Filing summary
Entity discrepancy: The request identifies Sow Good Inc., but the supplied filing is for Black Ridge Oil & Gas, Inc. (OTCQB: ANFC), an oil and gas company. This summary reflects the filing text, which reports the quarter ended June 30, 2015; the interim financial statements are unaudited.
Business context and reporting period
Black Ridge participates as a non-operating working-interest owner in oil and gas properties, primarily in the Bakken and Three Forks areas of North Dakota and Montana. At June 30, 2015, it reported 291 gross (8.96 net) producing wells, approximately 8,566 net acres, and average second-quarter production of 951 Boe per day excluding prior-period Dahl Federal production recognized in the quarter.
Financial and operating results
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 | Comparison |
|---|---|---|---|
| Oil and gas sales | $5.05 million | $7.94 million | Down 9% and 17%, respectively, from 2014 |
| Total revenue, including derivative results | $3.94 million | $8.33 million | Down 11% for the quarter; up about 3% for the half-year |
| Net loss | $18.67 million | $19.94 million | Compared with losses of $0.54 million and $0.92 million in 2014 |
| Net loss per share | $0.39 | $0.42 | Compared with $0.01 and $0.02 in 2014 |
| Cash from operations | Not provided for the quarter | $5.54 million | Up from $2.01 million |
| Cash used in investing | Not provided for the quarter | $12.57 million | Primarily oil and gas development spending |
Second-quarter production was 102,182 Boe including Dahl Federal production recognized from prior periods, up 57% year over year; excluding that recognition, production was 86,500 Boe, up 33%. For the first half, production was 191,490 Boe, up from 112,270 Boe. Realized price per Boe after settled derivatives fell 29% in the quarter and 37% for the six months. Production expense per Boe rose to $11.29 in the quarter and $11.19 for the half-year. G&A per Boe decreased to $7.15 and $8.04, respectively.
A $21.64 million non-cash ceiling-test impairment, driven by low commodity prices, was the main unusual expense. Six-month depletion was $5.57 million, compared with $3.72 million in 2014. Interest expense was $3.11 million for the half-year, versus $2.38 million. The company reported tax benefits of $5.96 million for the quarter and $6.59 million for the half-year, largely associated with pretax losses. Adjusted EBITDA, a non-GAAP measure, was $3.62 million for the quarter and $5.71 million for the half-year; the quarterly figure includes prior-period Dahl Federal activity.
Balance sheet, debt, and liquidity
At June 30, 2015, cash was $214,583, current assets were $7.36 million, and current liabilities were $10.26 million, resulting in negative working capital of $2.90 million. Total assets were $90.34 million, down from $108.40 million at year-end 2014, largely reflecting the impairment. Stockholders’ equity was $19.71 million, down from $39.34 million, and the company reported an accumulated deficit of $14.30 million.
Credit-facility borrowings totaled $61.69 million before discounts, or $60.03 million net on the balance sheet, up from $53.91 million gross at December 31, 2014. The senior facility had $29.75 million outstanding and $34 million of stated borrowing-base availability; the subordinated facility had $30 million outstanding, plus $1.94 million of capitalized PIK interest. The senior facility matures January 15, 2017; the subordinated facility matures June 30, 2017. Both are secured by company assets. The company said it complied with covenants as amended at June 30, but several financial covenants for the March and June 2015 quarters had been waived.
Six-month financing cash flow was $7.15 million, primarily net borrowing. Cash increased by $119,901 to $214,583. Management said it expected to fund the next 12 months through operating receipts, credit-facility draws, property sales, and potentially stock-related funding. The filing also states that 2015 revenue was not expected to exceed development investment and operating costs, while management believed the facilities would fund development plans through that period.
Material changes, outlook, risks, and unusual items
- Dahl Federal recognition: Following a North Dakota ownership ruling, the company recognized $1.30 million of oil and gas revenue and related costs in Q2 for production dating back to 2012, and capitalized $927,312 of well costs. This materially affects comparisons with prior periods.
- Impairment risk: Management expected further oil and gas property write-downs if commodity prices remained low. Future ceiling-test results also depend on production, reserves, development costs, and other factors.
- Hedging: At June 30, the company reported 286,500 barrels of open crude-oil swaps at a weighted average price of about $81.33 per barrel, plus collar positions. Derivatives reduce some downside exposure but also limit upside. The filing shows derivative assets totaling $5.99 million at June 30.
- Joint venture after quarter-end: On July 23, 2015, the company signed an agreement with a Merced Capital affiliate for a Williston Basin joint venture with an initial investment target of $50 million, subject to Merced approval. Black Ridge would manage assets and could earn fees and, after investor hurdles, a profit share; it also has an option to co-invest up to 25%.
- Other post-period debt activity: From July 1 to August 12, the company drew an additional $0.45 million net on the senior facility. Credit agreements were amended August 10, 2015.
- Reverse split: A reverse split of up to 1-for-10 had been approved by the board and stockholders, but the board had not made it effective as of the filing date.
- Key risks: Commodity-price volatility, access to capital, covenant compliance, hedging effectiveness, production and drilling outcomes, cost overruns, and the company’s low cash balance and negative working capital. Management reported no material litigation and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Confirm the issuer identity: the provided filing is Black Ridge Oil & Gas, not Sow Good Inc.
- Reconcile the derivative disclosures: the balance sheet and derivative note report $5.99 million of net derivative assets, while MD&A describes a $1.31 million net derivative liability for the six-month period; these appear to refer to different measures or contain an inconsistency.
- Review the covenant waivers, amended credit terms, borrowing-base availability, maturity dates, and requirements for future hedging.
- Assess whether commodity prices, reserves, and production could cause additional ceiling-test impairments, and the effect of hedges on realized cash receipts.
- Separate Dahl Federal prior-period revenue and costs from recurring operating performance, and evaluate the funding, approvals, and economics of the proposed Merced joint venture.