PEDEVCO Corp has caught my eye. PEDEVCO is an oil company, primarily with assets in the Permian Basin. Specifically it has assets in the San Andres located in the Northwest Shelf of the Permian Basin in eastern New Mexico. Ring Energy also has assets in this area with its Northwest Shelf play. I believe these two are the only public companies in the Northwest Shelf. PEDEVCO also has some some assets in the D-J Basin in Colorado. Below is why I find PEDEVCO (PED) to be interesting and my game plan on where to go from here.
Before we get too deep into PEDEVCO, let’s first discuss the price. As of this writing on June 14, 2020, the stock price is $0.84 and with a little rounding up the market cap is $60 million. And the stock price is down from $2.10 one year ago.
The Balance Sheet
A few things about this company are interesting to me. First, the reserves have caught my eye.
Check out slide 5 on their Spring 2020 presentation.
You can see from slide 5 that most of their reserves are from their Permian Basin assets, that year over year in 2019 the reserves are growing. And most important to me, their PV-10 value is over $123 million.
As I’ve learned from my Ring Energy research, PV-10 of course does not always equal true market value, as Ring Energy bought their Northwest Shelf assets from Wishbone Energy, for around a 50% discount.
Additionally, the average oil price in 2019 is higher than now. And proven undeveloped oil reserves are less valuable than proven developed not producing and proven developed producing oil reserves because there is a lot more estimation that goes into valuing undeveloped reserves than already developed reserves.
In general, to work in a margin of safety, I like to go with a 50% discount to PV-10 when I’m shopping for oil and gas companies, and even more when the majority of the reserves are undeveloped. That said, a PV-10 of $123 million and a market cap of $60 million is something to be aware of, especially when you consider PEDEVCO has no debt and $12 million of cash.
The CEO Dr. Simon Kukes has an interesting and impressive background, and a long history in the oil and gas industry.
He owns a very large stake in the company.
And interestingly, a private company he controls owns 9% of Ring Energy, after he recently made more purchases.
Dr. Kukes and some others having been buying PEDEVCO at prices above the current level.
Even though 50% of PV-10 is $62 million and net cash is $12 million ($74 million combined) and market cap is $60 million, I’m not ready to buy PEDEVCO.
Ring Energy is valued at a much lower level compared to net assets and a much higher percentage of their reserves are developed. So given the valuations and the state of their reserves, I’m more much inclined to continue buying Ring Energy.
However, given Kukes’ interest in Ring Energy (see letter on page 9), the fact that PEDEVCO is the only other publicly traded company in the attractive Northwest Shelf, and that the company has no debt, I am going to keep watching PEDEVCO and see how things progress.
And of course the price of oil impacts the PV-10. I think oil will go up from the mid $30s at some point, as I expect demand to pick up once we get out of the pandemic, or adjust to it in a way that has more people living and working back closer to normal. And I also don’t think America not having an oil industry, which is what would happen at sustained $30 a barrel oil, is going to be something that is allowed to happen. I expect the price of oil to rise, but we’ll see what happens.