Ring Energy's Business Model Well-Suited For This Oil Price Environment, Says Rodman & Renshaw

Best Suited

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.

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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.

Multiple Catalysts

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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