Filing identity and reporting period
Important metadata discrepancy: The supplied filing is Tengasco, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed March 28, 2018. It is not a filing for Riley Exploration Permian, Inc. Tengasco reported under ticker TGC.
Tengasco’s oil and gas operations were concentrated in Kansas. It also operated a Tennessee landfill-methane electricity facility during 2017; the physical facilities were sold in January 2018.
Financial and operating performance
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $5.263 million | $4.672 million |
| Net loss | $574,000 | $4.199 million |
| Cash from operations | $154,000 | Cash used: $1.012 million |
| Cash and cash equivalents at year-end | $185,000 | $76,000 |
| Total assets | $8.105 million | $8.562 million |
| Total liabilities | $2.930 million | $5.284 million |
Revenue increased about 13%, while the net loss narrowed substantially. The 2017 result included a $242,000 income tax benefit; the company remained loss-making before that benefit. The filing reports no impairment charge in 2017, compared with $2.805 million in 2016 and $14.526 million in 2015.
Oil and gas revenue was $4.683 million, up from $4.113 million. The average realized oil price rose to $45.43 per barrel from $37.53, while oil sales volume fell to 102.4 thousand barrels from 108.3 thousand. Operated Kansas gross oil production declined to 122 thousand barrels from 132 thousand, primarily due to natural declines. Methane-facility electricity revenue was $580,000 versus $559,000.
Production costs and taxes were $3.444 million, up from $3.064 million; depreciation, depletion and amortization was $924,000 versus $1.139 million; and general and administrative expense was $1.171 million versus $1.405 million. Operating loss was $765,000, or approximately 15% of revenue. Operating cash flow improved, but remained modest; investing cash use was $179,000.
At December 31, 2017, the company had no borrowing outstanding under its bank credit facility. It reported $90,000 of vehicle-related debt, including $41,000 current, and a $2.270 million asset retirement obligation. Current assets were $1.498 million and current liabilities $611,000. The credit facility borrowing base was $1.25 million at year-end; an amendment in March 2018 increased it to $2.0 million and extended maturity to July 2020. Cash proceeds from a February 2017 rights offering were approximately $2.7 million and were used primarily to repay facility borrowings.
Proved oil reserves were 870 thousand barrels at year-end, up from 730 thousand. Their pre-tax standardized discounted value at 10% was $8.170 million, versus $5.815 million, using a reserve price of $45.83 per barrel compared with $37.35 in 2016. These are estimates, not forecasts of realized prices or cash flows.
Material changes, outlook, risks and unusual items
- On January 26, 2018, Tengasco sold its manufactured-methane facilities for $2.65 million and expected to recognize an approximately $1.1 million gain in the first quarter of 2018. The filing says 2018 revenue plus sale proceeds were expected to fund operating and G&A expenses and maintain bank-covenant compliance; additional borrowing, share issuance or asset sales were identified as possible funding sources if needed.
- The company reported no specific production, revenue or earnings guidance. Management said it would adjust drilling plans and capital spending as necessary. Only one non-operated well was drilled in 2017, and it was productive.
- Key risks include volatile oil prices, natural production declines and the need to replace reserves, limited access to capital, potential borrowing-base reductions, and possible future full-cost ceiling-test impairments. The company had recorded an accumulated deficit of $53.1 million and reported a $574,000 net loss for 2017.
- Customer concentration is significant: three purchasers accounted for 75.3%, 13.1% and 11.0% of 2017 revenue; two oil purchasers represented 76.2% of year-end accounts receivable. The company also depends substantially on Kansas oil sales and local refinery customers.
- Environmental and regulatory exposure includes potential remediation obligations, permitting costs and Kansas lesser-prairie-chicken mitigation fees that may add about $40,000 per affected well. The estimated asset retirement obligation increased to $2.270 million.
- A related-party receivable of $159,000 from Hoactzin, controlled by board chairman Peter Salas, remained unpaid and was fully reserved; the corresponding $159,000 payable remained on the balance sheet. Salas and affiliated entities held significant influence, with beneficial ownership reported at about 49.8% for Salas and 51.3% for all directors and officers as a group.
- A Texas contract lawsuit seeking about $188,000 plus fees and interest was dismissed with prejudice in October 2017; the company reported no remaining exposure. A separate $386,000 offshore safety penalty, plus interest, had been paid in 2015.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end; the independent auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Confirm the issuer: this document is Tengasco, Inc.’s 2017 10-K, not Riley Exploration Permian, Inc.’s filing.
- Review the audited financial statements and notes for the company’s ongoing losses, modest operating cash flow, reserve assumptions and asset retirement obligations.
- Verify completion and accounting for the $2.65 million methane-facility sale, including the reported expected gain and resulting liquidity.
- Check subsequent credit-facility borrowing-base determinations, covenant compliance and the company’s ability to fund operations without relying on asset sales or new equity.
- Assess whether oil-price changes and natural declines affect production, reserve estimates, cash generation or impairment risk.
- Review customer concentration, the fully reserved related-party receivable, and the governance implications of chairman Peter Salas’s substantial ownership and related-party interests.