Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2001, for Tengasco, Inc. (Note: The request metadata listed "Riley Exploration Permian, Inc.", but the filing text identifies the issuer as Tengasco, Inc.). Tengasco is engaged in exploring for, producing, and transporting oil and natural gas in Tennessee and Kansas, and marketing gas in Tennessee. Key operational milestones include the completion of a 65-mile pipeline in Tennessee, with gas deliveries to Eastman Chemical Company and BAE SYSTEMS commencing in 2001.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 |
|---|---|---|
| Total Revenues | $2,583,758 | $5,895,144 |
| Net Income (Loss) | $183,403 | $(521,399) |
| Net Income (Loss) Attributable to Common Shareholders | $70,945 | $(800,124) |
| EPS (Basic & Diluted) | $0.01 | $(0.08) |
| Cash and Cash Equivalents (End of Period) | $918,947 | |
| Total Current Liabilities | $4,354,386 | |
| Total Long-Term Debt | $6,082,133 | |
| Net Cash Used in Operating Activities (9 Months) | $(370,667) | |
| Net Cash Used in Investing Activities (9 Months) | $(7,621,799) | |
| Net Cash Provided by Financing Activities (9 Months) | $7,393,456 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 55% for the quarter and 43% for the nine-month period compared to 2000. This was driven primarily by new gas production from the Swan Creek Field in Tennessee, which generated approximately $1.09 million in net revenue for the quarter.
- Profitability: The company reported a net income of $183,403 for the quarter, compared to $84,909 in the prior year quarter. However, for the nine-month period, the net loss widened to $(521,399) from $(364,778) in 2000.
- Expense Increases:
- Production Costs: Increased significantly due to higher production volumes, severance taxes, and royalties from the Swan Creek Field.
- Depreciation, Depletion, and Amortization (DD&A): Rose to $217,551 for the quarter (from $63,000) and $486,008 for nine months (from $189,000), largely due to the commencement of depreciation on the newly completed 65-mile pipeline.
- Interest Expense: Increased to $248,328 for the quarter (from $95,686) due to financing costs for the pipeline completion.
- General and Administrative (G&A): Increased due to expanded insurance coverage (including blowout insurance) and public relations costs.
- One-Time Items: The company recorded $150,000 in equipment sales revenue from the sale of two fully depreciated compressors in the third quarter.
Guidance, Outlook, and Risks
- Financing Update: On November 8, 2001 (subsequent to the period end), Tengasco secured a revolving line of credit of up to $35 million from Bank One, N.A., with an initial borrowing base of $10 million. Funds were immediately used to refinance existing high-interest debt totaling approximately $7.9 million.
- Operational Outlook:
- Production: Current gas sales average 5,000 MMBTU/day. Management anticipates sales rising to 6,000 MMBTU/day and eventually 10,000 MMBTU/day following the installation of condensate removal equipment (expected by November 30, 2001).
- Drilling Program: Plans to drill a minimum of 30 additional wells in the Swan Creek Field through 2002. Five new wells are planned for Kansas in late 2001.
- Market Expansion: Negotiations are underway with additional industrial customers in the Kingsport, Tennessee area (e.g., Willamette Paper, General Shale). A franchise agreement with the City of Kingsport is pending regulatory approval.
- Risks and Contingencies:
- Legal Proceedings: An arbitration award of approximately $266,390 plus attorney fees was issued against the company regarding pipeline construction disputes with King Pipeline & Utility Company. The company is examining appeal options but considers them limited; it intends to seek recovery from the project engineer if payment is made.
- Market Risk: Significant exposure to volatility in oil and gas prices. Gas prices dropped from $9.77/MCF (Dec 2000) to $2.70/MCF (Q3 2001).
- Capital Requirements: Substantial capital expenditures are required for drilling and development, dependent on successful financing and production volumes.
Investor Verification Checklist
- Debt Refinancing: Verify the terms and utilization of the new $35 million Bank One credit facility and the payoff of the high-interest related-party debt.
- Production Volumes: Confirm the timeline for the condensate removal equipment installation and the projected increase in gas sales to 10,000 MMBTU/day.
- Legal Exposure: Monitor the status of the arbitration appeal regarding the $266,390 award and the subsequent litigation against the project engineer.
- Commodity Prices: Assess the impact of current volatile oil and gas prices on future revenue projections, given the company's lack of hedging.
- Capital Expenditures: Review the funding status for the planned drilling of 30 additional wells in the Swan Creek Field and 5 wells in Kansas.