Filing summary
Important identification issue: The request names Riley Exploration Permian, Inc., but the supplied filing is Tengasco, Inc.’s Form 10-K. This summary reflects the supplied Tengasco filing, for the fiscal year ended December 31, 2019; it is not a Riley Exploration Permian filing. The filing was signed March 30, 2020.
Business context and reporting period
Tengasco explored for and produced oil and natural gas, with its operating properties and reported reserves located in Kansas. At year-end it reported 174 producing oil wells, 13 shut-in wells and 37 active disposal wells. It sold its Tennessee methane facility in January 2018; 2018 results therefore include discontinued-operation income from that sale, while 2019 does not.
Financial and operating metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $4.911 million | $5.871 million |
| Operating income (loss) | $(505,000) | $240,000 |
| Net income (loss) from continuing operations | $(436,000), or $(0.04) per share | $442,000, or $0.04 per share |
| Total net income | $(436,000) | $1.569 million, including $1.127 million from discontinued operations |
| Cash from operating activities | $226,000 | $1.337 million, including $44,000 from discontinued operations |
| Cash used in investing activities | $233,000 | Net cash provided of $1.635 million, including $2.658 million from discontinued operations |
| Cash and cash equivalents at year-end | $3.055 million | $3.115 million |
- Oil sales were $4.884 million; saltwater disposal fees were $27,000. Average oil sales price fell to $52.12 per barrel from $59.48. Oil sales volume declined to 93.7 MBbl from 98.2 MBbl. Gross operated production was 110.9 MBbl versus 120.2 MBbl.
- Production costs and taxes were $3.398 million, down from $3.591 million. Depreciation, depletion and amortization was $716,000, versus $795,000; general and administrative expense rose to $1.302 million from $1.245 million. Operating loss was approximately 10% of revenue.
- Year-end current assets were $4.278 million and current liabilities $610,000. The company had no borrowings under its bank facility; the borrowing base was $4 million, with an approximately $1.97 million covenant-based credit limit. Finance lease liabilities were $102,000. The company reported compliance with facility covenants at year-end.
- Proved reserves declined to 803 MBbl from 1,094 MBbl. No proved undeveloped reserves remained at year-end, primarily due to lower oil prices. The standardized measure of discounted future net cash flows fell to $8.365 million from $13.976 million; the reserve price assumption decreased to $50.65 per barrel from $60.21.
Changes, outlook, risks and unusual items
- The company moved from continuing-operations income in 2018 to a continuing-operations loss in 2019. Management attributed lower revenue mainly to weaker oil prices and lower sales volumes. The 2018 total-profit comparison is affected by the methane-facility sale and a $159,000 other-income item from removing old payable and receivable balances.
- 2019 capital spending was funded primarily by cash and operating cash flow. The company drilled two operated wells and one non-operated well; the filing reports two productive wells and one dry hole in Kansas for 2019. No oil and gas property impairment was recorded in 2019 or 2018.
- The filing gives no specific production, earnings or capital-spending guidance. Management said it believed 2020 revenue and cash on hand would cover operating and administrative expenses and support covenant compliance, but warned that first-quarter 2020 oil-price declines and the COVID-19 outbreak could materially affect development, cash flows and liquidity. Management said sustained depressed prices could require additional capital; borrowing could require an EBITDA covenant waiver or amended covenants.
- Key risks include volatile commodity prices, declining production and reserves, limited access to financing, borrowing-base reductions, environmental and regulatory costs, and reliance on a small number of oil buyers. Two purchasers accounted for 87.7% and 11.8% of 2019 revenue. A potential economic downturn and the 2020 oil-price shock occurred after year-end and were not quantified in the filing.
- The filing reports no pending material legal proceeding, but describes historical disputes and unresolved discussions involving Hoactzin, a related party controlled by the chairman. The chairman beneficially controlled approximately 49.7% of common shares as of March 2020. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Confirm the issuer and filing: the supplied 10-K is for Tengasco, Inc., not Riley Exploration Permian, Inc.
- Review the full audited statements and notes, especially cash-flow comparability, lease obligations, asset-retirement obligations and the 2018 discontinued-operation sale gain.
- Check subsequent oil prices, the April 2020 borrowing-base review, covenant status and whether a waiver or amendment was needed.
- Assess reserve revisions, the removal of all proved undeveloped reserves, and the assumptions underlying the $8.365 million standardized measure.
- Monitor customer concentration, the Hoactzin-related matters and the effects of the chairman’s controlling ownership.