Financial Analysis

7. Stock Options and Other Compensation In May 1989, non-statutory stock options were granted by the Company to four key executive officers for the purchase of shares of common stock. At December 31, 2025 and 2024, options on 767,500 shares were outstanding and exercisable at prices ranging from $1.00 to $1.25. According to their terms, the options have no expiration date.

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8. Income Taxes The components of the provision for income taxes for the years ended December 31, 2025 and 2024 are as follows: Years Ended December 31, (Thousands of dollars) 2025 2024 Current: Federal $ 1,860 $ 8,545 State 255 1,055 Total current 2,115 9,600 Deferred: Federal 1,939 6,080 State 124 89 Total deferred 2,063 6,169 Total income tax provision $ 4,178 $ 15,769 The components of net deferred tax assets and liabilities are as follows: At December 31, (Thousands of dollars) 2025 2024 *Deferred Tax Assets: Accrued liabilities $ 880 $ 279 Allowance for credit losses 126 93 Partnership basis difference 0 114 State Net operating loss carry-forwards 304 212 Total deferred tax assets 1,310 698 Deferred Tax Liabilities: Depletion and depreciation 56,778 54,103 Total deferred tax liabilities 56,778 54,103 Net deferred tax liabilities $ 55,468 $ 53,405 The total provision for income taxes for the years ended December 31, 2025 and 2024 varies from the federal statutory tax rate as a result of the following: December 31, December 31, (Thousands of dollars) 2025 2024 Expected tax expense $ 6,403 21.0 % $ 14,946 21.0 % Permanent differences 763 2.5 % 880 1.2 % State income tax, net of federal benefit 247 0.8 % 834 1.2 % Provision to return adjustment (2,624 ) (8.6 ) (679 (1.0 )% Tax credits (461 ) (1.5 )% (599 (0.8 )% Other, Net (150 ) (0.5 )% 387 0.5 % Total income tax provision $ 4,178 13.7 % $ 15,769 22.2 % Deferred income taxes reflect the impact of temporary differences betw …

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4. Long-Term Debt Bank Debt: On July 5, 2022, the Company and its lenders entered into a Fourth Amended and Restated Credit Agreement (the 2022 Credit Agreement) with a maturity date of June 1, 2026. Under the 2022 Credit Agreement, the Company has a revolving line of credit and letter of credit facility of up to $300 million subject to a borrowing base that is determined semi-annually by lenders based upon the Companys consolidated financial statements and the estimated value of the Companys oil and gas properties, in accordance with the Lenders customary practices for oil and gas loans. The initial borrowing base of the agreement is $75 million. The credit facility is secured by substantially all of the Companys oil and gas properties. The 2022 Credit Agreement includes terms and covenants that require the Company to maintain a minimum current ratio and total indebtedness to EBITDAX (earnings before depreciation, depletion, amortization, taxes, interest expense and exploration costs) ratio, as defined, and restrictions are placed on the payment of dividends, the amount of treasury stock the Company may purchase, and commodity hedge agreements. In 2023 , in lieu of formal amendments, a series of letter agreements authorized by all lenders of the 2022 Credit Agreement and the Company resulted in changes to the amount of the Borrowing Base available throughout the year. The Borrowing Base availability at December 31, 2023 was $ 65 million . Effective February 9, 2024, the Comp …

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Recent Accounting Pronouncements: In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods beginning January 1, 2025, with early adoption permitted. The Company adopted ASU 2023-09 as of January 1, 2025, with retrospective application. The adoption did not have a material impact on the Companys consolidated financial statements. In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03 Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses requiring disclosure of specified information about certain costs and expenses. ASU 2024-03 is effective for annual periods beginning January 1, 2027, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its consolidated financial statement disclosures. …

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11. Salary Deferral Plan The Company maintains a salary deferral plan (the Plan) in accordance with Internal Revenue Code Section 401(k), as amended. The Plan provides for matching contributions, of which $320,916 and $349,554 were made in 2025 and 2024, respectively. …

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10. Related Party Transactions Amounts due to or from related parties primarily represent receipts or expenses, related to oil and gas properties, collected or paid by the Company as agent for the joint venture partners, which may include members of the Companys Board of Directors. Amounts due to related party were $17 thousand and $34 thousand, at December 31, 2025 and 2024, respectively. …

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9. Segment Information and Major Customers The Company operates in one industry oil and gas exploration, development, operation and servicing. The Companys oil and gas activities are entirely in the United States. The Company sells its oil and natural gas and liquids production to a number of direct purchasers under direct contracts or through other operators under joint operating agreements. Listed below are the purchasers of the Companys production which represented more than 10% of the Companys sales for the years ended 2025 and 2024. Net income (loss) before income taxes is the measure reported to the chief operating decision maker (CODM) for purposes of making decisions about allocating resources and assessing performance. This measure allows our management to effectively evaluate our operating performance and compare the results between periods. The CODM is our Chief Executive Officer. 2025 2024 Oil: DE Central Operating, LLC. 53 % 44 % Civitas Resources Inc. 12 % 20 % APA Corporation. 18 % 12 % Natural gas and liquids: DE Central Operating, LLC. 40 % 30 % Civitas Resources Inc. 26 % 22 % APA Corporation. 15 % 19 % Although there are no long-term oil and gas purchasing agreements with these purchasers, the Company believes that they will continue to purchase its oil and gas products and, if not, could be replaced by other purchasers. …

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