RESERVE PETROLEUM CO

Previous wording

•Estimates of future revenues from oil and gas sales are derived from a combination of factors which are subject to significant fluctuation over any given period. Reserve estimates, by their nature, are subject to revision in the short-term. The evaluating engineer considers production performance data, reservoir data and geological data available to the Company, as well as makes estimates of production costs, sale prices and the time period the property can be produced at a profit. A change in any of the above factors can significantly change the timing and amount of net revenues from a property. The Company’s producing properties are composed of many small working interest and royalty interest properties. As a non-operating owner, we have limited access to the underlying data from which working interest reserve estimates are calculated. Estimates of royalty interest reserves are not made because the information required for the estimation is not available to the Company. While reserve estimates are not accounting estimates, they are the basis for impairment, depreciation, depletion and amortization described below. Additionally, the estimated economic life for each producing property from the reserve estimates is used in the calculation of asset retirement obligations.

Current wording

•Estimates of future revenues from oil and gas sales are derived from a combination of factors, which are subject to significant fluctuation over any given period. Reserve estimates, by their nature, are subject to revision in the short-term. The evaluating engineer considers production performance data, reservoir data and geological data available to us, as well as makes estimates of production costs, sale prices and the time period the property can be produced at a profit. A change in any of the above factors can significantly change the timing and amount of net revenues from a property. Our producing properties are composed of many small working interest and royalty interest properties. As a non-operating owner, we have limited access to the underlying data from which working interest reserve estimates are calculated. Estimates of royalty interest reserves are not made because the information required for the estimation is not available to us. While reserve estimates are not accounting estimates, they are the basis for impairment, depreciation, depletion and amortization described below. Additionally, the estimated economic life for each producing property from the reserve estimates is used in the calculation of asset retirement obligations.

Previous wording

•Reserves relating to the Company’s proved properties may become uneconomic to produce resulting in impairment of proved properties.

Current wording

•Reserves relating to our proved properties may become uneconomic to produce resulting in impairment of proved properties.

Previous wording

•The Company has significant obligations to remove tangible equipment and facilities associated with oil and gas wells and to restore land at the end of oil and gas production operations. Removal and restoration obligations are most often associated with plugging and abandoning wells. Estimating the future restoration and removal costs is difficult and requires estimates and judgments because most of the removal obligations will take effect in the future. Additionally, these operations are subject to private contracts and government regulations that often have vague descriptions of what is required. Asset removal technologies and costs are constantly changing as are regulatory, political, environmental and safety considerations. Inherent in the present value calculations are numerous assumptions and judgments, including the ultimate removal cost amounts, inflation factors and discount rate.

Current wording

•We have significant obligations to remove tangible equipment and facilities associated with oil and gas wells and to restore land at the end of oil and gas production operations. Removal and restoration obligations are most often associated with plugging and abandoning wells. Estimating the future restoration and removal costs is difficult and requires estimates and judgments because most of the removal obligations will take effect in the future. Additionally, these operations are subject to private contracts and government regulations that often have vague descriptions of what is required. Asset removal technologies and costs are constantly changing as are regulatory, political, environmental and safety considerations. Inherent in the present value calculations are numerous assumptions and judgments, including the ultimate removal cost amounts, inflation factors and discount rate.

Previous wording

•The estimation of the amounts of income tax to be recorded by the Company involves interpretation of complex tax laws and regulations as well as the completion of complex calculations, including the determination of the Company’s percentage depletion deduction, if any. To calculate the exact excess percentage depletion allowance, a well-by-well calculation is and can only be performed at the end of each year. During interim periods, a high-level estimate is made considering historical data and current pricing. Although our management believes its income tax accruals are adequate, differences may occur in the future depending on the resolution of pending and new tax matters.

Current wording

•The estimation of the amounts of income tax to be recorded by us involves interpretation of complex tax laws and regulations as well as the completion of complex calculations, including the determination of our percentage depletion deduction, if any. To calculate the exact excess percentage depletion allowance, a well-by-well calculation is and can only be performed at the end of each year. During interim periods, a high-level estimate is made considering historical data and current pricing. Although our management believes its income tax accruals are adequate, differences may occur in the future depending on the resolution of pending and new tax matters.

Previous wording

In 2023, as in prior years, the Company funded its business activity using internal sources of capital. For the most part, these internal sources are cash flows from operations, cash, cash equivalents and available-for-sale debt securities. When cash flows from operating activities exceed those needed for other business activities, the remaining balance is used to increase cash, cash equivalents, equity securities, and/or available-for-sale debt securities. When cash flows from operating activities are not adequate to fund other business activities, withdrawals are made from cash, cash equivalents and equity securities. Cash equivalents are highly liquid debt instruments purchased with a maturity of three months or less.

Current wording

In 2024, as in prior years, we funded our business activity using internal sources of capital. For the most part, these internal sources are cash flows from operations, cash, cash equivalents and available-for-sale debt securities. When cash flows from operating activities exceed those needed for other business activities, the remaining balance is used to increase cash, cash equivalents, equity securities, and/or available-for-sale debt securities. When cash flows from operating activities are not adequate to fund other business activities, withdrawals are made from cash, cash equivalents, equity securities, and/or available-for-sale debt securities. Cash equivalents are highly liquid debt instruments purchased with a maturity of three months or less.

Previous wording

In 2023, net cash provided by operating activities was $5,592,853, net cash applied to investing activities was $5,990,740 and net cash applied to financing activities was $1,682,862.

Current wording

In 2024, net cash provided by operating activities was $7,919,307, net cash applied to investing activities was $6,974,877 and net cash applied to financing activities was $2,239,082.

Previous wording

Equity securities increased $361,107 (16%) to $2,664,066 in 2023 from $2,302,959 in 2022. The increase is due to purchases in excess of sales of $245,504 and a net increase in market value of $115,603.

Current wording

Equity securities decreased $162,872 (6%) to $2,501,194 in 2024 from $2,664,066 in 2023. The decrease is due to sales in excess of purchases of $686,375, offset by a net increase in market value of $523,503.

Previous wording

Refundable income taxes increased $197,525 (164%) to $317,755 in 2023 from $120,230 in 2022, primarily resulting from decreased taxable income that resulted in decreases in the deferred tax provision.

Current wording

Refundable income taxes decreased $81,273 (26%) to $236,482 in 2024 from $317,755 in 2023, primarily resulting from increased taxable income that resulted in increases in the tax provision.

Previous wording

Accounts receivable increased $48,480 (2%) to $2,366,663 in 2023 from $2,318,183 in 2022, due to an increase in oil and gas sales volumes, mostly offset by a decrease in prices.

Current wording

Accounts receivable increased $407,824 (17%) to $2,774,487 in 2024 from $2,366,663 in 2023, due to an increase in oil and gas sales volumes, partially offset by a decrease in prices.

Previous wording

Accounts payable increased $138,061(35%) to $537,796 in 2023 from $399,735 in 2022, primarily due to the timing of payable processing.

Current wording

Accounts payable decreased $17,614 (3%) to $520,182 in 2024 from $537,796 in 2023, primarily due to the timing of payable processing.

Previous wording

Net cash flows provided by operating activities decreased $3,038,398 (35%) to $5,592,853 in 2023 from net cash provided by operating activities of $8,631,251 in 2022. For more information on operating activities, see “Operating Revenues” and “Other Income/(Loss), Net” below.

Current wording

Net cash flows provided by operating activities increased $2,326,454 (42%) to $7,919,307 in 2024 from net cash provided by operating activities of $5,592,853 in 2023. For more information on operating activities, see “Operating Revenues” and “Other Income, Net” below.

Previous wording

Net cash applied to investing activities decreased $3,892,876 (39%) to $5,990,740 in 2023, from net cash applied to investing activities of $9,883,616 in 2022. The 2023 amount was the result of net redemptions of available-for-sale debt securities of $1,987,747, net property purchases of $7,136,289, cash applied to equity method and other investments of$596,693 and net cash applied to equity securities sales of $245,504.

Current wording

Net cash applied to investing activities increased $984,137 (16%) to $6,974,877 in 2024, from net cash applied to investing activities of $5,990,740 in 2023. The 2024 amount was the result of net redemptions of available-for-sale debt securities of $2,220,901, net property purchases of $9,671,374, cash applied to equity method and other investments of$210,779 and net cash provided by equity securities of $686,375.

Previous wording

As disclosed in the consolidated statements of operations in Item 8 of this Form 10-K, in 2023 the Company had net loss attributable to common stockholders of $55,648 compared to net income of $4,000,751 in 2022. Net loss per share attributable to common stockholders, basic and diluted, was $0.36 in 2023, a decrease of $25.98 per share from net income of $25.62 in 2022. Material line-item changes in the consolidated statements of operations will be discussed in the following paragraphs.

Current wording

In 2024 we had net income attributable to common stockholders of $2,029,278 compared to net loss of $55,648 in 2023. Net income per share attributable to common stockholders, basic and diluted, was $13.18 in 2024, an increase of $13.54 per share from net loss of $0.36 in 2023.

Previous wording

The $2,379,172 decrease in oil and gas sales was the result of a $2,186,739 decrease in gas sales, a $61,406 increase in oil sales and a $253,839 decrease in miscellaneous oil and gas product sales.

Current wording

The $2,649,488 increase in oil and gas sales was the result of a $565,786 increase in gas sales, a $1,971,009 increase in oil sales and a $112,693 increase in miscellaneous oil and gas product sales.

Previous wording

The following price and volume analysis is presented to explain the changes in oil and gas sales from 2022 to 2023. Miscellaneous oil and gas product sales of $296,502 in 2023 and $550,341 in 2022 are not included in the analysis.

Current wording

The following price and volume analysis is presented to explain the changes in oil and gas sales from 2023 to 2024. Miscellaneous oil and gas product sales of $409,195 in 2024 and $296,502 in 2023 are not included in the analysis.

Previous wording

The $2,186,739 (50%) decrease in natural gas sales to $2,155,986 in 2023 from $4,342,725 in 2022 was the result of an increase in gas sales volumes and a decrease in the average price received per thousand cubic feet (MCF). The average price per MCF of natural gas sales decreased $3.31 per MCF to $2.80 per MCF in 2023 from $6.11 per MCF in 2022, resulting in a negative gas price variance of $2,538,626. A positive volume variance of $351,887 was the result of an increase in natural gas volumes sold of 57,592 MCF to 768,764 MCF in 2023 from 711,172 MCF in 2022.

Current wording

The $565,786 (26%) increase in natural gas sales to $2,721,772 in 2024 from $2,155,986 in 2023 was the cumulative result of an increase in gas sales volumes and a decrease in the average price received per thousand cubic feet (MCF). The average price per MCF of natural gas sales decreased $0.08 per MCF to $2.72 per MCF in 2024 from $2.80 per MCF in 2023, resulting in a negative gas price variance of $82,323. A positive volume variance of $647,077 was the result of an increase in natural gas volumes sold of 230,730 MCF to 999,494 MCF in 2024 from 768,764 MCF in 2023.

Previous wording

The $61,406 (1%) increase in crude oil sales to $10,037,559 in 2023 from $9,976,153 in 2022 was the result of a decrease in the average price per barrel (Bbl) and an increase in oil sales volumes. The average price received per Bbl of oil decreased $18.04 to $74.84 in 2023 from $92.88 in 2022, resulting in a negative oil price variance of $2,420,255. an increase in oil sales volumes of 26,719 Bbls to 134,125 Bbls in 2023 from 107,406 Bbls in 2022 resulted in a positive volume variance of $2,481,661.

Current wording

The $1,971,009 (20%) increase in crude oil sales to $12,008,568 in 2024 from $10,037,559 in 2023 was the cumulative result of a decrease in the average price per barrel (Bbl) and an increase in oil sales volumes. The average price received per Bbl of oil decreased $2.49 to $72.35 in 2024 from $74.84 in 2023, resulting in a negative oil price variance of $413,213. A positive volume variance of $2,384,275 was the result of an increase in oil sales volumes of 31,859 Bbls to 165,984 Bbls in 2024 from 134,125 Bbls in 2023.

Previous wording

As disclosed in Supplemental Schedule 1 of the Unaudited Supplemental Financial Information included below in Item 8, working interests in oil extensions and discoveries were not adequate to replace working interest reserves produced in 2023 or 2022.

Current wording

As disclosed in Supplemental Schedule 1 of the Unaudited Supplemental Financial Information included below in Item 8, working interests in oil extensions and discoveries were adequate to replace working interest reserves produced in 2024 and were not in 2023.

Previous wording

For both oil and 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 gas sales are based. These spot market prices have had significant fluctuations in the past and these fluctuations are expected to continue.

Current wording

For both oil and gas sales, the price change was mostly the result of a change in the spot market prices upon which most of our oil and gas sales are based. These spot market prices have had significant fluctuations in the past and these fluctuations are expected to continue.

Previous wording

Exploration Costs. Under the successful efforts method of accounting used by the Company, geological and geophysical costs are expensed as incurred, as are the costs of unsuccessful exploratory drilling. The costs of successful exploratory drilling and all development costs are capitalized. Total costs of exploration and development, excluding asset retirement obligations but inclusive of geological and geophysical costs, were $3,709,672 in 2023 and $5,377,898 in 2022. See Item 8, Note 9 to the accompanying consolidated financial statements for a breakdown of these costs. Exploration and acquisition costs charged to operations were $708,823 in 2023 and $474,773 in 2022, inclusive of geological and geophysical costs of $120,556 in 2023 and $300,993 in 2022.

Current wording

Exploration Costs. Under the successful efforts method of accounting used by the Company, geological and geophysical costs are expensed as incurred, as are the costs of unsuccessful exploratory drilling. The costs of successful exploratory drilling and all development costs are capitalized. Total costs of exploration and development, excluding asset retirement obligations but inclusive of geological and geophysical costs, were $8,088,232 in 2024 and $3,709,672 in 2023. See Item 8, Note 10 to the accompanying consolidated financial statements for a breakdown of these costs. Exploration and acquisition costs charged to operations were $439,059 in 2024 and $708,823 in 2023, inclusive of geological and geophysical costs of $38,217 in 2024 and $120,556 in 2023.

Previous wording

For the year ended December 31, 2023, the Company participated in the drilling of 19 gross exploratory working interest wells and 17 gross development working interest wells, with working interests ranging from a high of 22.5% to a low of 0.25%. Of the 19 exploratory wells, 7 were completed as producing wells, 7 as dry holes and 5 wells were in progress at the end of 2023. Of the 17 development wells, 10 were completed as producing wells and 7 wells were in progress at the end of 2023.

Current wording

For the year ended December 31, 2024, We participated in the drilling of 11 gross exploratory working interest wells and 19 gross development working interest wells, with working interests ranging from a high of 18.0% to a low of 0.25%. Of the 11 exploratory wells, 4 were completed as producing wells, 4 as dry holes and 3 wells were in progress at the end of 2024. Of the 19 development wells, 15 were completed as producing wells and 4 wells were in progress at the end of 2024.

Previous wording

Depreciation, Depletion, Amortization and Valuation Provisions (DD&A). Major components of DD&A are the provision for impairment of undeveloped leaseholds, provision for impairment of long-lived assets, depletion of producing leaseholds and depreciation of tangible and intangible lease and well costs. Undeveloped leaseholds are amortized over the life of the leasehold (most are 3 years) using a straight-line method, except when the leasehold is impaired or condemned by drilling and/or geological interpretation of seismic data; if so, an adjustment to the provision is made at the time of impairment. The provision for impairment of undeveloped leaseholds was $378,358 in 2023 versus $82,308 in 2022.

Current wording

Depreciation, Depletion, Amortization and Valuation Provisions (DD&A). Major components of DD&A are the provision for impairment of undeveloped leaseholds, provision for impairment of long-lived assets, depletion of producing leaseholds and depreciation of tangible and intangible lease and well costs. Undeveloped leaseholds are amortized over the life of the leasehold (most are 3 years) using a straight-line method, except when the leasehold is impaired or condemned by drilling and/or geological interpretation of seismic data; if so, an adjustment to the provision is made at the time of impairment. The provision for impairment of undeveloped leaseholds was $56,881 and $378,358 in December 31, 2024 and 2023, respectively.

Previous wording

As discussed in Item 8, Note 10 to the accompanying consolidated financial statements, accounting principles require the recognition of an impairment loss on long-lived assets used in operations when indicators of impairment are present. Impairment evaluation is a two-step process. The first step is to measure when the undiscounted cash flows estimated to be generated by those assets, determined on a well basis, is less than the assets’ carrying amounts. The second step is to adjust those assets meeting the first criterion to estimated fair value. Evaluation for impairment was performed in both 2023 and 2022. The 2023 impairment loss was $2,393,015 and the 2022 impairment loss was $1,109,455.

Current wording

As discussed in Item 8, Note 11 to the accompanying consolidated financial statements, accounting principles require the recognition of an impairment loss on long-lived assets used in operations when indicators of impairment are present. Impairment evaluation is a two-step process. The first step is to measure when the undiscounted cash flows estimated to be generated by those assets, determined on a well-by-well basis, is less than the assets’ carrying amounts. The second step is to adjust those assets meeting the first criterion to estimated fair value. Evaluation for impairment was performed in both 2024 and 2023 with impairment losses of $1,949,148 and $2,393,015, respectively.

Previous wording

The depletion and depreciation of oil and gas properties are computed by the units-of-production method. The amount expensed in any year will fluctuate with the change in estimated reserves of oil and gas, a change in the rate of production or a change in the basis of the assets. The provision for depletion and depreciation was $3,074,926 in 2023 and $1,543,184 in 2022. The provision includes $110,832 for 2023 and $149,402 for 2022 for the amortization of the asset retirement costs. See Item 8, Note 2 to the accompanying consolidated financial statements for additional information regarding the asset retirement obligation. The provision for depreciation for other assets was $49,171 in 2023 and $67,059 in 2022.

Current wording

The depletion and depreciation of oil and gas properties are computed by the units-of-production method. The amount expensed in any year will fluctuate with the change in estimated reserves of oil and gas, a change in the rate of production or a change in the basis of the assets. The provision for depletion and depreciation was $3,157,718 and $3,074,927 in 2024 and 2023, respectively. The provision includes $42,590 and $110,832 in 2024 and 2023, respectively, for the amortization of the asset retirement costs. See Item 8, Note 3 to the accompanying consolidated financial statements for additional information regarding the asset retirement obligation. The provision for depreciation for other assets was $55,248 in 2024 and $49,170 in 2023.

Previous wording

General, Administrative and Other (G&A). G&A increased $491,554 (23%) to $2,606,906 from $2,115,352 in 2022. The increase was primarily due to increases of $185,877 in human resource costs, $107,165 in consulting fees, $56,305 in legal and regulatory fees, $88,628 in information technology costs, $24,903 in repairs and maintenance, and a net increase in all other G&A accounts of $20,858.

Current wording

General, Administrative and Other (G&A). G&A increased $470,244 (18%) to $3,077,150 from $2,606,906 in 2023. The increase was primarily due to increases of $287,345 in human resource costs and bad debt expense of $465,977 related to TWS accounts receivable, offset by decreases of $243,468 in consulting fees and $48,171 in legal and regulatory fees, with a net increase in all other G&A accounts of $8,561.

Previous wording

Equity income in investees was $107,865 in 2023 from a loss in investees of $164,497 in 2022. The 2023 net income consisted of Broadway Sixty-Eight, LLC (“Broadway 68”) income of $8,808, Broadway Seventy-Two, LLC (“Broadway 72”) income of $43,316, Victorum BRH2 Investment, LLC ("BRH2") income of $33,000, Victorum BRH3 Investment, LLC ("BRH3") income of $27,666 and QSN Office Park, LLC (“ QSN ”) loss of $4,925.

Current wording

Equity income in investees was $112,481 in 2024 and $107,865 in 2023. The 2024 net income consisted of Broadway Sixty-Eight, LLC (“Broadway 68”) income of $20,418, Broadway Seventy-Two, LLC (“Broadway 72”) income of $38,678, Victorum BRH Investment, LLC ("BRH") income of $79,019, Stott's Mill("Stott's Mill") loss of $23,675 and QSN Office Park, LLC (“QSN”) loss of $1,959.

Previous wording

Other income/(loss), net was income of $970,586 in 2023 and loss of $1,185,161 in 2022. See Item 8, Note 11 to the accompanying consolidated financial statements for a breakdown of other income/(loss), net. The material components of other income/(loss) are discussed below.

Current wording

Other income, net was $24,086 in 2024 and $970,586 in 2023. See Item 8, Note 12 to the accompanying consolidated financial statements for a breakdown of Other Income, net. The material components of Other Income, Net are discussed below.

Previous wording

Net realized and unrealized gain on equity securities was $115,603 in 2023 with a net realized and unrealized loss of $1,635,240 in 2022. Realized gains or losses result when an equity security is sold. Unrealized gains or losses result from adjusting the Company’s carrying amount in equity securities owned at the reporting date to estimated fair value. In 2023, the Company had realized losses of $248,329 and unrealized gains of $363,932. In 2022, the Company had realized losses of $366,574 and unrealized losses of $1,284,771.

Current wording

Net realized and unrealized gain on equity securities was $375,461 in 2024 and $115,603 in 2023. In 2024, we had realized gains of $66,168 and unrealized gains of $309,293. In 2023, we had realized losses of $248,329 and unrealized gains of $363,932.

Previous wording

Income from other investments increased $255,704 (237%) to $363,738 in 2023 from $108,034 in 2022, primarily resulting from a sale of land in OKC Industrial Properties, LC.

Current wording

Income from other investments decreased $307,801 (85%) to $55,937 in 2024 from $363,738 in 2023. Income in 2023 was from a sale of land by OKC Industrial Properties, LC.

Previous wording

In 2023, the Company had an estimated income tax benefit of $(171,401) as the result of a deferred tax benefit of $400,084 and a current tax provision of $228,683. In 2022, the Company had an estimated income tax provision of $1,072,524 as the result of a deferred tax provision of $1,068,275 and a current tax provision of $4,249. See Item 8, Note 5 to the accompanying consolidated financial statements for an analysis of the various components of income taxes and a discussion of the federal tax rate change.

Current wording

In 2024, we had an estimated income tax provision of $499,399 as the result of a deferred tax provision of $434,446 and a current tax provision of $64,953. In 2023, we had an estimated income tax benefit of $171,401 as the result of a deferred tax benefit of $400,084 and a current tax provision of $228,683. See Item 8, Note 6 to the accompanying consolidated financial statements for an analysis of the various components of income taxes and a discussion of the federal tax rate change.