BATL

SEC Filing Summary: RAM Energy Resources, Inc. (10-K)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2009. RAM Energy Resources, Inc. (formerly Tremisis Energy Acquisition Corporation) is an independent oil and natural gas company engaged in the acquisition, development, exploitation, exploration, and production of oil and natural gas properties, primarily in Texas, Louisiana, and Oklahoma. The company operates through wholly-owned subsidiaries RAM Energy, Inc. and RAM Operating Company, Inc. As of December 31, 2009, the company held estimated net proved reserves of 33.9 MMBoe, with a PV-10 Value of approximately $336.1 million.

Key Financial Metrics

Note: The company reported a net loss in 2009 primarily due to a $47.6 million impairment charge on oil and gas properties and significant unrealized losses on derivatives ($30.6 million), offset by a $16.3 million income tax benefit.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 58% to $87.1 million from $205.9 million in 2008. This was driven by a 46% decline in average realized commodity prices (Oil: $58.24/Bbl vs. $98.59/Bbl; Gas: $3.47/Mcf vs. $7.87/Mcf) despite relatively flat production volumes (2.54 MMBoe in 2009 vs. 2.55 MMBoe in 2008).
• Impairment Charges: The company recorded a $47.6 million impairment charge in 2009, a significant reduction from the $269.4 million charge recorded in 2008. The 2009 charge resulted from the full cost ceiling test due to lower commodity prices.
• Derivative Impact: In 2009, the company recorded a net loss of $11.3 million from derivatives (realized gains of $19.3 million offset by unrealized losses of $30.6 million), compared to a net gain of $22.8 million in 2008.
• Equity Position: Stockholders' equity turned negative to a deficit of $0.5 million in 2009, down from $57.8 million in 2008, largely due to the accumulated deficit increasing to $217.3 million.

Guidance, Outlook, and Risks

Outlook and Capital Budget: Management projects a 2010 capital budget of $50.0 million, intended to be fully funded through operating cash flows. The budget includes $22.0 million for South Texas, $9.0 million for Electra/Burkburnett, and $3.0 million for the Barnett Shale. The company expects to maintain a policy of funding capital programs through operating cash flow to preserve liquidity.

Liquidity and Debt: As of December 31, 2009, the company had a borrowing base of $175.0 million with $135.0 million outstanding, leaving nominal availability of $40.0 million. However, financial covenants based on Modified EBITDA limited additional borrowings to $25.3 million. The company must achieve a trailing four-quarter Modified EBITDA of $63.6 million to access the full borrowing base.

Risks and Contingencies:

• Commodity Price Volatility: Profitability is highly sensitive to oil and natural gas prices. A decline below lifting costs (approx. $16.82/Boe in 2009) could force production shut-ins.
• Legal Proceedings: The company settled a class action lawsuit (Sacket v. Great Plains Pipeline) for $16.0 million in 2009, partially recovered via escrowed shares. A pending appeal (Rathborne Land Company) involves a $4.6 million judgment, with the company posting a security bond and seeking indemnification from former Ascent Energy stockholders.
• Internal Controls: The company identified a material weakness in internal controls regarding reserve estimates in 2008, which was remediated in late 2009. Auditors issued an unqualified opinion on internal controls as of December 31, 2009.

Investor Verification Checklist

• Debt Covenant Compliance: Verify if the company meets the Modified EBITDA threshold ($63.6 million) required to unlock the full $40.0 million of available credit under its revolving facility.
• Reserve Estimates: Review the impact of the new SEC "Modernization of Oil and Gas Reporting" rules (12-month average pricing) on the reported PV-10 value and reserve quantities compared to prior year-end pricing methodologies.
• Liquidity Position: Assess the company's ability to fund the $50.0 million 2010 capital budget solely from operating cash flows given the working capital deficit and limited borrowing availability.
• Derivative Exposure: Analyze the maturity and pricing of outstanding derivative contracts (collars and bare floors) to understand potential cash flow impacts if commodity prices rise or fall significantly in 2010-2011.
• Legal Settlements: Monitor the status of the Rathborne Land Company appeal and the potential for additional costs beyond the escrowed funds.