12. Ring Energy, Inc. (NYSE:REI)
Number of Hedge Fund Investors in Q1 2024: 9
Average Analyst Share Price Target Upside: 57.89%
Average Analyst Share Price Target: $3
Ring Energy, Inc. (NYSE:REI) is a Texas based company with production assets in its home state and New Mexico. Like other small oil producers, key to its financial viability is the free cash flow. On this front, Ring Energy, Inc. (NYSE:REI) has been performing well and has grown its FCF by 52% on an absolute basis between 2020 and 2023. During its first quarter, the FCF stood at $15.6 million which marked a 48% annual growth, and also marked the 18th consecutive quarter of FCF positivity to indicate a ‘well oiled’ business. Ring Energy, Inc. (NYSE:REI) has also been using its growing FCF to reduce its leverage, and during Q1 it paid down $3 million in debt. Its long term debt grew by 44% to $417 million in 2023 as it expanded production in the lucrative Permian Basin by acquiring assets of another firm for an all cash acquisition of $75 million.
Ring Energy, Inc. (NYSE:REI) is already considering making further acquisitions in the future, with management sharing during the Q1 2024 earnings call:
“We’re predicting that we’re going to see additional assets become available in the Central Basin Platform, the southern part of the Northwest shelf as a result of some of these larger transactions we’ve seen close and/or that are pending. And so many of the operators that have been purchased operate out here and many of the operators that are doing the purchasing and acquiring also have assets out here that have not been their focus and fall in the category that we believe anyway in their halls would be considered non-strategic. So we anticipated them come into the marketplace for sale.
And we’re really excited about this area. We’ve done a lot of mapping. We’ve identified several opportunities out there that we would like. As you may recall, in the past, we have tried to negotiate transactions in the past. That’s how the Stronghold deal started but it ended up being a process that we ultimately prevailed in, Founders was a negotiated deal after a failed sale. And so we’re not opposed to doing that. We are constantly seeking to make acquisitions and that ranges everything from smaller bolt-ons that are just on the other side of the fence from us because it makes a lot of sense. We can continue to play that in the capital programs that we’re currently doing. But at the same time, there’s other areas out there that are very close to our operations that allow us to capture the synergies of our operating team and our expertise.
And so we believe that the pipeline is basically there for the next several years, probably more opportunities than we ourselves can take down. And so we’re excited about it. And so we’ll see how 2024 goes. I think one of the things that we have going for us right now is a little – what appears to be a little bit more stability in oil prices. So if you can stay between $75 and $85 for a sustained period of time, I think you’ll find more people willing to sell. And at the same time, increase the probability of a transaction, just simply because the expectations can – are closer – more closely aligned in a more stable oil price environment. So we’ll see how that goes. But anything from small bolt-ons to large acquisitions that could be as mean as a Stronghold deal and a Founders deal where that were – were for us in the past.”
