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8. EQUITY METHOD INVESTMENTS

9 Months Ended

Sep. 30, 2015

Equity Method Investments and Joint Ventures [Abstract]

EQUITY METHOD INVESTMENTS

NOTE 8 – EQUITY METHOD INVESTMENTS

Condor Energy Technology, LLC

Settlement Agreement with MIEJ

On February 19, 2015, the Company entered into a Settlement Agreement with MIEJ (the “MIEJ Settlement Agreement”), the 80% partner in Condor and the lender under the Amended and Restated Secured Subordinated Promissory Note, dated March 25, 2013, in the principal amount of $6,170,065 (the “MIEJ Note”). The Settlement Agreement and related agreements for the disposition of the Company’s interest in Condor contained the following terms:

●	The Company and MIEJ entered into a new Amended and Restated Secured Subordinated Promissory Note, dated February 19, 2015 (the “New MIEJ Note”), with a principal amount of $4.925 million, extinguishing the original MIEJ Note which had a principal amount of $6,070,000 after cash payments of $100,000;
●	The Company sold to MIEJ (i) its 20% interest in Condor, and (ii) all of the direct interests in approximately 945 net acres and working interests in three wells separately owned by the Company;
●	The Company’s employees were removed as officers of Condor, and the Company agreed to assist with Condor’s accounting and audits and perform joint interest billing accounting for a monthly fee of $55,000 for January 2015, $0 for February 2015, $10,000 for March 2015 and $30,000 per month thereafter, pro-rated for partial months, for up to six months;
●	MIEJ paid $500,000 to the Company’s Senior Loan Investors as a principal reduction on the Company’s Senior Loan;
●	Condor forgave approximately $1.8 million in previous working interest expenses related to the drilling and completion of certain wells operated by Condor that the Company owed to Condor;
●	The Company paid MIEJ $100,000 as a principal reduction under the original MIEJ Note; and
●	The parties fully released each other from every claim, demand or cause of action arising on or before February 19, 2015.

The net effect of these transactions with MIEJ was to reduce approximately $9.4 million in aggregate liabilities due from the Company to MIEJ and Condor to $4.925 million, which is now the new principal amount of the New MIEJ Note.

The following table reflects the activity related to the Company’s settlement with MIEJ (in thousands):

		Items Received by PEDEVCO
Extinguishment of accrued liabilities			3,280
Extinguishment of original debt with MIE net of cash payments of $100,000			6,070
Proceeds from cash payments made by MIE to RJ Credit and BAM			500
Total			9,850

		Items Received by MIEJ
Issuance of new MIEJ note		$	4,925
Extinguishment of note receivable with Condor			1,272
Historical cost of oil and gas property sold to Condor			620
Total			6,817

Net gain on settlement		$	3,033

The following table presents the allocation of the gain on settlement with MIEJ described above (in thousands):

		Allocated Value				Historical Cost				Gain on Settlement
Oil and gas properties		$	895			$	620			$	275
Investment in Condor			1,838				1,272				566
Note Payable - MIEJ			7,117				4,925				2,192
Total		$	9,850			$	6,817			$	3,033

The Company recognized a gain on sale of equity investments during the nine months ended September 30, 2015 related to these transactions of $566,000.

The following is a summarized statement of operations for Condor for the period from January 1, 2015 through February 23, 2015 (in thousands):

Revenue		$	108
Operating expenses			(368	)
Operating loss			(260	)
Interest expense			(195	)
Net loss		$	(455	)

During the period from January 1, 2015 through February 23, 2015, the Company recorded $91,000 as its 20% share of Condor’s net losses for that period.