Filing summary: Tengasco, Inc. — Form 10-Q
Identity note: The filing provided is for Tengasco, Inc., not Riley Exploration Permian, Inc. It covers the unaudited quarter and nine months ended September 30, 2012; comparative periods are 2011.
Business context and financial results
Tengasco explores for and produces oil and natural gas, primarily in Kansas and Tennessee. Subsidiaries operate a Tennessee gas pipeline and a landfill-methane project. Unless otherwise noted, amounts below are in millions of dollars.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $5.813 | $4.357 | $16.009 | $12.804 |
| Operating income | $2.132 | $1.649 | $5.545 | $4.415 |
| Net income | $1.219 | $1.186 | $3.179 | $2.517 |
| Diluted EPS | $0.02 | $0.02 | $0.05 | $0.04 |
| Operating margin | 36.7% | 37.8% | 34.6% | 34.5% |
| Net margin | 21.0% | 27.2% | 19.9% | 19.7% |
At September 30, 2012, cash was $0.060 million, current assets $3.565 million, and current liabilities $2.127 million (current ratio about 1.68). Total debt was $11.620 million, including $11.388 million under the revolving facility; total liabilities were $15.706 million. Stockholders’ equity was $33.346 million.
Nine-month operating cash flow was $7.407 million, investing cash outflow $7.158 million, and financing cash outflow $0.257 million. Net additions to oil and gas properties were $7.700 million. Cash declined $0.008 million from year-end 2011.
Changes versus prior periods
- Q3 revenue rose 33% year over year, while net income increased modestly from $1.186 million to $1.219 million. Nine-month revenue increased 25% and net income rose about 26%.
- Management attributed revenue growth mainly to higher Kansas oil volumes: net sales were 170 MBbl for the first nine months versus 139 MBbl in 2011. Average Kansas oil price increased slightly, to $88.58 per barrel from $88.22.
- Costs increased: nine-month production costs and taxes rose to $5.575 million, DD&A to $2.643 million, and G&A to $2.246 million. Higher production and depletion contributed to DD&A; G&A included a $0.238 million allowance for overdue Hoactzin-related receivables.
- Derivative results were less favorable: the company reported a $0.140 million nine-month derivative loss in 2012 versus a $0.114 million gain in the income statement in 2011. The 2011 period also included settlement losses described in the filing.
Outlook, risks, and unusual items
- No formal earnings or production guidance is provided. Management cautions that interim results are not necessarily indicative of full-year results.
- The F&M Bank borrowing base was reduced from $23 million to $21.5 million in September 2012; $11.4 million was drawn. The facility rate was 5.25%, and the next borrowing-base review was expected in March 2013. The company was in covenant compliance at quarter-end, but warned that a future borrowing-base reduction could require repayment.
- Commodity-price volatility, production and reserve estimates, drilling outcomes, and access to capital are key risks. A $65-per-barrel oil-price floor hedge covered 10,000 barrels monthly through December 2012; the methane-gas sales contract ran through July 2014.
- The company received approximately $1.0 million under the federal Section 1603 program for its methane facilities. It stated that recapture was not anticipated, but the award is subject to specified conditions.
- As designated operator for Hoactzin properties, Tengasco appealed a $386,000 BOEM civil penalty related to late contractor reporting. The company said it was not at fault, posted a collateralized appeal bond, and estimated possible payment from zero to $386,000.
- Hoactzin had not paid overdue vendor balances; Tengasco recorded a $0.238 million allowance against the related-party receivable. The related management agreement was due to end no later than December 2012.
- Management concluded disclosure controls were adequate and effective; no material change in internal control over financial reporting was reported. The filing lists no other legal proceedings.
Important facts for investors to verify
- Confirm the issuer: this source is Tengasco, Inc., not Riley Exploration Permian, Inc.
- Review the status and outcome of the BOEM penalty appeal and whether any payment or additional cost was recorded.
- Check the March 2013 borrowing-base review, covenant compliance, and any repayment requirements.
- Assess collectability of Hoactzin receivables and the consequences of the management agreement’s expiration.
- Verify production, commodity pricing, reserve assumptions, and the effect of the expiring oil hedge on future cash flow.