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EON Resources Inc.

EON Resources Inc.EONR決算レポート

NYSE · エネルギー · 原油及び天然ガス

E.ON SE is a European multinational electric utility company based in Essen, Germany. It operates as one of the world's largest investor-owned electric utility service providers. The name originates from the Latin word aeon, derived from the Greek αἰών aion, which means age or "infinity", with the period being added to create secondary meanings of "energy" (E) and "illumination" (ON). The company is a component of the Euro Stoxx 50 stock market index, DAX stock index and a member of the Dow J...

What changed in EON Resources Inc.'s 10-K — 2023 vs 2024

Top changes in EON Resources Inc.'s 2024 10-K

425 paragraphs added · 468 removed · 367 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

125 edited+25 added−20 removed175 unchanged
For information regarding the impact of lease expirations on our interests, please see “ Risks Related to Our Business .” All of Pogo’s 13,700 acres are held by production and or not under any mandatory lease expiration. Pogo’s leasehold is 100% operated through its wholly owned subsidiary LH Operating and 100% of its 13,700 gross acre leasehold is HBP.
For information regarding the impact of lease expirations on our interests, please see “ Risks Related to Our Business .” All of our 13,700 acres are held by production and or not under any mandatory lease expiration. Pogo’s leasehold is 100% operated through its wholly owned subsidiary LH Operating and 100% of its 13,700 gross acre leasehold is HBP.
Pogo Regulation The following disclosure describes regulations directly associated with E&P companies who are classified with state and federal regulatory agencies as Operator of record of crude oil and natural gas properties, including Pogo. Crude oil and natural gas operations are subject to various types of legislation, regulation and other legal requirements enacted by governmental authorities.
Regulation The following disclosure describes regulations directly associated with E&P companies who are classified with state and federal regulatory agencies as Operator of record of crude oil and natural gas properties, including Pogo. Crude oil and natural gas operations are subject to various types of legislation, regulation and other legal requirements enacted by governmental authorities.
Pogo Title to Properties Prior to completing an acquisition of a target or working interests, Pogo performs a title review on each tract to be acquired. Pogo’s title review is meant to confirm the working interests owned by a prospective seller, the property’s lease status and royalty amount as well as encumbrances or other related burdens.
Title to Properties Prior to completing an acquisition of a target or working interests, Pogo performs a title review on each tract to be acquired. Pogo’s title review is meant to confirm the working interests owned by a prospective seller, the property’s lease status and royalty amount as well as encumbrances or other related burdens.
On November 15, 2023 (the “Closing Date”), as contemplated by the MIPA: ● We filed a Second Amended and Restated Certificate of Incorporation (the “Second A&R Charter”) with the Secretary of State of the State of Delaware, pursuant to which the number of authorized shares of our capital stock, par value $0.0001 per share, was increased to 121,000,000 shares, consisting of (i) 100,000,000 shares of Class A Common Stock, (ii) 20,000,000 shares of Class B Common Stock, and (iii) 1,000,000 shares of preferred stock, par value $0.0001 per share; ● Our shares of common stock were reclassified as Class A Common Stock; the Class B Common Stock has no economic rights but entitles its holder to one vote on all matters to be voted on by stockholders generally; holders of shares of Class A Common Stock and shares of Class B Common Stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or by the Second A&R Charter; ● (A) We contributed to OpCo (i) all of our assets (excluding our interests in OpCo and the aggregate amount of cash required to satisfy any exercise by our stockholders of their Redemption Rights (as defined below)) and (ii) 2,000,000 newly issued shares of Class B Common Stock (such shares, the “Seller Class B Shares”) and (B) in exchange therefor, OpCo issued to us a number of Class A common units of OpCo (the “OpCo Class A Units”) equal to the number of total shares of Class A Common Stock issued and outstanding immediately after the closing (the “Closing”) of the transactions contemplated by the MIPA (following the exercise by HNRA stockholders of their Redemption Rights) (such transactions, the “SPAC Contribution”); and 1 ● Immediately following the SPAC Contribution, OpCo contributed $900,000 to SPAC Subsidiary in exchange for 100% of the outstanding common stock of SPAC Subsidiary (the “SPAC Subsidiary Contribution”); ● Immediately following the SPAC Subsidiary Contribution, Seller sold, contributed, assigned, and conveyed to (A) OpCo, and OpCo acquired and accepted from Seller, ninety-nine percent (99.0%) of the outstanding membership interests of Pogo Resources, LLC, a Texas limited liability company (“Pogo” or the “Target”), and (B) SPAC Subsidiary, and SPAC Subsidiary purchased and accepted from Seller, one percent (1.0%) of the outstanding membership interest of Target (together with the ninety-nine percent (99.0%) interest, the “Target Interests”), in each case, in exchange for (x) $900,000 of the Cash Consideration (as defined below) in the case of SPAC Subsidiary and (y) the remainder of the Aggregate Consideration (as defined below) in the case of OpCo (such transactions, together with the SPAC Contribution and SPAC Subsidiary Contribution and the other transactions contemplated by the MIPA, the “Purchase”).
On November 15, 2023 (the “Closing Date”), as contemplated by the MIPA: ● We filed a Second Amended and Restated Certificate of Incorporation (the “Second A&R Charter”) with the Secretary of State of the State of Delaware, pursuant to which the number of authorized shares of our capital stock, par value $0.0001 per share, was increased to 121,000,000 shares, consisting of (i) 100,000,000 shares of Class A Common Stock, (ii) 20,000,000 shares of Class B Common Stock, and (iii) 1,000,000 shares of preferred stock, par value $0.0001 per share; ● Our shares of common stock were reclassified as Class A Common Stock; the Class B Common Stock has no economic rights but entitles its holder to one vote on all matters to be voted on by stockholders generally; holders of shares of Class A Common Stock and shares of Class B Common Stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or by the Second A&R Charter; 1 ● (A) We contributed to OpCo (i) all of our assets (excluding our interests in OpCo and the aggregate amount of cash required to satisfy any exercise by our stockholders of their Redemption Rights (as defined below)) and (ii) 2,000,000 newly issued shares of Class B Common Stock (such shares, the “Seller Class B Shares”) and (B) in exchange therefor, OpCo issued to us a number of Class A common units of OpCo (the “OpCo Class A Units”) equal to the number of total shares of Class A Common Stock issued and outstanding immediately after the closing (the “Closing”) of the transactions contemplated by the MIPA (following the exercise by EON stockholders of their Redemption Rights) (such transactions, the “SPAC Contribution”); and ● Immediately following the SPAC Contribution, OpCo contributed $900,000 to SPAC Subsidiary in exchange for 100% of the outstanding common stock of SPAC Subsidiary (the “SPAC Subsidiary Contribution”); ● Immediately following the SPAC Subsidiary Contribution, Seller sold, contributed, assigned, and conveyed to (A) OpCo, and OpCo acquired and accepted from Seller, ninety-nine percent (99.0%) of the outstanding membership interests of Pogo Resources, LLC, a Texas limited liability company (“Pogo” or the “Target”), and (B) SPAC Subsidiary, and SPAC Subsidiary purchased and accepted from Seller, one percent (1.0%) of the outstanding membership interest of Target (together with the ninety-nine percent (99.0%) interest, the “Target Interests”), in each case, in exchange for (x) $900,000 of the Cash Consideration (as defined below) in the case of SPAC Subsidiary and (y) the remainder of the Aggregate Consideration (as defined below) in the case of OpCo (such transactions, together with the SPAC Contribution and SPAC Subsidiary Contribution and the other transactions contemplated by the MIPA, the “Purchase”).
Pogo believes its assets in the Permian Basin is in an earlier to mid-stage of development and that the average number of producing wells per section in its 13,700-acre leasehold will increase as Pogo continues to add PUD well patterns, which would allow Pogo to achieve higher realized cash flows to distributed to its shareholders as dividends and/or reinvested to further expand its base of cash flow generating assets.
The Company believes its assets in the Permian Basin is in an earlier to mid-stage of development and that the average number of producing wells per section in its 13,700-acre leasehold will increase as Pogo continues to add PUD well patterns, which would allow the Company to achieve higher realized cash flows to distributed to its shareholders as dividends and/or reinvested to further expand its base of cash flow generating assets.
Only one well owned by Pogo is approved to be plugged and abandoned. Pogo is not aware of any dry holes drilled on the acreage underlying its working interest during the relevant periods. The following table sets forth the total number of gross and net productive wells, all of which are oil wells.
Only one well owned by the Company is approved to be plugged and abandoned. Pogo is not aware of any dry holes drilled on the acreage underlying its working interest during the relevant periods. The following table sets forth the total number of gross and net productive wells, all of which are oil wells.
Our Board of Directors is also actively involved in reviewing and approving executive compensation, selections and succession plans so that we have leadership in place with the requisite skills and experience to deliver results the right way. Emerging Growth Company We are an “emerging growth company,” as defined in the JOBS Act.
Our Board of Directors is also actively involved in reviewing and approving executive compensation, selections and succession plans so that we have leadership in place with the requisite skills and experience to deliver results the right way. 24 Emerging Growth Company We are an “emerging growth company,” as defined in the JOBS Act.
As a result of these developments, Pogo as the Operator of record may be required to curtail operations or adjust development plans, which may adversely impact Pogo’s business. 20 The USGS has identified six states with the most significant hazards from induced seismicity, including New Mexico, Oklahoma and Texas.
As a result of these developments, Pogo as the Operator of record may be required to curtail operations or adjust development plans, which may adversely impact Pogo’s business. The USGS has identified six states with the most significant hazards from induced seismicity, including New Mexico, Oklahoma and Texas.
Due to these seasonal fluctuations, Pogo’s results of operations for individual quarterly periods may not be indicative of the results that it may realize on an annual basis. Employees and Human Working Capital We have salaried and regular pay employees in the field as well as management at our corporate offices.
Due to these seasonal fluctuations, our results of operations for individual quarterly periods may not be indicative of the results that it may realize on an annual basis. Employees and Human Working Capital We have salaried and regular pay employees in the field as well as management at our corporate offices.
Such regulations and restrictions could cause delays and impose additional costs and restrictions on Pogo’s properties and on their waste disposal activities. If new laws or regulations that significantly restrict hydraulic fracturing and related activities are adopted, such laws could make it more difficult or costly to perform fracturing to stimulate production from tight formations.
Such regulations and restrictions could cause delays and impose additional costs and restrictions on Pogo’s properties and on their waste disposal activities. 20 If new laws or regulations that significantly restrict hydraulic fracturing and related activities are adopted, such laws could make it more difficult or costly to perform fracturing to stimulate production from tight formations.
Sales of crude oil and condensate are not currently regulated and are made at market prices. Drilling and Production The operations on Pogo’s properties are subject to various types of regulation at the federal, state and local level. These types of regulation include requiring permits for the drilling of wells, drilling bonds and reports concerning operations.
Sales of crude oil and condensate are not currently regulated and are made at market prices. 21 Drilling and Production The operations on Pogo’s properties are subject to various types of regulation at the federal, state and local level. These types of regulation include requiring permits for the drilling of wells, drilling bonds and reports concerning operations.
Such reserve estimates are based on evaluations prepared by the independent petroleum engineering firm of Cobb & Associates, in accordance with Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Evaluation Engineers and definitions and guidelines established by the SEC.
Such reserve estimates are based on evaluations prepared by the independent petroleum engineering firm of Cobb, in accordance with Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Evaluation Engineers and definitions and guidelines established by the SEC.
In connection with the Purchase, holders of 3,323,707 shares of common stock sold in HNRA’s initial public offering (the “public shares”) properly exercised their right to have their public shares redeemed (the “Redemption Rights”) for a pro rata portion of the trust account (the “Trust Account”) which held the proceeds from HNRA’s initial public offering, funds from HNRA’s payments to extend the time to consummate a business combination and interest earned, calculated as of two business days prior to the Closing, which was approximately $10.95 per share, or $49,362,479 in the aggregate.
In connection with the Purchase, holders of 3,323,707 shares of common stock sold in EON’s initial public offering (the “public shares”) properly exercised their right to have their public shares redeemed (the “Redemption Rights”) for a pro rata portion of the trust account (the “Trust Account”) which held the proceeds from EON’s initial public offering, funds from EON’s payments to extend the time to consummate a business combination and interest earned, calculated as of two business days prior to the Closing, which was approximately $10.95 per share, or $49,362,479 in the aggregate.
Pursuant to the A&R OpCo LLC Agreement, each OpCo unitholder (excluding HNRA) will, subject to certain timing procedures and other conditions set forth therein, have the right (the “OpCo Exchange Right”) to exchange all or a portion of its OpCo Class B Units for, at OpCo’s election, (i) shares of Class A Common Stock at an exchange ratio of one share of Class A Common Stock for each OpCo Class B Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions, or (ii) an equivalent amount of cash.
Pursuant to the A&R OpCo LLC Agreement, each OpCo unitholder (excluding EON) will, subject to certain timing procedures and other conditions set forth therein, have the right (the “OpCo Exchange Right”) to exchange all or a portion of its OpCo Class B Units for, at OpCo’s election, (i) shares of Class A Common Stock at an exchange ratio of one share of Class A Common Stock for each OpCo Class B Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions, or (ii) an equivalent amount of cash.
Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect Pogo’s business and prospects. 16 Non-Hazardous and Hazardous Waste The Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes and regulations promulgated thereunder, affect crude oil and natural gas exploration, development, and production activities by imposing requirements regarding the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes.
Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our business and prospects. 16 Non-Hazardous and Hazardous Waste The Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes and regulations promulgated thereunder, affect crude oil and natural gas exploration, development, and production activities by imposing requirements regarding the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes.
The work-over costs attributable to adding perforations in wells previously drilled and completed is significantly less than drilling new wells. As of December 31, 2023, Pogo’s leasehold position has 25.7 wells per square mile. Pogo expects to see increases in its production, revenue and discretionary cash flows from the development of 115 well patterns in the 7R reservoir.
The work-over costs attributable to adding perforations in wells previously drilled and completed is significantly less than drilling new wells. As of December 31, 2024, Pogo’s leasehold position has 25.7 wells per square mile. Pogo expects to see increases in its production, revenue and discretionary cash flows from the development of 115 well patterns in the 7R reservoir.
In certain circumstances, Pogo Royalty can demand our assistance with underwritten offerings, and Pogo Royalty will be entitled to certain piggyback registration rights. 3 Option Agreement In connection with the Closing, HNRA, HNRA Royalties, LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of HNRA (“HNRA Royalties”) and Pogo Royalty entered into an Option Agreement (the “Option Agreement”).
In certain circumstances, Pogo Royalty can demand our assistance with underwritten offerings, and Pogo Royalty will be entitled to certain piggyback registration rights. Option Agreement In connection with the Closing, EON, HNRA Royalties, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of EON (“HNRA Royalties”) and Pogo Royalty entered into an Option Agreement (the “Option Agreement”).
Pogo’s ability to acquire additional working interests and properties and to discover reserves in the future will be dependent upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, crude oil and natural gas products compete with other forms of energy available to customers, primarily based on price.
Our ability to acquire additional working interests and properties and to discover reserves in the future will be dependent upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, crude oil and natural gas products compete with other forms of energy available to customers, primarily based on price.
Currently, Pogo’s working interests reside entirely in the Northwest Shelf of the Permian Basin, which Pogo believes is one of the premier crude oil and natural gas producing regions in the United States. As of December 31, 2023, Pogo’s working interests covered 13,700 gross acres, with the royalty owners retaining a weighted average 26% royalty.
Currently, Pogo’s working interests reside entirely in the Northwest Shelf of the Permian Basin, which Pogo believes is one of the premier crude oil and natural gas producing regions in the United States. As of December 31, 2024, Pogo’s working interests covered 13,700 gross acres, with the royalty owners retaining a weighted average 26% royalty.
The term “reasonable certainty” means deterministically, the quantities of crude oil and/or natural gas are much more likely to be achieved than not, and probabilistically, there should be at least a 90% probability of recovering volumes equal to or exceeding the estimate. All of Pogo’s proved reserves were estimated using a deterministic method.
The term “reasonable certainty” means deterministically, the quantities of crude oil and/or natural gas are much more likely to be achieved than not, and probabilistically, there should be at least a 90% probability of recovering volumes equal to or exceeding the estimate. All of our proved reserves were estimated using a deterministic method.
To establish reasonable certainty with respect to Pogo’s estimated proved reserves, the technologies and economic data used in the estimation of its proved reserves have been demonstrated to yield results with consistency and repeatability, and include production and well test data, downhole completion information, geologic data, electrical logs, radioactivity logs, core data, and historical well cost and operating expense data.
To establish reasonable certainty with respect to EON’s estimated proved reserves, the technologies and economic data used in the estimation of its proved reserves have been demonstrated to yield results with consistency and repeatability, and include production and well test data, downhole completion information, geologic data, electrical logs, radioactivity logs, core data, and historical well cost and operating expense data.
Accordingly, Pogo believes that access to crude oil pipeline transportation services of Pogo’s properties will not materially differ from Pogo’s competitors’ access to crude oil pipeline transportation services. 23 State Regulation New Mexico regulates the drilling for, and the production, gathering and sale of, crude oil and natural gas, including imposing severance taxes and requirements for obtaining drilling permits.
Accordingly, Pogo believes that access to crude oil pipeline transportation services of Pogo’s properties will not materially differ from our competitors’ access to crude oil pipeline transportation services. State Regulation New Mexico regulates the drilling for, and the production, gathering and sale of, crude oil and natural gas, including imposing severance taxes and requirements for obtaining drilling permits.
Pogo expects to benefit from the industry relationships fostered by its management team’s decades of experience in the oil and natural gas industry with a focus on the Permian Basin, in addition to leveraging its relationships with many E & P company executives. ● Development potential of the properties underlying Pogo’s Permian Basin working interests.
Pogo expects to benefit from the industry relationships fostered by its management team’s decades of experience in the oil and natural gas industry with a focus on the Permian Basin, in addition to leveraging its relationships with many E & P company executives. ● Development potential of the properties underlying the Company’s Permian Basin working interests.
Additionally, the holders of OpCo Class B Units will be required to exchange all of their OpCo Class B Units (a “Mandatory Exchange”) upon the occurrence of the following: (i) upon the direction of HNRA with the consent of at least fifty percent (50%) of the holders of OpCo Class B Units; or (ii) upon the one-year anniversary of the Mandatory Conversion Trigger Date.
Additionally, the holders of OpCo Class B Units will be required to exchange all of their OpCo Class B Units (a “Mandatory Exchange”) upon the occurrence of the following: (i) upon the direction of EON with the consent of at least fifty percent (50%) of the holders of OpCo Class B Units; or (ii) upon the one-year anniversary of the Mandatory Conversion Trigger Date.
Liability for any contamination under these laws could require Pogo to make significant expenditures to investigate and remediate such contamination or attain and maintain compliance with such laws and may otherwise have a material adverse effect on their results of operations, competitive position or financial condition.
Liability for any contamination under these laws could require us to make significant expenditures to investigate and remediate such contamination or attain and maintain compliance with such laws and may otherwise have a material adverse effect on their results of operations, competitive position or financial condition.
The Option Agreement and the option will immediately terminate upon the earlier of (a) Pogo Royalty’s transfer or assignment of all of the ORR Interest in accordance with the Option Agreement and (b) November 15, 2024. Pursuant to the Option Agreement, upon execution, HNRA issued to Pogo Royalty 10,000 shares of Class A Common Stock.
The Option Agreement and the option will immediately terminate upon the earlier of (a) Pogo Royalty’s transfer or assignment of all of the ORR Interest in accordance with the Option Agreement and (b) November 15, 2024. Pursuant to the Option Agreement, upon execution, EON issued to Pogo Royalty 10,000 shares of Class A Common Stock.
As of December 31, 2023, Pogo has identified 43 PUD well patterns based on its assessment of current geological, engineering and land data Pogo’s working interest development strategy anticipates shifting any drilling activity associated with its PUD reserves following Pogo’s completion of its PDNP reserves.
As of December 31, 2024, Pogo has identified 43 PUD well patterns based on its assessment of current geological, engineering and land data Pogo’s working interest development strategy anticipates shifting any drilling activity associated with its PUD reserves following Pogo’s completion of its PDNP reserves.
As of December 31, 2023, Pogo estimated its PUD reserves to be 4,137 MBbls of crude oil and 850 MMcf of natural gas for a total of 4,279 MBOE. PUDs will be converted from undeveloped to developed as the applicable wells begin production.
As of December 31, 2023, EON estimated its PUD reserves to be 4,137 MBbls of crude oil and 850 MMcf of natural gas for a total of 4,279 MBOE. PUDs will be converted from undeveloped to developed as the applicable wells begin production.
However, any changes in the laws and regulations could have a material adverse effect on the Operator of record (Pogo) of its properties’ capital expenditures and operating expenses, which in turn could affect production from the acreage underlying Pogo’s working interests and adversely affect Pogo’s business and prospects.
However, any changes in the laws and regulations could have a material adverse effect on the Operator of record (Pogo) of its properties’ capital expenditures and operating expenses, which in turn could affect production from the acreage underlying our working interests and adversely affect our business and prospects.
Many of Pogo’s competitors not only own and acquire working interests but also explore for and produce crude oil and natural gas and, in some cases, carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis.
Many of our competitors not only own and acquire working interests but also explore for and produce crude oil and natural gas and, in some cases, carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis.
Pogo intends to accomplish this objective by executing the following strategies: Generate strong cash flow supported by means of disciplined development of its PDNP Reserves. As the sole working interest owner, Pogo benefits from the continued organic development of its acreage in the Permian Basin.
The Company intends to accomplish this objective by executing the following strategies: Generate strong cash flow supported by means of disciplined development of its PDNP Reserves. As the sole working interest owner, the Company benefits from the continued organic development of its acreage in the Permian Basin.
OpCo A&R LLC Agreement In connection with the Closing, HNRA and Pogo Royalty, LLC, a Texas limited liability company, an affiliate of Seller and Seller’s designated recipient of the Aggregate Consideration (“Pogo Royalty”), entered into an amended and restated limited liability company agreement of OpCo (the “OpCo A&R LLC Agreement”).
OpCo A&R LLC Agreement In connection with the Closing, EON and Pogo Royalty, LLC, a Texas limited liability company, an affiliate of Seller and Seller’s designated recipient of the Aggregate Consideration (“Pogo Royalty”), entered into an amended and restated limited liability company agreement of OpCo (the “OpCo A&R LLC Agreement”).
By engaging in such other activities, Pogo’s competitors may be able to develop or obtain information that is superior to the information that is available to us. In addition, certain of Pogo’s competitors may possess financial or other resources substantially larger than Pogo possesses.
By engaging in such other activities, our competitors may be able to develop or obtain information that is superior to the information that is available to us. In addition, certain of our competitors may possess financial or other resources substantially larger than Pogo possesses.
As of December 31, 2023, 100% of Pogo’s gross 13,700 leasehold acres were located in Eddy County, New Mexico, where there 100% of the leasehold working interests owned by Pogo consist of state and federal lands. Pogo believes the Permian Basin offers some of the most compelling rates of return for Pogo and significant potential for cash flow growth.
As of December 31, 2024, 100% of Pogo’s gross 13,700 leasehold acres were located in Eddy County, New Mexico, where 100% of the leasehold working interests owned by Pogo consist of state and federal lands. Pogo believes the Permian Basin offers some of the most compelling rates of return for Pogo and significant potential for cash flow growth.
Backstop Agreement In connection with the Closing, HNRA entered a Backstop Agreement (the “Backstop Agreement”) with Pogo Royalty and certain of HNRA’s founders listed therein (the “Founders”) whereby Pogo Royalty will have the right (“Put Right”) to cause the Founders to purchase Pogo Royalty’s OpCo Preferred Units at a purchase price per unit equal to $10.00 per unit plus the product of (i) the number of days elapsed since the effective date of the Backstop Agreement and (ii) $10.00 divided by 730.
Backstop Agreement In connection with the Closing, EON entered a Backstop Agreement (the “Backstop Agreement”) with Pogo Royalty and certain of EON’s founders listed therein (the “Founders”) whereby Pogo Royalty will have the right (“Put Right”) to cause the Founders to purchase Pogo Royalty’s OpCo Preferred Units at a purchase price per unit equal to $10.00 per unit plus the product of (i) the number of days elapsed since the effective date of the Backstop Agreement and (ii) $10.00 divided by 730.
Pogo believes its current leasehold working interests provide the potential for significant long-term organic revenue growth as Pogo develops its PDNP reserves to increase crude oil and natural gas production. 7 Pogo Business Strategies Pogo’s primary business objective is to generate discretionary cash flow by maintaining its strong cash flow from the PDP reserves and increasing cash flow by developing predictable, low cost PDNP reserves in its Permian Basin asset.
Pogo believes its current leasehold working interests provide the potential for significant long-term organic revenue growth as Pogo develops its PDNP reserves to increase crude oil and natural gas production. 8 Business Strategies The Company’s primary business objective is to generate discretionary cash flow by maintaining its strong cash flow from the PDP reserves and increasing cash flow by developing predictable, low cost PDNP reserves in its Permian Basin asset.
As of December 31, 2023, Pogo has working interests in 341 shallow (above 4,000 ft), vertical wells producing oil and gas in paying quantities. Ninety-five of the 341 producing wells were completed between 2019 and June 2022 by Pogo. In 2019, Pogo initiated a 4-well pilot water injection project into the Seven Rivers (“7R”) oil reservoir underlying its 13,700-acre leasehold.
As of December 31, 2024, Pogo has working interests in 342 shallow (above 4,000 ft), vertical wells producing oil and gas in paying quantities. Ninety-five of the 342 producing wells were completed between 2019 and June 2022 by Pogo. In 2019, Pogo initiated a 4-well pilot water injection project into the Seven Rivers (“7R”) oil reservoir underlying its 13,700-acre leasehold.
Pogo is the official Operator of record with the state and federal regulatory agencies. As of December 31, 2023, Pogo generates a substantial majority of its revenues and cash flows from its working interests when crude oil and natural gas are produced and sold from its acreage.
Pogo is the official Operator of record with the state and federal regulatory agencies. As of December 31, 2024, the Company generates a substantial majority of its revenues and cash flows from its working interests when crude oil and natural gas are produced and sold from its acreage.
On the Mandatory Conversion Trigger Date, HNRA will issue a number of shares of Class B Common Stock to Pogo Royalty equivalent to the number of OpCo Class B Units issued to Pogo Royalty.
On the Mandatory Conversion Trigger Date, EON will issue a number of shares of Class B Common Stock to Pogo Royalty equivalent to the number of OpCo Class B Units issued to Pogo Royalty.
Focus primarily on the Permian Basin. All of Pogo’s working interests are currently located in the Permian Basin, one of the most prolific oil and gas basins in the United States.
Focus primarily on the Permian Basin. All of the Company’s working interests are currently located in the Permian Basin, one of the most prolific oil and gas basins in the United States.
Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, Pogo believes that the regulation of crude oil transportation rates will not affect its operations in any materially different way than such regulation will affect the operations of its competitors. Further, interstate and intrastate common carrier crude oil pipelines must provide service on a non-discriminatory basis.
Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of crude oil transportation rates will not affect its operations in any materially different way than such regulation will affect the operations of its competitors. Further, interstate and intrastate common carrier crude oil pipelines must provide service on a non-discriminatory basis.
Pogo’s assets consist of 100% working interests in a gross 13,700 acres located in the Northwest Shelf of the Permian Basin. Pogo expects production from its working interest ownership to increase its oil and gas production by 1,358 BOE/d as it develops its PDNP reserves after completing 115 well patterns.
The Company’s assets consist of 100% working interests in a gross 13,700 acres located in the Northwest Shelf of the Permian Basin. The Company expects production from its working interest ownership to increase its oil and gas production by 1,358 BOE/d as it develops its PDNP reserves after completing 115 well patterns.
Pogo believes that its focus on the Permian Basin will position it as a preferred buyer of Permian Basin working interests in known producing oil and gas fields. As of December 31, 2023, 100% of its current leasehold is located in an area with proven results from multiple stacked productive zones.
The Company believes that its focus on the Permian Basin will position it as a preferred buyer of Permian Basin working interests in known producing oil and gas fields. As of December 31, 2024, 100% of its current leasehold is located in an area with proven results from multiple stacked productive zones.
As of December 31, 2023, we employed 10 full-time salaried and regular pay field individuals under no ongoing employment contracts who provided direct support to Pogo’s operations. As of December 31, 2023, we employed 5 full-time salaried employees at our corporate offices, 5 of which have ongoing employment contracts. None of these employees are covered by collective bargaining agreements.
As of December 31, 2024, we employed 7 full-time salaried and regular pay field individuals under no ongoing employment contracts who provided direct support to Pogo’s operations. As of December 31, 2024, we employed 5 full-time salaried employees at our corporate offices, 5 of which have ongoing employment contracts. None of these employees are covered by collective bargaining agreements.
As of December 31, 2023 Gross Net Productive 342 342 Dry holes — — Total 342 342 14 Drilling and other exploration and development activities For the years ended 2023 and 2022, Pogo did not drill any new wells. As of December 31, 2023, there were no wells being completed or waiting on completion.
As of December 31, 2024 Gross Net Productive 342 342 Dry holes — — Total 342 342 14 Drilling and other exploration and development activities For the years ended 2024 and 2023, we did not drill any new wells. As of December 31, 2024, there were no wells being completed or waiting on completion.
Registration Rights Agreement In connection with the Closing, HNRA and Pogo Royalty entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which HNRA has agreed to provide Pogo Royalty with certain registration rights with respect to the shares of Class A Common Stock issuable upon exercise of the OpCo Exchange Right, including filing with the SEC an initial registration statement on Form S-1 covering the resale by the Pogo Royalty of the shares of Class A Common Stock issuable upon exercise of the OpCo Exchange Right so as to permit their resale under Rule 415 under the Securities Act, no later than thirty (30) days following the Closing, use its commercially reasonable efforts to have the initial registration statement declared effective by the SEC as soon as reasonably practicable following the filing thereof with the SEC, and use commercially reasonable efforts to convert the Form S-1 (and any subsequent registration statement) to a shelf registration statement on Form S-3 as promptly as practicable after HNRA is eligible to use a Form S-3 Shelf.
The Seller Promissory Note is subordinated to the Term Loan (as defined herein). 3 Registration Rights Agreement In connection with the Closing, EON and Pogo Royalty entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which EON has agreed to provide Pogo Royalty with certain registration rights with respect to the shares of Class A Common Stock issuable upon exercise of the OpCo Exchange Right, including filing with the SEC an initial registration statement on Form S-1 covering the resale by the Pogo Royalty of the shares of Class A Common Stock issuable upon exercise of the OpCo Exchange Right so as to permit their resale under Rule 415 under the Securities Act, no later than thirty (30) days following the Closing, use its commercially reasonable efforts to have the initial registration statement declared effective by the SEC as soon as reasonably practicable following the filing thereof with the SEC, and use commercially reasonable efforts to convert the Form S-1 (and any subsequent registration statement) to a shelf registration statement on Form S-3 as promptly as practicable after EON is eligible to use a Form S-3 Shelf.
Factors impacting the future oil supply balance are world-wide demand for oil, as well as the growth in domestic oil production. Pogo’s Key Producing Region As of December 31, 2023, all of Pogo’s properties were located exclusively within the Northwest Shelf of the Permian Basin.
Factors impacting the future oil supply balance are world-wide demand for oil, as well as the growth in domestic oil production. Key Producing Region As of December 31, 2024, all of the Company’s properties were located exclusively within the Northwest Shelf of the Permian Basin.
One hundred percent (100%) of Pogo’s working interests are located as of December 31, 2023, on the New Mexico side of the Delaware Basin. According to the USGS, the Delaware Basin contains the largest recoverable reserves among all unconventional basins in the United States.
One hundred percent (100%) of our working interests are located as of December 31, 2024, on the New Mexico side of the Delaware Basin. According to the USGS, the Delaware Basin contains the largest recoverable reserves among all unconventional basins in the United States.
The estimated cost to complete each PDNP pattern is $345,652 and the estimated cost to complete each PUD pattern is $1,187,698. A single well pattern consists of one each producing well with its corresponding or dedicated water injection wells, with each injection well situated on four sides of the producing well.
The estimated cost to complete each PDNP pattern is $339,252 and the estimated cost to complete each PUD pattern is $1,187,698. A single well pattern consists of one each producing well with its corresponding or dedicated water injection wells, with each injection well situated on four sides of the producing well.
LH Operating is fully bonded to operate in New Mexico. Leasehold acreage The following table sets forth certain information regarding the total developed and undeveloped acreage in which Pogo owned an interest as of December 31, 2023.
LH Operating is fully bonded to operate in New Mexico. Leasehold acreage The following table sets forth certain information regarding the total developed and undeveloped acreage in which we owned an interest as of December 31, 2024.
As of December 31, 2023, Pogo had production from 342 vertical wells, and it has identified 115 additional PDNP well patterns based on its assessment of current geological, engineering and land data.
As of December 31, 2024, Pogo had production from 342 vertical wells, and it has identified 127 additional PDNP well patterns based on its assessment of current geological, engineering and land data.
Pogo’s Working Interests in Grayburg-Jackson Field As of December 31, 2023, Pogo owns 100% working interest in 13,700 gross acres located in Eddy County, New Mexico, with a 74% weighted average net revenue. The 13,700 gross acres are strategically located in the prolific oil field, Grayburg-Jackson field.
Working Interests in Grayburg-Jackson Field As of December 31, 2024, the Company owns a 100% working interest in 13,700 gross acres located in Eddy County, New Mexico, with a 74% weighted average net revenue. The 13,700 gross acres are strategically located in the prolific oil field, Grayburg-Jackson field.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the closing of our Initial Public Offering, or December 31, 2027, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (iv) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. 25 Facilities We currently maintain our executive offices at 3730 Kirby Drive, Suite 1200, Houston, Texas 77098.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the closing of our Initial Public Offering, or December 31, 2027, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (iv) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period.
Typically, an Oil and Gas Lease can be automatically extended beyond the initial lease term with continuous drilling, production or other operating activities or through negotiated contractual lease extension options.
Typically, an Oil and Gas Lease can be automatically extended beyond the initial lease term with continuous drilling, production or other operating activities or through negotiated contractual lease extension options. Only when production and drilling cease, the lease terminates.
If the Seller Promissory Note is not repaid in full on or prior to its stated maturity date, OpCo will owe interest from and after default equal to the lesser of 18% per annum and the highest amount permissible under law, compounded monthly. The Seller Promissory Note is subordinated to the Term Loan (as defined herein).
If the Seller Promissory Note is not repaid in full on or prior to its stated maturity date, OpCo will owe interest from and after default equal to the lesser of 18% per annum and the highest amount permissible under law, compounded monthly.
Productive Wells Productive wells located on Pogo’s leasehold consist of producing vertical wells that are capable of producing oil and gas in paying quantities and are not dry wells. As of December 31, 2023, Pogo owned working interests in 342 producing wells, 207 water injectors, and one water source well, all located on its 13,700 gross acre leasehold.
Productive Wells Productive wells located on our leasehold consist of producing vertical wells that are capable of producing oil and gas in paying quantities and are not dry wells. As of December 31, 2024, we owned working interests in 342 producing wells, 207 water injectors, and one water source well, all located on its 13,700 gross acre leasehold.
ITEM 1. BUSINESS Overview HNR Acquisition Corp, was incorporated in Delaware as a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities.
ITEM 1. BUSINESS Overview EON Resources, Inc. (formerly HNR Acquisition Corp) (the “Company” or “EON”), was incorporated in Delaware as a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities.
The following table summarizes Pogo’s changes in PUD reserves during the year ended December 31, 2022 (in MBOE): Proved Undeveloped Reserves (MBOE) Balance, December 31, 2021 4,847 Acquisitions of Reserves 0 Extensions and Discoveries 0 Revisions of Previous Estimates (117 ) Transfers to Estimated Proved Developed 0 Balance, December 31, 2022 4,730 The following table summarizes Pogo’s changes in PUD reserves during the year ended December 31, 2023 (in MBOE): Proved Undeveloped Reserves (MBOE) Balance, December 31, 2022 4,730 Acquisitions of Reserves 0 Extensions and Discoveries 0 Revisions of Previous Estimates (451 ) Transfers to Estimated Proved Developed 0 Balance, December 31, 2023 4,279 Changes in Pogo’s PUD reserves that occurred during the year ended December 31, 2022, and 2023 were primarily due to increased operating costs.
The following table summarizes EON’s changes in PUD reserves during the year ended December 31, 2023 (in MBOE): Proved Undeveloped Reserves (MBOE) Balance, December 31, 2022 4,730 Acquisitions of Reserves 0 Extensions and Discoveries 0 Revisions of Previous Estimates (451 ) Transfers to Estimated Proved Developed 0 Balance, December 31, 2023 4,279 The following table summarizes EON’s changes in PUD reserves during the year ended December 31, 2024 (in MBOE): Proved Undeveloped Reserves (MBOE) Balance, December 31, 2023 4,279 Acquisitions of Reserves 0 Extensions and Discoveries 0 Revisions of Previous Estimates 147 Transfers to Estimated Proved Developed 0 Balance, December 31, 2024 4,346 Changes in EON’s PUD reserves that occurred during the year ended December 31, 2024 and 2023 were primarily due to increased operating costs.
Pogo’s properties in the Permian Basin are high-quality, high-margin, and oil weighted, and Pogo believes they will be viewed favorably by the investment community as compared to equity consideration diluted by lower quality assets located in less prolific basins.
The Company’s properties in the Permian Basin are high-quality, high-margin, and oil weighted, and the Company believes we will be viewed favorably by the investment community as compared to equity consideration diluted by lower quality assets located in less prolific basins.
Pogo has not made any capital expenditures in order to convert its existing PUDs because Pogo has been allocating its capital resources to convert PDNP reserves to PDP reserves and not to convert its PUD reserves to PDNP or PDP reserves. Pogo’s PUD reserves at December 31, 2022 and 2023 are based on a development plan instituted by Pogo’s management.
EON has not made any capital expenditures in order to convert its existing PUDs because EON has been allocating its capital resources to convert PDNP reserves to PDP reserves and not to convert its PUD reserves to PDNP or PDP reserves. EON’s PUD reserves at December 31, 2024 and 2023 are based on a development plan instituted by our management.
Until the Backstop Agreement is terminated, Pogo Royalty and its affiliates are not permitted to engage in any transaction which is designed to sell short the Class A Common Stock or any other publicly traded securities of HNRA. 4 Founder Pledge Agreement In connection with the Closing, HNRA entered a Founder Pledge Agreement (the “ Founder Pledge Agreement ”) with the Founders whereby, in consideration of placing the Trust Shares into escrow and entering into the Backstop Agreement, HNRA agreed: (a) by January 15, 2024, to issue to the Founders an aggregate number of newly issued shares of Class A Common Stock equal to 10% of the number of Trust Shares; (b) by January 15, 2024, to issue to the Founders number of warrants to purchase an aggregate number of shares of Class A Common Stock equal to 10% of the number of Trust Shares, which such warrants shall be exercisable for five years from issuance at an exercise price of $11.50 per shares; (c) if the Backstop Agreement is not terminated prior to the Lockup Expiration Date, to issue an aggregate number of newly issued shares of Class A Common Stock equal to (i) (A) the number of Trust Shares, divided by (B) the simple average of the daily VWAP of the Class A Common Stock during the five (5) Trading Days prior to the date of the termination of the Backstop Agreement, subject to a minimum of $6.50 per share, multiplied by (C) a price between $10.00-$13.00 per share (as further described in the Founder Pledge Agreement), minus (ii) the number of Trust Shares; and (d) following the purchase of OpCo Preferred Units by a Founder pursuant to the Put Right, to issue a number of newly issued shares of Class A Common Stock equal to the number of Trust Shares sold by such Founder.
Founder Pledge Agreement In connection with the Closing, EON entered a Founder Pledge Agreement (the “ Founder Pledge Agreement ”) with the Founders whereby, in consideration of placing the Trust Shares into escrow and entering into the Backstop Agreement, EON agreed: (a) by January 15, 2024, to issue to the Founders an aggregate number of newly issued shares of Class A Common Stock equal to 10% of the number of Trust Shares; (b) by January 15, 2024, to issue to the Founders number of warrants to purchase an aggregate number of shares of Class A Common Stock equal to 10% of the number of Trust Shares, which such warrants shall be exercisable for five years from issuance at an exercise price of $11.50 per shares; (c) if the Backstop Agreement is not terminated prior to the Lockup Expiration Date, to issue an aggregate number of newly issued shares of Class A Common Stock equal to (i) (A) the number of Trust Shares, divided by (B) the simple average of the daily VWAP of the Class A Common Stock during the five (5) Trading Days prior to the date of the termination of the Backstop Agreement, subject to a minimum of $6.50 per share, multiplied by (C) a price between $10.00-$13.00 per share (as further described in the Founder Pledge Agreement), minus (ii) the number of Trust Shares; and (d) following the purchase of OpCo Preferred Units by a Founder pursuant to the Put Right, to issue a number of newly issued shares of Class A Common Stock equal to the number of Trust Shares sold by such Founder.
Accordingly, Pogo’s development model generates strong margins greater than 60%, at low risk, predictable, production outcomes that requires low overhead and is highly scalable. For the year ended December 31, 2023, Pogo’s lifting cost was about $27.21 per barrel of oil equivalent at a realized price of $72.69 per BOE, excluding the impact of settled commodity derivatives.
Accordingly, Pogo’s development model generates strong margins greater than 60%, at low risk, predictable, production outcomes that requires low overhead and is highly scalable. For the year ended December 31, 2024, Pogo’s lifting cost was about $28.92 per barrel of oil equivalent at a realized price of $77.01 per BOE, excluding the impact of settled commodity derivatives.
Acreage and Ownership The following figures sets forth information relating to Pogo’s acreage for its working interests as of December 31, 2023: Pogo owns 100% working interests that is subject to a 26% weighted average net royalty interest across its 13,700 gross acres as of December 31, 2023.
Acreage and Ownership The following figures sets forth information relating to our acreage for its working interests as of December 31, 2024: We own 100% working interests that is subject to a 26% weighted average net royalty interest across its 13,700 gross acres as of December 31, 2024.
Of these reserves, approximately 26% were classified as proved developed producing (“PDP”) reserves, 47% were classified as proved developed non-producing (“PDNP”) reserves and 27% were classified as proved undeveloped (“PUD”) reserves. PUD reserves included in these estimates relate solely to wells that are not yet drilled nor were not yet producing in paying quantities as of December 31, 2023.
Of these reserves, approximately 28% were classified as proved developed producing (“PDP”) reserves, 42% were classified as proved developed non-producing (“PDNP”) reserves and 30% were classified as proved undeveloped (“PUD”) reserves. PUD reserves included in these estimates relate solely to wells that are not yet drilled nor were not yet producing in paying quantities as of December 31, 2024.
LH Operating, LLC Northwest Shelf (Permian Basin) Leasehold Date of Acquisition Gross Acres Federal Leases State Leases Working Interest NRI (weighted avg.) (1) Royalty Interest (2) Operations HBP 2018 13,700 20 3 100 % 74 % 26 % 100 % 100 % (1) Pogo’s net revenue interests are based on its weighted average royalty interests across its entire leasehold (2) No unleased royalty interests as of December 31, 2023.
The following table summarizes Pogo’s working interest’s position in the lands comprising its leasehold as of December 31, 2024. 7 LH Operating, LLC Northwest Shelf (Permian Basin) Leasehold Date of Acquisition Gross Acres Federal Leases State Leases Working Interest NRI (weighted avg.) (1) Royalty Interest (2) Operations HBP 2018 13,700 20 3 100 % 74 % 26 % 100 % 100 % (1) Pogo’s net revenue interests are based on its weighted average royalty interests across its entire leasehold (2) No unleased royalty interests as of December 31, 2024.
As of December 31, 2023, Pogo, in conjunction with Cobb & Associates, a third-party engineering consulting firm, has confirmed that Pogo has 115, low cost, well patterns to be developed during 2024 to 2027. The total costs to complete these 115 well patterns have been predetermined by historical analysis.
As of December 31, 2024, EON, in conjunction with Cobb, a third-party engineering consulting firm, has confirmed that EON has 127, low cost, well patterns to be developed during 2025 to 2028. The total costs to complete these 127 well patterns have been predetermined by historical analysis.
The average adjusted product prices weighted by production over the remaining lives of the proved properties are $78.40 per Bbl of crude oil and $2.38 per Mcf of natural gas as of December 31, 2023. (2) Pogo’s estimated proved reserves were determined using average first-day-of-the-month prices for the prior 12 months in accordance with SEC guidance.
The average adjusted product prices weighted by production over the remaining lives of the proved properties are $77.10 per Bbl of crude oil and $1.62 per Mcf of natural gas as of December 31, 2024. (2) EON’s estimated proved reserves were determined using average first-day-of-the-month prices for the prior 12 months in accordance with SEC guidance.
Under our development plan, our existing PUDs are expected to be converted to PDP reserves by 2027. 13 Pogo Crude Oil and Natural Gas Production Prices and Costs Production and Price History The following table sets forth information regarding net production of crude oil and natural gas and certain price and cost information for each of the periods indicated: Year Ended December 31, 2023 Year Ended December 31, 2022 Production data: Crude Oil (MBbls) 349 397 Natural Gas (MMcf) 355 457 NGLs (MBbls) 0 0 Total (MBOE) 373 473 Average realized prices: Crude Oil (per Bbl) $ 72.69 $ 95.66 Natural Gas (per Mcf) $ 2.48 $ 4.29 NGLs (per Bbl) $ 0.00 $ 0.00 Total (per BOE) (1) $ 64.31 $ 84.41 Average cost (per BOE): Lease Operating Expenses $ 24.86 $ 17.79 Production and ad valorem taxes $ 5.74 $ 7.36 (1) “Btu-equivalent” production volumes are presented on an oil-equivalent basis using a conversion factor of six Mcf of natural gas per Bbl of “oil equivalent,” which is based on approximate energy equivalency and does not reflect the price or value relationship between crude oil and natural gas.
Under our development plan, our existing PUDs are expected to be converted to PDP reserves by 2028. 13 Crude Oil and Natural Gas Production Prices and Costs Production and Price History The following table sets forth information regarding net production of crude oil and natural gas and certain price and cost information for each of the periods indicated: Year Ended December 31, 2024 Year Ended December 31, 2023 Production data: Crude Oil (MBbls) 256 349 Natural Gas (MMcf) 213 355 NGLs (MBbls) 0 0 Total (MBOE) 291 373 Average realized prices: Crude Oil (per Bbl) $ 75.52 $ 72.69 Natural Gas (per Mcf) $ 2.27 $ 2.48 NGLs (per Bbl) $ 0.00 $ 0.00 Total (per BOE) (1) $ 67.96 $ 64.31 Average cost (per BOE): Lease Operating Expenses $ 29.59 $ 24.86 Production and ad valorem taxes $ 5.89 $ 5.74 (1) “Btu-equivalent” production volumes are presented on an oil-equivalent basis using a conversion factor of six Mcf of natural gas per Bbl of “oil equivalent,” which is based on approximate energy equivalency and does not reflect the price or value relationship between crude oil and natural gas.
Furthermore, Pogo seeks to maximize its return on capital by targeting acquisitions that meet the following criteria: ● sufficient visibility to production growth; ● attractive economics; ● de-risked geology supported by stable production; ● targets from top-tier E&P operators; and ● a geographic footprint that Pogo believes is complementary to its current Permian Basin asset and maximizes its potential for upside reserve and production growth. 8 Maintain conservative and flexible capital structure to support Pogo’s business and facilitate long-term operations.
Furthermore, the Company seeks to maximize its return on capital by targeting acquisitions that meet the following criteria: ● sufficient visibility to production growth; ● attractive economics; ● de-risked geology supported by stable production; ● targets from top-tier E&P operators; and ● a geographic footprint that Pogo believes is complementary to its current Permian Basin asset and maximizes its potential for upside reserve and production growth.
The average adjusted product prices weighted by production over the remaining lives of the proved properties are $94.53 per Bbl of crude oil and $4.14 per Mcf of natural gas as of December 31, 2022. Reserve engineering is a process of estimating volumes of economically recoverable crude oil and natural gas that cannot be measured in an exact manner.
The average adjusted product prices weighted by production over the remaining lives of the proved properties are $78.40 per Bbl of crude oil and $2.38 per Mcf of natural gas as of December 31, 2023. 12 Reserve engineering is a process of estimating volumes of economically recoverable crude oil and natural gas that cannot be measured in an exact manner.
The December 31, 2022 and December 31, 2023 reserve reports include the total interests of Pogo Resources, LLC, including the 10% overriding royalty interest not acquired in the Purchase, and are included in this filing. As such, the estimates of proved oil and gas and discounted future net cash flows include the total interests of Pogo Resources, LLC.
The reserve report include the total interests of Pogo Resources, LLC, including the 10% overriding royalty interest not acquired in the Purchase, and the December 31, 2024 reserve report is included in this filing as an exhibit. As such, the estimates of proved oil and gas and discounted future net cash flows include the total interests of Pogo Resources, LLC.
Only when production and drilling cease, the lease terminates. 6 As of December 31, 2023, 100% of Pogo’s working interests are held by production (“HBP”) meaning that Pogo is not under time sensitive obligation to drill or work-over any wells on its 13,700 acres. As of December 31, 2023, 100% of the wells and leases are operated by Pogo.
As of December 31, 2024, 100% of the Company’s working interests are held by production (“HBP”) meaning that Pogo is not under time sensitive obligation to drill or work-over any wells on its 13,700 acres. As of December 31, 2023, 100% of the wells and leases are operated by Pogo.
Leverage expertise and relationships to continue acquiring Permian Basin targets with high working interests in actively producing oil fields from top-tier E&P operators, with predictable, stable cash flow, and with significant growth potential. Pogo has a history of evaluating, pursuing and consummating acquisitions of crude oil and natural gas targets in the Permian Basin and other oil producing basins.
Leverage expertise and relationships to continue acquiring Permian Basin targets with high working interests in actively producing oil fields from top-tier E&P operators, with predictable, stable cash flow, and with significant growth potential. the Company has a history of evaluating, pursuing and consummating acquisitions of crude oil and natural gas targets in the Permian Basin and other oil producing basins. the Company’s management team intends to continue to apply this experience in a disciplined manner when identifying and acquiring working interests.
In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act, and comparable state statutes require that information be maintained concerning hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens. 21 Other Regulation of the Crude Oil and Natural Gas Industry The crude oil and natural gas industry is extensively regulated by numerous federal, state and local authorities.
In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act, and comparable state statutes require that information be maintained concerning hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens.
Pogo’s management team has determined, and verified by William M. Cobb & Associates (“Cobb & Associates”), that 115 proved well patterns, developed but non-producing, are scheduled to be brought into production between 2024 and 2027.
Pogo’s management team has determined, and verified by Haas and Cobb Petroleum Consultants, LLC (“Cobb ”), that 115 proved well patterns, developed but non-producing, are scheduled to be brought into production between 2024 and 2027.
For crude oil volumes, the average WTI posted price of $93.67 per Bbl as of December 31, 2022, was adjusted for quality, transportation fees and a regional price differential. For natural gas volumes, the average Henry Hub spot price of $6.35 per MMBtu as of December 31, 2022, was adjusted for energy content, transportation fees and a regional price differential.
For crude oil volumes, the average WTI posted price of $75.48 per Bbl as of December 31, 2024, was adjusted for quality, transportation fees and a regional price differential. For natural gas volumes, the average Henry Hub spot price of $2.13 per MMBtu as of December 31, 2024, was adjusted for energy content, transportation fees and a regional price differential.
As of December 31, 2023, the estimated proved crude oil and natural gas reserves attributable to Pogo’s interests in its underlying acreage were 16,002 MBOE (96% oil and 4% natural gas), based on a reserve report prepared by Cobb & Associates, worldwide petroleum consultants.
As of December 31, 2024, the estimated proved crude oil and natural gas reserves attributable to Pogo’s interests in its underlying acreage were 14,492 MBOE (97% oil and 3% natural gas), based on a reserve report prepared by Cobb , worldwide petroleum consultants.
Although title to these properties is in some cases subject to encumbrances, such as customary royalty interest generally retained in connection with the acquisition of crude oil and gas interests, non-participating royalty interests and other burdens, easements, restrictions or minor encumbrances customary in the crude oil and natural gas industry, Pogo believes that none of these encumbrances will materially detract from the value of these properties or from its interest in these properties.
Although title to these properties is in some cases subject to encumbrances, such as customary royalty interest generally retained in connection with the acquisition of crude oil and gas interests, non-participating royalty interests and other burdens, easements, restrictions or minor encumbrances customary in the crude oil and natural gas industry, Pogo believes that none of these encumbrances will materially detract from the value of these properties or from its interest in these properties. 23 Competition The crude oil and natural gas business is highly competitive; we primarily competes with companies for the acquisition of targets with high percentage of working interests underlying crude oil and natural gas leases.
Although the form and substance of these requirements is not yet known, this may result in additional costs to comply with any such disclosure requirements. 19 The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate the GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas, which could reduce the profitability of Pogo’s working interests.
The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate the GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas, which could reduce the profitability of Pogo’s working interests.
Pogo Reconciliation of Standardized Measure to PV-10 Neither PV-10 nor PV-10 after ARO are financial measures defined under accounting principles generally accepted in the United States of America (“GAAP”); therefore, the following table reconciles these amounts to the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure.
The engineering group reviews the estimates with the third-party petroleum consultant, Cobb , an independent petroleum engineering firm. 11 Reconciliation of Standardized Measure to PV-10 Neither PV-10 nor PV-10 after ARO are financial measures defined under accounting principles generally accepted in the United States of America (“GAAP”); therefore, the following table reconciles these amounts to the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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The Term Loan contains certain customary representations and warranties and various covenants and restrictive provisions that limit our ability to, among other things: ● incur or guarantee additional debt; ● enter into certain hedging contracts; ● pay dividends on, or redeem or repurchase, their equity interests, return capital to the holders of their equity interests, or make other distributions to holders of their equity interests; ● amend our organizational documents or certain material contracts; ● make certain investments and acquisitions; ● incur certain liens or permit them to exist; ● enter into certain types of transactions with affiliates; ● merge or consolidate with another company; ● transfer, sell or otherwise dispose of assets; ● enter into certain other lines of business; ● repay or redeem certain debt; ● use the proceeds from the Term Loan for certain purposes; ● allow certain gas imbalances, take-or-pay, or other prepayments; A failure to comply with the provisions of the Term Loan could result in an event of default, which could enable the Lender to declare, subject to the terms and conditions of the Term Loan, any outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable.
The Term Loan contains certain customary representations and warranties and various covenants and restrictive provisions that limit our ability to, among other things: ● incur or guarantee additional debt; ● enter into certain hedging contracts; ● pay dividends on, or redeem or repurchase, their equity interests, return capital to the holders of their equity interests, or make other distributions to holders of their equity interests; ● amend our organizational documents or certain material contracts; ● make certain investments and acquisitions; ● incur certain liens or permit them to exist; ● enter into certain types of transactions with affiliates; ● merge or consolidate with another company; ● transfer, sell or otherwise dispose of assets; ● enter into certain other lines of business; 41 ● repay or redeem certain debt; ● use the proceeds from the Term Loan for certain purposes; ● allow certain gas imbalances, take-or-pay, or other prepayments; A failure to comply with the provisions of the Term Loan could result in an event of default, which could enable the Lender to declare, subject to the terms and conditions of the Term Loan, any outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable.
While this matter may disrupt its operations in some way, the degree of the adverse financial impact cannot be reasonably estimated at this time. Pogo currently plans to enter hedging arrangements with respect to the production of crude oil, and possibly natural gas which is a smaller portion of the reserves.
While this matter may disrupt its operations in some way, the degree of the adverse financial impact cannot be reasonably estimated at this time. 29 Pogo currently plans to enter hedging arrangements with respect to the production of crude oil, and possibly natural gas which is a smaller portion of the reserves.
Our management may use the net proceeds for corporate purposes that may not improve our financial condition or market value. 52 The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
Our management may use the net proceeds for corporate purposes that may not improve our financial condition or market value. The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
No assurance can be given that Pogo will not suffer a monetary loss from title defects or title failure. Additionally, undeveloped acreage has a greater risk of title defects than developed acreage. If there are any title defects in properties in which Pogo holds an interest, it may suffer a financial loss.
No assurance can be given that Pogo will not suffer a monetary loss from title defects or title failure. Additionally, undeveloped acreage has a greater risk of title defects than developed acreage. If there are any title defects in properties in which we holds an interest, it may suffer a financial loss.
In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “ Risk Factors ” section, the market price of and trading volume for our Class A Common Stock may change for a variety of other reasons, not necessarily related to our actual operating performance.
In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “ Risk Factors ” section, the market price of and trading volume for our Class A Common Stock may continue to change for a variety of other reasons, not necessarily related to our actual operating performance.
Our involvement in any class action suit or other legal proceeding could divert our senior management’s attention and could adversely affect our business, financial condition, results of operations and prospects. 47 The sale or availability for sale of substantial amounts of our Class A Common Stock could adversely affect the market price of our Class A Common Stock.
Our involvement in any class action suit or other legal proceeding could divert our senior management’s attention and could adversely affect our business, financial condition, results of operations and prospects. The sale or availability for sale of substantial amounts of our Class A Common Stock could adversely affect the market price of our Class A Common Stock.
Due to the concentrated nature of Pogo’s portfolio of properties, a number of its properties could experience any of the same conditions at the same time, resulting in a relatively greater impact on its results of operations than they might have on other companies that have a more diversified portfolio of properties.
Due to the concentrated nature of Pogo’s portfolio of properties, a number of our properties could experience any of the same conditions at the same time, resulting in a relatively greater impact on its results of operations than they might have on other companies that have a more diversified portfolio of properties.
Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly or remain adequate and we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting in the future.
However, completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly or remain adequate and we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting in the future.
Our subsidiaries’ respective abilities to generate adequate cash depends on a number of factors, including development of reserves, successful acquisitions of complementary properties, advantageous drilling conditions, natural gas, oil prices, compliance with all applicable laws and regulations and other factors. 54
Our subsidiaries’ respective abilities to generate adequate cash depends on a number of factors, including development of reserves, successful acquisitions of complementary properties, advantageous drilling conditions, natural gas, oil prices, compliance with all applicable laws and regulations and other factors.
Further, Pogo’s development drilling and producing operations may be curtailed, delayed, canceled or otherwise negatively impacted as a result of other factors, including: ● unusual or unexpected geological formations; ● loss of drilling fluid circulation; ● title problems; ● facility or equipment malfunctions; ● unexpected operational events; ● shortages or delivery delays of equipment and services; ● compliance with environmental and other governmental requirements; and ● adverse weather conditions, including the recent winter storms in February 2021 that adversely affected operator activity and production volumes in the southern United States, including in the Delaware Basin.
Further, our development drilling and producing operations may be curtailed, delayed, canceled or otherwise negatively impacted as a result of other factors, including: ● unusual or unexpected geological formations; ● loss of drilling fluid circulation; ● title problems; ● facility or equipment malfunctions; ● unexpected operational events; ● shortages or delivery delays of equipment and services; ● compliance with environmental and other governmental requirements; and ● adverse weather conditions, including the recent winter storms in February 2021 that adversely affected operator activity and production volumes in the southern United States, including in the Delaware Basin.
As a result of this concentration, Pogo may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, availability of equipment, facilities, personnel or services market limitations, natural disasters, adverse weather conditions, plant closures for scheduled maintenance or interruption of the processing or transportation of crude oil and natural gas.
As a result of this concentration, we may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, availability of equipment, facilities, personnel or services market limitations, natural disasters, adverse weather conditions, plant closures for scheduled maintenance or interruption of the processing or transportation of crude oil and natural gas.
We identified a material weakness and believe that Pogo currently has ineffective internal control over financial reporting, primarily due to: not maintaining a sufficient complement of personnel to permit segregation of duties among personnel with access to Pogo’s accounting and information systems controls, lacking proper review evidence of controls over the reserves report prepared by the reservoir engineer, and lacking the controls needed to ensure that the accounting for certain items is accurate and complete.
We identified a material weakness and believe that Pogo currently has ineffective internal control over financial reporting, primarily due to: not maintaining a sufficient complement of personnel to permit segregation of duties among personnel with access to our accounting and information systems controls, lacking proper review evidence of controls over the reserves report prepared by the reservoir engineer, and lacking the controls needed to ensure that the accounting for certain items is accurate and complete.
The level of borrowing base available under Pogo’s revolving credit facility is largely based on its estimated proved reserves and its lenders’ price decks and underwriting standards in the reserve-based lending space and may be reduced to the extent commodity prices decrease and cause underwriting standards to tighten or the lending syndication market is not sufficiently liquid to obtain lender commitments to a full borrowing base in an amount appropriate for Pogo’s assets.
The level of borrowing base available under our revolving credit facility is largely based on its estimated proved reserves and its lenders’ price decks and underwriting standards in the reserve-based lending space and may be reduced to the extent commodity prices decrease and cause underwriting standards to tighten or the lending syndication market is not sufficiently liquid to obtain lender commitments to a full borrowing base in an amount appropriate for our assets.
President Biden has recommitted the United States to the Paris Agreement and, in April 2021, announced a goal of reducing the United States’ emissions by 50-52% below 2005 levels by 2030.
President Biden recommitted the United States to the Paris Agreement and, in April 2021, announced a goal of reducing the United States’ emissions by 50-52% below 2005 levels by 2030.
If they are unable, for any sustained period, to implement acceptable delivery or transportation arrangements or encounter production related difficulties, they may be required to shut in or curtail production.
If we are unable, for any sustained period, to implement acceptable delivery or transportation arrangements or encounter production related difficulties, they may be required to shut in or curtail production.
The success and timing of development activities on Pogo’s properties, depends on a number of factors that are largely outside of Pogo’s control, including: ● the capital costs required for development activities on Pogo’s acreage, which could be significantly more than anticipated; ● the ability of Pogo to access capital; 26 ● prevailing commodity prices; ● the availability of suitable equipment, production and transportation infrastructure and qualified operating personnel; ● the availability of storage for hydrocarbons, Pogo’s expertise, operating efficiency and financial resources; ● Pogo’s expected return on investment in wells developed on Pogo’s acreage as compared to opportunities in other areas; ● the selection of technology; ● the selection of counterparties for the marketing and sale of production; ● and the rate of production of the reserves.
The success and timing of development activities on our properties, depends on a number of factors that are largely outside of our control, including: ● the capital costs required for development activities on Pogo’s acreage, which could be significantly more than anticipated; ● the ability to access capital; ● prevailing commodity prices; ● the availability of suitable equipment, production and transportation infrastructure and qualified operating personnel; ● the availability of storage for hydrocarbons, expertise, operating efficiency and financial resources; ● Pogo’s expected return on investment in wells developed on Pogo’s acreage as compared to opportunities in other areas; ● the selection of technology; ● the selection of counterparties for the marketing and sale of production; ● and the rate of production of the reserves.
Additionally, Pogo’s ability to secure financing or access the capital markets could be adversely affected if financial institutions and institutional lenders elect not to provide funding for fossil fuel energy companies in connection with the adoption of sustainable lending initiatives or are required to adopt policies that have the effect of reducing the funding available to the fossil fuel sector.
Additionally, our ability to secure financing or access the capital markets could be adversely affected if financial institutions and institutional lenders elect not to provide funding for fossil fuel energy companies in connection with the adoption of sustainable lending initiatives or are required to adopt policies that have the effect of reducing the funding available to the fossil fuel sector.
In addition, the amount of crude oil that can be produced and sold is subject to curtailment in certain other circumstances outside of Pogo’s control, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on these systems, tanker truck availability and extreme weather conditions.
In addition, the amount of crude oil that can be produced and sold is subject to curtailment in certain other circumstances outside of our control, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on these systems, tanker truck availability and extreme weather conditions.
If any of such programs or systems were to fail for any reason, including as a result of a cyber-attack, or create erroneous information in Pogo’s hardware or software network infrastructure, possible consequences could be significant, including loss of communication links and inability to automatically process commercial transaction or engage in similar automated or computerized business activities.
If any of such programs or systems were to fail for any reason, including as a result of a cyber-attack, or create erroneous information in our hardware or software network infrastructure, possible consequences could be significant, including loss of communication links and inability to automatically process commercial transaction or engage in similar automated or computerized business activities.
In accordance with customary industry practice, Pogo relies on independent third-party service providers to provide many of the services and equipment necessary to drill new development wells. If Pogo is unable to secure a sufficient number of drilling/workover rigs at reasonable costs, Pogo’s financial condition and results of operations could suffer.
In accordance with customary industry practice, Pogo relies on independent third-party service providers to provide many of the services and equipment necessary to drill new development wells. If Pogo is unable to secure a sufficient number of drilling/workover rigs at reasonable costs, our financial condition and results of operations could suffer.
Pogo’s review will not reveal all existing or potential problems, nor will it permit it to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Inspections are often not performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken.
Our review will not reveal all existing or potential problems, nor will it permit it to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Inspections are often not performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken.
As such, the actual development activities of Pogo may materially differ from those presently identified, which could adversely affect Pogo’s business, results of operation and cash flows. Acquisitions and Pogo’s development of Pogo’s leases will require substantial capital, and our company may be unable to obtain needed capital or financing on satisfactory terms or at all.
As such, the actual development activities of Pogo may materially differ from those presently identified, which could adversely affect our business, results of operation and cash flows. 28 Acquisitions and development of our leases will require substantial capital, and our company may be unable to obtain needed capital or financing on satisfactory terms or at all.
The impact of the changing demand for crude oil and natural gas services and products may have a material adverse effect on Pogo’s business, financial condition, results of operations and cash flows. It is also possible that the concerns about the production and use of fossil fuels will reduce the sources of financing available to Pogo.
The impact of the changing demand for crude oil and natural gas services and products may have a material adverse effect on our business, financial condition, results of operations and cash flows. It is also possible that the concerns about the production and use of fossil fuels will reduce the sources of financing available to Pogo.
Crude oil and natural gas related facilities, including those of Pogo, could be direct targets of terrorist attacks, and, if infrastructure integral to Pogo is destroyed or damaged, they may experience a significant disruption in their operations. Any such disruption could materially adversely affect Pogo’s financial condition, results of operations and cash flows.
Crude oil and natural gas related facilities, including those of Pogo, could be direct targets of terrorist attacks, and, if infrastructure integral to Pogo is destroyed or damaged, they may experience a significant disruption in their operations. Any such disruption could materially adversely affect our financial condition, results of operations and cash flows.
Such delays or interruptions could have a material adverse effect on Pogo’s financial condition and results of operations. As a result of Pogo’s exclusive focus on the Permian Basin, it may be less competitive than other companies in bidding to acquire assets that include properties both within and outside of that basin.
Such delays or interruptions could have a material adverse effect on our financial condition and results of operations. As a result of our exclusive focus on the Permian Basin, it may be less competitive than other companies in bidding to acquire assets that include properties both within and outside of that basin.
Further, our company may be limited in receiving the full benefit of increases in crude oil as a result of these hedging transactions. The occurrence of any of these risks could prevent Pogo from realizing the benefit of a derivative contract. 30 Pogo’s estimated reserves are based on many assumptions that may turn out to be inaccurate.
Further, our company may be limited in receiving the full benefit of increases in crude oil as a result of these hedging transactions. The occurrence of any of these risks could prevent Pogo from realizing the benefit of a derivative contract. Our estimated reserves are based on many assumptions that may turn out to be inaccurate.
We also do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours. Increased costs of capital could adversely affect Pogo’s business.
We also do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours. Increased costs of capital could adversely affect our business.
Changes in any one or more of these factors could cause Pogo’s cost of doing business to increase, limit its access to capital, limit its ability to pursue acquisition opportunities, and place it at a competitive disadvantage. A significant reduction in the availability of capital could materially and adversely affect Pogo’s ability to achieve its planned growth and operating results.
Changes in any one or more of these factors could cause our cost of doing business to increase, limit its access to capital, limit its ability to pursue acquisition opportunities, and place it at a competitive disadvantage. A significant reduction in the availability of capital could materially and adversely affect our ability to achieve our planned growth and operating results.
Pogo is not obligated to undertake any development activities other than those required to maintain their leases on Pogo’s acreage. In the absence of a specific contractual obligation, any development and production activities will be subject to their reasonable discretion (subject to certain implied obligations to develop imposed by the laws of some states).
Pogo is not obligated to undertake any development activities other than those required to maintain their leases on our acreage. In the absence of a specific contractual obligation, any development and production activities will be subject to their reasonable discretion (subject to certain implied obligations to develop imposed by the laws of some states).
Furthermore, Pogo cannot assure you that it will be able to access other external capital on terms favorable to it or at all. For example, a significant decline in prices for crude oil and broader economic turmoil may adversely impact Pogo’s ability to secure financing in the capital markets on favorable terms.
Furthermore, Pogo cannot assure you that it will be able to access other external capital on terms favorable to it or at all. For example, a significant decline in prices for crude oil and broader economic turmoil may adversely impact our ability to secure financing in the capital markets on favorable terms.
Pogo faces risks related to the outbreak of illnesses, pandemics and other public health crises that are outside of its control and could significantly disrupt its operations and adversely affect its financial condition. For example, the COVID-19 pandemic has caused a disruption to the oil and natural gas industry and to Pogo’s business.
Pogo faces risks related to the outbreak of illnesses, pandemics and other public health crises that are outside of its control and could significantly disrupt its operations and adversely affect its financial condition. For example, the COVID-19 pandemic has caused a disruption to the oil and natural gas industry and to our business.
Pogo may incur impairment charges in the future, which could materially adversely affect its results of operations for the periods in which such charges are taken. The unavailability, high cost or shortages of rigs, equipment, raw materials, supplies or personnel may restrict or result in increased costs to develop and operate Pogo’s properties.
Pogo may incur impairment charges in the future, which could materially adversely affect its results of operations for the periods in which such charges are taken. The unavailability, high cost or shortages of rigs, equipment, raw materials, supplies or personnel may restrict or result in increased costs to develop and operate our properties.
Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with energy-related assets could lead to increased negative investor sentiment toward Pogo and its industry and to the diversion of investment to other industries, which could have a negative impact on Pogo’s access to and costs of capital.
Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with energy-related assets could lead to increased negative investor sentiment toward Pogo and its industry and to the diversion of investment to other industries, which could have a negative impact on our access to and costs of capital.
In addition, potential future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions. No assurance can be given that Pogo will be able to identify suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets.
In addition, potential future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions. No assurance can be given that we will be able to identify suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets.
The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. If Pogo becomes the target of cyber-attacks of information security breaches, their business operations may be substantially disrupted, which could have an adverse effect on Pogo’s results of operations.
The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. If Pogo becomes the target of cyber-attacks of information security breaches, their business operations may be substantially disrupted, which could have an adverse effect on our results of operations.
In addition, lower crude oil and natural gas may reduce the amount of crude oil and natural gas that can be produced economically, which may reduce its Pogo’s willingness to develop its properties. This may result in Pogo having to make substantial downward adjustments to its estimated proved reserves, which could negatively impact its ability to fund its operations.
In addition, lower crude oil and natural gas may reduce the amount of crude oil and natural gas that can be produced economically, which may reduce our willingness to develop its properties. This may result in Pogo having to make substantial downward adjustments to our estimated proved reserves, which could negatively impact its ability to fund its operations.
Pogo may have fewer financial and human resources than many companies in Pogo’s industry and may be at a disadvantage in bidding producing crude oil and natural gas properties. Furthermore, the crude oil and natural gas industry has experienced recent consolidation among some operators, which has resulted in certain instances of combined companies with larger resources.
Pogo may have fewer financial and human resources than many companies in our industry and may be at a disadvantage in bidding producing crude oil and natural gas properties. Furthermore, the crude oil and natural gas industry has experienced recent consolidation among some operators, which has resulted in certain instances of combined companies with larger resources.
Also, institutional lenders may decide not to provide funding for fossil fuel energy companies based on climate change related concerns, which could affect Pogo’s access to capital for potential growth projects. Pogo’s results of operations may be materially impacted by efforts to transition to a lower-carbon economy.
Also, institutional lenders may decide not to provide funding for fossil fuel energy companies based on climate change related concerns, which could affect our access to capital for potential growth projects. Our results of operations may be materially impacted by efforts to transition to a lower-carbon economy.
The FWS did not meet that deadline, but continues to evaluate whether to take action with respect to those species. The designation of previously unidentified endangered or threatened species could cause Pogo’s operations to become subject to operating restrictions or bans, and limit future development activity in affected areas.
The FWS did not meet that deadline, but continues to evaluate whether to take action with respect to those species. The designation of previously unidentified endangered or threatened species could cause our operations to become subject to operating restrictions or bans, and limit future development activity in affected areas.
Additionally, if Pogo were to experience financial difficulty, Pogo might not be able to pay invoices to continue its operations, which could have a material adverse impact on Pogo’s cash flows. Pogo’s future success depends on replacing reserves through acquisitions and the exploration and development activities.
Additionally, if Pogo were to experience financial difficulty, Pogo might not be able to pay invoices to continue its operations, which could have a material adverse impact on Pogo’s cash flows. 26 Our future success depends on replacing reserves through acquisitions and the exploration and development activities.
The crude oil and natural gas industry is intensely competitive, and Pogo’s properties compete with other companies that may have greater resources. Many of these companies explore for and produce crude oil and natural gas, carry on midstream and refining operations, and market petroleum and other products on a regional, national or worldwide basis.
The crude oil and natural gas industry is intensely competitive, and our properties compete with other companies that may have greater resources. Many of these companies explore for and produce crude oil and natural gas, carry on midstream and refining operations, and market petroleum and other products on a regional, national or worldwide basis.
Increased attention to ESG matters and conservation measures may adversely impact Pogo’s business. Increasing attention to climate change, societal expectations on companies to address climate change, investor and societal expectations regarding voluntary ESG disclosures and consumer demand for alternative forms of energy may result in increased costs, reduced demand for Pogo’s products, reduced profits, and increased investigations and litigation.
Increased attention to ESG matters and conservation measures may adversely impact our business. Increasing attention to climate change, societal expectations on companies to address climate change, investor and societal expectations regarding voluntary ESG disclosures and consumer demand for alternative forms of energy may result in increased costs, reduced demand for our products, reduced profits, and increased investigations and litigation.
A portion of the crude oil and natural gas produced from its properties will not be protected against decreases in the price of crude oil and natural gas, or prolonged periods of low commodity prices. Hedging arrangements may limit Pogo’s ability to realize the benefit of rising prices and may result in hedging losses.
A portion of the crude oil and natural gas produced from its properties will not be protected against decreases in the price of crude oil and natural gas, or prolonged periods of low commodity prices. Hedging arrangements may limit our ability to realize the benefit of rising prices and may result in hedging losses.
A substantial portion of Pogo’s reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a lengthy production history. Any significant variance from these assumptions to actual figures could greatly affect Pogo’s estimates of reserves and future cash generated from operations.
A substantial portion of our reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a lengthy production history. Any significant variance from these assumptions to actual figures could greatly affect our estimates of reserves and future cash generated from operations.
Such combined companies may compete against Pogo and thus limit Pogo’s ability to acquire additional properties and add reserves. A deterioration in general economic, business, political or industry conditions would materially adversely affect Pogo’s results of operations, financial condition and cash flows.
Such combined companies may compete against Pogo and thus limit our ability to acquire additional properties and add reserves. A deterioration in general economic, business, political or industry conditions would materially adversely affect our results of operations, financial condition and cash flows.
Separately, banks and other financial institutions, including investors, may decide to adopt policies that restrict or prohibit investment in, or otherwise funding, Pogo based on climate change-related concerns, which could affect its or Pogo’s access to capital for potential growth projects.
Separately, banks and other financial institutions, including investors, may decide to adopt policies that restrict or prohibit investment in, or otherwise funding, Pogo based on climate change-related concerns, which could affect its or our access to capital for potential growth projects.
For example, due to the deterioration in commodity prices and operator activity in 2020 as a result of the COVID-19 pandemic and other factors, the commodity price assumptions used to calculate Pogo’s reserves estimates declined, which in turn lowered its proved reserve estimates.
For example, due to the deterioration in commodity prices and operator activity in 2020 as a result of the COVID-19 pandemic and other factors, the commodity price assumptions used to calculate our reserves estimates declined, which in turn lowered its proved reserve estimates.
Insufficient production from the wells on Pogo’s acreage or a significant disruption in the availability of third-party transportation facilities or other production facilities could adversely impact Pogo’s ability to deliver, to market or produce oil and natural gas and thereby cause a significant interruption in Pogo’s operations.
Insufficient production from the wells on our acreage or a significant disruption in the availability of third-party transportation facilities or other production facilities could adversely impact our ability to deliver, to market or produce oil and natural gas and thereby cause a significant interruption in our operations.
Also, production from Pogo’s wells may be insufficient to support the construction of pipeline facilities, and the shipment of Pogo’s crude oil and natural gas on third-party pipelines may be curtailed or delayed if it does not meet the quality specifications of the pipeline owners.
Also, production from our wells may be insufficient to support the construction of pipeline facilities, and the shipment of our crude oil and natural gas on third-party pipelines may be curtailed or delayed if it does not meet the quality specifications of the pipeline owners.
The ability of Pogo to perform development activities depends on a number of uncertainties, including the availability of capital, construction of and limitations on access to infrastructure, inclement weather, regulatory changes and approvals, crude oil and natural gas prices, costs, development activity results and the availability of water.
The ability of the Company to perform development activities depends on a number of uncertainties, including the availability of capital, construction of and limitations on access to infrastructure, inclement weather, regulatory changes and approvals, crude oil and natural gas prices, costs, development activity results and the availability of water.
Even if enough crude oil or natural gas exist, Pogo may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while performing development activities, possibly resulting in a reduction in production from the well or abandonment of the well.
Even if enough crude oil or natural gas exist, we may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while performing development activities, possibly resulting in a reduction in production from the well or abandonment of the well.
Numerous changes over time to the assumptions on which Pogo’s reserve estimates are based, as described above, often result in the actual quantities of crude oil and natural gas that are ultimately recovered being different from its reserve estimates.
Numerous changes over time to the assumptions on which our reserve estimates are based, as described above, often result in the actual quantities of crude oil and natural gas that are ultimately recovered being different from its reserve estimates.
Moreover, some states and local governments have adopted, and other governmental entities are considering adopting, regulations that could impose more stringent permitting, disclosure and well-construction requirements on hydraulic fracturing operations, including states in which Pogo’s properties are located.
Moreover, some states and local governments have adopted, and other governmental entities are considering adopting, regulations that could impose more stringent permitting, disclosure and well-construction requirements on hydraulic fracturing operations, including states in which our properties are located.
We are obligated under the Common Stock Purchase Agreement and the White Lion RRA to file a registration statement with the SEC to register the Class A Common Stock under the Securities Act of 1933, as amended, for the resale by White Lion of shares of Class A Common Stock that we may issue to White Lion under the Common Stock Purchase Agreement.
We are obligated under the Common Stock Purchase Agreement and the White Lion RRA to maintain a registration statement with the SEC to register the Class A Common Stock under the Securities Act of 1933, as amended, for the resale by White Lion of shares of Class A Common Stock that we may issue to White Lion under the Common Stock Purchase Agreement.
The use of technologies and the study of producing fields in the same area will not enable Pogo to know conclusively prior to development activities whether crude oil and natural gas will be present or, if present, whether crude oil and natural gas will be present in sufficient quantities to be economically viable.
The use of technologies and the study of producing fields in the same area will not enable we to know conclusively prior to development activities whether crude oil and natural gas will be present or, if present, whether crude oil and natural gas will be present in sufficient quantities to be economically viable.
The degree to which the COVID-19 pandemic or any other public health crisis adversely impacts Pogo’s operations, financial results and dividend policy will also depend on future developments, which are highly uncertain and cannot be predicted.
The degree to which the COVID-19 pandemic or any other public health crisis adversely impacts our operations, financial results and dividend policy will also depend on future developments, which are highly uncertain and cannot be predicted.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Pogo’s annual or interim consolidated financial statements may not be prevented or detected on a timely basis.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements may not be prevented or detected on a timely basis.
To the extent species that are listed under the ESA or similar state laws, or are protected under the MBTA, live in the areas where Pogo operates, Pogo’s ability to conduct or expand operations could be limited, or Pogo could be forced to incur additional material costs.
To the extent species that are listed under the ESA or similar state laws, or are protected under the MBTA, live in the areas where Pogo operates, our ability to conduct or expand operations could be limited, or Pogo could be forced to incur additional material costs.
Pogo may not be able to obtain contractual indemnities from the seller for liabilities created prior to its purchase of the property. Pogo may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with its expectations.
We may not be able to obtain contractual indemnities from the seller for liabilities created prior to its purchase of the property. We may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with its expectations.
It is not possible to predict the actual number of shares of Class A Common Stock, if any, we will sell under the Common Stock Purchase Agreement to White Lion or the actual gross proceeds resulting from those sales.
It is not possible to predict the actual number of shares of Class A Common Stock, if any, we will sell under the ELOC Purchase Agreement with White Lion or the actual gross proceeds resulting from those sales.
Prices of crude oil and natural gas are volatile due to factors beyond Pogo’s control. A substantial or extended decline in commodity prices may adversely affect Pogo’s business, financial condition, results of operations and cash flows.
Prices of crude oil and natural gas are volatile due to factors beyond our control. A substantial or extended decline in commodity prices may adversely affect our business, financial condition, results of operations and cash flows.
Pogo’s failure to achieve consolidation savings, to integrate the acquired assets into its existing operations successfully or to minimize any unforeseen difficulties could materially and adversely affect its financial condition, results of operations and cash flows.
Our failure to achieve consolidation savings, to integrate the acquired assets into its existing operations successfully or to minimize any unforeseen difficulties could materially and adversely affect its financial condition, results of operations and cash flows.
The widespread outbreak of an illness, pandemic (like COVID-19) or any other public health crisis may have material adverse effects on Pogo’s business, financial position, results of operations and/or cash flows.
The widespread outbreak of an illness, pandemic (like COVID-19) or any other public health crisis may have material adverse effects on our business, financial position, results of operations and/or cash flows.
If the economic climate in the United States or abroad deteriorates, worldwide demand for petroleum products could further diminish, which could impact the price at which crude oil and natural gas from Pogo’s properties are sold, affect the ability of Pogo’s to continue operations and ultimately materially adversely impact Pogo’s results of operations, financial condition and cash flows.
If the economic climate in the United States or abroad deteriorates, worldwide demand for petroleum products could further diminish, which could impact the price at which crude oil and natural gas from our properties are sold, affect the ability of the Company to continue operations and ultimately materially adversely impact our results of operations, financial condition and cash flows.
Compliance with these laws and regulations can be burdensome and expensive for Pogo, and failure to comply could result in Pogo incurring significant liabilities, either of which may impact its willingness to develop Pogo’s interests.
Compliance with these laws and regulations can be burdensome and expensive for Pogo, and failure to comply could result in Pogo incurring significant liabilities, either of which may impact its willingness to develop our interests.
Acquiring crude oil and natural gas properties requires Pogo to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs and potential environmental and other liabilities. Such assessments are inexact and inherently uncertain.
Acquiring crude oil and natural gas properties requires us to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs and potential environmental and other liabilities. Such assessments are inexact and inherently uncertain.
Any acquisitions that Pogo completes will be subject to substantial risks. Even if Pogo makes acquisitions that it believes will increase its cash generated from operations, these acquisitions may nevertheless result in a decrease in its cash flows.
Any acquisitions that Pogo completes will be subject to substantial risks. Even if we makes acquisitions that we believes will increase its cash generated from operations, these acquisitions may nevertheless result in a decrease in its cash flows.
Any substantial decline in the price of crude oil and natural gas, or prolonged period of low commodity prices will materially adversely affect Pogo’s business, financial condition, results of operations and cash flows.
Any substantial decline in the price of crude oil and natural gas, or prolonged period of low commodity prices will materially adversely affect our business, financial condition, results of operations and cash flows.
Moreover, Pogo’s development drilling activities may be delayed, restricted or precluded in protected habitat areas or during certain seasons, such as breeding and nesting seasons. For example, in June 2021, the U.S.
Moreover, our development drilling activities may be delayed, restricted or precluded in protected habitat areas or during certain seasons, such as breeding and nesting seasons. For example, in June 2021, the U.S.
In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in Pogo’s business practices, which could materially and adversely affect its business, operating results and financial condition. Accruals for such liability, penalties or sanctions may be insufficient.
In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in our business practices, which could materially and adversely affect our business, operating results and financial condition. Accruals for such liability, penalties or sanctions may be insufficient.
Pogo’s activities on the properties in which Pogo holds interests are subject to various federal, state and local governmental regulations that may change from time to time in response to economic and political conditions.
Our activities on the properties in which Pogo holds interests are subject to various federal, state and local governmental regulations that may change from time to time in response to economic and political conditions.
To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to Pogo’s causation of, or contribution to, the asserted damage, or to other mitigating factors.
To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to our causation of, or contribution to, the asserted damage, or to other mitigating factors.
Loss of Pogo’s information and computer systems, including as a result of cyber-attacks, could materially and adversely affect Pogo’s business. Pogo relies on electronic systems and networks to control and manage Pogo’s respective businesses.
Loss of our information and computer systems, including as a result of cyber-attacks, could materially and adversely affect our business. Pogo relies on electronic systems and networks to control and manage our respective businesses.
In the event that planned operations, including the drilling of development wells, are delayed or cancelled, or existing wells or development wells have lower than anticipated production due to one or more of the factors above or for any other reason, Pogo’s financial condition, results of operations and cash flows may be materially adversely affected. 37 Competition in the crude oil and natural gas industry is intense, which may adversely affect Pogo’s ability to succeed.
In the event that planned operations, including the drilling of development wells, are delayed or cancelled, or existing wells or development wells have lower than anticipated production due to one or more of the factors above or for any other reason, our financial condition, results of operations and cash flows may be materially adversely affected. 35 Competition in the crude oil and natural gas industry is intense, which may adversely affect our ability to succeed.
In addition, Pogo’s efforts to monitor, mitigate and manage these evolving risks may result in increased capital and operating costs, and there can be no assurance that such efforts will be sufficient to prevent attacks or breaches from occurring. 31 A terrorist attack or armed conflict could harm Pogo’s business.
In addition, our efforts to monitor, mitigate and manage these evolving risks may result in increased capital and operating costs, and there can be no assurance that such efforts will be sufficient to prevent attacks or breaches from occurring. A terrorist attack or armed conflict could harm our business.
Pogo could also determine during periods of low commodity prices to shut in or curtail production from wells on Pogo’s properties. In addition, Pogo could determine during periods of low commodity prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under conditions of higher prices.
Pogo could also determine during periods of low commodity prices to shut in or curtail production from wells on our properties. In addition, we could determine during periods of low commodity prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under conditions of higher prices.
Cobb & Associates conducted a detailed review of all of Pogo’s properties for the period covered by its reserve report using information provided by Pogo. Over time, Pogo may make material changes to reserve estimates taking into account the results of actual drilling, testing and production and changes in prices.
Cobb conducted a detailed review of all of our properties for the period covered by its reserve report using information provided by Pogo. Over time, Pogo may make material changes to reserve estimates taking into account the results of actual drilling, testing and production and changes in prices.
Conservation measures, technological advances and increasing attention to ESG matters could materially reduce demand for crude oil and natural gas, availability of capital and adversely affect Pogo’s results of operations.
Conservation measures, technological advances and increasing attention to ESG matters could materially reduce demand for crude oil and natural gas, availability of capital and adversely affect our results of operations.
Pogo’s ability to complete acquisitions is dependent upon, among other things, its ability to obtain debt and equity financing and, in some cases, regulatory approvals. Further, these acquisitions may be in geographic regions in which Pogo does not currently hold assets, which could result in unforeseen operating difficulties.
Our ability to complete acquisitions is dependent upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals. Further, these acquisitions may be in geographic regions in which Pogo does not currently hold assets, which could result in unforeseen operating difficulties.
Pogo’s revenues, operating results, discretionary cash flows, profitability, liquidity and the carrying value of its interests depend significantly upon the prevailing prices for crude oil and natural gas.
Our revenues, operating results, discretionary cash flows, profitability, liquidity and the carrying value of its interests depend significantly upon the prevailing prices for crude oil and natural gas.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Such events could potentially lead to unauthorized access to, or disclosure of, sensitive information, disrupt our business operations, result in regulatory fines or litigation costs and negatively impact our reputation among customers and partners. We are in the process of evaluating our cybersecurity needs and developing appropriate measures to enhance our cybersecurity posture.
Such events could potentially lead to unauthorized access to, or disclosure of, sensitive information, disrupt our business operations, result in regulatory fines or litigation costs and negatively impact our reputation among customers and partners. 48 We are in the process of evaluating our cybersecurity needs and developing appropriate measures to enhance our cybersecurity posture.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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ITEM 3. LEGAL PROCEEDINGS To the knowledge of our management, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 55 PART II
ITEM 3. LEGAL PROCEEDINGS To the knowledge of our management, there is no material litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 49 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The RSUs vest 1/3 on November 15, 2024, 1/3 on November 15, 2025, and 1/3 on November 15, 2026. We also issued 37,500 RSUs to such director that vest on November 15, 2024. In March 2024, we issued 37,000 RSUs to a director for services.
The RSUs vest 1/3 on November 15, 2024, 1/3 on November 15, 2025, and 1/3 on November 15, 2026. We also issued 37,500 RSUs to such director that vest on November 15, 2024. 50 In March 2024, we issued 37,000 RSUs to a director for services.
All issuances described above were not registered under the Securities Act in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act, Section 3(a)(9) of the Securities Act, and/or Regulation D promulgated thereunder. (g) Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. 58 ITEM 6. [RESERVED]
All issuances described above were not registered under the Securities Act in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. (g) Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ITEM 6. [RESERVED] 51
(f) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings In October 2023, we issued 875,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $875,000 in cash and the issuance of a promissory note.
(f) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings In March 2024, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note.
In March 2024, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note.
In March 2024, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note. In March 2024, we issued 40,000 RSUs to a director for services.
In April 2024, we issued 100,000 warrants to an officer of the Company having terms substantially similar to the private placement warrants in connection with the receipt of $100,000 in cash and the issuance of a promissory note. In March 2024, we issued 40,000 RSUs to a director for services.
In April 2024, the Company issued 100,000 warrants to an officer of the Company having terms substantially similar to the Private Placement Warrants in connection with the receipt of $100,000 in cash and the issuance of a promissory note.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Market Information Our Class A Common Stock and public warrants are currently listed on the NYSE American under the symbol “HNRA” and “HNRAW”, respectively. On April 23, 2024, the closing sale price of our Class A Common Stock was $2.64 per share.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Market Information Our Class A Common Stock and public warrants are currently listed on the NYSE American under the symbol “EONR” and “EONR.WS”, respectively. On March 31, 2025, the closing sale price of our Class A Common Stock was $0.48 per share.
(b) Holders As of April 1, 2024, there were approximately 39 holders of record of our Class A Common Stock and there were 2 holders of record of our Class B Common Stock.
(b) Holders As of March 31, 2025, there were approximately 41 holders of record of our Class A Common Stock and there were no holders of record of our Class B Common Stock.
In October 2023, we issued 100,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $100,000 in cash and the issuance of a promissory note. 56 In October 2023, we issued 500,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $500,000 in cash and the issuance of a promissory note.
In May 2024, the Company issued 100,000 warrants to a director of the Company having terms substantially similar to the Private Placement Warrants in connection with the receipt of $100,000 in cash and the issuance of a promissory note. In October 2024, the Company issued 75,000 shares to a consultant for services, and 60,000 shares to a former employee.
Removed
In October 2023, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note.
Added
The Company also issued 150,000 shares to Rhône Merchant House, Ltd. In October 2024, the Company issued an aggregate of 22,213 shares to three officers of the Company, 2,500 shares to a director of the Company, and 3,250 shares to an employee. In December 2024, we issued 34,000 shares to four consultants for services.
Removed
In October 2023, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note.
Removed
In October 2023, we issued 125,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $125,000 in cash and the issuance of a promissory note.
Removed
In October 2023, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note.
Removed
In November 2023, we issued 600,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $600,000 in cash and the issuance of a promissory note.
Removed
In November 2023, we issued 500,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $500,000 in cash and the issuance of a promissory note.
Removed
In November 2023, we issued 250,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $250,000 in cash and the issuance of a promissory note.
Removed
In November 2023, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note.
Removed
In November 2023, we issued 200,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $200,000 in cash and the issuance of a promissory note.
Removed
In November 2023, we issued 250,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $250,000 in cash and the issuance of a promissory note.
Removed
In November 2023, we entered agreements with (i) Meteora Capital Partners, LP (“MCP”), (ii) Meteora Select Trading Opportunities Master, LP (“MSTO”), and (iii) Meteora Strategic Capital, LLC (“MSC” and, collectively with MCP and MSTO, “Meteora”), pursuant to which Meteora agreed to reverse the redemption of up to the lesser of (i) 600,000 shares of Class A Common Stock, and (ii) such number of shares of Class A Common Stock such that the number of shares beneficially owned by Meteora and its affiliates and any other persons whose beneficial ownership of Class A Common Stock would be aggregated with those of Meteora for purposes of Section 13(d) of the Exchange Act, does not exceed 9.99% of the total number of issued and outstanding shares of Class A Common Stock.
Removed
In addition, Meteora agreed to subscribe for and purchase, and we agreed to issue and sell to Meteroa, on the Closing Date, shares of Class A Common Stock, less the number of shares of Class A Common Stock purchased by Meteora separately from third parties through a broker in the open market.
Removed
On November 13, 2023, we entered into exchange agreements (“Exchange Agreements”) with certain holders (the “Noteholders”) of promissory notes issued by us for working capital purposes which accrued interest at a rate of 15% per annum (the “Notes”).
Removed
Pursuant to the Exchange Agreements, we agreed to exchange, in consideration of the surrender and termination of the Notes in an aggregate principal amount (including interest accrued thereon) of $2,257,771, for 451,563 shares of Class A Common Stock at a price per share equal to $5.00 per share. 57 In connection with a Referral Fee and Consulting Agreement (the “Consulting Agreement”) by and between us and Alexandria VMA Capital, LLC, an entity controlled by Dante Caravaggio, our Chief Executive Officer, President, and member of our Board of Directors (“Consultant”), we issued 89,000 shares of Class A Common Stock to Consultant in connection with the closing of the Purchase as consideration for services rendered.
Removed
In connection with the Closing of the Purchase, we issued to two employees 10,000 shares of Class A Common Stock each. Upon the Closing of the Purchase, we issued 2,000,000 shares of Class B Common Stock, 2,000,000 OpCo Class B Units, and 1,500,000 OpCo Preferred Units to Seller as consideration for the Purchase.
Removed
In addition, we issued to the Seller 10,000 shares of Class A Common Stock as consideration for the Option Agreement. In March 2024, we issued 50,000 warrants to a third-party having terms substantially similar to the private placement warrants in connection with the receipt of $50,000 in cash and the issuance of a promissory note.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Additionally, management’s plans to alleviate this substantial doubt include improving profitability through streamlining costs, maintaining active hedge positions for its proven reserve production, and the issuance of additional shares of Class A common stock through.
Additionally, management’s plans to alleviate this substantial doubt include improving profitability through streamlining costs, maintaining active hedge positions for its proven reserve production, and the issuance of additional shares of Class A common stock.
The increase in the DD&A rate per BOE was driven by the increase in the oil and gas properties balance due to the development of the Seven Rivers waterflood interval and the decrease in the reserves balance due to the conveyance of the 10% overriding royalty interest to Pogo Royalty.
The increase in the DD&A rate per BOE was driven by the increase in the oil and gas properties balance due to the development of the Seven Rivers waterflood interval and the decrease in the reserves balance due to the conveyance of the 10% overriding royalty interest to Royalty.
The Permian Basin is located in west Texas and southeastern New Mexico and is characterized by high oil and liquids-rich natural gas content, multiple vertical and horizontal target horizons, extensive production histories, long-lived reserves and historically high drilling success rates. Pogo’s properties are in the Grayburg-Jackson Field in Eddy County, New Mexico, which is a sub-area of the Permian Basin.
The Permian Basin is located in west Texas and southeastern New Mexico and is characterized by high oil and liquids-rich natural gas content, multiple vertical and horizontal target horizons, extensive production histories, long-lived reserves and historically high drilling success rates. our properties are in the Grayburg-Jackson Field in Eddy County, New Mexico, which is a sub-area of the Permian Basin.
The aggregate decrease in accretion expense for the fiscal year ended December 31, 2023 compared to 2022 was driven by changes in certain assumptions, specifically the inflation factor and discount rate as a result of the acquisition date where we revised our estimates as part of its fair value estimates for the acquired business.
The aggregate decrease in accretion expense for the fiscal year ended December 31, 2024 compared to 2023 was driven by changes in certain assumptions, specifically the inflation factor and discount rate as a result of the acquisition date where we revised our estimates as part of its fair value estimates for the acquired business.
In accordance with SEC requirements, we based the 2023 standardized measure on a twelve-month average of commodity prices on the first day of each month in 2023 and prevailing costs on the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs utilized in the estimate.
In accordance with SEC requirements, we based the 2024 standardized measure on a twelve-month average of commodity prices on the first day of each month in 2024 and prevailing costs on the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs utilized in the estimate.
Additionally, because of the conveyance of the 10% ORRI in July 2023, the net production volumes decreased, which increases the “per BOE” amounts. 62 Production Taxes, Transportation and Processing We pay production taxes, transportation and processing costs based on realized oil and natural gas sales.
Additionally, because of the conveyance of the 10% ORRI in July 2023, the net production volumes decreased, which increases the “per BOE” amounts. 55 Production Taxes, Transportation and Processing We pay production taxes, transportation and processing costs based on realized oil and natural gas sales.
See Note 12 of notes to the consolidated financial statements for additional information. Our estimates of proved reserves materially impact depletion expense. If the estimates of proved reserves decline, the rate at which we records depletion expense will increase, reducing future net income.
See Note 13 of notes to the consolidated financial statements for additional information. Our estimates of proved reserves materially impact depletion expense. If the estimates of proved reserves decline, the rate at which we records depletion expense will increase, reducing future net income.
In addition, results of drilling, testing and production after the date of an estimate may justify, positively or negatively, material revisions to the estimate of proved reserves. 66 It should not be assumed that the standardized measure included as of December 31, 2023, is the current market value of our estimated proved reserves.
In addition, results of drilling, testing and production after the date of an estimate may justify, positively or negatively, material revisions to the estimate of proved reserves. It should not be assumed that the standardized measure included as of December 31, 2024, is the current market value of our estimated proved reserves.
See Note 9 of notes to the consolidated financial statements. 67 Forward Purchase Agreement Valuation The Company has determined that the FPA Put Option, including the Maturity Consideration, within the Forward Purchase Agreement is (i) a freestanding financial instrument and (ii) a liability (i.e., an in-substance written put option).
See Note 10 of notes to the consolidated financial statements. 60 Forward Purchase Agreement Valuation The Company has determined that the FPA Put Option, including the Maturity Consideration, within the Forward Purchase Agreement is (i) a freestanding financial instrument and (ii) a liability (i.e., an in-substance written put option).
Further, as of December 31, 2023, the Company owned an interest in approximately 341 gross (341 net) producing wells. The following table sets forth selected operating data for the periods indicated. Average sales prices are derived from accrued accounting data for the relevant period indicated.
Further, as of December 31, 2024, the Company owned an interest in approximately 342 gross (342 net) producing wells. 53 The following table sets forth selected operating data for the periods indicated. Average sales prices are derived from accrued accounting data for the relevant period indicated.
Off Balance Sheet Arrangements As of December 31, 2023 and 2022, the Company did not have any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission (“SEC”). Contractual Obligations We have contractual commitments under our Senior Secured Term Loan, the Seller Promissory Note and the Private Notes Payable which include periodic interest payments.
Off Balance Sheet Arrangements As of December 31, 2024 and 202, the Company did not have any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission (SEC). Contractual Obligations We have contractual commitments under our Senior Secured Term Loan, the Seller Promissory Note and the Private Notes Payable which include periodic interest payments.
Production taxes, transportation, and processing as a percent of total oil and natural gas sales are consistent with historical trends. Depletion, Depreciation and Amortization Depletion, depreciation and amortization (“DD&A”) was $1,849,876 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $1,613,402 for the year ended December 31, 2022.
Production taxes, transportation, and processing as a percent of total oil and natural gas sales are consistent with historical trends. Depletion, Depreciation and Amortization Depletion, depreciation and amortization (“DD&A”) was $2,407,098 as of December 31, 2024, compared to $1,849,876 on a combined Successor and Predecessor basis for the year ended December 31, 2023.
Amortization of debt discount was $1,191,553 period from November 15, 2023 to December 31, 2023 (Successor), and attributable to deferred finance costs paid on the Senior Secured Term Loan, and discounts associated with the Private Notes Payable during 2023.
Amortization of debt discount was $2,361,627 as of December 31, 2024 compared to $1,191,553 period from November 15, 2023 to December 31, 2023 (Successor), and attributable to deferred finance costs paid on the Senior Secured Term Loan, and discounts associated with the Private Notes Payable during 2023.
Change in fair value of warrant liabilities The change in fair value of warrant liabilities consisted of a gain of $187,704 for the period from November 15, 2023 to December 31, 2023 for the Successor related to fluctuations in the trading price of the Company’s warrants, a portion of which are accounted for as liabilities due to the redemption provisions in those issued to Private Note holders.
Change in fair value of warrant and convertible note liabilities The change in fair value of warrant liabilities consisted of a loss of $804,004 as of December 31, 2024, compared to a gain of $187,704 for the period from November 15, 2023 to December 31, 2023 for the Successor related to fluctuations in the trading price of the Company’s warrants, a portion of which are accounted for as liabilities due to the redemption provisions in those issued to Private Note holders.
Investing Activities Net cash provided by investing activities in the Successor period was primarily due to Trust Account withdrawals associated with the Closing in November 2023 of $49,362,479, partially offset by the cash paid to the Sellers of Pogo of $30,827,804 at the Closing, net of cash acquired.
Net cash provided by investing activities in the Successor period from November 15, 2023 to December 31, 2023 was primarily due to Trust Account withdrawals associated with the Closing in November 2023 of $49,362,479, partially offset by the cash paid to the Sellers of EON of $30,827,804 at the Closing, net of cash acquired.
On a per unit basis, production expenses increased 53% from $17.79 per BOE for the combined Successor and Predecessor year ended December 31, 2023, to $27.20 per BOE for the combined Successor and Predecessor year ended December 31, 2023, due to increases in proactive maintenance activities, higher labor costs, and increased oil field service and supplies costs.
On a per unit basis, production expenses increased 19% from $27.20 per BOE for the combined Successor and Predecessor year ended December 31, 2023, to $29.59 per BOE for the year ended December 31, 2024, due to increases in proactive maintenance activities, higher labor costs, and increased oil field service and supplies costs.
Additional details are discussed in Note 1 and Note 12 of notes to the consolidated financial statements. Results of Operations For the year ended December 31, 2023, 97% and 3% of sales volumes from the assets were attributable to crude and natural gas, respectively. As of December 31, 2023, the company was continuing development of the Seven River waterflood interval.
Additional details are discussed in Note 1 and Note 13 of notes to the consolidated financial statements. Results of Operations For the year ended December 31, 2024, 86% and 14% of sales volumes from the assets were attributable to crude and natural gas, respectively. As of December 31, 2024, the company was continuing development of the Seven River waterflood interval.
The increase was due to the loss that was recognized as a result of the conveyance of the 10% overriding royalty interest to Pogo Royalty in July 2023. 64 Liquidity and Capital Resources Liquidity Our main sources of liquidity have been internally generated cash flows from operations and credit facility borrowings.
The decrease was due to the loss that was recognized as a result of the conveyance of the 10% overriding royalty interest to Pogo Royalty in July 2023. Liquidity and Capital Resources Liquidity Our main sources of liquidity have been internally generated cash flows from operations, credit facility borrowings and equity line financing sales and issuances.
Our average realized oil price per barrel after reflecting settled derivatives and location differentials was $69.06 for the year ended December 31, 2023 compared to $78.09 for the year ended December 31, 2022.
Our average realized oil price per barrel after reflecting settled derivatives and location differentials was $73.61 for the year ended December 31, 2024 compared to $69.06 for the year ended December 31, 2023.
The aggregate increase in DD&A expense for the year ended December 31, 2023 compared to 2022 was driven by a 33% increase in the DD&A rate per BOE, partially offset by a 21% decrease in production levels.
The aggregate increase in DD&A expense for the year ended December 31, 2024 compared to 2023 was driven by a 48% increase in the DD&A rate per BOE, partially offset by a 28% decrease in production levels.
Production for the comparable periods is set forth in the following table: For the year ended December 31, 2023 2022 Production: Oil (MBbl) 349 397 Natural gas (MMcf) 355 457 Total (MBOE) (1) 373 473 Average daily production: Oil (Bbl) 957 1,088 Natural gas (Mcf) 974 1,252 Total (BOE) (1) 1,022 1,296 (1) Natural gas is converted to BOE at the rate of one-barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not necessarily indicative of the relationship of oil and natural gas prices.
Production for the comparable periods is set forth in the following table: For the year ended December 31, 2024 2023 Production: Oil (MBbl) 256 349 Natural gas (MMcf) 213 355 Total (MBOE) (1) 291 373 Average daily production: Oil (Bbl) 700 957 Natural gas (Mcf) 585 974 Total (BOE) (1) 798 1,022 (1) Natural gas is converted to BOE at the rate of one-barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not necessarily indicative of the relationship of oil and natural gas prices.
Derivative Contracts We enter into commodity derivatives instruments to manage the price risk attributable to future oil production. We recorded a gain on derivative contracts of $392,675 on a combined Successor and Predecessor basis for the year ended December 31, 2023 compared to a loss of $4,793,790 for the year ended December 31, 2022 (Predecessor).
Derivative Contracts We enter into commodity derivatives instruments to manage the price risk attributable to future oil production. We recorded a loss on derivative contracts of $850,374 for the year ended December 31, 2024 compared to a gain of $392,765 on a combined Successor and Predecessor basis for the year ended December 31, 2023.
On a combined Successor and Predecessor basis for the year ended December 31, 2023, our average realized oil price per barrel after reflecting settled derivatives was $73.82, compared to $78.09 the year ended December 31, 2022 (Predecessor). As of December 31, 2023, we ended the period with a $467,687 net derivative asset compared to $1,191,354 as of December 31, 2022.
For the year ended December 31, 2024, our average realized oil price per barrel after reflecting settled derivatives was $73.61, compared to $73.82 on a combined Successor and Predecessor basis for the year ended December 31, 2023. As of December 31, 2024, we ended the period with a $106,397 net derivative asset compared to $467,687 as of December 31, 2023.
References to “Predecessor” relate to the financial position and results of operations of HNR Acquisition Corp prior to, and including, November 14, 2023. 59 Selected Factors That Affect Our Operating Results Our revenues, cash flows from operations and future growth depend substantially upon: ● the timing and success of production and development activities; ● the prices for oil and natural gas; ● the quantity of oil and natural gas production from our wells; ● changes in the fair value of the derivative instruments we use to reduce our exposure to fluctuations in the price of oil and natural gas; ● our ability to continue to identify and acquire high-quality acreage and development opportunities; and ● the level of our operating expenses.
Selected Factors That Affect Our Operating Results Our revenues, cash flows from operations and future growth depend substantially upon: ● the timing and success of production and development activities; ● the prices for oil and natural gas; ● the quantity of oil and natural gas production from our wells; ● changes in the fair value of the derivative instruments we use to reduce our exposure to fluctuations in the price of oil and natural gas; ● our ability to continue to identify and acquire high-quality acreage and development opportunities; and ● the level of our operating expenses.
The increase in the Predecessor period from January 1, 2023 to November 15, 2023 compared to the year ended December 31, 2022 was primarily due to an increase in the average amount of the Predecessor’ revolving credit facility outstanding and an increase in the weighted average interest rate. The revolving credit facility was not assumed in the Acquisition.
The interest expense during the Predecessor period from January 1, 2023 to November 15, 2023 was primarily due to an increase in the average amount of the Predecessor’ revolving credit facility outstanding and an increase in the weighted average interest rate. The revolving credit facility was not assumed in the Acquisition.
Lower commodity prices in 2023, resulted in realized losses of $1,266,277 on a combined Successor and Predecessor basis for the year ended December 31, 2023 compared to realized losses of $6,978,790 for the year ended December 31, 2022.
Lower commodity prices in 2024, resulted in realized losses of $489,084 for the year ended December 31, 2024 compared to realized losses of $1,266,277 on a combined Successor and Predecessor basis for the year ended December 31, 2023.
Accretion expense was $2.32 per BOE for the on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $3.33 per BOE for the year ended December 31, 2022.
Accretion expense was $0.50 per BOE for the year ended December 31, 2024, compared to $2.32 per BOE on a combined Successor and Predecessor basis for the year ended December 31, 2023.
Our oil price differential to the NYMEX benchmark price during the years ended December 31, 2023 and 2022, was $(4.95) and $0.88 per barrel, respectively. Our natural gas price differential during the years ended December 31, 2023 and 2022, was $(0.06) and $(2.13) per one thousand cubic feet (“Mcf”), respectively.
Our oil price differential to the NYMEX benchmark price during the years ended December 31, 2024 and 2023, was $(1.03) and $(4.95) per barrel, respectively. Our natural gas price differential during the years ended December 31, 2024 and 2023, was $0.08 and $(0.06) per one thousand cubic feet (“Mcf”), respectively.
DD&A was $4.53 per BOE on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $3.41 per BOE for the year ended December 31, 2022.
DD&A was $8.27 per BOE for the year ended December 31, 2024, compared to $4.53 per BOE on a combined Successor and Predecessor basis for the year ended December 31, 2023.
Cash Flows Sources and uses of cash for the years ended December 31, 2023, and 2022, are as follows: Successor Predecessor November 15, 2023 to December 31, 2023 January 1, 2023 to November 14, 2023 Year Ended December 31, 2022 Net cash provided by operating activities $ 484,474 $ 8,190,563 $ 18,651,132 Net cash (used in) provided by investing activities 18,296,176 (6,960,555 ) (20,700,859 ) Net cash (used in) provided by financing activities (17,866,128 ) (3,000,000 ) 3,000,000 Net change in cash and cash equivalents $ 914,522 $ (1,883,607 ) $ 950,273 Operating Activities The decrease in net cash flow provided by operating activities on a combined Successor and Predecessor basis for the year ended December 31, 2023, as compared to 2022 is primarily due to decreased net income as a result of decreased prices and production volumes, and higher general and administrative and acquisition costs associated with public filings and the closing of the Acquisition.
Cash Flows Sources and uses of cash for the years ended December 31, 2024, and 2023, are as follows: Successor Predecessor Year Ended December 31, 2024 November 15, 2023 to December 31, 2023 January 1, 2023 to November 14, 2023 Net cash provided by operating activities $ 3,700,686 $ 484,474 $ 8,190,563 Net cash (used in) provided by investing activities (3,575,062 ) 18,296,176 (6,960,555 ) Net cash used in financing activities (659,520 ) (17,866,128 ) (3,000,000 ) Net change in cash and cash equivalents $ (533,896 ) $ 914,522 $ (1,769,992 ) Operating Activities The decrease in net cash flow provided by operating activities for the year ended December 31, 2024, as compared to 2023 on a combined Successor and Predecessor basis is primarily due to increased net loss as a result of decreased prices and production volumes, and higher general and administrative costs associated with public filings.
On a combined Successor and Predecessor basis, for the year ended December 31, 2023, our oil and natural gas sales decreased 34% from the year ended December 31, 2022, driven by a 24% decrease in realized prices, excluding the effect of settled commodity derivatives, and an 21% decrease in production volumes.
For the year ended December 31, 2024, our oil and natural gas sales decreased 15% from the year ended December 31, 2023 on a combined Successor and Predecessor basis, driven by a 28% decrease in production volumes offset by a 6% increase in realized prices, excluding the effect of settled commodity derivatives.
Accretion of Asset Retirement Obligations Accretion expense was $859,102 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $1,575,296 for the year ended December 31, 2022.
Accretion of Asset Retirement Obligations Accretion expense was $144,988 as of December 31, 2024, compared to $859,102 on a combined Successor and Predecessor basis for the year ended December 31, 2023.
The following table lists average NYMEX prices for oil and natural gas for the years ended December 31, 2023, and 2022. For the years ended December 31, 2023 2022 Average NYMEX Prices (1) Oil (per Bbl) $ 77.64 $ 94.79 Natural gas (per Mcf) $ 2.54 $ 6.42 (1) Based on average NYMEX closing prices.
The following table lists average NYMEX prices for oil and natural gas for the years ended December 31, 2024 and 2023. For the years ended December 31, 2024 2023 Average NYMEX Prices (1) Oil (per Bbl) $ 76.55 $ 77.64 Natural gas (per Mcf) $ 2.19 $ 2.54 (1) Based on average NYMEX closing prices.
For the year ended December 31, 2023, the average NYMEX oil pricing was $77.64 per barrel of oil or 18% lower than the average NYMEX price per barrel for the year ended December 31, 2022. Our settled derivatives decreased our realized oil price per barrel by $3.63 and $17.58 in the years ended December 31, 2023, and 2022, respectively.
For the year ended December 31, 2024, the average NYMEX oil pricing was $76.55 per barrel of oil or 1% lower than the average NYMEX price per barrel for the year ended December 31, 2023. Our settled derivatives decreased our realized oil price per barrel by $1.91 and $3.63 in the years ended December 31, 2024, and 2023, respectively.
Successor Predecessor November 15, 2023 to December 31, 2023 January 1, 2023 to November 14, 2023 Year Ended December 31, 2022 Revenues Crude oil $ 2,513,197 $ 22,856,521 $ 37,982,367 Natural gas and natural gas liquids 70,918 809,553 1,959,411 Gain (loss) on derivative instruments, net 340,808 51,957 (4,793,790 ) Other revenue 50,738 520,451 255,952 Total revenues 2,975,661 24,238,482 35,403,940 Average sales prices: Oil (per Bbl) $ 65.11 $ 73.58 $ 95.66 Effect on gain (loss) of settled oil derivatives on average price (per Bbl) (2.66 ) 0.17 (17.58 ) Oil net of settled oil derivatives (per Bbl) 62.45 73.75 78.09 Natural gas (per Mcf) 2.41 2.48 4.29 Realized price on a BOE basis excluding settled commodity derivatives 59.40 64.84 84.41 Effect of gain (loss) on settled commodity derivatives on average price (per BOE) (2.36 ) (3.19 ) (14.75 ) Realized price on a BOE basis including settled commodity derivatives $ 57.04 $ 61.66 $ 69.66 Expenses Production taxes, transportation and processing 226,062 2,117,800 3,484,477 Lease operating 1,453,367 8,692,752 8,418,739 Depletion, depreciation and amortization 352,127 1,497,749 1,613,402 Accretion of asset retirement obligations 11,062 848,040 1,575,296 General and administrative 3,553,117 3,700,267 2,953,202 Acquisition costs 9,999,860 - - Total expenses 15,595,595 16,856,608 18,045,116 Costs and expenses (per BOE): Production taxes, transportation, and processing $ 5.20 $ 5.80 $ 7.36 Lease operating expenses 33.41 23.82 17.79 Depreciation, depletion, and amortization expense 8.09 4.10 3.41 Accretion of asset retirement obligations 0.25 2.32 3.33 General and administrative 81.67 10.14 6.24 Net producing wells at period-end 341 341 342 61 Oil and Natural Gas Sales Our revenues vary from year to year primarily as a result of changes in realized commodity prices and production volumes.
Successor Successor Predecessor For the year ended December 31, 2024 November 15, 2023 to December 31, 2023 January 1, 2023 to November 14, 2023 Revenues Crude oil $ 19,298,698 $ 2,513,197 $ 22,856,521 Natural gas and natural gas liquids 483,486 70,918 809,553 Gain (loss) on derivative instruments, net (850,374 ) 340,808 51,957 Other revenue 487,109 50,738 520,451 Total revenues 19,418,919 2,975,661 24,238,482 Average sales prices: Oil (per Bbl) $ 75.52 $ 65.11 $ 73.58 Effect on gain (loss) of settled oil derivatives on average price (per Bbl) (1.91 ) (2.66 ) 0.17 Oil net of settled oil derivatives (per Bbl) 73.61 62.45 73.75 Natural gas (per Mcf) 2.27 2.41 2.48 Realized price on a BOE basis excluding settled commodity derivatives 67.96 59.40 64.84 Effect of gain (loss) on settled commodity derivatives on average price (per BOE) (1.68 ) (2.36 ) (3.19 ) Realized price on a BOE basis including settled commodity derivatives $ 66.28 $ 57.04 $ 61.66 Expenses Production taxes, transportation and processing 1,715,792 226,062 2,117,800 Lease operating 8,614,080 1,453,367 8,692,752 Depletion, depreciation and amortization 2,407,098 352,127 1,497,749 Accretion of asset retirement obligations 144,988 11,062 848,040 General and administrative 10,381,095 3,553,117 3,700,267 Acquisition costs - 9,999,860 - Total expenses 23,263,053 15,595,595 16,856,608 Costs and expenses (per BOE): Production taxes, transportation, and processing $ 5.89 $ 5.20 $ 5.80 Lease operating expenses 29.59 33.41 23.82 Depreciation, depletion, and amortization expense 8.27 8.09 4.10 Accretion of asset retirement obligations 0.50 0.25 2.32 General and administrative 35.66 81.67 10.14 Net producing wells at period-end 342 341 341 54 Oil and Natural Gas Sales Our revenues vary from year to year primarily as a result of changes in realized commodity prices and production volumes.
The increase for general and administrative expenses is primarily due to increased cost of outsourced legal, professional, and accounting services as a result of the transaction disclosed in Note 1 in the notes to the consolidated financial statements and the costs of being a public company.
The increase for general and administrative expenses is primarily due to increased cost of outsourced legal, professional, and accounting services as a result of the transaction disclosed in Note 1 in the notes to the consolidated financial statements and the costs of being a public company, and includes stock-based compensation expense of $2,778,991 for the year ended December 31, 2024.
General and Administrative General and administrative expenses were $7,253,384 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $2,953,202 for the year ended December 31, 2022.
General and Administrative General and administrative expenses were $10,381,095 as of December 31, 2024 compared to $7,253,384 on a combined Successor and Predecessor basis for the year ended December 31, 2023.
Production taxes, transportation and processing costs were $2,343,862 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $3,484,477 for the year ended December 31, 2022. As a percentage of oil and natural gas sales, these costs were 9% in both periods.
Production taxes, transportation and processing costs were $1,715,792 for the year ended December 31, 2024 compared to $2,343,862 on a combined Successor and Predecessor basis for the year ended December 31, 2023. As a percentage of oil and natural gas sales, these costs were 8.7% and 8.9% for the years ended December 31, 2024 and 2023 respectively.
These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. The Company had positive cash flow from operations of $8,675,037 for the year ended December 31, 2023 on a pro forma basis of the combined Successor and Predecessor periods.
These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. The Company had positive cash flow from operations of $3,700,686 for the year ended December 31, 2024.
Acquisition costs Acquisition costs were $9,999,860 during the Successor period from November 15, 2023 to December 31, 2023, and included an aggregate of $7,854,660 in costs related to the Forward Purchase Agreement and the Non-Redemption Agreements, due diligence and broker fees related to closing the Purchase. 63 Interest Expense and amortization of debt discount Interest expense was $1,043,312 for the period from November 15, 2023 to December 31, 2023 (Successor), $1,834,208 for the period from January 1, 2023 to November 14, 2023 (Predecessor), compared to $1,076,060 for the year ended December 31, 2022.
Acquisition costs There were no acquisition costs as of December 31, 2024, compared to $9,999,860 during the Successor period from November 15, 2023 to December 31, 2023, and included an aggregate of $7,854,660 in costs related to the Forward Purchase Agreement and the Non-Redemption Agreements, due diligence and broker fees related to closing the Purchase. 56 Interest Expense and amortization of debt discount Interest expense was $7,643,200 as of December 31, 2024, compared to $1,043,312 for the period from November 15, 2023 to December 31, 2023 (Successor), $1,834,208 for the period from January 1, 2023 to November 14, 2023 (Predecessor), The Successor period interest expense is driven by the Senior Secured Term loan entered into as part of the Closing, and the Private Notes Payable.
The average NYMEX natural gas pricing for the year ended December 31, 2023, was $2.54 per Mcf, or 60% lower than the average NYMEX price per Mcf for the year ended December 31, 2022. 60 Pogo Royalty Overriding Royalty Interest Transaction Effective July 1, 2023, the Predecessor transferred to Pogo Royalty, a related party, an assigned and undivided overriding royalty interest (“ORRI”) equal in amount to ten percent (10%) of Pogo Resources, LLC’s and LH Operating, LLC’s interest all oil, gas and minerals in, under and produced from each lease.
Pogo Royalty Overriding Royalty Interest Transaction Effective July 1, 2023, the Predecessor transferred to Pogo Royalty, a related party, an assigned and undivided overriding royalty interest (“ORRI”) equal in amount to ten percent (10%) of Pogo Resources, LLC’s and LH Operating, LLC’s interest all oil, gas and minerals in, under and produced from each lease.
The lower average price in the combined year ended December 31, 2023 compared to 2022, was driven by lower average NYMEX oil and natural gas prices. Realized production from oil and gas properties decreased due to an increase in well downtime and due to the July 1, 2023 conveyance of the 10% overriding royalty interest to Pogo Royalty.
The higher average price in the year ended December 31, 2024 compared to the combined year 2023, was driven by higher average NYMEX oil and natural gas prices during the first nine months of the year. Realized production from oil and gas properties decreased due to an increase in well downtime.
Fluctuations in our price differentials and realizations are due to several factors such as gathering and transportation costs, takeaway capacity relative to production levels, regional storage capacity, gain/loss on derivative contracts and seasonal refinery maintenance temporarily depressing demand.
Fluctuations in our price differentials and realizations are due to several factors such as gathering and transportation costs, takeaway capacity relative to production levels, regional storage capacity, gain/loss on derivative contracts and seasonal refinery maintenance temporarily depressing demand. 52 Market Conditions The price that we receive for the oil and natural gas we produce is largely a function of market supply and demand.
Change in fair value of forward purchase agreement The change in fair value of forward purchase agreement consisted of a gain of $3,268,581 for the period from November 15, 2023 to December 31, 2023 for the Successor related to the inputs used in the Company’s fair value estimate of the FPA Put Option.
Change in fair value of forward purchase agreement The change in fair value of forward purchase agreement consisted of a gain of $561,099 for the year ended December 31, 2024, for the Successor related to the inputs used in the Company’s fair value estimate of the FPA Put Option.
Market Conditions The price that we receive for the oil and natural gas we produce is largely a function of market supply and demand. Because our oil and gas revenues are heavily weighted toward oil, we are more significantly impacted by changes in oil prices than by changes in the price of natural gas.
Because our oil and gas revenues are heavily weighted toward oil, we are more significantly impacted by changes in oil prices than by changes in the price of natural gas.
Our proved reserve information included in this filing as of December 31, 2023 and 2022, was prepared by independent petroleum engineers. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, proved reserve estimates will be different from the quantities of oil and gas that are ultimately recovered.
Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, proved reserve estimates will be different from the quantities of oil and gas that are ultimately recovered.
The key inputs to the fair value estimate include the Company’s stock price, which declined during the Successor period, and the likelihood, timing and price of a potential dilutive offering.
The key inputs to the fair value estimate include the Company’s stock price, which declined during the Successor period, and the likelihood, timing and price of a potential dilutive offering. Gain on extinguishment of liabilities The Company recognized a gain on extinguishment of liabilities of $1,638,138 during the year ended December 31, 2024.
The Company’s assets as mentioned above consist of contiguous leasehold positions of approximately 13,700 gross (13,700 net) acres with an average working interest of 100%. We operate 100% of the net acreage across the Company’s assets, all of which is net operated acreage of vertical wells with average depths of approximately 3,810 feet.
We operate 100% of the net acreage across the Company’s assets, all of which is net operated acreage of vertical wells with average depths of approximately 3,810 feet.
As of December 31, 2023, we had $3,505,454 of cash and cash equivalents on hand, of which $2,600,000 is in an escrow account pursuant to the requirements of the Senior Secured Term Loan. At December 31, 2023, we had $3,505,454 in cash and a working capital deficit of $13,300,601.
A total of $9,080,910 of this is due within one year. As of December 31, 2024, we had $2,971,558 of cash and cash equivalents on hand, of which approximately $2,600,000 is in an escrow account pursuant to the requirements of the Senior Secured Term Loan. At December 31, 2024 we had a working capital deficit of $31,213674.
Cash flows used in investing activities in the Predecessor period ending November 14, 2023 consisted of $6,769,557 of cash paid for oil and gas property costs, which was a decrease from $16,891,856 in the year ended December 31, 2022, primarily due to significant expenditures in the previous year to upgrade certain wells and meet compliance requirements. 65 Financing Activities Net cash used by financing activities during the Successor period were primarily related to the redemptions of common stock of Public Shares at Closing of $44,737,839, partially offset by the net proceeds from the Senior Secured Term Loan of $27,191,008.
Cash flows used in investing activities in the Predecessor period ending November 14, 2023 consisted of $6,769,557 of cash paid for oil and gas property costs, primarily due to significant expenditures in the previous year to upgrade certain wells and meet compliance requirements. 58 Financing Activities Net cash used in financing activities for the year ended December 31, 2024 was primarily due to repayments of long-term debt offset by the proceeds from the sale of common stock under the Common Stock Purchase Agreement.
Proved Reserve Estimates Estimates of our proved reserves included in this report are prepared in accordance with GAAP and SEC guidelines.
Critical Accounting Estimates The following is a discussion of our most critical accounting estimates, judgements and uncertainties that are inherent in the Company’s application of GAAP. Proved Reserve Estimates Estimates of our proved reserves included in this report are prepared in accordance with GAAP and SEC guidelines.
Loss on asset sales Loss on asset sales was $816,011 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $0 for the year ended December 31, 2022.
The Company also recognized a loss of $192,744 from the change in fair value of its convertible note liabilities during the year ended December 31, 2024. Loss on asset sales Loss on asset sales was $816,011 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $0 for the year ended December 31, 2024.
The accuracy of a proved reserve estimate is a function of: ● the quality and quantity of available data; ● the interpretation of that data; ● the accuracy of various mandated economic assumptions; and ● the judgment of the persons preparing the estimate.
The accuracy of a proved reserve estimate is a function of: ● the quality and quantity of available data; ● the interpretation of that data; ● the accuracy of various mandated economic assumptions; and ● the judgment of the persons preparing the estimate. 59 Our proved reserve information included in this filing as of December 31, 2024 and 2023, was prepared by independent petroleum engineers.
Our average daily production for the year ended December 31, 2023, was 1,022 barrel of oil equivalent (“BOE”) per day, and for the year ended December 31, 2022, was 1,296 BOE per day. The decrease in production is due to an increase in well downtime and the conveyance of the 10% Override royalty interest to Pogo Royalty.
Our average daily production for the year ended December 31, 2024, was 798 barrel of oil equivalent (“BOE”) per day, and for the year ended December 31, 2023, was 1,022 BOE per day.
We have a three-year Common Stock Purchase Agreement with a maximum funding limit of $150,000,000 that can fund our operations and production growth, and be used to reduce liabilities, subject the Company’s Form S-1 Registration Statement, which is in the review process, being declared effective by the Securities and Exchange Commission (“SEC”).
We have a three-year equity line (ELOC) Common Stock Purchase Agreement with a maximum funding limit of $150,000,000 that can fund our operations and production growth, and be used to reduce liabilities.
Our primary use of capital has been for the development of oil and gas properties and the return of initial invested capital to our owners. We continually monitor potential capital sources for opportunities to enhance liquidity or otherwise improve our financial position.
Our primary use of capital has been for the development of oil and gas properties, payment to vendors, payment of debt obligations [and the return of initial invested capital to our founders].
Lease Operating Expenses Lease operating expenses were $10,146,119 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $8,418,739 for the year ended December 31, 2022.
The revenue is related to providing water services to a third party and the slight decrease is due to lower volumes in 2024 from supply line disruptions during the third quarter of 2024 Lease Operating Expenses Lease operating expenses were $8,614,080 for the year ended December 31,2024, compared to $10,146,119 on a combined Successor and Predecessor basis for the year ended December 31, 2023.
Other Revenue Other revenue was $571,189 on a combined Successor and Predecessor basis for the year ended December 31, 2023, compared to $255,952 for the year ended December 31, 2022 (Predecessor). The increase is due to a full period related to a new contract that the Predecessor entered into to provide water services to a third-party effective September 1, 2022.
Other Revenue Other revenue was $487,109 for the year ended December 31, 2024, compared to $571,189 on a combined Successor and Predecessor basis for the year ended December 31, 2023.
However, we may seek additional access to capital and liquidity. We cannot assure you, however, that any additional capital will be available to us on favorable terms or at all. Our capital expenditures could be curtailed if our cash flows decline from expected levels.
Our capital expenditures could be curtailed if our cash flows decline from expected levels.
As of December 31, 2023, we had outstanding debt of $27,680,703 under our Senior Secured Term Loan, $15,000,000 under the Seller Promissory Note, and $3,469,500 of outstanding private notes payable. A total of $7,627,102 of this is due within one year.
We continually monitor potential capital sources for opportunities to enhance liquidity or otherwise improve our financial position. 57 As of December 31, 2024, we had outstanding debt of $23,641,517 under our Senior Secured Term Loan, $15,000,000 under the Seller Promissory Note, $3,556,750 of outstanding private notes payable, and $948,982 from short term merchant loans.
Removed
Pogo focuses primarily on production through waterflooding recovery methods. Pogo is a limited liability company and is not subject to federal and state income taxes. However, it must file informational tax returns and all taxable income or loss flows through to the owners in their individual tax returns.
Added
Pogo focuses primarily on production through waterflooding recovery methods. The Company’s assets as mentioned above consist of contiguous leasehold positions of approximately 13,700 gross (13,700 net) acres with an average working interest of 100%.
Removed
Impact of Coronavirus (“COVID-19”) The COVID-19 pandemic resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil throughout the world, and created significant volatility, uncertainty and turmoil in the oil and gas industry.
Added
The decrease in production is due to an increase in well downtime, field conditions requiring certain enhancements, and the conveyance of the 10% Override royalty interest to Pogo Royalty.
Removed
The decrease in demand for oil, combined with pressures on the global supply-demand balance for oil and related products, resulted in oil prices declining significantly in late February 2020. Since mid-2020, oil prices have improved, with demand steadily increasing despite the uncertainties surrounding the COVID-19 variants, which have continued to inhibit a full global demand recovery.
Added
The average NYMEX natural gas pricing for the year ended December 31, 2024, was $2.19 per Mcf, or 14% lower than the average NYMEX price per Mcf for the year ended December 31, 2023.
Removed
In addition, worldwide oil inventories are, from a historical perspective, very low and supply increases from the Organization of the Petroleum Exporting Countries (“OPEC”), Russia and other oil producing nations are not expected to be sufficient to meet forecasted oil demand growth in 2023, with many OPEC countries not able to produce at their OPEC agreed upon quota levels due to their lack of capital investments over the past few years in developing incremental oil supplies.
Added
In November 2024, the Company entered into a settlement agreement with the FPA Seller to fully release the Company from the terms of the FPA. We agreed to issue to the FPA Seller 450,000 restricted Class A Common shares which had a fair value of $450,000 based on the closing price of the Company’s common stock at the agreement date.
Removed
Global oil price levels will ultimately depend on various factors and consequences beyond the Company’s control, such as: (i) the effectiveness of responses to combat the COVID-19 virus and their impact on domestic and worldwide demand, (ii) the ability of OPEC, Russia and other oil producing nations to manage the global oil supply, (iii) the timing and supply impact of any Iranian sanction relief on Iran’s ability to export oil, (iv) additional actions by businesses and governments in response to the pandemic, (v) the global supply chain constraints associated with manufacturing delays, and (vi) political stability of oil consuming countries.
Added
The Company recognized a gain on settlement of the FPA liability of $82,998, which is included in Gain on Extinguishment of Liabilities on the Company’s consolidated statement of operations for the year ended December 31, 2024. The Company also recognized a gain of $1,720,000 related to the settlement of royalties payable and other claims with the Sellers.
Removed
We continue to assess the impact of the COVID-19 pandemic on our company and may modify our response as the impact of COVID-19 continues to evolve. Certain prior year financial statements are not comparable to our current year financial statements due to the adoption of fresh start accounting as a result of the Acquisition.
Added
The Company recognized a loss on extinguishment of accounts payable of $76,200, and recognized a loss of $88,660 related to the exchange of certain notes payable and warrant liabilities for convertible note agreements.
Removed
References to “Successor” relate to the financial position and results of operations of HNR Acquisition Corp subsequent to November 15, 2023.
Added
Through the date of this filing, we have received $6,992,906 in cash proceeds related to the sale of 7,000,000 shares of common stock under this agreement and expect to continue to utilize it to fund current operational needs. We cannot assure you, however, that any additional capital will be available to us on favorable terms or at all.
Removed
The Successor period interest expense is driven by the Senior Secured Term loan entered into as part of the Closing, and the Private Notes Payable.
Added
Investing Activities Net cash used in investing activities for the year ended December 31, 2024 was primarily due to the development of crude oil and gas properties.
Removed
Critical Accounting Estimates The following is a discussion of our most critical accounting estimates, judgements and uncertainties that are inherent in the Company’s application of GAAP. Successful Efforts Method of Accounting We utilize the successful efforts method of accounting for crude oil and gas producing activities as opposed to the alternate acceptable full cost method.
Added
Net cash used by financing activities during the Successor period from November 15, 2023 to December 31, 2023 were primarily related to the redemptions of common stock of Public Shares at Closing of $44,737,839, partially offset by the net proceeds from the Senior Secured Term Loan of $27,191,008.
Removed
In general, we believe that net assets and net income are more conservatively measured under the successful efforts method of accounting for crude oil and gas producing activities than under the full cost method, particularly during periods of active exploration.
Removed
The critical difference between the successful efforts method of accounting and the full cost method is that under the successful efforts method, exploratory dry holes and geological and geophysical exploration costs are charged against earnings during the periods in which they occur; whereas, under the full cost method of accounting, such costs and expenses are capitalized as assets, pooled with the costs of successful wells and charged against the earnings of future periods as a component of depletion expense.