Filing summary
Filing identity: The supplied filing is Tengasco, Inc.’s Form 10-Q, not Riley Exploration Permian, Inc.’s. It reports the quarter ended March 31, 2018; investors should verify the issuer before relying on this summary. Financial amounts below are in thousands of dollars unless stated otherwise.
Business context and reporting period
Tengasco explores for and produces oil and natural gas, primarily in Kansas. The filing covers the three months ended March 31, 2018, compared with the same period in 2017. On January 26, 2018, the company sold its methane-facility assets, except for an applicable U.S. patent, for $2.65 million; those operations are reported as discontinued operations.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue from continuing operations | $1,367 | $1,209 |
| Operating income (loss), continuing operations | $118 | $(154) |
| Net income (loss), continuing operations | $133 | $(170) |
| Net income (loss), including discontinued operations | $1,243 | $(213) |
| Operating cash flow, continuing operations | $71 | $72 |
| Total operating cash flow | $138 | $(88) |
| Cash and cash equivalents at quarter-end | $2,916 | $185 at Dec. 31, 2017 |
| Total debt | $159 | $90 at Dec. 31, 2017 |
| Oil and gas properties, net | $4,570 | $4,720 at Dec. 31, 2017 |
Operating margin was approximately 8.6% in Q1 2018, versus approximately negative 12.7% in Q1 2017, based on reported continuing-operations revenue and operating income (loss). The filing reports diluted and basic continuing-operations earnings per share of $0.01, versus a loss of $0.02; total earnings per share were $0.11, versus a loss of $0.03.
At March 31, current assets were $4,341 and current liabilities were $591. The company had a $2.0 million borrowing base under its revolving credit facility and no facility borrowings outstanding. Separate vehicle installment debt was $159, including $56 current. Asset retirement obligations were $2,292. The filing reports compliance with credit covenants at quarter-end.
Material changes versus the prior comparable period
- Continuing revenue increased $158, or about 13%, while net oil sales volume declined from 26.0 thousand barrels to 23.7 thousand barrels. Management attributed the revenue increase primarily to the average realized oil price rising from $46.32 to $57.36 per barrel, partly offset by lower volumes.
- Continuing operations improved from a $170 loss to $133 income. Management cited higher revenue, lower production costs and taxes, lower depreciation, depletion and amortization, a gain on asset sales, and lower net interest expense.
- Total net income included $1,110 from discontinued operations, primarily reflecting a $1,157 gain on the methane-facility asset sale. The sale also generated $2,650 of discontinued-operations investing cash flow; thus, reported total earnings and cash generation were materially affected by this divestiture.
- Cash increased by $2,731 during the quarter, to $2,916, largely reflecting the divestiture proceeds. Continuing-operations operating cash flow was nearly unchanged year over year, at $71 versus $72.
- The revolving facility borrowing base was increased to $2.0 million and its maturity extended to July 31, 2020. The next borrowing-base review was scheduled for July 2018.
Outlook, risks, contingencies, and unusual items
- Management expected 2018 revenues and methane-sale proceeds to fund operating and general and administrative expenses and support covenant compliance. This is management’s expectation, not quantified earnings or production guidance. If funding proved insufficient, the company said it could draw on the facility, issue shares, or sell assets.
- Key exposures include oil-price volatility, natural production declines, drilling and development uncertainty, and the possibility that the lender reduces the borrowing base. No commodity or interest-rate derivative positions were open at quarter-end.
- The company disclosed potential operational and other claims raised in a 2015 Hoactzin Partners analysis and said discussions toward a possible negotiated resolution continued. It stated that it was not party to a pending material legal proceeding. The prior BSEE civil penalty of $386,000 had been paid in 2015.
- A $159 related-party receivable from Hoactzin was fully reserved; the filing says the amount had remained unpaid since 2012 and was not expected to increase.
- Compensation reductions in place since 2015 totaled approximately $421 through March 31, 2018. The reductions may be restored if the specified trailing WTI price reaches $70 per barrel, and prior reductions may be reimbursed if it reaches $85; no liability was accrued for potential reimbursement.
- The company adopted the new revenue-recognition standard on January 1, 2018, using the modified retrospective method, with no reported impact on results or cash flows. It was evaluating the balance-sheet impact of the upcoming lease standard.
Important facts for investors to verify
- Confirm the issuer: the source filing is for Tengasco, Inc., despite the request metadata naming Riley Exploration Permian, Inc.
- Review the methane-asset sale terms, proceeds, gain, and discontinued-operations presentation; the sale drove much of reported total profit and cash growth.
- Assess continuing-operations cash generation, declining oil volumes, and the sustainability of production and realized prices.
- Check the July 2018 borrowing-base review, facility availability, and continued compliance with covenants.
- Review the status and potential financial exposure of the Hoactzin-related matters and the fully reserved related-party balance.