Ring Energy

Price per share when purchased: $0.80                       Date of posting: Oct 14, 2025 Price at posting: $1.02

Business

Ring Energy (Ticker: REI) is an oil production company located in West Texas, in the Northwest Shelf and Central Basin. 

In Q2, 2025, Ring produced 1.94m barrels of oil equivalent (21,295 barrels per day), made up of approximately 66% oil, 18% liquid natural gas, and 16% gas. 

It has 134m barrels of proven reserves, 69% of which are developed, over 81,000 net acres and 400 locations.

Its all in cash costs in Q2, 2025 were $21.51 per BOE. 

During Q2, 2025, Ring’s adjusted free cash flow was $24.8m.

At the end of Q2, 2025, Ring Energy’s outstanding debt was $448m, down $12m from the prior quarter.

 

The Simple Value Story

On October 14, Ring Energy’s market cap was $212 million versus a tangible book value of $898 million, giving it a book-to-market multiple of 4.23. A stock price above $4 would be required for the ratio to reach 1.

In Q2 2025, Ring earned $0.10 per share; excluding derivative gains, adjusted earnings were $0.05 per share. Annualized, that equates to $0.20 per share, implying a $2.00 share price at 10 times earnings.

At the end of 2024, Ring reported an after-tax PV-10 of $1.2 billion. Subtracting the present value of annual overhead costs ($8 million per year, discounted at 10%, or about $80 million) and outstanding debt of $450 million, gives an estimated value of roughly $700 million. That’s about three times the current market capitalization, implying a stock price near $3 per share.

Based on recent open-market transactions Ring Energy estimates that its share price should be $2.51.  Ring makes this estimate by comparing its production, reserves and enterprise value calculation relative to two recent open market transactions of other similar oil producers.

 

Stock Selling Pressures

At first glance, based on the simple value story above, Ring Energy appears deeply undervalued, suggesting a stock price above $2 per share is reasonable.

One major factor behind the low share price is that Warburg Pincus—a global private equity firm managing roughly $80 billion—sold its entire position in Ring Energy. At its peak, Warburg Pincus owned 46 million shares, representing more than 20% of the company’s outstanding stock. Between July 2023 and September 2025, it fully exited that position, likely putting substantial downward pressure on the share price. No public explanation has been provided for the divestment.

A second factor is the wave of forced selling that occurred when Ring Energy was dropped from the Russell 3000 Index. Companies with a share price below $1 are ineligible for inclusion, and Ring’s stock fell below that threshold on April 4, 2025. Many large ETFs and index funds—such as those managed by Vanguard—that track the Russell 3000 would have been required to sell. ChatGPT estimates that roughly 7.4 million shares were liquidated as a result, adding further selling pressure.

Ring Energy’s stock hit its low point of $0.72 on August 1. Since then the stock price has rebounded sharply to above $1 per share, following the Q2 earnings release and the completion of both Warburg Pincus’s exit and the Russell 3000 related selling.

Here is a chart of last three years of stock price fluctuations for Ring Energy.

Discussions Regarding Management Decisions

Beyond the selling pressures described above, there are several other factors contributing to Ring Energy’s depressed share price; some of which may also explain why Warburg Pincus chose to exit its position.

First, the company’s stated strategic objectives appear inconsistent or misaligned with shareholder value creation. For example, Ring lists “maximizing adjusted free cash flow” as a key goal. However, what truly drives share price is free cash flow per share. Under the current CEO, total free cash flow has roughly tripled over the past five years, yet the number of shares outstanding has also tripled, so no improvement in free cash flow per share. Similarly, management has emphasized debt reduction, but long-term debt stood at $310 million at the end of 2020, $385 million at the end of 2024, and $448 million at the end of Q2, 2025.

Second, and more concerning, is the company’s approach to mergers and acquisitions (M&A). Ring’s stated mission includes a commitment to “pursue rigorous capital discipline focused on the company’s highest-returning opportunities.” Yet, in practice, it has repeatedly paid more for acquired reserves than the market value of its own oil, and it has often used its own undervalued stock to fund those acquisitions.

Over the past five years, Ring has completed three major deals—Stronghold (2022), Founders (2023), and Lime Rock (2025).  Each transaction raises questions about Ring’s capital discipline:

  • Stronghold (2022): Acquired 67.5 million BOE for $465 million, or $6.50 per BOE. At the time, Ring’s own reserves were valued by the market at $4.90 per BOE (market cap $381 million for 77.8 million BOE). Part of the deal was financed with $230 million in stock, issuing 63 million shares at $3.60 per share.

  • Founders Oil (2023): Acquired 9.2 million BOE for $75 million, or $8.15 per BOE. Meanwhile, Ring’s own reserves were valued at just $2.15 per BOE (market cap $347 million for 138 million BOE).

  • Lime Rock (2025): Acquired 12 million BOE for $100 million, or $8.33 per BOE, while Ring itself traded at $1.96 per BOE (market cap $253 million for 129.8 million BOE). This deal included issuing 6.5 million shares at $1.35 per share, even though management had recently indicated that a fair value for its stock was $2.51 per share. Issuing shares at nearly a 50% discount to what management itself considered fair value in order to buy higher-priced reserves is difficult to justify.

These transactions hardly reflect a company focused on “rigorous capital discipline” or “highest-returning opportunities.” Instead, they suggest a pattern of dilutive acquisitions, which may explain investor skepticism and the persistent undervaluation of Ring Energy’s stock.

The following chart presents REI’s shares outstanding. Current management took control in October, 2020.

Recent Drop in the Price of Oil

Oil prices are obviously an important factor in profits.

Here is the five-year price chart for WTI Oil:

This trend is down.  This will become a problem for Ring Energy if it persists.

 

Conclusion

There are legitimate reasons why Ring Energy’s stock price remains depressed. Management has been inefficient in its acquisition strategy, both in the prices paid for other oil companies and in the decision to fund those purchases with undervalued equity, diluting existing shareholders. The company also carries an elevated debt burden, largely a consequence of these acquisitions. Finally, the recent decline in oil prices has weighed on profitability and reduced the company’s capacity to pay down debt.

Even so, the value proposition remains compelling. Based on tangible book value, the shares could quadruple before reaching parity with the company’s net asset value. Adjusting the PV-10 for taxes, overhead, and debt still suggests the potential for a threefold increase.  Applying a modest price-to-earnings multiple of 10 implies a doubling from current levels. A comparison with recent market transaction indicate the price could more than double.

The two primary risks are clear: weakness in oil prices and management’s capital allocation decisions.