Big Sky Industrial Inc.: Form 10-Q for the period ended Sep 30, 2025

Introduction

This information should be read in conjunction with the interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited Consolidated Financial Statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 13, 2025 (the “Annual Report”).

Certain abbreviations and oil and gas industry terms used throughout this Report are described and defined in greater detail under “Glossary of Oil and Natural Gas Terms” on page 4 of our Annual Report.

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited Condensed Consolidated Financial Statements included above under “Part I - Financial Information” – “Item 1. Financial Statements”.

In this Quarterly Report on Form 10-Q, we may rely on and refer to information regarding the industries in which we operate in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, we have not independently verified any of it, and we have not commissioned any such information.

See also “Cautionary Statement About “Forward-Looking Statements” above.

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “U.S. Energy”, and “U.S. Energy Corp.” refer specifically to U.S. Energy Corp. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:

• “Bbl” refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons;
• “BOE” refers to barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate, or natural gas liquids, to six Mcf of natural gas;
• “Bopd” refers to barrels of oil per day;
• "Industrial gases" refers to helium, carbon dioxide, and hydrocarbons;
• “Mcf” refers to a thousand cubic feet of natural gas;
• “Mcfe” means 1,000 cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids;
• “NGL” refers to natural gas liquids;
• “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
• “SEC” or the “Commission” refers to the United States Securities and Exchange Commission;
• “Securities Act” refers to the Securities Act of 1933, as amended; and
• “WTI” means West Texas Intermediate.

Where You Can Find Other Information

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us at https://www.sec.gov (our filings can be found at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000101594) and on the “Investors – SEC Filings” page of our website at https://usnrg.com. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying unaudited Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

• General Overview. A general overview of the Company and our operations.
• Recent Developments. Discussion of recent developments affecting the Company and our operations.
• Plan of Operations and Strategy. Discussion of our strategy moving forward and how we plan to seek to increase stockholder value.
• Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
• Results of Operations. An analysis of our financial results comparing the three and nine months ended September 30, 2025 and 2024.
• Liquidity and Capital Resources. A discussion of our financial condition, including descriptions of balance sheet information and cash flows.

General Overview

U.S. Energy Corp. (collectively with its wholly-owned subsidiaries are referred to as the “Company”) is incorporated in the State of Delaware. The Company’s principal business activities are focused on the acquisition, exploration, and development of industrial gases, oil and natural gas properties in the United States.

Material Developments

Synergy – acquisition of industrial gas properties

On January 7, 2025, we entered into and simultaneously closed the transactions contemplated by, a purchase and sale agreement, with Synergy Offshore LLC (“Synergy”). Synergy is controlled by Mr. Duane H. King, a member of the Board of Directors of the Company, who serves as the Chief Executive Officer and Manager of Synergy, and John A. Weinzierl, the Company’s Chairman, who was an approximate sixty percent beneficial owner of Synergy at the time of the entry into the purchase and sale agreement.

We acquired approximately 24,000 net operated acres located across the Kevin Dome structure in Toole County, Montana, including all leases, wells, rights and interests in, under or derived from the acquired acreage subject to Synergy retaining an undivided twenty percent (20%) of Synergy’s right title and interest in the property.

Consideration for the transaction consisted of the following: (a) $2.0 million in cash, subject to customary adjustments; (b) 1,400,000 shares of the Company’s common stock; (c) a carried working interest whereby the Company agreed to cover and pay for 100% of Synergy’s costs attributable to the Synergy acreage, until the earlier of (i) 78 months from the closing date; or (ii) the date the total costs associated therewith total $20 million; (d) our agreement to pay Synergy 18% of the cash amounts we actually realize from any law or regulation from our sequestration of carbon oxides or similar substances derived directly from an agreed area of mutual interest including Synergy’s acreage; and (e) our agreement to pay Synergy 18% of the gain we may receive in connection with the sale of the future, first, gas processing plant located on Synergy’s acreage.

Underwritten Offering

On January 22, 2025, the Company entered into an underwriting agreement for the offering of 4,871,400 shares of common stock, at a price to the public of $2.65 per share (such offering, the “Offering”).

The sale of 4,871,400 shares of common stock (including the full 635,400 over-allotment option) in connection with the Offering, closed on January 23, 2025. The Company generated approximately $11.9 million of net proceeds from the Offering, after deducting the underwriting discounts and commissions and offering costs payable by us, and has used, and continues to use such proceeds for the development of its Montana assets, general corporate purposes, and working capital, or for other purposes that our board of directors, in their good faith, deems to be in the best interest of the Company. Additionally, management used $1.574 million from the over-allotment option exercise to purchase shares of common stock from Sage Road Capital, LLC (whose co-manager, Joshua L. Batchelor, was a then member of the Board of Directors of the Company) and its affiliates at a price equal to the public offering price of the Offering, less underwriting discounts, which sale took place in January 2025, as discussed below.

Related Party Share Repurchase

On January 27, 2025, the Company entered into a Share Repurchase Agreement with Banner Oil & Gas, LLC (“Banner”), Woodford Petroleum, LLC (“Woodford”), and Sage Road Energy II, LP, (“Sage Road”, and together with Banner and Woodford, the “Selling Stockholders”). In his capacity as co-Managing Partner of Sage Road Capital, LLC, which indirectly controls and manages certain funds which own a majority interest in Banner, Woodford and Sage Road, Joshua L. Batchelor, a then member of the Board of Directors of the Company, may be deemed to beneficially own the shares of common stock held by the Selling Stockholders.

Pursuant to the Share Repurchase Agreement, the Company, in a private transaction, outside of, and separate from the Company’s previously disclosed share repurchase program, on January 27, 2025, repurchased (a) 534,020 shares of common stock held by Banner, (b) 41,229 shares of common stock held by Woodford, and (c) 60,151 shares of common stock held by Sage Road, for an aggregate of $1.574 million or approximately $2.48 per share, which is the net price per share of the 4,871,400 shares of common stock which we sold in our underwritten public offering which closed on January 23, 2025, less underwriting discounts and commissions, and which represented an 8.2% premium to the closing sales price of the Company’s common stock on January 27, 2025.

Stock Repurchase Program

On January 29, 2025, the Board of Directors of the Company authorized and approved an extension of the ongoing share repurchase program for up to $5.0 million of the outstanding shares of the Company’s common stock originally approved by the Board of Directors on April 26, 2023 and subsequently extended, subject to any future extensions in the discretion of the Board of Directors of the Company, the repurchase program is now scheduled to expire on June 30, 2026, when a maximum of $5.0 million of the Company’s common stock has been repurchased, or when such program is discontinued by the Board of Directors.

Under the stock repurchase program, shares may be repurchased from time to time in the open market or through negotiated transactions at prevailing market prices, or by other means in accordance with federal securities laws. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. The repurchase program will be funded using the Company’s working capital.

During the nine months ended September 30, 2025, the Company repurchased 197,400 shares for $317 thousand, at a weighted average price of $1.61 per share. During the nine months ended September 30, 2024, the Company repurchased 482,500 shares for $525 thousand at a weighted average price of $1.09 per share. There were no repurchases during the three months ended September 30, 2025. As of September 30, 2025, a total of $3.5 million remained available under the repurchase program for future repurchases.

The share repurchase program was approved by the disinterested members of the Board of Directors of the Company, as well as the Company’s Audit Committee, comprised solely of independent directors not affiliated with Mr. Batchelor or the Selling Stockholders.

Drilling Program

During the first half of 2025, the Company drilled 2 new industrial gas wells on our Kevin Dome acreage in Montana. Both wells are currently being assessed, and completion work is ongoing. In addition, we successfully completed the discovery well we acquired in the Synergy transaction noted above. The Company continues to refine its development plan. These activities include evaluating initial plant designs and processing plant locations, designing our gathering system, finalizing permitting for injection wells and attaining right of ways among other activities in anticipation of first production of our industrial gas wells in 2026.

Full Cost Method Ceiling Test

The reserves used in the ceiling test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the ceiling test as of September 30, 2025, the Company used $67.45 per barrel for oil and $3.10 per one million British Thermal Units (MMbtu) for natural gas (as further adjusted for property, specific gravity, quality, local markets and distance from markets) to compute the future cash flows of the Company’s producing properties. The discount factor used was 10%. The Company recorded a $0.9 million ceiling test write-down of its oil and natural gas properties during the three months ended September 30, 2025, due to a reduction in the value of proved oil and natural gas reserves primarily as a result of a decrease in crude oil prices.

We expect to record a further write-down of our oil and natural gas properties in the fourth quarter of 2025 due to lower commodity prices used in the calculation of the ceiling test. Depending on actual commodity prices, estimated price differentials, lease operating costs, revisions to reserve estimates, and the amount and timing of capital expenditures, the write-down could be approximately $0.8 million to $1.8 million in the fourth quarter of 2025.

Credit Facility

On September 16, 2025, effective August 1, 2025, the Company entered into a First Amendment to Credit Agreement and Limited Waiver (“Amendment”) with FirstBank, as administrative agent for the lenders party thereto, and such lenders.

Significant revisions made to the Credit Amendment as a result of the Amendment include extending the maturity date of amounts owed from January 5, 2026 to May 31, 2029, lowering the borrowing base from $20.0 million to $10.0 million, and deferring the next test period for the ratio of total debt to EBITDAX to March 31, 2026. The Company expensed $53 thousand of remaining capitalized deferred financing costs associated with the Credit Agreement during the third quarter of 2025 and capitalized $60 thousand of deferred financing costs attributable to the Amendment.

Committed Equity Facility

On October 9, 2025, the Company entered into a Common Stock Purchase Agreement and related Registration Rights Agreement with Roth Principal Investments, LLC (“Roth Principal”), providing a discretionary equity facility of up to $25.0 million. Following SEC effectiveness of a resale registration statement (which the Company does not anticipate being declared effective until the current government shutdown ends), the Company may, at its option over 24 months from the date the resale registration is declared effective and certain other conditions are met, sell shares of common stock to Roth Principal at a price based on the Nasdaq volume weighted average prices during a specific pricing period, less a 2.5% discount, subject to pricing and ownership limits. The equity facility is described in greater detail below under “Liquidity and Capital Resources—Committed Equity Facility”.

Plan of Operations and Strategy

During the remainder of 2025 and beyond, we intend to seek additional opportunities in the oil, natural gas and industrial gas sectors, including but not limited to, further acquisition of assets, participation with industry partners in exploration and development projects, acquisition of existing companies, and the purchase of other industrial gas assets. This includes contracting for the off and on-site construction of our processing facility, negotiating off take and other operating arrangements, and finalizing gathering design and other infrastructure needs.

Key elements of our business strategy include:

• Deploy our Capital in a Conservative and Strategic Manner and Review Opportunities to Bolster our Liquidity. In the current industry environment, maintaining liquidity is critical. Therefore, we plan to be highly selective in the projects we evaluate and to review opportunities to bolster our liquidity and financial position through various means.
• Evaluate and Pursue Value-Enhancing Transactions. We plan to continuously evaluate strategic alternative opportunities with the goal of enhancing stockholder value.

Critical Accounting Policies and Estimates

The preparation of our unaudited Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is detailed in Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2024 Annual Report on Form 10-K filed with the SEC on March 13, 2025.

Results of Operations

Comparison of our Statements of Operations for the Three Months Ended September 30, 2025 and 2024

For the three months ended September 30, 2025, we recorded a net loss of $3.3 million, which was primarily due to declining commodity prices and lower production, resulting in reduced revenue for the period, which was also affected by property divestitures which occurred after the fourth quarter of 2023. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the three months ended September 30, 2025 and 2024:

(in thousands except average prices and production quantities)

The decrease in our oil and natural gas revenue of $3.2 million for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, was primarily due to a decrease of 67% in production quantities, offset by an increase in realized commodity pricing of 5% on a per barrel of oil equivalent (BOE) basis. For the three months ended September 30, 2025, we produced 35,326 BOE, or an average of 384 BOE per day, as compared to 105,699 BOE or an average of 1,149 BOE per day during the comparable period in 2024. The decrease in our production quantities primarily relates to the divestitures of our properties in the Karnes County, East Texas and Mid-con regions which closed during the first eight months of 2024 and the natural decline in production in remaining producing assets. During the three months ended September 30, 2025, our production was 75% oil and 25% natural gas and liquids compared to 58% oil and 42% natural gas and liquids produced during the three months ended September 30, 2024.

Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the three months ended September 30, 2025 and 2024:

(in thousands)

For the three months ended September 30, 2025, lease operating expenses were $1.0 million or $29.36 per BOE. While lease operating expenses decreased by $2.0 million when compared to $3.1 million or $28.95 per BOE for the three months ended September 30, 2024, the cost on a BOE basis increased as the mix of properties changed because of the divestment of our Karnes County, East Texas, and Mid-con properties.

For the three months ended September 30, 2025, gathering, transportation, and treating expense decrease was attributable to the divestiture of properties that included gathering and transportation costs in the second half of 2024.

For the three months ended September 30, 2025, production taxes consistently remain between 6% and 8% of revenue. This decrease in production taxes was attributable to the decrease in revenue of 65% discussed above.

Exploration expense increased $128 thousand, which was attributable to an increase in exploration activities for our industrial gas development. The Company revised the presentation of its statement of operations to separately disclose exploration expense, which was previously included in acquisition related costs in the second quarter. The reclassification was made to enhance comparability and provide greater transparency regarding exploration activities.

Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization (“DD&A”) was $0.8 million and $2.0 million for the three months ended September 30, 2025 and 2024, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $14.19 per BOE and $14.94 per BOE for the three months ended September 30, 2025 and 2024, respectively. Our depletion rate can fluctuate modestly because of acquisitions, changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.

Impairment of oil and natural gas properties. The Company recorded a $0.9 million ceiling test write down for the three months ended September 30, 2025, resulting from a reduction in commodity prices used in the full cost pool ceiling test from the second quarter. The Company recorded a $1.4 million ceiling test write-down of its oil and gas properties during the three months ended September 30, 2024, due to a reduction in the value of proved oil and natural gas reserves. The reduction was primarily due to lower commodity prices used in the full cost pool ceiling test, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the three months ended September 30, 2025 and 2024:

(in thousands)

General and administrative expenses decreased by $0.1 million for the three months ended September 30, 2025 as compared to the prior year period. The decrease was primarily attributable to a reduction in acquisition-related costs offset by increases in legal and professional fees, outsourcing of our accounting function compensation, and stock-based compensation. Stock-based compensation was higher because of the value of the restricted stock awards being amortized for the three months ended September 30, 2025, than those being amortized during the three months ended September 30, 2024.

Other Income (Expense). Presented below is a comparison of our other income (expense) for the three months ended September 30, 2025 and 2024:

(in thousands)

For the three months ended September 30, 2025, we did not have any open commodity derivative positions. For the three months ended September 30, 2024, we recognized a gain on commodity derivative contracts of $2.0 million, primarily as the result of the settlement in September 2024 of all of our remaining commodity derivative contracts for $1.8 million.

Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. As of December 31, 2024 and September 30, 2025, we had no outstanding amounts on our credit facility. For the three months ended September 30, 2025, while there was no balance outstanding on the credit facility, we did incur fees to maintain our credit facility and expensed our prior deferred financing costs upon amending our credit facility in September 2025, as discussed above.

Comparison of our Statements of Operations for the Nine Months Ended September 30, 2025 and 2024

For the nine months ended September 30, 2025, we recorded a net loss of $12.5 million which was primarily due to declining commodity prices and lower production, resulting in reduced revenue for the period, which was also affected by property sales. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the nine months ended September 30, 2025 and 2024:

(in thousands except average prices and production quantities)

The decrease in our oil and natural gas revenue of $10.4 million for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, was primarily due to a decrease of 60% in production quantities and a decrease in realized commodity pricing of 9% on a per barrel of oil equivalent (BOE) basis. For the nine months ended September 30, 2025, we produced 131,150 BOE, or an average of 480 BOE per day, as compared to 326,589 BOE or an average of 1,192 BOE per day during the comparable period in 2024. The decrease in our production quantities primarily relates to the divestitures of our Karnes County, East Texas and Mid-con regions properties, which occurred in the second half of 2024 and the natural decline in production in remaining producing assets. During the nine months ended September 30, 2025, our production was 68% oil and 32% natural gas and liquids compared to 62% oil and 38% natural gas and liquids produced during the nine months ended September 30, 2024.

Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the nine months ended September 30, 2025 and 2024:

(in thousands)

For the nine months ended September 30, 2025, lease operating expenses were $4.2 million or $31.74 per BOE. While lease operating expenses decreased by $5.2 million when compared to the $9.3 million or $28.54 per BOE for the nine months ended September 30, 2024, the cost on a BOE basis increased as the mix of properties changed because of the divestment of our Karnes County, East Texas, and Mid-con properties.

For the nine months ended September 30, 2025, the gathering, transportation, and treating expense decrease was attributable to the divestiture of properties that included gathering and transportation costs in the second half of 2024.

For the nine months ended September 30, 2025, production taxes consistently remain between 6% and 7% of revenue. This decrease in production taxes was attributable to the decrease in revenue of 64% discussed above.

For the nine months ended September 30, 2025, exploration expense increased by $174 thousand due to exploration activities related to industrial gas development. The Company revised the presentation of its statement of operations to separately disclose exploration expense, which was previously included in acquisition related costs in the second quarter. The reclassification was made to enhance comparability and provide greater transparency regarding exploration activities.

Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization (“DD&A”) was $3.1 million and $6.4 million for the nine months ended September 30, 2025 and 2024, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $14.54 per BOE and $15.39 per BOE for the nine months ended September 30, 2025 and 2024, respectively. Our depletion rate can fluctuate because of acquisitions, changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.

Impairment of oil and natural gas properties. The Company recorded a ceiling test write down of $3.6 million for the nine months ended September 30, 2025, resulting from a decrease in commodity prices used in the full cost pool ceiling test calculation. The Company recorded a $6.8 million ceiling test write-down of its oil and gas properties during the nine months ended September 30, 2024, due to a reduction in the value of proved oil and natural gas reserves. The reduction was primarily due to lower commodity prices used in the full cost pool ceiling test, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the nine months ended September 30, 2025 and 2024:

(in thousands)

General and administrative expenses increased by $0.2 million for the nine months ended September 30, 2025 as compared to the prior year period. The increase was primarily attributable to an increase in both professional fees, outsourcing of our accounting function, and stock-based compensation offset by a reduction in acquisition related costs. Stock-based compensation was higher because of the value of the restricted stock awards being amortized for the nine months ended September 30, 2025 than those being amortized during the nine months ended September 30, 2024.

Other Income (Expense). Presented below is a comparison of our other income (expense) for the nine months ended September 30, 2025 and 2024:

(in thousands)

For the nine months ended September 30, 2025, we did not have any open commodity derivative positions. For the nine months ended September 30, 2024, we recognized gains on commodity derivative contracts of $0.5 million, primarily as the result of the settlement in September 2024 of all our remaining commodity derivative contracts for $1.8 million.

Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. As of December 31, 2024 and September 30, 2025, we had no amounts outstanding on our credit facility. For the nine months ended September 30, 2025, while there was no balance outstanding on the credit facility, we did incur fees to maintain our credit facility and expensed fees associated with our third quarter credit facility Amendment, discussed above. Other income (expense), net primarily represents interest income on the Company's cash balance and changes in the fair value of our marketable equity securities.

During the first half of 2025, we entered into a negotiated post-closing cash settlement and recognized an additional loss of $424 thousand on our $6.825 million divestment in Henderson, Anderson, Liberty and Chambers County, Texas that closed on December 31, 2024. The Company also closed on the sale of a portion of our operated Wyoming properties for approximately $500 thousand during this time. Proceeds from the Wyoming divestiture were recorded as an adjustment to the full cost pool with no gain or loss recognized in the Statements of Operations.

Liquidity and Capital Resources

Based on the current commodity price environment and our current working capital, we believe we have sufficient liquidity and capital resources to execute our business plan while continuing to meet our current financial obligations. We continue to manage our commitments in order to maintain flexibility with regard to our activity level and capital expenditures.

As of September 30, 2025, the Company was in compliance with all financial covenants related to the credit facility.

For the remainder of 2025, we anticipate our industrial gas development cost to be less than $1.0 million, representing funds required to complete our recently drilled industrial gas wells, and onsite and preliminary design for our anticipated industrial gas processing plant and related infrastructure. The timing of initial plant construction expenditures is being impacted by the U.S. federal government shutdown, which impacts our ability to access capital markets. The extent of capital deployment over the next 12 months will depend largely on the timing of the construction of our industrial gas processing plant. In addition, depending on timing, regulatory requirements and weather, we may incur costs for plugging and abandonment of oil and natural gas wells of up to $300 thousand. We view much of these capital activities as discretionary for which we can control both the timing and amount of the expenditures. Other activities, such as some repairs and maintenance may be required from time to time by regulatory bodies. We anticipate our expenditures will be funded primarily by cash on hand, operating cash flows, proceeds from divestitures of oil and natural gas properties, borrowings under our credit facility, sales of equity under our purchase agreement with Roth Principal, and project specific financing including equity and credit markets.

Sources of Cash

For the nine months ended September 30, 2025, we funded our capital expenditures with cash on hand and proceeds from our January 2025 equity offering. In January 2025, we raised $11.9 million ($10.3 million after the repurchase of certain shares of common stock held by affiliates of Sage Road Capital, which entities are related parties (see also Material Developments-Related Party Share Repurchase, above, and related issuance costs)) in an underwritten offering of 4,871,400 shares of our common stock. In future quarters, if cash flows are not sufficient to fund our capital expenditures and operations, we may raise funds through additional equity offerings (public and/or private), including sales of equity under our purchase agreement with Roth Principal, or from other sources of financing. We also may re-evaluate our capital spend program as economic conditions warrant. Additionally, we may enter into carrying cost and sharing arrangements with third parties for certain development programs. All of our sources of liquidity can be affected by the changes in economic conditions, rising interest rates, changes in debt and equity markets, force majeure events, fluctuations in commodity prices, operating costs, tax law changes, and volumes produced, all of which would affect us and our industry.

Credit Agreement

On January 5, 2022, we entered into a four-year credit agreement with FirstBank Southwest as administrative agent, which provides for a revolving line of credit with a borrowing base of $10 million, and a maximum credit amount of $100 million (the “Credit Agreement”). Under the Credit Agreement, revolving loans may be borrowed, repaid and re-borrowed until January 5, 2026, when all outstanding amounts must be repaid. The Credit Agreement contains customary indemnification requirements, representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries. In addition, the Credit Agreement contains financial covenants, tested quarterly, that limit our ratio of total debt to EBITDAX (as defined in the Credit Agreement) to 3:1 and require our ratio of consolidated current assets to consolidated current liabilities (as each is described in the Credit Agreement) to remain at 1:1 or higher.

On September 16, 2025, effective August 1, 2025, the Company entered into a First Amendment to Credit Agreement and Limited Waiver with FirstBank. Significant revisions made to the Credit Amendment as a result of the Amendment include extending the maturity date of amounts owed from January 5, 2026 to May 31, 2029, lowering the borrowing base from $20.0 million to $10.0 million and deferring the next test period for the ratio of total debt to EBITDAX to March 31, 2026. The Company expensed $53 thousand of remaining capitalized deferred financing costs associated with the Credit Agreement during the third quarter of 2025 and capitalized $60 thousand of deferred financing costs attributable to the Amendment.

The borrowing base is subject to redetermination semi-annually, commencing on or about April 1 and October 1 of each year during the four-year term of the Credit Agreement. Our borrowing base can be adjusted as a result of changes in commodity prices, acquisitions or divestitures of proved properties, or financing activities, all as provided for in the Credit Agreement.

Committed Equity Facility

On October 9, 2025, the Company entered into a Common Stock Purchase Agreement and related Registration Rights Agreement with Roth Principal Investments, LLC, providing a discretionary equity facility of up to $25.0 million. Following SEC effectiveness of a resale registration statement (which the Company does not anticipate being declared effective until the current government shutdown ends), the Company may, at its option over 24 months from the date the resale registration is declared effective and certain other conditions are met, sell shares of common stock to Roth Principal at a price based on the Nasdaq volume weighted average prices during a specific pricing period, less a 2.5% discount, subject to pricing and ownership limits. The facility is capped at 19.99% of outstanding shares of the Company’s common stock as of the date of the Company’s entry into the Common Stock Purchase Agreement, absent shareholder approval or satisfaction of the Nasdaq pricing exemption and includes a 4.99% beneficial-ownership blocker. As consideration, the Company paid a $25 thousand structuring fee, issued 223,141 shares of common stock as a partial commitment fee (valued at $270,000)(the “Stock Commitment Fee”), agreed to a $180 thousand cash commitment fee, and to reimburse legal fees. Proceeds, if any, are expected to be used for working capital and general corporate purposes. Under the Purchase Agreement, the Company may be required to make a cash “make-whole” payment of up to $270,000 (the value of the Stock Commitment Fee”) if, under certain conditions, Roth Principal receives less than $270,000 in total cash proceeds from the resale of such shares before certain specified dates. In such a case, Roth Principal would return to the Company for cancellation any unsold commitment shares.

Cash flows provided by our operating activities, proceeds received from divestitures of properties, capital markets activities, and our capital expenditures, including acquisitions, all impact the amount we borrow under our revolving Credit Agreement. There were no amounts outstanding on the Credit Agreement as of September 30, 2025.

Uses of Cash

We use cash for the acquisition and development of industrial gas and oil and gas properties, workovers and capital expenditures, operating and general and administrative costs, settlements of commodity derivative contracts, debt obligations including interest, and share repurchases. During the nine months ended September 30, 2025, we spent approximately $9.8 million on the acquisition and development of industrial gas properties and capital expenditures.

The amount of our future capital expenditures will depend upon a number of factors, including our cash flows from operating, investing, and financing activities, the ongoing government shutdown, our ability to execute our development program, the number and size of acquisitions that we complete and the timing of initial plant construction expenditures. In addition, the impact of industrial gas and oil and natural gas prices on investment opportunities, the availability of capital, tax law changes, and the timing and results of our development activities may lead to changes in funding requirements for future development. We periodically review our capital expenditure budget to assess if changes are necessary based on current and projected cash flows, acquisition and divestiture activities, and other factors. We will continue to monitor the economic environment through the remainder of the year and adjust our activity level as warranted.

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2025 and 2024:

(in thousands)

Operating Activities. Cash used in operating activities of $6.3 million for the nine months ended September 30, 2025 was mainly due to a $12.5 million net loss and a reduction of working capital of $2.4 million, offset by $3.1 million of depreciation, depletion, accretion, and amortization, a $3.6 million impairment of oil and natural gas properties and $1.5 million in stock-based compensation. Cash provided by operating activities of $2.9 million for the nine months ended September 30, 2024, was mainly due to a net loss of $13.8 million, offset by $6.4 million of depreciation, depletion, accretion, and amortization, a $6.8 million impairment of oil and natural gas properties and a $2.4 million commodity derivative cash settlement.

Investing Activities. Cash used in investing activities for the nine months ended September 30, 2025 was $9.7 million as compared to cash provided by investing activities of $0.7 million for the comparable period in 2024. The primary use of cash in our investing activities for the nine months ended September 30, 2025 was attributable to the Synergy acquisition noted above in Material Developments - Synergy - acquisition of industrial gas properties and recent drilling activity. For the nine months ended September 30, 2024, cash provided by our investing activities related to proceeds received from the divestiture of oil and gas properties, offset by the June 2024 acquisition by the Company of certain properties located in Toole County, Montana from Wavetech Helium, Inc. and capital expenditures.

Financing Activities. Cash provided by financing activities for the nine months ended September 30, 2025 was $9.6 million as compared to cash used in financing activities of $5.8 million for the comparable period in 2024. As discussed in Material Developments - Underwritten Offering above, the primary driver of finance cash inflow during the nine months ended September 30, 2025, was our first quarter equity offering which generated net proceeds of $11.9 million, offset by share repurchases. The primary use of cash in our financing activities during the nine months ended September 30, 2024 related to net repayments under our credit facility of $5.0 million, share repurchases, and tax withholdings related to share based compensation of $0.7 million.

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We are required to maintain disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As of September 30, 2025, our management, including our Chief Executive Officer and Chief Financial Officer, 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) of the Exchange Act. Based on the results of the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls were not effective as of September 30, 2025 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Such determination was made due to a material weakness in our internal control over financial reporting as of December 31, 2024, as discussed below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 13, 2025, in connection with our assessment of the effectiveness of our internal control over financial reporting at the end of our last fiscal year, management identified a material weakness in our internal control over financial reporting as of December 31, 2024. Specifically, our accounting system was not designed appropriately, and reliance could not be placed on some of the control elements of the accounting system. These control elements include a lack of certain functionality related to system-based account reconciliations, missing systematic controls in areas such as segregation of duties enforcement and data input validation, and an absence of independent evaluation of third-party information technology controls ("ITGCs"). The Company's manual review controls partially compensate for the system design limitations, but this material weakness cannot be remediated without the implementation of a system-based solution.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the 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 its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

In January 2025, we began outsourcing much of our day-to-day accounting to a third-party provider, which involves utilizing a new accounting system that we believe will remediate the historic material weakness by year end 2025. The outsourcing arrangement is subject to the Company's supervision and review and many processes such as oil and natural gas reserves, income taxes, payroll, asset retirement obligations, and financial reporting among other corporate accounting functions continue to be maintained by Company accounting personnel. We anticipate assessing controls over the new accounting system as part of our year end 2025 reporting.

Except as disclosed above there were no changes in our internal control over financial reporting during the three months ended September 30, 2025, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Except as noted below, there have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 13, 2025, under the heading “Item 1A. Risk Factors”, except as set forth below, and investors should review the risks provided in the Annual Report and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

Risks Related to U.S. Government Operations

A prolonged U.S. federal government shutdown could adversely affect our business, results of operations, and financial condition.

The U.S. federal government periodically experiences funding gaps that result in partial or complete shutdowns of government operations, including the current one that is ongoing as of the filing date of this Report. A prolonged shutdown could adversely impact the U.S. economy, financial markets, and our business directly and indirectly. During a shutdown, many federal agencies suspend or delay regulatory approvals, contract awards, payments, and other routine functions. To the extent that our business depends on U.S. government contracts, grants, permits, licenses, or other approvals, a shutdown could result in the delay, suspension, or cancellation of such activities, which could materially impact our operations and development activities. Similarly, we do not expect that the resale registration statement we filed in October 2025 to register the resale of certain shares of common stock available to be sold under the terms of the purchase agreement with Roth Principal, as discussed above, will be able to be declared effective until after the government shutdown ends.

Additionally, even though the Company does not contract directly with the federal government, a shutdown could have broader negative effects on consumer and business confidence, supply chains, access to financing, and the overall economy. In addition, uncertainty regarding the duration or frequency of government shutdowns may contribute to market volatility and reduced customer spending. Any of these events, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and stock price.

Risks Related to Global Trade and Tariff Policies

Our business is subject to risks associated with imposition of tariffs or other trade barriers by the United States or foreign governments.

Recently there has been increasing uncertainty regarding international trade policies, including the ongoing implementation of tariffs and trade wars on a wide range of goods and materials, as well as retaliatory measures by other countries. These developments may result in higher costs for certain raw materials, components, and finished products, and may adversely impact our supply chain, including pricing, delivery timeline and general availability of products needed for our operations.

The Company may be unable to fully mitigate any cost increases through price adjustments, supplier diversification, or other measures. Accordingly, continued or heightened global trade tensions or changes in tariff regimes, or the imposition of new trade restrictions could have a material adverse effect on our business, financial condition, results of operations, and cash flows.