REI - AMEX

Good morning, and welcome to the Ring Energy Second Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I will now turn the call over to Al Petrie, Investor Relations for Ring Energy.

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 second quarter of 2025 as well as our updated outlook. We'll then turn the call over to Travis Thomas, Ring Energy's Executive VP and CFO, who will review our financial results. Paul will then return with some closing comments before we open the call for questions. Also joining us on the call today and available for the Q&A session are Alex Dyes, Executive VP and Chief Operations Officer; James Parr, Executive VP and Chief Exploration Officer; and Shawn Young, Senior VP of Operations. You are welcome to reenter the queue later with additional questions. I would also note that we have posted an updated 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. 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. Finally, 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 statements. These and other risks are described in yesterday's press release and our filings with the SEC. These documents can be found in the Investors section of our website located at www.ringenergy.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. 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.

Thanks, Al, and thank you, everyone, for joining us today and for your continued interest in Ring Energy. We enjoyed another strong quarter, a quarter where we not only set new records for oil and BOE sales, but we also set a record for adjusted free cash flow despite considerably lower oil prices. Our operational performance during the second quarter of 2025 was largely due to the continuing success we enjoyed in the first quarter, namely that our PDP production base, the new wells drilled so far this year and the newly acquired Lime Rock assets continue to perform at the higher end of our forecast. Also contributing to our success was the progress our operating team made by reducing operating costs. There are several highlights to point out in this regard. First was the quick and efficient integration of the Lime Rock assets into our operations, where we not only reduced the LOE cost of the acquired assets, but realized cost savings with our existing assets in the Sater Lake operating area as well. These cost reductions were due to the reduction of field -- of the required field staff by approximately 50% due to the proximity of our existing assets and the ability of Ring's field management to reorganize operational responsibilities, resulting in the combined operations being more efficient. We have been able to arrest the decline rates by reducing the downtime associated with well failures with more responsive repairs and getting the wells back online sooner. We are also able to incorporate existing vendor services such as [roundabout] crews, workover rigs, haul trucks, et cetera, that resulted in more efficient use and reduced expenses for these services in our combined operations. Other highlights are related to LOE reductions across other areas of our operating base. Our operations team continues to drive costs out of our operations where we realized about $400,000 in savings per month during the second quarter. We have significantly reduced the number of routes spout gains and expenses around supplies and materials due to more efficient management from our field construction group. We are continuing to see reductions in field staffing-related costs from optimizing field responsibilities and lease operator routes. Our production performance, cost savings and the acquisition of Lime Rock assets had an important impact on our performance in the second quarter, and the benefits to our stockholders are depicted on Slide 10 in our corporate presentation posted this morning. Our production per share increased 13% over the prior quarter because of the Lime Rock acquisition and the strong performance and improved metrics reported this quarter. Our all-in cash operating costs dropped almost $3 per BOE or 12% due to our cost savings initiatives. Finally, and because of our strong performance this quarter, our adjusted free cash flow on a dollar per BOE basis is up over 250%, but we are not stopping there. We believe we have additional gains to make reducing our operating costs. One change we are making worth pointing out is that we are currently expanding the scope of operations of one of the chemical vendors used in the South into our Northern assets. We expect this important change to drive future incremental savings already seen in our Southern operations by reducing direct chemical treating costs by eliminating hot oil treatments by lowering well failure frequencies and reducing associated workover costs. This transition should be completed in the third quarter of this year. So let's review some of the specific results of the second quarter. We sold 14,511 barrels of oil per day, which was near the high end of guidance and 21,295 barrels of oil equivalent per day, which was just below the midpoint of guidance. When combining our record- setting quarterly production with below the low end of guidance lease operating expenses of $10.45 per BOE and a 48% reduction in capital spending over the prior quarter, we achieved record free cash flow of $24.8 million, marking the 23rd consecutive quarter of generating free cash flow. With respect to our drilling and completion activities during the quarter, we drilled, completed and placed on production 2 wells in the Central Basin Platform. This included 1-mile horizontal well in Andrews County and 1 vertical well in Crane County, both with a working interest of 100%. Like the wells drilled and completed in the first quarter of 2025, both wells are meeting or exceeding our pre-drill expectations associated with initial production results. Regarding our financial success for the second quarter, it was largely due to our quick response to the drop in oil prices experienced early in the quarter and the operational outperformance we've just described. I will now turn this call over to Travis to share the highlights and details of our second quarter financial position. Travis?

Thanks, Paul, and good morning, everyone. We began the quarter energized by the integration of the new assets into the Ring family. But on day 2, the tariff turmoil instilled uncertainty into the market, driving prices down by 17% over the next week. We quickly adapted to a lower price environment, and we were able to finish the quarter with record production, LOE below the guidance range, reduced sequential G&A and a pullback in capital spending. The combination of these resulted in adjusted free cash flow of $24.8 million, a new record high, enabling us to pay down $12 million in debt. As I say every time, balance sheet improvement has been and will remain a top priority for the company. Another highlight is that we entered into the amended and restated credit agreement with a $585 million borrowing base in June. It was a challenging time with prices ranging between $57 to almost $73, but in the end, we are encouraged by the improved terms of the facility. One of the most impactful was a 25 basis point reduction in the pricing grid leading to interest expense savings on day 1. For context, that is $250,000 in annual savings on each $100 million outstanding. This amended facility provides Ring with a 34-month extension of the facility's tenure expiring in June of 2029. We are excited to welcome Bank of America as our new administrative agent and to add Citibank to the banking syndicate. Of course, we are grateful to all of our banks for the ongoing support, and we believe our strong partnerships will be a catalyst for future growth. Turning now to the metrics for the quarter. It is evident that our team is executing on the operational plan. Starting with sales volumes. We sold a record 14,511 barrels of oil per day, exceeding the midpoint of our guidance and a record 21,295 BOE per day, slightly below the midpoint. As for the second quarter 2025 pricing, our overall realized price decreased 11% to $42.63 per BOE from $47.78 in the first quarter. Driving the overall decrease was an 11% lower realized oil price of $62.69, which is the lowest realized price since the first quarter of 2021. Realized gas price, which includes the majority of our GTP cost was a negative $1.31, down from negative $0.19 in the first quarter. NGL prices decreased 36% in the quarter to $6.19. Our second quarter average crude oil differential from NYMEX WTI futures pricing was a negative $0.99 per barrel versus a negative $0.89 for the first quarter. Our average natural gas price differential from NYMEX futures pricing for the second quarter was a negative $4.67 per Mcf compared to a negative $3.81 per Mcf for the first quarter. Our realized NGL price averaged 10% of WTI compared to 15% for the first quarter. The result was revenue for the second quarter of $82.6 million despite the weakening prices. We continue to target higher oil mix opportunities as oil accounted for 100% of total revenue, while it was only 68% of total production. Overall, our sequential revenue had a 4% increase from the first quarter, which was driven by a positive $16.8 million volume variance, offset by a negative $13.3 million price variance. Moving to expenses. LOE was $20.2 million or $10.45 per BOE versus $19.7 million or $11.89 per BOE in the first quarter. We were pleased to see LOE lower on a BOE basis quarter-to-quarter and well below our guidance of $11.50 to $12.50 per BOE. Cash G&A, which excludes share-based compensation, was $5.8 million compared to $6.9 million in the first quarter. The decrease was partially driven by annual costs incurred in the first quarter associated with the audit, 10-K and proxy. The second quarter also saw lower salaries and bonus accrual. Our second quarter results included a gain on derivative contracts of $14.6 million versus a loss of $900,000 for the first quarter. The second quarter gain included a $14 million unrealized gain and a $600,000 realized gain. As a reminder, the unrealized gain and loss is just the difference between the mark-to-market values period-to-period. Finally, for Q2, we reported net income of $20.6 million or $0.10 per diluted share compared to the first quarter net income of $9.1 million or $0.05 per diluted share. Excluding the after-tax impact of pretax items, including noncash unrealized gains and losses on hedges and share-based compensation expense, our second quarter 2025 adjusted net income was $11 million or $0.05 per diluted share, while the first quarter 2025 adjusted net income was $10.7 million or $0.05 per diluted share. We posted second quarter 2025 adjusted EBITDA of $51.5 million versus $46.4 million for the first quarter, with most of the difference attributed to higher oil revenue, higher realized hedges and lower G&A. During the second quarter, we invested $16.8 million in capital expenditures, which was 48% lower than the first quarter and below the $18 million midpoint of guidance. Adjusted free cash flow was $24.8 million versus $5.8 million for the first quarter, with the net increase primarily associated with approximately $15.6 million in lower capital spending, combined with $5 million higher EBITDA compared to the first quarter. We ended the period with $448 million drawn on our credit facility after a $12 million paydown. With a current borrowing base of $585 million, we ended the quarter with availability of $137 million and a leverage ratio of 2.05x, which includes the $10 million deferred payment due in December of 2025. Moving to our hedge positions. For the last 6 months of 2025, we currently have approximately 1.3 million barrels of oil hedged with an average downside protection price of $64.87. This covers approximately 55% of our oil sales guidance at midpoint. We also have 1.5 Bcf of natural gas hedge with an average downside protection price of $3.37, covering approximately 42% of our estimated natural gas sales based on the midpoint. For a detailed breakout of our hedge position, please see our earnings release and presentation, which include the average price for each contract type. We are reaffirming our updated full year 2025 production guidance of 12,700 to 13,700 barrels of oil per day and 19,200 to 20,700 BOE per day. Yesterday, we presented our guidance for the third quarter total sales volumes of 19,200 to 21,200 BOEs per day and oil production to range between 12,850 and 13,850 barrels of oil per day, resulting in a 66% oil mix. For second half 2025, we are continuing to guide to total sales volumes of 19,000 to 21,000 BOE per day and oil production in the range of 12,500 to 14,000 barrels of oil per day, also a 66% oil mix. On the cost side, we are updating guidance to $11 to $12 per BOE for the remaining quarters of 2025. Please refer to our second quarter earnings release and company presentation for full details by period. I would note that of the 4 to 6 wells included in our drilling program for the third quarter, we have drilled, completed and placed on production 3 horizontal wells to date. As in the past, we retain the flexibility to react to changing commodity prices and market conditions as well as manage our quarterly cash flow. So with that, I will turn it back to Paul for his closing comments. Paul?

Thank you, Travis. As you know, we enjoyed a strong quarter despite the backdrop of lower energy prices. We are proud of the team's operational performance this quarter, delivering strong production, significant reductions in LOE costs and robust performance from the new wells drilled this year. We also demonstrated this quarter that we can successfully manage the aspects of our business that are within our control to help achieve the results we need despite the adverse conditions beyond our control. In high-priced markets, we balanced growth with improving the balance sheet. In today's lower price landscape, we are prioritizing debt reduction. I say this to reassure our stockholders that Ring's management team and Board of Directors are unwavering in this regard. Even if oil prices rise to higher-than-anticipated levels later this year, we will not significantly change our capital spending plans and will retain our capital discipline. If we are fortunate to experience higher oil prices later this year, we will capture the windfalls and apply them to reducing debt. With that, we will turn this call over to the operator for questions. Operator?

[Operator Instructions] And your first question comes from Jeff Robertson with Water Tower Research.

Starting with the stock price. You've reported good results on the assets and underlying production and favorable cost trends, including the Lime Rock assets that were closed at the end of the first quarter. The stock has underperformed some of your peers. Can you just share your thoughts on how the stock has performed and what you think might be causing the performance?

Yes. Very good question, Jeff. I don't think I was ready to be hit right off the bat with that one. But yes, that's a difficult question to answer, primarily from the standpoint, there's a lot of uncertainty associated with what affects stock prices. As you know, there's a lot of things that impact a public oil and gas company's stock price. A lot of those are within our control. A lot of those are not within our control. The things that are not within our control are oil price, but those -- the impact of oil price typically apply to Ring very similarly as they apply to others. So that's not really a distinguishing issue. But in my opinion, typically, the greatest differentiator between any one company's stock price performance and their peer group really goes down to those things that are within the company's control. And so I think one of the easiest issues to point out and something that we've heard from our shareholders is our debt and our leverage ratio. Ring, as you know, is at the higher end of our peer group. Companies at the lower end of that peer group tend to trade at a slightly higher premium based on our interpretation of the available data. Other things you can point to is our size and scale. Again, Ring is at the lower end of that peer group. And based on our observation of the data, companies at the higher end tend to trade at a slightly higher premium. However, there are several other attributes that Ring has, and I call these distinguishing attributes that really set us apart. And if you look back historically, we have performed very handsomely operationally and also financially. And so some of these distinguishing attributes, and let's just talk about some of our reserve life. If you go to our corporate presentation on Page 8, Ring has the longest reserve life of our peer group. The median is 11.1 years, and ours is 18.7 years. Long-life reserves, they help improve our sustainability and manage the risk of changing oil and gas prices over the long term. Another attribute, our PDP base production decline rate. Ring has the second lowest in a 10 company peer comparison. It's an important metric that helps reduce the capital intensity required to maintain our production levels and the liquidity with our banks. So that's a real important issue. Other things, a higher operational ownership allows us to control our portfolio. The higher net revenue interest lead to higher margins and profitability, higher percentage oil mix in the product -- higher oil percentage in our product mix is important just simply because Permian Basin companies are challenged getting the natural gas out of the basin and sold at a profit. And so all of this leads to many of these things lead to something else that's pointed out on Page 9 of our corporate deck, basically our higher operating margins. The higher operating margins leads to higher profitability per BOE and allows the company to better withstand the risk of lower oil prices. So all of these things would suggest that Ring should actually be at a minimum trading in the middle of our peer, if not at the higher end of our peer group. And so what's different? I know the point you're getting to, if you -- if many of our shareholders may recall that not very long ago in June, Seeking Alpha article actually came out and pointed out what I believe is a significant issue, and that is the selling pressure that our company has had over the last few years. If you go back to our corporate presentation, go into the appendix on Page 30, we have a chart in there that shows Ring Energy's historical price performance since January of 2022 to the present. And we also put on that plot oil prices. If you look at that chart and the annotations, what we have done is we've annotated all of the things that I believe has had a significant impact on our stock price. And all those things are basically associated with adverse or high levels of selling pressure against our stock. So if you go back to the second quarter of 2022 on that chart, you can see that right when we hit about $5 or just close to $5 a share, our largest warrant holders started selling or converting their warrants into common shares, and they started selling those shares in the marketplace. As you can see, the oil price continued to peak. But when the oil prices in 2022 began to fall, our stock price fell precipitously compared to that. That was just due to the selling pressure. If you just march along, you can see they continue that pressure against our stock. And then we got tired of the effect on our stock during those times. And so if you go back to the second quarter of 2023, we negotiated with the remaining warrant holders and got them to convert those shares. And so about the time when those shares were sold into the marketplace, and we were done with the warrant -- the effect of the warrants, we announced the Founders deal. And so if you look there in July of 2023, where we announced the Founders transaction, you can see that the market responded very handsomely to that. There wasn't the selling pressure. And then what happened, the largest shareholder that came into Ring's position as a result of the Stronghold deal began exiting their position. And so if you follow along that chart, you can see where our large shareholder began selling or continue to sell and that selling pressure continues to this day. And so we know that the selling pressure has continued all the way up until the most recent filing. That filing occurred in June, June 13, basically, where our partner, our previous partner and largest shareholder fell below the 10% threshold. And so now they're no longer required to disclose. So we don't know exactly where they are now, but we believe, and this just kind of goes back to what I believe. I believe that they intend to exit their position. And I believe if you look at the history prior to their last filing that they were active in the marketplace. And so I don't believe it will be very long before they're completely out. They could potentially be out now or they could be out very soon. We just don't know. But I believe that right now, if you look at our stock price in the last several months, we've bottomed out. I think after liberation day when oil prices took their large drop, and that pushed our stock price down below $1. And many of you know that the Russell 3000 Index requires that oil companies or a company have a stock price above $1. When we fell below $1, there was also additional selling pressure from the indexes that -- and by selling our stock, we ended up sustain additional selling pressure there. And so I believe you've seen that our stock price has fallen to probably the lowest level in some unforeseen event occurs and that right now is a great time to invest. And I think that is kind of a long answer to your question, Jeff. But I believe that we have been under additional and strong selling pressure against our stock now for -- since 2022, so close to 3 years. But I think we're close to the end of that, and we're about to enter a time period where we'll be free of that selling pressure, and we'll go back to the way things were in 2021 and the first half of 2022, where we traded very close to and very commensurate with our operational performance and our financial performance. And so the company is very healthy. The company is very strong. We've demonstrated that our strategy allows us to weather the issues that we've seen post Liberation day. And that's really the answer to my -- to your question, Jeff, do you have any other questions?

I do. You talked about the natural decline in Ring's asset base. And when you take on an acquisition like Lime Rock, which I think also had a shallower decline production base than your then existing production base. Can you talk about how you think about allocating or taking the free cash flow that's generated from an asset like that and using it to reduce leverage and at the end of the time when you've reduced the leverage associated with that acquisition, you still have the barrels of production to help further deleverage the balance sheet?

Yes. A great example. Of course, we're very new into the Lime Rock assets, but a very good example of what we're intending to do with the Lime Rock assets. And so far, we're on track to achieve these same type of results. But a good example of that is the Founders acquisition. If you go back to our corporate presentation, we also have a chart there that kind of summarizes what we did there. But the bottom line is we paid off the debt as a pro forma company. We paid off the debt associated with the acquisition of Founders in less than 5 quarters, actually in 4 quarters. And at the end of that time period, we were at -- we had an additional 2,800 barrels a day of production, which accelerates and allows us to pay down debt at a faster rate. We're going to do something very similar here with Lime Rock. Going back to part of the question associated with decline rates. One of the key aspects of shallow decline rates is that it reduces the maintenance capital necessary to maintain your production and allows you to grow more capital efficiently. And so overall, there's a lot of similarities between founders and Lime Rock. Some of the attributes that actually makes Lime Rock a little bit more attractive is the fact that there -- the proximity of those assets to our existing operations there in the Shafter Lake area really, really allowed us to capture some sincere synergies. Many of those synergies are reflected in this quarter's lower-than-expected lease operating expenses. And I got to tell you, hats off to the operating team for all of that. Shawn Young and the team did a great job of integrating those assets and finding ways to reduce costs that not only affected those assets, but affected all of our operations in that area. And so I hope I've answered your question there, Jeff.

Yes. Just lastly, on cost, Paul, the cost synergies you're talking about, they're very sticky, right? So you'd be able to maintain those if things get more active out there. Yes. I mean, when you talk about reducing the operating staff by 50%, you're talking about a significant reduction in LOE. And the field staff salaries generally is at the top of the ledger in terms of the most costly operating expenses for your wells. And so when you can do that type of a thing, it's huge and it's also sticky because that stays with you. As a matter of fact, and I could ask Shawn to kind of elaborate a little bit more on that, but we're -- as a result of changing the technologies as a result of the integration of assets and then challenge ourselves on new ways to operate and more efficient ways to operate, we're applying some of the learnings that we had there, integrating Lime Rock into those -- that area to our other areas in terms of improving the efficiencies. I don't know if there's something you want to say there, Shawn.

Yes. No, to your point, as Paul pointed out, by reducing the operating staff, I mean, obviously, going forward, that's going to be a continued savings. But we're also looking at some other opportunities there and have identified a number of things that we're not quite realizing yet. So hope to be able to share those in the future as we actually realize those cost savings going forward. And a lot of it has to do with just the synergies of having an operation right next door where we're already able to take advantage of some size and scale there that we can just bleed over into the Lime Rock assets and take advantage of those savings. So again, more to come on that.

And your next question comes from Poe Fratt with Alliance Global Partners.

Travis, could you walk me through the difference between your adjusted cash flow of, call it, $25 million and the debt paydown of $12 million?

Sure. That's a great question. The biggest part of that -- well, all of it was changes in working capital. The biggest part was the investment we made in the credit facility for the next 4 years. So our deferred financing costs, if you guys look at Page 9 of our earnings release, you can kind of see the changes in working capital there and other things. But that was about $5.4 million of the difference. And when we closed the old deal and moved to the new one, we also brought forward about $3 million in interest that would have otherwise been due next quarter. We also had an increase in inventory of about $2 million. And that was partially due to the pullback that we had. We already had that pipe on the way. So the good news is with that, we're going to have less cash interest paid next quarter and less money spent on our inventory since we've already paid that amount. There's also about a $2 million increase in accounts receivable, which is also cash we'll realize next quarter. So all that being said, even though there was a difference between the 2, that should reverse. We should see the benefits of those going into Q3.

And that sort of leads into the next question. Just do you -- looking at the second half adjusted free cash flow, it looks like you could come into the range of call it, $20 million to $45 million. In the context of your targeted debt reduction for the year or even for the second half, can you just sort of give us a flavor for how much debt you might be able to pay off over the second half of the year or whether you have a targeted year-end debt level?

I'll do the first stab at that, and I'll turn it over to Travis. We don't have internal debt reduction targets yet. However, -- and so one of the more disappointing things I think about this earnings release is that I believe there are some out there that would like to see us pay down more debt. But we incurred those special circumstances we talked about. But many of those circumstances will not be there in the third quarter. And product prices have continued to hang in at the higher end of the $60 range so far this quarter. And so I say this with a little bit of trepidation and caution. I believe that we can exceed what we paid down this quarter, next quarter. But to what degree I'd hate to stand out. And Travis, I know we work the models quite often. I don't know if there's a range or any kind of additional information you want to throw in there.

Well, if we go to $50 million, that's one story. If we go to $75 million, that's another. So we'll call that between $20 million and $45 million maybe that we could potentially pay down. So we're hoping for $75 to get that lower. It's hard. We don't have a hard target that we've come out with yet for debt reduction goal by the end of the year.

I do believe it's safe to say though that we can exceed the debt paydown next quarter that we paid this quarter.

Yes. And as Travis pointed out, working capital is going to be favorable this coming quarter or 2 relative to the second quarter. And then Paul, you talked about Warburg selling. You don't really know where you are right now. But I think one of the good things, maybe it's obvious to everyone, but they're under 10% now, so they won't be constantly filing Form 4 showing the relentless sales that you saw sort of from the middle of May until the middle of June. So that potentially is a positive from the standpoint of seeing less headlines as far as the Form 4 filings, correct?

That is correct. They will be required to make a quarterly summary, I guess, of their stock position. So that will be due sometime this month for the prior quarter. And so it will be interesting to see, but that will be basically reflective of how they exited June. And so there's been a lot of time since then. Having been at one time, our largest shareholder and had 2 members on our Board, they're a great partner. We learned quite a bit from them. They contributed quite a bit to our company, and they're a great partner. I don't know why they exited our -- or in the process of exiting our position. But it's interesting to note that they also exited quite a few other energy firms. So it was nothing to do with us. I think it was more to do with something internally that we're not aware of and I can't speak for. But I do personally believe that they intend to completely exit our position, and I believe we're very close to a point in time where that selling pressure will go away. And then no more excuses from our standpoint, we'll be -- we'll trade, I hope, more commensurately with our operating performance and our financial performance. And if you go back and look at our performance over the last 4.5 years, ever since COVID, generally, we've met expectations. I've got a great management team that's a real blessing from my standpoint. I also have an incredible Board with diverse opinions but great counsel and great advice. And I believe we have a winning strategy. It's not a sexy strategy. It's basically a strategy that was here with the prior management team. We refined it some, but it's a tried and true strategy that doesn't get rich overnight. It's not against a grind stone and you continue to build value over the long term. And that's what we're doing here at Ring. And we believe that we have a lot of growth to pursue in the future. At current prices, it makes growth challenging. But I think we've successfully managed that in the past when oil prices were higher. So we'll see how things go. But a great question, Poe. Do you have another question?

No, that's it for me. Maybe I'll come back if there's another question, come back in the queue, but I'll leave it at that for now, Paul.

And your next question comes from Noel Parks with Tuohy Brothers.

I apologize if you maybe touched on this earlier, but any updated thoughts, especially I'm thinking about with the Lime Rock assets in the portfolio now on pursuing alternate horizons beyond the San Andres, just given, of course, everything that's happened with geosteering and so forth in recent years.

Yes, that's a really good question. And as we pointed out when we made the Lime Rock acquisition, that acquisition included lands that expose us to other emerging plays that we're watching very carefully. One of those would be the Barnett, and that would be in the Midland Farms area of the acquisition we just closed last quarter. And so other operators are active. It is our opinion based on our analysis that those wells don't carry the same economic return as do the wells that we are focused on, such as the San Andres horizontal wells in both [Yochum] and Andrews County and also many of the vertical wells that we're pursuing in Nectar and Crane County. But they are very interesting. They contain large amounts of resource. As I shared last quarter, after we made that acquisition, we had several parties inquire -- we don't know what we'll do now at higher prices, they become very economic, and so we could potentially drill them or those assets could find themselves in the hands of somebody else who values them higher than we do. We haven't made that decision yet, but we are studying that. Now that's just one interval. I believe that as technology continues to march down the road, we believe many of the areas in our southern operations that have historically been dominated with vertical wells may be exposed to horizontal drilling. As a matter of fact, this quarter, we're actually testing an interval horizontally in the South. We'll talk more about that as we get results. And we have other operators in the South that operate very close to us and have had a very handsome success converting over from verticals to horizontals. And so we'll see where technology goes. One of the things that we've done is we've done an inventory of all of these other different horizons that you mentioned. There are several that have significant potential. That potential comes to us for virtually no cost other than the cost to test it and drill it and put it online because we already own the acreage. And so we're really excited about the potential of some of these other zones. And I'm looking at Alex Dyes. Alex, do you have any more to add there?

No. I guess just in general, we've been testing some of these zones now for probably a year or so. We've been trying to test.

Through recompletions, right?

Exactly vertically. And then we're also trying to learn from our offset operators. And we'll also probably participate on a non-op basis, too. So we're trying to learn as much as possible and trying to -- once we get back to deploying more capital, we'll try.

Yes. And so Noel, what you're touching on is part of the future for Ring Energy. And you're going to see more about that. I mean if prices were higher, we would be able to allocate a little bit more of our cash flow to testing some of these ideas. So the rate of testing has slowed down because of where oil prices are because we're prioritizing debt reduction. But I believe -- and when we get beyond this price environment because I really do believe that long term, we'll be back into that $75 price range. And at that price range, we can afford to test some of these intervals more frequently. And -- but it is a part of the future for Ring Energy. Great question.

And your next question is a follow-up from Jeff Robertson with Water Tower Research.

Paul or Travis, I'm just curious, is there anything going on in the midstream world that could have any impact on your gas price realizations and NGL realizations next year or 2?

Well, yes, there are. I think though the Permian Basin is demonstrating something very clearly, at least to me anyway, the takeaway capacity servicing the Permian Basin tends to get filled up pretty quickly, whatever it is. The most recent one was the Matterhorn Express. It's my understanding that there's still more capacity to be made available in the Matterhorn Express. And I believe that, that will help with price differentials. There are also several other pipelines that are not imminent that are on the books that are being considered. And so all of this will help but in the foreseeable future, the infrastructure is still going to be limited and the operators like Ring Energy will have to fight for that space. And so the discount to Henry Hub is going to continue to be larger than we'd like.

I think you've seen from other operators and just views out there that people are pulling back on CapEx. So if there's less drilling in our area, that's less associated gas going through that pipe. So that really could help with our differentials as well. Obviously, it's not something we hope for because we'd rather have higher oil prices. But if we can get a more meaningful revenue stream from those -- the gas and NGL, it would obviously be very impactful to the company.

This concludes our question-and-answer session. I would like to turn the conference back over to Paul McKinney, Chairman and CEO, for any closing remarks.

Thank you, Michael. And on behalf of the entire team and Board of Directors, I want to once again thank everyone for listening and participating in today's call, and I hope you have a great rest of your day. Thank you very much.