Filing identity and reporting period
Important entity mismatch: The request identifies Riley Exploration Permian, Inc., but the supplied Form 10-Q is for Tengasco, Inc. This summary reflects the filing text provided, for the quarter and nine months ended September 30, 2018.
Tengasco explored for and produced oil and natural gas, primarily in Kansas. The company sold its methane facility assets on January 26, 2018, and reports those operations as discontinued.
Key financial results
Amounts below are in millions of dollars unless stated otherwise. Interim financial statements are unaudited.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $1.654 | $1.035 | $4.497 | $3.383 |
| Operating income (loss) | $0.285 | $(0.350) | $0.500 | $(0.730) |
| Net income (loss) from continuing operations | $0.298 | $(0.361) | $0.530 | $(0.761) |
| Net income (loss), including discontinued operations | $0.298 | $(0.315) | $1.650 | $(0.706) |
| Continuing-operations EPS | $0.03 | $(0.03) | $0.05 | $(0.08) |
Revenue grew approximately 60% in Q3 and 33% for the nine-month period. Operating margin was approximately 17% in Q3 and 11% year to date, versus operating losses in both 2017 comparison periods. No income tax provision or benefit was recorded; the estimated effective tax rate was 0%.
Oil and gas revenue was nearly all crude oil: $1.647 million in Q3 and $4.472 million for nine months. For the nine months, net oil sales were 73.0 MBbl versus 76.5 MBbl a year earlier. Average realized oil price increased to $64.34/barrel in Q3 from $42.54, and to $61.27/barrel for nine months from $43.92. The nine-month volume decline reflected natural production declines, partly offset by improved output at certain leases and wells.
Cash flow, balance sheet and liquidity
- Cash and cash equivalents were $3.402 million at September 30, 2018, up from $0.185 million at December 31, 2017. Total current assets were $4.916 million and current liabilities $0.830 million.
- Nine-month cash provided by operating activities was $1.063 million overall, including $1.018 million from continuing operations. Continuing-operations investing activities used $0.466 million; total investing cash flow was positive $2.184 million, including $2.650 million of proceeds from the methane-facility sale. Financing activities used $0.030 million.
- Total debt was $0.136 million, consisting of vehicle installment notes; none was drawn on the revolving credit facility. The facility’s borrowing base was $3.0 million, subject to an estimated covenant-based credit limit of approximately $2.74 million, at a 5.75% rate at quarter-end. The company said it complied with its covenants.
- Asset retirement obligations were $2.363 million. The facility is secured by substantially all oil and gas properties; its borrowing base is subject to lender redetermination, with the next review scheduled for March 2019.
Changes, outlook and notable items
- Management attributed improved results chiefly to higher oil prices. Q3 revenue also benefited from a 1.4 MBbl increase in sales volume; nine-month sales volume decreased 3.5 MBbl.
- The $1.650 million nine-month net income includes $1.120 million from discontinued operations, principally a $1.157 million gain on sale of the methane facility. The sale generated $2.65 million in proceeds. Q3 2018 had no discontinued-operations income.
- Management said 2018 revenue and sale proceeds were expected to fund operating and general and administrative costs and support covenant compliance. It identified borrowing, issuing shares, or selling assets as possible additional funding sources if needed. The filing gives no specific production, revenue, earnings, or capital-spending guidance.
- Oil prices are the principal market risk; the company had no commodity derivatives at quarter-end. Lower prices or production, reserve changes, or lender decisions could reduce the borrowing base and constrain development spending. Management also cited drilling, cost, timing, and production-estimation uncertainties.
- Capital commitments include approximately $32,000 for seismic work entered into in Q2 and approximately $131,000 for drilling and seismic commitments entered into after September 30. A well begun in August was completed in October, with approximately $69,000 of completion cost incurred after quarter-end.
- Compensation reductions accumulated from 2015 through September 2018 totaled approximately $445,000 and were not accrued as liabilities. Compensation returned to pre-reduction levels after the stated oil-price threshold was exceeded in May 2018; repayment of prior reductions could be triggered at a higher threshold of $85/barrel.
- The filing describes historical Hoactzin-related matters, including a paid $386,000 civil penalty and possible operational claims under a former management agreement. The company said it was seeking a negotiated resolution and reported no pending material legal proceeding.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Tengasco, Inc., not Riley Exploration Permian, Inc.
- Assess the sustainability of operating cash flow and production given declining output at several Kansas properties and dependence on oil prices.
- Separate recurring operating performance from the one-time methane-facility sale proceeds and discontinued-operations gain.
- Review the March 2019 borrowing-base redetermination, facility covenants, and the company’s ability to fund planned drilling and seismic work.
- Evaluate the $2.363 million asset retirement obligation, the Hoactzin-related exposure, and any future payment associated with previously reduced compensation.