PEDEVCO Corp. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. PEDEVCO is an oil and gas producer with assets in the Permian Basin and Denver-Julesburg (D-J) Basin.
Financial and operating results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Oil and gas revenue | $7.5 million | $4.1 million | $24.1 million | $11.3 million |
| Operating income (loss) | $1.0 million | $(0.4) million | $5.5 million | $(0.3) million |
| Net income (loss) | $1.1 million | $(0.3) million | $5.6 million | $0.2 million |
| Net income (loss) per diluted share | $0.01 | $(0.00) | $0.07 | $0.00 |
For Q3, revenue rose 84% year over year; production increased 32% to 960 Boe per day. For the first nine months, revenue increased 113% and production rose 42% to 1,040 Boe per day. Management attributed higher volumes mainly to two new Permian wells and participation in D-J non-operated wells, with higher realized prices also contributing.
Operating margin, calculated as operating income divided by revenue, was approximately 13.7% in Q3 2022 versus negative 8.8% in Q3 2021; for the nine months it was approximately 22.8% versus negative 2.5%. The prior-year nine-month operating result included a $1.8 million gain on property sales.
- Costs: Lease operating costs were $2.9 million in Q3, up 105%; nine-month costs were $8.1 million, up 94%. Workovers, water-handling improvements, environmental cleanup, higher production-related taxes and marketing costs, and industry cost inflation contributed. Nine-month depreciation, depletion, amortization and accretion was $6.4 million, up 33%.
- Cash flow: Nine-month operating cash flow was $13.0 million, versus $4.0 million in 2021. Investing cash outflow was $11.4 million, primarily for drilling, completion and acquisition costs. Financing provided $0.05 million, compared with $8.2 million in prior-year equity proceeds. Cash and restricted cash increased $1.6 million to $30.9 million.
- Liquidity and debt: September 30 cash was $27.4 million, with an additional $3.5 million of restricted cash. Working capital was $26.7 million. The company reported no debt and no interest expense for the 2022 periods.
- Balance sheet: Total assets were $104.5 million and shareholders’ equity was $98.7 million. Asset retirement obligations totaled approximately $2.1 million. Shares outstanding were 85.8 million at September 30, up from 84.3 million at year-end 2021.
Changes, outlook and risks
Management estimated 2022 net capital expenditures of $24 million to $30 million, including $22 million to $28 million for drilling and completion. It reported approximately $9.6 million incurred through September 30 and estimated $14.4 million to $20.4 million remained for the year, including anticipated non-operated D-J costs not yet invoiced. The company said it expected sufficient cash for foreseeable needs, drawing on operating cash flow and cash on hand, with potential additional funding from equity or debt, credit facilities, asset sales or farm-outs. CEO Simon Kukes may make loans or equity investments but is not obligated to do so; up to $3.5 million remained available under the ATM sales agreement.
- Management said the 2022 plan was subject to change based on commodity prices, liquidity, drilling results, permitting and contractor availability. Estimated per-well costs had increased about 25%–30% in the Permian and 10%–20% in the D-J Basin due to inflation and service/material costs.
- Oil and gas price volatility, inflation, supply-chain constraints, labor availability, geopolitical developments and access to capital were identified as risks. The company reported no commodity derivatives in the provided financial information.
- New Mexico regulators withdrew a penalty demand related to Ridgeway. For EOR’s 49 legacy wells, an amended agreement requires restoration to production or plugging and abandonment by December 31, 2024, monthly reporting, and $50,000 in escrow as financial assurance. The company stated the issues were favorably resolved, but failure to meet the agreement could have adverse consequences.
- Q3 lease operating costs included non-recurring workovers and infrastructure and cleanup expenses. Nine-month results in the prior year included a PPP loan forgiveness gain and a property-sale gain, making comparisons less directly recurring.
- The company reported effective disclosure controls and procedures and no material changes in internal control over financial reporting. It reported no material legal proceedings.
Investor facts to verify
- Whether the planned remaining 2022 capital spending was completed, and how actual costs and non-operated well billings compared with estimates.
- Production trends, realized commodity prices and lease operating costs, particularly whether elevated workover and infrastructure costs persisted.
- Funding plans and available liquidity if operating cash flow, commodity prices or capital-market access weaken.
- Compliance with the EOR amended agreement, including the well deadlines, reporting requirements and escrow obligation.
- The terms and ongoing activity under the ATM offering and the related-party office sublease with an entity controlled by the CEO.