Ring Energy (ticker: REI), an E&P based in Midland, Texas, added to its balance sheet in the form of a public equity offering on June 18, 2015. The company issued 4,500,000 shares of common stock at a price of $11.50 per share, resulting in net proceeds of approximately $49 million after deductions and expenses. The underwriters hold a 30-day option to purchase an additional 675,000 shares, which could boost the total proceeds to roughly $56.3 million. The initial offering will dilute REI’s shares by about 15%, while the greenshoe would increase the total to about 17%.
REI’s New Balance Sheet
Ring’s senior secured credit facility was dramatically increased to $500 million from $150 million in connection with a $75 million asset purchase last month. Its borrowing base also jumped to $100 million from $40 million. The company held about $2.8 million in cash and cash equivalents for the quarter ended March 31, 2015.
Management said a portion of the equity offering’s proceeds will be used to fund its development and leasehold programs in its new acreage. In a note covering the May 2015 purchase, Wunderlich Securities said Ring has “historically been debt averse and so it is likely equity will ultimately pay for this deal.”
Additional revenue-based measures, such as hedging, have also been discussed among management but are not imminent at this time. In the first quarter conference call, Kelly Hoffman, Chief Executive Officer of Ring Energy, said hedging would likely only be used in the case of additional debt – a route not often visited by the company.
The latest acquisition was Ring’s entry into the Delaware Basin, increasing its net acreage and production by 41% and 47%, respectively. Upon its closing at the end of the month, Ring will own approximately 63,000 gross acres (48,000 net) in the Permian and Mississippian Lime plays. An estimated 65% of its existing properties are undeveloped, and production will be roughly 2,750 BOEPD as part of its vertical drilling program.
The company does not issue guidance, but drilled 135 gross wells in 2014 at a cost of about $375,000 to $400,000, management said. Downspacing in the Permian has been reduced to 10 acres and have as many as 2,480 additional drilling locations.