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What changed in RING ENERGY, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RING ENERGY, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+411 added−416 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-09)

Top changes in RING ENERGY, INC.'s 2023 10-K

411 paragraphs added · 416 removed · 284 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

69 edited+24 added−59 removed102 unchanged
Biggest changeFor the calculation of Boe, a barrel of oil is weighted on a 6 to 1 ratio to one thousand cubic feet ("Mcf") of natural gas. 2022 Highlights and Major Developments • Amended our revolving credit facility “RBL” with an initial borrowing base of $600.0 million • Closed the Stronghold Acquisition on August 31, 2022 • Increased liquidity position at year-end 2022 to approximately $188.0 million which was a 205% increase versus year-end 2021 of $61.6 million • Improved RBL available balance at year-end 2022 to $184.2 million or 31% of undrawn capacity on the RBL versus year-end 2021 of $59.2 million or 17% of undrawn capacity • Achieved record full year production of 12,364 Boepd (77% Oil), a year-over-year increase of 45% • Executed a continuous drilling program in 2022 which included drilling 32.00 gross / 31.35 net operated wells consisting of 27.00 gross horizontal wells and 5.00 gross vertical wells • Increased total Proved Reserves to 138.1 MMBoe at year-end 2022, a year-over-year increase of 78% Our Mission Ring’s mission is to deliver competitive and sustainable returns to its shareholders by developing, acquiring, exploring for, and commercializing oil and natural gas resources it believes are vital to the world’s health and welfare.
Biggest changeFor the calculation of Boe, a barrel of oil is weighted on a 6 to 1 ratio to one thousand cubic feet ("Mcf") of natural gas. 2023 Highlights and Major Developments • Closed the Founders Acquisition on August 15, 2023 • Achieved record full year production of 18,119 Boepd (69% oil), a year-over-year increase of 47% • Executed a phased drilling program in 2023 that included drilling 31.00 gross / 29.75 net operated wells consisting of 20.00 horizontal and 11.00 vertical wells (gross).
Item 1: Business General Ring Energy, Inc., a Nevada corporation (“Ring,” “Ring Energy,” the “Company,” “we,” “us,” “our,” or similar terms), is a growth oriented independent exploration and production company based in The Woodlands, Texas and is engaged in oil and natural gas development, production, acquisition, and exploration activities currently focused in the Permian Basin of Texas.
Item 1: Business General Ring Energy, Inc., a Nevada corporation (“Ring,” “Ring Energy,” the “Company,” “we,” “us,” “our,” or similar terms), is a growth oriented independent oil and natural gas exploration and production company based in The Woodlands, Texas and is engaged in oil and natural gas development, production, acquisition, and exploration activities currently focused in the Permian Basin of Texas.
Our commodity hedges are designed to help ensure the necessary cash flow to adhere to these plans while retaining the flexibility to participate in prevailing commodity markets. Pursue strategic acquisitions that maintain or reduce our break-even costs - We actively pursue accretive acquisitions, mergers and dispositions in seeking to improve our margins, returns, and break-even costs.
Our commodity hedges are designed to help ensure the necessary cash flow to adhere to these plans while retaining the flexibility to participate in prevailing commodity markets. Pursue strategic acquisitions that maintain or reduce our break-even costs - We actively pursue accretive acquisitions, mergers, and property dispositions in seeking to improve our margins, returns, and break-even costs.
The costs associated with the disposal of proposed water are commonly incurred by all oil and natural gas producers, however, and we do not believe that these costs will have a material adverse effect on our operations. In addition, third-party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.
The costs associated with the disposal of produced water are commonly incurred by all oil and natural gas producers, however, and we do not believe that these costs will have a material adverse effect on our operations. In addition, third-party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.
Financial strategies associated with these efforts will focus on delivering competitive debt-adjusted per share returns. This objective is key to delivering competitive returns to our shareholders on a sustainable basis.
Financial strategies associated with these efforts focus on delivering competitive debt-adjusted per share returns. This objective is key to delivering competitive returns to our shareholders on a sustainable basis.
Although it is not possible at this time to predict what additional domestic legislation may be adopted in light of the Paris Agreement or the Glasgow Climate Pact, or how legislation or new regulations that may be adopted based on the Paris Agreement or the Glasgow Climate Pact to address GHG emissions would impact our business, any such future laws and regulations imposing reporting obligations on, limiting emissions of GHGs from, our equipment and operations, or restricting federal leases could impair our production, could require us to incur costs to reduce emissions of GHGs associated with our operations and could decrease demand for oil and natural gas.
Although it is not possible at this time to predict what additional domestic legislation may be adopted in light of the Paris Agreement or the 18 Table of Contents Glasgow Climate Pact, or how legislation or new regulations that may be adopted based on the Paris Agreement or the Glasgow Climate Pact to address GHG emissions would impact our business, any such future laws and regulations imposing reporting obligations on, limiting emissions of GHGs from, our equipment and operations, or restricting federal leases could impair our production, could require us to incur costs to reduce emissions of GHGs associated with our operations and could decrease demand for oil and natural gas.
Permits must be obtained before drilling saltwater disposal wells, and casing integrity monitoring must be conducted periodically to ensure the casing is not leaking salt water to groundwater. Contamination of groundwater by oil and natural gas drilling, production, and related operations may result in fines, penalties, and remediation costs, among other sanctions and liabilities under the SDWA and state laws.
Permits must be obtained before drilling saltwater disposal wells, and casing integrity monitoring must be conducted periodically to ensure the casing is not leaking saltwater to groundwater. Contamination of groundwater by oil and natural gas drilling, production, and related operations may result in fines, penalties, and remediation costs, among other sanctions and liabilities under the SDWA and state laws.
For example, the EPA and environmental non-governmental organizations have conducted flyovers with optical gas imaging cameras to survey emissions from oil and natural gas production facilities and transmission infrastructure. In August 2022, for example, the EPA announced that it would be conducting helicopter flyovers of the Permian Basin region in New Mexico and Texas.
For example, the EPA and environmental non-governmental organizations have conducted flyovers with optical gas imaging cameras to survey emissions from oil and natural gas production facilities and transmission infrastructure. In August 2022, for example, the EPA announced that it would be conducting helicopter flyovers of the Permian Basin region in Texas.
The majority of our employees are citizens of the United States, with a few retaining dual citizenships in other countries. The employees who are not US citizens, are legally registered to live and work here and the Company is committed to helping those employees retain their ability to remain in the US and continue their employment.
The majority of our employees are citizens of the United States, with a few retaining dual citizenship in other countries. The employees who are not US citizens, are legally registered to live and work here and the Company is committed to helping those employees retain their ability to remain in the US and continue their employment.
Focus on generating free cash flow and strengthen our balance sheet - We seek to continuously reduce long-term debt using excess cash from operations and potentially through the sale of non-core assets. Continuing to generate free cash flow through a disciplined capital allocation program and reducing our operating and corporate costs are key components of this objective.
Focus on generating adjusted free cash flow and strengthening our balance sheet - We seek to continuously reduce long-term debt using excess cash from operations and potentially through the sale of non-core assets. Continuing to generate adjusted free cash flow through a disciplined capital allocation program and reducing our operating and corporate costs are key components of this objective.
We have implemented a Leak Detection and Repair program, or LDAR, to locate and repair leaking components including valves, pumps and connectors in order to minimize the emission of fugitive volatile organic compounds and hazardous air pollutants. In addition, we install vapor recovery units in our newly installed tank batteries which also reduces emissions.
We have implemented a Leak Detection and Repair program, or LDAR, to locate and repair leaking components including valves, pumps and connectors, in order to minimize the emission of fugitive volatile organic compounds and hazardous air pollutants. In addition, as an ongoing practice, we install vapor recovery units in our newly installed tank batteries which also reduces emissions.
In addition, those companies may be able to pay more for productive oil and natural gas properties and exploratory prospects, and to evaluate, bid for, and purchase a greater number of properties and prospects than what our financial or technical resources permit.
In addition, those companies may be able to pay more for productive oil and natural gas properties 11 Table of Contents and exploratory prospects, and to evaluate, bid for, and purchase a greater number of properties and prospects than what our financial or technical resources permit.
Our produced salt water is generally moved by pipeline connected to our operated salt water disposal wells or by pipeline to commercial disposal facilities. Major Customers We principally sell our oil and natural gas production to end users, marketers and other purchasers that have access to nearby pipeline facilities.
Our produced saltwater is generally moved by pipeline connected to our operated saltwater disposal wells or by pipeline to commercial disposal facilities. Major Customers We principally sell our oil and natural gas production to end users, marketers and other purchasers that have access to nearby pipeline facilities.
Our capital program is funded by operational cash flow and limited to balance our production and reserve growth versus paying down debt. We believe that remaining focused and disciplined in this regard will lead to meaningful returns for our shareholders and provide additional financial flexibility to manage potential future swings in business cycles.
Our capital program is funded by operational cash flow and seeks to balance our production and reserve growth with paying down debt. We believe that remaining focused and disciplined in this regard will lead to meaningful returns for our shareholders and provide additional financial flexibility to manage potential future swings in business cycles.
Regulation of Transportation and Sale of Natural Gas Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938 (“NGA”), the Natural Gas Policy Act of 1978 (“NGPA”) and regulations issued under those Acts by the FERC.
Regulation of Transportation and Sale of Natural Gas Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938 (“NGA”), the Natural Gas Policy Act of 1978 (“NGPA”) and regulations issued 13 Table of Contents under those Acts by the FERC.
Based on its findings, the EPA has adopted and implemented regulations under existing provisions of the CAA that, among other things, establish Prevention of Significant Deterioration (“PSD”) construction and Title V operating permit requirements for GHG emissions from certain large stationary sources that already are major sources of criteria pollutants under the CAA.
The EPA has adopted and implemented regulations under existing provisions of the CAA that, among other things, establish Prevention of Significant Deterioration (“PSD”) construction and Title V operating permit requirements for GHG emissions from certain large stationary sources that already are major sources of criteria pollutants under the CAA.
Potentially responsible parties under CERCLA may be subject to strict, joint and several liability for the costs of investigating and cleaning up environmental contamination, for damages to natural resources and for the costs of certain health studies.
Potentially 14 Table of Contents responsible parties under CERCLA may be subject to strict, joint and several liability for the costs of investigating and cleaning up environmental contamination, for damages to natural resources and for the costs of certain health studies.
Obtaining the services of an alternative gathering company would require substantial additional costs (since an alternative gathering company would be required to lay new pipeline and/or obtain new rights of way to any lease from which we are selling production). We are not subject to third-party gathering systems with respect to our oil production.
Obtaining the services of an alternative gathering company is not currently realistic as it would require substantial additional costs (since an alternative gathering company would be required to lay new pipeline and/or obtain new rights of way to any lease from which we are selling production). We are not subject to third-party gathering systems with respect to our oil production.
Diversity and Inclusion : The unique backgrounds and experiences of our employees help to develop a wide range of perspectives that lead to better solutions. Our staff’s diversity is reflected in our full-time employees where 24% are women and approximately 49% represent minorities.
Diversity and Inclusion : The unique backgrounds and experiences of our employees help to develop a wide range of perspectives that lead to better solutions. Our staff’s diversity is reflected in our full-time employees where 23% are women and approximately 50% represent minorities.
Some of our oil production is sold through a third-party pipeline which has no regional competition and all other oil production is transported by the oil purchaser by trucks with competitive trucking costs in the area. Our oil is transported from the wellhead to tank batteries or delivery points through our flow-lines or gathering systems.
Some of our oil production is sold through third-party pipelines which have no regional competition and all other oil production is transported by the oil purchaser by trucks with competitive trucking costs in the area. Our oil is transported from the wellhead to tank batteries or delivery points through our flow-lines or gathering systems.
In Texas and New Mexico, specific oil and natural gas regulations apply to oil and gas operations, including the drilling, completion and operations of wells, and the disposal of waste oil and salt water. There are also procedures incident to the plugging and abandonment of dry holes or other non-operational wells, all as governed by the applicable governing state agency.
In Texas, specific oil and natural gas regulations apply to oil and natural gas operations, including the drilling, completion and operations of wells, and the disposal of waste oil and saltwater. There are also procedures incident to the plugging and abandonment of dry holes or other non-operational wells, all as governed by the applicable governing state agency.
The flyovers used infrared cameras to survey oil and gas operations to identify large emitters of methane and VOCs. Based on data obtained during flyovers, EPA intends to initiate enforcement follow up actions with facilities operators. In addition, the RRC has increased oversight 13 Table of Contents related to flaring, with reporting reviews and site inspections.
The flyovers used infrared cameras to survey oil and gas operations to identify large emitters of methane and volatile organic compounds ("VOCs"). Based on data obtained during flyovers, EPA intends to initiate enforcement follow up actions with facilities operators. In addition, the RRC has increased oversight related to flaring, with reporting reviews and site inspections.
While petroleum and natural gas liquids are not designated as a “hazardous substance” under CERCLA, other chemicals used in or generated by our operations may be regulated as hazardous substances.
While petroleum and NGLs are not designated as a “hazardous substance” under CERCLA, other chemicals used in or generated by our operations may be regulated as hazardous substances.
The trend of more expansive and stringent environmental legislation and regulations, including greenhouse gas regulation, could continue, resulting in increased costs of conducting business and consequently affecting our profitability. We also are aware that the SEC intends to propose new and additional rules regarding company disclosure of climate change risk.
The trend of more expansive and stringent environmental legislation and regulations, including greenhouse gas regulation, could continue, resulting in increased costs of conducting business and consequently affecting our profitability. We also are aware that the SEC intends to propose new and additional rules regarding company disclosure of climate change risk. We will monitor and comply with any such promulgated rules.
The identification or designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause us to incur increased costs arising from species protection measures or could result in limitations on our development activities that could have an adverse impact on our ability to develop and produce our oil and natural gas reserves.
The identification or designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause increased costs arising from species protection measures or could result in limitations on development activities that could have an adverse impact on the ability to develop and produce reserves within our assets.
Currently, all of our properties and operations are in Texas and New Mexico, which have regulations governing conservation matters, such as the unitization or pooling of oil and natural gas properties, the establishment of maximum allowable rates of production from oil and natural gas wells, the regulation of well spacing, and plugging and abandonment of wells.
Currently, all of our operated properties are in Texas, which has regulations governing conservation matters, such as the unitization or pooling of oil and natural gas properties, the establishment of maximum allowable rates of production from oil and natural gas wells, the regulation of well spacing, and plugging and abandonment of wells.
In areas where there is no practical access to pipelines, oil is trucked to storage facilities. For the year ended December 31, 2022, sales to three customers, Phillips 66 Company ("Phillips"), NGL Crude Partners ("NGL Crude"), and Enterprise Crude Oil LLC ("Enterprise") represented 68%, 13% and 5%, respectively, of our oil, natural gas, and natural gas liquids revenues.
In areas where there is no practical access to pipelines, oil is trucked to storage facilities. For the year ended December 31, 2023, sales to three customers, Phillips 66 Company ("Phillips"), Enterprise Crude Oil LLC ("Enterprise"), and NGL Crude Partners ("NGL Crude"), and represented 66%, 12%, and 10%, respectively, of our oil, natural gas, and natural gas liquids revenues.
We seek to employ highly trained people who exemplify our core values of honesty and integrity, and are diligent, hard-working individuals who deliver results, and who are good neighbors that contribute to the communities in which they live. 18 Table of Contents As of December 31, 2022, we had 98 full-time employees.
We seek to employ highly trained people who exemplify our core values of honesty and integrity, and are diligent, hard-working individuals who deliver results, and who are good neighbors that contribute to the communities in which they live. As of December 31, 2023, we had 108 full-time employees.
Key principles supporting Ring’s strategic vision are to: • ensure health, safety, and environmental excellence and a strong commitment to Ring’s employees and the communities in which we work and operate; • continue our focus on generating free cash flow to improve and build a sustainable financial foundation; • pursue rigorous capital discipline focused on Ring’s highest returning opportunities; 6 Table of Contents • improve margins and drive value by targeting additional operating cost reductions and capital efficiencies; and • strengthen our balance sheet by steadily paying down debt, divesting of non-core assets and becoming a peer leader in Debt/EBITDA metrics.
Key principles supporting Ring’s strategic vision are to: • ensure health, safety, and environmental excellence, and a strong commitment to Ring’s employees and the communities in which we work and operate; • continue our focus on generating adjusted free cash flow to improve and build a sustainable financial foundation; • pursue rigorous capital discipline focused on Ring’s highest returning opportunities; • improve margins and drive value by targeting additional operating cost reductions and capital efficiencies; and • strengthen our balance sheet by steadily paying down debt, divesting of non-core assets and becoming a peer leader in Debt/EBITDA metrics. 8 Table of Contents Our Business Strategy Our business strategy is guided by the above key principles and implemented by pursuing the following five strategic objectives, which are foundational aspects of our culture and success.
Generally, the demand for oil and natural gas fluctuates depending on the time of year. Seasonal anomalies such as mild winters and summers may sometimes lessen this fluctuation. Demand for natural gas is typically higher during the winter, resulting in higher natural gas prices for our natural gas production during our first and fourth fiscal quarters.
Seasonal anomalies such as mild winters and summers may sometimes lessen this fluctuation. Demand for natural gas is typically higher during the winter, resulting in higher natural gas prices for our natural gas production during our first and fourth fiscal quarters.
Quarter Area Wells Drilled Wells Completed Recompletions 1Q 2022 Central Basin Platform (Horizontal) 4 4 — Central Basin Platform (Vertical) — — — Northwest Shelf 2 — — 2Q 2022 Central Basin Platform (Horizontal) — — — Central Basin Platform (Vertical) — — — Northwest Shelf 9 7 — 3Q 2022 Central Basin Platform (Horizontal) 3 3 — Central Basin Platform (Vertical) — — 3 Northwest Shelf 5 6 — 4Q 2022 Central Basin Platform (Horizontal) 2 2 — Central Basin Platform (Vertical) 5 5 9 Northwest Shelf 2 5 — Ring Energy’s Strengths Our strengths include: • high quality asset base in one of North America’s leading oil and gas producing regions characterized by relatively low declines and attractive margins; • de-risked Permian Basin acreage position with multi-year drilling inventory of horizontal and vertical development potential; 8 Table of Contents • concentrated acreage position with high degree of operational control; • experienced and proven management team with substantive technical and operational expertise; • operating control over most of our production and development activities; and • commitment to cost efficient operations, health, safety, protecting the environment, our employees, and the communities in which we work and operate.
Ring Energy’s Strengths Our strengths include: • high quality asset base in one of North America’s leading oil and gas producing regions characterized by relatively low declines and attractive margins; • de-risked Permian Basin acreage position with multi-year drilling inventory of horizontal and vertical development potential; • concentrated acreage position with high degree of operational control; • experienced and proven management team with substantive technical and operational expertise; • operating control over most of our production and development activities; and • commitment to cost efficient operations, health, safety, protecting the environment, our employees, and the communities in which we work and operate.
There are also procedures incident to the plugging and abandonment of dry holes or other non-operational wells, all as governed by the applicable governing state agency. 11 Table of Contents At the federal level, among the more significant laws and regulations that may affect our business and the oil and natural gas industry are: Hazardous Substances and Wastes CERCLA, also known as the Superfund law, and analogous state laws impose liability on certain classes of persons, known as “potentially responsible parties,” for the disposal or release of a regulated hazardous substance into the environment.
At the federal level, among the more significant laws and regulations that may affect our business and the oil and natural gas industry are: Hazardous Substances and Wastes CERCLA, also known as the Superfund law, and analogous state laws impose liability on certain classes of persons, known as “potentially responsible parties,” for the disposal or release of a regulated hazardous substance into the environment.
Consequently, state regulators implementing both the federal UIC program and state corollaries are 14 Table of Contents heavily scrutinizing the location of injection facilities relative to faulting and are limiting both the density and injection facilities as well as the rate of injection.
Consequently, state regulators implementing both the federal UIC program and state corollaries are heavily scrutinizing the location of injection facilities relative to faulting and are limiting both the density and injection facilities as well as the rate of injection. In Texas, the RRC regulates the disposal of produced water by injection well.
Next, we drilled and completed two 1.5-mile horizontal wells and one 1-mile horizontal well in the Central Basin Platform and two 1-mile horizontal wells in the Northwest Shelf, each with a working interest of 100%.
During the third quarter of 2023, the Company drilled and completed two 1-mile horizontal wells (one with a working interest of 100% and the other with a working interest of 75%) in the Northwest Shelf, and three 1.5-mile horizontal wells (each with a working interest of 100%) in the Central Basin Platform.
The charge will act as an incentive for operators to reduce emissions by minimizing leaks and replacing equipment rather than paying for excessive emissions.
On January 12, 2024, the EPA announced a proposed rule to implement the methane emissions charge.The charge will act as an incentive for operators to reduce emissions by minimizing leaks and replacing equipment rather than paying for excessive emissions.
As a result, we may incur substantial liabilities to third parties or governmental entities for environmental matters for which we do not have insurance coverage, which could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses.
As a result, we may incur substantial liabilities to third parties or governmental entities for environmental matters for which we do not have insurance coverage, which could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses. 19 Table of Contents Human Capital Management Key to our mission is our employees upon which the foundation of our Company is built.
Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations. In January2023, the EPA and the Corps issued a final rule that revises the definition of WOTUS. The final rule has been challenged by several states and industry groups.
Federal and state regulatory agencies can impose administrative, civil, and criminal penalties for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations. In January 2023, the EPA and the Corps issued a final rule that revises the definition of WOTUS. Separately, in May 2023, the U.S. Supreme Court’s decision in Sackett v.
Commodity Hedging We have an active commodity hedging program through which we seek to hedge a meaningful portion of our expected oil and gas production, reducing our exposure to downside commodity prices and enabling us to protect cash flows to meet our debt obligations under our credit facility and maintain liquidity to fund our capital expenditures needs.
Commodity Hedging We have an active commodity hedging program through which we seek to hedge a meaningful portion of our expected oil and gas production, thereby reducing our exposure to downside commodity prices and enabling us to protect cash flows to meet our debt obligations under our credit facility and secondarily to maintain liquidity to fund our capital expenditures needs. 12 Table of Contents Governmental Regulations Oil and natural gas operations such as ours are subject to various types of legislation, regulation and other legal requirements enacted by governmental authorities.
All of our properties are located in the Permian Basin. Our proved reserves are oil-weighted with approximately 64% consisting of oil, 19% consisting of natural gas, and 17% consisting of natural gas liquids.
All of our properties are located in the Permian Basin and our proved reserves are oil-weighted, with approximately 63% consisting of oil, 19% consisting of natural gas, and 18% consisting of NGLs. Approximately 68% of the reserves are classified as PD and 32% are classified as PUD.
In response to the COVID-19 pandemic, Ring began providing the following benefits to its employees: • covering the cost of COVID-19 testing through expanded insurance coverage; • promoting telehealth benefits; • promoting mental health and well-being plans; and • providing additional paid sick leave for quarantined employees. 19 Table of Contents Seasonal Nature of Business Weather conditions often affect the demand for, and prices of, natural gas and can also delay oil and natural gas drilling, completion and production activities, disrupting our overall business plans.
In response to the COVID-19 pandemic, Ring began providing the following benefits to its employees: • covering the cost of COVID-19 testing through expanded insurance coverage; • promoting telehealth benefits; • promoting mental health and well-being plans; and 20 Table of Contents • providing additional paid sick leave for quarantined employees.
Further, in September 2018, the BLM published a final rule revising or rescinding certain provisions of the 2016 rule, which became effective on November 27, 2018. Both the 2016 and the 2018 rule were challenged in federal court.
In September 2018, the BLM published a final rule revising or rescinding certain provisions of the 2016 rule, which became effective on November 27, 2018. Both the 2016 and the 2018 rule were challenged in federal court resulting in the rescission of both rules. Appeals to those decisions are ongoing, but with little activity in the last several years.
As an example, the RRC adopted rules in 2014 requiring companies seeking permits for disposal wells to provide seismic activity data in permit applications. The rules also allow the RRC to modify, suspend, or terminate permits if a disposal well is determined to be causing seismic activity. Determinations by the RRC under these rules may adversely affect our operations.
The rules also allow the RRC to modify, 17 Table of Contents suspend, or terminate permits if a disposal well is determined to be causing seismic activity. Determinations by the RRC under these rules may adversely affect our operations.
It is critical to have compensation, development, and human resource programs that attract, retain and motivate the people we need to succeed. Pursue operational excellence with a sense of urgency - We seek to deliver low cost, consistent, timely and efficient execution of our drilling campaigns, work programs and operations.
Pursue operational excellence with a sense of urgency - We seek to deliver low cost, consistent, timely, and efficient execution of our drilling campaigns, work programs, and operations.
The first wells completed were the two 1-mile horizontal wells, which were drilled in the first quarter. Next, we drilled and completed two 1-mile horizontal wells with a working interest of 100%, two 1.5-mile horizontal wells with a working interest of approximately 98.7% and one 1-mile horizontal well with a working interest of approximately 75.4%.
In the first quarter of 2023, in the Northwest Shelf, the Company drilled and completed two 1-mile horizontal wells (each with a working interest of 100%), and two 1.5-mile horizontal wells (one with a working interest of approximately 99.8% and the other with a working interest of approximately 75.4%).
Federal, state and local statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. The trend in oil and natural gas regulation has been to increase regulatory restrictions and limitations on such activities.
The trend in oil and natural gas regulation has been to increase regulatory restrictions and limitations on such activities.
Moreover, both Texas and New Mexico impose a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within their jurisdictions. The failure to comply with these rules and regulations can result in substantial penalties.
Moreover, Texas imposes a production or severance tax with respect to the production and sale of oil, natural gas and NGLs within its jurisdictions. The failure to comply with these rules and regulations can result in substantial penalties. Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations.
Further, several states, including New Mexico, and local governments remain committed to the principles of the Paris Agreement in their effectuation of policy and regulations.
In December 2023, the United States participated in the United Nations Climate Change Conference in the United Arab Emirates (“COP28”). Further, several states and local governments remain committed to the principles of the Paris Agreement in their effectuation of policy and regulations.
In the third quarter of 2022, we completed and placed on production the four aforementioned 1-mile horizontal wells in the Northwest Shelf, which were drilled in the second quarter.
In the fourth quarter of 2023, the Company completed and placed on production the three aforementioned 1-mile horizontal wells in the Northwest Shelf.
Next, we drilled and completed two 1-mile horizontal wells with a working interest of 100%, also in the Northwest Shelf. To complete the 2022 horizontal drilling program, we drilled and completed two 1.5-mile horizontal wells in the Central Basin Platform.
Additionally, the Company drilled and completed one saltwater disposal (SWD) well in the Northwest Shelf (with a working interest of 100%), and completed the 2023 horizontal drilling program with one 1.5-mile horizontal well in the Northwest Shelf (with a working interest of approximately 97.7%), as well as two 1-mile horizontal wells and one 1.5-mile horizontal well (each with a working interest of 100%) in the Central Basin Platform.
Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations. Regulation of Transportation of Oil Sales of crude oil, condensate and natural gas liquids are not currently regulated and are made at negotiated prices, however, Congress could reenact price controls in the future.
Regulation of Transportation of Oil Sales of crude oil, condensate, and NGLs are not currently regulated and are made at negotiated prices; however, Congress could reenact price controls in the future. Our sales of crude oil are affected by the availability, terms, and cost of transportation. The transportation of oil in common carrier pipelines is also subject to rate regulation.
The regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, can affect our profitability. Regulation of Drilling and Production The production of oil and natural gas is subject to regulation under a wide range of local, state and federal statutes, rules, orders and regulations.
Regulation of Drilling and Production The production of oil and natural gas is subject to regulation under a wide range of local, state and federal statutes, rules, orders and regulations. Federal, state, and local statutes and regulations require permits for drilling operations, drilling bonds, and reports concerning operations.
Our sales of crude oil are affected by the availability, terms and cost of transportation. The transportation of oil in common carrier pipelines is also subject to rate regulation. The Federal Energy Regulatory Commission, (“FERC”), regulates interstate oil pipeline transportation rates under the Interstate Commerce Act. Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions.
The Federal Energy Regulatory Commission, (“FERC”), regulates interstate oil pipeline transportation rates under the Interstate Commerce Act. Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state.
The IRA also required the EPA to implement a waste emission charge on methane emitted from applicable oil and gas facilities that exceed certain thresholds. The methane charge goes into effect in 2024 at $900 per metric ton of methane and increases to $1,500 per metric ton of methane by 2026.
The methane charge goes into effect in 2024 at $900 per metric ton of methane and increases to $1,500 per metric ton of methane by 2026.
Governmental Regulations Oil and natural gas operations such as ours are subject to various types of legislation, regulation and other legal requirements enacted by governmental authorities. This legislation and regulation affecting the oil and natural gas industry is under constant review for amendment or expansion. Some of these requirements carry substantial penalties for failure to comply.
This legislation and regulation affecting the oil and natural gas industry is under constant review for amendment or expansion. Some of these requirements carry substantial penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, can affect our profitability.
These permits may require us to install emission control technologies to limit emissions, which can impose significant costs on our business. In 2012 and 2016, the EPA issued New Source Performance Standards to regulate emissions of sources of volatile organic compounds (“VOCs”), sulfur dioxide, air toxics and methane from various oil and natural gas exploration, production, processing and transportation facilities.
These permits may require us to install emission control technologies to limit emissions, which can impose significant costs on our business. In November 2021, the EPA issued a proposed rule under the CAA’s New Source Performance Standards, known as Subpart OOOOa, intended to reduce methane emissions from new and existing oil and gas sources.
In Texas and New Mexico, specific oil and natural gas regulations apply to oil and natural gas operations, including the drilling, completion and operations of wells, and the disposal of waste oil and saltwater.
In Texas, specific oil and natural gas regulations apply to oil and gas operations, including the drilling, completion and operations of wells, and the disposal of waste oil and salt water. In October 2023, the RRC announced draft amendments to its water protection rules to, among other things, encourage waste recycling.
We believe that the loss of any of these customers would not materially impact our business because we could readily find other purchasers for our oil and natural gas. 9 Table of Contents Delivery Commitments As of December 31, 2022, we were not committed to providing a fixed quantity of oil or natural gas under any existing contracts.
As of December 31, 2023, Phillips represented 65% of our accounts receivable, Enterprise represented 11% of our accounts receivable and NGL Crude represented 8% of our accounts receivable. We believe that the loss of any of these purchasers would not materially impact our business because we could readily find other purchasers for our oil and natural gas.
Underground Injection Control The underground injection of crude oil and natural gas wastes is regulated by the Underground Injection Control (“UIC”) program, as authorized by the SDWA, as well as by state programs.
To the extent the rule or any future rule or court decision expands the scope of the CWA’s jurisdiction, we could face increased permitting costs and project delays. 16 Table of Contents Underground Injection Control The underground injection of crude oil and natural gas wastes is regulated by the Underground Injection Control (“UIC”) program, as authorized by the SDWA, as well as by state programs.
We will monitor and comply with any such promulgated rules. 17 Table of Contents Threatened and endangered species, migratory birds and natural resources Various federal and state statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands, and natural resources.
Threatened and endangered species Various federal and state statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands, and natural resources. These statutes include the Endangered Species Act (“ESA”), the Migratory Bird Treaty Act (“MBTA”) and the Clean Water Act.
These statutes include the Endangered Species Act (“ESA”), the Migratory Bird Treaty Act (“MBTA”) and the Clean Water Act. The U.S. Fish and Wildlife Service (“FWS”) may designate critical habitat areas that it believes are necessary for survival of threatened or endangered species.
Pursuant to the ESA, if a species is listed as threatened or endangered, restrictions may be imposed on activities adversely affecting that species’ habitat. The U.S. Fish and Wildlife Service (“FWS”) may designate critical habitat and suitable habitat areas that it believes are necessary for survival of a threatened or endangered species.
During the last month of the quarter, we drilled and began the completion process on three 1-mile horizontal wells in the Northwest Shelf, two with a working interest of 99.7% and one with a working interest of 100%. In total, during the third quarter of 2022, we drilled eight, completed nine, and began the completion process on three horizontal wells.
Additionally, in its Crane County acreage within the Central Basin Platform, the Company drilled and completed three vertical wells (each with a working interest of 100%). Lastly, the Company drilled and began the completion process on three 1-mile horizontal wells in the Northwest Shelf (each with a working interest of 100%).
In addition to the horizontal wells, we performed nine more vertical well re-completions and drilled and completed five new vertical wells on the Stronghold Acquisition assets located in Crane County, Texas, of the Central Basin Platform, all with a working interest of 100%.
Additionally, in its Crane County acreage within the Central Basin Platform, the Company drilled and completed two vertical wells (each with a working interest of 100%) and performed three vertical well recompletions (each with a working interest of 100%).
The FWS missed the deadline but reportedly continues to review new species for protected status under the ESA pursuant to the settlement agreement. A critical habitat designation could result in further material restrictions on federal land use or on private land use and could delay or prohibit land access or development.
A critical habitat or suitable habitat designation could result in further material restrictions to land use and may materially delay or prohibit land access for oil and natural gas development.
In June 2016, the EPA finalized rules to reduce methane emissions from new, modified or reconstructed sources in the oil and natural gas sector, including implementation of a leak detection and repair (“LDAR”) program to minimize methane emissions, under the CAA’s New Source Performance Standards in 40 C.F.R. Part 60, Subpart OOOOa (“GHG NSPS”).
In addition, in November 2016, the BLM issued final rules to reduce methane emissions from venting, flaring, and leaks during oil and natural gas operations on federal lands that are substantially similar to the CAA’s New Source Performance Standards in 40 C.F.R. Part 60, Subpart OOOOa (“GHG NSPS”) requirements.
Reclassification of areas of state implementation of NAAQS, or designation of areas in which we operate as non-attainment zones, could result in stricter permitting requirements, delay, or prohibit our ability to obtain such permits, and result in increased expenditures for pollution control equipment, the costs of which could be significant.
Compliance with these or any new regulations could result in stricter permitting requirements, which in turn could delay or impair our ability to obtain air emission permits and could result in increased expenditures for pollution control equipment, the costs of which could be significant. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”).
Of those reserves, approximately 65% are classified as proved developed or “PD” and 35% are classified as proved undeveloped, or “PUD.” Within the "PD" reserve category, 235 re-completion and re-activation opportunities are classified as proved developed not producing "PDNP" and within the "PUD" reserve category, we have a total of 214 proved locations (43% horizontal and 57% vertical) based on the reserve report as of December 31, 2022.We believe our core leasehold in the Northwest Shelf and Central Basin Platform contain additional potential drilling locations.
Within the PD reserve category, 242 recompletion and re-activation opportunities are classified as PDNP and within the PUD reserve category, we have a total of 211 proved locations (33% horizontal and 67% vertical) based on the reserve report as of December 31, 2023.
Our primary drilling operations target the oil and liquids rich producing formations in the Northwest Shelf, the Central Basin Platform, and the Delaware Basin all of which are part of the Permian Basin in Texas.
Our drilling operations target the oil and liquids rich producing formations in the Northwest Shelf and the Central Basin Platform, in the Permian Basin in Texas. As of December 31, 2023, our leasehold acreage positions totaled 96,127 gross (80,535 net) acres and we held interests in 1,043 gross (864 net) producing wells.
This ruling has caused federal agencies to delay issuing new oil and gas leases and permits on federal lands and waters. While we do not have a significant federal lands acreage position (240 net acres as of December 31, 2022), these actions could have a material adverse effect on our industry and the Company.
This ruling has caused federal agencies to delay issuing new oil and gas leases and permits on federal lands and waters.
Primary Business Operations We seek to rigorously manage our asset portfolio to optimize shareholder value over the long term. In the first quarter of 2022, we contracted a rig for our horizontal drilling program and began operations on January 31st. We drilled and completed three 1-mile horizontal wells and one 1.5-mile horizontal well in the Central Basin Platform.
Primary Business Operations We seek to rigorously manage our asset portfolio to optimize shareholder value over the long term.
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As of December 31, 2022, our leasehold acreage positions totaled 124,217 gross (102,175 net) acres and we held interests in 1,056 gross (888 net) producing wells. Proved reserves as of December 31, 2022 were approximately 138.1 million Boe (barrel of oil equivalent), of which we are the operator of approximately 98%.
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Proved reserves as of December 31, 2023 (based upon the report of our independent petroleum engineer of that date) were approximately 129.8 million Boe, of which we are the operator of approximately 98%.
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Our Business Strategy Our business strategy is guided by the above key principles and implemented by pursuing the following five strategic objectives, which are foundational aspects of our culture and success. Attract and retain highly qualified people - Achieving our mission is only possible through our employees.
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We believe our core leasehold in the Northwest Shelf and Central Basin Platform contain additional potential drilling locations.
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Stronghold Acquisition On July 1, 2022, Ring and Stronghold Energy II Operating, LLC, a Delaware limited liability company (“Stronghold OpCo”) and Stronghold Energy II Royalties, LP, a Delaware limited partnership (“Stronghold RoyaltyCo”, together with Stronghold OpCo, collectively, “Stronghold”), entered into a purchase and sale agreement (the “Purchase Agreement"), under which Ring acquired (the “Stronghold Acquisition”) interests in oil and gas leases and related property of Stronghold consisting of approximately 37,000 net acres in the Central Basin Platform of the Texas Permian Basin.
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In addition, the Company participated in 5.00 non-operated wells. • Maintained our revolving credit facility borrowing base of $600 million • Total Proved Reserves were 129.8 MMBoe at year-end 2023 Our Mission Ring’s mission is to deliver competitive and sustainable returns to its shareholders by developing, acquiring, exploring for, and commercializing oil and natural gas resources that are vital to the world’s health and welfare.
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On August 31, 2022, we completed the Stronghold Acquisition. Upon closing of the Stronghold Acquisition, Stronghold exercised its right to designate two directors to our Board of Directors (the "Board"). On September 1, 2022, Roy I. Ben-Dor and David S. Habachy were appointed to the Board.
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Attract and retain highly qualified people - Achieving our mission is only possible through our employees. It is critical to have compensation, development, and human resource programs that attract, retain, and motivate the people we need to succeed.
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We then moved the rig to the Northwest Shelf and drilled two 1-mile horizontal wells.
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Founders Acquisition On August 15, 2023, the Company, as buyer, and Founders Oil & Gas IV, LLC (“Founders”), as seller, closed the Asset Purchase Agreement (the “Founders Purchase Agreement”) under which the Company acquired (the “Founders Acquisition”) interests in oil and gas leases and related property of Founders in the Central Basin Platform of the Permian Basin in Ector County, Texas.
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All wells drilled in the first quarter had a working interest of 100%. 7 Table of Contents In the second quarter of 2022, we drilled a total of nine wells, completed seven wells, and began the completion process on four wells, all in the Northwest Shelf.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe amount of additional future costs is not fully determinable due to such factors as the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions or compliance efforts that may be required, the determination of the Company’s liability in proportion to other responsible parties, and the extent to which such costs are recoverable from third parties. 27 Table of Contents Our operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which we may conduct oil and natural gas exploration and production activities, and reduce demand for the oil and natural gas we produce.
Biggest changeThe amount of additional future costs is not fully determinable due to such factors as the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions or compliance efforts that may be required, the determination of the Company’s liability in proportion to other responsible parties, and the extent to which such costs are recoverable from third parties.
A substantial percentage of our proved properties are undeveloped; therefore, the risk associated with our success is greater than would be the case if the majority of our properties were categorized as proved developed.
A substantial percentage of our proved properties are undeveloped; therefore, the risk associated with our success is greater than would be the case if a substantial majority of our properties were categorized as proved developed.
Risks Relating to the Oil and Natural Gas Industry A substantial or extended decline in oil and natural gas prices may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.
Risks Relating to the Oil and Natural Gas Industry A substantial or extended decline in oil and natural gas prices may adversely affect our business, financial condition and results of operations and our ability to meet our capital expenditure obligations and financial commitments.
A substantial or extended decline in oil or natural gas prices may materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures. Drilling for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect our business, financial condition or results of operations.
A substantial or extended decline in oil or natural gas prices may materially and adversely affect our future business, financial condition, results of operations, liquidity and ability to finance planned capital expenditures. Drilling for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect our business, financial condition and results of operations.
Such extreme weather conditions could also impact access to our drilling and production facilities for routine operations, maintenance and repairs and the availability of and our access to, necessary third-party services, such as gathering, processing, compression and transportation services.
Extreme weather conditions could also impact access to our drilling and production facilities for routine operations, maintenance and repairs and the availability of and our access to, necessary third-party services, such as gathering, processing, compression and transportation services.
Our operations may incur substantial liabilities to comply with the environmental laws and regulations. Our oil and natural gas operations are subject to stringent federal, state and local laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection.
Our operations may incur substantial liabilities to comply with environmental laws and regulations. Our oil and natural gas operations are subject to stringent federal, state, and local laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection.
The coronavirus outbreak has impacted various businesses throughout the world, including an impact on the global demand for oil and natural gas, travel restrictions and the extended shutdown of certain businesses in impacted geographic regions. If other pandemics occur, they could have a material adverse impact on our business operations, operating results and financial condition.
The coronavirus outbreak impacted various businesses throughout the world, including an impact on the global demand for oil and natural gas, travel restrictions and the extended shutdown of certain businesses in impacted geographic regions. If other pandemics occur, they could have a material adverse impact on our business operations, operating results and financial condition.
Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write-down the financial carrying value of our oil and natural gas properties. A write-down would likely constitute a non-cash charge to earnings.
Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write-down the financial carrying value of our oil and natural gas properties. A write-down would likely constitute a non-cash charge.
In addition, the terms of our Credit Agreement have restrictions on dividend payments to our equity holders, including our common stockholders. Our board of directors can, without stockholder approval, cause preferred stock to be issued on terms that could adversely affect common stockholders.
In addition, the terms of our Second Credit Agreement have restrictions on dividend payments to our equity holders, including our common stockholders. Our board of directors can, without stockholder approval, cause preferred stock to be issued on terms that could adversely affect common stockholders.
The impacts of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, COP26 or other international conventions cannot be predicted at this time.
The impacts of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, COP26, COP28 or other international conventions cannot be predicted at this time.
Risks Relating to Our Business, Operations and Strategy Part of our strategy involves using some of the latest available horizontal drilling and completion techniques, which involve additional risks and uncertainties in their application as compared to vertical drilling.
Risks Relating to Our Business, Operations, and Strategy Part of our strategy involves using some of the latest available horizontal drilling and completion techniques, which involve additional risks and uncertainties in their application compared to vertical drilling.
The designation of previously unprotected species in areas where we operate as threatened or endangered could cause us to incur increased costs arising from species protection measures or could result in limitations on our exploration, development and production activities that could have an adverse impact on our ability to develop and produce our reserves. 26 Table of Contents Our operations are substantially dependent on the availability, use and disposal of water.
The designation of previously unprotected species in areas where we operate as threatened or endangered could cause us to incur increased costs arising from species protection measures or could result in limitations on our exploration, development and production activities that could have an adverse impact on our ability to develop and produce our reserves. 27 Table of Contents Our operations are substantially dependent on the availability, use and disposal of water.
Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance and may otherwise have a material adverse effect on our results of operations, competitive position or financial condition as well as the industry in general.
Changes in environmental laws and regulations and the interpretation thereof occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal, or cleanup requirements could require us to make significant expenditures to maintain compliance and may otherwise have a material adverse effect on our results of operations, competitive position, and financial condition as well as the industry in general.
While intended to reduce the effects of volatile oil and natural gas prices, derivative contracts designed as hedges expose us to risk of financial loss in some circumstances, including when there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received, or when the counterparty to the derivative contract is financially constrained and defaults on its contractual obligations.
While intended to reduce the effects of volatile oil and natural gas prices, derivative contracts designed as hedges expose us to risk of financial loss in some circumstances, including when there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received, or when the counterparty to the derivative contract defaults on its contractual obligations.
It requires interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of our reported reserves. In order to prepare our estimates, we must project production rates and timing of development expenditures.
It requires interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could negatively affect the estimated quantities and present value of our reported reserves. In order to prepare our estimates, we must project production rates and timing of development expenditures.
Any of these risks could adversely affect our ability to conduct operations or result in substantial losses to our Company. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable.
Any of these risks could adversely affect our ability to conduct operations or result in substantial losses to our Company. We may elect to not obtain certain insurance coverage if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable.
Item 1A: Risk Factors Our business is subject to various risks and uncertainties in the ordinary course of business. The following summarizes significant risks and uncertainties that may adversely affect our business, financial condition, or results of operations. We cannot assure you that any of the events discussed in the risk factors below will not occur.
Item 1A: Risk Factors We are subject to various risks and uncertainties in the ordinary course of our business. The following summarizes significant risks and uncertainties that may adversely affect our business, financial condition, or results of operations. We cannot assure you that any of the events discussed in the risk factors below will not occur.
We continue to be impacted by inflationary pressures on our operating costs and capital expenditures. Beginning in the second half of 2021 and continuing throughout 2022, we, similar to other companies in our industry, experienced inflationary pressures on our operating costs and capital expenditures - namely the costs of fuel, steel (i.e., wellbore tubulars), labor and drilling and completion services.
We continue to be impacted by inflationary pressures on our operating costs and capital expenditures. Beginning in the second half of 2021 and continuing throughout 2023, we, similar to other companies in our industry, experienced inflationary pressures on our operating costs and capital expenditures - namely the costs of fuel, steel (i.e., wellbore tubulars), labor, and drilling and completion services.
We may incur substantial losses and be subject to substantial liability claims as a result of our oil and natural gas operations. We are not insured against all risks. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our business, financial condition and results of operations.
We may incur substantial losses and be subject to substantial liability claims as a result of our oil and natural gas operations. We are not insured against all risks. Losses and liabilities arising from uninsured and under insured events could materially and adversely affect our business, financial condition and results of operations.
Consequently, our competitors may be able to address these competitive factors more effectively than we can. If we are not successful in our competition for oil and natural gas reserves or in our marketing of production, then our financial condition and operation results may be adversely affected.
Consequently, our competitors may be able to address these competitive factors more effectively than we can. If we are not successful in our competition for oil and natural gas properties or in our marketing of production, then our financial condition and operation results may be adversely affected.
Such inflationary pressures on our operating and capital costs, which we currently expect to continue in 2023, have impacted our cash flows and results of operations. We have undertaken, and plan to continue with, certain initiatives and actions (such as agreements with service providers to secure the costs and availability of services) to mitigate such inflationary pressures.
Such inflationary pressures on our operating and capital costs, which we currently expect to continue in 2024, have impacted our cash flows and results of operations. We have undertaken, and plan to continue with, certain initiatives and actions (such as agreements with service providers to secure the costs and availability of services) to mitigate such inflationary pressures.
Additionally, in November 2021, the Biden Administration released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050,” which establishes a roadmap to net zero emissions in the United States by 2050 through, among other things, improving energy efficiency; decarbonizing energy sources via electricity, hydrogen, and sustainable biofuels; and reducing non-CO2 GHG emissions, such as methane and nitrous oxide.
Additionally, in November 2021, the Biden Administration released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050,” which establishes a roadmap to 29 Table of Contents net zero emissions in the United States by 2050 through, among other things, improving energy efficiency; decarbonizing energy sources via electricity, hydrogen, and sustainable biofuels; and reducing non-CO2 GHG emissions, such as methane and nitrous oxide.
This represents approximately 35% of our presently outstanding shares of common stock and if the selling stockholders choose to sell all or a large number of their shares, from time to time, it likely would have a depressive effect on the market price of our common stock.
This represents approximately 23% of our presently outstanding shares of common stock and if the selling stockholders choose to sell all or a large number of their shares, from time to time, it likely would have a depressive effect on the market price of our common stock.
On January 27, 2021, President Biden signed an executive order calling for substantial action on climate change, including, among other things, the increased use of zero-emissions vehicles by the federal government, the elimination of subsidies provided to the 28 Table of Contents oil and natural gas industry and increased emphasis on climate-related risks across agencies and economic sectors.
On January 27, 2021, President Biden signed an executive order calling for substantial action on climate change, including, among other things, the increased use of zero-emissions vehicles by the federal government, the elimination of subsidies provided to the oil and natural gas industry, and increased emphasis on climate-related risks across agencies and economic sectors.
We cannot assure you that the analogies we draw from available data obtained by analyzing other wells, more fully explored prospects or producing fields will be applicable to our drilling prospects.
We cannot assure you that the analogies we draw from available data obtained by analyzing other wells, more fully explored prospects or producing fields will be applicable to all of our drilling prospects.
Under the CAMT, a 15 percent minimum tax will be imposed on certain adjusted financial statement income of "applicable corporations," which is effective beginning January 1, 2023.
Under the CAMT, a 15 percent minimum tax will be imposed on certain adjusted financial statement income of "applicable corporations," which was effective beginning January 1, 2023.
Our business partners, including vendors, service providers, purchasers of our production and financial institutions, are also dependent on digital technology. It is possible that we could incur interruptions from cyber security attacks or breaches, computer viruses or malware that could result in disruption of our business operations and/or financial loss.
Our business partners, including vendors, service providers, purchasers of our production, and financial institutions, are also dependent on digital technology. It is possible that we could incur interruptions from cybersecurity attacks or breaches, computer viruses or malware that could result in disruption of our business operations and/or financial loss.
These factors include, but are not limited to, the following: • changes in global supply and demand for oil and natural gas; • the actions of the Organization of Petroleum Exporting Countries, or OPEC; • the actions of oil exporting countries that are not members of OPEC; • the price and quantity of imports of foreign oil and natural gas; • political conditions, including embargoes, in or affecting other oil-producing activity; • acts of war and related armed conflicts; 22 Table of Contents • the level of global oil and natural gas exploration and production activity; • the level of global oil and natural gas inventories; • weather conditions; • technological advances affecting energy consumption; and • the price and availability of alternative fuels.
These factors include, but are not limited to, the following: • changes in global supply and demand for oil and natural gas; • the actions of the Organization of Petroleum Exporting Countries, or OPEC; • the actions of oil exporting countries that are not members of OPEC; • the price and quantity of imports and exports of oil and natural gas; • political conditions, including embargoes, in or affecting other oil-producing activities; • acts of war and related armed conflicts; 23 Table of Contents • the level of global oil and natural gas exploration and production activity; • the level of global oil and natural gas inventories; • weather conditions; • technological advances affecting energy consumption; and • the price and availability of alternative fuels.
To reduce our exposure to commodity price uncertainty and increase cash flow predictability relating to the marketing of our crude oil and natural gas, we have entered into crude oil and natural gas price hedging arrangements with respect to a significant portion of our expected production in order to economically hedge a portion of our forecasted oil and natural gas production.
To reduce our exposure to commodity price uncertainty and increase cash flow predictability, we have entered into crude oil and natural gas price hedging arrangements with respect to a significant portion of our expected production in order to economically hedge a portion of our forecasted oil and natural gas production.
Even so, any cyber incidents or interruptions to our computing and communications infrastructure or our information systems could lead to data corruption, communication interruption, unauthorized release, gathering, monitoring, misuse or destruction of proprietary or other information, or otherwise significantly disrupt our business operations.
Even so, any cyber incidents or interruptions to our computing and communications infrastructure or our information systems could lead to data corruption, communication interruption, unauthorized release, gathering, monitoring, misuse, or 32 Table of Contents destruction of proprietary or other information, or otherwise significantly disrupt our business operations.
Such physical risks may also impact the infrastructure on which we rely to produce or transport our products. One of more of these developments could have a material adverse effect on our business, financial condition and operations.
Such physical risks may also impact the infrastructure on which we rely to produce or transport our products. One of more of these developments could have a material adverse effect on our business, financial condition and 30 Table of Contents operations.
In addition to the ability of the board of directors to issue preferred stock, the existence of some provisions under Nevada law could delay or prevent a change in control of the Company, which could adversely affect the price of our 32 Table of Contents common stock.
In addition to the ability of the board of directors to issue preferred stock, the existence of some provisions under Nevada law could delay or prevent a change in control of the Company, which could adversely affect the price of our common stock.
Our assessments will not reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to assess fully their capabilities and deficiencies. We plan to undertake further development of our properties generally through the use of cash flow from existing production.
Our assessments will not reveal all existing or potential problems, nor will they permit us to become familiar enough with the potential properties we may acquire to assess fully their capabilities and deficiencies. We plan to undertake further development of our properties generally through the use of cash flow from existing production.
The net book value is compared to the ceiling on a quarterly basis. The excess, if any, of the net book value above the ceiling is required to be written off as an impairment expense. During the years ended December 31, 2022, and 2021, we did not incur any write-downs.
The net book value is 24 Table of Contents compared to the ceiling on a quarterly basis. The excess, if any, of the net book value above the ceiling is required to be written off as an impairment expense. During the years ended December 31, 2023, 2022, and 2021 we did not incur any write-downs.
Recent reluctance to invest in the exploration and production sector based on market volatility, historically perceived underperformance, and Environmental, Social and Governance ("ESG") trends, among other things, has raised concerns regarding capital availability for the sector.
Recent reluctance to invest in the exploration and production sector based on market volatility, historically perceived underperformance, and ESG trends, among other things, has raised concerns regarding capital availability for the sector.
Our oil and natural gas 24 Table of Contents exploration and production activities are subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of: • environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination; • abnormally pressured formations; • mechanical difficulties, such as stuck oil field drilling and service tools and casing collapse; • fires and explosions; • personal injuries and death; and • natural disasters.
Our oil and natural gas 25 Table of Contents exploration and production activities are subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of: • environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater; • abnormally pressured formations; • mechanical difficulties, such as stuck oil field drilling and service tools and casing collapses; • fires and explosions; • personal injuries and death; and • natural disasters.
We have a Credit Facility in place with $600.0 million in commitments from borrowings and letters of credit under our Second Amended and Restated Credit Agreement dated August 31, 2022 with Truist Bank as Administrative Agent ("Credit Agreement"). As of December 31, 2022, $415.0 million was outstanding on our Credit Facility.
We have a Credit Facility in place with $600 million in commitments from borrowings and letters of credit under our Second Amended and Restated Credit Agreement dated August 31, 2022 with Truist Bank as Administrative Agent (the "Second Credit Agreement"). As of December 31, 2023, $425.0 million was outstanding on our Credit Facility.
The passage of any legislation as a result of these proposals and other similar changes in federal income tax laws or the imposition of new or increased taxes or fees on oil and natural gas extraction could adversely affect our operations and cash flows.
The passage of any legislation as a result of these proposals and other changes in federal income tax laws or the imposition of new or increased taxes or fees on oil and natural gas extraction could adversely affect our operating results and cash flows.
Preferred shares could also have conversion rights into shares of common stock at a discount to the market price of the common stock which could negatively affect the market for our common stock.
Preferred shares could also have conversion rights into shares of common stock at a discount to the market price of the common stock which could 33 Table of Contents negatively affect the market for our common stock.
The loss of key members of management or failure to attract and retain other highly qualified personnel could, in the future, affect the Company’s business results. The Company’s success depends on its ability to attract, retain and motivate a highly-skilled management team and workforce.
The loss of key members of management or failure to attract and retain other highly qualified personnel could affect the Company’s business results. Our success depends on our ability to attract, retain and motivate a highly-skilled management team and workforce.
Discounted future net revenues are estimated using oil and natural gas spot prices based on the average price during the preceding 12-month period determined as an un-weighted, arithmetic average of the first-day-of-the-month price for each 23 Table of Contents month within such period, except for changes which are fixed and determinable by existing contracts.
Discounted future net revenues are estimated using oil and natural gas spot prices based on the average price during the preceding 12-month period determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, except for changes which are fixed and determinable by existing contracts.
If we further utilize this facility, the level of our indebtedness could affect our operations in several ways, including the following: • a significant portion of our cash flow could be used to service the indebtedness; • we are required to put into place derivative contracts to hedge a significant portion of our oil and gas production; • a high level of debt would increase our vulnerability to general adverse economic and industry conditions; • the covenants contained in our Credit Facility limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments, and; • a high level of debt could impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes. 30 Table of Contents In addition, our bank borrowing base is subject to semi-annual redeterminations.
If we 31 Table of Contents further utilize this facility, the level of our indebtedness could affect our operations in several ways, including the following: • a significant portion of our cash flow would need to be used to service the indebtedness; • we are required to put into place derivative contracts to hedge a significant portion of our oil and gas production; • a high level of debt would increase our vulnerability to general adverse economic and industry conditions; • the covenants contained in our Credit Facility limit our ability to borrow additional funds, dispose of assets, pay dividends, and make certain investments, and; • a high level of debt could impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate, or other purposes.
To the extent this rule is finalized as proposed, we could incur increased costs relating to the assessment and disclosure of climate-related risks, including increased legal, accounting and financial compliance costs, as well as making some activities more difficult, time-consuming and costly, and placing strain on our personnel, systems and resources.
As a result of this rule, we could incur increased costs relating to the assessment and disclosure of climate-related risks, including increased legal, accounting and financial compliance costs, as well as making some activities more difficult, time-consuming and costly, and placing strain on our personnel, systems, and resources.
Some studies have linked earthquakes in certain areas to underground injection, which has led to greater public scrutiny of disposal wells.
Some studies have linked earth tremors in certain areas to underground injection, which has led to greater public scrutiny of disposal wells.
As the Company continues to expand, it will need to promote or hire additional staff, and, as a result of increased compensation and benefit packages in our industry, as well as inflation pressures, it may be difficult to attract or retain such individuals without incurring significant additional costs.
As we continue to expand, we will need to promote or hire additional staff, and, as a result of increased compensation and benefit packages in our industry, as well as inflationary pressures, it may be difficult to attract or retain such individuals without incurring significant additional costs.
The price we receive for our oil and natural gas production heavily influences our revenue, profitability, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile.
The prices we receive for our oil and natural gas production heavily influence our revenue, profitability, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand.
The cumulative effect of a write-down could also negatively impact the trading price of our common stock. We follow the full cost method of accounting for our oil and natural gas properties.
The cumulative effect of one or more write-downs could also negatively impact the trading price of our common stock. We follow the full cost method of accounting for our oil and natural gas properties.
Failure to ensure that the Company has the depth and breadth of management and personnel with the necessary skill sets and experience could impede its ability to achieve growth objectives and execute its operational strategy.
Failure to ensure that we have the depth and breadth of management and personnel with the necessary skill sets and experience could impede our ability to achieve growth objectives and execute our operational strategy.
We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to their investments in certain carbon-intensive sectors.
We may also face increased litigation risks related to disclosures made pursuant to the rule. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to their investments in certain carbon-intensive sectors. Risks Relating to Our Capital Structure We have significant indebtedness.
Additionally, our credit facility requires us to hedge a significant portion of our production. In addition, these derivative contracts typically limit the benefit we would otherwise receive from increases in the prices for 21 Table of Contents oil and natural gas.
Additionally, our credit facility 22 Table of Contents requires us to hedge a significant portion of our production. These derivative contracts typically limit the benefit we would otherwise receive from increases in the prices for oil and natural gas. Hedging transactions may expose us to risk of financial loss.
Our exploration and development activities and equipment could be adversely affected by extreme weather conditions, such as abnormally low temperatures, which can cause a loss of production from temporary cessation of activity from regional power outages or lost or damaged facilities and equipment.
Our exploration and development activities and equipment can be adversely affected by extreme weather conditions, such as abnormally low temperatures, which can cause a loss of production from temporary cessation of activity from regional power outages or lost or damaged facilities and equipment. For example, we had production stoppages in 2022 and 2023 that adversely affected our revenues.
The stock markets have experienced volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
The market price of our common stock may be volatile, which could cause the value of your investment to decline. The stock markets have experienced volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
Risks that we face while completing our wells include, but are not limited to, the following: • the ability to fracture or stimulate the planned number of stages in a horizontal or lateral wellbore; • the ability to run tools and other equipment the entire length of the wellbore during completion operations; and • the ability to successfully clean out the wellbore after completion of the final fracture stimulation stage. 20 Table of Contents If our assessments of purchased properties are materially inaccurate, it could have a significant impact on future operations and earnings.
Risks that we face while completing our wells include, but are not limited to, the following: • the ability to fracture or stimulate the planned number of stages in a horizontal or lateral wellbore; • the ability to run tools and other equipment the entire length of a wellbore during completion operations; and 21 Table of Contents • the ability to successfully clean out a wellbore after completion of the final fracture stimulation stage.
While we do not have a significant federal lands acreage position (240 net acres as of December 31, 2022), these actions could have a material adverse effect on our industry, the public perception of oil and gas companies such as ours and the willingness of the public and financial institutions to provide capital for our industry.
While we do not have any federal lands acreage at this time, these actions could have a material adverse effect on our industry, the public perception of oil and gas companies such as ours and the willingness of the public and financial institutions to provide capital for our industry.
In addition, on August 16, 2022, President Biden signed into law the IRA, which includes, among other things, a corporate alternative minimum tax (the "CAMT"), provides for an investment tax credit for qualified biomass property and introduces a one percent excise tax on corporate stock repurchases after December 31, 2022.
In addition, the IRA, which includes, among other things, a corporate alternative minimum tax (the "CAMT"), provides for an investment tax credit for qualified biomass property and introduces a one percent excise tax on corporate stock repurchases.
These markets will likely continue to be volatile in the future. The prices we receive for our production, and the levels of our production, depend on numerous factors beyond our control.
Historically, the markets for oil and natural gas have been volatile and we expect these markets will likely continue to be volatile. The prices we receive for our production, and the levels of our production, depend on numerous factors beyond our control.
Such restrictions on our ability to sell our oil or natural gas could have several adverse effects, including higher transportation costs, fewer potential purchasers (thereby potentially resulting in a lower selling price) or, in the event we were unable to market and sustain production from a particular lease for an extended time, possibly causing us to lose a lease due to lack of production.
Further, much of our natural gas production is sold to companies who are the only gathering and processing facilities near most of our properties Such restrictions on our ability to sell our oil or natural gas could have several adverse effects, including higher transportation costs, fewer potential purchasers (thereby potentially resulting in increased exposure to facility breakdowns and a lower selling prices) or, in the event we were unable to market and sustain production from a particular lease for an extended time, possibly causing us to lose a lease due to lack of production.
Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties. Our failure to obtain such services on acceptable terms could materially harm our business.
Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties.
It is not possible to predict how or when regulations affecting our operations might change. There is ongoing controversy regarding the leasing of federal lands.
It is not possible to predict how or when regulations affecting our operations might change. There is ongoing controversy regarding the leasing of federal lands. We may be required to make large expenditures to comply with governmental regulations.
We are not currently party to any such litigation, but could be named in future actions making similar claims of liability. To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to our causation of or contribution to the asserted damage, or to other mitigating factors.
To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to our causation of or contribution to the asserted damage, or to other mitigating factors.
In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, President Biden has highlighted addressing climate change as a priority of his administration, which includes certain potential initiatives for climate change legislation to be proposed and passed into law.
However, President Biden has 28 Table of Contents highlighted addressing climate change as a priority of his administration, which includes certain potential initiatives for climate change legislation to be proposed and passed into law.
We could be required to repay a portion of our bank borrowings due to redeterminations of our borrowing base. If we are required to do so, we may not have sufficient funds to make such repayments, and we may need to negotiate renewals of our borrowings or arrange new financing or sell significant assets.
If we are required to do so, we may not have sufficient funds to make such repayments, and we may need to negotiate renewals of our borrowings or arrange new financing or sell significant assets. Any such actions could have a material adverse effect on our business and financial results.
Changes in tax laws or the interpretation thereof or the imposition of new or increased taxes or fees may adversely affect our operations and cash flows. 29 Table of Contents From time to time, federal and state level legislation has been proposed that would, if enacted into law, make significant changes to tax laws, including to certain key federal and state income tax provisions currently available to oil and natural gas exploration and development companies.
From time to time, federal and state level legislation has been proposed that would, if enacted into law, make significant changes to tax laws, including to certain key federal and state income tax provisions currently applicable to oil and natural gas exploration and development companies.
New climate disclosure rules proposed by the SEC may increase our costs of compliance and adversely impact our business. On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related risks.
The legislation and regulations related to unclaimed property matters are complex and subject to varying interpretations by state governmental authorities. New climate disclosure rules proposed by the SEC may increase our costs of compliance and adversely impact our business. On March 6, 2024, the SEC adopted new rules relating to the disclosure of a range of climate-related risks.
Increasingly, oil and natural gas companies are exposed to litigation risks associated with the threat of climate change. A number of parties have brought lawsuits against oil and natural gas companies in state or federal court for alleged contributions to, or failures to disclose the impacts of, climate change.
A number of parties have brought lawsuits against oil and natural gas companies in state or federal court for alleged contributions to, or failures to disclose the impacts of, climate change. We are not currently party to any such litigation, but could be named in future actions making similar claims of liability.
We are currently assessing the proposed rule, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from the rule. According to the SEC’s Fall 2022 regulatory agenda, the proposed climate disclosure rule is scheduled to be finalized in April 2023.
We are currently assessing the final rule, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from the rule.
There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable.
We are unable to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. This risk may be enhanced in our situation, due to the fact that a significant percentage of our proved reserves is currently proved undeveloped reserves.
Currently, the majority of our production is sold to marketers and other purchasers that have access to nearby pipeline facilities. However, as we further develop our properties, we may find production in areas with limited or no 25 Table of Contents access to pipelines, thereby necessitating delivery by other means, such as trucking or requiring compression facilities.
Our failure to obtain such services on acceptable terms could materially harm our business. 26 Table of Contents Currently, some of our production is sold to marketers and other purchasers that have access to pipeline facilities. Much of our production is in areas with limited or no access to pipelines, thereby necessitating delivery by trucking.
Because a substantial percentage of our proved properties are proved undeveloped (approximately 35%), we will require significant additional capital to develop such properties before they may become productive. Further, because of the inherent uncertainties associated with drilling for oil and gas, some of these properties may never be developed to the extent that they result in positive cash flow.
Because a substantial percentage of our proved properties are proved undeveloped (approximately 32%), we will require significant additional capital to develop such properties before they may become productive.
During the year ended December 31, 2020, we recorded a non-cash write-down of $277.5 million. Under SEC full cost accounting rules, any write-off recorded may not be reversed even if higher oil and natural gas prices increase the ceiling applicable to future periods.
Under SEC full cost accounting rules, any write-off recorded may not be reversed even if higher oil and natural gas prices increase the ceiling applicable to future periods. Future price decreases could result in reductions in the financial carrying value of such assets and an equivalent charge on our financial statements.
Risks Relating to Our Common Stock We have recently registered 63,888,878 shares of our common stock for possible resale by certain of our stockholders and have exercisable warrants for 14,590,366 shares of common stock, resulting in significant "market overhang" of our common stock.
Risks Relating to Our Common Stock We have recently registered shares of our common stock for possible resale by certain of our stockholders, resulting in significant "market overhang" of our common stock. In connection with the Stronghold Acquisition completed in 2022, Warburg Pincus & Company US, LLC and its affiliates hold approximately 46.1 million shares of our common stock.
We may be unable to access the equity or debt capital markets to meet our obligations. Our plans for growth may include accessing the capital markets.
Further, our borrowings under our Credit Facility expose us to interest rate risks, as it bears variable interest based upon a prime rate and is therefore susceptible to interest rate fluctuations. We may be unable to access the equity or debt capital markets to meet our obligations. Our plans for growth may include accessing the capital markets.
Removed
This risk may be enhanced in our situation, due to the fact that a significant percentage of our proved reserves is currently proved undeveloped reserves.
Added
If our assessments of purchased properties are materially inaccurate, it could have a significant impact on future operations and earnings.
Removed
As part of our hedging strategy, we have in place derivative contracts covering percentages of our future estimated production in accordance with our Credit Agreement. Hedging transactions may expose us to risk of financial loss.
Added
Further, because of the inherent uncertainties associated with drilling for oil and gas, some of these properties may never be developed to the extent that they result in commercial quantities of oil and natural gas.
Removed
Future price decreases could result in reductions in the financial carrying value of such assets and an equivalent charge to earnings.
Added
Discounted future net revenues are estimated using oil and natural gas spot prices based on the average price during the preceding 12-month period determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, except for changes which are fixed and determinable by existing contracts.
Removed
For example, at the state level, New Mexico’s consideration of legislation to prohibit certain uses of freshwater in fracking operations, implement new disclosure requirements, and increase penalties may affect the cost and feasibility of our business. We may be required to make large expenditures to comply with governmental regulations.
Added
Our operations are subject to a series of risks arising out of the perceived threat of climate change that could result in increased operating costs, limit the areas in which we may conduct oil and natural gas exploration and production activities, and reduce demand for the oil and natural gas we produce.

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Item 2. Properties

Properties — owned and leased real estate

51 edited+27 added−5 removed24 unchanged
Biggest changeFor periods prior to July 1, 2022, sales and reserve volumes, prices, and revenues for natural gas liquids were presented with natural gas. 43 Table of Contents Years ended December 31, 2022 2021 2020 Average lease operating expenses (per Boe) Central Basin Platform $ 13.81 $ 15.97 $ 15.44 Delaware Basin 44.86 32.75 19.13 Northwest Shelf 6.74 5.34 4.91 Total $ 10.57 $ 9.75 $ 9.25 Average gathering, transportation and processing costs (per Boe) Central Basin Platform $ — $ — $ — Delaware Basin — — — Northwest Shelf 0.73 2.10 2.07 Total $ 0.41 $ 1.39 $ 1.27 Average ad valorem taxes (per Boe) Central Basin Platform $ 1.11 $ 1.17 $ 1.82 Delaware Basin 0.41 0.33 0.50 Northwest Shelf 1.00 0.57 0.60 Total $ 1.04 $ 0.73 $ 0.97 Average production taxes (per Boe) Central Basin Platform $ 3.64 $ 2.85 $ 1.67 Delaware Basin 3.97 2.45 1.30 Northwest Shelf 3.91 3.01 1.64 Total $ 3.80 $ 2.93 $ 1.63 The average oil sales price amounts above are calculated by dividing revenue from oil sales by the volume of oil sold, in barrels “Bbl.” The average natural gas sales price amounts above are calculated by dividing revenue from natural gas sales by the volume of natural gas sold, in thousand cubic feet “Mcf.” The average natural gas liquids sales price amounts above are calculated by dividing revenue from natural gas liquids sales by the volume of natural gas liquids sold, in barrels “Bbl.”The total average sales price amounts are calculated by dividing total revenues by total volume sold, in Boe.
Biggest changeYears ended December 31, 2023 2022 2021 Average production costs (per Boe): Lease operating expenses $ 10.61 $ 10.57 $ 9.75 Gathering, transportation and processing costs $ 0.07 $ 0.41 $ 1.39 Ad valorem taxes $ 1.02 $ 1.04 $ 0.73 Production taxes $ 2.74 $ 3.80 $ 2.93 The average oil sales price amounts above are calculated by dividing revenue from oil sales by the volume of oil sold, in Bbls.
In order to ensure the reliability of reserves estimates, our Corporate Reserves department follows comprehensive SEC-compliant internal controls and policies to determine, estimate and report proved reserves including: • confirming that we include reserves estimates for all properties owned and that they are based upon proper working and net revenue interests; • ensuring the information provided by other departments within the Company, such as Accounting, is accurate; • communicating, collaborating, and analyzing with technical personnel in our business units; • comparing and reconciling the internally generated reserves estimates to those prepared by third parties; and • utilizing experienced reservoir engineers or those under their direct supervision to prepare reserve estimates.
In order to ensure the reliability of reserves estimates, our Corporate Reserves department follows comprehensive SEC-compliant internal controls and policies to determine, estimate and report proved reserves including: • confirming that we include reserves estimates for all properties owned and that they are based upon proper working and net revenue interests; • ensuring the information provided by other departments within the Company, such as accounting, land, and operations is accurate; • communicating, collaborating, and analyzing with technical personnel in our business units; • comparing and reconciling the internally generated reserves estimates to those prepared by third parties; and • utilizing experienced reservoir engineers or those under their direct supervision to prepare reserve estimates.
Our estimates of reserves and future cash flow as of December 31, 2022 and 2021 were prepared using an average price equal to the unweighted arithmetic average of the first day of the month price for each month within the 12-month periods ended December 31, 2022 and 2021, respectively, in accordance with SEC guidelines.
Our estimates of reserves and future cash flow as of December 31, 2023 and 2022 were prepared using an average price equal to the unweighted arithmetic average of the first day of the month price for each month within the 12-month periods ended December 31, 2023 and 2022, respectively, in accordance with SEC guidelines.
The proved oil and natural gas reserves disclosed in this Report are based on reserve estimates determined and prepared by independent reserve engineers primarily using decline curve analysis to determine the reserves of individual producing wells.
The proved oil and natural gas reserves disclosed in this Annual Report are based on reserve estimates determined and prepared by our independent reserve engineers primarily using decline curve analysis to determine the reserves of individual producing wells.
Northwest Shelf –Yoakum, Runnels and Coke County, Texas and Lea County, New Mexico – In 2019, we acquired properties consisting of 49,754 gross (38,230 net) acres with an average working interest of 77% and an average net revenue interest of 58%.
Northwest Shelf –Yoakum County, Texas and Lea County, New Mexico – In 2019, we acquired properties consisting of 49,754 gross (38,230 net) acres with an average working interest of 77% and an average net revenue interest of 58%.
As of December 31, 2022, our reserves are based on an SEC average price of $90.15 per Bbl of WTI oil posted and $6.358 per MMBtu of Henry Hub natural gas.
As of December 31, 2022, our reserves were based on an SEC average price of $90.15 per Bbl of WTI oil posted and $6.358 per MMBtu Henry Hub natural gas.
Our Executive Vice President of Engineering and Corporate Strategy, Mr. Alex Dyes, is the technical professional primarily responsible for overseeing the preparation of our reserves estimates. He has a Bachelor of Science degree in Petroleum Engineering from the University of Texas with over 16 years of practical industry experience, including over 12 years of estimating and evaluating reserve information.
Our Executive Vice President of Engineering and Corporate Strategy, Mr. Alex Dyes, is the technical professional primarily responsible for overseeing the preparation of our reserves estimates. He has a Bachelor of Science degree in Petroleum Engineering from the University of Texas with over 17 years of practical industry experience, including over 13 years of estimating and evaluating reserve information.
In 2022, we acquired properties consisting of approximately 37,000 net acres, with an average working interest of 99% and an average net revenue interest of 88% for oil and 96% for natural gas in our initial leases in Crane, Winkler, and Ward counties.
In 2022, we acquired properties consisting of approximately 37,000 net acres, with an average working interest of 99% and an average net revenue interest of 88% for oil and 96% for natural gas in our initial leases in Crane, Winkler, and Ward counties. In 2023, we acquired properties in Ector County.
("CGA"), independent petroleum engineers. These reserves are attributable solely to properties within the United States. A summary of the changes in quantities of proved (developed and undeveloped) oil, natural gas and natural gas liquid reserves is shown below.
("CGA"), independent petroleum engineers. These reserves are 37 Table of Contents attributable solely to properties within the United States. A summary of the changes in quantities of proved (developed and undeveloped) oil, natural gas and natural gas liquid reserves is shown below.
Meekins is a Registered Professional Engineer in the State of Texas (License No. 71055) and has over 35 years of practical experience in petroleum engineering, with over 33 years of experience in the estimation and evaluation of reserves. He graduated from Texas A&M University in 1987 with a Bachelor of Science degree in Petroleum Engineering. Mr.
Meekins is a Registered Professional Engineer in the State of Texas (License No. 71055) and has over 36 years of practical experience in petroleum engineering, with over 34 years of experience in the estimation and evaluation of reserves. He graduated from Texas A&M University in 1987 with a Bachelor of Science degree in Petroleum Engineering. Mr.
Each quarter, the Executive Vice President of Engineering and Corporate Strategy presents the status of the Company’s reserves to senior executives, and subsequently obtains approval of significant changes from key executives.
Each quarter, the Corporate Reserves team along with the Executive Vice President of Engineering and Corporate Strategy presents the status of the Company’s reserves to senior executives, and subsequently obtains approval of significant changes from key executives.
We spent approximately $360.1 million on acquisitions and capital projects during 2022 and 2021. We expect to further develop these properties through additional drilling. The following table summarizes our total net proved reserves, pre-tax PV-10 value and Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2022.
We spent approximately $544.2 million on acquisitions and capital projects during 2023 and 2022. We expect to further develop these properties through additional drilling. The following table summarizes our total net proved reserves, pre-tax PV-10 value and Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2023.
As noted in the table under “Production Prices and Production Costs”, our average production costs including lease operating expenses, gathering, processing and transportation ("GPT") and ad valorem, per Boe, were $12.02 and $11.88 for the years ended December 31, 2022 and 2021, respectively, and our average production taxes, per Boe, were $3.80 and $2.93 for the years ended December 31, 2022 and 2021, respectively.
As noted in the table under “Production Prices and Production Costs”, our average production costs including lease operating expenses, gathering, processing and transportation ("GPT") and ad valorem, per Boe, were $11.70 and $12.02 for the years ended December 31, 2023 and 2022, respectively, and our average production taxes, per Boe, were $2.74 and $3.80 for the years ended December 31, 2023 and 2022, respectively.
This data was reviewed by various levels of management for accuracy before consultation with independent reserve engineers. This consultation included review of properties, assumptions and available data. Internal reserve estimates were compared to those prepared by independent reserve engineers to test the estimates and conclusions before the reserves were included in this Report.
This data was reviewed by various levels of management for accuracy before consultation with our 42 Table of Contents independent reserve engineers. This consultation included review of properties, assumptions and available data. Internal reserve estimates were compared to those prepared by CGA to test the estimates and conclusions before the reserves were included in this Annual Report.
For the year ended December 31, 2022 2021 2020 Gross Net Gross Net Gross Net Exploratory Productive — — — — — — Dry — — — — — — Development Productive 3.00 0.33 2.00 0.23 1.00 0.11 Dry — — — — — — Total Productive 3.00 0.33 2.00 0.23 1.00 0.11 Dry — — — — — — Present Activities We had no operated wells in the process of being drilled or completed as of December 31, 2022.
For the year ended December 31, 2023 2022 2021 Gross Net Gross Net Gross Net Exploratory Productive — — — — — — Dry — — — — — — Development Productive 5.00 0.59 3.00 0.33 2.00 0.23 Dry — — — — — — Total Productive 5.00 0.59 3.00 0.33 2.00 0.23 Dry — — — — — — Present Activities We had no operated wells in the process of being drilled or completed as of December 31, 2023.
For the year ended December 31, 2022 2021 2020 Gross Net Gross Net Gross Net Exploratory Productive — — — — — — Dry — — — — — — Development Productive 32.00 31.35 11.00 9.91 6.00 5.61 Dry — — — — — — Total Productive 32.00 31.35 11.00 9.91 6.00 5.61 Dry — — — — — — The table below contains information regarding the number of non-operated wells drilled and participated in during the periods indicated.
For the year ended December 31, 2023 2022 2021 Gross Net Gross Net Gross Net Exploratory Productive — — — — — — Dry — — — — — — Development Productive 31.00 29.75 32.00 31.35 11.00 9.91 Dry — — — — — — Total Productive 31.00 29.75 32.00 31.35 11.00 9.91 Dry — — — — — — The table below contains information regarding the number of non-operated wells drilled and participated in during the periods indicated.
Within CGA, the technical person primarily responsible for preparing the estimates set forth in the CGA letter dated February 3, 2023, filed as an exhibit to this Annual Report on Form 10-K, was Mr. Zane Meekins. Mr. Meekins has been a practicing consulting petroleum engineer at CGA since 1989. Mr.
Within CGA, the technical person primarily responsible for preparing the estimates set forth in the CGA letter dated January 26, 2024, filed as an exhibit to this Annual Report, was Mr. Zane Meekins. Mr. Meekins has been a practicing consulting petroleum engineer at CGA since 1989. Mr.
Within the Central Basin Platform, we have a total of 141 proved undeveloped locations (21% horizontal and 79% vertical) and 205 PDNP opportunities based on the reserve report as of December 31, 2022. Our reserve estimates account for the capital costs required to develop these wells. We believe the Central Basin Platform leases contain additional potential drilling locations.
Within the Central Basin Platform, we had a total of 163 proved undeveloped locations (13% horizontal and 87% vertical) and 238 PDNP opportunities based on the reserve report as of December 31, 2023. Our reserve estimates account for the capital costs required to develop these wells. We believe the Central Basin Platform leases contain additional potential drilling locations.
As of December 31, 2022, our total proved reserves had a net pre-tax PV-10 value of approximately $2,773.7 million and a Standardized Measure of Discounted Future Net Cash Flows of approximately $2,272.1 million.
As of December 31, 2023, our total proved reserves had a net pre-tax PV-10 value of approximately $1,647.0 million and a Standardized Measure of Discounted Future Net Cash Flows of approximately $1,399.2 million.
Prices are adjusted by local field and lease level differentials and are held constant for life of reserves in accordance with SEC guidelines. 1 Six Mcf is deemed the equivalent of one Boe. 36 Table of Contents The standardized measure of discounted future net cash flows relating to the proved oil, natural gas and natural gas liquids reserves are shown below.
Prices are adjusted by local field and lease level differentials and are held constant for life of reserves in accordance with SEC guidelines. 39 Table of Contents The standardized measure of discounted future net cash flows relating to the proved oil, natural gas and NGLs reserves are shown below.
In addition, we also participated in three gross (0.33 net) non-operated wells in the Northwest shelf. These wells were successful and there were no dry wells. 44 Table of Contents The table below contains information regarding the number of operated wells drilled and participated in during the periods indicated.
In addition, we also participated in five gross (0.59 net) non-operated wells of which three were Northwest Shelf and two in Central Basin Platform. These wells were successful and there were no dry wells. 46 Table of Contents The table below contains information regarding the number of operated wells drilled and/or participated in during the periods indicated.
Summary of Oil and Natural Gas Reserves As of December 31, 2022, our estimated proved reserves had a pre-tax PV-10 value (present value discounted at 10%) of approximately $2,773.7 million and a Standardized Measure of Discounted Future Net Cash Flows of approximately $2,272.1 million, 100% of which relates to our properties in the Permian Basin in Texas and New Mexico.
Summary of Oil and Natural Gas Reserves As of December 31, 2023, our estimated proved reserves had a pre-tax PV-10 value (present value discounted at 10%) of approximately $1,647.0 million and a Standardized Measure of Discounted Future Net Cash Flows of approximately $1,399.2 million, over 99.6% of which relates to our properties in the Permian Basin in Texas.
Within the Northwest Shelf, we have a total of 73 proved undeveloped locations (85% horizontal and 15% vertical) and 19 PDNP opportunities based on the reserve report as of December 31, 2022. Our reserve estimates account for the capital costs required to develop these wells. We believe the Northwest Shelf leases contain additional potential drilling locations.
Within the Northwest Shelf, we have a total of 48 proved undeveloped locations (100% horizontal) and 4 PDNP opportunities based on the reserve report as of December 31, 2023. Our reserve estimates account for the capital costs required to develop these wells and the future plugging and abandonment cost. We believe the Northwest Shelf leases contain additional potential drilling locations.
Our reserve estimates have not been filed with any Federal authority or agency (other than the SEC). As of December 31, 2022, approximately 65% of the proved reserves have been classified as proved developed, or “PD” and the remaining 35% are proved undeveloped, or “PUD”.
Our reserve estimates have not been filed with any Federal authority or agency (other than the SEC). As of December 31, 2023, approximately 68% of the proved reserves have been classified as PD and the remaining 32% are PUD.
Changes in Standardized Measure of Discounted Future Net Cash Flows 2022 2021 2020 Beginning of the year $ 1,137,364,848 $ 555,871,253 $ 923,175,051 Purchase of minerals in place 996,313,882 33,688,718 — Extensions, discoveries and improved recovery 20,447,842 79,003,885 61,303,074 Development costs incurred during the year 67,454,522 17,513,180 29,916,746 Sales of oil and gas produced, net of production costs (283,588,498) (154,615,685) (70,634,853) Sales of minerals in place — (2,523,746) — Accretion of discount 133,209,763 63,810,764 92,838,323 Net changes in price and production costs 646,819,172 636,884,944 (368,974,767) Net change in estimated future development costs (53,253,626) (44,357,751) (3,883,985) Revisions of previous quantity estimates 33,583,837 (22,259,508) (66,213,586) Changes in estimated timing of cash flows (119,428,019) 86,845,188 (139,039,115) Net change in income taxes (306,810,205) (112,496,394) 97,384,365 End of the Year $ 2,272,113,518 $ 1,137,364,848 $ 555,871,253 37 Table of Contents Our proved reserves by state as of December 31, 2022 are summarized in the table below.
Changes in Standardized Measure of Discounted Future Net Cash Flows 2023 2022 2021 Beginning of the year $ 2,272,113,518 $ 1,137,364,848 $ 555,871,253 Purchase of minerals in place 141,738,066 996,313,882 33,688,718 Extensions, discoveries and improved recovery 57,607,609 20,447,842 79,003,885 Development costs incurred during the year 70,697,664 67,454,522 17,513,180 Sales of oil and gas produced, net of production costs (266,004,598) (283,588,498) (154,615,685) Sales of minerals in place (59,600,128) — (2,523,746) Accretion of discount 277,365,650 133,209,763 63,810,764 Net changes in price and production costs (1,181,594,019) 646,819,172 636,884,944 Net change in estimated future development costs 37,865,811 (53,253,626) (44,357,751) Revisions of previous quantity estimates (187,443,783) 33,583,837 (22,259,508) Changes in estimated timing of cash flows (17,257,348) (119,428,019) 86,845,188 Net change in income taxes 253,696,749 (306,810,205) (112,496,394) End of the Year $ 1,399,185,191 $ 2,272,113,518 $ 1,137,364,848 40 Table of Contents Our proved reserves by state as of December 31, 2023 are summarized in the table below.
Summary of Oil and Natural Gas Properties and Projects Acreage The following table summarizes gross and net developed and undeveloped acreage as of December 31, 2022 by region (net acreage is our percentage ownership of gross acreage). Acreage in which our interest is limited to royalty and overriding royalty interests is excluded.
Summary of Oil and Natural Gas Properties and Projects 43 Table of Contents Acreage The following table summarizes our gross and net developed and undeveloped acreage as of December 31, 2023 by region (net acreage is our percentage ownership of gross acreage).
As of December 31, 2021, our reserves are based on an SEC average price of $63.04 per Bbl of WTI oil posted and $3.598 per MMBtu Henry Hub natural gas.
As of December 31, 2023, our reserves were based on an SEC average price of $74.70 per Bbl of WTI oil posted and $2.637 per MMBtu of Henry Hub natural gas.
During the year ended December 31, 2022, we incurred costs of approximately $87.7 million to convert 26 properties from PUD to PD through development. These 26 properties produced 709 MBoe during the year ended December 31, 2022, and have reserves of 8,018 MBoe as of December 31, 2022.
During the year ended December 31, 2023, we incurred costs of approximately $90.3 million to convert 27 properties from PUD to PD through development. These 27 properties produced 573 MBoe during the year ended December 31, 2023, and have reserves of 7,068 MBoe as of December 31, 2023. 41 Table of Contents • Extensions.
Oil Wells Gas wells Total Wells Gross Net Gross Net Gross Net 1,033 869 23 19 1,056 888 Drilling Activity During 2022, we drilled 18.00 gross (17.35 net) horizontal San Andres wells in the Northwest Shelf (16.00 1.0-mile laterals and two 1.5-mile laterals.) In addition, we drilled 14.00 gross (14.00 net) wells in the Central Basin Platform, of which nine were horizontal San Andres wells in Andrews County, Texas (four 1.0-mile laterals and five 1.5-mile laterals) and five were vertical wells in Crane County, Texas.
Of this, 14.00 gross (12.75 net) horizontal San Andres wells were in the Northwest Shelf (nine 1.0-mile laterals and five 1.5-mile laterals.) and 17.00 gross (17.00 net) wells were in the Central Basin Platform, of which six were horizontal San Andres wells in Andrews County, Texas (two 1.0-mile laterals and four 1.5-mile laterals) and 11.00 were vertical wells in Crane County, Texas.
With respect to our properties of which we are not the record owner, we rely on contracts with the owner or operator of the property or assignment of leases, pursuant to which, among other things, we generally have the right to have our interest placed on record.
With respect to our properties of which we are not the record owner, we rely on contracts with the owner or operator of the property or assignment of leases, pursuant to which, among other things, we generally have the right to have our interest placed on record. 36 Table of Contents Our properties are generally subject to royalty, overriding royalty and other interests customary in the industry, liens incident to lending agreements, current taxes and other customary burdens, minor encumbrances, easements and restrictions.
The average production costs above are calculated by dividing production costs by total production in Boe. Productive Wells The following table presents our ownership as of December 31, 2022 in productive oil and natural gas wells (a net well is our percentage ownership of a gross well).
Productive Wells The following table presents our ownership as of December 31, 2023 in productive oil and natural gas wells (a net well is our percentage ownership of a gross well). Over 99.8% of such wells are in the Permian Basin in Texas.
The horizontal wells predominately produce from the San Andres conventional reservoir and the verticals produce from Wolfcamp and Devonian reservoirs. 33 Table of Contents Central Basin Platform - Andrews, Gaines, Crane, Winkler, and Ward Counties, Texas leases – In 2011, we acquired a 100% working interest and a 75% net revenue interest in our initial leases in Andrews and Gaines counties.
Central Basin Platform - Andrews, Gaines, Crane, Ector, Winkler, and Ward Counties, Texas – In 2011, we acquired a 100% working interest and a 75% net revenue interest in our initial leases in Andrews and Gaines counties.
PV-10 is not a measure of financial or operational performance under GAAP, nor should it be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under GAAP. 34 Table of Contents The table below provides a reconciliation of PV-10 to the standardized measure of discounted future net cash flows ( in thousands ): Present value of estimated future net revenues (PV-10) $ 2,773,657 Future income taxes, discounted at 10% $ 501,543 Standardized measure of discounted future net cash flows $ 2,272,114 Reserve Quantity Information Our estimates of proved reserves and related valuations are based on reports independently determined and prepared by Cawley, Gillespie & Associates, Inc.
The table below provides a reconciliation of PV-10 to the standardized measure of discounted future net cash flows ( in thousands ): Present value of estimated future net revenues (PV-10) $ 1,647,031,127 Future income taxes, discounted at 10% $ 247,845,936 Standardized measure of discounted future net cash flows $ 1,399,185,191 Reserve Quantity Information Our estimates of proved reserves and related valuations are based on reports independently determined and prepared by Cawley, Gillespie & Associates, Inc.
These amounts are calculated by dividing our total production costs or total production taxes by our total volume sold, in Boe. 45 Table of Contents Costs incurred for property acquisition, exploration and development activities for the years ended December 31, 2022, 2021 and 2020 are shown below: 2022 2021 2020 Stronghold Acquisition $ 177,823,787 $ — $ — Acquisition of proved properties 1,563,703 1,368,437 1,317,313 Divestiture of proved properties (23,700) (2,000,000) — Development costs 129,332,155 51,302,131 42,457,745 Total costs incurred $ 308,695,945 $ 50,670,568 $ 43,775,058 Other Properties and Commitments Effective January 1, 2021, the Company moved its corporate headquarters to The Woodlands, Texas.
These amounts are calculated by dividing our total production costs or total production taxes by our total volume sold, in Boe. 47 Table of Contents Costs incurred for property acquisition, exploration and development activities for the years ended December 31, 2023, 2022 and 2021 are shown below: 2023 2022 2021 Payments to acquire oil and natural gas properties $ 82,900,900 $ 179,387,490 $ 1,368,437 Payments to explore oil and natural gas properties — — — Payments to develop oil and natural gas properties 152,559,314 129,332,155 51,302,131 Total costs incurred $ 235,460,214 $ 308,719,645 $ 52,670,568 Other Properties and Commitments Effective January 1, 2021, the Company moved its corporate headquarters to The Woodlands, Texas.
If production is established on such acreage, the lease will generally remain in effect until the cessation of production from such acreage and is referred to in the industry as “Held-By-Production” or “HBP.” Leases of undeveloped acreage may terminate or expire as a result of not meeting certain drilling commitments, if any, or otherwise by not complying with the terms of a lease depending on the specific terms that are negotiated between the lessor and the lessee. 40 Table of Contents The following table sets forth gross and net undeveloped acreage, as of December 31, 2022, under lease which will expire over the next three years unless (i) production is established on the lease or within a spacing unit of which the lease is participating, or (ii) the lease is renewed or extended prior to the relevant expiration dates: Undeveloped Acreage 2023 2024 2025 Gross Net Gross Net Gross Net Central Basin Platform 480 234 1,420 1,221 860 49 Delaware Basin — — — — — — Northwest Shelf 15,240 4,023 11,610 2,021 10,446 3,835 Total 15,720 4,257 13,030 3,242 11,306 3,884 41 Table of Contents Production History The following table presents the historical information regarding our produced oil, natural gas and natural gas liquid volumes for the years ended December 31, 2022, 2021, and 2020: Years ended December 31, 2022 2021 2020 Oil (Bbls) Central Basin Platform 1,409,211 867,835 958,691 Delaware Basin 81,936 104,129 159,635 Northwest Shelf 1,968,693 1,714,976 1,683,202 Total 3,459,840 2,686,940 2,801,528 Natural Gas (Mcf) Central Basin Platform 1,563,808 171,690 268,495 Delaware Basin 96,516 288,918 468,177 Northwest Shelf 2,428,318 2,074,580 1,757,830 Total 4,088,642 2,535,188 2,494,502 Natural Gas Liquids (Bbls) (1) Central Basin Platform 227,996 — — Delaware Basin 3,718 — — Northwest Shelf 139,615 — — Total 371,329 — — Total production (Boe) Central Basin Platform 1,897,842 896,087 1,003,440 Delaware Basin 101,740 152,282 237,665 Northwest Shelf 2,513,028 2,060,739 1,976,173 Total 4,512,610 3,109,108 3,217,278 Daily production (Boe/d) Central Basin Platform 5,200 2,455 2,742 Delaware Basin 279 417 649 Northwest Shelf 6,885 5,646 5,399 Total 12,364 8,518 8,790 (1) Due to our acquisition of Stronghold's assets, which reported its volumes and revenues on a three-stream basis, beginning July 1, 2022, we began reporting volumes and revenues on a three-stream basis, separately reporting crude oil, natural gas, and natural gas liquid sales.
The following table sets forth our gross and net undeveloped acreage, as of December 31, 2023, under lease that will expire over the next three years unless (i) production is established on the lease or within a spacing unit of which the lease is participating, or (ii) the lease is renewed or extended prior to the relevant expiration dates: Undeveloped Acreage 2024 2025 2026 Gross Net Gross Net Gross Net Central Basin Platform 1,800 1,046 1,240 100 720 239 Northwest Shelf 8,475 1,481 8,946 3,496 3,015 454 Total 10,275 2,527 10,186 3,596 3,735 693 44 Table of Contents Production History The following table presents the historical information regarding our produced oil, natural gas and natural gas liquid volumes for the years ended December 31, 2023, 2022, and 2021: Years ended December 31, 2023 2022 2021 Oil (Bbls) Central Basin Platform 2,347,068 1,409,211 867,835 Delaware Basin (2) 25,743 81,936 104,129 Northwest Shelf 2,207,131 1,968,693 1,714,976 Total 4,579,942 3,459,840 2,686,940 Natural Gas (Mcf) (1) Central Basin Platform 3,940,107 1,563,808 171,690 Delaware Basin (2) 11,265 96,516 288,918 Northwest Shelf 2,387,786 2,428,318 2,074,580 Total 6,339,158 4,088,642 2,535,188 Natural Gas Liquids (Bbls) (1) Central Basin Platform 703,818 227,996 — Delaware Basin (2) 2,867 3,718 — Northwest Shelf 270,167 139,615 — Total 976,852 371,329 — Total production (Boe) Central Basin Platform 3,707,571 1,897,842 896,087 Delaware Basin (2) 30,488 101,740 152,282 Northwest Shelf 2,875,262 2,513,028 2,060,739 Total 6,613,321 4,512,610 3,109,108 Daily production (Boe/d) Central Basin Platform 10,158 5,200 2,455 Delaware Basin (2) 84 279 417 Northwest Shelf 7,877 6,885 5,646 Total 18,119 12,364 8,518 (1) Due to our acquisition of Stronghold's assets, which reported its volumes and revenues on a three-stream basis, beginning July 1, 2022, we began reporting volumes and revenues on a three-stream basis, separately reporting crude oil, natural gas, and NGL sales.
As of December 31, 2022, we owned interests in a total of 101,773 gross (87,326 net) developed acres and operate the vast majority of our acreage position. In addition, as of December 31, 2022, we owned interests in approximately 22,444 gross (14,849 net) undeveloped acres.
As of December 31, 2023, we owned interests in a total of 76,484 gross (65,462 net) developed acres and operate the vast 35 Table of Contents majority of our acreage position. In addition, as of December 31, 2023, we owned interests in approximately 19,643 gross (15,073 net) undeveloped acres.
He has been a member of the Society of Petroleum Engineers since 2013 and his qualifications meet or exceed the Society of Petroleum Engineers’ standard requirements to be a professionally qualified Reserve Estimator and Auditor. 39 Table of Contents We encourage ongoing professional education for our engineers and reservoir analysts on new technologies and industry advancements as well as refresher training on basic skill sets.
He has been a member of the Society of Petroleum Engineers since 2013 and his qualifications meet or exceed the Society of Petroleum Engineers’ standard requirements to be a professionally qualified Reserve Estimator and Auditor.
Standardized Measure of Discounted Future Net Cash Flows December 31, 2022 2021 2020 Future cash inflows $ 9,871,961,000 $ 4,853,709,000 $ 2,682,488,655 Future production costs (2,751,896,250) (1,395,437,250) (821,515,126) Future development costs (647,196,750) (347,757,000) (244,323,270) Future income taxes (1,142,147,641) (501,586,949) (208,645,934) Future net cash flows 5,330,720,359 2,608,927,801 1,408,004,325 10% annual discount for estimated timing of cash flows (3,058,606,841) (1,471,562,953) (852,133,072) Standardized Measure of Discounted Future Net Cash Flows $ 2,272,113,518 $ 1,137,364,848 $ 555,871,253 The changes in the standardized measure of discounted future net cash flows relating to the proved oil, natural gas and natural gas liquid reserves are shown below.
Standardized Measure of Discounted Future Net Cash Flows December 31, 2023 2022 2021 Future cash inflows $ 6,622,410,752 $ 9,871,961,000 $ 4,853,709,000 Future production costs (2,413,303,488) (2,751,896,250) (1,395,437,250) Future development costs (1) (562,063,424) (647,196,750) (347,757,000) Future income taxes (548,664,988) (1,142,147,641) (501,586,949) Future net cash flows 3,098,378,852 5,330,720,359 2,608,927,801 10% annual discount for estimated timing of cash flows (1,699,193,661) (3,058,606,841) (1,471,562,953) Standardized Measure of Discounted Future Net Cash Flows $ 1,399,185,191 $ 2,272,113,518 $ 1,137,364,848 (1) Future development costs include not only development costs but also future asset retirement costs.
Years ended December 31, 2022 2021 2020 Average sales price: Oil (per Bbl) Central Basin Platform $ 91.72 $ 67.66 $ 39.64 Delaware Basin 95.97 65.98 35.00 Northwest Shelf 93.44 67.61 38.93 Total $ 92.80 $ 67.56 $ 38.95 Natural gas (per Mcf) Central Basin Platform $ 3.72 $ 4.63 $ 1.12 Delaware Basin 5.26 4.75 0.54 Northwest Shelf 5.09 6.08 1.91 Total $ 4.57 $ 5.83 $ 1.57 Natural gas liquids (per Bbl) (1) Central Basin Platform $ 20.02 $ — $ — Delaware Basin 27.16 — — Northwest Shelf 20.25 — — Total $ 20.18 $ — $ — Total (per Boe) Central Basin Platform $ 73.58 $ 66.42 $ 38.17 Delaware Basin 83.28 54.13 24.57 Northwest Shelf 79.24 62.38 34.86 Total $ 76.95 $ 63.14 $ 35.13 (1) Due to our acquisition of Stronghold's assets, which reported its volumes and revenues on a three-stream basis, beginning July 1, 2022, we began reporting volumes and revenues on a three-stream basis, separately reporting crude oil, natural gas, and natural gas liquid sales.
Years ended December 31, 2023 2022 2021 Average sales price: Oil (per Bbl) $ 76.21 $ 92.80 $ 67.56 Natural gas (per Mcf) (1) $ 0.05 $ 4.57 $ 5.83 NGL (per Bbl) (1) $ 11.95 $ 20.18 $ — Total (per Boe) $ 54.60 $ 76.95 $ 63.14 (1) Due to our acquisition of Stronghold's assets, which reported its volumes and revenues on a three-stream basis, beginning July 1, 2022, we began reporting volumes and revenues on a three-stream basis, separately reporting crude oil, natural gas, and NGL sales.
Oil (Bbl) Gas (Mcf) Natural Gas Liquids (Bbl) (2) Boe (1) Balance, December 31, 2020 66,264,286 61,305,027 — 76,481,791 Purchase of minerals in place 2,180,497 824,512 — 2,317,916 Extensions, discoveries and improved recovery 3,975,675 5,172,392 — 4,837,740 Sales of minerals in place (462,970) (555,879) — (555,617) Production (2,686,940) (2,535,188) — (3,109,471) Revisions of previous quantity estimates (3,431,939) 7,562,925 — (2,171,452) Balance, December 31, 2021 65,838,609 71,773,789 — 77,800,907 Purchase of minerals in place 28,086,920 108,456,107 16,715,626 62,878,564 Extensions, discoveries and improved recovery 628,978 522,178 52,810 768,818 Production (3,459,477) (4,088,642) (371,337) (4,512,254) Revisions of previous quantity estimates (2,390,287) (18,792,983) 6,708,559 1,186,108 Balance, December 31, 2022 88,704,743 157,870,449 23,105,658 138,122,143 _____________________________ (1) Six Mcf is deemed the equivalent of one Boe.
Oil (Bbl) Gas (Mcf) (2) Natural Gas Liquids (Bbl) (2) Boe (1) Balance, December 31, 2021 65,838,609 71,773,789 — 77,800,907 Purchase of minerals in place 28,086,920 108,456,107 16,715,626 62,878,564 Extensions, discoveries and improved recovery 628,978 522,178 52,810 768,818 Sales of minerals in place — — — — Production (3,459,477) (4,088,642) (371,337) (4,512,254) Revisions of previous quantity estimates (2,390,287) (18,792,983) 6,708,559 1,186,108 Balance, December 31, 2022 88,704,743 157,870,449 23,105,658 138,122,143 Purchase of minerals in place 6,543,640 3,372,965 1,089,382 8,195,183 Extensions, discoveries and improved recovery 3,098,845 4,113,480 1,014,343 4,798,768 Sales of minerals in place (4,897,921) (2,674,955) (392,953) (5,736,700) Production (4,579,942) (6,339,158) (976,852) (6,613,320) Revisions of previous quantity estimates (6,728,088) (9,946,459) (621,014) (9,006,845) Balance, December 31, 2023 82,141,277 146,396,322 23,218,564 129,759,229 _____________________________ (1) Six Mcf is deemed the equivalent of one Boe.
(2) At year-end 2022, we began reporting reserves on a three-stream basis, including natural gas liquids separately from natural gas. Revisions represent changes in previous reserves estimates, either upward or downward, resulting from new information normally obtained from development drilling and production history or resulting from a change in economic factors, such as commodity prices, operating costs or development costs.
Revisions represent changes in previous reserves estimates, either upward or downward, resulting from new information normally obtained from development drilling and production history, five year rule and/or resulting from a change in economic factors, such as commodity prices, operating costs or development costs. Notable changes in proved reserves for the year ended December 31, 2023 included the following: • Extensions.
Proved Undeveloped Reserves Our reserve estimates as of December 31, 2022 include approximately 48.0 MMBoe as proved undeveloped reserves (PUD). As of December 31, 2021, our reserve estimates included approximately 34.4 MMBoe as proved undeveloped reserves. Below is a description of the changes in our PUD reserves from December 31, 2021 to December 31, 2022.
Below is a description of the changes in our PUD reserves from December 31, 2022 to December 31, 2023. Notable changes in proved undeveloped reserves for the year ended December 31, 2023 included the following: • Conversions to developed.
Approximately $1,906.7 million and $1,561.9 million, respectively, of total proved reserves are associated with the PD reserves, which is approximately 69% of the total proved reserves’ pre-tax PV-10 value. The remaining $867.0 million and $710.2 million, respectively, are associated with PUD reserves.
Approximately $1,262.7 million and $1,072.7 million, respectively, of total proved reserves are associated with the PD reserves, which is approximately 77% of the total proved reserves’ pre-tax PV-10 value. The remaining $384.4 million and $326.5 million, respectively, are associated with PUD reserves. Proved Undeveloped Reserves Our reserve estimates as of December 31, 2023 include approximately 41.6 MMBoe as PUDs.
All of our reserves are in the Permian Basin in Texas and New Mexico. Oil (Bbl) Natural Gas (Mcf) Natural Gas Liquids (Bbl) Total (Boe) (1) Pre-Tax PV-10 Value (2) Standardized Measure of Discounted Future Net Cash Flows 88,704,743 157,870,449 23,105,658 138,122,143 $ 2,773,656,500 $ 2,272,113,518 _____________________________ (1) Six Mcf is deemed the equivalent of one Boe.
Approximately 99.8% of our proved reserves are in the Permian Basin in Texas. Oil (Bbl) Natural Gas (Mcf) Natural Gas Liquids (Bbl) Total (Boe) (1) Pre-Tax PV-10 Value (2) Standardized Measure of Discounted Future Net Cash Flows 82,141,277 146,396,322 23,218,564 129,759,229 $ 1,647,031,127 $ 1,399,185,191 _____________________________ (1) Six Mcf is deemed the equivalent of one Boe.
As of December 31, 2022, we owned interests in a total of 64,774 gross (54,959 net) developed acres and 3,905 gross (2,337 net) undeveloped acres. As of December 31, 2022, the Company had interests in approximately 625 gross vertical and 195 horizontal producing wells, of which we operate 518 vertical and 193 horizontal wells.
As of December 31, 2023, the Company had interests in approximately 695 gross vertical and 197 gross horizontal producing wells, of which we operate 587 vertical and 195 horizontal wells.
For periods prior to July 1, 2022, sales and reserve volumes, prices, and revenues for natural gas liquids were presented with natural gas. 42 Table of Contents Production Prices and Production Costs The following tables provides historical pricing and costs statistics for the years ended December 31, 2022, 2021, and 2020.
For periods prior to July 1, 2022, sales and reserve volumes, prices, and revenues for NGLs were presented with natural gas.
For the years ended December 31, 2022 2021 Oil (Bbl) Developed 57,012,137 36,820,824 Undeveloped 31,692,606 29,017,785 Total 88,704,743 65,838,609 Natural Gas (Mcf) Developed 106,399,050 39,748,880 Undeveloped 51,471,399 32,024,909 Total 157,870,449 71,773,789 Natural Gas Liquids (Bbl) Developed 15,332,804 — Undeveloped 7,772,854 — Total 23,105,658 — Total (Boe) 1 Developed 90,078,116 43,445,637 Undeveloped 48,044,027 34,355,270 Total 138,122,143 77,800,907 Standardized Measure of Discounted Future Net Cash Flows Our standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and changes in the standardized measure as described below were prepared in accordance with GAAP.
For the years ended December 31, 2023 2022 Oil (Bbl) Developed 56,029,039 57,012,137 Undeveloped 26,112,238 31,692,606 Total 82,141,277 88,704,743 Natural Gas (Mcf) Developed 99,896,022 106,399,050 Undeveloped 46,500,300 51,471,399 Total 146,396,322 157,870,449 Natural Gas Liquids (Bbl) Developed 15,449,907 15,332,804 Undeveloped 7,768,657 7,772,854 Total 23,218,564 23,105,658 Total (Boe) (1) Developed 88,128,284 90,078,116 Undeveloped 41,630,945 48,044,027 Total 129,759,229 138,122,143 (1) Six Mcf is deemed the equivalent of one Boe.
During the year ended December 31, 2022, our extensions and discoveries of 769 MBoe (one thousand Boe) resulted primarily from the 2022 operated drilling program in the Northwest Shelf and Central Basin Platform as well as non-operated activity in the Northwest Shelf.
In 2023, extensions of 4.8 MMBoe were primarily the result of the successful operated drilling program and non-operated activity in the Northwest Shelf and Central Basin Platform. • Purchase of minerals in place.
Our properties are generally subject to royalty, overriding royalty and other interests customary in the industry, liens incident to lending agreements, current taxes and other customary burdens, minor encumbrances, easements and restrictions. We do not believe any of these burdens will materially interfere with our use of these properties.
We do not believe any of these burdens materially interfere with our use of these properties.
As of December 31, 2022, we owned interests in a total of 18,270 gross (13,930 net) developed acres and 18,539 gross (12,512 net) undeveloped acres. As of December 31, 2022, the Company had interests in approximately 27 gross vertical and 139 horizontal producing wells, of which we operate 27 vertical and 108 horizontal wells.
As of December 31, 2023, the Company had interests in approximately five gross vertical and 146 gross horizontal producing wells, of which we operate five vertical and 111 horizontal wells. The horizontal wells predominately produce from the San Andres conventional reservoir and the verticals produce from Wolfcamp and Devonian reservoirs.
Developed Acreage Undeveloped Acreage Total Acreage Gross Net Gross Net Gross Net Central Basin Platform 64,774 54,959 3,905 2,337 68,679 57,296 Delaware Basin 18,729 18,437 — — 18,729 18,437 Northwest Shelf 18,270 13,930 18,539 12,512 36,809 26,442 Total 101,773 87,326 22,444 14,849 124,217 102,175 Leases of undeveloped acreage will generally expire at the end of their respective primary terms unless production from such leasehold acreage has been established prior to expiration of such primary term.
Developed Acreage Undeveloped Acreage Total Acreage Gross Net Gross Net Gross Net Central Basin Platform 63,912 56,711 3,385 2,668 67,297 59,379 Northwest Shelf 12,572 8,751 16,258 12,405 28,830 21,156 Total 76,484 65,462 19,643 15,073 96,127 80,535 Leases of undeveloped acreage will generally expire at the end of their respective primary terms unless production from such leasehold acreage has been established prior to expiration of such primary terms.
Removed
Revisions of 1,186 MBoe were predominately the result of converting from two-stream to three-stream reserves, the removal of proved undeveloped reserves in our Delaware asset, well performance, increased cost from 2022 industry activity, and increased commodity pricing. 35 Table of Contents Our proved oil, natural gas and natural gas liquid reserves are shown below.
Added
As of December 31, 2023, we owned interests in a total of 12,572 gross (8,751 net) developed acres and 16,258 gross (12,405 net) undeveloped acres with an average proved operated working interest of 89% and net revenue interest of 67%.
Removed
Oil (Bbl) Gas (Mcf) Natural Gas Liquids (NGL) (Bbl) Total (Boe) % of Total Proved Pre-tax PV-10 (In thousands) Standardized Measure of Discounted Future Net Cash Flows (In thousands) Future Capital Expenditures (In thousands) Texas PD 54,825,249 105,172,422 15,175,702 87,529,688 63 % $ 1,863,175 $ 1,526,269 $ 182,668 PUD 30,741,939 50,999,854 7,733,492 46,975,407 34 % 853,607 699,254 447,930 Total Proved: 85,567,188 156,172,276 22,909,194 134,505,095 97 % $ 2,716,782 $ 2,225,523 $ 630,598 New Mexico PD 2,186,888 1,226,628 157,102 2,548,428 2 % $ 43,506 $ 35,639 $ 1,985 PUD 950,667 471,545 39,362 1,068,620 1 % 13,369 10,952 14,614 Total Proved: 3,137,555 1,698,173 196,464 3,617,048 3 % $ 56,875 $ 46,591 $ 16,599 Total PD 57,012,137 106,399,050 15,332,804 90,078,116 65 % $ 1,906,681 $ 1,561,908 $ 184,653 PUD 31,692,606 51,471,399 7,772,854 48,044,027 35 % 866,976 710,206 462,544 Total Proved: 88,704,743 157,870,449 23,105,658 138,122,143 100 % $ 2,773,657 $ 2,272,114 $ 647,197 Proved Reserves As of December 31, 2022, we had approximately 138.1 MMBoe (one million Boe) of proved reserves, consisting of approximately 64% oil, 19% natural gas, and 17% natural gas liquids, as summarized in the table above.
Added
As of December 31, 2023, we owned interests in a total of 63,912 gross (56,711 net) developed acres and 3,385 gross (2,668 net) undeveloped acres with an average proved operated working interest of 97% and net revenue interest of 82% in the area.
Removed
The increase in proved undeveloped reserves was primarily attributable to the Stronghold Acquisition.
Added
PV-10 is not a measure of financial or operational performance under GAAP, nor should it be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under GAAP.
Removed
The following table indicates projected reserves that we currently estimate will be converted from proved undeveloped to proved developed, as well as the estimated costs per year involved in such development. 38 Table of Contents Estimated Costs Related to Conversion of Proved Undeveloped Reserves to Proved Developed Reserves Year Estimated Oil Reserves Developed (Bbl) Estimated Gas Reserves Developed (Mcf) Estimated NGL Reserves Developed (Bbl) Total Boe Estimated Development Costs 2023 7,243,318 9,494,859 1,685,188 10,510,983 $ 102,822,989 2024 9,037,309 15,468,017 2,370,819 13,986,131 130,214,495 2025 8,631,583 17,046,317 2,403,159 13,875,795 125,779,913 2026 5,998,345 9,156,375 1,283,290 8,807,698 89,548,288 2027 782,049 305,832 30,399 863,420 14,178,133 31,692,604 51,471,400 7,772,855 48,044,027 $ 462,543,818 Preparation and Internal Controls Over Reserves Estimates All the proved oil and natural gas reserves disclosed in this Report are based on reserve estimates determined and prepared by independent reserve engineers Cawley, Gillespie & Associates, Inc.
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(2) At year-end 2022, we began reporting reserves on a three-stream basis, including NGLs separately from natural gas.
Removed
All of such wells are in the Permian Basin in Texas and New Mexico.
Added
In 2023, the Company completed the acquisition of Founders oil and gas leases and related property within Ector County that resulted in 8.2 MMBoe in additional reserves. • Sales of minerals in place.
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In 2023, the Company sold 5.7 MMBoe from the divestiture of the Delaware Basin assets (30%), the New Mexico operated assets (57%), and part of the Company's assets in Gaines County (13%). • Revision of previous estimates.
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In 2023, the negative revisions of prior reserves of 9.0 MMBoe consisted of 5.3 MMBoe (59%) related to changes in price and 3.7 MMBoe (41%) related to changes in performance and other economic factors. 38 Table of Contents Our proved oil, natural gas and natural gas liquid reserves are shown below.
Added
Standardized Measure of Discounted Future Net Cash Flows Our standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and changes in the standardized measure as described below were prepared in accordance with GAAP.
Added
The changes in the standardized measure of discounted future net cash flows relating to the proved oil, natural gas and natural gas liquid reserves are shown below.
Added
Oil (Bbl) Gas (Mcf) NGL (Bbl) Total (Boe) % of Total Proved Pre-tax PV-10 (In thousands) Standardized Measure of Discounted Future Net Cash Flows (In thousands) Future Capital Expenditures (In thousands) Texas PD 55,820,275 99,572,221 15,413,055 87,828,701 68 % $ 1,256,679 $ 1,067,574 $ 145,470 PUD 26,112,238 46,500,300 7,768,657 41,630,945 32 % 384,353 326,515 416,478 Total Proved: 81,932,513 146,072,521 23,181,712 129,459,646 100 % $ 1,641,032 $ 1,394,089 $ 561,948 New Mexico PD 208,764 323,801 36,852 299,583 — % $ 5,999 $ 5,097 $ 115 PUD — — — — — % — — — Total Proved: 208,764 323,801 36,852 299,583 — % $ 5,999 $ 5,097 $ 115 Total PD 56,029,039 99,896,022 15,449,907 88,128,284 68 % $ 1,262,679 $ 1,072,670 $ 145,586 PUD 26,112,238 46,500,300 7,768,657 41,630,945 32 % 384,353 326,515 416,478 Total Proved: 82,141,277 146,396,322 23,218,564 129,759,229 100 % $ 1,647,031 $ 1,399,185 $ 562,063 Proved Reserves As of December 31, 2023, we had approximately 129.8 MMBoe (one million Boe) of proved reserves, consisting of approximately 63% oil, 19% natural gas, and 18% NGLs, as summarized in the table above.
Added
As of December 31, 2022, our reserve estimates included approximately 48.0 MMBoe as proved undeveloped reserves. In accordance with our December 31, 2023 year-end independent engineering reserve report, we plan to drill our PUD drilling locations within five years of original classification.
Added
In 2023, extensions of 3.7 MMBoe were primarily the result of the successful operated drilling program and non-operated activity in the Northwest Shelf and Central Basin Platform. • Purchase of minerals in place.
Added
In 2023, we completed the acquisition of Founders oil and gas leases and related property within Ector county that resulted in 3.7 MMBoe in additional reserves. • Sales of minerals in place.
Added
In 2023, we sold 1.3 MMBoe from the divestiture of the New Mexico operated assets (81%), and a subset of our assets in Gaines County (19%). • Revision of previous estimates.
Added
In 2023, the negative revisions of prior reserves of 4.9 MMBoe consisted of 0.8 MMBoe (16%) related to changes in price and 4.1 MMBoe (84%) related to changes in performance and other economic factors.
Added
The following table indicates projected reserves that we currently estimate will be converted from proved undeveloped to proved developed, as well as the estimated costs per year involved in such development. Our PUD reserves are part of a management adopted development plan that schedules PUD reserves to be developed within five years of initial disclosure as proved reserves.
Added
As of December 31, 2023, no material amount of proved undeveloped reserves were not scheduled to be converted to proved developed status within five years they were initially disclosed.
Added
Estimated Costs Related to Conversion of Proved Undeveloped Reserves to Proved Developed Reserves Year Estimated Oil Reserves Developed (Bbl) Estimated Gas Reserves Developed (Mcf) Estimated NGL Reserves Developed (Bbl) Total Boe Estimated Development Costs 2024 10,512,071 8,637,030 1,538,117 13,489,693 $ 157,234,213 2025 8,815,136 7,676,596 1,838,167 11,932,736 126,315,450 2026 4,047,980 15,057,984 2,286,811 8,844,455 73,672,123 2027 2,737,051 15,128,690 2,105,562 7,364,061 51,012,096 Total 26,112,238 46,500,300 7,768,657 41,630,945 $ 408,233,882 Preparation and Internal Controls Over Reserves Estimates All the proved oil and natural gas reserves disclosed in this Report are based on reserve estimates determined and prepared by our independent reserve engineers, Cawley, Gillespie & Associates, Inc.
Added
We encourage ongoing professional education for our engineers and reservoir analysts on new technologies and industry advancements as well as refresher training on basic skill sets.
Added
Acreage in which our interest is limited to royalty and overriding royalty interests is excluded, as it is de minimis.
Added
If production is established on the acreage, the lease will generally remain in effect until the cessation of production from the acreage and is referred to in the industry as HBP.
Added
Leases of undeveloped acreage may terminate or expire as a result of not meeting certain drilling commitments, if any, or otherwise by not complying with the terms of a lease depending on the specific terms that are negotiated between the lessor and the lessee.
Added
(2) The Delaware Basin assets were sold with a closing date of May 11, 2023 and an effective date of March 1, 2023. 45 Table of Contents Production Prices and Production Costs The following tables provides historical pricing and costs statistics for the years ended December 31, 2023, 2022, and 2021.
Added
For periods prior to July 1, 2022, sales and reserve volumes, prices, and revenues for NGLs were presented with natural gas.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed3 unchanged
Biggest changeThe Company has filed an answer and a counterclaim denying the allegations and asserting affirmative defenses that would bar or substantially limit the plaintiff’s claims, asserting breach of contract and requesting a declaratory judgment and attorneys’ fees and costs. The parties have taken depositions and are conducting discovery. Item 4: Mine Safety Disclosures Not applicable. PART II
Biggest changeThe Company has filed an answer and a counterclaim denying the allegations and asserting affirmative defenses that would bar or substantially limit the plaintiff’s claims, asserting breach of contract and requesting a declaratory judgment and attorneys’ fees and costs. The parties have begun taking depositions and are conducting discovery. Item 4: Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−5 removed1 unchanged
Biggest changeWe currently intend to retain future earnings, if any, to pay down debt and finance the expansion of our business. Our future dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements and investment opportunities.
Biggest changeOur future dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements and investment opportunities. In addition, our credit facility contains provisions limiting our ability to pay dividends unless certain conditions are met.
The graph assumes the investment of $100 on December 31, 2017 in our common stock and each index and the reinvestment of all dividends, if any.
The graph assumes the investment of $100 on December 31, 2018 in our common stock and each index and the reinvestment of all dividends, if any.
Issuer Repurchases We did not make any repurchases of our equity securities during the year ended December 31, 2022. 47 Table of Contents Item 6: Reserved
Issuer Repurchases We did not make any repurchases of our equity securities during the year ended December 31, 2023. Item 6: Reserved 49 Table of Contents
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for our Common Stock Our common stock is listed on the NYSE American under the trading symbol “REI.” Performance Graph In 2022, we chose to compare our cumulative 5-year total return attained by stockholders on our common stock relative to the cumulative total returns of the S&P Oil and Gas Exploration and Production Select Industry Index (“SPSIOP”), instead of a peer group (“Peer Group”).
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for our Common Stock Our common stock is listed on the NYSE American under the trading symbol “REI.” Performance Graph The following graph reflects a comparison of the cumulative total stockholder return of our common stock relative to the cumulative total returns of the S&P 500 Index and the S&P Oil and Gas Exploration and Production Select Industry Index ("SPSIOP").
The performance graph above is furnished and not filed for purposes of Section 18 of the Exchange Act and will not be incorporated by reference into any registration statement filed under the Securities Act unless specifically identified therein as being incorporated by reference. The performance graph is not solicitation material subject to Regulation 14A of the Exchange Act.
This table is not intended to forecast future performance of our common stock. 48 Table of Contents The performance graph above is furnished and not filed for purposes of Section 18 of the Exchange Act and will not be incorporated by reference into any registration statement filed under the Securities Act unless specifically identified therein as being incorporated by reference.
Record Holders As of March 9, 2023, there were approximately 76 holders of record of our common stock. This is the number of record holders in the records of the transfer agent. It does not include holders of shares via brokerage accounts. Dividend Policy We do not currently anticipate paying any cash dividends on our common stock.
The performance graph is not solicitation material subject to Regulation 14A of the Exchange Act. Record Holders As of March 7, 2024, there were approximately 84 holders of record of our common stock. This is the number of record holders in the records of our transfer agent. It does not include holders of shares via brokerage accounts.
Removed
If a company selects a different index or peer group from that used in the immediately preceding fiscal year, the company’s stock performance must be compared with both the newly-selected index or peer group and the index used in the immediately preceding year.
Added
Dividend Policy We do not currently anticipate paying any cash dividends on our common stock. We currently intend to retain future earnings, if any, to pay down debt and finance the expansion of our business.
Removed
Accordingly, the following graph reflects a comparison of the cumulative total stockholder return of our common stock relative to the cumulative total returns of the S&P 500 Index, the SPSIOP and the 2021 Peer Group.
Removed
This table is not intended to forecast future performance of our common stock. 46 Table of Contents * In 2021, the peer group consisted of: Abraxas Petroleum Corporation, Amplify Energy Corp., Civitas Resources, Inc., Earthstone Energy, Inc., Vital Energy, Inc.
Removed
(formerly Laredo Petroleum, Inc.), Ranger Oil Corporation, SilverBow Resources, Inc., and W&T Offshore, Inc., each of which is in the oil and natural gas exploration and production industry.
Removed
In addition, our credit facility contains provisions limiting our ability to pay dividends until certain conditions are met.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

74 edited+53 added−46 removed28 unchanged
Biggest changeResults of Operations The following table sets forth selected operating data for the periods indicated: For the years ended December 31, 2022 2021 2020 Net production: Oil (Bbls) 3,459,840 2,686,940 2,801,528 Natural gas (Mcf) 4,088,642 2,535,188 2,494,502 Natural gas liquids (Bbls) 371,329 — — Net sales: Oil $ 321,062,672 $ 181,533,093 $ 109,113,557 Natural gas 18,693,631 14,772,873 3,911,581 Natural gas liquids 7,493,234 — — Average sales price: Oil (per Bbl) $ 92.80 $ 67.56 $ 38.95 Natural gas (per Mcf) 4.57 5.83 1.57 Natural gas liquids (Bbl) 20.18 — — Production costs and expenses: Lease operating expenses $ 47,695,351 $ 30,312,399 $ 29,753,413 Gathering, transportation and processing costs 1,830,024 4,333,232 4,090,238 Ad valorem taxes 4,670,617 2,276,463 3,125,222 Production taxes 17,125,982 9,123,420 5,228,090 Other costs and operating expenses: Depreciation, depletion and amortization expense $ 55,740,767 $ 37,167,967 $ 43,010,660 Ceiling test impairment — — 277,501,943 Asset retirement obligation accretion 983,432 744,045 906,616 Operating lease expense 363,908 523,487 1,196,372 General and administrative expense (excluding stock-based compensation) 19,933,092 13,649,782 11,509,888 Stock-based compensation expense 7,162,231 2,418,323 5,364,162 Other income (expense): Interest (expense) $ (23,167,729) $ (14,490,474) $ (17,617,614) Gain (loss) on derivative contracts (21,532,659) (77,853,141) 21,366,068 Deposit forfeiture income — — 5,500,000 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Oil sales .
Biggest changeWe continue to closely monitor costs and take all reasonable steps to mitigate the inflationary effect on our cost structure and also work to enhance our efficiency to minimize additional cost increases where possible. 53 Table of Contents Results of Operations The following table sets forth selected operating data for the periods indicated: For the years ended December 31, 2023 2022 2021 Net production: Oil (Bbls) 4,579,942 3,459,840 2,686,940 Natural gas (Mcf) 6,339,158 4,088,642 2,535,188 Natural gas liquids (Bbls) 976,852 371,329 — Net sales: Oil $ 349,044,863 $ 321,062,672 $ 181,533,093 Natural gas 334,175 18,693,631 14,772,873 Natural gas liquids 11,676,963 7,493,234 — Average sales price: Oil (per Bbl) $ 76.21 $ 92.80 $ 67.56 Natural gas (per Mcf) 0.05 4.57 5.83 Natural gas liquids (Bbl) 11.95 20.18 — Production costs and expenses: Lease operating expenses $ 70,158,227 $ 47,695,351 $ 30,312,399 Gathering, transportation and processing costs 457,573 1,830,024 4,333,232 Ad valorem taxes 6,757,841 4,670,617 2,276,463 Oil and natural gas production taxes 18,135,336 17,125,982 9,123,420 Other costs and operating expenses: Depreciation, depletion and amortization $ 88,610,291 $ 55,740,767 $ 37,167,967 Asset retirement obligation accretion 1,425,686 983,432 744,045 Operating lease expense 541,801 363,908 523,487 General and administrative expense ("G&A") 29,188,755 27,095,323 16,068,105 Share-based compensation 8,833,425 7,162,231 2,418,323 G&A excluding share-based compensation 20,355,330 19,933,092 13,649,782 Other income (expense): Interest income 257,155 4 1 Interest (expense) $ (43,926,732) $ (23,167,729) $ (14,490,474) Gain (loss) on derivative contracts 2,767,162 (21,532,659) (77,853,141) Loss on disposal of assets (87,128) — — Other income 198,935 — — Provision for Income Taxes $ (125,242) $ (8,408,724) $ (90,342) Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Oil sales .
For the derivative contract settlements, the Company recorded a realized loss of $52,768,154 during 2021 and a realized loss of $62,525,954 during 2022, The increase of $9,757,800 in the realized loss was a result of the rise of crude oil prices during 2022, which was above the fixed prices of the contracts.
For the derivative contract settlements, the Company recorded a realized loss of $52,768,154 during 2021 and a realized loss of $62,525,954 during 2022, The increase of $9,757,800 in the realized loss was a result of the rise of crude oil prices during 2022, which was above the fixed prices of the derivative contracts.
The ultimate realization of deferred tax assets is assessed at each reporting period and is dependent upon the generation of future taxable income and the Company’s ability to utilize operation loss carryforwards during the periods in which the temporary differences become deductible. We also consider the scheduled reversal of deferred tax liabilities and available tax planning strategies.
The ultimate realization of deferred tax assets is assessed at each reporting period and is dependent upon the generation of future taxable income and the Company’s ability to utilize operation loss carryforwards during the periods in which the temporary differences become deductible. We also consider the reversal of deferred tax liabilities and available tax planning strategies.
As part of the consideration for the Stronghold Acquisition, on August 31, 2022 the Company issued 21,339,986 shares of common stock and 153,176 shares of newly created Series A Convertible Preferred Stock, which was converted into 42,548,892 shares of common stock on October 27, 2022. Cash Flows.
Issuance of Common Stock and Convertible Preferred Stock for Stronghold Acquisition. As part of the consideration for the Stronghold Acquisition, on August 31, 2022 the Company issued 21,339,986 shares of common stock and 153,176 shares of newly created Series A Convertible Preferred Stock, which was converted into 42,548,892 shares of common stock on October 27, 2022. Cash Flows.
Material changes in prices impact the current revenue stream, estimates of future reserves, borrowing base calculations of bank loans and the value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and natural gas companies and their ability to raise capital, borrow money and retain personnel.
Material changes in prices impact our current revenue stream, estimates of future reserves, borrowing base calculations of bank loans, and the value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and natural gas companies and their ability to raise capital, borrow money, and retain personnel.
This was a result of the 32 additional wells added from 2022 drilling activities as well as ARO accretion associated with the properties acquired in the Stronghold Acquisition, offset by wells plugged and abandoned during the year. Operating lease expense.
This was a result of the 32 additional wells added from 2022 drilling activities as well as ARO accretion associated with the properties acquired in the Stronghold Acquisition, offset by wells plugged and abandoned during 2022. Operating lease expense.
The current year federal tax expense was the result of certain existing deferred tax assets that will not be offset by existing deferred tax liabilities as a result of the 80% limitation on the utilization of net operating losses incurred after 2017. Net income (loss) .
The current year federal tax expense was the result of certain existing deferred tax assets that will not be offset by existing deferred tax liabilities as a result of the 80% limitation on the utilization of net operating losses incurred after 2017. Net income .
The new guidance regarding ASU 2014-09 does not require that the transaction price be fixed or stated in the contract. Estimating the variable consideration does not require significant judgment and Ring engages third party sources to validate the estimates.
The guidance regarding ASU 2014-09 does not require that the transaction price be fixed or stated in the contract. Estimating the variable consideration does not require significant judgment and Ring engages third party sources to validate the estimates.
For the marked-to-market contracts, the Company recorded an unrealized gain of $40,993,295 during 2022 and an unrealized loss of $25,084,987 during 2021. This change in unrealized derivatives was due to the roll off of unfavorable contracts during 2022, as well as the Company's purchase of more favorable contracts during 2022. Benefit from (Provision for) income taxes .
For the marked-to-market contracts, the Company recorded an unrealized gain of $40,993,295 during 2022 and an unrealized loss of $25,084,987 during 2021. This change in unrealized derivatives was due to the roll off of unfavorable contracts during 2022, as well as the Company's purchase of more favorable contracts during 2022. Provision for income taxes .
In conjunction with the Stronghold Acquisition, with the newly acquired assets put up for collateral, the Company established a borrowing base of $600 million. The borrowing base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time. The borrowing base is redetermined semi-annually on each May 1 and November 1.
In conjunction with the Stronghold Acquisition, with the newly acquired assets put up for collateral, the Company established a borrowing base of $600 million. The borrowing base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time. The borrowing base is redetermined semi-annually each May and November.
Gain (loss) on derivative contracts. During 2022, the Company incurred a loss on derivative contracts of $21,532,659. During 2021, the Company recorded a loss on derivative contracts of $77,853,141.
During 2022, the Company incurred a loss on derivative contracts of $21,532,659. During 2021, the Company recorded a loss on derivative contracts of $77,853,141.
We anticipate business costs will vary in accordance with commodity prices for oil and natural gas, and the associated increase or decrease in demand for services related to production and exploration. Off-Balance Sheet Financing Arrangements As of December 31, 2022, we had no off-balance sheet financing arrangements.
We anticipate business costs will vary in accordance with commodity prices for oil and natural gas, and the associated increase or decrease in demand for services related to production and exploration. Off-Balance Sheet Financing Arrangements As of December 31, 2023, we had no off-balance sheet financing arrangements.
Our estimates of reserves and future cash flow as of December 31, 2022 and 2021 were prepared using an average price equal to the unweighted arithmetic average of the first day of the month price for each month within the 12-month periods ended December 31, 2022 and 2021, respectively, in accordance with SEC guidelines.
Our estimates of reserves and future cash flow as of December 31, 2023 and 2022 were prepared using an average price equal to the unweighted arithmetic average of the first day of the month price for each month within the 12-month periods ended December 31, 2023 and 2022, respectively, in accordance with SEC guidelines.
The timing of recognizing revenue from the sale of produced crude oil and natural gas was not changed as a result of adopting ASU 2014-09. The Company predominantly derives its revenue from the sale of produced crude oil and natural gas. The contractual performance obligation is satisfied when the product is delivered to the customer.
The timing of recognizing revenue from the sale of produced crude oil and natural gas was not changed as a result of adopting ASU 2014-09. The Company predominantly derives its revenue from the sale of produced crude oil and natural gas. The contractual performance obligation is satisfied when the product is delivered to the purchaser.
The benefit from (provision for) income taxes changed from a provision of $90,342 for 2021 to a provision of $8,408,724 for 2022.
The provision for income taxes changed from a provision of $90,342 for 2021 to a provision of $8,408,724 for 2022.
These per Boe amounts are calculated by dividing our total depreciation, depletion and amortization expense by our total Boe volumes sold. Asset retirement obligation accretion. Our asset retirement obligation (“ARO”) accretion increased from $744,045 in 2021 to $983,432 in 2022.
These per Boe amounts are calculated by dividing our total depreciation, depletion and amortization expense by our total Boe volumes sold. Asset retirement obligation accretion. Our ARO accretion increased from $744,045 in 2021 to $983,432 in 2022.
The costs have been recorded as short-term lease costs and amounts included in lease operating expenses beginning in the second quarter of 2021. 51 Table of Contents General and administrative expenses (including share-based compensation) . General and administrative expenses increased from $16,068,105 in 2021 to $27,095,323 in 2022.
The costs have been recorded as short-term lease costs and amounts included in lease operating expenses beginning in the second quarter of 2021. General and administrative expenses (including share-based compensation) . General and administrative expenses increased from $16,068,105 in 2021 to $27,095,323 in 2022.
Effects of Inflation and Pricing The oil and natural gas industry is very cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry puts extreme pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase, so do associated costs.
Effects of Inflation and Pricing The oil and natural gas industry is cyclical and the demand for goods and services of oil field companies, suppliers, and others associated with the industry puts significant pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase, so do associated costs.
Natural gas liquids sales increased approximately $7.5 million from $0.0 million in 2021 to $7.5 million in 2022. NGL sales volumes in were 371,329 barrels of NGLs compared to zero barrels in 2021, due to the Company’s change in reporting presentation for its natural gas products, which are presented on a three-stream basis beginning July 1, 2022.
NGL sales increased approximately $7.5 million from $0.0 million in 2021 to $7.5 million in 2022. NGL sales volumes in were 371,329 barrels compared to zero barrels in 2021, due to the Company’s change in reporting presentation for its natural gas products, which were presented on a three-stream basis beginning July 1, 2022.
The following discussion includes forward-looking statements that reflect our plans, estimates and beliefs and our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors,” "Forward Looking Statements" and elsewhere in this Annual Report.
The following discussion includes forward-looking statements that reflect our plans, estimates, and beliefs and our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors,” "Forward Looking Statements," and elsewhere in this Annual Report. Overview Ring Energy, Inc.
The increase was the result of a combination of higher interest rates during the second half of 2022, with a weighted average interest rate of 5.8% in 2022 and 4.4% in 2021, and having higher amounts outstanding on our credit facility throughout 2022, with a weighted average daily debt of approximately $308.7 million in 2021 compared to approximately $344.0 million in 2022, particularly due to the additional debt incurred for the Stronghold Acquisition.
The increase was the result of a combination of higher interest rates during the second half of 2022, with a weighted average interest rate of 5.8% in 2022 and 4.4% in 2021, and having higher amounts outstanding on our credit facility throughout 2022, with a weighted average daily debt of approximately $308.7 million in 2021 compared to approximately $344.0 million in 2022, particularly due to the additional debt incurred for the Stronghold Acquisition. 57 Table of Contents Gain (loss) on derivative contracts.
Revenue is recognized net of royalties due to third parties in an amount that reflects the consideration the Company expects to receive in exchange for those products. See "Note 2 - REVENUE RECOGNITION" of our financial statements for additional information. Full Cost Method of Accounting.
Revenue is recognized net of royalties due to third parties in an amount that reflects the consideration the Company expects to receive in exchange for those products. See "Note 2 — REVENUE RECOGNITION" of our financial statements for additional information. Full Cost Method of Accounting. The Company uses the full cost method of accounting for oil and natural gas properties.
If the borrowing base utilization is less than 25% at the hedge testing date and the leverage ratio is not greater than 1.25 to 1.00, the required hedging percentage for months 13 through 24 of the rolling 24 month period provided for shall be 0% from such hedge testing date to the next succeeding hedge testing date.
However, if the borrowing base utilization is less than 25% at the hedge testing date and the Leverage Ratio is not greater than 1.25 to 1.00, the required hedging percentage for months 13 through 24 of the rolling 24 month period provided for will be 0% from such hedge testing date to the next succeeding hedge testing date and if the borrowing base utilization percentage is equal to or greater than 25%, but less than 50% and the Leverage Ratio is not greater than 1.25 to 1.00, the required hedging percentage for months 13 through 24 of the rolling 24 month period provided for will be 25% from such hedge testing date to the next succeeding hedge testing date.
The sales volume increase was due to the aforementioned increase in capital expenditures as well as the Stronghold Acquisition, which closed August 31, 2022. The price decrease was driven by the Company's change in reporting presentation from two-stream (oil and natural gas) to three-stream (oil, natural gas and natural gas liquids) beginning July 1, 2022. Natural gas liquids sales.
The sales volume increase was due to 56 Table of Contents the aforementioned increase in capital expenditures as well as the Stronghold Acquisition, which closed August 31, 2022. The price decrease was driven by the Company's change in reporting presentation from two-stream (oil and natural gas) to three-stream (oil, natural gas and NGLs) beginning July 1, 2022. NGL sales.
As of December 31, 2022, we had cash on hand of $3.7 million and negative working capital of $78.0 million, compared to cash on hand of $2.4 million and negative working capital of $46.9 million as of December 31, 2021 and cash on hand of $3.6 million and negative working capital of $16.1 million as of December 31, 2020.
As of December 31, 2023, we had cash on hand of $0.3 million and negative working capital of $57.9 million, compared to cash on hand of $3.7 million and negative working capital of $78.6 million as of December 31, 2022 and cash on hand of $2.4 million and negative working capital of $46.9 million as of December 31, 2021.
Overview Ring is a growth oriented independent exploration and production company based in The Woodlands, Texas and is engaged in oil and natural gas development, production, acquisition, and exploration activities currently focused in the Permian Basin of Texas.
(the "Company," "Ring," "we," "us," "our" and similar terms) is a growth oriented independent oil and natural gas exploration and production company based in The Woodlands, Texas and is engaged in oil and natural gas development, production, acquisition, and exploration activities currently focused in the Permian Basin of Texas.
Revenue is recorded in the month the product is delivered to the purchaser. The Company receives payment from one to three months after delivery. The transaction price includes variable consideration as product pricing is based on published market prices and reduced for contract specified differentials.
Revenue is recorded in the month the product is delivered to the purchaser. 60 Table of Contents The Company receives payment from one to three months after delivery. The transaction price includes variable consideration as product pricing is based on published market prices and reduced for contract specified differentials (quality, transportation and other variables from benchmark prices).
The average realized price per barrel of NGLs was $20.18 in 2022. Lease operating expenses. Our total lease operating expenses (“LOE”) increased from $30,312,399 in 2021 to $47,695,351 in 2022 and increased on a Boe basis from $9.75 in 2021 to $10.57 in 2022.
The average realized price per barrel of NGLs was $20.18 in 2022. Lease operating expenses. Our total LOE increased from $30,312,399 in 2021 to $47,695,351 in 2022 and increased on a Boe basis from $9.75 in 2021 to $10.57 in 2022. These per Boe amounts are calculated by dividing our total LOE by our total volume sold, in Boe.
Additionally, during 2022, 2021 and 2020, we used $511.0 million, $83.2 million and $80.0 million, respectively, to reduce the outstanding balance on our Credit Facility.
Additionally, during 2023, 2022 and 2021, we used cash of $215.0 million, $511.0 million and $83.2 million, respectively, to reduce the outstanding balance on our Credit Facility.
Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined. Income Taxes. Deferred income taxes are provided for the difference between the tax basis of assets and liabilities and the carrying amount in our financial statements.
Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined. Income Taxes. Deferred income taxes are provided on differences between the tax basis of assets and liabilities and their carrying amounts in the financial statements, and tax carryforwards.
Total gross proceeds from the 2020 underwritten public offering and the registered direct offering aggregated $20,846,282. Total net proceeds for the Common Warrants exercised in 2020 aggregated $19,379,832. The Common Shares of 9,575,800 and 3,500,000 were issued in 2020, as shown in our Statements of Stockholders' Equity.
Total gross proceeds from the 2020 underwritten public offering and the registered direct offering aggregated $20,846,282. Total net proceeds for the Common Warrants exercised in 2020 aggregated $19,379,832. The Common Shares of 9,575,800 and 3,500,000 were issued in 2020. The Pre-Funded Warrants of 3,300,000 were exercised and common stock was issued in 2020.
Historically, our primary sources of cash have been from operations, equity offerings and borrowings on our Credit Facility. During 2022, 2021, and 2020 we had cash inflow from operations of $197.0 million, $72.7 million, and $72.2 million, respectively. During the three years ended December 31, 2022, we financed $28.0 million through proceeds from the sale of stock.
Historically, primary sources of cash have been from operations, equity offerings and borrowings on the Credit Facility. During 2023, 2022, and 2021 we had net cash provided by operating activities of $198.2 million, $197.0 million, and $72.7 million, respectively. During the three years ended December 31, 2023, we financed $20.9 million through proceeds from the sale of common stock.
This difference will result in taxable income or deductions in future years when the reported amount of the asset or liability is settled. Since our tax returns are filed after the financial 57 Table of Contents statements are prepared, estimates are required in valuing tax assets and liabilities.
This difference will result in taxable income or deductions in future years when the reported amount of the asset or liability is settled. Since our tax returns are filed after the financial statements are prepared, estimates are required in valuing tax assets and liabilities. We record adjustments to the actual values in the period the Company files its tax returns.
The Company is required to maintain on a rolling 24 months basis, hedging transactions in respect of crude oil and natural gas, on not less than 50% of the projected production from its proved, developed, producing oil and gas.
The Second Credit Agreement also contains other customary affirmative and negative covenants and events of default. The Company is required to maintain on a rolling 24 months basis, hedging transactions in respect of crude oil and natural gas, on not less than 50% of the projected production from its proved, developed, producing oil and gas.
We record adjustments to the actual values in the period the Company files its tax returns. In assessing the Company’s deferred tax assets, we consider whether a valuation allowance should be recorded for some or all of the deferred tax assets which may not be realized.
In assessing the Company’s deferred tax assets, we consider whether a valuation allowance should be recorded for some or all of the deferred tax assets which may not be realized.
As of December 31, 2022, our reserves are based on an SEC average price of $90.15 per Bbl of WTI oil posted and $6.358 per MMBtu Henry Hub natural gas. As of December 31, 2021, our reserves are based on an SEC average price of $63.04 per Bbl of WTI oil posted and $3.598 per MMBtu Henry Hub natural gas.
As of December 31, 2023, our reserves were based on an SEC average price of $74.70 per Bbl of WTI oil posted and $2.637 per MMBtu Henry Hub natural gas. As of December 31, 2022, our reserves were based on an SEC average price of $90.15 per Bbl of WTI oil posted and $6.358 per MMBtu Henry Hub natural gas.
The ceiling test is performed quarterly utilizing the average of prices in effect on the first day of the month for the preceding twelve-month period in accordance with SEC Release No. 33-8995.
The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test is performed quarterly utilizing the average of prices in effect on the first day of the month for the preceding twelve-month period in accordance with SEC Release No. 33-8995.
The increase in net income was due primarily to the increase in oil, natural gas, and natural gas liquids revenues, as well as the reduction in derivative contract losses, offset by increases in lease operating expenses, depletion, general and administrative expenses, and interest expense.
The Company achieved net income of $3,322,892 in 2021 compared to net income of $138,635,025 in 2022. The increase in net income was due primarily to the increase in oil, natural gas, and NGL revenues, as well as the reduction in derivative contract losses, offset by increases in lease operating expenses, depletion, general and administrative expenses, and interest expense.
Next, we drilled and completed two 1.5-mile horizontal wells and one 1-mile horizontal well in the Central Basin Platform and two 1-mile horizontal wells in the Northwest Shelf, each with a working interest of 100%.
During the third quarter of 2023, the Company drilled and completed two 1-mile horizontal wells (one with a working interest of 100% and the other with a working interest of 75%) in the Northwest Shelf, and three 1.5-mile horizontal wells (each with a working interest of 100%) in the Central Basin Platform.
The annual interest rate on each base rate Loan is (a) the greatest of (i) the Administrative Agent’s prime lending rate, (ii) the Federal Funds Rate (as defined in the Second Amended and Restated Credit Agreement) plus 0.5% per annum, (iii) the adjusted term SOFR determined on a daily basis for an interest period of one month, plus 1.00% per annum and (iv) 0.00% per annum, plus (b) a margin between 2.0% and 3.0% per annum (depending on the then-current level of borrowing base usage).
The annual interest rate on each base rate Loan is (a) the greatest of (i) the Administrative Agent’s prime lending rate, (ii) the Federal Funds Rate (as defined in the Second Credit Agreement) plus 0.5% per annum, (iii) the adjusted term SOFR determined on a daily basis for an interest period of one month, plus 1.00% per annum and (iv) 0.00% per annum, plus (b) a margin between 2.0% and 3.0% per annum (depending on the then-current level of borrowing base usage). 58 Table of Contents The Second Credit Agreement contains certain covenants, which, among other things, require the maintenance of (i) a total Leverage Ratio of not more than 3.0 to 1.0 and (ii) a minimum ratio of Current Assets to Current Liabilities (as such terms are defined in the Second Credit Agreement) of 1.0 to 1.0.
The oil sales increase was the result of an increase in the average realized per barrel oil price from $67.56 in 2021 to 50 Table of Contents $92.80 in 2022 and an increase in sales volume from 2,686,940 barrels of oil in 2021 to 3,459,840 barrels of oil in 2022.
Oil sales increased approximately $139.5 million from $181.5 million in 2021 to $321.1 million in 2022 due to an increase in the average realized per barrel oil price from $67.56 in 2021 to $92.80 in 2022 and an increase in sales volume from 2,686,940 barrels of oil in 2021 to 3,459,840 barrels of oil in 2022.
Contractual Obligations. The Company maintains a Credit Facility which currently has a $600.0 million borrowing base. The outstanding balance on that Credit Facility as of December 31, 2022 is $415.0 million, which will require repayment or refinancing at or prior to maturity in August 2026. The Company leases office spaces in The Woodlands, Texas and Midland, Texas.
The outstanding balance on that Credit Facility as of December 31, 2023 was $425.0 million, which will require repayment or refinancing at or prior to maturity in August 2026. 59 Table of Contents The Company leases office spaces in The Woodlands, Texas and Midland, Texas.
The Pre-Funded Warrants of 3,300,000 were exercised and common stock was issued in 2020 and the Pre-Funded Warrants of 13,428,500 were exercised and common stock was issued in 2021, as shown in our Statements of Stockholders' Equity. Of the aforementioned 6,800,000 Common Warrants, all remained outstanding as of December 31, 2021 and 2022.
The Pre-Funded Warrants of 13,428,500 were exercised and common stock was issued in 2021, as shown in our Statements of Stockholders' Equity.
Our total gathering, transportation and processing costs (“GTP”) decreased from $4,333,232 in 2021 to $1,830,024 in 2022 and decreased on a Boe basis from $1.39 in 2021 to $0.41 in 2022.
Our total gathering, transportation and processing costs (“GTP”) decreased by $1,372,451 to $457,573 in 2023 from $1,830,024 in 2022 and decreased slightly on a Boe basis to $0.07 in 2023 from $0.41 in 2022.
As a result, we cannot accurately predict future commodity prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes or revenues. 49 Table of Contents The improvement of oil and natural gas prices experienced in 2022 continues to demonstrate commodity price volatility and we believe oil and natural gas prices will continue to be volatile for the foreseeable future.
As a result, we cannot accurately predict future commodity prices, and therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes, or revenues.
The Woodlands office is under a five-and-a-half-year lease beginning January 15, 2021. The Midland office lease was amended effective October 1, 2022, with the revised five-year lease ending September 30, 2027. The Company has financing leases for vehicles with varying maturity dates through October 2025.
The Midland office lease was amended effective October 1, 2022, with the revised five-year lease ending September 30, 2027. The Company has financing leases for vehicles with varying maturity dates through 2026. Future lease payments for financing leases aggregate $2,006,453.
In April 2019, the Company amended and restated the Credit Agreement with the Administrative Agent (as amended and restated, the “Credit Facility”). On August 31, 2022, the Company modified its Credit Facility through a Second Amended and Restated Credit Agreement, extending the maturity date of the facility to August 2026.
On August 31, 2022, the Company modified its Credit Facility through a Second Amended and Restated Credit Agreement (the "Second Credit Agreement"), extending the maturity date of the facility to August 2026 and the syndicate was modified to add five lenders, replacing five lenders.
During 2022, 2021, and 2020, we had proceeds from drawdowns on our Credit Facility of $636.0 million, $60.2 million, and $26.5 million, respectively. We primarily used this cash to fund our capital expenditures and development aggregating $405.2 million over the three years ended December 31, 2022.
During 2023, 2022, and 2021, the Company had a net draw of $10.0 million, a net draw of $125.0 million, and a net repayment of $23.0 million on the Credit Facility, respectively. We primarily used this cash to fund our capital expenditures and development aggregating $596.9 million over the three years ended December 31, 2023.
Oil sales increased approximately $139.5 million from $181.5 million in 2021 to $321.1 million in 2022.
Oil sales increased approximately $28.0 million to $349.0 million in 2023 from $321.1 million in 2022.
The borrowing base is subject to reduction in certain circumstances such as the sale or disposition of certain oil and gas properties of the Company or its subsidiaries and cancellation of certain hedging positions. The syndicate was modified to add five lenders, replacing five exiting lenders.
The borrowing base is subject to reduction in certain circumstances such as the sale or disposition of certain oil and gas properties of the Company or its subsidiaries and cancellation of certain hedging positions. Rather than Eurodollar loans, the reference rate on the Second Credit Agreement is the SOFR.
We continually make revisions to reserve estimates throughout the year as additional properties are acquired. We make changes to depletion rates and impairment calculations in the same period that changes to the reserve estimates are made.
We continually make revisions to reserve estimates throughout the year as additional properties are acquired.
Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, basis differentials and other factors.
Commodity prices are affected by many factors outside of our control, including changes in market supply and demand both domestically and world wide, which are impacted by many factors.
The Second Amended and Restated Credit Agreement also contains other customary affirmative and negative covenants and events of default. As of December 31, 2022, $415,000,000 was outstanding on the Credit Facility. The Company is in compliance with all covenants contained in the Second Amended and Restated Credit Agreement as of December 31, 2022. Equity Offering.
As of December 31, 2023, $425 million was outstanding on the Credit Facility and the Company was in compliance with all covenants contained in the Second Credit Agreement. Equity Offering.
Next, we drilled and completed two 1-mile horizontal wells with a working interest of 100%, also in the Northwest Shelf. To complete the 2022 horizontal drilling program, we drilled and completed two 1.5-mile horizontal wells in the Central Basin Platform.
Additionally, the Company drilled and completed one saltwater disposal (SWD) well in the Northwest Shelf (with a working interest of 100%), and completed the 2023 horizontal drilling program with one 1.5-mile horizontal well in the Northwest Shelf (with a working interest of approximately 97.7%), as well as two 1-mile horizontal wells and one 1.5-mile horizontal well (each with a working interest of 100%) in the Central Basin Platform.
All capitalized costs of oil and natural gas properties, including estimated future costs to develop proved reserves and estimated future costs of site restoration, are amortized on the unit-of-production method using estimates of proved reserves as determined by independent engineers.
We make changes to depletion rates and impairment calculations in the same period that changes to the reserve estimates are made. 61 Table of Contents All capitalized costs of oil and natural gas properties, including the estimated future costs to develop proved reserves and estimated future costs to plug and abandon wells and costs of site restoration, less the estimated salvage value of equipment associated with the oil and natural gas properties, are amortized on the unit-of-production method using estimates of proved reserves as determined by independent petroleum engineers.
Costs capitalized include acquisition costs, geological and geophysical 56 Table of Contents expenditures, lease rentals on undeveloped properties and cost of drilling and equipping productive and non-productive wells. Drilling costs include directly related overhead costs. All of our properties are located within the continental United States. Write-down of Oil and Natural Gas Properties .
Under this method, all costs (direct and indirect) associated with acquisition, exploration, and development of oil and natural gas properties are capitalized. Costs capitalized include acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling and equipping productive and non-productive wells. Drilling costs include directly related overhead costs.
Companies that use the full cost method of accounting for oil and natural gas exploration and development activities are required to perform a ceiling test calculation each quarter. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10.
All of our properties are located within the continental United States. Write-down of Oil and Natural Gas Properties . Companies that use the full cost method of accounting for oil and natural gas exploration and development activities are required to perform a ceiling test calculation each quarter.
Of the aforementioned 23,004,300 Common Warrants, 442,600 were exercised and common stock was issued in 2021 and 10,253,907 were exercised and common stock was issued in 2022, as shown in our Statements of Stockholders' Equity. Issuance of Common Stock and Convertible Preferred Stock for Stronghold Acquisition.
Of the aforementioned 23,004,300 Common Warrants, 442,600 were exercised and common stock was issued in 2021; 10,253,907 were exercised and common stock was issued in 2022; and 19,029,593 were exercised and common stock was issued in 2023 (4,517,427 exercised at $0.80 and 14,512,166 exercised at $0.62 - refer to Note 11 — STOCKHOLDERS' EQUITY); as shown in our Statements of Stockholders' Equity.
These limitations include (i) no default or event of default has occurred or will occur upon such payments, (ii) the pro forma Leverage Ratio, as defined in the Second Amended and Restated Credit Agreement, does not exceed 2.00 to 1.00, (iii) the amount of such payments does not exceed Available Free Cash Flow, (iv) the Borrowing Base Utilization Percentage is not greater than 80%, and (v) a Responsible Officer certifies that the other four conditions are satisfied.
Also, the Second Credit Agreement permits the Company to declare dividends for its equity owners, subject to certain limitations, including (i) no default or event of default has occurred or will occur upon such payments, (ii) the pro forma Leverage Ratio (outstanding debt to adjusted earnings before interest, taxes, depreciation and amortization, exploration expenses, and all other non-cash charges acceptable to the Administrative Agent) does not exceed 2.00 to 1.00, (iii) the amount of such payments does not exceed Available Free Cash Flow (as defined in the Second Credit Agreement), and (iv) the Borrowing Base Utilization Percentage (as defined in the Second Credit Agreement) is not greater than 80%.
A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling.
A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling. The Company did not have any write-downs related to the full cost ceiling limitation during the years ended December 31, 2023, 2022, or 2021.
The ability to find and develop sufficient amounts of crude oil and natural gas reserves at economical costs are critical to our long-term success.
Average oil and natural gas prices received through 2022 and 2023 continued to demonstrate commodity price volatility and we believe oil and natural gas prices will continue to be volatile for the foreseeable future. The ability to find and develop sufficient amounts of crude oil and natural gas reserves at economical costs are critical to our long-term success.
These per Boe amounts are calculated by dividing our total lease operating expenses by our total volume sold, in Boe. LOE increased primarily due to a 45% increase in production of 1,403,502 Boe year-over-year, as well as increased costs for goods and services due to increased Permian activity. Gathering, transportation and processing costs.
LOE increased primarily due to a 45% increase in production of 1,403,502 Boe year-over-year, as well as increased costs for goods and services due to increased Permian activity. Gathering, transportation and processing costs. Our total GTP decreased from $4,333,232 in 2021 to $1,830,024 in 2022 and decreased on a Boe basis from $1.39 in 2021 to $0.41 in 2022.
Our primary source of cash in 2022 was from funds generated from the sale of oil and natural gas production. These cash flows were primarily used to fund our capital expenditures. We believe the combination of the sources of capital discussed will continue to be adequate to meet our short and long-term liquidity needs. Credit Facility.
We believe the combination of the sources of capital discussed will continue to be adequate to meet our short and long-term liquidity needs. Credit Facility.
Quarter Area Wells Drilled Wells Completed Recompletions 1Q 2022 Central Basin Platform (Horizontal) 4 4 — Central Basin Platform (Vertical) — — — Northwest Shelf 2 — — 2Q 2022 Central Basin Platform (Horizontal) — — — Central Basin Platform (Vertical) — — — Northwest Shelf 9 7 — 3Q 2022 Central Basin Platform (Horizontal) 3 3 — Central Basin Platform (Vertical) — — 3 Northwest Shelf 5 6 — 4Q 2022 Central Basin Platform (Horizontal) 2 2 — Central Basin Platform (Vertical) 5 5 9 Northwest Shelf 2 5 — Market Conditions and Commodity Prices Our financial results depend on many factors, particularly the price of crude oil and natural gas and our ability to market our production on economically attractive terms.
Market Conditions and Commodity Prices Our financial results depend on many factors, particularly the price of crude oil and natural gas and our ability to market our production on economically attractive terms.
Business Description and Plan of Operation The Company is focused on balancing the need to reduce long-term debt and further developing our oil and gas properties to maintain or grow our annual production. We intend to achieve both through proper allocation of cash flow generated by our operations and potentially through the sale of non-core assets.
Our drilling operations target the oil and liquids rich producing formations in the Northwest Shelf and the Central Basin Platform, in the Permian Basin in Texas. Business Description and Plan of Operation The Company is focused on balancing the need to reduce long-term debt and further developing our oil and gas properties to maintain or grow our annual production.
With the addition of the Stronghold Acquisition assets in the Central Basin Platform, we also performed three vertical well re-completions. In the fourth quarter of 2022, we completed and placed on production the three aforementioned 1-mile horizontal wells in the Northwest Shelf.
In the fourth quarter of 2023, the Company completed and placed on production the three aforementioned 1-mile horizontal wells in the Northwest Shelf.
Our total lease operating expenses (“LOE”) increased slightly from $29,753,413 in 2020 to $30,312,399 in 2021 and increased on a Boe basis from $9.25 in 2020 to $9.75 in 2021. These per Boe amounts are calculated by dividing our total lease operating expenses by our total volume sold, in Boe.
Our total lease operating expenses (“LOE”) increased approximately $22.5 million to $70.2 million in 2023 from $47.7 million in 2022 and increased slightly on a Boe basis to $10.61 in 2023 from $10.57 in 2022. These per Boe amounts are calculated by dividing our total LOE by our total volume sold, in Boe.
Two of the wells have a working interest of 100%, one has a working interest of approximately 87.9%, and the fourth has a working interest of 75%. In the third quarter of 2022, we completed and placed on production the four aforementioned 1-mile horizontal wells in the Northwest Shelf, which were drilled in the second quarter.
In the second quarter of 2023, in the Northwest Shelf, the Company drilled and completed two 1.5-mile horizontal wells (one with a working interest of 100% and the other with a working interest of approximately 75.4%) and two 1-mile horizontal wells (both with a working interest of approximately 91.1%).
The change in net income (loss) was primarily the result of the ceiling test write-down in 2020. Liquidity and Capital Resources Financing of Operations. We have historically funded our operations through cash available from operations and from equity offerings of our stock.
Liquidity and Capital Resources Financing of Operations. We have historically funded our operations through cash available from operations and from equity offerings of our stock. Our primary source of cash in 2023 was from funds generated from the sale of oil and natural gas production. These cash flows were primarily used to fund our capital expenditures.
During the last month of the quarter, we drilled and began the completion process on three 1-mile horizontal wells in the Northwest Shelf, two with a working interest of 99.7% and one with a working interest of 100%. In total, during the third quarter of 2022, we drilled eight, completed nine, and began the completion process on three horizontal wells.
Additionally, in its Crane County acreage within the Central Basin Platform, the Company drilled and completed three vertical wells (each with a working interest of 100%). Lastly, the Company drilled and began the completion process on three 1-mile horizontal wells in the Northwest Shelf (each with a working interest of 100%).
In addition to the horizontal wells, we performed nine more vertical well re-completions and drilled and completed five new vertical wells on the Stronghold Acquisition assets located in Crane County, Texas, of the Central Basin Platform, all with a working interest of 100%.
Additionally, in its Crane County acreage within the Central Basin Platform, the Company drilled and completed two vertical wells (each with a working interest of 100%) and performed three vertical well recompletions (each with a working interest of 100%).
The change was primarily the result of a full valuation allowance on federal taxes in 2021 with only state tax activity recognized. Net income (loss) . The Company had a net loss of ($253,411,828) in 2020 compared to net income of $3,322,892 in 2021.
Provision for income taxes . The provision for income taxes changed to a provision of $125,242 for 2023 from a provision of $8,408,724 for 2022. The current year change in the Company's federal tax provision was the result of a full valuation allowance release on federal taxes in 2023 with state tax activity recognized. Net income .
Oil and natural gas production taxes . Oil and natural gas production taxes as a percentage of oil and natural gas sales were 4.63% during 2020 and increased to 4.65% in 2021. The slight increase was due to higher Texas gas revenue which is taxed at 7.5%. Production taxes vary from state to state.
Oil and natural gas production taxes as a percentage of oil and natural gas sales increased to 5.02% in 2023 from 4.93% during 2022. Overall, the percentage was consistent year over year. Depreciation, depletion and amortization .
We drilled and completed three 1-mile horizontal wells and one 1.5-mile horizontal well in the Central Basin Platform. We then moved the rig to the Northwest Shelf and drilled two 1-mile horizontal wells. All wells drilled in the first quarter had a working interest of 100%.
Our executive team, with its extensive experience in the Permian Basin, has many relationships with operators and service providers in the region. 2023 Developments and Highlights Drilling, Completion, and Recompletion In the first quarter of 2023, in the Northwest Shelf, the Company drilled and completed two 1-mile horizontal wells (each with a working interest of 100%), and two 1.5-mile horizontal wells (one with a working interest of approximately 99.8% and the other with a working interest of approximately 75.4%).
Removed
Our primary drilling operations target the oil and liquids rich producing formations in the Northwest Shelf, the Central Basin Platform, and the Delaware Basin all of which are part of the Permian Basin.
Added
We intend to achieve both through proper allocation of cash flow generated by our operations and potentially through the sale of non-core assets.
Removed
We intend to continue evaluating potential transactions to acquire strategic producing assets with attractive acreage positions that can provide competitive returns for our shareholders. 2022 Developments and Highlights Stronghold Acquisition On July 1, 2022, Ring, as buyer, and Stronghold Energy II Operating, LLC, a Delaware limited liability company (“Stronghold OpCo”) and Stronghold Energy II Royalties, LP, a Delaware limited partnership (“Stronghold RoyaltyCo”, together with Stronghold OpCo, collectively, “Stronghold”), as seller, entered into a purchase and sale agreement (the “Purchase Agreement”).
Added
We intend to continue evaluating potential transactions to acquire strategic producing assets with attractive acreage positions that can provide competitive returns for our shareholders. • Growing production and reserves by developing our oil-rich resource base through conventional and horizontal drilling .
Removed
Pursuant to the Purchase Agreement, Ring acquired (the “Stronghold Acquisition”) interests in oil and gas leases and related property of Stronghold consisting of approximately 37,000 net acres located in the Central Basin Platform of the Texas Permian Basin. On August 31, 2022, Ring completed the Stronghold Acquisition.
Added
In an effort to maximize its value and resources potential, Ring intends to drill and develop its acreage base in both the Northwest Shelf and Central Basin Platform assets, allowing Ring to execute on its plan of operating within its generated cash flow. • Reduction of long-term debt and deleveraging of asset.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+1 added−2 removed2 unchanged
Biggest changeInterest Rate Risk We are subject to market risk exposure related to changes in interest rates on our indebtedness under our Credit Facility, which bears variable interest based upon a prime rate and is therefore susceptible to interest rate fluctuations.
Biggest changeFor the Year Ended As of December 31, 2023 December 31, 2023 Percentage of Oil, Natural Gas, and Natural Gas Liquids Revenues Percentage of accounts receivables from the sale of our oil and natural gas production Purchaser: Phillips 66 Company ("Phillips") 66% 65% Enterprise Crude Oil LLC ("Enterprise") 12% 11% NGL Crude Partners ("NGL Crude") 10% 8% Interest Rate Risk We are subject to market risk exposure related to changes in interest rates on our indebtedness under our Credit Facility, which bears variable interest based upon a prime rate and is therefore susceptible to interest rate fluctuations. 63 Table of Contents Changes in interest rates affect the interest earned on the Company’s cash and cash equivalents and the interest rate paid on borrowings under the Credit Facility.
Realized pricing is primarily driven by the prevailing domestic price for crude oil and spot prices applicable to the region in which we produce natural gas. Historically, prices received for oil and natural gas production have been volatile and unpredictable. We expect pricing volatility to continue. The prices we receive depend on many factors outside of our control.
Realized pricing is primarily driven by the prevailing domestic price for crude oil and spot prices applicable to the region in which we produce oil and natural gas. Historically, prices received for oil and natural gas production have been volatile and unpredictable. We expect pricing volatility to continue. The prices we receive depend on many factors outside of our control.
In order to reduce commodity price uncertainty and increase cash flow predictability relating to the marketing of our crude oil and natural gas, we may enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. The following table summarizes the Company's hedges in place on a monthly basis by commodity type.
In order to reduce commodity price uncertainty and increase cash flow predictability relating to the marketing of our crude oil and natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. The following table summarizes the Company's hedges in place on a monthly basis by commodity type.
We are subject to credit risk due to the concentration of our oil and natural gas receivables with our most significant customers. We do not require our customers to post collateral, and the inability of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.
We are subject to credit risk due to the concentration of our oil and natural gas receivables with our most significant customers, or purchasers. We do not require our purchasers to post collateral, and the inability of our significant purchasers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.
We believe that the loss of any of these customers would not materially impact our business because we could readily find other purchasers for our oil and natural gas.
The following table sets forth certain information regarding the top three purchasers of our oil, natural gas, and NGLs for the year ended December 31, 2023. We believe that the loss of any of these purchasers would not materially impact our business because we could readily find other purchasers for our oil and natural gas.
A significant decline in the prices of oil or natural gas could have a material adverse effect on our financial condition and results of operations.
NGL prices received during 2023 ranged from a monthly average low of $7.07 per barrel to a monthly average high of $14.71 per barrel. A significant decline in the prices of oil or natural gas would likely have a material adverse effect on our financial condition and results of operations.
Oil prices we received during 2022 ranged from a monthly average low of $75.33 per barrel to a monthly average high of $114.86 per barrel. Natural gas prices we received during 2022 ranged from a monthly average low of $2.16 per Mcf to a monthly average high of $9.78 per Mcf.
Oil prices received during 2023 ranged from a monthly average low of $68.72 per barrel to a monthly average high of $89.13 per barrel. Natural gas prices realized during 2023 ranged from a monthly average low of $(0.94) per Mcf to a monthly average high of $1.52 per Mcf.
A 1% change in the interest rate on our Credit Facility would result in an estimated $4.2 million change in our annual interest expense. See "Note 10 - REVOLVING LINE OF CREDIT" in the Footnotes to the financial statements for more information on the Company’s interest rates on our Credit Facility.
See "Note 9 — REVOLVING LINE OF CREDIT" in the notes to the financial statements for more information on the Company’s interest rates of our Credit Facility. Currently, we do not use interest rate derivative instruments to manage exposure to interest rate changes.
Changes in interest rates affect the interest earned on the Company’s cash and cash equivalents and the interest rate paid on borrowings under the Credit Facility. As of December 31, 2022, we had $415.0 million outstanding on our Credit Facility with a weighted average interest rate of 5.8%.
As of December 31, 2023, we had $425.0 million outstanding on our Credit Facility with a weighted average annual interest rate for the year then ended of 8.8%. A 1% change in the interest rate on our Credit Facility would result in an estimated $4.3 million change in our annual interest expense.
Currently, we do not use interest rate derivative instruments to manage exposure to interest rate changes. Please also see Item 1A “Risk Factors” above for a discussion of other risks and uncertainties we face in our business.
Currency Exchange Rate Risk Foreign sales accounted for none of the Company's sales; the Company accepts payment for its commodity sales only in U.S. dollars. Ring is therefore not exposed to foreign currency exchange rate risk on these sales. Please also see Item 1A “Risk Factors” above for a discussion of other risks and uncertainties we face in our business.
Oil Hedges (WTI) Gas Hedges (Henry Hub) Month Average BBL/day Average MMBtu/day January 2023 5,180 3,862 February 2023 5,145 11,652 March 2023 5,113 11,580 April 2023 4,832 11,259 May 2023 4,802 11,188 June 2023 4,774 11,119 July 2023 4,497 10,802 August 2023 4,471 10,735 September 2023 4,447 10,669 October 2023 4,423 10,356 November 2023 4,400 10,294 December 2023 4,379 10,233 January 2024 4,150 6,500 February 2024 4,132 6,500 March 2024 4,113 6,500 April 2024 4,096 6,250 May 2024 4,081 6,250 June 2024 4,066 6,250 July to September 2024 3,750 6,000 October to December 2024 4,000 6,000 58 Table of Contents Customer Credit Risk Our principal exposure to credit risk is through receivables from the sale of our oil and natural gas production (approximately $40.1 million as of December 31, 2022).
See "Note 7 — DERIVATIVE FINANCIAL INSTRUMENTS" to our financial statements for further information. 62 Table of Contents Oil Hedges (WTI) Gas Hedges (Henry Hub) Month Average BBL/day Average MMBtu/day January 2024 6,475 — February 2024 6,457 8,999 March 2024 6,438 8,311 April 2024 5,921 8,383 May 2024 5,906 7,999 June 2024 5,891 8,124 July 2024 5,575 7,704 August 2024 5,575 7,590 September 2024 5,575 7,722 October 2024 5,400 7,336 November 2024 5,400 7,467 December 2024 5,400 7,133 January 2025 5,275 7,023 February 2025 5,275 7,633 March 2025 5,275 6,831 April 2025 5,100 6,961 May 2025 5,100 6,662 June 2025 5,100 6,790 July to September 2025 4,450 6,450 October to December 2025 4,400 6,500 Customer Credit Risk Our principal exposure to credit risk is through receivables from the sale of our oil and natural gas production (approximately $37.9 million as of December 31, 2023).
Removed
See "Note 8 - DERIVATIVE FINANCIAL INSTRUMENTS" to our financial statements for further information.
Added
In some months, fees exceeded the pricing, causing a negative net realized price. Gross natural gas prices ranged from a monthly average low of $0.76 per Mcf to a monthly average high of $2.78 per Mcf. Fees ranged from a monthly average low of $(2.07) per Mcf to a monthly average high of $(0.87) per Mcf.
Removed
For the year ended December 31, 2022, sales to three customers, Phillips, NGL Crude, and Enterprise represented 68%, 13% and 5%, respectively, of our oil, natural gas, and natural gas liquids revenues. As of December 31, 2022, Phillips represented 69% of our accounts receivable, NGL Crude represented 7% of our accounts receivable and Enterprise represented 10% of our accounts receivable.

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