Filing summary
Entity note: The supplied filing is Tengasco, Inc.’s Form 10-Q, not a filing identified as Riley Exploration Permian, Inc. The summary below reflects Tengasco’s filing for the quarter ended June 30, 2019.
Business context and reporting period
Tengasco explores for and produces oil and natural gas, primarily in Kansas. The report covers the three and six months ended June 30, 2019; financial statements are unaudited. The company sold its methane-facility assets in January 2018, and that business is reported as discontinued operations.
Financial performance and position
- Revenue: Q2 revenue was $1.390 million, down 5.8% from $1.475 million a year earlier. First-half revenue was $2.562 million, down 9.9% from $2.843 million. Revenue was almost entirely crude oil; first-half oil revenue was $2.549 million.
- Profit: Q2 continuing-operations net income was $9,000, versus $99,000 in Q2 2018. First-half continuing operations recorded a loss of $87,000, versus income of $232,000 in the prior-year period. First-half 2018 also included $1.120 million of discontinued-operations income, largely from the methane-asset sale; there was no discontinued-operations income in first-half 2019.
- Costs and margins: First-half production costs and taxes increased 3.1% to $1.691 million; DD&A was $380,000 and G&A was $616,000. Revenue less production costs and taxes was approximately 34.0% of revenue in first-half 2019, versus 42.3% in first-half 2018. Total operating expenses exceeded revenue by $125,000 in the first half.
- Cash flow: First-half operating cash flow from continuing operations was $230,000, down from $479,000. Continuing-operations investing activities provided $68,000, including proceeds from materials inventory and oil-property sales; financing activities used $31,000. Cash increased by $267,000 to $3.382 million.
- Liquidity: Current assets were $4.484 million and current liabilities were $539,000 at June 30, 2019 (a current ratio of approximately 8.3x). Working capital was approximately $3.945 million.
- Debt and leases: No borrowings were outstanding under the Prosperity Bank revolving facility. The balance sheet showed $97,000 of finance-lease liabilities and $70,000 of operating-lease liabilities. The company reported compliance with facility covenants at quarter-end.
- Other balance-sheet items: Total assets were $9.338 million; stockholders’ equity was $6.690 million. Asset-retirement obligations totaled $2.149 million.
Material changes versus the prior comparable period
- First-half net oil sales rose to 48.5 MBbl from 47.4 MBbl, but average realized oil price fell to $52.53 per barrel from $59.61. Management attributed the revenue decline mainly to lower prices, partly offset by higher volumes.
- For Q2, average oil price fell to $54.98 per barrel from $61.86, while sales volume increased by 1.4 MBbl; the price decline was the principal reason for lower revenue and earnings.
- First-half production costs and taxes rose by $51,000, which management attributed primarily to inventory-adjustment changes and higher pumping charges, partly offset by lower repair costs.
- In January 2019, the company adopted the new lease-accounting standard and recognized operating-lease right-of-use assets and liabilities. The balance sheet also reclassified vehicle financing as finance leases.
Outlook, risks, contingencies and unusual items
- Credit facility: The filing reports a July 2019 amendment increasing the borrowing base to $4 million, with a covenant-based credit limit of approximately $3.8 million, and extending maturity to July 31, 2021. The next redetermination was expected in November 2019. The filing is inconsistent about the June 30 borrowing base: the debt note and liquidity discussion state $3 million (approximately $2.74 million covenant-based availability), while the market-risk discussion states $4 million (approximately $3.8 million). Verify the effective date and amount with the underlying credit documents.
- Commodity and operating risks: Oil prices are volatile; Kansas monthly prices received in the first half ranged from $46.39 to $58.60 per barrel. The company had no commodity derivatives. Lower prices, production, or reserve estimates could reduce cash flow and the lender’s borrowing base, restricting development spending.
- Contingencies: The company described historical disputes with Hoactzin relating to a management agreement and an offshore-property regulatory penalty. It says the $386,000 penalty was paid in 2015 and that it is discussing potential claims with Hoactzin. The filing states there were no pending material legal proceedings. A post-quarter drilling commitment of approximately $88,000 was disclosed.
- Other unusual item: Compensation reductions accumulated from 2015 through June 2019 totaled approximately $412,000; about $84,000 could be payable in shares if the specified WTI threshold is met. No liability was accrued for these amounts.
- Guidance: The filing provides no specific production, revenue, earnings, or capital-spending guidance. Management cautions that first-half results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing names Tengasco, Inc., not Riley Exploration Permian, Inc.
- Reconcile the filing’s conflicting June 30 borrowing-base disclosures and confirm the July amendment terms, availability, and covenant headroom.
- Review realized oil prices, production trends, and the reserve assumptions underlying depletion and borrowing-base redeterminations.
- Assess the potential scope and status of the Hoactzin matters and the conditional compensation reimbursement obligation.
- Confirm whether the reported first-half operating cash flow and post-quarter drilling commitment adequately support planned operations and capital needs.