Filing summary
Entity and period: The supplied filing is Tengasco, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2012—not a filing for Riley Exploration Permian, Inc. The summary below reflects the filing provided. Amounts are in millions of dollars unless stated otherwise.
Business context and reporting period
Tengasco explores for and produces oil and natural gas, primarily in Kansas and Tennessee. It also operates a 65-mile natural gas pipeline and a landfill-methane project. The quarter’s results are not necessarily indicative of full-year results.
Financial results and position
- Revenue: $4.966 million, up 36% from $3.662 million in Q1 2011. Net Kansas oil sales volume rose to 48.6 thousand barrels from 40.1 thousand; average Kansas oil price increased to $96.08 per barrel from $86.93.
- Profit: Operating income was $1.692 million versus $1.044 million; net income was $0.873 million versus $0.354 million. Basic and diluted earnings per share were $0.01 in both periods.
- Margins: Operating margin was approximately 34% versus 29%; net margin was approximately 18% versus 10%.
- Costs: Production costs and taxes were $1.762 million (prior year $1.524 million); depreciation, depletion and amortization was $0.753 million ($0.572 million); general and administrative expense was $0.759 million ($0.522 million). Interest expense was $0.187 million ($0.145 million).
- Cash flow: Operating cash flow was $0.812 million, down from $1.675 million. Investing cash outflow was $2.827 million, including $2.478 million for oil and gas properties and $0.345 million for the methane project. Financing cash inflow was $2.008 million. Cash declined $7,000 to $61,000.
- Liquidity and debt: Current assets were $4.804 million and current liabilities $2.892 million, for working capital of $1.912 million. Total debt was $13.840 million, including $13.595 million drawn on the revolving facility; total debt at year-end was $11.797 million. Total liabilities were $18.603 million.
- Other balance-sheet items: Total assets were $49.594 million, versus $45.999 million at December 31, 2011. Inventory increased to $2.080 million from $0.823 million, mainly equipment and materials. Stockholders’ equity was $30.991 million.
Material changes versus Q1 2011
- Revenue and income rose primarily due to higher oil volumes and prices, plus increased methane-project revenue.
- Operating cash flow fell by $0.863 million, principally because of inventory and receivables growth; the company reported a $1.4 million working-capital cash use.
- Capital investment increased, including spending on the methane project, while borrowing proceeds also increased.
- On March 14, the lender raised the borrowing base from $20 million to $23 million and extended facility maturity to January 27, 2014. The rate remained the greater of prime plus 0.25% or 5.25%; it was 5.25% at quarter-end.
Outlook, risks and unusual items
- The next borrowing-base review was scheduled for June 2012. The company warned that lower commodity prices or reserve estimates could reduce the borrowing base and potentially require repayment; it gave no specific earnings or production guidance.
- The company cited volatile oil and gas prices, production and drilling uncertainty, cost overruns, and reserve-estimate sensitivity. It warned that prolonged low prices could impair cash generation, capital spending and continued operations.
- A $65-per-barrel oil-price floor covered 10,000 barrels per month through December 2012, approximately half of oil production, with no price cap. The derivative had a $21,000 fair-value asset at March 31; the company recorded a $121,000 derivative loss in Q1 2012.
- The methane project had generated no net profits for Hoactzin under its contractual net-profits interest through March 31, 2012. The filing also describes related-party arrangements with Hoactzin, whose controlling person is the company’s board chairman.
- Tengasco guaranteed certain offshore plugging and abandonment bonding obligations associated with Hoactzin-operated properties. The bonds totaled approximately $10.7 million; Hoactzin had provided $6.6 million in collateral. The filing does not state that a payment was due.
- Management reported compliance with credit-facility covenants, effective disclosure controls, and no material change in internal controls. No legal proceedings were reported.
Most important facts to verify
- Confirm the issuer: the provided filing identifies Tengasco, Inc., whereas the request names Riley Exploration Permian, Inc.
- Review the June 2012 borrowing-base determination, facility availability, covenants and any repayment requirements.
- Assess whether increased inventory converts to sales and whether operating cash flow can support planned capital spending.
- Check oil-price, production and reserve assumptions, including exposure not covered by the oil-price floor.
- Monitor the methane project’s economics and the status and potential exposure of the Hoactzin-related bonding guarantee.