Ram Energy (RAME) -- I've been buying this like it was water in recent weeks. They are putting out 1Q earnings tomorrow and have 19 M warrants expiring on Monday. The warrants have a strike price right around the current quote, $5. The last several days have been pretty wild volume-wise, and the next 3 should be even crazier.
If you assume none of the warrants get exercised, the stock is selling at an absurdly low level of about 3.5 x current year cash flow, (conservative commodity price assumptions). If some or all of the warrants get exercised, then they can pay down debt and go buy more properties or ramp up drilling, so this is a win-win situation IMO.
The "ace in the hole" here is the fact that they have an oilfield that is a perfect property for an MLP, the "Electra Burkburnett" field in Oklahoma. These are shallow oil wells, low decline rates, and throw off gobs of free cash flow. I believe they can get about 7 X EBITDA for this field if they marketed it to the MLP's, which would work out to about $330 M (which coincidentally is about the amount of their debt as of last quarter).
I believe that it was the above field that Larry Lee, their founder, was refering to in the comment he makes in the below excerpt from a recent piece in Oil & Gas Investor magazine (see bolded part).
"Guggenheim agented a transaction involving Ram Energy Resources Inc. in 2007. Ram is an Oklahoma oil and gas company whose properties are primarily in Texas, Louisiana and Oklahoma and is listed on Nasdaq.
In November 2007, Ram acquired Ascent Energy, a privately held Texas company, for $286 million, which included $190 million in cash and the issuance of 18.5 million shares of Ram stock.
Ram received a $175-million senior secured revolving credit facility and a $200-million senior secured Term B facility from a group of lenders led by Guggenheim to complete the Ascent acquisition.
“The Term B loan was oversubscribed to $450 million, and the lenders for the existing revolver increased their commitment from $100 million to $175 million.
Larry Lee, Ram chairman and CEO, says, “At the time, there was turmoil in the marketplace. The Ascent acquisition almost doubled the size of company. We paid higher interest rates on the Term B facility, but I think that was a reasonable price for us to pay to get the transaction we had negotiated and had captured.”
Ram grew from approximately 20 million barrels of proved reserves to approximately 40 million and 110,000 net acres of leasehold, including a majority in desirable shale plays, including 47,000 acres in West Virginia and 27,000 acres in the Barnett shale, with the remainder in conventional oil and gas in Oklahoma and Texas.
“Mezzanine debt is a good financing source,” Lee says. “We were pushing the envelope a little bit as we added more leverage; however our lenders were receptive. We have been evaluating our assets and will bring in additional capital by divesting some non-strategic assets, and we are considering putting some assets into a portfolio attractive for an MLP.” |
