Filing identity and reporting period
Important identity mismatch: The supplied filing is Black Ridge Oil & Gas, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2014—not a filing identified as Sow Good Inc. The summary below reflects the filing text provided.
Black Ridge is a non-operating oil and gas producer focused on the Bakken and Three Forks areas of North Dakota and Montana. The filing reports second-quarter and six-month results through June 30, 2014, compared with the same 2013 periods.
Financial and operating performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Oil and gas sales | 2014: $5.55 million; 2013: $2.15 million | 2014: $9.58 million; 2013: $4.06 million |
| Total revenue, including derivative losses | 2014: $4.41 million; 2013: $2.15 million | 2014: $8.11 million; 2013: $4.06 million |
| Net operating income | 2014: $444,048; 2013: $185,867 | 2014: $861,365; 2013: $298,752 |
| Net income (loss) | 2014: $(543,360); 2013: $(297,300) | 2014: $(924,920); 2013: $16,513 |
| Net cash from operating activities | Not separately presented | 2014: $2.01 million; 2013: $1.01 million |
- Second-quarter production was 65,059 Boe, up 153% year over year; average daily production was 715 Boe. Six-month production was 112,270 Boe, versus 47,543 Boe.
- Second-quarter operating expenses were $3.97 million, including $2.13 million depletion. Interest expense was $1.29 million; six-month interest expense was $2.38 million.
- Second-quarter derivative losses were $262,719 settled and $881,124 mark-to-market. Six-month derivative losses were $378,882 settled and $1,095,159 mark-to-market. The June 30 net derivative liability was $1.31 million.
- Management reported second-quarter adjusted EBITDA of $3.61 million and six-month adjusted EBITDA of $5.99 million. These are non-GAAP measures and should be considered alongside GAAP results.
- Cash was $84,415 at June 30. Current assets were $7.43 million and current liabilities $9.55 million; the balance sheet therefore indicates negative working capital of $2.12 million.
- Debt was $44.72 million before discounts and $42.25 million net of discounts, all presented as long-term. Debt increased from $33.20 million gross at December 31, 2013. Six-month investing cash outflow was $13.87 million, funded in part by $10.80 million net financing cash inflow.
Changes, outlook, risks, and unusual items
- Growth in sales was driven mainly by higher production and a larger producing-well base: 207 gross (6.28 net) producing wells at June 30, versus 81 gross (2.82 net) a year earlier. The company reported approximately 9,800 net acres.
- Production costs per Boe and G&A per Boe declined year over year, while depletion and interest expense increased. The company attributed higher interest expense primarily to its newer credit facilities, PIK interest, and financing-cost amortization.
- Management said revenue was not expected to exceed investment in well development and operating costs through the rest of 2014 and into 2015, but believed credit-facility availability would fund planned acquisition and development activity. No quantified earnings or production guidance is provided.
- At June 30, the senior facility had $14.05 million outstanding and a $20 million borrowing base; the subordinated facility had $30 million principal outstanding and $35 million availability. The company reported compliance with amended financial covenants at quarter-end. It drew another $1.25 million on the senior facility between June 30 and August 12.
- Debt terms include floating-rate senior borrowing and subordinated debt with cash interest of 9% plus a specified rate and 4% PIK interest. The facilities are secured by substantially all company assets and require oil-production hedging. The company reported $472,712 of PIK interest for the first half.
- Hedges reduce downside exposure but also limit upside. Open swaps covered 189,000 barrels at a weighted average price of about $92 per barrel; collars also covered future production. Commodity prices and floating interest rates are key risks.
- About $10.7 million of signed well-development authorizations remained committed beyond amounts already paid or accrued. A disputed North Dakota riverbed lease relates to an estimated $800,000 share of well costs; the company excluded related costs and production revenue pending litigation over state ownership.
- The board and shareholders authorized a potential reverse stock split of up to 1-for-10, but the board had not implemented it as of the filing. The filing notes no assurance that a split would secure a national exchange listing.
- The company disclosed no material litigation known to it and no off-balance-sheet arrangements. Management reported disclosure controls were effective at June 30, 2014.
Most important facts for investors to verify
- Confirm the issuer: the supplied document names Black Ridge Oil & Gas, Inc., not Sow Good Inc.
- Review liquidity and debt capacity, including the very low cash balance, negative working capital, borrowing-base availability, covenant requirements, and subsequent borrowing.
- Assess whether production growth and operating cash flow can support committed drilling and development spending, including the $10.7 million in AFEs.
- Evaluate the effects of derivative settlements, mark-to-market losses, hedge volumes, and price terms on future cash generation.
- Check the status and potential financial consequences of the disputed riverbed acreage and the potential reverse split.
- Reconcile filing disclosures before relying on reported figures: MD&A gives a different negative-working-capital figure ($2,120,125) from the balance-sheet arithmetic ($2,120,015), and one MD&A passage gives six-month mark-to-market derivative loss of $1,095,129 versus $1,095,159 in the financial statements.