PEDEVCO Corp. — 2019 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2019; it does not provide standalone fourth-quarter results. PEDEVCO is a U.S. oil and gas producer focused on the Permian Basin in New Mexico and the Denver-Julesburg (D-J) Basin in Colorado. At year-end it reported 50,206 net acres across both areas and 729 Boe/d average production.
Key financial and operating metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Oil and gas revenue | $13.0 million | $4.5 million |
| Net income (loss) | ($11.1 million) | $53.6 million |
| Operating income (loss) | ($10.2 million) | ($9.0 million) |
| Cash from (used in) operations | $1.7 million | ($1.5 million) |
| Cash used in investing | $39.7 million | $23.1 million |
| Cash from financing | $58.0 million | $29.5 million |
- Revenue increased 187%, primarily from higher production following acquisitions and drilling. Total production rose 186% to 266,070 Boe. Oil sales volume increased 233%; average realized oil price fell 9% to $53.41/Bbl. Natural gas and NGL prices also declined.
- The 2019 net loss contrasts with 2018 net income, which included a one-time $70.3 million gain on debt restructuring. Management said the underlying net loss improved by $5.6 million year over year, principally due to lower interest expense and higher revenue, partly offset by increased operating expenses.
- Average production cost was $15.32/Boe, compared with $19.77/Boe in 2018; the filing says this measure excludes workovers, marketing, and certain taxes. Lease operating expense rose 142% to $6.8 million, and depreciation, depletion, amortization and accretion rose to $11.0 million.
- Year-end cash was $22.4 million; restricted cash of $3.3 million was classified in other assets. Current assets of $27.1 million exceeded current liabilities of $15.2 million, producing $11.9 million of working capital. Total liabilities were $17.4 million, including $2.1 million of asset retirement obligations and $0.4 million of operating lease liabilities. No notes payable remained at year-end.
- Proved reserves increased 13% to 14.0 million Boe, with 11.7 million Boe classified as proved undeveloped. The filing reports a $122.7 million pretax PV-10 estimate in MD&A and a $103.8 million after-tax standardized measure; these are different reserve valuation measures.
- Capital expenditures were $42.9 million in 2019. Total assets were $122.9 million and shareholders’ equity was $105.5 million at year-end. Common shares outstanding increased from 15.8 million to 71.1 million, reflecting debt conversions and equity sales.
Material changes versus 2018
- Production and revenue expanded substantially after the 2018 New Mexico asset acquisition, 2019 bolt-on acquisitions, new Permian wells, and participation in D-J Basin wells. The company drilled and completed nine Permian wells and participated in 11 D-J Basin wells during 2019.
- Interest expense declined to $0.8 million from $7.7 million as outstanding notes were converted to common stock. The conversions eliminated note debt but contributed to significant shareholder dilution.
- Operating cash flow turned positive, while investing outflows increased with development spending. Financing inflows included $43.0 million from common stock issuance.
- Reserve value was pressured by commodity prices and higher costs: management attributed a $58.6 million decline in reserve value to lower prices and higher PUD capital and operating costs, partly offset by additions from drilling.
Outlook, commentary and risks
- The 2020 capital budget was approximately $14.5 million, including about $4.9 million of carryover spending. Planned work included completing five horizontal Permian wells drilled in 2019, drilling two additional Permian wells, a saltwater-disposal well, and well reactivations. The plan assumed a minimum $50/Bbl realized oil price; management said spending could be reduced to about $5 million if prices remained below that level.
- Management said the 2020 plan was expected to be funded by operating cash flow and cash on hand, while also noting that SK Energy was not obligated to provide future financing. The filing separately cites approximately $12 million of cash on hand as of the filing date; this differs from reported year-end cash and should be checked against subsequent-period disclosures.
- The filing warns that early-2020 COVID-19 effects had already harmed first-quarter results and that oil prices had fallen into the low $20s/Bbl. Lower prices could reduce cash flow, curtail development, impair assets or reserves, and create liquidity pressure.
- Other material risks include concentration in two geographic areas and oil-heavy reserves; dependence on a small number of purchasers (two customers represented 54% and 13% of 2019 revenue); water-handling and saltwater-disposal constraints; and regulatory changes in Colorado, including SB 19-181, and New Mexico permitting delays.
- Seven Permian wells were plugged and abandoned in 2019, resulting in a $0.5 million ARO settlement loss due to unexpected cleanout costs and limited service-provider availability. The company reported no current material legal proceedings.
- SK Energy, controlled by CEO Simon Kukes, held 71.8% of outstanding common stock; Kukes reported beneficial ownership of 74.5%. No cash dividends were intended. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor did not provide an internal-controls attestation.
Important facts for investors to verify
- Reconcile the approximately $12 million cash figure stated as of the filing date with $22.4 million of year-end cash and the subsequent cash-flow position.
- Review 2020 results against the $50/Bbl budget assumption, planned $14.5 million spend, and the lower-price spending alternative.
- Assess well performance and production start-up for the 2019 drilled wells, including the effects of water-disposal capacity and permitting delays.
- Examine the reserve report and the distinction between the $122.7 million pretax PV-10 estimate and $103.8 million standardized after-tax measure, including PUD development timing and funding requirements.
- Consider the impact of equity issuance and potential future financing on dilution, alongside SK Energy’s control and the absence of a binding commitment for future support.
- Monitor oil prices, customer concentration, lease expirations, regulatory changes, and any impairment or liquidity disclosures in subsequent filings.