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 June 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
Item 1. Consolidated Balance Sheets - December 31, 1997 and June 30, 1998
(unaudited)
Consolidated Statements of Operations - Three months and six months
ended June 30, 1997 and 1998 (unaudited)
Consolidated Statements of Cash Flows - Three months and six months
ended June 30, 1997 and 1998 (unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. 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.
<CAPTION>
CONSOLIDATED BALANCE SHEETS
RESTATED
DECEMBER 31, JUNE 30,
1997 1998
----------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,248,421 $ 10,477,852
Accounts receivable:
Oil and gas sales 4,161,392 4,401,646
Joint interest operations, net of allowance for doubtful
accounts of $438,819 in 1997 and $229,145 in 1998 986,571 1,742,027
Related parties 10,000 71,000
Other 23,841 21,123
Prepaid expenses and deposits 365,649 1,101,360
------------ -------------
Total current assets 6,795,874 17,815,008
Properties and equipment, at cost:
Oil and gas properties and equipment,
based on full cost accounting 72,696,425 105,163,992
Gathering and disposal systems - 39,003,000
Other property and equipment 3,499,840 3,637,691
------------ -------------
76,196,265 147,804,683
Less accumulated amortization and depreciation 15,622,566 21,421,978
------------ -------------
Net properties and equipment 60,573,699 126,382,705
Other assets:
Deferred loan costs, net of accumulated amortization of
$356,889 in 1997 and $531,512 in 1998 1,290,299 1,227,004
Deferred offering costs, net of accumulated amortization
of none in 1997 and $167,736 in 1998 733,602 4,840,532
Other 333,895 1,306,121
------------ -------------
Total assets $69,727,369 $151,571,370
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable:
Trade $ 3,934,822 $ 6,281,079
Oil and gas proceeds due others 3,032,659 3,587,916
Accrued liabilities:
Compensation 179,600 120,600
Interest 379,612 4,701,140
Other 270,000 270,000
Preferred stock redemption 1,473,660 -
Long-term debt due within one year (Note 3) 97,723 114,758
------------ -------------
Total current liabilities 9,368,076 15,075,493
Gas balancing liability not expected to be settled
within one year 491,237 310,238
Long-term debt due after one year (Note 3) 62,127,442 123,526,121
Deferred income taxes - 18,952,000
Other noncurrent liabilities 1,123,602 441,687
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) (7,535,513)
----------- -------------
Stockholders' equity (deficiency) (3,982,988) (7,492,169)
----------- -------------
Total liabilities and stockholders' equity (deficiency) $69,727,369 $151,571,370
=========== =============
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
RAM ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
RESTATED RESTATED
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas sales $4,427,725 $ 6,500,749 $11,524,537 $12,595,889
Gathering systems - 1,695,000 - 2,361,000
Other 25,000 24,570 42,000 84,447
---------- ----------- ----------- -----------
Total operating revenues 4,452,725 8,220,319 11,566,537 15,041,336
Operating expenses:
Oil and gas production expenses 1,458,401 2,437,567 3,119,682 4,280,965
Oil and gas purchases - 1,166,000 - 1,613,000
Gathering system operations - 153,000 - 190,000
Amortization and depreciation 1,627,928 3,435,367 3,469,039 6,089,339
General and administrative, overhead and
other expenses, net of operator's overhead
fees to unrelated interests 976,833 913,359 1,747,185 2,021,868
---------- ----------- ----------- -----------
Total operating expenses 4,063,162 8,105,293 8,335,906 14,195,172
---------- ----------- ----------- -----------
Operating income 389,563 115,026 3,230,631 846,164
Other income (expense):
Interest expense (1,138,199) (3,749,590) (2,430,568) (6,131,462)
Interest income 4,296 105,719 25,296 172,117
---------- ----------- ----------- -----------
Income (loss) before income taxes (744,340) (3,528,845) 825,359 (5,113,181)
---------- ----------- ----------- -----------
Income taxes - (1,100,000) - (1,604,000)
---------- ----------- ----------- -----------
Net income (loss) $ (744,340) $(2,428,845) $ 825,359 $(3,509,181)
========== =========== =========== ===========
Net income (loss) per share $(0.27) $(.89) $0.30 $(1.29)
========== =========== =========== ===========
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
RESTATED RESTATED
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (744,340) $(2,428,845) $ 825,359 $ (3,509,181)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Amortization of Senior Notes discount and
fees included in interest expense - 167,605 - 223,473
Amortization and depreciation:
Oil and gas properties and equipment 1,495,467 2,809,164 3,204,117 5,148,670
Gathering and disposal systems - 487,500 - 650,000
Credit facility fees 82,238 90,544 164,476 174,623
Other property and equipment 50,223 48,159 100,446 116,046
Deferred income taxes - (1,100,000) - (1,604,000)
Cash provided (used) by changes in operating
assets and liabilities:
Prepaid expenses and deposits (123,636) (149,616) (86,571) (85,711)
Accounts receivable 1,283,671 (482,930) 2,760,975 (89,008)
Accounts payable (79,132) 2,416,097 (877,137) 976,258
Accrued liabilities and other (445,669) 2,980,473 (772,085) 3,641,472
Gas balancing liability (91,618) (90,999) (226,849) (180,999)
---------- ---------- ---------- -----------
Total adjustments 2,171,544 7,175,997 4,267,372 9,148,840
---------- ---------- ---------- -----------
Net cash provided by operating activities 1,427,204 4,747,152 5,092,731 5,639,659
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for acquisition of Carlton Resources
Corporation (net of cash acquired) (Note 2) - - - (42,600,000)
Payments for oil and gas properties and
equipment (594,160) (4,037,771) (1,914,143) (7,622,424)
Proceeds from sales of oil and gas properties
and equipment - 83,922 9,693,576 100,546
Payments for gathering and disposal systems - (3,000) - (3,000)
Payments for other property and equipment (110,839) (31,435) (110,839) (198,788)
Payments for other assets - (306,302) - (306,302)
Proceeds from sales of other assets 29,143 - 29,143 53,020
---------- ---------- ---------- -----------
Net cash provided (used) by investing
activities (675,856) (4,294,586) 7,697,737 (50,576,948)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Senior Notes Offering, net of
discount - - - 113,327,900
Payments of deferred offering costs - (591,763) - (5,008,268)
Principal payments on other long-term debt (76,628) (47,014) (10,473,045) (62,047,014)
Proceeds from borrowings on other long-term
debt 111,194 - 111,194 10,079,090
Payments for Preferred Stock Redemption - (600,000) - (2,073,660)
Payments for loan origination fees - (83,730) - (111,328)
---------- ---------- ---------- -----------
Net cash provided (used) by financing
activities 34,566 (1,322,507) (10,361,851) 54,166,720
---------- ---------- ---------- -----------
Increase (decrease) in cash and cash
equivalents 785,914 (869,941) 2,428,617 9,229,431
Cash and cash equivalents at beginning of
period 3,250,068 11,347,793 1,607,365 1,248,421
---------- ---------- ---------- -----------
Cash and cash equivalents at end of period $4,035,982 $10,477,852 $ 4,035,982 $ 10,477,852
========== =========== ============ ============
</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 six-month
periods ended June 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 six months ended June 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 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 $42.6 million, before closing adjustments. 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 $25,000,000
Pipeline gathering systems 39,000,000
-----------
64,000,000
Other assets and liabilities, net (844,000)
Deferred income tax liability (20,556,000)
-----------
Purchase price $42,600,000
===========
</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>
SIX MONTHS ENDED
JUNE 30,
RESTATED
1997 1998
---- ----
<S> <C> <C>
Total operating revenues $19,930,000 $17,429,360
Net income (loss) $(1,361,000) $(3,755,640)
Net income (loss) per common share $(.50) $(1.16)
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
---- ----
<S> <C> <C>
11-1/2% Senior Notes Due 2008 (A) $ - $113,382,557
Revolving note payable (B) 55,000,000 10,000,000
Term note payable (B) 7,000,000 -
Installment loan agreements 225,165 258,322
----------- ------------
62,225,165 123,640,879
Less amount due within one year 97,723 114,758
----------- ------------
$62,127,442 $123,526,121
=========== ============
</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 redeem-
able 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-refund-
able 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 June 30,
1998, $10 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 ap-
plicable rate may, at the Company's option, be based either on the Euro-
dollar 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% (7.1% on outstanding balance at June 30, 1998). The Company is re-
quired 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 con-
tains 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 af-
filiates, 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 asso-
ciated 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 ex-
pensed in the first quarter of 1998. At June 30, 1998, the Company has out-
standing interest rate swaps on the $10.0 million of borrowings outstanding.
Interest paid by the Company in the six-month periods ended June 30, 1997
and 1998 totaled $2,480,653 and $1,800,934, respectively.
4. 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 June 30, 1998, these
fixed-price contracts are in place to hedge 4.8 BCF of the Company's estimated
future production through March 1999 from proved gas reserves at a weighted
average price of $2.82 per MCF.
5. Financial Instruments
The following information is provided regarding the estimated fair value of
financial instruments employed by the Company as of June 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 June 30,
1998 exceeded the fair value by approximately $225,000, representing
the amount the Company would be required to pay to terminate the con-
tracts at such date.
6. 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, June 30,
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets
Financial depreciation in excess of tax depreciation $ 108,163 $ 547,000
Financial charges which are deferred for tax purposes 157,000 157,000
Net operating loss carryforwards 2,742,089 5,995,000
Investment tax credits - 284,000
Other - 1,014,000
----------- -------------
Total deferred tax assets before valuation allowance 3,007,252 7,997,000
Less valuation allowance recognized (1,293,153) -
----------- -------------
Net deferred tax assets 1,714,099 7,997,000
Deferred tax liabilities
Intangible drilling costs capitalized for financial purposes
and expensed for tax purposes 1,714,099 4,306,000
Pre-acquisition basis difference resulting from debt
restructuring - 6,951,000
Financial basis of assets acquired in excess of tax basis - 15,692,000
----------- -------------
Deferred tax liabilities 1,714,099 26,949,000
----------- -------------
Net deferred tax $ - $ 18,952,000
=========== =============
</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. 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 $42.6 million. 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.
Prior to November 1996 the principal operations of the Company were that
of serving as managing general partner of an institutional limited
partnership. Effective December 1, 1996 the Company acquired substantially
all of the partnership's operations for approximately $59.0 million. With
this acquisition, the Company added approximately 109 Bcfe of reserves.
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 June 30, 1998 the Company has entered into fixed price delivery
arrangements for natural gas production through March 1999, effectively
establishing fixed prices ranging from $2.37 per Mcf to $2.98 per Mcf on an
average of 21,500 Mcf per day from July through September 1998 and an
average of 15,800 Mcf per day from October 1998 through March 1999.
Historically the Company has added reserves mainly through acquisitions,
as described above, 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 six months ended
June 30, 1998 the Company had expended $7.6 million on development
projects. The Company intends to continue to pursue attractive oil and gas
acquisitions and exploratory 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 ration 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 JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30,
1997
OPERATING REVENUES. Operating revenues increased by $3,768,000, or
85% for the three months ended June 30, 1998 compared to the year earlier
period, due principally to the inclusion in the 1998 quarter of the
operations of Carlton. The Carlton Acquisition was completed 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>
Three Months Ended 1998 Compared to 1997
June 30 -----------------------------
------------------ % Increase Operating Revenue
1997 1998 (Decrease) Increase (Decrease)
---- ---- ---------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (Mmcf) 1,442 2,423 68.0% $1,903
Oil (Mbbls) 103 136 32.0% 517
Average sale prices:
Natural gas (per Mcf) $1.94 $2.00 3.2% 153
Oil (per Bbl) $15.77 $12.10 (23.3)% (500)
</TABLE>
Revenues were higher in the second quarter of 1998 as compared to the
second quarter of 1997 with a 57% increase in production which offsets a 7%
decrease in realized prices, both on an Mcfe basis. Average daily production
was 35.6 million cubic feet of natural gas equivalent in the second quarter of
1998 compared to 22.7 million cubic feet of natural gas equivalent during
the second quarter of 1997, an increase of 57%. Natural gas production
increased by 68% and oil production increased 32% for the comparable
periods. The average realized sales price for natural gas was $2.00 Mcf
for the quarter ended June 30, 1998, as compared to $1.94 per Mcf for the
year-ago quarter, an increase of 3%. The average realized oil price for
the quarter ended June 30, 1998 was $12.10 per Bbl, and for the quarter
ended June 30, 1997 was $15.77 per Bbl, a 35% decrease.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense
increased by $979,000, or 67%, for the three months ended June 30, 1998, as
compared to the same period in 1997. The oil and gas production expense
was $.75 per Mcfe for the three months ended June 30, 1998, an increase
from $.71 per Mcfe in the same period of 1997. The increase in expense was
due primarily to the addition of Carlton's operations for the quarter ended
June 30,1998.
GATHERING SYSTEM. The gathering system is a component of the
operations of Carlton. Revenues from this source were $1,695,000 for the
quarter ended June 30,1998. Carlton is also obligated to deliver 10,000
Mmbtu's per day at the tail-gate of the system, and purchases outside gas
to satisfy that obligation. Outside purchases were $1,166,000 for that
period and system operating costs were $153,000.
DEPRECIATION AND AMORTIZATION ("D&A") EXPENSE. Depreciation and
amortization expenses increased $1,807,000, or 111% for the three months
ended June 30, 1998 as compared with the same period in 1997, and was $1.06
per Mcfe for the 1998 quarter, an increase of $.27, or 34% compared to the
$.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 $.87 per Mcfe for the 1998 quarter (including
three months of Carlton's production) compared with $.72 per Mcfe for the
1997 quarter, a 21% increase.
G & A EXPENSE. General and administrative expense decreased
$63,000, or 6%, in the three months ended June 30, 1998 as compared with
the 1997 period. The decrease is due primarily to operator overhead fees
charged to unrelated interests attributable to Carlton for the 1998
quarter.
INTEREST EXPENSE. Interest expense increased to $3.7 million for the
three months ended June 30, 1998 as compared to $1.1 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, 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 LOSS. Due to the factors described above, the net loss
increased $1,685,000, or 226%, from a net loss of $744,000 in the three
months ended June 30, 1997 to a net loss of $2,429,000 in the same period
of 1998.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
OPERATING REVENUES. Operating revenues increased by $3,475,000, or 30%
for the six months ended June 30, 1998, compared to the year earlier
period. Results for the 1998 period include four months of operations of
Carlton. The Carlton Acquisition was completed 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>
Six Months Ended 1998 Compared to 1997
June 30, ---------------------
---------------- % Increase Operating Revenue
1997 1998 (Decrease) Increase(Decrease)
---- ---- ---------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (Mmcf) 3,034 4,293 41.5% $3,107
Oil (Mbbls) 227 262 15.5% 625
Average sale prices:
Natural gas (per Mcf) $2.47 $2.16 (12.6)% (1,331)
Oil (per Bbl) $17.79 $12.72 (28.5)% (1,330)
</TABLE>
Revenues were higher in the first six months of 1998 as compared to the
same period of 1997 with a 33% increase in production which offsets an 18%
decrease in realized prices, both on an Mcfe basis. Average daily
production was 32.4 million cubic feet of natural gas equivalent in the
first six months of 1998, as compared to 24.3 million cubic feet of
natural gas equivalent during the first six months of 1997, an increase of
33%. Natural gas production increased by 42% and oil production increased
16% for the comparable periods. The average realized sales price for
natural gas was $2.16/Mcf for the six months ended June 30, 1998, as
compared to $2.47/Mcf for the same period of 1997, a decrease of 13%. The
average realized oil price for the six months ended June 30, 1998 was
$12.72 per Bbl, and for the six months ended June 30, 1997 was $17.79 per
Bbl, a 29% decrease.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense
increased by $1,161,000, or 37%, for the six months ended June 30, 1998,
compared to the same period in 1997. The oil and gas production expense
was $.73 per Mcfe for the six months ended June 30, 1998, an increase from
$.71 per Mcfe in the same period of 1997. The increase in expense was due
primarily to the addition of Carlton's operations for the months of March
through June 1998.
GATHERING SYSTEM. The gathering system is a component of the
operations of Carlton. Revenues from this source were $2,361,000 for the
months of March through June 1998. Carlton is also obligated to deliver
10,000 Mmbtu's per day at the tail-gate of the system, and purchases
outside gas to satisfy that obligation. Outside purchases were $1,613,000
for that period and system operating costs were $190,000.
DEPRECIATION AND AMORTIZATION ("D&A") EXPENSE. Depreciation and
amortization expenses increased $2,620,000, or 76% for the six months ended
June 30, 1998 as compared with the same period in 1997, and was $1.04 per
Mcfe for the 1998 six months, an increase of $.25, or 32% compared to the
$.79 per Mcfe for the 1997 six months. This increase is due primarily to
the inclusion of Carlton's operations for the period ended June 30,
1998, including the depreciation of Carlton's gathering system. For oil
and gas D&A only, the results were $.88 per Mcfe for the first six months
of 1998 (including four months of Carlton's production) compared with $.73
per Mcfe for the same period in 1997, a 21% increase.
G & A EXPENSE. For the first six months of 1998 general and
administrative expense increased $275,000, or 16% over the same period of
1997. The increased expense is due primarily to the increase in the
number of employees. Though the Company has eliminated most duplications
with Carlton personnel, it has hired additional employees to handle the
significant capital expenditures budgeted for 1998.
INTEREST EXPENSE. Interest expense increased to $6.1 million for the
first six months of 1998 compared to $2.4 million for the comparable
period of the preceding year. This increase was attributable to higher
average outstanding indebtedness and higher effective interest rates during
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, 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, for the first
six months of 1998 the Company recorded a net loss of $3,509,000 as
compared with net income of $825,000 for the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998 the Company had cash and cash equivalents of $10.5
million.
As of June 30, 1998 the Company had $123.6 million of indebtedness
outstanding. This was comprised primarily of $113.4 million of Senior
Notes due 2008 issued in late February, 1998, and $10.0 million of advances
under the Credit Facility discussed below. Net proceeds of the Notes
Offering were used to repay existing debt, purchase Carlton, 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 financing which will be
dependent upon financing arrangements, if any, available at the time.
CREDIT FACILITY. The Company has a $50 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 bears 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 June 30, 1998 is
7.1%. 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 PROVIDED BY OPERATING ACTIVITIES. Net cash provided by the
Company's operating activities was $4.7 million for the three months ended
and $5.6 million for the six months ended June 30, 1998 as compared to $1.4
million and $5.1 million for the respective comparable periods in 1997.
Although oil prices decreased for the three months ended June 30, 1998 as
compared to the same period in 1997, this decrease was more than offset by
the rise in realized gas prices and the increases in production for both
natural gas and oil.
NET CASH USED IN AND PROVIDED BY INVESTING ACTIVITIES. For the three
months ended June 30, 1998 net cash used in the Company's investing
activities was $4.3 million, comprised primarily of the payments for oil
and gas well drilling activities. The amount for the comparable period of
1997 is $676,000 of which $594,000 was used for drilling operations. The
cash used in the Company's investing activities for the six months ended
June 1998 was $50.6 million, comprised primarily of the Carlton
Acquisition adjusted purchase price of $42.6 million and $7.6 million in
drilling activities. This compares with $7.7 million provided in 1997,
which included the sale of oil and gas properties of $9.7 million offset by
$1.9 million used in drilling operations. 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.
YEAR 2000. All of the Company's computers and operating systems are
Year 2000 compliant. Mainframe business software will be modified during
1998 and 1999 at a cost estimated to be less than $100,000.
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
On June 30, 1998, the Company entered into an agreement to
acquire certain proved developed and proved undeveloped oil and gas
properties located in southwest Texas for $21.1 million. The Company
expects to assign its right to acquire the proved developed properties and
a portion of the proved undeveloped properties covered by the agreement,
and $2.0 million in cash, to a newly formed entity in which the Company
will own a minority interest. If the transaction is consummated, the newly
formed entity will purchase the proved developed properties and a portion
of the proved undeveloped properties covered by the agreement, and the Com-
pany will purchase the remaining proved undeveloped properties for approxi-
mately $6.5 million. The transaction is subject to customary closing con-
ditions.
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 April 27, 1998, the Company filed an amended Current Report on Form 8-K
during the quarter ended June 30, 1998, which included the financial
statements of Carlton Resources Corporation, a recently acquired business.
The acquisition was first reported on Form 8-K filed March 10, 1998.
<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
Number Description Method of Filing
- ------- ------------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,477,852
<SECURITIES> 0
<RECEIVABLES> 6,143,673
<ALLOWANCES> 229,145
<INVENTORY> 0
<CURRENT-ASSETS> 17,815,008
<PP&E> 147,804,683
<DEPRECIATION> (21,421,978)
<TOTAL-ASSETS> 151,571,370
<CURRENT-LIABILITIES> 15,075,493
<BONDS> 123,526,121
0
0
<COMMON> 27,270
<OTHER-SE> (6,854,799)
<TOTAL-LIABILITY-AND-EQUITY> 151,571,370
<SALES> 14,956,889
<TOTAL-REVENUES> 15,041,336
<CGS> 6,083,965
<TOTAL-COSTS> 14,195,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (98,281)
<INTEREST-EXPENSE> 6,131,482
<INCOME-PRETAX> (5,113,181)
<INCOME-TAX> (1,604,000)
<INCOME-CONTINUING> (3,509,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,509,181)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> 0.00
</TABLE>
