Filing summary
Issuer identity: The supplied filing is for Tengasco, Inc., not Riley Exploration Permian, Inc. Confirm that this is the intended filing before relying on the figures below.
Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2013. Tengasco explored for and produced oil and natural gas, primarily in Kansas, and operated a methane project. It completed the sale of its Tennessee Swan Creek and pipeline assets on August 16, 2013; the pipeline sale was reported as a discontinued operation. Financial amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $4.034 | $5.806 | $12.219 | $15.990 |
| Income from continuing operations | $0.535 | $1.279 | $2.318 | $3.385 |
| Net income, including discontinued operations | $0.481 | $1.219 | $2.190 | $3.179 |
| Operating income | $1.340 | $2.231 | $4.448 | $5.886 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $6.574 | $7.407 |
Continuing-operations net margin was approximately 13.3% in Q3 2013 versus 22.0% in Q3 2012, and 19.0% for the first nine months of 2013 versus 21.2% in the comparable 2012 period. These are calculations from reported figures.
- At September 30, 2013, cash was $19,000; current assets were $2.893 million and current liabilities were $1.652 million, implying working capital of $1.241 million.
- Total debt was approximately $3.189 million, including $3.032 million under the bank facility; long-term debt, net of current maturities, was $3.112 million. Total debt was $10.346 million at December 31, 2012.
- Total assets were $38.866 million and stockholders’ equity was $32.290 million. The deferred tax asset was $7.460 million.
- Nine-month investing activities provided $0.664 million, including $1.395 million of investing cash flow from discontinued operations; capital additions to oil and gas properties were $0.836 million. Financing activities used $7.250 million, chiefly as borrowings were repaid.
Material changes versus the prior comparable period
- Q3 revenue fell 30.5% year over year, while nine-month revenue fell 23.6%. Management attributed the declines principally to lower Kansas oil sales volumes. Q3 Kansas volume was down 26 MBbl; nine-month net sales were 126 MBbl versus 170 MBbl.
- Higher oil prices partly offset volume declines: average Kansas oil price was $99.01 per barrel in Q3 2013 versus $85.30 in Q3 2012, and $91.00 versus $88.58 for the nine-month periods.
- Q3 continuing-operations income declined to $0.535 million from $1.279 million; nine-month continuing-operations income declined to $2.318 million from $3.385 million.
- Nine-month operating cash flow decreased by $0.833 million. Oil-and-gas-property additions were substantially lower than in 2012, and the company used cash flow to reduce bank borrowings. Debt fell by about $7.157 million from year-end 2012.
- The company increased its tax valuation allowance by $0.350 million after concluding it could not use certain Tennessee tax attributes following the asset sale. The allowance totaled $0.950 million.
Outlook, risks, contingencies and unusual items
- No quantified earnings or production guidance was provided. Management cautioned that prolonged low commodity prices or operating losses could affect operations and liquidity and could require cost reductions or additional capital, including equity financing.
- After quarter-end, the bank reduced the borrowing base from $20.5 million to $17.5 million, effective October 24, 2013, and changed the interest rate to prime plus 0.50%. The next borrowing-base review was scheduled for March 2014. The company reported covenant compliance at September 30, 2013.
- The credit facility is secured by substantially all producing and non-producing oil and gas properties and methane project assets. A further borrowing-base reduction could require repayment and constrain capital spending; the company said it could not assure continued normal operations under extended low-price conditions.
- A $0.386 million BOEM civil penalty appeal related to a Hoactzin-operated well remained unresolved. Restricted cash collateralized the appeal bond; management believed it would prevail but said the penalty might not be substantially reduced. The stated possible payment range was zero to $0.386 million.
- Related-party exposure includes Hoactzin-associated vendor payables and receivables, and the company remained operator of record on certain Hoactzin properties while working to transfer operatorship and bonding obligations. It had suspended $0.257 million in payments pending the transition.
- MMC’s five-year fixed-price gas contract, priced at over $6 per MMBtu, was scheduled to end July 31, 2014. The company reported no open derivative positions at September 30, 2013.
- The company reported disclosure controls as adequate and effective, while noting that the CFO was also serving as interim CEO following the CEO’s resignation.
Important facts for investors to verify
- Confirm the issuer and filing match the intended company: this document names Tengasco, Inc., not Riley Exploration Permian, Inc.
- Review the October 24 borrowing-base and interest-rate amendment, covenant requirements, and potential effects of the March 2014 redetermination.
- Assess the sustainability of Kansas production and volumes, methane-facility downtime, and the expiration of the fixed-price gas contract.
- Check the outcomes of the BOEM penalty appeal and the transfer of Hoactzin well operatorship, vendor obligations, and bonding liabilities.
- Evaluate the realizability of deferred tax assets and the effect of the Tennessee asset sale on future earnings and cash flows.