PEDEVCO Corp. — Q1 2022 Form 10-Q
Business and period: Oil and gas exploration, development and production company with assets in the Permian Basin of New Mexico and the Denver-Julesburg (D-J) Basin of Colorado. This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Oil and gas revenue | $7.09 million | $3.53 million; up 101% |
| Net income | $1.34 million; $0.02 per share | $0.73 million; $0.01 per share |
| Operating income | $1.26 million | $0.72 million |
| Operating expenses | $5.83 million | $4.61 million |
| Net cash from operating activities | $1.42 million | $0.91 million |
| Cash used in investing activities | $5.51 million | $1.29 million provided |
| Cash and restricted cash at quarter end | $25.13 million, including $3.30 million restricted | $29.23 million at December 31, 2021 |
| Working capital | $19.7 million surplus | $22.8 million surplus at December 31, 2021 |
| Debt | No debt reported | No debt reported |
Revenue increased through both higher realized prices and volumes: total production sales volumes rose 41% to 1,074 Boe per day. Average crude oil, natural gas and NGL prices increased 49%, 145% and 49%, respectively. Operating expenses included $2.36 million of lease operating costs, up 83%, principally reflecting more workover activity; depreciation, depletion, amortization and accretion rose 21% to $1.89 million. The filing reports no income tax provision.
Operating margin was approximately 17.7% of revenue in Q1 2022 versus 20.4% in Q1 2021. The comparison is affected by a $1.81 million property-sale gain included in the prior-year operating income; there was no such gain in Q1 2022. Adjusted EBITDA, a non-GAAP measure, was $3.79 million versus $1.16 million.
Material changes and developments
- Q1 2022 capital costs were approximately $6.9 million, primarily for Permian drilling and completion work and D-J Basin development. Cash paid for drilling and completion was $5.51 million.
- In January, the company acquired D-J Basin interests for approximately $0.5 million, including about 46.6 net leasehold acres and interests in 14 producing horizontal wells. It also incurred $1.2 million in net capital costs for its working interest in those wells during the quarter.
- In April and May 2022, after quarter-end, the company acquired approximately 163 net D-J Basin mineral acres for $276,000.
- Accounts receivable increased to $3.97 million from $1.78 million at year-end, contributing to operating cash flow being below net income. Cash and restricted cash declined by $4.09 million during the quarter.
- The company granted officers 1.2 million restricted shares and employees options for 520,000 shares. Share-based compensation expense was $563,000.
Outlook, risks and contingencies
Management estimated 2022 net capital expenditures of $35 million to $40 million, including $33 million to $38 million for drilling and completion and approximately $2 million for other field and facility work. The plan is subject to revision based on commodity prices, operating results, inflation, contractor availability, permitting, liquidity and capital allocation. The company cited service-cost inflation of approximately 10% to 15% per well.
Management expected available resources to fund foreseeable needs and the remainder of the 2022 program, relying on operating cash flow and cash on hand as well as potential financing. Potential sources include funding from SK Energy, an entity controlled by the CEO, but it is under no obligation to provide funds; debt or equity financing; credit facilities; and asset sales or farm-outs. An at-the-market offering of up to $3.6 million was available, but no securities had been sold under it as of the filing.
Key uncertainties include volatile oil and gas prices and demand, development and reserve outcomes, cost inflation, labor and contractor availability, permitting and regulatory scrutiny (including in Colorado), and the continuing or renewed effects of COVID-19. Management also noted that future financing on acceptable terms is not assured. No material legal proceedings or material changes to the 2021 Form 10-K risk factors were reported. The company stated that it had no material legal proceedings, and management concluded disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Confirm the sustainability of higher realized prices and production volumes, and the impact of workover costs and inflation on unit economics.
- Track cash conversion, receivables, capital spending and funding availability against the $35 million to $40 million 2022 capital plan; potential affiliate funding is not committed.
- Review the filing’s share-count disclosures: the balance sheet and cover page report 85,463,146 shares, while the statement of shareholders’ equity reports 85,436,146 shares at March 31, 2022. The filing text does not reconcile this difference.
- Assess the execution and economics of Permian and D-J Basin projects, including lease expirations and permitting requirements.