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2019 Annual Report


Financial Highlights
2019 2018

Revenues from Operations $ 37,119,924 $ 32,823,438

Net Income $ 8,672,635 $ 6,357,448
Earnings Per Common Share $ 13.29 $ 9.62
EBITDA* Per Common Share $ 26.53 $ 20.71
Regular Dividends Per Common Share $ 7.20 $ 7.20
Special Dividend Per Common Share $ 3.00 $ —
Weighted Average Number of Common Shares Outstanding 664,401 687,234
Total Pardee Shareholders’ Equity $154,935,845 $154,581,596
Book Value Per Common Share $ 238.57 $ 233.67
Return on Equity 6% 4%

*EBITDA – Earnings before interest, taxes, depreciation and amortization

Pardee Resources Company Data

Hardwood Softwood Metallurgical Thermal Gas Reserves(6) Solar Capacity(7)
Acres Reserves (mmbf) Reserves (mtons) Reserves (mmtons) Reserves (mmtons)
(1)(6) (2)(6) (6) (6)
(bcfe) (mw)

Beginning of Year 165,393 617.4 292.3 133.2 191.5 29.7 11.9

Adjustments(3) — (0.6) — 20.3 (14.0) 2.0 —

Acq. & Divest. (Net) (4,168) (8.8) (0.7) (0.1) — 0.5 —

Production/Harvest — (12.9)(4) (44.9) (2.3) (0.8) (2.6) —

Timber Growth — 21.8 37.9(5) — — — —

End of Year 161,225 616.9 284.6 151.1 176.7 29.6 11.9

Legend: mmbf = million board feet; mmtons = million tons; mtons = thousand tons; bcfe = billion cubic feet equivalent; mw = megawatts

Hardwood Sawtimber volume 12” dbh (diameter breast height) and larger in mmbf (million board feet).
Softwood reserve includes merchantable timber only (Age 15+ years).
Adjustment due to new reserve surveys and analyses.
Total hardwood harvest was comprised of 10.9 mmbf of sawtimber production and 2.0 mmbf marketed as pulpwood in tons.
Softwood growth includes 21,455.6 tons on 271.57 acres changing from pre-merch to merchantable classification.
The above reserves are based upon appraisals conducted by independent consulting firms.
Does not include investments made through solar partnerships.

Cover photo: Fall arrives on our Pardee & Curtin Timberlands tract.

To Our Shareholders
s this report goes to print in mid-April 2020, 2019, upon which our royalties are based, was 13%
the world is engulfed in a health crisis and lower than in 2018. With cumulative five-year North
the related economic downturn. It is too early American oil and gas industry bankruptcies exceeding
to know the full effects which COVID-19 will have on the 200, we expect that the destructive natural gas
global economy, the U.S., and the various business sectors oversupply will abate going forward.
of Pardee Resources Company. This adds significant
uncertainty for the global economies generally and our During 2019, hardwood timber prices were again
otherwise constructive outlook for Pardee specifically. impacted by the trade war with China. With prices
Our Company’s plans going forward will be enabled by for some species declining 30% during the year, we
William G. Foulke these factors: our outstanding people; our solid financial focused our harvesting on less impacted species, yet
Chairman position; our long-standing activities in essential natural our average hardwood stumpage price still declined
resources; and our targeted investments and growing 13% versus 2018. In early 2020, China reduced tariffs
expertise in alternative energy and agriculture. on U.S. hardwood imports so the outlook is improving.
Hardwood logs and lumber constitute the second largest
2019 was a mixed year for Pardee Resources Company, agricultural U.S. export to China, behind only soybeans.
as strong performance from our coal properties helped
the Company deliver our best operating results since While revenues from our California table grape ranches
2015, while stubbornly weak timber and natural gas increased from $1.3 million in 2018 to $4.7 million
prices weighed on our revenues throughout the year. during the year, our operations remained unprofitable.
Our 2019 earnings per share were $13.29, 38% above As with hardwood timber, prices were impacted by the
the $9.62 per share earned in 2018, while our EBITDA China trade tensions, and harvest yields from our largest
Carleton P. Erdman was $17.6 million during 2019, a 24% increase above ranch felt the lingering effects from the freeze event
President & our 2018 EBITDA of $14.2 million. of early 2018. Nonetheless, our vines are recovering
Chief Executive Officer and the long-term outlook for both ranches remains
Operations Summary positive. Meanwhile, the development of our almond
Due to new mine development on our PLC Minerals farm in Portugal is progressing as projected, with the
tract, much of which took place during 2018, coal first commercial harvest expected in 2021.
production from our properties increased 19% during
2019 versus the prior year. Unfortunately, the higher Lastly, our solar portfolio performed well during the
production levels proved unsustainable when the deep year, however, concerns related to our $7.7 million
mine operations on our Powellton Minerals tract were investment in a limited liability company (Fund) that
temporarily suspended in September 2019 following purchased mobile solar generators (MSGs) from DC
a downturn in the metallurgical coal markets. Solar in 2015, continued to weigh on the Company.
An independent audit was completed in 2019 which
Results from our Oil & Gas and Timber & Surface ultimately located and identified all of the 125 MSGs
Divisions were disappointing, as both Divisions struggled purchased by the Fund in 2015. In December 2019,
with extremely low commodity prices, which in some the Company and the Fund, along with other investors
cases dropped to levels not seen since the early 1990’s. in other DC Solar sponsored funds and the funds in
The natural gas industry continued to be plagued by which they invested, filed a legal action against
over production from the shale basins. Consequently, numerous third-party professional firms who provided
the average price received by our lessees during services to the investors in connection with their


Timber & G&A
Agriculture Surface
13% Oil & Gas Expenses
Oil & Gas 9% 18%
Timber & Surface 20% 12%
14% Alternave
Coal & Energy
Minerals 7%
Energy Retained
10% Earnings
6% Agriculture
Coal & Minerals Common Dividends Taxes
43% 18% 9% 2
respective investments. In January 2020, the principals of DC Solar Financial Position
pled guilty to charges of criminal fraud and money laundering in Our strong cash flow during the year provided us with financial
U.S. District Court. The Company remains vigorously engaged with opportunities to further benefit our shareholders. During
other DC Solar investors, which include several major insurance November and December, we acquired 17,792 shares of our
companies and banks, to determine the best path forward to outstanding stock, for a total of $2.87 million, or $161.34 per share,
protect our interests and minimize the financial impact on the reducing our shares outstanding and providing additional liquidity
Company arising from this fraud. Due to substantial uncertainties, to our shareholders. We also paid a special, year-end dividend
the Company is currently unable to determine the financial of $3.00 per share, totaling $1.97 million, which was in addition to
impact arising from this complex situation, however, the impact our regular quarterly dividend. Lastly, we retired our remaining
could be as much as $7.2 million, including related tax impacts. non-recourse bank loan balance of $4.1 million. Following
these outlays, we ended the year with a healthy cash position
Managing for Environmental Change of $22.2 million, as compared to $15.3 million at year-end 2018,
Since the mid-1990’s, when the Company turned its focus to and no outstanding debt.
acquiring natural resource properties in Central Appalachia,
we required that all new thermal coal investments earn their Shareholder Returns
expected return within no more than six years. This timetable During 2019, the per share market price for our stock decreased
was designed to address our concerns, from an environmental 4.6%, beginning the year at $169.90 per share and ending at
perspective, about the future role of thermal coal in the utility $162.00 per share which, when combined with total dividends
market. This strategy has proven successful as the majority of our paid of $10.20 per share, resulted in total shareholder return of
coal investments have now run their course, and the $62 million 1.35%. Our return on equity improved year-to-year, from 4% in
invested in coal properties since 1995 has returned $224 million 2018 to 6% in 2019.
in royalty income. The Company is now in large part out of the
thermal coal business, with over 90% of our 2019 mined coal For the 10-year period ending December 31, 2019, our total
royalties coming from metallurgical coal production. shareholder return underperformed the broader markets,
providing a compounded annual rate of return of 3.28%, compared
We have since shifted our focus to natural gas and renewable to 13.56% for the S&P 500. During this period, assuming the
energy and their growing roles in the energy markets. The reinvestment of dividends, $10,000 invested in Pardee stock
Company’s largest-ever investment, made in 2013, was our would have grown to $13,814, versus $35,676 for the S&P 500.
$60.1 million acquisition of approximately 436,000 acres of oil Pardee’s stock price during the past ten years has mirrored the
and natural gas mineral interests located in Central Appalachia, downward trend in commodity prices which began in 2008.
which established the Company as one of the largest owners of During the 20-year period ending in 2019, which captures both
oil and natural gas mineral acreage in the region. This investment peaks and valleys of a full commodity price cycle, Pardee’s stock
is supported by the growing demand for natural gas, and derives price significantly outperformed the S&P 500.
its return from long-lived, conventional (vertical) producing
natural gas wells, and is thereby shielded from environmental Marketability of Our Stock
concerns related to fracking and horizontal drilling. We caution shareholders that the market in which our stock trades
is sporadic and thin. During 2019, 46,129 shares changed hands,
Pardee made its first investment in solar energy in 2010, and has since representing 7% of the average shares outstanding during the
invested approximately $60 million in a variety of solar photovoltaic year (Pardee stock trades “over the counter,” under the symbol
(PV) projects, which have performed well with the exception of our PDER). Any shareholder wishing to dispose of shares may have
investment with DC Solar. We continue to look for new ways in which difficulty in finding a ready buyer, particularly for a large number
we can profitably participate in the growth of the renewable sector, of shares, and the price offered may not be consistent with that
including solar PV-plus-battery storage projects and opportunities reported in prior trades. Conversely, anyone seeking to acquire
related to our existing timber and surface land acreage. We shares in the Company may find it difficult to find a ready seller.
currently have 2,985 acres of our central Virginia timberlands
under option to purchase agreements with three separate solar The Company paid a regular dividend of $7.20 per share in 2019,
development firms, each of which are conducting feasibility or $1.80 per quarter, and a special year-end dividend of $3.00
studies for utility-scale ground mount solar PV systems. per share, bringing total dividends to $10.20 per share. For the
first quarter of 2020, the Board decided to maintain the quarterly
Lastly, we are increasingly focused on the role our timberlands may dividend level at $1.80 per share. The Board of Directors
play in helping to combat climate change. Trees naturally extract recognizes that the common dividends paid are an important
carbon from the atmosphere, and thus our timberlands have the element of shareholders’ return on investment and endeavors to
potential to generate value in the growing carbon offset market. balance dividends paid with funds needed internally to meet the
Additionally, we are supporting the development of new ways to Company’s long-term growth objectives.
use hardwood in the construction industry, which would provide a
means of long-term carbon sequestration. If passed, the recently We are most grateful for the talent, dedication, and hard work
proposed federal Trillion Tree Act would provide government of our team members. As of the end of 2019, Pardee had fewer
incentives to use wood products as carbon sequestration devices. employees than it did in 1990, yet since then our book value has
grown over seven times, our assets under management have
increased substantially, and our business has become ever more Bill Foulke Retirement and
complex. By applying creativity, problem-solving skills, hard Benjamin A. Burdittt Nomination as New Chairman
work, and technology, our team grows more efficient with every
After 46 years on the Board and the last seven as Chairman,
passing year. As always, we are extremely appreciative of the
I am retiring after the 2020 Annual Meeting. It has been
continued support of our shareholders and the trust you place
an immense privilege to serve in these capacities during
in us. Please take the time to review the following sections of
the report, which provide important information concerning many good years as well as some challenging ones while
our business segments, including coal and minerals, oil and gas, the Company navigated huge changes, particularly in the
timber and surface, alternative energy, and agriculture, as well coal, oil and gas, and timber markets. We also broke new
as our audited financial statements. ground in alternative energy and agriculture, whose future I
firmly believe in. Over the years, I was honored to work with
leaders of the Company, including my father Bill Foulke, Sr.,
William G. Foulke my brother Walter Foulke, and cousin Carl Erdman as well
Chairman as our excellent Board members, management, and staff in
support of the Company’s employees, the communities where
they work, and our shareholders. Many of our shareholders
are still from the legacy Pardee and Curtin families, which
Carleton P. Erdman
remain well represented on the Board.
President & Chief Executive Officer

April 2020 I am delighted to report that the Board unanimously

nominated and intends to elect Benjamin A. Burditt as
FIVE-YEAR COMPARISON FIVE-YEAR COMPARISON Chairman following the 2020 Annual Meeting. He has
TOTAL REVENUES EARNINGS PER SHARE served on the Pardee Board for the last ten years. He is a
brilliant strategic thinker and runs his own management
$45 $30
consulting firm, Princeton Strategic Advisors, having cut
40 ___*___ his teeth at McKinsey & Company for six years, followed
25 ______________ by stints as a partner in a venture capital fund and partner
35 _________
_ __
30 20 ______________ in another private equity fund. He is a Middlebury College
_________ graduate in Economics and holds an MBA from Yale.


15 _________
_ __
20 25.9
__________ One of late-life’s pleasures is being replaced by a younger
15 10 and extremely capable person. In Benjy Burditt we have such
a person.

0 0 William G. Foulke








*The Company recognized a one-me $13.63

per share benefit from federal tax law changes.


$9.00 $8.00
8.00 7.00


Pardee 3.00
S&P 500
2.00 2.00

1.00 1.00

0 0


* Assumes dividends reinvested

Coal & Minerals
oal revenues generated from our properties totaled The majority of the Company’s 2019 coal production and revenues
$15.8 million during 2019, a 21% increase from the originated from two properties, including the 20,000-acre PLC
$13.1 million earned in 2018. New mine development, Minerals tract and the 44,000-acre Powellton Minerals tract.
together with strong metallurgical coal markets through the
first quarter of the year, helped propel coal production from our The PLC Minerals tract was our top production and revenue
properties to 3.1 million tons, a 19% increase over the 2.6 million source in 2019, generating $7.7 million in mined coal royalties
tons produced during 2018. Other positive developments and wheelage payments. Our PLC Minerals tract lessee operates
during the year included: (1) new metallurgical coal production seven mines, including three surface and four underground
from our Big Huff North Minerals tract, acquired in early 2018; mines, producing both thermal coal and metallurgical coal that
(2) the sale of two non-strategic coal reserves, with proceeds is sold in the domestic and the export markets. The addition of
totaling $568,000; (3) the recapture of $680,000 in monies owed two new deep mines and one new surface mine during the year
from past lessee bankruptcies; and (4) the income recognition of led to a 67% increase in production from our property. A new
expiring minimum lease payments totaling $934,057. With the metallurgical underground mine commenced operations in June
continuing decline of the thermal coal markets during the year 2019, the production from which will eventually replace production
and the strength of our metallurgical properties, over 90% of from an adjacent mine which is nearing completion. Due to a
our mined coal royalties earned came from metallurgical coal weak thermal coal market, our lessee idled their thermal coal
production from our properties. An oversupply of the steel surface mine mid-year and transferred the equipment and crews
markets led to a sharp downturn in the metallurgical coal to another surface mine, which produces low-cost metallurgical
markets during the third and fourth quarters of the year, leading coal. While we expect production from our PLC Minerals tract
to a drop in both demand and prices. Our lessee on our to decline modestly in 2020, the operations, which produce
Powellton Minerals tract, being new to the metallurgical coal high-quality metallurgical coal, continue to enjoy healthy operating
market, chose to idle the operation and halt production. In margins even following the late year decline in market prices.
early 2020, this lessee filed for Chapter 11 bankruptcy protection
and intends to sell our leasehold and the operation through Our Powellton Minerals tract was our second top production and
the bankruptcy proceedings. We expect a sale to close during revenue source during the year, generating $4.1 million in mined
2020 and operations to restart at some point thereafter. coal royalties, which was down from the $6.3 million in mined
Nonetheless, our 2020 mined coal royalties will likely be coal royalties generated in 2018. Our new lessee acquired the
lower than 2019 levels. leasehold and operation at our Powellton Minerals tract early in


5.0 $18 $350

4.5 16
4.0 14

3.5 12

3.0 10 200

2.5 8
2.0 6
100 Premium Low Vol (HCC) - FOB AUS
1.5 4 Low Vol - FOB USEC
High Vol A - FOB USEC
1.0 2 50 High Vol B - FOB USEC

0 0 0











Source: 2019 Energy Ventures Analysis

A coal train hauling metallurgical coal from our PLC Minerals tract.

the year. Unfortunately, lacking sufficient coal sales contracts and the other is nearing completion of a surface mining
and being unfamiliar with the property’s deep mine operations, permit with production expected to begin in 2021. In 2019,
our lessee chose to idle operations in September 2019 following we received a combined $350,000 in lease payments from
the metallurgical coal market downturn, and is currently working these lessees and recognized $600,000 in previously paid
to sell the operation. As with our PLC Minerals tract, we believe minimum lease payments as the respective recoupment
the Powellton Minerals tract operations are profitable at current periods expired.
price levels.
■ On our Mohler Minerals tract, in September 2017 we executed
Other 2019 developments included: a lease with an operator who planned a thermal coal surface
■ On our Big Huff North Minerals tract, we sold a small, 65-acre mine as an extension to their adjoining operations which
coal reserve for $231,000, and leased an additional 160 acres include a cleaning plant and access to the CSX rail market.
for mining. The new lessee produced 111,136 tons from a The operations were subsequently acquired by another
metallurgical deep mine during the year, generating $718,000 operator and due to a change in mine plans, mining on our
in mined coal royalties for the Company. Having acquired property is now expected to commence in 2023. This
the Big Huff North Minerals tract in early 2018 for $750,000, property is strategically suited to supply a local West Virginia
we have now earned more than the purchase price, and are coal-fired electric power plant. Minimum royalty and
working to lease the property’s main reserve block of an wheelage payments, combined with proceeds of $336,268
estimated 3.6 million tons of metallurgical coal reserves, related to the sale of a small coal reserve, resulted in total
which we expect to be in operation by late 2020 or early 2021. 2019 revenues of $483,952 from this tract.

■ On our Pardee & Curtin Minerals tract, we executed a new In summary, production increased meaningfully during the year
lease with a company with adjacent mining operations. They as a result of new mine development on our properties. The
commenced new surface and highwall mining operations global metallurgical coal markets turned lower during the
on our property in March 2019 and have since produced second half of 2019, negatively impacting our results with the
mostly metallurgical coal generating $535,868 in royalties. temporary idling of operations on our Powellton Minerals tract.
We expect production from these mines to be completed in While the lower market is likely to persist during 2020, with
2020 and to then receive wheelage royalty payments for the the Powellton Minerals leasehold expected to change hands and
hauling of coal across our surface. resume operations, and other developments underway on our
properties, we look forward to meaningful gains in production
■ On our 7,636-acre Big Huff Minerals tract, our two lessees are and revenues in 2021. Moreover, the Company’s approximately
each in the process of permitting new metallurgical coal mines 151 million tons of high-quality metallurgical coal reserves are
on our property. One lessee is permitting an underground in demand both domestically and internationally, promising to
deep mine with production expected to commence in 2025, deliver significant revenues to the Company for years to come.
Oil & Gas
uring 2019, Oil & Gas Division revenues were $7.5 million
compared to $9.4 million during 2018, a 20% decrease.
Oil and natural gas production from our properties
decreased 7.3%, from 2.86 billion cubic feet equivalent (Bcfe)
in 2018 to 2.65 Bcfe in 2019, and the weighted average price
received in 2019 was $2.52 per thousand cubic feet equivalent
(Mcfe) versus $2.90 per Mcfe in 2018, a decrease of 13%. The
annual production decline from our properties, normally 5%,
was higher in 2019 due to a combination of factors including a
19% year-to-year decline in production from our Colorado
overriding royalty interests and a 30% decline in production
from our northern West Virginia overriding royalty interests.
Revenues from our interests in both Colorado and northern
West Virginia are tied to horizontal shale well production
which is characterized by high initial production decline rates.
A central oil collection and storage facility located in the Reddell Field, Evangeline
Additionally, 2019 revenues were negatively impacted as
Parish, Louisiana.
Appalachia market prices were further discounted from index
prices. This so-called “negative basis” averaged $0.38 per million April through November, versus $2.91 during the same period
British thermal units (MMBtu) during the year. in 2018, despite high levels of natural gas exports and increased
consumption in the electric power generation sector over the
Overall natural gas production in the U.S. continued to rise during summer. Strong supply growth also enabled natural gas storage
the year, putting downward pressure on prices. Record-setting inventories to build more than average during the April through
production gains were largely from the Marcellus and Utica Shale October injection season, ending 18% higher than the prior year,
formations in the Appalachian region where the majority of the putting additional downward pressure on prices. The short-term
Company’s properties are located. U.S. natural gas spot prices outlook is for both oil and natural gas production growth to slow
at the benchmark Henry Hub averaged $2.45 per MMBtu from in 2020 due to reductions in drilling activity that began in 2019.


Per Mcf
2010-2019 Anadarko Appalachia Bakken Eagle Ford Haynesville Niobrara Permian

$10 90,000
9 80,000

8 70,000

2 20,000
Pardee Weighted Average
1 10,000
NYMEX Average*
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

*Source: Energy Informaon Administraon (EIA)

Source: Energy Informaon Administraon (EIA)

On December 27, 2019, the U.S. rig count stood at The Company also holds diverse non-operating FIVE-YEAR COMPARISON
805, down 25% from year-end 2018. This should working interests and overriding royalty interests OIL & GAS PRODUCTION
Billion Cubic Feet Equivalents
lead to higher natural gas prices going forward. in various locations, including our interests in the
Denver-Julesburg Basin in eastern Colorado which Oil Gas
Appalachian Basin Interests have seen a sharp increase in production during
The majority of the Company’s oil and natural gas recent years as producers have applied new 3.0
interests are located in the Appalachian Basin and horizontal drilling technology to the area’s shale
include 670,000 acres of oil and natural gas mineral formations. Income from all non-Appalachian
ownership in West Virginia, Virginia, Kentucky, and interests was 31% of the Company’s total revenues 2.0
Pennsylvania. While most of our properties have derived from the production of oil and natural gas.
not participated in the recent “shale revolution,”
and the material production gains from horizontal Looking forward to 2020, there are indications 1.0
drilling in the Marcellus and Utica Shale formations, that the oil and natural gas industry will remain
our properties contain approximately 3,200 in an oversupply situation with continuing .5

operating vertical or “conventional” natural gas downward pressure on prices. However, there is 0
wells that are characterized by very low rates also some optimism that the recent curtailment



of decline and are expected to produce royalty of drilling, due to lower prices, will begin to
income for several decades into the future. Indeed, moderate and potentially reverse production FIVE-YEAR COMPARISON
some of the wells on our properties have been increases, thereby leading to future price
producing since the 1940s. Our Appalachian increases. The completion of ongoing pipeline $10
Basin interests provided 69% of the Company’s projects will help to move natural gas out of the 9
revenues derived from the production of oil and Appalachian Basin region to Liquefied Natural Gas 8
natural gas during 2019. (LNG) export terminals, which service the growing 7
international natural gas market. In the meantime, 6
Non-Appalachia Interests we remain encouraged by the very low decline 5
The Company owns approximately 18,600 acres of rates of the conventional wells operating on
oil and natural gas minerals interests in Louisiana. our properties.




A section of the 42-inch diameter 300 mile Mountain Valley Pipeline being constructed on our Pardee & Curtin Timberlands tract in Webster County, West Virginia.

Timber & Surface
uring 2019, Timber & Surface Division revenues were This price decline was primarily due to the weakening Chinese
$5.2 million, a 3.7% decrease from 2018 revenues economy and the tariffs China placed on imported hardwood
of $5.4 million. The U.S./China trade war and the lumber and logs.
weakening Chinese economy have led to a decline in hardwood
stumpage prices. Also, the demand for pine pulpwood in Virginia In May 2019, we sold a six mile powerline right-of-way across
declined during the year, following the closure of two paper mill our PLC Timberlands tract to an electric power company for
facilities in the region. $411,750. This right-of-way totaled approximately 82 acres, and
following construction of a new powerline, the older powerline
Production from our hardwood properties increased 10% during will be removed and 30 acres will revert back to the Company.
the year, from 10 million board feet (MMBF) in 2018 to 11
MMBF in 2019, due to improved logging conditions over 2018. Unfortunately, 2019 was a very difficult year for the hardwood
Nonetheless, production remained below our budgeted volume industry. As previously stated, the trade war with China and the
due to weak demand from local sawmills. Our average hardwood related tariffs, which continued from 2018, caused stumpage
selling price decreased 13% during 2019, from $261 per thousand prices to fall for all species. The most substantial declines were in
board feet (MBF) in 2018 to $227 per MBF in 2019. red oak and cherry, each of which fell in excess of 30%. Exports



Basswood 3% Poplar 27% Basswood 1%

Poplar 33% Sugar Maple 6%
Sugar Maple 9%
Red Maple 10%
Cherry 3% White Oak 8%
Red Maple 14%

White Oak 7% Others 16% Red Oak 25% Cherry 7%

Red Oak 22% Others 9%

A female Common Merganser on the Back Fork of Elk River on our Pardee & Curtin Timberlands tract in Webster County, West Virginia.

A log landing on our Pardee & Curtin Timberlands tract located in Webster County, West Virginia.

of hardwood lumber to China were down 39% increased 11%, from $13.88 in 2018 to $15.39 FIVE-YEAR COMPARISON
to 521.8 billion board feet in 2019. While China in 2019.
remained the largest export market for U.S. Board Feet
hardwood lumber in 2019, volume was down 51% With the aforementioned closure of the two
from its peak in 2017. In early 2020, a “Phase paper mill facilities, we are working to diversify
1” U.S./China trade deal was executed, in which our sales to other pulpwood mills in the area. 14
China agreed to purchase additional hardwood We are also considering shifting a portion of our 12
products from the U.S. China has since removed timber management regime from a pulpwood
all tariffs on hardwood lumber from the U.S., only rotation to a pulpwood/sawlog rotation,

which should lead to an increase in exports and which should lead to higher average prices. 8
improved pricing going forward. 6
We are pleased with the ongoing success of our
Domestic markets for hardwood lumber remained rural real estate development efforts. During
stable during the year. The housing market 2019, we sold 12 parcels totaling 1,840 acres, 2
improved for the tenth consecutive year, but which generated gross proceeds of $3.5 million 0
still did not reach the historic annual average for and a pre-tax gain of $482,000 in central Virginia.


single family housing starts, an important measure We also sold 2,352 acres in West Virginia, which
for the lumber industry. Meanwhile, the industrial generated proceeds of $2.0 million and a pre-tax FIVE-YEAR COMPARISON
lumber markets rose in 2019, accounting for 58% gain of $336,000. During the year, 16% of
of hardwood consumption, with a significant Divisional revenues came from gains on real $7
portion being the pallet sector. estate sales. Additionally, we received $227,000
in recreational lease and solar option payments *
Production from our softwood properties from our central Virginia holdings. 5
decreased 51% during the year, from 92,000 tons

in 2018 to 45,000 tons in 2019. This decline was Looking ahead, we expect to see gains in demand
due to the closure of two paper mill facilities in and prices for 2020 with the improvements in 3
our region, which caused an oversupply of pine exports following the easing of trade tensions with
pulpwood. With the pine pulpwood markets China. Further, improvements in both domestic 2

being oversupplied, we focused on selling stands housing starts and the industrial lumber markets 1
with higher percentages of pine sawlogs and pine bode well for the timber industry. Finally, we
post, as these products yielded higher stumpage expect another strong year in rural real estate lot 0


values. Consequently, our average price per ton sales, which are off to a strong start in early 2020.


* Excludes gain on sale of sawmill property of

$6.4 million

Alternative Energy
uring 2019, the Company’s directly-owned solar
photovoltaic (PV) systems located in Arizona, California,
and New Jersey generated $3.8 million in revenues,
similar to what these systems returned in 2018. Our Alternative
Energy Division realizes its revenues from the sale of the electric
power generated by the Company’s solar PV systems through
long-term power purchase agreements with the host entities. In
addition, the Company receives revenues from the sale of solar
renewable energy credits in New Jersey and Arizona. During 2019,
the Company’s portfolio of alternative energy assets generated In 2012, the Company invested in this 4.7 MW solar PV system that provides
electricity to the North Kern State Prison in Delano, California.
16.8 million kilowatt-hours, 1.8% less than the amount generated
in 2018. While some of our systems generated less energy in invested, filed a legal action against numerous third-party professional
2019 than 2018 due to required maintenance and repairs, we are firms who provided services to the investors in connection with
pleased with the overall performance of our solar PV systems, as their respective investments. In early 2020, the principals of DC
they continue to perform in-line with our expectations. Solar pled guilty to charges of criminal fraud and money laundering
in U.S. District Court. The Company has been working vigorously
The Company made its first renewable energy investment in 2010 in with other DC Solar investors to determine the best path forward
a portfolio of several solar PV projects located in New Jersey. In to protect our interests and minimize the financial impact on the
total, the Company has since invested approximately $59.6 million Company arising from this fraud. Due to substantial uncertainties,
in numerous solar projects, including a $7.7 million investment the Company is currently unable to determine the financial
in a limited liability company (Fund) that purchased mobile solar impact arising from this complex situation, however, the impact
generators (MSGs) from DC Solar in 2015. As previously reported, could be as much as $7.2 million, which includes related tax
the Company became aware in early 2019 that the principals of DC impacts. As mentioned previously, we are pleased with the
Solar were operating an alleged fraudulent “Ponzi-like scheme.” performance of the balance of our alternative energy assets,
An independent audit was completed in 2019 which ultimately which have proven to be reliable, low-risk investments.
located and identified all of the 125 MSGs purchased by the Fund in
2015. In December 2019, the Company, along with other investors Considering the Company’s limited tax liability and the fact that
in other DC Solar sponsored funds, and the funds in which they the federal investment tax credit (ITC) is scheduled to decrease
to 10% by 2022, the Company remains constrained in the
FIVE-YEAR COMPARISON FIVE-YEAR COMPARISON amount of investment capital it can deploy for the acquisition
of new solar projects that require the utilization of federal ITCs.
Kilowatt-Hours (kWh) Therefore, we are actively exploring other avenues of expanding
20 $5 our renewable portfolio that would allow us to invest without
requiring the utilization of ITCs. For example, we are considering
the acquisition of solar assets that have been operating continuously
16 4
for more than five years, and are beyond the holding period
required to earn the federal ITCs.
12 3

10 Renewable energy continues to be the fastest-growing energy

8 2 source in the U.S. with solar energy output growing 14.9% in 2019
6 compared to 2018 and accounting for 2.6% of total electrical
4 1 generation in 2019. Moreover, solar-plus-storage is becoming
2 increasingly common in the U.S. due to falling battery storage
0 0 costs and certain state incentive programs, representing a new





area of possible future investment for the Company.




he Company has invested $5.8 million since 2015 table grape prices will improve in 2020, due to both the improved
to develop two table grape ranches located in trade relations with China and the wider recognition and acceptance
California’s Central Valley. Both properties, totaling of premium table grapes in the U.S. and abroad.
260 acres, have been upgraded with modern infrastructure and
planted with premium varieties of seedless table grapes. In In order to further diversify our agricultural portfolio and to seize
general, it takes about three years for young table grape vines to on compelling market advantages, the Company committed
mature and reach their full yield potential. Due to a severe frost $3.2 million in November 2018 to acquire a controlling interest
event in 2018, many of the young vines on our ranches were in a partnership that leased a 420-acre farm tract approximately
adversely impacted and consequently some had to be replanted 85 miles east of Lisbon, Portugal. This tract has since been
and retrained. During 2019, the Company realized a $1.2 million developed into a state-of-the-art almond tree farm operation,
pre-tax operating loss related to our table grape ranches, which, with our operating partners applying their multi-generational
while disappointing, was a meaningful improvement over the California almond growing experience to the project. In addition
$2.1 million pre-tax operating loss of 2018. While we achieved to a newly-installed irrigation system, the project enjoys access
better results from both ranches during the year, it is anticipated to the largest man-made reservoir in Europe for irrigation, low
that some of our vines will require one or two more years before operating costs, favorable tariff rates, and competitive transportation
they reach their maximum yields and earnings potential. The costs into both the European and Asian markets. We are very
table grape export market remained under pressure in 2019 due pleased with the progress of the farm thus far and expect to
to the continued U.S./China trade war. We expect that premium achieve our first commercial almond harvest in 2021.

In 2018, the Company invested in the development of this 420-acre almond tree farm located in southeastern Portugal, shown above as of early October 2019.


Board of Directors

William G. Foulke James C. Rodgers Matthew W. Hall

Chairman of the Board Chairman, Audit Committee Executive Committee
Chairman, Executive Committee Corporate Affairs Committee Audit Committee

George D. Curtin III Alexander Kerr Carleton P. Erdman

Compensation Committee Chairman, Corporate Affairs Committee Executive Committee
Corporate Affairs Committee Executive Committee
Compensation Committee

Benjamin A. Burditt George K. Hickox, Jr. Adam W. Foulke

Executive Committee Chairman, Compensation Committee Audit Committee
Audit Committee Executive Committee Corporate Affairs Committee
Compensation Committee Corporate Affairs Committee



Carleton P. Erdman Harry G. Symons Jeffrey W. Wagner Jeffery W. Allen

President & CEO Senior Vice President, Senior Vice President, Senior Vice President
Philadelphia, PA Chief Financial Officer General Counsel & Acquisitions, Development,
Philadelphia, PA Corporate Secretary Coal & Minerals
Philadelphia, PA Scott Depot, WV

Stephen D. Harp Jeffrey A. Brown William F. Bondi John M. Praskwiecz

Senior Vice President Senior Vice President Vice President Vice President
Timber & Surface Oil & Gas Finance Coal & Minerals
Summersville, WV Scott Depot, WV Philadelphia, PA Scott Depot, WV

Walter L. Stroud Linda M. Thorpe Volha A. Hutyrchyk Watky Kho

Vice President Vice President Vice President Vice President
Engineering Services Data Solutions Investments Information Technology
Scott Depot, WV Philadelphia, PA Escondido, CA Philadelphia, PA


PARDEE RESOURCES COMPANY Carleton P. Erdman, CFA. . . . . . . . . . . . . President & Chief Executive Officer
1717 Arch Street
Harry G. Symons, CPA. . . . . . . . . . . . . . . Senior Vice President & Chief Financial Officer
Suite 4010
Philadelphia, PA 19103 Jeffrey W. Wagner. . . . . . . . . . . . . . . . . . Senior Vice President, General Counsel &
Tel: (215) 405-1260 Corporate Secretary
Fax: (215) 405-1263
William F. Bondi, CPA. . . . . . . . . . . . . . . Vice President – Finance
Linda M. Thorpe . . . . . . . . . . . . . . . . . . . Vice President – Data Solutions
Watky Kho. . . . . . . . . . . . . . . . . . . . . . . . Vice President – Information Technology
Linda Dougherty. . . . . . . . . . . . . . . . . . . Director of Human Resources & Shareholder
Relations & Assistant Corporate Secretary
Laura C. Tully. . . . . . . . . . . . . . . . . . . . . . Manager – Property Administration &
Assistant Corporate Secretary
Francis S. Lam. . . . . . . . . . . . . . . . . . . . . . Assistant Controller
An T. Slenn. . . . . . . . . . . . . . . . . . . . . . . . Senior Financial Accountant
Terry Redman . . . . . . . . . . . . . . . . . . . . . Executive Assistant to the CEO & CFO
Jeanne N. Fillmore . . . . . . . . . . . . . . . . . Administrative/Accounting Assistant


P.O. Box 460055
Escondido, CA 92046
Volha A. Hutyrchyk. . . . . . . . . . . . . . . . . Vice President – Investments
Tel: (442) 777-3228

PARDEE MINERALS LLC Jeffrey A. Brown, CPG, CPL. . . . . . . . . . . Senior Vice President – Oil & Gas
135 Corporate Center Drive
John M. Praskwiecz, P.E., P.S.. . . . . . . . .Senior Vice President – Coal & Minerals
Suite 510
Scott Depot, WV 25560 Walter L. Stroud, RL . . . . . . . . . . . . . . . . Vice President – Engineering Services
Tel: (304) 760-7085 Katrina J. Rawlings . . . . . . . . . . . . . . . . . Manager – Lease Administration
Fax: (304) 760-7084
Derek K. Latimer. . . . . . . . . . . . . . . . . . . Manager – Mine Engineering
Jonathan D. Burdette . . . . . . . . . . . . . . . Senior GIS/CAD Analyst
Dale A. Vanderlaan. . . . . . . . . . . . . . . . . G.I.S. Technician
Louria G. Nester. . . . . . . . . . . . . . . . . . . . Administrative Assistant

PARDEE VENTURES LLC Jeffery W. Allen. . . . . . . . . . . . . . . . . . . . President

135 Corporate Center Drive
Richard A. Dearing . . . . . . . . . . . . . . . . . Manager – Acquisitions & Development
Suite 510
Scott Depot, WV 25560 Sarah G. Patrick. . . . . . . . . . . . . . . . . . . . Manager – Real Estate Marketing
Tel: (304) 760-7085
Fax: (304) 760-7084

PARDEE & CURTIN REALTY LLC Stephen D. Harp, RF . . . . . . . . . . . . . . . . President

702 Professional Park Drive
Judson T. Collie, RF. . . . . . . . . . . . . . . . . Forester
Suite 104
Summersville, WV 26651 Rexana D. McCourt, RF. . . . . . . . . . . . . . Forester
Tel: (304) 872-0576 Trina J. Fox. . . . . . . . . . . . . . . . . . . . . . . . Administrative Assistant
Fax: (304) 872-0580


To the Board of Directors and Shareholders

We have audited the accompanying consolidated financial statements of Pardee Resources Company
(the Company), which comprise the consolidated balance sheets as of December 31, 2019 and 2018,
and the related consolidated statements of operations, comprehensive income, equity and cash flows
for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in
conformity with U.S. generally accepted accounting principles; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation of financial statements
that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Pardee Resources Company at December 31, 2019 and 2018, and the
consolidated results of its operations and its cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.

Philadelphia, Pennsylvania
April 10, 2020

DECEMBER 31, 2019 2018

CURRENT ASSETS Cash and cash equivalents $ 22,239,025 $ 15,270,982
Accounts receivable 7,098,913 8,505,075
Prepaid income taxes 802,382 1,207,024
Other current assets 1,404,254 1,105,692

Total Current Assets 31,544,574 26,088,773

INVESTMENTS Oil and gas investments (successful efforts method), net of

accumulated depletion of $31,315,608 and $31,023,044 in
2019 and 2018, respectively 41,301,360 44,392,884
Property and equipment, net 107,834,967 112,933,393
Equity investments 442,430 444,991
Right of use asset 3,841,071 —
Other assets 103,500 122,465

Total Assets $185,067,902 $183,982,506


CURRENT LIABILITIES Accounts payable 2,174,865 2,600,606
Deferred revenues 1,096,251 775,392
Current portion of note payable (non-recourse) — 342,944
Current portion lease liability 583,660 —

Total Current Liabilities 3,854,776 3,718,942

NONCURRENT Note payable (non-recourse) — 4,039,533

LIABILITIES Supplemental pension plan 425,107 361,355
Deferred income taxes 17,819,556 15,925,984
Deferred revenues, net of current portion 1,274,884 2,718,097
Asset retirement obligation 154,027 393,658
Lease liability 3,544,086 —
Other noncurrent liabilities 58,020 14,424

Total Liabilities 27,130,456 27,171,993

EQUITY Shareholders’ Equity:

Common stock, par value $1; 10,000,000 shares
 authorized, 775,313 shares issued in 2019 and
2018; 649,448 and 661,550 shares outstanding
in 2019 and 2018, respectively 775,313 775,313
Additional paid-in capital 14,904,846 15,085,796
Accumulated other comprehensive income 40,836 —
Retained earnings 166,561,981 164,471,752
Treasury stock, at cost, 125,865 shares 2019
and 113,763 shares 2018 (27,347,131) (25,751,265)

Total Pardee Shareholders’ Equity 154,935,845 154,581,596

Noncontrolling Interest 3,001,601 2,228,917

Total Equity 157,937,446 156,810,513

Total Liabilities and Equity $185,067,902 $183,982,506

See accompanying notes.

REVENUES FROM Coal and minerals $15,823,500 $13,113,221

OPERATIONS Oil and gas 7,505,285 9,356,929
Timber and surface 5,231,987 5,381,403
Alternative energy 3,830,139 3,695,885
Agriculture 4,729,013 1,276,000

37,119,924 32,823,438

OPERATING EXPENSES Coal and minerals 1,971,960 2,876,347

Oil and gas 4,609,976 5,921,998
Timber and surface 3,211,313 3,286,044
Alternative energy 2,785,885 2,149,991
Agriculture 5,914,074 3,390,758

18,493,208 17,625,138

Gross income from operations 18,626,716 15,198,300

General and administrative expenses 6,844,048 6,860,119
Income from Operations 11,782,668 8,338,181

OTHER INCOME Interest income, other income and other expense 245,724 145,855
AND EXPENSE Income (Loss) from equity investments 72,232 (571,240)
Interest expense (170,107) (371,995)

Income before income taxes 11,930,517 7,540,801

Provision for income taxes 3,257,882 1,183,353

Net Income 8,672,635 6,357,448

Net Loss attributable to noncontrolling interest 158,715 256,462

Net Income attributable to Pardee Resources

Company Shareholders $ 8,831,350 $ 6,613,910

Basic Earnings Per Common Share $13.29 $9.62

Weighted average number of common shares outstanding 664,401 687,234

See accompanying notes.


Net Income $8,672,635 $6,357,448

Other comprehensive income, before tax

Foreign currency translation adjustment, net of
tax of $0 and $0, respectively 74,246 —

Other comprehensive income, net of tax 74,246 —

Comprehensive Income 8,746,881 6,357,448

Net Comprehensive Loss attributable to noncontrolling interest 125,305 256,462

Comprehensive Income attributable to

Pardee Resources Company $8,872,186 $6,613,910

See accompanying notes.



JANUARY 1, 2018 $775,313 $15,374,430 $162,810,691 $(20,053,631) $ 0 $ 784,623 $159,691,426

NET INCOME 6,613,910 (256,462) 6,357,448

COMPENSATION TO DIRECTORS (110,775) 492,152 381,377

UNITS ISSUED (1,064,233) 1,064,233 0

UNITS GRANTED 886,374 886,374

BY THE COMPANY (7,254,019) (7,254,019)


($7.20 PER SHARE) (4,952,849) (4,952,849)

PERIOD INCREASE (DECREASE) 1,700,756 1,700,756

DECEMBER 31, 2018 $775,313 $15,085,796 $164,471,752 $(25,751,265) $ 0 $2,228,917 $156,810,513

NET INCOME 8,831,350 (158,715) 8,672,635

INCOME 40,836 33,410 74,246

COMPENSATION TO DIRECTORS (124,032) 524,600 400,568

UNITS ISSUED (1,033,385) 1,033,385 0

UNITS GRANTED 976,467 976,467

BY THE COMPANY (3,153,851) (3,153,851)


($10.20 PER SHARE) (6,741,121) (6,741,121)


DECEMBER 31, 2019 $775,313 $14,904,846 $166,561,981 $(27,347,131) $40,836 $3,001,601 $157,937,446

See accompanying notes.


CASH FLOWS FROM Net income $ 8,672,635 $ 6,357,448

OPERATING ACTIVITIES Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, amortization and accretion 5,523,451 6,350,056
Deferred income tax expense 97,875 912,692
Net (gain) loss on disposal and write-offs
of oil and gas investments (287,156) 343,619
Stock-based compensation expense 1,377,035 1,267,748
Gain on sale of property and equipment (1,381,900) (726,732)
(Gain) Loss from equity investments (72,232) 571,240
Change in operating assets and liabilities:
Accounts receivable 1,406,162 (2,254,977)
Other assets 169,658 (878,621)
Accounts payable and accrued liabilities (95,471) (296,773)
Investment tax credit 1,795,696 105,200
Deferred revenues (1,122,354) 447,010
Supplemental pension plan 63,752 54,411
Total Adjustments 7,474,516 5,894,873
Net Cash Provided By Operating Activities 16,147,151 12,252,321

CASH FLOWS FROM Purchases of property and equipment (1,912,470) (1,339,516)

INVESTING ACTIVITIES Expenditures for oil and gas investments (6,800) (61,703)
Net proceeds from equity partnerships 40,205 520,681
Proceeds from sale of property and equipment 5,995,641 3,091,388
Proceeds from sale of oil and gas investments 66,776 —
(Issuance) Collection of note receivable — (4,800)
Net Cash Provided By Investing Activities 4,183,352 2,206,050

CASH FLOWS FROM Payment of common dividends (6,741,121) (4,952,849)

FINANCING ACTIVITIES Purchase of stock for treasury and restricted share units (3,153,851) (7,254,019)
Payments of note payable and line of credit (4,382,477) (5,235,504)

Net contributions (distributions) from

noncontrolling interests 897,989 (288,265)

Net Cash Used In Financing Activities (13,379,460) (17,730,637)

Effect of exchange rate changes on cash and cash equivalents 17,000 —

Net Increase (Decrease) In Cash And Cash Equivalents 6,951,043 (3,272,266)

Cash And Cash Equivalents At Beginning Of Year 15,270,982 18,543,248

Cash And Cash Equivalents At End Of Year $22,239,025 $15,270,982

SUPPLEMENTAL Cash paid for interest $ 238,313 $ 437,233

FLOW INFORMATION Net cash paid for income taxes $ 1,020,940 $ 959,500

See accompanying notes.

DECEMBER 31, 2019 AND 2018

1. DESCRIPTION OF Pardee Resources Company (the Company) is a natural resources company that conducts its business
BUSINESS AND through its subsidiaries principally in the timber, oil and gas, coal, agriculture, and alternative energy
ORGANIZATION industries. The Company’s subsidiaries own land, mineral rights, farmland, agriculture leases, and solar
photovoltaic systems, principally in West Virginia, Virginia, Kentucky, Louisiana, Colorado, New Jersey,
Texas, Arizona, California, and Portugal. Through its subsidiaries the Company grants timber-cutting
rights on certain of its properties, leases certain of its properties to third parties for coal mining and
processing, grows table grapes and almonds, and leases properties to third parties for oil and gas exploration
and production. Also, through its subsidiaries, the Company owns developed and undeveloped oil and
gas rights and participates in oil and gas prospects on properties leased from third parties.

2. SIGNIFICANT Principles of Consolidation

ACCOUNTING The consolidated financial statements include the accounts of the Company and its subsidiaries. All
POLICIES intercompany balances and transactions have been eliminated in consolidation. We report other
interests in partnerships, and outside ownership interests in other consolidated but less than 100%
owned subsidiaries, as noncontrolling interests.

In 2018, the Company contributed $1,905,581 for a 55% interest in an almond farm limited liability
company (LLC). Management determined that the Company has the power to direct the activities of
the LLC; therefore, it is the primary beneficiary of the variable interest entity (VIE) and consolidation is
required, under ASC 810. The Company is required to provide a capital contribution for expenditures
based on its percentage interest, and such contributions totaled $535,809 for 2019.

In 2018, the Company also contributed $2,572,912 for an 85% interest in a grape farm limited liability
company (LLC). Management determined that the Company has the power to direct the activities of the
LLC; therefore, it is the primary beneficiary of the variable interest entity (VIE) and consolidation is required,
under ASC 810. The Company is required to provide a capital contribution for expenditures based on its
percentage interest and such contributions totaled $2,572,912 for 2019.

Accounting Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in
the United States, require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax
assets and liabilities are determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to be realized or settled.

The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is
required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has
identified its federal tax return and its state tax returns in West Virginia, Virginia, Kentucky, Louisiana,
Colorado, New Jersey, Texas, Arizona, and California as major tax jurisdictions. The only periods subject
to examination for the Company’s federal return are the 2016 through 2019 tax years. The periods
subject to examination for the Company’s state returns in Virginia, West Virginia, Kentucky, Louisiana,
Colorado, New Jersey, Texas, Arizona, and California are years 2016 through 2019. The Company
believes that its income tax filing positions and deductions will generally be sustained on audit and does
not anticipate any adjustments that will result in a material change to its consolidated financial position.

DECEMBER 31, 2019 AND 2018

2. SIGNIFICANT Investment Tax Credits

ACCOUNTING Investment tax credits received from the Company’s investments in solar partnerships are recorded
POLICIES based upon estimates provided by the respective partnerships. Actual results could differ from those
(CONTINUED) estimates, upon the filing of the respective partnership’s tax returns.

Accounts Receivable
Accounts receivable are reported on the consolidated balance sheets at the gross outstanding amount.
Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition.
Provisions for uncollectible accounts are established based upon our collection experience and the
assessment of the collectability of specific amounts. Accounts receivable are written off in the period
in which the receivable is deemed uncollectible.

Revenue Recognition
The Company recognizes revenue in accordance with FASB – Accounting Standards Update (ASU) ASU
2014-09, Revenue from Contracts with Customers (Topic 606).

The Company determines the appropriate method by which it recognizes revenue by analyzing the
nature of the products or services being provided as well as the terms and conditions of contracts
or arrangements entered into with its customers. The Company accounts for a contract when it has
approval and commitment from both parties, the rights of the parties are identified, payment terms
are identified, the contract has commercial substance, and collectability of consideration is probable.
A contract’s transaction price is allocated to each distinct good or service (i.e., performance obligation)
identified in the contract, and each performance obligation is valued based on its estimated relative
standalone selling price.

The Company recognizes the majority of its revenue at a point in time when it satisfies a performance
obligation and transfers control of the product to the respective customer. The amount of revenue that is
recognized is based on the transaction price, which is the result of contracts and current market conditions.

Coal leases are typically based on a combination of a minimum dollar royalty per ton or a percentage
of the gross sales price per ton, whichever is greater, and minimum annual payments. Royalty
revenue is recognized at the time the mined coal is shipped from the property. Minimum payments
are generally recorded as deferred revenue. If the lessee recoups a minimum payment through
production, the deferred revenue attributable to the minimum payment is recognized as coal
royalty revenue in the period the minimum payments are recouped. If the minimum payment is
not recouped within the stated time period in the lease, the deferred revenue attributable to the
unrecouped minimum payment is recognized as revenue at the expiration of the recoupment period.

Oil and Gas

Oil and gas lease revenues are typically based on a combination of a percentage royalty of the gross
sales per thousand cubic feet (Mcf) of gas and barrel of oil, lease bonus payments (paid at the time leases
are made) and annual delay rental payments. Royalties are recognized at the time gas flows through
a sales meter into a third-party pipeline and when oil is shipped from storage tanks. The Company
accounts for lease bonuses and delay rentals under the cost recovery method of accounting, whereby
equal amounts of revenue and expense are recognized as collections are made until all costs have been
recovered, postponing any recognition of profit until that time.

DECEMBER 31, 2019 AND 2018

ACCOUNTING Timber leases typically require a minimum annual harvest, with timber royalties based on a percentage
POLICIES of the sales price per board foot of finished lumber by species. Revenue is recognized at the time the
(CONTINUED) logs are delivered to the mill.

The Company also receives revenues from timber bid sales. Timber bid sales are agreements in which
the buyer agrees to purchase and harvest specified timber on a tract of land over the terms of the contract.
The risk of loss and title to the trees, transfers to the buyer when the contract is signed. The buyer
pays the full purchase price when the contract is signed. The Company does not have any additional
performance obligations. Any uncut timber remaining at the end of the contract period reverts back to
the Company. Revenue from a timber bid sale is recognized when the contract is signed and payment
received, since the earnings process is complete.

Solar electric lease revenue and solar renewable energy credit revenue are typically based on a contracted
rate per kilowatt-hour. Revenue is recognized at the time the generated electricity passes through the
sales meter.

The Company recognizes revenue at the time harvested grapes are delivered to a third-party marketer.

Depletion and Depreciation

Depletion of coal reserves and timber reserves are computed on the basis of tonnage of coal mined and
board feet harvested, respectively. Buildings and structures, office equipment, automobiles, and other
fixed assets are depreciated on the straight-line method over estimated useful lives of 3 to 25 years.

Asset Retirement Obligations (ARO)

The fair value of a liability for an asset retirement obligation is recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the fixed asset or oil and gas investment and depreciated
or depleted over their estimated useful lives. The liability is accreted to its future value over the period
to its estimated settlement date. The Company’s obligations primarily apply to the future plugging of
its oil and gas wells.

During 2018 and 2019, the Company disposed of certain oil and gas wells and released the future
obligation of plugging the wells to the purchaser. The impact of releasing the net ARO liability was
immaterial in both years.

Oil and Gas Accounting

The Company accounts for its oil and gas operations under the successful efforts method of accounting.
Under the successful efforts method, costs of productive wells, development dry holes, and productive
leases are capitalized and amortized on a units-of-production basis over the life of remaining proved
reserves. Cost centers for amortization purposes are determined on a field-by-field basis.

Exploratory expenses, including geological and geophysical expenses and annual delay rentals for oil
and gas leases, are charged to expense as incurred. Exploratory drilling costs, including stratigraphic
test wells, are initially capitalized, but charged to expense if and when the well is determined to
be unsuccessful.

During 2019, there were no write-downs of the Company’s holdings and the Company recognized
dry hole expense of $5,000. During 2018, the Company wrote-down its Gulf Coast and Appalachian
holdings by $156,000 and $213,000, respectively, due to changes in estimated reserves. Also in 2018,
the Company recognized dry hole expense of $45,000 on its Gulf Coast drilling program. These items
are reflected in the Consolidated Statements of Operations, line item Operating Expenses, Oil and Gas.

DECEMBER 31, 2019 AND 2018

2. SIGNIFICANT Stock-Based Compensation

ACCOUNTING The Company follows a fair-value-based method of accounting for share-based payment transactions.
(CONTINUED) Restricted Stock Awards
The Company has granted restricted stock awards to employees with both a service condition and
a market condition. These restricted stock awards vest only upon achievement of certain market
price thresholds of our common stock within a specified performance period, generally three years.
Additionally, such awards vest only if the recipient has provided the requisite service, which is generally
the same three year period in the market condition.

The fair value of the restricted stock awards is determined using a lattice valuation model. The model
takes into consideration the historical volatility of our stock and the risk-free interest rate at the date
of grant. Stock-based compensation expense is recognized over the requisite service period for the
awards using the straight-line method. If a restricted stock award is forfeited, any previously recognized
stock-based compensation expense is not reversed.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash equivalents, accounts receivable, accounts payable,
line of credit, and notes payable. The carrying values of these financial instruments approximate their
fair values.

Derivative Financial Instruments

In conjunction with the modification of the existing loan agreement with Arizona Bank & Trust on
February 24, 2017 discussed in Long-Term Debt Note 5, the Company entered into an interest rate swap
agreement to manage interest rate exposures and hedge the changes in cash flows on the respective
variable rate components of its debt. These types of derivative financial instruments involve, to a
varying degree, elements of market and credit risk.

The Company recognizes the derivative instrument within other noncurrent liabilities on the consolidated
balance sheets at fair value. Management determined that this derivative instrument did not qualify
as a hedge for financial reporting purposes. Consequently, changes in the fair value of the derivative
instrument were included within interest, other income and other expense in the consolidated statements
of operations and accrued liabilities within the consolidated statement of cash flows. Such changes
were not material. The instrument was terminated when the debt was paid off during 2019.

Earnings Per Share

Basic earnings per share amounts are calculated based on the weighted average number of common
shares outstanding during the period. No material dilution of earnings per share would result for the
periods after consideration of the effects of outstanding stock options and restricted share units.

Foreign Currency Translation
The reporting currency of the Company and its U.S. subsidiaries is the U.S. dollar. The functional
currency of the Company’s non U.S. subsidiary is the local currency. Assets and liabilities of the foreign
subsidiary are translated into U.S. dollars based on exchange rates at the end of the period. Revenues
and expenses are translated at average exchange rates during the reporting period. Gains and losses
arising from the translation of assets and liabilities are included as a component of accumulated other
comprehensive income. Gains and losses resulting from foreign currency transactions are reflected
within the Company’s results of operations. The Company has not utilized any foreign currency hedging
strategies to mitigate the effect of its foreign currency exposure.

Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non owner sources.

DECEMBER 31, 2019 AND 2018

2. SIGNIFICANT Recent Accounting Pronouncements

ACCOUNTING In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard
POLICIES Update (ASU) No. 2016‐02, Leases (Topic 842). This ASU requires lessees to recognize most leases on
(CONTINUED) their balance sheets as lease liabilities with corresponding right-of-use (ROU) assets. The Company
adopted the standard as of January 1, 2019, using a modified retrospective approach and applying the
new standard to all leases existing at the date of initial application. Amounts and disclosures related
to periods prior to January 1, 2019 have not been restated and continue to be reported in accordance
with ASC 840.

The Company has elected certain practical expedients permitted under the transition guidance within
ASC 842 to leases that commenced before January 1, 2019, including the package of practical expedients.
The election of the package of practical expedients resulted in the Company not reassessing prior
conclusions under ASC 840 related to lease identification, lease classification and initial direct costs for
expired and existing leases prior to January 1, 2019. The Company has also elected the practical expedient
to use hindsight in determining the lease term (that is, when considering lessee options to extend or
terminate the lease and to purchase the underlying asset) and in assessing impairment of the entity’s
ROU assets. We have further elected the practical expedient pertaining to land easements which permits
entities to forgo the evaluation of existing land easement arrangements in transition to determine
if they contain a lease. The Company also elected the practical expedient to not record short-term
leases on its consolidated balance sheet. In addition, the Company has made an accounting policy
election by class of underlying asset not to separate lease components from non‐lease components.

Upon adoption, the Company recorded total ROU assets of $4,520,800 and total lease liabilities of
$4,520,800 related to operating leases. The Company had no finance leases on adoption of the new
standard. See Note 11 for additional disclosures regarding our leases.

Cash Equivalents
The Company considers investments in money market accounts and U.S. Treasury Bills with initial maturities
of 90 days or less to be cash equivalents.

Subsequent Events
The Company has evaluated transactions and events subsequent to the reporting date through
April 10, 2020, the date the financial statements were available to be issued.

During March 2020, a global pandemic was declared by the World Health Organization related to the
rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly
impacted the economic conditions in the U.S., accelerating during the first half of March, as federal,
state, and local governments react to the public health crisis, creating significant uncertainties in
the U.S. economy. While the disruption is currently expected to be temporary, there is considerable
uncertainty around the duration. Therefore, while the Company expects this matter to negatively impact
its operating results, the related financial impact and duration cannot be reasonably estimated at
this time.

In February 2020, the Company declared a dividend of $1.80 per common share payable on March 7, 2020.
Total dividend paid was $1,176,046.

DECEMBER 31, 2019 AND 2018

3. PROPERTY AND Property and equipment are stated at cost, less reserves for depletion and depreciation. The Company
EQUIPMENT records its solar investments net of federal investment tax credit. Property and equipment consist of
the following at December 31, 2019 and 2018:


Reserve For
Depletion And Net
Cost Depreciation Assets

Land $ 29,600,146 $ — $ 29,600,146

Coal 50,407,610 16,789,343 33,618,267
Timber 21,377,170 10,196,508 11,180,662
Solar equipment 32,742,724 9,598,109 23,144,615
Agriculture development 7,814,992 447,614 7,367,378
Buildings and structures 2,978,334 1,623,202 1,355,132
Equipment 682,654 148,271 534,383
Office equipment 2,287,441 2,202,726 84,715
Automobiles 344,800 258,918 85,882
Other fixed assets 2,008,368 1,144,581 863,787

$150,244,239 $42,409,272 $107,834,967


Reserve For
Depletion And Net
Cost Depreciation Assets

Land $ 32,073,018 $ — $ 32,073,018

Coal 50,414,350 16,696,970 33,717,380
Timber 23,778,392 10,268,697 13,509,695
Solar equipment 32,742,724 8,288,400 24,454,324
Agriculture development 6,398,619 240,449 6,158,170
Buildings and structures 2,978,786 1,537,994 1,440,792
Equipment 655,589 75,555 580,034
Office equipment 2,225,535 2,143,331 82,204
Automobiles 338,952 243,959 94,993
Other fixed assets 1,854,970 1,032,187 822,783

$153,460,935 $40,527,542 $112,933,393

DECEMBER 31, 2019 AND 2018

4. EQUITY METHOD Since 2015, the Company has made a series of contributions to various solar partnerships whereby the
INVESTMENTS Company will receive the majority of profits and losses, including tax depreciation and investment tax
credits, through the first five to six years after the solar systems are placed into service. Subsequent
to the first five to six years, the majority of the profits and losses will be allocated to the other
investors. As discussed in Note 2, these investments have been accounted for under the equity method
of accounting. The following table is a summary of the activity within the equity method investment
balance during 2019.

Balance at December 31, 2018 $444,991

Distributions from partnerships (40,205)
Net Income allocated from partnerships 72,232
Amortization of transaction costs (34,588)
Balance at December 31, 2019 $442,430

5. LONG-TERM DEBT The Company has a $30 million revolving line of credit expiring June 30, 2021. There was $0 outstanding
on the revolving line of credit as of December 31, 2019 and December 31, 2018. Amounts outstanding
under the credit agreement bear interest at varying rates based upon a LIBOR or the financial institution’s
prime rate of interest. The credit agreement is secured by the June 26, 2003 Powellton mineral interest
property purchase and the personal property assets of the Company. The credit agreement contains
financial covenants, which require the Company to maintain certain ratios with respect to leverage and
fixed charge coverage. All outstanding balances are due on the expiration date of the line of credit.

One of the Company’s subsidiaries had a non-recourse loan agreement with Arizona Bank & Trust. In
August 2019, the Company fully paid off the outstanding loan balance of $4,115,324.

The Company is in compliance with all covenants as of December 31, 2019.

6. EMPLOYEE BENEFITS The Company maintains a Simplified Employee Pension Plan (SEPP) for all of its employees, whereby
contributions in the amount of 12% of employee compensation, up to statutory limits, are made to each
employee’s individual retirement account. The Company also maintains a supplemental pension plan
for employees with total compensation that exceeds the compensation allowed under the SEPP. Under
the terms of the supplemental plan, the Company will set aside 12% of that part of the employee’s
compensation that exceeds the statutory SEPP limit. This amount, which is unfunded, accrued interest
at 5.5% and 5.0% in 2019 and 2018, respectively. This rate is equal to the prime rate as of June 30 of
each year. The Company recognized expense for both plans for the years ended December 31, 2019
and 2018 of $517,000 and $518,000, respectively.

DECEMBER 31, 2019 AND 2018

7. FAIR VALUE In determining fair value, the Company uses quoted prices and observable inputs. Observable inputs
MEASUREMENTS are inputs that market participants would use in pricing the asset or liability based on market data
obtained from sources independent of the Company.

The fair value hierarchy of observable inputs used by the Company is broken down into three levels
based on the source of inputs as follows:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Valuations based on inputs that are unobservable inputs and quoted prices in active markets
for similar assets and liabilities.

Level 3 – Valuations based on inputs that are unobservable and models that are significant to the overall
fair value measurement.

The Company used a third party to complete the valuation of its interest rate swap agreement, a derivative
instrument, which was considered a Level 2 asset and was measured at fair value on a recurring basis
based on the overnight index discounting framework. The interest rate swap agreement was terminated
on August 28, 2019 when the debt was paid off.

8. SHAREHOLDERS’ On December 13, 2018, the Company’s Board of Directors authorized the repurchase of up to $3.5
EQUITY million of Pardee Resources Company’s common stock during 2019. Pursuant to such authorization,
during 2019, 19,519 shares of the Company’s treasury stock were acquired by the Company at an
average price of $161.58 per share for a total purchase price of $3,153,851.

On December 14, 2017, the Company’s Board of Directors authorized the repurchase of up to $3.5
million of Pardee Resources Company’s common stock during 2018. Pursuant to such authorization,
during 2018, 2,741 shares of the Company’s treasury stock were acquired by the Company at an
average price of $183.44 per share for a total purchase price of $502,814. On August 16, 2018, the
Company issued a tender offer pursuant to the Board of Directors authorization on August 14, 2018 and
35,732 shares were purchased at $188.94 for a total purchase price of $6,751,204.

9. STOCK-BASED In 2004, the shareholders of Pardee Resources Company approved the adoption of the Pardee Resources
COMPENSATION Company 2004 Restricted Share Unit Plan (the 2004 Plan). The 2004 Plan reserved 72,000 shares of the
Company’s common stock for issuance to select members of management. During 2011, shareholders
approved an amendment to the 2004 Plan increasing the reserved shares from 72,000 to 144,000 shares.
Under the 2004 Plan, participants are eligible to receive an award of restricted share units, the number
of which can range from 0 to 160% of a target amount based on performance against predetermined
goals established annually by the Compensation Committee and satisfaction of a three-year service
commitment. As of December 31, 2019, 86,645 shares have been issued under the 2004 Plan.

In 2019, the Company issued 2,440 shares of treasury stock in lieu of cash directors’ fees totaling $400,568
and in 2018, the Company issued 2,080 shares of treasury stock in lieu of cash directors’ fees totaling

The Company generally issues shares from treasury stock, as available, upon vesting of restricted share units.

DECEMBER 31, 2019 AND 2018

9. STOCK-BASED The 2004 Plan Activity

COMPENSATION The following table contains information on the restricted share unit plan for the period ended December 31, 2019.
Weighted Average
Number of Shares Fair Value at Grant Date

Outstanding at December 31, 2017 13,305 $191.28

Granted 4,912 $209.17
Vested and distributed (4,482) $277.97
Outstanding at December 31, 2018 13,735 $182.45
Granted 5,212 $185.65
Vested and distributed (4,977) $162.51
Outstanding at December 31, 2019 13,970 $190.75

Compensation costs related to stock-based compensation for the 2004 Plan for the year ended December 31, 2019
and 2018 was $976,464 and $886,371, respectively.

At December 31, 2019, the total compensation cost related to non-vested awards not yet recognized
total $987,561. This expense will be recognized as follows: $665,019 in 2020 and $322,542 in 2021.

10. INCOME TAXES The provision (benefit) for income taxes for the years ended December 31, 2019 and 2018 consists of
the following:
Current Deferred Total
Federal $ 589,672 $1,418,269 $2,007,941
State 774,639 475,302 1,249,941
$1,364,311 $1,893,571 $3,257,882

Federal $ 26,734 $ 819,594 $ 846,328
State 138,727 198,298 337,025
$ 165,461 $1,017,892 $1,183,353

The 2019 and 2018 (benefit) provision for income taxes differ from the amounts that would have been derived
from the application of the expected statutory rate primarily as a result of the effects of state income taxes,
percentage depletion, and for 2018, the Bipartisan Budget Act of 2018 that reduced the tax rate for timber gains.

At December 31, 2019, the Company has a net deferred income tax liability of $17,819,556. The
primary deferred income tax components are related to property and equipment, oil and gas investments,
deferred revenue, partnership investment outside basis differences, and stock compensation. At
December 31, 2019, the Company had $18,042,708 of Pennsylvania net operating loss carryforward available
for utilization in future years. The loss carryforwards have a 20-year carryforward period and will expire
December 31, 2022 through December 31, 2038. The related deferred income tax asset for the Pennsylvania
net operating loss carryforward is $1,423,949. As our deferred income tax assets are recorded net of
valuation allowance when, based on the weight of available evidence, it is more likely than not that all or
some portion of the recorded deferred tax balance will not be realized in future periods, the Company
has provided a valuation allowance of $1,423,949 on this deferred tax asset. There were additional net
operating losses in various states. The following state net operating losses are available for utilization in
future years, and are deemed more likely than not to be realized. The gross operating loss carryforwards
amount to $362,655 for U.S. state taxes at December 31, 2019. These net operating loss carryforwards
relate to the 2016 tax period and expire on December 31, 2036.

The Company uses the deferred method of accounting for investment tax credit recognition. During
2019 and 2018, the Company did not earn any earned investment tax credits. The unused investment
tax credits as of December 31, 2019 are $1,482,929. They will expire in 2035, 2036, and 2037.
DECEMBER 31, 2019 AND 2018

11 . LEASE The Company leases office space for its Philadelphia, Scott Depot, and Summersville operations. These
COMMITMENTS noncancelable leases expire at various dates through July 31, 2022. Rental payments may be adjusted
for increases in property taxes and electricity rates.

The Company has an agricultural license agreement for farmland in Kern County, California for the purpose
of producing table grapes. This noncancelable lease expires on December 31, 2040. The Company also
has a noncancelable agricultural lease in Portugal ending on October 31, 2042.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the
future minimum lease payments over the lease term at commencement date. The lease term is determined
to be the noncancelable period including any lessee renewal options which are considered to be reasonably
certain of exercise. The interest rate implicit in lease contracts is typically not readily determinable. As such,
the Company used judgment to determine an appropriate incremental borrowing rate, which is the rate
incurred to borrow on a collateralized basis over a similar term in a similar economic environment.

ROU assets and lease liabilities (current and long-term) are separately reflected in our consolidated
balance sheet as of December 31, 2019.

Components of lease expense are summarized as follows for the year ended December 31, 2019:
Operating lease cost $538,102
Variable lease cost 0
Short-term lease cost 0
Net lease cost $538,102

Supplemental cash flow information related to leases is summarized as follows for the year ended
December 31, 2019:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $522,982
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 0

Lease term and discount rate information as of December 31, 2019 is summarized as follows:
Weighted-average remaining lease term (years) Operating leases 19.3
Weighted-average discount rate Operating leases 7.2%

Maturities of lease liabilities as of December 31, 2019 is as follows:

2020 $ 647,712
2021 642,539
2022 405,480
2023 282,561
2024 285,132
Thereafter 5,360,745
Total lease payments $7,624,169
Less: imputed interest (3,496,423)
Present value of lease liabilities $4,127,746

12. CONTINGENCIES On December 7, 2007, Lexington Land Development, LLC (Lexington) filed litigation against certain parties
in East Baton Rouge Parish, Louisiana. Lexington claims that their 48-acre parcel was contaminated by a
release from a pipeline owned and operated by Shell Pipeline Company (Shell), as well as the oil and gas
exploration and production activities of other various defendants, including Zinn Petroleum Company
(Zinn). Lexington seeks various remedies, including remediation and damages. The Company is not a
defendant in this case; however, the Company has a minority interest in certain leases and wells operated
by Zinn, and, under joint operating agreements, the Company and certain other interest owners are
responsible for their respective shares of any damages or judgments sustained by Zinn.
DECEMBER 31, 2019 AND 2018

12. CONTINGENCIES Under Louisiana law, this litigation triggered attention from regulatory agencies. The Louisiana
(CONTINUED) environmental regulatory agencies required Shell and other defendants, including Zinn, to submit plans
for assessing soil and ground water conditions at the site. Shell completed its assessment and remediation
which was approved by the agencies. Zinn’s environmental experts have concluded their assessment
and determined that Zinn’s operations, which began in 1992, have been in compliance with regulatory
standards. Zinn’s experts have further determined that the data indicating the presence of certain
constituents in the soil and shallow groundwater are the result of either former closed production storage
pits used by other operators before Zinn began operations on the property or natural environmental
conditions. Zinn’s experts have also opined that the presence of these constituents is, for the most
part, within applicable regulatory standards and not harmful to the environment. Finally, Zinn’s experts
have found defects in the methodology used by the plaintiff’s experts and recommend that decisions
regarding the need for assessment/restoration, as may be appropriate, be done under the direction of
the regulatory agency in order to achieve regulatory closure status for the site.

Discovery is not complete, and a trial date has not been set. On October 16, 2019, the District Court
ruled that plaintiff’s claims against co-defendant Chevron would be dismissed because they were not
filed timely. This is a favorable development but is being appealed by the plaintiff.

Zinn is vigorously defending both the civil and regulatory actions. This action is subject to substantial
uncertainties concerning the outcome of material factual and legal issues related to the litigation.
Accordingly, we cannot currently predict the manner and timing of the resolution of these matters and
are unable to estimate the amount of any possible losses, which could be material.

In 2016, the Company settled a lawsuit challenging its mineral servitude and lease in the Kings’ Dome
Field in Louisiana for an immaterial amount. Following this settlement, the Company’s lessee and that
lessee’s assignee filed cross claims for the royalties paid the Company under the lease in the event the
lessee and/or its assignee were held liable on the plaintiffs’ claims for recovery of production revenues.
The cross claimants recently agreed to dismiss their cross claims against the Company, and by order
of dismissal dated February 14, 2020 the court granted the parties’ joint motion to dismiss the cross
claims with prejudice. Therefore, all potential liability against the Company in connection with this
2016 legal action has been resolved.

In July 2017, a new legal action was filed against the Company in U.S. District Court for Western District
of Louisiana also challenging its mineral servitude and lease in the Kings’ Dome Field. The plaintiff
alleged that the Company’s mineral servitude terminated in 1999 under the Louisiana Mineral Code
due to non-use for a ten-year period, that the Company’s lease was consequently invalid, and that it
is entitled to recover production revenues. The Company reached a confidential settlement with the
plaintiff providing for the Company to make a payment of an immaterial amount. Two assignees of
the Company’s lessee filed cross claims against the Company for the royalties paid the Company as to
acreage under the mineral lease. In June 2018, the District Court dismissed the cross claims of one
of those assignees as being prescribed/time barred. The time for appealing the order of dismissal
has passed, thus the dismissal order is final and unappealable. The Company and the other assignee
reached a confidential settlement in January 2019 for an immaterial amount. Therefore, all potential
liability against the Company in connection with the 2017 legal action has been resolved.

In December 2015, the Company invested $7.7 million in a limited liability company (Fund) that purchased
mobile solar generators (MSGs) from DC Solar Solutions, Inc. (DC Solar) and, in turn, leased the generators
to DC Solar Distribution, Inc., an affiliate of DC Solar. The Company learned through public sources in early
2019 that the U.S. government seized substantially all of the assets of DC Solar and its affiliates in December
2018. DC Solar and its affiliates, including our lessee, subsequently filed for Chapter 11 bankruptcy
protection in February 2019. An affidavit from a Federal Bureau of Investigation special agent was filed
in February 2019 in the bankruptcy proceeding asserting that DC Solar was operating a fraudulent “Ponzi-like
scheme” and that a majority of the MSGs sold to investors and a majority of the lease revenues claimed to
have been received by DC Solar Distribution, Inc. may not have existed. The Chapter 11 proceeding was

DECEMBER 31, 2019 AND 2018

12. CONTINGENCIES subsequently converted to a Chapter 7 liquidation. Due to the bankruptcy proceedings being converted
(CONTINUED) to Chapter 7 liquidation, the Company evaluated its remaining equity investment value of $485,332 and
recorded an impairment charge of $485,332 as of December 31, 2018.

An independent audit was completed in 2019 which ultimately located and identified all of the 125 MSGs
purchased by the Fund in 2015. In December 2019, the Company and the Fund, along with other
investors in other DC Solar sponsored funds and the funds in which they invested, filed a legal action
against numerous third-party professional firms who provided services to the investors in connection
with their respective purchases of MSGs. In January 2020, the principals of DC Solar pled guilty to
charges of criminal fraud and money laundering in U.S. District Court. The Company remains vigorously
engaged with other DC Solar investors, which include several major insurance companies and banks,
to determine the best path forward to protect our interests and minimize the financial impact on the
Company arising from this fraud. Due to various substantial uncertainties, the Company is currently
unable to determine the financial impact, if any, arising from this complex situation, however, this
impact could be as much as $7.2 million, which includes related tax impacts.

13. SIGNIFICANT In 2019, revenues from two customers each exceeded 10% and totaled 31% of operating revenues,
CUSTOMERS excluding gain on sale of assets, sold or disposed.

14. ACQUISITIONS In February 2018, the Company acquired, for $765,000, a natural resource property which included
AND DIVESTITURES 1,627 acres of surface and timberland and 2,602 acres of coal, oil and natural gas ownership, located in
Wyoming and McDowell Counties, West Virginia.

In November 2018, the Company acquired a 55% ownership interest in a company formed to develop
an almond tree farm in Portugal for $1.1 million up front, with a commitment of a total of $3.2 million
over 5 years. As of 2019 year end, the Company’s 55% equity interest totaled $2,441,390. At December
31, 2019, the farm was still in the development stage and all expenditures during the year have been
capitalized as property, plant and equipment.

During 2019, the Company recognized $1,382,000 in gains on sales of property and equipment to third
parties, primarily related to sales of land, timber and coal. This gain is presented within Coal & Minerals
Revenues and Timber & Surface Revenue within Revenues from Operations.

During 2018, the Company recognized $727,000 in gains on sales of property and equipment to third
parties, primarily related to sales of land and timber. This gain is presented within Timber & Surface
Revenue within Revenues from Operations.

15. RELATED PARTIES The Company has an 85% equity interest in a table grape ranch in California. The non-controlling equity
interest of 15% in the grape ranch is held, in part, by a related party. As a result of their shared
ownership, the related party is considered a related party to the Company. The related party is the asset
manager for all of the Company’s agricultural investments and receives a fee for its management services.
As of December 31, 2019 and 2018, included in the Company’s assets was approximately $225,000 and
$239,000, respectively, of prepaid management services to the related party.

In addition, the Company has a 55% interest in an almond tree farm in Portugal. The 45% non-controlling
equity interest in the almond tree farm is held by a related party and other investors. As a result of their
shared ownership, the related party and other investors are considered related parties to the Company.
Other investors that provide farming and other related crop development services related to the
almond development are also considered related parties.

In 2019 and 2018, the Company paid the other investors a total of approximately $1,826,000 and
$939,000, respectively, for services rendered.


ANNUAL MEETING Pardee Resources Company will hold a virtual Annual Meeting at 10:30 a.m. on Friday, May 22, 2020
as described in the proxy statement.

TRANSFER AGENT Pardee Resources Company, a Pennsylvania corporation, acts as its own transfer agent. Questions
AND REGISTRAR relating to the transfer or ownership of stock should be directed to Linda Dougherty, Assistant Corporate
Secretary, Telephone: (215) 405-1276.

LEGAL COUNSEL Faegre Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania

AUDITORS Ernst & Young LLP, Philadelphia, Pennsylvania

COMMERCIAL PNC Bank, Philadelphia, Pennsylvania


WEB ADDRESS AND The Company’s web address is:

The Company’s general e-mail address is:

Each employee has an e-mail address; if the individual address is unknown, send your message to the
general address, and it will be forwarded as appropriate.

FORWARD-LOOKING Certain of the statements contained herein (other than statements of historical facts) are forward-looking
STATEMENTS statements. Such forward-looking statements include estimates and assumptions related to the Company’s
growth, reserves, the state of future markets for natural resource, renewable and agricultural products,
and the ability of the Company to sell its natural resource, renewable and agricultural products on
a profitable basis. These forward-looking statements are subject to change and uncertainty which are,
in many instances, beyond the Company’s control and have been made based upon management’s
expectations and beliefs concerning future developments and their potential effect on the Company.
There can be no assurance that future developments will be in accordance with management’s
expectations or that the effect of future developments on the Company will be those anticipated by
management. Actual financial results, including revenue growth and earnings results, could differ
materially from those anticipated by the Company depending on the outcome of certain factors, which
may include, among others, changes in the wholesale prices for timber, oil, natural gas, coal, renewable
and agricultural products; increases in property acquisition costs; adverse weather conditions; litigation;
failures of our lessees to mine, drill and harvest at rates we currently anticipate; differences between
actual reserves and estimated amounts; legislative changes or government regulations which make it
more difficult or expensive to sell, extract or harvest our natural resource, renewable and agricultural
products or impose greater financial burdens on the users of such products; unanticipated costs for
remediation and reclamation; the scope of the fraud alleged to have been conducted by DC Solar; and
other risks and uncertainties.

Integrity in
business is
I NTEGRITY essenal. We
believe our good
name is our most
valuable asset. COMPANY
CREATIVITY We encourage creavity VALUES
in others and ourselves.
We strongly believe in
conducng our professional
and business relaonships
in accordance with these

We strive for excellence Core Values.
in all things, and accept
nothing less.

R ESPECT We treat others with respect.

TEAMWORK We recognize that teamwork

produces superior results.

FAMILY We value all family and

community relaonships.

1717 Arch Street, Suite 4010
Philadelphia, PA 19103
Tel: (215) 405-1260