Ring Energy Inc. managed to pull a rabbit from its hat in mid-April, agreeing to sell its Delaware Basin assets despite historic oversupply due to a global pandemic and the aftershocks of an oil price war.

In the first announced Permian deal since Valentine’s Day, Ring’s sale of nearly 20,000 acres in Culberson and Reeves counties, Texas, comes as the oil market prices continue to plummet. The deal, by an undisclosed buyer, is expected to bring in cash for Ring, which like all operators will need capital to survive the coming months.

Richard Tullis, an analyst at Capital One Securities, estimated that Ring Energy’s sale—for about $31.5 million—would improve year-end liquidity for the company to $110 million from $62 million.

Capital One had valued the Delaware Basin assets at $48 million, suggesting Ring received about two-thirds of the value in the deal. Though, Tullis added that “investors will likely be more focused on cash infusion.” The company agreed to sell the assets for about $1,575 per acre.

Ring Energy, based in Midland, Texas, said April 14 it received a $500,000 non-refundable deposit and expects to close the transaction in about 60 days.

The transaction does not stand to substantially impact Ring’s production and represents about 8% of the company’s pre-deal enterprise value. The Delaware Basin assets contributed about 980 boe/d in the fourth quarter, of which 56% was oil.

Ring Energy Delaware Basin Map

Ring Energy entered the basin in July 2015 through the purchase of 14,000 net acres held by Finley Resources Inc. for $75 million. At the time of the deal, production in Culberson and Reeves was about 1,300 boe/d, of which 80% was oil.

Ring’s assets at the time of the April agreement included:

  • 112 producing vertical wells;
  • Five horizontal wells; and
  • Six saltwater disposal wells.

The company also owns and operators 39 miles of water gathering pipeline and 23 miles of gas pipeline. 

Ring Energy CEO Kelly Hoffman said that since formally announcing it was marketing its Delaware assets in November 2019, the company has worked to find a fair and equitable transaction. 

“As we have stated in the past, the proceeds from this transaction will be used to reduce the current balance on the company’s senior credit facility,” Hoffman said in a news release. “The current environment mandates a cautious, conservative approach going forward, and strengthening our balance sheet is a step in the right direction.”

At year-end 2019, the assets held 3.48 million barrels of oil and 10,055 million cubic feet of natural gas with a total a PV-10 value of about $43 million, according to estimates by Cawley, Gillespie and Associates. The estimates were based on $52.41/bbl oil and $1.47/Mcf gas.

Ring Energy continues to hold positions in the Permian Basin in the Central Basin Platform and the Northwest Shelf.

Onshore