UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
Commission File Number 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) 632-0620
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
2,727,000 shares of common stock issued and outstanding
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - December 31, 1997 and
September 30, 1998 (unaudited)
Consolidated Statements of Operations - Three months
and nine months ended September 30, 1997 and 1998
(unaudited)
Consolidated Statements of Cash Flows - Three months
and nine months ended September 30, 1997 and 1998
(unaudited)
Notes to Unaudited Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Other Information
Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
In preparing its 1998 Form 10-K, the Company discovered that its price
computations and, to a lesser extent, estimated volumes of gas and natural
gas liquids, used in this 10-Q as originally filed were incorrectly
calculated. The Company also attempted to change existing gas contracts
to "keep whole" on a BTU basis from "percentage of proceeds" for natural
gas liquids, which resulted in incorrect price computations under its
forward delivery contracts.
The Company has elected to report natural gas liquid quantities and
revenues with oil rather than with gas. This equates the Company's "pure
natural gas" price per Mcf (approximately the same as per MMbtu price)
with recognized industry indexes, and does not significantly distort its
realized well-head price for oil on a per barrel basis.
PART I. FINANCIAL INFORMATION
Item 1.
<TABLE>
RAM Energy, Inc.
Consolidated Balance Sheets
<CAPTION>
Restated
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,248,421 $ 3,703,884
Accounts receivable:
Oil and gas sales 4,161,392 4,433,530
Joint interest operations, net of allowance
for doubtful accounts of $438,819 in 1997
and $193,373 in 1998 986,571 1,869,618
Related parties 10,000 175,022
Other 23,841 1,000,000
Prepaid expenses and deposits 365,649 581,529
------------------------------
Total current assets 6,795,874 11,763,583
Properties and equipment, at cost:
Oil and gas properties and equipment, based
on full cost accounting 72,696,425 115,830,854
Gathering and disposal systems - 39,071,000
Other property and equipment 3,499,840 3,690,624
------------------------------
76,196,265 158,592,478
Less accumulated amortization and
depreciation 15,622,566 25,514,456
------------------------------
Net properties and equipment 60,573,699 133,078,022
Investment in RVC Energy, Inc. (Note 2) - 1,859,330
Other assets:
Deferred loan costs, net of accumulated
amortization of $356,889 in 1997 and
$623,132 in 1998 1,290,299 1,026,932
Deferred offering costs, net of accumulated
amortization of none in 1997 and $293,987
in 1998 733,602 4,714,401
Other 333,895 1,093,369
------------------------------
Total assets $69,727,369 $153,535,637
==============================
Liabilities and stockholders' equity (deficiency)
Current liabilities:
Accounts payable:
Trade $3,934,822 $6,014,015
Oil and gas proceeds due others 3,032,659 3,906,895
Accrued liabilities:
Compensation 179,600 114,600
Interest 379,612 1,845,918
Other 270,000 270,000
Preferred stock redemption 1,473,660 -
Long-term debt due within one year (Note 3) 97,723 114,526
------------------------------
Total current liabilities 9,368,076 12,265,954
Gas balancing liability not expected to be
settled within one year 491,237 195,835
Long-term debt due after one year (Note 3) 62,127,442 132,548,782
Deferred income taxes - 17,501,000
Other noncurrent liabilities 1,123,602 118,617
Commitments and contingencies 600,000 758,000
Stockholders' equity (deficiency):
Preferred stock, $.01 par value;
authorized-5,000,000 shares;
none issued - -
Common stock, $.01 par value; authorized-
15,000,000 shares; issued and
outstanding-2,727,000 shares 27,270 27,270
Paid-in capital 16,074 16,074
Accumulated deficit (4,026,332) (9,895,895)
------------------------------
Stockholders' equity (deficiency) (3,982,988) (9,852,551)
------------------------------
Total liabilities and stockholders' equity
(deficiency) $69,727,369 $153,535,637)
==============================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
RAM Energy, Inc.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
Restated Restated
1997 1998 1997 1998
---------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas sales $ 5,294,892 $ 6,511,618 $16,819,429 $19,107,507
Gathering systems - 1,853,000 - 4,214,000
Other 28,729 96,744 70,729 181,191
---------------------------------------------------
Total operating revenues 5,323,621 8,461,362 16,890,158 23,502,698
Operating expenses:
Oil and gas production
expenses 1,675,662 2,054,735 4,795,344 6,335,700
Oil and gas purchases - 1,271,000 - 2,884,000
Gathering system operations - 142,000 - 332,000
Amortization and
depreciation 1,798,973 4,075,761 5,268,012 10,165,100
General and administrative,
overhead and other
expenses, net of
operator's overhead fees
to unrelated interests 1,577,985 852,539 3,325,170 2,874,407
---------------------------------------------------
Total operating expenses 5,052,620 8,396,035 13,388,526 22,591,207
---------------------------------------------------
Operating income 271,001 65,327 3,501,632 911,491
Other income (expense):
Interest expense (1,356,499) (3,845,112) (3,787,067) (9,976,574)
Interest income 17,315 109,073 42,611 281,190
Equity in net loss of RVC
Energy, Inc. (Note 2) - (140,670) - (140,670)
---------------------------------------------------
Loss before income taxes (1,068,183) (3,811,382) (242,824) (8,924,563)
Income taxes - (1,451,000) - (3,055,000)
---------------------------------------------------
Net loss $(1,068,183) $(2,360,382) $ (242,824) $ (5,869,563)
===================================================
Net loss per share $(.39) $(.87) $(.09) $(2.15)
===================================================
Weighted average shares
outstanding 2,727,000 2,727,000 2,727,000 2,727,000
===================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
RAM Energy, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
Restated Restated
1997 1998 1997 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss $( 1,068,183) $( 2,360,382) $ (242,824) $( 5,869,563)
Adjustments to reconcile net
loss to net cash provided
(used) by operating
activities:
Amortization of Senior
Notes discount and fees
included in interest
expense - 166,314 - 389,787
Amortization and depreciation:
Oil and gas properties
and equipment 1,666,512 3,444,192 4,870,629 8,592,862
Gathering and disposal
systems - 487,500 - 1,137,500
Credit facility fees 82,237 206,620 246,713 381,243
Other property and equipment 50,224 52,449 150,670 168,495
Equity in net loss of RVC
Energy, Inc. - 140,670 - 140,670
Deferred income taxes - (1,451,000) - (3,055,000)
Cash provided (used) by
changes in operating
assets and liabilities:
Prepaid expenses and
deposits 197,766 664,831 111,195 579,120
Accounts receivable (1,423,234) (1,387,374) 1,337,741 (1,298,366)
Accounts payable 1,744,055 (267,064) 866,918 411,430
Accrued liabilities and
other 192,090 (2,865,313) (579,995) 1,073,923
Gas balancing liability (113,424) (114,403) (340,273) (295,402)
------------------------------------------------------------
Total adjustments 2,396,226 (922,578) 6,663,598 8,226,262
------------------------------------------------------------
Net cash provided (used) by
operating activities 1,328,043 (3,282,960) 6,420,774 2,356,699
Cash flows from investing
activities
Payments for acquisition of
Carlton Resources Corporation
(net of cash acquired)
(Note 2) - - - (42,600,000)
Payment for investment in
RVC Energy, Inc. (Note 2) - (2,000,000) - (2,000,000)
Payments for oil and gas
properties and equipment (12,592,614) (11,654,946) (14,506,757) (19,277,370)
Proceeds from sales of oil
and gas properties and
equipment - 1,500,000 9,693,576 1,600,546
Payments for gathering and
disposal systems - (68,000) - (71,000)
Payments for other property
and equipment (59,108) (68,346) (169,947) (267,134)
Payments for other assets (273,492) (175,414) (273,492) (481,716)
Proceeds from sales of other
assets - - 29,143 53,020
------------------------------------------------------------
Net cash used by investing
activities (12,925,214) (12,466,706) (5,227,477) (63,043,654)
Cash flows from financing
activities
Proceeds from Senior Notes
Offering, net of discount - - - 113,327,900
Payments of deferred offering
costs - - - (5,008,268)
Principal payments on other
long-term debt - (33,891) (10,473,045) (62,080,905)
Proceeds from borrowings on
other long-term debt 9,592,148 9,016,137 9,703,342 19,095,227
Payments for Preferred Stock
Redemption - - - (2,073,660)
Payments for loan origination
fees - (6,548) - (117,876)
------------------------------------------------------------
Net cash provided (used) by
financing activities 9,592,148 8,975,698 (769,703) 63,142,418
------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (2,005,023) (6,773,968) 423,594 2,455,463
Cash and cash equivalents at
beginning of period 4,035,982 10,477,852 1,607,365 1,248,421
------------------------------------------------------------
Cash and cash equivalents at
end of period $ 2,030,959 $ 3,703,884 $ 2,030,959 $ 3,703,884
============================================================
</TABLE>
See accompanying notes.
<PAGE>
RAM Energy, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Summary of Significant Accounting Policies, Organization and
Basis of Financial Statements
The accompanying unaudited financial statements present the
results of operations and cash flows of RAM Energy, Inc. for the
three- and nine-month periods ended September 30, 1997 and 1998.
These financial statements include all adjustments, consisting of
normal and recurring adjustments, which, in the opinion of
management, were necessary for a fair presentation of the
financial position and the results of operations for the
indicated periods. The results of operations for the three and
nine months ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full year ending
December 31, 1998.
Nature of Operations and Organization
RAM Energy, Inc. (the "Company") operates exclusively in the oil
and natural gas industry with activities including the drilling,
completion and operation of oil and natural gas wells, and
operation of gathering and disposal systems. The Company conducts
the majority of its operations in the states of Oklahoma, Texas
and New Mexico.
Principles of Consolidation
The consolidated financial statements include the accounts of its
majority or wholly-owned subsidiaries including RLP Gulf States
and the operations of Carlton Resources Corporation since its
acquisition effective March 1, 1998 (Note 2). All significant
intercompany transactions have been eliminated.
2. Acquisitions
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, after determination of
defined working capital adjustments of $1,000,000. The operations
of Carlton are included in the accompanying financial statements
since March 1, 1998. The preliminary allocation of the purchase
price to the assets and liabilities acquired was as follows:
<TABLE>
<S> <C>
Properties and equipment:
Oil and gas properties $24,000,000
Pipeline gathering systems 39,000,000
-----------
63,000,000
Other assets and liabilities, net (844,000)
Deferred income tax liability (20,556,000)
-----------
Purchase price $41,600,000
===========
</TABLE>
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 3) 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.
<TABLE>
<CAPTION>
Nine months ended
September 30,
Restated
1997 1998
-----------------------------
<S> <C> <C>
Total operating revenues $29,191,000 $25,768,996
Net income (loss) $(2,454,000) $(6,483,004)
Net income (loss) per common share $(.90) $(2.38)
</TABLE>
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. located in
south Texas ("Ricks" and the "Ricks Acquisition").
Concurrent with the Ricks Acquisition, the Company completed a
$2.0 million investment in RVC Energy, Inc., a Delaware
corporation ("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.
The Company's acquisition of the Ricks properties and investment
in RVC Energy, Inc. were funded through additional borrowings
under the Company's Credit Facility (Note 3).
Concurrent with the Ricks Acquisition, RVC acquired the remaining
one-half interest in the proved undeveloped properties of Ricks
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.
3. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-----------------------------
<S> <C> <C>
11-1/2% Senior Notes Due 2008 (A) $ - $113,422,740
Revolving note payable (B) 55,000,000 19,000,000
Term note payable (B) 7,000,000 -
Installment loan agreements 225,165 240,568
-----------------------------
62,225,165 132,663,308
Less amount due within one year 97,723 114,526
-----------------------------
$62,127,442 $132,548,782
=============================
</TABLE>
(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 $5,005,720 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.
(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. and Den Norske
Bank ASA. 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 September 30, 1998, $19 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% (7.7% on outstanding balance at
September 30, 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. 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 amended
and restated Credit Facility may not exceed the borrowing
base which, initially, is $25.0 million, 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.
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 cap 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 September 30,
1998, the Company has outstanding interest rate swaps on the
$10.0 million of borrowings outstanding.
Interest paid by the Company in the nine-month periods ended
September 30, 1997 and 1998 totaled $3,770,217 and $8,510,268,
respectively.
4. 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.
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
Balance Sheet Data:
Current assets $ 2,730,331
Property and equipment, net $67,919,522
Other assets $ 585,380
Current liabilities $ 1,828,654
Noncurrent liabilities $20,714,000
</TABLE>
<TABLE>
<CAPTION>
Nine months
ended
September 30,
Restated
1998
-------------
<S> <C>
Operating Data:
Operating revenues $ 7,983,311
Operating expenses 5,836,431
-----------
Operating income $2,146,880
===========
</TABLE>
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.
5. Fixed-Price Contracts
The Company periodically enters into certain fixed price delivery
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. As of September 30, 1998, these
fixed-price contracts are in place to hedge 3.4 BBtu of the
Company's estimated future production through March 1999 from
proved gas reserves at a weighted average price of $2.46 per
MMbtu.
6. Financial Instruments
The following information is provided regarding the estimated
fair value of financial instruments employed by the Company as of
September 30, 1998 and the method and assumptions used to
estimate the fair value of such financial instruments:
The carrying amounts reported in the accompanying balance
sheet for cash and cash equivalents and long-term debt
approximate their fair values.
The carrying value of the Company's interest rate swaps at
September 30, 1998 exceeded the fair value by approximately
$549,107, representing the amount the Company would be
required to pay to terminate the contracts at such date.
7. 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, and are principally those resulting
from the acquisition of Carlton in February 1998 (Note 2).
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
Restated
December 31, September 30,
1997 1998
-----------------------------------
<S> <C> <C>
Deferred tax assets
Financial depreciation in excess of tax
depreciation $ 108,163 $ 650,000
Financial charges which are deferred
for tax purposes 157,000 157,000
Net operating loss carryforwards 2,742,089 8,771,000
Investment tax credits - 284,000
-----------------------------------
Total deferred tax assets before
valuation allowance 3,007,252 9,862,000
Less valuation allowance recognized (1,293,153) -
-----------------------------------
Net deferred tax assets 1,714,099 9,862,000
Deferred tax liabilities
Intangible drilling costs capitalized
for financial purposes and expensed
for tax purposes 1,714,099 5,120,000
Pre-acquisition basis difference
resulting from debt restructuring - 6,951,000
Financial basis of assets acquired in
excess of tax basis - 15,292,000
-----------------------------------
Deferred tax liabilities 1,714,099 27,363,000
-----------------------------------
Net deferred tax $ - $17,501,000
===================================
</TABLE>
The credit recognized for income taxes in 1998 reflects deferred
income taxes since the acquisition of Carlton as of March 1, 1998
for accounting purposes.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
RAM Energy, Inc. ("RAM" or 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.
In late February 1998, the Company acquired Carlton Resources
Corporation ("Carlton" or 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 35 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 results of operations
discussed below include the operations of Carlton on a consolidated
basis since March 1, 1998.
The Company owns a 165-mile gathering system that 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 completion of 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, RAM completed a $6.5 million acquisition
of a one-half interest in the proved undeveloped oil and gas
properties of Ricks Exploration, Inc. located in south Texas
("Ricks" and the "Ricks Acquisition"). RAM acquired 14.2 Bcfe of
proved undeveloped reserves and undeveloped leasehold in this
transaction.
Concurrent with the Ricks Acquisition, RAM completed a $2.0
million investment in RVC Energy, Inc., a Delaware corporation
("RVC"), in exchange for 49.5% of RVC's 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' 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
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 RAM.
RVC's acquisitions include 55.7 Bcfe of estimated proved
reserves. RAM's equity interest in these reserves is estimated at
27.5 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 RAM's existing Permian
Basin properties. RAM 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 September 30, 1998 the Company has entered into fixed price
arrangements for natural gas deliveries through March 1999,
effectively establishing fixed prices ranging from $2.21/Mmbtu to
$2.89/Mmbtu on an average of 18,500 Mmbtu per day.
Historically the Company has added reserves mainly through
acquisitions and development. In 1997 the Company incurred $17.6
million in acquisition and development costs. For 1998 the Company
has budgeted approximately $20.3 million for development projects
and certain exploration activity, exclusive of acquisitions. For
the nine months ended September 30, 1998 the Company expended $12.1
million on development projects, $6.5 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
Three Months Ended September 30, 1998 Compared to Three Months
Ended September 30, 1997
Operating Revenues. Operating revenues increased by
$3,138,000, or 59% for the three months ended September 30, 1998
compared to the same period in 1997, with $3,156,000 of the
increase due to the inclusion in the 1998 quarter of the operations
of Carlton. 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:
<TABLE>
<CAPTION>
Three Months Ended 1998 Compared to 1997
September 30, ----------------------------------
----------------- % Increase Operating Revenue
1997 1998 (Decrease) Increase (Decrease)
------ ------ ----------- ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (Mmcf) 1,629 2,173 33.4% $1,186
Oil (Mbbls) 108 141 30.6% 529
Average sale prices:
Natural gas (per Mcf) $ 2.18 $ 2.27 4.1% 177
Oil (per Bbl) $16.03 $11.24 29.9% (675)
</TABLE>
Revenues were higher in the third quarter of 1998 compared to
the third quarter of 1997 as a result of a 32% increase in
production and a 7% decrease in realized prices, both on an
Mcfe basis. Average daily production was 32.8 million cubic feet
of natural gas equivalent in the third quarter of 1998 compared to
24.8 million cubic feet of natural gas equivalent during the third
quarter of 1997. Natural gas production increased by 33% and oil
production increased 31% for the comparable periods. The average
realized sales price for natural gas was $2.27 per Mcf for the
quarter ended September 30, 1998, compared to $2.18 per Mcf for the
comparable 1997 quarter. The average realized oil price for the
quarter ended September 30, 1998 was $11.24 per Bbl, compared to
$16.03 per Bbl for the year-ago quarter, a 30% decrease.
Oil and Gas Production Expense. Oil and gas production
expense increased by $379,000, or 23%, for the three months ended
September 30, 1998, compared to the same period in 1997. The
increase in expense was due primarily to the addition of Carlton's
operations for the quarter ended September 30, 1998. The oil and
gas production expense was $.68 per Mcfe for the three months ended
September 30, 1998, a decrease from $.74 per Mcfe in the same
period of 1997.
Gathering system. The gathering system is a component of
the operations of Carlton. Carlton 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. Revenues from this source
were $1,853,000 for the quarter ended September 30,1998. Outside
purchases were $1,271,000 and system operating costs were $142,000.
Depreciation and Amortization ("D&A") Expense. Depreciation
and amortization expenses increased $2,277,000, or 127% for the
three months ended September 30, 1998 compared with the same period
in 1997, and was $1.35 per Mcfe for the 1998 quarter, an increase
of $0.56, or 71% compared to the $0.79 per Mcfe for the 1997
quarter. This increase is due primarily to the inclusion of
Carlton's operations for the quarterly period in 1998, including
the depreciation of Carlton's gathering system. For oil and gas
D&A only, the results were $1.14 per Mcfe for the 1998 quarter
compared with $0.73 per Mcfe for the 1997 quarter, a 56% increase.
G & A Expense. General and administrative expense
decreased $725,000, or 46%, in the three months ended September 30,
1998 compared with the 1997 period. The decrease is due primarily
to operator overhead fee reimbursements received from unrelated
interests attributable to Carlton for the 1998 quarter, and the
capitalization of certain geological and geophysical costs related
to the Company's increased exploration efforts in 1998.
Interest Expense. Interest expense increased to $3.8 million for
the three months ended September 30, 1998 compared to $1.4 million
for the comparable period of the preceding year. This increase
was attributable to higher average outstanding indebtedness and
higher effective interest rates during the 1998 quarter, resulting
both from the Notes Offering and additional bank borrowings during
the quarter.
Income Taxes. In connection with the Carlton Acquisition, the
Company recorded deferred income taxes related to the excess of
financial bases of net assets acquired (principally properties and
equipment) over their respective bases for income tax purposes.
Such net liability results in the Company providing for income
taxes or credits after the date of the Carlton Acquisition. 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.
Net Loss. Due to the factors described above, the net loss
increased $1,292,000, or 121%, from a net loss of $1,068,000 in the
three months ended September 30, 1997 to a net loss of $2,360,000
in the same period of 1998.
Nine Months Ended September 30, 1998 Compared to Nine Months
Ended September 30, 1997
Operating Revenues. Operating revenues increased by
$6,613,000, or 39% for the nine months ended September 30, 1998,
compared to the same period for 1997. Results for the 1998 period
include seven months of operations of Carlton after its acquisition
on February 24, 1998. 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:
<TABLE>
<CAPTION>
Nine Months Ended 1998 Compared to 1997
September 30, ---------------------------------
------------------ % Increase Operating Revenue
1997 1998 (Decrease) Increase (Decrease)
------ ------- ---------- ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (Mmcf) 4,663 6,466 39% $4,273
Oil (Mbbls) 335 403 20% 1,171
Average sale prices:
Natural gas (per Mcf) $ 2.37 $ 2.19 (7.6)% (1,133)
Oil (per Bbl) $17.22 $12.20 (29.2)% (2,022)
</TABLE>
Revenues were higher in the first nine months of 1998 compared
to the same period of 1997 as a result of a 33% increase in
production which offsets a 15% decrease in realized prices, both
on an Mcfe basis. Average daily production was 32.5 million cubic
feet of natural gas equivalent in the first nine months of 1998,
compared to 24.4 million cubic feet of natural gas equivalent
during the first nine months of 1997, an increase of 33%. Natural
gas production increased by 39% and oil production increased 20%
for the comparable periods. The average realized sales price for
natural gas was $2.19 per Mcf for the nine months ended September
30, 1998, compared to $2.37 per Mcf for the same period of 1997,
a decrease of 8%. The average realized oil price for the nine
months ended September 30, 1998 was $12.20 per Bbl, and for the
nine months ended September 30, 1997 was $17.22 per Bbl, a 29%
decrease.
Oil and Gas Production Expense. Oil and gas production expense
increased by $1,541,000, or 32%, for the nine months ended
September 30, 1998, compared to the same period in 1997. The
increase in expense was due primarily to the addition of Carlton's
operations for the months of March through September 1998, and
increased production taxes on higher revenues. The oil and gas
production expense was $.71 per Mcfe for the nine months ended
September 30, 1998, a decrease from $.72 per Mcfe in the same
period of 1997.
Gathering System. The gathering system is a component of the
operations of Carlton. Carlton 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. Revenues from this source
were $4,214,000 for the months of March through September 1998.
Outside purchases were $2,884,000 and system operating costs were
$332,000.
Depreciation and Amortization ("D&A") Expense. Depreciation and
amortization expenses increased $4,897,000, or 93% for the nine
months ended September 30, 1998 compared with the same period in
1997, and was $1.14 per Mcfe for the 1998 nine months, an
increase of $.35, or 44% compared to the $.79 per Mcfe for the
1997 nine months. This increase is due primarily to the inclusion
of Carlton's operations for the period ended September 30, 1998,
including the depreciation of Carlton's gathering system. For oil
and gas D&A only, the results were $.97 per Mcfe for the first nine
months of 1998 (including seven months of Carlton's production)
compared with $.73 per Mcfe for the same period in 1997, a 33%
increase.
G & A Expense. For the first nine months of 1998 general and
administrative expense decreased $451,000, or 14% over the same
period of 1997. The decrease in expense is due to the increased
expenses in the third quarter of 1997 resulting from increased
acquisition activity and the addition of technical staff to
accommodate the Company's increased inventory of development
drilling opportunities, coupled with the operator overhead fee
reimbursements received from unrelated interests attributable to
Carlton for seven months, along with the capitalization of certain
geological and geophysical costs relating to the Company's
increased exploration efforts in 1998.
Interest Expense. Interest expense increased to $10.0 million for
the first nine months of 1998 compared to $3.8 million for the
comparable period of the preceding year. This increase was
attributable to higher average outstanding indebtedness and higher
effective interest rates during 1998, both resulting from the Notes
Offering.
Income Taxes. In connection with the Carlton Acquisition, the
Company recorded deferred income taxes related to the excess of
financial bases of net assets acquired (principally properties and
equipment) over their respective bases for income tax purposes.
Such net liability results in the Company providing for income
taxes or credits after the date of the Carlton Acquisition. 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.
Net Income(Loss). Due to the factors described above, the
Company recorded a net loss of $5,870,000 for the nine months ended
September 30, 1998 compared with a net loss for the 1997 period of
$243,000.
Liquidity and Capital Resources
As of September 30, 1998 the Company had cash and cash
equivalents of $3.7 million, and $6.0 million available under the
Credit Facility discussed below.
As of September 30, 1998 the Company had $132.6 million of
indebtedness outstanding. This was comprised primarily of $115.0
million (before giving effect to original issue discount of $1.7
million) of Senior Notes due 2008 issued in late February, 1998,
and $19.0 million of advances 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 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 $50.0 million working credit
facility ("Credit Facility") with Union Bank of California, N.A.
("Union Bank") and Den Norske Bank, S.A. as amended and restated,
providing for a $50.0 million revolving commitment payable in full
in February 2003. 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%. The rate on the balance outstanding at
September 30, 1998 is 7.7%. 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 amended and
restated Credit Facility may not exceed the borrowing base which,
initially, is $25.0 million, 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.
Net Cash Used in and Provided by Operating Activities. For the
quarter ended September 30, 1998 net cash used was $3.3 million
compared to net cash provided of $1.3 million for the same quarter
of 1997. Net cash provided by the Company's operating activities
was $2.4 million for the nine months ended September 30, 1998
compared to $6.4 million for the comparable period of 1997. Both
1998 periods are lower than the corresponding 1997 periods due to
reduced operating income in 1998 compared to 1997 and to changes in
working capital accounts.
Net Cash Used in and Provided by Investing Activities. For the
three months ended September 30, 1998 net cash used in the
Company's investing activities was $12.5 million, including $6.5
million for the Ricks Acquisition, $4.1 million for oil and gas
well drilling activities, and a $2.0 million investment in RVC.
The amount for the comparable period of 1997 was $12.9 million, of
which $11.2 million was for the acquisition of oil and gas
properties from Quarles Drilling Corporation ("Quarles"). The cash
used in the Company's investing activities for the nine months
ended September 1998 was $63.0 million, including the acquisitions
of Carlton, Ricks, the investment in RVC, and drilling activities
of $ 12.1 million. This compares with $5.2 million used in 1997,
which included the acquisition of Quarles for $11.2 million offset
by $9.7 million provided by the sale of oil and gas properties, and
$3.3 for drilling activities. The Company has budgeted $20.3
million for capital expenditures in 1998, exclusive of
acquisitions. The Company expects to use cash flow from
operations, cash balances and borrowings under the Credit Facility
to fund these expenditures. Through September 30, 1998, such
expenditures total $12.1 million.
Year 2000 Issues
The Company has assessed the effects of Year 2000 on its
information technology ("IT") and non-IT systems 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 50% of the system has been re-written
and is ready for testing. The remaining 50% will be re-written
over the next six months. 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 such parties' 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 September 30, 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 3. Quantitative and Qualitative Disclosure about Market Risk
Not applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as a part of this report:
Exhibit
Number Description
- ------- -----------------------
27 Financial Data Schedule
(b) Report on Form 8-K
On September 1, 1998, the Company filed an amended Current Report
on Form 8-K with respect to a $6.5 million acquisition of a one-
half interest in certain properties of Ricks Exploration, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
RAM ENERGY, INC.
(Registrant)
Date: April 30, 1999 By: LARRY E. LEE
Larry E. Lee
President and Chief
Executive Officer
By: JOHN M. LONGMIRE
John M. Longmire
Senior Vice President and
Treasurer and Chief
Financial Officer
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,703,884
<SECURITIES> 0
<RECEIVABLES> 6,303,148
<ALLOWANCES> 193,373
<INVENTORY> 0
<CURRENT-ASSETS> 11,763,583
<PP&E> 158,592,478
<DEPRECIATION> (25,514,456)
<TOTAL-ASSETS> 153,535,637
<CURRENT-LIABILITIES> 12,265,954
<BONDS> 132,548,782
0
0
<COMMON> 27,270
<OTHER-SE> (8,705,817)
<TOTAL-LIABILITY-AND-EQUITY> 153,535,637
<SALES> 23,321,507
<TOTAL-REVENUES> 23,502,698
<CGS> 9,551,700
<TOTAL-COSTS> 22,591,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (98,281)
<INTEREST-EXPENSE> 9,976,574
<INCOME-PRETAX> (8,924,563)
<INCOME-TAX> (3,055,000)
<INCOME-CONTINUING> (5,869,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,869,563)
<EPS-PRIMARY> (2.15)
<EPS-DILUTED> 0.00
</TABLE>
