Filing summary
Issuer discrepancy: The request identifies Riley Exploration Permian, Inc., but the supplied Form 10-Q is for Tengasco, Inc. This summary reflects the filing text, not the requested company. The filing covers the quarter and six months ended June 30, 2012; financial statements are unaudited.
Business context and reporting period
Tengasco explores for and produces oil and natural gas, primarily in Kansas and Tennessee. Its subsidiaries operate a 65-mile Tennessee gas pipeline and a landfill-methane processing and delivery project. The company reported 60,787,413 common shares outstanding as of August 6, 2012.
Financial performance and position
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | $5.23 million | $10.20 million | $4.79 million and $8.45 million |
| Operating income | $1.72 million | $3.41 million | $1.72 million and $2.77 million |
| Net income | $1.09 million | $1.96 million | $0.98 million and $1.33 million |
| Net income per share, diluted | $0.02 | $0.03 | $0.02 in both periods |
| Operating cash flow | Not separately presented | $3.91 million | $3.74 million for six months |
Quarterly operating margin was approximately 32.9% (2011: 36.0%); six-month operating margin was approximately 33.5% (2011: 32.7%). Six-month net margin was approximately 19.2%, versus 15.8% a year earlier.
For the six months, investing activities used $6.25 million, including $6.79 million of net oil-and-gas property additions, partly offset by a $1.00 million federal methane-facility payment. Financing activities provided $2.33 million. Cash declined by $8,000 to $60,000; the company also reported $121,000 of restricted cash.
At June 30, total assets were $50.41 million, total liabilities $18.29 million, and stockholders’ equity $32.11 million. Current assets were $3.81 million against current liabilities of $2.12 million. Long-term debt, including current maturities, totaled $14.26 million; the F&M Bank facility accounted for $13.94 million. The company reported compliance with facility covenants.
Material changes versus prior comparable periods
- Six-month revenue rose 21% to $10.20 million, mainly as net oil sales increased 18 thousand barrels, from 88 to 106 thousand barrels. Kansas oil prices averaged $90.57 per barrel versus $91.57.
- Six-month net income rose to $1.96 million from $1.33 million. Higher sales volumes and methane-project revenue contributed; production costs and taxes and depreciation, depletion, and amortization also increased.
- Second-quarter revenue increased about 9%, but operating income was essentially unchanged: higher production costs and DD&A largely offset increased revenue.
- Oil-and-gas properties, net, increased to $25.51 million from $20.21 million. Long-term debt increased to $14.26 million from $11.80 million at year-end 2011.
- The borrowing base was increased from $20 million to $23 million in March 2012, and the facility maturity was extended to January 27, 2014. The next borrowing-base review was scheduled for August 2012.
Outlook, risks, contingencies, and unusual items
- No quantified earnings or production guidance is provided. Management cautioned that extended low commodity prices or operating losses could require spending reductions or additional working capital, potentially including equity issuance.
- Borrowing-base reductions could require repayment if facility borrowings exceed the revised base, limiting funds for capital spending and potentially creating default risk. The facility was drawn by $13.9 million against a $23 million base at quarter-end.
- Oil and gas prices, production estimates, drilling outcomes, reserve assessments, and development costs are significant uncertainties. The company hedged 10,000 barrels of oil per month at a $65-per-barrel floor through December 2012, with no price cap; open hedge fair value was a $37,000 asset. Its methane-gas sales contract at over $6 per MMBtu runs through July 2014.
- In June, the company received a $1.0 million Section 1603 payment for its methane facilities. The filing says recapture may apply in specified circumstances during the five-year post-award period, though management did not anticipate recapture. The payment reduces the project’s book carrying amount by the full payment and its tax basis by half.
- Related-party arrangements involve Hoactzin Partners, whose controlling person was Tengasco’s board chairman. Tengasco guaranteed bonding liabilities associated with Hoactzin-operated offshore properties under bonds of approximately $10.7 million; Hoactzin provided $6.6 million of collateral to IndemCo, and a related fund co-signed the indemnity. Hoactzin-related vendor payables and matching receivables were each $166,000 at quarter-end. No methane-project net profits had been paid to Hoactzin through June 30, 2012.
- The filing reports no legal proceedings and no material changes to internal controls; management concluded disclosure controls were adequate and effective.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is Tengasco, Inc., not Riley Exploration Permian, Inc.
- Review the August 2012 borrowing-base determination and subsequent facility availability, covenants, and repayment requirements.
- Assess whether oil production growth and methane-project revenue can continue to cover operating costs, capital spending, and debt service, given very low cash on hand.
- Examine the related-party bonding and indemnity arrangements, including the scope of Tengasco’s contingent exposure and adequacy of collateral.
- Confirm the duration, economics, and counterparty terms of the oil hedge and methane-gas sales contract, and any conditions that could trigger grant recapture.