Business context and reporting period
Filing identity: The supplied filing is Tengasco, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013; it does not identify Riley Exploration Permian, Inc. Tengasco explored for and produced oil and natural gas, primarily in Kansas and Tennessee, and operated a methane project in Tennessee.
Financial performance and condition
Unless otherwise noted, amounts are in thousands of dollars. First-quarter 2013 revenue was $4,314, down 13% from $4,962 a year earlier. Operating income was $1,636 (38% operating margin), versus $1,826 (37%). Continuing-operations income was $978, compared with $954; net income, including discontinued operations, was $937, compared with $873. Basic and diluted continuing-operations EPS were $0.02 in both periods.
- Operating costs and expenses totaled $2,678, down from $3,136. Production costs and taxes fell to $1,371 from $1,668; G&A fell to $513 from $759. DD&A increased to $794 from $709.
- Continuing-operations cash from operations was $2,359, up from $902; total operating cash flow, including discontinued operations, was $2,296 versus $812. Investing used $209 versus $2,827. Financing used $2,104 in continuing operations, primarily reflecting debt repayment. Ending cash was $77, up from $31 at year-end.
- At March 31, current assets were $3,518 and current liabilities $1,857; cash was $77 and restricted cash $507. Total debt was $8,375, including $8,191 under the bank facility; total liabilities were $12,274 and stockholders’ equity $31,020.
- The $20.5 million credit-facility borrowing base supported $8.2 million of borrowings. The facility’s rate was 5.25%, maturity was extended to January 27, 2015, and management reported compliance with covenants.
Material changes versus the prior comparable period
Kansas oil sales net to Tengasco declined to 46 MBbl from 49 MBbl, while the average Kansas oil price fell to $87.53 per barrel from $96.08. Management attributed most of the revenue decline to lower volumes and prices. Lower production costs, G&A and interest expense, and the absence of the prior-year $121 loss on derivatives partly offset lower revenue. Capital spending also dropped sharply: oil and gas property additions were $209 versus $2,478, with no methane-project additions compared with $345 a year earlier. Debt fell from $10,346 at December 31, 2012 to $8,375 at March 31, 2013.
Outlook, risks, contingencies and unusual items
- On March 1, 2013, Tengasco agreed to sell its Swan Creek and pipeline assets for $1.5 million, subject to due diligence and regulatory and easement-holder approvals. Pipeline assets of $1.4 million were classified as held for sale; Swan Creek operations remained in continuing operations. Discontinued operations reported a $41 loss, versus an $81 loss.
- The bank’s next borrowing-base review was expected in June 2013. Management warned that lower commodity prices, production, or reserve estimates could reduce the borrowing base and require repayment; extended low prices could constrain operations and capital spending. No formal financial guidance was provided.
- A $386,000 BOEM civil penalty related to late contractor reports at a Hoactzin-operated well was under appeal. Tengasco had posted restricted cash as collateral and estimated a possible payment of zero to $386,000.
- Tengasco was jointly and severally liable with a related Hoactzin-associated party under an indemnity agreement covering bonds with approximately $9.6 million face value. Hoactzin had provided $6.6 million collateral. The filing also reports $559,000 of Hoactzin-related vendor payables and a related-party receivable net of a $257,000 allowance; the company was assisting with transferring operatorship and bonding obligations.
- Oil and gas prices are volatile; Tengasco had no open derivative positions at quarter-end. The company disclosed that a 10% increase in the credit-facility rate would raise annual interest expense by approximately $43,000, assuming borrowings stayed at the quarter-end level.
Important facts for investors to verify
- Confirm the issuer: this source is Tengasco, Inc., not Riley Exploration Permian, Inc.
- Check whether the $1.5 million asset sale closed and whether its proceeds or any required approvals changed the company’s liquidity.
- Review the June 2013 borrowing-base redetermination and subsequent compliance, debt repayment requirements, and available credit.
- Track the BOEM appeal and the potential penalty, as well as the transfer of Hoactzin-related operator and bonding responsibilities.
- Assess whether Kansas production, realized oil prices, and cash generation sustained the quarter’s results; first-quarter results are not necessarily indicative of full-year performance.