Littelfuse Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 12 speakers on the call.

Operator

After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy. We'll begin our call with comments from Paul McKinney, Our Chairman of the Board and CEO, who will provide an overview of key matters for the Q1. We will then turn the call over to Travis Thomas, Ring's Chief Financial Officer, who will review our financial results. Paul will then return to discuss our future plans and outlook before we open the call for questions.

Speaker 1

Also joining us on the call today and available for the Q and A session are Alex Dias, Executive VP of Engineering and Corporate Strategy Marinos Bagdadi, Executive VP of Operations And Steve Brooks, Executive VP of Land, Legal, Human Resources and Marketing. During the Q and A session, We ask you to limit your questions to 1 and a follow-up. You're welcome to reenter the queue later with additional questions. I would also note that we have posted our Q1 2023 earnings corporate presentation on our website. During the course of this conference call, the company will be making forward looking statements within the meaning of federal securities laws.

Speaker 1

Investors are cautioned that forward looking statements are not guarantees of future performance and those actual results or developments May differ materially from those projected in the forward looking statements, and the company can give no assurance That such forward looking statements will prove to be correct. Ring Energy disclaims any intention or obligation to update or revise Any forward looking statements, whether as a result of new information, future events or otherwise, accordingly, you should not place undue reliance on forward looking These and other risks are described in yesterday's press release and in our filings with the SEC. These documents can be found in the Investors section of our website, www.ringenergy.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may differ materially. This conference call also includes references to certain non GAAP financial measures.

Speaker 1

Reconciliations of these non GAAP financial measures To the most directly comparable measure under GAAP are contained in yesterday's earnings release. Finally, as a reminder, this conference call is being recorded. I would now like to turn the call over to Paul McKinney, our Chairman and CEO.

Speaker 2

Thanks, Al. Welcome, everyone, and thank you for your interest in Ring Energy and for joining us today on our earnings call. The Q1 marked a positive start to the year, where we once again posted record sales volumes, adjusted EBITDA and cash flow from operations. Contributing to our results was a Full quarter production from wells brought online in December, new wells drilled and placed on production during the Q1 And increased production from our recompletion activities. During the Q1, we grew sales volumes 2% From the Q4 of 2022 to a record 18,292 barrels of oil per day, This was at the high end of our guidance range.

Speaker 2

Looking at year over year metrics, we grew sales volumes 106%, which primarily reflects the contribution of our Stronghold acquisition. With respect to our capital spending activity, during the Q1, We drilled and completed 2 1 mile horizontal wells in the North West Shelf, each with 100% working interest And drilled and completed 2 1.5 mile horizontal wells in the Northwest shelf, one with a working interest of 99.8% and the other with a working interest of 75.4%. Additionally, we drilled and completed 3 vertical wells and performed 6 recompletions in CBP South, all of which having a working interest of 100%. We produced record adjusted EBITDA of $58,600,000 during the Q1 That was 4% higher than the Q4 of 2022 65% higher than the same quarter for the previous year. We spent $38,900,000 on capital projects, which was within our guidance range of $36,000,000 to $40,000,000 The result was $10,500,000 of free cash flow that was 92% higher than the 4th quarter And mark our 14th consecutive quarter of free cash flow generation.

Speaker 2

We ended the Q1 with $179,000,000 of liquidity, Which was 151% higher year over year, although 5% lower than at year end of 2022. As previously planned, during the Q1, we made the final deferred payment of $15,000,000 for the Stronghold acquisition. We also made a payment of $3,500,000 for post closing adjustments. Although this contributed to a temporary net increase in borrowings of $7,000,000 on a revolving credit facility during the Q1. We look forward to accelerating debt reduction for the remainder of the year based on our current outlook.

Speaker 2

Turning to our capital spending outlook. We reiterate our plans to spend between $135,000,000 170,000,000 During 2023, that includes a capital efficient combination of drilling horizontal wells on our legacy acreage And vertical wells on our CBP South acreage. This amount also includes planned spending for recompletions, capital workovers, infrastructure upgrades, Leasing costs and ESG related projects. As you may recall, our budget plans for 2023 are based on WTI Oil prices are between $70 $90 per barrel of oil and Henry Hub prices are between $2 $4 per Mcf. As in the past, we have designed our spending program with flexibility to respond to changes in commodity prices and other market conditions.

Speaker 2

With respect to our Q2, we expect to spend $34,000,000 to $38,000,000 To drill, complete and place on production 6 to 7 wells, perform targeted recompletions and execute other capital projects. With respect to 2023 production guidance, we are reiterating full year sales volumes of between 17,800 And 18,800 barrels of oil equivalent per day. Looking at the midpoint of our full year guidance, we anticipate A year over year increase of approximately 48% and a 2.5% increase over Q4 2022. For the Q2 of 2023, we expect sales volumes to come in between 17,900 barrels of oil equivalent per day and 18,400 barrels of oil equivalent per day. So with that, I will turn this call over to Travis to discuss our financial results and guidance in more detail.

Speaker 2

Travis?

Speaker 3

Thank you, Paul, and good morning, everyone. During the Q1 of 2023, We sold approximately 1,100,000 barrels of oil, 1.6 Bcf of natural gas and 240,000 barrels of NGLs For a total of 1,600,000 BOE or a record 18,292 BOE per day. 1st quarter 2023 realized pricing was $73.36 per barrel of crude oil, dollars 0.66 per Mcf of natural gas and $15.30 per barrel of NGLs or $53.50 per BOE. This was 12% lower than our realized pricing for the Q4 of 2022 of $60.69 per BOE. Keep in mind that beginning on May 1 last year, GTP costs are reflected as a reduction to our realized price of natural gas.

Speaker 3

Our Q1 average oil price differential for the NYMEX WTI futures price was a negative $2.67 per barrel versus a negative $1.07 per barrel for the Q4 of 2022. This difference was mostly due to the Argus CMA roll that declined $1.27 per barrel on average for the period and the Argus WTI WTS which declined $0.56 per barrel for the 4th quarter. Our average natural gas price differential from NYMEX futures for the Q1 was a negative $2.08 per Mcf compared to a negative $3.79 For MCF for the Q4, our realized NGL price for the Q1 averaged 19% of WTI compared to 21% for the Q4. The combined result was revenue for the Q1 2023 of $88,100,000 compared to Q4 2022 revenue of $99,700,000 Looking at the more significant expense line items on the income statement, LOE was $17,500,000 or $10.61 per BOE, which was essentially flat from the Q4 of 2022. Production taxes were $4,400,000 or $2.68 per BOE versus $5,200,000 or $3.16 per BOE for the 4th quarter with the tax rate remaining steady at approximately 5%.

Speaker 3

DD and A was $21,300,000 compared to $20,900,000 for the Q4 of 2022. On a per BOE basis, DD and A increased from $12.92 from $12.71 in the 4th quarter. Cash G and A, which excludes Share based

Speaker 1

compensation was

Speaker 3

$5,200,000 versus $6,100,000 for the 4th quarter. I would like to note that the 4th quarter included $1,000,000 of Transaction costs for the Stronghold acquisition. Adjusting for the transaction costs, Q4 2022 cash G and A was $3.14 Per BOE versus $3.15 per BOE for this year's Q1. Compared to last year's Q1 of $5.01 per BOE, We saw a 37% year over year decrease in cash G and A on a BOE basis, which is a direct reflection of the synergies afforded by the Stronghold transaction. Interest expense of $10,400,000 versus $9,500,000 for the 4th quarter with the increase substantially due to higher interest rates And additional number of days in the period.

Speaker 3

Keep in mind, this also includes interest expense of $400,000 per month in non cash amortization. During the Q1, we posted net income of $32,700,000 or $0.17 per diluted share. Excluding the after tax impact of pretax items, including $10,100,000 for non cash unrealized gain on hedges And $1,900,000 for share based compensation expense, our Q1 2023 adjusted net income was $25,000,000 $0.14 per share. This is compared to Q4 2022 net income of $14,500,000 or $0.08 per diluted share. Excluding the estimated after tax impact of pretax items, including $5,400,000 for non cash unrealized gain on hedges And $2,200,000 for share based compensation expense and $1,000,000 of transaction cost, Our 4th quarter adjusted net income was $21,800,000 or $0.13 per share.

Speaker 3

Looking at adjusted EBITDA, We were pleased to generate a record of $58,600,000 in the Q1 compared to our previous record of $56,300,000 for the Q4 of 2022. I would note that the Q1 of 2023 adjusted EBITDA was 65% higher than the $35,600,000 Reported in the same period in 2022, again, a direct result of the Stronghold acquisition, our legacy field development campaign and our targeted efforts to drive further efficiencies in the business. We are also pleased to record record cash flow from operations $49,400,000 for the Q1, a 4% and 53% increase from last year's 4th and 1st quarters respectively. Free cash flow for the Q1 of 2023 was $10,500,000 compared to $5,500,000 in last year's 4th quarter. The increase was primarily due to lower capital spending, higher sales volumes and lower realized hedge settlements, which was partially offset by lower realized pricing and higher interest expense.

Speaker 3

As of March 31, we had $422,000,000 drawn on our revolving credit facility with a current borrowing base of $600,000,000 At the end of the Q1, we had $177,200,000 available on the revolver net of letters of credit. Combined with the $1,700,000 of cash, we had liquidity of approximately $179,000,000 as we entered this year's Q2. As Paul discussed, our debt position increased $7,000,000 in the Q1, primarily due to the $15,000,000 final deferred payment associated with Stronghold acquisition along with a payment of $3,500,000 for the post closing adjustments. As we look to the remainder of 2023, We are focused on further debt reduction and realized commodity prices and the timing of capital spending impacting the cadence of quarterly debt pay down. Looking at our share count, during the Q1, we had approximately 4,500,000 common warrants exercised at $0.80 per warrant.

Speaker 3

Accordingly, our Q1 financials reflected the issuance of the 4,500,000 shares of common stock and the receipt of approximately $3,600,000 in cash. Additionally, last month, we executed agreements with certain holders of nearly all of our remaining outstanding warrants That resulted in the early exercise of an aggregate of $14,500,000 warrants. We received gross proceeds of approximately $9,000,000 which will be used to accelerate debt reduction. If you recall, these warrants were associated with the equity raise completed in October of 2020 and have been reflected in our fully diluted share count since that time. Following the early exercise of the warrants in April, We had approximately 78,000 warrants outstanding.

Speaker 3

Turning to our 2023 outlook for the full year and second quarter. As Paul discussed, our full year 2023 capital spending plans of $135,000,000 to $170,000,000 have not changed. For details associated with our capital spending plans, see our press release and presentation. Looking at our sales volume guidance, we continue to expect Full year 2023 to average 17,800 Boe 18,800 Boe per day, Of which approximately 68% is oil, 17% is natural gas and 15% is NGLs. Looking at this year's Q2.

Speaker 3

For the full second quarter, we expect to spend $34,000,000 to $38,000,000 To drill, complete and place on production 6 to 7 wells, perform targeted pre completions and execute other capital projects. Accordingly, the Q2 2023 sales are expected to be in the range of 17,900 to 18,000 400 BOEs per day, of which we expect 69% to be oil, 15% natural gas and 16% NGLs. For the full year 2023, we reiterate our LOE guidance of $11 to $11.60 per BOE. For the Q2 of 2023, we currently expect LOE to range between $11 $11.40 per BOE. I would note that all of our 2023 guidance is included in yesterday's release and in the presentation on our website.

Speaker 3

Turning to our hedged position. For the remainder of 2023, we currently have 1,400,000 barrels of oil hedged, which equates to approximately 41% of our estimated oil sales based on the midpoint of our guidance. We also have 1.9 Bcf of natural gas, which equates to approximately 38% of our estimated natural gas sales based on the midpoint of guidance. For a quarterly breakout of our hedge position, Please see our presentation on our website, which includes the average price for each contract type. So with that, I I will turn it back to Paul for his closing comments before Q and A.

Speaker 3

Paul?

Speaker 2

Thank you, Travis. Over the past year, We made substantial progress increasing our size and scale, improving our per share metrics and strengthening our financial position through the Stronghold acquisition. We continued investing in high rate of return projects through our targeted capital spending program and continued initiatives to drive further efficiencies in our business. I want to thank our entire workforce for their continued hard work and dedication as we remain squarely focused on executing our value focused proven strategy. Looking to the future, our immediate focus is on the efficient execution of our 2023 capital spending program And maximizing our free cash flow to pay down debt, we intend to remain focused and disciplined by prioritizing our capital spending On high rate of return drilling and recompletion projects, which should allow us to maintain or slightly grow our production over 4th quarter levels.

Speaker 2

We believe targeting excess free cash flow to pay down debt will drive long term value for our shareholders. As we have shared in the past, we are committed to positioning the company to return capital to stockholders and our efforts both short term and long term Our plan with this in mind, we believe our stock will be more appealing to a wider cross section of the investment community If we achieve greater size and scale, we also believe that our absolute debt levels justify our continued focus on improving the balance sheet. These two beliefs drive our strategic focus on pursuing accretive balance sheet enhancing acquisitions And maximizing free cash flow from our organic capital spending plans. As you know, the Stronghold acquisition is an example of the transformational impact a strategic transaction can have on improving per share metrics in the balance sheet. Another transaction supporting our strategy was the accelerated exercise of the outstanding warrants last month.

Speaker 2

By simplifying and enhancing our capital structure, we increased the company's public float, accelerated debt repayment, And we believe trading liquidity on our stock should improve. So to pull all of this together, we believe staying the course With our sense of urgency, our resolve and our commitment to our value focused proven strategy better prepares the company to manage the risks and uncertainties associated with the volatility our industry is experiencing and will generate sustainable and competitive returns to our stockholders. With that, We will turn the call over to our operator for questions. Operator?

Operator

Thank you very much. We will now begin the question and answer session. We will pause momentarily to assemble our roster. Today's first question comes from Jeff Grampp with Alliance Global Partners. Please go ahead.

Speaker 4

Hi, guys. Thanks for the time. First off, Paul, maybe you can just kind of give us your latest thinking on the CapEx side of things, understanding you guys are reiterating the full year, but obviously there's some Variability in there with prices acting the way they are, is kind of the midpoint still a fair point to think about? Or how are you guys kind of thinking about managing the business given the volatility?

Speaker 5

Yes. Managing the business associated with the volatility is the name of Game this year for us. So I mean, I think we've said this more than once and not just me, others here in other So we've designed our budget to be between WTI prices of $70 $90 If we're closer to the $70 average for the year, we're going to be on the lower end. If we're at $90 or closer to $90 we'll be on the higher end. We are being responsive.

Speaker 5

Again, we're looking at it from a standpoint of essentially two goals. We want to at least maintain flat production for the year on our 4th quarter levels and so we'll spend the capital to do that, but we want to allocate every available dollar excess Cash from operations to paying down debt. And that's what we're focused on this year. And so but we will be responsive in our future capital spending. So At this stage right now, I think that midpoint is probably a good place to be, but don't be surprised if you see us change If markets continue to volatility or it goes either steeply downward or upward in terms of price.

Speaker 4

Got it. Okay. That's helpful. And kind of a related point, I think in the slides you guys had directionally assumed some Well cost inflation relative to 2022, I assume maybe that was the case in the 1st part of the year, but are you guys seeing any softness on the service side or how are you guys kind of seeing Things trend on the oilfield service pricing side and how we should be thinking about well cost moving forward?

Speaker 6

Jeff, we're Actually, this is the 1st week where we've started to see some softening, especially on the completion side. We think costs are going to come down. We haven't seen that yet. But as we've said in the past, for every well, we go through a bidding process, We rebid everything and we're staying current on the pricing, but haven't seen anything yet. We expect to start seeing it though towards the end of or here in the near future.

Speaker 4

Got it. That's helpful. Thanks, guys.

Operator

The next question comes from Patrick Enright with Truist. Please go ahead.

Speaker 7

Hi, Paul, Travis, Alex, congrats on a great quarter there to kick off the year. Thank you. My first question is, I guess, looking at your operating metrics and Yes, your LOE, I guess over like the last four quarters, you've come in sub $11 per BOE. And at the same time and looking at your 2023 guidance with that range of 11 to 11.60, Is there anything is there a potential spike that we should anticipate, I guess in front of us here, whether it's with facilities maintenance or a workover?

Speaker 5

We'll let Marino handle that initially and then we'll all chime in a little bit on that.

Speaker 6

Good morning, Patrick. One of the our Total LOE was in line with what we expected. I think it's lower than guidance mostly Because we were on the higher end of production, it's a numerator and denominator type thing and that's one of the reasons. The other thing, we're not sure on cost. We were very So far, we've had the elevated cost, but our team has been doing an One job of keeping track of things and making sure job costs don't increase even though we've put some increases anticipated increases In kind of the numbers when we're coming up with guidance.

Speaker 6

So we may revise those down in the future. We're right now we just wanted to remain steady with what we're just so we watch the Rest of the year and maybe towards the next half, make adjustments.

Speaker 5

Yes, we're good. So just to kind of add on to that, when you bring on some of these newer wells and they do perform on the high side of things, you end up getting more production. So that affects that equation, right, in terms of your lifting costs. And so because we're a little higher on the production side than we were anticipating, It affected the operating costs as well on a lifting basis.

Speaker 7

Good stuff there. As a follow-up here, I'd like to get your thoughts and get a better understanding around your Financing, as it relates to, I guess, I mean, really the regional like really the regional bank debt spiral that we're seeing right now. And talking what's your overall outlook on financing? And are they Are you hearing anything in particular around further constraints?

Speaker 5

Okay, very good. That's not a question I was planning to hear but I'll take it. But it's actually a very good one because as we've been talking about this The ongoing dialogue with our stockholders, we've been talking about the volatility that our industry has been in. Okay, so now we're seeing volatility in the banking industry That affects all industries, okay. And so this is part of the reason why our Board of Directors decided even last year That our focus on reducing the balance sheet, the leverage on our balance sheet is really a number one Goal, a fortress balance sheet as several of our board members remind us is just something that we Need to achieve because of the volatility that we're seeing in our own industry and now with the banking industry being what it is, it just makes a lot of sense.

Speaker 5

So how does it affect Our financing of things and some of our ambitions for this year, we believe that our syndicate is strong. The individual banks in there have not expressed and shown any issues that we should be concerned about. I do believe that there is a tightening going on. Anytime you have volatility like this, Even with just the oil industry, you see a little tightening in the financing arena. But because we believe that we can structure future potential transactions With a combination of equity and cash or debt that we should find that 2023, I'm not I'm not going to say it's going to be easy, but I believe that we can still be successful in this environment despite the volatility and despite the tightening that we're seeing In both industries.

Speaker 5

Does that answer your question, Patrick?

Speaker 7

That's great. Really just really appreciate as you get your outlook on that. Yes, very good.

Operator

The next question comes from Noel Parks with Tuohy Brothers. Please go ahead.

Speaker 5

Hi, good morning. Hi, good morning, Noel.

Speaker 8

Just had a few things. I was wondering, you had mentioned that you're just now starting to Get a sense of a little bit of softening on the cost side. And it seems like the pace of that has really varied basin to basin. And I'm just curious how those hints of softening kind of manifest themselves just a matter of Tone, have you talked to vendors, are you getting inbound emails that you haven't seen for a while? Just curious What you're seeing so far?

Speaker 5

Well, oftentimes and you guys are on a lot of calls and there's a lot of other operators out there. But If you go back to our strategy and what we're doing and what we're doing different from many of the companies that are in the Permian Basin, our focus is on the conventional Reservoirs. And so we're applying the technology developed for horizontal drilling and multi frac technologies for shales. We're applying that Conventional reservoirs that are typically shallower depths. And so many of the rigs and the services that we're Seeking are not in nearly as much competition as it has been in some of these Shale plays.

Speaker 5

And so some of the shales, especially outside of the Permian Basin, have much higher breakeven costs. And so with the volatility we're seeing in prices, Those are the areas where you'll see the reduction in drilling activity. And so those are the areas that so some of these other operators may have already reductions in prices. Well, it's because there have been a lot of competition for those sizes of rigs and those types of services. And in our area, although we're seeing signs of softening, you got to remember, our area wasn't as competitive as the shale And so that has an impact.

Speaker 5

And so, no, we're not getting emails, but we are talking. We talked to a lot of people in the industry. The industry is a very, Close knit group of folks and we're all sharing information. And so we're seeing the signs. But as Marino indicated, We haven't directly seen that in any direct communications or in any of the bids, but we're seeing in a sense that it's going to affect going forward because everybody else appears to be as well.

Speaker 8

Got you. It makes sense. And I one thing I was I just wanted to check on this. With the Stronghold acquisition, did you pick up any lease obligations and anything that You need to drill to HBP that is on the table?

Speaker 9

Yes, this is Steve Brooks. No, actually we did not pick up any real obligations with the Stronghold acquisition, so that gives us a little

Speaker 5

And we're beyond our capital, our commitments and our legacy stuff too, right?

Speaker 9

Yes, we are. We had a

Speaker 8

And I just wanted to ask you, when we're oil has pulled back a bit just very recently, but The 70 plus Street we've been on for quite a while now. I'm Thinking about your rates of return and if indeed we do finally see services Come back meaningfully. I'm just wondering what sort of delta you might see in rates of return in the different areas if, I don't know if we get 10% or even better correction say by a year from now.

Speaker 5

Well, those are good questions, Noel, but I'll go back to some of the real core benefits Of investing in Ring Energy is the fact that we have some really, really strong solid assets. And so the undeveloped opportunities that we've been Investing in since well, since I've been here have all had excessively very, very competitively low breakeven costs. And so our rates of are compelling compared to many, many of the shales, especially outside of the Permian, but even compared to many of them in the Permian. And so Our program for any foreseeable prices generates in excess of 100% rates of return Surprisingly lower prices, much lower than we've experienced since the downturn that occurred in COVID. And so I don't look at our variability in terms of capital spending as being associated with Being a pullback associated with some kind of a spike coming down or anything like that, I think our focus again though is Because of the volatility we're seeing in our industry, the volatility we're seeing now in the banking industry, we just believe the best thing we can do for our shareholders is to develop a fortress balance sheet And pay down our absolute debt levels and be in a position to where we can withstand the risk associated with that kind of volatility.

Speaker 8

Great. Thanks. That's all for me.

Operator

The next question is from Jeff Robertson with Water Tower Research. Please go ahead.

Speaker 9

Thank you. Good morning.

Speaker 5

Hey, good morning.

Speaker 9

Paul or maybe for Alex or somebody else on the team, you all show on Slide 17 of the investor deck, Some improved performance on wells you build in 2023, both horizontal and vertical. Is there are you doing something different with these wells and how you're drilling or completing them than you were doing last year or is it just better site selections?

Speaker 5

Yes. So I'll answer that initially, but then I'll turn it over to both Marinos and Alex. And so Yes, we are doing a few things differently. When we acquired these assets from Stronghold, They have done a great job introducing the same type of strategy that we have been doing elsewhere in The newer, latest, greatest completion technologies. But since we've taken over And integrate these assets into our operations.

Speaker 5

We have spent quite a bit of time looking at how they frac How they completed their wells, how they brought those wells back on and then at the same time newer different ideas. And so we're still Testing and trying a few things. We're learning how and trying to figure out ways to optimize. And this is an ongoing thing that we do here. And I'm really proud of the results we've had.

Speaker 5

And so I'm going to turn it over to Morinos to hit on that or touch on it, and then Alex will follow-up with him afterwards.

Speaker 6

Thank you, Paul. So, 2 different answers for the 2 different assets that we have on the legacy horizontal assets. We're actually seeing over time the more wells we drill in a specific section, the opposite of the child Parent child effect that you see in other place, we actually see that our Child wells are performing better than the parent wells over time as we deplete the reservoir and as we dewater it And also see an increase in performance on the parent wells when we bring a child well online. So that's part of the reason that We've been able to maintain and slightly increase the performance on the horizontal wells on the top left chart On the slides you're referring to and then on the vertical stuff like Paul was saying, we're actually seeing a reduction in well failures. We're Trying to bring the wells on slower, decrease the amount of sand that we get back and the failures and costs associated with that.

Speaker 6

So that's Kind of the performance increase there that we're seeing on the South and still a little early, but we're very excited on how much more is available for us to

Speaker 7

And Jeff, let me add

Speaker 10

a few more things. Yes, we on purpose created Slide 17 to give Investors and just the general community out there, an insight to what our well performance like. So I think the main message was, hey, we have consistent well performance for both Horizontal and verticals, to add to what Marinos had said, from 2020 and 2021 to actually 2022, More efficient completions as he mentioned, but landing zones critical there and how we flow those back. And so just The overall learnings and also if you recall, we started CDP drilling in 2021 and that we drilled a lot more in And that had a lot of effect there too. So we have just really good horizontal well performance in both our Northwest Shelf and CDP assets.

Speaker 10

As far as the verticals, The vertical well performance increased from 2020 and 2021 and inclusive in 2022. Real reasons there is just applying learnings from the past, More stages, improved completions, optimizing lift, but the other real big thing that affected 'twenty two is There's an area that we call PJ Lee, which you can actually see the well performance in one of the slides, I believe it's Slide 18. There was no real drilling in 2020 or 2021 in PJ Lee. It was mostly done in 2022. And so those wells are just really strong and really compete for So that's why you've seen us in 'twenty three drill a lot of PJ Lee Wealth.

Speaker 9

Thank you. And Paul, in the Under your credit agreement, I believe after June 30, you all could pay dividends based on certain conditions under the credit agreement. Do you have a balance sheet leverage metrics in mind before you would be comfortable paying dividends?

Speaker 5

Yes, there's a lot of things that we need to consider when we think about paying dividends. And I've said this in the past, I believe that our company and our stock It's more appealing to a broader cross section of the investment community. If we were to gain larger size and scale, Larger size and scale also contributes considerably to the sustainability. The last thing we want to do is introduce a dividend and then not be able to follow on and continue paying that dividend. And so it's going to be a balance of things.

Speaker 5

And then also what's the really best investment opportunity at the time when we're eligible to make that decision? Now I'll go back And refer to Travis about the timing of when we are actually eligible To pay dividends, my recollection from the credit facility was that we had to wait at least a year after The 1 year anniversary after the amendment we put in place with the Stronghold acquisition.

Speaker 11

So yes, Jeff, you're actually right. It's the 2nd quarter financials, once we've actually published them or at least given them to the bank and done all the analysis from there. So our leverage ratio for The credit agreement has to be less than 2 to 1, which won't be a problem and utilization rate has to be less than 80%. So then it will come back to how do we as a company, where do we need that leverage ratio to be to feel comfortable doing it.

Speaker 9

Thank you.

Operator

The next question is a follow-up from Patrick Enright with Truist. Please go ahead.

Speaker 7

Hi there, guys. Thanks very much for taking my additional question here. Questions with respect to gas price realizations and I guess from the results being soft This quarter, was it really like a one offer? Is there something else to it? And I guess along with that, I'm Curious to know how you're mitigating any of your price realizations, any downside on it?

Speaker 7

Thanks.

Speaker 5

Yes. Well, we're subject to Waha pricing, right?

Speaker 11

Yes. I'll pass it to Permian. Yes.

Speaker 5

And so the issues that are affecting us are not unique. I think they're pretty well widespreadly shared by other operators that are producing into these same systems. And so, yes, I think Those things are going to take their natural course.

Speaker 7

Understood there. Great there.

Speaker 8

Thank you.

Operator

At this time, there are no more questions in the queue. This concludes our question and answer session. I would now like to turn the call back over to Chairman and CEO, Paul McKinney for any closing remarks.

Speaker 5

Thank you, operator. Well, hey, in closing, I'd like to inform our shareholders that we will be issuing Additional information soon concerning an amendment to our articles of incorporation to increase authorized shares. The second item listed in our proxy up for vote, May 25th, so that will be coming out soon. And finally, it is my hope that all of you on the call today and all of our Stockholders share our enthusiasm for what we believe 2023 can bring to Ring Energy and its stockholders. Thank you again for your interest in Ring and I hope you guys all enjoy

Operator

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

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Earnings Conference Call
Littelfuse Q1 2023
00:00 / 00:00
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