In the first quarter of 2024, Ring Energy Inc. (REI) reported strong performance with sales volumes surpassing guidance and operational costs coming in under budget.
The company's adjusted net income reached $20.3 million, with adjusted EBITDA at $62 million. Ring Energy's production strategy and balance sheet improvement were key focal points, as it drilled 11 new wells and paid down debt, enhancing its liquidity position.
The outlook for the second quarter remains positive, with expected production increases and continued financial discipline.
Key Takeaways
- Ring Energy's sales volumes exceeded guidance, with 13,394 barrels of oil per day and 19,034 barrels of oil equivalent per day.
- The company reported a lower-than-expected lease operating expense (LOE) per BOE, thanks to cost reduction efforts.
- Adjusted net income stood at $20.3 million, with adjusted EBITDA reaching $62 million.
- Ring Energy plans to maintain a phased drilling program, targeting an average of 5 horizontal and 6 vertical wells per quarter.
- Liquidity improved with a $3 million debt reduction and $179.3 million available in liquidity.
- The company's strategy includes improving the balance sheet and delivering meaningful returns to shareholders.
Company Outlook
- Production for Q2 is projected to be between 18,500 and 19,100 BOE per day.
- Full-year 2024 guidance remains unchanged with expected crude oil sales of 12,500 to 13,300 barrels per day.
- Full-year development program budget is set at $135 million to $175 million, with Q2 CapEx estimated between $37 million and $42 million.
- Full-year 2024 LOE is anticipated to be $10.50 to $11.50 per BOE.
Bearish Highlights
- In the Penwell area, the company is still addressing saltwater disposal issues before it can accelerate drilling.
Bullish Highlights
- The company successfully drilled 11 producing wells in Q1, aligning with the high end of their guidance.
- Approximately 43% of estimated oil sales and 41% of estimated natural gas sales are hedged for the remaining three quarters of 2024.
Misses
- There were no significant misses reported in the earnings call.
Q&A Highlights
- CEO Paul McKinney highlighted M&A opportunities in the Central Basin Platform and the Northwest shelf, expressing excitement over potential acquisitions.
- The company is focused on expanding in the P.J. Lea and Penwell areas, with all constraints lifted in P.J. Lea for accelerated drilling.
- Ring Energy is cautious about adding more wells in P.J. Lea until they see favorable results, while still resolving Penwell area bottlenecks.
- Ring Energy spent $1.5 million on ESG improvements in Q1, with plans to continue or accelerate these efforts in Q2.
- The company has included contingency costs in their AFEs to cover potential operational issues, though none have arisen in Q2 so far.
Ring Energy's first quarter results demonstrate a company that is exceeding its operational targets while maintaining financial discipline. With a clear strategy focused on operational excellence, cost management, and strategic growth, Ring Energy is positioned to continue its positive trajectory in the competitive energy market.
InvestingPro Insights
Ring Energy Inc. (REI) has shown a mixed performance in terms of stock price movements over various time frames. While the company's operational achievements and strategic plans paint a positive picture, investors should consider the recent trends in the stock's price performance.
InvestingPro Data reveals the following metrics for Ring Energy as of Day 129, 2024:
- The 1-week price total return stands at 3.09%, indicating a recent uptick in investor sentiment.
- Looking at the year-to-date (YTD) price total return, the figure is at -7.16%, suggesting that Ring Energy's stock has faced challenges since the start of the year.
- The previous close price was 363.56 USD, which investors can use as a benchmark for recent performance.
InvestingPro Tips for Ring Energy include:
- Investors might consider the recent 1-week positive return as a sign of potential short-term momentum, which could be aligned with the company's reported operational success.
- The negative YTD return may require investors to assess the stock's resilience against broader market trends or sector-specific headwinds.
For readers looking to delve deeper into Ring Energy's performance and potential investment opportunities, InvestingPro offers additional insights and tips. There are currently 5 more InvestingPro Tips available for REI, which could provide valuable context to the company's financial health and future prospects.
For those interested in gaining full access to these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. This offer could provide investors with comprehensive data and analysis tools to make more informed decisions in the dynamic energy sector.
Full transcript - DJ Equity All REIT (REI) Q1 2024:
Operator: Good morning and welcome to the Ring Energy First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please also note today’s event is being recorded. At this time, I will turn the floor over to Al Petrie, Investor Relations for Ring Energy. Sir, you may begin.
Al Petrie: Thank you, operator. Good morning, everyone. We appreciate your interest in Ring Energy. We will begin our call with comments from Paul McKinney, our Chairman of the Board and CEO, who will provide an overview of key matters for the first quarter of 2024 as well as our outlook. We will then turn the call over to Travis Thomas, Ring’s Executive VP and Chief Financial Officer, who will review our financial results. Paul will then return with some closing comments before we open up the call for questions. Also joining us on the call today and available for the Q&A session are Alex Dyes, Executive VP of Engineering and Corporate Strategy; Marinos Baghdati, Executive VP of Operations; and Steve Brooks, Executive VP of Land, Legal, Human Resources and Marketing. During the Q&A session, we ask you to limit your questions to one and a follow-up. You are welcome to reenter the queue later with additional questions. I would also note that we have posted an updated corporate presentation on our website. During the course of this conference call, the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in those forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Ring Energy disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday’s press release and in our filings with the SEC. These documents can be found in the Investors section of our website located at www.ringenergy.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable measures under GAAP are contained in yesterday’s earnings release. Finally, as a reminder, this conference call is being recorded. I would now like to turn the call over to Paul McKinney, our Chairman and CEO.
Paul McKinney: Thank you, Al and thank you for everyone joining us today and your interest in Ring Energy. As you may have read by now, we began 2024 with a solid first quarter. Sales volumes exceeded the high end of our guidance, while operating expenses and capital spending both came in below our guidance ranges, placing us in a strong position for the rest of the year. The primary driver of our sales volume performance was the robust returns from our drilling program and reduced downtime since the winter storm we incurred in January. The key factors contributing to our lower-than-expected capital costs were increased efficiencies associated with our well completions and the improved logistics of drilling our wells. Additionally, we benefited from lower costs realized by an improved macro environment associated with the drilling and completion services for our wells. LOE, on a per BOE basis, came in below our guidance range as well primarily due to our continuing focus on reducing costs generally and more specifically associated with the progress we are making integrating the Founders’ assets into our operations. These efforts not only led to lower costs but lower downtime as well that contributed to our sales volumes performance, as mentioned earlier. Our results this quarter are a direct reflection of the dedication and commitment of our employees in both the field and the office. And on behalf of the Board and management team, we thank all of you for your hard work. With respect to our performance this quarter, we sold 13,394 barrels of oil per day, which was 5% higher than the top end of our sales guidance. On a total product basis, we reported first quarter 2024 sales volumes of 19,034 barrels of oil equivalent per day that was 3% above the top end of our Boe sales guidance. As important, we increased oil to 70% of our product mix. Lease operating expenses, or LOE, during the first quarter were $10.60 per Boe. The combined impact of higher-than-expected sales volumes and lower-than-anticipated LOE per Boe led to adjusted net income of $20.3 million, adjusted EBITDA of $62 million and net cash provided by operating activities of $45.2 million. During the first quarter, we invested $36.3 million in capital expenditures, which include the drilling and completion of 5 horizontal wells, 3 of which were in the Central Basin Platform and 2 in the Northwest Shelf and the drilling and completion of 6 vertical wells, all in the CBP South, 3 in Andrews County and 3 in Crane County. Total capital spending included capital workovers, infrastructure upgrades and leasing as well. Adjusted free tax flow was $15.6 million for the first quarter of 2024, which was 48% higher than the same quarter a year ago and represents the 18th consecutive quarter of positive adjusted free cash flow for the company. Turning to the balance sheet. We paid down $3 million of debt in the first quarter and $33 million since the closing of the Founders acquisition in late August. This allowed us to exit the quarter with $179.3 million of liquidity. Regarding our guidance for the year, we still plan to drill an average of 5 horizontal and 6 vertical wells per quarter, which is consistent with what we did in the first quarter. We intend to continue utilizing a phased 2-rig drilling program, including 1 horizontal rig and 1 vertical rig, as opposed to a continuous drilling approach to retain the flexibility to react to changing commodity prices and market conditions as well as manage our quarterly cash flows. Our phased drilling program designed to organically maintain or slightly grow our oil production and so we are not changing our full year production guidance at this time. Regarding the second quarter, we anticipate our production to range between 18,500 barrels and 19,100 barrels of oil equivalent per day and perhaps more importantly, our oil production to range between 13,000 barrels and 13,400 barrels of oil per day. This implies an oil mix of approximately or slightly more than 70%. With that, I will turn this over to Travis to provide more details on the quarter and will return for closing comments before we open the call for questions. Travis?
Travis Thomas: Thanks, Paul and good morning, everyone. As Paul discussed, we are pleased to have a strong start to 2024 with the solid first quarter results that exceeded expectations on multiple key fronts, including higher sales volumes, lower operating expenses and lower capital expenditures. We continue to materially benefit from our two strategic acquisitions completed over the past 2 years. Also contributing to the first quarter results was the successful kickoff and initial execution of our 2024 drilling program complemented by further efficiencies achieved through our expanded scale and focused on the best operational practices. The combined result was continued strong generation of adjusted free cash flow during the first quarter of 2024 that was used to further pay down debt with balance sheet improvement remaining a top priority for the company. With that overview, let’s take a look at the quarter in more detail. As in the past, I’m going to focus my comments on the most important sequential quarterly results. During the first quarter, we sold 13,394 barrels of oil per day and 19,034 Boe per day, both of which were higher than the top end of our guidance. The slight decrease in sales volumes from the fourth quarter was primarily due to approximately 10 days of partial downtime due to the winter storm in January. Also impacting first quarter results was the overall realized pricing of $54.56 per Boe, a 3% decrease from the fourth quarter. Our first quarter average crude oil price differential from NYMEX WTI futures pricing was a negative $1.34 per barrel versus a negative $0.92 per barrel for the fourth quarter. This was mostly due to the Argus WTI, WTS that increased $0.96 per barrel, offset by the Argus CMA roll that decreased by $1.4 per barrel on average from the fourth quarter. Our average natural gas price differential from NYMEX futures pricing for the first quarter was a negative $2.57 per Mcf compared to a negative $3.12 per Mcf for the fourth quarter. Our realized NGL price for the first quarter averaged 15% of WTI compared to 14% for the fourth quarter. The result was revenue for the first quarter of $94.5 million, a 5% decrease from the fourth quarter. As noted, we are targeting higher oil mix opportunities since oil accounted for 98% of the revenue, even though it was 70% of our production. While the gas revenue was negative, NGLs contributed for $3 million, overall, our wellhead gas contributed $2.2 million for the quarter. LOE was $18.4 million versus $18.7 million for the fourth quarter. Echoing Paul’s comments, we are pleased to see LOE come in below the low end of our guidance range of $10.75 to $11.25 per Boe. LOE per Boe increased nominally in the first quarter to $10.60 per Boe versus $10.50 per Boe in the fourth quarter. Cash G&A, which excludes share-based compensation and transaction-related cost was $5.7 million for the first quarter versus $5.3 million for the fourth quarter, contributing to the sequential quarterly increase in cash G&A or additional costs attributable to administrative functions related to the year-end audit, SOX compliance and 10-K preparation. Our first quarter results included a loss on derivative contracts of $19 million versus a gain of $29.3 million for the fourth quarter. As a reminder, the gain and loss is just the difference between the mark-to-market values period-to-period. Finally, for Q1, we reported net income of $5.5 million or $0.03 per diluted share. Excluding the after-tax impact of pretax items, including noncash unrealized gains and losses on hedges, share-based compensation expense and transaction costs, our first quarter adjusted net income was $20.3 million or $0.10 per diluted share. This is compared to the fourth quarter 2023 net income of $50.9 million or $0.26 per diluted share and adjusted net income of $21.2 million or $0.11 per diluted share. First quarter 2024 adjusted EBITDA was $62 million and net cash provided by operating activities was $45.2 million, versus $65.4 million and $55.7 million, respectively, for the fourth quarter. During the first quarter, we invested $36.3 million in capital expenditures. Importantly, actual first quarter CapEx came in below our guidance of $37 million to $42 million, while the actual number of producing wells drilled and completed, 11 in total was at the high end of our guidance for well count. We also drilled an SWD originally planned for the second quarter. The primary driver for the lower CapEx was reduced well completion costs and drilling efficiencies. The combined result was adjusted free cash flow of $15.6 million for the first quarter versus $16.3 million for the fourth. We paid down an additional $3 million of borrowings on our revolver in the first quarter and $33 million since the closing of the Founders acquisition last August. Impacting the level of debt reduction in the first quarter was the annual payment of ad valorem taxes, another once a year cost, as well as the growth in our cash balance of approximately $1 million. Moving to our hedge position. For the last 9 months of 2024, we currently have approximately 1.5 million barrels of oil hedged or approximately 43% of our estimated oil sales based on the midpoint of guidance. We also have 1.9 billion cubic feet of natural gas hedged or approximately 41% of our estimated natural gas sales based on the midpoint. For a quarterly breakout for hedge position through – for Q2 through Q4 of 2024, please see our earnings release and presentation, which includes the average price for each contract type. Now let’s turn to the balance sheet in more detail. At March 31, we had $422 million drawn on our credit facility. With a current borrowing base of $600 million, we had approximately $178 million available net of letters of credit. Combined with cash, we had liquidity of $179.3 million with a leverage ratio of 1.67x. To be clear, our primary focus remains the same, improving our balance sheet to better position the company to ultimately provide a meaningful return of capital to the shareholders. To accomplish this, we will continue to evaluate and execute on available opportunities that drive modest growth through the organic development projects and cost reduction initiatives with a focus on more significant growth through acquisitions that are accretive, enhanced size and scale, generate significant near- and long-term cash flow, reduce overall operating expenses and provide strategic benefits. Looking at our outlook and guidance. During full year 2024, we are utilizing a phased drilling program that maintains our flexibility to react to changing market conditions, adjust spending levels as appropriate, as well as manage our cash flows quarter-to-quarter. Our focus is on maintaining or slightly growing BOE production per day, while continuing to grow crude oil sales. Our average daily sales volume guidance for full year of 2024 remains unchanged. Crude oil sales volumes of 12,500 to 13,300 barrels of oil per day and BOE sales volumes of 18,000 to 19,000 BOE per day or 70% oil. For the second quarter, we are providing a sales outlook of crude oil sales volumes of 13,000 to 13,400 barrels of oil per day and BOE sales volumes of 18,500 to 19,100 BOE per day at 70% oil. For CapEx, we continue to expect to spend $135 million to $175 million on our full year development program and are providing an estimate of between $37 million and $42 million for the second quarter. We also continue to anticipate full year 2024 LOE of $10.50 to $11.50 per BOE and are providing guidance of $10.75 to $11.25 per BOE for the second quarter of 2024. Finally, I would like to note that all projects and estimates are based on assumed WTI oil prices of $70 to $90 per barrel and Henry Hub prices of $2 to $3 per Mcf. So with that, I will turn it back to Paul for his closing comments. Paul?
Paul McKinney: Thank you, Travis. We believe our operational and financial success this quarter demonstrate the long-term benefits of our strategy designed to leverage the low breakeven cost of our drilling inventory and the quality of our assets to drive sustainable free cash flow generation. In short, our focus remains the same as in the past. And while I have discussed the components of our strategy previously, it is worth repeating again today. First, we will continue to pursue operational excellence with a sense of urgency and remain focused on safety and environmental stewardship. Second, we will continue to high-grade and execute our targeted drilling program focused on our highest rate of return prospects to organically maintain or slightly grow our production while maximize free cash flow generation. Next, we will continue our focus on improving the balance sheet. And finally, we will seek growth through the pursuit of strategic, accretive and balance sheet-enhancing acquisitions. To sum it up, our commitment to our value-focused proven strategy better prepares the company to manage industry risks and uncertainties, results in the generation of sustainable and competitive returns and supports our efforts to achieve the necessary business size and scale to position Ring to sustainably return capital to stockholders. I want to thank our stockholders for their continued support. I also want to once again thank everyone for participating in today’s call. And with that, we will turn this over to the operator for questions. Operator?
Operator: [Operator Instructions] Our first question today comes from Neal Dingmann from Truist Securities. Please go ahead with your question.
Neal Dingmann: Good morning, guys. Nice quarter, Paul and team. Paul, my first question maybe just, now you’ve got – the footprint has nicely increased. Just wondering, my first question then would be sort of on your – what I’d call your regional focus, specifically. Could you talk about maybe the remainder of this year and into next year, will – how much of the plan will be focused more on the multi-stack vertical play in the South versus more on the San Andres horizontal development up North. I’m just wondering if you could talk about how much we focus on each and how different in today’s economics, how different the returns are between those two sort of broad areas?
Paul McKinney: Yes. Good question, Neal. Yes. And so we’re fortunate that the economics of the investment types are very similar. Very, very robust. We’ve demonstrated over the last several years, the economics of the San Andres horizontal oil play, both in Yoakum County and also in Andrews County. What we’ve discovered here this quarter with the drilling results from the wells we drilled in Penwell, Founders’ assets, those are coming in really strong, really robust. And the good thing about them is that we – they have a much higher percentage of oil. And so as you know, we’re concentrated on that, especially when we’re actually paying to have our natural gas hauled away. And so – but looking at the future, right now, we’re still looking at a balanced program and that balancing more has to do with limitations in infrastructure, a few things like that. In some areas, we’re a little challenged getting the fresh water to frac the wells. Other areas we can tap out the salt water disposal capacity of those systems. And so we tend to move the rig back and forth. And so, right now, we are looking at the drilling program and we are basically selecting the wells that gives us the highest cash flow generating capital spending program that we can deliver. So we’re looking for returns. And so we juggle the wells around even today. I know we’re only in the first quarter but we’ve already rearranged our drilling schedule for this year because we’ve identified what we believe are the wells that have the quickest payout and the highest cash flow generating capacity. And so again, the capital allocation will have more to do with trying to maximize our free cash flow generation than it is looking at one area versus the other.
Neal Dingmann: No, that makes a lot of sense. And then, you kind of go in the direction of my second question when it comes to the two plays. I know you all have done a nice job of investing in infrastructure and all, maybe could you just talk about – you were talking about I get it on the front end sort of fresh water and getting things there. What about on sort of the back end when it comes to infrastructure and takeaway and all? I know you certainly track the oil but when it comes to gas and everything else, infrastructure, do you see many limitations either in that northern or southern play of yours now? Or maybe if you could just talk about details on – I know you put some development in that area.
Paul McKinney: Yes. So we still tend to struggle with what we consider the older infrastructure and – in the Central Basin Platform. The gas takeaway is not nearly as predictable. For example, I’m not going to get into the details but we have struggled in the past there and we are still struggling today with gas takeaway. And so I think the Permian Basin in general has issues, as you can see in the discounts from Henry Hub. And so when you consider that you have a Permian Basin regional takeaway issue and then at the same time, we’re producing some of our gas into the older infrastructure that has not as consistent run times. That’s a challenge. And so we are purposely focusing our capital spending program on these wells that produce a higher percentage oil and much less gas just because of those circumstances. Now, this fall, we understand there will be some additional infrastructure that should help out the Permian Basin in terms of these – the discount from Henry Hub. We’ll see how that goes. We should have a period, I think, coming on into 2024, where you will be able to sell more natural gas out of the Permian Basin. And so we’ll see how things go. But if you just look at history, the Permian Basin has this magical ability to fill that capacity pretty quick because there’s a lot of volumes being flared that otherwise would go to market if they could do it. And at the same time, the ingenuity of the American oilfield workers just has an ability to increase production to fill that capacity when it’s there. So we’ll see how that goes. I hope I answered your question, Neal.
Neal Dingmann: You did. Thank you all. Again, nice quarter.
Paul McKinney: Very good.
Operator: [Operator Instructions] And gentlemen, at this point I’m showing no additional questions. I’d like to turn the floor back over to Paul McKinney for any closing remarks.
Paul McKinney: Well, yes, very good. It looks like Neal Dingmann just jumped back in there with another question. If Neal had another question, you’d like to follow up?
Operator: We do have Neal back in the queue. And Mr. Dingmann, if you would like to ask your follow-up, please proceed.
Neal Dingmann: Yes. Thanks for the time, Paul, put me back in. Just, could you just talk about opportunities. You guys have done a great job. I want to give you a little time to – on M&A, it seems like around your – now out of the woods, when I look especially in both these areas, now that you’ve added both Founders and Stronghold, I’m just wondering, when you’re looking specifically in that area, you see bolt-ons. Maybe just talk about the M&A opportunities in that area.
Paul McKinney: Yes. Very good. Thank you for that, Neal. Yes, there are bolt-ons. But there are other – and so I got to be a little careful here. We’re predicting that we’re going to see additional assets become available in the Central Basin Platform, the southern part of the Northwest shelf as a result of some of these larger transactions we’ve seen close and/or that are pending. And so many of the operators that have been purchased operate out here and many of the operators that are doing the purchasing and acquiring also have assets out here that have not been their focus and fall in the category that we believe anyway in their halls would be considered non-strategic. So we anticipated them come into the marketplace for sale. And we’re really excited about this area. We’ve done a lot of mapping. We’ve identified several opportunities out there that we would like. As you may recall, in the past, we have tried to negotiate transactions in the past. That’s how the Stronghold deal started but it ended up being a process that we ultimately prevailed in, Founders was a negotiated deal after a failed sale. And so we’re not opposed to doing that. We are constantly seeking to make acquisitions and that ranges everything from smaller bolt-ons that are just on the other side of the fence from us because it makes a lot of sense. We can continue to play that in the capital programs that we’re currently doing. But at the same time, there’s other areas out there that are very close to our operations that allow us to capture the synergies of our operating team and our expertise. And so we believe that the pipeline is basically there for the next several years, probably more opportunities than we ourselves can take down. And so we’re excited about it. And so we’ll see how 2024 goes. I think one of the things that we have going for us right now is a little – what appears to be a little bit more stability in oil prices. So if you can stay between $75 and $85 for a sustained period of time, I think you’ll find more people willing to sell. And at the same time, increase the probability of a transaction, just simply because the expectations can – are closer – more closely aligned in a more stable oil price environment. So we’ll see how that goes. But anything from small bolt-ons to large acquisitions that could be as mean as a Stronghold deal and a Founders deal where that were – were for us in the past.
Neal Dingmann: Sure. No, I love the options. And then if I could do one last one. Just on the multi-stack vertical. Again, could you remind me – I mean, again, have you – it seems like you continue to add sort of different zones and you – and the guys who are in the team keep adding, maybe talk about what makes most sense today to target and how that is different maybe than 1 year or so ago?
Paul McKinney: Yes. So a year or so ago, we had – we’re looking at opportunities. If you look at what the Stronghold acquisition the McKnight area has a lot of opportunity but the natural gas is a much larger percentage of the product flow. And so we’ve decided to concentrate more in the P.J. Lea area down in Crane County and also in the Penwell area for the newly acquired Founders acquisition. And the reason why P.J. Lea is so attractive is, number one, the returns are great. We’ve had really good results. And with many of the wells that we drill, we’re adding PUDs. And so we’re increasing reserves by expanding that play out beyond where we originally defined. And so what we’re – what we believe in that area that we have a lot more reserve to add than it was included in the original acquisition. And so we’re really excited about that. So anytime you can drill and add additional PUD reserves and extend the field and continue to have the success we’re having, is really exciting. Now when you go to Founders, we just got started out there. We drilled three wells there, this last quarter. We’re very pleased with the results. We feel like that program has a lot of running room and so it will get more allocation of our capital than perhaps we originally thought but we’ll see how that goes. But if the robust returns continue in both of those areas, it’ll have – and so again, this year, we’re just – we just happen to have the benefit of wells that came in higher than our type curves. I think one well is right on our time curves, everything else is slightly above. And so when you have those kind of returns, yes, we might even have to adjust our production going forward for the rest of the year if we continue to have this type of success.
Neal Dingmann: Yes. I love that optionality. Thanks, Paul.
Paul McKinney: Yes. You bet.
Operator: [Operator Instructions] And our next question comes from Jeff Grampp from Alliance Global Partners (NYSE:GLP). Please go ahead with your question.
Jeff Grampp: Good morning, guys. Maybe just to build on that last comment. I noticed in the slide deck, those P.J. Lea and Penwell vertical results look really impressive there. Can you touch on how much more capital can you put into those areas, taking into account, I suppose, infrastructure, maybe inventory management constraints, if there are any? And just how much more aggressive could you guys be, if any, relative to the five, six wells a quarter pace that you guys seem to be at, at least for Q1?
Paul McKinney: Yes. And so I probably need to defer that to Marinos Baghdati.
Marinos Baghdati: Good morning, Jeff. Yes, we have flexibility there to add. We’re still on the Penwell there. Let me back up. On the P.J. Lea area, yes, we’ve eliminated pretty much all constraints in terms of electrical, salt water disposal and frac water to complete the wells. So we can accelerate at whatever pace we want to at P.J. Lea. One of the things that we’re doing there is being very diligent about, like Paul mentioned, adding PUDs because we’re stepping out to the outskirts of the reservoir there. So we’re wanting to see some results before we really accelerate the number of well count there. Over at Penwell, we are still going through some salt water disposal, kind of making sure we eliminate any bottlenecks there before we can say we can really accelerate but we do have capacity to drill more than three wells a quarter as it stands right now. We’re just really comfortable around that. So we don’t – I won’t say waste capital but just spend more capital than we absolutely have to. Does that kind of answer your question, Jeff?
Jeff Grampp: Yes. Yes. No, that’s perfect. I appreciate it. My follow-up on the CapEx side, obviously, really nice quarter coming in below the guide. And I know you guys have talked about some cost efficiencies, particularly with the Founders’ assets early on. I noticed the guide for Q2 is kind of consistent with Q1, even though you guys did have some better performance. Is there – is that just kind of some general conservatism? Are there some other things related to maybe capitalized workovers or other things beyond new drills explaining that variance? Or just, I guess, maybe looking for a little more context Q1 versus Q2 on CapEx?
Marinos Baghdati: We may add additional SWD wells in Q2. It hasn’t been decided yet. So that would increase CapEx over Q1. I know we drilled 1 in Q1, we may do two in Q2 and this for the Penwell area. In addition to that, we spent about $1.5 million on ESG infrastructure improvements in the first quarter. We think that may accelerate in the second quarter. We’re trying to go as fast as we can but at the same time, be efficient. And then first quarter, we talked about our operational efficiency. All our AFEs have contingency costs. That’s normal to have. We didn’t have any contingency issues with any of our work in the first quarter. We may have a couple of operational hiccups with second quarter wells. So we’re – we still kept those contingency dollars in there and that’s why the capital seems to not have changed very much. But we’ll see as the quarter goes, so far, in the second quarter, we haven’t had any issues. So we feel pretty good about that, too.
Jeff Grampp: Perfect. That’s makes lot of sense. Appreciate the details guys.
Paul McKinney: Thanks, Jeff.
Operator: And ladies and gentlemen, at this point I’m showing no additional questions. I’d like to turn the floor back over to Paul McKinney for closing comments.
Paul McKinney: Thank you, Jamie. On behalf of the management team and Board of Directors, I want to thank everyone for listening and participating in today’s call. We appreciate your continued support of the company. We look forward to keeping everyone appraised of our progress. Thank you again for your interest in Ring and have a great day.
Operator: Ladies and gentlemen, that will conclude today’s conference call and presentation. We thank you for joining. You may now disconnect your lines.
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