PEDEVCO Corp. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; filed August 14, 2020. Financial statement amounts below are in U.S. dollars, generally millions unless noted. PEDEVCO develops and produces oil and gas in the Permian Basin and Denver-Julesburg Basin.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Oil and gas revenue | $0.656m | $4.070m | $3.488m | $5.638m |
| Operating loss | $(3.428)m | $(2.466)m | $(7.708)m | $(4.535)m |
| Net loss | $(2.741)m | $(2.460)m | $(6.998)m | $(5.455)m |
| Loss per share, basic and diluted | $(0.04) | $(0.05) | $(0.10) | $(0.14) |
| Operating cash flow | Not presented separately | Not presented separately | $0.087m | $2.085m |
| Capital expenditures / investing cash flow | Not presented separately | Not presented separately | $5.402m capital costs / $(12.663)m investing cash flow | Not presented separately / $(24.197)m investing cash flow |
At June 30, cash was $10.209m, plus $3.297m restricted cash; total cash and restricted cash was $13.506m, down from $25.712m at year-end 2019. Current assets of $10.888m and current liabilities of $4.093m yielded working capital of $6.795m and a current ratio of about 2.7. Total liabilities were $6.519m, including a $0.370m PPP loan, $0.349m operating lease liability and $1.973m asset retirement obligations. Management reported no other debt at the period end.
Operating margin was negative in both periods; the filing does not present a separate margin measure. Q2 lease operating expense was $0.750m and total operating expenses were $4.084m.
Material changes versus the comparable periods
- Q2 revenue fell 84% year over year, as oil sales volumes declined 50% and average realized oil price fell 70% to $16.85 per barrel. Total production was 511 Boe per day, down 37%.
- For the first half, revenue declined 38%, despite total production rising 31% to 786 Boe per day. Average realized oil price fell 48% to $27.93 per barrel; management attributed the revenue decline primarily to lower prices.
- Q2 net loss increased by $0.281m year over year. First-half net loss increased by $1.543m; the prior-year period included a $0.920m property-sale gain, while 2020 included $0.678m of other income, mainly from settlements of payables and a receivable.
- First-half operating cash flow declined to $0.087m from $2.085m. Cash and restricted cash decreased $12.206m, primarily reflecting $12.663m of investing outflows and only $0.370m of net financing proceeds.
- First-half weighted-average shares rose to 72.1m from 38.6m, while reported loss per share improved. The filing attributes the prior-year share-count increase to debt conversion and equity issuance.
Outlook, management commentary and risks
- COVID-19, reduced oil demand, low prices and widened differentials led the Company to shut in all operated producing wells in mid-April. It reactivated more than 90% in early June; the shutdown lasted 42 days. Management said further shutdowns could occur if realized wellhead prices deteriorate into the mid-to-low $20s per barrel.
- The revised 2020 development plan reduced the originally projected budget from $14.5m to approximately $7m. Management said about $5m had been deployed by the filing date and anticipated roughly $0.95m to complete a saltwater disposal well and bring three Permian wells online, plus approximately $1m for non-operated D-J Basin projects. Plans remain subject to market conditions.
- The Company cut salaried employee and officer pay by 20% beginning April 1, reduced discretionary spending and contractors, and negotiated approximately $1m in vendor payable reductions. Management said it expected sufficient cash for the foreseeable future, but identified operating cash flow, existing cash, potential financing and possible support from CEO-controlled SK Energy as funding sources; SK Energy is under no obligation to provide funds.
- The new PPP loan was $0.370m, bears 1% interest and has a two-year term. Forgiveness is conditional on eligible use and compliance; management expected full forgiveness, but it was not assured in the filing.
- Major risks include volatile oil and gas prices, COVID-19-related demand and operational disruption, widened price differentials, third-party transportation constraints and potential impairment of oil and gas assets if low prices persist. Management cautioned that low prices could require further spending cuts, production shut-ins or additional financing, potentially on unfavorable terms.
- The Company reported no material legal proceedings, no material changes to internal control over financial reporting, and effective disclosure controls and procedures.
Most important facts for investors to verify
- Whether production remains largely reactivated and whether realized prices and differentials support continued operations.
- Actual completion costs, timing and production results for the saltwater disposal well and the three Permian wells; confirm progress against the revised 2020 spending plan.
- Cash burn, restricted-cash availability and near-term liquidity, including whether planned projects or operating needs require outside financing.
- PPP loan forgiveness status and any remaining repayment obligation.
- Potential property impairments and lease or acreage-retention obligations if commodity prices remain weak.
- Share-based compensation and dilution: shares outstanding were 72,125,328 at June 30, 2020.