PEDEVCO Corp. (PED) Earnings Call Transcript

Thanks, operator, and good afternoon to all of you. I'd like to welcome everyone to PEDEVCO's earnings call for the second quarter of 2026. Joining me on this call are Doug Schick, our President and Chief Executive Officer; R.T. Dukes, our Chief Operating Officer; and Bobby Long, our Chief Financial Officer. Prior to getting started, I want to remind all listeners that this discussion contains forward-looking statements as defined under the federal securities laws, and those statements are subject to risks and uncertainties that may lead actual results to differ materially from what we expect. For additional details, please see our Form 10-Q for the second quarter of 2026 along with our other filings with the SEC. The company has no obligation to update or revise any forward-looking statements. On today's call, we'll also cover certain non-GAAP financial measures, which include adjusted EBITDA and working capital, excluding derivative contract assets and liabilities. You can find reconciliations to the most directly comparable GAAP measures in our earnings release and our 10-Q filing. These non-GAAP measures shouldn't be viewed on their own or as a replacement for GAAP results. I also want to point out that every per share and share count figure mentioned today gives effect to the company's 1-for-20 reverse stock split, which became effective on March 13, 2026, and has been applied retroactively across all periods shown. At June 30, 2026, the company had roughly 13.3 million shares of common stock outstanding. Here's how today's agenda will go. Doug will start us off with opening remarks, then R.T. will provide an operational update, and after that Bobby will take us through our financial performance. Once our prepared remarks are done, the management team will open the call for questions. With that, I'll hand things over to Doug.

Appreciate that, Laurent, and good afternoon to all of you. Thanks for being on the call. We've reached the midpoint of 2026, and what the second quarter shows us clearly is just how much earning power exists in the platform we assembled by merging with Juniper. Output came in at roughly 6,800 BOE each day on average. We brought in $46.1 million of revenue, while adjusted EBITDA landed at $18.7 million. Compared with the same period a year earlier, revenue rose by more than five times, and it was up roughly 15% versus the prior quarter. Those figures beat what we had initially anticipated, and they capture both better realized oil prices and a larger production base. For context on the year-over-year numbers, back in the second quarter of 2025 PEDEVCO was a far smaller business, carrying no debt and bringing in about $7 million of revenue for the quarter. Now we run operations in three basins, lifted over 618,000 barrels of oil equivalent in the quarter, and brought in $46.1 million of revenue; that growth in scale comes from the strategic deal we closed last October to combine with the Juniper portfolio companies, which stretched our footprint past 300,000 net acres spanning the D-J, Powder River, and Permian basins, along with meaningful oil-weighted output and a deep inventory for development; when we did the merger we told everyone we would substantially grow the company's scale and its ability to generate cash, and the second quarter numbers show that progress. On the quarter-over-quarter side, you have to separate what prices did from what volumes did. Output dropped 16% compared with the first quarter, which lines up with the production guidance we gave on the previous call. The D-J Basin wells brought online late in '25 hit their peak early in the year and have been declining along their natural curves since. Because of that, prices accounted for most of the sequential revenue gain. Our average realized oil price climbed to $94.07 per barrel, a 53% rise from a year ago, and operating income went from $6.7 million to $15.4 million, more than doubling quarter over quarter. When commodity prices stay higher, the returns on our inventory look better, yet our strategy doesn't shift. The plan we're building isn't one that hinges on high commodity prices. We stay focused on running at low cost, keeping the balance sheet strong, and putting capital to work only in places where the expected returns make sense. On the cost side, lease operating expense was basically unchanged from the first quarter in absolute dollars. Per-unit costs came in higher since output fell while absolute costs stayed fairly steady. R.T. will go deeper on the optimization program, but we're concentrating on pump conversions, recompletions, well cleanouts, and compression projects, all of which should bring recurring operating costs down as we move forward. Once those savings come through, we anticipate they will lift margins and reinforce the business's cost structure over time. Our balance sheet got considerably stronger in the quarter as well; we paid down $13 million on our revolving credit facility, which brought the outstanding amount to $85 million, down from $98 million when the first quarter ended. With strong cash generation, we were able to speed up debt reduction while still keeping cash available. Following the merger, we had a sizable working capital shortfall. Much of that burden got cleared up during Q1. Then in Q2, we went back to paying down our funded debt. Net of cash, our net debt stood at roughly $73 million when the quarter closed. This improvement provides us more room to maneuver as we look at further development opportunities; given the strength of our balance sheet plus many months spent analyzing assets, securing permits and planning development, we can now contemplate a more vigorous development program. Through the first six months of the year, we kept a disciplined stance on capital spending, concentrating mainly on our production and cost optimization program and channeling surplus cash toward bolstering the balance sheet. That was the right strategy for the business, and it delivered the outcomes we anticipated. A sturdier financial footing, a more favorable commodity pricing backdrop, and the settling of certain Wyoming litigation matters now permit us to launch a more vigorous development program for the rest of the year and into early 2027. Across the last few months, we have performed thorough analysis of our position spanning more than 300,000 acres and have pinpointed actionable, high rate-of-return projects that are available for near-term development. We recently finished a previously drilled well in the D-J Basin, and in the months ahead we intend to drill and take part in more than 20 gross wells throughout our asset base. We will reveal the specifics of this enlarged capital program and development plan within the next few weeks. Having produced $36.8 million of adjusted EBITDA during the first half, we are reaffirming our full year 2026 adjusted EBITDA guidance of $60 million to $70 million. The enlarged second half development program is not anticipated to make a contribution until late 2026 and early 2027, and our outlook for the remaining portion of the year mirrors the production outlook we have previously discussed. More generally, our capital allocation framework stays simple. We will put a strong balance sheet first, along with the operating integrity of the existing asset base. After that, we will put money into optimization and development projects that clear our return thresholds while keeping the flexibility to chase acquisitions and leasehold opportunities that reinforce our core positions. The enlarged platform offers us additional avenues for creating value, yet it does not alter the discipline we bring to each and every investment decision. All things considered, we are heading into the second half of the year from a stronger position than we had anticipated at the beginning of 2026. The combined platform is producing substantial cash flow, the balance sheet is sound, and we possess the flexibility to finance a disciplined development program while upholding our return thresholds and financial priorities. With that, I will hand things over to R.T.

Thanks, Doug, and good afternoon to all of you. My comments will stay centered on the way the assets performed during this quarter and what we're working toward in the back half, then I'll turn things over to Bobby so he can take you through the financial results. Production for the second quarter came in at 618,912 BOE, which works out to 6,800 BOE per day, matching our internal plan. The drop from the prior quarter was anticipated, just as we pointed out three months ago. As Doug noted, the first quarter got a lift from the timing of those D-J Basin wells that came onstream late in '25 and hit peak output early in the year. Since then, those wells have tracked their natural decline curve. Let me take you through our three major basins. In the D-J, we hold roughly — actually a bit more than — 88,000 net acres, plus an interest in 74 gross, nearly 67 net operated wells, along with 110 gross, 12.5 net non-operated wells. Through the quarter, we kept up our field optimization program. Our planned first half participation in 10 non-operated wells, with working interest between 1.1% and 6.3%, was finished during the first quarter. Once the quarter closed, we completed the drilled but uncompleted well in Q3, our Hastings well, and we anticipate it will add to third quarter volumes. Tied to that completion, certain nearby wells were temporarily shut in, and we also moved several optimization projects forward into the third quarter. Consequently, July production fell short of what we initially expected, though volumes will climb substantially in August as those wells come back into service and the Hastings well starts adding to our volume. In the Powder River Basin, we hold roughly 202,000 net acres and an interest in more than 150 gross wells, 130 net wells, with 16 gross, 1.4 net of those being non-op. During the quarter, permitting matters did improve in Wyoming through BLM through some litigation that was resolved — environmental litigation that was resolved with the BLM. That matters a great deal to us, since it's enabled us to permit some of our top tier wells that we intend to develop over the next year or two. And part of that supports the second half program Doug laid out. In the Permian Basin, we hold roughly 14,505 net acres and an interest in 38 gross, 34.5 net wells, all operated by us. This asset keeps delivering a stable production base. We stay focused on operating efficiency and keep assessing lift conversions, well interventions, and other optimization opportunities to help strengthen our cost structure and margins in the basin. Now a few words on the optimization program and how we're progressing. Since it's central to our cost structure over time, we have pulled a meaningful portion of our optimization program forward. We originally had much of it spread across most of the year, but we have pulled that into the summer to beat worse weather in the winter. Choosing to incur somewhat higher costs early in the year in exchange for improved output and reduced expenses afterward was intentional. Our per barrel lease operating expense is meant to come down on a repeating basis through the pump conversions, recompletions, well cleanouts, and compression projects. Once those savings materialize, they last, and they appear in LOE in each subsequent period. We anticipate that the advantages will accumulate across the latter half of the year and be reflected more fully in our 2027 operating cost run rate. On operations, the key point is that the asset base is delivering as planned. Integration is still underway, and at this point we are prepared to shift into an active development program, backed by a balance sheet that can support it. Bobby, over to you.

Thanks, R.T., and good afternoon to all of you. During this second quarter, we brought together the financial priorities we've been stressing ever since the merger closed: better earnings, cost control done with discipline, and ongoing strengthening of the balance sheet. Realized prices for oil and NGLs came in higher, which more than made up for reduced production, while lease operating expenses stayed basically level in absolute terms, and we put available cash toward paying down debt faster. I'll go through each of those items, starting with revenue and operating costs. Beginning with our results for the second quarter, revenue came in at $46.1 million, which is up 561% from $7 million during the same period a year earlier, and roughly 15% higher than the first quarter. That year-over-year gain reflects what the expanded asset base contributed along with a higher average realized oil price. Out of the $39.1 million increase, $35.8 million came from higher sales volumes, and $3.3 million came from higher realized pricing. Total operating expenses came to roughly $30.8 million, which produced operating income of $15.4 million. Inside that figure, LOE was $16.4 million and G&A was $3.4 million. On an absolute basis, LOE was essentially level with the first quarter. The year-over-year rise in G&A reflects extra payroll expense tied to the larger company, plus higher legal and audit costs stemming from the company's growth. DD&A reached $10.2 million, which is up $6.3 million year-over-year, driven by greater production and the expanded asset base. We also booked $2 million of interest expense, made up of $1.8 million of interest on credit facility borrowings and $0.2 million of amortization of deferred financing costs, versus no interest expense during the prior year period. Below the operating line, the largest item was $5 million of net income on derivative contracts. As we've done in earlier quarters, I want to break out the realized and unrealized pieces. We recorded $8.1 million of realized settlement losses, which were cash items stemming from realized oil prices coming in above the fixed prices in our contracts. That was more than offset by a $13.1 million non-cash unrealized mark-to-market gain, which reflected declining commodity prices between March 31st and June 30th on our open positions. That $13.1 million unrealized gain is an accounting entry rather than a cash inflow. Our hedge program exists to lower cash flow volatility, safeguard the capital plan, and preserve financial flexibility. GAAP net income was $17.5 million, or $1.31 per share, versus a net loss of $1.7 million in the second quarter of 2025, reflecting higher operating income from the expanded asset base along with the $5 million recognized on derivative contracts. Adjusted EBITDA was $18.7 million, compared with $3 million in the prior year period and $18.1 million in the first quarter; that works out to an increase of roughly 3% sequentially. The complete reconciliation from net income to adjusted EBITDA appears in our earnings press release. Moving to the balance sheet and capital allocation, as of June 30th, our cash stood at $12.1 million. Over the course of this quarter, we brought the amount we owe under the senior secured revolving credit facility down to $85 million, compared with $98 million as of March 31st — that works out to a $13 million paydown. Once you account for cash, net funded debt came in at roughly $73 million, which is an improvement on what we had projected. On top of that, we finished the quarter with $40 million in available funding through that facility. Our balance sheet is behaving just as we anticipated. Cash generation came in above our plan, and we directed some of that cash toward paying down debt more quickly than we had intended, all while keeping the capital program intact. That kind of financial flexibility is what underpins the second half development program Doug walked through earlier. I appreciate everyone's time. At this point, I'll hand things back to the operator so we can take your questions.

I'd like to begin with the development plan. As of last quarter, we were still assessing your 2026 development plan, and clearly the 20 gross wells were added into it. Is this primarily just driven by commodity prices? Are there other factors we ought to be considering that caused this? And I apologize, I missed the first half of the call; so sorry if this was covered already.

Hey, Dave. Doug here. Good question. No, it's partly driven by commodity prices, but really it's more a result of, following the merger, wanting to evaluate and take a deep dive into all of our assets and sort of prioritize what's available to develop near term, what the returns are across all of our assets. So we were sort of ranking projects and prioritizing everything according to what's developed, what can be developed over the next six months. So that's sort of how we arrived at the development program. It grew significantly because some of the BLM litigation issues in Wyoming opened up, which brought in a few projects that we didn't have the ability to do earlier in the year. So that's really the reason behind the expansion.

Got it. So at this stage, would it be reasonable to say the development program might be leaning toward speed? And before you respond to that, perhaps you could set that competing use of capital against the balance sheet. I recall from your prepared remarks that right now you're aiming to keep a fairly bulletproof balance sheet. I'm just wondering how you view its present iteration in relation to that development program.

Okay, so across the first and second quarter, we managed to bring debt to EBITDA down to roughly 1x, and after the merger that's a level we feel comfortable with. I believe we came out at approximately 1.6x, and there was some negative working capital tied to it as well. All of that has really been — all of that has genuinely been paid down and accounted for. So at this point we're in a position where, for the rest of the year, we can truly fund what remains of our enhanced development program out of cash flow.