Business Context and Reporting Period
This Form 8-K is filed by Tengasco, Inc. (not Riley Exploration Permian, Inc.) on July 28, 2009. The report discloses a material hedging agreement entered into to manage crude oil price volatility.
Key Financial Metrics and Hedging Terms
The filing details a two-year crude oil pricing agreement with Macquarie Bank Limited, effective August 1, 2009. Key terms include:
- Price Floor: $60.00 per barrel.
- Price Ceiling: $81.50 per barrel.
- Hedged Volumes:
- 9,500 barrels per month (August 1, 2009 – December 31, 2010).
- 7,375 barrels per month (January 1, 2011 – July 31, 2011).
- Current Production: Approximately 15,000 barrels per month.
- Cost: No fee is paid by the Company under the Agreement.
Material Changes and Strategy
The agreement is a strategic response to the low crude oil prices experienced in late 2008 and early 2009 (falling to the $30.00 range). The filing does not report changes to revenue, profit, cash flow, debt, or liquidity metrics, as this is a current event report regarding a derivative contract rather than a periodic financial statement.
Outlook, Risks, and Management Commentary
Management intends to protect the Company against a return to low oil prices. Under the agreement:
- If prices fall below $60.00, the Company receives $60.00 on hedged volumes.
- If prices rise above $81.50, the Company captures upside only on production volumes exceeding the hedged amounts.
- If prices remain between $60.00 and $81.50, no activity occurs under the agreement.
The arrangement involves an International Swaps and Derivatives Master Agreement and an intercreditor agreement with the Company's senior lender, Sovereign Bank.
Investor Verification Checklist
- Verify the exact hedged volumes against actual monthly production to determine the percentage of exposure covered.
- Review the intercreditor agreement with Sovereign Bank for any covenants or restrictions triggered by the hedging arrangement.
- Monitor crude oil spot prices relative to the $60.00 floor and $81.50 ceiling to assess potential cash flow impacts.
- Confirm the filing entity is Tengasco, Inc., as the metadata reference to "Riley Exploration Permian, Inc." appears to be incorrect based on the document text.