What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-07 compared with 2023-03-09 · 640 added, 402 removed, 1037 unchanged (50% of the section changed)

48 unchanged sentences

Other Information

On March 6, 2024, the Board, upon the recommendation of the compensation committee of the Board (the “Compensation Committee”), approved the Ring Energy, Inc.

Change in Control and Severance Benefit Plan (the “CIC Plan”) which provides for severance benefits to our named executive officers (and certain other officers and key employees), including:

McKinney, Chairman of the Board and Chief Executive Officer (the “Tier 1 NEO”), and Marinos Baghdati, Executive Vice President of Operations, Stephen D.

Brooks, Executive Vice President of Land, Legal, Human Resources and Marketing, Alexander Dyes, Executive Vice President of Engineering and Corporate Strategy, and Travis T.

Thomas Executive Vice President and Chief Financial Officer (collectively, the “Tier 2 NEOs” and with the Tier 1 NEO, collectively, the “NEOs”).

The CIC Plan supersedes and replaces all other severance arrangements between the Company and the NEOs, which previously had been governed by separate employment agreements.

Pursuant to the CIC Plan, following a Change in Control (as defined in the CIC Plan) and during the “protection period,” which period extends from the date six months prior to a Change in Control until the date 24 months following the occurrence of a Change in Control, if the Tier 1 NEO’s employment is terminated by the Company without Cause (as defined in the CIC Plan) or by him for a CIC Good Reason (as defined in the CIC Plan), he is entitled to (1) 300% of his annual base salary;

(2) 300% of his most recent target annual bonus (the “AIP Amount”);

(3) 100% of his pro-rated AIP Amount (based on the number of days employed during the year of termination);

(4) acceleration and vesting of his outstanding equity awards;

and (5) reimbursement of 24 months of health benefits.

In addition, following the Tier 1 NEO’s death or disability, he would be entitled to (1) acceleration and vesting of his outstanding equity awards;

and (2) reimbursement of 12 months of health benefits.

Pursuant to the CIC Plan, if the Tier 1 NEO’s employment with the Company is terminated by the Company without Cause or by him for a Good Reason (as defined in the CIC Plan) and not during the applicable protection period, he is entitled to receive (1) 200% of his annual base salary, (2) 200% of his AIP Amount;

(3) 100% of his pro-rated AIP Amount (based on the number of days employed during the year of termination);

(4) acceleration and vesting of his outstanding equity awards;

and (5) reimbursement of 24 months of health benefits.

Pursuant to the CIC Plan, following a Change in Control and during the “protection period,” which period extends from the date six months prior to a Change in Control until the date 24 months following the occurrence of a Change in Control, if the Tier 2 NEO’s employment is terminated by the Company without Cause or by him for a CIC Good Reason, he is entitled to (1) 200% of his annual base salary;

(2) 200% of his AIP Amount;

(3) 100% of his pro-rated AIP Amount (based on the number of days employed during the year of termination);

(4) acceleration and vesting of his outstanding equity awards;

and (5) reimbursement of 18 months of health benefits.

In addition, following the Tier 2 NEO’s death or disability, he would be entitled to (1) acceleration and vesting of his outstanding equity awards;

and (2) reimbursement of 12 months of health benefits.

Pursuant to the CIC Plan, if the Tier 2 NEO’s employment with the Company is terminated by the Company without Cause or by him for a Good Reason and not during the applicable protection period, he is entitled to receive (1) 100% of his annual base salary;

(2) 100% of his AIP Amount;

(3) 100% of his pro-rated AIP Amount (based on the number of days employed during the year of termination);

(4) acceleration and vesting of his outstanding equity awards;

and (5) reimbursement of 18 months of health benefits.

Entitlement to the above benefits is conditioned on the timely execution of a general release in the form and substance approved by the Compensation Committee, and each executive’s compliance with non-competition, non-solicitation and confidentiality covenants set forth in the CIC Plan.

In order to be eligible to receive benefits under the CIC Plan, the executives must execute and return to the Company a participation agreement (a “Participation Agreement”) the form of which is attached as Exhibit B to the CIC Plan.

Upon the execution of a Participation Agreement, the executive’s prior employment agreement terminates, and the continued employment of such executive will be on an at-will basis.

On March 6, 2024, Messrs.

McKinney, Baghdati, Brooks, Dyes and Thomas became participants in the CIC Plan upon their delivery to the Company of executed Participation Agreements, pursuant to which the NEOs agreed to terminate the existing employment agreements between them and the Company, effective immediately, and the terms of the CIC Plan and respective Participation Agreements supersede any rights or entitlements to severance benefits under any employment agreement so terminated or other severance arrangements.

The CIC Plan does not affect the NEOs’ eligibility to their base salary, subject to increase at the

discretion of the Board, or the Compensation Committee, and to participate in any and all other standard benefit plans, programs and policies of the Company.

The description of the CIC Plan contained in this Item 9B does not purport to be complete and is qualified in its entirety by reference to the CIC Plan included as Exhibit 10.25 to this Annual Report.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Exhibit Filing Date Filed

Here-with Furn-ished Here-with

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

6 unchanged sentences

8-K 001-36057 2.1 8/9/22

2.3 Asset Purchase Agreement dated July 10, 2023 between Ring Energy, Inc.

and F ounders Oil & Gas IV, LLC .

3.1 Articles of Incorporation (as amended)

2 unchanged sentences

8-K 001-36057 3.1 12/17/21

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

3.2 Bylaws of Ring Energy, Inc.

10 unchanged sentences

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

Incorporated by Reference

Number Exhibit Description Form File No.

Exhibit Filing Date Filed

Here-with Furn-ished Here-with

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

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8-K 001-36057 10.2 12/22/20

Incorporated by Reference

Number Exhibit Description Form File No.

Exhibit Filing Date Filed

10.5* Ring Energy Inc.

3 unchanged sentences

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

10.7 Amended and Restated Credit Agreement with SunTrust Bank

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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

Incorporated by Reference

1 unchanged sentence

Exhibit Filing Date Filed

Here-with Furn-ished Here-with

10.17 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

Ring Energy, Inc.

1 unchanged sentence

DEF 14A 001-36057 4/22/21

A mendment No.

1 to the Ring Energy, Inc.

2021 Om nibus Incentive P l an

Form of Performance Stock Unit Agreement

4 unchanged sentences

8-K 001-36057 10.2 2/23/23

10.23 Form of Warrant Amendment and Exercise Agreement.

10.24 F irst Amendment to Second Amended and Restated Credit Agreement dated as of February 12, 202 4 , by and among Ring Energy, Inc., Truist Bank, as administrative agent, and the Lenders party thereto.

10.25 C hange in Control and Severa nce Benefit Plan

14.1 Code of Ethics

2 unchanged sentences

23.2 Consent of Grant Thornton LLP

23.3 Consent of Eide Bailly LLP

24.1 Power of Attorney (included as part of the signature pages of this report)

3 unchanged sentences

32.2 Section 1350 Certification Chief Financial Officer

97.1 R ing Energy, Inc.

Clawback Policy

99.1 Reserve Report of Cawley, Gillespie & Associates, Inc.

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101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X

Incorporated by Reference

Number Exhibit Description Form File No.

Exhibit Filing Date Filed

Here-with Furn-ished Here-with

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X

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Chief Executive Officer and Director Director

(Principal Executive Officer)

(Principal Executive Officer) Date:

March 7, 2024

3 unchanged sentences

Chief Financial Officer Director

(Principal Financial Officer)

(Principal Financial Officer) Date:

March 7, 2024

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

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

Balance Sheets as of December 31, 202 3 and 202 2

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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.

(a Nevada corporation) (the “Company”) as of December 31, 2023 and 2022, the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 7, 2024 expressed an unqualified opinion.

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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”)

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

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

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 addition, the estimation 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 a critical audit matter.

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

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.

3 unchanged sentences

◦ 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

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

2 unchanged sentences

March 7, 2024

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.

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.

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

RING ENERGY, INC.

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Accounts receivable 38,965,002 42,448,719

Joint interest billing receivable 983,802 2,433,811

Joint interest billing receivables, net

2,422,274 983,802

Derivative assets 6,215,374 4,669,162

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Deferred cash payment — 14,807,276

Asset retirement obligations 165,642 635,843

Total Current Liabilities 113,808,266 141,794,901

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Total Liabilities 589,913,492 607,896,406

Commitments and contingencies

Commitments and Contingencies - See Note

Stockholders' Equity

21 unchanged sentences

Depreciation, depletion and amortization 88,610,291 55,740,767 37,167,967

Ceiling test impairment — — 277,501,943

Asset retirement obligation accretion 1,425,686 983,432 744,045

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Total Costs and Operating Expenses 215,275,510 155,505,404 100,549,118

Income (Loss) from Operations 191,744,133 95,756,848 ( 268,661,466 )

Income from Operations

145,780,491 191,744,133 95,756,848

Other Income (Expense)

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Gain (loss) on derivative contracts 2,767,162 ( 21,532,659 ) ( 77,853,141 )

Deposit forfeiture income — — 5,500,000

Loss on disposal of assets

( 87,128 ) — —

Other income 198,935 — —

Net Other Income (Expense) ( 40,790,608 ) ( 44,700,384 ) ( 92,343,614 )

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 )

Income Before Provision for Income Taxes

104,989,883 147,043,749 3,413,234

Provision for Income Taxes

( 125,242 ) ( 8,408,724 ) ( 90,342 )

$ 104,864,641 $ 138,635,025 $ 3,322,892

Basic Earnings per Share

$ 0.55 $ 1.14 $ 0.03

Diluted Earnings per Share

$ 0.54 $ 0.98 $ 0.03

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

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Balance, December 31, 2020 85,568,287 $ 85,568 $ 550,951,415 $ ( 256,271,170 ) $ 294,765,813

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 — — ( 65,000 ) — ( 65,000 )

Exercise of pre-funded warrants issued in offering 13,428,500 13,429 — — 13,429

Common stock issued for services 35,000 35 23,765 — 23,800

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 for restricted stock vested

( 132,182 ) ( 132 ) 132 — —

Payments to cover tax withholdings for restricted stock vested, net

— — ( 385,330 ) — ( 385,330 )

Share-based compensation — — 2,418,323 — 2,418,323

Net (loss) — — — ( 253,411,828 ) ( 253,411,828 )

— — — 3,322,892 3,322,892

Balance, December 31, 2021 100,192,562 $ 100,193 $ 553,472,292 $ ( 252,948,278 ) $ 300,624,207

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 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 ( 132,182 ) ( 132 ) 132 — —

Payments to cover tax withholdings — — ( 385,330 ) — ( 385,330 )

Shares to cover tax withholdings for restricted stock vested

( 168,523 ) ( 169 ) 169 — —

Payments to cover tax withholdings for restricted stock vested, net

— — ( 521,199 ) — ( 521,199 )

Common stock issuance for Stronghold Acquisition

21,339,986 21,340 69,120,215 69,141,555

Conversion of mezzanine preferred shares for Stronghold Acquisition

42,548,892 42,549 137,815,897 137,858,446

Share-based compensation — — 7,162,231 — 7,162,231

Net (loss) — — — 3,322,892 3,322,892

— — — 138,635,025 138,635,025

Balance, December 31, 2022 175,530,212 $ 175,530 $ 775,241,114 $ ( 114,313,253 ) $ 661,103,391

Exercise of common warrants issued in offering 4,517,427 4,517 3,609,424 — 3,613,941

Options exercised 100,000 100 ( 100 ) — —

Shares elected to be withheld for options exercised ( 47,506 ) ( 48 ) 48 — —

Induced exercise of common warrants issued in offering

14,512,166 14,512 8,673,143 — 8,687,655

Restricted stock vested 1,680,232 1,680 ( 1,680 ) — —

Shares to cover tax withholdings for restricted stock vested ( 288,152 ) ( 287 ) 287 — —

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

Payments to cover tax withholdings for restricted stock vested, net

( 520,153 ) ( 520,153 )

Performance stock vested

1,170,024 1,170 ( 1,170 ) — —

Shares to cover tax withholdings for performance stock vested

( 284,908 ) ( 285 ) 285 — —

Share-based compensation 8,833,425 8,833,425

6 unchanged sentences

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:

$ 104,864,641 $ 138,635,025 $ 3,322,892

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, depletion and amortization 88,610,291 55,740,767 37,167,967

Ceiling test impairment — — 277,501,943

Asset retirement obligation accretion 1,425,686 983,432 744,045

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Bad debt expense 134,007 242,247 —

Shares issued for services — — 23,800

Deferred income tax expense (benefit) ( 425,275 ) 8,720,992 265,479

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(Gain) loss on derivative contracts ( 2,767,162 ) 21,532,659 77,853,141

Cash received (paid) for derivative settlements, net ( 62,525,954 ) ( 52,768,154 ) 22,522,591

Changes in assets and liabilities:

Cash paid for derivative settlements, net

( 9,084,920 ) ( 62,525,954 ) ( 52,768,154 )

Changes in operating assets and liabilities:

Accounts receivable 1,154,085 ( 17,214,150 ) ( 9,483,639 )

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Payments for the Stronghold Acquisition ( 18,511,170 ) ( 177,823,787 ) —

Payments for the Founders Acquisition

( 62,227,145 ) — —

Payments to purchase oil and natural gas properties ( 2,162,585 ) ( 1,563,703 ) ( 1,368,437 )

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Proceeds from divestiture of oil and natural gas properties 1,554,558 23,700 2,000,000

Proceeds from sale of Delaware properties

7,600,699 — —

Proceeds from sale of New Mexico properties

3,891,757 — —

Net Cash Used in Investing Activities

( 222,573,288 ) ( 308,881,290 ) ( 51,239,400 )

Cash Flows From Financing Activities

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Proceeds from option exercise — — 200,000

Payments for taxes withheld on vested restricted shares ( 521,199 ) ( 385,330 ) —

Payments for taxes withheld on vested restricted shares, net

( 520,153 ) ( 521,199 ) ( 385,330 )

Proceeds from notes payable 1,637,513 1,323,354 1,297,718

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Cash paid for interest $ 38,009,164 $ 19,818,623 $ 14,110,421

Cash paid for income taxes

Noncash Investing and Financing Activities

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Financing lease assets obtained in exchange for new financing lease liability 894,996 952,101 —

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

Change in capitalized expenditures attributable to drilling projects financed through current liabilities

( 2,241,192 ) 9,179,003 309,365

Supplemental Schedule for Founders Acquisition

Investing Activities - Cash Paid

Escrow deposit released at closing $ 7,500,000 $ — $ —

Closing amount paid to Founders 42,502,799 — —

Interest from escrow deposit 1,747 — —

Direct transaction costs 1,361,843 — —

Post-close adjustments ( 4,139,244 ) — —

Payment of deferred cash payment

15,000,000 — —

Payments for the Founders Acquisition $ 62,227,145 $ — $ —

Investing Activities - Noncash

Assumption of suspense liability $ 677,116 $ — $ —

Assumption of asset retirement obligation 2,090,777 — —

Assumption of ad valorem tax liability 234,051 — —

Deferred cash payment at fair value 14,657,383 — —

Supplemental Schedule for Stronghold Acquisition

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Cash received for post-close adjustments, net — ( 5,535,839 ) —

Payment of deferred cash payment

15,000,000 — —

Payment of post-close settlement

3,511,170 — —

Payments for the Stronghold Acquisition $ 18,511,170 $ 177,823,787 $ —

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NOTES TO FINANCIAL STATEMENTS

Index to the Notes to the 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.

Note 10 — Asset Retirement Obligation

Note 2 — Revenue Recognition

Note 11 — Stockholders' Equity

Note 3 — Leases

Note 12 — Employee Stock Options, Restricted Stock Award Plan, and 401(k)

Note 4 — Earn ings Per Share Information

Note 13 — Related Party Transactions

Note 5 — Acquisitions & Divestitures

Note 14 — Commitments and Contingencies

Note 6 — Oil and Natural Gas Producing Activities

Note 15 — Income Taxes

Note 7 — Derivative Financial Instruments

Note 16 — Legal Matters

Note 8 — Fair Value Measurements

Note 17 — Subsequent Events

Note 9 — Revolving Line of Credit

Supplemental Information on Oil and N atural Gas Producing Activities (Unaudited)

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 oil and natural gas 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 the Permian Basin of Texas.

Our drilling operations target the oil and liquids rich producing formations in the Northwest Shelf and the Central Basin Platform, in the Permian Basin in Texas.

Liquidity and Capital Considerations – The Company strives to maintain an adequate liquidity level to address volatility and risk.

Sources of liquidity include the Company’s net cash provided by operating activities, cash on hand, available borrowing capacity under its revolving credit facility, and proceeds from sales of non-strategic assets.

While changes in oil and natural gas prices affect the Company’s liquidity, the Company has put in place hedges in seeking to protect a substantial portion of its cash flows from price declines;

however, if oil or natural gas prices rapidly deteriorate due to unanticipated economic conditions, this could still have a material adverse effect on the Company’s cash flows.

The Company expects ongoing oil price volatility over an indeterminate term.

Extended depressed oil prices have historically had and could have a material adverse impact on the Company’s oil revenue, which is mitigated to some extent by the Company’s hedge contracts.

The Company is always mindful of oil price volatility and its impact on our liquidity.

The Company believes that it has the ability to continue to fund its operations and service its debt by using cash flows from operations.

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.

The Company's financial statements are based on a number of significant estimates, including estimates of oil and natural gas reserve quantities, which are the basis for the calculation of depletion and impairment of oil and gas properties.

Reserve estimates, by their nature, are inherently imprecise.

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.

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

This hierarchy consists of three broad levels.

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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 Values of Financial Instruments – The carrying amounts reported for our revolving line of credit approximate their fair value because the underlying instruments are at interest rates which approximate current market rates.

The carrying amounts of accounts receivable 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.

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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.

Concentration of Credit Risk and Receivables – Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and receivables.

Cash and cash equivalents - The Company has cash in excess of federally insured limits of $ 46,384 and $ 3,462,526 as of December 31, 2023 and 2022, 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.

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

Oil and natural gas sales are generally unsecured.

Accounts receivable from purchasers outstanding longer than the contractual payment terms are considered past due.

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

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.

Refer to the " Major Purchasers " section below for detail on purchaser activity for the years ended December 31, 2023, 2022, and 2021.

Production imbalances - 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, 2023 or 2022.

Joint interest billing receivables, net - The Company also has a joint interest billing receivable.

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

Receivables from joint interest owners outstanding longer than the contractual payment terms are considered past due.

The following table indicates the Company's provisions for bad debt expense associated with its joint interest billing receivables during the years ended December 31, 2023, 2022, and 2021.

For the Years Ended December 31,

2023 2022 2021

Bad debt expense $ 134,007

The following table reflects the Company's joint interest billing receivables and allowance for credit losses as of December 31, 2023 and 2022.

Joint interest billing receivables $ 2,480,843 $ 1,226,049

Allowance for credit losses ( 58,569 ) ( 242,247 )

Joint interest billing receivables, net

$ 2,422,274 $ 983,802

The reduction of $ 183,678 in the allowance for credit losses during the year ended December 31, 2023 was primarily due to a clearing of $ 105,620 in allowances that were associated with the Delaware Basin asset sale.

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.

At December 31, 2023 and 2022, the Company had no such investments.

Inventory - The full balance of the Company's inventory consists of materials and supplies for its operations, with no work in process or finished goods inventory balances.

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.

The Company reports the balance of its inventory at the lower of cost or net realizable value.

Inventory balances are excluded from the Company's calculation of depletion.

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Depletion rate, per barrel-of-oil-equivalent (Boe) $ 13.22 $ 12.19 $ 11.82

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;

In addition, capitalized costs less accumulated depreciation, depletion and amortization and related deferred income taxes are not allowed to exceed an amount (the full cost ceiling) equal to the sum of:

1) the present value of estimated future net revenues discounted at ten percent computed in compliance with SEC guidelines;

2) plus the cost of properties not being amortized;

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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:

No impairments on oil and natural gas properties as a result of the ceiling test were recorded for the years ended December 31, 2023, 2022 or 2021.

Land, Buildings, Equipment, Software, Leasehold Improvements, Automobiles, Buildings and Structures – Land, buildings, equipment, software, leasehold improvements, automobiles, buildings and structures are carried at historical cost, adjusted for impairment loss and accumulated depreciation (except for land).

Historical costs include all direct costs associated with the acquisition of land, buildings, equipment, software, leasehold improvements, automobiles, buildings and structures and placing them in service.

Upon sale or abandonment, the cost of the fixed asset(s) and related accumulated depreciation are removed from the accounts and any gain or loss is recognized.

Depreciation of buildings, equipment, software, leasehold improvements, automobiles, buildings and structures is calculated using the straight-line method based upon the following estimated useful lives:

Leasehold improvements 3 ‑ 5 years

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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 .

Buildings and structures

The following table provides information on the Company's depreciation expense for the years ended December 31, 2023, 2022, and 2021.

For the Years Ended December 31,

2023 2022 2021

Depreciation expense

During the year ended December 31, 2023, the Company sold some of its automobiles, and recognized a loss on disposal of $ 87,128 .

Accounts Payable

The following table summarizes the Company's components of its current accounts payable balance presented in its Balance Sheets at December 31, 2023 and 2022:

Trade accounts payable

$ 37,626,348 $ 40,480,684

Revenues payable 44,348,938 43,807,208

Accrued expenses 22,088,838 27,110,376

Accounts payable

$ 104,064,124 $ 111,398,268

Trade accounts payable – The following table summarizes the Company's current trade accounts payable at December 31, 2023 and 2022:

Accounts payable related to vendors $ 36,944,263 $ 36,586,007

Other 682,085 3,894,677

Trade accounts payable

$ 37,626,348 $ 40,480,684

Revenues payable – The following table summarizes the Company's current revenues and royalties payable at December 31, 2023 and 2022:

Revenue held in suspense $ 31,592,825 $ 30,180,940

Revenues and royalties payable 12,756,113 13,626,268

Revenues payable

$ 44,348,938 $ 43,807,208

Accrued expenses – The following table summarizes the Company's current accrued expenses at December 31, 2023 and 2022:

Accrued capital expenditures $ 7,518,603 $ 9,624,985

Accrued lease operating expenses 6,798,548 6,450,356

Accrued interest 3,684,378 3,222,864

Accrued general and administrative expense 4,047,095 4,076,699

Other 40,214 3,735,472

Accrued expenses

$ 22,088,838 $ 27,110,376

Notes Payable – At the end of May 2023, the Company renewed its control of well, general liability, pollution, umbrella, property, workers' compensation, auto, and D&O (directors and officers) insurance policies, and funded the premiums with a promissory note with a total face value after down payments of $ 1,565,071 .

In November 2023, the Company renewed its cybersecurity insurance policy, and funded the premium with a promissory note with a total face value after down payments of $ 72,442 .

The annual percentage rate (APR) for both notes is 7.08 %.

As of December 31, 2023, the notes payable balance included within current liabilities on the balance sheet is $ 533,734 .

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.

The weighted average notes payable balance during the years ended December 31, 2023 and 2022 were $ 687,456 and $ 593,766 , respectively.

The average interest on the weighted average notes payable balance during the years ended December 31, 2023 and 2022 were 7.23 % and 4.31 %, respectively.

The following table shows interest paid related to notes payable for the years ended December 31, 2023, 2022, and 2021.

This interest is included within "Interest (expense)" in the Statements of Operations.

For the Years Ended December 31,

2023 2022 2021

Interest paid for notes payable

$ 49,734 $ 25,579 $ 17,824

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

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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.

The contractual performance obligation is satisfied when the product is delivered to the purchaser.

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.

The transaction price includes variable consideration as product pricing is based on published market prices and reduced for contract specified differentials (quality, transportation and other variables from benchmark prices).

The 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.

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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 income taxes are provided on differences between the tax basis of assets and liabilities and their carrying 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.

Since December 31, 2020, the Company determined that a full valuation allowance was necessary due to the Company's assessment that it was more likely than not that it would be unable to obtain the benefits of its deferred tax assets due to the Company’s history of taxable losses.

The Company determined that certain existing deferred tax assets would 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.

Since 2021, commodity prices increased and the Company continues to project positive pre-tax book income.

As of June 30, 2023, the Company was no longer in a cumulative loss position.

As a result, future forecasted pre-tax book income was considered as positive evidence in assessing the valuation allowance.

Based on the change in judgment on the realizability of the related federal deferred tax assets in future years, the Company released $ 24.2 million of valuation allowance as a benefit during the year ended December 31, 2023.

The Company recorded the following federal and state income tax benefits (provisions) for the years ended December 31, 2023, 2022, and 2021.

For the Years Ended December 31,

2023 2022 2021

Deferred federal income tax benefit (provision) $ 901,522 $ ( 6,437,680 ) $ —

Current state income tax provision ( 72,213 ) — —

Deferred state income tax provision ( 954,551 ) ( 1,971,044 ) ( 90,342 )

Provision for Income Taxes $ ( 125,242 ) $ ( 8,408,724 ) $ ( 90,342 )

The Company’s overall effective tax rates (calculated as Provision for Income Taxes divided by Income Before Provision for Income Taxes) for the years ended December 31, 2023, 2022, and 2021 were as follows.

For the Years Ended December 31,

2023 2022 2021

Effective tax rate

0.1 % 5.7 % 2.6 %

These rates were primarily impacted by the release of valuation allowance on the Company's federal net deferred tax asset.

A tax benefit of $ 24.2 million was recorded in the year ended December 31, 2023.

The Company has identified its federal income tax return and its franchise tax return in Texas in which it operates as a “major” tax jurisdiction.

The Company’s federal income tax returns for the years ended December 31, 2019 and after remain subject to examination.

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The Company’s franchise tax returns in Texas remain subject to examination for 2018 and after.

The Company currently believes that all significant filing positions are

highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit.

The Company currently believes that all significant filing positions are 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.

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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.

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 NGL sales.

For periods prior to July 1, 2022, sales and reserve volumes, prices, and revenues for NGLs were presented with natural gas.

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Accordingly, we began reporting on a three-stream basis prospectively, beginning July 1, 2022.

See Note 5 — ACQUISITIONS & DIVESTITURES for a discussion of the Stronghold Acquisition.

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 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.

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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)".

Major Purchasers – During the year ended December 31, 2023, sales to three purchasers represented 66 %, 12 %, and 10 %, respectively, of total oil, natural gas, and natural gas liquids sales.

As of December 31, 2023, sales outstanding from these three purchasers represented 65 %, 11 %, and 8 %, respectively, of accounts receivable.

During the year ended December 31, 2022, sales to three purchasers 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 purchasers represented 69 %, 7 %, and 10 %, respectively, of accounts receivable.

During the year ended December 31, 2021, sales to three purchasers represented 76 %, 7 %, and 6 %, respectively, of total oil and natural gas sales.

As of December 31, 2021, sales outstanding from these three purchasers represented 75 %, 8 %, and 4 %, respectively, of accounts receivable.

Share-Based Employee Compensation – The Company has outstanding stock option grants and restricted stock unit awards to directors, officers and employees, which are described more fully below in "Note 12 — 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.

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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.

Share-Based Compensation - The following table summarizes the Company's share-based compensation, included with General and administrative expense within our Statements of Operations, incurred for the years ended December 31, 2023, 2022, and 2021.

For the Years Ended December 31,

2023 2022 2021

Share-based compensation

Derivative Instruments and Hedging Activities – The Company periodically enters into derivative contracts to manage its exposure to commodity price 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.

As the Company has not designated its derivative instruments as hedges for accounting purposes, 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) in the Statements of Operations.

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.

Refer to "Note 7 — DERIVATIVE FINANCIAL INSTRUMENTS" for additional information.

The Company uses the indirect method of reporting operating cash flows within the Statements of Cash Flows.

Accordingly, the non-cash, unrealized gains and losses from derivative contracts are reflected as an adjustment to arrive at Net cash provided by operating activities.

The total Gain (loss) on derivative contracts less the Cash received (paid) for derivative settlements, net represents the unrealized (mark to market) gain or loss on derivative contracts.

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.

2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurement.

ASU 2018-13 became effective for annual and interim periods beginning January 1, 2020.

ASU 2018-13 requires that the additional disclosure requirements be adopted using a retrospective approach.

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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 guidance is to be applied using a modified retrospective method and became effective for fiscal years beginning after December 15, 2019.

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

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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 amended standard became 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.

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

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

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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.

ASU 2020-06 became effective for fiscal years beginning after December 15, 2021.

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.

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 acquisition as if it had originated the contract, rather than at fair value.

This update became effective for public business entities beginning after December 15, 2022.

The Company adopted ASU 2021-08 effective January 1, 2023.

The adoption and implementation of this ASU did not have a material impact on the Company’s financial statements, as its revenue is recognized when control transfers to the purchaser at the point of delivery, and no contract liabilities or assets are recognized in accordance with ASC 606.

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock .

The ASU provided updated views from the SEC Staff on employee and non-employee share-based payment accounting, including guidance related to spring-loaded awards.

As the ASU did not provide any new ASC guidance, and there was no transition or effective date provided, the Company adopted this standard upon issuance, and the adoption 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.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that referenced LIBOR ("London Inter-Bank Offered Rate") or another rate.

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

In January 2021, the FASB 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.

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.

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 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

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.

In October 2023, the FASB issued ASU 2023-06, " Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ." This update modifies the disclosure or presentation requirements of a variety of Topics in the Codification, which should be applied prospectively.

For instance, within ASC 230-10 Statement of Cash Flows - Overall, the amendment requires an accounting policy disclosure in annual periods of where cash flows associated with their derivative instruments and their related gains and losses are presented in the statement of cash flows.

Additionally, within ASC 260-10 Earnings Per Share - Overall, the amendment requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim periods.

The Company is currently assessing the impact of this update on its financial statements and related notes.

If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.

In November 2023, the FASB issued ASU 2023-07 " Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ." This update requires that a public entity with multiple reportable segments disclose significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), as well as other segment items that are included in the calculation of segment profit or loss.

A public entity will also be required to disclose all annual disclosures about a reportable segment's profit or loss currently required by Topic 280 in interim periods.

Although a public entity is permitted to disclose multiple measures of a segment's profit or loss, at least one of the reported segment profit or loss measures should be consistent with the measurement principles used in measuring the corresponding amounts of the public entity's consolidated financial statements.

Further, a public entity must disclose the title and position of the CODM as well as how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

Finally, the update requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this update and all existing segment disclosures in Topic 280.

The Company is currently assessing the impact of adopting this new guidance on its financial disclosures.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

In December 2023, the FASB issued ASU 2023-09 " Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

" The amendments from this update provide for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

Specifically, public business entities are required to disclose a tabular reconciliation, using both percentages and reporting currency amounts, showing detail from eight specific categories:

(a) state and local income tax net of federal (national) income tax effect, (b) foreign tax effects, (c) effect of changes in tax laws or rates enacted in the current period, (d) effect of cross-border tax laws, (e) tax credits, (f) changes in valuation allowances, (g) nontaxable or nondeductible items, and (h) changes in unrecognized tax benefits.

In addition, public business entities are required to separately disclose any reconciling item, disaggregated by nature and/or jurisdiction, in which the effect of the reconciling item is equal to or greater than five percent of the amount computed by multiplying the income (or loss) from continuing operations before income taxes by the applicable statutory income tax rate.

Also, for the state and local category, a public business entity is required to provide a qualitative description of the states and local jurisdictions that make up the majority (greater than 50 percent) of the category.

Further, the amount of income taxes paid (net of refunds received) are required to be disaggregated by (i) federal (national), state, and foreign taxes, and (ii) by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received).

Finally, the amendments from this update require that all entities disclose (i) income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and (ii) income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign.

The Company is currently assessing the impact of adopting this new guidance on its financial disclosures.

For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024.

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 predominantly derives its revenue from the sale of produced crude oil, natural gas, and NGLs.

The contractual performance obligation is satisfied when the product is delivered to the purchaser.

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.

Under the Company’s sales contracts, each unit of production delivered to a purchaser 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.

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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.

Under the Company’s natural gas sales processing contracts for its Central Basin Platform properties and a portion of its 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 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.

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Accordingly, the Company from that point on accounts for any such fees and deductions as a reduction of the transaction price.

There remains only one contract with a natural gas processing entity in place where point of control of gas dictates requiring the fees be recorded as an expense.

Disaggregation of Revenue.

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Natural gas (1)

334,175 18,693,631 14,772,873

Natural gas liquids (1)

11,676,963 7,493,234 —

Total oil, natural gas, and natural gas liquids revenues $ 361,056,001 $ 347,249,537 $ 196,305,966

(1) Beginning on July 1, 2022, the Company began reporting volumes and revenues on a three-stream basis, separately reporting crude oil, natural gas, and NGL sales.

For periods prior to July 1, 2022, sales revenues for NGLs were presented with natural gas.

NOTE 3 — LEASES

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

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

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

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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.

however, effective as of May 31, 2023, The Woodlands office sub-lease was terminated.

On May 9, 2023, the Company entered into a 71-month (five years and 11-month) new lease for a larger amount of office space in The Woodlands, Texas.

At the time of the new lease commencement, the additional office space that was added was under construction and until completed, the rental obligation for this space had not yet commenced, because the Company did not have control of the additional office space in accordance with ASC 842-40-55-5.

On September 27, 2023, the Company provided a certificate of acceptance of premises to the lessor of the additional office space, and accordingly, the future payments for this space are included along with the other operating leases, reflected in the future lease payments schedule below.

During the first quarter of 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 13 — 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 Company has month to month leases for office equipment and compressors used in its operations on which the Company has elected to apply ASU 2016-02 (i.e.

to not capitalize).

The office equipment and compressors are not subject to ASU 2016-02 based on the agreement and nature of use.

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Future lease payments associated with these operating and financing leases as of December 31, 2023 are as follows:

2023 2024 2025 2026 2027

2024 2025 2026 2027 2028 Thereafter

Operating lease payments (1)

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1,052,449 713,501 240,503 — — —

(1) The weighted average discount rate as of December 31, 2022 for operating leases was 4.50 %.

(1) The weighted average annual discount rate as of December 31, 2023 for operating leases was 4.50 %.

Based on this rate, the future lease payments above include imputed interest of $ 277,833 .

The weighted average remaining term of operating leases was 4.32 years.

(2) The weighted average discount rate as of December 31, 2022 for financing leases was 5.82 %.

(2) The weighted average annual discount rate as of December 31, 2023 for financing leases was 6.69 %.

Based on this rate, the future lease payments above include imputed interest of $ 143,869 .

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Undiscounted future cash flows less imputed interest 1,862,584 1,762,132

The following table provides supplemental information regarding cash flows from operations:

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

Operating lease costs $ 541,801

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Amortization of financing lease assets (2)

Interest on lease liabilities (3)

Interest on financing lease liabilities (3)

(1) Amount included in Lease operating expenses

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(3) Amount included in Interest (expense)

NOTE 4 – EARNINGS (LOSS) PER SHARE INFORMATION

NOTE 4 — EARNINGS PER SHARE INFORMATION

The following table presents the calculation of the Company's basic and diluted earnings per share for the years ended December 31, 2023, 2022 and 2021.

For all dilutive securities, the treasury stock method of calculating the incremental shares is applied.

For the years ended December 31, 2023 2022 2021

Net Income (Loss) $ 138,635,025 $ 3,322,892 $ ( 253,411,828 )

Net Income $ 104,864,641 $ 138,635,025 $ 3,322,892

Basic Weighted-Average Shares Outstanding 190,589,143 121,264,175 99,387,028

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Diluted Weighted-Average Shares Outstanding 195,364,850 141,754,668 121,193,175

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 —

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.

Basic Earnings per Share $ 0.55 $ 1.14 $ 0.03

Diluted Earnings per Share $ 0.54 $ 0.98 $ 0.03

The following table presents the securities which were excluded from the Company's computation of diluted earnings (loss) per share for the years ended December 31, 2023, 2022 and 2021, as their effect would have been anti-dilutive.

2023 2022 2021

Antidilutive securities:

Stock options to purchase common stock 264,966 70,500 113,659

Unvested restricted stock units 56,153 13,512 20,610

Unvested performance stock units 1,445,804 814,255 94,270

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.

Andrews County Sale and Exchange

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

Upon closing, the Company received cash consideration of $ 2,000,000 and reduced the Company’s asset retirement obligations by $ 2,934,126 for the properties sold and added $ 662,705 of asset retirement obligations for the wells acquired.

Stronghold Acquisition

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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.

The fair value of consideration paid to Stronghold was approximately $ 394.0 million, of which $ 165.9 million, net of customary purchase price adjustments, was paid in cash at closing, $ 15.0 million was payable in cash after the six-month anniversary of the closing date of the Stronghold Acquisition.

Shortly after closing, approximately $ 4.5 million was paid for inventory and vehicles and approximately $ 1.8 million was paid for August oil derivative settlements for certain novated hedges.

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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 Stronghold Acquisition was accounted for as an asset acquisition in accordance with ASC Topic 805 - Business Combinations.

The fair value of the consideration paid by Ring and allocation of that amount to the underlying assets acquired, on a relative fair value basis, was recorded on Ring’s books as of the date of the closing of the Stronghold Acquisition.

Additionally, costs directly related to the Stronghold Acquisition were capitalized as a component of the purchase price.

Determining the fair value of the assets and liabilities acquired 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:

Determining the fair value of the assets and liabilities acquired required judgment and certain assumptions to be made, the most significant of these being related to the valuation of Stronghold’s oil and gas properties.

The inputs and assumptions related to the oil and gas properties were categorized as level 3 in the fair value hierarchy.

The following table represents the final allocation of the total cost of the Stronghold Acquisition to the assets acquired and liabilities assumed as of the Stronghold Acquisition date:

Consideration:

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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.

Approximately $ 40.4 million of revenues and $ 13.6 million of direct operating expenses attributed to the Stronghold Acquisition were included in the Company’s Statements of Operations for the period from September 1, 2022 through December 31, 2022.

Delaware Basin Divestiture

On May 11, 2023, the Company completed the divestiture of its Delaware Basin assets to an unaffiliated party for $ 8.3 million.

The sale had an effective date of March 1, 2023.

The final cash consideration was approximately $ 7.6 million.

As part of the divestiture, the buyer assumed an asset retirement obligation balance of approximately $ 2.3 million.

Founders Acquisition

On July 10, 2023, the Company, as buyer, and Founders Oil & Gas IV, LLC (“Founders”), as seller, entered into an Asset Purchase Agreement (the “Founders Purchase Agreement”).

Pursuant to the closing of the Purchase Agreement, on August 15, 2023 the Company acquired (the “Founders Acquisition”) interests in oil and gas leases and related property of Founders located in the Central Basin Platform of the Texas Permian Basin in Ector County, Texas, for a purchase price (the “Purchase Price”) of (i) a cash deposit of $ 7.5 million paid on July 11, 2023 into a third-party escrow account as a deposit pursuant to the Founders Purchase Agreement, (ii) approximately $ 42.5 million in cash paid on the closing date, net of approximately $ 10 million of preliminary and customary purchase price adjustments with an effective date of April 1, 2023, and (iii) a deferred cash payment of approximately $ 11.9 million paid on December 18, 2023, net of customary purchase price adjustments.

The Founders Acquisition has been accounted for as an asset acquisition in accordance with ASC 805.

Additionally, costs directly related to the Founders Acquisition were capitalized as a component of the purchase price.

The inputs and assumptions related to the oil and gas properties are categorized as level 3 in the fair value hierarchy.

The following table represents the final allocation of the total cost of the Founders Acquisition to the assets acquired and liabilities assumed as of the Founders Acquisition date:

Consideration:

Cash consideration

Escrow deposit released at closing $ 7,500,000

Closing amount paid to Founders 42,502,799

Interest from escrow deposit 1,747

Fair value of deferred payment liability 14,657,383

Post-close adjustments ( 4,139,244 )

Total cash consideration $ 60,522,685

Direct transaction costs 1,361,843

Total consideration $ 61,884,528

Fair value of assets acquired:

Oil and natural gas properties $ 64,886,472

Amount attributable to assets acquired $ 64,886,472

Fair value of liabilities assumed:

Suspense liability $ 677,116

Asset retirement obligations 2,090,777

Ad valorem tax liability 234,051

Amount attributable to liabilities assumed $ 3,001,944

Net assets acquired $ 61,884,528

Approximately $ 18.0 million of revenues and $ 5.0 million of direct operating expenses attributed to the Founders Acquisition are included in the Company’s Statements of Operations for the period from August 16, 2023 through December 31, 2023.

New Mexico Divestiture

On September 27, 2023, the Company completed the divestiture of its operated New Mexico assets to an unaffiliated party for $ 4.5 million, resulting in preliminary cash consideration of approximately $ 3.7 million, subject to customary final purchase price adjustments.

The sale had an effective date of June 1, 2023.

As part of the divestiture, the buyer assumed an asset retirement obligation balance of approximately $ 2.4 million.

Gaines County Texas Sale

On December 29, 2023, the Company completed the sale of specified oil and gas properties within Gaines County, Texas to an unaffiliated party for $ 1.5 million, which resulted in cash proceeds of $ 1.4 million, net of $ 0.1 million in commission fees.

The sale had an effective date of December 1, 2023.

As part of the sale, the buyer assumed an asset retirement obligation balance of approximately $ 0.5 million.

NOTE 6 — 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

Capitalized Costs

As of December 31, 2023 2022

Oil and natural gas properties, full cost method

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

Proved properties

1,663,548,249 1,463,838,595

Unproved properties

Total oil and natural gas properties, full cost method

1,663,548,249 1,463,838,595

Accumulated depletion of oil and natural gas properties

( 373,280,583 ) ( 287,052,595 )

Net oil and natural gas properties capitalized

$ 1,290,267,666 $ 1,176,786,000

Costs Incurred in Oil and Gas Producing Activities

For the years Ended December 31, 2023 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 acquire oil and natural gas properties

$ 82,900,900 $ 179,387,490 $ 1,368,437

Payments to explore oil and natural gas properties

Payments to develop oil and natural gas properties 152,559,314 129,332,155 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

Total costs incurred

$ 235,460,214 $ 308,719,645 $ 52,670,568

NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS

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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.

The Company has historically used 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 the Henry 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.

A 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.

All of our derivative contracts are 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.

Although the counterparties hold the right to offset (i.e.

netting) the settlement amounts with the Company, in accordance with ASC 815-10-50-4B, the Company classifies the fair value of all its derivative positions on a gross basis in its Balance Sheets.

The Company’s derivative financial instruments are recorded at fair value and included as either assets or liabilities in the accompanying Balance Sheets.

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Derivative liabilities, noncurrent $ 11,510,368 $ 10,485,650

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

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

For the years ended December 31,

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Oil derivatives:

Realized gain (loss) on oil derivatives $ ( 61,875,870 ) $ ( 53,511,332 ) $ 22,522,591

Realized loss on oil derivatives

$ ( 11,364,484 ) $ ( 61,875,870 ) $ ( 53,511,332 )

Unrealized gain (loss) on oil derivatives 9,462,374 40,546,123 ( 24,143,120 )

Gain (loss) on oil derivatives $ ( 21,329,747 ) $ ( 77,654,452 ) $ 20,357,812

Loss on oil derivatives

$ ( 1,902,110 ) $ ( 21,329,747 ) $ ( 77,654,452 )

Natural gas derivatives:

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Gain (loss) on derivative contracts $ 2,767,162 $ ( 21,532,659 ) $ ( 77,853,141 )

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

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

For the years ended December 31,

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Cash flows from operating activities

Cash (paid) received on oil derivatives $ ( 61,875,870 ) $ ( 53,511,332 ) $ 22,522,591

Cash paid for oil derivatives

$ ( 11,364,484 ) $ ( 61,875,870 ) $ ( 53,511,332 )

Cash (paid) received on natural gas derivatives 2,279,564 ( 650,084 ) 743,178

Cash (paid) received from derivative settlements $ ( 62,525,954 ) $ ( 52,768,154 ) $ 22,522,591

Cash paid for derivative settlements, net $ ( 9,084,920 ) $ ( 62,525,954 ) $ ( 52,768,154 )

The following tables reflect the details of current derivative contracts as of December 31, 2023 (Quantities are in barrels (Bbl) for the oil derivative contracts and in million British thermal units (MMBtu) for the natural gas derivative contracts):

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Weighted average call price $ 79.92 $ 79.16 $ 76.50 $ 73.24 $ 75.82 $ 69.85 $ 78.91 $ 75.68

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)

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Weighted average put price $ 3.94 $ 3.94 $ 3.94 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00

Call hedged volume (MMBtu) 2,140,317 1,712,250

Weighted average call price $ 6.15 $ 6.16 $ 6.17 $ 4.15 $ 4.15 $ 4.15 $ 4.75 $ 4.15

Gas Hedges (basis differential)

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 .

(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).

Oil Hedges (basis differential)

Argus basis swaps:

Hedged volume (Bbl)

240,000 364,000 368,000 368,000 270,000 273,000 276,000 276,000

Weighted average spread price (1)

$ 1.15 $ 1.15 $ 1.15 $ 1.15 $ 1.00 $ 1.00 $ 1.00 $ 1.00

(1) The oil basis swap hedges are calculated as the fixed price (weighted average spread price above) less the difference between WTI Midland and WTI Cushing, in the issue of Argus Americas Crude.

NOTE 8 — FAIR VALUE MEASUREMENTS

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As of December 31, 2022

Commodity Derivatives - Assets

$ — $ 10,798,572 $ — $ 10,798,572

Commodity Derivatives - Liabilities — ( 23,831,269 ) — ( 23,831,269 )

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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.

On August 31, 2022, the Company modified its Credit Facility through a Second Amended and Restated Credit Agreement (the "Second Credit Agreement"), extending the maturity date of the facility to August 2026 and the syndicate was modified to add five lenders, replacing five lenders.

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 redetermined semi-annually each May and November.

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.

Rather than Eurodollar loans, the reference rate on the Second Credit Agreement is the SOFR.

Also, the Second Credit Agreement permits the Company to declare dividends for its equity owners, subject to certain limitations, including (i) no default or event of default has occurred or will occur upon such payments, (ii) the pro forma 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) does not exceed 2.00 to 1.00, (iii) the amount of such payments does not exceed Available Free Cash Flow (as defined in the Second Credit Agreement), and (iv) the Borrowing Base Utilization Percentage (as defined in the Second Credit Agreement) is not greater than 80 %.

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

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 annual interest rate on each

base rate Loan is (a) the greatest of (i) the Administrative Agent’s prime lending rate, (ii) the Federal Funds Rate (as defined in the Second 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 Credit Agreement contains certain covenants, which, among other things, require the maintenance of (i) a total Leverage Ratio 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 Credit Agreement) of 1.0 to 1.0.

The Second Credit Agreement also contains other customary affirmative and negative covenants and events of default.

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.

However, 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 will be 0 % from such hedge testing date to the next succeeding hedge testing date and 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 will be 25 % from such hedge testing date to the next succeeding hedge testing date.

As of December 31, 2023, $ 425 million was outstanding on the Credit Facility and the Company was in compliance with all covenants contained in the Second Credit Agreement.

Under the Second 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, 2023, the Company's unused line of credit was $ 174.2 million, which was calculated by subtracting the outstanding Credit Facility balance of $ 425 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) from the $ 600 million borrowing base.

Note 14 — COMMITMENTS AND CONTINGENCIES describes changes in the surety bonds which did not yet affect the letters of credit (collateral) aforementioned.

NOTE 10 — ASSET RETIREMENT OBLIGATION

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Balance, December 31, 2020 $ 17,117,135

Liabilities acquired

Liabilities incurred 171,390

Liabilities sold

( 2,934,126 )

Liabilities settled ( 904,514 )

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Liabilities incurred 439,528

Liabilities sold

( 5,340,211 )

Liabilities settled ( 647,828 )

Revision of estimate (1)

Accretion expense 1,425,686

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(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.

The following table presents the Company's current and non-current asset retirement obligation balances as of the periods specified.

December 31, 2023 December 31, 2022

Asset retirement obligations, current $ 165,642 $ 635,843

Asset retirement obligations, non-current 28,082,442 29,590,463

Asset retirement obligations $ 28,248,084 $ 30,226,306

NOTE 11 — 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.

The Company was 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.

On May 25, 2023, at the Company's annual meeting of stockholders, the Company's stockholders approved an amendment (the "Charter Amendment") to the Articles of Incorporation of the Company to increase the authorized shares of common stock from 225,000,000 to 450,000,000 .

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.

This includes a

partial exercise of the over-allotment.

The Common Warrants have a term of five years ending in October 2025 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.

The Common Warrants have a term of five years ending in October 2025 and an exercise price of $ 0.80 per share.

Gross proceeds totaled $ 4,756,700 .

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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 .

During the year ended December 31, 2022, a total of 10,253,907 Common Warrants were exercised, leaving 19,107,793 Common Warrants outstanding as of December 31, 2022.

During February and March 2023, a total of 4,517,427 Common Warrants were exercised, at the exercise price of $ 0.80 per share.

On April 11 and 12, 2023, the Company and certain holders of the common warrants (the “Participating Holders”) entered into a form of Warrant Amendment and Exercise Agreement (the “Exercise Agreement”) pursuant to which the Company agreed to reduce the exercise price of an aggregate of 14,512,166 common warrants held by such Participating Holders from $ 0.80 to $ 0.62 per share (the “Reduced Exercise Price”) in consideration for the immediate exercise of the common warrants held by such Participating Holders in full at the Reduced Exercise Price in cash.

The Company received aggregate gross proceeds of $ 8,997,543 from the exercise of the common warrants by the Participating Holders pursuant to the Exercise Agreement, which was recognized as an equity issuance cost in accordance with ASC 815-40-35-17(a).

In the Statements of Stockholders' Equity, the net impact to Stockholders' Equity is $ 8,687,655 , which is net of $ 309,888 in advisory fees.

As of December 31, 2023, a total of 78,200 Common Warrants remained outstanding.

Common stock issued for Stronghold acquisition - As part of the Stronghold Acquisition, 21,339,986 shares of common stock were issued to the sellers.

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Refer to "Note 5 — ACQUISITIONS & DIVESTITURES" for the purchase price consideration allocated to the aforementioned stock issuances.

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.

Common stock issued for option exercises – During the years ended December 31, 2022 and 2021, the Company issued 52,494 and 100,000 shares of common stock as a result of stock option exercises, respectively.

No stock options were exercised in 2023.

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NOTE 12 — 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, 2023, 2022, and 2021 was $ 8,833,425 , $ 7,162,231 , and $ 2,418,323 , respectively.

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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.

2021 Omnibus Incentive Plan (the “2021 Plan”), which was subsequently approved by the shareholders at the 2021 Annual Meeting.

The 2021 Plan provides that the Company may grant options, stock appreciation rights, restricted shares, restricted stock units, performance-based awards, other share-based awards, other cash-based awards, or any combination of the foregoing.

At the 2023 Annual Meeting, the shareholders approved an amendment to the 2021 Plan to increase the number of shares available under the 2021 Plan by 6.0 million.

Accordingly, there were 8,224,394 shares available for grant as of December 31, 2023 under the 2021 Plan.

Employee Stock Options – No stock options were granted in the years ended December 31, 2023, 2022, or 2021.

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

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Outstanding at beginning of year 265,500 $ 4.21 365,500 $ 3.61 465,500 $ 3.26

Issued — — — — — —

Forfeited or rescinded — — — — ( 2,283,000 ) 6.89

( 195,000 ) 2.00 — — — —

Exercised — — ( 100,000 ) 2.00 ( 100,000 ) 2.00

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The year-end intrinsic values are based on a December 31, 2023 closing stock price of $ 1.46 .

No stock options were exercised during 2023.

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, 2023:

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$ 10.33 70,500 2.39 70,500

265,500 1.63 265,500

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

Restricted stock unit grants – Following is a table reflecting the restricted stock unit grants during 2023, 2022 and 2021:

Grant date # of

restricted stock units

April 30, 2021 33,950

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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:

February 16, 2023 2,270,842

Restricted stock unit 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 unit 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 2021 restricted stock unit 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 for 2022 restricted stock units.

Forfeitures are recognized as a reduction to share-based compensation expense in the period of occurrence.

A summary of the status of restricted stock unit grants and changes during the years ended December 31, 2023, 2022 and 2021 is as follows:

2023 2022 2021

Restricted stock Weighted-

Restricted stock units Weighted-

Average Grant

Date Fair Value Restricted stock Weighted-

Date Fair Value Restricted stock units Weighted-

Average Grant

Date Fair Value Restricted stock Weighted-

Date Fair Value Restricted stock units Weighted-

Average Grant

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Outstanding at end of year 3,148,226 $ 2.40 2,623,790 $ 2.29 2,572,596 $ 1.75

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.

For the years ended December 31, 2023, 2022 and 2021, the Company incurred share-based compensation expense related to restricted stock unit grants of $ 4,537,026 , $ 4,148,639 , and $ 2,225,895 , respectively.

As of December 31, 2023, the Company had $ 2,778,549 of unrecognized compensation cost related to restricted stock unit grants that will be recognized over a weighted average period of 1.72 years.

During 2023, 2022, and 2021, 1,680,232 , 1,310,894 , and 785,357 restricted stock units vested, respectively.

At the dates of vesting those restricted stock units had an aggregate intrinsic value of $ 3,203,568 , $ 3,807,996 , and $ 2,049,603 , respectively.

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

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

The performance

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

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

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).

Upon Board approval, a total of

860,216 PSUs were granted to the Company’s five executive officers (the “2021 PSU Awards”).

The performance period for the 2021 PSU Awards began on January 1, 2021, and ended on December 31, 2023.

Based on the achievement of the performance goals for the 2021 PSU Awards, a total of 1,170,024 PSUs vested on December 31, 2023.

On February 9, 2022, the Company granted a total of 860,216 PSUs 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.

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:

On February 16, 2023, the Company granted a total of 1,162,162 PSUs to the Company's five executive officers (the "2023 PSU Awards").

The performance period for the 2023 PSU Awards began on January 1, 2023, and will end on December 31, 2025.

A summary of the status of the PSU awards and changes during the years ended December 31, 2023, 2022 and 2021 are as follows:

2023 2022 2021

Stock Units Weighted-

1 unchanged sentence

Stock Units Weighted-

Fair Value Performance

Stock Units Weighted-

Outstanding at beginning of year 1,720,432 $ 3.76 860,216 $ 3.87 — $ —

Granted 1,162,162 2.71 860,216 3.65 860,216 3.87

Incremental performance stock units vested

309,808 — — — — —

Forfeited or rescinded — — — — — —

1 unchanged sentence

Outstanding at end of year 2,022,378 $ 3.11 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.

No forfeitures for the PSU awards have been recognized as of December 31, 2023, but the Company would recognize any such forfeitures in the period of occurrence as a reduction to share-based compensation expense.

For the years ended December 31, 2023, 2022 and 2021, the Company incurred share-based compensation expense related to the PSU Awards of $ 4,296,399 , $ 3,013,592 , and $ 171,494 , respectively.

As of December 31, 2023, the Company had $ 4,015,133 of unrecognized compensation cost related to the PSU Awards that will be recognized over a weighted average period of 1.57 years.

During 2023, 1,170,024 PSUs vested.

At the dates of vesting those PSUs had an aggregate intrinsic value of $ 1,708,235 .

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.

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NOTE 13 — 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.

The Company leased office space in Tulsa, Oklahoma, from Arenaco, LLC (“Arenaco”), a company that was 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.

McCabe, a former director of the

During the year ended December 31, 2021, the Company paid $ 10,000 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.

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As of 2022, Mr.

McKinney is no longer on the board of directors of Pro-Ject Holdings, LLC.

NOTE 15 – COMMITMENTS AND CONTINGENT LIABILITIES

McKinney was no longer on the board of directors of Pro-Ject Holdings, LLC.

NOTE 14 — COMMITMENTS AND CONTINGENCIES

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.

1 unchanged sentence

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 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 State of Texas.

The letters of credit to the insurance company will be renewed if the insurance requires them to retain the surety bonds;

however, as the Company no longer operates any wells in the State of New Mexico, these standby letters of credit will not be renewed.

No amounts have been drawn under the standby letters of credit.

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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 .

The Company does not intend to renew the surety bonds in the State of New Mexico, as these operated assets have now been sold to a third party.

As of December 31, 2023, the Company had remaining surety bonds in total of $ 25,000 .

NOTE 15 — INCOME TAXES

For the years ended December 31, 2022, 2021, and 2020, components of our provision for (benefit from) income taxes are as follows:

For the years ended December 31, 2023, 2022, and 2021, components of our provision for income taxes are as follows:

Provision for Income Taxes:

2023 2022 2021

Federal deferred tax $ ( 901,522 ) $ 6,437,680 $ —

State current tax

State deferred tax 954,551 1,971,044 90,342

Provision for (Benefit From) Income Taxes $ 8,408,724 $ 90,342 $ ( 6,001,176 )

Provision for Income Taxes

$ 125,242 $ 8,408,724 $ 90,342

The following is a reconciliation of income taxes computed using the U.S.

federal statutory rate to the provision for (benefit from) income taxes:

federal statutory rate to the provision for income taxes:

Rate Reconciliation:

Pre-tax book income (loss) $ 147,043,749 $ 3,413,234 $ ( 259,413,004 )

2023 2022 2021

Pre-tax book income (1)

$ 104,917,670 $ 147,043,749 $ 3,413,234

Tax at federal statutory rate $ 22,032,711 $ 30,879,187 $ 716,779

4 unchanged sentences

Non-deductible expenses and other 1,149,037 335,162 6,342

Provision for (Benefit From) Income Taxes $ 8,408,724 $ 90,342 $ ( 6,001,176 )

Provision for Income Taxes $ 125,242 $ 8,408,724 $ 90,342

(1) Amount represents pre-tax book income, net of income taxes paid.

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.

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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 .

As of June 30, 2023, the Company was no longer in a cumulative loss position.

As a result, future forecasted pre-tax book income was considered as positive evidence in assessing the valuation allowance.

This resulted in an ending federal net deferred tax liability of $ 5,536,158 .

Additionally, the Company reported a net state deferred tax liability at December 31, 2023 of $ 3,015,887 attributable to certain state deferred tax liabilities mainly associated with property and equipment.

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Ring Energy, Inc., that was filed in July 2021.

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

The plaintiff is

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

The plaintiff, EPUS Permian Assets, LLC, claims breach of

contract, money had and received by fraudulent inducement, unjust enrichment and constructive trust.

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

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

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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.

The parties have begun taking depositions and are conducting discovery.

NOTE 17 — 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 .

Surety Bonds - On January 10, 2024, two insurance companies issued surety bonds on behalf of the Company, one for $ 250,000 , an RRC required blanket performance bond to operate 100 wells or more in the State of Texas, and one for $ 2,000,000 , an RRC required blanket plugging extension bond, each with zero collateral requirements.

The term for these two surety bonds ends on July 1, 2025 and can be renewed at that time.

First Amendment to Second Amended and Restated Credit Agreement - On February 12, 2024, the Company, Truist Bank ("Truist") as the Administrative Agent and Issuing Bank, and the lenders party thereto (the "Lenders") entered into an amendment (the "Amendment") to the Second Amended and Restated Credit Agreement dated August 31, 2022, by and among the Company, as Borrower, Truist as Administrative Agent and Issuing Bank, and the Lenders (together with all amendments or other modifications, the "Credit Agreement").

Among other things, the Amendment amends the definition of Free Cash Flow so amounts used by the Company for acquisitions will no longer be subtracted from the calculation of Free Cash Flow.

RING ENERGY, INC.

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Oil, natural gas, and natural gas liquids sales

$ 361,056,001 $ 347,249,537 $ 196,305,966

Lease operating expenses (70,158,227) (47,695,351) (30,312,399)

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Depreciation, depletion, and amortization

Ceiling test impairment — — (277,501,943)

(88,610,291) (55,740,767) (37,167,967)

General and administrative (exclusive of corporate overhead) (2,839,401) (1,617,095) (2,003,876)

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

Income tax expense

(208,917) (12,502,187) (2,943,848)

Results of Oil and Natural Gas Producing Operations

$ 173,888,415 $ 206,067,514 $ 108,144,761

Costs Incurred in Oil and Gas Producing Activities

For the years Ended December 31, 2023 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 acquire oil and natural gas properties

$ 82,900,900 $ 179,387,490 $ 1,368,437

Payments to explore oil and natural gas properties

Payments to develop oil and natural gas properties 152,559,314 129,332,155 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

Total costs incurred

$ 235,460,214 $ 308,719,645 $ 52,670,568

Capitalized Costs

As of December 31, 2023 2022

Oil and natural gas properties, full cost method

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

Proved properties

1,663,548,249 1,463,838,595

Unproved properties

Total oil and natural gas properties, full cost method

1,663,548,249 1,463,838,595

Accumulated depletion of oil and natural gas properties

(373,280,583) (287,052,595)

Net oil and natural gas properties capitalized

$ 1,290,267,666 $ 1,176,786,000

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.

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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.

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.

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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 oil prices as of December 31, 2023, 2022 and 2021 are based on the respective 12-month unweighted average of the first of the month prices of the WTI spot prices which equates to $74.70 per barrel, $90.15 per barrel and $63.04 per barrel, respectively.

The natural gas prices as of December 31, 2023, 2022 and 2021 are based on the respective 12-month unweighted average of the first of month prices of the Henry Hub spot price which equates to $2.637 per MMBtu, $6.358 per MMBtu and $3.598 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 reserves are estimated reserves of crude oil (including condensate and NGLs) 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.

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Beginning of year 88,704,743 157,870,449 23,105,658 138,122,143

Purchases of minerals in place 28,086,920 108,456,107 16,715,626

Purchase of minerals in place 6,543,640 3,372,965 1,089,382 8,195,183

Extensions, discoveries and improved recovery 3,098,845 4,113,480 1,014,343 4,798,768

Sale of minerals in place — — —

Sales of minerals in place (4,897,921) (2,674,955) (392,953) (5,736,700)

Production (4,579,942) (6,339,158) (976,852) (6,613,320)

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Beginning of year 65,838,609 71,773,789 — 77,800,907

Purchases of minerals in place 2,180,497 824,512 —

Purchase of minerals in place 28,086,920 108,456,107 16,715,626 62,878,564

Extensions, discoveries and improved recovery 628,978 522,178 52,810 768,818

Sale of minerals in place (462,970) (555,879) —

Sales of minerals in place — — — —

Production (3,459,477) (4,088,642) (371,337) (4,512,254)

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natural gas reserves are stated in thousand cubic feet;

natural gas liquids reserves are stated in barrels.

NGL reserves are stated in

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.

Notable changes in proved reserves for the year ended December 31, 2023 included the following:

• Extensions.

In 2023, extensions of 4.8 MMBoe were primarily the result of the successful operated drilling program and non-operated activity in the Northwest Shelf and Central Basin Platform.

• Purchase of minerals in place.

In 2023, the Company completed the acquisition of Founders oil and gas leases and related property within Ector County that resulted in 8.2 MMBoe in additional reserves.

• Sales of minerals in place.

In 2023, the Company sold 5.7 MMBoe from the divestiture of the Delaware Basin assets (30%), the New Mexico operated assets (57%), and part of the Company's assets in Gaines County (13%).

• Revision of previous estimates.

In 2023, the negative revisions of prior reserves of 9.0 MMBoe consisted of 5.3 MMBoe (59%) related to changes in price and 3.7 MMBoe (41%) related to changes in performance and other economic factors.

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.

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Future development costs (1)

(562,063,424) (647,196,750) (347,757,000)

Future income taxes (548,664,988) (1,142,147,641) (501,586,949)

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Standardized Measure of Discounted Future Net Cash Flows $ 1,399,185,191 $ 2,272,113,518 $ 1,137,364,848

(1) Future development costs include not only development costs but also future asset retirement costs.

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, 2023:

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

What changed 10-K

Item 9A. Controls and Procedures