Business Context and Reporting Period
This Form 8-K, dated May 8, 2006, reports the completion of a merger between Tremisis Energy Acquisition Corporation and RAM Energy, Inc. ("RAM"). Upon closing, RAM became a wholly-owned subsidiary, and Tremisis changed its name to RAM Energy Resources, Inc. The filing includes unaudited pro forma financial information for the quarter ended March 31, 2006, and historical financial data for RAM for the same period.
Key Financial Metrics
Revenue and Profit (Q1 2006 Historical - RAM):
- Total Revenues: $18.46 million (Oil and gas sales: $16.81 million; Derivative gains: $1.41 million).
- Net Income: $2.81 million.
- Operating Income: $8.04 million.
- Earnings Per Share (Basic): $1,238.01 (based on 2,273 shares outstanding pre-merger).
Cash Flow (Q1 2006 Historical - RAM):
- Operating Cash Flow: $7.93 million.
- Investing Cash Flow: $(5.55) million (primarily capital expenditures).
- Financing Cash Flow: $(1.34) million (net debt reduction and dividends).
- Cash and Equivalents (March 31, 2006): $1.11 million.
Debt and Liquidity:
- Total Debt: $112.12 million (including $83.17 million revolving credit facility and $28.32 million senior notes).
- Available Credit: $3.4 million under the prior facility (replaced by a new $300 million facility on April 3, 2006).
- Accumulated Deficit: $(18.55) million.
Production and Margins (Q1 2006):
- Total Production: 318 MBoe (187 MBbls oil, 31 MBbls NGL, 600 MMcf gas).
- Average Realized Price (Pre-Hedge): $52.85 per Boe.
- Production Expenses: $13.54 per Boe.
- Amortization: $9.50 per Boe.
Material Changes vs. Prior Period
Revenue Growth: Total revenues increased 25% to $18.46 million from $14.77 million in Q1 2005. This was driven by a 25% increase in average product prices (Oil: $61.05 vs. $48.42; Gas: $6.97 vs. $5.72) despite a 9.6% decrease in total production volumes.
Profitability: Net income increased 85% to $2.81 million from $1.52 million in Q1 2005. The increase was attributed to higher commodity prices and a $1.41 million gain from derivatives, compared to a $0.42 million loss in the prior year.
Capital Expenditures: Capital expenditures increased 92% to $5.16 million from $2.70 million in Q1 2005, reflecting increased drilling activity (20 gross development wells).
Corporate Structure: The most significant change is the reverse merger, transforming the registrant from a shell company (Tremisis) into an operating oil and gas entity (RAM Energy Resources, Inc.).
Guidance, Outlook, and Risks
Management Commentary: Management believes current borrowings, cash, and operating cash flows are sufficient to meet capital expenditures and debt service obligations for the foreseeable future. A new $300 million credit facility was secured on April 3, 2006, to refinance existing debt and fund future needs.
Hedging Strategy: The company maintains significant hedging positions through June 2008 to manage commodity price risk. As of March 31, 2006, hedges included collars on crude oil (floors ranging from $35.00 to $50.00) and natural gas (floors ranging from $6.22 to $7.50).
Risks and Contingencies:
- Litigation: An ongoing lawsuit in Oklahoma regarding royalty payments on sold tracts. Management intends to defend vigorously; potential loss is unquantifiable, though a former partner may contribute up to $2.8 million.
- Commodity Prices: Revenues and profitability are highly dependent on oil and natural gas prices.
- Debt Covenants: The new credit facility includes financial covenants regarding EBITDA, indebtedness ratios, and mandatory hedging levels.
Investor Verification Checklist
- Verify the terms and covenants of the new $300 million Guggenheim credit facility closed on April 3, 2006.
- Confirm the status and potential exposure of the Oklahoma royalty lawsuit.
- Review the specific details of the hedging portfolio (collars and floors) to understand price protection levels through 2008.
- Validate the pro forma financial adjustments regarding the $30 million cash and 25.6 million shares issued to RAM stockholders.
- Assess the impact of the $10 million pre-merger stock redemption on liquidity.