PEDEVCO Corp. — Q3 2021 Form 10-Q
Business and period. PEDEVCO is an oil and gas producer focused on legacy properties in the Permian Basin of New Mexico and the Denver-Julesburg (D-J) Basin of Colorado. This unaudited report covers the three and nine months ended September 30, 2021; financial amounts below are in millions of dollars unless otherwise noted.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Oil and gas revenue | $4.069 | $2.417 | $11.340 | $5.905 |
| Operating income (loss) | $(0.357) | $(2.893) | $(0.282) | $(10.601) |
| Net income (loss) | $(0.325) | $(2.293) | $0.178 | $(9.291) |
| Operating cash flow | Not stated separately | Not stated separately | $3.971 | $(0.024) |
- Q3 oil and gas revenue increased 68%; management attributed the increase primarily to higher realized prices, partly offset by lower volumes. Q3 production was 726 Boe per day, down 9% year over year; average crude oil price was $67.08/Bbl, up 80%.
- For the nine months, revenue rose 92%, while production declined 7% to 734 Boe per day. Higher realized prices more than offset lower volumes.
- Q3 operating expenses were $4.426 million, down from $5.310 million. Nine-month operating expenses were $13.427 million, down from $16.506 million. Lower depletion and amortization, following a $19.3 million D-J Basin impairment in 2020, contributed to the decrease.
- Nine-month net income included a $1.805 million gain on sale of D-J Basin properties and $0.374 million gain from forgiveness of the PPP loan. The property sale generated approximately $1.9 million in net proceeds.
- At September 30, cash was $19.926 million; cash plus restricted cash was $23.223 million, including $3.297 million restricted cash. Working capital was $19.3 million, versus $6.8 million at year-end 2020. Nine-month investing cash use was $0.309 million and financing cash provided was $8.237 million, primarily from the February equity offering.
- Total liabilities were $4.433 million, including lease liabilities and asset-retirement obligations. The PPP loan was forgiven; no PPP debt remained, and management reported no other debt.
- Shareholders’ equity was $85.918 million. Shares outstanding were 79.752 million at September 30, versus 72.463 million at December 31, 2020. A further 4.459 million shares were sold in an October 6 registered direct offering for approximately $6.5 million net proceeds. The filing reports 84,210,203 shares outstanding at November 12.
Changes, outlook, and risks
- Management planned to permit up to 10 horizontal San Andres wells and expected to drill and complete at least two in late 2021 or early 2022, with remaining planned wells in 2022. It also anticipated approximately $1.2 million of participation costs for four D-J Basin wells drilled in Q3, with revenue expected in Q4, and elected to participate in eight D-J wells planned for Q1 2022 at an estimated net cost of approximately $2.1 million.
- Management expected available resources to meet foreseeable needs, citing operating cash flow, cash on hand, and possible future financing. However, potential support from SK Energy is not committed, and development plans may be adjusted for commodity prices, capital availability, permitting, and contractor availability. No quantitative production or earnings guidance was provided.
- Oil and gas prices and demand remain key uncertainties. Management warned that a significant price decline could lead to shut-ins, reduce operating cash flow, and require additional financing or asset sales, which may not be available on favorable terms. COVID-19 could again disrupt operations or markets.
- Approximately 26% of New Mexico acreage and 1% of Colorado acreage is on federal land. The federal leasing moratorium was enjoined in June 2021, but the government appealed; management said it had no current plans to drill new wells on federal leases.
- CEO Simon Kukes and SK Energy together beneficially owned approximately 64.8% of the common stock, giving them voting control. The company disclosed no material legal proceedings and no material changes to previously reported risk factors other than those described in this filing.
- Management concluded disclosure controls and procedures were effective as of September 30, 2021; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether higher commodity prices can persist and offset production declines and operating-cost increases.
- Actual timing, capital costs, production results, and cash returns from planned Permian and D-J Basin wells.
- Cash available for development after restricted cash, lease and asset-retirement obligations, and the October equity offering; assess the resulting dilution.
- Whether federal permitting policy, COVID-19, or other market disruptions affect acreage development, operations, or financing access.
- The effect of controlling-stockholder voting power on governance and the interests of minority shareholders.