UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
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, 1998 and June 30, 1999
(unaudited)
Consolidated Statements of Operations - Three months and six months
ended June 30, 1998 and 1999 (unaudited)
Consolidated Statements of Cash Flows - Three months and six months
ended June 30, 1998 and 1999 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
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>
PART I.
Item 1.
<TABLE>
RAM Energy, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,603 $ 4,388
Accounts receivable:
Oil and gas sales 3,387 3,174
Joint interest operations, net of
allowance for doubtful accounts
of $358 in 1998 and $369 in 1999 2,117 1,155
Related parties 147 456
Other 115 1,106
Prepaid expenses and deposits 431 455
---------------- ----------------
Total current assets 14,800 10,734
Properties and equipment, at cost:
Oil and gas properties and equipment,
based on full cost accounting 119,697 118,120
Gathering and disposal systems 39,184 39,522
Other property and equipment 3,781 3,875
---------------- ----------------
162,662 161,517
Less accumulated amortization and
depreciation 28,388 34,501
---------------- ----------------
Net properties and equipment 134,274 127,016
Investment in RVC Energy, Inc. (Note 4) 1,307 527
Other assets:
Deferred loan costs, net of accumulated
amortization of $715 in 1998 and
$879 in 1999 955 791
Deferred offering costs, net of accumulated
amortization of $395 in 1998 and $630
in 1999 4,307 4,072
Other 808 516
---------------- ----------------
Total assets $ 156,451 $ 143,656
================ ================
Liabilities and stockholders' deficiency
Current liabilities:
Accounts payable:
Trade $ 6,230 $ 2,647
Oil and gas proceeds due others 4,378 4,222
Related party 826 -
Accrued liabilities:
Compensation 320 113
Interest 4,942 4,946
Other 65 77
Long-term debt due within one year (Note 5) 109 25,099
---------------- ----------------
Total current liabilities 16,870 37,104
Gas balancing liability not expected to
be settled within one year 735 604
Long-term debt due after one year (Note 5) 131,630 106,689
Deferred income taxes 17,056 14,341
Commitments and contingencies 600 600
Stockholders' 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 27
Paid-in capital 16 16
Accumulated deficit (10,483) (15,725)
---------------- ----------------
Stockholders' deficiency (10,440) (15,682)
---------------- ----------------
Total liabilities and stockholders'
deficiency $ 156,451 $ 143,656
================ ================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
RAM Energy, Inc.
Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands, Except for Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas sales $ 6,500 $ 5,325 $ 12,596 $ 11,438
Gathering systems 1,695 2,299 2,361 3,969
Other 25 203 84 390
-------- -------- -------- --------
Total operating revenues 8,220 7,827 15,041 15,797
Operating expenses:
Oil and gas production
expenses 2,438 1,947 4,281 3,814
Gathering system purchases 1,166 1,657 1,613 2,816
Gathering system operations 153 117 190 214
Amortization and depreciation 3,435 3,369 6,089 6,653
General and administrative,
overhead and other expenses,
net of operator's overhead
fees to unrelated interests 913 1,172 2,022 2,285
-------- -------- -------- --------
Total operating expenses 8,105 8,262 14,195 15,782
-------- -------- -------- --------
Operating income (loss) 115 (435) 846 15
Other income (expense):
Interest expense (3,750) (3,650) (6,131) (7,291)
Interest income 106 21 172 99
Equity in loss of RVC
Energy, Inc. (Note 4) - (404) - (780)
-------- -------- -------- --------
Loss before income taxes (3,529) (4,468) (5,113) (7,957)
Income taxes (1,100) (1,415) (1,604) (2,715)
-------- -------- -------- --------
Net loss $ (2,429) $ (3,053) $ (3,509) $ (5,242)
======== ======== ======== ========
Net loss per share - basic
and diluted $(.89) $(1.12) $(1.29) $(1.92)
======== ======== ======== ========
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)
(Dollars in Thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,429) $ (3,053) $ (3,509) $ (5,242)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Equity in net loss of RVC Energy, Inc. - 404 - 780
Provision for doubtful accounts receivable
and other - - - 8
Amortization of Senior Notes discount
included in interest expense 42 31 54 70
Amortization and depreciation:
Oil and gas properties and equipment 2,809 2,634 5,149 5,186
Gathering and disposal systems 487 487 649 975
Senior Notes fees 126 117 169 235
Credit facility fees 91 82 175 164
Other property and equipment 48 49 116 93
Deferred income taxes (1,100) (1,415) (1,604) (2,715)
Cash provided (used) by changes in operating
assets and liabilities:
Prepaid expenses and deposits (150) 29 (86) (24)
Accounts receivable (483) 166 90 904
Accounts payable 2,416 (66) 976 (4,565)
Accrued liabilities and other 2,981 3,109 3,642 (191)
Gas balancing liability (91) (131) (181) (131)
--------- --------- --------- ---------
Total adjustments 7,176 5,496 9,149 789
--------- --------- --------- ---------
Net cash provided (used) by operating
activities 4,747 2,443 5,640 (4,453)
Cash flows from investing activities
Payments for acquisition of Carlton
Resources Corporation (net of cash
acquired) (Note 2) - - (42,600) -
Payments for oil and gas properties
and equipment (4,038) (677) (7,623) (1,055)
Proceeds from sales of oil and gas
properties and equipment 84 1,611 101 1,641
Payments for other property and equipment (31) (103) (199) (114)
Proceeds from sales of other property
and equipment - - - 18
Payments for gathering and disposal systems (3) (179) (3) (398)
Payments for other assets (306) (30) (306) (30)
Proceeds from sales of other assets - 198 53 198
--------- --------- --------- ---------
Net cash provided (used) by investing
activities (4,294) 820 (50,577) 260
Cash flows from financing activities
Proceeds from Senior Notes Offering,
net of discount - - 113,328 -
Payments of deferred offering costs (592) - (5,008) -
Principal payments on other long-term debt (47) (26) (62,047) (80)
Proceeds from borrowings on other
long-term debt - 58 10,079 58
Payments for Preferred Stock Redemption (600) - (2,074) -
Payments for loan origination fees (84) - (111) -
--------- --------- --------- ---------
Net cash provided (used) by financing
activities (1,323) 32 54,167 (22)
--------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents (870) 3,295 9,230 (4,215)
Cash and cash equivalents at beginning
of period 11,348 1,093 1,248 8,603
--------- --------- --------- ---------
Cash and cash equivalents at end of
period $ 10,478 $ 4,388 $ 10,478 $ 4,388
========= ========= ========= =========
Disclosures of noncash investing activities
Accounts receivable for proceeds from
the sale of oil and gas properties
(Note 3) $ - $ 1,047 $ - $ 1,047
========= ========= ========= =========
</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 consolidated financial statements present the
results of operations and cash flows of RAM Energy, Inc. (the "Company") for
the three- and six-month periods ended June 30, 1998 and 1999. 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 six months
ended June 30, 1999 are not necessarily indicative of the results to be
expected for the full year ending December 31, 1999. Certain reclassifications
have been made to the prior period statements to conform with current year
presentation. Reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 for an expanded discussion of the
Company's financial disclosures and accounting policies.
Nature of Operations and Organization
RAM Energy, Inc. operates exclusively in the upstream segment of 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. 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.
Principles of Consolidation
The consolidated financial statements include the accounts of its majority or
wholly-owned subsidiaries including the operations of Carlton Resources
Corporation since its acquisition effective March 1, 1998 (Note 2). All
significant intercompany transactions have been eliminated.
2. Business Acquisition
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 defined working capital adjustments of
$1 million). The operations of Carlton are included in the accompanying
financial statements since March 1, 1998. The allocation 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 data presents the results of the Company's
operations for the six months ended June 30, 1998, as if the acquisition had
occurred on January 1, 1998. 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 Carlton adjusted to reflect the Company's adjusted basis
since acquisition and additional interest related to the acquisition (in
thousands, except per share).
Operating revenues $18,357
=======
Net loss $(3,091)
=======
Net loss per common share $(1.13)
=======
3. Property Sales
During 1999, the Company sold certain oil and gas properties with a total
sales price of $2.7 million. At June 30, 1999, proceeds of $1.6 million had
been received with the remaining $1.1 million recorded in other accounts
receivable. Such amount was collected in July 1999.
4. Equity Investee - RVC Energy, Inc.
In August 1998, the Company acquired 49.5% of the voting common stock and all
of the nonvoting common stock of RVC Energy, Inc. ("RVC"). RVC is an
unrestricted affiliate of the Company and is accounted for under the equity
method of accounting. Summarized income statement information for RVC for the
six months ended June 30, 1999 is as follows (in thousands):
Operating revenues $ 3,845
========
Operating loss $ (845)
========
Net loss $ (1,576)
========
RVC has a $50 million credit facility ($38 million outstanding at June 30,
1999) secured by RVC's oil and gas properties. RVC did not make payments due
under this facility in 1999 and is also not compliant with certain other
covenants. As a result, RVC's creditors may demand payment in full or seek
other remedies available under the terms of the credit facility. While the
management of RVC is presently negotiating with the creditors, the final
outcome of these negotiations, and the impact, if any, on the realization of
the Company's investment in RVC, cannot be determined at this time.
5. Long-term Debt
By agreement effective August 12, 1999, the Company and its Banks amended the
Company's Credit Facility to (i) provide for repayment of the outstanding
advances ($25 million at June 30, 1999) under the Credit Facility in
installments during the period ending June 30, 2000, (ii) permit the sale by
the Company of certain of its oil and gas properties, with 75% of the sale
proceeds to be applied toward the next principal reduction installment, (iii)
provide for mandatory prepayments of principal out of 40% of the Company's
monthly excess cash flow (defined generally as gross revenues less operating
expenses, production and ad valorem taxes, general and administrative expenses,
approved capital expenditures and principal and interest payments under the
Credit Facility), (iv) limit general and administrative expenses to essentially
current levels, and (v) provide for an interest rate equal to Union Bank's
base rate plus 2%. Under the amendment either Bank may, at any time, decline
its pro rata share of any required installment or prepayment in which event
the Company's installment or prepayment obligation will be reduced by the
amount so declined. The Company expects to fund the payments required under the
amendment out of property sale proceeds and operating cash flow.
Accordingly, the outstanding borrowings under the Credit Facility at June 30,
1999, which were previously classified as noncurrent, have been reclassified
as current in the accompanying consolidated financial statements.
6. 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, 1998 and June
30, 1999 exceeded the fair value by approximately $419,000 and $142,000,
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 and June 30, 1999 by
approximately $37.4 million and $51.8 million, respectively, based on quoted
market prices.
7. Contingencies
In 1996, the Company's predecessor sold an oil and gas property located in
Louisiana state waters in Plaquemines Parish. 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, the Company has recorded a contingent liability of
$600,000, which is included in the accompanying consolidated balance sheets.
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.
Historically, the Company has added reserves mainly through
acquisitions and development. The Company intends to continue to
pursue attractive oil and gas acquisitions and exploratory
opportunities. Any future acquisitions or major development will
require additional financing which will be dependent upon
financing arrangements, if any, available at the time.
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.
The Company has entered into hedging arrangements for natural
gas production from July 1999 through March 2000 on 3,370,000 Mmbtu
that provide an average floor price of $2.180 per Mmbtu.
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 writedown for impairment of the
carrying value of oil and gas properties. Once incurred, a
writedown 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 June 30, 1999 Compared to Three Months
Ended June 30, 1998
Operating Revenues. Operating revenues decreased by $393,000,
or 4.8% for the three months ended June 30, 1999, compared to the
year earlier period. The following table summarizes oil and gas
production volumes, average sales prices and period to period
comparisons, including the effect on operating revenues, for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended 1999 Compared to 1998
June 30, -------------------------------
-------------- % Increase Operating Revenue
1998 1999 (Decrease) Increase (Decrease)
---- ---- ---------- -------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (Mmcf) 2,423 2,153 (11.1) $(540)
Oil (Mbbls) 136 98 (28.0) (461)
Average sale prices:
Natural gas (per Mcf) $ 2.00 $ 1.80 (10.0) (428)
Oil (per Bbl) 12.10 14.70 21.5 254
</TABLE>
Oil and gas revenues were lower in the second quarter of 1999
as compared to the second quarter of 1998 with a 15.4% decrease
in production, and 3.2% decrease in realized prices, both on an
Mcfe basis. Average daily production was 30 million cubic feet
of natural gas equivalent in the second quarter of 1999 compared
to 36 million cubic feet of natural gas equivalent during the
second quarter of 1998, a decrease of 15.4%. Natural gas
production decreased by 11.1% and oil production decreased 28.0%
for the comparable periods. Oil production decreased due to
property sales during the second half of 1998 and during the
second quarter of 1999. The average realized sales price for
natural gas was $1.80 Mcf for the quarter ended June 30, 1999,
compared to $2.00 per Mcf for the year-ago quarter, a decrease
of 10.0%. The average realized oil price for the quarter ended
June 30, 1999 was $14.70 per Bbl, and for the quarter ended June
30, 1998 was $12.10 per Bbl, a 21.5% increase.
Oil and Gas Production Expense. Oil and gas production
expense decreased by $491,000, or 20.1%, for the three months
ended June 30, 1999, compared to the same period in 1998. Oil
and gas production expense was $.71 per Mcfe for the second
quarter of 1999, a decrease from $.75 per Mcfe in the second
three months of 1998. The net decrease in oil and gas production
expense was due primarily to the sales of properties in the
second half of 1998 and second quarter of 1999.
Gathering System. Revenues from this source were
$1,695,000 for the three months ended June 1998 and were
$2,299,000 for the three months ended June 30, 1999. The Company
is also obligated to deliver 10,000 Mmbtu's daily at the tail-
gate of the system, and purchases outside gas to satisfy that
obligation. Outside purchases were $1,166,000 for the second
quarter of 1998 and system operating costs were $153,000, whereas
for the three months ended June 30, 1999 the outside purchases
totaled $1,657,000 and system operating costs were $117,000.
Depreciation and Amortization ("D&A") Expense.
Depreciation and amortization expenses decreased $66,000, or 1.9%
for the second quarter of 1999 compared to the same period in
1998, and was $1.23 per Mcfe for the 1999 quarter, an increase of
15.9% compared to the $1.06 per Mcfe for the 1998 quarter. This
overall decrease is due primarily to the sales of properties in
late 1998. The per Mcfe increase is due to straight-line
depreciation of the gathering system and less oil and gas
production for the period. For oil and gas D&A only, the results
were $.96 per Mcfe for the 1999 quarter compared with $.87 per
Mcfe for the 1998 quarter.
G & A Expense. General and administrative expense
increased $259,000, or 28%, in the three months ended June 30,
1999 as compared with the 1998 period. In the second quarter of
1999 the Company recorded reduced overhead reimbursements due to
operated properties sold during the second half on 1998.
Interest Expense. Interest expense decreased to $3.65
million for the three months ended June 30, 1999 compared to
$3.75 million for the comparable period of the preceding year.
This decrease was attributable to lower effective interest rates.
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.
Net Loss. Due to the factors described above, net loss
was $3.1 million for the second quarter of 1999 compared to a net
loss of $2.4 million for the second quarter of 1998.
Six Months Ended June 30, 1999 Compared to Six Months Ended
June 30, 1998
Operating Revenues. Operating revenues increased by $756,000,
or 5.0% for the six months ended June 30, 1999, compared to the
year earlier period. The following table summarizes oil and gas
production volumes, average sales prices and period to period
comparisons, including the effect on operating revenues, for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended 1999 Compared to 1998
June 30, --------------------------------
-------------- % Increase Operating Revenue
1998 1999 (Decrease) Increase (Decrease)
---- ---- ---------- ---------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (Mmcf) 4,293 4,240 (1.2) $(120)
Oil (Mbbls) 262 204 (22.2) (658)
Average sale prices:
Natural gas (per Mcf) $ 2.24 $ 2.10 (6.6) (626)
Oil (per Bbl) 11.31 12.52 10.7 246
</TABLE>
Oil and gas revenues were lower in the first six months of
1999 as compared to the same period of 1998 with a 6.9% decrease
in production and a 2.5% decrease in realized prices, both on an
Mcfe basis. Average daily production was 30 million cubic feet
of natural gas equivalent in the first six months of 1999
compared to 32 million cubic feet of natural gas equivalent
during the same period of 1998, a decrease of 6.9%. Natural gas
production decreased by 1.2% and oil production decreased 22.2%
for the comparable periods. Oil production decreased due to
property sales during the second half of 1998 and during the
second quarter of 1999. The average realized sales price for
natural gas was $2.10 Mcf for the first half of 1999, compared to
$2.24 per Mcf for the year-ago period, a decrease of 6.6%. The
average realized oil price for the six months ended June 30, 1999
was $12.52 per Bbl, and for the six months ended June 30, 1998
was $11.31 per Bbl, a 10.7% increase.
Oil and Gas Production Expense. Oil and gas production
expense decreased by $467,000, or 10.9%, for the six months ended
June 30, 1999, compared to the same period in 1998. The oil
and gas production expense was $.70 per Mcfe for the first half
of 1999, a decrease from $.73 per Mcfe in the first six months of
1998. The net decrease in oil and gas production expense was due
primarily to the sales of properties in the second half of 1998
and the second quarter of 1999.
Gathering System. Revenues from this source were
$2,361,000 for the six months ended June 1998 and were $3,969,000
for the six months ended June 30, 1999. The Company is also
obligated to deliver 10,000 Mmbtu's daily at the tail-gate of the
system, and purchases outside gas to satisfy that obligation.
Outside purchases were $1,613,000 for the first half of 1998 and
system operating costs were $190,000, whereas for the six months
ended June 30, 1999 the outside purchases totaled $2,816,000 and
system operating costs were $214,000.
Depreciation and Amortization ("D&A") Expense.
Depreciation and amortization expenses increased $564,000, or
9.3% for the first half of 1999 over the same period in 1998, and
was $1.22 per Mcfe for the 1999 six months, an increase of $.18,
or 17.3% compared to the $1.04 per Mcfe for the 1998 period. The
per Mcfe increase is due to straight-line depreciation of the
gathering system and less oil and gas production for the period.
For oil and gas D&A only, the results were $.95 per Mcfe for the
first six months of 1999 compared with $.88 Mcfe for the 1998
period.
G & A Expense. General and administrative expense
increased $263,000, or 13%, in the six months ended June 30, 1999
as compared with the 1998 period. During the first half of 1999
the Company recorded reduced overhead reimbursements due to
operated properties sold during the second half on 1998.
Interest Expense. Interest expense increased to $7.29
million for the six months ended June 30, 1999 compared to $6.13
million for the comparable period of the preceding year. This
increase was attributable to higher average outstanding
indebtedness and higher effective interest rates.
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.
Net Loss. Due to the factors described above, net loss
increased $1.7 million or 49%, from a net loss of $3.5 million
in the first half of 1998, to a net loss of $5.2 million in the
same period of 1999.
Liquidity and Capital Resources
As of June 30, 1999 the Company had cash and cash equivalents
of $4.4 million.
As of June 30, 1999 the Company had $132 million of
indebtedness outstanding. This was comprised of $107 million of
Senior Notes due 2008 issued in late February, 1998, and $25
million of advances under the Credit Facility discussed below.
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. The Company has
no present agreement, commitment or understanding with respect to
any such acquisitions. Any future acquisitions may require
additional financing which will be dependent upon financing
arrangements, if any, available at the time.
Credit Facility. The Company has a $50 million credit
facility ("Credit Facility") with Union Bank of California, N.A.
and Den norske Bank ASA (the "Banks"), pursuant to which $25
million has been advanced and is outstanding. Advances 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
presently is $25 million but may 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 additional indebtedness,
liens, dividends, loans, mergers, transactions with affiliates,
investments and sales of assets.
By agreement effective August 12, 1999, the Company and the Banks
amended the Credit Facility to (i) provide for repayment of the
outstanding advances under the Credit Facility in installments
during the period ending June 30, 2000, (ii) permit the sale by
the Company of certain of its oil and gas properties, with 75% of
the sale proceeds to be applied toward the next principal
reduction installment, (iii) provide for mandatory prepayments of
principal out of 40% of the Company's monthly excess cash flow
(defined generally as gross revenues less operating expenses,
production and ad valorem taxes, general and administrative expenses,
approved capital expenditures and principal and interest payments
under the Credit Facility), (iv) limit general and administrative
expenses to essentially current levels, and (v) provide for an
interest rate equal to Union Bank's base rate plus 2%. Under the
amendment either Bank may, at any time, decline its pro rata
share of any required installment or prepayment in which event
the Company's installment or prepayment obligation will be
reduced by the amount so declined. The Company expects to fund
the payments required under the amendment out of property sale
proceeds and operating cash flow.
Cash Flows from Operating Activities. For the three months
ended June 30, 1999 net cash provided by the Company's operating
activities was $2.4 million and for the six months then ended
cash used by operating activities was $4.5 million; this compares
to cash provided by operating activities of $4.7 million and
$5.6 million for the comparable respective periods in 1998. The
primary use of cash for the six months ended June 30, 1999 was
reduction of accounts payable.
Cash Flows from Investing Activities. For the three months
and six months ended June 30, 1998 net cash used in the Company's
investing activities was $4.3 million and $7.9 million (excluding
the Carlton Acquisition), respectively, comprised primarily of
payments for oil and gas well drilling activities. This compares
with $.26 million provided for the six months ended June 30, 1999
including $1.6 million of cash received for property sales. At
current prices and without additional financing, the Company has
budgeted $3.5 million for capital expenditures in 1999, exclusive
of acquisitions. The Company expects to use cash flow from
operations, cash balances and property sales to fund these
expenditures.
Year 2000. 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 also Year 2000
compliant.
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 has
surveyed 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. All of the companies surveyed expect to be
substantially compliant before the end of the year.
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 expected 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
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, 1998 and June 30, 1999 exceeded the fair value by approximately
$419,000 and $142,000, 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 and June 30, 1999 by approximately $37.4 million and $51.8 million,
respectively, based on quoted market prices.
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 exhibit is filed as a part of this report:
Exhibit
Number Description
- ------- -----------------------------------------
10.12.1 Amendment No. 3 and Consent and Waiver dated effective as
of August 12, 1999 by Union Bank of California, N.A. and
Den norske Bank ASA (collectively, the "Banks") in favor of
RAM Energy, Inc., a Delaware corporation ("Borrower") (1)
27 Financial Data Schedule (1)
_______________
(1) Filed herewith.
(b) Report on Form 8-K
None
<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: August 20, 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>
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- ------- ----------------------- ------------------------------
10.12.1 Amendment No. 3 and Consent and Filed herewith electronically
Waiver dated effective as of
August 12, 1999 by Union Bank of
California, N.A. and Den norske
Bank ASA (collectively, the "Banks")
in favor of RAM Energy, Inc., a
Delaware corporation ("Borrower")
27 Financial Data Schedule Filed herewith electronically
EXHIBIT 10.12.1
AMENDMENT NO. 3 AND CONSENT AND WAIVER
This Amendment No. 3 and Consent and Waiver dated
effective as of August 12, 1999 ("Amendment") is by Union
Bank of California, N.A. and Den norske Bank ASA
(collectively, the "Banks") in favor of RAM Energy, Inc., a
Delaware corporation ("Borrower").
INTRODUCTION
A. The Borrower, the Banks and Union Bank of
California, N.A., as agent for the Banks (the "Agent"), have
entered into the Second Amended and Restated Credit
Agreement dated as of February 3, 1998, as amended by
Amendment No. 1 and Waiver dated as of August 17, 1998 and
Amendment No. 2 and Waiver dated as of March 31, 1999 (the
"Credit Agreement").
B. The Borrower wishes to sell all of its right,
title and interest in the Oil and Gas Properties described
on Schedule I attached hereto outside the ordinary course of
business in one or more transactions ("Asset Sales").
C. The proposed Asset Sales violate several
provisions of the Credit Agreement and the other Credit
Documents, including, but not limited to, Section 6.04 of
the Credit Agreement.
D. The Banks are willing to consent to the Asset
Sales and to make certain other amendments subject to the
terms of this Agreement.
THEREFORE, the Agent, the Borrower and the Banks hereby
agree as follows:
Section 1. Definitions; References. Unless
otherwise defined in this Amendment, each term used in this
Amendment which is defined in the Credit Agreement has the
meaning assigned to such term in the Credit Agreement.
Section 2. Consent and Waiver. The Banks hereby
(a) consent to the Asset Sales as described above and (b)
waive any and all defaults arising or which may have
heretofore arisen under Section 6.04 of the Credit Agreement
resulting from the execution, delivery or performance of the
transactions and agreements in connection with the Asset
Sales; provided that (i) the Net Cash Proceeds from each
Asset Sale are deposited directly by the seller of such Oil
and Gas Properties into Account No. 0880423444, "UBOC CL RAM
Energy" maintained at Union Bank of California, N.A. (the
"Cash Collateral Account") on the terms and in the manner
described in Section 3 below and (ii) the Borrower receives
Net Cash Proceeds in an amount greater than or equal to the
minimum release price set forth for each such Oil and Gas
Property on Schedule I attached hereto. This waiver is
limited to the extent described herein and shall not be
construed to be a consent to or a waiver of any other
actions prohibited by the Credit Agreement. The Agent and
each of the Banks reserves the right to exercise any rights
and remedies available to it in connection with any future
defaults with respect to Section 6.04 of the Credit
Agreement or any other provision of any Credit Document.
Further, if any such transaction is not completed as
described above, all consents granted hereunder shall be
void. For purposes of this Section 2, "Net Cash Proceeds"
means, with respect to any sale, transfer, or other
disposition of any of the Borrower's or any of its
Subsidiaries' Property, all cash and Liquid Investments
received by the Borrower or any of its Subsidiaries from
such sale, transfer or other disposition after (a) payment
of, or provision for, all brokerage commissions and other
reasonable out-of-pocket fees and expenses actually
incurred; (b) payment of any outstanding obligations
relating to such Property paid in connection with, and
necessary for, any such sale, transfer, or other
disposition; and (c) the amount of reserves recorded in
accordance with GAAP for indemnity or similar obligations of
the Borrower and its Subsidiaries directly related to such
sale, transfer or other disposition.
Section 3. Cash Collateral Account.
(a) All funds in the Cash Collateral Account shall be
invested and reinvested as instructed by the Borrower from
time-to-time in Permitted Investments, as defined below,
such investments and reinvestments to be made in the name of
the Borrower at the sole risk of the Borrower from
time-to-time by the Agent as provided in this Section 3(a).
All income earned from and proceeds of the sale or other
liquidation of Permitted Investments shall be credited to
the Cash Collateral Account and shall become part of such
account. For the purpose of this Amendment the term
"Permitted Investments" shall mean (i) readily marketable
direct obligations of the United States of America,
(ii) certificates of deposit, eurodollar deposits, bankers
acceptances, or commercial paper issued by the Agent, (iii)
commercial paper if at the time of purchase such commercial
paper is rated not less than "A-1" or "P-1" and
(iv) securities issued or guaranteed by an agency of the
government of the United States of America.
(b) The Agent shall promptly furnish to the Borrower
such information regarding the balance in the Cash
Collateral Account as may be reasonably requested by the
Borrower from time-to-time on a monthly basis.
(c) As security for and as payment and performance of
Borrower's obligations under the Credit Agreement (the
"Obligations"), the Borrower hereby pledges, assigns and
grants to the Agent for the benefit of the Banks a first and
prior security interest and right of set-off in the Cash
Collateral Account, all balances therein, all Permitted
Investments in connection therewith, and all proceeds
thereof.
(d) Upon the payment and performance in full of all
the Obligations and the termination of the Borrower's
Obligations under the Credit Agreement, any Permitted
Investments then held by the Agent shall be liquidated as
instructed by the Borrower and any balance remaining in the
Cash Collateral Account shall be paid to the Borrower.
(e) On August 16, 1999, the Banks agree to release all
of the funds out of the Cash Collateral Account to the
Borrower for the sole purpose of paying interest on the
Senior Notes; provided, however that after the Borrower pays
the interest due and payable on the Senior Notes, to the
extent that the Borrower is entitled to receive interest on
any of the Senior Notes that it owns, such interest shall be
deposited directly into the Cash Collateral Account and
shall be immediately distributed to Den Norske Bank ASA as a
prepayment of its Revolving Advances and permanent reduction
of its Revolving Commitment and shall be credited against
the $10,000,000 prepayment due September 30, 1999 as set
forth in Section 4(a).
(f) After the payment of interest on the Senior Notes
on August 16, 1999, 75% of all Net Cash Proceeds thereafter
received by the Borrower from the sale of its Oil and Gas
Properties shall be deposited directly into the Cash
Collateral Account and the remaining 25% of such funds shall
be released to the Borrower to use in accordance with the
terms and conditions of the Credit Agreement.
(g) Any Bank may, at any time and in its sole
discretion, release to the Borrower all or any portion of
such Bank's Pro Rata Share of the balance in the Cash
Collateral Account. Any portion not so released by such
Bank shall continue to be held for the benefit of such Bank
and shall be subject to the terms and conditions of the
Credit Agreement.
(h) To the extent there is a balance in the Cash
Collateral Account on any of the prepayment dates specified
in Section 4(a) below, such balance shall be distributed to
the Banks and applied to the prepayment of the Revolving
Advances; provided, however that at any time any Bank may in
its sole discretion elect to have its Pro Rata Share of the
amounts on deposit in the Cash Collateral Account
distributed to such Bank as a prepayment of its outstanding
Revolving Advances.
Section 4. Required Prepayments. The Borrower
shall make the following mandatory prepayments of the
Revolving Advances:
(a) Mandatory Prepayments. The Borrower agrees to
make a mandatory prepayment of the outstanding principal
amount of the Revolving Advances in an amount equal to (i)
$10,000,000 on September 30, 1999, (ii) $5,000,000 on
December 31, 1999, (iii) $5,000,000 on March 31, 2000 and
(iv) the outstanding principal balance of the Revolving
Advances on June 30, 2000; provided, however that any Bank
may elect, by notice to the Agent by telephone (confirmed by
telecopy) prior to any prepayment date, to decline all or
any portion of such Bank's Pro Rata Share of any such
prepayment of its Revolving Advances (such Bank or Banks
being "Declining Banks"), in which case the aggregate amount
of the prepayment due from Borrower on such prepayment date
shall be reduced by the amount of the prepayment declined by
the Declining Banks and the amount of the prepayment paid by
the Borrower applied to reduce the Revolving Advances in
according with the adjusted entitlements of the Banks.
(b) Excess Cash Flow. On the fifteenth of each month
commencing October 15, 1999, the Borrower shall deposit
$250,000 into the Cash Collateral Account. On the last day
of each month commencing October 31, 1999, the Borrower
shall prepay the outstanding principal amount of the
Revolving Advances in an amount equal to the greater of (i)
$250,000 or (ii) 40% of the Excess Cash Flow for the
preceding calendar month. The Banks agree to apply the
$250,000 previously deposited in the Cash Collateral Account
to the prepayment of the Revolving Advances. For the
purposes of this Section 4(b), "Excess Cash Flow" means: (a)
gross cash revenue from any source received by Borrower and
its Subsidiaries during any calendar month; plus (b) cash
retained by Borrower and its Subsidiaries under clause (d)
of this definition for the immediately preceding month; less
(c) the actual cash payments made by Borrower and its
Subsidiaries during such calendar month for (i) leasehold
operating expenses and other field level or lease level
charges for operation other than capital expenditures, (ii)
severance, ad valorem and other direct taxes on production,
but excluding any federal, state or local income taxes,
(iii) reasonable and customary general and administrative
expenses which shall not exceed $450,000 during any calendar
month, (iv) capital expenditures made by Borrower and its
Subsidiaries for the maintenance of its current oil and gas
properties, (v) payments of principal and interest on the
Revolving Advances and (vi) capital expenditures described
on Exhibit A; less (d) cash retained by Borrower and its
Subsidiaries to pay any of the obligations described in
clause (c) of this definition to the extent accrued and
unpaid on the last day of such calendar month; less (e) cash
retained by Borrower and its Subsidiaries to pay for capital
expenditures described on Exhibit A. Notwithstanding the
foregoing, any Bank may elect, by notice to the Agent by
telephone (confirmed by telecopy) prior to any prepayment
date, to decline all or any portion of such Bank's Pro Rata
Share of any such prepayment of its Revolving Advances (such
Bank or Banks being "Declining Banks"), in which case the
aggregate amount of the prepayment due from Borrower on such
prepayment date shall be reduced by the amount of the
prepayment declined by the Declining Banks and the amount of
the prepayment paid by the Borrower applied to reduce the
Revolving Advances in according with the adjusted
entitlements of the Banks. On the last day of each month
commencing October 31, 1999, the Borrower shall deliver to
each of the Banks a certificate dated as of such date from
the president or chief financial officer of the Borrower
certifying that the calculation of Excess Cash Flow as of
the last day of the previous calendar month was true and
correct. Notwithstanding anything herein to the contrary
the Banks are not approving or disapproving any capital
expenditures to be made by the Borrower, such decision to be
made in the business judgment of the Borrower.
(c) Application of Prepayments. Each prepayment
pursuant to Section 4(a) shall be accompanied by accrued
interest on the amount prepaid to the date of such
prepayment and amounts, if any, required to be paid pursuant
to Section 2.12 as a result of such prepayment being made on
such date. Each prepayment made under this Section 4 shall
be applied to the Revolving Advances as determined by the
Agent and agreed to by the Banks in their sole discretion.
Section 5. Reduction of Revolving Commitments.
(a) The Borrower, the Agent, and the Banks hereby
agree that the Revolving Commitments of the Banks under the
Credit Agreement shall be modified to reflect the Revolving
Commitments for the Banks set forth on the attached Schedule
2 and upon the effectiveness of this Agreement pursuant to
Section 9 below, each such Bank's Revolving Commitment shall
be the Revolving Commitment set forth on the attached
Schedule 2 (such Revolving Commitment being subject to
further amendment, reduction or termination pursuant to the
terms of the Credit Agreement).
(b) Upon each prepayment of the Revolving Advances
pursuant to Sections 3 or 4, the Revolving Commitments shall
be automatically and permanently reduced by the amount of
such prepayment.
Section 6. Amendments. The Credit Agreement shall,
subject to the terms of this Amendment, be amended as
follows:
(a) Section 2.05(b). Section 2.05(b) shall be amended
by adding an "or" after subsection (i) thereof, replacing
the "or" with a period after subsection (ii) thereof and
deleting subsection (iii) in its entirety.
(b) Section 6.23. Section 6.23 is hereby renumbered
as Section 6.18.
(c) Section 6.19. A new Section 6.19 is added as
follows:
Section 6.19. Accounts Payable. The Borrower
shall not permit the aggregate amount of its accounts
payable more than 90 days past due to be greater than
$650,000, except for accounts payable subject to a bona
fide dispute and for which adequate reserves are
maintained in accordance with GAAP.
(d) Section 6.20. A new Section 6.20 is added as
follows:
Section 6.20. Allowable General and Administrative
Expenses. The Borrower shall not permit the amount of
general and administrative expenses to be greater than
$400,000 for each calendar month; provided, however that the
amount of general and administrative expenses may be greater
than $400,000 for any calendar month provided that such
general and administrative expenses are not greater than
$450,000 for such calendar month and provided further that
the average monthly general and administrative expenses for
each fiscal quarter is not greater than $400,000.
Section 7. Suspension of Eurodollar Rate Advances.
Subject to Section 8 below, effective July 14, 1999, each
Revolving Borrowing consisting of Eurodollar Rate Advances
shall be Converted to a Revolving Borrowing consisting of
Reference Rate Advances bearing interest at the Adjusted
Reference Rate in effect from time to time plus 2.0% (but in
any event not to exceed the Maximum Rate). Further, the
right of the Borrower to request continuations of, or
conversions to, Revolving Borrowings consisting of
Eurodollar Rate Advances is hereby suspended indefinitely
until the Banks agree in writing that such right is
reinstated.
Section 8. Effectiveness. This Amendment shall
become effective upon the date first set forth above when
the Agent shall have received from the Borrower duly and
validly executed originals of this Amendment.
Section 9. Representations and Warranties. The
Borrower represents and warrants that (a) the execution,
delivery and performance of the Asset Sale are within the
corporate power and authority of the Borrower and have been
duly authorized by appropriate proceedings, (b) the Liens
under the Security Documents are valid and subsisting and
secure the Borrower's obligations under the Credit
Agreement, (c) the representations and warranties of the
Borrower contained in the Credit Documents are true and
correct as of the date hereof, except as otherwise
previously disclosed to the Agent, and (d) no Default has
occurred and is continuing as of the date hereof.
Section 10. Choice of Law. This Amendment shall be
governed by and construed and enforced in accordance with
the laws of the State of Texas.
Section 11. Counterparts. This Amendment may be
signed in any number of counterparts, each of which shall be
an original. Delivery of an executed counterpart of this
Amendment by facsimile shall be effective as delivery of a
manually executed counterpart of this Amendment.
This written agreement and the Credit Documents, as defined in the
Credit Agreement, represent the final agreement among the parties and may
not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the parties.
There are no unwritten oral agreements between the parties.
EXECUTED as of the date first set forth above.
UNION BANK OF CALIFORNIA, N.A.
By: CARL STUTZMAN
Carl Stutzman
Senior Vice President and Manager
By: DUSTIN GASPARI
Dustin Gaspari
Assistant Vice President
DEN NORSKE BANK ASA
By: CHARLES E. HALL
Name: Charles E. Hall
Title: Senior Vice President
By: J. MORTEN KREUTZ
Name: J. Morten Kreutz
Title: First Vice President
Acknowledged and accepted this
13th day of August, 1999.
RAM ENERGY, INC.
By: LARRY E. LEE
Larry E. Lee
President
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<PERIOD-END> JUN-30-1999
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