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8. EQUITY METHOD INVESTMENTS

12 Months Ended

Dec. 31, 2016

Equity Method Investments and Joint Ventures [Abstract]

EQUITY METHOD INVESTMENTS

Condor Energy Technology, LLC

In October 2011, the Company formed a new subsidiary, Condor Energy Technology LLC (“Condor”), a limited liability company organized under the laws of the State of Nevada. The Company owned 20% of Condor and a subsidiary of MIE Holdings Corporation (“MIE Holdings”) owned 80%.

The Company determined that Condor qualified as a variable interest entity (“VIE”) as defined in ASC 810-10, however, the Company concluded that MIE Holdings was the primary beneficiary as a result of being in control of the Board and its ability to control the funding commitments to Condor. Accordingly, the Company accounted for its 20% ownership in Condor using the equity method.

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 Note Investors (defined below) as a principal reduction on the Company’s Senior Notes;
●	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 the Agent			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 year ended December 31, 2015 in the amount of $566,000.

Total fees billed to Condor were $-0- for the year ended December 31, 2016, and $273,000 for the year ended December 31, 2015.

Under the equity method, the Company was subject to recording its 20% proportionate share of Condor’s income or losses. The Company was obligated to maintain, under the membership agreement of Condor, its proportionate share of capital contributions. Below is summarized financial information for Condor for the period ending on the date of disposition.

Summarized statements of operations (in thousands):

		For the Period from January 1-February 23, 2015
Revenue		$	108
Operating expenses			(368	)
Operating income (loss)			(260	)
Interest expense			(195	)
Net loss		$	(455	)

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