"The acquisition of Ascent is consistent with RAM's historic strategy of targeting growth through a combination of acquisitions, exploitation and exploration," said Larry Lee, Chairman and CEO of RAM Energy Resources, Inc. "Specifically, the assets of Ascent will add materially to combined production and cash flow, provide additional diversification to potential sources of near-to-intermediate term growth and expand our portfolio of exploratory prospects for future growth. Further, Ascent's property mix provides an attractive combination of operations in regions where RAM has experience, either as a result of its current operations or prior operating history, as well as establishes potentially new core areas, all in the continental United States," added Mr. Lee.
Properties, Proved Reserves and PV-10 Values
Ascent's properties are comprised of both conventional and unconventional oil and natural gas assets. At June 30, 2007, based on RAM's estimate of Ascent's proved reserves, as audited by Netherland Sewell & Associates, Ascent's proved reserves totaled 18.6 million BOE, consisting of 8.5 million BOE of proved developed producing reserves, 1.3 million BOE of proved developed non-producing reserves and 8.8 million BOE of proved undeveloped reserves (see Table 1, Estimates of Proved Reserves for RAM and Ascent at June 30, 2007). Most of Ascent's average daily net production for the month of June 2007 of 3,162 BOE came from approximately 31,534 gross (18,478 net) acres of developed conventional natural gas and oil properties located in south and east Texas, Oklahoma and Louisiana. In addition, Ascent also owns approximately 84,798 gross (70,293 net) acres of unconventional shale gas leases located in the Barnett Shale in North Texas, the Woodford Shale and the Caney Shale in Oklahoma as well as the Devonian Shale in Appalachia (see Table 2, Estimated Acreage Position of Ascent at June 30, 2007). RAM views the opportunity for possible upside potential from both development and exploration of conventional properties and unconventional shale properties. Further, Ascent is operator of substantially all of its properties. At June 30, 2007 RAM estimated that its net proved reserves were 19.3 million BOE consisting of 12.7 million BOE of proved developed producing reserves, 1.4 million BOE of proved developed non-producing reserves and 5.2 million BOE of proved undeveloped reserves.
Of Ascent's estimated proved reserves at mid-year, approximately 49 percent were natural gas, 44 percent were crude oil and the remaining seven percent were natural gas liquids (NGL's). RAM's proved reserves at mid-year were composed of 58 percent crude oil, 31 percent natural gas and 11 percent NGL's. The hydrocarbon mix of proved reserves for the combined company is estimated to remain weighted toward oil and liquids, with oil accounting for 51 percent of reserves, NGL's accounting for nine percent and natural gas accounting for the remaining 40 percent of reserves. Proved developed producing reserves of the combined company are anticipated to account for approximately 56 percent of total proved reserves. The pre-tax net present value of future net revenue from proved reserves discounted at 10 percent (PV-10), attributable to RAM's estimate of Ascent's proved reserves at June 30, 2007, as audited by Netherland Sewell, was $304.0 million, based on prices of $67.25 per barrel of oil and $6.57 per MMBtu of natural gas. Similarly, RAM has estimated that its mid-year PV-10 value aggregated to $344.3 million based on prices of $70.69 per barrel of oil and $6.39 per MMBtu of natural gas.
Terms of the Transaction
RAM is acquiring Ascent by merger of a RAM subsidiary with and into Ascent. The agreement provides that upon consummation of the merger, RAM will pay total consideration consisting of: (i) $185 million in cash; (ii) 6.2 million RAM warrants, each entitling the holder to purchase one share of RAM common stock at an exercise price of $5.00 per share, exercisable on or before May 11, 2008; and (iii) a number of shares of RAM common stock determined by dividing $107.0 million by the weighted (based on daily volume) average closing price per share of the RAM common stock for the 10 day trading period ending on the third trading day prior to consummation of the merger, subject to a minimum of 20.0 million and up to a maximum of 20.5 million shares. The cash and stock portion of the consideration are subject to adjustment for settlement of Ascent's mark-to-market hedging losses as of the closing date and the cash portion is further subject to a working capital adjustment at the closing date.
Based on the closing prices of RAM common stock and RAM warrants for the 10 day period ending October 15, 2007, NYMEX prices for crude oil and natural gas on October 15, 2007, and working capital adjustments calculated from Ascent's balance sheet of June 30, 2007, total consideration paid by RAM would be $289.5 million or $15.58 per BOE ($2.60 per Mcfe) of RAM's estimate of Ascent's proved reserves at June 30, 2007. Total consideration will change between now and the closing date, currently anticipated to be approximately November 30, 2007, (absent unanticipated SEC regulatory delay) with changes in the prices of RAM common stock, RAM warrants, NYMEX prices for crude and natural gas, settlement of hedging contracts by Ascent and other changes in Ascent's balance sheet.
RAM anticipates funding the cash portion of the transaction with borrowings under an expanded credit facility. RAM is in discussion with its lending group to expand its existing $300 million credit facility to a $500 million senior secured credit facility with an initial borrowing base of $375 million. In addition to funding the cash portion of the merger transaction, proceeds from the expanded facility will be used to refinance RAM's existing outstanding borrowings and to fund a portion of the combined company's future capital expenditures, acquisitions and working capital needs. At June 30, 2007 RAM had outstanding borrowings of $119 million, $21 million of unused borrowing capacity under its existing credit facility and $29 million in cash, resulting in liquidity of approximately $50 million. Pro forma the merger and contemplated expanded credit facility, RAM estimates that at June 30, 2007, it would have had liquidity of approximately $60 million from cash and borrowing capacity under its credit facility.
The merger has been approved by Ascent's board of directors and has been recommended by the board for approval by Ascent's common and preferred stockholders, a majority of which have indicated their intent to vote in favor of the merger. The board of directors of RAM also has unanimously approved the merger. Because the number of shares of RAM common stock to be issued in the merger exceeds 20 percent of the number of RAM shares currently outstanding, Nasdaq rules require that RAM's stockholders approve the issuance of such shares. RAM management and other substantial shareholders, who in combination account for approximately 63 percent of the outstanding voting shares of RAM, have indicated their intent to vote in favor of the merger and the issuance of such shares. Absent unexpected regulatory delay, the transaction is expected to close by November 30, 2007. RAM will account for the merger as an acquisition of Ascent under the purchase method of accounting. RBC Capital Markets, Inc. provided a fairness opinion to RAM's board of directors in support of the transaction.
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