Filing summary
Entity and period: The supplied filing is Tengasco, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, not a filing for Riley Exploration Permian, Inc. The quarterly figures below are unaudited. The annual financial statements received an unqualified audit opinion.
Business context and reporting period
Tengasco explored for and produced oil and natural gas, with its principal continuing operations in Kansas. In August 2013, it sold its Tennessee oil and gas properties and pipeline assets for $1.5 million and is focusing on Kansas production. Its separate landfill-methane and electricity operation remained in Tennessee. The former CEO resigned in June 2013; CFO Michael Rugen became interim CEO.
Financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $15.7 million | $20.6 million |
| Operating income | $5.2 million | $7.4 million |
| Income from continuing operations | $3.0 million; $0.05 per share | $4.2 million; $0.07 per share |
| Net income (loss), including discontinued operations | $2.8 million | $(0.07) million |
| Cash from continuing operations | $8.0 million | $9.3 million |
| Cash and cash equivalents at year-end | $54,000 | $31,000 |
| Total debt at year-end | $3.46 million | $10.35 million |
| Total assets / stockholders’ equity | $39.7 million / $32.9 million | $44.2 million / $30.1 million |
Revenue fell about 24%; operating margin was approximately 33% versus 36% in 2012. The revenue decline mainly reflected lower oil volumes: oil sales volumes fell from 226.6 MBbl to 166.2 MBbl, partly offset by a higher average realized oil price ($91.03 per barrel versus $86.92). Kansas gross production declined from 278.8 MBbl to 203.9 MBbl. Production costs and taxes decreased to $5.5 million from $7.2 million; depreciation, depletion and amortization fell to $2.9 million from $3.4 million. Interest expense declined to $357,000 from $743,000 as average borrowings fell.
Fourth-quarter 2013 revenue was $3.481 million and continuing-operations net income was $638,000; discontinued operations recorded a $9,000 loss. Comparable fourth-quarter 2012 figures were $4.567 million revenue, $859,000 continuing-operations income, and a $4.105 million discontinued-operations loss, largely reflecting the pipeline impairment.
At December 31, 2013, current assets were $3.2 million and current liabilities $1.6 million; inventory was $1.25 million and restricted cash $507,000. Continuing-operations investing cash use was $2.2 million, and the company used $5.7 million of continuing-operations financing cash flow to repay debt. The revolving facility borrowing base was $17.5 million at year-end; a March 2014 amendment reduced it to $14.3 million. Borrowings were approximately $1.8 million on March 27, 2014.
Proved reserves at year-end were 2.04 million barrels of oil, down from 2.213 million BOE in 2012; the filing attributes the decline to production exceeding reserve additions and downward revisions. The 10%-discounted reserve value before income taxes was $47.9 million, versus $53.9 million. Proved undeveloped reserves were 465 MBbl across 29 locations, with estimated future development costs of $9.6 million.
Material changes, outlook, and risks
- Portfolio and production: The Tennessee oil, gas and pipeline divestiture narrowed the business to Kansas oil production and the methane/electricity project. Six Kansas wells were drilled in 2013; all were completed as producers, with a 77% average working interest.
- Methane operations: The landfill project was online about 29% of the time for gas and 27% for electricity in 2013, versus 59% and 46% in 2012. High oxygen levels in landfill gas caused shutdowns. Gas-sales contract with Atmos expires July 2014; electricity sales contract was extended through January 2032, with a later-period price reduction.
- Outlook: The filing provides no specific earnings, production, or capital-spending guidance. Management said it intends to fund planned proved-undeveloped drilling through operating cash flow and, if needed, the credit facility; it may adjust drilling and capital spending to market and financing conditions.
- Credit and commodity exposure: Borrowing availability depends on the lender’s reserve-based borrowing base, which was reduced after year-end. Debt carries a variable rate, and lower oil prices or reserve estimates could reduce borrowing capacity or require repayment. No oil derivative positions were open in 2013.
- Contingency and related-party exposure: Tengasco appealed a $386,000 BOEM civil penalty related to late contractor reporting on a Hoactzin-operated well. No liability was accrued; management estimated a possible payment ranging from zero to $386,000. The company also remained associated with Hoactzin offshore bonds and operator-transition matters. Hoactzin is controlled by the company chairman; approximately $477,000 of Hoactzin funds were held pending transition completion, and related-party receivables had an allowance.
- Concentration and other risks: Two oil purchasers accounted for 92.6% of year-end receivables; the three largest purchasers generated 96.4% of 2013 revenue. Other disclosed risks include natural production declines, reserve-estimation and impairment uncertainty, environmental and regulatory costs, equipment and personnel availability, and reliance on key staff. The company reported effective disclosure controls and internal control over financial reporting; auditor attestation of internal controls was not required.
Important facts for investors to verify
- Confirm the filing is for Tengasco, Inc. (ticker TGC), not Riley Exploration Permian, Inc., and that the intended period is fiscal 2013.
- Review the March 2014 borrowing-base reduction, facility covenants, July 2014 redetermination, and actual liquidity available after the reduction.
- Assess whether Kansas drilling can offset production declines and fund the $9.6 million PUD development program.
- Check subsequent performance and contract replacement for methane gas sales after the Atmos agreement expires, including continued landfill downtime.
- Track resolution of the BOEM penalty appeal and completion of Hoactzin operator and bond transfers, including collection of related-party receivables and release of held funds.
- Evaluate reserve revisions and the sensitivity of reserve value and borrowing capacity to commodity prices, production assumptions, and development costs.