Reserve Petroleum Co.
05/15/2026 | Press release | Distributed by Public on 05/15/2026 13:01
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read with reference to ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the 2025 Form 10-K, as well as the consolidated financial statements included in this Form 10-Q.
Forward-Looking Statements
This discussion and analysis includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give the Company's current expectations of future events. They include statements regarding the drilling of oil and natural gas wells, the production that may be obtained from oil and natural gas wells, cash flow and anticipated liquidity and expected future expenses.
Although management believes the expectations in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that would cause actual results to differ materially from expected results are described under "Forward-Looking Statements" on page 3 of the 2025 Form 10-K.
We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q, and we undertake no obligation to update this information because of new information, future developments, or otherwise as required by law. You are urged to carefully review and consider the disclosures made in this and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.
LIQUIDITY AND CAPITAL RESOURCES
Please refer to the consolidated balance sheets and the consolidated statements of cash flows in this Form 10-Q to supplement the following discussion. In the first three months of 2026, we continued to fund our business activity using internal sources of cash. We had net cash provided by operating activities of $2,731,218 in the three months ended March 31, 2026. Our cash provided by investing activities for the three months ended March 31, 2026 was $117,342 and consisted of proceeds from disposal of property, plant and equipment of $16,740 and sales of equity securities of $100,602. Our cash applied to investing activities for the three months ended March 31, 2026 was $2,120,856 and consisted of cash for the purchase of property, plant and equipment of $1,565,418, cash for the purchase of equity securities of $202,038, and cash for the purchase of equity method and other investments of $353,400. Our cash applied to financing activities for the three months ended March 31, 2026 was $38,118, which consisted solely of payments on the Grand Woods note payable. Cash provided by financing activities included Grand Woods Class C non-controlling interest contributions of $19,009. Cash and cash equivalents increased $708,595 (35%) to $2,759,925 at March 31, 2026, from $2,051,330 at December 31, 2025.
Discussion of Significant Changes in Working Capital. In addition to the changes in cash and cash equivalents discussed above, there were other changes in working capital line items from December 31, 2025. A discussion of these items follows.
Equity securities decreased $300,432 (7%) to $4,215,983 as of March 31, 2026, from $4,516,415 at December 31, 2025. The decrease was the result of $101,436 in net purchases and a $401,868 net decrease in market value.
Accounts receivable increased $223,366 (7%) to $3,217,939 as of March 31, 2026, from $2,994,573 at December 31, 2025, primarily due to substantial oil and gas receivables from new wells.
Accounts payable and other current liabilities decreased $824,845 (70%) to $357,297 as of March 31, 2026, from $1,182,142 at December 31, 2025, primarily due to invoice timing on end of year activity that was paid subsequent to year end.
Discussion of Significant Changes in the Consolidated Statements of Cash Flows. Net cash provided by operating activities was $2,731,218 in the three months ended March 31, 2026, an increase of $824,328 (43%) from cash provided by operations in the comparable period in 2025 of $1,906,890. For more information see "Operating Revenues" and "Other Income" below.
Cash applied to the purchase of property, plant and equipment in the three months ended March 31, 2026, was $1,565,418, a decrease of $771,730 (33%) from cash applied to the purchase of property, plant and equipment in the comparable period in 2025 of $2,337,148. Unproved oil and gas properties account for approximately 60% of purchases, with proved oil and gas properties making up approximately 40%. Cash provided by the disposal of oil and gas properties was $16,740.
Cash applied to equity method and other investments in the three months ended March 31, 2026, was $353,400, an increase of $247,125 (233%) from $106,275 in the comparable period of 2025. Net purchases of equity securities was $101,436 in the three months ended March 31, 2026, with net sales of $312,270 in the comparable period in 2025.
Off-Balance Sheet Arrangements. We are a guarantor of 20% of a $620,000 development loan that matures July 15, 2028, held by QSN Office Park, LLC. We are committed to a $250,000 investment in VCC Venture Fund I, LP, of which $218,750 (87.50%) is invested at March 31, 2026. We are committed to a $400,000 investment in 14501 N Rockwell LLC, of which $116,570 (29%) is invested at March 31, 2026. For more information about these entities and the related off-balance sheet arrangements, see Note 5 to the accompanying consolidated financial statements.
Conclusion. Management is unaware of any additional material trends, demands, commitments, events or uncertainties, which would impact liquidity and capital resources to the extent that the discussion presented in the 2025 Form 10-K would not be representative of our current position.
RESULTS OF OPERATIONS
Results of Operations - Three Months Ended March 31, 2026
Net income decreased $771,667 (44%) to $996,418 in the three months ended March 31, 2026, from $1,768,085 in the comparable period in 2025. Net income per share attributable to common stockholders, basic, decreased $5.07 to $6.64 in the three months ended March 31, 2026, from $11.71 in the comparable period in 2025. A discussion of revenue from oil and natural gas sales and other significant line items in the consolidated statements of income follows.
Operating Revenues. Revenues from oil and natural gas sales increased $1,691,590 (44%) to $5,543,055 in the three months ended March 31, 2026, from $3,851,465 in the comparable period in 2025. The increase is due to an increase in oil sales of $1,108,064, an increase in natural gas sales of $628,289, and a decrease in miscellaneous oil and natural gas product sales of $44,763.
The $1,108,064 (42%) increase in oil sales to $3,750,765 in the three months ended March 31, 2026, from $2,642,701 in the comparable period in 2025 was the result of an increase in the volume sold and an increase in the average price per barrel (Bbl). The volume of oil sold increased 13,446 Bbls to 53,350 Bbls in the three months ended March 31, 2026, from 39,904 Bbls in the comparable period in 2025, resulting in a positive volume variance of $890,529. The average price per Bbl increased $4.07 to $70.30 per Bbl in the three months ended March 31, 2026, from $66.23 per Bbl in the comparable period in 2025, resulting in a positive price variance of $217,535.
The $628,289 (56%) increase in natural gas sales to $1,752,004 in the three months ended March 31, 2026, from $1,123,715 in the comparable period in 2025 was the result of an increase in the volume sold and an increase in the average price per thousand cubic feet ("MCF"). The volume of natural gas sold increased 120,078 MCF to 384,014 MCF in the three months ended March 31, 2026, from 263,936 MCF in the comparable period in 2025, resulting in a positive volume variance of $511,532. The average price per MCF increased $0.30 to $4.56 per MCF in the three months ended March 31, 2026, from $4.26 per MCF in the comparable period in 2025, resulting in a positive price variance of $116,757.
For both oil and natural gas sales, the price change was mostly the result of a change in the spot market prices upon which most of our oil and natural gas sales are based. These spot market prices have had significant fluctuations in the past and these fluctuations are expected to continue.
Sales of miscellaneous oil and natural gas products were $40,286 in the three months ended March 31, 2026, compared to $85,049 in the comparable period in 2025, primarily due to decreased product sales in assets held in Ohio.
Operating Costs and Expenses. Operating costs and expenses increased $1,674,853 (73%) to $3,958,081 in the three months ended March 31, 2026, from $2,283,228 in the comparable period of 2025. See below for analysis of changes.
Production Costs. Production costs increased $183,475 (18%) to $1,231,836 in the three months ended March 31, 2026, from $1,048,361 in the comparable period in 2025. Lease operating expenses increased $73,786 (11%). Gas deductions and other costs increased $19,968 (14%). Gross production taxes increased $89,721 (43%).
Exploration Costs. Exploration costs increased $370,106 (355%) to $474,385 in the three months ended March 31, 2026, from $104,279 in the comparable period in 2025, due to increases of $433,528 in dry hole and plugging costs, and $1,839 in geological and geophysical and other expenses, offset by a decrease of $65,261 in cancelled and expired leases.
Depreciation, Depletion, Amortization and Valuation Provision (DD&A). DD&A increased $569,465 (63%) to $1,477,343 in the three months ended March 31, 2026, from $907,878 in the comparable period in 2025, primarily due to an increase in production from new wells.
Gain/(Loss) on Disposition of Oil and Gas Properties. We had a loss on the sale of unproved, non-producing leasehold of $97,206 in the three months ended March 31, 2026, with a gain on sale of $492,282 in the the comparable period in 2025.
Equity Income in Investees. Equity income in investees increased $5,563 (14%) to $44,743 in the three months ended March 31, 2026, from $39,180 in the comparable period in 2025. Equity income was comprised of $23,339 in Broadway Sixty-Eight, LLC ("Broadway 68"), income of $16,441 in Broadway Seventy-Two, LLC ("Broadway 72"), and income of $8,137 in Victorum BRH Investment LLC, offset by a loss of $3,174 in QSN Office Park, LLC ("QSN"). See Note 5 to the accompanying financial statements for additional information on equity method investments.
Other Income/(Loss), Net. We had a loss of $362,324 in the three months ended March 31, 2026 and income of $267,703 in the comparable period in 2025. See Note 4 to the accompanying consolidated financial statements for an analysis of the components of this line item.
Income Tax Provision. Income tax provision decreased $281,368 (51%) to $266,168 in the three months ended March 31, 2026, from $547,536 in the comparable period in 2025. Of the 2026 tax provision, the estimated current tax benefit was $11,894 and the estimated deferred tax provision was $278,062. Of the 2025 income tax provision, the estimated current tax provision was $12,234 and the estimated deferred tax provision was $535,302.
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