PEDEVCO Corp. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 23, 2021. This is an annual report, not a standalone Q4 filing. PEDEVCO is an oil and gas producer operating in New Mexico’s Permian Basin and Colorado’s D-J Basin.
Business context and operations
- At year-end, the Company held approximately 37,068 net Permian acres and 11,948 net D-J Basin acres. It reported 14.1 million Boe of proved reserves, including 11.9 million Boe of proved undeveloped reserves.
- Average production was 691 Boe per day, down 5% from 729 Boe per day in 2019. The Company temporarily shut in operated wells for 42 days in spring 2020 amid COVID-19 disruption and sharply lower oil prices, then resumed production.
- In September 2020, a new Permian saltwater-disposal well added disposal capacity and enabled production from one horizontal well; two further wells began production in January 2021.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Oil and gas revenue | $8.1 million | $13.0 million |
| Net loss | $32.7 million | $11.1 million |
| Loss per share, basic and diluted | $0.45 | $0.22 |
| Net cash from operating activities | $12,000 | $1.7 million |
| Capital expenditures | $5.9 million | $42.9 million |
- Revenue fell 38%. Oil sales volume declined 13%, while average realized oil price decreased 31% to $36.84 per barrel. Gas and NGL volumes increased, but their realized prices also declined.
- The $32.7 million net loss included a $19.3 million non-cash impairment of D-J Basin oil and gas properties, attributed to lower commodity prices. Operating loss was $33.8 million.
- Lease operating expense was $4.4 million, down from $6.8 million; general and administrative expense rose to $6.7 million from $5.8 million, including $2.8 million of non-cash share-based compensation.
- Year-end cash was $8.0 million, with another $3.3 million reported as restricted cash in other assets. Current assets of $8.8 million exceeded current liabilities of $2.0 million; working capital was $6.8 million, versus $11.9 million a year earlier. Total liabilities were $3.9 million, including a $370,000 PPP loan and asset-retirement obligations; the filing says the Company had no significant debt.
- Cash and restricted cash decreased $14.4 million during 2020. Investing activities used $14.8 million, while operating cash flow was nearly breakeven.
- Proved reserves increased slightly to 14.1 million Boe from 14.0 million Boe. Pre-tax PV-10 was reported at $58.2 million, down from $122.7 million, primarily because of lower SEC pricing. The after-tax standardized measure was $57.3 million, compared with $103.8 million.
Material changes and subsequent events
- The Company attributed lower sales to price declines and the temporary shut-in; production volume fell only 5%. The impairment and lower revenue drove the deterioration in reported earnings.
- In February 2021, PEDEVCO issued 5,968,500 shares at $1.50 per share, raising approximately $8.3 million net. Shares outstanding were 79.4 million as of March 19, 2021, versus 72.5 million at year-end.
- On March 18, 2021, the Company sold certain D-J Basin assets, including approximately 230 net acres and interests in three non-operated wells producing about 105 Boe per day. Net cash received at closing was approximately $1.9 million, subject to post-closing adjustments.
- The Company terminated its proposed SandRidge Permian Trust exchange offer in November 2020 and incurred approximately $501,000 in related expenses.
Outlook, risks and contingencies
- Management planned up to nine Permian horizontal wells and additional reactivation, enhancement and infrastructure work in 2021. The filing gives a development budget of $27.3 million in one discussion and $28.3 million in a budget table; it says approximately $700,000 had been deployed at the time of that discussion. The plan is subject to commodity prices, permitting, contractor availability and capital access.
- Management expected to fund the program with cash, operating cash flow and financing, including the February 2021 offering. It also identified possible funding from SK Energy, controlled by CEO Simon Kukes, but SK Energy is under no obligation to provide it. The filing warns that weaker prices could prompt further shut-ins, spending reductions or a need for additional capital.
- Key risks include volatile oil prices, COVID-19 effects, concentrated operations in two basins, water-disposal constraints, dependence on third-party transport and gathering, customer concentration, and environmental and regulatory changes. Colorado’s 2,000-foot setback rule took effect in January 2021. A federal pause on new oil and gas leases and permits was announced in January 2021; the filing said its duration and implications were uncertain.
- Two customers accounted for 63% and 11% of 2020 oil and gas revenue. Management stated that alternative buyers were available.
- The $370,000 PPP loan forgiveness application was pending SBA review. The Company reported no material legal proceedings and stated that management considered disclosure controls and internal control over financial reporting effective; the auditor did not provide an internal-control attestation.
- Simon Kukes and SK Energy beneficially controlled approximately 68.1% of the Company’s voting stock as of March 19, 2021. The filing describes potential conflicts of interest and dependence on related-party funding.
Investor verification points
- Reconcile the stated 2021 capital budget of $27.3 million with the table’s $28.3 million total, and confirm actual spending, funding sources and cash available after the stock offering.
- Review the independent reserve report and assumptions behind proved reserves, PUD development timing, PV-10 and the 2020 D-J Basin impairment.
- Confirm the status and eventual forgiveness of the PPP loan, and final post-closing adjustments and production impact from the D-J Basin asset sale.
- Assess sensitivity to realized oil prices, basis differentials, shut-in thresholds, and the Company’s reliance on two customers and third-party infrastructure.
- Evaluate dilution and governance implications of the February 2021 share issuance, outstanding equity awards, and Kukes/SK Energy’s voting control and potential role in future financing.