RING ENERGY, INC. 10-K

Item 9A: Controls and Procedures Evaluation of disclosure controls and procedures. 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, 2022, 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, 2022, our disclosure controls and procedures are effective. 59 Table of Contents Changes in internal control over financial reporting. We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. There were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control Over Financial Reporting and Report of Independent Accounting Firm Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. 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. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Furthermore, the effectiveness of a system of internal control over financial reporting in future periods can change as conditions change. In making our assessment of internal control over financial reporting, our management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013) . Based on our assessment, we believe that, as of December 31, 2022, our internal control over financial reporting is effective based on those criteria. The independent registered public accounting firm, Grant Thornton LLP, has audited the financial statements and internal control over financial reporting 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, 2022. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting at December 31, 2022, is set forth below. 60 Table of Contents 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, 2022, 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, 2022, 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, 2022, and our report dated March 9, 2023 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 9, 2023 61 Table of Contents Item 9B: Other Information None. Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. PART III Item 10: Directors, Executive Officers and Corporate Governance The information required by this item is incorporated by reference herein from the Company's 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. Item 11: Executive Compensation The information required by this item is incorporated by reference herein from the Company's 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference herein from the Company's 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. Item 13: Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated by reference herein from the Company's 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. Item 14: Principal Accountant Fees and Services The information required by this item is incorporated by reference herein from the Company's 2023 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2022. If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time. 62 Table of Contents PART IV Item 15: Exhibits and Financial Statement Schedules 63 Table of Contents Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Here-with 2.1 Purchase and Sale Agreement, dated February 25, 2019 by and among Ring Energy, Inc. and Wishbone Energy Partners, LLC, Wishbone Texas operating Company LLC and WB WaterWorks, LLC 8-K 001-36057 2.1 2/28/19 2.2 Purchase and Sale Agreement dated July 1, 2022, by and among Ring Energy, Inc., Stronghold Energy II Operating, LLC, a Delaware limited liability company (“Stronghold OpCo”) and Stronghold Energy II Royalties, LP, a Delaware limited partnership, including the following Exhibits thereto: Exhibit I – Form of Registration Rights Agreement, Exhibit K – Form of Nomination Agreement, Exhibit L – Form of Certificate of Designation and Exhibit M – Form of Lock-Up Agreement 8-K 001-36057 2.1 7/8/22 2.2(a) First Amendment to Purchase and Sale Agreement by and among Stronghold Energy II Operating, LLC, Stronghold Energy II Royalties, LP, and Ring Energy, Inc., dated August 4, 2022 8-K 001-36057 2.1 8/9/22 3.1 Articles of Incorporation (as amended) 10-K 000-53920 3.1 4/1/13 3.1(a) Certificate of Amendment to the Articles of Incorporation, as amended, of Ring Energy, Inc. 8-K 001-36057 3.1 12/17/21 3.2 Bylaws of Ring Energy, Inc. as amended April 13, 2021 8-K 001-36057 3.1 4/15/21 3.3 Certificate of Designation of the Series A Convertible Preferred Stock dated August 30, 2022 8-K 001-36057 3.1 9/6/22 3.4 Certificate of Withdrawal of Certificate of Designation filed with the Secretary of State of Nevada effective October 31, 2022 8-K 001-36057 3.1 10/31/22 4.1 Registration Rights Agreement, dated April 9, 2019 by and between Ring Energy, Inc. and Wishbone Energy Partners, LLC 10-Q 001-36057 4.1 4/12/19 4.2 Description of Ring Energy, Inc. equity securities registered under Section 12(b) of the Securities Exchange Act of 1934, as amended 10-K 001-36057 10.16 3/16/21 4.3 Securities Purchase Agreement, dated October 27, 2020 8-K 001-36057 4.1 10/29/20 10.1* Executive Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Stephen D. Brooks 8-K 001-36957 10.1 12/4/20 10.2* Executive Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Paul D. McKinney 8-K 001-36957 10.1 10/6/20 10.3* Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Alexander Dyes 8-K 001-36057 10.1 12/22/20 10.4* Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Marinos C. Baghdati 8-K 001-36057 10.2 12/22/20 64 Table of Contents Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Here-with 10.5* Ring Energy Inc. Long Term Incentive Plan, as Amended 8-K 000-53920 99.3 1/24/13 10.6* Form of Option Grant for Long-Term Incentive Plan 10-Q 000-53920 10.2 8/14/12 10.7 Credit Agreement dated July 1, 2014 with SunTrust Bank 8-K 001-36057 10.1 7/3/14 10.8 First Amendment to Credit Agreement with SunTrust Bank 8-K 001-36057 10.1 6/29/15 10.9 Second Amendment to Credit Agreement with SunTrust Bank 8-K 001-36057 10.1 7/29/15 10.10 Third Amendment to Credit Agreement with SunTrust Bank 8-K 001-36057 10.1 5/20/16 10.11 Fourth Amendment to Credit Agreement with SunTrust Bank 10-K 001-36057 10.16 3/16/21 10.12 Fifth Amendment to Credit Agreement with SunTrust 8-K 001-36057 10.1 6/19/18 10.13 Amended and Restated Credit Agreement with SunTrust Bank 10-Q 001-36057 10.2 5/8/19 10.14 First Amendment to Amended and Restated Credit Agreement with SunTrust Bank 8-K 001-36057 10.1 12/9/19 10.15 Second Amendment to Amended and Restated Credit Agreement, dated June 17, 2020, by and among Ring Energy, Inc., the lenders party thereto, and Truist Bank, as administrative agent for the lenders and as issuing bank 8-K 001-36057 10.1 6/19/20 10.16 Third Amendment to Amended and Restated Credit Agreement with Truist Bank 8-K 001-36057 10.1 12/29/20 10.17 Fourth Amendment to Amended and Restated Credit Agreement with Truist Bank dated June 10, 2021 8-K 001-36057 10.1 6/16/21 10.18 Fifth Amendment to Amended and Restated Credit Agreement with Truist Bank dated June 25, 2021 8-K 001-36057 10.1 6/25/21 10.19* Executive Employment and Severance Agreement, dated as of October 26, 2020, by and between the Company and Travis T. Thomas 8-K 001-36057 10.1 3/26/21 10.20 Registration Rights Agreement dated August 31, 2022, by and among Ring Energy, Inc., Stronghold Energy II Operating, LLC, and Stronghold Energy II Royalties, LP. 8-K 001-36057 10.1 9/6/22 10.21 Lock-up Agreement dated August 31, 2022, by and between Ring Energy, Inc. and Stronghold Energy II Operating, LLC. 8-K 001-36057 10.2 9/6/22 10.22 Director Nomination Agreement dated August 31, 2022, by and among Ring Energy, Inc., Stronghold Energy II Operating, LLC, and Stronghold Energy II Royalties, LP. 8-K 001-36057 10.3 9/6/22 10.23 Second Amended and Restated Credit Agreement dated August 31, 2022, by and among Ring Energy, Inc., Truist Bank, and the Lenders from time to time party thereto 8-K 001-36057 10.4 9/6/22 65 Table of Contents Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Here-with 10.24* Ring Energy, Inc. 2021 Omnibus Incentive Plan DEF 14A 001-36057 4/22/21 10.25* Form of Performance Stock Unit Agreement 8-K 001-36057 10.1 11/30/21 10.26* Form Restricted Stock Unit Agreement (employees) 8-K 001-36057 10.1 2/23/23 10.27* Form of Restricted Stock Unit Agreement (non-employee directors) 8-K 001-36057 10.2 2/23/23 14.1 Code of Ethics 8-K 000-53920 14.1 1/24/13 23.1 Consent of Cawley, Gillespie & Associates, Inc. X 23.2 Consent of Grant Thornton LLP X 23.3 Consent of Eide Bailly LLP X 24.1 Power of Attorney (included as part of the signature pages of this report) X 31.1 Rule 13a-14(a) Certification by Chief Executive Officer X 31.2 Rule 13a-14(a) Certification by Chief Financial Officer X 32.1 Section 1350 Certification of Chief Executive Officer X 32.2 Section 1350 Certification Chief Financial Officer X 99.1 Reserve Report of Cawley, Gillespie & Associates, Inc. X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Management contract Item 16: Form 10-K Summary None. 66 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Ring Energy, Inc. By: /s/ Paul D. McKinney Mr. Paul D. McKinney Chief Executive Officer Date: March 9, 2023 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 this 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. 67 Table of Contents 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/ Paul D. McKinney /s/ Thomas L. Mitchell Mr. Paul D. McKinney Mr. Thomas L. Mitchell Chief Executive Officer and Director Director (Principal Executive Officer) Date: March 9, 2023 Date: March 9, 2023 /s/ Travis T. Thomas /s/ Anthony B. Petrelli Mr. Travis T. Thomas Mr. Anthony B. Petrelli Chief Financial Officer Director (Principal Financial Officer) Date: March 9, 2023 Date: March 9, 2023 /s/ Regina Roesener /s/ Clayton E. Woodrum Mrs. Regina Roesener Mr. Clayton E. Woodrum Director Director Date: March 9, 2023 Date: March 9, 2023 /s/ Richard E. Harris /s/ John A. Crum Mr. Richard E. Harris Mr. John A. Crum Director Director Date: March 9, 2023 Date: March 9, 2023 /s/ Roy I. Ben-Dor /s/ David S. Habachy Mr. Roy I. Ben-Dor Mr. David S. Habachy Director Director Date: March 9, 2023 Date: March 9, 2023 68 Table of Contents RING ENERGY, INC. INDEX TO FINANCIAL STATEMENTS Page Report of Grant Thornton LLP Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) F- 2 Report of Eide Bailly LLP , Independent Registered Public Accounting Firm (PCAOB ID Number 286 ) F- 5 Balance Sheets as of December 31, 202 2 and 202 1 F- 8 Statements of Operations for the years ended December 31, 202 2 , 202 1 , and 20 20 F- 9 Statements of Stockholders’ Equity for the years ended December 31, 202 2 , 202 1 , and 20 20 F- 10 Statements of Cash Flows for the years ended December 31, 202 2 , 202 1 , and 20 20 F- 11 Notes to Financial Statements F- 13 Supplemental Information on Oil and Natural Gas Producing Activities F- 37 F-1 Table of Contents 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 sheets of Ring Energy, Inc. (a Nevada corporation) (the “Company”) as of December 31, 2022 and 2021, the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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, 2022, 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 9, 2023 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 audits. 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 audits 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 audits 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 audits 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 audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. The development of estimated proved crude oil and natural gas reserves used in the calculation of depletion, depreciation and amortization expense under the full cost method of accounting and the valuation of crude oil and natural gas properties in the 2022 Stronghold Acquisition (herein referred to as “the crude oil and natural gas reserves”) 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 crude oil and natural gas reserve volumes and future net revenues to record depletion, depreciation and amortization expense. Additionally, as described in Note 5 to the financial statements, the Company acquired significant oil and natural gas properties through an asset acquisition. Crude oil and natural gas reserves are a significant input to the determination of the acquisition date value of crude oil and natural gas properties acquired by the Company in the asset acquisition. To estimate the volume of proved crude oil and natural gas 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 F-2 Table of Contents of proved crude oil and natural gas reserves is impacted by management’s judgments and estimates regarding the financial performance of wells associated with proved crude oil and natural gas 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. We identified the estimation of proved reserves of oil and gas properties as it relates to the recognition of depletion, depreciation and amortization expense and recording the values of properties acquired in the 2022 Stronghold Acquisition as a critical audit matter. The principal consideration for our determination that the estimation of proved crude oil and natural gas reserves as it relates to the recognition of depletion, depreciation and amortization expense and the recording of oil and natural gas property values in the 2022 Stronghold acquisition 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 the acquisition date values of oil and natural gas properties. In turn, auditing those inputs and assumptions required subjective and complex auditor judgment. Our audit procedures related to the estimation of proved crude oil and natural gas reserves included the following, among others. • We tested the design and operating effectiveness of controls relating to management’s estimation of proved crude oil and natural gas reserves for the purpose of estimating depletion, depreciation and amortization expense and acquisition date value of crude oil and natural gas properties. • 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 crude oil and natural gas 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: ◦ 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. ◦ As it relates to the recording of the acquisition date values of crude oil and natural gas properties in the asset acquisition we compared the pricing differentials used in the reserve report to the differentials provided by the seller, and performed analytical procedures by comparing the differentials in the reserve report to actual differentials realized subsequent to the acquisition close date. ◦ We tested models used to estimate the future operating costs in the reserve report and compared amounts to historical operating costs. ◦ As it relates to the recording of the acquisition date values of crude oil and natural gas properties in the asset acquisition we recalculated the operating costs in the reserve report based on the model provided by the seller, and performed analytical procedures by comparing the operating costs in the reserve report to operating costs realized subsequent to the acquisition close date. ◦ 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. ◦ As it relates to the recording of the acquisition date values of crude oil and natural gas properties in the asset acquisition we compared the estimated future development costs in the reserve report to the model provided by the seller, and we performed analytical procedures by comparing the future F-3 Table of Contents development costs in the reserve report to actual development costs incurred subsequent to the acquisition close date. ◦ We tested the working and net revenue interests used in the reserve report by inspecting land, legal and division order records. ◦ 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. ◦ We applied analytical procedures to production forecasts in the reserve report by comparing to historical actual results. ◦ As it relates to the recording of the acquisition date values of crude oil and natural gas properties in the asset acquisition we applied analytical procedures to production forecasts by comparing the remaining forecast in 2022 in the reserve report to actual results subsequent to the acquisition close date. ◦ As it relates to the recording of the acquisition date values of crude oil and natural gas properties in the asset acquisition, we utilized internal valuation specialists to assist with evaluating certain assumptions, such as risk-adjustment factors, as compared to industry surveys and publicly available market data. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2021. Houston, Texas March 9, 2023 F-4 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Ring Energy, Inc. The Woodlands, Texas Opinions on the Financial Statements We have audited the accompanying statements of operations , stockholders’ equity, and cash flows of Ring Energy, Inc. (Ring Energy) for the year 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 results of its operations and its cash flows for the year ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to Ring Energy 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 risk 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 audit of the financial statements that were communicated or required to be communicated to the audit committee that (1) relate to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex judgement. 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. Depletion expense and ceiling test calculation of oil and natural gas properties impacted by the estimation of proved oil and natural gas reserves As described further in Note 1 to the financial statements, the Company uses the full cost method of accounting for oil and natural gas properties. This accounting method requires management to make estimates of proved oil and natural gas reserves and related future cash flows to compute and record depreciation, depletion and amortization expense, as well as to assess potential impairment of oil and natural gas properties (the full cost ceiling test). To estimate the volume of proved oil and natural gas reserves quantities, 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 oil and natural gas reserves is also impacted by management’s judgements and estimates regarding the financial performance of wells associated with those proved oil and natural gas reserves to determine if wells are expected to be economical under the appropriate pricing assumptions that are required in the estimation of depreciation, depletion and amortization expense and potential ceiling test impairment assessments. We identified the estimation of proved oil and natural gas reserves as it relates to the recognition of depreciation, depletion and amortization expense and the assessment of potential impairment as a critical audit matter. F-5 Table of Contents The principal consideration for our determination that the estimation of proved oil and natural gas reserves is a critical audit matter is that there is significant judgement by management and use of specialist in developing the estimates of proved oil and natural gas reserves and a relatively minor change in certain inputs and assumptions that are necessary to estimate the volume and future cash flows of the Company’s proved oil and natural gas reserves could have a significant impact on the measurement of depreciation, depletion and amortization expense and/or impairment expense. In turn, auditing those inputs and assumptions required subjective and complex auditor judgement. Our audit procedures related to the estimation of proved oil and natural gas reserves included the following, among others. • We tested the design and operating effectiveness of internal controls relating to management’s estimation of proved oil and natural gas reserves for the purpose of estimating depreciation, depletion and amortization expense and assessing for ceiling test impairment. • We evaluated the independence, objectivity, and professional qualifications of the Company’s independent petroleum engineer specialist and read the report prepared by the Company’s independent petroleum engineer specialist. • We evaluated the sensitive inputs and assumptions used to determine proved reserve volumes and other cash flow inputs and assumptions that are derived from the Company’s accounting records, such as historical pricing differentials, operating costs, estimated capital costs, and ownership interests. We tested management’s process for determining the assumptions, including the underlying support, on a sample basis where applicable. Specifically, our audit procedures involved testing management’s assumptions as follows: ◦ Tested the working and net revenue interest used in the reserve report ◦ Tested the model used to determine the future capital expenditures by comparing estimated future capital expenditures used in the reserve report to amounts expended for recently drilled and completed wells, where applicable; ◦ Compared the estimated pricing differentials used in the reserve report to realized prices related to revenue transactions recorded in the current year; ◦ Tested the model used to estimate the operating costs at year end and compared to historical operating costs; ◦ Evaluated the Company’s evidence supporting the 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. Valuation Allowance of Deferred Tax Assets As described in Note 1 to the financial statements, the Company records a valuation allowance to reduce total net deferred tax assets when a judgement is made that is considered more likely than not that a tax benefit will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. We identified the realizability of deferred tax assets as a critical audit matter. The principal considerations for our determination that the realizability of deferred tax assets is a critical audit matter are that (a) the forecast of future taxable income is subject to a high level of estimation and (b) the determination of any limitations on the utilization of net operating loss carryforwards involve complex calculations and judgement. There is inherent uncertainty and subjectivity related to management’s judgements and assumptions regarding the Company’s future taxable income, which are complex in nature and require significant auditor judgment. F-6 Table of Contents Our audit procedures related to the valuation of deferred tax assets included the following, among others. • We tested the effectiveness of controls over management’s estimate of the realization of the deferred tax assets and management’s tax planning strategies and the determination of whether it is more likely than not that the deferred tax assets will be realized prior to expiration. • We tested the reasonableness of management’s corporate model used to estimate future taxable income by comparing the estimates to the following: ◦ Historical taxable income. ◦ Evidence obtained in other areas of the audit. ◦ Management’s history of carrying out its stated plans and its ability to carry out its plans. We have served as Ring Energy’s auditor since 2013. Hansen, Barnett and Maxwell, P.C., who joined Eide Bailly LLP in 2013, had served as the Company’s auditor since 2012. Denver, Colorado March 16, 2021 F-7 Table of Contents RING ENERGY, INC. BALANCE SHEETS As of December 31, 2022 2021 ASSETS Current Assets Cash and cash equivalents $ 3,712,526 $ 2,408,316 Accounts receivable 42,448,719 24,026,807 Joint interest billing receivable 983,802 2,433,811 Derivative assets 4,669,162 — Inventory 9,250,717 — Prepaid expenses and other assets 2,101,538 938,029 Total Current Assets 63,166,464 29,806,963 Properties and Equipment Oil and natural gas properties, full cost method 1,463,838,595 883,844,745 Financing lease asset subject to depreciation 3,019,476 1,422,487 Fixed assets subject to depreciation 3,147,125 2,089,722 Total Properties and Equipment 1,470,005,196 887,356,954 Accumulated depreciation, depletion and amortization ( 289,935,259 ) ( 235,997,307 ) Net Properties and Equipment 1,180,069,937 651,359,647 Operating lease asset 1,735,013 1,277,253 Derivative assets 6,129,410 — Deferred financing costs 17,898,973 1,713,466 Total Assets $ 1,268,999,797 $ 684,157,329 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable $ 111,398,268 $ 46,233,452 Financing lease liability 709,653 316,514 Operating lease liability 398,362 290,766 Derivative liabilities 13,345,619 29,241,588 Notes payable 499,880 586,410 Deferred cash payment 14,807,276 — Total Current Liabilities 141,159,058 76,668,730 Non-current Liabilities Deferred income taxes 8,499,016 90,292 Revolving line of credit 415,000,000 290,000,000 Financing lease liability, less current portion 1,052,479 343,727 Operating lease liability, less current portion 1,473,897 1,138,319 Derivative liabilities 10,485,650 — Asset retirement obligations 30,226,306 15,292,054 Total Liabilities 607,896,406 383,533,122 Commitments and contingencies Stockholders' Equity Preferred stock - $ 0.001 par value; 50,000,000 shares authorized; no shares issued or outstanding — — Common stock - $ 0.001 par value; 225,000,000 shares authorized; 175,530,212 shares and 100,192,562 shares issued and outstanding, respectively 175,530 100,193 Additional paid-in capital 775,241,114 553,472,292 Accumulated deficit ( 114,313,253 ) ( 252,948,278 ) Total Stockholders’ Equity 661,103,391 300,624,207 Total Liabilities and Stockholders' Equity $ 1,268,999,797 $ 684,157,329 The accompanying notes are an integral part of these financial statements. F-8 Table of Contents RING ENERGY, INC. STATEMENTS OF OPERATIONS For the years ended December 31, 2022 2021 2020 Oil, Natural Gas, and Natural Gas Liquids Revenues $ 347,249,537 $ 196,305,966 $ 113,025,138 Costs and Operating Expenses Lease operating expenses 47,695,351 30,312,399 29,753,413 Gathering, transportation and processing costs 1,830,024 4,333,232 4,090,238 Ad valorem taxes 4,670,617 2,276,463 3,125,222 Oil and natural gas production taxes 17,125,982 9,123,420 5,228,090 Depreciation, depletion and amortization 55,740,767 37,167,967 43,010,660 Ceiling test impairment — — 277,501,943 Asset retirement obligation accretion 983,432 744,045 906,616 Operating lease expense 363,908 523,487 1,196,372 General and administrative expense 27,095,323 16,068,105 16,874,050 Total Costs and Operating Expenses 155,505,404 100,549,118 381,686,604 Income (Loss) from Operations 191,744,133 95,756,848 ( 268,661,466 ) Other Income (Expense) Interest income 4 1 8 Interest (expense) ( 23,167,729 ) ( 14,490,474 ) ( 17,617,614 ) Gain (loss) on derivative contracts ( 21,532,659 ) ( 77,853,141 ) 21,366,068 Deposit forfeiture income — — 5,500,000 Net Other Income (Expense) ( 44,700,384 ) ( 92,343,614 ) 9,248,462 Income (Loss) Before Provision for Income Taxes 147,043,749 3,413,234 ( 259,413,004 ) Benefit from (Provision for) Income Taxes ( 8,408,724 ) ( 90,342 ) 6,001,176 Net Income (Loss) $ 138,635,025 $ 3,322,892 $ ( 253,411,828 ) Basic Earnings (Loss) per share $ 1.14 $ 0.03 $ ( 3.48 ) Diluted Earnings (Loss) per share $ 0.98 $ 0.03 $ ( 3.48 ) The accompanying notes are an integral part of these financial statements. F-9 Table of Contents RING ENERGY, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Total Stockholders' Equity Shares Amount Balance, December 31, 2019 67,993,797 $ 67,994 $ 526,301,281 $ ( 2,859,342 ) $ 523,509,933 Return of common stock issued as consideration in asset acquisition ( 16,702 ) ( 17 ) ( 103,368 ) — ( 103,385 ) Common stock and warrants issued for cash, net 13,075,800 13,076 19,366,756 — 19,379,832 Exercise of pre-funded warrants issued in offering 3,300,000 3,300 — — 3,300 Common stock issued for services 35,000 35 23,765 — 23,800 Restricted stock vested 1,180,392 1,180 ( 1,180 ) — — Share-based compensation — — 5,364,162 — 5,364,162 Net (loss) — — — ( 253,411,828 ) ( 253,411,828 ) Balance, December 31, 2020 85,568,287 $ 85,568 $ 550,951,415 $ ( 256,271,170 ) $ 294,765,813 Common stock and warrants issued for cash, net — $ — $ ( 65,000 ) $ — $ ( 65,000 ) Exercise of pre-funded warrants issued in offering 13,428,500 13,429 — — 13,429 Exercise of common warrants issued in offering 442,600 443 353,637 — 354,080 Options exercised 100,000 100 199,900 — 200,000 Restricted stock vested 785,357 785 ( 785 ) — — Shares to cover tax withholdings ( 132,182 ) ( 132 ) 132 — — Payments to cover tax withholdings — — ( 385,330 ) — ( 385,330 ) Share-based compensation — — 2,418,323 — 2,418,323 Net (loss) — — — 3,322,892 3,322,892 Balance, December 31, 2021 100,192,562 $ 100,193 $ 553,472,292 $ ( 252,948,278 ) $ 300,624,207 Exercise of common warrants issued in offering 10,253,907 10,254 8,192,872 — 8,203,126 Options exercised 100,000 100 ( 100 ) — — Shares elected to be withheld for options exercised ( 47,506 ) ( 48 ) 48 — — Restricted stock vested 1,310,894 1,311 ( 1,311 ) — — Shares to cover tax withholdings for restricted stock vested ( 168,523 ) ( 169 ) 169 — — Payments to cover tax withholdings for restricted stock vested — — ( 521,199 ) — ( 521,199 ) Common stock issuance for Stronghold 21,339,986 21,340 69,120,215 — 69,141,555 Conversion of mezzanine preferred shares for Stronghold 42,548,892 42,549 137,815,897 — 137,858,446 Share-based compensation — — 7,162,231 — 7,162,231 Net income — — — 138,635,025 138,635,025 Balance, December 31, 2022 175,530,212 $ 175,530 $ 775,241,114 $ ( 114,313,253 ) $ 661,103,391 The accompanying notes are an integral part of these financial statements. F-10 Table of Contents RING ENERGY, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2022 2021 2020 Cash Flows From Operating Activities Net income (loss) $ 138,635,025 $ 3,322,892 $ ( 253,411,828 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 55,740,767 37,167,967 43,010,660 Ceiling test impairment — — 277,501,943 Asset retirement obligation accretion 983,432 744,045 906,616 Amortization of deferred financing costs 2,706,021 665,882 1,190,109 Share-based compensation 7,162,231 2,418,323 5,364,162 Bad debt expense 242,247 — — Shares issued for services — — 23,800 Deferred income tax expense (benefit) 8,720,992 265,479 ( 3,975,170 ) Excess tax expense (benefit) related to share-based compensation ( 312,268 ) ( 175,187 ) ( 2,026,006 ) (Gain) loss on derivative contracts 21,532,659 77,853,141 ( 21,366,068 ) Cash received (paid) for derivative settlements, net ( 62,525,954 ) ( 52,768,154 ) 22,522,591 Changes in assets and liabilities: Accounts receivable ( 17,214,150 ) ( 9,483,639 ) 7,896,517 Inventory ( 5,597,845 ) — — Prepaid expenses and other assets ( 1,163,509 ) ( 541,920 ) 3,586,146 Accounts payable 50,808,461 15,449,215 ( 8,380,594 ) Settlement of asset retirement obligation ( 2,741,380 ) ( 2,186,832 ) ( 683,623 ) Net Cash Provided by Operating Activities 196,976,729 72,731,212 72,159,255 Cash Flows From Investing Activities Payments for the Stronghold Acquisition ( 177,823,787 ) — — Payments to purchase oil and natural gas properties ( 1,563,703 ) ( 1,368,437 ) ( 1,317,313 ) Payments to develop oil and natural gas properties ( 129,332,155 ) ( 51,302,131 ) ( 42,457,745 ) Payments to acquire or improve fixed assets subject to depreciation ( 319,945 ) ( 568,832 ) ( 55,339 ) Sale of fixed assets subject to depreciation 134,600 — — Proceeds from divestiture of oil and natural gas properties 23,700 2,000,000 — Net Cash (Used in) Investing Activities ( 308,881,290 ) ( 51,239,400 ) ( 43,830,397 ) Cash Flows From Financing Activities Proceeds from revolving line of credit 636,000,000 60,150,000 26,500,000 Payments on revolving line of credit ( 511,000,000 ) ( 83,150,000 ) ( 80,000,000 ) Proceeds from issuance of common stock and warrants 8,203,126 367,509 19,383,131 Proceeds from option exercise — 200,000 — Payments for taxes withheld on vested restricted shares ( 521,199 ) ( 385,330 ) — Proceeds from notes payable 1,323,354 1,297,718 — Payments on notes payable ( 1,409,884 ) ( 711,308 ) — Payment of deferred financing costs ( 18,891,528 ) ( 104,818 ) ( 355,049 ) Reduction of financing lease liabilities ( 495,098 ) ( 325,901 ) ( 282,928 ) Net Cash Provided by (Used in) Financing Activities 113,208,771 ( 22,662,130 ) ( 34,754,846 ) Net Increase (Decrease) in Cash 1,304,210 ( 1,170,318 ) ( 6,425,988 ) Cash at Beginning of Period 2,408,316 3,578,634 10,004,622 Cash at End of Period $ 3,712,526 $ 2,408,316 $ 3,578,634 F-11 Table of Contents RING ENERGY, INC. STATEMENTS OF CASH FLOWS (CONTINUED) For the Years Ended December 31, 2022 2021 2020 Supplemental Cash Flow Information Cash paid for interest $ 19,818,623 $ 14,110,421 $ 16,911,344 Noncash Investing and Financing Activities Asset retirement obligation incurred during development $ 353,008 $ 171,390 $ 99,436 Asset retirement obligation acquired 14,538,550 662,705 — Asset retirement obligation revision of estimate — 435,419 34,441 Asset retirement obligation sold — ( 2,934,126 ) — Operating lease assets obtained in exchange for new operating lease liability 754,894 839,536 823,727 Operating lease asset revision — ( 621,636 ) — Financing lease assets obtained in exchange for new financing lease liability 952,101 — — Stock issued in property acquisition returned in final settlement — — 103,385 Capitalized expenditures attributable to drilling projects financed through current liabilities 9,179,003 309,365 1,415,073 Supplemental Schedule for Stronghold Acquisition Investing Activities - Cash Paid Cash paid by bank to Stronghold on closing $ 121,392,455 $ — $ — Deposit in escrow 46,500,000 — — Direct transaction costs 9,162,143 — — Cash paid for realized August oil derivative losses 1,777,925 — — Cash paid for inventory and fixed assets acquired 4,527,103 — — Cash received for post-close adjustments, net ( 5,535,839 ) — — Payments for the Stronghold Acquisition $ 177,823,787 $ — $ — Investing Activities - Noncash Assumption of suspense liability 1,651,596 — — Assumption of derivative liabilities 24,784,406 — — Assumption of asset retirement obligation 14,538,550 — — Deferred cash payment at fair value 14,807,276 — — Financing Activities - Noncash Common stock issued for acquisition 69,141,555 — — Convertible preferred stock issued for acquisition $ 137,858,446 $ — $ — The accompanying notes are an integral part of these financial statements. F-12 Table of Contents RING ENERGY, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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. Changes in the future estimated oil and natural gas reserves or the estimated future cash flows attributable to the reserves that are utilized for impairment analysis could have a significant impact on the future results of operations. 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. This hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability. Fair Values of Financial Instruments – 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. Fair Value of Non-financial Assets and Liabilities – The Company also applies fair value accounting guidance to initially, or as events dictate, measure non-financial assets and liabilities such as those obtained through business acquisitions, property and equipment and asset retirement obligations. These assets and liabilities are subject to fair value adjustments only in certain circumstances and are not subject to recurring revaluations. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two as considered appropriate based on the circumstances. Under the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and natural gas production or other applicable sales estimates, operational costs and a risk-adjusted discount rate. The Company may use the present value of estimated future cash inflows and/or outflows or third-party offers or prices of comparable assets with consideration of current market conditions to value its non-financial assets and liabilities when circumstances dictate determining fair value is necessary. Given the significance of the unobservable nature of a number of the inputs, these are considered Level 3 on the fair value hierarchy. Concentration of Credit Risk and Accounts Receivable – Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and accounts receivable. The Company has cash in excess of federally insured limits of $ 3,462,526 and $ 1,936,805 as of December 31, 2022 and 2021, respectively. 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. Oil and natural gas sales are generally unsecured. The Company has not had any significant credit losses in the past and believes its accounts receivable are fully collectable. The Company also has a joint interest billing receivable. Joint interest billing receivables F-13 Table of Contents are collateralized by the pro rata revenue attributable to the joint interest holders and further by the interest itself. Accounts receivable from joint interest owners or purchasers outstanding longer than the contractual payment terms are considered past due. For the years ended December 31, 2022, 2021, and 2020, the Company provided for bad debt expense of $ 242,247 , $ 0 , and $ 0 respectively, associated with its joint interest billing receivable. As of December 31, 2022 and 2021, the Company's allowance for credit losses was $ 242,247 and $ 0 , respectively, associated with its joint interest billing receivable. The Company accounts for natural gas production imbalances using the sales method, which recognizes revenue on all natural gas sold even though the natural gas volumes sold may be more or less than the Company's ownership entitles it to sell. Liabilities are recorded for imbalances greater than the Company’s proportionate share of remaining estimated natural gas reserves. The Company recorded no imbalances as of December 31, 2022 or 2021. 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. Inventory - During 2022, the Company purchased materials and supplies inventories in bulk to lock in prices with certain vendors. Additionally, as a part of the Stronghold Acquisition (discussed further in "Note 5 - ACQUISITIONS & DIVESTITURES"), the Company acquired an inventory yard with significant amounts of inventory. Inventory is added to the books upon the purchase of supplies (inclusive of freight and sales tax costs) to use on well sites, and inventory is reduced by material transfers for inventory usage based on the initial invoiced value. We report the balance of our inventory at the lower of cost or market value. Inventory balances are excluded from the Company's calculation of depletion. Oil and Natural Gas Properties – The Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all costs (direct and indirect) associated with acquisition, exploration, and development of oil and natural gas properties are capitalized. Costs capitalized include acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling and equipping productive and non-productive wells. Drilling costs include directly related overhead costs. Capitalized costs are categorized either as being subject to amortization or not subject to amortization. All of the Company’s capitalized costs, excluding inventory, are subject to amortization. The Company records a liability in the period in which an asset retirement obligation (“ARO”) is incurred, in an amount equal to the discounted estimated fair value of the obligation that is capitalized. Thereafter this liability is accreted up to the final retirement cost. An ARO is a future expenditure related to the disposal or other retirement of certain assets. The Company’s ARO relates to future plugging and abandonment expenses of its oil and natural gas properties and related facilities disposal. Dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs. All capitalized costs of oil and natural gas properties, including the estimated future costs to develop proved reserves and estimated future costs to plug and abandon wells and costs of site restoration, less the estimated salvage value of equipment associated with the oil and natural gas properties, are amortized on the unit-of-production method using estimates of proved reserves as determined by independent petroleum engineers. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is offset to the capitalized costs to be amortized. The following table shows total depletion and the depletion per barrel-of-oil-equivalent rate, for the years ended December 31, 2022, 2021, and 2020. For the Years Ended December 31, 2022 2021 2020 Depletion $ 55,029,956 $ 36,735,070 $ 42,634,294 Depletion rate, per barrel-of-oil-equivalent (Boe) $ 12.19 $ 11.82 $ 13.25 In addition, capitalized costs less accumulated depreciation, depletion and amortization and related deferred income taxes shall not exceed an amount (the full cost ceiling) equal to the sum of: 1) the present value of estimated future net revenues discounted ten percent computed in compliance with SEC guidelines; 2) plus the cost of properties not being amortized; 3) plus the lower of cost or estimated fair value of unproven properties included in the costs being amortized; F-14 Table of Contents 4) less income tax effects related to differences between the book and tax basis of the properties. 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, 2022 or 2021. Land, Buildings, Equipment and Leasehold Improvements – Land, buildings, equipment and leasehold improvements are carried at historical cost, adjusted for impairment loss and accumulated depreciation. Historical costs include all direct costs associated with the acquisition of land, buildings, equipment and leasehold improvements and placing them in service. Depreciation of buildings, equipment , software and leasehold improvements is calculated using the straight-line method based upon the following estimated useful lives: Leasehold improvements 3 ‑ 5 years Office equipment and software 3 ‑ 7 years Equipment 5 ‑ 10 years Automobiles 4 years Depreciation expense was $ 205,600 , $ 432,897 , and $ 376,366 for the years ended December 31, 2022, 2021, and 2020, respectively. Notes Payable – During 2022, the Company renewed its directors and officers, control of well, and cybersecurity policies, and funded the premiums with three promissory notes with a total face value after down payments of $ 1,323,354 . As of December 31, 2022, the notes payable balance included within current liabilities on the balance sheet is $ 499,880 . During 2021, the Company obtained external insurance for the same policies and funded the premiums by signing three promissory notes. The annual percentage rate (APR) for these notes is 4.08 %. For the years ended December 31, 2022 and 2021, interest paid related to notes payable was $ 25,579 and $ 17,824 , respectively, included within "Interest (expense)" in the Statements of Operations. Revenue Recognition – In January 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenues from Contracts with Customers (Topic 606) (“ASU 2014-09”). The timing of recognizing revenue from the sale of produced crude oil and natural gas was not changed as a result of adopting ASU 2014-09. The Company predominantly derives its revenue from the sale of produced crude oil and natural gas. The contractual performance obligation is satisfied when the product is delivered to the customer. Revenue is recorded in the month the product is delivered to the purchaser. The Company receives payment from one to three months after delivery. The transaction price includes variable consideration as product pricing is based on published market prices and reduced for contract specified differentials. The new guidance regarding ASU 2014-09 does not require that the transaction price be fixed or stated in the contract. Estimating the variable consideration does not require significant judgment and Ring engages third party sources to validate the estimates. Revenue is recognized net of royalties due to third parties in an amount that reflects the consideration the Company expects to receive in exchange for those products. See "Note 2 - REVENUE RECOGNITION" for additional information. 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 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. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Accounting for Uncertainty in Income Taxes – In accordance with GAAP, 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. The Company has identified its federal income tax return and its franchise tax return in Texas in which it operates as “major” tax jurisdictions. The Company’s federal income tax returns for the years ended December 31, 2018 and after remain subject to examination. The Company’s federal income tax returns for the years ended December 31, 2007 and after 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 2017 and after. The Company currently believes that all significant filing positions are F-15 Table of Contents highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company has no significant reserves for uncertain tax positions and no adjustments to such reserves were required by GAAP. No interest or penalties have been levied against the Company and none are anticipated; therefore, no interest or penalty has been included in our provision for income taxes in the statements of operations. Three-Stream Reporting - Beginning July 1, 2022, the Company began reporting volumes and revenues on a three-stream basis, separately reporting crude oil, natural gas, and natural gas liquids ("NGLs") sales. For periods prior to July 1, 2022, sales and reserve volumes, prices, and revenues for NGLs were presented with natural gas. This represents a change in our accounting and reporting presentation necessitated by a change in the underlying facts and circumstances surrounding the Stronghold Acquisition, as Stronghold has historically reported its revenues on a three-stream basis. As clarified in the interpretive guidance of ASC 250, such changes should not be applied on a retrospective basis. Accordingly, we began reporting on a three-stream basis prospectively, beginning July 1, 2022. Leases - The Company accounts for its leases in accordance with ASU 2016-02, Leases (Topic 842), effective January 1, 2019. The Company made accounting policy elections to not capitalize leases with a lease term of twelve months or less (i.e., short term leases) and to not separate lease and non-lease components for all asset classes. The Company also elected to adopt the package of practical expedients within ASU 2016-02 that allows an entity to not reassess prior to the effective date (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases and the practical expedient regarding land easements that exist prior to the adoption of ASU 2016-02. The Company did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date. Earnings (Loss) Per Share – Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the year. Diluted earnings (loss) per share are calculated to give effect to potentially issuable dilutive common shares. Major Customers – During the year ended December 31, 2022, sales to three customers represented 68 %, 13 % and 5 %, respectively, of total oil, natural gas, and natural gas liquids sales. As of December 31, 2022, sales outstanding from these three customers represented 69 %, 7 % and 10 %, respectively, of accounts receivable. During the year ended December 31, 2021, sales to three customers represented 76 %, 7 % and 6 %, respectively, of total oil and natural gas sales. As of December 31, 2021, sales outstanding from these three customers represented 75 %, 8 % and 4 %, respectively, of accounts receivable. During the year ended December 31, 2020, sales to three customers represented 68 %, 10 % and 8 %, respectively, of total oil and natural gas sales. As of December 31, 2020, sales outstanding from these three customers represented 80 %, 0 % and 5 %, 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 - EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(K)". 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 measurable. 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, 2022, 2021, and 2020 was $ 7,162,231 , $ 2,418,323 , and $ 5,364,162 , respectively. Derivative Instruments and Hedging Activities – The Company may periodically enter into derivative contracts to manage its exposure to commodity risk. These derivative contracts, which are generally placed with major financial institutions, may take the form of forward contracts, futures contracts, swaps, or options. The oil and gas reference prices upon which the commodity derivative contracts are based reflect various market indices that have a high degree of historical correlation with actual prices received by the Company for its oil and natural gas production. F-16 Table of Contents When applicable, the Company records all derivative instruments, other than those that meet the normal purchases and sales exception, on the balance sheet as either an asset or liability measured at fair value. Changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met. Refer to "Note 8 - DERIVATIVE FINANCIAL INSTRUMENTS" 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”). ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurement. ASU 2018-13 is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted for either the entire standard or only the provisions that eliminate or modify requirements. ASU 2018-13 requires that the additional disclosure requirements be adopted using a retrospective approach. The adoption of this guidance did not have a material 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 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 ("ASU 2020-10"), 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. 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. The guidance may 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 adopted ASU 2020-06 effective January 1, 2022. 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. In December 2022, the FASB issued ASU 2022-06, " Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" ("ASU 2022-06"), wh ich defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. Beginning August 31, 2022, under the Company's Second Amended and Restated Credit Agreement, the Company's interest rates were transitioned from the LIBOR to the SOFR (Standard Overnight Financing Rate) reference rate. At this time, the Company does not plan to enter into additional contracts using LIBOR as a reference rate. In October 2021, the FASB issued ASU 2021-08, " Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” ("ASU 2021-08"). This update requires the acquirer in a business combination to record contract asset and liabilities following Topic 606 – “Revenue from Contracts with Customers” at F-17 Table of Contents 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 The Company predominantly derives its revenue from the sale of produced crude oil and natural gas. The contractual performance obligation is satisfied when the product is delivered to the customer. Revenue is recorded in the month the product is delivered to the purchaser. The Company receives payment from one to three months after delivery. The Company has utilized the practical expedient in Accounting Standards Codification ("ASC") 606-10-50-14, which states an entity is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s sales contracts, each unit of production delivered to a customer represents a separate performance obligation, therefore, future volumes to be delivered are wholly unsatisfied and disclosure of transaction price allocated to remaining performance obligation is not required. The transaction price includes variable consideration as product pricing is based on published market prices and adjusted for contract specified differentials such as quality, energy content and transportation. The guidance does not require that the transaction price be fixed or stated in the contract. Estimating the variable consideration does not require significant judgment and the Company engages third party sources to validate the estimates. Revenue is recognized net of royalties due to third parties in an amount that reflects the consideration the Company expects to receive in exchange for those products. Oil sales Under the Company’s oil sales contracts, the Company sells oil production at the point of delivery and collects an agreed upon index price, net of pricing differentials. The Company recognizes revenue at the net price received when control transfers to the purchaser at the point of delivery and it is probable the Company will collect the consideration it is entitled to receive. Natural gas and NGL sales Under the Company’s natural gas sales processing contracts for our Central Basin Platform properties, Delaware Basin properties and part of our Northwest Shelf assets, the Company delivers unprocessed natural gas to a midstream processing entity at the wellhead. The midstream processing entity obtains control of the natural gas and NGLs (natural gas liquids) at the wellhead. The midstream processing entity gathers and processes the natural gas and NGLs and remits proceeds to the Company for the resulting sale of natural gas and NGLs. Under these processing agreements, the Company recognizes revenue when control transfers to the purchaser at the point of delivery and it is probable the Company will collect the consideration it is entitled to receive. As such, the Company accounts for any fees and deductions as a reduction of the transaction price. Until April 30, 2022, under the Company's natural gas sales processing contracts for the bulk of our Northwest Shelf assets, the Company delivered unprocessed natural gas to a midstream processing entity at the wellhead. However, the Company maintained ownership of the gas through processing and received proceeds from the marketing of the resulting products. Under this processing agreement, the Company recognized the fees associated with the processing as an expense rather than netting these costs against Oil and Natural Gas Revenues in the Statements of Operations. Beginning May 1, 2022, these contracts were combined into one contract, and it was modified so that the Company no longer maintained ownership of the gas through processing. Accordingly, the Company from that point on accounts for any such fees and deductions as a reduction of the transaction price. F-18 Table of Contents Disaggregation of Revenue. The following table presents revenues disaggregated by product: For the years ended December 31, 2022 2021 2020 Oil, Natural Gas, and Natural Gas Liquids Revenues Oil $ 321,062,672 $ 181,533,093 $ 109,113,557 Natural gas 18,693,631 14,772,873 3,911,581 Natural gas liquids 7,493,234 — — Total oil, natural gas, and natural gas liquids revenues $ 347,249,537 $ 196,305,966 $ 113,025,138 NOTE 3 – 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. The Midland office lease was amended effective October 1, 2022, with the revised five-year lease ending September 30, 2027. Beginning January 15, 2021, the Company entered into a five-and-a-half-year sub-lease for office space in The Woodlands, Texas. The future payments associated with these operating leases are reflected below. During the years ended December 31, 2020 and 2021 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 - RELATED PARTY TRANSACTIONS" for further details. The Company 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 within Lease operating expenses, shown below. The Company has financing leases for vehicles. These leases have a term of 36 months at the end of which the Company owns the vehicles. These vehicles are generally sold at the end of their term and the proceeds applied to a new vehicle. Future lease payments associated with these operating and financing leases as of December 31, 2022 are as follows: 2023 2024 2025 2026 2027 Operating lease payments (1) $ 474,464 $ 482,328 $ 494,692 $ 398,096 $ 216,000 Financing lease payments (2) 793,723 727,451 379,421 — — (1) The weighted average discount rate as of December 31, 2022 for operating leases was 4.50 %. Based on this rate, the future lease payments above include imputed interest of $ 193,321 . The weighted average remaining term of operating leases was 4.29 years. (2) The weighted average discount rate as of December 31, 2022 for financing leases was 5.82 %. Based on this rate, the future lease payments above include imputed interest of $ 138,463 . The weighted average remaining term of financing leases was 2.41 years. The following table represents a reconciliation between the undiscounted future cash flows in the table above and the operating and financing lease liabilities disclosed in the Balance Sheets: F-19 Table of Contents As of December 31, 2022 2021 Operating lease liability, current portion 398,362 290,766 Operating lease liability, non-current portion 1,473,897 1,138,319 Operating lease liability, total 1,872,259 1,429,085 Total undiscounted future cash flows (sum of future operating lease payments) 2,065,580 1,577,786 Imputed interest 193,321 148,701 Undiscounted future cash flows less imputed interest 1,872,259 1,429,085 Financing lease liability, current portion 709,653 316,514 Financing lease liability, non-current portion 1,052,479 343,727 Financing lease liability, total 1,762,132 660,241 Total undiscounted future cash flows (sum of future financing lease payments) 1,900,595 692,091 Imputed interest 138,463 31,850 Undiscounted future cash flows less imputed interest 1,762,132 660,241 The following table provides supplemental information regarding cash flows from operations: 2022 Operating lease costs $ 363,908 Short-term lease costs (1) $ 2,618,405 Financing lease costs: Amortization of financing lease assets (2) $ 505,211 Interest on lease liabilities (3) $ 48,472 (1) Amount included in Lease operating expenses (2) Amount included in Depreciation, depletion and amortization (3) Amount included in Interest expense NOTE 4 – EARNINGS (LOSS) PER SHARE INFORMATION For the years ended December 31, 2022 2021 2020 Net Income (Loss) $ 138,635,025 $ 3,322,892 $ ( 253,411,828 ) Basic Weighted-Average Shares Outstanding 121,264,175 99,387,028 72,891,310 Effect of dilutive securities: Stock options 83,384 75,897 — Restricted stock units 2,040,181 1,613,810 — Performance stock units 248,206 — — Common warrants 18,118,722 20,116,440 — Diluted Weighted-Average Shares Outstanding 141,754,668 121,193,175 72,891,310 Basic Earnings (Loss) per Share $ 1.14 $ 0.03 $ ( 3.48 ) Diluted Earnings (Loss) per Share $ 0.98 $ 0.03 $ ( 3.48 ) Stock options to purchase 70,500 , 113,659 , and 465,500 shares of common stock were excluded from the computation of diluted earnings per share during the years ended December 31, 2022, 2021 and 2020, respectively, as their effect would have been anti-dilutive. Also excluded from the computation of diluted earnings per share were 13,512 , 20,610 , and 2,144,617 shares of unvested restricted stock units during the years ended December 31, 2022, 2021 and 2020, respectively, as their effect would have been anti-dilutive. Unvested performance stock units of 814,255 , 94,270 , and — F-20 Table of Contents were excluded from the computation of diluted earnings per share during the years ended December 31, 2022, 2021, and 2020, 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 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 were 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 Andrews County Acquisition 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. Stronghold Acquisition On July 1, 2022, Ring, as buyer, and Stronghold Energy II Operating, LLC, a Delaware limited liability company (“Stronghold OpCo”) and Stronghold Energy II Royalties, LP, a Delaware limited partnership (“Stronghold RoyaltyCo”, together with Stronghold OpCo, collectively, “Stronghold”), as seller, entered into a purchase and sale agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, Ring acquired (the “Stronghold Acquisition”) interests in oil and gas leases and related property of Stronghold consisting of approximately 37,000 net acres located in the Central Basin Platform of the Texas Permian Basin. On August 31, 2022, Ring completed the Stronghold Acquisition. The fair value of consideration paid to Stronghold was approximately $ 394.0 million, of which $ 165.9 million, net of customary purchase price adjustments, was paid in cash at closing, $ 15.0 million will be payable in cash after the six-month anniversary of the closing date of the Stronghold Acquisition. Shortly after closing, approximately $ 4.5 million was paid for inventory and vehicles and approximately $ 1.8 million was paid for August oil derivative settlements for certain novated hedges. The cash portion of the consideration was funded primarily from borrowings under a new fully committed revolving credit facility (the “Credit Facility”) underwritten by Truist Securities, Citizens Bank, N.A., KeyBanc Capital Markets Inc., and Mizuho Bank, Ltd. The borrowing base of the $ 1.0 billion Credit Facility was increased from $ 350.0 million to $ 600.0 million at the closing of the Stronghold Acquisition. The remaining consideration consisted of 21,339,986 shares of Ring common stock and 153,176 shares of newly created Series A Convertible Preferred Stock, par value $ 0.001 (“Preferred Stock”) which was converted into 42,548,892 shares of common stock on October 27, 2022. Please see "Note 12 - STOCKHOLDERS' EQUITY" for further discussion. In addition, Ring assumed $ 24.8 million of derivative liabilities, $ 1.7 million of items in suspense and $ 14.5 million in asset retirement obligations. Purchase Price Allocation The Stronghold Acquisition has been accounted for as an asset acquisition in accordance with ASC Topic 805 - Business Combinations. The fair value of the consideration paid by Ring and allocation of that amount to the underlying assets acquired, on a relative fair value basis, was recorded on Ring’s books as of the date of the closing of the Stronghold Acquisition. Additionally, costs directly related to the Stronghold Acquisition were capitalized as a component of the purchase price. Determining the fair value of the assets and liabilities acquired requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of Stronghold’s oil and gas properties. The inputs and assumptions related to the oil and gas properties are categorized as level 3 in the fair value hierarchy. The following table represents the preliminary allocation of the total cost of the Stronghold Acquisition to the assets acquired and liabilities assumed as of the Stronghold Acquisition date: F-21 Table of Contents Consideration: Shares of Common Stock issued 21,339,986 Common Stock price as of August 31, 2022 $ 3.24 Common Stock Consideration $ 69,141,555 Shares of Preferred Stock issued 153,176 Aggregate Liquidation Preference $ 153,176,000 Conversion Price $ 3.60 As-Converted Shares of Common Stock 42,548,892 Common Stock Price as of August 31, 2022 $ 3.24 Preferred Stock Consideration $ 137,858,446 Cash consideration: Closing amount paid to Stronghold 121,392,455 Escrow deposit paid 46,500,000 Cash paid for inventory and fixed assets 4,527,103 Cash paid for realized losses on August oil derivatives 1,777,925 Cash received for post-close adjustments, net ( 5,535,839 ) Total cash consideration 168,661,644 Fair value of deferred payment liability 14,807,276 Post-close settlement to be paid to Stronghold 3,511,170 Fair value of consideration paid to seller 393,980,091 Direct transaction costs 9,162,143 Total consideration $ 403,142,234 Fair value of assets acquired: Oil and natural gas properties 439,589,683 Inventory and fixed assets 4,527,103 Amount attributable to assets acquired $ 444,116,786 Fair value of liabilities assumed: Suspense liability 1,651,596 Derivative liabilities, marked to market 24,784,406 Asset retirement obligations 14,538,550 Amount attributable to liabilities assumed $ 40,974,552 Net assets acquired $ 403,142,234 Approximately $ 40.4 million of revenues and $ 13.6 million of direct operating expenses attributed to the Stronghold Acquisition are included in the Company’s Statements of Operations for the period from September 1, 2022 through December 31, 2022. NOTE 6 – DEPOSIT FORFEITURE INCOME 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. In total, $ 5,500,000 in non-refundable deposits were made to the Company. In October 2020, the agreement was terminated as the buyer was not able to consummate the transaction. As such, the Company recognized the $ 5,500,000 as income in its Statements of Operations as no divestiture of assets had occurred. Refer to "Note 17 - LEGAL MATTERS" for further details. F-22 Table of Contents 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, 2022 2021 Oil and natural gas properties, full cost method $ 1,463,838,595 $ 883,844,745 Financing lease asset subject to depreciation 3,019,476 1,422,487 Fixed assets subject to depreciation 3,147,125 2,089,722 Total Properties and Equipment 1,470,005,196 887,356,954 Accumulated depletion, depreciation and amortization ( 289,935,259 ) ( 235,997,307 ) Net Properties and Equipment $ 1,180,069,937 $ 651,359,647 Net Costs Incurred in Oil and Gas Producing Activities For the years Ended December 31, 2022 2021 Payments for the Stronghold Acquisition $ 177,823,787 $ — Payments to purchase oil and natural gas properties 1,563,703 1,368,437 Proceeds from divestiture of oil and natural gas properties ( 23,700 ) ( 2,000,000 ) Payments to develop oil and natural gas properties 129,332,155 51,302,131 Payments to acquire or improve fixed assets subject to depreciation 319,945 568,832 Sale of fixed assets subject to depreciation $ ( 134,600 ) $ — Total Net Costs Incurred $ 308,881,290 $ 51,239,400 NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to fluctuations in crude oil and natural gas prices on its production. It utilizes derivative strategies that consist of either a single derivative instrument or a combination of instruments to manage the variability in cash flows associated with the forecasted sale of our future domestic oil and natural gas production. While the use of derivative instruments may limit or partially reduce the downside risk of adverse commodity price movements, their use also may limit future income from favorable commodity price movements. 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 has historically used either costless collars, deferred premium puts, or swaps for this purpose. Oil derivative contracts are based on WTI Crude Oil prices and natural gas contacts are based on Henry Hub or Waha Hub. A “costless collar” is the combination of two options, a put option (floor) and call option (ceiling) with the options structured so that the premium paid for the put option will be offset by the premium received from selling the call option. Similar to costless collars, there is no cost to enter into the swap contracts. 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. The deferred premium put contract has the premium established upon entering the contract, and due upon settlement of the contract. 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 derivative contracts have been with lenders under our credit facility. Non-performance risk is incorporated in the discount rate by adding the quoted bank (counterparty) credit default swap (CDS) rates to the risk free rate. Beginning September 1, the Company assumed the derivative liabilities (novated hedges) associated with its acquisition of the Stronghold assets (see "Note 5 - ACQUISITIONS & DIVESTITURES"), which are subject to master netting agreements. Additional derivative contracts with the same counterparty are also subject to netting. Still, in accordance with ASC 815-10-50-4B, the Company continues to classify the fair value of all its derivative positions on a gross basis in its corresponding Balance Sheets. F-23 Table of Contents The Company’s derivative financial instruments are recorded at fair value and included as either assets or liabilities in the accompanying Balance Sheets. The Company has not designated its derivative instruments as hedges for accounting purposes, and, as a result, 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 (Expense)" under the heading "Gain (loss) on derivative contracts" 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, 2022 2021 Commodity derivative instruments, marked to market: Derivative assets, current 16,193,327 — Discounted deferred premiums ( 11,524,165 ) — Derivatives assets, current, net of premiums $ 4,669,162 $ — Derivative assets, noncurrent 7,606,258 — Discounted deferred premiums ( 1,476,848 ) — Derivative assets, noncurrent, net of premiums $ 6,129,410 $ — Derivative liabilities, current $ 13,345,619 $ 29,241,558 Derivative liabilities, noncurrent $ 10,485,650 $ — The components of “Gain (loss) on derivative contracts” are as follows for the respective periods: For the years ended December 31, 2022 2021 2020 Oil derivatives: Realized gain (loss) on oil derivatives $ ( 61,875,870 ) $ ( 53,511,332 ) $ 22,522,591 Unrealized gain (loss) on oil derivatives 40,546,123 ( 24,143,120 ) ( 2,164,779 ) Gain (loss) on oil derivatives $ ( 21,329,747 ) $ ( 77,654,452 ) $ 20,357,812 Natural gas derivatives: Realized gain (loss) on natural gas derivatives ( 650,084 ) 743,178 — Unrealized gain (loss) on natural gas derivatives 447,172 ( 941,867 ) 1,008,256 Gain (loss) on natural gas derivatives $ ( 202,912 ) $ ( 198,689 ) $ 1,008,256 Gain (loss) on derivative contracts $ ( 21,532,659 ) $ ( 77,853,141 ) $ 21,366,068 The components of “Cash (paid) received for derivative settlements, net” are as follows for the respective periods: For the years ended December 31, 2022 2021 2020 Cash flows from operating activities Cash (paid) received on oil derivatives $ ( 61,875,870 ) $ ( 53,511,332 ) $ 22,522,591 Cash (paid) received on natural gas derivatives ( 650,084 ) 743,178 — Cash (paid) received from derivative settlements $ ( 62,525,954 ) $ ( 52,768,154 ) $ 22,522,591 F-24 Table of Contents The following tables reflect the details of current derivative contracts as of December 31, 2022 (Quantities are in barrels (Bbl) for the oil derivative contracts and in million British thermal units (MMBtu) for the natural gas derivative contracts.): Oil Hedges (WTI) 2023 2024 Swaps: Hedged volume (Bbl) 389,250 894,000 Weighted average swap price $ 77.55 $ 66.94 Deferred premium puts: Hedged volume (Bbl) 773,500 91,000 Weighted average strike price $ 90.64 $ 83.75 Weighted average deferred premium price $ 15.25 $ 17.32 Two-way collars: Hedged volume (Bbl) 487,622 475,350 Weighted average put price $ 52.16 $ 67.88 Weighted average call price $ 62.94 $ 83.32 Three-way collars: Hedged volume (Bbl) 66,061 — Weighted average first put price $ 45.00 $ — Weighted average second put price $ 55.00 $ — Weighted average call price $ 80.05 $ — Gas Hedges (Henry Hub) 2023 2024 NYMEX Swaps: Hedged volume (MMBtu) 159,890 552,000 Weighted average swap price $ 2.40 $ 4.61 Two-way collars: (1) Hedged volume (MMBtu) 2,258,317 1,712,250 Weighted average put price $ 3.18 $ 4.00 Call hedged volume (MMBtu) 2,140,317 1,712,250 Weighted average call price $ 4.89 $ 6.29 Gas Hedges (basis differential) 2023 2024 Waha basis swaps: Hedged volume (MMBtu) 1,339,685 — Weighted average swap price X ( (2) $ — (1) The two-way collars for the first quarter of 2023 include 2x1 collars where the put volumes of 236,000 are two times the call volumes of 118,000 . F-25 Table of Contents (2) The WAHA basis swaps in place for the calendar year of 2023 consist of two derivative contracts, each with a fixed price of the Henry Hub natural gas price less a fixed amount (weighted average of $ 0.55 per MMBtu). NOTE 9 – 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 authoritative guidance requires disclosure of the framework for measuring fair value and requires that fair value measurements be classified and disclosed in one of the following categories: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy. We continue to evaluate our inputs to ensure the fair value level classification is appropriate. 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. The fair values of the Company’s derivatives are not actively quoted in the open market. 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 Company applies the provisions of the fair value measurement standard on a non-recurring basis to its non-financial assets and liabilities. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments if events or changes in certain circumstances indicate that adjustments may be necessary. F-26 Table of Contents 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 - DERIVATIVE FINANCIAL INSTRUMENTS"). Fair Value Measurement Classification Quoted prices in Active Markets for Identical Assets or (Liabilities) (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total As of December 31, 2021 Commodity Derivatives - Liabilities $ — $ ( 29,241,588 ) $ — $ ( 29,241,588 ) Total $ — $ ( 29,241,588 ) $ — $ ( 29,241,588 ) As of December 31, 2022 Commodity Derivatives - Assets $ — $ 10,798,572 $ — $ 10,798,572 Commodity Derivatives - Liabilities $ — $ ( 23,831,269 ) $ — $ ( 23,831,269 ) Total $ — $ ( 13,032,697 ) $ — $ ( 13,032,697 ) 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 (now Truist), as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (the “Administrative Agent”), (which was amended several times) that provided for a maximum borrowing base of $ 1 billion with security consisting of substantially all of the assets of the Company. In April 2019, the Company amended and restated the Credit Agreement with the Administrative Agent (as amended and restated, the “Credit Facility”). On August 31, 2022, the Company modified its Credit Facility through a Second Amended and Restated Credit Agreement, extending the maturity date of the facility to August 2026. In conjunction with the Stronghold Acquisition, with the newly acquired assets put up for collateral, the Company established a borrowing base of $ 600 million. The borrowing base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time. 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 syndicate was modified to add five lenders, replacing five exiting lenders. Rather than Eurodollar loans, the reference rate on the Second Amended and Restated Credit Agreement is the Standard Overnight Financing Rate (“SOFR”). Beginning on the June 30, 2023 financial statements and compliance certification delivery date, the Second Amended and Restated Credit Agreement will allow for the Company to declare dividends for its equity owners, subject to certain limitations. These limitations include (i) no default or event of default has occurred or will occur upon such payments, (ii) the pro forma Leverage Ratio, as defined in the Second Amended and Restated Credit Agreement, does not exceed 2.00 to 1.00, (iii) the amount of such payments does not exceed Available Free Cash Flow, (iv) the Borrowing Base Utilization Percentage is not greater than 80 %, and (v) a Responsible Officer certifies that the other four conditions are satisfied. The interest rate on each SOFR Loan will be the adjusted term SOFR for the applicable interest period plus a margin between 3.0 % and 4.0 % (depending on the then-current level of borrowing base usage). 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 F-27 Table of Contents defined in the Second Amended and Restated Credit Agreement) plus 0.5 % per annum, (iii) the adjusted term SOFR 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 2.0 % and 3.0 % per annum (depending on the then-current level of borrowing base usage). The Second Amended and Restated Credit Agreement 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, exploration expenses, and all other non-cash charges acceptable to the Administrative Agent) of not more than 3.0 to 1.0 and (ii) a minimum ratio of Current Assets to Current Liabilities (as such terms are defined in the Second Amended and Restated Credit Agreement) of 1.0 to 1.0. The Company is required to maintain on a rolling 24 months basis, hedging transactions in respect of crude oil and natural gas, on not less than 50 % of the projected production from its proved, developed, producing oil and gas. If the borrowing base utilization is less than 25 % at the hedge testing date and the leverage ratio is not greater than 1.25 to 1.00, the required hedging percentage for months 13 through 24 of the rolling 24 month period provided for shall be 0 % from such hedge testing date to the next succeeding hedge testing date. If the borrowing base utilization percentage is equal to or greater than 25 %, but less than 50 % and the leverage ratio is not greater than 1.25 to 1.00, the required hedging percentage for months 13 through 24 of the rolling 24 month period provided for shall be 25 % from such hedge testing date to the next succeeding hedge testing date. The Second Amended and Restated Credit Agreement also contains other customary affirmative and negative covenants and events of default. As of December 31, 2022, $ 415,000,000 was outstanding on the Credit Facility. The Company is in compliance with all covenants contained in the Second Amended and Restated Credit Agreement as of December 31, 2022. Under the Second Amended and Restated Credit Agreement, the applicable percentage for the unused commitment fee is 0.5 % per annum for all levels of borrowing base utilization. As of December 31, 2022, the Company's unused line of credit was $ 184,239,562 , representative of a borrowing base of $ 600 million less the outstanding balance of $ 415 million, and standby letters of credit of $ 760,438 in total ($ 260,000 with state and federal agencies and $ 500,438 with an insurance company for New Mexico surety bonds). Note 15 - COMMITMENTS AND CONTINGENT LIABILITIES describes changes in the surety bonds which did not affect the letters of credit (collateral) aforementioned. NOTE 11 – ASSET RETIREMENT OBLIGATION A reconciliation of the asset retirement obligation for the years ended December 31, 2022, 2021 and 2020 is as follows: Balance, December 31, 2019 $ 16,787,219 Liabilities incurred 99,436 Liabilities settled ( 710,577 ) Revision of estimate (1) 34,441 Accretion expense 906,616 Balance, December 31, 2020 $ 17,117,135 Liabilities acquired 662,705 Liabilities incurred 171,390 Liabilities sold ( 2,934,126 ) Liabilities settled ( 904,514 ) Revision of estimate (1) 435,419 Accretion expense 744,045 Balance, December 31, 2021 $ 15,292,054 Liabilities acquired 14,538,550 Liabilities incurred 353,008 Liabilities settled ( 940,738 ) Accretion expense 983,432 Balance, December 31, 2022 $ 30,226,306 F-28 Table of Contents (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 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 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. The Common Warrants have a term of five years and an exercise price of $ 0.80 per share. 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 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. Gross proceeds totaled $ 4,756,700 . Total gross proceeds from the 2020 underwritten public offering and the registered direct offering aggregated $ 20,846,282 . Total net proceeds for the Common Warrants exercised in 2020 aggregated $ 19,379,832 . Common stock issued pursuant to warrant exercise - In December 2020, the Company issued 3,300,000 shares of common stock pursuant to the exercise of Pre-Funded Warrants issued in the October 2020 registered direct offering. Gross and net proceeds were $ 3,300 . 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 . During the year ended December 31, 2022, a total of 10,253,907 Common Warrants were exercised, leaving the Common Warrants outstanding as of December 31, 2022 to be 19,107,793 . Common stock returned from property acquisition – As part of the Wishbone asset acquisition in April 2019, the Company issued 4,576,951 shares of common stock. 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. The price on February 25, 2019 was $ 6.19 per share. The aggregate value of the shares returned, based on this price, was $ 103,385 . Common stock issued for Stronghold acquisition - As part of the Stronghold Acquisition, 21,339,986 shares of common stock were issued to the sellers. Also as part of the Stronghold Acquisition, 153,176 shares of Preferred Stock were issued to the sellers. Each share of Preferred Stock was automatically convertible into 277.7778 shares of common stock upon stockholder approval of the conversion. On October 27, 2022, the Company’s stockholders approved the issuance of, 42,548,892 shares of common stock upon conversion of the 153,176 shares of our Preferred Stock. The preferred shares were automatically converted into such common shares as of October 27, 2022. Refer to "Note 5 - ACQUISITIONS & DIVESTITURES" for the purchase price consideration allocated to the aforementioned stock issuances. F-29 Table of Contents Common stock issued for option exercises – During the year ended December 31, 2022 and 2021, the Company issued a net of 52,494 and 100,000 shares of common stock as a result of stock option exercises, respectively. No stock options were exercised in 2020. The following tables present the details of the exercises: Options exercised Exercise price ($) Shares issued Shares retained Cash paid at exercise ($) Stock price on date of exercise ($) Aggregate value of shares retained ($) 2021 100,000 $ 2.00 100,000 — $ 200,000 $ 3.14 $ — 2021 Totals 100,000 100,000 — $ 200,000 — 2021 Weighted Averages $ 2.00 $ 3.14 Options exercised Exercise price ($) Shares issued Shares retained Cash paid at exercise ($) Stock price on date of exercise ($) Aggregate value of shares retained ($) 2022 100,000 $ 2.00 52,494 47,506 $ — $ 4.21 $ 200,000 2022 Totals 100,000 52,494 47,506 $ — 200,000 2022 Weighted Averages $ 2.00 $ 4.21 NOTE 13 – EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k) In June 2020, officers and directors of the Company voluntarily returned stock options that had previously been granted to them. In total, 2,265,000 options with a weighted average exercise price of $ 6.87 per share were returned to and cancelled by the Company. No grants, cash payments or other consideration has been or will be made to replace the options or otherwise in connection with the return. 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 “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, 2022, 2021, and 2020 was $ 7,162,231 , $ 2,418,323 , and $ 5,364,162 , respectively. 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 341,755 shares eligible for grant, either as stock options or as restricted stock, as of December 31, 2022. In 2021, the Board approved and adopted the Ring Energy, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”), which was subsequently approved and amended by the shareholders at the 2021 Annual Meeting. There were 5,591,224 shares eligible for grant, either as stock options or as restricted stock, as of December 31, 2022. Employee Stock Options – No stock options have been granted in the years ended December 31, 2022, 2021, or 2020. All outstanding stock option awards vest at the rate of 20 % each year over five years beginning one year from the date granted F-30 Table of Contents and expire ten years from the grant date. A summary of the status of the stock options as of December 31, 2022, 2021, and 2020 and changes during the years ended December 31, 2022, 2021, and 2020 is as follows: 2022 2021 2020 Options Weighted- Average Exercise Price Options Weighted- Average Exercise Price Options Weighted- Average Exercise Price Outstanding at beginning of year 365,500 $ 3.61 465,500 $ 3.26 2,748,500 $ 6.28 Issued — — — — — — Forfeited or rescinded — — — — ( 2,283,000 ) 6.89 Exercised ( 100,000 ) 2.00 ( 100,000 ) 2.00 — — Outstanding at end of year 265,500 $ 4.21 365,500 $ 3.61 465,500 $ 3.26 Exercisable at end of year 265,500 $ 4.21 365,500 $ 3.61 455,300 $ 3.11 For the years ended December 31, 2022, 2021, and 2020 the Company incurred share-based compensation expense related to stock options of $ — , $ 20,934 , and $ 927,559 , respectively. As of December 31, 2022, 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, 2022 was $ 89,700 . The aggregate intrinsic value of options exercisable at December 31, 2022 was $ 89,700 . The year-end intrinsic values are based on a December 31, 2022 closing stock price of $ 2.46 . Stock options exercised of 100,000 shares in 2022 had an aggregate intrinsic value on the date of exercise of $ 221,000 . Stock options exercised of 100,000 shares in 2021 had an aggregate intrinsic value on the date of exercise of $ 114,000 . No stock options were exercised in 2020. The following table summarizes information related to the Company’s stock options outstanding as of December 31, 2022: Options Outstanding Exercise price Number Outstanding Weighted- Average Remaining Contractual Life (in years) Number Exercisable $ 2.00 195,000 1.00 195,000 5.50 5,000 1.21 5,000 14.54 10,000 2.74 10,000 8.00 4,500 2.92 4,500 6.42 15,000 3.34 15,000 11.75 36,000 3.95 36,000 265,500 1.63 265,500 F-31 Table of Contents Restricted stock grants – Following is a table reflecting the restricted stock grants during 2022, 2021 and 2020: Grant date # of shares of restricted stock October 1, 2020 900,000 October 26, 2020 150,000 December 15, 2020 930,000 April 30, 2021 33,950 June 17, 2021 1,162,152 July 6, 2021 11,824 July 12, 2021 4,007 September 1, 2021 10,417 September 8, 2021 3,306 February 9, 2022 1,247,061 April 13, 2022 7,143 May 10, 2022 10,349 June 16, 2022 2,150 July 14, 2022 8,547 August 29, 2022 30,581 September 1, 2022 37,797 September 19, 2022 49,645 Restricted stock grants issued prior to 2020 vest at the rate of 20 % each year over five years beginning one year from the date granted. Restricted stock grants issued during 2020 and in following years 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 Board, 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 and changes during the years ended December 31, 2022, 2021 and 2020 is as follows: 2022 2021 2020 Restricted stock Weighted- Average Grant Date Fair Value Restricted stock Weighted- Average Grant Date Fair Value Restricted stock Weighted- Average Grant Date Fair Value Outstanding at beginning of year 2,572,596 $ 1.75 2,132,297 $ 2.94 1,341,889 $ 4.99 Granted 1,393,273 2.83 1,225,656 2.77 1,980,000 0.71 Forfeited or rescinded ( 31,185 ) 2.83 0 — ( 9,200 ) 3.97 Vested ( 1,310,894 ) 1.79 ( 785,357 ) 1.37 ( 1,180,392 ) 4.97 Outstanding at end of year 2,623,790 $ 2.29 2,572,596 $ 1.75 2,132,297 $ 2.94 For the years ended December 31, 2022, 2021 and 2020, the Company incurred share-based compensation expense related to restricted stock grants of $ 4,148,639 , $ 2,225,895 , and $ 4,436,603 , respectively. As of December 31, 2022, the Company had $ 2,457,386 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 1.78 years. During 2022, 2021, and 2020, 1,310,894 , 785,357 , and 1,180,392 shares of restricted stock vested, respectively. At the dates of vesting those shares had an aggregate intrinsic value of $ 3,807,996 , $ 2,049,603 , and $ 801,133 , 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 F-32 Table of Contents 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. On February 9, 2022, the Company granted additional PSU awards. A total of 860,216 PSU awards were granted to the Company's five executive officers (the "2022 PSU Awards"). The performance period for the 2022 PSU Awards began on January 1, 2022, and will end on December 31, 2024, 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, 2022 and 2021 along with changes during the year ended December 31, 2022 and 2021 are as follows: 2022 2021 Performance Stock Units Weighted- Average Grant Date Fair Value Performance Stock Units Weighted- Average Grant Date Fair Value Outstanding at beginning of year 860,216 $ 3.87 — $ — Granted 860,216 3.65 860,216 3.87 Forfeited or rescinded — — — — Vested — — — — Outstanding at end of year 1,720,432 $ 3.76 860,216 $ 3.87 For the year ended December 31, 2022 and 2021, the Company incurred share-based compensation expense related to the PSU Awards of $ 3,013,592 and $ 171,494 , respectively. As of December 31, 2022, the Company had $ 4,037,141 of unrecognized compensation cost related to the PSU Awards that will be recognized over a weighted average period of 1.56 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, not to exceed annual limits established by the federal government. The Company makes matching contributions of up to 6 % of any employee’s compensation. Employees are 100 % vested in the employer contribution upon receipt. The following table presents the matching contributions expense recognized for the Company’s 401(k) plan for the years ended December 31, 2022, 2021, and 2020: 2022 2021 2020 Employer safe harbor match 284,094 228,273 138,997 NOTE 14 – RELATED PARTY TRANSACTIONS 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, 2021 and 2020, the Company paid $ 10,000 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, was 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. Mr. McKinney owned 0.34 % 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. As of 2022, Mr. McKinney is no longer on the board of directors of Pro-Ject Holdings, LLC. F-33 Table of Contents NOTE 15 – COMMITMENTS AND CONTINGENT LIABILITIES Standby Letters of Credit – A commercial bank issued standby letters of credit on behalf of the Company totaling $ 260,000 to state and federal agencies and $ 500,438 to an insurance company to secure the surety bonds described below. The standby letters of credit are valid until cancelled or matured and are collateralized by the revolving credit facility with the bank. The terms of the letters of credit to the state and federal agencies are extended for a term of one year at a time. The Company intends to renew the standby letters of credit to the state and federal agencies for as long as the Company does business in the States of Texas and New Mexico. The letters of credit to the insurance company will be renewed if the insurance requires them to retain the surety bonds. No amounts have been drawn under the standby letters of credit. Surety Bonds – An insurance company issued surety bonds on behalf of the Company totaling $ 500,438 to various State of New Mexico agencies in order for the Company to do business in the State of New Mexico. The surety bonds are valid until canceled or matured. The terms of the surety bonds are extended for a term of one year at a time. The Company intends to renew the surety bonds on $ 400,000 as long as the Company does business in the State of New Mexico. The remaining $ 100,438 is related to inactive wells and will remain in place until the Company returns those wells to activity or plugs them. One of those wells has been plugged, and the bond released in the amount of $ 50,150 , leaving the amount related to inactive wells as $ 50,288 . On December 23, 2022, the Company increased its blanket plugging surety bond by $ 200,000 . As of December 31, 2022, the Company had surety bonds in total of $ 650,288 . NOTE 16 – INCOME TAXES For the years ended December 31, 2022, 2021, and 2020, components of our provision for (benefit from) income taxes are as follows: Provision for Income Taxes 2022 2021 2020 Federal deferred tax $ 6,437,680 $ — $ ( 6,001,176 ) State deferred tax 1,971,044 90,342 — Provision for (Benefit From) Income Taxes $ 8,408,724 $ 90,342 $ ( 6,001,176 ) The following is a reconciliation of income taxes computed using the U.S. federal statutory rate to the provision for (benefit from) income taxes: Rate Reconciliation 2022 2021 2020 Pre-tax book income (loss) $ 147,043,749 $ 3,413,234 $ ( 259,413,004 ) Tax at federal statutory rate $ 30,879,187 $ 716,779 $ ( 54,476,731 ) Excess tax benefit from stock option exercises and restricted stock vesting ( 312,268 ) ( 175,187 ) ( 1,109,379 ) Adjust prior estimates to tax return 214,740 2,938,948 ( 1,930,994 ) States taxes, net of federal benefit 1,443,145 430,654 ( 964,393 ) Valuation allowance ( 24,151,242 ) ( 3,827,194 ) 52,161,412 Non-deductible expenses and other 335,162 6,342 318,909 Provision for (Benefit From) Income Taxes $ 8,408,724 $ 90,342 $ ( 6,001,176 ) F-34 Table of Contents The Company's deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. The net deferred taxes consisted of the following as of December 31, 2022 and 2021: 12/31/2022 Total 12/31/2021 Total Deferred Tax Assets Net operating loss (NOL) carryforward 70,564,004 60,155,112 Equity compensation 1,554,680 691,076 Asset retirement obligation 6,635,099 3,348,875 Fair market value of derivatives 2,827,202 6,403,745 §163(j) business interest expense carryforward 4,917,358 — Others 1,173,441 61,077 Gross Deferred Tax Assets 87,671,784 70,659,885 Less: valuation allowance ( 24,182,975 ) ( 48,334,217 ) Net Deferred Tax Assets 63,488,809 22,325,668 Deferred Tax Liabilities Property and equipment ( 71,402,820 ) ( 22,415,959 ) Other ( 585,005 ) — Net Deferred Liabilities ( 71,987,825 ) ( 22,415,959 ) Net Deferred Tax Liabilities ( 8,499,016 ) ( 90,292 ) As of December 31, 2022, the Company had net operating loss carryforwards for federal income tax reporting purposes of approximately $ 109.3 million which, if unused, will begin to expire in 2027 and fully expire in 2037 and an additional $ 225.1 million that can be carried forward indefinitely. The shares issued for the Stronghold Acquisition (further discussed in Note 5 - "ACQUISITIONS & DIVESTITURES) resulted in the Company having an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended. Section 382 limits the availability of certain tax attributes, including net operating losses and disallowed interest carryforwards, to offset future taxable income of the Company. In evaluating its need for a valuation allowance against its deferred tax assets, the Company has estimated the amount of tax attributes related to the pre-ownership change period to be available under Section 382 in periods in which it expects deferred tax liabilities to be realized based on currently available information. Based on its current analysis, the Company does not anticipate any material tax attributes to expire unused as result of the Section 382 ownership change; however, the ultimate timing in the amount of tax attributes available in future periods may be different than the Company's current estimate and will be determined in each year as new information becomes available. Changes in expectation in the timing of the availability of the Company's tax attributes could result in adjustments to the valuation allowance in future years as it updates its analysis based on new information. As of December 31, 2022, we carried a valuation allowance against our federal and state deferred tax assets of $ 24,182,975 . 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. During 2022, the Company determined that certain existing deferred tax assets will not be offset by existing deferred tax liabilities as a result of the 80% limitation on the utilization of net operating losses incurred after 2017. This results in an ending federal net deferred tax liability after valuation allowance of $ 6,437,680 . Additionally, the Company reported a net state deferred tax liability at December 31, 2022 of $ 2,061,336 attributable to certain state deferred tax liabilities mainly associated with property and equipment. NOTE 17 – LEGAL MATTERS 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 F-35 Table of Contents 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 have taken depositions and are conducting discovery. NOTE 18 – SUBSEQUENT EVENTS Stronghold acquisition - On February 28, 2023, as discussed in "Note 5 - ACQUISITIONS & DIVESTITURES," the deferred cash consideration of $ 15.0 million in cash was paid to Stronghold in accordance with terms set forth in the Purchase Agreement for the Stronghold Acquisition. In addition on March 1, 2023, the holdback amount of approximately $ 8.3 million which was held in escrow in accordance with the terms set forth in the Purchase Agreement for the Stronghold Acquisition was distributed to Stronghold. Common stock issued pursuant to warrant exercise - On February 2, 2023, the Company issued 2,517,427 shares of common stock pursuant to the exercise of Common Warrants with an exercise price of $ 0.80 . Gross and net proceeds were $ 2,013,942 . On March 1, 2023, the Company issued 2,000,000 shares of common stock pursuant to the exercise of Common Warrants with an exercise price of $ 0.80 . Gross and net proceeds were $ 1,600,000 . F-36 Table of Contents RING ENERGY, INC. SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES (Unaudited) 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 derivatives, and other financing expense. For the years ended December 31, 2022 2021 2020 Oil, natural gas, and natural gas liquids sales $ 347,249,537 $ 196,305,966 $ 113,025,138 Lease operating expenses (47,695,351) (30,312,399) (29,753,413) Gathering, transportation and processing costs (1,830,024) (4,333,232) (4,090,238) Ad valorem taxes (4,670,617) (2,276,463) (3,125,222) Production taxes (17,125,982) (9,123,420) (5,228,090) Depreciation, depletion, and amortization (55,740,767) (37,167,967) (43,010,660) Ceiling test impairment — — (277,501,943) General and administrative (exclusive of corporate overhead) (1,617,095) (2,003,876) (1,454,041) Results of Oil, Natural Gas, and Natural Gas Liquids Producing Operations $ 218,569,701 $ 111,088,609 $ (251,138,469) Net Costs Incurred in Oil and Gas Producing Activities For the years Ended December 31, 2022 2021 Payments for the Stronghold Acquisition $ 177,823,787 $ — Payments to purchase oil and natural gas properties 1,563,703 1,368,437 Payments to develop oil and natural gas properties 129,332,155 51,302,131 Payments to acquire or improve fixed assets subject to depreciation 319,945 568,832 Sale of fixed assets subject to depreciation (134,600) — Proceeds from divestiture of oil and natural gas properties (23,700) (2,000,000) Total Net Costs Incurred $ 308,881,290 $ 51,239,400 Net Capitalized Costs As of December 31, 2022 2021 Oil and natural gas properties, full cost method $ 1,463,838,595 $ 883,844,745 Financing lease asset subject to depreciation 3,019,476 1,422,487 Fixed assets subject to depreciation 3,147,125 2,089,722 Total Properties and Equipment 1,470,005,196 887,356,954 Accumulated depletion, depreciation and amortization (289,935,259) (235,997,307) Net Properties and Equipment $ 1,180,069,937 $ 651,359,647 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. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and natural gas properties. Accordingly, these estimates are expected to change as future information becomes available. 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, 2022, 2021 and 2020 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. F-37 Table of Contents The reserve information in these 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, 2022, 2021 and 2020 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 $90.15 per barrel, $63.04 per barrel and $36.04 per barrel, respectively. The natural gas prices as of December 31, 2022, 2021 and 2020 are based on the respective 12-month unweighted average of the first of month prices of the Henry Hub spot price which equates to $6.358 per MMBtu, $3.598 per MMBtu and $1.99 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. For the Year Ended December 31, 2022 Oil (1) Natural Gas (1) Natural Gas Liquids (1) Proved Developed and Undeveloped Reserves Beginning of year 65,838,609 71,773,789 — Purchases of minerals in place 28,086,920 108,456,107 16,715,626 Extensions, discoveries and improved recovery 628,978 522,178 52,810 Sale of minerals in place — — — Production (3,459,477) (4,088,642) (371,337) Revisions of previous quantity estimates (2,390,287) (18,792,983) 6,708,559 End of year 88,704,743 157,870,449 23,105,658 Proved Developed at beginning of year 36,820,824 39,748,880 — Proved Undeveloped at beginning of year 29,017,785 32,024,909 — Proved Developed at end of year 57,012,137 106,399,050 15,332,804 Proved Undeveloped at end of year 31,692,606 51,471,399 7,772,854 F-38 Table of Contents For the Year Ended December 31, 2021 Oil (1) Natural Gas (1) Natural Gas Liquids (1) Proved Developed and Undeveloped Reserves Beginning of year 66,264,286 61,305,027 — Purchases of minerals in place 2,180,497 824,512 — Extensions, discoveries and improved recovery 3,975,675 5,172,392 — Sale of minerals in place (462,970) (555,879) — Production (2,686,940) (2,535,188) — Revisions of previous quantity estimates (3,431,939) 7,562,925 — End of year 65,838,609 71,773,789 — Proved Developed at beginning of year 38,260,638 34,335,520 — Proved Undeveloped at beginning of year 28,003,648 26,969,507 — Proved Developed at end of year 36,820,824 39,748,880 — Proved Undeveloped at end of year 29,017,785 32,024,909 — 1 Oil reserves are stated in barrels; natural gas reserves are stated in thousand cubic feet; natural gas liquids reserves are stated in barrels. 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, 2022, our extensions and discoveries of 769 MBoe (one thousand Boe) resulted primarily from the 2022 operated drilling program in the Northwest Shelf and Central Basin Platform as well as non-operated activity in the Northwest Shelf. Revisions of 1,186 MBoe were predominately the result of converting from two-stream to three-stream reserves, the removal of proved undeveloped reserves in our Delaware asset, well performance, increased cost from 2022 industry activity, and increased commodity pricing. The increase in proved undeveloped reserves was primarily attributable to the Stronghold Acquisition. 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 December 31, 2022 2021 2020 Future cash inflows $ 9,871,961,000 $ 4,853,709,000 $ 2,682,488,655 Future production costs (2,751,896,250) (1,395,437,250) (821,515,126) Future development costs (647,196,750) (347,757,000) (244,323,270) Future income taxes (1,142,147,641) (501,586,949) (208,645,934) Future net cash flows 5,330,720,359 2,608,927,801 1,408,004,325 10% annual discount for estimated timing of cash flows (3,058,606,841) (1,471,562,953) (852,133,072) Standardized Measure of Discounted Future Net Cash Flows $ 2,272,113,518 $ 1,137,364,848 $ 555,871,253 F-39 Table of Contents 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, 2022: Changes in Standardized Measure of Discounted Future Net Cash Flows 2022 2021 2020 Beginning of the year $ 1,137,364,848 $ 555,871,253 $ 923,175,051 Purchase of minerals in place 996,313,882 33,688,718 — Extensions, discoveries and improved recovery 20,447,842 79,003,885 61,303,074 Development costs incurred during the year 67,454,522 17,513,180 29,916,746 Sales of oil and gas produced, net of production costs (283,588,498) (154,615,685) (70,634,853) Sales of minerals in place — (2,523,746) — Accretion of discount 133,209,763 63,810,764 92,838,323 Net changes in price and production costs 646,819,172 636,884,944 (368,974,767) Net change in estimated future development costs (53,253,626) (44,357,751) (3,883,985) Revisions of previous quantity estimates 33,583,837 (22,259,508) (66,213,586) Changes in estimated timing of cash flows (119,428,019) 86,845,188 (139,039,115) Net change in income taxes (306,810,205) (112,496,394) 97,384,365 End of the Year $ 2,272,113,518 $ 1,137,364,848 $ 555,871,253 F-40