PEDEVCO Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. PEDEVCO develops and produces oil and gas in the Permian Basin and Denver-Julesburg (D-J) Basin. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Oil and gas revenue | $3.740 | $0.656 | $7.271 | $3.488 |
| Operating income (loss) | $(0.647) | $(3.428) | $0.075 | $(7.708) |
| Net income (loss) | $(0.225) | $(2.741) | $0.503 | $(6.998) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $2.473 | $0.087 |
- Six-month average production was 740 Boe/day, down 6% year over year; Q2 production was 718 Boe/day, up 41% from the COVID-affected comparison period.
- Six-month revenue rose 108%, primarily from higher realized prices; total sales volume declined 6%. Average six-month oil price was $59.17/Bbl versus $27.93/Bbl a year earlier.
- Operating margin was about 1% for the first half, including a $1.805 million property-sale gain; excluding that gain, operating results were a $1.730 million loss. Q2 operating margin was approximately negative 17%.
- Cash was $19.335 million at June 30, versus $8.027 million at year-end; cash and restricted cash totaled $22.632 million. Working capital surplus was $18.7 million, compared with $6.8 million at year-end.
- Total liabilities were $4.189 million. The PPP loan was fully forgiven in May, leaving no PPP debt at quarter-end; remaining liabilities included asset-retirement obligations of $1.984 million and operating lease liabilities of $0.248 million.
- Six-month cash flow: $2.473 million from operations, $0.598 million from investing, and $8.237 million from financing. Financing included $8.2 million net proceeds from a February stock offering.
Material changes versus comparable periods
- Q2 revenue increased $3.084 million year over year, driven by favorable price and volume variances; the prior-year period included a 42-day shut-in of operated wells.
- First-half revenue increased $3.783 million despite lower volumes, principally due to stronger commodity prices. Operating expenses fell $2.195 million, including lower depletion, depreciation and amortization following a $19.3 million D-J Basin impairment in 2020.
- First-half results included a $1.805 million gain from selling D-J Basin interests for approximately $1.9 million net proceeds and a $0.374 million gain on PPP loan forgiveness. These items contributed to the return to reported net income.
- Shares outstanding increased from 72.46 million at December 31, 2020 to 79.46 million at June 30, following the offering and equity awards.
Outlook, risks and other matters
- Management expected available resources to meet foreseeable needs and fund the remaining 2021 development program. It planned to permit up to 10 Permian horizontal wells, drill and complete at least two in fall 2021, and spend approximately $1.2 million on proposed non-operated D-J projects; none of that planned D-J spend had occurred by the filing date. Plans were subject to market conditions, prices, permitting, contractor availability and capital availability.
- Potential funding sources include operating cash flow, cash on hand, future equity or debt, credit facilities, asset sales and farm-outs. Any funding from SK Energy, controlled by the CEO, is not committed. Management said deteriorating oil prices could lead to renewed shut-ins, reduced cash flow and a need for additional financing that may not be available on favorable terms.
- Management warned of commodity-price volatility and continuing uncertainty from COVID-19, including effects on demand, operations and financing. Winter storms and the D-J asset sale also contributed to lower first-half production volumes.
- The filing reported no material legal proceedings, no off-balance-sheet arrangements, and no material change in previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30, 2021.
Key facts for investors to verify
- Whether higher realized commodity prices and production levels are sustainable, and how they affect operating cash flow.
- Execution, timing and funding of the 2021 drilling and development plans, including the proposed non-operated D-J spending.
- The recurring earnings picture excluding the property-sale gain and PPP forgiveness, and the effect of the 2020 impairment on future depletion.
- Potential dilution from the February equity offering and outstanding stock awards and options.
- Availability and terms of any prospective financing, including the absence of any funding obligation from SK Energy.