Quarterly Report for Quarter Ending MARCH 31, 2026 (Form 10-Q)

- Management's Discussion and Analysis of Financial Condition and

Results of Operations

WARNING CONCERNING FORWARD LOOKING STATEMENTS

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.

This Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management's beliefs and on assumptions made by, and information currently available to, management. When used, the words "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result" and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the factors listed and described at Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K, which investors should review. There have been changes to the risk factors previously described in the Company's Form 10-K. for the fiscal year ended December 31, 2025 (the "Form 10-K"), including significant global economic and other global factors occurring during 2025 which are described in the following paragraphs.

Prices for oil and natural gas fluctuate widely due to a number of factors that are beyond our control. Declines in oil and natural gas prices significantly affect our financial condition and results of operations. Our revenues, profitability and cash flow are highly dependent upon the prices we realize from the sale of oil, natural gas and NGLs. Historically, the markets for these commodities are very volatile. Prices for oil, natural gas and NGLs can move quickly and fluctuate widely in response to a variety of factors that are beyond our control. These factors include, among others:

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the duration and economic and financial impact of epidemics, pandemics or other public health issues;

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changes in regional, domestic and foreign supplies of, and consumer and industrial/commercial demand for oil and natural gas., as well as perceptions of supply of, and demand for, oil and natural gas generally;

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domestic and international drilling activity;

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the price and quantity of foreign imports;

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anticipated future prices of oil and natural gas, alternative fuels and other commodities;

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the amount of exports from the U.S.;

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the level of global and U.S. inventories and reserves;

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weather conditions and seasonal trends;

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natural disasters and other extraordinary events;

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U.S. and worldwide political and economic conditions, including but not limited to, the imposition of tariffs or trade or other economic sanctions, including political instability or armed conflict and related sanctions including, but not limited to, the conflicts in the Middle East, Ukraine and Iran, and political instability in Venezuela;

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technological advances affecting energy consumption and energy supply;

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domestic and foreign governmental regulations and taxation;

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the strength or weakness of the U.S. dollar to other currencies;

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the actions of other oil producing and exporting nations, including the Organization of Petroleum Exporting Countries;

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the availability, proximity, cost, and capacity of appropriate pipeline infrastructure, treating, transportation, gathering, processing, compression, storage, and refining and export facilities;

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the price and availability of, and demand for, competing energy sources, including alternative energy sources;

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the effect of worldwide energy conservation measures, alternative fuel requirements and climate change-related legislation, policies, initiatives and developments;

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technological advances and consumer and industrial/commercial behavior, preferences and attitudes, in each case affecting energy generation, transmission, storage and consumption;

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the nature and extent of governmental regulation, including environmental and other climate change-related regulation, regulation of financial derivative transactions and hedging activities, tax laws, regulations and laws, and regulations with respect to the import and export of oil, and natural gas and related commodities:

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inflation and ability to acquire critical material, equipment or services in a timely or cost effective manner;

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the level and effect of trading in commodity futures markets, including trading by commodity price speculators and others; and

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the availability of capital or level of hedging across the energy industry in the U.S. and internationally.

The above-described factors and the volatility of commodity prices make it difficult to predict oil and natural gas prices in 2026 and thereafter. As a result, there can be no assurance that the prices for oil and/or natural gas will sustain, or increase from, their current levels, nor can there be any assurance that the prices for oil and/or natural gas will not decline. The Company continues to assess and monitor the impact of these factors and consequences on the Company and its operations.

Our cash flows, financial condition and results of operations depend to a great extent on prevailing commodity prices. Accordingly, substantial and extended declines in commodity prices can materially and adversely affect the amount of cash flow we have available for our capital expenditures and operating costs; the terms on which we can access the credit and capital markets; our results of operations; and our financial condition. As a result, the trading price of our common stock may be materially and adversely affected. Lower commodity prices can also reduce the amount of oil and natural gas that we can produce economically. Substantial and extended declines in the prices of these commodities can render uneconomic a portion of our exploration and development projects, resulting in our having to make downward adjustments to our estimated reserves and also possibly shut in or plug and abandon certain wells. In addition, significant prolonged decreases in commodity prices may cause the expected future cash flows from our properties to fall below their respective net book values, which would require us to write down the value of our properties. Such reserve write-downs and asset impairments can materially and adversely affect our results of operations and financial position and, in turn, the trading price of our common stock.

Rising inflation and other uncertainties regarding the global economy, financial environment, and global conflict could lead to an extended national or global economic recession. A slowdown in economic activity caused by a recession would likely reduce national and worldwide demand for oil and natural gas and result in lower commodity prices. Prolonged, substantial decreases in oil and natural gas prices would likely have a material adverse effect on the Company's business, financial condition, and results of operations, and could further limit the Company's access to liquidity and credit and could hinder its ability to satisfy its capital requirements.

In the past several years, capital and credit markets have experienced volatility and disruption. Given the levels of market volatility and disruption, the availability of funds from those markets may diminish substantially. Further, arising from concerns about the stability of financial markets generally and the solvency of borrowers specifically, the cost of accessing the credit markets has increased as many lenders have raised interest rates, enacted tighter lending standards, or altogether ceased to provide funding to borrowers.

Due to these potential capital and credit market conditions, the Company cannot be certain that funding will be available in amounts or on terms acceptable to the Company. The Company is evaluating whether current cash balances and cash flow from operations alone would be sufficient to provide working capital to fully fund the Company's operations. Accordingly, the Company is evaluating alternatives, such as joint ventures with third parties, or sales of interest in one or more of its properties. Such transactions, if undertaken, could result in a reduction in the Company's operating interests or require the Company to relinquish the right to operate the property. There can be no assurance that any such transactions can be completed or that such transactions will satisfy the Company's operating capital requirements. If the Company is not successful in obtaining sufficient funding or completing an alternative transaction on a timely basis on terms acceptable to the Company, the Company would be required to curtail its expenditures or restructure its operations, and the Company would be unable to continue its exploration, drilling, and recompletion program, any of which would have a material adverse effect on its business, financial condition, and results of operations.

A negative shift in some of the public's attitudes toward the oil and natural gas industry could adversely affect the Company's ability to raise debt and equity capital. Certain segments of the investment community have developed negative sentiments about investing in the oil and natural gas industry. Recent equity returns in the sector versus other industry sectors have led to lower oil and natural gas representation in certain key equity market indices. In addition, some investors, including investment advisors and certain wealth funds, pension funds, university endowments and family foundations, have stated policies to disinvest in the oil and natural gas sector based on their social and environmental considerations. Certain other stakeholders have also pressured commercial and investment banks to halt financing oil and natural gas production and related infrastructure projects. Such developments, including environmental, social and governance ("ESG") activism and initiatives aimed at limiting climate change and reducing air pollution, could result in downward pressure on the stock prices of oil and natural gas companies. The Company's stock price could be adversely affected by these developments. This may also potentially result in a reduction of available capital funding for potential development projects, impacting the Company's future financial results.

The Company faces various risks associated with increased negative attitudes toward oil and natural gas exploration and development activities. Opposition to oil and natural gas drilling and development activities has been growing globally and is expanding in the United States. Companies in the oil and natural gas industry are often the target of efforts from both individuals and nongovernmental organizations regarding safety, human rights, climate change, environmental matters, sustainability, and business practices. Anti-development groups are working to reduce access to federal and state government lands and delay or cancel certain operations such as drilling and development along with other activities. Opposition to oil and natural gas activities could materially and adversely impact the Company's ability to operate our business and raise capital.

There could be adverse legislation which if passed, would significantly curtail our ability to attract investors and raise capital. Proposed changes in the Federal income tax laws which would eliminate or reduce the percentage depletion deduction and the deduction for intangible drilling and development costs for small independent producers will significantly reduce the investment capital available to those in the industry as well as our Company. Lengthening the time to expense seismic costs will also have an adverse effect on our ability to explore and find new reserves.

Other factors that may affect the demand for oil and natural gas, and therefore impact our results, include technological improvements in energy efficiency; seasonal weather patterns; increased competitiveness of, or government policy support for, alternative energy sources; changes in technology that alter fuel choices, such as technological advances in energy storage that make wind and solar more competitive for power generation; changes in consumer preferences for our products, including consumer demand for alternative fueled or electric transportation or alternatives to plastic products; and broad-based changes in personal income levels.

Commodity prices and margins also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil and gas supply sources and technologies to enhance recovery from existing sources tend to reduce commodity prices to the extent such supply increases are not offset by commensurate growth in demand.

Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in an extremely competitive and rapidly changing environment. New risks may emerge from time to time, and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.

Results of Operations

Three months ended March 31, 2026, compared to the three months ended March 31, 2025

Oil and gas revenues for the first three months of 2026 were $1,181,000, as compared to $1,052,000 for the same period in 2025, an increase of approximately $129,000 or 12.3%.

Oil sales for the first three months of 2026 were approximately $576,000 compared to approximately $533,000 for the first three months of 2025, an increase of approximately $43,000 or 8.1%. Oil sales volumes for the first three months of 2026 were approximately 8,346 bbls, compared to approximately 6,734 bbls during the same period in 2025, an increase of approximately 1,612 bbls, or 23.9%,

Average oil prices received were $64.79 per bbl in the first three months of 2026 compared to $72.85 per bbl in the first three months of 2025, a decrease of approximately $8.06 per bbl or 11.1%.

Natural gas revenues for the first three months of 2026 were $605,000 compared to $519,000 for the same period in 2025, an increase of approximately $86,000 or 16.6%. Natural gas sales volumes for the first three months of 2026 were approximately 144,000 mcf compared to approximately 145,000 mcf during the first three months of 2025, a decrease of approximately 1,000 mcf or 0.7%.

Average gross natural gas prices received were $4.47 per mcf in the first three months of 2026 as compared to $3.58 per mcf in the same time period in 2025, an increase of approximately $0.89 per mcf or 24.7%.

Revenues from lease operations were $41,000 in the first three months of 2026 compared to $43,000 in the first three months of 2025, a decrease of approximately $2,000 or 4.7%. Revenues from lease operations are derived from field supervision charged to operated leases along with operator overhead charged to operated leases.

Revenues from gas gathering, compression and equipment rental for the first three months of 2026 were $24,000 compared to $18,000 for the same period in 2025, an increase of approximately $6,000 or 33.3%. These revenues are derived from gas volumes produced and transported through the Company owned gas gathering systems.

Real estate revenue was approximately $64,000 during the first three months of 2026 compared to $71,000 for the first three months of 2025, a decrease of approximately $7,000, or 9.9%.

Interest income was $168,000 during the first three months of 2026 as compared to $208,000 during the same period in 2025, a decrease of approximately $40,000 or 19.2%. Interest income is due to the Company investing its funds in both long-term and short-term certificates of deposit accounts paying higher rates of interest than those received in money market accounts.

Other revenues for the first three months of 2026 were $11,000 as compared to $11,000 for the same period in 2025.

Lease operating expenses in the first three months of 2026 were approximately $204,000 as compared to $290,000 in the first three months of 2025, a net decrease of approximately $86,000, or 29.7%.

Production taxes, gathering and marketing expenses in the first three months of 2026 were approximately $158,000 as compared to $141,000 for the first three months of 2025, an increase of approximately $17,000 or 12.1%.

Pipeline and rental expenses for the first three months of 2026 were $3,000 compared to $13,000 for the same time period in 2025, a decrease of $10,000 or 76.9%.

Real estate expenses in the first three months of 2026 were approximately $27,000 compared to $25,000 during the same period in 2025, an increase of approximately $2,000 or 8%.

Depreciation, depletion, and amortization expenses for the first three months of 2026 were $96,000 as compared to $46,000 for the same period in 2025, an increase of $50,000, or 108.7%. Amortization of the amount for the full cost pool for the first three months of 2026 was $68,000 compared to $17,000 for the same period of 2025. The Company re-evaluated its proved oil and natural gas reserve quantities as of December 31,2025. This re-evaluated reserve base was reduced for oil and gas reserves that were produced or sold during the first three months of 2026 and adjusted for newly acquired reserves or for changes in estimated production curves and future price assumptions. A year-to-date depletion rate of 6.162% for the three months ended 2026 was applied to the Company's full cost pool of un-depleted capitalized oil and natural gas properties compared to a year-to-date rate of 2.266% for the same period in 2025.

There was no additional adjustment to Asset Retirement Obligation ("ARO") expense for the first three months of 2026 as compared to no adjustment for the same period in 2025. The ARO expense is calculated to be the discounted present value of the estimated future cost to plug and abandon the Company's wells.

General and administrative expenses for the first three months of 2026 were approximately $712,000 as compared to approximately $721,000 for the same period of 2025, a decrease of approximately $9,000 or 1.3%.

Financial Condition and Liquidity

The Company's operating capital needs, as well as its capital spending program are generally funded from cash flow generated by operations. Because future cash flow is subject to several variables, such as the level of production and the sales price of oil and natural gas, the Company can provide no assurance that its operations will provide sufficient cash to maintain current levels of capital spending. Accordingly, the Company may be required to seek additional financing from third parties to fund its exploration and development programs.