PEDEVCO Corp. (NYSE:PED) is a dynamic energy company focused on the acquisition and development of strategic, high-growth oil and gas projects in the United States. With a strong presence in the prolific Permian Basin and the Denver-Julesburg (D-J) Basin, PEDEVCO has established itself as a leading player in the domestic energy landscape.

Business Overview and Operational Highlights

PEDEVCO's history dates back to 2011, when the company was founded with the vision of leveraging the latest drilling and completion technologies to unlock the full potential of legacy oil and gas properties. Initially, the company acquired leasehold acreage and production in the Niobrara formation of the D-J Basin in Colorado, as well as acreage in the San Andres formation of the Permian Basin in Texas and New Mexico.

In its early years, PEDEVCO faced challenges in developing its assets, including difficulties obtaining necessary permits and approvals, as well as cost overruns and production issues with some of its initial wells. However, the company persevered and continued to build out its portfolio of assets, acquiring additional acreage and production in its core operating areas.

A significant milestone for PEDEVCO came in 2018 with the appointment of Dr. Simon G. Kukes as the company's new Chief Executive Officer. Under Dr. Kukes' leadership, PEDEVCO streamlined its operations, reduced costs, and focused its efforts on its most promising assets in the Permian Basin and D-J Basin. This renewed strategic focus helped the company achieve profitability and steady production growth in the following years.

In 2023, PEDEVCO faced another challenge when it sold its wholly-owned subsidiary EOR Operating Company to Tilloo Exploration and Production, LLC. This transaction was part of the company's ongoing efforts to optimize its asset portfolio and allocate capital to its core operating areas. Despite some initial disputes with the buyer, PEDEVCO was able to successfully complete the sale and move forward with its development plans.

As of September 30, 2024, PEDEVCO held approximately 14,550 net acres in the Permian Basin and 19,450 net acres in the D-J Basin. The company's operations in the Permian Basin are managed through its wholly-owned subsidiary, Pacific Energy Development Corp. (PEDCO), while its D-J Basin assets are held and operated by its subsidiary, PRH Holdings LLC and Red Hawk Petroleum, LLC.

PEDEVCO's production during the third quarter of 2024 averaged 1,698 barrels of oil equivalent per day (BOEPD), an impressive 23% increase compared to the same period in 2023. This growth was driven by the company's participation in 13 new non-operated wells in the D-J Basin, as well as the drilling and completion of three operated wells with a third-party in the Permian Basin.

Financial Performance

PEDEVCO's financial position remains strong, with a working capital surplus of $5.8 million as of September 30, 2024, compared to $5.7 million at the end of 2023. This healthy financial footing allows the company to execute its strategic growth initiatives and navigate market volatility.

During the nine months ended September 30, 2024, PEDEVCO generated $8.55 million in net cash from operating activities, a decrease of $2.9 million compared to the same period in 2023. This was primarily due to an increase in net income of $2.1 million, offset by a $6.7 million net decrease in other components of working capital, predominantly from an increase in accruals and payables related to the company's recent drilling and completion activity.

PEDEVCO's capital expenditures during the nine-month period totaled $22.1 million, a decrease of $5.6 million compared to the prior-year period. This reduction was driven by $4.8 million less in capital spending, coupled with $0.8 million in proceeds from the sale of oil and gas properties.

For the fiscal year 2023, PEDEVCO reported annual revenue of $30.78 million, annual net income of $264,000, annual operating cash flow of $23.48 million, and annual free cash flow of $23.44 million. In the most recent quarter (Q3 2024), the company achieved revenue of $9.05 million and net income of $2.92 million, representing a 23% year-over-year increase in revenue driven by higher production volumes.

Liquidity and Capital Resources

On September 11, 2024, PEDEVCO successfully closed a new $250 million reserve-based lending facility (RBL) with Citibank, N.A. as the administrative agent. The four-year facility provides an initial borrowing base of $20 million and an aggregate maximum revolving credit amount of $250 million, further strengthening the company's liquidity and financial flexibility. As of the reporting date, PEDEVCO had not drawn down any borrowings under this facility.

The company's financial metrics demonstrate a solid financial position, with a debt-to-equity ratio of 0.002, a cash balance of $4.62 million, and both current and quick ratios of 2.10. These figures indicate that PEDEVCO has ample liquidity to meet its short-term obligations and fund its ongoing operations.

Operational Efficiency and Growth Initiatives

PEDEVCO's strategic focus on applying the latest drilling and completion technologies to legacy oil and gas properties has been a key driver of its operational success. The company's expertise in horizontal development and exploitation of conventional assets in the Permian Basin, as well as the development of the Wattenberg and Wattenberg Extension in the D-J Basin, have positioned it as a leader in these highly economic oil and gas plays.

In the Permian Basin, PEDEVCO's operated production is held by production (HBP), providing the company with significant flexibility in timing its development activities. This allows the seamless allocation of capital between the Permian and D-J Basin assets based on market conditions and opportunities.

During the nine months ended September 30, 2024, PEDEVCO participated in the drilling and completion of 19 new non-operated wells in the D-J Basin, as well as the completion of three operated wells with a third-party in the Permian Basin. Additionally, the company acquired approximately 968 net lease acres in the D-J Basin through multiple transactions, further expanding its footprint in this prolific region.

In the third quarter of 2024, PEDEVCO recognized a $735,000 gain from the sale of 320 net acres in its D-J Basin asset, demonstrating the company's ability to optimize its portfolio and unlock value for its shareholders.

Outlook and Growth Strategies

Moving forward, PEDEVCO remains focused on capitalizing on the significant opportunities in its core operating areas. The company's revised 2024 capital expenditure estimate ranges between $21 million to $23 million, with the majority allocated to drilling and completion activities in both the Permian and D-J Basins.

PEDEVCO's strategy includes continued optimization of its existing assets, opportunistic pursuit of additional acreage in its core areas, and the evaluation of accretive acquisition opportunities that align with the company's technical and operational expertise. The successful execution of this strategy is expected to drive further production, cash flow, and reserve growth for the company.

The oil and gas industry has seen a compound annual growth rate (CAGR) of approximately 5% over the past three years, driven by increased demand and higher commodity prices. PEDEVCO's management believes that the Permian Basin and D-J Basin represent some of the most economic oil and gas plays in the United States, positioning the company for continued growth in line with or exceeding industry trends.

Risks and Challenges

As with any energy company, PEDEVCO faces various risks and challenges, including fluctuations in commodity prices, industry competition, regulatory changes, and operational risks inherent to oil and gas exploration and production activities. The company's financial performance and growth are closely tied to the volatility of oil and natural gas prices, which can significantly impact its revenues and profitability.

Additionally, PEDEVCO's operations are subject to stringent environmental regulations and permitting requirements, which could potentially impact the company's development plans and timelines.

Conclusion

PEDEVCO Corp. (NYSE:PED) has established itself as a premier energy company in the U.S. oil and gas industry, with a proven track record of operational excellence and a strategic focus on high-growth assets. The company's strong presence in the Permian Basin and D-J Basin, coupled with its financial discipline and innovative approach to development, position it for continued success in the years to come.

With a solid financial foundation, including a new $250 million reserve-based lending facility, PEDEVCO has the resources to pursue its growth initiatives and capitalize on opportunities in its core operating areas. The company's ability to consistently increase production volumes and revenue, even in a challenging market environment, demonstrates the quality of its asset base and the effectiveness of its operational strategies.

As PEDEVCO navigates the dynamic energy landscape, its commitment to value creation and shareholder returns remains a top priority. The company's focus on optimizing production and cash flow from its core assets, combined with its opportunistic approach to acquisitions, provides a clear path for sustained growth and profitability.

Investors looking for exposure to the U.S. oil and gas sector may find PEDEVCO an attractive option, given its strong operational performance, healthy financial position, and strategic positioning in two of the most prolific oil and gas basins in the country. As the company continues to execute its growth strategy and capitalize on the opportunities in its portfolio, PEDEVCO is well-positioned to deliver long-term value for its shareholders in the evolving energy market.