What happened

Shares of U.S. exploration and production company Ring Energy (NYSEMKT:REI) fell just over 14% at one point during early trading on Wednesday. At roughly 1:30 p.m. EST, the stock was still lower by 11%. There were two issues behind the negative mood.

So what

Generally weak oil and natural gas prices were partly to blame. Relatively tiny Ring Energy (with a $350 million market cap) drills oil and gas, so the prices of these commodities have direct and material impact on the company's top and bottom lines. When energy prices go down, investors often sell the stock, too. However, Ring also released earnings after the market close on Tuesday. 

A person in protective gear with pipes and an oil rig in the background.

Image source: Getty Images.

The energy company's earnings were a little bit of a mixed bag. For example, revenue of $49.4 million dollars in the third quarter of 2021 was up from $31.5 million in the same period in 2020. Costs were roughly flat, leading to a material improvement in earnings, which jumped to a per-share profit of $0.12 versus a loss of $0.16 in the prior year. The biggest benefit was the material increase in oil and gas prices over the past 12 months. And while hedging was a $6.7 million profit headwind this quarter, that was a vast improvement over the $35.3 million derivative loss Ring got hit with in the second quarter of the year. That said, the company sold roughly 5% fewer barrel of oil equivalents in the third quarter of 2021 than it did in the same stanza of 2020. To some extent, that suggests that it hasn't been able to take full advantage of the rising price environment. Even in the fourth quarter, Ring is only guiding for daily production to be slightly higher, at the low end, than it was a year ago.

So what

Although Ring Energy's production numbers show constraint, which has historically not been a hallmark of small U.S. producers, it probably has some investors concerned that the company won't fully participate in the current energy upturn. Meanwhile, the stock is up over 500%, even after today's drop, suggesting that Wall Street had been expecting very good things overall. Given the mixed earnings picture, and weak energy prices today, it's not surprising that investors were in a dour mood here. That said, if you are looking for energy exposure, unless you are a very aggressive investor willing to closely track small stocks, you'll probably be better off with a larger more diversified name like ExxonMobil or Chevron.

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