Ring Energy, Inc. (REI) Q3 2026 Earnings Report, Transcript and Summary

Good morning and welcome to Ring Energy's third quarter 2026 Conference Call. Please note this event is being recorded. I will now turn the call over to Al Petrie, Investor Relations of 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 D. McKinney, our Chairman of the Board and CEO who will provide an overview of key matters for the third quarter of 26. We will then turn the call over to Sundip Singh Johl, Ring Energy's Executive Vice President Chief Financial Officer and Treasurer who will review our financial results. Paul will then return with some closing comments before we open up the call for questions. During the Q&A session, we ask you to limit your questions to 1 and a follow-up. You are welcome to reenter the queue later with additional questions. I would also note that we have posted an updated 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 1 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 conference call is being recorded. I would now like to turn the call over to Paul D. McKinney, our Chairman and CEO.

Thank you, Alexander, and good morning, everyone. As you may recall, we entered 2026 focused on positioning Ring for the next phase of the company development. Our priorities were clear. Improve the quality of the portfolio, deepen our development inventory, and build a more capital efficient and repeatable development model. The progress we made during the third quarter moved each of these priorities meaningfully forward. During the quarter, we completed approximately $30.5 million of non core asset sales representing approximately 130 BOE per day 63% of which was oil, approximately 9.8 thousand net acres. We applied $10 million of those proceeds to reducing the borrowings under our revolving credit facility and approximately $18.8 million towards acquiring leasehold interest within and offsetting our existing Central Basin Platform operating footprint. Together, these actions reflect a capital allocation framework we have executed successfully in the past and intend to keep following in the future. Selectively invest in higher return opportunities within our core operating areas monetize assets that are not expected to compete for near term capital and use a portion of the proceeds to reduce debt. At the same time, we continue to execute on our development program and delivered strong operating results. Total sales volumes averaged 20.6 thousand barrels of oil equivalent per day up 3% from the second quarter. While oil sales volumes averaged 12.8 thousand barrels of oil per day up 1% sequentially. We drilled 8 horizontal wells during the quarter and completed 7. In Crane County, we drilled 6 and completed 5 2-mile horizontal wells representing Ring's first 5 completed 2 mile and co developed laterals. We also drilled and completed 2 1.5-mile horizontal wells in Andrews County and completed the saltwater disposal well that was underway at the end of the second quarter. The development activity this quarter also reflects how Ring has evolved and how we think about investing capital today. When I became CEO, 1 of my key priorities was building a business that could consistently live within its means. That discipline helped us strengthen the balance sheet and establish the financial foundation we have today. With that foundation in place, we now have greater flexibility to invest ahead of production when we see opportunities that we believe can generate attractive returns. During the third quarter, we did just that. We invested approximately $64 million to advance our co-developed longer lateral program and supporting infrastructure. We have continued to shift capital forward this year to accelerate our transition to a more capital efficient development of our reserves and resources. As a result, our adjusted free cash flow was negative during the third quarter. This was a deliberate decision where we took advantage of continued higher commodity prices surplus proceeds from our disposition and leasing efforts to accelerate our capital spending this quarter positioning the company for significant organic growth going into 2027. But let me be clear about this: We have not lost focus on maximizing adjusted free cash flow strengthening our balance sheet, and lowering our leverage ratio. With the capital spending stepping down in the fourth quarter, we expect to return to positive free cash flow and remain positive for the full year. Ultimately, our focus is on allocating capital to opportunities where we believe we can generate the strongest risk adjusted returns improve capital efficiency and create durable per share value. The portfolio actions and development investments we made during the third quarter reflect that approach and position us well as we move into 2027. And as you can see, that strategy is beginning to show through our updated outlook. For the fourth quarter of 2026 adjusted for the asset divestitures we expect oil sales volumes to be between 12.9 thousand and 13.5 thousand barrels per day and total sales volumes of 20.4 thousand to 21.2 thousand barrels of oil equivalent per day We expect fourth quarter LOE of $9.80 to $10.30 per BOE, and capital spending of approximately $43 million to $48 million Looking further ahead to 2027, we expect oil sales volumes to be 13.2 thousand to 14.3 thousand barrels per day and total sales volumes of 21 thousand to 23 thousand barrels of oil equivalent per day. Our preliminary capital range is $135 million to $165 million including 20 to 30 new horizontal wells with laterals longer than 1.5 miles. We expect LOE of $9.70 to $10.50 per BOE. We are excited about the momentum we have built as we move into 2027. We have strengthened the portfolio expanded our undeveloped inventory, and are advancing our long-lateral, more capital-efficient program that we believe can deliver sustainable growth at attractive returns. With that, I will turn the call over to Sundip to discuss the financial results balance sheet and capital allocation in greater detail. Sundip?

Thank you, Paul. I will focus my comments on our financial performance during the quarter the progress we continue to make on the balance sheet and then I will discuss our approach to commodity price risk. With Paul having covered volumes, I will start with revenue and pricing. Revenue was $102.3 million down just 2% from the second quarter. Despite a 12% decline in our realized oil price. Importantly, our overall realized price declined by a more modest 6%. To $53.91 per BOE. As significantly improved natural gas realizations and stronger NGL pricing partially offset the impact of lower oil prices. Natural gas realizations improved meaningfully during the quarter. Our net realized natural gas price was negative $0.30 per Mc compared with negative $5.20 per Mcf in the second quarter Last quarter, we said we expected some relief as additional Permian takeaway and processing capacity came online and we began to see that benefit during the third quarter. NGL pricing also strengthened during the quarter. With our realized NGL price increasing to $10.38 per barrel from $9.96 in the second quarter. That improvement combined with better natural gas realizations helped partially offset the decline in oil pricing. Against that pricing backdrop, our financial performance strengthened during the quarter Adjusted EBITDA increased approximately 5% sequentially to $57.1 million with adjusted EBITDA margin improving to 56% from 52%. While adjusted cash flow from operations increased approximately 7% to $50.4 million That performance despite a 6% decline in our overall realized price reflects the resilience of the underlying business and continued cost discipline. Turning to cost, LOE was $10.20 per BOE, compared with $10.12 in the second quarter. Remaining relatively stable on a per unit basis. Overall, all in cash operating costs declined to $21.03 per BOE from $21.59 in the second quarter. Cash G&A increased to $3.45 per BOE from $3.19 in the second quarter primarily reflecting higher professional services and legal costs during the quarter. Our core employee costs remained relatively stable. The higher professional services costs are not indicative of an increase in our underlying run rate G&A. Interest expense also continued to move lower. Declining to $7.7 million from $8.4 million in the second quarter reflecting lower debt balances. Turning to the balance sheet, we continue to make meaningful progress during the quarter. We ended September with $350 million outstanding under our revolving credit facility. Down $10 million from the end of the second quarter and $70 million from the beginning of the year. At the same time, liquidity increased to $230 million compared with $226 million at the end of the second quarter. Our leverage ratio based on total debt to last quarter annualized adjusted EBITDA improved to approximately 1.5x from 1.7x last quarter. We remain fully compliant with all financial covenants and continue to target long term leverage of less than 1.25x. The progress we continue to make strengthening the balance sheet gives us greater flexibility in how we allocate capital across the business while maintaining financial discipline. I will finish with a few comments on hedging. Our hedge strategy is an extension of how we think about capital allocation and risk management. Our objective is not to predict commodity prices, but to provide greater certainty around the cash flows supporting our development program and balance sheet while retaining appropriate exposure to the commodity price upside. As we look to 2027, we have been particularly focused on protecting the first half of the year. When we expect our development capital to be more concentrated. With that in mind, we recently strengthened our oil hedge position by increasing the level of downside protection on a portion of our existing hedged volumes. Importantly, this was less about increasing the percentage of production we have hedged and more about improving the quality of the protection. Based on the midpoint of our full year 2027 oil sales guidance, approximately 59% of our first half 27 oil volumes are currently hedged. And the additional swaps we put in place provide greater cash flow certainty during the period when we expect our capital requirements to be highest. For additional detail on our current hedge positions, including volumes, pricing and contract structure, I would refer you to the hedging disclosure in our investor presentation. The impact becomes meaningful in a lower price environment. Based on our current outlook for the first half of 27, the additional projection is designed to help ensure we remain free cash flow positive even at $65 WTI. That gives us greater confidence in our ability to execute the development program while maintaining balance sheet discipline through a range of commodity price environments. On natural gas, we are taking a similarly disciplined approach. Given the volatility we have seen in Permian gas pricing we are managing both commodity price regional basis exposure. To provide additional protection around our expected gas cash flows. The key financial takeaway is this, The third quarter was a deliberate investment quarter. We funded that investment and high graded the portfolio while reducing debt increasing liquidity and lowering leverage. With capital stepping down in the fourth quarter, greater hedge protection around the first half of 27 and a stronger balance sheet, we believe we are well positioned to fund our 2027 development program and continue reducing debt. With that, I will turn the call back to Paul.

Thanks, Sundip. We accomplished a lot during the third quarter, but more importantly, the actions we took strengthen the foundation of this company. We improved the portfolio, expanded our undeveloped inventory, advanced our longer lateral development program and reduced debt. As we look to 2027, we believe we have the asset base financial flexibility and development opportunity to continue improving capital efficiency generate strong returns and position this company to deliver profitable organic growth. Our focus is straightforward. Allocate capital to the highest return opportunities, maintain financial discipline and continue creating durable per share value for our stockholders. We are excited about the momentum we have created this year and even more importantly, we believe we can take this company from here. With that, operator, we are ready to open the call for questions.

Yes. Thank you. We will now begin the question and answer session. You are using a speakerphone, pick up your handset before pressing the keys. And today's first question comes from Jeffrey Robertson with Water Tower Research.

Thank you. Good morning, Paul. I am looking at Slide 14 of the deck where you talk about some operational improvements For 2027, as you think about capital efficiency, can you share your perspective on the metrics with respect to how much production Ring would expect to add as you move. As you pivot to 1.5 mile horizontals or 2 mile horizontals compared to where you have been in the past couple of years?

Yes. Good morning, Jeffrey. that is a really good question. And this is what we have been trying to communicate to the investment community about the transition we are in the middle of right now. Based on the early well results that we have seen, we believe that switching to this to longer laterals, codeveloping our locations on a location where you have multiple zones that are productive, you drill all of your wells on that same location. And, and that delivers significantly more production, per dollar spent and also more barrels of reserves per dollar spent. And so right now, you know, we believe we can generate, like we have already guided, you know, 10% production growth next year. On a on a very similar and actually slightly lower capital spending program. And so that is an indication. Should be an indication to you as to what kind of capital efficiency you are going to see. But the challenge that you. That we have and the and the shareholder is going to have to be a little patient, it is going to take a couple of quarters for the results of this shift to a more capital efficient program to actually follow through and be revealed in the financials. And so, for example, of the co developed wells that we developed this quarter, only 2 of those wells were on early enough to have a measurable contribution to our production this quarter. This is something that we were really having a difficult time trying to predict last quarter when we gave guidance But the other wells that we completed this quarter are going to contribute meaningfully to the fourth quarter. And, I think that we will begin to show the benefit of this transition. Sanu, you have anything else you want to add or Alexander?

Appreciate it. Does that answer your question, Jeff? Yeah. So just on that, Paul, would you when you co develop wells on pads, are you as you complete them, are you shutting in offset production to accommodate the or to avoid some of the frac impacts that you might see as you complete new wells? So you get a bit of a sawtooth type production curve. Or production profile.

that is exactly right. If you remember, our past program where we just drilled a single horizontal on a pad, Once you move the rig off, we had the completion crew in there and, you know, complete our frac jobs and drill our plugs out and get these wells on really quickly. Now what you will see is going to be a little bit more lumpy because we are gonna stay on that location. Let's say it is 2, 3, 4, 5 wells per location. You will drill them all, and then you will complete them all, and then you will bring them all on. And the point that you brought up, yes, not in every instance, but most instances, we will be shutting in offsetting production because we are trying to minimize the, frac interference and other things. And so that is a reality to the program we are going to, but what you will find is on a multiple-quarter basis, you are gonna see higher sustained production delivery. And then when you look at the, the resulting financials and metrics, we will be delivering considerably more production per dollar spent as we go into 2027.

You said the 2027 capital program is weighted towards the first half of the year. what is informing your view of what kind of capital activity you might want in the second half of 27? And I am guessing that the capital spent in the fourth quarter of this year and the first half of next year is really what will shape the production profile for all of 27. Is that correct?

That is correct. And that is part of the reason why we like to front-load. You get the benefit of that production all year long. But the other thing that we have purposely done in our forecast, so again, we front loaded our capital for 2027. But, you know, we do not know what the future holds. Right? We do not know where future oil prices are going to go. And so, we will have a decision to make as we enter the midyear of next year. With a lot more certainty with regard to all of that. We may curtail production or capital spending; we may increase capital spending, all based on cash flow, the progress we have made in terms of reducing our debt and getting our leverage ratio where we really want it. We really want to get below 1.25x, but I really want it below 1 times. And I believe that if we continue to be in this higher for longer environment, we are very. We are poised to get our leverage ratio below 1 times next year. Thank you.

And our next question comes from Noel Parks with Tuohy Brothers.

Hi, good morning. Good I was curious on the acreage you divested and I realized there pretty small percentage of total production represented, But I was wondering if you could talk a little bit about just how you sort of, you know, rate the acreage that you have? I know. I think you said in the release that it did not really compete for capital in the near time in the near term. And just a little bit about how you are selecting what you are willing to sell near term.

Yes. Noel, that is a very good question. And you are actually pointing out a an issue that we actually changed our own opinion over the year because earlier in the year, I really did not believe that we had very many assets within our portfolio that we would want to sell. But as we watched the rest of the industry, and the industry's interest in some of these deeper, more expensive plays, where we had interest we found that those other parties were more interested in our acreage because although that was acreage that we could eventually get to 1 day in the future, it was not something that was going to earn capital investment anytime soon, not in the next couple of years with us. And so it became very apparent to us that these assets that we had were more valuable in the hands of somebody else, and they were willing to pay, the going price. And those prices, as you can see, are very attractive, very accretive. And, and so we took advantage of that to accelerate the value of those assets in our portfolio and then reinvest that to expand our acreage position where we are currently focused, where we have a current very profitable program going on and build inventory and so. And then at the same time, we are also be able to pay down debt It also gave us the opportunity to accelerate some of these investments that we made this quarter. The most significant of that is basically the co developed longer lateral wells that we drilled this quarter. And also the infrastructure necessary to support that. So, as a result of the event in 2026, so first of all, the conflict in Iran, gave us an environment of higher prices. The market was opened last summer very briefly for an equity raise that we took advantage. Of. And that positioned this company, basically catapulted us about a year and a half, almost 2 years forward in terms of debt reduction, financial stability and wherewithal. And it gave us the opportunity to invest We knew we had to invest in the infrastructure. So before we could actually start drilling these really high capital. Highly capital efficient locations. And so we took advantage of all of that and that is where we are today. And so these sales is just part of that same strategy. How do we move, our balance sheet forward you know, in time, terms of if you just did it organically, we really had the ability to accelerate debt reduction, position the balance sheet. So it is much stronger. And so now, you know, getting below 1 times is not unreasonable for next year. So we are really excited about what all that has done. But the sales are just another part of that. Noel.

Terrific. Terrific. Thanks for the background. And it would be great to just hear some about getting a little more production history on what you have done before in Crane and Ector and also the results from the offsetting wells and just in the release you said you were encouraged and felt like you were on the right track in your development program from the recent drilling. So anything you could update us on with that would be great.

Well, we are not going to talk about specific well performance right now. Primarily because primarily because we are still acquiring acreage. We do not want to point out our specific successes yet because we believe we have an opportunity to capture more acreage in and around where we operate that can provide significant inventory. And we still believe we can acquire that acreage at attractive prices. And we just do not want to drive up the competition. But I will say this, the 2 wells that we completed earlier in the quarter, are at least meeting. I believe they are actually exceeding. Alexander, do you have anything you wanna say about Yeah.

Yeah. Thanks, Paul. Noel, really, the big confidence that we showed the market by updating our guidance showing that we are going to grow more than we have in previous years because we do believe in these investments. And as well, on Page 14, we show an EUR per foot and it is very similar to last year's EUR per foot. Both on barrels of oil and BOEs. But the big difference is that previously, we had 2 proved horizontal targets. Well, now we proved up 5 horizontal targets. So as we keep developing and getting more knowledge about these zones, we will be coming out with more and more data. But as Paul said, we are actively leasing, so we do not wanna release exactly where we are active.

Totally understand. I just wondered if you could maybe characterize it a bit as far as so have you been happiest kind of with the geology meeting your expectations, or has sort of the. Or have you been the most encouraged by, you know, just the ability to drill, the pace at which you are drilling staying in zone, you know, sort of the engineering side of it.

Noel, this is James. Great question because We are exploring in a basin that is been developed for 100 years. And the encouragement we are finding from the zones we are encountering And without naming names, it is all part of the stratigraphy on the Central Basin that is very attractive. They are all oil charge, a couple of those and as you expect, it is early days, but we are getting encouragement in all of the zones that we are drilling. Some of them are exceeding our expectations, some are normal and some we are improving what we are doing from an operation standpoint. But in an overall portfolio add, it is adding a tremendous amount of inventory that is attractive for us to now operationally gear up in terms of the infrastructure, the water handling and the fracking to go to pad drilling to exploit these zones. So the geology is all excellent. And as you know, these rocks are all charged, they have been we are we are focused on the conventional reservoirs which are being charged by both of the adjacent basins these carbonates are really lending themselves to horizontal wells extended reach wells to improve capital efficiency and the productivity per foot, and we are very excited by it. Some of these wells, when we come out with them, they have they have even given us further encouragement, and that is why, as Paul said, we are picking up more acreage in the area because we are encouraged to expand our position. So great question.

Yes. And I will just add a little bit more to that. Some of these, stacked pays in the Central Basin platform As you get away from the core areas of those reservoirs, A lot of these areas were believed not to be economic. Vertically. Because the technology just did not allow them to meet economic thresholds. Right? And so what we have found is by applying these new technologies, some of these areas where we knew that the zones were there, we knew that they were all charged, but historically, they were believed to be not economic. Well, now the. This new emerging technology, the ability to get longer laterals at the shallower depths and also apply the frac technology, the multistage, we are finding that what was previously believed to be uneconomic, and everybody forgot about it. that is why we are able to pick up this acreage. And we believe there is a lot of application out here, and we want to get as far ahead of it as we can. So far, our only competition has been in private. We have not found any public companies that are competing with us for this. But we think that there is a real strategy associated with expanding on the Central Basin Platform in the southern part of the Northwest Shelf because these stacked pays, We know they are oil charged, and we. And we are now realizing that applying these new technologies is the way to go. But a great question, Noel. Great. Thanks a lot.

Thank you. We have a follow-up question from Jeffrey Robertson with Water Tower Research.

Thank you. Sundip, how does the decreasing leverage ratio affect the hedge requirements under the RBL?

Yeah. We are not quite at the leverage metric we need to be to where it is going to impact the amount we need to hedge. So we are still on that rolling 24 month basis, but we have made significant improvement on how much debt we have paid down this year. So our borrowing base redetermination is coming up redetermination in December. And we are gonna have an opportunity to talk to the banks and kind of understand what movement we can have on that covenant. But the way it is written now, we have not made enough progress to get to that 1.25x leverage metric. Now depending on how oil price plays out over the next year, if oil is $75 and it is going to take us Q3, Q4 to get below that metric. But if oil is above $80 then it. Start to hit there somewhere Q2, maybe end of Q1. So it really depends on the pricing environment we are at and how quickly we can get to that leverage ratio. The actual definition in our facility is, you gotta be below 1.25x. And you have to be at least 50% or less drawn on your borrowing base. And then you qualify at that point to not. you only have to hedge 25% of your production for months 13 through 24. And if you can get it below 25% drawn on your borrowing base, well, then you do not have any, hedging requirements. On months 13 through 24.

Thanks, Paul.

Thank you. This concludes our question and answer session. I would like to turn the call back over to Paul D. McKinney, CEO for any closing remarks.

Yes, very good. As you know, we had a great quarter or we believe we did and we have also believe we are going to have a great quarter next year, and we are really looking forward to 2027. We are focused on growing through disciplined execution, improved capital efficiency, protecting the balance sheet and creating long term per share value. We look forward to updating you guys in the future. All of our shareholders and all of our interested parties And on behalf of the entire team, the board of directors, I want to once again thank you for listening and participating in today's call. Have a great weekend, everyone.

Thank you. The conference has now concluded. Thank you for attending today's presentation. May now disconnect your lines.