Filing identity and reporting period
Important discrepancy: The request identifies Riley Exploration Permian, Inc., but the supplied filing is Tengasco, Inc.’s Form 10-Q for the quarter ended June 30, 2015. The summary below reflects the supplied filing, not Riley Exploration Permian.
Tengasco explores for and produces oil and natural gas, primarily in Kansas, and operates a landfill methane facility in Tennessee. Financial statements are unaudited and cover the three and six months ended June 30, 2015, compared with the corresponding 2014 periods. Amounts below are in millions unless otherwise stated.
Financial and operating performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $1.899 | $3.985 | $3.533 | $7.489 |
| Operating income (loss) | $(0.113) | $0.649 | $(0.967) | $1.358 |
| Net income (loss) | $(0.076) | $0.377 | $(0.591) | $0.802 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $0.436 | $3.448 |
- Six-month Kansas oil sales were 69.6 thousand barrels net to Tengasco, versus 76.3 thousand barrels a year earlier. Average Kansas oil price fell to $46.64 per barrel from $94.22; Kansas oil revenue declined to $3.2 million from $7.2 million.
- Q2 average Kansas oil price was $51.19 per barrel, down from $96.10, and sales volumes declined by 5.3 thousand barrels. Management attributed the revenue drop primarily to lower prices and volumes.
- Q2 production costs and taxes were $0.892 million versus $1.906 million; general and administrative expense was $0.418 million versus $0.675 million. Six-month totals were $2.094 million and $0.972 million, respectively, compared with $3.305 million and $1.368 million.
- Cash from operations fell by $3.012 million year over year for the first half. Investing used $0.444 million, while financing provided $0.028 million. Cash and cash equivalents ended June at $0.055 million.
- At June 30, current assets were $1.975 million and current liabilities $1.599 million, implying working capital of $0.376 million. Restricted cash of $0.386 million was held as collateral for the BSEE penalty appeal bond.
- Total debt was $0.923 million, including $0.803 million drawn on the Prosperity Bank facility. The facility’s borrowing base was reduced from $14.3 million to $7.8 million in March, matures January 27, 2017, and bears interest at prime plus 0.50% (3.75% at June 30). The company reported compliance with its covenants.
- Oil and gas properties, net, were $24.319 million, down from $25.413 million at year-end. No impairment was recorded through June 30. Stockholders’ equity was $31.584 million.
Material changes, outlook, and risks
- Revenue and earnings deteriorated sharply versus 2014, chiefly because of lower oil prices and lower Kansas volumes. Lower operating costs partly offset the decline. The 2014 comparison also included a one-time $0.386 million BSEE penalty expense and higher workover and start-up costs.
- Management stated it anticipated recording an oil and gas property impairment in the quarter ending September 30, 2015, reflecting low commodity prices. The filing gives no impairment amount or earnings guidance.
- The next borrowing-base review was scheduled for August 2015. Management warned that a reduction below outstanding borrowings could require repayment, constrain capital spending, or result in default if the company could not pay down the facility. It also cautioned that sustained low prices could impair operations and the ability to continue normal operations.
- On July 14, 2015, after quarter-end, a federal district court affirmed the $0.386 million BSEE civil penalty without reduction. Tengasco said it did not intend to appeal further and expected to pay using credit-facility proceeds and recover the collateral; reimbursement from Hoactzin was uncertain.
- Hoactzin provided an internal analysis of potential operational and other claims, primarily under a management agreement. Tengasco said the parties were discussing possible negotiated resolution; the filing does not quantify potential exposure. Hoactzin-related past-due vendor balances of $0.159 million remained fully reserved, while $0.619 million of payments to Hoactzin were suspended pending transfer of operator status.
- Cost reductions begun in Q1 included employee and director compensation cuts. Cuts were to remain until WTI reached $70 per barrel on a 30-day trailing average; accumulated reductions could be reimbursed at $85 per barrel if recipients remained employed or on the board. Reductions totaled about $0.065 million at June 30 and were not accrued as liabilities.
- The company had no commodity or interest-rate derivative positions. It reported that no methane gas was sold in either comparative period. Controls and procedures were reported adequate and effective; no material control changes were reported.
Most important facts to verify
- Confirm the issuer: the supplied filing is Tengasco, Inc., not Riley Exploration Permian, Inc.
- Check the outcome and financial effect of the August 2015 borrowing-base review and any subsequent impairment charge.
- Verify payment of the $0.386 million BSEE penalty, release or use of the $0.386 million restricted cash, and any recovery from Hoactzin.
- Assess the status and potential financial exposure of Hoactzin’s possible claims and the transfer of operator responsibilities.
- Review subsequent oil prices, production volumes, operating cash flow, and available liquidity given the low cash balance and dependence on the borrowing base.