Ring Energy's Business Model Well-Suited For This Oil Price Environment, Says Rodman & Renshaw
Rodman & Renshaw picked up Ring Energy Inc (NYSE: REI) in the energy exploration and production sector and initiated the company with a Buy rating on multiple catalysts. Analyst Noel Parks attached a price target of $15 based on risked net asset valuation of reserves.
In a tough oil price environment, the brokerage believes Ring Energy business model establishes itself as the best-suited E&P name. The company is managing with zero debt, and its "flagship vertical play" in the Permian enables it to make quick returns. As a result, it could buy and exploit model E&P to increase the acreage and reserve considerably.
The analyst pointed out the low finding costs of $4.62/boe in the first half of the current year. In comparison, its peers' costs were $10.91/boe, indicating that Ring Energy enjoys greater flexibility to probe opportunistic acquisitions, which has been its hallmark in the last two years of the oil price plunge.
In a research note, the brokerage said, "If vertical downspacing to 20 acres in the legacy Cherry Canyon sands is successful, Ring could have 550 gross locations (up from 220 a year ago) on its 20,000+ net acres in the project. Below the Cherry Canyon, Ring's horizontal testing in 2017 of the Brushy Canyon formation, similar to nearby activity by Concho (CXO), could lead to 80-100 locations, with EURs in the 300,000-400,000 boe range."
Noel believes even if oil price realization is at sub-$40/bbl, Ring Energy could still enjoy ROR of 20–25 percent, pointing out its bread-and-butter legacy San Andrews verticals. The brokerage further believes the stock trades at a wide discount to its peers.
The stock closed at $10.16 on Friday.
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Latest Ratings for REI
|Sep 2016||Imperial Capital||Initiates Coverage on||Outperform|
|Aug 2016||Rodman & Renshaw||Initiates Coverage on||Buy|
|Feb 2016||GMP Securities||Initiates Coverage on||Hold|
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