Filing identity and reporting period
The supplied filing is Tengasco, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2017—not a filing identified as Riley Exploration Permian, Inc. The filing describes oil and gas exploration and production, primarily in Kansas, and a manufactured-methane treatment and delivery facility in Tennessee. Financial amounts below are in thousands of dollars unless otherwise noted.
Financial results and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Revenue | $1,318 | $2,662 |
| Operating loss | $(174) | $(371) |
| Net loss | $(178), or $(0.02) per share | $(391), or $(0.04) per share |
| Cash provided by operating activities | Not presented quarterly in the supplied text | $21 |
For the six-month period, oil and gas revenue was $2,347 and methane-facility revenue was $315. Production costs and taxes were $1,687; methane-facility costs were $275; and depreciation, depletion and amortization was $479. The filing does not provide a clearly labeled gross-margin measure.
At June 30, 2017, cash was $132, current assets were $1,467, and current liabilities were $592. Total assets were $8,068 and total liabilities were $2,717. Total debt was $98, comprising $57 of current maturities and $41 of long-term debt. The Prosperity Bank facility had no borrowings outstanding; its borrowing base was $1.25 million. The company reported an asset retirement obligation of $2,084.
Six-month cash flows included $134 used in investing activities and $169 provided by financing activities. Cash increased $56 to $132. Financing included approximately $2.7 million of gross rights-offering proceeds, primarily used to repay the bank facility.
Changes versus the prior comparable period
- Second-quarter revenue rose $36 (about 3%) year over year, while six-month revenue increased $447 (about 20%). Management attributed the increase primarily to higher realized oil prices: $42.82 per barrel versus $39.86 in the quarter, and $44.55 versus $33.75 for the six-month periods. Lower oil sales volumes partly offset the price gains.
- Net loss narrowed from $1,627 to $178 for the quarter and from $3,031 to $391 for the six months. The main comparison benefit was the absence of the 2016 oil-and-gas ceiling-test impairment: $1,445 in the quarter and $2,086 for the six months. The 2017 periods recorded no impairment.
- Six-month operating cash flow improved from $(1,065) to $21. Management cited lower working-capital cash use, higher revenue, and lower general and administrative costs; production and methane-facility costs increased.
- Shares outstanding increased substantially following the February 2017 rights offering. The company issued 4,498,698 shares and received approximately $2.7 million gross; directors, management, and affiliates received 3,293,407 of the shares.
Outlook, risks, contingencies, and notable items
- Management believed revenues would fund operating and general and administrative expenses and support covenant compliance through August 2018. If needed, it cited the $1.25 million borrowing base, additional share issuance, or asset sales as potential funding sources. This is management’s expectation, not a guarantee.
- The credit facility was amended in March 2017, with a July 31, 2018 maturity and covenants requiring a current ratio above 1:1, funded debt to EBITDA below 3.5x, and interest coverage above 3.0x. The company reported compliance for the June quarter. It had received waivers for covenant defaults or anticipated defaults relating to December 2016. The next borrowing-base review was scheduled for August 2017.
- Oil-price volatility, production and reserve uncertainty, and possible borrowing-base reductions could constrain cash flow and exploration or development spending. The company reported no commodity or interest-rate derivative positions.
- A Texas breach-of-contract lawsuit sought approximately $188,000 plus fees and interest. Tengasco said it did not sign the underlying agreement and reported that Hoactzin had agreed to defend and indemnify it. Trial was set for October 2017, subject to possible continuance. The filing also describes potential operational claims raised by Hoactzin; discussions toward a possible negotiated resolution were ongoing.
- The company had a full valuation allowance on deferred tax assets and reported $26.4 million of net operating loss carryforwards at December 31, 2016. A rights agreement adopted in March 2017 was intended to reduce the risk of an ownership change limiting use of those tax attributes.
- Compensation reductions for employees and directors remained in place through June 30, 2017, subject to specified oil-price thresholds for restoration and possible reimbursement. The company reported no accrued liability for these reductions.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing is for Tengasco, Inc., although the request metadata names Riley Exploration Permian, Inc.
- Review the August 2017 borrowing-base redetermination and subsequent covenant compliance, facility availability, and liquidity.
- Assess whether operating cash flow and oil volumes can support operations and capital needs, particularly under lower oil prices.
- Follow the Offshore Oilfield Services litigation and any other Hoactzin-related claims, indemnification developments, or potential costs.
- Evaluate the rights offering’s dilution, related-party participation, and any effect of the rights agreement on share ownership and NOL utilization.