PEDEVCO CORP
10-Ks and 10-Qs
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
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☑
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the
quarterly period ended:
March
31, 2021
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☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
transition period from
to
_
____
Commission
file number:
001-35922
PEDEVCO Corp.
(Exact
name of registrant as specified in its charter)
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Texas
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22-3755993
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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575 N. Dairy Ashford, Suite 210
,
Houston, Texas
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77079
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|
(Address
of principal executive offices)
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(Zip
Code)
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(713) 221-1768
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, $0.001 par value per share
|
PED
|
NYSE American
|
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
☑
No
☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes
☑
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “
large accelerated
filer,
”
“
accelerated
filer,
”
“
smaller reporting
company,
” and
“
emerging growth
company
” in Rule 12b-2 of
the Exchange Act.
|
Large accelerated filer
☐
|
Accelerated filer
☐
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Non-accelerated filer
☑
|
Smaller reporting company
☑
|
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Emerging growth company
☐
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act. Yes
☐
No
☑
At May
14, 2021, there were
79,461,603
shares of the Registrant’s common stock
outstanding.
PEDEVCO CORP.
TABLE OF CONTENTS
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C
AUTIONARY NOTE ABOUT FORWARD-LOOKING
STATEMENTS
Some of
the statements contained in this Quarterly Report on Form 10-Q
(this “Report”) include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended and the Private Securities Litigation Reform Act of 1995.
These forward-looking statements discuss future expectations,
contain projections of results of operations or financial
conditions. The words “
believe,
”
“
intend,
”
“
plan,
”
“
expect,
”
“
anticipate,
”
“
estimate,
”
“
project,
”
“
goal
”
and similar expressions identify such a statement was made,
although not all forward-looking statements contain such
identifying words. These statements are subject to known and
unknown risks, uncertainties, and other factors that could cause
the actual results to differ materially from those contemplated by
the statements. The forward-looking information is based on various
factors and is derived using numerous assumptions. Factors that
might cause or contribute to such a discrepancy include, but are
not limited to, the risks discussed in this and our other
Securities and Exchange Commission (SEC) filings. We do not promise
to or take any responsibility to update forward-looking information
to reflect actual results or changes in assumptions or other
factors that could affect those statements except as required by
law. Future events and actual results could differ materially from
those expressed in, contemplated by, or underlying such
forward-looking statements.
Forward-looking
statements may include statements about our:
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●
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business
strategy;
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●
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reserves;
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●
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technology;
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●
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cash
flows and liquidity;
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●
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financial
strategy, budget, projections and operating results;
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●
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oil and
natural gas realized prices;
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●
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timing
and amount of future production of oil and natural
gas;
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●
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availability
of oil field labor;
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●
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the
amount, nature and timing of capital expenditures, including future
exploration and development costs;
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●
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drilling
of wells;
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●
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government
regulation and taxation of the oil and natural gas
industry;
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●
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marketing
of oil and natural gas;
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●
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exploitation
projects or property acquisitions;
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●
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costs
of exploiting and developing our properties and conducting other
operations;
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●
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general
economic conditions in the United States and around the world,
including the effect of regional or global health pandemics (such
as, for example, COVID-19);
|
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●
|
the effect of COVID-19 on the U.S. and global economy, the effect
of U.S. and global efforts to reduce the spread of the virus,
including ‘stay-at-home’ and other orders, and the
resulting effect of such pandemic and governmental responses
thereto on the market for oil and gas and the U.S. and global
economy in general;
|
|
●
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competition
in the oil and natural gas industry;
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●
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effectiveness
of our risk management activities;
|
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●
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environmental
liabilities;
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●
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counterparty
credit risk;
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●
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developments
in oil-producing and natural gas-producing countries;
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●
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future
operating results;
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●
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future
acquisition transactions;
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●
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estimated
future reserves and the present value of such reserves;
and
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●
|
plans,
objectives, expectations and intentions contained in this Quarterly
Report that are not historical.
|
All
forward-looking statements speak only at the date of the filing of
this Quarterly Report. The reader should not place undue reliance
on these forward-looking statements. Although we believe that our
plans, intentions and expectations reflected in or suggested by the
forward-looking statements we make in this Quarterly Report are
reasonable, we provide no assurance that these plans, intentions or
expectations will be achieved. We disclose important factors that
could cause our actual results to differ materially from our
expectations under “
Risk
Factors
” and “
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
” and elsewhere in this Quarterly Report and
our Annual Report on Form 10-K for the year ended December 31,
2020, filed with the SEC on March 23, 2021. These cautionary
statements qualify all forward-looking statements attributable to
us or persons acting on our behalf. We do not undertake any
obligation to update or revise publicly any forward-looking
statements except as required by law, including the securities laws
of the United States and the rules and regulations of the
SEC.
1
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDEVCO CORP.
CONSOLIDATED
B
ALANCE SHEETS
(Unaudited)
(amounts
in thousands, except share and per share data)
|
|
March 31,
2021
|
December 31,
2020
|
|
Assets
|
|
|
|
Current
assets:
|
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|
|
Cash
|
$
18,532
|
$
8,027
|
|
Accounts
receivable – oil and gas
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1,409
|
660
|
|
Prepaid
expenses and other current assets
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67
|
66
|
|
Total
current assets
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20,008
|
8,753
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Oil
and gas properties:
|
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Oil
and gas properties, subject to amortization, net
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66,295
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66,994
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Oil
and gas properties, not subject to amortization, net
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4
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4
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Total
oil and gas properties, net
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66,299
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66,998
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Operating
lease – right-of-use asset
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246
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270
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Other
assets
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3,536
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3,543
|
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Total
assets
|
$
90,089
|
$
79,564
|
|
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Liabilities and Shareholders’ Equity
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Current
liabilities:
|
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Accounts
payable
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$
678
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$
212
|
|
Accrued
expenses
|
464
|
3,032
|
|
Revenue
payable
|
879
|
836
|
|
PPP
loan – current
|
349
|
288
|
|
Operating
lease liabilities – current
|
107
|
105
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Asset
retirement obligations – current
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245
|
234
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|
Total
current liabilities
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2,722
|
1,978
|
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Long-term
liabilities:
|
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PPP
loan, net of current portion
|
21
|
82
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Operating
lease liabilities, net of current portion
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167
|
195
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Asset
retirement obligations, net of current portion
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1,828
|
1,673
|
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Total
liabilities
|
4,738
|
3,928
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Commitments
and contingencies
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Shareholders’
equity:
|
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Common
stock, $0.001 par value, 200,000,000 shares authorized; 79,461,603
and 72,463,340 shares issued and outstanding,
respectively
|
79
|
72
|
|
Additional
paid-in capital
|
212,830
|
203,850
|
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Accumulated
deficit
|
(127,558
)
|
(128,286
)
|
|
Total
shareholders’ equity
|
85,351
|
75,636
|
|
Total
liabilities and shareholders’ equity
|
$
90,089
|
$
79,564
|
See
accompanying notes to unaudited consolidated financial
statements.
2
PEDEVCO CORP.
CONSOLIDATED STATEMENTS OF
O
PERATIONS
(Unaudited)
(amounts
in thousands, except share and per share data)
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
2020
|
|
Revenue:
|
|
|
|
Oil
and gas sales
|
$
3,531
|
$
2,832
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Lease
operating costs
|
1,286
|
1,522
|
|
Exploration
expense
|
-
|
30
|
|
Selling,
general and administrative expense
|
1,767
|
2,123
|
|
Depreciation,
depletion, amortization and accretion
|
1,561
|
3,437
|
|
Total
operating expenses
|
4,614
|
7,112
|
|
|
|
|
|
Gain
on sale of oil and gas properties
|
1,805
|
-
|
|
|
|
|
|
Operating
income (loss)
|
722
|
(4,280
)
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
Interest
expense
|
(1
)
|
-
|
|
Interest
income
|
4
|
24
|
|
Other
income (expense)
|
3
|
(1
)
|
|
Total
other income
|
6
|
23
|
|
|
|
|
|
Net
income (loss)
|
$
728
|
$
(4,257
)
|
|
|
|
|
|
Loss
per common share:
|
|
|
|
Basic
|
$
0.01
|
$
(0.06
)
|
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Diluted
|
$
0.01
|
$
(0.06
)
|
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Weighted
average number of common shares outstanding:
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Basic
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76,839,795
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71,996,295
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Diluted
|
77,039,719
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71,996,295
|
See
accompanying notes to unaudited consolidated financial
statements.
3
PEDEVCO CORP.
CONSOLIDATED STATEMENTS OF
C
ASH
FLOWS
(Unaudited)
(amounts
in thousands)
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
2020
|
|
Cash
Flows From Operating Activities:
|
|
|
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Net
income (loss)
|
$
728
|
$
(4,257
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation,
depletion, amortization and accretion
|
1,561
|
3,437
|
|
Gain
on sale of oil and gas properties
|
(1,805
)
|
-
|
|
Amortization
of right-of-use asset
|
24
|
22
|
|
Share-based
compensation expense
|
684
|
853
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable – oil and gas
|
(749
)
|
1,778
|
|
Prepaid
expenses and other current assets
|
(1
)
|
(4
)
|
|
Accounts
payable
|
267
|
(3,373
)
|
|
Accrued
expenses
|
161
|
254
|
|
Revenue
payable
|
43
|
(4
)
|
|
Net
cash provided by (used in) operating activities
|
913
|
(1,294
)
|
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|
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Cash
Flows From Investing Activities:
|
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Cash
paid for drilling and completion costs
|
(582
)
|
(8,720
)
|
|
Proceeds
from the sale of oil and gas property
|
1,871
|
-
|
|
Net
cash provided by (used in) investing activities
|
1,289
|
(8,720
)
|
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Cash
Flows From Financing Activities:
|
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|
Proceeds
from issuance of shares, net of offering costs
|
8,303
|
-
|
|
Net
cash provided by financing activities
|
8,303
|
-
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and restricted cash
|
10,505
|
(10,014
)
|
|
Cash
and restricted cash at beginning of period
|
11,324
|
25,712
|
|
Cash
and restricted cash at end of period
|
$
21,829
|
$
15,698
|
|
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Supplemental
Disclosure of Cash Flow Information
|
|
|
|
Cash
paid for:
|
|
|
|
Interest
|
$
-
|
$
-
|
|
Income
taxes
|
$
-
|
$
-
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
Change
in accrued oil and gas development costs
|
$
173
|
$
4,128
|
|
Changes
in estimates of asset retirement costs, net
|
$
45
|
$
210
|
|
Issuance
of restricted common stock
|
$
1
|
$
1
|
See
accompanying notes to unaudited consolidated financial
statements.
4
PEDEVCO CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS'
E
QUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(Unaudited)
(amounts
in thousands, except share amounts)
|
|
Common Stock
|
|
|
|
|
|
|
Shares
|
Amount
|
Additional Paid-in
Capital
|
Accumulated Deficit
|
Totals
|
|
Balances at December 31, 2020
|
72,463,340
|
$
72
|
$
203,850
|
$
(128,286
)
|
$
75,636
|
|
Issuance of
restricted common stock
|
960,000
|
1
|
(1
)
|
-
|
-
|
|
Rescinded
restricted common stock
|
(16,667
)
|
-
|
-
|
-
|
-
|
|
Issuance of
common stock to non-affiliate
|
5,968,500
|
6
|
8,297
|
-
|
8,303
|
|
Cashless
exercise of stock options
|
86,430
|
-
|
-
|
-
|
-
|
|
Share-based
compensation
|
-
|
-
|
684
|
-
|
684
|
|
Net
income
|
-
|
-
|
-
|
728
|
728
|
|
Balances at March 31, 2021
|
79,461,603
|
$
79
|
$
212,830
|
$
(127,558
)
|
$
85,351
|
|
|
Common Stock
|
|
|
|
|
|
|
Shares
|
Amount
|
Additional Paid-in
Capital
|
Accumulated Deficit
|
Totals
|
|
Balances at December 31, 2019
|
71,061,328
|
$
71
|
$
201,027
|
$
(95,596
)
|
$
105,502
|
|
Issuance of
restricted common stock
|
1,119,000
|
1
|
(1
)
|
-
|
-
|
|
Rescinded
restricted common stock
|
(55,000
)
|
-
|
-
|
-
|
-
|
|
Share-based
compensation
|
-
|
-
|
853
|
-
|
853
|
|
Net
loss
|
-
|
-
|
-
|
(4,257
)
|
(4,257
)
|
|
Balances at March 31, 2020
|
72,125,328
|
$
72
|
$
201,879
|
$
(99,853
)
|
$
102,098
|
See
accompanying notes to unaudited consolidated financial
statements.
5
PEDEVCO CORP.
N
OTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The
accompanying interim unaudited consolidated financial statements of
PEDEVCO Corp. (“PEDEVCO” or the “Company”),
have been prepared in accordance with generally accepted accounting
principles in the United States of America (“GAAP”) and
the rules of the Securities and Exchange Commission
(“SEC”) and should be read in conjunction with the
audited financial statements and notes thereto contained in
PEDEVCO’s latest Annual Report filed with the SEC on Form
10-K. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of
the financial position and the results of operations for the
interim periods presented have been reflected herein. The results
of operations for interim periods are not necessarily indicative of
the results to be expected for the full year. Notes to the
financial statements that would substantially duplicate disclosures
contained in the audited financial statements for the most recent
fiscal year, as reported in the Annual Report on Form 10-K for the
year ended December 31, 2020, filed with the SEC on March 23, 2021
(the “2020 Annual Report”), have been
omitted.
The
Company’s consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and
subsidiaries in which the Company has a controlling financial
interest. All significant inter-company accounts and transactions
have been eliminated in consolidation.
The Company's future financial condition and
liquidity will be impacted by, among other factors, the success of
our
drilling program, the
number of commercially viable oil and natural gas discoveries made
and the quantities of oil and natural gas discovered, the speed
with which we can bring such discoveries to production, the actual
cost of exploration, appraisal and development of our prospects,
the prevailing prices for, and demand for, oil and natural
gas.
NOTE 2 – DESCRIPTION OF BUSINESS
PEDEVCO
is
an oil and gas company focused on
the development, acquisition and production of oil and natural
gas
assets where the latest in modern drilling and
completion techniques and technologies have yet to be applied. In
particular, the Company focuses on legacy proven properties where
there is a long production history, well defined geology and
existing infrastructure that can be leveraged when applying modern
field management technologies. The Company’s current
properties are located in the San Andres formation of the Permian
Basin situated in West Texas and eastern New Mexico (the
“Permian Basin”) and
in the Denver-Julesburg Basin (“D-J Basin”) in
Colorado. The Company holds its Permian Basin acres located
in Chaves and Roosevelt Counties, New Mexico, through its
wholly-owned operating subsidiary, Pacific Energy Development Corp.
(“PEDCO”), which asset the Company refers to as its
“Permian Basin Asset,” and it holds its D-J Basin acres
located in Weld and Morgan Counties, Colorado, through its
wholly-owned operating subsidiary, Red Hawk Petroleum, LLC
(“Red Hawk”), which asset the Company refers to as its
“D-J Basin Asset.”
The Company believes that horizontal development
and exploitation of conventional assets in the Permian Basin and
development of the Wattenberg and Wattenberg Extension in the D-J
Basin represent among the most economic oil and natural gas plays
in the United States (“U.S.”). Moving forward,
the Company plans to optimize its existing assets and
opportunistically seek additional acreage proximate to its
currently held core acreage, as well as other attractive onshore
U.S. oil and gas assets that fit the Company’s acquisition
criteria, that Company management believes can be developed using
its technical and operating expertise and be accretive to
shareholder value.
6
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The
Company has provided a discussion of significant accounting
policies, estimates and judgments in its 2020 Annual Report. There
have been no changes to the Company’s significant accounting
policies since December 31, 2020.
Recently Issued Accounting Pronouncements
The
Company does not expect the adoption of any other recently issued
accounting pronouncements to have a significant impact on its
financial position, results of operations, or cash
flows.
Subsequent Events
The
Company has evaluated all transactions through the date the
consolidated financial statements were issued for subsequent event
disclosure consideration.
NOTE 4 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue from Contracts with
Customers.
The following table disaggregates revenue by
significant product type in the periods indicated (in
thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
2020
|
|
Oil
sales
|
$
3,433
|
$
2,703
|
|
Natural
gas sales
|
75
|
89
|
|
Natural
gas liquids sales
|
23
|
40
|
|
Total
revenue from customers
|
$
3,531
|
$
2,832
|
There
were no significant contract liabilities or transaction price
allocations to any remaining performance obligations as of March
31, 2021.
NOTE 5 – CASH
The following table provides a
reconciliation of cash and restricted cash reported within the
balance sheets, which sum to the total of such amounts
in the periods indicated
(in
thousands):
|
|
March 31,
2021
|
December 31,
2020
|
|
Cash
|
$
18,532
|
$
8,027
|
|
Restricted
cash included in other assets
|
3,297
|
3,297
|
|
Total
cash and restricted cash
|
$
21,829
|
$
11,324
|
NOTE 6 – OIL AND GAS PROPERTIES
The
following table summarizes the Company’s oil and gas
activities by classification for the three months ended March 31,
2021 (in thousands):
|
|
Balance at
December 31, 2020
|
Additions
|
Disposals
|
Transfers
|
Balance at March
31, 2021
|
|
Oil and gas
properties, subject to amortization
|
$
146,950
|
$
755
|
$
(66
)
|
$
-
|
$
147,639
|
|
Oil and gas
properties, not subject to amortization
|
4
|
-
|
-
|
-
|
4
|
|
Asset retirement
costs
|
1,108
|
50
|
(5
)
|
-
|
1,153
|
|
Accumulated
depreciation, depletion and impairment
|
(81,064
)
|
(1,433
)
|
-
|
-
|
(82,497
)
|
|
Total oil and gas
assets
|
$
66,998
|
$
(628
)
|
$
(71
)
|
$
-
|
$
66,299
|
7
For the
three-month period ended March 31, 2021, the Company incurred
$755,000 in capital costs primarily related to capital workovers
for three wells in our Permian Basin Asset, which included clean
outs, converting from an electric submersible pump
(“ESP”) to rod pump, and installation of an
ESP.
On
March 18, 2021, the Company, through its wholly-owned subsidiary
Red Hawk, consummated the sale of certain assets and associated
liabilities located in its D-J Basin Asset to third parties
pursuant to a Purchase and Sale Agreement. The Company
received net cash at closing of $1.9 million. The final
purchase price is further subject to customary post-closing
adjustments. As a result of the transaction, the Company recognized
a $1.8 million gain on sale of oil and gas properties on the
Statement of Operations for the three months ended March 31,
2021.
The
depletion recorded for production on proved properties for the
three months ended March 31, 2021 and 2020, amounted to $1,433,000,
compared to $3,378,000, respectively.
NOTE 7 – PPP LOANS
On April 22, 2020, the Company received loan
proceeds of $370,000 (the “Original PPP Loan”) under
the U.S. Small Business Administration’s (“SBA”)
Paycheck Protection Program (“PPP”)
established as part of
the Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”)
, and
o
n
April 23, 2020, the SBA issued guidance that cast doubt on the
ability of public companies to qualify for a PPP loan. As a result,
out of an abundance of caution, on May 1, 2020, the Company repaid
the full amount of the Original PPP Loan to
Texas Capital Bank, N.A.
O
n June 2, 2020, the Company again received loan
proceeds of $370,000 (the “New PPP Loan”) under the SBA
PPP. The New PPP Loan is evidenced by a promissory note, dated as
of May 28, 2020 (the “Note”), between the Company and
Texas Capital Bank, N.A. The Note has a two-year term, bears
interest at the rate of 1.00% per annum, and may be prepaid at any
time without payment of any premium. No payments of
principal or interest are due during the six-month period beginning
on the date of the Note. The principal and accrued interest under
the Note are forgivable after eight weeks if the Company uses the
New PPP Loan proceeds for eligible purposes, including payroll,
benefits, rent, and utilities, and otherwise complies with PPP
requirements, with the full principal and accrued interest expected
to be forgiven in full by the Company. As of March 31, 2021, the
Company had accrued $3,000 in interest on the Note.
As of
March 31, 2021, the full amount of the loan was outstanding, with
$349,000 included in current liabilities on the balance
sheet.
As
of the issuance date of these financial statements, the Company
believes that it has used the loan proceeds only for eligible
expenses, has submitted the necessary loan forgiveness application
to Texas Capital Bank, N.A., and the SBA has notified the Company
that the SBA has selected its loan for review. The Company is
awaiting completion of the review and confirmation from the SBA on
its loan forgiveness determination.
NOTE 8 – ASSET RETIREMENT OBLIGATIONS
Activity
related to the Company’s asset retirement obligations is as
follows (in thousands):
|
|
Three Months
Ended
March 31,
2021
|
|
Balance at the
beginning of the period
(1)
|
$
1,907
|
|
Accretion
expense
|
121
|
|
Changes in
estimates, net
|
45
|
|
Balance at end of
period
(2)
|
$
2,073
|
(1)
Includes $234,000 of current asset retirement obligations at
December 31, 2020.
(2)
Includes $245,000 of current asset retirement obligations at March
31, 2021.
8
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Lease Agreements
Currently, the
Company has one operating lease for office space that requires
Accounting Standards Codification (ASC) Topic 842 treatment,
discussed below.
The
Company’s leases typically do not provide an implicit rate.
Accordingly, the Company is required to use its incremental
borrowing rate in determining the present value of lease payments
based on the information available at the commencement date. The
Company’s incremental borrowing rate would reflect the
estimated rate of interest that it would pay to borrow on a
collateralized basis over a similar term, an amount equal to the
lease payments in a similar economic environment. However, the
Company currently maintains no debt (other than the New PPP Loan
which the Company expects to be forgiven), and in order to apply an
appropriate discount rate, the Company used an average discount
rate of eight publicly traded peer group companies similar to it
based on size, geographic location, asset types, and/or operating
characteristics.
The
Company has a sublease for its corporate offices in Houston, Texas
on approximately 5,200 square feet of office space that expires on
August 31, 2023 and has a base monthly rent of approximately
$10,000.
Supplemental cash
flow information related to the Company’s operating lease is
included in the table below (in thousands):
|
|
Three Months Ended
|
|
|
March 31, 2021
|
|
Cash paid for amounts included in the measurement of lease
liabilities
|
$
30
|
Supplemental
balance sheet information related to operating leases is included
in the table below (in thousands):
|
|
March 31, 2021
|
|
Operating
lease – right-of-use asset
|
$
246
|
|
|
|
|
Operating
lease liabilities - current
|
$
107
|
|
Operating
lease liabilities - long-term
|
167
|
|
Total
lease liability
|
$
274
|
The
weighted-average remaining lease term for the Company’s
operating lease is 2.4 years as of March 31, 2021, with a
weighted-average discount rate of 5.35%.
Lease
liability with enforceable contract terms that have greater than
one-year terms are as follows (in thousands):
|
Remainder
of 2021
|
$
89
|
|
2022
|
121
|
|
2023
|
82
|
|
Thereafter
|
-
|
|
Total
lease payments
|
292
|
|
Less
imputed interest
|
(18
)
|
|
Total
lease liability
|
$
274
|
9
Leasehold Drilling Commitments
The
Company’s oil and gas leasehold acreage is subject to
expiration of leases if the Company does not drill and hold such
acreage by production or otherwise exercises options to extend such
leases, if available, in exchange for payment of additional cash
consideration. In the D-J Basin Asset, no net acres expire during
the remainder of 2021, and no significant net acres expire
thereafter (net to our direct ownership interest only). In the
Permian Basin Asset, 2,731 acres are due to expire during the
remainder of 2021 and 1,475 net acres expire thereafter (net to our
direct ownership interest only). The Company plans to hold
significantly all of this acreage through a program of drilling and
completing producing wells. If the Company is not able to drill and
complete a well before lease expiration, the Company may seek to
extend leases where able.
Other Commitments
Although the
Company may, from time to time, be involved in litigation and
claims arising out of its operations in the normal course of
business, the Company is not currently a party to any material
legal proceeding. In addition, the Company is not aware of any
material legal or governmental proceedings against it or
contemplated to be brought against it.
As part
of its regular operations, the Company may become party to various
pending or threatened claims, lawsuits and administrative
proceedings seeking damages or other remedies concerning its
commercial operations, products, employees and other
matters.
Although the
Company provides no assurance about the outcome of these or any
other pending legal and administrative proceedings and the effect
such outcomes may have on the Company, the Company believes that
any ultimate liability resulting from the outcome of such
proceedings, to the extent not otherwise provided for or covered by
insurance, will not have a material adverse effect on the
Company’s financial condition or results of
operations.
NOTE 10 – SHAREHOLDERS’ EQUITY
Common Stock
During
the three months ended March 31, 2021, the Company granted an
aggregate of 960,000 restricted stock awards to various employees
of the Company. Additionally, 16,667 shares of restricted common
stock were forfeited to the Company and canceled
due to an employee termination (see
Note 11 below).
On
February 5, 2021, the Company closed
an underwritten public offering of 5,968,500
shares of common stock at a public offering price of $1.50 per
share, which included the full exercise of the underwriter’s
over-allotment option, for
net proceeds (after deducting the
underwriters’ discount equal to 6% of the public offering
price and expenses associated with the offering) of approximately
$8.3 million.
Warrants
During
the three months ended March 31, 2021, no warrants were granted,
exercised or cancelled, and as of March 31, 2021 and December 31,
2020, the Company had warrants to purchase 150,329 shares of common
stock outstanding, with an exercise price of $0.32 per share and a
June 25, 2021 expiration date. The intrinsic value of these
outstanding, as well as exercisable, warrants at March 31, 2021 was
$171,000.
NOTE 11 – SHARE-BASED COMPENSATION
The
Company measures the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair
value of the award over the vesting period.
10
Common Stock
On
January 19, 2021, restricted stock awards were granted to officers
of the Company for an aggregate of 940,000 of the Company’s
common stock, under the Company’s Amended and Restated 2012
Equity Incentive Plan. The grant for the 940,000 shares of
restricted stock vest as follows: 33.3% vest each subsequent year
from the date of grant contingent upon the recipient’s
continued service with the Company. These shares have a total fair
value of $1,307,000 based on the market price on the issuance
date.
On
February 5, 2021, the Company closed
an underwritten public offering of 5,968,500
shares of common stock at a public offering price of $1.50 per
share, which included the full exercise of the underwriter’s
over-allotment option, for
net proceeds (after deducting the
underwriters’ discount equal to 6% of the public offering
price and expenses associated with the offering) of approximately
$8.3 million.
On
February 28, 2021, 16,667 shares of restricted common stock were
rescinded due to an employee termination. As a result, these shares
were canceled and the shares once again became eligible for future
awards under the Company’s Amended and Restated 2012 Equity
Incentive Plan.
On
March 31, 2021, 20,000 restricted stock awards were granted to a
new employee of the Company, under the Company’s Amended and
Restated 2012 Equity Incentive Plan. The grant for the 20,000
shares of restricted stock vest as follows: 100% vest on March 23,
2022, contingent upon the recipient’s continued service with
the Company. These shares have a total fair value of $29,000 based
on the market price on the issuance date.
Stock-based
compensation expense recorded related to the vesting of restricted
stock for the three months ended March 31, 2021 was $570,000. The
remaining unamortized stock-based compensation expense at March 31,
2021 related to restricted stock was $1,881,000.
Options
On
January 19, 2021, the Company granted options to purchase an
aggregate of 550,000 shares of common stock to various Company
employees at an exercise price of $1.39 per share. The options have
a term of five years and fully vest in January 2024, with 33.3%
vesting each subsequent year from the date of grant, contingent
upon each recipient’s continued service with the Company. The
aggregate fair value of the options on the date of grant, using the
Black-Scholes model, was $654,000. Variables used in the
Black-Scholes option-pricing model for the options issued include:
(1) a discount rate of 0.45% based on the applicable US Treasury
bill rate, (2) expected term of 3.5 years, (3) expected volatility
of 156% based on the trading history of the Company, and (4) zero
expected dividends.
On
January 28, 2021, the Company issued 86,430 total shares of common
stock upon the cashless exercise of stock options to purchase an
aggregate of 191,999 shares of common stock with exercise prices
ranging between $1.10 and $1.68 per share, based on a then-current
market value of $2.89 per share, under the terms of the options.
The options had an intrinsic value of $250,000 on the exercise
date.
During
the three months ended March 31, 2021, the Company recognized stock
option expense of $114,000. The remaining amount of unamortized
stock options expense at March 31, 2021, was $722,000.
The
intrinsic value of outstanding and exercisable options at March 31,
2021 was $108,000.
11
Option
activity during the three months ended March 31, 2021
was:
|
|
Number of Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contract Term (Years)
|
|
Outstanding
at December 31, 2020
|
1,234,849
|
$
2.43
|
2.7
|
|
Granted
|
550,000
|
$
1.39
|
|
|
Exercised
|
(191,999
)
|
$
1.59
|
|
|
Expired/Canceled
|
(236,334
)
|
$
4.01
|
|
|
Outstanding
at March 31, 2021
|
1,354,516
|
$
1.85
|
3.3
|
|
Exercisable
at March 31, 2021
|
532,515
|
$
2.38
|
1.8
|
NOTE 12 – EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per
common share-basic is calculated by dividing net income (loss) by
the weighted average number of shares of common stock outstanding
during the period. Net income (loss) per common share-diluted
assumes the conversion of all potentially dilutive securities and
is calculated by dividing net (loss) income by the sum of the
weighted average number of shares of common stock, as defined
above, outstanding plus potentially dilutive securities. Net (loss)
income per common share-diluted considers the impact of potentially
dilutive securities except in periods in which there is a loss
because the inclusion of the potential common shares, as defined
above, would have an anti-dilutive effect.
The
calculation of earnings (loss) per share for the periods ended
March 31, 2021 and 2020 were as follows (amounts in thousands,
except share and per share data):
|
Numerator:
|
March 31,
2021
|
March 31,
2020
|
|
Net
income (loss)
|
$
728
|
$
(4,257
)
|
|
|
|
|
|
Effect
of common stock equivalents
|
-
|
-
|
|
Net
income (loss) adjusted for common stock equivalents
|
$
728
|
$
(4,257
)
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted
average common shares – basic
|
76,839,795
|
71,996,295
|
|
|
|
|
|
Dilutive
effect of common stock equivalents:
|
|
|
|
Options
and Warrants
|
199,923
|
-
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted
average common shares – diluted
|
77,039,719
|
71,996,295
|
|
|
|
|
|
Earnings
(loss) per common share – basic
|
$
0.01
|
$
(0.06
)
|
|
|
|
|
|
Earnings
(loss) per common share – diluted
|
$
0.01
|
$
(0.06
)
|
For the
periods ended March 31, 2021 and 2020, share equivalents related to
options to purchase 1,202,849 and 1,179,849 shares of common stock,
respectively, were excluded from the computation of diluted net
income (loss) per share as the inclusion of such shares would be
anti-dilutive.
NOTE 13 – INCOME TAXES
The
Company has estimated that its effective tax rate for U.S. purposes
will be zero for the 2021 and 2020 fiscal years as a result of net
losses and a full valuation allowance against the net deferred tax
assets. Consequently, the Company has recorded no provision or
benefit for income taxes for the three months ended March 31, 2021
and 2020, respectively.
12
ITEM 2.
M
ANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
The
following is management’s discussion and analysis of the
significant factors that affected the Company’s financial
position and results of operations during the periods included in
the accompanying unaudited consolidated financial statements. You
should read this in conjunction with the discussion under
“
Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
” and the audited
consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2020, and the
unaudited consolidated financial statements included in this
quarterly Report.
Certain
abbreviations and oil and gas industry terms used throughout
this Quarterly Report are described and defined in greater detail
under “
Glossary of Oil And
Natural Gas Terms
” on page 4 of our
Annual Report on Form
10-K
for the year ended December 31, 2020, as filed with the
Securities and Exchange Commission on March 23, 2021.
Our
fiscal year ends on December 31st. Interim results are presented on
a quarterly basis for the quarters ended March 31, June 30, and
September 30th, the first quarter, second quarter and third
quarter, respectively, with the quarter ending December 31st being
referenced herein as our fourth quarter. Fiscal 2021 means the year
ended December 31, 2021, whereas fiscal 2020 means the year ended
December 31, 2020.
Certain
capitalized terms used below but not otherwise defined, are defined
in, and shall be read along with the meanings given to such terms
in, the notes to the unaudited financial statements of the Company
for the three months ended March 31, 2021, above.
Unless
the context requires otherwise, references to the
“
Company,
”
“
we,
”
“
us,
”
“
our,
”
“
PEDEVCO
” and
“
PEDEVCO
Corp.
” refer specifically to PEDEVCO Corp. and its
wholly and majority-owned subsidiaries.
In
addition, unless the context otherwise requires and for the
purposes of this Report only:
|
●
|
“Bbl”
refers to one stock tank barrel, or 42 U.S. gallons liquid volume,
used in this Report in reference to crude oil or other liquid
hydrocarbons;
|
|
●
|
“Boe”
refers to barrels of oil equivalent, determined using the ratio of
one Bbl of crude oil, condensate or natural gas liquids, to six Mcf
of natural gas;
|
|
●
|
“Bopd”
refers to barrels of oil day;
|
|
●
|
“Mcf”
refers to a thousand cubic feet of natural gas;
|
|
●
|
“NGL”
refers to natural gas liquids;
|
|
●
|
“Exchange
Act” refers to the Securities Exchange Act of 1934, as
amended;
|
|
●
|
“SEC”
or the “Commission” refers to the United States
Securities and Exchange Commission;
|
|
|
|
|
●
|
“SWD”
means a saltwater disposal well; and
|
|
●
|
“Securities
Act” refers to the Securities Act of 1933, as
amended.
|
13
Available Information
The Company’s Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to reports filed pursuant to Sections 13(a) and 15(d) of
the Exchange Act, are filed with the SEC. The Company is subject to
the informational requirements of the Exchange Act and files or
furnishes reports, proxy statements and other information with the
SEC. Such reports and other information filed by the Company with
the SEC are available free of charge at our
website
(
www.pedevco.com
)
under “
Investors
” –
“
SEC
Filings
”, when such reports are available on the
SEC’s website. The SEC maintains an internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC
at www.sec.gov.
The Company
periodically provides other information for investors on its
corporate website,
www.pedevco.com
.
This includes press releases and other information about financial
performance, information on corporate governance and details
related to the Company’s annual meeting of shareholders. The
information contained on the websites referenced in this Form 10-Q
is not incorporated by reference into this filing. Further, the
Company’s references to website URLs are intended to be
inactive textual references only.
General Overview
We are an oil and gas company focused on the
development, acquisition and production of oil and natural
gas
assets where the latest in modern drilling and
completion techniques and technologies have yet to be applied. In
particular, we focus on legacy proven properties where there is a
long production history, well defined geology and existing
infrastructure that can be leveraged when applying modern field
management technologies. Our current properties are located in the
San Andres formation of the Permian Basin situated in West Texas
and eastern New Mexico
and in the
Denver-Julesburg Basin in Colorado.
As of March 31, 2021,
we held approximately 34,815 net Permian Basin
acres located in Chaves and Roosevelt Counties, New Mexico, through
PEDCO and approximately 11,700 net D-J Basin acres located in Weld
and Morgan Counties, Colorado, through our wholly-owned operating
subsidiary, Red Hawk.
As of
March 31, 2021, we held interests in 382 gross (303
net) wells in our Permian Basin Asset of which 29 are active
producers, 15 are active injectors and two are active Saltwater
Disposal Wells (“
SWDs
”),
all of which are held by PEDCO and operated by its wholly-owned
operating subsidiaries, and
interests in 74 gross (21.0 net) wells in our
D-J Basin Asset, of which 18 gross (16.2 net) wells are
operated by Red Hawk and currently producing, 35 gross (5.2
net) wells are non-operated, and 21 wells have an after-payout
interest.
Strategy
We
believe that horizontal development and exploitation of
conventional assets in the Permian Basin and development of the
Wattenberg and Wattenberg Extension in the D-J Basin, represent
among the most economic oil and natural gas plays in the
U.S. We plan to optimize our existing assets and
opportunistically seek additional acreage proximate to our
currently held core acreage, as well as other attractive onshore
U.S. oil and gas assets that fit our acquisition criteria, that
Company management believes can be developed using our technical
and operating expertise and be accretive to stockholder
value.
Specifically, we
seek to increase stockholder value through the following
strategies:
●
Grow production, cash flow and reserves by
developing our operated drilling inventory and participating
opportunistically in non-operated projects.
We believe our
extensive inventory of drilling locations in the Permian Basin and
the D-J Basin, combined with our operating expertise, will enable
us to continue to deliver accretive production, cash flow and
reserves growth. We have identified approximately 150 gross
drilling locations across our Permian Basin acreage based on
20-acre spacing. We believe the location, concentration and scale
of our core leasehold positions, coupled with our technical
understanding of the reservoirs will allow us to efficiently
develop our core areas and to allocate capital to maximize the
value of our resource base.
●
Apply modern drilling and completion techniques
and technologies.
We own and intend to acquire additional
properties that have been historically underdeveloped and
underexploited. We believe our attention to detail and application
of the latest industry advances in horizontal drilling, completions
design, frac intensity and locally optimal frac fluids will allow
us to successfully develop our properties.
●
Optimization of well density and
configuration.
We own properties that are legacy
conventional oil fields characterized by widespread vertical
development and geological well control. We utilize the extensive
petrophysical and production data of such legacy properties to
confirm optimal well spacing and configuration using modern
reservoir evaluation methodologies.
14
●
Maintain a high degree of operational
control.
We believe that by retaining high operational
control, we can efficiently manage the timing and amount of our
capital expenditures and operating costs, and thus key in on the
optimal drilling and completions strategies, which we believe will
generate higher recoveries and greater rates of return per
well.
●
Leverage extensive deal flow, technical and
operational experience to evaluate and execute accretive
acquisition opportunities.
Our management and technical
teams have an extensive track record of forming and building oil
and gas businesses. We also have significant expertise in
successfully sourcing, evaluating and executing acquisition
opportunities. We believe our understanding of the geology,
geophysics and reservoir properties of potential acquisition
targets will allow us to identify and acquire highly prospective
acreage in order to grow our reserve base and maximize stockholder
value.
●
Preserve financial flexibility to pursue
organic and external growth opportunities.
We intend to
maintain a disciplined financial profile in order to provide us
flexibility across various commodity and market cycles. We intend
to utilize our strategic partners and public currency to
continuously fund development and operations.
Our
strategy is to be the operator and/or a significant working
interest owner, directly or through our subsidiaries and joint
ventures, in the majority of our acreage so that we can dictate the
pace of development in order to execute our business plan. Our 2021
development plan includes several projects delayed from our 2019
Phase II Permian Basin Asset development program, which were put on
hold through 2020 due to the COVID-19 outbreak and the related low
oil price environment through most of 2020. In late 2020, we
resumed work on these carryover projects, including the completion
of a SWD well in the Chaveroo field (Chaves and Roosevelt Counties,
New Mexico) which was brought online in September 2020. In
September 2020, we brought online one horizontal San Andres well
from our 2019 Phase I Permian Basin Asset development program that
was previously shut in due to salt water disposal capacity
constraints. In January 2021, we initiated production hookup and
commencement of two horizontal San Andres wells drilled in our
2019/2020 Phase II Permian Basin Asset development program. Over
the remainder of 2021, we plan to permit up to ten horizontal San
Andres wells in our Permian Basin Asset and anticipate drilling and
completing at least two of these wells in fall 2021, with the
remainder planned to be drilled and completed in 2022. We also plan
to complete several potential well reactivation projects, and
complete several enhancement and facilities projects across our
operated Permian Basin Asset. Additionally, we plan to spend
approximately $1.2 million to participate in non-operated well
projects on our D-J Basin Asset, pursuant to well proposals
received from third party operators on lands in which we share a
leasehold interest. This 2021 development program is based upon our
current outlook for the remainder of the year and is subject to
revision, if and as necessary, to react to market conditions,
product pricing, contractor availability, requisite permitting and
capital availability, additional non-operated well projects on our
D-J Basin Asset that may become available, capital allocation
changes between assets, acquisitions, divestitures and other
adjustments determined by the Company in the best interest of its
shareholders while prioritizing our financial strength and
liquidity.
We expect that we will have sufficient cash
available to meet our needs over the foreseeable future, including
to fund our 2021 development program, discussed above, which cash
we anticipate being available from (i) projected cash flow from our
operations, (ii) existing cash on hand, (iii) equity infusions or
loans (which may be convertible) made available from SK Energy
LLC
(“SK Energy”)
,
which is 100% owned and controlled by Simon Kukes, our Chief
Executive Officer and director, which funding SK Energy is under no
obligation to provide, (iv) public or private debt or equity
financings (similar to our recently completed February 2021
underwritten offering, as discussed below), and (v) funding through
credit or loan facilities. In addition, we may seek additional
funding through asset sales, farm-out arrangements, and credit
facilities to fund potential acquisitions in
2021.
15
Results of Operations and Financial Condition
Market Conditions and Commodity Prices
Our
financial results depend on many factors, particularly the price of
natural gas and crude oil and our ability to market our production
on economically attractive terms. Commodity prices are affected by
many factors outside of our control, including changes in market
supply and demand, which are impacted by among other factors,
weather conditions, inventory storage levels, basis differentials
and other factors. As a result, we cannot accurately predict future
commodity prices and, therefore, we cannot determine with any
degree of certainty what effect increases or decreases in these
prices will have on our production volumes or revenues. In addition
to production volumes and commodity prices, finding and developing
sufficient amounts of natural gas and crude oil reserves at
economical costs are critical to our long-term success. We expect
prices to remain volatile for the remainder of the year. For
information about the impact of realized commodity prices on our
natural gas and crude oil and condensate revenues, refer to
“
Results of
Operations
” below.
Results of Operations
The
following discussion and analysis of the results of operations for
the three-month period ended March 31, 2021, should be read in
conjunction with our consolidated financial statements and notes
thereto included in this Quarterly Report on Form 10-Q. The
majority of the numbers presented below are rounded numbers and
should be considered as approximate.
Three Months Ended March 31, 2021 vs. Three Months Ended March 31,
2020
We
reported net income for the three-month period ended March 31, 2021
of $0.7 million, or $0.01 per share, compared to a net loss for the
three-month period ended March 31, 2020 of $4.3 million or ($0.06)
per share. The increase in net income of $5.0 million was primarily
due to a $0.7 million increase in revenue coupled with a $1.8
million gain on sale of oil and gas properties and a $2.5 million
decrease in total operating expenses, when comparing the current
period to the prior year period (all of which are discussed in more
detail below).
Net Revenues
The
following table sets forth the operating results and production
data for the periods indicated:
|
|
Three Months Ended
March 31,
|
Increase
|
% Increase
|
|
|
|
2021
|
2020
|
(Decrease)
|
(Decrease)
|
|
Sale Volumes:
|
|
|
|
|
|
Crude
Oil (Bbls)
|
62,122
|
82,492
|
(20,370
)
|
(25
%)
|
|
Natural
Gas (Mcf)
|
32,900
|
60,866
|
(27,966
)
|
(46
%)
|
|
NGL
(Bbls)
|
802
|
3,879
|
(3,077
)
|
(79
%)
|
|
Total (Boe)
(1)
|
68,407
|
96,515
|
(28,108
)
|
(29
%)
|
|
|
|
|
|
|
|
Crude
Oil (Bbls per day)
|
690
|
907
|
(217
)
|
(24
%)
|
|
Natural
Gas (Mcf per day)
|
366
|
669
|
(303
)
|
(45
%)
|
|
NGL
(Bbls per day)
|
9
|
43
|
(34
)
|
(79
%)
|
|
Total (Boe per day)
(1)
|
760
|
1,062
|
(302
)
|
(28
%)
|
|
|
|
|
|
|
|
Average Sale Price:
|
|
|
|
|
|
Crude
Oil ($/Bbl)
|
$
55.26
|
$
32.76
|
$
22.50
|
69
%
|
|
Natural
Gas ($/Mcf)
|
2.28
|
1.47
|
0.81
|
55
%
|
|
NGL
($/Bbl)
|
28.68
|
10.32
|
18.36
|
178
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenues (in thousands):
|
|
|
|
|
|
Crude
Oil
|
$
3,433
|
$
2,703
|
$
730
|
27
%
|
|
Natural
Gas
|
75
|
89
|
(14
)
|
(16
%)
|
|
NGL
|
23
|
40
|
(17
)
|
(43
%)
|
|
Total Revenues
|
$
3,531
|
$
2,832
|
$
699
|
25
%
|
|
(1)
|
Assumes
6 Mcf of natural gas equivalents to 1 barrel of oil.
|
16
Total crude oil, natural gas and NGL revenues for
the three-month period ended March 31, 2021 increased $0.7 million,
or 25%, to $3.5 million, compared to $2.8 million for the same
period a year ago, due primarily to a favorable price variance of
$
2.0 million, offset by an unfavorable volume variance of
$1.3 million. P
roduction decreases are
primarily related to several of our newer wells having higher peak
production in the prior year, coupled with our oil and gas property
sale and well shut-ins related to the winter storms that occurred
in the current 2021 period.
Operating Expenses and Other Income (Expense)
The
following table summarizes our production costs and operating
expenses for the periods indicated
(in
thousands):
|
|
Three
Months Ended
|
|
|
|
|
|
March
31,
|
Increase
|
%
Increase
|
|
|
|
2021
|
2020
|
(Decrease)
|
(Decrease)
|
|
Direct
Lease Operating Expenses
|
$
926
|
$
1,089
|
$
(163
)
|
(15
%)
|
|
Workovers
|
118
|
166
|
(48
)
|
(29
%)
|
|
Other*
|
242
|
267
|
(25
)
|
(9
%)
|
|
Total
Lease Operating Expenses
|
$
1,286
|
$
1,522
|
$
(236
)
|
$
(16
%)
|
|
|
|
|
|
|
|
Exploration
Expenses
|
-
|
30
|
(30
)
|
(100
%)
|
|
Depreciation,
Depletion,
|
|
|
|
|
|
Amortization
and Accretion
|
$
1,561
|
3,437
|
(1,876
)
|
(55
%)
|
|
|
|
|
|
|
|
General
and Administrative (Cash)
|
$
1,083
|
$
1,270
|
$
(187
)
|
$
(15
%)
|
|
Share-Based
Compensation (Non-Cash)
|
684
|
853
|
(169
)
|
(20
%)
|
|
Total
General and Administrative Expense
|
$
1,767
|
$
2,123
|
$
(356
)
|
$
(17
%)
|
|
|
|
|
|
|
|
Gain
on Sale of Oil and Gas Properties
|
$
1,805
|
$
-
|
$
1,805
|
100
%
|
|
|
|
|
|
|
|
Interest
Expense
|
$
(1
)
|
$
-
|
$
(1
)
|
(100
%)
|
|
Interest
Income
|
$
4
|
$
24
|
$
(20
)
|
(83
%)
|
|
Other
Income (Expense)
|
$
3
|
$
(1
)
|
$
4
|
400
%
|
*Includes severance, ad valorem taxes and marketing
costs.
Lease Operating
Expenses.
The decrease of $0.2 million was primarily due to
the Company maintaining cost cutting initiatives that were
implemented by the Company during the prior year, coupled with
greater efficiencies and overall lower operating expense
rates.
Exploration
Expense.
There was
minimal change in exploration activity undertaken by the Company in
the current year’s period compared to the prior year’s
period.
Depreciation, Depletion,
Amortization and Accretion.
The $1.9 million decrease was
primarily the result of a decrease in our depletable base due to
the impairment of our oil and gas properties at the prior year end
(discussed below) coupled with production decreases in the current
period, when compared to the prior period. For the year ended
December 31, 2020, due to falling oil and gas prices, we incurred a
$19.3 million impairment of our oil and gas properties located in
our D-J Basin Asset.
General and Administrative
Expenses (excluding share-based compensation).
The decrease of $0.2 million in general and
administrative expenses (excluding share-based compensation) was
primarily due to decreases in payroll, as well as other cost
decreases, resulting from a 20% reduction in salary for all of the
Company’s salaried employees and officers implemented on
April 1, 2020, which was put in place to reduce costs at the time
that oil and gas prices were falling as a result of decreased
demand due to the COVID-19 pandemic, and a reduction of
non-essential contractors. The 20% reduction in salaries has since
been returned to prior levels beginning April 1, 2021,
as
the Company determined that the oil markets have recovered to
acceptable levels.
17
Share-Based
Compensation.
Share-based
compensation, which is included in general and administrative
expenses in the Statements of Operations, decreased by $0.2 million
primarily due to the forfeiture of certain employee stock-based
options and nonvested restricted shares due to employee
terminations. Share-based compensation is utilized
for the
purpose of conserving cash resources for use in field development
activities and operations.
Gain on Sale of Oil and Gas Properties
.
The Company sold rights to 230 net acres and interests in three
non-operated wells located in the D-J Basin for net cash proceeds
of $1.9 million and recognized a gain on sale of oil and gas
properties of $1.8 million during the three months ended March 31,
2021. We had no sales of oil and gas properties during the three
months ended March 31, 2020.
Interest Expense.
The increase of $0.01 million was
due to accrued interest related to the Company’s New PPP Loan
(see Note 7 to the notes to the unaudited financial statements of
the Company included above).
Interest Income and Other
Expense.
Includes
interest earned from our interest-bearing cash accounts, for which
interest rates have decreased significantly when comparing the
current period to the prior period, and the settlement of accounts
payables offset by finance charges.
Liquidity and Capital Resources
The
primary sources of cash for the Company during the three-month
period ended March 31, 2021 were from an underwritten public
offering to purchase $8.3 million of common stock, $1.9 million in
the sale of oil and gas properties, and the sales of crude oil and
natural gas. The primary uses of cash were funds used for
completion and operating costs.
Impact of COVID-19
In
December 2019, a novel strain of coronavirus, which causes the
infectious disease known as COVID-19, was reported in Wuhan, China.
The World Health Organization declared COVID-19 a “Public
Health Emergency of International Concern” on January 30,
2020, and a global pandemic on March 11, 2020. COVID-19 has, since
the early part of 2020, reduced worldwide economic activity. Due to
COVID-19, the Company or its employees, suppliers, and other
partners may be prevented from conducting business activities at
full capacity for an indefinite period of time, including due to
the spread of the disease within these groups or due to shutdowns
that may be requested or mandated by governmental authorities.
While it is not possible at this time to estimate the full impact
that COVID-19 will have on the Company’s business, the
continued spread of COVID-19 and the measures taken by the
governments of countries affected and in which the Company operates
have disrupted, and may continue to disrupt, the operation of the
Company’s business for a prolonged period. The COVID-19
outbreak and mitigation measures have also had an adverse impact on
global economic conditions, as well as an adverse effect on the
Company’s business and financial condition and may continue
to have an adverse effect on the Company, including on its
potential to conduct financings on terms acceptable to the Company,
if at all. In addition, the Company has taken temporary
precautionary measures intended to help minimize the risk of the
virus to its employees, vendors, and guests, including limiting the
number of occupants at the Company’s Houston headquarters and
requiring all others to work remotely, and discouraging employee
attendance at in-person work-related meetings, which could
negatively affect the Company’s business. The extent to which
the COVID-19 outbreak will continue to impact the Company’s
results will depend on future developments that are highly
uncertain and cannot be predicted, including new information that
may emerge concerning the severity of the virus, the availability
and efficacy of vaccines, the ability of the general public to
obtain such vaccines and the willingness of individuals to be
vaccinated, and the actions to contain its impact. However, any
further decrease in the price of oil, or the demand for oil and
gas, will likely have a negative impact on our results of
operations and cash flows.
18
In response to the effects of COVID-19, the
Company has adopted policies, procedures, and practices both in its
Houston office headquarters and across its field operations to
protect its employees, contractors, and guests from COVID-19,
including the adoption of a COVID-19 Response Plan, implementation
of contractor questionnaires to assess COVID-19 risk and exposure
prior to entering any Company facility or worksite, adopting best
practices, guidelines and protocols recommended by the Centers for
Disease Control (the “
CDC
”) and the Office of the Texas Governor for
the prevention of exposure and spread of COVID-19, and instituting
bi-weekly management calls discussing the Company’s ongoing
response to the COVID-19 pandemic and effectiveness thereof. Given
the Company’s robust online systems and workflow practices
and procedures, the Company has not experienced any material
challenges or reductions in efficiency or effectiveness of its
office-based workforce, while its field personnel continue to
attend to their daily field operations uninterrupted, while mindful
of social distancing and other preventative measures and safeguards
recommended by the CDC.
Further, to help conserve its operating cash, in
April 2020 and continuing to April 2021, the Company initiated
significant temporary G&A cost-reduction measures, including
reducing all employee and officer salaries by 20% (which salaries
were returned to their original levels as of April 1, 2021, as the
Company determined that the oil markets had recovered to acceptable
levels), cutting all discretionary spending, and undertaking
additional actions, as well implementing cost-reduction measures to
reduce lease operating expenses (“
LOE
”).
We plan to continue to closely monitor the global
energy markets and oil and gas pricing, with our
2021 development plan being subject to
revision, if and as necessary, to react to market conditions in the
best interest of its shareholders, while prioritizing its financial
strength and liquidity.
Working Capital
At
March 31, 2021, the Company’s total current assets of $20.0
million exceeded its total current liabilities of $2.7 million,
resulting in a working capital surplus of $17.3 million, while at
December 31, 2020, the Company’s total current assets of $8.8
million exceeded its total current liabilities of $2.0 million,
resulting in a working capital surplus of $6.8 million. The $10.5
million increase in our working capital surplus is primarily
related to cash received from the sale of common stock in our
underwritten offering (discussed below) and the sale of certain oil
and gas properties.
Financing
On
February 5, 2021, the Company closed
an underwritten public offering of 5,968,500
shares of common stock at a public offering price of $1.50 per
share, which included the full exercise of the underwriter’s
over-allotment option, for
net proceeds (after deducting the
underwriters’ discount equal to 6% of the public offering
price and expenses associated with the offering) of approximately
$8.3 million (discussed in greater detail below under
PART II - OTHER INFORMATION -
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS -
Use of Proceeds
From Sale of Registered Securities
).
We
expect that we will have sufficient cash available to meet our
needs over the foreseeable future, which cash we anticipate being
available from (i) projected cash flow from our operations, (ii)
existing cash on hand, (iii) equity infusions or loans (which may
be convertible) made available from SK Energy LLC (“SK
Energy”), which is 100% owned and controlled by Simon Kukes,
our Chief Executive Officer and director, which funding SK Energy
is under no obligation to provide, (iv) public or private debt or
equity financings, and (v) funding through credit or loan
facilities. In addition, we may seek additional funding through
asset sales, farm-out arrangements, and credit facilities to fund
potential acquisitions in 2021. If market conditions are not
conducive to developing our assets consistent with our 2021
development program, the Company may choose to delay or extend the
drilling program and associated capital expenditures into the
future. Furthermore, as a result of the COVID-19 outbreak, and
the sharp decline in oil prices which occurred partially as a
result of the decreased demand for oil caused by such outbreak and
the actions taken globally to stop the spread of such virus, in
mid-April 2020, the Company shut-in all of its operated producing
wells in its Permian Basin Asset and D-J Basin Asset to preserve
the Company’s oil and gas reserves for production during a
more favorable oil price environment, with the Company now back on
full production from its operated wells in the Permian Basin and
the D-J Basin that the Company had shut-in in mid-April 2020 due to
the partial recovery of oil prices in early June 2020. If oil
prices deteriorate significantly from current levels, the Company
may again shut-in some or all of its oil and gas production, which
would result in reduced or no cash flow being generated from
operations during the period such wells are shut-in, have a
material adverse effect on the Company’s projected cash flow
from operations, and, once our cash on hand is depleted, eventually
require additional infusions of capital through debt and/or equity
financings, asset sales, farm-out arrangements, lines of credit, or
other means, which may not be available on favorable terms, if at
all.
19
Cash Flows (in thousands)
|
|
Three Months
Ended
March
31,
|
|
|
|
2021
|
2020
|
|
Cash flows provided
by (used in) operating activities
|
$
913
|
$
(1,294
)
|
|
Cash flows provided
by (used in) investing activities
|
1,289
|
(8,720
)
|
|
Cash flows provided
by financing activities
|
8,303
|
-
|
|
Net
increase (decrease) in cash and restricted cash
|
$
10,505
|
$
(10,014
)
|
Cash Flows provided by (used in) Operating
Activities.
Net cash operating activities
increased by $2.2 million for the current year’s period, when
compared to the prior year’s period, primarily due to an
increase in net income of $5.0 million, offset by a decrease of
$1.9 million in depreciation, depletion and amortization and a $1.8
million gain on the sale of oil and gas properties, coupled with
net increases to our other components of working capital, which are
related to our increased revenue and a reduction of payables in the
current period.
Cash Flows provided by (used in) Investing
Activities.
Net cash provided by investing activities
increased by $10.0 million for the current year’s period,
when compared to the prior year’s period, primarily due to
$8.1 million less in capital spending coupled with $1.9 million in
proceeds from the sale of oil and gas properties.
Cash Flows provided by Financing
Activities.
In the current period, the Company issued
common stock, net of offering costs, for $8.3 million.
Off-Balance Sheet Arrangements
The
Company does not participate in financial transactions that
generate relationships with u
nconsolidated entities or financial partnerships.
As of March 31, 2021, we did not have any off-balance sheet
arrangements.
Critical Accounting Policies
Our discussion and analysis of our financial
condition and results of operations are based upon our Condensed
Consolidated Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. See
our 2020 Form 10-K for further discussion of our
critical accounting policies.
Recently Adopted and Recently Issued Accounting
Pronouncements
None.
ITEM 3.
Q
UANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to
Item 305(e) of Regulation S-K (§ 229.305(e)), the Company
is not required to provide the information required by this
Item as it is a “
smaller reporting
company,
” as defined by Rule
229.10(f)(1).
ITEM 4.
C
ONTROLS AND
PROCEDURES
Disclosure Controls and Procedures
Disclosure controls
and procedures are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the
time period specified in the SEC’s rules and forms and is
accumulated and communicated to the Company’s management, as
appropriate, in order to allow timely decisions in connection with
required disclosure.
20
Evaluation of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management,
including our Chief Executive Officer (“
CEO
”)(the Principal
Executive Officer) and Chief Accounting Officer
(“
CAO
”)(the
Principal Financial/Accounting Officer), we conducted an evaluation
of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act as of the end of the period
covered by this Quarterly Report. Based on this evaluation, our CEO
and CAO concluded as of March 31. 2021, that our disclosure
controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
during the three months ended March 31, 2021, that have
materially affected or are reasonably likely to materially affect,
our internal control over financial reporting, including any
corrective actions regarding significant deficiencies and material
weaknesses.
As a
result of COVID-19, our workforce has continued to operate
primarily in a work from home environment for the quarter ended
March 31, 2021. While pre-existing controls were not specifically
designed to operate in our current work from home operating
environment, we do not believe that such work from home actions
have had a material adverse effect on our internal controls over
financial reporting. We have continued to re-evaluate and refine
our financial reporting process to provide reasonable assurance
that we could report our financial results accurately and
timely.
21
PART II - OTHER INFORMATION
ITEM 1.
L
EGAL
PROCEEDINGS
Although
we may, from time to time, be involved in litigation and claims
arising out of our operations in the normal course of business, we
are not currently a party to any material legal proceeding. In
addition, we are not aware of any material legal or governmental
proceedings against us or contemplated to be brought against
us.
There have been no material changes from the risk
factors previously disclosed in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2020, filed with the
Commission on March 23, 2021 (the “
Form
10-K
”), under the heading
“
Item 1A. Risk
Factors
”, other than as
set forth below, and investors are encouraged to review such risk
factors in the Annual Report and below, prior to making an
investment in the Company. Any of these factors, in whole or in
part, could materially and adversely affect the Company’s
business, financial condition, operating results and stock
price.
ITEM 2.
U
NREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
The
Company did not issue or sell any unregistered equity securities
during the quarter ended March 31, 2021, and through the date of
the filing of this Report, which were not previously disclosed in a
prior Quarterly Report on Form 10-Q, our Annual Report on Form 10-K
or in a Current Report on Form 8-K.
Use of Proceeds From Sale of Registered Securities
Our
shelf Registration Statement on Form S-3 (Reg. No. 333-250904) in
connection with the sale by us of up to $100 million in securities
(common stock, preferred stock, warrants and units) was declared
effective by the Securities and Exchange Commission on December 2,
2020.
On
February 3, 2021, we filed a final Rule 424(b)(5) prospectus
supplement relating to the primary offering by us in a firm
commitment underwritten public offering of 5,190,000 shares of
common stock at a public offering price per share of
$1.50. The underwriters of the offering (Kingswood
Capital Markets, division of Benchmark Investments, Inc. as sole
bookrunner and Dawson James Securities) were also provided an
option to purchase an additional 778,500 shares from us, at the
public offering price less the underwriting discount, within 45
days of the offering to cover over-allotments, if any, which
overallotment option was exercised in full by the underwriters. The
offering (including the sale of the underwriters’
overallotment shares) closed on February 5, 2021. The net proceeds
to us from our sale of the common stock (including the shares sold
in connection with the exercise of the underwriters’
overallotment) were approximately $8.3 million (after deducting the
underwriting discount and commissions and offering expenses payable
by us). No further shares will be sold under the prospectus
supplement.
No
payments for our expenses were made in the offering described above
directly or indirectly to (i) any of our directors, officers or
their associates, (ii) any person(s) owning 10% or more of any
class of our equity securities or (iii) any of our affiliates.
There has been no material change in the planned use of proceeds
from our offering as described in our final prospectus filed with
the SEC pursuant to Rule 424(b).
Issuer Purchases of Equity Securities
None.
ITEM 3.
D
EFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4.
M
INE SAFETY
DISCLOSURES
Not
Applicable.
22
ITEM 5.
O
THER
INFORMATION
None.
ITEM 6.
E
XHIBITS
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|
|
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Incorporated By
Reference
|
|||||||
|
Exhibit
No.
|
|
Description
|
|
Form
|
|
Exhibit
|
|
Filing
Date
|
|
File
Number
|
|
|
|
Underwriting
Agreement, dated February 2, 2021, by and between U.S. Energy Corp.
and Kingswood Capital Markets, division of Benchmark Investments,
Inc
|
|
8-K
|
|
1.1
|
|
February
3, 2021
|
|
001-35922
|
|
|
|
10.1
#
|
|
Purchase and Sale
Agreement, dated December 29, 2019, entered into by and among Red
Hawk Petroleum, LLC, DJ Homestead, LLC, and Petro Operating
Company, LLC
|
|
10-K
|
|
10.37
|
|
March
23, 2021
|
|
001-35922
|
|
|
|
Closing Letter,
dated March 18, 2021, entered into by and among Red Hawk Petroleum,
LLC, DJ Homestead, LLC, and Petro Operating Company,
LLC
|
|
10-K
|
|
10.38
|
|
March
23, 2021
|
|
001-35922
|
||
|
|
Form
of Lock-Up Agreement (February 2021 Offering)
|
|
8-K
|
|
10.1
|
|
February
3, 2021
|
|
001-35922
|
||
|
31.1
*
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
31.2
*
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
32.1
**
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
32.2
**
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
101.INS*
|
|
XBRL
Instance Document
|
|
|
|
|
|
|
|
|
|
|
101.SCH*
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
|
101.CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
101.DEF*
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
101.LAB*
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
* Filed herewith.
** Furnished herewith.
#
Schedules and exhibits have been
omitted pursuant to Item 601(b)(5) of Regulation S-K. A copy
of any omitted schedule or exhibit will be furnished supplementally
to the Securities and Exchange Commission upon request; provided,
however that PEDEVCO Corp. may request confidential treatment
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, for any schedule or exhibit so
furnished.
23
S
IGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
PEDEVCO Corp.
|
|
|
||
|
|
|
|
|
||
|
May 17, 2021
|
By:
|
/s/
Simon
Kukes
|
|
||
|
|
|
Simon
Kukes
|
|
||
|
|
|
Chief
Executive Officer
|
|
||
|
|
|
(Principal
Executive Officer)
|
|
||
|
|
PEDEVCO Corp.
|
|
|
||
|
|
|
|
|
||
|
May 17, 2021
|
By:
|
/s/
Paul
A. Pinkston
|
|
||
|
|
|
Paul A.
Pinkston
|
|
||
|
|
|
Chief
Accounting Officer
|
|
||
|
|
|
(Principal
Financial and Accounting Officer)
|
|
||
24
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1 Basis Of PresentationNote 2 Description Of BusinessNote 3 Summary Of Significant Accounting PoliciesNote 4 Revenue From Contracts with CustomersNote 5 CashNote 6 Oil and Gas PropertiesNote 7 Ppp LoansNote 8 Asset Retirement ObligationsNote 9 Commitments and ContingenciesNote 10 Shareholders EquityNote 11 Share-based CompensationNote 12 Earnings (loss) Per Common ShareNote 13 Income TaxesItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsPart II - Other Information - Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds -Item 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits