Ring Energy Targets 10% Production Growth With Lower 2027 Capex

Ring Energy reported higher second-quarter production and lower unit costs, while laying out a 2027 plan that targets 10% BOE sales growth with a roughly 10% cut in capital spending. The company also used a $65 million equity offering to reduce revolver debt, improving leverage and liquidity.

Second-quarter sales volumes averaged 19,990 barrels of oil equivalent per day, up 3% from the first quarter. Oil sales hit 12,683 barrels per day. Revenue reached about $104.7 million, supported by an average realized oil price of $95.45 per barrel. Overall realized pricing rose 36% sequentially to $57.55 per BOE, Executive Vice President and CFO Sonu Johl said.

Lease operating expense fell to $10.12 per BOE from $10.41 in the first quarter. All-in cash costs dropped 1% to $21.59 per BOE. Cash G&A, excluding share-based compensation, declined to $3.19 per BOE from $3.40. Johl said natural-gas prices remained pressured by Permian Basin takeaway and processing constraints, with Ring's average differential to NYMEX at negative $8.14 per Mcf. He noted modest improvement after the Gulf Coast Connector expansion started and expects further relief as more capacity comes online later in the year.

Ring completed an underwritten public equity offering that generated roughly $65 million of net proceeds. The company used the entire amount to reduce borrowings under its revolving credit facility. Liquidity rose to about $226 million, while outstanding borrowings fell to roughly $360 million. The leverage ratio improved to about 1.7 times on a last-quarter annualized basis, and the company remained compliant with its financial covenants. Chairman and CEO Paul McKinney said Ring continues to target long-term leverage below 1.25 times. Proceeds from potential non-core asset sales, which the company is still evaluating, would also go toward debt reduction. McKinney did not provide an expected value or timing for any potential asset sales.

Capital expenditures in the second quarter totaled about $43.2 million. The company is shifting from proving its resource base toward optimizing well spacing, landing zones, completion designs and development sequencing, McKinney said. Operational activity included seven wells drilled and four completed. In the Northwest Shelf, Ring drilled and completed a 1.5-mile horizontal well and a 1-mile horizontal well. In the Central Basin Platform, it drilled and completed a 1.5-mile horizontal well in each of Andrews County and Crane County, along with three additional 2-mile horizontal wells in Crane County that were still uncompleted at quarter end. The company was also drilling a saltwater disposal well in Crane County as of June 30. Management said investments in water infrastructure, centralized facilities and other development infrastructure are intended to reduce future drilling and completion costs.

For the 2027 outlook, Ring expects to drill about 20 to 30 horizontal wells. The company estimates its initiatives could reduce future drilling and completion costs by at least $7.5 million, based on savings of roughly $50 to $100 per lateral foot. 2027 oil sales guidance is 13,550 to 14,650 barrels per day, and total BOE sales guidance is 21,500 to 23,500 BOE per day. At the midpoint, that represents about 10% growth over estimated 2026 sales. LOE is expected at $9.80 to $10.60 per BOE. Capital spending is set at $135 million to $165 million, a roughly 10% midpoint reduction from estimated 2026 spending. McKinney said the company used $75 oil in the near term and stress-tested its 2027 development program at $60 oil, where management expects it could still generate marginal free cash flow.

Ring's hedge position partly offset stronger oil prices during the second quarter. Johl said Ring had about 1.7 million barrels of oil hedged for the remainder of 2026, representing about 70% of estimated oil sales at the midpoint of updated guidance. Roughly 30% of expected oil production remains unhedged, and a significant portion of hedged volumes consists of collars that retain some exposure to higher prices. The company also has 2.4 billion cubic feet of natural gas hedged, or about 62% of estimated gas sales. McKinney said reducing leverage below the target could lessen longer-term hedge requirements under the company's credit agreement. Johl noted that timing would depend on commodity prices and leverage levels.

The company's 2027 plan shows it can grow production while reducing capital spending and debt, but leverage remains above the 1.25 times target. Ring's stress test at $60 oil suggests the program can withstand a price drop without consuming cash.