RAM Energy Resources, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,250
|
)
|
|
$
|
5,048
|
|
|
$
|
543
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities-
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,948
|
|
|
|
13,252
|
|
|
|
12,972
|
|
Amortization of deferred loan costs and Senior Notes discount
|
|
|
945
|
|
|
|
988
|
|
|
|
839
|
|
Write off of loan fees due to debt refinancing
|
|
|
2,435
|
|
|
|
1,055
|
|
|
|
|
|
Accretion expense
|
|
|
704
|
|
|
|
535
|
|
|
|
510
|
|
Unrealized (gain) loss on derivatives
|
|
|
10,056
|
|
|
|
(6,239
|
)
|
|
|
6,302
|
|
Derivative premiums net of amortization
|
|
|
|
|
|
|
|
|
|
|
634
|
|
Deferred income taxes
|
|
|
(9,165
|
)
|
|
|
1,311
|
|
|
|
1,199
|
|
Share-based compensation
|
|
|
989
|
|
|
|
2,308
|
|
|
|
|
|
Gain on disposal of other property and equipment
|
|
|
(61
|
)
|
|
|
(142
|
)
|
|
|
|
|
Undistributed losses on investment
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,775
|
)
|
|
|
1,012
|
|
|
|
(2,608
|
)
|
Prepaid expenses and other assets
|
|
|
(117
|
)
|
|
|
229
|
|
|
|
(143
|
)
|
Accounts payable and proceeds due others
|
|
|
(3,626
|
)
|
|
|
4,173
|
|
|
|
(165
|
)
|
Accrued liabilities and other
|
|
|
(1,286
|
)
|
|
|
6,025
|
|
|
|
(1,331
|
)
|
Income taxes payable
|
|
|
1,313
|
|
|
|
105
|
|
|
|
(393
|
)
|
Asset retirement obligations
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
18,292
|
|
|
|
24,612
|
|
|
|
17,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
17,042
|
|
|
|
29,660
|
|
|
|
18,359
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for oil and natural gas properties and equipment
|
|
|
(40,101
|
)
|
|
|
(28,145
|
)
|
|
|
(13,528
|
)
|
Proceeds from sales of oil and natural gas properties
|
|
|
170
|
|
|
|
3,565
|
|
|
|
2,471
|
|
Payments for other property and equipment
|
|
|
(1,394
|
)
|
|
|
(812
|
)
|
|
|
(1,497
|
)
|
Proceeds from sales of other property and equipment
|
|
|
71
|
|
|
|
461
|
|
|
|
|
|
Acquisition of Ascent, net of cash acquired
|
|
|
(199,726
|
)
|
|
|
(4,187
|
)
|
|
|
|
|
Cash acquired in reverse merger
|
|
|
|
|
|
|
3,801
|
|
|
|
|
|
Other investments
|
|
|
(212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(241,192
|
)
|
|
|
(25,317
|
)
|
|
|
(12,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(921
|
)
|
|
|
(88,094
|
)
|
|
|
(15,615
|
)
|
Proceeds from borrowings on long-term debt
|
|
|
199,508
|
|
|
|
107,443
|
|
|
|
10,670
|
|
Payments for deferred loan costs
|
|
|
(1,480
|
)
|
|
|
(2,981
|
)
|
|
|
(565
|
)
|
Stock redemption
|
|
|
|
|
|
|
(9,792
|
)
|
|
|
|
|
Stock repurchased
|
|
|
(177
|
)
|
|
|
(3,768
|
)
|
|
|
|
|
Common stock offering, net of costs
|
|
|
27,366
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
(500
|
)
|
|
|
(1,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
224,302
|
|
|
|
2,308
|
|
|
|
(6,910
|
)
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
152
|
|
|
|
6,651
|
|
|
|
(1,105
|
)
|
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
6,721
|
|
|
|
70
|
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$
|
6,873
|
|
|
$
|
6,721
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
18
|
|
|
$
|
124
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
16,936
|
|
|
$
|
10,080
|
|
|
$
|
3,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest added to principal balance of credit facility
|
|
$
|
481
|
|
|
$
|
2,848
|
|
|
$
|
8,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan fees added to principal balance of credit facility
|
|
$
|
4,400
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock and warrants for Ascent merger
|
|
$
|
101,065
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Establishment of asset retirement obligations
|
|
$
|
17,328
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
52
RAM Energy Resources, Inc.
Notes to consolidated financial statements
December 31, 2007 and 2006
A
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF PRESENTATION
|
1.
|
Nature of Operations and Organization
|
On May 8, 2006, Tremisis Energy Acquisition Corporation, or Tremisis, acquired RAM Energy, Inc., or RAM Energy, through the merger of a subsidiary of Tremisis into RAM Energy. The merger was accomplished pursuant to the terms of an
Agreement and Plan of Merger dated October 20, 2005, as amended, among Tremisis, its subsidiary, RAM Energy and the stockholders of RAM Energy. Upon completion of the merger, RAM Energy became a wholly-owned subsidiary of Tremisis and Tremisis
changed its name to RAM Energy Resources, Inc.
Tremisis was formed in February 2004 to effect a merger, capital stock exchange, asset
acquisition or other similar business combination with an unidentified operating business in either the energy or the environmental industry. Prior to the consummation of the merger, Tremisis did not engage in an active trade or business. Prior to
the merger, RAM Energy was a privately held, independent oil and natural gas company engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties and the production of oil and natural gas.
Upon consummation of the merger, the stockholders of RAM Energy received an aggregate of 25,600,000 shares of Tremisis common stock and $30.0 million of
cash. The merger agreement provided, among other things, that, prior to the consummation of the merger, RAM Energy was entitled to either pay its stockholders a one-time extraordinary dividend or effect one or more redemptions of a portion of its
outstanding stock, although the aggregate amount of such cash payments to the RAM Energy stockholders could not exceed the difference between $40.0 million and the aggregate amount of cash they would receive from Tremisis in the merger. On
April 6, 2006, RAM Energy redeemed a portion of its outstanding stock for an aggregate consideration of $10.0 million.
The merger was
accounted for as a reverse acquisition. Because Tremisis had no active business operations prior to consummation of the merger, the merger has been accounted for as a recapitalization of RAM Energy and RAM Energy has been treated as the acquirer and
continuing reporting entity for accounting purposes. The assets and liabilities of Tremisis have been stated at historical cost, and added to those of RAM Energy.
On November 29, 2007, the Company acquired Ascent Energy Inc., an acquisition that significantly increased the size of the Company. See Note B.
The Company operates exclusively in the upstream segment of the oil and gas industry with activities including the drilling, completion, and operation of
oil and gas wells. The Company conducts the majority of its operations in the states of Texas, Louisiana, Oklahoma, New Mexico and West Virginia.
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
3.
|
Properties and Equipment
|
The
Company follows the full cost method of accounting for oil and natural gas operations. Under this method all productive and nonproductive costs incurred in connection with the acquisition, exploration, and
53
development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas
properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that
either proven reserves are found or it has been determined that such properties are impaired. The Company had capitalized costs related to unevaluated properties of $26,895,000 as of December 31, 2007. As these properties become evaluated, the
related costs will be transferred to proved oil and natural gas properties using full cost accounting. All capitalized costs were included in the amortization base as of December 31, 2007.
Under the full cost method the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated
after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the Ceiling Limitation). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain
production-related and ad valorem taxes are deducted. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant indefinitely, except for changes that are fixed and determinable by existing
contracts. The net book value is compared to the ceiling limitation on a quarterly and yearly basis. The excess, if any, of the net book value above the ceiling limitation is charged to expense in the period in which it occurs and is not
subsequently reinstated. Reserve estimates used in determining estimated future net revenues have been prepared by an independent petroleum engineer.
The Company has capitalized internal costs of approximately $2,886,000, $2,303,000, and $1,778,000 for the years ended December 31, 2007, 2006, and 2005, respectively. Such capitalized costs include salaries and
related benefits of individuals directly involved in the Companys acquisition, exploration and development activities based on the percentage of their time devoted to such activities.
Other property and equipment consists principally of furniture and equipment and leasehold improvements. Other property and equipment and related
accumulated amortization and depreciation are relieved upon retirement or sale and the gain or loss is included in operations. Renewals and replacements that extend the useful life of property and equipment are treated as capital additions.
Accumulated depreciation of other property and equipment at December 31, 2007 and 2006 is approximately $4,041,000 and $3,375,000, respectively.
In accordance with the impairment provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
, the Company assesses the
recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less
than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the asset. No impairments were recorded in 2007, 2006, or 2005.
4.
|
Depreciation and Amortization
|
All capitalized costs of oil and natural gas properties and equipment, including the estimated future costs to develop proved reserves, are amortized using the unit-of-production method based on total proved reserves. Depreciation of other
equipment is computed on the straight line method over the estimated useful lives of the assets, which range from three to twenty years. Amortization of leasehold improvements is computed based on the straight-line method over the term of the
associated lease or estimated useful life, whichever is shorter.
5.
|
Natural Gas Sales and Gas Imbalances
|
The Company follows the entitlement method of accounting for natural gas sales, recognizing as revenues only its net interest share of all production sold. Any amount attributable to the sale of production in excess of or
54
less than the Companys net interest is recorded as a gas balancing asset or liability. At December 31, 2007 and 2006, the Companys gas
imbalances were immaterial.
Natural gas imbalances are generated on properties for which two or more owners have the right to take
production "in-kind" and, in doing so, take more or less than their respective entitled percentage.
All highly
liquid unrestricted investments with a maturity of three months or less when purchased are considered to be cash equivalents.
7.
|
Credit and Market Risk
|
The
Company sells oil and natural gas to various customers and participates with other parties in the drilling, completion and operation of oil and natural gas wells. Joint interest and oil and natural gas sales receivables related to these operations
are generally unsecured. In 2007, approximately 62% of total revenues were to three customers (75% to two customers in 2006 and 73% to two customers in 2005), with sales to each comprising 50%, 7% and 5% (62% and 13% in 2006 and 55% and 18% in 2005)
of total revenues. The Company provides an allowance for doubtful accounts for certain purchasers and certain joint interest owners receivable balances when the Company believes the receivable balance may not be collected. Accounts receivable are
presented net of the related allowance for doubtful accounts.
In 2007 and 2006 the Company had cash deposits in certain banks that at
times exceeded the maximum insured by the Federal Deposit Insurance Corporation. The Company monitors the financial condition of the banks and has experienced no losses on these accounts.
Deferred
loan costs are stated at cost net of amortization computed using the straight-line method over the term of the related loan agreement, which approximates the interest method.
The estimated future amortization expense is as follows (in thousands):
|
|
|
Year ending December 31,
|
|
|
2008
|
|
$1,185
|
2009
|
|
$1,175
|
2010
|
|
$1,175
|
2011
|
|
$1,121
|
2012
|
|
$ 479
|
9.
|
General and Administrative Expense
|
The Company receives fees for the operation of jointly owned oil and natural gas properties and records such reimbursements as reductions of general and administrative expense. Such fees totaled approximately $228,000, $271,000, and
$228,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
55
differ from those estimates. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas
reserves, amortization relating to oil and natural gas properties, asset retirement obligations, and income taxes. The Company evaluates its estimates and assumptions on a regular basis. Estimates are based on historical experience and various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates used in preparation of our financial statements. In addition, alternatives can exist among various accounting methods. In such cases, the choice of accounting method can have a significant impact on reported amounts.
11.
|
Oil and Natural Gas Reserves Estimates
|
Independent petroleum and geological engineers prepare estimates of the Companys oil and natural gas reserves. Proved reserves, estimated future net revenues and the present value of our reserves are estimated based upon a combination
of historical data and estimates of future activity. Consistent with SEC requirements, we have based our present value of proved reserves on spot prices on the date of the estimate. The reserve estimates are used in calculating depletion,
depreciation and amortization and in the assessment of the Companys Ceiling Limitation. Significant assumptions are required in the valuation of proved oil and natural gas reserves which, as described herein, may affect the amount at which oil
and natural gas properties are recorded. Actual results could differ materially from these estimates.
12.
|
Fair Value of Financial Instruments
|
Cash and cash equivalents, trade receivables and payables, and installment notes:
The carrying amounts reported on the consolidated balance sheets approximate fair value due to the short-term nature of these
instruments.
Credit Facility:
The carrying amount reported on the consolidated balance sheets approximates
fair value because this debt instrument carries a variable interest rate based on market interest rates.
Senior
Notes:
The carrying amount reported on the consolidated balance sheets approximates fair value at December 31, 2007 and was approximately $710,000 below fair value at December 31, 2006 based on managements
estimates. Management based its estimate on information from the bond underwriters on current bids for the Companys Senior Notes.
Derivative contracts:
The carrying amount reported on the consolidated balance sheets is the fair value of the contracts based upon commodity futures prices for similar contracts less a discount to recognize
the present value for contracts in excess of one year.
Certain
reclassifications of previously reported amounts for 2006 and 2005 have been made to conform to the 2007 presentation. These reclassifications had no effect on net income or loss or cash flows from operating, investing or financing activities.
The Company
applies the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, as amended. SFAS No. 133 requires companies to recognize all derivative instruments as either assets or liabilities in the
statement of financial position at fair value.
The Company entered into numerous derivative contracts to reduce the impact of oil and
natural gas price fluctuations and as required by the terms of its credit facility (see Note J). The Company did not designate these
56
transactions as hedges as required by SFAS No. 133 in order to receive hedge accounting treatment. Accordingly, all gains and losses on the derivative
instruments during 2007, 2006 and 2005 have been recorded in the statements of operations.
15.
|
Earnings (Loss) per Common Share
|
Basic earnings (loss) per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if dilutive
stock options were exercised, calculated using the treasury stock method. A reconciliation of net income (loss) and weighted average shares used in computing basic and diluted net income (loss) per share is as follows for the years ended
December 31 (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
2005
|
Net income (loss)
|
|
$
|
(1,250
|
)
|
|
$
|
5,048
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
41,240,021
|
|
|
|
30,808,065
|
|
|
26,492,286
|
Dilutive effect of unvested stock grants
|
|
|
|
|
|
|
78,864
|
|
|
|
Dilutive effect of warrants
|
|
|
|
|
|
|
1,218,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
41,240,021
|
|
|
|
32,105,885
|
|
|
26,492,286
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.16
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.16
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Asset Retirement Obligations
|
SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and amends FASB Statement No. 19 Financial
Accounting and Reporting by Oil and Gas Producing Companies
. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair
value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. We determine our asset retirement obligation by calculating the present value of the estimated cash flows
related to the liability. Periodic accretion of the discount of the estimated liability is recorded in the income statement. The Company recorded accretion expense of approximately $704,000, $535,000, and $510,000 in 2007, 2006, and 2005,
respectively.
The Company recorded the following activity related to the asset retirement obligation for the years ended December 31,
2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Liability for asset retirement obligations, beginning of year
|
|
$
|
10,801
|
|
|
$
|
10,192
|
|
Accretion expense
|
|
|
704
|
|
|
|
535
|
|
Change in estimates
|
|
|
(657
|
)
|
|
|
283
|
|
Obligations for wells acquired and wells drilled
|
|
|
17,328
|
|
|
|
|
|
Obligations for wells sold or retired
|
|
|
(531
|
)
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
Liability for asset retirement obligations, end of year
|
|
|
27,645
|
|
|
|
10,801
|
|
Less: current asset retirement obligation
|
|
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term asset retirement obligations
|
|
$
|
25,741
|
|
|
$
|
10,801
|
|
|
|
|
|
|
|
|
|
|
57
The Company
accounts for income taxes under the liability method as prescribed by SFAS 109. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates
expected to be in effect during the year in which the basis differences reverse.
18.
|
Uncertain Tax Positions
|
Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109
(FIN 48). The Interpretation prescribes guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. To recognize a tax position, the enterprise
determines whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based solely on the technical merits of the position. A tax position that meets the
more likely than not threshold is measured to determine the amount of benefit to be recognized in the financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon settlement.
The cumulative effect of applying FIN 48 must be reported as an
adjustment to the opening balance of retained earnings in the year of adoption. The net impact of the cumulative effect of adopting FIN 48 on January 1, 2007, was a $1.3 million decrease to retained earnings, with a corresponding increase to
accrued interest related to uncertain tax positions.
|
|
|
|
|
|
|
Year Ended
December 31,
2007
|
|
Uncertain Tax Positions:
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
9,633
|
|
Liability established at adoption of FIN 48
|
|
|
1,300
|
|
Additions for tax positions of prior periods
|
|
|
507
|
|
Decreases in tax positions in prior period
|
|
|
|
|
Settlements
|
|
|
|
|
Additions based on tax positions related to the current year
|
|
|
|
|
Lapse of statutes of limitations
|
|
|
(4,585
|
)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
6,855
|
|
|
|
|
|
|
As a result of the pending tax audit settlements and the expiration of the applicable statute of
limitations period, the Company currently estimates that the amount of unrecognized tax benefit could be reduced by up to $6.9 million during the next twelve months, which would decrease income tax expense for the relevant period. While the Company
believes that it has adequately accrued for possible audit adjustments, the final resolution of the examinations cannot be determined at this time and could result in final settlements that differ from current estimates.
Related to the uncertain tax benefits noted above, the Company had recognized $1.3 million in accrued interest at the date of implementation of FIN 48.
The amount of interest related to unrecognized tax benefits which was decreased due to expirations of applicable statutes of limitations was $870,000 during the course of the year. Additional interest in the amount of $507,000 accrued on the
remaining balance in the year ended December 31, 2007. The Company recognizes related interest and penalties as a component of income tax expense.
58
Tax years open for audit by federal and state tax authorities as of the date of adoption are the years
ended December 31, 2004, 2005, and 2006. Tax years ending prior to 2004 are open for audit to the extent that net operating losses generated in those years are being carried forward or utilized in an open year. The Company is currently under
audit by a federal taxing authority for the 2005 tax year.
19.
|
New Accounting Pronouncements
|
In September 2006, the Financial Accounting Standards Board issued SFAS No. 157
Fair Value Measurements
(SFAS 157), which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning on or after November 15, 2007. SFAS 157 applies
under other accounting pronouncements that require or permit fair value measurements, however, it does not require any new fair value measurements. In some instances, the application of SFAS 157 will change current accounting practices. The
Company is currently evaluating the impact of adopting SFAS 157.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement expands the use
of fair value measurement and applies to entities that elect the fair value option. The fair value option established by the Statement permits all entities to choose to measure eligible items at fair value at specified election dates. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159.
In December 2007, the FASB issued SFAS No. 141 (Revised),
Business Combinations
(SFAS 141(R)), which significantly changes the financial accounting and reporting of business combination transactions. SFAS
141(R) establishes principles and requirements for how an acquirer in a business combination: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The adoption of this pronouncement may have an impact on the accounting for any acquisition the Company may make after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51
(SFAS 160). This
statement amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary,
which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires
consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated
net income attributable to the parent and to the noncontrolling interest. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect the adoption of
this pronouncement to have an impact on our financial position or results of operations.
59
B
|
SIGNIFICANT ACQUISITIONS
|
On
November 29, 2007, RAM completed the acquisition of Ascent Energy Inc (Ascent), a company engaged in exploration and development of oil and natural gas properties, and the production of oil and natural gas. RAMs investment in
the Ascent acquisition was valued at $303.8 million, and included 18,783,344 shares of RAM common stock and warrants to purchase 6,200,000 shares of RAM common stock at an exercise price of $5.00 per share, exercisable at any time on or prior to
May 11, 2008. Sales proceeds of $20.0 million were placed in escrow as a source of funds to adjust for Ascents closing date working capital and to indemnify RAM against, among other things, breaches of covenants, representations and
warranties by Ascent. Through this transaction, RAM acquired properties and assets located in Texas, Oklahoma, Louisiana and the Appalachian region. RAM financed $187.0 million of the consideration paid in connection with the acquisition through
borrowings under its new credit facility with Guggenheim Corporate Funding, LLC, for itself and as agent on behalf of a group of lenders.
The acquisition was accounted for using the purchase method in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations (SFAS 141). The
purchase allocation of the Ascent acquisition is subject to future adjustments pending settlement of the escrowed proceeds. The calculation of the acquisition cost and the preliminary allocation to assets and liabilities is as follows (in
thousands):
|
|
|
|
|
Cash
|
|
$
|
201,708
|
|
Direct acquisition costs
|
|
|
1,340
|
|
Fair value of shares of RAM common stock
|
|
|
97,016
|
|
Fair value of shares of RAM warrants
|
|
|
4,049
|
|
Net receivable due from escrow
|
|
|
(271
|
)
|
|
|
|
|
|
Total Acquisition Cost
|
|
$
|
303,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Assets and Liabilities Acquired:
|
|
|
|
|
Current assets
|
|
$
|
12,678
|
|
Oil and natural gas properties and equipment, using full cost accounting
|
|
|
347,442
|
|
Unevaluated oil and gas properties
|
|
|
26,254
|
|
Other property and equipment
|
|
|
1,466
|
|
Other assets
|
|
|
1,339
|
|
Current liabilities
|
|
|
(17,351
|
)
|
Long-term asset retirement obligations
|
|
|
(13,847
|
)
|
Deferred tax liability
|
|
|
(54,139
|
)
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
303,842
|
|
|
|
|
|
|
Operating results for Ascent have been included in the consolidated statements of operations since
the date of acquisition. The following unaudited pro forma results of operations assume that the Ascent merger occurred on January 1, 2006. The unaudited pro forma consolidated financial information is presented for illustrative purposes only
and does not indicate the financial results of the combined companies had the companies actually been combined (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2007
|
|
|
Year ended
December 31,
2006
|
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
116,216
|
|
|
$
|
143,957
|
|
Net loss
|
|
$
|
(17,396
|
)
|
|
$
|
(15,560
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.31
|
)
|
60
On May
15, 2007 the Company purchased a 100% working interest in certain oil and natural gas properties in the Permian Basin area of Southeast New Mexico and West Texas on which there are 120 wells. The aggregate purchase price for these properties was
$18.7 million.
C LONG-TERM DEBT
Long-term debt at December 31 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
11.5% Senior Notes due 2008, net of discount
|
|
$
|
28,393
|
|
$
|
28,351
|
Credit facility
|
|
|
306,357
|
|
|
103,000
|
Installment loan agreements
|
|
|
997
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
335,747
|
|
|
132,237
|
Less amount due within one year
|
|
|
29,231
|
|
|
756
|
|
|
|
|
|
|
|
|
|
$
|
306,516
|
|
$
|
131,481
|
|
|
|
|
|
|
|
The amount of required principal payments for the next five years and thereafter, as of
December 31, 2007, is as follows (in thousands): 2008 - $29,231; 2009 - $106; 2010 - $53, 2011 - $106,357, and 2012 - $200,000.
In February
1998, the Company completed the sale of $115.0 million of 11.5% Senior Notes due 2008 in a public offering of which $28.4 million remained outstanding at December 31, 2007 and 2006. The Senior Notes are senior unsecured obligations of the
Company and are redeemable at the option of the Company in whole or in part, at any time on or after February 15, 2005, at prices ranging from 111.5% to 103.8% of face amount to their scheduled maturity in 2008.
The indenture under which the Senior Notes were issued contained certain covenants, including covenants that limited (i) incurrence of additional
indebtedness and issuances of disqualified capital stock, (ii) restricted payments, (iii) dividends and other payments affecting subsidiaries, (iv) transactions with affiliates and outside directors fees, (v) asset sales,
(vi) liens, (vii) lines of business, (viii) merger, sale or consolidation and (ix) non-refundable acquisition deposits.
At December 31, 2007 and 2006, the unamortized original issue discount associated with the Notes totaled approximately $3,000 and $45,000, respectively. These notes were retired at maturity on February 15, 2008 using proceeds from
the Companys revolving credit facility.
2.
|
Revolving Credit Facility
|
New Credit Facility.
In November 2007, in conjunction with the Ascent acquisition, we entered into a new $500.0 million credit facility with Guggenheim Corporate Funding, LLC, for itself and on behalf other institutional lenders. The
new facility, which replaced our previous $300.0 million facility, includes a $175.0 million revolving credit facility and a $200.0 million term loan facility. The entire amount of the $200.0 million term loan was advanced at closing. The
borrowing base under the revolving credit facility at the closing was $175.0 million, a portion of which was advanced at the closing of the Ascent acquisition. Borrowings under the new facility were used to refinance RAM Energys existing
indebtedness, fund the cash requirements in connection with the closing of the Ascent acquisition, and for working capital and other general corporate purposes. Funds advanced under the revolving credit facility may be paid down and re-borrowed
during the four-year term of the revolver, and will bear interest at LIBOR plus a margin ranging from 1.25% to 2.0% based on a
61
percentage of usage. The term loan provides for payments of interest only during its five-year term, with the interest rate being LIBOR plus 7.5%.
Advances under the new facility are secured by liens on substantially all properties and assets of the Company and its subsidiaries,
including Ascent and its subsidiaries. The loan agreement contains representations, warranties and covenants customary in transactions of this nature, including financial covenants relating to current ratio, minimum interest coverage ratio, maximum
leverage ratio and a required ratio of asset value to total indebtedness. We will be required to maintain commodity hedges with respect to not less than 50%, but not more than 85%, of our projected monthly production volumes on a rolling 30-month
basis, until the leverage ratio is less than or equal to 2.0 to 1.0. At December 31, 2007, approximately $28.4 million of availability under the revolving credit facility was reserved for payment of RAM Energys outstanding 11½% senior
notes, which became due and payable on February 15, 2008, and $25.0 million was allocated for development of our proved undeveloped properties. At December 31, 2007, $106.4 million was outstanding under the revolving credit facility and $200.0
million was outstanding under the term facility.
D
|
SUBSIDIARY GUARANTORS
|
RAM Energy Resources,
Inc., Ascent Energy Inc. and Ascent Energy Inc.s wholly owned subsidiaries are not party to, or guarantors of obligations under, RAM Energy, Inc.s outstanding 11.5% Senior Notes due 2008. RAM Energy, Inc.s Senior Notes are fully
and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by all current and future subsidiaries of RAM Energy, Inc. which are referred to as the Subsidiary Guarantors. The following table sets forth condensed
consolidating financial information of the Subsidiary Guarantors. Currently there are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to RAM Energy, Inc. in the form of cash dividends, loans or advances.
The following represents the condensed consolidating balance sheets for RAM Energy Resources, Inc. (Parent), and its wholly owned
subsidiaries at December 31, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Ascent
Energy
Inc.
|
|
RAM
Energy,
Inc.
|
|
|
Subsidiary
Guarantors
|
|
Consolidating
Adjustments
|
|
|
Total
Consolidated
Amounts
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
4,738
|
|
|
$
|
197,383
|
|
$
|
2,953
|
|
|
$
|
46,419
|
|
$
|
(220,003
|
)
|
|
$
|
31,490
|
Property and equipment, net
|
|
|
642
|
|
|
|
374,685
|
|
|
35,795
|
|
|
|
130,501
|
|
|
|
|
|
|
541,623
|
Investment in subsidiaries
|
|
|
271,762
|
|
|
|
|
|
|
54,186
|
|
|
|
|
|
|
(325,948
|
)
|
|
|
|
Other assets
|
|
|
5,330
|
|
|
|
988
|
|
|
662
|
|
|
|
149
|
|
|
|
|
|
|
7,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
282,472
|
|
|
$
|
573,056
|
|
$
|
93,596
|
|
|
$
|
177,069
|
|
$
|
(545,951
|
)
|
|
$
|
580,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
189,337
|
|
|
$
|
15,173
|
|
$
|
74,888
|
|
|
$
|
6,530
|
|
$
|
(220,003
|
)
|
|
$
|
65,925
|
Long-term debt
|
|
|
|
|
|
|
187,357
|
|
|
36,621
|
|
|
|
82,538
|
|
|
|
|
|
|
306,516
|
Other non-current liabilities
|
|
|
|
|
|
|
13,959
|
|
|
6,899
|
|
|
|
10,339
|
|
|
|
|
|
|
31,197
|
Deferred income taxes and other non-current income taxes
|
|
|
(6,444
|
)
|
|
|
53,606
|
|
|
7,268
|
|
|
|
23,476
|
|
|
|
|
|
|
77,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
182,893
|
|
|
|
270,095
|
|
|
125,676
|
|
|
|
122,883
|
|
|
(220,003
|
)
|
|
|
481,544
|
Stockholders equity (deficit)
|
|
|
99,579
|
|
|
|
302,961
|
|
|
(32,080
|
)
|
|
|
54,186
|
|
|
(325,948
|
)
|
|
|
98,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
282,472
|
|
|
$
|
573,056
|
|
$
|
93,596
|
|
|
$
|
177,069
|
|
$
|
(545,951
|
)
|
|
$
|
580,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
RAM
Energy,
Inc.
|
|
|
Subsidiary
Guarantors
|
|
Consolidating
Adjustments
|
|
|
Total
Consolidated
Amounts
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
1,464
|
|
|
$
|
3,044
|
|
|
$
|
34,113
|
|
$
|
(22,909
|
)
|
|
$
|
15,712
|
|
Property and equipment, net
|
|
|
4
|
|
|
|
13,780
|
|
|
|
129,021
|
|
|
|
|
|
|
142,805
|
|
Investment in subsidiaries
|
|
|
(30,723
|
)
|
|
|
42,684
|
|
|
|
|
|
|
(11,961
|
)
|
|
|
|
|
Other assets
|
|
|
1
|
|
|
|
3,069
|
|
|
|
138
|
|
|
|
|
|
|
3,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(29,254
|
)
|
|
$
|
62,577
|
|
|
$
|
163,272
|
|
$
|
(34,870
|
)
|
|
$
|
161,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,191
|
|
|
$
|
30,379
|
|
|
$
|
9,519
|
|
$
|
(22,909
|
)
|
|
$
|
18,180
|
|
Long-term debt
|
|
|
|
|
|
|
48,945
|
|
|
|
82,536
|
|
|
|
|
|
|
131,481
|
|
Other non-current liabilities
|
|
|
|
|
|
|
3,339
|
|
|
|
9,943
|
|
|
|
|
|
|
13,282
|
|
Deferred income taxes and other non-current income taxes
|
|
|
(2,550
|
)
|
|
|
10,637
|
|
|
|
18,590
|
|
|
|
|
|
|
26,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(1,359
|
)
|
|
|
93,300
|
|
|
|
120,588
|
|
|
(22,909
|
)
|
|
|
189,620
|
|
Stockholders equity (deficit)
|
|
|
(27,895
|
)
|
|
|
(30,723
|
)
|
|
|
42,684
|
|
|
(11,961
|
)
|
|
|
(27,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
(29,254
|
)
|
|
$
|
62,577
|
|
|
$
|
163,272
|
|
$
|
(34,870
|
)
|
|
$
|
161,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following represents the condensed consolidating statements of operations and statements of
cash flows for RAM Energy Resources, Inc. and its subsidiaries for the years ended December 31, 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Ascent
Energy Inc.
|
|
|
RAM
Energy,
Inc.
|
|
|
Subsidiary
Guarantors
|
|
|
Consolidating
Adjustments
|
|
|
Total
Consolidated
Amounts
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
17
|
|
|
$
|
5,855
|
|
|
$
|
1,180
|
|
|
$
|
62,588
|
|
|
$
|
|
|
|
$
|
69,640
|
|
Operating expenses
|
|
|
5,969
|
|
|
|
5,188
|
|
|
|
9,977
|
|
|
|
37,841
|
|
|
|
|
|
|
|
58,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(5,952
|
)
|
|
|
667
|
|
|
|
(8,797
|
)
|
|
|
24,747
|
|
|
|
|
|
|
|
10,665
|
|
Other expense
|
|
|
(2,325
|
)
|
|
|
(2,072
|
)
|
|
|
(41
|
)
|
|
|
(8,360
|
)
|
|
|
(6,969
|
)
|
|
|
(19,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(8,277
|
)
|
|
|
(1,405
|
)
|
|
|
(8,838
|
)
|
|
|
16,387
|
|
|
|
(6,969
|
)
|
|
|
(9,102
|
)
|
Income taxes
|
|
|
(7,908
|
)
|
|
|
(524
|
)
|
|
|
(4,306
|
)
|
|
|
4,886
|
|
|
|
|
|
|
|
(7,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(369
|
)
|
|
$
|
(881
|
)
|
|
$
|
(4,532
|
)
|
|
$
|
11,501
|
|
|
$
|
(6,969
|
)
|
|
$
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
181,141
|
|
|
$
|
(185,642
|
)
|
|
$
|
9,315
|
|
|
$
|
12,228
|
|
|
$
|
|
|
|
$
|
17,042
|
|
Cash flows provided by (used in) investing activities
|
|
|
(203,429
|
)
|
|
|
1,016
|
|
|
|
(25,623
|
)
|
|
|
(13,156
|
)
|
|
|
|
|
|
|
(241,192
|
)
|
Cash flows provided by financing activities
|
|
|
20,978
|
|
|
|
187,357
|
|
|
|
15,965
|
|
|
|
2
|
|
|
|
|
|
|
|
224,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(1,310
|
)
|
|
|
2,731
|
|
|
|
(343
|
)
|
|
|
(926
|
)
|
|
|
|
|
|
|
152
|
|
Cash and cash equivalents, beginning of year
|
|
|
1,347
|
|
|
|
|
|
|
|
749
|
|
|
|
4,625
|
|
|
|
|
|
|
|
6,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
37
|
|
|
$
|
2,731
|
|
|
$
|
406
|
|
|
$
|
3,699
|
|
|
$
|
|
|
|
$
|
6,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
RAM
Energy, Inc.
|
|
|
Subsidiary
Guarantors
|
|
|
Consolidating
Adjustments
|
|
|
Total
Consolidated
Amounts
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
(7
|
)
|
|
$
|
9,327
|
|
|
$
|
60,924
|
|
|
$
|
|
|
|
$
|
70,244
|
|
Operating expenses
|
|
|
4,448
|
|
|
|
6,010
|
|
|
|
36,532
|
|
|
|
|
|
|
|
46,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(4,455
|
)
|
|
|
3,317
|
|
|
|
24,392
|
|
|
|
|
|
|
|
23,254
|
|
Other expense
|
|
|
6,919
|
|
|
|
3,599
|
|
|
|
(8,702
|
)
|
|
|
(18,557
|
)
|
|
|
(16,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2,464
|
|
|
|
6,916
|
|
|
|
15,690
|
|
|
|
(18,557
|
)
|
|
|
6,513
|
|
Income taxes
|
|
|
(2,584
|
)
|
|
|
61
|
|
|
|
3,988
|
|
|
|
|
|
|
|
1,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,048
|
|
|
$
|
6,855
|
|
|
$
|
11,702
|
|
|
$
|
(18,557
|
)
|
|
$
|
5,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
(268
|
)
|
|
$
|
1,938
|
|
|
$
|
27,990
|
|
|
$
|
|
|
|
$
|
29,660
|
|
Cash flows (used in) investing activities
|
|
|
(389
|
)
|
|
|
(2,116
|
)
|
|
|
(22,812
|
)
|
|
|
|
|
|
|
(25,317
|
)
|
Cash flows provided by financing activities
|
|
|
2,004
|
|
|
|
310
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
2,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
1,347
|
|
|
|
132
|
|
|
|
5,172
|
|
|
|
|
|
|
|
6,651
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
617
|
|
|
|
(547
|
)
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,347
|
|
|
$
|
749
|
|
|
$
|
4,625
|
|
|
$
|
|
|
|
$
|
6,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
RAM
Energy,
Inc.
|
|
|
Subsidiary
Guarantors
|
|
|
Consolidating
Adjustments
|
|
|
Total
Consolidated
Amounts
|
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
|
|
$
|
(2,064
|
)
|
|
$
|
57,463
|
|
|
$
|
|
|
|
$
|
55,399
|
|
Operating expenses
|
|
|
|
|
|
6,948
|
|
|
|
34,563
|
|
|
|
|
|
|
|
41,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
(9,012
|
)
|
|
|
22,900
|
|
|
|
|
|
|
|
13,888
|
|
Other expense
|
|
|
|
|
|
2,477
|
|
|
|
(7,171
|
)
|
|
|
(7,845
|
)
|
|
|
(12,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
(6,535
|
)
|
|
|
15,729
|
|
|
|
(7,845
|
)
|
|
|
1,349
|
|
Income taxes
|
|
|
|
|
|
(7,078
|
)
|
|
|
7,884
|
|
|
|
|
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
|
|
$
|
543
|
|
|
$
|
7,845
|
|
|
$
|
(7,845
|
)
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
$
|
|
|
$
|
9,592
|
|
|
$
|
8,767
|
|
|
$
|
|
|
|
$
|
18,359
|
|
Cash flows (used in) investing activities
|
|
|
|
|
|
(3,108
|
)
|
|
|
(9,446
|
)
|
|
|
|
|
|
|
(12,554
|
)
|
Cash flows (used in) by financing activities
|
|
|
|
|
|
(6,910
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) in cash and cash equivalents
|
|
|
|
|
|
(426
|
)
|
|
|
(679
|
)
|
|
|
|
|
|
|
(1,105
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
1,043
|
|
|
|
132
|
|
|
|
|
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
|
|
$
|
617
|
|
|
$
|
(547
|
)
|
|
$
|
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to intercompany allocations among the parent and its subsidiaries, the above condensed
consolidating information is not intended to present the Companys subsidiaries on a stand-alone basis.
64
The Company leases office space and
certain equipment under non-cancelable operating lease agreements that expire on various dates through 2013. Approximate future minimum lease payments for operating leases at December 31, 2007 are as follows (in thousands):
|
|
|
|
Year Ending December 31,
|
|
|
2008
|
|
$
|
944
|
2009
|
|
|
736
|
2010
|
|
|
730
|
2011
|
|
|
712
|
2012
|
|
|
735
|
2013 and thereafter
|
|
|
582
|
|
|
|
|
|
|
$
|
4,439
|
|
|
|
|
Rent expense of approximately $492,000, $389,000, and $519,000 was incurred under operating leases
in the years ended December 31, 2007, 2006, and 2005, respectively.
F DEFINED
|
CONTRIBUTION PLAN
|
The Company sponsors a 401(k)
defined contribution plan for the benefit of substantially all of its employees. The plan allows eligible employees to contribute up to 100% of their annual compensation, not to exceed the maximum amount permitted by IRS regulations. Employer
contributions to the plan are discretionary. The Company provided matching contributions to the plan in 2007, 2006, and 2005 of $338,000, $691,000, and $210,000, respectively.
RAM Energy, Inc. paid cash dividends
of $500,000 for the year ended December 31, 2006 prior to being acquired by the Company. RAM Energy, Inc. also declared cash dividends of $1,400,000 for the year ended December 31, 2005.
On April 6, 2006, RAM Energy, Inc. redeemed a portion of the outstanding shares of its common stock for an aggregate redemption price of
approximately $10.0 million.
On May 8, 2006, the Company acquired RAM Energy, Inc. by merger in exchange for an issuance of
25,600,000 shares of common stock and $30.0 million in cash. RAM Energy, Inc. is now a wholly-owned subsidiary of the Company. As a result of the merger, RAM Energy, Inc. was recapitalized so that the historical basis of its assets and liabilities
remain intact. The only operations of the parent company included in the results of operations for 2006 are those that occurred subsequent to the date of the merger.
The Company has outstanding warrants to purchase 12,648,800 shares of its common stock at any time or from time to time on or prior to May 11, 2008 at an exercise price of $5.00 per share, which warrants were
issued in connection with the Companys initial public offering. The Company also has outstanding an option to purchase up to 275,000 units, each unit consisting of one share of the Companys common stock and two warrants, each to purchase
one share of the Companys common stock. This option is currently exercisable at $9.90 per unit and expires May 12, 2009. The warrants included in this option, when issued, will be immediately exercisable at an exercise price of $6.25.
However, the warrants will cease to be exercisable after May 11, 2008.
Also, on May 8, 2006, the shareholders of the Company
approved the Companys 2006 Long-Term Incentive Plan (the Plan), effective upon the consummation of the Companys acquisition by merger of RAM Energy. At the request of certain of the grantees upon vesting in shares awarded by
the Plan, on June 8, 2006, the
65
Company repurchased 98,100 of these shares at $6.04 per share, the closing market price of the Companys common stock as of that date, to satisfy the
grantees federal and state income tax withholding requirements, as permitted by the Plan. Also, at the request of certain of the grantees upon vesting in shares awarded by the Plan, on November 10, 2007, the Company repurchased 33,616 of
these shares at $5.28 per share, the closing market price of the Companys common stock as of that date, to satisfy the grantees federal and state income tax withholding requirements, as permitted by the Plan. These repurchased shares are
held by the Company as treasury stock at December 31, 2007.
On September 22, 2006, the Company purchased 739,175 shares of its
common stock in a privately negotiated transaction. The purchase price was $4.295 per share, and the shares are included in treasury stock at December 31, 2007.
On February 13, 2007, the Company completed a public offering in which it issued 7,500,000 shares of its common stock, priced at $4.00 per share. Net proceeds of the offering were $27.4 million and were used to
provide additional working capital for general corporate purposes, including acquisition, development, exploitation and exploration of oil and natural gas properties, and reduction of indebtedness.
On November 29, 2007, the Company acquired Ascent Energy Inc. in exchange for the issuance of 18,783,344 shares of common stock, warrants to
purchase 6,200,000 shares of common stock at an exercise price of $5.00 per share, exercisable on or prior to May 11, 2008, and $202.8 million in cash, including direct acquisition costs. Ascent Energy Inc. is now a wholly-owned subsidiary of
the Company.
H INCOME TAXES
The (provision) benefit for income taxes is comprised of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current
|
|
$
|
(1,313
|
)
|
|
$
|
(154
|
)
|
|
$
|
393
|
|
Deferred
|
|
|
9,165
|
|
|
|
(1,311
|
)
|
|
|
(1,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense
|
|
$
|
7,852
|
|
|
$
|
(1,465
|
)
|
|
$
|
(806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amount computed by applying the statutory federal
income tax rate to income before provision for income taxes. The significant differences between pre-tax book income and taxable book income relate to non-deductible personal expenses, meals and entertainment expenses and state income taxes.
The sources and tax effects of the differences are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Income tax provision at the federal statutory rate (34%)
|
|
$
|
3,039
|
|
|
$
|
(2,214
|
)
|
|
$
|
(459
|
)
|
State income (tax) benefit, net of federal benefit
|
|
|
732
|
|
|
|
781
|
|
|
|
12
|
|
Meals and entertainment expense
|
|
|
(18
|
)
|
|
|
(21
|
)
|
|
|
(34
|
)
|
Non-deductible dues
|
|
|
(13
|
)
|
|
|
(17
|
)
|
|
|
(15
|
)
|
Non-deductible related party expenses
|
|
|
|
|
|
|
|
|
|
|
(302
|
)
|
Previously unrecognized tax benefits
|
|
|
3,715
|
|
|
|
|
|
|
|
|
|
Interest on previously unrecognized tax benefits
|
|
|
363
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
34
|
|
|
|
6
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
7,852
|
|
|
$
|
(1,465
|
)
|
|
$
|
(806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
The Companys income tax provision was computed based on the federal statutory rate and the average
state statutory rates, net of the related federal benefit. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes.
Significant components of the Companys deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
3,483
|
|
|
$
|
|
|
Accrued expenses and other
|
|
|
1,752
|
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,235
|
|
|
$
|
490
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
5,235
|
|
|
$
|
490
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
51,694
|
|
|
$
|
3,373
|
|
Accrued liabilities and other
|
|
|
6,378
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,072
|
|
|
$
|
3,636
|
|
Valuation allowance
|
|
|
(19,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax assets
|
|
$
|
38,663
|
|
|
$
|
3,636
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
$
|
(134
|
)
|
|
$
|
(2,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
(2,172
|
)
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Depreciable/depletable property, plant and equipment
|
|
$
|
(110,979
|
)
|
|
$
|
(18,998
|
)
|
Other
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities
|
|
$
|
(111,029
|
)
|
|
$
|
(18,998
|
)
|
Net noncurrent deferred tax liability
|
|
$
|
(111,163
|
)
|
|
$
|
(21,170
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(67,265
|
)
|
|
$
|
(17,044
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company has federal net operating loss carryforwards of
approximately $139.6 million for tax purposes, $138.2 million of which were an inherited attribute from the Ascent acquisition during 2007. These net operating loss carryforwards are subject to the ownership change limitation provisions of
Section 382 of the Internal Revenue Code. Based on the value of Ascent at the time of the acquisition, and the annual limitation on utilization of losses imposed by Section 382, it is estimated that approximately $55.3 million of these net
operating losses will expire without being utilized. Accordingly, a valuation allowance has been established with respect to the portion of the net operating losses for which the Company believes it is not likely to realize a benefit. If not used,
the remaining net operating losses will generally expire between 2020 and 2026. In addition, the Company has generated net operating loss carryforwards for state income tax purposes, which the Company believes will more likely than not be realized
during the relevant carryforward periods; however, such amounts have not been separately disclosed in the financial statements as the Company does not believe that these net operating losses are material to the amounts presented herein.
67
I COMMITMENTS
|
AND CONTINGENCIES
|
Contingent Receivables
.
Ascent Energy Inc., a wholly owned subsidiary of the Company, engaged a consulting firm to audit a gas processing plant utilized in South Texas. Based on the audit findings, the Company believes the gas processing plant used incorrect volumes to
calculate natural gas liquids and therefore, may owe the Company additional revenues. However, the Company believes that any revenue due to it may be partially offset by a reciprocal adjustment to residue gas. The Company, at this time, is unable to
estimate the net adjustment resulting from the audit findings and accordingly, has not reflected the adjustment in the financial statements. Upon finalization of the audit findings, any adjustment related to the audit findings will be recorded in
the Companys financial statements.
Contingent Liabilities.
In April 2002, a lawsuit was filed in the District Court for Woods
County, Oklahoma against RAM Energy, Inc., certain of its subsidiaries and various other individuals and unrelated companies, by a lessor of certain oil and gas leases from which production was sold to a gathering system owned and operated by Magic
Circle Energy Corporation (Magic Circle) or its wholly-owned subsidiary, Carmen Field Limited Partnership (CFLP). The lawsuit covers the period from 1977 to a current date. In 1998, both Magic Circle and CFLP became wholly-owned subsidiaries of RAM
Energy, Inc. The lawsuit was filed as a class action on behalf of all royalty owners under leases owned by any of the defendants during the period Magic Circle or CFLP owned and operated the gathering system. The petition claims that additional
royalties are due because Magic Circle and CFLP resold oil and gas purchased at the wellhead for an amount in excess of the price upon which royalty payments were based and paid no royalties on natural gas liquids extracted from the gas at plants
downstream of the system. Other allegations include under-measurement of oil and gas at the wellhead by Magic Circle and CFLP, failure to pay royalties on take or pay settlement proceeds and failure to properly report deductions for post-production
costs in accordance with Oklahomas check stub law.
RAM Energy, Inc. and other defendants have filed answers in the lawsuit denying
all material allegations set out in the petition. The Company believes that fair and proper accounting was made to the royalty owners for production from the subject leases and intends to vigorously defend the lawsuit. Plaintiffs have not specified
an amount of claim, nor the time period covered. Management is unable to estimate a range of potential loss, if any, related to this lawsuit, and accordingly no amounts have been recorded in the consolidated financial statements. In the event the
court should find RAM Energy, Inc. and its related defendants liable for damages in the lawsuit, a former joint venture partner is contractually obligated to pay a portion of any damages assessed against the defendant lessees up to a maximum
contribution of approximately $2.8 million. In conjunction with our May 8, 2006 acquisition of RAM Energy, the former stockholders of RAM Energy deposited in escrow 3,200,000 shares of our common stock to secure their potential indemnity
obligations to us, including any loss we might sustain in the Sacket litigation. These escrowed shares will remain in escrow until the Sacket litigation is resolved.
The Company is also involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the
Companys financial position or results of operations.
During 2007, 2006 and 2005,
the Company entered into numerous derivative contracts. The Company did not formally designate these transactions as hedges as required by SFAS No. 133 in order to receive hedge accounting treatment. Accordingly, all gains and losses on the
derivative financial instruments have been recorded in the statements of operations.
68
The Companys open derivative positions at December 31, 2007 are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls)
|
|
Natural Gas (Mmbtu)
|
|
|
Floors
|
|
Ceilings
|
|
Floors
|
|
Ceilings
|
|
|
Per Day
|
|
Price
|
|
Per Day
|
|
Price
|
|
Per Day
|
|
Price
|
|
Per Day
|
|
Price
|
Collars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
1,500
|
|
$
|
65.33
|
|
1,500
|
|
$
|
83.39
|
|
4,000
|
|
$
|
6.77
|
|
4,000
|
|
$
|
13.23
|
2009
|
|
1,248
|
|
$
|
58.42
|
|
1,248
|
|
$
|
79.03
|
|
4,000
|
|
$
|
7.00
|
|
4,000
|
|
$
|
10.98
|
2010
|
|
500
|
|
$
|
60.00
|
|
500
|
|
$
|
80.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secondary Floors
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Per Day
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
800
|
|
$
|
75.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Floors
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Per Day
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
1,800
|
|
$
|
71.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
1,000
|
|
$
|
65.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil floors and ceilings and natural gas floors and ceilings for 2008 cover the calendar
year. Crude oil bare floors for 2008 cover the calendar year. Crude oil floors and ceilings for 2009 cover the calendar year, and natural gas floors and ceilings for 2009 cover January through September. Crude oil secondary floors for 2009 cover
January through March. Crude oil bare floors for 2009 cover January through June. Crude oil floors and ceilings for 2010 cover January through March.
The Company determined the fair value of its derivatives at December 31, 2007, 2006 and 2005, based on quoted market prices, less discounts to recognize present values for contracts in excess of one year.
Accordingly, a liability of $8,375,000, an asset of $677,000, and a liability of $3,510,000 were recorded in the consolidated balance sheets at December 31, 2007, 2006 and 2005, respectively.
As of December 31, 2007, the
Company has an accumulated deficit of $29.0 million and a working capital deficit of $34.4 million. The working capital deficit includes a current liability of $28.4 million for RAM Energy Senior Notes that matured and were retired in February 2008
using proceeds from borrowings under the Companys credit facility. Management believes that borrowings currently available to the Company under the Company's credit facilities ($68 million available at December 31, 2007), the balance of
unrestricted cash, and anticipated cash flows from operations will be sufficient to satisfy its currently expected capital expenditures, working capital, and debt service obligations for the foreseeable future. The actual amount and timing of future
capital requirements may differ materially from estimates as a result of, among other things, changes in product pricing and regulatory, technological and competitive developments. Sources of additional financing may include commercial bank
borrowings, vendor financing and the sale of oil and natural gas properties or equity or debt securities. Management cannot assure that any such financing will be available on acceptable terms or at all.
L RELATED
|
PARTY TRANSACTIONS
|
Prior to being acquired by the
Company, RAM Energy, Inc. paid rent expense of approximately $29,000, relating to a condominium for one of the shareholders of RAM Energy, Inc. for the year ended December 31, 2005.
Also, prior to being acquired by the Company, for the years ended December 31, 2006 and 2005 approximately $104,000 and $499,000 respectively, of
expenses (excluding the rent payments discussed above) for the shareholders of RAM Energy, Inc. are included in general and administrative expenses in the consolidated statements of operations, some of which may be personal in nature.
69
In June 2005, the Company sold overriding royalty interests in certain properties located in Jack and
Wise Counties, Texas for $2.3 million to Bridgeport Royalties, LLC. Bridgeport Royalties, LLC is a related party of the Company, owned by certain stockholders and several officers and employees of the Company, in addition to outside counsel. No gain
on the sale was recognized and the proceeds were applied to reduce the outstanding balance under the Companys revolving credit facility.
M
|
DEFERRED COMPENSATION
|
On April 21, 2004, the
Company adopted a Deferred Bonus Compensation Plan (the Plan) for senior management employees of the Company. The Plan is to provide additional compensation for significant business transactions with a portion of each bonus to be deferred to
encourage retention of key employees. Determination of significant business transactions and terms of awards is made by a committee comprised of the shareholders of the Company.
During 2004 and 2005, three members of senior management were granted awards. Each award provides for a total cash compensation of $75,000 and vests on
each anniversary date for three years beginning on July 1, 2004 and July 1, 2005, respectively. Receipt of the award is contingent on the members being employed on the anniversary date. Should there be a change of control or involuntary
termination, as defined in the award contract, each member will become fully vested in his award. Compensation expense is recorded on a straight- line basis. For the years ended December 31, 2007, 2006 and 2005, $38,000, $150,000 and $150,000,
respectively, has been recorded as compensation expense in the consolidated statements of operations.
N SHARE-BASED
|
COMPENSATION
|
In December 2004, the Financial
Accounting Standards Board issued SFAS No. 123R,
Share-Based Payments
(SFAS No. 123R). SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. The Company adopted the provisions of SFAS No. 123R effective January 1, 2006.
On May 8, 2006, the Companys stockholders approved its 2006 Long-Term Incentive Plan (the Plan). The Company reserved a maximum of 2,400,000 shares of its common stock for issuances under the
Plan. The Company believes that the awards made under the Plan will better align the interests of its employees with those of its stockholders. The Plan includes a provision that, at the request of a grantee, the Company may repurchase shares to
satisfy the grantees federal and state income tax withholding requirements. All repurchased shares will be held by the Company as treasury stock. As of December 31, 2007, a maximum of 1,122,933 shares of common stock remained reserved for
issuance under the Plan.
The Company granted incentive stock awards under the Plan as set forth in the following table. Each grant vests
in equal increments over periods ranging from eight months to five years from the date of grant. The incentive stock awards granted on May 8, 2006 vested in full on June 8, 2006. At the request of certain of the grantees, on June 8,
2006, the Company repurchased 98,100 of these shares included in such Awards at $6.04 per share, the closing market price of the Companys common stock as of that date, to satisfy the requesting grantees federal and state income tax
withholding requirements. Of the 646,805 shares granted on November 10, 2006, 125,606 shares vested on November 10, 2007. At the request of certain of the grantees, the Company repurchased 33,616 of these shares included in such Awards at
$5.28 per share, the closing market price of the Companys common stock as of that date, to satisfy the requesting grantees federal and state income tax withholding requirements. The repurchased shares were held by the Company as treasury
stock at December 31, 2007.
70
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Granted
|
|
Shares Repurchased
|
Date
|
|
Number
|
|
Closing Price
|
|
Date
|
|
Number
|
|
Closing Price
|
May 8, 2006
|
|
330,000
|
|
$
|
6.72
|
|
June 8, 2006
|
|
98,100
|
|
$
|
6.04
|
November 10, 2006
|
|
646,805
|
|
$
|
5.06
|
|
November 10, 2007
|
|
33,616
|
|
$
|
5.28
|
March 12, 2007
|
|
200,000
|
|
$
|
4.18
|
|
|
|
|
|
|
|
March 19, 2007
|
|
14,000
|
|
$
|
4.25
|
|
|
|
|
|
|
|
May 14, 2007
|
|
9,148
|
|
$
|
4.61
|
|
|
|
|
|
|
|
June 12, 2007
|
|
30,000
|
|
$
|
5.13
|
|
|
|
|
|
|
|
June 12, 2007
|
|
8,000
|
|
$
|
5.13
|
|
|
|
|
|
|
|
June 25, 2007
|
|
12,183
|
|
$
|
5.47
|
|
|
|
|
|
|
|
July 2, 2007
|
|
20,000
|
|
$
|
5.32
|
|
|
|
|
|
|
|
August 13, 2007
|
|
6,931
|
|
$
|
4.70
|
|
|
|
|
|
|
|
A summary of the status of the non-vested shares as of December 31, 2007, and changes during
the two year period ended December 31, 2007, is presented below:
|
|
|
|
|
|
|
Nonvested Shares
|
|
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Nonvested at January 1, 2006
|
|
|
|
|
$
|
|
Granted
|
|
976,805
|
|
|
$
|
5.62
|
Vested
|
|
(330,000
|
)
|
|
$
|
6.72
|
Forfeited
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006
|
|
646,805
|
|
|
$
|
5.06
|
Granted
|
|
300,262
|
|
|
$
|
4.46
|
Vested
|
|
(125,606
|
)
|
|
$
|
5.06
|
Forfeited
|
|
(18,775
|
)
|
|
$
|
5.06
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
802,686
|
|
|
$
|
4.28
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company had $3.4 million of unrecognized compensation cost
related to non-vested, share-based compensation related to awards granted under the Plan. That cost is expected to be recognized over a weighted-average period of 4 years. The related compensation expense recognized during the years ended
December 31, 2007 and 2006 was $1.0 million and $2.3 million, respectively.
On February 15, 2008, the outstanding 11
1
/
2
% Senior Notes due 2008 issued by the
Companys wholly owned subsidiary, RAM Energy, Inc., matured and were paid in full. The aggregate principal amount paid was $28.4 million, plus accrued interest of $1.6 million. Long term borrowings under the Companys revolving credit
facility were used to retire these notes.
Effective January 1, 2008, the Company granted restricted stock awards of an aggregate of
841,000 shares of our common stock to our officers and other key employees, including certain former Ascent employees whose employment continued following the Ascent acquisition. All of the awards vest ratably over a four-year period. The Company
will incur compensation expense of approximately $4.2 million in connection with these awards, which will be recognized ratably through 2011.
P
|
SUPPLEMENTARY OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)
|
The Company has interests in oil and natural gas properties that are principally located in Texas, Louisiana, Oklahoma, New Mexico, and West Virginia. The Company does not own or lease any oil and natural gas
properties outside the United States of America.
71
The Company retains independent engineering firms to provide year-end estimates of the Companys
future net recoverable oil, natural gas and natural gas liquids reserves. Estimated proved net recoverable reserves as shown below include only those quantities that can be expected to be commercially recoverable at prices and costs in effect at the
balance sheet dates under existing regulatory practices and with conventional equipment and operating methods.
Proved developed reserves
represent only those reserves expected to be recovered through existing wells. Proved undeveloped reserves include those reserves expected to be recovered from new wells on undrilled acreage or from existing wells on which a relatively major
expenditure is required for re-completion.
Capitalized costs relating to oil and natural gas producing activities and related accumulated
depreciation and amortization at December 31 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Proved oil and natural gas properties
|
|
$
|
573,470
|
|
|
$
|
185,284
|
|
|
$
|
160,704
|
|
Unevaluated oil and natural gas properties
|
|
|
26,895
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(63,480
|
)
|
|
|
(45,203
|
)
|
|
|
(32,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
536,885
|
|
|
$
|
140,081
|
|
|
$
|
128,102
|
|
Costs incurred in oil and natural gas producing activities for the years ended December 31
are as follows (in thousands, except per equivalent oil barrel):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Acquisition of proved properties
|
|
$
|
299,573
|
|
|
$
|
4,476
|
|
|
$
|
155
|
|
Acquisition of unproved properties
|
|
|
24,642
|
|
|
|
705
|
|
|
|
|
|
Proceeds from sale of unproved properties
|
|
|
|
|
|
|
(3,565
|
)
|
|
|
|
|
Development costs
|
|
|
12,921
|
|
|
|
18,475
|
|
|
|
11,864
|
|
Exploration costs
|
|
|
7,659
|
|
|
|
2,766
|
|
|
|
1,507
|
|
Exploration in progress
|
|
|
|
|
|
|
1,723
|
|
|
|
|
|
Sale of producing properties
|
|
|
(170
|
)
|
|
|
|
|
|
|
(2,471
|
)
|
Additional asset retirement obligation
|
|
|
17,328
|
|
|
|
|
|
|
|
3,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
361,953
|
|
|
$
|
24,580
|
|
|
$
|
14,106
|
|
Amortization rate per equivalent oil barrel
|
|
$
|
12.86
|
|
|
$
|
9.78
|
|
|
$
|
8.93
|
|
72
Net quantities of proved and proved developed reserves of oil and natural gas, including condensate and
natural gas liquids, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
(Thousand
Barrels)
|
|
|
Natural Gas
(Million
Cubic Feet)
|
|
|
Natural Gas
Liquids
(Thousand
Barrels)
|
|
December 31, 2004
|
|
10,667
|
|
|
38,195
|
|
|
2,087
|
|
Extensions and discoveries
|
|
5
|
|
|
1,297
|
|
|
|
|
Sales of reserves in place
|
|
(25
|
)
|
|
(1,305
|
)
|
|
|
|
Purchases of reserves in place
|
|
|
|
|
|
|
|
|
|
Revisions of previous estimates
|
|
1,339
|
|
|
(1,272
|
)
|
|
(26
|
)
|
Production
|
|
(787
|
)
|
|
(2,681
|
)
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
11,199
|
|
|
34,234
|
|
|
1,891
|
|
Extensions and discoveries
|
|
2,087
|
|
|
2,622
|
|
|
2
|
|
Sales of reserves in place
|
|
|
|
|
|
|
|
|
|
Purchases of reserves in place
|
|
126
|
|
|
1,928
|
|
|
|
|
Revisions of previous estimates
|
|
(1,864
|
)
|
|
(3,220
|
)
|
|
373
|
|
Production
|
|
(752
|
)
|
|
(2,365
|
)
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
10,796
|
|
|
33,199
|
|
|
2,123
|
|
Extensions and discoveries
|
|
3
|
|
|
1,927
|
|
|
143
|
|
Sales of reserves in place
|
|
|
|
|
(117
|
)
|
|
|
|
Purchases of reserves in place
|
|
8,688
|
|
|
58,628
|
|
|
1,046
|
|
Revisions of previous estimates
|
|
831
|
|
|
2,506
|
|
|
1,143
|
|
Production
|
|
(774
|
)
|
|
(2,785
|
)
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
19,544
|
|
|
93,358
|
|
|
4,271
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves:
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
7,337
|
|
|
26,752
|
|
|
1,396
|
|
December 31, 2006
|
|
6,954
|
|
|
26,888
|
|
|
1,671
|
|
December 31, 2007
|
|
13,552
|
|
|
50,990
|
|
|
2,565
|
|
The following is a summary of a standardized measure of discounted net cash flows related to the
Companys proved oil and natural gas reserves. For these calculations, estimated future cash flows from estimated future production of proved reserves were computed using oil and natural gas spot prices as of the end of the period presented.
Future development and production costs attributable to the proved reserves were estimated assuming that existing conditions would continue over the economic lives of the individual leases and costs were not escalated for the future. Estimated
future income tax expenses were calculated by applying future statutory tax rates (based on the current tax law adjusted for permanent differences and tax credits) to the estimated future pretax net cash flows related to proved oil and natural gas
reserves, less the tax basis of the properties involved.
The Company cautions against using this data to determine the fair value of its
oil and natural gas properties. To obtain the best estimate of fair value of the oil and natural gas properties, forecasts of future economic conditions, varying discount rates, and consideration of other than proved reserves would have to be
incorporated into the calculation. In addition, there are significant uncertainties inherent in estimating quantities of proved reserves and in projecting rates of production that impair the usefulness of the data.
73
The standardized measure of discounted future net cash flows relating to proved oil and natural gas
reserves at December 31 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Future cash inflows
|
|
$
|
2,722,099
|
|
|
$
|
894,626
|
|
|
$
|
1,037,337
|
|
Future production costs
|
|
|
(824,576
|
)
|
|
|
(356,961
|
)
|
|
|
(336,008
|
)
|
Future development costs
|
|
|
(146,734
|
)
|
|
|
(48,605
|
)
|
|
|
(45,271
|
)
|
Future income tax expenses
|
|
|
(574,169
|
)
|
|
|
(158,602
|
)
|
|
|
(219,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
1,176,620
|
|
|
|
330,458
|
|
|
|
436,418
|
|
10% annual discount for estimated timing of cash flows
|
|
|
(578,225
|
)
|
|
|
(150,717
|
)
|
|
|
(209,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of discounted future net cash flows
|
|
$
|
598,395
|
|
|
$
|
179,741
|
|
|
$
|
226,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are the principal sources of change in the standardized measure of discounted future
net cash flows of the Company for each of the three years in the period ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Standardized measure of discounted future net cash flows at beginning of year
|
|
$
|
179,741
|
|
|
$
|
226,660
|
|
|
$
|
161,320
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and transfers of oil and natural gas produced, net of production costs
|
|
|
(55,434
|
)
|
|
|
(46,272
|
)
|
|
|
(46,823
|
)
|
Net changes in prices and production costs
|
|
|
181,475
|
|
|
|
(97,697
|
)
|
|
|
133,301
|
|
Extensions and discoveries, less related costs
|
|
|
11,444
|
|
|
|
30,560
|
|
|
|
2,311
|
|
Development costs incurred and revisions
|
|
|
976
|
|
|
|
(3,333
|
)
|
|
|
(8,777
|
)
|
Sales of reserves in place
|
|
|
|
|
|
|
|
|
|
|
(2,551
|
)
|
Purchases of reserves in place
|
|
|
435,261
|
|
|
|
4,476
|
|
|
|
|
|
Revisions of previous quantity estimates
|
|
|
41,042
|
|
|
|
2,107
|
|
|
|
8,219
|
|
Net change in income taxes
|
|
|
(223,002
|
)
|
|
|
28,690
|
|
|
|
(43,960
|
)
|
Accretion of discount
|
|
|
26,892
|
|
|
|
34,550
|
|
|
|
23,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
418,654
|
|
|
|
(46,919
|
)
|
|
|
65,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of discounted future net cash flows at end of year
|
|
$
|
598,395
|
|
|
$
|
179,741
|
|
|
$
|
226,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices used in computing these calculations of future cash flows from estimated future production
of proved reserves were $93.90, $58.74, and $58.63 per barrel of oil at December 31, 2007, 2006, and 2005, respectively, $7.00, $5.51, and $9.14 per thousand cubic feet of natural gas at December 31, 2007, 2006, and 2005, respectively and
$54.69, $36.51 and $35.89 per barrel of natural gas liquids at December 31, 2007, 2006, and 2005, respectively.
74
Q
|
QUARTERLY DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 - Quarter Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
(In thousands except per share data)
|
|
Net revenue
|
|
$
|
19,167
|
|
|
$
|
18,435
|
|
|
$
|
17,775
|
|
|
$
|
14,263
|
|
Net operating expenses
|
|
|
21,194
|
|
|
|
13,559
|
|
|
|
12,781
|
|
|
|
11,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(2,027
|
)
|
|
|
4,876
|
|
|
|
4,994
|
|
|
|
2,822
|
|
Interest expense
|
|
|
(8,175
|
)
|
|
|
(4,754
|
)
|
|
|
(3,990
|
)
|
|
|
(3,838
|
)
|
Interest income
|
|
|
170
|
|
|
|
357
|
|
|
|
313
|
|
|
|
207
|
|
Other expense
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10,089
|
)
|
|
|
479
|
|
|
|
1,317
|
|
|
|
(809
|
)
|
Income tax provision (benefit)
|
|
|
(3,747
|
)
|
|
|
(4,291
|
)
|
|
|
415
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,342
|
)
|
|
$
|
4,770
|
|
|
$
|
902
|
|
|
$
|
(580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) applicable to common stockholders per common share
|
|
$
|
(0.13
|
)
|
|
$
|
0.12
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
Diluted net income (loss) applicable to common stockholders per common share
|
|
$
|
(0.13
|
)
|
|
$
|
0.12
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
2006 - Quarter Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
(In thousands except per share data)
|
|
Net revenue
|
|
$
|
15,620
|
|
|
$
|
22,187
|
|
|
$
|
13,975
|
|
|
$
|
18,462
|
|
Net operating expenses
|
|
|
12,255
|
|
|
|
11,084
|
|
|
|
13,230
|
|
|
|
10,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,365
|
|
|
|
11,103
|
|
|
|
745
|
|
|
|
8,041
|
|
Interest expense
|
|
|
(3,837
|
)
|
|
|
(3,906
|
)
|
|
|
(5,778
|
)
|
|
|
(3,529
|
)
|
Interest income
|
|
|
71
|
|
|
|
129
|
|
|
|
82
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(401
|
)
|
|
|
7,326
|
|
|
|
(4,951
|
)
|
|
|
4,539
|
|
Income tax provision (benefit)
|
|
|
(1,459
|
)
|
|
|
3,081
|
|
|
|
(1,882
|
)
|
|
|
1,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,058
|
|
|
$
|
4,245
|
|
|
$
|
(3,069
|
)
|
|
$
|
2,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) applicable to common stockholders per common share
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.11
|
|
Diluted net income (loss) applicable to common stockholders per common share
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.11
|
|