PEDEVCO Corp. (PED) is an energy company focused on the acquisition and development of strategic, high-growth oil and gas projects in the United States. With a strong track record of successful operations and a commitment to technological innovation, PEDEVCO is poised to capitalize on the dynamic energy landscape and deliver long-term value for its shareholders.
Business Overview and History
PEDEVCO was founded in 2011 with the vision of leveraging modern drilling and completion techniques to unlock the potential of conventional oil and gas assets. The company began its journey by acquiring acreage in the Permian Basin, a prolific hydrocarbon-producing region in West Texas and eastern New Mexico. In 2013, PEDEVCO expanded its footprint by entering the Denver-Julesburg (D-J) Basin in Colorado and Wyoming, further diversifying its asset portfolio.
The company's initial strategy focused on applying modern drilling and completion techniques to legacy properties to increase production and reserves. In 2013, PEDEVCO acquired its first major asset, the Permian Basin Asset, through its wholly-owned subsidiary Pacific Energy Development Corp. (PEDCO). This asset consisted of approximately 14,550 net acres in the San Andres formation of the Permian Basin. The expansion into the D-J Basin in 2015 was achieved through the acquisition of assets by its wholly-owned subsidiary PRH Holdings LLC.
Throughout its history, PEDEVCO has faced various challenges, including fluctuations in commodity prices and the need to continuously optimize its operations. The company was significantly impacted by the COVID-19 pandemic in 2020, which led to a substantial drop in oil demand and prices. In response, PEDEVCO implemented cost-cutting measures and focused on its most profitable assets to maintain resilience in the face of market volatility.
Despite these challenges, PEDEVCO has remained committed to its core strategy and has continued to develop its Permian Basin and D-J Basin assets. The company has demonstrated its ability to adapt to changing market conditions while maintaining a focus on growth and operational excellence.
Financial Performance
PEDEVCO's financial performance has been characterized by consistent revenue growth and improving profitability. In the fiscal year 2023, the company reported annual revenue of $30.78 million, a 2.5% increase from the prior year. Net income for the same period stood at $264,000, a significant turnaround from the $1.3 million loss recorded in the previous year. Operating cash flow (OCF) for 2023 was $23.48 million, with free cash flow (FCF) of $23.44 million.
The most recent quarter (Q3 2024) showed continued improvement, with revenue reaching $9.05 million, representing a 23% increase compared to Q3 2023. Net income for the quarter was $2.92 million, while OCF and FCF stood at $8.55 million and $8.22 million, respectively. The increase in revenue and profitability was primarily due to higher production volumes from new wells brought online in the D-J Basin and Permian Basin assets.
Liquidity
The company's liquidity position remains robust, with a current ratio of 2.10 as of December 31, 2023. PEDEVCO's working capital surplus of $5.71 million provides ample flexibility to fund its ongoing operations and pursue strategic initiatives. As of September 30, 2024, the company had $4.62 million in cash and no outstanding debt, resulting in a debt-to-equity ratio of 0. The recent $250 million reserve-based lending facility secured in September 2024 with Citibank further strengthens the company's financial flexibility and capacity to execute its development plans, although no amounts have been drawn on this facility yet.
Operational Highlights and Outlook
PEDEVCO's operational performance has been a key driver of its success. In the third quarter of 2024, the company reported average daily production of 1,698 barrels of oil equivalent (BOE), a 23% increase from the same period in the previous year. This growth was primarily driven by the company's participation in new non-operated wells in the D-J Basin and the successful drilling and completion of three operated wells in the Permian Basin.
During the nine months ended September 30, 2024, PEDEVCO's total revenues increased by $4.93 million, or 21%, to $28.98 million compared to the same period in 2023. This increase was primarily due to a favorable price variance of $1.10 million and a favorable volume variance of $3.80 million. The increase in production volume was related to the company's participation in 13 new non-operated wells in the D-J Basin and the drilling and completion of 3 operated wells with a third-party in the Permian Basin in the latter part of the first quarter of 2024, as well as the company's participation in an additional 6 wells in the D-J Basin which began production in the latter part of the second quarter of 2024.
Looking ahead, PEDEVCO has outlined a comprehensive 2024 development program, with a revised capital expenditure estimate ranging from $21 million to $23 million. This plan includes drilling and completion activities, as well as investments in infrastructure upgrades and optimizations across the company's Permian Basin and D-J Basin assets.
PEDEVCO's focus on operational efficiency and technological innovation has been a key differentiator. The company's ability to leverage modern drilling and completion techniques has allowed it to enhance production, improve recovery rates, and maximize the value of its asset base. As the energy landscape continues to evolve, PEDEVCO's adaptability and commitment to sustainable practices position it well to capitalize on emerging opportunities and deliver long-term growth.
Asset Portfolio and Geographic Presence
PEDEVCO operates in a single reportable business segment - oil and gas exploration and production. The company's operations are currently focused in the United States, primarily in two key areas:
1. Permian Basin Asset: Located in West Texas and eastern New Mexico, this asset comprised approximately 14,550 net acres as of September 30, 2024. In the Permian Basin, the company had interests in 300 gross (298.5 net) wells, of which 28 were active producers, 2 were active injectors, and 2 were active saltwater disposal wells.
2. Denver-Julesburg (D-J) Basin Asset: Situated in Colorado and Wyoming, this asset included approximately 19,450 net acres as of September 30, 2024. In the D-J Basin, the company had interests in 120 gross (27.8 net) wells, of which 18 gross (16.2 net) wells were operated by the company and currently producing, 85 gross (11.6 net) were non-operated, and 17 wells had an after-payout interest.
PEDEVCO does not have any international operations, focusing its efforts on developing these strategic U.S. assets.
Industry Trends and Market Position
The U.S. oil and gas industry has seen a compound annual growth rate (CAGR) of around 5-7% in production volumes over the past 3 years as the industry has recovered from the COVID-19 pandemic downturn. PEDEVCO's focus on leveraging modern drilling and completion techniques in conventional assets has allowed it to capitalize on this growth trend and improve its market position.
Risks and Challenges
While PEDEVCO has demonstrated its resilience in the face of industry headwinds, the company is not without its risks and challenges. Fluctuations in commodity prices, regulatory changes, and competition from larger industry players can all impact the company's financial performance and growth trajectory.
Additionally, PEDEVCO's reliance on successful drilling and completion activities, as well as its ability to effectively integrate and manage acquired assets, are critical to its long-term success. The company's exposure to operational risks, such as equipment failures and unexpected geological challenges, can also affect its production and profitability.
To mitigate these risks, PEDEVCO has implemented robust risk management frameworks, diversified its asset portfolio, and maintained a strong balance sheet. The company's focus on technological innovation and operational excellence also serves as a competitive advantage, allowing it to navigate industry challenges more effectively.
Corporate Governance and Leadership
It is worth noting that there have been no major scandals, short seller reports, or CEO departures reported for PEDEVCO. This stability in leadership and corporate governance has likely contributed to the company's consistent performance and strategic execution.
Conclusion
PEDEVCO Corp. (PED) has established itself as a dynamic player in the energy sector, leveraging its technical expertise and strategic vision to drive value creation. The company's successful track record of acquisitions, operational improvements, and financial discipline has positioned it for continued growth and long-term success.
As the energy landscape evolves, PEDEVCO's adaptability, commitment to innovation, and focus on sustainability will be crucial in capitalizing on emerging opportunities and delivering enhanced shareholder returns. With a robust financial foundation, a diversified asset portfolio, and a talented management team, PEDEVCO is well-equipped to navigate the challenges and seize the opportunities that lie ahead in the dynamic energy industry.