Filing summary: Tengasco, Inc. — Form 10-Q for quarter ended September 30, 2017
Entity mismatch: The request identifies Riley Exploration Permian, Inc., but the supplied filing is for Tengasco, Inc. The summary below describes the filing provided.
Business context and reporting period
Tengasco explores for and produces oil and natural gas, primarily in Kansas, and operates a methane-treatment and delivery facility in Tennessee. The filing reports the third quarter and first nine months of 2017, compared with the same periods in 2016. Financial statement amounts below are in thousands of dollars unless noted.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $1.179 million in 2017; $1.242 million in 2016 | $3.841 million in 2017; $3.456 million in 2016 |
| Net loss | $315,000 in 2017; $908,000 in 2016 | $706,000 in 2017; $3.939 million in 2016 |
| Net loss per share | $0.03 in 2017; $0.15 in 2016 | $0.07 in 2017; $0.65 in 2016 |
- Quarterly revenue fell about 5%; nine-month revenue rose about 11%. Oil and gas revenue was $3.383 million for the first nine months, while methane-facility revenue was $458,000.
- Oil prices supported year-to-date revenue: average realized oil price increased to $43.92 per barrel from $35.59. Net oil sales volumes declined to 76.5 MBbl from 82.2 MBbl.
- Operating loss was $304,000 for the quarter and $675,000 for the nine-month period. No explicit margin measure is provided.
- Operating cash flow was positive $214,000 for the first nine months, versus negative $939,000 in 2016. Investing used $153,000; financing provided $153,000. Cash ended at $290,000, up from $76,000 at year-end 2016.
- At September 30, current assets were $1.569 million and current liabilities were $770,000. Total debt was $85,000, versus $2.502 million at December 31, 2016. The company had no Prosperity Bank borrowings outstanding; its borrowing base was $1.25 million.
- Total assets were $7.967 million, total liabilities $2.927 million, and stockholders’ equity $5.040 million. Asset retirement obligations were $2.120 million.
Material changes and unusual items
- Year-to-date net loss improved by $3.233 million, primarily because 2016 included a $2.718 million oil-property impairment; no impairment was recorded in 2017. The quarter also benefited from the absence of the prior-year $632,000 impairment.
- Production costs and taxes increased $275,000 year to date; methane-facility costs increased $106,000. Management cited a Delaware franchise-tax amendment, oil-inventory adjustments, and repairs among the factors.
- A February 2017 rights offering raised about $2.7 million gross. Proceeds were used primarily to repay the bank credit facility. Shares outstanding increased from 6.10 million at December 31, 2016 to 10.61 million at September 30, 2017; directors, management, and affiliates received most of the offering shares.
- The Offshore Oilfield Services lawsuit, which sought approximately $188,000 plus fees and interest, was dismissed with prejudice on October 20, 2017. Tengasco reported no remaining exposure from that litigation.
Outlook, risks, and contingencies
- Management believes revenue will fund operating and general and administrative expenses and support covenant compliance through November 2018. This is a forward-looking assessment, not a guarantee.
- The credit facility matures July 31, 2018, has a $1.25 million borrowing base, and is subject to periodic redetermination; the next review was scheduled for November 2017. The facility is secured by substantially all oil and gas properties and methane facilities. Tengasco reported covenant compliance for the quarter.
- Management identifies oil-price volatility, production declines, reserve estimates, drilling results, and possible reductions in the lender’s borrowing base as risks that could constrain cash flow and capital spending. The company had no commodity or interest-rate derivatives at quarter-end.
- The company reported prior-year covenant defaults that were addressed through waivers or amendments. It also disclosed unresolved potential claims raised by related party Hoactzin concerning past operations. A $159,000 Hoactzin-related receivable is fully reserved; the related payable remains recorded.
- Compensation reductions for employees and directors remained in place. The company reported approximately $366,000 of reductions through September 30, 2017, with no related liability accrued.
- Management expected no 2017 income-tax payments, citing $26.4 million of net operating loss carryforwards at year-end 2016; deferred tax assets carry a full valuation allowance.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Tengasco, Inc., not Riley Exploration Permian, Inc.
- Check the outcome of the November 2017 borrowing-base review and the facility’s status approaching its July 2018 maturity.
- Assess whether oil-price gains can offset continuing production declines and higher operating and repair costs.
- Review the rights offering’s dilution and the concentration of shares issued to directors, management, and affiliates.
- Monitor the Hoactzin-related matters, collectability of related-party balances, and the company’s cash available for operations and capital spending.