Filing Summary
Entity note: The supplied filing is Tengasco, Inc.’s Form 10-K, not a filing for Riley Exploration Permian, Inc. It covers the fiscal year ended December 31, 2014; quarterly figures below identify the fourth quarter of 2014.
Business context and reporting period
Tengasco explored for and produced oil and natural gas, with its operating oil business concentrated in Kansas. It had sold its Tennessee oil and gas and pipeline assets in August 2013. Its Manufactured Methane subsidiary operated a landfill-gas facility in Tennessee, but sold no methane gas in 2014 and focused on electricity generation. The filing’s financial statements were audited and received an unqualified opinion.
Financial and operating performance
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $13.788 million | $15.700 million |
| Net income (loss) from continuing operations | $(788,000) | $2.956 million |
| Net income (loss), including discontinued operations | $(788,000) | $2.819 million |
| Cash from continuing operating activities | $6.571 million | $7.971 million |
| Cash used in continuing investing activities | $(3.994) million | $(2.218) million |
| Cash used in continuing financing activities | $(2.596) million | $(5.730) million |
| Cash and cash equivalents at year-end | $35,000 | $54,000 |
| Total debt at year-end | $889,000 | $3.457 million |
Fourth-quarter 2014 revenue was $2.679 million and the continuing-operations net loss was $2.014 million, or $0.03 per share. The full-year loss included a $2.796 million non-cash impairment of the Manufactured Methane facilities and a $386,000 civil-penalty expense. No 2014 cash dividend was paid.
Kansas gross oil production declined to 185.6 thousand barrels from 203.9 thousand in 2013; net production fell to 152.2 thousand barrels from 162.5 thousand. Average realized Kansas oil price decreased to $86.05 per barrel from $91.00. The filing attributes lower revenue mainly to lower oil volumes and prices, partly offset by increased electricity revenue as the landfill generator ran more often. Electricity generation was online 56% of the time and produced approximately $524,000 of net sales revenue.
Year-end total assets were $37.029 million, total liabilities $4.860 million, and stockholders’ equity $32.169 million. Current assets of $2.095 million exceeded current liabilities of $2.028 million by $67,000; cash was only $35,000. Oil and gas properties, net, were $25.413 million. Proved reserves were 1.797 million barrels of oil, down from 2.040 million barrels, and their reported 10%-discounted pre-tax future net cash flows were $40.417 million, down from $47.856 million. These reserve valuations use SEC-mandated prices and are not forecasts of realized proceeds.
Material changes versus the prior comparable period
- Revenue fell 12% year over year, while continuing-operations results shifted from $2.956 million of income to a $788,000 loss.
- Operating cash flow declined by $1.4 million. The company attributed the decrease principally to lower oil volumes and prices, higher G&A and production costs, partly offset by working-capital cash inflows.
- Debt declined by approximately $2.568 million, primarily as operating cash was used to repay borrowings. Year-end credit-facility borrowings were $734,000, versus $3.257 million a year earlier.
- Proved reserves declined by 243 thousand barrels. The company cited production, downward revisions, and reserve additions that did not offset depletion; some proved undeveloped locations were also removed, including six that reached the five-year SEC limit.
- The company recorded the methane-facility impairment after concluding that estimated cash flows using historical costs and runtimes did not support the carrying value. The asset was written down to $1.634 million.
Outlook, risks, contingencies, and unusual items
- Borrowing base: After year-end, the lender reduced the borrowing base from $14.3 million to $7.8 million in a March 16, 2015 amendment, citing lower commodity-price assumptions. The facility matures January 27, 2017; borrowings were approximately $843,000 on March 27, 2015, with the next borrowing-base review scheduled for July 2015.
- Oil-price and impairment risk: Management expected oil-and-gas ceiling-test failures in 2015. It estimated potential impairment of approximately $20 million if oil remained at $50 per barrel before differentials for the rest of 2015; actual impairment would depend principally on realized oil prices. This was an estimate, not a reported 2015 result.
- Development funding: The company reported approximately $8.7 million of future development costs for proved undeveloped reserves, intended to be funded from operating cash flow and, as needed, the credit facility. Reserve value and borrowing capacity are sensitive to oil prices and production.
- Penalty litigation: The Interior Board of Land Appeals affirmed a $386,000 BSEE civil penalty relating to inspections on a Hoactzin-operated property. Tengasco recorded the liability and sought judicial review. It expected to seek reimbursement from Hoactzin but gave no assurance of recovery. The $386,000 appeal-bond collateral remained restricted at year-end.
- Related-party transition: Tengasco continued assisting Hoactzin, controlled by Tengasco Chairman Peter Salas, with transfer of operatorship and bonds. Approximately $590,000 of Hoactzin funds was held in suspense at year-end; transfer of $1.55 million in right-of-use and easement bonds remained in process. The company had fully allowed for a separate $159,000 past-due Hoactzin-related receivable.
- Concentration and operations: Two oil purchasers represented 84.5% of year-end receivables, and three purchasers accounted for 99.6% of 2014 revenue. Kansas production faces natural decline, drilling-result risk, commodity-price volatility, regulatory costs, and environmental obligations. The lesser prairie chicken agreement could add approximately $40,000 per affected well.
- Management response: In February and March 2015, the company reduced executive compensation in response to oil-market conditions. The reductions were linked to WTI price thresholds and included potential restoration or reimbursement if prices recovered.
- No formal operating guidance: The filing does not provide a clear production or revenue forecast. Management said it would adjust drilling plans and capital spending as needed.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Tengasco, Inc. (NYSE MKT: TGC), not Riley Exploration Permian, Inc.
- Review the March 2015 borrowing-base reduction and subsequent July 2015 redetermination, including covenant headroom and liquidity.
- Track realized oil prices, Kansas production declines, reserve revisions, and any 2015 ceiling-test impairment against the filing’s conditional estimate.
- Check the outcome of judicial review of the $386,000 BSEE penalty and whether any reimbursement from Hoactzin was obtained.
- Confirm completion of Hoactzin’s operator and bond transfers, and assess the status and collectability of related-party balances and suspended funds.
- Assess the methane facility’s operating performance and any sale or other disposition following its impairment.