Riley Exploration Permian, Inc. — FY 2020 Form 10-K
Reporting context: Fiscal year ended December 31, 2020; filed March 29, 2021. The financial statements and operating results in this filing cover legacy Tengasco only and exclude Riley Exploration–Permian, LLC (REP, LLC). The merger closed February 26, 2021; therefore, 2020 results are not a combined-company baseline. Share and per-share figures below reflect the subsequent 1-for-12 reverse split where applicable.
Key financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $3.038 million | $4.911 million |
| Net loss | $3.648 million | $436,000 |
| Loss per share | $4.10 | $0.49 |
| Cash from (used in) operations | $(1.549) million | $226,000 |
| Cash from (used in) investing | $(71,000) | $(233,000) |
| Cash from (used in) financing | $126,000 | $(53,000) |
| Cash and cash equivalents at year-end | $1.561 million | $3.055 million |
| Total assets / stockholders’ equity | $5.371 million / $2.715 million | $8.922 million / $6.348 million |
| Bank credit-facility borrowings | $0 | $0 |
Other metrics: 2020 production costs and taxes were $3.104 million; depreciation, depletion and amortization was $644,000; general and administrative expense was $2.187 million; and the company recorded a $920,000 oil-and-gas property impairment. The 2020 loss included $166,000 of other income from forgiveness of a Paycheck Protection Program loan. Year-end current assets were $2.328 million and current liabilities were $601,000. Finance lease liabilities were $77,000; asset retirement obligations totaled $2.117 million, including current and non-current portions.
Oil sales volume fell to 86.3 MBbl from 93.7 MBbl, and the average sales price declined to $34.91/Bbl from $52.12/Bbl. Gross operated Kansas oil production was 98.7 MBbl, down 12.2 MBbl from 2019. Proved reserves fell to 517 MBbl from 803 MBbl; the standardized measure of discounted future net cash flows declined to $2.897 million from $8.365 million. The reserve-price assumption was $34.87/Bbl versus $50.65/Bbl in 2019.
Material changes and fourth-quarter results
- Revenue declined by $1.873 million, primarily due to lower realized oil prices and lower sales volumes. General and administrative expense rose by $885,000, mainly due to merger-related costs.
- The company reported a $3.817 million operating loss in 2020, compared with a $505,000 operating loss in 2019. Oil-and-gas producing activities, before corporate overhead and interest, shifted to a $635,000 loss from $876,000 of income.
- Fourth-quarter 2020 revenue was $747,000 and net loss was $1.754 million, versus revenue of $1.135 million and net loss of $167,000 in fourth-quarter 2019. Fourth-quarter 2020 loss per share was $1.92.
- Year-end cash fell by $1.494 million. Operating cash use reflected lower oil revenue and higher merger-related overhead, partly offset by working-capital cash inflows.
- The legacy Kansas credit facility had a $3.1 million borrowing base but a covenant-based credit limit of approximately $1.442 million; no amount was drawn. It was terminated at the merger closing. The PPP loan was forgiven in November 2020.
- The merger was an all-stock transaction valued at approximately $500 million based on the February 26, 2021 closing share price. REPX began trading on NYSE American on March 1, 2021.
Outlook, risks and contingencies
Management described a transition to a cash-return model focused on capital efficiency and shareholder returns, including a dividend strategy; the filing does not provide a specific dividend amount or schedule. Management expected the merger to improve scale, free cash flow, credit profile and cost of capital. A liquidity note states that 2021 revenues and cash on hand were expected to cover operating and general and administrative costs; that statement is not a quantified forecast for the combined company.
- In March 2021, the company agreed to sell the legacy Kansas properties for $3.5 million, subject to closing adjustments and customary conditions. The sale was expected in early April 2021 but was not assured. This proposed divestiture would substantially change the asset base described in the 2020 filing.
- Principal risks include oil-price volatility and differentials, COVID-19 effects, production declines and reserve-estimate uncertainty, merger integration, access to capital, regulatory and environmental costs, climate-related regulation and market shifts, and customer concentration. Two purchasers represented 84.7% and 11.1% of 2020 revenue.
- The company recorded a $920,000 2020 ceiling-test impairment; such write-downs are non-cash and cannot be reversed. The auditor identified reserve estimates and their effect on depletion and impairment as a critical audit matter. The auditor issued an unqualified opinion on the financial statements; its report did not express an opinion on internal-control effectiveness.
- Legal matters included federal shareholder suits challenging merger disclosures; plaintiffs dismissed the suits after additional disclosures were filed. The company also described Bureau of Safety and Environmental Enforcement decommissioning orders concerning Gulf of Mexico facilities associated with Hoactzin Partners; management assessed potential loss as remote and expected others to perform and fund the work.
- The company reported a $55.6 million accumulated deficit and $35.4 million in federal net operating loss carryforwards. Use of tax attributes may be limited following the change in control; the filing recorded an $11.1 million deferred-tax valuation allowance.
Important facts for investors to verify
- Review subsequent combined-company filings for post-merger revenue, cash flow, debt, liquidity, credit-facility terms and dividend policy; this 10-K excludes REP, LLC’s 2020 operations.
- Confirm whether the Kansas asset sale closed, its final proceeds and adjustments, and how the disposition affected production, reserves and cash generation.
- Assess integration execution and actual cash returns against management’s stated strategy; no quantified dividend guidance is provided here.
- Monitor realized oil prices, production and reserve revisions, impairment exposure, and the concentration of purchasers and operating assets.
- Check the availability and restrictions on legacy tax attributes after the merger, as well as any material developments in environmental, decommissioning or other legal matters.