PEDEVCO Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated results; dollar amounts below are in millions unless otherwise noted. PEDEVCO develops and produces oil and natural gas assets in the Permian Basin and Denver-Julesburg (D-J) Basin.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Oil and gas revenue | $3.531 | $2.832; up 25% |
| Operating income (loss) | $0.722 | $(4.280) |
| Net income (loss) | $0.728; $0.01 per diluted share | $(4.257); $(0.06) per diluted share |
| Cash provided by (used in) operations | $0.913 | $(1.294) |
| Cash and restricted cash, period end | $21.829 | $15.698 at March 31, 2020 |
| Current assets / current liabilities | $20.008 / $2.722 | Working capital surplus $17.3, versus $6.8 at December 31, 2020 |
At March 31, cash on the balance sheet was $18.532, with $3.297 of restricted cash included in other assets. Total liabilities were $4.738. The company reported a $0.370 PPP loan outstanding, including $0.349 classified as current, and said it had no debt other than that loan and operating leases. Asset retirement obligations totaled $2.073.
Sales volume fell 29% to 760 barrels of oil equivalent per day. Higher realized prices—crude oil $55.26 per barrel versus $32.76, natural gas $2.28 per Mcf versus $1.47, and NGL $28.68 per barrel versus $10.32—more than offset lower volumes. Direct and total lease operating expense fell 15% and 16%, respectively. Total operating expenses declined 35% to $4.614, including lower depreciation, depletion, amortization and accretion. The filing does not provide a separate gross-margin figure.
Investing cash flow was positive $1.289, including $1.871 of sale proceeds and $0.582 of cash drilling and completion costs. Financing provided $8.303 from the February stock offering. Cash and restricted cash increased $10.505 during the quarter.
Material changes and unusual items
- Q1 earnings included a $1.805 gain on the sale of D-J Basin assets: 230 net acres and interests in three non-operated wells. Net cash received was approximately $1.9 million, subject to customary post-closing adjustments.
- Revenue increased $0.699 despite a 28% decline in daily production, reflecting a $2.0 million favorable price variance offset by a $1.3 million unfavorable volume variance. Management attributed lower production to prior-year peak production at newer wells, the asset sale, and winter-storm-related shut-ins.
- On February 5, the company issued 5,968,500 shares at $1.50 per share, including the fully exercised over-allotment, for approximately $8.3 million net proceeds. Shares outstanding were 79,461,603 at March 31, versus 72,463,340 at year-end 2020.
- Q1 2020 included a $19.3 million impairment of D-J Basin properties recorded at year-end 2020; management cited that impairment and lower current-period production as drivers of lower depletion and related expense.
Outlook, risks and contingencies
- Management planned to permit up to 10 horizontal San Andres wells in the Permian during 2021 and anticipated drilling and completing at least two in fall 2021, with the remainder planned for 2022. It also planned well reactivations and facilities work, and approximately $1.2 million of participation in non-operated D-J Basin projects. Plans may change with commodity prices, permitting, contractor availability, capital availability and other conditions; this is not a firm production or earnings forecast.
- Management expected available resources to be sufficient for the foreseeable future, citing cash, operating cash flow and possible financings or asset sales. Potential funding from SK Energy, controlled by CEO Simon Kukes, is not committed. The company may defer development if market conditions weaken.
- Commodity prices and demand remain volatile; further declines could reduce cash flow and could prompt production shut-ins. COVID-19 impacts, financing availability, development execution and acquisition opportunities are additional uncertainties.
- The SBA selected the company’s PPP loan for review. The company had applied for forgiveness and expected full forgiveness, but was awaiting the SBA’s determination.
- Permian leases covering 2,731 acres were due to expire during the remainder of 2021; management planned to hold the acreage through drilling and production or seek extensions where available. The company reported no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the PPP loan was forgiven after the SBA review.
- Final post-closing adjustments to the D-J Basin sale and the production and cash-flow impact of divested assets.
- Whether the planned 2021 Permian drilling, well reactivations and D-J non-operated spending proceeded on schedule and within budget.
- Whether higher commodity prices can offset continued lower production volumes, and how prices, winter impacts and operating performance affect cash generation.
- Funding needs and potential dilution from future equity issuance, as well as the status of the expiring Permian acreage and any lease extensions.