Riley Exploration Permian, Inc. quarterly report, Q2 FY2013

Full document

Business context and reporting period

The supplied filing is Tengasco, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013, not a filing identified as Riley Exploration Permian, Inc. Tengasco explores for and produces oil and natural gas, primarily in Kansas and Tennessee, and operates a methane project in Tennessee.

Financial results and liquidity

Amounts below are in millions of dollars unless otherwise noted.

  • Second quarter: Revenue was $3.871 million, down 26% from $5.222 million. Operating income was $1.472 million versus $1.828 million; continuing-operations income was $0.805 million ($0.01 per share) versus $1.152 million ($0.02 per share). Net income, including discontinued operations, was $0.772 million versus $1.087 million.
  • First half: Revenue was $8.185 million, down 20% from $10.184 million. Continuing-operations income was $1.784 million ($0.03 per share) versus $2.106 million ($0.03 per share); net income was $1.710 million versus $1.960 million.
  • Drivers and costs: First-half Kansas oil sales net to Tengasco declined to 87 MBbl from 106 MBbl; average Kansas oil price fell to $87.43/bbl from $90.57/bbl. Lower production costs, G&A, and interest partly offset lower revenue. Second-quarter G&A included a $98,000 reversal of bad-debt expense on a related-party receivable.
  • Cash flow: First-half operating cash flow was $4.220 million, compared with $3.911 million. Investing used $0.322 million versus $6.250 million; financing used $3.777 million versus providing $2.331 million. Cash was $0.152 million at June 30, up from $0.031 million at year-end; restricted cash was $0.507 million.
  • Balance sheet and debt: Current assets were $3.231 million and current liabilities $1.386 million. Total debt was $6.639 million, including $6.482 million on the revolving facility, down from total debt of $10.346 million at December 31, 2012. The facility’s $20.5 million borrowing base was subject to an August 2013 review; the company reported covenant compliance.

Material changes, outlook, and risks

  • Lower Kansas oil volumes were the main cause of the revenue decline; reduced capital spending helped drive a $3.6 million reduction in facility borrowings. The company spent $0.385 million on oil and gas property additions in the first half, compared with $6.792 million in the prior-year period.
  • Tengasco had agreed to sell its Swan Creek and pipeline assets for $1.5 million. Regulatory and easement approvals and due diligence were reported complete; management anticipated closing by August 16, 2013. The pipeline, carried at $1.4 million, was classified as held for sale. No specific earnings or production guidance was provided.
  • Management warned that low commodity prices or reserve revisions could reduce the lender’s borrowing base and potentially require repayment. The next borrowing-base review was scheduled for August 2013. Oil and gas prices were volatile; the methane gas sales contract at a fixed price above $6/MMBtu ran through July 31, 2014.
  • A $386,000 BOEM civil penalty concerning a Hoactzin-operated well was under appeal and fully collateralized. The company estimated a possible payment of $0–$386,000 and believed it would prevail, while acknowledging payment remained reasonably possible.
  • Related-party exposure includes past-due Hoactzin vendor balances; $371,000 was recorded in other accounts payable and the related-party receivable was reported net of a $159,000 allowance. Tengasco also remained jointly and severally liable under a bonding indemnity agreement, although Hoactzin had provided $6.6 million of collateral to IndemCo. CEO Jeffrey Bailey resigned June 28, 2013; CFO Michael Rugen became interim CEO. Management stated disclosure controls were effective.

Important facts to verify

  1. Confirm issuer identity: the supplied document names Tengasco, Inc., whereas the request identifies Riley Exploration Permian, Inc.
  2. Check whether the $1.5 million Swan Creek and pipeline sale closed as anticipated and confirm final proceeds and accounting.
  3. Review the outcome of the August 2013 borrowing-base review and any resulting repayment or covenant requirements.
  4. Track the BOEM appeal, related-party receivable collection, and transfer of Hoactzin operating and bonding responsibilities.
  5. Assess production, realized prices, and liquidity after the reported decline in Kansas oil volumes and low cash balance.