PED

PEDEVCO CORP. 10-Q Summary: Q2 2024

Business Context and Reporting Period

This filing covers the quarterly period ended June 30, 2024. PEDEVCO Corp. is an oil and gas exploration and production company focused on legacy assets in the Permian Basin (New Mexico) and the Denver-Julesburg (D-J) Basin (Colorado and Wyoming). The company operates 301.5 net wells in the Permian and 26.2 net wells in the D-J Basin. It is classified as a non-accelerated filer and a smaller reporting company.

Key Financial Metrics

Note: The company has no long-term debt. Asset retirement obligations total $2.96 million.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 38% in Q2 2024 compared to Q2 2023, driven by a 21% increase in production volumes (2,010 Boe/day vs. 1,660 Boe/day) and higher realized prices for crude oil ($78.52/Bbl) and NGLs.
• Production Drivers: Volume increases are attributed to participation in 13 new non-operated wells in the D-J Basin and the completion of three operated wells in the Permian Basin.
• Expense Increases: Total operating expenses rose 25% in Q2 due to higher lease operating costs and a 46% increase in depreciation, depletion, and amortization (DD&A) linked to higher production volumes.
• Cash Flow Volatility: Net cash provided by operating activities dropped significantly to $0.3 million YTD 2024 from $8.4 million YTD 2023. This was primarily due to a $10.3 million net decrease in working capital components, specifically higher receivables and payments on accrued drilling costs.
• Capital Expenditures: Cash used for drilling and completion costs was $12.3 million YTD 2024, a decrease from $25.3 million in the prior year period, reflecting timing differences between accruals and cash payments.

Guidance, Outlook, and Risks

• Capital Guidance: Revised 2024 net capital expenditure estimate is $11 million to $18 million. This includes $8–$15 million for drilling/completion and ~$3 million for workovers and facilities. Approximately $7 million has been incurred through June 30, 2024.
• Liquidity Outlook: Management expects sufficient cash to fund operations and the 2024 development program for the next 12 months via operating cash flow, existing cash, and potential equity infusions or loans from the CEO (Dr. Simon G. Kukes), though he is under no obligation to provide them.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to design limitations. No material weaknesses were identified, but the company is addressing these issues.
• Risks: Key risks include commodity price volatility, lease expiration (5,829 net acres in D-J Basin expire within two years), and reliance on third-party operators for non-operated wells.

Investor Verification Checklist

• Internal Control Deficiency: Verify the remediation plan for the ineffective disclosure controls and procedures noted in Item 4.
• Liquidity Sources: Confirm the status of potential funding from the CEO and the availability of credit facilities, given the significant drop in operating cash flow.
• Lease Expirations: Review the drilling schedule for the 5,829 net acres in the D-J Basin expiring within the next two years to ensure retention.
• Capital Spend Timing: Monitor the timing of cash payments for drilling costs versus accruals to understand future cash flow impacts.
• Production Sustainability: Assess whether the production increase from new wells is sustainable or if it represents a peak before natural decline.