MORGAN EP INC

12 Months Ended

Dec. 31, 2025

(9) MORGAN E&P, INC.

Morgan E&P, LLC (“Morgan”) was organized by the Fund on April 3, 2023 as a Delaware limited liability company and a wholly-owned subsidiary of the Fund. In 2025, we converted Morgan into a Delaware corporation taxed according to the requirements of Subchapter C of the Internal Revenue Code. During 2023, Morgan acquired 5,897 net acres, in the Bakken/Three Forks formation in the Williston Basin of North Dakota, and acquired approximately 810 additional net acres during the second quarter of 2024. The acreage and associated mineral rights were acquired from Pro Energy I LLC (“Pro Energy”) who received a carried working interest of 20% in the acquired acreage.

In May 2023, we entered into an agreement with Morgan to provide it up to $10.0 million in senior debt financing, subject to a schedule of disbursements and draws that we determine. This amount was subsequently amended in 2024 to $10.5 million. As of December 31, 2025 and 2024, Morgan had drawn the full $10.5 million under this facility.

During the fourth quarter of 2024, Morgan entered into an agreement to acquire the carried working interest held by Pro Energy in exchange for a payment of $2.4 million in cash.

Below is summarized audited condensed consolidated financial information for Morgan E&P, Inc. as of December 31, 2025 and 2024 and for the years ended December 31, 2025, December 31, 2024, and the period from inception (April 3, 2023) through December 31, 2023, respectively, (in thousands):

Morgan E&P, Inc.

Condensed Balance Sheets

in thousands
	December 31, 2025			December 31, 2024

Assets:
Cash	$	18		$	15
Revenue receivables		—			343
Joint interest billing receivables		2,014			1,738
Other receivables		49			2
Prepaids and other current assets		72			35
Current assets		2,153			2,133

Property, plant and equipment
Oil and gas properties, net - full cost method		11,644			6,959
Other property, plant and equipment		23			34
Total property, plant and equipment - net		11,667			6,993

Other noncurrent assets
Operating lease right-of-use assets, net		185			227
Total noncurrent assets		185			227

Total assets	$	14,005		$	9,353

Liabilities, Member's and Stockholder's Deficit

Current liabilities
Accounts payable	$	6,263		$	6,656
Revenue payable		214			319
Short-term loan payable		2,958			—
Current portion of operating lease liabilities		54			47
Deferred income		5			—
Due to parent		1,148			550
Note payable - Due to parent		10,500			—
Accrued liabilities		10,544			3,162
Accrued liabilities - Due to parent		2,749			—
Total current liabilities		34,435			10,734

Long-term liabilities
Asset retirement obligations		5			4
Long-term operating lease liabilities		153			207
Note payable - Due to parent		—			10,500
Long-term accrued liabilities - Due to parent		—			1,471
Total long-term liabilities		158			12,182
Total liabilities		34,593			22,916

Commitments and Contingencies (Note 9 and Note 10)

Member's deficit		—			(13,563	)

Stockholder's deficit
Preferred stock, $0.001 par value, 10,000,000 shares authorized, zero shares issued at December 31, 2025		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized 6,800,000 shares issued at December 31, 2025		7			—
Common stock discount		(7	)		—
Accumulated deficit		(20,588	)		—
Total stockholder's deficit		(20,588	)		—

Total liabilities, member's and stockholder's deficit	$	14,005		$	9,353

Morgan E&P, Inc.

Condensed Statements of Operations

	Year Ended December 31,						Period from inception (April 3, 2023 through December 31,)
	2025			2024			2023

Oil and gas revenue	$	177		$	2,710		$	270

Operating costs and expenses
Lease operating		798			2,694			268
Production and ad valorem taxes		13			261			27
Marketing, transportation and gathering		34			85			—
Depreciation, depletion and amortization		170			1,467			60
Accretion		1			1			—
Impairment of oil and gas properties		2,018			6,678			—
Bad debt expense		282			—			—
General and administrative		1,980			2,042			1,510
Total operating costs and expenses		5,296			13,228			1,865

Other income (expense)
Interest income		—			6			16
Rental income		20			—			—
Other income		7			—			—
Interest expense		(1,933	)		(1,247	)		(225	)
Total other income (expense), net		(1,906	)		(1,241	)		(209	)
Net loss	$	(7,025	)	$	(11,759	)	$	(1,804	)

Morgan E&P, Inc.

Condensed Statements of Cash Flows

	Year Ended December 31,						Period from inception (April 3, 2023) through December 31
	2025			2024			2023
Cash flows from operating activities
Net loss	$	(7,025	)	$	(11,759	)	$	(1,804	)
Adjustments to reconcile net loss to cash flows used in operating activities
Depreciation, depletion and amortization		170			1,467			61
Amortization of deferred financing costs		33			—			—
Amortization of right-of-use asset		42			43			12
Accretion		1			1			—
Provision for credit losses		282			—			—
Impairment of oil and gas properties		2,018			6,678			—
Changes in operating assets and liabilities
Accounts receivable – oil and natural gas sales		61			121			(464	)
Accounts receivable – joint interest billings		(276	)		(1,508	)		(291	)
Other receivables		(47	)		(2	)		—
Prepaids and other current assets		(37	)		98			(133	)
Accounts payable		(393	)		4,284			85
Revenue payable		(105	)		518			221
Prepayments from owners		—			—			1,701
Due to parent		598			537			13
Current portion of operating lease liabilities		(47	)		(28	)		—
Accrued liabilities		567			(3,772	)		810
Accrued liabilities - due to parent		1,278			1,246			225
Net cash used in operating activities		(2,880	)		(2,076	)		436
Cash flows from investing activities
Capital expenditures		(42	)		(2,597	)		(5,700	)
Acquisition of oil and gas properties		—			—			(500	)
Additions to other property, plant and equipment		—			—			(48	)
Net cash used in investing activities		(42	)		(2,597	)		(6,248	)
Cash flows from financing activities
Proceeds from note payable - affiliate		—			2,247			8,253
Proceeds from short-term debt		3,000			—			—
Deferred financing costs paid		(75	)		—			—
Cash flows provided by financing activities		2,925			2,247			8,253

Net change in cash		3			(2,426	)		2,441
Beginning of year		15			2,441			—

End of year	$	18		$	15		$	2,441
Supplemental disclosure of cash flow information
Cash paid for interest	$	100		$	—		$	—
Noncash investing and financing activities:
Operating lease right-of-use assets	$	—		$	—		$	(282	)
Acquisition of oil and natural gas working interests funded by accrued liabilities	$	—		$	(3,019	)	$	—
Capital expenditures funded by accrued liabilities	$	6,820		$	849		$	4,181
Prepayments applied to joint interest	$	—		$	122		$	1,579
Change in asset retirement costs	$	—		$	(1	)	$	4