Filing summary
Entity and period: The supplied filing is Black Ridge Oil & Gas, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2015—not a filing identified as Sow Good Inc. The company is a non-operating oil and gas producer focused on the Bakken and Three Forks formations in North Dakota and Montana.
Financial performance and operating metrics
- Third quarter: Oil and gas sales were $3.36 million, down 39% year over year. Total revenue, including derivative results, was $7.52 million, approximately flat. Net loss was $28.92 million, or $0.60 per share, versus net income of $1.19 million, or $0.02 per share, a year earlier.
- Nine months: Oil and gas sales were $11.30 million, down 25%; total revenue was $15.85 million, up about 1%. Net loss was $48.86 million, or $1.02 per share, versus net income of $0.27 million, or $0.01 per share, in 2014.
- Production and pricing: Third-quarter production rose 41% to 98,933 Boe, averaging 1,075 Boe per day; it was 4% below the second quarter. Net producing wells increased to 10.88 from 7.36 a year earlier. Realized oil price before settled-hedge effects fell 55% to $37.83 per barrel; the filing reports an average realized price of $46.10 per Boe after settled derivatives.
- Major unusual expense: The company recorded $30.995 million of third-quarter and $52.634 million of nine-month noncash oil and gas property impairment charges, attributed to low commodity prices. Management said additional write-downs could occur if prices remain depressed.
- Cash flow: For the first nine months, operating cash flow was $13.80 million, investing cash outflow was $17.84 million, financing cash inflow was $4.00 million, and cash decreased $36,083 to $58,599. Operating cash flow benefited from $9.44 million in settled derivative gains. Management separately reported third-quarter operating cash flow of $8.3 million.
- Costs and earnings measures: Third-quarter production cost was $8.97 per Boe and G&A was $7.63 per Boe, down from $9.57 and $9.85, respectively. Adjusted EBITDA was $9.00 million for the quarter, including the $6.255 million gain from early derivative liquidation; nine-month adjusted EBITDA was $14.71 million. These are non-GAAP measures.
Balance sheet, debt, and liquidity
- At September 30, cash was $58,599, current assets were $6.66 million, current liabilities were $8.50 million, and working capital was negative $1.84 million. Stockholders’ equity was negative $9.06 million.
- Debt was $58.92 million gross, including $26.65 million drawn on the senior facility, $30.00 million of subordinated principal, and $2.27 million of accrued PIK interest; reported debt net of discounts was $57.46 million. Interest expense for the first nine months was $4.80 million.
- The senior facility’s borrowing base was $34 million at quarter-end, then reduced to $33 million effective October 1 and scheduled to fall to $32 million on November 16 unless specified hedging was arranged. The senior facility matures January 15, 2017; the subordinated facility matures June 30, 2017. Both are secured by company assets.
- The company reported compliance with amended debt covenants at September 30, though certain covenants had been waived for earlier 2015 quarters. Management said credit facilities and operating cash flows were expected to meet liquidity needs under limited development activity; cash needs could also be met through facility draws, property sales, or potential stock transactions.
Changes, outlook, and risks
- Production growth and lower realized commodity prices were partly offset in reported revenue by derivative gains. The company settled all 2017 and 2018 hedges and most 2016 hedges early in September, receiving $6.255 million; the transaction contributed to settled gains but reduced future hedge coverage.
- Management expects revenue growth as wells enter production but stated revenues were not expected to exceed development investment and operating costs throughout 2015. It anticipated focusing future acquisition and development activity within the Merced joint venture until oil prices improve.
- A July 2015 agreement established a joint venture with a Merced Capital affiliate, targeting an initial $50 million investment funded by Merced. Black Ridge is to manage the venture for fees and may earn a share of profits subject to investor hurdles; operations had not commenced by the filing date.
- Commodity-price volatility, further property impairments, production and reserve uncertainty, drilling and operating costs, access to capital, liquidity, and debt covenant compliance are material risks. The company also relies on operators because it does not operate its wells.
- The board and stockholders had approved authority for a reverse split of up to 1-for-10, but the board had not made it effective as of the filing date. Management said a split might support a national exchange listing, but gave no assurance a listing would result.
- The company reported no material litigation, no off-balance-sheet arrangements, and effective disclosure controls as of September 30, 2015.
Important facts for investors to verify
- Confirm the issuer: the filing content names Black Ridge Oil & Gas, Inc., while the request metadata names Sow Good Inc.
- Check subsequent borrowing-base determinations, hedge requirements, available borrowing capacity, and covenant compliance.
- Assess exposure to additional ceiling-test impairments and the sensitivity of reserves and collateral value to commodity prices.
- Verify the actual status, funding, and terms of the Merced joint venture and whether any reverse split was later implemented.
- Reconcile adjusted EBITDA and derivative-related cash proceeds with GAAP results and the company’s ongoing liquidity requirements.