U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2018~~2019

Commission File No. 1-15555

Tengasco, Inc.

(Exact name of registrant as specified in its charter)

Delaware		87-0267438
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

8000 E. Maplewood Ave, Suite 130, Greenwood Village, CO 80111

(Address of principal executive offices)

720-420-4460

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by checkmark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting company,”" and ~~“emerging~~"emerging growth ~~company”~~company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
~~(Do not check if a smaller reporting company)~~	Emerging growth company ☐
	If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	TGC	NYSE American

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~10,624,493~~10,648,663 common shares at May ~~7, 2018~~6, 2019.

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	* Unaudited Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018	3
	* Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018	5
	* Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018	6
	* Notes to Unaudited Condensed Consolidated Financial Statements	7
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1718
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
	ITEM 4. CONTROLS AND PROCEDURES	2021
PART II.	OTHER INFORMATION	2021
	ITEM 1. LEGAL PROCEEDINGS	2021
	ITEM 1A. RISK FACTORS	2021
	ITEM 2. UNREGISTERD SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	2021
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES	2021
	ITEM 4. MINE SAFTY DISCLOSURES	2021
	ITEM 5. OTHER INFORMATION	2021
	ITEM 6. EXHIBITS	2122
	* SIGNATURES	2223
	* CERTIFICATIONS

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Tengasco, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share data)

	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Assets

Current
Cash and cash equivalents	$	2,916	$	185	$	3,224	$	3,115
Accounts receivable, less allowance for doubtful accounts of $14		550		517
Accounts receivable – related party, less allowance for doubtful accounts of $159		—		—
Accounts receivable						608		533
Inventory		656		541		423		464
Other current assets		219		134
Discontinued operations included in current assets		—		121
Prepaid expenses						226		235
Total current assets		4,341		1,498		4,481		4,347
Loan fees, net		12		13		7		9
Right of use asset - operating leases						84		—
Oil and gas properties, net (full cost accounting method)		4,570		4,720		4,650		4,804
Other property and equipment, net		243		135		169		190
Deferred tax asset		242		242
Discontinued operations included in non-current assets		—		1,497
Accounts receivable - noncurrent						130		130
Other noncurrent assets						4		4
Total assets	$	9,408	$	8,105	$	9,525	$	9,484

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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Tengasco, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share data)

	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Liabilities and Stockholders’ Equity

Current liabilities
Accounts payable – trade	$	133		$	181		$	173		$	132
Accounts payable – other		159			159
Accrued and other current liabilities		211			187
Accrued liabilities								267			282
Lease liabilities - operating leases - current								59			—
Lease liabilities - finance leases - current								77			—
Current maturities of long-term debt		56			41			—			51
Discontinued operations included in current liabilities		32			43
Asset retirement obligation - current								83			83
Total current liabilities		591			611			659			548
Asset retirement obligation		2,292			2,270
Lease liabilities - operating leases - noncurrent								25			—
Lease liabilities - finance leases - noncurrent								35			—
Long term debt, less current maturities		103			49			—			73
Asset retirement obligation - noncurrent								2,131			2,096
Total liabilities		2,986			2,930			2,850			2,717
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock, 25,000,000 shares authorized:
Series A Preferred stock, $.0001 par value, 10,000 shares designated; 0 shares issued and outstanding		—			—
Common stock, $.001 par value, authorized 100,000,000 shares; 10,624,493 and 10,619,924 shares issued and outstanding		11			11
Series A Preferred stock, $0.0001 par value, 10,000 shares designated; 0 shares issued and outstanding								—			—
Common stock, $.001 par value, authorized 100,000,000 shares; 10,644,252 and 10,639,290 shares issued and outstanding								11			11
Additional paid–in capital		58,257			58,253			58,280			58,276
Accumulated deficit		(51,846	)		(53,089	)		(51,616	)		(51,520	)
Total stockholders’ equity		6,422			5,175			6,675			6,767
Total liabilities and stockholders’ equity	$	9,408		$	8,105		$	9,525		$	9,484

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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Tengasco, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except share and per share data)

	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2018			2017			2019			2018
Revenues
Oil and gas properties	$	1,367		$	1,209		$	1,171		$	1,367
Total revenues		1,367			1,209			1,171			1,367
Cost and expenses
Production costs and taxes		730			808			779			730
Depreciation, depletion, and amortization		183			221			184			183
General and administrative		336			334			346			336
Impairment		—			—
Total cost and expenses		1,249			1,363			1,309			1,249
Net income (loss) from operations		118			(154	)		(138	)		118
Other expense
Net interest expense		(1	)		(16	)		(3	)		(1	)
Gain on sale of assets		16			—			45			16
Total other expenses		15			(16	)		42			15
Income (loss) from continuing operations before income tax		133			(170	)		(96	)		133
Deferred income tax benefit		—			—			—			—
Net income (loss) from continuing operations		133			(170	)		(96	)		133
Net income (loss) from discontinued operations		1,110			(43	)
Net income from discontinued operations								—			1,110
Net income (loss)	$	1,243		$	(213	)	$	(96	)	$	1,243
Net income (loss) per share - Basic and Fully Diluted
Continuing operations	$	0.01		$	(0.02	)	$	(0.01	)	$	0.01
Discontinued operations	$	0.10		$	(0.01	)	$	—		$	0.10
Shares used in computing earnings per share
Basic and fully diluted		10,624,442			8,452,132			10,644,197			10,624,442

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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Tengasco, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2018			2017			2019			2018
Operating activities
Net income (loss) from continuing operations	$	133		$	(170	)	$	(96	)	$	133
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion, and amortization		183			221			184			183
Amortization of loan fees-interest expense		1			4			2			1
Accretion on asset retirement obligation		36			36			35			36
(Gain) loss on asset sales		(16	)		—
Gain on asset sales								(45	)		(16	)
Stock based compensation		4			4			4			4
Changes in assets and liabilities:
Accounts receivable		(33	)		44			(75	)		(33	)
Inventory and other assets		(200	)		56			(55	)		(200	)
Accounts payable		(48	)		(63	)		50			(48	)
Accrued and other current liabilities		18			(50	)		(15	)		18
Settlement on asset retirement obligation		(7	)		(10	)		(7	)		(7	)
Net cash provided by operating activities - continuing operations		71			72
Net cash provided by (used in) operating activities - discontinued operations		67			(160	)
Net cash provided by (used in) operating activities - continuing operations								(18	)		71
Net cash provided by operating activities - discontinued operations								—			67
Net cash provided by (used in) operating activities		138			(88	)		(18	)		138
Investing activities
Additions to oil and gas properties		(32	)		(7	)		(11	)		(32	)
Proceeds from sale of oil and gas properties		3			—			—			3
Additions to other property and equipment		(19	)		—			—			(19	)
Proceeds from sale of other property and equipment		7			—			—			7
Net cash used in investing activities - continuing operations		(41	)		(7	)
Proceeds from sale of materials inventory								150			—
Net cash provided by (used in) investing activities - continuing operations								139			(41	)
Net cash provided by investing activities - discontinued operations		2,650			—			—			2,650
Net cash provided by (used in) investing activities		2,609			(7	)
Net cash provided by investing activities								139			2,609
Financing activities
Repayments of borrowings		(116	)		(2,815	)		(12	)		(116	)
Proceeds from borrowings		100			400			—			100
Proceeds from stock issuance in rights offering		—			2,699
Costs of stock issuance in rights offering		—			(37	)
Net cash provided by (used in) financing activities - continuing operations		(16	)		247
Net cash used in financing activities - continuing operations								(12	)		(16	)
Net cash provided by (used in) financing activities - discontinued operations		—			—			—			—
Net cash provided by financing activities		(16	)		247
Net cash used in financing activities								(12	)		(16	)
Net change in cash and cash equivalents		2,731			152			109			2,731
Cash and cash equivalents, beginning of period		185			76			3,115			185
Cash and cash equivalents, end of period	$	2,916		$	228		$	3,224		$	2,916
Supplemental cash flow information:
Cash interest payments	$	—		$	12		$	1		$	—
Supplemental non-cash investing and financing activities:
Financed company vehicles	$	109		$	—		$	—		$	109
Costs of stock issuance in rights offering	$	—		$	(140	)
Capital expenditures included in accounts payable and accrued liabilities	$	6		$	—		$	—		$	6

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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Tengasco, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(1)	Description of Business and Significant Accounting Policies

Tengasco, Inc. (the “Company”) is a Delaware corporation. The Company is in the business of exploration for and production of oil and natural gas. The Company’s primary area of exploration and production is in Kansas.

The Company’s wholly-owned subsidiary, Tengasco Pipeline Corporation (“TPC”) owned and operated a pipeline which it constructed to transport natural gas from the Company’s Swan Creek Field to customers in Kingsport, Tennessee. The Company sold all its pipeline assets on August 16, 2013.

The Company’s wholly-owned subsidiary, Manufactured Methane Corporation (“MMC”) operated treatment and delivery facilities in Church Hill, Tennessee for the extraction of methane gas from a landfill for eventual sale as natural gas and for the generation of electricity. The Company sold all its methane facility assets, except the applicable U.S. patent, on January 26, 2018 for $2.65 million. (See Note 11. Discontinued Operations)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of March 31, ~~2018~~2019 and March 31, ~~2017~~2018 have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Item 210 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of December 31, ~~2017~~2018 is derived from the audited financial statements, but does not include all disclosures required by U.S. GAAP. The Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation for the periods presented have been included as required by Regulation S-X, Rule 10-01. Operating results for the three months ended March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2018.~~2019. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany transactions and balances.

Use of Estimates

The accompanying condensed consolidated financial statements are prepared in conformity with U.S. GAAP which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include reserve quantities and estimated future cash flows associated with proved reserves, which significantly impact depletion expense and potential impairments of oil and natural gas properties, income taxes and the valuation of deferred tax assets, stock-based compensation and commitments and contingencies. We analyze our estimates based on historical experience and various other assumptions that we believe to be reasonable. While we believe that our estimates and assumptions used in preparation of the condensed consolidated financial statements are appropriate, actual results could differ from those estimates.

Revenue Recognition

~~Effective January 1, 2018, the Company adopted ASU 2014-09~~ ~~Revenue from Contracts with Customers~~. The Company identifies the contracts with each of its customers and the separate performance obligations associated with each of these contracts. Revenues are recognized when the performance obligations are satisfied and when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

Crude oil is sold on a month-to-month contract at a price based on an index price from the purchaser, net of differentials. Crude oil that is produced is stored in storage tanks. The Company will contact the purchaser and request them to pick up the crude oil from the storage tanks. When the purchaser picks up the crude from the storage tanks, control of the crude transfers to the purchaser, the Company’s contractual obligation is satisfied, and revenues are recognized. The sales of oil ~~represents~~represent the Company’s share of revenues net of royalties and excluding revenue interests owned by others. When selling oil on behalf of royalty owners or working interest owners, the Company is acting as an agent and thus reports revenues on a net basis. Fees and other deductions incurred prior to transfer of control are recorded as production costs. Revenues are ~~report~~reported net of fees and other deductions incurred after transfer of control.

~~Table of Contents~~

~~Tengasco, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Electricity from the Company’s methane facility was sold on a long term contract. There ~~were~~was no specific ~~volumes~~quantity of electricity that ~~were~~was required to be delivered under this contract. Electricity passed through sales meters located at the Carter Valley landfill site, at which time control of the electricity transferred to the purchaser, the Company’s contractual obligation was satisfied, and revenues were recognized. The Company sold its methane facility and generation assets on January 26, 2018 and therefore will not recognize revenues associated with any sales volumes after ~~this~~that date. Revenues associated with the methane facility are included in Discontinued Operations. (See Note 11. Discontinued Operations)

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Tengasco, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

The Company operates certain salt water disposal wells, some of which accept water from third parties. The contracts with the third parties primarily require a flat monthly fee for the third parties to dispose water into the wells. In some cases, the contract is based on a per barrel charge to dispose water into the wells. There is no requirement under the contracts for these third parties to use these wells for their water disposal. If the third parties do dispose water into the Company operated wells in a given month, the Company has met its contractual obligations and revenues are recognized for that month.

The following table presents the disaggregated revenue by commodity for the three months ended March 31, 2019 and 2018 ~~and 2017 (in~~(in thousands):

	Three Months Ended				March 31, 2019		March 31, 2018
	March 31, 2018		March 31, 2017
Revenues (in thousands):
Crude oil	$	1,357	$	1,203	$	1,164	$	1,357
Salt water disposal fees		10		6		7		10

Total	$	1,367	$	1,209	$	1,171	$	1,367

There were no natural gas imbalances at March 31, ~~2018~~2019 or December 31, ~~2017.~~2018.

Cash and Cash Equivalents

Cash and cash equivalents include temporary cash investments with a maturity of ninety days or less at date of purchase.

Inventory

Inventory consists of crude oil in tanks and is carried at lower of cost or market value. The cost component of the oil inventory is calculated using the average cost per barrel for the three months ended March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. These costs ~~includes~~include production costs and ~~taxes, allocated general and administrative costs, depletion, and allocated interest cost.~~taxes. The market value component is calculated using the average March ~~2018~~2019 and December ~~2017~~2018 oil sales prices received from the Company’s Kansas properties. In addition, at December 31, 2018, the Company also carried equipment and materials to be used in its Kansas operation and iswas carried at the lower of cost or market value. The equipment inventory was sold to a third party during the three months ended March 31, 2019. The cost component of the equipment and materials inventory ~~represents~~represented the original cost paid for the equipment and materials. The market component is based on estimated sales value for similar equipment and materials at the end of each period. At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, inventory consisted of the following (in thousands):

	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Oil – carried at cost	$	551	$	436	$	423	$	359
Equipment and materials – carried at market		105		105		—		105
Total inventory	$	656	$	541	$	423	$	464

Full Cost Method of Accounting

The Company follows the full cost method of accounting for oil and gas property acquisition, exploration, and development activities. Under this method, all costs incurred in connection with acquisition, exploration, and development of oil and gas reserves are capitalized. Capitalized costs include lease acquisitions, seismic related costs, certain internal exploration costs, drilling, completion, and estimated asset retirement costs. The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves and estimated asset retirement costs which are not already included net of estimated salvage value, are amortized on the unit-of-production method based on total proved reserves. The Company has determined its reserves based upon reserve reports provided by LaRoche Petroleum Consultants Ltd. since 2009. The costs of unproved properties are excluded from amortization until the properties are evaluated, subject to an annual assessment of whether impairment has occurred. The Company had $0 in unevaluated properties as of March 31, ~~2018~~2019 and $23,000 at December 31, ~~2017.~~2018. Proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs unless such sales cause a significant change in the relationship between costs and the estimated value of proved reserves, in which case a gain or loss is recognized.

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Tengasco, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

At the end of each reporting period, the Company performs a “ceiling test” on the value of the net capitalized cost of oil and gas properties. This test compares the net capitalized cost (capitalized cost of oil and gas properties, net of accumulated depreciation, depletion and amortization and related deferred income taxes) to the present value of estimated future net revenues from oil and gas properties using an average price (arithmetic average of the beginning of month prices for the prior 12 months) and current cost discounted at 10% plus cost of properties not being amortized and the lower of cost or estimated fair value of unproven properties included in the cost being amortized (ceiling). If the net capitalized cost is greater than the ceiling, a write-down or impairment is required. A write-down of the carrying value of the asset is a non-cash charge that reduces earnings in the current period. Once incurred, a write-down may not be reversed in a later period. The Company did not record any impairment of its oil and gas properties during the three months ended March 31, 2019 and 2018.

Accounts Receivable

Accounts receivable consist of uncollateralized joint interest owner obligations due within 30 days of the invoice date, uncollateralized accrued revenues due under normal trade terms, generally requiring payment within 30 days of sales of oil and gas production, ~~and within 60 days of sales of produced electricity,~~ and other miscellaneous receivables. No interest is charged on past-due balances. Payments made on accounts receivable are applied first to the earliest unpaid items. We review accounts receivable periodically and reduce the carrying amount by a valuation allowance that reflects our best estimate of the amount that may not be collectible. AnThere was no allowance ~~was~~ recorded at March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

The following table sets forth information concerning the Company’s accounts receivable (in thousands):

March 31,
2018

December 31,
2017

Revenue $ 519 $ 479
Joint interest 23 23
Other 22 29
Allowance for doubtful accounts (14 ) (14 )
Total accounts receivable $ 550 $ 517

	March 31, 2019		December 31, 2018
Revenue	$	474	$	396
Tax		129		129
Joint interest		5		8
Accounts receivable - current	$	608	$	533

Tax - noncurrent	$	130	$	130

At March 31, 2019 and December 31, 2018, the Company recorded a tax related current receivable of $129,000 and a tax related non-current receivable of $130,000. (See Note 3. Income Taxes)

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation with no effect on net income.

(2)	~~Liquidity~~Changes in Stockholders’ Equity

~~The Company incurred a net loss~~

Three Months Ended March 31, 2019:

	Common Stock				Paid-in Capital		Accumulated Deficit			Total
	Shares		Amount		Paid-in Capital		Accumulated Deficit			Total
Balance, December 31, 2018		10,639,290	$	11	$	58,276	$	(51,520	)	$	6,767

Net loss		—		—		—		(96	)		(96	)
Compensation expense related to stock issued		4,962		—		4		—			4

Balance, March 31, 2019		10,644,252	$	11	$	58,280	$	(51,616	)	$	6,675

Table of approximately $574,000 in 2017. In January 2018, the Company sold its methane facility for $2.65 million. During 2018, the Company believes its revenues as well as the proceeds received from the sale of the methane facility will be sufficientContents

Tengasco, Inc. and Subsidiaries

Notes to fund operating and general and administrative expenses and to remain in compliance with its bank covenants. If revenues and the proceeds from the sale of the methane facility are not sufficient to fund these expenses or if the Company needs additional funds for capital spending, the Company could borrow funds against the credit facility as this facility currently has a $2.0 million borrowing base with no funds currently drawn. In addition, if required, the Company could also issue additional shares of stock and/or sell assets as needed to further fund operations.Unaudited Condensed Consolidated Financial Statements

Three Months Ended March 31, 2018:

	Common Stock				Paid-in Capital		Accumulated Deficit			Total
	Shares		Amount		Paid-in Capital		Accumulated Deficit			Total
Balance, December 31, 2017		10,619,924	$	11	$	58,253	$	(53,089	)	$	5,175

Net income		—		—		—		1,243			1,243
Compensation expense related to stock issued		4,569		—		4		—			4

Balance, March 31, 2018		10,624,493	$	11	$	58,257	$	(51,846	)	$	6,422

(3)	Income Taxes

Income taxes are reported in accordance with U.S. GAAP, which requires the establishment of deferred tax accounts for all temporary differences between the financial reporting and tax bases of assets and liabilities, using currently enacted federal and state income tax rates. In addition, deferred tax accounts must be adjusted to reflect new rates if enacted into law.

The deferred income tax assets or liabilities for an oil and gas exploration and development company are dependent on many variables such as estimates of the economic lives of depleting oil and gas reserves and commodity prices. Accordingly, the asset or liability is subject to continuous recalculation and revision of the numerous estimates required, and may change significantly in the event of occurrences such as major acquisitions, divestitures, commodity price changes, changes in reserve estimates, changes in reserve lives, and changes in tax rates or tax laws.

~~Table~~The estimated annual effective tax rate of ~~Contents~~

~~Tengasco, Inc. and Subsidiaries~~

~~Notes~~0% differs from the statutory rate of 21% due primarily to ~~Unaudited Condensed Consolidated Financial Statements~~adjustments to the valuation allowance on the deferred tax assets.

At December 31, ~~2017,~~2018, federal net operating loss carryforwards amounted to approximately ~~$30.2~~$35.6 million, of which ~~expire~~$34.6 million expires between 2019 and ~~2036.~~2037 which can offset 100% of taxable income and $1 million that has an indefinite carryforward period which can offset 80% of taxable income per year. The ~~net total deferred~~Company has approximately $260,000 in refundable credits, and it expects that a substantial portion will be refunded between 2018 and 2021. As 50% of the credit will be refunded when we file the 2018 tax ~~asset was $242,000~~return, this amount is recorded as a current accounts receivable on the Balance Sheet at March 31, ~~2018~~2019 and December 31, ~~2017. In 2017, The Company released a portion~~2018, with balance of ~~the allowance related to the Company’s Minimum Tax Credit (“MTC”)~~this refund recorded as a ~~result of the 2017 Tax Act.~~non-current accounts receivable. The Company recorded ana valuation allowance on the remaining deferred tax ~~asset~~assets at March 31, ~~2018~~2019 and December 31, ~~2017 primarily~~2018 as such amounts were not considered to be more-likely-than-not realizable due to cumulative losses incurred during the preceding 3 years ended December 31, 2017. The Company expects to utilize its net operating losses and reduce its valuation allowance to offset taxable income resulting from the sale of the methane facility assets.year period. There were no recorded unrecognized tax benefits at March 31, 2019 and December 31, 2018.

(4)	Capital Stock

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Tengasco, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

We lease certain office space, a storage yard, and field vehicles to support our operations. A more detailed description of the Company’s lease types is included below.

Office and Storage Yard

The Company maintains an office to support its corporate operations. This office agreement is with a third party and was structured with a 39 month initial term. The Company can renew the lease for 36 additional months by providing to the Landlord written notice of intent to exercise the renewal not less than nine months prior to expiration of the initial term. The Company’s corporate office lease is classified as an operating lease.

The Company maintains an office to support its field operations. This office is with a third party and is on a month-to-month lease. However, the Company intends to continue to renew this lease for the foreseeable future. Based on the Company’s intent to renew the lease, the Company is assuming the same lease term as its corporate office lease for calculation of its right of use asset and lease liability. The Company’s field office lease is classified as an operating lease.

The Company maintains a yard to store certain equipment used in its field operations. This storage yard agreement is with a third party and is on a month-to-month lease. However, the Company intends to continue to renew this lease for the foreseeable future. Based on the Company’s intent to renew the lease, the Company is assuming the same lease term as its corporate office lease for calculation of its right of use asset and lease liability. The Company’s storage yard is classified as an operating lease.

Field Vehicles

The Company leases certain vehicles from a third party for use in its field operations. The lease term for each vehicle is based on expected daily use of the vehicles by the field personnel, typically between 18 and 36 months. The Company also pays an upfront fee at the commencement of the lease term. The Company can continue to lease the vehicles past the initial lease term on a month-to-month basis. In addition, each vehicle has a residual value guarantee at the end of the lease term. The Company’s field vehicle leases are classified as finance leases.

Significant Judgements

In order to determine whether the Company’s contracts contain a lease component, the Company is required to excise significant judgement. The Company will review each contract to determine if: an asset is specified in the contract; the asset is physically distinct; the supplier does not have substantive substitution rights; the Company obtains substantially all economic benefit from use of the asset; and the Company can direct the use of the asset. The Company also determines the appropriate discount rate to use on each lease. If there is a stated rate in the contract, the Company will use the stated rate as its discount rate. The contract associated with the field vehicles includes a stated rate typically between 5% and 6.5%. These stated rates for the field vehicle agreements were used as the discount rates. If there is no stated rate, the Company will use its borrowing rate as the discount rate. The contracts associated with the offices and yard do not include a stated rate. The Company used its borrowing rate of 6% as the discounts rate for these agreements.

Components of lease costs for the three months ended March 31, 2019 (in thousands):

	Income Statement Account	March 31, 2019
Operating lease cost:
	Production costs and taxes	$	3
	General and administrative		12
Total operating lease cost		$	15

Finance lease cost:
Amortization of right of use assets	Depreciation, depletion and amortization	$	21
Interest on lease liabilities	Net interest expense		1
Total finance lease cost		$	22

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Tengasco, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

OnSupplemental lease related cash flow information for the three months ended March 21, 2018, the Company’s senior credit facility with Prosperity Bank after Prosperity Bank’s most recent review of the Company’s currently owned producing properties was amended to increase the borrowing base to $2 million and the maturity date was extended to July 31, 2020. The borrowing base remains subject to the existing periodic redetermination provisions in the credit facility. The interest rate remained prime plus 0.50% per annum. This rate was 5.00% at the date of the amendment. The maximum line of credit of the Company under the Prosperity Bank credit facility remained $50 million and the Company had no outstanding borrowing under the facility2019 (in thousands):

	March 31, 2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15
Operating cash flows from finance leases		1
Finance cash flows from finance leases		12

Right of use assets obtained in exchange for lease obligations:
Operating leases		98

Supplemental lease related balance sheet information as of March 31, ~~2018. The next borrowing base review will take place in July 2018.~~2019 (in thousands):

	March 31, 2019
Operating Leases

Right of use asset – operating leases	$	84

Lease liabilities - current	$	59
Lease liabilities - noncurrent		25
Total operating lease liabilities	$	84

Finance Leases

Other property and equipment, gross	$	293
Accumulated depreciation		(124	)
Other property and equipment, net	$	169

Lease liabilities - current	$	77
Lease liabilities - noncurrent		35
Total finance lease liabilities	$	112

Weighted average remaining lease term and discount rate as of March 31, 2019:

	Operating Leases			Finance Leases

Weighted average remaining lease term		1.4 years		1.4 years
Weighted average discount rate		6.0	%		5.7	%

Maturity of lease liabilities as of March 31, 2019 (in thousands):

	Operating Leases			Finance Leases

2019 (April 2019 – December 2019)	$	46		$	65
2020		42			37
2021		-			16
Total lease payments		88			118
Less imputed interest		(4	)		(6	)
Total	$	84		$	112

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Tengasco, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(11)	Discontinued Operations

The following table sets forth information concerning the Discontinued Operations (in thousands):

March 31,
2018

December 31,
2017

Accounts receivable $ — $ 91
Other current assets — 30
Discontinued operations included in current assets $ — $ 121

Property, plant, and equipment $ — $ 1,681
Accumulated depreciation, depletion, and amortization — (184 )
Discontinued operations included in non-current assets $ — $ 1,497

Accounts payable - trade $ 32 $ 27
Accrued and other current liabilities — 16
Discontinued operations included in current liabilities $ 32 $ 43

��	For the Three Months Ended March 31,
							For the Three Months Ended March 31,
	2018			2017			2019		2018

Revenues	$	6		$	135		$	—	$	6
Production costs and taxes		(50	)		(163	)		—		(50	)
Depreciation, depletion, and amortization		(4	)		(15	)		—		(4	)
Interest income		1			—			—		1
Gain on sale of assets		1,157			—			—		1,157
Deferred income tax benefit		—			—
Net income (loss) from discontinued operations	$	1,110		$	(43	)
Net income from discontinued operations							$	—	$	1,110

~~The~~ Discontinued ~~Operations~~operations are related to the Manufactured Methane facilities. The Company sold all its methane facility assets, except the applicable U.S. patent, on January 26, 2018 for $2.65 million.

(12)	Fair Value Measurements

FASB ASC 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

~~Table of Contents~~

~~Tengasco, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Level 1 – Observable inputs, such as unadjusted quoted prices in active markets, for substantially identical assets and liabilities.

Level 2 – Observable inputs other than quoted prices within Level 1 for similar assets and liabilities. These include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. If the asset or liability has a specified or contractual term, the input must be observable for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs that are supported by little or no market activity, generally requiring a significant amount of judgment by management. The assets or liabilities fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Further, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Upon completion of wells, the Company records an asset retirement obligation at fair value using Level 3 assumptions.

Nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis upon impairment. The carrying amounts of other financial instruments including cash and cash equivalents, accounts receivable, account payables, accrued liabilities and long term debt in our balance sheet approximates fair value as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

(13)	Commitments and Contingencies

The Company as designated operator of the Hoactzin properties was administratively issued an “Incident of Non-Compliance” by ~~BSEE~~the Bureau of Safety and Environmental Enforcement (“BSEE”) during the quarter ended September 30, 2012 concerning one of Hoactzin’s operated properties. This action called for payment of a civil penalty of $386,000 for failure to provide, upon request, documentation to the BSEE evidencing that certain safety inspections and tests had been conducted in 2011. On July 14, 2015, the federal district court in the Eastern District of Louisiana affirmed the civil penalty without reduction. The Company did not further appeal. In the third quarter of 2015, the Company paid the civil penalty and statutory interest thereon from funds borrowed under its credit facility. In the fourth quarter of 2015, the Company received a return of the cash collateral previously provided to RLI Insurance Company. The Company has not advanced any funds to pay any obligations of Hoactzin and no borrowing capability of the Company has been used in connection with its obligations under the Management Agreement, except for those funds used to pay the civil penalty and interest thereon.

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Tengasco, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

During the second quarter of 2015, the Company received from Hoactzin a copy of an internal analysis prepared by Hoactzin setting out certain issues that Hoactzin may consider to form the basis of operational and other claims against the Company primarily under the Management Agreement. This analysis raised issues other than the “Incident of Non-Compliance” discussed above. The Company is discussing this analysis, as well as the civil penalty discussed above, with Hoactzin in an effort to determine whether there is possibility of a reasonable resolution of some or all of these matters on a negotiated basis.

In the normal course of business, the Company enters into commitments to spend capital on oil and gas properties. Since March 31, 2018, the Company has entered into a drilling commitment in the amount of approximately $45,000. The work associated with this commitment was completed in April 2018.

Cost Reduction Measures

Commencing in the quarter ended March 31, 2015 and continuing ~~through~~into the quarter ended ~~March 31,~~June 30, 2018, the Company implemented cost reduction measures including compensation reductions for each employee as well as members of the Board of Directors. These compensation reductions ~~will~~were to remain in place until such time, if any, that the market price of crude oil, calculated as a thirty day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $70 per ~~barrel when~~barrel. In May 2018, oil prices as so calculated exceeded $70 and compensation ~~shall revert~~reverted to the levels in place before the reductions became effective. At such time, if any, that the market price of crude oil, calculated as a thirty day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $85 per barrel, all previous reductions made will be reimbursed, a portion which may be paid in stock, to each employee and members of the Board of Directors if is still employed by the Company or still a member of the Board of Directors. For the period January 1, 2015 through March 31, ~~2018,~~2019, the reductions were approximately ~~$421,000.~~$432,000. Of the $432,000, approximately $103,000 will be paid in the Company’s common stock. The $103,000 value represents approximately 100,000 common share valued at $1.03 per share which represents the closing price on March 29, 2019. The Company has not accrued any liabilities associated with these compensation reductions.

~~Table of Contents~~

~~Tengasco, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Legal Proceedings

The Company is not a party to any pending material legal proceeding. To the knowledge of management, no federal, state, or local governmental agency is presently contemplating any proceeding against the Company which would have a result materially adverse to the Company. To the knowledge of management, no director, executive officer or affiliate of the Company or owner of record or beneficially of more than 5% of the Company’s common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

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ITEM

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations and Financial Condition

During the first three months of ~~2018, 30.6~~2019, 30.0 MBbl gross of oil were sold from the Company’s properties. Of the ~~30.6~~30.0 MBbl sold, ~~23.7~~23.4 MBbl were net to the Company after required payments to all of the royalty interests and drilling program participants. The Company’s net sales from its properties during the first three months of ~~2018~~2019 of ~~23.7~~23.4 MBbl of oil compares to net sales of ~~26.0~~23.7 MBbl of oil during the first three months of ~~2017.~~2018. The Company’s net revenue from its oil and gas properties was $1.2 million during the first three months of 2019 compared to $1.4 million during the first three months of ~~2018 compared to $1.2 million during the first three months of 2017.~~2018. This ~~increase~~decrease in net revenue was primarily due to a ~~$261,000 increase~~$175,000 decrease related to an ~~$11.04~~$7.48 per barrel ~~increase~~decrease in the average oil price from ~~$46.32 per barrel during the first three months of 2017 to~~ $57.36 per barrel during the first three months of 2018 ~~partially offset by~~to $49.88 per barrel during the first three months of 2019, and a ~~$107,000~~$17,000 decrease related to ~~the 2.3 MBbl~~approximately a 300 Bbl decrease in sales volumes. The ~~2.3 MBbl~~300 Bbl decrease was primarily due to natural declines, partially offset by increased production on the Veverka D lease as a result of a polymer work performed in the second quarter 2018, and ~~timing of crude pickup~~ by increased production on the ~~refineries.~~BSU #1-30 well which was completed in October 2018.

Comparison of the Quarters Ended March 31, ~~2018~~2019 and ~~2017~~2018

The Company reported a net loss from continuing operations of $(96,000) or $(0.01) per share of common stock during the first quarter of 2019 compared to a net income from continuing operations of $133,000 or $0.01 per share of common stock during the first quarter of ~~2018 compared to a net loss from continuing operations of $170,000 or $0.02 per share of common stock during the first quarter of 2017.~~2018. The ~~$303,000 increase~~$229,000 decrease in net income was primarily due to a ~~$158,000 increase~~$196,000 decrease in revenues, a ~~$78,000 decrease~~$49,000 increase in production cost and taxes, partially offset by a ~~$38,000 decrease in DD&A, a $16,000~~$29,000 increase in gain on ~~asset sales, and a $15,000 decrease in net interest expense.~~sale of assets.

The Company recognized ~~$1.4~~$1.2 million in revenues during the first quarter of ~~2018~~2019 compared to ~~$1.2~~$1.4 million during the first quarter of ~~2017.~~2018. The ~~$158,000 increase~~$196,000 decrease in net revenue was primarily due to a ~~$261,000 increase~~$175,000 decrease related to an ~~$11.04~~$7.48 per barrel ~~increase~~decrease in the average oil price from ~~$46.32 per barrel during the first three months of 2017 to~~ $57.36 per barrel during the first three months of 2018 ~~partially offset by~~to $49.88 per barrel during the first three months of 2019, and a ~~$107,000~~$17,000 decrease related to ~~the 2.3 MBbl~~approximately a 300 Bbl decrease in sales volumes. The ~~2.3 MBbl~~300 Bbl decrease was primarily due to natural declines, partially offset by increased production on the Veverka D lease as a result of a polymer performed in the second quarter 2018, and ~~timing of crude pickup~~ by increased production on the ~~refineries~~BSU #1-30 well which was completed in October 2018.

Production cost and taxes ~~decreased $78,000~~increased $49,000 from ~~$808,000~~$730,000 during the first quarter of ~~2017~~2019 to ~~$730,000~~$779,000 during the first quarter of 2018. This decrease was primarily due to a ~~$146,000~~$51,000 increase related to change in the oil inventory quarterly ~~adjustment,~~adjustments, a $20,000 increase in pumping charges primarily related to replacement of a company pumper with a contract pumper, and a ~~$14,000 decrease~~$17,000 increase in ~~Kansas property taxes,~~chemical costs, partially offset by a ~~$34,000 increase~~$38,000 decrease in well and ~~facility~~equipment repair ~~costs, a $15,000 increase in chemical costs, and an $11,000 increase in franchise tax~~ costs.

~~DD&A decreased $38,000~~Gain on sale of assets increased $29,000 from ~~$221,000~~$16,000 during the first quarter of ~~2017~~2018 to ~~$183,000~~$45,000 during the first quarter of ~~2018.~~2019. This ~~decrease~~increase was primarily ~~due~~related to recording sale of equipment inventory to a ~~$18,000 decrease related to a 2.3 MBbl decrease in oil sales volumes, and a $14,000 decrease related to a lower oil depletion rate.~~

The $16,000 increase in gain on asset sales was related to disposal of certain field vehicle in 2018. The $15,000 decrease in net interest expense was primarily due to borrowings on the credit facilitythird party during the first quarter of ~~2017.~~2019, partially offset by recording gains on sales of company vehicles during the first quarter of 2018.

Liquidity and Capital Resources

At March 31, ~~2018,~~2019, the Company had a revolving credit facility with Prosperity Bank. This has historically been the Company’s primary source to fund working capital and future capital spending. Under the credit facility, loans and letters of credit are available to the Company on a revolving basis in an amount outstanding not to exceed the lesser of $50 million or the Company’s borrowing base in effect from time to time. As of March 31, ~~2018,~~2019, the Company’s borrowing base was $2$3 million, subject to a credit limit based on current covenants of approximately $2.74 million. The credit facility is secured by substantially all of the Company’s producing and non-producing oil and gas properties. The credit facility includes certain covenants with which the Company is required to comply. At March 31, ~~2018,~~2019, these covenants include the following: (a) Current Ratio > 1:1; (b) Funded Debt to EBITDA < 3.5x; and (c) Interest Coverage > 3.0x. At March 31, ~~2018,~~2019, the interest rate on this credit facility was ~~5.25%~~6.00%. The Company was in compliance with all covenants during the quarter ended March 31, ~~2018.~~

On March 21, 2018, the Company’s senior credit facility with Prosperity Bank after Prosperity Bank’s most recent review of the Company’s currently owned producing properties was amended to increase the borrowing base to $2 million and the maturity date was extended to July 31, 2020.2019. The borrowing base remains subject to the existing periodic redetermination provisions in the credit facility. The interest rate remained prime plus 0.50% per annum. This rate was 5.00% at the date of the amendment. The maximum line of credit of the Company under the Prosperity Bank credit facility remained $50 million and the Company had no outstanding borrowing under the facility as of March 31, 2019 or December 31, 2018. The next borrowing base review will take place in ~~July 2018.~~May 2019.

The Company incurred a net loss of approximately $574,000 in 2017. In January 2018, the Company sold its methane facility for $2.65 million. During 2018, the Company believes its revenues as well as the proceeds received from the sale of the methane facility will be sufficient to fund operating and general and administrative expenses and to remain in compliance with its bank covenants. If revenues and the proceeds from the sale of the methane facility are not sufficient to fund these expenses or if the Company needs additional funds for capital spending, the Company could borrow funds against the credit facility as this facility currently has a $2.0 million borrowing base with no funds currently drawn. In addition, if required, the Company could also issue additional shares of stock and/or sell assets as needed to further fund operations.

~~Table of Contents~~

Net cash ~~provided by~~used in operating activities from continuing operations was ~~$71,000~~$18,000 during the first three months of ~~2018~~2019 compared to ~~$72,000~~$71,000 provided by operating activities from continuing operations during the first three months of ~~2017.~~2018. Cash flow used in working capital was ~~$270,000~~$102,000 during the first three months of ~~2018~~2019 compared to ~~$23,000~~$270,000 used in working capital during the first three months of ~~2017.~~2018. The ~~$247,000 increase~~$168,000 decrease in cash flow used in working capital was primarily due to changes in ~~inventory.~~inventory, and changes in accounts payable. The $89,000 decrease in cash provided by operating activities was primarily due to a $196,000 decrease in revenues, and a $49,000 increase in production cost and taxes, partially offset by the $168,000 decrease in cash flow used in working capital. Net cash ~~used in~~provided by investing activities from continuing operations was ~~$41,000~~$139,000 during the first three months of ~~2018~~2019 compared to ~~$7,000~~$(41,000) used in investing activities from continuing operations during the first three months of ~~2017. The $34,000~~2018. This increase in ~~net~~ cash ~~used in~~flow provided by investing activities ~~from continuing operations~~ was primarily due to sale of materials inventory to a ~~result of a $25,000 increase in drilling cost incurred~~third party during ~~first three months of 2018 compared to~~ the first three months of ~~2017, and $19,000 related to acquisition of new field vehicles compared to the first three months of 2016.~~2019. Cash flow used in financing activities from continuing operations during the first three months of ~~2018~~2019 was ~~$16,000~~$(12,000) compared to ~~$247,000 provided by~~$(16,000) used in financing activities during the first three months of ~~2017. During the first three months~~2018.

Table of 2017, the Company raised $2.7 million in proceeds as a result of a rights offering which closed on February 2, 2017. The direct costs associated with this rights offering was approximately $177,000, of which $140,000 was incurred during 2016. The net proceeds from this offering were used primarily to pay off the Company’s credit facility.Contents

Critical Accounting Policies

Effective January 1, ~~2018,~~2019, the Company adopted ASU ~~2014-09~~2016-02 ~~Revenue from Contracts with Customers~~Leases (Topic 842).

Commitments and Contingencies

Cost Reduction Measures

Legal Proceedings

~~Table of Contents~~

ITEM

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s Borrowing Base under its Credit Facility may be reduced by the lender.

The borrowing base under the Company’s revolving credit facility will be determined from time to time by the lender, consistent with its customary natural gas and crude oil lending practices. Reductions in estimates of the Company’s natural gas and crude oil reserves could result in a reduction in the Company’s borrowing base, which would reduce the amount of financial resources available under the Company’s revolving credit facility to meet its capital requirements. Such a reduction could be the result of lower commodity prices or production, inability to drill or unfavorable drilling results, changes in natural gas and crude oil reserve engineering, the lender’s inability to agree to an adequate borrowing base or adverse changes in the lenders’ practices regarding estimation of reserves. If cash flow from operations or the Company’s borrowing base decreases for any reason, the Company’s ability to undertake exploration and development activities could be adversely affected. As a result, the Company’s ability to replace naturally declining production may be limited. In addition, if the borrowing base is reduced, the Company may be required to pay down its borrowings under the revolving credit facility so that outstanding borrowings do not exceed the reduced borrowing base. This requirement could further reduce the cash available to the Company for capital spending and, if the Company did not have sufficient capital to reduce its borrowing level, could cause the Company to default under its revolving credit facility.

Table of Contents

As of March 31, ~~2018,~~2019, the Company’s borrowing base was $3 million, subject to a credit limit based on current covenants of approximately $2$2.74 million, of which zero had been drawn down by the Company. The Company’s next periodic borrowing base review will take place in ~~July 2018.~~May 2019.

Commodity Risk

The ~~Company’s~~Company's major market risk exposure is in the pricing applicable to its oil production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil. Historically, prices received for oil and gas production have been volatile and unpredictable and price volatility is expected to continue. The average monthly Kansas oil prices received during the first three months of ~~2018~~2019 ranged from a low of ~~$56.66~~$46.39 per barrel to a high of ~~$58.02~~$52.93 per barrel.

As of March 31, ~~2018,~~2019, the Company has no open positions related to derivative agreements relating to commodities.

Interest Rate Risk

At March 31, ~~2018,~~2019, the Company had ~~debt~~balances on financing leases outstanding of approximately ~~$159,000, none of which was~~$112,000, and no balance owed on its credit facility with Prosperity Bank. As of March 31, ~~2018,~~2019, the interest rate on the credit facility was variable at a rate equal to prime plus 0.50% per annum. The Company’s credit facility interest rate at March 31, ~~2018~~2019 was ~~5.25%~~6.00%. The Company’s ~~remaining debt~~financing leases of ~~$159,000 has~~$112,000 have fixed interest rates ranging from ~~4.16%~~5.0% to ~~4.60%~~6.5%.

The annual impact on interest expense and the Company’s cash flows of a 10% increase in the interest rate on the credit facility would be approximately zero assuming borrowed amounts under the credit facility remained at the same amount owed as of March 31, ~~2018.~~2019. The Company did not have any open derivative contracts relating to interest rates at March 31, ~~2018~~2019 or December 31, ~~2017.~~2018.

Forward-Looking Statements and Risk

Certain statements in this report, including statements of the future plans, objectives, and expected performance of the Company, are forward-looking statements that are dependent upon certain events, risks and uncertainties that may be outside the Company’s control, and which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, the market prices of oil and gas, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, political and economic uncertainties of foreign governments, future business decisions, and other uncertainties, all of which are difficult to predict.

There are numerous uncertainties inherent in projecting future rates of production and the timing of development expenditures. The total amount or timing of actual future production may vary significantly from estimates. The drilling of exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns. Lease and rig availability, complex geology and other factors can also affect these risks. Additionally, fluctuations in oil and gas prices, or a prolonged period of low prices, may substantially adversely affect the ~~Company’s~~Company's financial position, results of operations, and cash flows.

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ITEM

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Report, were adequate and effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and fraud. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.

Changes in Internal Controls

During the three months ended March 31, ~~2018,~~2019, there have been no changes to the Company’s system of internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s system of controls over financial reporting. As part of a continuing effort to improve the Company’s business processes, management is evaluating its internal controls and may update certain controls to accommodate any modifications to its business processes or accounting procedures.

PART II OTHER INFORMATION

~~ITE~~MITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

IT~~EM 1A.~~

RISK FACTORS

Refer to Item 1A Risk Factors in the Company’s Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed on March 28, ~~2018~~2019 which is incorporated by this reference.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5.

OTHER INFORMATION

None.

2021

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ITEM 6.

EXHIBITS

The following exhibits are filed with this report:

	31	Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to Exchange Act Rule, Rule 13a-14a/15d-14a.
	32	Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Calculation Linkbase Document
	101.DEF	XBRL Taxonomy Definition Linkbase Document
	101.LAB	XBRL Taxonomy Label Linkbase Document
	101.PRE	XBRL Taxonomy Presentation Linkbase Document

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned hereto duly authorized.

Dated: May 14, 2019

TENGASCO, INC.

~~Dated: May 15, 2018~~

~~TENGASCO, INC.~~

By:	/s/Michael J. Rugen
	Michael J. Rugen
	Chief Executive Officer and Chief Financial Officer

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Balance December 31, 2017	$	2,270
Balance December 31, 2018				$	2,179
Accretion expense		36			35
Liabilities incurred		—			—
Liabilities settled		(14	)		—
Balance March 31, 2018	$	2,292
Balance March 31, 2019				$	2,214