NOTE 12 – COMMITMENTS AND CONTINGENCIES

Lease Agreements

In December 2022, the Company entered into a lease agreement for approximately 5,200 square feet of office space in Houston, Texas, that commenced on September 1, 2023, which expires on February 28, 2027. The remaining monthly payments are approximately $16,000 through the end of the lease.

The Company’s office lease does not provide an implicit rate. Accordingly, the Company is required to use its incremental borrowing rate in determining the present value of lease payments based on the information available at the commencement date. The Company’s incremental borrowing rate would reflect the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.  However, at the time of implementation, the Company did not maintain debt at the time, and in order to apply an appropriate discount rate, the Company used a borrowing rate obtained from a financial institution at which it maintains banking accounts.

Supplemental cash flow information related to the Company’s operating office lease is included in the table below (in thousands):

Supplemental balance sheet information related to operating leases is included in the table below (in thousands):

The remaining lease term for the Company’s office lease is 8 months as of June 30, 2026, with discount rate of 7.90%.

Leasehold Drilling Commitments

The Company’s oil and gas leasehold acreage is subject to expiration of leases if the Company does not drill and hold such acreage by production or otherwise exercises options to extend such leases, if available, in exchange for payment of additional cash consideration. 

For the D-J Basin Assets, 16,138 total net acres were set to expire during 2026, of which 3,310 net acres expired during the first half of 2026, with 2,133 and 638 net acres set to expire for the years ending December 31, 2027 and 2028 respectively, and 8,081 net acres thereafter, if we fail to meet drilling commitments or obtain term assignment extensions (net to our direct ownership interest only).

For the PRB Assets, 4,822 total net acres were set to expire during 2026, of which 720 net acres expired during the first half of 2026, with 34,999 and 15,828 net acres set to expire for the years ending December 31, 2027 and 2028, respectively

All of the Company’s acreage in the Permian Basin Assets is currently held by production. As such, no net acres are set to expire for the year ending December 31, 2026.

Other Commitments

Although the Company may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, the Company is not currently a party to any material legal proceeding. In addition, the Company is not aware of any material legal or governmental proceedings against it or contemplated to be brought against it.

As part of its regular operations, the Company may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters.

Although the Company provides no assurance about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on the Company’s financial condition or results of operations.

Milnesand Sale Dispute and Tilloo Note Default and Litigation

On November 9, 2023, in accordance with the sale of our then wholly-owned subsidiary EOR Operating Company (“EOR”) to Tilloo Exploration and Production LLC (“Tilloo”), the Company entered into a five-year secured promissory note (the “Note”) with Tilloo, bearing interest at 10% per annum, with no payments due until January 8, 2025, and fully-amortized payments due monthly over the remaining four years of the term thereafter until maturity. The Note contains customary events of default and is secured by a lien over all the assets and capital shares of EOR created under a Security Agreement, a Security Agreement (Pledge of Corporate Securities), and a Mortgage entered into by and between the Company and Tilloo.

Tilloo failed to make its initial installment payment on January 8, 2025, and has not made any subsequent payments as of December 31, 2025. The Company issued a notice of default under the Note to Tilloo in mid-January 2025, and sought to work with Tilloo into April 2025, in an effort to either restructure the Note or arrange for the sale of the assets securing the same to an unaffiliated third-party buyer, with proceeds of such sale to be applied toward repayment of the Note. On September 18, 2025, Tilloo filed a civil lawsuit against the Company in the District Court of Harris County, Texas, alleging breach of contract, fraudulent inducement, and negligent misrepresentation. In November 2025, the Company issued to Tilloo a notice of acceleration and demand for payment under the Note and also filed a counterclaim against Tilloo for breach of contract seeking full recovery under the Note. In February 2026, the Company filed a motion for summary judgement with respect to Tilloo’s claims and the Company’s counterclaims asserted against Tilloo for breach of contract related to the Note.  The court denied that motion.  The Company has filed a motion for reconsideration and, in the alternative, to certify the motion for summary judgment ruling for immediate appeal.  Discovery is ongoing, with trial set for March 1, 2027. The Company does not anticipate that the Company will incur any material losses related to this matter.

Phoenix Litigation

Upon the consummation of the Mergers, effective October 31, 2025, a wholly-owned subsidiary of NPOG, Navigation Powder River, LLC (“NPRLLC”), became an indirect wholly-owned subsidiary of the Company.  On July 31, 2025, NPRLLC and Phoenix Energy One, LLC (“Phoenix”) entered into that certain Purchase and Sale Agreement (the “Phoenix PSA”) whereby NPRLLC agreed to sell to Phoenix certain oil and gas properties located in Campbell and Converse Counties, Wyoming. On September 10, 2025, NPRLLC filed a Petition against Phoenix in the Eleventh Division of the Texas Business Court (Navigation Powder River, LLC v. Phoenix Energy One, LLC) alleging a breach of contract by Phoenix Energy for its failure to consummate the transactions contemplated by the Phoenix PSA (the “Phoenix Litigation”).  On June 1, 2026, the parties entered into a Settlement Agreement (the “Phoenix Settlement Agreement”) whereby the parties settled all disputes arising under the Phoenix PSA, and exchanged mutual releases related thereto, with Phoenix agreeing to pay to NPRLLC (i) $2.0 million on June 26, 2026 (which amount has been paid and received), (ii) $2.0 million on July 6, 2026 (which amount has been paid and received), (iii) $1.75 million on July 30, 2026 (which amount has been paid and received), and (iv) $1,000,000 on September 30, 2026. NPRLLC also retains the $250,000 first payment already received under the Phoenix PSA.  Upon receipt of the $1.75 million payment on July 30, 2026, Phoenix filed the Assignment and Bill of Sale transferring the assets subject to the Phoenix PSA from NPRLLC to Phoenix, as originally contemplated under the Phoenix PSA.  Upon receipt of the final $1.0 million payment on September 30, 2026, NPRLLC is required to dismiss the Phoenix Litigation with prejudice.

The Company’s receipt of $2.0 million on June 26, 2026 has been classified as a deposit on sale of oil and gas property within the consolidated balance sheet as of June 30, 2026.