What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-03-16 compared with 2021-03-16 · 451 added, 297 removed, 818 unchanged (48% of the section changed)

1 unchanged sentence

Evaluation of disclosure controls and procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on their evaluation and as of the date of that evaluation, these officers concluded that the Company's disclosure controls and procedures were effective.

Under the direction of our Chief Executive Officer and Chief Financial Officer, we have established disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

As of December 31, 2021, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act.

Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, our disclosure controls and procedures are effective.

Changes in internal control over financial reporting.

1 unchanged sentence

Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During the fiscal year ended December 31, 2020, the Company incorporated procedures from our annual review process into our quarterly review process in order to remediate a material weakness identified during 2019.

These changes included preparing additional schedules and incorporating some additional third-party review.

We believe these additional steps adequately remediate the material weakness.

During the first quarter of 2021, the Company transitioned its accounting and reporting functions from Tulsa in conjunction with its corporate headquarters relocation.

On March 24, 2021, Travis Thomas was named Chief Financial Officer, replacing William Broaddrick.

Except as described above, there were no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

1 unchanged sentence

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting.

Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations.

3 unchanged sentences

Based on our assessment, we believe that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria.

The registered public accounting firm, Eide Bailly LLP, has audited the financial statements included in this annual report and has issued an attestation report on our internal control over financial reporting.

The report is set forth under the caption “Report of Independent Registered Public Accounting Firm” in Item 8 of this annual report.

The independent registered public accounting firm, Grant Thornton LLP, has audited the financial statements included in this Annual Report on Form 10-K, and has issued their report on the effectiveness of the Company’s internal control over financial reporting at December 31, 2021.

The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting at December 31, 2021, is set forth below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Ring Energy, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Ring Energy, Inc.

(a Nevada corporation) (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the financial statements of the Company as of and for the year ended December 31, 2021, and our report dated March 16, 2022 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Houston, Texas

March 16, 2022

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Directors, Executive Officers and Corporate Governance

16 unchanged sentences

The following financial statements are filed with this Annual Report:

Report of Independent Registered Public Accounting Firm

Report of Grant Thornton, LLP, Independent Registered Public Accounting Firm (PCAOB ID Number 248)

Report of Eide Bailly LLP, Independent Registered Public Accounting Firm (PCAOB ID Number 286)

Balance Sheets as of December 31, 2021 and 2020

6 unchanged sentences

Exhibit Description

Stock for Stock Exchange Agreement dated May 3, 2012

Merger Agreement dated November 7, 2012

Purchase and Sale Agreement, dated February 25, 2019 by and among Ring Energy, Inc.

1 unchanged sentence

Articles of Incorporation (as amended)

Current Bylaws

Certificate of Amendment to the Articles of Incorporation, as amended, of Ring Energy, Inc.

Bylaws of Ring Energy, Inc.

as amended April 13, 2021

Registration Rights Agreement, dated April 9, 2019 by and between Ring Energy, Inc.

3 unchanged sentences

Securities Purchase Agreement, dated October 27, 2020

Letter Agreement with Patriot Royalty & Land, LLC entered into on March 1, 2012

Executive Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Stephen D.

5 unchanged sentences

Form of Option Grant for Long-Term Incentive Plan

Executive Committee Charter

Audit Committee Charter

Compensation Committee Charter

Nominating and Corporate Governance Committee Charter

Credit Agreement dated July 1, 2014 with SunTrust Bank

8 unchanged sentences

Third Amendment to Amended and Restated Credit Agreement with Truist Bank

Development Agreement with Torchlight Energy Resources, Inc.

Purchase and Sale Agreement, dated February 4, 2014, between Ring Energy, Inc.

and Raw Oil & Gas, Inc., JDH Raw LC, and Smith Energy Company

Purchase and Sale Agreement effective May 1, 2015, with Finley Production Co., LP, BDT Oil & Gas, LP, Metcalfe Oil, LP, Grasslands Energy, LP, Buffalo Oil & Gas, LP and Finley Resources, Inc.

Fourth Amendment to Amended and Restated Credit Agreement with Truist Bank dated June 10, 2021

Fifth Amendment to Amended and Restated Credit Agreement with Truist Bank dated June 25, 2021

Executive Employment and Severance Agreement, dated as of October 26, 2020, by and between the Company and Travis T.

Commitment Letter dated February 24, 2019, between Ring Energy, Inc., SunTrust Bank and SunTrust Robinson Humphrey, Inc.

Code of Ethics

Letter dated April 19, 2012, from Haynie & Company

Consent of Cawley, Gillespie & Associated, Inc.

Consent of Cawley, Gillespie & Associates, Inc.

Consent of Grant Thornton LLP

Consent of Eide Bailly LLP

Consent of Moss Adams LLP

Rule 13a-14(a) Certification by Chief Executive Officer

15 unchanged sentences

March 16, 2022

/s/ William R.

Chief Financial Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Paul D.

McKinney, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to the annual report on Form 10-K filed with the Securities and Exchange Commission, hereby ratifying and confirming his signature as he may be signed by his or her said attorney to any and all amendments to said Annual Report on Form 10-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the dates indicated.

/s/ Thomas L.

Chief Executive Officer and Director

(Principal Executive Officer)

March 16, 2022

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

March 16, 2022

/s/ Travis T.

/s/ Anthony B.

Chief Financial Officer

(Principal Financial Officer)

March 16, 2022

10 unchanged sentences

March 16, 2022

/s/ Thomas Mitchell

Thomas Mitchell

March 16, 2021

RING ENERGY, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Balance Sheets

Statements of Operations

Statements of Stockholders’ Equity

Statements of Cash Flows

Report of Grant Thornton, LLP, Independent Registered Public Accounting Firm (PCAOB ID Number 248)

Report of Eide Bailly LLP, Independent Registered Public Accounting Firm (PCAOB ID Number 286)

Balance Sheets as of December 31, 2021 and 2020

Statements of Operations for the years ended December 31, 2021, 2020, and 2019

Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020, and 2019

Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019

Notes to Financial Statements

1 unchanged sentence

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Ring Energy, Inc.

Opinion on the financial statements

We have audited the accompanying balance sheet of Ring Energy, Inc.

(a Nevada corporation) (the “Company”) as of December 31, 2021, the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 16, 2022 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The development of estimated proved reserves used in the calculation of depletion, depreciation and amortization expense and evaluation of full cost ceiling impairment under the full cost method of accounting

As described further in Note 1 to the financial statements, the Company accounts for its oil and gas properties using the full cost method of accounting which requires management to make estimates of proved reserve volumes and future net revenues to record depletion, depreciation and amortization expense and assess its oil and gas properties for potential full cost ceiling impairment.

To estimate the volume of proved reserves and future net revenue, management makes significant estimates and assumptions including forecasting the production decline rate of producing properties and forecasting the timing and volume of production associated with the Company’s development plan for proved undeveloped properties.

In addition, the estimation of proved reserves is also impacted by management’s judgments and estimates regarding the financial performance of wells associated with proved reserves to determine if wells are expected with reasonable certainty to be economical under the appropriate pricing assumptions required in the estimation of depletion,

depreciation and amortization expense and potential full cost ceiling impairment assessment.

We identified the estimation of proved reserves of oil and gas properties as a critical audit matter.

The principal consideration for our determination that the estimation of proved reserves is a critical audit matter is that changes in certain inputs and assumptions, which require a high degree of subjectivity, necessary to estimate the volume and future net revenues of the Company’s proved reserves could have a significant impact on the measurement of depletion, depreciation and amortization expense and potential full cost ceiling impairment.

In turn, auditing those inputs and assumptions required subjective and complex auditor judgment.

Our audit procedures related to the estimation of proved reserves included the following, among others.

● We tested the design and operating effectiveness of controls relating to management’s estimation of proved reserves for the purpose of estimating depletion, depreciation and amortization expense and assessing the Company’s oil and gas properties for potential full cost ceiling impairment.

● We evaluated the independence, objectivity, and professional qualifications of the Company’s reserve engineers, made inquiries of those specialists regarding the process followed and judgments made to estimate the Company’s proved reserve volumes, and read the reserve report prepared by the Company’s specialists.

● To the extent key inputs and assumptions used to determine proved reserve volumes and other cash flow inputs and assumptions are derived from the Company’s accounting records, including, but not limited to:

historical pricing differentials, operating costs, estimated capital costs, and ownership interests, we tested management’s process for determining the assumptions, including examining the underlying support on a sample basis.

Specifically, our audit procedures involved testing management’s assumptions by performing the following:

o We compared the estimated pricing differentials used in the reserve report to prices realized by the Company related to revenue transactions recorded in the current year and examined contractual support for the pricing differentials

o We tested models used to estimate the future operating costs in the reserve report and compared amounts to historical operating costs

o We evaluated the method used to determine the estimated future development costs used in the reserve report and compared management’s estimates to amounts expended for recently drilled and completed wells

o We tested the working and net revenue interests used in the reserve report by inspecting land and division order records;

o We evaluated evidence supporting the amount of proved undeveloped properties reflected in the reserve report by examining historical conversion rates and support for the Company’s ability to fund and intent to develop the proved undeveloped properties;

o We applied analytical procedures to production forecasts in the reserve report by comparing to historical actual results.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2021.

Houston, Texas

March 16, 2022

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

2 unchanged sentences

Opinions on the Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying balance sheets of Ring Energy, Inc.

(Ring Energy) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of Ring Energy as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying balance sheet of Ring Energy, Inc.

(Ring Energy) as of December 31, 2020, and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of Ring Energy as of December 31, 2020, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited Ring Energy’s internal control over financial reporting as of December 31, 2020, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

58 unchanged sentences

RING ENERGY, INC.

BALANCE SHEET

BALANCE SHEETS

As of December 31,

7 unchanged sentences

Properties and Equipment

Oil and natural gas properties subject to amortization

1,083,966,135

Oil and natural gas properties, full cost method

Financing lease asset subject to depreciation

1 unchanged sentence

Total Properties and Equipment

1,086,290,199

Accumulated depreciation, depletion and amortization

10 unchanged sentences

Derivative liabilities

Notes Payable

Total Current Liabilities

Noncurrent Liabilities

Deferred income taxes

20 unchanged sentences

RING ENERGY, INC.

CONDENSED STATEMENTS OF OPERATIONS

STATEMENTS OF OPERATIONS

For the years ended December 31,

1 unchanged sentence

Costs and Operating Expenses

Oil and natural gas production costs

Lease operating expenses

Gathering, transportation and processing costs

Ad valorem taxes

Oil and natural gas production taxes

12 unchanged sentences

( 17,617,614 )

Realized gain (loss) on derivatives

( 13,865,556 )

Unrealized gain (loss) on change in fair value of derivatives

Gain (loss) on derivative contracts

( 77,853,141 )

8 unchanged sentences

( 13,787,654 )

( 3,445,721 )

Net Income (Loss)

9 unchanged sentences

( 32,355,893 )

Share-based compensation

Options exercised (cashless exercise)

Options exercised

Restricted stock vested

Common stock issued for cash, net

Common stock issued for property acquisition

Balance, December 31, 2018

( 32,355,893 )

Common stock issued as partial consideration in acquisition

14 unchanged sentences

( 256,271,170 )

Common stock and warrants issued for cash, net

Exercise of pre-funded warrants issued in offering

Exercise of common warrants issued in offering

Options exercised

Restricted stock vested

Shares to cover tax withholdings

Payments to cover tax withholdings

Share-based compensation

Net income (loss)

Balance, December 31, 2021

( 252,948,278 )

The accompanying notes are an integral part of these financial statements.

8 unchanged sentences

Ceiling test impairment

Accretion expense

Asset retirement obligation accretion

Amortization of deferred financing costs

Stock-based compensation

Share-based compensation

Shares issued for services

1 unchanged sentence

( 3,975,170 )

Excess tax expense (benefit) related to stock-based compensation

Excess tax expense (benefit) related to share-based compensation

( 2,026,006 )

Adjustment to deferred tax asset for change in effective tax rate

Change in fair value of derivative instruments

(Gain) loss on derivative contracts

( 21,366,068 )

Cash received (paid) for derivative settlements, net

( 52,768,154 )

Changes in assets and liabilities:

1 unchanged sentence

( 9,483,639 )

( 10,035,648 )

Prepaid expenses and retainers

4 unchanged sentences

( 2,186,832 )

( 1,295,966 )

Net Cash Provided by Operating Activities

11 unchanged sentences

( 152,125,320 )

Proceeds from disposal of fixed assets subject to depreciation

Purchase of fixed assets subject to depreciation

Payments to acquire or improve fixed assets subject to depreciation

Net Cash (Used in) Investing Activities

6 unchanged sentences

( 83,150,000 )

( 80,000,000 )

Proceeds from issuance of common stock and warrants

Proceeds from option exercise

Payments for taxes withheld on vested restricted shares

Proceeds from notes payable

Payments on notes payable

Payment of deferred financing costs

1 unchanged sentence

Reduction of financing lease liabilities

Net Cash Provided by (Used in) Financing Activities

Net Cash (Used in) Financing Activities

( 22,662,130 )

( 34,754,846 )

Net Increase (Decrease) in Cash

5 unchanged sentences

Cash paid for interest

The accompanying notes are an integral part of these financial statements.

RING ENERGY, INC.

STATEMENTS OF CASH FLOWS (CONTINUED)

For the Years Ended December 31,

Noncash Investing and Financing Activities

2 unchanged sentences

Asset retirement obligation revision of estimate

Asset retirement obligation sold

( 2,934,126 )

Operating lease assets obtained in exchange for new operating lease liability

Operating lease asset revision

Financing lease assets obtained in exchange for new financing lease liability

17 unchanged sentences

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations – Ring Energy, Inc.

is a Nevada corporation.

Ring Energy, Inc.

is referred to herein as the “Company.” The Company owns interests in oil and natural gas properties located in Texas and New Mexico and is engaged primarily in the acquisition, exploration and development of oil and natural gas properties and the production and sale of oil and natural gas.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.

Organization and Nature of Operations – Ring Energy, Inc., a Nevada corporation (“Ring,” “Ring Energy,” the “Company,” “we,” “us,” “our,” or similar terms), is a growth oriented independent exploration and production company based in The Woodlands, Texas and is engaged in oil and natural gas development, production, acquisition, and exploration activities currently focused in Texas and New Mexico.

Our primary drilling operations target the oil and liquids rich producing formations in the Northwest Shelf, the Central Basin Platform, and the Delaware Basin all of which are part of the Permian Basin in Texas and New Mexico.

Reclassifications – Certain prior period amounts relating to components of operating expense have been reclassified to conform to current year presentation within “Costs and Operating Expenses” in the Statements of Operations.

Additionally, certain prior amounts associated with realized and unrealized gains (losses) have been reclassified within the Statements of Operations and Statements of Cash Flows to conform with current year presentation.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

1 unchanged sentence

Fair Value Measurements - Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The Financial Accounting Standards Board ("FASB") has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The Financial Accounting Standards Board (“FASB”) has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

This hierarchy consists of three broad levels.

13 unchanged sentences

The Company places its cash with a high credit quality financial institution.

The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk in this area.

Substantially all of the Company’s accounts receivable is from purchasers of oil and natural gas.

2 unchanged sentences

The Company also has a joint interest billing receivable.

Joint interest billing receivables are collateralized by the pro rata revenue attributable to the joint interest holders and further by the interest itself.

Accordingly, no allowance for doubtful accounts has been provided as of December 31, 2020 and 2019.

Joint interest billing receivables are collateralized by the pro

rata revenue attributable to the joint interest holders and further by the interest itself.

Accordingly, no material credit losses have been provided as of December 31, 2021 and 2020.

Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

18 unchanged sentences

4) less income tax effects related to differences between the book and tax basis of the properties.

For the years ended December 31, 2020 and 2018, the Company recognized impairments on oil and natural gas properties as a result of the ceiling test in the amount of $ 277,501,943 and $ 14,172,309 , respectively.

No impairment was recorded for the year ended December 31, 2019.

For the year ended December 31, 2020, the Company recognized an impairment on oil and natural gas properties as a result of the ceiling test in the amount of $ 277,501,943 .

No impairment was recorded for the years ended December 31, 2021 or 2019.

Land, Buildings, Equipment and Leasehold Improvements – Land, buildings, equipment and leasehold improvements are carried at historical cost, adjusted for impairment loss and accumulated depreciation.

4 unchanged sentences

Depreciation expense was $ 432,897 , $ 376,366 , and 334,023 for the years ended December 31, 2021, 2020, and 2019, respectively.

Notes Payable – During 2021, the Company obtained external insurance for directors and officers, control of well, and cybersecurity through signing three promissory notes.

As of December 31, 2021, our notes payable balance included within current liabilities on our balance sheet is $ 586,410 .

Revenue Recognition – In January 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenues from Contracts with Customers (Topic 606) (“ASU 2014-09”).

10 unchanged sentences

Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes.

Deferred taxes are provided on differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards.

Deferred taxes are provided on differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and tax carryforwards.

Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

1 unchanged sentence

In January 2017, the Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718.) The Company used the modified retrospective method to account for unrecognized excess tax benefits from prior periods and uses the prospective method to account for current period and future excess tax benefit.

For the years ended December 31, 2020, 2019 and 2018, we recorded a benefit of $ 2,026,006 , a provision of $ 3,855,389 and a provision of $ 907,884 , respectively, to our income tax provision (benefit).

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

The SEC subsequently issued a Staff Accounting Bulletin No.

118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act.

Among other changes, the Tax Act lowered the corporate tax rate to 21 %.

For the year ended December 31, 2020, the Company recorded a full valuation allowance against the deferred tax asset of $ 50,553,125 .

The Company was in a deferred tax asset position as a result of the ceiling test impairment recorded during 2020.

No valuation allowance was recorded for the years ended December 31, 2019 or 2018.

Accounting for Uncertainty in Income Taxes – In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns for the open tax years in such jurisdictions.

1 unchanged sentence

The Company’s federal income tax returns for the years ended December 31, 2017 through 2021 remain subject to examination.

The Company’s federal income tax returns for the years ended December 31, 2007 through 2021 remain subject to examination to the extent of the net operating loss (NOL) carryforwards.

The Company’s franchise tax returns in Texas remain subject to examination for 2016 through 2021.

9 unchanged sentences

As of December 31, 2020, sales outstanding from these three customers represented 80 %, 0 % and 5 %, respectively, of accounts receivable.

During the year ended December 31, 2018, sales to two customers represented 85 % and 11 %, respectively, of total oil and natural gas sales.

As of December 31, 2018, sales outstanding from one customer made up 90 % of accounts receivable.

The loss of any of our customers would not have a material adverse effect on the Company as there is an available market for its oil and natural gas production from other purchasers.

Stock-Based Employee and Non-Employee Compensation – The Company has outstanding stock options to directors, employees and contract employees, which are described more fully in Note 13.

The Company accounts for its stock options grants in accordance with generally accepted accounting principles.

Generally accepted accounting principles require the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award.

Generally accepted accounting principles also requires stock option compensation expense to be recognized over the period during which an employee or non-employee is required to provide service in exchange for the award (the vesting period).

Stock-based compensation incurred for the years ended December 31, 2020, 2019 and 2018 was $ 5,364,162 , $ 3,082,625 and $ 3,870,934 , respectively.

During the year ended December 31, 2019, sales to three customers represented 42 %, 36 % and 7 %, respectively, of total oil and natural gas sales.

As of December 31, 2019, sales outstanding from these three customers represented 47 %, 31 % and 9 %, respectively, of accounts receivable.

Share-Based Employee Compensation – The Company has outstanding stock option grants and restricted stock awards to directors, officers and employees, which are described more fully in Note 13.

The Company recognizes the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the related compensation expense over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period.

Share-Based Compensation to Non-Employees – The Company accounts for share-based compensation issued to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably

The measurement date for these issuances is the earlier of (i) the date at which a commitment for performance by the recipient to earn the equity instruments is reached or (ii) the date at which the recipient’s performance is complete.

Share-based compensation incurred for the years ended December 31, 2021, 2020, and 2019 was $ 2,418,323 , $ 5,364,162 , and $ 3,082,625 , respectively.

Derivative Instruments and Hedging Activities – The Company may periodically enter into derivative contracts to manage its exposure to commodity risk.

3 unchanged sentences

Changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met.

Recently Adopted Accounting Pronouncements – In August 2018, the FASB issued Accounting Standards Updated (“ASU”) 2018-13, Fair Value Measurement (Topic 820):

Refer to Note 8 for further details.

Recently Adopted Accounting Pronouncements – In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).

3 unchanged sentences

The adoption of this guidance did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements - In October 2020, the FASB issued ASU 2020-10, “Codification Improvements,” which clarifies or improves disclosure requirements for various topics to align with Securities and Exchange Commission (SEC) regulations.

This update is effective for the Company beginning in the first quarter of 2021 and will be applied retrospectively.

The adoption and implementation of this ASU will not have a material impact on the Company’s financial statements.

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842).

The purpose of this guidance is to increase transparency and comparability among organizations by recognizing certain lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

See Note 3 for a discussion of the impact on the Company’s financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, followed by other related ASUs that provided targeted improvements (collectively “ASU 2016-13”).

ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The guidance is to be applied using a modified retrospective method and is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The Company adopted ASU 2016-13 on January 1, 2020.

The adoption of ASU 2016-13 did not have a material impact to the Company’s consolidated financial statements or disclosures.

In December 2019, the FASB released ASU No.

2019-12 (“ASU 2019-12”), Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

The amended standard is effective for fiscal years beginning after December 15, 2020.

The adoption of ASU 2019-12 did not have a material impact to the Company’s financial statements or disclosures.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements , which clarifies or improves disclosure requirements for various topics to align with SEC regulations.

This update was effective for the Company beginning in the first quarter of 2021 and is being applied retrospectively.

The adoption and implementation of this ASU did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued.

ASU 2020-04 will be in effect through December 31, 2022.

In January 2021, issued ASU No.

2021-01, Reference Rate Reform (Topic 848):

Scope (“ASU 2021-01”), to provide clarifying guidance regarding the scope of Topic 848.

ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The Company is currently assessing the impact of adopting this new guidance.

In August 2020, the FASB issued ASU No.

2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”).

ASU 2020-06 was issued to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity.

guidance is to be applied using either a modified retrospective or a fully retrospective method.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

The Company will adopt ASU 2020-06 effective January 1, 2022.

The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s consolidated financial statements or disclosures.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This update requires the acquirer in a business combination to record contract asset and liabilities following Topic 606 – “Revenue from Contracts with Customers” at acquisition as if it had originated the contract, rather than at fair value.

This update is effective for public business entities beginning after December 15, 2022, with early adoption permitted.

The Company continues to evaluate the provisions of this update, but it does not believe the adoption will have a material impact on its financial position, results of operations or liquidity .

NOTE 2 – REVENUE RECOGNITION

7 unchanged sentences

As such, the Company accounts for any fees and deductions as a reduction of the transaction price.

Under the Company natural gas sales processing contracts for the bulk of our Northwest Shelf assets, the Company delivers unprocessed natural gas to a midstream processing entity at the well head.

Under the Company natural gas sales processing contracts for the bulk of our Northwest Shelf assets, the Company delivers unprocessed natural gas to a midstream processing entity at the wellhead.

However, the Company maintains ownership of the gas through processing and receives proceeds from the marketing of the resulting products.

12 unchanged sentences

The Company did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date.

The Company has operating leases for our offices in Midland, Texas and Tulsa, Oklahoma.

The Midland office is under a five-year lease beginning January 1, 2021.

The Tulsa lease is month-to-month but the Company does not intend to continue use of this office.

As of December 31, 2019, the Company did intend to continue use of the Tulsa office and, as such, the lease costs associated with the Tulsa lease has been accounted for as operating leases with a term that end on December 31, 2020.

However, it is not reflected in future lease payments as it is now a short-term lease.

The office space being leased in Tulsa is owned by Arenaco, LLC, a company that is owned by Mr.

Rochford, former Chairman of the Board of the Company, and Mr.

McCabe, a former Director of the Company.

Subsequent to December 31, 2020, the Company entered into a lease for office space in The Woodlands, Texas.

The future payments associated with this lease are not reflected below.

The Company also has month to month leases for office equipment and compressors used in our operations on which the Company has elected to apply ASU 2016-02.

While these leases are month to month, the Company intends to continue these leases for the useful life of the assets.

As such, these leases have been accounted for as if the lease term lasts through the estimated useful life of the assets.

The Company also has month to month leases or other short-term leases for equipment used in our operations on which the Company has made accounting policy elections not to capitalize these leases.

The Company has operating leases for our offices in Midland, Texas and The Woodlands, Texas.

The Midland office is under a five-year lease which began January 1, 2021.

Also beginning January 15, 2021, the Company entered into a five-and-a-half-year sub-lease for office space in The Woodlands, Texas.

The future payments associated with these operating leases are reflected below.

During the years ended December 31, 2019 and 2020 the Company had an operating lease with Arenaco, LLC for its Tulsa, Oklahoma office.

The Tulsa lease was terminated as of March 31, 2021, with payments made until the end of February 2021.

Refer to Note 14 for further details.

The Company also has month to month leases for office equipment and compressors used in our 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 below.

The lease costs associated with these leases is reflected in the short-term lease costs within Lease operating expenses, shown below.

The Company also has financing leases for vehicles.

16 unchanged sentences

Interest on lease liabilities (3)

Amount included in Oil and gas production costs

Amount included in Lease operating expenses

Amount included in Depreciation, depletion and amortization

13 unchanged sentences

Stock options to purchase 113,659 , 465,500 , and 2,353,500 shares of common stock were excluded from the computation of diluted earnings per share during the years ended December 31, 2021, 2020 and 2019, respectively, as their effect would have been anti-dilutive.

2,144,617 , 704,684 and 2,500 shares of unvested restricted stock were excluded from the computation of diluted earnings per share during the years ended December 31, 2020, 2019 and 2018, respectively, as their effect would have been anti-dilutive.

Also excluded from the computation of diluted earnings per share were 114,880 (including 94,270 shares related to the performance stock units further described in Note 13), 2,144,617 , and 704,684 shares of unvested restricted stock during the year ended December 31, 2021, 2020 and 2019, respectively, as their effect would have been anti-dilutive.

Common warrants to purchase 29,804,300 shares of common stock were excluded from the computation of diluted earnings per share during the year ended December 31, 2020, as their effect would have been anti-dilutive.

Pre-funded warrants to purchase 13,428,500 shares of common stock were included in the calculation of the Basic Weighted-Average Shares Outstanding as they are exercisable for a nominal amount and so are treated as if they were exercised at issuance.

NOTE 5 – ACQUISITIONS

In December 2018, Ring completed the acquisition of oil and natural gas assets and properties in assets in Andrews County.

The acquired properties consist of 4,854 gross ( 4,788 net) acres and include a 100 % working interest and a 75 % net revenue interest.

Consideration given by the Company consisted of 2,623,948 shares valued at $ 5.80 per share for an aggregate value of $ 11,204,258 and liabilities assumed of $ 2,571,549 .

The Company incurred approximately $ 23,321 in acquisition related costs, which were recognized in general and administrative expense during the year ended December 31, 2018.

The acquisition was recognized as a business combination whereby Ring recorded the assets acquired and the liabilities assumed at their fair values as of November 1, 2018, which is the date the Company obtained control of the properties and was the acquisition date for financial reporting purposes.

The estimated fair value of the acquired properties approximated the consideration paid, which the Company concluded approximated the fair value that would be paid by a typical market participant.

The following table summarizes the fair values of the assets acquired and the liabilities assumed:

Assets acquired

Proved oil and natural gas properties

Liabilities assumed

Asset retirement obligations

( 2,571,549 )

Total Identifiable Net Assets

On April 9, 2019, the Company completed the acquisition of oil and gas properties from Wishbone Energy Partners, LLC, Wishbone Texas Operating Company LLC and WB WaterWorks LLC on the Northwest Shelf in Gaines, Yoakum, Runnels and Coke Counties, Texas and Lea County, New Mexico (the “Acquisition”).

Pre-funded warrants to purchase 13,428,500 shares of common stock were included in the calculation of the Basic Weighted-Average Shares Outstanding for the year ended December 31, 2020 as they were exercisable for a nominal amount and so were treated as if they were exercised at issuance.

These shares were exercised in January 2021 and have also been included in the beginning shares outstanding for the calculation of Basic Weighted-Average Shares Outstanding for the year ended December 31, 2021 .

NOTE 5 – ACQUISITIONS & DIVESTITURES

On April 9, 2019, the Company completed the acquisition of oil and gas properties from Wishbone Energy Partners, LLC, Wishbone Texas Operating Company LLC and WB WaterWorks LLC (collectively, “Wishbone”) on the Northwest Shelf in Gaines, Yoakum, Runnels and Coke Counties, Texas and Lea County, New Mexico (the “Acquisition”) pursuant to a purchase and sale agreement dated as of February 25, 2019 by and among the Company and Wishbone (the “Purchase and Sale Agreement”).

The acquired properties consist of 49,754 gross ( 38,230 net) acres and include a 77 % average working interest and a 58 % average net revenue interest.

2 unchanged sentences

Total consideration after purchase price adjustments included cash payments totaling approximately $ 276.1 million and the issuance of 4,576,951 shares of common stock, of which 2,538,071 shares were placed in escrow to satisfy potential indemnification claims.

One half of the shares placed into escrow remain in escrow as of December 31, 2019.

The range of potential outcomes regarding the indemnification escrow shares cannot be determined as the Company evaluates whether there are any claims against the indemnification.

If no claims are made, the remaining escrow shares will be released pursuant to the terms of the Purchase and Sale Agreement.

The shares held in escrow were released in April of 2020.

The shares were valued at the price on the date of the signing of the Purchase and Sale Agreement, February 25, 2019, of $ 6.19 per share.

1 unchanged sentence

The Company determined that it had effective control of the properties effective February 1, 2019 based on Ring having primary decision making ability regarding the properties beginning at that time.

Revenues and related expenses for the Acquisition are included in our condensed statements of operations beginning February 1, 2019.

Revenues and related expenses for the Acquisition are included in our statements of operations beginning February 1, 2019.

The estimated fair value of the acquired properties approximated the consideration paid, which the Company concluded approximated the fair value that would be paid by a typical market participant.

16 unchanged sentences

(1) This includes only oil and natural gas production costs and oil and natural gas production taxes and does not give account to depreciation, depletion and amortization, accretion of asset retirement obligation, general and administrative expense, interest expense or any other cost that cannot be directly correlated to the Acquisition.

The following unaudited pro forma information for the years ended December 30, 2019 and 2018, respectively, is presented to reflect the operations of the Company as if the acquisition of assets had been completed on January 1, 2019 and 2018, respectively:

For the years ended December 31,

Oil and Natural Gas Revenues

Basic Earnings per Share

Diluted Earnings per Share

The Company entered into a Purchase, Sale and Exchange Agreement dated February 1, 2021, effective January 1, 2021, with an unrelated party, covering the sale and exchange of certain oil and gas interests in Andrews County, Texas.

Upon the sale and transfer of wells and leases between the two parties, the Company received a 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.

NOTE 6 – DEPOSIT FORFEITURE INCOME

In the fourth quarter of 2020, the Company entered into an agreement with an intended buyer to sell the Company’s Delaware assets.

In the second quarter of 2020, the Company entered into an agreement with an intended buyer to sell the Company’s Delaware Basin assets.

The agreement was amended on six different occasions throughout 2020 releasing the initial deposits to the Company and requiring additional non-refundable deposits.

2 unchanged sentences

As such, the Company recognized the $ 5,500,000 as income in our Statements of Operations as no divestiture of assets had occurred.

Refer to Note 17 for further details.

NOTE 7 – OIL AND NATURAL GAS PRODUCING ACTIVITIES

Set forth below is certain information regarding the aggregate capitalized costs of oil and natural gas properties and costs incurred by the Company for its oil and natural gas property acquisitions, development and exploration activities:

Net Capitalized Costs

As of December 31,

Proved oil and natural gas properties

1,083,966,135

Oil and natural gas properties, full cost method

Financing lease asset subject to depreciation

Fixed assets subject to depreciation

Total capitalized costs

1,086,290,199

Total Properties and Equipment

Accumulated depletion, depreciation and amortization

1 unchanged sentence

( 200,111,658 )

Net Capitalized Costs

Net Properties and Equipment

Net Costs Incurred in Oil and Gas Producing Activities

For the years Ended December 31,

Payments for the Wishbone Acquisition

Payments to purchase oil and natural gas properties

9 unchanged sentences

From time to time the Company enters into derivative contracts to protect the Company’s cash flow from price fluctuation and maintain its capital programs.

The Company uses either costless collars or swaps for this purpose.

The Company has historically used either costless collars or swaps for this purpose.

Oil derivative contracts are based on WTI Crude Oil prices and natural gas contacts are based on Henry Hub.

1 unchanged sentence

Similar to costless collars, there is no cost to enter into the swap contracts.

swap contracts, there is no spread and payments will be made or received based on the difference between WTI and the swap contract price.

The following table provides information as to derivative contracts for WTI that were in place during the years ended December 31, 2020, 2019 and 2018.

The Company did not have any natural gas derivative contracts during these years.

Date entered into

Period covered

2018 costless collars

Calendar year 2018

2019 costless collars

8/27/2018 (1)

Calendar year 2019

2020 costless collars

Calendar year 2020 (2)

June 2020 and July 2020 (2)

(1) On October 10, 2018, the Company terminated the costless collars for calendar year 2019 through the payment of $ 3,438,300 .

(2) On May 29, 2020, the Company unwound the costless collars for June 2020 and July 2020, resulting in the receipt of a cash payment of $ 5,435,136 .

Concurrently, the Company entered into swap contracts at $ 33.24 for 5,500 barrels per day for June and July 2020, equal to the barrels for which the costless collars were unwound.

Throughout 2020, the Company entered into additional derivative contracts in the form of costless collars and swaps for 2021 and 2022 for both oil and natural gas.

On swap contracts, there is no spread and payments will be made or received based on the difference between WTI and the swap contract price.

Throughout 2020 and 2021, the Company entered into additional derivative contracts in the form of oil swaps for 2022.

The following tables reflect the details of those contracts:

Oil derivative contracts

Date entered into

Period covered

Oil derivative contracts

2021 costless collars

Calendar year 2022

5 unchanged sentences

Calendar year 2022

Calendar year 2021

Calendar year 2022

Date entered into

Period covered

MMBTU per day

Natural gas derivative contracts

Calendar year 2021

Calendar year 2022

(1) The notional quantity per the swap contract entered into on May 11, 2021 is for 26,750 barrels of oil per month.

The 879 represents the daily amount on an annual basis.

We did not designate our derivative instruments as hedges for accounting purposes.

Derivative financial instruments are recorded at fair value and included as either assets or liabilities in the accompanying balance sheets.

Any gains or losses resulting from changes in fair value of outstanding derivative financial instruments and from the settlement of derivative financial instruments are recognized in earnings and included as a component of other income in the accompanying statements of operations.

The following presents the impact of the Company’s contracts on its balance sheets for the periods indicated.

As of December 31,

Commodity derivative instruments

Derivative liabilities, current

Commodity derivative instruments

Derivative liabilities, non-current

The components of “Gain (loss) on derivative contracts” are as follows for the respective periods:

For the years ended December 31,

Gain (loss) on oil derivative

( 77,654,452 )

( 3,000,078 )

Gain (loss) on natural gas derivatives

Gain (loss) on derivative contracts

( 77,853,141 )

( 3,000,078 )

The components of “Cash (paid) received for derivative settlements, net” are as follows for the respective periods:

For the years ended December 31,

Cash flows from operating activities

Cash (paid) received on oil derivatives

( 53,511,332 )

Cash (paid) received on natural gas derivatives

Cash (paid) received from derivative settlements

( 52,768,154 )

The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions.

All previous derivative contracts have been with lenders under our credit facility.

All derivative contracts have been with lenders under our credit facility.

NOTE 9 – FAIR VALUE MEASUREMENTS

11 unchanged sentences

When transfers between levels occur, it is our policy to assume that the transfer occurred at the date of the event or change in circumstances that caused the transfer.

As a result of the Wishbone Acquisition, the Company evaluated the fair value of the assets acquired and the liabilities assumed.

The Company recorded the oil and gas assets acquired in the Wishbone Acquisition at the price paid.

As a result of the Acquisition, the Company evaluated the fair value of the assets acquired and the liabilities assumed.

The Company recorded the oil and gas assets acquired in the Acquisition at the price paid.

Prior to doing so, the Company determined that the price paid approximated the fair value of the net assets acquired.

7 unchanged sentences

The Company uses a market approach to estimate the fair values of its derivative instruments on a recurring basis, utilizing commodity futures pricing for the underlying commodities provided by a reputable third party, a Level 2 fair value measurement.

The following table summarizes the valuation of our assets and liabilities that are measured at fair value on a recurring basis.

The following table summarizes the valuation of our assets and liabilities that are measured at fair value on a recurring basis (further detail in Note 8).

Fair Value Measurement Classification

5 unchanged sentences

Observable Inputs

Inputs (Level 3)

As of December 31, 2020

Oil and gas derivative contracts

As of December 31, 2019

Oil and gas derivative contracts

Commodity Derivatives - Liabilities

( 4,156,601 )

3 unchanged sentences

As of December 31, 2021

Oil and gas derivative contracts

Commodity Derivatives - Liabilities

( 29,241,588 )

2 unchanged sentences

( 29,241,588 )

The carrying amounts reported for the revolving line of credit approximates fair value because the underlying instruments are at interest rates which approximate current market rates.

The carrying amounts of receivables and accounts payable and other current assets and liabilities approximate fair value because of the short-term maturities and/or liquid nature of these assets and liabilities.

NOTE 10 – REVOLVING LINE OF CREDIT

On July 1, 2014, the Company entered into a Credit Agreement with SunTrust Bank, as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (the “Administrative Agent”), which was amended on April June 14, 2018, May 18, 2016, July 24, 2015, and June 26, 2015.

On July 1, 2014, the Company entered into a Credit Agreement with SunTrust Bank, as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (the “Administrative Agent”), which was amended on June 14, 2018, May 18, 2016, July 24, 2015, and June 26, 2015.

In April 2019, the Company amended and restated its Credit Agreement with the Administrative Agent (as amended and restated, the “Credit Facility”).

The amendment and restatement of the Credit Facility, among other things, increases the maximum borrowing amount to $ 1 billion, extends the maturity date through April 2024 and makes other modifications to the terms of the Credit Facility.

The amendment and restatement of the Credit Facility, among other things, increased the maximum borrowing amount to $ 1 billion, extended the maturity date through April 2024 and made other modifications to the terms of the Credit Facility.

This Credit Facility was amended on December 23, 2020 and June 17, 2020.

2 unchanged sentences

The Borrowing Base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time.

The Borrowing Base will be redetermined semi-annually on each May 1 and November 1.

The Borrowing Base will also be reduced in certain circumstances such as the sale or disposition of certain oil and gas properties of the Company or its subsidiaries and cancellation of certain hedging positions.

The Borrowing Base is redetermined semi-annually on each May 1 and November 1.

The Borrowing Base is subject to reduction in certain circumstances such as the sale or disposition of certain oil and gas properties of the Company or its subsidiaries and cancellation of certain hedging positions.

The Credit Facility allows for Eurodollar Loans and Base Rate Loans (as respectively defined in the Credit Facility).

1 unchanged sentence

The annual interest rate on each Base Rate Loan is (a) the greatest of (i) the Administrative Agent’s prime lending rate, (ii) the Federal Funds Rate (as defined in the Credit Facility) plus 0.5 % per annum, (iii) the adjusted LIBOR determined on a daily basis for an interest period of one-month, plus 1.00 % per annum and (iv) 0.00 % per annum, plus (b) a margin between 1.5 % and 2.5 % (depending on the then-current level of Borrowing Base usage).

minimum ratio of Current Assets to Current Liabilities (as such terms are defined in the Credit Facility) of 1.0 to 1.0.

The Credit Facility contains certain covenants, which, among other things, require the maintenance of (i) a total Leverage Ratio (outstanding debt to adjusted earnings before interest, taxes, depreciation and amortization) of not more than 4.0 to 1.0 and (ii) a minimum ratio of Current Assets to Current Liabilities (as such terms are defined in the Credit Facility) of 1.0 to 1.0.

The amendment to the credit facility in June 2020 allowed for a Leverage Ratio of not greater than 4.75 to 1 as of the last day of the fiscal quarter ending September 30, 2020.

9 unchanged sentences

Liabilities settled

Revision of estimate (1)

( 1,589,654 )

Accretion expense

Balance, December 31, 2019

Liabilities acquired

Liabilities incurred

Liabilities settled

( 1,589,654 )

Revision of estimate (1)

Accretion expense

Balance, December 31, 2020

Liabilities acquired

Liabilities incurred

Liabilities sold

( 2,934,126 )

Liabilities settled

3 unchanged sentences

(1) Several factors are considered in the annual review process, including current estimates for removal cost and estimated remaining useful life of the assets.

The 2018 revision of estimates reflect decreases in the estimated remaining useful life of certain assets.

The 2020 revision of estimates reflect an adjustment to the estimates for plugging costs.

The 2021 revision of estimates primarily reflect updated interests for our working interest partners.

NOTE 12 – STOCKHOLDERS’ EQUITY

The Company is authorized to issue 150,000,000 common shares, with a par value of $ 0.001 per share and 50,000,000 shares of Preferred Stock.

Issuance of equity instruments in public and private offerings – In February 2018, the Company closed on an underwritten public offering of 6,164,000 shares of its common stock, including 804,000 shares sold pursuant to the full exercise of an over-allotment option, at $ 14.00 per share for gross proceeds of $ 86,296,000 .

Total net proceeds from the offering were $ 81,821,138 , after deducting underwriting commissions and offering expenses payable by the Company of $ 4,474,862 .

In October 2020, the Company closed on an underwritten public offering of (i) 9,575,800 Common Shares, (ii) 13,428,500 Pre-Funded Warrants and (iii) 23,004,300 Common Warrants at a combined purchase price of $ 0.70 .

The Company is authorized to issue 225,000,000 shares of common stock, with a par value of $ 0.001 per share, and 50,000,000 shares of preferred stock with a par value per share of $ 0.001 per share.

Issuance of equity instruments in public and private offerings – In October 2020, the Company closed on an underwritten public offering of (i) 9,575,800 shares of common stock, (ii) 13,428,500 Pre-Funded Warrants and (iii) 23,004,300 warrants to purchase common stock (the “Common Warrants”) at a combined purchase price of $ 0.70 .

This includes a partial exercise of the over-allotment.

1 unchanged sentence

Gross proceeds totaled $ 16,089,582 .

Concurrently with the underwritten public offering, the Company closed on a registered direct offering of (i) 3,500,000 Common Shares, (ii) 3,300,000 Pre-Funded Warrants and (iii) 6,800,000 Common Warrants at a combined purchase price of $ 0.70 per Common Share and Pre-Funded Warrant.

Concurrently with the underwritten public offering, the Company closed on a registered direct offering of (i) 3,500,000 shares of common stock, (ii) 3,300,000 Pre-Funded Warrants and (iii) 6,800,000 Common Warrants at a combined purchase price of $ 0.70 per share of common stock and Pre-Funded Warrants.

The Common Warrants have a term of five years and an exercise price of $ 0.80 per share.

4 unchanged sentences

Gross and net proceeds were $ 3,300 .

Common stock issued in property acquisition – As discussed in Note 5, in December 2018, the Company issued 2,623,948 shares of common stock as consideration for the acquisition of oil and natural gas properties.

These shares were valued at $ 5.80 per share for an aggregate of $ 11,204,258 .

Also as discussed in Note 5, in April 2019, the Company completed the acquisition of assets from Wishbone Partners, LLC.

In January 2021, the remaining 13,428,500 Pre-Funded Warrants were exercised.

During the year ended December 31, 2021, 442,600 of the Common Warrants were exercised.

Accordingly, the number of Common Warrants outstanding as of December 31, 2021 was 29,361,700 .

Common stock issued in property acquisition – As discussed in Note 5, in April 2019, the Company completed the acquisition of assets from Wishbone.

As a part of the consideration for the acquisition, the Company issued 4,576,951 shares of common stock.

2 unchanged sentences

The aggregate value of the shares issued, based on this price, was $ 28,331,327 .

In April 2020, 16,702 shares were returned and cancelled as settlement of post-closing adjustments.

In April 2020, 16,702 shares of common stock were returned and cancelled as settlement of post-closing adjustments.

The shares were valued at February 25, 2019, the date of the signing of the Purchase and Sale Agreement.

1 unchanged sentence

The aggregate value of the shares returned, based on this price, was $ 103,385 .

Common Stock Issued for option exercises – During the year ended December 31, 2018, the Company issued 153,113 shares of common stock as a result of option exercises.

No options were exercised in 2019 or 2020.

Common Stock Issued for option exercises – During the year ended December 31, 2021, the Company issued 100,000 shares of common stock as a result of stock option exercises.

No stock options were exercised in 2019 or 2020.

The following tables present the details of the 2021 exercises:

9 unchanged sentences

As a result of the return and cancellation of the options, the Company incurred additional compensation expense of $ 768,379 .

During October and December 2020, as a result of changes to the executive team and the Board of Directors, the Company accelerated the vesting of 1,131,955 shares of restricted stock.

As a result of the acceleration of these vestings, the Company incurred additional compensation expense of $ 2,361,362 .

During October and December 2020, as a result of changes to the executive team and the Board of Directors (the “Board”) of the Company, the Company accelerated the vesting of 1,131,955 shares of restricted stock and as a result of such acceleration, the Company incurred additional compensation expense of $ 2,361,362 .

Compensation expense charged against income for share-based awards during the years ended December 31, 2021, 2020, and 2019 was $ 2,418,323 , $ 5,364,162 ,and $ 3,082,625 , respectively.

These amounts are included in general and administrative expense in the accompanying Statements of Operations.

In 2011, the Company’s Board of Directors approved and adopted a long-term incentive plan, which was subsequently approved and amended by the shareholders.

There were 341,155 shares eligible for grant, either as options or as restricted stock, as of December 31, 2020.

Employee Stock Options – No options have been granted in the years ended December 31, 2020, 2019 or 2018.

All granted options vest at the rate of 20% each year over five years beginning one year from the date granted and expire ten years from the grant date.

These amounts are included in general and administrative expense in the Statements of Operations.

In 2011, the Board approved and adopted a long-term incentive plan (the “2011 Plan”), which was subsequently approved and amended by the shareholders.

There were 341,155 shares eligible for grant, either as stock options or as restricted stock, as of December 31, 2021.

In 2021, the Board approved and adopted The Omnibus Incentive Plan (the “2021 Plan”), which was subsequently approved and amended by the shareholders at the 2021 Annual Meeting.

There were 7,814,128 shares eligible for grant, either as stock options or as restricted stock, as of December 31, 2021.

Employee Stock Options – No stock options have been granted in the years ended December 31, 2021, 2020, or 2019.

All outstanding stock option awards vest at the rate of 20 % each year over five years beginning one year from the date granted and expire ten years

from the grant date.

A summary of the status of the stock options as of December 31, 2021, 2020, and 2019 and changes during the years ended December 31, 2021, 2020, and 2019 is as follows:

7 unchanged sentences

Exercisable at end of year

For the years ended December 31, 2020, 2019 and 2018, the Company incurred stock-based compensation expense related to stock options of $ 927,559 , $ 625,855 and $ 1,853,913 , respectively.

As of December 31, 2020, there was $ 14,988 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 0.6 years.

For the years ended December 31, 2021, 2020, and 2019 the Company incurred share-based compensation expense related to stock options of $ 20,934 , $ 927,559 , and $ 625,855 , respectively.

As of December 31, 2021, the Company had $ 0 of unrecognized compensation cost related to stock options.

The aggregate intrinsic value of options vested and expected to vest as of December 31, 2021 was $ 82,600 .

The aggregate intrinsic value of options exercisable at December 31, 2021 was $ 82,600 .

The year-end intrinsic values are based on a December 31, 2020 closing price of $ 0.66 .

Options exercised of 193,000 in 2018 had an aggregate intrinsic value on the date of exercise of $ 1,470,230 .

No options were exercised in 2020 or 2019.

The year-end intrinsic values are based on a December 31, 2021 closing stock price of $ 2.28 .

Stock options exercised of 100,000 in 2021 had an aggregate intrinsic value on the date of exercise of $ 114,000 .

No stock options were exercised in 2020 or 2019.

The following table summarizes information related to the Company’s stock options outstanding as of December 31, 2021:

5 unchanged sentences

restricted stock

April 4, 2018

September 13, 2019

December 21, 2019

April 9, 2019

September 13, 2019

December 21, 2019

October 1, 2020

1 unchanged sentence

December 15,2020

April 30, 2021

June 17, 2021

July 12, 2021

September 1, 2021

September 8, 2021

Restricted stock grants prior to 2020 vest at the rate of 20 % each year over five years beginning one year from the date granted.

Restricted stock grants in 2020 vest at a rate of 33% each year over three years beginning one year from the date granted.

Restricted stock grants in 2020 and 2021 vest at a rate of 33 % each year over three years beginning one year from the date granted for all employees;

for members of the Company’s Board of Directors, the restricted stock grants vest on the earliest of (i) the day before the next shareholder meeting or (ii) the first anniversary of the date of the award.

A summary of the status of restricted stock grants as of December 31, 2021 and 2020 and changes during the years ended December 31, 2021, 2020 and 2019 is as follows:

6 unchanged sentences

Date Fair Value

Outstanding at beginning of the year

Outstanding at beginning of year

Forfeited or rescinded

1 unchanged sentence

Outstanding at end of year

For the years ended December 31, 2020, 2019 and 2018, the Company incurred stock-based compensation expense related to restricted stock grants of $ 4,436,603 , $ 2,456,770 and $ 2,017,021 , respectively.

As of December 31, 2020, there was $ 1,520,839 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 1.5 years.

For the years ended December 31, 2021, 2020 and 2019, the Company incurred share-based compensation expense related to restricted stock grants of $ 2,225,895 , $ 4,436,603 , and $ 2,456,770 , respectively.

As of December 31, 2021, the Company had $ 2,721,852 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 2.02 years.

During 2021, 2020, and 2019, 785,357 , 1,180,392 , and 187,136 shares of restricted stock vested, respectively.

At the dates of vesting those shares had an aggregate intrinsic value of $ 2,049,603 , $ 801,133 , and $ 494,605 , respectively.

Performance Stock Units - In accordance with the 2021 Plan, as of November 22, 2021, the Company entered into performance stock unit (“PSU”) agreements (the “PSU Agreement”) with certain employees.

Upon approval the Board, a total of 860,216 PSU were granted to the Company’s five executive officers (the “2021 PSU Awards”).

The performance period for the 2021 PSU Awards began on January 1, 2021, and will end December 31, 2023, with such awards vesting on the last day of the performance period (the vesting date).

The PSUs are performance-based restricted stock units subject to the terms of the 2021 Plan and the PSU Agreement.

A summary of the status of the performance stock grants as of December 31, 2021 and changes during the year ended December 31, 2021 is as follows:

Outstanding at beginning of year

Forfeited or rescinded

Outstanding at end of year

For the year ended December 31, 2021, the Company incurred share-based compensation expense related to the 2021 PSU Awards of $ 171,494 .

As of December 31, 2021, the Company had $ 3,348,851 of unrecognized compensation cost related to the 2021 PSU Awards that will be recognized over a weighted average period of 2 years .

401(k) Plan - In 2019, the Company initiated a sponsored 401(k) plan that is a defined contribution plan for the benefit of all eligible employees.

The plan allows eligible employees, after a three-month waiting period, to make pre-tax or after-tax contributions of up to 100% of their annual eligible compensation, not to exceed annual limits established by the federal government.

The plan allows eligible employees, after a three-month waiting period, to make pre-tax or after-tax contributions, not to exceed annual limits established by the federal government.

The Company makes matching contributions of up to 6 % of any employee’s compensation.

1 unchanged sentence

The following table presents the matching contributions expense recognized for the Company’s 401(k) plan for the years ended December 31, 2021, 2020, and 2019.

There were no matching contributions prior to 2019.

Employer safe harbor match

NOTE 14 – RELATED PARTY TRANSACTIONS

The Company is leasing office space from Arenaco, LLC, a company that is owned by two stockholders’ of the Company, Mr.

Rochford, former Chairman of the Board of the Company, and Mr.

The Company leased office space in Tulsa, Oklahoma, from Arenaco, LLC (“Arenaco”), a company that is owned by two stockholders of the Company, Mr.

Rochford, former Chairman of the Board, and Mr.

McCabe, a former Director of the Company.

During the years ended December 31, 2020, 2019 and 2018, the Company paid $ 60,000 , $ 60,000 and $ 60,000 , respectively, to this company.

During the years ended December 31, 2021, 2020, and 2019, the Company paid $ 10,000 , $ 60,000 , and $ 60,000 , respectively, to Arenaco.

The month-to-month Arenaco lease was terminated as of March 31, 2021.

During June 2021, the Company began using Pro-Ject Chemicals, LLC (“PJ Chemicals”) to perform various chemical services on its wells.

As publicly disclosed on the Company’s website, Paul D.

McKinney, Chief Executive Officer and Chairman of the Board, is a member of the board of directors of Pro-Ject Holdings, LLC, a privately owned oil field chemical services company and parent of PJ Chemicals.

McKinney owns .

34 % of the shares of Pro-Ject Holdings, LLC.

During the year ended December 31, 2021, the Company paid $ 117,830 to PJ Chemicals.

As of December 31, 2021 the Company had accounts payable of $ 37,641 due to PJ Chemicals.

NOTE 15 – COMMITMENTS AND CONTINGENT LIABILITIES

12 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019, components of our provision for income taxes are as follows:

Provision for (Benefit from) Income Taxes

Deferred taxes

Provision for Income Taxes

Federal Deferred Tax

( 6,001,176 )

Provision for (Benefit from) Income Taxes

State Deferred Tax

Provision for Income Taxes

( 6,001,176 )

2 unchanged sentences

Rate Reconciliation

Pre-tax book income

( 259,413,004 )

Tax at federal statutory rate

( 54,476,731 )

Non-deductible expenses

Excess tax benefit from stock option exercises and restricted stock vesting

1 unchanged sentence

Adjust prior estimates to tax return

( 1,930,994 )

States taxes, net of federal benefit

1 unchanged sentence

Valuation allowance

( 3,827,194 )

Non-deductible expenses and other

Provision for Income Taxes

3 unchanged sentences

This resulted in an additional tax expense during the year ended December 31, 2019 of $ 479,222 .

(2) As a result of the ceiling test impairments recorded in 2020, a benefit from income tax provision was recorded resulting in a deferred tax asset.

The Company recorded a full valuation allowance against the deferred tax asset of $ 50,553,125 .

The net deferred taxes consisted of the following as of December 31, 2021 and 2020:

Deferred Taxes:

Deferred tax liabilities

Property and equipment

Deferred Tax Assets

Stock-based compensation

Operating loss and IDC carryforwards

Deferred tax assets

Net deferred income tax liability

As of December 31, 2020, the Company had net operating loss carry forwards for federal income tax reporting purposes of approximately $ 107.4 million which, if unused, will begin to expire in 2027 and fully expire in 2038 and an additional $ 150.2 million that will not expire.

NOTE 17 – QUARTERLY FINANCIAL DATA (UNAUDITED)

Three Months Ended

Operating Income (Loss)

( 9,986,770 )

Net Income (Loss)

Net operating loss (NOL) carryforward

Equity compensation

Asset retirement obligation

Fair market value of derivatives

Accrued expense

Gross Deferred Tax Assets

valuation allowance

( 48,334,217 )

Basic Net Income (Loss) Per Share

Diluted Net Income (Loss) Per Share

Three Months Ended

Operating Income

Basic Net Income Per Share

Diluted Net Income Per Share

Three Months Ended

Operating Income (Loss)

( 52,161,412 )

Net Deferred Tax Assets

Deferred Tax Liabilities

Propety and equipment

( 22,415,959 )

Net Income (Loss)

( 10,923,050 )

Net Deferred Liabilties

( 22,415,959 )

( 10,923,050 )

Basic Net Income (Loss) Per Share

Diluted Net Income (Loss) Per Share

Net Deferred Tax Asset/(Liabilities)

Note that the presentation of the December 31, 2020 income tax, rate reconciliation and deferred tax tables have been adjusted to conform to current year presentation.

The total income tax expense, net deferred tax asset and deferred tax liability balances remain the same as prior year.

As of December 31, 2021, the Company had net operating loss carryforwards for federal income tax reporting purposes of approximately $ 108.9 million which, if unused, will begin to expire in 2027 and fully expire in 2037 and an additional $ 176.7 million that can be carried forward indefinitely.

Because of the change in ownership provisions of the Code, use of a portion of our federal NOLs may be limited in future periods.

As of December 31, 2021, we carried a valuation allowance against our federal and state deferred tax assets of $ 48,334,217 .

We have considered both the positive and negative evidence in determining whether it was more likely than not that some portion or all of our deferred tax assets will be realized.

The amount of deferred tax assets considered

realizable could, however, be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence is no longer present and additional weight is given to subjective positive evidence, including projections for growth.

The valuation allowance along with $ 22,415,959 of deferred tax liabilities bring our net deferred position to a deferred tax liability of $90,292.

The net deferred tax liability recognized on our balance sheet as of December 31, 2021 is attributable to certain state deferred tax liabilities associated with property and equipment.

NOTE 17 – LEGAL MATTERS

In the ordinary course of business, we may be, from time to time, a claimant or a defendant in various legal proceedings.

We do not presently have any material litigation pending or threatened requiring disclosure under this item.

The Company is a defendant in a lawsuit in Harris County District Court, Houston, Texas, styled EPUS Permian Assets, LLC, v.

Ring Energy, Inc.

, that was filed in July 2021.

The plaintiff, EPUS Permian Assets, LLC, claims breach of contract, money had and received by fraudulent inducement, unjust enrichment and constructive trust.

The plaintiff is requesting its forfeited deposit of $ 5,500,000 in connection with a proposed property sale by the Company plus related damages, and attorneys’ fees and costs.

The action relates to a proposed property sale by the Company to the plaintiff, which was extended by the Company on several occasions with the plaintiff ultimately failing to perform on the agreement and the Company keeping the deposit.

The Company believes that the claims by the plaintiff are entirely without merit and is conducting a vigorous defense and counterclaim.

The Company has filed an answer and a counterclaim denying the allegations and asserting affirmative defenses that would bar or substantially limit the plaintiff’s claims, asserting breach of contract and requesting a declaratory judgment and attorneys’ fees and costs.

The parties are conducting discovery.

NOTE 18 – SUBSEQUENT EVENTS

The Company entered into a Sublease Agreement dated January 15, 2021, covering approximately 15,728 square feet at 1725 Hughes Landing Blvd, Suite 900, The Woodlands, TX 77380.

The sublease term will run until July 31, 2026.

The Company entered into a Purchase, Sale and Exchange Agreement dated February 1, 2021, effective January 1, 2021, with Vin Fisher Operating, Inc.

covering the sale and exchange of certain oil and gas interests in Andrews County, Texas.

After the sale and transfer of wells and leases between the two parties, the Company also received cash consideration of $ 2,000,000 .

The deal greatly reduces the Company’s plug and abandonment obligation costs and also allows the Company to acquire new leasehold for the future drilling of additional horizontal wells.

Subsequent to December 31, 2020, the remaining 13,428,500 Pre-Funded warrants and 184,800 of the Common Warrants issued in the October 2020 offering were exercised.

Gross proceeds were $ 161,269 .

Effective February 1, 2022, the Company entered into a derivative contract with its lender for 1,000 barrels of oil per day for the remainder of 2022 (total notional quantity of 334,000 barrels).

Fixed swap prices range vary by month, ranging from $ 90.78 per barrel in February to $ 80.01 per barrel by the end of the year, with a weighted average swap price of $ 84.61 per barrel.

RING ENERGY, INC.

SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES

Results of Operations from Oil and Natural Gas Producing Activities – The Company’s results of operations from oil and natural gas producing activities exclude interest expense, gain from change in fair value of put options, and other financing expense.

Income taxes are based on statutory tax rates, reflecting allowable deductions.

For the years ended December 31,

Oil and natural gas sales

Production costs

Lease operating expenses

Gathering, transportation and processing costs

Ad valorem taxes

Production taxes

5 unchanged sentences

(251,138,469)

Net Costs Incurred in Oil and Gas Producing Activities

For the years Ended December 31,

Payments to purchase oil and natural gas properties

Proceeds from divestiture of oil and natural gas properties

Payments to develop oil and natural gas properties

Payments to acquire or improve fixed assets subject to depreciation

Total Net Costs Incurred

Net Capitalized Costs

As of December 31,

Oil and natural gas properties, full cost method

Financing lease asset subject to depreciation

Fixed assets subject to depreciation

Total Properties and Equipment

Accumulated depletion, depreciation and amortization

(235,997,307)

(200,111,658)

Net Properties and Equipment

Reserve Quantities Information – The following estimates of proved and proved developed reserve quantities and related standardized measure of discounted future net cash flow are estimates only, and do not purport to reflect realizable values or fair market values of the Company’s reserves.

2 unchanged sentences

All of the Company’s reserves are located in the United States of America.

The proved reserves estimates shown herein for the years ended December 31, 2021, 2020 and 2019 have been prepared by Cawley, Gillespie & Associates, Inc., independent petroleum engineers.

Proved reserves were estimated in accordance with guidelines established by the SEC, which require that reserve estimates be prepared under existing economic and operating conditions based upon the 12-month unweighted average of the first-day-of-the-month prices.

The reserve information in these Consolidated Financial Statements represents only estimates.

There are a number of uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the Company’s control, such as commodity pricing.

Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner.

The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment.

As a result, estimates by different engineers may vary.

In addition, results of drilling, testing and production subsequent to the date of an estimate may lead to revising the original estimate.

Accordingly, initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered.

The meaningfulness of such

estimates depends primarily on the accuracy of the assumptions upon which they were based.

Except to the extent the Company acquires additional properties containing proved reserves or conducts successful exploration and development activities or both, the Company’s proved reserves will decline as reserves are produced.

The oil prices as of December 31, 2021, 2020 and 2019 are based on the respective 12-month unweighted average of the first of the month prices of the West Texas Intermediate (“WTI”) spot prices which equates to $63.04 per barrel, $36.04 per barrel and $52.19 per barrel, respectively.

The natural gas prices as of December 31, 2021, 2020 and 2019 are based on the respective 12-month unweighted average of the first of month prices of the Henry Hub spot price which equates to $3.598 per MMBtu, $1.99 per MMBtu and $2.58 per MMBtu, respectively.

Prices are adjusted by local field and lease level differentials and are held constant for life of reserves in accordance with SEC guidelines.

Proved reserves are estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

Proved developed reserves are those expected to be recovered through existing wells, equipment and methods.

The standardized measure of discounted future net cash flows is computed by applying the price according to the SEC guidelines for oil and natural gas to the estimated future production of proved oil and natural gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions.

The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.

For the Year Ended December 31,

4 unchanged sentences

Purchases of minerals in place

Improved recovery

Extensions and discoveries

Extensions, discoveries and improved recovery

Sale of minerals in place

Upward revision of estimate

Downward revision of estimate due to well performance

Downward revision of estimate due to commodity prices

Downward revision of estimate due to removal of undeveloped locations

Revisions of previous quantity estimates

Proved Developed at beginning of year

4 unchanged sentences

natural gas reserves are stated in thousand cubic feet.

Revisions represent changes in previous reserves estimates, either upward or downward, resulting from new information normally obtained from development drilling and production history or resulting from a change in economic factors, such as commodity prices, operating costs or development costs.

During the year ended December 31, 2021, the Company’s extensions and discoveries of 4,838 MBOE resulted primarily from new proved undeveloped locations resulting from the 2021 operated drilling program in the Northwest Shelf and Central Basin Platform as well as non-operated activity in the Northwest Shelf.

Negative revisions of 2,172 MBOE were the result of Delaware PUD removal due to the 5 Year Rule, well performance, and increased cost from 2021 industry activity increase partially offset by commodity price increases.

The increase in proved undeveloped reserves was primarily attributable to extensions of 4,110 MBOE resulting primarily from the 2021 operated drilling program in the Northwest Shelf and Central Basin Platform as well as non-operated activity in the Northwest Shelf.

Standardized Measure of Discounted Future Net Cash Flows – The standardized measure of discounted future net cash flows is computed by applying the price according to the SEC guidelines for oil and natural gas to the estimated future production of proved oil and natural gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions.

The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.

Standardized Measure of Discounted Future Net Cash Flows

Future cash flows

Future cash inflows

4,853,709,000

2,682,488,655

3,825,773,515

Future production costs

1 unchanged sentence

(821,515,126)

(964,887,856)

Future development costs

1 unchanged sentence

(244,323,270)

(252,457,833)

Future income taxes

1 unchanged sentence

(208,645,934)

(424,715,966)

Future net cash flows

1 unchanged sentence

1,408,004,325

2,183,711,860

10% annual discount for estimated timing of cash flows

1 unchanged sentence

(852,133,072)

(1,260,536,809)

Standardized Measure of Discounted Future Net Cash Flows

1,137,364,848

The following is a summary of the changes in the Standardized Measure for the Company’s proved oil and natural gas reserves during each of the years in the three-year period ended December 31, 2021:

Changes in Standardized Measure of Discounted Future Net Cash Flows

1 unchanged sentence

Purchase of minerals in place

Improved recovery, less related costs

Extensions and discoveries, less related costs

Extensions, discoveries and improved recovery

Development costs incurred during the year

1 unchanged sentence

(154,615,685)

(137,663,314)

Sales of minerals in place

4 unchanged sentences

Net change in estimated future development costs

Upward revisions

Revision of previous quantity estimates as a result well performance

Revision of previous quantity estimates as a result of commodity prices

Revision of previous quantity estimates as a result removal of uneconomic proved undeveloped locations

Revision of estimated timing of cash flows

Revisions of previous quantity estimates

(126,143,669)

Changes in estimated timing of cash flows

(139,039,115)

(107,443,484)

Net change in income taxes

(112,496,394)

End of the Year

1,137,364,848

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures