RESERVE PETROLEUM CO

Note 7 – NOTE PAYABLE

Grand Woods has a note payable (“the Note”) that was used for the purchase and development of property. The Note has a 4% interest rate and matures November 23, 2026. The Note has scheduled payments of principal and interest in the amount of $16,034 per month, with a balloon payment of any unpaid principal balance due on November 23, 2026. The balance of the Note at March 31, 2025, and December 31, 2024, is $1,122,477 and $1,158,736, respectively, of which $149,641 is classified as current at March 31, 2025. Interest paid on the Note, in the three months ended March 31, 2025, and 2024 totaled $11,844 and $13,039, respectively. The Note is secured by the underlying property and a $1,200,000 guaranty issued by the Company. Covenants of the Note include a pay down requirement that states that sales of parcels will require a pay down on the loan of 90% of the net proceeds received from the purchaser less capital gains tax obligation. The remaining 10% shall be held in an operating reserve account for operating expenses and the use in payment of taxes. No distributions to partners, except for taxes, are permitted throughout the term of the loan. The intent of the Grand Woods investment manager and members is that proceeds from the sale of all, or part of, the property will be used to reduce or eliminate the Note. We do not anticipate the need to perform on theguaranty of the Note.

Below is a schedule of future principal payments on the outstanding Note at March 31, 2025:

Note 8 – ASSET RETIREMENT OBLIGATION

We record the fair value of our estimated liability to retire our oil and natural gas producing properties in the period in which it is incurred (typically the date of first sale). The estimated liability is calculated by obtaining current estimated plugging costs from the well operators and inflating it over the life of the property. Current year inflation rate used is 2.50%. When the liability is first recorded, a corresponding increase in the carrying amount of the related long-lived asset is also recorded. Subsequently, the asset is amortized to expense over the life of the property and the liability is increased annually for the change in its present value which is currently 7.50%.

A reconciliation of our asset retirement obligation liability is as follows:

Note 9 – FAIR VALUE MEASUREMENTS

Weuse a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.

Level 3 – These assets include investments for which there is little, if any, market activity. These inputs require significant management judgement or estimation.

Recurring Fair Value Measurements

Certain of our assets are reported at fair value in the accompanying consolidated balance sheets on a recurring basis. We determined the fair value of equity securities and available-for-sale debt securities using quoted market prices, public Net Asset Values ("NAV") and where applicable, securities with similar maturity dates and interest rates. Level 3 assets use NAV as fair value.

At March 31, 2025, and December 31, 2024, our assets reported at fair value on a recurring basis using the three level valuation hierarchy are summarized as follows:

The fair value hierarchy tables do not include investments that we have elected to use the NAV as a practical expedient to determine the fair value. These assets consist of our investment in a private business development fund. Liquidity of is only attained through sales on the secondary market.

A reconciliation to the balance sheet equity securities is as follows:

The amounts listed in Level 3 assets in the fair value hierarchy tables using NAV that is published and used for current transactions as fair value consisted of a private perpetual business development fund. Redemption terms include expected quarterly repurchase offers pursuant to a unit repurchase program of up to 5% of outstanding units, either by number of units or aggregate net asset value as of such quarter end. We liquidated this asset in the three months ended March 31, 2025.

A roll forward of our level 3 investments is as follows:

Non-Recurring Fair Value Measurements

Our asset retirement obligation annually represents a non-recurring fair value liability, for which there were $4,074 in liabilities incurred in the three months ended March 31, 2025 andnone in 2024. See Note 8 above for more information about this liability and the inputs used for calculating fair value.

Impairment losses recorded on oil and gas assets in the three months ended March 31, 2025 were $45,821, with none in comparable period in 2024. This also relates to non-recurring fair value measurements calculated using Level 3 inputs. Certain oil and natural gas producing properties have been deemed to be impaired because the assets, evaluated on a property-by-property basis, are not expected to recover their entire carrying value through future cash flows. Impairment losses, when recorded, are included in the Consolidated Statements of Income in the line-item Depreciation, Depletion, Amortization and Valuation Provision. Impairments are calculated by reducing the carrying value of the individual properties to an estimated fair value equal to the discounted present value of the future cash flow from these properties. Forward pricing is used for calculating future revenue and cash flow.

Fair Value of Financial Instruments

Our other financial instruments consist primarily of cash and cash equivalents, trade receivables, and trade payables. At March 31, 2025, and December 31, 2024, the historical cost of cash and cash equivalents, trade receivables and trade payables are considered to be representative of their respective fair values due to the short-term maturities of these items.