Business context and reporting period
Important filing-identity discrepancy: The request identifies Riley Exploration Permian, Inc., but the supplied Form 10-Q is for Tengasco, Inc. It reports the unaudited quarter ended March 31, 2016; confirm the filing belongs to the intended company before relying on this summary.
Tengasco explores for and produces oil and natural gas, primarily in Kansas, and operates a methane-treatment facility in Tennessee. Financial amounts below are in thousands of dollars unless otherwise stated.
Financial results and position
| Metric | Q1 2016 | Q1 2015 / prior balance-sheet date |
|---|---|---|
| Total revenue | $932 | $1,634 |
| Operating loss | $(1,384) | $(854) |
| Net loss | $(1,404); $(0.23) per share | $(515); $(0.08) per share |
| Operating cash flow | $(1,071) | $340 |
| Capital expenditures / investing cash flow | $301 used | $377 used |
| Cash at period end | $27 | $40 at December 31, 2015 |
| Total debt | $2,394 | $1,011 at December 31, 2015 |
| Total assets / stockholders’ equity | $11,370 / $6,058 | $11,993 / $7,460 at December 31, 2015 |
Oil-and-gas revenue was $782, down from $1,518; methane-facility revenue was $150, up from $116. The filing reports no methane gas sales in either quarter. Production costs and taxes were $839, depreciation, depletion and amortization (DD&A) was $336, and general and administrative expense was $500. A $641 noncash oil-and-gas property impairment was recorded in Q1 2016; none was recorded in Q1 2015.
Current assets were $1,422 and current liabilities were $757 at March 31, 2016. The $2,234 asset retirement obligation is a significant additional long-term obligation. Cash from financing was $1,359, including $1,850 of borrowing proceeds and $491 of repayments; the quarter ended with $27 in cash.
Changes versus the prior comparable period
- Revenue fell $702 (about 43%). Management attributed the oil revenue decline mainly to a lower average realized oil price—$27.67 per barrel versus $42.30—and lower net sales volume, 27.8 MBbl versus 35.6 MBbl.
- Net loss increased by $889. The impairment and a $331 reduction in the income tax benefit contributed to the deterioration; lower DD&A, production costs and taxes, and G&A partly offset it.
- Operating cash flow swung from $340 provided to $1,071 used, with working capital using $683, including reductions in accounts payable and higher receivables.
- Total debt rose from $1,011 at year-end to $2,394 at quarter-end. The company also completed a 1-for-10 reverse stock split in March 2016; comparative per-share figures were adjusted for the split.
Outlook, risks and unusual items
- Credit facility: On March 28, 2016, Prosperity Bank reduced the borrowing base from $7.8 million to approximately $3.2 million and extended maturity to January 30, 2018. About $2.2 million was drawn at quarter-end. The rate was 4.00%; the next borrowing-base review was scheduled for August 2016. The amendment changed covenants and waived specified defaults; Tengasco reported covenant compliance at March 31.
- Liquidity and commodity exposure: Management warned that prolonged low oil prices or a lower borrowing base could require repayment, constrain operations and capital spending, or lead the company to seek additional capital. No commodity or interest-rate derivatives were open at quarter-end.
- Impairment outlook: The company said low oil prices may result in an additional oil-and-gas impairment in Q2 2016. This is a forward-looking statement, not a recorded Q2 charge.
- Cost actions: Personnel reductions were expected to produce approximately $125 per quarter in future savings, potentially reduced by contractor or consultant costs. Compensation reductions remained tied to WTI price thresholds; approximately $124 had accumulated at March 31 and was not accrued as a liability.
- Contingencies and related parties: Tengasco had paid a $386 civil penalty and related interest in 2015 after unsuccessful appeals concerning its former operator role on Hoactzin properties. It was discussing possible operational and other claims raised in a Hoactzin internal analysis. Three of four RUE bonds issued in Tengasco’s name were still awaiting formal release, although the company said release had been requested. A $159 Hoactzin-related receivable was fully allowed for as doubtful; the corresponding payable remained recorded.
- Controls: The filing describes a material weakness in review of the quarterly oil-and-gas ceiling-test calculation and says a process to address it was implemented during the quarter. It also contains conflicting statements: an initial passage calls disclosure controls adequate, while the material-weakness discussion concludes they were not adequate and effective at period-end. Clarification is warranted.
- The filing provides no formal revenue or earnings guidance. Management cautioned that Q1 results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether this Tengasco filing is the intended filing, given the Riley Exploration Permian metadata.
- The August 2016 borrowing-base outcome, available facility headroom, and any resulting repayment requirements.
- Progress on the ceiling-test control remediation and the status of any subsequent impairment.
- The status and potential exposure from Hoactzin-related claims and release of the remaining RUE bonds.
- Cash needs and operating plans if commodity prices remain low, in light of negative operating cash flow and only $27 of quarter-end cash.