PEDEVCO Corp. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed March 15, 2024. This is an annual report, not a standalone fourth-quarter report. PEDEVCO is an oil and gas producer operating in New Mexico’s Permian Basin and the Colorado/Wyoming D-J Basin.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Oil and gas revenue | $30.8 million | $30.0 million |
| Net income | $0.3 million | $2.8 million |
| Operating income (loss) | $(0.2) million | $2.6 million |
| Net cash from operating activities | $23.5 million | $16.0 million |
| Cash used in investing activities | $(35.7) million | $(12.3) million |
| Cash and cash equivalents at year-end | $18.5 million | $29.4 million |
| Working capital | $5.7 million | $15.1 million |
| Total liabilities | $21.3 million | $19.7 million |
- Net production rose 43% to 520,886 Boe (1,427 Boe/d). Growth was driven mainly by production from D-J Basin non-operated wells.
- Average realized prices declined: oil to $72.95/Bbl from $90.86; natural gas to $3.00/Mcf from $6.41; and NGLs to $24.43/Bbl from $40.87. Higher volumes broadly offset lower prices, leaving revenue up 2%.
- Lease operating expense was $9.8 million, down 5%; DD&A and accretion was $10.9 million. Production cost was reported at $8.98/Boe, excluding workovers, marketing, certain taxes and ARO settlements.
- The $4.3 million loss on the sale of non-core oil and gas properties was the main reason net income fell. Adjusted EBITDA, a non-GAAP measure, was $17.5 million versus $16.1 million.
- Capital costs incurred were $27.3 million, including $21.6 million for drilling and facilities, $5.2 million for leasehold acquisitions and $0.5 million for mineral acquisitions. Cash paid for drilling and completion was $35.0 million; investing cash flow also included the Tilloo note and other items.
- PEDEVCO reported no outstanding debt at year-end. Current assets of $24.6 million exceeded current liabilities of $18.9 million. Asset retirement obligations totaled $2.3 million. A $1.1 million secured note receivable from Tilloo is due over five years and bears 10% interest.
Changes and significant transactions
- Proved reserves increased to 17.0 MMBoe from 16.1 MMBoe; approximately 13.4 MMBoe were proved undeveloped. The filing attributes additions mainly to D-J Basin activity and revisions.
- Management’s PV-10 estimate was $231.7 million, down 38% from $374.5 million, primarily due to lower SEC benchmark prices. The standardized measure of discounted future net cash flows was $190.4 million, versus $274.9 million in 2022; it is a separate measure that includes estimated future income taxes.
- In November 2023, the Company sold its EOR subsidiary and approximately 8,035 gross acres and related wells in the non-core Milnesand and Sawyer fields for consideration of approximately $1.12 million in a secured note. The sale generated a $4.3 million loss and reduced estimated plugging and abandonment liabilities by more than $3.2 million.
- PEDEVCO entered a Chaveroo development participation agreement with Evolution Petroleum. Evolution initially acquired a 50% working interest in two development blocks and may elect to participate in additional blocks.
Outlook, risks and unusual matters
- Management estimated 2024 net capital expenditures of $20–30 million and said it expects sufficient resources for the next 12 months, relying on operating cash flow, cash on hand and potential financing. Potential funding from CEO Simon Kukes is not committed; asset sales, farmouts and credit facilities are also possible funding sources.
- The filing gives inconsistent 2024 drilling and completion spending ranges: $17–27 million in one discussion and $17–20 million in another. The total capital estimate is stated as $20–30 million. Clarify the intended budget.
- Under a New Mexico Stipulated Final Order, the operator must reimburse the state for plugging costs on approximately 299 inactive legacy wells at $2 per gross barrel sold, subject to a $30,000 monthly minimum.
- Disclosure controls and internal control over financial reporting were assessed as ineffective at year-end. A material weakness involved reserve inputs used in DD&A calculations; a prior revenue-accrual weakness was reported as remediated. Management has a remediation plan, but completion and effectiveness are not assured. The auditor gave an unqualified opinion on the financial statements and did not attest to internal control effectiveness.
- Other key exposures include commodity-price and basis-differential volatility, concentrated operations in two basins, permitting and environmental requirements (including Colorado air rules and New Mexico water disposal), water handling, and the large share of reserves requiring future development.
- Three customers accounted for 42%, 35% and 18% of 2023 oil and gas revenue. The Company has no material legal proceedings disclosed as of the filing.
Investor verification priorities
- Confirm the 2024 capital budget and funding plan, including the inconsistent drilling and completion ranges and the absence of a binding commitment from the CEO.
- Review the independent reserve report, development schedule and funding requirements for the 13.4 MMBoe of proved undeveloped reserves; reconcile the reported PV-10 with the standardized measure.
- Assess progress on the DD&A control material weakness and verify that remediation is tested and effective in subsequent filings.
- Track compliance costs and payments under the New Mexico plugging order, alongside remaining AROs and the liabilities removed in the asset sale.
- Monitor collection and repayment terms for the Tilloo note and the concentration of revenue among three customers.