Ring Energy Aktie

Thank you for joining today's fireside chat with Ring Energy's senior leadership team. We're joined today by Chairman and CEO, Paul McKinney; COO, Alex Dyes; Chief Exploration Officer, James Parr; and CFO, Sonu Johl. I am Jeff Robertson, Managing Director for Natural Resources here at Water Tower Research.

Before we begin, I would like to remind participants that today's discussion could include forward-looking statements as of today, May 20, 2026. Ring's disclosures regarding forward-looking statements can be found under the Investor Relations tab of its corporate home page. We may refer to some slides from Ring's latest investor deck, which can also be found under the Investor Relations tab of the company's home page.

With that housekeeping out of the way, Alex, Paul, James and Sonu, thank you for joining us today.

Thank you for having us. We really enjoy the opportunity to get our word out.

Ring is an exploration and production company whose assets are concentrated on the Northwest shelf and Central Basin platform areas of the Permian Basin, where reservoir targets primarily consist of multiple stacked formations with known hydrocarbons. Ring and offset operators are turning to horizontal drilling to expect greater value from some of the producing reservoirs. First quarter 2026 production averaged about 19,350 BOE per day, of which 63% was oil, and ring's adjusted EBITDA was $38.3 million. The secondary equity offering of 44.4 million shares was priced on May 12, 2026, raising gross proceeds of approximately $60 million.

Paul, I know we're going to come back to this a little bit later, but I would just like to start in light of the equity offering, can you just share the rationale behind the offering and how the proceeds accelerate Ring's deleveraging goals?

Yes. I mean that's obviously the element in the room, right? A lot of the shareholders are still questioning the rationale behind this. But before we get into the rationale, let's take just a step back and put all of this into context. And so if you remember, when we joined Ring Energy in the fourth quarter of 2020, Ratings two biggest challenges. The biggest one was our leverage. We had a balance sheet that was very over-levered or at the time that I joined, of course, that was mid-period 4x. At the end of that period, we're still 3.6x levered. But the other thing was size and scale.

And so what size and scale is necessary to be relevant in the marketplace. And so there is an argument to be had as to which of these two are more important. I don't really want to waste a lot of time on that. But to kind of give you an indication where I fall debt has risk that size and scale doesn't, okay? So in a $75 oil environment, we could do both. We could grow our production, and we could also continue to strengthen and improve the balance sheet by paying down debt.

At $70 or below $70, we cannot do that. And so when prices became tough, we focused on the balance sheet. And so here we are today. Even though we are in a higher price environment where we can do both, our two biggest challenges are still size and scale and balance sheet. And so -- and now we're in a higher oil price environment. And we believe that these higher prices are probably likely to be here for longer than what the market is currently implying. But our leverage ratio at the end of the first quarter was still 2.4x. And without the equity raise, we could have continued to reduce debt meaningfully, and we would throughout the rest of this year, paying down debt with a higher cash flow with these higher prices. But that is a very slow process even at these higher prices.

And our balance sheet would still prevent us from taking advantage of the opportunities that we believe if this price cycle is going to provide. And so depending on that course of action, it also depends on our strategy of hope. We believe prices are going to be higher for longer, but there's no guarantee that they're going to be. And today, it's kind of a good environment of the cyclical nature and how this market responds to the progress and the things that are going on that are beyond our control in the Middle East. And so we needed to position the company to take advantage of the options that we believe this price cycle is likely going to provide. And so the rationale is really simple. We're accelerating value through balance sheet strength.

We executed the equity offering from a position of strength, not necessity. We took advantage of a constructive market window to strengthen the balance sheet sooner, reduce debt faster, lower interest expense and give the company more flexibility in a volatile commodity environment. We accelerated our debt plans by over a full year, better positioning the company to take advantage of the opportunities this price cycle are likely going to present, especially when you consider the virtues of our 2026 capital program, we're going to get into that a little bit later on. We recognize that this issuing equity does create near-term dilution to our shareholders. But we're also shareholders. And so we don't take that lightly. But we do believe the trade-off makes sense, especially in light of the opportunities that are in front of us.

We believe that the near-term dilution in exchange for a stronger company, lower financial risk, more flexibility to execute the plan that's in front of us or maybe in front of us, we believe that's really important. We will partially overcome the dilution for this deal with close to $5 million of lower interest expense, which is a compounding virtue, by the way and companies with lower leverage ratio trade at a higher multiple. And so importantly, this is not a change in our strategy, especially when it comes to regarding our balance sheet, it's basically an acceleration of it.

Debt reduction remains a core priority. Capital discipline remains a core priority. What this transaction does, it allows us to pursue those objectives more efficiently while also giving us the flexibility to invest in higher return opportunities across our asset base. Those opportunities include extending laterals and investing in water handling.

If you look at the 2026 program that we were so anxious to protect earlier in this year by raising our floors and layer in hedging to protect our cash flows. This capital program really has the opportunity to increase our capital efficiency and going forward and set this company up for organic growth. It does not depend on acquisitions. And that's significant because most of the peers that we compete with out there in the marketplace, other people or other companies you can invest in, they grow basically through A&D. And so we've got more than one tool in the toolbox, so to speak. We're going to talk more about that and we'll turn it over to James. But reducing debt sooner, reduces risk. It gives us more flexibility through the commodity cycles and helps make future cash flow more durable. And so as long-term shareholders ourselves, we believe that this is the right outcome for our shareholders.

Your point about growing or the organic growth in the asset base, Ring has built its foundation on conventional assets in the Permian Basin. Why do you target those types of assets to build a sustainable production profile and one that you can support organic growth as you progress towards your leverage reduction goals?

Yes. Well, we've focused on conventional oil-weighted assets because they give us the durability and strong margins with a decline profile that supports long-term free cash flow. And that's the bottom line. The conventional zones we target also have lower drilling breakevens with competitive high returns. And the entry costs for this strategy are still lower when compared to the unconventional shale opportunity that others are pursuing. And so that's really important.

Okay. One thing I wanted to touch on was acquisitions, which had played a big role in Ring's growth over the last number of years. Acquisitions bring free cash flow because you target producing properties, but they also bring development opportunities. Does the market for conventional assets, either in the areas that Ring would look? Does it differ very much from the market from unconventional assets in the Permian?

Yes, they are different. They still remain different. I don't know how long they will be different. In my -- as I observe transactions out there in the marketplace, people are paying considerable valuations for the shales still. And so the entry costs for unconventional assets like what we're pursuing are -- they're lower. And so that allows us still to be more competitive, generate higher returns on the acquisitions we make. If you pay through the nose for something what's left over when you're done is -- you better have bought a lot of it because it's -- you're going to be like the Walmart virgin. You got to -- you make smaller margins on the larger resource base. But the entry costs for us are getting more competitive as time goes on. And so -- we do believe there's opportunities out there. We -- if you look back on our history in the past, most of the deals we pursued, they were initiated through negotiations. They were not assets that are out there in the marketplace at a time, they came through negotiation.

Now one of them the Stronghold deal. It turned into a process, and we've ultimately succeeded in that. But the founders and the Lime Rock deals, both of those were negotiated deals. We like that. We believe that there's opportunities out there. But the bottom line is our balance sheet today is not in the position so that we can take advantage of those. And so that was -- and let me back up. The balance sheet today is in much better shape, and it's going to be even better by the end of this year. But without this equity deal, we would have been -- we would still be essentially out of the market for pursuing opportunities. So if an opportunity does present itself out there that is accretive to the shareholders and it fits our strategy and our growth plans with a balance sheet of $2.4 billion, just -- it's really tough to be competitive in that environment.

Alex, let's talk a little bit about operations. Ring has a history of drilling horizontal wells on the Northwest Shelf, targeting the San Andres formation. And you we've shown good progress increasing drilling efficiency on the existing asset base. With the stacked nature of the reservoirs that you have in the Central Basin platform, in the North or shelf. Can you talk about what's really driven the drilling efficiency gains that the company has posted?

Yes, absolutely. And just, first of all, thank you, Jeff, for hosting us, and we're excited to share with you and with our investors just really -- what's really happening in the transition. So let's take a step back before we go into capital gains and efficiencies and just talk about like what's really happened over the last decade. So there's been a big transition. Obviously, in the basins, the shale revolution, big longer horizontals in both the Delaware and the Midland Basin. But for us, since 2015 in both the CBP and Northwest Shelf, over 1,200 horizontal wells have been drilled. Of those, Ring has been a part of about 30% of this over that last 10 years or so.

So what's really happened today and why now? Why is it really work today? Over that time, there's been tons of horizontal technology improvements. So you're drilling longer laterals. We're staying in zone. We're actually optimizing the landing zones, and we figured that out even just on our core acreage. And much -- and we'll get to talking about more of like where we're taking pains into some of these newer benches. But two, there's optimized fracs and again, the longer extended laterals in our benches has really transformed things. So I think that, that's really what's led to a lot of the efficiencies today. So if you look at our deck on Page 17, we actually talk about that, where we show our cost per lateral foot used to be well above $550 per foot. Now in '25, we were around $500 a foot.

How did we do that? Well, again, drilling longer laterals, multi-pad development and optimizing the fracs. So that's really where we're seeing the gains. As we talked on our Q1's earnings deck, we actually have a 15% reduction on spud to TD. And how did we gain that as of recently? Again, it's just the culture of the drilling department always non-soft relentless trying to find efficiencies, and we just optimize the BHA as we were drilling some of these horizontals and reduced the days by 15%. So those are just some examples.

Alex, as you look at bringing other zones into the capital program, should those kind of gains that you outlined be repeatable?

Absolutely. Again, I go back to just talking about look at the gains we had in our San Andres play over the years, right? We've got over 300 horizontals there. We saw nice gains there. But they were actually -- the Yocum San Andres is different than Andres -- San Andres. Well, not only have we seen gains on our own acreage, just write offset to our acreage, and we'll talk about CBP South, which is Crane and Nectar, offset operators have drilled over 200 horizontals recently and actually 100 horizontals alone within 1 or 2 miles of our acreage. So they proved efficiencies, and thus, we're trying to apply all the knowledge we've learned before from ours and also the offset operators, and we definitely believe that as we do multilaterals, co-development and longer laterals, it really drive that efficiency.

To your point about the graphs on Slide 17, should we also then expect that or should investors expect that the amount of production that you're able to add or capital dollar invested will grow as you transition some of these targets to horizontal zones?

Yes. That is the goal. The caveat is, obviously, as we talked in the earnings deck, and Paul just mentioned, we are having to invest in the infrastructure, right? So -- and we've been doing that in our San Andres plays, both in Yocum and Andrews. But as we transition and we'll talk more about CDP South, we've been investing, but there's multiple areas. And just to give you kind of order of magnitude there of our 90,000-plus acres our CDP South area is about 1/3 of it. So yes, we've invested in some of the dollars there. And so that will help transition to these longer laterals and more capital efficiency, but there is an investment upfront.

However, over the last 2 to 3 years, not only is it that infrastructure investment that's leading to more barrels per capital spend essentially. But also we've been quietly actually spending a lot of leasing dollars. And so we've been able to benefit that in some of our plays up to the north. And now we're currently going to benefit in our place to the south. And so that also helps all that investment help create that capital efficiency.

And then to kind of talk in layman's terms, let's just take, okay, we have two sections. We used to develop those TDP South vertical. In those two sections developed a 20-acre spacing was well over 60 vertical wells, right? Well, today, if you take 3 or 4 benches that we've improved on that same two sections, well, now you're drilling half of the wells horizontally and you're getting more production out of each well, yet you don't have the locations, the artificial lift equipment, the wellheads just because you cut really your total well count by half, and that's really...

The infrastructure and everything else. That's absolutely right.

Yes. So that's where the...

As you look at horizontal wells and the production profile of those types of wells versus some of these zones that you alluded to that might have been traditionally drilled in vertical wells. With a greater horizontal component of your Ring's production have an impact on the production profile of the overall company?

Yes. Well, let's first, let's just start getting a little bit educational because everyone has gotten used to the shale revolution right in the shale type production profiles. Our PDP base is 20% decline or so. So yes, as we transition to these horizontals was going to require less wells to add to the mix to basically maintain or slightly grow our production as we've been doing in years past. So overall, you're getting more PV10, more oil out of the horizontals. So our cash flow profile essentially is becoming more sustainable over time. And that's what investors have to look forward to as we're transitioning from vertical to horizontal drill.

Cash flow can also be generated by higher margins through lower operating costs. Alex, you and the team have shown a pretty good ability to lower operating costs out in the field. Can you share some specifics on what's been behind that? And then are there any real structural areas that you target over the next year or two? And as you look at horizontal drilling that you think also could continue to structurally improve the cost structure?

Yes, absolutely. Again, first of all, let's take a -- let's take a step back on structurally, we've been able to lower the cost over the last few years. We actually have a track record of that. If you go to Page 22 of our Q1 earnings deck, it really shows that track record. Not only have we reduced LOE, we've reduced our all-in cash cost on a dollar per BOE basis year-over-year. And one, we're excited for '26 and beyond because of all the things we just discussed. We should just continue -- we look forward to continuing that momentum.

So you asked a little bit about like examples and just what have we done. So let's just talk holistic numbers. On Page 17, we've actually talked about what happened from '24 to '25. And we also talked about or you asked Paul a little bit earlier ago about like some of the acquisitions. Well, in '25, we had the Lime Rock acquisition. And so if you take -- compare '24 to '25 on an LOE standpoint, we had a $1.4 million a month in savings from '24 to '25 if we compare Lime Rock and in legacy versus our current asset base with Lime Rock on top of that now in '25.

In addition, we've been able to continuously reduce the structural cost. And that's really because it mindset's a culture. We have a not a short-term type culture. We have a long-term built-to-last type culture. And so in Q1, if we heard our earnings call, we actually take those segments from $1.4 million to $1.7 million a month in savings or about a $2 per BOE basis. So we've been able to reduce that. And just how did we do that, just always looking at how to optimize and reduce your well failures, optimize our chemical program, building some automation to reroute some of the pumper routes those kind of things, it has a compounding effect at the time.

James, let's turn to you and talk a little bit about Ring's organic growth potential. As we've talked a little bit about earlier, producing property acquisitions have been an important role in building the asset base over the years. And in the -- as Alex alluded to, from a leasing standpoint, if you want to grow in the Permian Basin, largely it comes by trying to bolt on neighboring acreage. But vertical wells have dominated the Northwest Shelf and Central Basin platform for about 100 years. What do you think are the economic implications as you shift to more horizontal drilling? And which formations in the asset base might be the most amenable to more modern drilling and stimulation techniques?

Well, first of all, thanks again for hosting us today, Jeff. We really appreciate the opportunity as the guys have said, to tell our story. And it's a great question because where we're focused on the Central Basin platform in the Northwest shelf is the historic heart of the Permian Basin. And originally, probably for the first 80 years of that exploration and development, the Central Basin platform was the main event and the Northwest shelf with the world being a vertical exploiting conventional resources. And if you look at the map on Slide 5 of our investor deck, it shows the production on the Central Basin platform and the adjacent shale basins in the Delaware and the Midland to the East and the West. With the advent of horizontal wells with George Mitchell exploiting the Barnett and the explosion in horizontal activity for the last 20 years, the industry has migrated away from conventional assets into unconventional shale plays in the basins, Leaving these conventional assets, I'll say, largely abandoned or not the current focus of most of the companies.

However, we're looking at them from the opportunity set has been a great target because conventional rock has much better reservoir properties. So our idea and our investment thesis is to apply horizontal technology, the development of methodology that's been developed and exploiting the shares for these last 20 years and convert what has largely been a vertical area into a horizontal development. The bottom line to that is, we have greater access to The Rock, greater reservoir contact and improved recoveries. And as Alex has said, for dollar spent, we have more barrels. So the capital efficiency, we get more production with fewer wells and create great present value for the company. And that shift to the horizontals has largely been step-wise for us because we're always focused on the maximum return. So we've been targeting the main historic reservoir on the Central Basin platform has been at San Andres. And we've been exploiting that efficiently in 4 main areas, as you can see in our investor deck.

But from the activity of our vertical stack and fracs and the drilling of the neighbors, and you can see that explosion of activity on some of the maps in our deck, we now have a multi-bench opportunity set to include not just the San Andres and its various sub formations, the Judkins the Magnite but the deeper potential, the Gloria, the ClearForce which our Albany Wolfcamp, and the neighbors are even exploiting even potential in the Barnett, Woodford and the Devonian. And that really expands our opportunity set, our portfolio, but we're doing a pretty disciplined because we're always focused on returns. So -- we're looking for the rocks which have the best reservoir quality, best stickiness and the right pressure and fluid characteristics that give us the maximum return. So our program for '26 and '27 is focused on that.

And we're developing increased understanding of these reservoirs and how they respond. And we'll have a lot of good, exciting things to tell you as the year goes on, both this year and early next year. So we're excited by using horizontal technology in the formations and areas that were present that we've acquired from the acquisitions that we've made. And as Alex says, we continue to learn and bolt-on organically to those positions to expand our footprint to drill longer laterals and be even more productive and capital efficient.

My understanding correctly, James, it basically Ring's asset base and the properties that you've acquired, you've been able to expand the organic growth potential of those assets by considering horizontal drilling in some of these stacked reservoirs and probably none of which was factored into the acquisition evaluation and the consideration that was paid. So it's essentially upside beyond and ultimately enhances the return and how that capital is deployed, is that reasonable?

Absolutely. That's been really interesting. The Permian is a very highly contested competitive area. And through the acquisitions, which were done mostly for the PDP and the opportunity set in the San Andres, with these being old established areas, they have lease rights to access the deeper potential. And we've been exploring those and exploiting those first with vertical frac and stacks in the South Central part of the area in Crane and Ector County. And we know from the production from those vertical wells from the tracer data that these additional targets, which weren't factored into the original acquisitions, they're now looking attractive, and we're testing those horizons with our program. So this is an opportunity set. It's exploring in the acreage we already own and is in our core areas to share in the infrastructure gains that Alex and Paul have said in terms of water handling, roads, power, gas takeaway. So it's a very efficient way of exploiting these deeper potentials that weren't factored into the original acquisition.

And if I may -- if I may add something here, James. And actually, when we're evaluating to 2 of those 3 acquisitions we've done over the last few years. One, we paid, like James said, like just really PDP and you got the upside for essentially free. But the other big part of that is that a lot of those acquisitions were in the hands of majors and a lot of those leases were done way back 50-plus years ago, so they held all deaths in their high net. And that's a really big difference maker. So most of our PDP South area has higher net. And so just it really boost your economics moving forward.

So higher net revenue interest, it gives bring a greater share of the production revenue coming off the lease, right, Alex?

That's exactly right.

James, last year, after being acquired the Lime Rock assets and when oil prices weakened in the second quarter, CapEx was lowered -- since you had the production. If you think about an activity level, has the pace of activity or maybe a little bit reduced pace of activity given your exploration teams, greater time to mature the ideas and develop the -- where you might want to test some of these other zones in the future when you start looking at some of the slides -- I have on Slide 8 where you show kind of the layer cake in the Basin platform?

Absolutely. It's interesting, it's been the tale of 2 years. We had Liberation Day last year, which took the air out of the oil prices and low -- and we weren't sure how low it would go and how long it would be, and we were told by IEA and lots of other places that there be a surplus. So we reduced our capital spending program to continue to pay down our debt which we did. And to, I guess, generate free cash flow, which we've done for 26 quarters. But just because we've -- at that time, we limited the capital spend but we kept our staff intact and thinking never stops.

So it gave us the bandwidth to then look at our data, both from our data sets and the neighbors and look for when the world turned, which we didn't expect, but it turned on February 28 and prices come up that with increased oil prices, we have the benefit of potentially being able to test these deeper zones that we've had that period of time to assess which ones that have the most potential, where should we do them?

As Alex said, where should we if you like, pre-invest in the infrastructure, the power, the water in order to test these zones, get them online and determine their ultimate economics. So we didn't waste the time. We used it wisely to construct where would we come out when the world turned and oil prices came up. So that's been a lesson. Having an exploration mindset never ends. The amount of budget you have to spend varies with oil price, and we're very conscious of that. And we're very encouraged by what we've seen in our portfolio and look forward to targeting it in the coming months.

So if you don't mind me jumping in there, James, and kind of put a little bit more color to your question, Jeff. Yes, when Liberation Day occurred, we cut back capital substantially, as you know, and we did that in preference of paying down debt and protecting the balance sheet, reducing risk for the shareholders. And so yes, it did prevent us from testing some of these zones that we tested a few zones last year. And we got started on this, but we would have spent more capital testing these other we'd be further along than where we are today. Because if you look at the work that the geoscience guys and all the engineering team that works for Alex, those guys and the land teams out there, well, they've been working really well together, identifying several opportunities in the playground where we are up and down the Center platform, the North West Shelf, and there's a lot of opportunities out there. We probably would be a little farther along, had deliberation that not occurred. But hey, it is what it is. We are where we are. But I'm really proud of what the teams have done. The geoscience, engineering land teams have done a great job of identifying opportunities, and there's a lot out there for us to continue to pursue in the very sandbox that we're playing today.

Well, I think what the capital that you did deploy last year, maybe leading into 2025, the wells that you drilled and the projects that you undertook actually performed well versus expectations and that supported Ring's production in the back half of the year. Is that the right way to think about it?

Absolutely. Yes, we focused last year on the highest return opportunities. We did sprinkle in some of these tests because we wanted start the process of converting to horizontals and get some experience under our belt. But it was a very successful year. And all of the tests, even though we haven't really talked about those yet because we're not ready to do that yet. We want to have some repeatability. We're testing some of these zones again this year. But all of the results we have in the last year were extremely encouraged and I was just saying it that way.

And to add to that, Paul, actually, it's on Slide 17 in our IR Deck, where you can see '23 and '24 that -- all of the horizontals together, our well performance has increased over time. And so -- we're just...

Alex or James, when Paul and the Board come to you and say, we need to construct a development program for the coming year. You have a big inventory with a wide variety of projects to look at that have different economics and different business cycles. How do you -- how do you prioritize which projects rise to the top and get funded in a budget process?

It's an iterative process, and that's a great question. Because we have a broad portfolio, which gives us a lot of opportunity, and we really try and take advantage of the competitive infrastructure and pre-investments that we've made to maximize the returns and that gets the party started while we assess other areas. So it's one of these -- they all have their own different pace, and they all have their own different outcome and all have their own characteristics. And we're able to -- we focus on the highest return projects and we invest across the portfolio and the plans and the outcomes don't always coincide. So it's good to have a portfolio of opportunities, and we're able to capitalize on that breadth and utilize the infrastructure that we've had, which is a key component of exploiting what we've got beneath us.

Sonu, let's talk about some of the finances. When you -- when Ring reported its first quarter numbers, I guess, 2 weeks ago now, production -- the full year production cost and CapEx guidance was reaffirmed with the guidance that was put out in early March. Pardon me, Paul touched on the recent equity offering. Can you just fill out any details regarding how the proceeds fit in the company's debt reduction and CapEx profile for 2026?

Yes, Jeff, and this is a really important question. And I think really important for our listeners to understand and our shareholders to kind of really understand what the use of proceeds are for this transaction. Our priority for the proceeds raised is really to strengthen our balance sheet. And with a clear focus to paying down the borrowings on our credit facility. So it's absolutely going to reduce leverage. It's going to take us to a position where to the end of this year, we were going to end somewhere at 2x leverage if we kind of ran a $75 oil case to where a pro forma for this deal, we're going to be well below 1.7. And if you start thinking about the run rate of our business and you think about where we are in Q4 annualized, our pro forma leverage for this deal will be close to 1.5x. So it dramatically changes the debt profile of this business on a go-forward basis.

And as you think about our capital budget, the use of the proceeds wasn't intended to kind of change our development program. It absolutely was used to strengthen our company Ring and just provide us more optionality. So as you think about -- '27, the consensus figures has a lot of noise, I would say, in those figures. And this gives us a lot more optionality how we think about '27 and our free cash flow generation.

Paul mentioned the compounding impact on cash flow is reducing the interest cost associated with $60 million of RBL principal. Is the right way to think about that, that it increases free cash flow and, therefore, increases the ability to pay down debt at a faster rate than what you could have done without issuing that equity?

Absolutely. So on a dollar for dollar, every dollar we put in, there's less interest and we're having to pay on that debt that we're paying down. And with the proceeds raised, it's close to $5 million in interest savings that we're going to have annually when you can imagine the compounding effect of that year in and year out.

Is the -- or I guess, how will the offering proceeds affect the RBL availability in that -- as you look at your next redetermination, not to get ahead of the banks. But also, will the leverage ratio going -- declining have any impact on how Ring thinks about hedging?

So I think taking that that's kind of a multiple part question there. And so I think the bank meeting is an important kind of fact in -- I think it's also important to note, our relationship with our banking group is extremely strong. These are banks that have been supportive have been with us for a number of years. So I don't want people to associate the equity offering for some rationale because we had an upcoming bank meeting. We're a business that's been fully funded within cash flow for 6.5 going on 7 years. So that's 26-plus quarters of free cash flow generation.

So there is no concerns coming into this bank meeting. This is absolutely a deal that we did to really strengthen our positioning. And we're really excited about the opportunities we have ahead of us. And I want to make sure our ops team has all the flexibility in their program going forward and us as a management team collectively agreed this is the right opportunity to strengthen our company. From a hedging standpoint, there's not going to be any immediate impact were required from our bank facility just to layer on some hedges. We're going to continue down that program. But as we delever and really by the back half of the year, it does open up the opportunity to have kind of different thoughts around that program.

Well, let's come back to a little bit where we started. The management team at Ring has been on a quest to create a sustainable Permian Basin growth platform since you and the rest of the team joined in 2020. Can you just share your perspective on the accomplishments to date and how Ring is positioned to appeal to a broader investor audience moving forward?

Yes. There's quite a bit there. If you look at -- if you go back to the last quarter of 2020, here we were. Vaccines were just starting to be rolled out. Ring had a leverage ratio that required waivers from the bank group. Our current credit facility has a limit of 3x, and we were 4x when I joined at the end of that period, we're still 3.6x still requiring a waiver. So balance sheet was a big issue. However, the core assets of the company had a tremendous amount of potential, and we knew that when we came on board. And so we got busy evaluating everything we create the liquidity to keep the company going. We invested in all the highest return opportunities. But if you look back in the history, like Sonu just said, we got 26 quarters in a row managing our cash flow, staying disciplined, allocating capital to the highest rate of return opportunities. The acquisitions we've made, every single one of them has created shareholder value on a per share debt-adjusted basis. And so we know how to do them. And so what have we done? What we complied when I came on board, we were about a little over -- just a little under 9,000 barrels a day. Today, we're essentially 20,000 barrels a day.

When we took a reserve database of 75 million, 76 million barrels of reserves, and now we've got over 150 million barrels of reserves. Our present value has more than doubled. Our leverage ratio of 3.6%. And now today, we're about 2, but by the end of this year, even at $75, we're going to be well below $1.7 billion, probably closer to $1.5 billion or even perhaps lower than that if prices continue to sustain. And what have we done in that time, we've built a 10-plus year inventory of drilling opportunities that have superior economics to many of our peers and with reserve lives of over 20 years. So if you look at how we've done things, we've got a long track record of disciplined management of the assets that we were put in place to Stewart, and we've grown this company and double the size.

If you look at the capital program that we have in 2026, I've never been more excited about a capital program than the one we have this year because the results and the fruit of this capital investment program truly has the best opportunity to position this company for growth, no matter what price environment and whether we're in a low price environment again or whether we're in a sustainably higher price environment, like I believe we will be. But if we were to exit this year and still be at 2x levered, we're still out of the market for some of these opportunities. We can't pursue the growth, even organic growth that we'd like to because the balance sheet just really needs more attention.

And so what this equity raise did? It position this company for the options that are before us today that we believe are going to be really going to set us up for 2027 to 2028 for explosive growth, whether that's through organic growth. We'll have the ability to do that with the investments we're making this year and wells that we're testing and the transition we're making from vertical to horizontal going to a more capital-efficient program. But at the same time, if another acquisition presents itself that we can demonstrate per share accretion and on a debt-adjusted basis, keep our leverage ratios low and continue to make progress, improving the leverage ratio, well, then we'll have accomplished a lot. We've got 5 years of doing just that. We don't see any reason why that's going to change. And we really, really look forward to 2027, 2028, post this. Even after this Iranian conflict is resolved, we believe that all the forces that put in -- made all the incentives for lower oil prices, they've all been wiped out. All the on land and floating storage appears to be gone now. The world is still consuming oil at a faster rate than the world is delivering. And that's created an environment that we believe we will have sustainably higher prices for a longer period of time, and we just want to make sure that this company was positioned to take advantage of whatever those opportunities may be, and we believe we've done that. And so yes, that's really it.

Well, it will be interesting to watch the execution as you -- as we continue to delever the balance sheet and then further highlight some of these embedded growth opportunities in the stacked reservoirs you have across your asset base?

Yes. We really are as well. We've got an incredible team in place, starting with the geologists in the geoscience team that we have, the land team, the engineering team, the operating team out in the field. Right now for the -- it's been hard to develop the culture that seeks and pursues excellence for excellent sake, but we have that team in place now. All the things that held us back with the overhang in our stock in the past that kept our stock from performing, commensurate with our operating and financial performance, all of that is now behind us. And so -- and we're in a strong product environment, and we're ready to take advantage of that. And so we, too, are looking forward to that, Jeff. And so we really appreciate you providing us the opportunity to get the word out, help share some of the details on what we're thinking about and how we think about the future, where we're going to go, but we've got a great team here. And it's evidenced by these guys, that's why I wanted these guys to kind of join us in this fireside chat because I'm really proud of them on what they're able to do for our shareholders.

We will look forward to hosting another event in the coming months. Paul, Alex, James, Sonu, thank you so much for taking the time to join us today.

You're welcome.

Thanks very much, Jeff.

Thank you for joining us for today's fireside chat with Ring's senior leadership team. Our research on Ring Energy can be accessed through our website www.watertowerresearch.com. The views expressed in this fireside chat may not necessarily reflect the views of Water Tower Research LLC. They are provided for informational purposes only. This fireside chat may not be redistributed or reproduced without written consent of Water Tower Research and should not be considered research for a recommendation. WTR is an Investor Relations firm, not a licensed broker-dealer, market maker, investment bank, underwriter or investment adviser. Additional disclaimers can be found at our website, www.watertowerresearch.com. Once again, Paul, Alex, James, Sano, thank you so much for joining us today.

And welcome, and thank you for having us.

Good day, and welcome to Ring Energy's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations. Please go ahead.

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 first quarter of 2026. We'll then turn the call over to Sundip Johl, Ring Energy's Executive VP and 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. Also joining us on the call today are James Parr, Executive VP and Chief Exploration Officer; Alex Dyes, Executive VP and Chief Operations Officer; and Shawn Young, Senior VP of Operations. [Operator Instructions]. 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 one 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'd now like to turn the call over to Paul McKinney, our Chairman and CEO.

Good morning, everyone, and thank you for joining us. As many of you may know, Ring Energy stock has performed well year-to-date, and we believe, as do others, that Ring may qualify for inclusion in the Russell 2000 Index this year. We understand the list of companies that will be joining the index will be published later this month and become effective after market close on June 26, 2026, and we look forward to this. Because we know others are anticipating our inclusion as well and may be joining us for the first time, we intend to begin this earnings call a little differently.

We want to take the opportunity to introduce ourselves and point out where we operate, the distinguishing aspects of our asset base the strategy that we are pursuing that differentiates us from our peers and how the current macro and geopolitical environment impact our business.

So before we get into the quarterly results, we want to take a step back and introduce the company. For those of you who are existing investors and know our story, I thank you in advance for your patience. Hopefully, you too will learn something new since we are a dynamic and growing company where things change at a fast pace. To help me with this endeavor are James Parr, our Chief Exploration Officer; and Alex Dyes, our Chief Operations Officer, each brings a different perspective to the Ring story.

James on the asset base and technical opportunity and Alex on the operations and execution. Afterwards, Sunu and I will cover the first quarter results and expand on our financial strategy, capital allocation and investor perspectives. So on a high level, Ring is an oil-weighted upstream energy company focused on the Texas portion of the Permian Basin. We are not built around the high decline shale model that many investors associate with our basin.

Our business is built on commercializing historically overlooked once believed to be uneconomic conventional assets by applying recently developed technologies and perspectives with an exploration mindset. Distinguishing aspects of our core assets are long-life wells with shallow base declines, highly oil-weighted with high operating margins and netback interest and undeveloped opportunities with relatively low drilling and completion costs with significant returns and low breakeven costs.

Our existing 10-year-plus inventory of conventional assets in the Central Basin Platform and the Northwest Shelf include a deep set of undeveloped wells, recompletion workover and optimization opportunities capable of sustainable year-over-year cash flow generation. Our asset profile is important. It gives us a durable production base, a lower maintenance capital requirement and the ability to generate free cash flow through commodity cycles.

Our strategy is not to chase production growth for its own sake. Our strategy is to protect the balance sheet, allocate capital to the highest return opportunities in the portfolio and convert our resource base into sustainable cash flow over time. This is why we believe Ring is particularly well positioned in the current environment.

With that context and before we get into the quarterly results, we want to ground everyone listening with us today with the virtues of our asset base. To understand Ring, you must understand where we operate and why those assets are unique. So with that, let me turn the call over to James Parr to walk us through our asset base, why the Central Basin Platform and Northwest Shelf are so important to Ring and our shareholders and how your Ring Energy team continues to unlock value across the portfolio. James?

Thanks, Paul. As you stated, to understand Ring, you really have to understand the asset base. Our core positions in the Central Basin Platform and the Northwest Shelf are long-lived, oil-weighted conventional assets. And the important thing to remember is our existing operating footprint has significant remaining potential. These two well established areas are literally at the heart of the Permian Basin petroleum system. The focal point of oil migration from the adjacent Midland and Delaware Basins into multiple stacked conventional reservoirs that the original targets of the Permian.

In many cases, these reservoirs were initially developed decades ago using older technology, limited subsurface data and less advanced completion and production techniques, which resulted in low recovery factors, particularly in deeper and lower quality conventional reservoirs, leaving much of the original oil in place behind. Since then, the industry has overlooked these two areas for the past several years where modern technology has developed to commercially exploit low permeability shale reservoirs.

Utilizing modern technologies and methods in these prolific conventional areas has created an attractive opportunity set for Rain that is different from the high-intensity shale plays, which have higher decline rates due to their intrinsically poorer reservoir properties. As a result, we have a promising portfolio of stacked, lower decline oil-bearing conventional reservoirs with multiple development targets in a wide range of project types from horizontal and vertical drilling to recompletions, workovers and well reactivations. That diversity gives us flexibility to allocate capital where we see the best risk-adjusted returns at any point in the cycle.

Our technical expertise is understanding the rocks, pores and fluids, understanding the production history and applying modern subsurface and engineering techniques to improve recovery and reduce uncertainty. We're not trying to reinvent these fields. We're trying to optimize them. As a result, we see a multiyear inventory of attractive commercial opportunities across our acreage that will support a stable production, shallow decline rates and durable cash flow. That asset base is the foundation of Ring's strategy and underpins what we do operationally and financially.

With that, I'll turn it over to Alex to talk about how we're executing against that opportunity set in the field. Alex?

Thanks, James. From an operations standpoint, our focus is simple: execute safely and consistently, keep driving structural cost reductions and convert the opportunity set James covered into reliable and sustainable results. Last quarter, I walked through the strategy we've been executing, accretive complementary acquisitions, disciplined integration, organic growth and a cost structure that keeps getting more durable. In Q1 2026, we delivered proof of these points and build momentum for the rest of 2026.

First, costs. Q1 LOE was $18.1 million or $10.41 per BOE, below the low end of guidance for the fourth quarter in a row. This is more than $1.7 million per month lower than pro forma Q1 '25 and over $2 per BOE better. This highlights our operating team's continued focus on cost reduction and commitment to adding value and margin expansion. Second, execution. We drilled five horizontal wells and one vertical well with horizontals representing over 80% of the Q1 program.

In the Northwest Shelf, we improved our drilling efficiency by reducing spud to TD times by 15% versus the 2025 average, with further efficiency gains expected as we shift to longer laterals and co-development opportunities going forward. Third, well performance results. Recent Crane County horizontal completions continue to outperform expectations. After successfully testing multiple horizontal benches in the historically vertical developed area, we see a clear path to improving returns through longer laterals and selective multi-bench co-development.

In addition, in 2025, over 100 horizontal wells were drilled by offset operators within just a couple of miles of our core acreage, providing further evidence of the future potential we see as described by James earlier. To support that plan, we accelerated targeted infrastructure in Q1, just over $5 million or about 15% of our total capital in the quarter, included in that was work on our saltwater disposal wells, frac water infrastructure and production facilities. These investments expand our flexibility and provide needed infrastructure to unlock longer laterals and multi-bench horizontals later this year and beyond. Our approach is relentless continuous improvement, drill faster and more efficiently, a structurally lower cost base and maintain a predictable low-decline foundation. The investor takeaway is longer laterals, multi-bench co-development, disciplined execution will keep driving capital efficiency and translate into more durable free cash flow across commodity cycles.

With that, I'll turn it over to Paul McKinney to walk through the financial results.

Thank you, Alex. So now let's turn our attention to the quarter. As I said in our earnings release, we successfully delivered on our sales guidance, but the big story for the quarter is that through the continued efforts of our office and field operating teams, we handsomely beat LOE and improved the capital efficiency of our drilling program, way to go team.

The management team and Board of Directors thank you once again for your hard work and perseverance, safely keeping our operating costs low and our production up. Another point to make is shortly after the Iranian crisis broke out, we began the process of identifying investment opportunities to accelerate because we believe the cost and competition associated with certain key investments are likely to increase very soon. This is because we believe the market has yet to acknowledge the long-standing impacts of the supply side disruptions we're experiencing in the Middle East. And that, in our view, oil prices are likely to be higher for longer than what the market is currently implying.

We're not alone in this belief. With higher oil prices comes higher costs for goods and services and increased competition. The investments we are accelerating are focused on increasing the capital efficiency of our long-term capital program and help ensure optionality and the potential to meaningfully expand our drilling inventory. The shift in capital spending caused us to temporarily pause debt reduction this quarter, and we are steadfast in our belief that these accelerated investments are in the best interest of our stockholders.

We intend to resume debt reduction in the following quarters of the year and are likely to revise production guidance once the impact of these and other potential capital changes are evaluated. Regarding our operations, our oil sales were 12,276 barrels of oil per day, and our total sales were 19,351 barrels of oil equivalent per day, both essentially at the midpoint of guidance despite the challenges we faced with the winter storm and the sale of approximately 200 barrels of oil equivalent per day of nonoperated production.

Production from our recently acquired Lime Rock assets as well as the new wells drilled so far this year continue to meet or perform better than expected. We deployed $34.5 million in capital spending during this quarter, which is slightly above the high end of our guidance range. As we shared earlier, the capital spending was focused on accelerating certain key projects in addition to drilling and completing the wells planned.

Ring drilled and completed six wells during the first quarter and completed one DUC drilled previously for a total of seven completions. Five of the new wells were 1-mile horizontal wells drilled in the Northwest Shelf with an average working interest of 91%. One vertical well was drilled and completed in Crane County and the DUCs also in Crane County have 100% working interest.

At this point, I'd like to turn the call over to our Executive Vice President and Chief Financial Officer, Sundip Johl. He will provide insight and details of our first quarter numbers and financial position. Afterwards, I'll return to share more about our priorities and outlook. for the future. Sunu?

Thanks, Paul. In the interest of time, I'll focus my comments on the key performance drivers and notable financial items from the quarter rather than walking line by line through the income statement. Overall, first quarter results were in line with guidance and demonstrate the resilience of Ring's operating model in a quarter marked by significant weakness in natural gas and NGL pricing and oil price strength that emerged late in the quarter. From a pricing standpoint, the quarter was very much a tale of two parts.

The year began in a weaker pricing environment, and we positioned the business accordingly. As the quarter progressed, particularly in March, oil prices strengthened meaningfully due to macro and geopolitical developments. Given where prices were for much of the quarter, our first quarter results largely reflect that earlier environment. As we move into the second quarter, our exposure to commodity pricing increases materially as our hedges roll off.

Assuming current oil price levels persist, this creates a very different earnings and cash flow profile going forward than what is reflected in our Q1 results. Against that backdrop, overall realized pricing improved quarter-over-quarter to $42.30 per BOE for the first quarter, driven primarily by higher oil realizations of $68.97 per barrel. This improvement was partially offset by continued weakness in Permian natural gas and NGL markets, where processing and transportation fees resulted in a negative realized gas price of $2.54 per Mcf.

On the cost side, lease operating expenses averaged $10.41 per BOE, below the low end of our guidance for the fourth consecutive quarter. These results reflect continued progress on cost control initiatives and operational efficiencies, and we view these reductions as structural improvements. Reported net income for the quarter was impacted by two noncash items. First, we recorded a $77 million unrealized derivative loss driven primarily by changes in the forward oil curve during the quarter.

On a cash basis, hedge settlements were relatively modest with oil hedges settling at a loss of approximately $6 million, partially offset by $0.8 million of gains on natural gas hedges. Second, we recorded a $162.1 million noncash ceiling test impairment. Under the full cost accounting methodology, because this test relies on a trailing 12-month average of the first day of the month SEC prices, it can diverge meaningfully from current market conditions, particularly when commodity prices move sharply late in the quarter as they did this quarter. Most importantly, this impairment does not reflect the underlying performance, margin structure or cash-generating ability of our assets today. If current pricing levels persist, we would expect the trailing average price deck used in the ceiling test to increase meaningfully going forward, which would substantially reduce the risk of further write-downs.

Excluding these items, adjusted net income was $7.4 million and adjusted EBITDA totaled $38.3 million. Given the timing of the oil price recovery and the level of hedge protection in place during the quarter, these results are more reflective of the pricing environment earlier in the period, with the earnings impact of higher oil prices expected to become more apparent as we move into the second quarter. Capital allocation remained disciplined during the quarter. We invested $34.5 million of capital, slightly above the high end of guidance.

And as both Paul and Alex mentioned earlier, we accelerated certain key investments we believe are subject to price increases and increased competition. These investments were largely directed toward facility and infrastructure projects and investments designed to secure optionality and the potential to increase our long-term drilling inventory. We believe these investments are in the best interest of our stockholders. We're also proud to report our 26th consecutive quarter of positive free cash flow.

Now turning to the balance sheet. We exited the quarter with $160 million of liquidity under our credit facility. During the quarter, we intentionally paused debt paydown with borrowings increasing by approximately $6 million. Leverage ended the quarter at roughly 2.4x, and we remained in full compliance with all bank covenants with no near-term maturities, the balance sheet is well positioned to support continued deleveraging. Our objective remains to reduce leverage to approximately 1.25x as cash flows strengthen.

On hedging, our portfolio is intentionally structured to balance risk with upside participation. While we have 72% of oil volumes hedged at an average ceiling price of $73.27 for the remainder of 2026, a meaningful portion of production remains unhedged and fully levered to current oil prices. Our natural gas hedges at an average floor price of $3.78 per Mcf cover 73% of expected volumes and are designed to stabilize cash flow. In summary, while reported results were impacted by noncash accounting items, the underlying fundamentals of the business remain strong, and we are reaffirming guidance for the next three quarters as disclosed in the press release. We encourage you to check out our investor presentation on our website and quarterly financials for additional details. And back to you, Paul.

Thanks, Sunu. As you've heard from James, Alex and Sunu, Ring's strategy is built around a clear set of priorities, long-life oil-weighted assets, disciplined operational execution, free cash flow generation and balance sheet flexibility. That framework, along with our ability to remain nimble and respond to market conditions is important in any commodity environment and especially in a period of elevated volatility like we're experiencing today.

We believe we have built a company that can adapt and thrive through cycles and capitalize on opportunities as they emerge with a focus on creating long-term value for our shareholders. In 2026, the oil market has moved faster than sentiment. We entered the year with the market broadly focused on oversupply risk and the potential for prices to remain under pressure. Our response was disciplined. We protected the business, used hedges to support our development program and positioned Ring to continue executing in a low price environment, including scenarios below $60 WTI.

Since then, the macro backdrop has evolved with geopolitical developments increasing focus on supply reliability, spare capacity and the security of physical barrels. We believe that dynamic is slowly being reflected in the forward curve and reinforces our view that the market is placing greater value on dependable low-decline barrels. We chose to accelerate certain key capital investments to get ahead of rising costs and competition. The benefit to shareholders is straightforward, advancing work that is expected to improve capital efficiencies and lead to stronger organic growth that is not dependent on future A&D.

We are using the flexibility of our asset base to improve the durability and timing of value creation without compromising capital discipline. We look forward to the results of our capital program later this year and early next that we firmly believe will lead to increased capital efficiency and organic production growth, especially as it pertains to 2027 and beyond. And with that, we'll open up the call for questions. Operator?

[Operator Instructions] The first question today comes from Poe Fratt with Alliance Global Partners.

Yes. Would you expand on the investments you made in the first quarter and just confirm that the number was about $5 million as far as the impact on the budget?

Yes, I can do that, and I'll get a couple of other people that might have a few more details than I do. There are several things that occurred through the -- during the quarter. that led to these additional investments. We've talked about the infrastructure investments. One of the big things that we're doing right now in terms of significantly having a big impact on our ability to increase the capital efficiency of our future wells is really in providing water for our frac jobs. And so we've invested quite a bit of money, and we've accelerated this so that we can position our drilling program so that we can drill these longer laterals that require much, much larger volumes of water. And I think the best expert to turn this thing over to would be Alex and then Shawn, would you guys like to jump in on that?

Yes. I think the fundamental shift and thing we need to think about is that we're actually going from vertical, a lot of these fields that we're taking from vertical to horizontal. And so those are the investments we have to build in like saltwater disposal wells, we got to clean those out. We need to build infrastructure to be able to supply water for the bigger fracs. And then two, we've got to build the facilities. And so those are the things that we went into the $5 million. And so that's the transition that we're going from vertical to horizontal, and we're trying to also drill longer horizontal wells.

With that, I'd like to hand it over to Shawn where he can give you a little bit more detail. Go ahead Shawn.

Yes. So as both Paul and Alex have mentioned, we're really focusing on trying to get these assets set up for a horizontal development program. As I mentioned, I mean, all of our development up to this point has been more or less vertical development in these areas. And so there's a significant amount of money that has to be spent to get the infrastructure for supporting the completions, but also the production facilities are also needed to be upgraded and expanded. So that's where the majority of that.

That's right. But in addition to that, we also had the first five wells we drilled this year in Yoakum County, we were able to acquire one of our working interest positions in those five wells. And when you -- not only do we purchase their working interest, but we also had to cover for their capital portion. So that was about a little over 30%, 30 -- almost 35% of those five wells. So we took on 35% more capital plus we had to buy them out. And then when you add all these things together, actually exceeds the amount of money that we had to borrow. And so with these accelerated investments, first of all, the five wells that we drilled in Yoakum County, we're very happy with, and we think we have a very good deal there.

The investments that we're making in our infrastructure for providing water for our frac jobs is going to pay out dividends as we transition. And I know it's kind of a painful transition, and many of our shareholders don't have the opportunity to really understand that yet because we're in the early phases of this, and we cannot wait to come out to start sharing some of the results of what we're doing. But that's going to be borne out here later this year and early into next year when the full benefit of all this is going to occur. But this is just something that we had to do. We know that these investments are in the best interest of our shareholders.

And so -- and the bottom line is because we accelerated some of these investments this quarter, we're still going to pay down the same amount of debt this year that we've been saying we're going to pay down. It's just going to come out in a different profile. We're going to pay down a lot more debt as we exit this year than we are at the beginning of the year because of these accelerated investments. And so some of these accelerated investments are spilling over into the second quarter. And so that's just going to be the reality of the way it is. And I know that we have a lot of shareholders that I have an extreme amount of respect for that really want to focus on debt reduction.

And we are still focused on debt reduction. But the opportunity before us in this first half of the year to prepare ourselves for what we believe is going to be a sustainably higher price environment than what we were in before the Iranian conflict occurred. And it's just -- we're confident this is the right thing for our shareholders, and we're standing by it. And the shareholders will realize a real benefit of this as we exit this year. There's no doubt in my mind. Does that answer your question, Poe?

That did. That was very thorough. And then could you, Paul, just talk about the timing of the wells that you completed in the first quarter were those all online for, say, a month of the quarter? Or I mean, I'm just trying to figure out the cadence of production, what kind of benefit we should see from those wells? Have we already seen it? Or should we see it more in the second quarter?

Yes. You'll have the full impact in the second quarter of the first quarter wells drilled for sure because we started out at the beginning of the year with a drilling rig up there in Yoakum County and we drilled those five wells. Then we went south and drilled a vertical well. But when you look at scheduling the fracs and all that kind of stuff, they were all coming on in mid-February and into March. And so we haven't seen the full impact. This first quarter really, when you begin January 1, you got to drill them first, you got to frac them and it's just a delay. So -- but yes, the full impact will be in the second quarter. And it's kind of the consequence of a lumpy phase drilling program as you get surge into production when the wells come on, but there is just a typical natural delay. I don't know if there's anything more you want to say about that, Alex.

Yes. I'd like to add one more thing. And always this happens is that we lay down the rig towards the end of the year, so at the year-end '25. So there's always a little bit of a lag in the beginning of a new year. So by the time we pick up the rig, get the wells drilled, complete them and then they slowly start cleaning up and ramping up. So we start -- as typical year-over-year, you start really seeing the benefit in the second and third quarter.

[Operator Instructions] At this point, we have no more questions. I would like to turn the conference back over to Paul McKinney for any closing remarks.

Thank you, operator. And on behalf of the entire team and the Board of Directors, I want to once again thank everyone for listening and participating in today's call. We are pleased to have posted solid operational and financial results for the first quarter of 2026, and our outlook for the remainder of the year remains very, very strong. We will continue to keep everyone appraised of our progress, and thank you again for your interest in Ring Energy. Have a great day and a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Ring Energy's Fourth Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Please note this event is being recorded.

I would now like to turn the conference over to Mr. Al Petrie, Investor Relations Coordinator. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy. We will 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 full year. We'll then turn the call over to Rocky Kwon, Rick Energy's VP and Chief Accounting Officer, who will review the details of our fourth quarter 2025 and full year financial results. Paul will then return to discuss our 2026 guidance and outlook with closing comments before we open up the call for questions.

Joining us on the call today are Sonu Johl, who recently joined Ring Energy as its Executive VP Chief Financial Officer and Treasurer; Alex Dyes, Executive VP and Chief Operations Officer; James Parr, Executive VP and Chief Exploration Officer; and Shawn Young, Senior VP of Operations.

[Operator Instructions]

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 Securities and Exchange Commission.

These documents can be found in the Investors section of our website located at www.ringenergy.com. Should one 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 McKinney, our Chairman and CEO.

Thanks, Al, and good morning, everyone. We appreciate you joining us today. Before we begin our discussion, I would like to introduce our Executive Vice President, Chief Financial Officer and Treasurer, Sonu Johl, who joined our senior management team last Friday. Sonu brings more than 20 years of experience across upstream oil and gas investment banking, corporate finance and strategic advisory roles with deep expertise in mergers and acquisitions, capital markets, valuations and financial strategy. For the last 6 years, Sonu was Managing Director, Co-Head of Energy Investment Banking at Raymond James & Associates, Inc. where he advised public and private E&P companies doing business in the Permian Basin as well as other major U.S. onshore basins. We are very pleased to welcome Sonu who we got to know well while he was at Raymond James. Sonu, welcome aboard.

Thank you, Paul. I'm excited to be here and officially part of the Ring team. I want to start by thanking you, the Board and the entire leadership team for entrusting me with this important role as we begin what I truly believe is an exciting next chapter for Ring and for our stockholders. As a banker, I have known the company and many of you in the investment community for quite some time, and I'm genuinely thrilled to now be on the inside working alongside you, Paul, and the rest of this leadership team. We have a very exciting future at Ring and I look forward to contributing as we continue to execute our strategy and create long-term value for our stockholders.

You're welcome Sonu, and we are equally excited for you to be a member of our executive team. Like I said earlier, welcome aboard.

Regarding the task at hand, what a difference a week can make, right? Up until the Iranian crisis began to unfold last weekend, our focus was on raising the floors of our oil hedges to help ensure our future realized prices would be adequate to fund our 2026 capital program. Things certainly look different today. We'll talk more about 2026 and the future, later in this call. But for now, Rocky and I are going to reflect on what happened last year, the conditions we faced in 2025 and our fourth quarter and full year results.

2025 was a year that demonstrated the strength and resilience of Ring's value-focused proven strategy. When combining the flexibility afforded by our strategy and the discipline demonstrated by the management team to quickly adjust capital spending in the face of post-liberation day oil prices Ring Energy delivered strong performance throughout the year 2025 and in the fourth quarter.

Perhaps one of the more important successes was that we increased adjusted free cash flow by 15% year-over-year, setting a new company record despite 18% lower realized commodity prices, and we delivered our 25th consecutive quarter of adjusted free cash flow, a track record we are very proud of. We also increased sales volumes by 3% year-over-year. Our total proved reserves by 14%, our approved undeveloped inventory by 17%, which pushed our identified total locations to 500 or more representing over 10 years of drilling inventory. This is significant because we have demonstrated for the third year in a row our ability to organically grow our reserves beyond merely replacing our production.

We decreased capital spending by 35% year-over-year, reducing our reinvestment rate by 18% to 53% of our 2025 EBITDA. We improved our drilling capital efficiency by 19% since 2023 and 3% year-over-year to $500 per lateral foot, keeping our capital cost under control. We also reduced -- our year-over-year per BOE all-in cash cost by 4% and our lease operating expense during the last 6 months by 18% or $1.4 million per month over the pro forma run rate prior to closing the Lime Rock asset acquisition. This is significant because our lease operating cost run rate per month is less today than it was before the Lime Rock acquisition despite the fact that we are operating more wells and more production.

And finally, we reduced our debt by $40 million since the closing of Lime Rock asset acquisition, in addition to making the $10 million deferred payment in December. The $40 million debt reduction represents almost 60% of the debt incurred at closing of this Lime Rock acquisition in only 3 quarters and all of that done in a low price environment. Although 2025 will be remembered by Liberation Day and challenging oil prices that followed, Ring Energy stepped up to the challenge and delivered strong operational and financial performance.

Now with that, I have completed my intro, I'm going to turn it over to Rocky to go over the numbers and the details of the fourth quarter and the full year, and then Sonu, me and the rest of the team will follow up afterwards to review our outlook and guidance for 2026 and discuss the rapidly changing conditions affecting our industry and what they may mean for our stockholders. Rocky?

Thanks, Paul, and good morning, everyone. We are pleased with our outcome for the fourth quarter. In addition to the results that met our overall guidance, the fourth quarter capped off another successful full year for Ring Energy. Similar to past calls, I will take a few minutes to cover some additional color, detailing the most significant sequential quarterly results. Starting with production. In the fourth quarter, we sold 20,508 BOE per day, down from 20,789 BOE per day in the third quarter, a slight decrease of 1%. This portion of the decrease was attributable to a third-party gas plant being shut in due to a fire, which affected our sales volumes.

Our fourth quarter total sales volumes were above the midpoint of our guidance range and contributed to a record full year 2025 sales volume of 20,253 BOE per day. The year benefited from 9 months of production from our Lime Rock acquisition, which closed in March 2025. As Paul discussed, another successful drilling campaign across our asset base with a continued focus on our highest rate of return inventory also materially contributed to our record full year 2025 sales volumes.

Turning to the fourth quarter 2025 pricing. Our overall realized price declined 14% to $35.45 per BOE from $41.10 per BOE in the third quarter. The overall sequential decline was driven by 11% lower realized pricing for oil in the fourth quarter of 2025. Our fourth quarter average crude oil price differentials from NYMEX WTI futures pricing was a negative $1.66 per barrel versus a negative $0.61 per barrel for the third quarter. This was mostly due to the Argus WTI, WTS that decreased negative $0.14 per barrel, offset by the Argus CMA role that decreased a negative $0.92 per barrel on average from the third quarter.

Our average natural gas price differential from NYMEX future pricing for the fourth quarter was a negative $6.47 per Mcf compared to a negative $4.22 per Mcf for the third quarter. Our realized NGL price for fourth quarter averaged 9% of WTI compared to 8% for the third quarter. Oil revenue decreased by $9.5 million due to a negative $8.3 million price variance and a negative $1.2 million reduction variance. Gas and NGL revenues, on the other hand, increased by $2.2 million quarter-to-quarter for a combined total of $2.5 million in the fourth quarter compared to a $0.3 million in third.

This resulted in fourth quarter revenue of $66.9 million compared to $78.6 million for the third quarter, a 15% decrease. Fourth quarter LOE of $18.9 million was 8% below third quarter. On a unit basis, fourth quarter LOE was $10.02 per BOE which was 7% below the low end of our guidance range. Third quarter LOE was $10.73 per BOE. Cash G&A, which excludes share-based compensation and transaction-related costs was $3.46 per BOE for the fourth quarter versus $3.41 per BOE for the third quarter.

Our fourth quarter 2025 results included a gain on derivative contracts of $17.5 million, up from $0.4 million for the third quarter, primarily due to lower relative pricing at the end of the fourth quarter. Finally, for Q4, we reported a net loss of $12.8 million or $0.06 per diluted share, which includes $35.9 million of noncash ceiling test impairment charges. Excluding the estimated after-tax impact of pretax items, including share-based compensation expense, noncash ceiling test impairments and noncash unrealized gains, losses on hedges, our fourth quarter adjusted net income was $3.6 million or $0.02 per diluted share. This is compared to a third quarter 2025 net loss of $51.6 million or $0.25 per diluted share and adjusted net income of $13.1 million or $0.06 per diluted share.

We incurred $24.3 million in CapEx in the fourth quarter, in line with the midpoint of guidance. We maintained D&C CapEx at $14 million in the fourth quarter compared to the third quarter. We incurred costs of approximately $0.5 million for facility upgrades, which contributed to our year-over-year reduction in emissions. Also included in our fourth quarter CapEx was over $0.4 million in leasing costs, approximately 23% of our full year leasing, which added to our reserve replacement in organic inventory growth. In the fourth quarter of 2025, we generated $5.7 million of adjusted free cash flow and paid down $8 million in debt, resulting in debt reduction of $40 million since completing the Lime Rock acquisition in March of 2025.

In addition to the pay down, we made a $10 million deferred payment in December 2025 related to the Lime Rock acquisition. For full year 2025, we paid down $35 million of debt and generated $50.1 million in adjusted free cash flow. We will continue to utilize our free cash flow to improve our long-term financial profile through further debt repayments, which we expect will be fueled primarily by growth in cash flow driven by the successful execution of our targeted 2026 development program. Our primary focus remains the same, utilizing our substantial free cash flow to primarily reduce debt and better position ourselves to ultimately provide a meaningful return of capital to shareholders.

At year-end 2025, we had $420 million drawn on our credit facility. With the borrowing base of $585 million that was reaffirmed in December, we had $165 million available net of letters of credit. Combined with cash, we had liquidity of $166 million and a leverage ratio of 2.2x. Moving to our hedge position. For 2026, we currently have approximately 2.3 million barrels of oil hedged or approximately 48% and of our established oil sales based on the midpoint guidance. We also have 4.7 Bcf of natural gas hedged or approximately 66% of our estimated natural gas sales based on the midpoint. For a quarterly breakout of our 2026 hedge positions, please see our earnings release and presentation, which includes the average price for each contract type.

So with that, I will turn it back to Paul to review the outlook and guidance for 2026. Paul?

Thank you, Rocky. Before turning to our outlook and guidance for 2026, we want to take a moment to directly complement our field personnel. Once again, a January winter storm brought extremely cold temperatures and icy conditions to our operations. To our pumpers, maintenance crews, contractors and our field supervisors, your dedication kept our people safe and our assets protected. We know what it takes to operate in those temperatures and the executive team and Board are incredibly grateful for your grit and hard work.

Now looking ahead to 2026, we intend to follow a similar disciplined approach as we have in the past. Our strategy is to invest enough capital to maintain or slightly grow our production and allocate the remaining portion of our cash from operations to reduce debt. Our budget and plans this year are based on $60 per barrel WTI and $3.50 per Mcf Henry Hub. We expect our average annual sales to range between 19,500 to 20,800 barrels of oil equivalent per day for a midpoint of 20,150 barrels of oil equivalent per day. We expect our average annual oil sales to range between 12,500 and 13,400 barrels of oil per day with a midpoint of 12,950 barrels of oil per day. Both ranges are essentially flat.

2025 sales volumes after taking into account the recent divestiture of approximately 200 barrels of oil equivalent per day, of non-operated production and the impact of the January winter storm that temporarily reduced production by 540 barrels of oil equivalent per day. Supporting our production estimates, we expect full year capital spending of $100 million to $130 million, with a midpoint of $115 million. We anticipate drilling, completing and bringing online approximately 23 to 32 wells during the year.

First quarter spending is projected to be between $28 million and $34 million with a midpoint of $31 million. This capital program provides optionality and the potential to add new benches to our drilling inventory, offering a compelling avenue to expand our development, deepen our opportunity set and further demonstrate the strength and longevity of our asset base. Our ongoing advancements in capital efficiency through longer laterals, optimized completions and continued cost improvements are already generating tangible benefits and are expected to serve as a strong foundation for sustainable free cash flow generation.

With our continued focus on capital efficiency, our full year LOE is currently expected to range between $10.15 and $11.15 per BOE for a midpoint of $10.65 per BOE. I believe it is important to point out that we are projecting an LOE midpoint below what we achieved in 2025, which emphasizes our continued commitment to further cost reductions. This is important because it contributes directly to the bottom line by increasing margins and creates further optionality for the company.

In summary, our 2026 program follows the same proven playbook, disciplined capital allocation, relentless focus on reducing our LOE and cash cost, increasing the capital efficiency of our drilling program, which collectively maximizes free cash flow generation and furthering our ability to reduce debt. As mentioned earlier, our 2026 budget and plans assume WTI oil prices of approximately $60 per barrel and Henry Hub natural gas prices approximately $3.50 per Mcf.

Now with that, we have covered the 2026 guidance. I believe, we, the team should spend a little more time talking about the Iranian crisis, Iranian strategic advantage, our recent stock price performance since last fall, and what all of this can mean for our stockholders. Additionally, people want to get to know you Sonu, and understand why you chose to leave the investment banking world to join Ring.

Paul, as you know, I spent nearly 2 decades as a banker advising E&P companies and what became increasingly obvious to me over that time is that the U.S. shale model is maturing. Core inventory across the industry is being drilled up. Decline rates remain steep, and the market today is far more selective about which companies deserve long-term capital. Against that backdrop, Ring stands out. What initially caught my attention was the durability of the asset base. Ring operates conventional assets with shallow declines, long-life reserves and high margins, characteristics that are unique to ring and increasingly rare in today's E&P landscape.

A 20-plus year ROP ratio and more than 10 years of identified drilling inventory is something I don't think many other companies can say, especially in the small to mid-cap space. What also truly differentiated Ring for me was its consistency of execution. Ring has generated resilient free cash flow for 25 consecutive quarters through multiple commodity cycles. Over the last 3 years, Ring has organically grown reserves, not just replaced production. The company has also been active in M&A, successfully integrating multiple accretive acquisitions, all while simultaneously improving capital efficiency, lowering costs and reducing debt.

From a capital allocation standpoint, Ring is doing exactly what the public markets are asking for today, living within cash flow, reinvesting prudently, strengthening the company, building towards sustainable returns of capital and maintaining optionality for growth. There are very few companies, especially at this scale that can demonstrate this level of discipline and repeatability. Looking ahead, I'm excited to be part of the team and my focus as CFO will be straightforward, protect the balance sheet, enhance free cash flow durability, strategically position us for growth and help position Ring to ultimately return capital to stockholders from a position of strength. With our asset quality inventory depth and proven operating and financial discipline, I believe Ring is exceptionally well positioned for the next phase of this industry.

Paul, I hope this gives investors a better sense of why I'm so excited to be working at Ring.

Thank you, Sonu. Yes, I believe it does. It reinforces why we are so excited to have you. Now turning to James. How about you? What do you believe are some of the more important issues our stockholders should know about Ring and in light of the current events?

I'm glad you brought that up, Paul. The value of being a Permian-focused company has never been greater, given the potential for international supply disruption. Our over 96,000 net acres footprint in the heart of the Permian has been primarily focused on the San Andres. However, we have proven through our vertical drilling program that we have a robust inventory of additional attractive targets, which have been and continue to be derisked by us and others in our industry horizontally. Ring's exploration mindset has led to organic growth over the last 3 years, and we don't see any reason why we can't continue this performance in 2026 and beyond. We began testing previous vertical targets last year horizontally with excellent results. We will continue to test these intervals to determine repeatability and are confident that successful outcomes will result in increased inventory capital efficiency gains and future organic growth. More to come.

James, that was great. Alex, what you believe are some of the important issues our stockholders should know about our company, our operations and also in light of the current events.

Thanks, Paul. Let me walk through how our strategy has delivered real, measurable value for our shareholders and set us up for future value creation. First, we've built a clear track record of executing acquisitions that are not only immediately accretive, but strategically complementary. These deals added scale to our business, provided operational synergies and most importantly, expanded our future drilling inventory. What truly differentiates us is our execution after close. In our 2 most recent acquisitions, Founders and Lime Rock we've exceeded expectations in the first year across key metrics, including increased production, lowering lift costs, lowering drilling capital per well and increasing proved reserves.

That performance is tangible proof of value creation as shown in our 2025 performance. Beyond near-term results, these acquisitions, along with the stronghold in 2022, have meaningfully deepened our inventory across the Central Basin platform. Second, increased scale and operational control have enabled a more durable cost structure. Over the past 3 years, we've consistently improved capital efficiency and reduced operating costs, driving approximately a 10% improvement in finding and development costs to $10.40 per BOE since 2023. That improvement is not cyclical, it's structural. They're driven by disciplined capital allocation, technical optimization and a strong cost control culture, as demonstrated in our 3-year track record of improvements.

Our LOE reductions are long term in nature and further enhance the value of our already long life, low-decline reserves. Our culture is one built to last, not one for just short-term gains. Finally, looking ahead, we're focused on extending this momentum into 2026. We're investing in infrastructure that supports the next phase of development as we transition from verticals and predominantly 1-mile laterals to multi-bench longer laterals, meaning laterals longer than 1.5 miles and co-development opportunities where applicable. Proving our shift to horizontals. In 2026, our drilling program midpoint increased from -- increase the horizontal mix to 85% or 23 horizontals versus 67% in 2025. By drilling longer laterals, proving up multi-bench inventory and advancing co-development across stacked pay zones, we're unlocking more capital-efficient inventory and positioning the company for stronger, more durable free cash flow profile over the long term.

Paul, I'll turn it over back to you.

Thanks, Alex. These are all great points. Another point worth discussing though, is that since the exit of our former largest stockholder in August of last year, our stock price has nearly doubled. If you recall, their exit put additional selling pressure on our stock, causing our stock to trade below $1 and disqualifying our inclusion in the Russell 3000. We believe these 2 events were instrumental in driving our stock price down to $0.72 a share and our trading multiples at the lower end of our peer group.

Another point I want to make is associated with our pursuit of growth through acquisitions. Given our current debt and leverage ratio, we are not in the best position to pursue a sizable acquisition. Having said that, though, we are always looking for the next great deal. And this is where it is good to have more ways to win, so to speak, or more growth tools in the tool box. We don't only depend on M&A for our future growth because we have demonstrated that we can grow organically as well.

Having said all that, this brings us to the end of our prepared remarks. So I will sum things up by saying we scaled the business, expanded high-quality inventory, lowered our cost structure and are investing today to drive sustainable returns and long-term value creation. We are excited about the opportunities ahead in 2026 and believe we can deliver meaningful long-term stock price appreciation now that our overhang on our stock is behind us. Since the new year, our share price has increased 62%, reflecting renewed investor confidence, our stronger operational execution and a clear alignment between our stock price performance in our valuation.

And with that, we will turn this call over to the operator for questions. Operator?

[Operator Instructions]

And the first question will come from Jeff Robertson with Water Tower Research.

Paul you talked about expanding the organic growth inventory set through the 2026 drilling program. Are you testing any new zones in the 2026 program? Or is expanding the inventory related to high-grading zones that you may think are prospective, but with additional drilling data points, you determine those are -- could be economic targets.

Yes. That's a good question, Jeff, very much so. And so with respect to new zones, you got to remember that we have been drilling what we call inexpensive verticals and completing the stack pays in Crane County and also in Ector County for quite some time. North of that, we focus on the San Andres. But all these zones have been producing in many of our wells for a long time. So -- but what is new is that we've taken a serious look at our inventory across our entire acreage position. We've identified the zones that we believe are commercial or can be commercial horizontally, and we began last year testing a few of those.

And so we're not yet ready to come out with which zones that we're specifically targeting and where. But we're very encouraged by the results, and this year's program is designed to test the repeatability of that. And with that, we'll come out with a lot more information about which of these zones that we're targeting, how meaningful it will be for our stockholders in terms of the number of sticks that we're adding into our inventory. And so we are really excited about 2026. I think the point that you're driving to right here is, is a key reason why we're so excited because we do believe that our capital program this year, even though a modest one is going to generate a lot more information about the sustainability of our current asset set in terms of developing future horizontal wells going from verticals to horizontals.

And with that, James, James, is there anything more you'd like to add to that?

Yes. No, that's all good points. And Jeff, we pulled our original budget at the beginning of the year and what a change this past week has been, but we're going to stay disciplined towards paying down debt, and feathering in these additional tests for these other horizons. So we can still meet our financial objectives of paying down debt and remaining disciplined and then get some data behind us. But we view our previous acquisitions setting us up perfectly with a great inventory of deeper potential that we are in the process of testing.

So more to come on this, but as Alex mentioned, we're investing a little in infrastructure to be able to capitalize on converting the program into horizontal wells. And the neighbors surrounding us have been testing some of the zones very successfully, too. So we're going to have a disciplined approach to doing this, but we're very excited by the potential we have ahead of us. So thanks for asking.

Yes. And like I said a little earlier, Jeff, although we're not planning to grow our production appreciably this year. It is my belief anyway that the results of the work program that the geoscience and engineering teams are pursuing will inventory more horizontal sticks and we should emerge from 2026 with an inventory that can actually develop and lead to significant organic growth without the need to pursue M&A.

And of course, you know that we love M&A, and we like pursuing the acquisitions, but we have more than one way to win, so to speak. And this program, although not designed to develop production growth, it is designed to develop potentially additional inventory for drilling locations and also reserve growth.

So your point on horizontal wells, Paul, do you have a lot of land work to do to get these position to accommodate the length of lateral that you think will be most efficient as you look at these zones?

Yes. We began those efforts actually as much as 2 years ago, positioning our land so that we can drill the longer lateral. So this year, we will be drilling our first 2-mile well. And we are focused on, just like the rest of the industry, focused on organizing our leases, preparing things so that we can take advantage of the benefits of additional capital efficiency. We've learned now that going to longer laterals, we've also learned that employing some of these newer latest, greatest completion techniques and the evolution of our completion designs is just leading to more reserves per dollar spent, more production per dollar spend, more capital efficiency.

And so this is also another part of what we're doing. Yes, it takes a little bit of capital to invest in some of the infrastructure like the ability to store enough water, so you can complete these longer wells. But these investments are going to pay off in the long term. We'll incur some of those costs this year, but they will have benefits in the years to come as we fully develop our acreage down there in Crane County and Ector County and all that kind of stuff.

[Operator Instructions]

And our next question will come from Poe Fratt with Alliance Global Partners.

Great presentation. Just a quick one. I noticed that you sold some non-op properties in, I think, earlier this year after the end of the year. Can you quantify what you're going to bring in there? I didn't -- I'm not sure I heard that. And then secondly, are there other opportunities to sell assets or noncore production?

Yes. Poe, that's a very good question. We did close -- we began a disposition process last year of some non-operated assets in Yoakum County. And yes, we closed on that at the end of January. It represented about 200 barrels a day net of our non-op production. And that's part of -- and that's what we've subtracted out of our forecast for this year. And there's a few more details that we can share with that. I mean, Alex, I think maybe you ought to cover all of that for us.

Yes. Thank you, Paul. So Poe, yes, we sold 200 BOEs a day, and we sold it at $4.5 million, so about 4.5x next 12 months cash flow using a December strip price. So that's actually what we sold.

And with respect to the rest of our inventory, we're always looking for ways to accelerate value to help us pay down debt. But as you know, we have been pretty diligent over the last 5 years, selling the assets in the portfolio that really don't meet our criteria. And so if the undeveloped opportunities are not competitive with our current portfolio, it's kind of hard to justify keeping those. You can sell those to someone else who's willing to invest, those types of opportunities and bring that value forward, and we've been paying down debt or primarily allocating those funds to paying down debt.

So we'll continue to do that in the future. I will say, though, that the covers kind of bear. We probably need to do another acquisition or 2 to -- because every time you make an acquisition, you'll end up picking up assets that don't fit our criteria to stay within our portfolio. And so we tend to monetize those when that occurs. But right now, I'm not sure that we really have an inventory that's meaningful that will be coming to market from us anyway because we basically already cleaned out the covers. Does that answer your question, Poe?

As there are no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Paul McKinney for any closing remarks. Please go ahead.

Thank you, Chuck. On behalf of the management team and the Board of Directors, I want to once again thank you for your interest in joining today's call. We appreciate your continued support of the company, and we look forward to keeping everyone updated on our progress in the future. This ends the conversation. Thank you. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Ring Energy Third Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I will 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 third quarter of 2025. We will then turn the call over to Rocky Kwon, Ring Energy's VP and Interim Chief Financial Officer, who will review our financial results.

Paul will then return with some closing comments before we open up the call for questions. Also joining us on the call today and available for the Q&A session are Alex Dyes, Executive VP and Chief Operations Officer; James Parr, Executive VP and Chief Exploration Officer; and Shawn Young, Senior VP of Operations. [Operator Instructions] 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 one 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 McKinney, our Chairman and CEO.

Thanks, Al, and thank you, everyone, for joining us today and for your continued interest in Ring Energy. We are pleased to announce another strong quarter. During the third quarter, we were able to achieve or exceed our goals despite the volatility and challenges associated with commodity prices.

We were able to do this because we continue to focus on the operational and financial items within our control to maximize adjusted free cash flow. We also benefited from our historical efforts to optimize and build an asset portfolio defined by high margins, shallow declines and long reserve life, the virtues that lead to resilience and sustainability no matter where we are in commodity price cycle.

So let's get into the numbers. Our oil sales were 13,332 barrels of oil per day, which was slightly below the midpoint of our guidance. And our total sales were 20,789 barrels of oil equivalent per day, which was above the midpoint of our BOE guidance. Production from our recently acquired Lime Rock assets as well as the new wells drilled so far this year continue to perform better than expected and continue to help mitigate the natural decline of our legacy assets during this period of capital discipline.

We deployed $24.6 million in capital spending during the quarter, which was near the low end of our guidance range and allowed us to drill and complete the necessary wells to achieve our production targets. As we have shared in the past, our discipline in this regard is focused on striking the right balance of maintaining modest year-over-year production growth and liquidity with managing our leverage ratio and paying down debt.

Another item associated with our focus on maximizing adjusted free cash flow is our cost-cutting efforts in the field, which continue to yield great results. Our lifting costs during the quarter were $10.73 per BOE, which was below the low end of our guidance range for the second consecutive quarter and only 3% shy of the lifting costs recorded last quarter.

Our lifting cost reductions have been driven primarily by reducing the number of operators in the field required to operate our wells, lower chemical expense, reducing well failures and the costs associated with well repairs and production efficiencies gained through longer run times and proactive well interventions.

Our third quarter results demonstrate that Ring Energy is successfully executing on our operational plans and managing the important issues within our control. Despite weak oil and natural gas prices, Ring generated $13.9 million in adjusted free cash flow during the quarter, which was primarily driven by the operational items we just discussed.

Our operational performance enabled Ring to reduce debt by $20 million, which was $2 million more than we guided for the quarter. Our continued and unwavering focus on improving our leverage ratio will continue into the foreseeable future, and we intend to maintain the momentum of the successes from the first half of this year as we finish out 2025 and enter 2026.

As we stated in our earnings release, if we encounter higher oil and natural gas prices in the future, we will continue with our capital discipline to prioritize reductions and improving our leverage ratio to competitive levels with our peers.

Having said all this, I would like to turn this call over to and introduce you to our Vice President and Interim Chief Financial Officer, Rocky Kwon. He will share the highlights and details of our third quarter financial position. Afterwards, I will return to share more about the priorities and our outlook for the future. Rocky?

Thanks, Paul, and good morning, everyone. The takeaway for the quarter is that Ring continues to successfully execute its plan to reduce costs, maximize free cash flow generation with a focus on further debt reduction. In Q3, similar to Q2, we paired strong sales volumes with disciplined capital deployment and a focus on cost reduction. The combination of these actions resulted in adjusted free cash flow of $13.9 million, which enabled us to pay down $20 million of debt.

As we have said every quarter, balance sheet improvement has been and will remain a top priority for the company. Turning now to the metrics for the quarter. It's clear that the team is executing the operational plan effectively. Starting with sales volumes. We sold 13,332 barrels of oil per day, just below the midpoint of our guidance and 20,789 BOE per day above the midpoint of guidance.

Third quarter 2025 overall realized pricing decreased 4% to $41.10 per BOE from $42.63 in the second quarter. Driving the overall decrease was a 16% reduction in NGL prices to $5.22 for the quarter. This was offset by 3% higher realized oil prices of $64.32. Realized gas price remained at a negative value of $1.22. However, that was an improvement from a negative $1.31 in the second quarter.

Plant processing fees continue to reduce realized pricing for both NGL and gas. Our third quarter average crude oil differential from NYMEX WTI futures pricing was a negative $0.61 per barrel versus a negative $0.99 for the second quarter. This was mostly due to the Argus CMA role that increased $0.76 per barrel, offset by the Argus WTI WTS that decreased by an average of $0.41 per barrel from the second quarter.

Our average natural gas price differential from NYMEX futures pricing for the third quarter was a negative $4.22 per Mcf compared to a negative $4.67 per Mcf for the second quarter. Our realized NGL price averaged 8% of WTI compared to 10% for the second quarter. The result was revenue for the third quarter of $78.6 million despite the weakening prices. We continue to target higher oil mix opportunities as oil accounted for 100% of our total revenue, while it was only 64% of total production.

Overall, our sequential revenue decreased by 5% from the second quarter, which was driven by a negative $5.8 million volume variance, offset by a positive $1.8 million price variance. Moving to expenses; LOE was $20.5 million or $10.73 per BOE compared to $20.2 million or $10.45 per BOE in the second quarter. We were pleased to see the trend of lower LOE on a BOE basis over the last two quarters, which was well below our guidance of $11 to $12 per BOE.

Cash G&A, which excludes share-based compensation, was $6.5 million compared to $5.8 million for the second quarter. The slight increase was primarily driven by an increase in salaries and bonuses related to the separation of a former executive. Our third quarter results included a gain on derivative contracts of $0.4 million compared to a gain of $14.6 million for the second quarter.

The third quarter gain included a $2.1 million unrealized loss and a $2.5 million realized gain. As a reminder, the unrealized gain loss is simply the difference between the mark-to-market period-to-period. For Q3, we reported a net loss of $51.6 million or $0.25 per diluted share, which includes $72.9 million of noncash ceiling test impairment charges compared to the second quarter net income of $20.6 million or $0.10 per diluted share.

Excluding the estimated after-tax impact of pretax items, including share-based compensation expense, noncash ceiling test impairment and noncash unrealized gains and losses on hedges, our third quarter 2025 adjusted net income was $13.1 million or $0.06 per diluted share while second quarter 2025 adjusted net income was $11 million or $0.05 per diluted share.

We posted third quarter 2025 adjusted EBITDA of $47.7 million compared to $51.5 million in the second quarter, with most of the difference attributed to lower oil revenue and higher cash G&A offset by higher realized hedges. During the third quarter, we invested $24.6 million in capital expenditures, which was below the midpoint of guidance of $27 million.

Adjusted free cash flow was $13.9 million compared to $24.8 million for the second quarter, with a net decrease primarily associated with approximately $7.8 million in higher capital spending, combined with $3.7 million lower EBITDA compared to the second quarter. We ended the period with $428 million drawn on our credit facility after a $20 million paydown.

With the current borrowing base of $585 million, we ended the quarter with $157 million in availability with a leverage ratio of 2.1x, which includes the $10 million deferred payment related to the Lime Rock acquisition due in December of 2025. Moving to the hedge positions. For the last three months of 2025, we currently have approximately 0.6 million barrels of oil hedged with an average downside protection price of $62.08. This covers approximately 53% of our oil sales guidance midpoint.

We also have 0.6 Bcf of natural gas hedged with an average downside protection price of $3.27, covering approximately 33% of our estimated natural gas sales based on the midpoint of guidance. For a breakdown of our hedge positions, please refer to our earnings release and presentation, which includes the average price for each contract type.

We updated our guidance for the fourth quarter and the full year 2025. Full year production guidance is now 13,100 to 13,500 barrels of oil per day and 19,800 to 20,400 BOE per day. Guidance for the fourth quarter total sales volumes is now 19,100 to 20,700 BOE per day and oil production ranges between 12,700 and 13,600 barrels of oil per day, resulting in a 66% oil mix.

On the cost side, we updated guidance to $10.75 to $11.75 per BOE for the fourth quarter and $10.95 to $11.25 for the full year of 2025. Please refer to our third quarter earnings release and company presentation for full details by period. As in the past, we retain the flexibility to react to changing commodity prices and market conditions while also managing our quarterly cash flow.

So with that, I will turn it back to Paul for his closing comments. Paul?

Thank you, Rocky. Ring Energy's value proposition is clear. Our enviable portfolio of oil-rich assets with shallow declines, long reserve lives and higher margins allow for resilient cash generation. Our focus on building an inventory of drilling opportunities with low breakeven costs provides flexibility and optionality to maintain our production levels and liquidity.

Together with our capital discipline, flexibility and focus on maximizing adjusted free cash flow generation to manage our leverage ratio and improve our balance sheet emphasizes the virtues of our value-focused proven strategy and the potential for strong revenue and earnings growth when higher commodity prices return.

Ring stockholders have observed two consecutive quarters of disciplined capital allocation and improvements in capital and operational efficiencies that led to strong cash flow generation and debt reduction during these post Liberation Day commodity prices. We intend to remain on course with these priorities regardless of future commodity prices and intend to do so until we drive our leverage ratio down to competitive levels with our peers.

Regarding acquisitions, it is challenging in my mind that Ring would acquire producing assets of any reasonable or significant size with our leverage ratio being what it is today and our stock, in my opinion, being as undervalued in the marketplace as it is today. Having said that, though, there are attractive opportunities out there that would make great additions to our portfolio because they meet our strict criteria.

So I feel compelled to say that we are and will continue to evaluate available opportunities to acquire, but -- and until some of these individual and macro level issues change, it is unlikely that we could or would do anything in this regard of any significant size. Regarding divestitures, as many of you know, we have a small package on the street of quality non-operated working interest.

We are testing the market to see if we can repeat the performance achieved in the past when we were able to sell assets at valuations accretive to our trading multiples. The proceeds from future asset sales will be allocated to debt reduction. Regarding implementing a stockholder capital return framework, we currently do not pay dividends and have not pursued a stock buyback program.

With all things considered and having had conversations with many of our large stockholders, we believe prioritizing debt reduction and improving our leverage ratio is our most important focus. We also believe that achieving a more relevant size and scale in the marketplace is also important.

With respect to growth, until we achieve leverage ratio competitiveness, our focus will be on reserves and inventory growth. As you may recall, we did not complete any acquisitions during 2024, yet we grew our production and reserves through organic means. Having more ways to grow today is important, and we no longer have to rely on acquisitions of producing assets to achieve our growth ambitions.

By focusing on reserves and inventory growth during these times of challenging commodity prices, we can continue our focus on improving our balance sheet and prepare ourselves for the future when our leverage ratio, debt levels and commodity prices provide the opportunity and the flexibility for significant growth.

With that, we will turn this call over to the operator for questions. Operator?

[Operator Instructions] The first question comes from Noel Parks with Tuohy Brothers.

One thing I was wondering about is on the balance sheet, it's something I don't know if I've asked about recently. Any thoughts about possibly terming out the revolver since we're kind of in this transitional interest rate environment and it seems like there are some folks out there who think we might not see a lot further down move in longer-term rates. So just wondering if that was on the table these days.

Yeah. Noel, that's a really good question. And to be quite frank with you, everything is on the table, right? And so yes, we are looking at not only that, but all other opportunities that we have to strengthen the balance sheet. What are the ways to reduce risk out there in the marketplace?

And so there are advantages and disadvantages associated with various different financing alternatives. The credit facility that we currently have in the reserve-based loan still does stand at the lowest cost of capital for us, and that's where we are right now. But as markets change and as risks change going forward because you got all kinds of things moving.

You got interest rates that are moving, you have energy prices that are moving. Everything appears to be very volatile. So yes, we do our best to try to stay abreast with all these changes. And what does that mean in terms of the best way to finance our future growth and the debt that we have on the balance sheet. Rocky, is there anything else you can say?

No, I just want to echo that comment, Paul. All options are on the table. We are exploring all opportunities to strengthen our balance sheet, especially when it comes to our debt levels. So we are exploring opportunities, and we are continually keeping abreast to all our options out there.

Yeah. So the only thing I can say is that although we're evaluating, we're not in a position right now to announce any kind of a change or anything like that. But I think every company out there, just including us, especially those that are in the public space, you have to stay abreast of these types of changes. But yeah, that's a very good question. We don't have any -- we're not anticipating any kind of changes in the near-term, but we are looking at all of those things continually. Does that answer your question, Noel?

Sure does. And another thing I was wondering is, in this environment, we've had some relative weakness in crude compared to where we've been. So would you say it's safe to assume looking into next year, flattish service costs kind of at worst heading into next year?

Yeah. So if you've got a crystal ball on what future energy prices are, that would be probably the best prognostication you could have, I guess. And I'm going to turn this over to my operational guys. But there has been changes in the cost for services that we've seen since post Liberation Day. Shawn, I don't know if there's anything more you can say in that regard.

Yeah. Obviously, with the activity levels and commodity prices where there are, there's continued pressure on service costs. And I'm not sure we've seen the bottom yet. So we're continuing to work with our vendors and continuing to negotiate the best cost we can. But yeah, it's -- hopefully, we do see some improvement in commodity prices and maybe that does keep service costs relatively flat. But right now, we are still continuing to take advantage of some savings that we're able to negotiate.

Yeah. And we're anticipating a few more here in the near term. Yeah. That's good. Good question, Noel.

The next question comes from Jeff Robertson with Water Tower Research.

Paul, in your opening remarks, you talked about the stock price, and you talked a little bit about it on the August conference call. Can you just share any thoughts with 90 days later, how you think Ring is relatively positioned as you look out into 2026?

Yes. I mean if you look back at where we were this time last quarter, there are a couple of things that have changed. The most significant change is that Warburg has since completely exited their position in Ring Energy stock. And we also believe all of the institutional repositioning associated with the Russell 3000 is also over.

So from my perspective, Ring Energy is now free from what has been described by others as an overhang or additional selling pressure against our stock. And so I'm really excited about that. Now where we are trading today, I still believe we are at a discount to our peer companies.

And I believe that our performance is very competitive versus that peer group. And so I believe that we will see a gradual increase in our stock price performance versus our peers just because I believe that's the rightful place where we should be. And if we continue to deliver to our stockholders quarter-over-quarter, I don't know how long it will take for us.

But if you look back in history, if you look at the history of our stock price and performance versus our peers, we've suffered three years of additional selling pressure that really put us at the lower end of that peer group when our operational and financial performance during that time period was at the higher end.

And so I believe we're going to get there. What does that mean? It's kind of hard to say. But if you just look at the trading metrics, we're just not trading where many of the other peer companies are and yet our performance is superior. So I think that there's a bit of a re-rating that can occur there.

With the emphasis on debt reduction, I think Rocky you mentioned the $10 million deferred payment [indiscernible] Lime Rock during the fourth quarter. Paul, can you talk about what the scenarios that you think about for 2026 for further debt reduction? And should we take the slide that you all have, I think it's the bottom right panel on Slide 7 as an indication of what might be possible for debt reduction in 2026?

Yeah. Yeah, another good question, and that was intentional. And Rocky will jump in here shortly as well. But before getting into any of the numbers, though, I think we need to emphasize to our investors that there are several variables between now and the end of the year with regarding that will impact our debt as we exit the year.

But having said that, we believe, based on our current projections of operational performance and also the assumptions associated with commodity prices remaining at current levels, of course, we can't forget that, right? We should be able to pay down somewhere in the $10 million range in the fourth quarter. Rocky, is there anything more you want to say?

Yes, there is. I'd just like to reemphasize the uncertainties that we have the potential to pay down and that would affect the number -- the $10 million number that you just shared, Paul. Some of these issues can improve the amount and one or two of these could actually reduce the amount, but I just want to emphasize the uncertainty of that nature.

But importantly, I think it's worthwhile to note again that we do have a $10 million deferred payment due in December. So if it wasn't for the $10 million deferred payment from the Lime Rock acquisition, that repayment, that reduction would actually be approximately $20 million. But again, I just want to reemphasize the uncertainty of the nature and there's -- it could improve or it could reduce the amount.

Yeah. So going back to that, I mean, we just paid down $20 million worth of debt in the third quarter. If it wasn't for that deferred payment, thank you for mentioning that, Rocky. We would be paying down another $20 million next quarter.

All of these changes that we've made in terms of how we're allocating capital, the priority associated with debt reduction. I think if anything, we've learned from Liberation Day that the leverage ratios that we currently have really need to be lower. We need to position ourselves so that we have more flexibility and more optionality, especially with our dealings with commodity hedges and everything else.

And so we're not going to lose focus on paying down debt. And so if it wasn't for the deferred payment, we'd be paying down more next quarter. But hey, we still have a couple of things up our sleeve. We might be able to exceed that. But I think $10 million is a good number. [ Al ]?

Yes. And one more thing, hi, good morning, Jeff. And as Paul mentioned on the call just earlier, we are looking at rationalizing our portfolio. So we are also looking at noncore divestitures specifically a non-op divestiture. So that asset class is tending to trade at better multiples than us. And so if we can potentially sell it at a premium like we did last year where we sold an asset, we'll try to do that, too.

So that's another potential that could increase our debt reduction. So put it this way, Jeff, we're going to -- we're very, very focused on debt reduction. And back when oil prices were $75, $80, we could continue to pay down debt and also pursue organic growth or growth. But at these prices, we're squarely focused on paying down debt. So I think $10 million is a good number to go with. And so we'll see how things turn out. Does that answer your question?

Yes, it does.

[Operator Instructions] The next question comes from Poe Fratt with Alliance Global Partners.

Just to follow up on that $10 million debt reduction number in the fourth quarter. Can you give us a range? Rocky, you talked about some good things and potentially some bad things. What's the best case scenario for debt reduction in the fourth quarter?

Poe, come on now?

And what's the worst case? I mean just how tight is that range?

Again, thanks for the question. That's a really tough question to quantify any ranges due to the uncertainty of the nature, commodity prices, several aspects that we are working on in-house such as the non-op divestiture piece that we have out there.

And again, the $10 million deferred payment that we have. So if you strip that out, we're looking at approximately a $20 million paydown. But again, the uncertainty of the nature, I can't go into too much and put out a range.

Yeah. And so Poe, the reason why I really wanted Rocky to answer that question because I know that he would give you a much more conservative number than I might. But I'll put some quantification. I mean it's going to be at least $8 million. But if you go back to what Alex mentioned, there's a potential to pay down $12 million, $13 million or $14 million.

And so, is that the high end of the range? It's kind of hard to say because we are still making progress. And some of the big surprises that I've had as a CEO really is the progress that our field guys are making in terms of reducing operating costs out there and then our drillers and guys completing our wells.

They're continuing to find ways the capital that we're planning to spend in the fourth quarter, we're finding ways to reduce that -- those costs, and that will go straight to debt reduction. And at the same time, any more progress we make on reducing operating costs, that's going to go towards paying down debt as well. And so it's kind of hard to put a range on it, but that's probably the best we can give you, Poe. Is that all right?

No. From what I think I heard, the high end of the range potentially includes the sale of the non-op working interest. So should I be thinking about the potential proceeds from that sale of -- in the $3 million to $5 million range? Is that sort of a reasonable expectation?

Well, it's kind of hard to say there because if you look at the range out there in the marketplace, it could be considerably higher than that. That's part of the reason why I said we're testing the markets with this. If we don't get what we think is the right value, we won't sell it at all.

So then there won't be any benefit to that. So it truly is a test in the marketplace. We expect to get a very strong trading multiple out of the sale of those assets. Otherwise, we won't sell them. So that's a real risk that we just actually don't close on a deal in the fourth quarter, and we don't apply that to paying down debt.

Yeah. What did the working -- non-op working interest contribute in the third quarter as far as production?

Yeah, it's less than 200 BOEs a day, yeah.

Okay. So yeah, on the margin, it's not going to move the needle significantly on your debt reduction program. Okay. And then I noticed this may be a little nitpicky, but I noticed the third quarter production, the oil cut dropped. Is there anything that drove that or is that -- it sounds like it may be temporary from the standpoint of looking at your fourth quarter guidance, oil cut rebounded to 66% from 64%. But anything going on there?

Yeah. I mean, actually, you're digging into the numbers and you're identifying a lot of things that we don't spend a lot of time talking about. But prior quarters, we had -- and we had this consistently. We have -- some of the gas gatherers are systems that are a little on the older side. And so the reliability of those gas gathering systems.

When these plants go down or there's a line leak and they got to replace a line, oftentimes, we find our gas not going to sales. And so that is the swing typically that you see in our ratios from one quarter to the next. And it's more a reflection of the takeaway capacity and whether or not they're actually taking. Shawn, is there more you can share there?

Yeah. So yeah, Paul hit it right on the head. In the second quarter, we did have a lot more downtime associated with gas takeaway. And so our gas volumes were not as strong in the second quarter versus where we were in the third quarter, and that's what's making the splits there change.

Okay, great. And then if you look at the midpoint of your CapEx guidance for the fourth quarter, can you give me an idea of the mix between vertical and horizontal wells that you're going to drill?

Can you repeat that question?

You want to know the mix between horizontal and verticals in the fourth quarter [indiscernible].

Yes, I think we've got 3 horizontal wells and 1 vertical well planned for the fourth quarter, so.

Great. And then Jeff talked about Page 7, the lower right box. Is that your current working guidance for 2026 or how should we look at that? Is that more of a hypothetical at this point in time or should we view that as the guidance for '26?

It's actually hypothetical. It's basically assuming that we continue with the same capital spending levels that we have. We are looking at and actually in the final throes of assembling our budget for next year, and we intend to review that with our Board of Directors to get approval for that.

And so then we'll come out with official guidance once we've got that pinned down. And so yeah, there's a lot of moving parts in that regard right now because I think it's probably safe to say at this early stage that unless something changes, $60 will probably be the price assumption, a flat $60 case going into next year associated with our projected cash flows and all this kind of stuff.

And if you use that as a basis, that's going to affect the capital spending levels. And again, we're going to continue our preference for paying down debt and strengthening the balance sheet through a stronger leverage ratio. And so we'll be managing all of that.

But at this point, it is the tail projections from basic assumptions that were designed for 2025. That tends to get updated and will be updated here before we exit the year, and we'll be reviewing that with the Board immediately after the New Year. And so when we come out with our fourth quarter results, we'll have clear guidance at that time.

Okay. Just wanted to make sure that, that was hypothetical and that we really shouldn't be looking at those numbers unless oil prices change from where they are now, right?

Yeah. And so -- but if you look at -- I will say this, the assumptions that went into that, even though it's a hypothetical, those assumptions in this current price environment are not going to be a whole lot different than what was used to put that together. So it could change. Alex, is there any more you want to say there?

Yeah. So as Paul was alluding to here, it's more of -- if you look at what the realized oil price this year, it's about $64 to $65. So this base model for '26 outlook was based on that. If we really do remain in the $60 price environment, then we will look at pulling back our capital some to try to still maintain production, but the reinvestment rate would obviously be -- we're trying to stay pretty level around that 50% to 55%.

Yeah. And so the reinvestment level is important. And again, because we're not going to lose sight of debt reduction, you can't lose sight of leverage ratios either. And so it's a balance. It's a mix. But yeah, so that would imply a slightly lower capital spend, and that would affect EBITDA and same with the oil price assumption, too.

Okay. Sounds good. And then, Rocky, just a nitpicky one on G&A expense. You had mentioned Travis leaving that hit the G&A expense line this quarter. Will it bleed into the fourth quarter or will G&A fall back into the sort of the second quarter range?

No. So G&A will kind of be back in line. That was a onetime recognition of the costs related to the departure of our executive. Based on the rules, we had to take the -- we had to recognize all the costs within the period that it incurred and it was in the third quarter.

[Operator Instructions] We now have a follow-up from Jeff Robertson with Water Tower Research.

Paul, you talked about organic growth in the past. But if you're not in the acquisition market just because of dynamics, what do you do with the existing asset base to try to categorize or catalog organic growth opportunities that you can take advantage of in the future?

Yeah. And so I'm going to allow James Parr to jump in on this. But again, it goes back to the price environment that we are. If we're in a higher price environment, you can focus on more than just one endeavor that leads to share price appreciation, right? And so in the past, when we're in the $75 price range, we were paying down debt and also seeking to grow. Right now, we're focused on debt repayment.

And so what are the other things you can do? So if you go back to 2024, we were very successful in terms of growing the company through organic means. And so that's acquiring additional leases within our cash flow and drilling wells identified through organic means. And we not only grew our reserves, but we also grew our production.

Right now, we don't intend to grow our production. And so by focusing on reserves and inventory, building your undeveloped inventory, we'll position the company so that when energy prices return and then our balance sheet is in a strong position, our leverage ratio is where we want it, then we have the optionality to actually pull -- take advantage of the built inventory and deliver significant growth.

That could be in significant production, revenue and EBITDA growth. And so right now, I think we're focused in the Central Basin Platform and the Northwest Shelf in terms of identifying the opportunities. I think, James, I mean, I'm sure there's a lot you can say here.

Yeah. No, great question, Jeff. In tight times, how do you continue to maintain the company and pay down the debt. So I'm excited by the multiple organic opportunities that we've got across most of our assets that we've purchased through previous deals that we've got.

And for instance, down in Crane County, [ offset ] operators have successfully drilled and derisked additional stratigraphic intervals that extend on to our acreage. So pursuing these deeper targets in the future will enable us to have more of a horizontal well program going forward, replace and grow our reserves organically and increase our capital efficiency through the shared cost of the facilities we have, drill longer laterals, et cetera.

So these deeper benches that are across our acreage holdings give us a really robust future inventory to replace production, pay down debt and grow prices even in this -- grow the company or maintain it even in this depressed price environment without resorting to an acquisition. So we feel good about what we've got ahead of us, and there's a lot of potential.

Yeah, [ Joe ], I mean, organic developed opportunities typically are considerably more economic than the opportunities that you buy in the marketplace when you make an acquisition. And so -- and we proved that to ourselves last year. That was also part of the reason why we hired James, and we have continued -- we call it adding more tools to the toolbox.

We want more ways to win in higher prices than in the past, without the staff necessary that was necessary to identify these types of opportunities, you grew through acquisitions. But just because we're in a position right now where acquisitions are less likely, that doesn't mean we're not growing and growing reserves and growing our undeveloped inventory is the best thing we can do during these times so that when oil prices do return and our balance sheet is stronger, then we can really pour it on and we can deliver growth through organic means.

And so getting back to what James said, we do have several operators, and he mentioned Crane County, there's an operator down there, a private operator that's just doing a great job, a great organization, and they've proved many of the zones that go across our acreage. And so we're going to test and we're going to try some of these. We're going to build those -- that inventory so that when prices are right, we'll be able to get after it.

And so that represents a great opportunity for investors. When you look at a company like Ring, that growth could be very significant, especially when you consider our current size and how meaningful that could be. So can we see significant multiples in terms of our future production and revenue growth? I believe it's possible, and that's the best thing you can do during times like this when we're just paying down debt.

This concludes our question-and-answer session. I would like to turn the conference back over to Paul McKinney, Chairman and CEO, for any closing remarks.

Yeah. Thank you. On behalf of the entire team and Board of Directors, I want to once again thank everyone for listening and participating in today's call. We are pleased to have posted solid operational and financial results for the third quarter of 2025, and our outlook for the remainder of the year remains solid despite the current price environment. We will continue to keep everyone appraised of our progress and thank you again for your interest in Ring Energy. Have a great weekend, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Ring Energy Second Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I will 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 of 2025 as well as our updated outlook. We'll then turn the call over to Travis Thomas, Ring Energy's Executive VP and CFO, who will review our financial results. Paul will then return with some closing comments 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 and Chief Operations Officer; James Parr, Executive VP and Chief Exploration Officer; and Shawn Young, Senior VP of Operations. 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 our filings with the SEC. These documents can be found in the Investors section of our website located at www.ringenergy.com. Should one 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 McKinney, our Chairman and CEO.

Thanks, Al, and thank you, everyone, for joining us today and for your continued interest in Ring Energy. We enjoyed another strong quarter, a quarter where we not only set new records for oil and BOE sales, but we also set a record for adjusted free cash flow despite considerably lower oil prices. Our operational performance during the second quarter of 2025 was largely due to the continuing success we enjoyed in the first quarter, namely that our PDP production base, the new wells drilled so far this year and the newly acquired Lime Rock assets continue to perform at the higher end of our forecast. Also contributing to our success was the progress our operating team made by reducing operating costs.

There are several highlights to point out in this regard. First was the quick and efficient integration of the Lime Rock assets into our operations, where we not only reduced the LOE cost of the acquired assets, but realized cost savings with our existing assets in the Sater Lake operating area as well. These cost reductions were due to the reduction of field -- of the required field staff by approximately 50% due to the proximity of our existing assets and the ability of Ring's field management to reorganize operational responsibilities, resulting in the combined operations being more efficient. We have been able to arrest the decline rates by reducing the downtime associated with well failures with more responsive repairs and getting the wells back online sooner.

We are also able to incorporate existing vendor services such as [roundabout] crews, workover rigs, haul trucks, et cetera, that resulted in more efficient use and reduced expenses for these services in our combined operations. Other highlights are related to LOE reductions across other areas of our operating base. Our operations team continues to drive costs out of our operations where we realized about $400,000 in savings per month during the second quarter. We have significantly reduced the number of routes spout gains and expenses around supplies and materials due to more efficient management from our field construction group. We are continuing to see reductions in field staffing-related costs from optimizing field responsibilities and lease operator routes.

Our production performance, cost savings and the acquisition of Lime Rock assets had an important impact on our performance in the second quarter, and the benefits to our stockholders are depicted on Slide 10 in our corporate presentation posted this morning. Our production per share increased 13% over the prior quarter because of the Lime Rock acquisition and the strong performance and improved metrics reported this quarter. Our all-in cash operating costs dropped almost $3 per BOE or 12% due to our cost savings initiatives.

Finally, and because of our strong performance this quarter, our adjusted free cash flow on a dollar per BOE basis is up over 250%, but we are not stopping there. We believe we have additional gains to make reducing our operating costs. One change we are making worth pointing out is that we are currently expanding the scope of operations of one of the chemical vendors used in the South into our Northern assets. We expect this important change to drive future incremental savings already seen in our Southern operations by reducing direct chemical treating costs by eliminating hot oil treatments by lowering well failure frequencies and reducing associated workover costs. This transition should be completed in the third quarter of this year.

So let's review some of the specific results of the second quarter. We sold 14,511 barrels of oil per day, which was near the high end of guidance and 21,295 barrels of oil equivalent per day, which was just below the midpoint of guidance. When combining our record-setting quarterly production with below the low end of guidance lease operating expenses of $10.45 per BOE and a 48% reduction in capital spending over the prior quarter, we achieved record free cash flow of $24.8 million, marking the 23rd consecutive quarter of generating free cash flow.

With respect to our drilling and completion activities during the quarter, we drilled, completed and placed on production 2 wells in the Central Basin Platform. This included 1-mile horizontal well in Andrews County and 1 vertical well in Crane County, both with a working interest of 100%. Like the wells drilled and completed in the first quarter of 2025, both wells are meeting or exceeding our pre-drill expectations associated with initial production results. Regarding our financial success for the second quarter, it was largely due to our quick response to the drop in oil prices experienced early in the quarter and the operational outperformance we've just described. I will now turn this call over to Travis to share the highlights and details of our second quarter financial position. Travis?

Thanks, Paul, and good morning, everyone. We began the quarter energized by the integration of the new assets into the Ring family. But on day 2, the tariff turmoil instilled uncertainty into the market, driving prices down by 17% over the next week. We quickly adapted to a lower price environment, and we were able to finish the quarter with record production, LOE below the guidance range, reduced sequential G&A and a pullback in capital spending. The combination of these resulted in adjusted free cash flow of $24.8 million, a new record high, enabling us to pay down $12 million in debt. As I say every time, balance sheet improvement has been and will remain a top priority for the company.

Another highlight is that we entered into the amended and restated credit agreement with a $585 million borrowing base in June. It was a challenging time with prices ranging between $57 to almost $73, but in the end, we are encouraged by the improved terms of the facility. One of the most impactful was a 25 basis point reduction in the pricing grid leading to interest expense savings on day 1. For context, that is $250,000 in annual savings on each $100 million outstanding. This amended facility provides Ring with a 34-month extension of the facility's tenure expiring in June of 2029. We are excited to welcome Bank of America as our new administrative agent and to add Citibank to the banking syndicate. Of course, we are grateful to all of our banks for the ongoing support, and we believe our strong partnerships will be a catalyst for future growth.

Turning now to the metrics for the quarter. It is evident that our team is executing on the operational plan. Starting with sales volumes. We sold a record 14,511 barrels of oil per day, exceeding the midpoint of our guidance and a record 21,295 BOE per day, slightly below the midpoint. As for the second quarter 2025 pricing, our overall realized price decreased 11% to $42.63 per BOE from $47.78 in the first quarter. Driving the overall decrease was an 11% lower realized oil price of $62.69, which is the lowest realized price since the first quarter of 2021. Realized gas price, which includes the majority of our GTP cost was a negative $1.31, down from negative $0.19 in the first quarter. NGL prices decreased 36% in the quarter to $6.19. Our second quarter average crude oil differential from NYMEX WTI futures pricing was a negative $0.99 per barrel versus a negative $0.89 for the first quarter.

Our average natural gas price differential from NYMEX futures pricing for the second quarter was a negative $4.67 per Mcf compared to a negative $3.81 per Mcf for the first quarter. Our realized NGL price averaged 10% of WTI compared to 15% for the first quarter. The result was revenue for the second quarter of $82.6 million despite the weakening prices. We continue to target higher oil mix opportunities as oil accounted for 100% of total revenue, while it was only 68% of total production. Overall, our sequential revenue had a 4% increase from the first quarter, which was driven by a positive $16.8 million volume variance, offset by a negative $13.3 million price variance.

Moving to expenses. LOE was $20.2 million or $10.45 per BOE versus $19.7 million or $11.89 per BOE in the first quarter. We were pleased to see LOE lower on a BOE basis quarter-to-quarter and well below our guidance of $11.50 to $12.50 per BOE. Cash G&A, which excludes share-based compensation, was $5.8 million compared to $6.9 million in the first quarter. The decrease was partially driven by annual costs incurred in the first quarter associated with the audit, 10-K and proxy. The second quarter also saw lower salaries and bonus accrual.

Our second quarter results included a gain on derivative contracts of $14.6 million versus a loss of $900,000 for the first quarter. The second quarter gain included a $14 million unrealized gain and a $600,000 realized gain. As a reminder, the unrealized gain and loss is just the difference between the mark-to-market values period-to-period. Finally, for Q2, we reported net income of $20.6 million or $0.10 per diluted share compared to the first quarter net income of $9.1 million or $0.05 per diluted share. Excluding the after-tax impact of pretax items, including noncash unrealized gains and losses on hedges and share-based compensation expense, our second quarter 2025 adjusted net income was $11 million or $0.05 per diluted share, while the first quarter 2025 adjusted net income was $10.7 million or $0.05 per diluted share.

We posted second quarter 2025 adjusted EBITDA of $51.5 million versus $46.4 million for the first quarter, with most of the difference attributed to higher oil revenue, higher realized hedges and lower G&A. During the second quarter, we invested $16.8 million in capital expenditures, which was 48% lower than the first quarter and below the $18 million midpoint of guidance. Adjusted free cash flow was $24.8 million versus $5.8 million for the first quarter, with the net increase primarily associated with approximately $15.6 million in lower capital spending, combined with $5 million higher EBITDA compared to the first quarter. We ended the period with $448 million drawn on our credit facility after a $12 million paydown. With a current borrowing base of $585 million, we ended the quarter with availability of $137 million and a leverage ratio of 2.05x, which includes the $10 million deferred payment due in December of 2025.

Moving to our hedge positions. For the last 6 months of 2025, we currently have approximately 1.3 million barrels of oil hedged with an average downside protection price of $64.87. This covers approximately 55% of our oil sales guidance at midpoint. We also have 1.5 Bcf of natural gas hedge with an average downside protection price of $3.37, covering approximately 42% of our estimated natural gas sales based on the midpoint. For a detailed breakout of our hedge position, please see our earnings release and presentation, which include the average price for each contract type. We are reaffirming our updated full year 2025 production guidance of 12,700 to 13,700 barrels of oil per day and 19,200 to 20,700 BOE per day. Yesterday, we presented our guidance for the third quarter total sales volumes of 19,200 to 21,200 BOEs per day and oil production to range between 12,850 and 13,850 barrels of oil per day, resulting in a 66% oil mix. For second half 2025, we are continuing to guide to total sales volumes of 19,000 to 21,000 BOE per day and oil production in the range of 12,500 to 14,000 barrels of oil per day, also a 66% oil mix.

On the cost side, we are updating guidance to $11 to $12 per BOE for the remaining quarters of 2025. Please refer to our second quarter earnings release and company presentation for full details by period. I would note that of the 4 to 6 wells included in our drilling program for the third quarter, we have drilled, completed and placed on production 3 horizontal wells to date. As in the past, we retain the flexibility to react to changing commodity prices and market conditions as well as manage our quarterly cash flow. So with that, I will turn it back to Paul for his closing comments. Paul?

Thank you, Travis. As you know, we enjoyed a strong quarter despite the backdrop of lower energy prices. We are proud of the team's operational performance this quarter, delivering strong production, significant reductions in LOE costs and robust performance from the new wells drilled this year. We also demonstrated this quarter that we can successfully manage the aspects of our business that are within our control to help achieve the results we need despite the adverse conditions beyond our control. In high-priced markets, we balanced growth with improving the balance sheet. In today's lower price landscape, we are prioritizing debt reduction. I say this to reassure our stockholders that Ring's management team and Board of Directors are unwavering in this regard. Even if oil prices rise to higher-than-anticipated levels later this year, we will not significantly change our capital spending plans and will retain our capital discipline. If we are fortunate to experience higher oil prices later this year, we will capture the windfalls and apply them to reducing debt. With that, we will turn this call over to the operator for questions. Operator?

[Operator Instructions] And your first question comes from Jeff Robertson with Water Tower Research.

Starting with the stock price. You've reported good results on the assets and underlying production and favorable cost trends, including the Lime Rock assets that were closed at the end of the first quarter. The stock has underperformed some of your peers. Can you just share your thoughts on how the stock has performed and what you think might be causing the performance?

Yes. Very good question, Jeff. I don't think I was ready to be hit right off the bat with that one. But yes, that's a difficult question to answer, primarily from the standpoint, there's a lot of uncertainty associated with what affects stock prices. As you know, there's a lot of things that impact a public oil and gas company's stock price. A lot of those are within our control. A lot of those are not within our control. The things that are not within our control are oil price, but those -- the impact of oil price typically apply to Ring very similarly as they apply to others. So that's not really a distinguishing issue. But in my opinion, typically, the greatest differentiator between any one company's stock price performance and their peer group really goes down to those things that are within the company's control. And so I think one of the easiest issues to point out and something that we've heard from our shareholders is our debt and our leverage ratio.

Ring, as you know, is at the higher end of our peer group. Companies at the lower end of that peer group tend to trade at a slightly higher premium based on our interpretation of the available data. Other things you can point to is our size and scale. Again, Ring is at the lower end of that peer group. And based on our observation of the data, companies at the higher end tend to trade at a slightly higher premium. However, there are several other attributes that Ring has, and I call these distinguishing attributes that really set us apart.

And if you look back historically, we have performed very handsomely operationally and also financially. And so some of these distinguishing attributes, and let's just talk about some of our reserve life. If you go to our corporate presentation on Page 8, Ring has the longest reserve life of our peer group. The median is 11.1 years, and ours is 18.7 years. Long-life reserves, they help improve our sustainability and manage the risk of changing oil and gas prices over the long term. Another attribute, our PDP base production decline rate. Ring has the second lowest in a 10 company peer comparison. It's an important metric that helps reduce the capital intensity required to maintain our production levels and the liquidity with our banks. So that's a real important issue.

Other things, a higher operational ownership allows us to control our portfolio. The higher net revenue interest lead to higher margins and profitability, higher percentage oil mix in the product -- higher oil percentage in our product mix is important just simply because Permian Basin companies are challenged getting the natural gas out of the basin and sold at a profit. And so all of this leads to many of these things lead to something else that's pointed out on Page 9 of our corporate deck, basically our higher operating margins. The higher operating margins leads to higher profitability per BOE and allows the company to better withstand the risk of lower oil prices.

So all of these things would suggest that Ring should actually be at a minimum trading in the middle of our peer, if not at the higher end of our peer group. And so what's different? I know the point you're getting to, if you -- if many of our shareholders may recall that not very long ago in June, Seeking Alpha article actually came out and pointed out what I believe is a significant issue, and that is the selling pressure that our company has had over the last few years. If you go back to our corporate presentation, go into the appendix on Page 30, we have a chart in there that shows Ring Energy's historical price performance since January of 2022 to the present. And we also put on that plot oil prices. If you look at that chart and the annotations, what we have done is we've annotated all of the things that I believe has had a significant impact on our stock price. And all those things are basically associated with adverse or high levels of selling pressure against our stock.

So if you go back to the second quarter of 2022 on that chart, you can see that right when we hit about $5 or just close to $5 a share, our largest warrant holders started selling or converting their warrants into common shares, and they started selling those shares in the marketplace. As you can see, the oil price continued to peak. But when the oil prices in 2022 began to fall, our stock price fell precipitously compared to that. That was just due to the selling pressure. If you just march along, you can see they continue that pressure against our stock. And then we got tired of the effect on our stock during those times. And so if you go back to the second quarter of 2023, we negotiated with the remaining warrant holders and got them to convert those shares. And so about the time when those shares were sold into the marketplace, and we were done with the warrant -- the effect of the warrants, we announced the Founders deal.

And so if you look there in July of 2023, where we announced the Founders transaction, you can see that the market responded very handsomely to that. There wasn't the selling pressure. And then what happened, the largest shareholder that came into Ring's position as a result of the Stronghold deal began exiting their position. And so if you follow along that chart, you can see where our large shareholder began selling or continue to sell and that selling pressure continues to this day. And so we know that the selling pressure has continued all the way up until the most recent filing. That filing occurred in June, June 13, basically, where our partner, our previous partner and largest shareholder fell below the 10% threshold. And so now they're no longer required to disclose.

So we don't know exactly where they are now, but we believe, and this just kind of goes back to what I believe. I believe that they intend to exit their position. And I believe if you look at the history prior to their last filing that they were active in the marketplace. And so I don't believe it will be very long before they're completely out. They could potentially be out now or they could be out very soon. We just don't know. But I believe that right now, if you look at our stock price in the last several months, we've bottomed out. I think after liberation day when oil prices took their large drop, and that pushed our stock price down below $1. And many of you know that the Russell 3000 Index requires that oil companies or a company have a stock price above $1. When we fell below $1, there was also additional selling pressure from the indexes that -- and by selling our stock, we ended up sustain additional selling pressure there. And so I believe you've seen that our stock price has fallen to probably the lowest level in some unforeseen event occurs and that right now is a great time to invest.

And I think that is kind of a long answer to your question, Jeff. But I believe that we have been under additional and strong selling pressure against our stock now for -- since 2022, so close to 3 years. But I think we're close to the end of that, and we're about to enter a time period where we'll be free of that selling pressure, and we'll go back to the way things were in 2021 and the first half of 2022, where we traded very close to and very commensurate with our operational performance and our financial performance. And so the company is very healthy. The company is very strong. We've demonstrated that our strategy allows us to weather the issues that we've seen post Liberation day. And that's really the answer to my -- to your question, Jeff, do you have any other questions?

I do. You talked about the natural decline in Ring's asset base. And when you take on an acquisition like Lime Rock, which I think also had a shallower decline production base than your then existing production base. Can you talk about how you think about allocating or taking the free cash flow that's generated from an asset like that and using it to reduce leverage and at the end of the time when you've reduced the leverage associated with that acquisition, you still have the barrels of production to help further deleverage the balance sheet?

Yes. A great example. Of course, we're very new into the Lime Rock assets, but a very good example of what we're intending to do with the Lime Rock assets. And so far, we're on track to achieve these same type of results. But a good example of that is the Founders acquisition. If you go back to our corporate presentation, we also have a chart there that kind of summarizes what we did there. But the bottom line is we paid off the debt as a pro forma company. We paid off the debt associated with the acquisition of Founders in less than 5 quarters, actually in 4 quarters. And at the end of that time period, we were at -- we had an additional 2,800 barrels a day of production, which accelerates and allows us to pay down debt at a faster rate. We're going to do something very similar here with Lime Rock. Going back to part of the question associated with decline rates.

One of the key aspects of shallow decline rates is that it reduces the maintenance capital necessary to maintain your production and allows you to grow more capital efficiently. And so overall, there's a lot of similarities between founders and Lime Rock. Some of the attributes that actually makes Lime Rock a little bit more attractive is the fact that there -- the proximity of those assets to our existing operations there in the Shafter Lake area really, really allowed us to capture some sincere synergies. Many of those synergies are reflected in this quarter's lower-than-expected lease operating expenses. And I got to tell you, hats off to the operating team for all of that. Shawn Young and the team did a great job of integrating those assets and finding ways to reduce costs that not only affected those assets, but affected all of our operations in that area. And so I hope I've answered your question there, Jeff.

Yes. Just lastly, on cost, Paul, the cost synergies you're talking about, they're very sticky, right? So you'd be able to maintain those if things get more active out there. Yes. I mean, when you talk about reducing the operating staff by 50%, you're talking about a significant reduction in LOE. And the field staff salaries generally is at the top of the ledger in terms of the most costly operating expenses for your wells. And so when you can do that type of a thing, it's huge and it's also sticky because that stays with you. As a matter of fact, and I could ask Shawn to kind of elaborate a little bit more on that, but we're -- as a result of changing the technologies as a result of the integration of assets and then challenge ourselves on new ways to operate and more efficient ways to operate, we're applying some of the learnings that we had there, integrating Lime Rock into those -- that area to our other areas in terms of improving the efficiencies. I don't know if there's something you want to say there, Shawn.

Yes. No, to your point, as Paul pointed out, by reducing the operating staff, I mean, obviously, going forward, that's going to be a continued savings. But we're also looking at some other opportunities there and have identified a number of things that we're not quite realizing yet. So hope to be able to share those in the future as we actually realize those cost savings going forward. And a lot of it has to do with just the synergies of having an operation right next door where we're already able to take advantage of some size and scale there that we can just bleed over into the Lime Rock assets and take advantage of those savings. So again, more to come on that.

And your next question comes from Poe Fratt with Alliance Global Partners.

Travis, could you walk me through the difference between your adjusted cash flow of, call it, $25 million and the debt paydown of $12 million?

Sure. That's a great question. The biggest part of that -- well, all of it was changes in working capital. The biggest part was the investment we made in the credit facility for the next 4 years. So our deferred financing costs, if you guys look at Page 9 of our earnings release, you can kind of see the changes in working capital there and other things. But that was about $5.4 million of the difference. And when we closed the old deal and moved to the new one, we also brought forward about $3 million in interest that would have otherwise been due next quarter. We also had an increase in inventory of about $2 million. And that was partially due to the pullback that we had. We already had that pipe on the way. So the good news is with that, we're going to have less cash interest paid next quarter and less money spent on our inventory since we've already paid that amount. There's also about a $2 million increase in accounts receivable, which is also cash we'll realize next quarter. So all that being said, even though there was a difference between the 2, that should reverse. We should see the benefits of those going into Q3.

And that sort of leads into the next question. Just do you -- looking at the second half adjusted free cash flow, it looks like you could come into the range of call it, $20 million to $45 million. In the context of your targeted debt reduction for the year or even for the second half, can you just sort of give us a flavor for how much debt you might be able to pay off over the second half of the year or whether you have a targeted year-end debt level?

I'll do the first stab at that, and I'll turn it over to Travis. We don't have internal debt reduction targets yet. However, -- and so one of the more disappointing things I think about this earnings release is that I believe there are some out there that would like to see us pay down more debt. But we incurred those special circumstances we talked about. But many of those circumstances will not be there in the third quarter. And product prices have continued to hang in at the higher end of the $60 range so far this quarter. And so I say this with a little bit of trepidation and caution. I believe that we can exceed what we paid down this quarter, next quarter. But to what degree I'd hate to stand out. And Travis, I know we work the models quite often. I don't know if there's a range or any kind of additional information you want to throw in there.

Well, if we go to $50 million, that's one story. If we go to $75 million, that's another. So we'll call that between $20 million and $45 million maybe that we could potentially pay down. So we're hoping for $75 to get that lower. It's hard. We don't have a hard target that we've come out with yet for debt reduction goal by the end of the year.

I do believe it's safe to say though that we can exceed the debt paydown next quarter that we paid this quarter.

Yes. And as Travis pointed out, working capital is going to be favorable this coming quarter or 2 relative to the second quarter. And then Paul, you talked about Warburg selling. You don't really know where you are right now. But I think one of the good things, maybe it's obvious to everyone, but they're under 10% now, so they won't be constantly filing Form 4 showing the relentless sales that you saw sort of from the middle of May until the middle of June. So that potentially is a positive from the standpoint of seeing less headlines as far as the Form 4 filings, correct?

That is correct. They will be required to make a quarterly summary, I guess, of their stock position. So that will be due sometime this month for the prior quarter. And so it will be interesting to see, but that will be basically reflective of how they exited June. And so there's been a lot of time since then. Having been at one time, our largest shareholder and had 2 members on our Board, they're a great partner. We learned quite a bit from them. They contributed quite a bit to our company, and they're a great partner. I don't know why they exited our -- or in the process of exiting our position. But it's interesting to note that they also exited quite a few other energy firms. So it was nothing to do with us. I think it was more to do with something internally that we're not aware of and I can't speak for. But I do personally believe that they intend to completely exit our position, and I believe we're very close to a point in time where that selling pressure will go away. And then no more excuses from our standpoint, we'll be -- we'll trade, I hope, more commensurately with our operating performance and our financial performance.

And if you go back and look at our performance over the last 4.5 years, ever since COVID, generally, we've met expectations. I've got a great management team that's a real blessing from my standpoint. I also have an incredible Board with diverse opinions but great counsel and great advice. And I believe we have a winning strategy. It's not a sexy strategy. It's basically a strategy that was here with the prior management team. We refined it some, but it's a tried and true strategy that doesn't get rich overnight. It's not against a grind stone and you continue to build value over the long term. And that's what we're doing here at Ring. And we believe that we have a lot of growth to pursue in the future. At current prices, it makes growth challenging. But I think we've successfully managed that in the past when oil prices were higher. So we'll see how things go. But a great question, Poe. Do you have another question?

No, that's it for me. Maybe I'll come back if there's another question, come back in the queue, but I'll leave it at that for now, Paul.

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

I apologize if you maybe touched on this earlier, but any updated thoughts, especially I'm thinking about with the Lime Rock assets in the portfolio now on pursuing alternate horizons beyond the San Andres, just given, of course, everything that's happened with geosteering and so forth in recent years.

Yes, that's a really good question. And as we pointed out when we made the Lime Rock acquisition, that acquisition included lands that expose us to other emerging plays that we're watching very carefully. One of those would be the Barnett, and that would be in the Midland Farms area of the acquisition we just closed last quarter. And so other operators are active. It is our opinion based on our analysis that those wells don't carry the same economic return as do the wells that we are focused on, such as the San Andres horizontal wells in both [Yochum] and Andrews County and also many of the vertical wells that we're pursuing in Nectar and Crane County. But they are very interesting. They contain large amounts of resource.

As I shared last quarter, after we made that acquisition, we had several parties inquire -- we don't know what we'll do now at higher prices, they become very economic, and so we could potentially drill them or those assets could find themselves in the hands of somebody else who values them higher than we do. We haven't made that decision yet, but we are studying that. Now that's just one interval. I believe that as technology continues to march down the road, we believe many of the areas in our southern operations that have historically been dominated with vertical wells may be exposed to horizontal drilling. As a matter of fact, this quarter, we're actually testing an interval horizontally in the South. We'll talk more about that as we get results.

And we have other operators in the South that operate very close to us and have had a very handsome success converting over from verticals to horizontals. And so we'll see where technology goes. One of the things that we've done is we've done an inventory of all of these other different horizons that you mentioned. There are several that have significant potential. That potential comes to us for virtually no cost other than the cost to test it and drill it and put it online because we already own the acreage. And so we're really excited about the potential of some of these other zones. And I'm looking at Alex Dyes. Alex, do you have any more to add there?

No. I guess just in general, we've been testing some of these zones now for probably a year or so. We've been trying to test.

Through recompletions, right?

Exactly vertically. And then we're also trying to learn from our offset operators. And we'll also probably participate on a non-op basis, too. So we're trying to learn as much as possible and trying to -- once we get back to deploying more capital, we'll try.

Yes. And so Noel, what you're touching on is part of the future for Ring Energy. And you're going to see more about that. I mean if prices were higher, we would be able to allocate a little bit more of our cash flow to testing some of these ideas. So the rate of testing has slowed down because of where oil prices are because we're prioritizing debt reduction. But I believe -- and when we get beyond this price environment because I really do believe that long term, we'll be back into that $75 price range. And at that price range, we can afford to test some of these intervals more frequently. And -- but it is a part of the future for Ring Energy. Great question.

And your next question is a follow-up from Jeff Robertson with Water Tower Research.

Paul or Travis, I'm just curious, is there anything going on in the midstream world that could have any impact on your gas price realizations and NGL realizations next year or 2?

Well, yes, there are. I think though the Permian Basin is demonstrating something very clearly, at least to me anyway, the takeaway capacity servicing the Permian Basin tends to get filled up pretty quickly, whatever it is. The most recent one was the Matterhorn Express. It's my understanding that there's still more capacity to be made available in the Matterhorn Express. And I believe that, that will help with price differentials. There are also several other pipelines that are not imminent that are on the books that are being considered. And so all of this will help but in the foreseeable future, the infrastructure is still going to be limited and the operators like Ring Energy will have to fight for that space. And so the discount to Henry Hub is going to continue to be larger than we'd like.

I think you've seen from other operators and just views out there that people are pulling back on CapEx. So if there's less drilling in our area, that's less associated gas going through that pipe. So that really could help with our differentials as well. Obviously, it's not something we hope for because we'd rather have higher oil prices. But if we can get a more meaningful revenue stream from those -- the gas and NGL, it would obviously be very impactful to the company.

This concludes our question-and-answer session. I would like to turn the conference back over to Paul McKinney, Chairman and CEO, for any closing remarks.

Thank you, Michael. And on behalf of the entire team and Board of Directors, I want to once again thank everyone for listening and participating in today's call, and I hope you have a great rest of your day. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Audio Gap] fireside chat with Paul McKinney, Ring Energy's Chairman and Chief Executive Officer. I am Jeff Robertson, Managing Director for Natural Resources at Water Tower Research.

Before we begin, I would like to remind participants that today's discussion could include forward-looking statements as of today, July 15, 2025. Ring's disclosures regarding such forward-looking statements can be found under the Investor Relations tab of the company's corporate home page. We may refer to some slides from Ring's first quarter 2025 investor deck, which can also be found under the Investor Relations tab on Ring's home page.

With that housekeeping out of the way, Paul, I'd like to take a moment to welcome you and thank you for taking the time to join us today.

You're welcome, Jeff, and thank you for hosting this, and I'd like to also thank all of your audience for their interest in Ring Energy.

Just by way of a brief background, Ring is an exploration production company, whose assets are concentrated in conventional plays in the Permian Basin. The company closed a $100 million acquisition of assets on the Central Basin Platform in Andrews County, Texas from Lime Rock Resources on March 31, 2025.

First quarter 2025 total production averaged about 18,400 BOEs per day, including about 12,100 barrels per day of oil. The acquisition provided management with the flexibility to adapt Ring's development program to the prevailing market conditions and it concentrate on debt reduction. Ring's latest outlook pegged the midpoint of second quarter 2025 total production at about 21,500 BOE a day and second half 2025 total production at about 20,000 BOEs per day.

Paul let's start with the recently acquired assets. The majority of those assets that were acquired from Lime Rock are adjacent to Ring's existing assets in the Shafter Lake area of Northern Andrews County. How do these assets enhance Ring's Central Basin Platform position in that area?

Well, in 2 ways. Number one, the proximity of those assets to our assets, and also the similarity. So they're very similar to the existing assets that we operate in that area. And so we were able to combine the operations and find efficiencies that led to lower operating costs, and we were able to do that on day 1.

This is one of the primary reasons, we are focused on the Central Basin Platform in the Northwest Shelf because we have strong operations there. We have assets, as you know, that we have been able to generate really strong returns with. And by combining existing operations that are very close, you spread out your field management team over more wells and more barrels, you're able to capture all kinds of synergies. We'll talk more about some of those synergies a little later. But the main thing is capturing those synergies really jump starts and really gives a great return to the shareholders, especially if you buy the assets right.

Oil accounted for about 75% of the total production on the Lime Rock assets, then which is a little bit more than Ring's total corporate oil weighting. How does the production profile of these assets compared to the company's legacy assets?

Yes. So these assets are -- when you compare the assets that we acquired from Lime Rock to the average decline, for example, of Ring Energy, it's accretive. So they were a little over 13%, 13.5% decline, and as a company, we're about 22%. So that enhances, makes it easier to deliver returns to your shareholders. It reduces the capital necessary to maintain your production, reduces the cash required to grow.

And so the other thing you got to remember is that we don't -- the majority of our revenue comes from, if not all of our revenue here recently comes from our oil. So we don't get a lot for our gas. So we're very focused on acquiring and developing assets that improve our oil percentage.

The asset or acquisition also added about 40 gross development locations to your inventory. Can you talk about how the economics of the new locations compared to your existing inventory and maybe fit into their -- into your capital program?

Yes. Well, again, because these assets are very similar, these assets are located in an area that Ring Energy is very focused on and has held now for the last several years, a very strong position in our capital spending program because of the returns. These 40 locations, and not all of them are San Andres horizontal oil well locations, but all of the San Andres horizontal oil well locations or nearly all of them are very, very competitive in our portfolio, driving very similar economics. And so they're immediately competitive in our portfolio.

And so -- we're looking for ways to build. As we've talked about in the past, we have the short and medium-term inventory taken care of. But the marketplace is rewarding companies that have long inventories, inventories of multiple years of drilling that 10 to 15 year. Up to now, Ring Energy hasn't really obtained that. We've had 5 years, 8 years kind of taken care of, but we haven't had the 10, 15 years taken care of it. So this acquisition helps us achieve that with very, very economic locations that are very competitive in our portfolio.

Can you walk us through the integration process now that you've owned this package for about 3 months' time and outline some of the cost synergy opportunities that you referred to earlier?

Yes, we can. So Lime Rock -- and we've already shared this with the public. The very first thing we did was combine the operations. And so we have lease operators out there going to our wells, checking the wells, keeping the wells operating properly. But when you expand in an area that is immediately offsetting your existing footprint, you can optimize. And so for example, they had 10 lease operators pumping their wells. We were able to eliminate 6 of them. So we immediately saw a reduction in the number of people necessary to operate the same assets. Their field leadership or supervision was duplicated because we already have that in place. So we eliminated the supervision and those associated operating costs.

But then there are several other things we're able to do. We talked about the combination of the saltwater disposal facilities. But we've also eliminated -- so because we were already operating in the area, we already had agreements and we were already working with certain service providers, we were able to take those same service providers and cover the same area. And so we've essentially eliminated anywhere from 1 to 1.5 roustabout crews that we have out there, making repairs, doing work, whatever is necessary.

We're also able to eliminate workover rigs. So they had essentially 2 rigs constantly working over, making repairs, replacing pumps, doing these types of things. And so we were able to eliminate those workover. Now we -- I think we increased our workover rig by another half a rig or something like that or the equivalent period of time. But essentially eliminated 1, 1.5 rigs. And so that is another area of savings.

Other things that we did was once we got into the details of their marketing agreements and compared that to our marketing agreements, we've already realized another $0.80 per barrel, for example, on selling of their oil. And so when we talk about combining operations and integrating, these are the types of things. There's other things like we compare their contract with the electricity supplier versus ours. And so whoever has the best electricity contract, the lowest electricity cost, well, you tend to build your future operations to take advantage of those synergies and those lower costs. And so there's all kinds of ways.

And so I know the oil and gas industry has talked about synergies. But these are the types of things that you're able to do, and some of the things and most of these already, we've already captured with the integration of Lime Rock with us. And so I think the market is going to be pleasantly surprised to see how the operating cost of this company evolve over the next series of quarters versus what we use in the economics to acquire these. It's our experience right now with past acquisitions and is also the experience we're now realizing with the Lime Rock acquisition that our operating costs will continue to improve.

I can touch on two things that you referenced. The first is saltwater disposal. Does the greater scale in this part of Andrews County add to your water handling capabilities, both for drilling, but also importantly, as everybody in the Permian Basin has to deal with produced water handling and I think in the disposal costs associated with it?

Yes. And so if you recall some of our past conversations, Jeff, we have used the drilling rig basically to help us optimize the utilization of the infrastructure. So in this area of Shafter Lake, we had and still do operate our saltwater disposal system. And so to minimize costs, what we would do is we would drill wells down here until we fill up that saltwater disposal system. And then we would move the rig away to another area to allow the wells to experience the natural declines, and then you build enough room in the infrastructure in the saltwater disposal system to take more water. So once you built up enough spare capacity, again, then you bring the rig back. And so we would do this so that we would minimize the investment in what we call nonperforming capital.

So the last thing you want to do is spend your own money to drill saltwater disposal wells. You'd much rather drill oil wells that generate revenue. And so with the combination with Lime Rock, their saltwater disposal system that they operated was underutilized compared to its capacity. And so that's given us a runway now of additional capacity that minimizes our future capital investments necessary to continue to develop out here. And so it was a very nice add-on, very nice add-on.

I think to sum up the synergy notion, Paul, it sounds like from what you've said that the synergies that you are realizing and expect to realize in the coming quarters essentially will flow primarily through the operating expense line of the income statement and therefore, flow directly to adjusted EBITDA and free cash flow.

That's exactly, right.

Do you anticipate that over time, that will make this acquisition even more accretive than what you outlined at the time it was announced?

Yes. And I'm more excited today about the Lime Rock acquisition in terms of -- especially with respect to improving our operations, reducing our operating costs and capturing these types of synergies. We've talked about it. This deal improved -- and just in general sense, when you're focused like we are in the Central Basin Platform in the southern part of the Northwest Shelf, when you increase your size as an operator out there, it improves your ability to negotiate with the local service providers. So these are the roustabout crews, the workover rigs, and it allows you to improve the price we get for your product through marketing. And because we have more barrels now to market, you have more leverage and negotiating power with the purchasers because they want those barrels. We talked about electrical costs. There are just so many ways that becoming a larger, more significant increased scale operator, you have multiple ways of winning out there as you continue to operate.

Well, does some of that scale also play into how you think about future consolidation opportunities in that part of the Central Basin Platform to leverage some of those strengths that you talked about even more?

Yes. That's the key. That's a key component of our strategy. And I'm not going to say that we wouldn't consider acquiring assets outside of the Central Basin Platform, or the southern broader Northwest Shelf. But that is an area we're currently focused on. If someone brings us some kind of an opportunity and it's competitive and it generates the financial returns that our shareholders have learned to expect from us, we would consider that. But right now, we're focused on the Central Basin Platform in the Southern Shelf because of these synergies. It's a key component of our strategy.

We have learned that a lot of the operators out there are not applying the technologies to these conventional zones like we have. And I'm talking about the technologies that were originally developed for the unconventional shales. These technologies work really, really well here in the Central Basin Platform and is a key component of our future growth.

As I alluded to earlier, Ring updated its 2025 financial operating guidance in May to take into effect the acquired production, which it gives some flexibility on the capital side to allow you to focus on debt reduction following the acquisition. Paul, how quickly can Ring adapt its operating plans to the changing economic conditions and some of the volatility we've seen in the market this year?

Yes. So that goes back to our contracting strategy with our service providers. And I'll just take drilling rigs as an example.

We have a 1 or 2 notice period to our drillers regarding our drilling contracts. And so we can essentially turn on a dime. We believe that volatility is here for the long-term. And -- Liberation Day kind of took us by surprise, but it emphasizes that we have to retain the flexibility to respond to market changes when the market changes occur.

So if you look at what happened, the weekend after Liberation Day, we met as a group on the weekend about our drilling program and where we were in the second quarter and how much money were -- we planned to spend. And so we believe at that time, and it's been reinforced all the way up until today, that this volatility, the current price environment has the potential of standing and staying around for a longer period of time.

And so we took immediate action. We immediately reduced our capital spending for the second quarter by 50%. And we were able to do that within a couple of days' notice. And so not many operators, especially those that are running these large pads where they're drilling multiple wells from a single pad, they don't have the ability to do that because once you're on the pad, you're not going to just stop those drilling operations.

And so that is one of the unique aspects of Ring Energy. We have the flexibility to respond in a moment's notice. And so within a rig, a well or 1 or 2 well notice, our drillers, we can make changes and do that kind of thing. So we'll see how it goes from here, but flexibility is a key component of our strategy as well.

Since we're only halfway through 2025 and 2026 is still a long way off, can you -- Paul, can you just share some high-level thoughts on what your thoughts around oil prices are? And then to the extent that you give thought to 2026, I know Ring does not have guidance for 2026. But can you outline for us over the next say, 18 months, different type of scenarios that you're thinking about and how that plays into your debt reduction goals?

Yes. And so -- for the -- right now, we have budgeted for the rest of the year, $60 oil, okay? And so every day, the price of oil is above $60, we're going to enjoy that additional cash flow. But at $60, we believe that even though it is in a lower price environment, by adjusting and having the flexibility to adjust our capital spending program, we believe we'll pay down as much or more debt than we originally planned with the original budget we came out with the very beginning of the year, and then we were assuming $70, so a $10 difference in the oil price. But now we're focused on paying down debt to a higher degree.

So basically, Liberation Day, being the surprise to us that it was, it reinforces the need to have a strong balance sheet. So in my opinion, if you compare us to our peers, our leverage ratio is at the high end of our peers. We don't want to be at the high end of our peers. We want to be on the lower end of our peers.

And so we're taking advantage of this year, even though the prices are lower than we were originally anticipating, we've decided to emphasize debt repayment to a much higher degree. And so we still plan on having the Lime Rock acquisition paid off in 3 or 4 quarters, even at the lower prices. And so now I'm not -- I don't have the ability to predict oil prices. And if I was, I'm probably in a different business.

I believe the volatility is here. If you look at the forecast that several very prominent prognosticators out there are publishing, some say that we could still see $50 price or a $5 or handle on the front of our oil price. And so we are prepared for that.

So if you go to our first quarter earnings call presentation deck, on Page 9 there, we have some forecast of what this company could do at various different prices. So on Page 9, in the upper right-hand quadrant of that slide, we have a series of bar charts highlighted by saying maximizing 2025 estimated adjusted free cash flow. And so we show what our adjusted free cash flow was in 2023 and 2024, and what 2025 could be like at various different price cases. And so you can see $50, $55, $60, $65 and all the way up to $70 and the level of adjusted free cash flow. And also, we also reflect our adjusted free cash flow yield there.

And so as you can see, with our adjusted capital spending program that we adjusted responding to Liberation Day, we still have the ability to pay down debt. We have a considerable amount of adjusted free cash flow, and our free cash flow yield is very handsome at those various different prices. And so I encouraged our shareholders to go back and look at that.

If we shift gears a little bit to the balance sheet and leverage metrics that you talked about, I know that improving Ring's leverage metrics and positioning the company to deliver shareholder value have really been hallmarks of your strategy since you and the current management team took over in 2020. How does the Lime Rock acquisition play into that?

And then as a second notion, you talked earlier about the 13% natural decline rate on those assets. And I think Ring's total corporate PDP decline rate at the end of the year in one of your slides you showed was around 22%. But can you talk about how the asset base and how those characteristics fit into your strategy to deliver value and strengthen the balance sheet and give you the flexibility to adapt to some of the volatility that you outlined?

Yes. So the lower the decline rate, the less -- the lower the capital intensity is necessary to maintain your production. And so it requires us to spend less dollars to maintain our production, maintain our liquidity and deliver the returns to our shareholders. And so the best way to describe the Lime Rock acquisition is to compare it to another very similar acquisition we did a couple of years ago, the Founders acquisition.

So on Page 26 of our same first quarter earnings release, we've done a summary of the Lime Rock acquisition and what it did for the company. And so it did several things for us. On a pro forma basis, the company -- we were able to grow our net production, and we're also able to reduce our debt. So we paid off the Founders acquisition as a pro forma company in essentially 4 quarters.

And so we acquired it in the third quarter of 2023. And by the time we reached the third quarter of 2024, we were at -- we were $5 million less debt than we were that quarter before we made the acquisition. And so -- and then what we were left with was we had an additional 2,800 barrels a day of production at the end of that time period, which accelerated our ability to pay down debt.

And so when you look at the asset as an individual set of assets, the Founders acquisition, we improved our production by 38%, we lowered our operating costs by 20%. And we reduced the CapEx or the drilling and completion costs necessary to drill wells out there by 28%. And we increased the efficiency of our completion. So our 90-day cums on a per well basis increased by 24%.

And so overall, the reserves that we bought with Founders, we had increased our reserves by 46% from the time that we made the acquisition. Well, these may not be the exact same types of metrics you're going to get from Lime Rock, but Lime Rock is very similar, and we have already shown that we've been able to reduce our LOE. We just don't have enough track record to tell you for sure how much of a percentage that is. And we're continuing to find ways to reduce drilling and completion capital. They did not have a long history of drilling wells right up to the point of selling these assets. So that comparison may not be the best or an equal one either.

But the bottom line is, Lime Rock is so much like Founders. It's going to have a tremendous impact to the pro forma company. And different from Founders and Lime Rock is the post-Liberation Day environment that we find ourselves in. And so what we're doing instead of trying to increase the production out there on these assets, we're really trying to maintain production out there on those assets and take advantage of the additional production to reduce our capital spending, so we can emphasize debt reduction. And so that's kind of it in a nutshell.

But the two acquisitions are extremely similar in so many different regards, and it's going to be a really good post-appraisal to share with our shareholders a year after we've owned these assets.

Am I hearing you right, Paul, that despite oil prices having gone from, let's call it, the mid-70s down to the mid-60s, mid- to upper 60s, since Ring closed the Lime Rock deal, and you still anticipate that that acquisition will leave the company in a strengthened position despite the oil price decline?

That's right. That's right. So if you look at the acquisition, first of all, we bought it at the time for less than a PV-10 value of the proved producing assets. So the undeveloped opportunities basically came with no cost. We have now demonstrated that we are reducing operating costs out there considerably. And on our existing assets because of the combination with a larger footprint, we've even been able to lower the operating cost on our existing assets as a result of the acquisition.

And so -- so the synergy capture is real, and it generates real returns for our shareholders. And so although oil prices are low, I'd much rather have the higher oil prices because these synergies that we've captured -- and we were going to capture them no matter what the oil price environment was.

But again, I don't believe that although all -- the oil price may have fallen, the acquisition of Lime Rock is still a great opportunity for us. It continues to allow us to pursue our strategy of growing in the Central Basin Platform, capturing synergies, delivering lower operating costs and continue to sharpen the saw, so to speak.

You talked about -- or we've talked about volatility and especially as it pertains to your leverage goals. Just as a corporate strategy, how do you and the Board think about managing the balance sheet to withstand price volatility?

Yes, the best way to withstand price volatility and have a strong balance sheet, okay? And so leverage ratio is a term that is used commonly in our industry to report back on the health of a company regarding its debt.

And so -- but leverage ratio is more than just the amount of debt that you're carrying on the balance sheet. There's also a benchmark that utilizes the trailing 12 months of EBITDA, and EBITDA is oftentimes dictated by oil prices. So there's a component that we don't control in the leverage ratio, right? And so that's why I like to compare absolute debt levels to market cap and some other things.

But strengthening your balance sheet is the best way to withstand the volatility in the marketplace. That's also the reason why after Liberation Day and the additional volatility that pushed into oil and gas prices worldwide. We felt leverage and debt reduction, and our balance sheet has always been a really high priority. But because of that unexpected turn in terms of volatility, we decided we were going to emphasize debt reduction overgrowth.

And so that's where we are today. And we'll continue to be that way. If oil prices recover back to $75 or even $80, you're probably not going to see us change our capital spending plans for the rest of the year because we really think that the best thing for our shareholders right now is to reduce our leverage ratio. And our target is to get below 1. We won't be able to achieve that this year just because of product prices, and the trailing 12 months EBITDA won't allow that. But that's not going to change the fact that we'll probably exit this year, and if not -- upon the exit or early into next year, we'll be at or below the same debt levels we were at before we did Lime Rock.

I'd like to touch on the credit agreement. In June, Ring announced a credit facility borrowing base was reaffirmed at $585 million under its $1 billion senior secured credit facility and that the term was extended to June 2029 from August 2026. The new agreement also reduced the applicable pricing margin by 25 basis points and named Bank of America as the new administrative agent.

At the end of the first quarter, Ring had about $460 million outstanding on the facility. Paul, as you all went through the process of renewing the credit agreement, did you notice any changes in the bank market through that work?

Absolutely. And the one keyword that you can use to describe the environment is uncertainty. We were planning to do this. We knew that the existing credit facility we had was going to go current in August of this year, so we needed to either amend and extend or negotiate a new credit agreement this year. And so our plans were -- and this was before Liberation Day occurred. Our plans were to launch that process early and get it out of the way.

Liberation Day brought in a lot of uncertainty. And so while we were trying to negotiate an amendment and extension of the facility we had, all of the banks were going through an internal reassessment of really how do they need to position themselves, what price decks should they use. All this uncertainty really did affect things. And I was disappointed in some regard that Liberation Day got in the middle of all of that because I think it would have been a lot easier to negotiate a deal.

But I think in the end, we ended up negotiating a really handsome deal for our shareholders. We gave up about $15 million worth of liquidity to end up at a slightly lower pricing grid, as we pointed out, 25 basis points, which means that at the same debt levels, we're now paying lower interest expense. And that's great for continuing our quest of improving the balance sheet. So the lower the interest expense, the more debt, more cash is going to be available to pay down debt, and it just compounds, right?

And so now I will say this, though. There are other aspects of the current oil and gas industry. I mean, through all the consolidation that has occurred over the last couple of years, that has allowed us to stand out. So we were able to attract larger, bigger banks to our credit facility.

And so Bank of America is part of our syndicate, Citibank joined our syndicate. We're very grateful for both of those -- both banks to join our syndicate. And so I think it also says a little bit more about Ring Energy, our assets and our management team that these larger banks think highly enough of us to join our syndicate, and they are there to help us grow. And so that should be a great sign to our shareholders.

Paul, I know RBL facilities frequently have hedging requirements. Did the updated agreement include any changes or any new hedging requirements for Ring?

No, they're identical. And so we're generally required to have 50% of our next 24 months hedged. There are certain conditions where we can reduce the hedging requirements for the last 12 months of that 24-month period, but that will require that we get down below 1.25x leverage, and our utilization has to be a certain point. You'll see, these are some details that are in our credit facility. But overall, there are actually no changes to our hedging requirements with the new facility.

Warburg Pincus has been systematically selling shares that they acquired in 2022 when Ring acquired Stronghold. I think as of the last filing that I saw, they still owned about 20 million shares. Without sifting all the way through the credit agreement, Paul, is there anything in the agreement that -- are there any provisions or limitations on Ring's ability to repurchase those shares if you had -- if you desire to, or repurchase some of them?

Yes. So all of that remains essentially the same. We do have -- there's a bucket in there called restricted payments. And under certain conditions -- those conditions have not changed. We're not in a position right now to buy back shares. And I'm not sure that with our leverage being where it is, our balance sheet being where it is, I don't believe our shareholders would want us to take on more debt to buy back shares regardless the fact that, in my opinion, right now, the way our stock is trading, it's an incredible investment opportunity for anybody to pick up those shares.

So free -- the priority for free cash flow is still 100% toward debt reduction, right?

Yes. So maintaining our production at adequate levels to retain our liquidity with the banks, and then every other dollar available goes towards paying down debt. And so this year, unlike the last couple of years, we were striving to organically grow. And so if you go back and look at 2024, we did grow organically. We're deemphasizing the growth and emphasizing to a higher level of degree, debt reduction and strengthening the balance sheet.

Ring has closed 4 acquisitions since 2019 for just over $900 million. Whether you're in the market or not, Paul, can you just give us your take on the state of the acquisition market in the areas of the Permian Basin where Ring sees the best opportunity?

Yes. So currently -- and it kind of goes back to that word uncertainty, right? Sellers that have assets that they would like to sell really don't want to sell at $60 oil. And even though I'd love to buy them from $60 oil, a lot of them just -- so there's not the motivation on the seller's part to bring assets to market unless they absolutely have to.

And so that stands in the way. So until you get back above the $70 threshold, I think $75 is a really sweet spot because buyers can buy and sellers are willing to sell. And so the current state of the acquisition market right now is this uncertainty has put potential opportunities that could hit the market, put them on hold.

And so from my perspective, because I'm really focused on reducing debt, that's fine with me. We're still out there looking. We're still negotiating with parties that we believe have assets that we'd like to acquire. But I think the momentum in the acquisition and A&D market right now has slowed down as a result of the uncertainty. When that uncertainty goes away, I can promise you, you'll see a new acceleration of transactions and people out there more willing to do deals.

Paul, you've talked in recent quarters about increasing the company's exposure to internally generated growth opportunities. And I think some of that has to do with the scale that you all have added through the acquisitions over the last several years. Can you share your thoughts on how Ring's appetite may have changed as the asset base has grown?

And then secondly, with the capital program that was reduced earlier in the year, are your technical teams spending a lot more of their time trying to high-grade and identify new opportunities on the existing assets that could further expand the inventory?

Yes. And so our appetite for organic growth has only slowed down as a result of our renewed focus on reducing debt. We believe organic growth is going to continue to be and it's going to -- over time, you'll see this over quarters and years, not something you'll see overnight. But you're going to see that our organic growth is going to command and deliver a larger component of our overall company growth.

And so we're very interested in organic growth. So our appetite for it hasn't changed at all. But right now, with these oil prices the way they are, we're only drilling the opportunities that have the highest rates of return. Those high rate of return opportunities have very little uncertainty, okay? So when you start trying and testing some of the ideas on organic growth, you're going to naturally incur more risk. And so right now, we're going to stay away from some of that.

Now we're still going to do some just still because some of these opportunities just look too good, and they have the ability to increase your undrilled inventory for a very little capital because you already own the acreage. And so some of these zones that we have, we haven't tested. And so we're going to continue to do that. We'll actually do some of that even this year, even in a reduced capital environment, just so because the potential is just too appealing. And so we'll see how that goes.

But organic growth is going to increasingly be part of this company's growth over time. And this year, not as much as we originally planning at the beginning of the year, just simply because of the cash flow requirements and our renewed interest in paying down debt.

But I'm very excited about testing because on our existing acreage in areas that we've been pursuing, for example, San Andres, and other areas where we've had these really inexpensive vertical wells with stacked pays, and we've been able to generate really good returns. There are untested opportunities out there, untested zones. And doing the homework on those, I think that that's going to lead to increased value for our shareholders on the existing footprint that we have. And so that will be borne out over the next multiple quarters and even years as time goes by.

Paul, I'd like to just bring us to a close today and have you summarize your thoughts on Ring's flexibility, maybe in the -- especially in the wake of the Lime Rock acquisition, to really adapt its business plan to volatile commodity prices and with the goal of building lasting value for the company.

Yes. And so that encapsulates almost everything we've talked about today. Retaining the flexibility in your go-forward drilling plans and operating plans to respond to the volatility we see in the marketplace is important, especially for a company as the size that we are.

And so -- and I don't think -- even when we get our debt on our balance sheet and we get our balance sheet in the condition that we want it, it's still not going to change the fact that our shareholders expect us to respond to the changing conditions in the marketplace to generate returns.

And so we have long-term goals to get our leverage ratio down, get our -- strengthen the balance sheet, achieve the size and scale that's meaningful, so that we can sustainably deliver a real capital return to our shareholders. Our long-term goal is to eventually put in a dividend of some kind.

And so we've got a few things we've got to get out of the way first. And all of that basically focuses on being responsive to the marketplace, retaining the flexibility in our operations, and then also being open to the opportunities that meet us on the Street. So if an opportunity comes along that really fits our strategy, we will do whatever it takes to take that deal down.

And so if we do incur additional debt after we've paid down debt, it will be because we have a short sight to a quick pay down. And so the key is generating debt-adjusted per share value to our shareholders. And we believe that our strategy does that over the long-term. And I believe that, in a reasonable amount of time, we'll position this company to deliver a strong capital return to our shareholders. And so that's the strategy in the long-term and the short term. It all kind of goes together, and flexibility of being able to respond to the marketplace is kind of a key component of that.

Paul, I'd like to thank you for joining us today. Look, it sounds like we'll get an update on some of the synergies when Ring announces its second quarter earnings here in several weeks in early August. So thank you for taking the time.

Hey, you're welcome.

I'd like to thank participants for joining us for today's fireside chat with Paul McKinney, Ring Energy's CEO. Our research on Ring Energy can be addressed -- accessed from our website, which is www.watertowerresearch.com.

The views expressed in this fireside chat may not necessarily reflect the views of Water Tower Research LLC and are provided for informational purposes only. The fireside chat may not be redistributed or reproduced without the written consent of Water Tower Research and should not be considered research or a recommendation. WTR is an Investor Relations firm, not a licensed broker, broker-dealer, market maker, investment bank, underwriter or investment adviser. Additional disclaimers can be found at watertowerresearch.com.

Paul, once again, thanks for joining us today, and we look forward to another one of these fireside chats in the not-too-distant future.

Jeff, thank you, and thank you to all your audience for your interest in Ring Energy. We look forward to that next chat.

Thank you.

You bet.