Business context and reporting period
The supplied filing is Tengasco, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011—not a filing identified as Riley Exploration Permian, Inc. The issuer discrepancy should be resolved before attributing these results. Tengasco explores for and produces oil and natural gas, primarily in Kansas and Tennessee, and operates a pipeline and a landfill-methane project.
Financial results and position
Amounts below are in millions of dollars except per-share data, production volumes, and percentages.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $4.785 | $3.291 | $8.447 | $6.142 |
| Operating income | $1.722 | $0.568 | $2.766 | $0.989 |
| Net income | $0.977 | $0.736 | $1.331 | $1.004 |
| Diluted EPS | $0.02 | $0.01 | $0.02 | $0.02 |
| Operating margin | 36.0% | 17.3% | 32.7% | 16.1% |
- Revenue rose 45% in Q2 and 38% for the first half. Management attributed the increase primarily to higher Kansas oil prices and increased sales volumes. Average Kansas oil prices were $95.46/barrel in Q2 2011 versus $70.78, and $91.57/barrel for the first half versus $71.01.
- Net income increased 33% in Q2 and 33% in the first half. First-half operating income improved substantially, while other income included a $0.306 million derivative loss versus a $0.883 million gain in the prior-year period.
- Cash from operations was $3.787 million for the first half, compared with $1.232 million. Investing used $5.199 million, including $3.527 million for oil and gas properties and $0.512 million for the methane project; financing provided $1.360 million. Cash declined $0.052 million to $0.089 million.
- At June 30, cash was $0.089 million, current assets $3.186 million, and current liabilities $2.410 million (working capital $0.776 million). Total assets were $41.638 million and stockholders’ equity $26.640 million.
- Debt was approximately $11.2 million, including $11.0 million drawn under the revolving facility and $0.107 million of current maturities. The $20 million borrowing base left approximately $9 million of borrowing-base headroom, subject to facility terms and lender review. The facility rate was the greater of prime plus 0.25% or 5.25%; the facility matures January 27, 2013.
Material changes, outlook and risks
- Oil sales net to Tengasco were 88 MBbl for the first half, up from 77 MBbl. Production costs and taxes increased to $3.202 million from $2.850 million; G&A increased to $1.242 million from $1.152 million.
- The prior costless oil collar, with a $60 floor and $81.50 cap, expired July 31, 2011. A Cargill hedge effective August 1, 2011 through December 2012 sets a $65/barrel floor on 10,000 barrels per month, with no cap, for a stated total cost of $0.374 million. First-half realized derivative losses were $0.745 million; the reported derivative result also includes unrealized fair-value changes.
- The methane facility’s production was severely constrained by oxygen spikes and rising water levels in the landfill collection system: it operated during only 19% of Q2 hours, following about 13% in Q1. Republic planned collection-system repairs and additional wells for August–September 2011. Tengasco planned a recycle-gas rerouting and generator installation in Q4. Management anticipated possible improvement but gave no assurance; further repairs could mean intermittent, minimal output.
- Management’s outlook is conditional, not formal earnings guidance. It projected Hoactzin’s remaining $0.2 million investment balance would be recovered by December 31, 2011, based on expected oil production and an $80 oil price, and considered the related preferred-stock conversion option unlikely to arise. Actual results depend on prices, volumes, and costs.
- Commodity-price volatility, production and reserve uncertainty, borrowing-base redeterminations, and covenant compliance are material risks. The lender reaffirmed the $20 million borrowing base on July 14, 2011; review was scheduled for January 2012. Tengasco was in compliance with covenants at quarter-end, but a borrowing-base reduction could require repayment.
- Related-party exposure includes $0.705 million of receivables from Hoactzin and corresponding other payables, linked to vendor costs incurred in operating Hoactzin properties. The filing says Hoactzin is expected to satisfy those obligations. Hoactzin’s 75% methane-project net-profits interest had generated no payment through June 30, 2011.
- No legal proceedings were reported. Management said disclosure controls were effective and no material change in internal control over financial reporting occurred during the period.
Important facts for investors to verify
- Confirm that the intended issuer is Tengasco, Inc.; the request metadata names Riley Exploration Permian, Inc.
- Review the methane facility’s actual uptime, landfill gas quality and supply, repair completion, and resulting economics.
- Check realized oil prices and volumes, hedge settlements and costs, and the effect of the new floor hedge.
- Monitor the January 2012 borrowing-base review, facility headroom, debt repayment requirements, and covenant compliance.
- Assess collection and settlement of the Hoactzin-related receivable/payable balances and the remaining prepaid-revenue balance.