Good morning, and welcome to the Ring Energy Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note today's event is being recorded. I would now turn the call over to Al Petrie, Investor Relations for Ring Energy.

Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy. We'll begin our call with comments from Paul McKinney, our Chairman of the Board and CEO, who will provide an overview of key matters for the second quarter and subsequent events. We will then turn the call over to Travis Thomas, Ring's EVP and 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. 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 a second quarter 2023 earnings 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, 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, www.ringenergy.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may differ materially. This conference call may 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 yesterday's earnings release. Finally, as a reminder, this conference is being recorded. So now, let me 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. Our second quarter 2023 was highlighted by strong cash flow generation despite lower commodity prices and lower production levels when compared to the first quarter. Through our combination of lower capital spending, reduced LOE, lower cash G&A expense, proceeds from the sale of our non-core Delaware Basin assets, and proceeds from the early exercise of the substantial remainder of our outstanding warrants; we paid down $25 million in borrowings over the credit -- under our credit facility. There is a lot to unpack here, so let's get into the details. During the second quarter, we sold 17,271 barrels of oil equivalent per day, which fell short of our earlier expectations, primarily due to two things. The previously announced sale of our non-core Delaware Basin assets and the deferral of certain drilling and workover projects due to lower commodity prices and the anticipated funding and incremental benefits of the Founders acquisition. However, when looking at year-end or year-over-year metrics, we grew sales volumes 85% over the second quarter of last year. Impacting this year's second quarter was our ongoing efforts to drive further cost efficiencies in the business. This included posting lower lease operating expense of $10.14 per Boe, which was 9% lower than the mid-point of our guidance and 4% lower than the first quarter. We also saw a reduction in sequential quarterly G&A expense. Excluding share-based compensation and transaction costs for the sale of our Delaware Basin assets, we recorded second quarter G&A expense of $2.75 per Boe, which was a 13% decrease from the first quarter and a 41% decrease from second quarter of last year. Travis will share more details in this regard in his comments. During the second…

Thanks, Paul, and good morning, everyone. To sum up the second quarter, there was a pullback in oil and gas prices, so we adjusted our CapEx program accordingly. This resulted in lower production, but also reduced LOE combined with lower G&A; this helped preserve our cash flow from operations. Further supported by the net proceeds from the early warrant exercise and sale of our Delaware Basin assets, we were able to pay down $25 million on our credit facility to prepare for the pending Founders Acquisition. Looking at the second quarter 2023 in more detail, we sold approximately 1.1 million barrels of oil, 1.6 Bcf of natural gas, and 233,000 barrels of NGLs for a total of 1.6 million Boe or 17,271 Boe per day. Realized pricing was $72.30 per barrel of crude oil, a negative $0.71 per Mcf of natural gas and $10.35 per barrel of NGLs, or $50.49 per Boe. This was 6% lower than the first quarter of 2023 of $53.50 per Boe. Driving the negative realized price of natural gas for the second quarter was processing costs that exceeded Henry Hub pricing less basis differentials. Please see the 10-Q for more details. Our second quarter average oil price differential from NYMEX WTI futures pricing was a negative $1.77 per barrel versus a negative $2.67 per barrel for the first quarter. This was due to the Argus WTI WTS, that increased $0.84 per barrel and the Argus CMA role that increased $0.23 per barrel on average from the first quarter. Our average natural gas price differential from NYMEX futures pricing for the second quarter was a negative $3.07 per Mcf compared to a negative $2.08 per Mcf for the first quarter. Our realized NGL price for the second quarter averaged 13% of WTI compared to 19% for…

Thank you, Travis. Over the past year, we have made substantial progress increasing our size and scale, improving our per share metrics, and strengthening our financial position. As we look to the near-term, a key priority of closing the pending transaction with Founders Oil & Gas and integrating those assets into our operations. As I emphasized earlier, it is immediately accretive to Ring stockholders on multiple metrics. It strengthens our balance sheet, accelerates our ability to pay down debt, and further increases our inventory of highly economic drilling locations, and it strategically expands our core operating area, allowing us to capture those operating and G&A cost synergies I talked about before. In short, we view this transaction as another step to position the company to deliver on our long-term goals for our stockholders. With respect to the rest of the year, our focus remains on efficient execution of our 2023 capital spending program, continuing our relentless focus on reducing operating costs and maximizing our free cash flow generation to pay down debt. As in the past, we'll remain disciplined by prioritizing our capital spending on high rate return drilling and recompletion projects, we believe targeting excess free cash flow to pay down debt will drive long-term value for our stockholders. The sale of our non-core Delaware Basin assets and accelerated exercise of our outstanding warrants are additional examples that support our strategy focusing on our core asset positions in simplifying our capital structure. These initiatives have allowed us to accelerate debt repayment. In short, as I've consistently said in the past, we believe staying the course with our sense of urgency, our resolve and our commitment to our value-focused proven strategy, better prepare as a company to manage the risks and uncertainties associated with the industry and should generate sustainable and competitive returns for our stockholders. And with that, we will turn this call over to the operator for questions. Operator?

Thank you. We'll now begin the question-and-answer session. [Operator Instructions]. Today's first question comes from Neal Dingmann with Truist. Please go ahead.

Good morning, guys. Thanks for the time. Paul, might be a little premature, but just on Founders, I'm curious to know how you and the team are looking at sort of well economics there versus legacy acreage now, and maybe just how quickly you plan on, I know like they get the car before the horse here, but how quickly you might want to get after that.

Yes. Good question, and good morning, Neal. The economics, let's just talk about the assets for a little bit. The Founders assets and the Founders team have not completed really their 40 acre down spacing. If you go back and compare, for example to some of the Stronghold assets that we acquired last year, this area is considered less mature in my opinion. So you have not only the 40 acre down spacing program out there to complete, but you also have the 20 acre down spacing. So economically these are very competitive to anything we really have in our portfolio. These drilling opportunities have the short cycle times, so you get the return on your investment very quickly. And so the best way to answer your question is that that I think that they are very, very competitive in our portfolio and equally as economic as many of the best investment opportunities we have. And so how quickly will we get onto these projects? We have not planned at this point to drill wells this year. Now that's not to say that we won't but the first thing we're going to do -- I'm going to turn this question over to Marinos to have him flush out a little bit more detail. But to sum it up, we've identified opportunities out there to change some of the operations, especially on how the salt water systems -- disposal systems are managed. We believe we can reduce operating costs and once we get our arms around that, then we'll move forward with a capital spending program drilling wells. And Marinos, is there more you want to share there?

No, sir. That was -- that's exactly right. We see an opportunity to optimize the current production and in terms of lowering operating costs as much as we can and increasing production to kind of optimize that side of it before get our arms around -- wrapped around it before we actually start drilling new wells. And then it also adds flexibility in terms of being able to pivot from one area to the next with infrastructure restraints that we always talk about and all that. So we're really excited about the assets.

One more thing, Neal,

Oh, go ahead. Sorry.

Yes, sorry. Good morning, Neal. This is Alex. On Page 37 of our new earnings deck, you can actually see what Paul's talking about on how these investments compare to some of our other CBP vertical investments. And they're pretty competitive. They're a little bit more extensive; however, they're nine -- over 90% oil. So that's what really makes it a compelling investment. So once we get the operations handled, you'll see us deploy some capital here and it'll be a nice combination to drill some horizontal wells, some other vertical recomplete, as well as drill disc vertically.

So [indiscernible] so that was where I was going with that next question, either for the new acreage or your existing, maybe just talk, you guys have talked about on legacy acreage, about the refrac and other rework opportunities. I'm just wondering again, not trying to get pretty much on counter, but maybe just talk about Marinos, Alex, Paul, you guys, the opportunities on the -- on potentially on the new or on existing or rework and refrac type opportunities. Thank you.

Okay. I'll take that initially then we'll all have our own points to make. Part of what we've tried to do through our acquisition efforts is to not only identify assets that fit into our core operating areas but we're specifically focused on identifying acquisition opportunities that bring with it undeveloped opportunities that have very similar or maybe even superior economics, okay. So we're very choosy in terms of the assets that we're present. It's not to say that I wouldn't buy a PDP production but I'd have to get it at a very compelling value to do that. And so right now we're focused on acquiring assets that have very competitive economics. And so right now, the way the company is situated with the legacy assets and the Stronghold assets, and then also the way we'll be situated once we complete this transaction, that we have investment opportunities that are very competitive in all of these areas. And so it gives us a lot of investment flexibility. We can move capital from one project to the next depending on system constraints or whatever it might be. And so that's my response to your question, and I think that Alex and Marinos both have some points that they would like to make, so I'll just turn it over to them.

Yes, Neal. So this is Alex again. In regards to your question as far as like, how are we going to handle or do both of these assets bring like cap workovers or some kind of recomplete? Yes, I think part of our portfolio moving forward as we continuously do quarter-to-quarter, we will always do more recomplete and/or what we call blocking tackling cap workover small asset jobs, whatever it just that we -- that it takes to maintain our production base. And so what we always call blocking and tackling. So Marinos, anything you'd like to add?

No, you guys -- no.

Did that answer your question, Neal?

It did. Fantastic. Thanks, guys.

You're welcome.

Thank you. [Operator Instructions]. Today's next question comes from John White with Roth Capital. Please go ahead.

Good morning, gentlemen. Thanks for taking my --

Good morning, John.

Hey, good morning. Following-up on the Founders transaction is there a date set for closing?

We have targeted August 15 based on the progress we've made in terms of inspecting the assets and looking for environmental issues all the inspections associated with verifying title, all that, everything appears to be going along very well. And so I can't guarantee that we'll close on August 15, but we're still targeting August 15.

Thanks very much and good luck with that. And on the [Technical Difficulty] asset, would your first activity be recompletions or vertical wells or horizontal wells?

The first thing we're going to do is really get into the operations to understand how their systems work. We believe we have ideas on how to significantly change the operating -- the operations there and reduce costs and improve efficiencies. And so that's what we're going to spend the first amount of time doing. So that's going to be very little capital, but at once we get our arms around that, I think the next thing we'll be doing is drilling wells. We've got quite a few -- yes, so we'll start on a program of 40 acre down spacings. We'll be evaluating and completing the geological work associated with taking down to the 20 acre spacing as well. But yes, you can see us targeting to drill wells just as soon as we get our arms around the operations.

And also to answer the part of the question too, these will be vertical wells. It's 1,000 foot vertical stacked or more than a 1,000 foot vertical stack pay that we'll do the multi-stage completions on, just like we do in our CBP South assets is really analogous to that. And so at this time, we're not really contemplating horizontal wells, but we are discussing it internally and that may pop up later, but for now we're looking at vertical new drills.

And so since these wells are a little deeper, so the wells will cost a little bit more, but because they have such a higher oil content in the production, the economics are very robust.

Okay. And the 40 acre down space and the 20 acre down space, do those involve different reservoirs?

No, actually they are the same.

Okay. Thanks. That'll do it for me and I'll pass it back to the operator. Thank you.

Thank you, John.

Thank you. And our next question today comes from Noel Parks with Tuohy Brothers. Please go ahead.

So and I apologize if you touched on this already, but with this rally you had in oil and assuming that at the time you were working on pulling the trigger on Founders pricing maybe was a little bit less favorable. Any sense on sort of incremental return improvement you might see if you know -- if we stay comfortably at say $75 or better for extended period?

Yes. So I mean, there's a lot that could be said there. When we first -- when we were negotiating this deal as we remember earlier this year, we were experiencing lows in the oil price below what we had originally guided to in terms of $70 to $90, what we were originally guiding in our budget. So we were below $70 for a good part of the quarter and last quarter. And so the -- and so that was about the time that we were really finalizing the negotiations on this deal. We were faced with a couple things. With the lower prices we felt compelled to pull back on some of our capital spending and then with the rebound now of course, the opportunity to grow our production cost effectively is there, but yes, but our goal is basically to maintain our production and -- but -- and to focus on paying down debt and so that's kind of where we are.

Got it. And actually, you talked about the opportunity for down spacing and the -- hadn't been as densely developed as some other properties. And I'm just wondering, do you have a sense of what the tightest is you might practically be able to do on the Founders asset?

Well, again this rock is very similar, although it's slightly deeper depths; it's very similar to what we have in our McKnight area that we picked up with a Stronghold acquisition. I think 20 acre down spacing is pretty well proven in the industry right now. Even though it's not proven on these assets, it would more be -- it'd be classified as probable in many regards. Some of them would be proven, but still I think 20 acres is probably pretty safe now. Now, if you recall in our announcement, we basically said that we have approximately 50 drilling locations, and that would be the combination of probable and so or the 40 acre and the 20 acres. It is my hope that when we're done, we'll actually have the benefit of more than 50 well locations that, but at this point right now, I'll wait until the engineers actually finish that analysis and we'll know more as we drill wells into next year and the year after.

But some of our offset operators have gone to even tighter spacing than 20 acre. They've come down to the 10 acre space that's right over in the McKnight area. And we're not planning for it right now, but there is a possibility that we may end up there in all our areas as well.

Okay. Great. And I'm just assuming that with legacy penetrations over the years there may be aren't a lot of surprises you're expecting to see geologically there, but are -- I guess I'm wondering, do you feel like Founders had brought to bear sort of everything they could with current day technology in their -- in the drilling or completion?

Yes, we do at this point. They've done an excellent job. We believe we haven't -- we need to get our arms around it and dig into the details and we feel that there may be some improvements we can do on the capital expenditures, but we're not -- we didn't plan for them or bank on them right now. But there's a lot of possibilities of improving things as we get familiar with the assets and get our arms around them.

Yes. And I'll add to that Noel, as you know, technology is the oil and gas industry's friend. And then -- and I'll just kind of draw an example to kind of give a bit of a foreshadow what might happen in the future. If you look at our Stronghold assets, we looked at the developments in those areas strictly as vertical developments. And so right now, now that we've gotten into the details of those developments, there may be opportunities to apply horizontal drilling technologies and a few things like that. And so that's the benefit when you have a mature area or an area here that has multiple stack pays over thick intervals there's just a lot of resource out there. And technology has proven to be our friend in terms of finding more and newer ways to extract and recover more oil and gas. And so we'll see how that goes, but I'm cautiously optimistic, not only with the Founders, just simply because it's a lot like what we have in the South in Crane County and I've seen how things are maturing now that we've evaluated the Stronghold assets where the team is continuously coming up with new ideas. And so don't be surprised if we try some horizontal drilling here sometime going into next year on some of these assets that we originally thought would be just verticals.

And we have the benefit of operating these properties with the long-term in mind. We're taking our time studying things; we're not rushing into making a decision that that may affect us for the long-term. We're making sure every decision is the right one, so.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Paul McKinney for closing remarks.

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

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.