Tengasco, Inc. (TGC)

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Tengasco, Inc. (TGC)

Q3 2012 Earnings Call

November 14, 2012 4:15 pm ET

Executives

Cary V. SorensenVice President, General Counsel, Secretary

Michael J. RugenChief Financial Officer

Presentation

Operator

Cary Sorensen, the floor is yours.

Cary V. Sorensen

Good afternoon ladies and gentlemen, please accept our welcome to the Third Quarter Conference Call Results for Tengasco. We’ll be doing something a little different this conference call. At the end of the call, we will be taking questions via the internet, you can go to our website, and there is a link pretty clear on the first page and you can follow that to submit questions in writing, and we’ll take those and Mr. Bailey will answer those at the end of the presentation.

I will make my customary short remarks about forward-looking statements. This presentation may contain forward-looking statements addressing future events or possibilities. And as we’ve said out in the Q and in the 10-K and in the first slide or two of this presentation, there is no guarantee that future results will match those forward-looking statements and we just note that we are not in the business of predicting the future, so those may turn out differentially than any such statements that occur in this presentation.

With that, I am going to introduce Mike Rugen, our CFO to make a financial presentation summary of the third quarter.

Michael J. Rugen

Thanks, Cary. For those of you that are following along with the slides that were included in the presentation on our website. All references to those slides as I discuss the results. For those of you following if you will just turn to slide 3, that slide is about the quarterly financial summary.

As you can see our net income for the quarter was $1.2 million, or $0.2 a share, it was actually the same in each of the quarters. The third quarter ending in 2012 and the third quarter ending in 2011 both were $1.2 million and $0.02 a share.

Revenue increased $1.4 million, or 33% from $4.4 million in the third quarter of 2011 to $5.8 million in the third quarter of 2012. $1.1 million of this increase was due to a 13,000 barrel increase in our net oil sales volumes in Kansas, and that was a result of the drilling and polymer program that we had conducted at the end of 2011, as well as all through 2012.

200,000 of this increase was actually due to a $2.81 increase in the average Kansas oil price from $82.49 in 2011 to $85.30 in 2012. Production cost and taxes increased 300,000 or 19% from $1.5 million in 2011 to $1.8 million in 2012. This increase was actually due to a franchise tax refund that we received in the third quarter of 2011, it was $240,000 and it was booked at that time. I think if you remember, we actually talked about that in the previous calls that we had during that period.

DD&A expense increased $300,000 or 42% from $700,000 in 2011 to $1 million in 2012. Approximately $170,000 of this increase was related to the sales volume increase that I spoke about earlier. The remaining amount really relates to the increase in the oil and gas depletion rate.

General and administrative expense increased $400,000 from about $500,000 in 2011 to $900,000 in 2012. Approximately, $240,000 of this related to recording an allowance in the third quarter of 2012. For the receivable that offsets the Hoactzin-related payables. There had been no reduction in these payables since early to mid second quarter of this year. Therefore the Company felt it was appropriate to establish allowance at this time.

The remainder of this increase related to higher accounting, consulting and legal expenses. Interest expense increased $30,000 or 18% from $160,000 in 2011 to $290,000 in 2012. This increase was due to higher average bank borrowings in 2012 and the increase in the bank borrowings was related to additional cash used to supplement our cash flow in order to conduct our drilling and polymer programs.

Gain and loss on directives decreased $455,000 from a $420,000 gain in 2011 to a $35,000 loss in 2012. The $35,000 loss in 2012 related to the change in the fair value of the derivatives. In 2011 they actually had a $540,000 gain related to the change in fair value. But that was partially offset by $120,000 of settlement payments that we made to Macquarie.

If you move over to slide number four, it discusses the nine month financial summary. Net income increased $660,000 or 26% from $2.5 million or $0.04 a share in the first nine months of 2011 to $3.2 million or $0.05 a share in the first nine months of 2012.

Revenue increased $3.2 million or 25% from $12.8 million in 2011 to $16 million in 2012; $2.7 million of this increase was due to a 31,000 barrel increase on net oil sales volumes in Kansas. Those volumes went from 139,000 in 2011 to 170,000 in 2012. Once again this increase was a result of the drilling and polymer programs that we conducted in late 2011 and all throughout 2012. The increases in the volumes were primarily related to the Coddington, Hilgers "B", Liebenau, McElhaney "A", Veverka "A", Zerger "A" leases.

Read the rest of this transcript for free on seekingalpha.com