PEDEVCO Corp. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. PEDEVCO is an oil and gas producer with assets in the Permian Basin and Denver-Julesburg (D-J) Basin. Financial amounts below are in U.S. dollars; unless otherwise stated, figures are in millions.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Oil and gas revenue | $7.33 | $7.47 | $24.04 | $24.11 |
| Operating income | $0.86 | $1.02 | $3.97 | $5.50 |
| Net income | $0.95 | $1.08 | $4.29 | $5.63 |
| Diluted earnings per share | $0.01 | $0.01 | $0.05 | $0.07 |
| Operating margin | 11.7% | 13.7% | 16.5% | 22.8% |
Q3 production was 1,376 Boe per day, up 43% year over year; nine-month production averaged 1,488 Boe per day, also up 43%. Higher volumes were largely offset by weaker realized prices. Q3 oil, gas, and NGL prices declined 17%, 70%, and 30%, respectively; nine-month prices declined 24%, 53%, and 45%. Nine-month Adjusted EBITDA, a non-GAAP measure, was $14.24 million versus $13.63 million.
Cash, liquidity, and capital
- Cash was $13.20 million at September 30, 2023; cash and restricted cash totaled $16.75 million, including $3.55 million of restricted cash.
- Working capital was $13.81 million ($19.16 million current assets less $5.35 million current liabilities), versus $15.15 million at December 31, 2022.
- Net cash from operating activities was $11.43 million, compared with $12.99 million in the prior-year period. Investing activities used $27.66 million, primarily reflecting increased drilling and completion spending. Cash declined $16.23 million over the nine months.
- The filing states the company maintains no debt. Current and long-term asset retirement obligations totaled $3.89 million.
- Full-year 2023 net capital expenditures were estimated at $28.5–$30.5 million; approximately $15.4 million had been incurred through September. The company also paid approximately $12.5 million of accrued 2022 capital expenditures during 2023, excluded from that estimate.
Material developments and outlook
- PEDEVCO acquired approximately 6,305 net D-J Basin lease acres and 282 net mineral acres during the first nine months, for stated costs of approximately $4.95 million and $0.49 million, respectively.
- Under a September participation agreement with Evolution Petroleum, Evolution acquired a 50% working interest in leases covering the first two of 12 Permian development blocks. The agreement provides an option to participate in later blocks and wells; PEDEVCO remains operator. PEDEVCO also began drilling three horizontal Permian wells in October, with a 50% working interest and approximately $5 million of expected net drilling and completion costs.
- Management expected sufficient cash for needs over the next 12 months, including the 2023 program, drawing on operating cash flow and cash on hand, and potentially financing, asset sales, farm-outs, or CEO Simon Kukes-provided funding. Kukes is under no obligation to provide funding. Up to $3.5 million could be sold under the ATM offering, subject to registration and public-float limits.
- Management cited volatile commodity prices, inflation, service and labor costs, permitting, partner decisions, and capital availability as factors that could affect plans. No quantified production or earnings guidance was provided.
- The company reported no material pending legal proceedings. It identified ongoing Ukraine and Israel-related geopolitical risks, commodity-price volatility, inflation, and economic uncertainty.
Controls, contingencies, and unusual items
Management concluded disclosure controls and procedures were not effective at September 30, 2023, due to a material weakness in the completeness and accuracy of revenue accruals for third-party-operated properties. Remediation efforts began, including validation of production source documentation for new-well accruals; management did not state the weakness had been fully remediated. The filing reports no income tax provision, citing prior losses and a full valuation allowance. No material legal proceedings were reported.
Investor verification points
- Track whether revenue-accrual controls are fully remediated and whether any restatement or reporting delay results.
- Compare realized commodity prices and production trends with operating costs, margins, and cash generated.
- Verify actual 2023 capital spending, drilling schedules and outcomes, and the timing of non-operated project billings.
- Assess liquidity against planned spending, including reliance on discretionary CEO funding or prospective external financing.
- Review the Evolution agreement’s block-by-block participation and payment terms, and the economics of new Permian wells.