Extends Permian Position
Ring Energy (ticker: REI) followed through on its acquisition comments in its Q1’15 conference call, announcing purchase of 14,000 net acres in the Delaware Basin in a news release on May 26, 2015. The $75 million transaction includes current net production of 1,300 BOEPD, net reserves of 4.7 MMBOE and a PV-10 value of $128.5 million. Average working interest is 98% to Ring, along with an average net revenue interest of 78%.
David Fowler, President of Ring Energy, said in the company’s Q1’15 call that REI was seeking a purchase in the “$50 to $100 million size.” The new assets will increase the company’s net acreage and net production by 41% and 47%, respectively, and falls right in the middle of the anticipated M&A budget. The deal is expected to close on June 30, 2015, which would fall within the Q2’15 reporting period.
“This acquisition represents an ideal complement to our existing core area in west Texas,” said Kelly Hoffman, Chief Executive Officer of Ring Energy, in a company release. “Not only does it immediately add reserves and increase our current production, but offers excellent upside through the drilling of new vertical wells with multiple pay zones and the reworking of existing wells.”
Financial Advantage was Key
Analyst firms complimented REI’s balance sheet and timeliness in notes covering the announcement, with Global Hunter Securities saying, “REI’s patient approach in the current downturn appears to have resulted in a substantial acquisition.” Capital One Securities said the acquisition comes as no surprise, even though the purchase marks the entry of Ring Energy to the Delaware Basin as opposed to its more tenured positions in the Midland Basin.
Global Hunter Securities added, “While REI’s existing assets are capable of generating impressive organic growth, growth by acquisitions has been a goal for REI, and this acquisition should give the portfolio additional scale and diversity, a step we think investors will view positively.”
SunTrust Robinson Humphrey, the exclusive financial advisor on the transaction, points out that the metrics break down to $16/BOE on reserves and $729/acre, if considering a $50/barrel price at volumes of 1,300 BOEPD.
Extra Leverage – If Necessary
In conjunction with the acquisition, Ring entered in a new five-year, $500 million senior credit facility with an immediate borrowing base of $100 million. The adjustments represent significant increases from its previous allotments of $150 million and $40 million, respectively. There was $10 million in outstanding debt on its credit facility as of March 31, 2015.
Wunderlich Securities isn’t convinced the borrowings, will be used and will instead serve as temporary financing. “The company historically has been debt averse and so it is likely equity will ultimately pay for this deal,” the note says.
Its 2015 capital budget is yet to be determined, according to its latest presentation. A total of 135 gross wells were drilled in the Permian region in 2014, allowing the company to become cash flow positive in Q1’15 despite the commodity downturn.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.