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 September 30, 2013
 
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.)
 
11121 Kingston Pike, Suite E, Knoxville, TN 37934
(Address of principal executive offices)
 
(865-675-1554)
(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  x No o
 
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). x Yes  o No

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

Large accelerated filer o
Accelerated filer o
Non-accelerated filer   o
Smaller reporting company   x
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 60,842,413 common shares at November 8 , 2013 .
 
TABLE OF CONTENTS
 
PART I.
FINANCIAL INFORMATION
PAGE
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
 
3
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
8
 
 
 
 
18
 
 
 
 
22
 
 
 
 
24
 
 
 
PART II.
OTHER INFORMATION
25
 
 
25
 
 
25
 
 
25
 
 
25
 
 
25
 
 
25
 
 
25
 
 
26
 
 
*    CERTIFICATIONS

Tengasco, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)

 
 
September 30, 2013
   
December 31, 2012
 
 
 
   
 
Assets
 
   
 
 
 
   
 
Current
 
   
 
Cash and cash equivalents
 
$
19
   
$
31
 
Accounts receivable
   
1,319
     
1,608
 
Accounts receivable – related party, less allowance for doubtful accounts of $159 and $257
   
172
     
68
 
Inventory
   
1,258
     
1,402
 
Other current assets
   
125
     
194
 
Total current assets
   
2,893
     
3,303
 
 
               
Restricted cash
   
507
     
507
 
Loan fees, net
   
43
     
57
 
Oil and gas properties, net ( full cost accounting method )
   
23,470
     
24,700
 
Methane project, net
   
4,347
     
4,445
 
Other property and equipment, net
   
146
     
321
 
Assets held for sale
   
-
     
1,400
 
Deferred tax asset-noncurrent
   
7,460
     
9,434
 
Total assets
 
$
38,866
   
$
44,167
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Tengasco, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)

 
 
September 30, 2013
   
December 31, 2012
 
 
 
   
 
Liabilities and Stockholders’ Equity
Current liabilities
 
   
 
Accounts payable – trade
 
$
466
   
$
648
 
Accounts payable – other
   
331
     
325
 
Accounts payable – related party
   
257
     
-
 
Accrued and other current liabilities
   
521
     
615
 
Current maturities of long-term debt
   
77
     
100
 
Total current liabilities
   
1,652
     
1,688
 
 
               
Asset retirement obligation
   
1,812
     
2,099
 
Long term debt, less current maturities
   
3,112
     
10,246
 
Total liabilities
   
6,576
     
14,033
 
 
               
Commitments and contingencies (Note 13)
               
 
               
Stockholders’ equity
               
Common stock, $.001 par value, authorized 100,000,000 shares, 60,842,413 shares issued and outstanding
   
61
     
61
 
Additional paid–in capital
   
55,665
     
55,699
 
Accumulated deficit
   
(23,436
)
   
(25,626
)
Total stockholders’ equity
   
32,290
     
30,134
 
 
               
Total liabilities and stockholders’ equity
 
$
38,866
   
$
44,167
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Tengasco, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share data)
 
 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Revenues
 
$
4,034
   
$
5,806
   
$
12,219
   
$
15,990
 
 
                               
Cost and expenses
                               
Production costs and taxes
   
1,560
     
1,746
     
4,121
     
5,347
 
Depreciation, depletion, and amortization
   
673
     
942
     
2,210
     
2,511
 
General and administrative
   
461
     
887
     
1,440
     
2,246
 
Total cost and expenses
   
2,694
     
3,575
     
7,771
     
10,104
 
 
                               
Net income from operations
   
1,340
     
2,231
     
4,448
     
5,886
 
 
                               
Other income (expense)
                               
Interest expense
   
(79
)
   
(191
)
   
(319
)
   
(585
)
Gain (loss) on derivatives
   
-
     
(35
)
   
-
     
(140
)
Gain (loss) on sale of assets
   
(13
)
   
16
     
49
     
83
 
Total other income (expenses)
   
(92
)
   
(210
)
   
(270
)
   
(642
)
 
                               
Income from continuing operations before income tax
   
1,248
     
2,021
     
4,178
     
5,244
 
 
                               
Income tax expense
   
(713
)
   
(742
)
   
(1,860
)
   
(1,859
)
 
                               
Income from continuing operations
   
535
     
1,279
     
2,318
     
3,385
 
 
                               
(Loss) from discontinued operations, net of income tax benefit
   
(54
)
   
(60
)
   
(128
)
   
(206
)
 
                               
Net income
 
$
481
   
$
1,219
   
$
2,190
   
$
3,179
 
 
                               
Net income (loss) per share – Basic and Diluted
                               
Net income from continuing operations
 
$
0.01
   
$
0.02
   
$
0.04
   
$
0.06
 
Net (loss) from discontinued operations
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
                               
Shares used in computing earnings per share
                               
Basic
   
60,842,413
     
60,787,413
     
60,842,413
     
60,762,778
 
Diluted
   
60,854,655
     
61,114,850
     
60,945,588
     
61,195,751
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Tengasco, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share data)

 
 
Common Stock
   
   
   
 
 
 
Shares
   
Amount
   
Paid in Capital
   
Accumulated
Deficit
   
Total
 
Balance, December 31, 2012
   
60,842,413
   
$
61
   
$
55,699
   
$
(25,626
)
 
$
30,134
 
 
                                       
Net income
   
-
     
-
     
-
     
2,190
     
2,190
 
 
                                       
Option and compensation expense
   
-
     
-
     
(34
)
   
-
     
(34
)
 
                                       
 
                                       
Balance, September 30, 2013
   
60,842,413
   
$
61
   
$
55,665
   
$
(23,436
)
 
$
32,290
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
 
Tengasco, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(unaudited)
(in thousands)

 
 
For the Nine Months Ended September 30,
 
 
 
2013
   
2012
 
Operating activities
 
   
 
Net income from continuing operations
 
$
2,318
   
$
3,385
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation, depletion, and amortization
   
2,210
     
2,511
 
Amortization of loan fees-interest expense
   
24
     
42
 
Accretion on asset retirement obligation
   
100
     
99
 
Gain on sale of assets
   
(49
)
   
(77
)
Compensation and services paid in stock options and stock
   
25
     
42
 
Deferred tax expense
   
1,860
     
1,792
 
Loss on derivatives
   
-
     
140
 
Allowance for doubtful accounts
   
(98
)
   
238
 
Changes in assets and liabilities:
               
Accounts receivable
   
283
     
(312
)
Inventory and other assets
   
213
     
(519
)
Accounts payable
   
24
     
254
 
Accrued and other current liabilities
   
(148
)
   
73
 
Settlement on asset retirement obligation
   
(46
)
   
(52
)
Net cash provided by operating activities – continuing operations
   
6,716
     
7,616
 
Net cash (used in) operating activities – discontinued operations
   
(142
)
   
(209
)
Net cash provided by operating activities
   
6,574
     
7,407
 
Investing activities
               
Net additions to oil and gas properties
   
(836
)
   
(7,700
)
Net additions to methane project
   
-
     
(459
)
Section 1603 payment – methane facilities
   
-
     
1,000
 
Net additions to other property and equipment
   
(8
)
   
(15
)
Proceeds from sale of other property and equipment
   
113
     
16
 
Net cash (used in) investing activities – continuing operations
   
(731
)
   
(7,158
)
Net cash provided by investing activities – discontinued operations
   
1,395
     
-
 
Net cash provided by (used in) investing activities
   
664
     
(7,158
)
Financing activities
               
Proceeds from exercise of options
   
-
     
28
 
Payment in lieu of exercise of options
   
(60
)
   
-
 
Repayments of borrowings
   
(11,249
)
   
(15,129
)
Proceeds from borrowings
   
5,322
     
14,665
 
Loan fees
   
(10
)
   
(30
)
Net cash (used in) financing activities – continuing operations
   
(5,997
)
   
(466
)
Net cash provided by (used in) financing activities – discontinued operations
   
(1,253
)
   
209
 
Net cash (used in) financing activities
   
(7,250
)
   
(257
)
 
               
Net change in cash and cash equivalents – continuing operations
   
(12
)
   
(8
)
Cash and cash equivalents, beginning of period
   
31
     
68
 
Cash and cash equivalents, end of period
 
$
19
   
$
60
 
 
               
Supplemental cash flow information:
               
Cash interest payments
 
$
295
   
$
543
 
Cash paid for taxes
 
$
-
   
$
67
 
Supplemental non-cash investing and financing activities:
               
Financed company vehicles
 
$
78
   
$
175
 
Asset retirement obligations incurred
 
$
7
   
$
92
 
Accrued capital expenditures included in accounts payable
 
$
245
   
$
206
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

(1)
Description of Business and Significant Accounting Policies

Tengasco, Inc. is a Delaware corporation (the “Company”).  The Company is in the business of exploration for and production of oil and natural gas.  The Company’s primary area of oil exploration and production is in Kansas.  The Company’s primary area of natural gas exploration and production has been the Swan Creek Field in Tennessee.  The Company closed a sale of all its oil and gas leases and producing assets in Tennessee on August 16, 2013.

The Company’s wholly-owned subsidiary, Tengasco Pipeline Corporation (“TPC”), owns and operates a 65 mile intrastate pipeline which it constructed to transport natural gas from the Company’s Swan Creek Field to customers in Kingsport, Tennessee.  As the Company had entered into an agreement to sell the pipeline asset, it has been classified as “Assets held for sale” in the Consolidated Balance Sheet as of December 31, 2012 and the related results of operations have been classified as “(Loss) from discontinued operations, net of income tax benefit” in the Consolidated Statement of Operations for the three months and nine months ended September 30, 2013. The Company closed a sale of all its pipeline related assets on August 16, 2013. (See Note 10. Assets Held for Sale and Discontinued Operations)

The Company’s wholly-owned subsidiary, Manufactured Methane Corporation (“MMC”) operates treatment and delivery facilities for the extraction of methane gas from nonconventional sources for eventual sale to natural gas customers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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, although 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 nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. 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, 2012.

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.

Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Use of Estimates
 
The accompanying consolidated financial statements are prepared in conformity with U.S. GAAP which requires 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 other assumptions that we believe to be reasonable. While we believe that our estimates and assumptions used in preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Revenue Recognition

Revenues are recognized based on actual volumes of oil, natural gas, methane, and electricity sold to purchasers at a fixed or determinable price, when delivery has occurred and title has transferred, and collectability is reasonably assured.  Crude oil is stored and at the time of delivery to the purchasers, revenues are recognized.  Natural gas meters are placed at the customer’s location and usage is billed each month.  There were no material natural gas imbalances at September 30, 2013.  Methane and electricity sales meters are located at the tailgate of the Company’s Methane Facility and sales are billed each month.

Cash and Cash Equivalents

Cash and cash equivalents include temporary cash investments with a maturity of ninety days or less at date of purchase.  The Company had entered into a sweep account arrangement allowing excess cash balance to be used to pay down the Company’s credit facility with F&M Bank and Trust Company (“F&M Bank”), thereby reducing overall interest cost.  In April 2013, F&M Bank discontinued offering the sweep account arrangement.

Restricted Cash

As security required by Tennessee oil and gas regulations, the Company placed $120,500 in a Certificate of Deposit to cover future asset retirement obligations for the Company’s Tennessee wells.  At September 30, 2013 and December 31, 2012, this amount was recorded in the Consolidated Balance Sheets under “Restricted cash”.  The Company closed on the sale its Tennessee wells on August 16, 2013 and is in the process of obtaining a release of this Certificate of Deposit.

Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

In addition, during the 4th quarter of 2012, the Company placed $386,000 as collateral for a bond to appeal a civil penalty related to issuance of an “Incidence of Non-Compliance” by the Bureau of Ocean Energy Management (“BOEM”) concerning one of the Hoactzin wells operated by the Company pursuant to the Management Agreement.  (See Note 5. Related Party Transactions)  At September 30, 2013 and December 31, 2012, this amount was recorded in the Consolidated Balance Sheets under “Restricted cash”.  (See Note 13. Commitments and Contingencies)

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 per barrel cost which includes production costs and taxes, allocated general and administrative costs, and allocated interest cost.  The market component is calculated using the average September 2013 and December 2012 oil sales prices received from the Company’s Kansas properties.  In addition, the Company also carried equipment and materials in inventory to be used in its Kansas operation and is carried at the lower of cost or market value.  The cost component of the equipment and materials inventory represents the original cost paid for the equipment and materials.  The market component is based on estimated sales value for similar equipment and materials as of September 30, 2013 and December 31, 2012.  The following table sets forth information concerning the Company’s inventory ( in thousands ):

 
 
September 30, 2013
   
December 31, 2012
 
 
 
 
   
 
 
Oil – carried at cost
 
$
609
   
$
650
 
Equipment and materials – carried at cost
   
649
     
752
 
Total inventory
 
$
1,258
   
$
1,402
 

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 at December 31, 2012, based upon reserve reports provided by LaRoche Petroleum Consultants Ltd.  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 $344,000 and $457,000 in unevaluated properties as of September 30, 2013 and December 31, 2012, respectively.  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.
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.

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 production, and other miscellaneous receivables. No interest is charged on past-due balances. Payments made on accounts receivable are applied 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. No such allowance was considered necessary at September 30, 2013 or December 31, 2012.  At September 30, 2013 and December 31, 2012, accounts receivable consisted of the following (in thousands):
 
 
 
September 30, 2013
   
December 31, 2012
 
 
 
 
   
 
 
Revenue
 
$
1,274
   
$
1,517
 
Joint interest
   
25
     
65
 
Other
   
20
     
26
 
Total accounts receivable
 
$
1,319
   
$
1,608
 

Discontinued Operations

During 2012, the Company committed to a plan to sell the Swan Creek and Pipeline assets.  On March 1, 2013, the Company entered into an agreement to sell the Company’s Swan Creek and Pipeline assets for $1.5 million.  Final closing of this transaction occurred on August 16, 2013.  The Company elected to classify the Pipeline assets as “Assets held for sale” in the Consolidated Balance Sheets as of December 31, 2012.  The related results of operations have been classified as “(Loss) from discontinued operations, net of income tax benefit” in the Consolidated Statements of Operations for the three months and nine months ended September 30, 2013 and 2012.  The related cash flows have been classified as “Net cash (used in) operating activities – discontinued operations”, “Net cash (used in) investing activities – discontinued operations”, and Net cash (used in) financing activities – discontinued operations”.  As the Swan Creek assets represented only a small portion of the Company’s full cost pool, these assets will remain in oil and gas properties and related operations and will continue to be classified in continuing operations. Unless otherwise indicated, the information in these notes relate to the Company’s continuing operations.  (See Note 10. Assets Held for Sale and Discontinued Operations)
Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Reclassifications

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


(2)
Income Taxes

The total deferred tax asset was $7.5 million and $9.4 million at September 30, 2013 and December 31, 2012, respectively.  During the quarter ended September 30, 2013, the Company determined that, upon sale of the Swan Creek and pipeline assets, the Company would not be able to utilize the state of Tennessee net operating loss carryforwards associated with Tengasco, Inc. and Tennessee Land and Minerals.  In addition, the Company will not be able to realize the state of Tennessee tax effect of the difference between book and tax basis of the Swan Creek and pipeline assets.  As a result the Company increased the valuation allowance by $350,000 to a total of $950,000 at September 30, 2013.  Although management considers our valuation allowance and loss contingency as of September 30, 2013 and December 31, 2012 adequate, material changes in these amounts may occur in the future based on tax audits and changes in legislation.


(3)
Earnings per Share

We report basic earnings per common share, which excludes the effect of potentially dilutive securities, and diluted earnings per common share which include the effect of all potentially dilutive securities unless their impact is anti-dilutive. The following are reconciliations of the numerators and denominators of our basic and diluted earnings per share, (in thousands except for share and per share amounts):

 
 
For the Three Months Ended
   
For the Nine Months Ended
 
 
 
September 30, 2013
   
September 30, 2012
   
September 30, 2013
   
September 30, 2012
 
 
 
 
   
 
   
 
   
 
 
Income (numerator):
 
 
   
 
   
 
   
 
 
Net income from continuing operations
 
$
535
   
$
1,279
   
$
2,318
   
$
3,385
 
     Net loss from discontinued operations
 
$
(54
)
 
$
(60
)
 
$
(128
)
 
$
(206
)
Weighted average shares (denominator):
                               
     Weighted average shares – basic
   
60,842,413
     
60,787,413
     
60,842,413
     
60,762,778
 
     Dilution effect of share-based      compensation, treasury method
   
12,242
     
327,437
     
103,175
     
432,973
 
     Weighted average shares – dilutive
   
60,854,655
     
61,114,850
     
60,945,588
     
61,195,751
 
Earnings (loss) per share – Basic and Dilutive:
                               
     Continuing Operations
 
$
0.01
   
$
0.02
   
$
0.04
   
$
0.06
 
     Discontinued Operations
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

(4)
Recent Accounting Pronouncements

In July 2013, the FASB issued ASU 2013-11 Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  This guidance provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  Early adoption and retrospective application is permitted.  The Company does not expect this to impact its operating results, financial position, or cash flows.

(5)
Related Party Transactions

On September 17, 2007, the Company entered into a drilling program with Hoactzin Partners, L.P. (“Hoactzin”) for ten wells to be drilled on the Company’s Kansas Properties (the “Ten Well 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 Energy MGMT, Inc., the general partner of Dolphin Offshore Partners, L.P., and a member of SSB Ventures LLC which is the Company’s largest shareholder.  The terms of the Ten Well Program provided that Hoactzin would receive all the working interest in the ten wells in the Program, but will pay an initial fee to the Company of 25% of its working interest revenues net of operating expenses.  This is referred to as a management fee but, as defined, is in the nature of a net profits interest.  The fee paid to the Company by Hoactzin will increase to 85% when and if net revenues received by Hoactzin reach an agreed payout point of approximately 1.35 times Hoactzin’s purchase price (the “Payout Point”) for its interest in the Ten Well Program. Hoactzin paid a total of $3.85 million (the “Purchase Price”) for its interest in the Ten Well Program resulting in the Payout Point being determined as $5.2 million.  As of September 30, 2013, net revenues received by Hoactzin from the Ten Well Program totaled $5.0 million which leaves a balance of approximately $193,000 until the Payout Point is reached.
On December 18, 2007, the Company entered into a Management Agreement with Hoactzin.  On the same date, the Company entered into an agreement with C. Patrick McInturff employing him as a Vice President of the Company.  Pursuant to the Management Agreement with Hoactzin, Mr. McInturff’s duties were to include the management on behalf of Hoactzin of its working interest in oil and gas properties owned by Hoactzin and located in the onshore Texas Gulf Coast, and offshore Texas and offshore Louisiana.  The Management Agreement terminated on December 18, 2012.
Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

During the course of the Management Agreement, the Company became the operator of certain managed properties under the agreement.  The Company obtained from IndemCo, over time, bonds in the face amount of approximately $9.6 million for the purpose of covering plugging and abandonment obligations for Hoactzin’s operated properties located in federal offshore waters in favor of the Bureau of Ocean Energy Management (“BOEM”), as well as certain private parties.  In connection with the issuance of these bonds, a Payment and Indemnity Agreement with IndemCo was executed by Dolphin Direct Equity Partners, LP (“Dolphin Direct”) guaranteeing payment of any bonding liabilities incurred by IndemCo. Dolphin Direct is a private equity fund controlled by Peter E. Salas that has a significant economic interest in Hoactzin.  The Company co-signed the Payment and Indemnity Agreement, thereby becoming jointly and severally liable with Dolphin Direct for the obligations to IndemCo under the Payment and Indemnity Agreement.  Hoactzin has provided $6.6 million in cash to IndemCo as collateral for these potential obligations.  The Company has not provided any cash or other collateral for these potential obligations.
 
As operator of the managed Hoactzin properties, the Company routinely contracted in its name for goods and services with vendors in connection with its operation of the Hoactzin properties.  In practice, Hoactzin directly paid these invoices for goods and services that were contracted in the Company’s name.  Hoactzin currently has past due balances to several vendors, a portion of which are included on the Company’s balance sheet.  Payables related to these past due vendors as well as ongoing operations remained outstanding at September 30, 2013 and December 31, 2012 in the amounts of $331,000 and $325,000, respectively.  The Company has recorded the Hoactzin-related payables and the corresponding receivable from Hoactzin as of September 30, 2013 and December 31, 2012 in its Consolidated Balance Sheets under “Accounts payable – other” and “Accounts receivable – related party”.  The amounts recorded in accounts receivable are net of an allowance for doubtful accounts of $159,000 and $257,000 for September 30, 2013 and December 31, 2012, respectively.
 
 As of the date of this Report, the Company is assisting Hoactzin with becoming operator of record of these wells and transferring the corresponding bonding liability from the Company to Hoactzin.  In order to facilitate this transition, the Company has entered into an agreement with Hoactzin whereby Hoactzin and Dolphin Direct are indemnifying Tengasco for any costs or liabilities incurred by Tengasco resulting from such assistance, or the fact that Tengasco is still the operator of record on certain of these wells.  Until such time as Hoactzin becomes operator of record on these wells and the corresponding bonding liability is transferred from the Company to Hoactzin, per the transition agreement, the Company is suspending drilling payments to Hoactzin.  As of September 30, 2013, the Company has suspended $257,000 in payments.  This balance in recorded in the Consolidated Balance Sheet under Accounts payable – related party.
 
No Tengasco funds have been advanced by Tengasco to pay any obligations of Hoactzin.  No borrowing capability of Tengasco has been used by the Company in connection with its obligations under the Management Agreement, except for those funds used to collateralize the appeal bond with RLI Insurance Company.  (See Note 13. Commitments and Contingencies)
Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

(6)
Oil and Gas Properties
 
The following table sets forth information concerning the Company’s oil and gas properties ( in thousands) :

 
 
September 30, 2013
   
December 31, 2012
 
 
 
 
   
 
 
Oil and gas properties, at cost
 
$
44,203
   
$
43,351
 
Unevaluated properties
   
344
     
457
 
Accumulated depletion
   
(21,077
)
   
(19,108
)
Oil and gas properties, net
 
$
23,470
   
$
24,700
 

The Company recorded depletion expense of $1,969,000 and $2,237,000 for the nine months ended September 30, 2013 and 2012, respectively.

(7)
Asset Retirement Obligation
 
Our asset retirement obligations represent the estimated present value of the amount we will incur to plug, abandon, and remediate our producing properties at the end of their productive lives in accordance with applicable laws. The following table summarizes the Company’s Asset Retirement Obligation transactions for the nine months ended September 30, 2013 (in thousands):

Balance December 31, 2012
 
$
2,099
 
 
       
Accretion expense
   
100
 
Liabilities incurred
   
7
 
Liabilities settled
   
(46
)
Assets sold
   
(348
)
Balance September 30, 2013
 
$
1,812
 

Assets sold during the first nine months of 2013 represents asset retirement obligations related to the Swan Creek wells which were sold on August 16, 2013.

Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

(8)
Long-Term Debt

Long-term debt to unrelated entities consisted of the following (in thousands):

 
 
September 30, 2013
   
December 31, 2012
 
Note payable to a financial institution, with interest only payment until maturity.
 
$
3,032
   
$
10,138
 
Installment notes bearing interest at the rate of 5.5% to 8.25% per annum collateralized by vehicles with monthly payments including interest, insurance and maintenance of approximately $20,000
   
157
     
208
 
Total  long-term debt
   
3,189
     
10,346
 
Less current maturities
   
(77
)
   
(100
)
Long-term debt, less current maturities
 
$
3,112
   
$
10,246
 

At September 30, 2013, the Company had a revolving credit facility with F&M Bank & Trust Company (“F&M Bank”).  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 $40 million or the Company’s borrowing base in effect from time to time. As of September 30, 2013, the Company’s borrowing base was $20.5 million and the interest rate is the greater of prime plus 0.25% or 5.25% per annum.  The Company’s interest rate at September 30, 2013 was 5.25%.  The credit facility is secured by substantially all of the Company’s producing and non-producing oil and gas properties and the Company’s Methane Project assets.  The credit facility includes certain covenants with which the Company is required to comply.  These covenants include leverage, interest coverage, minimum liquidity, and general and administrative coverage ratios.  The Company is in compliance with all of the credit facility covenants.
 
On October 24, 2013, the Company’s senior credit facility with F&M Bank after F&M Bank’s semiannual review of the Company’s currently owned producing properties was amended to decrease the Company’s borrowing base from $20.5 million to $17.5 million.  The borrowing base remains subject to the existing periodic redetermination provision in the credit facility.  The interest rate was modified from the greater of prime plus 0.25% or 5.25% per annum, to prime plus 0.50%.  The maximum line of credit of the Company under the F&M Bank credit facility remained $40 million.
 
The total borrowing by the Company under the credit facility at September 30, 2013 and December 31, 2012 was $3.0 million and $10.1 million, respectively.  The next borrowing base review will take place in March 2014.

(9)
Methane Project

The methane facilities were placed into service on April 1, 2009.  The methane facilities are being depreciated over the estimated useful life of approximately 33 years based on estimated landfill closure date of December 2041.  The Company recorded depreciation expense of $98,000 and $79,000 for the nine months ended September 30, 2013 and 2012, respectively.
Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

(10)
Assets Held For Sale and Discontinued Operations

Assets held for sale represent the carrying value of the pipeline asset of $1.4 million as of December 31, 2102.  Since the sale closed on August 16, 2013, no value is included at September 30, 2013.  The determination of the pipeline value was based on discussions and negotiations with a third party regarding the sale of the Pipeline asset.
 
The following table summarizes the amounts included in “(Loss) from discontinued operations, net of income tax benefit” presented in the Company’s Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2013 and 2012: (in thousands)
 
 
 
For the three months ended
   
For the nine months ended
 
 
 
September 30, 2013
   
September 30, 2012
   
September 30, 2013
   
September 30, 2012
 
 
 
 
   
 
   
 
   
 
 
Revenues
 
$
5
   
$
7
   
$
22
   
$
19
 
Production costs and taxes
   
(25
)
   
(62
)
   
(164
)
   
(228
)
Depreciation, depletion, and amortization
   
-
     
(44
)
   
-
     
(132
)
Gain on sale of assets
   
128
     
-
     
128
     
-
 
Income tax benefit (expense)
   
(162
)
   
39
     
(114
)
   
135
 
Income (loss) from discontinued operations, net of income tax benefit
 
$
(54
)
 
$
(60
)
 
$
(128
)
 
$
(206
)

(11)
Fair Value Measurements
 
The carrying amounts of 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 September 30, 2013 and December 31, 2012.

(12)
Derivatives

The Company records changes in the unrealized derivative asset or liability as a “Gain or loss on derivatives” in the Consolidated Statements of Operations.  During the three months and nine months ended September 30, 2012, the Company recorded a loss on derivatives of $35,000 and $140,000, respectively.  As of September 30, 2013 and December 31, 2012, the Company did not have any open forward positions.

Tengasco, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

(13)
Commitments and Contingencies

The Company as designated operator of the Hoactzin properties was administratively issued an “Incidence of Non-Compliance” by BOEM during the quarter ended September 30, 2012 concerning one of Hoactzin’s operated wells.  This action calls for payment of a civil penalty of $386,000 for the late filing of certain reports in 2011 by a contractor on the facility.  The Company has filed an appeal of this action in order to attempt to significantly reduce the civil penalty.   This appeal required a fully collateralized appeal bond to postpone the payment obligation until the appeal is determined.  The Company has posted and collateralized this bond with RLI Insurance Company.  If the bond was not posted, the appeal would have been administratively denied and the $386,000 penalty would have become final and no longer subject to appeal.  While the Company believes it will ultimately prevail in the appeal process, it is reasonably possible to expect that the civil penalty may not be substantially reduced.  The Company estimates the range of this possible payment to be between zero and $386,000.  During the quarter ended September 30, 2013 there have been no new developments in this appeal process.

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations and Financial Condition

During the first nine months of 2013, the Company sold 162 MBbl of oil from its Kansas wells. Of the 162 MBbl, 126 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 Kansas wells during the first nine months of 2013 of 126 MBbl of oil compares to net sales of 170 MBbl during the first nine months of 2012.  This 44 MBbl decrease was due primarily to decreased sales volumes from the Albers, Coddington, DeYoung, Hilgers B, Liebenau, McElhaney A, Veverka A, Veverka B, and Zerger A leases primarily as a result of drilling and polymers performed during the first nine months of 2012 as well as polymers performed during late 2011. The Company’s net revenue from the Kansas properties was $11.5 million in the first nine months of 2013 compared to $15.1 million for the first nine months of 2012.  This decrease in net revenue was due primarily to a $3.9 million decrease related to the 44 MBbl decrease in sales volumes partially offset by a $314,000 increase related to a $2.42 per barrel increase in the average Kansas oil price from $88.58 per barrel in 2012 to $91.00 per barrel in 2013.  During the first nine months of 2013 and 2012, Swan Creek sales were $396,000 and $335,000, respectively and MMC revenues were $329,000 and $528,000, respectively.

Comparison of the Quarters Ended September 30, 2013 and 2012

The Company recognized $4.0 million in revenues during the third quarter of 2013 and $5.8 million during the third quarter of 2012. The revenue decrease from 2012 levels was primarily due to a $2.2 million decrease related to a 26 MBbl decrease in Kansas oil sales volumes, partially offset by $0.5 million increase related to a $13.71 increase in the average oil price.  Kansas oil prices during the third quarter of 2013 averaged $99.01 per barrel compared to an average price of $85.30 per barrel during the third quarter of 2012. The Company reported net income from continuing operations of $535,000 or $0.01 per share of common stock during the third quarter of 2013 compared to net income from continuing operations of $1,279,000 or $0.02 per share of common stock during the third quarter of 2012.  Although revenues decreased $1.8 million, this decrease was partially offset by a $426,000 decrease in general and administrative cost, a $269,000 decrease in depreciation, depletion, and amortization, and a $186,000 decrease in operating cost, and a $112,000 decrease in interest expense.
General and administrative costs decreased $426,000 from $887,000 during the third quarter of 2012 to $461,000 during the third quarter of 2013.  This decrease was primarily due to recording a $238,000 allowance for doubtful accounts associated with the related party receivable in the third quarter of 2012 and a $142,000 reduction in consulting, legal, and accounting costs from 2012 levels.
 
Depreciation, depletion, and amortization expense decreased $269,000 from $942,000 during the third quarter of 2012 to $673,000 during the third quarter of 2013.  This decrease was primarily due to lower oil and gas sales volumes in the third quarter of 2013 compared to the oil and gas sales volumes during the third quarter of 2012, partially offset by higher depletion rates during the third quarter of 2013.
 
Production costs and taxes decreased $186,000 from $1.75 million during the third quarter of 2012 to $1.56 million during the third quarter of 2013.  This decrease from 2012 levels was primarily due to a $41,000 decrease in personnel related costs included in production costs during 2012 but included as general and administrative expense during 2013, $39,000 related to reduced personnel cost as a result of the sale of the Swan Creek assets, and $36,000 related to timing of methane facility property tax payments.
 
Interest expense decreased $112,000 from $191,000 during the third quarter of 2012 to $79,000 during the third quarter of 2013.  This decrease in interest expense was primarily due to an $8.1 million decrease in average bank borrowings from $12.9 million during the third quarter of 2012 to $4.8 million during the third quarter of 2013.  This decrease in average bank borrowings related to a significant decrease in capital spending since the second quarter of 2012.
 
Comparison of the Nine Months Ended September 30, 2013 and 2012

The Company recognized $12.2 million in revenues during the first nine months of 2013 compared to $16.0 million during the first nine months of 2012. The revenue decrease from 2012 levels was primarily due to a $3.9 million decrease related to a 44 MBbl decrease in Kansas oil sales volumes, a $198,000 decrease in methane plant sales due to increased downtime at the facility, partially offset by a $314,000 increase related to a $2.42 per barrel increase in average Kansas oil prices. Kansas oil prices during the first nine months of 2013 averaged $91.00 per barrel compared to an average price of $88.58 per barrel during the first nine months of 2012. The Company reported net income from continuing operations of $2.3 million or $0.04 per share of common stock during the first nine months of 2013 compared to net income from continuing operations of $3.4 million or $0.06 per share of common stock during the first nine months of 2012.  Although revenues decreased $3.8 million, this decrease was partially offset by a $1.2 million decrease in operating cost, an $806,000 decrease in general and administrative cost, a $301,000 decrease in depreciation, depletion and amortization, a $266,000 decrease in interest expense, and a $140,000 decrease in loss on derivatives.
Production costs and taxes decreased $1.2 million from $5.3 million during the first nine months of 2012 to $4.1 million during the first nine months of 2013.  This decrease from 2012 levels was primarily due to a $253,000 decrease in production taxes, a $168,000 decrease in Kansas property taxes related primarily to a successful appeal of 2012 property taxes, a $148,000 decrease in MMC expense primarily related to repairs performed in 2012, a $145,000 decrease related to changes in Kansas oil inventories, a $145,000 decrease in personnel related costs included in production costs during 2012 but included as general and administrative expense during 2013, and $96,000 of lower well repair cost incurred in 2013 compared to 2012 levels.
 
General and administrative costs decreased $806,000 from $2.2 million during the first nine months of 2012 to $1.4 million during the first nine months of 2013.  This decrease was primarily due to a $337,000 decrease related to recording a $238,000 allowance for doubtful accounts associated with the related party receivable in 2012 and a $98,000 reversal of bad debt expense associated with the related party receivable during the second quarter of 2013, a $174,000 decrease in personnel relocation and office related costs during the first nine months of 2013 compared to the first nine months of 2012, and a $94,000 reduction in consulting expenses.
 
Depreciation, depletion, and amortization decreased $301,000 from $2.5 million during the first nine months of 2012 to $2.2 million during the first nine months of 2013.  This decrease was primarily due to a $542,000 decrease related to lower oil and gas sales volumes during the first nine months of 2013 compared to the oil and gas sales volumes during the first nine months of 2012.  This decrease was partially offset by a $274,000 increased related to higher depletion rates during the first nine months of 2013 as compared to the first nine months of 2012.
 
Interest expense decreased $266,000 from $585,000 during the first nine months of 2012 to $319,000 during the first nine months of 2013.  This decrease in interest expense was primarily due to a $6.1 million decrease in average bank borrowings from $13.2 million during the first nine months of 2012 to $7.1 million during the first nine months of 2013.  This decrease in average bank borrowings related to a significant decrease in capital spending since the second quarter of 2012.

During the first nine months of 2012, the Company recorded a $140,000 non-cash unrealized loss on derivatives related to the change in fair value of an oil derivative contract.  No unrealized gains or losses were recorded during the first nine months of 2013 as the oil derivative contract expired on December 31, 2012.
Liquidity and Capital Resources

At September 30, 2013, the Company had a revolving credit facility with F&M Bank & Trust Company (“F&M Bank”).  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 $40 million or the Company’s borrowing base in effect from time to time. As of September 30, 2013, the Company’s borrowing base was $20.5 million and the interest rate is the greater of prime plus 0.25% or 5.25% per annum.  The Company’s interest rate at September 30, 2013 was 5.25%.  The credit facility is secured by substantially all of the Company’s producing and non-producing oil and gas properties and the Company’s Methane Project assets.  The credit facility includes certain covenants with which the Company is required to comply.  These covenants include leverage, interest coverage, minimum liquidity, and general and administrative coverage ratios.  The Company is in compliance with all of the credit facility covenants.
 
On October 24, 2013, the Company’s senior credit facility with F&M Bank after F&M Bank’s semiannual review of the Company’s currently owned producing properties was amended to decrease the Company’s borrowing base from $20.5 million to $17.5 million.  This decrease in the Company’s borrow base was primarily related to a lower reserve base used at the mid-year borrowing base review as a result of production during the first six months of 2013 with no offsetting reserve additions from drilling or polymers.  The borrowing base remains subject to the existing periodic redetermination provision in the credit facility.  The interest rate was modified from the greater of prime plus 0.25% or 5.25% per annum, to prime plus 0.50%.  The maximum line of credit of the Company under the F&M Bank credit facility remained $40 million.
 
The total borrowing by the Company under the credit facility at September 30, 2013 and December 31, 2012 was $3.0 million and $10.1 million, respectively.  This $7.1 million reduction resulted from use of cash flow from operations to pay down the credit facility.  The next borrowing base review will take place in March 2014.
 
Although the Company has not been required as of the date of this Report to make any payment of principal on the credit facility, the Company can make no assurance that in view of the conditions in the national and world economies, including the realistic possibility of low commodity prices being received for the Company’s oil and gas production for extended periods, that F&M Bank may in the future make a redetermination of the Company’s borrowing base to a point below the level of current borrowings.  In such event, F&M Bank may require installment or other payments in such amount in order to reduce the principal of the Company’s outstanding borrowing to a level not in excess of the borrowing base as it may be redetermined.  The Company can make no assurance that it can continue normal operations indefinitely or for any specific period of time in the event of extended periods of low commodity prices, or upon the occurrence of any significant downturn or losses in operations.  In such event, the Company may be required to reduce costs of operations by various means, including not undertaking certain maintenance or reworking operations that may be necessary to keep some of the Company’s properties in production or to seek additional working capital by additional means such as issuance of equity including preferred stock or such other means as may be considered and authorized by the Company’s Board of Directors from time to time.
Net cash provided by operating activities decreased $833,000 from $7.4 million in the first nine months of 2012 to $6.6 million during the first nine months of 2013.  Cash flow used in working capital was $556,000 during the first nine months of 2012 compared to $326,000 provided by working capital during the first nine months of 2013. The $882,000 change in cash flow used in working capital from 2012 to 2013 was primarily due to a $668,000 increase in materials and equipment inventory during the first nine months of 2012 compared to a $103,000 decrease in materials and equipment inventory during the first nine months of 2013.  The $833,000 decrease in cash provided by operating activities was primarily due to a $3.8 million decrease in 2013 revenues, partially offset by a $1.2 million decrease in production costs and taxes, a $806,000 decrease in general and administrative expense, and the $882,000 change in cash flow used in working capital.  Net cash provided by investing activities was $664,000 during the first nine months of 2013 compared to $7.16 million used in investing activities during the first nine months of 2012.  This change was a result of a $6.9 million reduction in drilling, polymer, leasehold, and seismic costs from $7.7 million during the first nine months of 2012 to $836,000 during the first nine months of 2013.  Also during 2013, the Company realized $1.4 million from the sale of its pipeline and Swan Creek assets.  In addition, Methane Plant capital spending decreased $459,000 from 2012 levels as no spending occurred during the first nine months of 2013.  These capital spending reductions were partially offset by the $1.0 million Section 1603 payment received by the Company in the second quarter of 2012.  Cash flow used in financing activities during the first nine months of 2013 and 2012 was $7.25 million and $257,000, respectively.  This increase was primarily related to using 2013 cash flows from operations to fund operations and pay down bank borrowings compared to using 2012 cash flows from operations to supplement funding of the Company’s capital spending programs during the first nine months of 2012.
 
Critical Accounting Policies

During the quarter ended September 30, 2013, there were no changes to the critical accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
 
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 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.
As of September 30, 2013, the Company’s borrowing base was set at $20.5 million of which $3.0 million had been drawn down by the Company.  On October 24, 2013, the Company’s borrowing base was reduced to $17.5 million.  The Company’s next periodic borrowing base review will occur in March 2014.

Commodity Risk

The Company's major market risk exposure is in the pricing applicable to its oil and gas production.  Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to natural gas production.  Historically, prices received for oil and gas production have been volatile and unpredictable and price volatility is expected to continue.  Although not as volatile as in previous years, monthly Kansas oil prices received during the first nine months of 2013 ranged from a low of $84.91 per barrel to a high of $99.78 per barrel.  Gas prices realized during the same period ranged from a low of $2.46 per Mcf to a high of $4.29 per Mcf.

In order to help mitigate commodity price risk, the Company has entered into a long term fixed price contract for MMC gas sales.  On August 27, 2009, the Company entered into a five-year fixed price gas sales contract with Atmos Energy Marketing, LLC, (“AEM”) in Houston, Texas, a nonregulated unit of Atmos Energy Corporation (NYSE: ATO) for the sale of the methane component of landfill gas produced by MMC at the Carter Valley Landfill.  The agreement provides for the sale of up to 600 MMBtu per day.  The contract is effective beginning with September 2009 gas production and ends July 31, 2014.  The agreed contract price of over $6 per MMBtu was a premium to the then current five-year strip price for natural gas on the NYMEX futures market.
As of September 30, 2013, the Company has no open positions related to derivative agreements.

Interest Rate Risk

At September 30, 2013, the Company had debt outstanding of $3.2 million including, as of that date, $3.0 million owed on its credit facility with F&M Bank. As of September 30, 2014, the interest rate on the credit facility was variable at a rate equal to the greater of prime plus 0.25% or 5.25% per annum.  On October 24, 2013, the Company entered into an amendment of the credit facility with F&M Bank.  This amendment modified the rate to prime plus 0.50%.  The Company’s remaining debt of $157,000 has fixed interest rates ranging from 5.5% to 8.25%.

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 $16,000 assuming borrowed amounts under the credit facility remained at the same amount owed as of September 30, 2013.  If the rate included in the October 24, 2013 amendment was used, the annual impact would be $11,000.  The Company did not have any open derivative contracts relating to interest rates at September 30, 2013 or December 31, 2012.
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 financial position, results of operations, and cash flows.

ITEM 4.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, and other members of management have 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 have 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. As a result of the resignation of Jeffrey R. Bailey as the Company’s Chief Executive Officer on June 28, 2013 and the appointment by the Board of Michael J. Rugen, the Company’s Chief Financial Officer to also serve as Chief Executive Officer on an interim basis, Mr. Rugen is acting in both capacities and has executed the accompanying certifications as to both offices.  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 period covered by this Report, certain internal control procedures previously performed by the former Chief Executive Officer are now being performed by the Company’s General Counsel and Audit Committee.  There have been no other 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
 
ITEM 1.     LEGAL PROCEEDINGS
 
None.
 
ITEM 1A.  RISK FACTORS
 
Refer to Item 1A Risk Factors in the Company’s Report on Form 10-K for the year ended December 31, 2012 filed on March 29, 2013 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.
 
ITEM 6.   EXHIBITS
 
The following exhibits are filed with this report:

Compensation Agreement between Tengasco, Inc, and Michael J. Rugen dated September 18, 2013
 
 
Fourteenth Amendment to Loan and Security Agreement dated October 24, 2013 between Tengasco, Inc. as borrower and F&M Bank & Trust Company as lender
 
 
Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to Exchange Act Rule, Rule 13a-14a/15d-14a.
 
 
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
XBRLTaxonomy Presentation Linkbase Document

  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:  November 14, 2013
 
TENGASCO, INC.
 
 
By:   s/Michael J. Rugen
 
Michael J. Rugen
 
Chief Executive Officer and Chief Financial Officer
 
 
26
Exhibit 10.21     Compensation Agreement between Tengasco, Inc, and Michael J. Rugen dated September 18, 2013

September 18, 2013

Mr. Michael J. Rugen
11121 Kingston Pike, Suite E
Knoxville TN

VIA EMAIL to mrugen@tengasco.com

This letter is to extend an offer of compensation to Michael J. Rugen (“you” or “your”) as Chief Financial Officer and interim Chief Executive Officer of Tengasco, Inc. (the “Company”).  You are currently performing both your duties as Chief Financial Officer and the duties of interim Chief Executive Officer. Upon the hiring by the Company of a new Chief Executive Officer, you will serve as the Chief Financial Officer only. You have agreed to continue to serve in both capacities until a Chief Executive Officer is hired, thereby ensuring smooth and uninterrupted operations by the Company during the search process.

This letter is a compensation offer and is not an employment contract, and your employment as Chief Financial Officer and interim CEO continues as “at will” employment meaning either you or the Company may terminate your employment at any time for any lawful reason.   If you accept this compensation offer, it will become effective as of September 9, 2013. You and the Company agree that your compensation will be as follows:

1. Your salary as Chief Financial Officer is set at $170,000 per year, said salary to be paid in equal payments consistent with the Company’s existing payroll procedures.
 
2. You will receive six months’ salary (at the rate in effect at the time) as severance if you are terminated without Cause. “Cause” shall have the same meaning as defined in Amended Stock Option Agreement between you and the Company dated and effective on or about August 30, 2010 and included by this express reference as if set out herein.
 
3. In recognition of your performance of expanded duties as the Company’s interim Chief Executive Officer, you will receive a bonus of $7,500 for each quarter (including any part thereof) of each year that you serve as the interim Chief Executive Officer. Each bonus earned shall be paid in the third month of every quarter.
4. You will receive a cost of living adjustment (COLA) to your salary upon relocation of the Company’s primary office from Knoxville, Tennessee. COLA determinations shall be made using the calculator found at www.bankrate.com .
 
5. Except as specifically noted herein, all standard Company benefits you currently receive shall remain unchanged.
 
If you are in agreement with all of the above, please indicate your acceptance of this offer of compensation by signing in the space provided below and returning your signed agreement via email attachment.  This agreement will become effective the date of your signature below, but will apply from and during all periods following September 9, 2013.

TENGASCO, INC.

By the Board of Directors
 
 
BY:
/s/ Hughree F. Brooks
 
Hughree F. Brooks,
Chairman of the Compensation Committee


AGREED AND ACCEPTED:
 
/s/ Michael J. Rugen
MICHAEL J. RUGEN
 
DATE:
September 18, 2018
 
 
 Exhibit 10.22     Fourteenth Amendment to Loan and Security Agreement dated October 24, 2013 between Tengasco, Inc. as borrower and F&M Bank & Trust Company as lender

FOURTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

This Fourteenth Amendment to Loan and Security Agreement (this “ Amendment” )   is made and entered into as of October 24, 2013 (“Effective Date”), by and between THE   F &M BANK   &   TRUST   COMPANY   (“Lender”),   acting as a lender on its own behalf, as Agent under the Loan Agreement (as defined below), and as collateral agent on behalf of CARGILL, I N CORPOR A TED,   a Delaware corporation (“Cargill”)   as a Hedge Provider, and TENGASCO,   INC.,   a Delaware corporation (“ Borrower” ),   TENNESSEE   LAND   & MINERAL   CORPORATION   (“TLMC”),   TENGASCO   PIPELINE   CORPORATION
(“TPC”)   and MANUFACTURED   METHANE   CORPORATION   (“ MMC” )   (each of TLMC, TPC, and MMC are a "Guarantor” and collectively “ Guarantors”)   (collectively referred to herein as the “ P arties” ).

RECITALS

A.            Borrower and Lender's predecessor-in-interest, Citibank, N.A., a national banking association formerly known as Citibank Texas, N.A., as Agent and as a Bank ( "Citibank" ), (which was succeeded by Sovereign Bank ("Sovereign")   and Lender) previously entered into
that certain Loan and Security Agreement dated effective June 29, 2006, (as assigned, assumed,
amended, supplemented, or restated to the date hereof, the " Loan   Agreement" );   whereby the Banks party to the Credit Agreement agreed to extend a Line of Credit to Borrower equal to the Commitment Amount, pursuant to the terms and conditions set forth in the Loan Agreement (the "Loan" );

B.            To evidence the Loan, Borrower executed and delivered to Citibank that certain Promissory Note dated June 29, 2006 (as amended and replaced the " Note" ),   payable to the order of Citibank in the original principal sum of Fifty Million and No/100 Dollars ($50,000,000), bearing interest and being payable as therein provided, and such Note has been (i) assigned to Sovereign by that certain Assignment of Note and Liens, dated as of December 17,2007, by and between Citibank (as assignor) and Sovereign (as assignee) and (ii) further assigned to Lender by that ce1tain Assignment of Note and Liens dated as of July 30, 20 I 0, by and between Sovereign (as assignor) and Lender (as assignee); and

C.       The Parties now desire to further amend the Loan Agreement to decrease the current Revolving Credit Borrowing Base and to modify the interest rate on the Note and to modify various other provisions of the Loan Agreement, as herein set forth.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CAPITALIZED TERMS ;   DEFINITIONS

 
Section 1.01        Definition s .   Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same definitions assigned to such terms in the Loan Agreement, as amended hereby. To the extent applicable, the term "Lender" as used in this Amendment shall also refer to Lender in its capacity as Agent and as a Bank under the Loan Agreement.

ARTICLE II
AMENDMENTS   TO   THE   LOAN   AGREEMENT

Section 2. 01       Section 1.3 of the Loan Agreement (Stated Rate).  As of the Effective Date, and subject to the conditions precedent required by the provisions of Article III   of this Amendment, Section 1.3 of the Loan Agreement is deleted in its entirety and replaced with the following:

“1.3       Stated   Rate shall mean the Prime Rate, plus   one half of one percent (0.50%). The ‘Prime Rate’ is the prime rate of interest published by the Wall Street Journal, Southwest Edition, in its Money Rates columns as the prime rate or base rate on corporate loans at large U.S. money center commercial banks or a similar rate if such rate ceases to be published.   If the Prime Rate is no longer announced or established for any reason, the Bank may select as the alternate rate such other announced and established prime or base rate for corporate loans of a New York, New York money center bank that Bank deems in its sole discretion to be most comparable to the no longer announced or established rate.”

Section 2.02        Section 1.15   of   the   Loan   Agreement   (Commitment   Amount) .  As of the Effective Date, and subject to the conditions precedent required by the provisions of Article III of this Amendment, Section 1.15 of the Loan Agreement is deleted in its entirety and replaced with the following:

“ 1. 15.  Commitment   Amount shall mean, as of the Fourteenth Amendment Effective Date, Seventeen Million Five Hundred Thousand Dollars ($17,500,000), or such other amount as agreed to in writing by Borrower, Banks, and Agent, but in no event in excess of the lesser of (a) the Maximum Line of Credit Amount of (b) the Revolving Credit Bon owing Base, as adjusted and redetermined from time to time pursuant to the provisions of Article III .”

Section 2.03         Section 1.45.5   of   the   Loan   Agreement   (Fourteenth Amendment   Effective Date). As of the Effective Date, and subject to the conditions precedent required by the provisions of Article III of this Amendment, Section 1.45 .5 is added to the Loan Agreement to read as follows:
“1.45.5   Fourteenth Amendment   Effective   Date shall mean the effective date of that certain Fourteenth Amendment to Loan and Security Agreement amending the Agreement.”

Section 2. 04     Section 3.1 of the   Loan   Agreement   (Borrowing   Base). As of the Effective Date, and subject to the conditions precedent required by the provisions of Article III of this Amendment, Section 3.1 of the Loan Agreement is hereby amended by deleting the last sentence at the end of Section 3.1   and replacing it with the following:

“Until further determination by Agent pursuant to the semiannual determinations or otherwise pursuant to the terms hereof, Agent and Borrower agree and stipulate that the Revolving Credit Borrowing Base as of the Fourteenth Amendment Effective Date shall be $17,500,000.”

ARTICLE III
CONDITION S   PRECEDENT

Section 3.01    Conditions Precedent . When all of the following conditions precedent have been fulfilled to the satisfaction of Lender, this Amendment shall become effective:

(a)       The representations and warranties contained herein and in each of the other Loan Documents shall be true and correct as of the date hereof as if made on the date hereof;
 
(b)            No Default or Event of Default shall have occurred and be continuing; (c)    Borrower and each Guarantor shall have executed and delivered this
Amendment and such other documents and agreements as Lender may reasonably request;

(d)            All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments, and other legal matters incident thereto shall be satisfactory to Lender and its legal counsel in their sole discretion;

(e)            Lender shall have received such other documents, instruments, or agreements as Lender shall reasonably request in connection with the execution of this Amendment; and

(f)            Borrower shall pay the legal fees and expenses of Lender's counsel in connection with the preparation, negotiation, and execution of this Amendment.
ARTICLE IV
RATIFICATIONS,   REPRESENTATIONS,   AND   WARRANTIES

   Section 4.01      Ratifications   by   Borrower . The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and, except as expressly modified and superceded by this Amendment,  the
terms and provisions of the Loan Agreement are ratified and confirmed and shall continue in full force and effect The Loan Agreement as amended by this Amendment shall continue to be legal, valid, binding, and enforceable in accordance with its terms.. Borrower acknowledges and agrees that there are no claims or offsets against, or defenses or counterclaims to, the terms and provisions of the Loan Agreement or any Note or the indebtedness, obligations, and liabilities of Borrower to Lender or the liens and security interests securing such indebtedness (including without limitation any defenses or offsets resulting from or arising out of breach of contract or duty, the amounts of interest charged, collected or received heretofore on any Note or other indebtedness, or breach of any commitments or promises of any type).

   Section 4.02       Renewal   and   Extension   of   Security   Interests   and   Liens . Each of Borrower and Guarantors hereby renews, affirms, and ratifies all security interests and liens created and granted by it to secure the indebtedness, obligations and liabilities of Borrower and Guarantors to Lender. Each of Borrower and Guarantors agrees that this Amendment shall in no manner affect 01   impair the liens and security interests securing such indebtedness, obligations, and liabilities, and that such liens and security interests shall not in any manner be waived, the purposes of this Amendment begin to modify the Loan Agreement as herein provided, and to carry forward all liens and security interests securing the indebtedness, obligations and liabilities of Borrower and Guarantors to Lender, which security interests and liens are acknowledged by Borrower and Guarantors to be valid and subsisting. Further, Borrower and Guarantors hereby covenant and agree that Lender may, without the signature of Borrower, file UCC Financing Statements in any jurisdiction to perfect any security interest now or hereafter granted to Lender.

    Section 4.03       Representations   and   Warranties . Borrower represents and warrants to Lender as follows: (i) the execution, delivery, and performance of this Amendment and any and all documents, agreements, and instruments executed and/or delivered in connection herewith
have been authorized by all requisite corporate action on the part of Borrower and will not violate the Articles of Incorporation or bylaws of Borrower or any agreement to which Borrower is a party; (ii) the representations and warranties contained in the Loan Agreement as amended
hereby and in each of such other documents, agreements, and instruments are true and correct on and as of the date hereof as though made on and as of the date hereof; (iii) except as disclosed to Lender, no default or Event of Det1mlt under the Loan Agreement has occurred and is continuing, and (iv) except as disclosed to Lender, Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement, as amended hereby.
ARTICLE V MISCELLANEOUS

   Section 5.0 I       Survival   of   Representations   and   Warranties . All representations and warranties made in the Loan Agreement or any other documents, agreements, or instruments executed in connection therewith, shall survive the execution and delivery of this Amendment, and no investigation by Lender or any closing shall affect such representations and warranties or the right of Lender to rely thereon.

   Section 5.02       Reference   to   Loan   Agreement . Each of the Loan Documents and the Loan Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement as amended hereby, arc hereby amended so that any reference in such documents, agreements, and instnnnents to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.

    Section 5.03      Severability . Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.

    Section 5.04      APPLICABLE   LAW .   THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

    Section 5.05      Successors   and   Assign s .. This Amendment is binding upon and shall inure to the benefit of the Parties and their respective successors, assigns, heirs, executors, and legal representatives, except that none of the Parties other than  Lender may assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender..

    Section 5.06       Counterpart s . This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which, when taken together, shall constitute one and the same instrument.

    Section 5 .   07     Effect   of Waiver . No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant, condition, or duty by Borrower, shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition, or duty

 Section 5.08       Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.
  Section 5.09        Conflicting   Provisions . If any provision of the Loan Agreement as amended hereby conflicts with any provision of any other Loan Document, the provision in the Loan Agreement shall control

  Section 5.10        RELEASE .   FOR AND INCONSIDERATION OF THIS AMENDMENT AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES
LENDER, ITS AGENTS, EMPLOYEES, SUCCESSORS, AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF (I) CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, (II) ANY LOAN, (III) ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING, OR RECEIVING INTEREST IN
EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, (IV) THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THIS AMENDMENT, THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR (V) THE NEGOTIATION, EXECUTION, OR DELIVERY OF THIS AMENDMENT, THE LOAN AGREEMENT, OR ANY OTHER LOAN DOCUMENTS.

   Section 5.11        ENTIRE   AGREEMENT .   THIS AMENDMENT, THE LOAN AGREEMENT AS AMENDED HEREBY, AND ALL OTHER LOAN DOCUMENTS EXECUTED AND DELIVERED  IN CONNECTION WITH AND PURSUANT TO THIS AMENDMENT AND THE LOAN AGREEMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

    Section 5.12       Legal   Fees   and   Expenses . Notwithstanding anything contained in the loan Agreement, as amended, to the contrary, Borrower shall pay all costs, fees, and expenses (including legal fees and expenses) incurred by Lender arising out of or in connection with (i)   the Loan Agreement, this Amendment, and the Loan, (ii) the negotiation, preparation, execution, delivery, and enforcement of the Loan Agreement, as amended, and (iii) the collection of the Loan. Borrower hereby authorizes Lender to deduct from Borrower's accounts maintained with Lender, the amount of any costs, fees, and expenses owed by Borrower when due..
IN WITNESS WHEREOF, Borrower and Lender have caused this Amendment to be executed as on the day and date first above written.
 
 
LENDER:
 
 
 
THE F&M BANK & TRUST COMPANY , in
 
its capacity as Agent, as a Bank, and as
 
Collateral Agent
 
 
 
 
 
By:   /s Wes Webb_______
 
Wcs   Webb,
 
Senior Vice President
 
 
 
BORROWER:
 
 
 
TENGASCO, INC ., a Delaware corporation
 
 
 
By:   /s Michael J. Rugen
 
Michael J. Rugen
 
Chief Executive 0fficer
Acknowledged and Accepted this 24th day of October, 2013, by the following Loan Parties:
 
TENNESSEE LAND &   MINERAL CORPORATION,
A Tennessee Corporation
 
By: / s Michael J. Rugen
Michael J. Rugen
President
 
TFNGASCO PIPELINE CORPORATION,
A Tennessee Corporation
 
By: / s Michael J. Rugen
Michael J. Rugen
President
 
MANUFACTURED METHANE CORPORATION,
A Tennessee Corporation
 
By: / s Michael J. Rugen
Michael J. Rugen
Vice-President
 
 
Exhibit 31 .1   CERTIFICATION

I, Michael J. Rugen, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of Tengasco, Inc. for the quarter September 30, 2013.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s certifying officers are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-(f) for the registrant and we have:
 
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The Registrant’s certifying officers have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
(a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
(b)              Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Dated: November 14, 2013
 
By:   s/ Michael J. Rugen
 
Michael J. Rugen
Chief Executive Officer and Chief Financial Officer
              
 
Exhibit 32 .1
CERTIFICATION
 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:
 
I have reviewed the Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 .
       
To the best of my knowledge this Quarterly Report on Form 10-Q (i) fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m (a) or 78o (d)); and, (ii) the information contained in this Report fairly present, in all material respects, the financial condition and results of operations of Tengasco, Inc. and its subsidiaries during the period covered by this report.
   
Dated:  November 14, 2013
 
By:   s/ Michael J. Rugen
Michael J. Rugen
Chief Executive Officer and Chief Financial Officer