PEDEVCO CORP. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution you that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See "Risk Factors" and "Forward-Looking Statements."
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:
· 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.
· Results of Operations. An analysis of our financial results comparing the
years ended December 31, 2022 , and 2021.
· Liquidity and Capital Resources. An analysis of changes in our
consolidated balance sheets and cash flows and discussion of our financial
condition.
· Critical Accounting Policies and Estimates. Accounting estimates that we
believe are important to understanding the assumptions and judgments
incorporated in our reported financial results and forecasts.
Overview
We are an oil and gas company focused on the acquisition and development 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
Detailed information about our business plans and operations, including our core
D-
How We Conduct Our Business and Evaluate Our Operations
Our use of 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 have 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.
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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 gasgas; · oil and natural gas production and operating expenses; · capital expenditures; · general and administrative expenses; · net cash provided by operating activities; and · net income. Reserves
Our estimated net proved crude oil and natural gas reserves at
Using the average monthly crude oil price of
The reserves as of
Oil and Natural Gas Sales Volumes
During the year ended
Significant Capital Expenditures
The table below sets out the significant components of capital expenditures for
the year ended
Capital Expenditures Leasehold Acquisitions$ 14 Drilling and Facilities 23,117 Total*$ 23,131
*see " Item 8. Financial Statements and Supplementary Data " - " Note 6 -
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Market Conditions and Commodity Prices
Our financial results depend on many factors, particularly the price of crude oil and natural gas 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 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 crude oil and natural gas 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 crude oil and natural gas and condensate revenues, refer to "Results of Operations" below.
Results of Operations
The following discussion and analysis of the results of operations for each of
the two fiscal years in the years ended
Net Income (Loss)
We reported net income for the year ended
On
Net Revenues
The following table sets forth the revenue and production data for the
years ended
Increase Increase
2022 2021 (Decrease) (Decrease)
Sale Volumes:
Crude Oil (Bbls) 304,507 228,068 76,439 34 %
Natural Gas (Mcf) 245,923 192,052 53,871 28 %
NGL (Bbls) 19,277 5,225 14,052 269 %
Total (Boe) (1) 364,771 265,302 99,469 37 %
Crude Oil (Bbls per day) 834 625 209 33 %
Natural Gas (Mcf per day) 674 526 148 28 %
NGL (Bbls per day) 53 14 39 279 %
Total (Boe per day) (1) 999 727 272 37 %
Average Sale Price:
Crude Oil ($/Bbl) $ 90.86 $ 64.76 $ 26.11 40 %
Natural Gas($/Mcf) 6.41 4.70 1.71 36 %
NGL ($/Bbl) 40,87 36.09 4.78 13 %
Net Operating Revenues (In
thousands):
Crude Oil $ 27,669 $ 14,769 $ 12,900 87 %
Natural Gas 1,577 902 675 75 %
NGL 788 189 599 317 %
Total Revenues $ 30,034 $ 15,860 $ 14,174 89 %
(1) Assumes 6 Mcf of natural gas equivalents to 1 barrel of oil.
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Total crude oil, natural gas and NGL revenues for the year ended
Net Operating and Other (Income) Expenses
The following table sets forth operating and other expenses for the years ended
Increase % Increase
2022 2021 (Decrease) (Decrease)
Direct Lease Operating
Expense $ 4,787 $ 3,565 $ 1,222 34 %
Workovers 2,704 881 1,823 207 %
Other* 2,912 1,415 1,497 106 %
Loss (gain) on settlement of (107 %)
ARO (6 ) 82 (88 )
Lease Operating Expenses $ 10,397 $ 5,943 $ 4,454 75 %
Depreciation, Depletion,
Amortization and Accretion 11,153 7,380 3,773 51 %
General and Administrative
(Cash) $ 3,757 $ 3,757 $ - 0 %
Share-Based Compensation (14 %)
(Non-Cash) 2,097 2,452 (355 )
Total General and (6 %)
Administrative Expense $ 5,854 $ 6,209 $ (355 )
Gain on Sale of Oil and Gas (100 %)
Properties - 1,805 (1,805 )
Interest Expense $ - $ 1 $ (1 ) (100 %)
Interest Income $ 117 $ 15 $ 102 680 %
Other Income $ 97 $ 180 $ (83 ) (46 %)
Gain on forgiveness of PPP (100 %)
loan $ - $ 374 $ (374 ) *Includes severance, ad valorem taxes and marketing costs.
Lease Operating Expenses. The increase of
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Depreciation, Depletion, Amortization and Accretion. The
General and Administrative Expenses (excluding share-based compensation). There was no change in general and administrative expenses (excluding share-based compensation) as the Company continues to 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
Gain on Sale of
Interest Expense. The
Interest Income and Other Expense. Includes interest earned from our
interest-bearing cash accounts, for which interest rates have increased in the
current period, compared to the prior period. Other income in the current period
is primarily related to an
Gain on forgiveness of PPP loan. Includes principal and accrued interest from our PPP Loan that was fully forgiven during the prior period (see above for more information).
Liquidity and Capital Resources
The primary sources of cash for the Company during the year ended
Impact of COVID-19
In
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Ukraine Conflict
In late
Working Capital
At
Financing
The Company has an ongoing
The ATM Offering was made pursuant to the terms of that certain
Our net capital expenditures for 2023 are estimated at the time of this Annual
Report to range between
We plan to continue to evaluate D-
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We expect that we will have sufficient cash available to meet our needs over the
next 12 months after the filing of this report and in the foreseeable future,
including to fund our 2023 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 Dr.
Cash Flows (in thousands)
Year Ended December 31,
2022 2021
Cash flows provided by operating activities
(12,266 ) (2,761 )
Cash flows provided by financing activities 35 14,694
Net increase in cash and restricted cash
Cash provided by operating activities. Net cash provided by operating activities
increased by
Cash used in investing activities. Net cash used in investing activities
increased by
Cash 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
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Non-GAAP Financial Measures
We have included EBITDA and Adjusted EBITDA in this Report as supplements to
GAAP measures of performance to provide investors with an additional financial
analytical framework which management uses, in addition to historical operating
results, as the basis for financial, operational and planning decisions and
present measurements that third parties have indicated are useful in assessing
the Company and its results of operations. "EBITDA" represents net income before
interest, taxes, depreciation and amortization. "Adjusted EBITDA" represents
EBITDA, less share-based compensation, gain on sale of oil and gas properties,
gain on forgiveness of the PPP Loan, and accounts payable settlements. Adjusted
EBITDA excludes certain items that we believe affect the comparability of
operating results and can exclude items that are generally non-recurring in
nature or whose timing and/or amount cannot be reasonably estimated. EBITDA and
Adjusted EBITDA are presented because we believe they provide additional useful
information to investors due to the various noncash items during the period.
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 replacements. Additionally, other
companies in our industry may calculate EBITDA and Adjusted EBITDA differently
than
Years Ended
December 31,
2022 2021
Net income (loss) $ 2,844 $ (1,299 ) Add (deduct) Depreciation, depletion, amortization and accretion 11,153 7,380 Interest expense
- 1
EBITDA 13,997 6,082
Add (deduct)
Share-based compensation 2,097 2,452
Gain on sale of oil and gas properties - (1,805 )
Gain on forgiveness of PPP loan - (374 )
Accounts payable settlements - (104 )
Adjusted EBITDA $ 16,094 $ 6,251 Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
is based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in
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.
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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.
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
Recently Adopted 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.
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