REI at $1.42: For Sale at 50% Off, and Likely to Stay There

On pricing. Prices in this post are the Monday, October 26, 2026 close of $1.42. This post does not take a position, so there is no execution to document.

We apply our tools to many kinds of companies with various valuation methods. Some look rich, some look fair and some look cheap. We have the luxury of waiting until a valuation has a margin of safety before we make a call. But even with a margin of safety we can fall into a value trap.

What we found with our process was a company whose shares trade at about half the net asset value (NAV) of the known reserves in the ground. When it does produce value, that value is not being transferred to shareholders; it is going to other parties. To buy is a folly; the name has no reason to reprice.

Ring Energy is an exploration and production (E&P) company that operates in the Permian Basin of West Texas and southeastern New Mexico, in two older parts of the basin called the Central Basin Platform and the Northwest Shelf. In 2025 it produced about 20,000 barrels of oil equivalent a day, 65% of it oil, from conventional (not shale) reservoirs, and today the whole company trades for about $370 million. SEC filings require that E&P companies disclose their proved reserves in a very particular way which leads to our ability to find a floor on the price. When oil prices are at or above the prices used in the filing, as they are today, no E&P company should trade below that floor (after you account for overhead, the other liabilities and possible claimants). We went over that valuation many times, and thought we had found a mispriced security. However, we went back to look and found that while management is aware of this value, they are transferring it to other parties.

What the filings say

Every year an E&P company has to report the value of its proved reserves using a recipe set by the SEC, called the standardized measure. Take the oil and gas the company has shown it can produce, price it at the average of the last twelve months, subtract the costs to produce and develop it and the income taxes, and discount what is left at 10% a year. Ring's figure comes from reserve reports prepared by an outside engineering firm, Cawley, Gillespie & Associates.

For the end of 2025 that number was $1,123.5 million, at $61.82 oil. Subtract the $359 million Ring owed on its credit line at the end of June, net of cash, and divide by 260.5 million shares. That leaves $2.93 a share. That is the NAV from the opening, and it is the floor we use in the rest of this post. The stock closed at $1.42 on October 26, about half of that. The standardized measure leaves out corporate overhead (about $0.74 a share in our model, which still leaves $2.19), and it uses last year's oil price. With oil near $100 today, our model puts the floor near $5. We stick with the filed number because it is the most conservative one, and it is the company's own.

One raise example

Here is the clearest case. On May 12, 2026, after the market closed, Ring priced a sale of 44.4 million new shares at $1.35. A month later the banks running the deal bought 6.7 million more under their option. That is 51.1 million new shares, 24% more than the 209.4 million that existed before. The company raised $69.0 million, $64.5 million after fees and expenses, and used it to pay down its credit line.

Right before the sale the floor was $3.34 a share. Every new share got the same claim on the reserves as an old one, for $1.35. After the sale the floor was $2.93 a share.

The after column is the March 31 balance sheet with the $64.5 million applied to the debt.

That 41-cent drop, across 209 million existing shares, is about $85 million taken from the people who already owned the stock. About $81 million of it went to the buyers of the new shares, who paid $69 million for roughly $150 million of floor. Fees and expenses took the other $4.5 million. The market noticed. The stock closed at $1.78 the day the sale was priced and at $1.26 the next day, down 29%.

Did they need the money?

A company that can't pay its bills will sell stock at any price, so we checked whether that was the case here. It wasn't.

From 2020 through 2025, Ring's cash from operations covered its drilling spending every year, with about $260 million left over in total. Only the first half of 2026 came up short, by about $6 million. The banks didn't force the sale either. Ring's borrowing base stayed at $585 million through the lenders' May review, about $159 million of it was unused before the sale, and the company reported that it met all of its loan covenants.

So where did the debt come from? Acquisitions. From 2022 through 2025 Ring paid about $340 million in cash for wells bought from other companies (Stronghold, Founders and Lime Rock), more than the business had left over after drilling. The credit line went from $367 million at the end of 2019 to $420 million at the end of 2025, and the interest on it cost $40.4 million in 2025 alone.

What did the company get for the May sale? About $5.5 million a year less interest, and room on the credit line to borrow again. The offering document says Ring will keep looking for acquisitions. What did the existing shareholders give up? About $85 million.

Not the first time

May 2026 was not unusual. Every time Ring has sold shares since 2020, whether for cash, to pay for an acquisition, or through warrants, the price has been a fraction of the floor at the time.

The floor in each row is the nearest year-end standardized measure, less net debt, per share. For 2020 we use the year-end 2020 figure, which reflects that year's oil price crash; the last figure on file when the deal was done was $8.33. The 2020 range is with and without the pre-funded warrants not yet exercised at year-end. The Stronghold price is the value the company recorded for those shares at closing. In April 2023 the stock was at $2.10 when Ring agreed to cut the warrant price to $0.62.

The share count is almost four times what it was at the end of 2019: 68 million then, 260.5 million now. Over the same years no cash went back to shareholders, as dividends or as buybacks. In its 2022 annual report, the year of the Stronghold deal, the company wrote that its financial strategy would "focus on delivering competitive debt-adjusted per share returns."

Why the gap doesn't close

A stock below its floor only catches up when the owners actually get the value. That happens when the company buys back its cheap shares, pays out cash, or sells itself for something close to what the reserves are worth. Ring has done none of these. Instead, whenever management wants capital, it can sell more shares below the floor, and every sale lowers the floor for everyone who already owns the stock. Investors know this and price it in. The value is real. It just isn't going to the shareholders.

What would change our view? Ring paying down debt from its own cash flow, no more shares sold below the floor, and cash going back to shareholders. The record so far points the other way.

So we add one more question when the market price looks cheap against our valuation: "What does management do with the gap when they see it?" Buying back shares closes that gap and benefits all shareholders. Selling new shares below the floor drives the price lower.

A note on process: this post was written in collaboration with an AI assistant. That should surprise no one — an automated analyst pipeline is what this site is. The valuation model, the numbers, and the sensitivity runs come from that pipeline; the assistant also helped assemble the fact base, check claims against the filings, and draft passages of this post. The thesis, the judgment calls, and the final words are mine. It ships under my name because the responsibility is mine — including any errors.