Filing identity and reporting period
Important identity discrepancy: The request identifies Riley Exploration Permian, Inc., but the supplied Form 10-Q is for Tengasco, Inc. and subsidiaries. It covers the quarter and nine months ended September 30, 2015. Verify the issuer before relying on this summary.
Tengasco explored for and produced oil and natural gas, primarily in Kansas, and operated a manufactured-methane facility in Tennessee. Financial figures below are in U.S. dollars; amounts are shown in millions unless noted.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $1.425 | $3.619 | $4.958 | $11.108 |
| Operating income (loss) | $(8.124) | $0.702 | $(9.093) | $2.060 |
| Net income (loss) | $(4.963) | $0.425 | $(5.553) | $1.227 |
| Net income (loss) per share | $(0.08) | $0.01 | $(0.09) | $0.02 |
| Cash from operations | — | $0.349 | $5.728 | |
| Capital investment, net cash used | — | $(0.536) | $(3.114) |
- Revenue and margins: Nine-month oil revenue was $4.5 million, versus $10.7 million in 2014. Average realized oil price fell to $44.65/barrel from $92.90, while net oil sales volume declined to 101.0 MBbl from 114.9 MBbl. The filing does not provide a clear gross-margin percentage.
- Cash and working capital: September 30 cash was $73,000; restricted cash was $386,000. Current assets were $1.551 million and current liabilities $1.386 million. Operating cash flow fell to $349,000 from $5.728 million.
- Debt and credit availability: Total debt was approximately $1.172 million, including $1.012 million drawn under the Prosperity Bank facility. The borrowing base was $7.8 million, against a $40 million maximum facility; the interest rate was 3.75%, and maturity was January 27, 2017. The next borrowing-base redetermination was under review. The company reported compliance with covenants.
- Balance sheet: Total assets were $31.196 million, including net oil and gas properties of $16.602 million and deferred tax assets of $10.855 million. Stockholders’ equity was $26.625 million. Asset retirement obligations were $2.078 million.
Material changes and unusual items
- A $7.189 million noncash oil-and-gas property ceiling-test impairment was recorded in Q3 2015 due to low oil prices; no impairment was recorded in the comparable 2014 period. Management anticipated another impairment in Q4 2015.
- Q3 revenue declined $2.194 million year over year, principally because the average oil price fell to $40.24/barrel from $90.31 and sales volume declined by 7.2 MBbl. Nine-month revenue declined $6.150 million.
- Production costs and taxes and general and administrative expense decreased year over year, reflecting lower well repair, tax, compensation, and office costs, among other factors. Capital spending also fell substantially.
- In Q3, Tengasco paid a $386,000 BSEE civil penalty and statutory interest related to a 2012 safety-inspection documentation matter involving Hoactzin-operated properties. It used credit-facility borrowings for the payment and expected the $386,000 bond collateral to be returned when the appeal bond was cancelled.
- Cash and cash equivalents increased by $38,000 over the nine-month period, to $73,000, after operating, investing, and financing cash flows.
Outlook, risks, and contingencies
- The filing gives no quantified production, revenue, earnings, or capital-spending guidance. Management warned that prolonged low commodity prices could impair cash flow and operations; it could not assure continued normal operations indefinitely under such conditions.
- The lender could reduce the borrowing base after redetermination. If the base fell below borrowings, Tengasco might have to repay debt; the company cautioned that it might not have sufficient capital to do so. The redetermination was under review.
- The company anticipated a further Q4 impairment, subject to the oil-price environment and ceiling-test calculation. It had no open commodity or interest-rate derivatives.
- Hoactzin had provided an internal analysis identifying potential operational and other claims, primarily under a management agreement. Tengasco was discussing possible negotiated resolution and said it might seek reimbursement of the civil penalty, but provided no assurance of success.
- Employees’ and directors’ compensation reductions were tied to WTI price thresholds of $70/barrel for reinstatement and $85/barrel for reimbursement of prior reductions. Approximately $93,000 had been reduced by September 30; no liability was accrued.
- Other risks include volatile oil prices, production and reserve uncertainty, drilling risks, and possible changes in reserve estimates and lender practices. Management reported disclosure controls were adequate and effective and no material changes to internal controls during the quarter.
Most important facts to verify
- Confirm the filing is for Tengasco, not Riley Exploration Permian, Inc.
- Review the Q4 2015 results and subsequent ceiling-test impairment, since management anticipated an additional write-down.
- Check the outcome of the Prosperity Bank borrowing-base redetermination and any related repayment or covenant consequences.
- Confirm the return of restricted cash collateral and monitor the Hoactzin-related claims, indemnification, and potential reimbursement.
- Assess cash generation and liquidity against continued low oil prices, given the sharp decline in operating cash flow and limited cash balance.