Annual report pursuant to Section 13 and 15(d)

ACQUISITIONS & DIVESTITURES

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ACQUISITIONS & DIVESTITURES
 12 Months Ended
Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
ACQUISITIONS & DIVESTITURES
NOTE 5 — ACQUISITIONS & DIVESTITURES
Andrews County Sale and Exchange
The Company entered into a Purchase, Sale and Exchange Agreement effective January 1, 2021, with an unrelated party, covering the sale and exchange of certain oil and gas interests in Andrews County, Texas. Upon closing, the Company received cash consideration of $2,000,000 and reduced the Company’s asset retirement obligations by $2,934,126 for the properties sold and added $662,705 of asset retirement obligations for the wells acquired.
Stronghold Acquisition
On July 1, 2022, Ring, as buyer, and Stronghold Energy II Operating, LLC, a Delaware limited liability company (“Stronghold OpCo”) and Stronghold Energy II Royalties, LP, a Delaware limited partnership (“Stronghold RoyaltyCo”, together with Stronghold OpCo, collectively, “Stronghold”), as seller, entered into a purchase and sale agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, Ring acquired (the “Stronghold Acquisition”) interests in oil and gas leases and related property of Stronghold consisting of approximately 37,000 net acres located in the Central Basin Platform of the Texas Permian Basin. On August 31, 2022, Ring completed the Stronghold Acquisition.
The fair value of consideration paid to Stronghold was approximately $394.0 million, of which $165.9 million, net of customary purchase price adjustments, was paid in cash at closing, $15.0 million was payable in cash after the six-month anniversary of the closing date of the Stronghold Acquisition. Shortly after closing, approximately $4.5 million was paid for inventory and vehicles and approximately $1.8 million was paid for August oil derivative settlements for certain novated hedges. The cash portion of the consideration was funded primarily from borrowings under a new fully committed revolving credit facility (the “Credit Facility”) underwritten by Truist Securities, Citizens Bank, N.A., KeyBanc Capital Markets Inc., and Mizuho Bank, Ltd. The borrowing base of the $1.0 billion Credit Facility was increased from $350.0 million to $600 million at the closing of the Stronghold Acquisition. The remaining consideration consisted of 21,339,986 shares of Ring common stock and 153,176 shares of newly created Series A Convertible Preferred Stock, par value $0.001 (“Preferred Stock”) which was converted into 42,548,892 shares of common stock on October 27, 2022. Please see "Note 11 — STOCKHOLDERS' EQUITY" for further discussion. In addition, Ring assumed $24.8 million of derivative liabilities, $1.7 million of items in suspense and $14.5 million in asset retirement obligations.
The Stronghold Acquisition was accounted for as an asset acquisition in accordance with ASC Topic 805 - Business Combinations. The fair value of the consideration paid by Ring and allocation of that amount to the underlying assets acquired, on a relative fair value basis, was recorded on Ring’s books as of the date of the closing of the Stronghold Acquisition. Additionally, costs directly related to the Stronghold Acquisition were capitalized as a component of the purchase price. Determining the fair value of the assets and liabilities acquired required judgment and certain assumptions to be made, the most significant of these being related to the valuation of Stronghold’s oil and gas properties. The inputs and assumptions related to the oil and gas properties were categorized as level 3 in the fair value hierarchy.
The following table represents the final allocation of the total cost of the Stronghold Acquisition to the assets acquired and liabilities assumed as of the Stronghold Acquisition date:
Consideration:
Shares of Common Stock issued 21,339,986 
Common Stock price as of August 31, 2022 $ 3.24 
Common Stock Consideration $ 69,141,555 
Shares of Preferred Stock issued 153,176 
Aggregate Liquidation Preference $ 153,176,000 
Conversion Price $ 3.60 
As-Converted Shares of Common Stock 42,548,892 
Common Stock Price as of August 31, 2022 $ 3.24 
Preferred Stock Consideration $ 137,858,446 
Cash consideration:
Closing amount paid to Stronghold 121,392,455 
Escrow deposit paid 46,500,000 
Cash paid for inventory and fixed assets 4,527,103 
Cash paid for realized losses on August oil derivatives 1,777,925 
  Cash received for post-close adjustments, net (5,535,839)
Total cash consideration 168,661,644 
Fair value of deferred payment liability 14,807,276 
Post-close settlement to be paid to Stronghold 3,511,170 
Fair value of consideration paid to seller 393,980,091 
Direct transaction costs 9,162,143 
Total consideration $ 403,142,234 
Fair value of assets acquired:
Oil and natural gas properties 439,589,683 
Inventory and fixed assets 4,527,103 
Amount attributable to assets acquired $ 444,116,786 
Fair value of liabilities assumed:
Suspense liability 1,651,596 
Derivative liabilities, marked to market 24,784,406 
Asset retirement obligations 14,538,550 
Amount attributable to liabilities assumed $ 40,974,552 
Net assets acquired $ 403,142,234 
Approximately $40.4 million of revenues and $13.6 million of direct operating expenses attributed to the Stronghold Acquisition were included in the Company’s Statements of Operations for the period from September 1, 2022 through December 31, 2022.
Delaware Basin Divestiture
On May 11, 2023, the Company completed the divestiture of its Delaware Basin assets to an unaffiliated party for $8.3 million. The sale had an effective date of March 1, 2023. The final cash consideration was approximately $7.6 million. As part of the divestiture, the buyer assumed an asset retirement obligation balance of approximately $2.3 million.
Founders Acquisition
On July 10, 2023, the Company, as buyer, and Founders Oil & Gas IV, LLC (“Founders”), as seller, entered into an Asset Purchase Agreement (the “Founders Purchase Agreement”). Pursuant to the closing of the Purchase Agreement, on August 15, 2023 the Company acquired (the “Founders Acquisition”) interests in oil and gas leases and related property of Founders located in the Central Basin Platform of the Texas Permian Basin in Ector County, Texas, for a purchase price (the “Purchase Price”) of (i) a cash deposit of $7.5 million paid on July 11, 2023 into a third-party escrow account as a deposit pursuant to the Founders Purchase Agreement, (ii) approximately $42.5 million in cash paid on the closing date, net of approximately $10 million of preliminary and customary purchase price adjustments with an effective date of April 1, 2023, and (iii) a deferred cash payment of approximately $11.9 million paid on December 18, 2023, net of customary purchase price adjustments.
The Founders Acquisition has been accounted for as an asset acquisition in accordance with ASC 805. The fair value of the consideration paid by Ring and allocation of that amount to the underlying assets acquired, on a relative fair value basis, was recorded on Ring’s books as of the date of the closing of the Founders Acquisition. Additionally, costs directly related to the Founders Acquisition were capitalized as a component of the purchase price. Determining the fair value of the assets and liabilities acquired required judgment and certain assumptions to be made, the most significant of these being related to the valuation of Founder’s oil and gas properties. The inputs and assumptions related to the oil and gas properties are categorized as level 3 in the fair value hierarchy.
The following table represents the final allocation of the total cost of the Founders Acquisition to the assets acquired and liabilities assumed as of the Founders Acquisition date:
Consideration:
Cash consideration
Escrow deposit released at closing $ 7,500,000 
Closing amount paid to Founders 42,502,799 
Interest from escrow deposit 1,747 
Fair value of deferred payment liability 14,657,383 
Post-close adjustments (4,139,244)
Total cash consideration $ 60,522,685 
Direct transaction costs 1,361,843 
Total consideration $ 61,884,528 
Fair value of assets acquired:
Oil and natural gas properties $ 64,886,472 
Amount attributable to assets acquired $ 64,886,472 
Fair value of liabilities assumed:
Suspense liability $ 677,116 
Asset retirement obligations 2,090,777 
Ad valorem tax liability 234,051 
Amount attributable to liabilities assumed $ 3,001,944 
Net assets acquired $ 61,884,528 

Approximately $18.0 million of revenues and $5.0 million of direct operating expenses attributed to the Founders Acquisition are included in the Company’s Statements of Operations for the period from August 16, 2023 through December 31, 2023.
New Mexico Divestiture
On September 27, 2023, the Company completed the divestiture of its operated New Mexico assets to an unaffiliated party for $4.5 million, resulting in preliminary cash consideration of approximately $3.7 million, subject to customary final purchase price adjustments. The sale had an effective date of June 1, 2023. As part of the divestiture, the buyer assumed an asset retirement obligation balance of approximately $2.4 million.
Gaines County Texas Sale
On December 29, 2023, the Company completed the sale of specified oil and gas properties within Gaines County, Texas to an unaffiliated party for $1.5 million, which resulted in cash proceeds of $1.4 million, net of $0.1 million in commission fees. The sale had an effective date of December 1, 2023. As part of the sale, the buyer assumed an asset retirement obligation balance of approximately $0.5 million.