PEDEVCO Corp. (PED, NYSE)
Annual report, fiscal year 2017


# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __ to

Commission file number: 001-35922

PEDEVCO Corp.
(Exact Name of Registrant as Specified in Its Charter)

Texas

(State or other jurisdiction of incorporation or organization)

22-3755993

(IRS Employer Identification No.)

4125 Blackhawk Plaza Circle, Suite 201
Danville, California 94506
(Address of Principal Executive Offices)

(855) 733-3826
(Registrant’s Telephone Number,
Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.001 par value per share
NYSE American

Securities registered pursuant to Section 12(g) of the Act:
None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( \( §232.405 \)  of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Non-accelerated filer ☐

Accelerated filer ☐

Emerging growth ☐

Smaller reporting company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017 based upon the closing price reported on such date was approximately $3,360,000. Shares of voting stock held by each officer and director and by each person who, as of June 30, 2017, may be deemed to have beneficially owned more than 10% of the outstanding voting stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.

As of March 27, 2018, 7,278,754 shares of the registrant's common stock, $0.001 par value per share, were outstanding.






Table of Contents

<table><tr><td colspan="3">PART I</td></tr><tr><td>Item 1.</td><td>Business</td><td>5</td></tr><tr><td>Item 1A.</td><td>Risk Factors</td><td>32</td></tr><tr><td>Item 1B.</td><td>Unresolved Staff Comments</td><td>64</td></tr><tr><td>Item 2.</td><td>Properties</td><td>64</td></tr><tr><td>Item 3.</td><td>Legal Proceedings</td><td>64</td></tr><tr><td>Item 4.</td><td>Mine Safety Disclosures</td><td>64</td></tr><tr><td colspan="3">PART II</td></tr><tr><td>Item 5.</td><td>Market For Registrant&#x27;s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</td><td>65</td></tr><tr><td>Item 6.</td><td>Selected Financial Data</td><td>68</td></tr><tr><td>Item 7.</td><td>Management&#x27;s Discussion and Analysis of Financial Condition and Results of Operations</td><td>69</td></tr><tr><td>Item 7A.</td><td>Quantitative and Qualitative Disclosure About Market Risk</td><td>83</td></tr><tr><td>Item 8.</td><td>Financial Statements and Supplementary Data</td><td>83</td></tr><tr><td>Item 9.</td><td>Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</td><td>83</td></tr><tr><td>Item 9A.</td><td>Controls and Procedures</td><td>83</td></tr><tr><td>Item 9B.</td><td>Other Information</td><td>84</td></tr><tr><td colspan="3">PART III</td></tr><tr><td>Item 10.</td><td>Directors, Executive Officers and Corporate Governance</td><td>85</td></tr><tr><td>Item 11.</td><td>Executive Compensation</td><td>94</td></tr><tr><td>Item 12.</td><td>Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</td><td>104</td></tr><tr><td>Item 13.</td><td>Certain Relationships and Related Transactions, and Director Independence</td><td>108</td></tr><tr><td>Item 14.</td><td>Principal Accounting Fees and Services</td><td>116</td></tr><tr><td colspan="3">PART IV</td></tr><tr><td>Item 15.</td><td>Exhibits and Financial Statement Schedules</td><td>117</td></tr></table>



ALL STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING STATEMENTS. STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT OTHERWISE INCLUDE THE WORDS “BELIEVES,” “EXPECTS,” “ANTICIPATES,” “INTENDS,” “PROJECTS,” “ESTIMATES,” “PLANS,” “MAY INCREASE,” “MAY FLUCTUATE” AND SIMILAR EXPRESSIONS OR FUTURE OR CONDITIONAL VERBS SUCH AS “SHOULD,” “WOULD,” “MAY” AND “COULD” ARE GENERALLY FORWARD-LOOKING IN NATURE AND NOT HISTORICAL FACTS. THESE FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING OUR FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY, PROJECTED PLANS AND OBJECTIVES. THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS SET FORTH BELOW UNDER THE HEADING “RISK FACTORS.” ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOST OF THESE FACTORS ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. WE ARE UNDER NO OBLIGATION TO PUBLICLY UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-K, UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, 2017. AS USED HEREIN, THE “COMPANY,” “WE,” “US,” “OUR” AND WORDS OF SIMILAR MEANING REFER TO PEDEVCO CORP. (D/B/A PACIFIC ENERGY DEVELOPMENT), WHICH WAS KNOWN AS BLAST ENERGY SERVICES, INC. UNTIL JULY 30, 2012, AND ITS WHOLLY-OWNED AND PARTIALLY-OWNED SUBSIDIARIES, BLAST AFJ, INC., PACIFIC ENERGY DEVELOPMENT CORP., WHITE HAWK PETROLEUM, LLC (DISSOLVED EFFECTIVE NOVEMBER 30, 2016), PACIFIC ENERGY & RARE EARTH LIMITED (DISSOLVED EFFECTIVE AUGUST 11, 2017), BLACKHAWK ENERGY LIMITED (TO BE DISSOLVED EFFECTIVE MAY 1, 2018), RED HAWK PETROLEUM, LLC, PACIFIC ENERGY DEVELOPMENT MSL LLC (DISSOLVED EFFECTIVE SEPTEMBER 30, 2016), WHITE HAWK ENERGY, LLC, AND PEDEVCO ACQUISITION SUBSIDIARY, INC. (DISSOLVED EFFECTIVE APRIL 26, 2016), UNLESS OTHERWISE STATED.

This Annual Report on Form 10-K (this “Annual Report”) may contain forward-looking statements which are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this Annual Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs and cash flows, prospects, plans and objectives of management are forward-looking statements. When used in this Annual Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “should,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Forward-looking statements may include statements about our:

• business strategy;

• reserves;

• technology;

• cash flows and liquidity;

• financial strategy, budget, projections and operating results;

• oil and natural gas realized prices;

• timing and amount of future production of oil and natural gas;

• availability of oil field labor;

• the amount, nature and timing of capital expenditures, including future exploration and development costs;

• availability and terms of capital;



• drilling of wells;

• government regulation and taxation of the oil and natural gas industry;

• marketing of oil and natural gas;

• exploitation projects or property acquisitions;

• costs of exploiting and developing our properties and conducting other operations;

• general economic conditions;

• competition in the oil and natural gas industry;

• effectiveness of our risk management activities;

• environmental liabilities;

• counterparty credit risk;

• developments in oil-producing and natural gas-producing countries;

• future operating results;

• future acquisition transactions; and

- estimated future reserves and the present value of such reserves; and plans, objectives, expectations and intentions contained in this Annual Report that are not historical.

All forward-looking statements speak only at the date of the filing of this Annual Report. The reader should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.

Certain abbreviations and oil and gas industry terms used throughout this Annual Report are described and defined in greater detail under “Glossary of Oil and Natural Gas Terms” on page 28, and readers are encouraged to review that section.

Unless the context otherwise requires and for the purposes of this report only:

• “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

• “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and

• “Securities Act” refers to the Securities Act of 1933, as amended.

## Available Information

We are subject to the information and reporting requirements of the Exchange Act, under which we file periodic reports, proxy and information statements and other information with the United States Securities and Exchange Commission, or SEC. Copies of the reports, proxy statements and other information may be examined without charge at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or on the Internet at http://www.sec.gov. Copies of all or a portion of such materials can be obtained from the Public Reference Room of the SEC upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room.

Financial and other information about PEDEVCO Corp. is available on our website (www.pacificenergydevelopment.com). Information on our website is not incorporated by reference into this report. We make available on our website, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.



## ITEM 1. BUSINESS.

## History

We were originally incorporated in September 2000 as Rocker & Spike Entertainment, Inc. In January 2001 we changed our name to Reconstruction Data Group, Inc., and in April 2003 we changed our name to Verdisys, Inc. and were engaged in the business of providing satellite services to agribusiness. In June 2005, we changed our name to Blast Energy Services, Inc. (“Blast”) to reflect our new focus on the energy services business, and in 2010 we changed the direction of the Company to focus on the acquisition of oil and gas producing properties.

On July 27, 2012, we acquired through a reverse acquisition, Pacific Energy Development Corp., a privately held Nevada corporation, which we refer to as Pacific Energy Development. As described below, pursuant to the acquisition, the shareholders of Pacific Energy Development gained control of approximately 95% of the voting securities of our company. Since the transaction resulted in a change of control, Pacific Energy Development was the acquirer for accounting purposes. In connection with the merger, which we refer to as the Pacific Energy Development merger, Pacific Energy Development became our wholly-owned subsidiary and we changed our name from Blast Energy Services, Inc. to PEDEVCO Corp. Following the merger, we refocused our business plan on the acquisition, exploration, development and production of oil and natural gas resources in the United States, with a primary focus on oil and natural gas shale plays and a secondary focus on conventional oil and natural gas plays.

## Business Operations

## Overview

We are an energy company engaged primarily in the acquisition, exploration, development and production of oil and natural gas shale plays in the Denver-Julesberg Basin (“D-J Basin”) in Colorado, which contains hydrocarbon bearing deposits in several formations, including the Niobrara, Codell, Greenhorn, Shannon, J-Sand, and D-Sand. As of December 31, 2017, we held approximately 10,961 net D-J Basin acres located in Weld County, Colorado through our wholly-owned subsidiary Red Hawk Petroleum, LLC (“Red Hawk”), which acreage is located in the Wattenberg and Wattenberg Extension areas of the D-J Basin, which we refer to as our “D-J Basin Asset.” As of December 31, 2017, we held interests in 61 gross (17.4 net) wells in our D-J Basin Asset, of which 14 gross (12.5 net) wells are operated by Red Hawk and are currently producing, 25 gross (4.9 net) wells are non-operated, and 22 wells have an after-payout interest. During the quarter-ended December 31, 2017, the Company produced an average of approximately 189 net barrels of oil equivalent per day (“BOEPD”) from its D-J Basin Asset.

We have listed below the total production volumes and total revenue net to the Company for the years ended December 31, 2017, 2016, and 2015 attributable to our D-J Basin Asset that would be net to our interest if reported on a consolidated basis, including the calculated production volumes and revenue numbers for our D-J Basin Asset held indirectly through Condor Energy Technology LLC (“Condor”), an entity we had a 20% interest in which we divested in February 2015.

<table><tr><td rowspan="2"></td><td colspan="4">For the Years Ended December 31,</td></tr><tr><td>2017</td><td>2016</td><td>2015</td><td></td></tr><tr><td>Oil</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Bbls)</td><td>52,260</td><td>92,966</td><td>117,365</td><td></td></tr><tr><td>Average sales price (per Bbl)</td><td>$ 47.15</td><td>$ 36.98</td><td>$ 41.13</td><td></td></tr><tr><td>Natural Gas:</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Mcf)</td><td>100,254</td><td>168,555</td><td>224,222</td><td></td></tr><tr><td>Average sales price (per Mcf)</td><td>$ 2.97</td><td>$ 2.04</td><td>$ 2.16</td><td></td></tr><tr><td>NGL:</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Mcf)</td><td>73,254</td><td>66,033</td><td>24,815</td><td></td></tr><tr><td>Average sales price (per Mcf)</td><td>$ 3.46</td><td>$ 2.82</td><td>$ 1.81</td><td></td></tr><tr><td>Oil Equivalents:</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Boe) (1)</td><td>81,178</td><td>132,064</td><td>158,870</td><td></td></tr><tr><td>Average Daily Production (Boe/d)</td><td>222</td><td>362</td><td>435</td><td></td></tr><tr><td>Average Production Costs (per Boe)(2)</td><td>$ 13.62</td><td>$ 9.55</td><td>$ 7.29</td><td></td></tr></table>

(1) Assumes 6 Mcf of natural gas and NGL equivalents to 1 barrel of oil.

(2) Excludes workover costs, marketing, ad valorem and severance taxes.



## Business Strategy

We believe that the D-J Basin shale play represents among the most promising unconventional oil and natural gas plays in the U.S. We plan to opportunistically seek additional acreage proximate to our currently held core acreage located in the Wattenberg and Wattenberg Extension areas of Weld County, Colorado. Our strategy is to be the operator, directly or through our subsidiaries and joint ventures, in the majority of our acreage so we can dictate the pace of development in order to execute our business plan. The majority of our capital expenditure budget for the next twenty four months will be focused on the development of our D-J Basin Asset. Our development plan calls for the development of approximately $8.37 million in capital expenditures in order to drill and complete, participate in the drilling and completion of, and/or acquire approximately 2.1 net wells in our D-J Basin Asset in 2018 (with an additional 6.4 net wells to be drilled and completed in 2019 for a combined total 2018-2019 drilling capital budget of $34.85 million). We expect our projected cash flow from operations combined with our existing cash on hand, up to $2.0 million of gross proceeds available from the issuance of our common shares through National Securities Corporation under our current “at the market offering” (of which $1.359 million remains available for issuance, subject to limitation under the SEC’s “Baby Shelf Rules”), and approximately $18.0 million gross available under our current senior debt facility will be sufficient to fund our drilling plans and our operations through 2019, noting that the advancement of all or any portion of the approximately $18.0 million gross available under our current senior debt facility is in the sole and absolute discretion of the senior lenders and no senior lender is obligated to fund all or any part of the requested funding (See “Part I, Item 1. Business”—“Material 2016-2017 Transactions”—“Senior Debt Restructuring” and “Part I”—“Item 1A. Risk Factors”, including “Our Tranche A Notes and Tranche B Notes include various covenants, reduces our flexibility, increases our interest expense and may adversely impact our operations and our costs.”). In addition, we may seek additional funding through asset sales, farm-out arrangements, lines of credit, or public or private debt or equity financings to fund additional 2018-2019 capital expenditures and/or repay or refinance a portion or all of our outstanding debt. If market conditions are not conducive to raising additional funds, the Company may choose to extend the drilling program and associated capital expenditures further into 2020. The availability of additional borrowings under the senior debt facility is subject to the Company providing matching funds for all amounts borrowed, which additional borrowed funds may only be used to fund development costs.

During 2017, the Company focused primarily on maintaining oil and gas production levels, keeping operational costs down, and seeking to restructure and/or satisfy its senior debt through a variety of means, including, but not limited to, pursuing potential equity investments, debt restructuring transactions, and business combinations. The Company continues to pursue such transactions, although there can be no guarantee that the Company will be successful in its efforts to restructure and/or satisfy its senior debt. See “Risk Factors” below.

Management is continually reviewing the recoverability of its oil and gas assets given the reduction of crude oil and natural gas prices during the year. Over the course of the year, we have identified acreage that we believe has a low probability of development in the near future and have not renewed such leases where appropriate and impaired the values as necessary. We believe that a significant portion of the effects of lower crude oil prices are now being offset by the continuing reduction of drilling and completion, collection, selling and LOE costs. We believe the leases we currently plan to develop in our 2018-2019 development plan continue to be economic due to our estimates of total recoverable reserves, expected production rates and the continued reduction in development and operational costs through this year. The recoverability of our oil and gas assets is dependent on our ability to secure sufficient funds to develop our properties. If we are unable to have access to our credit facilities or alternative financing transactions, and crude oil prices stay at their current prices or go lower or if the new development and operational costs do not hold or such costs return to higher levels, Company management may deem it appropriate in the future to impair certain of our oil and gas properties in the event we determine we will not be able to fully develop our drilling program.



The following chart reflects our current organizational structure:



*Represents percentage of total voting power based on 7,278,754 shares of common stock and 66,625 shares of Series A Convertible Preferred Stock (solely on an issued and outstanding basis) outstanding as of March 27, 2018, with beneficial ownership calculated in accordance with Rule 13d-3 under the Exchange Act (but without reflecting the conversion of convertible securities into voting securities, including, notably, approximately 2,175,208 shares of common stock issuable to MIEJ Holdings Corporation upon conversion of principal and interest accrued through March 31, 2018 under the New MIEJ Note at a "floor price" of $3.00 per share – See "Part III" – "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" – "Liquidity and Capital Resources" – "Liquidity Outlook" – "Amendment to PEDCO-MIEJ Note and Condor-MIEJ Note" and see also "Part III" – "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."



## Competition

The oil and natural gas industry is highly competitive. We compete and will continue to compete with major and independent oil and natural gas companies for exploration opportunities, acreage and property acquisitions. We also compete for drilling rig contracts and other equipment and labor required to drill, operate and develop our properties. Most of our competitors have substantially greater financial resources, staffs, facilities and other resources than we have. In addition, larger competitors may be able to absorb the burden of any changes in federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for drilling rigs or exploratory prospects and productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our competitors may also be able to afford to purchase and operate their own drilling rigs.

Our ability to drill and explore for oil and natural gas and to acquire properties will depend upon our ability to conduct operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment. Many of our competitors have a longer history of operations than we have, and most of them have also demonstrated the ability to operate through industry cycles.

## Competitive Strengths

We believe we are well positioned to successfully execute our business strategies and achieve our business objectives because of the following competitive strengths:

Management. We have assembled a management team at our Company with extensive experience in the fields of international business development, petroleum engineering, geology, petroleum field development and production, petroleum operations and finance. Several members of the team developed and ran successful energy ventures that were commercialized at Texaco, Erin Energy Corp. and other international and domestic energy companies. We believe that our management team is highly qualified to identify, acquire and exploit energy resources in the U.S.

Our management team is headed by our President and Chief Executive Officer, Michael L. Peterson, who brings extensive experience in the energy, corporate finance and securities sectors, including as a Vice President of Goldman Sachs & Co., Chairman and Chief Executive Officer of Nevo Energy, Inc. (formerly Solargen Energy, Inc.), and a former director of Aemetis, Inc. (formerly AE Biofuels Inc.). In addition, our Executive Vice President and General Counsel, Clark R. Moore, has over 10 years of energy industry experience, and formerly served as acting general counsel of Erin Energy Corp.

Our board of directors also brings extensive oil and gas industry experience, headed by our Chairman Frank C. Ingriselli, an international oil and gas industry veteran with nearly 40 years of experience in the energy industry, including as the President of Texaco International Operations Inc., President and Chief Executive Officer of Timan Pechora Company, President of Texaco Technology Ventures, and President, Chief Executive Officer, Chairman and founder of Erin Energy Corp. Also on our Board sits Ms. Elizabeth P. Smith, who served in numerous executive-level capacities at Texaco, including as Corporate Compliance Officer, Director of Investor Relations, Vice President of Corporate Communications, and Vice President of Texaco Inc. with responsibility and oversight of Texaco's Shareholder Services Group, and Adam McAfee, a Certified Management Accountant and "audit committee financial expert" with over 30 years' experience, with prior positions at Nevo Energy, Inc., Aemetis, Inc., Apple Computer and others.

Key Advisors. Our key advisors include Tenet Advisory Group, LLC, which we refer to as TAG, and other industry veterans. The TAG team replaced South Texas Reservoir Alliance (“STXRA”) as our contract operator with respect to our D-J Basin operations in January 2017, pursuant to a customary written engagement providing for hourly billing for work performed by TAG for us, and terminable upon 60 days prior notice by either party. TAG has experience in drilling and completing horizontal wells, including over 150 horizontal wells with lengths exceeding 4,000 feet from 2010 to 2017, as well as experience in both slick water and hybrid multi-stage hydraulic fracturing technologies and in the operation of shale wells and fields. The TAG team has over 130 years of combined technical oil and gas experience covering reservoir engineering, geology, geophysics, drilling, completion, production operations, land and marketing across multiple producing regions and basins including East Texas, Onshore and Offshore Gulf Coast, Permian Basin, Mid-Continent and the Rockies. We believe that our relationship with TAG will supplement the core competencies of our management team and provide us with petroleum and reservoir engineering, petrophysical, and operational competencies that will help us to evaluate, acquire, develop, and operate petroleum resources into the future.



Significant acreage positions and drilling potential. We have accumulated interests in a total of approximately 10,961 net acres in our core D-J Basin Asset operating area, which we believe represents a significant unconventional resource play. The majority of our interests are in or near areas of considerable activity by both major and independent operators, although such activity may not be indicative of our future operations. Based on our current acreage position, we believe our current D-J Basin Asset could contain up to approximately 137 potential net wells based on 80 acre spacing, providing us with a substantial drilling inventory for future years.

## Marketing

The prices we receive for our oil and natural gas production fluctuate widely. The past years' collapse in oil prices was among the most severe on record. The daily NYMEX WTI oil spot price went from a high of $107.95 per Bbl in June 2014 to low of $26.19 per Bbl in February 2016, the lowest settlement in over a decade and rebounding up 100% from its February 2016 low but still approximately 50% off its June 2014 high. The drop and volatility in crude oil pricing is due in large part to increased production levels, crude oil inventories and recessed global economic growth. Oil prices are also impacted by real or perceived geopolitical risks in oil producing regions, the relative strength of the U.S. dollar, weather and the global economy. We expect, and have already begun to see, that depressed oil prices will lead to cuts in the exploration and production budgets to reduce incremental oil supply, which should ultimately restore equilibrium to the world oil market and rebalance oil prices. Decreases in these commodity prices adversely affect the carrying value of our proved reserves and our revenues, profitability and cash flows. Short-term disruptions of our oil and natural gas production occur from time to time due to downstream pipeline system failure, capacity issues and scheduled maintenance, as well as maintenance and repairs involving our own well operations. These situations can curtail our production capabilities and ability to maintain a steady source of revenue for our company. In addition, demand for natural gas has historically been seasonal in nature, with peak demand and typically higher prices during the colder winter months. See “Risk Factors” below.

Oil. Our crude oil is generally sold under short-term, extendable and cancellable agreements with unaffiliated purchasers. As a consequence, the prices we receive for crude oil move up and down in direct correlation with the oil market as it reacts to supply and demand factors. Transportation costs related to moving crude oil are also deducted from the price received for crude oil.

We are a party to a 12-month crude oil purchase contract with a third party buyer, expiring December 31, 2018, pursuant to which the buyer purchases the crude oil produced from our 14 operated wells in our D-J Basin Asset, at a price per barrel equal to the average of the New York Mercantile Exchange’s (“NYMEX”) daily settle quoted price for Cushing/WTI for trade days only during a calendar month, applicable to product delivered during any such calendar month, less a per barrel differential of $3.15. The crude oil is purchased at the wellhead, and we do not bear any incremental transportation costs.

Natural Gas. Our natural gas is sold under both long-term and short-term natural gas purchase agreements. Natural gas produced by us is sold at various delivery points at or near producing wells to both unaffiliated independent marketing companies and unaffiliated mid-stream companies. We receive proceeds from prices that are based on various pipeline indices less any associated fees for processing, location or transportation differentials.

In connection with our March 2014 acquisition of certain D-J Basin assets from Continental Resources, Inc. (which we refer to as the “Continental Acquisition”), we became a party to a Gas Purchase Contract, dated December 1, 2011, with DCP Midstream, LP (which we refer to as “DCP”), pursuant to which we have agreed to sell, and DCP has agreed to purchase, all gas produced from six (6) of our D-J Basin Asset operated wells and surrounding lands located in Weld County, Colorado, at a purchase price equal to 83% of the net weighted average value for gas attributable to us that is received by DCP at its facilities sold during the month, less a $0.06/gallon local fractionation fee, for a period of ten years, terminating December 1, 2021.



In connection with our Continental Acquisition in March 2014, we also became a party to a Gas Purchase Agreement, dated April 1, 2012, as amended, with Sterling Energy Investments LLC, which we refer to as Sterling, pursuant to which we have agreed to sell, and Sterling has agreed to purchase, all gas produced from eight (8) of our D-J Basin Asset wells and surrounding lands located in Weld County, Colorado, at a purchase price equal to 85% of the revenue received by Sterling from the sale of gas after processing at Sterling's plant that is attributable to us during the month, less a $0.50/Mcf gathering fee, subject to escalation, for a period of twenty years, terminating April 1, 2032.

We endeavor to ensure that title to our properties is in accordance with standards generally accepted in the oil and natural gas industry. Some of our acreage may be obtained through farmout agreements, term assignments and other contractual arrangements with third parties, the terms of which often will require the drilling of wells or the undertaking of other exploratory or development activities in order to retain our interests in the acreage. Our title to these contractual interests will be contingent upon our satisfactory fulfillment of these obligations. Our properties are also subject to customary royalty interests, liens incident to financing arrangements, operating agreements, taxes and other burdens that we believe will not materially interfere with the use and operation of or affect the value of these properties. We intend to maintain our leasehold interests by making lease rental payments or by producing wells in paying quantities prior to expiration of various time periods to avoid lease termination.

## Oil and Gas Properties

We believe that the D-J Basin shale play represents among the most promising unconventional oil and natural gas plays in the U.S. We plan to opportunistically seek additional acreage proximate to our currently held core acreage located in the Wattenberg and Wattenberg Extension areas of Weld County, Colorado. Our strategy is to be the operator, directly or through our subsidiaries and joint ventures, in the majority of our acreage so we can dictate the pace of development in order to execute our business plan. The majority of our capital expenditure budget for 2018 will be focused on the development of our D-J Basin Asset.

Unless otherwise noted, the following table presents summary data for our leasehold acreage in our core D-J Basin Asset as of December 31, 2017 and our drilling capital budget with respect to this acreage from January 1, 2018 to December 31, 2019. If commodity prices do not increase significantly, we may delay drilling activities. The ultimate amount of capital we will expend may fluctuate materially based on, among other things, market conditions, commodity prices, asset monetizations, the success of our drilling results as the year progresses, and availability of capital (see “Part I” – “Item 1A. Risk Factors”.)

<table><tr><td rowspan="2"></td><td rowspan="2">Net Acres</td><td rowspan="2">Acre Spacing</td><td rowspan="2">Potential Net Wells (1)</td><td colspan="3">Drilling Capital Budget January 1, 2018 - December 31, 2019</td></tr><tr><td>Net Wells</td><td>Gross Costs per Well (2)</td><td>Capital Cost to the Company (2)</td></tr><tr><td>Current Core Assets:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>D-J Basin Asset</td><td>10,961</td><td>80</td><td>137</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Short lateral</td><td></td><td></td><td></td><td>2.14</td><td>$ 3,601,000</td><td>$ 7,697,000</td></tr><tr><td>Long lateral</td><td></td><td></td><td></td><td>6.38</td><td>$ 4,254,000</td><td>$ 27,155,000</td></tr><tr><td>Total Assets</td><td>10,961</td><td></td><td>137</td><td>8.52</td><td></td><td>$ 34,852,000</td></tr></table>

(1) Potential Net Wells are calculated using 80 acre spacing, and not taking into account additional wells that could be drilled as a result of forced pooling in Niobrara, Colorado, where the D-J Basin Asset is located, which allows for forced pooling, and which may create more potential gross drilling locations than acre spacing alone would otherwise indicate.

(2) Costs per well are gross costs while capital costs presented are net to our working interests. We plan to drill and complete 1.07 net short lateral and 1.06 net extended reach lateral wells in 2018 with a net cost to us of $8,374,000 in 2018.



We directly hold all of our interests in the D-J Basin Asset through our wholly-owned subsidiary, Red Hawk. These interests are all located in Weld County, Colorado. Red Hawk is currently the operator of 14 gross (12.5 net) wells located in our D-J Basin Asset. Our D-J Basin Asset acreage is located in the areas circled in the map below.






## Non-Core Assets

We own 23,182,880 shares of common stock of Caspian Energy, a Canadian publicly-traded company, representing approximately 5% of its common stock. Caspian Energy holds the rights to explore and develop certain oil and gas properties in the Republic of Kazakhstan known as the North Block, a 1,470 square kilometer area located in the vicinity of the Kazakh pre-Caspian Basin. Our Chairman, Mr. Frank Ingriselli, also serves as Chairman of Caspian Energy. As partial consideration paid by the Company to Golden Globe Energy (US), LLC (“GGE”) to restructure certain junior Company debt held by GGE’s affiliates in May 2016, the Company provided GGE an option to acquire all of the Company’s interests in Caspian Energy for an option exercise price of $100,000, which expires May 12, 2019.

## Our Core Areas

The majority of our capital expenditure budget for the period from January 2018 to December 2018 will be focused on the development of our core oil and natural gas properties located in the D-J Basin Asset. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”

## D-J Basin Asset

As of December 31, 2017 we held 10,961 net acres in oil and natural gas properties related to our D-J Basin Asset. We currently own direct interests in 61 gross (17.4 net) wells in our D-J Basin Asset, of which 14 gross (12.5 net) wells are operated by Red Hawk and are currently producing, 25 gross (4.9 net) wells are non-operated, and 22 wells have an after-payout interest.

Our development plan calls for the development of approximately $8.37 million in capital expenditures in order to drill and complete, participate in the drilling and completion of, and/or acquire approximately 2.1 net wells in our D-J Basin Asset in 2018 (with an additional 6.4 net wells to be drilled and completed in 2019 for a combined total 2018-2019 drilling capital budget of $34.85 million). We expect our projected cash flow from operations combined with our existing cash on hand, up to $2.0 million of gross proceeds available from the issuance of our common shares through National Securities Corporation under our current “at the market offering,” and approximately $18.0 million gross available under our current senior debt facility, will be sufficient to fund our drilling plans and our operations through 2019 (see “Part I” – “Item 1A. Risk Factors”, including “Our Tranche A Notes and Tranche B Notes include various covenants, reduces our flexibility, increases our interest expense and may adversely impact our operations and our costs.”). In addition, we may seek additional funding through asset sales, farm-out arrangements, lines of credit, or public or private debt or equity financings to fund additional 2018-2019 capital expenditures and/or repay or refinance a portion or all of our outstanding debt. If market conditions are not conducive to raising additional funds, the Company may choose to extend the drilling program and associated capital expenditures further into 2020. The availability of additional borrowings under the senior debt facility is subject to the Company providing matching funds for all amounts borrowed, which additional borrowed funds may only be used to fund development costs.

Based on publicly available information and information we have received from our oilfield service vendors, average drilling and completion costs for wells in our core area continue to be significantly below prices we have seen in 2015 and prior years. In addition to more favorable drilling and completion costs, average estimated ultimate recoveries, or EURs, and initial 30-day average production rates have continued to increase through improved completion techniques in the area. The drilling and completion costs incurred, EURs and initial production rates achieved by others may not be indicative of the well costs we will incur or the results we will achieve from our wells.

## Our Non-Core Assets

As described above, we own 23,182,880 shares of common stock of Caspian Energy, a Canadian publicly-traded company, representing approximately 5% of its common stock. As partial consideration paid by the Company to GGE to restructure certain junior Company debt held by GGE's affiliates in May 2016, the Company provided GGE an option to acquire all of the Company's interests in Caspian Energy for an option exercise price of $100,000, which expires May 12, 2019, described in greater detail below under "Item 13. Certain Relationships and Related Transactions, and Director Independence" – "Agreements with Related Persons" – "Golden Globe Energy (US), LLC."



## Material 2016-2017 Transactions

## Senior Debt Restructuring

On May 12, 2016 (the “Closing Date”), the Company entered into an Amended and Restated Note Purchase Agreement (the “Amended NPA”), with SHIP, Bre BCLIC Sub, Bre WINIC 2013 LTC Primary, Bre WNIC 2013 LTC Sub, Heartland Bank (subsequently assigned to CadleRock IV, LLC, effective March 9, 2018), BHLN-Pedco Corp. (“BHLN”), BBLN-Pedco Corp. (“BBLN”), and RJC Credit LLC (“RJC”)(together with BHLN and BBLN, the “Tranche A Investors” and the “Lenders”), and BAM Administrative Services LLC, as agent for the Lenders (the “Agent”) (upon notice received from the Agent on October 10, 2017, the Agent resigned as agent for the Lenders effective December 31, 2017, and no replacement agent has been designated by the Lenders subsequent to such date). The Amended NPA amended and restated the March 2014 Senior Notes (as defined and discussed below under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Liquidity and Capital Resources-Secured Debt Funding”), and the Company issued new Senior Secured Promissory Notes to each of the Lenders (collectively, the “Tranche B Notes”) in a transaction that qualified as a troubled debt restructuring. RJC is also a party to the RJC Junior Note (discussed below)(the “Senior Debt Restructuring”).

## The Amended NPA amended the Senior Notes as follows:

- Created new “Tranche A Notes,” in substantially the same form and with similar terms as the Tranche B Notes, except as discussed below, consisting of a term loan issuable in tranches with a maximum aggregate principal amount of $25,960,000, with borrowed funds accruing interest at 15% per annum, and maturing on May 11, 2019 (the “Tranche A Maturity Date”) (the “Tranche A Notes,” and together with the Tranche B Notes, the “New Senior Notes”);

- The Company capitalized all accrued and unpaid interest under the Senior Notes, renaming them “Tranche B Notes,” as a term loan with an aggregate outstanding principal balance as of May 12, 2016 equal to $39,065,000. The Tranche B Notes mature on June 11, 2019 except for the Tranche B Note issued to RJC which matures on July 11, 2019;

- Amended the provisions of the Senior Notes which required mandatory prepayments from our revenues, replacing them with a Net Revenue Sweep as described below; and

- Provides that interest on the Tranche B Notes will continue to accrue at the rate of 15% per annum, but all accrued interest through December 31, 2017 shall be deferred until due and payable on the maturity date, with all interest amounts deferred being added to the principal of the Tranche B Notes on a monthly basis and that following December 31, 2017, all interest will accrue and be paid monthly in arrears in cash to the Tranche B Note holders, provided, however, no payment may be made on the Tranche B Notes unless and until the Tranche A Notes are repaid in full.

The Tranche A Notes are substantially similar to the Tranche B Notes, except that such notes are senior to the Tranche B Notes, accrue interest until maturity and have priority to the payment of Monthly Net Revenues as discussed below.

On the Closing Date, the Tranche A Investors loaned the Company their pro rata share of an aggregate of $6,422,000 (the “Initial Tranche A Funding”). The Initial Tranche A Funding net proceeds (also amounting to $6,422,000 less legal fees of $127,000) were used by the Company to (i) fund approximately $5.1 million due to a third party operator for drilling and completion expenses related to the acquired working interests in eight wells from Dome Energy, Inc. (“Dome Energy”), (ii) pay $750,000 of the Company’s past due payables to Liberty Oilfield Services, LLC (“Liberty”), (iii) pay $445,000 of unpaid interest payments due to Heartland Bank under its Tranche B Note through February 29, 2016, and (iv) pay fees and expenses of $127,000 incurred in connection with the transactions contemplated by the Amended NPA and related documents.



Subject to the terms and conditions of the Amended NPA, the Company may request each Tranche A Investor, from time to time, to advance to the Company additional amounts of funding (each, a “Subsequent Tranche A Funding”), provided that: (i) the Company may not request a Subsequent Tranche A Funding more than one time in any calendar month; (ii) Agent shall have received a written request from the Company at least 15 business days prior to the requested date of such advance (the “Advance Request”); (iii) no Event of Default or event that with the passage of time or the giving of notice, or both, would become an Event of Default (a “Default”) shall have occurred and be continuing or would result therefrom; and (iv) the Company shall provide to the Agent such documents, instruments, certificates and other writings as the Agent shall reasonably require in its sole and absolute discretion. The advancement of all or any portion of the Subsequent Tranche A Funding is in the sole and absolute discretion of the Agent and the Investors and no Investor is obligated to fund all or any part of the Subsequent Tranche A Funding. Each Subsequent Tranche A Funding is required to be in a minimum amount of $500,000 and multiples of $100,000 in excess thereof. The aggregate amount of Subsequent Tranche A Fundings that may be made by the Investors under the Amended NPA shall not exceed $18,577,876 and any Subsequent Tranche A Funding repaid may not be re-borrowed.

In addition, subject to the terms and conditions of the Amended NPA, RJC agreed to loan to the Company $240,000, within 30 days of the Closing Date and within 30 days of each of July 1, 2016, October 1, 2016 and January 1, 2017 (collectively, the “RJC Fundings” and collectively with the Investor Tranche A Fundings, the “Fundings”), provided that no Event of Default or Default shall have occurred and be continuing or would result therefrom. The aggregate amount of the RJC Fundings made by RJC under the Amended NPA shall not exceed $960,000 and any Funding repaid may not be re-borrowed.

To guarantee RJC’s obligation in connection with the RJC Fundings as required under the Amended NPA, GGE entered into a Share Pledge Agreement with the Company, dated May 12, 2016 (the “GGE Pledge Agreement”), pursuant to which GGE agreed to pledge an aggregate of 10,000 shares of the Company’s Series A Convertible Preferred Stock held by GGE (convertible into 1,000,000 shares of Company common stock), which pledged shares are subject to automatic cancellation and forfeiture based on a schedule set forth in the GGE Share Pledge Agreement, in the event RJC fails to meet each of its RJC Funding obligations pursuant to the Amended NPA. To date, RJC has not met its RJC Funding obligations under the Amended NPA and the Company is entitled to cancel and forfeit 10,000 shares of the Company’s Series A Convertible Preferred Stock held by GGE (convertible into 1,000,000 shares of Company common stock) pursuant to the terms of the GGE Pledge Agreement, which determination to cancel shares has not been made, and which shares have not been cancelled, as of the date of this filing.

As additional consideration for the entry into the Amended NPA and transactions related thereto, the Company has granted to BHLN and BBLN, warrants exercisable for an aggregate of 596,280 shares of common stock of the Company (the “Investor Warrants”). The warrants have a 3 year term, are transferrable, and are exercisable on a cashless basis at any time at $2.50 per share. The Investor Warrants include a beneficial ownership limitation that prohibits the exercise of the Investor Warrants to the extent such exercise would result in the holder, together with its affiliates, holding more than 9.99% of the Company’s outstanding voting stock (the “Blocker Provision”). The fair value of the Investor Warrants issued is approximately $707,000 based on the Black-Scholes option pricing model. The relative fair value allocated to the Tranche A Notes and recorded as debt discount was $636,000.

Other than the Investor Warrants, no additional warrants exercisable for common stock of the Company are due, owing, or shall be granted to the Lenders pursuant to the Senior Notes. In addition, warrants exercisable for an aggregate of 34,913 shares of the Company’s common stock at an exercise price of $15.00 per share and warrants exercisable for an aggregate of 120,104 shares of the Company’s common stock at an exercise price of $7.50 per share previously granted by the Company to certain of the Lenders on September 10, 2015, in connection with prior interest payment deferrals have been amended and restated to provide that all such warrants are exercisable on a cashless basis and include a Blocker Provision (the “Amended and Restated Warrants”).



Additionally, the Company also agreed to (a) provide to the Agent and the Investors a monthly projected general and administrative expense report (the "Projected G&A") and a monthly comparison report of the Projected G&A provided for the preceding month, with an explanation of any variances, provided that in no event shall such variances exceed $150,000, and (B) pay to the Agent within 2 business days following the end of each calendar month all of the Company's oil and gas revenue received by the Company during such month (the "Net Revenue Sweep"), less (i) lease operating expenses, (ii) interest payments due to Investors under the New Senior Notes, (iii) general and administrative expenses not to exceed $150,000 per month unless preapproved by the Agent (the "G&A Cap"), and (iv) preapproved extraordinary expenses (together the "Monthly Net Revenues"). Amounts paid to the Agent through the Net Revenue Sweep are applied first to the repayment of principal and then interest due under the Tranche A Notes until such notes are paid in full and then to the repayment of principal and interest amounts due under the Tranche B Notes.

The amounts outstanding under the New Senior Notes are secured by a first priority security interest in all of the Company’s and its subsidiaries’ assets, property, real property, intellectual property, securities and proceeds therefrom, granted in favor of the Agent for the benefit of the Lenders, pursuant to a Security Agreement and a Patent Security Agreement, each entered into as of March 7, 2014, as amended on May 12, 2016 (the “Amended Security Agreement” and “Amended Patent Agreement,” respectively). Additionally, the Agent, for the benefit of the Lenders, was granted a mortgage and security interest in all of the Company’s and its subsidiaries’ real property as located in the State of Colorado and the State of Texas pursuant to (i) a Leasehold Deed of Trust, Fixture Filing, Assignment of Rents and Leases, and Security Agreements, dated March 7, 2014, as amended May 12, 2016, filed in Weld County and Morgan County, Colorado; and (ii) a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production to be filed in Matagorda County, Texas (collectively, the “Amended Mortgages”).

Additionally, the Company’s obligations under the New Senior Notes, Amended NPA and related agreements were guaranteed by the Company’s direct and indirect subsidiaries, Pacific Energy Development Corp., White Hawk Petroleum, LLC (“White Hawk”), Pacific Energy & Rare Earth Limited, Blackhawk Energy Limited, Pacific Energy Development MSL, LLC and Red Hawk Petroleum, LLC pursuant to a Guaranty Agreement, entered into on March 7, 2014, as amended on May 12, 2016 (the “Amended Guaranty Agreement”).

Other than as described above, the terms of the Amended NPA (including the covenants and obligations thereunder) are substantially the same as the March 2014 Note Purchase Agreement, and the terms of the Tranche A Notes and Tranche B Notes (including the events of default, interest rates and conditions associated therewith) are substantially the same as the original March 2014 Notes.

## Junior Debt Restructuring

On May 12, 2016, the Company entered into an Amendment No. 2 to Note and Security Agreement with RJC (the "Second Amendment"), pursuant to which the Company and RJC agreed to amend the RJC Junior Note (described and defined below under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" - "Liquidity and Capital Resources" - "Secured Debt Funding"), to (i) capitalize all accrued and unpaid interest under the RJC Junior Note as of the date of the parties' entry into the Second Amendment, and add it to note principal, making the then current outstanding principal amount of the RJC Junior Note $9,379,000, (ii) extend the "Termination Date" thereunder (i.e., the maturity date) from December 31, 2017 to July 11, 2019, (iii) provide that all future interest accruing under the RJC Junior Note is deferred, due and payable on the Termination Date, with all future interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued, and (iv) subordinate the RJC Junior Note to the New Senior Notes.



As additional consideration for RJC’s agreement to enter into the Second Amendment, the Company entered into a Call Option Agreement with GGE, an affiliate of RJC, dated May 12, 2016 (the “GGE Option Agreement”), pursuant to which the Company provided GGE an option to purchase 23,182,880 common shares of Caspian Energy Inc., a British Columbia corporation, held by the Company, upon payment of $100,000 by GGE to the Company, which option expires on the “Termination Date” of the RJC Junior Note, as amended, as described above, currently May 12, 2019. The Company originally issued an option to GGE in February 2015 to acquire the Company’s interest in these shares in connection with the Company’s acquisition of certain producing oil and gas assets from GGE, which option expired unexercised in February 2016, as more fully described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2015.

## GOM Holdings, LLC Merger Agreement

On December 29, 2015, the Company entered into an Agreement and Plan of Merger (the “GOM Merger Agreement”) with White Hawk Energy, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), and GOM Holdings, LLC (“GOM”). The GOM Merger Agreement provided for the Company’s acquisition of GOM through an exchange of certain of the shares of the Company’s common and preferred stock (the “Consideration Shares”), for 100% of the limited liability company membership units of GOM (the “GOM Units”), with the GOM Units being received by Merger Sub and GOM receiving the Consideration Shares (the “Merger”).

On June 22, 2017, the Company terminated its then pending merger with GOM, in order to pursue an alternative transaction with a Hong Kong-based investor group as contemplated pursuant to a non-binding term sheet entered into by the Company and the investor group, which transaction was similarly terminated on September 29, 2017.

## Amendment to the 2012 Equity Incentive Plan

At the Company’s Annual Meeting of Stockholders held on December 28, 2017 (the “Annual Meeting”), the Company’s stockholders approved an amendment to the Company’s 2012 Equity Incentive Plan (the “Plan”) to increase by 1,500,000, the number of shares of common stock reserved for issuance under the Plan to a total of 3,000,000 shares.

## Reverse Stock Split

On March 27, 2017, pursuant to the authorization provided by the Company’s stockholders at the Company’s December 28, 2016 annual meeting, and in order to meet the continued listing standards of the NYSE American, the Board of Directors approved the filing of a Certificate of Amendment to the Company’s Certificate of Formation with the Secretary of State of Texas to effect a 1-for-10 reverse stock split of all outstanding common stock shares of the Company, which was effective on April 7, 2017.

The effect of the reverse stock split was to combine each 10 shares of outstanding common stock into one new share, with no change in authorized shares or par value per share. Proportional adjustments were also made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans.

The effect of the reverse stock split has been retroactively affected throughout this report.



## Restricted Stock and Option Awards

On December 28, 2017, the Company granted 150,000 shares of restricted Company common stock under the Amended and Restated 2012 Equity Incentive Plan (the "Plan") to each member of the Company's Board of Directors – Messrs. Ingriselli, McAfee and Steinberg, and Ms. Smith – which shares vest on the date in 2018 that corresponds with each director's original appointment date to the Company's Board of Directors as a non-employee director, in each case subject to the recipient of the shares being a member of the Company's Board of Directors on such vesting date, and subject to the terms and conditions of a Restricted Shares Grant Agreement entered into by and between the Company and the recipient. These shares were granted in accordance with the terms of the Company's Board Compensation Program, as revised by the Board of Directors for the 2018 year to reduce the number of shares of restricted Company common stock issuable to each director to a fixed 150,000 shares rather than shares valued at $60,000 as of the date of grant, which would have otherwise exceeded 150,000 shares granted to each director.

In addition, on December 28, 2017, in connection with the Company’s annual compensation review process, the Company granted restricted stock awards to Messrs. Michael L. Peterson (President and Chief Executive Officer) and Clark R. Moore (Executive Vice President, General Counsel and Secretary), of 410,000 and 260,000 shares, respectively, and options to purchase 150,000 shares of common stock to Gregory Overholtz (Chief Financial Officer), which options have an exercise price of $0.3088 per share and expire in five (5) years from the date of grant. The restricted stock and option awards were granted under the Plan, as amended. The restricted stock and option awards vest as follows: 50% of the shares/options on the six (6) month anniversary of December 28, 2017 (the “Grant Date”); (ii) 30% on the twelve (12) month anniversary of the Grant Date; and (iii) 20% on the eighteen (18) month anniversary of the Grant Date, in each case subject to the recipient of the shares or options being an employee of or consultant to the Company on such vesting date, and subject to the terms and conditions of a Restricted Shares Grant Agreement or Stock Option Agreement, as applicable, entered into by and between the Company and the recipient.

## Notice of Delisting of Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On December 27, 2016, the Company received notice from the NYSE American LLC (the "Exchange") that the Company is not in compliance with Section 1003(a)(iii) of the NYSE American Company Guide ("Company Guide") since it reported stockholders' equity of less than $6,000,000 at September 30, 2016 and has incurred net losses in its five most recent fiscal years ended December 31, 2015.

Receipt of the letter did not have any immediate effect upon the listing of the Company’s common stock, provided that in order to maintain its listing on the Exchange, the Exchange has requested that the Company submit a plan of compliance (the “Plan”) by January 27, 2017 addressing how the Company intends to regain compliance with Section 1003(a)(iii) of the Company Guide by June 27, 2018.

The Company’s management submitted a Plan to the Exchange by the January 27, 2017 deadline and the Exchange has accepted the Company’s Plan. As such, the Company will be able to continue its listing during the plan period and will be subject to continued periodic review by the Exchange staff. If the Company is unable to regain compliance with the continued listing standards by June 27, 2018, or the Company does not make progress consistent with the Plan during the plan period, the Company will be subject to delisting procedures as set forth in the Company Guide. The Company may then appeal such a determination by the staff of the Exchange in accordance with the provisions of the Company Guide. There can be no assurance that the Company will be able to achieve compliance with the Exchange’s continued listing standards within the required time frame. Until the Company regains compliance with the Exchange’s listing standards, a “BC” indicator will be affixed to the Company’s trading symbol to denote non-compliance with the Exchange’s continued listing standards; provided that as disclosed in the Current Report on Form 8-K filed by the Company on November 9, 2016, a “BC” indicator is already affixed to the Company’s trading symbol due to the fact that the Company is not in compliance with Section 1003(f)(v) of the Company Guide.



On May 3, 2017, the Company received notice from the Exchange that the Company was not in compliance with Sections 1003(a)(i) and (ii) (as well as Section (iii) as described above) of the Company Guide since it reported stockholders' equity of less than $2,000,000 at December 31, 2016 and had incurred net losses in its five most recent fiscal years ended December 31, 2016. No new or revised Plan was required to be submitted by the Exchange, and the Company believes it is making progress consistent with the Exchange-approved Plan.

## Shale Oil and Natural Gas Overview

The surge of oil and natural gas production from underground shale rock formations has had a dramatic impact on the oil and natural gas market in the U.S., where the practice was first developed, and globally. Shale oil production is facilitated by the combination of a set of technologies that had been applied separately to other hydrocarbon reservoir types for many decades. In combination these technologies and techniques have enabled large volumes of oil to be produced from deposits with characteristics that would not otherwise permit oil to flow at rates sufficient to justify its exploitation. The application of horizontal drilling, hydraulic fracturing and advanced reservoir assessment tools to these reservoirs is unlocking a global resource of shale and other unconventional oil and natural gas that the International Energy Agency estimates could eventually double recoverable global oil reserves.

Oil and natural gas produced from shale is considered an unconventional resource. Commercial oil and natural gas production from unconventional sources requires special techniques in order to achieve attractive oil and natural gas flow rates. Unlike conventional oil and natural gas, which is typically generated in deeper source rock and subsequently migrates into a sandstone structure with an overlying impermeable layer forming a "trap," shale oil and natural gas is generated from organic material contained within the shale and retained by the rock's inherent low permeability. Permeability is a measure of the ease with which natural gas, oil or other fluids can flow through the material. The same low permeability that secures large volumes of natural gas and liquids in place within the shale strata makes it much more difficult to extract them, even with a large pressure difference between the reservoir and the surface. The location and potential of many of today's productive shale reservoirs were known for many years, but until the development of current shale oil and natural gas techniques these deposits were considered noncommercial or inaccessible.

The main challenge of shale oil and natural gas drilling is to overcome the low permeability of the shale reservoirs. A conventional vertical oil or natural gas well drilled into one of these reservoirs might achieve production, though at reduced rates and for a limited duration before the oil or natural gas volume in proximity to the wellbore is exhausted. That often renders such an approach impractical and uneconomic for exploiting shale oil and natural gas. The two main technologies associated with U.S. shale oil and natural gas production are horizontal drilling and hydraulic fracturing, or "hydrofracking." They are employed to overcome these constraints by greatly increasing the exposure of each well to the shale stratum and enabling oil and natural gas located farther from the well to flow through the rock and replace the nearby oil and natural gas that has been extracted to the surface.

Instead of drilling a simple vertical well through the shale and then perforating the well within the zone where it is in contact with the shale, the drilling company drills a directional well vertically to within proximity of the shale and then executes a 90-degree turn in order to intersect the shale and then travel for a significant horizontal distance through it. A typical North American shale well has a horizontal extent of 1,000 feet to 8,000 feet or more.

Once the lateral portion of the well has reached the desired extent, the other main technique of shale oil and natural gas drilling is deployed. After the well has been completed, the farthest section of the lateral is perforated, opening up holes through which fluid can flow. This portion of the reservoir is then hydrofracked by injecting fluid into the well under high pressure to fracture the exposed shale rock and open up pathways through which oil and natural gas can flow. The “fracking fluid” consists mainly of water with a variety of chemical additives intended to reduce friction and dissolve minerals, among other purposes, along with sand or sand-like material to prop open the new pathways created by hydrofracking. This process is then repeated at intervals along the well’s horizontal extent, successively perforating and hydrofracking each section in turn. This process creates a producing well that emulates the effect of a vertical well drilled into a conventional oil and natural gas reservoir by substituting multiple horizontal “pay zones” in the shale stratum for the thinner but more prolific vertical pay zone in a more permeable reservoir. Compared to conventional oil and natural gas drilling, the production of oil and natural gas from shale reservoirs thus entails more drilling, on average, and requires a substantial supply of water.



Beginning in 2014, the oil and natural gas industry began to experience a sharp decline in commodity prices, with the daily NYMEX WTI oil spot price went from a high of $107.95 per Bbl in June 2014 to low of $26.19 per Bbl in February 2016, the lowest settlement in over a decade. This recent decline in oil prices has resulted in a slowing of the pace of U.S. shale oil production, with Baker Hughes' rig count data showing a decrease in the number of oil rigs operating in the DJ-Niobrara from 42 rigs at the end of December 2014 to 26 rigs at the end of December 2017. However, this has also led to average drilling and completion costs for wells in the DJ-Niobrara significantly dropping from between $4.3 million (short-lateral) and $8.3 million (long lateral) per well in early 2015 to between $3.6 million and $4.3 million per well currently, which reduced costs partially offset the decline in commodity prices, resulting in new shale oil wells drilled in more thermally mature formations of the DJ-Niobrara expected to continue to yield positive economic returns.

## Regulation of the Oil and Gas Industry

Our operations are substantially affected by federal, state and local laws and regulations. Failure to comply with applicable laws and regulations can result in substantial penalties. The regulatory burden on the industry increases the cost of doing business and affects profitability. Historically, our compliance costs have not had a material adverse effect on our results of operations; however, we are unable to predict the future costs or impact of compliance. Additional proposals and proceedings that affect the oil and natural gas industry are regularly considered by Congress, the states, the Federal Energy Regulatory Commission (the “FERC”) and the courts. We cannot predict when or whether any such proposals may become effective. We do not believe that we would be affected by any such action materially differently than similarly situated competitors.

## Regulation Affecting Production

The production of oil and natural gas is subject to United States federal and state laws and regulations, and orders of regulatory bodies under those laws and regulations, governing a wide variety of matters. All of the jurisdictions in which we own or operate producing oil and natural gas properties have statutory provisions regulating the exploration for and production of oil and natural gas, including provisions related to permits for the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, sourcing and disposal of water used in the drilling and completion process, and the abandonment of wells. Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in an area, and the unitization or pooling of oil or natural gas wells, as well as regulations that generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells. These laws and regulations may limit the amount of oil and gas we can drill. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil, NGL and gas within its jurisdiction.

States do not regulate wellhead prices or engage in other similar direct regulation, but there can be no assurance that they will not do so in the future. The effect of such future regulations may be to limit the amounts of oil and gas that may be produced from our wells, negatively affect the economics of production from these wells or limit the number of locations we can drill.

The failure to comply with the rules and regulations of oil and natural gas production and related operations can result in substantial penalties. Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations.

## Regulation Affecting Sales and Transportation of Commodities

Sales prices of gas, oil, condensate and NGL are not currently regulated and are made at market prices. Although prices of these energy commodities are currently unregulated, the United States Congress historically has been active in their regulation. We cannot predict whether new legislation to regulate oil and gas, or the prices charged for these commodities might be proposed, what proposals, if any, might actually be enacted by the United States Congress or the various state legislatures and what effect, if any, the proposals might have on our operations. Sales of oil and natural gas may be subject to certain state and federal reporting requirements.



The price and terms of service of transportation of the commodities, including access to pipeline transportation capacity, are subject to extensive federal and state regulation. Such regulation may affect the marketing of oil and natural gas produced by the Company, as well as the revenues received for sales of such production. Gathering systems may be subject to state ratable take and common purchaser statutes. Ratable take statutes generally require gatherers to take, without undue discrimination, oil and natural gas production that may be tendered to the gatherer for handling. Similarly, common purchaser statutes generally require gatherers to purchase, or accept for gathering, without undue discrimination as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another source of supply. These statutes may affect whether and to what extent gathering capacity is available for oil and natural gas production, if any, of the drilling program and the cost of such capacity. Further state laws and regulations govern rates and terms of access to intrastate pipeline systems, which may similarly affect market access and cost.

The FERC regulates interstate natural gas pipeline transportation rates and service conditions. The FERC is continually proposing and implementing new rules and regulations affecting interstate transportation. The stated purpose of many of these regulatory changes is to ensure terms and conditions of interstate transportation service are not unduly discriminatory or unduly preferential, to promote competition among the various sectors of the natural gas industry and to promote market transparency. We do not believe that our drilling program will be affected by any such FERC action in a manner materially differently than other similarly situated natural gas producers.

In addition to the regulation of natural gas pipeline transportation, FERC has additional, jurisdiction over the purchase or sale of gas or the purchase or sale of transportation services subject to FERC’s jurisdiction pursuant to the Energy Policy Act of 2005 (“EPAct 2005”). Under the EPAct 2005, it is unlawful for “any entity,” including producers such as us, that are otherwise not subject to FERC’s jurisdiction under the Natural Gas Act of 1938 (“NGA”) to use any deceptive or manipulative device or contrivance in connection with the purchase or sale of gas or the purchase or sale of transportation services subject to regulation by FERC, in contravention of rules prescribed by FERC. FERC’s rules implementing this provision make it unlawful, in connection with the purchase or sale of gas subject to the jurisdiction of FERC, or the purchase or sale of transportation services subject to the jurisdiction of FERC, for any entity, directly or indirectly, to use or employ any device, scheme or artifice to defraud; to make any untrue statement of material fact or omit to make any such statement necessary to make the statements made not misleading; or to engage in any act or practice that operates as a fraud or deceit upon any person. EPAct 2005 also gives FERC authority to impose civil penalties for violations of the NGA and the Natural Gas Policy Act of 1978 up to $1.2 million per day, per violation. The anti-manipulation rule applies to activities of otherwise non-jurisdictional entities to the extent the activities are conducted “in connection with” gas sales, purchases or transportation subject to FERC jurisdiction, which includes the annual reporting requirements under FERC Order No. 704 (defined below).

In December 2007, FERC issued a final rule on the annual natural gas transaction reporting requirements, as amended by subsequent orders on rehearing (“Order No. 704”). Under Order No. 704, any market participant, including a producer that engages in certain wholesale sales or purchases of gas that equal or exceed 2.2 million MMBtus of physical natural gas in the previous calendar year, must annually report such sales and purchases to FERC on Form No. 552 on May 1 of each year. Form No. 552 contains aggregate volumes of natural gas purchased or sold at wholesale in the prior calendar year to the extent such transactions utilize, contribute to the formation of price indices. Not all types of natural gas sales are required to be reported on Form No. 552. It is the responsibility of the reporting entity to determine which individual transactions should be reported based on the guidance of Order No. 704. Order No. 704 is intended to increase the transparency of the wholesale gas markets and to assist FERC in monitoring those markets and in detecting market manipulation.

The FERC also regulates rates and terms and conditions of service on interstate transportation of liquids, including oil and NGL, under the Interstate Commerce Act, as it existed on October 1, 1977 (“ICA”). Prices received from the sale of liquids may be affected by the cost of transporting those products to market. The ICA requires that certain interstate liquids pipelines maintain a tariff on file with FERC. The tariff sets forth the established rates as well as the rules and regulations governing the service. The ICA requires, among other things, that rates and terms and conditions of service on interstate common carrier pipelines be “just and reasonable.” Such pipelines must also provide jurisdictional service in a manner that is not unduly discriminatory or unduly preferential. Shippers have the power to challenge new and existing rates and terms and conditions of service before FERC.



The rates charged by many interstate liquids pipelines are currently adjusted pursuant to an annual indexing methodology established and regulated by FERC, under which pipelines increase or decrease their rates in accordance with an index adjustment specified by FERC. For the five-year period beginning July 1, 2016, FERC established an annual index adjustment equal to the change in the producer price index for finished goods plus 1.23%. This adjustment is subject to review every five years. Under FERC's regulations, a liquids pipeline can request a rate increase that exceeds the rate obtained through application of the indexing methodology by obtaining market-based rate authority (demonstrating the pipeline lacks market power), establishing rates by settlement with all existing shippers, or through a cost-of-service approach (if the pipeline establishes that a substantial divergence exists between the actual costs experienced by the pipeline and the rates resulting from application of the indexing methodology). Increases in liquids transportation rates may result in lower revenue and cash flows for the Company.

In addition, due to common carrier regulatory obligations of liquids pipelines, capacity must be prorated among shippers in an equitable manner in the event there are nominations in excess of capacity or for new shippers. Therefore, new shippers or increased volume by existing shippers may reduce the capacity available to us. Any prolonged interruption in the operation or curtailment of available capacity of the pipelines that we rely upon for liquids transportation could have a material adverse effect on our business, financial condition, results of operations and cash flows. However, we believe that access to liquids pipeline transportation services generally will be available to us to the same extent as to our similarly situated competitors.

Rates for intrastate pipeline transportation of liquids are subject to regulation by state regulatory commissions. The basis for intrastate liquids pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate liquids pipeline rates, varies from state to state. We believe that the regulation of liquids pipeline transportation rates will not affect our operations in any way that is materially different from the effects on our similarly situated competitors.

In addition to FERC’s regulations, we are required to observe anti-market manipulation laws with regard to our physical sales of energy commodities. In November 2009, the Federal Trade Commission (“FTC”) issued regulations pursuant to the Energy Independence and Security Act of 2007, intended to prohibit market manipulation in the petroleum industry. Violators of the regulations face civil penalties of up to $1 million per violation per day. In July 2010, Congress passed the Dodd-Frank Act, which incorporated an expansion of the authority of the Commodity Futures Trading Commission (“CFTC”) to prohibit market manipulation in the markets regulated by the CFTC. This authority, with respect to oil swaps and futures contracts, is similar to the anti-manipulation authority granted to the FTC with respect to oil purchases and sales. In July 2011, the CFTC issued final rules to implement their new anti-manipulation authority. The rules subject violators to a civil penalty of up to the greater of $1.1 million or triple the monetary gain to the person for each violation.

## Regulation of Environmental and Occupational Safety and Health Matters

Our operations are subject to stringent federal, state and local laws and regulations governing occupational safety and health aspects of our operations, the discharge of materials into the environment and environmental protection. Numerous governmental entities, including the U.S. Environmental Protection Agency (“EPA”) and analogous state agencies have the power to enforce compliance with these laws and regulations and the permits issued under them, often requiring difficult and costly actions. These laws and regulations may, among other things (i) require the acquisition of permits to conduct drilling and other regulated activities; (ii) restrict the types, quantities and concentration of various substances that can be released into the environment or injected into formations in connection with oil and natural gas drilling and production activities; (iii) limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; (iv) require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells; (v) apply specific health and safety criteria addressing worker protection; and (vi) impose substantial liabilities for pollution resulting from drilling and production operations. Any failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of corrective or remedial obligations, the occurrence of delays or restrictions in permitting or performance of projects, and the issuance of orders enjoining performance of some or all of our operations.



These laws and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and consequently affects profitability. The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus any changes in environmental laws and regulations or re-interpretation of enforcement policies that result in more stringent and costly well drilling, construction, completion or water management activities, or waste handling, storage transport, disposal, or remediation requirements could have a material adverse effect on our financial position and results of operations. We may be unable to pass on such increased compliance costs to our customers. Moreover, accidental releases or spills may occur in the course of our operations, and we cannot assure you that we will not incur significant costs and liabilities as a result of such releases or spills, including any third-party claims for damage to property, natural resources or persons. Continued compliance with existing requirements is not expected to materially affect us. However, there is no assurance that we will be able to remain in compliance in the future with such existing or any new laws and regulations or that such future compliance will not have a material adverse effect on our business and operating results.

Additionally, on January 29, 2018, in Martinez v. Colorado Oil and Gas Conservation Commission, the Colorado Supreme Court agreed to review a ruling by the Colorado Court of Appeals that held that the Colorado Oil & Gas Conservation Commission (“COGCC”) had incorrectly concluded that it lacked statutory authority to undertake a proposed rulemaking “to suspend the issuance of permits that allow hydraulic fracturing until it can be done without adversely impacting human health and safety and without impairing Colorado’s atmospheric resource and climate system, water, soil, wildlife, or other biological resources.” The Colorado Court of Appeals concluded that Colorado’s Oil and Gas Conservation Act mandated that oil and gas development “be regulated subject to the protection of public health, safety, and welfare, including protection of the environment and wildlife resources.” The Colorado Supreme Court said it would consider whether the Colorado Court of Appeals erred in determining that the COGCC misinterpreted the Oil and Gas Conservation Act as “requiring a balance between oil and gas development and public health, safety, and welfare.”

The following is a summary of the more significant existing and proposed environmental and occupational safety and health laws, as amended from time to time, to which our business operations are or may be subject and for which compliance may have a material adverse impact on our capital expenditures, results of operations or financial position.

## Hazardous Substances and Wastes

The Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Pursuant to rules issued by the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters, and most of the other wastes associated with the exploration, development, and production of oil or natural gas, if properly handled, are currently exempt from regulation as hazardous waste under RCRA and, instead, are regulated under RCRA’s less stringent non-hazardous waste provisions, state laws or other federal laws. However, it is possible that certain oil and natural gas drilling and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. For example, in December 2016, environmental groups and the EPA entered into a consent decree to address EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and natural gas wastes, from regulation as hazardous wastes under RCRA. Under this consent decree, the EPA is required to propose no later than March 15, 2019, a rulemaking for revision of certain Subtitle D criteria regulations pertaining to oil and natural gas wastes or sign a determination that revision of the regulations is not necessary. If the EPA proposes a rulemaking for revised oil and natural gas regulations, the consent decree requires that the EPA take final action following notice and comment rulemaking no later than July 15, 2021. Stricter regulation of wastes generated during our operations could result in an increase in our, as well as the oil and natural gas exploration and production industry’s, costs to manage and dispose of wastes, which could have a material adverse effect on our results of operations and financial position.



The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the Superfund law, and comparable state laws impose joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current and former owners and operators of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. In addition, it is not uncommon for neighboring landowners and other third-parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. We generate materials in the course of our operations that may be regulated as hazardous substances.

We currently lease or operate numerous properties that have been used for oil and natural gas exploration, production and processing for many years. Although we believe that we have utilized operating and waste disposal practices that were standard in the industry at the time, hazardous substances, wastes, or petroleum hydrocarbons may have been released on, under or from the properties owned or leased by us, or on, under or from other locations, including off-site locations, where such substances have been taken for treatment or disposal. In addition, some of our properties have been operated by third parties or by previous owners or operators whose treatment and disposal of hazardous substances, wastes, or petroleum hydrocarbons was not under our control. These properties and the substances disposed or released on, under or from them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to undertake response or corrective measures, which could include removal of previously disposed substances and wastes, cleanup of contaminated property or performance of remedial plugging or pit closure operations to prevent future contamination, the costs of which could be substantial.

## Water Discharges

The Federal Water Pollution Control Act, also known as the Clean Water Act (“CWA”), and analogous state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and hazardous substances, into state waters and waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. Spill prevention, control and countermeasure plan requirements imposed under the CWA require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. The CWA also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by permit. In June 2015, the EPA and the U.S. Army Corps of Engineers (“Corps”) published a final rule to revise the definition of "waters of the United States" ("WOTUS") for all Clean Water Act programs, but legal challenges to this rule followed and the rule was stayed nationwide by the U.S. Sixth Circuit Court of Appeals in October 2015. In response to this decision, the EPA and the Corps resumed nationwide use of the agencies' prior regulations defining the term "waters of the United States." However, in January 2018, the U.S. Supreme Court ruled that the rule revising the WOTUS definition must first be reviewed in the federal district courts, which could result in a withdrawal of the stay by the Sixth Circuit. In addition, the EPA has issued proposals to repeal the rule revising the WOTUS definition and to delay its implementation until 2020 to allow time for the EPA to reconsider the definition of the term "waters of the United States." To the extent this rule or a revised rule expands the scope of the CWA's jurisdiction, we could face increased costs and delays with respect to obtaining permits for dredge and fill activities in wetland areas in connection with any expansion activities. Federal and state regulatory agencies may impose substantial administrative, civil and criminal penalties as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations, including spills and other non-authorized discharges. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.



The Oil Pollution Act of 1990 (“OPA”), amends the CWA and sets minimum standards for prevention, containment and cleanup of oil spills. The OPA applies to vessels, offshore facilities, and onshore facilities, including exploration and production facilities that may affect waters of the United States. Under OPA, responsible parties including owners and operators of onshore facilities may be held strictly liable for oil cleanup costs and natural resource damages as well as a variety of public and private damages that may result from oil spills. The OPA also requires owners or operators of certain onshore facilities to prepare Facility Response Plans for responding to a worst-case discharge of oil into waters of the United States.

## Subsurface Injections

In the course of our operations, we produce water in addition to oil and natural gas. Water that is not recycled may be disposed of in disposal wells, which inject the produced water into non-producing subsurface formations. Underground injection operations are regulated pursuant to the Underground Injection Control (“UIC”) program established under the federal Safe Drinking Water Act (“SDWA”) and analogous state laws. The UIC program requires permits from the EPA or an analogous state agency for the construction and operation of disposal wells, establishes minimum standards for disposal well operations, and restricts the types and quantities of fluids that may be disposed. A change in UIC disposal well regulations or the inability to obtain permits for new disposal wells in the future may affect our ability to dispose of produced water and ultimately increase the cost of our operations. For example, in response to recent seismic events near belowground disposal wells used for the injection of oil and natural gas-related wastewaters, regulators in some states, including Colorado, have imposed more stringent permitting and operating requirements for produced water disposal wells. In Colorado, permit applications are reviewed specifically to evaluate seismic activity and, as of 2011, the state has required operators to identify potential faults near proposed wells, if earthquakes historically occurred in the area, and to accept maximum injection pressures and volumes based on fracture gradient as conditions to permit approval. Additionally, legal disputes may arise based on allegations that disposal well operations have caused damage to neighboring properties or otherwise violated state or federal rules regulating waste disposal. These developments could result in additional regulation, restriction on the use of injection wells by us or by commercial disposal well vendors whom we may use from time to time to dispose of wastewater, and increased costs of compliance, which could have a material adverse effect on our capital expenditures and operating costs, financial condition, and results of operations.

## Air Emissions

The Clean Air Act (the “CAA”) and comparable state laws restrict the emission of air pollutants from many sources, such as, for example, tank batteries and compressor stations, through air emissions standards, construction and operating permitting programs and the imposition of other compliance standards. These laws and regulations may require us to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air permit requirements or utilize specific equipment or technologies to control emissions of certain pollutants. The need to obtain permits has the potential to delay the development of oil and natural gas projects. Over the next several years, we may be charged royalties on natural gas losses or required to incur certain capital expenditures for air pollution control equipment or other air emissions related issues. For example, in October 2015, the EPA issued a final rule under the CAA, lowering the National Ambient Air Quality Standard (“NAAQS”) for ground-level ozone from 75 parts per billion (“ppb”) for the 8-hour primary and secondary ozone standards to 70 ppb for both standards. On June 6, 2017, the EPA extended the deadline for promulgating initial area designations by one year. Reclassification of areas or imposition of more stringent standards may make it more difficult to construct new or modified sources of air pollution in newly designated non-attainment areas. Also, states are expected to implement more stringent requirements as a result of this new final rule, which could apply to our operations. In addition, during the fall of 2016, the EPA also issued final Control Techniques Guidelines (“CTGs”) for reducing volatile organic compound emissions from existing oil and natural gas equipment and processes in ozone non-attainment areas, including the Denver Metro North Front Range Ozone 8-hour Non-Attainment area. In 2017, as part of the federal CTG process for oil and natural gas, Colorado began a stakeholder and rulemaking effort to compare the CTGs to existing Colorado requirements to ensure they meet applicable federal requirements. This process could result in new or more stringent air quality control requirements applicable to our operations. In another example, in June 2016, the EPA finalized a revised rule regarding criteria for aggregating multiple small surface sites into a single source for air-quality permitting purposes applicable to the oil and gas industry. This rule could cause small facilities, on an aggregate basis, to be deemed a major source, thereby triggering more stringent permitting requirements. Compliance with these or other air pollution control and permitting requirements have the potential to delay the development of oil and natural gas projects and increase our costs of development and production, which costs could have a material adverse impact on our business and results of operations.



## Regulation of GHG Emissions

In response to findings that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”) present an endangerment to public health and the environment, the EPA has adopted regulations under existing provisions of the Clean Air Act that, among other things, establish Prevention of Significant Deterioration (“PSD”) construction and Title V operating permit reviews for certain large stationary sources that are already potential major sources of certain principal, or criteria, pollutant emissions. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet “best available control technology” standards that typically will be established by state agencies. In addition, the EPA has adopted rules requiring the monitoring and annual reporting of GHG emissions from specified large, GHG emission sources in the United States, including certain onshore and offshore oil and natural gas production sources, which include certain of our operations.

Federal agencies also have begun directly regulating emissions of methane, a GHG, from oil and natural gas operations. In June 2016, the EPA published the New Source Performance Standards (“NSPS”) Subpart OOOOa standards that require certain new, modified or reconstructed facilities in the oil and natural gas sector to reduce these methane gas and volatile organic compound emissions. These Subpart OOOOa standards will expand previously issued NSPS published by the EPA in 2012 and known as Subpart OOOO, by using certain equipment-specific emissions control practices. However, in April 2017, the EPA announced that it would review this methane rule for new, modified and reconstructed sources and initiated reconsideration proceedings to potentially revise or rescind portions of the rule. In June 2017, the EPA also proposed a two-year stay of certain requirements of the methane rule pending the reconsideration proceedings; however, the rule remains in effect in the meantime. Similarly, in November 2016, the federal Bureau of Land Management (“BLM”) issued a final rule to reduce methane emissions by regulating venting, flaring, and leaks from oil and gas operations on federal and American Indian lands. However, in December 2017, BLM finalized a suspension of certain requirements of the rule until 2019. That suspension is now being challenged in court, and substantial uncertainty exists with respect to implementation of the rule.

On the international level, in December 2015, the United States joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France that prepared an agreement requiring member countries to review and “represent a progression” in their intended nationally determined contributions, which set GHG emission reduction goals every five years beginning in 2020. This “Paris Agreement” was signed by the United States in April 2016 and entered into force in November 2016; however, this agreement does not create any binding obligations for nations to limit their GHG emissions, but rather includes pledges to voluntarily limit or reduce future emissions. In follow-up to an earlier announcement by President Trump, in August 2017, the U.S. Department of State officially informed the United Nations of the intent of the United States to withdraw from the Paris Agreement. The Paris Agreement provides for a four-year exit process beginning when it took effect in November 2016, which would result in an effective exit date of November 2020. The United States’ adherence to the exit process and/or the terms on which the United States may re-enter the Paris Agreement or a separately negotiated agreement are unclear at this time.

The adoption and implementation of any international, federal or state legislation or regulations that require reporting of GHG or otherwise limit emissions of GHG from our equipment and operations could result in increased costs to reduce emissions of GHG associated with our operations as well as delays or restrictions in our ability to permit GHG emissions from new or modified sources. In addition, substantial limitations on GHG emissions could adversely affect demand for the oil, natural gas and NGL we produce and lower the value of our reserves, which devaluation could be significant. One or more of these developments could have a materially adverse effect on our business, financial condition and results of operations. Additionally, it should be noted that increasing concentrations of GHG in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events; if any such effects were to occur, they could have an adverse effect on our exploration and production operations. At this time, we have not developed a comprehensive plan to address the legal, economic, social or physical impacts of climate change on our operations. Finally, notwithstanding potential risks related to climate change, the International Energy Agency, an autonomous intergovernmental organization involved in international energy policy, estimates that global energy demand will continue to rise and will not peak until after 2040 and oil and gas will continue to represent a substantial percentage of global energy use over that time. However, recent activism directed at shifting funding away from companies with energy-related assets could result in limitations or restrictions on certain sources of funding for the energy sector.



## Hydraulic Fracturing Activities

Hydraulic fracturing is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurface rock formations. We regularly use hydraulic fracturing as part of our operations. Hydraulic fracturing involves the injection of water, sand or alternative proppant and chemicals under pressure into targeted geological formations to fracture the surrounding rock and stimulate production. Hydraulic fracturing is typically regulated by state oil and natural gas commissions. However, several federal agencies have asserted regulatory authority over certain aspects of the process. For example, in December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under certain circumstances. Additionally, the EPA published in June 2016 an effluent limitations guideline final rule pursuant to its authority under the SDWA prohibiting the discharge of wastewater from onshore unconventional oil and natural gas extraction facilities to publicly owned wastewater treatment plants; asserted regulatory authority in 2014 under the SDWA over hydraulic fracturing activities involving the use of diesel and issued guidance covering such activities; and issued in 2014 a prepublication of its Advance Notice of Proposed Rulemaking regarding Toxic Substances Control Act reporting of the chemical substances and mixtures used in hydraulic fracturing. Also, the BLM published a final rule in March 2015 establishing new or more stringent standards for performing hydraulic fracturing on federal and American Indian lands including well casing and wastewater storage requirements and an obligation for exploration and production operators to disclose what chemicals they are using in fracturing activities. However, following years of litigation, the BLM rescinded the rule in December 2017. Also, from time to time, legislation has been introduced, but not enacted, in Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. In the event that a new, federal level of legal restrictions relating to the hydraulic fracturing process is adopted in areas where we operate, we may incur additional costs to comply with such federal requirements that may be significant in nature, and also could become subject to additional permitting requirements and experience added delays or curtailment in the pursuit of exploration, development, or production activities.

At the state level, Colorado, where we conduct operations, is among the states that has adopted, and other states are considering adopting, regulations that could impose new or more stringent permitting, disclosure or well-construction requirements on hydraulic fracturing operations. Moreover, states could elect to prohibit high volume hydraulic fracturing altogether, following the approach taken by the State of New York in 2015. Also, certain interest groups in Colorado opposed to oil and natural gas development generally, and hydraulic fracturing in particular, have from time to time advanced various options for ballot initiatives that, if approved, would allow revisions to the state constitution in a manner that would make such exploration and production activities in the state more difficult in the future. However, during the November 2016 voting process, one proposed amendment placed on the Colorado state ballot making it relatively more difficult to place an initiative on the state ballot was passed by the voters. As a result, there are more stringent procedures now in place for placing an initiative on a state ballot. In addition to state laws, local land use restrictions may restrict drilling or the hydraulic fracturing process and cities may adopt local ordinances allowing hydraulic fracturing activities within their jurisdictions but regulating the time, place and manner of those activities. If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where we operate, including, for example, on federal and American Indian lands, we could incur potentially significant added cost to comply with such requirements, experience delays or curtailment in the pursuit of exploration, development or production activities, and perhaps even be precluded from drilling wells.



In the event that local or state restrictions or prohibitions are adopted in areas where we conduct operations, including the D-J Basin in Colorado, that impose more stringent limitations on the production and development of oil and natural gas, including, among other things, the development of increased setback distances, we and similarly situated oil and natural exploration and production operators in the state may incur significant costs to comply with such requirements or may experience delays or curtailment in the pursuit of exploration, development, or production activities, and possibly be limited or precluded in the drilling of wells or in the amounts that we and similarly situated operatives are ultimately able to produce from our reserves. Any such increased costs, delays, cessations, restrictions or prohibitions could have a material adverse effect on our business, prospects, results of operations, financial condition, and liquidity. If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where we operate, including, for example, on federal and American Indian lands, we could incur potentially significant added cost to comply with such requirements, experience delays or curtailment in the pursuit of exploration, development or production activities, and perhaps even be precluded from drilling wells.

Moreover, because most of our operations are conducted in a particular area, the D-J Basin in Colorado, legal restrictions imposed in that area will have a significantly greater adverse effect than if we had our operations spread out amongst several diverse geographic areas. Consequently, in the event that local or state restrictions or prohibitions are adopted in the D-J Basin in Colorado that impose more stringent limitations on the production and development of oil and natural gas, we may incur significant costs to comply with such requirements or may experience delays or curtailment in the pursuit of exploration, development, or production activities, and possibly be limited or precluded in the drilling of wells or in the amounts that we are ultimately able to produce from our reserves. Any such increased costs, delays, cessations, restrictions or prohibitions could have a material adverse effect on our business, prospects, results of operations, financial condition, and liquidity.

## Activities on Federal Lands

Oil and natural gas exploration, development and production activities on federal lands, including American Indian lands and lands administered by the BLM, are subject to the National Environmental Policy Act (“NEPA”). NEPA requires federal agencies, including the BLM, to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. While we currently have no exploration, development and production activities on federal lands, our future exploration, development and production activities may include leasing of federal mineral interests, which will require the acquisition of governmental permits or authorizations that are subject to the requirements of NEPA. This process has the potential to delay or limit, or increase the cost of, the development of oil and natural gas projects. Authorizations under NEPA are also subject to protest, appeal or litigation, any or all of which may delay or halt projects. Moreover, depending on the mitigation strategies recommended in Environmental Assessments or Environmental Impact Statements, we could incur added costs, which may be substantial.

## Endangered Species and Migratory Birds Considerations

The federal Endangered Species Act (“ESA”), and comparable state laws were established to protect endangered and threatened species. Pursuant to the ESA, if a species is listed as threatened or endangered, restrictions may be imposed on activities adversely affecting that species or that species’ habitat. Similar protections are offered to migrating birds under the Migratory Bird Treaty Act. We may conduct operations on oil and natural gas leases in areas where certain species that are listed as threatened or endangered are known to exist and where other species, such as the sage grouse, that potentially could be listed as threatened or endangered under the ESA may exist. Moreover, as a result of one or more agreements entered into by the U.S. Fish and Wildlife Service, the agency is required to make a determination on listing of numerous species as endangered or threatened under the ESA pursuant to specific timelines. The identification or designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause us to incur increased costs arising from species protection measures, time delays or limitations on our exploration and production activities that could have an adverse impact on our ability to develop and produce reserves. If we were to have a portion of our leases designated as critical or suitable habitat, it could adversely impact the value of our leases.



## OSHA

We are subject to the requirements of the Occupational Safety and Health Administration (“OSHA”) and comparable state statutes whose purpose is to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the Emergency Planning and Community Right-to-Know Act and comparable state statutes and any implementing regulations require that we organize and/or disclose information about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governmental authorities and citizens.

## Related Permits and Authorizations

Many environmental laws require us to obtain permits or other authorizations from state and/or federal agencies before initiating certain drilling, construction, production, operation, or other oil and natural gas activities, and to maintain these permits and compliance with their requirements for on-going operations. These permits are generally subject to protest, appeal, or litigation, which can in certain cases delay or halt projects and cease production or operation of wells, pipelines, and other operations.

We are not able to predict the timing, scope and effect of any currently proposed or future laws or regulations regarding hydraulic fracturing, but the direct and indirect costs of such laws and regulations (if enacted) could materially and adversely affect our business, financial conditions and results of operations. See further discussion in “Part I” – “Item 1A. Risk Factors.”

## Insurance

Our oil and gas properties are subject to hazards inherent in the oil and gas industry, such as accidents, blowouts, explosions, implosions, fires and oil spills. These conditions can cause:

● damage to or destruction of property, equipment and the environment;

● personal injury or loss of life; and

● suspension of operations.

We maintain insurance coverage that we believe to be customary in the industry against these types of hazards. However, we may not be able to maintain adequate insurance in the future at rates we consider reasonable. In addition, our insurance is subject to coverage limits and some policies exclude coverage for damages resulting from environmental contamination. The occurrence of a significant event or adverse claim in excess of the insurance coverage that we maintain or that is not covered by insurance could have a material adverse effect on our financial condition and results of operations.

## Employees

At December 31, 2017, we employed 6 people and also utilize the services of independent contractors to perform various field and other services. Our future success will depend partially on our ability to attract, retain and motivate qualified personnel. We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. We consider our relations with our employees to be satisfactory.

## GLOSSARY OF OIL AND NATURAL GAS TERMS

The following is a description of the meanings of some of the oil and natural gas terms used in this Annual Report.

AFE or Authorization for Expenditures. A document that lays out proposed expenses for a particular project and authorizes an individual or group to spend a certain amount of money for that project.



Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in this Annual Report in reference to crude oil or other liquid hydrocarbons.

Bcf. An abbreviation for billion cubic feet. Unit used to measure large quantities of gas, approximately equal to 1 trillion Btu.

Boe. Barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids, to six Mcf of natural gas.

Boepd. Barrels of oil equivalent per day.

Bopd. Barrels of oil per day.

Btu or British thermal unit. The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Completion. The operations required to establish production of oil or natural gas from a wellbore, usually involving perforations, stimulation and/or installation of permanent equipment in the well or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Condensate. Liquid hydrocarbons associated with the production of a primarily natural gas reserve.

Conventional resources. Natural gas or oil that is produced by a well drilled into a geologic formation in which the reservoir and fluid characteristics permit the natural gas or oil to readily flow to the wellbore.

Developed acreage. The number of acres that are allocated or assignable to productive wells.

Development well. A well drilled into a proved oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

Estimated ultimate recovery or EUR. Estimated ultimate recovery is the sum of reserves remaining as of a given date and cumulative production as of that date.

Exploratory well. A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir or to extend a known reservoir.

Farmin or farmout. An agreement under which the owner of a working interest in an oil or natural gas lease assigns the working interest or a portion of the working interest to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a “farmin” while the interest transferred by the assignor is a “farmout.”

FERC. Federal Energy Regulatory Commission.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

Gross acres or gross wells. The total acres or wells in which a working interest is owned.

Henry Hub. A natural gas pipeline located in Erath, Louisiana that serves as the official delivery location for futures contracts on the NYMEX. The settlement prices at the Henry Hub are used as benchmarks for the entire North American natural gas market.



Held by production. An oil and natural gas property under lease in which the lease continues to be in force after the primary term of the lease in accordance with its terms as a result of production from the property.

Horizontal drilling or well. A drilling operation in which a portion of the well is drilled horizontally within a productive or potentially productive formation. This operation typically yields a horizontal well that has the ability to produce higher volumes than a vertical well drilled in the same formation. A horizontal well is designed to replace multiple vertical wells, resulting in lower capital expenditures for draining like acreage and limiting surface disruption.

Liquids. Liquids, or natural gas liquids, are marketable liquid products including ethane, propane, butane and pentane resulting from the further processing of liquefiable hydrocarbons separated from raw natural gas by a natural gas processing facility.

LOE or Lease operating expenses. The costs of maintaining and operating property and equipment on a producing oil and gas lease.

MBbl. One thousand barrels of crude oil or other liquid hydrocarbons.

MMBbl/d. One thousand barrels of crude oil or other liquid hydrocarbons per day.

Mcf. One thousand cubic feet of natural gas.

Mcfgpd. Thousands of cubic feet of natural gas per day.

MMcf. One million cubic feet of natural gas.

MMBtu. One million British thermal units.

Net acres or net wells. The sum of the fractional working interest owned in gross acres or wells.

Net revenue interest. The interest that defines the percentage of revenue that an owner of a well receives from the sale of oil, natural gas and/or natural gas liquids that are produced from the well.

NGL. Natural gas liquids.

NYMEX. New York Mercantile Exchange.

Permeability. A reference to the ability of oil and/or natural gas to flow through a reservoir.

Petrophysical analysis. The interpretation of well log measurements, obtained from a string of electronic tools inserted into the borehole, and from core measurements, in which rock samples are retrieved from the subsurface, then combining these measurements with other relevant geological and geophysical information to describe the reservoir rock properties.

Play. A set of known or postulated oil and/or natural gas accumulations sharing similar geologic, geographic and temporal properties, such as source rock, migration pathways, timing, trapping mechanism and hydrocarbon type.

Possible reserves. Additional reserves that are less certain to be recognized than probable reserves.

Probable reserves. Additional reserves that are less certain to be recognized than proved reserves but which, in sum with proved reserves, are as likely as not to be recovered.

Producing well, production well or productive well. A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the well’s production exceed production-related expenses and taxes.



Properties. Natural gas and oil wells, production and related equipment and facilities and natural gas, oil or other mineral fee, leasehold and related interests.

Prospect. A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is considered to have potential for the discovery of commercial hydrocarbons.

Proved developed reserves. Proved reserves that can be expected to be recovered through existing wells and facilities and by existing operating methods.

Proved reserves. Reserves of oil and natural gas that have been proved to a high degree of certainty by analysis of the producing history of a reservoir and/or by volumetric analysis of adequate geological and engineering data.

Proved undeveloped reserves or PUDs. Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

Repeatability. The potential ability to drill multiple wells within a prospect or trend.

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Royalty interest. An interest in an oil and natural gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner's royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.

2-D seismic. The method by which a cross-section of the earth’s subsurface is created through the interpretation of reflecting seismic data collected along a single source profile.

3-D seismic. The method by which a three-dimensional image of the earth’s subsurface is created through the interpretation of reflection seismic data collected over a surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do 2-D seismic surveys and contribute significantly to field appraisal, exploitation and production.

Trend. A region of oil and/or natural gas production, the geographic limits of which have not been fully defined, having geological characteristics that have been ascertained through supporting geological, geophysical or other data to contain the potential for oil and/or natural gas reserves in a particular formation or series of formations.

Unconventional resource play. A set of known or postulated oil and or natural gas resources or reserves warranting further exploration which are extracted from (a) low-permeability sandstone and shale formations and (b) coalbed methane. These plays require the application of advanced technology to extract the oil and natural gas resources.

Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether such acreage contains proved reserves. Undeveloped acreage is usually considered to be all acreage that is not allocated or assignable to productive wells.



Unproved and unevaluated properties. Refers to properties where no drilling or other actions have been undertaken that permit such property to be classified as proved.

Vertical well. A hole drilled vertically into the earth from which oil, natural gas or water flows is pumped.

Volumetric reserve analysis. A technique used to estimate the amount of recoverable oil and natural gas. It involves calculating the volume of reservoir rock and adjusting that volume for the rock porosity, hydrocarbon saturation, formation volume factor and recovery factor.

Wellbore. The hole made by a well.

WTI or West Texas Intermediate. A grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content.

Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production.

## ITEM 1A. RISK FACTORS.

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below as well as the other information in this filing before deciding to invest in our company. Any of the risk factors described below could significantly and adversely affect our business, prospects, financial condition and results of operations. Additional risks and uncertainties not currently known or that are currently considered to be immaterial may also materially and adversely affect our business, prospects, financial condition and results of operations. As a result, the trading price or value of our common stock could be materially adversely affected and you may lose all or part of your investment.

## Risks Related to the Oil, NGL and Natural Gas Industry and Our Business

Continuation of the recent declines, or further declines, in oil and, to a lesser extent, NGL and natural gas prices, will adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations or targets and financial commitments.

The price we receive for our oil and, to a lesser extent, natural gas and NGLs, heavily influences our revenue, profitability, cash flows, liquidity, access to capital, present value and quality of our reserves, the nature and scale of our operations and future rate of growth. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. In recent years, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. Because approximately 53% of our estimated proved reserves as of December 31, 2017 were oil, our financial results are more sensitive to movements in oil prices. Since mid-2014, the price of crude oil has significantly declined. As a result, we experienced significant decreases in crude oil revenues and recorded asset impairment charges driven by commodity price declines. A prolonged period of low market prices for oil and natural gas, like the current commodity price environment, or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect our business, financial condition and liquidity and our ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on our stock price and indebtedness. Additionally, lower oil and natural gas prices may cause further decline in our stock price. During the year ended December 31, 2017, the daily NYMEX WTI oil spot price ranged from a high of $60.46 per Bbl to a low of $42.48 per Bbl and the NYMEX natural gas Henry Hub spot price ranged from a high of $3.30 per MMBtu to a low of $2.82 per MMBtu.



## We have a limited operating history and expect to continue to incur losses for an indeterminable period of time.

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. Companies in their initial stages of development face substantial business risks and may suffer significant losses. We have generated substantial net losses and negative cash flows from operating activities in the past and expect to continue to incur substantial net losses as we continue our drilling program. 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 $138,101,000 from the date of inception (February 9, 2011) through December 31, 2017. Additionally, we are dependent on obtaining additional debt and/or equity financing to roll-out and scale our planned principal business operations. Management’s plans in regard to these matters consist principally of seeking additional debt and/or equity financing combined with expected cash flows from current oil and gas assets held and additional oil and gas assets that we may acquire. Our efforts may not be successful and funds may not be available on favorable terms, if at all.

We face challenges and uncertainties in financial planning as a result of the unavailability of historical data and uncertainties regarding the nature, scope and results of our future activities. New companies must develop successful business relationships, establish operating procedures, hire staff, install management information and other systems, establish facilities and obtain licenses, as well as take other measures necessary to conduct their intended business activities. We may not be successful in implementing our business strategies or in completing the development of the infrastructure necessary to conduct our business as planned. In the event that one or more of our drilling programs is not completed or is delayed or terminated, our operating results will be adversely affected and our operations will differ materially from the activities described in this Annual Report. As a result of industry factors or factors relating specifically to us, we may have to change our methods of conducting business, which may cause a material adverse effect on our results of operations and financial condition. The uncertainty and risks described in this Annual Report may impede our ability to economically find, develop, exploit and acquire oil and natural gas reserves. As a result, we may not be able to achieve or sustain profitability or positive cash flows provided by our operating activities in the future.

We will need additional capital to complete future acquisitions, conduct our operations and fund our business and our ability to obtain the necessary funding is uncertain.

We will need to raise additional funding to complete future potential acquisitions and will be required to raise additional funds through public or private debt or equity financing or other various means to fund our operations, acquire assets and complete exploration and drilling operations. In such a case, adequate funds may not be available when needed or may not be available on favorable terms. If we need to raise additional funds in the future by issuing equity securities, dilution to existing stockholders will result, and such securities may have rights, preferences and privileges senior to those of our common stock. 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.

We require significant additional financing to pay our outstanding liabilities and in the event we cannot raise additional funding or undertake a business combination transaction prior to the due date of such liabilities, we may be forced to sell assets, our debtors may foreclose on our assets or we may be forced to seek bankruptcy protection.

We currently have significant indebtedness and our debt agreements require us to use a significant portion of our revenues to pay down our outstanding debt. 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. Furthermore, in the event we are unable to raise additional funding in the future, we will not be able to participate in the drilling of additional wells, will not be able to complete other drilling and/or workover activities, and may not be able to make required payments on our outstanding liabilities. In the event we are unable to raise necessary funding in the future or complete a business combination or similar transaction in the near term, we may not be able to pay our debts (or make required amortization and principal payments on such debts) as they come due or continue to drill wells and/or participate in their drilling.



If this were to happen, we may be forced to scale back our business plan, sell or liquidate assets to satisfy outstanding debts (or our creditors may undertake a foreclosure of such assets in order to satisfy amounts we owe to such creditors, with or without our assistance) and/or take other steps which may include seeking bankruptcy protection, all of which could result in the value of our outstanding securities declining in value or becoming worthless.

## We may not be able to generate sufficient cash flow to meet our debt service and other obligations due to events beyond our control.

Our ability to generate cash flows from operations, to make scheduled payments on or refinance our indebtedness and to fund working capital needs and planned capital expenditures will depend on our future financial performance and our ability to generate cash in the future. Our future financial performance will be affected by a range of economic, financial, competitive, business and other factors that we cannot control, such as general economic, legislative, regulatory and financial conditions in our industry, the economy generally, the price of oil and other risks described below. A significant reduction in operating cash flows resulting from changes in economic, legislative or regulatory conditions, increased competition or other events beyond our control could increase the need for additional or alternative sources of liquidity and could have a material adverse effect on our business, financial condition, results of operations, prospects and our ability to service our debt and other obligations. If we are unable to service our indebtedness or to fund our other liquidity needs, we may be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness, seeking additional capital, or any combination of the foregoing. If we raise additional debt, it would increase our interest expense, leverage and our operating and financial costs. We cannot assure you that any of these alternative strategies could be affected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on our indebtedness or to fund our other liquidity needs. Reducing or delaying capital expenditures or selling assets could delay future cash flows. In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives. We cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

If for any reason we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing our indebtedness, which would allow our creditors at that time to declare all of our outstanding indebtedness to be due and payable. This would likely in turn trigger cross-acceleration or cross-default rights between our applicable debt agreements. Under these circumstances, our lenders could compel us to apply all of our available cash to repay our borrowings. In addition, the lenders under our credit facilities or other secured indebtedness could seek to foreclose on our assets that are their collateral. If the amounts outstanding under our indebtedness were to be accelerated, or were the subject of foreclosure actions, our assets may not be sufficient to repay in full the money owed to the lenders or to our other debt holders.

Our Tranche A Notes and Tranche B Notes include various covenants, reduces our financial flexibility, increases our interest expense and may adversely impact our operations and our costs.

In connection with our acquisition of certain assets from Continental on March 7, 2014, we entered into a senior debt facility pursuant to which we borrowed $34.5 million initially and have subsequently borrowed an additional $2.0 million (our “Tranche B Notes”) which amounts represent a significant amount of indebtedness. In addition, in connection with our Senior Debt Restructuring in May 2016, we borrowed an additional $6.4 million (our “Tranche A Notes,” and together with our Tranche B Notes, our “senior debt facility”), leaving approximately $18.0 million available for future drilling operations thereunder, subject to the terms and conditions of such facility which amounts also represent a significant amount of indebtedness.



This senior debt facility includes various covenants (positive and negative) binding us, including:

● requiring that we maintain the registration of our common stock under Section 12 of the Securities Exchange Act of 1934, as amended;

● requiring that we maintain the listing of our common stock on the NYSE American;

● requiring that we timely file periodic reports under the Exchange Act;

● requiring that we provide the lenders yearly and quarterly budgets and certain reserve reports;

● requiring that we provide capital expenditure plans to the lenders prior to making certain expenditures;

● prohibiting us and our subsidiaries from creating or becoming subject to any indebtedness, except pursuant to certain limited exceptions; and

● prohibiting us or our subsidiaries from merging, selling assets (except in the usual course of business), altering our organizational structure, winding up or liquidating, except in certain limited circumstances.

Our senior debt facility affects our operations in several ways, including the following:

● a significant portion of our cash flows must be used to service the debt facility, with the Company required to pay all of its oil and gas revenues on a monthly basis to the lenders, subject to a monthly general and administrative expense (“G&A”) cap of $150,000 which is permitted to be applied against Company general and administrative expenses. See “Part I, Item 1. Business” — “Material 2016-2017 Transactions” — “Senior Debt Restructuring”);

● the high level of debt could increase our vulnerability to general adverse economic and industry conditions;

● limiting our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments; and

● the debt covenants may affect our flexibility in planning for, and reacting to, changes in the economy and in our industry.

The high level of indebtedness under our senior debt facility increases the risk that we may default on our debt obligations. We may not be able to generate sufficient cash flows to pay the principal or interest on our debt, all revenues we do generate above $150,000 per month will be required to be used to repay the debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. If we do not have sufficient funds and are otherwise unable to arrange financing to pay the interest or principal due on the debt, fund our business plan and satisfy our other obligations and liabilities, 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.

We do not currently have any commitments of additional capital except pursuant to the terms of these debt facilities. We can provide no assurance that additional financing will be available on favorable terms, if at all. If we choose to raise additional capital through the sale of other debt or equity securities, such sales may cause substantial dilution to our existing shareholders.



A portion of our Tranche B Notes, our junior debt held by RJC, and all of our Series A Convertible Preferred stock are held by entities whose parent company is in liquidation, which may have a negative impact on the Company and its business.

Each of GOM, RJC and GGE are owned by Partners Value Arbitrage Fund, LP, a New York based investment firm (“PPVAF”), and were formerly advised by Platinum Management (NY), LLC (“PMLLC”). PPVAF, and, by virtue of being owned by PPVAF, GGE, RJC, and GOM, are currently in the process of winding down and liquidating their assets through the oversight and control of a court-appointed liquidator in the Cayman Islands and are no longer advised by PM LLC or any of its affiliates. Additionally, the Company is aware that the former manager of PPVAF, PM LLC, is currently under investigation by the U.S. Securities and Exchange Commission and the Justice Department and that certain former executives have been indicted by the Justice Department, however, PM LLC and those certain executives no longer have any control over PPVAF, RJC or GGE, which entities are currently solely under the control of the Cayman Islands court-appointed liquidators. While the Company does not foresee that the confluence of these events or control of these entities by the court-appointed liquidator will disrupt or have a negative impact on the Company or its business, these extraordinary events may have a negative impact on the Company and its business, including, but not limited to, potential inability or delays in the Company’s efforts to restructure Company debt and equity controlled by the liquidator.

## The repayment of our senior debt facility is secured by a security interest in all of our assets.

The repayment of our senior debt facility (which had an outstanding principal balance of approximately $54.86 million as of March 1, 2018 and provides us the option, pursuant to the terms of the debt facility, to borrow an additional approximately $18.0 million) is secured by a first priority security interest in all of our assets, property, real property and the securities of our subsidiaries and the repayment of such debt is further guaranteed by certain of our subsidiaries. If we default in the repayment of the senior debt facility and/or any of the terms and conditions thereof, the lenders may enforce their security interest over our assets which secure the repayment of such debt, and we could be forced to curtail or abandon our current business plans and operations. If that were to happen, any investment in the Company could become worthless.

The occurrence of an event of default under the notes sold in connection with our senior debt facility could have a material adverse effect on us and our financial condition.

The notes issued in connection with our senior debt facility include standard and customary events of default, including, among other things, our or any subsidiary's default in the payment of any indebtedness under any agreement, or failure to comply with the terms and conditions of any other agreement related to indebtedness or otherwise, if the effect of such failure or default, is to cause, or permit the holder or holders thereof, or any counterparty to an agreement relating to indebtedness, to cause indebtedness, or amounts due thereunder, in an aggregate amount of $250,000 or more to become due prior to its stated date of maturity or the date such amount would otherwise have been due notwithstanding such default, subject to certain exclusions; the loss, suspension or revocation of, or failure to renew, any license or permit, if such license or permit is not obtained or reinstated within thirty (30) days, unless such loss, suspension, revocation or failure to renew could not reasonably be expected to have a material adverse effect on us; or there is filed against us or any of our subsidiaries or any of our officers, members or managers any civil or criminal action, suit or proceeding under any federal or state racketeering statute (including, without limitation, the Racketeer Influenced and Corrupt Organization Act of 1970), or any civil or criminal action, suit or proceeding under any other applicable law is filed by any governmental entity, that could result in the confiscation or forfeiture of any material portion of any collateral subject to any security interest held by the investors or their agent or other assets of such entity or person, and such action, suit or proceeding is not dismissed within one hundred twenty (120) days.

Upon an event of default under the notes, the holder of such note may declare the entire unpaid balance (as well as any interest, fees and expenses) immediately due and payable. Funding to repay such notes may not be available timely, on favorable terms, if at all, and any default by us of the terms and conditions of the notes would likely have a material adverse effect on our results of operations, financial condition and the value of our common stock.



We owe certain obligations to MIEJ under the New MIEJ Note, which is secured by a subordinated security interest in substantially all of our assets and is convertible into shares of our common stock subject to the terms of such New MIEJ Note, and may result in substantial dilution to existing shareholders.

The New MIEJ Note (defined and described below under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” - “Liquidity and Capital Resources” - “Amendment to PEDCO-MIEJ Note and Condor-MIEJ Note”) is subordinated in every way to the senior credit facility as well as to New Senior Lending (defined below); however, MIEJ has no control over our cash flow, nor is MIEJ’s consent required in connection with any disposition, sale, or use of any of our assets, provided that the requirements of the New MIEJ Note requiring the prepayment of interest, where applicable, as described below are followed. We have the right under the New MIEJ Note to enter into a loan, or a series of new loans or any other new non-equity investment or assumption of indebtedness (a “New Senior Lending”) which will be senior to the New MIEJ Note, without the prior consent of MIEJ, provided that, in addition to the approximately $35.5 million principal balance of the original PEDEVCO Senior Loan created in March 2014, the New Senior Lending is subject to a cap of an additional $60 million in the aggregate, such that the total lending, debt or similar investment under such cap shall not exceed $95 million in the aggregate (the “Senior Debt Cap”), with any portion of New Senior Lending in excess of the Senior Debt Cap advanced first to MIEJ until the New MIEJ Note is paid in full. The New MIEJ Note shall automatically, and without further consent from MIEJ, be subordinated in every way to any such New Senior Lending. Should we enter into any new financing transaction that results in raising New Senior Lending of at least $20 million in excess of the balance of the PEDEVCO Senior Loan, then MIEJ has a right to be paid all interest and fees that have accrued on the New MIEJ Note each and every time that a new financing transaction reaches or exceeds the $20 million threshold.

The New MIEJ Note was originally due and payable on March 8, 2017, but is now due and payable on March 8, 2019, due to an automatic maturity date extension as a result of the May 2016 Senior Debt Restructuring, and with such date also subject to additional automatic extensions upon the occurrence of a Long-Term Financing or additional PEDEVCO Senior Lending Restructuring (each as defined below) (the "Maturity"). On a one-time basis, the PEDEVCO Senior Loan may be refinanced by a new loan ("Long-Term Financing") by one or more third party replacement lenders ("Replacement Lenders"), and in such event we are required to undertake commercially reasonable best efforts to cause the Replacement Lenders to simultaneously refinance both the PEDEVCO Senior Loan and the New MIEJ Note as part of such Long-Term Financing. Despite such efforts, should the Replacement Lenders be unable or unwilling to include the New MIEJ Note in such financing, then the Long-Term Financing may proceed without including the New MIEJ Note, and the New MIEJ Note shall remain in place and shall be automatically subordinated, without further consent of MIEJ, to such Long-Term Financing. Furthermore, upon the occurrence of a Long-Term Financing, the Maturity of the New MIEJ Note is automatically extended, without further consent of MIEJ, to the same maturity date of the Long-Term Financing (the "Extended Maturity Date"), provided that the Extended Maturity Date may not exceed March 8, 2020. Additionally, upon the closing of such Long-Term Financing: (a) the Long-Term Financing is required to be subject to the Senior Debt Cap, (b) we are required to make commercially reasonable best efforts for the Long-Term Financing to include adequate reserves or other payment provisions whereby MIEJ is paid all interest and fees accrued on the New MIEJ Note commencing as of March 8, 2017 (and annually thereafter, until such time as the New MIEJ Note is paid in full), but in any event the Replacement Lenders are required to agree to allow for quarterly interest payments (starting March 31, 2017) of not less than 5% per annum on the outstanding balance of the New MIEJ Note, plus a one-time payment of accrued interest (not to exceed $500,000) as of March 31, 2017 (the "Subordinated Interest Payments"), and the remaining 5% interest shall continue to accrue, and (c) MIEJ has the Right of Conversion (defined below) commencing as of March 8, 2017, the original maturity date of the New MIEJ Note. If the PEDEVCO Senior Loan and/or New Senior Lending is not refinanced by Replacement Lenders, but is instead refinanced, restructured or extended by the existing Investors (a "PEDEVCO Senior Lending Restructuring"), the maturity of both the New MIEJ Note and the PEDEVCO Senior Loan may be extended to no later than March 8, 2019, without requiring the consent of MIEJ, provided that (i) any such extension of the maturity date of the New MIEJ Note past March 8, 2017 shall give MIEJ the Right of Conversion (described below) commencing on March 8, 2017, and (ii) such extension agreement shall include payment provisions whereby MIEJ shall be paid all interest and fees accrued on the New MIEJ Note as of March 8, 2018. The May 2016 Senior Debt Restructuring qualified as a PEDEVCO Senior Lending Restructuring and the issuance of the Tranche A Notes qualified as a New Senior Lending, the result of which the Maturity of the New MIEJ Note has been extended to March 8, 2019. The New MIEJ Note may be prepaid any time without penalty.



The New MIEJ Note has a conversion feature that provides that beginning March 8, 2017, MIEJ has the right, at its discretion, to have the outstanding balance of the New MIEJ Note plus any accrued and unpaid interest thereon converted in whole or in part into our common stock at a price (the "Conversion Price") equal to 80% of the average closing price per share of our common stock over the then previous 60 days from the date MIEJ exercises its conversion right (subject to adjustment for stock splits, recapitalizations and the like)(such event, a "Right of Conversion"); provided, however, that in no event shall the Conversion Price be less than $3.00 per share (the "Floor Price"). The New MIEJ Note originally included a conversion limitation subject to us receiving shareholder approval under applicable NYSE American rules, but at the 2016 Annual Meeting held on December 28, 2016, the Company's stockholders approved the full conversion of the New MIEJ Note and the New MIEJ Note is now fully convertible into our common stock in accordance with its terms.

If an event of default occurs under the New MIEJ Note, MIEJ may enforce their security interests over our assets (subject to the subordination rights in such note) which secure the repayment of such obligations, and we could be forced to curtail or abandon our current business plans and operations. If that were to happen, any investment in us could become worthless.

The required interest and principal payments due under the New MIEJ Note may make it harder for us to refinance the New MIEJ Note or raise funding in the future, or could materially decrease the amount of cash we receive for our operations upon any refinancing or funding.

The issuance of common stock pursuant to the terms of the New MIEJ Note could result in immediate and substantial dilution to the interests of other stockholders.

A substantial part of our crude oil, natural gas and NGLs production is located in the D-J Basin, making us vulnerable to risks associated with operating primarily in a single geographic area. In addition, we have a large amount of proved reserves attributable to a small number of producing formations.

Our operations are focused primarily in the D-J Basin of Weld County, Colorado, which means our current producing properties and new drilling opportunities are geographically concentrated in that area. 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 the area;

• natural disasters such as the flooding that occurred in the area in September 2013;

• 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.

For example, bottlenecks in processing and transportation that have occurred in some recent periods in the D-J Basin have negatively affected our results of operations, and these adverse effects may be disproportionately severe to us compared to our more geographically diverse competitors. Similarly, the concentration of our assets within a small number of producing formations exposes us to risks, such as changes in field-wide rules that could adversely affect development activities or production relating to those formations. Such an event could have a material adverse effect on our results of operations and financial condition. In addition, in areas where exploration and production activities are increasing, as has been the case in recent years in the D-J Basin, the demand for, and cost of, drilling rigs, equipment, supplies, personnel and oilfield services increase. Shortages or the high cost of drilling rigs, equipment, supplies, personnel or oilfield services could delay or adversely affect our development and exploration operations or cause us to incur significant expenditures that are not provided for in our capital forecast, which could have a material adverse effect on our business, financial condition or results of operations.



Drilling for and producing oil and natural gas are highly speculative and involve a high degree of risk, with many uncertainties that could adversely affect our business. We have not recorded significant proved reserves, and areas that we decide to drill may not yield oil or natural gas in commercial quantities or at all.

Exploring for and developing hydrocarbon reserves involves a high degree of operational and financial risk, which precludes us from definitively predicting the costs involved and time required to reach certain objectives. Our potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional interpretation before they can be drilled. The budgeted costs of planning, drilling, completing and operating wells are often exceeded and such costs can increase significantly due to various complications that may arise during the drilling and operating processes. Before a well is spud, we may incur significant geological and geophysical (seismic) costs, which are incurred whether a well eventually produces commercial quantities of hydrocarbons or is drilled at all. Exploration wells bear a much greater risk of loss than development wells. The analogies we draw from available data from other wells, more fully explored locations or producing fields may not be applicable to our drilling locations. If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our operations as proposed and could be forced to modify our drilling plans accordingly.

If we decide to drill a certain location, there is a risk that no commercially productive oil or natural gas reservoirs will be found or produced. 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. There is no way to predict in advance of drilling and testing whether any particular location will yield oil or natural gas in sufficient quantities to recover exploration, drilling or completion costs or to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production and reserves from the well or abandonment of the well. 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 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.

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.



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 may adversely affect our business, financial condition and results of operations and our ability to meet our capital expenditure requirements and financial obligations.

The prices we receive for our oil, NGLs and natural gas heavily influence our revenue, profitability, cash flow available for capital expenditures, access to capital and future rate of growth. Oil, NGLs and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the commodities market has been volatile. For example, the price of oil has fallen dramatically since mid-2014, with a high over $100 per barrel in June 2014 to lows below $30 per barrel in early 2016, in each case based on WTI prices, due to a combination of factors including increased U.S. supply, global economic concerns, the likely resumption of oil exports from Iran and OPEC's decision not to reduce supply. Prices for natural gas and NGLs have experienced declines of similar magnitude. An extended period of continued lower oil prices, or additional price declines, will have further adverse effects on us. 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, NGL 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;

• weather conditions and natural disasters;

• political conditions in or affecting oil, NGL and natural gas producing regions, including the Middle East and South America;

- 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.



Declines in oil, NGL or natural gas prices would not only reduce our revenue, but could reduce the amount of oil, NGL and natural gas that we can produce economically. Should natural gas, NGL or oil prices decrease from current levels and remain there for an extended period of time, we may elect in the future to delay some of our exploration and development plans for our prospects, or to cease exploration or development activities on certain prospects due to the anticipated unfavorable economics from such activities, and, as a result, we may have to make substantial downward adjustments to our estimated proved reserves, each of which would have a material adverse effect on our business, financial condition and results of operations.

Future conditions might require us to make write-downs in our assets, which would adversely affect our balance sheet 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. We also test our goodwill and indefinite-lived intangible assets for impairment at least annually on December 31 of each year, or when events or changes in the business environment indicate that the carrying value of a reporting unit may exceed its fair value. If conditions in any of the businesses in which we compete were to deteriorate, we could determine that certain of our assets were impaired and we would then be required to write-off all or a portion of our costs for such assets. Any such significant write-offs would adversely affect our balance sheet and results of operations.

The report of our independent registered public accounting firm expressed substantial doubt about the Company’s ability to continue as a going concern.

Our auditors indicated in their report on the Company’s consolidated audited financial statements for the year ended December 31, 2017 that conditions existed that could raise substantial doubt about our ability to continue as a going concern due in part to the current crude oil price environment and the fact that the Company had a working capital deficit and accumulated deficit at December 31, 2017. Uncertainties related to our continuation as a going concern may impair our ability to finance our operations through the sale of equity, incurring debt, or other financing alternatives and/or negatively affect our relationships with partners and service providers. Our ability to continue as a going concern will depend upon the availability and terms of future funding, our ability to grow our operations and integrate newly acquired assets and operations, our ability to acquire additional assets and operations, and our ability to improve operating margins and regain profitability. If we are unable to achieve these goals, our business would be jeopardized and the Company may not be able to continue. If we ceased operations, it is likely that all of our investors would lose their investment.

The Company will seek financing from other sources. Such financings may not be available or, if available, may not be on terms acceptable to the Company. Accordingly, the financial statements do not include any adjustments related to the recoverability of assets or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to raise capital to meet its obligations and attain profitable operations.

Declining general economic, business or industry conditions may have a material adverse effect on our results of operations, liquidity and financial condition.

Concerns over global economic conditions, energy costs, geopolitical issues, inflation, the availability and cost of credit, the United States mortgage market and a declining real estate market in the United States have contributed to increased economic uncertainty and diminished expectations for the global economy. These factors, combined with volatile prices of oil and natural gas, declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and a recession. Concerns about global economic growth have had a significant adverse impact on global financial markets and commodity prices. If the economic climate in the United States or abroad continues to deteriorate, demand for petroleum products could diminish, which could impact the price at which we can sell our oil, natural gas and natural gas liquids, affect the ability of our vendors, suppliers and customers to continue operations and ultimately adversely impact our results of operations, liquidity and financial condition.



Our exploration, development and exploitation projects require substantial capital expenditures that may exceed cash on hand, cash flows from operations and potential borrowings, and we may be unable to obtain needed capital on satisfactory terms, which could adversely affect our future growth.

Our exploration and development activities are capital intensive. We make and expect to continue to make substantial capital expenditures in our business for the development, exploitation, production and acquisition of oil and natural gas reserves. Our cash on hand, our operating cash flows and future potential borrowings may not be adequate to fund our future acquisitions or future capital expenditure requirements. 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.

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 ability and willingness of banks to lend to us; and

• our ability to access the equity and debt capital markets.

In addition, future events, such as terrorist attacks, wars or combat peace-keeping missions, financial market disruptions, general economic recessions, oil and natural gas industry recessions, large company bankruptcies, accounting scandals, overstated reserves estimates by major public oil companies and disruptions in the financial and capital markets have caused financial institutions, credit rating agencies and the public to more closely review the financial statements, capital structures and earnings of public companies, including energy companies. Such events have constrained the capital available to the energy industry in the past, and such events or similar events could adversely affect our access to funding for our operations in the future.

If our revenues decrease as a result of lower oil and natural gas prices, operating difficulties, declines in reserves or for any other reason, we may have limited ability to obtain the capital necessary to sustain our operations at current levels, further develop and exploit our current properties or invest in additional exploration opportunities. Alternatively, a significant improvement in oil and natural gas prices or other factors could result in an increase in our capital expenditures and we may be required to alter or increase our capitalization substantially through the issuance of debt or equity securities, the sale of production payments, the sale or farm out of interests in our assets, the borrowing of funds or otherwise to meet any increase in capital needs. If we are unable to raise additional capital from available sources at acceptable terms, our business, financial condition and results of operations could be adversely affected. Further, future debt financings may require that a portion of our cash flows provided by operating activities be used for the payment of principal and interest on our debt, thereby reducing our ability to use cash flows to fund working capital, capital expenditures and acquisitions. Debt financing may involve covenants that restrict our business activities. 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.



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.

The process of estimating accumulations of oil and natural gas is complex and is not exact, due to numerous inherent uncertainties. The process relies on interpretations of available geological, geophysical, engineering and production data. The extent, quality and reliability of this technical data can vary. The process also requires certain economic assumptions related to, among other things, oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. 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. Due to the limited production history of our properties, the estimates of future production associated with these properties may be subject to greater variance to actual production than would be the case with properties having a longer production history. As our wells produce over time and more data is available, the estimated proved reserves will be re-determined on at least an annual basis and may be adjusted to reflect new information based upon our actual production history, results of exploration and development, prevailing oil and natural gas prices and other factors.

Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas most likely will vary from our estimates. It is possible that future production declines in our wells may be greater than we have estimated. Any significant variance to our estimates could materially affect the quantities and present value of our reserves.

## We may record impairments of oil and gas properties that would reduce our shareholders' equity.

The successful efforts method of accounting is used for oil and gas exploration and production activities. Under this method, all costs for development wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized. We review the carrying value of our long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. We assess the recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and estimated fair value. This impairment does not impact cash flows from operating activities but does reduce earnings and our shareholders' equity. The risk that we will be required to recognize impairments of our oil and gas properties increases during periods of low oil or gas prices. Impairments would occur if we were to experience sufficient downward adjustments to our estimated proved reserves or the present value of estimated future net revenues. An impairment recognized in one period may not be reversed in a subsequent period even if higher oil and gas prices increase the cost center ceiling applicable to the subsequent period. We have in the past and could in the future incur additional impairments of oil and gas properties.



We may have accidents, equipment failures or mechanical problems while drilling or completing wells or in production activities, which could adversely affect our business.

While we are drilling and completing wells or involved in production activities, we may have accidents or experience equipment failures or mechanical problems in a well that causes us to be unable to drill and complete the well or to continue to produce the well according to our plans. We may also damage a potentially hydrocarbon-bearing formation during drilling and completion operations. Such incidents may result in a reduction of our production and reserves from the well or in abandonment of the well.

Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured.

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.

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.

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. The location of our wells, gathering systems, pipelines and other facilities near populated areas, including residential areas, commercial business centers and industrial sites, could significantly increase the level of damages resulting from these risks. Insurance against all operational risks is not available to us. We are not fully insured against all risks, including development and completion risks that are generally not recoverable from third parties or insurance. In addition, pollution and environmental risks generally are not fully insurable. We maintain $2 million general liability coverage and $10 million umbrella coverage that covers our and subsidiaries' business and operations. Our wholly-owned subsidiary, Red Hawk, which operates our D-J Basin Asset, also maintains a $10 million control of well insurance policy that covers its operations in Colorado. With respect to our other non-operated assets, we may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks presented. Losses could, therefore, occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. Moreover, insurance may not be available in the future at commercially reasonable prices or on commercially reasonable terms. Changes in the insurance markets due to various factors may make it more difficult for us to obtain certain types of coverage in the future. As a result, we may not be able to obtain the levels or types of insurance we would otherwise have obtained prior to these market changes, and the insurance coverage we do obtain may not cover certain hazards or all potential losses that are currently covered, and may be subject to large deductibles. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our business, financial condition and results of operations.



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. Uncertainty surrounding such hostilities may affect our operations in unpredictable ways, including the possibility that infrastructure facilities, including pipelines and gathering systems, production facilities, processing plants and refineries, could be targets of, or indirect casualties of, an act of terror, a cyber-attack or electronic security breach, or an act of war.

Failure to adequately protect critical data and technology systems could materially affect our operations.

Information technology solution failures, network disruptions and breaches of data security could disrupt our operations by causing delays or cancellation of customer orders, impeding processing of transactions and reporting financial results, resulting in the unintentional disclosure of customer, employee or our information, or damage to our reputation. There can be no assurance that a system failure or data security breach will not have a material adverse effect on our financial condition, results of operations or cash flows.

Our strategy as an onshore unconventional 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 state of Colorado. 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 Colorado, natural disasters in Colorado, competition for equipment, services and materials available in Colorado and access to infrastructure and markets in Colorado.

Unless we replace our oil and natural gas reserves, our reserves and production will decline, which would adversely affect our business, financial condition and results of operations.

The rate of production from our oil and natural gas properties will decline as our reserves are depleted. Our future oil and natural gas reserves and production and, therefore, our income and cash flow, are highly dependent on our success in (a) efficiently developing and exploiting our current reserves on properties owned by us or by other persons or entities and (b) economically finding or acquiring additional oil and natural gas producing properties. 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.

Our strategy includes acquisitions of oil and natural gas properties, and our failure to identify or complete future acquisitions successfully, or not produce projected revenues associated with the future acquisitions could reduce our earnings and hamper our growth.

We may be unable to identify properties for acquisition or to make acquisitions on terms that we consider economically acceptable. There is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. The completion and pursuit of acquisitions may be dependent upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals. Our ability to grow through acquisitions will require us to continue to invest in operations, financial and management information systems and to attract, retain, motivate and effectively manage our employees. The inability to manage the integration of acquisitions effectively could reduce our focus on subsequent acquisitions and current operations, and could negatively impact our results of operations and growth potential. Our financial position and results of operations may fluctuate significantly from period to period as a result of the completion of significant acquisitions during particular periods. If we are not successful in identifying or acquiring any material property interests, our earnings could be reduced and our growth could be restricted.



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. If we were to proceed with one or more acquisitions involving the issuance of our common stock, our shareholders 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.

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. If revenues from future acquisitions do not meet projections, this could adversely affect our business and financial condition.

We may purchase oil and natural gas properties with liabilities or risks that we did not know about or that we did not assess correctly, and, as a result, we could be subject to liabilities that could adversely affect our results of operations.

Before acquiring oil and natural gas properties, we estimate the reserves, future oil and natural gas prices, operating costs, potential environmental liabilities and other factors relating to the properties. However, our review involves many assumptions and estimates, and their accuracy is inherently uncertain. As a result, we may not discover all existing or potential problems associated with the properties we buy. We may not become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. We do not generally perform inspections on every well or property, and we may not be able to observe mechanical and environmental problems even when we conduct an inspection. The seller may not be willing or financially able to give us contractual protection against any identified problems, and we may decide to assume environmental and other liabilities in connection with properties we acquire. If we acquire properties with risks or liabilities we did not know about or that we did not assess correctly, our business, financial condition and results of operations could be adversely affected as we settle claims and incur cleanup costs related to these liabilities.

We may incur losses or costs as a result of title deficiencies in the properties in which we invest.

If an examination of the title history of a property that we have purchased reveals an oil and natural gas lease has been purchased in error from a person who is not the owner of the property, our interest would be worthless. 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.

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. Frequently, as a result of such examinations, certain curative work must be done to correct deficiencies in the marketability of the title, and such curative work entails expense. Our failure to cure any title defects may adversely impact our ability in the future to increase production and reserves. In the future, we may suffer a monetary loss from title defects or title failure. Additionally, unproved and unevaluated acreage has greater risk of title defects than developed acreage. If there are any title defects or defects in assignment of leasehold rights in properties in which we hold an interest, we will suffer a financial loss which could adversely affect our business, financial condition and results of operations.



Our identified drilling locations are scheduled over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

Our management team has identified and scheduled drilling locations in our operating areas over a multi-year period. Our ability to drill and develop these locations depends on a number of factors, including the availability of equipment and capital, approval by regulators, seasonal conditions, oil and natural gas prices, assessment of risks, costs and drilling results. The final determination on whether to drill any of these locations will be dependent upon the factors described elsewhere in this filing and the documents incorporated by reference herein, as well as, to some degree, the results of our drilling activities with respect to our established drilling locations. Because of these uncertainties, we do not know if the drilling locations we have identified will be drilled within our expected timeframe or at all or if we will be able to economically produce hydrocarbons from these or any other potential drilling locations. 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.

We currently license only a limited amount of seismic and other geological data to assist us in exploration and development activities. We intend to obtain access to additional data in our areas of interest through licensing arrangements with companies that own or have access to that data or by paying to obtain that data directly. Seismic and geological data can be expensive to license or obtain. We may not be able to license or obtain such data at an acceptable cost. In addition, even when properly interpreted, seismic data and visualization techniques are not conclusive in determining if hydrocarbons are present in economically producible amounts and seismic indications of hydrocarbon saturation are generally not reliable indicators of productive reservoir rock.

The unavailability or high cost of drilling rigs, completion equipment and services, supplies and personnel, including hydraulic fracturing equipment and personnel, could adversely affect our ability to establish and execute exploration and development plans within budget and on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.

Shortages or the high cost of drilling rigs, completion equipment and services, supplies or personnel could delay or adversely affect our operations. When drilling activity in the United States increases, associated costs typically also increase, including those costs related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. These costs may increase, and necessary equipment and services may become unavailable to us at economical prices. Should this increase in costs occur, we may delay drilling activities, which may limit our ability to establish and replace reserves, or we may incur these higher costs, which may negatively affect our business, financial condition and results of operations.

In addition, the demand for hydraulic fracturing services currently exceeds the availability of fracturing equipment and crews across the industry and in our operating areas in particular. The accelerated wear and tear of hydraulic fracturing equipment due to its deployment in unconventional oil and natural gas fields characterized by longer lateral lengths and larger numbers of fracturing stages has further amplified this equipment and crew shortage. 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.

We are not the operator on some of our properties and, as a result, our ability to exercise influence over the operations of these properties or their associated costs is limited. Our dependence on the operators and other working interest owners of these projects and our limited ability to influence operations and associated costs or control the risks could materially and adversely affect the realization of our targeted returns on capital in drilling or acquisition activities. 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 marketability of our production is dependent upon oil and natural gas gathering and transportation facilities owned and operated by third parties, and the unavailability of satisfactory oil and natural gas transportation arrangements would have a material adverse effect on our revenue.

The unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay production from our wells. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for, and supply of, oil and natural gas and the proximity of reserves to pipelines and terminal facilities. Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties. Our failure to obtain these services on acceptable terms could materially harm our business. We may be required to shut-in wells for lack of a market or because of inadequacy or unavailability of pipeline or gathering system capacity. If that were to occur, we would be unable to realize revenue from those wells until production arrangements were made to deliver our production to market. Furthermore, if we were required to shut-in wells we might also be obligated to pay shut-in royalties to certain mineral interest owners in order to maintain our leases. We do not expect to purchase firm transportation capacity on third-party facilities. Therefore, we expect the transportation of our production to be generally interruptible in nature and lower in priority to those having firm transportation arrangements.

The disruption of third-party facilities due to maintenance and/or weather could negatively impact our ability to market and deliver our products. The third parties control when or if such facilities are restored and what prices will be charged. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to or destruction of pipelines and general economic conditions could adversely affect our ability to produce, gather and transport oil and natural gas.

Strategic relationships, including with Tenet Advisory Group, upon which we may rely, are subject to risks and uncertainties which may adversely affect our business, financial conditions and results of operations.

Our ability to explore, develop and produce oil and natural gas resources successfully and acquire oil and natural gas interests and acreage depends on our developing and maintaining close working relationships with industry participants and on our ability to select and evaluate suitable acquisition opportunities in a highly competitive environment. These realities are subject to risks and uncertainties that may adversely affect our business, financial condition and results of operations.

To develop our business, we will endeavor to use the business relationships of our management and board to enter into strategic relationships, which may take the form of contractual arrangements with other oil and natural gas companies, including those that supply equipment and other resources that we expect to use in our business. For example, we have retained Tenet Advisory Group, LLC as a key advisor for our operations, exploration and drilling efforts. We may not be able to establish these strategic relationships, or if established, we may not be able to maintain them. In addition, the dynamics of our relationships with strategic partners may require us to incur expenses or undertake activities we would not otherwise be inclined to incur in order to fulfill our obligations to these partners or maintain our relationships. If our strategic relationships are not established or maintained, our business, financial condition and results of operations may be adversely affected.



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 could adversely affect our business, financial condition and results of operations.

The prices that we will receive for our oil and natural gas production sometimes may reflect a discount to the relevant benchmark prices, such as NYMEX, that are used for calculating hedge positions. The difference between the benchmark price and the prices we receive is called a differential. Increases in the differential between the benchmark prices for oil and natural gas and the wellhead price we receive could adversely affect our business, financial condition and results of operations. We do not have, and may not have in the future, any derivative contracts 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.

We may have difficulty managing growth in our business, which could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business plan in a timely fashion.

Because of our small size, growth in accordance with our business plans, if achieved, will place a significant strain on our financial, technical, operational and management resources. As we expand our activities, including our planned increase in oil exploration, development and production, and increase the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the inability to recruit and retain experienced managers, geoscientists, petroleum engineers and landmen could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business plan in a timely fashion.

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.

We will derive substantially all of our revenues from the sale of our oil and natural gas to unaffiliated third-party purchasers, independent marketing companies and mid-stream companies. Any delays in payments from our purchasers caused by financial problems encountered by them will have an immediate negative effect on our results of operations.

Liquidity and cash flow problems encountered by our working interest co-owners or the third-party operators of our non-operated properties may prevent or delay the drilling of a well or the development of a project. Our working interest co-owners may be unwilling or unable to pay their share of the costs of projects as they become due. In the case of a farmout party, we would have to find a new farmout party or obtain alternative funding in order to complete the exploration and development of the prospects subject to a farmout agreement. In the case of a working interest owner, we could be required to pay the working interest owner’s share of the project costs. We cannot assure you that we would be able to obtain the capital necessary to fund either of these contingencies or that we would be able to find a new farmout party.

The calculated present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of our estimated oil and natural gas reserves.

You should not assume that the present value of future net cash flows as included in our public filings is the current market value of our estimated proved oil and natural gas reserves. We generally base the estimated discounted future net cash flows from proved reserves on current costs held constant over time without escalation and on commodity prices using an unweighted arithmetic average of first-day-of-the-month index prices, appropriately adjusted, for the 12-month period immediately preceding the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs used for these estimates and will be affected by factors such as:



• actual prices we receive for oil and natural gas;

• actual cost and timing of development and production expenditures;

• the amount and timing of actual production; and

• changes in governmental regulations or taxation.

In addition, the 10% discount factor that is required to be used to calculate discounted future net revenues for reporting purposes under GAAP is not necessarily the most appropriate discount factor based on the cost of capital in effect from time to time and risks associated with our business and the oil and natural gas industry in general.

We may incur additional indebtedness which could reduce our financial flexibility, increase interest expense and adversely impact our operations and our unit costs.

In the future, we may incur significant amounts of additional indebtedness in order to make acquisitions or to develop our properties. Our level of indebtedness could affect our operations in several ways, including the following:

• a significant portion of our cash flows could be used to service our indebtedness;

• a high level of debt would increase our vulnerability to general adverse economic and industry conditions;

- any covenants contained in the agreements governing our outstanding indebtedness could limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments;

- a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness may prevent us from pursuing; and

• debt covenants to which we may agree may affect our flexibility in planning for, and reacting to, changes in the economy and in our industry.

A high level of indebtedness increases the risk that we may default on our debt obligations. We may not be able to generate sufficient cash flows to pay the principal or interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. 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.

Competition in the oil and natural gas industry is intense, making it difficult for us to acquire properties, market oil and natural gas and secure trained personnel.

Our ability to acquire additional prospects and to find and develop reserves in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment for acquiring properties, marketing oil and natural gas and securing trained personnel. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Many of our competitors possess and employ financial, technical and personnel resources substantially greater than ours, and many of our competitors have more established presences in the United States than we have. Those companies may be able to pay more for productive oil and natural gas properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit. In addition, other companies may be able to offer better compensation packages to attract and retain qualified personnel than we are able to offer. The cost to attract and retain qualified personnel has increased in recent years due to competition and may increase substantially 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.



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.

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. In addition, many of our competitors will have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. 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. Alternatively, we may use oil and natural gas price hedging contracts, which involve credit risk and may limit future revenues from price increases and result in significant fluctuations in our profitability.

In the event that we choose not to hedge our exposure to reductions in oil and natural gas prices by purchasing futures and by using other hedging strategies, we may be subject to significant reduction in prices which could have a material negative impact on our profitability. Alternatively, we may elect to use hedging transactions with respect to a portion of our oil and natural gas production to achieve more predictable cash flow and to reduce our exposure to price fluctuations. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.

Changes in the legal and regulatory environment governing the oil and natural gas industry, particularly changes in the current Colorado forced pooling system, could have a material adverse effect on our business.

Our business is subject to various forms of government regulation, including laws and regulations concerning the location, spacing and permitting of the oil and natural gas wells we drill, among other matters. In particular, our business utilizes a methodology available in Colorado known as “forced pooling,” which refers to the ability of a holder of an oil and natural gas interest in a particular prospective drilling spacing unit to apply to the COGCC for an order forcing all other holders of oil and natural gas interests in such area into a common pool for purposes of developing that drilling spacing unit. This methodology is especially important for our operations in the Greeley area, where there are many interest holders. Changes in the legal and regulatory environment governing our industry, particularly any changes to Colorado forced pooling procedures that make forced pooling more difficult to accomplish, could result in increased compliance costs and adversely affect our business, financial condition and results of operations.

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. This requirement has limited and may continue to limit our ability to book additional PUDs as we pursue our drilling program. 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.



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.

The environmental laws and regulations to which we are subject change frequently, often to become more burdensome and/or to increase the risk that we will be subject to significant liabilities. New or amended federal, state, or local laws or implementing regulations or orders imposing new environmental obligations on, or otherwise limiting, our operations could make it more difficult and more expensive to complete oil and natural gas wells, increase our costs of compliance and doing business, delay or prevent the development of resources (especially from shale formations that are not commercial without the use of hydraulic fracturing), or alter the demand for and consumption of our products. Any such outcome could have a material and adverse impact on our cash flows and results of operations.

For example, in 2014 and 2016, 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. One of the proposed initiatives would have made the vast majority of the surface area of the state ineligible for drilling, including substantially all of our planned future drilling locations. Although none of the proposed initiatives were implemented, future initiatives are likely, including in 2018. Similarly, 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. 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. We cannot predict the nature, outcome, or effect on us of future regulatory initiatives, but such initiatives could materially impact our results of operations, production, reserves, and other aspects of our business.

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.

From time to time, legislative proposals are made that would, if enacted, result in the elimination of the immediate deduction for intangible drilling and development costs, the elimination of the deduction from income for domestic production activities relating to oil and gas exploration and development, the repeal of the percentage depletion allowance for oil and gas properties, and an extension of the amortization period for certain geological and geophysical expenditures. Such changes, if adopted, or other similar changes that reduce or eliminate deductions currently available with respect to oil and gas exploration and development, could adversely affect our business, financial condition, results of operations, and cash flows.

We may incur substantial costs to comply with the various federal, state, and local laws and regulations that affect our oil and natural gas operations, including as a result of the actions of third parties.

We are affected significantly by a substantial number of governmental regulations relating to, among other things, the release or disposal of materials into the environment, health and safety, land use, and other matters. A summary of the principal environmental rules and regulations to which we are currently subject is set forth in “Part I” – “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. Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, the incurrence of investigatory or remedial obligations, or the issuance of cease and desist orders.



The environmental laws and regulations to which we are subject may, among other things:

• require us to apply for and receive a permit before drilling commences or certain associated facilities are developed;

- restrict the types, quantities, and concentrations of substances that can be released into the environment in connection with drilling, hydraulic fracturing, and production activities;

- limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other "waters of the United States," threatened and endangered species habitat, and other protected areas;

• require remedial measures to mitigate pollution from former operations, such as plugging abandoned wells;

• require us to add procedures and/or staff in order to comply with applicable laws and regulations; and

• impose substantial liabilities for pollution resulting from our operations.

In addition, we could face liability under applicable environmental laws and regulations as a result of the activities of previous owners of our properties or other third parties. For example, over the years, we have owned or leased numerous properties for oil and natural gas activities upon which petroleum hydrocarbons or other materials may have been released by us or by predecessor property owners or lessees who were not under our control. Under applicable environmental laws and regulations, including CERCLA, RCRA, 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.

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.

Part of our strategy involves drilling in existing or emerging shale plays using some of the latest available horizontal drilling and completion techniques. 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.

Our operations in the D-J Basin in Weld County, Colorado, involve utilizing the latest drilling and completion techniques in order to maximize cumulative recoveries and therefore generate the highest possible returns. Risks that we may face while drilling include, but are not limited to, landing our well bore in the desired drilling zone, staying in the desired drilling zone while drilling horizontally through the formation, running our casing the entire length of the well bore and being able to run tools and other equipment consistently through the horizontal well bore. Risks that we may face while completing our wells include, but are not limited to, being able to fracture stimulate the planned number of stages, being able to run tools the entire length of the well bore during completion operations and successfully cleaning out the well bore after completion of the final fracture stimulation stage.



The results of our drilling in new or emerging formations will be more uncertain initially than drilling results in areas that are more developed and have a longer history of established production. Newer or emerging formations and areas have limited or no production history and consequently we are less able to predict future drilling results in these areas.

Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently long time period. If our drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, lease expirations, access to gathering systems and limited takeaway capacity or otherwise, and/or natural gas and oil prices decline, the return on our investment in these areas may not be as attractive as we anticipate. Further, as a result of any of these developments we could incur material write-downs of our oil and natural gas properties and the value of our undeveloped acreage could decline in the future.

Our acreage must be drilled before lease expiration, generally within three to five years, in order to hold the acreage by production. In the highly competitive market for acreage, failure to drill sufficient wells in order to hold acreage will result in a substantial lease renewal cost, or if renewal is not feasible, loss of our lease and prospective drilling opportunities.

Our leases on oil and natural gas properties typically have a primary term of three to five years, after which they expire unless, prior to expiration, production is established within the spacing units covering the undeveloped acres. The loss of substantial leases could have a material adverse effect on our assets, operations, revenues and cash flow and could cause the value of our securities to decline in value.

Competition for hydraulic fracturing services and water disposal could impede our ability to develop our shale plays.

The unavailability or high cost of high pressure pumping services (or hydraulic fracturing services), chemicals, proppant, water and water disposal and related services and equipment could limit our ability to execute our exploration and development plans on a timely basis and within our budget. The oil and natural gas industry is experiencing a growing emphasis on the exploitation and development of shale natural gas and shale oil resource plays, which are dependent on hydraulic fracturing for economically successful development. Hydraulic fracturing in shale plays requires high pressure pumping service crews. A shortage of service crews or proppant, chemical, water or water disposal options, especially if this shortage occurred in eastern Colorado, could materially and adversely affect our operations and the timeliness of executing our development plans within our budget.

The derivatives legislation adopted by Congress, and implementation of that legislation by federal agencies, could have an adverse impact on our ability to hedge risks associated with our business.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Dodd-Frank Act, which, among other things, sets forth the new framework for regulating certain derivative products including the commodity hedges of the type that we may elect to use, but many aspects of this law are subject to further rulemaking and will take effect over several years. As a result, it is difficult to anticipate the overall impact of the Dodd-Frank Act on our ability or willingness to enter into and maintain such commodity hedges and the terms of such hedges. There is a possibility that the Dodd-Frank Act could have a substantial and adverse impact on our ability to enter into and maintain these commodity hedges. In particular, the Dodd-Frank Act could result in the implementation of position limits and additional regulatory requirements on derivative arrangements, which could include new margin, reporting and clearing requirements. In addition, this legislation could have a substantial impact on our counterparties and may increase the cost of our derivative arrangements in the future.



If these types of commodity hedges become unavailable or uneconomic, our commodity price risk could increase, which would increase the volatility of revenues and may decrease the amount of credit available to us. Any limitations or changes in our use of derivative arrangements could also materially affect our future ability to conduct acquisitions.

Our operations are substantially dependent on the availability of water. Restrictions on our ability to obtain water may have an adverse effect on our financial condition, results of operations and cash flows.

Water is an essential component of shale oil and natural gas production during both the drilling and hydraulic fracturing processes. Historically, we have been able to purchase water from local land owners for use in our operations. When drought conditions occur, governmental authorities may restrict the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supplies. Colorado has a relatively arid climate and experiences drought conditions from time to time. 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.

Potential conflicts of interest could arise for certain members of our management team that hold management positions with other entities.

Michael L. Peterson, our President and Chief Executive Officer, and Clark R. Moore, our Executive Vice President, General Counsel and Secretary, hold various other management positions with privately-held companies not involved in the oil and gas industry. We believe these positions require only an immaterial amount of each officer's time and will not conflict with their roles or responsibilities with our company. If any of these companies enter into one or more transactions with our company, or if the officers' position with any such company requires significantly more time than currently anticipated, potential conflicts of interests could arise from the officers performing services for us and these other entities.

Downturns and volatility in global economies and commodity and credit markets could materially adversely affect our business, results of operations and financial condition.

Our results of operations are materially affected by the conditions of the global economies and the credit, commodities and stock markets. Among other things, we may be adversely impacted if consumers of oil and gas are not able to access sufficient capital to continue to operate their businesses or to operate them at prior levels. A decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect the demand for oil and gas and as a result our results of operations.

Improvements in or new discoveries of alternative energy technologies could have a material adverse effect on our financial condition and results of operations.

Because our operations depend on the demand for oil and used oil, any improvement in or new discoveries of alternative energy technologies (such as wind, solar, geothermal, fuel cells and biofuels) that increase the use of alternative forms of energy and reduce the demand for oil, gas and oil and gas related products could have a material adverse impact on our business, financial condition and results of operations.

Competition due to advances in renewable fuels may lessen the demand for our products and negatively impact our profitability.

Alternatives to petroleum-based products and production methods are continually under development. For example, a number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean-burning gaseous fuels that may address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns, which if successful could lower the demand for oil and gas. If these non-petroleum based products and oil alternatives continue to expand and gain broad acceptance such that the overall demand for oil and gas is decreased it could have an adverse effect on our operations and the value of our assets.



Currently pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements.

From time to time, we are involved in lawsuits, regulatory inquiries and may be involved in governmental and other legal proceedings arising out of the ordinary course of our business. Many of these matters raise difficult and complicated factual and legal issues and are subject to uncertainties and complexities. The timing of the final resolutions to these types of matters is often uncertain. Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting our results of operations and liquidity.

We may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity.

Governmental agencies may, among other things, impose fines or penalties on us relating to the conduct of our business, attempt to revoke or deny renewal of our operating permits, franchises or licenses for violations or alleged violations of environmental laws or regulations or as a result of third-party challenges, require us to install additional pollution control equipment or require us to remediate potential environmental problems relating to any real property that we or our predecessors ever owned, leased or operated or any waste that we or our predecessors ever collected, transported, disposed of or stored. Individuals, citizens groups, trade associations or environmental activists may also bring actions against us in connection with our operations that could interrupt or limit the scope of our business. Any adverse outcome in such proceedings could harm our operations and financial results and create negative publicity, which could damage our reputation, competitive position and stock price. We may also be required to take corrective actions, including, but not limited to, installing additional equipment, which could require us to make substantial capital expenditures. We could also be required to indemnify our employees in connection with any expenses or liabilities that they may incur individually in connection with regulatory action against us. These could result in a material adverse effect on our prospects, business, financial condition and our results of operations.

## Risks Related to Our Common Stock

We currently have an illiquid and volatile market for our common stock, and the market for our common stock is and may remain illiquid and volatile in the future.

We currently have a highly sporadic, illiquid and volatile market for our common stock, which market is anticipated to remain sporadic, illiquid and volatile in the future. 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 shareholders, 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, legal and regulatory factors unrelated to our performance.



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. 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. Due to the limited volume of our shares which trade, we believe that our stock prices (bid, ask and closing prices) may not be related to our actual value, and not reflect the actual value of our common stock. Shareholders and potential investors in our common stock should exercise caution before making an investment in us.

Additionally, as a result of the illiquidity of our common stock, investors may not be interested in owning our common stock because of the inability to acquire or sell a substantial block of our common stock at one time. Such illiquidity could have an adverse effect on the market price of our common stock. In addition, a shareholder 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.

## An active liquid trading market for our common stock may not develop in the future.

Our common stock currently trades on the NYSE American, although our common stock’s trading volume is very low. Liquid and active trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. However, our common stock may continue to have limited trading volume, and many investors may not be interested in owning our common stock because of the inability to acquire or sell a substantial block of our common stock at one time. Such illiquidity could have an adverse effect on the market price of our common stock. In addition, a shareholder 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.

## We do not presently intend to pay any cash dividends on or repurchase any shares of our common stock.

We do not presently intend to pay any cash dividends on our common stock or to repurchase any shares of our common stock. Any payment of future dividends will be at the discretion of the board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. Cash dividend payments in the future may only be made out of legally available funds and, if we experience substantial losses, such funds may not be available. Accordingly, you may have to sell some or all of your common stock in order to generate cash flow from your investment, and there is no guarantee that the price of our common stock that will prevail in the market will ever exceed the price paid by you.

## The issuance of common stock upon conversion of our convertible notes will cause immediate dilution.

The issuance of common stock upon conversion of our outstanding convertible bridge notes in the aggregate amount of $475,000 in principal and $48,000 of payment in kind, along with interest on the principal amount of such notes, which allow the holders thereof the right to convert such amounts from time to time, subject to certain limitations, into common stock of the Company, as is determined by dividing the amount converted by a conversion price by the greater of (i) 80% of the average of the closing price per share of our publicly traded common stock for the five (5) trading days immediately preceding the date of the conversion notice provide by the holder; and (ii) $5.00 per share, will result in immediate dilution to the interests of other stockholders.



In addition, that certain Amended and Restated Secured Subordinated Promissory Note, in the principal amount $4.925 million, dated February 19, 2015, issued by the Company to MIE Jurassic Energy Corporation (“MIEJ”), provides MIEJ the right, beginning March 8, 2017, to convert the outstanding balance plus accrued and unpaid interest thereon, into common stock of the Company at a price equal to 80% of the average closing price per share of common stock over the then previous 60 days from the date MIEJ exercises its conversion right, subject to a floor price of $3.00 per share of common stock. Any such issuances of common stock will result in immediate dilution to the interests of other stockholders.

The continuously adjustable conversion price feature of our convertible notes could require us to issue a substantially greater number of shares, which may adversely affect the market price of our common stock and cause dilution to our existing stockholders.

Our existing stockholders may experience substantial dilution of their investment upon conversion of the convertible bridge notes and New MIEJ Note. The convertible bridge notes are convertible into shares of common stock as described in the risk factor above entitled “The issuance of common stock upon conversion of our convertible notes will cause immediate and substantial dilution”, at a discount to the trading price of our common stock, subject to a floor of $5.00 per share, and the New MIEJ Note is convertible into shares of common stock as described in the same risk factor after March 8, 2017 at a discount to the trading price of our common stock, subject to a floor of $3.00 per share and other restrictions. As a result, the number of shares issuable could prove to be significantly greater in the event of a decrease in the trading price of our common stock, which decrease could cause substantial dilution to our existing stockholders. As sequential conversions and sales take place, the price of our common stock may decline, and if so, the holders of the convertible bridge notes and New MIEJ Note would be entitled to receive an increasing number of shares, which could then be sold, triggering further price declines and conversions for even larger numbers of shares, which would cause additional dilution to our existing stockholders and could cause the value of our common stock to decline.

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.

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. Complying with these laws, rules and regulations will occupy a significant amount of time of our board of directors and management and will significantly increase our costs and expenses, which we cannot estimate accurately at this time. Among other things, we must:

- establish and maintain a system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

• comply with rules and regulations promulgated by the NYSE American;

• prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

- maintain various internal compliance and disclosures policies, such as those relating to disclosure controls and procedures and insider trading in our common stock;

• involve and retain to a greater degree outside counsel and accountants in the above activities;

• maintain a comprehensive internal audit function; and

• maintain an investor relations function.



In addition, being a public company subject to these rules and regulations may require us to accept less director and officer liability insurance coverage than we desire or to incur substantial costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

## 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. 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. 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. 333-214415) that we filed with the Securities and Exchange Commission on December 20, 2016, and which was declared effective on January 17, 2017. To date, an aggregate of approximately $18.1 million in securities have been sold by us under the prior Form S-3 which the December 2016 Form S-3 replaced, leaving approximately $81.9 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. We have also entered into an At Market Issuance Sales Agreement, or sales agreement, with National Securities Corporation, or NSC, relating to up to $2.0 million of shares of our common stock which may be offered from time to time in “at the market offerings” and filed a final prospectus in connection with such offering with the SEC, pursuant to which the Company has, to date, sold an aggregate of 590,335 shares of common stock at prices ranging from $0.90 to $1.12 per share for an aggregate purchase price of $640,000, to which an underwriter’s fee of 3.0% was applied, leaving approximately $1.36 million remaining available for issuance thereunder, subject to limitation under the SEC’s “Baby Shelf Rules”. 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. 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.

## Our outstanding options, warrants and convertible securities may adversely affect the trading price of our common stock.

As of December 31, 2017, there were outstanding stock options to purchase approximately 743,727 shares of our common stock and outstanding warrants to purchase approximately 1,231,373 shares of common stock. For the life of the options and warrants, the holders have the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership. The issuance of shares upon the exercise of outstanding securities will also dilute the ownership interests of our existing stockholders.

The availability of these shares for public resale, as well as any actual resales of these shares, could adversely affect the trading price of our common stock. We previously filed registration statements with the SEC on Form S-8 providing for the registration of an aggregate of approximately 3,134,945 shares of our common stock, issued, issuable or reserved for issuance under our equity incentive plans. Subject to the satisfaction of vesting conditions, the expiration of lockup agreements, any management 10b5-1 plans and certain restrictions on sales by affiliates, shares registered under registration statements on Form S-8 will be available for resale immediately in the public market without restriction.

We cannot predict the size of future issuances of our common stock pursuant to the exercise of outstanding options or warrants or conversion of other securities, or the effect, if any, that future issuances and sales of shares of our common stock may have on the market price of our common stock. 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.



Seven of our directors and executive officers own approximately 24.4% of our common stock, and three of our major shareholders own approximately 12.8% of our common stock, which may give them influence over important corporate matters in which their interests are different from your interests.

Seven of our directors and executive officers beneficially own approximately 24.4% of our outstanding shares of common stock, and our largest three non-director or officer shareholders own approximately 12.8% of our outstanding voting shares of common stock and Series A Preferred Stock (excluding exercise of warrants and options and other convertible securities held thereby) based on a total of 7,345,379 shares of common stock and Series A Preferred Stock outstanding as of March 27, 2018. These directors, executive officers and major shareholders will be positioned to influence or control to some degree the outcome of matters requiring a shareholder vote, including the election of directors, the adoption of amendments to our certificate of formation or bylaws and the approval of mergers and other significant corporate transactions. These directors, executive officers and major shareholders, subject to any fiduciary duties owed to the shareholders generally, may have interests different than the rest of our shareholders. Their influence or control of our company may have the effect of delaying or preventing a change of control of our company and may adversely affect the voting and other rights of other shareholders. In addition, due to the ownership interest of these directors and officers in our common stock, they may be able to remain entrenched in their positions.

## Provisions of Texas law may have anti-takeover effects that could prevent a change in control even if it might be beneficial to our shareholders.

Provisions of Texas law may discourage, delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline. Under Texas law, a shareholder who beneficially owns more than 20% of our voting stock, or any “affiliated shareholder,” cannot acquire us for a period of three years from the date this person became an affiliated shareholder, unless various conditions are met, such as approval of the transaction by our board of directors before this person became an affiliated shareholder or approval of the holders of at least two-thirds of our outstanding voting shares not beneficially owned by the affiliated shareholder.

Our board of directors can authorize the issuance of preferred stock, which could diminish the rights of holders of our common stock and make a change of control of our company more difficult even if it might benefit our shareholders.

Our board of directors is authorized to issue shares of preferred stock in one or more series and to fix the voting powers, preferences and other rights and limitations of the preferred stock. Shares of preferred stock may be issued by our board of directors without shareholder approval, with voting powers and such preferences and relative, participating, optional or other special rights and powers as determined by our board of directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our board of directors which cause the holders to have majority voting power over our shares, provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock shareholders and/or have other rights and preferences greater than those of our common stock shareholders including having a preference over our common stock with respect to dividends or distributions on liquidation or dissolution. To date our board of directors has authorized Series A Convertible Preferred Stock, the rights and preferences associated therewith, and risks related to such preferred stock, is described in greater detail under “Risks Related to Our Series A Convertible Preferred Stock”.



Investors should keep in mind that the board of directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to our existing shareholders. Additionally, the dilutive effect of any preferred stock which we may issue may be exacerbated given the fact that such preferred stock may have voting rights and/or other rights or preferences which could provide the preferred shareholders with substantial voting control over us subsequent to the date of this filing and/or give those holders the power to prevent or cause a change in control, even if that change in control might benefit our shareholders. As a result, the issuance of shares of common stock and/or preferred stock may cause the value of our securities to decrease.

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.

The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over independent analysts (provided that we have engaged various non-independent analysts). We currently only have a few independent analysts that cover our common stock, and these analysts may discontinue coverage of our common stock at any time. Further, we may not be able to obtain additional research coverage by independent securities and industry analysts. If no independent securities or industry analysts continue coverage of us, the trading price for our common stock could be negatively impacted. If one or more of the analysts who covers us downgrades our common stock, changes their opinion of our shares or publishes inaccurate or unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease and we could lose visibility in the financial markets, which could cause our stock price and trading volume to decline.

Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of securities.

Wherever possible, our board of directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of shares of our common stock, preferred stock or warrants to purchase shares of our common stock. Our board of directors has authority, without action or vote of the shareholders, subject to the requirements of the NYSE American (which generally require shareholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing over 20% of our then outstanding shares of stock), to issue all or part of the authorized but unissued shares of common stock, preferred stock or warrants to purchase such shares of common stock. In addition, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market in the future. These actions will result in dilution of the ownership interests of existing shareholders and may further dilute common stock book value, and that dilution may be material. 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.

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. In order to maintain this listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders' equity and a minimum number of public shareholders. 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.



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.

We are currently below compliance with certain continued listing requirements of the NYSE American. If we are delisted from the NYSE American, your ability to sell your shares of our common stock may be limited by the penny stock restrictions, which could further limit the marketability of your shares.

On December 27, 2016, we received notice from the NYSE American LLC (the "Exchange") that we were not in compliance with Section 1003(a)(iii) of the NYSE American Company Guide ("Company Guide") since we reported stockholders' equity of less than $6,000,000 at September 30, 2016 and had incurred net losses in our five most recent fiscal years ended December 31, 2015. Receipt of the letter does not have any immediate effect upon the listing of our common stock, provided that in order to maintain our listing on the Exchange, the Exchange requested that we submit a plan of compliance (the "Plan") by January 27, 2017 addressing how we intend to regain compliance with Section 1003(a)(iii) of the Company Guide by June 27, 2018. We submitted our Plan to the Exchange by the requested deadline, and such plan was accepted by the Exchange on February 13, 2017. In connection with such acceptance, we have been provided until June 27, 2018 to regain compliance with Section 1003(a)(iii) of the Company Guide, which requires our stockholders' equity to be at least $6 million. If we do not make progress consistent with the Plan during the Plan period or regain compliance with the applicable continued listing standards of the Exchange by June 27, 2018, the Exchange will initiate delisting proceedings as appropriate. We are confident that we will be able to regain compliance with applicable listing standards by June 27, 2018, provided that if we are unable to regain compliance, our common stock will be delisted from the Exchange.

On May 3, 2017, the Company received notice from the Exchange that the Company was not in compliance with Sections 1003(a)(i) and (ii) (as well as Section (iii) as described above) of the Company Guide since it reported stockholders' equity of less than $2,000,000 at December 31, 2016 and had incurred net losses in its five most recent fiscal years ended December 31, 2016. No new or revised Plan was required to be submitted by the Exchange, and the Company believes it is making progress consistent with the Exchange-approved Plan.

If our common stock is delisted, it could come within the definition of “penny stock” as defined in the Exchange Act and could be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of stockholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.

Due to the fact that our common stock is listed on the NYSE American, we are subject to financial and other reporting and corporate governance requirements which increase our costs and expenses.

We are currently required to file annual and quarterly information and other reports with the Securities and Exchange Commission that are specified in Sections 13 and 15(d) of the Exchange Act. Additionally, due to the fact that our common stock is listed on the NYSE American, we are also subject to the requirements to maintain independent directors, comply with other corporate governance requirements and are required to pay annual listing and stock issuance fees. These obligations require a commitment of additional resources including, but not limited, to additional expenses, and may result in the diversion of our senior management’s time and attention from our day-to-day operations. These obligations increase our expenses and may make it more complicated or time consuming for us to undertake certain corporate actions due to the fact that we may require NYSE approval for such transactions and/or NYSE rules may require us to obtain shareholder approval for such transactions.



## Risks Related to Our Series A Convertible Preferred Stock

The issuance of common stock upon conversion of the Series A Convertible Preferred stock will cause immediate and substantial dilution to existing shareholders.

Our 66,625 outstanding shares of Series A Convertible Preferred stock are convertible into common stock on a 100:1 basis (subject to certain limitations on conversions described in the Series A Preferred designation), provided that no conversion of the Series A Convertible Preferred stock is allowed in the event the holder thereof would beneficially own more than 9.9% of our common stock or voting stock.

The issuance of common stock upon conversion of the Series A Convertible Preferred stock will result in immediate and substantial dilution to the interests of other stockholders since the holder of the Series A Convertible Preferred stock may ultimately receive and sell the full amount of shares issuable in connection with the conversion of such Series A Convertible Preferred stock. Although the Series A Convertible Preferred stock may not be converted if such conversion would cause the holder thereof to own more than 9.9% of our outstanding common stock, this restriction does not prevent the holder from converting some of its holdings, selling those shares, and then converting the rest of its holdings, while still staying below the 9.9% limit. In this way, the holder of the Series A Convertible Preferred stock could sell more than this limit while never actually holding more shares than this limit allows. If the holder of the Series A Convertible Preferred stock chooses to do this, it will cause substantial dilution to the then holders of our common stock.

The issuance and sale of common stock upon conversion of the Series A Convertible Preferred stock may depress the market price of our common stock.

All of our Series A Convertible Preferred Stock is held by GGE, the parent company of which is controlled by a court-appointed liquidator that is currently taking steps to liquidate GGE’s parent company’s assets. If GGE were to distribute our Series A Convertible Preferred Stock in connection with such liquidation, and/or these shares are converted in sequential conversions and sales of such converted shares take place, the price of our common stock may decline.

In addition, the common stock issuable upon conversion of the Series A Convertible Preferred stock may represent overhang that may also adversely affect the market price of our common stock. Overhang occurs when there is a greater supply of a company’s stock in the market than there is demand for that stock. When this happens the price of the company’s stock will decrease, and any additional shares which shareholders attempt to sell in the market will only further decrease the share price. If the share volume of our common stock cannot absorb converted shares sold by the Series A Convertible Preferred stock holder, then the value of our common stock will likely decrease.

The holder of our Series A Convertible Preferred stock has the right to appoint two members to our board of directors.

In February 2015, by resolution of the board of directors, we formally increased the size of our board of directors from three (3) members to five (5) members. Pursuant to the designation of the Series A Convertible Preferred stock, we provided the holder thereof the right, upon notice to us, to appoint designees to fill the two (2) vacant seats, one of which must be an independent director as defined by applicable rules. In July 2015, David Z. Steinberg joined our board of directors as one of the holder's independent director designees. The holder's second designee has not been appointed to date. Mr. Steinberg was formerly employed by PM LLC, the former advisor and former affiliate of PPVAF, GOM, RJC and GGE, from May 2009 to November 2016. The board appointment rights continue until the holder no longer holds any of the first tranche of shares issued to the holder. The board appointment rights mean that assuming such rights are exercised; the common stock shareholders may only have the right to appoint 60% (three of five members) of our board of directors.



None.

## ITEM 2. PROPERTIES.

## Office Lease

Our corporate headquarters are located in approximately 2,100 square feet of office space at 4125 Blackhawk Plaza Circle, Suite 201, Danville, California 94506. We lease that space pursuant to a lease that expires on July 31, 2018 and that has a base monthly rent of approximately $4,800.

## Oil and Gas Properties

The Company’s oil and gas properties are described under “Item 1. Business - Oil and Gas Properties” - “Our Core Areas” — “Our Non-Core Assets”, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” - “D-J Basin Asset Reserves Estimates”, and “Note 5 - Oil and Gas Properties” to the consolidated audited financial statements attached hereto and “Production Volumes” and “Supplemental Information on Oil and Gas Producing Activities” at the end of the consolidated audited financial statements attached hereto.

## ITEM 3. LEGAL PROCEEDINGS

The Company is currently not a party to any material legal proceedings and has no current legal proceedings outstanding.

On December 18, 2015, a complaint was filed against Red Hawk Petroleum, LLC (“Red Hawk”), our wholly-owned subsidiary, in the District Court, County of Weld, State of Colorado (Case Number: 2015CV31079) (the “Court”), pursuant to which Liberty Oilfield Services, LLC (“Liberty”) made various claims against Red Hawk in connection with certain completion services provided by Liberty to Red Hawk in November and December 2014. The complaint alleged causes of action for foreclosure of lien, breach of contract, quantum meruit and account stated, and sought payment of amounts allegedly owed, pre- and post-judgment interest, attorneys’ fees and court costs in connection with Red Hawk’s alleged failure to pay Liberty approximately $2.9 million in fees due for completion services provided by Liberty. On May 12, 2016, the Company and Liberty entered into a settlement agreement, pursuant to which the Company paid Liberty $750,000 and issued 245,000 fully-vested shares of restricted Company common stock, valued at $588,000, based on the market price on the grant date, as full settlement of all amounts due for the services previously rendered, for which the Company owed approximately $2.6 million.

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, other than the Liberty matter described above, we are not currently a party to any material legal proceeding. In addition, other than the Liberty matter, we are not aware of any material legal or governmental proceedings against us, or contemplated to be brought against us.

## ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable



## PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

## Market Information

Our common stock traded on the OTC Bulletin Board over-the-counter market from January 13, 2003 to September 9, 2013. On September 10, 2013, the Company’s shares of common stock commenced trading on the NYSE American under the ticker symbol “PED.”

The following high and low sales prices of our common stock, reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

<table><tr><td>Quarter Ended</td><td>High</td><td>Low</td></tr><tr><td>March 31, 2017</td><td>$ 1.34</td><td>$ 0.84</td></tr><tr><td>June 30, 2017</td><td>1.69</td><td>0.51</td></tr><tr><td>September 30, 2017</td><td>0.91</td><td>0.55</td></tr><tr><td>December 31, 2017</td><td>0.67</td><td>0.27</td></tr><tr><td></td><td></td><td></td></tr><tr><td>March 31, 2016</td><td>$ 3.20</td><td>$ 1.50</td></tr><tr><td>June 30, 2016</td><td>4.08</td><td>1.60</td></tr><tr><td>September 30, 2016</td><td>3.20</td><td>1.20</td></tr><tr><td>December 31, 2016</td><td>2.10</td><td>0.90</td></tr></table>

## Shareholders

As of March 27, 2018, there were approximately 748 holders of record of our common stock, not including any persons who hold their stock in “street name,” and one holder of our preferred stock.

## Common Stock

The Company is authorized to issue 200,000,000 shares of common stock with $0.001 par value per share. Holders of shares of common stock are entitled to one vote per share on each matter submitted to a vote of shareholders. In the event of liquidation, holders of common stock are entitled to share pro rata in the distribution of assets remaining after payment of liabilities, if any. Holders of common stock have no cumulative voting rights, and, accordingly, the holders of a majority of the outstanding shares have the ability to elect all of the directors of the Company. Holders of common stock have no preemptive or other rights to subscribe for shares. Holders of common stock are entitled to such dividends as may be declared by the Board out of funds legally available therefore. The outstanding shares of common stock are validly issued, fully paid and non-assessable.

## Preferred Stock

The Company is authorized to issue 100,000,000 shares of preferred stock, $0.001 par value per share, of which 66,625 shares have been designated “Series A Convertible Preferred Stock” (the “Series A Preferred”). On February 23, 2015 (the “Original Issuance Date”), the Company issued all 66,625 shares of Series A Preferred to Golden Globe Energy (US), LLC (“GGE”) in connection with the GGE Acquisition, all of which shares remain issued and outstanding as of the date of this filing.



The 66,625 shares of Series A Preferred issued to GGE (i) had a liquidation preference senior to all of the Company’s common stock equal to $400 per share (the “Liquidation Preference”) prior to the date the Shareholder Approval (defined below) was received, (ii) accrued an annual dividend equal to 10% of their Liquidation Preference, payable annually from the date of issuance (the “Dividend”) prior to the date the Shareholder Approval (defined below) was received, (iii) vote together with the common stock on all matters, with each share having one (1) vote, and (iv) since the date of the Shareholder Approval are convertible into common stock of the Company on a 100:1 basis. On October 7, 2015, the Company obtained shareholder approval of the issuance of the Company’s common stock upon conversion of the Series A Preferred, and other related matters (the “Shareholder Approval”). Notwithstanding the above, no conversion is allowed in the event the holder thereof would beneficially own more than 9.9% of the Company’s common stock or voting stock (see “Part I” – “Item 1A. Risk Factors”, including “The issuance and sale of common stock upon conversion of the Series A Convertible Preferred stock may depress the market price of our common stock”, and other risk factors related to our Series A Convertible Preferred stock).

Additionally, Golden Globe Energy (US), LLC, which we refer to as GGE, the sole holder of our Series A Preferred stock, has the right pursuant to the purchase agreement with GGE and the certificate of designation designating the Series A Preferred, upon notice to us, voting separately as a single class, to appoint designees to fill two (2) seats on our board of directors, one of which must be an independent director as defined by applicable rules and the exclusive right, voting the Series A Preferred Stock as sole stockholder thereof, separately as a single class, to elect such two (2) nominees to the board of directors. On July 15, 2015, at the request of GGE the board of directors appointed David Z. Steinberg as a member of the board of directors. At the time of appointment, the board of directors made the affirmative determination that Mr. Steinberg was independent pursuant to applicable NYSE American and Securities and Exchange Commission rules and regulations. Mr. Steinberg serves as one of GGE’s representatives on the Company’s board of directors. The board of directors appoints the rights continue until GGE no longer holds any of the Tranche One Shares (defined and described in greater detail under “Item 13. Certain Relationships and Related Transactions, and Director Independence” — “Agreements with Related Persons” — “Golden Globe Energy (US), LLC”). To date, GGE has not provided notice to PEDEVCO regarding the appointment of the second member to the board of directors, other than Mr. Steinberg.

All Series A Preferred Stock nominee members on our board of directors are required to immediately resign at the option of the other members of our board of directors upon such time as the rights of the Series A Preferred Stock holder to appoint members to our board of directors expires. For so long as the board appointment rights remain in effect, if for any reason a Series A Preferred Stock nominee on our board of directors resigns or is otherwise removed from the board of directors, then his or her replacement shall be a person elected by the remaining Series A Preferred Stock nominee or the holder of the Series A Preferred Stock. The board appointment rights continue until the holder no longer holds any of the first tranche of shares issued to the holder. The board appointment rights continue until the holder no longer holds any of the first tranche of the shares issued to the holder.

## Dividend Policy

We have never declared or paid any dividends on our common stock and do not anticipate that we will pay dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that the board of directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future.

## Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information, as of December 31, 2017, with respect to our compensation plans under which common stock is authorized for issuance.



## EQUITY COMPENSATION PLAN INFORMATION

<table><tr><td>Plan Category</td><td>Number of securities to be issued upon exercise of outstanding options, warrants and rights (A)</td><td>Weighted-average exercise price of outstanding options, warrants and rights (B)</td><td>Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column A) (C)</td></tr><tr><td>Equity compensation plans approved by shareholders (1)</td><td>653,059</td><td>$ 3.37</td><td>82,170(2)</td></tr><tr><td>Equity compensation plans not approved by shareholders (3)</td><td>1,322,042</td><td>$ 7.26</td><td>-</td></tr><tr><td>Total</td><td>1,975,101</td><td>$ 5.97</td><td>82,170</td></tr></table>

(1) Consists of (i) options to purchase 31,016 shares of common stock issued and outstanding under the Pacific Energy Development Corp. 2012 Amended and Restated Equity Incentive Plan, (ii) options to purchase 343 shares of common stock issued and outstanding under the Blast Energy Services, Inc. 2009 Incentive Plan, and (iii) options to purchase 621,700 shares of common stock issued and outstanding under the PEDEVCO Corp. 2012 Amended and Restated Equity Incentive Plan.

(2) Consists of 82,170 shares of common stock reserved and available for issuance under the PEDEVCO Corp. 2012 Amended and Restated Equity Incentive Plan.

(3) Consists of (i) options to purchase 90,668 shares of common stock granted by Pacific Energy Development Corp. to employees and consultants of the company in October 2011 and June 2012, and (ii) warrants to purchase 1,231,374 shares of common stock granted by PEDEVCO Corp. to placement agents, lenders, investors and consultants between March 2013 and May 2016.

## Stock Transfer Agent

Our stock transfer agent is First American Stock Transfer, located at 4747 N. 7th Street, Suite 170, Phoenix, AZ 85014.

Recent Sales of Unregistered Securities

None.

Recent Sales of Registered Securities

None.

Use of Proceeds From Sale of Registered Securities

Our Registration Statement on Form S-3 (Reg. No. 333-214415) in connection with the sale by us of up to $100 million in securities (common stock, preferred stock, warrants and units) was declared effective by the Securities and Exchange Commission on January 17, 2017.



On September 29, 2016, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with National Securities Corporation (“NSC”), a wholly owned subsidiary of National Holdings Corporation (NasdaqCM:NHLD), pursuant to which the Company may issue and sell shares of its common stock, having an aggregate offering price of up to $2,000,000 (the “Shares”) from time to time, as the Company deems prudent, through NSC (the “Offering”) (of which $1.359 million remains available for issuance, subject to limitation under the SEC’s “Baby Shelf Rules”). Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, NSC may sell the Shares by methods deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act.

With the Company’s prior written approval, NSC may also sell the Shares by any other method permitted by law, including in negotiated transactions. The Company may elect not to issue and sell any Shares in the Offering and the Company or NSC may suspend or terminate the offering of Shares upon notice to the other party and subject to other conditions. NSC will act as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of the NYSE American.

The Company has agreed to pay NSC commissions for its services in acting as agent in the sale of the Shares in the amount equal to 3.0% of the gross sales price of all Shares sold pursuant to the Agreement. The Company also paid various expenses in connection with the offering, including reimbursing $30,000 of NSC’s legal fees, which has been paid to date. The Company has also agreed to provide NSC with customary indemnification and contribution rights.

The Company has used, and intends to use, the net proceeds from the offering to fund development and for working capital and general corporate purposes, including general and administrative purposes. The Company is not obligated to make any sales of common stock under the Sales Agreement, and no assurance can be given that the Company will sell any additional shares under the Sales Agreement (other than as described below), or, if it does, as to the price or amount of Shares that it will sell, or the dates on which any such sales will take place.

The Company has filed a final prospectus in connection with such offering with the SEC (as part of the Form S-3 registration statement). To date, we have sold an aggregate of 590,335 shares of common stock under the At Market Issuance Sales Agreement and the associated prospectus at prices ranging from $0.90 to $1.12 per share for an aggregate purchase price of $640,000, to which an underwriter’s fee of 3.0% was applied, leaving approximately $1.36 million remaining available for issuance thereunder, subject to limitation under the SEC’s “Baby Shelf Rules”.

No payments for our expenses will be made in connection with the offering described above directly or indirectly to (i) any of our directors, officers or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates. We plan to use the net proceeds from the offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).

There has been no material change in the planned use of proceeds from our offering as described in our final prospectuses filed with the SEC pursuant to Rule 424(b).

Issuer Purchases of Equity Securities

None.

## ITEM 6. SELECTED FINANCIAL DATA

Not required under Regulation S-K for “smaller reporting companies.”



## ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution you that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Risk Factors” and “Forward Looking Statements.”

## Overview

We are an energy company engaged primarily in the acquisition, exploration, development and production of oil and natural gas shale plays in the Denver-Julesberg Basin (“D-J Basin”) in Colorado, which contains hydrocarbon bearing deposits in several formations, including the Niobrara, Codell, Greenhorn, Shannon, J-Sand, and D-Sand. As of December 31, 2017, we held approximately 10,961 net D-J Basin acres located in Weld County, Colorado through our wholly-owned subsidiary Red Hawk Petroleum, LLC (“Red Hawk”), which acreage is located in the Wattenberg and Wattenberg Extension areas of the D-J Basin, which we refer to as our “D-J Basin Asset.” As of December 31, 2017, we held interests in 61 gross (17.4 net) wells in our D-J Basin Asset, of which 14 gross (12.5 net) wells are operated by Red Hawk and are currently producing, 25 gross (4.9 net) wells are non-operated, and 22 wells have an after-payout interest. During the quarter-ended December 31, 2017, the Company produced an average of approximately 189 net barrels of oil equivalent per day (“BOEPD”) from its D-J Basin Asset.

We believe that the D-J Basin shale play represents among the most promising unconventional oil and natural gas plays in the U.S. We plan to continue to seek additional acreage proximate to our currently held core acreage located in the Wattenberg and Wattenberg Extension areas of Weld County, Colorado. Our strategy is to be the operator, directly or through our subsidiaries and joint ventures, in the majority of our acreage so we can dictate the pace of development in order to execute our business plan.

We have listed below the total production volumes and total revenue net to the Company for the years ended December 31, 2017, 2016, and 2015 attributable to our D-J Basin Asset that would be net to our interest if reported on a consolidated basis, including the calculated production volumes and revenue numbers for our D-J Basin Asset held indirectly through Condor Energy Technology LLC (“Condor”), an entity we had a 20% interest in which we divested in February 2015.

<table><tr><td rowspan="2"></td><td colspan="4">For the Years Ended December 31,</td></tr><tr><td>2017</td><td>2016</td><td>2015</td><td></td></tr><tr><td>Oil</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Bbls)</td><td>52,260</td><td>92,966</td><td>117,365</td><td></td></tr><tr><td>Average sales price (per Bbl)</td><td>$ 47.15</td><td>$ 36.98</td><td>$ 41.13</td><td></td></tr><tr><td>Natural Gas:</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Mcf)</td><td>100,254</td><td>168,555</td><td>224,222</td><td></td></tr><tr><td>Average sales price (per Mcf)</td><td>$ 2.97</td><td>$ 2.04</td><td>$ 2.16</td><td></td></tr><tr><td>NGL:</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Mcf)</td><td>73,254</td><td>66,033</td><td>24,815</td><td></td></tr><tr><td>Average sales price (per Mcf)</td><td>$ 3.46</td><td>$ 2.82</td><td>$ 1.81</td><td></td></tr><tr><td>Oil Equivalents:</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Production (Boe) (1)</td><td>81,178</td><td>132,064</td><td>158,870</td><td></td></tr><tr><td>Average Daily Production (Boe/d)</td><td>222</td><td>362</td><td>435</td><td></td></tr><tr><td>Average Production Costs (per Boe)(2)</td><td>$ 13.62</td><td>$ 9.55</td><td>$ 7.29</td><td></td></tr></table>

(1) Assumes 6 Mcf of natural gas and NGL equivalents to 1 barrel of oil.

(2) Excludes workover costs, marketing, ad valorem and severance taxes.



Detailed information about our business plans and operations, including our core D-J Basin Asset is contained under “Part 1” — “Item 1. Business” beginning on page 5 of this Annual Report.

The reserve estimates, including PV-10, set forth above were prepared on February 6, 2018 by Tenet Advisory Group, LLC (“TAG”). TAG is an independent professional engineering firm certified by the Texas Board of Professional Engineers (Registration number F-18903), under the direction of Joe C. Bullard of TAG. TAG, and its employees, have no material interest in our Company. TAG also performs oilfield operational and engineering services for the Company pursuant to a Contract Operating Services Agreement, dated January 16, 2017, entered into by and between TAG and Red Hawk, the Company’s wholly-owned operating subsidiary. The reserve estimates were prepared by TAG using reserve definitions and pricing requirements prescribed by the SEC. TAG estimated the proved reserves for our properties by performance methods and analogy. All of the proved producing reserves attributable to producing wells and/or reservoirs were estimated by performance methods. These performance methods, such as decline curve analysis, utilized extrapolations of historical production and pressure data available through December 2017 in those cases where such data were considered to be definitive. The data utilized were furnished to TAG by the Company or obtained from public data sources. All of the proved developed nonproducing and undeveloped reserves were estimated by analogy.

A copy of the report issued by TAG is filed with this report as Exhibit 99.1.

The preliminary appraisal reports and changes in our reserves are reviewed by Michael Peterson, our President and Chief Executive Officer, for completeness of the data presented and reasonableness of the results obtained. Mr. Peterson has over 15 years' experience in the oil and gas industry. Once any questions have been addressed, TAG issues the final appraisal reports, reflecting their conclusions.

For more information regarding our oil and gas reserves, please refer to “Supplemental Oil and Gas Disclosures (Unaudited)” beginning on page F-31 of this Annual Report, which information is incorporated by reference in this “Item 2. Properties”, by reference.

## How We Conduct Our Business and Evaluate Our Operations

Our use of capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve. We have historically acquired properties that we believe had significant appreciation potential. We intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives.

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, including the effects of our commodity derivative contracts;

• oil and natural gas production and operating expenses;

• capital expenditures;

• general and administrative expenses;

• net cash provided by operating activities; and

• net income.

## Production Volumes

Production volumes will directly impact our results of operations. As of December 31, 2017, we hold interests in 61 gross (17.4 net) wells in our D-J Basin Asset, of which 14 gross (12.5 net) wells are operated by Red Hawk and are currently producing, 25 gross (4.9 net) wells are non-operated, and 22 wells have an after-payout interest. During the quarter-ended December 31, 2017, the Company produced an average of approximately 189 net barrels of oil equivalent per day (“BOEPD”) from its D-J Basin Asset. Additionally, we expect to increase production assuming drilling success in the future as we expand operations in our D-J Basin Asset.



## Liquidity and Capital Resources

## Liquidity Outlook

We expect to incur substantial expenses and generate significant operating losses as we continue to explore for and develop our oil and natural gas prospects, and as we opportunistically invest in additional oil and natural gas properties, develop our discoveries which we determine to be commercially viable and incur expenses related to operating as a public company and compliance with regulatory requirements.

Our future financial condition and liquidity will be impacted by, among other factors, the success of our exploration and appraisal drilling program, the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered, the speed with which we can bring such discoveries to production, and the actual cost of exploration, appraisal and development of our prospects.

Our current liquidity uses and debt service requirements are managed under the terms of our senior debt facility whereby we are subject to a cash sweep of our net revenues after operating costs. The debt service arrangement provides for budgeted general and administrative cost allowance of $150,000 each month which we believe is sufficient to meet our foreseeable recurring costs. Such financing arrangement is sufficient to manage recurring cash requirements but provides no additional funds for extraordinary items, execution of our capital expenditure program or the repayment of outstanding debt obligations other than our senior debt facility. Any equity funds we are able to raise through offerings is not subject to the cash sweep and is not subject to payment to or approval by the senior lenders.

Subject to the availability of the additional funding, which is not currently in place and requires approval of our senior lenders in the event of a debt offering, we plan to make capital expenditures, excluding capitalized interest and general and administrative expense, of up to approximately $8.37 million during the period from January 1, 2018 to December 31, 2018 in order to achieve our plans (with an additional 6.4 net wells to be drilled and completed in 2019 for a combined total 2018-2019 drilling capital budget of $34.85 million). We expect our projected cash flow from operations combined with our existing cash on hand, up to $2.0 million of gross proceeds available from the issuance of our common shares through NSC under our current “at the market offering” (of which $1.359 million remains available for issuance, subject to limitation under the SEC’s “Baby Shelf Rules”), and the approximately $18.0 million available under our current senior debt facility will be sufficient to fund our drilling plans and our operations through 2019, noting that the advancement of all or any portion of the approximately $18.0 million gross available under our current senior debt facility is in the sole and absolute discretion of the senior lenders and no senior lender is obligated to fund all or any part of the requested funding. See “Part I, Item 1. Business” — “Material 2016-2017 Transactions” — “Senior Debt Restructuring” and “Part I” – “Item 1A. Risk Factors”, including “Our Tranche A Notes and Tranche B Notes include various covenants, reduces our flexibility, increases our interest expense and may adversely impact our operations and our costs.” In addition, we may seek additional funding through asset sales, farm-out arrangements, lines of credit, or public or private debt or equity financings to fund additional 2018-2019 capital expenditures and/or repay or refinance a portion or all of our outstanding debt.

Our capital budget may be adjusted as business conditions warrant. The amount, timing and allocation of capital expenditures are largely discretionary and within our control. If oil and natural gas prices continue to decline or fail to improve or costs increase significantly, we could defer a significant portion of our budgeted capital expenditures until later periods to prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flows. We routinely monitor and adjust our capital expenditures in response to changes in prices, availability of financing, drilling and acquisition costs, industry conditions, timing of regulatory approvals, availability of rigs, success or lack of success in drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control.



## At The Market Offering

On September 29, 2016, we entered into an At Market Issuance Sales Agreement (the "Sales Agreement") with National Securities Corporation ("NSC"), a wholly owned subsidiary of National Holdings Corporation (NasdaqCM: NHLD), pursuant to which the Company may issue and sell shares of its common stock, having an aggregate offering price of up to $2,000,000 (the "Shares") from time to time, as the Company deems prudent, through NSC (the "Offering"). Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, NSC may sell the Shares by methods deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act.

With the Company’s prior written approval, NSC may also sell the Shares by any other method permitted by law, including in negotiated transactions. The Company may elect not to issue and sell any Shares in the Offering and the Company or NSC may suspend or terminate the offering of Shares upon notice to the other party and subject to other conditions. NSC will act as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of the NYSE American.

The Company has agreed to pay NSC commissions for its services in acting as agent in the sale of the Shares in the amount equal to 3.0% of the gross sales price of all Shares sold pursuant to the Agreement. The Company also paid various expenses in connection with the offering, including reimbursing $30,000 of NSC's legal fees, which has been paid to date. The Company has also agreed to provide NSC with customary indemnification and contribution rights.

The Company has used, and intends to use, the net proceeds from the offering to fund development and for working capital and general corporate purposes, including general and administrative purposes. The Company is not obligated to make any sales of common stock under the Sales Agreement, and no assurance can be given that the Company will sell any additional shares under the Sales Agreement (other than as described below), or, if it does, as to the price or amount of Shares that it will sell, or the dates on which any such sales will take place.

The Company has filed a final prospectus in connection with such offering with the SEC (as part of the Form S-3 registration statement). To date, we have sold an aggregate of 590,335 shares of common stock under the At Market Issuance Sales Agreement and the associated prospectus at prices ranging from $0.90 to $1.12 per share for an aggregate purchase price of $641,000, to which an underwriter's fee of 3.0% was applied, leaving approximately $1.36 million remaining available for issuance thereunder, subject to limitation under the SEC's "Baby Shelf Rules".

## Secured Debt Funding

During March 2014, we entered into the transactions contemplated by a Note Purchase Agreement (the "Note Purchase"), between the Company, BRe BCLIC Primary, BRe BCLIC Sub, BRe WNIC 2013 LTC Primary, BRe WNIC 2013 LTC Sub, and RJ Credit LLC ("RJC"), as investors (collectively, the "Investors"), and BAM Administrative Services LLC, as agent for the Lenders (the "Agent") (upon notice received from the Agent on October 10, 2017, the Agent resigned as agent for the Lenders effective December 31, 2017, and no replacement agent has been designated by the Lenders subsequent to such date). Pursuant to the Note Purchase, we sold the Investors Secured Promissory Notes in the aggregate amount of $34.5 million (the "Initial Notes").

We received $29,325,000 before expenses in connection with the sale of the Initial Notes after paying the Investors an original issue discount in connection with the sale of the Initial Notes of $1,725,000 (5% of the balance of the Initial Notes); and an underwriting fee of $3,450,000 (10% of the balance of the Initial Notes). In connection with the Note Purchase, we also reimbursed approximately $190,000 of the legal fees and expenses of the Investors' counsel, and paid Casimir Capital LP ("Casimir"), our investment banker in the transaction, a fee of $1,742,000, resulting in net proceeds of approximately $27,393,000 which was received by us on March 7, 2014.



From time to time, subject to the terms and conditions of the Note Purchase (including the requirement that we have deposited funds in an aggregate amount of any additional requested loan into a segregated bank account (the "Company Deposits")), and prior to the Maturity Date (defined below), we had the right to request additional loans (to be evidenced by notes with substantially similar terms as the Initial Notes, the "Subsequent Notes", and together with the Initial Notes, the "Senior Notes") from RJC, originally up to an additional $13.5 million in total or an aggregate of $50 million together with the Initial Notes and approximately $2 million of Subsequent Notes issued in 2014. We were required to pay original issue discounts in the amount of 5% of the funds borrowed, underwriting fees in the amount of 10% of the amount of the funds borrowed, reimburse certain of the legal fees of RJC's counsel, and pay applicable fees to Casimir representing 5% of any funds borrowed, in connection with funds borrowed under any Subsequent Notes. Funds borrowed under any Subsequent Notes were only eligible to be used by us, together with Company Deposits, for approved AFEs issued for a well or wells to be drilled and completed on any properties acquired in connection with the Continental Acquisition. The total aggregate amount of any Subsequent Notes could not exceed $15.5 million and in the event we drill a dry hole, we are prohibited from using the proceeds from the sale of any Subsequent Notes, without the consent of RJC.

In addition, during the year ended December 31, 2014, the Company borrowed $1,967,000 for drilling activities (net proceeds of $1,593,000, which was reduced from the $1,967,000 by debt discounts of $276,000 related to underwriting fees and a 5% original issue discount of $98,000). There were no borrowings made under the Senior Notes during the year ended December 31, 2015. As of December 31, 2015, there was approximately $13.5 million gross ($11.0 million net, after origination-related fees and expenses) available to draw down under Subsequent Notes from RJC. The Notes are due and payable on March 7, 2017 (the "Maturity Date"), and may be repaid in full without premium or penalty at any time. As a result of the May 12, 2016 restructuring of the Notes and Note Purchase as described below, effective May 12, 2016, the Company may no longer borrow additional funds from RJC under Subsequent Notes, and the Maturity Date of the Notes have been revised as described below.

As additional consideration for the initial Note Purchase transaction and for GGE agreeing to purchase the Subsequent Notes, GGE acquired ownership of 50% of all of our oil and gas assets and properties acquired in connection with the Continental Acquisition, and 50% of our interests in our Kazakhstan non-core asset.

The Notes initially bore interest at the rate of 15% per annum (subject to the letter agreements described below), payable monthly in arrears, on the first business day of each month beginning April 1, 2014 (in connection with the Initial Notes), provided that upon the occurrence of an event of default, the Notes bear interest at the lesser of 30% per annum and the maximum legal rate of interest allowable by law. We can prepay all or any portion of the principal amount of Notes, without premium or penalty. The Notes include standard and customary events of default.

Additionally, we are required on the third business day of each month, commencing on April 1, 2014, to prepay the Notes in an amount equal to the lesser of (a) the outstanding principal amount of the Notes or (b) twenty-five percent (25%) of the aggregate of all net revenues actually received by us and our subsidiaries (other than net revenues received by Asia Sixth, unless and to the extent received by us in the United States) or for the immediately preceding calendar month (or such pro rata portion of the first month the payment is required). The Notes also provide that RJC is to be repaid (i) accrued interest, only after all of the other Investors are repaid any accrued interest due and (ii) principal, only after all of the other Investors are repaid the full amount of principal due under their Notes, and (iii) that any funding in connection with Subsequent Notes will be made solely by RJC.

The net proceeds from the Initial Funding were used by us (along with funds raised through the February 2014 sale of assets which were formerly owned by White Hawk), to purchase assets located in Weld and Morgan Counties, Colorado, from Continental.



On April 24, 2015, certain of our Investors agreed to allow us to defer the mandatory principal repayments and interest payments due under the Notes for the months of May and June 2015, with such deferred amounts to be used to renew, extend, re-lease or otherwise acquire leases, which then became additional collateral under the Notes. The aggregate principal and interest that was deferred was approximately $524,000, which amount has been capitalized and added to the principal due under the Notes and is due upon maturity. The Company was also charged a one-time deferral fee of $354,000, the amount of the principal and interest deferred under this agreement, of which $320,000 was expensed as additional interest and the balance was added to the principal and due upon maturity. As additional consideration for the deferral, on September 10, 2015, we issued warrants exercisable for an aggregate of 34,911 shares of our common stock to the Investors participating in the deferral. Each warrant had a 3 year term and was exercisable on a cashless basis at an exercise price of $15.00 per share.

On August 28, 2015, we entered into agreements with the Investors to (i) defer until the maturity date of the Notes the mandatory principal payments that would otherwise be due and payable by us on payment dates occurring during the six month period of August 1, 2015 through January 31, 2016, (ii) HEARTLAND Bank agreed to change the frequency of payment of accrued interest and mandatory principal repayments from monthly to semi-annually, with the next interest payment due February 1, 2016 and the next mandatory principal repayment due August 3, 2016, and with us agreeing to place an amount equal to 1/6th of the semi-annual principal and interest payments due into a sinking fund starting in February 2016 which we shall pay to HEARTLAND Bank every six months when due and owing, (iii) RJC agreed to defer all interest payments otherwise due and payable by us to RJC during the period commencing on August 1, 2015 through January 31, 2016 (the "Waiver Period"), which deferred interest is added to principal each month during the Waiver Period, (iv) certain other holders agreed to (a) defer until the maturity date of their Notes 12/17ths of the interest payments that would otherwise be due and payable by us to them on payment dates occurring during the six month period of August 1, 2015 through January 31, 2016, and (b) have us pay in cash 5/17ths of such interest payments per month, with all deferred interest being added to principal each month until the maturity date of the Notes, and (v) SHIP, BRE BCLIC Sub, BRE WINIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub and RJC agreed to increase the interest rate under their Senior Notes from 15% to 17% per annum on all outstanding principal under their Notes during the Waiver Period. These deferrals agreed upon with our Investors (the "August-January Deferrals") reduced our monthly cash interest payments and mandatory principal repayments from approximately $600,000 per month prior to these agreements, to approximately $100,000 per month during the Waiver Period after giving effect to the changes agreed upon under these agreements, thereby providing us with an estimated $500,000 per month in reduced cash flow requirements during the Waiver Period.

As additional consideration for these agreements and related note amendments and deferrals, on September 10, 2015, we issued warrants exercisable on a cash-only basis for an aggregate of 120,101 shares to the lenders, proportionately based on their individual principal, which grants were subject to NYSE American additional listing approval, which has been received. The warrants had a three year term and were exercisable on a cash-only basis at a price of $7.50 per share. In addition, in the event the aggregate total of principal and interest deferred in connection with the August-January deferrals exceeded $900,000 over the Waiver Period, within thirty days of February 1, 2016, and subject to NYSE American additional listing approval, we were required to proportionately grant additional warrants such that the total aggregate number of shares of our common stock exercisable under all warrants granted will equal the total principal and interest deferred by such Investors divided by $7.50.

In addition, we agreed to prepare and deliver to RJC a monthly budget in form and substance reasonably satisfactory to RJC, and such financial statements as RJC may reasonably request. The monthly budget is required to include a cash flow forecast and detail of all anticipated non-recurring expenses and non-cash budget items, and we are required to comply with the budgeted expenses set forth therein in all material respects, provided, however, that a variance of less than 10% with respect to the expenses, on an aggregate basis, is permitted.



On January 29, 2016, we entered into a Letter Agreement (the "Letter Agreement") with the Investors and the Agent. The Letter Agreement extended by one (1) month, through February 29, 2016, the deferral of the payment of interest and principal due under the Notes (the "Deferral Extension"). The purpose of the Deferral Extension was to provide the Company with the financial resources and runway it believed it needed to fully-focus upon and consummate the merger with GOM, which has now been terminated. Specifically, pursuant to the Letter Agreement, (i) all Investors agreed to further defer until the maturity date of their Notes the mandatory principal payments that would otherwise be due and payable by the Company to them on payment dates occurring through February 29, 2016, (ii) HEARTLAND Bank agreed to change the next scheduled semi-annual interest payment due from February 1, 2016 to March 1, 2016 (with interest due and payable thereafter on a semi-annual basis) and to change the next mandatory principal repayment due date to September 3, 2016, and the Company agreed to place an amount equal to 1/6th of the semi-annual principal and interest payments due into a sinking fund which the Company shall pay to HEARTLAND Bank every six months when due and owing, and (iii) Senior Health Insurance Company of Pennsylvania ("SHIP") (as successor-in-interest to BRE BCLIC Primary), BRE BCLIC Sub, BRE WINIC 2013 LTC Primary, BRE WINIC 2013 LTC Sub, and RJC agreed to (a) defer until the maturity date of their Notes and the junior note held by RJC (the "RJC Junior Note") all of the interest payments that would otherwise be due and payable by the Company to them in February 2016; (b) return the interest rate under each of their Notes to 15% per annum, and the interest rate under the RJC Junior Note to 12% cash pay per annum, effective January 31, 2016; and (c) delay the issuance of any "Subsequent Warrants" issuable pursuant thereto to within 30 days of March 1, 2016, subject to NYSE American additional listing approval.

On March 7, 2016, the Company entered into a Letter Agreement, dated March 1, 2016 (the "March Letter Agreement"), with SHIP, BRE BCLIC Sub, BRE WINIC 2013 LTC Primary, BRE WINIC 2013 LTC Sub, and RJC (collectively, the "Original Lenders"), and the Agent, which extended the Deferral Extension by one (1) month, through March 31, 2016. Pursuant to the March Letter Agreement, the Original Lenders agreed to (i) further defer until the maturity date of their Senior Notes the mandatory principal payments that would otherwise be due and payable by the Company to them on payment dates occurring through March 31, 2016, (ii) defer until the maturity date of their Senior Notes and the RJC Junior Note all of the interest payments that would otherwise be due and payable by the Company to them in March 2016, with all interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued; and (iii) delay the issuance of any "Subsequent Warrants" issuable pursuant thereto to within 30 days of April 1, 2016, subject to NYSE American additional listing approval.

On April 7, 2016, we entered into a Letter Agreement, dated April 1, 2016 (the "Letter Agreement"), with the Investors. The Letter Agreement extended by one (1) month, through April 30, 2016, the deferral of the payment of interest and principal due under the Senior Notes and the Note and Security Agreement, dated April 10, 2014, as amended on February 23, 2015, issued by the Company to RJ Credit LLC (the "RJC Junior Note," and together with the Senior Notes, the "Notes") (the "Deferral Extension"), entered into with the Lenders on August 28, 2015, as amended on January 29, 2016 and March 7, 2016 (the "Original Deferral Agreements"). Specifically, pursuant to the Letter Agreement, all the Lenders agreed to: (i) further defer until the maturity date of their Senior Notes the mandatory principal payments that would otherwise be due and payable by the Company to them on payment dates occurring through April 30, 2016; (ii) defer until the maturity date of their Senior Notes and the RJC Junior Note all of the interest payments that would otherwise be due and payable by the Company to them in April 2016, with all interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued; and (iii) delay the issuance of any "Subsequent Warrants" (as defined in the Original Deferral Agreements) issuable pursuant thereto to within 30 days of May 1, 2016, subject to NYSE American additional listing approval.

On May 12, 2016, the Company entered into Amendment No. 2 to Note and Security Agreement with RJC (the "Second Amendment"), pursuant to which the Company and RJC agreed to amend the RJC Junior Note to (i) capitalize all accrued and unpaid interest under the RJC Junior Note as of the date of the parties entry into the Second Amendment, and add it to note principal, making the current outstanding principal amount of the RJC Junior Note $39,379,000, (ii) extend the "Termination Date" thereunder (i.e., the maturity date) from December 31, 2017 to July 11, 2019, (iii) provide that all future interest accruing under the RJC Junior Note is deferred, due and payable on the Termination Date, with all future interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued, and (iv) subordinate the RJC Junior Note to the Senior Notes.



Also on May 12, 2016, the Company entered into the Amended NPA and undertook the transactions contemplated therein, including selling the New Senior Notes to the Lenders as described above under "Part I" – "Item 1. Business-Business Operations-Material 2016-2017 Transactions" — "Senior Debt Restructuring". Pursuant to the Amended NPA, the Company created new "Tranche A Notes," in substantially the same form and with similar terms as the Tranche B Notes, with certain exceptions as described above, consisting of a term loan issuable in tranches with a maximum aggregate principal amount of $25,960,000, with borrowed funds accruing interest at 15% per annum, and maturing on May 11, 2019, under which Tranche A Notes the Company may draw up to approximately $18.0 million additional principal in accordance with their terms, including that the lenders thereof approve such loans at their sole discretion (see "Part I" – "Item 1A. Risk Factors", including "Our Tranche A Notes and Tranche B Notes include various covenants, reduces our flexibility, increases our interest expense and may adversely impact our operations and our costs.").

## Amendment to PEDCO-MIEJ Note and Condor-MIEJ Note

On February 19, 2015 (the "MIEJ Closing Date"), the Company and PEDCO entered into a Settlement Agreement (the "MIEJ Settlement Agreement") with MIEJ. MIEJ was PEDCO's 80% partner in Condor, and was the lender to PEDCO under that certain Amended and Restated Secured Subordinated Promissory Note, dated March 25, 2013, in the principal amount of $6,170,065, entered into by PEDCO and MIEJ (the "MIEJ Note"). Pursuant to the MIEJ Settlement Agreement, among other things, (i) MIEJ and PEDCO agreed to restructure the MIEJ Note through the entry into a new Amended and Restated Secured Subordinated Promissory Note, dated February 19, 2015 and with an effective date of January 1, 2015 (the "New MIEJ Note"), (ii) PEDCO sold its (x) full 20% interest in Condor to MIEJ (the "Condor Interests"), and (y) interests in approximately 945 net acres and interests in three (3) wells located in PEDCO's legacy non-core Niobrara acreage located in Weld County, Colorado, that were directly held by PEDCO to Condor (the "PEDCO Direct Interests"), effective January 1, 2015, and (iii) Condor forgave approximately $1.8 million in previous working interest expenses related to the drilling and completion of certain wells operated by Condor that was due from PEDCO, which, in summary, had the net effect of reducing approximately $9.4 million in aggregate liabilities due from PEDCO to MIEJ and Condor to $4.925 million, which is the new principal amount of the New MIEJ Note. In addition, pursuant to the MIEJ Settlement Agreement, (a) in consideration for the PEDEVCO Senior Loan Investors releasing their security interest on the Condor Interests and PEDCO Direct Interests, MIEJ paid $500,000 to the PEDEVCO Senior Loan Investors as a principal reduction on the PEDEVCO Senior Loan, which directly benefits PEDEVCO, (b) PEDCO paid $100,000 as a principal reduction under the MIEJ Note, (c) each of MIEJ, Condor and the Company fully released each other, and their respective predecessors and successors in interest, parents, subsidiaries, affiliates and assigns, and their respective officers, directors, managers, members, agents, representatives, servants, employees and attorneys, from every claim, demand or cause of action arising on or before the MIEJ Closing Date, and (d) MIEJ confirmed that the MIEJ Note was paid in full and that PEDCO owed no amounts to MIEJ or Condor other than the principal amount due as reflected in the New MIEJ Note.

The New MIEJ Note was effective January 1, 2015, bears an interest rate of 10.0% per annum with no interest due until Maturity (defined below) or except as detailed below, is secured by all of our current and after-acquired assets, and is subordinated in every way to the Senior Notes as well as to New Senior Lending (defined below); however, MIEJ has no control over the cash flow of the Company, nor is MIEJ's consent required in connection with any disposition, sale, or use of any assets of the Company or any of its subsidiaries at any time in the future, provided that the requirements of the New MIEJ Note requiring the prepayment of interest, where applicable, as described below are followed. After the MIEJ Closing Date, the Company may enter into a loan, or a series of new loans or any other new non-equity investment or assumption of indebtedness (a "New Senior Lending") which will be senior to the New MIEJ Note, without the prior consent of MIEJ, provided that, in addition to the approximately $35 million principal balance of the Notes, the New Senior Lending is subject to a cap of an additional $60 million in the aggregate, such that the total lending, debt or similar investment under such cap shall not exceed $95 million in the aggregate (the "Senior Debt Cap"), with any portion of New Senior Lending in excess of the Senior Debt Cap advanced first to MIEJ until the New MIEJ Note is paid in full. The New MIEJ Note shall automatically, and without further consent from MIEJ, be subordinated in every way to any such New Senior Lending. Should the Company enter into any new financing transaction that results in raising New Senior Lending of at least $20 million in excess of the balance of the Notes, then MIEJ has a right to be paid all interest and fees that have accrued on the New MIEJ Note each and every time that a new financing transaction reaches or exceeds the $20 million threshold.



The New MIEJ Note was originally due and payable on March 8, 2017, but is now due and payable on March 8, 2019 due to an automatic maturity date extension as a result of the May 2016 Senior Debt Restructuring, and with such date also subject to additional automatic extensions upon the occurrence of a Long-Term Financing or additional PEDEVCO Senior Lending Restructuring (each as defined below) (the "Maturity"). On a one-time basis, the PEDEVCO Senior Loan may be refinanced by a new loan ("Long-Term Financing") by one or more third party replacement lenders ("Replacement Lenders"), and in such event we are required to undertake commercially reasonable best efforts to cause the Replacement Lenders to simultaneously refinance both the PEDEVCO Senior Loan and the New MIEJ Note as part of such Long-Term Financing. Despite such efforts, should the Replacement Lenders be unable or unwilling to include the New MIEJ Note in such financing, then the Long-Term Financing may proceed without including the New MIEJ Note, and the New MIEJ Note shall remain in place and shall be automatically subordinated, without further consent of MIEJ, to such Long-Term Financing. Furthermore, upon the occurrence of a Long-Term Financing, the Maturity of the New MIEJ Note is automatically extended, without further consent of MIEJ, to the same maturity date of the Long-Term Financing (the "Extended Maturity Date"), provided that the Extended Maturity Date may not exceed March 8, 2020. Additionally, upon the closing of such Long-Term Financing: (a) the Long-Term Financing is required to be subject to the Senior Debt Cap, (b) we are required to make commercially reasonable best efforts for the Long-Term Financing to include adequate reserves or other payment provisions whereby MIEJ is paid all interest and fees accrued on the New MIEJ Note commencing as of March 8, 2017 (and annually thereafter, until such time as the New MIEJ Note is paid in full), but in any event the Replacement Lenders are required to agree to allow for quarterly interest payments (starting March 31, 2017) of not less than 5% per annum on the outstanding balance of the New MIEJ Note, plus a one-time payment of accrued interest (not to exceed $500,000) as of March 31, 2017 (the "Subordinated Interest Payments"), and the remaining 5% interest shall continue to accrue, and (c) MIEJ has the Right of Conversion (defined below) commencing as of March 8, 2017, the original maturity date of the New MIEJ Note. If the PEDEVCO Senior Loan and/or New Senior Lending is not refinanced by Replacement Lenders, but is instead refinanced, restructured or extended by the existing PEDEVCO Senior Loan Investors (a "PEDEVCO Senior Lending Restructuring"), the maturity of both the New MIEJ Note and the PEDEVCO Senior Loan may be extended to no later than March 8, 2019, without requiring the consent of MIEJ, provided that (i) any such extension of the maturity date of the New MIEJ Note past March 8, 2017 shall give MIEJ the Right of Conversion (described below) commencing on March 8, 2017, and (ii) such extension agreement shall include payment provisions whereby MIEJ shall be paid all interest and fees accrued on the New MIEJ Note as of March 8, 2018. The May 2016 Senior Debt Restructuring qualified as a PEDEVCO Senior Lending Restructuring and the issuance of the Tranche A Notes qualified as a New Senior Lending, the result of which the Maturity of the New MIEJ Note has been extended to March 8, 2019. The New MIEJ Note may be prepaid any time without penalty.

The New MIEJ Note has a conversion feature that provides, in the event that the final maturity of the New MIEJ Note is extended beyond March 8, 2017 for whatever reason, MIEJ has the right, at its discretion, to have the outstanding balance of the New MIEJ Note plus any accrued and unpaid interest thereon converted in whole or in part into our common stock at a price (the "Conversion Price") equal to 80% of the average closing price per share of our common stock over the then previous 60 days from the date MIEJ exercises its conversion right (subject to adjustment for stock splits, recapitalizations and the like)(such event, a "Right of Conversion"); provided, however, that in no event shall the Conversion Price be less than $3.00 per share (the "Floor Price"). Additionally, the New MIEJ Note contains a provision preventing the conversion of the MIEJ Note to the extent that such conversion would result in more than 19.9% of our outstanding common stock or voting stock being issued in aggregate upon the conversion of such note, or otherwise require shareholder approval under the NYSE American rules. Notwithstanding that, we agreed to include a proposal in our proxy statement for our 2016 annual meeting of our shareholders (the "2016 Annual Meeting") for the approval of the issuance of the maximum number of shares of common stock issuable in connection with conversion of the New MIEJ Note, assuming conversion at the Floor Price (the "Maximum Conversion Shares"). At the 2016 Annual Meeting held on December 28, 2016, the Company's stockholders approved the full conversion of the New MIEJ Note and the New MIEJ Note is now fully convertible into our common stock in accordance with its terms.



## Bridge Notes

On March 7, 2014, we entered into the Second Amendment to Secured Promissory Notes (each, an “Amended Note,” and collectively, the “Amended Notes”) with all but one of the investors holding our secured subordinated promissory notes, originally issued on March 22, 2013, referred to herein as the “Bridge Notes”.

The Amended Notes amended the bridge notes to allow the holders thereof the right to convert up to 100% of the outstanding and unpaid principal amount (but in increments of not less than 25% of the principal amount of each bridge note outstanding as of the entry into the Amended Notes and only up to four (4) total conversions of not less than 25% each); the additional payment-in-kind cash amount equal to 10% of the principal amount of each holder's bridge note which was deferred pursuant to the first amendment to such notes; and all accrued and unpaid interest under each bridge note (collectively, the "Conversion Amount") into our common stock, subject to an additional listing application regarding such common stock being approved by the NYSE American. Upon a conversion, the applicable holder shall receive that number of shares of common stock as is determined by dividing the Conversion Amount by a conversion price (the "Conversion Price") as follows:

(A) prior to June 1, 2014, the Conversion Price was $21.50 per share; and

(B) following June 1, 2014, the denominator used in the calculation described above is the greater of (i) 80% of the average of the closing price per share of our publicly-traded common stock for the five (5) trading days immediately preceding the date of the conversion notice provided by the holder; and (ii) $5.00 per share.

Additionally, each bridge investor who entered into the Second Amendment to Secured Promissory Note also entered into a Subordination and Intercreditor Agreement in favor of the Agent, subordinating and deferring the repayment of the bridge notes, and actions in connection with the security interests provided under the bridge notes, until full repayment of the Notes sold pursuant to the Note Purchase in March 2014, as described in greater detail above. The Subordination and Intercreditor Agreements also prohibit us from repaying the bridge notes until the Notes have been paid in full, except that we are allowed to repay the bridge notes from net proceeds received from the sale of common or preferred stock (i) in calendar year 2014 if such net proceeds received in such calendar year exceeds $35,000,000, (ii) in calendar year 2015 if such net proceeds received in such calendar year exceeds $50,000,000, and (iii) in calendar year 2016 if such net proceeds actually received in such calendar year exceeds $50,000,000.

Through the date hereof, holders of $1,900,000 of the original principal amount of the Amended Notes have exercised their option to convert a portion or all of their Amended Notes into common stock of the Company. We issued an aggregate of 161,803 shares of common stock of the Company to holders of the Amended Notes upon conversion of an aggregate of $2,221,000 in principal, accrued interest, and payment-in-kind outstanding under their Amended Notes (the "Note Conversions"), according to the terms of the Amended Notes. Following the Note Conversions, an aggregate principal amount of $475,000 of the original $4 million principal amount of the bridge notes remain issued and outstanding, plus accrued and unpaid interest and payment-in-kind, is convertible into common stock of the Company pursuant to the terms of the Amended Notes.

## Financial Summary

We had total current assets of $1.4 million as of December 31, 2017, including cash of $0.9 million, compared to total current assets of $1.3 million as of December 31, 2016, including a cash balance of $0.7 million.

We had total assets of $36.4 million as of December 31, 2017 and $58.8 million as of December 31, 2016. Included in total assets as of December 31, 2017 and December 31, 2016 were $34.9 million and $57.4 million, respectively, of proved oil and gas properties subject to amortization and $-0- and -0- million, respectively, in unproved oil and gas properties not subject to amortization,



We had total liabilities of $73.5 million as of December 31, 2017, including current liabilities of $3.4 million, compared to total liabilities of $60.7 million as of December 31, 2016, including current liabilities of $3.3 million.

We had negative working capital of $2.0 million, total shareholders' deficit of $37.1 million and a total accumulated deficit of $138.1 million as of December 31, 2017, compared to negative working capital of $2.0 million, total shareholders' deficit of $2.0 million and a total accumulated deficit of $101.7 million as of December 31, 2016.

## Results of Operations

## Comparison of the Year Ended December 31, 2017 with the Year Ended December 31, 2016

Oil and Gas Revenue. For the year ended December 31, 2017, we generated a total of $3,015,000 in revenues, compared to $3,968,000 for the year ended December 31, 2016. The decrease of $953,000 was primarily due to a decline in production from our oil and gas assets. This volume decline was a result of a natural decline in well production and periodic wells being shut-in.

Lease Operating Expenses. For the year ended December 31, 2017, lease operating expenses associated with the oil and gas properties were $1,348,000, compared to $1,687,000 for the year ended December 31, 2016. The decrease of $339,000 was primarily due to lower variable lease operating expenses associated with the lower volume resulting from the natural decline in well production and periodic wells being shut-in.

Exploration Expense. For the year ended December 31, 2017, exploration expense was $2,000 compared to $231,000 for the year ended December 31, 2016. The decrease of $229,000 was primarily due to minimal exploration activity undertaken by the Company in the current year due to capital constraints.

Selling, General and Administrative Expenses. For the year ended December 31, 2017, selling, general and administrative (“SG&A”) expenses were $2,529,000, compared to $3,912,000 for the year ended December 31, 2016. The decrease of $1,383,000 was primarily due to austerity measures taken by management, including (i) a reduction in payroll costs related to a work force reduction, and (ii) the reduction of professional and other fees and expenses, including a significant decrease in stock compensation expense that resulted from the grant of fewer stock awards at lower stock prices during the current year. The components of SG&A expense are summarized below (amounts in thousands):

<table><tr><td rowspan="2"></td><td colspan="3">For the Year Ended</td><td rowspan="2">Increase/ (Decrease)</td></tr><tr><td colspan="2">December 31,</td><td></td></tr><tr><td></td><td>2017</td><td>2016</td><td></td><td></td></tr><tr><td>Payroll and related costs</td><td>$ 1,099</td><td>$ 1,331</td><td>$ (232)</td><td></td></tr><tr><td>Stock-based compensation expense</td><td>655</td><td>1,476</td><td>(821)</td><td></td></tr><tr><td>Legal fees</td><td>126</td><td>113</td><td>13</td><td></td></tr><tr><td>Accounting and other professional fees</td><td>317</td><td>460</td><td>(143)</td><td></td></tr><tr><td>Insurance</td><td>108</td><td>105</td><td>3</td><td></td></tr><tr><td>Travel and entertainment</td><td>16</td><td>25</td><td>(9)</td><td></td></tr><tr><td>Office rent, communications and other</td><td>208</td><td>402</td><td>(194)</td><td></td></tr><tr><td></td><td>$ 2,529</td><td>$ 3,912</td><td>$ (1,383)</td><td></td></tr></table>

Depreciation, Depletion and Amortization and Accretion (“DD&A”). For the year ended December 31, 2017, DD&A costs were $3,754,000, compared to $5,080,000 for the year ended December 31, 2016. The $1,326,000 decrease was primarily the result of lower production volumes due to a natural decline in well production.

Impairment of Oil and Gas Properties. For the year ended December 31, 2017, impairment of oil and gas properties was $18,950,000, compared to -0- for the year ended December 31, 2016. The $18,950,000 increase was primarily the result of an impairment taken for 2017 resulting from a delay in the funding necessary to support the capital expenditures used in the reserve report for development of the proven undeveloped acreage.



Gain on Settlement of Payables. For the year ended December 31, 2017, the gain on settlement of payables was $0- compared to a gain of $1,282,000 for the year ended December 31, 2016. The gain in 2016 was related to a Settlement Agreement entered into with Liberty for vendor obligations that was recorded during the year ended December 31, 2016.

Loss on Write-off of Cost Method Investment. For the year ended December 31, 2017, loss on write-off of cost method investment was $4,000, compared to a loss on write-off of cost method investment of $-0- for the year ended December 31, 2016. The loss on write-off of cost method investment for the year ended December 31, 2017 was related to the write-off of a minor investment.

Total Other Income (Expense). For the year ended December 31, 2017, other expense was $12,798,000, compared to $13,959,000 for the year ended December 31, 2016. The decrease in total other expense of $1,161,000 was primarily due to lower interest expense related to the amortization of debt discount.

Net Loss. For the year ended December 31, 2017, net loss was $36,370,000, compared to a net loss of $19,619,000 for the year ended December 31, 2016. The increase in net loss of $16,751,000 was primarily due to impairment of our oil and gas properties partially offset by lower operating expenses and interest expense for the reasons described above.

Cash Flows used in Operating Activities. We had net cash used in operating activities of $236,000 for the year ended December 31, 2017, which was a decrease of $5,738,000 as compared to the prior year period of $5,974,000. This decrease was primarily due to increases in accounts payable and accrued expenses during the current year.

Cash Flows used in Investing Activities. We had net cash used in investing activities of $0- for the year ended December 31, 2017, which was a decrease of $75,000 as compared to the prior year net cash used of $75,000, due to no drilling costs in the current year.

Cash Flows from Financing Activities. We had net cash provided by financing activities of $494,000 for the year ended December 31, 2017, which was a decrease of $5,076,000 as compared to the prior year cash provided of $5,570,000. This decrease was primarily a result of the proceeds from notes payable in the prior year.

## Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“EASB”) issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle (issued as Accounting Standards Update (“ASU”) 2014-09 by the FASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2017. The Company has evaluated the adoption of the standard and due to the nature of the Company’s oil and gas revenue agreements method there will be no impact of the standard on its consolidated financial statements.



In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (Topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (Topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which would be adopted for interim and annual reporting periods beginning after December 15, 2017. The Company has evaluated the adoption of the standard and due to the nature of the Company’s oil and gas revenue agreements method there will be no impact of the standard on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company has evaluated the adoption of the standard and, due to only one operating lease currently in place, there will be minimal impact of the standard on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation” (Topic 718). The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company adopted the standard as of January 1, 2017. There was no impact of the standard on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of the new standard.

The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.



## Critical Accounting Policies

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 preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our financial statements.

Oil and Gas Properties, Successful Efforts Method. The successful efforts method of accounting is used for oil and gas exploration and production activities. Under this method, all costs for development wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized. Geological and geophysical costs are expensed when incurred. Costs of exploratory wells are capitalized as exploration and evaluation assets pending determination of whether the wells find proved oil and gas reserves. Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, (i.e., prices and costs as of the date the estimate is made). Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.

Exploratory wells in areas not requiring major capital expenditures are evaluated for economic viability within one year of completion of drilling. The related well costs are expensed as dry holes if it is determined that such economic viability is not attained. Otherwise, the related well costs are reclassified to oil and gas properties and subject to impairment review. For exploratory wells that are found to have economically viable reserves in areas where major capital expenditure will be required before production can commence, the related well costs remain capitalized only if additional drilling is under way or firmly planned. Otherwise the related well costs are expensed as dry holes.

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.

Depreciation, depletion and amortization of capitalized oil and gas properties is calculated on a field by field basis using the unit of production method. Lease acquisition costs are amortized over the total estimated proved developed and undeveloped reserves and all other capitalized costs are amortized over proved developed reserves.

Revenue Recognition. All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue is derived from the sale of crude oil. Revenue from crude oil sales is recognized when the crude oil is delivered to the purchaser and collectability is reasonably assured. We follow the “sales method” of accounting for oil and natural gas revenue, which means we recognize revenue on all natural gas or crude oil sold to purchasers, regardless of whether the sales are proportionate to our ownership in the property. A receivable or liability is recognized only to the extent that we have an imbalance on a specific property greater than our share of the expected remaining proved reserves. If collection is uncertain, revenue is recognized when cash is collected. We recognize reimbursements received from third parties for out-of-pocket expenses incurred as service revenues and account for out-of-pocket expenses as direct costs.

Stock-Based Compensation. Pursuant to the provisions of FASB ASC 718, Compensation – Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. We estimate volatility by considering historical stock volatility. 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.



## ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Not required under Regulation S-K for “smaller reporting companies.”

## ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The audited consolidated financial statements and supplementary data required by this Item are presented beginning on page F-1 of this Annual Report on Form 10-K.

## ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

## ITEM 9A. CONTROLS AND PROCEDURES.

## Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms and is accumulated and communicated to the Company's management, as appropriate, in order to allow timely decisions in connection with required disclosure.

## Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15I and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2017, that our disclosure controls and procedures were not effective.

## Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. The Company's internal control over financial reporting includes those policies and procedures that are designed to:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.



Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework issued in 1992. Based on our assessment, management believes that the Company’s internal controls over financial reporting were effective as of December 31, 2017. While there has been no positive or adverse change in the previously effective controls in place during previous years, there was no independent testing performed for the controls in place at year-end and therefore the Company’s internal controls over financial reporting cannot be confirmed to be effective.

In addition, the Company recognizes that the most current criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework was issued in 2013. The Company plans to take the following steps to become compliant in future years to the most current criteria:

• Perform an assessment of the current inventory of internal controls over financial reporting against the most current Framework;

• Identify any control enhancements or changes which would more effectively address the most current Framework;

• Implement any control enhancements; and

• Report the effectiveness of the controls under the Integrated Framework that was issued in 2013.

## Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2017 that have materially affected or are reasonably likely to materially affect, our internal controls over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.

## Limitations on the Effectiveness of Controls

The Company’s disclosure controls and procedures are designed to provide the Company’s Chief Executive Officer and Chief Financial Officer with reasonable assurances that the Company’s disclosure controls and procedures will achieve their objectives. However, the Company’s management does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within the Company’s company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

## Attestation Report of the Registered Public Accounting Firm

This report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. Under SEC rules, such attestation is not required for smaller reporting companies such as ourselves.

## ITEM 9B. OTHER INFORMATION.

None.



## PART III

## ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

## Executive Officers, Directors and Director Nominees

The following table sets forth the name, age and position held by each of our executive officers and directors. Directors are elected for a period of one year and thereafter serve until the next annual meeting at which their successors are duly elected by the shareholders.

<table><tr><td>Name</td><td>Age</td><td>Position</td></tr><tr><td>Frank C. Ingriselli</td><td>63</td><td>Chairman of the Board</td></tr><tr><td>Michael L. Peterson</td><td>56</td><td>President and Chief Executive Officer</td></tr><tr><td>Gregory Overholtzer</td><td>61</td><td>Chief Financial Officer</td></tr><tr><td>Clark R. Moore</td><td>45</td><td>Executive Vice President, General Counsel and Secretary</td></tr><tr><td>Elizabeth P. Smith</td><td>68</td><td>Director</td></tr><tr><td>Adam McAfee</td><td>54</td><td>Director</td></tr><tr><td>David Z. Steinberg</td><td>35</td><td>Director</td></tr></table>

There is no arrangement or understanding between our directors and executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors (the "Board"). There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.

GGE has the right, pursuant to the Purchase Agreement and the certificate of designation designating the Series A Preferred, upon notice to the Company, to appoint designees to fill two (2) seats on our Board of Directors, one of which must be an independent director as defined by applicable rules. Mr. Steinberg is one of the Series A Preferred shareholder designees to the board of directors and the Series A Preferred stockholder has not yet designated any further members of the board of directors at this time. The Board appointment rights continue until GGE no longer holds any of the Tranche One Shares (as defined in the Series A Designation).

## Business Experience

The following is a brief description of the business experience and background of our current directors and executive officers. There are no family relationships among any of the directors or executive officers.

## Frank C. Ingriselli, Chairman of the Board (Director since July 2012)

Mr. Ingriselli has served as the Chairman of the board of directors since our acquisition of Pacific Energy Development in July 2012, served as our Chief Executive Officer from July 2012 to May 2016 and served as our President from July 2012 to October 2014. Mr. Ingriselli also served as the President, Chief Executive Officer, and Director of Pacific Energy Development since its inception in February 2011 through its July 2012 acquisition by the Company. Mr. Ingriselli began his career at Texaco, Inc. in 1979 and held management positions in Texaco's Producing-Eastern Hemisphere Department, Middle East/Far East Division, and Texaco's International Exploration Company. While at Texaco, Mr. Ingriselli negotiated a successful foreign oil development investment contract in China in 1983. In 1992, Mr. Ingriselli was named President of Texaco International Operations Inc. and over the next several years directed Texaco's global initiatives in exploration and development. In 1996, he was appointed President and CEO of the Timan PECHORA Company, a Houston, Texas headquartered company owned by affiliates of Texaco, Exxon, Amoco and Norsk Hydro, which was developing an investment in Russia. In 1998, Mr. Ingriselli returned to Texaco's Executive Department with responsibilities for Texaco's power and natural gas operations, merger and acquisition activities, pipeline operations and corporate development. In August 2000, Mr. Ingriselli was appointed President of Texaco Technology Ventures, which was responsible for all of Texaco's global technology initiatives and investments. In 2001, Mr. Ingriselli retired from Texaco after its merger with Chevron, and founded Global Venture Investments LLC, which we refer to as GVEST, an energy consulting firm, for which Mr. Ingriselli continues to serve as the President and Chief Executive Officer. In February 2016, Mr. Ingriselli founded Blackhawk Energy Ventures Inc., which we refer to as BEV, an energy consulting firm wholly-owned by him for which Mr. Ingriselli currently serves as President and Chief Executive Officer. We believe Mr. Ingriselli's positions with GVEST and BEV require only an immaterial amount of Mr. Ingriselli's time and do not conflict with his roles or responsibilities with our company. In 2005, Mr. Ingriselli co-founded Erin Energy Corporation (NYSE: ERN) (formerly CAMAC Energy, Inc.) an independent energy company headquartered in Houston, Texas, and served as its President, Chief Executive Officer and a member of its board of directors from 2005 to July 2010 and currently serves as Chairman of Erin Energy Corporation after being re-appointed in May 2017.



From 2000 to 2006, Mr. Ingriselli sat on the board of directors of the Electric Drive Transportation Association (where he was also Treasurer) and the Angelino Group, and was an officer of several subsidiaries of Energy Conversion Devices Inc., a U.S. public corporation engaged in the development and commercialization of environmental energy technologies. From 2001 to 2006, he was a Director and Officer of General Energy Technologies Inc., a “technology facilitator” to Chinese industry serving the need for advanced energy technology and the demand for low-cost high quality components, and Eletra Ltd, a Brazilian hybrid electric bus developer. Mr. Ingriselli currently sits on the Advisory Board of Directors of the Eurasia Foundation, a Washington D.C.-based nonprofit that funds programs that build democratic and free market institutions in the new independent states of the former Soviet Union, and since May 2015, as a non-executive director and Chairman of the Board of Caspian Energy Inc., an oil and gas exploration company operating in Kazakhstan.

Mr. Ingriselli graduated from Boston University in 1975 with a Bachelor of Science degree in Business Administration. He also earned a Master of Business Administration degree from New York University in both Finance and International Finance in 1977 and a Juris Doctor degree from Fordham University School of Law in 1979.

Mr. Ingriselli brings to the board of directors nearly 40 years of experience in the energy industry. The board of directors believes that Mr. Ingriselli's experience with our acquired subsidiary Pacific Energy Development and the insights he has gained from these experiences will benefit our future plans to evaluate and acquire additional oil producing properties and that they qualify him to serve as our director.

## Michael L. Peterson, President and Chief Executive Officer

Mr. Peterson has served as our Chief Executive Officer since May 2016, served as our Chief Financial Officer from our acquisition of Pacific Energy Development in July 2012 to May 2016, served as our Executive Vice President from our acquisition of Pacific Energy Development in July 2012 to October 2014, and has served as our President since October 2014. Mr. Peterson joined Pacific Energy Development as its Executive Vice President in September 2011, assumed the additional office of Chief Financial Officer in June 2012, and served as a member of our board of directors from July 2012 to September 2013. Mr. Peterson formerly served as Interim President and CEO (from June 2009 to December 2011) and as director (from May 2008 to December 2011) of us, as a director (from May 2006 to July 2012) of Aemetis, Inc. (formerly AE Biofuels Inc.), a Cupertino, California-based global advanced biofuels and renewable commodity chemicals company (AMTX), and as Chairman and Chief Executive Officer of Nevo Energy, Inc. (NEVE) (formerly Solargen Energy, Inc.), a Cupertino, California-based developer of utility-scale solar farms which he helped form in December 2008 (from December 2008 to July 2012). In addition, since February 2006, Mr. Peterson has served as founder and managing partner of California-based Pascal Management, a manager of hedge and private equity investments, since August 2016, Mr. Peterson has served as an independent director on the board of TrxAde Group, Inc. (OTCQB: TRXD), a web-based pharmaceutical market platform headquartered in Florida, and since April 2017, Mr. Peterson has served as sole officer and director of Goodland Advanced Fuels, Inc., which is a privately-held holding company whose sole asset is a dormant biofuels plant located in Goodland, Kansas, each of which we believe requires only an immaterial amount of Mr. Peterson's time and does not conflict with his roles or responsibilities with us. From 2005 to 2006, Mr. Peterson co-founded and became a managing partner of American Institutional Partners, a venture investment fund based in Salt Lake City. From 2000 to 2004, he served as a First Vice President at Merrill Lynch, where he helped establish a new private client services division to work exclusively with high net worth investors. From September 1989 to January 2000, Mr. Peterson was employed by Goldman Sachs & Co. in a variety of positions and roles, including as a Vice President with the responsibility for a team of professionals that advised and managed over $7 billion in assets. Mr. Peterson speaks Mandarin Chinese.

Mr. Peterson received his MBA at the Marriott School of Management and a BS in statistics/computer science from Brigham Young University.



## Gregory Overholtz, Chief Financial Officer

Mr. Overholtz has served as the Chief Financial Officer of the Company since May 2016, as the Company’s Corporate Controller from January 2012 to May 2016, and served as the Company’s Vice President, Finance and Corporate Controller from June 2012 to May 2016. Mr. Overholtz began his career in 1982 as a senior financial analyst at British Oxygen Corporation located in Fairfield, California. In 1994, Mr. Overholtz joined Giga-tronics as their Chief Financial Officer. Between 1997 and 2011, Mr. Overholtz served as the Chief Financial Officer, Corporate Controller or Senior Director for six different companies engaged in various hi-tech and bio-tech industries, including Accretive Solutions, Omni ID and Genitone Corp., all located in the San Francisco Bay Area.

Mr. Overholtz received his MBA in Finance from the University of California at Berkeley and his B.A. from UC Berkeley.

## Clark R. Moore, Executive Vice President, General Counsel and Secretary

Mr. Moore has served as our Executive Vice President, General Counsel, and Secretary since our acquisition of Pacific Energy Development in July 2012 and has served as the Executive Vice President, General Counsel, and Secretary of Pacific Energy Development since its inception in February 2011. Mr. Moore began his career in 2000 as a corporate attorney at the law firm of Venture Law Group located in Menlo Park, California, which later merged into Heller Ehrman LLP in 2003. In 2004, Mr. Moore left Heller Ehrman LLP and launched a legal consulting practice focused on representation of private and public company clients in the energy and high-tech industries. In September 2006, Mr. Moore joined Erin Energy Corporation (NYSE: ERN) (formerly CAMAC Energy, Inc.), an independent energy company headquartered in Houston, Texas, as its acting General Counsel and continued to serve in that role through June 2011.

Mr. Moore received his J.D. with Distinction from Stanford Law School and his B.A. with Honors from the University of Washington.

## Elizabeth P. Smith, Director (Director since September 2013)

Ms. Smith joined our board of directors on September 10, 2013, immediately prior to the listing of our common stock on the NYSE American. Ms. Smith retired from Texaco Inc. as Vice President-Investor Relations and Shareholder Services in late 2001 following its merger with Chevron Corp. Ms. Smith was also the Corporate Compliance Officer for Texaco and was a member of the Board of Directors of The Texaco Foundation. Ms. Smith joined Texaco's Legal Department in 1976. As an attorney in the Legal Department, Ms. Smith handled administrative law matters and litigation. She served as Chairman of the American Petroleum Institute's Subcommittee on Department of Energy Law for the 1983-1985 term. Ms. Smith was appointed Director of Investor Relations for Texaco, Inc. in 1984, and was named Vice President of the Corporate Communications division in 1989. In 1992, Ms. Smith was elected a Vice President of Texaco Inc. and assumed additional responsibilities as head of that company's Shareholder Services Group. In 1999, Ms. Smith was named Corporate Compliance Officer for Texaco. Ms. Smith served as a Director of Pacific Asia Petroleum, Inc. until its merger with Erin Energy Corporation (formerly CAMAC Energy, Inc.) in April of 2010.

Ms. Smith was elected to the Board of Finance of the Town of Darien, Connecticut, in November 2007, and from November 2010, until November 2015 when she elected not to seek reelection, served as the Chairman. In June of 2012, Ms. Smith was elected a Trustee of St. Luke's School in New Canaan, Connecticut, and served until June, 2017. In 2013, Ms. Smith was elected as Treasurer of the Board of Directors of Trustees. Ms. Smith also served on the Financial Affairs Committee and the Investment Committee until June 2017. From 2007 through 2010, Ms. Smith has also served as a Board of Directors Member of the Community Fund of Darien, Connecticut, and from 1996 through 2006, Ms. Smith served on the Board of directors of INROADS/Fairfield Westchester Counties, Inc. From 2002 through 2005, Ms. Smith served as a member of the Board of Directors of Families With Children From China-Greater New York, and from 2004 through 2005, she served as a member of the Board of Directors of The Chinese Language School of Connecticut. While at Texaco, Ms. Smith was an active member in NIRI (National Investor Relations Institute) and the NIRI Senior Roundtable. She has been a member and past President of both the Investor Relations Association and the Petroleum Investor Relations Association. Ms. Smith was a member of the Board of Directors of Trustees of Marymount College Tarrytown from 1993 until 2001. She was also a member of the Board of Directors of The Education and Learning Foundation of Westchester and Putnam Counties from 1993 to 2002.



Ms. Smith graduated from Bucknell University in 1971 with a Bachelor of Arts degree, cum laude, and received a Doctor of Jurisprudence degree from Georgetown University Law Center in 1976.

The board of directors believes that Ms. Smith’s over 30 years’ experience in corporate compliance, investor relations, and law in the energy industry working at a major U.S. oil and gas company, and the insights she has gained from these experiences, will provide crucial guidance for our future operations and compliance efforts.

## Adam McAfee, Director (Director since December 2016)

Mr. McAfee joined our board of directors on December 28, 2016. Mr. McAfee has over 30 years of experience as an entrepreneur, financial analyst, controller and executive with leadership roles in mergers and acquisitions, financial planning and analysis, project finance, operations, audit and enterprise system implementations. Since August 2012, Mr. McAfee has served as Chief Executive Officer of Nevo Energy, Inc., and Chief Financial Officer between December 2008 and July 2012, a solar utility and development company. Since October 2013, Mr. McAfee has served as the Vice President of Finance of Aemetis, Inc. (NASDAQ: AMTX), and between August 2011 and October 2013 served as Controller of, a renewable fuels company. From September 2005 until July 2008, he served as Chief Executive Officer and Director of Navitas Corporation, an energy company, which merged with publicly traded Pacific Asia Petroleum (PAP) in July 2008 and then as Managing Director of Navitas Capital LLC, a spin-off company from Navitas Corporation, managing debt and equity investments in public and private companies. In 2003 Mr. McAfee founded Park Capital Management, LLC, a fund that manages assets acquired through PIPE and private equity investments in technology and renewable energy companies, where he has served as Managing Director since November 2003. Since March 2016 Mr. McAfee has served as the General Partner of Orchard Yield Funds LLC portfolio companies, which manage investments in organic almond orchards in the Central Valley of California, and as the Managing Member of Organic Pastures Dairy Company LLC, an organic raw milk dairy and creamery since 2002 and various other Central Valley California family-related farming entities since June 1983.

Mr. McAfee spent more than eleven years in significant corporate finance roles at Apple Computer in the Worldwide Financial Planning and Analysis, Sales, Research and Development and Operations divisions. Mr. McAfee currently serves as the President and Chairman of McAfee Charitable Ventures, a private non-profit charitable foundation, a position he has held since August 2006. Mr. McAfee is also the Managing Member of a California Registered Investment Advisory Firm, Tilted Funds Group LLC, a position he has held since 2007.

Mr. McAfee is a Certified Management Accountant. He graduated with honors from California State University, Fresno with a Bachelor's of Science in business administration and finance, and earned a Masters of Business Administration from the University of California, Irvine. He also completed the Harvard Business School Private Equity and Venture Capital Program. Mr. McAfee has been a Registered Investment Advisor in California since May 2007 and passed his Series 7 exam in March 1989, Series 63 exam in May 1991, and his Series 65 exam in May 2007.

## David Z. Steinberg, Director (Director since July 2015)

Mr. Steinberg joined our board of directors on July 15, 2015. Mr. Steinberg has been employed by Platinum Credit Management, LLC as an investment professional since November 2016, and was previously employed by Platinum Management (NY) LLC, a New York based investment management firm, from May 2009 to November 2016, where he served as a portfolio manager and headed its structured products credit group. Mr. Steinberg received his Masters of Business Administration degree, with a concentration in finance, cum laude, from The New York Institute of Technology in 2009.

Mr. Steinberg serves on the board of directors as a designee appointed by GGE. The board of directors believes that Mr. Steinberg’s extensive knowledge and experience in corporate debt finance and banking in the energy industry, and the insights he has gained from these experiences, will provide crucial guidance for our future corporate finance efforts.



## Director Qualifications

The Board believes that each of our directors is highly qualified to serve as a member of the Board. Each of the directors has contributed to the mix of skills, core competencies and qualifications of the Board. When evaluating candidates for election to the Board, the Board seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment, and leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success in what we believe are highly relevant positions.

## Family Relationships

None of our directors are related by blood, marriage, or adoption to any other director, executive officer, or other key employees.

## Arrangements between Officers and Directors

There is no arrangement or understanding between our directors and executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, except as described under “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” – “Series A Preferred Stock Appointment Rights”, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings to our knowledge between non-management stockholders that may directly or indirectly participate in or influence the management of our affairs.

## Other Directorships

No directors of the Company are also directors of issuers with a class of securities registered under Section 12 of the Exchange Act (or which otherwise are required to file periodic reports under the Exchange Act).

## Involvement in Certain Legal Proceedings

To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being a named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law; (5) being the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (i) any Federal or State securities or commodities law or regulation; (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or (6) being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.



## Board Leadership Structure

Our board of directors has the responsibility for selecting our appropriate leadership structure. In making leadership structure determinations, the board of directors considers many factors, including the specific needs of our business and what is in the best interests of our stockholders. Our current leadership structure is comprised of a separate Chairman of the board of directors and Chief Executive Officer ("CEO"). Mr. Frank C. Ingriselli serves as Chairman and Mr. Michael L. Peterson serves as Chief Executive Officer. The board of directors does not have a policy as to whether the Chairman should be an independent director, an affiliated director, or a member of management. Our board of directors believes that the Company’s current leadership structure is appropriate because it effectively allocates authority, responsibility, and oversight between management (the Company’s Chief Executive Officer, Mr. Peterson) and the members of our board of directors. It does this by giving primary responsibility for the operational leadership and strategic direction of the Company to its Chief Executive Officer, while enabling our Chairman to facilitate our board of directors’ oversight of management, promote communication between management and our board of directors, and support our board of directors’ consideration of key governance matters. The board of directors believes that its programs for overseeing risk, as described below, would be effective under a variety of leadership frameworks and therefore do not materially affect its choice of structure.

## Risk Oversight

Effective risk oversight is an important priority of the board of directors. Because risks are considered in virtually every business decision, the board of directors discusses risk throughout the year generally or in connection with specific proposed actions. The board of directors' approach to risk oversight includes understanding the critical risks in our business and strategy, evaluating our risk management processes, allocating responsibilities for risk oversight among the full board of directors, and fostering an appropriate culture of integrity and compliance with legal responsibilities.

The board of directors exercises direct oversight of strategic risks to us. Our Audit Committee reviews and assesses our processes to manage business and financial risk and financial reporting risk. It also reviews our policies for risk assessment and assesses steps management has taken to control significant risks. Our Compensation Committee oversees risks relating to compensation programs and policies. In each case management periodically reports to our board of directors or the relevant committee, which provides the relevant oversight on risk assessment and mitigation.

## Director Independence

Our board of directors has determined that each of Ms. Smith, Mr. McAfee and Mr. Steinberg is an independent director as defined in the NYSE American rules governing members of boards of directors or as defined under Rule 10A-3 of the Exchange Act. Accordingly, a majority of the members of our board of directors are independent as defined in the NYSE American rules governing members of boards of directors and as defined under Rule 10A-3 of the Exchange Act.



## Committees of our Board of Directors

On September 5, 2013, and effective September 10, 2013, the board of directors adopted charters for the Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee. We currently maintain a Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee which have the following committee members:

<table><tr><td>Director</td><td>Audit Committee</td><td>Compensation Committee</td><td>Nominating and Corporate Governance Committee</td><td>Independent</td></tr><tr><td>Frank C. Ingriselli (1)</td><td></td><td></td><td></td><td></td></tr><tr><td>Adam McAfee</td><td>C</td><td>M</td><td>M</td><td>X</td></tr><tr><td>Elizabeth P. Smith</td><td>M</td><td>C</td><td>C</td><td>X</td></tr><tr><td>David Z. Steinberg (2)</td><td></td><td></td><td></td><td>X</td></tr></table>

C - Chairman of Committee.

M – Member.

(1) – Chairman of the board of directors.

(2) – Series A Preferred Stock holder nominee.

Each of these committees has the duties described below and operates under a charter that has been approved by our board of directors and is posted on our website. Our website address is http://www.pacificenergydevelopment.com. Information contained on our website is expressly not incorporated by reference into this Annual Report.

## Audit Committee

The audit committee selects, on behalf of our board of directors, an independent public accounting firm to audit our financial statements, discusses with the independent auditors their independence, reviews and discusses the audited financial statements with the independent auditors and management, and recommends to the board of directors whether the audited financial statements should be included in our annual reports to be filed with the SEC. Mr. McAfee serves as Chair of the Audit Committee and our board of directors has determined that Mr. McAfee is an “audit committee financial expert” as defined under Item 407(d)(5) of Regulation S-K of the Exchange Act.

During the year ended December 31, 2017 the audit committee held five meetings.

## Compensation Committee

The compensation committee reviews and approves (a) the annual salaries and other compensation of our executive officers, and (b) individual stock and stock option grants. The compensation committee also provides assistance and recommendations with respect to our compensation policies and practices and assists with the administration of our compensation plans. Ms. Smith serves as Chair of the compensation committee.

During the year ended December 31, 2017, the compensation committee held one meeting.



## Nominating and Corporate Governance Committee

The nominating and corporate governance committee assists our board of directors in fulfilling its responsibilities by: identifying and approving individuals qualified to serve as members of our board of directors, selecting director nominees for our annual meetings of stockholders, evaluating the performance of our board of directors, and developing and recommending to our board of directors corporate governance guidelines and oversight procedures with respect to corporate governance and ethical conduct. Ms. Smith serves as Chair of the nominating and corporate governance committee.

The nominating and governance committee of the board of directors considers nominees for director based upon a number of qualifications, including their personal and professional integrity, ability, judgment, and effectiveness in serving the long-term interests of our stockholders. There are no specific, minimum or absolute criteria for membership on the board of directors. The committee makes every effort to ensure that the board of directors and its committees include at least the required number of independent directors, as that term is defined by applicable standards promulgated by the NYSE American and/or the SEC.

The nominating and governance committee may use its network of contacts to compile a list of potential candidates. The nominating and governance committee has not in the past relied upon professional search firms to identify director nominees, but may engage such firms if so desired. The nominating and governance committee may meet to discuss and consider candidates' qualifications and then choose a candidate by majority vote.

The nominating and governance committee will consider qualified director candidates recommended in good faith by stockholders, provided those nominees meet the requirements of NYSE American and applicable federal securities law. The nominating and governance committee’s evaluation of candidates recommended by stockholders does not differ materially from its evaluation of candidates recommended from other sources. The Committee will consider candidates recommended by stockholders if the information relating to such candidates are properly submitted in writing to the Secretary of the Company in accordance with the manner described for stockholder proposals under “Stockholder Proposals for 2018 Annual Meeting of Stockholders and 2018 Proxy Materials” on page 60 of our definitive proxy statement for the 2017 Annual Meeting of stockholders. Individuals recommended by stockholders in accordance with these procedures will receive the same consideration received by individuals identified to the Committee through other means.

During the year ended December 31, 2017 the nominating and corporate governance committee held one meeting.

## Meetings of the Board of Directors and Annual Meeting

During the fiscal year that ended on December 31, 2017, the Board held five meetings and took various other actions via the unanimous written consent of the board of directors and the various committees described above. All directors attended all of the board of directors meetings and committee meetings relating to the committees on which each director served during fiscal year 2017, except for one meeting of the board of directors which Mr. Steinberg was unable to attend. The Company held annual shareholders meetings on June 26, 2014, October 7, 2015, December 28, 2016, and December 28, 2017, at which meetings all directors were present in person or via teleconference. Each director of the Company is expected to be present at annual meetings of shareholders, absent exigent circumstances that prevent their attendance. Where a director is unable to attend an annual meeting in person but is able to do so by electronic conferencing, the Company will arrange for the director’s participation by means where the director can hear, and be heard, by those present at the meeting.



## Executive Sessions of the Board of Directors

The independent members of our board of directors meet in executive session (with no management directors or management present) from time to time. The executive sessions include whatever topics the independent directors deem appropriate.

## Code of Ethics

In 2012, in accordance with SEC rules, our board of directors adopted a Code of Business Conduct and Ethics for our directors, officers and employees. Our board of directors believes that these individuals must set an exemplary standard of conduct. This code sets forth ethical standards to which these persons must adhere and other aspects of accounting, auditing and financial compliance, as applicable. The Code of Business Conduct and Ethics is available on our website at www.pacificenergydevelopment.com. Please note that the information contained on our website is not incorporated by reference in, or considered to be a part of, this Annual Report.

We intend to disclose any amendments to our Code of Business Conduct and Ethics and any waivers with respect to our Code of Business Conduct and Ethics granted to our principal executive officer, our principal financial officer, or any of our other employees performing similar functions on our website at www.pacificenergydevelopment.com, within four business days after the amendment or waiver. In such case, the disclosure regarding the amendment or waiver will remain available on our website for at least 12 months after the initial disclosure. There have been no waivers granted with respect to our Code of Business Conduct and Ethics to any such officers or employees to date.

## Shareholder Communications

Our stockholders and other interested parties may communicate with members of the board of directors by submitting such communications in writing to our Corporate Secretary, 4125 Blackhawk Plaza Circle, Suite 201, Danville, California 94506, who, upon receipt of any communication other than one that is clearly marked “Confidential,” will note the date the communication was received, open the communication, make a copy of it for our files and promptly forward the communication to the director(s) to whom it is addressed. Upon receipt of any communication that is clearly marked “Confidential,” our Corporate Secretary will not open the communication, but will note the date the communication was received and promptly forward the communication to the director(s) to whom it is addressed. If the correspondence is not addressed to any particular board member or members, the communication will be forwarded to a board member to bring to the attention of the board of directors.

## Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership in our common stock and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish our company with copies of all Section 16(a) reports they file.

Based solely on our review of the copies of such reports received by us and on written representation by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that with respect to the fiscal year ended December 31, 2017, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements.



## ITEM 11. EXECUTIVE COMPENSATION

## Current Executive Employment Agreements

Michael L. Peterson. On September 1, 2011, Pacific Energy Development, our wholly-owned subsidiary, entered into a Consulting Agreement engaging Michael L. Peterson to serve as Executive Vice President of Pacific Energy Development. This Consulting Agreement was superseded by an employment offer letter dated February 1, 2012, which employment offer letter was later amended and restated in full on June 16, 2012 and further amended on April 25, 2016 in connection with his promotion to the office of Chief Executive Officer of the Company. Pursuant to Mr. Peterson’s current employment offer letter, Mr. Peterson serves as our company’s Chief Executive Officer and President at a current annual base salary of $300,000, and a target annual cash bonus of between 20% and 40% of his base salary, awardable by the board of directors in its discretion. Mr. Peterson previously served as a member of the board of directors and as the Interim President and Chief Executive Officer of Blast, and formerly as the Executive Vice President of the Company until his promotion to the office of President in October 2014. Prior to April 30, 2016, Mr. Peterson served as the Chief Financial Officer of the Company.

In addition, on January 11, 2013, Mr. Peterson’s employment offer letter was amended to revise the termination and severance provisions to parallel those of Mr. Clark Moore, our Executive Vice President, Secretary and General Counsel, as described below. Mr. Peterson’s employment offer letter amendment provides for, among other things, severance payment provisions that would require the Company to make lump sum payments equal to 18 months’ salary and target bonus to Mr. Peterson in the event his employment is terminated due to his death or disability, terminated without “Cause” or if he voluntarily resigns for “Good Reason” (36 months in connection with a “Change of Control”), and continuation of benefits for up to 36 months (48 months in connection with a “Change of Control”), as such terms are defined in the employment offer letter amendment.

For purposes of Mr. Peterson’s employment agreement, the term “Cause” means his (1) conviction of, or plea of nolo contendere to, a felony or any other crime involving moral turpitude; (2) fraud on or misappropriation of any funds or property of our company or any of its affiliates, customers or vendors; (3) act of material dishonesty, willful misconduct, willful violation of any law, rule or regulation, or breach of fiduciary duty involving personal profit, in each case made in connection with his responsibilities as an employee, officer or director of our company and which has, or could reasonably be deemed to result in, a Material Adverse Effect upon our company; (4) illegal use or distribution of drugs; (5) material violation of any policy or code of conduct of our company; or (6) material breach of any provision of the employment agreement or any other employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by him for the benefit of our company or any of its affiliates, all as reasonably determined in good faith by the board of directors of our company. However, an event that is or would constitute “Cause” shall cease to be “Cause” if he reverses the action or cures the default that constitutes “Cause” within 10 days after our company notifies him in writing that Cause exists. No act or failure to act on Mr. Peterson’s part will be considered “willful” unless it is done, or omitted to be done, by him in bad faith or without reasonable belief that such action or omission was in the best interests of our company. Any act or failure to act that is based on authority given pursuant to a resolution duly passed by the board of directors, or the advice of counsel to our company, shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of our company.

For purposes of the employment agreement, “Material Adverse Effect” means any event, change or effect that is materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, operations or results of operations of our company or its subsidiaries, taken as a whole.

For purposes of Mr. Peterson’s employment agreement, “Good Reason” means the occurrence of any of the following without his written consent: (a) the assignment to him of duties substantially inconsistent with this employment agreement or a material adverse change in his titles or authority; (b) any failure by our company to comply with the compensation provisions of the agreement in any material way; (c) any material breach of the employment agreement by our company; or (d) the relocation of him by more than fifty (50) miles from the location of our company’s principal office located in Danville, California. However, an event that is or would constitute “Good Reason” shall cease to be “Good Reason” if: (i) he does not terminate employment within 45 days after the event occurs; (ii) before he terminates employment, we reverse the action or cure the default that constitutes “Good Reason” within 10 days after he notifies us in writing that Good Reason exists; or (iii) he was a primary instigator of the “Good Reason” event and the circumstances make it inappropriate for him to receive “Good Reason” termination benefits under the employment agreement (e.g., he agrees temporarily to relinquish his position on the occurrence of a merger transaction he assists in negotiating).



For purposes of Mr. Peterson’s employment agreement, “Change of Control” means: (i) a merger, consolidation or sale of capital stock by existing holders of capital stock of our company that results in more than 50% of the combined voting power of the then outstanding capital stock of our company or its successor changing ownership; (ii) the sale, or exclusive license, of all or substantially all of our company’s assets; or (iii) the individuals constituting our company’s board of directors as of the date of the employment agreement (the “Incumbent Board of Directors”) cease for any reason to constitute at least 1/2 of the members of the board of directors; provided, however, that if the election, or nomination for election by our stockholders, of any new director was approved by a vote of the Incumbent Board of Directors, such new director shall be considered a member of the Incumbent Board of Directors. Notwithstanding the foregoing and for purposes of clarity, a transaction shall not constitute a Change in Control if: (w) its sole purpose is to change the state of our company’s incorporation; (x) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held our company’s securities immediately before such transaction; or (y) it is a transaction effected primarily for the purpose of financing our company with cash (as determined by the board of directors in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).

Gregory Overholtzer. Effective May 1, 2016, in connection with Mr. Overholtzer’s appointment as Chief Financial Officer of the Company, the Company entered into an Amendment No. 1 to Employment Agreement on April 25, 2016 with Mr. Overholtzer (the “Amended Overholtzer Employment Agreement”), which amended that certain Employment Letter Agreement dated June 16, 2012, entered into by and between the Company as successor-in-interest to Pacific Energy Development Corp. and Mr. Overholtzer in connection with his original employment with the Company, and provided that the Company may terminate Mr. Overholtzer’s employment for any reason with thirty (30) days prior written notice (the “Overholtzer Employment Agreement”). Mr. Overholtzer has a current annual base salary of $190,000, and is eligible for a discretionary cash performance bonus each year of up to 30% of his then-current annual base salary.

Clark Moore. Pacific Energy Development, our wholly-owned subsidiary, has entered into an employment agreement, dated June 10, 2011, as amended January 11, 2013, with Clark Moore, its Executive Vice President, Secretary and General Counsel, pursuant to which, effective June 1, 2011, Mr. Moore has been employed by Pacific Energy Development, with a current annual base salary of $250,000, and a target annual cash bonus of between 20% and 40% of his base salary, awardable by the board of directors in its discretion. In addition, Mr. Moore’s employment agreement includes, among other things, severance payment provisions that would require the Company to make lump sum payments equal to 18 months’ salary and target bonus to Mr. Moore in the event his employment is terminated due to his death or disability, terminated without “Cause” or if he voluntarily resigns for “Good Reason” (36 months in connection with a “Change of Control”), and continuation of benefits for up to 36 months (48 months in connection with a “Change of Control”), as such terms are defined in the employment agreement. The employment agreement also prohibits Mr. Moore from engaging in competitive activities during and following termination of his employment that would result in disclosure of our confidential information, but does not contain a general restriction on engaging in competitive activities.

The definitions of “Cause” (including the applicable cure provisions associated therewith), “Material Adverse Effect”, “Good Reason” and “Change of Control” in Mr. Moore’s employment agreement are substantially the same as in Mr. Peterson’s employment agreement as discussed above.



## Equity Incentive Plans

## 2012 Plan

General. On June 26, 2012, our board of directors adopted the Blast Energy Services, Inc. 2012 Equity Incentive Plan, which was approved by our stockholders on July 30, 2012 and subsequently renamed to the PEDEVCO Corp. 2012 Equity Incentive Plan in connection with our name change from Blast Energy Services, Inc. to PEDEVCO Corp. The 2012 Equity Incentive Plan provides for awards of incentive stock options, non-statutory stock options, rights to acquire restricted stock, stock appreciation rights, or SARs, and performance units and performance shares. Subject to the provisions of the 2012 Equity Incentive Plan relating to adjustments upon changes in our common stock, an aggregate of 200,000 shares of common stock were reserved for issuance under the 2012 Equity Incentive Plan. On April 23, 2014, the board of directors adopted an amended and restated 2012 Equity Incentive Plan, to increase by 500,000 shares, the number of awards available for issuance under the plan, which was approved by stockholders on June 27, 2014. On July 27, 2015, the board of directors adopted an amended and restated 2012 Equity Incentive Plan, to increase by 300,000 shares, the number of awards available for issuance under the plan, which was approved by stockholders on October 7, 2015. On October 21, 2016, the board of directors adopted an amended and restated 2012 Equity Incentive Plan, to increase by 500,000 shares, the number of awards available for issuance under the plan, which was approved by stockholders on December 28, 2016. On November 6, 2017, the board of directors adopted an amended and restated 2012 Equity Incentive Plan, to increase by 1,500,000 shares, the number of awards available for issuance under the plan, which was approved by stockholders on December 28, 2017.

We refer to the 2012 Amended and Restated Incentive Plan as the 2012 Plan.

Purpose. Our board of directors adopted the 2012 Plan to provide a means by which our employees, directors and consultants may be given an opportunity to benefit from increases in the value of our common stock, to assist in attracting and retaining the services of such persons, to bind the interests of eligible recipients more closely to our interests by offering them opportunities to acquire shares of our common stock and to afford such persons stock-based compensation opportunities that are competitive with those afforded by similar businesses.

Administration. Unless it delegates administration to a committee, our board of directors administers the 2012 Plan. Subject to the provisions of the 2012 Plan, our board of directors has the power to construe and interpret the 2012 Plan, and to determine: (a) the fair value of common stock subject to awards issued under the 2012 Plan; (b) the persons to whom and the dates on which awards will be granted; (c) what types or combinations of types of awards will be granted; (d) the number of shares of common stock to be subject to each award; (e) the time or times during the term of each award within which all or a portion of such award may be exercised; (f) the exercise price or purchase price of each award; and (g) the types of consideration permitted to exercise or purchase each award and other terms of the awards.

Eligibility. Incentive stock options may be granted under the 2012 Plan only to employees of us and our affiliates. Employees, directors and consultants of us and our affiliates are eligible to receive all other types of awards under the 2012 Plan.

Terms of Options and SARs. The exercise price of incentive stock options may not be less than the fair market value of the common stock subject to the option on the date of the grant and, in some cases, may not be less than 110% of such fair market value. The exercise price of nonstatutory options also may not be less than the fair market value of the common stock on the date of grant.

Options granted under the 2012 Plan may be exercisable in cumulative increments, or “vest,” as determined by our board of directors. Our board of directors has the power to accelerate the time as of which an option may vest or be exercised. The maximum term of options, SARs and performance shares and units under the 2012 Plan is ten years, except that in certain cases, the maximum term is five years. Options, SARs and performance shares and units awarded under the 2012 Plan generally will terminate three months after termination of the participant’s service, subject to certain exceptions.



A recipient may not transfer an incentive stock option otherwise than by will or by the laws of descent and distribution. During the lifetime of the recipient, only the recipient may exercise an option, SAR or performance share or unit. Our board of directors may grant nonstatutory stock options, SARs and performance shares and units that are transferable to the extent provided in the applicable written agreement.

Terms of Restricted Stock Awards. Our board of directors may issue shares of restricted stock under the 2012 Plan as a grant or for such consideration, including services, and, subject to the Sarbanes-Oxley Act of 2002, promissory notes, as determined in its sole discretion.

Shares of restricted stock acquired under a restricted stock purchase or grant agreement may, but need not, be subject to forfeiture to us or other restrictions that will lapse in accordance with a vesting schedule to be determined by our board of directors. In the event a recipient’s employment or service with us terminates, any or all of the shares of common stock held by such recipient that have not vested as of the date of termination under the terms of the restricted stock agreement may be forfeited to us in accordance with such restricted stock agreement.

Rights to acquire shares of common stock under the restricted stock purchase or grant agreement shall be transferable by the recipient only upon such terms and conditions as are set forth in the restricted stock agreement, as our board of directors shall determine in its discretion, so long as shares of common stock awarded under the restricted stock agreement remain subject to the terms of such agreement.

Adjustment Provisions. If any change is made to our outstanding shares of common stock without our receipt of consideration (whether through reorganization, stock dividend or stock split, or other specified change in our capital structure), appropriate adjustments may be made in the class and maximum number of shares of common stock subject to the 2012 Plan and outstanding awards. In that event, the 2012 Plan will be appropriately adjusted in the class and maximum number of shares of common stock subject to the 2012 Plan, and outstanding awards may be adjusted in the class, number of shares and price per share of common stock subject to such awards.

Effect of Certain Corporate Events. In the event of (a) a liquidation or dissolution of the Company; (b) a merger or consolidation of the Company with or into another corporation or entity (other than a merger with a wholly-owned subsidiary); (c) a sale of all or substantially all of the assets of the Company; or (d) a purchase or other acquisition of more than 50% of the outstanding stock of the Company by one person or by more than one person acting in concert, any surviving or acquiring corporation may assume awards outstanding under the 2012 Plan or may substitute similar awards. Unless the stock award agreement otherwise provides, in the event any surviving or acquiring corporation does not assume such awards or substitute similar awards, then the awards will terminate if not exercised at or prior to such event.

Duration, Amendment and Termination. Our board of directors may suspend or terminate the 2012 Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the 2012 Plan will terminate ten years from the date of its adoption by our board of directors, i.e., in June 2022.

Our board of directors may also amend the 2012 Plan at any time, and from time to time. However, except as it relates to adjustments upon changes in common stock, no amendment will be effective unless approved by our stockholders to the extent stockholder approval is necessary to preserve incentive stock option treatment for federal income tax purposes. Our board of directors may submit any other amendment to the 2012 Plan for stockholder approval if it concludes that stockholder approval is otherwise advisable.

As of the date of this Annual Report, options to purchase 621,700 shares of common stock and 2,296,130 shares of restricted stock have been issued under the 2012 Plan, with 82,170 shares of common stock remaining available for issuance under the 2012 Plan. The options have a weighted average exercise price of $3.10 per share, and have expiration dates ranging from 2018 to 2022.



## 2012 Pacific Energy Development (Pre-Merger) Plan

On February 9, 2012, prior to the Pacific Energy Development merger, Pacific Energy Development adopted the Pacific Energy Development 2012 Equity Incentive Plan, which we refer to as the 2012 Pre-Merger Plan. We assumed the obligations of the 2012 Pre-Merger Plan pursuant to the Pacific Energy Development merger, though the 2012 Pre-Merger Plan has been superseded by the 2012 Plan (described above).

The 2012 Pre-Merger Plan provides for awards of incentive stock options, non-statutory stock options, rights to acquire restricted stock, stock appreciation rights, or SARS, and performance units and performance shares. Subject to the provisions of the 2012 Pre-Merger Plan relating to adjustments upon changes in our common stock, an aggregate of 100,000 shares of common stock have been reserved for issuance under the 2012 Pre-Merger Plan.

The board of directors of Pacific Energy Development adopted the 2012 Pre-Merger Plan to provide a means by which its employees, directors and consultants may be given an opportunity to benefit from increases in the value of its common stock, to assist in attracting and retaining the services of such persons, to bind the interests of eligible recipients more closely to our interests by offering them opportunities to acquire shares of our common stock and to afford such persons stock-based compensation opportunities that are competitive with those afforded by similar businesses.

The exercise price of incentive stock options may not be less than the fair market value of the common stock subject to the option on the date of the grant and, in some cases, may not be less than 110% of such fair market value. The exercise price of nonstatutory options also may not be less than the fair market value of the common stock on the date of grant. Options granted under the 2012 Pre-Merger Plan may be exercisable in cumulative increments, or “vest,” as determined by the board of directors of Pacific Energy Development at the time of grant.

Shares of restricted stock could be issued under the 2012 Pre-Merger Plan as a grant or for such consideration, including services, and, subject to the Sarbanes-Oxley Act of 2002, promissory notes, as determined in the sole discretion of the Pacific Energy Development board of directors. Shares of restricted stock acquired under a restricted stock purchase or grant agreement could, but need not, be subject to forfeiture or other restrictions that will lapse in accordance with a vesting schedule determined by the board of directors of Pacific Energy Development at the time of grant. In the event a recipient’s employment or service with the Company terminates, any or all of the shares of common stock held by such recipient that have not vested as of the date of termination under the terms of the restricted stock agreement may be forfeited to the Company in accordance with such restricted stock agreement.

Appropriate adjustments may be made to outstanding awards in the event of changes in our outstanding shares of common stock, whether through reorganization, stock dividend or stock split, or other specified change in capital structure of the Company. In the event of liquidation, merger or consolidation, sale of all or substantially all of the assets of the Company, or other change in control, any surviving or acquiring corporation may assume awards outstanding under the 2012 Pre-Merger Plan or may substitute similar awards. Unless the stock award agreement otherwise provides, in the event any surviving or acquiring corporation does not assume such awards or substitute similar awards, then the awards will terminate if not exercised at or prior to such event.

As of the date of this Annual Report, 31,016 options and 66,585 shares of restricted stock remain outstanding under the 2012 Pre-Merger Plan. These options have a weighted average exercise price of $4.92 per share, and have expiration dates ranging from February 8, 2022 to June 18, 2022.



## 2009 Stock Incentive Plan

Effective July 30, 2012, our 2009 Stock Incentive Plan, which we refer to as the 2009 Plan was replaced by the 2012 Plan. The 2009 Plan was intended to secure for us the benefits arising from ownership of our common stock by the employees, officers, directors and consultants of the Company. The 2009 Plan was designed to help attract and retain for the Company and its affiliates personnel of superior ability for positions of exceptional responsibility, to reward employees, officers, directors and consultants for their services and to motivate such individuals through added incentives to further contribute to the success of the Company and its affiliates.

Pursuant to the 2009 Plan, our board of directors (or a committee thereof) had the ability to award grants of incentive or non-qualified options, restricted stock awards, performance shares and other securities as described in greater detail in the 2009 Plan to our employees, officers, directors and consultants. The number of securities issuable pursuant to the 2009 Plan was initially 1,482, provided that the number of shares available for issuance under the 2009 Plan would be increased on the first day of each fiscal year beginning with our 2011 fiscal year, in an amount equal to the greater of (a) 596 shares; or (b) three percent (3%) of the number of issued and outstanding shares of the Company on the first day of such fiscal year. The 2009 Plan was to expire in April 2019.

As of the date of this Annual Report, 343 options remain outstanding under the 2009 Plan. These options have a weighted average exercise price of $350.89 per share, and have an expiration date ranging from May 28, 2018 to February 2, 2021.

## 2003 Stock Option Plan

Effective April 1, 2009, our 2003 Stock Option Plan was replaced by the 2009 Plan. The number of securities originally grantable pursuant to the 2003 Stock Option Plan were 2,381. Any options granted pursuant to the 2003 Stock Option Plan remain in effect until they otherwise expire or are terminated according to their terms. As of the date of this Annual Report, no options remain outstanding under the 2003 Plan.

## Compensation of Executive Officers

The following table sets forth the compensation for services paid in all capacities for the two fiscal years ended December 31, 2017 and 2016 to (a) Frank C. Ingriselli, our Chairman and former Chief Executive Officer, (b) Michael L. Peterson and Clark R. Moore, who were the next two most highly compensated executive officers at fiscal year-end 2017 and 2016, and (c) Gregory Overholtz, who was appointed as our Chief Financial Officer effective May 1, 2016 (collectively, the “Named Executive Officers”). There were no other executive officers who received compensation in excess of $100,000 in either 2017 or 2016.



<table><tr><td>Name and Principal Position</td><td>Fiscal Year Ended 31-Dec</td><td>Salary ($)</td><td>Bonus ($)</td><td>Option Awards ($) (1)</td><td>Stock Awards ($)</td><td>All Other Compensation ($)</td><td>Total($)</td></tr><tr><td>Frank C. Ingriselli (2)</td><td>2017</td><td>-</td><td>-</td><td>-</td><td>46,320(3)</td><td>25,000(4)</td><td>71,320</td></tr><tr><td>Chairman of the Board</td><td>2016</td><td>111,000</td><td>-</td><td>30,862(5)</td><td>60,000(6)</td><td>151,667(7)</td><td>353,529</td></tr><tr><td>Michael L. Peterson</td><td>2017</td><td>300,000</td><td>14,000</td><td>-</td><td>126,608(8)</td><td>-</td><td>440,608</td></tr><tr><td>Chief Executive Officer and President</td><td>2016</td><td>300,000</td><td>10,000</td><td>33,066(9)</td><td>313,500(10)</td><td>-</td><td>656,566</td></tr><tr><td>Clark R. Moore</td><td>2017</td><td>250,000</td><td>10,000</td><td>-</td><td>80,288(11)</td><td>-</td><td>340,288</td></tr><tr><td>Executive Vice President, General Counsel and Secretary</td><td>2016</td><td>250,000</td><td>8,000</td><td>30,862(12)</td><td>236,500(13)</td><td>-</td><td>525,362</td></tr><tr><td>Gregory Overholtzler (14)</td><td>2017</td><td>190,000</td><td>6,000</td><td>29,141(15)</td><td>-</td><td>-</td><td>225,141</td></tr><tr><td>Chief Financial Officer</td><td>2016</td><td>190,000</td><td>6,000</td><td>56,663(16)</td><td>-</td><td>-</td><td>252,663</td></tr></table>

Does not include perquisites and other personal benefits or property, unless the aggregate amount of such compensation is more than $10,000. No executive officer earned any non-equity incentive plan compensation or nonqualified deferred compensation during the periods reported above.

(1) Amounts in this column represent the aggregate grant date fair value of awards computed in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 718. For additional information on the valuation assumptions with respect to the option grants, refer to [Note 13] of our financial statements for the year ended December 31, 2017. These amounts do not correspond to the actual value that will be recognized by the named individuals from these awards.

(2) Mr. Ingriselli served as Chief Executive Officer of the Company until his retirement effective May 1, 2016, after which date he continued to serve as Chairman of the Company’s Board of Directors.

(3) Consists of the value of 150,000 shares of restricted common stock granted in December 2017 at $0.3088 per share received pursuant to the Company's board compensation plan.

(4) Consists of amount paid to Mr. Ingriselli pursuant to the Company’s board compensation plan.

(5) Consists of the fair value of options to purchase 28,000 shares of common stock granted in January 2016 at an exercise price of $2.20 per share.

(6) Consists of the value of 54,546 shares of restricted common stock granted in December 2016 at $1.10 per share received pursuant to the Company's board compensation plan.

(7) Consists of (i) $1,667 paid to Mr. Ingriselli pursuant to the Company's board compensation plan, and (ii) $150,000 paid to Global Venture Investments Inc. ("GVEST"), an entity owned and controlled by Mr. Ingriselli, pursuant to a transitional consulting agreement entered into in connection with Mr. Ingriselli's retirement from the Company that expired on July 31, 2016.

(8) Consists of the value of 410,000 shares of restricted common stock granted in December 2017 at $0.3088 per share.

(9) Consists of the fair value of options to purchase 30,000 shares of common stock granted in January 2016 at an exercise price of $2.20 per share.

(10) Consists of the value of (i) 60,000 shares of restricted common stock granted in January 2016 at $2.20 per share, and (ii) 165,000 shares of restricted common stock granted in December 2016 at $1.10 per share.

(11) Consists of the value of 260,000 shares of restricted common stock granted in December 2017 at $0.3088 per share.

(12) Consists of the fair value of options to purchase 28,000 shares of common stock granted in January 2016 at an exercise price of $2.20 per share.

(13) Consists of the value of (i) 55,000 shares of restricted common stock granted in January 2016 at $2.20 per share, and (ii) 105,000 shares of restricted common stock granted in December 2016 at $1.10 per share.

(14) Mr. Overholtzler was appointed Chief Financial Officer of the Company effective May 1, 2016.

(15) Consists of the fair value of options to purchase 150,000 shares of common stock granted in December 2017 at an exercise price of $0.3088 per share.

(16) Consists of the fair value of options to purchase (i) 15,000 shares of common stock granted in January 2016 at an exercise price of $2.20 per share, and (ii) 60,000 shares of common stock granted in December 2016 at an exercise price of $1.10 per share.



## Outstanding Equity Awards at Fiscal Year-End

## Outstanding Equity Awards at Year Ended December 31, 2017

The following table sets forth information as of December 31, 2017 concerning outstanding equity awards for the executive officers named in the Summary Compensation Table.

Outstanding Equity Awards at Fiscal Year-End

<table><tr><td rowspan="2">Name</td><td colspan="3">Option Awards</td><td colspan="2">Stock Awards</td></tr><tr><td>Number of securities underlying unexercised options (#) exercisable</td><td>Number of securities underlying unexercised options (#) unexercisable</td><td>Option Exercise price (&#x27;$)</td><td>Option expiration date</td><td>Number of shares or units of stock that have not vested (#)</td></tr><tr><td>Frank C. Ingriselli</td><td>34,827</td><td>-</td><td>5.10</td><td>5/30/2021</td><td>150,000(1)</td></tr><tr><td></td><td>4,254</td><td>-</td><td>5.10</td><td>5/30/2021</td><td>-</td></tr><tr><td></td><td>37,000</td><td>-</td><td>3.70</td><td>5/30/2021</td><td>-</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td>-</td></tr><tr><td>Michael L. Peterson</td><td>45</td><td>-</td><td>672.00</td><td>5/28/2018</td><td>1,500(2)</td></tr><tr><td></td><td>298</td><td>-</td><td>302.40</td><td>2/2/2021</td><td>33,000(3)</td></tr><tr><td></td><td>10,000</td><td>-</td><td>2.40</td><td>10/7/2021</td><td>410,000(4)</td></tr><tr><td></td><td>26,954</td><td>-</td><td>5.10</td><td>6/18/2022</td><td>-</td></tr><tr><td></td><td>6,380</td><td>-</td><td>5.10</td><td>6/18/2022</td><td>-</td><td>-</td></tr><tr><td></td><td>32,500</td><td>-</td><td>3.70</td><td>1/7/2020</td><td>-</td></tr><tr><td></td><td>30,000</td><td>-</td><td>2.20</td><td>1/7/2021</td><td>-</td></tr><tr><td>Gregory Overholtz</td><td>11,667</td><td>-</td><td>5.10</td><td>6/18/2022</td><td>-</td></tr><tr><td></td><td>5,000</td><td>-</td><td>3.70</td><td>1/7/2020</td><td>-</td></tr><tr><td></td><td>15,000</td><td>-</td><td>2.20</td><td>1/7/2021</td><td>-</td></tr><tr><td></td><td>1,100</td><td>-</td><td>3.00</td><td>2/8/2022</td><td>-</td></tr><tr><td></td><td>48,000</td><td>12,000</td><td>1.10</td><td>12/28/2021</td><td>-</td></tr><tr><td></td><td>-</td><td>150,000</td><td>0.3088</td><td>12/28/2022</td><td>-</td></tr><tr><td>Clark R. Moore</td><td>18,887</td><td>-</td><td>5.10</td><td>6/18/2022</td><td>21,000(3)</td></tr><tr><td></td><td>4,447</td><td>-</td><td>5.10</td><td>6/18/2022</td><td>260,000(4)</td></tr><tr><td></td><td>27,000</td><td>-</td><td>3.70</td><td>1/7/2020</td><td>-</td></tr><tr><td></td><td>28,000</td><td>-</td><td>2.20</td><td>1/7/2021</td><td>-</td></tr></table>

(1) Stock award vests on May 1, 2018, subject to the holder remaining a member of the Board of Directors of, or an employee of or consultant to, the Company on such vesting date.

(2) Stock award vests on October 8, 2018, subject to the holder remaining an employee of or consultant to the Company on such vesting date.

(3) Stock award vests on June 28, 2018, subject to the holder remaining an employee of or consultant to the Company on such vesting date.

(4) Stock award vests 50% on June 28, 2018, 30% on December 28, 2018, and 20% on June 28, 2019, subject to the holder remaining an employee of or consultant to the Company on such vesting dates.



## Issuances of Equity to Executive Officers

On January 7, 2016, the Company granted options to purchase shares of common stock to its executive officers at an exercise price of $2.20 per share, pursuant to the Company's 2012 Amended and Restated Equity Incentive Plan and in connection with the Company's 2015 annual equity incentive compensation review process, as follows: (i) an option to purchase 28,000 shares to Chairman and then-Chief Executive Officer Frank C. Ingersilli; (ii) an option to purchase 30,000 shares to President and Chief Executive officer (then-Chief Financial Officer) Michael L. Peterson; (iii) an option to purchase 28,000 shares to Executive Vice President and General Counsel Clark R. Moore; and (iv) an option to purchase 15,000 shares to Chief Financial Officer (then-Vice President, Finance) Gregory Overholtzer. The options have terms of five years and fully vest in July 2017. 50% vest six months from the date of grant, 30% vest one year from the date of grant, and 20% vest eighteen months from the date of grant, all contingent upon the recipient's continued service with the Company.

On January 7, 2016, the Company granted shares of its restricted common stock to its executive officers pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2015 annual equity incentive compensation review process as follows: (i) 60,000 shares to Chairman and then-Chief Executive Officer Frank C. Ingersilli; (ii) 60,000 shares to President and Chief Executive Officer (then-Chief Financial Officer) Michael L. Peterson; and (iii) 55,000 shares to Executive Vice President and General Counsel Clark R. Moore. 50% of the shares vest on the six-month anniversary of the grant date, 30% vest on the twelve-month anniversary of the grant date, and 20% vest on the eighteen-month anniversary of the grant date, all contingent upon the recipient’s continued service with the Company.

On July 5, 2016, the Company issued 8,129 shares of common stock to Mr. Frank C. Ingersilli, the Company’s former Chief Executive Officer and President, and current Chairman and member of the Company’s board of directors, in connection with the cashless net exercise of options to purchase 28,000 shares of common stock issued under the Company’s 2012 Equity Incentive Plan, as amended.

On December 28, 2016, in connection with the Company’s annual compensation review process, the Company granted restricted stock awards to Messrs. Michael L. Peterson (President and Chief Executive Officer) and Clark R. Moore (Executive Vice President, General Counsel and Secretary), of 165,000 and 105,000 shares, respectively, and options to purchase 60,000 shares of common stock to Gregory Overholtzer (Chief Financial Officer), which options have an exercise price of $1.10 per share and expire in five (5) years from the date of grant. The restricted stock and option awards were granted under the Company’s 2012 Equity Incentive Plan, as amended. The restricted stock and option awards vest as follows: 50% of the shares on the six (6) month anniversary of December 28, 2016 (the “Grant Date”); (ii) 30% on the twelve (12) month anniversary of the Grant Date; and (iii) 20% on the eighteen (18) month anniversary of the Grant Date, in each case subject to the recipient of the shares or options being an employee of or consultant to the Company on such vesting date, and subject to the terms and conditions of a Restricted Shares Grant Agreement or Stock Option Agreement, as applicable, entered into by and between the Company and the recipient.

On December 28, 2017, the Company granted 150,000 shares of restricted Company common stock under the Company’s 2012 Amended and Restated Equity Incentive Plan to each member of the Company’s Board of Directors – Messrs. Ingersilli, McAfee and Steinberg, and Ms. Smith – which shares vest on the date in 2018 that corresponds with each director’s original appointment date to the Company’s Board of Directors as a non-employee director, in each case subject to the recipient of the shares being a member of the Company’s Board of Directors on such vesting date, and subject to the terms and conditions of a Restricted Shares Grant Agreement entered into by and between the Company and the recipient. These shares were granted in accordance with the terms of the Company’s Board Compensation Program.



In addition, on December 28, 2017, in connection with the Company’s annual compensation review process, the Company granted restricted stock awards to Messrs. Michael L. Peterson (President and Chief Executive Officer) and Clark R. Moore (Executive Vice President, General Counsel and Secretary), of 410,000 and 260,000 shares, respectively, and options to purchase 150,000 shares of common stock to Gregory Overholtzer (Chief Financial Officer), which options have an exercise price of $0.3088 per share and expire in five (5) years from the date of grant. The restricted stock and option awards were granted under the Plan, as amended. The restricted stock and option awards vest as follows: 50% of the shares/options on the six (6) month anniversary of December 28, 2017 (the “Grant Date”); (ii) 30% on the twelve (12) month anniversary of the Grant Date; and (iii) 20% on the eighteen (18) month anniversary of the Grant Date, in each case subject to the recipient of the shares or options being an employee of or consultant to the Company on such vesting date, and subject to the terms and conditions of a Restricted Shares Grant Agreement or Stock Option Agreement, as applicable, entered into by and between the Company and the recipient.

## Compensation of Directors

The following table sets forth compensation information with respect to our non-executive directors during our fiscal year ended December 31, 2017.

<table><tr><td>Name</td><td>Fees Earned or Paid in Cash (\()*</td><td>Stock Awards (\)) (1)</td><td>All Other Compensation (\))</td><td>Total ($)</td></tr><tr><td>Elizabeth P. Smith</td><td>$ 25,000</td><td>$ 34,909</td><td>$ -</td><td>$ 59,909</td></tr><tr><td>David Z. Steinberg</td><td>$ 20,000</td><td>$ -</td><td>$ -</td><td>$ 20,000</td></tr><tr><td>Frank C. Ingriselli</td><td>$ 25,000</td><td>$ 38,728</td><td>$ -</td><td>$ 63,728</td></tr><tr><td>Adam McAfee</td><td>$ 20,000</td><td>$ 16,909</td><td>$ -</td><td>$ 36,909</td></tr></table>

* The table above does not include the amount of any expense reimbursements paid to the above directors. No directors received any Non-Equity Incentive Plan Compensation or Nonqualified Deferred Compensation Earnings during the period presented. Includes quarterly cash compensation paid in the amount of $5,000 each, including $5,000 paid to Mr. Ingriselli and Ms. Smith with respect to quarterly cash compensation earned for the fourth quarter of 2016 but not paid in 2017. Does not include perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is more than $10,000.

(1) Amounts in this column represent the aggregate grant date fair value of awards computed in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 718. For additional information on the valuation assumptions with respect to the restricted stock grants, refer to Note 10 of our financial statements for the year ended December 31, 2017. These amounts do not correspond to the actual value that will be recognized by the named individuals from these awards. Ms. Smith received a grant of 54,546 shares of restricted stock on December 28, 2016, which vested in full on September 10, 2017 (at a fair market value of $0.64 per share for total value of $34,909). Mr. Ingriselli also received a grant of 54,546 shares of restricted stock on December 28, 2016, which vested in full on May 1, 2017 (at a fair market value of $0.71 per share for total value of $38,728). Mr. McAfee also received a grant of 54,546 shares of restricted stock on December 28, 2016, which vested in full on December 28, 2017 (at a fair market value of $0.31 per share for total value of $16,909). Mr. Steinberg also received a grant of 54,546 shares of restricted stock on December 28, 2016, but Mr. Steinberg and the Company cancelled and rescinded the grant on December 28, 2017 so no compensation was earned with respect thereto. Ms. Smith, Mr. Steinberg, Mr. Ingriselli and Mr. McAfee also each received a grant of 150,000 shares of restricted stock on December 28, 2017, each with an aggregate grant date fair value as computed in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 718 of approximately $46,320, which will vest in full on September 10, 2018, July 15, 2018, May 1, 2018, and December 28, 2018, respectively. All shares vesting in 2018 have not been included in the table above as there was no compensation recognized in the year ended December 31, 2017.



Our board has adopted a compensation program, as amended, that, effective for periods after 2012, provides each of our directors in good standing who are not employees or paid consultants of the Company with compensation consisting of (a) a quarterly cash payment of $5,000, and (b) an annual equity award consisting of shares of restricted stock valued at $60,000, vesting on the date that is one year following the director’s anniversary date on the board; provided, however, for the year 2017, the board reduced the annual equity award component of the board compensation program from shares of restricted stock valued at $60,000 vesting on the date that is one year following the director’s anniversary date on the board, instead to an annual equity award consisting of 150,000 shares of restricted stock, vesting on the date that is one year following the director’s anniversary date on the board.

## ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth, as of March 27, 2018, the number and percentage of outstanding shares of our common stock beneficially owned by: (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (b) each of our directors; (c) our executive officers; and (d) all current directors, our director nominee and executive officers, as a group. As of March 27, 2018, there were 7,278,754 shares of common stock and 66,625 shares of Series A Convertible Preferred Stock issued and outstanding.

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant or upon conversion of a convertible security) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date.

To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.



<table><tr><td></td><td>Number of Common Stock Shares (1)</td><td>Percent of Common Stock</td><td>Number of Series A Convertible Preferred Stock Shares (2)</td><td>Percent of Series A Convertible Preferred Stock</td><td>Total Voting Shares</td><td>Percent of Total Voting Shares (3)</td></tr><tr><td>Name and Address of Beneficial Owner</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Current Named Executive Officers and Directors</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Michael L. Peterson</td><td>669,613(4)</td><td>9.1%</td><td>--</td><td>--</td><td>669,613</td><td>9.0%</td></tr><tr><td>Clark R. Moore</td><td>394,644(5)</td><td>5.4%</td><td>--</td><td>--</td><td>394,644</td><td>5.3%</td></tr><tr><td>Frank C. Ingriselli</td><td>380,541(6)</td><td>5.2%</td><td>--</td><td>--</td><td>380,541</td><td>5.1%</td></tr><tr><td>Elizabeth P. Smith</td><td>243,654(7)</td><td>3.3%</td><td>--</td><td>--</td><td>243,654</td><td>3.3%</td></tr><tr><td>Adam McAfee</td><td>204,578(8)</td><td>2.8%</td><td>--</td><td>--</td><td>204,578</td><td>2.8%</td></tr><tr><td>David Z. Steinberg</td><td>150,000(9)</td><td>2.1%</td><td>--</td><td>--</td><td>150,000</td><td>2.1%</td></tr><tr><td>Gregory Overholtzer</td><td>88,309(10)</td><td>1.2%</td><td>--</td><td>--</td><td>88,309</td><td>1.2%</td></tr><tr><td>All Named Executive Officers and Directors as a group (seven persons)</td><td>2,131,339</td><td>28.0%</td><td>--</td><td>--</td><td>2,131,339</td><td>27.7%</td></tr><tr><td>Greater than 5% Shareholders</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>MIE Holdings Corporation (11)</td><td>2,308,542(12)</td><td>24.2%</td><td>--</td><td>--</td><td>2,308,542</td><td>24.2%</td></tr><tr><td>Golden Globe Energy (US), LLC (13)</td><td>705,945(14)</td><td>9.2%</td><td>66,625(15)</td><td>100%</td><td>768,920(16)</td><td>9.9%</td></tr><tr><td>B Asset Manager, LP (17)</td><td>596,280(18)</td><td>7.6%</td><td>--</td><td>--</td><td>596,280</td><td>7.5%</td></tr></table>

* Less than 1%.

Unless otherwise stated, the address of each shareholder is c/o PEDEVCO Corp., 4125 Blackhawk Plaza Circle, Suite 201, Danville, CA 94506.

(1) Ownership voting percentages are based on 7,278,754 total shares of common stock which were outstanding as of March 27, 2018. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities. We believe that, except as otherwise noted and subject to applicable community property laws, each person named in the following table has sole investment and voting power with respect to the securities shown as beneficially owned by such person. Additionally, shares of common stock subject to options, warrants or other convertible securities that are currently exercisable or convertible, or exercisable or convertible within 60 days of the applicable date below, are deemed to be outstanding and to be beneficially owned by the person or group holding such options, warrants or other convertible securities for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.

(2) Ownership voting percentages are based on 66,625 total shares of Series A preferred stock which were outstanding as of the record date. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities. The holders of our Series A preferred stock vote together with the holders of our common stock, with one (1) vote per share of Series A preferred stock.

(3) Ownership voting percentages are based on 7,345,379 total voting shares, including (i) 7,278,754 total shares of common stock outstanding as of March 27, 2018, and (ii) 66,625 total shares of Series A preferred stock which vote on a one-for-one basis on all stockholder matters, provided that shares of common stock subject to options, warrants or other convertible securities (including the Series A preferred stock) that are currently exercisable or convertible, or exercisable or convertible within 60 days of the applicable date of determination, are deemed to be outstanding and to be beneficially owned by the person or group holding such options, warrants or other convertible securities for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.



(4) Consisting of the following: (a) 1,834 fully-vested shares of common stock held by one of Mr. Peterson's children, which he is deemed to beneficially own; (b) 118,602 fully-vested shares of common stock (including shares held by a family trust which Mr. Peterson is deemed to beneficially own); (c) 33,000 unvested shares of common stock held by Mr. Peterson, which vest on June 28, 2018, provided that Mr. Peterson remains employed by us, or is a consultant to us, on such vesting date; (d) 410,000 unvested shares of common stock held by Mr. Peterson, which vest on various dates through June 28, 2019, provided that Mr. Peterson remains employed by us, or is a consultant to us, on such vesting date; (e) options to purchase 10,000 shares of common stock exercisable by Mr. Peterson at an exercise price of $2.40 per share; (f) options to purchase 33,334 shares of common stock exercisable by Mr. Peterson at an exercise price of $5.10 per share; (g) 343 shares of common stock underlying currently exercisable options, of which options to purchase 298 shares are exercisable at $32.40 per share and options to purchase 45 shares are exercisable at $672.00 per share; (h) options to purchase 32,500 shares of common stock exercisable by Mr. Peterson at an exercise price of $3.70 per share; and (i) options to purchase 30,000 shares of common stock at $2.20 per share. Mr. Peterson has voting control over his unvested shares of common stock.

(5) Representing: (a) 29,576 fully-vested shares of common stock; (b) 2,867 fully-vested shares of common stock held by each of Mr. Moore’s two children, which he is deemed to beneficially own; (c) 21,000 unvested shares of common stock held by Mr. Moore, which vest on June 28, 2018, provided that Mr. Moore remains employed by us, or is a consultant to us, on such vesting date; (d) 260,000 unvested shares of common stock held by Mr. Moore, which vest on various dates through June 28, 2019, provided that Mr. Moore remains employed by us, or is a consultant to us, on such vesting date; (e) options to purchase 23,334 shares of common stock exercisable by Mr. Moore at an exercise price of $5.10 per share; (f) options to purchase 27,000 shares of common stock exercisable by Mr. Moore at an exercise price of $3.70 per share; and (g) options to purchase 28,000 shares of common stock exercisable by Mr. Moore at an exercise price of $2.20 per share. Mr. Moore has voting control over his unvested shares of common stock.

(6) Representing: (a) 51,439 fully-vested shares of common stock held by Mr. Ingriselli; (b) 13,371 fully-vested shares of common stock held by Mr. Ingriselli's spouse; (c) 89,650 fully-vested shares of common stock held by Global Venture Investments Inc., a company owned and controlled by Mr. Ingriselli ("GVEST"); (d) 150,000 shares of restricted held by Mr. Ingriselli which vest in full on May 1, 2018, provided that Mr. Ingriselli remains a director, an employee of, or consultant to the Company on such vesting date; (e) options to purchase 39,081 shares of common stock exercisable by Mr. Ingriselli at an exercise price of $5.10 per share; and (f) options to purchase 37,000 shares of common stock exercisable by Mr. Ingriselli at an exercise price of $3.70 per share. Mr. Ingriselli has voting control over his unvested shares of common stock.

(7) Representing: (i) 6,667 shares of common stock held by Ms. Smith (issued upon the January 27, 2013 automatic conversion of 6,667 shares of Series A preferred stock held by Ms. Smith); (ii) 1,334 shares of restricted stock held by Ms. Smith which vested in full on September 10, 2014; (iii) 9,678 shares of restricted stock held by Ms. Smith which vested in full on September 10, 2025; (iv) 21,429 shares of restricted stock held by Ms. Smith which vested in full on September 10, 2016; (v) 54,546 shares of restricted stock held by Ms. Smith which vested in full on September 10, 2027; and (vi) 150,000 shares of restricted stock held by Ms. Smith which will vest in full on September 10, 2018, provided that Ms. Smith remains a director, an employee of, or consultant to the Company on such vesting date. Ms. Smith has voting control over her unvested shares of common stock.

(8) Representing: (i) 30 shares of common stock held jointly by Mr. McAfee and his spouse; (ii) 2 shares of common stock held by Park Capital Management LLC, an entity owned and controlled by Mr. McAfee; (iii) 54,546 shares of restricted stock held by Mr. McAfee which vested in full on December 28, 2017; and (iv) 150,000 shares of restricted stock held by Mr. McAfee which vest in full on December 28, 2018, provided that Mr. McAfee remains a director, an employee of, or consultant to the Company on such vesting date. Mr. McAfee has voting control over his unvested shares of common stock.

(9) Representing 150,000 shares of restricted stock held by Mr. Steinberg which will vest in full on July 15, 2018, provided that Mr. Steinberg remains a director, an employee of, or consultant to the Company on such vesting date.

(10) Representing: (a) 7,542 fully-vested shares of common stock; (b) options to purchase 11,667 shares of common stock exercisable by Mr. Overholtzer at an exercise price of $5.10 per share; (c) options to purchase 5,000 shares of common stock exercisable by Mr. Overholtzer at an exercise price of $3.70 per share; (d) options to purchase 15,000 shares of common stock exercisable by Mr. Overholtzer at an exercise price of $2.20 per share; (e) options to purchase 1,100 shares of common stock exercisable by Mr. Overholtzer at an exercise price of $3.00 per share; and (f) options to purchase 48,000 shares of common stock exercisable by Mr. Overholtzer at an exercise price of $1.10 per share. Does not include options to purchase (i) 12,000 shares of common stock at an exercise price of $1.10 per share, and (ii) 150,000 shares of common stock at an exercise price of $0.3088 per share, which have not vested as of the date of this filing and do not vest within 60 days of this filing.

(11) Address: c/o MIE Holdings Corporation, Suite 1501, Block C, Grand Palace, 5 Huizhong Road, Chaoyang District, Beijing, China 100101. To the best of our knowledge, the beneficial owners of MIE Holdings Corporation are Zhang Ruilin, its Executive Director, Chairman and Chief Executive Officer, and Zhao Jiangwei, its Executive Director, Vice Chairman and Senior Vice President.

(12) Representing: (i) 133,334 shares of common stock issued upon the January 27, 2013 automatic conversion of 133,334 shares of Series A Preferred Stock held by MIE Holdings Corporation; and (ii) 2,175,208 shares of common stock issuable upon conversion of the New MIEJ Note, assuming conversion of all principal and accrued interest outstanding thereunder as of March 31, 2018 at the "floor price" of $3.00/share. The New MIEJ Note is convertible into common stock as described in greater detail below under "Certain Relationships and Related Party Transactions" – "Amendment to PEDCO-MIEJ Note and Condor-MIEJ Note".

(13) Address: c/o Platinum Partners, 250 West 55th Street, 14th Floor, New York, New York 10019. Includes beneficial holdings of Golden Globe Energy (US), LLC, a Delaware limited liability company ("GGE"), Platinum Partners Value Arbitrage Fund L.P., a Cayman Islands exempted limited partnership ("PPVA"), Platinum Management (NY) LLC, a Delaware limited liability company ("Platinum Management"), Platinum Partners Credit Opportunities Fund LLC, a Delaware limited liability company ("PPCO"), Platinum Credit Holdings LLC, a Delaware limited liability company ("Credit Holdings"), and Mark Nordlicht (collectively, the "GGE Parties"). GGE is a wholly-owned subsidiary of PPVA. Platinum Management is the investment manager and general partner of PPVA. Credit Holdings is the managing member of PPCO. Mark Nordlicht is the Chief Investment Officer of each of Platinum Management and Credit Holdings. By virtue of these relationships, each of PPVA, Platinum Management and Mark Nordlicht may be deemed to beneficially own the shares owned directly and beneficially by GGE. By virtue of these relationships, each of Credit Holdings and Mark Nordlicht may be deemed to beneficially own the shares owned directly by PPCO. The information set forth in this footnote and footnotes 15 and 16 below is based solely on information filed with the SEC on Schedule 13D by the GGE Parties on March 6, 2015. The GGE Parties reported in the Schedule 13D that GGE, PPVA and Platinum Management, share voting and dispositive power of 337,500 shares of common stock and 66,625 shares of Series A Preferred, and PPCO and Credit Holdings share voting and dispositive power over 34,445 shares of common stock, and Mr. Nordlicht shares voting power over 340,945 shares of common stock and 66,625 shares of Series A Preferred.



(14) Representing: (i) 337,500 shares of common stock held by GGE; (ii) 3,445 shares of common stock held by Platinum Partners Credit Opportunities Fund LLC; and (iii) 365,000 shares of common stock which could be issuable upon conversion of 3,650 shares of Series A preferred stock, conversion of which shares, together with GGE's current holdings of common stock, would give GGE ownership of 9.2% of our outstanding common stock and, together with 62,975 shares of unconverted Series A preferred stock which votes together with our common stock, 9.9% of our voting stock on an as-converted to common stock basis. See footnotes 13 and 16.

(15) Representing 66,625 shares of Series A preferred stock held by GGE. See footnote 13 above. The Series A preferred stock is convertible into common stock on a 100:1 basis.

(16) Representing: (i) 337,500 shares of common stock held by GGE; (ii) 3,445 shares of common stock held by Platinum Partners Credit Opportunities Fund LLC; (iii) 365,000 shares of common stock which could be issuable upon conversion of 3,650 shares of Series A preferred stock, conversion of which shares, together with GGE's current holdings of common stock and, would give GGE ownership of 9.2% of our outstanding common stock and, together with 62,975 shares of unconverted Series A preferred stock which votes together with our common stock, 9.9% of our voting stock on an as-converted to common stock basis; and (iv) 62,975 shares of Series A preferred stock remaining outstanding following conversion of 3,650 shares of Series A preferred stock into 365,000 shares of common stock. See footnotes 13 and 15 above. Each share of Series A preferred stock is currently convertible into shares of common stock on a 100:1 basis, provided that no conversion is allowed in the event the holder thereof would beneficially own more than 9.9% of our outstanding common stock or voting stock (the "Beneficial Ownership Limitation"). Accordingly, based on GGE's current beneficial holdings of common stock (excluding shares issuable upon conversion of Series A preferred stock), GGE is deemed to beneficially own an additional approximately 365,000 shares of common stock which could be issuable upon conversion of 3,650 shares of Series A preferred stock, subject to the Beneficial Ownership Limitation.

(17) Address: 1370 Avenue of the Americas, 32nd Floor, New York, New York 10019. Includes beneficial holdings of BBLN-PEDCO Corp., BHLN-PEDCO Corp., and B Asset Manager, LP (the "BAM Parties"), 1370 Avenue of the Americas, 32nd Floor, New York, New York 10019. B Asset Manager, LP ("BAM") is the investment manager, directly or indirectly, of the securities owned by the BAM Parties. To the Company's knowledge, Mark Feuer and Dhruv Narain, through other entities, are the controlling principals of BAM, and share sole voting and investment power over such securities. Each of BAM, Mark Feuer and Dhruv Narain disclaims beneficial ownership of the securities held by the BAM Parties. The information set forth in this footnote is based solely on information jointly filed with the SEC on Schedule 13G/A by Senior Health Insurance Company of Pennsylvania ("SHIP") and the BAM Parties on February 14, 2017. However, subsequent to such filing, the Company has become aware that SHIP's holdings are no longer managed by BAM, with SHIP's holdings excluded from the BAM Parties' holdings by the Company herein. We make no representation as to the accuracy or completeness of the information reported.

(18) Representing shares of common stock issuable upon the exercise of warrants to purchase common stock of the Company held by the BAM Parties. The BAM Parties hold warrants exercisable for an aggregate of 596,280 shares of common stock at $2.50 per share, expiring on May 12, 2019. The warrants held by the BAM Parties contain an issuance limitation prohibiting each holder from exercising or converting those securities to the extent that such exercise would result in beneficial ownership by such holder and its affiliates of more than 9.99% of the Company's shares then issued and outstanding (the "Issuance Limitation"). The Issuance Limitation for the warrants may be revoked by the holder upon at least 61 days prior written notice to the Company which notice shall only be effective if delivered at a time when no indebtedness of the Company is outstanding, of which the holder or any of its affiliates was, at any time, the owner, directly or indirectly. The "Number of Voting Shares Beneficially Owned" figure presented assumes exercise of approximately such number of warrants which would provide the BAM Parties with shares of common stock under the Issuance Limitation.

## Changes in Control

The Company is not currently aware of any arrangements which may at a subsequent date result in a change of control of the Company.



## Series A Preferred Stock Appointment Rights

Golden Globe Energy (US), LLC, which we refer to as GGE, the sole holder of our Series A Preferred stock, has the right pursuant to the purchase agreement with GGE and the certificate of designation designating the Series A Preferred, upon notice to us, voting separately as a single class, to appoint designees to fill two (2) seats on our board of directors, one of which must be an independent director as defined by applicable rules and the exclusive right, voting the Series A Preferred Stock as sole stockholder thereof, separately as a single class, to elect such two (2) nominees to the board of directors. On July 15, 2015, at the request of GGE the board of directors appointed David Z. Steinberg as a member of the board of directors. At the time of appointment, the board of directors made the affirmative determination that Mr. Steinberg was independent pursuant to applicable NYSE American and Securities and Exchange Commission rules and regulations. Mr. Steinberg serves as one of GGE's representatives on the Company's board of directors. The board of directors appoints the rights continue until GGE no longer holds any of the Tranche One Shares (defined and described in greater detail below under "Item 13. Certain Relationships and Related Transactions, and Director Independence" — "Agreements with Related Persons" — "Golden Globe Energy (US), LLC"). To date, GGE has not provided notice to PEDEVCO regarding the appointment of the second member to the board of directors, other than Mr. Steinberg.

All Series A Preferred Stock nominee members on our board of directors are required to immediately resign at the option of the other members of our board of directors upon such time as the rights of the Series A Preferred Stock holder to appoint members to our board of directors expires. For so long as the board appointment rights remain in effect, if for any reason a Series A Preferred Stock nominee on our board of directors resigns or is otherwise removed from the board of directors, then his or her replacement shall be a person elected by the remaining Series A Preferred Stock nominee or the holder of the Series A Preferred Stock.

## ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Except as discussed below or otherwise disclosed above under “Item 11. Executive Compensation”, there have been no transactions during the Company’s last two completed fiscal years, and there is not currently any proposed transaction, in which the Company was or is to be a participant, where the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years, and in which any officer, director, or any stockholder owning greater than five percent (5%) of our outstanding voting shares, nor any member of the above referenced individual’s immediate family, had or will have a direct or indirect material interest.

## Agreements with Related Persons

## MIEJ Warrants

On June 30, 2014, we re-issued two warrants to MIE Jurassic Energy Corporation (“MIEJ”), which we refer to as MIEJ (a subsidiary of MIE Holdings), in order to extend their exercise terms through June 30, 2015 (the “Warrants”). The Warrants were originally issued on May 23, 2012 to MIEJ and expired unexercised pursuant to their terms on May 23, 2014. These two re-issued Warrants had the same terms and conditions as the originally issued warrants, including being exercisable on a cash-only basis for 16,667 shares of common stock of the Company at $37.50 per share and for 16,667 shares of common stock of the Company at $45.00 per share. The Warrants were re-issued in consideration of the Company’s continued relationship with, and financial support from, MIEJ, and had no net effect on the Company’s fully-diluted capital stock (after taking into account the extension) as they simply extended the exercise term of the previously issued warrants. These Warrants expired unexercised on June 30, 2015.



## Amendment to PEDCO-MIEJ Note and Condor-MIEJ Note

On February 19, 2015 (the “MIEJ Closing Date”), the Company and Pacific Energy Development Corp., our wholly-owned subsidiary (“PEDCO”) entered into a Settlement Agreement (the “MIEJ Settlement Agreement”) with MIE Jurassic Energy Corporation (“MIEJ”), which we refer to as MIEJ (a subsidiary of MIE Holdings). MIEJ was PEDCO’s 80% partner in Condor, and was the lender to PEDCO under that certain Amended and Restated Secured Subordinated Promissory Note, dated March 25, 2013, in the principal amount of $6,170,065, entered into by PEDCO and MIEJ (the “MIEJ Note”). Pursuant to the MIEJ Settlement Agreement, among other things, (i) MIEJ and PEDCO agreed to restructure the MIEJ Note through the entry into a new Amended and Restated Secured Subordinated Promissory Note, dated February 19, 2015 and with an effective date of January 1, 2015 (the “New MIEJ Note”), (ii) PEDCO sold its (x) full 20% interest in Condor to MIEJ (the “Condor Interests”), and (y) interests in approximately 945 net acres and interests in three (3) wells located in PEDCO’s legacy non-core Niobrara acreage located in Weld County, Colorado, that were directly held by PEDCO to Condor (the “PEDCO Direct Interests”), effective January 1, 2015, and (iii) Condor forgave approximately $1.8 million in previous working interest expenses related to the drilling and completion of certain wells operated by Condor that was due from PEDCO, which, in summary, had the net effect of reducing approximately $9.4 million in aggregate liabilities due from PEDCO to MIEJ and Condor to $4.925 million, which was the new principal amount of the New MIEJ Note. In addition, pursuant to the MIEJ Settlement Agreement, (a) in consideration for the Senior Loan Investors (defined below under “Golden Globe Energy.(US), LLC”) releasing their security interest on the Condor Interests and PEDCO Direct Interests, MIEJ paid $500,000 to the Senior Loan Investors as a principal reduction on the Senior Loan (defined below under “Golden Globe Energy.(US), LLC”), which directly benefits PEDEVCO, (b) PEDCO paid $100,000 as a principal reduction under the MIEJ Note, (c) each of MIEJ, Condor and the Company fully released each other, and their respective predecessors and successors in interest, parents, subsidiaries, affiliates and assigns, and their respective officers, directors, managers, members, agents, representatives, servants, employees and attorneys, from every claim, demand or cause of action arising on or before the MIEJ Closing Date, and (d) MIEJ confirmed that the MIEJ Note was paid in full and that PEDCO owed no amounts to MIEJ or Condor other than the principal amount due as reflected in the New MIEJ Note.

The New MIEJ Note is described in greater detail above under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Liquidity and Capital Resources” – “Liquidity Outlook” – “Amendment to PEDCO-MIEJ Note and Condor-MIEJ Note”.

## Golden Globe Energy (US), LLC

On February 23, 2015, we entered into several transactions with Golden Globe Energy (US), LLC, which we refer to as GGE, which beneficially owns more than 5% of our outstanding voting stock due to its beneficial ownership of 340,945 shares of our common stock and 66,625 shares of our Series A Convertible Preferred Stock, as described below.

On March 7, 2014, in connection with our acquisition of certain oil and gas interests in the Wattenberg and Wattenberg Extension in the Denver-Julesberg Basin (“D-J Basin”), which we acquired from Continental Resources, Inc., which we refer to as Continental and the Continental Acquisition, we entered into a $50 million 3-year term debt facility with and issued those certain promissory notes in favor of Bre BcLIC Primary, Bre BcLIC Sub, Bre WINIC 2013 LTC Primary, Bre WNIC 2013 LTC Sub, and RJC, as investors (the “Senior Loan Investors”), and BAM Administrative Services LLC, as agent for the Lenders (the “Agent”) (upon notice received from the Agent on October 10, 2017, the Agent resigned as agent for the Lenders effective December 31, 2017, and no replacement agent has been designated by the Lenders subsequent to such date), and any related collateral documents (collectively, the “Senior Loan”). On March 19, 2015, Bre WNIC 2013 LTC Primary transferred a portion of its Senior Loan to HEARTLAND Bank, and effective April 1, 2015, Bre BcLIC Primary transferred its Senior Loan to Senior Health Insurance Company of Pennsylvania (“SHIP”), with each of HEARTLAND Bank and SHIP becoming a “Senior Loan Investor” upon such dates. As part of the transaction, GGE (formerly Golden Globe Energy Corp.) (an affiliate of RJ Credit LLC) acquired an equal 13,995 net acre position in the assets the Company acquired from Continental (the “GGE Assets”), thereby making GGE an equal working interest partner with us in the development of these newly acquired assets, and allowing us to undertake a more aggressive drilling and development program. On February 23, 2015, we completed the acquisition of the GGE Assets from GGE pursuant to the GGE Acquisition, thereby reunifying the assets we originally acquired in the Continental Acquisition, and we assumed approximately $8.35 million of junior subordinated debt from GGE that GGE incurred to develop the GGE Assets subsequent to GGE’s acquisition of them from us in March 2014 and owed to RJ Credit LLC.



On February 23, 2015, we entered into and closed the transactions contemplated by a Purchase and Sale Agreement (the "Purchase Agreement") with GGE, pursuant to which the Company, through Red Hawk, acquired from GGE all of its rights, title and interest in approximately 12,977 net acres in the D-J Basin located almost entirely within Weld County, Colorado, including acreage located in the prolific Wattenberg core area, and interests in 53 gross (7.8 net) wells with an estimated current net daily production of approximately 500 barrels of oil equivalent per day as of February 7, 2015, which we refer to as the GGE Assets, and which acquisition we refer to as the GGE Acquisition. All of GGE's leases and related rights, oil and gas and other wells, equipment, easements, contract rights, and production are included in the purchase, the majority of which assets were originally conveyed to GGE's predecessor-in-interest, RJ Resources Corp., by us in March 2014 in connection with the Continental Acquisition.

As consideration for the acquisition of the GGE Assets, the Company (i) issued to GGE 337,500 restricted shares of common stock and 66,625 restricted shares of the Company's then newly-designated Amended and Restated Series A Convertible Preferred Stock (the "Series A Preferred"), (ii) assumed approximately $8.35 million of junior subordinated debt from GGE (the "Junior Debt") pursuant to an Assumption and Consent Agreement and an Amendment to Note and Security Agreement, and (iii) provided GGE with a one-year option to acquire the Company's interest in its Kazakhstan opportunity for $100,000 pursuant to a Call Option Agreement, which expired unexercised.

The Series A Preferred stock can be converted into shares of the Company’s common stock on a 100:1 basis, subject to a 9.9% ownership blocker. GGE, as the sole holder of the Company’s Series A Preferred, has the right to appoint two designees to the Company’s board of directors for as long as GGE continues to hold 15,000 shares of Series A Preferred designated as “Tranche One Shares” under the Company’s Amended and Restated Certificate of Designations of PEDEVCO Corp. Establishing the Designations, Preferences, Limitations, and Relative Rights of its Series A Convertible Preferred Stock. Mr. Steinberg is one of the Series A Preferred stockholder designees to the board of directors in connection with such right, provided that GGE has not designated any further members of the board of directors at this time.

The Assumption and Consent Agreement provides that, as of the effective date of the acquisition, the Company assumed all of GGE’s rights, obligations and liabilities under that certain Note and Security Agreement, dated April 10, 2014 (the “GGE Note”), as amended by that certain Amendment to Note and Security Agreement, dated as of the Effective Date (the GGE Note, as amended, the “Amended GGE Note”). The lender under the Amended GGE Note is RJ Credit LLC (“RJC”), and the Amended GGE Note has an aggregate principal balance of $8,353,000. The Amended GGE Note is due and payable on December 31, 2017, and bears interest at the per annum rate of twelve percent (12%) (24% upon an event of default), which interest is payable monthly in cash by the Company. The Amended GGE Note is subordinate and subject to the terms and conditions of the Senior Loan, as well as any future secured indebtedness of the Company from a lender with an aggregate principal amount of at least $20,000,000 (“Future PEDEVCO Loan”). Should the Company repay the Senior Loan and replace such indebtedness with a Future PEDEVCO Loan, then, upon the reasonable request of such senior lender, RJC agreed to further amend the Amended GGE Note to adjust the frequency of interest payments or to eliminate such payments and replace the same with the accrued interest to be paid at maturity.

The GGE Note contains customary representations, warranties, covenants and requirements for the Company to indemnify RJC and its affiliates, related parties and assigns. The GGE Note also includes various covenants (positive and negative) binding the Company, including requiring that the Company provide RJC with quarterly (unaudited) and annual (audited) financial statements, restricting the Company’s creation of liens and encumbrances, or sell or otherwise disposing, the Collateral (as defined therein). RJC is one of the lenders under the Senior Loan, and is an affiliate of GGE.



On April 24, 2015, certain of our Senior Loan Investors (including RJC) agreed to allow us to defer the mandatory principal repayments and interest payments due under the Notes (defined below) for the months of May and June 2015, with such deferred amounts to be used to renew, extend, re-lease or otherwise acquire leases, which then became additional collateral under the Notes. The aggregate principal and interest that was deferred was approximately $524,000, which amount has been capitalized and added to the principal due under the Notes and is due upon maturity. The Company was also charged a one-time deferral fee of $354,000, the amount of the principal and interest deferred under this agreement, of which $320,000 was expensed as additional interest and the balance was added to the principal and due upon maturity. As additional consideration for the deferral, on September 10, 2015, we issued warrants exercisable for an aggregate of 34,912 shares of our common stock to the Senior Loan Investors participating in the deferral. Each warrant had a 3 year term and was exercisable on a cashless basis at an exercise price of $15.00 per share.

On August 28, 2015, we entered into agreements with the Senior Loan Investors to (i) defer until the maturity date of the Notes the mandatory principal payments that would otherwise be due and payable by us on payment dates occurring during the six month period of August 1, 2015 through January 31, 2016, (ii) HEARTLAND Bank agreed to change the frequency of payment of accrued interest and mandatory principal repayments from monthly to semi-annually, with the next interest payment due February 1, 2016 and the next mandatory principal repayment due August 3, 2016, and with us agreeing to place an amount equal to 1/6th of the semi-annual principal and interest payments due into a sinking fund starting in February 2016 which we shall pay to HEARTLAND Bank every six months when due and owing, (iii) RJC agreed to defer all interest payments otherwise due and payable by us to RJC during the period commencing on August 1, 2015 through January 31, 2016 (the "Waiver Period"), which deferred interest is added to principal each month during the Waiver Period, (iv) certain other holders agreed to (a) defer until the maturity date of their Notes 12/17ths of the interest payments that would otherwise be due and payable by us to them on payment dates occurring during the six month period of August 1, 2015 through January 31, 2016, and (b) have us pay in cash 5/17ths of such interest payments per month, with all deferred interest being added to principal each month until the maturity date of the Notes, and (v) SHIP, BRE BCLIC Sub, BRE WINIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub and RJC agreed to increase the interest rate under their Senior Notes from 15% to 17% per annum on all outstanding principal under their Notes during the Waiver Period. These deferrals agreed upon with our Senior Loan Investors (the "August-January Deferrals") reduced our monthly cash interest payments and mandatory principal repayments from approximately $600,000 per month prior to these agreements, to approximately $100,000 per month during the Waiver Period after giving effect to the changes agreed upon under these agreements, thereby providing us with an estimated $500,000 per month in reduced cash flow requirements during the Waiver Period.

On January 29, 2016, we entered into a Letter Agreement (the "Letter Agreement") with the Senior Loan Investors and the Agent. The Letter Agreement extended by one (1) month, through February 29, 2016, the deferral of the payment of interest and principal due under the Notes (the "Deferral Extension"). The purpose of the Deferral Extension was to provide the Company with the financial resources and runway it believed it needed to fully-focus upon and consummate the merger with GOM (defined below under "GOM Holdings Reorganization Agreement"). Specifically, pursuant to the Letter Agreement, (i) all Senior Loan Investors agreed to further defer until the maturity date of their Notes the mandatory principal payments that would otherwise be due and payable by the Company to them on payment dates occurring through February 29, 2016, (ii) HEARTLAND Bank agreed to change the next scheduled semi-annual interest payment due from February 1, 2016 to March 1, 2016 (with interest due and payable thereafter on a semi-annual basis) and to change the next mandatory principal repayment due date to September 3, 2016, and the Company agreed to place an amount equal to 1/6th of the semi-annual principal and interest payments due into a sinking fund which the Company shall pay to HEARTLAND Bank every six months when due and owing, and (iii) Senior Health Insurance Company of Pennsylvania ("SHIP") (as successor-in-interest to BRE BCLIC Primary), BRE BCLIC Sub, BRE WINIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, and RJC agreed to (a) defer until the maturity date of their Notes and the junior note held by RJC (the "RJC Junior Note") all of the interest payments that would otherwise be due and payable by the Company to them in February 2016; (b) return the interest rate under each of their Notes to 15% per annum, and the interest rate under the RJC Junior Note to 12% cash pay per annum, effective January 31, 2016; and (c) delay the issuance of any "Subsequent Warrants" issuable pursuant thereto to within 30 days of March 1, 2016, subject to NYSE American additional listing approval.



On March 7, 2016, the Company entered into a Letter Agreement, dated March 1, 2016 (the "March Letter Agreement"), with SHIP, BRE BCLIC Sub, BRE WINIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, and RJC (collectively, the "Original Lenders"), and the Agent, which extended the Deferral Extension by one (1) month, through March 31, 2016. Pursuant to the March Letter Agreement, the Original Lenders agreed to (i) further defer until the maturity date of their Senior Notes the mandatory principal payments that would otherwise be due and payable by the Company to them on payment dates occurring through March 31, 2016, (ii) defer until the maturity date of their Senior Notes and the RJC Junior Note all of the interest payments that would otherwise be due and payable by the Company to them in March 2016, with all interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued; and (iii) delay the issuance of any "Subsequent Warrants" issuable pursuant thereto to within 30 days of April 1, 2016, subject to NYSE American additional listing approval.

On April 7, 2016, we entered into a Letter Agreement, dated April 1, 2016 (the "Letter Agreement"), with the Senior Loan Investors. The Letter Agreement extended by one (1) month, through April 30, 2016, the deferral of the payment of interest and principal due under the Senior Notes and the Note and Security Agreement, dated April 10, 2014, as amended on February 23, 2015, issued by the Company to RJ Credit LLC (the "RJC Junior Note," and together with the Senior Notes, the "Notes") (the "Deferral Extension"), entered into with the Lenders on August 28, 2015, as amended on January 29, 2016 and March 7, 2016 (the "Original Deferral Agreements"). Specifically, pursuant to the Letter Agreement, all the Lenders agreed to: (i) further defer until the maturity date of their Senior Notes the mandatory principal payments that would otherwise be due and payable by the Company to them on payment dates occurring through April 30, 2016; (ii) defer until the maturity date of their Senior Notes and the RJC Junior Note all of the interest payments that would otherwise be due and payable by the Company to them in April 2016, with all interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued; and (iii) delay the issuance of any "Subsequent Warrants" (as defined in the Original Deferral Agreements) issuable pursuant thereto to within 30 days of May 1, 2016, subject to NYSE American additional listing approval.

On May 12, 2016, the Company entered into an Amendment No. 2 to Note and Security Agreement with RJC (the "Second Amendment"), pursuant to which the Company and RJC agreed to amend the RJC Junior Note to (i) capitalize all accrued and unpaid interest under the RJC Junior Note as of the date of the parties entry into the Second Amendment, and add it to note principal, making the current outstanding principal amount of the RJC Junior Note as of May 12, 2016 equal to $9,379,000, (ii) extend the "Termination Date" thereunder (i.e., the maturity date) from December 31, 2017 to July 11, 2019, (iii) provide that all future interest accruing under the RJC Junior Note is deferred, due and payable on the Termination Date, with all future interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued, and (iv) subordinate the RJC Junior Note to the Senior Notes.

As additional consideration for RJC’s agreement to enter into the Second Amendment, the Company entered into a Call Option Agreement with GGE, an affiliate of RJC, dated May 12, 2016 (the “GGE Option Agreement”), pursuant to which the Company provided GGE an option to purchase 23,182,880 common shares of Caspian Energy Inc., a British Columbia corporation, held by the Company, upon payment of $100,000 by GGE to the Company, which option expires on the “Termination Date” of the RJC Junior Note, as amended, as described above, currently July 11, 2019. The Company originally issued an option to GGE in February 2015 to acquire the Company’s interest in these shares in connection with the Company’s acquisition of certain producing oil and gas assets from GGE, which option expired unexercised in February 2016.



## Vesting Agreements with Management

In connection with our entry into a reorganization agreement with Dome Energy AB and a subsidiary thereto (together, “Dome Energy”), which reorganization agreement and related transaction were terminated on December 29, 2015, each of Mr. Ingriselli, Mr. Peterson, and Mr. Moore, our then executive officers, entered into Vesting Agreements on May 21, 2015 (the “2015 Vesting Agreements”) which delayed the vesting of all of our restricted common stock they held which was subject to vesting prior to the Dome Energy reorganization being consummated (the “2015 Delayed Vesting”) until the earlier of (A) the 2nd business day following either (x) the closing of the transactions contemplated by the reorganization agreement with Dome Energy, or (y) our public disclosure of the termination of the reorganization, or, (B) if the Dome Energy reorganization did not close on or before December 29, 2015, then January 7, 2016. Because the contemplated merger with Dome Energy did not close on or before December 29, 2015, the vesting of shares of restricted common stock held by Messrs. Ingriselli, Peterson and Moore subject to the 2015 Delayed Vesting was scheduled to occur on January 7, 2016 in accordance with the terms of such 2015 Vesting Agreements. However, in connection with our entry into the GOM Merger Agreement (defined below), on December 29, 2015, as amended on January 6, 2016, each of Messrs. Ingriselli, Peterson and Moore entered into new Vesting Agreements with the Company (as amended, the “Vesting Agreements”), pursuant to which they each individually agreed that the future vesting of restricted common stock held by such officers from January 1, 2016 through June 1, 2016 (the “Delay Period”), including all restricted common stock that was subject to vesting on January 7, 2016 pursuant to the terms of Prior Vesting Agreements, shall be delayed until the 2nd trading day following the Company’s public announcement of the “Vesting Event,” defined as the later to occur of the receipt of (x) stockholder approval for the issuance of the securities issuable to Dome Energy pursuant to the Dome Energy reorganization and (y) the approval by the NYSE American of the listing of our common stock on the NYSE American following the closing of the Dome Energy reorganization, upon which Vesting Event all vesting with respect to such shares shall be accelerated and all such shares shall be fully vested (the “Acceleration”) (each as defined in the Vesting Agreements). The aggregate number of shares of restricted common stock which were subject to the Delay Period was 135,400 shares, 51,900 of which are held by Mr. Ingriselli, 48,100 of which are held by Mr. Peterson, and 35,400 of which are held by Mr. Moore (collectively, the “Subject Shares”). The Acceleration would occur even if the executives were not then employees or directors of the Company on such date. Notwithstanding the above, in the event the GOM Merger Agreement was terminated or the GOM Merger was not consummated by June 1, 2016 (unless otherwise agreed upon in writing by the parties to the GOM Merger Agreement), all the Subject Shares were to vest on the 2nd trading day following the Company’s public disclosure of the termination of the GOM Merger (in the event the GOM Merger Agreement was terminated prior to June 1, 2016), or, in the event the GOM Merger was not terminated by, or consummated by, June 1, 2016, on June 1, 2016, and the original vesting terms for all future unvested stock were to be reinstated to the terms in effect prior to the parties’ entry into the Vesting Agreements. Notwithstanding the above, nothing in the Vesting Agreements amended or waived any acceleration of vesting of unvested restricted stock or options provided under any executive officer’s current employment agreement with the Company, which provide for acceleration upon termination of such executive’s employment under certain circumstances detailed therein.

On April 25, 2016, the Company and each of Mr. Peterson and Mr. Moore, entered into Amended and Restated Vesting Agreements (the "Amended Vesting Agreements"), which amend and restated in their entirety those certain Vesting Agreements entered into by the Company and each of Messrs. Peterson and Moore on December 29, 2015, as amended January 6, 2016 (the "December Vesting Agreements"). Pursuant to the Amended Vesting Agreements, the Company agreed, effective April 28, 2016, to fully accelerate the vesting of all unvested restricted Company common stock which each of Messrs. Peterson and Moore had delayed pursuant to the December Vesting Agreements, which vesting had been voluntarily delayed for the benefit of the Company by each executive since May 2015, and reinstate the original remaining vesting schedules with respect to all other stock grants received by the Company going forward. As a result of the Amended Vesting Agreements, on April 28, 2016, Mr. Peterson vested an aggregate of 48,100 shares of restricted Company common stock, and Mr. Moore vested an aggregate of 35,400 shares of restricted Company common stock, the vesting of which had previously been voluntarily delayed pursuant to the December Vesting Agreements.



On August 9, 2016, the Company entered into a Vesting Agreement with David Z. Steinberg, a member of the Company’s board of directors, pursuant to which, effective July 15, 2016, the Company and Mr. Steinberg agreed to delay the vesting with respect to 21,429 shares of unvested Company restricted common stock held by Mr. Steinberg for a period of one year, with the new vesting date being July 15, 2017.

## Consulting Agreement and Separation Agreement

In connection with the Company’s then pending merger with GOM as described below under “GOM Holdings Reorganization Agreement”, and the Company’s efforts to reduce its general and administrative expenses, the Company’s Chairman and Chief Executive Officer, Frank C. Ingersigli, agreed to retire from the Company and step down from the offices of Chief Executive Officer and Executive Chairman of the Company and all of its subsidiaries, effective April 30, 2016. Mr. Ingersigli continued as the non-executive Chairman of the Company’s board of directors, and continued to work with the Company in a transitional consulting capacity for a period of three (3) months commencing May 1, 2016 (the “Transition Period”) through his wholly-owned consulting firm, Global Ventures Investments Inc. (“GVEST”), pursuant to a Consulting Agreement dated April 25, 2016, entered into by and between the Company and GVEST (the “GVEST Consulting Agreement”). Pursuant to the Consulting Agreement, through GVEST Mr. Ingersigli provided the Company with oil and gas development and strategic consulting services through the Transition Period in exchange for a lump sum payment of $150,000. In addition, the Company and Mr. Ingersigli entered into an Employee Separation and Release dated April 25, 2016 (the “Separation Agreement”), pursuant to which Mr. Ingersigli agreed to (i) waive all severance benefits to which he is entitled under his Executive Employment Agreement dated June 10, 2011, as amended to date (the “Ingriselli Employment Agreement”), including, but not limited to, waiver of any payments by the Company to Mr. Ingersigli of a lump sum payment equal to up to four (4) years’ salary and 30% bonus, and continued medical benefits for up to four (4) years, in the event of Mr. Ingersigli’s termination under certain circumstances, (ii) waive any and all accrued and unpaid vacation time, sick time and paid time off, equal in value to approximately $58,000, and (iii) fully-release the Company from all claims, in exchange for the Company agreeing to (x) fully accelerate the vesting of all of Mr. Ingersigli’s unvested options exercisable for 39,100 shares of Company common stock, (y) allow Mr. Ingersigli to transfer all 149,650 shares of his unvested restricted Company common stock to GVEST and then fully accelerate the vesting of the same, and (z) extend the exercise period for all of Mr. Ingersigli’s options to purchase Company common stock for a period of five (5) years from the date of Mr. Ingersigli’s termination of employment with the Company.

## GOM Holdings Reorganization Agreement

On December 29, 2015, the Company entered into an Agreement and Plan of Reorganization (as amended to date, the “GOM Merger Agreement”) with White Hawk Energy, LLC (“White Hawk”) and GOM Holdings, LLC (“GOM”), a Delaware limited liability company. The GOM Merger Agreement provided for the Company’s acquisition of GOM through an exchange of certain of the shares of the Company’s common and preferred stock (the “Consideration Shares”), for 100% of the limited liability company membership units of GOM (the “GOM Units”), with the GOM Units being received by White Hawk and GOM receiving the Consideration Shares from the Company (the “GOM Merger” or “Merger”).

The Merger was subject to various closing conditions. At the closing of the Merger, (i) GOM was to transfer the GOM Units to White Hawk, solely in exchange for the Consideration Shares, and (ii) White Hawk was to continue as a wholly-owned subsidiary of the Company and to continue to carry on the business of GOM. In exchange for the transfer of GOM Units to White Hawk, the Company was to issue to the members of GOM, the Consideration Shares as follows: (x) an aggregate of 155,156 shares of the Company’s restricted common stock (the “Common Stock”) and 698,448 restricted shares of the Company’s to-be-designated Series B Convertible Preferred Stock (the “Series B Preferred” (described in greater detail below)), and (y) was to assume approximately $125 million of subordinated debt from GOM’s existing lenders and a $30 million undrawn letter of credit backing certain offshore asset retirement obligations (the “GOM Debt”), which GOM Debt was anticipated to be restructured on terms and conditions mutually acceptable to the Company and GOM prior to the closing of the Merger.



GOM is an investment owned by Platinum Partners Value Arbitrage Fund, LP, a New York based investment firm (“PPVAF”). PPVAF also owns RJC, which entity originally loaned the Company approximately $5.9 million in principal in connection with the Company’s March 2014 senior note funding and $8.9 million in principal in connection with the Company’s February 2015 acquisition of certain working interests from GGE, each as restructured in May 2016, and PPVAF also owns GGE, which entity is the holder of the Company’s Series A Preferred stock. Each of GOM, RJC and GGE were formerly advised by Platinum Management (NY), LLC (“PMLLC”). PPVAF, and, by virtue of being owned by PPVAF, GGE, RJC, and GOM, are currently in the process of winding down and liquidating their assets through the oversight and control of a court-appointed liquidator in the Cayman Islands and are no longer advised by PM LLC or any of its affiliates. Additionally, the Company is aware that the former manager of PPVAF, PM LLC, is currently under investigation by the SEC and the Justice Department and that certain former executives have been indicted by the Justice Department, however, PM LLC and those certain executives no longer have any control over PPVAF, GOM, RJC or GGE, which entities are currently solely under the control of the Cayman Islands court-appointed liquidators.

PM LLC is also an advisor to the entity that owns GGE, a greater than 5% stockholder of the Company, from whom the Company acquired approximately 12,977 net acres of oil and gas properties and interests in 53 gross wells located in the Denver-Julesburg Basin, Colorado in February 2015, in connection with which the Company assumed approximately $8.35 million of subordinated notes payable owed by GGE to RJC, issued to GGE 337,500 restricted shares of the Company's common stock (representing approximately 9.9% of our then outstanding shares of common stock), and issued to GGE 66,625 restricted shares of the Company's then newly-designated Amended and Restated Series A Convertible Preferred Stock (the "Series A Preferred"), which can be converted into shares of the Company's common stock on a 100:1 basis, subject to a 9.99% ownership blocker. GGE, as the sole holder of the Company's Series A Preferred, has the right to appoint two designees to the Company's board of directors for as long as GGE continues to hold 15,000 shares of Series A Preferred designated as "Tranche One Shares" under the Company's Amended and Restated Certificate of Designations of PEDEVCO Corp. Establishing the Designations, Preferences, Limitations, and Relative Rights of its Series A Convertible Preferred Stock. Mr. Steinberg is one of the Series A Preferred's designees to the board of directors in connection with such right, provided that GGE has not designated any further members of the board of directors at this time.

On February 29, 2016, the parties entered into an amendment to the GOM Merger Agreement, which amended the merger agreement in order to provide GOM additional time to meet certain closing conditions contemplated by the GOM Merger Agreement. The parties entered into the Amendment to extend the deadline for closing the merger and the date after which either party could terminate the GOM Merger Agreement if the merger had not yet been consummated, from February 29, 2016 to no later than April 15, 2016. On April 25, 2016, the parties further amended the GOM Merger Agreement to eliminate the April 15, 2016, closing deadline.

On June 22, 2017, the Company terminated its then pending merger with GOM, in order to pursue an alternative transaction with a Hong Kong-based investor group as contemplated pursuant to a non-binding term sheet entered into by the Company and the investor group, which transaction was similarly terminated on September 29, 2017.

## Senior Debt Restructuring

On May 12, 2016, we entered into the Amended NPA and related transactions as described in greater detail under “Part I” – “Item 1. Business” – “Material 2016-2017 Transactions” – “Senior Debt Restructuring” of this Annual Report on Form 10-K.

## Rescission of Restricted Stock Awards

On December 28, 2017, the Company and Mr. David Z. Steinberg, a member of the Company’s Board of Directors, entered into a Rescission Agreement (the “Rescission Agreement”) pursuant to which the Company and Mr. Steinberg agreed to cancel and rescind an aggregate of 75,975 shares of restricted Company Common Stock originally granted to Mr. Steinberg pursuant to the Board Compensation Program in 2015 and 2016.



## Review and Approval of Related Party Transactions

We have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officer(s), director(s) and significant stockholders, provided that it is our policy that any and all such transactions are presented and approved by the board and future material transactions between us and members of management or their affiliates shall be on terms no less favorable than those available from unaffiliated third parties.

In addition, our Code of Ethics (described above under “Item 10. Directors, Executive Officers and Corporate Governance” – “Code of Ethics”), which is applicable to all of our employees, officers and directors, requires that all employees, officers and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests.

## Director Independence

Our board of directors has determined that each of Ms. Smith, Mr. McAfee and Mr. Steinberg is an independent director as defined in the NYSE American rules governing members of boards of directors or as defined under Rule 10A-3 of the Exchange Act. Accordingly, a majority of the members of our board of directors are independent as defined in the NYSE American rules governing members of boards of directors and as defined under Rule 10A-3 of the Exchange Act.

## ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table presents fees for professional audit services performed by GBH CPAs, PC for the audit of our annual financial statements for the years ended December 31, 2017 and 2016 (in thousands).

<table><tr><td></td><td>2017</td><td>2016</td></tr><tr><td>GBH CPAs, PC:</td><td></td><td></td></tr><tr><td>Audit Fees(1)</td><td>$ 124</td><td>$ 185</td></tr><tr><td>Audit-Related Fees(2)</td><td>-</td><td>-</td></tr><tr><td>Tax Fees(3)</td><td>16</td><td>33</td></tr><tr><td>All Other Fees(4)</td><td>17</td><td>36</td></tr><tr><td>Total</td><td>$ 157</td><td>$ 254</td></tr></table>

(1) Audit fees include professional services rendered for (1) the audit of our annual financial statements for the fiscal years ended December 31, 2017 and 2016 and (ii) the reviews of the financial statements included in our quarterly reports on Form 10-Q for such years.

(2) Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.”

(3) Tax fees include professional services relating to preparation of the annual tax return.

(4) Other fees include professional services for review of various filings and issuance of consents.

## Pre-Approval Policies

It is the policy of our board of directors that all services to be provided by our independent registered public accounting firm, including audit services and permitted audit-related and non-audit services, must be pre-approved by our board of directors. Our board of directors pre-approved all services, audit and non-audit, provided to us by GBH CPAs, PC for 2017 and 2016.



## ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS

## (1) Financial Statements

## INDEX TO FINANCIAL STATEMENTS

## Audited Financial Statements for Years Ended December 31, 2017 and 2016

## PEDEVCO Corp.:

Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of December 31, 2017 and 2016 F-2
Consolidated Statements of Operations for the Years Ended December 31, 2017 and 2016 F-3
Consolidated Statement of Shareholders' Equity (Deficit) For the Years Ended December 31, 2017 and 2016 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016 F-5
Notes to Consolidated Financial Statements F-7

## (2) Financial Statement Schedules

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K.

(3) Exhibits required by Item 601 of Regulation S-K



EXHIBIT INDEX

<table><tr><td rowspan="2">Exhibit No.</td><td rowspan="2">Description</td><td rowspan="2">Filed With This Annual Report on Form 10-K</td><td colspan="4">Incorporated By Reference</td></tr><tr><td>Form</td><td>Exhibit</td><td>Filing Date/Period End Date</td><td>File Number</td></tr><tr><td>1.1</td><td>Underwriting Agreement, dated May 13, 2015, by and among PEDEVCO Corp. and National Securities Corporation</td><td>8-K</td><td>1.1</td><td>May 13, 2015</td><td>001-35922</td><td></td></tr><tr><td>1.2</td><td>At Market Issuance Sales Agreement, dated September 29, 2016, by and among PEDEVCO CORP. and National Securities Corporation</td><td>8-K</td><td>1.1</td><td>September 29, 2016</td><td>001-35922</td><td></td></tr><tr><td>2.1+</td><td>Purchase and Sale Agreement, dated February 23, 2015, by and between Golden Globe Energy (US), LLC and Red Hawk Petroleum, LLC</td><td>8-K</td><td>2.1</td><td>February 24, 2015</td><td>001-35922</td><td></td></tr><tr><td>2.2+</td><td>Agreement and Plan of Reorganization dated as of May 21, 2015, by and among PEDEVCO Corp., PEDEVCO Acquisition Subsidiary, Inc., Dome Energy, Inc. and Dome Energy AB</td><td>8-K</td><td>2.1</td><td>May 26, 2015</td><td>001-35922</td><td></td></tr><tr><td>2.3</td><td>Amendment No. 1 to Agreement and Plan of Reorganization dated as of July 15, 2015, by and among PEDEVCO Corp., PEDEVCO Acquisition Subsidiary, Inc., Dome Energy, Inc. and Dome Energy AB</td><td>8-K</td><td>2.1</td><td>July 17, 2015</td><td>001-35922</td><td></td></tr><tr><td>2.4</td><td>Amendment No. 2 to Agreement and Plan of Reorganization dated as of August 28, 2015, by and among PEDEVCO Corp., PEDEVCO Acquisition Subsidiary, Inc., Dome Energy, Inc. and Dome Energy AB</td><td>8-K</td><td>2.1</td><td>September 1, 2015</td><td>001-35922</td><td></td></tr><tr><td>2.5+</td><td>Agreement and Plan of Merger and Reorganization dated as of December 29, 2015, by and among PEDEVCO Corp., White Hawk Energy, LLC, and GOM Holdings, LLC</td><td>8-K</td><td>2.1</td><td>December 30, 2015</td><td>001-35922</td><td></td></tr><tr><td>2.6</td><td>Amendment No. 1 to Agreement and Plan of Merger and Reorganization dated as of February 29, 2016, by and among PEDEVCO Corp., White Hawk Energy, LLC, and GOM Holdings, LLC</td><td>8-K</td><td>2.1</td><td>March 2, 2016</td><td>001-35922</td><td></td></tr><tr><td>2.7</td><td>Amendment No. 2 to Agreement and Plan of Merger and Reorganization dated as of April 25, 2016, by and among PEDEVCO Corp., White Hawk Energy, LLC, and GOM Holdings, LLC</td><td>8-K</td><td>2.1</td><td>April 27, 2016</td><td>001-35922</td><td></td></tr><tr><td>3.1</td><td>Amended and Restated Certificate of Formation and Designation by Blast Acquisition Corp. and Pacific Energy Development Corp.</td><td>8-K</td><td>3.1</td><td>August 2, 2012</td><td>000-53725</td><td></td></tr><tr><td>3.2</td><td>Certificate of Amendment of Amended and Restated Certificate of Formation</td><td>8-K</td><td>3.1</td><td>April 23, 2013</td><td>000-53725</td><td></td></tr><tr><td>3.3</td><td>Amended and Restated Certificate of Designations of PEDEVCO Corp. Establishing the Designations, Preferences, Limitations and Relative Rights of its Series A Convertible Preferred Stock</td><td>8-K</td><td>3.1</td><td>February 24, 2015</td><td>001-35922</td><td></td></tr><tr><td>3.4</td><td>Certificate of Amendment to Certificate of Formation (1-for-10 Reverse Stock Split of Common Stock)</td><td>8-K</td><td>3.1</td><td>March 27, 2017</td><td>333-64122</td><td></td></tr><tr><td>3.4</td><td>Bylaws of PEDEVCO Corp. (formerly Blast Energy Services, Inc.)</td><td>8-K</td><td>3.3</td><td>March 6, 2008</td><td>333-64122</td><td></td></tr><tr><td>3.5</td><td>Amendment to the Bylaws (December 3, 2012)</td><td>8-K</td><td>3.1</td><td>December 6, 2012</td><td>000-53725</td><td></td></tr><tr><td>3.6</td><td>Amendment to Bylaws (October 25, 2016)</td><td>8-K</td><td>3.1</td><td>October 21, 2016</td><td>001-35922</td><td></td></tr><tr><td>4.1</td><td>Form of Common Stock Certificate for PEDEVCO CORP.</td><td>S-3</td><td>4.1</td><td>October 23, 2013</td><td>333-191869</td><td></td></tr><tr><td>4.2</td><td>Form of PEDEVCO Corp. Series A Preferred Stock Certificate</td><td>10-K</td><td>4.2</td><td>March 31, 2014</td><td>001-35922</td><td></td></tr><tr><td>4.3</td><td>Form of PEDEVCO Corp. Warrant Agreement (March 7, 2014) - Casimir Capital LP (1,000,000 shares at $2.50 per share)</td><td>8-K</td><td>10.18</td><td>March 10, 2014</td><td>001-35922</td><td></td></tr><tr><td>4.4</td><td>Consultant Stock Option Agreement, dated October 7, 2011, entered into by and between Michael L. Peterson and the Registrant**</td><td>S-8</td><td>4.9</td><td>October 31, 2013</td><td>333-192002</td><td></td></tr></table>



<table><tr><td>4.5</td><td>Consultant Stock Option Agreement, dated October 7, 2011, entered into by and between Y.M. Shum and the Registrant</td><td>S-8</td><td>4.11</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>4.6</td><td>Consultant Stock Option Agreement, dated October 7, 2011, entered into by and between Kathleen Cole and the Registrant</td><td>S-8</td><td>4.12</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>4.7</td><td>Employee Stock Option Agreement, dated June 18, 2012, entered into by and between Frank C. Ingriselli and the Registrant**</td><td>S-8</td><td>4.13</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>4.8</td><td>Employee Stock Option Agreement, dated June 18, 2012, entered into by and between Clark R. Moore and the Registrant**</td><td>S-8</td><td>4.14</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.1</td><td>2003 Stock Option Plan**</td><td>10-QSB/A</td><td>10.12</td><td>November 20, 2003</td><td>333-64122</td></tr><tr><td>10.2</td><td>Blast Energy Services, Inc. 2009 Stock Incentive Plan **</td><td>10-Q</td><td>4.1</td><td>August 14, 2009</td><td>000-53725</td></tr><tr><td>10.3</td><td>PEDEVCO Corp. 2012 Equity Incentive Plan**</td><td>8-K</td><td>4.1</td><td>August 2, 2012</td><td>000-53725</td></tr><tr><td>10.4</td><td>PEDEVCO Corp. 2012 Equity Incentive Plan - Form of Restricted Shares Grant Agreement **</td><td>S-8</td><td>4.2</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.5</td><td>PEDEVCO Corp. 2012 Equity Incentive Plan - Form of Stock Option Agreement**</td><td>S-8</td><td>4.3</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.6</td><td>Pacific Energy Development Corp. 2012 Equity Incentive Plan **</td><td>S-8</td><td>4.4</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.7</td><td>PEDEVCO Corp. Amended and Restated 2012 Equity Incentive Plan **</td><td>S-8</td><td>4.1</td><td>December 28, 2017</td><td>333-222335</td></tr><tr><td>10.8</td><td>Pacific Energy Development Corp. 2012 Plan - Form of Restricted Shares Grant Agreement**</td><td>S-8</td><td>4.5</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.9</td><td>Pacific Energy Development Corp. 2012 Plan - Form of Stock Option Agreement **</td><td>S-8</td><td>4.6</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.1</td><td>Pacific Energy Development Corp. - Form of Restricted Shares Grant Agreement **</td><td>S-8</td><td>4.7</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.11</td><td>Pacific Energy Development Corp. - Form of Stock Option Agreement **</td><td>S-8</td><td>4.8</td><td>October 31, 2013</td><td>333-192002</td></tr><tr><td>10.12</td><td>PEDEVCO Corp. - Form of Indemnification Agreement **</td><td>10-K</td><td>10.11</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.13</td><td>Executive Employment Agreement, dated June 10, 2011, by Pacific Energy Development Corp and Frank Ingriselli **</td><td>10-K</td><td>10.19</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.14</td><td>Executive Employment Agreement, dated June 10, 2011, by Pacific Energy Development Corp and Clark Moore **</td><td>10-K</td><td>10.20</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.15</td><td>Form of Common Stock Warrant dated May 24, 2012, issued to MIE Jurassic Energy Corporation, May 24, 2012</td><td>10-K</td><td>10.38</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.16</td><td>Gas Purchase Contract, dated December 1, 2011, by and between DCP Midstream, LP and Continental Resources, Inc., assigned to Red Hawk Petroleum, LLC by Continental Resources, Inc. effective March 7, 2014</td><td>10-K</td><td>10.43</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.17</td><td>Gas Purchase Contract, dated April 1, 2012, as amended, by and between Sterling Energy Investments LLC and Continental Resources, Inc., assigned to Red Hawk Petroleum, LLC by Continental Resources, Inc. effective March 7, 2014</td><td>10-K</td><td>10.44</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.18</td><td>Executive Employment Agreement, dated June 16, 2012, by Pacific Energy Development Corp. and Michael Peterson **</td><td>10-K</td><td>10.45</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.19</td><td>Amendment No. 1 to Employment Agreement, dated January 11, 2013, by and between PEDEVCO Corp. and Michael L. Peterson **</td><td>10-K</td><td>10.56</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.20</td><td>Amendment No. 1 to Employment Agreement, dated January 11, 2013, by and between PEDEVCO Corp. and Frank C. Ingriselli **</td><td>10-K</td><td>10.57</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.21</td><td>Amendment No. 1 to Employment Agreement, dated January 11, 2013, by and between PEDEVCO Corp. and Clark R. Moore **</td><td>10-K</td><td>10.58</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.22</td><td>Form of Bridge Financing Note and Warrant Purchase Agreement</td><td>10-K</td><td>10.61</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.23</td><td>Form of Bridge Financing Secured Promissory Note</td><td>10-K</td><td>10.62</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.24</td><td>Form of Bridge Financing Warrant</td><td>10-K</td><td>10.63</td><td>March 31, 2014</td><td>001-35922</td></tr></table>



<table><tr><td>10.25</td><td>Amended and Restated Secured Subordinated Promissory Note, dated March 25, 2013, by and between Pacific Energy Development Corp. and MIE Jurassic Energy Corporation</td><td>10-K</td><td>10.64</td><td>March 31, 2014</td><td>001-35922</td></tr><tr><td>10.26</td><td>First Amendment to Amended and Restated Secured Subordinated Promissory Note, dated July 9, 2013, by and between Pacific Energy Development Corp. and MIE Jurassic Energy Corporation</td><td>8-K</td><td>10.1</td><td>July 15, 2013</td><td>001-35922</td></tr><tr><td>10.27</td><td>Form of Promissory Note (August 12, 2013 - Private Placement Offering)</td><td>8-K</td><td>10.3</td><td>August 13, 2013</td><td>001-35922</td></tr><tr><td>10.28</td><td>Form of Amendment to Secured Promissory Note (December 2013)</td><td>8-K</td><td>10.1</td><td>December 18, 2013</td><td>001-35922</td></tr><tr><td>10.29</td><td>Form of Warrant for the Purchase of Common Stock (December 2013 New Warrants)</td><td>8-K</td><td>10.2</td><td>December 18, 2013</td><td>001-35922</td></tr><tr><td>10.30</td><td>Senior Secured Promissory Note (BRe BCLIC Primary),($11,800,000)(March 7, 2014)</td><td>8-K</td><td>10.2</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.31</td><td>Senior Secured Promissory Note (BRe BCLIC Sub),($423,530)(March 7, 2014)</td><td>8-K</td><td>10.3</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.32</td><td>Senior Secured Promissory Note (BRe WNIC 2013 LTC Primary),($17,522,941)(March 7, 2014)</td><td>8-K</td><td>10.4</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.33</td><td>Senior Secured Promissory Note (BRe WNIC 2013 LTC Sub),($803,529)(March 7, 2014)</td><td>8-K</td><td>10.5</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.34</td><td>Senior Secured Promissory Note (RJ Credit LLC),($19,450,000)(March 7, 2014)#</td><td>8-K</td><td>10.6</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.35</td><td>Guaranty dated March 7, 2014, by Pacific Energy Development Corp., White Hawk Petroleum, LLC, Pacific Energy &amp; Rare Earth Limited, Blackhawk Energy Limited, Pacific Energy Development MSL, LLC, and Red Hawk Petroleum, LLC, in favor of BAM Administrative Services LLC, as agent</td><td>8-K</td><td>10.7</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.36</td><td>Security Agreement dated March 7, 2014, by Pacific Energy Development Corp., White Hawk Petroleum, LLC, Pacific Energy &amp; Rare Earth Limited, Blackhawk Energy Limited, Pacific Energy Development MSL, LLC, and Red Hawk Petroleum, LLC, in favor of BAM Administrative Services LLC, as secured party</td><td>8-K</td><td>10.8</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.37</td><td>Patent Security Agreement dated March 7, 2014, by the Company in favor of BAM Administrative Services LLC, as secured party</td><td>8-K</td><td>10.9</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.38</td><td>Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production (Matagorda County, Texas), (March 7, 2014)</td><td>8-K</td><td>10.1</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.52</td><td>Leasehold Deed of Trust, Fixture Filing, Assignment of Rents and Leases, and Security Agreement (Morgan County, Colorado) - Pacific Energy Development Corp., (March 7, 2014)</td><td>8-K</td><td>10.11</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.53</td><td>Leasehold Deed of Trust, Fixture Filing, Assignment of Rents and Leases, and Security Agreement (Morgan County, Colorado) - Red Hawk Petroleum, LLC (March 7, 2014)</td><td>8-K</td><td>10.12</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.39</td><td>Leasehold Deed of Trust, Fixture Filing, Assignment of Rents and Leases, and Security Agreement (Weld County, Colorado) - Pacific Energy Development Corp., (March 7, 2014)</td><td>8-K</td><td>10.13</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.40</td><td>Leasehold Deed of Trust, Fixture Filing, Assignment of Rents and Leases, and Security Agreement (Weld County, Colorado) - Red Hawk Petroleum, LLC (March 7, 2014)</td><td>8-K</td><td>10.14</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.41</td><td>Purchase and Sale Agreement, dated March 7, 2014, by and between Red Hawk Petroleum, LLC and RJ Resources Corp.</td><td>8-K</td><td>10.15</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.42</td><td>Warrant for the Purchase of 1,000,000 shares of Common Stock granted to Casimir Capital, LP (March 7, 2014)</td><td>8-K</td><td>10.18</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.43</td><td>Form of Second Amendment to Secured Promissory Note (March 7, 2014)</td><td>8-K</td><td>10.19</td><td>March 10, 2014</td><td>001-35922</td></tr><tr><td>10.44</td><td>Form of Subordination and Intercreditor Agreement with Secured Promissory Note</td><td>8-K</td><td>10.2</td><td>March 10, 2014</td><td>001-35922</td></tr></table>



<table><tr><td>10.45</td><td>Holders (March 7, 2014)</td><td>8-K</td><td>10.1</td><td>July 3, 2014</td><td>001-35922</td></tr><tr><td></td><td>Form of June 30, 2014 MIE Jurassic Energy Corporation Warrants</td><td></td><td></td><td></td><td></td></tr><tr><td>10.46</td><td>Form of Common Stock and Warrant Subscription Agreement (November 28, 2014)</td><td>S-3</td><td>10.2</td><td>December 19, 2014</td><td>333-201099</td></tr></table>



<table><tr><td>10.47</td><td>Form of Warrant For the Purchase of Common Stock (November 28, 2014)</td><td>S-3</td><td>10.3</td><td>December 19, 2014</td><td>333-201099</td></tr><tr><td>10.48</td><td>Amendment to Note and Security Agreement, dated February 23, 2015, by and between PEDEVCO Corp. and RJ Credit LLC</td><td>8-K</td><td>10.2</td><td>February 24, 2015</td><td>001-35922</td></tr><tr><td>10.49</td><td>Assumption and Consent Agreement, dated February 23, 2015, by and among RJ Credit LLC, Golden Globe Energy (US), LLC (formerly RJ Resources Corp.), and PEDEVCO Corp.</td><td>8-K</td><td>10.3</td><td>February 24, 2015</td><td>001-35922</td></tr><tr><td>10.50</td><td>Call Option Agreement, dated February 23, 2015, by and between PEDEVCO Corp., Pacific Energy Development Corp. and Golden Globe Energy (US), LLC</td><td>8-K</td><td>10.4</td><td>February 24, 2015</td><td>001-35922</td></tr><tr><td>10.51</td><td>Settlement Agreement, dated February 19, 2015, by and among MIE Jurassic Energy Corporation, PEDEVCO Corp., and Pacific Energy Development Corp.</td><td>8-K</td><td>10.6</td><td>February 24, 2015</td><td>001-35922</td></tr><tr><td>10.52</td><td>Amended and Restated Secured Subordinated Promissory Note, dated February 19, 2015, and effective January 1, 2015, issued by PEDEVCO Corp. to MIE Jurassic Energy Corporation</td><td>8-K</td><td>10.7</td><td>February 24, 2015</td><td>001-35922</td></tr><tr><td>10.53</td><td>Membership Interest Purchase Agreement, dated February 19, 2015, by and between Pacific Energy Development Corp. and MIE Jurassic Energy Corporation</td><td>8-K</td><td>10.8</td><td>February 24, 2015</td><td>001-35922</td></tr><tr><td>10.54</td><td>Assignment, Conveyance and Bill of Sale, dated February 19, 2015, by and between Pacific Energy Development Corp. and Condor Energy Technology LLC</td><td>8-K</td><td>10.9</td><td>February 24, 2015</td><td>001-35922</td></tr><tr><td>10.55</td><td>Form of Executive Vesting Agreement dated May 21, 2015**</td><td>8-K</td><td>10.4</td><td>May 26, 2015</td><td>001-35922</td></tr><tr><td>10.56</td><td>Form of Vesting Agreement dated December 29, 2015**</td><td>8-K</td><td>10.1</td><td>December 30, 2015</td><td>001-35922</td></tr><tr><td>10.57</td><td>Form of Amendment No. 1 to Vesting Agreement dated January 6, 2016**</td><td>10-K</td><td>10.75</td><td>March 29, 2016</td><td>001-35922</td></tr><tr><td>10.58</td><td>Letter Agreement, dated November 19, 2015, by and among PEDEVCO Corp., Dome Energy AB, Dome Energy, Inc., and VistaTex Energy LLC</td><td>8-K</td><td>10.1</td><td>November 24, 2015</td><td>001-35922</td></tr><tr><td>10.59</td><td>Contingent Promissory Note, dated November 19, 2015, issued by Dome Energy AB to Red Hawk Petroleum, LLC</td><td>8-K</td><td>10.2</td><td>November 24, 2015</td><td>001-35922</td></tr><tr><td>10.60</td><td>Letter Agreement, dated April 24, 2015, by and among PEDEVCO Corp., BAM Administrative Services LLC, BRE BCLIC Primary, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, HEARTLAND Bank, and RJ Credit LLC</td><td>10-Q</td><td>10.1</td><td>May 14, 2015</td><td>001-35922</td></tr><tr><td>10.61</td><td>Form of Common Stock Warrant</td><td>10-Q</td><td>10.11</td><td>May 14, 2015</td><td>001-35922</td></tr><tr><td>10.62</td><td>Letter Agreement, dated August 28, 2015, by and among PEDEVCO Corp., BAM Administrative Services LLC, Senior Health Insurance Company of Pennsylvania, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, HEARTLAND Bank, and RJ Credit LLC</td><td>8-K</td><td>10.1</td><td>September 1, 2015</td><td>001-35922</td></tr><tr><td>10.63</td><td>Letter Agreement, dated August 28, 2015, by and among PEDEVCO Corp. and HEARTLAND Bank</td><td>8-K</td><td>10.2</td><td>September 1, 2015</td><td>001-35922</td></tr><tr><td>10.64</td><td>Form of Common Stock Warrant (April 24, 2015 Lender Amendment)</td><td>10-Q</td><td>10.8</td><td>November 13, 2015</td><td>001-35922</td></tr><tr><td>10.65</td><td>Form of Common Stock Warrant (August 28, 2015 Lender Amendment)</td><td>8-K</td><td>10.3</td><td>September 1, 2015</td><td>001-35922</td></tr><tr><td>10.66</td><td>Form of Common Stock Warrant (IR Firm)</td><td>10-Q</td><td>10.6</td><td>August 13, 2015</td><td>001-35922</td></tr><tr><td>10.67</td><td>Letter Agreement, dated January 29, 2016, by and among PEDEVCO Corp., BAM Administrative Services LLC, Senior Health Insurance Company of Pennsylvania, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, HEARTLAND Bank, and RJ Credit LLC</td><td>8-K</td><td>10.1</td><td>February 4, 2016</td><td>001-35922</td></tr><tr><td>10.68</td><td>Letter Agreement, dated March 1, 2016, and executed March 7, 2016 by and among</td><td>8-K</td><td>10.1</td><td>March 11, 2016</td><td>001-35922</td></tr></table>



<table><tr><td>10.69</td><td>Letter Agreement, dated January 29, 2016, by and among PEDEVCO Corp., BAM Administrative Services LLC, Senior Health Insurance Company of Pennsylvania, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, and RJ Credit LLC</td><td>8-K</td><td>10.1</td><td>February 4, 2016</td><td>001-35922</td></tr><tr><td></td><td>Letter Agreement, dated January 29, 2016, by and among PEDEVCO Corp., BAM Administrative Services LLC, Senior Health Insurance Company of Pennsylvania, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, HEARTLAND Bank, and RJ Credit LLC</td><td></td><td></td><td></td><td></td></tr></table>



<table><tr><td>10.70</td><td>Letter Agreement, dated March 1, 2016, and effective March 7, 2016 by and among PEDEVCO Corp., BAM Administrative Services LLC, Senior Health Insurance Company of Pennsylvania, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, and RJ Credit LLC</td><td>8-K</td><td>10.1</td><td>March 11, 2016</td><td>001-35922</td></tr><tr><td>10.71</td><td>Settlement Agreement, dated March 29, 2016, by and among PEDEVCO Corp., Red Hawk Petroleum, LLC, Dome Energy AB, Dome Energy, Inc., and VistaTex Energy LLC</td><td>8-K</td><td>10.1</td><td>March 31, 2016</td><td>001-35922</td></tr><tr><td>10.72</td><td>Letter Agreement, dated April 1, 2016, and effective April 7, 2016 by and among PEDEVCO Corp., BAM Administrative Services LLC, Senior Health Insurance Company of Pennsylvania, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, and RJ Credit LLC</td><td>8-K</td><td>10.1</td><td>April 13, 2016</td><td>001-35922</td></tr><tr><td>10.73</td><td>Consulting Agreement dated April 25, 2016, by and between PEDEVCO Corp. and Global Venture Investments, Inc.</td><td>8-K</td><td>10.1</td><td>April 27, 2016</td><td>001-35922</td></tr><tr><td>10.74</td><td>Employee Separation and Release dated April 25, 2016, by and between PEDEVCO Corp. and Frank C. Ingriselli**</td><td>8-K</td><td>10.2</td><td>April 27, 2016</td><td>001-35922</td></tr><tr><td>10.75</td><td>Amendment No. 2 to Employment Agreement dated April 25, 2016, by and between PEDEVCO Corp. and Michael L. Peterson**</td><td>8-K</td><td>10.3</td><td>April 27, 2016</td><td>001-35922</td></tr><tr><td>10.76</td><td>Employment Letter Agreement dated June 16, 2012, by and between Pacific Energy Development Corp. and Gregory Overholtz**</td><td>8-K</td><td>10.4</td><td>April 27, 2016</td><td>001-35922</td></tr><tr><td>10.77</td><td>Amendment No. 1 to Employment Agreement dated April 25, 2016, by and between PEDEVCO Corp. and Gregory Overholtz**</td><td>8-K</td><td>10.5</td><td>April 27, 2016</td><td>001-35922</td></tr><tr><td>10.78</td><td>Form of Amended and Restated Vesting Agreement dated April 25, 2016**</td><td>8-K</td><td>10.6</td><td>April 27, 2016</td><td>001-35922</td></tr><tr><td>10.79</td><td>Amended and Restated Note Purchase Agreement dated as of May 12, 2016, by and among PEDEVCO Corp., Senior Health Insurance Company of Pennsylvania, BRE BCLIC Sub, BRE WNIC 2013 LTC Primary, BRE WNIC 2013 LTC Sub, Heartland Bank, RJ Credit LLC, BHLN-Pedco Corp., BBLN-Pedco Corp., and BAM Administrative Services LLC</td><td>8-K</td><td>10.1</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.80</td><td>Form of Tranche A Note</td><td>8-K</td><td>10.2</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.81</td><td>Form of Tranche B Note</td><td>8-K</td><td>10.3</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.82</td><td>Share Pledge Agreement dated as of May 12, 2016, by and between PEDEVCO Corp. and Golden Globe Energy (US), LLC</td><td>8-K</td><td>10.4</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.83</td><td>Form of Warrant for Purchase of Common Stock (Investor Warrants)</td><td>8-K</td><td>10.5</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.84</td><td>Form of Amended and Restated Warrant for Purchase of Common Stock (Investor Warrants)</td><td>8-K</td><td>10.6</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.85</td><td>First Amendment to Security Agreement dated May 12, 2016, by Pacific Energy Development Corp., White Hawk Petroleum, LLC, Pacific Energy &amp; Rare Earth Limited, Blackhawk Energy Limited, Pacific Energy Development MSL, LLC, and Red Hawk Petroleum, LLC, in favor of BAM Administrative Services LLC, as secured party</td><td>8-K</td><td>10.7</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.86</td><td>First Amendment to Patent Security Agreement dated May 12, 2016, by the Company in favor of BAM Administrative Services LLC, as secured party</td><td>8-K</td><td>10.8</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.87</td><td>Form of First Amendment to Deed of Trust, Security Agreement, Assignment of Production, Financing Statement and Fixture Filing</td><td>8-K</td><td>10.9</td><td>May 17, 2016</td><td>001-35922</td></tr></table>



<table><tr><td>10.88</td><td>First Amendment to Guaranty dated May 12, 2016, by Pacific Energy Development Corp., White Hawk Petroleum, LLC, Pacific Energy &amp; Rare Earth Limited, Blackhawk Energy Limited, Pacific Energy Development MSL, LLC, and Red Hawk Petroleum, LLC, in favor of BAM Administrative Services LLC, as agent</td><td>8-K</td><td>10.1</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.89</td><td>Amendment No. 2 to Note and Security Agreement dated as of May 12, 2016, by and between PEDEVCO Corp. and RJ Credit LLC</td><td>8-K</td><td>10.11</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.90</td><td>Call Option Agreement dated as of May 12, 2016, by and between PEDEVCO Corp. and Golden Globe Energy (US), LLC</td><td>8-K</td><td>10.12</td><td>May 17, 2016</td><td>001-35922</td></tr><tr><td>10.91</td><td>Vesting Agreement, effective July 14, 2016, entered into by and between PEDEVCO Corp. and David Z. Steinberg</td><td>10-Q</td><td>10.24</td><td>August 11, 2016</td><td>001-35922</td></tr><tr><td>10.92</td><td>Series B Convertible Preferred Stock and Warrant Subscription Agreement, dated August 17, 2017, entered into by and among PEDEVCO Corp., Dragon Gem Limited, and Absolute Frontier Limited</td><td>8-K</td><td>10.2</td><td>August 18, 2017</td><td>001-35922</td></tr><tr><td>10.93</td><td>Form of Warrant for the Purchase of Common Stock</td><td>8-K</td><td>10.2</td><td>August 18, 2017</td><td>001-35922</td></tr><tr><td>10.94</td><td>Rescission Agreement, dated December 28, 2017, entered into by and between David Z. Steinberg and PEDEVCO Corp.</td><td>8_K</td><td>10.1</td><td>December 29, 2017</td><td>001-35922</td></tr><tr><td>14.1</td><td>Code of Ethics and Business Conduct</td><td>8-K/A</td><td>14.1</td><td>August 8, 2012</td><td>000-53725</td></tr><tr><td>21.1</td><td>List of Subsidiaries of PEDEVCO CORP.</td><td>X</td><td></td><td></td><td></td></tr><tr><td>23.1</td><td>Consent of GBH CPAs, PC</td><td>X</td><td></td><td></td><td></td></tr><tr><td>23.2</td><td>Consent of Tenet Advisory Group, LLC</td><td>X</td><td></td><td></td><td></td></tr><tr><td>31.1</td><td>Certification of Chief Executive Officer</td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</td><td>X</td><td></td><td></td><td></td></tr><tr><td>31.2</td><td>Certification of Chief Financial Officer</td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</td><td>X</td><td></td><td></td><td></td></tr><tr><td>32.1</td><td>Certification of Chief Executive Officer</td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>Pursuant to 18 U.S.C. Section 1350, as Adopted</td><td>*</td><td></td><td></td><td></td></tr><tr><td></td><td>Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</td><td></td><td></td><td></td><td></td></tr><tr><td>32.2</td><td>Certification of Chief Financial Officer</td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>Pursuant to 18 U.S.C. Section 1350, as Adopted</td><td>*</td><td></td><td></td><td></td></tr><tr><td></td><td>Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</td><td></td><td></td><td></td><td></td></tr><tr><td>99.1</td><td>Reserves Report of Tenet Advisory Group, LLC</td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>for reserves of PEDEVCO Corp. at December 31, 2017</td><td>X</td><td></td><td></td><td></td></tr><tr><td>99.2</td><td>Charter of the Nominating and Corporate Governance Committee</td><td>8-K</td><td>99.1</td><td>September 5, 2013</td><td>001-35922</td></tr><tr><td>99.3</td><td>Charter of the Compensation Committee</td><td>8-K</td><td>99.2</td><td>September 5, 2013</td><td>001-35922</td></tr><tr><td>99.4</td><td>Charter of the Audit Committee</td><td>8-K</td><td>99.3</td><td>September 5, 2013</td><td>001-35922</td></tr><tr><td>99.5</td><td>Form of Certificate of Designations of PEDEVCO Corp. Establishing the Designations, Preferences, Limitations and Relative Rights of its Series B Convertible Preferred Stock</td><td>8-K</td><td>3.1</td><td>December 30, 2015</td><td>001-35922</td></tr><tr><td>101.INS</td><td>XBRL Instance Document</td><td>X</td><td></td><td></td><td></td></tr><tr><td>101.SCH</td><td>XBRL Taxonomy Extension Schema Document</td><td>X</td><td></td><td></td><td></td></tr><tr><td>101.CAL</td><td>XBRL Taxonomy Extension Calculation Linkbase Document</td><td>X</td><td></td><td></td><td></td></tr><tr><td>101.DEF</td><td>XBRL Taxonomy Extension Definition Linkbase Document</td><td>X</td><td></td><td></td><td></td></tr><tr><td>101.LAB</td><td>XBRL Taxonomy Extension Label Linkbase Document</td><td>X</td><td></td><td></td><td></td></tr><tr><td>101.PRE</td><td>XBRL Taxonomy Extension Presentation Linkbase Document</td><td>X</td><td></td><td></td><td></td></tr></table>

* Furnished herein.

** Indicates management contract or compensatory plan or arrangement.

# Although the RJ Credit LLC note has a total face value of $19,450,000, the Company is not obligated to pay any amount more than is borrowed over the $3,950,000 initially funded by RJ Credit LLC and the $1,967,000 funded in September 2014.

+ Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however that PEDEVCO Corp. may request confidential treatment






## SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

## PEDEVCO Corp.

March 29, 2018

By: /s/ Michael L. Peterson
Michael L. Peterson
Chief Executive Officer
(Principal Executive Officer)

March 29, 2018

By: /s/ Gregory L. Overholtz
Gregory Overholtz
Chief Financial Officer
(Principal Financial and Accounting
Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

<table><tr><td>Signature</td><td>Title</td><td>Date</td></tr><tr><td>By: /s/ Michael L. Peterson</td><td>President and Chief Executive Officer (Principal Executive Officer)</td><td>March 29, 2018</td></tr><tr><td>Michael L. Peterson</td><td></td><td></td></tr><tr><td>By: /s/ Gregory L. Overholtz</td><td>Chief Financial Officer</td><td>March 29, 2018</td></tr><tr><td>Gregory L. Overholtz</td><td>(Principal Financial and Accounting Officer)</td><td></td></tr><tr><td>By: /s/ Frank C. Ingriselli</td><td>Chairman of the Board of Directors</td><td>March 29, 2018</td></tr><tr><td>Frank C. Ingriselli</td><td></td><td></td></tr><tr><td>By: /s/ David Z. Steinberg</td><td>Director</td><td>March 29, 2018</td></tr><tr><td>David Z. Steinberg</td><td></td><td></td></tr><tr><td>By: /s/ Adam McAfee</td><td>Director</td><td>March 29, 2018</td></tr><tr><td>Adam McAfee</td><td></td><td></td></tr><tr><td>By: /s/ Elizabeth P. Smith</td><td>Director</td><td>March 29, 2018</td></tr><tr><td>Elizabeth P. Smith</td><td></td><td></td></tr></table>



To the stockholders and the board of directors of PEDEVCO Corp.
Danville, California

## Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PEDEVCO Corp. (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

## Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

## Other matters

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has negative working capital, negative operating cash flows and has suffered recurring loss from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

## /s/ GBH CPAs, PC

We have served as the Company's auditor since 2008.
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
March 29, 2018



## PEDEVCO CORP.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share amounts)

<table><tr><td rowspan="2"></td><td colspan="2">December 31,</td></tr><tr><td>2017</td><td>2016</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Current assets:</td><td></td><td></td></tr><tr><td>Cash</td><td>$ 917</td><td>$ 659</td></tr><tr><td>Accounts receivable</td><td>-</td><td>25</td></tr><tr><td>Accounts receivable - oil and gas</td><td>301</td><td>439</td></tr><tr><td>Prepaid expenses and other current assets</td><td>176</td><td>173</td></tr><tr><td>Total current assets</td><td>1,394</td><td>1,296</td></tr><tr><td>Oil and gas properties:</td><td></td><td></td></tr><tr><td>Oil and gas properties, subject to amortization, net</td><td>34,922</td><td>57,395</td></tr><tr><td>Oil and gas properties, not subject to amortization, net</td><td>-</td><td>-</td></tr><tr><td>Total oil and gas properties, net</td><td>34,922</td><td>57,395</td></tr><tr><td>Other assets</td><td>85</td><td>85</td></tr><tr><td>Investments - cost method</td><td>-</td><td>4</td></tr><tr><td>Total assets</td><td>$ 36,401</td><td>$ 58,780</td></tr><tr><td>Liabilities and Shareholders&#x27; Deficit</td><td></td><td></td></tr><tr><td>Current liabilities:</td><td></td><td></td></tr><tr><td>Accounts payable</td><td>$ 101</td><td>$ 103</td></tr><tr><td>Accrued expenses</td><td>2,126</td><td>1,802</td></tr><tr><td>Revenue payable</td><td>557</td><td>517</td></tr><tr><td>Convertible - notes payable - Bridge Notes, net of premiums of $113,000 and $113,000, respectively</td><td>588</td><td>588</td></tr><tr><td>Notes payable - Secured Promissory Notes, net of discounts of $0 and $50,000, respectively</td><td>-</td><td>300</td></tr><tr><td>Total current liabilities</td><td>3,372</td><td>3,310</td></tr><tr><td>Long-term liabilities:</td><td></td><td></td></tr><tr><td>Accrued expenses</td><td>1,462</td><td>589</td></tr><tr><td>Accrued expenses - related party</td><td>1,733</td><td>677</td></tr><tr><td>Notes payable - Secured Promissory Notes, net of discounts of $2,603,000 and $4,600,000, respectively</td><td>34,159</td><td>27,497</td></tr><tr><td>Notes payable - Secured Promissory Notes - related party, net of discounts of $1,148,000 and $2,338,000, respectively</td><td>15,930</td><td>13,319</td></tr><tr><td>Notes payable - Subordinated - related party</td><td>11,483</td><td>10,173</td></tr><tr><td>Notes payable - other</td><td>4,925</td><td>4,925</td></tr><tr><td>Asset retirement obligations</td><td>477</td><td>246</td></tr><tr><td>Total liabilities</td><td>73,541</td><td>60,736</td></tr><tr><td>Commitments and contingencies</td><td></td><td></td></tr><tr><td>Shareholders&#x27; deficit:</td><td></td><td></td></tr><tr><td>Series A convertible preferred stock, $0.001 par value, 100,000,000 shares authorized, 66,625 and 66,625 shares issued and outstanding at December 31, 2017 and 2016, respectively</td><td>-</td><td>-</td></tr><tr><td>Common stock, $0.001 par value, 200,000,000 shares authorized, 7,278,754 and 5,494,394 shares issued and outstanding at December 31, 2017 and 2016, respectively</td><td>7</td><td>5</td></tr><tr><td>Additional paid-in-capital</td><td>100,954</td><td>99,770</td></tr><tr><td>Accumulated deficit</td><td>(138,101)</td><td>(101,731)</td></tr><tr><td>Non-controlling interests</td><td>-</td><td>-</td></tr><tr><td>Total shareholders&#x27; deficit</td><td>(37,140)</td><td>(1,956)</td></tr><tr><td>Total liabilities and shareholders&#x27; deficit</td><td>$ 36,401</td><td>$ 58,780</td></tr></table>

See accompanying notes to consolidated financial statements.



## PEDEVCO CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2017 and 2016
(amounts in thousands, except share amounts)

<table><tr><td rowspan="2"></td><td colspan="3">For the Year Ended December 31,</td></tr><tr><td>2017</td><td>2016</td><td></td></tr><tr><td>Revenue:</td><td></td><td></td><td></td></tr><tr><td>Oil and gas sales</td><td>$ 3,015</td><td>$ 3,968</td><td></td></tr><tr><td>Operating expenses:</td><td></td><td></td><td></td></tr><tr><td>Lease operating costs</td><td>1,348</td><td>1,687</td><td></td></tr><tr><td>Exploration expense</td><td>2</td><td>231</td><td></td></tr><tr><td>Selling, general and administrative expense</td><td>2,529</td><td>3,912</td><td></td></tr><tr><td>Depreciation, depletion, amortization and accretion</td><td>3,754</td><td>5,080</td><td></td></tr><tr><td>Impairment of oil and gas properties</td><td>18,950</td><td>-</td><td></td></tr><tr><td>Gain on settlement of payables</td><td>-</td><td>(1,282)</td><td></td></tr><tr><td>Total operating expenses</td><td>26,583</td><td>9,628</td><td></td></tr><tr><td>Loss on write-off of cost method investment</td><td>(4)</td><td>-</td><td></td></tr><tr><td>Operating loss</td><td>(23,572)</td><td>(5,660)</td><td></td></tr><tr><td>Other income (expense):</td><td></td><td></td><td></td></tr><tr><td>Interest expense</td><td>(12,798)</td><td>(13,959)</td><td></td></tr><tr><td>Total other expense</td><td>(12,798)</td><td>(13,959)</td><td></td></tr></table>

Weighted average number of common shares outstanding:

Basic and diluted

See accompanying notes to consolidated financial statements.



## PEDEVCO CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2017 and 2016
(amounts in thousands, except share amounts)

<table><tr><td rowspan="2"></td><td colspan="2">Series A Convertible Preferred Stock</td><td colspan="2">Common Stock</td><td rowspan="2">Capital</td><td rowspan="2">Accumulated Deficit</td><td rowspan="2">Non-controlling Interests</td><td rowspan="2">Totals</td></tr><tr><td>Shares</td><td>Amount</td><td>Shares</td><td>Amount</td></tr><tr><td>Balances at December 31, 2015</td><td>66,625</td><td>$ -</td><td>4,524,932</td><td>$ 5</td><td>97,203</td><td>$ (82,112)</td><td>$ (59)</td><td>$ 15,037</td></tr><tr><td>Issuance of restricted stock for services upon vesting maturity</td><td>-</td><td>-</td><td>663,182</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Forfeiture of restricted common stock</td><td>-</td><td>-</td><td>(4,500)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Issuance of common stock for settlement of payables</td><td>-</td><td>-</td><td>245,000</td><td>-</td><td>588</td><td>-</td><td>-</td><td>588</td></tr><tr><td>Stock-based compensation</td><td>-</td><td>-</td><td>90,000</td><td>-</td><td>1,476</td><td>-</td><td>-</td><td>1,476</td></tr><tr><td>Stock repurchase and retirement</td><td>-</td><td>-</td><td>(32,349)</td><td>-</td><td>(74)</td><td>-</td><td>-</td><td>(74)</td></tr><tr><td>Cashless exercise of options</td><td>-</td><td>-</td><td>8,129</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Fair value of warrants issued as debt discount</td><td>-</td><td>-</td><td>-</td><td>-</td><td>636</td><td>-</td><td>-</td><td>636</td></tr><tr><td>Minority interest capitalized from PEDCO MSL</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(59)</td><td>-</td><td>59</td><td>-</td></tr><tr><td>Net loss</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(19,619)</td><td>-</td><td>(19,619)</td></tr><tr><td>Balances at December 31, 2016</td><td>66,625</td><td>-</td><td>5,494,394</td><td>5</td><td>99,770</td><td>(101,731)</td><td>-</td><td>(1,956)</td></tr><tr><td>Issuance of common stock for cash</td><td>-</td><td>-</td><td>590,335</td><td>1</td><td>530</td><td>-</td><td>-</td><td>531</td></tr><tr><td>Issuance of restricted stock for services upon vesting maturity</td><td>-</td><td>-</td><td>1,270,000</td><td>1</td><td>(1)</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Stock-based compensation</td><td>-</td><td>-</td><td>-</td><td>-</td><td>655</td><td>-</td><td>-</td><td>655</td></tr><tr><td>Rescinded stock</td><td>-</td><td>-</td><td>(75,975)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Net loss</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(36,370)</td><td>-</td><td>(36,370)</td></tr><tr><td>Balances at December 31, 2017</td><td>66,625</td><td>$ -</td><td>7,278,754</td><td>$ 7</td><td>$ 100,954</td><td>$ (138,101)</td><td>$ -</td><td>$ (37,140)</td></tr></table>

See accompanying notes to consolidated financial statements.



## PEDEVCO CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2017 and 2016
(amounts in thousands)

<table><tr><td rowspan="2"></td><td colspan="3">December 31,</td></tr><tr><td>2017</td><td>2016</td><td></td></tr><tr><td>Cash Flows From Operating Activities:</td><td></td><td></td><td></td></tr><tr><td>Net loss</td><td>$ (36,370)</td><td>$ (19,619)</td><td></td></tr><tr><td>Adjustments to reconcile net loss to net cash used in operating activities:</td><td></td><td></td><td></td></tr><tr><td>Stock-based compensation</td><td>655</td><td>1,476</td><td></td></tr><tr><td>Depreciation, depletion, amortization and accretion</td><td>3,754</td><td>5,080</td><td></td></tr><tr><td>Impairment of oil and gas properties</td><td>18,950</td><td>-</td><td></td></tr><tr><td>Gain on settlement of payables</td><td>-</td><td>(1,282)</td><td></td></tr><tr><td>Loss on write-off of cost method investment</td><td>4</td><td>-</td><td></td></tr><tr><td>Interest expense deferred and capitalized in debt restructuring</td><td>7,083</td><td>6,887</td><td></td></tr><tr><td>Amortization of debt discount</td><td>3,237</td><td>5,576</td><td></td></tr><tr><td>Changes in operating assets and liabilities:</td><td></td><td></td><td></td></tr><tr><td>Accounts receivable</td><td>25</td><td>381</td><td></td></tr><tr><td>Accounts receivable - oil and gas</td><td>138</td><td>562</td><td></td></tr><tr><td>Accounts receivable - related party</td><td>-</td><td>19</td><td></td></tr><tr><td>Prepaid expenses and other current assets</td><td>(3)</td><td>(23)</td><td></td></tr><tr><td>Accounts payable</td><td>(2)</td><td>(3,277)</td><td></td></tr><tr><td>Accrued expenses</td><td>1,197</td><td>(2,286)</td><td></td></tr><tr><td>Accrued expenses - related parties</td><td>1,056</td><td>490</td><td></td></tr><tr><td>Revenue payable</td><td>40</td><td>42</td><td></td></tr><tr><td>Net cash used in operating activities</td><td>(236)</td><td>(5,974)</td><td></td></tr><tr><td>Cash Flows From Investing Activities:</td><td></td><td></td><td></td></tr><tr><td>Cash paid for drilling costs</td><td>-</td><td>(75)</td><td></td></tr><tr><td>Net cash provided by (used in) investing activities</td><td>-</td><td>(75)</td><td></td></tr><tr><td>Cash Flows From Financing Activities:</td><td></td><td></td><td></td></tr><tr><td>Proceeds from notes payable</td><td>-</td><td>6,295</td><td></td></tr><tr><td>Repayment of notes payable</td><td>(37)</td><td>(651)</td><td></td></tr><tr><td>Proceeds from issuance of common stock, net of offering costs</td><td>531</td><td>-</td><td></td></tr><tr><td>Cash paid for stock repurchase and retirement</td><td>-</td><td>(74)</td><td></td></tr><tr><td>Net cash provided by financing activities</td><td>494</td><td>5,570</td><td></td></tr><tr><td>Net increase (decrease) in cash</td><td>258</td><td>(479)</td><td></td></tr><tr><td>Cash at beginning of year</td><td>659</td><td>1,138</td><td></td></tr><tr><td>Cash at end of year</td><td>$ 917</td><td>$ 659</td><td></td></tr></table>



<table><tr><td colspan="4">Supplemental Disclosure of Cash Flow Information</td></tr><tr><td colspan="4">Cash paid for:</td></tr><tr><td>Interest</td><td>$</td><td>-</td><td>$</td></tr><tr><td>Income taxes</td><td>$</td><td>-</td><td>$</td></tr><tr><td colspan="4">Noncash Investing and Financing Activities:</td></tr><tr><td>Accrual of oil and gas development costs</td><td>$</td><td>-</td><td>$</td></tr><tr><td>Acquisition of oil and gas properties for assumption of accounts payable</td><td>$</td><td>-</td><td>$</td></tr><tr><td>Changes in estimates of asset retirement obligations</td><td>$</td><td>97</td><td>$</td></tr><tr><td>Issuance of restricted common stock for services upon vesting maturity</td><td>$</td><td>1</td><td>$</td></tr><tr><td>Issuance of common stock for settlement of payables</td><td>$</td><td>-</td><td>$</td></tr><tr><td>Minority interest capitalized from PEDCO MSL</td><td>$</td><td>-</td><td>$</td></tr><tr><td>Fair value of warrants issued as debt discount</td><td>$</td><td>-</td><td>$</td></tr></table>

See accompanying notes to consolidated financial statements.



# PEDEVCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1 – BASIS OF PRESENTATION

The accompanying consolidated financial statements of PEDEVCO CORP. (“PEDEVCO” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).

The Company’s consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and subsidiaries in which the Company has a controlling financial interest. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company completed a 1-for-10 reverse split of its outstanding common stock, which took effect as of market close on April 7, 2017. All outstanding shares, options, warrants, preferred stock and other securities convertible into the Company's common stock have been retrospectively adjusted to reflect the reverse stock split as required by the terms of such securities with a proportional increase in the related share, conversion or exercise price, as applicable.

## NOTE 2 – DESCRIPTION OF BUSINESS

PEDEVCO’s primary business plan is engaging in the acquisition, exploration, development and production of oil and natural gas shale plays in the United States, with a secondary focus on conventional oil and natural gas plays. The Company’s principal operating properties are located in the Wattenberg, Wattenberg Extension, and Niobrara formation in the Denver-Julesburg Basin (the “D-J Basin” and the “D-J Basin Asset”) in Weld County, Colorado, all of which properties are owned by the Company through its wholly-owned subsidiary, Red Hawk Petroleum, LLC (“Red Hawk”).

The Company plans to focus on the development of shale oil and gas assets held by the Company in its D-J Basin Asset.

The Company plans to seek additional shale oil and gas and conventional oil and gas asset acquisition opportunities in the U.S. utilizing its strategic relationships and technologies that may provide the Company a competitive advantage in accessing and exploring such assets. Some or all of these assets may be acquired by existing subsidiaries or other entities that may be formed at a future date.

## NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation. The consolidated financial statements herein have been prepared in accordance with GAAP and include the accounts of the Company and those of its wholly and partially-owned subsidiaries as follows: (i) Blast AFJ, Inc., a Delaware corporation; (ii) Pacific Energy Development Corp. ("PEDCO"), a Nevada corporation; (iii) Pacific Energy & Rare Earth Limited, a Hong Kong company (dissolved on August 11, 2017); (iv) Blackhawk Energy Limited, a British Virgin Islands company (which is currently in the process of being dissolved); (v) White Hawk Petroleum, LLC, a Nevada limited liability company (dissolved on November 30, 2016); (vi) Red Hawk Petroleum, LLC, a Nevada limited liability company; (vii) Pacific Energy Development MSL, LLC (owned 50% by the Company) (dissolved in September 2016) and is included in our consolidated results for the periods prior to its dissolution ("PEDCO MSL"); (viii) PEDEVCO Acquisition Subsidiary, Inc., a Texas corporation which was formed on May 21, 2015 in connection with the planned reorganization transaction with Dome Energy, Inc. ("Dome Energy"), which was subsequently terminated (dissolved in April 2016); and (ix) White Hawk Energy, LLC, a Delaware limited liability company, formed on January 4, 2016 in connection with the contemplated reorganization transaction with GOM Holdings, LLC ("GOM"), which reorganization transaction has since been terminated (which is currently in the process of being dissolved). All significant intercompany accounts and transactions have been eliminated.

Use of Estimates in Financial Statement Preparation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Significant estimates generally include those with respect to the amount of recoverable oil and gas reserves, the fair value of financial instruments, oil and gas depletion, asset retirement obligations, and stock-based compensation.

Reclassification. Certain amounts for prior periods have been reclassified to conform to the current presentation.



Cash and Cash Equivalents. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of December 31, 2017 and December 31, 2016, cash equivalents consisted of money market funds and cash on deposit.

Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk include cash deposits placed with financial institutions. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2017, approximately $646,000 of the Company’s cash balances were uninsured. The Company has not experienced any losses on such accounts.

Sales to two customers comprised 38% and 51% of the Company’s total oil and gas revenues for the year ended December 31, 2017. Sales to two customers comprised 47% and 42% of the Company’s total oil and gas revenues for the year ended December 31, 2016. The Company believes that, in the event that its primary customers are unable or unwilling to continue to purchase the Company’s production, there are a substantial number of alternative buyers for its production at comparable prices.

Accounts Receivable. Accounts receivable typically consist of oil and gas receivables. The Company has classified these as short-term assets in the balance sheet because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability considering the results of operations of these related entities and, when necessary, records allowances for expected unrecoverable amounts. To date, no significant allowances have been recorded. Included in accounts receivable - oil and gas is $21,000 related to receivables from joint interest owners.

Bad Debt Expense. The Company’s ability to collect outstanding receivables is critical to its operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances. The Company extends credit in the normal course of business. The Company regularly reviews outstanding receivables and when the Company determines that a party may not be able to make required payments a charge to bad debt expense in the period of determination is made. Though the Company’s bad debts have not historically been significant, the Company could experience increased bad debt expense should a financial downturn occur.

Equipment. Equipment is stated at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to expense as incurred. Renewals and betterments which extend the life or improve existing equipment are capitalized. Upon disposition or retirement of equipment, the cost and related accumulated depreciation are removed and any resulting gain or loss is reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 3 to 10 years.

Oil and Gas Properties, Successful Efforts Method. The successful efforts method of accounting is used for oil and gas exploration and production activities. Under this method, all costs for development wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized. Geological and geophysical costs are expensed when incurred. Costs of exploratory wells are capitalized as exploration and evaluation assets pending determination of whether the wells find proved oil and gas reserves. Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, (i.e., prices and costs as of the date the estimate is made). Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.

Exploratory wells in areas not requiring major capital expenditures are evaluated for economic viability within one year of completion of drilling. The related well costs are expensed as dry holes if it is determined that such economic viability is not attained. Otherwise, the related well costs are reclassified to oil and gas properties and subject to impairment review. For exploratory wells that are found to have economically viable reserves in areas where major capital expenditure will be required before production can commence, the related well costs remain capitalized only if additional drilling is under way or firmly planned. Otherwise the related well costs are expensed as dry holes.

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.

Depreciation, depletion and amortization of capitalized oil and gas properties is calculated on a field by field basis using the unit of production method. Lease acquisition costs are amortized over the total estimated proved developed and undeveloped reserves and all other capitalized costs are amortized over proved developed reserves.



Impairment of Long-Lived Assets. The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and estimated fair value. The Company recorded impairment of properties subject to amortization for the years ended December 31, 2017 and 2016 of $18,950,000 and $-0-, respectively.

Asset Retirement Obligations. If a reasonable estimate of the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon wells can be made, the Company will record a liability (an asset retirement obligation or “ARO”) on its consolidated balance sheet and capitalize the present value of the asset retirement cost in oil and gas properties in the period in which the retirement obligation is incurred. In general, the amount of an ARO and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation assuming the normal operation of the asset, using current prices that are escalated by an assumed inflation factor up to the estimated settlement date, which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO will be accreted to its future estimated value using the same assumed cost of funds and the capitalized costs are depreciated on a unit-of-production basis over the estimated proved developed reserves. Both the accretion and the depreciation will be included in depreciation, depletion and amortization expense on our consolidated statements of operations.

The following table describes changes in our asset retirement obligations during the years ended December 31, 2017 and 2016 (in thousands):

<table><tr><td></td><td colspan="2">2017</td><td colspan="2">2016</td></tr><tr><td>Asset retirement obligations at January 1,</td><td>$     246</td><td>$     189</td><td></td><td></td></tr><tr><td>Accretion expense</td><td>134</td><td>31</td><td></td><td></td></tr><tr><td>Obligations incurred for acquisition</td><td>-</td><td>19</td><td></td><td></td></tr><tr><td>Obligations settled - assets sold</td><td>-</td><td>-</td><td></td><td></td></tr><tr><td>Changes in estimates</td><td>97</td><td>7</td><td></td><td></td></tr><tr><td>Asset retirement obligations at December 31,</td><td>$     477</td><td>$     246</td><td></td><td></td></tr></table>

Revenue Recognition. All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue is derived from the sale of crude oil and natural gas. Revenue from crude oil and natural gas sales is recognized when the product is delivered to the purchaser and collectability is reasonably assured. The Company follows the “sales method” of accounting for oil and natural gas revenue, so it recognizes revenue on all natural gas or crude oil sold to purchasers, regardless of whether the sales are proportionate to its ownership in the property. A receivable or liability is recognized only to the extent that the Company has an imbalance on a specific property greater than its share of the expected remaining proved reserves. If collection is uncertain, revenue is recognized when cash is collected.

Income Taxes. The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

Stock-Based Compensation. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.



The Company estimates volatility by considering the historical stock volatility. The Company has opted to use the simplified method for estimating expected term, which is generally equal to the midpoint between the vesting period and the contractual term.

Loss per Common Share. Basic loss per common share equals net loss divided by weighted average common shares outstanding during the period. Diluted income per share includes the impact on dilution from all contingently issuable shares, including options, warrants and convertible securities. The common stock equivalents from contingent shares are determined by the treasury stock method. The Company incurred net losses for the years ended December 31, 2017 and 2016, and therefore, basic and diluted loss per share for those periods are the same as all potential common equivalent shares would be anti-dilutive. The Company excluded 500,727 and 367,247 potentially issuable shares of common stock related to options and 1,231,373 and 1,256,618 potentially issuable shares of common stock related to warrants and 150,569 and 139,169 potentially issuable shares of common stock related to the conversion of Bridge Notes, due to their anti-dilutive effect for the years ended December 31, 2017 and 2016, respectively.

Fair Value of Financial Instruments. The Company follows FASB ASC 820, Fair Value Measurement (“ASC 820”), which clarifies fair value as an exit price, establishes a hierarchical disclosure framework for measuring fair value, and requires extended disclosures about fair value measurements. The provisions of ASC 820 apply to all financial assets and liabilities measured at fair value.

As defined in ASC 820, fair value, clarified as an exit price, represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

As a basis for considering these assumptions, ASC 820 defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

## Recently Issued Accounting Pronouncements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle (issued as Accounting Standards Update (“ASU”) 2014-09 by the FASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2017. The Company has evaluated the adoption of the standard and due to the nature of the Company’s oil and gas revenue agreements method there will be no impact of the standard on its consolidated financial statements.



In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (Topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (Topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which would be adopted for interim and annual reporting periods beginning after December 15, 2017. The Company has evaluated the adoption of the standard and due to the nature of the Company’s oil and gas revenue agreements method there will be no impact of the standard on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company has evaluated the adoption of the standard and, due to there being only one operating lease currently in place, there will be minimal impact of the standard on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation” (Topic 718). The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company adopted the standard as of January 1, 2017. There was no impact of the standard on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017, with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of the new standard.

The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.

Subsequent Events. The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.



## NOTE 4 – GOING CONCERN

Although the Company’s senior Tranche A Notes (as defined and discussed below under “Note 8– Notes Payable – 2016 Senior Note Financing”) do not mature until May 11, 2019, with all of the Company’s other debt expressly subordinated thereto with no amounts due or owing under such subordinated debt until June 11, 2019 at the earliest, with the exception of the New MIEJ Note (as defined and discussed below under “Note 8 – Notes Payable – MIE Jurassic Energy Corporation”), which matures on March 8, 2019 and with interest accruing thru March 8, 2018 being payable on such date, the realization of the Company’s assets and satisfaction of its liabilities remains contingent on the completion of a financing. The Company anticipates that it will need approximately $18 million in 2018 to execute its current business plan and is currently actively negotiating the necessary financing. In the event that the Company is unable to complete the financing currently under consideration, and is otherwise unable to replace such financing on a timely basis, it would materially affect the Company’s ability to continue as a going concern. If such financing is not completed, among other things, the Company expects that it would incur additional impairment of its oil and gas properties of up to $29 million and the Company’s ability to meet its obligations from existing cash flows would be significantly affected. If the Company would be required to seek financing from other sources, such financings may not be available or, if available, may not be on terms acceptable to the Company or its existing lenders. Accordingly, the financial statements do not include any adjustments related to the recoverability of assets or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to raise capital to meet its debt obligations, working capital needs, and develop its oil and gas properties to attain profitable operations. Management has concluded that there is substantial doubt as to the Company’s ability to continue as a going concern within one year after the issue date of these financial statements.

## NOTE 5 – OIL AND GAS PROPERTIES

The following tables summarize the Company’s oil and gas activities by classification for the years ended December 31, 2017 and 2016 (in thousands):

<table><tr><td></td><td>January 1, 2017</td><td>Additions</td><td>Disposals</td><td>Transfers</td><td>December 31, 2017</td></tr><tr><td>Oil and gas properties subject to amortization</td><td>$ 68,306</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ 68,306</td></tr><tr><td>Oil and gas properties not subject to amortization</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Asset retirement costs</td><td>163</td><td>97</td><td>-</td><td>-</td><td>260</td></tr><tr><td>Accumulated depreciation, depletion and impairment</td><td>(11,074)</td><td>(22,570)</td><td>-</td><td>-</td><td>(33,644)</td></tr><tr><td>Total oil and gas properties, net</td><td>$ 57,395</td><td>$ (22,473)</td><td>$ -</td><td>$ -</td><td>$ 34,922</td></tr><tr><td></td><td>January 1, 2016</td><td>Additions</td><td>Disposals</td><td>Transfers</td><td>December 31, 2016</td></tr><tr><td>Oil and gas properties subject to amortization</td><td>$ 64,655</td><td>$ 3,651</td><td>$ -</td><td>$ -</td><td>$ 68,306</td></tr><tr><td>Oil and gas properties not subject to amortization</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Asset retirement costs</td><td>137</td><td>26</td><td>-</td><td>-</td><td>163</td></tr><tr><td>Accumulated depreciation, depletion and impairment</td><td>(6,025)</td><td>(5,049)</td><td>-</td><td>-</td><td>(11,074)</td></tr><tr><td>Total oil and gas properties, net</td><td>$ 58,767</td><td>$ (1,372)</td><td>$ -</td><td>$ -</td><td>$ 57,395</td></tr></table>

The depletion recorded for production on properties subject to amortization for the years ended December 31, 2017 and 2016 amounted to $3,620,000 and $5,049,000, respectively. The Company recorded impairment of leases for the years ended December 31, 2017 and 2016 of $0- and $0-, respectively, for lease acreage that expired during the year due to non-renewals or non-utilization of leases. The Company recorded impairment of properties subject to amortization for the years ended December 31, 2017 and 2016, of $18,950,000 and $0-, respectively. The impairment in 2017 was due to a delay in the funding necessary to support the capital expenditures used in the reserve report for development of the proven undeveloped acreage.

In November of 2017, Red Hawk Petroleum was made an offer by SRC Energy to participate in the Bestway well. The drilling of the well was started in 2015, but the exact completion date and start of production is not yet known. The effective date of the statutory pooling has also not yet been determined. The possible ownership percentage of the well which could be assigned to Red Hawk is still to be determined, but it could be between approximately 1% and 3%. A decision on whether to participate in the well has not yet been made, and thus no related amounts have been included on the financial statements as of December 31, 2017.



During the year ended December 31, 2016, net additions to oil and gas properties subject to amortization were $3,651,000, comprised of the development of the Company's oil and gas properties of $83,000 and drilling and completion costs related to the acquisition of oil and gas properties of $3,568,000 with respect to eight non-operated wells drilled and completed by a third party operator.

## Acquisition of Properties from Dome Energy, Inc.

On November 19, 2015, the Company entered into a Letter Agreement with certain parties including Dome Energy AB and its wholly-owned subsidiary Dome Energy, Inc. (collectively "Dome Energy"), pursuant to which Dome Energy agreed to acquire the Company's interests in eight wells and fully fund the Company's proportionate share of all the corresponding working interest owner expenses with respect to these eight wells. The Company assigned its interests in these wells to Dome Energy effective November 18, 2015, and Dome Energy assumed all amounts owed for the drilling and completion costs corresponding to these interests acquired from the Company.

On March 29, 2016, the Company entered into a Settlement Agreement with Dome Energy, pursuant to which Dome Energy re-conveyed to the Company the interests in these eight wells assigned to Dome Energy by the Company on November 18, 2015, with the Company becoming responsible for its proportionate share of all the working interest owner expenses, and having the right to receive all corresponding revenues with respect to these eight wells, from the initial production date of the wells. As part of this transaction, the Company also settled $659,000 of outstanding payables due from the Company to Dome Energy that was accounted for as a purchase price adjustment to the value of the oil and gas properties acquired. The transaction was closed on May 12, 2016.

The following table summarizes the purchase price and allocation of the purchase price to the net assets acquired in May 2016 (in thousands):

<table><tr><td rowspan="2">Accounts receivable - oil and gas</td><td>Assets Acquired</td></tr><tr><td>$ 793</td></tr><tr><td>Oil and gas properties, subject to amortization</td><td>3,587</td></tr><tr><td>Total assets</td><td>$ 4,380</td></tr><tr><td>Liabilities Assumed:</td><td></td></tr><tr><td>Accounts payable</td><td>$ (4,361)</td></tr><tr><td>Asset retirement obligation</td><td>(19)</td></tr><tr><td>Total liabilities</td><td>(4,380)</td></tr><tr><td>Net purchase price</td><td>$ -</td></tr></table>

## NOTE 6 – ACCOUNTS RECEIVABLE

On November 18, 2015, when the Company assigned its interests in the eight wells to Dome Energy (as described above in Note 5), Dome Energy also agreed to pay an additional $250,000 to the Company in the event the anticipated merger was not consummated. In connection with the assignment of these well interests, Dome Energy issued a contingent promissory note to the Company, dated November 19, 2015 (the "Dome Promissory Note"), with a principal amount of $250,000, which was due to mature on December 29, 2015, upon the termination of the anticipated merger with Dome Energy. To guarantee payment of the Dome Promissory Note, Dome Energy deposited $250,000 into an escrow account. During the year ended December 31, 2016, the Company collected this receivable of $250,000 in full satisfaction of the Dome Promissory Note.



On March 24, 2015, Red Hawk and Dome Energy entered into a Service Agreement, pursuant to which Red Hawk agreed to provide certain human resource and accounting services to Dome Energy, of which $156,000 remained due and payable by Dome Energy to Red Hawk as of December 31, 2015. On March 29, 2016, the Company entered into a Settlement Agreement with Dome Energy and certain of its affiliated entities, pursuant to which the Company and Dome Energy agreed to terminate and cancel the Service Agreement and settle a number of outstanding matters, with Dome Energy agreeing to pay to Red Hawk $50,000 on May 2, 2016, in full satisfaction of the amounts due under the Service Agreement, with all remaining amounts owed forgiven by Red Hawk. As of December 31, 2015, the receivable due from Dome Energy totaled $406,000. During the year ended December 31, 2016, the net receivable created by the Dome Promissory Note was reduced to $25,000 by (i) the collection of the $250,000 as described above, (ii) forgiveness by the Company of $106,000 due from Dome Energy pursuant to the Settlement Agreement, and (iii) the recording of an allowance of $25,000 as a doubtful account (which was recognized as bad debt expense in selling, general and administrative expense on the Company’s income statement). As of December 31, 2016, the $50,000 was still due from Dome to Red Hawk as a part of the Settlement Agreement. The Company recorded an allowance for doubtful accounts as of December 31, 2016 of $25,000 related to this outstanding amount, as $25,000 of the $50,000 was collected in early 2017. During the three months ended March 31, 2017, the net receivable created by the Dome Promissory Note was equal to $25,000 due to (i) the collection of the $25,000 in January 2017, and (ii) the reversal of the allowance of $25,000 as a doubtful account (and credited to bad debt expense in selling, general and administrative expense on the Company’s income statement) due to the collection in April 2017 of the final $25,000 that had been due (the Company had no allowance for doubtful accounts as of March 31, 2017). As of December 31, 2017, the net receivable created by the Dome Promissory Note was $-0-.

## NOTE 7 – OTHER CURRENT ASSETS

On September 11, 2013, the Company entered into a Shares Subscription Agreement (“SSA”) to acquire an approximate 51% ownership in Asia Sixth Energy Resources Limited (“Asia Sixth”), which held an approximate 60% ownership interest in Aral Petroleum Capital Limited Partnership (“Aral”), a Kazakhstan entity. In August 2014 the SSA was restructured (the “Aral Restructuring”), in connection with which the Company received a promissory note in the principal amount of $10.0 million from Asia Sixth (the “A6 Promissory Note”), which would be converted into a 10.0% interest in Caspian Energy, Inc. (“Caspian Energy”), an Ontario, Canada company listed on the NEX board of the TSX Venture Exchange, upon the consummation of the Aral Restructuring.

The Company entered into an agreement with Golden Globe Energy (US), LLC (“GGE”) to convey 50% of our interests in Asia Sixth in connection with an acquisition transaction in March 2014.

The Aral Restructuring was consummated on May 20, 2015, upon which date the A6 Promissory Note was converted into 23,182,880 shares of common stock of Caspian Energy. In addition, on the date of conversion of the A6 Promissory Note, Mr. Frank Ingriselli, our Chairman and then Chief Executive Officer, was appointed as a non-executive director of Caspian Energy and currently serves as the Chairman of its Board of Directors.

In February 2015, we expanded our D-J Basin position through the acquisition of acreage from GGE (the “GGE Acquisition” and the “GGE Acquired Assets”). In connection with our GGE Acquisition, on February 23, 2015, we provided GGE a one-year option to acquire our interest in Caspian Energy for $100,000 payable upon exercise of the option recorded in prepaid expenses and other current assets. As a result, the carrying value of the 23,182,880 shares of common stock of Caspian Energy which were issued upon conversion of the A6 Promissory Note at December 31, 2015 was $100,000. The option provided to GGE was not exercised and expired on February 23, 2016, resulting in the Company retaining ownership of the 23,182,880 shares of Caspian Energy.

In connection with the Company’s May 2016 debt restructuring as more fully described below, the Company entered into a new Call Option Agreement with GGE, dated May 12, 2016 (the “GGE Option Agreement”), pursuant to which the Company provided GGE an option to purchase the 23,182,880 common shares of Caspian Energy upon payment of $100,000 by GGE to the Company and is callable by GGE at any time. The option expires on May 12, 2019, which is the maturity date of the debt evidenced by that certain Note and Security Agreement, dated April 10, 2014, as amended on February 23, 2015, and May 12, 2016, issued by the Company to RJ Credit LLC (“RJC” and the “RJC Junior Note”), as described below. The $100,000 option is classified as part of other current assets as of December 31, 2017 and 2016.



## NOTE 8 – NOTES PAYABLE

## Note Purchase Agreement and Sale of Secured Promissory Notes

On March 7, 2014, the Company entered into a $50 million financing facility (the "Notes Purchase Agreement") between the Company, Bre BCLIC Primary, Bre BCLIC Sub, Bre WNIC 2013 LTC Primary, Bre WNIC 2013 LTC Sub, and RJC, as investors (collectively, the "Investors"), and BAM Administrative Services LLC, as agent for the Investors (the "Agent") (upon notice received from the Agent on October 10, 2017, the Agent resigned as agent for the Lenders effective December 31, 2017, and no replacement agent has been designated by the Lenders subsequent to such date). The Company issued the Investors Secured Promissory Notes in the aggregate principal amount of $34.5 million (the "Initial Notes"), which also provided for an additional $15.5 million available under the financing agreement to fund the Company's future drilling costs to be evidenced by notes with substantially similar terms as the Initial Notes (the "Subsequent Notes," and together with the Initial Notes, the "Senior Notes"). On March 19, 2015, Bre WNIC 2013 LTC Primary transferred a portion of its Initial Note to HEARTLAND Bank (subsequently assigned by HEARTLAND Bank to CadleRock IV, LLC, effective March 8, 2018), and effective April 1, 2015, Bre BCLIC Primary transferred its Initial Note to Senior Health Insurance Company of Pennsylvania ("SHIP"), with each of HEARTLAND Bank and SHIP becoming an "Investor" for purposes of the discussion below.

The Initial Notes, as originally issued, accrued interest at the rate of 15% per annum, payable monthly, required us to make certain mandatory principal payments and was originally to mature on March 7, 2017.

On August 28, 2015, January 29, 2016, March 7, 2016 and April 1, 2016, the Company entered into several letter agreements and amendments with certain of the holders to: (i) defer until the maturity date of their Senior Notes the mandatory principal payments that would otherwise be due and payable by the Company to them on payment dates occurring from August 2015 through April 2016; and (ii) defer until the maturity date of their Senior Notes and the RJC Junior Note all of the interest payments that would otherwise be due and payable by the Company to them from August 2015 to April 2016, with all interest amounts deferred being added to principal on the first business day of the month following the month in which such deferred interest is accrued. The purpose of these deferrals was to provide the Company with temporary relief from cash requirements to focus and execute upon its contemplated business combinations.

During the year ended December 31, 2017, there were no payments made to reduce the outstanding principal due under the Initial Notes, however, such Notes were restructured as described below.

## 2016 Senior Note Restructuring

Following a series of temporary payment deferrals as described above, on May 12, 2016 (the "Closing Date"), the Company entered into an Amended and Restated Note Purchase Agreement (the "Amended NPA"), with existing lenders SHIP, Bre BCLIC Sub, Bre WNIC 2013 LTC Primary, Bre WNIC 2013 LTC Sub, HEARTLAND Bank (subsequently assigned by HEARTLAND Bank to CadleRock IV, LLC, effective March 8, 2018), and RJC, and new lenders BHLN-Pedco Corp. ("BHLN") and BBLN-Pedco Corp. ("BBLN," and together with BHLN and RJC, the "Tranche A Investors") (the investors in the Tranche B Notes (defined below) and the Tranche A Investors, collectively, the "Lenders"), and the Agent, as agent for the Lenders. The Amended NPA amended and restated the Senior Notes held by the Tranche B Investors, and the Company issued new Senior Secured Promissory Notes to each of the Tranche B Investors (collectively, the "Tranche B Notes") in a transaction that qualified as a troubled debt restructuring. RJC is also a party to the RJC Junior Note (discussed below under Notes Payable - Related Party Financings - The Subordinated Note Payable Assumed).

Subsequently, certain of the Lenders transferred some or all of the principal outstanding under the New Senior Notes (as defined below) held by them and the term Lenders as used herein refers to the current holders of the New Senior Notes, as applicable.



The Amended NPA amended the Senior Notes as follows:

- Created and issued to the Tranche A Investors new “Tranche A Notes,” in substantially the same form and with similar terms as the Tranche B Notes, except as discussed below, consisting of a term loan issuable in tranches with a maximum aggregate principal amount of $25,960,000, with borrowed funds accruing interest at 15% per annum, and maturing on May 11, 2019 (the “Tranche A Maturity Date”) (the “Tranche A Notes,” and together with the Tranche B Notes, the “New Senior Notes”);

- The Company capitalized all accrued and unpaid interest under the Tranche B Notes as a term loan with an aggregate outstanding principal balance as of May 12, 2016 equal to $39,065,000 (as of December 31, 2017 and 2016, the aggregate outstanding principal balance is $48,106,000 and $42,333,000, respectively). The Tranche B Notes mature on June 11, 2019 except for the Tranche B Note issued to RJC, which matures on July 11, 2019;

- Amended the provisions of the Senior Notes which required mandatory prepayments from our revenues, replacing them with a Net Revenue Sweep as described below; and

- Provides that interest on the Tranche B Notes will continue to accrue at the rate of 15% per annum, but all accrued interest through December 31, 2017 shall be deferred until due and payable on the maturity date, with all interest amounts deferred being added to the principal of the Tranche B Notes on a monthly basis and that following December 31, 2017, all interest will accrue and be paid monthly in arrears in cash to the Tranche B Note holders, provided, however, no payment may be made on the Tranche B Notes unless and until the Tranche A Notes are repaid in full.

The Tranche A Notes are substantially similar to the Tranche B Notes, except that such notes are senior to the Tranche B Notes, accrue interest until maturity and have priority to the payment of Monthly Net Revenues as discussed below.

Amounts paid to the Agent through the Net Revenue Sweep are applied first to the repayment of principal and interest due under the Tranche A Notes until such notes are paid in full and then to the repayment of principal and interest amounts due under the Tranche B Notes. As of December 31, 2017, the Company has paid $688,000 of principal under the Net Revenue Sweep, of which $37,000 was paid during the current year.

On the Closing Date, Tranche A Investors BHLN and BBLN loaned the Company their pro rata share of an aggregate of $6,422,000 (the “Initial Tranche A Funding”). The Initial Tranche A Funding net proceeds (amounting to $6,422,000 less legal fees of $127,000) were used by the Company to (i) fund approximately $5.1 million due to a third party operator for drilling and completion expenses related to the acquired working interests in eight wells from Dome Energy, (ii) pay $750,000 of the Company’s past due payables to Liberty (defined below under “Note 9 – Commitments and Contingencies” – “Other Commitments”), (iii) pay $445,000 of unpaid interest payments due to Heartland Bank under its Tranche B Note through February 29, 2016, and (iv) pay fees and expenses of $127,000.

Subject to the terms and conditions of the Amended NPA, the Company may request each Tranche A Investor, from time to time, to advance to the Company additional amounts of funding (each, a "Subsequent Tranche A Funding"), provided that: (i) the Company may not request a Subsequent Tranche A Funding more than one time in any calendar month; (ii) Agent shall have received a written request from the Company at least 15 business days prior to the requested date of such advance (the "Advance Request"); (iii) no Event of Default shall have occurred and be continuing; and (iv) the Company shall provide to the Agent such documents, instruments, certificates and other writings as the Agent shall reasonably require in its sole and absolute discretion. The advancement of all or any portion of the Subsequent Tranche A Funding is in the sole and absolute discretion of the Agent and the Investors and no Investor is obligated to fund all or any part of the Subsequent Tranche A Funding. Each Subsequent Tranche A Funding shall be in a minimum amount of $500,000 and multiples of $100,000 in excess thereof. The aggregate amount of Subsequent Tranche A Fundings that may be made by the Investors under the Amended NPA shall not exceed $18,577,876 and any Subsequent Tranche A Funding repaid may not be re-borrowed.

In addition, subject to the terms and conditions of the Amended NPA, RJC agreed to loan to the Company $240,000, within 30 days of the Closing Date and within 30 days of each of July 1, 2016, October 1, 2016 and January 1, 2017 (collectively, the "RJC Fundings" and collectively with the Investor Tranche A Fundings, the "Fundings"), provided that no Event of Default or Default shall exist. The aggregate amount of the RJC Fundings made by RJC under the Amended NPA shall not exceed $960,000 and any Funding repaid may not be re-borrowed. As of December 31, 2017 and 2016, the Company has received no loan proceeds under this agreement, and RJC is in default of its funding obligations thereunder.



To guarantee RJC’s obligation in connection with the RJC Fundings as required under the Amended NPA, GGE entered into a Share Pledge Agreement with the Company, dated May 12, 2016 (the “GGE Pledge Agreement”), pursuant to which GGE agreed to pledge an aggregate of 10,000 shares of the Company’s Series A Convertible Preferred Stock held by GGE (convertible into 1,000,000 shares of Company common stock), which pledged shares are subject to automatic cancellation and forfeiture based on a schedule set forth in the GGE Share Pledge Agreement, in the event RJC fails to meet each of its RJC Funding obligations pursuant to the Amended NPA. To date, RJC has not met its RJC Funding obligations under the Amended NPA and the Company is entitled to cancel and forfeit 10,000 shares of the Company’s Series A Convertible Preferred Stock held by GGE pursuant to the terms of the GGE Pledge Agreement, which determination to cancel shares has not been made, and which shares have not been cancelled, as of the date of this filing.

As additional consideration for the entry into the Amended NPA, the Company granted to BHLN and BBLN, warrants exercisable for an aggregate of 596,280 shares of common stock of the Company (the "Investor Warrants"). The warrants have a 3 year term, are transferrable, and are exercisable on a cashless basis at any time at $2.50 per share (as amended). The Investor Warrants include a beneficial ownership limitation that prohibits the exercise of the Investor Warrants to the extent such exercise would result in the holder, together with its affiliates, holding more than 9.99% of the Company's outstanding voting stock (the "Blocker Provision"). The fair value of the Investor Warrants issued is approximately $707,000 based on the Black-Scholes option pricing model. The relative fair value allocated to the Tranche A Notes and recorded as debt discount was $636,000.

Other than the Investor Warrants, no additional warrants exercisable for common stock of the Company are due, owing, or shall be granted to the Lenders pursuant to the Senior Notes, as amended. In addition, warrants exercisable for an aggregate of 34,911 shares of the Company's common stock at an exercise price of $15.00 per share and warrants exercisable for an aggregate of 120,000 shares of the Company's common stock at an exercise price of $7.50 per share previously granted by the Company to certain of the Lenders on September 10, 2015 in connection with prior interest payment deferrals have been amended and restated to provide that all such warrants are exercisable on a cashless basis and to include a Blocker Provision (the "Amended and Restated Warrants").

Additionally, the Company also agreed to (a) provide to the Agent and the Investors a monthly projected general and administrative expense report (the "Projected G&A") and a monthly comparison report of the Projected G&A provided for the preceding month, with an explanation of any variances, provided that in no event shall such variances exceed $150,000, and (b) pay to the Agent within 2 business days following the end of each calendar month all of the Company's oil and gas revenue received by the Company during such month (the "Net Revenue Sweep"), less (i) lease operating expenses, (ii) interest payments due to Investors under the New Senior Notes, (iii) general and administrative expenses not to exceed $150,000 per month unless preapproved by the Agent (the "G&A Cap"), and (iv) preapproved extraordinary expenses (together the "Monthly Net Revenues"). Amounts paid to the Agent through the Net Revenue Sweep are applied first to the repayment of principal and interest due under the Tranche A Notes until such notes are paid in full and then to the repayment of principal and interest amounts due under the Tranche B Notes. During the years ended December 31, 2017 and 2016, the Company has paid $37,000 and $651,000, respectively, of principal under the Net Revenue Sweep. The amount of interest deferred under the Tranche A and Tranche B Notes as of December 31, 2017 and 2016 equaled $3,195,000 and $1,266,000, respectively, and was accounted for on the balance sheet under long-term accrued expenses and accrued expenses - related party.

The amounts outstanding under the New Senior Notes are secured by a first priority security interest in all of the Company’s and its subsidiaries’ assets, property, real property, intellectual property, securities and proceeds therefrom, granted in favor of the Agent for the benefit of the Lenders, pursuant to a Security Agreement and a Patent Security Agreement, each entered into as of March 7, 2014, as amended on May 12, 2016 (the “Amended Security Agreement” and “Amended Patent Agreement,” respectively). Additionally, the Agent, for the benefit of the Lenders, was granted a mortgage and security interest in all of the Company’s and its subsidiaries real property as located in the State of Colorado and the State of Texas pursuant to (i) a Leasehold Deed of Trust, Fixture Filing, Assignment of Rents and Leases, and Security Agreements, dated March 7, 2014, as amended May 12, 2016, filed in Weld County and Morgan County, Colorado; and (ii) a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production filed in Matagorda County, Texas (collectively, the “Amended Mortgages”).

Other than as described above, the terms of the Amended NPA (including the covenants and obligations thereunder) are substantially the same as the Notes Purchase Agreement, and the terms of the Tranche A Notes and Tranche B Notes (including the events of default, interest rates and conditions associated therewith) are substantially the same as the Senior Notes.



All debt discount amounts are amortized using the effective interest rate method. The total amount of the remaining debt discount reflected on the accompanying balance sheet as of December 31, 2017 and 2016 was $3,751,000 and $6,988,000 respectively. Amortization of debt discount and total interest expense for the notes (New Senior Notes – Tranche B and Tranche A Notes and GGE Notes) was $3,237,000 and $9,012,000, respectively, for the year ended December 31, 2017 and was $5,576,000 and $7,832,000, respectively, for the year ended December 31, 2016.

## Junior Debt Restructuring

On May 12, 2016, the Company entered into an Amendment No. 2 to Note and Security Agreement with RJC (the "Second Amendment"). The Company and RJC agreed to amend the RJC Junior Note to (i) capitalize all accrued and unpaid interest under the RJC Junior Note as of May 12, 2016, and add it to the note principal, making the outstanding principal amount of the RJC Junior Note as of May 12, 2016 equal to $9,379,000, (ii) extend the maturity date ("Termination Date") from December 31, 2017 to July 11, 2019, (iii) provide that all future interest accruing under the RJC Junior Note is deferred until payable on the Termination Date, with all future interest amounts deferred being added to the principal on a monthly basis, and (iv) subordinate the RJC Junior Note to the New Senior Notes.

## Bridge Note Financing

As of December 31, 2017, the Company had Bridge Notes with an aggregate principal amount of $475,000 remaining outstanding, plus accrued interest of $230,000 and additional payment-in-kind (“PIK”) of $48,000. The aggregate principal and accrued and unpaid interest and PIK amounts are available for conversion into common stock pursuant to the terms of the Bridge Notes into common stock of the Company, subject to no more than 19.99% of the Company’s outstanding common stock on the date the Second Amended Notes were entered into. Upon a conversion, the applicable holder shall receive that number of shares of common stock as is determined by dividing the Conversion Amount by a conversion price (the “Conversion Price”) as follows:

(A) prior to June 1, 2014, the Conversion Price was $21.50 per share; and

(B) following June 1, 2014, the Conversion Price is the greater of (i) 80% of the average of the closing price per share of the Company’s publicly-traded common stock for the five (5) trading days immediately preceding the date of the conversion notice provided by the holder; and (ii) $5.00 per share.

Additionally, each Bridge Note holder entered into a Subordination and Intercreditor Agreement in favor of the Agent, subordinating and deferring the repayment of the Bridge Notes until full repayment of certain senior notes. The Subordination and Intercreditor Agreements also prohibit the Company from repaying the Bridge Notes until certain senior notes have been paid in full, except that we are allowed to repay the Bridge Notes from net proceeds received from the sale of common or preferred stock (i) in calendar year 2014 if such net proceeds received in such calendar year exceeds $35,000,000, (ii) in calendar year 2015 if such net proceeds received in such calendar year exceeds $50,000,000, and (iii) in calendar year 2016 if such net proceeds actually received in such calendar year exceeds $50,000,000, none of which has occurred to date. The interest expense related to these notes for the year ended December 31, 2017 was $57,000, compared to $57,000 for 2016.

The unamortized debt premium as of December 31, 2017 and 2016 was $113,000 and $113,000, respectively. No amortization was recorded during 2017 or 2016 due to these notes being subordinated by the Senior Notes.

## MIE Jurassic Energy Corporation

On February 14, 2013, PEDCO entered into a Secured Subordinated Promissory Note, which was amended on March 25, 2013 and July 9, 2013 (the "MIEJ Note", as amended through December 31, 2014) with MIEJ.

In February 2015, the Company and PEDCO entered into a Settlement Agreement with MIEJ and the New MIEJ Note in the amount of $4.925 million, as discussed in Note 8. As of December 31, 2017, the amount outstanding under the New MIEJ Note was $4,925,000.



The New MIEJ Note has an interest rate of 10.0%, with no interest due until maturity, is secured by all of the Company’s assets, and is subordinated to the Senior Notes. MIEJ also agreed to subordinate its note up to an additional $60 million of new senior lending, with any portion of new senior lending in excess of this amount requiring to be paid first to MIEJ until the New MIEJ Note is paid in full. Further, for every $20 million in new senior lending the Company raises, MIEJ is required to be paid all interest and fees accrued on the New MIEJ Note through such date. The New MIEJ Note was due and payable on March 8, 2017, subject to automatic extensions upon the occurrence of a Long Term Financing (defined below), which as described below has occurred to date.

On a one-time basis, the Secured Promissory Notes may be refinanced by a new Loan (“Long-Term Financing”) by one or more third party replacement lenders (“Replacement Lenders”), and in such event the Company shall undertake commercially reasonable best efforts to cause the Replacement Lenders to simultaneously refinance both the Senior Notes and the New MIEJ Note as part of such Long-Term Financing. If the Replacement Lenders are unable or unwilling to include the New MIEJ Note in such financing, then the Long-Term Financing may proceed without including the New MIEJ Note, and the New MIEJ Note shall remain in place and shall be automatically subordinated, without further consent of MIEJ, to such Long-Term Financing. Furthermore, upon the occurrence of a Long-Term Financing, the maturity of the New MIEJ Note is automatically extended to the same maturity date of the Long-Term Financing, but to no later than March 8, 2020. Additionally, in connection with a contemplated Long-Term Financing:

- The Long-Term Financing must not exceed $95 million;

- The Company must make commercially reasonable best efforts to include adequate reserves or other payment provisions whereby MIEJ is paid all interest and fees accrued on the New MIEJ Note commencing as of March 8, 2017 and annually thereafter, and to allow for quarterly interest payments starting March 31, 2017 of not less than 5% per annum on the outstanding balance of the New MIEJ Note, plus a one-time payment of accrued interest (not to exceed $500,000) as of March 31, 2017; and

- Commencing on March 8, 2017, MIEJ shall have the right to convert the balance of the New MIEJ Note into the Company’s common stock at a price equal to 80% of the average closing price per share of our stock over the then previous 60 days, subject to a minimum conversion price of $3.00 per share. MIEJ shall not be permitted to convert if the conversion would result in MIEJ holding more than 19.9% of the Company’s outstanding common stock without approval from the Company’s shareholders, which approval the Company obtained at its 2016 annual shareholder meeting held on December 28, 2016.

In the event the Secured Promissory Notes are not refinanced, restructured or extended by the existing Investors, the maturity of both the New MIEJ Note and the Secured Promissory Notes may be extended to no later than March 8, 2019, without requiring the consent of MIEJ. However, (i) any such maturity extension of the New MIEJ Note will give MIEJ the right to convert the note into our common stock as described above, commencing on March 8, 2017, and (ii) such extension agreement must provide that MIEJ is paid all interest and fees accrued on the New MIEJ Note as of March 8, 2018. The New MIEJ Note may be prepaid any time without penalty.

As a result of the Company’s May 2016 senior debt restructuring pursuant to the Amended NPA (as described above under “Note Purchase Agreement and Sale of Secured Promissory Notes” – “2016 Senior Note Restructuring”), the maturity date of the New MIEJ Note has automatically been extended to March 8, 2019, and as a result of the Company’s shareholders approving the conversion terms of the MIEJ Note at the Company’s annual shareholder meeting held on December 28, 2016, MIEJ has the Right of Conversion (described above) beginning on March 8, 2017.

The interest expense related to this note for the year ended December 31, 2017 was $493,000, and for the year ended December 31, 2016 was $494,000.

For financial reporting purposes, MIEJ was considered a related party for all periods presented prior to the MIEJ Settlement Agreement signed in February 2015. After that date, MIEJ is no longer considered a related party.



## Related Party Financings

## The Subordinated Note Payable Assumed

In 2015, the Company assumed approximately $8.35 million of subordinated note payable from GGE in the acquisition of the GGE Acquired Assets (the "RJC Junior Note"). The amount outstanding on the RJC Junior Note as of December 31, 2017 and 2016 equaled $11,483,000 and $10,173,000 respectively. The lender under the RJC Junior Note is RJC, which is one of the lenders under the Senior Notes and is an affiliate of GGE. The note was originally due and payable on December 31, 2017, but has been extended to July 11, 2019 in connection with the May 2016 restructuring as described above. The assumed note payable is subordinate to the Senior Notes, as well as any future secured indebtedness from a lender with an aggregate principal amount of at least $20,000,000. Should the Company repay the Senior Notes or replace them with secured indebtedness from a lender with an aggregate principal amount of at least $20,000,000, RJC agreed to further amend the subordinated note payable to adjust the frequency of interest payments or to eliminate the payments and replace them with a single payment of the accrued interest to be paid at maturity.

The interest expense related to the RJC Junior Note for the year December 31, 2017 was $1,309,000, and for the year ended December 31, 2016 was $1,164,000.

## 2016 RJC Subordinated Note Deferrals

On January 29, 2016 and March 7, 2016, the Company entered into agreements with RJC to defer until maturity the payment of interest and principal due under the RJC Junior Note through March 31, 2016, and reduce the interest rate to 12% per annum effective January 31, 2016.

The deferral period was further extended on May 12, 2016, on which date the Company entered into an Amendment No. 2 to Note and Security Agreement with RJC (the "Second Amendment"). The Company and RJC agreed to amend the RJC Junior Note to (i) capitalize all accrued and unpaid interest under the RJC Junior Note as of May 12, 2016, and add it to the note principal, making the outstanding principal amount of the RJC Junior Note as of June 12, 2016 equal to $9,379,000, (ii) extend the maturity date from December 31, 2017 to July 11, 2019, (iii) provide that all future interest accruing under the RJC Junior Note is deferred until payable on the maturity date, with all future interest amounts deferred being added to the principal on a monthly basis, and (iv) subordinate the RJC Junior Note to the New Senior Notes. The warrants previously granted to RJC on September 10, 2015 were also amended to provide that such warrants are exercisable on a cashless basis and to include a Blocker Provision (as defined above).

For the year ended December 31, 2017, interest deferred and capitalized under Amendment No. 2 (effective May 12, 2016) to the Note amounted to $1,309,000 and amounted to total deferred interest of $2,564,000 since January 1, 2016. The outstanding principal amount of the RJC Junior Note as of December 31, 2017 was equal to $11,483,000.

For the year ended December 31, 2016, interest deferred and capitalized since May 12, 2016, under Amendment No. 2 to the Note amounted to $794,000 and amounted to total deferred interest of $1,255,000 since January 1, 2016. The outstanding principal amount of the RJC Junior Note as of December 31, 2016 was equal to $10,173,000.

## NOTE 9 – COMMITMENTS AND CONTINGENCIES

## Office Lease

In June 2017, the Company entered into a second lease addendum to the original lease agreement signed in July 2012 and the first lease addendum signed in May 2016, as amended, which extends the term of the lease by an additional one year, now ending in July 2018, for its corporate office space located in Danville, California. The obligation under this one-year lease extension for the remainder of the lease through July 2018 is $34,000.

In September 2014, the Company entered into a lease agreement for office space located in Houston, Texas, with a term of five years ending on March 1, 2020, which location served as the Company's operations office. Effective April 1, 2016, the Company terminated this lease agreement and issued the landlord 70,000 shares of common stock valued at $161,000, with no further obligations due thereunder.



## Leasehold Drilling Commitments

The Company’s oil and gas leasehold acreage is subject to expiration of leases if the Company does not drill and hold such acreage by production or otherwise exercises options to extend such leases, if available, in exchange for payment of additional cash consideration. In the D-J Basin Asset, 58 net acres expire in 2018, 469 net acres expire in 2019, and 1,288 net acres expire thereafter (net to our direct ownership interest only). The Company plans to hold significantly all of this acreage through a program of drilling and completing producing wells. Where the Company is not able to drill and complete a well before lease expiration, the Company may seek to extend leases where able. As of December 31, 2017, the Company had fully impaired its unproved leasehold costs based on management’s revised re-leasing program.

## Other Commitments

On December 18, 2015, a complaint was filed against Red Hawk, our wholly-owned subsidiary, in the District Court, County of Weld, State of Colorado (Case Number: 2015CV31079) (the "Court"), pursuant to which Liberty Oilfield Services, LLC ("Liberty") made various claims against Red Hawk in connection with certain completion services provided by Liberty to Red Hawk in November and December 2014, and accrued in accounts payable as of December 31, 2014. The complaint alleges causes of action for foreclosure of lien, breach of contract, quantum meruit and account stated, and seeks payment of amounts allegedly owed, pre- and post-judgment interest, attorneys' fees and court costs in connection with Red Hawk's alleged failure to pay Liberty approximately $2.9 million in fees due for completion services provided by Liberty. On May 12, 2016, the Company and Liberty entered into a settlement agreement, pursuant to which the Company paid to Liberty $750,000 and issued 245,000 fully-vested shares of the Company's restricted common stock, valued at $588,000, based on the market price on the grant date, as full settlement of all amounts due for the services previously rendered, for which the Company owed approximately $2.6 million. As a result of the settlement, the Company recognized a gain on settlement of payables of $1,282,000 during the year ended December 31, 2016.

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any material legal proceeding. In addition, we are not aware of any material legal or governmental proceedings against us, or contemplated to be brought against us.

As part of its regular operations, the Company may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters.

Although the Company provides no assurance about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on the Company’s financial condition or results of operations.

## NOTE 10 – SHAREHOLDERS' EQUITY

## PREFERRED STOCK

At December 31, 2017, the Company was authorized to issue 100,000,000 shares of its preferred stock with a par value of $0.001 per share, of which 25,000,000 shares have been designated “Series A” preferred stock.

On February 23, 2015, the Company issued 66,625 Series A Preferred shares to GGE as part of the consideration paid for the GGE Assets. The fair value of the Series A Preferred stock was $28,402,000 based on a calculation using a binomial lattice option pricing model. See Note 13 below.

The 66,625 shares of Series A Preferred stock issued to GGE were originally contingently redeemable in 4 tranches as follows: (i) 15,000 shares in Tranche One; (ii) 15,000 shares in Tranche Two; (iii) 11,625 shares in Tranche Three; and (iv) 25,000 shares in Tranche Four.



In addition, upon the original issuance of the 66,625 shares of Series A Preferred stock issued to GGE, the Series A preferred stock had the following features:

- a liquidation preference senior to all of the Company’s common stock equal to $400 per share;

- a dividend, payable annually, of 10% of the liquidation preference;

• voting rights on all matters, with each share having 1 vote; and

- a conversion feature at GGE’s option which would allow the Series A Preferred stock to be converted into shares of the Company’s common stock on a 100:1 basis.

However, following the October 7, 2015 approval of the Company shareholders of the issuance of shares of common stock upon the conversion of the Series A Preferred stock, the Series A Preferred features have been modified as follows:

- the Series A Preferred stock ceased accruing dividends and all accrued and unpaid dividends have been automatically forfeited and forgiven; and

- the liquidation preference of the Series A Preferred stock has been reduced to $0.001 per share from $400 per share.

GGE was also subject to a lock-up provision that prohibited it from selling the shares of common stock through the public markets for less than $10 per share (on an as-converted to common stock basis) until February 23, 2016, and subject a provision which prohibits GGE from converting shares of Series A Preferred stock if upon such conversion it would beneficially own more than 9.99% of our outstanding common stock or voting stock, subject to waiver by the Company.

On November 23, 2015, the Company lost the right to redeem any of the Series A Preferred and the holder also lost the right to force any redemption because, pursuant to the Series A Certificate of Designations, the Company did not repurchase any shares within nine months of the initial Series A Issuance. Accordingly, the Series A Preferred is no longer redeemable.

As of December 31, 2017 and December 31, 2016, there were 66,625 shares of the Company’s Series A Preferred outstanding, 10,000 shares of which are now subject to cancellation and forfeiture as described further in Note 8 above due to RJC’s failure to meet its RJC Funding obligations under the Amended NPA.

## COMMON STOCK

At December 31, 2017, the Company was authorized to issue 200,000,000 shares of its common stock with a par value of $0.001 per share.

During the year ended December 31, 2016, the Company issued shares of common stock or restricted common stock as follows:

- On January 7, 2016, the Company issued 175,000 shares of its restricted common stock with a fair value of $385,000, based on the market price on the date of issuance, to certain of its employees, including 60,000 shares to its Chairman and then Chief Executive Officer, Frank C. Ingriselli, 60,000 shares to its President and then Chief Financial Officer, Michael L. Peterson, and 55,000 shares to its Executive Vice President and General Counsel, Clark R. Moore, all pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2015 annual equity incentive compensation review process. 50% of the shares vest on the six month anniversary of the grant date, 30% vest on the twelve month anniversary of the grant date and 20% vest on the eighteen month anniversary of the grant date, all contingent upon the recipient’s continued service with the Company.

- On April 5, 2016, the Company issued 70,000 shares of Company common stock to the Company’s Houston office landlord in connection with the termination of the Company’s Houston office lease, valued at $161,000, based on the market price on the date of grant.



- On April 15, 2016, there were 4,500 shares of unvested restricted common stock forfeited in connection with the termination of an employee.

- On April 28, 2016, there were 32,349 total shares of common stock repurchased and retired by the Company from two employees at $2.30 per share.

- On May 12, 2016, the Company and Liberty entered into a settlement agreement, pursuant to which the Company paid to Liberty $750,000 and issued 245,000 fully-vested shares of the Company’s restricted common stock, valued at $588,000, based on the market price on the grant date, as full settlement of all amounts due for the services previously rendered, for which the Company owed approximately $2.6 million. As of December 31, 2015 and March 31, 2016, the Company had accrued $2,620,000 in accounts payable. As a result of the settlement, the Company recognized a gain on settlement of payables of $1,282,000 during the year ended December 31, 2016.

- On July 5, 2016, the Company issued 8,129 shares of the Company’s common stock to Mr. Frank C. Ingriselli, the Company’s Chairman, member of the Board of Directors, and then Chief Executive Officer, in connection with the cashless net exercise of stock options by Mr. Ingriselli.

- On December 28, 2016, the Company issued 488,182 shares of its restricted common stock with a fair value of $537,000, based on the market price on the date of issuance, to certain of its employees and four Directors, including 165,000 shares to its Chief Executive Officer and President, Michael L. Peterson, and 105,000 shares to its Executive Vice President and General Counsel, Clark R. Moore, all pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2015 annual equity incentive compensation review process. For the employee shares, 50% of the shares vest on the six month anniversary of the grant date, 30% vest on the twelve month anniversary of the grant date and 20% vest on the eighteen month anniversary of the grant date, all contingent upon the recipient’s continued service with the Company.

- On December 28, 2016, the Company issued 20,000 shares of common stock to a financial advisor valued at $1.10 per share, based on the fair value of the stock on the date granted, for consulting services.

The Company completed a 1-for-10 reverse split of its outstanding common stock, which took effect as of market close on April 7, 2017. Before the split, the Company had approximately 54.9 million shares of common stock issued and outstanding, and following the reverse split, the Company had approximately 5.49 million shares of common stock issued and outstanding (subject to adjustment for settlement of fractional shares which were rounded up to the nearest whole share). All outstanding options, warrants, preferred stock and other securities convertible into the Company's common stock have been adjusted as a result of the reverse stock split as required by the terms of such securities with a proportional increase in the exercise and conversion prices, as applicable.

During the year ended December 31, 2017, the Company issued a total of 590,335 shares of common stock under the At Market Issuance Sales Agreement with National Securities Corporation effective September 29, 2016 for gross proceeds of $641,000, and proceeds net of all issuance costs equal to $531,000.

On December 28, 2017, the Company issued 1,270,000 shares of its restricted common stock with a fair value of $394,000, based on the market price on the date of issuance, to certain of its employees and four Directors (150,000 shares to each Director with a fair value of $47,000 for each Director), including 410,000 shares to its Chief Executive Officer and President, Michael L. Peterson, and 260,000 shares to its Executive Vice President and General Counsel, Clark R. Moore, all pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2017 annual equity incentive compensation review process. For the employee shares, 50% of the shares vest on the six month anniversary of the grant date, 30% vest on the twelve month anniversary of the grant date and 20% vest on the eighteen month anniversary of the grant date, all contingent upon the recipient’s continued service with the Company.

On December 28, 2017, the Company and Mr. David Z. Steinberg, a member of the Company’s Board of Directors, entered into a Rescission Agreement pursuant to which the Company and Mr. Steinberg agreed to cancel and rescind an aggregate of 75,975 shares of restricted Company Common Stock originally granted to Mr. Steinberg pursuant to the Board Compensation Program in 2015 and 2016.

As of December 31, 2017, there were 7,278,754 shares of common stock outstanding.



Stock-based compensation expense recorded related to restricted stock during the year ended December 31, 2017 and 2016 was $586,000 and $995,000 respectively. The remaining amount of unamortized stock-based compensation expense related to restricted stock at December 31, 2017 and 2016 was $408,000 and $600,000 respectively.

## NOTE 11 – STOCK OPTIONS AND WARRANTIES

## Blast 2003 Stock Option Plan and 2009 Stock Incentive Plan

Under Blast’s 2003 Stock Option Plan and 2009 Stock Incentive Plan, options to acquire 3,424 shares of common stock were granted and remained outstanding and exercisable as of December 31, 2017 and 2016. No new options were issued under these plans in 2016 or 2017.

## 2012 Incentive Plan

On July 27, 2012, the shareholders of the Company approved the 2012 Equity Incentive Plan (the "2012 Incentive Plan"), which was previously approved by the Board of Directors on June 27, 2012, and authorizes the issuance of various forms of stock-based awards, including incentive or non-qualified options, restricted stock awards, performance shares and other securities as described in greater detail in the 2012 Incentive Plan, to the Company's employees, officers, directors and consultants. The 2012 Incentive Plan was amended on June 27, 2014, October 7, 2015, December 28, 2016 and December 28, 2017 to increase by 500,000, 300,000, 500,000 and 1,500,000 (to 3,000,000 currently), respectively, the number of shares of common stock reserved for issuance under the 2012 Incentive Plan.

A total of 3,000,000 shares of common stock are eligible to be issued under the 2012 Incentive Plan as of December 31, 2017, of which 2,296,130 shares have been issued as restricted stock, 621,700 shares are subject to issuance upon exercise of issued and outstanding options, and 82,170 remain available for future issuance as of December 31, 2017.

## PEDCO 2012 Equity Incentive Plan

As a result of the July 27, 2012 merger by and between the Company, Blast Acquisition Corp., a wholly-owned Nevada subsidiary of the Company (“MergerCo”), and Pacific Energy Development Corp., a privately-held Nevada corporation (“PEDCO”) pursuant to which MergerCo was merged with and into PEDCO, with PEDCO continuing as the surviving entity and becoming a wholly-owned subsidiary of the Company, in a transaction structured to qualify as a tax-free reorganization (the “Merger”), the Company assumed the PEDCO 2012 Equity Incentive Plan (the “PEDCO Incentive Plan”), which was adopted by PEDCO on February 9, 2012. The PEDCO Incentive Plan authorized PEDCO to issue an aggregate of 100,000 shares of common stock in the form of restricted shares, incentive stock options, non-qualified stock options, share appreciation rights, performance shares, and performance units under the PEDCO Incentive Plan. As of December 31, 2017, options to purchase an aggregate of 31,015 shares of the Company’s common stock and 66,625 shares of the Company’s restricted common stock have been granted under this plan (all of which were granted by PEDCO prior to the closing of the merger with the Company, with such grants being assumed by the Company and remaining subject to the PEDCO Incentive Plan following the consummation of the merger). The Company does not plan to grant any additional awards under the PEDCO Incentive Plan.

## Options

On January 7, 2016, the Company granted options to purchase an aggregate of 166,000 shares of common stock to certain of its consultants and employees at an exercise price of $2.20 per share, including an option to purchase 28,000 shares to its Chairman and then Chief Executive Officer (prior to his retirement) Frank C. Ingersielli, an option to purchase 30,000 shares to its President and then Chief Financial Officer Michael L. Peterson, and an option to purchase 28,000 shares to its Executive Vice President and General Counsel Clark R. Moore, all pursuant to the Company's 2012 Amended and Restated Equity Incentive Plan and in connection with the Company's 2014 annual equity incentive compensation review process. The options have terms of five years and fully vested in July 2017. 50% vest six months from the date of grant, 30% vest one year from the date of grant and 20% vest eighteen months from the date of grant, all contingent upon the recipient's continued service with the Company. The aggregate fair value of the options on the date of grant, using the Black-Scholes model, was $183,000. Variables used in the Black-Scholes option-pricing model for the options issued include: (1) a discount rate of 1.61%, (2) expected term of 3.5 years, (3) expected volatility of 69%, and (4) zero expected dividends.



On December 28, 2016, the Company granted options to purchase an aggregate of 90,000 shares of common stock to certain of its employees at an exercise price of $1.10 per share, including an option to purchase 60,000 shares to its Chief Financial Officer Gregory L. Overholtzer, all pursuant to the Company's 2012 Amended and Restated Equity Incentive Plan and in connection with the Company's 2016 annual equity incentive compensation review process. The options have terms of five years and fully vest in June 2018. 50% vest six months from the date of grant, 30% vest one year from the date of grant and 20% vest eighteen months from the date of grant, all contingent upon the recipient's continued service with the Company. The aggregate fair value of the options on the date of grant, using the Black-Scholes model, was $60,000. Variables used in the Black-Scholes option-pricing model for the options issued include: (1) a discount rate of 2.02%, (2) expected term of 3.5 years, (3) expected volatility of 89%, and (4) zero expected dividends.

On December 28, 2017, the Company granted options to purchase an aggregate of 225,000 shares of common stock to certain of its employees at an exercise price of $0.31 per share, including an option to purchase 150,000 shares to its Chief Financial Officer Gregory L. Overholtzler, all pursuant to the Company's 2012 Amended and Restated Equity Incentive Plan and in connection with the Company's 2017 annual equity incentive compensation review process. The options have terms of five years and expire in December 2022. 50% vest six months from the date of grant, 30% vest one year from the date of grant and 20% vest eighteen months from the date of grant, all contingent upon the recipient's continued service with the Company. The aggregate fair value of the options on the date of grant, using the Black-Scholes model, was $44,000.

Variables used in the Black-Scholes option-pricing model for the options issued in 2017 include: (1) a discount rate of 2.23%, (2) expected term of 3.5 years, (3) expected volatility of 92%, and (4) zero expected dividends.

During the year ended December 31, 2017 and 2016, the Company recognized option stock-based compensation expense related to options of $69,000 and $298,000, respectively.

The remaining amount of unamortized stock options expense at December 31, 2017 and 2016 was $47,000 and $73,000, respectively.

The intrinsic value of outstanding and exercisable options at December 31, 2017 and 2016 was $-0- and $-0-, respectively.

Option activity during the year-ended December 31, 2017 and 2016 was:

<table><tr><td></td><td>Number of Shares</td><td>Weighted Average Exercise Price</td><td>Weighted Average Remaining Contract Term (years)</td></tr><tr><td>Outstanding at January 1, 2017</td><td>518,727</td><td>$ 4.95</td><td>4.3</td></tr><tr><td>Granted</td><td>225,000</td><td>0.31</td><td>4.3</td></tr><tr><td>Exercised</td><td>-</td><td></td><td></td></tr><tr><td>Forfeited and cancelled</td><td>-</td><td></td><td></td></tr><tr><td>Outstanding at December 31, 2017</td><td>743,727</td><td>$ 3.45</td><td>3.8</td></tr><tr><td>Exercisable at December 31, 2017</td><td>500,727</td><td>$ 5.09</td><td>3.2</td></tr></table>



<table><tr><td></td><td>Number of Shares</td><td>Weighted Average Exercise Price</td><td>Weighted Average Remaining Contract Term (years)</td></tr><tr><td>Outstanding at January 1, 2016</td><td>305,890</td><td>$ 8.00</td><td>4.8</td></tr><tr><td>Granted</td><td>256,000</td><td>1.80</td><td></td></tr><tr><td>Exercised</td><td>(8,125)</td><td>2.20</td><td></td></tr><tr><td>Forfeited and cancelled</td><td>(35,038)</td><td>8.90</td><td></td></tr><tr><td>Outstanding at December 31, 2016</td><td>518,727</td><td>$ 4.95</td><td>4.3</td></tr><tr><td>Exercisable at December 31, 2016</td><td>367,247</td><td>$ 6.10</td><td>4.2</td></tr></table>

Summary of options outstanding and exercisable as of December 31, 2017 was as follows:

<table><tr><td>Exercise Price</td><td>Weighted Average Remaining Life (years)</td><td>Options Outstanding</td><td>Options Exercisable</td></tr><tr><td>$ 0.30</td><td>1.51</td><td>225,000</td><td>-</td></tr><tr><td>1.10</td><td>0.48</td><td>90,000</td><td>72,000</td></tr><tr><td>2.20</td><td>0.57</td><td>138,000</td><td>138,000</td></tr><tr><td>2.40</td><td>0.05</td><td>10,000</td><td>10,000</td></tr><tr><td>3.00</td><td>0.01</td><td>2,601</td><td>2,601</td></tr><tr><td>3.70</td><td>0.42</td><td>122,500</td><td>122,500</td></tr><tr><td>5.10</td><td>0.61</td><td>109,083</td><td>109,083</td></tr><tr><td>14.10</td><td>0.04</td><td>10,000</td><td>10,000</td></tr><tr><td>19.40</td><td>0.06</td><td>21,750</td><td>21,750</td></tr><tr><td>25.00</td><td>0.01</td><td>8,000</td><td>8,000</td></tr><tr><td>37.50</td><td>0.02</td><td>6,450</td><td>6,450</td></tr><tr><td>302.40</td><td>0.00</td><td>298</td><td>298</td></tr><tr><td>672.00</td><td>0.00</td><td>45</td><td>45</td></tr><tr><td>$ 0.30 to $672.00</td><td>3.78</td><td>743,727</td><td>500,727</td></tr></table>

Summary of options outstanding and exercisable as of December 31, 2016 was as follows:

<table><tr><td>Exercise Price</td><td>Weighted Average Remaining Life (years)</td><td>Options Outstanding</td><td>Options Exercisable</td></tr><tr><td>$ 1.10</td><td>0.90</td><td>90,000</td><td>-</td></tr><tr><td>2.20</td><td>1.10</td><td>138,000</td><td>89,000</td></tr><tr><td>2.40</td><td>0.10</td><td>10,000</td><td>10,000</td></tr><tr><td>3.00</td><td>0.10</td><td>2,601</td><td>2,601</td></tr><tr><td>3.70</td><td>0.80</td><td>122,500</td><td>115,050</td></tr><tr><td>5.10</td><td>1.10</td><td>109,083</td><td>109,083</td></tr><tr><td>14.10</td><td>0.10</td><td>10,000</td><td>10,000</td></tr><tr><td>19.40</td><td>0.10</td><td>21,750</td><td>16,720</td></tr><tr><td>25.00</td><td>0.07</td><td>8,000</td><td>8,000</td></tr><tr><td>37.50</td><td>0.03</td><td>6,450</td><td>6,450</td></tr><tr><td>302.40</td><td>0.00</td><td>298</td><td>298</td></tr><tr><td>672.00</td><td>0.00</td><td>45</td><td>45</td></tr><tr><td>$ 1.10 to $672.00</td><td>4.3</td><td>518,727</td><td>367,247</td></tr></table>



## Warrants

## Issuance of Warrants

On May 12, 2016, as consideration for the entry into the Amended NPA, the Company granted to BHLN and BBLN warrants exercisable for an aggregate of 596,280 shares of common stock of the Company (the "Investor Warrants"). The warrants have a 3-year term, are transferrable, and are exercisable on a cashless basis at any time at $2.50 per share, subject to receipt of additional listing approval of such underlying shares of common stock from the NYSE American (which additional listing approval was received from the NYSE American on June 1, 2016). The Investor Warrants include a beneficial ownership limitation that prohibits the exercise of the Investor Warrants to the extent such exercise would result in the holder, together with its affiliates, holding more than 9.99% of the Company's outstanding voting stock (the "Blocker Provision"). The estimated fair value of the Investor Warrants issued is approximately $707,000 based on the Black-Scholes option pricing model. The relative fair value allocated to the Tranche A Notes and recorded as debt discount was $636,000.

Other than the Investor Warrants, no additional warrants exercisable for common stock of the Company are due, owing, or shall be granted to the Lenders pursuant to the Senior Notes. In addition, warrants exercisable for an aggregate of 34,911 shares of the Company's common stock at an exercise price of $15.00 per share and warrants exercisable for an aggregate of 120,100 shares of the Company's common stock at an exercise price of $7.50 per share previously granted by the Company to certain of the Lenders on September 10, 2015 in connection with prior interest payment deferrals have been amended and restated to provide that all of such warrants are exercisable on a cashless basis and include a Blocker Provision.

During the years ended December 31, 2017 and 2016, the Company recognized warrant stock-based compensation expense of $0-$0, respectively.

The intrinsic value of outstanding and exercisable warrants at December 31, 2017 and December 31, 2016 was $0-$0, respectively.

Warrant activity during the years-ended December 31, 2017 and 2016 was:

<table><tr><td></td><td>Number of Shares</td><td>Weighted Average Exercise Price</td><td>Weighted Average Remaining Contract Term (# years)</td></tr><tr><td>Outstanding at January 1, 2017</td><td>1,256,618</td><td>$ 8.00</td><td>2.39</td></tr><tr><td>Granted</td><td>-</td><td>-</td><td></td></tr><tr><td>Forfeited and cancelled</td><td>(25,245)</td><td>33.29</td><td></td></tr><tr><td>Outstanding at December 31, 2017</td><td>1,231,373</td><td>$ 7.44</td><td>1.43</td></tr><tr><td>Exercisable at December 31, 2017</td><td>1,231,373</td><td>$ 7.44</td><td>1.43</td></tr><tr><td></td><td>Number of Shares</td><td>Weighted Average Exercise Price</td><td>Weighted Average Remaining Contract Term (# years)</td></tr><tr><td>Outstanding at January 1, 2016</td><td>780,338</td><td>$ 17.80</td><td>3.0</td></tr><tr><td>Granted</td><td>596,280</td><td>2.50</td><td></td></tr><tr><td>Forfeited and cancelled</td><td>(120,000)</td><td>45.00</td><td></td></tr><tr><td>Outstanding at December 31, 2016</td><td>1,256,618</td><td>$ 8.00</td><td>2.4</td></tr><tr><td>Exercisable at December 31, 2016</td><td>1,256,618</td><td>$ 8.00</td><td>2.4</td></tr></table>



Summary of warrants outstanding and exercisable as of December 31, 2017 was as follows:

<table><tr><td>Exercise Price</td><td>Weighted Average Remaining Life (years)</td><td>Warrants Outstanding</td><td>Warrants Exercisable</td></tr><tr><td>$ 2.50</td><td>0.66</td><td>596,280</td><td>596,280</td></tr><tr><td>4.40</td><td>0.00</td><td>10,000</td><td>10,000</td></tr><tr><td>7.50</td><td>0.07</td><td>120,104</td><td>120,104</td></tr><tr><td>10.00</td><td>0.57</td><td>370,076</td><td>370,076</td></tr><tr><td>15.00</td><td>0.02</td><td>34,913</td><td>34,913</td></tr><tr><td>25.00</td><td>0.10</td><td>100,000</td><td>100,000</td></tr><tr><td></td><td></td><td></td><td></td></tr><tr><td>$ 2.50 to 25.00</td><td>1.42</td><td>1,231,373</td><td>1,231,373</td></tr></table>

Summary of warrants outstanding and exercisable as of December 31, 2016 was as follows:

<table><tr><td>Exercise Price</td><td>Weighted Average Remaining Life (years)</td><td>Warrants Outstanding</td><td>Warrants Exercisable</td></tr><tr><td>$ 2.50</td><td>1.12</td><td>596,280</td><td>596,280</td></tr><tr><td>4.40</td><td>0.01</td><td>10,000</td><td>10,000</td></tr><tr><td>7.50</td><td>0.17</td><td>120,100</td><td>120,100</td></tr><tr><td>10.00</td><td>0.87</td><td>370,076</td><td>370,076</td></tr><tr><td>15.00</td><td>0.05</td><td>34,912</td><td>34,912</td></tr><tr><td>23.40</td><td>0.00</td><td>16,678</td><td>16,678</td></tr><tr><td>25.00</td><td>0.18</td><td>100,000</td><td>100,000</td></tr><tr><td>52.50</td><td>0.00</td><td>8,572</td><td>8,572</td></tr><tr><td></td><td></td><td></td><td></td></tr><tr><td>$ 2.50 to $52.50</td><td>2.4</td><td>1,256,618</td><td>1,256,618</td></tr></table>

## NOTE 12 – RELATED PARTY TRANSACTIONS

## Note Amendments and Warrant Issuances to RJC

See Notes above for a discussion of certain amendments to the Senior Note and RJC Junior Note held by RJC.

See Notes above for a discussion of certain warrants issued to RJC by the Company in connection with the amendment of the Senior Note and RJC Junior Note held by RJC.

## GGE Acquisition

As a result of the 66,625 restricted shares of the Company’s Series A Convertible Preferred Stock issued to GGE which can be converted into shares of the Company’s common stock on a 100:1 basis as described below in greater detail, and the appointment by GGE of a representative to the Company’s Board of Directors, GGE became a related party to the Company in 2015. The following table reflects the related party amounts for GGE included in the December 31, 2017 and 2016 balance sheets (in thousands):

<table><tr><td></td><td>As of December 31, 2017</td><td>As of December 31, 2016</td></tr><tr><td>Accrued expenses</td><td>$ 1,733</td><td>$ 677</td></tr><tr><td>Long-term notes payable - Secured Promissory Notes, net of discount of $1,148,000</td><td>15,930</td><td>13,319</td></tr><tr><td>Long notes payable - Subordinated</td><td>11,483</td><td>10,173</td></tr><tr><td>Total liabilities</td><td>$ 29,146</td><td>$ 24,169</td></tr></table>



## NOTE 13 – FAIR VALUE OF FINANCIAL INSTRUMENTS

As defined in our accounting policy on the fair value of financial instruments, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The following table sets forth by level within the fair value hierarchy our financial instruments that were accounted for at fair value as of December 31, 2017 (in thousands):

<table><tr><td rowspan="2"></td><td colspan="5">Fair Value Measurements At December 31, 2017</td></tr><tr><td>Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td>Significant Other Observable Inputs (Level 2)</td><td>Significant Unobservable Inputs (Level 3)</td><td>Total Carrying Value</td><td></td></tr><tr><td>Series A Convertible Preferred Stock</td><td>-</td><td>-</td><td>-</td><td>28,402</td><td>28,402</td></tr></table>

The Company believes there is no active market or significant other market data for the Series A Preferred stock as it is held by a limited number of closely held entities, therefore the Company has determined it should use Level 3 inputs.

The Series A Convertible Preferred Stock was valued using a binomial lattice option pricing model for which the significant assumptions were expected term and expected volatility. The binomial lattice model used a probabilistic approach in which the Company assigned percentages to each scenario based on the chance of repayment. The percentages used were as follows: the non-repayment scenario was assigned a 25% probability and the repayment scenario was assigned a 75% probability.

## NOTE 14 – INCOME TAXES

Due to the Company’s net losses, there were no provisions for income taxes for the years ended December 31, 2017 and 2016.

On December 22, 2017, new federal tax reform legislation was enacted in the United States (the "2017 Tax Act"), resulting in significant changes from previous tax law. The 2017 Tax Act reduces the federal corporate income tax rate to 21% from 34% effective January 1, 2018. The rate change, along with certain immaterial changes in tax basis resulting from the 2017 Tax Act, resulted in a reduction of the Company's deferred tax assets of $18,589,000 and a corresponding reduction in the valuation allowance. The following table reconciles the U.S. federal statutory income tax rate in effect for the years ended December 1, 2017 and 2016, and the Company's effective tax rate:

<table><tr><td></td><td>Year Ended December 31, 2017</td><td>Year Ended December 31, 2016</td></tr><tr><td>U.S. federal statutory income tax</td><td>34.00%</td><td>34.00%</td></tr><tr><td>State and local income tax, net of benefits</td><td>4.63%</td><td>4.63%</td></tr><tr><td>Amortization of debt discount</td><td>(1.22%)</td><td>(0.15%)</td></tr><tr><td>Loss on write-off of cost method investment</td><td>0.00%</td><td>0.00%</td></tr><tr><td>Officer life insurance and D&amp;O insurance</td><td>(0.08%)</td><td>0.00%</td></tr><tr><td>Stock-based compensation</td><td>(0.70%)</td><td>(2.91%)</td></tr><tr><td>Tax rate changes and other</td><td>(51.12%)</td><td>0.20%</td></tr><tr><td>Valuation allowance for deferred income tax assets</td><td>14.49%</td><td>(35.77%)</td></tr><tr><td>Effective income tax rate</td><td>0.00%</td><td>0.00%</td></tr></table>

Deferred income tax assets as of December 31, 2017 and 2016 are as follows (in thousands):

<table><tr><td>Deferred Tax Assets</td><td>December 31, 2017</td><td>December 31, 2016</td></tr><tr><td>Difference in depreciation, depletion, and capitalization methods - oil and natural gas properties</td><td>$ 3,649</td><td>$ 3,967</td></tr><tr><td>Net operating loss - federal taxes</td><td>30,322</td><td>38,369</td></tr><tr><td>Net operating loss - state taxes</td><td>5,398</td><td>2,303</td></tr><tr><td>Total deferred tax asset</td><td>39,369</td><td>44,639</td></tr><tr><td>Less valuation allowance</td><td>(39,369)</td><td>(44,639)</td></tr><tr><td>Total deferred tax assets</td><td>$ -</td><td>$ -</td></tr></table>



In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, management has applied a full valuation allowance against its net deferred tax assets at December 31, 2017 and 2016. The net change in the total valuation allowance from December 31, 2016 to December 31, 2017 was a decrease of $13,319,000.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2017 and 2016, the Company did not have any significant uncertain tax positions or unrecognized tax benefits. The Company did not have associated accrued interest or penalties, nor was any interest expense or penalties recognized for the years ended December 31, 2017 and 2016.

As of December 31, 2017, the Company has federal net operating loss carryforwards of approximately $94,477,000 (not subject to limitations) and $49,922,000 (subject to limitations), which if not utilized, will expire beginning in 2033 and 2023, respectively.

Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the "Code"), as amended, as well as similar state provisions. In general, an "ownership change" as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.

The Company currently has tax returns open for examination by the Internal Revenue Service for all years since 2010.



# SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

The following supplemental unaudited information regarding PEDEVCO’s direct oil and gas activities is presented pursuant to the disclosure requirements of ASC 932. All oil and gas operations are located in the U.S.

(1) Capitalized costs relating to Oil and Gas Producing Activities (in thousands):

<table><tr><td></td><td>2017</td><td>2016</td></tr><tr><td>Proved oil and gas properties</td><td>$ 68,566</td><td>$ 68,469</td></tr><tr><td>Unproved oil and gas properties</td><td>-</td><td>-</td></tr><tr><td>Subtotal</td><td>68,566</td><td>68,469</td></tr><tr><td>Accumulated depreciation, amortization and impairment</td><td>(33,644)</td><td>(11,074)</td></tr><tr><td>Net capitalized costs</td><td>$ 34,922</td><td>$ 57,395</td></tr></table>

(2) Costs Incurred in Oil and Gas Property Acquisition and Development Costs (in thousands):

<table><tr><td></td><td>2017</td><td>2016</td></tr><tr><td>Acquisition of properties:</td><td></td><td></td></tr><tr><td>Proved</td><td>$ -</td><td>$ 3,670</td></tr><tr><td>Unproved</td><td>-</td><td>-</td></tr><tr><td>Exploration costs</td><td>-</td><td>-</td></tr><tr><td>Development costs</td><td>-</td><td>-</td></tr><tr><td>Total</td><td>$ -</td><td>$ 3,670</td></tr></table>

(3) Results of Operations for Producing Activities (in thousands):

<table><tr><td></td><td>2017</td><td>2016</td></tr><tr><td>Sales</td><td>$ 3,015</td><td>$ 3,968</td></tr><tr><td>Production costs</td><td>(1,348)</td><td>(1,687)</td></tr><tr><td>Depletion, accretion and impairment</td><td>(22,704)</td><td>(5,080)</td></tr><tr><td>Income tax benefit</td><td>-</td><td>-</td></tr><tr><td>Results of operations</td><td>$ (21,037)</td><td>$ (2,799)</td></tr></table>

## (4) Reserve quantity information:

The supplemental unaudited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only and does not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, significant changes to these estimates can be expected as future information becomes available. All of the Company’s reserves are located in the United States.

Proved reserves are those estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.



The standardized measure of discounted future net cash flows is computed by applying the average first day of the month price of oil and gas during the 12 month period before the end of the year (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less the estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates, with consideration of future tax rates already legislated) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.

The reserve estimates set forth below for 2017 were prepared by Tenet Advisory Group, LLC (“TAG”), an independent professional engineering firm certified by the Texas Board of Professional Engineers (Registration number F-18903), under the direction of Joe C. Bullard of TAG. TAG, and its employees, have no material interest in our Company. TAG also performs oilfield operational and engineering services for the Company.

The reserve estimates were prepared by TAG using reserve definitions and pricing requirements prescribed by the SEC.

TAG estimated the proved reserves for our properties by performance methods and analogy. All of the proved producing reserves attributable to producing wells and/or reservoirs were estimated by performance methods. These performance methods, such as decline curve analysis, utilized extrapolations of historical production and pressure data available through December 2017 in those cases where such data were considered to be definitive. The data utilized were furnished to TAG by the Company or obtained from public data sources. All of the proved developed non-producing and undeveloped reserves were estimated by analogy.

Estimated Quantities of Proved Oil and Gas Reserves

<table><tr><td rowspan="2"></td><td colspan="3">2017</td></tr><tr><td>Ngl (MBbls)</td><td>Oil (MBbls)</td><td>Gas (Mmcf)</td></tr><tr><td>Proved Developed Producing</td><td>51</td><td>326</td><td>800</td></tr><tr><td>Proved Developed Non-Producing</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Total Proved Developed</td><td>51</td><td>326</td><td>800</td></tr><tr><td>Proved Undeveloped</td><td>622</td><td>1,616</td><td>5,554</td></tr><tr><td>Total Proved as of December 31, 2017</td><td>673</td><td>1,942</td><td>6,354</td></tr></table>

<table><tr><td rowspan="2"></td><td colspan="3">2017</td></tr><tr><td>Ngl (MBbls)</td><td>Oil (MBbls)</td><td>Gas (Mmcf)</td></tr><tr><td>Total Proved Reserves:</td><td></td><td></td><td></td></tr><tr><td>Beginning of year</td><td>-</td><td>2,591</td><td>11,053</td></tr><tr><td>Extensions and discoveries</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Revisions of previous estimates</td><td>685</td><td>(597)</td><td>(4,599)</td></tr><tr><td>Purchase of minerals in place</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Sales of minerals in place</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Production</td><td>(12)</td><td>(52)</td><td>(100)</td></tr><tr><td>End of year proved reserves</td><td>673</td><td>1,942</td><td>6,354</td></tr></table>

Estimated Quantities of Proved Oil and Gas Reserves

<table><tr><td rowspan="2"></td><td colspan="3">2016</td></tr><tr><td>Oil (MBbls)</td><td>Gas (Mmcf)</td><td></td></tr><tr><td>Proved Developed Producing</td><td>391</td><td>1,199</td><td></td></tr><tr><td>Proved Developed Non-Producing</td><td>-</td><td>-</td><td></td></tr><tr><td>Total Proved Developed</td><td>391</td><td>1,199</td><td></td></tr><tr><td>Proved Undeveloped</td><td>2,200</td><td>9,854</td><td></td></tr><tr><td>Total Proved as of December 31, 2016</td><td>2,591</td><td>11,053</td><td></td></tr></table>



<table><tr><td rowspan="2"></td><td colspan="2">2016</td></tr><tr><td>Oil (MBbls)</td><td>Gas (Mmcf)</td></tr><tr><td>Total Proved Reserves:</td><td></td><td></td></tr><tr><td>Beginning of year</td><td>2,431</td><td>10,252</td></tr><tr><td>Extensions and discoveries</td><td>-</td><td>-</td></tr><tr><td>Revisions of previous estimates</td><td>138</td><td>658</td></tr><tr><td>Purchase of minerals in place</td><td>114</td><td>742</td></tr><tr><td>Sale of minerals in place</td><td>-</td><td>-</td></tr><tr><td>Production</td><td>(92)</td><td>(599)</td></tr><tr><td>End of year proved reserves</td><td>2,591</td><td>11,053</td></tr></table>

The standardized measure of discounted future net cash flows, in management’s opinion, should be examined with caution. The basis for this table is the reserve studies prepared by independent petroleum engineering consultants, which contain imprecise estimates of quantities and rates of future production of reserves. Revisions of previous year estimates can have a significant impact on these results. Therefore, the standardized measure of discounted future net cash flow is not necessarily indicative of the fair value of the Company’s proved oil and natural gas properties.

Future income tax expense was computed by applying statutory rates, less the effects of tax credits for each period presented, to calculate the difference between pre-tax net cash flows relating to the Company’s proved reserves and the tax basis of proved properties, after consideration of available net operating loss and percentage depletion carryovers.

The following table sets forth the standardized measure of discounted future net cash flows (stated in thousands) relating to the proved reserves as of December 31, 2017:

<table><tr><td>For the year ended December 31, 2017</td><td>($ 000&#x27;s)</td></tr><tr><td>Future cash inflows</td><td>$ 120,897</td></tr><tr><td>Future production costs</td><td>(26,743)</td></tr><tr><td>Future development costs</td><td>(36,185)</td></tr><tr><td>Future income tax expense</td><td>(9)</td></tr><tr><td>Future net cash flows</td><td>57,960</td></tr><tr><td>10% annual discount</td><td>(26,737)</td></tr><tr><td>Standardized measure of discounted future net cash flows</td><td>$ 31,223</td></tr></table>

## Changes in Standardized Measure of Discounted Future Cash Flows

<table><tr><td></td><td>($ 000&#x27;s)</td></tr><tr><td>Beginning of year</td><td>$ 19,154</td></tr><tr><td>Sales and transfers of oil and gas produced, net of production costs</td><td>(1,595)</td></tr><tr><td>Net changes in prices and production costs</td><td>8,931</td></tr><tr><td>Extensions, discoveries, additions and improved recovery, net of related costs</td><td>-</td></tr><tr><td>Development costs incurred</td><td>-</td></tr><tr><td>Revisions of estimated development costs</td><td>(60)</td></tr><tr><td>Revisions of previous quantity estimates</td><td>(6,316)</td></tr><tr><td>Accretion of discount</td><td>1,916</td></tr><tr><td>Net change in income taxes</td><td>(7)</td></tr><tr><td>Purchases of reserves in place</td><td>-</td></tr><tr><td>Sales of reserves in place</td><td>-</td></tr><tr><td>Changes in timing and other</td><td>9,200</td></tr><tr><td>End of year</td><td>$ 31,223</td></tr></table>



The following table sets forth the standardized measure of discounted future net cash flows (stated in thousands) relating to the proved reserves as of December 31, 2016:

<table><tr><td></td><td>($ 000&#x27;s)</td></tr><tr><td>For the year ended December 31, 2016</td><td></td></tr><tr><td>Future cash inflows</td><td>$ 123,261</td></tr><tr><td>Future production costs</td><td>(34,665)</td></tr><tr><td>Future development costs</td><td>(36,118)</td></tr><tr><td>Future income tax expense</td><td>-</td></tr><tr><td>Future net cash flows</td><td>52,478</td></tr><tr><td>10% annual discount</td><td>(33,324)</td></tr><tr><td>Standardized measure of discounted future net cash flows</td><td>$ 19,154</td></tr></table>

Changes in Standardized Measure of Discounted Future Cash Flows

<table><tr><td></td><td>($ 000&#x27;s)</td></tr><tr><td>Beginning of year</td><td>$ 26,152</td></tr><tr><td>Sales and transfers of oil and gas produced, net of production costs</td><td>(2,281)</td></tr><tr><td>Net changes in prices and production costs</td><td>(11,753)</td></tr><tr><td>Extensions, discoveries, additions and improved recovery, net of related costs</td><td>-</td></tr><tr><td>Development costs incurred</td><td>3,662</td></tr><tr><td>Revisions of estimated development costs</td><td>(2,808)</td></tr><tr><td>Revisions of previous quantity estimates</td><td>5,088</td></tr><tr><td>Accretion of discount</td><td>5,858</td></tr><tr><td>Net change in income taxes</td><td>32,434</td></tr><tr><td>Purchases of reserves in place</td><td>2,279</td></tr><tr><td>Sales of reserves in place</td><td>-</td></tr><tr><td>Changes in timing and other</td><td>(39,477)</td></tr><tr><td>End of year</td><td>$ 19,154</td></tr></table>



Red Hawk Petroleum, LLC, a Nevada limited liability company
Pacific Energy Development Corp., a Nevada corporation
Blast AFJ, Inc., a Delaware corporation
White Hawk Energy, LLC, a Delaware limited liability company*
Blackhawk Energy Limited, a British Virgin Islands company*

*currently in process of winding down and dissolving



## CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in (a) Registration Statement No. 333-192002 on Form S-8 of the Company, (b) Registration Statement No. 333-214415 on Form S-3 of the Company, (c) Registration Statement No. 333-201098 on Form S-8 of the Company, (d) Registration Statement No. 333-207529 on Form S-8 of the Company, (e) Registration Statement No. 333-215349 on Form S-8 of the Company, and (f) Registration Statement No. 333-215349 on Form S-8 of the Company of our report dated March 29, 2018, relating to the consolidated financial statements of PEDEVCO Corp. and subsidiaries that appear in the Annual Report on Form 10-K of PEDEVCO Corp. for the year ended December 31, 2017.

/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas

March 29, 2018



## CONSENT OF PETROLEUM ENGINEERS

We consent to the references to our firm in the form and context in which they appear in the Annual Report on Form 10-K of PEDEVCO Corp. (the "Company") for the year ended December 31, 2017 (including, but not limited to, the notes to the financial statements included therein) (the "Annual Report").

We further consent to the inclusion and use in the Annual Report of our report dated February 6, 2018, entitled “PEDEVCO Corp. Reserve Report” (the “Report”), and the information from our Report contained in the Annual Report and the filing of the Report as Exhibit 99.1 to the Annual Report.

We also consent to the incorporation by reference in (a) Registration Statement No. 333-192002 on Form S-8 of the Company, (b) Registration Statement No. 333-214415 on Form S-3 of the Company, (c) Registration Statement No. 333-201098 on Form S-8 of the Company, (d) Registration Statement No. 333-207529 on Form S-8 of the Company, (e) Registration Statement No. 333-215349 of the Company on Form S-8 and (f) Registration Statement No. 333-215349 on Form S-8 of the Company, of the Report and all references to our firm and the information from our Report.

Tenet Advisory Group, LLC

State of Texas Registration No. F-18903

By: /s/ Joe C. Bullard

Name: Joe C. Bullard

Title: Managing Partner, Tenet Advisory Group, LLC

Tenet Advisory Group, LLC

7700 W Hwy 71, Suite 300

Austin, TX 78735

March 29, 2018



# CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Michael L. Peterson, certify that:

1. I have reviewed this Annual Report on Form 10-K of PEDEVCO Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

March 29, 2018

By: /s/ Michael L. Peterson

Michael L. Peterson

President and Chief Executive Officer

(Principal Executive Officer)



# CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER

I, Gregory L. Overholtz, certify that:

1. I have reviewed this Annual Report on Form 10-K of PEDEVCO Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

March 29, 2018

By: /s/ Gregory L. Overholtz

Gregory L. Overholtz

Chief Financial Officer

(Principal Financial and Accounting Officer)



# CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of PEDEVCO Corp. (the "Company") for the period ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael L. Peterson, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 29, 2018

By: /s/ Michael L. Peterson

Michael L. Peterson
President and Chief Executive Officer
(Principal Executive Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.



# CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of PEDEVCO Corp. (the "Company") for the period ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory L. Overholtzer, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 29, 2018

By: /s/ Gregory L. Overholtzer

Gregory L. Overholtzer

Chief Financial Officer

(Principal Financial and Accounting Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.



February 6, 2018

Mr. Peterson,

Please find enclosed the requested reserve report for all oil and gas properties owned by PEDEVCO Corp. in Weld County, CO effective as of January 1, 2018. This report supersedes the report previously issued on January 31 \( ^{st} \) , 2018.

With regards,

Joe C. Bullard

Joe C. Bullard, P.E.






## PEDEVCO Corp.
Reserve Report

As of Date:

Jan 1, 2018

Tenet Advisory Group, LLC

Reserve Report on the Petroleum Properties of PEDEVCO Corp. by Tenet Advisory Group, LLC
Certified Professional Engineering Company
State of Texas Registration Number F-18903

7700 West HWY 71, Suite 300
Austin, TX USA 78735

Originally Issued on
02/06/2018



## Disclosures

This report is provided to PEDEVCO Corp ("PEDEVCO") using reserve and contingent resource definitions and disclosure guidelines documented by the Securities and Exchange Commission (SEC), Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), and American Association of Petroleum Geologists (AAPG).

This report utilizes assumptions, data, methods and procedures that are appropriate for the purpose served by the report as required by the Securities and Exchange Commission. Significant data was collected and examined in the preparation of this report. Performance decline trends, offset production, maps, analog information and accounting statements were all studied.

This report covers one hundred percent (100%) of the oil and gas reserves of PEDEVCO. All of the oil and gas reserves of PEDEVCO are located in Weld County, Colorado. This report covers PEDCO's directly owned working and net revenue interest in its wholly owned subsidiary Red Hawk Petroleum, LLC.

New regulations could have an adverse effect on the reserves calculated in this report. Importantly a ban on hydraulic fracturing in the area could significantly decrease or eliminate the PUD and PR-UD reserves represented in this report.

Tenet Advisory Group, LLC ("TAG") has used all methods and procedures as it considers necessary under the circumstances to prepare this report.

Joe C. Bullard, P.E. performed all of the relevant technical work during the creation of this report. He is a Managing Partner of Tenet Advisory Group, LLC, ("TAG") a Texas Limited Liability Company. TAG is certified as a professional engineering company in the state of Texas. TAG's State of Texas registration number is F-18903. Mr. Bullard has a B.S. degree in Petroleum Engineering from Texas A&M University. He is a registered professional engineer in the state of Texas. His State of Texas professional engineering number is 125916. Mr. Bullard has over 38 years of experience in creating reserve reports and completing reserve analyses for conventional and unconventional fields in the United States.



## Scope of Investigation

This report is an appraisal, as of January 1 \( ^{st} \) , 2018, of the extent and value of the proved and probable crude oil, natural gas liquids (NGL) and natural gas reserves of properties owned PEDEVCO. The reserves and resources recorded on the 'as of' date were calculated using the current field economic and productivity conditions. Changes to these conditions may significantly affect reserves. The reserves presented in this report have been prepared in accordance with guidelines as set forth by the Securities and Exchange Commission, the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers. The reserves estimated for this report are for producing wells and undeveloped drilling locations.



## Summary

The estimated net proved reserves, as of January 1 \( ^{st} \) , 2018, of the properties appraised are summarized as follows, and expressed in thousands of barrels (MBBL) or millions of cubic feet (MMCF):

<table><tr><td rowspan="2">Category</td><td>Net Oil + NGL</td><td>Net Gas</td><td>NPV Undiscounted</td><td>NPV Discounted 10%</td></tr><tr><td>Reserves (MBBL)</td><td>Reserves (MMCF)</td><td>(M$)</td><td>(M$)</td></tr><tr><td>TOTAL (Proved + Probable)</td><td>2,768.51</td><td>6,651.96</td><td>63,950.98</td><td>34,921.94</td></tr><tr><td>Proved Developed Producing (PDP)</td><td>376.56</td><td>799.66</td><td>6,915.78</td><td>5,363.30</td></tr><tr><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Proved Undeveloped (PUD)</td><td>2,237.98</td><td>5,554.54</td><td>51,052.85</td><td>25,866.33</td></tr><tr><td>TOTAL PROVED</td><td>2,614.54</td><td>6,354.20</td><td>57,968.63</td><td>31,229.63</td></tr><tr><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Probable Undeveloped (PR-UD)</td><td>153.98</td><td>297.75</td><td>5,982.35</td><td>3,692.31</td></tr><tr><td>TOTAL PROBABLE</td><td>153.98</td><td>297.75</td><td>5,982.35</td><td>3,692.31</td></tr></table>

Reserves estimated in this report are expressed as gross and net reserves. Gross reserves are defined as the total estimated petroleum to be produced from these properties after the specified as of date. Net reserves are defined as that portion of the gross reserves attributable to the interests owned by PEDEVCO after deducting all interests owned by others. This report presents values that were estimated for reserves using reasonable estimated costs and prices calculated using the average of the first day of every month in the year prior.



Values shown in this report for reserves are expressed in terms of estimated future gross revenue, future net revenue, and present worth. Future gross revenue is that revenue which will accrue to the appraised interests from the production and sale of the estimated net reserves. Future net revenue is calculated by deducting estimated production taxes, ad valorem taxes, operating expenses, transportation costs, and capital costs from the future gross revenue. All costs presented in this report are based on current market conditions and best engineering judgment and are subject to change. Operating expenses include field operating expenses, transportation expenses, compression charges, and an allocation of overhead that directly relates to production activities. Future income taxes were not taken into account in the preparation of these estimates. Present worth is defined as future net revenue discounted at a specified arbitrary discount rate compounded monthly over the expected period of realization. In this report, present worth values using a discount rate of 10 percent are reported in detail.

Estimates of oil, natural gas liquids (NGL) and natural gas reserves and future net revenue should be regarded only as estimates that may change as further production history and additional information becomes available. Not only are such reserve and revenue estimates based on that information which is currently available, but such estimates are also subject to the uncertainties inherent in the application of judgmental factors in interpreting such information.

Information used in the preparation of this report was obtained from PEDEVCO and from public sources.



## Estimation of Reserves

Estimates of reserves were prepared by the use of standard geological and engineering methods generally accepted by the petroleum industry. The method or combination of methods used in the analysis of each reservoir was tempered by experience with similar reservoirs, stage of development, quality and completeness of basic data, and production history. Decline curve analysis was the primary method used to calculate reserves in place.

Reserves were estimated for 26 undeveloped locations and 38 current producers identified by PEDEVCO. The locations are generally well positioned to develop the acreage available in accordance with the geologic interpretation. Consideration was given to information on offset producing wells to determine the categorization of reserves for each location.

Oil reserves estimated herein are those to be recovered by normal lease separation. Gas volumes estimated herein are expressed as wet gas and residue sales gas. Wet gas is defined as the total gas to be produced before reductions for volume loss due to fuel and flare consumption and reduction for plant processing. Residue sales gas is defined as that portion of the wet gas to be produced from the reservoirs, measured at the tail gate sales meter of the gas processing plant, after reductions for fuel usage, flaring and shrinkage resulting from field separation and gas plant processing. Gross gas volumes are reported as wet gas. Net gas volumes for the Red Hawk operated wells are reported as residue sales gas. Net gas volumes for wells operated by other companies are reported as wet gas volumes, reduced by PEDEVCO's net revenue interests. All gas volumes are expressed at standard temperature and pressure. NGL volumes, which are a byproduct of processing wet gas volumes at gas processing plants, were forecast for the Red Hawk operated wells based on an analysis of NGL recoveries for the last available 12 months as reported by gas processing plant statements. Detailed gas plant processing statements were not available for the wells operated by other companies, and although no NGL volumes were forecast in this report for these outside operated wells the value of the associated NGL volumes were incorporated into the net wellhead (wet) gas prices determined from lease revenue statements.



## Valuation of Reserves

This report has been prepared using industry standard price and cost assumptions. The oil price was based on historical EIA reported Cushing spot prices for the previous twelve months. The gas price was based on historical EIA reported Henry Hub spot prices for the previous twelve months. The price of each commodity was determined on the first day of each of the 12 months prior to January 1, 2018 and then averaged together to yield one oil price and one gas price. Oil and gas offsets were calculated by comparing the historical pricing to current lease operating, gas statements, and oil contracts provided by PEDEVCO along with current deductions and current gains for items such as crude & gas quality, processing, and transportation. All prices were held flat throughout all future dates. The following illustrates the prices and offsets used in this report:

For Red Hawk Petroleum Operated Wells:

<table><tr><td>Oil Price (S/bbl)</td><td>Oil Price Offset (S/bbl)</td><td>Realized Oil Price (S/bbl)</td><td>Gas Price ($/MMBtu)</td><td>Gas Price Offset ($/MCF)</td><td>Effective Gas Price ($/Mcf)</td></tr><tr><td>51.03</td><td>-3.15</td><td>$47.88</td><td>$2.99</td><td>-.94</td><td>$2.05</td></tr></table>

## Operating Expenses and Capital Costs

All costs presented in this report are based on current market conditions and best engineering judgment and are subject to change. Operating expenses and capital costs were based on recent historical costs as reported in both the operated and non-operated field areas that the PDP, PUD and PR-UD reserves are located.

## Comments on the Independence of Tenet Advisory Group, LLC

In creation of this report Tenet Advisory Group LLC ("TAG") served as an independent third party contractor. TAG has a non-exclusive consulting contract with PEDEVCO. The compensation from this contract is paid in cash once a month using hourly billings provided to PEDEVCO by TAG.

To further clarify TAG (and its owners and partners):

1. Are not on the board of PEDEVCO

2. Have no control over PEDEVCO and serve solely in the capacity as consultants

3. Have no voting power over PEDEVCO

4. TAG works on an arm's length basis from PEDEVCO

5. TAG is a private company with 100% of its ownership held by certain employees of TAG.



## Definitions and Guidelines for Petroleum Resources

The reserves and economics presented in this report have been prepared in accordance with guidelines as set forth by the Securities and Exchange Commission, the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers. Links to these definitions and guidelines can be found here:

http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title17/17cfr210_main_02.tpl

http://www.spe.org/industry/reserves.php