Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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

Introduction

This information should be read in conjunction with the interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission on March 13, 2026 (the "Annual Report").

Certain abbreviations and oil and gas industry terms used throughout this Report are described and defined in greater detail under "Glossary of Oil, Natural and Industrial Gas Terms" on page 4 of our Annual Report.

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited Condensed Consolidated Financial Statements included above under "Part I - Financial Information" - "Item 1. Financial Statements."

In this Quarterly Report on Form 10-Q, we may rely on and refer to information regarding the industries in which we operate in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, we have not independently verified any of it, and we have not commissioned any such information.

See also "Cautionary Statement About "Forward-Looking Statements" above.

Unless the context requires otherwise, references to the "Company," "we," "us," "our," "Big Sky Industrial Inc.", and "Big Sky Industrial" refer specifically to Big Sky Industrial Inc. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:

●	"Bbl" refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons;
●	"BOE" refers to barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate, or natural gas liquids, to six Mcf of natural gas;
●	"Bopd" refers to barrels of oil per day;
●	"Industrial gases" refers to helium, carbon dioxide, and hydrocarbons;
●	"Mcf" refers to a thousand cubic feet of natural gas;
●	"Mcfe" means 1,000 cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids;
●	"MMCF" refers to a million cubic feet of natural or industrial gases;
●	"MMCF/d" refers to a million cubic feet of natural or industrial gases;
●	"NGL" refers to natural gas liquids;
●	"Exchange Act" refers to the Securities Exchange Act of 1934, as amended;
●	"SEC" or the "Commission" refers to the United States Securities and Exchange Commission;

●	"Securities Act" refers to the Securities Act of 1933, as amended; and
●	"WTI" means West Texas Intermediate.

Where You Can Find Other Information

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us at https://www.sec.gov (our filings can be found at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000101594) and on the "Investors - SEC Filings" page of our website at https://bigskyindustrialinc.com. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Summary of The Information Contained in Management's Discussion and Analysis of Financial Condition and Results of Operations

Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying unaudited Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

	●	General Overview. A general overview of the Company and our operations.
	●	Recent Developments. Discussion of recent developments affecting the Company and our operations.
	●	Plan of Operations and Strategy. Discussion of our strategy moving forward and how we plan to seek to increase stockholder value.
	●	Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
	●	Results of Operations. An analysis of our financial results comparing the three and nine months ended September 30, 2026 and 2025.
	●	Liquidity and Capital Resources. A discussion of our financial condition, including descriptions of balance sheet information and cash flows.

General Overview

Big Sky Industrial Inc. (collectively with its wholly-owned subsidiaries are referred to as the "Company") is incorporated in the State of Delaware. The Company's principal business activities are focused on the acquisition, exploration, and development of industrial gases, oil and natural gas properties in the United States.

Recent Developments

Final Investment Decision -Big Sky Carbon Hub

During the first quarter of 2026, the Company reached a final investment decision ("FID") for the construction of its processing facility at the Big Sky Carbon Hub ("Big Sky") in Montana and executed a fixed-scope engineering, procurement and construction agreement, initiating capital deployment for the project. The planned facility is designed with an initial inlet capacity up to 7.7 MMCF/d, targeting approximately 14.4 MMCF of annual helium production and 125,000 metric tons of refined CO₂ per year. The Company expects its gathering pipeline installation to be completed in the 4th quarter of 2026, and initial gas processing and helium sales, and carbon management operations are anticipated in 2027.

In anticipation of reaching FID, during the nine months ended September 30, 2026, the Company generated $17.2 million in proceeds from equity issuances. Additionally, on April 17, 2026, the Company entered into an amendment to its Credit Facility with FirstBank Southwest that among other things, (i) increased the borrowing base from $10.0 million to $20.0 million, (ii) revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and (iii) suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The Credit Facility maturity date remains May 31, 2029.

Helium Sales Agreement

On April 27, 2026, the Company executed a five-year helium sales agreement with an investment-grade global industrial gas company for the sale of contained helium to be produced at the Company's Big Sky Carbon Hub in Montana. The Agreement provides for a 100% take-or-pay commitment by the counterparty for up to approximately 1.2 MMCF per month (14.4 MMCF annually) of helium production, with fixed pricing of $285 per MCF, which includes counterparty transport from the plant gate, subject to annual (consumer price index) CPI-based escalation beginning March 1, 2028, and includes a price redetermination mechanism in year three with a right of first refusal.

Plan of Operations and Strategy

During the remainder of 2026 and beyond, we intend to pursue opportunities across the industrial gas sector, with a strategic emphasis on the next phase of development and monetization of our helium and carbon dioxide resources. While we plan to continue to operate oil and gas assets, our primary focus is on maximizing value from associated industrial gases. Our activities may include the acquisition of assets, participation with industry partners in development projects, acquisition of existing companies, and the purchase or development of industrial gas-related assets. Planned operations include construction of processing facilities, negotiating operating arrangements, finalizing gathering and infrastructure designs, and pursuing the use of a portion of produced CO₂ in tertiary recovery operations in our Montana oil operations.

Key elements of our business strategy include:

●

Deploy our Capital in a Conservative and Strategic Manner and Review Opportunities to Bolster our Liquidity. In the current industry environment, maintaining liquidity remains critical. We intend to be selective in evaluating projects, prioritizing those that enhance industrial gas value, and to review opportunities to strengthen our liquidity and financial position through disciplined capital allocation and other means.

●	Evaluate and Pursue Value-Enhancing Transactions. We plan to continuously evaluate strategic alternatives, including transactions that expand our industrial gas platform or optimize our oil and gas assets, with the objective of enhancing long-term stockholder value.

Critical Accounting Policies and Estimates

The preparation of our unaudited Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is detailed in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2025 Annual Report on Form 10-K filed with the SEC on March 13, 2026.

Results of Operations

Comparison of our Statements of Operations for the Three Months Ended September 30, 2026 and 2025

For the three months ended September 30, 2026, we recorded a net loss of $3.5 million, which was primarily due to lower production resulting from divestitures in prior periods. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the three months ended September 30, 2026 compared to the three months ended September 30, 2025.

Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the three months ended September 30, 2026 and 2025:

		Three months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands except average prices and production quantities)
Revenue:
Oil		$	1,810			$	1,587			$	223				14	%
Natural gas and liquids			145				151				(6	)			(4	)%
Total revenue		$	1,955			$	1,738			$	217				12	%
Production quantities:
Oil (Bbls)			23,415				26,399				(2,984	)			(11	)%
Natural gas and liquids (Mcfe)			43,278				53,562				(10,284	)			(19	)%
BOE			30,628				35,326				(4,698	)			(13	)%
BOE/Day			333				384				(51	)			(13	)%
Average sales prices:
Oil (Bbls)		$	77.30			$	60.12			$	17.18				29	%
Natural gas and liquids (Mcfe)		$	3.35			$	2.82			$	0.53				19	%
BOE		$	63.83			$	49.20			$	14.63				30	%

The increase in our oil and natural gas revenue of $0.2 million for the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, was primarily due to a 30% increase in average BOE sales prices offset by a reduction in production volumes. For the three months ended September 30, 2026, we produced 30,628 BOE, or an average of 333 BOE per day, as compared to 35,326 BOE or an average of 384 BOE per day during the comparable period in 2025. The decrease in our production quantities primarily relates to the divestitures of our properties in Wyoming and West Texas and the natural decline in production in remaining producing assets.

Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the three months ended September 30, 2026 and 2025:

		Three months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands)
Lease operating expenses		$	2,110			$	1,045			$	1,065				102	%
Production taxes			158				136			$	22				16	%
Exploration expense			88				128			$	(40	)			(31	)%
Total		$	2,356			$	1,309			$	1,047				80	%
Lease operating expense per BOE		$	68.89			$	29.58			$	39.31				133	%

For the three months ended September 30, 2026, lease operating expenses were $2.1 million, or $68.89 per BOE, including $1.2 million of environmental remediation costs associated with a fluid release. These costs are subject to an insurance claim with a $0.1 million deductible. Excluding the environmental remediation costs, lease operating expenses were $0.9 million, or $29.71 per BOE, compared to $1.0 million or $29.58 per BOE, for the prior-year period.

For the three months ended September 30, 2026, production taxes consistently remained between 6% and 8% of revenue. This increase in production taxes was attributable to the increase in revenue of 12% during the same period, as discussed above.

Exploration expense decreased $40 thousand, which was attributable to a reduction in professional fees.

Impairment of oil and natural gas properties. The Company recorded a ceiling test write down of $0.9 million for the three months ended September 30, 2025, resulting from a decrease in commodity prices used in the full cost pool ceiling test calculation.

Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization ("DD&A") was $0.5 million and $0.8 million for the three months ended September 30, 2026 and 2025, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $10.92 per BOE and $14.19 per BOE for the three months ended September 30, 2026 and 2025, respectively. Our depletion rate can fluctuate modestly for a number of reasons including the size and timing of capital costs, acquisitions and divestitures, impairments and changes to estimated reserve volumes.

General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the three months ended September 30, 2026 and 2025:

		Three months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands)
Compensation and benefits		$	865			$	845			$	20				2	%
Stock-based compensation			578				420				158				38	%
Professional fees, insurance and other			758				848				(90	)			(11	)%
Total general and administrative expenses		$	2,201			$	2,113			$	88				4	%

General and administrative expenses increased by $0.1 million for the three months ended September 30, 2026 as compared to the prior year period. The increase was primarily attributable to equity-based compensation issued to consultants, and higher investor relations expense, partially offset by lower fees for accounting and tax professional services in the three months ended September 30, 2026.

Other Income (Expense). Presented below is a comparison of our other income (expense) for the three months ended September 30, 2026 and 2025:

		Three months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands)
Commodity derivative gain (loss), net		$	(336	)		$	-			$	(336	)			(100	)%
Interest expense, net			-				(72	)			72				100	%
Other income (expense), net			(27	)			110				(137	)			(125	)%
Total other income (expense)		$	(363	)		$	38			$	(401	)			(1055	)%

The commodity derivative loss as of September 30, 2026 was due to the prevailing oil prices were above the costless collar ceiling price resulting in a loss.

Interest expense primarily consists of interest and fees associated with our credit facility. During the three months ended September 30, 2026, we capitalized $160 thousand of interest expense and related fees as part of the industrial gas processing plant construction expenses.

As of September 30, 2026 and December 31, 2025, outstanding borrowings under our credit facility were $8.5 million and $2.5 million, respectively.

For the three months ended September 30, 2026, interest expense consisted of interest on outstanding borrowings, financing costs and fees associated with maintaining our credit facility. For the three months ended September 30, 2025, we had no outstanding borrowings under the credit facility, and interest expense consisted solely of fees associated with the credit facility.

Comparison of our Statements of Operations for the Nine Months Ended September 30, 2026 and 2025

For the nine months ended September 30, 2026, we recorded a net loss of $9.0 million, which was primarily due to lower production resulting from divestitures in prior periods. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025.

Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the nine months ended September 30, 2026 and 2025:

		Nine months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands except average prices and production quantities)
Revenue:
Oil		$	5,221			$	5,201			$	20				0	%
Natural gas and liquids			473				758				(285	)			(38	)%
Total revenue		$	5,694			$	5,959			$	(265	)			(4	)%
Production quantities:
Oil (Bbls)			71,423				89,837				(18,414	)			(20	)%
Natural gas and liquids (Mcfe)			163,458				247,878				(84,420	)			(34	)%
BOE			98,666				131,150				(32,484	)			(25	)%
BOE/Day			361				480				(119	)			(25	)%
Average sales prices:
Oil (Bbls)		$	73.10			$	57.89			$	15.21				26	%
Natural gas and liquids (Mcfe)		$	2.89			$	3.06			$	(0.17	)			(6	)%
BOE		$	57.71			$	45.44			$	12.27				27	%

The decrease in our oil and natural gas revenue of $0.3 million for the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025, was primarily due to a reduction in production volumes offset by a 27% increase in average BOE sales prices. For the nine months ended September 30, 2026, we produced 98,666 BOE, or an average of 361 BOE per day, as compared to 131,150 BOE or an average of 480 BOE per day during the comparable period in 2025. The decrease in our production quantities primarily relates to the divestitures of our properties in Wyoming and West Texas and the natural decline in production in remaining producing assets.

Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the nine months ended September 30, 2026 and 2025:

		Nine months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands)
Lease operating expenses		$	4,016			$	4,189			$	(173	)			(4	)%
Production taxes			453				432				21				5	%
Exploration expense			310				174				136				78	%
Total		$	4,779			$	4,795			$	(16	)			(0	)%
Lease operating expense per BOE		$	40.70			$	31.94			$	8.76				27	%

For the nine months ended September 30, 2026, lease operating expenses were $4.0 million, or $40.70 per BOE, including $1.2 million of environmental remediation costs associated with a fluid release. These costs are subject to an insurance claim with a $0.1 million deductible. Excluding the environmental remediation costs, lease operating expenses were $2.8 million, or $28.54 per BOE, compared to $4.2 million, or $31.94 per BOE, for the comparable prior-year period. The decrease resulted from the 2025 divestiture of our Wyoming and West Texas properties that carried higher operating costs.

For the nine months ended September 30, 2026, production taxes consistently remained between 6% and 8% of revenue.

Exploration expense increased $136 thousand, which was attributable to an increase in exploration activities for our industrial gas development, namely professional services supporting resource estimation and analysis and legal work.

Impairment of oil and natural gas properties. The Company recorded a ceiling test write down of $3.6 million for the nine months ended September 30, 2025, resulting from a decrease in commodity prices used in the full cost pool ceiling test calculation.

Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization ("DD&A") was $1.7 million and $3.1 million for the nine months ended September 30, 2026 and 2025, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $11.24 per BOE and $14.54 per BOE for the nine months ended September 30, 2026 and 2025, respectively. Our depletion rate can fluctuate modestly for a number of reasons including the size and timing of capital costs, acquisitions and divestitures, impairments and changes to estimated reserve volumes.

General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the nine months ended September 30, 2026 and 2025:

		Nine months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands)
Compensation and benefits		$	3,395			$	2,246			$	1,149				51	%
Stock-based compensation			1,708				1,454				254				17	%
Professional fees, insurance and other			2,792				3,054				(262	)			(9	)%
Total general and administrative expenses		$	7,895			$	6,754			$	1,141				17	%

General and administrative expenses increased by $1.1 million for the nine months ended September 30, 2026 as compared to the prior year period. The increase was primarily attributable to the timing of discretionary compensation, which occurred during the three months ended March 31, 2026. Professional fees decreased primarily due to a reduction in acquisition-related costs relative to the activity in the nine months ended September 30, 2025.

Other Income (Expense). Presented below is a comparison of our other income (expense) for the nine months ended September 30, 2026 and 2025:

		Nine months ended September 30,								Change
		2026				2025				Amount				Percent
		(in thousands)
Commodity derivative gain (loss), net		$	(169	)		$	-			$	(169	)			(100	)%
Interest expense, net			(74	)			(167	)			93				56	%
Other income (expense), net			(56	)			362				(418	)			(115	)%
Total other income (expense)		$	(299	)		$	195			$	(494	)			(253	)%

The commodity derivative loss as of September 30, 2026 was due to the prevailing oil prices were above the costless collar ceiling price resulting in a loss

Interest expense primarily consists of interest and fees associated with maintaining our credit facility. During the nine months ended September 30, 2026, we capitalized $223 thousand of interest and related fees as part of the construction costs of our industrial gas processing plant.

As of September 30, 2026 and December 31, 2025, outstanding borrowings under our credit facility were $8.5 million and $2.5 million, respectively. For the nine months ended September 30, 2025, we had no outstanding borrowings under the credit facility, and interest expense consisted solely of fees associated with the credit facility.

Liquidity and Capital Resources

Based on the current commodity price environment and our existing working capital, we believe we have sufficient liquidity and capital resources to execute our business plan and meet our current financial obligations. Under the second amendment to our credit agreement, financial covenant test has been suspended through the fiscal quarter ending March 31, 2027. We continue to actively manage our capital commitments to maintain flexibility with respect to the timing and level of our development activities and capital expenditures.

For the remainder of 2026, the Company's capital program is designed to advance the Big Sky project toward initial commercial operations targeted for the first quarter of 2027. We anticipate the remaining aggregate, near-term capital program to range between $28.0 million and $32.0 million, primarily related to the construction of our gas processing plant, production gathering system, power generation, and related infrastructure at our industrial gas development project. In addition, we may incur up to approximately $0.5 million for plugging and abandonment activities, depending on regulatory requirements, timing, and weather conditions. We expect these expenditures to be funded through a combination of cash on hand, operating activities, proceeds from the divestiture of oil and natural gas properties, borrowings under our credit facility, additional equity issuances, and project-specific financing, including equity and debt capital.

Sources of Cash

For the nine months ended September 30, 2026, we funded our capital expenditures primarily through cash on hand, proceeds from equity issuances, and draws on our credit facility. During the period, we generated approximately $17.2 million from equity sales, issuances and had cash and cash equivalents of approximately $2.9 million, and $11.5 million available under our credit facility as of September 30, 2026.

On April 17, 2026, the Company entered into an amendment to its credit facility with FirstBank Southwest, which, among other things, increased the borrowing base from $10.0 million to $20.0 million, revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The maturity date of the credit facility remains May 31, 2029.

In future periods, if cash flows from operations are insufficient to fund capital expenditures and operating requirements, we may seek additional financing through public or private equity or debt offerings or other financing arrangements. We may also adjust the timing and scope of our capital program based on market conditions and capital availability. Our ability to access capital is subject to prevailing economic conditions, including changes in commodity prices, interest rates, capital markets, regulatory requirements, and other factors beyond our control.

Uses of Cash

We use cash primarily for the development of our industrial gas assets, including construction of processing and gathering infrastructure, as well as for operating expenses, general and administrative costs, and debt service obligations. During the nine months ended September 30, 2026, we spent approximately $15.2 million on the acquisition and development of industrial gas properties and expect to continue allocating capital to the Big Sky project for the remainder of the year.

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2026 and 2025:

		Nine months ended September 30,
		2026				2025				Change
		(in thousands)
Net cash provided by (used in):
Operating activities		$	(4,764	)		$	(6,281	)		$	1,517
Investing activities			(15,655	)			(9,668	)			(5,987	)
Financing activities			22,905				9,641				13,264

Operating Activities. Cash used in operating activities of $4.8 million for the nine months ended September 30, 2026 was mainly due to a $9.0 million net loss offset by working capital changes of $0.3 million, and $1.7 million each of depreciation, depletion, accretion, and stock-based compensation. Cash used by operating activities of $6.3 million for the nine months ended September 30, 2025, was mainly due to a net loss of $12.5 million and a reduction of payables of $2.6 million offset by $3.1 million of depreciation, depletion, accretion, and amortization, and a $3.6 million impairment of oil and gas properties.

Investing Activities. Cash used in investing activities for the nine months ended September 30, 2026 was $15.7 million as compared to cash used in investing activities of $9.7 million for the comparable period in 2025. The primary use of cash in our investing activities for the nine months ended September 30, 2026 was attributable to industrial plant development activities. For the nine months ended September 30, 2025, the cash investment was primarily attributed to industrial gas capital expenditures and the Synergy acquisition.

Financing Activities. Cash provided by financing activities for the nine months ended September 30, 2026 was $22.9 million as compared to $9.6 million for the comparable period in 2025. The primary drivers of this cash inflow were equity sales of $17.2 million and borrowings of $6.0 million during the nine months ended September 30, 2026, compared to $11.9 million of proceeds from underwritten offering in the prior period, which in the prior period were reduced by a related party share repurchase of $1.6 million.