Filing summary
Entity discrepancy: The supplied metadata says Sow Good Inc., but the filing is for Black Ridge Oil & Gas, Inc. (formerly Ante5, Inc.), an oil and gas company. This summary reflects the filing text. The unaudited Form 10-Q covers the quarter and nine months ended September 30, 2012; filed November 14, 2012.
Business context and reporting period
Black Ridge is a non-operating oil and gas exploration and production company focused on the Bakken and Three Forks formations, principally in North Dakota. At September 30, 2012, it reported approximately 11,159 net acres and interests in 57 gross producing wells (2.20 net wells); a further six gross wells were in preparation, drilling, or completion stages. The company changed its name from Ante5, Inc. effective April 2, 2012 and continued trading under ticker ANFC.
Key financial results
| Metric | Three months ended September 30, 2012 | Nine months ended September 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Oil and gas sales | $2.29 million | $4.33 million | $0.90 million quarter; $1.25 million nine months |
| Operating loss | $99,018 | $1.33 million | $368,941 quarter; $1.04 million nine months |
| Net income (loss) | $3.36 million | $1.98 million | $(338,212) quarter; $(804,449) nine months |
| Operating cash flow | $334,453 for nine months | $(939,287) for nine months | |
| Capital investment cash flow | $(11.04) million for nine months | $(9.99) million for nine months | |
| Cash at period end | $1.78 million | $3.21 million at September 30, 2011 |
Quarterly and nine-month net income was substantially driven by a one-time Peerless/ElectraWorks settlement gain. The company reported a $5.74 million net settlement gain; excluding settlement income net of tax, adjusted net income was a loss of $29,133 for the quarter and $1.41 million for the nine months. Adjusted EBITDA was $6.80 million and $7.30 million, respectively, but included the settlement gain. These are non-GAAP measures.
For the quarter, production expenses and taxes together were about 20% of oil and gas sales, versus 52% in 2011. For the nine months, they were about 22%, versus 42%. G&A rose 112% in the quarter and 122% in the nine months, while depletion increased 181% and 301%, respectively, reflecting expanded operations and production. Nine-month oil production was 51,885 barrels versus 14,028; oil sales price averaged $82.56/barrel versus $86.95. Natural gas production was 9,616 Mcf versus 4,200; average gas price was $5.07/Mcf versus $6.73.
Balance sheet, debt, and liquidity
- At September 30, 2012, total assets were $53.87 million, total liabilities $25.38 million, and stockholders’ equity $28.49 million.
- Current assets were $15.04 million and current liabilities $10.55 million, yielding working capital of $4.49 million. Current assets included $11.0 million of current settlement receivables; an additional $2.5 million settlement amount was classified long term.
- Revolving credit debt was $11.85 million, compared with none at December 31, 2011. The amended Dougherty Funding facility provides up to $20 million, with $16.5 million reported available; it bears 9.25% annual interest, matures August 1, 2015, and is secured by substantially all company assets. The facility requires quarterly principal payments tied to defined EBITDA and minimum available cash requirements.
- Nine-month financing cash flow was $11.08 million, mainly from credit-facility advances. Cash increased by $374,000 during the period. The filing also reports $7.88 million of oil and gas property purchases payable after period-end.
Material changes, outlook, and risks
- Peerless/ElectraWorks settlement: A September 27 agreement replaced the company’s royalty rights with $13.5 million in installments ($5.5 million, $5.5 million, and $2.5 million) and up to $6.5 million of additional contingent payments tied to online-poker legislation and licensing. The company released its royalty-stream rights. The filing says the first $5.5 million installment was received October 30, 2012. It also records $2.0 million in attorney fees and a 5% payment to former executive Steve Lipscomb on settlement proceeds net of specified costs.
- Deloitte settlement: A separate settlement generated $5.4 million in net proceeds received November 1, 2012, after obligations including litigation counsel.
- Management expected operating losses could continue over the next 12 months and said oil and gas revenue was not expected to exceed development investment and operating costs in 2012 and 2013. It cited the settlements and credit availability as funding for planned acquisition and development activity. The company also identified potential equity issuance, third-party financing, or bank financing as sources to meet cash needs.
- Key risks include volatile oil and gas prices, drilling and reserve uncertainty, cost overruns, access to capital, dependence on operators, litigation and collection risks, and the possibility that the company cannot grow or monetize assets as planned. The Dahl Federal 2-15H lease is subject to litigation over the State of North Dakota’s ownership; the company did not recognize related sales or AFE costs and said approximately $324,000 of nine-month sales would otherwise have been recorded.
- Stockholders approved a potential reverse split of up to 1-for-10, but the board had not made it effective as of the filing. The company also planned reincorporation in Nevada and an increase in authorized common shares from 100 million to 500 million, which could enable future share issuance and dilution. Management assessed disclosure controls as effective at September 30, 2012.
Important facts for investors to verify
- Confirm the correct issuer: this filing is Black Ridge Oil & Gas, not Sow Good Inc.
- Track collection of the remaining Peerless/ElectraWorks installments and any contingent payments, as well as the final net proceeds after legal fees and the executive incentive payment.
- Review the terms, availability conditions, covenants, cash minimums, and repayment obligations of the Dougherty facility; compare these with post-period cash and development commitments.
- Assess whether production growth, commodity prices, and operating costs can support the company’s investment plans, particularly given reported operating losses and depletion growth.
- Monitor the State of North Dakota lease dispute, the status of the Dahl Federal 2-15H well, and the treatment of its related costs and revenues.
- Verify whether the proposed Nevada reincorporation, authorized-share increase, or reverse split was implemented and assess potential dilution and listing implications.