Company: REI
Filing Date: 2025-08-06
Form Type: 10-Q
Source: 0001628280-25-038401
Chunk: 120

Company: RING ENERGY, INC.
Filing Date: 2025-08-06
Form: 10-Q
Item: Part I, Item 8
Chunk 120
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772Q 2025Central Basin Platform (Horizontal)1 1 Central Basin Platform (Vertical)1 1 Total22

(1) Total does not include the SWD well(s) drilled and completed in the [  ].

41

Market Conditions and Commodity Prices

Our financial results depend on many factors, particularly the price of crude oil and natural gas and our ability to market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand both domestically and world wide, which are impacted by many factors. As a result, we cannot accurately predict future commodity prices, and therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes or revenues.

Average oil and natural gas prices received through 2024 and 2025 to date continue to demonstrate commodity price volatility and we believe oil and natural gas prices will continue to be volatile for the foreseeable future. The ability to find and develop sufficient amounts of crude oil and natural gas reserves at economical costs are critical to our long-term success.

Ceiling Test

We perform a ceiling test at the end of each reporting period to evaluate for potential non-cash impairments. Under the full cost method of accounting, the net book value of properties, less related deferred income taxes, may not exceed a calculated “ceiling,” which is defined as the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at an annual rate of 10%. The discounted future net revenues are estimated using spot prices for oil and natural gas, based on the average price during the preceding twelve months. This average is calculated as an unweighted arithmetic mean of the first-day-of-the-month prices for each month within that period, except when changes are fixed and determinable by existing contracts. We anticipate a decrease in the twelve month average price over the next several months which will reasonably likely lead to a non-cash impairment. Estimating potential future non-cash impairments is complex due to numerous factors affecting the ceiling test calculation, including but not limited to future prices, operating costs, upward or downward reserve revisions, reserve additions, and tax attributes.  The amount of any such potential non-cash impairment, if any, is not estimable at this time given the uncertainty of these factors. 

Natural Gas Takeaway Capacity

The Permian Basin has been experiencing a lack of sufficient pipeline transportation that is connected to markets that are purchasing the natural gas produced