16. SUBSEQUENT EVENTS 

Expected Write-Down of Oil and Natural Gas Properties

Under the full-cost method of accounting, the net book value of proved oil and natural gas properties, less related deferred income taxes,  may not exceed a calculated “ceiling.” The ceiling limitation is the estimated after-tax future net cash flows from proved oil and natural gas reserves. Estimated future net cash flows are calculated using the unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, adjusted for location and quality differentials, held flat for the life of the production (except where prices are defined by contractual arrangements), less estimated operating costs, production taxes and future development costs, all discounted at 10 percent per annum. Future cash outflows associated with settling accrued asset retirement obligations are excluded from the calculation.

We expect to record a further write-down of our oil and natural gas properties in the third quarter of 2025 due to lower commodity prices used in the calculation of the ceiling test as higher third quarter 2024 commodity prices will be removed from the ceiling test calculation and replaced with what we expect to be lower third quarter 2025 commodity prices. 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 $0.5 million to $1.5 million in the third quarter of 2025.

Credit Facility

Effective August 1, 2025, the Company has agreed to an amended Credit Agreement with First Bank Southwest with a borrowing base of $10.0 million with a maturity date of May 31, 2029. The amended agreement is subject to customary closing activities, we anticipate executing the agreement in the third quarter of 2025.