PEDEVCO Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited consolidated results. PEDEVCO develops and produces oil and natural gas in the Permian Basin and Denver-Julesburg Basin.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Oil and gas revenue | $2.832 million | $1.568 million |
| Operating expenses | $7.112 million | $4.557 million |
| Operating loss | $4.280 million | $2.069 million |
| Net loss | $4.257 million | $2.995 million |
| Loss per share, basic and diluted | $0.06 | $0.11 |
| Cash used in operating activities | $1.294 million | $0.630 million |
| Cash used in investing activities | $8.720 million | $8.804 million |
- Production volumes rose substantially: sales totaled 96,515 Boe, or 1,062 Boe per day, up 175% and 181%, respectively. Revenue increased 81%, mainly on higher production from new Permian wells and D-J Basin participation.
- Average realized crude oil price fell 32% to $32.76 per barrel; natural gas fell 68% to $1.47 per Mcf. Higher volumes offset lower prices in Q1.
- Operating costs increased, including lease operating costs of $1.522 million, up 57%; depreciation, depletion, amortization and accretion of $3.437 million, up 53%; and G&A of $2.123 million, up 60%. Higher production and noncash share-based compensation contributed to increases. Q1 share-based compensation was $0.853 million.
- At March 31, cash was $12.401 million; cash plus restricted cash was $15.698 million, including $3.297 million restricted. Current assets were $15.302 million and current liabilities $7.813 million, for working capital of $7.489 million, down from $11.870 million at December 31, 2019.
- The company reported no debt and no Q1 financing cash flows. Total liabilities were $9.982 million, including operating lease liabilities and asset retirement obligations. Q1 cash declined $10.014 million to $15.698 million including restricted cash.
- Q1 capital costs were $4.592 million, primarily development and facilities spending; cash paid for drilling and completion was $8.720 million. A saltwater-disposal well project was postponed.
Material changes and outlook
- Compared with Q1 2019, net loss widened by $1.262 million. Management attributed this mainly to a $2.6 million increase in operating costs, partly offset by $1.3 million higher revenue. The prior-year period included a $0.920 million property-sale gain and $0.826 million interest expense; neither was recorded in Q1 2020.
- Following the sharp oil-price decline and COVID-19 disruption, PEDEVCO shut in all operated producing wells on April 24, 2020. At filing, reported wellhead prices were approximately $13 per barrel for Permian properties and $17 for D-J properties. Management said production would resume when realized wellhead prices recover to the mid-$20s per barrel for a reasonable period.
- Development plans were put on hold indefinitely pending price recovery. If WTI recovers to approximately $50 per barrel, management said it would assess remaining 2020 projects. The stated 2020 capital budget was up to $14.5 million, with approximately $6 million deployed to date and up to $8.5 million potentially remaining. These are conditional plans, not a production or earnings forecast.
- Management expected available cash and anticipated funding sources to meet foreseeable needs, but noted that shut-in production could eliminate operating cash flow. If low prices persist and cash is depleted, additional financing, asset sales or other funding may be needed; capital spending could be delayed into 2021. Potential support from SK Energy is not committed.
- Effective April 1, the company reduced salaries for salaried employees and officers by 20% until oil markets recover. It also described risks of further property write-downs, lease obligations and shut-in royalties, volatile prices and differentials, and dependence on third-party transportation and storage.
- Subsequent event: PEDEVCO received a $370,000 PPP loan on April 22, 2020, then repaid it in full on May 1 after new SBA guidance raised eligibility concerns.
- No material legal proceedings were reported. Management concluded disclosure controls were effective as of March 31, 2020; no material internal-control changes were reported.
Important facts for investors to verify
- Whether shut-in wells have resumed production, at what realized prices, and the resulting production and cash-flow effects.
- Actual cash available for operations and development, including restricted cash, cash burn, and whether further financing is required.
- Whether capital spending remains paused, the status of the stated 2020 budget, and the timing and cost of postponed projects.
- Exposure to potential oil and gas property impairments, lease expirations, shut-in royalties, and other obligations if low prices persist.
- Reconcile share counts: the balance sheet reports 72,125,328 shares issued and outstanding at March 31, while the cover page reports 71,125,328 outstanding at May 12, 2020.