Thank you for joining Noble Capital Markets Emerging Growth Virtual Equity Conference. I'm Mark Reichman, one of Noble's Senior Research Analysts. Today, we are joined by R.T. Dukes, Interim President, Chief Executive Officer, and Chief Operating Officer of PEDEVCO Corp. PEDEVCO trades on the NYSE American under the symbol PED, and is an oil and gas company focused primarily on the Rocky Mountain region, with substantial positions in the D-J and Powder River Basins, as well as assets in the Permian Basin. R.T., the floor is yours.
Mark, thank you, and sorry for the tongue twister. Yeah, interim CEO, President, and COO is a mouthful to say the least. Yes, interim CEO as of a couple of weeks ago. Board made a decision to go forward in a different direction, conducting a search now. We're thankful for Doug's contributions, and he's a friend of the business, obviously, and we're all still friends with him. I think what you'll see is a lot more of pushing PEDEVCO forward where we are. We're a differentiated Rockies focus, or have a differentiated Rockies focus with substantial growth potential. We're a growth vehicle in the E&P space, and we think you're going to see that more and more from us. We're going to call it the PEDEVCO difference. It's the PEDEVCO difference in what you get from a PEDEVCO and an investment in PEDEVCO.
I'll share a little bit more detail, diving into the company going forward. Then happy, please take notes and as you have questions, we'll make this a good conversation afterwards. Next slide. Normal disclaimers. Just remind you the presentation might have forward-looking statements. Things change. Those involve risk and uncertainty, so don't rely on them too hard. Actual results could differ. Normal disclaimers. You guys are used to that. PEDEVCO investment highlights. Who are we and what are we? We're going to spend a lot of time getting our story out. We think we have a very exciting story in terms of where we are and then where we're going. There was a Hart article that highlighted this company has gone from 130 bpd to closer to 7,000 bpd today. We still think this is just the beginning.
We've got an established production base across the D-J in Colorado and Wyoming, and then we've got a lot of acreage and our long-term development potential and growth potential in the Powder River Basin. We like our zip code. We like our location. It's why we have 300,000 net acres. We think that gives us scale, that we can have disciplined organic growth that's probably quite a bit stronger than a lot of our peers. Then we also have a conservative balance sheet that positions us well to consolidate across the Rockies. Both of those together, we think differentiate us quite a bit. We have an inventory of developable locations across our portfolio that we also think differentiates us from most companies our size. We have decades of inventory. Obviously, we're going to grow into that being a little bit more normal.
But 1,000 to 1,100 gross locations that could be drilled, depending on how you look at it. We're an oil-weighted investment. We're 88% liquids. Based on where we are invested today, we'll largely stay that way. We do have some gas optionality that you could see us in a higher gas price environment. We could wait. We have plays, the Mowry being one that produces a little bit more gas, that you could see us in a higher gas price environment allocate more capital to a more gassy play if it makes sense. Gas prices get a little higher, those begin to compete into the top of our portfolio. Existing inventory provides a lot of drilling potential, but even what we're doing in the second half of this year, we're going to participate in 15 gross wells.
Obviously prioritizing the best and highest rate of return, risk-adjusted rate of return investments. You'll see us gear that up even further into 2027. The team that has executed upon these assets is in place. We've drilled, completed, and operated wells across these assets for years. We have good relationships across the basin. Even though we're going through a transition, there will be continuity and a focus on execution. Margin expansion and financial strength. Something you'll hear if you're around our company very much is we try to be good at everything and be getting better at it all the time. You'll find in an E&P space, if you're good at everything, you're probably already ahead, and then if you're getting better, you're getting further ahead.
While we have a strong organic growth potential, we're also looking at our assets that we've been producing for a long time, and we're optimizing those. A big part of our capital spend this year and going into the first half of next year will be optimization spend across our assets, converting those from higher rate pumps to rod pumps and lowering our costs across the board. We're over halfway there to that $10 million-$12 million per year in annualized LOE savings from our program in 2026, and we'll finish that up in 2027. We're really focused on maximizing each barrel. You'll see us keep conservative leverage. We'll keep our RBL capacity and liquidity across the basin, and significant operating cash flow. PED at a glance. About $36 million or almost $37 million in adjusted EBITDA through the first half of the year.
I've already mentioned the liquids mix and the acreage position that we have. 6,800 Boe a day in Q2. $73 million in net debt at the end of Q2. So already ahead of target. We thought it would take us 12- 18 months to get our debt down to that one-time multiple. We really did it in about six to nine. So very proud of that. We feel like that's positioned us really well going forward as a company. Our PV-10, we would say this is on a conservative reserves evaluation as well. Obviously, I start talking about 1,000 locations that leads to PV that's much higher than this here, around $27 per share in PV-10. Then guidance that's $60 million-$70 million in EBITDA for 2026, and we haven't changed that so far. Then hopefully in the coming months, we'll share more about 2027 as well.
Financial highlights, I've touched on a few of these. Obviously, huge growth into this year from previous PEDEVCO pre-merger, a lot of that coming from the consolidated assets, and then also higher activity in Q4 2025 and Q1 of 2026 that grew us up to that peak production in Q1. Been tapering off, and it will be lumpy. We're small. We're going to grow consistently and repeatedly, but it's going to be up and down from quarter to quarter, and we're re-entering an investment phase that'll lead us into that growth in 2027. Revenue up, but EBITDA, as mentioned, CapEx low, that was mostly overhang from Q1. We have completed a DUC that we've shared publicly, and then also spud a well that we've shared publicly in Q3. We'll share more about that in Q3 results. Net income almost $18 million in Q2.
Our asset base, don't want to go unnoted, 90,000 acres in the D-J Basin. One, legacy assets from PEDEVCO, and then the assets that merged in that have created the modern PEDEVCO that has running room and significant upside. That is the bulk of our production in the D-J Basin. You'll see its percentage of our capital budget go up and down from year to year as we have some AMIs with other operators and our operated activity as we ramp up and down from time to time. Our long-term growth is in our larger acreage position in the Powder River Basin. That's where we have attractive targets from the sands down to the shales. We say a lot of times in the Powder River Basin that investments are led by the sands and land.
We've cleaned up some BLM things and gotten permits in place so we can execute on some of Turner, Parkman, and Sussex wells this year going into next. Over time, you'll see a shift into those shale plays in the Nio and the Mowry as well. We're excited about results there. A lot of our position is largely proven up by offset operators, larger operators in Anschutz, EOG, Oxy, Devon, and so forth have proved up a lot of our acreage. Now we're getting some of the best Mowry results ever in the basin. We're really excited about our position in the Mowry as well. A lot of long-term upside, long-term development potential for our company. Reserve valuation summary.
I mentioned this already, I would say from the companies that I've been at, that this is a pretty conservative view of reserves, and we still end up with an R/P ratio that's over 10 years of current production compared to that inventory that we really have. SEC pricing, that was pretty low, too. Obviously, we've realized a lot more than $65 a barrel this year. Third-party engineers reviewed this as well, continue to have that. Inventory and depth, just to call out where that is. In the D-J Basin, where you can develop units with as many as 8 to 10 and sometimes even more wells in the Nio, based off the thickness there, quite a bit of inventory in the D-J when you add the Codell to those Nio wells. Then the Powder, where we have stack pay that I've already touched upon.
The Nio, the Mowry, the Turner, the Parkman. You will see us continue to exploit that in what, in a conservative sense, really is some of the reserves we have not booked is its literal SEC reserves because we have offsets in some of those larger operators. It provides what we think are very attractive breakevens. We are going to be pretty consistent in that $60-$80 range in reinvesting our cash flow and growing this business. Somewhere in the 50s or lower is where we would think about scaling back, and we will be very happy with what we are doing. If commodity prices are higher, you might see us do a little bit more throughout each year or allocate some of that capital to additional acquisitions. Our operating margins and expanding those funds growth.
This is really a slide from earlier in the year just to show the changes since our merger at the end of last year. G&A synergies, probably 20% or 25%-30% reduction in G&A just through the combination. I think in reality, through this year, we have run even lower than that for the most part. LOE optimization, we are halfway through this program of saving $1 million per month, $800,000 to $1 million per month. We have finished the 2026 program. We pulled that forward. Ultimately, it led to no increase in capital spend, but it led to improved margins through 2026. We got halfway through the year and that was going really well. We decided to finish that up in Q3 instead of spacing it out between Q3 and Q4.
That full run rate savings, sometime mid Q3 of 2027, we will realize the full savings and complete that entire optimization program. G&A, that is attractive across our peers. Annualized LOE reduction, that obviously is attractive. An EBITDA uplift through the merger that you will continue to see us push in all directions to maximize margins where we can. Accelerating the development program. We have been a growth platform. We grew quite a bit through the merger this year. We believe we have right-set the balance sheet and set a foundation for growth going forward, and you will really see that start to ramp up in 2026. We will prioritize the best risk-adjusted opportunities from those hundreds, thousand plus locations that I have mentioned, and we will share more details in the coming months about what we plan in 2027.
Our operator program for this year was relatively small in comparison to what you will see going forward. We completed a DUC in Q3, it is looking on trend, and we will have more data. We are only a few weeks into the production history there, but looking good. We spudded a well just last week, and just finishing up drilling there, and we will bring that well online in the coming months. Expanding our program in Q4 will include close to 15 gross wells or a little bit more than 15 gross wells over the remainder of 2026 into early 2027. LOE optimization, already touched on, and you will see our capital directed towards our operated Rockies development. Ultimately, we will be a company that wants to control our own destiny, and you will see us lean towards that operated portfolio. The consolidation opportunity, we think this is big.
This is why we spent a lot of this year rightsizing our balance sheet and making sure we're in a position to be flexible. We think the Rockies basins are largely fragmented, and there's a lot of small private operators that could be a good fit to combine with PEDEVCO. We'd love to have those conversations with any out there that are considering that. We do have multiple opportunities that are already currently under evaluation that complement our platform. We think we're going to be able to grow this considerably organically, and we will be able to bolt on strategic acquisitions that help fuel that growth as well. We're looking for things that are strategically compelling. We are who we are. We're a Rockies consolidation opportunity and growth opportunity, so you're not going to see us shift international or to basins too far away.
We're going to be financially disciplined in what we do, and we're going to create long-term shareholder value. We have alignment across this business between management and our major shareholders. We control an overwhelming majority of the business, so we are aligned. Value creation priorities are the next phase. We're going to build on that Rockies asset base to accelerate development. We will continue to expand margins and pursue those acquisitions. You can see here a little bit of what we've touched on already, but one, we're going to accelerate our organic growth, and you'll see sustained year-over-year growth in production and cash flow. We're going to be proactive in consolidation. We're evaluating multiple opportunities now of all sizes. You're going to see us continue to push on the operational side to expand margins.
You're going to see us be smart about our balance sheet and making sure it positions us and our shareholders for success. We have hedges that protect our near-term cash flow, and that'll be a part of our business. I get that question quite a bit. We will always hedge enough to maintain a base level of operations that protects this business, protects us through down cycles. That will be a part of what we do, and then as we make big investments, we'll protect those rates of return. We think that's important for our shareholders, that we aren't just fully exposed in a lower commodity price environment as well. To summarize this up and end for questions is we have scale at 6,500 Boe a day, but obviously room to grow quite a bit more organically and then bolt on through acquisitions.
We think we have a quality asset base that competes with anybody in the E&P space. We're going to be disciplined. We're going to allocate capital to the best risk-adjusted projects, and we think we can do that consistently over years to give us consistent, predictable growth. 85% of the company's insider ownership currently, so management economics are our shareholder economics. We're all aligned in this. In value creation, look, a big part of that is just accelerating our organic development across our Rockies platform and then supplementing that with those proactive and disciplined acquisitions that I've touched on. With that, I think that's all that I had. Happy to open it up for questions. I'll turn it back over to Mark. Mark, thank you very much.
Thank you, R.T. We do have some questions here. The first is that management has said that the Rockies remains highly fragmented, and you're actively evaluating consolidation opportunities. What would an acquisition need to offer in terms of acreage fit, operating control, inventory economics, and balance sheet impact to compete with your existing organic opportunities?
Yeah. We're going to want to see some element of production added with PUDs that compete into our portfolio. I would say that's probably why you haven't seen us do any deals yet is we've seen some production-weighted deals that, honestly, we have high rate of return projects that we're going to add that amount of production in the next, call it, 9- 12 months anyways. It's got to be something that, at the end of the day, we all end up in this position. It has, to an extent, mirror a little bit of what we have. When you see what I've described, that's what we're looking for. A base production base that is consistent and not in a high decline period, that has inventory that complements what we currently have.
We don't want assets, and right now, unless it's the right scale, we're not going to Montana to drill something. We want it to offset what we have. A production base that complements ours with upside that also complements ours. The size drives a little bit of that, too. If it steps us into a scale where we can have more full-time development programs in certain areas, that obviously helps because we can drive down costs, and that can drive that story a little bit as well.
Now, you recently acquired roughly 5,700 net acres in the Powder River Basin's Mowry Shale, nearly doubling your position in that area. What needs to happen technically and operationally before Mowry can become a meaningful development program?
Yeah, I think you'll see us step into that over the next, call it, 18, 24 months. We've had a position in the Mowry across multiple. That is one of our Mowry positions I want to highlight because we did that in the press release and tried to word that in a way to make it clear. But we have Mowry potential across a lot of our Powder, or I would say almost all of our Powder River Basin acreage. That's an area that we really like where EOG, Anschutz, and some others have drilled some wells, and we've liked the geology for a long time. It didn't quite fit our structure to go chase it really hard. You see those leases come up in a BLM lease sale that give you a 10-year optionality at an eighth royalty, and it's in a zip code that you really, really like.
I think you'll go see us do something sooner than later there to start to prove that up. We'll be smart about it. I think to directly answer your question, though, you'll see us step into it. We're not a company that's going to go in and drill 20 wells before we see results, right? We're going to drill a well or a pad, and then leg into full-time development. We have so much optionality in our portfolio, it's almost not required that we even do that. You're going to see us step from our play to play or our asset to asset around, and then once it's proven, really start to put the pedal to the metal.
Now with the development program accelerating, how do you rank the competing uses of capital when you consider organic drilling, debt reduction, acquisitions, and what return threshold does a new investment need to meet before it earns capital?
Yeah, certainly. We kind of stress test in that 25%-30% IRR at low oil prices, right? We're making investments that we think hit our hurdle rates if the price of oil was closer to $60 than $90. That's how we're making decisions, and we have that much inventory that we have that luxury. We believe we've right-sized the balance sheet, so you're going to see us favor investing in our inventory and developing our inventory and growing organically with our free cash or our cash flow going forward versus paying down debt. We did pay down some debt this year, and we might pay down a little bit more, don't get me wrong, or I don't want to say that wrong. But you will see a substantial shift to reinvesting that cash flow in our inventory.
We believe in our inventory, and you're going to see us go execute on that.
Earlier in your slide, it showed that you had roughly 90,000 net acres in the D-J Basin and I think 202,000 net acres in the Powder River, in addition to the Permian. But how are you prioritizing capital among those assets and what characteristics would cause one opportunity to move ahead of the other in the development queue?
Yeah. It's maybe more simple than it sounds. We're looking at our whole portfolio. What gives us the highest rate of return and highest ROI for our investment dollars? And we're coming down that stack. So, we're in the top tier in terms of there are different reasons why you can drill this today. It's permitted versus it's not, and things like that. We're drilling that top tier, and we're stepping down. The great thing about our assets is we have drilling opportunities across Colorado, the D-J Wyoming, and the Powder that all compete with each other. And so that's why you're going to see us drill wells across all those assets. And so they are competing with each other. But we like the fact that we have a lot of inventory that's competitive at lower commodity prices.
We're going to be smart about doing a little bit of all of it so that we can prove it all works. And there are things that, whether it's commodity prices in a certain basin versus another or whatever, availability of services from one time to another, we're going to be positioned to make sure we're maximizing our margins and investing in the highest rate of return projects. So you're going to see that flexibility and optionality revealed in how you see us moving from asset to asset.
Well, before I get to my next question, I have a few audience members asking about the executive transition and wanting more insight about the leadership team, including the CEO.
Yep. Sure. Yeah. My background is largely financial. I spent a lot of time on the consulting side. Also entrepreneurial, spent time in the mineral and royalty side of the business. I actually stepped into a CFO role first. I have been a CEO. I actually have spent most of my career on the E&P side in the CEO seat. I have spent the last 10 years, though, a CEO of a very small company, is involved in the day-to-day operations. I think what you get from me is a well-rounded background that I can jump in from group to group, and I kind of see my job as enabling the groups to be their best. And I have worked across all the different groups, and you kind of see me go from problem to problem to make sure we are executing at the very highest level.
We have a very good operational team. I have been obviously intimately involved. When I was the CEO of the private company, I was in the morning operations calls. And I sat the wells when we were drilling wells. I sat the wells when we were completing the wells. Our VP of ops also does the same, and we are in good hands with me serving in this interim role as well. The rest of the team has largely been involved with the assets for a long time. Clark Moore, our General Counsel, was one of the co-founders of PEDEVCO, so he has seen this company go through quite a big shift over time, from international assets to Colorado, to coming up out of a pretty depressed time in commodity prices, to growing to where we are today.
Our operations team has been involved with the assets for a long time, and Bobby, our CFO, has been involved with the assets for going on eight years as well. More continuity than maybe transition might be the best way to describe it.
I think the second quarter production averaged around 6,800 Boe per day, including production from the recently completed D-J wells. As those wells move down their decline curves and the new drilling program begins contributing, how should investors think about the underlying production trajectory into 2027?
Yeah. We're going to share more in Q4. Obviously going to grow. The thing I've been saying, and I might've said this on the call earlier, lots of meetings today and yesterday, so I feel like I'm repeating myself, a little bit of a broken record, but if you think about the industry growing at high single digits to low double digits, I think it's fair to say at our size, we're going to be some multiple of that. Where we land exactly, we'll share more in the coming months, but you can expect high growth from us. That's what we're going to be able to offer at our size, and that's what differentiates us.
I think you've talked about the 1,100 gross drilling locations. How much of that inventory would you consider economic under today's assumptions, and where are you seeing the strongest risk-adjusted returns? If I recall correctly, is the break even in the D-J somewhere around $49 and in the low for—
Yeah, that's right.
—the PRB?
Yeah, that's right. We have a handful of wells here or there in each of these basins that really is the best of the best. You would drill it even if oil prices were $50 because you're getting such high rates of return, and it helps you predictably grow this business and be accretive in growing cash flow as well, even in a lower commodity price environment. I can tell you, we've got a few hundred wells that are on our radar to try and develop in the next few years, and then we're trying to think through how to pull value forward. But as you stairstep through what we can do, you're a lot bigger really fast.
In 24 months, where 1,000 locations sounds like a lot today, my hope is in 24, 36 months, you're looking at it and going, "Okay, what are they bolting on to add more inventory?" We like our inventory. We like the long-term potential across almost all of that. We're going to be strategically focused in the Rockies. Some of that inventory might be rationalized over time, something to consider. But overall, we're really happy with what we have. You would see us sell things ultimately. If there was a big chunk of that inventory that we didn't think strategically fit, you'll see us sell it.
Okay. Since we're nearing the end of our time, this will be the last question. Just looking out through 2027, what two or three metrics should investors watch most closely, and why is now a good time for investors to consider PEDEVCO?
You can watch how we perform, especially going into 2027, maybe not Q1, but into the latter three quarters of the year. You can watch our growth in production and cash flow. Those two will go hand in hand. It will be a little lumpy for a company of our size. We are going to have quarters where we are investing more and maybe pulling down our RBL a little bit, but we are going to do that in a fashion that is coming right back down. We want to keep that flexible balance sheet. Really what I think, today, we are a small company that is not really well-known across the industry that has really high growth potential. We think that is unique, and it is not very often you get to invest in a story like that.
We would love to have more conversations with everybody at the conference, and then also find us outside of the conference to share the story. We think it is a really exciting one. I showed how much management and our insiders own. It is an overwhelming majority of the shares, and so we are all aligned. If you want to find a company that you can be aligned with very quickly, we think we are that.
R.T., thank you so much for joining us today.
Thank you, Mark. Appreciate your time.