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

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

9 Months Ended

Sep. 30, 2024

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. At the time of the new lease commencement, the additional office space that was added was under construction and until completed, the rental obligation for this space had not yet commenced, because the Company did not have control of the additional office space in accordance with ASC 842-40-55-5. On September 27, 2023, the Company provided a certificate of acceptance of premises to the lessor of the additional office space, and accordingly, the future payments for this space are included along with the other operating leases, reflected in the future lease payments schedule 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. to 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 September 30, 2024 are as follows:


	2024		2025		2026		2027		2028		Other Future Years
Operating lease payments (1)	$	177,466	$	727,460	$	636,649	$	460,497	$	250,606	$	149,628
Financing lease payments (2)	255,854		821,792		367,872		23,914		—		—

(1)The weighted average annual discount rate as of September 30, 2024 for operating leases was 4.50%. Based on this rate, the future lease payments above include imputed interest of $195,057. The weighted average remaining term of operating leases was 3.66 years.

(2)The weighted average annual discount rate as of September 30, 2024 for financing leases was 7.15%. Based on this rate, the future lease payments above include imputed interest of $92,880. The weighted average remaining term of financing leases was 1.75 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
	September 30, 2024		December 31, 2023
Operating lease liability, current portion	$	633,132	$	568,176
Operating lease liability, non-current portion	1,574,117		2,054,041
Operating lease liability, total	$	2,207,249	$	2,622,217
Total undiscounted future cash flows (sum of future operating lease payments)	2,402,306		2,900,050
Imputed interest	195,057		277,833
Undiscounted future cash flows less imputed interest	$	2,207,249	$	2,622,217

Financing lease liability, current portion	$	879,598	$	956,254
Financing lease liability, non-current portion	496,954		906,330
Financing lease liability, total	$	1,376,552	$	1,862,584
Total undiscounted future cash flows (sum of future financing lease payments)	1,469,432		2,006,453
Imputed interest	92,880		143,869
Undiscounted future cash flows less imputed interest	$	1,376,552	$	1,862,584

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


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Operating lease costs	$	175,091	$	138,220	$	525,272	$	366,711
Short-term lease costs (1)	1,225,729		1,012,525		3,311,077		4,042,160
Financing lease costs:
Amortization of financing lease assets (2)	258,022		197,221		790,386		572,744
Interest on financing lease liabilities (3)	27,224		23,416		89,963		73,115

(1)Amount included in Lease operating expenses

(2)Amount included in Depreciation, depletion and amortization

(3)Amount included in Interest (expense)