UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of
the Securities Act of 1934
Commission File No. 333-42641
RAM ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1535102
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 East Skelly Drive, Suite 650
Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 663-2800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendments to this
Form 10-K. _____
As of March 26, 1999, there were 2,727,000 shares of
the registrant's $.01 par value Common Stock outstanding. The
Common Stock is privately held by affiliates of the registrant.
Documents incorporated by reference: None
<PAGE>
RAM ENERGY, INC.
Annual Report on Form 10-K
for the Year Ended December 31, 1998
Table of Contents
Item
Number Page
- ------ ----
PART I
1 Business
2 Properties
3 Legal Proceedings
4 Submission of Matters to a Vote of Security Holders
PART II
5 Market for Registrant's Common Equity and Related
Matters
6 Selected Financial Data
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
7A Quantitative and Qualitative Disclosure About Market
Risk
8 Financial Statements and Supplementary Data
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
10 Directors and Executive Officers of the Registrant
11 Executive Compensation
12 Security Ownership of Certain Beneficial Owners and
Management
13 Certain Relationships and Related Transactions
PART IV
14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
<PAGE>
PART I
Item 1 Business
General
RAM Energy, Inc. ("RAM Energy" and, together with its
subsidiaries, the "Company") is an independent oil and gas
company engaged in the acquisition, development, exploration and
production of oil and gas properties primarily in the
Mid-Continent Area and in the Permian Basin. At December 31,
1998, the Company's estimated net proved reserves were 109.9 Bcf
of natural gas and 3.7 MMBbls of oil, or 132 Bcfe, with a PV-10
Value of approximately $85 million and a reserve life of
approximately 11.6 years. As of such date, the Company operated
697 wells, a 169-mile oil and gas gathering system and a
saltwater disposal operation. The Company's interests in the
wells it operates represented approximately 62% of its PV-10
Value at December 31, 1998. The Company has grown principally
through producing property acquisitions, acquiring approximately
$242 million of oil and gas properties since inception, including
its acquisition of Carlton Resources, Inc. (the "Carlton
Acquisition") which was consummated on February 24, 1998, the
Ricks Acquisition described under "Recent Events," and through
its affiliate RVC Energy, Inc. ("RVC").
From 1989 to November 1996, the Company primarily developed
and operated oil and gas properties owned jointly by RAM Energy
and an institutional limited partnership (the "Partnership").
During that eight-year period, the Company drilled 225 oil and
gas wells with a 95% success rate, which is not necessarily
indicative of its future drilling success rate. The Partnership
distributed a substantial portion of the net cash flows from
these properties to its partners and the Company did not invest
significantly in its asset base.
In November 1996, RAM Energy acquired the limited partner's
interest in the Partnership and subsequently liquidated the
Partnership and distributed all of its oil and gas properties and
other assets to RAM Energy (the "Partnership Acquisition"). The
Company then adopted its current strategy of aggressively
managing its existing properties and seeking acquisitions and
exploration opportunities to grow its revenues, production and
cash flow. From December 1, 1996 to December 31, 1998, the
Company drilled 91 oil and gas wells, all but four of which were
successfully completed. The Company does not have information
with respect to Carlton's drilling success rates. As a result of
the Partnership Acquisition and the Carlton Acquisition, the
Company is pursuing a more aggressive growth strategy, which may
lead to drilling results that differ from the Company's
historical drilling success rate. The Company has identified
approximately 190 development and exploitation opportunities on
its properties. These opportunities are located primarily in
intermediate depth, normally pressured reservoirs and generally
involve moderate drilling and completion costs. The Company also
intends to continue to pursue oil and gas acquisition and
exploration opportunities.
Forward-Looking Statements
The description of the Company's plans set forth herein,
including planned capital expenditures and acquisitions, are
forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. These plans involve a number or risks and uncertainties.
Important factors that could cause actual capital expenditures,
acquisitions activity or the Company's performance to differ
materially from the plans include, without limitation, prices
received for its oil and gas production, the Company's ability to
satisfy the financial covenants of its outstanding debt and to
raise additional capital; the Company's ability to manage its
growth successfully and to compete effectively in its oil and gas
business against competitors with greater financial, technical,
marketing and other resources; and adverse regulatory changes.
Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to update or revise
these forward-looking statements to reflect events or
circumstances after the date hereof including, without
limitation, changes in the Company's business strategy or planned
capital expenditures, or to reflect the occurrence of
unanticipated events.
Strategy
The Company's primary goal is to increase reserves,
production and operating cash flow through the acquisition,
development and exploration of oil and gas properties. Key
elements of the Company's growth strategy include the following:
Expand Core Areas. Approximately 90% of the Company's PV-10
Value as of December 31, 1998, is in the Mid-Continent Area and
the Permian Basin, and, in these areas, the Company operates a
high percentage of the wells in which it owns interests. The
Company believes that its geographic concentration and operating
control within these core areas provide it with focused,
efficient operations. The Company plans to continue to pursue
acquisitions and exploration opportunities within its core areas
but will evaluate opportunities elsewhere that could result in
the establishment of new core areas.
Complete Selective Oil and Gas Acquisitions. The Company
seeks to acquire producing oil and gas properties that provide
opportunities for reserve additions and increased cash flow
through operating improvements, production enhancement and
additional development and exploratory drilling. The Company
believes these criteria are met in regions that are characterized
by long histories of production and multiple producing oil and
gas horizons, such as the Mid-Continent Area and the Permian
Basin. As part of its growth strategy, the Company intends to
evaluate acquisitions in other regions where it can add producing
properties, undeveloped acreage and personnel to establish
concentrated operations and economies of scale.
Develop and Exploit Existing Oil and Gas Properties. The
Company has identified approximately 190 infill drilling,
recompletion, enhanced recovery and workover opportunities on its
properties, and plans to pursue these relatively lower-risk
development activities, as well as selective exploration
activities.
Increase Emphasis on Exploration Activities. The Company
intends to acquire additional 3-D seismic data on approved
exploration prospects located in the Mid-Continent Area and the
Permian Basin. The Company plans to drill an initial exploratory
well in each prospect which the seismic data indicates as an
attractive exploration target. The Company currently employs
three exploration geologists, one exploration landman and has
project specific consulting relationships with two geophysicists.
In addition, the Company is actively seeking and presently is
evaluating opportunities to expand its exploration program in
both the Mid-Continent Area and the Permian Basin.
Recent Events
The Carlton Acquisition. On February 24, 1998, the Company
acquired Carlton Resources, Inc. ("Carlton") for $41.6 million
(after certain purchase price adjustments), and on April 17,
1998, Carlton was merged into the Company. With the Carlton
Acquisition, the Company acquired interests in 360 producing oil
and gas wells, primarily located in the Carmen Field in the
Mid-Continent Area and other fields in the Mid-Continent Area,
the Permian Basin and other oil and gas producing regions. The
Company operates 231 of these wells. The Carlton Acquisition
added approximately 27.4 Bcfe of estimated net proved reserves to
the Company's reserve base, as of December 31, 1998 (net of 2.1
Bcfe of production for the year 1998 since the date of
acquisition and 1.2 Bcfe downward revision of reserves due to
lower year-end 1998 prices). The properties acquired in the
Carlton Acquisition include an attractive combination of
established, long-life production, development and exploratory
drilling opportunities, with over 60 identified projects, and
have an estimated reserve life of approximately 13 years.
As part of the Carlton Acquisition, the Company acquired,
and currently owns and operates, the Carmen System, a 169-mile
oil and gas gathering system and a saltwater disposal operation
in the Carmen Field of the Mid-Continent Area. The Carmen System
purchases, transports and markets oil and gas production and
disposes of produced water from properties owned by the Company
and other oil and gas companies. The Company operates 125 of the
186 producing wells currently dedicated to the Carmen System.
Since the Carlton Acquisition, the Company has connected seven
additional wells (five of which were drilled by the Company) to
the Carmen System.
The Carmen System purchases oil and gas at the lease and
transports the production, with associated saltwater, to a
collection and separation facility operated by the Company. From
this point, the natural gas is delivered to a processing and
compression facility operated by Continental Gas, Inc. After
processing, gas volumes are returned to the Company and sold into
a variety of delivery points. Oil purchasing and gathering,
saltwater gathering and saltwater disposal comprise an integrated
operation whereby oil and saltwater are gathered at the lease and
subsequently measured and transported to a central facility
through the liquids gathering line. Upon separation, the oil is
aggregated and sold at a central sales point to a number of crude
purchasers, and the saltwater is disposed into the Company's
saltwater disposal well.
Notes Offering. On February 24, 1998, RAM Energy completed
an offering of $115.0 million of 11-1 2% Senior Notes due 2008
(the "Notes"), and received net proceeds of $108.3 million. The
Indenture relating to the Notes contains certain covenants,
including, but not limited to, covenants that limit:
o incurrence of additional indebtedness and issuances of
disqualified capital stock,
o restricted payments,
o dividends and other payments affecting subsidiaries,
o transactions with affiliates and outside directors fees,
o asset sales,
o liens,
o lines of business,
o merger, sale or consolidation, and
o non-refundable acquisition deposits.
The Indenture also contains covenants regarding the
designation of Unrestricted Subsidiaries (as defined in the
Indenture), ownership of Subsidiary Guarantors (as defined in the
Indenture) and issuance of reports. See "Description of
Indebtedness - Notes."
Ricks Acquisition. On August 17, 1998, the Company
completed a $6.5 million acquisition of a one-half interest in
certain proved undeveloped oil and gas properties of Ricks
Exploration, Inc. ("Ricks") located in south Texas (the "Ricks
Acquisition").
Concurrent with the Ricks Acquisition, the Company completed
a $2.0 million investment in RVC Energy, Inc. ("RVC") in exchange
for 49.5% of RVC's voting common stock and certain shares of
RVC's non-voting common stock. RVC is an unrestricted affiliate
of the Company.
Concurrent with the Ricks Acquisition, RVC acquired all of
Rick's interest in the proved developed producing oil and gas
properties in the same field and the remaining one-half interest
in the proved undeveloped properties for $14.6 million. On
August 31, 1998, RVC acquired all of the outstanding common stock
of Comet Petroleum, Inc. ("Comet") for $27.8 million cash. RVC
funded both acquisitions with equity contributed by its
stockholders and borrowings under its credit facility which are
non-recourse to its stockholders, including the Company.
RVC's acquisitions include 45.2 Bcfe of estimated proved
reserves at December 31, 1998. The Company's equity interest in
these reserves is estimated at 22.4 Bcfe at December 31, 1998.
The Company believes the acquired properties provide
opportunities for reserve additions and increases in cash flow
from additional developmental and exploratory drilling. The
Company has been designated as the operator of all oil and gas
properties acquired from Ricks and a majority of the Comet
properties formerly operated by Comet and its affiliates.
Exploration Program. The Company has placed new emphasis on
an expanded exploration program to find and develop new reserves
to enhance and replace its current reserve base. The Company
presently employs three exploration geologists, one exploration
landman and has project specific consulting relationships with
two geophysicists. Consistent with this strategy, the Company
recently acquired and currently is evaluating 3-D seismic data
covering 35 square miles in an area of the Permian Basin in which
the Company presently owns a substantial leasehold position and
has options to acquire leases on a significant amount of the
unleased acreage. It is likely that an exploratory well will be
drilled on this prospect sometime in late 1999. The Company
expects to have the opportunity to participate in another
exploration project covering approximately 50 square miles in the
Permian Basin, including the right to acquire an undivided 15%
interest in undeveloped leases covering 20,000 acres and access
to recently acquired 3-D seismic data covering the area. In
addition, the Company has signed a definitive agreement to
conduct a 3-D seismic program on a large area of substantially
undeveloped acreage in northwestern Oklahoma, to further explore
and confirm leads identified on the acreage by 2-D seismic and
geologic analysis. The gathering of seismic data on the initial
20 square mile block will commence in June, 1999, and if
successful, additional seismic operations will be conducted on
similar blocks within the area throughout the remainder of the
year. The Company will own 50% of the project and will operate
all wells drilled by the participant group.
Net Production, Unit Prices and Costs
The following table presents certain information with
respect to oil and gas production, prices and costs attributable
to all oil and gas properties owned by the Partnership and the
Company for the periods shown:
Partnership Company
------------- -----------------------
Eleven Months
Ended
November 30, Year Ended December 31,
------------ -----------------------
1996(1) 1996 1997 1998
------- ---- ---- ----
Operating Data:
Production volumes:
Natural gas (MMcf)(2) 6,714 632 6,686 8,795
Oil and condensate (MBbls)(2) 533 53 467 520
Total (MMcfe) 9,914 941 9,487 11,916
Average realized prices(3):
Natural gas (per Mcf) $2.04 $3.42 $2.36 $2.24
Oil and condensate (per Bbl) 18.25 21.58 17.08 11.81
Per Mcfe 2.37 3.48 2.50 2.17
Expenses (per Mcfe):
Lease operating (including
production taxes) 0.77 0.88 0.71 0.72
Depreciation and amortization 0.52 1.05 0.92 1.15
General and administrative(4) 0.32 1.26 0.47 0.30
______________
(1) Partnership operations were effectively terminated on a
stand-alone basis on November 30, 1996 upon consummation of
the Partnership Acquisition.
(2) Reflects changes in reporting of natural gas liquids as oil
rather than natural gas as reported previously.
(3) Reflects the actual realized prices received by the Company,
including the results of the Company's hedging activities.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) For the Partnership, includes management fees and operator
overhead fees charged to the Partnership by RAM Energy
during the period. For the Company, general and
administrative expense is net of management fees, operator
overhead fees and consulting fees, if any, received by RAM
Energy from the Partnership.
Producing Wells
The following table sets forth the number of productive
wells in which the Company owned an interest as of December 31,
1998:
Gross Net
----- ---
Natural gas 903 212
Oil 1,354 238
----- ---
Total 2,257 450
===== ===
Productive wells consist of producing wells and wells
capable of production, including gas wells awaiting pipeline
connections and oil wells awaiting connection to production
facilities. Wells that are completed in more than one producing
horizon are counted as one well.
Acreage
The following table sets forth the Company's developed and
undeveloped gross and net leasehold acreage as of December 31,
1998:
Gross Net
----- ---
Developed 288,679 105,231
Undeveloped 38,244 7,617
------- -------
Total 326,923 112,848
======= =======
Approximately 83% of the Company's net acreage was located
in the Mid-Continent Area and Permian Basin as of December 31,
1998. Undeveloped acreage includes leased acres on which wells
have not been drilled or completed to a point that would permit
the production of commercial quantities of oil and gas,
regardless of whether or not such acreage is held by production
or contains proved reserves. A gross acre is an acre in which an
interest is owned. A net acre is deemed to exist when the sum of
fractional ownership interests in gross acres equals one. The
number of net acres is the sum of the fractional interests owned
in gross acres.
Drilling Activities
During the periods indicated, the Company drilled the
following wells.
1996 1997 1998
------------- ------------- -------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Development wells:
Productive 19 2.8 29 5.6 53 16.1
Non-productive 1 0.2 4 1.5
-- --- -- --- -- ----
Total 20 3.0 29 5.6 57 17.6
== === == === == ====
Oil and Gas Marketing and Hedging
The Company's oil and gas production is sold primarily under
market sensitive or spot price contracts. Until the third quarter
of 1998 the Company sold substantially all of its casinghead gas
to purchasers under varying percentage-of-proceeds contracts. By
the terms of these contracts, the Company received a fixed
percentage of the resale price received by the purchaser for
sales of natural gas and natural gas liquids recovered after
gathering and processing the Company's gas. The Company received
between 84% and 100% of the proceeds from natural gas sales and
from 40% to 100% of the proceeds from natural gas liquids sales
received by the purchasers of the Company's production when the
products were resold. The natural gas and natural gas liquids
were sold primarily based on spot market prices. The revenues
received by the Company from the sale of natural gas liquids are
included in crude oil sales. During 1998, the Company converted
some of these percentage of proceeds contracts to "keep whole"
contracts wherein the Btu content of the natural gas liquids is
added to the natural gas proceeds. During the year ended
December 31, 1998, two purchasers accounted for approximately 43%
of the Company's crude oil and natural gas sales and one customer
accounted for approximately 80% of gathering system revenue. The
Company believes that there are numerous other companies
available to purchase the Company's crude oil and natural gas and
that the loss of any or all of these purchasers would not
materially affect the Company's ability to sell crude oil and
natural gas.
Periodically the Company utilizes various hedging strategies
to manage the price received for a portion of its future oil and
gas production. The Company does not establish hedges in excess
of its expected production. These strategies customarily involve
contracts for specified monthly volumes at prices determined with
reference to the natural gas futures market or swap arrangements
that establish an index-related price above which the Company
pays the hedging partner and below which the Company is paid by
the hedging partner. These contracts allow the Company to predict
with greater certainty the effective oil and gas prices to be
received for its production and benefit the Company when market
prices are less than the fixed prices under its hedging
contracts. However, the Company will not benefit from market
prices that are higher than the fixed prices in such contracts
for its hedged production. At December 31, 1998, the Company had
hedging contracts in place covering 18,500 MMbtu per day
(approximately 73% of its estimated gas production) for January
through March 1999 at an average price of $2.64 per MMbtu and
6,000 MMbtu per day (approximately 28% of estimated gas
production) for April 1999 through March 2000 at an average price
of $2.19 per MMbtu. For the year ended December 31, 1998 the
Company's hedging strategies added $0.28 per Mcf to gas prices
realized. The effects of these activities in years prior to 1998
were not significant. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations General."
The Company has only limited involvement with derivative
financial instruments, as defined in SFAS No. 119 "Disclosure
About Derivative Financial Instruments and Fair Value of
Financial Instruments" and does not use them for trading
purposes. The Company's objective is to hedge a portion of its
exposure to price volatility from producing oil and gas. These
arrangements expose the Company to credit risk of its
counterparties and to basis risk.
Employees
As of December 31, 1998, the Company had 73 employees, 25 of
whom were administrative, accounting or financial personnel and
48 of whom were technical and operations personnel. The Company's
future success will depend partially on its ability to attract,
retain and motivate qualified personnel. The Company is not a
party to any collective bargaining agreements and has not
experienced any strikes or work stoppages. The Company considers
its relations with its employees to be satisfactory.
Competition
The oil and gas industry is highly competitive. The Company
competes for the acquisition of oil and gas properties, primarily
on the basis of the price to be paid for such properties, with
numerous entities including major oil companies, other
independent oil and gas concerns and individual producers and
operators. Many of these competitors are large, well established
companies and have financial and other resources substantially
greater than those of the Company. The Company's ability to
acquire additional oil and gas properties and to discover
reserves in the future will depend upon its ability to evaluate
and select suitable properties and to consummate transactions in
a highly competitive environment.
Item 2 Properties
Principal Oil and Gas Properties and Oil and Gas Reserves
The Company's oil and gas properties located in the
Mid-Continent Area and the Permian Basin comprised approximately
71% and 19%, respectively, of the Company's PV-10 Value as of
December 31, 1998. These regions are large, well established oil
and gas producing basins with activities dating from the early
1900s and are characterized by numerous known producing horizons
ranging from shallow oil and gas production to deep gas
reservoirs. The Company owns interests in numerous properties
which provide opportunities to increase reserves and production
through additional development, recompletions, enhanced recovery
methods and the use of 3-D seismic technology. The Company's
interests in the wells it operates represented approximately 62%
of its PV-10 Value at December 31, 1998. Substantially all of
the Company's oil and gas properties are mortgaged to secure the
Company's obligations under a Second Amended and Restated Credit
Agreement dated as of February 3, 1998, among RAM Energy, Inc.,
as Borrower, the Banks (as described therein) and Union Bank of
California, N.A., as Agent for the Banks.
The following table provides information for the Company's
major fields as of December 31, 1998.
Net Proved Reserves for Principal Oil and Gas Properties
Gas % of Total
Oil Gas Equivalent PV-10
Area (MBbl) (MMcf) (MMcfe) Value
---- ------ ------ ---------- ----------
Mid-Continent 1,925 76,463 88,014 70.9
Permian Basin 1,336 20,868 28,887 18.8
Gulf Coast 202 11,335 12,549 8.6
Other 190 1,228 2,363 1.7
------ ------- ------- ------
Total net proved reserves 3,653 109,894 131,813 100.0
====== ======= ======= ======
Mid-Continent Area. In the Mid-Continent Area, the Company
owns interests in 1,695 wells and operates 468 of those wells.
During 1998 the Company participated in the successful drilling
and completion of 49 wells. The wells drilled in 1998 were all
natural gas wells, primarily production from the Red Fork, Prue,
Skinner and Mississippi formations, ranging in depth from 6,000
to 13,000 feet. Future development plans include the drilling of
88 additional infill locations and 19 recompletions.
Permian Area. In the Permian Area, the Company owns
interests in 697 wells and operates 184 of those wells.
Following the Rick's Acquisition, the Company drilled and
completed a 9,200 foot Strawn gas well in Val Verde County,
Texas. Future development plans in this area include the
drilling of 11 additional infill wells and 12 recompletions.
Because of price depression, the Company elected in 1998 to
suspend the drilling of oil wells in the Permian Area.
Gulf Coast Area. In the Gulf Coast Area, the Company owns
interests in 62 wells and operates 44 of those wells. Principal
Company activity in this area focused upon a field located in
Acadia Parish, Louisiana, where the Company completed the
reprocessing of 3-D seismic and the successful commencement of
recompletion operations. Subsequent engineering study in this
area has resulted in the identification of 22 recompletion
candidates for future exploitation ranging in depth from 9,000 to
11,000 feet.
Oil and Gas Reserves
The following table summarizes the estimates of the
Company's historical net proved reserves and the related present
values of such reserves at the dates shown. The reserve and
present value data for the Company's oil and gas properties as of
December 31, 1996, 1997 and 1998 were prepared by Forrest A. Garb
& Associates, Inc. ("Garb & Associates").
December 31,
------------------------------------------
1996 1997 1998(1) 1998(2)
Reserve Data:
Proved developed reserves:
Natural gas (MMcf) 62,319 56,516 77,035 77,788
Oil and condensate (MBbls) 3,511 2,436 2,760 3,076
Total (MMcfe) 83,385 71,132 93,595 96,247
PV-10 Value (in thousands) (1) $127,693 $80,208 $71,021 $77,128
Proved reserves:
Natural gas (MMcf) 82,885 81,912 109,894 110,717
Oil and condensate (MBbls) 4,282 3,367 3,653 4,000
Total (MMcfe) 108,577 102,114 131,812 134,719
PV-10 Value (in thousands) (1) $160,930 $104,560 $84,615 $92,627
$/Mcf $3.78 $2.81 $2.12 $2.12
$/Bbl 23.88 16.17 8.95 12.75
_______________
(1) PV-10 Value represents the present value of estimated future
net revenues before income tax discounted at 10%, using
prices in effect at the end of the respective periods
presented and including the effects of hedging activities.
In accordance with applicable requirements of the Securities
and Exchange Commission (the "Commission"), estimates of the
Company's proved reserves and future net revenues are made
using oil and gas sales prices estimated to be in effect as
of the date of such reserve estimates and are held constant
throughout the life of the properties (except to the extent
a contract specifically provides for escalation). The prices
used in calculating PV-10 Value as of December 31, 1998 were
$2.12 per Mcf of natural gas and $8.95 per Bbl of oil,
compared to prices used as of December 31, 1997 of $2.81 per
Mcf of natural gas and $16.17 per Bbl of oil.
(2) Reserve quantities and PV-10 Value used for purposes of this
column are based on a price of $12.75 per Bbl of oil,
compared to the $8.95 per Bbl year-end price actually
received. The $12.75 per Bbl price is more reflective than
the $8.95 year-end price of the price per Bbl that the
Company expects to receive over the life of its properties.
Actual posted prices in the field recovered to $12.75 per
Bbl on March 22, 1999. Within a relevant range, each $1.00
increase in oil price per Bbl adds approximately $2.2
million of PV-10.
Estimated quantities of proved reserves and future net
revenues therefrom are affected by oil and gas prices, which have
fluctuated widely in recent years. There are numerous
uncertainties inherent in estimating oil and gas reserves and
their values, including many factors beyond the control of the
producer. The reserve data set forth in this report represent
only estimates. Reservoir engineering is a subjective process of
estimating underground accumulations of oil and 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 of
engineering and geological interpretation and judgment. As a
result, estimates of different engineers, including those used by
the Company, may vary. In addition, estimates of reserves are
subject to revisions based upon actual production, results of
future development and exploration activities, prevailing oil and
gas prices, operating costs and other factors, which revisions
may be material. The PV-10 Value of the Company's proved oil and
gas reserves does not necessarily represent the current or fair
market value of such proved reserves, and the 10% discount factor
required by the Commission may not reflect current interest
rates, the Company's cost of capital or any risks associated with
the development and production of the Company's proved oil and
gas reserves.
In general, the volume of production from oil and gas
properties declines as reserves are depleted. Except to the
extent the Company acquires properties containing proved reserves
or conducts successful exploitation and development activities,
the proved reserves of the Company will decline as reserves are
produced. The Company's future oil and gas production is,
therefore, highly dependent upon its level of success in finding
or acquiring additional reserves.
Title to Properties
The Company believes it has satisfactory title to its
properties in accordance with standards generally accepted in the
oil and gas industry. As is customary in the oil and gas
industry, the Company makes only a cursory review of title to
farmout acreage and to undeveloped oil and gas leases upon
execution of any contracts. Prior to the commencement of drilling
operations, a title examination is conducted and curative work is
performed with respect to significant defects. To the extent
title opinions or other investigations reflect title defects, the
Company, rather than the seller of the undeveloped property, is
typically responsible to cure any such title defects at its
expense. If the Company were unable to remedy or cure any title
defect of a nature such that it would not be prudent to commence
drilling operations on the property, the Company could suffer a
loss of its entire investment in the property. The Company has
obtained title opinions on substantially all of its producing
properties. Prior to completing an acquisition of producing oil
and gas leases, the Company performs a title review on a material
portion of the leases. The Company's oil and gas properties are
subject to customary royalty interests, liens for current taxes
and other burdens that the Company believes do not materially
interfere with the use of or affect the value of such properties.
Facilities
The Company's principal executive and operating offices are
located at Suite 650, Meridian Tower, 5100 E. Skelly Drive,
Tulsa, Oklahoma 74135. The Company's finance and accounting
offices, along with the office of the Chairman, are located at
Suite 130, One Benham Place, 9400 N. Broadway Extension, Oklahoma
City, Oklahoma 73114. The Company leases all of its significant
facilities. The Company believes that its facilities are adequate
for its current needs.
Regulation
General. Various aspects of the Company's oil and gas
operations are subject to extensive and continually changing
regulation, as legislation affecting the oil and gas industry is
under constant review for amendment or expansion. Numerous
departments and agencies, both federal and state, are authorized
by statute to issue, and have issued, rules and regulations
binding upon the oil and gas industry and its individual members.
The Federal Energy Regulatory Commission (the "FERC") regulates
the transportation and sale for resale of natural gas in
interstate commerce pursuant to the Natural Gas Act of 1938 (the
"NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). In
the past, the federal government has regulated the prices at
which oil and gas could be sold. While sales by producers of
natural gas and all sales of crude oil, condensate and natural
gas liquids can currently be made at uncontrolled market prices,
Congress could reenact price controls in the future. Deregulation
of wellhead sales in the natural gas industry began with the
enactment of the NGPA in 1978. In 1989, Congress enacted the
Natural Gas Wellhead Decontrol Act (the "Decontrol Act"). The
Decontrol Act removed all remaining NGA and NGPA price and
nonprice controls affecting wellhead sales of natural gas
effective January 1, 1993.
Regulation of Sales and Transportation of Natural Gas. The
Company's sales of natural gas are affected by the availability,
terms and cost of transportation. The price and terms for access
to pipeline transportation are subject to extensive regulation.
In recent years, the FERC has undertaken various initiatives to
increase competition within the natural gas industry. As a result
of initiatives like FERC Order No. 636, issued in April 1992, the
interstate natural gas transportation and marketing system has
been substantially restructured to remove various barriers and
practices that historically limited non-pipeline natural gas
sellers, including producers, from effectively competing with
interstate pipelines for sales to local distribution companies
and large industrial and commercial customers. The most
significant provisions of Order No. 636 require that interstate
pipelines provide firm and interruptible transportation service
on an open access basis that is equal for all natural gas
suppliers. In many instances, the results of Order No. 636 and
related initiatives have been to substantially reduce or
eliminate the interstate pipelines' traditional role as
wholesalers of natural gas in favor of providing only storage and
transportation services. While the United States Court of Appeals
has upheld most of Order No. 636, certain related FERC orders,
including the individual pipeline restructuring proceedings, are
still subject to judicial review and may be reversed or remanded
in whole or in part. While the outcome of these proceedings
cannot be predicted with certainty, the Company does not believe
that it will be affected materially differently than its
competitors.
The FERC has also announced several important
transportation-related policy statements and proposed
rule changes, including a statement of policy and a request for
comments concerning alternatives to its traditional
cost-of-service ratemaking methodology to establish the rates
interstate pipelines may charge for their services. A number of
pipelines have obtained FERC authorization to charge negotiated
rates as one such alternative. Both the policy statement and
individual pipeline negotiated rate authorizations are currently
subject to appeal before the U.S. Court of Appeals for the D.C.
Circuit. In February 1997, the FERC announced a broad inquiry
into issues facing the natural gas industry to assist the FERC in
establishing regulatory goals and priorities in the post-Order
No. 636 environment. Moreover, the FERC has refined the criteria
used to distinguish non-jurisdictional gathering from
jurisdictional transportation. Similarly, the Oklahoma
Corporation Commission and the Texas Railroad Commission have
been reviewing changes to their regulations governing
transportation and gathering services provided by intrastate
pipelines and gatherers. While the changes being considered by
these federal and state regulators would affect the Company only
indirectly, they are intended to further enhance competition in
natural gas markets. The Company cannot predict what further
action the FERC or state regulators will take on these matters,
however, the Company does not believe that it will be affected by
any action taken materially differently than other natural gas
producers with which it competes.
Additional proposals and proceedings that might affect the
natural gas industry are pending before Congress, the FERC, state
commissions and the courts. The natural gas industry historically
has been very heavily regulated; therefore, there is no assurance
that the less stringent regulatory approach recently pursued by
the FERC and Congress will continue.
Oil Price Controls and Transportation Rates. Sales of crude
oil, condensate and gas liquids by the Company are not currently
regulated and are made at market prices. The price the Company
receives from the sale of these products may be affected by the
cost of transporting the products to market.
Environmental. Extensive federal, state and local laws
regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment affect
the Company's oil and gas operations. Numerous governmental
departments issue rules and regulations to implement and enforce
such laws, which are often difficult and costly to comply with
and which carry substantial civil and even criminal penalties for
failure to comply. Some laws, rules and regulations relating to
protection of the environment may, in certain circumstances,
impose strict liability for environmental contamination,
rendering a person or entity liable for environmental damages and
cleanup costs without regard to negligence or fault on the part
of such person or entity. Other laws, rules and regulations may
restrict the rate of oil and gas production below the rate that
would otherwise exist or even prohibit exploration and production
activities in sensitive areas. In addition, state laws often
require various forms of remedial action to prevent pollution,
such as closure of inactive pits and plugging of abandoned wells.
The regulatory burden on the oil and gas industry increases the
Company's cost of doing business and consequently affects the
Company's profitability. The Company believes that it is in
substantial compliance with current applicable environmental laws
and regulations and that continued compliance with existing
requirements will not have a material adverse impact on the
Company's operations. However, environmental laws and regulations
have been subject to frequent changes over the years, and the
imposition of more stringent requirements could have a material
adverse effect upon the capital expenditures or competitive
position of the Company.
The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") imposes liability, without regard to
fault or the legality of the original act, on certain classes of
persons that are considered to be responsible for the release of
a "hazardous substance" into the environment. These persons
include the current or former owner or operator of the disposal
site or sites where the release occurred and companies that
disposed or arranged for the disposal of hazardous substances at
the disposal site. Under CERCLA such persons may be subject to
joint and several liability for the costs of investigating and
cleaning up hazardous substances that have been released into the
environment, for damages to natural resources and for the costs
of certain health studies. Comparable state statutes also impose
liability on the owner or operator of a property for remediation
of environmental contamination existing on such property. In
addition, companies that incur liability frequently confront
third party claims because it is not uncommon for neighboring
landowners and other third parties to file claims for personal
injury and property damage allegedly caused by hazardous
substances or other pollutants released into the environment from
a polluted site.
The Company currently owns or leases, and has in the past
owned or leased, numerous properties that have been used for the
exploration and production of oil and gas and for other uses
associated with the oil and gas industry. Although the Company
has followed operating and disposal practices that it considered
appropriate under applicable laws and regulations, hydrocarbons
or other wastes may have been disposed of or released on or under
the properties owned or leased by the Company or on or under
other locations where such wastes were taken for disposal. In
addition, the Company owns or leases properties that have been
operated by third parties in the past. The Company could incur
liability under CERCLA or comparable state statutes for
contamination caused by wastes it generated or for contamination
existing on properties it owns or leases, even if the
contamination was caused by the waste disposal practices of the
prior owners or operators of the properties.
The Federal Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 ("RCRA"),
regulates the generation, transportation, storage, treatment and
disposal of hazardous wastes and can require cleanup of hazardous
waste disposal sites. RCRA currently excludes drilling fluids,
produced waters and other wastes associated with the exploration,
development or production of oil and gas from regulation as
"hazardous waste." A similar exemption is contained in many of
the state counterparts to RCRA. Disposal of such non-hazardous
oil and gas exploration, development and production wastes
usually is regulated by state law. Other wastes handled at
exploration and production sites or used in the course of
providing well services may not fall within this exclusion.
Moreover, stricter standards for waste handling and disposal may
be imposed on the oil and gas industry in the future. From time
to time legislation has been proposed in Congress that would
revoke or alter the current exclusion of exploration, development
and production wastes from the RCRA definition of "hazardous
wastes" thereby potentially subjecting such wastes to more
stringent handling and disposal requirements. If such legislation
were enacted, or if changes to applicable state regulations
required the wastes to be managed as hazardous wastes, it could
have a significant impact on the operating costs of the Company,
as well as the oil and gas industry in general.
The Company's operations are also subject to the Clean Air
Act (the "CAA") and comparable state and local requirements.
Amendments to the CAA were adopted in 1990 and contain provisions
that may result in the gradual imposition of certain pollution
control requirements with respect to air emissions from
operations of the Company. The Company may be required to incur
certain capital expenditures in the next several years for air
pollution control equipment in connection with obtaining and
maintaining operating permits and approvals for air emissions.
However, the Company believes its operations will not be
materially adversely affected by any such requirements, and the
requirements are not expected to be any more burdensome to the
Company than to other similarly situated companies involved in
oil and gas exploration and production activities or well
servicing activities.
The Federal Water Pollution Control Act of 1972 (the
"FWPCA") imposes restrictions and strict controls regarding the
discharge of wastes, including produced waters and other oil and
gas wastes, into navigable waters. These controls have become
more stringent over the years, and it is probable that additional
restrictions will be imposed in the future. Permits must be
obtained to discharge pollutants into state and federal waters.
The FWPCA provides for civil, criminal and administrative
penalties for unauthorized discharges of oil and other hazardous
substances and imposes substantial potential liability for the
costs of removal or remediation. State laws governing discharges
to water also provide varying civil, criminal and administrative
penalties and impose liabilities in the case of a discharge of
petroleum or its derivatives, or other hazardous substances, into
state waters. In addition, the Environmental Protection Agency
has promulgated regulations that require many oil and gas
production sites, as well as other facilities, to obtain permits
to discharge storm water runoff. The Company believes that
compliance with existing requirements under the FWPCA and
comparable state statutes will not have a material adverse effect
on the Company's financial condition or results of operations.
The Company maintains insurance against "sudden and
accidental" occurrences which may cover some, but not all, of the
risks described above. Most significantly, the insurance
maintained by the Company may not cover the risks described above
which occur over a sustained period of time. Further, there can
be no assurance that such insurance will continue to be available
to cover all such costs or that such insurance will be available
at premium levels that justify its purchase. The occurrence of a
significant event not fully insured or indemnified against could
have a material adverse effect on the Company's financial
condition and results of operations.
Regulation of Oil and Gas Exploration and Production.
Exploration and production operations of the Company are subject
to various types of regulation at the federal, state and local
levels. Such regulations include requiring permits and drilling
bonds for the drilling of wells, regulating the location of
wells, the method of drilling and casing wells, and the surface
use and restoration of properties upon which wells are drilled.
Many states also have statutes or regulations addressing
conservation matters, including provisions for the unitization or
pooling of oil and gas properties, the establishment of maximum
rates of production from oil and gas wells and the regulation of
spacing, plugging and abandonment of such wells. Some state
statutes limit the rate at which oil and gas can be produced from
the Company's properties.
Item 3 Legal Proceedings
From time to time, the Company is party to litigation or
other legal proceedings that it considers to be a part of the
ordinary course of its business. The Company is not involved in
any legal proceedings, nor is it party to any pending or
threatened claims, that could reasonably be expected to have a
material adverse effect on its financial condition or results of
operations.
Magic Circle Energy Corporation ("MCEN"), which became a
first tier subsidiary of the Company following the merger of
Carlton with and into the Company on April 10, 1998, beneficially
owns the Carmen System and substantially all of the oil and gas
properties acquired in connection with the Carlton Acquisition.
In 1985, MCEN filed a Chapter 11 bankruptcy reorganization
proceeding in the United States Bankruptcy Court for the Western
District of Oklahoma (No. 85-1366-B). Pursuant to the MCEN Plan
of Reorganization (the "Bankruptcy Plan") confirmed by the
Bankruptcy Court in 1987, MCEN transferred the undeveloped
portion of certain oil and gas leases on which there were
producing wells owned by limited partnerships for which MCEN is
the general partner (the "Subject Partnerships") to another
limited partnership (the "Creditors' Partnership") created for
the benefit of the secured creditors of MCEN and as to which a
subsidiary of MCEN is the general partner. As part of the
Bankruptcy Plan, the Creditors' Partnership issued to the secured
creditors promissory notes secured by liens on the assets of the
Creditors' Partnership. In 1993, MCEN purchased these notes and
liens. Following such purchase of notes and liens, in December
1994, two limited partners of certain of the Subject Partnerships
filed claims in the bankruptcy proceeding against MCEN asserting
that MCEN, as general partner, (i) did not adequately represent
the Subject Partnerships in the bankruptcy proceeding,
(ii) wrongfully transferred assets of the Subject Partnerships to
the Creditors' Partnership, and (iii) breached the partnership
agreements of the Subject Partnerships. The claimant-limited
partners also sought to quiet title to the leases transferred to
the Creditors' Partnership and damages against MCEN for unjust
enrichment.
In February 1996, the claimant-limited partners also filed
an action against MCEN in the District Court of Oklahoma County,
Oklahoma (No. CJ-96-791-63), seeking an accounting and
unspecified damages for an alleged breach of fiduciary duty
arising out of the same facts and circumstances alleged in the
bankruptcy court action. On April 24, 1998, the state court
ruled that the proper parties for an accounting were not before
the court and that the case could go forward only if converted to
a class action and properly certified as such. The plaintiffs
have taken no action to attempt to certify a class and the case
remains stayed.
On April 30, 1998, the bankruptcy court granted summary
judgment to MCEN on the plaintiffs' unjust enrichment claims but
denied summary judgment on the quiet title claims, rejecting
MCEN's assertion that such claims were barred by limitations or
laches. However, the court abstained from ruling on the quiet
title claims, finding that under the circumstances such claims
were in the nature of a claim for an accounting, and relinquished
jurisdiction of such claims to the state court in the pending
state court action. MCEN appealed the decision of the bankruptcy
court to the district court and on October 5, 1998, the district
court affirmed the bankruptcy court's decision. On November 4,
1998, MCEN appealed the district court's decision to the United
States Court of Appeals for the Tenth Circuit.
The Company intends to continue to vigorously prosecute the
appeal of the bankruptcy court decision and defend the state
court action. Although the Company cannot predict the outcome
of such litigation, if the claimant-limited partners were
successful on the merits of his claims, MCEN may be required to
assign to the Subject Partnership the undeveloped portions of
certain oil and gas leases which were transferred to the
Creditors' Partnership in 1987, or pay damages equal to the value
of such properties, which the Company believes would not be
material in amount. As part of the Carlton Acquisition, the
selling stockholders of Carlton agreed to indemnify the Company
against all damages, losses, costs and expenses suffered as a
result of the above claims to the extent such damages, losses,
costs and expenses exceed $50,000.
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters
There is no established trading market for the Company's
Common Stock. As of March 26, 1999, there were four record
holders of the Company's Common Stock. The Company sold no
equity securities during the year ended December 31, 1998 except
that on July 1, 1998 the Company granted to a person who was
neither a director, officer nor employee of the Company options
to purchase an aggregate of 50,000 shares of the Company's Common
Stock at an exercise price of $7.33 per share over a three year
period. The person to whom the options were granted is an
"accredited investor" as that term is defined in Regulation D
promulgated under the Securities Act. The Company relied on the
exemption from registration provided by Regulation D.
Item 6 Selected Financial Data
The following table sets forth certain historical
consolidated financial data with respect to each of the five
years ended December 31, 1998 which have been derived from the
Company's and its Predecessor's audited consolidated financial
statements. The historical consolidated financial data should be
read in conjunction with Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and the
audited consolidated financial statements and related notes
thereto included in Item 8.
Company Historical Financial Information
and Other Financial Data
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands, except for ratios and per share
and per unit data)
Operating Statement Data:
Revenues:
Oil and gas revenue $153 $166 $3,275 $23,737 $25,839
Gathering systems - - - - 6,123
Management fees 1,555 1,606 1,482 - -
Operator overhead fees 1,746 1,686 1,343 - -
Consulting fees 236 163 153 - -
Other 120 84 567 79 354
----- ----- ------ ------- -------
Total revenues 3,810 3,705 6,820 23,816 32,316
Expenses:
Lease operating costs
(including production
taxes) 76 77 827 6,769 8,633
Gathering System purchases - - - - 4,220
Gathering systems - - - - 496
Depreciation and
amortization 406 353 990 8,692 13,713
General and administrative 3,279 3,364 4,164 4,467 3,517
----- ----- ------ ------ -------
Total expenses 3,761 3,794 5,981 19,928 30,579
----- ----- ------ ------ -------
Operating income (loss) 49 (89) 839 3,888 1,737
Other income (expense):
Interest expense (23) (18) (541) (5,159) (13,197)
Interest income 75 73 29 83 356
Equity in income of a
partnership - - 71 - -
Equity in loss of affiliate (693)
Minority interest in a
partnership (101) (23) 10 - -
----- ----- ------ ------ -------
Income (loss) before income
taxes and extraordinary
item - (57) 408 (1,188) (11,797)
Income tax benefit - - - - (4,200)
----- ----- ------ ------ -------
Income (loss) before
extraordinary item - (57) 408 (1,188) (7,597)
Extraordinary item - - - - 1,140
----- ----- ------ ------- -------
Net income (loss) $ - $(57) $408 $(1,188) $(6,457)
===== ===== ====== ======= =======
Per Share Amounts:
Income(loss) before
extraordinary item $ - $(.02) $.15 $(.44) $(2.79)
Extraordinary item - - - - .42
----- ----- ------ ------- -------
Net income(loss) $ - $(.02) $.15 $(.44) $(2.37)
===== ===== ====== ======= =======
Weighted average common
shares outstanding (in
thousands) 2,727 2,727 2,727 2,727 2,727
===== ===== ====== ======= =======
Balance Sheet Data:
Cash and cash equivalents $1,426 $524 $1,607 $1,248 $8,603
Net property and equipment 1,014 995 54,738 50,574 134,274
Total assets 10,263 6,485 71,410 69,727 156,451
Long-term debt, including
current portion 618 49 62,984 62,225 131,739
Stockholders' deficit (1,571) (1,729) (1,321) (3,983) (10,440)
Other Financial Data:
Cash flow from operating
activities $144 $(233) $70 $8,722 $9,533
Cash flow from investing
activities (312) (8) (59,071) (8,202) (66,607)
Cash flow from financing
activities (617) (662) 60,084 (879) 64,429
Capital expenditures 79 335 250 17,985 18,361
Adjusted EBITDA (1) 429 314 1,939 12,663 15,806
Interest coverage
ratio (2) 18.65 17.44 3.58 2.45 1.20
Partnership Historical Financial
Information and Other Financial Data
Year Ended December 11 Months Ended
31, November 30,
-------------------- ---------------
1994 1995 1996(3)
---- ---- -------
Income Statement Data: (in thousands, except for ratios and per unit data)
Operating revenues:
Oil and gas $24,481 $21,802 $23,456
Other 60 139 7
------- ------- -------
Total operating revenues 24,541 21,941 23,463
Operating expenses:
Oil and gas production 9,839 9,902 7,609
Depreciation and amorti-
zation 11,608 9,808 5,114
Writedown of oil and gas
properties and equipment 8,700 - -
Management fees 1,555 1,606 1,482
Operator overhead fees 1,746 1,686 1,343
General and administrative 676 502 378
------- ------- -------
Total operating expense 34,124 23,504 15,926
------- ------- -------
Operating income (loss) (9,583) (1,563) 7,537
Other income (expense):
Interest expense (587) (809) (564)
Interest income 41 59 114
------- ------- -------
Net income (loss) $(10,129) $(2,313) $7,087
======= ======= =======
Balance Sheet Data:
Cash and cash equivalents $356 $1,266 $1,102
Net property and equipment 54,563 49,601 46,198
Total assets 62,967 57,208 115,611
Long-term debt, including
current portion 10,000 10,000 62,800
Total partners' equity 47,775 43,166 48,120
Other Financial Data:
Cash flow from operating
activities $9,969 $7,478 $10,837
Cash flow from investing
activities (5,336) (5,273) (1,621)
Cash flow from financing
activities (4,630) (1,295) (9,380)
Capital expenditures 4,325 5,380 3,310
Adjusted EBITDA(1) 10,766 8,304 12,765
Interest coverage ratio(2) 18.34 10.26 22.63
- -----------------
(1) Adjusted EBITDA is defined as earnings before interest
expense, income taxes, depreciation and amortization,
writedown of related oil and gas properties and equipment,
extraordinary items and equity in loss of affiliate.
Adjusted EBITDA is not a measure of cash flow as determined
by generally accepted accounting principles ("GAAP").
Adjusted EBITDA should not be considered as an alternative
to, or more meaningful than, net income or cash flow as
determined in accordance with GAAP or as an indicator of a
company's operating performance or liquidity. The Company
believes that Adjusted EBITDA is a widely followed measure
of operating performance and may also be used by investors
to measure the Company's ability to meet future debt service
requirements, if any.
(2) Interest coverage ratio is calculated by dividing Adjusted
EBITDA by interest expense.
(3) RAM Energy acquired the limited partner's interest in the
Partnership on November 30, 1996.
Prior to December 1996, RAM Energy conducted drilling and
development activities on behalf of and as the managing general
partner of a partnership, and the data presented below was not
meaningful for the Company. In November 1996, RAM Energy
acquired the limited partner's interest in the partnership. In
February 1998, the Company acquired Carlton Resources
Corporation. These transactions affect the comparability of the
historical operating data for the periods and is not necessarily
indicative of the Company's future performance.
<TABLE>
<CAPTION>
Partnership RAM Energy
---------------------------- -----------------------------
Year Ended 11 Months
December 31, Ended Year Ended December 31,
-------------- November -----------------------------
30,
1994 1995 1996 1996 1997 1998<F1>
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Production volumes<F2>:
Natural gas (MMcf) 8,436 8,747 6,714 632 6,686 8,795
Oil and condensate (MBbls) 695 621 533 53 467 520
Total (MMcfe) 12,605 12,476 9,914 941 9,486 11,916
Average realized prices<F2>:
Natural gas (MMcf) $1.75 $1.44 $2.04 $3.42 $2.36 $2.24
Oil and condensate (MBbls) 13.97 14.81 18.25 21.58 17.08 11.81
Total (Mmcfs) 1.94 1.75 2.37 3.48 2.50 2.17
Expense (per Mcfe):
Lease operating (including
production (taxes) 0.78 0.79 0.77 0.88 0.71 0.72
Depreciation and
amortization 0.92 0.79 0.52 1.05 0.92 1.15
General and administra-
tive<F3> 0.32 0.30 0.32 1.26 0.47 0.30
- ---------------
<FN>
<F1> Reflects the actual realized prices received by the Company,
including the results of the Company's hedging activities.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<F2> Reflects changes in reporting of natural gas liquids as oil
rather than natural gas as reported previously.
<F3> For the Partnership, includes management fees and operator
overhead fees charged to the Partnership by RAM Energy
during 1994, 1995 and the 1996 periods.
</FN>
</TABLE>
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company is an independent oil and gas company engaged in
the acquisition, development and production of oil and gas
properties primarily in the Mid-Continent Area and the Permian
Basin. The Company also operates gathering and disposal systems
in Oklahoma.
From 1989 to November 1996, the Company primarily developed
and operated oil and gas properties owned jointly by RAM Energy
and the Partnership. In November 1996 RAM Energy acquired the
limited partner's interest in the Partnership and subsequently
liquidated the Partnership and distributed all of its oil and
gas properties and other assets to RAM Energy.
In late February 1998, the Company consummated the Carlton
Acquisition, in an acquisition of stock accounted for as a
purchase, for approximately $41.6 million after certain
adjustments. With the acquisition of Carlton, the Company
acquired estimated net proved reserves of approximately 31 Bcfe
located in the Mid-Continent Area and Permian Basin, as well as
an oil and gas gathering system and salt water disposal facility
located in Oklahoma (the "Carmen System"). The results of
operations discussed below include the operations acquired as
part of the Carlton Acquisition since March 1, 1998.
The Carmen System transports gas in one transportation line
and liquids in the form of salt water and oil in a separate
transportation line. Fees are based on various contracts at both
fixed prices per unit of volume, and percentage of sales proceeds
for gas. The system serves both the Company and third parties,
but reported revenues are those derived from third parties only.
The Carlton Acquisition was financed by the public issuance
of $115.0 million in Senior Notes due 2008 (the "Notes
Offering"). Net proceeds of the Notes Offering were used to
purchase Carlton, to repay existing debt, and for working
capital.
On August 17, 1998, the Company completed the Ricks
Acquisition for $6.5 million. The Company acquired 14.2 Bcfe of
proved undeveloped reserves and undeveloped leasehold in this
transaction.
Concurrent with the Ricks Acquisition, RAM invested $2.0
million in RVC, in exchange for 49.5% of RVC's voting common
stock and certain shares of non-voting common stock. RVC is an
unrestricted affiliate of RAM and is accounted for under the
equity method.
Concurrent with the Ricks Acquisition, RVC acquired the
remaining one-half interest in the proved undeveloped properties
of Ricks and all of Ricks' interest in the proved developed
producing oil and gas properties in the same field for $14.6
million cash. On August 31, 1998, RVC acquired all of the
outstanding common stock of Comet for $27.8 million in cash. RVC
funded both acquisitions with equity contributed by its
stockholders and borrowings under its credit facility which are
non-recourse to its stockholders, including the Company.
RVC's acquisitions include 45.2 Bcfe of estimated proved
reserves at December 31, 1998. RAM's equity interest in these
reserves is estimated at 22.4 Bcfe. RVC believes the acquired
properties provide opportunities for reserve additions and
increased cash flow from additional developmental and
exploratory drilling.
The oil and gas properties acquired from Ricks and a
substantial portion of the Comet properties are located in the
Permian Basin and are in close proximity to the Company's
existing Permian Basin properties. The Company has been
designated as the operator of all oil and gas properties acquired
from Ricks and a majority of the Comet properties formerly
operated by Comet and its affiliates.
The Company's revenue, profitability and cash flow are
substantially dependent upon prevailing prices for oil and gas
and the volumes of oil and gas it produces. In addition, the
Company's proved reserves and oil and gas production will decline
as oil and gas are produced unless the Company is successful in
acquiring producing properties or conducts successful exploration
and development drilling activities.
At December 31, 1998, the Company had hedging contracts in
place covering 18,500 MMbtu per day (approximately 73% of its
estimated gas production) for January through March 1999 at an
average price of $2.64 per MMbtu and 6,000 MMbtu per day
(approximately 28% of estimated gas production) for April 1999
through March 2000 at an average price of $2.19 per MMbtu. For
the year ended December 31, 1998 the Company's hedging strategies
added $0.28 per Mcf to gas prices realized.
Historically, the Company has added reserves primarily
through acquisitions and development. In 1997 the Company
incurred $17.6 million in acquisition and development costs. For
1998 the Company expended $18.0 million for development projects
and certain exploration activities, exclusive of acquisitions.
During 1998, the Company expended $41.6 million for the Carlton
Acquisition, $6.5 million for the Ricks Acquisition and invested
$2.0 million in RVC. The Company intends to continue to pursue
attractive oil and gas acquisitions, and development and
exploration opportunities.
The Company uses the full cost method of accounting for its
investment in oil and gas properties. Under the full cost method
of accounting, all costs of acquisition, exploration and
development of oil and gas reserves are capitalized into a "full
cost pool" as incurred, and properties in the pool are amortized
and charged to operations using the future recoverable units of
production method based on the ratio of current production to
total proved reserves, computed based on current prices and
costs. Significant downward revisions of quantity estimates or
declines in oil and gas prices that are not offset by other
factors could result in a write-down for impairment of the
carrying value of oil and gas properties. Once incurred, a
write-down of oil and gas properties is not reversible at a later
date, even if oil or gas prices increase.
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December
31, 1997
Operating Revenues. Operating revenues increased by $8.5
million, or 36% for the year ended December 31, 1998 compared to
the same period in 1997, with $6.1 million of the increase due to
the inclusion in 1998 of the operations of Carlton's gathering
system. The following table summarizes oil and gas production
volumes, average sales prices and period to period comparisons,
including the effect on oil and gas operating revenues, for the
periods indicated:
Year ended 1998 Compared to 1997
------------------------------
December 31, % Increase Operating Revenue
---------------
1997 1998 (Decrease) Increase (decrease)
---- ---- ---------- -------------------
(Dollars in thousands)
Production volumes:
Natural gas (Mmcf) 6,686 8,795 31.5 % 4,968
Oil (Mbbls) 467 520 11.5 % 914
Average sale prices:
Natural gas
(per Mcf) $2.36 $2.24 ( 5.0)% (1,031)
Oil (per Bbl) $17.10 $11.81 (30.9)% (2,749)
Oil and gas revenues were higher during 1998 compared to
1997 as a result of a 26% increase in production partially offset
by a 13% decrease in realized prices, both on an Mcfe basis. Most
of the increase in production was due to the addition of
Carlton's operations following its acquisition by the Company in
February 1998. Average daily production was 32.6 MMcfe in 1998
compared to 26.0 MMcfe for 1997. Natural gas production
increased by 32% and oil production increased by 12% for the
comparable periods. The average realized sales price for natural
gas was $2.24 per Mcf for 1998, compared to $2.36 per Mcf for
1997. The average realized oil price for 1998 was $11.81 per
Bbl, compared to $17.10 per Bbl for 1997, a 31% decrease.
Oil and Gas Production Expense. Oil and gas production
expense increased by $1.9 million, or 28%, for the year ended
December 31, 1998, compared to the same period in 1997. The
increase in expense was due primarily to the addition of
Carlton's operations following its acquisition by the Company in
February 1998. The oil and gas production expense was $.72 per
Mcfe for 1998, an increase from $.71 per Mcfe compared to 1997.
Gathering System. The Carmen System is obligated to deliver
10,000 MMbtu's per day at the tail-gate of the system, and
purchases outside gas to satisfy that obligation. Revenue from
this source was $6.1 million for 1998. During 1998, outside
purchases were $4.2 million and system operating costs were $0.5
million.
Depreciation and Amortization ("D&A") Expense.
Depreciation and amortization expense increased by $5.0 million,
or 58% for 1998 compared to 1997, and was $1.15 per Mcfe for
1998, an increase of $0.23, or 26% compared to the $0.92 per Mcfe
for 1997. This increase is due primarily to the inclusion of
Carlton's operations in 1998, including the depreciation of the
Carmen System. For oil and gas D&A only, the results were $.93
per Mcfe for 1998 compared with $.86 per Mcfe for 1997, an 8%
increase.
G & A Expense. General and administrative expense decreased
$.9 million, or 21%, in 1998 compared with $4.5 million in 1997.
The decrease is due primarily to operator overhead fee
reimbursements received from unrelated interests attributable to
Carlton for 1998, and the capitalization of certain geological
and geophysical costs related to the Company's increased
exploration efforts in 1998.
Interest Expense. Interest expense increased $8.0 million
to $13.2 million for 1998 compared to $5.2 million for 1997.
This increase was attributable to higher average outstanding
indebtedness and higher effective interest rates during 1998,
resulting both from the Notes Offering and additional bank
borrowings during 1998.
Income Taxes. In connection with the Carlton Acquisition,
the Company recorded deferred income tax liabilities related to
the excess of financial bases of net assets acquired (principally
properties and equipment) over their respective bases for income
tax purposes. Prior to such date, the Company's existing net
operating loss carryforwards and the provision or credit for
income taxes had been offset by valuation allowances. Such net
liability results in the Company providing for income taxes or
credits after the date of the Carlton Acquisition.
Equity in Loss of Affiliate. This represents the Company's
49.5% equity interest in the loss of its affiliate RVC Energy,
Inc.
Extraordinary Item. During 1998, the Company purchased $7.0
million of its 11-1/2% Senior Notes due 2008. The purchase price
for the Notes was $4.8 million and after adjustments for
proportionate offering costs, accrued interest and tax effects,
resulted in a gain of $1.1 million.
Net Loss. Due to the factors described above, the Company's
net loss increased by $5.3 million, from a net loss of $1.2
million in 1997 to a net loss of $6.5 million in 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31,
1996
The results of operations for the year ended December 31,
1996, discussed herein, include results for the Partnership
through November 30, 1996, the date RAM Energy acquired the
limited partner's interest in the Partnership at which time the
Partnership's operations were effectively terminated on a stand-
alone basis, combined with results for RAM Energy for the year
1996. The following table illustrates the combination of eleven
months of 1996 Partnership operations with the annual 1996
results for RAM Energy:
1996
---------------------------------
Eleven
Months
Ended Year Ended Year Ended
November 30 December 31 December 31,
----------- ----------- ------------
Partnership RAM Energy Combined
----------- ---------- --------
(Dollars in Thousands)
Operating revenues:
Oil and gas $23,456 $3,275 26,731
Consulting fees -- 153 153
Other 7 567 574
------------------------------
Total operating revenues 23,463 3,995 27,458
Operating expenses:
Oil and gas production (including
production taxes) 7,609 827 8,436
Depreciation and amortization 5,114 990 6,104
Management fees 1,482 (1,482) --
Operator overhead fees 1,343 (1,343) --
General and administrative 378 4,164 4,542
-----------------------------
Total operating expenses 15,926 3,156 19,082
Operating income 7,537 839 8,376
Other income (expense)
Interest expense (564) (541) (1,105)
Interest income 114 29 143
Equity in income of the
Partnership -- 71 71
Minority interest in the
Partnership -- 10 10
-----------------------------
Net income $7,087 $408 $7,495
=============================
Operating Revenues. Operating revenues decreased by $3.6
million, or 13% for the year ended December 31, 1997, compared to
1996, due primarily to overall production decreases resulting
from the sale of non-core properties in early 1997. The following
table summarizes oil and gas production volumes, average sales
prices and period to period comparisons, including the effect on
oil and gas operating revenues, for the periods indicated:
Year ended 1997 Compared to 1996
December 31, --------------------------------
------------------ % Increase Operating Revenue
1996 1997 (Decrease) Increase (decrease)
---- ---- ----------- -------------------
(Dollars in thousands)
Production volumes:
Core areas:
Natural gas (Mmcf 5,918 6,414 8.4 % 1,058
Oil (Mbbls) 478 447 (6.5)% (555)
Non-core areas:
Natural gas (Mmcf 1,417 272 (80.8)% (2,609)
Oil (Mbbls) 109 20 (81.8)% (1,872)
Total production:
Natural gas (Mmcf 7,335 6,686 (8.8)% (1,401)
Oil (Mbbls) 587 467 (20.5)% (2,227)
Average sale prices:
Natural gas (per $2.16 $2.36 9.1 % 1,312
Oil (per Bbl) $18.55 $17.10 (7.8)% (678)
Oil and gas revenues were lower in 1997 compared to 1996 as
a result of a 13% decrease in production offset by a 2% increase
in realized prices, both on an Mcfe basis, due primarily to the
sale in the first quarter of 1997 of certain non-core properties
located offshore Gulf of Mexico, in the Rocky Mountain area and
in east Texas. This decrease in production resulted in a
decrease in operating revenues of $4.4 million. Average daily
production was 26.0 million cubic feet of natural gas equivalent
in 1997, compared to 29.7 million cubic feet of natural gas
equivalent during 1996, a decrease of 13%. Natural gas
production decreased by 9% and oil production decreased 21% for
the comparable periods. The average realized sales price for
natural gas was $2.36 per Mcf for the year ended December 31,
1997, compared to $2.16 per Mcf for 1996, an increase of 9%.
The average realized oil price for 1997 was $17.10 per Bbl, and
for the year ended December 31, 1996 was $18.55 per Bbl, an 8%
decrease.
Oil and Gas Production Expense. Oil and gas production
expense decreased by $1.7 million, or 20%, for 1997, compared to
1996. The oil and gas production expense was $.71 per Mcfe for
1997, a decrease from $.72 per Mcfe in 1996. This decrease in
costs was attributable primarily to the sale of certain higher
cost non-core properties, discussed above.
Depreciation and Amortization ("D&A") Expense.
Depreciation and amortization expenses increased $2.6 million, or
42% for 1997 compared with 1996, and was $.92 per Mcfe for 1997,
an increase of $.36, or 64% compared to the $.56 per Mcfe for
1996. The increase per Mcfe was caused by the Company's higher
net cost in the remaining properties at year-end 1997 than that
of the Partnership as the end of 1996.
G & A Expense. For 1997, general and administrative
expense decreased $75,000, or 1% compared to 1996.
Interest Expense. Interest expense increased to $5.2
million for 1997 compared to $1.1 million for 1996. This
increase was attributable to higher average outstanding
indebtedness and higher effective interest rates during 1997,
both resulting from bank borrowings to purchase the limited
partner's in the Partnership.
Net Income(Loss). Due to the factors described above, the
Company recorded a net loss of $1.2 million for 1997 compared
with net income for 1996 of $7.5 million.
Quarterly Results of Operations
Use of estimates. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Restatement. In preparing the 1998 financial statements,
the Company discovered that price computations and, to a lesser
extent, estimated volumes of gas and natural gas liquids had been
incorrectly calculated for interim quarterly reports, and as the
Company attempted to change existing gas contracts to "keep
whole" on a BTU basis from "percentage of proceeds" for natural
gas liquids, price computations under hedging contracts were
priced incorrectly.
In taking corrective action the Company has decided to
report natural gas liquid quantities and revenues with oil rather
than with gas. This will equate the Company's "pure natural gas"
price per Mcf (approximately the same as per MMbtu price) with
recognized industry indexes, and will not significantly distort
the Company's realized well-head price for oil on a per barrel
basis.
1998 Quarter (unaudited)
------------------------------------------------
First Second
Restated Reported Restated Reported
Operating data: ------------------------------------------------
Production volumes:
Oil (Bbls) 125,751 89,785 136,300 109,497
Gas (Mcf) 1,870,356 2,086,151 2,423,103 2,583,918
Mcfe 2,624,861 2,624,861 3,240,900 3,240,900
Realized prices:
Oil $/Bbl $10.46 $14.65 $12.10 $13.08
Gas $/Mcf 2.56 2.29 2.00 2.32
$/Mcfe 2.32 2.32 2.01 2.29
1998 Quarter (unaudited)
-------------------------
Third
Restated Reported
Operating data: ------------------------
Production volumes:
Oil (Bbls) 140,802 120,608
Gas (Mcf) 2,173,006 2,863,894
Mcfe 3,017,818 3,587,542
Realized prices:
Oil $/Bbl $11.24 $12.31
Gas $/Mcf 2.27 1.93
$/Mcfe 2.16 1.96
1998 Quarter ended (unaudited)
----------------------------------------------
June 30, 1998 September 30, 1998
Restated Reported Restated Reported
-------- -------- -------- --------
Oil and gas revenue $6,500,749 $7,428,389 $6,511,818 $7,020,982
========== ========== ========== ==========
Loss before income taxes (3,528,845) (2,601,205) (3,811,182) (3,302,018)
========== ========== ========== ==========
Net loss ($2,428,845) ($1,764,205) ($2,360,182) ($1,851,018)
========== ========== ========== ==========
Net loss per common share ($0.89) ($0.65) ($0.87) ($0.68)
========== ========== ========== ==========
Liquidity and Capital Resources
At December 31, 1998 the Company had cash and cash
equivalents of $8.6 million.
At December 31, 1998 the Company had $133.0 million ($131.8
million after giving effect to applicable original issue
discount) of indebtedness outstanding. This indebtedness
consisted primarily of $108.0 million of Senior Notes due 2008
issued in February 1998 (before giving effect to unamortized
original issue discount of $1.4 million) and $25.0 million of
advances obtained under the Credit Facility discussed below. Net
proceeds of the Notes Offering were used to repay existing debt,
fund the Carlton Acquisition, and for working capital. Pursuant
to the Indenture governing the Senior Notes, the Company may
incur up to $30.0 million in Permitted Indebtedness (as defined).
Subject to certain limitations in the Indenture, the Company may
incur additional indebtedness, including additional indebtedness
under the Credit Facility. See "-Credit Facility."
Funding for the Company's business activities has
historically been provided by operating cash flow and reserve-
based bank borrowings. The Company regularly engages in
discussions relating to potential acquisitions of oil and gas
properties or companies engaged in the oil and gas business. Any
future acquisitions may require additional debt or equity
financing which will be dependent upon financing arrangements, if
any, available at the time.
Credit Facility. The Company has a credit facility with
Union Bank of California, N.A. ("Union Bank") and Den Norske
Bank, S.A., providing for a $50.0 million revolving commitment
payable in full in February 2003 ("Credit Facility"). Advances
under the Credit Facility bear interest on a sliding scale based
on the ratio of the aggregate amount outstanding to the borrowing
base. The applicable rate may, at the Company's option, be based
either on the Eurodollar rate or the Union Bank base rate, with
the rates ranging from the Eurodollar rate plus 1.375% to 2.0% or
the Union Bank base rate plus 0.0% to 0.5%. The rate on the
balance outstanding at December 31, 1998 was 7.5%. The Company
is required to pay a commitment fee on the amount by which the
borrowing base exceeds the aggregate amount outstanding under the
Credit Facility. All amounts outstanding under the Credit
Facility are secured by a lien on all oil and gas reserves,
wells, personal property and contract rights of the Company.
The amount of credit available at any time under the Credit
Facility may not exceed the borrowing base which is subject to
redetermination at least semi-annually. The borrowing base at
December 31, 1998 was $25.0 million. The Credit Facility contains
customary covenants which, among other things, require periodic
financial and reserve reporting and limit the Company's
incurrence of indebtedness, liens, dividends, loans, mergers,
transactions with affiliates, investments and sales of assets.
Cash Flows from Operating Activities. For the year ended
December 31, 1998 cash flows from operating activities were $9.5
million compared to $8.7 million for 1997, an increase of $.8
million, or 9%.
Cash Flow from Investing Activities. For the year ended
December 31, 1998 net cash used in the Company's investing
activities was $66.6 million, including $41.6 million for the
Carlton Acquisition, $6.5 million for the Ricks Acquisition,
$18.0 million for oil and gas well drilling activities, and a
$2.0 million investment in RVC offset by $2.1 million of property
sales. The amount for 1997 was $8.2 million, of which $11.2
million was for the acquisition of oil and gas properties from
Quarles Drilling Corporation ("Quarles"), and $5.4 for oil and
gas well drilling activities, offset by $9.8 million from the
sale of oil and gas properties. The Company's budget for capital
expenditures in 1999 has not been set due to the uncertainty of
oil and gas prices.
Year 2000 Issues
The Company has assessed the effect of Year 2000 on its
information technology ("IT") and non-IT systems, to a lesser
extent, and the systems of others on which it depends. IT
systems include telecommunications and computers. Non-IT systems
include microcontrollers or other date-sensitive electronic
devices used in flow control or measurement of hydrocarbons
employed in the oil and gas producing industry. The Company owns
or operates few non-IT devices.
Company Readiness. All of the Company's telephone
systems, computers and computer operating systems are Year 2000
compliant. The Company's mainframe application software is Year
2000 compliant but presently sorts a two-digit year of "00"
before a two-digit year of "99." The software is being modified
to correct this deficiency. Approximately 95% of the system has
been re-written and is ready for testing. The project will be
completed by mid-1999, at a cost estimated to be less than
$100,000.
Readiness of Others. It is possible that non-compliance
with Year 2000 issues of other companies from which the Company
receives revenues, payments (through IT) or flow control or
measurement devices upon which it depends (non-IT), could delay
the Company's receipt of revenue attributable to its oil and gas
production. The Company currently believes that any such delay
will not materially and adversely affect the Company's financial
condition, results of operations or liquidity. The Company will
initiate a survey of each of its major sources of revenue and
cost reimbursement, and each provider of flow control and
measurement devices, to determine the status of each provider's
Year 2000 compliance and the potential effects of their non-
compliance on the Company's future financial condition, results
of operations and liquidity. The Company expects to complete the
surveys prior to June 30, 1999.
Contingency Plans. The Company has no contingency plan for
conversion of its own business application software, and none
will be formulated. With regard to contingency plans for the
failure, or possible failure, of others, each major source of
funds or non-IT dependence will be handled on a case-by-case
basis, with full preparedness by December 31, 1999.
This document contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. The forward-looking statements contained in this
release are statements that involve risks and uncertainties
including, but not limited to, market demand, the effect of
economic conditions, the result of financing efforts and risks
detailed in RAM's Securities and Exchange Commission Filings.
Item 7A Quantitative and Qualitative Disclosures about Market
Risk
On January 3, 1997, the Company entered into a $10.0 million
five-year interest rate swap with its bank. The swap provides a
ceiling to the Company and a floor to the bank of a 90-day LIBOR
interest rate of 6.46%. The carrying value of this interest rate
swap at December 31, 1998 exceeded the fair value by
approximately $419,000 representing the amount the Company would
be required to pay to terminate the contract at such date.
Item 8 Financial Statements and Supplementary Data
RAM Energy, Inc.
Consolidated Financial Statements
Years ended December 31, 1996, 1997 and 1998
Contents
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Deficiency
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
Report of Independent Auditors
The Board of Directors
RAM Energy, Inc.
We have audited the accompanying consolidated balance sheets of RAM
Energy, Inc. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' deficiency,
and cash flows for each of the three years in the period ended
December 31, 1998. We have audited the accompanying statements of
operations and cash flows of RAMCO-NYL 1987 Limited Partnership
(the "Predecessor") for the eleven-month period ended November 30,
1996. These financial statements are the responsibility of the
Company's and Predecessor's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of RAM Energy, Inc. at December 31, 1997 and 1998, and the
consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 and the
results of operations and cash flows of the Predecessor for the
eleven-month period ended November 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
March 31, 1999
<PAGE>
RAM Energy, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
December 31,
1997 1998
---- ----
Assets
Current assets (Note 4):
Cash and cash equivalents $ 1,248 $ 8,603
Accounts receivable:
Oil and gas sales 4,161 3,387
Joint interest operations, net
of allowance for doubtful
accounts of $439 in 1997 and
$358 in 1998 987 2,117
Related parties 10 147
Other 24 115
Prepaid expenses and deposits 366 431
---------- ----------
Total current assets 6,796 14,800
Properties and equipment, at cost
(Notes 4 and 12):
Oil and gas properties and equipment,
based on full cost accounting 72,696 119,697
Gathering and disposal systems - 39,184
Other property and equipment 3,500 3,781
---------- ----------
76,196 162,662
Less accumulated amortization and
depreciation 15,622 28,388
---------- ----------
Net properties and equipment 60,574 134,274
Investment in RVC Energy, Inc. (Note 2) - 1,307
Other assets:
Deferred loan costs, net of accumulated
amortization of $357 in 1997 and $715
in 1998 1,290 955
Deferred offering costs, net of accumulated
amortization of none in 1997 and $395
in 1998 (Note 4) 733 4,307
Other 334 808
---------- ----------
Total assets $69,727 $156,451
========== ==========
Liabilities and stockholders' deficiency
Current liabilities:
Accounts payable:
Trade $ 3,935 $ 6,230
Oil and gas proceeds due others 3,031 4,378
Related party - 826
Accrued liabilities:
Compensation 180 320
Interest 380 4,942
Other 270 65
Preferred stock redemption (Note 8) 1,474 -
Long-term debt due within one year (Note 4) 98 109
---------- ----------
Total current liabilities 9,368 16,870
Gas balancing liability not expected to
be settled within one year 491 735
Long-term debt due after one year (Note 4) 62,127 131,630
Other noncurrent liabilities 1,124 -
Deferred income taxes - 17,056
Commitments and contingencies (Notes 4,
6 and 10) 600 600
Stockholders' deficiency (Note 8):
Preferred stock, $.01 par value;
authorized - 5,000,000 shares;
issued and outstanding - none - -
Common stock, $.01 par value;
authorized - 15,000,000 shares;
issued and outstanding - 2,727,000
shares 27 27
Paid-in capital 16 16
Accumulated deficit (4,026) (10,483)
---------- ----------
Stockholders' deficiency (3,983) (10,440)
---------- ----------
Total liabilities and stockholders'
deficiency $69,727 $156,451
========== ==========
See accompanying notes.
<PAGE>
RAM Energy, Inc.
Consolidated Statements of Operations
(In Thousands, Except Share Amounts)
Predecessor
(Note 1) Company
------------ -------------------------------
Eleven-month
period
ended
November 30, Year ended December 31,
1996 1996 1997 1998
---- ---- ---- ----
Operating revenues:
Oil and gas sales $23,456 $ 3,275 $23,737 $25,839
Gathering system - - - 6,123
Management fees from Partnership - 1,482 - -
Operator's overhead fees from
Partnership - 1,343 - -
Consulting income from related
parties - 153 - -
Other 7 567 79 354
------- ------- ------- -------
Total operating revenues 23,463 6,820 23,816 32,316
Operating expenses:
Oil and gas production expenses 7,609 827 6,769 8,633
Gathering system purchases - - - 4,220
Gathering system operations - - - 496
Amortization and depreciation 5,114 990 8,692 13,713
Management fee to Managing
General Partner 1,482 - - -
Operator fees to Managing
General Partner 1,343 - - -
General and administrative,
overhead and other expenses, net
of operator's overhead fees to
unrelated interests 378 4,164 4,467 3,517
------- ------- ------- -------
Total operating expenses 15,926 5,981 19,928 30,579
------- ------- ------- -------
Operating income 7,537 839 3,888 1,737
Other income (expense):
Interest expense (564) (541) (5,159) (13,197)
Interest income 114 29 83 356
Equity in loss of RVC Energy,
Inc. (Note 2) - - - (693)
Other - 81 - -
------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item 7,087 408 (1,188) (11,797)
Income tax benefit - deferred
(Note 9) - - - (4,200)
------- ------- ------- -------
Income (loss) before
extraordinary item 7,087 408 (1,188) (7,597)
Extraordinary gain on repurchase
of debt, net of income taxes of
$700 - - - 1,140
------- ------- ------- -------
Net income (loss) $ 7,087 $ 408 $(1,188) $(6,457)
======= ======= ======= =======
Per share amounts - basic and
diluted:
Income (loss) before
extraordinary item $.15 $(.44) $(2.79)
Extraordinary item - - .42
------- ------- -------
Net income (loss) $.15 $(.44) $(2.37)
======= ======= =======
Weighted average shares outstanding 2,727,000 2,727,000 2,727,000
========= ========= =========
See accompanying notes.
<PAGE>
RAM Energy, Inc.
Consolidated Statements of Stockholders' Deficiency
(In Thousands)
Preferred Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Deficiency
-------------------------------------------------------
Balance at December 31,
1995 $1 $23 $1,493 $(3,246) $(1,729)
Net income - - - 408 408
-------------------------------------------------------
Balance at December 31,
1996 1 23 1,493 (2,838) (1,321)
Preferred stock
redemption (1) - (1,473) - (1,474)
Revision of par value
of common stock - 4 (4) - -
Net loss - - - (1,188) (1,188)
-------------------------------------------------------
Balance at December 31,
1997 - 27 16 (4,026) (3,983)
Net loss - - - (6,457) (6,457)
-------------------------------------------------------
Balance at December 31,
1998 $- $27 $16 $(10,483) $(10,440)
=======================================================
See accompanying notes.
<PAGE>
RAM Energy, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Predecessor
(Note 1) Company
------------ -------------------------------
Eleven-month
period ended
November 30, Year ended December 31,
1996 1996 1997 1998
---------------------------------------------
Cash flows from operating activities
Net income (loss) $ 7,087 $ 408 $ (1,188) $ (6,457)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Amortization of Senior Notes
discount included in interest
expense - - - 126
Amortization and depreciation:
Oil and gas properties and
equipment 5,028 666 8,134 11,113
Gathering and disposal systems - - - 1,625
Senior Notes fees - - - 395
Credit facility fees 86 34 350 358
Other property and equipment - 290 208 222
Provision for doubtful accounts
receivable and other - 141 91 30
Extraordinary gain on retirement
of debt, net - - - (1,140)
Gain on sales of other property
and equipment - (36) - -
Equity in loss of RVC Energy, Inc. - - - 693
Deferred income taxes, net - - - (4,200)
Cash provided (used) by changes
in operating assets and
liabilities, net of amounts
resulting from acquisitions:
Prepaid expenses and deposits 93 (41) - 730
Accounts receivable (869) (846) 797 383
Accounts payable (103) (971) 1,430 1,525
Accrued liabilities (424) 506 (646) 4,157
Gas balancing liability (345) - (454) (27)
Other 284 (81) - -
----------------------------------------------
Total adjustments 3,750 (338) 9,910 15,990
----------------------------------------------
Net cash provided by operating
activities 10,837 70 8,722 9,533
Cash flows from investing
activities
Payment for acquisition of
Carlton Resources Corporation,
net of cash acquired - - - (41,611)
Payment for acquisition of Ricks
properties - - - (6,500)
Payment for investment in RVC
Energy, Inc. - - - (2,000)
Payment for acquisition of
limited partner's interest in the
Partnership, less cash acquired - (58,898) - -
Payments for oil and gas
properties and equipment (3,310) (22) (17,642) (17,972)
Proceeds from sales of oil and
gas properties and equipment 1,689 55 9,764 2,068
Payments for other property
and equipment - (227) (343) (389)
Proceeds from sales of other
property and equipment - - 19 -
Payments for gathering and
disposal systems - - - (184)
Payment for other assets - - - (263)
Proceeds from sales of other
assets - - - 244
Cash distributions received from
Partnership - 21 - -
------------------------------------------------
Net cash used by investing
activities (1,621) (59,071) (8,202) (66,607)
Cash flows from financing activities
Principal payments on long-term
debt (10,000) (61) (10,510) (62,132)
Proceeds from borrowings on
long-term debt 62,800 176 9,751 25,129
Advance by Partnership to
Company (60,000) 60,000 - -
Proceeds from Senior Notes
Offering, net of discount - - - 113,328
Payment for repurchase of Senior
Notes - - - (4,791)
Payments for Preferred Stock
Redemptions:
Company Series A and B - - - (1,474)
Carlton Redeemable - - - (600)
Payments of deferred offering costs - - - (5,008)
Payments for loan origination fees (46) (31) (120) (23)
Distributions to partners (2,134) - - -
------------------------------------------------
Net cash provided (used) by
financing activities (9,380) 60,084 (879) 64,429
------------------------------------------------
Increase (decrease) in cash and
cash equivalents (164) 1,083 (359) 7,355
Cash and cash equivalents at
beginning of year 1,266 524 1,607 1,248
------------------------------------------------
Cash and cash equivalents at end
of year $ 1,102 $ 1,607 $ 1,248 $ 8,603
================================================
Disclosure of noncash investing
and financing activities
Deferred loan and offering costs
included in accounts payable and
other liabilities $ 1,521 $ - $ 734 $ -
================================================
Preferred stock redemption
included in accrued
liabilities $ - $ - $ 1,474 $ -
================================================
Exchange of Partnership interest
for receivable from sister
corporation, net of minority
interest $ - $ - $ 611 $ -
================================================
See accompanying notes.
<PAGE>
RAM Energy, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies, Organization and
Basis of Financial Statements
Nature of Operations and Organization
RAM Energy, Inc. (the "Company") operates exclusively in the
upstream segment of the oil and gas industry with activities
including the drilling, completion and operation of oil and gas
wells. The Company conducts the majority of its operations in the
states of Oklahoma, Texas and New Mexico. Additionally, the Company
owns and operates an oil and gas gathering system and a saltwater
disposal operation in north central Oklahoma (the "Gathering
System"). The Gathering System purchases, transports and markets
oil and gas production and disposes of salt water from properties
owned by the Company and other oil and gas companies.
From 1988 through November 1996, the principal operations of the
Company were that of managing general partner of the RAMCO-NYL 1987
Limited Partnership (the "Predecessor" or the "Partnership"), for
which the Company received operating and management fees from the
Partnership. Under the terms of Partnership agreement, virtually
all Partnership revenues, costs and expenses were allocated 1% to
the Company, 2.5% to Oklahoma Double R Corporation, the special
general partner and an affiliate of the Company, and 96.5% to the
New York Life Insurance Company, the original limited partner.
Effective December 1, 1996, the Company purchased the limited
partner's interest in the Partnership for approximately $59
million. Funding for the transaction was obtained from borrowings
under a credit agreement with a bank. Effective November 1, 1997,
the Company acquired the remaining Partnership interest (of the
special general partner) in exchange for the Company's $1.8 million
note receivable from the special general partner and liquidated the
Partnership into the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority or wholly-owned subsidiaries, including,
effective December 1, 1996, the accounts of the Partnership. All
significant intercompany transactions, including transactions
between the Company and the Partnership beginning December 1, 1996,
have been eliminated.
Properties and Equipment
The Company and the Predecessor follow the full cost method of
accounting for oil and gas operations. Under this method, all
productive and nonproductive costs incurred in connection with the
acquisition, exploration and development of oil and gas reserves
are capitalized. No gains or losses are recognized upon the sale or
other disposition of oil and gas properties except in transactions
which would substantially alter the amortization base of the
capitalized costs.
With the exception of the plugging and abandonment obligation
further described in Note 10, the Company does not believe that
future costs related to dismantlement, site restoration, and
abandonment costs, net of estimated salvage values, will have a
significant effect on its results of operations or financial
position because the salvage value of equipment and related
facilities should approximate or exceed any future expenditures for
dismantlement, restoration, or abandonment. The Company has not
incurred any net expenditures for costs of this nature during the
last two years.
To the extent that net capitalized costs of oil and gas properties
and equipment exceed estimated discounted future net revenues from
proved reserves, plus the lower of cost or estimated fair value of
unproved properties (the "ceiling amount"), such excess is charged
to expense in the period in which it occurs and is not subsequently
reinstated. Reserve estimates have been prepared by an independent
petroleum engineering firm.
The discounted future net revenues at December 31, 1998 include
approximately $45.1 million related to undeveloped and nonproducing
properties on which estimated capital expenditures of approximately
$25.4 million will be required to develop and produce the reserves.
Such amounts have been considered in the calculation of the ceiling
amount at December 31, 1998. The funding for these projects is
expected by the Company to be provided from cash flows from
operations and borrowings under its bank credit facility (Note 4).
The Company assesses the recoverability of the book value of the
Gathering System on a quarterly basis, or when events occur which
indicate an impairment in value may exist. In accordance with SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," impairment is recorded when
the book value of the Gathering System is in excess of the expected
future cash flows from the Gathering System. Accumulated
depreciation related to the Gathering System is $1,625,000 at
December 31, 1998.
Other property and equipment consists principally of furniture and
equipment and leasehold improvements. Other property and equipment
and related accumulated amortization and depreciation are relieved
upon retirement or sale and the gain or loss is included in
operations. Renewals and replacements which extend the useful life
of property and equipment are treated as capital additions.
Accumulated amortization and depreciation of Other property and
equipment at December 31, 1997 and 1998 is $2,856,000 and
$3,011,000, respectively.
Amortization and Depreciation
Amortization of oil and gas properties and equipment is computed
based on the unit-of-production method using total proved reserves.
Depreciation of gas gathering and disposal facilities is computed
on a straight-line method over twenty years. Depreciation on other
equipment is computed based on the double declining balance method
over the estimated useful lives of the assets which range from
three to ten years. Amortization of leasehold improvements is
computed over the term of the associated lease. Amortization of
deferred loan origination and debt issuance costs is computed based
on the straight-line method over the term of the related debt.
Gas Balancing
The Company records oil and gas sales on the entitlement method,
recognizing its net share of all production sold as revenue. Any
amount received in excess of or less than the Company's revenue
interest is recorded in the net gas balancing liability.
Cash Equivalents
All highly liquid unrestricted investments with a maturity of three
months or less when purchased are considered to be cash
equivalents.
Credit and Market Risk
The Company sells oil and gas to various customers and participates
with other parties in the drilling, completion and operation of oil
and gas wells. Joint interest and oil and gas sales receivables
related to these operations are generally unsecured. For the eleven
months ended November 30, 1996 (Partnership) and the years ended
December 31, 1996, 1997 and 1998, the provisions for doubtful
accounts receivable were approximately none, $141,000, $91,000 and
$30,000, respectively, while charge-offs of the allowance in those
periods were approximately none, none, $23,000 and $111,000,
respectively. The Company has established joint interest operations
accounts receivable allowances which management believes are
adequate for uncollectible amounts at December 31, 1997 and 1998.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and
cash equivalents, trade receivables and payables, installment notes
and capital leases, and variable rate long-term debt approximate
their fair values. The carrying value of interest rate swap
agreements at December 31, 1997 and 1998 exceeded the fair value by
approximately $323,000 and $419,000, respectively, representing the
amount the Company would be required to pay to terminate the
contracts at such date. The carrying value of the Senior Notes
exceeded the fair value at December 31, 1998 by approximately $37.4
million, based on quoted market prices.
Hedging Activities
The Company enters into interest rate swap and collar transactions
to reduce its exposure to interest rate fluctuations. Gains and
losses from these transactions which are designated as hedges are
deferred and recognized in income as interest expense in the
periods for which the interest rate was hedged.
The effectiveness of the hedge is measured by a correlation of
changes in the fair value of the hedging instruments with changes
in value of the hedged item. If high correlation ceases to exist,
hedge accounting will be terminated and gains or losses recorded in
other income. To date, high correlation has been achieved.
Earnings Per Common Share
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share," requires the disclosure of Basic and Diluted
Earnings per Share (EPS). Basic EPS is calculated using income
available to common shareowners divided by the weighted average of
common shares outstanding during the year. As the Company had no
common stock equivalents in any of the periods presented, Diluted
EPS and Basic EPS are the same.
Reclassification
Certain 1996 and 1997 amounts have been reclassified to conform
with 1998 presentation.
2. Acquisitions
As described in Note 1, the Company purchased the limited partner's
interest in the Partnership for a net cash payment of approximately
$59 million with proceeds from the Predecessor's credit agreement
and has reflected this additional ownership under the purchase
method of accounting in the accompanying consolidated financial
statements beginning December 1, 1996.
The following pro forma data presents the results of the Company
for the year ended December 31, 1996, as if the acquisition of the
limited partner interest in the Partnership had occurred on January
1, 1996. The pro forma results of operations are presented for
comparative purposes only and are not necessarily indicative of the
results which would have been obtained had the acquisition been
consummated as presented. The following data reflect pro forma
adjustments to include the operating activity of the Partnership
adjusted to reflect the Company's adjusted basis since acquisition
and additional interest related to the acquisition and eliminates
intercompany activity.
Pro Forma
(Unaudited)
-----------
Year ended
December 31,
1996
------------
(In Thousands,
Except Per
Share Amount)
Revenues $27,520
=======
Net income $ 1,598
=======
Net income per share $.59
=======
In August 1997, the Company purchased certain primarily producing
oil and gas properties and equipment located principally in
Oklahoma, Louisiana and Mississippi for $11.2 million (before
closing adjustments). This transaction, which has been accounted
for under the purchase method of accounting, was financed with
borrowings under the Company's credit agreement.
On February 24, 1998, the Company acquired Carlton Resources
Corporation ("Carlton") in a stock acquisition accounted for as a
purchase, for approximately $41.6 million, net of defined working
capital adjustments of $1,000,000. The operations of Carlton are
included in the accompanying consolidated financial statements
beginning March 1, 1998. The preliminary allocation (pending
receipt of information regarding certain acquired assets) of the
purchase price to the assets and liabilities acquired was as
follows (in thousands):
Properties and equipment:
Oil and gas properties $24,000
Pipeline gathering systems 39,000
--------
63,000
Other assets and liabilities, net (844)
Deferred income tax liability (20,556)
--------
Purchase price $41,600
========
The following unaudited pro forma results of operations gives
effect to the acquisition as if consummated on January 1, 1997. The
data reflects adjustments of the historical Carlton results for
depreciation and amortization of the property and equipment
acquired, adjustments of expenses resulting from contractual
requirements of the acquisition agreement and incremental interest
expense relating to the sale in February 1998 of the Company's
Senior Notes (Note 4) used to finance the purchase and repay
existing debt. The pro forma adjustments are based upon available
information and assumptions that management of the Company believes
are reasonable. The pro forma results of operations data does not
purport to represent the results of operations which would have
occurred had such transaction been consummated on January 1, 1997
or the Company's results of operations for any future date or
period.
Pro Forma (Unaudited)
-----------------------
Year ended December 31,
1997 1998
-----------------------
(In Thousands,
Except Per Share Amounts)
Total operating revenues $40,188 $34,458
Net loss $(4,598) $(7,180)
Net loss per common share $(1.69) $(2.63)
In August 1998, RVC Energy, Inc. ("RVC"), a Delaware corporation,
was formed and concurrent with the formation, the Company invested
$2.0 million in RVC in exchange for 49.5% of RVC's voting common
stock and all of RVC's non-voting common stock. RVC is an
unrestricted affiliate of the Company and will be accounted for
under the equity method of accounting.
Concurrent with its formation, RVC acquired a one-half interest in
the proved undeveloped properties of Ricks Exploration, Inc.
located in south Texas ("Ricks" and the "Ricks Acquisition") and
all of Ricks' proved developed producing oil and gas properties in
the same field for $14.6 million in cash. On August 31, 1998, RVC
acquired all of the outstanding common stock of Comet Petroleum,
Inc. ("Comet") for $27.8 million in cash. RVC funded both
acquisitions with equity contributed by its stockholders and
borrowings under its credit facility which are non-recourse to its
stockholders, including the Company. Summarized financial
information for RVC as of December 31, 1998 and for the period from
August 17, 1998 (inception) to December 31, 1998 is as follows (in
thousands):
Current assets $ 3,835
Oil and gas properties $47,636
Current liabilities $14,849
Long-term debt $27,370
Deferred income taxes $ 7,295
Stockholders' equity $ 2,600
Operating revenues $ 2,795
Operating loss $ (763)
Net loss $(1,400)
On August 17, 1998, the Company completed a $6.5 million
acquisition of the remaining one-half interest in the proved
undeveloped oil and gas properties of Ricks.
The Company's acquisition of the Ricks properties and investment in
RVC were funded through borrowings under the Company's Credit
Facility (Note 4).
3. Related Party Transactions
The Partnership agreement under which the Company served as the
managing general partner, provided for reimbursement of certain
Partnership overhead costs to the Company. The management fee was
computed monthly as a percentage of adjusted cumulative contributed
capital, as defined, at the beginning of the month. The fee for the
eleven-month period ended November 30, 1996 (the period prior to
the acquisition of the limited partner interest described in Note
1) was $1,482,293. Additionally, for the eleven-month period ended
November 30, 1996, technical personnel costs in the amount of
$152,648 were charged to the Partnership and are included in
consulting fees from related parties in the accompanying
consolidated financial statements. During 1996, the Company served
as operator on many of the wells of the Partnership. In connection
with their services as operator on these wells, the Company charged
the Partnership operator fees of $1,342,777 in 1996. Upon the
Company's purchase of the limited partner's interest in the
Partnership effective December 1, 1996, until the Partnership was
dissolved, the operations of the Partnership have been consolidated
in those of the Company and subsequent charges for the management
fees, operator fees and technical personnel costs made by the
Company to the Partnership have been eliminated through
consolidating adjustments in the consolidated financial statements.
The Company acts as manager of RVC and operator of RVC's oil and
gas properties. The Company receives monthly management fees of
$50,000 and overhead reimbursements from RVC. During 1998, the
Company received $225,000 in management fees from RVC which is
reflected in other income in the accompanying consolidated
statements of operations.
4. Long-Term Debt
Long-term debt at December 31, consists of the following:
December 31,
1997 1998
--------------------
(In Thousands)
11-1/2% Senior Notes Due 2008 (A) $ - $106,517
Revolving note payable (B) 55,000 25,000
Term note payable (B) 7,000 -
Installment loan agreements 225 222
--------------------
62,225 131,739
Less amount due within one year 98 109
--------------------
$62,127 $131,630
====================
(A) In February 1998, the Company completed the sale of $115
million of 11-1/2% Senior Notes ("Notes") Due 2008 in a public
offering ("Offering"). The proceeds, net of offering costs of
$5,008,720 and discount of $1,672,100 were used principally to
pay the outstanding balance under its existing Credit Facility
("Credit Facility") and to acquire Carlton (Note 2).
The Notes are senior unsecured obligations of the Company and
are redeemable at the option of the Company in whole or in
part, at any time on or after February 15, 2005 at prices
ranging from 111.50% to 103.84% of face amount to their
scheduled maturity in 2008.
The indenture under which the Notes are issued contains
certain covenants including covenants that limit (i)
incurrences of additional indebtedness and issuances of
disqualified capital stock, (ii) restricted payments, (iii)
dividends and other payments affecting subsidiaries, (iv)
transactions with affiliates and outside directors' fees, (v)
asset sales, (vi) liens, (vii) lines of business, (viii)
merger, sale or consolidation and (ix) non-refundable
acquisition deposits.
During the fourth quarter of 1998, the Company recognized an
extraordinary after-tax gain (net of unamortized deferred
offering and original issue discount costs and income taxes)
of $1,140,698 or $.42 per share as a result of the repurchase
of $7,040,000 face amount of the Notes. The Notes were
purchased at 64% of the face amount, with accrued interest to
the date of repurchase. The Company utilized borrowings under
its revolving Credit Facility to purchase the Notes.
At December 31, 1998, the balance of Senior Notes consisted of
principal of $107,960,000, less unamortized issue discount of
$1,443,246.
(B) At December 31, 1997, an aggregate of $62.0 million was
outstanding under the Credit Facility (aggregate rate of 8.8%)
with Union Bank of California, N.A. The term portion ($7.0
million) was to mature in June 1998 and the revolving credit
portion ($55.0 million) was to amortize quarterly over four
years commencing in June 1998. The Company and Union Bank have
amended and restated the Credit Facility, effective upon
consummation of the Offering.
The Credit Facility, as amended and restated, provides for a
$50.0 million revolving commitment which is payable in full in
February 2003. At December 31, 1998, $25 million is
outstanding under the Credit Facility. Advances under the
amended Credit Facility bear interest on a sliding scale based
on the ratio of the aggregate amount outstanding to the
borrowing base. The applicable rate may, at the Company's
option, be based either on the Eurodollar rate or the Union
Bank base rate, with the rates ranging from the Eurodollar
rate plus 1.375% to 2.0% or the Union Bank base rate plus 0.0%
to 0.5% (7.75% on outstanding balance at December 31, 1998).
The Company is required to pay a commitment fee on the amount
by which the borrowing base exceeds the aggregate amount
outstanding under the Credit Facility. Amounts outstanding
under the Credit Facility are secured by a lien on all oil and
gas reserves, leaseholds, personal property and contract
rights of the Company.
The amount of credit available at any time under the amended
and restated Credit Facility may not exceed the borrowing base
which is $25.0 million as of December 31, 1998, and will be
redetermined semi-annually. The Credit Facility contains
customary covenants which, among other things, require
periodic financial and reserve reporting and limit the
Company's incurrence of indebtedness, liens, dividends, loans,
mergers, transactions with affiliates, investments and sales
of assets, and require the Company to maintain certain
financial ratios. At December 31, 1998, the Company did not
comply with certain financial ratios for which the Company
received waivers from Union Bank on March 31, 1999.
In addition, the credit agreement requires the Company to
enter into certain interest rate swaps and collars to hedge
the interest rate exposure associated with the credit
agreement. Effective January 3, 1997, the Company entered into
interest rate swaps to fix the interest rate on notional
amounts of $20.0 million of the borrowings under the revolving
commitment and entered into an interest rate collar to limit
the interest rate on an additional notional amount of $10.0
million of the borrowings under the revolving commitment. In
connection with the repayment of the outstanding balance on
the Credit Facility in February 1998, the Company terminated
the interest rate collar, and an interest rate swap with a
notional amount of $10 million, for a total cash payment of
$130,000. Such payment was expensed in the first quarter of
1998. At December 31, 1998, the Company has outstanding
interest rate swaps on $10.0 million of borrowings
outstanding.
Interest paid in the eleven-month period ended November 30, 1996
(Partnership) and in the years ended December 31, 1996, 1997 and
1998 totaled $563,789, $156,873, $5,163,996 and $8,508,010,
respectively.
5. Subsidiary Guarantors
The Company's Senior Notes are guaranteed, jointly and severally,
on a senior unsecured basis, by all of the Company's current and
future subsidiaries (the "Subsidiary Guarantors"). The following
table sets forth summarized financial information of the Subsidiary
Guarantors after their acquisition or formation in 1998. Full
financial statements of the Subsidiary Guarantors are not presented
because management believes they are not material to the investors.
There are currently no restrictions on the ability of the
Subsidiary Guarantors to transfer funds to the Company in the form
of cash dividends, loans or advances.
December 31,
1998
------------
(In Thousands)
Balance Sheet Data:
Current assets $ 2,878
Property and equipment, net $ 68,276
Other assets $ 363
Current liabilities $ 1,912
Deferred income taxes $ 20,556
Year ended
December 31,
1998
------------
(In Thousands)
Operating Data:
Operating revenues $ 10,997
Operating expenses 8,376
--------
Operating income $ 2,621
========
Amounts presented related to operations have been limited to
operating information as the Company has not allocated
administrative, interest charges or income taxes to its
subsidiaries. Amounts presented related to liabilities do not
reflect debt and related accrued interest payable, unamortized debt
issue cost, and unamortized issue discount as the debt and related
balances are reflected at the Company level.
6. Operating Leases
The Company leases office space, equipment and vehicles under
noncancelable operating lease agreements which expire at various
dates through 2001. The leases provide that the Company pay
insurance, taxes and maintenance related to the leased assets. Rent
expense of none, $365,217, $308,799 and $429,025 was incurred under
operating leases in the eleven months ended November 30, 1996
(Partnership) and the years ended December 31, 1996, 1997 and 1998,
respectively.
Future minimum lease payments for operating leases at December 31,
1998 are as follows (in thousands):
1999 $ 546
2000 534
2001 177
-------
$ 1,257
=======
Future minimum sublease receipts due under noncancelable subleases
as of December 31, 1998 are as follows (in thousands):
1999 $ 138
2000 120
2001 80
-------
$ 338
=======
7. Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan for the
benefit of substantially all employees. The plan allows eligible
employees to contribute up to 17.5% of their annual compensation,
not to exceed approximately $9,500 in 1998. The Company elected to
make a discretionary contribution to the Plan of $100,000 in 1998
($76,635 in 1996 and $88,000 in 1997).
8. Capital Stock
In December 1997, the Company revised its authorized capital stock
to consist of 15,000,000 shares of $.01 par value Common Stock and
5,000,000 shares of $.01 par value Preferred Stock.
Common Stock
In connection with the change in capital structure approved in
December 1997 by the Board of Directors of the Company, the
existing Class A common shares outstanding were split 27,000-for-1
into the newly approved $.01 Common Stock resulting in 2,727,000
shares outstanding at December 31, 1997. The effects of the stock
split on the computations of net income (loss) per share have been
reflected retroactively in the accompanying consolidated financial
statements.
Pursuant to a Special Retainer Agreement effective July 1, 1998,
the Board of Directors granted an outside counsel an option to
purchase 50,000 shares of the Company's common stock. Pursuant to
the terms of the Stock Option Agreement, 16,666 shares vest on
August 1, 1998, 1999, and 2000, respectively, or become fully
vested upon occurrence of certain specified events, and are
exercisable through June 30, 2008. On March 5, 1999, the Board of
Directors set the exercise price at $7.33, an amount which
management believes approximates the per common share value of the
Company at the grant date and December 31, 1998. Consequently, no
compensation expense related to the grant has been recognized in
the 1998 statement of operations.
Additionally, the Board of Directors approved the 1998 Stock
Incentive Plan and reserved 550,000 shares of Common Stock which
may be granted under the plan. No grants have been made at December
31, 1998.
Preferred Stock
The Company has an authorized class of Preferred Stock consisting
of 5,000,000 shares, none of which are issued and outstanding. The
Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue
shares of Preferred Stock from time to time. The Board of Directors
may designate one or more series of Preferred Stock. Each such
series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and
special or relative rights or privileges as shall be determined by
the Board of Directors, which may include, among others, dividend
rights, voting rights, redemption and sinking fund provisions,
liquidation preferences and conversion rights.
In connection with the change in capital structure, the Company
called for redemption in November 1997 and December 1997,
respectively, of the previously outstanding Series A and Series B
noncumulative preferred shares for $10 per share or a total of
$1,473,660 and reflected such redemptions, completed by February
1998, as an accrued liability and corresponding reduction in
stockholders' equity at December 31, 1997.
9. Income Taxes
Deferred income taxes of the Company reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities as of December 31, 1997 and
1998 are as follows:
1997 1998
-----------------------
(In Thousands)
Deferred tax assets
Financial depreciation in excess of tax depreciation $ 108 $ -
Financial charges which are deferred for tax purposes 157 127
Minimum and investment tax credit carryforwards - 372
Net operating loss carryforwards 2,742 8,846
-----------------------
Total deferred tax assets before valuation allowance 3,007 9,345
Less valuation allowance recognized (1,293) -
-----------------------
Net deferred tax assets 1,714 9,345
Deferred tax liabilities
Intangible drilling costs capitalized for
financial purposes and expensed for tax purposes 1,714 6,179
Financial bases in excess of tax bases on net
assets of Carlton acquired - 20,222
-----------------------
Deferred tax liabilities 1,714 26,401
-----------------------
Net deferred income taxes $ - $17,056
=======================
The reconciliation of income taxes computed at the U.S. Federal
statutory tax rates to the Company's income tax expense
(benefit) - based on income (loss) before income taxes and
extraordinary item is as follows:
Year ended December 31,
1996 1997 1998
-----------------------
(In Thousands)
Income tax (benefit) at statutory rate $ 139 $(404) $(4,129)
State income taxes 16 (48) (353)
Other 2 11 282
Change in valuation allowance recognized (157) 441 -
--------------------------
Income tax expense (benefit) - deferred $ - $ - $(4,200)
==========================
At December 31, 1997, the Company has federal income tax net
operating loss carryforwards of approximately $23 million which
begin expiring in 2002.
The income or loss of the Predecessor for tax purposes has been
included in the tax returns of the individual partners.
Consequently, no provision for income taxes has been reflected in
the Predecessor's financial statements.
10. Commitments and Contingencies
In November 1995, the Partnership entered into a letter of intent
to sell an oil and gas property located in Louisiana state waters
in Plaquemines Parish. The sale was completed in early 1996. The
property included several currently uneconomical wells for which
the Company estimates the plugging and abandonment ("P&A")
obligation is approximately $1,020,000. The purchaser provided a
letter of credit and a bond totaling $420,000 to ensure funding of
a portion of the P&A obligation. The P&A obligation would revert to
the Company in the event the purchaser does not complete the
required P&A activities. As a result, in 1995 the Partnership
recorded a contingent liability of $600,000, which is included in
the accompanying consolidated balance sheets.
The Company has established severance agreements for two senior
officers and directors of the Company. These agreements provide for
severance benefits to be paid upon involuntary separation as a
result of actions taken by the Company or its successors. Benefits
under the agreements are principally based upon length of service
to the Company. The covered officers and directors are not entitled
to these separation benefits upon voluntary separation, including
retirement. At December 31, 1998, the severance benefits under
these agreements were approximately $1.6 million. A provision for
these benefits would not be made unless an involuntary termination
was probable.
The Company is involved in legal proceedings and litigation arising
in the ordinary course of business. In the opinion of management,
the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
11. Fixed Price Contracts
The Company periodically enters into certain fixed price contracts
to reduce its exposure to unfavorable changes in natural gas
prices. These contracts allow the Company to predict with greater
certainty the effective gas prices to be received from its hedged
production. The Company had no contracts outstanding at December
31, 1997. At December 31, 1998, the Company had contracts to
deliver 3,325,000 MMbtu and 540,000 MMbtu at average prices of
$2.347 and $2.412 in 1999 and 2000, respectively. The Company has
deferred gains of $390,000 and none at December 31, 1997 and 1998,
respectively, related to the early termination of fixed price
delivery contracts.
12. Oil and Gas Producing Activities
Capitalized costs relating to crude oil and gas producing
activities and related accumulated depreciation and amortization
are summarized as follows:
December 31,
1997 1998
----------------------
(In Thousands)
Proved crude oil and natural gas properties $72,696 $119,697
Accumulated depreciation and amortization (12,767) (23,752)
----------------------
$59,929 $ 95,945
======================
Costs incurred in oil and gas producing activities are as follows:
Equity
Interest in
RVC Energy,
Predecessor Company Inc.
------------ ----------------------- ------------
Eleven-month
period ended Year ended
November 30, Year ended December 31, December 31,
1996 1996 1997 1998 1998
--------------------------------------------------
(In Thousands, Except Per Mcfe)
Acquisition of proved
properties $ - $59,834 $12,169 $30,907 $24,341
Development costs $ 3,310 $ 22 $ 6,085 $17,972 $ 281
Amortization rate per
equivalent Mcf $.52 $1.05 $.86 $.93 $.77
13. Supplementary Oil and Gas Reserve Information (Unaudited)
The Company has interests in crude oil and gas properties that are
principally located in Oklahoma, Texas and New Mexico. The Company
does not own or lease any oil and gas properties outside the United
States.
The Company retains independent engineering firms to provide year-end
estimates of the Company's future net recoverable oil, gas, and
natural gas liquids reserves. Estimated proved net recoverable
reserves as shown below include only those quantities that can be
expected to be commercially recoverable at prices and costs in
effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating methods.
Proved developed reserves represent only those reserves expected to
be recovered through existing wells. Proved undeveloped reserves
include those reserves expected to be recovered from new wells on
undrilled acreage or from existing wells on which a relatively
major expenditure is required for recompletion.
The information presented below regarding estimated proved
reserves, and the related standardized measure of discounted future
net cash flows and changes relating to the standardized measure of
future net cash flows, is attributable to the properties owned by
the Company since December 1, 1996 and by the Partnership prior to
such date.
Net quantities of proved developed and undeveloped reserves of oil
and gas, including condensate and natural gas liquids, are
summarized as follows:
Crude Oil Natural Gas
(Thousand (Million
Barrels) Cubic Feet)
----------------------------
December 31, 1995 3,333 68,920
Extensions and discoveries 247 12,071
Sales of reserves in place (4) (929)
Purchases of reserves in place 426 6,724
Revisions of previous estimates 866 3,445
Production (586) (7,346)
-----------------------------
December 31, 1996 4,282 82,885
Extensions and discoveries 403 16,596
Sales of reserves in place (813) (6,502)
Purchases of reserves in place 355 7,593
Revisions of previous estimates (393) (11,974)
Production (467) (6,686)
-----------------------------
December 31, 1997 3,367 81,912
Extensions and discoveries 238 8,706
Sales of reserves in place (155) (4,530)
Purchases of reserves in place 771 36,983
Revisions of previous estimates (48) (4,382)
Production (520) (8,795)
-----------------------------
December 31, 1998 3,653 109,894
=============================
Proved developed reserves:
December 31, 1995 2,714 51,664
December 31, 1996 3,511 62,319
December 31, 1997 2,436 56,516
December 31, 1998 2,760 77,035
Equity interest in net proved reserves of
RVC Energy, Inc.:
December 31, 1998 953 16,651
The following is a summary of a standardized measure of discounted
net cash flows related to the Company's proved oil and gas
reserves. For these calculations, estimated future cash flows from
estimated future production of proved reserves were computed using
crude oil and natural gas prices as of the end of the period
presented. Future development and production costs attributable to
the proved reserves were estimated assuming that existing
conditions would continue over the economic lives of the individual
leases and costs were not escalated for the future. Estimated
future income tax expenses were calculated by applying future
statutory tax rates (based on the current tax law adjusted for
permanent differences and tax credits) to the estimated future
pretax net cash flows related to proved crude oil and natural gas
reserves, less the tax basis of the properties involved.
The Company cautions against using this data to determine the fair
value of its oil and gas properties. To obtain the best estimate of
fair value of the oil and gas properties, forecasts of future
economic conditions, varying discount rates, and consideration of
other than proved reserves would have to be incorporated into the
calculation. In addition, there are significant uncertainties
inherent in estimating quantities of proved reserves and in
projecting rates of production that impair the usefulness of the
data.
The standardized measure of discounted future net cash flows
relating to proved crude oil and natural gas reserves are
summarized as follows:
Equity
Interest in
RVC
Energy, Inc.
------------
December 31, December 31,
1996 1997 1998 1998
------------------------------ -----------
(In Thousands)
Future cash inflows $414,079 $284,955 $266,000 $ 43,045
Future production and
development costs (125,634) (102,877) (105,544) (12,899)
Future income tax expenses (86,515) (43,757) (727) (3,323)
------------------------------ -----------
Future net cash flows 201,930 138,321 159,729 26,823
10% annual discount for
estimated timing of cash flows (89,274) (58,883) (75,498) (12,484)
------------------------------ -----------
Standardized measure of
discounted future net
cash flows $112,656 $ 79,438 $ 84,231 $14,339
============================== ===========
The following are the principal sources of change in the
standardized measure of discounted future net cash flows of the
Company for each of the three years ended December 31, 1998:
1996 1997 1998
-------------------------------
(In Thousands)
Discounted future net cash flows at
beginning of year $ 53,653 $112,656 $ 79,438
Changes during the year:
Sales and transfers of crude oil
and natural gas produced, net of
production costs (16,952) (16,968) (17,206)
Net changes in prices and production
costs 76,204 (47,943) (37,978)
Extensions and discoveries, less
related costs 13,510 15,139 3,757
Development costs incurred and
revisions 3,061 2,340 16,065
Sales of reserves in place (712) (12,857) (2,762)
Purchases of reserves in place - 11,307 24,583
Revisions of previous quantity estimates 8,587 (16,670) (5,917)
Net change in income taxes (38,007) 23,137 20,224
Accretion of discount 6,391 16,092 10,456
Other 6,921 (6,795) (6,429)
--------------------------------
Net change 59,003 (33,218) 4,793
--------------------------------
Discounted future net cash flows at end
of year $112,656 $ 79,438 $ 84,231
================================
Prices used in computing these calculations of future cash flows
from estimated future production of proved reserves were $23.89,
$16.17 and $8.95 per barrel of crude oil at December 31, 1996, 1997
and 1998, respectively, and $3.79, $2.81 and $2.12 per thousand
cubic feet of natural gas at December 31, 1996, 1997 and 1998,
respectively.
Item 9 Changes and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 10 Directors and Executive Officers of the Registrant
The following table sets forth names, ages and titles of
the directors and executive officers of the Company.
Name Age Position
---- --- --------
William W. Talley II, Ph.D. 56 Chairman of the Board of Directors
Larry E. Lee 50 President and Chief Executive Officer and
Director
M. Helen Bennett(1)(2) 51 Director
Gerald R. Marshall(1)(2) 65 Director
John M. Reardon(1)(2) 57 Director
Larry G. Rampey 54 Senior Vice President - Operations
John M. Longmire 56 Senior Vice President and Chief Financial
Officer, Treasurer and Secretary
Drake N. Smiley 51 Senior Vice President - Land, Legal and
Business Development
______________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
William W. Talley II, Ph.D. has been Chairman of the Board and
a director of the Company since its incorporation in 1987 and was
Chief Executive Officer from 1987 to 1989 and from 1992 to
October 31, 1997. Dr. Talley served as the Society of Petroleum
Engineers' Distinguished Lecturer on natural gas marketing and
pricing in 1987 and 1988 and was Vice President and director of the
Independent Petroleum Association of America in 1987. Dr. Talley
has been an officer and a principal of the RAM Group, Ltd., an
energy and management consulting firm, since 1974. He is a
registered professional engineer.
Larry E. Lee has been President and a director of the Company
since its incorporation in 1987. Mr. Lee served as its Chief
Executive Officer from 1989 to 1992 and has served in such capacity
since November 1, 1997. Mr. Lee is a member of the Oklahoma
Independent Petroleum Association and of the Independent Petroleum
Association of America. He served as a director of the Independent
Petroleum Association of America from 1990 to 1992. Mr. Lee has
been an officer and a principal of the RAM Group, Ltd. since 1984.
M. Helen Bennett has been a director of the Company since 1992
and was a Vice President of the Company from December 1996 until
November 30, 1997. Mrs. Bennett has been a limited partner of
Goldman, Sachs & Co., an investment banking firm, since May 1992.
From 1980 until 1986, Mrs. Bennett served in several executive
capacities with Time, Incorporated, including as General Manager
of Fortune magazine from 1984 to 1986. From 1973 until 1980, she
was employed by McKinsey & Company.
Gerald R. Marshall became a director of the Company in
December 1997. Since October 1996, Mr. Marshall has served as Vice
Chairman of the Midland Group, an Oklahoma-based financial services
organization. Since December 1993, Mr. Marshall has served as
President and Chief Executive Officer of Midland Asset Management
Co., an asset management and financial consulting firm. He has
served as Chairman and Chief Executive Officer of RAM Management
Associates, Inc., a management contractor for the Resolution Trust
Corporation, since March 1990.
John M. Reardon became a director of the Company in
December 1997 and served as an adviser to the Company's Board of
Directors from August 1994 until December 1997. Mr. Reardon has
been President and Chief Executive Officer of Valencia Bank & Trust
(formerly Valencia National Bank), of Santa Clarita, California,
since August 1994. From 1991 to August 1994, he was Senior Vice
President of RAMCO Oil & Gas, Inc., a former subsidiary of the
Company, and of RAM Management Associates, Inc. From 1987 to 1991,
Mr. Reardon was a Senior Vice President of Wells Fargo Bank.
Larry G. Rampey became a Senior Vice President of the Company
in December 1997 and had been a Vice President of the Company since
1989. From 1972 to 1989, Mr. Rampey held the positions of Vice
President of International Operations, Vice President of Domestic
Operations and staff engineer for Reading & Bates Petroleum Co.
John M. Longmire became a Senior Vice President of the Company
in December 1997 and had been a Vice President of the Company since
1994. Mr. Longmire has been Chief Financial Officer, Treasurer and
Secretary of the Company since August 1994 and was its Controller
from 1990 to February 1994. Previously, he held various financial
management positions with Texas International Company, Amarex, Inc.
and Union Oil Company of California. Mr. Longmire is a Certified
Public Accountant.
Drake N. Smiley became a Senior Vice President of the Company
in December 1997 and had been a Vice President of the Company since
February 1997. Mr. Smiley was Vice President - Land and Legal of
the Company from 1989 to 1994. From 1994 until he rejoined the
Company in 1997, Mr. Smiley served as Vice President - Land of
Continental Resources, Inc., an independent oil and gas company.
From 1980 to 1989, he was employed by Reading & Bates Petroleum
Co., serving as Manager of Land. Mr. Smiley is a member of the
Oklahoma and Tulsa County Bar Associations.
The directors are divided into three classes, with each class
having as equal a number of directors as practicable. The directors
are elected on a staggered basis for three-year terms. One class
stands for re-election at each annual meeting of stockholders. The
Company's executive officers serve at the discretion of the Board
of Directors. The terms of Mr. Lee and Mr. Marshall will expire in
1999, and the terms of Mrs. Bennett and Mr. Reardon will expire in
2000, and Dr. Talley's term will expire in 2001.
Dr. Talley and Mr. Lee beneficially own and were formerly
executive officers of Jobs for St. Landry Parish, Inc., d/b/a
Standard Fittings Company ("Standard Fittings"), a manufacturer of
pipe fittings. Standard Fittings filed a petition pursuant to
Chapter 11 of the U.S. Bankruptcy Code in January 1997 in the U.S.
Bankruptcy Court for the Western District of Louisiana. The Chapter
11 proceeding was dismissed in June 1997.
Executive Compensation
The following table sets forth for 1998 the cash compensation
of (i) the Company's chief executive officer and (ii) each other
person who was an executive officer as of December 31, 1998
(together with the Company's chief executive officer, the "Named
Executive Officers"). As described below, the Company has a
severance agreement with Dr. Talley and an employment agreement
with Mr. Lee. See " Employment and Severance Agreements."
<TABLE>
Summary Compensation Table
<CAPTION>
Securities
Annual Compensation Other Annual Underlying All Other
-------------------------- Compensation Options (# of Compensation
Name and Principal Position Year Salary Bonus <F1> Shares)<F2> ($) <F3>
- --------------------------- ---- ------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William W. Talley II, Ph.D. 1998 $240,000 $150,000 $7,296
Chairman of the Board<F4> 1997 540,860 81,470 - - 7,296
1996 441,336 276,889 9,000
Larry E. Lee 1998 295,000 300,000 7,296
President and Chief Executive 1997 540,860 98,455 - - 7,296
Officer<F5> 1996 418,014 310,758
M. Helen Bennett 1998 30,000 - 0
Vice President<F6> 1997 372,660 46,897 - - 0
1996 315,720 202,380 0
Larry G. Rampey 1998 150,000 50,000 - 6,900
Senior Vice President 1997 130,000 15,416 - 6,900
1996 114,000 30,288 3,600
John M. Longmire 1998 140,000 60,000 -
Senior Vice President, Chief 1997 120,000 15,000 - 7,296
Financial Officer, Treasurer 1996 108,000 30,115 6,930
and Secretary
Drake M. Smiley 1998 130,000 40,000 -
Senior Vice President 1997 97,519 9,584 39,142
1996 - - -
__________________
<FN>
<F1> Personal benefits provided by the Company did not exceed the lesser of
$50,000 or 10% of total annual salary and bonus for any Named Executive
Officer. No other annual compensation was paid.
<F2> No options have been granted to, or are outstanding and held by, the named
Executive Officers.
<F3> Except for Mr. Smiley, the amounts specified represent matching contribu-
tions made by the Company to the account of the executive officer under
the Company's 401(k) Profit Sharing Plan. The amount specified for Mr.
Smiley represents relocation expenses paid by the Company.
<F4> Dr. Talley was Chief Executive Officer until October 31, 1997. Director
fees of $289,380 in 1996 and $180,860 in 1997 are included as salary.
<F5> Mr. Lee was appointed Chief Executive Officer effective November 1, 1997.
Director fees of $289,380 in 1996 and $180,860 in 1997 are included as
salary.
<F6> Mrs. Bennett was Vice President until November 30, 1997. Director fees of
$289,380 in 1996, $168,660 in 1997 and $30,000 in 1998 are included as
salary.
</FN>
</TABLE>
Directors' Compensation
Each director received $289,380 in 1996. Dr. Talley and Mr.
Lee received $180,860 in 1997, and Mrs. Bennett received $168,660
in 1997 for serving as directors. In 1999, the annual fee to be
paid to each non-employee director will be $24,000 plus $1,000 for
each meeting attended. Directors who are also employees of the
Company will not receive annual directors fees. Directors are also
reimbursed for travel and other expenses.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors of the
Company determines the compensation of the Company's executive
officers. During fiscal year 1998, the members of the Compensation
Committee were M. Helen Bennett, Gerald R. Marshall and John M.
Reardon, all of whom are members of the Company's Board of
Directors.
Employment and Severance Agreements
The Company is a party to a Special Severance Agreement with
Dr. Talley which continues until Dr. Talley ceases to be Chairman
of the Board of the Company. During the existence of this
agreement, Dr. Talley will receive an annual base salary of at
least $240,000 and a bonus as determined by the Board. The term of
the agreement ends upon Dr. Talley's death, disability or voluntary
resignation, and may be terminated by the Company for cause. Upon
Dr. Talley's death, his representatives or, upon his disability,
Dr. Talley, will receive accrued but unpaid salary, bonus and
benefits, a pro rata share of any bonus paid for the preceding
year, one year's salary and an amount equal to the highest bonus
paid to him during the term of the agreement. In the event of
Dr. Talley's disability, he will continue to be entitled to receive
benefits for the remainder of the agreement. If Dr. Talley ceases
to be Chairman of the Board other than by reason of death,
disability, for cause or by voluntary resignation, he is entitled
to receive his accrued but unpaid salary and benefits, an amount
equal to a pro rata share of any bonus paid for the immediately
preceding year, plus an amount equal to three times his base
salary.
The Company has an employment agreement with Mr. Lee for an
initial term expiring in December 2000, subject to annual
extensions of one year, at an annual salary of at least $295,000
and an annual bonus to be determined by the Board. Under this
agreement, Mr. Lee's employment may be terminated by the Company
for death or disability, or for cause, and by Mr. Lee for good
reason. Upon Mr. Lee's death, his representatives or, upon his
disability, Mr. Lee, will receive accrued but unpaid salary, bonus
and benefits, a pro rata share of any bonus paid for the
immediately preceding year, one year's salary and an amount equal
to the highest bonus paid to him during the term of the agreement.
In the event of Mr. Lee's disability, he will continue to be
entitled to receive benefits for the remainder of the agreement. If
Mr. Lee ceases to be an employee other than by reason of death,
disability, for cause or by voluntary resignation, he is entitled
to receive his accrued but unpaid salary and benefits, an amount
equal to a pro rata share of any bonus paid for the immediately
preceding year, plus an amount equal to three times his base
salary.
The Company has employment and severance agreements with
Messrs. Longmire, Rampey and Smiley. Each of these agreements
expires December 31, 1999. Under the terms of each agreement, the
officer's employment may be terminated by the Company at any time
for good cause, or for any other reason upon two weeks prior
notice, subject to certain severance payments.
Stock Incentive Plan
The Company's 1998 Stock Incentive Plan (the "Plan")
authorizes the grant of nonqualified stock options, incentive stock
options and restricted stock awards to employees and non-employee
directors. The purpose of the Plan is to create incentives designed
to motivate employees of the Company, and any present or future
parent or subsidiary, and directors of the Company to exert maximum
efforts toward the success and growth of the Company and to attract
and retain experienced individuals who by their position, ability
and diligence are able to make important contributions to the
Company's success. The Plan is administered by the Compensation
Committee of the Board of Directors; however, awards under the Plan
to members of the Compensation Committee are made by the full Board
(whether the Compensation Committee or the Board, the "Committee").
The maximum number of shares of Common Stock for which options
and restricted stock awards may be granted under the Plan is
550,000, subject to adjustment in the event of any stock dividend,
stock split, recapitalization or reorganization or certain business
combinations. Shares subject to previously expired or terminated
options or other forfeited awards which did not result in the
issuance of shares become available again for awards under the
Plan. The shares to be issued under the Plan may be newly issued
shares, treasury shares or shares acquired privately or by
open-market purchases. The number of shares and other terms of each
grant are determined by the Committee; provided that the shares
subject to stock options granted under the Plan and the shares of
restricted stock awarded under the Plan in any year to any
participant may not exceed an aggregate of 25,000. Awards under the
Plan may, in the discretion of the Committee, provide for immediate
vesting upon a change of control (as defined in the Plan).
The price payable upon the exercise of both incentive and
nonqualified stock options may not be less than 100% of the fair
market value of the Common Stock at the time of grant or, in the
case of an incentive stock option granted to an employee owning
stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (a "10% Shareholder"), 110%
of the fair market value of the Common Stock on the date of grant.
Incentive stock options may be granted only to employees, and the
aggregate exercise price of all incentive stock options under all
Company plans becoming exercisable for the first time by an
employee during any calendar year may not exceed $100,000. Each
option granted under the Plan will expire on the date specified by
the Committee, but, with respect to incentive stock options, not
more than ten years from the date of grant or, in the case of a 10%
Shareholder, not more than five years from the date of grant.
Unless the Committee otherwise provides, a stock option will
terminate three months (one year in the event of an optionee's
disability or three years in the event of an optionee's death)
after the optionee's termination of employment or termination as a
director. In no event, however, will an option be exercisable after
its expiration date. The Committee has the power to accelerate the
vesting of options not exercisable on the optionee's termination
date. The exercise price of an option granted under the Plan may be
paid in cash, shares of Common Stock having a fair market value
equal to the exercise price (either shares then owned by the
optionee or to be issued upon exercise of the option) or a
combination of cash and Common Stock. In addition, an optionee may
utilize a broker to effect a contemporaneous sale of sufficient
shares subject to the option to pay the exercise price by following
the procedure set forth in the Plan.
Restricted stock awards will be subject to such terms,
conditions, restrictions and/or limitations as the Committee deems
appropriate including, but not limited to, restrictions on
transferability and continued employment (or service as a director
in the case of non-employee directors).
Outstanding options become nonforfeitable and exercisable in
full immediately prior to the liquidation or dissolution of the
Company or the merger or consolidation of the Company or sale of
all or substantially all of the Company's assets if provision is
not made in such transaction for the assumption by the acquiror of
outstanding unvested options granted under the Plan or the
substitution of new options therefor. Unexercised outstanding
options will terminate upon the consummation of the dissolution or
liquidation of the Company or such merger, consolidation or sale of
assets.
The Plan may be terminated or amended by the Board of
Directors at any time, subject to stockholder approval in the case
of amendments to increase the aggregate number of shares of Common
Stock subject to the Plan or to permit options with below-market
exercise prices. If not earlier terminated, the Plan expires in
2008.
No stock options or restricted stock awards have yet been
granted to officers or directors under the Plan.
Officer and Director Liability
As permitted by the provisions of the Delaware General
Corporation Law, the Company's Certificate of Incorporation,
eliminates in certain circumstances the monetary liability of
directors of the Company for a breach of their fiduciary duty as
directors. These provisions do not eliminate the liability of a
director for:
o a breach of the director's duty of loyalty to the Company or
its stockholders,
o acts or omissions by a director not in good faith or which
involve intentional misconduct or a knowing violation of law,
o liability arising under Section 174 of the Delaware General
Corporation Law (relating to the declaration of dividends and
purchase or redemption of shares in violation of the Delaware
General Corporation Law) or
o any transaction from which the director derived an improper
personal benefit.
In addition, these provisions do not eliminate the liability
of a director for violations of federal securities law, nor do they
limit the rights of the Company or its stockholders, in appropriate
circumstances, to seek equitable remedies such as injunctive or
other forms of non-monetary relief. Such remedies may not be
effective in all cases.
The Certificate and the Bylaws provide that the Company shall
indemnify all of its directors and officers to the full extent
permitted by the Delaware General Corporation Law. Under such
provisions, any director or officer, who in his capacity as such,
is made or threatened to be made a party to any suit or proceeding,
may be indemnified if the Board of Directors determines such
director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of
the Company. The Certificate, Bylaws and the Delaware General
Corporation Law further provide that such indemnification is not
exclusive of any other rights to which such individuals may be
entitled under the Certificate, the Bylaws, any agreement, vote of
stockholders or disinterested directors or otherwise.
The Company has entered into indemnity agreements with each of
its directors and executive officers. Under each indemnity
agreement, the Company will pay on behalf of the indemnitee, and
the indemnitee's executors, administrators and heirs, any amount
which he or she is or becomes legally obligated to pay because of:
o any claim or claims from time to time threatened or made
against him or her by any person because of any act or
omission or neglect or breach of duty, including any actual or
alleged error or misstatement or misleading statement, which
he or she commits or suffers while acting in his or her
capacity as a director and/or officer of the Company or an
affiliate or
o being a party, or being threatened to be made a party, to any
threatened, pending or contemplated action, suit or
proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was
an officer, director, employee or agent of the Company or an
affiliate or is or was serving at the request of the Company
as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
o The payments which the Company will be obligated to make
pursuant to such indemnity agreement include damages, charges,
judgments, fines, penalties, settlements and court costs,
costs of investigation and costs of defense of legal,
equitable or criminal actions, claims or proceedings and
appeals therefrom, and costs of attachment, supersedeas, bail,
surety or other bonds. The Company also intends to provide
liability insurance for each of its directors and executive
officers.
Item 12 Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information regarding
the beneficial ownership of the Common Stock as of December 31,
1998 by:
o each director of the Company who owns Common Stock,
o each Named Executive Officer who owns Common Stock,
o each person known or believed by the Company to own
beneficially 5% or more of the Common Stock, and
o all directors and executive officers as a group, and as
adjusted to give effect to the Offering.
Unless otherwise indicated, each person has sole voting and
dispositive power with respect to such shares.
Shares of
Common Ownership
Name of Beneficial Owner Stock Percentage
- ------------------------ --------- ----------
William W. Talley II, Ph.D. (1)(2)(3) 675,000 24.75%
9400 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Larry E. Lee (1)(2) 675,000 24.75
5100 E. Skelly Drive
Suite 650
Tulsa, Oklahoma 74135
M. Helen Bennett (1)(4) 675,000 24.75
3333 Hagen Road
Napa, California 94558
William S. Price 702,000 25.74
2002 East 46th Street
Tulsa, Oklahoma 74105
All executive officers and directors 2,025,000 74.26
as a group (8 persons)
___________________
(1) Director
(2) Named Executive Officer
(3) Such shares are held in a trust as to which Dr. Talley has
sole voting and dispositive power.
(4) Such shares are held in a trust as to which Mrs. Bennett has
sole voting and dispositive power.
Item 13 Certain Relationships and Related Transactions
The Company completed the redemption of all of its Series B
Preferred Stock in February 1998. The Series B Preferred Stock was
issued in 1987 and 1988 for $10.00 per share. Dr. Talley, Mr. Lee,
Mrs. Bennett and Mr. Price beneficially owned in equal amounts all
of the issued and outstanding shares of Series B Preferred Stock.
The redemption price for each share of Series B Preferred Stock was
$10.00 per share, resulting in the payment of $174,130 to each
holder, for an aggregate redemption price of $696,520.
From May through November 1997, the Company employed William
S. Price, a principal stockholder of the Company, as a consultant
to assist it in identifying acquisition opportunities. Mr. Price
received $15,000 per month, or an aggregate of $105,000, pursuant
to this consulting agreement.
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) The following financial statements of RAM Energy,
Inc. are included in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and
1998.
Consolidated Statements of Operations of the Company for
the years ended December 31, 1996, 1997 and 1998 and of
its Predecessor for the Eleven-Month Period Ended
November 30, 1996.
Consolidated Statements of Stockholders' Deficiency for
the years ended December 31, 1996, 1997, and 1998.
Consolidated Statements of Cash Flows of the Company for
the years ended December 31, 1996, 1997 and 1998 and of
its Predecessor for the Eleven-Month Period Ended
November 30, 1996.
Notes to Consolidated Financial Statements
(2) Not applicable
(3) Exhibits
Exhibit
No. Description of Exhibit
- ------- ----------------------
2 Stock Purchase Agreement dated December 16, 1997 Among
Rolf N. Hufnagel and Robert E. Davis, Jr. and the Company
with respect to the Carlton Acquisition (1)
3.1 Company's Amended and Restated Certificate of
Incorporation (1)
3.2 Company's Amended and Restated Bylaws (1)
4.1 Indenture dated as of February 24, 1998 among the
Company, as issuer, RB Operating Company and RCP Gulf
States, L.L.C., as Subsidiary Guarantors, and United
States Trust Company of New York, as trustee (1)
4.2 Form of 11-1/2% Senior Notes due 2008 (included in
Exhibit 4.1) (1)
4.3 Supplemental Indenture entered into February 24, 1998 by
the Registrant, the Subsidiary Guarantors, the Additional
Guarantors and United States Trust Company of New York,
as Trustee (2)
10.1 Sale and Purchase Agreement by and between Quarles
Drilling Corporation and RAMCO-NYL 1987 Limited
Partnership dated as of June 16, 1997 (1)
10.2 Sale and Purchase Agreement by and among RAMCO-NYL 1987
Limited Partnership and RB Operating Company, and Wynn-Crosby
1996, Ltd., Wildcard Oil & Gas Company, Wynn-Crosby (Texas),
L.L.C. and Providence Energy Corp. dated as of February 13, 1997 (1)
10.4 RAM Energy 1998 Stock Incentive Plan* (1)
10.5 Special Severance Agreement by and between William W.
Talley II and the Company dated as of December 1, 1997* (1)
10.6 Employment Agreement by and between Larry E. Lee and the
Company dated as of December 1, 1997* (1)
10.7 Employment and Severance Agreement by and between John
Longmire and the Company dated as of February 24, 1999* (3)
10.7.1 Employment and Severance Agreement by and between Larry
Rampey and the Company dated as of February 24, 1999* (3)
10.7.2 Employment and Severance Agreement by and between Drake
Smiley and the Company dated as of February 24, 1999* (3)
10.7.3 Employment Agreement by and between John Longmire and the
Company dated as of December 8, 1997* (1)
10.7.4 Employment Agreement by and between Larry Rampey and the
Company dated as of December 8, 1997* (1)
10.7.5 Employment Agreement by and between Drake Smiley and the
Company dated as of December 8, 1997* (1)
10.8 Form of the Company's Indemnity Agreement* (1)
10.9 Amended and Restated Credit Agreement among RAMCO
Operating Company, as Borrower, the Banks named in the
Credit Agreement and Union Bank of California, N.A. as
Agent dated December 12, 1997 (the "Credit Agreement") (1)
10.10 Form of Amended and Restated Revolving Note under the
Credit Agreement (included in Exhibit 10.9) (1)
10.11 Form of Amended and Restated Term Note under the Credit
Agreement (included in Exhibit 10.9) (1)
10.12 Second Amended and Restated Credit Agreement among the
Company, as Borrower, the Financial Institutions named in
the Credit Agreement and Union Bank of California, N.A.,
as Agent dated February 3, 1998 (the "Second Amended
Credit Agreement") (1)
10.13 Form of Second Amended and Restated Revolving Note under
the Second Amended Credit Agreement (included in Exhibit
10.12) (1)
10.14 Form of Promissory Note issued in redemption of Company's
Series B Preferred Stock (1)
21 Subsidiaries of the Company (3)
27 Financial Data Schedule (3)
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-42641) and incorporated by reference herein.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K filed
on March 10, 1998, as the exhibit number 4.2.
(3) Filed herewith.
(b) No report on Form 8-K was filed by RAM Energy, Inc.
during the quarter ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
April 7, 1999 RAM ENERGY, INC.
By LARRY E. LEE
Larry E. Lee
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in capacities and on the dates
indicated.
Signatures Title Date
WILLIAM W. TALLEY
William W. Talley, II, Ph.D. Chairman of the Board April 7, 1999
LARRY E. LEE
Larry E. Lee President and Chief Executive April 7, 1999
Officer (principal executive
officer)
JOHN M. LONGMIRE
John M. Longmire Senior Vice President and April 7, 1999
Chief Financial Officer
(principal financial officer
and principal accounting
officer), Treasurer and
Secretary
M. HELEN BENNETT
M. Helen Bennett Director April 7, 1999
GERALD R. MARSHALL
Gerald R. Marshall Director April 7, 1999
JOHN M. REARDON
John M. Reardon Director April 7, 1999
Supplemental Information to be Furnished With Reports Pursuant
to Section 15(d) of the Act by Registrants Which have Not
Registered Securities Pursuant to Section 12 of the Act.
The Company has not sent, and does not intend to send, an
annual report to security holders covering its last fiscal year,
nor has the Company sent a proxy statement, form of proxy or other
proxy soliciting material to its security holders with respect to
any annual meeting of security holders.
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- -------- ----------- ----------------
2 Stock Purchase Agreement dated Incorporated herein by
December 16, 1997 Among Rolf reference
N. Hufnagel and Robert E.
Davis, Jr. and the Company with
respect to the Carlton Acquisi-
tion
3.1 Company's Amended and Restated Incorporated herein by
Certificate of Incorporation reference
3.2 Company's Amended and Restated Incorporated herein by
Bylaws reference
4.1 Indenture dated as of February Incorporated herein by
24, 1998 among the Company, as reference
issuer, RB Operating Company and
RCP Gulf States, L.L.C., as
Subsidiary Guarantors, and
United States Trust Company of
New York, as trustee
4.2 Form of 11-1/2% Senior Notes due Incorporated herein by
2008 (included in Exhibit 4.1) reference
4.3 Supplemental Indenture entered Incorporated herein by
into February 24, 1998 by the reference
Registrant, the Subsidiary
Guarantors, the Additional
Guarantors and United States
Trust Company of New York, as
Trustee
10.1 Sale and Purchase Agreement by Incorporated herein by
and between Quarles Drilling reference
Corporation and RAMCO-NYL 1987
Limited Partnership dated as of
June 16, 1997
10.2 Sale and Purchase Agreement by Incorporated herein by
and among RAMCO-NYL 1987 Limited reference
Partnership and RB Operating
Company, and Wynn-Crosby 1996,
Ltd., Wildcard Oil & Gas Company,
Wynn-Crosby (Texas), L.L.C. and
Providence Energy Corp. dated as
of February 13, 1997
10.4 RAM Energy 1998 Stock Incentive Incorporated herein by
Plan reference
10.5 Special Severance Agreement by Incorporated herein by
and between William W. Talley II reference
and the Company dated as of
December 1, 1997
10.6 Employment Agreement by and Incorporated herein by
between Larry E. Lee and the reference
Company dated as of December 1,
1997
10.7 Employment and Severance Agree- Filed herewith
ment by and between John electronically
Longmire and the Company dated
as of February 24, 1999
10.7.1 Employment and Severance Agree- Filed herewith
ment by and between Larry electronically
Rampey and the Company dated
as of February 24, 1999
10.7.2 Employment and Severance Agree- Filed herewith
ment by and between Drake electronically
Smiley and the Company dated
as of February 24, 1999
10.7.3 Employment Agreement by and Incorporated herein by
between John Longmire and the reference
Company dated as of December 8,
1997
10.7.4 Employment Agreement by and Incorporated herein by
between Larry Rampey and the reference
Company dated as of December
8, 1997
10.7.5 Employment Agreement by and Incorporated herein by
between Drake Smiley and the reference
Company dated as of December
8, 1997
10.8 Form of the Company's Indemnity Incorporated herein by
Agreement reference
10.9 Amended and Restated Credit Incorporated herein by
Agreement among RAMCO Operating reference
Company, as Borrower, the
Banks named in the Credit
Agreement and Union Bank of
California, N.A. as Agent dated
December 12, 1997 (the "Credit
Agreement")
10.10 Form of Amended and Restated Incorporated herein by
Revolving Note under the Credit reference
Agreement (included in Exhibit
10.9)
10.11 Form of Amended and Restated Incorporated herein by
Term Note under the Credit reference
Agreement (included in Exhibit
10.9)
10.12 Second Amended and Restated Incorporated herein by
Credit Agreement among the reference
Company, as Borrower, the
Financial Institutions named
in the Credit Agreement and
Union Bank of California, N.A.,
as Agent dated February 3,
1998 (the "Second Amended
Credit Agreement")
10.13 Form of Second Amended and Incorporated herein by
Restated Revolving Note under reference
the Second Amended Credit
Agreement (included in Exhibit
10.12)
10.14 Form of Promissory Note issued Incorporated herein by
in redemption of Company's reference
Series B Preferred Stock
21 Subsidiaries of the Company Filed herewith
electronically
27 Financial Data Schedule Filed herewith
electronically
EXHIBIT 10.7
February 24, 1999
Mr. John M. Longmire, Vice President
RAM Energy, Inc.
One Benham Place, Suite 130
9400 N. Broadway
Oklahoma City, OK 73114
RE: Employment and Severance Agreement
Dear John:
This letter agreement (this "Agreement"), when executed by you
in the time and manner hereinafter provided, will constitute an
employment and severance agreement between you and RAM Energy, Inc.
(the "Company"), superseding all existing employment, severance and
similar agreements between you and the Company; provided, however,
that the existing Employment and Severance Agreement between you
and the Company dated January 1, 1998 through December 31, 1998
shall remain in effect until execution of this agreement. The
terms of this Agreement are as follows:
Term. The term of this Agreement shall commence January 1, 1999, and
shall continue until December 31, 1999.
Title; Duties. Your job title will be "Senior Vice President and
Treasurer" of the Company. You will perform duties commensurate with your
position and as assigned to you by the President or Chairman of the
Company or their designee. During the term of this Agreement you
will devote your full time and attention during normal business
hours to the business of the Company and will not be employed by or
perform any professional work or services, including consulting,
for any other person, firm or entity.
3. Salary. Your base salary will be $12,083.33 per month,
payable twice monthly in equal installments, less applicable
withholding and other payroll taxes and deposits. Additionally,
you will receive life, disability and health insurance, expense
account and other benefits as are available to other non-director
officers of the Company, and three weeks paid vacation annually
during the term hereof.
4. Termination of Employment.
4.1 By the Company. Your employment may be terminated
by the Company at any time upon two weeks prior written notice
(except where termination is for gross neglect of your duties, breach
by you of the terms of this Agreement or willful misconduct, hereinafter
referred to as "Good Cause", in which event termination may be effective
immediately upon notice). Subject to the provisions in Section 4.3 hereof
regarding termination of employment following a "Change of Control"
(as hereinafter defined), in the event your employment is terminated by
the Company at any time (i) prior to June 30, 1999 (other than for Good
Cause), you will be entitled to receive as a severance payment (A) an
amount equal to your monthly base salary times the number of months
(pro rated for any partial month if the effective date of termination is
other than the end of a month) remaining until the expiration of the term
hereof, plus (B) an amount equal to your monthly base salary times the
number of years (pro rated for any partial year) you have been employed
by the Company, or (ii) after June 30, 1999 (other than for Good Cause),
you will be entitled to receive as a severance payment (A) an amount equal
to six (6) times your monthly base salary, plus (B) an amount equal to
your monthly base salary times the number of years (pro rated for any
partial year) you have been employed by the Company, all less applicable
withholding and other payroll taxes and deposits. For purposes of the
foregoing, the date of your initial employment with the Company shall be
conclusively determined to be June 1, 1990, such that each full year of
your employment with the Company shall end on May 31 of each subsequent
year. In addition to the payment described at (i) or (ii) above, whichever
is applicable, you also shall be entitled to receive payment for accrued
but unused vacation based on your monthly base salary. In the event your
employment is terminated by the Company at any time for Good Cause, you
shall not be entitled to receive any severance payment other than for
accrued but unused vacation. In the event the Company fails to make any
salary payment due under this Agreement within five (5) days after the due
date, and provided you are not in breach of the terms of this Agreement, you
may terminate your employment at any time thereafter (but prior to the time
the delinquent payment is made) by a written notice to the President or
Chairman of the Company, in which event your employment will be deemed to
have been terinated by the Company for purposes of this Section 4.1 as of
the date such notice is delivered.
4.2 By You. If during the term hereof you terminate
(other than a termination by you pursuant to the last sentence of
Section 4.1) or are deemed to have terminated (by becoming an
employee of or performing professional work for or consulting with
any other person, firm or entity) your employment with the Company,
then you shall not be entitled to receive any severance payment
(other than for accrued but unused vacation as provided in Section
4.1 above).
4.3 Termination Following a Change of Control. In the
event a Change of Control occurs during the term hereof, and
following such Change of Control (i) your employment is terminated by
the Company (other than for Good Cause) during the term hereof, or
(ii) you are not offered, prior to December 1, 1999, a renewal contract
for calendar year 2000 for employment by the Company (or its successor
by merger), in a comparable position in the same general location (i.e.,
the same city or metropolitan area in which you are employed by the
Company at the time such Change of Control occurs), at not less than the
same salary, and with comparable severances and other benefits as
provided under this Agreement (other than a Change of Control
provision such as this Section 4.3), then upon the effective date
of termination of your employment (in the case of clause (ii) next
above, December 31, 1999), you will be entitled to receive as a
severance payment the same amount calculated pursuant to Section
4.1 hereof, except that the amount calculated pursuant to clause
(i) (B) or (ii) (B) of Section 4.1, whichever is applicable, shall
be doubled, that is, in addition to the amount calculated pursuant
to clause (i) (A) or (ii) (A), you shall receive two (2) month's
base salary for each year of employment by the Company (pro rated
for a partial year). As used herein, the term "Change of Control"
shall mean any change in the composition of the Board of Directors
of the Company (the "Board") resulting in the current stockholder
directors (M. Helen Bennett, Larry E. Lee and William W. Talley,
II) or their designees (in the event one of more of the current
directors chooses not to serve as a director and causes his or her
designee to be elected in lieu of such director), comprising less
than one-half (1/2) of the members of the Board. Notwithstanding
the foregoing, in no event shall you ever be entitled to receive as
a severance payment upon a Change of Control an amount that would
result in the imposition of the excise tax provided for in Section
4999 of the Internal Revenue Code of 1986, as amended (the "Excise
Tax"), and in the event the severance payment calculated pursuant
to this Section 4.3 would result in the imposition of the Excise
Tax, the amount so calculated shall be reduced to the amount that
is one dollar ($1) less than the amount that would result in the
imposition of the Excise Tax.
4.4 Death or Disability. In the event you die during
the term hereof, your employment will be deemed to have been
terminated by the Company (other than for cause) as of the date of
death. In the event you become permanently disabled during the
term hereof, you shall continue to receive your base salary for a
period of 12 months following the date of disability and shall be
deemed an employee of the Company during such 12-month period for
purposes of other employee benefit plans and programs, except to
the extent prohibited by the terms of any such plan.
5. Renewal. In the event the Company desires to
continue your employment with the Company beyond December 31, 1999,
the Company will so notify you during the month of November 1999, but
in no event later than November 30, 1999. In such event, the President
of the Company will discuss with you the Company's proposal for renewal
of this Agreement for an additional one-year term on substantially
the same terms and conditions as this Agreement at a salary not
less than the salary provided herein. In the event a renewal
agreement as hereinabove described is not offered by the Company,
then provided you have complied with the provisions of Section 2 of
this Agreement at all times prior thereto, your employment will be deemed
terminated by the Company effective December 31, 1999. In the event a
renewal agreement as hereinabove described is offered by the Company but
rejected by you, then provided you have complied with the provisions of
Section 2 of this Agreement at all times prior thereto, your employment
will be deemed terminated by you effective December 31, 1999; however,
and notwithstanding the provisions of Section 4.2 hereof, in such event
you will be entitled to receive as a severance payment upon such
termination an amount equal to three (3) times your monthly base salary,
plus an amount for accrued but unused vacation based on your monthly
salary, less applicable withholding and other payroll taxes and deposits.
6. Exclusive Obligation. You acknowledge and agree that the
Company has no obligation to continue your employment or to make
any severance payment of any nature upon termination of your
employment except as provided herein or in a subsequent written
agreement executed by you and the Company.
7. Indemnification. To the fullest extent allowed by the
Delaware General Corporation Law and the Company's bylaws with
respect to its officers and directors, the Company agrees to
indemnify you and to hold you harmless from and against any and all
losses, claims, damages, liabilities and legal and other expenses
(including costs of investigation) incurred by you and arising out
of the performance of your duties and responsibilities under this
Agreement, regardless of the time such claim or cause of action is
asserted.
Confidentiality. The terms of this Agreement shall be held by
you in strict confidence and shall not be released or disclosed by you
to any third party.
Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Oklahoma
applicable to contracts made and to be performed entirely therein.
Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors (including successors by merger or reorganization) and assigns;
provided, however, that your obligations hereunder are personal in
nature and may not be assigned, and that the obligations of the
Company hereunder may be assigned only with your prior written
consent.
If you are in agreement with the terms hereof, please so
indicate by executing a copy of this letter in the space provided
and returning it to us within five days of the date hereof.
Very truly yours,
RAM Energy, Inc.
By
Larry E. Lee, President
Chief Executive Officer
Agreed to and accepted
this 24th day of February, 1999
John M. Longmire
EXHIBIT 10.7.1
February 24, 1999
Mr. Larry G. Rampey, Vice President
RAM Energy, Inc.
5100 East Skelly Drive, Suite 650
Tulsa, OK 74135
RE: Employment and Severance Agreement
Dear Larry:
This letter agreement (this "Agreement"), when executed by you
in the time and manner hereinafter provided, will constitute an
employment and severance agreement between you and RAM Energy, Inc.
(the "Company"), superseding all existing employment, severance and
similar agreements between you and the Company; provided, however,
that the existing Employment and Severance Agreement between you
and the Company dated January 1, 1998 through December 31, 1998
shall remain in effect until execution of this agreement. The
terms of this Agreement are as follows:
Term. The term of this Agreement shall commence January 1,
1999, and shall continue until December 31, 1999.
Title; Duties. Your job title will be "Senior Vice President
Operations" of the Company. You will perform duties commensurate with your
position and as assigned to you by the President or Chairman of the
Company or their designee. During the term of this Agreement you
will devote your full time and attention during normal business
hours to the business of the Company and will not be employed by or
perform any professional work or services, including consulting,
for any other person, firm or entity.
3. Salary. Your base salary will be $12,916.67 per month,
payable twice monthly in equal installments, less applicable
withholding and other payroll taxes and deposits. Additionally,
you will receive life, disability and health insurance, expense
account and other benefits as are available to other non-director
officers of the Company, and three weeks paid vacation annually
during the term hereof.
4. Termination of Employment.
4.1 By the Company. Your employment may be terminated
by the Company at any time upon two weeks prior written notice
(except where termination is for gross neglect of your duties, breach
by you of the terms of this Agreement or willful misconduct, hereinafter
referred to as "Good Cause", in which event termination may be effective
immediately upon notice). Subject to the provisions in Section 4.3 hereof
regarding termination of employment following a "Change of Control"
(as hereinafter defined), in the event your employment is
terminated by the Company at any time (i) prior to June 30, 1999
(other than for Good Cause), you will be entitled to receive as a
severance payment (A) an amount equal to your monthly base salary
times the number of months (pro rated for any partial month if the
effective date of termination is other than the end of a month)
remaining until the expiration of the term hereof, plus (B) an
amount equal to your monthly base salary times the number of years
(pro rated for any partial year) you have been employed by the
Company, or (ii) after June 30, 1999 (other than for Good Cause),
you will be entitled to receive as a severance payment (A) an
amount equal to six (6) times your monthly base salary, plus (B) an
amount equal to your monthly base salary times the number of years
(pro rated for any partial year) you have been employed by the
Company, all less applicable withholding and other payroll taxes
and deposits. For purposes of the foregoing, the date of your
initial employment with the Company shall be conclusively
determined to be June 1, 1990, such that each full year of your
employment with the Company shall end on May 31 of each subsequent
year. In addition to the payment described at (i) or (ii) above,
whichever is applicable, you also shall be entitled to receive
payment for accrued but unused vacation based on your monthly base
salary. In the event your employment is terminated by the Company
at any time for Good Cause, you shall not be entitled to receive
any severance payment other than for accrued but unused vacation.
In the event the Company fails to make any salary payment due under
this Agreement within five (5) days after the due date, and
provided you are not in breach of the terms of this Agreement, you
may terminate your employment at any time thereafter (but prior to
the time the delinquent payment is made) by a written notice to the
President or Chairman of the Company, in which event your
employment will be deemed to have been terinated by the Company for
purposes of this Section 4.1 as of the date such notice is
delivered.
4.2 By You. If during the term hereof you terminate
(other than a termination by you pursuant to the last sentence of
Section 4.1) or are deemed to have terminated (by becoming an
employee of or performing professional work for or consulting with
any other person, firm or entity) your employment with the Company,
then you shall not be entitled to receive any severance payment
(other than for accrued but unused vacation as provided in Section
4.1 above).
4.3 Termination Following a Change of Control. In the
event a Change of Control occurs during the term hereof, and
following such Change of Control (i) your employment is terminated by
the Company (other than for Good Cause) during the term hereof, or
(ii) you are not offered, prior to December 1, 1999, a renewal contract
for calendar year 2000 for employment by the Company (or its successor
by merger), in a comparable position in the same general location (i.e.,
the same city or metropolitan area in which you are employed by the
Company at the time such Change of Control occurs), at not less than the
same salary, and with comparable severances and other benefits as
provided under this Agreement (other than a Change of Control
provision such as this Section 4.3), then upon the effective date
of termination of your employment (in the case of clause (ii) next
above, December 31, 1999), you will be entitled to receive as a
severance payment the same amount calculated pursuant to Section
4.1 hereof, except that the amount calculated pursuant to clause
(i) (B) or (ii) (B) of Section 4.1, whichever is applicable, shall
be doubled, that is, in addition to the amount calculated pursuant
to clause (i) (A) or (ii) (A), you shall receive two (2) month's
base salary for each year of employment by the Company (pro rated
for a partial year). As used herein, the term "Change of Control"
shall mean any change in the composition of the Board of Directors
of the Company (the "Board") resulting in the current stockholder
directors (M. Helen Bennett, Larry E. Lee and William W. Talley,
II) or their designees (in the event one of more of the current
directors chooses not to serve as a director and causes his or her
designee to be elected in lieu of such director), comprising less
than one-half (1/2) of the members of the Board. Notwithstanding
the foregoing, in no event shall you ever be entitled to receive as
a severance payment upon a Change of Control an amount that would
result in the imposition of the excise tax provided for in Section
4999 of the Internal Revenue Code of 1986, as amended (the "Excise
Tax"), and in the event the severance payment calculated pursuant
to this Section 4.3 would result in the imposition of the Excise
Tax, the amount so calculated shall be reduced to the amount that
is one dollar ($1) less than the amount that would result in the
imposition of the Excise Tax.
4.4 Death or Disability. In the event you die during
the term hereof, your employment will be deemed to have been
terminated by the Company (other than for cause) as of the date of
death. In the event you become permanently disabled during the
term hereof, you shall continue to receive your base salary for a
period of 12 months following the date of disability and shall be
deemed an employee of the Company during such 12-month period for
purposes of other employee benefit plans and programs, except to
the extent prohibited by the terms of any such plan.
5. Renewal. In the event the Company desires to continue
your employment with the Company beyond December 31, 1999, the Company will
so notify you during the month of November 1999, but in no event later
than November 30, 1999. In such event, the President of the
Company will discuss with you the Company's proposal for renewal
of this Agreement for an additional one-year term on substantially
the same terms and conditions as this Agreement at a salary not
less than the salary provided herein. In the event a renewal
agreement as hereinabove described is not offered by the Company,
then provided you have complied with the provisions of Section 2 of
this Agreement at all times prior thereto, your employment will be deemed
terminated by the Company effective December 31, 1999. In the event a
renewal agreement as hereinabove described is offered by the Company but
rejected by you, then provided you have complied with the provisions of
Section 2 of this Agreement at all times prior thereto, your employment
will be deemed terminated by you effective December 31, 1999; however,
and notwithstanding the provisions of Section 4.2 hereof, in such
event you will be entitled to receive as a severance payment upon
such termination an amount equal to three (3) times your monthly
base salary, plus an amount for accrued but unused vacation based
on your monthly salary, less applicable withholding and other
payroll taxes and deposits.
6. Exclusive Obligation. You acknowledge and agree that the
Company has no obligation to continue your employment or to make
any severance payment of any nature upon termination of your
employment except as provided herein or in a subsequent written
agreement executed by you and the Company.
7. Indemnification. To the fullest extent allowed by the
Delaware General Corporation Law and the Company's bylaws with
respect to its officers and directors, the Company agrees to
indemnify you and to hold you harmless from and against any and all
losses, claims, damages, liabilities and legal and other expenses
(including costs of investigation) incurred by you and arising out
of the performance of your duties and responsibilities under this
Agreement, regardless of the time such claim or cause of action is
asserted.
Confidentiality. The terms of this Agreement shall be held by
you in strict confidence and shall not be released or disclosed by you
to any third party.
Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Oklahoma
applicable to contracts made and to be performed entirely therein.
Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
(including successors by merger or reorganization) and assigns;
provided, however, that your obligations hereunder are personal in
nature and may not be assigned, and that the obligations of the
Company hereunder may be assigned only with your prior written
consent.
If you are in agreement with the terms hereof, please so
indicate by executing a copy of this letter in the space provided
and returning it to us within five days of the date hereof.
Very truly yours,
RAM Energy, Inc.
By
Larry E. Lee, President
Chief Executive Officer
Agreed to and accepted
this 24th day of February, 1999
Larry G. Rampey
EXHIBIT 10.7.2
February 24, 1999
Mr. Drake N. Smiley, Vice President
RAM Energy, Inc.
5100 East Skelly Drive, Suite 650
Tulsa, OK 74135
RE: Employment and Severance Agreement
Dear Drake:
This letter agreement (this "Agreement"), when executed by you
in the time and manner hereinafter provided, will constitute an
employment and severance agreement between you and RAM Energy, Inc.
(the "Company"), superseding all existing employment, severance and
similar agreements between you and the Company; provided, however,
that the existing Employment and Severance Agreement between you
and the Company dated January 1, 1998 through December 31, 1998
shall remain in effect until execution of this agreement. The
terms of this Agreement are as follows:
Term. The term of this Agreement shall commence January 1,
1999, and shall continue until December 31, 1999.
2. Title; Duties. Your job title will be "Senior Vice
President Land" of the Company. You will perform duties
commensurate with your position and as assigned to you by the
President or Chairman of the Company or their designee. During the
term of this Agreement you will devote your full time and attention
during normal business hours to the business of the Company and
will not be employed by or perform any professional work or
services, including consulting, for any other person, firm or
entity.
3. Salary. Your base salary will be $11,666.67 per month,
payable twice monthly in equal installments, less applicable
withholding and other payroll taxes and deposits. Additionally,
you will receive life, disability and health insurance, expense
account and other benefits as are available to other non-director
officers of the Company, and three weeks paid vacation annually
during the term hereof.
4. Termination of Employment.
4.1 By the Company. Your employment may be terminated
by the Company at any time upon two weeks prior written notice
(except where termination is for gross neglect of your duties, breach
by you of the terms of this Agreement or willful misconduct, hereinafter
referred to as "Good Cause", in which event termination may be effective
immediately upon notice). Subject to the provisions in Section 4.3 hereof
regarding termination of employment following a "Change of Control"
(as hereinafter defined), in the event your employment is
terminated by the Company at any time (i) prior to June 30, 1999
(other than for Good Cause), you will be entitled to receive as a
severance payment (A) an amount equal to your monthly base salary
times the number of months (pro rated for any partial month if the
effective date of termination is other than the end of a month)
remaining until the expiration of the term hereof, plus (B) an
amount equal to your monthly base salary times the number of years
(pro rated for any partial year) you have been employed by the
Company, or (ii) after June 30, 1999 (other than for Good Cause),
you will be entitled to receive as a severance payment (A) an
amount equal to six (6) times your monthly base salary, plus (B) an
amount equal to your monthly base salary times the number of years
(pro rated for any partial year) you have been employed by the
Company, all less applicable withholding and other payroll taxes
and deposits. For purposes of the foregoing, the date of your
initial employment with the Company shall be conclusively
determined to be June 1, 1990, such that each full year of your
employment with the Company shall end on May 31 of each subsequent
year. In addition to the payment described at (i) or (ii) above,
whichever is applicable, you also shall be entitled to receive
payment for accrued but unused vacation based on your monthly base
salary. In the event your employment is terminated by the Company
at any time for Good Cause, you shall not be entitled to receive
any severance payment other than for accrued but unused vacation.
In the event the Company fails to make any salary payment due under
this Agreement within five (5) days after the due date, and
provided you are not in breach of the terms of this Agreement, you
may terminate your employment at any time thereafter (but prior to
the time the delinquent payment is made) by a written notice to the
President or Chairman of the Company, in which event your
employment will be deemed to have been terinated by the Company for
purposes of this Section 4.1 as of the date such notice is
delivered.
4.2 By You. If during the term hereof you terminate
(other than a termination by you pursuant to the last sentence of
Section 4.1) or are deemed to have terminated (by becoming an
employee of or performing professional work for or consulting with
any other person, firm or entity) your employment with the Company,
then you shall not be entitled to receive any severance payment
(other than for accrued but unused vacation as provided in Section
4.1 above).
4.3 Termination Following a Change of Control. In the
event a Change of Control occurs during the term hereof, and
following such Change of Control (i) your employment is terminated by
the Company (other than for Good Cause) during the term hereof, or
(ii) you are not offered, prior to December 1, 1999, a renewal contract
for calendar year 2000 for employment by the Company (or its successor
by merger), in a comparable position in the same general location (i.e.,
the same city or metropolitan area in which you are employed by the Company
at the time such Change of Control occurs), at not less than the
same salary, and with comparable severances and other benefits as
provided under this Agreement (other than a Change of Control
provision such as this Section 4.3), then upon the effective date
of termination of your employment (in the case of clause (ii) next
above, December 31, 1999), you will be entitled to receive as a
severance payment the same amount calculated pursuant to Section
4.1 hereof, except that the amount calculated pursuant to clause
(i) (B) or (ii) (B) of Section 4.1, whichever is applicable, shall
be doubled, that is, in addition to the amount calculated pursuant
to clause (i) (A) or (ii) (A), you shall receive two (2) month's
base salary for each year of employment by the Company (pro rated
for a partial year). As used herein, the term "Change of Control"
shall mean any change in the composition of the Board of Directors
of the Company (the "Board") resulting in the current stockholder
directors (M. Helen Bennett, Larry E. Lee and William W. Talley,
II) or their designees (in the event one of more of the current
directors chooses not to serve as a director and causes his or her
designee to be elected in lieu of such director), comprising less
than one-half (1/2) of the members of the Board. Notwithstanding
the foregoing, in no event shall you ever be entitled to receive as
a severance payment upon a Change of Control an amount that would
result in the imposition of the excise tax provided for in Section
4999 of the Internal Revenue Code of 1986, as amended (the "Excise
Tax"), and in the event the severance payment calculated pursuant
to this Section 4.3 would result in the imposition of the Excise
Tax, the amount so calculated shall be reduced to the amount that
is one dollar ($1) less than the amount that would result in the
imposition of the Excise Tax.
4.4 Death or Disability. In the event you die during
the term hereof, your employment will be deemed to have been
terminated by the Company (other than for cause) as of the date of
death. In the event you become permanently disabled during the
term hereof, you shall continue to receive your base salary for a
period of 12 months following the date of disability and shall be
deemed an employee of the Company during such 12-month period for
purposes of other employee benefit plans and programs, except to
the extent prohibited by the terms of any such plan.
5. Renewal. In the event the Company desires to
continue your employment with the Company beyond December 31, 1999, the
Company will so notify you during the month of November 1999, but in no
event later than November 30, 1999. In such event, the President of the
Company will discuss with you the Company's proposal for renewal
of this Agreement for an additional one-year term on substantially
the same terms and conditions as this Agreement at a salary not
less than the salary provided herein. In the event a renewal
agreement as hereinabove described is not offered by the Company,
then provided you have complied with the provisions of Section 2 of
this Agreement at all times prior thereto, your employment will be deemed
terminated by the Company effective December 31, 1999. In the event a
renewal agreement as hereinabove described is offered by the Company but
rejected by you, then provided you have complied with the provisions of
Section 2 of this Agreement at all times prior thereto, your employment
will be deemed terminated by you effective December 31, 1999; however,
and notwithstanding the provisions of Section 4.2 hereof, in such
event you will be entitled to receive as a severance payment upon
such termination an amount equal to three (3) times your monthly
base salary, plus an amount for accrued but unused vacation based
on your monthly salary, less applicable withholding and other
payroll taxes and deposits.
6. Exclusive Obligation. You acknowledge and agree that the
Company has no obligation to continue your employment or to make
any severance payment of any nature upon termination of your
employment except as provided herein or in a subsequent written
agreement executed by you and the Company
7. Indemnification. To the fullest extent allowed by the
Delaware General Corporation Law and the Company's bylaws with
respect to its officers and directors, the Company agrees to
indemnify you and to hold you harmless from and against any and all
losses, claims, damages, liabilities and legal and other expenses
(including costs of investigation) incurred by you and arising out
of the performance of your duties and responsibilities under this
Agreement, regardless of the time such claim or cause of action is
asserted.
Confidentiality. The terms of this Agreement shall be held by
you in strict confidence and shall not be released or disclosed by you
to any third party.
Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Oklahoma
applicable to contracts made and to be performed entirely therein.
Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors
(including successors by merger or reorganization) and assigns;
provided, however, that your obligations hereunder are personal in
nature and may not be assigned, and that the obligations of the
Company hereunder may be assigned only with your prior written
consent.
If you are in agreement with the terms hereof, please so
indicate by executing a copy of this letter in the space provided
and returning it to us within five days of the date hereof.
Very truly yours,
RAM Energy, Inc.
By
Larry E. Lee, President
Chief Executive Officer
Agreed to and accepted
this 24th day of February, 1999
Drake N. Smiley
EXHIBIT 21
SUBSIDIARIES
Subsidiary State or Organization
RLP Gulf States, L.L.C. Oklahoma
RB Operating Company Delaware
Magic Circle Energy Corporation Delaware
Magic Circle Acquisition
Corporation Oklahoma
Carmen Development Corporation Oklahoma
Carmen Field Limited
Partnership Oklahoma
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,603
<SECURITIES> 0
<RECEIVABLES> 5,504
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<DEPRECIATION> (28,388)
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<BONDS> 131,630
0
0
<COMMON> 27
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