts to drive further operational efficiencies in the business. With that backdrop, during the third quarter of 2022 we sold 933,000 barrels of oil, 953,000 Mcf natural gas, and 130,000 barrels of NGLs for a total of 1.2 million BOE. This is compared to sales of 729,000 barrels of oil and 723,000 Mcf of natural gas or total of 850,000 BOEs for the second quarter of 2022. As a result of the Stronghold transaction, beginning July 1st, 2022, we began reporting revenues on a 3 stream basis, separately reporting crude oil, natural gas, and NGL sales. For periods prior to July 1st, 2022, sales and reserve volumes, prices and revenues for NGLs were included in natural gas. Third quarter realized pricing was $92.64 per barrel of crude oil and $4.89 per Mcf of natural gas and $25.68 per barrel of NGLs, or $77.28 per BOE. During the second quarter, we had realized pricing of $109.24 per barrel and $7.29 per Mcf or $99.95 per BOE. Our third quarter average oil price differential from NYMEX WTI was a positive $2.28 per barrel versus a positive $0.81 per barrel for the second quarter of 2022. This difference is mostly attributed to the Argus WTI, WTS, which averaged a positive…

Thank you, Travis. As I said at the beginning of the call, the third quarter represents the beginning of a truly transformational period for our company and our shareholders. As we are now in a much stronger financial position with the flexibility to react to changes in the marketplace and take advantage of opportunities that may appear. During 2023, we plan to target our capital spending program on maintaining or slightly growing our production and use our excess cash from operations to reduce debt, because we believe our absolute debt levels justify our continuing focus in this regard. If we enjoy sustained higher oil and natural gas prices than what we are enjoying today, the company will have a flexibility to pursue the available opportunities that maximize long-term shareholder value, whether that be accelerating debt reduction, expanding our development program to organically grow production, further pursue targeted acquisitions or return capital to the shareholders. In closing, I want to thank our workforce for their tireless efforts and dedication. As important though, I also want to thank our shareholders for their continued support as we further position Ring for long term success and value creation. With that, I will turn the call back to the operator, and we look forward to answering your questions. Operator?

[Operator Instructions] -- today will be from Jeffrey Campbell from Alliance Global Partners.

Congratulations on the strong quarter. Paul, I first wanted to ask about the new drilling production data on Slide 18 with the Stronghold new drilling data. Looks like the expectation is somewhat more positive for new drilling in target area one versus target area two, I was wondering if you could compare these two areas based on their relative size using whatever measurement you want to? And can you indicate whether target area one will be drilled preferentially over target area two in 2023?

Yes. I'm going to give a first stab to that, but then I'll turn it over to some of my guys to give more color. And so we've got several things that we'll be juggling, and we've talked about this in the past. When we made allocation decisions on our legacy acreage, we moved the rig and allowed our production to maximize the utility of the existing infrastructure. And so we would drill until we filled, for example, the saltwater disposal systems in the Northwest Shelf and we'd move down to the Central Basin Platform drill wells until we fill that up. And by that time, we'd go back up and the wells will declined and that's where we had more rooms where we could drill again in the North. The same thing will happen in our southern acreage as well. We have got a couple of areas that have very strong economics with respect to the new wells that we plan to drill. We have infrastructure limitations, whether it be saltwater disposal or electricity. And so you'll find that we will be moving our rigs back and forth basically to minimize the non -- what we call non-performing capital. Like, we don't want to drill so much it forces us to drill additional saltwater disposal wells for example. And so that's just kind of how the program will go forward. It's all a function of maximizing the value of the existing infrastructure that we have. But again, we will be targeting the highest rates of returns. And so the next well drilled typically will always have will be at the top of the next best things list, if you want to call it that. And so that's my take on it. I would love to turn this over to Marinos and have him explain a little bit more.

Paul, you hit it perfectly. Yes, it's all about the infrastructure in target area one versus two in the southern assets, the vertical assets. We have a couple of bottlenecks that we are working through right now. And once we get those things resolved, we will be able to pivot at a moment's notice so that we don't have to spend the non-performing capital like Paul mentioned.

That was really excellent color. I appreciate that. We have had a period of very supportive commodity prices for some time, yet the shallow Delaware Basin assets remain unsold. I was just wondering if the completion improvements that you have had in your horizontal programs or maybe lessons that you will learn or still be learned in the Stronghold completions might make it worth giving the Delaware Basin assets another look at some point.

I mean, that's a good question as well. And this isn't the first time we have heard similar type questions. We do have undeveloped opportunities out there in the Delaware Basin, and they are economic at today's prices. But when it -- you look at it from my perspective, my responsibility to allocate capital where I can get the best returns from my shareholders. And right now, those investment opportunities in the Delaware Basin just don't stack up to any of the opportunities that I have in Northwest Shelf, either in our northern or southern areas of the Central Basin Platform. And so it's real challenging for me to allocate capital there. Again, as we have mentioned in the past, this is truly a non core area for us. And so it's much shallower production, much lower cost, the returns are still economic, but they just don't stack up. And so that's really in the nutshell, Jeff? We just can't find ourselves allocating capital to something where -- when we have a better place to invest.

Is there anything further left to do to try to affect the sale of the assets since they don't compete in your portfolio?

Yes, actually there are. And we continue to work with parties that have expressed interest, and we believe they will be successful, but whether we are successful with these ongoing discussions and expressions of interest if all that drives up, we might find ourselves somewhat in auction. There is no telling what we'll do. But again, we are not -- it's not an area of focus us and I don't think it will be an area of focus for us because we have our site set elsewhere. And I think Alex wants to say a couple of things. You want to jump in there, Alex?

Jeff, this is Alex. I just wanted to kind of echo Paul's comments here on the Delaware, and you had a very valid question. Yes, we probably could apply some of the lessons learned from our CBP and Northwest Shelf assets to that asset, but one big thing that distinguishes that asset it is shallower and, but you're also, because of where it's located, you're competing with a bigger guy, the big voice. And so just competing for that equipment and services there versus where we are in our CBP assets in Northwest Shelf, those economics just keep proving to be superior. So that's another reason why we still just focus on our assets, on our tradition.

And the next question, the next question will be from Neal Dingmann from Truist.

Could you guys talk about the refrac opportunities and where you said in infrastructure.

I'll take it on. So, there's multiple areas on the vertical assets and some of them have some electrical constraints that we're navigating through. Our partners there, -- which provides the electricity, is going through some changes to the transmission lines and the substations. And they're anticipating for all those bottlenecks to go away by the middle of 2023. So that'll open up things that we can do. We also are looking at freshwater supply on one of our areas, the area -- target area, one that has the better production results. Once we get those, we're navigating through getting those resolved right now, once we get those resolved that'll allow us to maybe become more active in that area compared to the other area. Basically what we've provided for guidance is given the information that we have right now as we update and become more efficient in certain things, then we'll revise and improve on what we've provided so far. And Alex has something to add to.

Yeah, Neil, I'd like to add one more thing. And so as you can see, we have a variety of investment types and obviously we have the drilling both in Northwest Shelf and CBP, both horizontal and in vertical. But these re completions to Marina's point, obviously there's certain things that the ops team is working through, but you're going to see that in our program, we're able to sprinkle a few of these projects every month here and there, depending on where that is. And so, and we've added a new slide on page 18 where it gives you a feel for what that performance and what that investment type is like.

Now, getting back to your question though, Neil, with respect to re racks, there is an opportunity for refracs out here again, but we have not only infrastructure limitations, fresh water limitations associated with having the water so you can frac. And so we will be testing and trying some ideas out there this year. And as those ideas generate results, we’ll -- I believe that we'll have more to talk about as we go into 2023 as part of what makes 2023 such an exciting year for us. And I hope we've answered your question. Did that answer your question, Neil?

And the next question will be from Jeff Robertson from Water Tower Research.

Paul, can you talk about the rates or -- the performance of the recompletions that you performed on the Stronghold assets in the quarter? And then also as you talk about allocating capital on amongst the highest return assets. Can you just provide a little bit of detail or ranking of where the Northwest Shelf and the new Stronghold assets rank in your rate return stack?

Yes, no, very good. That's a very good question, and we get it quite often. Historically, if you go back and look at our operations on the legacy assets, the Northwest Shelf tended to provide the lower breakeven cost, a higher rates of return. And so if you recall what we did last year and at the tail end of 2020 as we were evaluating our legacy acreage in the Central Basin platform, we decided to try some new ideas. Our geologists felt like we could prove on our landing zones. Our engineers felt like they could apply some changes to their completion methods. And that demonstrated really positive results. Matter of fact, we've got one or two wells that we drilled last year and this year that still rank right up there with the Northwest Shelf wells. And so the rates of return and the low break even costs are very similar between the two areas. And so the rates of return in the southern part that we just acquired through Stronghold, they too have very competitive rates of return. But the added benefit to the ones in the South -- the costs are less and the capital efficiency improves just simply because I think, I've mentioned this in the past. By the time you get your oil production going into the tanks, you're just now starting to receive the invoices from the service companies that provided the service to help us drill and complete the wells. And so the turnaround time and the rates return tend to be superior just simply because you get revenue so much quicker. And so all of these areas are very, very competitive and it turns out that when you look at them, you can find opportunities in the south that rival are equal, the ones that we have in the Northwest Shelf and or the northern part of the Central Basin platform. And so we find ourselves, and that's what you'll see going on next year, we will have a rig up in the northern areas in Northwest Shelf and the northern part of the Central Basin platform where we'll bounce back and forth. And then, but we'll also have a rig running in the southern part of the Central Basin platform, and we'll be sprinkling demo in based on our perception of those returns. But to get back to your question, all of these are very competitive, all of these opportunities. And so they're very similar rates of return, and they're all within the -- our ability to measure them pre-drill.

And does some of the allocation come down to how quickly you can cycle your capital, which it sounds like you -- there's a shorter capital cycle, so maybe a faster payback on some of the Southern CBP assets?

Absolutely. And so that cycle time is very, very important. And it goes -- and it leads to that rate of return, right? The sooner you can start paying yourself for your investment that just improves the rate of return. However, it's also hard to get away from the large increases in net present value created by drilling the horizontal wells in Northwest Shelf. And so we have the benefit of a more diverse investment portfolio, all of which, the entire portfolio have low breakeven costs and high rates of return. And so by mixing that up, it's going to allow us to have a much more steady production profile as we go forward for the capital investments that we make. So I hope that answered your question, Jeff.

Jeff, let me take that first part of that question, you asked about the three recomplete since we took over operations -- September 1 on the Stronghold acquisition. Again, I'll reference Slide 8. Slide 8 gives you not only historical re-completion well performance of a lot of the recent fleets that Stronghold team did prior to us doing the acquisition. Those wells are in gray. That's the chart on the right hand side of that slide on the top. But the blue is the average of every recomplete done in 2022, which includes those three wells in there.

18.

Slide 18, I’m sorry.

Yeah, you said Slide 8.

18.

Thank you. I didn't see any well data on Slide 8. So somebody backed to you --

Exactly. He had a word on that as well.

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

Good morning. Just a couple of things. Just as you are a few months in with the Stronghold asset, I wonder if you could just talk a bit about -- well, you already mentioned electricity being an issue in the region. But just in terms of how you found the properties, what was the sort of maintenance status of legacy few wells? And also plant management, permitting things, like that, was it all pretty tight or have you had some cleanup to do to sort of align it with your own standards and practices?

Yes, that's a really good question. And it kind of goes back to part of the reason why we targeted these assets. The assets have been very well taken care of. I'd be proud for a Railroad Commissioner to come out to the locations that Stronghold was managing. They did a very good job. They are very conscientious, associated with keeping their locations clean and well-constructed. They are all neat and tidy. With respect to any acquisition, you are always going to find some surprises. But the good thing about the surprise that we have encountered up to now, they are typical in terms of the type of surprise you get with an acquisition. And so far, although we're not completely done integrating all of our records and all of our accounting and all that in, we have taken over operations and everything has gone very smoothly. And so we will finish the integration of these assets in this quarter. And I think by mid quarter before we go into the holidays, these assets will be just another set of assets that we are managing under our existing management team. And so we are very happy with the way that's going.

Okay, great. And could you talk about, given the rig cost environment, maybe using sort of I want to say, worst case, but just assumptions of maybe water handling being on the more expensive side, materials being on the more expensive side. Where roughly are we talking about for a breakeven for the assets? I think the last time maybe we talked about it a lot. Services weren't quite as tight. So just with that inflation component, I mean, just roughly ballpark, do you have a good breakeven or maybe also a good economic price?

Yes. And so that's a real complex question actually when you start drilling down. And so when you look at our existing operations, the breakeven costs there are basically our margins. And so, we have very high margins on both the properties in the south and all of our legacy acreage. And so when you talk about what our breakeven costs for future investments, we have enjoyed perhaps and I'm not going to say they're the lowest, but we've enjoyed some of the lowest break even costs in the industry. I don't care where you look. And it's a -- it is a nature of the type of investments we've been pursuing. Again, we've mentioned this in the past, we believe that there's -- our strategy of pursuing conventional assets and applying the technology to develop for unconventional resources has proven to be a winning strategy because, the conventional rod tends to deliver more production with a much shallower decline, and they have much longer lives. And so just, there's a niche there. The economics are very, very superior. And so, we have the break even costs in the southern part of the CBP, like I said, are just as competitive as many in the Northern CBP and in the Northwest Shelf. And so we are enjoying right now a portfolio that's very well balanced, but very diverse. Everything from the recompletions, because those re-completions we're talking less than a million dollars. And we have drilling opportunities now that are in the $1.3 million to $1.5 million range. We have wells that we can drill that are in the $2.5 million and $3 million range and wells that we can drill for $2.8 million to $3.4 million range, all of which have slightly different profiles, all of which have superior rates of return and very, very low break even costs. And so what that does, that diversity helps with our balance sheet helps generate a more stable return, a more predictable return. And so, I think I've answered your question. Is there anything else you have on that? I'm going to allow Marino to jump in here.

So if I can jump in and talk about the services. I, I didn't mean to alarm anyone on the electricity in the water. It's just that it's not easy, but we are not facing the challenges that others face in shell plays or whatnot with our assets. We feel like we can solve these problems, but until we do, we're not going to bank on it or plan on it. We're planning everything based on the -- what we have available right now. And as we solve the problems that we are going to solve, we feel comfortable that that's going to happen. Once that happens, we'll pivot and maybe do a little more activity in the higher, more productive types of new drills or whatnot. So, it's not something that we can't solve or are worried about, it's just something we have to go through and plan. We're firm believers of planning our work, and that's what we're going to do.

Well, I guess just for perspective, I mean, and this is way before we've seen our recent commodity price boom certainly during the lean times. I sort of remember that realized oil in the thirties, so call that WTI upper thirties was actually economic doable to move ahead and drill. So I'm thinking with inflation and everything, I mean, if say we're looking at a $45 WTI, does that still work for all the properties, some of the properties?

Again, you're bringing up some very good points. If you look back at what our -- the environment was during COVID, and we shared this with our shareholders. We needed $45 and even though our breakeven costs were $25, you got to remember an organization like this, we've got G&A, we've got other costs that we got to carry. So it's more than just the cost of drilling the wells that influence our decision. So if you look at today's environment post the inflation that we've seen, and whether you believe we are going to have more inflation, yes, the costs have come up. And so would we continue to pursue activity at $45? We probably can. I haven't gone back to look at that calculation, but if you look at it from a standpoint of this environment that we're -- are today, because we're in a much higher cost environment than we were during COVID. Has that gone up to $50? I bet you $50 would be a good -- and I'm shooting from the hip here, but yes, as long as we were getting $50 a barrel, you could still maintain some activity because the capital investments for sure pay out at that. And at that price, we also could also carry the cost of our G&A and our office and rent and everything else that we have. And so back in COVID it was $45. Is it $50 today or is it $51 or is it 49? It's kind of hard to say. But yes, if you look at the economics of the investment that we are making and the cost that we carry as a overall organization, I still believe that Ring enjoys a very stable position, very favorable position compared to many others in this industry right now.

Ladies and gentlemen, at this time I'm showing no further questions, so I'd like to turn the conference back over to Paul McKinney for any closing remarks.

Yes. Thank you, Chad. Again, I'd like to thank all of you that joined us today for your time and interest and all of our investors for your trust and investment. We are truly excited about what the rest of this year and 2023 will bring. We believe that 2023 will bring an exciting year for Ring and our stockholders. And so we look forward to the next time we get to talk about them. In the meantime, everybody take care. Thank you again for your interest in Ring.

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