Phoenix Energy One, LLC

Note 1. Business

Phoenix Energy One, LLC (“Phoenix Energy”) is a Delaware limited liability company focused on oil and gas operations and acquisitions primarily in the Williston Basin, North Dakota/Montana, the Uinta Basin, Utah, the Permian Basin, Texas, the Denver-Julesburg Basin, Colorado/Wyoming and the Powder River Basin, Wyoming. The Company was formed in April 2019 as Phoenix Capital Group Holdings, LLC and changed its name to Phoenix Energy One, LLC in January 2025. As used in these condensed consolidated financial statements, unless the context otherwise requires, references to the “Company,” “we,” “us,” and “our” refer to Phoenix Energy and its consolidated subsidiaries.

The Company’s strategy involves the acquisition of royalty assets, non-operated working interests, and operated leaseholds for the purpose of exploration, development, production, and sale of crude oil, natural gas, natural gas liquids, and other byproducts conducted through its wholly-owned subsidiaries, Phoenix Operating LLC (“PhoenixOp”), Firebird Services, LLC (“Firebird Services”), and Firebird Marketing, LLC (“Firebird Marketing”). PhoenixOp is a Delaware limited liability company formed in January 2022 to drill, complete and operate wells in the United States. Firebird Services is a Delaware limited liability company formed in October 2023 to perform saltwater disposal services on wells operated by PhoenixOp. Firebird Marketing is a Delaware limited liability company formed in March 2025 to take title to oil at or near the wellhead and market production to third-party purchasers. It manages commercial and logistical activities related to the sale of hydrocarbons, including transportation coordination, blending and quality optimization, scheduling, and counterparty negotiations, and assumes market, operational and credit risks related thereto. In return, Firebird Marketing may earn marketing margins based on market conditions and its ability to optimize sales execution.

Interim financial presentation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for fair presentation, have been included. Interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2025 (the “2025 annual financial statements”).

Note 2. Significant Accounting Policies

Basis of preparation and principles of consolidation

The condensed consolidated financial statements include the accounts of Phoenix Energy and its wholly-owned subsidiaries. All intercompany accounts and transactions with and between Phoenix Energy and its wholly-owned subsidiaries have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on the Company’s previously reported results of operations or retained earnings.

Liquidity risk and management’s plans

Liquidity risk is the risk that the Company’s cash flows from operations will not be sufficient for the Company to continue operating and discharge its liabilities in the normal course of operations. The Company is exposed to liquidity risk as its continued operation is dependent upon its ability to continue to obtain financing, either in the form of debt or equity, or by continuing to achieve profitable operations in order to satisfy its liabilities as they come due.

As of March 31, 2026, the Company had negative working capital of approximately$358.0 million. The Company expects to repay its financial liabilities in the normal course of operations and to fund future operational and capital requirements through operating cash flows and through issuances of additional debt or equity. Since the balance sheet date and through the date of the filing of these condensed consolidated financial statements, the Company had raised an additional$92.7 million of notes through its investor program (see Note 7 – Debt and Note 16 – Subsequent Events). Management believes its capital raises through its bond offerings will continue at or above this current pace.

The Company may need to conduct asset sales, which is not a planned course of action, and/or issue debt or equity securities if liquidity risk increases in any given period. The Company believes it has sufficient funds to meet foreseeable obligations by actively monitoring its credit facilities through use of the loans, asset sales, cost reductions and coordinating payment and revenue cycles.

The Company is required to evaluate whether or not its current financial condition, including its sources of liquidity at the date that the condensed consolidated financial statements are issued, will enable the Company to meet its obligations as they come due within one year of the date of the issuance of these condensed consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a going concern. In applying applicable accounting guidance, we considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company’s obligations due over the next twelve months as well as the Company’s recurring business operating expenses, and believe that the Company has sufficient financial resources to operate beyond the next twelve months following the date these condensed consolidated financial statements are issued.

Use of estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the applicable reporting period of such statements. Accordingly, actual results could differ materially from these estimates.

The accompanying condensed consolidated financial statements are based on a number of significant estimates including quantities of oil, natural gas and NGL reserves that are the basis for the calculations of depreciation, depletion, amortization, and determinations of impairment of oil and natural gas properties. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas and there are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment along with estimated selling prices. As a result, reserve estimates may materially differ from the quantities of oil and natural gas that are ultimately recovered.

Inventory

Crude oil in storage tanks that has not yet been sold is classified as inventory and recorded within other current assets on the Company’s condensed consolidated balance sheets. Inventory is stated at the lower of cost and net realizable value, with cost determined using a weighted average cost method, and includes costs incurred to bring the inventory to its present location and condition.

Recent accounting standards not yet adopted

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03 requires disclosure in the Company’s annual and interim consolidated financial statements of specified information about certain costs and expenses, including depletion, depreciation, and amortization recognized as part of crude oil and natural gas producing activities, cost of sales, selling, general, and administrative expenses, and employee compensation. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. ASU 2024-03 can be applied prospectively or retrospectively at the Company’s election. The Company is currently evaluating the impact of the standard on its financial statements and disclosures and its plans for adoption, including the transition method and adoption date.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements(“ASU 2025-11”). ASU 2025-11 clarifies interim disclosure requirements and provides a comprehensive list of required interim disclosures. The update also incorporates a disclosure principle that requires entities to disclose events that occur after the end of the last annual reporting period. This update is effective for interim periods within annual periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its financial statements and disclosures.

Accounting pronouncements not listed above were assessed and determined to not have a material impact on the Company’s condensed consolidated financial statements.

Note 3. Property, Plant, and Equipment

The following table summarizes the Company’s property, plant, and equipment, net as of the dates presented:

(a)

Represents proved and undeveloped (i.e., wells in progress) and proved and producing properties.

The Company uses the successful efforts method of accounting for its oil and gas properties. Property acquisition costs are depleted on a units-of-production basis over total proved reserves, while costs of wells and related equipment and facilities are depleted on a units-of-production basis over proved developed reserves. Depletion on oil and gas properties was$60.0 million and$31.3 million for the three months ended March 31, 2026 and 2025, respectively.

Depreciation expense on the Company’s equipment and other property was$0.1 million and less than $0.1 millionfor the three months ended March 31, 2026 and 2025, respectively.

Impairment expense on the Company’s oil and gas properties was$0.8 million and$0.5 million for the three months ended March 31, 2026 and 2025, respectively, related to lease expirations and title defects on the Company’s oil and gas properties.

Note 4. Revenue

The following tables present the Company’s revenues disaggregated by product type and by segment for the periods presented:

Note 5. Other Current Assets

The following table summarizes the Company’s other current assets as of the dates presented:

Note 6. Derivatives

The Company periodically enters into commodity derivative contracts to manage its exposure to crude oil price risk. Additionally, the Company is required to hedge a portion of anticipated crude oil production for future periods pursuant to its debt covenants under the Fortress Credit Agreement, as further described in Note 7 – Debt. The Company does not enter into derivative contracts for speculative trading purposes.

The Company may enter into crude oil derivative contracts, including collars, fixed-price swaps, put options and call options, to hedge a portion of its anticipated future production and reduce exposure to commodity price volatility. Collars establish both a floor and a ceiling price on contracted volumes, allowing the Company to receive payments if index prices fall below the floor, while requiring payments if index prices exceed the ceiling. Fixed-price swaps establish a fixed price for contracted volumes, resulting in payments to the Company when the index price is below the fixed price and payments by the Company when the index price exceeds the fixed price. Long call options provide the Company with the right to purchase crude oil at a specified strike price and are used to provide price protection in rising commodity price environments in exchange for the payment of an option premium. As of March 31, 2026, the Company’s derivatives were comprised of crude oil commodity derivative contracts indexed to the U.S. New York Mercantile Exchange West Texas Intermediate (“NYMEX WTI”). The Company has not designated its derivative contracts for hedge accounting; therefore, changes in the fair value of these instruments, as well as cash settlements, are recognized in earnings in the period incurred. All derivative contracts are recorded at fair value on the condensed consolidated balance sheets as assets or liabilities and are presented on a net basis when a legally enforceable master netting arrangement exists with the counterparty.

As of March 31, 2026, the Company’s open crude oil derivative contracts consisted of the following:

(a)

Excludes a weighted average option premium of $3.31/Bbl, $5.41/Bbl and $3.31/Bbl for the settlement periods ending December 31, 2026, 2027 and 2028, respectively.

The following table summarizes the gains and losses on derivative instruments included on the condensed consolidated statements of operations and the net cash payments related thereto for the periods presented. Cash flows associated with these non-hedge designated derivatives are reported within operating activities on the condensed consolidated statements of cash flows.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

Certain assets and liabilities are reported at fair value on a recurring basis, including the Company’s derivative instruments. The fair values of the Company’s derivative contracts are measured internally using established commodity futures price strips for the underlying commodity provided by a reputable third party, the contracted notional volumes, and time to maturity. These valuations are Level 2 inputs.

The following tables provide (i) fair value measurement information for financial assets and liabilities measured at fair value on a recurring basis, (ii) the gross amounts of recognized derivative assets and liabilities, (iii) the amounts offset under master netting arrangements with counterparties, and (iv) the resulting net amounts presented in the Company’s condensed consolidated balance sheets as of March 31, 2026 and December 31, 2025. The net amounts are classified as current or noncurrent based on their anticipated settlement dates.

Note 7. Debt

The following table summarizes the Company’s long-term debt as of the dates presented:

(a)

Represents the contractual interest rate as of March 31, 2026.

(b)

Amortized into interest expense using the effective interest method. Write-offs of debt issuance costs associated with the redemption of bonds issued under the Company’s debt offerings are classified as loss on debt extinguishments on the condensed consolidated statements of operations.

Fortress Credit Agreement

In August 2024, the Company entered into a senior secured credit agreement with Fortress Credit Corp. (the “Fortress Credit Agreement”) as lender and administrative agent, which was subsequently amended to add additional term loan tranches and syndicated to include an additional institutional lender. In February 2026, the Fortress Credit Agreement was further amended to provide a$75.0 million term loan funded at closing and up to$225.0 million available on a discretionary basis. Proceeds are to be used to finance the development of the Company’s oil and gas properties in accordance with the approved plan of development provided in the Fortress Credit Agreement.

The all-in interest rate for the Fortress Term Loans was 10.8% and 11.1% at March 31, 2026 and December 31, 2025, respectively. The Fortress Credit Agreement contains various customary covenants, including financial covenants that require the Company to maintain ratios around its maximum total secured leverage, minimum asset coverage, and working capital as of the last day of each calendar month or fiscal quarter, as the case may be.

On May 7, 2026, subsequent to the balance sheet date, the Company obtained a waiver of noncompliance with its current ratio covenant as of March 31, 2026, which resulted primarily from the timing of accelerated well completion expenditures undertaken to capitalize on higher commodity prices.

Unregistered Debt Offerings

Regulation D Bonds

In March 2026, the Company approved an increase to the maximum offering amount of the August 2023 506(c) Bonds from$1.5 billion to$2.0 billion. The August 2023 506(c) Bonds are unsecured bonds offered and sold pursuant to an offering under Rule 506(c) of Regulation D that commenced in August 2023 with maturity dates ranging from one to eleven years from the issue date and interest rates ranging from 9.0% to 14.0% per annum.

Adamantium Securities

In March 2026, the Company amended the Adamantium Loan Agreement to increase the amount available to borrow under the agreement from$409.3 million to$609.3 million. Correspondingly, the offering amount of Adamantium Bonds being offered by Adamantium was also increased from$400.0 million to$600.0 million, and the Adamantium Secured Note from$8.6 million to$9.3 million (collectively, the “Adamantium Securities”). The Adamantium Securities have maturity terms that range from five to eleven years and bear interest ranging from 13.0% to 16.5% per annum.

Interest Expense on Debt

The following table summarizes the total interest costs incurred on the Company’s debt:

Note 8. Other Current Liabilities

The following table summarizes the Company’s other current liabilities as of the dates presented:

Note 9. Preferred Equity

In September 2025, the Company completed its offering of the Series A Preferred Shares, which shares were listed on the NYSE American under the ticker symbol PHXE.P and commenced trading on September 30, 2025. The Company sold an aggregate of 2,704,023 Series A Preferred Shares at closing, which represented$67.6 million in initial liquidation preference at a public offering price of$20.00 per share for gross proceeds of$54.1 million. Offering costs of$6.2 million were recorded as a reduction of the gross proceeds. In addition, at issuance, the Company recorded a$2.4 million discount associated with the stepped distribution rate feature of the Series A Preferred Shares, which provides for increases in the distribution rate prior to the commencement of the 11.0% perpetual distribution rate in year five. For the three months ended March 31, 2026,$0.2 million of this discount was amortized.

During the three months ended March 31, 2026, the Company paid$1.7 million of distributions to the holders of the Series A Preferred Shares equal to$0.625 per share. In March 2026, the Company’s Board of Directors authorized and declared a distribution on the Series A Preferred Shares equal to$0.625 per share, which was paid on April 15, 2026, to holders of record as of April 1, 2026, and totaled$1.7 million. As of March 31, 2026, the Company had accrued$1.5 million of divi dends payable, which is included in other current liabilities on the condensed consolidated balance sheet.

Note 10. Equity-Based Compensation

The Company’s parent, Phoenix Equity, has granted equity awards to employees and non-employee service providers of the Company under the 2024 Long-Term Incentive Plan (the “2024 Incentive Plan”).

A summary of the activity under the 2024 Incentive Plan for the three months ended March 31, 2026 is presented below:

The Phantom Unit awards granted to employees are subject to both a performance condition and a service condition, each of which must be satisfied for the awards to vest. The performance condition requires the occurrence of an exit event (e.g., change in control) by the Company. No compensation cost will be recognized for the employee Phantom Unit awards unless and until the occurrence of such an exit event is deemed probable. As of March 31, 2026, the Company determined that the occurrence of a change in control event was not probable, and accordingly, no equity-based compensation expense was recognized in connection with these awards for the three months ended March 31, 2026. The Phantom Unit awards granted to the non-employee service provider vest partially upon the grant date, with the remaining portion subject to a monthly vesting schedule based on a service condition. The Company recognized$0.1 million of equity-based compensation expense in connection with the Phantom Unit awards granted to the non-employee service provider for the three months ended March 31, 2026, which is included in selling, general, and administrative expenses on the condensed consolidated statement of operations. The related liability is presented within other current liabilities in the accompanying condensed consolidated balance sheet.

As of March 31, 2026 and December 31, 2025, there was$194.4 million and$193.4 million of total unrecognized compensation cost related to nonvested equity awards granted under the 2024 Incentive Plan, measured based on the fair value of the awards; that cost is expected to be recognized at the time a liquidity event occurs.

The fair value of each unit granted under the 2024 Incentive Plan was valued on the date of grant under an independent third-party valuation, which included a combination of an income approach, based on the present value of estimated future cash flows, and a market approach based on market data of comparable businesses. The weighted average assumptions used in the valuation of performance unit awards granted for thethree months ended March 31, 2026 are presented in the table below:

(a)

The Company has no history or expectation of paying cash dividends on its awards.

(b)

The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.

(c)

Volatility was estimated based on the different interests being appraised, leveraging historical volatility for comparable publicly traded organizations within its industry. The Company lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies within the industry with characteristics similar to the Company.

(d)

The expected term represents the estimated period, in years, until a liquidity event occurs.

(e)

Discount for lack of marketability was determined using the Restricted Stock Studies, Chaffee Put Option, Finnerty’s Put Option, and Qualitative Mandelbaum Factor approaches.

Note 11. Related Parties

Debt Offerings

Certain of the Company’s officers and their family members participate in the Company’s unregistered debt offerings. During the three months ended March 31, 2026 and 2025, these officers and their family members purchased, in aggregate,201 and 1,104 of the combined Regulation A Bonds, Regulation D and Adamantium Bonds for a total purchase price of$0.2 million and$1.1 million, respectively. As of March 31, 2026 and December 31, 2025, there were 6,489 and 6,288 of bonds outstanding with carrying values of$6.5 million and$6.3 million, respectively. Interest expense attributable to these securities was$0.2 million and less than$0.1 million for the three months ended March 31, 2026 and 2025, respectively.

Lion of Judah

The Company paid interest expense to a financial institution on behalf of Lion of Judah Capital LLC (“Lion of Judah”) related to a certain financing agreement between Lion of Judah and the financial institution of less than$0.1 million for both the three months ended March 31, 2026 and 2025. Interest payments made by the Company on behalf of Lion of Judah are discretionary in nature.

Note 12. Leases

The Company leases its office facilities primarily under noncancelable multi-year operating lease agreements.

The following table shows the line item classification of the Company’s right-of-use assets and lease liabilities on the Company’s condensed consolidated balance sheets:

Operating lease cost of$0.8 million and$0.6 million for the three months ended March 31, 2026 and 2025, respectively, was classified as a component of selling, general, and administrative expenses on the condensed consolidated statements of operations.

Note 13. Commitments and Contingencies

For a summary of the Company’s lease obligations, see Note 12 – Leases.

Litigation

From time to time, the Company may become involved in other legal proceedings or be subject to claims arising in the ordinary course of business. Although the results of ordinary course litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact because of defense and settlement costs, diversion of management resources and other factors.

Drilling Rig Contracts

The Company has entered into drilling rig contracts to procure drilling services for wells operated by PhoenixOp. The contracts are short-term and provide a daily operating rate as consideration for services performed by the third-party provider. As of March 31, 2026, the Company was subject to$0.2 million of commitments under these contracts.

Natural Gas Processing Contracts

The Company has entered into contracts for mobile cryogenic gas processing units to process raw gas, produce and store NGL, and compress residue natural gas at wells operated by PhoenixOp. The contracts range from 6 months to 36 months and provide monthly facility and service fees as consideration for services performed by the third-party provider. As of March 31, 2026, the Company was subject to$5.7 million of commitments under these contracts.

Generator Contracts

The Company has entered into contracts with a third-party provider to supply generators used to provide power at wells operated by PhoenixOp. The contracts range from 12 months to 24 months and require monthly service payments for power generation and related equipment. As of March 31, 2026, the Company had approximately$10.0 million of remaining commitments under these contracts.

Saltwater Disposal Pump Contracts

The Company has entered into contracts for pumps which are used to inject produced water and flowback into its saltwater disposal facilities on wells for which PhoenixOp serves as the operator. The contracts provide for monthly payments and have terms of twelve months or less. As of March 31, 2026, the Company had approximately$1.4 million of remaining commitments under these contracts.

Delivery Commitments

PhoenixOp is subject to arrangements pursuant to which it has committed to deliver barrels of crude oil to a purchaser through December 31, 2030. PhoenixOp will be subject to a shortfall fee for failure to meet this commitment. As a part of these arrangements, PhoenixOp has dedicated to the counterparties certain rights to all oil extracted from its wells in certain properties in Dunn County, North Dakota. PhoenixOp has assessed the productivity potential of its leasehold in the area, as well as the feasibility of executing an operational plan to extract oil on its leasehold within the commitment period and dedication area, and deemed it to be reasonable to enter into such an agreement. The Company delivered 0.2 million barrels of crude oil during the three months ended March 31, 2026, and the remaining aggregate commitment under the contract as of March 31, 2026 is approximately 1.0 million barrels of crude oil.

Note 14. Supplemental Cash Flow Information

The following table summarizes supplemental information to the condensed consolidated statements of cash flows for the periods presented:

Note 15. Segments

Segment operating profit is used as a performance metric by the CODM in determining how to allocate resources and assess performance as this measure provides insight into the segments’ operations and overall success of a segment for a given period. Segment operating profit is calculated as total segment revenue less operating costs attributable to the segment, which includes allocated corporate costs that are overhead in nature and not directly associated with the segments, such as certain general and administrative expenses, executive or shared-function payroll costs and certain limited marketing activities. Corporate costs are allocated to the segments based on usage and headcount, as appropriate. Segment operating profit excludes other income and expense, such as interest expense, interest income, gain (loss) on derivatives, loss on debt extinguishments, even though these amounts are allocated to the segments and provided to the CODM. Transactions between segments are accounted for on an accrual basis and are eliminated upon consolidation. Interest expense is allocated to the segments based on the carrying value of the oil and gas properties owned by the respective segment at the balance sheet date, and interest income and gain (loss) on derivatives are allocated using the same basis as corporate costs.

The following table summarizes segment operating profit and reconciliation to net income (loss) for the periods presented:

The following tables present financial information by segment as of March 31, 2026 and December 31, 2025, and for the three months ended March 31, 2026 and 2025:

(a)

Other segment item includes advertising and marketing expense.

(b)

Other segment items include advertising and marketing expense and impairment expense.

The following tables summarize the Company’s oil and natural properties by proved and unproved properties, location and by segment (before accumulated depletion):

Note 16. Subsequent Events

Management has evaluated subsequent events through May 13, 2026, in connection with the preparation of these condensed consolidated financial statements, which is the date the condensed consolidated financial statements were available to be issued. The Company has determined that there were no material such events that warrant disclosure or recognition on the condensed consolidated financial statements, except for the following:

In April 2026, the Company paid cash distributions totaling$1.7 million to holders of its Series A Preferred Shares, pursuant to distributions declared by the Company’s Board of Directors in March 2026.

The Company is continuing to raise debt capital under its exempt and registered debt offerings. Since the balance sheet date and through the date of filing of these condensed consolidated financial statements, the Company issued approximately$92.7 million of debt securities under these offerings.