Ring Energy, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

LEASES

LEASES

12 Months Ended

Dec. 31, 2023

NOTE 3 — LEASES

The Company has operating leases for its offices in Midland, Texas and The Woodlands, Texas. The Midland office is under a five-year lease which began January 1, 2021. The Midland office lease was amended effective October 1, 2022, with the revised five-year lease ending September 30, 2027. Beginning January 15, 2021, the Company entered into a five-and-a-half-year sub-lease for office space in The Woodlands, Texas; however, effective as of May 31, 2023, The Woodlands office sub-lease was terminated. On May 9, 2023, the Company entered into a 71-month (five years and 11-month) new lease for a larger amount of office space in The Woodlands, Texas. At the time of the new lease commencement, the additional office space that was added was under construction and until completed, the rental obligation for this space had not yet commenced, because the Company did not have control of the additional office space in accordance with ASC 842-40-55-5. On September 27, 2023, the Company provided a certificate of acceptance of premises to the lessor of the additional office space, and accordingly, the future payments for this space are included along with the other operating leases, reflected in the future lease payments schedule below.

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 its operations on which the Company has elected to apply ASU 2016-02 (i.e. to not capitalize). The office equipment and compressors are not subject to ASU 2016-02 based on the agreement and nature of use. These leases are for terms that are less than 12 months and the Company does not intend to continue to lease this equipment for more than 12 months. The lease costs associated with these leases is reflected in the short-term lease costs within Lease operating expenses, shown below.

The Company has financing leases for vehicles. These leases have a term of 36 months at the end of which the Company owns the vehicles. These vehicles are generally sold at the end of their term and the proceeds applied to a new vehicle.

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


	2024		2025		2026		2027		2028		Thereafter
Operating lease payments (1)	$	675,210	$	727,460	$	636,649	$	460,497	$	250,606	$	149,628
Financing lease payments (2)	1,052,449		713,501		240,503		—		—		—

(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 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. The weighted average remaining term of financing leases was 2.00 years.

The following table represents a reconciliation between the undiscounted future cash flows in the table above and the operating and financing lease liabilities disclosed in the Balance Sheets:


	As of December 31,
	2023	2022
Operating lease liability, current portion	568,176	398,362
Operating lease liability, non-current portion	2,054,041	1,473,897
Operating lease liability, total	2,622,217	1,872,259
Total undiscounted future cash flows (sum of future operating lease payments)	2,900,050	2,065,580
Imputed interest	277,833	193,321
Undiscounted future cash flows less imputed interest	2,622,217	1,872,259

Financing lease liability, current portion	956,254	709,653
Financing lease liability, non-current portion	906,330	1,052,479
Financing lease liability, total	1,862,584	1,762,132
Total undiscounted future cash flows (sum of future financing lease payments)	2,006,453	1,900,595
Imputed interest	143,869	138,463
Undiscounted future cash flows less imputed interest	1,862,584	1,762,132

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


	2023
Operating lease costs	$	541,801
Short-term lease costs (1)	$	5,096,723
Financing lease costs:
Amortization of financing lease assets (2)	$	803,721
Interest on financing lease liabilities (3)	$	101,269

(1)Amount included in Lease operating expenses

(2)Amount included in Depreciation, depletion and amortization

(3)Amount included in Interest (expense)