Filing summary
Entity discrepancy: The request identifies Riley Exploration Permian, Inc., but the supplied Form 10-Q is for Tengasco, Inc. The figures below summarize Tengasco’s filing, not Riley Exploration Permian’s.
Business context and reporting period
Tengasco explores for and produces oil and natural gas, primarily in Kansas. This unaudited quarterly report covers the three and six months ended June 30, 2018, compared with the corresponding 2017 periods. In January 2018, the company sold its Manufactured Methane facility assets for $2.65 million; results from that business are reported as discontinued operations.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1.475 million | $1.138 million | $2.843 million | $2.347 million |
| Continuing operations net income (loss) | $99,000 | ($230,000) | $232,000 | ($400,000) |
| Total net income (loss) | $109,000 | ($178,000) | $1.352 million | ($391,000) |
| Operating cash flow, continuing operations | Not presented quarterly | Not presented quarterly | $479,000 | $144,000 |
Q2 operating margin was approximately 6.6%, versus approximately negative 19.9% a year earlier; six-month operating margin was approximately 7.6%, versus approximately negative 16.2%. These are calculated from reported operating income (loss) divided by revenue. Six-month total net income included a $1.157 million gain on the methane-asset sale within discontinued operations.
At June 30, cash was $3.235 million, current assets were $4.598 million, and current liabilities were $751,000, yielding working capital of approximately $3.847 million and a current ratio of approximately 6.1. Total liabilities were $3.187 million, including $169,000 of vehicle installment debt and a $2.328 million asset retirement obligation. The company had no borrowings under its Prosperity Bank facility, whose borrowing base was $2.0 million. The facility was secured by substantially all oil and gas properties; the company reported covenant compliance.
Six-month cash flow included $546,000 of total operating cash flow and $2.528 million of total investing cash flow, including $2.650 million from discontinued operations. Cash rose by $3.050 million from year-end 2017. Continuing-operations investing cash use was $122,000.
Material changes versus prior period
- Q2 revenue increased 30% year over year, primarily as the average realized oil price rose to $61.86 per barrel from $42.82; lower sales volumes partly offset the price benefit.
- For the first six months, average oil price increased to $59.61 per barrel from $44.55, while net oil sales volume declined to 47.4 MBbl from 52.3 MBbl. Management attributed the decline mainly to natural production declines.
- Continuing operations returned to profitability in both Q2 and the first half. Higher oil prices and lower depletion and interest expense contributed; first-half total income was also materially affected by the methane-asset sale.
- The bank facility’s borrowing base was increased to $2.0 million and its maturity extended to July 31, 2020. The next borrowing-base review was scheduled for August 2018.
Outlook, risks, contingencies, and unusual items
- Management said 2018 revenue and sale proceeds were expected to fund operating and general and administrative costs and support covenant compliance. If needed, it could draw on the facility, issue shares, or sell assets; this is not quantified guidance.
- Commodity prices and production are key risks. A lower borrowing base could reduce available funding and constrain exploration, development, and efforts to replace naturally declining production. The company reported no commodity or interest-rate derivatives at June 30.
- After quarter-end, the company entered a drilling commitment of approximately $280,000, with work expected to begin in August 2018.
- Compensation reductions in place since 2015 ended after the specified trailing WTI measure exceeded $70 per barrel in May 2018. Cumulative reductions through June 30 were approximately $451,000; no related liability was accrued. Reimbursement is conditional on the measure reaching $85 per barrel and continued employment or board service.
- The company disclosed potential operational and other claims raised by Hoactzin Partners in an internal analysis and said it was discussing possible resolution. A separate $386,000 BSEE civil penalty, plus statutory interest, had been paid in 2015. The filing states there were no pending material legal proceedings.
- Management noted that the company’s 2017 net loss was approximately $574,000 and that operating results for the first half are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Tengasco, Inc., not Riley Exploration Permian, Inc.
- Review the August 2018 borrowing-base redetermination and any subsequent changes to facility availability or covenants.
- Assess production declines, realized oil prices, and the company’s ability to fund the announced drilling commitment and sustain production.
- Separate recurring operating performance from the methane-asset sale gain when evaluating first-half earnings and cash generation.
- Monitor developments in the Hoactzin matters and any future obligation related to conditional compensation reimbursements.