Ring Energy Inc. 2026 Q2 Earnings Call

Thank you, Al Petrie, and good morning, everyone, and thank you for joining us. Before discussing the quarter, I'd like to spend a moment on the broader commodity backdrop because it continues to influence how we think about capital allocation, spending levels, and long-term value creation. My view remains that the current market continues to underestimate the impact of long-term global oil fundamentals that are likely to continue influencing crude oil prices long after the current crisis involving Iran and the Strait of Hormuz is resolved. Global demand continues to grow, driven in large part by developing economies seeking higher standards of living, while current industry investment has remained relatively constrained as it has in recent years. These geopolitical events have reinforced the importance of energy security and have highlighted structural pressures throughout the global supply chain that suggests additional future demand.

In my opinion, pre-war supply levels and strategic petroleum reserves have helped bridge the supply gap created by the Persian Gulf conflict, but they cannot serve as a long-term substitute for the upstream investment required to meet growing demand. Yet today, the forward strip continues to imply a market that eventually moves into surplus. Our view is different. We believe the industry will ultimately require higher commodity prices to incentivize the level of investment necessary to meet future growing demand. If investment continues to lag, the risk is not oversupply, but rather a tighter market than many currently anticipate. Regardless of whether our commodity outlook proves exactly right, Ring's strategy is designed, as you know, to succeed across commodity cycles. Our focus remains on disciplined capital allocation, capital efficiency, balance sheet improvement, and generating durable free cash flow for stockholders, no matter what the price environment.

The second quarter provided a good example of that approach in action. While oil prices moved materially higher during the quarter, our hedge position limited our participation in a portion of that upside. It is important to remember that those hedges were established earlier in the year when the forward market reflected a significantly weaker commodity price outlook and were intended to protect our cash flow, our 2026 development plan, and meet our debt reduction goals. Had oil prices not improved in the second quarter, we believe our strategy would have achieved our objectives, allowing us to execute our development program as planned. However, since oil prices were stronger during the quarter, we continued delivering on priorities within our control. The equity offering we completed gave us the balance sheet capacity to fund the acceleration of our development transition without losing focus on debt reduction.

Rather than choosing between strengthening the balance sheet and investing in the highest return phase of our development plan, the timing of this raise allowed us to do both. Taken together, we believe these actions demonstrate the value of disciplined capital allocation and execution across commodity cycles. As part of our ongoing portfolio management, we are also continuing to evaluate select non-core assets that don't fit our long-term development plans. Any proceeds from potential dispositions and/or transactions will be directed towards further debt reduction consistent with our capital allocation priorities. Operationally, we drilled seven wells and completed four wells during the quarter. In the Northwest Shelf, we drilled and completed one one-and-a-half mile horizontal well and one one-mile horizontal well. In the Central Basin Platform, we drilled and completed one one-and-a-half mile horizontal well in Andrews County and one one-and-a-half mile horizontal well in Crane County.

We drilled three additional two-mile horizontal wells in Crane County that were not yet completed at quarter end. As of June 30th, we were also in the process of drilling one saltwater disposal well in Crane County. What gives us confidence in our strategy is the growing consistency we're seeing across the asset base. Each well improves our understanding of spacing, landing zones, completion design, and development sequencing, strengthening our confidence in both inventory quality and development economics. Importantly, our focus today is no longer centered on proving the resource. Instead, it is increasingly about optimizing development, improving returns, maximizing the value of, and expanding our inventory.

To help you understand what we mean by our focus on completing this transition, it is important for you to understand that we believe our undeveloped conventional assets are at a similar stage of evolution to what the broader industry experienced over the last decade when advances in drilling and completion techniques unlocked significant value from the unconventional reservoirs in the Delaware and Midland basins. Before industry could drill and complete longer lateral wells and co-develop multiple benches, they had to invest in frack water storage ponds, centralized production facilities, and produce saltwater disposal wells and facilities. Earlier this year, as we began transitioning to longer lateral wells and co-development of our stacked pay areas, we required similar investments. Continuing these investments will allow us to improve capital efficiency, expand inventory depth, enhance long-term returns. Some of these investments are summarized on slide 17 of our investor deck.

What does all of this mean for 2026 and 2027? Last quarter, we shared that we were accelerating the investments to transition our operations to achieve the focus we just described. This quarter, we continued the acceleration of these important investments and are updating our 2026 guidance and providing initial guidance for 2027. For the second half of 2026, we now expect oil sales volumes to range between 13,000 and 13,950 barrels of oil per day for a midpoint guidance increase of approximately 2%. With respect to operating costs, we now expect LOE per barrel to range between $10 and $10.60 per BOE for a midpoint guidance decrease of approximately 2%.

With respect to capital spending, we now plan to spend between $80 million and $100 million during the last half of the year, bringing our total capital spending for the full year 2026 to between $158 million and $178 million. We believe this expansion is necessary for our transition to our development plan of improved capital efficiency that delivers superior economic returns, lower capital intensity, and higher cash flow generating potential than our historical performance. We also expect to fund this expanded plan primarily through operating cash flow with our debt trending down to our leverage ratio goal of one and a quarter times.

Focusing on our initial guidance for 2027, we expect oil sales to range between 13,550 to 14,650 barrels of oil per day, and our BOE sales volume to range between 21,500 and 23,500 barrels of oil equivalent per day, for midpoint guidance growth of approximately 10% over estimated 2026 BOE sales. With respect to operating costs, we expect 2027 LOE per barrel to range between $9.80 and $10.60 per BOE for a midpoint guidance decrease of approximately 1%, demonstrating our confidence in our team's historical focus on future operating cost reduction. Regarding 2027 capital spending, we are initially guiding to a range of $135 million to $165 million for a midpoint reduction of approximately 10% compared to estimated 2026 capital spending.