Filing summary
Entity mismatch: The request identifies Riley Exploration Permian, Inc., but the supplied filing is Tengasco, Inc.’s Form 10-K. The summary below describes Tengasco, Inc.; verify the issuer before relying on it.
Business context and reporting period
The filing covers the fiscal year ended December 31, 2016, with fourth-quarter data also presented. Tengasco was primarily a Kansas oil producer, with a Tennessee landfill-methane facility generating electricity. Its oil and gas production, reserves, and future development objectives were concentrated in Kansas.
Key financial and operating metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $4.672 million | $6.164 million |
| Net loss | $4.199 million | $24.721 million |
| Operating cash flow | $(1.012) million | $0.482 million |
| Investing cash flow | $(0.401) million | $(0.541) million |
| Financing cash flow | $1.449 million | $0.064 million |
| Cash at year-end | $76,000 | $40,000 |
| Debt at year-end | $2.502 million | $1.011 million |
| Oil production, net | 107.0 MBbl | 129.1 MBbl |
| Average oil sales price | $37.53/Bbl | $42.66/Bbl |
| Proved oil reserves | 730 MBbl | 877 MBbl |
| 10% discounted proved-reserve value | $5.815 million | $8.287 million |
2016 revenue comprised $4.113 million from oil and gas properties and $559,000 from the methane facility’s electricity sales. Production costs and taxes were $3.421 million; depreciation, depletion and amortization was $1.139 million; general and administrative expense was $1.405 million; and impairment expense was $2.805 million. The filing reports no methane-gas sales in 2014–2016. The December 31, 2016 balance sheet showed total assets of $8.538 million, total liabilities of $5.260 million, and stockholders’ equity of $3.278 million.
Fourth-quarter 2016 revenue was $1.216 million and net loss was $260,000, or $0.04 per share. The filing reports no dividends in 2016 or 2015.
Material changes versus the prior comparable period
- Revenue fell $1.492 million year over year. Management attributed approximately $555,000 of the decline to lower oil prices and approximately $961,000 to lower oil sales volumes; natural production declines were a principal factor.
- Net loss narrowed from $24.721 million to $4.199 million. The 2015 loss included $14.526 million of impairment and a $7.351 million deferred-tax expense; 2016 included $2.805 million of impairment and no income-tax expense.
- Net oil production declined from 129.1 MBbl to 107.0 MBbl, and proved reserves fell from 877 MBbl to 730 MBbl. The reserve report used an oil price of $37.35/Bbl for 2016 versus $43.98/Bbl for 2015; the filing cites lower prices as the primary factor in reserve-volume reductions.
- Operating cash flow shifted from positive $482,000 to negative $1.012 million. Credit-facility borrowings rose to $2.4 million at year-end from $869,000 a year earlier.
Outlook, risks, contingencies, and unusual items
- Management stated it believed 2017 revenue would cover operating and general and administrative expenses and support compliance with bank covenants. This is a qualified outlook, not quantified earnings or production guidance. The company said it could draw on the amended facility, issue shares, or sell assets if additional funds were needed.
- After year-end, a February 2017 rights offering raised approximately $2.7 million through issuance of 4,498,698 shares, primarily to repay the Prosperity Bank facility. The company reported no facility borrowings as of March 30, 2017. The March 2017 amendment reduced the borrowing base from $3.0 million to approximately $1.25 million and extended the facility to July 31, 2018.
- The company was out of compliance with its minimum-liquidity covenant at December 31, 2016 and received a lender waiver in March 2017; it also received a waiver for an anticipated debt-to-equity covenant default. Its capital raising materially increased shares outstanding and included substantial participation by directors, management, and affiliates.
- Key risks include volatile oil prices, declining production and reserves, further full-cost ceiling impairments, limited liquidity and access to capital, dependence on a small number of customers, and environmental, regulatory, plugging and abandonment obligations. The company had no open commodity derivatives at year-end.
- A Texas breach-of-contract lawsuit seeks approximately $188,000 plus fees and interest. Tengasco denied involvement in the underlying contract and reported that Hoactzin agreed to indemnify it; trial was set for October 2017, subject to change.
- The company reported a $159,000 related-party receivable from Hoactzin, fully reserved because the past-due balance had not been reduced since 2012. Hoactzin is controlled by the company’s chairman, who also controls the largest shareholder.
- A rights plan adopted in March 2017 was intended to protect tax-loss carryforwards from ownership-change limitations. The filing gives differing NOL figures in separate disclosures: approximately $26.4 million of federal NOL carryforwards in the financial-statement notes and approximately $28.2 million of cumulative NOL carryforwards in the subsequent-event disclosure.
Most important facts for investors to verify
- Confirm that Tengasco, Inc.—not Riley Exploration Permian, Inc.—is the intended issuer and that the fiscal-year filing is the intended period.
- Review the rights offering’s final terms, share dilution, current shares outstanding, and use of proceeds; compare these with the March 2017 debt payoff and revised borrowing base.
- Assess whether operating cash generation can cover costs and capital needs as production and proved reserves decline; review subsequent reserve and impairment disclosures.
- Verify the status and potential financial exposure of the Offshore Oilfield Services litigation and any other Hoactzin-related claims or recoveries.
- Reconcile the filing’s NOL amounts and assess the rights plan’s effect on ownership, tax benefits, and potential dilution.