Ring Energy has completed its previously announced acquisition of the assets of privately-held Stronghold Energy II Operating, LLC and Stronghold Energy II Royalties, LP. Stronghold’s operations are located primarily in Crane County, Texas and focused on the development of approximately 37,000 net acres in the Permian Basin’s Central Basin Platform (“CBP”).

KEY HIGHLIGHTS

• Immediately accretive to key metrics and significantly increases Adjusted EBITDA(1) and free cash flow (“FCF”)(1) generation, as well as lowers per barrel operating and general and administrative costs;
• Strengthens the balance sheet and accelerates the Company’s ability to pay down debt
  • Improves expected 2022 year-end leverage ratio(2) to below 1.5 times versus the previous target of below 2.0 times;
• Acquired high-quality, conventional, Proved Developed Producing (“PDP”) asset base with high-margin and low decline rates in the most active county in the CBP;
• Enhances size and scale through material growth in proved reserves, sales volumes, operating footprint and premium, high rate of return inventory; and
• Better positions Ring for future potential transactions or other stockholder return-of-capital opportunities, while continuing the Company’s commitment to ESG and sustainability.

Mr. Paul D. McKinney, Chairman of the Board and Chief Executive Officer, commented,
“We are pleased to inform our stockholders that we closed our previously announced acquisition of Stronghold’s Permian Basin assets on August 31, 2022. This Transaction truly complements our conventional-focused Central Basin Platform and Northwest Shelf asset positions in the Permian Basin. The combination further diversifies our commodity mix, significantly enhances our size and scale, lowers our per barrel operating costs, provides for meaningful synergies and increased operations optionality on multiple fronts, and most important, is immediately accretive across key operational and financial metrics for Ring’s stockholders.

“With the completion of the Transaction, we have materially increased our inventory of high rate-of-return drilling and recompletion projects. As we leverage our extensive expertise in applying the latest unconventional and conventional technologies to optimally develop our deep inventory of investment opportunities, we fully expect to improve our capital deployment efficiency across our expanded footprint. The combination of lower per barrel operating costs and a substantially expanded inventory of high-margin, capital efficient development opportunities is expected to increase free cash flow, accelerate the rate at which we pay down debt, and improve our leverage metrics. This places us in a much stronger position to expand through additional acquisitions or enhance stockholder returns through potential return of capital opportunities in the future.”

TRANSACTION CONSIDERATION

After taking into account closing adjustments for interim cash flow based on an effective date of June 1, 2022 and other customary items, consideration for the Transaction consisted of:

• Approximately $167.9 million in cash;
• $15.0 million of a deferred cash payment on or about February 28, 2023;
• $20.0 million for the assumption of a Stronghold hedge liability; and
• The issuance of approximately 21.3 million shares of common stock and 153,176 shares of Convertible Preferred Stock, convertible into approximately 42.5 million shares of common stock upon a stockholder vote.

The cash portion of the consideration was funded primarily from borrowings under a new fully committed revolving credit facility (the “Credit Facility”) underwritten by Truist Securities, Citizens Bank, N.A., KeyBanc Capital Markets and Mizuho Securities. The borrowing base of the $1.0 billion Credit Facility was increased from $350.0 million to $600.0 million at the closing of the Transaction.

OWNERSHIP & GOVERNANCE

Stronghold is majority owned by Warburg Pincus, LLC, a leading growth investor (“Warburg Pincus”). Collectively, Stronghold’s owners now are Ring’s largest stockholder. Ring’s Board of Directors has been expanded from seven to nine directors, including two members proposed by Stronghold.

OUTLOOK AND GUIDANCE

During the next several weeks, the Company plans to complete its development and operational plans for the combined entity and intends to provide updated guidance for the remainder of 2022, as well as an initial outlook for full year 2023.

KeyFacts Energy Industry Directory: Ring Energy