Ring Energy Inc. in an operations update ahead of its fourth quarter report said recent well performance in the Permian Basin continues to fuel optimism about future results, but the company’s chief said he remains frustrated by the market response.

The Midland, TX-based independent today concentrates its efforts in the Central Basin Platform (CBP) and the Northwest Shelf (NWS). Net estimated production in 4Q2019 is 1.05 million boe, or an average 11,405 boe/d, which is a 68.4% year/year increase and 3.4% higher sequentially. December 2019 average production was 11,270 boe, up 58.7% from a year earlier.

“2019 has been a year of tremendous growth, and at the same time, one of frustration,” CEO Kelly Hoffman said Thursday. When the acquisition of NWS assets last year from Wishbone Energy Partners LLC was completed, Ring “essentially doubled production” and proved reserves with the addition of more than 38,000 net acres and 360 drilling locations.

“The frustrations are related to the reaction of the public markets,” Hoffman said. The company’s “attitude toward debt” has not changed, and it is marketing its Permian Delaware sub-basin assets to reduce debt obligations.

“Because of the way we managed our balance sheet we were able to execute an acquisition that positions the company for years of growth and prosperity,” Hoffman said. A “conservative drilling schedule” allowed Ring to maintain and even slow production growth in the final period, and based on preliminary results, “it has allowed us to accomplish our primary goal of cash-flow neutrality by year-end.”

Ring plans to continue to operate within generated cash flow, and once it moves from neutral to cash-flow positive, the plan is to use the excess funds to reduce debt, said the CEO.

“With a conservative approach in the first quarter of 2020, we expect...production to be relatively flat compared to the fourth quarter estimated 2019 production...We will continue our focus of operating within budget, improving efficiencies wherever possible, reducing our long-term debt while continuing to provide yearly production growth.”

During the fourth quarter four one-mile horizontal (HZ) San Andres wells were drilled in the NWS with three completed. It also completed testing and filed initial production (IP) reports on five additional HZ wells, two in the CBP and two in the NWS.

Average IPs during the quarter for all eight wells was 504 boe/d, or 104 boe/1,000 feet on an average lateral of 4,990 feet, management said. The company also performed 20 conversions from electrical submersible pumps (ESP) to rod pumps for 10 NWS, eight CBP and two Delaware sub-basin wells on time and within budget.

“The evidence continues to grow that the horizontal San Andres play on the NWS is a superior play with its low drilling costs, high IP rates and lower decline rates when compared to other San Andres plays,” COO Danny Wilson said. “The average IP of the 14 NWS horizontal wells we drilled, completed and reported in 2019 was over 550 boe/d.

“Although early in the production cycle, the three NWS wells drilled, completed and IP’d in the fourth quarter have exceeded that average. The fourth well drilled in the fourth quarter has only been on test for a few weeks but appears to be on par with the other three.”
In the final three months of 2019 Ring also participated in the drilling of three nonoperated HZ wells in the San Andres play within the NWS.

Ring also continues to “aggressively pursue our ESP-to-rod conversion program,” Wilson said. “We performed 20 rod conversions in the quarter and are already starting to see significant savings in our well pulling costs with the average cost to pull a rod pump being approximately 20% of the cost to pull a well with an ESP.”

Ring received on average $54.90/bbl for oil and $1.85/Mcf for natural gas in 4Q2019, resulting in an overall average of $49.50/boe, up 1.1% sequentially. The December 2019 price differential from West Texas Intermediate pricing was less than $2.00.