PEDEVCO CORP

Previous wording

We use financial derivative instruments (primarily financial fixed price swaps and collar contracts) to hedge the impact of fluctuations in commodity prices on our results of operations and cash flows. In connection with the entry into the A&R Credit Agreement, the Company was required to hedge at least 75% of its projected proved developed producing reserves (PDP) oil and gas production at the time of entry into the A&R Credit Agreement, for the first 24 months of the agreement, and 50% of its projected PDP of oil and gas production for months 25–36. Afterward, within 60 days after each fiscal quarter, the Company must show it has hedged at least 50% of expected oil and gas production for the next 18 months. The Company may hedge crude oil, natural gas, or natural gas liquids (on a barrel of oil equivalent basis) to meet these requirements, but may not hedge more than 75% of anticipated production (on a barrel of oil equivalent basis) for any month. As of the date of this report, the Company currently has approximately 75% of its crude oil production hedged through November 2027 and approximately 51% hedged from December 2027 through November 2028, and ~75% of its natural gas production hedged through November 2027 and approximately 50% hedged from December 2027 through November 2028, at various prices.

Current wording

We use financial derivative instruments (primarily financial fixed price swaps and collar contracts) to hedge the impact of fluctuations in commodity prices on our results of operations and cash flows. In connection with the entry into the A&R Credit Agreement, the Company was required to hedge at least 75% of its projected proved developed producing reserves (PDP) oil and gas production at the time of entry into the A&R Credit Agreement, for the first 24 months of the agreement, and 50% of its projected PDP of oil and gas production for months 25–36. Afterward, within 60 days after each fiscal quarter, the Company must show it has hedged at least 50% of expected oil and gas production for the next 18 months. The Company may hedge crude oil, natural gas, or natural gas liquids (on a barrel of oil equivalent basis) to meet these requirements, but may not hedge more than 75% of anticipated production (on a barrel of oil equivalent basis) for any month.

Previous wording

For the three months ended March 31, 2026, the Company had a net loss on derivative contracts of $31.3 million. Our hedging activities have in the past expose, and may in the future expose, us to the risk of financial loss in certain circumstances, including instances in which the counterparties to our hedging contracts fail to perform under the contracts. Our hedges have in the past and may in the future result in losses and reduce the amount of revenue we would otherwise obtain upon the sale of our oil and natural gas production and may also decrease our margins and net revenues.

Current wording

For the three and six months ended June 30, 2026, the Company had a net gain on derivative contracts of $5.0 million and a net loss on derivative contracts of $26.3 million, respectively. Our hedging activities have in the past exposed, and may in the future expose, us to the risk of financial loss in certain circumstances, including instances in which the counterparties to our hedging contracts fail to perform under the contracts. Our hedges have in the past and may in the future result in losses and reduce the amount of revenue we would otherwise obtain upon the sale of our oil and natural gas production and may also decrease our margins and net revenues.

Previous wording

To the extent that we have engaged, or in the future engage, in hedging activities to protect ourselves against commodity price declines, we may be prevented from fully realizing the benefits of increases in commodity prices above the prices established by our hedging contracts, similar to what occurred during the three months ended March 31, 2026. In addition, our hedging activities may expose us to the risk of financial loss in certain circumstances, including instances in which the counterparties to our hedging contracts fail to perform under the contracts.

Current wording

To the extent that we have engaged, or in the future engage, in hedging activities to protect ourselves against commodity price declines, we may be prevented from fully realizing the benefits of increases in commodity prices above the prices established by our hedging contracts, similar to what occurred during the six months ended June 30, 2026. In addition, our hedging activities may expose us to the risk of financial loss in certain circumstances, including instances in which the counterparties to our hedging contracts fail to perform under the contracts.

Previous wording

In addition to commodity price volatility, our asset base is subject to the risk of lease expirations, which may result in the loss of leasehold interests and associated capitalized costs if we are unable to meet drilling commitments or obtain extensions. In our D-J Basin asset, 16,138 net acres are scheduled to expire during 2026, with an additional 2,133 and 638 net acres expiring in 2027 and 2028, respectively, and 8,081 net acres thereafter, in each case net to our direct ownership interest, if we do not satisfy applicable drilling or extension requirements. In the PRB, 4,822 net acres are set to expire in 2026, with 34,999 and 15,828 net acres expiring in 2027 and 2028, respectively. In the Permian Basin asset, approximately 200 net acres are scheduled to expire in 2026(net to our direct ownership interest only). If these leases expire without being developed or extended, we may be required to write off the associated unproved property costs, which could result in material non-cash charges.

Current wording

In addition to commodity price volatility, our asset base is subject to the risk of lease expirations, which may result in the loss of leasehold interests and associated capitalized costs if we are unable to meet drilling commitments or obtain extensions. In our D-J Basin asset, 16,138 total net acres were scheduled to expire during 2026, of which 3,310 net acres expired during the first half of 2026, with an additional 2,133 and 638 net acres expiring in 2027 and 2028, respectively, and 8,081 net acres thereafter, in each case net to our direct ownership interest, if we do not satisfy applicable drilling or extension requirements. In the PRB, 4,822 total net acres were set to expire in 2026, of which 720 net acres expired during the first half of 2026, with 34,999 and 15,828 net acres expiring in 2027 and 2028, respectively. In the Permian Basin asset, approximately 200 net acres are scheduled to expire in 2026 (net to our direct ownership interest only). If these leases expire without being developed or extended, we may be required to write off the associated unproved property costs, which could result in material non-cash charges.