Tengasco Announces Exchange of Promissory Notes for Interest in Kansas Drilling Program
October 05 2005 - 12:52PM
Business Wire
Tengasco, Inc. (AMEX: TGC) (the "Company") announced today that
Hoactzin Partners, L.P. ("Hoactzin") will surrender to the Company
two promissory notes made by the Company in the aggregate principal
amount of approximately $2.5 million. The notes were originally
issued to Dolphin Offshore Partners, L.P. ("Dolphin") in connection
with loans made by Dolphin to fund the Company's recent exchange
offer to holders of its Series A, B and C Cumulative Convertible
Preferred Stock. In exchange for the surrender of these notes, the
Company entered into an agreement today granting Hoactzin a 94.3%
working interest in a twelve-well drilling program to be undertaken
by the Company on its properties in Kansas. The Company will retain
the remaining 5.7% working interest in the drilling program. Peter
E. Salas, the Chairman of the Board of Directors of the Company, is
the controlling person of Hoactzin. He is also the sole shareholder
and controlling person of Dolphin Management, Inc., the general
partner of Dolphin, which is the Company's largest shareholder. As
a result of the exchange and retirement of these two notes, the
Company no longer has any material debt other than approximately
$190,000 in purchase-money financing for equipment. In addition,
the total face value of the Company's outstanding preferred stock
is now $200,000. The Company's assets in Tennessee and Kansas are
also now free of liens. Upon Hoactzin's receipt of total proceeds
from its working interest in the drilling program in the amount of
approximately $3.0 million, Hoactzin will thereafter pay to the
Company a management fee equal to 85% of the net revenues
attributable to its working interest in the drilling program. The
Company has an option expiring March 31, 2006 to repurchase the
obligation to drill the final six wells of the twelve well program
by paying to Hoactzin an amount equal to one half of the principal
amount of the notes exchanged by Hoactzin, plus interest on that
amount at 6% per annum until the date of repurchase, and granting
to Hoactzin a 1/16 overriding royalty in both the six program wells
existing at the time of repurchase and the next six wells drilled
by the Company in Kansas. Jeffrey R. Bailey, President of the
Company, stated "We are pleased to report the exchange of
Tengasco's last remaining material debt for an interest in a
Company-operated drilling program in Kansas. The Company now has
virtually eliminated its debt and preferred stock, and has removed
all liens on the Company's properties in Tennessee and Kansas. This
exchange completes a significant and noteworthy reduction of the
Company's debt and preferred stock balances from $17,590,000 in
early 2004 to only $390,000 following this exchange. The Company is
confident it can now accelerate development of its oil and gas
properties and pursue growth opportunities." Bailey further
reported, "In addition to this new twelve-well program in Kansas,
the Company has now drilled six wells in its earlier eight-well
drilling program in which some of the former Series A preferred
shareholders participated. The Company retained a 19% working
interest in those program wells, with an 81% working interest being
held by the participants. The three most recent of the six drilled
wells are the Urban #6, Kraus AA#3, and the Ben Tempero wells. The
Urban #6 has been completed and is averaging approximately 28 BOPD
with no associated water. The Kraus completion is underway at
present and is expected to be a commercial well. Although the Ben
Tempero was a dry hole, five of the six wells drilled so far in
that program will have or are expected to result in commercial
production. As of September 30, 2005 the first three wells in the
eight-well program have produced 6,739 barrels of oil in total,
with the first well beginning producing in April, and the third
well began producing in June. That is a combined average daily
production of approximately 53 barrels per day. If favorable oil
prices continue, we anticipate being able to drill all of the wells
under this new twelve-well drilling program, as well as the two
remaining wells in the eight-well program, from cash flow from
operations without incurring additional debt to finance drilling.
We also continue negotiations to establish a banking relationship
based in part upon this substantial reduction in the Company's
financial obligations over the past two years." Forward-looking
statements made in this release are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995. Investors are cautioned that all forward-looking
statements involve risk and uncertainties which may cause actual
results to differ from anticipated results, including risks
associated with the timing and development of the Company's
reserves and projects as well as risks of downturns in economic
conditions generally, and other risks detailed from time to time in
the Company's filings with the Securities and Exchange Commission.
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