Note 8 – 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 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 for impairment a least annually or if events or changes in circumstances indicate the asset may be significantly impaired. As of March 31, 2026, the total carrying value of all royalty interests taken together was $1,232,401, which was calculated as the beginning balance of our royalty interests of $1,369,899 less accumulated amortization of $137,498 at March 31, 2026. No indicators of impairment were identified during the three months ended March 31, 2026.

The following table summarizes activity related to the royalty interests at March 31, 2026 and December 31, 2025:

 Schedule of activity related to royalty interests 

Royalty revenue was $42,767 and $2,000 for the three months ended March 31, 2026 and 2025.

Accrued royalty income and incurred 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.

Accrual of estimated royalty income was $23,600 and $2,000 for the three months ended March 31, 2026 and 2025, respectively, which represent the Company’s estimated receivables for approximately two months. Net accrual of estimated royalty income was ($2,400) and $2,000 for the three months ended March 31, 2026 and 2025, respectively, which represent the Company’s $35,400 estimated receivables for approximately three months, less ($37,800) reversals related to November 2025, December 2025, and January 2026 prior accruals related to such payments being received in the three months ended March 31, 2026. Royalty payments received were $45,167 and $0 for the three months ended March 31, 2026, and 2025, which represent the royalty income earned by the Company in November 2025, December 2025, and January 2026 as of March 31, 2026. No royalty payments were received as of March 31, 2025 due to the recent purchase of the Company’s royalty interests. Actual and estimated severance taxes were approximately 5.10% of actual and accrued royalty income at the three months ended March 31, 2026. 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, production volumes, and other factors, which may materially impact the recoverability of our royalty interests.

Estimated annual ad valorem tax liability was $4,750 and $0 for the three months ended March 31, 2026, and 2025. This liability is assessed according to value by the county assessor in the locality where our royalty interests are located, in accordance with local and state law.

Subsequent to quarter end, the Company received a total of $13,464 in royalty interest payments, gross, which, after payment of $662 in severance taxes paid by the Company, were $12,802, net, which represents a portion of the royalty income earned by the Company in February, 2026. See Note 17.