PEDEVCO Corp. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 14, 2023. PEDEVCO develops and produces oil and natural gas in the Permian Basin and Denver-Julesburg (D-J) Basin.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $10.91 million | $9.55 million | $19.07 million | $16.64 million |
| Operating income | $3.53 million | $3.22 million | $5.16 million | $4.48 million |
| Net income | $3.62 million | $3.21 million | $5.38 million | $4.55 million |
| Diluted EPS | $0.04 | $0.04 | $0.06 | $0.05 |
| Operating margin | 32.4% | 33.7% | 27.1% | 26.9% |
Revenue rose 14% in Q2 and 15% for the first half. Higher production volumes more than offset lower realized commodity prices. Q2 sales volume increased 85% to 2,006 Boe/day; first-half volume increased 61% to 1,718 Boe/day. For the first half, average realized prices fell 26% for oil, 47% for natural gas, and 25% for NGLs. Adjusted EBITDA, a non-GAAP measure, was $7.37 million for Q2 and $12.23 million for the first half.
At June 30, cash was $12.46 million, plus $3.55 million of restricted cash. Working capital was $14.88 million, compared with $15.15 million at year-end 2022. Total liabilities were $6.90 million, including $3.53 million of asset retirement obligations; the company reported no debt. First-half operating cash flow was $8.37 million, investing cash outflow was $25.34 million, and financing cash flow was zero. Cash and restricted cash declined $16.97 million. Accounts receivable increased to $6.44 million from $2.43 million at year-end.
Material changes and notable items
- Production growth was attributed primarily to 14 D-J Basin non-operated wells, including eight that began producing in Q1 2023. Revenue benefited from a $4.8 million favorable Q2 volume variance, partly offset by a $3.4 million unfavorable price variance.
- First-half capital spending included participation in eight new D-J Basin non-operated wells, Permian workovers, and D-J Basin acreage acquisitions. Cash paid for drilling and completion costs was $25.30 million; the filing also reports $13.02 million of accrued oil and gas development costs as a noncash item.
- PEDEVCO acquired approximately 5,592 net D-J Basin lease acres and 267 net mineral acres during the first half. In August, it acquired a further 494 net lease acres for $508,000.
- The company issued 1.25 million restricted shares to officers in January and granted options for 540,000 shares. The restricted awards vest over three years; the options vest through January 2026.
- Effective tax rate was estimated at zero due to prior losses and a full valuation allowance on deferred tax assets. The filing reports no material legal proceedings and no material changes to the risk factors in the 2022 Form 10-K.
Outlook, risks, and contingencies
Management estimated 2023 net capital expenditures of $23 million to $27 million, including $13 million to $17 million for drilling and completions, and said approximately $12.3 million had been incurred through June 30. It expects sufficient funds for the next 12 months and its development program, relying on operating cash flow and cash on hand, while also citing potential funding sources such as CEO loans or equity (not committed), an at-the-market offering, other financings, credit facilities, asset sales, or farm-outs. The company said capital plans may change with commodity prices, liquidity, drilling results, permitting, contractor availability, partner decisions, and acquisition opportunities.
Management expects commodity prices to remain volatile. Key exposures include commodity-price and production uncertainty, development and acquisition spending, and permitting scrutiny in Colorado. Leasehold acreage may expire if not held by production or extended; 61 Permian net acres were due to expire during the remainder of 2023. Asset retirement obligations totaled $3.53 million. The Houston office sublease was due to expire August 31, 2023, with a new lease scheduled to commence September 1. A director died in July 2023, and the board reduced from four members to three.
Important facts for investors to verify
- Whether production growth and realized prices sustain revenue and cash generation, given the substantial year-over-year price declines.
- How remaining 2023 capital spending compares with the $23 million–$27 million estimate, including the distinction between incurred costs and cash payments for prior-period accruals.
- Whether operating cash flow and cash on hand are sufficient to fund the program without relying on optional financing sources, including CEO funding that is not obligated.
- Progress on acreage development, lease expirations, acquisitions, and the August D-J Basin purchase.
- Potential dilution from equity awards or future ATM sales and the status of the company’s liquidity and restricted cash.