Key Points
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Production and adjusted EBITDA increased:Third-quarter sales volumes rose 3% to 20,635 boe/d, and adjusted EBITDA climbed about 5% to $57.1 million, while revenue fell 2% to $102.3 million as realized oil prices declined.
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Investment temporarily weighed on cash flow:Ring spent about $64 million advancing longer-lateral wells and infrastructure, resulting in negative adjusted free cash flow for the quarter. Management expects positive free cash flow in Q4 and for full-year 2026 as capital spending declines.
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Longer laterals shape the outlook:Ring projects 2027 sales of 21,000–23,000 boe/d and plans to spend $135 million–$165 million on 20–30 horizontal wells. It also reduced revolver debt by $10 million in Q3 to $350 million and hedged about 59% of first-half 2027 oil volumes.
Ring Energy (NYSEAMERICAN:REI) increased production and reduced debt in the third quarter of 2026, while accelerating spending on longer horizontal wells and infrastructure ahead of a planned shift toward a more capital-efficient development program.
The oil and gas producer reported revenue of $102.3 million, down 2% from the second quarter, as a decline in realized oil prices was partly offset by improved natural gas and natural gas liquids pricing. Adjusted EBITDA rose approximately 5% to $57.1 million.
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Chairman and CEO Paul McKinney said adjusted free cash flow was negative during the quarter after the company invested approximately $64 million to advance its longer-lateral program and supporting infrastructure. He described the spending increase as deliberate and said Ring expects positive free cash flow in the fourth quarter and for the full year as capital spending declines.
Asset Sales Fund Leasing and Debt Reduction
Ring completed approximately $30.5 million in non-core asset sales during the quarter. The properties represented roughly 130 barrels of oil equivalent per day of production, 63% of which was oil, and approximately 9,800 net acres.
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The company used $10 million of the proceeds to reduce borrowings under its revolving credit facility and approximately $18.8 million to acquire leasehold interests within and near its existing Central Basin Platform operations, McKinney said.
McKinney told analysts that some of the sold acreage was unlikely to receive Ring's capital investment in the next few years but was more valuable to other operators interested in deeper, more expensive plays. The transactions allowed Ring to expand acreage in its current development areas while paying down debt, he said.
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Total sales volumes averaged 20,635 barrels of oil equivalent per day, up 3% from the second quarter. Oil sales averaged 12,818 barrels per day, an increase of 1%.
Longer Laterals Drive 2027 Outlook
Ring drilled eight horizontal wells and completed seven during the third quarter. In Crane County, it drilled six and completed five two-mile horizontal wells, marking its first completed two-mile, co-developed laterals. It also drilled and completed two 1.5-mile wells in Andrews County and completed a saltwater disposal well.
For the fourth quarter, adjusted for the asset divestitures, Ring expects oil sales of 12,900 to 13,500 barrels per day and total sales of 20,400 to 21,200 barrels of oil equivalent per day. It forecasts capital spending of $43 million to $48 million.
For 2027, the company projects oil sales of 13,200 to 14,300 barrels per day and total sales of 21,000 to 23,000 barrels of oil equivalent per day. Its preliminary capital budget is $135 million to $165 million, including 20 to 30 new horizontal wells with laterals longer than 1.5 miles.
McKinney said the benefits of the shift to longer laterals and co-development may take a couple of quarters to appear in financial results. Only two of the co-developed wells completed during the third quarter were online early enough to make a measurable contribution to production in that period, he said.
He also cautioned that production may become lumpier as Ring drills and completes multiple wells on a pad before bringing them online. In most instances, the company will shut in nearby production during completions to reduce interference, he said.
Ring plans to concentrate its 2027 capital spending in the first half of the year. McKinney said the company could adjust second-half spending depending on oil prices, cash flow and progress on debt reduction.
Debt and Hedging
Executive Vice President, Chief Financial Officer and Treasurer Sonu Johl said Ring ended September with $350 million outstanding under its revolving credit facility, down $10 million from the end of June and $70 million from the beginning of the year. Liquidity increased to approximately $236 million from $226 million at the end of the second quarter.
The company's leverage ratio, based on total debt to annualized adjusted EBITDA for the latest quarter, improved to approximately 1.5 times from 1.7 times, Johl said. Ring continues to target long-term leverage below 1.25 times, while McKinney said he would like to bring it below 1 times.
Ring has hedged approximately 59% of its first-half 2027 oil volumes, based on the midpoint of its full-year oil sales guidance, Johl said. The company recently added protection to some existing hedged volumes; Johl said the additional protection is designed to help Ring remain free cash flow positive in the first half even at $65 West Texas Intermediate oil.
Johl said Ring's borrowing base redetermination is scheduled for December and that the company plans to discuss its hedging covenant with lenders. Under the current terms, Ring has not yet reached the leverage threshold needed to reduce its hedging requirements, he said.
About Ring Energy (NYSEAMERICAN:REI)
Ring Energy, Inc (NYSE American: REI) is an independent oil and natural gas exploration and production company. The company focuses on the acquisition, development, exploration and operation of oil and gas properties, with an emphasis on generating production from established assets.
Ring Energy's operations are concentrated in the Permian Basin, one of the most significant oil-producing regions in the United States. Its properties are primarily located in the Northwest Shelf of the Permian Basin in southeastern New Mexico and West Texas.
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The article " Ring Energy Q3 Earnings Call Highlights " was originally published by MarketBeat.
