Production
RAM Energy Resources had record production of 655,000 barrels of oil equivalent (BOE) for the first quarter 2009, up 7% from the 612,000 BOE in the year-ago quarter, primarily as a result of the company’s drilling activity during late 2008 and its drilling success during the first quarter 2009. As well, average daily production for the first quarter 2009 of 7,278 BOE grew nearly 3% over an average daily volume of 7,098 BOE, or a total of 653,000 BOE produced during the fourth quarter of 2008. Oil volumes were slightly below those of the same quarter in 2008, while NGL and natural gas volumes were both above year-ago levels by 41% and 9% respectively.
RAM Energy Resources’ realized price for oil dropped 60% to an average of $38.75 per barrel in the first quarter of 2009 compared to 2008’s first quarter average realized price of $96.17 per barrel. The price of NGLs also fell 69% to an average price of $16.86 per barrel. Likewise, the company’s realized price for natural gas decreased 49% to average $3.86 per thousand cubic feet (Mcf) compared to an average of $7.54 per Mcf in the first quarter of 2008. The impact from the 59% decline in average hydrocarbon sales price, on a per BOE basis, more than offset the 7% increase in production, causing oil and gas revenues to drop 56% to $19.1 million in the first quarter of 2009 compared with $43.5 million in the same quarter of 2008.
In the first quarter of 2009 realized gains from contract settlements net of premium costs of derivatives were $7.9 million and unrealized mark-to-market losses were $1 million, ensuing in a total of $6.9 million realized and unrealized derivative gains impacting the quarter. In the first quarter of 2008 realized losses from contract settlements and premium costs of derivatives were $2.3 million and unrealized mark-to-market losses were $5.3 million, ensuing in a total of $7.6 million of realized and unrealized losses impacting the quarter. As a result of the impact of derivatives, total revenues and other operating income for the first quarter of 2009 were $26 million compared with $36.1 million in the year-ago quarter.
Costs and Expenses
Production expenses were $15.39 per BOE in the first quarter of 2009, or a total of $10.1 million, up 1% on a BOE basis than the $15.23 per BOE, or a total of $9.3 million, in the previous year’s quarter. Production taxes, which are based on realized prices at the wellhead, were $1.33 per BOE in this year’s first quarter, or a total of $872,000, around 67% below the $3.97 per BOE, or a total of $2.4 million during the 2008 quarter, principally as a result of lower hydrocarbon prices. Production taxes as a% of oil and natural gas sales were 5% in the 2009’s quarter compared to about 6% of sales in the year-ago quarter. General and administrative expenses of $4.3 million, or $6.63 per BOE, fell 26% on a BOE basis from the $9.01 per BOE, or $5.5 million last year, evidence of progress in the company’s continued efforts to contain and reduce costs in the current environment.
Interest expense for the first quarter of 2009 down by $4.6 million, or 56%, to $3.6 million compared to the prior year’s first quarter interest expense of $8.2 million. The $4.6 million reduction in total interest expense recorded is due to both a decrease in outstanding indebtedness of $90 million and a substantially lower blended interest rate of about 4.9% in the current quarter compared to a blended interest rate of 8.2% in last year’s quarter.
Income and Cash Flow
Lower hydrocarbon prices not only negatively impacted oil and gas revenues in the first quarter 2009, they also caused the recognition of a non cash impairment of the carrying value of oil and gas properties of $58.9 million ($37.5 million after tax). After considering the tax effected adjustments linked with the impairment, a $1 million unrealized loss from derivatives and a litigation settlement charge, the adjusted net income for the first quarter 2009 was $0.3 million.
Despite higher production volumes, lower production taxes and decreased general and administrative expenses, EBITDA for the 2009 quarter of $11.8 million was down 51% than the $24 million in the first quarter of 2008, primarily reflecting the substantial drop in hydrocarbon prices between the two periods. Free cash flow was $8.2 million, or $0.11 per basic and diluted shares outstanding, for the first quarter 2009 compared to $14.5 million, or $0.24 per diluted shares outstanding ($0.25 per basic shares), for the same quarter in 2008.
First Quarter 2009 Capital Spending; Production Guidance Reaffirmed
Oil and gas related capital expenditures totaled about $13.3 million in the first quarter, of which about $12.1 million was allocated to lower risk development and exploitation activities, $319,000 for exploratory activities and $796,000 for the acquisition of proven properties. RAM Energy Resources participated in the drilling of 14 gross (11.5 net) wells during the quarter, of which eight gross (7.4 net) were completed and capable of commercial production, while the remainder were in the process of drilling, testing or completing at the end of the period. In the current environment, the company continues to focus on lower-risk projects capable of supporting its annual production target of 2.5 million BOE. RAM Energy Resources hopes to fund its 2009 capital budget at the lower end of its previously disclosed $40 to $45 million range with internally generated cash flow.
