Business Context and Reporting Period
This is an unaudited Form 10-Q for the three months ended March 31, 2013, filed May 14, 2013. The filing identifies the registrant as Black Ridge Oil & Gas, Inc., an oil and gas exploration and production company focused on non-operated interests in the Bakken and Three Forks formations in North Dakota and Montana. This does not match the request metadata, which names Sow Good Inc.; verify the intended issuer.
At quarter-end, Black Ridge reported approximately 12,971 net acres and 73 gross (2.59 net) producing wells. Common shares outstanding were 47,979,990 as of May 13, 2013.
Financial Results and Key Metrics
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Oil and gas sales | $1.911 million | $0.666 million; up 187% |
| Production | 21,802 Boe (242 Boe/day) | 8,046 Boe; up 171% |
| Operating income (loss) | $112,885 | ($561,818) |
| Net income (loss) | $313,813 | ($760,857) |
| Operating cash flow | $594,852 | $544,977 |
| Investing cash flow | ($661,879) | ($2.441 million) |
| Financing cash flow | $0 | $1.953 million |
- Operating margin was approximately 5.9% of sales; net margin was approximately 16.4%. Net income included a $433,788 income tax benefit, so the reported net profit exceeded pretax results: the company recorded a $119,975 pretax loss.
- Production costs were $12.33 per Boe, compared with $17.92 a year earlier. Average realized oil price was $90.70 per barrel versus $85.43; natural gas was $6.68 per Mcf versus $5.94. The company reported no hedge effect.
- Cash and cash equivalents were $1.350 million at March 31, down from $1.417 million at year-end. Current assets were $5.059 million and current liabilities $4.947 million, leaving $112,820 of working capital, down from $2.880 million at year-end.
- Revolving credit debt was $5.749 million, unchanged from year-end. The Dougherty facility allows up to $20 million, with $16.5 million reported available; it bears 9.25% interest, is secured by substantially all company assets, and matures August 1, 2015.
- Total assets were $47.117 million; total liabilities were $15.045 million. Net oil and gas property and equipment was $41.463 million.
Material Changes Versus the Prior Comparable Period
- Sales rose 187%, primarily from higher production and a 5.9% increase in realized prices per Boe. Producing net wells increased from 1.12 to 2.59.
- Operating expenses rose $570,390 overall, with depletion increasing 144% to $699,725 as production and property holdings expanded. General and administrative expense fell 15% to $603,578.
- Interest expense declined to $232,980 from $353,265; the prior-year period included greater warrant amortization expense.
- Oil and gas property and development costs were $3.771 million, including noncash and accrued items. Cash investing outflow was lower than in Q1 2012, partly because prepaid expenses were applied to development and property-related accounts payable increased.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that 2013 revenue was not expected to exceed investment in well development and operating costs, while saying the available credit facility provided funding for planned 2013 property acquisition and development. The company expected to meet the next 12 months’ cash needs through sales, possible credit-facility draws, equity or other financing.
- Commodity-price volatility, access to capital, drilling results and costs, production performance, and the ability to acquire acreage are principal risks. Management reported no material litigation; the filing lists no defaults on senior securities and no off-balance-sheet arrangements.
- At March 31, the company had approximately $3.2 million of AFE commitments beyond amounts already paid or accrued.
- A North Dakota riverbed acreage ownership dispute affects the Dahl Federal 2-15H well. The company had not capitalized its estimated $800,000 share of costs or recognized associated revenue. It estimated that recognizing the well through March 31 would have added about $600,000 in sales and $157,000 in production taxes and operating expenses, including $132,000 and $33,000, respectively, for Q1 2013. The operator agreed to honor the AFE retroactively if the state prevails; the state must refund the lease purchase cost if it does not.
- A $2.5 million Peerless settlement receivable remained outstanding, payable by December 31, 2013. The settlement also provides for up to $6.5 million of contingent payments tied to online-poker legislation and licensing. Related recorded payables included $160,000 of legal fees and $116,234 due to a former officer.
- On May 8, 2013, the company completed an acreage swap involving 950 net acres for working interests in Stockyard Creek and drilling carries on retained Rainbow Field acreage. It also sold 45 net acres for $143,686 after quarter-end.
- A reverse stock split of up to 1-for-10 had been approved by the board and stockholders, but the board had not made it effective as of the filing date. Management cited a potential exchange listing and financing access as objectives, without assurance of success.
- Management reported disclosure controls and procedures effective as of March 31, 2013, with no material change in internal control over financial reporting during the quarter.
Most Important Facts to Verify
- Confirm issuer identity: the supplied metadata says Sow Good Inc., while the filing and financial statements are for Black Ridge Oil & Gas, Inc.
- Confirm collection timing and any subsequent status of the $2.5 million Peerless receivable, associated payables, and contingent settlement rights.
- Assess liquidity against the $3.2 million AFE commitments, low working capital, credit-facility covenants, and the facility’s $10 million equity-offering condition for continued advances after August 31, 2014.
- Review the riverbed ownership litigation and whether the company ultimately recognizes the well’s costs, production, and revenue.
- Reconcile the reported tax benefit and positive net income with the pretax loss, and evaluate the assumptions underlying deferred tax assets and liabilities.
- Track execution and economics of the acreage swap, post-quarter property sale, reverse-split decision, and any exchange-listing or financing plans.