Reserve Petroleum Co.
11/14/2025 | Press release | Distributed by Public on 11/14/2025 11:01
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read with reference to ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the 2024 Form 10-K, as well as the consolidated financial statements included in this Form 10-Q.
Forward-Looking Statements
This discussion and analysis includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give the Company's current expectations of future events. They include statements regarding the drilling of oil and natural gas wells, the production that may be obtained from oil and natural gas wells, cash flow and anticipated liquidity and expected future expenses.
Although management believes the expectations in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that would cause actual results to differ materially from expected results are described under "Forward-Looking Statements" on page 3 of the 2024 Form 10-K.
We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q, and we undertake no obligation to update this information because of new information, future developments, or otherwise as required by law. You are urged to carefully review and consider the disclosures made in this and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.
LIQUIDITY AND CAPITAL RESOURCES
Please refer to the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows in this Form 10-Q to supplement the following discussion. In the first nine months of 2025, the Company continued to fund its business activity using internal sources of cash. The Company had net cash provided by operating activities of $7,380,584 in the nine months ended September 30, 2025. The Company had sales of equity securities of $1,400,709, cash provided by property dispositions of $3,200,752, distributions fromother investments of $466,000, for total cash provided by investing activities of $5,703,893. The Company utilized cash for the purchase of property of $8,084,208, the purchase of equity securities of $1,773,954, purchase of investments of$727,605, for cash applied to investing activities of $10,585,767. The Company paid $1,517,794 in stockholder dividends, $51,626 for the purchase of treasury stock, and $110,232 in payments on the Grand Woodsnote payable, for total cash applied to financing activities of $1,679,652. Cash provided by financing activities included Grand WoodsClass C non-controlling interest contributions of $48,824. Cash and cash equivalents increased $867,882 (22%) to $4,791,704 at September 30, 2025, from $3,923,822 at December 31, 2024.
Discussion of Significant Changes in Working Capital.In addition to the changes in cash and cash equivalents discussed above, there were other changes in working capital line items from December 31, 2024. A discussion of these items follows.
Equity securities increased $399,878 (16%) to $2,901,072 as of September 30, 2025, from $2,501,194 at December 31, 2024. The increase resulted from $373,245 in net purchases and a $26,633 net increase in market value.
Accounts receivable decreased $442,560 (16%) to $2,331,927 as of September 30, 2025, from $2,774,487 at December 31, 2024, primarily related to a decrease in oil and gas receivables caused by a decrease in the price and volume of expected oil production.
Accounts payable increased $705,739 (136%) to $1,225,921 as of September 30, 2025, from $520,182 at December 31, 2024, primarily due to timing of activity and invoices.
Other current liabilities increased $20,003 (44%) to $65,183 as of September 30, 2025, from $45,180 at December 31, 2024, due to a decrease of $51,700 in payroll taxes resulting from the timing of payroll tax remittance, and an increase in state income and accrued property taxes of $71,703.
Discussion of Significant Changes in the Consolidated Statements of Cash Flows.As noted in the first paragraph above, net cash provided by operating activities was $7,380,584 in the nine months ended September 30, 2025, an increase of $1,859,125 (34%) from cash provided by operations in the comparable period in 2024 of $5,521,459. For more information see "Operating Revenues" and "Other Income/(Loss), Net" below.
Cash applied to the purchase of property, plant and equipment in the nine months ended September 30, 2025, was $8,084,208, an increase of $923,703 (13%) from cash applied to the purchase of property, plant and equipment in the comparable period in 2024 of $7,160,505.
Cash applied to the purchase of investments in the nine months ended September 30, 2025, was $727,605, an increaseof $342,440(89%) from cash applied in the comparable period of 2024 of $385,165. Cash provided by the sale of investments was $1,102,432, an increase of $1,098,432 from cash provided in the comparable period of 2024 of $4,000. For more information related to investments, see Note 5 to the accompanying consolidated financial statements.
Off-Balance Sheet Arrangements.The Company is a guarantor of 15%of a $620,000 development loan that matures July 15, 2028, held by QSN Office Park, LLC. The Company is committed to a $250,000 investment in VCC Venture Fund I, LP, of which $187,500 (75%) is invested at September 30, 2025. The Company is committed to a $1,000,000 investment in Cortado Ventures Fund II-A, of which $850,000 (85%) is invested at September 30, 2025. For more information about these entities and the related off-balance sheet arrangements, see Note 5 and Note 6 to the accompanying consolidated financial statements.
Conclusion.Management is unaware of any additional material trends, demands, commitments, events or uncertainties, which would impact liquidity and capital resources to the extent that the discussion presented in the 2024 Form 10-K would not be representative of the Company's current position.
RESULTS OF OPERATIONS
Results of Operations - Nine Months Ended September 30, 2025
Net income attributable to common stockholders increased $807,405 (23%) to $4,343,257 in the nine months ended September 30, 2025, from $3,535,852 in the comparable period in 2024. Net income per share attributable to common stockholders, basic, increased $5.73 to $28.62 in the nine months ended September 30, 2025, from $22.89 in the comparable period in 2024. A discussion of revenue from oil and natural gas sales and other significant line items in the Consolidated Statements of Income follows.
Operating Revenues.Revenues from oil and gas sales increased $1,071,511 (10%) to $11,794,573 in the nine months ended September 30, 2025, from $10,723,062 in the comparable period in 2024. The increase is due to a decrease in oil sales of $417,691, an increase in natural gas sales of $1,499,703, and a decrease in miscellaneous oil and natural gas product sales of $10,501.
The $417,691 (5%) decrease in oil sales to $8,323,128 in the nine months ended September 30, 2025, from $8,740,819 in the comparable period in 2024 was the result of an increase in the volume sold and a decrease in the average price per barrel (Bbl). The volume of oil sold increased 17,564 Bbls to 135,757 Bbls in the nine months ended September 30, 2025, resulting in a positive volume variance of $1,298,858. The average price per Bbl decreased $12.64 to $61.31 per Bbl in the nine months ended September 30, 2025, from $73.95 per Bbl in the comparable period in 2024, resulting in a negative price variance of $1,716,549.
The $1,499,703 (87%) increase in natural gas sales to $3,217,546 in the nine months ended September 30, 2025, from $1,717,843 in the comparable period in 2024 was the result of an increase in the volume sold, and an increase in the average price per thousand cubic feet ("MCF"). The volume of natural gas sold increased 230,759 MCF to 951,739 MCF in the nine months ended September 30, 2025, from 720,980 MCF in the comparable period in 2024, resulting in a positive volume variance of $549,206. The average price per MCF increased $1.00 to $3.38 per MCF in the nine months ended September 30, 2025, from $2.38 per MCF in the comparable period in 2024, resulting in a positive price variance of $950,497.
For both oil and natural gas sales, the price change was mostly the result of a change in the spot market prices upon which most of the Company's oil and natural gas sales are based. These spot market prices have had significant fluctuations in the past and these fluctuations are expected to continue.
Sales of miscellaneous oil and natural gas products were $253,899 in the nine months ended September 30, 2025, compared to $264,400 in the comparable period in 2024.
The Company had water well drilling revenues of $0 in the nine months ended September 30, 2025, related to water well drilling through TWS, with $660,978 in the comparable period in 2024. The decrease was due to the completion of a large commercial well project and several commercial and residential water wells completed in 2024. Water well drilling revenues ceased on the joint venture agreement termination date of April 19, 2024. See Note 6 for additional information on TWS.
Operating Costs and Expenses.Operating costs and expenses decreased $611,584 (7%) to $7,550,423 in the nine months ended September 30, 2025, from $8,162,007 in the comparable period of 2024.
Production Costs.Production costs increased $219,824 (7%) to $3,303,281 in the nine months ended September 30, 2025, from $3,083,457 in the comparable period in 2024. Lease operating expenses increased $200,953 (10%), gas deductionsand other costs decreased by $50,306 (10%), and gross production taxes increased $69,177 (13%) due to increased revenues from oil and natural gas sales.
Exploration Costs.Exploration costs decreased $75,613 (20%) to $295,197 in the nine months ended September 30, 2025, from $370,810 in the comparable period in 2024, due to an increase of $22,511in geological and geophysical and other expenses and an increase in $58,996 in leasehold impairments, offset by a decrease in $157,120 in dry hole and plugging costs.
Water Well Drilling Costs.Water well drilling costs decreased $410,741 (100%) to $0 in the nine months ended September 30, 2025, from $410,741 in the comparable period in 2024. On April 19, 2024, we terminated the TWS Agreement with TWS South due to a breach of the agreement. Due to the termination, there will be no future expenses from water well drilling operations. See Note 6 for additional information on TWS.
Depreciation, Depletion, Amortization and Valuation Provision (DD&A).DD&A increased $862,495 (47%) to $2,687,400 in the nine months ended September 30, 2025, from $1,824,905 in the comparable period in 2024, primarily due to an increase in long-lived assets impairments of $279,859 and a $583,167 net increase in depletion, depreciation, and amortization due to an increase in completions and production.
General, Administrative and Other (G&A).G&A decreased $449,368 (19%) to $1,897,786 in the nine months ended September 30, 2025, from $2,347,154 in the comparable period in 2024. The decrease was primarily the result of bad debt expense of $465,977 recorded for TWS South accounts receivable in 2024. See Note 6 for additional information on TWS.
Gain on Disposition of Oil and Gas Properties.We had a gain on the sale of unproved, non-producing leasehold of $764,805 in the nine months ended September 30, 2025, with none in the the comparable period in 2024.
Equity Income/(Loss) in Investees.Equity income/(loss) in investees decreased $18,934 (29%) to $45,757 in the nine months ended September 30, 2025, from $64,691 in the comparable period in 2024. Income in the nine months ended September 30, 2025, was made up of income of $17,947 in Broadway Sixty-Eight, LLC ("Broadway 68"), income of $49,973 in Broadway Seventy-Two, LLC ("Broadway 72"), income of $23,122 from Victorum BRH Investment, LLC, loss of $5,214 in QSN Office Park, LLC ("QSN"), and loss of $40,071 in Stott's Mill. See Note 5 to the accompanying financial statements for additional information on equity method investments.
Other Income/(Loss), Net.Other income, net was $710,066 in the nine months ended September 30, 2025, as compared $945,581 in the comparable period in 2024. See Note 4 to the accompanying consolidated financial statements for an analysis of the components of this line item.
Income Tax Provision.Income tax provision increased $145,686 (15%) to $1,115,432 in the nine months ended September 30, 2025, from $969,746 in the comparable period in 2024. Of the 2025 tax provision, estimated current tax provision was $23,399 and estimated deferred tax provision was $1,092,033. Of the 2024 income tax provision, the estimated current tax benefit was $68,639 and the estimated deferred tax provision was $1,038,385.
Results of Operations - Three Months Ended September 30, 2025
Net income attributable to common stockholders decreased $380,510 (22%) to $1,368,541 in the three months ended September 30, 2025, from $1,749,051 in the comparable period in 2024. The significant changes in the Consolidated Statements of Income are discussed below. Net income per share attributable to common stockholders, basic decreased $2.36 to $9.02 in the three months ended September 30, 2025, from $11.38 in the comparable period in 2024.
Operating Revenues.Revenues from oil and gas sales increased $592,029 (15%) to $4,466,825 in the three months ended September 30, 2025, from $3,874,796 in the comparable period in 2024. The increase is due to an increase in oil sales of $79,585, an increase in natural gas sales of $583,728, and a decrease in miscellaneous oil and gas product sales of $71,284.
The $79,585 (3%) increase in oil sales to $3,233,521 in the three months ended September 30, 2025, from $3,153,936 in the comparable period in 2024 was the result of an increase in the volume sold and a decrease in the average price per barrel (Bbl). The volume of oil sold increased 6,840 Bbls to 52,358 Bbls in the three months ended September 30, 2025, resulting in a positive volume variance of $473,944. The average price per Bbl decreased $7.53 to $61.76 per Bbl in the three months ended September 30, 2025, from $69.29 per Bbl in the comparable period in 2024, resulting in a negative price variance of $394,359.
The $583,728 (102%) increase in natural gas sales to $1,156,512 in the three months ended September 30, 2025, from $572,784 in the comparable period in 2024 was the result of an increase in the volume sold and an increase in the average price per MCF. The volume of natural gas sold increased 74,079 MCF to 360,875 MCF in the three months ended September 30, 2025, from 286,796 MCF in the comparable period in 2024, resulting in a positive volume variance of $148,158. The average price per MCF increased $1.20 to $3.20 per MCF in the three months ended September 30, 2025, from $2.00 per MCF in the comparable period in 2024, resulting in a positive price variance of $435,570.
Operating Costs and Expenses.Operating costs and expenses increased $21,497 (1%) to $2,656,170 in the three months ended September 30, 2025, from $2,634,673 in the comparable period in 2024.
Production Costs.Production costs increased $167,707 (16%) to $1,209,401 in the three months ended September 30, 2025, from $1,041,694 in the comparable period in 2024. Lease operating expenses increased $150,321 (23%), gas deductions and other costs decreased by $76,491 (29%), and gross production taxes increased $93,877 (73%).
Exploration Costs.Exploration costs increased $33,762 (79%) to $76,497 in the three months ended September 30, 2025, from $42,735 in the comparable period in 2024, due to increased dry hole and plugging costs of $29,386 and an increase of $4,376 in geological, geophysical, and other costs.
Water Well Drilling Costs.Water well drilling costs decreased $563 (100%) to $0 in the three months ended September 30, 2025, from $563 in the comparable period in 2024. On April 19, 2024, we terminated the TWS Agreement with TWS South due to a breach of the agreement. Due to the termination, there will be no future expenses from water well drilling operations. See Note 6 for additional information on TWS.
General, Administrative and Other (G&A).G&A decreased $444,097 (43%) to $593,534 in the three months ended September 30, 2025, from $1,037,631 in the comparable period in 2024. This was primarily the result of bad debt expense of $465,977 recorded for TWS South accounts receivable in 2024. See Note 6 to the accompanying consolidated financial statements for an analysis of the circumstances of this line item.
Gain on Disposition of Oil and Gas Properties.We had a gain on the sale of unproved, non-producing leasehold of $149,430 in the three months ended September 30, 2025, with none in the the comparable period in 2024.
Equity Income/(Loss) in Investees.Equity income/(loss) in investees decreased $24,029 to a loss of $16,696 in the three months ended September 30, 2025, from income of $7,333 in the comparable period in 2024. See Note 5 to the accompanying financial statements for additional information on equity method investments.
Other Income/(Loss), Net.Other income/(Loss), net decreased $583,431 in the three months ended September 30, 2025, to a loss of $119,742 from income of $463,689 in the comparable period in 2024. See Note 4 to the accompanying consolidated financial statements for an analysis of the components of this item.
Income Tax Provision.Income tax provision increased $49,121 (20%) to $299,616 in the three months ended September 30, 2025, from a provision of $250,495 in the comparable period in 2024. Of the 2025 tax provision, estimated current tax provision was $20,797 and estimated deferred tax provision was $278,819. Of the 2024 tax provision, the estimated current tax benefit was $69,438 and the estimated deferred tax provision was $319,933. See discussions above in "Results of Operations" section for additional explanation of the changes in the provision for income taxes.
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