PEDEVCO CORP Fair Value Disclosure
NOTE 11 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Authoritative guidance establishes a framework for measuring fair value and requires that fair value measurements be classified and disclosed in one of the following categories:
| · | Level 1 – Observable inputs based on quoted market prices for identical assets or liabilities in active markets. |
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| · | Level 2 – Observable inputs other than Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
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| · | Level 3 – Unobservable inputs for the asset or liability due to little or no market activity that are significant to the fair value measurement. These inputs reflect assumptions that market participants would use in pricing the asset or liability. |
Assets and liabilities measured at fair value are classified based on the lowest level input that is significant to the measurement. The determination of the significance of inputs requires judgment and may affect the classification within the fair value hierarchy. There were no transfers between levels of the fair value hierarchy during any period presented.
The Company measures its derivative instruments at fair value on a recurring basis using a market approach. Fair value is estimated using observable commodity futures prices for the underlying commodities obtained from a third-party pricing source. These measurements are classified within Level 2 of the fair value hierarchy. The fair values of the Company’s derivatives are not based on quoted prices for identical instruments in active markets.
The Company applies fair value guidance on a nonrecurring basis to certain non-financial assets and liabilities, which are not measured at fair value on an ongoing basis but are subject to adjustment if events or changes in circumstances indicate impairment or other adjustments may be necessary.
The following table, set forth by level within the fair value hierarchy, shows the Company’s financial assets and liabilities that were accounted for at fair value as of December 31, 2025 (in thousands).The Company did not have any derivative positions in 2024.
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| December 31, 2025 |
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| Level 1 |
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| Level 2 |
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| Level 3 |
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| Total |
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Assets |
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Derivative contract assets |
| $ | - |
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| $ | 18,008 |
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| $ | - |
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| $ | 18,008 |
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Liabilities |
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Derivative contract liabilities |
| $ | - |
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| $ | 7,322 |
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| $ | - |
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| $ | 7,322 |
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Derivative contracts listed above as Level 2 include fixed-price swaps and costless put/call collars that are carried at fair value. The Company records the net change in fair value of these positions in “Net gain (loss) on derivative contracts”.
Asset retirement obligations. The fair value of asset retirement obligation is estimated using discounted cash flow projections with primarily Lever 3 inputs, using numerous estimates, assumptions and judgments regarding such factors as the existence of a legal obligation, estimated plugging and abandonment costs, timing of remediation, the credit adjusted risk-free rate and inflation rate.
Merger Acquisition. On October 31, 2025, the Company completed the merger with the Acquired Companies, recording assets and liabilities at fair value. Oil and gas properties and asset retirement obligations were valued using discounted cash flows with primarily Level 3 inputs, including estimated future production based upon the estimation of reserves, future operating and development costs, future commodity prices (adjusted for basis differentials), and discount rates. See Note 6—Merger Acquisition.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2017 | Mar 29, 2018 | |
| 2016 | Mar 27, 2017 | |
| 2015 | Mar 29, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.