Stronghold Assets Add Permian Scale and Free Cash Flow Generation Potential
|52 Week Range||$2.02-$5.09|
|Avg. Daily Vol. (30 day)||2,416,000|
|Shares Out (MM)||174.4|
|Market Cap (MM)||$467.4|
|Enterprise Value ($MM)||$901.5|
|Revenue TTM (MM)||$307.2|
|Fiscal Year End||December|
- On August 31, 2022, Ring closed the $465-million acquisition of assets from Stronghold Energy II Operating, LLC and Stronghold Energy II Royalties, LP. Funding was ~50% debt/equity.
- The Stronghold acquisition adds conventional oil-weighted producing properties in Crane County, Texas in the southern Central Basin Platform (CBP).
- Management estimates the acquisition is accretive on all relevant metrics. Pro forma proved developed reserves (June 1) are 87 MMBOE, a ~90% uplift from the Ring standalone. The 4Q22E pro forma production midpoint of 18.5 MBOE/d is a ~100% uplift from the Ring standalone.
- Stronghold assets add ~500 development projects to Ring’s asset base. Projects include new drill infield vertical wells, recompletions, and step-out vertical wells.
- The short cycle-time nature of Stronghold assets complements Ring’s existing development inventory, which is focused on horizontal development of the prolific San Andres Formation on the Northwest Shelf (NWS) and CBP areas of the Permian Basin.
- Ring’s increased scale positions the company to generate meaningful free cash flow in 2023. Management has prioritized reducing leverage with the excess.
- Management estimates 4Q22E production of 18-19 MBOE/d and suggested FY23 production could be level or grow slightly. Our FY23 EBITDA estimate, based on 18.5 MBOE/d and our NYMEX price deck, is $297 million. Estimated FY23 free cash flow of ~$85 million could reduce the leverage ratio to 1.2x.
- On an adjusted EV/FY23E EBITDA metric, Ring is trading at 2.8x our estimates.
On August 31, 2022, Ring closed the $465-million acquisition of assets from Stronghold Energy II Operating, LLC and Stronghold Energy II Royalties, LP. Funding was ~50% debt/equity.
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