Business Context and Reporting Period
Filing/entity note: The supplied filing is Tengasco, Inc.’s Form 10-Q, not a Riley Exploration Permian, Inc. filing. It covers the quarter and nine months ended September 30, 2020. Tengasco explores for and produces oil and natural gas, primarily in Kansas.
Financial Results
Amounts below are in thousands of dollars, except per-share and operating data.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $765 | $1,215 | $2,292 | $3,777 |
| Operating loss | $(812) | $(181) | $(1,892) | $(306) |
| Net loss | $(813) | $(182) | $(1,894) | $(269) |
| Net loss per share | $(0.08) | $(0.02) | $(0.18) | $(0.03) |
- Revenue fell about 37% in Q3 and 39% for the nine-month period year over year. Management attributed the nine-month decline mainly to a lower average oil price ($33.97/bbl versus $52.09/bbl) and lower net sales volume (67.0 Mbbl versus 72.1 Mbbl).
- Q3 production costs and taxes were $746; depreciation, depletion and amortization (DD&A) was $146; general and administrative expense (G&A) was $685. For nine months, these were $2,399, $461 and $1,324, respectively. The filing does not present a separate margin measure.
- Nine-month operating cash flow was $(565), versus $371 provided in 2019; investing cash flow was $(77), versus $36 provided; financing cash flow was $132, versus $(40). Cash declined $510 to $2,545.
- At September 30, current assets were $3,269 and current liabilities $851; total assets were $7,377 and stockholders’ equity $4,465. Debt included a $166 PPP loan; the revolving credit facility had no balance. Finance lease liabilities totaled $100, and operating lease liabilities $58.
Changes, Outlook, Risks and Unusual Items
- Q3 G&A increased $388 year over year, primarily due to costs for the announced Riley transaction. Nine-month G&A increased $411. Q3 production costs fell $167 and DD&A fell $40; management cited lower repair costs and depletion, among other factors.
- The bank revolver had a stated borrowing base of $3.1 million and covenant-based credit limit of $1.442 million, but management said a formal review at quarter-end would have reduced the credit limit to zero because of negative trailing-four-quarter EBITDA. Borrowing would require an EBITDA covenant waiver or amendment. The company reported covenant compliance for the quarter and said cash and revenue were expected to fund operating and G&A costs through November 2021.
- After quarter-end, the bank notified the company on November 5, 2020 that the $166 PPP loan had been forgiven; Tengasco expected to record $166 of other income in Q4.
- On October 21, 2020, Tengasco agreed to acquire Riley Exploration–Permian, LLC in a merger. Each Riley common unit is to receive 97.796467 Tengasco shares, subject to the agreement’s terms. Tengasco disclosed that its existing shareholders were estimated to own approximately 5% of the combined company on a fully diluted basis, with Riley members owning approximately 95%. The merger had not closed as of the filing.
- Management assessed a BSEE decommissioning claim involving Gulf of Mexico facilities as a remote loss risk; other parties were funding and undertaking the work under bankruptcy-court supervision. The filing reports no material impairment of oil and gas properties in the first nine months of 2020.
- Key risks include volatile oil prices, declining production, potential reductions in the borrowing base, covenant restrictions, and merger completion, dilution and execution risks. The filing also notes possible limits on use of Tengasco’s tax loss carryforwards following a change in control.
Important Facts for Investors to Verify
- Confirm the issuer: the supplied 10-Q identifies Tengasco, Inc. (TGC), while the request metadata names Riley Exploration Permian, Inc.
- Review the merger agreement, closing conditions, exchange ratio and final ownership dilution; the filing’s approximately 95%/5% ownership split was an estimate.
- Verify the bank’s borrowing-base and covenant position, including whether any waiver or amendment became necessary.
- Confirm the PPP forgiveness and the amount and timing of Q4 income recognition.
- Monitor oil prices, realized pricing, production declines, cash usage and the company’s liquidity outlook.