PRESIDIO PRODUCTION Co: Form 10-Q for the period ended Mar 31, 2026

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties – See “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS”.

Overview

Presidio is an independent energy company headquartered in Texas and founded in 2017. The Company is primarily engaged in oil and gas exploration and production, with operations concentrated across the Western Anadarko Basin of Texas, Oklahoma, and Kansas. The Company’s strategy is centered on acquiring existing producing assets and applying engineering expertise and AI data driven analytics to enhance performance and extend asset life. The proven business model is designed to create sustainable value by investing in long-lived reserves, reducing emissions, improving asset integrity, and generating consistent, hedge-protected cash flow. Unlike many peers focused on new resource development, Presidio maximizes value by fully exploiting existing reserves — safely and efficiently operating wells to extend their productive lives and economic contribution.

Management places emphasis on operating cash flow in managing the business as operating cash flow considers the cash expenses incurred during the period and excludes non-cash expenditures not directly related to operations.

Key Factors Affecting Performance

Presidio’s revenues, cash flows from operations and future growth depend substantially upon:

• the prices and the supply and demand for oil and natural gas;
• the quantity of oil and natural gas production from its wells;
• changes in the fair value of the derivative instruments used to reduce exposure to fluctuations in the price of oil and natural gas;
• the ability to continue to identify and acquire high-quality strategic acquisition opportunities; and
• the level of operating expenses.

In addition to the factors that affect companies in the industry generally, the Company’s operating results are subject to factors specifically impacting the areas of operation in Texas, Oklahoma, and Kansas. These factors include the potential adverse impact of weather on production and transportation activities, particularly during the winter and spring months, as well as infrastructure limitations, transportation capacity, regulatory matters and other factors that may specifically affect this region.

Market Conditions

Commodity price fluctuations can materially affect the value of oil and natural gas reserves, as well as revenues and cash flows, regardless of operating performance. Future movements in oil, natural gas, and natural gas liquids (“NGLs”) prices are inherently unpredictable, and historically such prices have been highly volatile. Management expects this volatility to continue. To mitigate a portion of its exposure to commodity price swings and basis differentials, the Company utilizes derivative instruments.

The oil and natural gas industry is subject to numerous risks and uncertainties. Actual results may differ materially due to factors including, but not limited to, fluctuations in commodity prices; shifts in supply and demand; regulatory changes; economic conditions; competitive dynamics; capital availability; weather; depletion rates of existing oil and natural gas wells; customers’ willingness to invest in new development; and geopolitical events.

Current uncertainties impacting market conditions include the ongoing war in Ukraine, conflict in the Middle East, interest rate volatility, global and regional supply chain disruptions, and the potential imposition of new tariffs. Additional pressures such as OPEC+’s decision to potentially increase production beginning in November 2025, concerns over a potential economic slowdown or recession, and instability in the financial sector have contributed to recent pricing volatility and are expected to continue influencing markets through 2026 and beyond.

At the local level, the Company remains dependent on the reliability and performance of infrastructure required to gather, process, and transport its crude oil, natural gas and NGLs.

Pursuant to the terms of its ABS II Notes and Citizens RBL, the Company is required to employ a hedging strategy in which we, at all times, maintain 24 months in the case of the ABS II Notes and 36 months in the case of the Citizens RBL of commodity hedges in an amount not less than 85% and 75%, respectively, of the projected production of oil, natural gas and NGLs, limiting downside risk from material change in commodity prices. Even so, the remainder of the Company’s unhedged production exposed to commodity price volatility would negatively impact the Company’s results of operations if commodity prices were to decline materially from current levels.

Presidio’s price hedging strategy and future hedging transactions will be determined at management’s discretion, subject to terms of certain agreements governing the Company’s indebtedness. The prices at which the Company hedges future production will depend on prevailing commodity prices at the time such transactions are executed, which may be significantly higher or lower than current levels. Accordingly, while the hedging strategy provides downside protection against commodity price volatility, it may also limit upside during periods of rising prices.

Prices for various quantities of oil, natural gas and NGLs that are produced significantly impact revenues and cash flows. The following table summarizes average commodity prices for the periods presented with Henry Hub on a per Mcf basis, and with Mont Belvieu and WTI on a per barrel of oil basis:

Commodity Prices

WTI Oil Pricing

The average WTI oil price was $72.10 per Bbl for the three months ended March 31, 2026, a less than 1% increase from $71.50 per Bbl for the three months ended March 31, 2025. Settled derivatives reduced realized oil prices by $14.33 per Bbl in the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to a reduction of $12.58 per Bbl in the three months ended March 31, 2025.

Henry Hub Natural Gas Pricing

The average Henry Hub natural gas price was $5.05 per Mcf for the three months ended March 31, 2026, up 38% from $3.65 per Mcf for the three months ended March 31, 2025. Settled derivatives reduced realized gas prices by $1.73 per Mcf in the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to a reduction of $0.41 per Mcf in the three months ended March 31, 2025.

Mont Belvieu NGLs Pricing

The average Mont Belvieu NGL price was $27.14 per Bbl for the three months ended March 31, 2026, a 12% decrease from $31.01 per Bbl for the three months ended March 31, 2025. Settled derivatives reduced realized NGL prices by $3.83 per Bbl in the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to a reduction of $7.16 per Bbl in the three months ended March 31, 2025.

Results of Operations

The following tables set forth the results of operations for the three months ended March 31, 2026 on a combined Successor and Predecessor basis and the three months ended March 31, 2025. Average sales prices are derived from accrued accounting data for the relevant period indicated. Due to normal production declines and the effects of acquisitions, the historical information presented below should not be interpreted as indicative of future results.

(dollar amounts in thousands, except for per unit amounts)

(1) Includes one-time realized loss resulting from the modification of certain natural gas swap contracts concurrent with the Business Combination for the Successor period from March 4, 2026 through March 31, 2026.

(dollar amounts in thousands, except for per unit amounts)

Sources of Our Revenue

Our revenues are primarily generated from the sale of oil, natural gas and NGLs produced from our operated and non-operated wells. Oil is sold at the wellhead under index-based contracts, while natural gas is delivered to third-party midstream processors, who gather, process, and market the product; our reported revenues are net of related gathering, processing, and transportation costs. NGLs are extracted during processing and marketed separately, with net proceeds remitted to us.

We also provide field services through our Trail Dust subsidiary, including compression, FLIR surveys, emissions reduction equipment, tubing scanning, and line locating services, with compression and FLIR surveys representing our most significant service lines. While not material relative to upstream sales, these activities contribute incremental revenues and leverage our operating scale.

In addition, we use commodity derivative contracts to reduce exposure to volatility in oil, natural gas, and NGLs prices. The fair value of these instruments can result in realized and unrealized gains or losses that meaningfully affect reported revenues and cash flows.

Oil, Natural Gas and NGLs Sales

Total oil, natural gas, and NGL revenue for the three months ended March 31, 2026 on a combined Successor and Predecessor basis was $51.0 million, a 1% decline from $51.6 million for the three months ended March 31, 2025. This decrease was driven by a 3% decrease in production offset by a 2% increase in average realized sales price (excluding hedges). The decrease in production was primarily due to natural production declines offset by the effects of the EQVR Acquisition. Pricing changes included a less than 1% decrease in oil prices, an 18% decrease in NGLs prices offset by a 25% increase in gas prices.

Derivative Financial Instruments

The Company recorded the following gain (loss) on derivative financial instruments in the condensed consolidated statement of operations for the periods presented:

(dollar amounts in thousands)

For the three months ended March 31, 2026 on a combined Successor and Predecessor basis, the total loss on derivative financial instruments was $61.1 million, compared to a loss of $18.5 million for the three months ended March 31, 2025. This included a $44.2 million loss from marking unsettled contracts to fair value, up from a $8.3 million loss in the three months ended March 31, 2025. Cash losses on settled derivatives were $16.9 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, due to higher market prices for crude oil, natural gas, and NGLs as compared to hedge contract prices, as well as a $2.2 million realized loss resulting from the modification of certain natural gas swap contracts concurrent with the Business Combination (see Note 4 — Derivative Instruments). Cash losses on settled derivatives were $10.2 million for the three months ended March 31, 2025, primarily reflecting higher market prices for crude oil relative to hedge contract prices offset by lower natural gas and NGLs prices as compared to hedge contract prices.

These gains and losses are consistent with the Company’s risk management strategy. With scheduled debt principal payments central to the capital plan, the Company maintains hedge coverage levels designed to protect downside risk — even if that means forgoing upside during periods of rising prices.

Principal Components of Our Cost Structure

Our cost structure includes several categories that impact operating results in different ways. Lease operating expenses represent the direct costs of producing oil and natural gas, including labor, utilities, chemicals, and equipment maintenance. These expenses tend to fluctuate with production levels but also reflect the impact of fixed field costs that do not vary with volumes. We also incur production and ad valorem taxes, which are levied by state and local governments as a percentage of commodity revenues and assessed property values. These taxes generally move in line with product revenues.

Depreciation, depletion, and accretion are non-cash charges that reflect the consumption of our proved reserves, the depreciation of other property and equipment, and the passage of time on asset retirement obligations. General and administrative expenses consist of corporate overhead, employee compensation, and professional services that support the business and are largely fixed in nature. In addition, we incur costs directly associated with our field services revenues, including labor, maintenance, and other expenses necessary to support compression, reclamation, and emissions-related activities.

Some of these costs vary with commodity prices, some trend with production activity and type, and others primarily reflect fixed or discretionary expenditures.

Lease Operating Expenses

Lease operating expenses (“LOE”) were $18.2 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to $19.0 million for the three months ended March 31, 2025. On a per Boe basis, LOE per Boe decreased 1% to $9.95 per Boe for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, from $10.07 per Boe for the three months ended March 31, 2025. The decrease in LOE per Boe was relatively immaterial period over period, with the decrease in total LOE primarily driven by a decline in production on PIH’s reserves, partially offset by the addition of production from the EQVR Acquisition.

Production Taxes

Production and other taxes are paid on produced oil and natural gas based on rates established by federal, state, or local taxing authorities. In general, production and other taxes paid correlate to changes in oil, natural gas and NGLs revenues. Production taxes are based on the market value of production at the wellheads. Production taxes totaled $3.1 million ($1.71 per Boe) for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to $3.0 million ($1.59 per Boe) for the three months ended March 31, 2025. The increase primarily reflects higher mix of gas revenues.

Ad Valorem Taxes

The Company’s properties in Oklahoma, Texas and Kansas are also subject to ad valorem taxes in the counties where the production is located. Ad valorem taxes are based on the fair market value of mineral interests for producing wells.

Ad valorem taxes totaled $1.1 million ($0.61 per Boe) for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, down from $1.3 million ($0.68 per Boe) for the three months ended March 31, 2025. Assessed property values remained consistent leading to minimal change between the periods.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization (“DD&A”) totaled $9.6 million ($5.27 per Boe) for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to $8.1 million ($4.29 per Boe) for the three months ended March 31, 2025. The increase was primarily attributable to higher oil and gas properties values resulting from the Business Combination.

General and Administrative

General and administrative (“G&A”) expense totaled $50.3 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to $16.5 million for the three months ended March 31, 2025. The increase was driven primarily by a $47.0 million of compensation expense recognized in connection with the accrual of a share-based compensation liability associated with the final vesting and settlement of PIH’s Class B units upon the closing of the Business Combination, which was offset by a $15.0 million PIH Class B unit compensation payout in the prior period.

Acquisition and Transaction Costs

Acquisition and transaction costs totaled $7.2 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to $0.4 million for the three months ended March 31, 2025. The increase was driven primarily by a $7.2 million of transaction costs recognized in the current period in connection with the Business Combination.

Interest Expense

Interest expense totaled $5.6 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to $6.3 million for the three months ended March 31, 2025. The decrease reflects the repayments of the principal under the ABS facility, which requires monthly interest and amortization determined by deal-specific metrics, including production volumes, commodity pricing, and operating costs.

Non-GAAP Financial Measures

Adjusted EBITDA

We include in this report the supplemental non-GAAP financial performance measure Adjusted EBITDA and provide our calculation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss), our most directly comparable financial measure calculated and presented in accordance with GAAP. We define Adjusted EBITDA as net income (loss) before (1) interest expense, net, (2) depreciation, depletion, amortization and accretion, (3) unrealized loss (gain) on derivative instruments, (4) non-cash share-based compensation, (5) non-recurring compensation expense related to our Class B Units, (6) (gain) loss on sale of assets, net, (7) loss on ARO liabilities, (8) change in fair value of earnout liability, (9) income tax expense (benefit), (10) acquisition and transaction costs, and (11) certain non-recurring costs.

Adjusted EBITDA is used as a supplemental financial performance measure by Presidio management and by external users of our financial statements, such as industry analysts, investors, lenders, rating agencies and others, to evaluate our operating performance and Presidio’s results of operation from period to period and against our peers without regard to financing methods, capital structure or historical cost basis. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these items and related amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as indicators of our operating performance. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax burden, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our results will be unaffected by unusual items. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.

Adjusted Unhedged EBITDA

We also present Adjusted Unhedged EBITDA, which we define as Adjusted EBITDA further adjusted to remove realized gains and losses on derivative instruments. This measure is intended to show our operating results without the impact of our hedging program. Management believes Adjusted Unhedged EBITDA is an important metric that provides valuable insight into the Company’s underlying operational performance by removing the effects of financing decisions, non-cash charges, and hedging activities. Adjusted Unhedged EBITDA is a supplemental non-GAAP measure and may not be comparable to similarly titled measures of other companies.

Reconciliations of GAAP Financial Measures to Adjusted EBITDA

The following table presents our reconciliation of the GAAP financial measure of net income (loss) to the non-GAAP financial measure Adjusted EBITDA and Adjusted Unhedged EBITDA, as applicable, for each of the periods indicated.

(dollar amounts in thousands)

(1) Includes share-based compensation expense related to restricted stock units for the Successor period from March 4, 2026 through March 31, 2026. Also includes share-based compensation expense associated with the final vesting and settlement of PIH’s Class B units upon the closing of the Business Combination for the Predecessor period from January 1, 2026 through March 3, 2026 and distributions to Class B unitholders following the sale of certain undeveloped properties for the three months ended March 31, 2025 (Predecessor).

(2) Includes one-time realized loss resulting from the modification of certain natural gas swap contracts concurrent with the Business Combination for the Successor period from March 4, 2026 through March 31, 2026.

(3) Excludes one-time realized loss resulting from the modification of certain natural gas swap contracts concurrent with the Business Combination for the Successor period from March 4, 2026 through March 31, 2026.

Liquidity and Capital Resources

Overview

The Company’s primary sources of liquidity are cash generated from operations and borrowings under its asset-backed securitizations (“ABS”) and credit facility. These long-term, fixed-rate, fully amortizing ABS structures are secured by certain oil and natural gas assets and provide stable borrowing costs while also reducing leverage over time through scheduled principal payments. Restricted cash is held in accounts established under the ABS debt agreements and is reserved primarily for scheduled interest and principal payments, and is therefore not available for general corporate purposes. The credit facility provides additional borrowing capacity, subject to customary conditions, and serves as a source of short-term liquidity for working capital needs. In addition, the Company may seek to raise additional capital through additional equity offerings or debt financing for the purpose of funding acquisitions and other investments.

On March 4, 2026, the Company entered into a Reserve Based Lending instrument with Citizens Bank secured by its WAB assets (“Citizens RBL”). The facility provides additional liquidity with an initial borrowing base of $65.0 million, aggregate maximum credit amounts of $500.0 million, and matures on March 4, 2030. As of March 31, 2026, the Company has drawn on $37.0 million of the initial Citizens RBL borrowing base, with $28.0 million remaining. This RBL supplements the Company’s existing sources of liquidity and further supports management’s assessment that the Company will be able to satisfy working capital requirements, debt service obligations, and planned capital investments during the look-forward period. However, the Company’s ability to satisfy working capital requirements, debt service obligations, and planned capital investments will ultimately depend on future operating performance, which is subject to prevailing economic conditions in the oil and natural gas industry and other factors beyond management’s control.

Working Capital

The Company monitors working capital to ensure adequate levels for operations, with excess cash primarily allocated to debt paydowns, dividends, and future acquisitions. In addition to working capital management, the Company maintains a disciplined approach to operating cost control and capital allocation, with a focus on reinvesting capital into its operations and generating returns that support strategic business initiatives.

As of March 31, 2026, the Company had cash and cash equivalents of $20.7 million in addition to $10.8 million held in restricted cash required as part of its ABS securitized debt to fund interest payments. As of December 31, 2025, the Company had cash and cash equivalents of $4.1 million and restricted cash of $11.2 million.

Capital expenditures totaled $0.7 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, compared to $0.6 million in the three months ended March 31, 2025. Capital expenditures primarily related to operated capital workovers and non-operated asset capital projects. The Company expects to meet its capital expenditure needs for the foreseeable future through operating cash flow and existing cash and cash equivalents.

Future capital requirements will depend on several factors, including the Company’s growth trajectory, acquisition activity, and other strategic considerations.

Debt Facilities and Covenant Compliance

At March 31, 2026, outstanding borrowings under the ABS II Notes and Citizens RBL totaled $256.8 million and $37.0 million, respectively, and $2.1 million was drawn on the Trail Dust advancing term loan.

On March 4, 2026, the Company entered into a senior secured revolving credit agreement with initial commitments of $65.0 million, an initial borrowing base of $65.0 million and aggregate maximum credit amounts of $500.0 million, subject to customary conditions and semi-annual borrowing base redeterminations. In connection with the closing of the Business Combination, the WAB RBL revolving credit facility was repaid in the amount of $7.5 million and the credit facility was terminated.

At March 31, 2026, we were in compliance with all covenants under both the ABS II Notes, the Citizens RBL, and the Trail Dust loan.

At December 31, 2025, outstanding borrowings under the ABS II Notes totaled $266.9 million, and $2.3 million was outstanding under the Trail Dust advancing term loan. Additionally, $3.5 million was drawn on the WAB RBL revolving credit facility (as defined below), which was established during the third quarter of 2025. At December 31, 2025, we were in compliance with all covenants under the ABS II Notes, Trail Dust loan and the credit facilities.

Future Liquidity Outlook

We expect our liquidity sources will be sufficient to meet operating and financing needs, including scheduled debt service, anticipated capital expenditures, and working capital requirements, for at least the next twelve months and beyond such twelve-month period. Future liquidity will depend on commodity price realizations, production volumes, and hedge settlements. Sustained changes in commodity prices or operating costs may influence our cash flow generation and could require adjustments to our capital allocation priorities, including the pace of reinvestment, distribution levels, or financing strategy. The new Citizens RBL supplements the Company’s existing sources of liquidity and further supports management’s assessment that the Company will be able to satisfy working capital requirements, debt service obligations, and planned capital investments during the look-forward period. However, the Company’s ability to satisfy working capital requirements, debt service obligations, and planned capital investments will ultimately depend on future operating performance, which is subject to prevailing economic conditions in the oil and natural gas industry and other factors beyond management’s control.

Cash Flows

Our cash flows for the three months ended March 31, 2026 and 2025:

(dollar amounts in thousands)

Operating Activities

Net cash used in operating activities increased $71.6 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, as compared to the three months ended March 31, 2025, primarily due to $57.8 million paid for a derivative contract modification, $23.7 million paid for transaction expenses and $6.7 million in higher derivative payments in the current period, partially offset by $15.0 million in incentive compensation payments to Class B unitholders in the prior period.

Investing Activities

Net cash used in investing activities increased by $148.3 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, as compared to the three months ended March 31, 2025, primarily due to $145.5 million in cash paid for acquisitions pursuant to the Business Combination, net of cash acquired, and less proceeds received from asset divestitures totaling $2.0 million in the first three months of 2026 compared to proceeds received from asset divestitures of $4.9 million in same period for 2025.

Financing Activities

Net cash provided by financing activities increased by $317.1 million for the three months ended March 31, 2026 on a combined Successor and Predecessor basis, as compared to the three months ended March 31, 2025, primarily due to $226.6 million from the common and preferred equity financings, net of deferred issuance costs, and $34.4 million in borrowings under the new Citizens RBL, net of debt issuance costs, in connection with the Business Combination in the current period, combined with a $60.0 million member distribution during the three months ended March 31, 2025.

Known Contractual and Other Obligations

Contractual Obligations and Contingent Liabilities and Commitments

The Company has various contractual obligations arising in the normal course of operations and financing activities. These include commitments under the ABS II Notes and Citizens RBL, which require periodic principal and interest payments (see Note 7 of the notes to the condensed consolidated financial statements). Presidio also has contractual obligations that may result in payments upon settlement of commodity derivative contracts (see Note 4 of the notes to the condensed consolidated financial statements). Additionally, the Company maintains both short-term and long-term lease obligations, primarily related to vehicle leases and office facilities.

The Company’s other liabilities represent current and noncurrent other liabilities that are primarily comprised of environmental contingencies, asset retirement obligations and other obligations for which neither the ultimate settlement amounts nor their timings can be precisely determined in advance.

Off-balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Critical Accounting Estimates

This discussion and analysis of our financial and results of operations are based upon our unaudited condensed consolidated financial statements. A complete list of our significant accounting policies is described in Note B - Summary of Significant Accounting Policies in PIH’s audited financial statements as of and for the year ended December 31, 2025 in Exhibit 99.2 of the current report on Form 8-K, as amended and filed with the SEC on March 12, 2026 (“Current Report”). Refer also to “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for PIH in Exhibit 99.3 of the Current Report.

There have been no changes to our significant accounting policies and critical accounting estimates as of March 31, 2026 except as follows.

Purchase Accounting

We accounted for the Business Combination and EQVR Acquisition using the acquisition method which involves the use of significant judgment. Under the acquisition method of accounting, the acquisitions are accounted for at a purchase price based on the fair value of the consideration given. The assets and liabilities acquired are measured at their fair values, and the purchase price is allocated to the assets and liabilities based upon these fair values. The most significant assumptions relate to the estimated fair values assigned to our proved oil and natural gas properties.

The assumptions made in performing these valuations include future net production volumes, future commodity prices and costs, future operating and development activities, projections of oil and gas reserves and a weighted average cost of capital rate. The assumptions and inputs used in determining fair value estimates involve significant management judgment and are based on industry, market and economic conditions at the time of the acquisition. While these estimates are based on assumptions considered reasonable, they are inherently uncertain and actual results may differ.

Estimated fair values ascribed to assets acquired can have a significant impact on future results of operations presented in our financial statements. A higher fair value ascribed to a property results in higher DD&A expense, which results in lower net earnings. Fair values are based on estimates of future commodity prices, reserve quantities, development costs and operating costs. In the event that future commodity prices or reserve quantities are lower than those used as inputs to determine estimates of acquisition date fair values, the likelihood increases that certain costs may be determined to not be recoverable. See Note 3 - Business Combinations of our condensed consolidated financial statements for further discussion of business combinations.

Earnout Shares

The fair value of the Earnout Shares liability was determined using Monte Carlo simulations that require significant unobservable inputs. The assumptions used could have a material impact on the valuation of these liabilities, and include our best estimate of expected volatility and expected holding periods. Changes in the estimated fair values of these liabilities may have material impacts on our results of operations in any given period, as any increases in these liabilities have a corresponding negative impact on our U.S. GAAP results of operations in the period in which the changes occur.

Income Taxes

Deferred tax assets and liabilities are recognized using enacted tax rates for the estimated future tax effects of temporary differences between the book and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. All available evidence, both positive and negative, must be considered in determining the need for a valuation allowance.

The Company evaluates all tax positions taken on the state and federal tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, an evaluation of the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement is determined. A previously recognized tax position is reversed when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the probable amount that is more likely than not is based on judgment, historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these estimates, which are not readily apparent from other sources, form the basis for establishing unrecognized tax benefits. Actual results could differ from those estimates upon the subsequent resolution of identified matters.

New Accounting Pronouncements

The effects of new accounting pronouncements are discussed in Note 2 — Basis of Presentation and Summary of Significant Accounting Policies of the condensed consolidated financial statements.

The Company is exposed to various financial risks, including market risk, credit risk, liquidity risk, capital risk, and collateral risk. To manage these risks, the Company continuously monitors the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance.

The Company’s principal financial liabilities consist of borrowings, leases, and trade and other payables, which are primarily used to finance and provide financial guarantees for its operations. The Company’s principal financial assets include cash and cash equivalents, as well as trade and other receivables derived from its operations.

Additionally, the Company also enters into derivative financial instruments, which are recorded as assets or liabilities depending on market dynamics. The Company leverages its internal resources to design and manage its derivative-related risk management activities, but also engages with third party providers to assist with the execution of derivative transactions and provide commodity trading and risk management applications.

Market Risk

Market risk refers to the possibility that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk is comprised of two main types of risk: interest rate risk and commodity price risk. Financial instruments affected by market risk include borrowings and derivative financial instruments.

To manage market price risks resulting from changes in commodity prices and foreign exchange rates, the Company uses both derivative and non-derivative financial instruments. These instruments help mitigate the potential negative effects on the Company’s assets, liabilities, or future expected cash flows.

Interest Rate Risk

The Company is subject to market risk exposure related to changes in interest rates. The Company’s borrowings primarily consist of fixed-rate amortizing notes and variable-rate credit facilities, as illustrated below.

(dollar amounts in thousands)

(1) The interest rate on the ABS II Notes and other notes payable represents the weighted average fixed rate of the notes, while the interest rates presented for the Trail Dust Loan, WAB RBL and Citizens RBL represent the floating rate as of March 31, 2026 and December 31, 2025, respectively.

The ABS II Notes are fixed-rate instruments and therefore not exposed to market interest rate fluctuations, whereas the Trail Dust Loan, WAB RBL and Citizens RBL credit facilities bear interest at floating rates. A hypothetical 100 basis point change in interest rates to the credit facilities would result in an annual change to interest expense as illustrated below:

(dollar amounts in thousands)

49

The Company strives to maintain a prudent balance of floating and fixed-rate borrowing exposure, particularly during uncertain market conditions. As part of its risk mitigation strategy, the Company may enter into swap arrangements to adjust its exposure to floating or fixed interest rates, depending on changes in the composition of borrowings in its portfolio. Consequently, the total principal hedged through the use of derivative financial instruments may vary from period to period. For additional information regarding the ABS II Notes, WAB RBL, Citizens RBL and Trail Dust Loan, refer to Note 7 — Debt.

Commodity Price Risk

The Company’s revenues are primarily derived from the sale of oil, natural gas and NGLs, which exposes the Company to commodity price risk. Prices for these commodities can be volatile and may fluctuate due to changes in supply and demand, weather conditions, economic conditions, and government actions. Prolonged changes in commodity prices could materially affect our revenues, cash flows and the value of our reserves.

To mitigate the risk of fluctuations in commodity prices, the Company enters into derivative financial instruments, primarily fixed-price swaps. Under the terms of our ABS debt agreements, we are required to hedge a significant portion of our forecasted production volumes, including at least 85% of oil production for five years, 85% of natural gas production for eight years, and 85% of NGLs production for four years. The new Citizens Bank credit facility (see Note 7) also includes certain hedging requirements in which we, at all times, maintain 36 months of commodity hedges in an amount not less than 75% of the projected production of oil, natural gas and NGLs. These hedges reduce, but do not eliminate, exposure to commodity price volatility and may also limit the benefits we receive from price increases.

By removing price volatility from a substantial portion of our expected production through 2032, we have mitigated, but not eliminated, the potential effects of changing prices on our operating cash flows. For additional information regarding derivative financial instruments, refer to Note 4 — Derivative Financial Instruments.

Credit and Counterparty Risk

The Company is exposed to credit and counterparty risk from the sale of its oil, natural gas and NGLs production. Accounts receivable, oil and natural gas represent amounts due from purchasers of these commodities, and their collectability depends on the financial condition of each customer. The Company evaluates the financial condition of customers before extending credit and generally does not require collateral. As of March 31, 2026 and December 31, 2025, four customers each accounted for more than 10% of the Company’s commodity revenues, and a similar concentration existed in receivable balances at period end. No other customer accounted for more than 10% of total accounts receivable, oil and natural gas in either period.

The Company is also exposed to credit risk from joint interest owners, which are entities that own a working interest in the properties operated by the Company. Accounts receivable, joint interest owners are classified within current assets in the condensed consolidated balance sheets. The Company has the ability to withhold future revenue distributions to recover amounts due.

The Company believes these receivable balances are collectible. For additional information, refer to Note 2 — Basis of Presentation and Summary of Significant Accounting Policies.

Collateral Risk

As of March 31, 2026 and December 31, 2025, the Company has pledged substantially all of its upstream oil and natural gas properties, along with certain midstream assets, to secure borrowings under its debt instruments. The fair value of the collateral is based on reserve estimates prepared by an independent petroleum engineering firm, which utilize estimated future cash flows discounted at 10% and commodity futures pricing. These pledged assets secure repayment obligations under the Company’s ABS II Notes, WAB RBL, Citizens RBL and Trail Dust Loan.

For additional information regarding acquisitions and borrowings, refer to Note 7 — Debt.

Limitations of Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to Management, including our Chief Executive Officers and Chief Financial Officer (together, the “Certifying Officers”), to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our Management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were effective as of March 31, 2026.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarterly period ended March 31, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report on Form 10–Q, carefully consider the factors discussed in the section titled Risk Factors in the Proxy Statement/Prospectus, which could materially affect our business, financial condition, or future results.