EX-99.2 4 tv523768_ex99-2.htm EXHIBIT 99.2

 

Exhibit 99.2

 

RING ENERGY, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

 

On February 25, 2019, Ring Energy, Inc. (“Ring” or the “Company”) entered into a purchase and sale agreement (the “Purchase Agreement”) with Wishbone Energy Partners, LLC, Wishbone Texas Operating Company LLC and WB WaterWorks LLC (collectively, “Sellers”), to acquire oil and gas assets in Gaines, Yoakum, Runnels and Coke Counties, Texas and Lea County, New Mexico primarily on the Northwest Shelf (the “Acquisition”). Ring agreed to acquire the oil and gas assets from Sellers for a purchase price of $270 million in cash and the issuance of $30 million in shares of common stock. The purchase price was subject to customary purchase price adjustments.

 

Ring gained effective control over the assets effective February 1, 2019. As such, Ring recorded the assets acquired and the liabilities assumed at their fair values as of February 1, 2019, and included the results of operations from that date in its statements of operations for the period ended March 31, 2019. The Acquisition was recognized as a business combination whereby Ring recorded the assets acquired and the liabilities assumed at their fair values as of February 1, 2019, which is the date the Company obtained control of the properties and was the acquisition date for Ring’s financial reporting purposes.

 

On April 9, 2019, the Company completed the Acquisition through a cash payment of $249,062,998 and the issuance of 4,581,001 shares of common stock, of which 2,538,071 shares are being held in escrow to satisfy potential indemnification claims.

 

The following unaudited pro forma condensed balance sheet presents the historical financial position of Ring Energy, Inc. combined with the Acquisition, as if the Acquisition had closed on March 31, 2019. The following unaudited condensed statements of operations present the historical results of operations of Ring Energy, Inc., combined with the Acquisition, for the three months ended March 31, 2019 and for the year ended December 31, 2018, as though the Acquisition had occurred at the beginning of each of those periods. The unaudited pro forma financial information is illustrative of the effects of the Acquisition on our operations and does not necessarily reflect the results of operations that would have resulted had the Acquisition actually occurred at those dates. In addition, the pro forma financial information is not necessarily indicative of the results that may be expected for the year ended December 31, 2019, or any other period. The unaudited pro forma financial statements should be read in conjunction with the notes thereto, our Annual Report on Form 10-K for the year ended December 31, 2018, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2019.

 

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RING ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET

AS OF MARCH 31, 2019

 

As of March 31, 2019  Historical   Adjustment      Pro Forma 
ASSETS                  
Current Assets                  
Cash  $2,606,769   $2,780,683  (1)  $5,387,452 
Accounts receivable   27,941,378    (12,471,000) (1)   15,470,378 
Joint interest billing receivable   2,553,377    (12,235) (1)   2,541,142 
Operating lease asset   417,567            417,567 
Prepaid expenses and retainers   3,013,688    3,781,658  (1)   6,795,346 
Total Current Assets   36,532,779    (5,920,894)      30,611,885 
Properties and Equipment                  
Oil and natural gas properties subject to depletion and amortization   990,608,164    (229,532) (1)   990,378,632 
Fixed assets subject to depreciation   1,465,551            1,465,551 
Total Properties and Equipment   992,073,715    (229,532)      991,844,183 
Accumulated depreciation, depletion and amortization   (113,505,141)           (113,505,141)
Net Properties and Equipment   878,568,574    (229,532)      878,339,042 
Deferred Income Taxes   9,741,903            9,741,903 
Deferred Financing Costs   353,384            353,384 
Total Assets  $925,196,640   $(6,150,426)     $919,046,214 
                   
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Current Liabilities                  
Accounts payable  $63,862,098   $(5,067,930) (1)  $58,794,168 
Acquisition liability to be settled through equity   28,356,396    (28,356,396) (1)   - 
Operating lease liability   417,567    -       417,567 
Derivative liabilities   340,685    -       340,685 
Total Current Liabilities   92,976,746    (33,424,326)      59,552,420 
                   
Revolving line of credit   84,500,000    256,000,000  (1)   340,500,000 
Acquisition liability to be settled through refinancing into credit facility   256,877,766    (256,877,766) (1)   - 
Asset retirement obligations   16,318,790    -       16,318,790 
Total Liabilities   450,673,302    (34,302,092)      416,371,210 
Stockholders' Equity                  
Preferred stock - $0.001 par value; 50,000,000 shares authorized;  no shares issued or outstanding   -              
Common stock - $0.001 par value; 150,000,000 shares   authorized; 63,229,710 shares and 63,229,710 shares   issued and outstanding, respectively   63,230    4,581  (1)   67,811 
Additional paid-in capital   495,726,558    28,351,815  (1)   524,078,373 
Accumulated deficit   (21,266,450)   (204,730) (1)   (21,471,180)
Total Stockholders' Equity   474,523,338    28,151,666       502,675,004 
Total Liabilities and Stockholders' Equity  $925,196,640   $(6,150,426)     $919,046,214 

 

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RING ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

 

   Ring   Properties   Pro Forma        
   Historical   Acquired   Adjustments      Pro Forma 
Oil and Gas Revenues  $41,798,315   $6,665,414   $-      $48,463,729 
                        
Costs and Operating Expenses                       
Oil and gas production costs   9,408,764    1,653,883    -       11,062,647 
Oil and gas production taxes   2,082,875    316,385    -       2,399,260 
Depreciation, depletion and amortization   12,929,054    -    1,554,075  2    14,483,129 
Asset retirement obligation accretion   215,945    -    12,726  3    228,671 
Lease expense   128,175    -    -       128,175 
General and administrative expense   6,798,017    -    708,813  4, 5, 6    7,506,830 
                        
Total Costs and Operating Expenses   31,562,830    1,970,268    2,275,614       35,808,712 
                        
Income from Operations   10,235,485    4,695,146    (2,275,614)      12,655,017 
                        
Other Income (Expense)                       
Interest income   12,236    -    -       12,236 
Interest expense   (773,017)   -    (3,376,384) 7    (4,149,401)
Realized loss on derivatives   -    -    -       - 
Unrealized loss on change in fair value of derivatives   (340,685)   -    -       (340,685)
                        
Net Other Income (Expense)   (1,101,466)   -    (3,376,384)      (4,477,850)
                        
Income (Loss) Before Income Tax   9,134,019    4,695,146    (5,651,998)      8,177,167 
                        
Benefit from (Provision for) Income taxes   1,955,424    -    200,939  8    2,156,363 
                        
Net Income (Loss)  $11,089,443   $4,695,146   $(5,451,059)     $10,333,530 

  

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RING ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2018

 

   Ring   Properties   Pro Forma        
   Historical   Acquired   Adjustments      Pro Forma 
Oil and Natural Gas Revenues  $120,065,361   $76,320,544   $-      $196,385,905 
                        
Costs and Operating Expenses                       
Oil and natural gas production costs   27,801,989    12,754,942    -       40,556,931 
Oil and natural gas production taxes   5,631,093    4,099,946    -       9,731,039 
Depreciation, depletion and amortization   39,024,886    -    18,913,501  2    57,938,387 
Ceiling test impairment   14,172,309    -    -       14,172,309 
Asset retirement obligation accretion   606,459    -    163,429  3    769,888 
General and administrative expense   12,867,686    -    2,221,062  4, 5, 6    15,088,748 
                        
Total Costs and Operating Expenses   100,104,422    16,854,888    21,297,992       138,257,302 
                        
Income (Loss) from Operations   19,960,939    59,465,656    (21,297,992)      58,128,603 
                        
Other Income (Expense)                       
Interest income   97,855    -    -       97,855 
Interest expense   (427,898)   -    (12,716,946) 7    (13,144,844)
Realized (loss) on derivatives   (11,153,702)   -    -       (11,153,702)
Unrealized gain (loss) on change in fair value of derivatives   3,968,287    -    -       3,968,287 
                        
Net Other (Expense)   (7,515,458)   -    (12,716,946)      (20,232,404)
                        
Income (Loss) Before Income Tax   12,445,481    59,465,656    (34,014,938)      37,896,199 
                        
Benefit from (Provision for) Income taxes   (3,445,721)   -    (5,344,651) 8    (8,790,372)
                        
Net Income (Loss)  $8,999,760   $59,465,656   $(39,359,589)     $29,105,827 

 

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On April 9, 2019, the Company completed the acquisition of oil and gas properties from Wishbone Energy Partners, LLC, Wishbone Texas Operating Company LLC and WB WaterWorks LLC in Gaines, Yoakum, Runnels and Coke Counties, Texas and Lea County, New Mexico, primarily on the Northwest Shelf. The acquired properties consist of 49,754 gross (38,230 net) acres and include a 77% average working interest and a 58% average net revenue interest. The Company incurred approximately $3.5 million in acquisition related costs, which were recognized in general and administrative expense during the three months ended March 31, 2019.

 

The Acquisition was recognized as a business combination whereby Ring recorded the assets acquired and the liabilities assumed at their fair values as of February 1, 2019, which is the date the Company obtained control of the properties and was the acquisition date for Ring’s financial reporting purposes. Revenues and related expenses for the Acquisition are included in our condensed statement of operations beginning February 1, 2019. The estimated fair value of the acquired properties approximated the consideration paid, which the Company concluded approximated the fair value that would be paid by a typical market participant. The following table summarizes the fair values of the assets acquired and the liabilities assumed:

 

Assets acquired:     
Joint interest billing receivable  $1,464,394 
Prepaid assets   2,864,554 
Liabilities assumed     
Draw on revolving line of credit   (15,000,000)
Accounts and revenues payable   (1,234,862)
Asset retirement obligations   (2,979,645)
Acquisition payable to be settled through equity   (28,356,396)
Acquisition payable to be settled through cash payment   (257,107,298)
Total Identifiable Net Assets  $(300,349,253)

 

The $15 million draw on the Company’s revolving line of credit was the deposit placed into escrow at the signing of the Purchase Agreement on February 25, 2019. The Acquisition payable to be settled through equity was settled at the closing on April 9, 2019 through the issuance of 4,581,001 shares of common stock, of which 2,538,071 shares are being held in escrow to satisfy potential indemnification claims. The Acquisition payable to be settled through cash payment was settled at closing with funds from the amendment and restatement of the Credit Facility.

 

In connection with the Acquisition, the Company amended and restated its Credit Facility dated July 1, 2014, with SunTrust Bank, as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (the “Amended and Restated Senior Credit Facility”). The Amended and Restated Senior Credit Facility, among other things, increases the maximum facility amount to $1 billion, increases the borrowing base to $425 million, extends the maturity date and makes other modifications to the terms of the Credit Facility. The Amended and Restated Senior Credit Facility is secured by a first lien with substantially the same collateral requirements as the Credit Facility, has substantially the same covenants as the Credit Facility and is for a term of five-years.

 

Pro forma adjustments to the historical financial statements to reflect the Acquisition and related financing are as follows:

 

(1)To record the closing of the Acquisition and the related financing. The consideration paid and assets and liabilities assumed consist of the following:

 

(a)Cash received at closing of the Amended and Restated Senior Credit Facility of $2,780,683;

 

(b)Settlement of accounts receivable of $12,471,000 related to post-February 1, 2019 activity, as part of closing the Acquisition;

 

(c)Settlement of interest receivable of $12,235 as part of closing the Acquisition;

 

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(d)Incursion of debt financing costs, to be amortized, at closing of the Amended and Restated Senior Credit Facility;

 

(e)Net adjustment to fair value of oil and gas properties acquired at closing of the Acquisition;

 

(f)Settlement of accounts payable of $5,067,930 related to post-February 1, 2019 activity, as part of closing the Acquisition;

 

(g)To record the issuance of 4,581,001 shares of common stock as partial consideration and to settle the Acquisition liability required to be settled through equity pursuant to the Purchase Agreement;

 

(h)To record the draw on the Amended and Restated Senior Credit Facility of $256,000,000 to fund the cash consideration and settlement of the Acquisition liability to be settled through refinancing into the Amended and Restated Senior Credit Facility; and

 

(i)The incursion of $204,730 in legal fees related to the amendment of the Credit Facility and closing of the Amended and Restated Senior Credit Facility.

 

(2)To record the pro forma depletion of the oil and gas properties acquired in the Acquisition based on the oil and gas production occurring during the periods.

 

(3)To record the pro forma accretion of the asset retirement obligation.

 

(4)To record legal expenses of $204,730 related to the amendment of the Credit Facility.

 

(5)To record the pro forma amortization of the debt financing costs of $189,083 per quarter.

 

(6)To record an estimated pro forma incremental increase in general and administrative expense in connection with the Acquisition of $315,000 per quarter.

 

(7)To record the pro forma interest expense on the amount drawn on the Amended and Restated Senior Credit Facility to complete the Acquisition.

 

(8)To record the pro forma income tax impact of the acquired properties.

 

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