Business context and reporting period
Filing identity: The request identifies Sow Good Inc., but the supplied Form 10-K is for Black Ridge Oil & Gas, Inc. This summary reflects the filing provided, for the fiscal year ended December 31, 2015; it was signed March 30, 2016. The company is a non-operating oil and gas producer focused on the Bakken and Three Forks formations in North Dakota and Montana.
At year-end, Black Ridge reported approximately 8,100 net acres, interests in 349 gross (10.95 net) producing wells, average fourth-quarter production of 1,470 Boe per day, and 2.335 million Boe of proved reserves.
Financial and operating performance
| Metric | 2015 | 2014 |
|---|---|---|
| Oil and gas sales | $15.10 million | $21.10 million |
| Total revenue, including derivative results | $20.16 million | $29.41 million |
| Net income (loss) | $(70.34) million | $4.35 million |
| Cash from operating activities | $15.62 million | $8.94 million |
| Cash used in investing activities | $(20.59) million | $(29.14) million |
| Cash from financing activities | $5.10 million | $19.15 million |
| Cash at year-end | $0.23 million | $0.09 million |
- Production rose 46% to 425,625 Boe. Oil sales volume was 356,678 barrels; natural gas production was 413,678 Mcf.
- Average oil price before settled derivatives fell 48% to $40.85 per barrel; natural gas price fell to $1.30 per Mcf from $4.46. Realized Boe price after settled derivatives was $47.76, versus $74.08.
- Production expense was $8.85 per Boe, compared with $9.27; reported average production cost excludes taxes and other expenses.
- Settled derivatives generated $11.48 million of gains; mark-to-market losses were $6.43 million. Management reported Adjusted EBITDA of $18.85 million, a non-GAAP measure.
- A non-cash full-cost ceiling impairment of $71.27 million drove the loss. Interest expense was $8.14 million. The impairment reduced earnings and equity, not operating cash flow.
- Proved reserves declined 56% to 2.335 million Boe from 5.356 million. The standardized measure of discounted future net cash flows fell to $31.80 million from $85.12 million; pre-tax PV-10 was also reported at approximately $31.80 million.
Liquidity, debt and material changes
At December 31, 2015, cash was $228,194, current assets were $6.46 million, current liabilities were $68.31 million, and working capital was negative $61.86 million. Debt classified as current totaled $60.35 million, comprising $27.75 million under the senior facility and $30 million under the subordinated facility, plus accrued PIK interest. The company was in default after failing its collateral coverage covenant; lenders could accelerate debt or foreclose on substantially all assets. The auditor’s report includes a going-concern explanatory paragraph.
Compared with 2014, sales fell 28% despite higher production, reflecting sharply lower commodity prices. The reserve decline and $71.27 million impairment reversed 2014 profitability into a substantial net loss. Operating cash flow increased, substantially supported by derivative settlements, while borrowing provided less net financing than in 2014. Stock closed at $0.038 in the fourth quarter of 2015, compared with a $0.19–$0.75 range in fourth-quarter 2014.
Outlook, restructuring and risks
On March 29, 2016, the company agreed to contribute its oil and gas assets, related liabilities and debt to newly formed Black Ridge Holding Company, LLC (BRHC) in exchange for 5% of BRHC’s Class A units. Chambers affiliates were to receive 95% of Class A units in exchange for debt contribution; Chambers also committed up to $30 million of investment, including $10 million at closing and up to $20 million subject to conditions and board calls. The company was to receive 1 million Class B units and a fee-based management-services role. Chambers would appoint two of BRHC’s three initial managers, and further Chambers investments would dilute the company’s Class A ownership.
The transaction had not closed as of the filing. It required majority stockholder approval, Cadence’s consent to assignment of the senior credit agreement, and related amendments or covenant waivers. Management expected a closing in April or May 2016 in several passages; one MD&A passage instead says April 2015, an apparent date inconsistency. If completed, management planned to manage assets in which the company would retain an indirect minority interest and pursue distressed-asset opportunities. There is no assurance the transaction would close or that the company could continue as a going concern without it.
Key risks include depressed and volatile oil and gas prices, further reserve and ceiling-test write-downs, borrowing-base reductions, covenant defaults, limited liquidity, dependence on third-party operators and transport infrastructure, lease expirations, hedging exposure, and environmental, regulatory and drilling risks. The company also warned that post-transaction it could have limited assets and cash generation, Chambers would control BRHC, and investment-company status could become an issue. No quantitative operating guidance was provided.
Most important facts for investors to verify
- Confirm the issuer: the supplied filing is Black Ridge Oil & Gas, not Sow Good Inc.
- Check whether the BRHC transaction closed, all required approvals and waivers were obtained, and the final ownership, governance, funding and distribution terms.
- Verify current debt, covenant status, borrowing base and liquidity, including the effect of the April 2016 redetermination and any lender remedies.
- Review subsequent commodity prices, hedge positions and expirations, and whether additional impairments or reserve revisions occurred.
- Reconcile the filing’s inconsistent BRHC closing-date reference and its statement that no 2015 impairment occurred in one passage with the reported $71.27 million 2015 impairment elsewhere.