Note 9 – Interest in oil and gas royalties

In March 2025, the Company acquired three fractional, non-operating royalty interests in oil and gas properties covering approximately one-hundred twenty-one (121) wells in the Spraberry Field of the Permian Basin in West Texas, through related public auctions for total consideration of $1,369,899 as follows:

The royalty interests entitle the Company to receive a proportional share of revenues generated from the production of hydrocarbons from the underlying property, without incurring any operating or production costs. Working interest owners operating the wells we participate in bear the costs of operation and development.

The Company’s ownership in various non-operating royalty interests that result in future economic benefit in the form of royalty payments following production are classified as intangible assets in accordance with ASC 350, “Intangibles – Goodwill and Other.” The Company determined that the royalty interests have an estimated useful life of ten years which is not uncommon in the oil and gas industry. Therefore, the acquisition purchase price and associated transaction costs of our royalty interests are amortized on a straight-line basis over an estimated useful life of ten years. In contemplation of the purchase of oil and gas royalty interests, management studied the historical production curves of the wells individually and in the aggregate, along with studying its estimated percentage of royalty income based on historical royalty payments in alignment with the percentage it purchased. The Company’s royalty interests are analyzed in comparison to net present value calculated using a 10% discount rate (“NPV10”) ceiling for impairment a least annually or if events or changes in circumstances indicate the asset may be significantly impaired. As of March 31, 2025, the total carrying value of all royalty interests taken together was $1,369,391, which was calculated as the beginning balance of our royalty interests of $1,369,899 less accumulated amortization of $508 at March 31, 2025. No indicators of impairment were identified during the three months ended March 31, 2025.

Note 9 – Interest in oil and gas royalties (continued)

The following table summarizes activity related to the royalty interests at March 31, 2025 and December 31, 2024:

 Schedule of activity related to royalty interests 

Accrued royalty income is estimated and recognized in the month oil is produced and royalty income is earned. The difference between accrued royalty income and the amount received is adjusted when royalty payments are received. Initial payments may not be received until one hundred and twenty days following the transfer of title, or until August 2025. Thereafter, it is estimated that payments will be received thirty to ninety days from the date of production. The performance and accuracy of third-party producers who send royalty to payments to the Company, production volumes, and prices of oil and natural gas, may materially impact our royalty income receivable amounts.

Accrual of estimated royalty income was $2,000 and $0, at March 31, 2025 and 2024, respectively. Royalty payments physically received were $0 and $0, at March 31, 2025 and 2024, respectively.

The Company monitors changes in market conditions, commodity prices, production volumes, and other factors, which may materially impact the recoverability of our royalty interests.