RAM Energy Resources estimated the company’s proved oil and natural gas reserves at December 31, 2009 calculated using new SEC rules (SEC Case) totaled 33.9 million barrels of oil equivalent (BOE) with a PV-10 value of $336.1 million. The company added 4.0 million BOE of reserves during the year, replacing 156% of 2009 production of 2.5 million BOE despite limited capital spending and sales of certain non-strategic reserves during the third quarter. RAM continues to employ, as it has in the past, an independent petroleum engineering firm to prepare estimates of its proved reserves in all of its operating areas.
In addition to the SEC Case, RAM also computed an estimate of proved reserves at December 31, 2009 using NYMEX futures strip pricing for the ensuing 36 months, the same pricing used by the company’s lenders to support the company’s borrowing base. RAM’s existing borrowing base is $286 million under the current facility and has not changed appreciably in the last year. Proved reserve volumes using strip pricing at December 31, 2009 were 38.9 million BOE with a PV-10 value of $682.0 million, a substantial increase of 17% compared to $582.1 million of PV-10 value based on strip pricing at year-end 2008.
"Given the deteriorating economic environment which prevailed in early 2009, we set a goal of maintaining our production at 2008's record level, reducing costs and maintaining our financial flexibility. I am pleased that our production goal was met and that we preserved the value of our assets principally through drilling low-risk PUD prospects with total capital spending of less than $30 million. As economic improvement became more visible during the second half of the year we decided to step up our drilling activity in South Texas, an area of previous successes and plentiful projects in an effort to return to solid production growth in 2010," said Larry Lee, President and CEO.
Year-end 2009 estimated proved reserves of 33.9 million BOE are composed of 14.1 million barrels of oil, 5.0 million barrels of natural gas liquids and 89.2 Bcf of natural gas. Crude oil and natural gas liquids represent 56% of total proved reserves, and natural gas reserves represent the remaining 44% of reserves. Proved developed reserves accounted for nearly 57% of total proved reserves and accounted for 66% of the total PV-10 value of $336.1 million, providing an underpinning to the confidence in the cash flow stream in 2010 and beyond.
Fourth Quarter 2009 Operations Update
Total production for the fourth quarter 2009 was 604,000 BOE, or 6,565 BOE per day compared to the year-ago quarter of 653,000 BOE, or 7,097 BOE per day. RAM’s production for the fourth quarter of 2009 fell 7% over that of the year-ago quarter, principally as a result of the sale of production in the third quarter 2009 which removed daily production of approximately 140 BOE from total fourth quarter 2009 production compared to the year-ago level, the low level of capital spending in the second and third quarters and the negative impact from unusually severe winter weather late in the year which constrained the movement of drilling and workover equipment and interrupted the electrical power supply. The properties sold accounted for approximately 26% of the fourth quarter 2009 production decline versus the same quarter in 2008.
The company’s realized price for oil increased 28% to an average of $73.36 per barrel in the fourth quarter of 2009, compared with last year’s fourth quarter average realized price of $57.56 per barrel. RAM’s realized price for natural gas liquids also increased 45% to $38.19, compared to $26.32 per barrel in the last quarter of 2008. In contrast, the price of natural gas dropped 22% to $3.93 per Mcf compared to $5.05 per Mcf in the fourth quarter of 2008.
Capital expenditures for the fourth quarter of 2009 totaled $8.1 million; composed of $7.7 million of development costs, $260,000 of acquisition costs and $90,000 attributable to exploration. Most of the capital spending in the quarter was allocated to re-kindling production growth from developing fields in the company’s La Copita area of South Texas. The Garza-Hitchcock #19 well spud late in the third quarter was drilled to a total depth of 9,780 feet into the Vicksburg formation and began flowing to sales in mid-November with a daily IP rate of 2,187Mcf and 368 barrels of condensate. The Brannan #7 well, spud in late October, was drilled to a total depth of 9,200 feet, also into the Vicksburg formation and began flowing to sales December 19 with a daily IP rate of 2,604 Mcf and 25 barrels of condensate. The Brannan #7 well marks the company’s ninth consecutive successful completion in the Vicksburg formation on its La Copita acreage. In addition to the Brannan #7 well, the company also drilled 12 wells in its mature oil fields area of Electra/Burkburnett in North Texas during the fourth quarter.
Early 2010 Operations Update
South Texas Drilling Activity Continues on Track with 2010 Budget
In keeping with the company’s increased capital spending budget of $50 million for 2010, which has allocated $22 million to its play in South Texas, RAM has continued to drill at an active pace as it enters 2010. In early January 2010 RAM spud the Garza-Hitchcock #21 well, a 9,800 foot Vicksburg test which was drilled to total depth in February and is currently in the process of being completed. The next well in the series, the Heard #4 well, spud in February of this year. Following the Heard #4, RAM is scheduled to spud the Garza-Hitchcock #24 well in March 2010.
Winter Weather Related Disruptions Impacting Other Drilling Activity and Production
Although activity in South Texas has been largely unaffected, the unusually harsh winter weather in North Texas and Oklahoma continued to slow drilling and workover activity and impacted production facilities in these operating areas. While it is early in the year and some of the drilling and workover activity interrupted by weather could catch up to budgeted plans, the company may not be able to fully replace production temporarily shut-in resulting from the weather.
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