Filing summary
Issuer identification: The request metadata names Sow Good Inc., but the filing text is for Black Ridge Oil & Gas, Inc. This summary reflects the filing itself. It is an unaudited Form 10-Q for the quarter ended September 30, 2013, with comparable three- and nine-month results for 2012. The company is a non-operating oil and gas producer focused on the Bakken and Three Forks formations in North Dakota and Montana.
Key financial results
| Metric | Three months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2013 |
|---|---|---|
| Oil and gas sales | $2.61 million | $6.67 million |
| Total revenues, including derivative losses | $2.55 million | $6.61 million |
| Operating income | $402,000 | $701,000 |
| Net income (loss) | $(224,000) | $(207,000) |
| Net cash provided by operating activities | Not separately stated for the quarter | $1.82 million |
| Net cash used in investing activities | Not separately stated for the quarter | $(6.38) million |
| Net cash provided by financing activities | Not separately stated for the quarter | $8.23 million |
For the nine months, oil and gas sales rose 54% year over year, while reported net income shifted to a loss. The prior-year period included a substantial Peerless/ElectraWorks settlement gain; 2013 results also carried higher interest and depletion expense. Adjusted EBITDA, a non-GAAP measure, was $1.69 million for the quarter and $3.90 million for the nine months in 2013; the filing’s 2012 comparisons include settlement income.
Operations, liquidity and debt
- Third-quarter production was 28,349 Boe, up 2% from a year earlier and 10% from the second quarter. Nine-month production was 75,892 Boe, up 42% year over year. The company reported 92 gross (3.22 net) producing wells and approximately 11,923 net acres at quarter-end.
- Cash and cash equivalents were $5.09 million; current assets were $10.98 million and current liabilities $5.44 million, yielding working capital of $5.54 million. The current ratio was approximately 2.0.
- At September 30, debt was $15.04 million before discounts and $12.32 million net of unamortized discounts. Total liabilities were $21.96 million. The company reported compliance with credit-facility covenants at quarter-end.
- In August, the company entered a $50 million senior revolving facility with an initial $7 million borrowing base and a second-lien term facility of up to $75 million, initially available up to $25 million. The September 2013 initial subordinated draw was $15 million, with $14.7 million received after original issue discount; proceeds repaid and terminated the Dougherty facility. The subordinated debt carries cash interest of 9% plus a floating-rate component and 4% payment-in-kind interest.
- The subordinated financing included warrants for up to 5 million shares at $0.65 per share. Common shares outstanding were 47,979,990 at November 12, 2013.
Changes, outlook and risks
- Quarterly sales increased 14%, supported by 2% production growth and higher realized prices before settled derivatives. Nine-month sales growth reflected higher production and prices. Production costs per Boe increased to $9.69 for the quarter from $5.79 a year earlier; nine-month costs rose to $10.71 from $8.00.
- Quarterly G&A declined 48% and nine-month G&A declined 42%, largely because prior-year results included litigation-related costs and, for the nine months, a non-refundable stock deposit tied to an abandoned acreage acquisition. Depletion increased as production and property holdings expanded.
- The company began oil hedging in 2013. It reported $21,184 of settled derivative losses and $46,225 of unrealized losses for the nine months. The credit agreements require hedging 50%–75% of future oil production from producing wells; hedges limit exposure to price declines but also limit potential gains. Floating-rate debt creates interest-rate risk.
- Management said revenues were not expected to exceed investment in well development and operating costs through the remainder of 2013 and 2014, but stated that credit availability was expected to fund planned acquisition and development activity. No specific production or earnings guidance was provided.
- Outstanding AFEs for future well development were approximately $4.3 million beyond amounts already paid or accrued. A separate 110-acre Missouri River lease is subject to third-party litigation over state ownership; the company had not recognized related well costs or revenue. It estimated that recognizing them would add approximately $835,000 in oil and gas sales and $204,000 in production taxes and operating expenses to date.
- The company had a $2.5 million settlement receivable due on or before December 31, 2013, with related settlement payables. The settlement also permits up to $6.5 million in contingent payments if specified online-poker legislation and licensing conditions are met.
- The board and stockholders had approved authority for a reverse stock split of up to 1-for-10, but the board had not made it effective as of the filing. Management cited exchange-listing and financing objectives, while noting no assurance of a listing.
- Management identified risks including commodity-price volatility, drilling and cost uncertainty, access to capital, acreage availability, and legal or payment claims. It reported effective disclosure controls at September 30, 2013, no material litigation in the legal-proceedings section, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm issuer identity: the supplied metadata says Sow Good Inc., while the filing identifies Black Ridge Oil & Gas, Inc.
- Track collection of the $2.5 million settlement receivable and payment of associated obligations by the stated deadline.
- Review borrowing-base availability, debt costs, covenant headroom, and the effect of PIK interest and warrant-related dilution.
- Assess whether production growth can outpace rising per-unit production costs, depletion, and financing expense.
- Monitor the Missouri River acreage litigation, the $4.3 million AFE commitments, and the status of any reverse stock split.
- Reconcile reported operating performance with non-GAAP Adjusted EBITDA, particularly because the 2012 comparison includes settlement-related income.