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 will participate in and 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 is 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 at least annually or if events or changes in circumstances indicate the asset may be significantly impaired. As of September 30, 2025, the total carrying value of all royalty interests taken together was $1,300,896, which was calculated as the beginning balance of our royalty interests of $1,369,899 less accumulated amortization of $69,003 at September 30, 2025. No indicators of impairment were identified during the three and nine months ended September 30, 2025.

The following table summarizes activity related to the royalty interests at September 30, 2025 and December 31, 2024:

 Schedule of activity related to royalty interests 

The Company’s three (3) fractional royalty interests entitled 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 of our royalty interests bear the costs of operation and development.

Royalty revenue was $40,430 and $0 for the three months ended September 30, 2025 and 2024, and $117,430 and $0 for the nine months ended September 30, 2025 and 2024, respectively.

Accrued royalty income and incurred production, severance, environmental, and regulatory taxes (collectively, “severance taxes”) are estimated and recognized in the month oil is produced, when royalty income is earned. The difference between accrued royalty income and the amount received is adjusted when royalty payments are received. Some of the initial payments owed to us may not be received until one hundred and twenty days following the transfer of title, or until the end of the fourth quarter of 2025. Generally, 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 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 $38,456 and $0 as of September 30, 2025 and 2024, respectively, which represent the Company’s estimated receivables for approximately two and a half months. Royalty payments received were $21,312 and $0 for the three months ended September 30, 2025 and 2024, which represent a portion of the royalty income earned by the Company in July 2025. Royalty payments received were $78,974 and $0 for the nine months ended September 30, 2025 and 2024, respectively, which represent a portion of the royalty income earned by the Company between March 2025 and July 2025. Actual and estimated severance taxes were approximately 5.22% of actual and accrued royalty income at the nine months ended September 30, 2025. The difference between the estimated incurred severance tax liability and the amount paid is adjusted upon the Company’s receipt of royalty statements. The Company monitors changes in market conditions, commodity prices, available production volumes, and other factors, which may materially impact the recoverability of our royalty interests.

The Company anticipates incurring annual ad valorem tax liability for its royalty interests located in the state Texas. Such liability may be assessed according to value by the county assessor in localities where our royalty interests are located, in accordance with local and state law. Ad valorem tax liability was $0 and $0 for the three months and nine months ended September 30, 2025, and 2024.

Subsequent to quarter end, the Company received a total of $18,244 in royalty interest payments, gross, which, after payment of $884 in severance taxes paid by the Company, were $17,360, net, which represents a portion of the royalty income earned by the Company in August, 2025. See Note 18.