Ring Energy Inc. has agreed to acquire the assets of privately held Stronghold Energy II Operating LLC and Stronghold Energy II Royalties LP. The deal is expected to increase Ring’s estimated fourth-quarter 2022 sales volumes by nearly 100% from the midpoint of the company’s current guidance and grow its operating footprint 56% to more than 100,000 net acres, the company said in a release July 5.
Stronghold’s operations lie primarily in Crane County, Texas and focused on development of some 37,000 net acres (31,000 leasehold, 6,000 mineral) in the Permian basin’s Central Basin Platform. The assets are about 99% operated, 99% working interest, and 99% held by production, and current net production of about 9,100 boe/d (54% oil, 75% liquids).
Ring says the deal could increase its inventory in the county by about 500 new vertical drilling and recompletion locations.
Pro forma company metrics for fourth-quarter 2022 include 18,000-19,000 boe/d (70% oil, 81% liquids) and capital expenditures of $50-54 million, Ring said.
Subject to adjustments, consideration consists of $200 million in cash at closing, $15 million deferred cash payment due 6 months after closing, $20 million of existing Stronghold hedge liability, and $230 million in Ring equity based on a 20-day volume weighted average price of $3.60/common share to be issued to the owners of Stronghold. Stronghold is majority owned by Warburg Pincus LLC.
Following the deal’s close, subject to closing requirements, Stronghold’s owners will own about 34% of Ring and become its largest stockholder. The board is expected to be expanded to nine directors from seven to include two members proposed by Warburg Pincus. Ring’s current senior management team will continue to lead the pro forma company, Ring said.