Big Sky Industrial (BSIN) advances helium project with $285/MCF offtake and new capital
Rhea-AI Filing Summary
Big Sky Industrial Inc. reported a net loss of $2.3 million for the quarter and $5.5 million for the first half of 2026, driven mainly by lower oil and gas production after prior divestitures. Six‑month revenue declined 11% to $3.7 million, as BOE volumes fell 29%, partly offset by higher realized oil prices.
The company is pivoting toward its industrial gas strategy and reached a final investment decision on the Big Sky Carbon Hub in Montana. The planned plant has up to 8.0 MMCF/d inlet capacity, targeting annual output of 14.4 MMCF of helium and 125,000 metric tons of refined CO₂, with initial operations anticipated in 2027.
Liquidity improved: cash rose to $6.0 million, the credit facility borrowing base increased to $20 million with covenant testing suspended through Q1 2027, and the company raised about $17.2 million via equity, lifting total assets to $55.9 million. A five‑year helium sales agreement includes a 100% take‑or‑pay commitment for up to 14.4 MMCF annually at $285 per MCF. Management anticipates $20–25 million of additional 2026 capital spending, mainly for Big Sky infrastructure, to be funded through cash, operations, the credit facility, further equity, and potential project financing.
Positive
- Five-year helium offtake at $285/MCF with a 100% take-or-pay commitment for up to 14.4 MMCF annually provides contracted future revenue once the Big Sky Carbon Hub is online.
- Final investment decision on the Big Sky Carbon Hub and execution of an EPC contract for a plant sized up to 8.0 MMCF/d inlet capacity advances the industrial gas strategy.
- Liquidity strengthened by approximately $17.2 million of equity proceeds and a higher credit facility borrowing base of $20 million with covenant testing suspended through Q1 2027.
- Operating performance improved year over year: the six‑month net loss narrowed to $5.5 million from $9.2 million, and no ceiling test impairment was recorded in 2026.
Negative
- Continuing losses with a six‑month net loss of $5.5 million and negative operating cash flow of $3.3 million indicate the legacy oil and gas business is not yet self-funding.
- Production and revenue declines: BOE volumes fell 29% and six‑month revenue decreased 11% to $3.7 million, reflecting prior divestitures and natural declines.
- High capital needs: management plans $20–25 million of additional 2026 capital spending for Big Sky, plus up to $0.5 million for plugging and abandonment, requiring continued external funding.
- Equity dilution: shares outstanding increased from 34.4 million at December 31, 2025 to 52.5 million at June 30, 2026, largely from offerings and a committed equity facility.
- Environmental incident after quarter-end could cost up to $500,000 in remediation, with insurance recovery uncertain beyond a $100,000 deductible.
Filing Explained
After June 30, Big Sky disclosed additional borrowing and remaining equity capacity, alongside dilution from shares already issued.
This Form 10-Q is an unaudited quarterly report; it updates Big Sky Industrial’s position at
As of
The filing also reports a produced-fluids release after
Key Figures
Key Terms
full cost method financial
ceiling test write-down financial
costless collar financial
take-or-pay commitment financial
asset retirement obligations financial
committed equity facility financial
Earnings Snapshot
AI-generated analysis. How Rhea-AI works. Not financial advice.
FAQ
How did Big Sky Industrial (BSIN) perform financially for the first half of 2026?
What is the Big Sky Carbon Hub project described in BSIN’s 10-Q?
What are the key terms of Big Sky Industrial’s helium sales agreement?
How has BSIN’s liquidity and capital structure changed in 2026?
What capital spending does Big Sky Industrial (BSIN) expect for the rest of 2026?
How did production and realized prices change for BSIN in the first half of 2026?
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended | |
| or | |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from _____________ to _____________________ | |
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
| | | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| | | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
U.S. Energy Corp
(Former name, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| | |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The registrant had
TABLE OF CONTENTS
| Page |
||
| Cautionary Note About Forward-Looking Statements |
3 |
|
| Part I. |
FINANCIAL INFORMATION |
5 |
| Item 1. |
Financial Statements |
5 |
| Condensed Consolidated Balance Sheets (unaudited) |
5 |
|
| Condensed Consolidated Statements of Operations (unaudited) |
6 |
|
| Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) |
7 |
|
| Condensed Consolidated Statements of Cash Flows (unaudited) |
8 |
|
| Notes to Unaudited Condensed Consolidated Financial Statements |
9 |
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
30 |
| Item 4. |
Controls and Procedures |
30 |
| Part II. |
OTHER INFORMATION |
31 |
| Item 1. |
Legal Proceedings |
31 |
| Item 1A. |
Risk Factors |
31 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
32 |
| Item 3. |
Defaults Upon Senior Securities |
33 |
| Item 4. |
Mine Safety Disclosures |
33 |
| Item 5. |
Other Information |
33 |
| Item 6. |
Exhibits |
34 |
| Signatures |
35 |
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report” or “Form 10-Q”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are forward-looking statements.
Examples of forward-looking statements in this Report include:
| ● |
planned capital expenditures for industrial gas, oil and natural gas exploration, development and environmental compliance; |
| ● |
potential drilling locations and available spacing units, and possible changes in spacing rules; |
| ● |
cash expected to be available for capital expenditures and to satisfy other obligations; |
| ● |
recovered volumes and values of industrial gas, oil and natural gas approximating third-party estimates; |
| ● |
anticipated changes in oil and natural gas production and future industrial gas production; |
| ● |
drilling and completion activities and opportunities; |
| ● |
timing of drilling additional wells and performing other exploration and development projects; |
| ● |
expected spacing and the number of wells to be drilled with our industry partners; |
| ● |
when payout-based milestones or similar thresholds will be reached for the purposes of our agreements with our partners; |
| ● |
expected working and net revenue interests, and costs of wells, relating to the drilling programs with our partners; |
| ● |
actual decline rates for producing wells; |
| ● |
future cash flows, expenses and borrowings; |
| ● |
pursuit of potential acquisition opportunities; |
| ● |
economic downturns, wars and increased inflation and interest rates, and possible recessions caused thereby; |
| ● |
the effects of global pandemics on our operations, properties, the market for industrial gas, oil and natural gas, and the demand for industrial gas, oil and natural gas; |
| ● |
our expected financial position; |
| ● |
our expected future overhead reductions; |
| ● |
our ability to become an operator of industrial gas, oil and natural gas properties; |
| ● |
our ability to raise additional financing and acquire attractive industrial gas, oil and natural gas properties; and |
| ● |
other plans and objectives for future operations, including industrial gas exploration and development. |
These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could,” “up to,” and similar terms and phrases. Though we believe that the expectations reflected in these statements are reasonable, they involve certain assumptions, risks and uncertainties. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, under and incorporated by reference in, “Risk Factors”, below, the risks discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC” or the “Commission”). Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above.
All forward-looking statements speak only at the date of the filing of this Report. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
BIG SKY INDUSTRIAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| June 30, 2026 | December 31, 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Oil and natural gas sales receivables | ||||||||
| Marketable equity securities | ||||||||
| Commodity derivative | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Oil and natural gas properties under full cost method and industrial gas properties: | ||||||||
| Evaluated oil and natural gas properties | ||||||||
| Less accumulated depreciation, depletion and amortization | ( | ) | ( | ) | ||||
| Net oil and natural gas properties | ||||||||
| Unproved industrial gas properties, not subject to amortization | ||||||||
| Other Assets: | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use asset | ||||||||
| Commodity derivative | ||||||||
| Other assets | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Revenue and royalties payable | ||||||||
| Asset retirement obligations | ||||||||
| Current lease obligation | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities: | ||||||||
| Credit facility | ||||||||
| Asset retirement obligations | ||||||||
| Long-term lease obligation, net of current portion | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, $ par value; shares authorized; and 34,405,143 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
BIG SKY INDUSTRIAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE three and six months ended June 30, 2026 and 2025
(In thousands, except share and per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue: | ||||||||||||||||
| Oil | $ | $ | $ | $ | ||||||||||||
| Natural gas and liquids | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Lease operating expenses | ||||||||||||||||
| Production taxes | ||||||||||||||||
| Depreciation, depletion, accretion and amortization | ||||||||||||||||
| Impairment of oil and natural gas properties | ||||||||||||||||
| Exploration expense | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss on sale of assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Commodity derivative gain, net | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ( | ) | ( | ) | ||||||||||||
| Total other (expense) | ||||||||||||||||
| Net loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average shares outstanding | ||||||||||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
BIG SKY INDUSTRIAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
FOR THE THREE AND six months ended June 30, 2026 and 2025
(in thousands, except share amounts)
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balances, December 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Acquisition of industrial gas properties | ||||||||||||||||||||
| Issued to employees and directors | ( | ) | ||||||||||||||||||
| Settle tax withholding obligations for restricted stock awards | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Underwritten offering, net of offering costs $ | ||||||||||||||||||||
| Share repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Shares repurchased from related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Issued to employees and directors | ||||||||||||||||||||
| Settle tax withholding obligations for restricted stock awards | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Share repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, June 30, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balances, December 31, 2025 | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Issued to employees and directors | ( | ) | ||||||||||||||||||
| Settle tax withholding obligations for restricted stock awards | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Underwritten offering, net of offering costs $ | ||||||||||||||||||||
| Committed equity facility, net of offering costs $ | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, March 31, 2026 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issued to consultants | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, June 30, 2026 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
BIG SKY INDUSTRIAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE six months ended June 30, 2026 and 2025
(in thousands)
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation, depletion, accretion, and amortization | ||||||||
| Impairment of oil and natural gas properties | ||||||||
| Loss on sale of assets | ||||||||
| Commodity derivatives gain | ( | ) | ||||||
| Commodity derivative settlements received | ||||||||
| Loss (gain) on marketable equity securities | ( | ) | ||||||
| Amortization of debt issuance costs | ||||||||
| Stock-based compensation | ||||||||
| Right-of-use asset amortization | ||||||||
| Shares issued to consultants | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Oil and natural gas sales receivable | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Other operating assets and liabilities, net | ( | ) | ( | ) | ||||
| Payments on operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of industrial gas properties | ( | ) | ( | ) | ||||
| Industrial gas capital expenditures | ( | ) | ( | ) | ||||
| Oil and natural gas capital expenditures | ( | ) | ( | ) | ||||
| Property and equipment expenditures | ( | ) | ||||||
| Net proceeds from sale of oil and natural gas properties | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings on credit facility | ||||||||
| Financing costs | ( | ) | ||||||
| Shares withheld to settle tax withholding obligations for restricted stock awards | ( | ) | ( | ) | ||||
| Repurchases of common stock | ( | ) | ||||||
| Related party share repurchase | ( | ) | ||||||
| Proceeds from underwritten offering | ||||||||
| Proceeds from committed equity facility | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and equivalents | ( | ) | ||||||
| Cash and equivalents, beginning of period | ||||||||
| Cash and equivalents, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. Please see Note-15- Supplemental Disclosures of Cash Flow Information.
BIG SKY INDUSTRIAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
During the three months ended June 30, 2026, the Company changed its name from "U.S. Energy Corp." to "Big Sky Industrial Inc." (ticker:BSIN). Big Sky Industrial Inc. and its wholly-owned subsidiaries are referred to as the “Company” in these Notes to Condensed Consolidated Financial Statements. The Company is incorporated in the State of Delaware and its principal business activities are focused on the acquisition, exploration and development of industrial gas and oil and natural gas properties in the United States.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included.
For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 13, 2026. The Company’s significant accounting policies are also described in Note 1 in those Consolidated Financial Statements. There have been no material changes to those policies during the three and six months ended June 30, 2026.
Our financial condition as of June 30, 2026, and operating results for the three and six months ended June 30, 2026, are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the year ending December 31, 2026.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include oil and natural gas reserves that are used in the calculation of depreciation, depletion, amortization ("DD&A") and impairment of the carrying value of evaluated oil and natural gas properties, and the cost and timing of future asset retirement obligations. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable. Due to inherent uncertainties, including the future prices of oil and natural gas, these estimates could change in the near term and such changes could be material.
Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in conformity with GAAP and include the accounts of Big Sky Industrial Inc. and its wholly-owned subsidiaries. Big Sky Industrial Inc. accounts for its share of oil and natural gas exploration and production activities, and industrial gas activities in which it has a direct working interest, by reporting its proportionate share of assets, liabilities, revenues, costs, and cash flows within the relevant lines on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, and Condensed Consolidated Statements of Cash Flows. All inter-company balances and transactions have been eliminated in consolidation.
Industry Segment and Geographic Information
The Company operates primarily in the exploration and production segment of the oil and gas industry, conducting onshore operations within the United States. All current revenues are derived from the production and sale of oil and natural gas.
In addition, the Company has commenced development activities related to industrial gas assets. These activities are currently in the development stage and have not yet generated revenues. Development activities primarily consist of resource evaluation, permitting, engineering and related capital expenditures.
The Company manages its operations as a reportable segment under Accounting Standards Codification (ASC) 280 Segment Reporting. The Company’s Chief Executive Officer serves as the Chief Operating Decision Maker (“CODM”) and reviews financial information on a consolidated basis for purposes of allocating resources and assessing performance. While industrial gas development costs and capital expenditures are tracked separately for internal project management purposes, such activities do not currently constitute a separate operating segment, as discrete operating results are not reviewed by the CODM and no revenues have been generated.
The Company’s principal oil and natural gas properties and operations are located in:
| ● | The Rockies region (Montana and Wyoming) |
| ● | The Mid-Continent and Other regions (Oklahoma, Mississippi, and Texas) |
The CODM evaluates performance primarily based on operating income (loss), defined as revenues less lease operating expenses. Other significant items reviewed include total assets, depreciation, depletion and amortization (“DD&A”), general and administrative expense, gain or loss on derivative activity, interest expense and income tax expense (benefit). These amounts are presented in the Consolidated Balance Sheets and Consolidated Statements of Operations.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires additional disaggregation of certain expense captions presented on the face of the income statement, including further detail regarding the nature of expenses such as employee compensation, depreciation, and amortization. The guidance is intended to enhance transparency into the composition of an entity’s expenses.
The amendments in ASU 2024-03 are effective for public business entities for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years. Early adoption is permitted.
The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures. The Company expects the adoption will result in expanded disclosures but does not anticipate a material impact on its results of operations, financial position, or cash flows.
Related Party Transaction
During the six months ended June 30, 2026, the Company entered into a consulting engagement with a related party, as defined under applicable accounting guidance. The related party relationship arises from the entity being controlled by a member of the Company’s board of directors. The Company engaged the related party to provide electrical infrastructure consulting services in connection with the development of its industrial gas processing facility. For the six months ended June 30, 2026, the Company incurred approximately $
2. ACQUISITIONS AND DIVESTITURES
Acquisition of industrial gas acreage
On January 7, 2025, the Company entered into, and simultaneously closed the related party transactions contemplated by, a Purchase and Sale Agreement (the “Synergy Purchase Agreement”), with Synergy Offshore LLC (“Synergy”). Synergy is controlled by Mr. Duane H. King, a member of the Board of Directors of the Company, who serves as the Chief Executive Officer and Manager of Synergy, and John A. Weinzierl, the Company’s Chairman, who was an approximate percent beneficial owner of Synergy at the time of the entry into the purchase and sale agreement.
Pursuant to the Synergy Purchase Agreement, the Company purchased from Synergy,
The Property was acquired in consideration for (a) $
3. REVENUE RECOGNITION
The Company disaggregates revenues from its share of revenue from the sale of oil and natural gas and liquids by region. The Company’s revenues in the Rockies region and the Mid-Continent and Other region for the three and six months ended June 30, 2026 and 2025, are presented in the following table:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue: | ||||||||||||||||
| Rockies | ||||||||||||||||
| Oil | $ | $ | $ | $ | ||||||||||||
| Natural gas and liquids | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Mid-Continent | ||||||||||||||||
| Oil | $ | $ | $ | $ | ||||||||||||
| Natural gas and liquids | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Combined Total | $ | $ | $ | $ | ||||||||||||
Significant concentrations of credit risk
The Company has exposure to credit risk in the event of non-payment of oil and natural gas receivables by purchasers of its operated oil and natural gas properties. The following table presents the purchasers that accounted for 10% or more of the Company’s total oil and natural gas revenue for at least one of the periods presented:
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Purchaser A | % | % | ||||||
| Purchaser B | % | % | ||||||
| Purchaser C | % | % | ||||||
4. LEASES
The Company’s operating lease right-of-use asset and lease obligation are recognized at their discounted present value under the following captions in the Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025:
| June 30, 2026 | December 31, 2025 | |||||||
| (in thousands) | ||||||||
| Right-of-use asset | $ | $ | ||||||
| Lease liability | ||||||||
| Current lease obligation | $ | $ | ||||||
| Long-term lease obligation | ||||||||
| Total lease liabilities | $ | $ | ||||||
The Company recognizes lease expense on a straight-line basis excluding short-term and variable lease payments, which are recognized as incurred. Short-term lease cost represents payments for oilfield equipment with original lease terms less than one year. The following are the amounts recognized as components of lease cost for the three and six months ended June 30, 2026 and 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease costs | $ | $ | $ | $ | ||||||||||||
The Company’s Houston office operating lease does not contain implicit interest rates that can be readily determined; therefore, the Company used the incremental borrowing rates in effect at the time the Company entered into the leases.
| As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Weighted average lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Maturity of operating lease liabilities with terms of one year or more as of June 30, 2026 is presented in the following table:
| June 30, 2026 | ||||
| (in thousands) | ||||
| 2026 | $ | |||
| 2027 | ||||
| Total lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Total lease liability | $ | |||
5. OIL AND NATURAL GAS PRODUCING ACTIVITIES
Full Cost Method Ceiling Test and Impairment
The reserves used in the ceiling test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the ceiling test as of June 30, 2026, the Company used $
The reserves used in the ceiling test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the ceiling test as of June 30, 2025, the Company used $
6. Credit Facility
On January 5, 2022, the Company entered into a -year credit agreement (as amended to date, the “Credit Agreement”) with FirstBank Southwest (“FirstBank”) as administrative agent for one or more lenders (the “Lenders”), which provided for a revolving line of credit with an initial borrowing base of $
On September 16, 2025, effective August 1, 2025, the Company entered into a First Amendment to Credit Agreement and Limited Waiver ("Amendment") with FirstBank, as administrative agent for the lenders party thereto, and such lenders. Significant revisions made to the Credit Amendment as a result of the Amendment include extending the maturity date of amounts owed from January 5, 2026 to May 31, 2029, lowering the borrowing base from $
The Credit Agreement contains various restrictive covenants and compliance requirements, which include: (i) maintenance of certain financial ratios, as defined in the Credit Agreement tested quarterly, that limit the Company’s ratio of total debt to EBITDAX (as defined in the Credit Agreement) to and require its ratio of consolidated current assets to consolidated current liabilities (as each is described in the Credit Agreement) to remain at or higher; (ii) restrictions on making certain payments as defined in the Credit Agreement, including the payment of cash dividends and repurchases of equity interests (subject to certain limited rights to make restricted payments as long as no event of default has occurred, or would result from the restricted payment, certain financial ratios are met and the borrowing availability after giving pro forma effect to any borrowing to be made on the date of the restricted payment is greater than, or equal to,
On April 17, 2026, the Company entered into a Second Amendment (the “Second Amendment”) to its Credit Agreement. The Second Amendment, among other things, (i) increased the borrowing base from $
Under the Credit Agreement, revolving loans may be borrowed, repaid and re-borrowed until May 31, 2029, when all outstanding amounts must be repaid. In addition, there is a fee on the unused borrowing commitment of
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Weighted average interest rate | % | % | % | % | ||||||||||||
7. COMMODITY DERIVATIVES
The Company’s results of operations and cash flows are affected by changes in market prices for crude oil and natural gas. To manage a portion of its exposure to price volatility from producing crude oil and natural gas, the Company may enter into commodity derivative contracts to protect against price declines in future periods. The Company does not enter into derivative contracts for speculative or trading purposes. The Company does not apply hedge accounting. Accordingly, changes in the fair value of the derivative contracts are recorded in the Condensed Consolidated Statements of Operations and are included as a non-cash adjustment to net loss in the operating activities section in the Condensed Consolidated Statements of Cash Flows.
On April 7, 2026, the Company entered into derivative contracts to manage its exposure to fluctuations in crude oil prices. Specifically, the Company entered into a costless collar contract under which it sold call options with a strike price of $
As of June 30, 2026, the fair value gain of the oil contracts was $
8. COMMITMENTS AND CONTINGENCIES
Contingencies
The Company is subject to litigation and claims arising in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, the anticipated results of any pending litigation and claims are not expected to have a material effect on the results of operations, the financial position, or the cash flows of the Company.
Environmental Matters
Subsequent to June 30, 2026, the Company identified a release of produced fluids from a gathering line. Response and remediation activities were initiated promptly, and the Company is coordinating with the applicable regulatory authorities. Based on information currently available, remediation activities are expected to be substantially completed within approximately one week, although environmental testing and monitoring may continue thereafter. Gross remediation and related costs are currently estimated to be up to approximately $
The Company has submitted a claim under its general liability insurance policy, which provides coverage for pollution clean-up costs subject to a $
9. SHAREHOLDERS’ EQUITY
As of June 30, 2026, and December 31, 2025, the Company had
Equity Issuances
On March 10, 2026, the Company closed on an underwritten offering of
On January 22, 2025, the Company entered into an underwriting agreement for the offering of
The sale of
Related Party Share Repurchase
On January 27, 2025, the Company entered into a Share Repurchase Agreement with Banner Oil & Gas, LLC (“Banner”), Woodford Petroleum, LLC (“Woodford”), and Sage Road Energy II, LP, (“Sage Road”, and together with Banner and Woodford, the “Selling Stockholders”). In his capacity as co-Managing Partner of Sage Road Capital, LLC, which indirectly controls and manages certain funds which own a majority interest in Banner, Woodford and Sage Road, Joshua L. Batchelor, a then member of the Board of Directors of the Company, may be deemed to beneficially own the shares of common stock held by the Selling Stockholders.
Pursuant to the Share Repurchase Agreement, the Company, in a private transaction, outside of, and separate from the Company’s previously disclosed share repurchase program, on January 27, 2025, repurchased (a)
Committed Equity Facility
On October 9, 2025, the Company entered into a Common Stock Purchase Agreement and related Registration Rights Agreement with Roth Principal Investments, LLC ("Roth Principal"), providing a discretionary equity facility of up to $
During the six months ended June 30, 2026, the Company sold
Stock Option Plans
The Company may grant stock options under its incentive plans covering shares of common stock to employees and directors of the Company. Stock options, when exercised, are settled through the payment of the exercise price in exchange for new shares of stock underlying the option. These awards typically expire years from the grant date. Compensation cost is recognized on a straight-line basis over the requisite service period of each award and is included in general and administrative expense. Forfeitures are recognized as they occur.
Option activity for the six months ended June 30, 2026 was as follows:
| Remaining | ||||||||||||
| Weighted-Avg. | Contractual | |||||||||||
| Number of | Exercise | Term | ||||||||||
| Options | Price | (years) | ||||||||||
| Outstanding at December 31, 2025 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | $ | |||||||||||
| Outstanding at June 30, 2026 | $ | |||||||||||
| Exercisable at June 30, 2026 | $ | |||||||||||
Options granted prior to 2026. The
March 4, 2026 grant. On March 4, 2026, the Company granted stock options to employees and directors to purchase
The weighted-average grant-date fair value of these options was approximately $
| Expected Volatility | |
| Expected term |
|
| Risk-free interest rate | |
| Expected dividend yield |
Expected term ranged from
Expected volatility was estimated based on the historical volatility of the Company's common stock over a lookback period deemed representative of the expected life of the options, taking into consideration the Company's historical trading data and significant corporate developments. The Company evaluated historical volatility using daily stock price data and considered the impact of changes in its business strategy and market conditions over the look-back period. Due to limited historical exercise data and changes in the Company's operations, management applied judgment in selecting an appropriate volatility assumption reflective of the expected term of the awards.
Activity for unvested options during the six months ended June 30, 2026 was as follows:
| Weighted-Avg. | ||||||||
| Grant-Date | ||||||||
| Number of | Fair Value | |||||||
| Options | Per Option | |||||||
| Non-vested stock options at December 31, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Non-vested stock options at June 30, 2026 | $ | |||||||
For the three and six months ended June 30, 2026, the Company recognized stock-based compensation of approximately $
Restricted Stock
The Company grants restricted stock under its incentive plans covering shares of common stock to employees and directors of the Company. All of the restricted stock awards are time-based awards and are amortized ratably from grant date over a requisite service period. Forfeitures of restricted stock awards are recognized as they occur. Restricted stock granted to employees is reduced by shares forfeited to pay withholding tax. Non-vested shares of restricted stock are not included in common shares outstanding until vesting has occurred.
The following table presents the changes in non-vested restricted stock awards to all employees and directors for the six months ended June 30, 2026:
| Weighted-Avg. | ||||||||
| Grant Date | ||||||||
| Fair Value | ||||||||
| Shares | Per Share | |||||||
| Non-vested restricted stock as of December 31, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Non-vested restricted stock as of June 30, 2026 | $ | |||||||
For the three and six months ended June 30, 2026 and 2025, the Company recognized $
Share Repurchase Program
On January 29, 2025, the Board of Directors of the Company authorized and approved an extension of the ongoing share repurchase program for up to $
Under the stock repurchase program, shares are repurchased from time to time in the open market or through negotiated transactions at prevailing market prices, or by other means in accordance with federal securities laws. Repurchases are made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. The repurchase program is funded using the Company’s working capital. The repurchased shares are cancelled and therefore will not be held in treasury or reissued.
The following table presents the activity in the share repurchase program for the three and six months ended June 30, 2026 and 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Shares repurchased | ||||||||||||||||
| Weighted average price per share | $ | $ | $ | $ | ||||||||||||
| Value of shares repurchased | $ | $ | $ | $ | ||||||||||||
10. ASSET RETIREMENT OBLIGATIONS
The Company has asset retirement obligations (“ARO”) associated with the future plugging and abandonment of proved properties. Initially, the fair value of a liability for an ARO is recorded in the period in which the ARO is incurred with a corresponding increase in the carrying amount of the related asset. The liability is accreted to its present value each period and the capitalized cost is depleted over the life of the related asset. If the liability is settled for an amount other than the recorded amount, an adjustment to the full cost pool is recognized. The Company had
In the fair value calculation for the ARO, there are a number of assumptions and judgments, including the ultimate retirement cost, inflation factors, credit-adjusted risk-free discount rates, timing of retirement and changes in legal, regulatory, environmental, and political environments. To the extent future revisions to assumptions and judgments impact the present value of the existing ARO, a corresponding adjustment is made to the oil and natural gas property balance.
The following is a reconciliation of the changes in the Company’s liabilities for asset retirement obligations as of June 30, 2026 and December 31, 2025:
| June 30, 2026 | December 31, 2025 | |||||||
| (in thousands) | ||||||||
| Balance, beginning of year | $ | $ | ||||||
| Acquired or incurred | ||||||||
| Cost and life revisions | ( | ) | ||||||
| Plugged | ( | ) | ( | ) | ||||
| Sold | ( | ) | ||||||
| Accretion | ||||||||
| Balance, end of period | $ | $ | ||||||
11. INCOME TAXES
The Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any. Each quarter the Company updates its estimate of the annual effective tax rate and makes a year-to-date adjustment to the provision. The Company’s effective tax rate was approximately
Deferred taxes are recognized for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets, liabilities, net operating losses and tax credit carry-forwards. We review our deferred tax assets (“DTAs”) and valuation allowance on a quarterly basis. As part of our review, we consider positive and negative evidence, including cumulative results in recent years.
The Company recognizes, measures, and discloses uncertain tax positions whereby tax positions must meet a “more-likely-than-not” threshold to be recognized. During the six months ended June 30, 2026 and 2025,
12. INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the respective period. Diluted net income (loss) per common share is calculated by dividing adjusted net income by the diluted weighted average number of common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for this calculation consist of stock options and unvested shares of restricted common stock, which are measured using the treasury stock method. When the Company recognizes a net loss, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of dilutive net loss per common share. Unvested shares of restricted stock participate in dividend distributions; however, they do not participate in losses. Therefore, dividends, if any, attributable to participating securities are not included as a reduction in the calculation of loss attributable to common shareholders.
The following table sets forth the calculation of basic and diluted net loss per share for the three and six months ended June 30, 2026 and 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands except per share data) | ||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic weighted average common shares outstanding | ||||||||||||||||
| Dilutive effect of potentially dilutive securities | ||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||
| Basic and Diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Potential common shares, including restricted stock and stock options issued to employees and directors disclosed in Note 9 – Shareholders’ Equity, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.
13. FAIR VALUE MEASUREMENTS
The Company’s fair value measurements are estimated pursuant to a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, giving highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability, and may affect the valuation of the assets and liabilities and their placement within the hierarchy level. The three levels of inputs that may be used to measure fair value are defined as:
Level 1 - Quoted prices for identical assets and liabilities traded in active markets.
Level 2 - Observable inputs other than Level 1 that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in active markets, or other observable inputs that can be corroborated by observable market data.
Level 3 - Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The following is a description of the valuation methodologies used for complex financial instruments measured at fair value:
Recurring Fair Value Measurements
Marketable Equity Securities
We measure the fair value of marketable equity securities based on quoted market prices obtained from independent pricing services. The Company has an investment in the marketable equity securities of Anfield Energy (“Anfield”), which it acquired as consideration for sales of certain mining operations. Anfield is traded in an active market under the trading symbol AEC:TSXV and has been classified as Level 1.
We have approximately
Credit Facility
The Company’s credit facility approximates fair value because the interest rate is variable and reflective of market rates.
Other Financial Instruments
The carrying value of financial instruments included in current assets and current liabilities approximate fair value due to the short-term nature of those instruments.
Nonrecurring Fair Value Measurements
Asset Retirement Obligations
The Company measures the fair value of asset retirement obligations as of the date a well is acquired, the date a well begins drilling, or the date the Company revises its ARO assumptions. The Company’s estimated AROs are based on historical experience in plugging and abandoning wells, estimated economic lives, estimated plugging and abandonment costs and federal and state regulatory requirements, all unobservable inputs, and therefore, are designated as Level 3 within the valuation hierarchy. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred or revised upwards. The credit adjusted risk-free rate used to discount the Company’s plugging and abandonment liabilities range from
Stock Options
The Company measures the fair value of stock option awards as of the grant date using a Black-Scholes option pricing model. The fair value of stock options is based on a number of assumptions, including the expected term of the awards, expected volatility of the Company’s common stock, risk-free interest rate, and expected dividend yield. These inputs involve significant management judgment and are therefore classified as Level 3 within the fair value hierarchy.
Expected volatility is estimated based on the historical volatility of the Company’s common stock over a lookback period deemed representative of the expected life of the options, taking into consideration the Company’s historical trading data and significant corporate developments. The expected term is estimated using the simplified method, as the Company does not have sufficient historical exercise data. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant for maturities consistent with the expected term of the awards. The expected dividend yield is assumed to be zero, as the Company has not paid dividends since 2023 and does not anticipate doing so in the foreseeable future. See Note 9—Shareholders’ Equity.
14. OTHER CURRENT ASSETS AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Other Current Assets
The following table presents the components of other current assets as of the dates indicated:
| June 30, 2026 | December 31, 2025 | |||||||
| (in thousands) | ||||||||
| Prepaid insurance | $ | $ | ||||||
| Joint interest billings receivable | ( | ) | ||||||
| Income tax receivable | ||||||||
| Deferred offering costs | ||||||||
| Other | ||||||||
| Total other current assets | $ | $ | ||||||
Accounts Payable and Accrued Liabilities.
The following table presents the components of accounts payable and accrued liabilities as of the dates indicated:
| June 30, 2026 | December 31, 2025 | |||||||
| (in thousands) | ||||||||
| Accounts payable | $ | $ | ||||||
| Operating expense and oil and natural gas property accruals | ||||||||
| Interest Payable | ||||||||
| Production taxes payable | ||||||||
| Accrued benefits and other | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
15. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
| Six Months Ended | ||||||||
| June 30, 2026 | June 30, 2025 | |||||||
| (in thousands) | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Investing activities: | ||||||||
| Change in capital expenditure accruals | ( | ) | ( | ) | ||||
| Common stock issued for acquisition of industrial gas properties | ( | ) | ||||||
| Asset retirement obligations | ( | ) | ||||||
| Financing activities: | ||||||||
| Deferred offering costs charged to additional paid-in capital | ||||||||
Interest expense of $
16. SUBSEQUENT EVENTS
Subsequent to June 30, 2026, the Company borrowed an additional $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
This information should be read in conjunction with the interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited Consolidated Financial Statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission on March 13, 2026 (the “Annual Report”).
Certain abbreviations and oil and gas industry terms used throughout this Report are described and defined in greater detail under “Glossary of Oil, Natural and Industrial Gas Terms” on page 4 of our Annual Report.
Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited Condensed Consolidated Financial Statements included above under “Part I - Financial Information” – “Item 1. Financial Statements.”
In this Quarterly Report on Form 10-Q, we may rely on and refer to information regarding the industries in which we operate in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, we have not independently verified any of it, and we have not commissioned any such information.
See also “Cautionary Statement About “Forward-Looking Statements” above.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Big Sky Industrial Inc.”, and “Big Sky Industrial” refer specifically to Big Sky Industrial Inc. and its consolidated subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this report only:
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“Bbl” refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons; |
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“BOE” refers to barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate, or natural gas liquids, to six Mcf of natural gas; |
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“Bopd” refers to barrels of oil per day; |
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"Industrial gases" refers to helium, carbon dioxide, and hydrocarbons; |
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“Mcf” refers to a thousand cubic feet of natural gas; |
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“Mcfe” means 1,000 cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids; |
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| ● | "MMCF" refers to a million cubic feet of natural or industrial gasses; |
| ● | "MMCF/d" refers to a million cubic feet of natural or industrial gasses; |
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“NGL” refers to natural gas liquids; |
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“Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
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“SEC” or the “Commission” refers to the United States Securities and Exchange Commission; |
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“Securities Act” refers to the Securities Act of 1933, as amended; and |
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“WTI” means West Texas Intermediate. |
Where You Can Find Other Information
We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us at https://www.sec.gov (our filings can be found at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000101594) and on the “Investors – SEC Filings” page of our website at https://bigskyindustrialinc.com. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.
Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying unaudited Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
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General Overview. A general overview of the Company and our operations. |
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Recent Developments. Discussion of recent developments affecting the Company and our operations. |
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Plan of Operations and Strategy. Discussion of our strategy moving forward and how we plan to seek to increase stockholder value. |
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Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. |
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Results of Operations. An analysis of our financial results comparing the three and six months ended June 30, 2026 and 2025. |
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Liquidity and Capital Resources. A discussion of our financial condition, including descriptions of balance sheet information and cash flows. |
General Overview
Big Sky Industrial Inc. (collectively with its wholly-owned subsidiaries are referred to as the “Company”) is incorporated in the State of Delaware. The Company’s principal business activities are focused on the acquisition, exploration, and development of industrial gases, oil and natural gas properties in the United States.
Recent Developments
Final Investment Decision – Big Sky Carbon Hub
During the first quarter of 2026, the Company reached a final investment decision (“FID”) for the construction of its processing facility at the Big Sky Carbon Hub ("Big Sky") in Montana and executed a fixed-scope engineering, procurement and construction agreement, initiating capital deployment for the project. The planned facility is designed with an initial inlet capacity up to 8.0 MMCF/d, targeting approximately 14.4 MMCF of annual helium production and 125,000 metric tons of refined CO₂ per year. The Company expects to commence gathering pipeline installation in spring 2026, with commissioning targeted for the third quarter of 2026 and initial gas processing and helium sales and carbon management operations anticipated in 2027.
In anticipation of reaching FID, during the six months ended June 30, 2026, the Company generated $17.2 million in proceeds from equity issuances. Additionally, on April 17, 2026, the Company entered into an amendment to its Credit Facility with FirstBank Southwest that among other things, (i) increased the borrowing base from $10.0 million to $20.0 million, (ii) revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and (iii) suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The Credit Facility maturity date remains May 31, 2029.
Helium Sales Agreement
On April 27, 2026, the Company executed a five-year helium sales agreement with an investment-grade global industrial gas company for the sale of contained helium to be produced at the Company’s Big Sky Carbon Hub in Montana. The Agreement provides for a 100% take-or-pay commitment by the counterparty for up to approximately 1.2 MMCF per month (14.4 MMCF annually) of helium production, with fixed pricing of $285 per MCF, which includes counterparty transport from the plant gate, subject to annual (consumer price index) CPI-based escalation beginning March 1, 2028, and includes a price redetermination mechanism in year three with a right of first refusal.
Plan of Operations and Strategy
During the remainder of 2026 and beyond, we intend to pursue opportunities across the industrial gas sector, with a strategic emphasis on the next phase of development and monetization of our helium and carbon dioxide resources. While we plan to continue to operate oil and gas assets, our primary focus is on maximizing value from associated industrial gases. Our activities may include the acquisition of assets, participation with industry partners in development projects, acquisition of existing companies, and the purchase or development of industrial gas-related assets. Planned operations include construction of processing facilities, negotiating operating arrangements, finalizing gathering and infrastructure designs, and pursuing the use of a portion of produced CO₂ in tertiary recovery operations in our Montana oil operations.
Key elements of our business strategy include:
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Deploy our Capital in a Conservative and Strategic Manner and Review Opportunities to Bolster our Liquidity. In the current industry environment, maintaining liquidity remains critical. We intend to be selective in evaluating projects, prioritizing those that enhance industrial gas value, and to review opportunities to strengthen our liquidity and financial position through disciplined capital allocation and other means. |
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Evaluate and Pursue Value-Enhancing Transactions. We plan to continuously evaluate strategic alternatives, including transactions that expand our industrial gas platform or optimize our oil and gas assets, with the objective of enhancing long-term stockholder value. |
Critical Accounting Policies and Estimates
The preparation of our unaudited Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is detailed in Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2025 Annual Report on Form 10-K filed with the SEC on March 13, 2026.
Results of Operations
Comparison of our Statements of Operations for the Three Months Ended June 30, 2026 and 2025
For the three months ended June 30, 2026, we recorded a net loss of $2.3 million, which was primarily due to lower production resulting from divestitures in prior periods. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the three months ended June 30, 2026 and 2025:
| Three months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands except average prices and production quantities) |
||||||||||||||||
| Revenue: |
||||||||||||||||
| Oil |
$ | 2,034 | $ | 1,844 | $ | 190 | 10 | % | ||||||||
| Natural gas and liquids |
100 | 184 | (84 | ) | (46 | )% | ||||||||||
| Total revenue |
$ | 2,134 | $ | 2,028 | $ | 106 | 5 | % | ||||||||
| Production quantities: |
||||||||||||||||
| Oil (Bbls) |
26,166 | 33,445 | (7,279 | ) | (22 | )% | ||||||||||
| Natural gas and liquids (Mcfe) |
45,486 | 92,226 | (46,740 | ) | (51 | )% | ||||||||||
| BOE |
33,747 | 48,816 | (15,069 | ) | (31 | )% | ||||||||||
| BOE/Day |
371 | 536 | (165 | ) | (31 | )% | ||||||||||
| Average sales prices: |
||||||||||||||||
| Oil (Bbls) |
$ | 77.73 | $ | 55.14 | $ | 22.59 | 41 | % | ||||||||
| Natural gas and liquids (Mcfe) |
$ | 2.20 | $ | 2.00 | $ | 0.20 | 10 | % | ||||||||
| BOE |
$ | 63.24 | $ | 41.54 | $ | 21.70 | 52 | % | ||||||||
The increase in our oil and natural gas revenue of $0.1 million for the three months ended June 30, 2026, as compared to the three months ended June 30, 2025, was primarily due to a 41% increase in oil sales prices offset by a reduction in production volumes. For the three months ended June 30, 2026, we produced 33,747 BOE, or an average of 371 BOE per day, as compared to 48,816 BOE or an average of 536 BOE per day during the comparable period in 2025. The decrease in our production quantities primarily relates to the divestitures of our properties in Wyoming and West Texas and the natural decline in production in remaining producing assets.
Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the three months ended June 30, 2026 and 2025:
| Three months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Lease operating expenses |
$ | 995 | $ | 1,520 | $ | (525 | ) | (35 | )% | |||||||
| Production taxes |
165 | 148 | $ | 17 | 11 | % | ||||||||||
| Exploration expense |
121 | 51 | $ | 70 | 137 | % | ||||||||||
| Total |
$ | 1,281 | $ | 1,719 | $ | (438 | ) | (25 | )% | |||||||
| Lease operating expense per BOE |
$ | 29.48 | $ | 31.14 | $ | (1.66 | ) | (5 | )% | |||||||
For the three months ended June 30, 2026, lease operating expenses were $1.0 million or $29.48 per BOE. While lease operating expenses decreased by $0.5 million when compared to $1.5 million or $31.14 per BOE for the three months ended June 30, 2025, the cost on a BOE basis decreased as the mix of properties changed as a result of the divestment of our Wyoming and West Texas properties.
For the three months ended June 30, 2026, production taxes consistently remained between 6% and 8% of revenue. This increase in production taxes was attributable to the increase in revenue of 5% during the same period, as discussed above.
Exploration expense increased $70 thousand, which was attributable to an increase in exploration activities for our industrial gas development, namely professional services supporting resource estimation and analysis and legal work.
Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization (“DD&A”) was $0.6 million and $1.1 million for the three months ended June 30, 2026 and 2025, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $11.83 per BOE and $10.94 per BOE for the three months ended June 30, 2026 and 2025, respectively. Our depletion rate can fluctuate modestly because of changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.
General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the three months ended June 30, 2026 and 2025:
| Three months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Compensation and benefits |
$ | 879 | $ | 629 | $ | 250 | 40 | % | ||||||||
| Stock-based compensation |
845 | 563 | 282 | 50 | % | |||||||||||
| Professional fees, insurance and other |
924 | 1,058 | (135 | ) | (13 | )% | ||||||||||
| Total general and administrative expenses |
$ | 2,647 | $ | 2,250 | $ | 397 | 18 | % | ||||||||
General and administrative expenses increased by $0.4 million for the three months ended June 30, 2026 as compared to the prior year period. The increase was primarily attributable to discretionary employee compensation accrued in the current period but not in the prior period, equity-based compensation issued to consultants, and higher investor relations expense, partially offset by lower fees for accounting and tax professional services in the three months ended June 30, 2025.
Other Income (Expense). Presented below is a comparison of our other income (expense) for the three months ended June 30, 2026 and 2025:
| Three months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Commodity derivative gain (loss), net |
$ | 167 | $ | - | $ | 167 | 100 | % | ||||||||
| Interest expense, net |
(10 | ) | (47 | ) | 37 | 79 | % | |||||||||
| Other income (expense), net |
(51 | ) | 228 | (279 | ) | (122 | )% | |||||||||
| Total other income (expense) |
$ | 106 | $ | 181 | $ | (75 | ) | 41 | % | |||||||
Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. Interest expense of $63 thousand dollars were capitalized as part of the industrial gas processing plant construction expenses during the three months ended June 30, 2026. As of December 31, 2025 and June 30, 2026, we had $2.5 million and $4.5 million, respectively outstanding on our credit facility.
Comparison of our Statements of Operations for the Six Months Ended June 30, 2026 and 2025
For the six months ended June 30, 2026, we recorded a net loss of $5.5 million, which was primarily due to lower production resulting from divestitures in prior periods. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.
Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the six months ended June 30, 2026 and 2025:
| Six months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands except average prices and production quantities) |
||||||||||||||||
| Revenue: |
||||||||||||||||
| Oil |
$ | 3,411 | $ | 3,615 | $ | (204 | ) | (6 | )% | |||||||
| Natural gas and liquids |
328 | 607 | (279 | ) | (46 | )% | ||||||||||
| Total revenue |
$ | 3,739 | $ | 4,222 | $ | (483 | ) | (11 | )% | |||||||
| Production quantities: |
||||||||||||||||
| Oil (Bbls) |
48,008 | 63,438 | (15,430 | ) | (24 | )% | ||||||||||
| Natural gas and liquids (Mcfe) |
120,174 | 194,316 | (74,142 | ) | (38 | )% | ||||||||||
| BOE |
68,037 | 95,824 | (27,787 | ) | (29 | )% | ||||||||||
| BOE/Day |
376 | 529 | (153 | ) | (29 | )% | ||||||||||
| Average sales prices: |
||||||||||||||||
| Oil (Bbls) |
$ | 71.05 | $ | 56.98 | $ | 14.07 | 25 | % | ||||||||
| Natural gas and liquids (Mcfe) |
$ | 2.73 | $ | 3.12 | $ | (0.39 | ) | (13 | )% | |||||||
| BOE |
$ | 54.96 | $ | 44.06 | $ | 10.90 | 25 | % | ||||||||
The decrease in our oil and natural gas revenue of $0.5 million for the six months ended June 30, 2026, as compared to the six months ended June 30, 2025, was primarily due to a decrease of 29% in production quantities offset primarily by increases in the oil sales price. For the six months ended June 30, 2026, we produced 68,037 BOE, or an average of 376 BOE per day, as compared to 95,824 BOE or an average of 529 BOE per day during the comparable period in 2025. The decrease in our production quantities primarily relates to the divestitures of our properties in Wyoming and West Texas and the natural decline in production in remaining producing assets.
Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the six months ended June 30, 2026 and 2025:
| Six months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Lease operating expenses |
$ | 1,906 | $ | 3,145 | $ | (1,239 | ) | (39 | )% | |||||||
| Production taxes |
295 | 296 | (1 | ) | (0 | )% | ||||||||||
| Exploration expense |
222 | 51 | 171 | 335 | % | |||||||||||
| Total |
$ | 2,423 | $ | 3,492 | $ | (1,069 | ) | (31 | )% | |||||||
| Lease operating expense per BOE |
$ | 28.01 | $ | 32.82 | $ | (4.81 | ) | (15 | )% | |||||||
For the six months ended June 30, 2026, lease operating expenses were $1.9 million or $28.01 per BOE. Lease operating expenses decreased by $1.2 million when compared to $3.2 million or $32.82 per BOE for the six months ended June 30, 2025, the cost on a BOE basis decreased as the mix of properties changed as a result of the divestment of our Wyoming and West Texas properties.
For the six months ended June 30, 2026, production taxes consistently remain between 6% and 8% of revenue. This decrease in production taxes was attributable to the decrease in revenue of 11% discussed above.
Exploration expense increased $171 thousand, which was attributable to an increase in exploration activities for our industrial gas development, namely professional services supporting resource estimation and analysis and legal work.
Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization (“DD&A”) was $1.2 million and $2.2 million for the six months ended June 30, 2026 and 2025, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $11.38 per BOE and $14.67 per BOE for the six months ended June 30, 2026 and 2025, respectively. Our depletion rate can fluctuate modestly because of changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.
General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the six months ended June 30, 2026 and 2025:
| Six months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Compensation and benefits |
$ | 2,530 | $ | 1,401 | $ | 1,129 | 81 | % | ||||||||
| Stock-based compensation |
1,291 | 1,034 | 257 | 25 | % | |||||||||||
| Professional fees, insurance and other |
1,874 | 2,206 | (333 | ) | (15 | )% | ||||||||||
| Total general and administrative expenses |
$ | 5,694 | $ | 4,641 | $ | 1,053 | 23 | % | ||||||||
General and administrative expenses increased by $1.1 million for the six months ended June 30, 2026 as compared to the prior year period. The increase was primarily attributable to the timing of discretionary compensation, which occurred during the three months ended March 31, 2026. Professional fees decreased primarily due to a reduction in acquisition-related costs relative to the activity in the six months ended June 30, 2025.
Other Income (Expense). Presented below is a comparison of our other income (expense) for the six months ended June 30, 2026 and 2025:
| Six months ended June 30, |
Change |
|||||||||||||||
| 2026 |
2025 |
Amount |
Percent |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Commodity derivative gain (loss), net |
$ | 167 | $ | - | $ | 167 | 100 | % | ||||||||
| Interest expense, net |
(74 | ) | (95 | ) | 21 | 22 | % | |||||||||
| Other income (expense), net |
(29 | ) | 252 | (281 | ) | 112 | % | |||||||||
| Total other income (expense) |
$ | 64 | $ | 157 | $ | (93 | ) | 59 | % | |||||||
Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. Interest expense of $63 thousand dollars were capitalized as part of the industrial gas processing plant construction expenses during the three months ended June 30, 2026. As of December 31, 2025 and June 30, 2026, we had $2.5 million and $4.5 million, respectively outstanding on our credit facility. For the six months ended June 30, 2026, interest expense included interest incurred on the outstanding loan and fees to maintain our credit facility. For the six months ended June 30, 2025, we had no amounts outstanding under the credit facility and our interest expense comprised of fees to maintain our credit facility.
Liquidity and Capital Resources
Based on the current commodity price environment and our existing working capital, we believe we have sufficient liquidity and capital resources to execute our business plan and meet our current financial obligations. As of June 30, 2026, the Company was in compliance with all financial covenants under its credit facility. We continue to actively manage our capital commitments to maintain flexibility with respect to the timing and level of our development activities and capital expenditures.
For the remainder of 2026, the Company’s capital program is designed to advance the Big Sky project toward initial commercial operations targeted for the first quarter of 2027. We anticipate the remaining aggregate, near-term capital program to range between $20.0 million and $25.0 million, primarily related to the construction of our gas processing plant, production gathering system, and related infrastructure at our industrial gas development project. In addition, we may incur up to approximately $0.5 million for plugging and abandonment activities, depending on regulatory requirements, timing, and weather conditions. We expect these expenditures to be funded through a combination of cash on hand, operating cash flows, proceeds from the divestiture of oil and natural gas properties, borrowings under our credit facility, additional equity issuances, and potential project-specific financing, including equity and debt capital.
Sources of Cash
For the six months ended June 30, 2026, we funded our capital expenditures primarily through cash on hand, proceeds from equity issuances, and draws on our credit facility. During the period, we generated approximately $17.2 million from equity sales, issuances and had cash and cash equivalents of approximately $5.9 million, and $15.5 million available under our credit facility as of June 30, 2026.
On April 17, 2026, the Company entered into an amendment to its credit facility with FirstBank Southwest, which, among other things, increased the borrowing base from $10.0 million to $20.0 million, revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The maturity date of the credit facility remains May 31, 2029. The increased borrowing base provides us access to an additional $15.5 million of capital.
In future periods, if cash flows from operations are insufficient to fund capital expenditures and operating requirements, we may seek additional financing through public or private equity or debt offerings or other financing arrangements. We may also adjust the timing and scope of our capital program based on market conditions and capital availability. Our ability to access capital is subject to prevailing economic conditions, including changes in commodity prices, interest rates, capital markets, regulatory requirements, and other factors beyond our control.
Uses of Cash
We use cash primarily for the development of our industrial gas assets, including construction of processing and gathering infrastructure, as well as for operating expenses, general and administrative costs, and debt service obligations. During the six months ended June 30, 2026, we spent approximately $9.6 million on the acquisition and development of industrial gas properties and expect to continue allocating capital to the Big Sky project for the remainder of the year.
Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2026 and 2025:
| Six months ended June 30, |
||||||||||||
| 2026 |
2025 |
Change |
||||||||||
| (in thousands) |
||||||||||||
| Net cash provided by (used in): |
||||||||||||
| Operating activities |
$ | (3,252 | ) | $ | (6,126 | ) | $ | 2,874 | ||||
| Investing activities |
(10,094 | ) | (4,509 | ) | (5,585 | ) | ||||||
| Financing activities |
18,905 | 9,641 | 9,264 | |||||||||
Operating Activities. Cash used in operating activities of $3.3 million for the six months ended June 30, 2026 was mainly due to a $5.5 million net loss and a reduction of working capital of $0.2 million offset by $1.2 million of depreciation, depletion, accretion. Cash used by operating activities of $6.1 million for the six months ended June 30, 2025, was mainly due to a net loss of $9.2 million and a reduction of payables of $3.8 million offset by $2.2 million of depreciation, depletion, accretion, and amortization.
Investing Activities. Cash used in investing activities for the six months ended June 30, 2026 was $10.1 million as compared to cash used in investing activities of $4.5 million for the comparable period in 2025. The primary use of cash in our investing activities for the six months ended June 30, 2026 was attributable to initial plant construction costs. For the six months ended June 30, 2025, the cash investment was primarily attributed to the Synergy acquisition discussed in Note 2 - Acquisitions and Divestitures.
Financing Activities. Cash provided by financing activities for the six months ended June 30, 2026 was $18.9 million as compared to $9.6 million for the comparable period in 2025. The primary drivers of this cash inflow were equity sales of $17.2 million during the six months ended June 30, 2026, compared to $11.9 million in the prior period, which in the prior period were reduced by a related party share repurchase of $1.6 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We are required to maintain disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As of June 30, 2026, management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2026.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. In addition, the design of disclosure controls and procedures must reflect that resource constraints exist and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the six months ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.
Item 1A. Risk Factors.
Except as noted below, there have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 13, 2026, under the heading “Item 1A. Risk Factors”, except as set forth below, and investors should review the risks provided in the Annual Report and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
Geopolitical Conflict and Disruptions to Global Energy Markets, Including Risks Associated with the Strait of Hormuz, May Adversely Affect Our Business, Financial Condition, and Results of Operations
Ongoing geopolitical conflict involving Iran and other countries in the Middle East has created significant volatility and uncertainty in global energy markets. The Strait of Hormuz, a critical transit chokepoint through which approximately 20% of the world’s oil supply and a significant portion of liquefied natural gas flows, has experienced material disruption, including reduced vessel traffic, military activity, and heightened security risks.
Although our operations are domestic, our business is indirectly exposed to global energy market conditions. Disruptions to supply, transportation constraints, or perceived risks of interruption in the Strait of Hormuz or surrounding regions may result in significant commodity price volatility, including rapid increases or decreases in oil and natural gas prices, as well as dislocations in supply chains and end markets.
In addition, military escalation or collateral damage affecting energy infrastructure, shipping routes, or regional production facilities in the Middle East may further exacerbate global supply shortages, increase input and operating costs, and contribute to broader macroeconomic instability, including inflationary pressures or recessionary conditions. These conditions may adversely impact demand for our products and services, disrupt capital markets, and impair our ability to access financing on acceptable terms.
Our ongoing development of a domestic industrial gas project, including the production and commercialization of helium and other gases, may also be adversely affected by such geopolitical events. Supply chain disruptions, equipment procurement delays, cost inflation, or volatility in industrial gas pricing could delay project timelines, increase capital expenditures, or reduce expected returns.
Furthermore, geopolitical instability may result in heightened regulatory scrutiny, trade restrictions, sanctions, or changes in U.S. energy policy, any of which could adversely affect our operations, counterparties, or strategic initiatives. The extent and duration of these risks remain uncertain and could have a material adverse effect on our business, financial condition, and results of operations.
Risks Associated with our Helium Sales Agreement
We have entered into a five-year helium sales agreement with an investment-grade counterparty that commits substantially all future helium production from our planned Big Sky project at a largely fixed price. While the agreement provides revenue visibility and supports project financing, it limits our ability to benefit from higher helium prices, may expose us to margin compression if production or inflation-related costs exceed the contract price, and restricts our flexibility to sell to alternative buyers on more favorable terms. The agreement also exposes us to counterparty, operational, commencement, and future price redetermination risks. As a result, the agreement could constrain our upside and could have a material adverse effect on our business, financial condition, and results of operations.
Construction and EPC Execution Risk
The Company’s ability to successfully develop its gas processing facility depends on the timely and cost-effective execution of its engineering, procurement and construction (“EPC”) agreement and the completion of both offsite fabrication and onsite construction activities. These efforts are subject to a variety of risks, including potential delays in engineering design, procurement of critical equipment, module fabrication, transportation logistics, site preparation, and field construction. The Company may also encounter cost overruns due to labor shortages, inflationary pressures, contractor performance issues, supply chain disruptions, adverse weather conditions, or unforeseen site or subsurface conditions. In addition, integration risks between offsite fabricated components and onsite installation could result in rework, inefficiencies, or commissioning delays. Any such delays or cost increases could materially impact the project schedule, capital expenditures, and expected timing of initial operations, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Future changes to U.S. tax laws and regulations, including potential changes to carbon capture incentives, could adversely affect our business, financial condition, results of operations, and cash flows.
From time to time, legislative and regulatory proposals are introduced that could significantly affect the U.S. tax treatment of companies engaged in industrial gas, oil and natural gas exploration, development, and production. These proposals have included, among other items, the elimination of the immediate deduction for intangible drilling and development costs, the repeal of the percentage depletion allowance for oil and gas properties, changes to the treatment of certain domestic production activities, and the extension of amortization periods for geological and geophysical expenditures. The enactment of any such changes, or other similar measures that reduce or eliminate tax benefits currently available to our industry, could increase our tax burden, reduce cash flows, and adversely impact the economics of our projects.
In addition, our business strategy includes the development of carbon management initiatives that may be eligible for federal tax incentives, including credits available under Section 45Q of the Internal Revenue Code for the capture and sequestration or utilization of carbon dioxide. The availability, value, and timing of benefits under Section 45Q depend on a number of factors, including final regulatory guidance, compliance with detailed technical and operational requirements, verification and reporting obligations, and our ability to place qualifying facilities in service and operate them in accordance with applicable standards. Legislative, regulatory, or administrative changes could reduce, delay, or eliminate the availability of these credits, including changes to eligibility thresholds, credit amounts, transferability provisions, or recapture rules. In addition, failure to satisfy applicable requirements or to sustain qualifying operations over the required period could result in the loss or recapture of previously claimed credits. Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
There have been no sales of unregistered securities during the quarter ended June 30, 2026 which have not previously been reported in a Current Report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth share repurchase activity for the six months ended June 30, 2026:
| Total Number |
Approximate |
|||||||||||||||
| of Shares |
Dollar Value of |
|||||||||||||||
| Purchased as |
Shares that |
|||||||||||||||
| Part of |
May Yet Be |
|||||||||||||||
| Publicly |
Purchased |
|||||||||||||||
| Total Number |
Average |
Announced |
Under the |
|||||||||||||
| of Shares |
Price Paid Per |
Plans or |
Plans or |
|||||||||||||
| Period |
Purchased |
Share |
Programs |
Programs |
||||||||||||
| April 1- April 30, 2026 |
— | $ | — | — | $ | 3,514,370 | ||||||||||
| May 1 - May 31, 2026 |
— | $ | — | — | $ | 3,514,370 | ||||||||||
| June 1 - June 30, 2026 |
— | $ | — | — | $ | 3,514,370 | ||||||||||
| Total |
— | $ | — | — | $ | 3,514,370 | ||||||||||
As of June 30, 2026, the Company’s share repurchase program has expired. The Board of Directors may reauthorize and extend the share repurchase program at their discretion.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
(c) Rule 10b5-1 Trading Plans. Our directors and executive officers may from time to time enter into plans or other arrangements for the purchase or sale of our shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the quarter ended June 30, 2026, of the Company’s directors or officers (as defined in Rule 16a-1(f)) adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Item 6. Exhibits
| Exhibit No. |
Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed / |
||||||
| 3.1 | Certificate of Amendment to the Certificate of Incorporation of U.S. Energy Corp. as filed with the Secretary of State of Delaware on June 3, 2026, and effective on June 8, 2026 | 8-K | 000-06814 | 3.1 | 06/04/2026 | |||||||
| 3.2 | Amended and Restated Bylaws of Big Sky Industrial Inc. effective June 8, 2026 | 8-K | 000-06814 | 3.2 | 06/04/2026 | |||||||
| 10.1 | Credit Agreement dated as of January 5, 2022, among U.S. Energy Corp., as borrower, Firstbank Southwest, as Administrative Agent and the Lenders party thereto | 8-K | 000-06814 | 10.6 | 01/01/2022 | |||||||
| 10.2† | First Amendment to Credit Agreement and Limited Waiver dated September 16, 2025, among U.S. Energy Corp., as borrower, Firstbank Southwest, as Administrative Agent and the Lenders party thereto | 8-K | 000-06814 | 10.3 | 09/19/2025 | |||||||
| 10.3† | Second Amendment to Credit Agreement dated April 17, 2026, among U.S. Energy Corp., as borrower, Firstbank Southwest, as Administrative Agent and the Lenders party thereto | 8-K | 000-06814 | 10.4 | 04/20/2026 | |||||||
| 31.1* |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 |
X |
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| 31.2* |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 |
X |
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| 32.1♦ |
Certification of Chief Executive Officer under Rule 13a-14(b) |
X |
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| 32.2♦ |
Certification of Chief Financial Officer under Rule 13a-14(b) |
X |
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| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
X |
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| 101.SCH* |
Inline XBRL Schema Document |
X |
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| 101.CAL* |
Inline XBRL Calculation Linkbase Document |
X |
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| 101.DEF* |
Inline XBRL Definition Linkbase Document |
X |
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| 101.LAB* |
Inline XBRL Label Linkbase Document |
X |
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| 101.PRE* |
Inline XBRL Presentation Linkbase Document |
X |
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| 104* |
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set |
X |
| * |
Filed herewith. |
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| † |
Certain schedules and exhibits have been omitted pursuant to Item 601(b)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however, that Big Sky Industrial Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished. |
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| ♦ |
Furnished herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIG SKY INDUSTRIAL INC. | ||
| Date: August 11, 2026 |
By: |
/s/ Ryan L. Smith |
| RYAN L. SMITH, Chief Executive Officer (Principal Executive Officer) |
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| Date: August 11, 2026 |
By: |
/s/ Mark L. Zajac |
| MARK L. ZAJAC, Chief Financial Officer (Principal Financial and Accounting Officer) |
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