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PEDEVCO Corp. (PED): A Promising Oil and Gas Play with Solid Fundamentals and Growth Potential
Published on September 24, 2024 | Ticker: PED

PEDEVCO Corp. (NYSE American: PED) is an oil and gas company focused on the development, acquisition, and production of oil and natural gas assets in the United States. The company's current properties are located in the Permian Basin in West Texas and eastern New Mexico, as well as the Denver-Julesburg (D-J) Basin in Colorado and Wyoming.

Business Overview

PEDEVCO's strategy is to optimize its existing assets and opportunistically seek additional acreage proximate to its core holdings, as well as other attractive onshore U.S. oil and gas assets that fit the company's acquisition criteria. 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 some of the most economic oil and natural gas plays in the United States.

As of March 31, 2023, PEDEVCO held approximately 22,681 net acres in the Permian Basin and 19,214 net acres in the D-J Basin. The company's Permian Basin asset is operated through its wholly-owned subsidiary Ridgeway Arizona Oil Corp., while its D-J Basin asset is operated through its wholly-owned subsidiary Red Hawk Petroleum, LLC.

Financials

For the full year 2023, PEDEVCO reported annual revenue of $30,784,000 and net income of $264,000. The company's annual operating cash flow was $23,481,000, while its annual free cash flow was -$11,515,000. These financial results demonstrate PEDEVCO's ability to generate solid revenue and operating cash flow, despite the challenges faced by the industry.

In the first quarter of 2024, PEDEVCO reported revenue of $8,116,000, a slight decrease of 1% compared to the same period in 2023. The company's net income for the quarter was $773,000, compared to $1,762,000 in the first quarter of 2023. The decrease in net income was primarily due to a $904,000 increase in depreciation, depletion, amortization, and accretion expenses, as well as a nominal increase in lease operating expenses.

PEDEVCO's cash and cash equivalents, including restricted cash, stood at $15,494,000 as of March 31, 2023, compared to $20,715,000 as of December 31, 2023. The decrease in cash was primarily due to the company's capital expenditures for drilling and completion activities in the D-J Basin and Permian Basin.

PEDEVCO's financial ratios demonstrate its solid financial position. As of March 31, 2023, the company had a current ratio of 1.31 and a quick ratio of 1.31, indicating a strong ability to meet its short-term obligations. The company's debt ratio was 0.0, suggesting a conservative capital structure.

The company's cash and cash equivalents, including restricted cash, totaled $15,494,000 as of March 31, 2023, providing ample liquidity to fund its 2024 development program and pursue potential acquisition opportunities.

Operational Highlights

During the first quarter of 2024, PEDEVCO incurred $5,362,000 in capital costs, primarily related to non-operated drilling and completion activities in the D-J Basin, as well as completion operations on three operated wells in the Permian Basin. The company also acquired approximately 407 net lease acres in the D-J Basin through multiple transactions.

In the Permian Basin, PEDEVCO held interests in 303 gross (301.5 net) wells as of March 31, 2023, of which 29 were active producers, two were active injectors, and two were active salt water disposal wells. In the D-J Basin, the company held interests in 110 gross (26.2 net) wells, of which 18 gross (16.2 net) wells were operated by Red Hawk and currently producing, 75 gross (10.0 net) wells were non-operated, and 17 wells had an after-payout interest.

Guidance and Outlook

For 2024, PEDEVCO estimates its net capital expenditures to range between $20 million and $30 million. This includes a range of $17 million to $27 million for drilling and completion costs on its Permian Basin and D-J Basin assets, as well as approximately $3 million in estimated capital expenditures for other activities such as electric submersible pump purchases, rod pump conversions, recompletions, well cleanouts, leasing, facilities, and remediation.

The company plans to continue evaluating D-J Basin well proposals from third-party operators and participate in those that meet its economic thresholds. PEDEVCO also has the flexibility to move capital between its Permian and D-J Basin assets, as its Permian asset is 100% operated and held by production, allowing for flexibility in development timing.

Risks and Challenges

As with any oil and gas company, PEDEVCO faces various risks and challenges, including volatility in commodity prices, regulatory changes, operational risks, and competition. The company's success is heavily dependent on its ability to effectively manage these risks and execute its growth strategy.

Conclusion

PEDEVCO Corp. is a well-positioned oil and gas company with a focus on the Permian Basin and D-J Basin, two of the most prolific and economic oil and gas plays in the United States. The company's solid financial performance, strong liquidity position, and strategic growth initiatives position it well to capitalize on the ongoing recovery in the energy sector. While the company faces various risks, its experienced management team and disciplined approach to capital allocation suggest that PEDEVCO is poised for continued success in the years ahead.

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