NOTE 9 – DERIVATIVES

Derivative instruments are utilized to manage exposure to commodity price fluctuations and to achieve a more predictable cash flow in connection with oil and gas sales. These instruments limit exposure to declines in prices but also limit the benefits that would be realized if prices increased. The Company does not hold or issue derivative financial instruments for speculative trading purposes.

The Company may use a combination of commodity derivatives (costless collars, producer three-way collars, standalone put options, and fixed-price swaps) to manage exposure to commodity price volatility. Costless collar and three-way producer collar agreements are combinations of put and call options used to establish floor and ceiling commodity prices for a fixed volume of production during a certain time period. All collar agreements provide for payments between the counterparties if the settlement price under the agreement exceeds the ceiling or if the settlement price under the agreement is below the floor. Standalone put options are floors that are purchased for a cost and provide that counterparties make payments to us if the settlement price is below the established floor. The fixed-price swap agreements call for payments to, or receipts from, counterparties depending on whether the index price of oil or natural gas for the period is greater or less than the fixed price established for the period contracted under the fixed-price swap agreement.

On November 1, 2025, the Company assumed the derivative liabilities (novated hedges) associated with its Mergers (see Note 7 above) which are subject to master netting agreements. Additional derivative contracts with the same counterparty are also subject to netting. Still, in accordance with ASC 815, the Company will classify the fair value of all its derivative positions on a gross basis in its corresponding consolidated balance sheets.

The Company has not designated its derivative instruments as accounting hedges. Accordingly, changes in the fair value of outstanding derivatives and settlements of derivative contracts are recognized in earnings and included in “Other Income (Expense)” under the caption “Net income (loss) on derivative contracts” in the consolidated statements of operations.

“Derivative contract assets” and “Derivative contract liabilities” represent the estimated fair value of open derivative positions, which reflects the difference between current forward commodity prices and the contractual hedge prices for the remaining hedged volumes as of June 30, 2026 (the “mark-to-market” valuation).

As of June 30, 2026, the Company had the following open crude oil and natural gas derivative contracts: