Filing summary
Registrant discrepancy: The supplied filing is a Form 10-Q for Black Ridge Oil & Gas, Inc., not Sow Good Inc. It covers the unaudited quarter ended March 31, 2014, and was signed May 13, 2014. The filing describes an oil and gas company operating primarily in North Dakota and Montana.
Financial and operating performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Oil and gas sales | $4.03 million | $1.91 million |
| Total revenue, including derivative losses | $3.70 million | $1.91 million |
| Net operating income | $417,317 | $112,885 |
| Net income (loss) | $(381,560) | $313,813 |
| Cash provided by operating activities | $876,967 | $594,852 |
| Cash used in investing activities | $(7.77) million | $(661,879) |
| Cash provided by financing activities | $5.80 million | — |
- Production was 47,211 Boe, up 117% from 21,802 Boe. Average daily production was 525 Boe, and the company reported 188 gross (5.51 net) producing wells.
- Total revenue increased 94%; oil and gas sales alone rose 111%. Management attributed growth primarily to higher production and the December 2013 CPX acquisition. Realized price per Boe, after settled derivative effects, declined 5% to $82.91.
- Operating expenses were $3.28 million, including $1.59 million of depletion. Production cost declined to $10.75 per Boe from $12.33. Net operating margin was approximately 11.3%, versus 5.9% in Q1 2013; net margin was approximately (10.3%), versus 16.4%.
- Interest expense rose to $1.08 million from $232,980. The 2014 period also included $116,163 of settled derivative losses and $214,035 of unrealized derivative losses. Management reported Adjusted EBITDA of $2.37 million, a non-GAAP measure, versus $981,938.
- At March 31, cash was $60,606; current assets were $5.46 million and current liabilities $8.28 million, resulting in negative working capital of $2.81 million and a current ratio of approximately 0.66. Accounts receivable was $3.07 million and advances to operators $2.30 million.
- Debt principal was $39.31 million before discounts; its balance-sheet carrying amount, net of discounts, was $36.74 million. Debt comprised $13.9 million under the senior facility and $25.0 million of subordinated principal, plus $410,686 of accrued PIK interest. The subordinated facility carries cash interest of 9% plus a reference-rate component and 4% PIK interest.
Changes, outlook, and risks
- Against Q1 2013, production and sales expanded substantially, but the company moved from net income to a net loss. Higher depletion, financing costs, and derivative losses contributed. The CPX acquisition also affects comparability; illustrative pro forma Q1 2013 results showed $2.79 million revenue and $193,023 net income.
- Investing cash use increased with well development, lease acquisitions, and operator advances. The company funded part of this activity with net credit-facility draws. It reported approximately $12.4 million of committed AFEs beyond amounts already paid or accrued.
- Management said revenue was not expected to exceed investment in well development and operating costs throughout 2014, but believed credit availability would fund planned acquisition and development activity. No numerical revenue or earnings guidance was provided.
- After quarter-end, on April 21, borrowing-base availability increased from $43 million to $50 million, including increases to both facilities; the company drew another $1 million under the senior facility on April 22. A subsequent borrowing-base review was scheduled after review of June 30 reserves.
- Senior and subordinated credit agreements impose financial covenants, liens on substantially all company assets, and oil-production hedging requirements. The company reported compliance with covenants at March 31. The facilities mature in August 2016 and June 2017, respectively.
- Commodity prices, production and drilling outcomes, operator performance, access to capital, and floating interest rates are material risks. Hedging reduces downside exposure but limits upside and can create cash-timing needs.
- A Missouri River riparian acreage ownership dispute affects a well whose related costs and revenues the company has not recognized. The company disclosed approximately $800,000 of its potential well costs and estimated that unrecognized revenue and expenses would include about $77,000 and $30,000, respectively, for Q1 2014. Management reported no material litigation otherwise.
- The board and stockholders authorized a potential reverse split of up to 1-for-10, but the board had not made it effective as of the filing. Management reported disclosure controls were effective and no material change in internal controls during the quarter.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing identifies Black Ridge Oil & Gas, Inc., not Sow Good Inc.
- Review debt-facility availability, borrowing-base redeterminations, covenant headroom, interest costs, and the company’s ability to fund planned drilling and acquisition commitments.
- Assess cash conversion and liquidity, particularly the very low cash balance, negative working capital, receivables, and operator advances.
- Check production growth, realized commodity prices, depletion assumptions, and the effect of the CPX acquisition on period-to-period comparisons.
- Review derivative positions, settlements, mark-to-market exposure, and how hedges affect realized prices and cash flows.
- Monitor the acreage ownership dispute and any related changes to recognized costs, revenues, or asset values, as well as the status of the potential reverse split.