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What changed in PEDEVCO CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PEDEVCO CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+214 added−231 removedSource: 10-K (2024-03-18) vs 10-K (2023-03-29)

Top changes in PEDEVCO CORP's 2023 10-K

214 paragraphs added · 231 removed · 171 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

28 edited+16 added−13 removed100 unchanged
Biggest changeBecause we are a small company, the requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner. 60 Table of Contents As a public company with listed equity securities, we must comply with the federal securities laws, rules and regulations, including certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”) and the Dodd-Frank Act, related rules and regulations of the SEC and the NYSE American, with which a private company is not required to comply.
Biggest changeAs a public company with listed equity securities, we must comply with the federal securities laws, rules and regulations, including certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”) and the Dodd-Frank Act, related rules and regulations of the SEC and the NYSE American, with which a private company is not required to comply.
In addition, a stockholder may not be able to borrow funds using our common stock as collateral because lenders may be unwilling to accept the pledge of securities having such a limited market. We cannot assure you that an active trading market for our common stock will develop or, if one develops, be sustained.
In addition, a stockholder may not be able to borrow funds using our common stock as collateral because lenders may be unwilling to accept the pledge of securities having such a limited market. We cannot assure you that an active trading market for our common stock will develop or, if one develops, that it will be sustained.
The existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender offer, merger or otherwise. · Limitation of Liability and Indemnification - Our Certificate of Formation limits the liability of, and provides indemnification to, our directors and officers. 58 Table of Contents Additionally, Title 2, Chapter 21, Subchapter M of the Texas Business Organizations Code (the “ Texas Business Combination Law ”) provides that a Texas corporation may not engage in specified types of business combinations, including mergers, consolidations and asset sales, with a person, or an affiliate or associate of that person, who is an “affiliated shareholder,” for a period of three years from the date that person became an affiliated shareholder, subject to certain exceptions.
The existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender offer, merger or otherwise. ● Limitation of Liability and Indemnification — Our Certificate of Formation limits the liability of, and provides indemnification to, our directors and officers. 62 Table of Contents Additionally, Title 2, Chapter 21, Subchapter M of the Texas Business Organizations Code (the “ Texas Business Combination Law ”) provides that a Texas corporation may not engage in specified types of business combinations, including mergers, consolidations and asset sales, with a person, or an affiliate or associate of that person, who is an “affiliated shareholder,” for a period of three years from the date that person became an affiliated shareholder, subject to certain exceptions.
Such issuances may also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued to parties or entities committed to supporting existing management. 62 Table of Contents Securities analysts may not cover, or continue to cover, our common stock and this may have a negative impact on our common stock’s market price.
Such issuances may also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued to parties or entities committed to supporting existing management. 66 Table of Contents Securities analysts may not cover, or continue to cover, our common stock and this may have a negative impact on our common stock’s market price.
Additionally, evolving expectations on various ESG matters, including biodiversity, waste and water, may increase costs, require changes in how we operate and lead to negative stakeholder sentiment. 63 Table of Contents Global economic conditions could materially adversely affect our business, results of operations, financial condition and growth.
Additionally, evolving expectations on various ESG matters, including biodiversity, waste and water, may increase costs, require changes in how we operate and lead to negative stakeholder sentiment. 67 Table of Contents Global economic conditions could materially adversely affect our business, results of operations, financial condition and growth.
It is possible that future accounting standards may require changes to the accounting treatment in our consolidated financial statements and may require us to make significant changes to our financial systems. Such changes might have a materially adverse impact on our financial position or results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES.
It is possible that future accounting standards may require changes to the accounting treatment in our consolidated financial statements and may require us to make significant changes to our financial systems. Such changes might have a materially adverse impact on our financial position or results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
As a result, the issuance of shares of common stock and/or preferred stock may cause the value of our securities to decrease. 59 Table of Contents General Risk Factors If we complete acquisitions or enter into business combinations in the future, they may disrupt or have a negative impact on our business.
As a result, the issuance of shares of common stock and/or preferred stock may cause the value of our securities to decrease. 63 Table of Contents General Risk Factors If we complete acquisitions or enter into business combinations in the future, they may disrupt or have a negative impact on our business.
Factors that could affect our stock price or result in fluctuations in the market price or trading volume of our common stock include: · our actual or anticipated operating and financial performance and drilling locations, including reserves estimates; · quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and cash flows, or those of companies that are perceived to be similar to us; · changes in revenue, cash flows or earnings estimates or publication of reports by equity research analysts; · speculation in the press or investment community; · public reaction to our press releases, announcements and filings with the SEC; · sales of our common stock by us or other stockholders, or the perception that such sales may occur; · the limited amount of our freely tradable common stock available in the public marketplace; · general financial market conditions and oil and natural gas industry market conditions, including fluctuations in commodity prices; · the realization of any of the risk factors presented in this Annual Report; · the recruitment or departure of key personnel; · commencement of, or involvement in, litigation; · the prices of oil and natural gas; · the success of our exploration and development operations, and the marketing of any oil and natural gas we produce; · changes in market valuations of companies similar to ours; and · domestic and international economic, health, legal and regulatory factors unrelated to our performance. 55 Table of Contents Our common stock is listed on the NYSE American under the symbol “ PED .” Our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance.
Factors that could affect our stock price or result in fluctuations in the market price or trading volume of our common stock include: ● our actual or anticipated operating and financial performance and drilling locations, including reserves estimates; ● quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and cash flows, or those of companies that are perceived to be similar to us; ● changes in revenue, cash flows or earnings estimates or publication of reports by equity research analysts; 59 Table of Contents ● speculation in the press or investment community; ● public reaction to our press releases, announcements and filings with the SEC; ● sales of our common stock by us or other stockholders, or the perception that such sales may occur; ● the limited amount of our freely tradable common stock available in the public marketplace; ● general financial market conditions and oil and natural gas industry market conditions, including fluctuations in commodity prices; ● the realization of any of the risk factors presented in this Annual Report; ● the recruitment or departure of key personnel; ● commencement of, or involvement in, litigation; ● the prices of oil and natural gas; ● the success of our exploration and development operations, and the marketing of any oil and natural gas we produce; ● changes in market valuations of companies similar to ours; and ● domestic and international economic, health, legal and regulatory factors unrelated to our performance.
Additionally, general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock.
These broad market fluctuations may adversely affect the trading price of our common stock. Additionally, general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock.
Item 1. Business ” - “ Regulation of the Oil and Gas Industry ” and “ Regulation of Environmental and Occupational Safety and Health Matters ”. Compliance with such laws and regulations often increases our cost of doing business and thereby decreases our profitability.
Item 1. Business” — “Regulation of the Oil and Gas Industry” and “Regulation of Environmental and Occupational Safety and Health Matters ”. Compliance with such laws and regulations often increases our cost of doing business and thereby decreases our profitability.
If any of these security breaches were to occur, they could lead to losses of, or damage to, sensitive information or facilities, infrastructure and systems essential to our business and operations, as well as data corruption, reputational damage, communication interruptions or other disruptions to our operations, which, in turn, could have a material adverse effect on our business, financial position and results of operations. 61 Table of Contents Future sales of our common stock could cause our stock price to decline.
If any of these security breaches were to occur, they could lead to losses of, or damage to, sensitive information or facilities, infrastructure and systems essential to our business and operations, as well as data corruption, reputational damage, communication interruptions or other disruptions to our operations, which, in turn, could have a material adverse effect on our business, financial position and results of operations.
In addition to these objective standards, the NYSE American may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the NYSE American’s listing requirements; if an issuer’s common stock sells at what the NYSE American considers a “ low selling price ” (generally trading below $0.20 per share for an extended period of time) and the issuer fails to correct this via a reverse split of shares after notification by the NYSE American (provided that issuers can also be delisted if any shares of the issuer trade below $0.06 per share); or if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. 56 Table of Contents If the NYSE American delists our common stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain additional financing to fund our operations.
In addition to these objective standards, the NYSE American may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the NYSE American’s listing requirements; if an issuer’s common stock sells at what the NYSE American considers a “ low selling price ” (generally trading below $0.20 per share for an extended period of time) and the issuer fails to correct this via a reverse split of shares after notification by the NYSE American (provided that issuers can also be delisted if any shares of the issuer trade below $0.06 per share); or if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable.
We cannot assess the extent of either the threat or the potential impact of future terrorist attacks on the energy industry in general, and on us in particular, either in the short-term or in the long-term.
The threat and impact of terrorist attacks, cyber-attacks or similar hostilities may adversely impact our operations. We cannot assess the extent of either the threat or the potential impact of future terrorist attacks on the energy industry in general, and on us in particular, either in the short-term or in the long-term.
Rules adopted by federal regulators establishing federal regulation of the over-the-counter (“ OTC ”) derivatives market and entities that participate in that market may adversely affect our ability to manage certain of our risks on a cost-effective basis.
Regulations could adversely affect our ability to hedge risks associated with our business and our operating results and cash flows. Rules adopted by federal regulators establishing federal regulation of the over-the-counter (“ OTC ”) derivatives market and entities that participate in that market may adversely affect our ability to manage certain of our risks on a cost-effective basis.
Our outstanding options may adversely affect the trading price of our common stock. As of December 31, 2022, there are outstanding stock options to purchase 1,407,667 shares of our common stock at a weighted average price per share of $1.51.
Our outstanding options may adversely affect the trading price of our common stock. As of December 31, 2023, there are outstanding stock options to purchase 1,632,334 shares of our common stock at a weighted average price per share of $1.28.
Under applicable environmental laws and regulations, including The Comprehensive Environmental Response, Compensation, and Liability Act - otherwise known as CERCLA or Superfund, and state laws, we could be held liable for the removal or remediation of previously released materials or property contamination at such locations, or at third-party locations to which we have sent waste, regardless of our fault, whether we were responsible for the release or whether the operations at the time of the release were lawful.
Under applicable environmental laws and regulations, including The Comprehensive Environmental Response, Compensation, and Liability Act - otherwise known as CERCLA or Superfund, and state laws, we could be held liable for the removal or remediation of previously released materials or property contamination at such locations, or at third-party locations to which we have sent waste, regardless of our fault, whether we were responsible for the release or whether the operations at the time of the release were lawful. 58 Table of Contents Compliance with, or liabilities associated with violations of or remediation obligations under, environmental laws and regulations could have a material adverse effect on our results of operations and financial condition.
In order to maintain this listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders.
Our common stock is currently listed on the NYSE American. In order to maintain this listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders.
However, the full impact of the various U.S. regulatory developments in connection with these activities will not be known with certainty until such derivatives market regulations are fully implemented and related market practices and structures are fully developed.
However, the full impact of the various U.S. regulatory developments in connection with these activities will not be known with certainty until such derivatives market regulations are fully implemented and related market practices and structures are fully developed. We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting.
If our shareholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our shareholders might sell shares of our common stock could also depress the market price of our common stock.
The perception in the public market that our shareholders might sell shares of our common stock could also depress the market price of our common stock. Additionally, if our existing shareholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly.
The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares.
The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares. 61 Table of Contents Our Certificate of Formation contains a specific provision that limits the liability of our directors for monetary damages to the Company and the Company’s stockholders.
The potential for such security threats subjects our operations to increased risks that could have a material adverse effect on our business, financial condition and results of operations. For example, unauthorized access to our seismic data, reserves information or other proprietary information could lead to data corruption, communication interruptions, or other disruptions to our operations.
The potential for such security threats subjects our operations to increased risks that could have a material adverse effect on our business, financial condition and results of operations.
Sales or distributions of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our common stock to decline.
Sales or distributions of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our common stock to decline. 60 Table of Contents We are subject to the Continued Listing Criteria of the NYSE American and our failure to satisfy these criteria may result in delisting of our common stock.
These provisions and resultant costs may also discourage us from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers, even though such actions, if successful, might otherwise benefit us and our stockholders. 57 Table of Contents Anti-takeover provisions in our Certificate of Formation and our Bylaws, as well as provisions of Texas law, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our securities.
These provisions and resultant costs may also discourage us from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers, even though such actions, if successful, might otherwise benefit us and our stockholders.
A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities. The threat and impact of terrorist attacks, cyber-attacks or similar hostilities may adversely impact our operations.
The market price for shares of our common stock may drop significantly when such securities are sold in the public markets. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
If we do not have sufficient funds and are otherwise unable to arrange financing, we may have to sell significant assets or have a portion of our assets foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations.
If we do not have sufficient funds and are otherwise unable to arrange financing, we may have to sell significant assets or have a portion of our assets foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations. 64 Table of Contents Because we are a small company, the requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
Our common stock is listed on the NYSE American under the symbol “ PED .” Our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.
Our implementation of various procedures and controls to monitor and mitigate such security threats and to increase security for our information, systems, facilities and infrastructure may result in increased capital and operating costs. Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring.
Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring.
Additionally, if our existing shareholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly. The market price for shares of our common stock may drop significantly when such securities are sold in the public markets.
Future sales of our common stock could cause our stock price to decline. If our shareholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly.
Removed
Compliance with, or liabilities associated with violations of or remediation obligations under, environmental laws and regulations could have a material adverse effect on our results of operations and financial condition. 54 Table of Contents Regulations could adversely affect our ability to hedge risks associated with our business and our operating results and cash flows.
Added
If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.
Removed
We are subject to the Continued Listing Criteria of the NYSE American and our failure to satisfy these criteria may result in delisting of our common stock. Our common stock is currently listed on the NYSE American.
Added
Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. As reported under “ Part II ” - “ Item 9 A .
Removed
Our Certificate of Formation contains a specific provision that limits the liability of our directors for monetary damages to the Company and the Company’s stockholders.
Added
Controls and Procedures ” , as of December 31, 2023, our Chief Executive Officer (“ CEO ”) and Chief Accounting Officer (“ CAO ”) have determined that our disclosure controls and procedures were not effective.
Removed
Up to $100,000,000 in total aggregate value of securities have been registered by us on a “ shelf ” registration statement on Form S-3 (File No. 333-250904) that we filed with the Securities and Exchange Commission on November 23, 2020 (the “ November 2020 Form S-3 ”), and which was declared effective on December 2, 2020.
Added
Separately, management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 and determined that such internal control over financial reporting was not effective as a result of such assessment, and such internal control over financial reporting.
Removed
To date, an aggregate of approximately $15.95 million in securities have been sold by us under the November 2020 Form S-3, leaving approximately $84.05 million in securities which will be eligible for sale in the public markets from time to time, when sold and issued by us, subject to the requirements of Form S-3, which limits us, until such time, if ever, as our public float exceeds $75 million, from selling securities in a public primary offering under Form S-3 with a value exceeding more than one-third of the aggregate market value of the common stock held by non-affiliates of the Company every twelve months.
Added
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Removed
On November 17, 2021 we registered up to $3.6 million in securities for sale from time to time in an “at the market offering” under the November 2020 Form S-3 pursuant to a Prospectus Supplement, of which approximately $0.1 million of securities have been sold to date.
Added
A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
Removed
The information regarding the Company’s oil and gas properties as required by Item 102 of Regulation S-K is included in “ Item 1. Business ”, above and incorporated in this Item 2 by reference.
Added
As of December 31, 2023, the material weakness in our internal control over financial reporting related to the review of the inputs to the calculation of depreciation, depletion, and amortization of our reserves, including the review over the proper inclusion of all developed reserves and the review of proper exclusion of certain segments of certain wells towards the end of the life in the reserve quantity estimates.
Removed
Additional information regarding our oil and gas properties can be found in “Part II” - “ Item 8 Financial Statements and Supplementary Data” - “Supplemental Oil and Gas Disclosures (Unaudited) ”. Office Leases Effective September 1, 2019, the Company moved its corporate headquarters from 1250 Wood Branch Park Dr., Suite 400, Houston, Texas 77079 to 575 N.
Added
The error was identified through the course of the Company’s preparation of its year-ended December 31, 2023 financial statements. The Company has already developed a plan to implement new controls and procedures designed to address the identified material weakness. The Company believes these new controls and procedures will remediate the material weaknesses in a future period.
Removed
Dairy Ashford, Suite 210, Houston, Texas 77079 in connection with the expiration of its former office space lease. The Company entered into a sublease on approximately 5,200 square feet of office space that expires on August 31, 2023, and has a base monthly rent of approximately $10,000 with the first month rent due beginning on January 1, 2020.
Added
However, there is the potential that the Company’s already implemented efforts to remedy the material weakness will be ineffective and/or that additional material weaknesses could occur regardless of the remediation or additional controls implemented by the Company.
Removed
The Company paid a security deposit of $9,600. In December 2022, the Company entered into a new lease agreement for its existing office space that will commence on September 1, 2023, and expire on February 28, 2027. The base monthly rent will be approximately $9,200 for the first 18 months and increase to approximately $9,500 thereafter.
Added
Maintaining effective disclosure controls and procedures and effective internal control over financial reporting are necessary for us to produce reliable financial statements and the Company is committed to remediating its material weaknesses in such controls as promptly as possible.
Removed
The Company paid both a security deposit and prepaid rent for $14,700, respectively. On November 1, 2019, the Company began subleasing approximately 300 square feet of office space at its current headquarters to SK Energy, which is owned and controlled by Dr. Kukes, our Chief Executive Officer and a member of the Board of Directors.
Added
However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future.
Removed
The lease renews on a monthly basis, may be terminated by either party at any time upon prior written notice delivered to the other party, and has a monthly base rent of $1,200. Effective September 1, 2022, the Company extended the sublease agreement with SK Energy whereby SK Energy paid a $24,000 non-refundable two-year rent payment to the Company.
Added
Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock, and/or result in litigation against us or our management.
Removed
For the years ended December 31, 2022 and 2021, the Company incurred lease expense of $99,000 and $95,000, respectively, for the combined leases.
Added
In addition, even if we are successful in strengthening our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or facilitate the fair presentation of our financial statements or our periodic reports filed with the SEC.
Added
If the NYSE American delists our common stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain additional financing to fund our operations.
Added
Anti-takeover provisions in our Certificate of Formation and our Bylaws, as well as provisions of Texas law, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our securities.
Added
For example, unauthorized access to our seismic data, reserves information or other proprietary information could lead to data corruption, communication interruptions, or other disruptions to our operations. 65 Table of Contents Our implementation of various procedures and controls to monitor and mitigate such security threats and to increase security for our information, systems, facilities and infrastructure may result in increased capital and operating costs.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

96 edited+13 added−15 removed211 unchanged
Biggest changeIn the event required capital becomes unavailable in the future, or more costly, it could have a material adverse effect on our business, results of operations, and financial condition. 34 Table of Contents We have entered into Agreed Compliance Orders, as amended (“ ACOs ”), with the State of New Mexico Energy, Minerals and Natural Resources Department (“ EMNRD ”) which require the restoration of production, or plugging and abandonment, of an aggregate of approximately 333 legacy vertical wells in our Permian Basin Asset, with any failure by us to comply with the ACOs likely to materially and adversely affect our business, results of operations and cash flows.
Biggest changeWe have entered into a Stipulated Final Order (“ SFO ”) with the Director of the Oil and Gas Conservation Division of the State of New Mexico Energy (“ OCD ”) which requires that the Company fund the plugging and abandonment of an aggregate of approximately 299 legacy vertical wells in our Permian Basin Asset, with any failure by us to comply with the SFO likely to materially and adversely affect our business, results of operations and cash flows. 38 Table of Contents The Company has entered into an SFO with the OCD through RAZO, the Company’s New Mexico operating subsidiary, which requires, among other things, that the Company reimburse the OCD for actual costs incurred by the OCD for plugging and abandoning approximately 299 inactive legacy wells in the Permian Basin Asset at a rate of $2.00 per gross barrel of oil sold by RAZO during any production reporting period, subject to a minimum payment of $30,000 per month by RAZO.
We do not believe that Dr. Kukes or Mr. Schick could be quickly replaced with personnel of equal experience and capabilities, and their successor(s) may not be as effective. If Dr. Kukes, Mr.
Schick. We do not believe that Dr. Kukes or Mr. Schick could be quickly replaced with personnel of equal experience and capabilities, and their successor(s) may not be as effective. If Dr. Kukes, Mr.
In particular, risks associated with our business include: · The future price of oil, natural gas and NGL; · The impact of public health crises, similar to COVID-19, on the Company’s operations, future prospects, the value of its properties, and the economy in general, including the related effect on the supply and demand, and ultimate price of oil and natural gas; · Current and future declines in economic activity and recessions, increased inflation and interest rates, and their effect on the Company, its property, prospects and the supply and demand, and ultimate price of oil and natural gas; · The status and availability of oil and natural gas gathering, transportation, and storage facilities owned and operated by third parties; · An increase in the differential between the NYMEX or other benchmark prices of oil and natural gas and the wellhead price we receive for our production may adversely affect our business, financial condition, and results of operations; · New or amended environmental legislation or regulatory initiatives which could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us; · The effect of future shut-ins of our operated production, should market conditions significantly deteriorate; · Declines in the value of our crude oil, natural gas and NGL properties resulting in impairments; · Our need for additional capital to complete future acquisitions, conduct our operations and fund our business, and our ability to obtain such necessary funding on favorable terms, if at all; · Our ability to generate sufficient cash flow to meet any future debt service and other obligations due to events beyond our control; · The fact that all of our assets and operations are located in the Permian Basin and the D-J Basin, making us vulnerable to risks associated with operating in only two geographic areas; · The speculative nature of our oil and gas operations, and general risks associated with the exploration for, and production of oil and gas; including accidents, equipment failures or mechanical problems which may occur while drilling or completing wells or in production activities; operational hazards and unforeseen interruptions for which we may not be adequately insured; the threat and impact of terrorist attacks, cyber-attacks or similar hostilities; declining reserves and production; and losses or costs we may incur as a result of title deficiencies or environmental issues in the properties in which we invest, any one of which may adversely impact our operations; · Potential conflicts of interest that could arise for certain members of our management team and board of directors that hold management positions with other entities and our largest stockholder; 31 Table of Contents · The limited control we have over activities on properties we do not operate; · The estimates of the value of our oil and gas properties and accounting in connection therewith; · Intense competition in the oil and natural gas industry; · Our competitors use of superior technology and data resources that we may be unable to afford or obtain the use of; · Changes in the legal and regulatory environment governing the oil and natural gas industry, including new or amended environmental legislation or regulatory initiatives which could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us; · Uncertainties associated with enhanced recovery methods which may result in us not realizing an acceptable return on our investments in such projects or suffering losses; · Requirements that we must drill on certain of acreage in order to hold such acreage by production; · Improvements in or new discoveries of alternative energy technologies that could have a material adverse effect on our financial condition and results of operations; · Future litigation or governmental proceedings which could result in material adverse consequences, including judgments or settlements; · The currently sporadic and volatile market for our common stock; · Our dependence on the continued involvement of our present management; · The fact that Dr.
In particular, risks associated with our business include: · The future price of oil, natural gas and NGL; · The impact of public health crises, similar to COVID-19, on the Company’s operations, future prospects, the value of its properties, and the economy in general, including the related effect on the supply and demand, and ultimate price of oil and natural gas; · Current and future declines in economic activity and recessions, changes in inflation and interest rates, and their effect on the Company, its property, prospects and the supply and demand, and ultimate price of oil and natural gas; · The status and availability of oil and natural gas gathering, transportation, and storage facilities owned and operated by third parties; · An increase in the differential between the NYMEX or other benchmark prices of oil and natural gas and the wellhead price we receive for our production may adversely affect our business, financial condition, and results of operations; · New or amended environmental legislation or regulatory initiatives which could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us; · The effect of future shut-ins of our operated production, should market conditions significantly deteriorate; · Declines in the value of our crude oil, natural gas and NGL properties resulting in impairments; · Our need for additional capital to complete future acquisitions, conduct our operations and fund our business, and our ability to obtain such necessary funding on favorable terms, if at all; · Our ability to generate sufficient cash flow to meet any future debt service and other obligations due to events beyond our control; · The fact that all of our assets and operations are located in the Permian Basin and the D-J Basin, making us vulnerable to risks associated with operating in only two geographic areas; · The speculative nature of our oil and gas operations, and general risks associated with the exploration for, and production of oil and gas; including accidents, equipment failures or mechanical problems which may occur while drilling or completing wells or in production activities; operational hazards and unforeseen interruptions for which we may not be adequately insured; the threat and impact of terrorist attacks, cyber-attacks or similar hostilities; declining reserves and production; and losses or costs we may incur as a result of title deficiencies or environmental issues in the properties in which we invest, any one of which may adversely impact our operations; · Potential conflicts of interest that could arise for certain members of our management team and board of directors that hold management positions with other entities and our largest stockholder; 35 Table of Contents · The limited control we have over activities on properties we do not operate; · The estimates of the value of our oil and gas properties and accounting in connection therewith; · Intense competition in the oil and natural gas industry; · Our competitors use of superior technology and data resources that we may be unable to afford or obtain the use of; · Changes in the legal and regulatory environment governing the oil and natural gas industry, including new or amended environmental legislation or regulatory initiatives which could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us; · Uncertainties associated with enhanced recovery methods which may result in us not realizing an acceptable return on our investments in such projects or suffering losses; · Requirements that we must drill on certain of acreage in order to hold such acreage by production; · Improvements in or new discoveries of alternative energy technologies that could have a material adverse effect on our financial condition and results of operations; · Future litigation or governmental proceedings which could result in material adverse consequences, including judgments or settlements; · The currently sporadic and volatile market for our common stock; · Our dependence on the continued involvement of our present management; · The fact that Dr.
Certain regulatory responses to climate change issues are discussed above under the headings ”Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business” and “New or amended environmental legislation or regulatory initiatives could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us” and in Item 1 - Business - Regulation in the Oil and Gas Industry.
Certain regulatory responses to climate change issues are discussed above under the headings “Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico or Wyoming, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business” and “New or amended environmental legislation or regulatory initiatives could result in increased costs, additional operating restrictions, or delays, or have other adverse effects on us” and in Item 1 - Business – Regulation in the Oil and Gas Industry.
While the Company is cautiously optimistic that such costs have plateaued and will hold at current levels as we have not seen significant cost increases thus far in 2023, supply chain constraints and inflationary pressures may continue to adversely impact our operating costs and may negatively impact our ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could result in reduced margins and production delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
While the Company is cautiously optimistic that such costs have plateaued and will hold at current levels as we have not seen significant cost increases in 2023 and thus far in 2024, supply chain constraints and inflationary pressures may continue to adversely impact our operating costs and may negatively impact our ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could result in reduced margins and production delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Changes in the legal and regulatory environment governing our industry, particularly any changes to Colorado’s forced pooling procedures that make forced pooling more difficult to accomplish and changes in minimum set-backs distances for drilling operations from buildings (including those recently adopted), or increased regulation in New Mexico with respect to salt water disposal well permitting, could result in increased compliance costs and operational delays, and adversely affect our business, financial condition and results of operations.
Changes in the legal and regulatory environment governing our industry, particularly any changes to Colorado’s forced pooling procedures that make forced pooling more difficult to accomplish and changes in minimum set-backs distances for drilling operations from buildings (including those recently adopted), or increased regulation in New Mexico or Wyoming with respect to salt water disposal well permitting, could result in increased compliance costs and operational delays, and adversely affect our business, financial condition and results of operations.
We review our long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For the year ended December 31, 2020, due to falling oil and gas prices, we incurred a $19.3 million impairment of our oil and gas properties.
We review our long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For example, for the year ended December 31, 2020, due to falling oil and gas prices, we incurred a $19.3 million impairment of our oil and gas properties.
There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. This risk may be enhanced in our situation, due to the fact that a significant percentage of our reserves is undeveloped.
There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. This risk may be enhanced in our situation, due to the fact that a significant percentage of our reserves are undeveloped.
If funding is insufficient at any time in the future and we are unable to generate sufficient revenue from new business arrangements, to complete planned acquisitions or operations, our results of operations and the value of our securities could be adversely affected. 33 Table of Contents Additionally, due to the nature of oil and gas interests, i.e., that rates of production generally decline over time as oil and gas reserves are depleted, if we are unable to drill additional wells and develop our reserves, either because we are unable to raise sufficient funding for such development activities, or otherwise, or in the event we are unable to acquire additional operating properties, we believe that our revenues will continue to decline over time.
If funding is insufficient at any time in the future and we are unable to generate sufficient revenue from new business arrangements, to complete planned acquisitions or operations, our results of operations and the value of our securities could be adversely affected. 37 Table of Contents Additionally, due to the nature of oil and gas interests, i.e., that rates of production generally decline over time as oil and gas reserves are depleted, if we are unable to drill additional wells and develop our reserves, either because we are unable to raise sufficient funding for such development activities, or otherwise, or in the event we are unable to acquire additional operating properties, we believe that our revenues will continue to decline over time.
We depend significantly upon the continued involvement of our present management. We depend to a significant degree upon the involvement of our management, specifically, our Chief Executive Officer, Dr. Simon Kukes and our President, Mr. J. Douglas Schick. Our performance and success are dependent to a large extent on the efforts and continued employment of Dr. Kukes and Mr. Schick.
We depend significantly upon the continued involvement of our present management. We depend to a significant degree upon the involvement of our management, specifically, our Chief Executive Officer, Dr. Simon G. Kukes and our President, Mr. J. Douglas Schick. Our performance and success are dependent to a large extent on the efforts and continued employment of Dr. Kukes and Mr.
Continuing increases in inflation, have in the past, and could in the future, impact our costs of labor, equipment and services and the margins we are able to realize on our wells, all of which could have an adverse impact on our business, financial position, results of operations and cash flows.
Increases in inflation, have in the past, and could in the future, impact our costs of labor, equipment and services and the margins we are able to realize on our wells, all of which could have an adverse impact on our business, financial position, results of operations and cash flows.
Simon Kukes, the Company’s Chief Executive Officer and director, loaned us an aggregate of $51.7 million to support our operations and for acquisitions through an entity owned and controlled by him, all of which loans were evidenced by promissory notes.
Kukes, the Company’s Chief Executive Officer and director, loaned us an aggregate of $51.7 million to support our operations and for acquisitions through an entity owned and controlled by him, all of which loans were evidenced by promissory notes.
If we are unable to obtain water to use in our operations from local sources or dispose of or recycle water used in operations, or if the price of water or water disposal increases significantly, we may be unable to produce oil and natural gas economically, which could have a material adverse effect on our financial condition, results of operations, and cash flows. 46 Table of Contents Downturns and volatility in global economies and commodity and credit markets have, and in the future may, materially adversely affect our business, results of operations and financial condition.
If we are unable to obtain water to use in our operations from local sources or dispose of or recycle water used in operations, or if the price of water or water disposal increases significantly, we may be unable to produce oil and natural gas economically, which could have a material adverse effect on our financial condition, results of operations, and cash flows. 50 Table of Contents Downturns and volatility in global economies and commodity and credit markets have, and in the future may, materially adversely affect our business, results of operations and financial condition.
We have in the past been significantly dependent on capital provided to us by Dr. Simon Kukes and may rely on Dr. Kukes for additional funding in the future. In 2018 and 2019, Dr.
We have in the past been significantly dependent on capital provided to us by Dr. Simon G. Kukes and may rely on Dr. Kukes for additional funding in the future. In 2018 and 2019, Dr. Simon G.
We cannot assure you that the analogies we draw from available data obtained by analyzing other wells, more fully explored prospects or producing fields will be applicable to our drilling prospects. 48 Table of Contents Negative public perception regarding us and/or our industry could have an adverse effect on our operations.
We cannot assure you that the analogies we draw from available data obtained by analyzing other wells, more fully explored prospects or producing fields will be applicable to our drilling prospects. 52 Table of Contents Negative public perception regarding us and/or our industry could have an adverse effect on our operations.
The COGCC commissioners determined that locations with residential or high occupancy building units within 2,000 feet would be subject to additional siting requirements, but also supported “off ramps” allowing oil and gas operators to site their drill pads as close as 500 feet from building units in certain circumstances.
The COGCC (now the ECMC) commissioners determined that locations with residential or high occupancy building units within 2,000 feet would be subject to additional siting requirements, but also supported “off ramps” allowing oil and gas operators to site their drill pads as close as 500 feet from building units in certain circumstances.
There are numerous operational hazards inherent in oil and natural gas exploration, development, production and gathering, including: · unusual or unexpected geologic formations; · natural disasters; 40 Table of Contents · adverse weather conditions; · unanticipated pressures; · loss of drilling fluid circulation; · blowouts where oil or natural gas flows uncontrolled at a wellhead; · cratering or collapse of the formation; · pipe or cement leaks, failures or casing collapses; · fires or explosions; · releases of hazardous substances or other waste materials that cause environmental damage; · pressures or irregularities in formations; and · equipment failures or accidents.
There are numerous operational hazards inherent in oil and natural gas exploration, development, production and gathering, including: ● unusual or unexpected geologic formations; ● natural disasters; ● adverse weather conditions; ● unanticipated pressures; ● loss of drilling fluid circulation; ● blowouts where oil or natural gas flows uncontrolled at a wellhead; ● cratering or collapse of the formation; ● pipe or cement leaks, failures or casing collapses; ● fires or explosions; ● releases of hazardous substances or other waste materials that cause environmental damage; ● pressures or irregularities in formations; and ● equipment failures or accidents.
A shortage of service crews or proppant, chemical, water or water disposal options, especially if this shortage occurred in eastern New Mexico or eastern Colorado, could materially and adversely affect our operations and the timeliness of executing our development plans within our budget. Our operations are substantially dependent on the availability of water.
A shortage of service crews or proppant, chemical, water or water disposal options, especially if this shortage occurred in eastern New Mexico, eastern Colorado, or southern Wyoming, could materially and adversely affect our operations and the timeliness of executing our development plans within our budget. Our operations are substantially dependent on the availability of water.
In the event the Company is unable to fully comply with the terms of these ACOs, then the Company could be subject to significant civil penalties and sanctions, which would likely have a material adverse effect on our business, financial condition and results of operations, could require us to raise additional funding which may not be available on commercially reasonable terms, if at all, and may negatively affect our drilling plans in the future, and may cause the value of our securities to decline in value.
In the event the Company is unable to fully comply with the terms of the SFO, then the Company could be subject to significant civil penalties and sanctions, which would likely have a material adverse effect on our business, financial condition and results of operations, could require us to raise additional funding which may not be available on commercially reasonable terms, if at all, and may negatively affect our drilling plans in the future, and may cause the value of our securities to decline in value.
We may need to raise additional funding to complete future potential acquisitions and may be required to raise additional funds through public or private debt or equity financing or other various means to fund our operations and complete exploration and drilling operations beyond 2023 and acquire assets.
We may need to raise additional funding to complete future potential acquisitions and may be required to raise additional funds through public or private debt or equity financing or other various means to fund our operations and complete exploration and drilling operations beyond 2024 and acquire assets.
Simon Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns 66.6% of our common stock, which gives him majority voting control over stockholder matters and his interests may be different from your interests; and as a result of such ownership, we are a “ controlled company ” under applicable NYSE American rules. Dr.
Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns 66.5% of our common stock, which gives him majority voting control over stockholder matters and his interests may be different from your interests; and as a result of such ownership, we are a “ controlled company ” under applicable NYSE American rules. Dr. Simon G.
Kukes may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other stockholders. 51 Table of Contents Risks Relating to Government Regulations Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business.
Kukes may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other stockholders. 55 Table of Contents Risks Relating to Government Regulations Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system and drilling operation set-back rules, salt water disposal permitting regulations in New Mexico or Wyoming, and new federal orders restricting operations on federal lands, could have a material adverse effect on our business.
Moreover, we may be required to write down our PUDs if we do not drill or plan on delaying those wells within the required five-year timeframe. 53 Table of Contents Proposed changes to U.S. tax laws, if adopted, could have an adverse effect on our business, financial condition, results of operations, and cash flows.
Moreover, we may be required to write down our PUDs if we do not drill or plan on delaying those wells within the required five-year timeframe. Proposed changes to U.S. tax laws, if adopted, could have an adverse effect on our business, financial condition, results of operations, and cash flows.
The prices we receive for our production, and the levels of our production, will continue to depend on numerous factors, including the following: · the domestic and foreign supply of oil, NGLs and natural gas; · the domestic and foreign demand for oil, NGLs and natural gas; · the prices and availability of competitors’ supplies of oil, NGLs and natural gas; · the actions of the Organization of Petroleum Exporting Countries, or OPEC, and state-controlled oil companies relating to oil price and production controls; · the price and quantity of foreign imports of oil, NGLs and natural gas; 37 Table of Contents · the impact of U.S. dollar exchange rates on oil, NGLs and natural gas prices; · domestic and foreign governmental regulations and taxes; · speculative trading of oil, NGLs and natural gas futures contracts; · localized supply and demand fundamentals, including the availability, proximity and capacity of gathering and transportation systems for natural gas; · the availability of refining capacity; · the prices and availability of alternative fuel sources; · the threat, or perceived threat, or results, of viral pandemics, for example, as experienced with the COVID-19 pandemic in 2020 and 2021; · weather conditions and natural disasters; · political conditions in or affecting oil, NGLs and natural gas producing regions and/or pipelines, including in Eastern Europe, the Middle East and South America, for example, as experienced with the Russian invasion of the Ukraine in February 2022, which conflict is ongoing; · the continued threat of terrorism and the impact of military action and civil unrest; · public pressure on, and legislative and regulatory interest within, federal, state and local governments to stop, significantly limit or regulate hydraulic fracturing activities; · the level of global oil, NGL and natural gas inventories and exploration and production activity; · authorization of exports from the Unites States of liquefied natural gas; · the impact of energy conservation efforts; · technological advances affecting energy consumption; and · overall worldwide economic conditions.
The prices we receive for our production, and the levels of our production, will continue to depend on numerous factors, including the following: ● the domestic and foreign supply of oil, NGLs and natural gas; ● the domestic and foreign demand for oil, NGLs and natural gas; ● the prices and availability of competitors’ supplies of oil, NGLs and natural gas; ● the actions of the Organization of Petroleum Exporting Countries, or OPEC, and state-controlled oil companies relating to oil price and production controls; ● the price and quantity of foreign imports of oil, NGLs and natural gas; ● the impact of U.S. dollar exchange rates on oil, NGLs and natural gas prices; ● domestic and foreign governmental regulations and taxes; ● speculative trading of oil, NGLs and natural gas futures contracts; ● localized supply and demand fundamentals, including the availability, proximity and capacity of gathering and transportation systems for natural gas; ● the availability of refining capacity; ● the prices and availability of alternative fuel sources; ● the threat, or perceived threat, or results, of viral pandemics, for example, as experienced with the COVID-19 pandemic in 2020 and 2021; ● weather conditions and natural disasters; ● political conditions in or affecting oil, NGLs and natural gas producing regions and/or pipelines, including in Eastern Europe, the Middle East and South America, for example, as experienced with the Russian invasion of the Ukraine in February 2022, and the current armed conflict in Israel and the Gaza Strip, which conflicts are ongoing; 41 Table of Contents ● the continued threat of terrorism and the impact of military action and civil unrest; ● public pressure on, and legislative and regulatory interest within, federal, state and local governments to stop, significantly limit or regulate hydraulic fracturing activities; ● the level of global oil, NGL and natural gas inventories and exploration and production activity; ● authorization of exports from the Unites States of liquefied natural gas; ● the impact of energy conservation efforts; ● technological advances affecting energy consumption; and ● overall worldwide economic conditions.
Although we believe there is currently sufficient supply of hydraulic fracturing services, if demand for fracturing services increases or the supply of fracturing equipment and crews decreases, then higher costs could result and could adversely affect our business, financial condition and results of operations. 43 Table of Contents We have limited control over activities on properties we do not operate.
Although we believe there is currently sufficient supply of hydraulic fracturing services, if demand for fracturing services increases or the supply of fracturing equipment and crews decreases, then higher costs could result and could adversely affect our business, financial condition and results of operations. We have limited control over activities on properties we do not operate.
Our actual drilling activities may be materially different from our current expectations, which could adversely affect our business, financial condition and results of operations. We currently license only a limited amount of seismic and other geological data and may have difficulty obtaining additional data at a reasonable cost, which could adversely affect our future results of operations.
Our actual drilling activities may be materially different from our current expectations, which could adversely affect our business, financial condition and results of operations. 46 Table of Contents We currently license only a limited amount of seismic and other geological data and may have difficulty obtaining additional data at a reasonable cost, which could adversely affect our future results of operations.
Any such outcome could have a material and adverse impact on our cash flows and results of operations. For example, in 2014, 2016 and 2018, opponents of hydraulic fracturing sought statewide ballot initiatives in Colorado that would have restricted oil and gas development in Colorado and could have had materially adverse impacts on us.
Any such outcome could have a material and adverse impact on our cash flows and results of operations. 56 Table of Contents For example, in 2014, 2016 and 2018, opponents of hydraulic fracturing sought statewide ballot initiatives in Colorado that would have restricted oil and gas development in Colorado and could have had materially adverse impacts on us.
These could result in a material adverse effect on our prospects, business, financial condition and our results of operations. 47 Table of Contents A substantial percentage of our New Mexico properties are undeveloped; therefore, the risk associated with our success is greater than would be the case if the majority of such properties were categorized as proved developed producing.
These could result in a material adverse effect on our prospects, business, financial condition and our results of operations. 51 Table of Contents A substantial percentage of our New Mexico properties, and all of our Wyoming properties, are undeveloped; therefore, the risk associated with our success is greater than would be the case if the majority of such properties were categorized as proved developed producing.
This Bill, among other things, gives more power to local government entities in making land use decisions about oil and gas development and regulation, and directs the Colorado Oil & Gas Conservation Commission (“ COGCC ”) to promulgate rules to ensure, among other things, proper wellbore integrity, allow public disclosure of flowline information, and evaluate when inactive or shut-in wells must be inspected before being put into production or used for injection.
This Bill, among other things, gives more power to local government entities in making land use decisions about oil and gas development and regulation, and directs the Energy & Carbon Management Commission (“ ECMC ”) (formally the Colorado Oil & Gas Conservation Commission (“ COGCC ”)) to promulgate rules to ensure, among other things, proper wellbore integrity, allow public disclosure of flowline information, and evaluate when inactive or shut-in wells must be inspected before being put into production or used for injection.
When drought conditions occur, governmental authorities may restrict the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supplies. Both New Mexico and Colorado have relatively arid climates and experience drought conditions from time to time and the U.S.
When drought conditions occur, governmental authorities may restrict the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supplies. New Mexico, Colorado and Wyoming, all have relatively arid climates and experience drought conditions from time to time and the U.S.
In considering an investment in our common stock, you should consider that there is only limited historical and financial operating information available upon which to base your evaluation of our performance. We have incurred net losses of $126,741,000 from the date of inception (February 9, 2011) through December 31, 2022.
In considering an investment in our common stock, you should consider that there is only limited historical and financial operating information available upon which to base your evaluation of our performance. We have incurred net losses of $126,477,000 from the date of inception (February 9, 2011) through December 31, 2023.
We may need additional capital to complete future acquisitions, conduct our operations and fund our business beyond 2023, and our ability to obtain the necessary funding is uncertain.
We may need additional capital to complete future acquisitions, conduct our operations and fund our business beyond 2024, and our ability to obtain the necessary funding is uncertain.
Kukes, together with the ownership of The SGK 2018 Revocable Trust, beneficially owns approximately 66.6% of our issued and outstanding common stock. As such, Dr.
Kukes, together with the ownership of The SGK 2018 Revocable Trust, beneficially owns approximately 66.5% of our issued and outstanding common stock. As such, Dr.
Pursuant to the Bill, the COGCC conducted a series of rulemaking hearings during 2020 which resulted in updated regulatory and permitting requirements, including siting requirements.
Pursuant to the Bill, the COGCC (now the ECMC) conducted a series of rulemaking hearings during 2020 which resulted in updated regulatory and permitting requirements, including siting requirements.
One or more of the technologies that we will use or that we may implement in the future may become obsolete, and we may be adversely affected. If we do not hedge our exposure to reductions in oil and natural gas prices, we may be subject to significant reductions in prices.
One or more of the technologies that we will use or that we may implement in the future may become obsolete, and we may be adversely affected. 49 Table of Contents If we do not hedge our exposure to reductions in oil and natural gas prices, we may be subject to significant reductions in prices.
Year 2022 saw significant increases in the costs of certain services and materials, including steel, sand and fuel, as a result of availability constraints, supply chain disruption, increased demand, labor shortages associated with a fully employed US labor force, high inflation, interest rates and other factors, with supply and demand fundamentals being further aggravated by disruptions in global energy supply caused by multiple geopolitical events, including the ongoing conflict between Russia and Ukraine, all resulting in an estimated cost increase of approximately 25% to 30% per well on our Permian Asset and 10% to 20% on our D-J Asset, based on costs we experienced commencing in the third quarter of 2021 and through 2022.
Year 2022 saw significant increases in the costs of certain services and materials, including steel, sand and fuel, as a result of availability constraints, supply chain disruption, increased demand, labor shortages associated with a fully employed US labor force, high inflation, interest rates and other factors, with supply and demand fundamentals being further aggravated by disruptions in global energy supply caused by multiple geopolitical events, including the ongoing conflict between Russia and Ukraine and the current armed conflict in Israel and the Gaza Strip, all resulting in an estimated cost increase of approximately 25% to 30% per well on our Permian Asset and 10% to 20% on our D-J Basin Asset, based on costs we experienced commencing in the third quarter of 2021 and continuing throughout 2022.
The accuracy of a reserves estimate is a function of: · the quality and quantity of available data; · the interpretation of that data; · the judgment of the persons preparing the estimate; and · the accuracy of the assumptions. The accuracy of any estimates of proved reserves generally increases with the length of the production history.
The accuracy of a reserves estimate is a function of: ● the quality and quantity of available data; ● the interpretation of that data; ● the judgment of the persons preparing the estimate; and ● the accuracy of the assumptions. 43 Table of Contents The accuracy of any estimates of proved reserves generally increases with the length of the production history.
If any of our directors resign or become unable to continue in their present role, it may be difficult to find replacements with the same knowledge and experience and as a result, our operations may be adversely affected. 50 Table of Contents Dr.
If any of our directors resign or become unable to continue in their present role, it may be difficult to find replacements with the same knowledge and experience and as a result, our operations may be adversely affected. 54 Table of Contents Dr. Simon G.
Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. Because approximately 72% of our estimated proved reserves as of December 31, 2022 were oil, our financial results are more sensitive to movements in oil prices.
Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. Because approximately 67% of our estimated proved reserves as of December 31, 2023 were oil, our financial results are more sensitive to movements in oil prices.
Simon Kukes, our Chief Executive Officer and member of the board of directors, through his individual ownership of the Company and through his position as trustee and beneficiary of The SGK 2018 Revocable Trust, which beneficially owns approximately 59.5% of our issued and outstanding common stock and Dr.
Kukes, our Chief Executive Officer and member of the board of directors, through his individual ownership of the Company and through his position as trustee and beneficiary of The SGK 2018 Revocable Trust, which beneficially owns approximately 58% of our issued and outstanding common stock and Dr.
Concerns over global economic conditions, the duration and effects of future pandemics, and the results thereof, energy costs, geopolitical issues (including, but not limited to the current Ukraine/Russia conflict), inflation, increasing interest rates and the availability and cost of credit have contributed to increased economic uncertainty and diminished expectations for the global economy.
Concerns over global economic conditions, the duration and effects of future pandemics, and the results thereof, energy costs, geopolitical issues (including, but not limited to the current Ukraine/Russia and Israel/Gaza Strip conflicts), inflation, increasing interest rates and the availability and cost of credit have contributed to increased economic uncertainty and diminished expectations for the global economy.
Service and materials costs also increased accordingly through 2022 with general supply chain and inflation issues seen throughout the industry leading to increased operating costs.
Service and materials costs also increased accordingly through 2022, stabilizing in 2023, with general supply chain and inflation issues seen throughout the industry leading to increased operating costs.
Low oil or natural gas prices and the substantial volatility in these prices have adversely affected, and are expected to continue to adversely affect, our business, financial condition and results of operations and our ability to meet our capital expenditure requirements and financial obligations.
Our success is dependent on the prices of oil, NGLs and natural gas. Low oil or natural gas prices and the substantial volatility in these prices have adversely affected, and are expected to continue to adversely affect, our business, financial condition and results of operations and our ability to meet our capital expenditure requirements and financial obligations.
We may drill or participate in new wells that are not productive. We may drill wells that are productive, but that do not produce sufficient net revenues to return a profit after drilling, operating and other costs.
We may drill wells that are productive, but that do not produce sufficient net revenues to return a profit after drilling, operating and other costs.
No impairment was incurred for the years ended December 31, 2022 and 2021.
No impairment was incurred for the years ended December 31, 2023 and 2022.
Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies, and geopolitical instability, including the ongoing conflict between the Ukraine and Russia.
Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies, and geopolitical instability, including the ongoing conflict between the Ukraine and Russia and the current armed conflict in Israel and the Gaza Strip.
Our strategy as an onshore resource player may result in operations concentrated in certain geographic areas and may increase our exposure to many of the risks described in this Annual Report. Our current operations are concentrated in the states of New Mexico and Colorado.
Our strategy as an onshore resource player may result in operations concentrated in certain geographic areas and may increase our exposure to many of the risks described in this Annual Report. Our current operations are concentrated in the states of New Mexico and Colorado, with future operations potentially extending into Wyoming.
Our operations in the Permian Basin in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin in Weld and Morgan Counties, Colorado, involve utilizing the latest drilling and completion techniques in order to maximize cumulative recoveries and therefore generate the highest possible returns.
Our operations in the Permian Basin in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin in Weld and Morgan Counties, Colorado, and potentially extending into Laramie County, Wyoming, involve utilizing the latest drilling and completion techniques in order to maximize cumulative recoveries and therefore generate the highest possible returns.
Whether a well is ultimately productive and profitable depends on a number of additional factors, including the following: · general economic and industry conditions, including the prices received for oil and natural gas; · shortages of, or delays in, obtaining equipment, including hydraulic fracturing equipment, and qualified personnel; · potential significant water production which could make a producing well uneconomic, particularly in the Permian Basin Asset, where abundant water production is a known risk; · potential drainage by operators on adjacent properties; · loss of, or damage to, oilfield development and service tools; · problems with title to the underlying properties; · increases in severance taxes; · adverse weather conditions that delay drilling activities or cause producing wells to be shut down; · domestic and foreign governmental regulations; and · proximity to and capacity of transportation facilities.
Whether a well is ultimately productive and profitable depends on a number of additional factors, including the following: ● general economic and industry conditions, including the prices received for oil and natural gas; ● shortages of, or delays in, obtaining equipment, including hydraulic fracturing equipment, and qualified personnel; ● potential significant water production which could make a producing well uneconomic, particularly in the Permian Basin Asset, where abundant water production is a known risk; ● potential drainage by operators on adjacent properties; ● loss of, or damage to, oilfield development and service tools; ● problems with title to the underlying properties; ● increases in severance taxes; ● adverse weather conditions that delay drilling activities or cause producing wells to be shut down; ● domestic and foreign governmental regulations; and ● proximity to and capacity of transportation facilities. 40 Table of Contents If we do not drill productive and profitable wells in the future, our business, financial condition and results of operations could be materially and adversely affected.
We may be required to alter or increase substantially our capitalization to finance these acquisitions through the use of cash on hand, the issuance of debt or equity securities, the sale of production payments, the sale of non-strategic assets, the borrowing of funds or otherwise.
We may engage in bidding and negotiating to complete successful acquisitions. We may be required to alter or increase substantially our capitalization to finance these acquisitions through the use of cash on hand, the issuance of debt or equity securities, the sale of production payments, the sale of non-strategic assets, the borrowing of funds or otherwise.
The moratorium does not affect the Company, as the Company has no plans to drill new wells on any leases held on federal lands; however, if such prior moratorium was to become permanent, or the federal government in the future were to grant less permits on federal lands, make such permitting process more difficult, costly, or to institute more stringent rules relating to such permitting process, it could have a material adverse effect on the value of the Company’s leases and/or its ability to undertake oil and gas operations on such the portion of its leases on federal lands.
The moratorium does not affect the Company, as the Company has no plans to drill new wells on any leases held on federal lands; however, if such prior moratorium was to become permanent, or the federal government in the future were to grant less permits on federal lands, make such permitting process more difficult, costly, or to institute more stringent rules relating to such permitting process, it could have a material adverse effect on the value of the Company’s leases and/or its ability to undertake oil and gas operations on such the portion of its leases on federal lands. 57 Table of Contents SEC rules could limit our ability to book additional proved undeveloped reserves (“ PUDs ”) in the future.
Our operations are focused solely in the Permian Basin located in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin of Weld and Morgan Counties, Colorado, which means our current producing properties and new drilling opportunities are geographically concentrated in those two areas.
Our current operations are focused solely in the Permian Basin located in Chaves and Roosevelt Counties, New Mexico, and the D-J Basin of Weld and Morgan Counties, Colorado, with potential future operations extending into Laramie County, Wyoming, which means our current producing properties and new drilling opportunities are geographically concentrated in those two areas.
If we succeed in selling additional equity securities to raise funds, at such time the ownership percentage of our existing stockholders would be diluted, and new investors may demand rights, preferences or privileges senior to those of existing stockholders.
If we succeed in selling additional equity securities to raise funds, at such time the ownership percentage of our existing stockholders would be diluted, and new investors may demand rights, preferences or privileges senior to those of existing stockholders. If we choose to farm-out interests in our prospects, we may lose operating control over such prospects.
For example, the price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude rising from a low of $42 in June 2017 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine.
For example, the price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude, dropping below $20 per barrel in 2020 due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine, to the $70s in recent months.
The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude rising from a low of $42 in June 2017 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine.
The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“ WTI ”) crude, dropping below $20 per barrel in 2020 due in part to reduced global demand stemming from the global COVID-19 outbreak, and surging to over $120 a barrel in early March 2022, following Russia’s invasion of the Ukraine, to the $70s in recent months.
Because our operations are not as diversified geographically as many of our competitors, the success of our operations and our profitability may be disproportionately exposed to the effect of any regional events, including: · fluctuations in prices of crude oil, natural gas and NGLs produced from the wells in these areas; · natural disasters such as the flooding that occurred in the D-J Basin area in September 2013; · the effects of local quarantines; · restrictive governmental regulations; and · curtailment of production or interruption in the availability of gathering, processing or transportation infrastructure and services, and any resulting delays or interruptions of production from existing or planned new wells.
Because our operations are not as diversified geographically as many of our competitors, the success of our operations and our profitability may be disproportionately exposed to the effect of any regional events, including: ● fluctuations in prices of crude oil, natural gas and NGLs produced from the wells in these areas; ● natural disasters such as the flooding that occurred in the D-J Basin area in September 2013; ● the effects of local quarantines; ● restrictive governmental regulations; and ● curtailment of production or interruption in the availability of gathering, processing or transportation infrastructure and services, and any resulting delays or interruptions of production from existing or planned new wells. 39 Table of Contents For example, bottlenecks in processing and transportation that have occurred in some recent periods in the Permian Basin and D-J Basin may negatively affect our results of operations, and these adverse effects may be disproportionately severe to us compared to our more geographically diverse competitors.
Currently 27,893 acres (net) of our Permian Basin Asset are held by production and not subject to lease expiration, with 3,415 acres (net) subject to lease or governing agreement expiration if these acres are not developed by us prior to expiration.
Currently 20,933 acres (net) of our Permian Basin Asset are held by production and not subject to lease expiration, with 1,788 acres (net) subject to lease or governing agreement expiration if these acres are not developed by us prior to expiration.
We do not have, and may not have in the future, any derivative contracts or hedging covering the amount of the basis differentials we experience in respect of our production.
We do not have, and may not have in the future, any derivative contracts or hedging covering the amount of the basis differentials we experience in respect of our production. As such, we will be exposed to any increase in such differentials.
Our cash flows from operations and access to capital are subject to a number of variables, including: · our estimated proved oil and natural gas reserves; · the amount of oil and natural gas we produce from existing wells; · the prices at which we sell our production; · the costs of developing and producing our oil and natural gas reserves; · our ability to acquire, locate and produce new reserves; · the general state of the economy; · the ability and willingness of banks to lend to us; and · our ability to access the equity and debt capital markets.
The rate of our future growth may be dependent, at least in part, on our ability to access capital at rates and on terms we determine to be acceptable. 42 Table of Contents Our cash flows from operations and access to capital are subject to a number of variables, including: ● our estimated proved oil and natural gas reserves; ● the amount of oil and natural gas we produce from existing wells; ● the prices at which we sell our production; ● the costs of developing and producing our oil and natural gas reserves; ● our ability to acquire, locate and produce new reserves; ● the general state of the economy; ● the ability and willingness of banks to lend to us; and ● our ability to access the equity and debt capital markets.
In such an instance, the amount paid for such oil and natural gas lease as well as any royalties paid pursuant to the terms of the lease prior to the discovery of the title defect would be lost. 42 Table of Contents Prior to the drilling of an oil and natural gas well, it is the normal practice in the oil and natural gas industry for the person or company acting as the operator of the well to obtain a preliminary title review of the spacing unit within which the proposed oil and natural gas well is to be drilled to ensure there are no obvious deficiencies in title to the well.
Prior to the drilling of an oil and natural gas well, it is the normal practice in the oil and natural gas industry for the person or company acting as the operator of the well to obtain a preliminary title review of the spacing unit within which the proposed oil and natural gas well is to be drilled to ensure there are no obvious deficiencies in title to the well.
While there were no oil and gas ballot initiatives in 2022 that would have imposed additional regulations on the oil and gas industry in the State of Colorado, it is possible that future ballot initiatives will be proposed that could limit the areas of the state in which drilling would be permitted to occur or otherwise impose increased regulations on our industry.
It is possible that future ballot initiatives will be proposed that could limit the areas of the state in which drilling would be permitted to occur or otherwise impose increased regulations on our industry.
A total of approximately 26% of the Company’s acreage in New Mexico and 1% of the Company’s acreage in Colorado are located on federal lands. It is currently unclear whether the moratorium will be reinstated, or whether such moratorium is the start of a change in federal policies regarding the grant of oil and gas permits on federal lands.
It is currently unclear whether the moratorium will be reinstated, or whether such moratorium is the start of a change in federal policies regarding the grant of oil and gas permits on federal lands.
This concentration may increase the potential impact of many of the risks described in this Annual Report. For example, we may have greater exposure to regulatory actions impacting New Mexico and/or Colorado, adverse weather and natural disasters in New Mexico and/or Colorado, competition for equipment, services and materials available in, and access to infrastructure and markets in, these states.
For example, we may have greater exposure to regulatory actions impacting New Mexico, Colorado and/or Wyoming, adverse weather and natural disasters in New Mexico, Colorado and/or Wyoming, competition for equipment, services and materials available in, and access to infrastructure and markets in, these states.
As such, we will be exposed to any increase in such differentials. 44 Table of Contents Financial difficulties encountered by our oil and natural gas purchasers, third-party operators or other third parties could decrease our cash flow from operations and adversely affect the exploration and development of our prospects and assets.
Financial difficulties encountered by our oil and natural gas purchasers, third-party operators or other third parties could decrease our cash flow from operations and adversely affect the exploration and development of our prospects and assets.
If we choose to farm-out interests in our prospects, we may lose operating control over such prospects. 39 Table of Contents Our oil and natural gas reserves are estimated and may not reflect the actual volumes of oil and natural gas we will receive, and significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.
Our oil and natural gas reserves are estimated and may not reflect the actual volumes of oil and natural gas we will receive, and significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.
Prior write-offs have adversely affected our balance sheet and results of operations and any future significant write-offs would similarly adversely affect our balance sheet and results of operations. 38 Table of Contents Declining general economic, business or industry conditions have, and will continue to have, a material adverse effect on our results of operations, liquidity and financial condition, and are expected to continue having a material adverse effect for the foreseeable future.
Declining general economic, business or industry conditions have, and will continue to have, a material adverse effect on our results of operations, liquidity and financial condition, and are expected to continue having a material adverse effect for the foreseeable future.
In addition, there is an inherent risk of incurring significant environmental costs and liabilities in the performance of our operations, some of which may be material, due to our handling of petroleum hydrocarbons and wastes, our emissions to air and water, the underground injection or other disposal of our wastes, the use of hydraulic fracturing fluids and historical industry operations and waste disposal practices.
In addition, there is an inherent risk of incurring significant environmental costs and liabilities in the performance of our operations, some of which may be material, due to our handling of petroleum hydrocarbons and wastes, our emissions to air and water, the underground injection or other disposal of our wastes, the use of hydraulic fracturing fluids and historical industry operations and waste disposal practices. 44 Table of Contents Any of these or other similar occurrences could result in the disruption or impairment of our operations, substantial repair costs, personal injury or loss of human life, significant damage to property, environmental pollution and substantial revenue losses.
In the future, we may have difficulty acquiring new properties. During periods of low oil and/or natural gas prices, it will become more difficult to raise the capital necessary to finance expansion activities.
In the future, we may have difficulty acquiring new properties. During periods of low oil and/or natural gas prices, it will become more difficult to raise the capital necessary to finance expansion activities. If we are unable to replace our production, our reserves will decrease, and our business, financial condition and results of operations would be adversely affected.
SEC rules could limit our ability to book additional proved undeveloped reserves (“ PUDs ”) in the future. SEC rules require that, subject to limited exceptions, PUDs may only be booked if they relate to wells scheduled to be drilled within five years after the date of booking.
SEC rules require that, subject to limited exceptions, PUDs may only be booked if they relate to wells scheduled to be drilled within five years after the date of booking. This requirement has limited and may continue to limit our ability to book additional PUDs as we pursue our drilling program.
The below table highlights the recent volatility in oil and gas prices by summarizing the high and low daily NYMEX WTI oil spot price and daily NYMEX natural gas Henry Hub spot price for the periods presented: Daily NYMEX WTI oil spot price (per Bbl) Daily NYMEX natural gas Henry Hub spot price (per MMBtu) High Low High Low Year ended December 31, 2019 $ 66.24 $ 46.31 $ 4.25 $ 1.75 Year ended December 31, 2020 $ 63.27 $ (36.98 ) $ 3.14 $ 1.33 Year ended December 31, 2021 $ 85.64 $ 47.47 $ 23.86 $ 2.43 Year ended December 31, 2022 $ 123.64 $ 71.05 $ 9.85 $ 3.46 Quarter ended March 31, 2023 (through March 21, 2023) $ 81.62 $ 66.61 $ 3.78 $ 1.93 We have a limited operating history, have incurred net losses in the past and may incur net losses in the future We have a limited operating history and are engaged in the initial stages of exploration, development and exploitation of our leasehold acreage and will continue to be so until commencement of substantial production from our oil and natural gas properties, which will depend upon successful drilling results, additional and timely capital funding, and access to suitable infrastructure.
The below table highlights the recent volatility in oil and gas prices by summarizing the high and low daily NYMEX WTI oil spot price and daily NYMEX natural gas Henry Hub spot price for the periods presented: 36 Table of Contents Daily NYMEX WTI oil spot price (per Bbl) Daily NYMEX natural gas Henry Hub spot price (per MMBtu) High Low High Low Year ended December 31, 2019 $ 66.24 $ 46.31 $ 4.25 $ 1.75 Year ended December 31, 2020 $ 63.27 $ (36.98 ) $ 3.14 $ 1.33 Year ended December 31, 2021 $ 85.64 $ 47.47 $ 23.86 $ 2.43 Year ended December 31, 2022 $ 123.64 $ 71.05 $ 9.85 $ 3.46 Year ended December 31, 2023 $ 93.67 $ 66.61 $ 3.78 $ 1.74 We have a limited operating history, have incurred net losses in the past and may incur net losses in the future.
We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital, which could have a material adverse effect on our business, financial condition and results of operations. 45 Table of Contents Our competitors may use superior technology and data resources that we may be unable to afford or that would require a costly investment by us in order to compete with them more effectively.
We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital, which could have a material adverse effect on our business, financial condition and results of operations.
Please read “ Part I ” - “ Item 1. Business ” - “ Regulation of the Oil and Gas Industry ” and “ Regulation of Environmental and Occupational Safety and Health Matters ” for a further description of the laws and regulations that affect us.
Business” — “Regulation of the Oil and Gas Industry” and “Regulation of Environmental and Occupational Safety and Health Matters ” for a further description of the laws and regulations that affect us.
Our industry is subject to rapid and significant advancements in technology, including the introduction of new products and services using new technologies and databases. As our competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost.
As our competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost.
We may not be able to produce the projected revenues related to future acquisitions. There are many assumptions related to the projection of the revenues of future acquisitions including, but not limited to, drilling success, oil and natural gas prices, production decline curves and other data.
There are many assumptions related to the projection of the revenues of future acquisitions including, but not limited to, drilling success, oil and natural gas prices, production decline curves and other data. If revenues from future acquisitions do not meet projections, this could adversely affect our business and financial condition.
Because a substantial percentage of our New Mexico properties are undeveloped, we will require significant additional capital to develop such properties before they may become productive. Further, because of the inherent uncertainties associated with drilling for oil and gas, some of these properties may never be developed to the extent that they result in positive cash flow.
Further, because of the inherent uncertainties associated with drilling for oil and gas, some of these properties may never be developed to the extent that they result in positive cash flow. Even if we are successful in our development efforts, it could take several years for a significant portion of our undeveloped properties to be converted to positive cash flow.
The success and timing of our drilling and development activities on properties operated by others therefore depends upon a number of factors, including: · timing and amount of capital expenditures; · the operator’s expertise and financial resources; · the rate of production of reserves, if any; · approval of other participants in drilling wells; and · selection of technology.
The success and timing of our drilling and development activities on properties operated by others therefore depends upon a number of factors, including: ● timing and amount of capital expenditures; ● the operator’s expertise and financial resources; ● the rate of production of reserves, if any; ● approval of other participants in drilling wells; and ● selection of technology. 47 Table of Contents The marketability of our production is dependent upon oil and natural gas gathering and transportation and storage facilities owned and operated by third parties, and the unavailability of satisfactory oil and natural gas transportation arrangements have had a material adverse effect on our revenue in the past and may again in the future.
The results of our planned exploratory drilling in these plays are subject to drilling and completion technique risks, and drilling results may not meet our expectations for reserves or production. As a result, we may incur material write-downs and the value of our undeveloped acreage could decline if drilling results are unsuccessful.
As a result, we may incur material write-downs and the value of our undeveloped acreage could decline if drilling results are unsuccessful.
Simon Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns a majority of our common stock and that his interests may be different from other shareholders; · Our ability to maintain the listing of our common stock on the NYSE American; · Dilution caused by future offerings; · Future material impairments of our oil and gas assets; and · Other risks described under “ Risk Factors ” below. 32 Table of Contents Risks Related to the Oil, NGL and Natural Gas Industry and Our Business Declines in oil and, to a lesser extent, NGL and natural gas prices, have in the past, and will continue in the future, to adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations or targets and financial commitments.
Kukes, our Chief Executive Officer and a member of board of directors, beneficially owns a majority of our common stock and that his interests may be different from other shareholders; · Our ability to maintain the listing of our common stock on the NYSE American; · Dilution caused by future offerings; · Future material impairments of our oil and gas assets; and · Other risks described under “Risk Factors” below.
If we were to proceed with one or more acquisitions involving the issuance of our common stock, our stockholders would suffer dilution of their interests. Furthermore, our decision to acquire properties that are substantially different in operating or geologic characteristics or geographic locations from areas with which our staff is familiar may impact our productivity in such areas.
Furthermore, our decision to acquire properties that are substantially different in operating or geologic characteristics or geographic locations from areas with which our staff is familiar may impact our productivity in such areas. 45 Table of Contents We may not be able to produce the projected revenues related to future acquisitions.
We anticipate that the Bill may make it more difficult and more costly for us to undertake oil and gas development activities in Colorado. 52 Table of Contents Similar to the Bill described above, proposals are made from time to time to adopt new, or amend existing, laws and regulations to address hydraulic fracturing or climate change concerns through further regulation of exploration and development activities.
Similar to the Bill described above, proposals are made from time to time to adopt new, or amend existing, laws and regulations to address hydraulic fracturing or climate change concerns through further regulation of exploration and development activities. Please read “ Part I ” – “ Item 1.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not currently involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 64 Table of Contents PART II
Biggest changeWe are not currently involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of December 31, 2022, and 2021, there were no shares of the Company’s Series A Convertible Preferred Stock outstanding, respectively, and there are no outstanding shares of preferred stock as of the date of this filing.
Biggest changeAs of December 31, 2023, and 2022, there were no shares of the Company’s Series A Convertible Preferred Stock outstanding, respectively, and there are no outstanding shares of preferred stock as of the date of this filing. Stock Transfer Agent Our stock transfer agent is Equiniti Trust Company, LLC located at 48 Wall Street, Floor 23 New York, NY 10005.
Recent Sales of Unregistered Securities There have been no sales of unregistered securities during the quarter ended December 31, 2022 and from the period from January 1, 2023 to the filing date of this report, which have not previously been disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Recent Sales of Unregistered Securities There have been no sales of unregistered securities during the quarter ended December 31, 2023 and from the period from January 1, 2024 to the filing date of this report, which have not previously been disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Preferred Stock At December 31, 2022, and as of the date of this filing, the Company was authorized to issue 100,000,000 shares of preferred stock with a par value of $0.001 per share, of which 25,000,000 shares have been designated “Series A Convertible Preferred Stock”.
Preferred Stock At December 31, 2023, and as of the date of this filing, the Company was authorized to issue 100,000,000 shares of preferred stock with a par value of $0.001 per share, of which 25,000,000 shares have been designated “Series A Convertible Preferred Stock”.
Market Information Since September 10, 2013, the Company’s shares of common stock have traded on the NYSE American under the ticker symbol “ PED. ” Stockholders As of March 29, 2023, there were 87,040,267 shares of our common stock issued and outstanding held by approximately 650 holders of record of our common stock, not including any persons who hold their stock in “ street name ”.
Market Information Since September 10, 2013, the Company’s shares of common stock have traded on the NYSE American under the ticker symbol “ PED. ” Stockholders As of March 15, 2024, there were 89,355,267 shares of our common stock issued and outstanding held by approximately 643 holders of record of our common stock, not including any persons who hold their stock in “ street name ”.
Purchases of Equity Securities by The Issuer and Affiliated Purchasers None. ITEM 6. [RESERVED] 65 Table of Contents
Purchases of Equity Securities by The Issuer and Affiliated Purchasers None.
Removed
Stock Transfer Agent Our stock transfer agent is American Stock Transfer & Trust Company, LLC, located at 6201 15 th Ave., Brooklyn, New York 11219.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAs of December 31, 2022, we held interests in 381 gross (377 net) wells in our Permian Basin Asset, of which 42 are active producers, 16 are active injectors and two are active SWD’s, all of which are held by PEDCO and operated by its wholly-owned operating subsidiaries, and interests in 92 gross (24.1 net) wells in our D-J Basin Asset, of which 18 gross (16.2 net) wells are operated by Red Hawk and currently producing, 53 gross (7.9 net) wells are non-operated, and 21 wells have an after-payout interest.
Biggest changeAs of December 31, 2023, we held approximately 22,721 net Permian Basin acres located in Chaves and Roosevelt Counties, New Mexico, through our wholly-owned subsidiary, PEDCO, and which are operated by our wholly-owned operating subsidiary, RAZO, which asset we refer to as our “ Permian Basin Asset .” Also as of December 31, 2023, we held approximately 14,282 net D-J Basin acres located in Weld and Morgan Counties, Colorado, and 4,931 net D-J Basin acres located in Laramie County, Wyoming, through our wholly-owned subsidiary, PRH, and which are operated by our wholly-owned operating subsidiary, Red Hawk, which asset we refer to as our “ D-J Basin Asset .” As of December 31, 2023, we held interests in 300 gross and net wells in our Permian Basin Asset, of which 25 are active producers, two are active injectors and two are active salt water disposal wells, all of which are held by PEDCO and operated by RAZO, and interests in 98 gross (24.6 net) wells in our D-J Basin Asset held by PRH, all of which 18 gross (16.2 net) wells are operated by Red Hawk and currently producing, 63 gross (8.4 net) wells are non-operated, and 17 wells have an after-payout interest.
Our 2023 development program is based upon our current outlook for the year and is subject to revision, if and as necessary, to react to market conditions, product pricing, contractor availability, requisite permitting, capital availability, partner non-consents, capital allocation changes between assets, acquisitions, divestitures and other adjustments determined by the Company in the best interest of its shareholders while prioritizing our financial strength and liquidity. 71 Table of Contents 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.
Our 2024 development program is based upon our current outlook for the year and is subject to revision, if and as necessary, to react to market conditions, product pricing, contractor availability, requisite permitting, capital availability, partner non-consents, capital allocation changes between assets, acquisitions, divestitures and other adjustments determined by the Company in the best interest of its shareholders while prioritizing our financial strength and liquidity. 75 Table of Contents 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 2024 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.
The reserves as of December 31, 2022 were determined in accordance with standard industry practices and SEC regulations by the licensed independent petroleum engineering firm of Cawley, Gillespie & Associates, Inc. A large portion of the proved undeveloped crude oil reserves are associated with our Permian Basin Asset.
The reserves as of December 31, 2023 were determined in accordance with standard industry practices and SEC regulations by the licensed independent petroleum engineering firm of Cawley, Gillespie & Associates, Inc. A large portion of the proved undeveloped crude oil reserves are associated with our Permian Basin Asset.
Results of Operations The following discussion and analysis of the results of operations for each of the two fiscal years in the years ended December 31, 2022 and 2021 should be read in conjunction with the consolidated financial statements of PEDEVCO Corp. and notes thereto included herein (see “ Item 8. Financial Statements and Supplementary Data ”).
Results of Operations The following discussion and analysis of the results of operations for each of the two fiscal years in the years ended December 31, 2023 and 2022 should be read in conjunction with the consolidated financial statements of PEDEVCO Corp. and notes thereto included herein (see “ Item 8. Financial Statements and Supplementary Data ”).
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 .
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, 2023 and 2022. ● Liquidity and Capital Resources .
We intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives. 66 Table of Contents 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.
We intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives. 71 Table of Contents 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 gas; · oil and natural gas production and operating expenses; · capital expenditures; · general and administrative expenses; · net cash provided by operating activities; and · net income.
Financial Statements and Supplementary Data ” - “ Note 6 - Oil and Gas Properties ”. 67 Table of Contents 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.
Financial Statements and Supplementary Data ” - “ Note 6 - Oil and Gas Properties ”. 72 Table of Contents 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.
Otherwise, the related well costs are expensed as dry holes. 73 Table of Contents 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.
Otherwise, the related well costs are expensed as dry holes. 77 Table of Contents 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.
Net cash used in investing activities increased by $9.5 million for the current year’s period, when compared to the prior year’s period, primarily due to increased capital spending relating to our drilling and completion activities. Cash provided by financing activities.
Cash used in investing activities. Net cash used in investing activities increased by $23.5 million for the current year’s period, when compared to the prior year’s period, primarily due to increased capital spending relating to our drilling and completion activities. Cash provided by financing activities.
This estimate does not include anything for acquisitions or other projects that may arise but are not currently anticipated.
This estimate does not include expenditures for acquisitions or other projects that may arise but are not currently anticipated.
This estimate includes a range of $23 million to $33 million for drilling and completion costs on our Permian Basin and D-J Basin Asset and approximately $2 million in estimated capital expenditures for ESP purchases, rod pump conversions, recompletions, well cleanouts, leasing, facilities, remediation and other miscellaneous capital expenses.
This estimate includes a range of $17 million to $27 million for drilling and completion costs on our Permian Basin and D-J Basin Asset and approximately $3 million in estimated capital expenditures for ESP purchases, rod pump conversions, recompletions, well cleanouts, leasing, facilities, remediation and other miscellaneous capital expenses.
Our current properties are located in the San Andres formation of the Permian Basin situated in West Texas and eastern New Mexico (the “ Permian Basin ”) and in the Denver-Julesberg Basin (“ D-J Basin ”) in Colorado.
Our current properties are located in the San Andres formation of the Permian Basin situated in West Texas and eastern New Mexico and in the Denver-Julesberg Basin in Colorado and Wyoming.
Reserves Our estimated net proved crude oil and natural gas reserves at December 31, 2022 and 2021 were approximately 16.1 MMBoe and 14.7 MMBoe, respectively. The 1.4 MMBoe increase was primarily due to the addition of proved undeveloped reserves in our D-J Basin Asset as a result of increased activity around our acreage and favorable pricing.
Reserves Our estimated net proved crude oil and natural gas reserves at December 31, 2023 and 2022 were approximately 17.0 MMBoe and 16.1 MMBoe, respectively. The 0.9 MMBoe increase was primarily due to the addition of proved undeveloped reserves in our D-J Basin Asset as a result of increased activity around our acreage and favorable pricing.
Net Income (Loss) We reported net income for the year ended December 31, 2022 of $2.8 million, or $0.03 per share, compared to a net loss for the year ended December 31, 2021 of $1.3 million or ($0.02) per share.
Net Income We reported net income for the year ended December 31, 2023 of $0.3 million, or $0.00 per share, compared to net income for the year ended December 31, 2022 of $2.8 million or $0.03 per share.
Oil and Natural Gas Sales Volumes During the year ended December 31, 2022, our net crude oil, natural gas, and NGLs sales volumes increased to 364,771 Bbls, or 999 Bopd, from 265,302 Bbls, or 727 Bopd, a 37% increase over the previous fiscal year.
Oil and Natural Gas Sales Volumes During the year ended December 31, 2023, our net crude oil, natural gas, and NGLs sales volumes increased to 520,886 Bbls, or 1,427 Bopd, from 364,771 Bbls, or 999 Bopd, a 43% increase over the previous fiscal year.
Using the average monthly crude oil price of $93.67 per Bbl and natural gas price of $6.36 per thousand cubic feet (“ Mcf ”) for the twelve months ended December 31, 2022, our estimated discounted future net cash flow (“ PV-10 ”) for our proved reserves was approximately $374.5 million, of which approximately $268.7 million are proved undeveloped reserves.
Using the average monthly crude oil price of $78.22 per Bbl and natural gas price of $2.64 per thousand cubic feet (“ Mcf ”) for the twelve months ended December 31, 2023, our estimated discounted future net cash flow (“ PV-10 ”) for our proved reserves was approximately $231.7 million, of which approximately $149.0 million are proved undeveloped reserves.
Working Capital At December 31, 2022, the Company’s total current assets of $32.1 million exceeded its total current liabilities of $17.0 million, resulting in a working capital surplus of $15.1 million, while at December 31, 2021, the Company’s total current assets of $28.0 million exceeded its total current liabilities of $5.2 million, resulting in a working capital surplus of $22.8 million.
Working Capital At December 31, 2023, the Company’s total current assets of $24.6 million exceeded its total current liabilities of $18.9 million, resulting in a working capital surplus of $5.7 million, while at December 31, 2022, the Company’s total current assets of $32.1 million exceeded its total current liabilities of $17.0 million, resulting in a working capital surplus of $15.1 million.
Other income in the current period is primarily related to an $80,000 vendor dispute settlement coupled with a $24,000 non-refundable two-year rent payment made in September 2022, to the Company for office space leased by SK Energy, which is 100% owned and controlled by Dr. Simon Kukes, our Chief Executive Officer and director, offset by a $15,000 royalty adjustment.
Other income in the current period is primarily related to the sale of used pipe while other income in the prior period is primarily related to an $80,000 vendor dispute settlement, coupled with a $24,000 non-refundable two-year rent payment made in September 2022 to the Company for office space leased by SK Energy, which was 100% owned and controlled by Dr.
The current period sales of our common stock via our ATM Offering are discussed above. 72 Table of Contents 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.
Non-GAAP Financial Measures We have included EBITDA and Adjusted EBITDA in this Report as supplements to generally accepted accounting principles in the United States of America (“ 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.
The following table presents a reconciliation of the GAAP financial measure of net income to the non-GAAP financial measure of Adjusted EBITDA (in thousands): 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 the United States.
The following table presents a reconciliation of the GAAP financial measure of net income to the non-GAAP financial measure of Adjusted EBITDA (in thousands): 76 Table of Contents Years Ended December 31, 2023 2022 Net income (loss) $ 264 $ 2,844 Add (deduct) Depreciation, depletion, amortization and accretion 10,875 11,153 EBITDA 11,139 13,997 Add (deduct) Share-based compensation 2,043 2,097 Loss on sale of oil and gas properties 4,268 - Adjusted EBITDA $ 17,450 $ 16,094 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 the United States.
The $7.7 million decrease in our working capital surplus is primarily related to accrued capital expenditures related to our participation in the drilling and completion of six well in our D-J Basin Asset by a third-party operator (see “ Item 8.
The $9.4 million decrease in our working capital surplus is primarily related to decreases in our cash balance related to capital expenditures from our drilling, as operator, three wells in our Permian Basin Asset and our participation in the drilling and completion of 13 wells in our D-J Basin Asset by a third-party operator (see “ Item 8.
Significant Capital Expenditures The table below sets out the significant components of capital expenditures for the year ended December 31, 2022 (in thousands): Capital Expenditures Leasehold Acquisitions $ 14 Drilling and Facilities 23,117 Total* $ 23,131 *see “ Item 8.
Significant Capital Expenditures The table below sets out the significant components of capital expenditures for the year ended December 31, 2023 (in thousands): Capital Expenditures Leasehold Acquisitions $ 5,211 Mineral Acquisitions 493 Drilling and Facilities 21,573 Total* $ 27,277 *see “ Item 8.
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.
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.
Total reserve value at December 31, 2022, represents an increase of approximately $177.8 million or 90% from approximately $196.7 million a year earlier using the same SEC pricing and reserves methodology.
Total reserve value at December 31, 2023, represents a decrease of approximately $142.8 million or 38% from approximately $374.5 million a year earlier using the same SEC pricing and reserves methodology.
Cash Flows (in thousands) Year Ended December 31, 2022 2021 Cash flows provided by operating activities $ 15,981 $ 5,970 Cash flows used in investing activities (12,266 ) (2,761 ) Cash flows provided by financing activities 35 14,694 Net increase in cash and restricted cash $ 3,750 $ 17,903 Cash provided by operating activities.
Cash Flows (in thousands) Year Ended December 31, 2023 2022 Cash flows provided by operating activities $ 23,481 $ 15,981 Cash flows used in investing activities (35,743 ) (12,266 ) Cash flows provided by financing activities - 35 Net (decrease) increase in cash and restricted cash $ (12,262 ) $ 3,750 Cash provided by operating activities.
The Company will pay the sales agent a commission of 3.0% of the gross sales price of any shares sold under the Sales Agreement, less reimbursement of the first $40,000 of such gross proceeds. The Company has also provided the Agent with customary indemnification rights and has agreed to reimburse the sales agent for certain specified expenses up to $25,000.
Pursuant to the Sales Agreement the Company agreed to pay the sales agent a commission of 3.0% of the gross sales price of any shares sold under the Sales Agreement, less reimbursement of the first $40,000 of such gross proceeds.
The increase is strictly attributable to commodity pricing as the average pricing for 2022, noted above, was significantly higher than the 2021 average pricing of $66.56 per Bbl for crude oil and $3.598 per Mcf for natural gas.
The decrease is primarily attributable to commodity pricing, as the average pricing for 2023, noted above, was significantly lower than the 2022 average pricing of $93.67 per Bbl for crude oil and $6.36 per Mcf for natural gas.
The increase in net income of $4.1 million was primarily due to a $14.2 million increase in revenue, offset by an increase of $7.9 million in total operating expenses in the current period, offset further by a $0.4 million gain from forgiveness of our $0.4 million Paycheck Protection Program loan in May 2021, coupled with a $1.8 million gain on sale of oil and gas properties each in the prior period (all of which are discussed in more detail below).
The decrease in net income of $2.5 million was primarily due to a $4.3 million loss on the sale of our EOR subsidiary, offset by a $0.8 million increase in revenue and by a decrease of $0.7 million in total operating expenses in the current period, offset further by a $0.3 million increase in other income (all of which are discussed in more detail below).
Includes interest earned from our interest-bearing cash accounts, for which interest rates have increased in the current period, compared to the prior period.
Financial Statements and Supplementary Data ” - “ Note 6 - Oil and Gas Properties ”). Interest Income and Other Expense. Includes interest earned from our interest-bearing cash accounts, for which interest rates have increased significantly in the current period, compared to the prior period.
In addition, we may seek additional funding through asset sales, farm-out arrangements, and credit facilities to fund potential acquisitions during the remainder of 2023.
Simon G, Kukes, our Chief Executive Officer and director, which funding Dr. Kukes under no obligation to provide, and (iv) funding through credit or loan facilities. In addition, we may seek additional funding through asset sales, farm-out arrangements, and credit facilities to fund potential acquisitions during the remainder of 2024.
Net Operating and Other (Income) Expenses The following table sets forth operating and other expenses for the years ended December 31, 2022 and 2021 (in thousands): 2022 2021 Increase (Decrease) % Increase (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 ARO (6 ) 82 (88 ) (107 %) 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 (Non-Cash) 2,097 2,452 (355 ) (14 %) Total General and Administrative Expense $ 5,854 $ 6,209 $ (355 ) (6 %) Gain on Sale of Oil and Gas Properties - 1,805 (1,805 ) (100 %) Interest Expense $ - $ 1 $ (1 ) (100 %) Interest Income $ 117 $ 15 $ 102 680 % Other Income $ 97 $ 180 $ (83 ) (46 %) Gain on forgiveness of PPP loan $ - $ 374 $ (374 ) (100 %) *Includes severance, ad valorem taxes and marketing costs.
Net Operating and Other (Income) Expenses The following table sets forth operating and other expenses for the years ended December 31, 2023 and 2022 (in thousands): 2023 2022 Increase (Decrease) % Increase (Decrease) Direct Lease Operating Expense $ 4,679 $ 4,787 $ (108 ) (2%) Workovers 1,460 2,704 (1,244 ) (46%) Other* 3,571 2,912 659 23 % Loss (gain) on settlement of ARO 121 (6 ) 127 2,117 % Lease Operating Expenses $ 9,831 $ 10,397 $ (566 ) (5%) Depreciation, Depletion, Amortization and Accretion 10,875 11,153 (278 ) (2%) General and Administrative (Cash) $ 3,965 $ 3,757 $ 208 6 % Share-Based Compensation (Non-Cash) 2,043 2,097 (54 ) (3%) Total General and Administrative Expense $ 6,008 $ 5,854 $ 154 3 % Loss on Sale of Oil and Gas Properties 4,268 - 4,268 100 % Interest Income $ 422 $ 117 $ 305 261 % Other Income $ 40 $ 97 $ (57 ) (59%) *Includes severance, ad valorem taxes and marketing costs.
Share-based compensation, which is included in general and administrative expenses in the Statements of Operations, decreased by $0.4 million primarily due to the forfeiture of certain employee stock-based options and nonvested restricted shares due to certain voluntary employee terminations. Share-based compensation is utilized for the purpose of conserving cash resources for use in field development activities and operations.
Share-based compensation, which is included in general and administrative expenses in the Statements of Operations, decreased nominally due to the forfeiture of certain employee stock-based options due to certain voluntary employee terminations in the prior period, offset by the issuance of restricted shares of common stock to board members in the current period.
Financial Statements and Supplementary Data ” - “ Note 6 - Oil and Gas Properties ”) offset by increases in revenue as a result of our oil and gas sales (described above).
Financial Statements and Supplementary Data ” - “ Note 6 - Oil and Gas Properties ”) offset by increases in revenue receivables as a result of our oil and gas sales (described above). Financing Our net capital expenditures for 2024 are estimated at the time of this Annual Report to range between $20 million to $30 million.
Net cash provided by operating activities increased by $10.0 million for the current year’s period, when compared to the prior year’s period, primarily due to an increase in net income of $4.1 million, coupled with a $3.8 million increase in depreciation, depletion and amortization (due to increased sales production), and by a $0.1 million net decrease to our other components of working capital in the current period.
Our net income for the period also decreased by $2.6 million when compared to the prior period, additional decreases were primarily from a $0.3 million decrease in depreciation, depletion, amortization and accretion (due to increased sales production and a reduction in accretion expense from our sale of our wholly owned EOR subsidiary), and by a $5.7 million net increase to our other components of working capital in the current period (due to increased drilling and completion activity).
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” represents net income before interest, taxes, depreciation and amortization. “Adjusted EBITDA” represents EBITDA, less share-based compensation and loss on sale of oil and gas properties. 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.
We have opted to use the simplified method for estimating expected term, which is equal to the midpoint between the vesting period and the contractual term. 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.
We have opted to use the simplified method for estimating expected term, which is equal to the midpoint between the vesting period and the contractual term. Recently Adopted Accounting Pronouncements. On January 1, 2023, we adopted Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments , as issued by the FASB.
The increase in production volume is primarily driven by two main factors including, production from two new wells in the operated Permian Basin asset which came online in Q2 2022, and the positive performance from our participation in non-operated wells in the D-J Basin Asset which came online in Q1 2022 (see additional detail below).
The increase in production volume is related to the positive performance from our participation in 14 non-operated wells in the D-J Basin Asset (six of which began producing in late 2022 and eight of which began producing in the first quarter of 2023), combined with maintaining relatively flat production declines from the existing operated Permian Basin and D-J Basin Assets (see additional detail below).
Net Revenues The following table sets forth the revenue and production data for the years ended December 31, 2022 and 2021: 2022 2021 Increase (Decrease) Increase (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. 68 Table of Contents Total crude oil, natural gas and NGL revenues for the year ended December 31, 2022, increased $14.2 million, or 89%, to $30.0 million, compared to $15.9 million for the same period a year ago, due primarily to a favorable volume variance of $7.9 million, coupled with a favorable price variance of $6.3 million.
Net Revenues The following table sets forth the revenue and production data for the years ended December 31, 2023 and 2022: 2023 2022 Increase (Decrease) Increase (Decrease) Sale Volumes: Crude Oil (Bbls) 382,794 304,507 78,287 26 % Natural Gas (Mcf) 479,533 245,923 233,610 95 % NGL (Bbls) 58,170 19,277 38,893 202 % Total (Boe) (1) 520,886 364,771 156,115 43 % Crude Oil (Bbls per day) 1,049 834 215 26 % Natural Gas (Mcf per day) 1,314 674 640 95 % NGL (Bbls per day) 159 53 106 200 % Total (Boe per day) (1) 1,427 999 428 43 % Average Sale Price: Crude Oil ($/Bbl) $ 72.95 $ 90.86 $ (17.91 ) (20%) Natural Gas($/Mcf) 3.00 6.41 (3.41 ) (53%) NGL ($/Bbl) 24.43 40.87 (16.44 ) (40%) Net Operating Revenues (In thousands): Crude Oil $ 27,925 $ 27,669 $ 256 1 % Natural Gas 1,438 1,577 (139 ) (9%) NGL 1,421 788 633 80 % Total Revenues $ 30,784 $ 30,034 $ 750 2 % (1) Assumes 6 Mcf of natural gas equivalents to 1 barrel of oil. 73 Table of Contents Total crude oil, natural gas and NGL revenues for the year ended December 31, 2023, increased $0.8 million, or 2%, to $30.8 million, compared to $30.0 million for the same period a year ago.
Liquidity and Capital Resources The primary sources of cash for the Company during the year ended December 31, 2022 were from $30.0 million in sales of crude oil and natural gas. The primary uses of cash were funds used for drilling, completion, acquisition and operating costs.
Simon G. Kukes, our Chief Executive Officer and director, at the time (which has since been dissolved), offset by a $15,000 royalty adjustment. Liquidity and Capital Resources The primary sources of cash for the Company during the year ended December 31, 2023 were from $30.8 million in sales of crude oil and natural gas.
The increase in production volume is primarily driven by two main factors including, production from two new wells in the operated Permian Basin asset in Q2 2022, and the positive performance from our participation in non-operated wells in the D-J Basin Asset in Q1 2022.
The increase in production volume is related to the positive performance from our participation in 14 non-operated wells in the D-J Basin Asset (six of which began producing in late 2022 and eight of which began producing in the first quarter of 2023), combined with maintaining relatively flat production declines from the existing operated Permian Basin and D-J Basin Assets.
The $3.8 million increase was primarily the result of an increase in production (noted above) in the current period when compared to the prior period. Also, as production increased during the period, there was a corresponding decrease in our proved developed reserves in our December 31, 2022 reserve report.
The $0.3 million decrease was primarily the result of a $0.5 million decrease in accretion expense from the sale of our wholly owned subsidiary EOR Operating Company and related assets, (noted below) offset by a $0.2 million increase in depletion expense from increased production (noted above) in the current period when compared to the prior period.
Removed
As of December 31, 2022, we held approximately 31,308 net Permian Basin acres located in Chaves and Roosevelt Counties, New Mexico, through our wholly-owned operating subsidiary, PEDCO and approximately 12,372 net D-J Basin acres located in Weld and Morgan Counties, Colorado, through our wholly-owned operating subsidiary, Red Hawk.
Added
Although production increased resulting in a favorable volume variance of $7.4 million, the average sales prices for crude oil, natural gas and NGLs realized by the Company decreased considerably from the year ended December 31, 2022, resulting in an unfavorable price variance of $6.6 million.
Removed
On June 2, 2020, the Company received loan proceeds of $370,000 (the “ PPP Loan ”) under the Small Business Association (SBA) Paycheck Protection Program. The PPP Loan was evidenced by a promissory note, dated as of May 28, 2020 (the “ Note ”), between the Company and Texas Capital Bank, N.A.
Added
Expense reduction measures to control costs have been implemented on our operated properties in our Permian Basin and D-J Basin Assets, such as operation and lift efficiency improvements, resulting in a reduction in direct operating expenses, offset by a corresponding increase in direct operating expenses from our participation in non-operated wells (noted above) when comparing the current period to the prior period.
Removed
The Note had a two-year term, bears interest at the rate of 1.00% per annum, and may be prepaid at any time without payment of any premium. Effective May 20, 2021, the Company received notification from Texas Capital Bank, N.A. that the SBA had fully forgiven the Company’s PPP Loan principal and accrued interest of $370,000 and $4,000, respectively.
Added
Other expenses have also increased due to production increases, coupled with a loss related to our plugging of 11 wells in our Permian Basin Asset, offset by a corresponding decrease in workovers when comparing the current period to the prior period. Taken together, there was a $0.6 million decrease in overall lease operating expenses when comparing periods.
Removed
Therefore, as of December 31, 2021, the Company recognized no debt or accrued interest related to the PPP Loan on the balance sheet, and a gain on forgiveness of PPP Loan of $374,000 for the year ended December 31, 2021 in connection with such forgiveness.
Added
The increase of $0.2 million in general and administrative expenses (excluding share-based compensation) was primarily due to the addition of a new employee, an increase in accrued bonuses, which were subsequently paid in January 2023, and general increases in accounting and professional services when comparing the prior period to the current period. 74 Table of Contents Share-Based Compensation.
Removed
Lease Operating Expenses. The increase of $4.5 million was primarily due to increased overall activity compared to the prior period as well as increased taxes and marketing fees from higher production volumes.
Added
Share-based compensation is utilized for the purpose of conserving cash resources for use in field development activities and operations. Loss on Sale of Oil and Gas Properties. The Company sold its wholly owned subsidiary EOR Operating Company and related assets in November 2023 and recognized the corresponding loss of $4.3 million (see “ Item 8.
Removed
Also, additional workovers for well reactivations, artificial lift repairs and optimizations have been executed during the current period in an effort to maximize production volumes during the current increased commodity pricing environment.
Added
The primary uses of cash were funds used for drilling, completion, acquisition and operating costs.
Removed
Workover expense included approximately $0.7 million of one-time non-recurring operating expenses for improving the Permian Basin Asset’s water handling infrastructure and approximately $0.5 million of non-recurring costs for environmental cleanup and reclamations of historic well and facility sites that were inherited from previous operators in our Permian Basin Asset.
Added
Net cash provided by operating activities increased by $7.5 million for the current year’s period, when compared to the prior year’s period, primarily due to a $4.3 million loss on the sale of our EOR subsidiary and its corresponding assets.
Removed
Increased commodity pricing period over period caused increased production taxes coupled with increased marketing fees from higher production volumes. Service and materials costs have also increased accordingly with general supply chain and inflation issues seen throughout the industry leading to increased operating and workover costs. 69 Table of Contents Depreciation, Depletion, Amortization and Accretion.
Added
In the prior period, we sold our common stock via an “at the market offering” (“ ATM Offering ”), raising net proceeds of $141,000 less commissions, legal and audit fees for registrations and placement of the ATM Offering.
Removed
This resulted in a reduction in our depletable base in our Permian Basin Asset, which, in turn caused our depletion rate to increase from 28.21% to 37.86%. This increase resulted in approximately $2.1 million in additional depletion expense in Q4 2022.
Added
The Company also provided the Agent with customary indemnification rights and has agreed to reimburse the sales agent for certain specified expenses up to $25,000.
Removed
The decrease in proved developed producing reserves in our Permian Basin Asset was related to the natural decline in production from existing wells and pushing the drilling and completion of certain Permian Basin Asset wells into future periods due to timing and allocation of capital to D-J Basin Asset projects.
Added
Sales under the Sales Agreement were to be made under the Company’s Form S-3 shelf registration statement, which has now expired, and as such, the Company is not currently eligible to sell any additional securities under the Sales Agreement, and, accordingly, was terminated by the Company effective March 15, 2024.
Removed
Additionally, the Company elevated its plugging and abandonment program in the Permian Basin Asset (in accordance with the terms of a new compliance order) to plug additional wells over the next two years, which increased accretion expense in Q4 2022 by approximately $0.5 million. General and Administrative Expenses (excluding share-based compensation).
Added
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.
Removed
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.
Added
This standard established the current expected credit loss model, a new impairment model for certain financial instruments, based on expected rather than incurred losses. Adoption of this standard is on a modified retrospective basis and had no impact on the Company’s financial position, results of operations, cash flows or net income per share.
Removed
Gain on Sale of Oil and Gas Properties. The Company sold rights to 230 net acres and interests in three non-operated wells located in the D-J Basin for net cash proceeds of $1.9 million and recognized a gain on sale of oil and gas properties of $1.8 million during the year ended December 31, 2021.
Added
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity's effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures.
Removed
The Company had no sales of oil and gas properties during the year ended December 31, 2022. Interest Expense. The $0.01 million of interest expense in the prior period was due to accrued interest related to the Company’s PPP Loan, which was forgiven in the prior period (see above for more information). Interest Income and Other Expense.
Added
This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Not required under Regulation S-K for “ smaller reporting companies .”
Removed
The prior period other income consisted primarily of $0.1 million in accounts payable settlements and other miscellaneous income items. 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).
Removed
Impact of COVID-19 In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “ Public Health Emergency of International Concern ” on January 30, 2020, and a global pandemic on March 11, 2020.
Removed
COVID-19 and the governmental responses thereto significantly reduced worldwide economic activity during much of 2020. On January 30, 2023, the Biden Administration announced it will end the public health emergency (and national emergency) declarations on May 11, 2023.
Removed
During 2021 and 2022, oil and gas prices increased above pre-pandemic levels, and the effect of the pandemic on the Company’s operations in 2022 was minimal. The extent to which the COVID-19 outbreak will continue to impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including virus mutations and future governmental actions.
Removed
Any future decrease in the price of oil, or the demand for oil and gas, as a result of COVID-19, recessions, or otherwise, will likely have a negative impact on our results of operations and cash flows. 70 Table of Contents Ukraine Conflict In late February 2022, Russia launched a significant military action against Ukraine.
Removed
The conflict has caused, and could intensify, volatility in natural gas, oil and NGL prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time.
Removed
We believe that the increase in crude oil prices during the first half of 2022 was partially due to the impact of the conflict between Russia and Ukraine on the global commodity and financial markets, and in response to economic and trade sanctions that certain countries have imposed on Russia.
Removed
Financing The Company has an ongoing $3.6 million offering of securities in an “at the market offering”, pursuant to which the Company may sell securities from time to time (the “ ATM Offering ”).
Removed
On June 10, 2022, the Company sold 87,121 shares of common stock at a sales price of $1.66 per share in the ATM Offering for net proceeds of $141,000, which includes $4,000 in commission fees. The Company also incurred $106,000 in initial and subsequent legal and audit fees for registration and placement of the ATM Offering.
Removed
The Company currently has $3.5 million remaining available in securities which we may sell in the future via the Sales Agreement, subject to availability under the Company’s shelf-registration, which limits the maximum amount of securities which can be sold in any 12 month period to 1/3 of the Company’s then public float.
Removed
Our net capital expenditures for 2023 are estimated at the time of this Annual Report to range between $25 million to $35 million.

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