Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview of the Fund's Business

The Fund was organized primarily to acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of America. The Fund's primary investment objective is to generate cash flow for distribution to its shareholders by generating returns across a portfolio of oil and natural gas projects. Distributions to shareholders, if any, are funded from available cash from operations, as defined in the Fund's LLC Agreement, and the frequency and amount are within the Manager's discretion. The Fund's capital has been fully invested and as a result, the Fund will not invest in any new projects and will limit its investment activities, if any, to those projects in which it currently has a working interest.

The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for the Fund's operations. The Manager does not currently, nor is there any plan to, operate any project in which the Fund participates. The Manager enters into operating agreements with third-party operators for the management of all development and producing operations, as appropriate. The Manager also participates in distributions. See Item 1. "Business" of this Annual Report under the headings "Project Information" and "Properties" for more information regarding the Fund's Beta Project.

Market Conditions

Although briefly spiking in June 2025 related to the war between Israel and Iran, oil prices have generally trended lower over the course of the year and are around their lowest level for the year at the end of 2025. Against a backdrop of stable, if somewhat modest, growth in demand for crude globally, there has been growing market supply, based on both "secular" production growth, as well as meaningful ongoing increases in output from OPEC Plus, reflecting a dovish policy shift by several key producers, most notably Saudi Arabia. And while the market responded to several significant geopolitical events that risked scale-level supply-shocks-the Israel/Iran conflict, tighter sanctions on Russia, and most recently the confrontation with Venezuela-the impact on oil prices has seemed generally short-lived and/or fairly modest. The impact of these issues on global financial and commodity market oil and natural gas prices and their corresponding effect on the Fund remains uncertain.

Commodity Price Changes

Changes in oil and natural gas commodity prices may significantly affect liquidity and expected operating results. Significant declines in oil and natural gas commodity prices not only reduce revenues and profits but could also reduce the quantities of reserves that are commercially recoverable and result in non-cash charges to earnings due to impairment and higher depletion rates.

The Fund anticipates price cyclicality in its planning and believes it is well positioned to withstand price volatility. The Fund will continue to closely manage and coordinate its capital spending estimates within its expected cash flows to provide for the costs associated with the well recompletions for the Beta Project, as budgeted. See "Results of Operations" under this Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information on the average oil and natural gas prices received by the Fund during the years ended December 31, 2025 and 2024 and the effect of such average prices on the Fund's results of operations.

Market pricing for oil and natural gas is volatile and is likely to continue to be volatile in the future. This volatility is caused by numerous factors and market conditions that the Fund cannot control or influence. Therefore, it is impossible to predict the future price of oil and natural gas with any certainty. Factors affecting market pricing for oil and natural gas include:

·

worldwide economic, political and social conditions impacting the global supply and demand for oil and natural gas, which may be driven by various risks, including war (such as the invasion of Ukraine by Russia ), terrorism, political unrest, or health epidemics;

·

weather conditions;

·

economic conditions, including the impact of continued inflation and associated changes in monetary policy and demand for petroleum-based products;

·

actions by OPEC Plus, the Organization of the Petroleum Exporting Countries and other state-controlled oil companies;

·

political instability in the Middle East and other major oil and gas producing regions;

·

governmental regulations (inclusive of impacts of climate change), both domestic and foreign;

·

domestic and foreign tax policy;

·

the pace adopted by foreign governments for the exploration, development, and production of their national reserves;

·

the supply and price of foreign oil and gas;

·

the cost of exploring for, producing and delivering oil and gas;

·

the discovery rate of new oil and gas reserves;

·

the rate of decline of existing and new oil and gas reserves;

·

available pipeline and other oil and gas transportation capacity;

·

the ability of oil and gas companies to raise capital;

·

the overall supply and demand for oil and gas; and

·

the price and availability of alternate fuel sources.

Critical Accounting Estimates

The discussion and analysis of the Fund's financial condition and results of operations are based upon the Fund's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In preparing these financial statements, the Fund is required to make certain estimates, judgments and assumptions. These estimates, judgments and assumptions affect the reported amounts of the Fund's assets and liabilities, including the disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of its revenues and expenses during the periods presented. The Fund evaluates these estimates and assumptions on an ongoing basis. The Fund bases its estimates and assumptions on historical experience and on various other factors that the Fund believes to be reasonable at the time the estimates and assumptions are made. However, future events and actual results may differ from these estimates and assumptions and such differences may have a material impact on the results of operations, financial position or cash flows. See Note 1 of "Notes to Financial Statements" - "Organization and Summary of Significant Accounting Policies" contained in Item 8. "Financial Statements and Supplementary Data" within this Annual Report for a discussion of the Fund's significant accounting policies. The following is a discussion of the accounting policies and estimates the Fund believes have had or are reasonably likely to have a material impact on the Fund's financial position or results of operations.

Proved Reserves

Estimates of proved reserves are key components of the Fund's most significant financial estimates involving its rate for recording depletion and amortization and estimated future cash flows of oil and gas properties used to test for impairment. Annually, the Fund engages an independent petroleum engineering firm to perform a comprehensive study of the Fund's proved properties to determine the quantities of reserves and the period over which such reserves will be recoverable. The Fund's estimates of proved reserves are based on the quantities of oil and natural gas that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. However, there are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future revenues and net cash flows, rates of production and timing of development expenditures, including many factors beyond the Fund's control. The estimation process is very complex and relies on assumptions and subjective interpretations of available geologic, geophysical, engineering and production data and the accuracy of reserves estimates is a function of the quality and quantity of available data, engineering and geological interpretation and judgment. In addition, as a result of volatility and changing market conditions, oil and natural gas commodity prices and future development costs will change from period to period, causing estimates of proved reserves and future net revenues and net cash flows to change.

Asset Retirement Obligations

Asset retirement obligations include costs to plug and abandon the Fund's wells and to dismantle and relocate or dispose of the Fund's production platforms and related structures and restoration costs of land and seabed. The Fund develops estimates of these costs based upon the type of production structure, water depth, reservoir depth and characteristics and, ongoing discussions with the wells' operators. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires significant judgment that is subject to future revisions based upon numerous factors such as the timing of settlements, the credit-adjusted risk-free rates used and inflation rates, including changing technology and the political and regulatory environment. Estimates are reviewed annually, or more frequently if an event occurs that would dictate a change in assumptions or estimates.

Impairment of Long-Lived Assets

The Fund reviews the carrying value of its oil and gas properties for impairment whenever events and circumstances indicate that the recorded carrying value of its oil and gas properties may not be recoverable. Recoverability is evaluated by comparing estimated future net undiscounted cash flows to the carrying value of the oil and gas properties at the time of the review. If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the oil and gas properties is impaired, and written down to fair value. Fair value is determined using valuation techniques that include both market and income approaches and use Level 3 inputs. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, estimates of oil and natural gas reserves and future development costs or discount rates could result in a significant impact on the amount of impairment.

Results of Operations

The following table summarizes the Fund's results of operations during the years ended December 31, 2025 and 2024, and should be read in conjunction with the Fund's financial statements and the notes thereto included within Item 8. "Financial Statements and Supplementary Data" in this Annual Report.

		Year ended December 31,
		2025				2024
		(in thousands)
Revenue
Oil and gas revenue		$	1,451			$	2,319
Other revenue			223				198
Total revenue			1,674				2,517
Expenses
Depletion and amortization			1,399				1,010
Operating expenses			561				447
General and administrative expenses			283				255
Total expenses			2,243				1,712
(Loss) income from operations			(569	)			805
Interest income			95				111
Net (loss) income		$	(474	)		$	916

Overview. The following table provides information related to the Fund's oil and gas production and oil and gas revenue during the years ended December 31, 2025 and 2024. NGL sales are included within gas sales.

		Year ended December 31,
		2025				2024
Number of wells producing			7				7
Total number of production days			2,264				2,420
Oil sales (in thousands of barrels)			21				29
Average oil price per barrel		$	65			$	75
Gas sales (in thousands of mcfs)			31				42
Average gas price per mcf		$	3.88			$	3.21

The production related decreases noted in the table above related to the Beta Project. Two wells in the Beta Project have been shut-in for pressure build that occurred during third quarter 2025. The Beta Project's production volumes were also further impacted by natural declines in production.

See Item 1. "Business" of this Annual Report under the heading "Properties" for more information.

Oil and Gas Revenue. Oil and gas revenue during the year ended December 31, 2025 was $1.5 million, a decrease of $0.9 million from the year ended December 31, 2024. The decrease was primarily attributable to decreased sales volume totaling $0.7 million coupled with decreased oil prices totaling $0.2 million.

See "Overview" above for factors that impact the oil and gas revenue volume and rate variances.

Other Revenue. Other revenue is generated from the Fund's production handling, gathering and operating services agreement with affiliated entities and other third parties. See Note 2 of "Notes to Financial Statements" - "Related Parties" contained in Item 8. "Financial Statements and Supplementary Data" within this Annual Report for more information.

Depletion and Amortization. Depletion and amortization during the year ended December 31, 2025 was $1.4 million, an increase of $0.4 million from the year ended December 31, 2024. The increase was primarily attributable to adjustments to the asset retirement obligations related to a fully depleted property totaling $0.7 million partially offset by a decrease in production volumes totaling $0.3 million.

See "Overview" above for certain factors that impact the depletion and amortization volume and rate variances. Depletion and amortization rates may be impacted by changes in reserves estimates provided annually by the Fund's independent petroleum engineers.

Operating Expenses. Operating expenses represent costs specifically identifiable or allocable to the Fund's wells, as detailed in the following table.

		Year ended December 31,
		2025				2024
		(in thousands)
Lease operating expense		$	264			$	236
Workover expense			89				-
Accretion expense and other			83				64
Transportation and processing expense			75				102
Insurance expense			50				45
		$	561			$	447

Lease operating expense and transportation and processing expense relate to the Fund's producing projects. Workover expense represents costs to restore or stimulate production of existing reserves. Accretion expense relates to the asset retirement obligations established for the Fund's oil and gas properties. Insurance expense represents premiums related to the Fund's projects, which vary depending upon the number of wells producing or drilling.

Production costs, which include lease operating expense, transportation and processing expense and insurance expense, were $0.4 million ($15.20 per barrel of oil equivalent or "BOE") during the year ended December 31, 2025, compared to $0.4 million ($10.58 per BOE) during the year ended December 31, 2024.

Production costs were relatively consistent during the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase in production costs per BOE during the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily attributable to the Beta Project, which had higher production costs per BOE during the year ended December 31, 2025 primarily attributable to reduced production volumes due to natural declines in production.

See "Overview" above for factors that impact oil and natural gas production.

General and Administrative Expenses. General and administrative expenses represent costs specifically identifiable or allocable to the Fund, such as accounting and professional fees and insurance expenses. Management reimbursement costs related to services provided by the Manager for accounting and investor relations are also included within general and administrative expenses.

Interest Income. Interest income is comprised of interest earned on cash and cash equivalents and salvage fund.

Capital Resources and Liquidity

Operating Cash Flows

Cash flows used in operating activities during the year ended December 31, 2025 were $8 thousand, related to the settlement of asset retirement obligation of $1.2 million, operating expenses of $0.4 million and general and administrative expenses of $0.3 million, partially offset by revenue received of $1.8 million and interest income received of $0.1 million.

Cash flows provided by operating activities during the year ended December 31, 2024 were $2.0 million, primarily related to revenue received of $2.6 million and interest income received of $0.1 million, partially offset by operating expenses of $0.4 million and general and administrative expenses of $0.2 million.

Investing Cash Flows

Cash flows provided by investing activities during the year ended December 31, 2025 were $1.0 million, related to proceeds from the salvage fund of 1.2 million, partially offset by investments in salvage fund of $0.2 million and capital expenditures for oil and gas properties of $0.1 million.

Cash flows used in investing activities during the year ended December 31, 2024 were $0.2 million, primarily related to investments in salvage fund of $0.2 million.

Financing Cash Flows

Cash flows used in financing activities during the year ended December 31, 2025 were $0.5 million, related to manager and shareholder distributions.

Cash flows used in financing activities during the year ended December 31, 2024 were $1.7 million, related to manager and shareholder distributions.

Capital Expenditures

The Fund has entered into multiple agreements for the acquisition, drilling and development of its oil and gas properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis.

Capital expenditures for oil and gas properties have been funded with the capital raised by the Fund in its private placement offering and through debt financing. The Fund's capital has been fully invested and as a result, the Fund will not invest in any new projects and will limit its investment activities, if any, to those projects in which it currently has a working interest. Such investment activities, which include estimated capital spending on planned well recompletions for the Beta Project, are expected to be funded from cash flows from operations and existing cash-on-hand and not from equity, debt or off-balance sheet financing arrangements.

See Item 1. "Business" of this Annual Report under the heading "Properties" and "Liquidity Needs" below for additional information.

Liquidity Needs

The Fund's primary short-term and long-term liquidity needs are to fund its operations and capital expenditures for its oil and gas properties. Such needs are funded utilizing operating income and existing cash on-hand.

As of December 31, 2025, the Fund's estimated capital commitments related to its oil and gas properties were $3.0 million (which include asset retirement obligations for the Fund's projects of $1.8 million), of which $1.2 million is expected to be spent during the year ending December 31, 2026. Future results of operations and cash flows are dependent on the revenues from production and sale of oil and gas from the Beta Project. In addition, cash flow from operations may be impacted by fluctuations in oil and natural gas commodity prices. Based upon its current cash position, salvage fund and its current reserves estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments and ongoing operations. Reserves estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision.

Distributions, if any, are funded from available cash from operations, as defined in the LLC Agreement, and the frequency and amount are within the Manager's discretion. However, distributions may be impacted by amounts of future capital required for the costs associated with the well recompletions for the Beta Project, as budgeted, as well as the funding of estimated asset retirement obligations. Distributions may also be impacted by fluctuations in oil and natural gas commodity prices.

Contractual Obligations

The Fund enters into participation and joint operating agreements with operators. On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities. The Fund does not negotiate such contracts. No contractual obligations exist as of December 31, 2025 and 2024, other than those discussed in "Capital Expenditures" above.

Recent Accounting Pronouncements

See Note 1 of "Notes to Financial Statements" - "Organization and Summary of Significant Accounting Policies" contained in Item 8. "Financial Statements and Supplementary Data" within this Annual Report for a discussion of recent accounting pronouncements applicable to the Fund's financial statements.