UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A 10-Q
(Amendment No. 1)
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 20212022
☐ | 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) |
Texas |
| 22-3755993 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
575 N. Dairy Ashford, Suite 210, Houston, Texas |
| 77079 |
(Address of principal executive offices) |
| (Zip Code) |
(713) 221-1768
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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 | ☐ |
Non-accelerated | ☒ | Smaller reporting company | ☒ |
| 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 November 12, 2021,11, 2022, there were 84,210,20385,790,267 shares of the Registrant’s common stock outstanding.
EXPLANATORY NOTE
PEDEVCO Corp. (the “Company”, “we” and “us”) is filing this Amendment No. 1 (“Amendment No. 1”) to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (the “Original Report”), as filed with the Securities and Exchange Commission on November 15, 2021 (the “Original Filing Date”), for the sole purpose of correcting a technical error with the software of the Company’s Edgar service provider, which caused Exhibits 31.1, 31.2, 32.1 and 32.2, which were executed by the Registrant, to be inadvertently omitted from the Original Report. Such exhibits have been included in this amended filing.
Except as described above, no changes have been made to the Original Report and this Amendment No. 1 does not modify, amend or update in any way any of the financial or other information contained in the Original Report. This Amendment No. 1 does not reflect events that may have occurred subsequent to the Original Filing Date.
PEDEVCO CORP.
TABLE OF CONTENTS
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Notes to Unaudited Condensed Consolidated Financial Statements | 8 | ||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||
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2 |
Table of |
CAUTIONARY NOTE ABOUTREGARDING 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 the federal securities laws, including 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 operationsStatements preceded by, followed by or financial conditions. Thethat otherwise include the words “believe,“believes,” “intend,“expects,” “plan,“anticipates,” “expect,“intends,” “anticipate,“projects,” “estimate,“estimates,” “project,“plans,” “goal“may,” and similar expressions identifyor future or conditional verbs such a statement was made, althoughas “should”, “would”, and “could” are generally forward-looking in nature and not all forward-lookinghistorical facts. Forward-looking statements contain such identifying words. These statementswhich are subject to knowna number of risks and unknown risks, uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs and cash flows, prospects, plans and objectives of management are forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause the actual results to differ materially from those contemplated byin the forward-looking statements. TheForward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. These factors include, among others, the factors set forth below under the heading “Risk Factors.” Although we believe that the expectations reflected in the forward-looking information is basedstatements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Most of these factors are difficult to predict accurately and are generally beyond our control. Readers are cautioned not to place undue reliance 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 suchthese forward-looking statements.
Forward-looking statements may include statements about our:
● | business strategy; | |
● | reserves; | |
● | technology; | |
● | cash flows and liquidity; | |
● | financial strategy, budget, projections and operating results; | |
● | oil and natural gas realized prices; | |
● | timing and amount of future production of oil and natural gas; | |
● | availability of oil field labor; | |
● | the amount, nature and timing of capital expenditures, including future exploration and development costs; | |
● | drilling of wells; | |
● | government regulation and taxation of the oil and natural gas industry; | |
● |
| |
● | exploitation projects or property acquisitions; | |
● | costs of exploiting and developing our properties and conducting other operations; | |
● | general economic conditions in the United States and around the world, including the effect of regional or global health pandemics (such as, for example, | |
● | the continued | |
● | political conditions in or affecting other oil-producing and natural gas-producing countries, including the current conflicts in the Middle East and involving Russia and Ukraine; | |
● | competition in the oil and natural gas industry; | |
● | effectiveness of our risk management activities; | |
● | environmental liabilities; | |
● | counterparty credit risk; | |
● | developments in oil-producing and natural gas-producing countries; | |
● | future operating results; | |
● | increased inflation, rising interest rates and possible U.S. and global recessions; | |
● | future acquisition transactions; | |
|
| |
● | 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““Risk Factors” and “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations“Operations” and elsewhere in this Quarterly Report, and our Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed with the SEC on March 23, 2021.11, 2022. 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.
3 |
Table of |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDEVCOPEDEVCO CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)
|
| September 30, 2022 (Unaudited) |
|
| December 31, 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 27,361 |
|
| $ | 25,930 |
|
Accounts receivable – oil and gas |
|
| 2,681 |
|
|
| 1,782 |
|
Prepaid expenses and other current assets |
|
| 316 |
|
|
| 326 |
|
Total current assets |
|
| 30,358 |
|
|
| 28,038 |
|
|
|
|
|
|
|
|
|
|
Oil and gas properties – successful efforts method: |
|
|
|
|
|
|
|
|
Oil and gas properties, subject to amortization, net |
|
| 69,699 |
|
|
| 63,908 |
|
Oil and gas properties, not subject to amortization, net |
|
| 592 |
|
|
| 2,559 |
|
Total oil and gas properties, net |
|
| 70,291 |
|
|
| 66,467 |
|
|
|
|
|
|
|
|
|
|
Operating lease – right-of-use asset |
|
| 98 |
|
|
| 173 |
|
Other assets |
|
| 3,722 |
|
|
| 3,543 |
|
Total assets |
| $ | 104,469 |
|
| $ | 98,221 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 719 |
|
| $ | 2,626 |
|
Accrued expenses |
|
| 1,820 |
|
|
| 1,454 |
|
Revenue payable |
|
| 996 |
|
|
| 938 |
|
Operating lease liabilities – current |
|
| 110 |
|
|
| 114 |
|
Asset retirement obligations – current |
|
| 11 |
|
|
| 49 |
|
Total current liabilities |
|
| 3,656 |
|
|
| 5,181 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Operating lease liabilities, net of current portion |
|
| - |
|
|
| 81 |
|
Asset retirement obligations, net of current portion |
|
| 2,080 |
|
|
| 1,476 |
|
Total liabilities |
|
| 5,736 |
|
|
| 6,738 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 200,000,000 shares authorized; 85,790,267 and 84,263,146 shares issued and outstanding, respectively |
|
| 86 |
|
|
| 84 |
|
Additional paid-in capital |
|
| 222,604 |
|
|
| 220,984 |
|
Accumulated deficit |
|
| (123,957 | ) |
|
| (129,585 | ) |
Total shareholders’ equity |
|
| 98,733 |
|
|
| 91,483 |
|
Total liabilities and shareholders’ equity |
| $ | 104,469 |
|
| $ | 98,221 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
4 |
Table of Contents |
PEDEVCO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(amounts in thousands, except share and per share data)
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Assets |
| |||||||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 19,926 |
|
| $ | 8,027 |
|
Accounts receivable – oil and gas |
|
| 1,520 |
|
|
| 660 |
|
Prepaid expenses and other current assets |
|
| 361 |
|
|
| 66 |
|
Total current assets |
|
| 21,807 |
|
|
| 8,753 |
|
|
|
|
|
|
|
|
|
|
Oil and gas properties: |
|
|
|
|
|
|
|
|
Oil and gas properties, subject to amortization, net |
|
| 64,789 |
|
|
| 66,994 |
|
Oil and gas properties, not subject to amortization, net |
|
| 4 |
|
|
| 4 |
|
Total oil and gas properties, net |
|
| 64,793 |
|
|
| 66,998 |
|
|
|
|
|
|
|
|
|
|
Operating lease – right-of-use asset |
|
| 198 |
|
|
| 270 |
|
Other assets |
|
| 3,553 |
|
|
| 3,543 |
|
Total assets |
| $ | 90,351 |
|
| $ | 79,564 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 752 |
|
| $ | 212 |
|
Accrued expenses |
|
| 483 |
|
|
| 303 |
|
Revenue payable |
|
| 960 |
|
|
| 836 |
|
PPP loan, current |
|
| 0 |
|
|
| 288 |
|
Operating lease liabilities – current |
|
| 111 |
|
|
| 105 |
|
Asset retirement obligations – current |
|
| 173 |
|
|
| 234 |
|
Total current liabilities |
|
| 2,479 |
|
|
| 1,978 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
PPP loan, net of current portion |
|
| 0 |
|
|
| 82 |
|
Operating lease liabilities, net of current portion |
|
| 110 |
|
|
| 195 |
|
Asset retirement obligations, net of current portion |
|
| 1,844 |
|
|
| 1,673 |
|
Total liabilities |
|
| 4,433 |
|
|
| 3,928 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 200,000,000 shares authorized; 79,751,603 and 72,463,340 shares issued and outstanding, respectively |
|
| 80 |
|
|
| 72 |
|
Additional paid-in capital |
|
| 213,946 |
|
|
| 203,850 |
|
Accumulated deficit |
|
| (128,108 | ) |
|
| (128,286 | ) |
Total shareholders’ equity |
|
| 85,918 |
|
|
| 75,636 |
|
Total liabilities and shareholders’ equity |
| $ | 90,351 |
|
| $ | 79,564 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
Revenue: |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Oil and gas sales |
| $ | 7,472 |
|
| $ | 4,069 |
|
| $ | 24,109 |
|
| $ | 11,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating costs |
|
| 2,918 |
|
|
| 1,423 |
|
|
| 8,076 |
|
|
| 4,164 |
|
Selling, general and administrative expense |
|
| 1,220 |
|
|
| 1,337 |
|
|
| 4,108 |
|
|
| 4,434 |
|
Depreciation, depletion, amortization and accretion |
|
| 2,313 |
|
|
| 1,666 |
|
|
| 6,427 |
|
|
| 4,829 |
|
Total operating expenses |
|
| 6,451 |
|
|
| 4,426 |
|
|
| 18,611 |
|
|
| 13,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of oil and gas properties |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| 1,021 |
|
|
| (357 | ) |
|
| 5,498 |
|
|
| (282 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1 | ) |
Interest income |
|
| 33 |
|
|
| 4 |
|
|
| 40 |
|
|
| 11 |
|
Other income |
|
| 25 |
|
|
| 28 |
|
|
| 90 |
|
|
| 76 |
|
Gain on forgiveness of PPP loan |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 374 |
|
Total other income |
|
| 58 |
|
|
| 32 |
|
|
| 130 |
|
|
| 460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 1,079 |
|
| $ | (325 | ) |
| $ | 5,628 |
|
| $ | 178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.01 |
|
| $ | (0.00 | ) |
| $ | 0.07 |
|
| $ | 0.00 |
|
Diluted |
| $ | 0.01 |
|
| $ | (0.00 | ) |
| $ | 0.07 |
|
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 85,644,180 |
|
|
| 79,533,016 |
|
|
| 85,419,689 |
|
|
| 78,628,077 |
|
Diluted |
|
| 85,644,180 |
|
|
| 79,533,016 |
|
|
| 85,419,689 |
|
|
| 78,700,140 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
PEDEVCO CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(amounts in thousands, except share and per share data)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
Revenue: |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Oil and gas sales |
| $ | 4,069 |
|
| $ | 2,417 |
|
| $ | 11,340 |
|
| $ | 5,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating costs |
|
| 1,423 |
|
|
| 1,054 |
|
|
| 4,164 |
|
|
| 3,326 |
|
Exploration expense |
|
| - |
|
|
| 1 |
|
|
| 0 |
|
|
| 31 |
|
Selling, general and administrative expense |
|
| 1,337 |
|
|
| 1,281 |
|
|
| 4,434 |
|
|
| 4,826 |
|
Depreciation, depletion, amortization and accretion |
|
| 1,666 |
|
|
| 2,974 |
|
|
| 4,829 |
|
|
| 8,323 |
|
Total operating expenses |
|
| 4,426 |
|
|
| 5,310 |
|
|
| 13,427 |
|
|
| 16,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of oil and gas properties |
|
| - |
|
|
| 0 |
|
|
| 1,805 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (357 | ) |
|
| (2,893 | ) |
|
| (282 | ) |
|
| (10,601 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 0 |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
Interest income |
|
| 4 |
|
|
| 4 |
|
|
| 11 |
|
|
| 36 |
|
Other income |
|
| 28 |
|
|
| 597 |
|
|
| 76 |
|
|
| 1,275 |
|
Gain on forgiveness of PPP loan |
|
| 0 |
|
|
| 0 |
|
|
| 374 |
|
|
| 0 |
|
Total other income |
|
| 32 |
|
|
| 600 |
|
|
| 460 |
|
|
| 1,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (325 | ) |
| $ | (2,293 | ) |
| $ | 178 |
|
| $ | (9,291 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.00 | ) |
| $ | (0.03 | ) |
| $ | 0.00 |
|
| $ | (0.13 | ) |
Diluted |
| $ | (0.00 | ) |
| $ | (0.03 | ) |
| $ | 0.00 |
|
| $ | (0.13 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 79,533,016 |
|
|
| 72,250,014 |
|
|
| 78,628,077 |
|
|
| 72,124,339 |
|
Diluted |
|
| 79,533,016 |
|
|
| 72,250,014 |
|
|
| 78,700,140 |
|
|
| 72,124,339 |
|
See accompanying notes to unaudited consolidated financial statements.
5 |
Table of |
PEDEVCOPEDEVCO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | 178 |
| $ | (9,291 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
| |||||||||||
Net income |
| $ | 5,628 |
| $ | 178 |
| |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| |||||||||||
Depreciation, depletion, amortization and accretion |
| 4,829 |
| 8,323 |
|
| 6,427 |
| 4,829 |
| ||||||
Gain on sale of oil and gas properties |
| (1,805 | ) |
| 0 |
|
| - |
| (1,805 | ) | |||||
Loss on disposal of fixed asset |
| 0 |
| 24 |
| |||||||||||
Amortization of right-of-use asset |
| 72 |
| 67 |
|
| 75 |
| 72 |
| ||||||
Share-based compensation expense |
| 1,867 |
| 2,073 |
|
| 1,572 |
| 1,867 |
| ||||||
Gain on forgiveness of PPP loan |
| (374 | ) |
| 0 |
|
| - |
| (374 | ) | |||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable – oil and gas |
| (860 | ) |
| 3,658 |
|
| (899 | ) |
| (860 | ) | ||||
Prepaid expenses and other current assets |
| (295 | ) |
| (146 | ) |
| 10 |
| (295 | ) | |||||
Accounts payable |
| 51 |
| (3,087 | ) |
| (243 | ) |
| 51 |
| |||||
Accrued expenses |
| 184 |
| (1,647 | ) |
| 366 |
| 184 |
| ||||||
Revenue payable |
|
| 124 |
|
|
| 2 |
|
|
| 58 |
|
|
| 124 |
|
Net cash provided by (used in) operating activities |
|
| 3,971 |
|
|
| (24 | ) | ||||||||
Net cash provided by operating activities |
|
| 12,994 |
|
|
| 3,971 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for drilling, completion, acquisition costs |
| (11,413 | ) |
| (2,145 | ) | ||||||||||
Cash paid for property and equipment |
| (35 | ) |
| 0 |
|
| - |
| (35 | ) | |||||
Cash paid for drilling and completion costs |
| (2,145 | ) |
| (14,379 | ) | ||||||||||
Proceeds from the sale of oil and gas property |
|
| 1,871 |
|
|
| 0 |
|
|
| - |
|
|
| 1,871 |
|
Net cash used in investing activities |
|
| (309 | ) |
|
| (14,379 | ) |
|
| (11,413 | ) |
|
| (309 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from PPP loans |
| 0 |
| 740 |
| |||||||||||
Repayment of PPP loan |
| 0 |
| (370 | ) | |||||||||||
Proceeds from issuance of shares, net of offering costs |
|
| 8,237 |
|
|
| 0 |
| ||||||||
Proceeds from issuance of common stock, net of offering costs |
|
| 50 |
|
|
| 8,237 |
| ||||||||
Net cash provided by financing activities |
|
| 8,237 |
|
|
| 370 |
|
|
| 50 |
|
|
| 8,237 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net increase (decrease) in cash and restricted cash |
| 11,899 |
| (14,033 | ) | |||||||||||
Net increase in cash and restricted cash |
| 1,631 |
| 11,899 |
| |||||||||||
Cash and restricted cash at beginning of period |
|
| 11,324 |
|
|
| 25,712 |
|
|
| 29,227 |
|
|
| 11,324 |
|
Cash and restricted cash at end of period |
| $ | 23,223 |
|
| $ | 11,679 |
|
| $ | 30,858 |
|
| $ | 23,223 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for: |
|
|
|
|
|
|
|
|
|
| ||||||
Interest |
| $ | 0 |
| $ | 0 |
|
| $ | - |
| $ | - |
| ||
Income taxes |
| $ | 0 |
| $ | 0 |
|
| $ | - |
| $ | - |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Change in accrued oil and gas development costs |
| $ | 287 |
| $ | 8,581 |
|
| $ | 1,791 |
| $ | 54 |
| ||
Changes in estimates of asset retirement costs, net |
| $ | 51 |
| $ | 247 |
|
| $ | 158 |
| $ | 16 |
| ||
Issuance of restricted common stock |
| $ | 2 |
| $ | 1 |
|
| $ | 2 |
| $ | 1 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6 |
Table of |
PEDEVCOPEDEVCO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20212022 AND 20202021
(Unaudited)
(amounts in thousands, except share amounts)
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| 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 | ) |
|
| 0 |
|
|
| 0 |
|
Rescinded restricted common stock |
|
| (16,667 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Issuance of common stock to non-affiliate |
|
| 5,968,500 |
|
|
| 6 |
|
|
| 8,297 |
|
|
| 0 |
|
|
| 8,303 |
|
Cashless exercise of stock options |
|
| 86,430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Share-based compensation |
|
| - |
|
|
| 0 |
|
|
| 684 |
|
|
| 0 |
|
|
| 684 |
|
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 728 |
|
|
| 728 |
|
Balances at March 31, 2021 |
|
| 79,461,603 |
|
|
| 79 |
|
|
| 212,830 |
|
|
| (127,558 | ) |
|
| 85,351 |
|
Offering costs incurred for issuance of common stock to non-affiliate |
|
| - |
|
|
| 0 |
|
|
| (66 | ) |
|
| 0 |
|
|
| (66 | ) |
Share-based compensation |
|
| - |
|
|
| 0 |
|
|
| 591 |
|
|
| 0 |
|
|
| 591 |
|
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (225 | ) |
|
| (225 | ) |
Balances at June 30, 2021 |
|
| 79,461,603 |
|
|
| 79 |
|
|
| 213,355 |
|
|
| (127,783 | ) |
|
| 85,651 |
|
Issuance of restricted common stock |
|
| 240,000 |
|
|
| 1 |
|
|
| (1 | ) |
|
| 0 |
|
|
| 0 |
|
Issuance of common stock to a non-affiliate |
|
| 50,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Share-based compensation |
|
| - |
|
|
| 0 |
|
|
| 592 |
|
|
| 0 |
|
|
| 592 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (325 | ) |
|
| (325 | ) |
Balances at September 30, 2021 |
|
| 79,751,603 |
|
| $ | 80 |
|
| $ | 213,946 |
|
| $ | (128,108 | ) |
| $ | 85,918 |
|
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Totals |
| |||||
Balances at December 31, 2021 |
|
| 84,263,146 |
|
| $ | 84 |
|
| $ | 220,984 |
|
| $ | (129,585 | ) |
| $ | 91,483 |
|
Issuance of restricted common stock |
|
| 1,200,000 |
|
|
| 1 |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 563 |
|
|
| - |
|
|
| 563 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,339 |
|
|
| 1,339 |
|
Balances at March 31, 2022 |
|
| 85,463,146 |
|
|
| 85 |
|
|
| 221,546 |
|
|
| (128,246 | ) |
|
| 93,385 |
|
Sale of common stock to non-affiliate |
|
| 87,121 |
|
|
| - |
|
|
| 50 |
|
|
| - |
|
|
| 50 |
|
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 537 |
|
|
| - |
|
|
| 537 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,210 |
|
|
| 3,210 |
|
Balances at June 30, 2022 |
|
| 85,550,267 |
|
|
| 85 |
|
|
| 222,133 |
|
|
| (125,036 | ) |
|
| 97,182 |
|
Issuance of restricted common stock |
|
| 240,000 |
|
|
| 1 |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 472 |
|
|
| - |
|
|
| 472 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,079 |
|
|
| 1,079 |
|
Balances at September 30, 2022 |
|
| 85,790,267 |
|
| $ | 86 |
|
| $ | 222,604 |
|
| $ | (123,957 | ) |
| $ | 98,733 |
|
|
| Common Stock |
| Additional Paid-in |
| Accumulated |
|
|
|
| Common Stock |
| Additional Paid-in |
| Accumulated |
|
|
| ||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Totals |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Totals |
| ||||||||||
Balances at December 31, 2020 |
| 71,061,328 |
| $ | 71 |
| $ | 201,027 |
| $ | (95,596 | ) |
| $ | 105,502 |
|
| 72,463,340 |
| $ | 72 |
| $ | 203,850 |
| $ | (128,286 | ) |
| $ | 75,636 |
| ||||||||
Issuance of restricted common stock |
| 1,119,000 |
| 1 |
| (1 | ) |
| 0 |
| 0 |
|
| 960,000 |
| 1 |
| (1 | ) |
| - |
| - |
| ||||||||||||||||
Rescinded restricted common stock |
| (55,000 | ) |
| 0 |
| 0 |
| 0 |
| 0 |
|
| (16,667 | ) |
| - |
| - |
| - |
| - |
| ||||||||||||||||
Stock-based compensation |
| - |
| 0 |
| 853 |
| 0 |
| 853 |
| |||||||||||||||||||||||||||||
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 |
| ||||||||||||||||||||
Offering costs incurred for issuance of common stock to non-affiliate |
| - |
| - |
| (66 | ) |
| - |
| (66 | ) | ||||||||||||||||||||||||||||
Share-based compensation |
| - |
| - |
| 591 |
| - |
| 591 |
| |||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (4,257 | ) |
|
| (4,257 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (225 | ) |
|
| (225 | ) |
Balances at March 31, 2020 |
|
| 72,125,328 |
|
|
| 72 |
|
|
| 201,879 |
|
|
| (99,853 | ) |
|
| 102,098 |
| ||||||||||||||||||||
Stock-based compensation |
| - |
| 0 |
| 719 |
| 0 |
| 719 |
| |||||||||||||||||||||||||||||
Balances at June 30, 2021 |
|
| 79,461,603 |
|
|
| 79 |
|
|
| 213,355 |
|
|
| (127,783 | ) |
|
| 85,651 |
| ||||||||||||||||||||
Issuance of restricted common stock |
| 240,000 |
| 1 |
| (1 | ) |
| - |
| - |
| ||||||||||||||||||||||||||||
Issuance of common stock to non-affiliate |
| 50,000 |
| - |
| - |
| - |
| - |
| |||||||||||||||||||||||||||||
Share-based compensation |
| - |
| - |
| 592 |
| - |
| 592 |
| |||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,741 | ) |
|
| (2,741 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (325 | ) |
|
| (325 | ) |
Balances at June 30, 2020 |
|
| 72,125,328 |
|
|
| 72 |
|
|
| 202,598 |
|
|
| (102,594 | ) |
|
| 100,076 |
| ||||||||||||||||||||
Issuance of restricted common stock |
| 240,000 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||
Rescinded restricted common stock |
| (74,000 | ) |
| 0 |
| 0 |
| 0 |
| 0 |
| ||||||||||||||||||||||||||||
Issuance of restricted common stock to non-affiliate |
| 70,000 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||
Issuance of restricted common stock to affiliate |
| 70,000 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||
Cashless exercise of stock options |
| 32,012 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||
Stock-based compensation |
| - |
| 0 |
| 501 |
| 0 |
| 501 |
| |||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,293 | ) |
|
| (2,293 | ) | ||||||||||||||||||||
Balances at September 30, 2020 |
|
| 72,463,340 |
|
| $ | 72 |
|
| $ | 203,099 |
|
| $ | (104,887 | ) |
| $ | 98,284 |
| ||||||||||||||||||||
Balances at September 30, 2021 |
|
| 79,751,603 |
|
| $ | 80 |
|
| $ | 213,946 |
|
| $ | (128,108 | ) |
| $ | 85,918 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
7 |
Table of |
PEDEVCOPEDEVCO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying interim unaudited condensed 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, 2020,2021, filed with the SEC on March 23, 202111, 2022 (the “2020“2021 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’sCompany'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.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has provided a discussion of significant accounting policies, estimates and judgments in its 20202021 Annual Report. There have been no changes to the Company’s significant accounting policies since December 31, 2020.2021.
8 |
Table of |
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 condensed 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 September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Oil sales |
| $ | 3,697 |
| $ | 2,262 |
| $ | 10,635 |
| $ | 5,569 |
|
| $ | 6,978 |
| $ | 3,697 |
| $ | 22,098 |
| $ | 10,635 |
| ||||||
Natural gas sales |
| 319 |
| 91 |
| 604 |
| 221 |
|
| 398 |
| 319 |
| 1,292 |
| 604 |
| ||||||||||||||
Natural gas liquids sales |
|
| 53 |
|
|
| 64 |
|
|
| 101 |
|
|
| 115 |
|
|
| 96 |
|
|
| 53 |
|
|
| 719 |
|
|
| 101 |
|
Total revenue from customers |
| $ | 4,069 |
|
| $ | 2,417 |
|
| $ | 11,340 |
|
| $ | 5,905 |
|
| $ | 7,472 |
|
| $ | 4,069 |
|
| $ | 24,109 |
|
| $ | 11,340 |
|
There were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of September 30, 2021.2022.
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):
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Cash |
| $ | 27,361 |
|
| $ | 25,930 |
|
Restricted cash included in other assets |
|
| 3,497 |
|
|
| 3,297 |
|
Total cash and restricted cash |
| $ | 30,858 |
|
| $ | 29,227 |
|
Total restricted cash increased $200,000 during the current period due to an additional collateralized deposit related to an increase in a plugging and abandonment bond with the State of New Mexico.
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Cash |
| $ | 19,926 |
|
| $ | 8,027 |
|
Restricted cash included in other assets |
|
| 3,297 |
|
|
| 3,297 |
|
Total cash and restricted cash |
| $ | 23,223 |
|
| $ | 11,324 |
|
NOTE 6 – OIL AND GAS PROPERTIES
The following table summarizes the Company’s oil and gas activities by classification for the nine months ended September 30, 20212022 (in thousands):
|
| Balance at December 31, 2020 |
|
| Additions |
|
| Disposals |
|
| Transfers |
|
| Balance at September 30, 2021 |
| |||||
Oil and gas properties, subject to amortization |
| $ | 146,950 |
|
| $ | 2,432 |
|
| $ | (66 | ) |
| $ | 0 |
|
| $ | 149,316 |
|
Oil and gas properties, not subject to amortization |
|
| 4 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4 |
|
Asset retirement costs |
|
| 1,108 |
|
|
| (46 | ) |
|
| (5 | ) |
|
| 0 |
|
|
| 1,057 |
|
Accumulated depreciation, depletion and impairment |
|
| (81,064 | ) |
|
| (4,520 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (85,584 | ) |
Total oil and gas assets |
| $ | 66,998 |
|
| $ | (2,134 | ) |
| $ | (71 | ) |
| $ | 0 |
|
| $ | 64,793 |
|
For the nine-month period ended September 30, 2021, the Company incurred $2,432,000 in capital costs related to capital workovers for our Permian Basin Asset, which included four clean outs, converting two wells from electric submersible pumps (“ESP”) to rod pumps, installation of a new ESP, and purchase in place of ESP systems that were previously rentals. The Company incurred additional capital costs upon implementation of a recompletions and reactivation program for our existing vertical wells in the Permian Basin Asset, and in our DJ-Basin Asset, the Company incurred capital costs related to converting a well from gas lift to rod pump.
|
| Balance at December 31, 2021 |
|
| Additions |
|
| Disposals |
|
| Transfers |
|
| Balance at September 30, 2022 |
| |||||
Oil and gas properties, subject to amortization |
| $ | 151,338 |
|
| $ | 9,030 |
|
| $ | - |
|
| $ | 2,559 |
|
| $ | 162,927 |
|
Oil and gas properties, not subject to amortization |
|
| 2,559 |
|
|
| 592 |
|
|
| - |
|
|
| (2,559 | ) |
|
| 592 |
|
Asset retirement costs |
|
| 789 |
|
|
| 158 |
|
|
| - |
|
|
| - |
|
|
| 947 |
|
Accumulated depreciation, depletion and impairment |
|
| (88,219 | ) |
|
| (5,956 | ) |
|
| - |
|
|
| - |
|
|
| (94,175 | ) |
Total oil and gas properties, net |
| $ | 66,467 |
|
| $ | 3,824 |
|
| $ | - |
|
| $ | - |
|
| $ | 70,291 |
|
9 |
Table of |
On March 18, 2021,For the nine-month period ended September 30, 2022, the Company through its wholly-owned subsidiary Red Hawk,incurred $9,622,000 of capital costs primarily related to drilling operations, completion and facility construction for the two new wells started at the end of 2021 for our Permian Basin Asset and the acquisition and development of assets in the D-J Basin.
In January 2022, the Company consummated the saleacquisition of certain additional assets and associated liabilities located in itsthe D-J Basin Asset to third parties pursuant tofrom a Purchasethird-party effective July 1, 2021, for approximately $500,000 in cash consideration. These assets include approximately 46.6 net leasehold acres and Sale Agreement.interests in 14 horizontal wells currently producing from the acreage. The Company receivedincurred $1.2 million (included in the total number above) in net cash at closing of $1.9 million. The final purchase price was further subject to customary post-closing adjustments, resultingcapital costs for its working interest in an additional $52,000 paid by Red Hawk in July 2021. 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 forthese 14 new well interests during the nine months ended September 30, 2021.2022.
During the nine months ended September 30, 2022, the Company acquired approximately 289 net mineral acres and 612 net lease acres in and around its existing footprint in the D-J Basin through multiple transactions at total acquisition and due diligence costs of $443,000 and $534,000, respectively.
The depletion recorded for production on proved properties for the three and nine months ended September 30, 20212022 and 2020,2021, amounted to $1,576,000$2,084,000, compared to $2,890,000,$1,576,000, and $4,520,000,$5,956,000, compared to $8,076,000,$4,520,000, 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 on 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.
On 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.
Effective May 20, 2021, the Company received notification from Texas Capital Bank, N.A. that the SBA had fully forgiven the Company’s New PPP Loan principal and accrued interest of $370,000 and $4,000, respectively. Therefore, as of September 30, 2021, the Company recognized no debt or accrued interest related to the New PPP Loan on the balance sheet, and a gain on forgiveness of PPP Loan of $374,000 for the nine months ended September 30, 2021 in connection with such forgiveness.
NOTE 8 – ASSET RETIREMENT OBLIGATIONS
Activity related to the Company’s asset retirement obligations is as follows (in thousands):
|
| Nine Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2022 |
| ||
Balance at the beginning of the period (1) |
| $ | 1,907 |
|
| $ | 1,525 |
|
Accretion expense |
| 284 |
|
| 450 |
| ||
Liabilities settled |
| (123 | ) |
| (42 | ) | ||
Changes in estimates, net |
|
| (51 | ) |
|
| 158 |
|
Balance at end of period (2) |
| $ | 2,017 |
|
| $ | 2,091 |
|
(1) | Includes | |
|
| |
(2) | Includes |
NOTE 98 – 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, and in order to apply an appropriate discount rate, the Company used an average discount rate of eight publicly tradedpublicly-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.
10 |
Table of Contents |
Supplemental cash flow information related to the Company’s operating lease is included in the table below (in thousands):
|
| Nine Months Ended |
| |
|
| September 30, 2021 |
| |
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 89 |
|
|
| Nine Months Ended |
| |
September 30, 2022 | ||||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 91 |
|
Supplemental balance sheet information related to operating leases is included in the table below (in thousands):
|
| September 30, 2021 |
|
| September 30, 2022 |
| ||
Operating lease – right-of-use asset |
| $ | 198 |
|
| $ | 98 |
|
|
|
|
|
|
|
| ||
Operating lease liabilities - current |
| $ | 111 |
|
| $ | 110 |
|
Operating lease liabilities - long-term |
|
| 110 |
|
|
| - |
|
Total lease liability |
| $ | 221 |
|
| $ | 110 |
|
The weighted-average remaining lease term for the Company’s operating lease is 1.90.9 years as of September 30, 2021,2022, 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 |
| $ | 29 |
|
2022 |
|
| 121 |
|
2023 |
|
| 82 |
|
Thereafter |
|
| 0 |
|
Total lease payments |
|
| 232 |
|
Less imputed interest |
|
| (11 | ) |
Total lease liability |
| $ | 221 |
|
Remainder of 2022 |
| $ | 30 |
|
2023 |
|
| 82 |
|
Thereafter |
|
| - |
|
Total lease payments |
|
| 112 |
|
Less imputed interest |
|
| (2 | ) |
Total lease liability |
| $ | 110 |
|
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 2021,2022, and no significant612 net acres expire thereafter (net to our direct ownership interest only). In the Permian Basin Asset, 522 net63 acres are due to expire during the remainder of 20212022 and 1,331106 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 sufficient to hold the acreage 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.
11 |
Table of Contents |
Although the Company provides no assurance about the outcome of any future 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 109 – SHAREHOLDERS’ EQUITY
Common Stock
During the nine months ended September 30, 2021,2022, the Company granted an aggregate of 1,250,0001,440,000 restricted stock awards to various employees and board members and a non-affiliated advisor 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 1110 below).
On February 5, 2021,June 10, 2022, the Company closed an underwritten public offering of 5,968,500sold 87,121 shares of common stock at a public offeringsales price of $1.50$1.66 per share which includedvia an ongoing “at the full exercise of the underwriter’s over-allotment option,market offering” (the “ATM Offering”) for net proceeds (after deducting the underwriters’ discount equal to 6%of $141,000, which includes $4,000 in commission fees. The Company also incurred $91,000 in initial legal and audit fees for registration and placement of the public offering price and expenses associated with the offering) of approximately $8.2 million.
WarrantsATM Offering.
DuringThe ATM Offering was made pursuant to the nine months ended September 30,terms of that certain November 17, 2021, warrants to purchase 150,329 sharesSales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth Capital”, or the “Agent”). The Company will pay the sales agent a commission of common stock outstanding, with an exercise3.0% of the gross sales price of $0.32 per share expired unexercised on June 25, 2021. Asany shares sold under the Sales Agreement, less reimbursement of September 30, 2021, the first $40,000 of such gross proceeds. The Company has no warrants outstanding.also provided the Agent with customary indemnification rights and has agreed to reimburse the sales agent for certain specified expenses up to $25,000. The Company currently has $3.5 million remaining available in securities which it may sell in the future under the Sales Agreement.
NOTE 1110 – 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.
Common Stock
On January 19, 2021,25, 2022, an aggregate of 1,200,000 shares of restricted common 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 20122021 Equity Incentive Plan. The grant forof the 940,0001,200,000 shares of restricted common 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 $8.2 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 22, 2022, contingent upon the recipient’s continued service with the Company. These shares have a total fair value of $29,000$1,404,000 based on the market price on the issuance date.
On September 1, 2021,August 25, 2022, restricted stock awards were granted to three board members and an advisor for an aggregate of 240,000 and 50,000 shares respectively, of the Company’s restricted common stock, under the Company’s Amended and Restated 20122021 Equity Incentive Plan. The grant of the 240,000 shares of restricted common stock vest as follows: 100% of 170,000 shares and 100% of 70,000 shares vesting on July 12, 20222023 and September 27, 2022,2023, respectively, contingent upon each recipient’s continued service with the Company. These shares have a total fair value of $276,000, based on the market price on the grant date. The grant of the remaining aggregate of 50,000 shares of restricted common stock vest as follows: 100% on the six-month anniversary of the grant date, subject to recipient’s continued service with the Company. These advisor shares have a total fair value of $58,000,$280,000, based on the market price on the grant date.
Stock-based compensation expense recorded related to the vesting of restricted stock for the nine months ended September 30, 20212022, was $1,486,000.$1,260,000. The remaining unamortized stock-based compensation expense at September 30, 20212022 related to restricted stock was $1,297,000.$1,291,000.
Options
On January 19, 2021,25, 2022, the Company granted options to purchase an aggregate of 550,000520,000 shares of common stock to various Company employees at an exercise price of $1.39$1.17 per share. The options have a term of five years and fully vest inon January 2024,2025, with 33.3% vesting each subsequent year from the date of grant, contingent upon eachthe 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.$454,000. Variables used in the Black-Scholes option-pricing model for the options issued include: (1) a discount rate of 0.45%1.56% based on the applicable US Treasury bill rate, (2) expected term of 3.5 years, (3) expected volatility of 156%120% based on the trading history of the Company, and (4) zero expected dividends.
12 |
|
Table of Contents |
During the nine months ended September 30, 2021,2022, the Company recognized stock option expense of $381,000.$312,000. The remaining amount of unamortized stock options expense at September 30, 2021,2022 was $443,000.$318,000.
The intrinsic value of outstanding and exercisable options at September 30, 20212022 was $156,000.$-0-.
Option activity during the nine months ended September 30, 20212022 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 |
|
| (314,414 | ) |
| $ | 4.11 |
|
|
|
|
|
Outstanding at September 30, 2021 |
|
| 1,278,436 |
|
| $ | 1.70 |
|
|
| 3.0 |
|
Exercisable at September 30, 2021 |
|
| 456,435 |
|
| $ | 2.04 |
|
|
| 1.5 |
|
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contract Term (Years) |
| |||
Outstanding at December 31, 2021 |
|
| 1,123,435 |
|
| $ | 1.80 |
|
|
| 3.0 |
|
Granted |
|
| 520,000 |
|
| $ | 1.17 |
|
|
|
|
|
Expired/Canceled |
|
| (187,435 | ) |
| $ | 2.34 |
|
|
|
|
|
Outstanding at September 30, 2022 |
|
| 1,456,000 |
|
| $ | 1.51 |
|
|
| 2.8 |
|
Exercisable at September 30, 2022 |
|
| 624,000 |
|
| $ | 1.77 |
|
|
| 1.7 |
|
NOTE 1211 – 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 effecteffect.
The calculation of earnings per share for the periods indicated below were as follows (amounts in thousands, except share and per share data).:
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||||||||||
Numerator: |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net income (loss) |
| $ | (325 | ) |
| $ | (2,293 | ) |
| $ | 178 |
| $ | (9,291 | ) |
| $ | 1,079 |
| $ | (325 | ) |
| $ | 5,628 |
| $ | 178 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Weighted average common shares – basic |
| 79,533,016 |
| 72,250,014 |
| 78,628,077 |
| 72,124,339 |
|
| 85,644,180 |
| 79,533,016 |
| 85,419,689 |
| 78,628,077 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Dilutive effect of common stock equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Options and Warrants |
|
| 0 |
|
|
| 0 |
|
|
| 72,063 |
|
|
| 0 |
| ||||||||||||||||
Options |
| - |
| - |
| - |
| 72,063 |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares – diluted |
|
| 79,533,016 |
|
|
| 72,250,014 |
|
|
| 78,700,140 |
|
|
| 72,124,339 |
|
|
| 85,644,180 |
|
|
| 79,533,016 |
|
|
| 85,419,689 |
|
|
| 78,700,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Earnings (loss) per share – basic |
| $ | (0.00 | ) |
| $ | (0.03 | ) |
| $ | 0.00 |
| $ | (0.13 | ) |
| $ | 0.01 |
| $ | (0.00 | ) |
| $ | 0.07 |
| $ | 0.00 |
| |||
Earnings (loss) per share – diluted |
| $ | (0.00 | ) |
| $ | (0.03 | ) |
| $ | 0.00 |
| $ | (0.13 | ) |
| $ | 0.01 |
| $ | (0.00 | ) |
| $ | 0.07 |
| $ | 0.00 |
|
13 |
Table of Contents |
For the three and nine-month periodsnine months ended September 30, 20212022 and 2020,2021, share equivalents related to options and warrants to purchase 1,143,436,1,456,000, compared to 1,234,849,1,143,436, and 1,126,769,1,456,000, compared to 1,234,849,1,126,769, 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 1312 – INCOME TAXES
The Company has estimated that its effective tax rate for U.S. purposes will be zero for the 20212022 and 20202021 fiscal years as a result of prior 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 and nine months ended September 30, 20212022 and 2020,2021, respectively.
NOTE 1413 – SUBSEQUENT EVENTS
On October 6, 2021,August 2, 2022, the Company closed a registered direct offeringreceived correspondence from the State of 4,458,600 sharesNew Mexico Energy, Minerals and Natural Resources Department (“EMNRD”) alleging that the Company’s New Mexico operating subsidiaries, Ridgeway Arizona Oil Corp. (“Ridgeway”) and EOR Operating Company (“EOR”), failed to comply with certain requirements of common stock at a priceAgreed Compliance Orders previously negotiated and entered into by each of $1.57 per share for net proceeds (after deducting the placement agent’s feesRidgeway and other estimated offering expenses associatedEOR with the offering)EMNRD (the “ACOs”), specifically alleging that Ridgeway and EOR failed to provide reports and proof of conducting certain well tests by dates specified in the ACOs. Further, in the correspondence, the EMNRD notified us that the ACOs were now void due to alleged non-compliance, that an aggregate of approximately $6.5 million.333 legacy vertical wells inherited by the Company when it acquired the fields in 2018 were required to be brought back online or plugged immediately, and further demanded that Ridgway and EOR pay civil penalties totaling an aggregate of $850,500 no later than August 31, 2022, with additional penalties accruing thereafter as a result of our alleged non-compliance and interest accruing on unpaid portions thereof at 8.75% per annum. The Company immediately engaged in discussions with the EMNRD regarding the issues raised in the correspondence, and in mid-August 2022 the EMNRD confirmed that it had erred in alleging that Ridgeway was in violation of its ACO pertaining to approximately 284 legacy vertical wells operated by Ridgeway, and that the EMNRD’s demand letter related to the Ridgeway ACO was invalid and withdrawn. Following additional correspondence between the Company and the EMNRD related to EOR’s ACO pertaining to approximately 49 legacy vertical wells operated by EOR, on November 10, 2022, EOR entered into an amended ACO with the EMNRD (the “Amended EOR ACO”), which provides, among other things, that (i) the EMNRD’s demand for payment of penalties was resolved, (ii) EOR would restore to production, or plug and abandon, the 49 wells listed in the Amended EOR ACO by no later than December 31, 2024, (iii) EOR would provide monthly reports to the Director of the Oil Conservation Division (“OCD”) regarding actions taken for each well, (iv) EOR would maintain financial assurance for the wells and place $50,000 cash in an escrow account in New Mexico designating the OCD as beneficiary, which escrowed funds will be forfeit in the event EOR fails to meet any well plugging deadline, (v) EOR may request, and the OCD may grant, an extension of the deadlines under the Amended EOR ACO for good cause shown, and (vi) EOR may not transfer a well to another operator unless approved by the OCD. Accordingly, the Company believes that the issues raised in the August 2, 2022 correspondence from the EMNRD regarding compliance failures by its New Mexico operating subsidiaries, Ridgeway and EOR, have been favorably resolved.
14 |
Table of |
ITEM 2. MANAGEMENT’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“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations“Operations” and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, 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“Glossary of Oil And Natural Gas Terms“Terms” on page 42 of our Annual Report on Form 10-K for the year ended December 31, 2020,2021, as filed with the Securities and Exchange Commission on March 23, 2021.11, 2022.
Our fiscal year ends on December 31st. Interim results are presented on a quarterly basis for the quarters ended March 31,31st, June 30,30th, and September 30,30th, the first quarter, second quarter and third quarter, respectively, with the quarter ending December 31st being referenced herein as our fourth quarter. Fiscal 2022 means the year ended December 31, 2022, whereas fiscal 2021 means the year ended December 31, 2021, whereas fiscal 2020 means the year ended December 31, 2020.2021.
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 and nine months ended September 30, 2021,2022, 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:
|
|
|
| “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; |
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| “SWD” means a saltwater disposal well; and |
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| “Securities Act” refers to the Securities Act of 1933, as amended. |
15 |
Table of |
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)(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.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.
Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. Our MD&A is organized as follows:
| ● | General Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of our MD&A. | |
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| |
| ● | Strategy. Discussion of our strategy moving forward and how we plan to seek to increase stockholder value. | |
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| |
| ● | Results of Operations and Financial Condition. An analysis of our financial results comparing the three and nine | |
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| |
| ● | Critical Accounting Policies. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. |
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 September 30, 2021,2022, we held approximately 33,39231,309 net Permian Basin acres located in Chaves Roosevelt and LeaRoosevelt Counties, New Mexico, through our wholly-owned operating subsidiary, Pacific Energy Development Corp. (“PEDCO”), and approximately 11,58012,188 net D-J Basin acres located in Weld and Morgan Counties, Colorado, through our wholly-owned operating subsidiary, Red Hawk.Hawk Petroleum, LLC (“Red Hawk”). As of September 30, 2021,2022, we held interests in 382 gross (303 net) wells in our Permian Basin Asset of which 35 are active producers, 1416 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 7486 gross (21.0(22.1 net) wells in our D-J Basin Asset, of which 18 gross (16.2 net) wells are operated by Red Hawk and currently producing, 3547 gross (5.2(5.8 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.
16 |
Table of |
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 | |
● | 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 | |
● | Maintain a high degree of operational | |
● | 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 |
We also are committed to developing and monitoring environmental, social and governance (“ESG”) initiatives and the Board of Directors plans to evaluate the potential adoption of ESG initiatives from time to time, provided that no definitive ESG plans have been adopted to date.
17 |
Table of Contents |
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 Permian Basin acreage so that we can dictate the pace of development in order to execute our business plan. Our 2021 development plan includes severalD-J Basin strategy is to participate in projects delayed fromwe deem highly economic on an operated or non-operated basis as our 2019 Phase II Permian Basin Asset development program, which were put on hold through 2020 dueacreage position does not always allow for us 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 wellserve as operator in the Chaveroo field (ChavesD-J Basin. Our net capital expenditures for 2022 are estimated at the time of this Quarterly Report to range between $24 million to $30 million (of which we have incurred approximately $9.6 million in expenses through September 30, 2022). This estimate includes a range of $22 million to $28 million for drilling 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 incompletion costs on our Permian Basin Asset and anticipateD-J Basin Assets (of which we have incurred approximately $7.4 million in expenses through September 30, 2022) and approximately $2.8 million in estimated capital expenditures through the end of the year for electric submersible pumps (“ESP”) purchases, rod pump conversions, recompletions, well cleanouts, leasing, facilities, and other miscellaneous capital expenses (of which we have incurred $2.2 million in expenses through September 30, 2022). The remaining $14.4 million to $20.4 million in capital expenditures estimated to be incurred in 2022 relates to our anticipated proportionate share of drilling and completing at least two of these wellscompletion expenses incurred by third party operators in late 2021 or early 2022 with the remainder plannedrespect to be drilled and completed in 2022. We have also completed several well reactivation projects and completed several enhancement and facilities projects across our operated Permian Basin Asset. We also plan to spend approximately $1.2 million for participation in four non-operated well projects (with a working interest of 6.52%) on our D-J Basin Asset that were drilled and completed in the third quarter of 2021. We expect to pay those costs and begin to receive revenue from those four wells in the fourth quarter of 2021. Additionally,D-J Basin in which we have elected to participate in eight wells2022, but for which we have not yet been invoiced by the operators (and may not be invoiced for in the D-J Basinfull in 2022). These estimates do not include anything for acquisitions or other projects that may arise but are not currently planned to be drilled in the first quarter of 2022, at a net cost of approximately $2.1 million (with a working interest of 4.699%) pursuant to wellanticipated. We periodically review our capital expenditures and adjust our capital forecasts and allocations based on liquidity, drilling results, leasehold acquisition opportunities, proposals received from third party operators, on lands in which we share a leasehold interest; provided that no money has been spent to date on these eight well proposals. We have advancedand commodity prices, while prioritizing our business development activities in the D-J Basin over the past year, which we believe will add opportunities for growthfinancial strength and development. liquidity.
We plan to continue to evaluate D-J Basin well proposals as received from third party operators and participate in those we deem most economic and prospective. If new proposals are received that meet our economic thresholds and require material capital expenditures, we have flexibility to move capital from our Permian Asset to our D-J Basin Asset, or vice versa, as our Permian Asset is 100% operated and nearly all held by production (“HBP”), allowing for flexibility of timing on development. Our 2022 development program incorporates an increase in both basins relating to service cost and materials inflation resulting in an estimated cost increase of approximately 25 to 30 percent per well on our Permian Asset and 10 to 20 percent on our D-J Asset, based on costs we have experienced commencing in the third quarter of 2021 and continuing through the second quarter of 2022. Our 2022 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 the remainder of our 20212022 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 Energyhe is under no obligation to provide, (iv) public or private debt or equity financings, including up to $3.5 million in securities which we may sell in the future under our “at the market” Sales Agreement, 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 duringover the remaindernext twelve months.
How We Conduct Our Business and Evaluate Our Operations
Our use of 2021.capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve. We have historically acquired properties that we believe had significant appreciation potential. We intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives.
We will use a variety of financial and operational metrics to assess the performance of our oil and natural gas operations, including:
· | production volumes; | |
· | realized prices on the sale of oil and natural gas, including the effects of our commodity derivative contracts; | |
· | oil and natural gas production and operating expenses; | |
· | capital expenditures; | |
· | general and administrative expenses; | |
· | net cash provided by operating activities; and | |
· | net income. |
18 |
Table of Contents |
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 and nine-month periods ended September 30, 20212022 and 2020,2021, 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 September 30, 20212022 vs. Three Months Ended September 30, 20202021
We reported net income for the three-month period ended September 30, 2022 of $1.1 million, or $0.01 per share, compared to a net loss for the three-month period ended September 30, 2021 of $0.3 million or ($0.00) per share, compared to a net loss for the three-month period ended September 30, 2020 of $2.3 million or ($0.03) per share. The decreaseincrease in net lossincome of $2.0$1.4 million, was primarily due to a $1.7 million increase in revenue coupled with a $0.9 million decrease in total operating expenses offset with a $0.6 million decrease in other income, when comparing the current period to the prior yearyear’s period, (all of whichwas primarily due to a $3.4 million increase in net revenues offset by a $2.0 million increase in total operating expenses. (which are discussed in more detail below).
Net Revenues
The following table sets forth the operating results and production data for the periods indicated:
|
| Three Months Ended September 30, |
| Increase |
| % Increase |
|
| Three Months Ended September 30, |
| Increase |
| % Increase |
| ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Sale Volumes: |
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil (Bbls) |
| 55,106 |
| 60,786 |
| (5,680 | ) |
| (9 | )% |
| 76,644 |
| 55,106 |
| 21,538 |
| 39% | ||||||||||||||
Natural Gas (Mcf) |
| 60,949 |
| 44,051 |
| 16,898 |
| 38 | % |
| 51,564 |
| 60,949 |
| (9,385 | ) |
| (15%) | ||||||||||||||
NGL (Bbls) |
|
| 1,592 |
|
|
| 5,072 |
|
|
| (3,480 | ) |
| (69 | )% |
|
| 3,140 |
|
|
| 1,592 |
|
|
| 1,548 |
|
| 97% | |||
Total (Boe) (1) |
| 66,856 |
| 73,200 |
| (6,344 | ) |
| (9 | )% |
| 88,378 |
| 66,856 |
| 21,522 |
| 32% | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil (Bbls per day) |
| 599 |
| 661 |
| (62 | ) |
| (9 | )% |
| 833 |
| 599 |
| 234 |
| 39% | ||||||||||||||
Natural Gas (Mcf per day) |
| 662 |
| 479 |
| 183 |
| 38 | % |
| 560 |
| 662 |
| (102 | ) |
| (15%) | ||||||||||||||
NGL (Bbls per day) |
|
| 17 |
|
|
| 55 |
|
|
| (38 | ) |
| (69 | )% |
|
| 34 |
|
|
| 17 |
|
|
| 17 |
|
| 100% | |||
Total (Boe per day) (1) |
| 726 |
| 796 |
| (70 | ) |
| (9 | )% |
| 960 |
| 726 |
| 234 |
| 32% | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Average Sale Price: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil ($/Bbl) |
| $ | 67.08 |
| $ | 37.21 |
| $ | 29.87 |
| 80 | % |
| $ | 91.04 |
| $ | 67.08 |
| $ | 23.96 |
| 36% | |||||||||
Natural Gas ($/Mcf) |
| 5.24 |
| 2.06 |
| 3.18 |
| 154 | % |
| 7.72 |
| 5.24 |
| 2.48 |
| 47% | |||||||||||||||
NGL ($/Bbl) |
| 33.17 |
| 12.66 |
| 20.51 |
| 162 | % |
| 30.57 |
| 33.17 |
| (2.60 | ) |
| (8%) | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net Operating Revenues (in thousands): |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil |
| $ | 3,697 |
| $ | 2,262 |
| $ | 1,435 |
| 63 | % |
| $ | 6,978 |
| $ | 3,697 |
| $ | 3,281 |
| 89% | |||||||||
Natural Gas |
| 319 |
| 91 |
| 228 |
| 251 | % |
| 398 |
| 319 |
| 79 |
| 25% | |||||||||||||||
NGL |
|
| 53 |
|
|
| 64 |
|
|
| (11 | ) |
| (17 | )% |
|
| 96 |
|
|
| 53 |
|
|
| 43 |
|
| 81% | |||
Total Revenues |
| $ | 4,069 |
|
| $ | 2,417 |
|
| $ | 1,652 |
|
| 68 | % |
| $ | 7,472 |
|
| $ | 4,069 |
|
| $ | 3,403 |
|
| 84% |
(1) | Assumes 6 Mcf of natural gas equivalents to 1 barrel of oil. |
19 |
Table of Contents |
Total crude oil, natural gas and NGL revenues for the three-month period ended September 30, 20212022, increased $1.7$3.4 million, or 68%84%, to $4.1$7.5 million, compared to $2.4$4.1 million for the same period a year ago, due primarily to a favorable price variance of $2.1$1.5 million, offsetdue to the average sales prices for crude oil, natural gas and NGLs realized by an unfavorablethe Company increasing compared to the three-month period ended September 30, 2021, coupled with a favorable volume variance of $0.4$1.9 million. The increase in production decreasevolume is primarily related to several ofthe positive performance from our newerparticipation in non-operated wells having higher peak production early in the prior year, coupled with normalD-J Basin Asset, as well as production declines, offset by an increasecontributions from two new wells in natural gas productionour operated Permian Basin Asset that were completed in the current period, as the Company began selling gas from additional well locations in our Permian Basin Asset.first quarter of 2022.
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 |
|
|
|
| Three Months Ended |
|
|
|
|
| ||||||||||||||||||||
|
| September 30, |
| Increase |
| % Increase |
|
| September 30, |
| Increase |
| % Increase |
| ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Direct Lease Operating Expenses |
| $ | 879 |
| $ | 763 |
| $ | 116 |
| 15 | % |
| $ | 1,250 |
| $ | 879 |
| $ | 371 |
| 42% | |||||||||
Workovers |
| 151 |
| 2 |
| 149 |
| 7,450 | % |
| 886 |
| 151 |
| 735 |
| 487% | |||||||||||||||
Other* |
|
| 393 |
|
|
| 289 |
|
|
| 104 |
|
| 36 | % | |||||||||||||||||
Other+ |
|
| 782 |
|
|
| 393 |
|
|
| 389 |
|
| 99% | ||||||||||||||||||
Total Lease Operating Expenses |
| $ | 1,423 |
|
| $ | 1,054 |
|
| $ | 369 |
|
| 35 | % |
| $ | 2,918 |
|
| $ | 1,423 |
|
| $ | 1,495 |
|
| 105% | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Exploration Expenses |
| $ | - |
| $ | 1 |
| $ | (1 | ) |
| (100 | )% | |||||||||||||||||||
Depreciation, Depletion, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Amortization and Accretion |
| $ | 1,666 |
| $ | 2,974 |
| $ | (1,308 | ) |
| (44 | )% |
| $ | 2,313 |
| $ | 1,666 |
| $ | 647 |
| 39% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
General and Administrative (Cash) |
| $ | 745 |
| $ | 780 |
| $ | (35 | ) |
| (4 | )% |
| $ | 748 |
| $ | 745 |
| $ | 3 |
| *% | ||||||||
Share-Based Compensation (Non-Cash) |
|
| 592 |
|
|
| 501 |
|
|
| 91 |
|
| 18 | % |
|
| 472 |
|
|
| 592 |
|
|
| (120 | ) |
| (20%) | |||
Total General and Administrative Expense |
| $ | 1,337 |
|
| $ | 1,281 |
|
| $ | 56 |
|
| 4 | % |
| $ | 1,220 |
|
| $ | 1,337 |
|
| $ | (117 | ) |
| (9%) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest Expense |
| $ | - |
| $ | 1 |
| $ | (1 | ) |
| (100 | )% | |||||||||||||||||||
Interest Income |
| $ | 4 |
| $ | 4 |
| $ | - |
| - |
|
| $ | 33 |
| $ | 4 |
| $ | 29 |
| 725% | |||||||||
Other Income |
| $ | 28 |
| $ | 597 |
| $ | (569 | ) |
| (95 | )% |
| $ | 25 |
| $ | 28 |
| $ | (3 | ) |
| (11%) |
*+ Includes severance, ad valorem taxes and marketing costs.
* Less than 1%.
Lease Operating Expenses. The increase of $1.5 million was primarily related to non-recurring workovers for artificial lift repairs and optimizations that were executed to maximize production volumes, as well as approximately $0.6 million of one-time non-recurring operating expenses for improving the Permian Basin Asset’s water handling infrastructure and approximately $0.2 million of non-recurring costs for environmental cleanup and reclamations of historic well and facility sites that were inherited from previous operators in our Permian Basin Asset. Increased commodity pricing period over period caused increased production taxes coupled with increased marketing fees from higher production volumes. Service and materials costs have also increased accordingly with general supply chain and inflation issues seen throughout the industry leading to increased operating costs.
Table of |
Lease Operating Expenses. The increase of $0.4 million in lease operating expenses was primarily due to the Company increasing its active well count for previously shut-in wells due to the commodity price increases during the current period, compared to the prior period’s well count, which resulted in increased lease operating and workover expenses.
Exploration Expense. There was minimal to no expenses in exploration activity undertaken by the Company in the current year’s period and the prior year’s period.
Depreciation, Depletion, Amortization and Accretion. The $1.3$0.6 million decrease in depreciation, depletion, amortization and accretionincrease was primarily the result of a decreasean increase in our depletable base due toproduction (noted above) in the impairment of our oil and gas properties at the prior year end (discussed below),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). There was a nominal decreaseincrease in general and administrative expenses (excluding share-based compensation) primarily due to savings in payroll expenses from the Company outsourcing payroll functions to a new payroll provider in November 2020, as well as other cost decreases, offset by increases in payroll expenses from the return of all the salaries of the Company’s salaried employees and officers to original levels on April 1, 2021, from a previously implemented 20% salary reduction on April 1, 2020. The salary reduction 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 at the end of March 2020. The salaries of the Company’s employees and officers returned to prior levels beginning April 1, 2021, as the Company determined that the oil markets have recoveredcontinues to acceptable levels.strive to contain costs and remain within budget from period to period.
Share-Based Compensation. Share-based compensation, which is included in general and administrative expenses in the Statements of Operations, increaseddecreased by $0.1 million, primarily due to an increase in the awardingforfeiture of certain employee stock-based options and nonvested restricted stock as compensation.shares due to certain voluntary employee terminations. Share-based compensation is utilized for the purpose of conserving cash resources for use in field development activities and operations.
Interest Expense. There was minimal to no interest expense in the current year’s period and the prior year’s period. The interest expense in the prior period was due to prior period 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), which was forgiven during the current period as discussed below.
Interest Income and Other Income.Income (Expense). Interest income and other income includesIncludes interest earned from our interest-bearing cash accounts, and the settlement of $0.3 million in accounts payables and workingfor which interest credits of $0.3 millionrates have increased in the current period, compared to the prior period. Other income in the current period is primarily related to a $24,000 non-refundable two-year rent payment made in September 2022 to the Company for office space leased by SK Energy, which is 100% owned and controlled by Simon Kukes, our Chief Executive Officer and director, coupled with a $9,000 sale of old equipment.
Nine Months Ended September 30, 20212022 vs. Nine Months Ended September 30, 20202021
We reported net income for the nine-month period ended September 30, 20212022 of $178,000,$5.6 million, or $0.00$0.07 per share, compared to a net lossincome for the nine-month period ended September 30, 20202021 of $9.3$0.2 million or ($0.13)$0.00 per share. The increase in net income of $9.5$5.4 million was primarily due to a $5.4$12.8 million increase in revenue, offset by an increase of $5.2 million in total operating expenses in the current period, offset further by a $0.4 million gain from forgiveness of our $0.4 million Paycheck Protection Program loan (the “New PPP Loan”) in May 2021, coupled with a $1.8 million gain on sale of oil and gas properties a $3.1 million decreaseeach in total operating expenses and a $0.4 million gain from forgiveness of our New PPP Loan, offset by a $1.2 million decrease in other income, when comparing the current period to the prior year period (all of which are discussed in more detail below).
Net Revenues
The following table sets forth the operating results and production data for the periods indicated:
|
| Nine Months Ended September 30, |
| Increase |
| % Increase |
|
| Nine Months Ended September 30, |
|
|
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase |
|
| % Increase |
| ||||||||
Sale Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil (Bbls) |
| 172,357 |
| 179,167 |
| (6,810 | ) |
| (4 | )% |
| 233,851 |
| 172,357 |
| 61,494 |
| 36% | ||||||||||||||
Natural Gas (Mcf) |
| 149,614 |
| 149,417 |
| 197 |
| * |
|
| 194,280 |
| 149,614 |
| 44,666 |
| 30% | |||||||||||||||
NGL (Bbls) |
|
| 3,328 |
|
|
| 12,176 |
|
|
| (8,848 | ) |
| (73 | )% |
|
| 17,455 |
|
|
| 3,328 |
|
|
| 14,127 |
|
|
| 424% | ||
Total (Boe) (1) |
| 200,621 |
| 216,246 |
| (15,625 | ) |
| (7 | )% |
| 283,686 |
| 200,621 |
| 83,065 |
| 41% | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil (Bbls per day) |
| 631 |
| 654 |
| (23 | ) |
| (4 | )% |
| 857 |
| 631 |
| 226 |
| 36% | ||||||||||||||
Natural Gas (Mcf per day) |
| 548 |
| 545 |
| 3 |
| 1 | % |
| 712 |
| 548 |
| 164 |
| 30% | |||||||||||||||
NGL (Bbls per day) |
|
| 12 |
|
|
| 44 |
|
|
| (32 | ) |
| (73 | )% |
|
| 64 |
|
|
| 12 |
|
|
| 52 |
|
|
| 433% | ||
Total (Boe per day) (1) |
| 734 |
| 789 |
| (55 | ) |
| (7 | )% |
| 1,040 |
| 734 |
| 306 |
| 42% | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Average Sale Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil ($/Bbl) |
| $ | 61.70 |
| $ | 31.08 |
| $ | 30.62 |
| 99 | % |
| $ | 94.49 |
| $ | 61.70 |
| $ | 32.79 |
| 53% | |||||||||
Natural Gas ($/Mcf) |
| 4.04 |
| 1.48 |
| 2.56 |
| 173 | % |
| 6.65 |
| 4.04 |
| 2.61 |
| 65% | |||||||||||||||
NGL ($/Bbl) |
| 30.32 |
| 9.41 |
| 20.91 |
| 222 | % |
| 41.19 |
| 30.32 |
| 10.87 |
| 36% | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net Operating Revenues (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Crude Oil |
| $ | 10,635 |
| $ | 5,569 |
| $ | 5,066 |
| 91 | % |
| $ | 22,098 |
| $ | 10,635 |
| $ | 11,463 |
| 108% | |||||||||
Natural Gas |
| 604 |
| 221 |
| 383 |
| 173 | % |
| 1,292 |
| 604 |
| 688 |
| 114% | |||||||||||||||
NGL |
|
| 101 |
|
|
| 115 |
|
|
| (14 | ) |
| (12 | )% |
|
| 719 |
|
|
| 101 |
|
|
| 618 |
|
|
| 612% | ||
Total Revenues |
| $ | 11,340 |
|
| $ | 5,905 |
|
| $ | 5,435 |
|
| 92 | % |
| $ | 24,109 |
|
| $ | 11,340 |
|
| $ | 12,769 |
|
|
| 113% |
(1) | Assumes 6 Mcf of natural gas equivalents to 1 barrel of oil. |
* Less than 1%.
21 |
Table of Contents |
Total crude oil, natural gas and NGL revenues for the nine-month period ended September 30, 20212022 increased $5.4$12.8 million, or 92%113%, to $11.3$24.1 million, compared to $5.9$11.3 million for the same period a year ago, due primarily to a favorable price variance of $6.1 million, offset by an unfavorablecoupled with a favorable volume variance of $0.7$6.7 million. Production decreases areThe increase in production volume is primarily related to several of our newerdriven by two main factors including, production from two new wells having higher peak production early in the prior year, coupled withoperated Permian Basin asset, and the positive performance from our oil and gas property sale and well shut-ins related to the winter storms that occurred earlierparticipation in non-operated wells in the current 2021 period.D-J Basin Asset.
Operating Expenses and Other Income (Expense)
The following table summarizes our production costs and operating expenses for the periods indicated (in thousands):
|
| Nine Months Ended |
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||||||||||
|
| September 30, |
| Increase |
| % Increase |
|
| September 30, |
| Increase |
| % Increase |
| ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Direct Lease Operating Expenses |
| $ | 2,700 |
| $ | 2,483 |
| $ | 217 |
| 9 | % |
| $ | 3,446 |
| $ | 2,700 |
| $ | 746 |
| 28% | |||||||||
Workovers |
| 481 |
| 139 |
| 342 |
| 246 | % |
| 2,299 |
| 481 |
| 1,818 |
| 378% | |||||||||||||||
Gain on ARO Settlement |
| (6 | ) |
| - |
| (6 | ) |
| 100% | ||||||||||||||||||||||
Other* |
|
| 983 |
|
|
| 704 |
|
|
| 279 |
|
| 40 | % |
|
| 2,337 |
|
|
| 983 |
|
|
| 1,354 |
|
|
| 138% | ||
Total Lease Operating Expenses |
| $ | 4,164 |
|
| $ | 3,326 |
|
| $ | 838 |
|
| 25 | % |
| $ | 8,076 |
|
| $ | 4,164 |
|
| $ | 3,912 |
|
|
| 94% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Exploration Expenses |
| $ | - |
| $ | 31 |
| $ | (31 | ) |
| (100 | )% | |||||||||||||||||||
Depreciation, Depletion, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Amortization and Accretion |
| $ | 4,829 |
| $ | 8,323 |
| $ | (3,494 | ) |
| (42 | )% |
| $ | 6,427 |
| $ | 4,829 |
| $ | 1,598 |
| 33% | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
General and Administrative (Cash) |
| $ | 2,567 |
| $ | 2,753 |
| $ | (186 | ) |
| (7 | )% |
| $ | 2,536 |
| $ | 2,567 |
| $ | (31 | ) |
| (1%) |
| ||||||
Share-Based Compensation (Non-Cash) |
|
| 1,867 |
|
|
| 2,073 |
|
|
| (206 | ) |
| (10 | )% |
|
| 1,572 |
|
|
| 1,867 |
|
|
| (295 | ) |
| (16%) |
| ||
Total General and Administrative Expense |
| $ | 4,434 |
|
| $ | 4,826 |
|
| $ | (392 | ) |
| (8 | )% |
| $ | 4,108 |
|
| $ | 4,434 |
|
| $ | (326 | ) |
| (7%) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Gain on Sale of Oil and Gas Properties |
| $ | 1,805 |
| $ | - |
| $ | 1,805 |
| 100 | % |
| $ | - |
| $ | 1,805 |
| $ | (1,805 | ) |
| (100%) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest Expense |
| $ | 1 |
| $ | 1 |
| $ | - |
| - |
|
| $ | - |
| $ | (1 | ) |
| $ | 1 |
| (100%) |
| |||||||
Interest Income |
| $ | 11 |
| $ | 36 |
| $ | (25 | ) |
| (69 | )% |
| $ | 40 |
| $ | 11 |
| $ | 29 |
| 264% | ||||||||
Other Income |
| $ | 76 |
| $ | 1,275 |
| $ | (1,199 | ) |
| (94 | )% |
| $ | 90 |
| $ | 76 |
| $ | 14 |
| 18% | ||||||||
Gain on forgiveness of PPP loan |
| $ | 374 |
| $ | - |
| $ | 374 |
| 100 | % | ||||||||||||||||||||
Gain on Forgiveness of New PPP Loan |
| $ | - |
| $ | 374 |
| $ | (374 | ) |
| (100%) |
*Includes severance, ad valorem taxes and marketing costs.
Lease Operating Expenses. The increase of $0.8$3.9 million in lease operating expenses was primarily due to the shut-in of all of our operated wells for 42 days inincreased overall activity compared to the prior period relatedas well as increased taxes and marketing fees from higher production volumes. Also, additional workovers for artificial lift repairs and optimizations have been executed during the current period in an effort to maximize production volumes during the severe reduction incurrent increased commodity pricing fromenvironment. Workover expense included approximately $0.6 million of one-time non-recurring operating expenses for improving the decreased demand related to the startPermian Basin Asset’s water handling infrastructure and approximately $0.2 million of the global spreadnon-recurring costs for environmental cleanup and reclamations of the COVID-19 outbreak, notwithstanding the Company continuing to maintain certain cost cutting initiativeshistoric well and facility sites that were implemented during the prior year,inherited from previous operators in our Permian Basin Asset. Increased commodity pricing period over period caused increased production taxes coupled with overall lowerincreased marketing fees from higher production volumes. Service and materials costs have also increased accordingly with general supply chain and inflation issues seen throughout the industry leading to increased operating expense rates.costs. The two new wells with high production volume brought online in the Permian Basin asset also carry higher lease operating expenses to support the fluid production volumes.
22 |
|
Table of Contents |
Depreciation, Depletion, Amortization and Accretion. The $3.5$1.6 million decrease in depreciation, depletion, amortization and accretionincrease was primarily the result of a decreasean increase 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(noted above) 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). TheThere was a nominal 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 salaries of the Company’s employees and officers returned to prior levels beginning April 1, 2021, as the Company determined that the oil markets have recoveredcontinues to acceptable levels.strive to contain costs and remain within budget from period to period.
Share-Based Compensation. Share-based compensation, which is included in general and administrative expenses in the Statements of Operations, decreased by $0.2$0.3 million primarily due to the forfeiture of certain employee stock-based options and nonvested restricted shares due to certain voluntary 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 nine months ended September 30, 2021. We had no sales of oil and gas properties during the nine months ended September 30, 2020.prior period.
Interest Expense. There was minimalThe $0.01 million of interest expense in the current year’sprior period and the prior year’s period. Thewas 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), which was forgiven duringin the period as discussed below.prior period.
Interest Income and Other Income. Includes interest earned from our interest-bearing cash accounts, for which interest rates have decreased significantly when comparingincreased in the current period, compared to the prior period, and the settlement of $0.9 million in accounts payables and working interest credits of $0.3 millionperiod. Other income in the prior period.current period is primarily related to an $80,000 vendor dispute settlement coupled with a $24,000 non-refundable two-year rent payment made in September 2022, to the Company for office space leased by SK Energy, which is 100% owned and controlled by Simon Kukes, our Chief Executive Officer and director, offset by a $15,000 royalty adjustment.
Gain on forgivenessForgiveness of New PPP loan.Loan. Includes principal and accrued interest from our New PPP Loan that was fully forgiven during the current period (see Note 7 to the notes to the unaudited financial statements of the Company included above).prior period.
Liquidity and Capital Resources
The primary sources of cash for the Company during the nine-month period ended September 30, 20212022 were from an underwritten public offering pursuant to which we sold 5,968,500 shares of common stock at a public offering price of $1.50 per share, and generated net proceeds of approximately $8.2$24.1 million $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 welldrilling, completion, acquisition 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“Public Health Emergency of International Concern”Concern” on January 30, 2020, and a global pandemic on March 11, 2020. COVID-19 and the governmental responses thereto significantly reduced worldwide economic activity during much of 2020, and continues to threaten the global economy, as variants and mutations of the disease continue to spread, even as vaccines have become more widely available.2020. While oil and gas prices have increased above pre-pandemic levels, it is not possible at this time for the Company to estimate the full impact that COVID-19 will have on the Company’s business in the future as such estimate would need to be based on whether or not COVID-19 continues to spread and the continued effectiveness of the containment of the virus, by the governments of countries affected and in which the Company operates.virus. However, the Company’s operations have previously been disrupted, and may be disrupted again in the future due to COVID-19. The COVID-19 outbreak and mitigation measures have also had an adverse impact on global economic conditions, including as a result of ongoing supply constraints, increased inflation and increased interest rates, 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. The Company implemented 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 discouraged employee attendance at in-person work-related meetings, which could negatively affect the Company’s business, which measures have recently eased in accordance with federal, state and local guidance, and the vaccination of substantially all of the Company’s office-based employees. 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 continued availability and efficacy of vaccines and booster shots, the willingness of individuals to be vaccinated initially, and to obtain booster shots, the effect of virus mutations, and the actions to contain its impact. Any future decrease in the price of oil, or the demand for oil and gas, as a result of COVID-19 or otherwise, will likely have a negative impact on our results of operations and cash flows.
23 |
Table of |
Ukraine Conflict
In late February 2022, Russia launched a significant military action against Ukraine. The conflict has caused, and could intensify, volatility in natural gas, oil and NGL prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time. We believe that the increase in crude oil prices during the first three quarters of 2022 has partially been due to the impact of the conflict between Russia and Ukraine on the global commodity and financial markets, and in response to the effects of COVID-19, the Company has adopted policies, procedures,economic 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 twice-monthly management calls discussing the COVID-19 pandemic and 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, and subject to the CDC’s updated guidance.trade sanctions that certain countries have imposed on Russia.
We plan to continue to closely monitor the global energy markets and oil and gas pricing, with the remainder of our 20212022 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 September 30, 2021,2022, the Company’s total current assets of $21.8$30.4 million exceeded its total current liabilities of $2.5$3.7 million, resulting in a working capital surplus of $19.3$26.7 million, while at December 31, 2020,2021, the Company’s total current assets of $8.8$28.0 million exceeded its total current liabilities of $2.0$5.2 million, resulting in a working capital surplus of $6.8$22.8 million. The $12.5$3.9 million increase in our working capital surplus is primarily related to cash received from the sale of common stockincreases in our February 2021 underwritten offering (discussed below), the sale of certain oil and gas properties and the forgiveness in full of our New PPP Loan principal and accrued interest, during the nine months ended September 30, 2021.sales (described above).
Financing
The Company has an ongoing $3.6 million offering of securities in an “at the market offering”, pursuant to which the Company may sell securities from time to time (the “ATM Offering”). On February 5,June 10, 2022, the Company sold 87,121 shares of common stock at a sales price of $1.66 per share in the ATM Offering for net proceeds of $141,000, which includes $4,000 in commission fees. The Company also incurred $91,000 in initial legal and audit fees for registration and placement of the ATM Offering.
The ATM Offering was made pursuant to the terms of that certain November 17, 2021, Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth Capital”, or the “Agent”). The Company will pay the sales agent a commission of 3.0% of the gross sales price of any shares sold under the Sales Agreement, less reimbursement of the first $40,000 of such gross proceeds. The Company has also provided the Agent with customary indemnification rights and has agreed to reimburse the sales agent for certain specified expenses up to $25,000. The Company currently has $3.5 million remaining available in securities which we may sell in the future via the Sales Agreement.
We expect that we will have sufficient cash available to meet our needs over the foreseeable future, including to fund the remainder of our 2022 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 Simon Kukes, our Chief Executive Officer and director, which funding he is under no obligation to provide, (iv) public or private debt or equity financings, including up to $3.5 million in securities which we may sell in the future under the ATM Offering Sales Agreement, 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 over the next twelve months.
24 |
Table of Contents |
Cash Flows (in thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows provided by operating activities |
| $ | 12,994 |
|
| $ | 3,971 |
|
Cash flows used in investing activities |
|
| (11,413 | ) |
|
| (309 | ) |
Cash flows provided by financing activities |
|
| 50 |
|
|
| 8,237 |
|
Net increase in cash and restricted cash |
| $ | 1,631 |
|
| $ | 11,899 |
|
Cash flows provided by operating activities. Net cash provided by operating activities increased by $9.0 million for the current year’s period, when compared to the prior year’s period, primarily due to an increase in net income of $5.5 million, coupled with a $1.6 million increase in depreciation, depletion and amortization (due to increased sales production), offset by a $0.1 million net decrease to our other components of working capital (predominantly from accounts payable) in the current period. During the nine months ended September 30, 2021, we also had a $1.8 million gain on the sale of oil and gas properties and a $0.4 million gain from forgiveness of our New PPP Loan.
Cash flows used in investing activities. Net cash used in investing activities increased by $11.1 million for the current year’s period, when compared to the prior year’s period, primarily due to increased capital spending relating to our drilling and completion activities.
Cash flows provided by financing activities. In the prior period, 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) which generated $8.2 million of approximately $8.2 million.proceeds, net of offering costs. The current period sale of our common stock via our ATM Offering is discussed directly above.
Subsequently, on October 6, 2021, after the date of the September 30, 2021 balance sheet discussed above, the Company closed a registered direct offering of 4,458,600 shares of common stock at a price of $1.57 per share for net proceeds (after deducting the placement agent’s fees and other estimated offering expenses associated with the offering) of approximately $6.5 million.Non-GAAP Financial Measures
We expect that we will have sufficient cash availableincluded EBITDA and Adjusted EBITDA in this Report as supplements 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, which is 100% owned and controlled by Simon Kukes, our Chief Executive Officer and director, which funding SK Energy is under no obligationGAAP measures of performance to provide (iv) public or private debt or equity financings,investors with an additional financial analytical framework which management uses, in addition to historical operating results, as the basis for financial, operational and (v) funding through credit or loan facilities. In addition, we may seek additional funding through asset sales, farm-out arrangements,planning decisions and credit facilities to fund potential acquisitions during the remainder of 2021 and into 2022. If market conditionspresent measurements that third parties have indicated are not conducive to developing our assets consistent with our remaining 2021 development program,useful in assessing the Company may choose to delay or extend the drilling program and associated capital expenditures into the future. Furthermore, as a resultits results of the COVID-19 outbreak,operations. “EBITDA” represents net income before interest, taxes, depreciation and the sharp decline in oil prices which occurred partially as a resultamortization. “Adjusted EBITDA” represents EBITDA, less share-based compensation, gain on sale 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, withproperties, gain on forgiveness of PPP loan, and accounts payable settlements. Adjusted EBITDA excludes certain items that we believe affect the Company now back on full production from its operated wellscomparability of operating results and can exclude items that are generally non-recurring in the Permian Basinnature or whose timing and/or amount cannot be reasonably estimated. EBITDA and the D-J Basin that the Company had shut-in in mid-April 2020Adjusted EBITDA are presented because we believe they provide additional useful information to investors 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 operationsvarious noncash items during the periodperiod. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are: EBITDA and Adjusted EBITDA do not reflect cash expenditures, future requirements for capital expenditures, or contractual commitments; EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, working capital needs; and EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt or cash income tax payments. For example, although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such wells are shut-in, havereplacements. Additionally, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than PEDEVCO Corp. does, limiting its usefulness as a material adverse effect oncomparative measure. You should not consider EBITDA and Adjusted EBITDA in isolation, or as substitutes for analysis of the Company’s projected cash flow fromresults as reported under GAAP. The Company’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. We compensate for these limitations by providing a reconciliation of each of these non-GAAP measures to the most comparable GAAP measure. We encourage investors and others to review our business, results of operations, and once our cashfinancial information in their entirety, not to rely on hand is depleted, eventually require additional infusionsany single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measure. The following table presents a reconciliation of capital through debt and/or equity financings, asset sales, farm-out arrangements, linesthe GAAP financial measure of credit, or other means, which may not be available on favorable terms, if at all.net income to the non-GAAP financial measure of Adjusted EBITDA (in thousands):
Table of |
Cash Flows (in thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows provided by (used in) operating activities |
| $ | 3,971 |
|
| $ | (24 | ) |
Cash flows used in investing activities |
|
| (309 | ) |
|
| (14,379 | ) |
Cash flows provided by financing activities |
|
| 8,237 |
|
|
| 370 |
|
Net increase (decrease) in cash and restricted cash |
| $ | 11,899 |
|
| $ | (14,033 | ) |
Cash flows provided by (used in) operating activities. Net cash operating activities increased by $4.0 million for the current year’s period, when compared to the prior year’s period, primarily due to an increase in net income of $9.5 million, which includes a decrease of $3.5 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 in the current period, when compared to the prior period.
Cash flows used in investing activities. Net cash used in investing activities decreased by $14.1 million for the current year’s period, when compared to the prior year’s period, primarily due to $12.2 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 generated net cash from financing activities by selling common stock, net of offering costs, of $8.2 million, compared to net cash from financing activities of $0.4 million in the prior period, due to proceeds from obtaining the New PPP Loan financing.
Off-Balance Sheet Arrangements
The Company does not participate in financial transactions that generate relationships with unconsolidated entities or financial partnerships. As of September 30, 2021, we did not have any off-balance sheet arrangements.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income (loss) |
| $ | 1,079 |
|
| $ | (325 | ) |
| $ | 5,628 |
|
| $ | 178 |
|
Add (deduct) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, amortization and accretion |
|
| 2,313 |
|
|
| 1,666 |
|
|
| 6,427 |
|
|
| 4,829 |
|
Interest expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
EBITDA |
|
| 3,392 |
|
|
| 1,341 |
|
|
| 12,055 |
|
|
| 5,008 |
|
Add (deduct) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
| 472 |
|
|
| 592 |
|
|
| 1,572 |
|
|
| 1,867 |
|
Gain on sale of oil and gas properties |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,805 | ) |
Gain on forgiveness of PPP loan |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (374 | ) |
Accounts payable settlements |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (32 | ) |
Adjusted EBITDA |
| $ | 3,864 |
|
| $ | 1,933 |
|
| $ | 13,627 |
|
| $ | 4,664 |
|
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations areis based uponon our Condensed Consolidated Financial Statements,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 Part II, Item 7, “Critical Accounting Policies” inWe base our Annual Reportestimates on Form 10-Khistorical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the year ended December 31, 2020. There have been no material changes to ourcarrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates sinceused in preparation of our Annual Report on Form 10‑K for the year ended December 31, 2020, as disclosed under “Note 3 – Summary of Significant Accounting Policies” to the notes to the audited financial statements included under Part II, Item 8 of the Annual Report on Form 10-K.statements.
Oil and Gas Properties, Successful Efforts Method. The successful efforts method of accounting is used for oil and gas exploration and production activities. Under this method, all costs for development wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized. Geological and geophysical costs are expensed when incurred. Costs of exploratory wells are capitalized as exploration and evaluation assets pending determination of whether the wells find proved oil and gas reserves. Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, (i.e., prices and costs as of the date the estimate is made). Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.
Exploratory wells in areas not requiring major capital expenditures are evaluated for economic viability within one year of completion of drilling. The related well costs are expensed as dry holes if it is determined that such economic viability is not attained. Otherwise, the related well costs are reclassified to oil and gas properties and subject to impairment review. For exploratory wells that are found to have economically viable reserves in areas where major capital expenditure will be required before production can commence, the related well costs remain capitalized only if additional drilling is under way or firmly planned. Otherwise, the related well costs are expensed as dry holes.
Exploration and evaluation expenditures incurred subsequent to the acquisition of an exploration asset in a business combination are accounted for in accordance with the policy outlined above.
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Depreciation, depletion and amortization of capitalized oil and gas properties is calculated on a field-by-field basis using the unit of production method. Lease acquisition costs are amortized over the total estimated proved developed and undeveloped reserves and all other capitalized costs are amortized over proved developed reserves. Costs specific to developmental wells for which drilling is in progress or uncompleted are capitalized as wells in progress and not subject to amortization until completion and production commences, at which time amortization on the basis of production will begin.
Revenue Recognition. The Company’s revenue is comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. NGLs are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.
Contracts with customers have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.
Revenues are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues.
Stock-Based Compensation. Pursuant to the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. We estimate volatility by considering historical stock volatility. We have opted to use the simplified method for estimating expected term, which is equal to the midpoint between the vesting period and the contractual term.
Recently Adopted and Recently Issued Accounting Pronouncements
. None.
ITEM 3. QUANTITATIVE 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. CONTROLS 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.
27 |
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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 September 30. 2021,30, 2022, that our disclosure controls and procedures were effective.designed at a reasonable assurance level and were effective to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 2021,2022, 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, some members of our workforce has continued to operatebegan operating primarily in a work from home environment forstarting in April 2020, and several continue to work from home on a full or part-time basis as of the quarter ended September 30, 2021.date of this filing. While pre-existing controls were not specifically designed to operate in our current work from home operating environment, we do notdon’t 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.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Table of |
PART II - OTHER INFORMATION
ITEM 1. LEGAL 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.
ITEM 1A. RISK FACTORS
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, 2020,2021, filed with the Commission on March 23, 202111, 2022 (the “Form 10-K”), under the heading “Item“Item 1A. Risk Factors“Factors”, other thanexcept 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 oneof these factors, in whole or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results and/orin part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
Our industry and the broader US economy have experienced higher than expected inflationary pressures in the first three quarters of 2022, related to continued supply chain disruptions, labor shortages and geopolitical instability. Should these conditions persist our business, results of operations and cash flows could be materially and adversely affected.
The Federal Government previously institutedfirst three quarters of 2022 have seen significant increases in the costs of certain materials, including steel, sand and fuel, as a moratoriumresult of availability constraints, supply chain disruption, increased demand, labor shortages associated with a fully employed US labor force, high inflation, interest rates and other factors. Supply and demand fundamentals have been further aggravated by disruptions in global energy supply caused by multiple geopolitical events, including the ongoing conflict between Russia and Ukraine. Our 2022 development program incorporates an increase in both basins relating to service cost and materials inflation resulting in an estimated cost increase of approximately 25 to 30 percent per well on newour Permian Asset and 10 to 20 percent on our D-J Asset, based on costs we have experienced commencing in the third quarter of 2021 and continuing through the third quarter of 2022. Service and materials costs have also increased accordingly with general supply chain and inflation issues seen throughout the industry leading to increased operating costs. Recent supply chain constraints and inflationary pressures may continue to adversely impact our operating costs and may negatively impact our ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could result in reduced margins and production delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
The conflict in Ukraine and related price volatility and geopolitical instability could negatively impact our business.
In late February 2022, Russia launched significant military action against Ukraine. The conflict has caused, and could intensify, volatility in natural gas, oil and gas leasesNGL prices, and permits on federal onshorethe extent and offshore lands, which mayduration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a materialsubstantial negative impact on the global economy and/or our business for an unknown period of time. We believe that the increase in crude oil prices during the first half of 2022 has partially been due to the impact of the conflict between Russia and Ukraine on the global commodity and financial markets, and in response to economic and trade sanctions that certain countries have imposed on Russia. Any such volatility and disruptions may also magnify the impact of other risks described under “Risk Factors” in Item 1A of our 2021 Annual Report on Form 10-K.
We have been and may continue to be negatively impacted by inflation.
Increases in inflation have had an adverse effect on us. Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies, and geopolitical instability, including the Companyongoing conflict between the Ukraine and itsRussia. Continuing increases in inflation, have in the past, and could in the future, impact our costs of labor, equipment and services and the margins we are able to realize on our wells, all of which could have an adverse impact on our business, financial position, results of operations.operations and cash flows. Inflation has also resulted in higher interest rates, which in turn raises our cost of debt borrowing.
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Table of Contents |
Economic uncertainty may affect our access to capital and/or increase the costs of such capital.
On January 20, 2021,Global economic conditions continue to be volatile and uncertain due to, among other things, consumer confidence in future economic conditions, fears of recession and trade wars, the Acting U.S. Interior Secretary, instituted a 60-day moratorium on new oilprice of energy, fluctuating interest rates, the availability and gas leasescost of consumer credit, the availability and permits on federal onshoretiming of government stimulus programs, levels of unemployment, increased inflation, and offshore lands, which was subsequently extended indefinitely.tax rates. These conditions remain unpredictable and create uncertainties about our ability to raise capital in the future. In June 2021, a federal judge issued an injunction lifting the moratorium, provided that the federal government it is appealing the injunction. A total of approximately 26% of the Company’s acreage in New Mexico and 1% of the Company’s acreage in Colorado are located on federal lands. It is currently unclear whether the moratorium will be reinstated, or whether such moratorium is the start of a change in federal policies regarding the grant of oil and gas permits on federal lands. The moratorium does not affect the Company, as the Company has no plans to drill new wells on any leases held on federal lands; however, if such prior moratorium was to become permanent, or the federal governmentevent required capital becomes unavailable in the future, were to grant less permits on federal lands, make such permitting processor more difficult, costly, or to institute more stringent rules relating to such permitting process, it could have a material adverse effect on our business, results of operations, and financial condition.
Prices of oil, NGL and natural gas prices, have in the past, and will continue in the future, to be volatile and such volatility may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations or targets and financial commitments.
The price we receive for our oil and, to a lesser extent, natural gas and NGLs, heavily influences our revenue, profitability, cash flows, liquidity, access to capital, present value and quality of our reserves, the nature and scale of our operations and future rate of growth. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. In recent years, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. Because approximately 88% of our estimated proved reserves as of December 31, 2021 were oil, our financial results are more sensitive to movements in oil prices. The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“WTI”) crude rising from a low of $27 in February 2016 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak, and more recently surging to over $123 a barrel in early March 2022, following Russia’s invasion of the Company’s leases and/Ukraine, with current trading prices around $85-92 a barrel. A prolonged period of low market prices for oil and natural gas, or itsfurther declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect our business, financial condition and liquidity and our ability to undertakemeet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on our stock price and indebtedness.
The below table highlights the recent volatility in oil and gas operations on suchprices by summarizing the portion of its leases on federal lands.high and low daily NYMEX WTI oil spot price and daily NYMEX natural gas Henry Hub spot price for the periods presented:
| Daily NYMEX WTI oil spot price (per Bbl) | Daily NYMEX natural gas Henry Hub spot price (per MMBtu) | ||
| High | Low | High | Low |
Year ended December 31, 2019 | $66.24 | $46.31 | $4.25 | $1.75 |
Year ended December 31, 2020 | $63.27 | ($36.98) | $3.14 | $1.33 |
Year ended December 31, 2021 | $85.64 | $47.47 | $23.86 | $2.43 |
Nine months ended September 30, 2022 | $123.64 | $75.99 | $9.85 | $3.73 |
Simon Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns 64.8% of our common stock, which gives him majority voting control over stockholder matters and his interests may be different from your interests; andWe have entered into Agreed Compliance Orders, as a result of such ownership, we are a “amended (“controlled companyACOs” under applicable NYSE American rules.
Simon Kukes, our Chief Executive Officer and member of the board of directors, through his individual ownership of the Company and through his position as principal and sole owner of SK Energy LLC, which beneficially owns approximately 61.5% of our issued and outstanding common stock and Mr. Kukes, together), with the ownershipState of SKNew Mexico Energy, beneficially ownsMinerals and Natural Resources Department (“EMNRD”) which require the restoration of production, or plugging and abandonment, of an aggregate of approximately 64.8% of333 legacy vertical wells in our issued and outstanding common stock. As such, Mr. Kukes can control the outcome of all matters requiring a stockholder vote, including the election of directors, the adoption of amendmentsNew Mexico Asset, with any failure by us to our certificate of formation or bylaws and the approval of mergers and other significant corporate transactions. Subject to any fiduciary duties owed to the stockholders generally, while Mr. Kukes’ interests may generally be alignedcomply with the interests of our stockholders, in some instances Mr. Kukes may have interests different than the rest of our stockholders, including but not limitedACOs likely to future potential company financings in which SK Energy may participate, or his leadership at the Company. Mr. Kukes’ influence or control of our company as a stockholder may have the effect of delaying or preventing a change of control of our companymaterially and may adversely affect the voting and other rights of other stockholders. Because Mr. Kukes controls the stockholder vote, investors may find it difficult to replace Mr. Kukes (and such persons as he may appoint from time to time) as members of our management if they disagree with the way our business, is being operated. Additionally, the interestsresults of Mr. Kukes may differ from the interests of the other stockholdersoperations and thus result in corporate decisions that are adverse to other stockholders.cash flows.
Table of |
Because of Mr. Kukes’ ownership ofThe Company has previously entered into ACOs with the EMNRD through its New Mexico operating subsidiaries, Ridgeway Arizona Oil Corp. (“Ridgeway”) and EOR Operating Company (“EOR”), which require the Company as discussed above, we are a “controlled company” underto restore to production, or plug and abandon, an aggregate of approximately 333 legacy vertical wells by certain specified dates. In the rules ofevent the NYSE American. Under these rules, a company of which more than 50% ofCompany is unable to fully comply with the voting power is held by an individual, a group or another company is a “controlled company” and, as such, can elect to be exempt from certain corporate governance requirements, including requirements that:
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As a “controlled company,” we may elect to rely on some or allterms of these exemptions, provided that weACOs, then the Company could be subject to significant civil penalties and sanctions, which would likely have a material adverse effect on our business, financial condition and results of operations, could require us to date not taken advantage of any of these exemptions and do not currently intend to take advantage of any of these exemptions moving forward. Notwithstanding that, should the interests of Mr. Kukes differ from those of other stockholders, the other stockholdersraise additional funding which may not havebe available on commercially reasonable terms, if at all, and may negatively affect our drilling plans in the same protections affordedfuture, and may cause the value of our securities to stockholders of companies that are subject to all of the NYSE American corporate governance standards. Even if we do not avail ourselves of these exemptions, our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.decline in value.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not issue or sell any unregistered equity securities during the quarter ended September 30, 2021,2022, 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.Report.
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 (EF Hutton (formerly Kingswood Capital Markets), a 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 $8.2 million (after deducting the underwriting discount and commissions and offering expenses payable by us). No further shares will be sold under the prospectus supplement.
On October 3, 2021, we filed a final Rule 424(b)(5) prospectus supplement relating to the registered direct offering by us of 4,458,600 shares of common stock at an offering price per share of $1.57. EF Hutton, division of Benchmark Investments, LLC and Roth Capital Partners acted as joint placement agents in the offering. The offering closed on October 6, 2021. The net proceeds to us from our sale of the common stock was approximately $6.5 million (after deducting the placement agent’s fees and other estimated offering expenses associated with the offering). No further shares will be sold under the prospectus supplement.
No payments for our expenses were made in the offerings 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 offerings as described in our final prospectuses filed with the SEC pursuant to Rule 424(b).None.
Issuer Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.On August 2, 2022, the Company received correspondence from the EMNRD alleging that the Company’s New Mexico operating subsidiaries, Ridgeway and EOR, failed to comply with certain requirements of ACOs previously negotiated and entered into by each of Ridgeway and EOR with the EMNRD, specifically alleging that Ridgeway and EOR failed to provide reports and proof of conducting certain well tests by dates specified in the ACOs. Further, in the correspondence, the EMNRD notified us that the ACOs were now void due to alleged non-compliance, that an aggregate of approximately 333 legacy vertical wells inherited by the Company when it acquired the fields in 2018 were required to be brought back online or plugged immediately, and further demanded that Ridgway and EOR pay civil penalties totaling an aggregate of $850,500 no later than August 31, 2022, with additional penalties accruing thereafter as a result of our alleged non-compliance and interest accruing on unpaid portions thereof at 8.75% per annum. The Company immediately engaged in discussions with the EMNRD regarding the issues raised in the correspondence, and in mid-August 2022 the EMNRD confirmed that it had erred in alleging that Ridgeway was in violation of its ACO pertaining to approximately 284 legacy vertical wells operated by Ridgeway, and that the EMNRD’s demand letter related to the Ridgeway ACO was invalid and withdrawn. Following additional correspondence between the Company and the EMNRD related to EOR’s ACO pertaining to approximately 49 legacy vertical wells operated by EOR, on November 10, 2022, EOR entered into an amended ACO with the EMNRD (the “Amended EOR ACO”), which provides, among other things, that (i) the EMNRD’s demand for payment of penalties was resolved, (ii) EOR would restore to production, or plug and abandon, the 49 wells listed in the Amended EOR ACO by no later than December 31, 2024, (iii) EOR would provide monthly reports to the Director of the Oil Conservation Division (“OCD”) regarding actions taken for each well, (iv) EOR would maintain financial assurance for the wells and place $50,000 cash in an escrow account in New Mexico designating the OCD as beneficiary, which escrowed funds will be forfeit in the event EOR fails to meet any well plugging deadline, (v) EOR may request, and the OCD may grant, an extension of the deadlines under the Amended EOR ACO for good cause shown, and (vi) EOR may not transfer a well to another operator unless approved by the OCD. Accordingly, the Company believes that the issues raised in the August 2, 2022 correspondence from the EMNRD regarding compliance failures by its New Mexico operating subsidiaries, Ridgeway and EOR, have been favorably resolved.
Table of |
ITEM 6. EXHIBITS
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| Incorporated By Reference |
| Incorporated By Reference | |||||||||||||||||||
Exhibit No. |
| Description |
| Form |
| Exhibit |
| Filing Date |
| File Number |
| Description |
| Form |
| Exhibit |
| Filing Date |
| File Number | |||
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| 8-K |
| 1.1 |
| October 6, 2021 |
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001-35922 | |||||||||||||||
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| 8-K |
| 10.1 |
| September 1, 2021 |
| 001-35922 | |||||||||||||||
| PEDEVCO Corp. 2012 Equity Incentive Plan Form of Restricted Shares Grant Agreement |
| S-8 |
| 4.5 |
| October 31, 2013 |
| 333-192002 | ||||||||||||||
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| 8-K |
| 10.1 |
| October 6, 2021 |
| 001-35922 | |||||||||||||||
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| 8-K |
| 10.2 |
| October 6, 2021 |
| 001-35922 | |||||||||||||||
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| 8-K |
| 3.1 |
| 8/26/22 |
| 001-35922 | |||||||||||||||
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| 8-K |
| 10.1 |
| 8/26/22 |
| 001-35922 | |||||||||||||||
| Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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101.INS* |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
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| XBRL Taxonomy Extension Schema Document |
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101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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| XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| XBRL Taxonomy Extension Presentation Linkbase Document |
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104* |
| Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set |
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| Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set |
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* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan or arrangement.
Table of |
SIGNATURESSIGNATURES
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. | |||||
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November | By: | / | ||||
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| Dr. Simon Kukes | ||||
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| Chief Executive Officer | ||||
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| (Principal Executive Officer) |
| PEDEVCO Corp. | |||||
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November | By: | /s/ Paul A. Pinkston | ||||
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| Paul A. Pinkston | ||||
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| Chief Accounting Officer | ||||
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| (Principal Financial and Accounting Officer) |