10-Q 1 ram3q10q-112002.txt STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2002 Commission File Number 333-42641 [RAM ENERGY, INC. LOGO] RAM Energy, Inc. (Exact name of registrant as specified in its charter.) Delaware 52-1535102 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5100 East Skelly Drive, Suite 650 Tulsa, Oklahoma 74135 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (918) 663-2800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The Registrant is not subject to the filing requirements of Sections 13 and 15(d) of the Securities Exchange Act of 1934 (the "Act"), but files reports required by Sections 13 and 15(d) of the Act pursuant to contractual obligations. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: 2,727,000 shares of common stock issued and outstanding TABLE OF CONTENTS PART I Page ---- Item Number ----------- FINANCIAL INFORMATION................................................. 1. Consolidated Balance Sheets - December 31, 2000 and September 30, 2001 (unaudited)........................................................ Consolidated Statements of Operations - Three months and nine months ended September 30, 2000 and 2001 (unaudited)...................... Consolidated Statements of Cash Flows - Three months and nine months ended September 30, 2000 and 2001 (unaudited)....................... Notes to Consolidated Financial Statements (unaudited).............. 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 3. Quantitative and Qualitative Disclosure About Market Risk .......... 4. Controls and Procedures ............................................ PART II OTHER INFORMATION...................................................... 1. Proceedings......................................................... 2. Changes in Securities and Use of Proceeds........................... 3. Defaults Upon Senior Securities .................................... 4. Submission of Matters to a Vote of Security Holders................. 5. Other Information .................................................. 6. Exhibits and Reports on Form 8-K.................................... SIGNATURES PART I Financial Information Item 1. Financial Statements RAM Energy, Inc. Consolidated Balance Sheets (Dollars in Thousands)

See accompanying notes. RAM Energy, Inc. Consolidated Statements of Operations (Unaudited) (Dollars in Thousands, Except for Per Share Amounts)

See accompanying notes. RAM Energy, Inc. Consolidated Statements of Cash Flows (Unaudited) (Dollars in Thousands)

See accompanying notes. RAM Energy, Inc. Notes to Unaudited Consolidated Financial Statements 1. Summary of Significant Accounting Policies, Organization, and Basis of Financial Statements The accompanying unaudited consolidated financial statements present the financial position at September 30, 2002 and the results of operations and cash flows of RAM Energy, Inc. (the Company) for the three-month and nine-month periods ended September 30, 2001 and 2002. These financial statements include all adjustments, consisting of normal and recurring adjustments, which, in the opinion of management, were necessary for a fair presentation of the financial position and the results of operations for the indicated periods. The results of operations for the three and nine months ended September 30, 2002, are not necessarily indicative of the results to be expected for the full year ending December 31, 2002. Certain reclassifications have been made to the prior period statements to conform with the current year presentation. Reference is made to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for an expanded discussion of the Company's financial disclosures and accounting policies. Nature of Operations and Organization The Company operates exclusively in the upstream segment of the natural gas and oil industry with activities including the drilling, completion, and operation of natural gas and oil wells. The Company conducts the majority of its operations in the states of Oklahoma, Texas, and New Mexico. Additionally, the Company owns and operates a natural gas and oil pipeline system and a saltwater disposal operation in north central Oklahoma (the Pipeline System). The Pipeline System purchases, transports, and markets natural gas and oil production and disposes of salt water from properties owned by other oil and gas companies. Principles of Consolidation The consolidated financial statements include the accounts of its majority or wholly owned subsidiaries. All significant intercompany transactions have been eliminated. 2. Financial Instruments The carrying amounts reported in the balance sheets for cash and cash equivalents, trade receivables and payables, installment notes and capital leases, and variable rate long-term debt approximate their fair values. The carrying value of the Senior Notes exceeded the fair value at December 31, 2001 and September 30, 2002, by approximately $23.9 million and $64.6 million, respectively, based on quoted market prices. 3. Escrow Cash Effective December 1, 2001, the Company sold to Carmen Acquisition Corp., a subsidiary of Chesapeake Energy Corporation, all of the Company's producing and non-producing oil and gas properties located in 17 counties in Oklahoma, Texas and New Mexico. The base purchase price of $76.0 million (before customary closing and post-closing adjustments) was paid 85% in cash and 15% by the surrender of approximately $11.1 million principal amount of the Company's 11.5% Senior Notes due 2008 valued at par. At the closing, $7.5 million of the purchase price consisting of $6.4 million cash and $1.1 million in Senior Notes was deposited in escrow pending determination of any post-closing adjustments. During the quarter ended March 31, 2002, the Company received approximately $3.0 million of the escrow amounts consisting of $2.6 million cash and $0.5 million Senior Notes. On April 9, 2002, the Company received an additional distribution of $3.4 million in cash and $0.6 million in Senior Notes leaving approximately $0.4 million remaining in escrow to be disbursed pending the resolution of the remaining potential post-closing adjustments; this amount was received by the Company during September, 2002. 4. Acquisitions In April 2002 the Company acquired additional interests natural gas and oil properties already owned by the Company located in Louisiana for approximately $1.3 million. 5. Subsidiary Guarantors The Company's Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by all of the Company's current and future subsidiaries (the Subsidiary Guarantors). The following table sets forth condensed consolidating financial information of the Subsidiary Guarantors after their acquisition or formation in 1998. There are currently no restrictions on the ability of the Subsidiary Guarantors to transfer funds to the Company in the form of cash dividends, loans or advances. The following represents the condensed consolidating balance sheets for the Company and its subsidiaries at December 31, 2001 and September 30, 2002:

5. Subsidiary Guarantors (continued) The following represents the condensed consolidating statements of operations and statements of cash flows for the Company and its subsidiaries for the three-months and nine months ended September 30, 2001 and 2002:

5. Subsidiary Guarantors (continued)

The Company has not allocated any portion of its long-term debt or related accounts, including accrued interest payable, unamortized debt issue costs and unamortized issue discount to its subsidiaries. In addition, the Company has not allocated general and administrative expenses, interest charges or income taxes to its subsidiaries. Accordingly, the above condensed consolidating information is not intended to present the Company's subsidiaries on a stand-alone basis. 6. Derivative Contracts At September 30, 2002 the Company had purchased put options through January 2003 on 352,000 MMbtu of natural gas which establish an average floor price of $3.31 per Mmbtu, and Nymex swap contracts for November 2002 on 90,000 Mmbtu of natural gas at $3.96 per Mmbtu. In addition, the Company also had sold call options for October 2002 on 46,500 Mmbtu of natural gas at $3.45 per Mmbtu. The Company has not elected to treat these contracts as hedges of future production under SFAS 133. The fair value of these derivatives was immaterial at September 30, 2002. 7. Contingencies In 1996, the Company's predecessor sold a natural gas and oil property located in Louisiana state waters in Plaquemines Parish. The property included several uneconomical wells for which the Company estimated the plugging and abandonment (P&A) obligation to be approximately $1,020,000. The purchaser provided a letter of credit and a bond totaling $420,000 to ensure funding of a portion of the P&A obligation. The P&A obligation would revert to the Company in the event the purchaser does not complete the required P&A activities. As a result, in connection with the sale, the Company recorded a contingent liability of $600,000, which is included in the accompanying consolidated balance sheets. 8. Long-term Debt The Company did not make the semi-annual interest payment due August 15, 2002, under the 11 1/2% Senior Notes due 2008. On September 13, 2002, within the 30-day grace period provided under the Senior Notes, the Company made the payment to the paying agent, together with interest on the amount of the late payment, thereby avoiding the occurance of an Event of Default under the Senior Notes. 9. Subsequent Event In October, 2002 the Company received a written commitment from a commercial lending institution to provide a $30.0 million senior secured credit facility. The commitment is contingent upon the satisfaction of certain closing and other conditions that currently remain unsatisfied. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are an independent natural gas and oil company engaged in the acquisition, exploration and development of natural gas and oil properties and the production of natural gas and oil. Our natural gas and oil properties are located primarily in the Permian Basin of west Texas and New Mexico, and on-shore Louisiana and Mississippi. We also operate a natural gas and oil pipeline and salt water disposal system in Oklahoma. Historically, we have added reserves mainly through acquisitions of producing properties and the further development and exploitation of these properties. Beginning in 1999, we initiated an emphasis on exploration activities, including the acquisition of 2-D and 3-D seismic data and the internal generation of exploratory prospects. We continue to generate exploratory prospects with our in-house exploration staff and evaluate exploratory opportunities proposed by third parties. We intend to continue pursuing attractive natural gas and oil acquisitions, as well as development activities and exploratory drilling opportunities. Any future acquisitions or major development will require additional financing which will be dependent upon financing arrangements, if any, available at the time. Effective December 1, 2001, we sold 86 Bcfe of our proved reserves to Carmen Acquisition Corp., an affiliate of Chesapeake Energy Corporation, for $76.0 million in a combination of cash and the surrender of approximately $11.1 million principal amount of our outstanding 11 1/2% senior notes due 2008. The natural gas reserves that we sold included certain reserves that were subject to a volumetric production payment in favor of Duke Energy. All our obligations to Duke Energy under the volumetric production payment were assumed by Carmen Acquisition. We used a portion of the net proceeds from the sale to fully repay our senior secured credit facility. Critical Accounting Policies Our revenue, profitability and cash flow are directly impacted by prevailing prices for natural gas and oil and the volumes of natural gas and oil we produce. In addition, our proved reserves and the rates of our natural gas and oil production will decline as natural gas and oil are produced unless we are successful in acquiring additional producing properties or conducting successful exploration and development drilling activities. We follow the entitlements method of accounting for natural gas and oil sales. We periodically utilize various hedging strategies to manage the price received for a portion of our future natural gas and oil production. These strategies customarily involve put or call options, contracts for specified monthly volumes at prices determined with reference to the natural gas futures market or swap arrangements that establish an index-related price above which we pay the hedging partner and below which we are paid by the hedging partner. These contracts allow us to predict with greater certainty the effective natural gas and oil prices to be received for our production and benefit us when market prices are less than the fixed prices under our hedging contracts. However, we will not benefit from market prices that are higher than the fixed prices in these contracts for our hedged production. At September 30, 2002 we had purchased put options through January 2003 on 352,000 MMbtu of natural gas which establish an average floor price of $3.31 per MMbtu, and Nymex swap contracts for November 2002 on 90,000 MMbtu of natural gas at $3.96 per MMbtu. In addition, we had sold call options for October 2002 on 46,500 MMbtu of natural gas at $3.45 per MMbtu. The fair value of these derivatives was immaterial at September 30, 2002. We use the full cost method of accounting for our investment in natural gas and oil properties. Under the full cost method of accounting, all of our costs of acquisition, exploration and development of natural gas and oil reserves are capitalized into a "full cost pool" as incurred, and costs included in the pool are amortized and charged to operations using the future recoverable units of production method based on the ratio of current production to total proved reserves, computed based on current prices and costs. Significant downward revisions of quantity estimates or declines in natural gas and oil prices that are not offset by other factors could result in a writedown for impairment of the carrying value of our natural gas and oil properties. Once incurred, a writedown of natural gas and oil properties is not reversible at a later date, even if our quantity estimates or natural gas or oil prices subsequently increase. Results of Operations Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001 Operating Revenues. Our operating revenues decreased by $2.1 million, or 25% for the three months ended September 30, 2002, compared to the year earlier period. The following table summarizes our natural gas and oil production volumes, average sales prices and period to period comparisons, including the effect on our operating revenues, for the periods indicated:

Natural gas and oil sales. Our natural gas and oil revenues were lower in the third quarter of 2002 as compared to the third quarter of 2001 with a 61% decrease in production due, primarily, to our sale of proved reserves to Carmen Acquisition Corp. in December 2001, offset by a 24% increase in realized prices, both on an Mcfe basis. Average daily production was 8 MMcfe in the third quarter of 2002 compared to 21 MMcfe during the third quarter of 2001, a decrease of 61%. For the third quarter of 2002, our natural gas production decreased by 72% and oil production decreased by 17% compared to the third quarter of 2001. The average realized sales price for natural gas was $2.81 per Mcf for the quarter ended September 30, 2002, an increase of 13% compared to $2.48 per Mcf for the same quarter in 2001. The average realized oil price for the quarter ended September 30, 2002 was $25.62 per Bbl, an 8% increase compared to $23.74 per Bbl for the quarter ended September 30, 2001. Natural Gas and Oil Production Tax Expense. Our natural gas and oil production taxes for the quarter ended September 30, 2002 were $194,000, a decrease of $184,000, or 49%, from $378,000 for the quarter ended September 30, 2001. As a percentage of wellhead prices received, production taxes were 7.4% for the quarter ended September 30, 2002 compared to 7.1% for the quarter ended September 30, 2001. Natural Gas and Oil Production Expense. Our natural gas and oil production expense for the quarter ended September 30, 2002 was $767,000, a decrease of $560,000, or 42%, from the $1.327 million for the third quarter ended September 30, 2001. Natural gas and oil production expense was $1.02 per Mcfe for the third quarter of 2002, an increase of $0.32 per Mcfe, or 47%, from the $0.69 per Mcfe incurred for the third quarter of 2001. This increase was due to a higher percentage of higher-cost oil properties in the 2002 quarter compared to the quarter of the previous year. Pipeline System. Our pipeline system revenue was $3.5 million for the three months ended September 2002, an increase of $639,000, or 22%, compared to the $2.9 million for the three months ended September 2001. By contract we are obligated to deliver 10,000 Mmbtu's per day to Miami Valley Resources. We purchase natural gas from wells connected to the system to satisfy our obligation to Miami Valley Resources. Our contract with Miami Valley Resources expired on October 31, 2002. In addition, we purchase and re-sell oil and dispose of saltwater. Our third party purchases and system operating costs were $3.1 million for the third quarter of 2002, and our pipeline system operating margin was $383,000. For the three months ended September 2001 purchases from third parties and operating costs totaled $2.5 million and our pipeline system operating margin was $427,000. Amortization and Depreciation Expense. Our amortization and depreciation expense of $1.4 million for the third quarter of 2002, a decrease of $1.3 million, or 49%, from the $2.7 million for the same period in 2001. On a per unit of production basis, our amortization and depreciation expense was $1.84 per Mcfe for the 2002 quarter, an increase of 29% compared to the $1.42 per Mcfe for the 2001 quarter. This increase per Mcfe is due to the approximate $500,000 of straight-line depreciation of our pipeline system in both periods. General & Administrative Expense. For the quarter ended September 30, 2002 our general and administrative expense was $1.3 million, an increase of $620,000, or 97%, as compared with $642,000 for the 2001 period. This increase is a result of the loss of overhead reimbursements from third parties (a reduction of this expense item) associated with the properties we sold effective December 1, 2001. Interest Expense. Our interest expense decreased by $1.0 million to $2.8 million for the three months ended September 30, 2002 compared to $3.8 million for the comparable period of 2001. This decrease was attributable to lower average outstanding balances during the 2002 period. Income Taxes. In connection with an acquisition in 1998, we recorded deferred income taxes related to the excess of financial bases of net assets acquired (principally properties and equipment) over their respective bases for income tax purposes. This net liability results in our providing for income taxes or credits after the date of this acquisition. Net Loss. Due to the factors described above, we realized a net loss of $2.1 million for the third quarter of 2002 compared to a net loss of $1.9 million for the third quarter of 2001. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001 Operating Revenues. Our operating revenues decreased by $19.3 million, or 54% for the nine months ended September 30, 2002, compared to the year earlier period. The following table summarizes our natural gas and oil production, average sales prices and period to period comparisons, including the effect on our operating revenues, for the periods indicated:

Natural gas and oil sales. Our natural gas and oil revenues were lower in the first nine months of 2002 as compared to the same period of 2001 with a 19% increase in realized prices, and a 64% decrease in production due, primarily, to our sale of proved reserves to Carmen Acquisition Corp. in December 2001, both on an Mcfe basis. Average daily production was 7.6 MMcfe in the first nine months of 2002 compared to 21.9 MMcfe during the same period of 2001, a decrease of 64%. For the first nine months of 2002 our natural gas production decreased by 73% and oil production decreased 36% compared to the first nine months of 2001. The average realized sales price for our natural gas was $2.53 per Mcf for the first nine months of 2002, compared to $3.62 per Mcf for the same period in 2001, a decrease of 30%. Our average realized oil price for the nine months ended September 30, 2002 was $23.50 per Bbl, and for the nine months ended September 30, 2001 was $25.96 per Bbl, a 10% decrease. Natural Gas and Oil Production Tax Expense. Our natural gas and oil production taxes for the first nine months of 2002 were $659,000, a decrease of $1.3 million, or 67%, from the $2.0 million for the first nine months of 2001. As a percentage of wellhead prices received, production taxes were 10.3% for the first nine months of 2002 compared to 8.8% for the first nine months of 2001. Natural Gas and Oil Production Expense. Our natural gas and oil production expense for the first nine months of 2002 was $2.2 million, a decrease of $2.1 million, or 48%, from the $4.3 million for the same period in 2001. Natural gas and oil production expense was $1.07 per Mcfe for the first nine months of 2002, an increase of $0.35 per Mcfe, or 49%, from the $0.72 per Mcfe incurred for the first nine months of 2001. This increase was due to a higher percentage of higher-cost oil properties in the 2002 period compared to the first nine months of the previous year. Pipeline System. Our pipeline system revenue was $9.9 million for the nine months ended September 30, 2002, a decrease of $3.2 million, or 24%, compared to the nine months ended September 30, 2001. By contract we are obligated to deliver 10,000 Mmbtu's per day to Miami Valley Resources. We purchase natural gas from wells connected to the system to satisfy that our obligation to Miami Valley Resources. Our contract with Miami Valley Resources expired on October 31, 2002. In addition, we purchase and re-sell oil and dispose of saltwater. Our third party purchases and system operating costs were $8.9 million for the first nine months of 2002, and our pipeline system operating margin was $1.0 million For the first nine months of 2001 our purchases from third parties and operating costs totaled $10.4 million and our pipeline system operating margin was $2.7 million. Amortization and Depreciation Expense. Our amortization and depreciation expense of $4.1 million for the first nine months of 2002 decreased $3.6 million, or 46%, compared to $7.7 million for the same period in 2001, and was $1.98 per Mcfe for the nine months ended September 30, 2002, compared to $1.28 per Mcfe for the nine months ended September 30, 2001. This increase per Mcfe was due to the approximate $1.5 million of straight-line depreciation of our pipeline system in both periods. Provision for Doubtful Receivable. During April 2002, we settled a lawsuit for which we are entitled to be indemnified by, among others, the former owners of Carlton Resources. Those owners have not yet paid their share of billings for legal representation, nor their share of the settlement which totals $450,000. We have recorded a receivable from the former owners, and a provision for doubtful receivable for their share of all costs associated with the litigation. We intend to pursue all legal remedies in collecting this amount, and should we prevail, wholly or partially, such amount will be recorded in income at that time. General & Administrative Expense. For the nine months ended September 30, 2002, our general and administrative expense was $3.6 million, an increase of $1.0 million, or 38%, compared to the $2.6 million incurred for the same period in 2001. This increase is a result of the loss of overhead reimbursements from third parties (a reduction of this expense item) associated with the properties we sold effective December 1, 2001. Interest Expense. Our interest expense decreased by $3.1 million to $8.1 million for the nine months ended September 30, 2002 compared to $11.2 million for the comparable period of 2001. This decrease during the 2002 period was attributable to lower average outstanding indebtedness. Income Taxes. In connection with an acquisition in 1998, we recorded deferred income taxes related to the excess of financial bases of net assets acquired (principally properties and equipment) over their respective bases for income tax purposes. Such net liability results in our providing for income taxes or credits after the date of the acquisition. Net Loss. Due to the factors described above, we realized a net loss of $7.0 million for the nine months ended September 30, 2002, compared to a net loss of $1.4 million in the first nine months of 2001. Liquidity and Capital Resources As of September 30, 2002 we had cash and cash equivalents of $4.7 million. As of September 30, 2002 we had $91.1 million ($91.9 million excluding the original issue discount) of indebtedness outstanding evidenced by our 11 1/2 % senior notes issued in February 1998. Under the terms of the indenture governing our outstanding 11 1/2 % senior notes, we currently may incur up to $30.0 million in permitted indebtedness in addition to the indebtedness outstanding under our senior notes. In October, 2002 we received a written commitment from a commercial lending institution to provide a $30.0 million senior secured credit facility. The commitment is contingent upon the satisfaction of certain closing and other conditions that currently remain unsatisfied. Historically, we have funded our business activities with operating cash flow and reserve-based bank borrowings. From time to time we engage in discussions relating to potential acquisitions of natural gas and oil properties or companies engaged in the natural gas and oil business. On April 12, 2002 we acquired additional interests in properties in which we already owned interests for $1.3 million, effective January 1, 2002. Any future acquisitions may require that we obtain additional financing that will depend upon financing arrangements, if any, available at the time. Sale to Carmen Acquisition. Effective December 1, 2001, we sold to Carmen Acquisition Corp., a subsidiary of Chesapeake Energy Corporation, all of our producing and non-producing oil and gas properties located in 17 counties in Oklahoma, Texas and New Mexico. The base purchase price of $76 million (before customary closing and post-closing adjustments) was paid 85% in cash and 15% by the surrender of approximately $11.1 principal amount of our 11 1/2% senior notes valued at par. The sale included approximately 86 Bcfe of proved reserves as of December 1, 2001, including approximately 27 Bcfe of undeveloped reserves. We used the net proceeds of our sale to Carmen Acquisition to fully repay our senior secured credit facility with Foothill Capital Corporation and to obtain a release of all mortgages and other liens securing that facility, to reduce our working capital deficit and to provide additional capital to fund our exploration and development activities. Net Cash Provided or Used in Operating Activities. Our cash flows from operating activities are comprised of three main categories: net income or (loss), adjustments (primarily non-cash items such as depreciation and amortization and deferred income taxes) to reconcile net loss to cash provided (used) before changes in working capital, and changes in net working capital. Our net loss and non-cash adjustments used $1.9 million of cash for the three months ended September 30, 2002 compared to $306,000 of cash provided for the comparable period of 2001. Net working capital changes for the three months ended September 30, 2002, used cash of $2.6 million compared with cash provided of $1.3 million for the three months ended September 30, 2001. For the first nine months of 2002, our net loss and non-cash adjustments used $6.6 million of cash compared to $5.4 million of cash provided for the comparable period of 2001. Net working capital changes for the nine months ended September 30, 2002, used cash of $7.9 million compared with cash provided of $1.8 million for the nine months ended September 30, 2001. Net Cash Provided or Used in Investing Activities. For the three months ended September 30, 2002, net cash used by us in our investing activities was $2.0 million, consisting primarily of payments for natural gas and oil properties and equipment. This compares with $2.7 million used in investing activities in 2001. For the first nine months of 2002 net cash provided by us in our investing activities was $1.0 million, consisting primarily of payments for natural gas and oil properties and equipment of $5.6 million, offset by releases from the escrow account described above in the amount of $6.4 million. This compares to $8.0 million used in investing activities for the first nine months of 2001. Net Cash Provided or Used in Financing Activities. For the three months ended September 30, 2002, net cash provided by our financing activities was negligible. For the three months ended September 30, 2001, net cash used by our financing activities was $349,000, consisting primarily of net loan payments on our credit facility. For the first nine months of 2002 net cash used by our financing activities was $1.5 million, consisting of the purchase of a standby letter of credit. This compares to $200,000 of net long-term borrowings for the 2001 period. Item 3. Quantitative and Qualitative Disclosure about Market Risk The carrying amounts reported in the balance sheets for cash and cash equivalents, trade receivables and payable, installment notes and capital leases, and variable rate long-term debt approximate their fair values The carrying value of our senior notes exceeded their fair value at December 31, 2001 by approximately $23.2 million and at September 30, 2002 by approximately $64.6 million based on quoted market prices. Item 4. Controls and Procedures Within the 90-day period prior to the filing of this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Forward-Looking Statements This document contains forward-looking statements under the meaning of the federal securities laws. All statements other than statements of historical facts are based on, or express, our expectations about future events, including statements regarding such matters as: - the drilling of wells; - the development of proved undeveloped reserves; - the amount, nature and timing of other capital expenditures; - the timing and amount of future production; - future cash flow and liquidity; - future operating costs and other expenses; - future natural gas and oil prices; - budgets; and - future property acquisitions. There are many factors that could cause our forward-looking statements to be incorrect, including the effect of economic conditions generally, the results of financing efforts, natural gas and oil price volatility, market demand, and other risks normally associated with the business of natural gas and oil drilling, production and marketing. Our forward-looking statements speak only as of the date made and we make no commitment to update these statements to reflect events or circumstances that may occur after this date. PART II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Description of Exhibit -------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 Amended and Restated Bylaws (1) 4.1 Indenture dated as of February 24, 1998 among the Company, as issuer, RB Operating Company and RLP Gulf States, L.L.C., as Subsidiary Guarantors, and United States Trust Company of New York, as trustee (1) 4.2 Form of 11-1/2% Senior Notes due 2008 (included in Exhibit 4.1) (1) 4.3 Supplemental Indenture entered into February 24, 1998 by the Registrant, the Subsidiary Guarantors, the Additional Guarantors and United States Trust Company of New York, as Trustee (2) 10.4 RAM Energy 1998 Stock Incentive Plan* (1) 10.5 Special Severance Agreement by and between William W. Talley II and the Company dated as of December 1, 1997* (1) 10.6 Employment Agreement by and between Larry E. Lee and the Company dated as of December 1, 1997* (1) 10.6.1 Amendment of Employment Agreement by and between Larry E. Lee and the Company (3) 10.8 Form of the Company's Indemnity Agreement* (1) 10.17 Employment Agreement by and between William W. Talley II and the Company dated January 1, 2001 (3) 10.18 Employment and Severance Agreement by and between John M. Longmire and the Company dated December 1, 2000 (3) 10.19 Employment and Severance Agreement by and between Larry G. Rampey and the Company dated December 1, 2000 (3) 10.20 Employment and Severance Agreement by and between Drake N. Smiley and the Company dated December 1, 2000 (3) 10.21 Asset Purchase Agreement among Registrant, Magic Circle Energy Corporation and Carmen Development Corporation, as Sellers, and Carmen Acquisition Corp., As Buyer, dated as of December 1, 2001 (4) 21 Subsidiaries of the Company (3) --------------- * Management contract or compensatory plan or arrangement. (1) Filed as an exhibit to the Company's Registration Statement on Form S-4 (No. 333-42641) and incorporated by reference herein. (2) Filed as an exhibit to the Company's Current Report on Form 8-K filed on March 10, 1998, as exhibit number 4.2. (3) Filed as an exhibit to the Company's Annual Report on Form 10-K filed on April 2, 2001and incorporated by reference herein. (4) Filed as an exhibit to the Company's Current Report on Form 8-K dated December 6, 2001 and incorporated by reference herein. (b) Reports of Form 8-K. On September 13, 2002, the registrant filed a current report on Form 8-K, which reported that the registrant was late in making an interest payment due on its outstanding 11 1/2% Senior Notes due 2008. The registrant also reported on the re-completion of several of its marginally producing wells, and the initial impact on its operating revenues. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RAM ENERGY, INC. (Registrant) Date: November 12, 2002 By: LARRY E. LEE Larry E. Lee President and Chief Executive Officer By: JOHN M. LONGMIRE John M. Longmire Senior Vice President and Chief Financial Officer, Treasurer and Secretary CERTIFICATIONS FOR FORM 10-Q I, Larry E. Lee, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RAM Energy, Inc. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses RAM Energy, Inc. Date: November 12, 2002 By: LARRY E. LEE Larry E. Lee President and Chief Executive Officer CERTIFICATIONS FOR FORM 10-Q I, John M. Longmire, Senior Vice President and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RAM Energy, Inc. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses RAM Energy, Inc. Date: November 12, 2002 By: JOHN M. LONGMIRE John M. Longmire Senior Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit No. Description of Exhibit Method of Filing ------- ---------------------------------- ---------------------------------- 3.1 Amended and Restated Incorporated herein by reference Certificate of Incorporation 3.2 Amended and Restated Incorporated herein by reference Bylaws 4.1 Indenture dated as of Incorporated herein by reference February 24, 1998 among the Company, as issuer, RB Operating Company and RLP Gulf States, L.L.C., as Subsidiary Guarantors, and United States Trust Company of New York, as trustee 4.2 Form of 11-1/2% Senior Incorporated herein by reference Notes due 2008 4.3 Supplemental Indenture Incorporated herein by reference entered into February 24, 1998 by the Registrant, the Subsidiary Guarantors, the Additional Guarantors and United States Trust Company of New York, as Trustee 10.4 RAM Energy 1998 Stock Incorporated herein by reference Incentive Plan 10.5 Special Severance Agreement Incorporated herein by reference by and between William W. Talley II and the Company dated as of December 1, 1997 10.6 Employment Agreement by and Incorporated herein by reference between Larry E. Lee and the Company dated as of December 1, 1997 10.6.1 Amendment of Employment Incorporated herein by reference Agreement by and between Larry E. Lee and the Company 10.8 Form of the Company's Incorporated herein by reference Indemnity Agreement 10.17 Employment Agreement by and Incorporated herein by reference between William W. Talley II and the Company dated January 1, 2001 10.18 Employment and Severance Incorporated herein by reference Agreement by and between John M. Longmire and the Company dated December 1, 2000 10.19 Employment and Severance Incorporated herein by reference Agreement by and between Larry G. Rampey and the Company dated December 1, 2000 10.20 Employment and Severance Incorporated herein by reference Agreement by and between Drake N. Smiley and the Company dated December 1, 2000 10.21 Asset Purchase Agreement Incorporated herein by reference among Registrant, Magic Circle Energy Corporation and Carmen Development Corporation, as Sellers, and Carmen Acquisition Corp., As Buyer, dated as of December 1, 2001. 21 Subsidiaries of the Company Incorporated herein by reference

RAM ENERGY INC/OK 10-Q