Ring Energy, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

6 Months Ended

Jun. 30, 2023

NOTE 3 — LEASES

The Company has operating leases for its offices in Midland, Texas and The Woodlands, Texas. The Midland office is under a five-year lease which began January 1, 2021. The Midland office lease was amended effective October 1, 2022, with the revised five-year lease ending September 30, 2027. Beginning January 15, 2021, the Company entered into a five-and-a-half-year sub-lease for office space in The Woodlands, Texas; however, effective as of May 31, 2023, The Woodlands office sub-lease was terminated. On May 9, 2023, the Company entered into a 71-month (five years and 11-month) new lease for a larger amount of office space in The Woodlands, Texas. The additional office space that was added is under construction and until completed, the rental obligation for this space has not commenced. In other words, the Company does not have control of the additional office space in accordance with ASC 842-40-55-5. The future payments associated with these operating leases as to the current obligations are reflected below.

The Company has month to month leases for office equipment and compressors used in its operations on which the Company has elected to apply ASU 2016-02 (i.e. not capitalize). The office equipment and compressors are not subject to ASU 2016-02 based on the agreement and nature of use. These leases are for terms that are less than 12 months and the Company does not intend to continue to lease this equipment for more than 12 months. The lease costs associated with these leases is reflected in the short-term lease costs within Lease operating expenses, shown below.

The Company has financing leases for vehicles. These leases have a term of 36 months at the end of which the Company owns the vehicles. These vehicles are generally sold at the end of their term and the proceeds applied to a new vehicle.

Future lease payments associated with these operating and financing leases as of June 30, 2023 are as follows:


	2023		2024		2025		2026		2027		Other Future Years
Operating lease payments (1)	$	220,193	$	482,328	$	494,692	$	398,096	$	216,000	—
Financing lease payments (2)	416,687		771,643		432,695		11,136		—		—

(1)The weighted average discount rate as of June 30, 2023 for operating leases was 4.50%. Based on this rate, the future lease payments above include imputed interest of $152,969. The weighted average remaining term of operating leases was 3.81 years.

(2)The weighted average discount rate as of June 30, 2023 for financing leases was 6.05%. Based on this rate, the future lease payments above include imputed interest of $105,298. The weighted average remaining term of financing leases was 2.02 years.

The following table represents a reconciliation between the undiscounted future cash flows in the table above and the operating and financing lease liabilities disclosed in the Condensed Balance Sheets:


	As of
	June 30, 2023		December 31, 2022
Operating lease liability, current portion	$	394,404	$	398,362
Operating lease liability, non-current portion	1,263,936		1,473,897
Operating lease liability, total	$	1,658,340	$	1,872,259
Total undiscounted future cash flows (sum of future operating lease payments)	1,811,309		2,065,580
Imputed interest	152,969		193,321
Undiscounted future cash flows less imputed interest	$	1,658,340	$	1,872,259

Financing lease liability, current portion	$	761,110	$	709,653
Financing lease liability, non-current portion	765,753		1,052,479
Financing lease liability, total	$	1,526,863	$	1,762,132
Total undiscounted future cash flows (sum of future financing lease payments)	1,632,161		1,900,595
Imputed interest	105,298		138,463
Undiscounted future cash flows less imputed interest	$	1,526,863	$	1,762,132

The following table provides supplemental information regarding lease costs in our Condensed Statements of Operations:


	For the Three Months Ended				For the Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Operating lease costs	$	115,353	$	83,590	$	228,491	$	167,180
Short-term lease costs (1)	1,815,836		581,799		3,029,635		1,297,602
Financing lease costs:
Amortization of financing lease assets (2)	189,495		110,850		375,523		227,465
Interest on financing lease liabilities (3)	24,268		7,280		49,699		13,793

(1)Amount included in Lease operating expenses

(2)Amount included in Depreciation, depletion and amortization

(3)Amount included in Interest (expense)