Riley Exploration Permian, Inc. quarterly report, Q2 FY2016

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Filing summary

Entity and period: The supplied filing is Tengasco, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016, not Riley Exploration Permian, Inc. The filing describes oil and gas operations primarily in Kansas and a methane facility in Tennessee. Financial amounts below are in thousands of dollars unless noted.

Financial performance and position

  • Revenue: Second-quarter 2016 revenue was $1,282, down 32% from $1,899 in the prior-year quarter. First-half revenue was $2,215, down 37% from $3,533. Oil and gas revenue fell to $1,895 from $3,270 in the first half; methane-facility revenue increased to $320 from $263.
  • Profit and margins: Net loss was $1,627 ($0.27 per share) in Q2 2016, versus $76 ($0.01 per share) in Q2 2015. First-half net loss was $3,031 ($0.50 per share), versus $591 ($0.10 per share). The filing reports operating losses of $1,602 for Q2 and $2,986 for the first half. No margin percentages are stated.
  • Cash flow: First-half operating cash flow was negative $1,065, compared with positive $436 in 2015. Investing cash use was $327, while financing provided $1,418, primarily reflecting borrowing. Cash increased $26 to $66.
  • Liquidity and debt: At June 30, cash was $66 and current assets were $1,518 versus current liabilities of $661. Total debt was approximately $2,437, including $2,304 net under the Prosperity Bank facility and $133 of vehicle installment notes. The facility’s borrowing base was approximately $3,200, with about $2,300 drawn; its rate was 4.00% and stated maturity January 30, 2018. Total liabilities were $5,283.
  • Balance sheet: Total assets were $9,720, down from $11,993 at year-end 2015; stockholders’ equity was $4,437, down from $7,460. Oil and gas properties were $6,450, including $552 of unevaluated properties. Asset retirement obligations were $2,246.

Material changes and drivers

  • First-half oil sales fell to 55.5 thousand net barrels from 69.6 thousand. The average realized oil price declined to $33.75 per barrel from $46.64. Management attributed the oil revenue decline to both lower prices and lower sales volumes.
  • The company recorded oil and gas ceiling-test impairments of $1,445 in Q2 and $2,086 in the first half; it recorded none in the comparable 2015 periods. Management linked these charges to low oil prices.
  • First-half production costs and taxes declined to $1,681 from $2,094, and general and administrative expense declined to $786 from $972, including savings from personnel reductions. DD&A declined to $648 from $1,434.
  • Long-term debt increased from $1,011 at year-end 2015 to $2,437 at June 30, 2016, reflecting increased facility borrowing despite repayments.

Outlook, risks, and contingencies

  • No specific revenue, earnings, or production guidance is provided. Management said it anticipated possible additional oil and gas property impairment in Q3 2016.
  • The bank reduced the borrowing base from $7.8 million to approximately $3.2 million in March 2016. The company was in default of its debt-to-tangible-net-worth covenant at June 30; on August 10, 2016, the lender waived the Q2 default and anticipated Q3 default. Management said it was considering additional capital-raising measures and expected covenant compliance for Q4, but that outcome was not assured.
  • Management warned that a further borrowing-base reduction could require repayment and constrain capital spending. It also said prolonged low commodity prices or operating losses could threaten continued normal operations and might require further cost reductions or equity financing.
  • The company reported no open commodity or interest-rate derivatives. Kansas oil prices received during the first half ranged from $24.50 to $43.02 per barrel.
  • A $386 civil penalty related to a BSEE compliance matter was paid in 2015 after appeals. The company also disclosed potential operational and other claims raised in a Hoactzin internal analysis; discussions toward a possible negotiated resolution were ongoing. A $159 related-party receivable was fully reserved.
  • Employee and director compensation reductions totaled approximately $162 as of June 30, 2016; the company had not accrued a liability for them. The filing says reductions may be reversed if specified WTI price thresholds are reached, with prior reductions potentially reimbursed at a higher threshold.
  • Management reported that disclosure controls were adequate and effective at June 30, 2016. A prior weakness in review of the quarterly ceiling-test calculation was addressed with a process change in Q1 2016.

Important facts to verify

  1. Issuer identity: Confirm the intended company and filing. The request names Riley Exploration Permian, Inc., while the supplied 10-Q identifies Tengasco, Inc.
  2. Confirm the lender’s borrowing-base redetermination and covenant-waiver terms, and the company’s ability to meet debt and liquidity needs.
  3. Review the assumptions behind oil and gas reserves, the ceiling-test impairments, and the possibility of further impairment.
  4. Assess whether Hoactzin-related claims or other contingent obligations have changed since the filing.