Tengasco, Inc. — Q2 2014 Form 10-Q
Entity note: The supplied filing is for Tengasco, Inc., not Riley Exploration Permian, Inc. This summary reflects the filing text provided. The quarter ended June 30, 2014; financial statements are unaudited. Amounts below are in U.S. dollars unless noted.
Business context and reporting period
Tengasco explored for and produced oil and natural gas, primarily from Kansas properties, and operated a methane-extraction and electricity-generation facility in Tennessee. The company sold its Swan Creek natural gas properties and related pipeline assets in August 2013; their pipeline results are presented as discontinued operations in the 2013 comparisons. Shares outstanding were 60,842,413 at August 8, 2014.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $3.985 million | $3.871 million | $7.489 million | $8.185 million |
| Operating income | $649,000 | $1.472 million | $1.358 million | $3.108 million |
| Income from continuing operations | $377,000 | $805,000 | $802,000 | $1.784 million |
| Net income | $377,000 | $772,000 | $802,000 | $1.710 million |
| Continuing-operations EPS, basic and diluted | $0.01 | $0.01 | $0.01 | $0.03 |
Operating margin was approximately 16% in Q2 2014 versus 38% in Q2 2013, and 18% for the first half versus 38% in the prior-year period. Net income from continuing operations declined 53% for Q2 and 55% for the first half.
- Six-month cash from operating activities was $3.448 million, down from $4.342 million in 2013. Investing activities used $2.046 million, primarily for oil and gas properties and methane-project equipment. Financing activities used $1.423 million. Cash decreased by $21,000 to $33,000.
- At June 30, total assets were $39.658 million, total liabilities $5.913 million, and stockholders’ equity $33.745 million. Current assets were $3.160 million and current liabilities $2.137 million.
- Total debt was $2.034 million, including $1.865 million under the revolving credit facility. The facility’s $14.3 million borrowing base carried a 3.75% rate and matured January 27, 2016; the company reported covenant compliance. The next borrowing-base review was expected in August 2014.
- Restricted cash was $507,000. The filing says $120,500 securing Tennessee well obligations could be released after the state notified the certificate-of-deposit holder on August 11, 2014 that the obligations were fulfilled.
Material changes versus the prior comparable period
- First-half revenue fell $696,000. Kansas net oil sales declined from 87 MBbl to 76 MBbl, reducing revenue by $944,000; a $6.79-per-barrel increase in average Kansas oil price to $94.22 partly offset the volume decline. The 2013 comparison also included $287,000 of Swan Creek revenue.
- Q2 revenue rose $114,000, mainly from higher Kansas oil prices and increased methane-facility run time, partly offset by lower Kansas volumes and the absence of Swan Creek revenue.
- Production costs and taxes increased $715,000 in Q2 and $744,000 in the first half. The changes included a one-time $386,000 BSEE civil-penalty charge, higher Kansas repair/workover costs, and other cost differences. General and administrative expense rose $209,000 in Q2 and $389,000 in the first half, including 2014 consulting and Denver-office costs and a prior-year bad-debt-expense reversal.
- Interest expense declined $80,000 in Q2 and $181,000 for the first half, reflecting lower average credit-facility borrowings. Balance-sheet debt fell from $3.457 million at year-end 2013 to $2.034 million at June 30, 2014.
Outlook, risks, contingencies, and unusual items
- Management gave no quantified production or earnings guidance. It cautioned that prolonged low oil and gas prices, reduced production, or unfavorable reserve estimates could pressure cash flow and lead the lender to lower the borrowing base, potentially requiring repayment. The filing also notes exploration, drilling, cost, reserve-estimation, and regulatory uncertainties.
- The Interior Board of Land Appeals affirmed a $386,000 BSEE civil penalty on June 23, 2014, related to documentation for safety inspections on a Hoactzin-operated property. Tengasco accrued the penalty in Q2 and was considering a further appeal, which would have been due by September 22, 2014.
- Related-party matters remain relevant: Hoactzin is controlled by the company’s chairman. Tengasco reported $539,000 in suspended payments to Hoactzin and a $159,000 allowance against related-party receivables. Hoactzin paid $290,000 of bond-premium invoices in July 2014. Certain operational and bond transfers were still in transition.
- Restricted cash includes $386,000 collateralizing the appeal bond for the civil penalty. Separately, all IndemCo bonds relating to Hoactzin properties were released and cancelled by May 15, 2014, eliminating Tengasco’s exposure under those bonds and related indemnity; transfer of certain Argonaut RUE bonds from Tengasco’s name was still pending.
- The company reported no oil or gas commodity derivatives and no interest-rate derivatives at June 30, 2014. It reported disclosure controls as adequate and effective and no material change in internal controls over financial reporting.
Important facts for investors to verify
- Confirm the filing entity: the supplied 10-Q identifies Tengasco, Inc., not Riley Exploration Permian, Inc.
- Check the outcome of any further appeal of the $386,000 BSEE penalty and the related restricted-cash collateral.
- Review the August 2014 borrowing-base redetermination and any subsequent changes to facility availability, covenants, or repayment requirements.
- Assess Kansas oil-volume trends, realized prices, repair/workover spending, and methane-facility operating performance.
- Confirm collection of the remaining Hoactzin-related balance and completion of the outstanding operator and bond transfers.