PEDEVCO Corp. — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015; filed March 29, 2016. This is an annual report, not a quarterly filing. PEDEVCO is an oil and gas producer focused principally on the Denver-Julesburg (D-J) Basin in Colorado.
Business context and operating position
- At year-end, the company reported approximately 16,158 net D-J Basin acres and interests in 53 gross (15.6 net) wells. Red Hawk operated 14 gross (12.5 net) producing wells. The filing reports current production of approximately 357 gross (287 net) Boe per day; its annual production table reports 174,693 Boe, or 479 Boe per day, including production attributable to its former Condor interest. These measures have different scopes and should be reconciled.
- The February 2015 GGE acquisition added approximately 12,977 net acres and interests in 53 gross wells. Consideration included 3.375 million common shares, 66,625 Series A preferred shares, assumed subordinated debt of approximately $8.35 million, and an option concerning the Kazakhstan investment.
- The company sold its Condor interest and certain non-core acreage to MIEJ in February 2015, reducing related obligations and revising debt terms. It terminated a proposed Dome Energy transaction in December 2015 and signed a separate GOM merger agreement that remained pending at the filing date.
Financial performance and position
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Oil and gas revenue | $5.326 million | $4.812 million |
| Operating loss | $9.648 million | $22.172 million |
| Net loss attributable to common shareholders | $21.316 million | $29.874 million |
| Basic and diluted loss per share | $0.51 | $1.06 |
| Cash used in operating activities | $7.619 million | $4.867 million |
| Cash at year-end | $1.138 million | $6.675 million |
| Total assets | $64.653 million | $41.740 million |
| Total liabilities | $49.616 million | $43.163 million |
| Shareholders’ equity (deficit) | $15.037 million | $(1.423) million |
- Revenue rose 10.7%, mainly due to the GGE acquisition. Reported D-J Basin production was 174,693 Boe versus 73,583 Boe in 2014. The average oil sales price fell to $41.13 per barrel from $80.06; average natural gas price fell to $1.54 per Mcf from $5.42.
- Lease operating expense increased to $1.830 million from $1.674 million, while reported production cost per Boe declined to $6.63 from $15.78. Exploration expense fell to $0.701 million from $1.306 million; SG&A declined to $6.962 million from $8.712 million.
- DD&A and accretion rose to $5.145 million from $0.954 million, largely reflecting increased production and reserve revisions. Oil and gas property impairment was $1.337 million, compared with $5.416 million in 2014.
- Interest expense increased to $13.904 million from $9.859 million. The 2015 result also included a $2.192 million gain on debt extinguishment and gains on property and equity sales. The smaller net loss therefore does not indicate positive operating cash generation.
- Year-end current assets were $4.913 million against current liabilities of $7.567 million, implying a working-capital deficit of approximately $2.654 million. The company reported negative operating cash flow and an accumulated deficit of $82.112 million. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern.
- At December 31, 2015, the balance sheet included $23.160 million of long-term senior secured notes, $4.857 million of related-party secured notes, $8.918 million of subordinated related-party notes, and a $4.925 million other note. These are carrying amounts; debt discounts and deferred financing costs materially affect reported carrying values. The filing separately reports approximately $32.9 million of senior-loan principal outstanding as of March 1, 2016.
Material changes, outlook and significant items
- Reserves and valuation: Year-end proved reserves were reported at 4.140 million Boe, including 2.431 million barrels of oil and 10.252 Bcf of gas, versus approximately 9.018 million Boe in 2014 on the same conversion basis. The reserve roll-forward reflects substantial negative revisions, purchases, sales and production. The standardized measure of discounted future net cash flows fell to $26.152 million from $69.775 million. These SEC-based estimates are sensitive to price assumptions and are not market valuations.
- Liquidity and development: Management proposed approximately $35.6 million of 2016 D-J Basin capital expenditures to drill, complete, participate in or acquire approximately 8.5 net wells. Funding depended on operating cash flow, cash on hand, conditional draws under the existing facility, and a proposed $25 million financing expected to close in April or May 2016. The proposed financing was not a completed commitment in this filing. Additional facility draws required matching funds and were restricted to approved development costs.
- Debt relief and dilution: Lenders deferred principal and interest payments, reducing near-term cash payments but capitalizing deferred amounts and, in some cases, increasing rates. As of December 31, 2015, disclosed deferred senior-loan interest and principal were approximately $2.527 million and $0.519 million. Further deferrals could trigger warrants; subsequent disclosures estimated additional warrant issuance tied to deferrals. The senior facility is secured by substantially all company assets and carries restrictive covenants.
- Going concern: Management stated that approximately $25 million of financing was needed to execute its plan. If financing failed, the company estimated it might record an additional $26–$32 million impairment and said its ability to meet obligations from existing cash flows would be significantly affected.
- Proposed GOM transaction: The agreement contemplated issuing common and Series B preferred shares and assuming approximately $125 million of GOM subordinated debt plus a $30 million undrawn letter of credit associated with offshore asset-retirement obligations. Debt restructuring and other closing conditions remained outstanding. Series B terms included a 10% annual dividend and a $250-per-share liquidation preference until specified approvals; conversion, if approved, was set at 1,000 common shares per preferred share. The transaction and financing were not assured.
- Contingencies and unusual items: Liberty Oilfield Services sued Red Hawk over approximately $2.9 million of completion-service claims; the company had accrued $2.620 million and was negotiating a settlement without assurance of outcome. The company also reported a $250,000 Dome promissory-note receivable secured in escrow after the Dome transaction ended. Related-party relationships involving GGE, RJC, Platinum-related entities and the GOM transaction warrant review.
- Other risks: Exposure includes volatile oil and gas prices, dependence on Colorado assets and third-party transportation, the ability to fund development and service debt, reserve-estimate uncertainty, potential further impairments, environmental and hydraulic-fracturing regulation, and possible dilution from convertible securities, warrants and equity awards. Management reported effective disclosure controls and internal control over financial reporting as of year-end.
Most important facts for investors to verify
- Whether the proposed $25 million financing closed, its final terms, and whether the existing facility’s matching-funds and use-of-proceeds conditions were met.
- Current cash, working capital, debt principal, maturities, covenant status and deferred-payment obligations, distinguishing face amounts from balance-sheet carrying values.
- Whether the GOM merger closed and the actual debt restructuring, asset-retirement obligations, preferred-stock terms and dilution resulting from any transaction.
- The scope and reconciliation of the reported 2015 production measures (annual average versus current net production), and the assumptions underlying proved reserves, reserve revisions and the standardized measure.
- The outcome and payment exposure for the Liberty claim, the recoverability of the Dome receivable, and any additional impairment or liquidity disclosures after year-end.