PEDEVCO Corp. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited consolidated financial statements; amounts below are in U.S. dollars, generally in millions unless noted. PEDEVCO develops and produces oil and gas in the Permian Basin of New Mexico and the Denver-Julesburg Basin of Colorado.
Financial performance and position
- Revenue: Oil and gas sales were $1.568 million, up 143% from $0.644 million in Q1 2018. Sales volumes increased 146% to 35,112 Boe (391 Boe/d), primarily reflecting new Permian wells. Average oil price fell 17% to $48.10/Bbl; natural gas price rose 64% to $4.57/Mcf.
- Profitability: Operating loss was $2.069 million versus $0.998 million. Net loss narrowed to $2.995 million from $4.234 million; loss per share was $0.11 versus $0.58. Lower interest expense and higher revenue, including a property-sale gain, were partly offset by higher operating costs.
- Costs and margins: Lease operating costs were $0.970 million (up 211%); depreciation, depletion, amortization and accretion were $2.249 million (up 286%); G&A was $1.328 million (up 80%). The filing does not present a conventional gross-margin measure.
- Cash flow: Operating cash used was $0.630 million; investing cash used was $8.804 million, including drilling and development; financing provided $15.000 million. Cash and restricted cash ended at $11.345 million, comprising $8.779 million cash and $2.566 million restricted cash.
- Liquidity and debt: Current assets were $12.395 million and current liabilities $12.428 million, a slight working-capital deficit despite management describing the amounts as approximately equal. Notes payable fell from $38.294 million at year-end to zero at March 31, following conversions into common shares. Total liabilities were $15.003 million.
Material changes and unusual items
- Q1 debt conversions issued 29.48 million common shares for approximately $55.1 million of principal and accrued interest. Shares outstanding increased from 15.81 million at December 31 to 45.29 million at March 31. The conversions eliminated reported notes payable but substantially diluted existing holders.
- PEDEVCO acquired approximately 18,000 net Permian acres and related wells from Manzano for $0.7 million. It also sold rights to 85.5 net acres in Colorado for $1.2 million and recorded a $0.92 million gain. The buyer had not yet delivered replacement acreage; the agreement provides for repayment of up to $0.2 million if the acreage is not assigned as required.
- The company drilled five wells and completed four by quarter-end. Capital expenditures were $13.657 million, including $12.829 million for drilling and facilities.
- Other expense included a $0.1 million write-off of an expired option related to Caspian Energy.
Outlook, risks and contingencies
- Management’s 2019 development plan calls for approximately $52.1 million of capital, with about $22.0 million described as raised to date. Permian Phase Two contemplates eight additional horizontal wells through 2020, subject to Phase One results and available funding. The 2019 D-J Basin plan was under evaluation and projected to require about $7.6 million.
- Management expected to meet foreseeable cash needs through operating cash flow, cash on hand, potential SK Energy funding, credit facilities or other financing. SK Energy, controlled by the CEO, is under no obligation to provide funding. If financing conditions are unfavorable, the company may extend drilling and spending into 2020.
- Management cautioned that commodity prices are volatile and said prices were expected to remain volatile for the rest of 2019. Development results, drilling costs, production timing and access to capital affect liquidity and plans.
- Colorado Senate Bill 19-181 expanded local regulatory authority and may make Colorado development more difficult or costly. Environmental and other regulatory changes, including those affecting hydraulic fracturing, could adversely affect operations.
- Disclosure controls and procedures were reported as ineffective at March 31 because a formal documentation and assessment program was incomplete. Management anticipated completing it and providing an updated assessment in the next Form 10-Q. No material legal proceedings were reported.
Important facts for investors to verify
- Whether production, well performance and realized prices support the planned $52.1 million development program, and how much funding is actually available.
- The timing, terms and related-party implications of debt conversions, and the resulting dilution and potential future share issuance.
- Whether the Colorado acreage replacement obligation is satisfied or repayment is required.
- Progress on the disclosure-controls remediation and any updated assessment in subsequent filings.
- Effects of Colorado regulatory implementation, commodity-price changes and drilling costs on planned operations and liquidity.