Business context and reporting period
The supplied filing is Tengasco, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2014—not a filing identified in its text as Riley Exploration Permian, Inc. The company’s principal oil and gas operations were in Kansas; it also operated a methane-treatment facility in Tennessee. Tennessee’s Swan Creek and pipeline assets were sold in August 2013, affecting comparability.
Unless otherwise noted, financial amounts below are in millions of dollars. Share count was 60.84 million at September 30, 2014.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $3.619 | $4.034 | $11.108 | $12.219 |
| Operating income | $0.702 | $1.340 | $2.060 | $4.448 |
| Income from continuing operations | $0.425 | $0.535 | $1.227 | $2.318 |
| Net income | $0.425 | $0.481 | $1.227 | $2.190 |
| Operating cash flow, continuing operations | Not provided separately | Not provided separately | $5.728 | $6.716 |
Operating margin was approximately 19.4% in Q3 2014 versus 33.2% in Q3 2013, and 18.5% for the first nine months of 2014 versus 36.4% in the comparable 2013 period. Diluted earnings per share from continuing operations were $0.01 for Q3 and $0.02 for the nine-month period, compared with $0.01 and $0.04, respectively, in 2013.
At September 30, cash was $0.139, current assets were $2.587, and current liabilities were $2.206. Total debt was $0.929, including $0.780 drawn under the bank credit facility; long-term debt excluding current maturities was $0.866. The current ratio was approximately 1.17. The facility’s $14.3 million borrowing base was substantially greater than the drawn amount, but subject to lender redetermination. Total assets were $39.091 and stockholders’ equity was $34.178.
Nine-month investing cash outflow was $3.114, including $2.841 for oil and gas properties and $0.274 for the methane project. Financing cash outflow was $2.529. Cash increased by $0.085 from the beginning of the year to $0.139.
Material changes versus prior comparable periods
- Q3 revenue fell 10% year over year, and nine-month revenue fell 9%. Management attributed the Q3 decline mainly to a lower Kansas oil price: $90.31 per barrel versus $99.01. Nine-month Kansas net oil sales volume declined to 115 MBbl from 126 MBbl; the average price rose to $92.90 from $91.00 per barrel.
- Nine-month continuing-operations income declined $1.091 million. Production costs and taxes rose $0.648 million, and general and administrative expense increased $0.622 million. Lower interest expense and lower income tax expense partly offset these pressures.
- General and administrative expense rose to $2.062 million for nine months from $1.440 million, reflecting Denver office setup and relocation costs, consulting, and other items. Q3 expense increased to $0.695 million from $0.461 million.
- Operating cash flow from continuing operations decreased to $5.728 million from $6.716 million, while oil and gas capital additions increased substantially year over year.
- Credit-facility borrowings fell to approximately $0.780 million from $3.3 million at December 31, 2013. Interest expense also declined, reflecting lower average borrowings.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings, production, or capital-spending guidance. Management cautioned that results for the nine months are not necessarily indicative of full-year results.
- The company recorded a $0.386 million current liability and expense after an administrative appeals board affirmed a BSEE civil penalty related to documentation of safety inspections at a Hoactzin-operated property. Tengasco sought federal judicial review; the outcome and timing were uncertain. The company intended to seek reimbursement from Hoactzin, with no assurance of recovery.
- The Prosperity Bank facility matured January 27, 2016, carried a 3.75% rate at quarter-end, and was secured by substantially all oil and gas and methane-project assets. The next borrowing-base review was scheduled for March 2015. The company reported covenant compliance; the lender had eliminated the current-ratio and G&A covenants in September 2014. Management warned that lower commodity prices or reserve estimates could reduce the borrowing base and require repayment.
- Oil-price exposure is material; reported monthly Kansas oil prices ranged from $86.51 to $98.51 per barrel during the first nine months of 2014. The company had no commodity or interest-rate derivatives at quarter-end.
- The company continued to have Hoactzin-related balances, including $0.570 million of suspended payments recorded as accounts payable to a related party and $0.159 million of past-due vendor balances with a full allowance against the related receivable. Transfer of certain right-of-use and easement bonds to Hoactzin remained in process.
- The $0.386 million restricted cash collateral for the BSEE appeal remained reported at quarter-end. Separately, $0.121 million previously restricted for Tennessee well retirement obligations was released in September 2014.
- No oil-and-gas property impairment was recorded at September 30, 2014. The company reported disclosure controls as adequate and effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing names Tengasco, Inc., while the request metadata names Riley Exploration Permian, Inc.
- Check the outcome of the federal judicial review of the BSEE penalty and whether any amount was recovered from Hoactzin.
- Review subsequent borrowing-base determinations, facility amendments, covenant compliance, and repayment requirements.
- Assess Kansas production declines, realized oil prices, capital spending, and the methane facility’s operating performance and profitability.
- Monitor collection or resolution of Hoactzin-related balances and completion of the bond and operator transfer.