PEDEVCO Corp. 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and good afternoon, everyone.

Welcome to PEDEVCO's second quarter 2026 earnings call. With me today are J. Douglas Schick, President and Chief Executive Officer, R.T. Dukes, Chief Operating Officer, and Bobby Long, Chief Financial Officer. Before we begin, I'd like to remind everyone that today's discussion includes forward-looking statements within the meaning of the federal securities laws, subject to risks and uncertainties that could cause actual results to differ materially from expectations. For more information, please refer to our second quarter 2026 Form 10-Q and other SEC filings. The company undertakes no obligation to update or revise any forward-looking statements. During today's call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA and working capital, excluding derivative contract assets and liabilities. Reconciliations to the most directly comparable GAAP measures are available in our earnings release and 10-Q filing.

These non-GAAP measures should not be considered in isolation or as a substitute for GAAP results. I would also like to note that all per share and share count figures referenced today reflect the company's one-for-20 reverse stock split effective March 13, 2026, applied retroactively to all periods presented. As of June 30, 2026, the company had approximately 13.3 million shares of common stock outstanding. Here is today's agenda. Doug will begin with opening remarks, followed by R.T. with an operational update, and then Bobby will walk through our financial performance. After our prepared remarks, the management team will open the call for questions. With that, I will turn it over to Doug.

Thanks, Laurent, and good afternoon, everyone. Thank you for joining us. We are now halfway through 2026, and the second quarter provides a clear view of the earnings power of the platform we've built through the Juniper merger. Production averaged approximately 6,800 BOE per day. Revenue was $46.1 million, and adjusted EBITDA was $18.7 million. Revenue increased more than fivefold year-over-year and approximately 15% sequentially. These results were ahead of our original expectations and reflect the combination of stronger realized oil prices and the expanded production base. To put year-over-year comparisons in perspective, PEDEVCO was a much smaller company in the second quarter of 2025, with no debt and approximately $7 million of quarterly revenue. Today, we operate across three basins, produced more than 618,000 barrels of oil equivalent during the quarter, and generated $46.1 million of revenue.

This increase in scale reflects the strategic transaction we made last October to merge with the Juniper portfolio companies, which expanded our footprint to more than 300,000 net acres across the D-J, Powder River, and Permian basins, with substantial oil-weighted production and a deep development inventory. We said at the time of the merger we would significantly increase the scale and cash-generating capacity of the company, and the second quarter results demonstrate that progress. Turning to sequential comparisons, it is important to distinguish the impact of price from the impact of volumes. Production declined 16% from the first quarter, consistent with the production expectations we discussed on our last call. The D-J Basin wells that came online in late 2025 reached peak production early this year and have since followed their natural decline curves. As a result, the sequential improvement in revenue was driven mostly by oil prices.

Our average oil price increased to $94.7 per barrel, up 53% year-over-year, and operating income more than doubled sequentially from $6.7 million to $15.4 million. Higher commodity prices, when sustained, improve the return profile of our inventory, but they do not change our approach. Our focus remains on low-cost operations, a strong balance sheet, and deploying capital only where the expected returns justify it. Turning to cost, lease operating expense was essentially flat with the first quarter on an absolute basis. Per-unit costs were higher because production declined while absolute costs remained relatively stable. R.T. will discuss the optimization program in more detail, but our focus is on pump conversions, recompletions, well cleanouts, and compression projects that are expected to reduce recurring operating costs going forward.

As those savings are realized, we expect them to improve margins and strengthen the cost structure of the business over time. The balance sheet also improved significantly during the quarter. We repaid $13 million of debt under our revolving credit facility, reducing the outstanding balance to $85 million from $98 million at the end of the first quarter. Strong cash generation allowed us to accelerate debt repayment while maintaining cash on hand. Coming out of the merger, we carried a meaningful working capital deficit. That overhang was largely resolved in the first quarter, and in the second quarter, we turned to reducing our funded debt. Adjusting for cash, net debt was approximately $73 million at quarter end. This progress gives us greater flexibility as we evaluate additional development opportunities.

With this balance sheet strength and months of asset analysis, permitting, and development planning, we are now in a position to consider a more active development program. During the first half of the year, we maintained a measured approach to capital allocation, focusing mostly on our production and cost optimization program, and directed excess cash towards strengthening the balance sheet. That was the appropriate approach for the business, and it produced the results we expected. Our stronger financial position, a more constructive commodity price environment, and the resolution of certain litigation matters in Wyoming now allow us to begin a more active development program for the remainder of the year and early 2027. Over the past several months, we have conducted extensive analysis on our 300,000-plus acre position and have identified actionable, high rate of return projects available for near-term development.

We have recently completed a previously drilled well in the D-J Basin, and over the next several months, we plan to drill and participate in over 20 gross wells across our asset base. We will be announcing the details of this expanded capital program and development plan in the coming weeks. With $36.8 million of adjusted EBITDA generated in the first half, we are reiterating our full year 2026 adjusted EBITDA guidance of $60 million-$70 million. The expanded second half development program is not expected to contribute until late 2026 and early 2027, and our outlook for the balance of the year reflects the production outlook we have discussed previously. More broadly, our capital allocation framework remains straightforward. We will prioritize a strong balance sheet and the operating integrity of the existing asset base.

We will then invest in optimization and development projects that meet our return thresholds while preserving the flexibility to pursue acquisitions and leasehold opportunities that strengthen our core positions. The expanded platform gives us more ways to create value, but it does not change the discipline we apply to each and every investment decision. Taken together, we are entering the second half of the year from a stronger position than we expected at the start of 2026. The combined platform is generating meaningful cash flow. The balance sheet is healthy, and we have the flexibility to fund a disciplined development program while maintaining our return thresholds and financial priorities. With that, I will turn it over to R.T.

Thanks, Doug, and good afternoon, everyone. I'll keep my remarks focused on how the assets performed this quarter and what we're building toward in the second half before handing it back to Bobby to walk you through the financial results. Second quarter production of 618,912 BOE, or 6,800 BOE per day, was in line with our internal plan. The sequential decline was expected as we highlighted last quarter. As Doug mentioned, the first quarter benefited from the timing of the D-J Basin wells that came online in late 2025 and reached peak production early in the year. And those wells have followed their natural decline curve since. Let me walk through our three major basins. In the D-J, we hold approximately a little bit over 88,000 net acres and interest in 74 gross, almost 67 net operated wells, and 110 gross, 12 and a half net non-operated wells.

During the quarter, we continued our field optimization program. Our planned first half participation in 10 non-operated wells with working interest ranging from 1.1%-6.3% were completed in the first quarter. After the quarter ended, we completed the drilled but uncompleted well in Q3, our Hastings well, and we expect it to contribute to third quarter volumes. In connection with the completion, certain nearby wells were temporarily shut in, and we also accelerated several optimization projects into the third quarter. As a result, July production was lower than initially expected, but volumes will improve significantly in August as those wells return to service and the Hastings well begins contributing to our volumes. In the Powder River Basin, we hold approximately 202,000 net acres and interest in over 150 gross wells, 130 net wells, of which 16 gross, 1.4 net are non-op.

During the quarter, permitting matters did improve in Wyoming through BLM, through some environmental litigation that was resolved with the BLM. That is an important development for us because it's allowed us to permit some of our top-tier wells that we plan to develop in the next year or two. Part of that underpins the second-half program that Doug described. In the Permian Basin, we hold approximately 14,505 net acres and interest in 38 gross, 34 and a half net wells, all of which we operate. The asset continues to provide a stable production base. We remain focused on the operating efficiency and continued to evaluate lift conversions, well interventions, and other optimization opportunities to help improve our cost structure and margins in the basin. Now, a word on the optimization program and the progress we're making.