KNOXVILLE, Tenn., June 30, 2011 /PRNewswire/ -- Tengasco, Inc.
(NYSE Amex: TGC) announced today that on June 27, 2011 the Company entered into an
agreement with Cargill, Incorporated for the period from
August 1, 2011 through December 31, 2012. The agreement provides
to the Company a $65 per barrel floor
on a stated quantity of 10,000 barrels per month, which is
approximately half of the Company's current production of oil.
If the average price falls below $65 per barrel, then Cargill will pay to the
Company the difference between $65
and the lower average price for 10,000 barrels per month in each
month during when such lower average prices occur. The cost
to the Company was $2.20 per barrel
per month or a total of $374,000 for
the entire period of the agreement. This agreement will
commence following the expiration on July
31, 2011 of the Company's existing collar hedge agreement
with Macquarie as counterparty.
Jeffrey R. Bailey, CEO said, "We
are pleased to have entered into this floor price agreement with
Cargill covering about half of our current production level of oil.
Unlike our current collar hedge that expires at the end of
July 2011, this new floor price
agreement establishes only a floor price to be received by the
Company if average market price per barrel of oil falls below the
floor price of $65. If prices
rise, the Company will not have any cap on any portion of its
production volumes. Like an insurance policy, there is a
premium cost for this downside protection, but unlike the costs of
a collar hedge, the cost of the downside protection is known and is
paid in advance. As the Company has already paid for this
transaction, there will be no further cash payments by the Company
for this floor hedge. Because we fund most of our operations from
cash flow, it is essential to have some protection from the severe
damage to cash flow and continuing operations that would occur in
the event of a collapse in pricing as we experienced in late 2008
and through the first half of 2009 when oil prices fell from about
$150 per barrel to $39 in less than six months. Accordingly,
we have now put a floor into place for about half of our current
production, which will allow the Company to continue operations
should low prices return. By abandoning the concept of a
collar hedge, and establishing only a floor, we realize the full
benefit of increased future prices on all of our production no
matter how high prices may go."
The statements contained in this release that are not purely
historical are forward-looking statements within the meaning of
applicable securities laws. Forward-looking statements
include statements regarding "expectations," "anticipations,"
"intentions," "beliefs," or "strategies" regarding the future.
Forward-looking statements also include statements regarding
revenue, margins, expenses, and earnings analysis for 2011 and
thereafter; oil and gas prices; reserve calculation and valuation;
exploration activities; development expenditures; costs of
regulatory compliance; environmental matters; technological
developments; future products or product development; the Company's
products and distribution development strategies; potential
acquisitions or strategic alliances; and liquidity and anticipated
cash needs and availability. The Company's actual results
could differ materially from the forward-looking statements.
SOURCE Tengasco, Inc.