Ring Energy, Inc. (REI) Earnings Call Transcript & Summary

Thank you for joining us today for fireside chat with Paul McKinney, Ring Energy's Chairman and Cheif Executive officer. I'm, Jeff Robertson, Managing Director of Natural Resources at Water Tower Research. Before we begin, I would like to remind participants that our discussion today could include forward-looking statements as of today, April 1, 2025. Ring's disclosures regarding such forward-looking disclosures can be found under the Investor Relations tab of the company's corporate home page. We may reference slides from Ring's latest investor deck, which can also be found under the Investor Relations tab of the company's corporate homepage. With that housekeeping out of the way, Paul, I'd like to take a minute and thank you for taking the time to join us today.

Well, thank you, Jeff. Ring Energy, we really enjoy the opportunity to get our story out, and we look for opportunities like this. And we've learned and really appreciate your audience, the investors, and we appreciate their interest and your support.

Ring is an exploration and production company whose assets are concentrated in conventional plays in the Permian Basin. In February this year, the company agreed to acquire assets on the Central Basin Platform in Andrews County from Lime Rock Resources and a transaction valued at $100 million. That transaction closed yesterday. Total production in the fourth quarter of 2024 averaged approximately 19,700 BOE per day and year-end proved reserves at December 31, 2024, were approximately 134 million BOE.

Paul, let's start with the Lime Rock assets. And can you explain to us why those assets are a good fit for your existing Central Basin Platform position?

Yes. There are several reasons, Jeff, why these assets make a lot of sense for Ring and Ring shareholders. And let's just kind of go through this. First, the majority of the acreage position is immediately offsetting acreage that we currently operate in a very core part of our program there in the Shafter Lake area of Andrews County. We have a strong operating presence there that is very active. The proximity of these assets allows us to integrate our operations and realize operating cost savings that ultimately leads to higher margins and cash flow. The second reason is that the remaining undeveloped opportunities, the new well drilling opportunities compete very well in our portfolio and are in the very play that we have chosen years ago to specialize in the San Andrews horizontal oil play. The San Andrews horizontal oil play, the core play, the Ring. And like I said earlier, these opportunities have very strong economics that will earn spots in our future drilling program very soon. Other benefits to the acquisition of these assets is that it helps us continue our pursuit of gaining size and scale very profitably, increase our free cash flow generation, accelerates our ability to pay down debt and even in a lower price environment. And so then you can't -- last but not least, you can't escape the fact that this is a very, very good deal for our shareholders. The PV-10 of proved developed reserves exceeds the purchase price, which essentially means that the undeveloped drilling opportunities that we gained with this acquisition are essentially coming free.

You mentioned in the press release announcing the deal that the production decline on these assets is about 13%. Can you talk about how that compares to Ring's overall corporate decline?

Yes, it's more than just what it means to Ring's corporate decline because you got to look at it from a perspective that our average PDP production decline rate is one of the best in our peer group. Our decline rate as a corporation is about right at 22%. That's a mix of the older, more mature assets and the new assets that we bring on every year, which compares very favorably to our 10 peer group average of 33%, okay? So already, we are leading in shallow declines, and that is a very significant attribute that we look for in our acquisition. The 13% decline of these assets improves this very strong attribute that Ring has even further. And so we're excited about that. It reduces our capital intensity. It has just -- the lives of these wells tend to be longer in nature. We have probably -- fact, based on our analysis, we are the leader in long-life reserves. And so these assets fit in very well. Those decline rates just enhances what is already a very attractive attribute of Ring Energy.

I think you've spoken about the corporate decline on the conventional assets that Ring focuses on. And in the context of stressing the company's ability to generate free cash flow and strengthen the balance sheet, how do the new Lime Rock assets complement your ability to do that?

Primarily through the cost reduction synergies we achieved by adding these assets into our existing operations. Another way is through the highly economic nature of the remaining undeveloped opportunities, both of which lead to increased free cash flow generation, whether through operations by expanding and increasing your margins, but also from the standpoint of capital efficiency. If you're going to deploy capital, you want to have a rapid paydown of the capital -- and return of capital through the production of the new asset and enhance your ability to increase free cash flow. And of course, as you know, we're planning the majority of that free cash flow to pay down debt.

Paul, you talked about the inventory of about 30 incremental gross development locations and further the notion that you paid less than PV-10 for the PDP assets only. So those locations really didn't come with a cost to Ring. Can you elaborate a little bit more on how those opportunities fit within your existing inventory? And are there some new formations that might be tested on this acreage?

Yes, that's a good question. There's a lot -- I can spend a lot of time I can spend on that very issue. But the undeveloped opportunities compare very well and are essentially going to be as economic as well as we are and have been drilling in the Shafter Lake area. Shafter lake is a very core component of our San Andrews horizontal oil play. And so we're really excited about that. So the majority of the undeveloped opportunities could be characterized that way. Now with respect to the other opportunities in the southern portion of the acreage position, we are equally excited about that, especially in an environment where we have slightly higher oil prices than we're experiencing that. And so there are multiple zones down south that other operators have already demonstrated success in that are immediately offsetting the southern acreage. These plays are anywhere throughout the Devonian, the Barnett. And there are several other stacked pays down there that show a lot of promise that will be ultimately considered in the future.

You mentioned synergies being part of the way that these assets will enhance your free cash flow position and the proximity to your other Andrews County acreage. Do some of those synergies include infrastructure or surface opportunities to maybe integrate these acreage positions and also reduce costs. I think you all had some success on some of those opportunities with the Founders acquisition that you did.

Yes. Founders was a bit of a distance away from our existing acreage and operating positions, but we found a lot of opportunities to reduce costs there. The convenient thing about this and the real -- kind of an attribute that makes this acquisition even more attractive is that the acreage is essentially up in the northern part of Andrews County in the Shafter Lake area is immediately offsetting our existing footprint. I mean we literally share the same expense line on some of the leases. And so we are going to -- there are several ways to win. So they have a saltwater disposal system with 12 saltwater disposal wells that is underutilized. We have had our saltwater disposal system near the max capacity. And oftentimes, the water handling and disposal system limited how many wells we could drill because we didn't have the capacity to add any more production because we couldn't get rid of a water, okay? Well, now with the combination here, we can combine those saltwater disposal systems and have multiple ways to win. On ours, we have the capacity to put more water away. On for them, we believe that some of our methods and some of the things that we're doing, we believe that we can dispose off their water less expensive than they were. So there's multiple ways to win there just in the water handling system. Another way to win here is that because we already have field-level supervision already overseeing our lease operators and our lease operators are going up and down the same lease Roads. We've been able to combine the operations in such a way that we are actually going to reduce the number of field operators necessary to manage the same number of wells. And so you look at it from a -- that's an LOE expense of salary for lease operators. And so we are already looking at significant savings in personnel costs just to manage the assets just because of the close nature. The other thing, improvements to the operating costs by using best practices. And so what do I mean by that? When you look at the way Lime Rock was operating their assets and the way we were operating our assets, we've identified already some good ideas on both sides there. And so by combining best practices of both Lime Rock with Ring, the overall portfolio enjoys lower cost. So for example, one of the things that we're doing is that we're going to switch everybody over to the same chemical treating company that has demonstrated success in other areas of Ring. And we believe that through that, we're going to see reduced failure rates, improved operations and which ultimately lead to lower cost. And so all of these things combined really -- this is how the shareholders really win when you're buying assets right there and amongst where you're currently operating. These are the type of synergies that all are looking for. And this one lends itself very well to what we're doing on brand.

What you described, Paul, it sounds like you can have a beneficial impact on both costs, but also a beneficial impact on production by improving run times and things like that. Is that a fair way to think about it?

Yes. That is a fair way to look at it. And so technology has always been our friend. You can't go into -- if you're an operator in the oil and gas industry and you think that your way is the only way, you got to be open-minded to look at the ideas and the techniques and the ways of operations that others have learned to -- on their own, those are -- you need to take advantage of those kind of ideas and being an open-minded when you come in and you look at their operations, you say, hey, that's a really good idea. I'm going to implement that on ours as well. And then you can say, well, hey, we do something different over here. So we know that, that will apply very well to their assets as well. So there's a lot of ways to win. You got to be open-minded. You got to embrace emerging changing technologies. And I know we weren't really scheduled to kind of talk about this, but one of the things I'm really excited about is artificial intelligence and the ability to complement an operating company, even a smaller like us in terms of reducing operating costs. And so that's something we'll be talking about sometime in the future.

That might be a topic for a fireside chat on its own.

On its own, that's right.

This transaction -- the consideration for this deal included a mix of upfront cash, common equity and a deferred payment, which is due 9 months after closing, so roughly at year-end. Can you share your thoughts on how the structure impacts your key balance sheet metrics and your overall free cash flow capacity?

Yes. Yes, this is something that we had to do out of necessity, but at the same time, it's also demonstrated to me anyway. Every acquisition is unique. Every transaction is unique from the standpoint that even though we are the buyer on one side, the sellers are different. And every seller has their own needs, right? And so structuring the deal is always a very, very important thing. If you want to get a deal across the threshold, you've got to provide a win-win situation for both sides. So the original agreed purchase price was $100 million, and we agreed that $80 million in cash and $10 million in equity would be the transact at closings. So that occurred yesterday with another $10 million deferred payment in 9 months. Well, we end up paying -- if you go back to our press release this morning, we paid an additional $63.6 million at closing when you consider the $5 million deposit we put down when we signed the purchase agreement. So that's a total of $68.6 million in cash at closing. If you look at the number of shares that transacted and if you use yesterday's closing price, we included another $7.4 million in Ring common shares. And with the remaining $10 million to be paid, that brings everything to our total cost to the shareholder after all of these post-effective term adjustments, essentially $86 million. And so yes, we're very excited about that. The deal was structured in a the way that we although it won't be exactly leverage ratio neutral, our leverage ratio will go up a bit, partly because of the lower prices that we've been experiencing. But it had a big impact on the balance sheet. It allowed us to get it done under the existing credit facility. And like the Founders deal, we have a line of sight to a very short pay down of the debt that we incur. And by structuring the way we did, we minimize the amount of cash out of pocket at closing, which is really the most important point for us in the transaction because we have the covenants and the various different ratios associated with the credit facility we need to abide by. So overall, it was a great deal. It actually turned a little bit better than I thought it was going to when we first did the transaction, I didn't think that the properties were free cash flow as much as they were. If you remember, we had an October 1 effective date. And so the free cash flow from October 1, 2024, all the way to closing helped reduce the cash out of pocket on this transaction.

And can you just remind us, Paul, how that cash -- how that essentially adjusted purchase price compares to the PV-10 of the proved developed assets that I think you all referenced in the acquisition announcement of February strip. I don't know if you have anything more recent than that.

Yes. So we -- in our initial release and then even this morning, we referenced the proved developed PV-10 value of $120 million at a mid- to late February strip price. If you use like Friday's strip price, that $120 million is still -- even though the price is lower, it's still about $116 million in PV-10. So it's still a great deal versus what we end up paying for these assets. And the EBITDA that it spins off is still significant, and it accelerates -- even at a lower price environment, it still accelerates our ability to pay down debt and increases our free cash flow.

Will these assets be included in the next redetermination on the RBL?

Yes, they will. And so I'm not going to get out of my skis and kind of make any kind of predictions in that regard. We are in a lower price environment, which is really challenging to others. It's always challenging to us too. And we'd also -- we all would prefer to have higher oil prices. I'd like to see $75 to $80. But they're going to favor very well. Now will we get a borrowing base increase? I don't know. I'm not going to predict anything like that. But the bottom line is it does definitely strengthen the balance sheet, provides more collateral for the banks to -- when they consider what they're really worth. As you know, we have a long history of trying to increase our liquidity as a company. And so we've done a very good job. When I came on board, I think we had like $20 million of liquidity after that very first borrowing base redetermination maybe $40 million. But we've continued to grow that over time. And that's really important because that liquidity provides the opportunities for you to do things like what we're doing here with Lime Rock. This is a bite-sized acquisition that was just the right size, allows me to do it on the balance sheet. An so we're pretty [indiscernible].

Including the Lime Rock acquisition, Ring has acquired assets valued at more than $900 million since -- in 4 major transactions since 2019. Paul, we've talked about the concept of scaling both the asset base and the balance sheet through transformative acquisitions. You touched on it a minute ago, but can you touch on how the Lime Rock assets really further those goals? And as you get bigger, does that have an impact on your appetite for risk either as you look at allocating capital?

Yes. That's another series of points that we could spend the rest of this time period on. So let's just look at it from a standpoint, we're adding, what, 2,300 barrels of oil equivalent per day. So if you compare that to our average from the prior year, it's approximately 12%, a little less than 12% increase in production. That's not a transformational deal, but it is one step closer to getting to the size and scale that we hope to achieve. I mean, it's not strange to anybody. I think, anybody that understands the oil and gas industry, the larger the entity, the better the trading metrics. And so the larger the entity, the more relevant you are to the marketplace, you are qualified to be an investment vehicle for a broader cross-section of the investment community. So what do I mean by that? There are hedge funds out there that set their rules or the limits on the type of investments they're willing to invest in and Ring falls below the radar on some of those hedge funds or some of those investment assets. And so we want to grow to the size that we qualify to everybody as an investment vehicle. And the larger the company, the better the trading metrics. And I believe shareholders of Ring Energy deserve those trading metrics. And so we're going to try to achieve that. We're going to do it in a profitable way. Although this is a bite-sized acquisition that we could do on the balance sheet. It just takes us one step closer. We're getting very closer to the size necessary to qualify for alternative ways of financing deals. And so those -- as you get larger, the momentum of the company allows you to use different ways of financing and bringing these type of deals in. It provides a momentum so that you can stand a little bit more risk kind of the point that you made. You can stand a little bit more risk to try new ideas because you've got those ideas are and the cost and the risk associated with those are small relative to the portfolio and your capital program. And so it's just gaining size and scale profitably and economically leads to better trading metrics, better momentum for the company, the ability to withstand more risk in changing volatile oil price environment, manage those risks, but also manage the risk associated with buying new ideas that leads to organic growth, which obviously is always -- almost always the most profitable we have a good team that understand how do we manage risk.

So most of the capital last year, you had an organic program to offset natural declines and add production. If you think about Ring today, is -- are acquisitions just a vehicle to increase scale faster than what you could do if Ring focused only on organic growth?

Yes, that's a complicated question, but the answer is yes for now. And that's because of the status of the company. In my opinion, our leverage ratio is still too high. Our absolute debt levels are too high. I want to get our debt levels low. And so in order to achieve the fastest route to debt pay down, you have to have a relatively low risk capital investment program that has high rates of return and spins off a considerable amount of free cash flow after the cost of the investment is paid out. And so the key there, low risk, high rate of return, high free cash flow generating portfolio of investment opportunities. Well, by nature, organic opportunities, especially where we are, we're trying new ideas. We have a lot of stack pays. We've got a lot of opportunities out there. But when you're trying new ideas, they tend to be a little more risky. And so you got to compare the risk that you incur versus the potential price. So if you're going to try an idea that could lead to another 100 plugs being added to the books. Well, that's something that's worth trying. Well, if you have another idea that's only going to lead to a few, well, now you'll put that off until you're larger in size and you can -- and the environment is right or high oil pricing. Generally speaking, though, organic growth leads to higher returns, but M&A growing through acquisitions, accretive balance sheet enhancement acquisitions brings immediate impact to the balance sheet in terms of free cash flow. And so there, the key is you got to buy them right, you overpay, you're not really doing your shareholders any good. So -- but if you have something that you can pay down rapidly, and put the balance sheet right back in the same position it was relatively in 4 or 5 quarters or whatever, those tend to be really, really attractive, just like what happens with the Founders acquisition. So both ways of growth are great ways to go forward. Last year was our first year, and as you and I talked before, Jeff, we did not make an acquisition in 2024. Yet we grew our reserves despite the fact that we had to replace our production and we placed the reserves that we sold through dispositions, but we also had to replace the reserves that were lost due to lower prices for SEC. So we grew our reserves by 3%, our improved developed reserves by 5%, and we did all that organically. And this component of our future growth all of that was done out of our free cash flow. So all the acreage that we bought and the wells that we drill, we did all that out of free cash flow, and certainly we were able to grow. So when you add acquisitions plus organic growth, you have more than one way to win. Both of them have their attributes that are very attractive to the shareholders. And so you're going to see that we're going to continue to pursue those.

You mentioned valuation, and I want to draw people's attention to Slide 17 on the latest investor deck where you walked through some of the attributes of APA conventional asset transaction that took that was Central Basin Platform and Northwest Shelf assets. Can you talk about valuation in the context of where Ring is, what you see in the acquisition market and also how that compares to organic growth?

Yes. So last summer, we were very active pursuing acquisitions. And I've been saying this for a long time, Jeff. You've known me for a while. The entire industry in the Permian Basin have been largely focused on the Delaware Basin and the Midland Basin, the unconventional shale development projects out there. And as we've all witnessed, the larger companies have been gobbling up that acreage. It's a manufacturing process with years and years and years of development and reserve and production growth. And so that's where the focus has been. We've been focused on the Central Basin Platform because we've taken the same technologies developed for those 2 shales, and we've applied them to what was previously overlooked conventional zones, and we've demonstrated we can be very, very profitable. And so we're going to continue with that focus. We believe that last summer, when we tried to acquire some of the assets that we thought would be a great addition to our portfolio. We found that we were not able to or not willing to bid to the levels necessary to be successful. And so I'd like to think that the valuations that occurred last summer, and we featured that on Page 17 in our presentation because the point that we're making there is that the industry has already demonstrated the value of these assets by virtue of the fact that they're willing to pay that much for the assets. And so if you just took the one transaction we highlighted there, the Apache transaction, it sold for $950 million. If you take the same trading metrics on a dollar per barrel basis and you apply that to us, well, our stock price should be valued considerably higher. So the marketplace hasn't caught up with what the industry has already identified in value. And that's the whole purpose of that slide is to demonstrate, in my opinion, what this company is really worth. And as time goes on, as oil becomes more and more scarce, this area is going to continue to get more insights, more interest. I believe, though, that I'd like to think anyway that the valuations that were paid last summer are a high watermark, so to speak. But that was also the wake-up call that focused us on organic growth as well because if prices continue to get -- people are going to continue to pay those types of prices, we have to have more runway to win. And so that's also the reason for the turn towards organic growth along with M&A.

You talked about M&A, and there's obviously been a tremendous amount of consolidation and focus over the past decade of unconventional resource development in the Permian Basin. Do you still think that the Central Basin Platform is a target-rich environment for consolidation?

I do. And I haven't been shy about sharing this. I would like to be -- I'd like for Ring to be the consolidation leader of the Central Basin Platform in the southern part of the shelf. We know these areas very, very well. I am convinced that many of the stacked pay that still are currently not being pursued, they demonstrate real promise. And as time goes on, as we improve our balance sheet and lower our leverage ratio and are able to withstand more risks, especially in an environment if the oil prices are in that $75 to $85 range, I think is where it should be. We will have a lot to do there. And so I'm not saying that we will never go anywhere else, but there are so many opportunities in the Central Basin Platform and Southern Shelf for growth for us. If you go back and look at history, when I came on board, we were -- I can't remember what the number. We were like 18 or 20, 22 second largest operator in the Central Basin Platform. Well, with this Lime Rock transaction now, we're the fourth largest operator out there. And we believe it's a great place to play. It has a lot of opportunities that it doesn't appear that other operators are pursuing. And we've demonstrated that we can generate very handsome and superior economics pursuing these [indiscernible].

Well, we've talked about risk appetite, we've talked about development. I think the latest current presentation highlights more than 430 gross development locations on Ring's existing asset base. In this -- in the thought process around other zones and stacked pays and technology, do you think there is the potential on the existing asset base to increase the opportunity set that you control for future organic growth? And if that's the case, what are you all doing to try to capture that within the risk parameters that you outlined?

Yes. First of all, yes, I do believe that there is quite a bit additional opportunity in more ways than one. Some of the opportunities are actually in the very zones that we have already been developing. We're looking at ways to develop them utilizing newer or different technologies. Some of the areas we've been drilling really, really inexpensive vertical wells where we've been applying the completion technology developed for shales, the pro fracking plug, so you per frac and plug all your way out of the vertical well and then you drill it all out and you bring it all on. And with today's fracking technologies, the recovery efficiencies are superior to the way they used to be back when they were doing one zone at a time, and we're accelerating all those zones all at once. And so it's very, very profitable. But at the same time, other operators have demonstrated that they're laying horizontals in some of these stacked pay zones. And although early on, they didn't appear to be economic technology, as we talked about, is the old patches friend, and they've continued to march down that technology ladder, if you want to call, they've climb the technology ladder and they've been recently demonstrating very highly economic wells. Some of these are in the zones that we're completing vertically, and we are applying those same type of technology. We drilled a couple of wells last year. We'll be drilling a few more this year. We have a completion this quarter that we're doing. We've got our sight set on that. The difference, though, that really prevents us from really taking off the starting blocks running is, again, my desire to keep maximize free cash flow generation from every dollar I spent on looking to reduce risk. Anytime you try new ideas, you incur a little more risk. And so as time goes on and as our balance sheet improves, you can see that we're going to be spending a lot more money allocate, a lot more money towards some of these projects, these technologies, testing new zones that can add new reserves on our existing acreage. And so yes, it's a very target-rich environment is one way to describe it. And it has varying risks, and we're going to be very careful about that. But again, our focus is maximizing free cash flow generation. But we still need to test these ideas and continue to grow, especially in the areas where other people have already derisked those technologies. And so yes, we're very excited about that opportunity on our existing acreage. And at the same time, we've also been mapping these zones and opportunities, ones that we've been very successful in across the Central Basin Platform Southern on the shelf. We're identifying those operators that are not pursuing these technologies. We're not making these type of investments. And so we're trying to negotiate our way to acquire more before the whole industry catches on and then the Central Basin Platform becomes as popular as the Delaware and Midland. I believe that eventually is coming. I think last summer was the first sign of that larger companies coming in with a the wherewithal to take out the entire Apache package. They also took out the entire ExxonMobil package. And so yes, this is an area that's very interesting. And at one point, I thought it was only us, it's apparent now that it's not just us. So the competition is getting a little bit stiffer, but we have the added advantage of -- we've been operating out there for a long time. We know this area. It's home for us. And so we'll compete. We'll get our elbows up we'll be competing in really hard for hard to [indiscernible].

I guess as the shale areas in the Midland and Delaware Basin have become more held in more concentrated hands, it's caused other companies to start looking for opportunities in your backyard.

That's exactly right for 2 reasons. Number one, most of the acreage is getting sucked up and the map that we show in our presentation kind of shows that. All that red area is held by larger public companies. But the other thing is everybody is looking to grow, right? And so the entry cost in the Midland and Delaware Basin is just high. And so that was part of the rationale as to why we focus and why the previous management team focused on the Central Basin Platform because of low entry costs.

The midpoint of your pro forma production guidance for 2025, which includes the Lime Rock assets for 3 quarters is about 21,000 BOE per day including 13,900 BOE a day of oil, which I think works out to 66% to 68% oil. Total production for all of last year 2024 averaged 19,600 BOE a day. Paul, can you talk about your -- you mentioned it earlier, your goal of getting to a 1x leverage ratio. Can you talk about the path forward toward that? And maybe I know you all show some illustrative graphs in your deck around what that could be at different oil prices. But can you just talk a little bit about that for us?

Yes, I can. And so the slide you're referring to is on Page 8 on our most recent presentation that we have on our website. But you got to remember, when I talk about what things can look like in the future, you've got to make assumptions associated with things that you don't know will or will not happen, right? As you know, we are continuing to look for ways to grow, gain size and scale through accretive and balance sheet-enhancing acquisitions. We also are picking up acreage in areas that we are very excited about. And so -- but when we make predictions and we include them in our presentation materials, we make the assumption that everything is static. And so -- and then we -- in the presentation we show on Page 8, we show what this company will look like in the future in terms of, like you asked, our leverage ratio and a few other things. And so how quickly can you get there? So we've used $65, $70 and $75 assumptions to kind of make some predictions. And so in a $65 environment and we keep our capital spending the same, we're not going to make a lot of progress. We'll make marginal progress reducing our leverage ratio. You got to remember the equation for a leverage ratio is associated with your debt divided by the trailing 12 months of EBITDA, right? Well, lower prices reduces the denominator, which makes it hard to reduce the overall number. And so under a $65 price environment, we don't make a whole lot of headroom. If we were to stay in a $65 environment based on those assumptions, we probably would cut back on our capital. So we probably would achieve a lower ratio that was shown there. We show approximately 1.6x. But at $70, we will -- by the end of 2026, we would be at about 1.4-ish. We also kept capital spending at the same levels that were assumed in those forecast. Yet if we were fortunate to have a $75 environment, we're going to be right at or just slightly above 1x. Again, assuming spend the same amount of capital and everything turns out as our forecasts are shown. That's not good enough for me. I believe our shareholders would like to see us reduce our leverage ratio even further. We'll see how things go. There's so many different things that can affect those forecasts, such as future acquisitions, future organic growth. the variance in terms of the success. Last year's drilling program in the Founders area really surprised us in terms of how economic those wells would be in multiple ways. Number one, we drilled them for considerably less than what they were being drilled for before and what we based our original economics are. So we're very fortunate that we were able to capture those type of cost synergies. But at the same time, the performance of the wells exceeded the type curves. And so we got -- we won on both ends of that equation there. So we were very surprised. So if our capital program enjoys that kind of success, well, you could see that we will reach lower leverage ratios a lot quickly -- a lot more quickly. But on the flip side, if it is not as successful, we wouldn't. Now if you look at our track record, since we've been here, every capital spending program has either met or exceeded on our original expectations when we launched that capital spending program. I'm very proud of my operating team. Not only does my drilling team continue to make headway in terms of reducing the time from spud to TD and spud to data first production, reducing the capital cost, the operating team and the completions team have continued to make headway improving the effectiveness of our completions, reducing our operating costs. They continue to find ways to reduce the operating cost, increase margins. And so if we continue the path that I believe that we are, the forecast that I have there on Page 8, depending on what price assumption you want to do, I believe we will meet them and we have a good chance of actually beating those projections.

On capital budget, how quickly can Ring adjust its operating plan to adapt to either a lower or a higher commodity price environment?

Yes. We intentionally retain the flexibility in the way we structure our drilling contracts and relationship with our oilfield company partners. Right now, we basically are at a 1 rig and 1 well notice period. So if we wanted to cut back our drilling program, we could shut it down in a short period of time. When you shut a program down though, you don't save the full cost of those wells because there's lead time on everything. So you got to build locations out before you can get the drilling rig there. And so when you put a budget program together, it's more cost effective to implement that plan as you originally planned because the drillers and the field operating folks, gathering lines, the facilities folks, everybody starts ordering equipment and getting things in line so that everything comes together with the drilling program and the wells are brought online, everything comes together. So there's a lot of lead times for that. So for me to turn it on a dime, I have the ability -- we have the ability to do that, but you don't capture the full cost savings by not -- if the well cost you $2.5 million, you won't save a full million, $2.5 million, we already spent money preordering pipe, preordering tanks or facilities, building locations, these type of things. And if you leave a location out there and you don't get to drilling it for a while, then you have to go back and touch it up a little bit, so you spend a little bit more money there. So from a cost-effective standpoint, we want to stay on your drilling program, but we do have the ability to make changes. And going back to what I said a little earlier, $65 at that point, you look at our free cash flow and our ability to pay down debt, when you fall below $65 for us in our environment and the size and scale that we are, it makes me want to cut back capital in preference of paying down debt. We're not going to just go quarter-over-quarter of not paying down debt. We have obligations, expectations that we set with the Board. And it just goes back to our basic operating philosophy. I just don't think a highly leveraged company. I can do well in an oilfield commodity price environment with the volatility we're experiencing. And so debt is never an oil company brand. And so you need to achieve to continue to improve the balance sheet.

I think that bit of history has been playing out in the oil and gas industry for decades.

That's right.

Paul, since tomorrow is apparently liberation Day, I wanted to ask you what, if any, impact you're seeing from any tariffs from the administration? And also further to that, are you seeing any regulatory or permitting issues that have any impact on Rings business? I know you all probably deal with the state of Texas a lot more than you do with anything federal related.

Yes, that's true. But the federal, the EPA does have jurisdiction on the air quality. And so yes, we've already seen the new administration in Washington, D.C. make positive steps towards reducing that regulatory environment and the taxes associated with methane emissions and other things. And we believe that the administration in Washington, D.C. really understands business and the impact of regulation. So with their stated policy, that we're going to reduce 10 regulations for every new one we add on, that only bodes well for the oil and gas industry. We saw now the deemphasis on climate-related disclosures for publicly traded companies. That's another relief because with each of these types of requirements, there's additional costs. You got to have people to accumulate the certificate and the information, and it doesn't add value to the shareholder, in my opinion and also in the opinion of the administration in Washington. So we believe that we are now in a business-friendly environment, which is great. That will help us improve our margins going forward,reduce the costs associated with delivering the product that this world desperately needs. So we'll see about that. Now with respect to tariffs, a lot of the metal that we put in the hold in terms of our casing, pipe, the tariffs can have an impact on that pipe. So cost for pipe probably will go up. And pipe is a significant and other metal products are a significant portion of their costs. However, it's not -- when you look at the order of magnitude, and the breakeven cost of our investments. For us, yes, it raised the breakeven cost slightly, but the price of oil is still considerably low breakeven cost. And so I'm not saying it's not something we consider. We are looking at that and considering that and trying to figure out strategies associated with minimizing the impact of those tariffs. But in the scheme of things, it's not going to have that big of an impact. It's not going to -- that won't be a decision maker as to whether we drill or not drill.

I'd like to close out our discussion today. And just on the heels of the latest accretive acquisition in the Permian Basin. Can you summarize for us where you think rigs strategy and asset base position the company to build lasting value now?

Yes. Now. I know that I get a little bit of crisp because I sound like a broken record sometimes. We thought very carefully when we came on board about how do you develop a strategy that is a winning strategy in both high oil prices and low oil prices, good times and bad times in the oil and gas industry. And our strategy was built around the fact that when we came on board, you got to leverage ratio was around 4x. Today, it's considerably less than that, less than half of that. And so we've done a good job in terms of improving the balance sheet. We've done that through a strategy of concentrating the cash from operations to 2 things. The first thing, we want to invest just enough to maintain or slightly grow our oil production and take the rest of that cash flow and use that to pay down debt and improve the balance sheet. We have a very successful track record of doing. Then growth historically has come through from accretive balance sheet enhancing acquisitions. So Stronghold acquisition was the first one we did in 2022. The Founders acquisition was the next one we did in 2023. We just closed on the Lime Rock acquisition yesterday. So that's our third one with this management team. And so we've demonstrated that we can grow very profitably in a very accretive manner to our shareholders. We're going to use equity, if we're going to use debt, we've been able to meet the objectives of an accretive acquisition and also one that enhances the balance sheet. It may not be exactly balance sheet enhances at the day of the transaction. But in a short period of time, it is balance sheet enhancing by accelerating our ability to pay down debt. And we proved that with the founders and the Stronghold acquisition, and we're going to do the same thing here. And so that is a -- it's not a [indiscernible] get rich quick Steve. It is no against the grindstone, working day and night having the discipline when you do make that acquisition, we've got to buy it right, you got to structure it right. So both sides can win. But you got to remember, my fiduciary responsibility to the Ring shareholder. And so I never lose sight of that. So our value-focused, proven strategy has been used by others before me. That's nothing sexy. It's really a hard work, keeping those in the grindstone method of creating value. I recognize and it's very frustrating for me that right now in the marketplace, our stock performance hasn't measured up with our operating and financial performance. And I believe there are extenuating circumstances in that regard that I hope will go away soon and that we will go back to the way we were trading back in all of 2021 and the first half of 2022, where Ring was at the top of the quartile in terms of our trading performance on Market Street -- on Wall Street, that will be more commensurate with the financial and operating performance. We've delivered consistently now for 4.5 years. And so yes, our strategy is a winning one. It's nothing sexy. It's been proven by others well before I ever came to the oil and gas industry. These are the -- going back to just the fundamentals of how you make money in the oil and gas business.

Well, Paul, I think we'll leave it there for today. I really appreciate you taking the time to join us.

I appreciate you, Jeff, and I thank you and all of your audience and your investors that have an interest in Ring.

Thank you.

Thank you.