By Robb M. Stewart
Ring Energy Inc. said Monday it moved to a more opportunistic hedging strategy in response to the rise in oil prices in a bid to lift cash flow and pay down debt.
On hedging transactions:
The oil and gas company, which is focused on developing assets in the Permian Basin in West Texas and New Mexico, said it bought back a 1,500 barrels of oil per day call option for June 1 through Dec. 31, 2021, and entered into an about 879 barrels a day calendar 2022 swap contract for no net cost.
Ring Energy expects more than 320,000 barrels of crude oil sales for June 1 through Dec. 31, 2021, to be realized at a higher level than the $55.35 a barrel ceiling price previously in place. It also said its 2022 swap position is priced higher than the $45.66 a barrel collective average price previously in place.
The hedging transactions would generate additional free cash flow in 2021 and further strengthen the company's financial and market position, Ring Energy said. The expected increase to cash flow from higher realized pricing in 2021 will primarily be used to further pay down debt, the company said.
Paul McKinney, chairman and chief executive officer, said: "When we entered into contracts to substantially fill our hedge book for expected 2021 production in late fall of last year, we were operating in a backdrop of $45 per barrel WTI primarily due to the economic impacts of Covid-19. Moving into our fall bank redetermination process, our hedging strategy was appropriately designed to lock in 2021 pricing that fully funded our targeted work program while guaranteeing the necessary cash flow to pay down debt. Substantially driven by the dramatic improvement in economic activity with the worldwide recovery from Covid-19, there has been an almost 50% increase in WTI crude oil pricing over the past six months."
Write to Robb M. Stewart at robb.stewart@wsj.com
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June 07, 2021 at 07:05PM
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